lkq corp

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Company Overview

Business Description

LKQ Corporation provides replacement parts, components and systems needed to repair cars and trucks. Buyers of vehiclereplacement products have the option to purchase from primarily five sources: new products produced by original equipment

manufacturers ("OEMs"), which are commonly known as OEM products; new products produced by companies other than the

OEMs, which are sometimes referred to as aftermarket products; recycled products originally produced by OEMs; used products

that have been refurbished; and used products that have been remanufactured.

LKQ distributes a variety of products to collision and mechanical repair shops, including aftermarket collision and mechanical

products, recycled collision and mechanical products, refurbished collision replacement products such as wheels, bumper covers

and lights, and remanufactured engines. Collectively, these are referred to as alternative parts.

LKQ is the nation's largest provider of alternative vehicle collision replacement products and a leading provider of alternative

vehicle mechanical replacement products, with sales, processing, and distribution facilities reaching most major markets in the

United States. The Companys wholesale operations reach most major markets in Canada, and the Company is a leading provider

of alternative vehicle mechanical replacement products in the United Kingdom. In addition to its wholesale operations, LKQ

operates self service retail facilities across the U.S. that sell recycled automotive products. The Company is organized into three

operating segments: WholesaleNorth America; WholesaleEurope; and Self Service.

FY2012 Revenue Breakdown FY2012 EBITDA Breakdown

Note: Wholesale-North America and Self Service aggregated in North America above.

LKQ obtains the majority of our aftermarket inventory from automotive parts manufacturers and distributors based in the U.S.,

Taiwan, Europe and China. The Company procures recycled automotive products mainly by purchasing salvage vehicles,

typically severely damaged by collisions and primarily sold at salvage auctions or pools, and then dismantling and inventorying

the parts. The refurbished and remanufactured products that LKQ sells, such as wheels, bumper covers, lights and engines,

originate from the salvage vehicles bought at auctions and from parts received in trade from customers purchasing replacement

products from LKQ.

The majority of LKQsproducts and services are sold to collision repair shops, also known as body shops, and mechanical repair

shops. The Company indirectly relies on insurance companies, which ultimately pay for the majority of collision repairs of

insured vehicles, to help drive demand. Insurance companies tend to exert significant influence in the vehicle repair decision.

Because of their importance to the process, LKQ has formed relationships with certain insurance companies in North

America for which LKQ is designated a preferred products supplier. The Company is attempting to establish similar

relationships with insurance companies in Europe.

North America83%

Europe

17%

North America86%

Europe

14%

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Source: Company presentations.

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Market Overview

LKQ operates in a global automotive repair industry. In the US alone, the market opportunity is approximately $59 billion.

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Decision makers in many automotive collision repair work are NOT individuals or mechanics. Insurance companies as payors

are often making decisions and are always looking to maintain as low a price as possible for repair work, while body shops prefer

higher margin products. LKQs relationships with insurance companies and its proprietary location based database (provided to

insurance companies for their use in directing body shops) creates a very powerful value proposition within the decision process

of automotive repair.

Like many other industries, the trend in collision repair parts is away from more expensive OEM and towards more affordable

aftermarket and recycled products (similar to many branded vs. private label products across many industries). In collision

repair, this dynamic has tremendous room for growth with New OEM parts still maintaining 62% of the market, while recycled,

aftermarket and refurbished make up the remaining 38%. This market share has continued to move in LKQs favor for the past

decade.

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In addition, the market share for insurance directed repair work has grown to 52% of claims (up from 32% in 2003) as insurance

companies continue to realize the value of directing claims towards more affordable yet good quality (like, kind and quality =

LKQ) parts.

