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Note 1. Business
The financial statements presented in this report represent the consolidation of LKQ Corporation, a Delaware corporation, and its subsidiaries. LKQ Corporation is a holding company and all operations are conducted by subsidiaries. When the terms "the Company," "we," "us," or "our" are used in this document, those terms refer to LKQ Corporation and its consolidated subsidiaries.
We provide replacement parts, components and systems needed to repair vehicles (cars and trucks). We are the nation's largest provider of alternative vehicle collision replacement products, and a leading provider of alternative vehicle mechanical replacement products. We also have operations in the United Kingdom, Canada, Mexico and Central America. In total, we operate more than 440 facilities.
As described in Note 3, "Discontinued Operations," during 2009, we sold, agreed to sell or closed certain of our self service facilities. These facilities qualified for treatment as discontinued operations. The financial results and assets and liabilities of these facilities are segregated from our continuing operations and presented as discontinued operations in the Consolidated Balance Sheets and Consolidated Statements of Income for all periods presented.
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Note 2. Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of LKQ Corporation and its subsidiaries. All intercompany transactions and accounts have been eliminated.
Use of Estimates
In preparing our financial statements in conformity with accounting principles generally accepted in the United States we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
The majority of our revenue is derived from the sale of aftermarket and recycled products. Revenue is recognized when the products are shipped or picked up and title has transferred, subject to an allowance for estimated returns, discounts and allowances that we estimate based upon historical information. We recorded a reserve for estimated returns, discounts and allowances of approximately $22.8 million and $18.2 million at December 31, 2011 and 2010, respectively. We present taxes assessed by governmental authorities collected from customers on a net basis. Therefore, the taxes are excluded from revenue and are shown as a liability on our Consolidated Balance Sheet until remitted. Revenue from the sale of separately-priced extended warranty contracts is reported as deferred revenue and recognized ratably over the term of the contracts or three years in the case of lifetime warranties.
Shipping & Handling
Revenue also includes amounts billed to customers related to shipping and handling of approximately $23.9 million, $17.3 million and $15.5 million during the years ended December 31, 2011, 2010 and 2009, respectively. Distribution expenses in the accompanying Consolidated Statements of Income are the costs incurred to prepare and deliver products to customers.
Cash and Equivalents
We consider all highly liquid investments with original maturities of 90 days or less to be cash equivalents. Cash equivalents are carried at cost, which approximates market value. Our cash equivalents primarily include holdings in money market funds and overnight securities. We did not hold any cash equivalents at December 31, 2011, while cash equivalents at December 31, 2010 were $57.2 million.
Receivables and Allowance for Doubtful Accounts
In the normal course of business, we extend credit to customers after a review of each customer's credit history. We recorded a reserve for uncollectible accounts of approximately $8.3 million and $6.9 million at December 31, 2011 and 2010, respectively. The reserve is based upon the aging of the accounts receivable, our assessment of the collectability of specific customer accounts and historical experience. Receivables are written off once collection efforts have been exhausted. Recoveries of receivables previously written off are recorded when received.
Concentrations of Credit Risk
Financial instruments that potentially subject us to significant concentration of credit risk consist primarily of cash and equivalents and accounts receivable. We control our exposure to credit risk associated with these instruments by (i) placing our cash and equivalents with several major financial institutions; (ii) holding high-quality financial instruments; and (iii) maintaining strict policies over credit extension that include credit evaluations, credit limits and monitoring procedures. In addition, our overall credit risk with respect to accounts receivable is limited to some extent because our customer base is composed of a large number of geographically diverse customers.
Inventory
Our inventory includes aftermarket and refurbished vehicle replacement products, salvage and remanufactured vehicle replacement products and core facilities inventory. A core is a recycled automotive part that is not suitable for sale as a replacement part without further refurbishing or remanufacturing work.
An aftermarket product is a new vehicle product manufactured by a company other than the original equipment manufacturer. Cost is established based on the average price we pay for parts, and includes expenses incurred for freight and overhead costs. For items purchased from foreign companies, import fees and duties and transportation insurance are also included. Refurbished inventory cost is based on the average price we pay for cores, and includes expenses incurred for freight, refurbishing costs and overhead.
A salvage product is a recycled vehicle part suitable for sale as a replacement part. Salvage inventory is recorded at the lower of cost or market. Cost is established based upon the price we pay for a vehicle, including auction, storage and towing fees, as well as expenditures for buying and dismantling. Inventory carrying value is determined using the average cost to sales percentage at each of our facilities and applying that percentage to the facility's inventory at expected selling prices. The average cost to sales percentage is derived from each facility's historical vehicle profitability for salvage vehicles purchased at auction or from contracted rates for salvage vehicles acquired under certain direct procurement arrangements. Remanufactured inventory cost is based upon the price paid for cores, and also includes expenses incurred for freight, direct manufacturing costs and overhead.
For all inventory, carrying value is reduced regularly to the lower of cost or market to reflect the age of the inventory and current anticipated demand. If actual demand differs from our estimates, additional reductions to inventory carrying value would be necessary in the period such determination is made.
Inventory consists of the following (in thousands):
December 31, | ||||||||
2011 | 2010 | |||||||
Aftermarket and refurbished products |
$ | 445,787 | $ | 274,728 | ||||
Salvage and remanufactured products |
282,106 | 209,514 | ||||||
Core facilities inventory |
8,953 | 8,446 | ||||||
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$ | 736,846 | $ | 492,688 | |||||
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Property and Equipment
Property and equipment are recorded at cost. Expenditures for major additions and improvements that extend the useful life of the related asset are capitalized. As property and equipment are sold or retired, the applicable cost and accumulated depreciation are removed from the accounts and any resulting gain or loss thereon is recognized. Construction in progress consists primarily of building and land improvements at our existing facilities. Depreciation is calculated using the straight-line method over the estimated useful lives or, in the case of leasehold improvements, the term of the related lease and reasonably assured renewal periods, if shorter.
The internal and external costs incurred to develop internal use computer software during the application development stage of the implementation, including the design of the chosen path, are capitalized. Other costs, including expenses incurred during the preliminary project stage, training expenses, data conversion costs and expenses incurred in the post implementation stage are expensed in the period incurred. Capitalized costs are amortized ratably over the useful life of the software when the software becomes operational. Upgrades and enhancements to internal use software are capitalized only if the costs result in additional functionality. We do not plan to sell or market our internal use computer software to third parties.
Our estimated useful lives are as follows:
Land improvements |
10-20 years | |||
Buildings and improvements |
20-40 years | |||
Furniture, fixtures and equipment |
3- 20 years | |||
Computer equipment and software |
3-10 years | |||
Vehicles and trailers |
3-10 years |
Property and equipment consists of the following (in thousands):
December 31, | ||||||||
2011 | 2010 | |||||||
Land and improvements |
$ | 81,170 | $ | 71,931 | ||||
Buildings and improvements |
119,414 | 103,198 | ||||||
Furniture, fixtures and equipment |
192,514 | 145,196 | ||||||
Computer equipment and software |
79,195 | 63,341 | ||||||
Vehicles and trailers |
40,825 | 27,218 | ||||||
Leasehold improvements |
69,079 | 41,939 | ||||||
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582,197 | 452,823 | |||||||
Less—Accumulated depreciation |
(179,950 | ) | (142,401 | ) | ||||
Construction in progress |
21,851 | 20,890 | ||||||
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$ | 424,098 | $ | 331,312 | |||||
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Intangible Assets
Intangible assets consist primarily of goodwill (the cost of purchased businesses in excess of the fair value of the identifiable net assets acquired), and other specifically identifiable intangible assets such as trade names, trademarks, covenants not to compete and customer relationships.
Goodwill is tested for impairment at least annually, and we performed annual impairment tests during the fourth quarters of 2011, 2010 and 2009. With the decision to sell a portion of our self service operations (as described in Note 3, "Discontinued Operations"), we also conducted a goodwill impairment test as of September 30, 2009 for both the allocated goodwill associated with the facilities to be disposed of and our ongoing self service reporting unit. The results of all of these tests indicated that goodwill was not impaired.
The changes in the carrying amount of goodwill are as follows (in thousands):
Balance as of January 1, 2009 |
$ | 907,218 | ||
Business acquisitions and adjustments to previously recorded goodwill |
26,137 | |||
Exchange rate effects |
5,428 | |||
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Balance as of December 31, 2009 |
$ | 938,783 | ||
Business acquisitions and adjustments to previously recorded goodwill |
91,757 | |||
Exchange rate effects |
2,433 | |||
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Balance as of December 31, 2010 |
$ | 1,032,973 | ||
Business acquisitions and adjustments to previously recorded goodwill |
442,208 | |||
Exchange rate effects |
882 | |||
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Balance as of December 31, 2011 |
$ | 1,476,063 | ||
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In 2009, we adjusted previously recorded goodwill related to the Pick-Your-Part Auto Wrecking ("PYP") acquisition by $3.2 million, primarily related to various pre-acquisition liabilities.
In 2011, we finalized the valuation of certain intangible assets acquired related to our 2010 acquisitions. As these adjustments did not have a material impact on our financial position or results of operations, we recorded these adjustments to goodwill and amortization expense in 2011.
The components of other intangibles are as follows (in thousands):
December 31, 2011 | December 31, 2010 | |||||||||||||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Net | Gross Carrying Amount |
Accumulated Amortization |
Net | |||||||||||||||||||
Trade names and trademarks |
$ | 115,954 | $ | (16,305 | ) | $ | 99,649 | $ | 75,661 | $ | (12,020 | ) | $ | 63,641 | ||||||||||
Covenants not to compete |
3,194 | (918 | ) | 2,276 | 2,688 | (1,382 | ) | 1,306 | ||||||||||||||||
Customer relationships |
10,050 | (3,065 | ) | 6,985 | 4,355 | — | 4,355 | |||||||||||||||||
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$ | 129,198 | $ | (20,288 | ) | $ | 108,910 | $ | 82,704 | $ | (13,402 | ) | $ | 69,302 | |||||||||||
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In 2011, we recorded $40.1 million of trade names, $1.5 million of covenants not to compete and $5.7 million of customer relationships resulting from our 2011 acquisitions and adjustments to certain preliminary intangible asset valuations from our 2010 acquisitions. The trade names recorded in 2011 included $39.3 million for the Euro Car Parts trade name related to our acquisition of Euro Car Parts Holdings Limited ("ECP") effective October 1, 2011. In 2010, we recognized $0.9 million of trade names, $1.0 million of covenants not to compete, and $4.4 million of customer relationships resulting from our acquisitions during the year. Trade names are amortized over a useful life ranging from 10 to 30 years on a straight-line basis. Covenants not to compete are amortized over the lives of the respective agreements, which range from one to five years, on a straight-line basis. Customer relationships are amortized over the expected period to be benefitted (5 to 10 years) on either a straight-line or accelerated basis. Amortization expense for intangibles was approximately $7.9 million, $4.2 million and $4.1 million during the years ended December 31, 2011, 2010 and 2009, respectively. Estimated amortization expense for each of the five years in the period ending December 31, 2016 is $8.4 million, $7.7 million, $7.0 million, $6.3 million and $5.6 million, respectively.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. If such review indicates that the carrying amount of long-lived assets is not recoverable, the carrying amount of such assets is reduced to fair value. During the year ended December 31, 2010, we recognized impairment charges on certain long-lived assets during the normal course of business of $1.3 million. There were no adjustments to the carrying value of long-lived assets of continuing operations during the years ended December 31, 2011 or 2009.
Fair Value of Financial Instruments
Our debt is reflected on the balance sheet at cost. As discussed in Note 5, "Long-Term Obligations," we entered into a new senior secured credit agreement on March 25, 2011, which was subsequently amended and restated effective September 30, 2011. Based on current market conditions, our interest rate margins are below the rate available in the market, which causes the fair value of our debt to fall below the carrying value. The fair value of our credit facility borrowings is approximately $893 million at December 31, 2011, as compared to the carrying value of $901.4 million. At December 31, 2010, the fair value of our borrowings under the previous credit agreement reasonably approximated the carrying value of $590.1 million. We estimated the fair value of our credit facility borrowings by calculating the upfront cash payment a market participant would require to assume our obligations. The upfront cash payment, excluding any issuance costs, is the amount that a market participant would be able to lend at December 31, 2011 and 2010 to an entity with a credit rating similar to ours and achieve sufficient cash inflows to cover the scheduled cash outflows under our credit facility.
The carrying amounts of our cash and equivalents, net trade receivables and accounts payable approximate fair value.
We apply the market and income approaches to value our financial assets and liabilities, which include the cash surrender value of life insurance, deferred compensation liabilities, interest rate swaps and contingent consideration liabilities. Required fair value disclosures are included in Note 7, "Fair Value Measurements."
Product Warranties
Some of our salvage mechanical products are sold with a standard six month warranty against defects. Additionally, some of our remanufactured engines are sold with a standard three year warranty against defects. We record the estimated warranty costs at the time of sale using historical warranty claim information to project future warranty claims activity and related expenses. The changes in the warranty reserve are as follows (in thousands):
Balance as of January 1, 2010 |
$ | 604 | ||
Warranty expense |
9,351 | |||
Warranty claims |
(8,882 | ) | ||
Business acquisitions |
990 | |||
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Balance as of December 31, 2010 |
$ | 2,063 | ||
Warranty expense |
22,364 | |||
Warranty claims |
(20,802 | ) | ||
Business acquisitions |
3,722 | |||
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Balance as of December 31, 2011 |
$ | 7,347 | ||
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Our 2011 and 2010 warranty expense reflects $8.5 million and $0.2 million of expense related to our engine remanufacturing operations, which we began in 2010 through an acquisition in the fourth quarter, and subsequently expanded through two additional acquisitions in 2011.
Self-Insurance Reserves
We self-insure a portion of employee medical benefits under the terms of our employee health insurance program. We purchase certain stop-loss insurance to limit our liability exposure. We also self-insure a portion of our property and casualty risk, which includes automobile liability, general liability, directors and officers liability, workers' compensation and property coverage, under deductible insurance programs. The insurance premium costs are expensed over the contract periods. A reserve for liabilities associated with these losses is established for claims filed and claims incurred but not yet reported based upon our estimate of ultimate cost, which is calculated using analyses of historical data. We monitor new claims and claim development as well as trends related to the claims incurred but not reported in order to assess the adequacy of our insurance reserves. Total self-insurance reserves were $37.4 million and $32.9 million, including $18.2 million and $16.8 million classified in current liabilities, as of December 31, 2011 and 2010, respectively. The remaining balances of self-insurance reserves are classified as Other Noncurrent Liabilities, which reflects management's estimates of when claims will be paid. The reserves presented on the Consolidated Balance Sheets are net of claims deposits of $0.5 million and $0.6 million, at December 31, 2011 and 2010, respectively. In addition to these claims deposits, we had outstanding letters of credit of $31.8 million and $24.2 million at December 31, 2011 and 2010, respectively, to guarantee self-insurance claims payments. While we do not expect the amounts ultimately paid to differ significantly from our estimates, our insurance reserves and corresponding expenses could be affected if future claims experience differs significantly from historical trends and assumptions.
Income Taxes
Current income taxes are provided on income reported for financial reporting purposes, adjusted for transactions that do not enter into the computation of income taxes payable in the same year. Deferred income taxes have been provided to show the effect of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before we are able to realize their benefit or that future deductibility is uncertain.
We recognize the benefits of uncertain tax positions taken or expected to be taken in tax returns in the provision for income taxes only for those positions that are more likely than not to be realized. We follow a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes. Our policy is to include interest and penalties associated with income tax obligations in income tax expense.
U.S. federal income taxes are not provided on our interest in undistributed earnings of foreign subsidiaries when it is management's intent that such earnings will remain invested in those subsidiaries or other foreign subsidiaries. Taxes will be provided on these earnings in the period in which a decision is made to repatriate the earnings.
Depreciation Expense
Included in Cost of Goods Sold is depreciation expense associated with refurbishing, remanufacturing, our furnace operations and our distribution centers.
Rental Expense
We recognize rental expense on a straight-line basis over the respective lease terms for all of our operating leases.
Foreign Currency Translation
For most of our foreign operations, the local currency is the functional currency. Assets and liabilities are translated into U.S. dollars at the period-ending exchange rate. Statements of Income amounts are translated to U.S. dollars using average exchange rates during the period. Translation gains and losses are reported as a component of Accumulated Other Comprehensive Income (Loss) in stockholders' equity.
Recent Accounting Pronouncements
In September 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-08, "Testing Goodwill for Impairment," which grants entities the option to first perform a qualitative assessment of whether it is more likely than not that a reporting unit's fair value is less than its carrying value. If an entity concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the entity would be required to perform the two-step impairment test for the reporting unit. The ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, and we elected to early adopt this guidance for our 2011 annual impairment test during the fourth quarter. Since this ASU did not change the accounting guidance for testing goodwill if the "more likely than not" qualitative threshold is met, the adoption of this guidance did not affect our financial position, results of operations or cash flows.
In June 2011, the FASB released ASU No. 2011-05, "Presentation of Comprehensive Income," which eliminates the option to present the components of other comprehensive income in the statement of changes in stockholders' equity. Instead, entities will have the option to present the components of net income, the components of other comprehensive income and total comprehensive income in a single continuous statement or in two separate but consecutive statements. In addition, this update requires entities to present the reclassification adjustments out of accumulated other comprehensive income by component in both the statement where net income is presented and the statement where other comprehensive income is presented. However, in December 2011, the FASB issued ASU No. 2011-12, "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05," which indefinitely deferred this provision of ASU 2011-05. The amendments do not change the items reported in other comprehensive income or when an item of other comprehensive income is reclassified to net income. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and will be applied retrospectively. As this guidance only revises the presentation of comprehensive income, the adoption of this guidance will not affect our financial position, results of operations or cash flows.
In May 2011, the FASB issued ASU No. 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs." This update provides clarification on existing fair value measurement requirements, amends existing guidance primarily related to fair value measurements for financial instruments, and requires enhanced disclosures on fair value measurements. The additional disclosures are specific to Level 3 fair value measurements, transfers between Level 1 and Level 2 of the fair value hierarchy, financial instruments not measured at fair value and use of an asset measured or disclosed at fair value differing from its highest and best use. This ASU is effective for interim and annual periods beginning after December 15, 2011, and will be applied prospectively. We are currently assessing the impact that the adoption of ASU No. 2011-04 will have on our financial position, results of operations and cash flows.
Effective January 1, 2011, we adopted FASB ASU 2010-29, "Disclosure of Supplementary Pro Forma Information for Business Combinations," which clarifies the disclosure requirements for pro forma financial information related to a material business combination or a series of immaterial business combinations that are material in the aggregate. The guidance clarifies that the pro forma disclosures are prepared assuming the business combination occurred at the start of the prior annual reporting period. Additionally, a narrative description of the nature and amount of material, non-recurring pro forma adjustments would be required. As this newly issued accounting standard only requires enhanced disclosure, the adoption of this standard did not impact our financial position, results of operations or cash flows.
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Note 3. Discontinued Operations
On October 1, 2009, we sold to Schnitzer Steel Industries, Inc. ("SSI") four self service retail facilities in Oregon and Washington and certain business assets related to two self service facilities in Northern California and a self service facility in Portland, Oregon for $17.5 million, net of cash sold. We recognized a gain on the sale of approximately $2.5 million, net of tax, in our fourth quarter 2009 results. Goodwill totaling $9.9 million was included in the cost basis of net assets disposed when determining the gain on sale. In the fourth quarter of 2009, we closed the two self service facilities in Northern California and converted the self service operation in Portland to a wholesale recycling business.
On January 15, 2010, we also sold to SSI two self service retail facilities in Dallas, Texas for $12.0 million. We recognized a gain on the sale of approximately $1.7 million, net of tax, in our first quarter 2010 results. Goodwill totaling $6.7 million was included in the cost basis of net assets disposed when determining the gain on sale.
The self service facilities that we sold or closed are reported as discontinued operations for all periods presented. As of December 31, 2011 and 2010, we had accrued liabilities applicable to discontinued operations of $1.8 million and $2.7 million, respectively, included in the Consolidated Condensed Balance Sheets. These liabilities were primarily composed of accrued restructuring expenses for the excess lease payments (net of estimated sublease income) and facility closure costs related to two of the closed self service facilities.
Results of operations for the discontinued operations are as follows (in thousands):
Year Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Revenue |
$ | — | $ | 686 | $ | 23,957 | ||||||
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Income (loss) before income tax provision (benefit) |
$ | — | $ | 355 | $ | (3,314 | ) | |||||
Income tax provision (benefit) |
— | 131 | (1,226 | ) | ||||||||
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Income (loss) from discontinued operations, net of taxes, before gain on sale of discontinued operations |
— | 224 | (2,088 | ) | ||||||||
Gain on sale of discontinued operations, net of taxes of $1,015 and $1,452 in 2010 and 2009, respectively |
— | 1,729 | 2,472 | |||||||||
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Income from discontinued operations, net of taxes |
$ | — | $ | 1,953 | $ | 384 | ||||||
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Our decision to close the two self service facilities in Northern California represented a triggering event that required us to evaluate the long-lived assets at these facilities for impairment. The pretax loss from discontinued operations in the year ended December 31, 2009 includes a fixed asset impairment charge of $3.5 million primarily related to leasehold improvements that are not recoverable.
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Note 4. Equity Incentive Plans
We have two stock-based compensation plans, the Stock Option and Compensation Plan for Non-Employee Directors (the "Director Plan") and the LKQ Corporation 1998 Equity Incentive Plan (the "Equity Incentive Plan"). Under the Director Plan, which was adopted by our Board of Directors in June 2003 and approved by our stockholders in September 2003, shares of LKQ common stock may be issued to directors in lieu of cash compensation. In February 1998, we adopted the Equity Incentive Plan to attract and retain employees and consultants. Under the Equity Incentive Plan, both qualified and nonqualified stock options, stock appreciation rights, restricted stock, performance shares and performance units may be granted. On January 13, 2011, the Compensation Committee amended the Equity Incentive Plan to allow the grant of restricted stock units ("RSUs").