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Valuation Overview

PROJECTED CASH FLOWS

(USD in mi llio ns, except per share data)

996 997 998 999 1000

Fiscal Year Ending December CAGR

2008 2009 2010 2011 2012 | 2013E 2014E 2015E 2016E 2017E 2013-2017

Total Revenue 1,908. 5 2,047. 9 2, 469. 9 3, 269.9 4, 122.9 | 5,153.7 6,442.1 7,730.5 8,890.1 9,779.1 17.4%Annual Growth 7.3% 20.6% 32.4% 26.1% | 25.0% 25.0% 20.0% 15.0% 10.0%

Cost of Revenue 1,064. 7 1,120. 1 1, 376. 4 1, 877.9 2, 416.7 | 3,020.9 3,776.1 4,531.3 5,211.0 5,732.1

Margin 55.8% 54.7% 55.7% 57.4% 58.6% | 58.6% 58.6% 58.6% 58.6% 58.6%

EBITDA 235.3 272.1 340.0 423.6 493.0 | 659.7 837.5 1,020.4 1,191.3 1,330.0 19.2%

Annual Growth 15.6% 25.0% 24.6% 16.4% | 33.8% 27.0% 21.8% 16.7% 11.6%

Margin 12.3% 13.3% 13.8% 13.0% 12.0% | 12.8% 13.0% 13.2% 13.4% 13.6%

Less: Depreciation and Amortization 33.4 38.1 41.4 54.5 70.2 | 77.6 84.7 92.3 93.8 97.8 6.0%

% of Capital Expenditure 50.0% 68.1% 67.4% 63.1% 79.5% | 83.6% 87.7% 91.8% 95.9% 100.0%

EBIT 201.9 234.0 298.5 369.1 422.8 | 582.1 752.7 928.2 1,097.5 1,232.2 20.6%

Annual Growth 15.9% 27.6% 23.6% 14.6% | 37.7% 29.3% 23.3% 18.2% 12.3%

Margin 10.6% 11.4% 12.1% 11.3% 10.3% | 11.3% 11.7% 12.0% 12.3% 12.6%

Less: Income Taxes 30.0% (60.6) (70.2) (89.6) (110.7) (126.8) | (174.6) (225.8) (278.5) (329.2) (369.6)

Unlevered Net Income 141.3 163.8 209.0 258.4 296.0 | 407.5 526.9 649.7 768.2 862.5 20.6%

Plus: Depreciation and Amortization 33.4 38.1 41.4 54.5 70.2 | 77.6 84.7 92.3 93.8 97.8

Less: Capital Expenditure (66.9) (55.9) (61.4) (86.4) (88.3) | (92.8) (96.6) (100.5) (97.8) (97.8) 1.3%

Margin (3.5%) (2.7%) (2.5%) (2.6%) (2.1%) | (1.8%) (1.5%) (1.3%) (1.1%) (1.0%)

Less: Additions to Intangibles 0.0 0.0 0.0 0.0 0.0 | 0.0 0.0 0.0 0.0 0.0

Less: Increase in Working Capital (10.2) (3.5) (55.2) (74.0) (133.8) | (30.9) (38.7) (46.4) (53.3) (58.7) 17.4%

Margin (0.5%) (0.2%) (2.2%) (2.3%) (3.2%) | (0.6%) (0.6%) (0.6%) (0.6%) (0.6%)

Unlevered Free Cash Flow 97.6 142.5 133.8 152.5 144.0 | 361.3 476.4 595.1 710.9 803.8 22.1%

Annual Growth 45.9% (6.1%) 14.0% (5.5%) | 150.9% 31.8% 24.9% 19.5% 13.1%

Discount Factor - Mid-Period Convention 0.46 1.46 2.46 3.46PV of Yearly Cash Flows 459.3 529.8 584.3 610.1

3.96

Present Value of Equity @ January 15, 2014 DCF Assumptions

% of TEV % of MVE

PV of 2013 Free Cash Flow Stub(1) 0.0 0.0% 0.0% Weighted Average Cost of Capital 8.30%