The total number of shares approved by our stockholders for issuance under the Equity Incentive Plan is 34.4 million shares, subject to antidilution and other adjustment provisions, which includes 6.4 million shares authorized in May 2011.
Stock options issued under the Equity Incentive Plan expire ten years from the date they are granted. Most of the options, RSUs and restricted stock granted under the Equity Incentive Plan vest over a period of five years. Vesting of the awards is subject to a continued service condition. Each RSU converts into one share of LKQ common stock on the applicable vesting date. Shares of restricted stock may not be sold, pledged or otherwise transferred until they vest. We expect to issue new shares of common stock to cover future equity grants under these plans.
A summary of transactions in our stock-based compensation plans is as follows:
Shares Available For Grant |
Stock Options | RSUs | Restricted Stock | |||||||||||||||||||||||||
Number Outstanding |
Weighted Average Exercise Price |
Number Outstanding |
Weighted Average Grant Date Fair Value |
Number Outstanding |
Weighted Average Grant Date Fair Value |
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Balance, January 1, 2009 |
5,374,928 | 9,663,588 | $ | 7.27 | — | $ | — | 190,000 | $ | 19.14 | ||||||||||||||||||
Granted |
(1,886,400 | ) | 1,836,400 | 12.15 | — | — | 50,000 | 18.60 | ||||||||||||||||||||
Exercised |
— | (2,016,306 | ) | 4.09 | — | — | — | — | ||||||||||||||||||||
Vested |
— | — | — | — | — | (38,000 | ) | 19.14 | ||||||||||||||||||||
Cancelled |
154,275 | (154,275 | ) | 13.82 | — | — | — | — | ||||||||||||||||||||
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Balance, December 31, 2009 |
3,642,803 | 9,329,407 | $ | 8.81 | — | $ | — | 202,000 | $ | 19.00 | ||||||||||||||||||
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Granted |
(1,711,533 | ) | 1,711,533 | 19.95 | — | — | — | — | ||||||||||||||||||||
Exercised |
— | (2,758,155 | ) | 5.06 | — | — | — | — | ||||||||||||||||||||
Vested |
— | — | — | — | — | (48,000 | ) | 19.02 | ||||||||||||||||||||
Cancelled |
208,820 | (208,820 | ) | 16.11 | — | — | — | — | ||||||||||||||||||||
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Balance, December 31, 2010 |
2,140,090 | 8,073,965 | $ | 12.27 | — | $ | — | 154,000 | $ | 19.00 | ||||||||||||||||||
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Granted |
(821,674 | ) | — | — | 821,674 | 23.60 | — | — | ||||||||||||||||||||
Shares Issued for Director Compensation |
(15,583 | ) | — | — | — | — | — | — | ||||||||||||||||||||
Exercised |
— | (1,384,019 | ) | 8.61 | — | — | — | — | ||||||||||||||||||||
Vested |
— | — | — | (82,431 | ) | 23.68 | (48,000 | ) | 19.02 | |||||||||||||||||||
Cancelled |
173,352 | (150,900 | ) | 16.87 | (22,452 | ) | 23.54 | — | — | |||||||||||||||||||
Additional Shares Authorized |
6,400,000 | — | — | — | — | — | — | |||||||||||||||||||||
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Balance, December 31, 2011 |
7,876,185 | 6,539,046 | $ | 12.93 | 716,791 | $ | 23.59 | 106,000 | $ | 18.98 | ||||||||||||||||||
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In 2012, our Board of Directors granted 721,100 RSUs to employees and directors.
The following table summarizes information about expected to vest options, RSUs and restricted stock at December 31, 2011:
Shares | Weighted Average Remaining Contractual Life (Yrs) |
Intrinsic Value (in thousands) |
Weighted Average Exercise Price |
|||||||||||||
Stock options |
6,526,736 | 5.6 | $ | 111,978 | $ | 12.92 | ||||||||||
RSUs |
697,667 | 4.0 | 20,986 | — | ||||||||||||
Restricted stock |
106,000 | 1.5 | 3,188 | — |
The aggregate intrinsic value represents the total pre-tax intrinsic value based on our closing stock price of $30.08 on December 31, 2011. This amount changes based upon the fair market value of our common stock. The aggregate intrinsic value of total outstanding RSUs and restricted stock was $21.6 million and $3.2 million at December 31, 2011, respectively.
The following table summarizes information about outstanding and exercisable stock options at December 31, 2011:
Outstanding | Exercisable | |||||||||||||||||||||||
Range of Exercise Prices |
Shares | Weighted Average Remaining Contractual Life (Yrs) |
Weighted Average Exercise Price |
Shares | Weighted Average Remaining Contractual Life (Yrs) |
Weighted Average Exercise Price |
||||||||||||||||||
$0.75 - $5.00 |
1,369,911 | 2.2 | $ | 3.85 | 1,369,911 | 2.2 | $ | 3.85 | ||||||||||||||||
$5.01 - $10.00 |
536,180 | 4.0 | 9.24 | 536,180 | 4.0 | 9.24 | ||||||||||||||||||
$10.01 - $15.00 |
1,999,260 | 6.4 | 11.39 | 1,190,810 | 6.1 | 11.14 | ||||||||||||||||||
$15.01 - $20.00 |
2,611,695 | 7.2 | 19.57 | 1,136,909 | 6.8 | 19.39 | ||||||||||||||||||
$20.01 + |
22,000 | 6.4 | 21.28 | 14,850 | 6.4 | 21.31 | ||||||||||||||||||
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6,539,046 | 5.6 | $ | 12.93 | 4,248,660 | 4.8 | $ | 10.79 | |||||||||||||||||
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The aggregate intrinsic value of outstanding and exercisable stock options at December 31, 2011 was $112.1 million and $81.9 million, respectively.
The fair value of RSUs and restricted stock is based on the market price of LKQ stock on the date of issuance. When estimating forfeitures, we consider voluntary and involuntary termination behavior as well as analysis of historical forfeitures. For valuing RSUs and restricted stock, we used a forfeiture rate of 8% for grants to employees and a forfeiture rate of 0% for grants to directors and executive officers.
We did not grant any stock options during the year ended December 31, 2011. For the stock options granted during 2010 and 2009, the fair value was estimated using the Black-Scholes option-pricing model. The following table summarizes the weighted average assumptions used to compute the fair value of stock option grants:
Year Ended December 31, |
||||||||
2010 | 2009 | |||||||
Expected life (in years) |
6.4 | 6.3 | ||||||
Risk-free interest rate |
3.17 | % | 1.87 | % | ||||
Volatility |
43.9 | % | 44.6 | % | ||||
Dividend yield |
0 | % | 0 | % | ||||
Weighted average fair value of options granted |
$ | 9.54 | $ | 5.57 |
Expected life—The expected life represents the period that our stock-based awards are expected to be outstanding. At the last grant date (in 2010), we used the simplified method in developing an estimate of expected life of stock options because we lacked sufficient data to calculate an expected life based on historical experience. Our first annual option grant with a full five year vesting period since we became a public company was on January 13, 2006, and these awards became fully vested in January 2011. Additionally, our options have a ten year life while our existence as a public company had been just over six years when the 2010 grant was made. Therefore, we use the simplified expected term method as permitted by the Securities and Exchange Commission Staff Accounting Bulletin No. 107, as amended by Staff Accounting Bulletin No. 110.
Risk-free interest rate—We base the risk-free interest rate used in the Black-Scholes option-pricing model on the implied yield available on U.S. Treasury zero-coupon issues with the same or substantially equivalent remaining term.
Expected volatility—We use the trading history and historical volatility of our common stock in determining an estimated volatility factor for the Black-Scholes option-pricing model.
Expected dividend yield—We have not declared and have no plans to declare dividends and have therefore used a zero value for the expected dividend yield in the Black-Scholes option-pricing model.
Estimated forfeitures—When estimating forfeitures, we consider voluntary and involuntary termination behavior as well as analysis of historical forfeitures. A forfeiture rate of 9.0% has been used for valuing employee option grants, while a forfeiture rate of 0% has been used for valuing director and executive officer option grants.
The total grant-date fair value of options that vested during the years ended December 31, 2011, 2010 and 2009 was approximately $8.6 million, $7.7 million and $5.3 million, respectively. The total intrinsic value (market value of stock less option exercise price) of stock options exercised was $24.8 million, $43.2 million and $27.2 million during the years ended December 31, 2011, 2010 and 2009, respectively.
The fair value of RSUs that vested during the year ended December 31, 2011 was $2.2 million, while there were no RSU vestings during the years ended December 31, 2010 and 2009 as we did not issue RSUs prior to 2011. The fair value of restricted stock that vested during the years ended December 31, 2011, 2010 and 2009 was approximately $1.1 million, $1.0 million and $0.4 million, respectively.
We recognize compensation expense on a straight-line basis over the requisite service period of the award. The components of pretax stock-based compensation expense are as follows (in thousands):
Year Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Stock options |
$ | 8,129 | $ | 8,771 | $ | 6,219 | ||||||
RSUs |
3,666 | — | — | |||||||||
Restricted stock |
913 | 913 | 774 | |||||||||
Stock issued to non-employee directors |
399 | 290 | 290 | |||||||||
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Total stock-based compensation expense |
$ | 13,107 | $ | 9,974 | $ | 7,283 | ||||||
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The following table sets forth the classification of total stock-based compensation expense included in our Consolidated Statements of Income (in thousands):
Year Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Cost of goods sold |
$ | 327 | $ | 278 | $ | 47 | ||||||
Facility and warehouse expenses |
2,391 | 2,069 | 2,620 | |||||||||
Selling, general and administrative expenses |
10,389 | 7,627 | 4,616 | |||||||||
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13,107 | 9,974 | 7,283 | ||||||||||
Income tax benefit |
(5,059 | ) | (3,920 | ) | (2,862 | ) | ||||||
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Total stock based compensation, net of tax |
$ | 8,048 | $ | 6,054 | $ | 4,421 | ||||||
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We have not capitalized any stock-based compensation cost during the years ended December 31, 2011, 2010 or 2009.