PV of 2014-2017 Free Cash Flows(1) 2, 183.4 15.8% 17.3%

PV of Terminal Value(1) 11,639.6 84.2% 92.3% Terminal EBITDA Multiple 12.0x

Enterprise Value 13,823.1 100.0% 109.6%

Less: Implied Perp. Growth Rate of Unlevered Free Cash Flow(2) 3.1%

Total Debt (1,321.6) (10.5%)

Preferred Stock 0.0 0.0% Tax Rate 30.0%

Minority Interest 0.0 0.0%

Plus:

Cash and Equivalents 107.3 0.9%

Equity Value 12,608.8 100.0%

Shares Outstanding 300.6

Implied Per Share Value 41.94

Current Price 27.50

Prem ium /(Di sc ount ) t o Current Pric e 52. 5%

(1) Assumes 0 days remain in 2013; Mi d-Period Convention for annual cash flows; Terminal value cash flow occurs at December 31, 2017.Terminal value equals present value of 2017 EBITDA of $1,330.0 * 12.0x Terminal Forward EBITDA Multiple.

(2) Implied Perpetual Growth Rate of FCF = [(Terminal EBITDA)*(Terminal EBITDA Multi ple)*(WACC) - (Terminal Year FCF)] / [(Terminal EBITDA)*(Terminal EBITDA Multi ple) + (Terminal Year FCF)]

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SENSITIVITY ANALYSIS(USD in mil l io ns, except per share data)

Discounted Present Value of Terminal Value Present Value of Enterprise Value

lkq CF EBITDA Exit Multiple EBITDA Exit Multiple

WACC 2013-2017 10.0x 11.0x 12.0x 13.0x 14.0x 10.0x 11.0x 12.0x 13.0x 14.0x

6.30% 2,255.2 10,442.6 11,486.8 12,531.1 13,575.3 14,619.6 12,697.7 13,742.0 14,786.2 15,830.5 1 6,874.87.30% 2,211.2 10,062.5 11,068.8 12,075.1 13,081.3 14,087.6 12,273.7 13,280.0 14,286.2 15,292.5 1 6,298.7

8.30% 2,168.6 + 9, 699 .7 10, 669. 7 11 ,639 .6 12, 609. 6 13 ,579 .6 = 11 ,868. 3 12, 838. 3 13 ,808. 2 14, 778 .2 15, 748 .2

9.30% 2,127.5 9,353.1 10,288.4 11,223.7 12,159.0 13,094.3 11,480.6 12,415.9 13,351.2 14,286.5 15,221.8

10.30% 2,087.7 9,021.9 9,924.1 10,826.2 11,728.4 12,630.6 11,109.5 12,011.7 12,913.9 13,816.1 14,718.3

Net Debt(1)

Present Value of Equity Equity Value per Share

lkq at EBITDA Exit Multiple EBITDA Exit Multiple

WACC 09/30/13 10.0x 11.0x 12.0x 13.0x 14.0x 10.0x 11.0x 12.0x 13.0x 14.0x

6.30% 1,214.3 11,483.5 12,527.7 13,572.0 14,616.2 15,660.5 Divided 38.20 41.67 45.15 48.62 52.09

7.30% 1,214.3 11,059.4 12,065.7 13,071.9 14,078.2 15,084.4 By 36.79 40.14 43.48 46.83 50.18

8.30% - 1,214.3 = 10, 654 .0 11, 624. 0 12 ,594 .0 13, 563. 9 14 ,533 .9 300.6 35.44 38.67 41.89 45.12 48.35

9.30% 1,214.3 10,266.3 11,201.6 12,136.9 13,072.2 14,007.5 Shrs 34.15 37.26 40.37 43.48 46.60

10.30% 1,214.3 9,895.3 10,797.4 11,699.6 12,601.8 13,504.0 = 32.92 35.92 38.92 41.92 44.92

Implied Perpetual Growth Rate of FCF Premium/(Discount) to Current Price per Share

lkq EBITDA Exit Multiple EBITDA Exit Multiple

WACC 10.0x 11.0x 12.0x 13.0x 14.0x 10.0x 11.0x 12.0x 13.0x 14.0x

6.30% 0.2% 0.8% 1.2% 1.6% 1.9% 38.9% 51.5% 64.2% 76.8% 89.4%

7.30% 1.2% 1.7% 2.2% 2.5% 2.9% 33.8% 45.9% 58.1% 70.3% 82.5%

8.30% => 2.1% 2.7% 3.1% 3.5% 3.8% 28.9% 40.6% 52.3% 64.1% 75.8%

9.30% 3.1% 3.6% 4.1% 4.4% 4.8% 24.2% 35.5% 46.8% 58.1% 69.4%

10.30% 4.0% 4.6% 5.0% 5.4% 5.7% 19.7% 30.6% 41.5% 52.4% 63.3%

(1) Equals Total Debt plus P referred plus Minority Interest Less Cash and Equivalents.

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Financial Overview

Operating Data

Reclassified

12 months

Dec-31-2008

12 months

Dec-31-2009

12 months

Dec-31-2010

12 months

Dec-31-2011

12 months

Dec-31-2012

LTM

12 months

Jun-30-2013

Total Revenue 1,908.5 2,047.9 2,469.9 3,269.9 4,122.9 4,532.4

Cost Of Goods Sold 1,064.7 1,120.1 1,376.4 1,877.9 2,416.7 2,666.9

Gross Profit 843.8 927.8 1,093.5 1,392.0 1,706.2 1,865.4

Gross Margin 44.2% 45.3% 44.3% 42.6% 41.4% 41.2%

Selling General & Admin Exp. 611.8 659.7 756.9 973.0 1,219.3 1,321.5

Depreciation & Amort. 30.2 34.1 38.0 49.9 64.1 70.9

Other Operating Exp., Total 642.0 693.8 794.9 1,022.9 1,283.4 1,392.4

Operating Income 201.9 234.0 298.5 369.1 422.8 473.0

Interest Expense (37.8) (32.3) (29.8) (24.3) (31.4) (37.8)

Interest and Invest. Income 2.3 1.4 1.8 2.9 4.1 4.1

Net Interest Exp. (35.5) (30.9) (28.0) (21.4) (27.3) (33.7)

Currency Exchange Gains (Loss) - - 0.2 (0.4) 0.2 (1.5)

Other Non-Operating Inc. (Exp.) 1.4 0.4 - - - 0.1EBT Excl. Unusual Items 167.7 203.5 270.8 347.3 395.7 438.0

Merger & Related Res truct. Charges (8.6) (2.6) (0.7) (7.6) (2.8) (5.5)

Impairment of Goodwill - 4.3 - - - -

Legal Settlements - - - - 17.9 1.2

Other Unusual Items - - - (3.9) (1.6) (5.6)