As of December 31, 2011, unrecognized compensation expense related to unvested stock options, RSUs and restricted stock is expected to be recognized as follows (in thousands):
Stock Options |
RSUs | Restricted Stock |
Total | |||||||||||||
2012 |
$ | 6,883 | $ | 3,791 | $ | 913 | $ | 11,587 | ||||||||
2013 |
4,722 | 3,702 | 208 | 8,632 | ||||||||||||
2014 |
3,116 | 3,639 | 139 | 6,894 | ||||||||||||
2015 |
78 | 3,602 | — | 3,680 | ||||||||||||
2016 |
— | 162 | — | 162 | ||||||||||||
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Total unrecognized compensation expense |
$ | 14,799 | $ | 14,896 | $ | 1,260 | $ | 30,955 | ||||||||
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Note 5. Long-Term Obligations
Long-term obligations consist of the following (in thousands):
December 31, | ||||||||
2011 | 2010 | |||||||
Senior secured debt financing facility: |
||||||||
Term loans payable |
$ | 240,625 | $ | 590,099 | ||||
Revolving credit facility |
660,730 | — | ||||||
Notes payable through October 2018 at a weighted average interest rate of 2.0% and 2.4% at December 31, 2011 and 2010, respectively |
38,338 | 6,869 | ||||||
Other long-term debt at a weighted average interest rate of 3.2% and 6.6% at December 31, 2011 and 2010, respectively |
16,383 | 3,986 | ||||||
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|
|||||
956,076 | 600,954 | |||||||
Less current maturities |
(29,524 | ) | (52,888 | ) | ||||
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|
|||||
$ | 926,552 | $ | 548,066 | |||||
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The scheduled maturities of long-term obligations outstanding at December 31, 2011 are as follows (in thousands):
2012 |
$ | 29,524 | ||
2013 |
51,013 | |||
2014 |
27,105 | |||
2015 |
35,514 | |||
2016 |
811,841 | |||
Thereafter |
1,079 | |||
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|
|||
$ | 956,076 | |||
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|
We obtained a senior secured debt financing facility from Lehman Brothers Inc. and Deutsche Bank Securities, Inc. on October 12, 2007 (as amended, the "2007 Credit Agreement"). The 2007 Credit Agreement was scheduled to mature on October 12, 2013 and included a $610 million term loan, a $40 million Canadian currency term loan, an $85 million U.S. dollar revolving credit facility, and a $15 million dual currency revolving facility for drawings of either U.S. dollars or Canadian dollars. The 2007 Credit Agreement also provided for (i) the issuance of letters of credit of up to $35 million in U.S. dollars and up to $10 million in either U.S. or Canadian dollars, and (ii) the opportunity for us to add additional term loan facilities and/or increase the $100 million revolving credit facility's commitments, subject to certain requirements.
On March 25, 2011, we entered into a credit agreement (the "Original 2011 Credit Agreement") with the several lenders from time to time party thereto, JPMorgan Chase Bank, N.A., as administrative agent, Bank of America N.A., as syndication agent, RBS Citizens, N.A. and Wells Fargo Bank, National Association, as co-documentation agents, and J.P. Morgan Securities LLC, Merrill Lynch, Pierce, Fenner & Smith Incorporated, RBS Citizens, N.A. and Wells Fargo Securities, LLC, as joint lead arrangers and joint bookrunners, which was amended on September 30, 2011 (as amended, the "Amended and Restated 2011 Credit Agreement"). The Original 2011 Credit Agreement provided for borrowings up to $1 billion, consisting of (1) a five-year $750 million revolving credit facility (the "Revolving Credit Facility"), and (2) a five-year $250 million term loan facility (the "Term Loan Facility"). Under the Revolving Credit Facility, we were permitted to draw up to the U.S. dollar equivalent of $300 million in Canadian dollars, pounds sterling, euros, and other agreed-upon currencies. The Original 2011 Credit Agreement also provided for (a) the issuance of up to $75 million of letters of credit under the Revolving Credit Facility in agreed-upon currencies, (b) the issuance of up to $25 million of swing line loans under the Revolving Credit Facility, and (c) the opportunity to increase the amount of the Revolving Credit Facility or obtain incremental term loans up to $400 million. Outstanding letters of credit and swing line loans are taken into account when determining availability under the Revolving Credit Facility. We used the initial proceeds from the Original 2011 Credit Agreement to pay off outstanding amounts of $591.1 million under the 2007 Credit Agreement.
The Amended and Restated 2011 Credit Agreement retains most of the terms of the Original 2011 Credit Agreement while also modifying certain terms to (1) provide an additional term loan facility of up to $200 million ("New Term Loan Facility"); (2) increase the total availability under the Revolving Credit Facility by $200 million to $950 million (the increase was applied to the multicurrency component of the Revolving Credit Facility, thus increasing the foreign currency availability to $500 million from $300 million); (3) increase the amount of letters of credit that may be issued under the Revolving Credit Facility to $125 million from $75 million; (4) add certain subsidiaries as additional borrowers under the Revolving Credit Facility; and (5) make other immaterial or clarifying modifications and amendments to the terms of the Original 2011 Credit Agreement. The Amended and Restated 2011 Credit Agreement maintains our opportunity to increase the amount of the Revolving Credit Facility or obtain incremental term loans up to $400 million. We used the initial proceeds from a draw under the increased Revolving Credit Facility for the acquisition of ECP in October 2011, as discussed in more detail in Note 9, "Business Combinations." As of December 31, 2011, we had not drawn any amounts under the New Term Loan Facility, but in January 2012, we borrowed the full $200 million available under the New Term Loan Facility, which we used to pay down a portion of our Revolving Credit Facility borrowings.
The obligations under the Amended and Restated 2011 Credit Agreement are unconditionally guaranteed by our direct and indirect domestic subsidiaries and certain foreign subsidiaries. Obligations under the Amended and Restated 2011 Credit Agreement, including the related guarantees, are collateralized by a security interest and lien on a majority of the existing and future personal property of, and a security interest in 100% of our equity interest in, each of our existing and future direct and indirect domestic and foreign subsidiaries, provided that if a pledge of 100% of a foreign subsidiary's voting equity interests gives rise to an adverse tax consequence, such pledge shall be limited to 65% of the voting equity interest of the first tier foreign subsidiary. In the event that we obtain and maintain certain ratings from S&P (BBB- or better, with stable or better outlook) or Moody's (Baa3 or better, with stable or better outlook), and upon our request, the security interests in and liens on the collateral described above shall be released. In October 2011, Moody's and S&P affirmed our credit ratings at Ba2 and BB+, respectively, with a stable outlook.
Amounts under the Revolving Credit Facility will be due and payable upon maturity of the Amended and Restated 2011 Credit Agreement in March 2016. Amounts under the Term Loan Facility are due and payable in quarterly installments, with the annual payments equal to 5% of the original principal amount in the first and second years, 10% of the original principal amount in the third and fourth years, and 15% of the original principal amount in the fifth year. The remaining balance under the Term Loan Facility will be due and payable on the maturity date of the Amended and Restated 2011 Credit Agreement. Amounts under the New Term Loan Facility will be due and payable in quarterly installments equal to 1.25% of the original principal amount at the end of each of the eight quarters subsequent to the first quarter of 2012, 2.5% at the end of each of the following eight quarters, and 3.75% each quarter thereafter. The remaining balance under the New Term Loan Facility will be due and payable on the maturity date of the Amended and Restated 2011 Credit Agreement. We are required to prepay the Term Loan Facility and the New Term Loan Facility by amounts equal to proceeds from the sale or disposition of certain assets if the proceeds are not reinvested within twelve months. We also have the option to prepay outstanding amounts under the Amended and Restated 2011 Credit Agreement.
The Amended and Restated 2011 Credit Agreement contains customary representations and warranties, and contains customary covenants that provide limitations and conditions on our ability to, among other things (i) incur indebtedness, (ii) incur liens, (iii) enter into any merger, consolidation, amalgamation, or otherwise liquidate or dissolve the Company, (iv) dispose of certain property, (v) make dividend payments, repurchase our stock, or enter into derivative contracts indexed to the value of our common stock, (vi) make certain investments, including the acquisition of assets constituting a business or the stock of a business designated as a non-guarantor, (vii) make optional prepayments of subordinated debt, (viii) enter into sale-leaseback transactions, (ix) issue preferred stock, redeemable stock, convertible stock or other similar equity instruments, and (x) enter into hedge agreements for speculative purposes or otherwise not in the ordinary course of business. The Amended and Restated 2011 Credit Agreement also contains financial and affirmative covenants under which we (i) may not exceed a maximum net leverage ratio of 3.00 to 1.00, except in connection with permitted acquisitions with aggregate consideration in excess of $200 million during any period of four consecutive fiscal quarters in which case the maximum net leverage ratio may increase to 3.50 to 1.00 for the subsequent four fiscal quarters and (ii) are required to maintain a minimum interest coverage ratio of 3.00 to 1.00. We were in compliance with all restrictive covenants under the Amended and Restated 2011 Credit Agreement and the 2007 Credit Agreement as of December 31, 2011 and 2010, respectively.
The Amended and Restated 2011 Credit Agreement contains events of default that include (i) our failure to pay principal when due or interest, fees, or other amounts after grace periods, (ii) our material breach of any representation or warranty, (iii) covenant defaults, (iv) cross defaults to certain other indebtedness, (v) bankruptcy, (vi) certain ERISA events, (vii) material judgments, (viii) change of control, and (ix) failure of subordinated indebtedness to be validly and sufficiently subordinated.
Concurrently with the payment of amounts outstanding under the 2007 Credit Agreement, we incurred a loss on debt extinguishment related to the write off of the unamortized balance of capitalized debt issuance costs of $5.3 million. The amount of the write off excludes debt issuance cost amortization, which is recorded as a component of interest expense. We incurred $8.2 million in fees related to the execution of the Original 2011 Credit Agreement and an additional $2.8 million related to the execution of the Amended and Restated 2011 Credit Agreement. These fees were capitalized within Other Assets on our Consolidated Balance Sheet and are amortized over the term of the agreement.
Borrowings under the Amended and Restated 2011 Credit Agreement bear interest at variable rates, which depend on the currency and duration of the borrowing elected, plus an applicable margin. The applicable margin is subject to change in increments of 0.25% depending on our total leverage ratio. Interest payments are due quarterly in arrears for the term loans and on the last day of the selected interest period on revolver borrowings. Including the effect of the interest rate swap agreements described in Note 6, "Derivative Instruments and Hedging Activities," the weighted average interest rate on borrowings outstanding against the Amended and Restated 2011 Credit Agreement at December 31, 2011 was 2.59%. We also pay a commitment fee based on the average daily unused amount of the Revolving Credit Facility. The commitment fee is subject to change in increments of 0.05% depending on our total leverage ratio. In addition, we pay a participation commission on outstanding letters of credit at an applicable rate based on our total leverage ratio, as well as a fronting fee of 0.125% to the issuing bank, which are due quarterly in arrears. Beginning on December 1, 2011 through January 31, 2012, the date we drew the New Term Loan Facility, we incurred a ticking fee on the unfunded balance of the New Term Loan Facility. The ticking fee is calculated based on variable rates ranging from 0.25% to 0.50%, which are determined based on our total leverage ratio. The ticking fees are payable in arrears on December 31, 2011 and March 31, 2012. Borrowings under the Amended and Restated 2011 Credit Agreement at December 31, 2011 totaled $901.4 million, of which $12.5 million was classified as current maturities. As of December 31, 2011, there were $35.4 million of outstanding letters of credit. The amounts available under the Revolving Credit Facility are reduced by the amounts outstanding under letters of credit, and thus availability on the Revolving Credit Facility at December 31, 2011 was $253.9 million. After giving effect to the additional $200 million of availability under the New Term Loan Facility, total availability under the 2011 Amended and Restated Credit Facility was $453.9 million at December 31, 2011.
Borrowings under the 2007 Credit Agreement accrued interest at variable rates, which depended on the currency and the duration of the borrowing elected, plus an applicable margin. Including the effect of the interest rate swap agreements, the weighted average interest rate on borrowings outstanding under the 2007 Credit Agreement at December 31, 2010 was 3.97%. We also paid commitment fees on the unused portion of our revolving credit facilities, which ranged from 0.38% to 0.50% based on our total leverage ratio. Borrowings under the 2007 Credit Agreement at December 31, 2010 totaled $590.1 million, of which $50.0 million was classified as current maturities.
As part of the consideration for business acquisitions completed during 2011, 2010 and 2009, we issued promissory notes totaling approximately $34.2 million, $5.5 million and $1.2 million, respectively. The notes bear interest at annual rates of 2.0% to 4.0%, and interest is payable at maturity or in monthly installments.
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Note 6. Derivative Instruments and Hedging Activities
We are exposed to market risks, including the effect of changes in interest rates, foreign currency exchange rates and commodity prices. Under our current policies, we use derivatives to manage our exposure to variable interest rates on our senior secured debt. With our acquisition of ECP in October 2011, we also use certain short-term foreign currency forward contracts to manage our exposure to variability in foreign currency denominated transactions. We do not attempt to hedge our commodity price risks. We do not hold or issue derivatives for trading purposes.
Interest Rate Swaps
At December 31, 2011, we had interest rate swap agreements in place to hedge a portion of the variable interest rate risk on our variable rate borrowings under our credit agreement, with the objective of minimizing the impact of interest rate fluctuations and stabilizing cash flows. Under the terms of the interest rate swap agreements, we pay the fixed interest rate and have received and will receive payment at a variable rate of interest based on the London InterBank Offered Rate ("LIBOR") or the Canadian Dealer Offered Rate ("CDOR") for the respective currency of each interest rate swap agreement's notional amount. The interest rate swap agreements qualify as cash flow hedges, and we have elected to apply hedge accounting for these swap agreements. As a result, the effective portion of changes in the fair value of the interest rate swap agreements is recorded in Accumulated Other Comprehensive Income (Loss) and is reclassified to interest expense when the underlying interest payment has an impact on earnings. The ineffective portion of changes in the fair value of the interest rate swap agreements is reported in interest expense.
The following table summarizes the terms of our interest rate swap agreements as of December 31, 2011:
Notional Amount |
Effective Date |
Maturity Date |
Fixed Interest Rate* | ||||||
USD $ 250,000,000 |
October 14, 2010 | October 14, 2015 | 3.06 | % | |||||
USD $ 100,000,000 |
April 14, 2011 | October 14, 2013 | 2.61 | % | |||||
USD $60,000,000 |
November 30, 2011 | October 31, 2016 | 2.70 | % | |||||
USD $60,000,000 |
November 30, 2011 | October 31, 2016 | 2.69 | % | |||||
USD $50,000,000 |
December 30, 2011 | December 30, 2016 | 2.69 | % | |||||
GBP £50,000,000 |
November 30, 2011 | October 30, 2016 | 2.86 | % | |||||
CAD $25,000,000 |
December 30, 2011 | March 24, 2016 | 2.92 | % |
* | Includes applicable margin of 1.50% per annum on LIBOR or CDOR-based debt in effect as of December 31, 2011 under the Amended and Restated 2011 Credit Agreement. |
On March 25, 2011, Deutsche Bank AG, the former counterparty on our $100 million notional amount interest rate swap, assigned its obligation under the swap contract to Bank of America N.A because Deutsche Bank AG was not a secured lender under the Amended and Restated 2011 Credit Agreement. We believe Bank of America N.A. is creditworthy to perform its obligation as the counterparty to the swap.
As of December 31, 2011, the fair market values of these swap contracts was a liability of $10.6 million included in Other Noncurrent Liabilities on our Consolidated Balance Sheet. As of December 31, 2010, we held the $250 million notional amount swap and the $100 million notional amount swap. The fair market value of these contracts was an asset of $4.8 million included in Other Assets. At December 31, 2010, we also held a $200 million notional amount swap that was a liability of $1.4 million included in Other Accrued Expenses.
The activity related to our interest rate swap agreements is as follows (in thousands):
Year Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Gain (loss) in Other Comprehensive Income (Loss) |
$ | (19,391 | ) | $ | 3,230 | $ | (7,994 | ) | ||||
Loss reclassified to interest expense |
(5,641 | ) | (10,377 | ) | (11,595 | ) | ||||||
Loss from hedge ineffectiveness |
(225 | ) | — | — |
In connection with the execution of the Original 2011 Credit Agreement on March 25, 2011 as discussed in Note 5, "Long-Term Obligations," we temporarily experienced differences in critical terms between the interest rate swaps and the underlying debt. As a result, we incurred a loss of $0.2 million related to hedge ineffectiveness in 2011. Beginning on April 14, 2011, we have held, and expect to continue to hold through the maturity of the respective interest rate swap agreements, at least the notional amount of each agreement in the respective variable-rate debt, such that future ineffectiveness will be immaterial and the swaps will continue to be highly effective in hedging our variable rate debt.
As of December 31, 2011, we estimate that $3.4 million of derivative losses (net of tax) included in Accumulated Other Comprehensive Income (Loss) will be reclassified into interest expense within the next 12 months.
Foreign Currency Forward Contracts
In order to manage the risk of changes in exchange rates associated with certain foreign currency transactions in our European operations, such as our purchases of inventory denominated in a currency other than the pound sterling, we have entered into short-term foreign currency forward contracts. As of December 31, 2011, we had nine contracts outstanding to purchase up to 10.4 million for £8.8 million and two contracts to purchase $1.5 million for £0.9 million, all of which expire during the first half of 2012. These contracts are adjusted to fair value each balance sheet date. As we have elected not to apply hedge accounting for these transactions, the changes in fair value are recorded in Other Income, net. The fair value of these contracts at December 31, 2011 and the effect on our results of operations for the year ended December 31, 2011 were immaterial.
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Note 7. Fair Value Measurements
We use the market and income approaches to value our financial assets and liabilities, and there were no changes in valuation techniques during the year ended December 31, 2011. The tables below present information about our financial assets and liabilities that are measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation techniques we utilized to determine such fair value. The tiers in the fair value hierarchy include: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. Our Level 2 assets and liabilities are valued using inputs from third parties and market observable data. We obtain valuation data for the cash surrender value of life insurance and deferred compensation liabilities from third party sources, which determine the net asset values for our accounts using quoted market prices, investment allocations and reportable trades. We value the interest rate swaps using a third party valuation model that performs a discounted cash flow analysis based on the terms of the contracts and market observable inputs such as LIBOR and forward interest rates. We determined the fair value of the contingent consideration obligations using the income approach. The key assumptions used in determining the fair value are the projected results of the acquired business and our assessment of the probabilities surrounding the achievement of targets detailed in the respective agreements, which are used to determine the estimated undiscounted cash payments, and a discount rate that approximates our debt credit rating. The fair value measurement is based upon significant inputs not observable in the market. Changes in the value of the obligation are recorded in Change in Fair Value of Contingent Consideration Liabilities within Other Expense (Income) on our Consolidated Statements of Income.
The following tables present information about our financial assets and liabilities measured at fair value on a recurring basis as of December 31, 2011 and 2010 (in thousands):
Balance as of December 31, 2011 |
Fair Value Measurements as of December 31, 2011 | |||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||
Assets: |
||||||||||||||||
Cash surrender value of life insurance |
$ | 13,413 | $ | — | $ | 13,413 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Assets |
$ | 13,413 | $ | — | $ | 13,413 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities: |
||||||||||||||||
Contingent consideration liabilities |
$ | 82,382 | $ | — | $ | — | $ | 82,382 | ||||||||
Deferred compensation liabilities |
14,071 | — | 14,071 | — | ||||||||||||
Interest rate swaps |
10,576 | — | 10,576 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Liabilities |
$ | 107,029 | $ | — | $ | 24,647 | $ | 82,382 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of December 31, 2010 |
Fair Value Measurements as of December 31, 2010 | |||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||
Assets: |
||||||||||||||||
Cash surrender value of life insurance |
$ | 10,517 | $ | — | $ | 10,517 | $ | — | ||||||||
Interest rate swaps |
4,815 | — | 4,815 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Assets |
$ | 15,332 | $ | — | $ | 15,332 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities: |
||||||||||||||||
Deferred compensation liabilities |
$ | 11,245 | $ | — | $ | 11,245 | $ | — | ||||||||
Contingent consideration liabilities |
2,000 | — | — | 2,000 | ||||||||||||
Interest rate swaps |
1,416 | — | 1,416 | — | ||||||||||||
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|
|
|
|
|
|
|
|||||||||
Total Liabilities |
$ | 14,661 | $ | — | $ | 12,661 | $ | 2,000 | ||||||||
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|
|
|
|
|
|
|
The cash surrender value of life insurance and deferred compensation liabilities are included in Other Assets and Other Noncurrent Liabilities, respectively, on our Consolidated Balance Sheets. The contingent consideration liabilities are classified as a separate line item in noncurrent liabilities except for $0.6 million and $0.5 million as of December 31, 2011 and 2010, respectively, which are included in Other Accrued Expenses on our Consolidated Balance Sheets as they are expected to be paid in the next 12 month period.
Changes in the fair value of our Level 3 contingent consideration obligations are as follows:
Balance as of January 1, 2010 |
$ | — | ||
Contingent consideration liabilities recorded for business acquisitions |
2,000 | |||
|
|
|||
Balance as of December 31, 2010 |
$ | 2,000 | ||
Contingent consideration liabilities recorded for business acquisitions |
81,239 | |||
(Gain) loss included in earnings, net |
(1,408 | ) | ||
Exchange rate effects |
551 | |||
|
|
|||
Balance as of December 31, 2011 |
$ | 82,382 | ||
|
|
|
Note 8. Commitments and Contingencies
Operating Leases
We are obligated under noncancelable operating leases for corporate office space, warehouse and distribution facilities, trucks and certain equipment.
The future minimum lease commitments under these leases at December 31, 2011 are as follows (in thousands):
Years ending December 31: |
||||
2012 |
$ | 84,977 | ||
2013 |
77,306 | |||
2014 |
66,013 | |||
2015 |
56,116 | |||
2016 |
43,179 | |||
Thereafter |
123,137 | |||
|
|
|||
Future Minimum Lease Payments |
$ | 450,728 | ||
|
|
Rental expense for operating leases was approximately $83.7 million, $66.9 million and $57.2 million during the years ended December 31, 2011, 2010 and 2009, respectively.