EBT Incl. Unusual Items 159.1 205.3 270.1 335.8 409.2 428.1

Income Tax Expense 62.0 78.2 103.0 125.5 147.9 151.5

Earnings from Cont. Ops. 97.1 127.1 167.1 210.3 261.2 276.6

Earnings of Discontinued Ops. 2.8 0.4 2.0 - - -

Extraord. Item & Account. Change - - - - - -

Net Income 99.9 127.5 169.1 210.3 261.2 276.6

Per S hare Items

Basic EPS $0.37 $0.45 $0.59 $0.72 $0.88 $0.93

Basic EPS Excl. Extra Items 0.36 0.45 0.58 0.72 0.88 0.93

W eighted Avg. Bas ic Shares Out. 273.0 281.1 286.5 292.3 295.8 297.8

Diluted EPS $0.35 $0.44 $0.58 $0.71 $0.87 $0.92

Diluted EPS Excl. Extra Items 0.35 0.44 0.57 0.71 0.87 0.92

W eig hted A vg . Dilute d Share s Ou t. 282.0 288.0 291.7 296.8 300.7 302.5

Normalized Basic EPS $0.38 $0.45 $0.59 $0.74 $0.84 $0.92

Normalized Diluted EPS 0.37 0.44 0.58 0.73 0.82 0.9

Supplemental Items

EBITDA 235.3 272.1 340.0 423.6 493.0 549.5

EBITDA Margin 12.3% 13.3% 13.8% 13.0% 12.0% 12.1%

Effective Tax Rate % 39.0% 38.1% 38.1% 37.4% 36.2% 35.4%

Total Current Taxes 48.5 72.3 94.0 116.2 143.7 143.7

Total Deferred Taxes 13.5 5.9 9.0 9.3 4.2 4.2

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Balance Sheet Data

Reclassified

Dec-31-2008 Dec-31-2009 Dec-31-2010 Dec-31-2011 Dec-31-2012 Jun-30-2013

ASSETS

Cash And Equivalents 79.1 108.9 95.7 48.2 59.8 161.6

Total Cash & ST Investments 79.1 108.9 95.7 48.2 59.8 161.6

Accounts Receivable 147.9 152.4 191.1 281.8 311.8 413.2

Total Receivables 147.9 152.4 191.1 281.8 311.8 413.2

Inventory 330.5 385.7 492.7 736.8 900.8 972.9

Prepaid Exp. 7.7 9.6 14.0 19.6 28.9 45.5

Deferred Tax Assets, Curr. 19.6 31.8 32.5 45.7 53.5 53.3

Other Current Assets 45.3 14.4 10.9 17.6 29.5 11.9

Total Current Assets 630.1 702.9 836.9 1,149.7 1,384.4 1,658.5

Gros s Property, Plant & Equipment 331.1 397.9 473.7 604.0 725.5 -

Accumulated Depreciation (76.7) (108.0) (142.4) (180.0) (231.1) -

Net Property, Plant & Equipment 254.3 289.9 331.3 424.1 494.4 515.4

Long-term Investments - - 4.8 - - 0.1

Goodwill 907.2 938.8 1,033.0 1,476.1 1,690.3 1,826.1

Other Intangibles 71.2 67.2 69.3 108.9 106.7 148.8

Deferred Tax Assets, LT - - - - 0.2 -

Deferred Charges, LT - - - - 0.3 15.4Other Long-Term Assets 19.0 21.3 24.2 40.9 47.3 54.0

Total Assets 1,881.8 2,020.1 2,299.5 3,199.7 3,723.5 4,218.3

LIABILITIES

Accounts Payable 65.4 51.3 76.4 210.9 219.3 263.6

Accrued Exp. 46.2 89.0 82.1 131.0 134.1 162.7

Curr. Port. of LT Debt 21.9 15.1 54.3 29.5 72.4 65.0

Curr. Income Taxes Payable - - - 7.3 2.7 9.8

Unearned Revenue, Current 4.7 9.3 - - - -

Def. Tax Liability, Curr. - - - 1.6 0.0 -

Other Current Liabilities 29.0 3.8 12.5 17.4 59.3 58.1

Total Current Liabilities 167.2 168.5 225.3 397.7 487.9 559.1

Long-Term Debt 635.4 598.2 548.1 937.2 1,061.7 1,321.3

Def. Tax Liability, Non-Curr. 43.5 52.2 66.1 88.8 102.3 118.0

Other Non-Current Liabilities 15.1 21.8 45.9 132.0 107.5 82.2

Total Liabilities 861.3 840.7 885.3 1,555.6 1,759.4 2,080.7

Common Stock 1.4 1.4 1.5 2.9 3.0 3.0

Additional Paid In Capital 790.9 816.0 869.8 901.3 950.3 982.4

Retained Earnings 241.9 369.5 538.5 748.8 1,010.0 1,170.3

Treasury Stock - - - - - -

Comprehensive Inc. and Other (13.8) (7.4) 4.4 (9.0) 0.8 (18.1)