We guarantee the residual values of the majority of our truck and equipment operating leases. The residual values decline over the lease terms to a defined percentage of original cost. In the event the lessor does not realize the residual value when a piece of equipment is sold, we would be responsible for a portion of the shortfall. Similarly, if the lessor realizes more than the residual value when a piece of equipment is sold, we would be paid the amount realized over the residual value. Had we terminated all of our operating leases subject to these guarantees at December 31, 2011, the guaranteed residual value would have totaled approximately $35.7 million. We have not recorded a liability for the guaranteed residual value of equipment under operating leases as the recovery on disposition of the equipment under the leases is expected to approximate the guaranteed residual value.
Litigation and Related Contingencies
In December 2005 and May 2008, Ford Global Technologies, LLC filed complaints with the International Trade Commission against us and others alleging that certain aftermarket parts imported into the U.S. infringed on Ford design patents. The parties settled these matters in April 2009 pursuant to a settlement arrangement that was scheduled to expire in September 2011. In July 2011, we entered into a new agreement with Ford (which became effective October 1, 2011) to continue our arrangement through March 2015 with substantially the same terms as the 2009 agreement. Pursuant to the settlement, we (and our designees) became the sole distributor in the U.S. of aftermarket automotive parts that correspond to Ford collision parts that are covered by a U.S. design patent. We paid Ford an upfront fee at the commencement of both the 2009 and 2011 agreements for these rights and pay a royalty for each such part we sell. The amortization of the upfront fee and the royalty expenses are reflected in Cost of Goods Sold on the accompanying Consolidated Statements of Income.
We are a plaintiff in a class action lawsuit against several aftermarket product suppliers. In January 2012, we reached a settlement with one of the defendants, and a settlement with the other vendors is subject to court approval. Our recovery is expected to be approximately $15 million in the aggregate, net of legal fees. We will recognize the gains from these settlements when substantially all uncertainties regarding the timing and the amount of the settlements are resolved.
We also have certain other contingencies resulting from litigation, claims and other commitments and are subject to a variety of environmental and pollution control laws and regulations incident to the ordinary course of business. We currently expect that the resolution of such contingencies will not materially affect our financial position, results of operations or cash flows.
|
Note 9. Business Combinations
On October 3, 2011, LKQ Corporation, LKQ Euro Limited ("LKQ Euro"), a subsidiary of LKQ Corporation, and Draco Limited ("Draco") entered into an Agreement for the Sale and Purchase of Shares of Euro Car Parts Holdings Limited (the "Sale and Purchase Agreement"). Under the terms of the Sale and Purchase Agreement, effective October 1, 2011, LKQ Euro acquired all of the shares in the capital of ECP, an automotive aftermarket products distributor in the U.K., from Draco and the other shareholders of ECP. With the acquisition of ECP, we have expanded our geographic presence beyond North America into the European market. Our acquisition of ECP established our Wholesale – Europe operating segment. Total acquisition date fair value of the consideration for the ECP acquisition was £261.6 million ($403.7 million), composed of £190.3 million ($293.7 million) of cash (net of cash acquired), £18.4 million ($28.3 million) of notes payable, £2.7 million ($4.1 million) of other purchase price obligations (non-interest bearing) and a contingent payment to the former owners of ECP. Under the contingent consideration agreement, if certain annual EBITDA targets are met, we may pay between £22 million and £25 million and between £23 million and £30 million for the years ending December 31, 2012 and 2013, respectively. We have assessed the acquisition date fair value of these contingent payments to be £50.2 million ($77.5 million at the exchange rate on October 3, 2011). For all subsequent reporting periods until the contingency is resolved, we will reassess the fair value of this contingent payment and any changes in fair value will be recognized in our Consolidated Statements of Income. There was not a material change in the assessed fair value of the contingent payment between October 3, 2011 and December 31, 2011.
We recorded goodwill of $337.0 million for the ECP acquisition, which will not be deductible for income tax purposes. In the period between October 1, 2011 and December 31, 2011, ECP generated approximately $138.5 million of revenue and $10.1 million of operating income.
In addition to our acquisition of ECP, we made 20 acquisitions in North America in 2011 (12 wholesale businesses, five recycled heavy-duty truck products businesses and three self service retail operations). Our acquisitions included the purchase of two engine remanufacturers, which expanded our presence in the remanufacturing industry that we entered in 2010. Additionally, our acquisition of an automotive heating and cooling component distributor supplements our expansion into the automotive heating and cooling aftermarket products market. Our North American wholesale business acquisitions also included the purchase of the U.S. vehicle refinish paint distribution business of Akzo Nobel Automotive and Aerospace Coatings (the "Akzo Nobel paint business"), which allowed us to increase our paint and related product offerings and expand our geographic presence in the automotive paint market. Our other 2011 acquisitions enabled us to expand our geographic presence and enter new markets.
Total acquisition date fair value of the consideration for these 20 acquisitions was $207.3 million, composed of $193.2 million of cash (net of cash acquired), $5.9 million of notes payable, $4.5 million of other purchase price obligations (non-interest bearing) and $3.7 million of contingent payments to former owners. In conjunction with the acquisition of the Akzo Nobel paint business on May 26, 2011, we entered into a wholesaler agreement under which we became an authorized distributor of Akzo Nobel products in the acquired markets. Included in this agreement is a requirement to make an additional payment to Akzo Nobel in the event that our purchases of Akzo Nobel product do not meet specified thresholds from June 1, 2011 to May 31, 2014. This contingent payment will be calculated as the difference between our actual purchases and the targeted purchase levels outlined in the agreement for the specified period with a maximum payment of $21.0 million. The contingent consideration liability recorded in 2011 also includes two additional arrangements that have a maximum potential payout of $4.6 million. The acquisition date fair value of these contingent consideration agreements is immaterial.
During the year ended December 31, 2011, we recorded $105.2 million of goodwill related to these 20 acquisitions and immaterial adjustments to preliminary purchase price allocations related to certain of our 2010 acquisitions. Of this amount, approximately $88.3 million is expected to be deductible for income tax purposes. In the period between the acquisition dates and December 31, 2011, these 20 acquisitions generated approximately $189.8 million of revenue and $9.1 million of operating income.
In 2010, we made 20 acquisitions in North America (16 wholesale businesses, one recycled heavy-duty truck products business, two self service retail operations and one tire recycling business). Our acquisitions included the purchase of an engine remanufacturer, which allowed us to further vertically integrate our supply chain. We expanded our product offerings through the acquisition of an automotive heating and cooling component business, as well as a tire recycling business. Our 2010 acquisitions have also enabled us to expand our geographic presence, most notably in Canada through our purchase of Cross Canada, an aftermarket product supplier.
Total acquisition date fair value of the consideration for the 2010 acquisitions was $170.4 million, composed of $143.6 million of cash (net of cash acquired), $5.5 million of notes payable, $4.4 million of other purchase price obligations (non-interest bearing), $2.0 million of contingent payments to former owners and $14.9 million in stock issued (689,655 shares). The fair value of the contingent payment was adjusted downward by $2.0 million in 2011 as a result of changes in the likelihood of meeting the specified performance targets. This adjustment was included in Change in Fair Value of Contingent Consideration Liabilities on our Consolidated Statements of Income for the year ended December 31, 2011. The $14.9 million of common stock was issued in connection with our acquisition of Cross Canada on November 1, 2010. The fair value of common stock issued was based on the market price of LKQ stock on the date of issuance. We recorded goodwill of $91.8 million for the 2010 acquisitions, of which $74.9 million is expected to be deductible for income tax purposes.
On October 1, 2009, we acquired Greenleaf Auto Recyclers, LLC ("Greenleaf") from SSI for $38.8 million, net of cash acquired. Greenleaf is the entity through which SSI operated its wholesale recycling business. We recorded a gain on bargain purchase for the Greenleaf acquisition totaling $4.3 million in our results of operations for 2009. We believe that we were able to acquire Greenleaf for less than the fair value of its assets because of (i) our unique position as market leader in the wholesale recycled auto products market and (ii) SSI's intent to exit its Greenleaf operations. Greenleaf generally was an unprofitable venture throughout its history, which included several different ownership groups, and SSI approached us in an effort to sell Greenleaf and exit the wholesale recycled auto products business that no longer fit its strategy. With SSI's intent to exit the wholesale recycled auto products business and our position as the market leader, we were able to agree on a favorable purchase price. We finalized the valuation of acquired inventory, accrued liabilities and deferred taxes in 2010. As a result, we identified certain immaterial adjustments to the opening balance sheet, which were recorded through the results of operations in 2010.
Also in 2009, we acquired four North American wholesale businesses and three recycled heavy-duty truck products businesses. The aggregate acquisition date fair value of the consideration for these seven businesses totaled approximately $29.5 million in cash, net of cash acquired, and $1.2 million of debt issued.
The acquisitions are being accounted for under the purchase method of accounting and are included in our consolidated financial statements from the dates of acquisition. The purchase prices were allocated to the net assets acquired based upon estimated fair market values at the dates of acquisition. In connection with the 2011 acquisitions, the purchase price allocations are preliminary as we are in the process of determining the following: 1) valuation amounts for certain of the inventories acquired; 2) valuation amounts for certain intangible assets acquired; 3) the acquisition date fair value of certain liabilities assumed; and 4) the final estimation of the tax basis of the entities acquired.
The purchase price allocations for the acquisitions completed during 2011 and 2010 are as follows (in thousands):
December 31, | ||||||||||||||||
2011 | 2010 (Final) |
|||||||||||||||
ECP (Preliminary) |
Other Acquisitions (Preliminary) |
Total (Preliminary) |
||||||||||||||
Receivables |
$ | 54,225 | $ | 23,538 | $ | 77,763 | $ | 27,774 | ||||||||
Receivable reserves |
(3,832 | ) | (1,121 | ) | (4,953 | ) | (2,186 | ) | ||||||||
Inventory |
93,835 | 59,846 | 153,681 | 38,121 | ||||||||||||
Prepaid expenses and other current assets |
3,189 | 2,820 | 6,009 | 1,480 | ||||||||||||
Property and equipment |
41,830 | 10,614 | 52,444 | 18,517 | ||||||||||||
Goodwill |
337,031 | 105,177 | 442,208 | 91,757 | ||||||||||||
Other intangibles |
39,583 | 7,683 | 47,266 | 6,163 | ||||||||||||
Other assets |
13 | 9,420 | 9,433 | 1,529 | ||||||||||||
Deferred income taxes |
(13,218 | ) | 7,235 | (5,983 | ) | 2,922 | ||||||||||
Current liabilities assumed |
(135,390 | ) | (17,257 | ) | (152,647 | ) | (15,665 | ) | ||||||||
Debt assumed |
(13,564 | ) | — | (13,564 | ) | — | ||||||||||
Other noncurrent liabilities assumed |
— | (619 | ) | (619 | ) | — | ||||||||||
Contingent consideration liabilities |
(77,539 | ) | (3,700 | ) | (81,239 | ) | (2,000 | ) | ||||||||
Other purchase price obligations |
(4,136 | ) | (4,510 | ) | (8,646 | ) | (4,359 | ) | ||||||||
Notes issued |
(28,302 | ) | (5,917 | ) | (34,219 | ) | (5,530 | ) | ||||||||
Stock issued |
— | — | — | (14,945 | ) | |||||||||||
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|
|
|
|
|
|
|
|||||||||
Cash used in acquisitions, net of cash acquired |
$ | 293,725 | $ | 193,209 | $ | 486,934 | $ | 143,578 | ||||||||
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|
|
|
|
|
|
The primary reason for our acquisitions made in 2011, 2010 and 2009 was to leverage our strategy of becoming a one-stop provider for alternative vehicle replacement products. These acquisitions enabled us to expand our market presence, expand our product offerings and enter new markets. These factors contributed to purchase prices that included, in many cases, a significant amount of goodwill.
Most notably, our acquisition of ECP in 2011 marks our entry into the European automotive aftermarket business, which provides an opportunity to us as that market has historically had a low penetration of alternative collision parts. Additionally, ECP is a leading distributor of alternative automotive products reaching most major markets in the U.K., with a developed distribution network, experienced management team, and established workforce. These factors contributed to the $337 million of goodwill recognized related to this acquisition.
The following pro forma summary presents the effect of the businesses acquired during the years ended December 31, 2011 and 2010 as though the businesses had been acquired as of January 1, 2010, and is based upon unaudited financial information of the acquired entities (in thousands, except per share data):
Year ended December 31, | ||||||||
2011 | 2010 | |||||||
Revenue as reported |
$ | 3,269,862 | $ | 2,469,881 | ||||
Revenue of purchased businesses for the period prior to acquisition: |
||||||||
ECP |
407,042 | 420,769 | ||||||
Other acquisitions |
127,275 | 504,044 | ||||||
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|
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|
|||||
Pro forma revenue |
$ | 3,804,179 | $ | 3,394,694 | ||||
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|
|||||
Income from continuing operations, as reported |
$ | 210,264 | $ | 167,118 | ||||
Net income of purchased businesses for the period prior to acquisition, including pro forma purchase accounting adjustments: |
||||||||
ECP |
22,266 | 9,669 | ||||||
Other acquisitions |
6,578 | 12,996 | ||||||
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|
|
|||||
Pro forma income from continuing operations |
$ | 239,108 | $ | 189,783 | ||||
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|
|||||
Basic earnings per share from continuing operations, as reported |
$ | 1.44 | $ | 1.17 | ||||
Effect of purchased businesses for the period prior to acquisition: |
||||||||
ECP |
0.15 | 0.07 | ||||||
Other acquisitions |
0.05 | 0.09 | ||||||
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|
|||||
Pro forma basic earnings per share from continuing operations (a) |
$ | 1.64 | $ | 1.32 | ||||
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|
|||||
Diluted earnings per share from continuing operations, as reported |
$ | 1.42 | $ | 1.15 | ||||
Effect of purchased businesses for the period prior to acquisition: |
||||||||
ECP |
0.15 | 0.07 | ||||||
Other acquisitions |
0.04 | 0.09 | ||||||
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Pro forma diluted earnings per share from continuing operations (a) |
$ | 1.61 | $ | 1.30 | ||||
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(a) | The sum of the individual earnings per share amounts may not equal the total due to rounding. |
Unaudited pro forma supplemental information is based upon accounting estimates and judgments that we believe are reasonable. The unaudited pro forma supplemental information includes the effect of purchase accounting adjustments, such as the adjustment of inventory acquired to net realizable value, adjustments to depreciation on acquired property and equipment, adjustments to amortization on acquired intangible assets, adjustments to interest expense, and the related tax effects. These pro forma results are not necessarily indicative either of what would have occurred if the acquisitions had been in effect for the period presented or of future results.
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Note 10. Restructuring and Acquisition Related Expenses
Akzo Nobel Paint Business Integration
With our acquisition of the Akzo Nobel paint business in the second quarter of 2011, we initiated certain restructuring activities to integrate the acquired paint distribution locations into our existing business. Our restructuring plan included the closure of duplicate facilities, elimination of overlapping delivery routes and termination of employees in connection with the consolidation of the overlapping facilities and delivery routes. During the year ended December 31, 2011, we incurred $2.6 million of charges primarily related to excess facility costs, which were expensed at the cease-use date for the facilities. While we have substantially completed the integration activities related to the Akzo Nobel paint business acquisition as of December 31, 2011, we may record adjustments to the related excess facility reserves if we determine revisions are required to the underlying assumptions.
Cross Canada Integration
We undertook certain restructuring activities in connection with our acquisition of Cross Canada in the fourth quarter of 2010. The restructuring plan included the integration of our existing Canadian aftermarket operations into the Cross Canada business, as well as the transition of certain corporate functions to our corporate headquarters and our field support center in Nashville. Based on our analysis of the overlapping facilities, we identified aftermarket warehouses and corporate locations that were closed in order to eliminate duplicate facilities. Related to the facilities that will be closed, we terminated certain personnel including drivers, other facility personnel and corporate employees. During the year ended December 31, 2011, we incurred $1.4 million related to these integration efforts, including $1.2 million for facility closure and moving costs and $0.2 million for severance and benefits for terminated employees. The restructuring activities related to the Cross Canada acquisition were substantially completed in 2011.
Greenleaf Integration
In 2009, we commenced restructuring and integration efforts in connection with our acquisition of Greenleaf on October 1, 2009. The restructuring plan included the integration of the acquired Greenleaf operations into our existing salvage business, which resulted in the combination or closure of duplicate facilities and delivery routes. Restructuring and integration expenses associated with the Greenleaf acquisition totaled approximately $0.7 million and $0.6 million for the years ended December 31, 2010 and 2009, respectively. These charges reflected costs related to the closure of facilities and severance and related benefits for terminated personnel. The restructuring activities related to the Greenleaf acquisition were substantially completed in 2010.
Keystone Integration
In 2009, we incurred restructuring and integration expenses associated with our acquisition of Keystone Automotive Industries, Inc. ("Keystone"). The restructuring plan included the integration of our existing aftermarket operations into the Keystone business. For the year ended December 31, 2009, related restructuring charges of $1.9 million included $0.5 million to move inventory between facilities and migrate the systems utilized by the LKQ facilities to the Keystone system, $0.5 million of severance and related benefit costs and $0.9 million of excess facility costs. Our Keystone restructuring plan was completed in 2009.
Other Restructuring Expenses
In 2011, we incurred approximately $0.4 million of restructuring expenses resulting from the integration of our other 2010 and 2011 acquisitions into our existing business. The restructuring expenses included primarily excess facility costs, which were expensed at the cease-use date for the facilities, and moving expenses for the closure of duplicate facilities. We expect approximately $0.3 million of additional charges, primarily for moving costs and excess facility reserves, as we complete our integration plans in 2012.
Acquisition Related Expenses
Acquisition related expenses consist of external costs directly related to our acquisitions, such as closing costs and advisory, legal, accounting, valuation and other professional fees. These costs are expensed as incurred. During the year ended December 31, 2011, we incurred $3.2 million of acquisition related expenses, primarily related to our acquisition of ECP that was effective as of October 1, 2011.
|
Note 11. Retirement Plans
401(k) Plan
We sponsor a 401(k) defined contribution plan that covers substantially all of our eligible, full time U.S. employees. Contributions to the plan are made by both the employee and us. Our contributions are based on the level of employee contributions and are subject to certain vesting provisions based upon years of service. Expenses related to this plan totaled approximately $5.3 million, $4.8 million and $3.7 million during 2011, 2010 and 2009, respectively.
Nonqualified Deferred Compensation Plan
We also offer a nonqualified deferred compensation plan to eligible employees who, due to Internal Revenue Service ("IRS") guidelines, may not take full advantage of our 401(k) defined contribution plan. The plan allows participants to defer eligible compensation, subject to certain limitations. We will match 50% of the portion of the employee's contributions that does not exceed 6% of the employee's eligible deferrals. The deferred compensation, together with our matching contributions and accumulated earnings, is accrued and is payable after retirement or termination of employment, subject to vesting provisions. Participants may also elect to receive amounts deferred in a given year on any plan anniversary five or more years subsequent to the year of deferral. Our matching contributions vest over a four year period and totaled $0.8 million, $0.7 million and $0.5 million in 2011, 2010 and 2009, respectively, net of allowable transfers into our 401(k) defined contribution plan. Total deferred compensation liabilities were approximately $14.1 million and $11.2 million at December 31, 2011 and 2010, respectively.
The nonqualified deferred compensation plan is funded under a trust agreement whereby we pay to the trust amounts deferred by employees, together with our match, with such amounts invested in life insurance policies carried to meet the obligations under the deferred compensation plan. As of December 31, 2011 and 2010, we held 184 and 166 contracts with a face value of $80.6 million and $72.7 million, respectively. The cash surrender value of these policies was approximately $13.4 million and $10.5 million at December 31, 2011 and 2010, respectively.
|
Note 13. Income Taxes
The provision for income taxes consists of the following components (in thousands):
Year Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Current: |
||||||||||||
Federal |
$ | 97,887 | $ | 75,009 | $ | 58,854 | ||||||
State |
14,435 | 16,552 | 12,619 | |||||||||
Foreign |
3,883 | 2,483 | 825 | |||||||||
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|
|
|||||||
116,205 | 94,044 | 72,298 | ||||||||||
Deferred |
9,302 | 8,963 | 5,882 | |||||||||
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|
|||||||
Provision for income taxes |
$ | 125,507 | $ | 103,007 | $ | 78,180 | ||||||
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|
Income taxes have been based on the following components of income from continuing operations before provision for income taxes (in thousands):
Year Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Domestic |
$ | 319,305 | $ | 264,438 | $ | 202,558 | ||||||
Foreign |
16,466 | 5,687 | 2,759 | |||||||||
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|
|
|||||||
$ | 335,771 | $ | 270,125 | $ | 205,317 | |||||||
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|
The U.S. federal statutory rate is reconciled to the effective tax rate as follows:
Year Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
U.S. federal statutory rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
State income taxes, net of state credits and federal tax impact |
3.1 | 3.4 | 4.1 | |||||||||
Non-deductible expenses |
0.7 | 0.3 | 0.5 | |||||||||
Impact of international operations |
(0.8 | ) | (0.3 | ) | (0.2 | ) | ||||||
Federal production incentives and credits |
(0.4 | ) | (0.2 | ) | (0.4 | ) | ||||||
Revaluation of deferred taxes |
— | (0.5 | ) | — | ||||||||
Non-taxable gain on bargain purchase |
— | — | (0.8 | ) | ||||||||
Other, net |
(0.2 | ) | 0.4 | (0.1 | ) | |||||||
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|
|
|
|
|||||||
Effective tax rate |
37.4 | % | 38.1 | % | 38.1 | % | ||||||
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|
We do not provide for U.S. federal income taxes on the undistributed earnings of our foreign subsidiaries because such earnings are reinvested and it is our intention that the earnings will be reinvested indefinitely.