Total Common Equity 1,020.5 1,179.4 1,414.2 1,644.1 1,964.1 2,137.7

Total Equity 1,020.5 1,179.4 1,414.2 1,644.1 1,964.1 2,137.7

Total Liabilities And Equity 1,881.8 2,020.1 2,299.5 3,199.7 3,723.5 4,218.3

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Cash Flow Data

12 months

Dec-31-2008

Reclassified

12 months

Dec-31-2009

12 months

Dec-31-2010

12 months

Dec-31-2011

12 months

Dec-31-2012

LTM

12 months

Jun-30-2013

Net Income 99.9 127.5 169.1 210.3 261.2 276.6Depreciation & Amort. 29.3 34.0 37.2 46.6 60.7 65.8

Amort. of Goodwill and Intangibles 4.1 4.1 4.2 7.9 9.5 10.6

Depreciation & Amort., Total 33.4 38.1 41.4 54.5 70.2 76.4

Other Amortization 2.4 2.5 - - - -

Asset Writedown & Restructuring Costs - (4.3) - - - -

Stock-Based Compensation 5.5 7.3 10.0 13.1 15.6 18.2

Tax Benefit from Stock Options (12.5) (9.6) (15.0) (8.0) (15.7) (19.4)

Net Cash From Discont inued Ops . - (0.4) - - - -

Other Operating Activities 14.5 6.6 8.9 15.9 8.7 13.5

Change in Acc. Receivable (15.0) (0.4) (12.3) (18.1) (12.8) (40.5)

Change In Inventories 4.2 (20.4) (67.8) (90.1) (95.0) (70.5)

Change in Acc. Payable (4.8) (18.1) 10.2 28.6 (15.1) (4.5)

Change in Unearned Rev. (0.1) 1.4 - - - -

Change in Inc. Taxes 9.0 24.1 7.5 2.3 (0.8) 20.0

Change in Other Net Operating As sets (3.5) 9.9 7.3 3.3 (10.1) 24.9

Cash from Ops. 133.0 164.0 159.2 211.8 206.2 294.7

Capital Expenditure (66.9) (55.9) (61.4) (86.4) (88.3) (86.8)Sale of Property, Plant, and Equipment 2.2 1.1 1.4 1.7 1.1 1.8

Cash Acquisitions (74.2) (65.2) (143.6) (486.9) (265.3) (453.6)

Divestitures - - - - - -

Invest. in Marketable & Equity Securt. - - - - - -

Net (Inc.) Dec. in Loans Originated/So ld - - - - - -

Other Investing Activities - 17.5 12.0 - - -

Cash from Investing (138.9) (102.5) (191.6) (571.6) (352.5) (538.6)

Short Term Debt Issued - - - - - -

Long-Term Debt Issued 5.3 2.3 - 1,361.4 1,025.1 -

Total Debt Issued 5.3 2.3 - 1,361.4 1,025.1 1,483.6

Short Term Debt Repaid - - - - - -

Long-Term Debt Repaid (10.0) (53.0) (7.5) (1,054.3) (878.1) -

Total Debt Repaid (10.0) (53.0) (7.5) (1,054.3) (878.1) (1,099.7)

Issuance of Common Stock 10.4 8.2 14.0 11.9 17.7 18.2

Total Dividends Paid - - - - - -

Special Dividend Paid - - - - - -

Other Financing Activities 6.1 9.3 12.5 (7.5) (7.6) (55.4)

Cash from Financing 11.8 (33.2) 19.0 311.4 157.1 346.8

Foreign Exchange Rate Adj. (1.0) 1.5 0.2 1.0 0.8 (0.6)

Net Change in Cash 4.8 29.8 (13.2) (47.4) 11.5 102.2