We had no individually significant discrete items included in our 2011 effective tax rate. The 2010 effective tax rate included a $1.5 million adjustment related to the revaluation of deferred taxes in connection with a legal entity reorganization in the first quarter. The 2009 effective tax rate included a benefit related to the recognition of a $4.3 million non-taxable gain on a bargain purchase for our acquisition of Greenleaf in October 2009.
The significant components of our deferred tax assets and liabilities are as follows (in thousands):
December 31, | ||||||||
2011 | 2010 | |||||||
Deferred Tax Assets: |
||||||||
Inventory |
$ | 22,267 | $ | 16,409 | ||||
Accrued expenses and reserves |
18,357 | 17,379 | ||||||
Accounts receivable |
10,860 | 9,330 | ||||||
Stock based compensation |
8,945 | 6,609 | ||||||
Qualified and nonqualified retirement plans |
5,157 | 4,422 | ||||||
Net operating loss carryforwards |
4,722 | 4,681 | ||||||
Interest rate swaps |
3,679 | — | ||||||
Long term incentive plan |
3,260 | 1,889 | ||||||
Unrecognized tax benefits |
1,669 | 1,657 | ||||||
Other |
3,692 | 2,015 | ||||||
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|
|
|
|||||
82,608 | 64,391 | |||||||
Less valuation allowance |
(1,911 | ) | (2,607 | ) | ||||
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|
|
|
|||||
Total deferred tax assets |
$ | 80,697 | $ | 61,784 | ||||
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|
|
|
|||||
Deferred Tax Liabilities: |
||||||||
Goodwill and other intangible assets |
$ | 46,373 | $ | 38,648 | ||||
Property and equipment |
44,535 | 29,049 | ||||||
Trade name |
32,592 | 23,695 | ||||||
Other |
1,864 | 3,945 | ||||||
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|
|
|||||
Total deferred tax liabilities |
$ | 125,364 | $ | 95,337 | ||||
|
|
|
|
|||||
Net deferred tax liability |
$ | (44,667 | ) | $ | (33,553 | ) | ||
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|
Deferred tax assets and liabilities are reflected on our Consolidated Balance Sheets as follows (in thousands):
December 31, | ||||||||
2011 | 2010 | |||||||
Current deferred tax assets |
$ | 45,690 | $ | 32,506 | ||||
Current deferred tax liabilities |
1,561 | — | ||||||
Noncurrent deferred tax liabilities |
88,796 | 66,059 |
Our current deferred tax liabilities of $1.6 million were included in Other Current Liabilities on our Consolidated Balance Sheet as of December 31, 2011.
We had net operating loss carryforwards for federal and certain of our state tax jurisdictions, the tax benefits of which total approximately $4.7 million at December 31, 2011 and 2010, respectively. At December 31, 2011 and 2010, we also had tax credit carryforwards of $1.0 million and $1.4 million, respectively, related to certain of our state tax jurisdictions. As of December 31, 2011 and 2010, a valuation allowance of $1.9 million and $2.6 million, respectively, was recognized for a portion of the deferred tax assets related to net operating loss and tax credit carryforwards. The valuation allowance for net operating loss and tax credit carryforwards decreased by $0.7 million due to current utilization of some of the underlying tax benefits as well as a change in judgment regarding the realization of the remaining carryforwards. The net operating loss carryforwards expire over the period from 2012 through 2030, while nearly all of the tax credit carryforwards have no expiration. Realization of these deferred tax assets is dependent on the generation of sufficient taxable income prior to the expiration dates. Based on historical and projected operating results, we believe that it is more likely than not that earnings will be sufficient to realize the deferred tax assets for which valuation allowances have not been provided. While we expect to realize the deferred tax assets, net of valuation allowances, changes in estimates of future taxable income or in tax laws may alter this expectation.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):
2011 | 2010 | 2009 | ||||||||||
Balance at January 1 |
$ | 5,441 | $ | 8,526 | $ | 7,949 | ||||||
Additions based on tax positions related to the current year |
952 | 713 | 1,811 | |||||||||
Additions for tax positions of prior years |
192 | 281 | 483 | |||||||||
Reductions for tax positions of prior years |
— | (86 | ) | (90 | ) | |||||||
Reductions for tax positions of prior years—timing differences |
— | (2,041 | ) | — | ||||||||
Lapse of statutes of limitations |
(892 | ) | (1,952 | ) | (1,489 | ) | ||||||
Settlements with taxing authorities |
(196 | ) | — | (138 | ) | |||||||
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|
|||||||
Balance at December 31 |
$ | 5,497 | $ | 5,441 | $ | 8,526 | ||||||
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|
|
At December 31, 2011 and 2010, we have accumulated interest and penalties included in gross unrecognized tax benefits of $1.2 million and $1.1 million, respectively. Of these amounts, $0.2 million was recorded through the income tax provision during each of the years ended December 31, 2011 and 2010, prior to any reversals for lapses in the statutes of limitations. We had a deferred tax asset of $0.2 million and $0.3 million related to the accumulated interest balance as of December 31, 2011 and 2010, respectively. The amount of the unrecognized tax benefits, which if resolved favorably (in whole or in part) would reduce our effective tax rate, is approximately $3.8 million at both December 31, 2011 and 2010. The balance of unrecognized tax benefits at December 31, 2011 and 2010 also includes $1.7 million and $1.6 million, respectively, of tax benefits that, if recognized, would result in adjustments to deferred taxes.
During the twelve months beginning January 1, 2012, it is reasonably possible that we will reduce gross unrecognized tax benefits by up to approximately $0.6 million, of which approximately $0.4 million would impact our effective tax rate, primarily as a result of the expiration of certain statutes of limitations.
Tax years after 2007 remain subject to examination by the IRS. In the U.K., tax years through 2009 are no longer open to inquiry. We are currently the subject of income tax audits by various states for prior tax years, as well as an audit of the 2009 tax year by the IRS. Adjustments from such audits, if any, are not expected to have a material effect on our consolidated financial statements.
|
Note 14. Accumulated Other Comprehensive Income (Loss)
The components of accumulated other comprehensive income (loss) are as follows (in thousands):
Foreign Currency Translation |
Unrealized Gain (Loss) on Pension Plan |
Unrealized (Loss) Gain on Interest Rate Swaps |
Accumulated Other Comprehensive Income (Loss) |
|||||||||||||
Balance at January 1, 2009 |
$ | (5,067 | ) | $ | 144 | $ | (8,841 | ) | $ | (13,764 | ) | |||||
Pretax income (loss) |
4,191 | (211 | ) | (7,994 | ) | (4,014 | ) | |||||||||
Income tax benefit |
— | 82 | 2,878 | 2,960 | ||||||||||||
Reversal of unrealized loss |
— | — | 11,595 | 11,595 | ||||||||||||
Reversal of deferred income taxes |
— | — | (4,174 | ) | (4,174 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2009 |
(876 | ) | 15 | (6,536 | ) | (7,397 | ) | |||||||||
Pretax income |
3,078 | — | 3,230 | 6,308 | ||||||||||||
Income tax expense |
— | — | (1,054 | ) | (1,054 | ) | ||||||||||
Reversal of unrealized (gain) loss |
— | (15 | ) | 10,377 | 10,362 | |||||||||||
Reversal of deferred income taxes |
— | — | (3,841 | ) | (3,841 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2010 |
2,202 | — | 2,176 | 4,378 | ||||||||||||
Pretax loss |
(4,273 | ) | — | (19,391 | ) | (23,664 | ) | |||||||||
Income tax benefit |
— | — | 6,847 | 6,847 | ||||||||||||
Reversal of unrealized loss |
— | — | 5,641 | 5,641 | ||||||||||||
Reversal of deferred income taxes |
— | — | (2,019 | ) | (2,019 | ) | ||||||||||
Hedge ineffectiveness |
— | — | (225 | ) | (225 | ) | ||||||||||
Income tax benefit |
— | — | 81 | 81 | ||||||||||||
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|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2011 |
$ | (2,071 | ) | $ | — | $ | (6,890 | ) | $ | (8,961 | ) | |||||
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Note 15. Long Term Incentive Plan
On January 26, 2006, our Board of Directors approved, and our stockholders approved at the annual meeting on May 8, 2006, the LKQ Corporation Long Term Incentive Plan. At our annual meeting on May 2, 2011, the stockholders reapproved this plan. The purpose of the Long Term Incentive Plan is to offer certain key employees the opportunity to receive long-term performance rewards. Performance periods begin on January 1 and end on December 31 of the third calendar year thereafter. Performance awards are equal to the participant's base salary (at the end of the applicable performance period) multiplied by an "Award Percentage." A participant's Award Percentage is determined by three components: the growth over the performance period of each of the Company's earnings per share; total revenue; and return on equity. The Compensation Committee of our Board of Directors determines for each participant the range of Award Percentages based on different growth scenarios of the components. One half of any performance award achieved is payable promptly after the end of the performance period. A participant must be an employee of the Company at the end of the performance period to be eligible for this first payment. The other half of the performance award is deferred and vests in three equal installments on each one year anniversary of the end of the performance period. A participant must be an employee (or in some cases a consultant for us) on each such anniversary date to be eligible for the respective deferred payment, unless the participant is not an employee as a result of death, total disability or normal retirement at age 65, in which case the participant (or his or her estate) will be entitled to all of the deferred payments upon such death, disability or retirement. Interest on the deferred portion of the performance award accrues at the prime rate and is payable to the participant at the same time as the deferred installments are paid. We have recorded expense related to this plan totaling approximately $3.7 million, $3.5 million and $3.4 million during the years ended December 31, 2011, 2010 and 2009, respectively.
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Note 16. Segment and Geographic Information
We have four operating segments: Wholesale—North America; Wholesale—Europe; Self Service; and Heavy-Duty Truck. Our operations in North America, which include our Wholesale—North America, Self Service and Heavy-Duty Truck operating segments, are aggregated into one reportable segment because they possess similar economic characteristics and have common products and services, customers, and methods of distribution. Our Wholesale—Europe operating segment, formed with our acquisition of ECP effective October 1, 2011, marks our entry into the European automotive aftermarket business, and is presented as a separate reportable segment. Although the Wholesale—Europe operating segment shares many of the characteristics of our North American operations, including types of products offered, distribution methods, and procurement, we have provided separate financial information as we believe this data would be beneficial to users in understanding our results. Therefore, we present our reportable segments on a geographic basis.
The following table presents our financial performance, including revenue, earnings before interest, taxes, depreciation and amortization ("EBITDA") from continuing operations, and depreciation and amortization from continuing operations by reportable segment for the periods indicated (in thousands):
Year Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Revenue |
||||||||||||
North America |
$ | 3,131,376 | $ | 2,469,881 | $ | 2,047,942 | ||||||
Europe |
138,486 | — | — | |||||||||
|
|
|
|
|
|
|||||||
Total revenue |
$ | 3,269,862 | $ | 2,469,881 | $ | 2,047,942 | ||||||
|
|
|
|
|
|
|||||||
EBITDA |
||||||||||||
North America |
$ | 405,924 | $ | 339,869 | $ | 273,666 | ||||||
Europe |
12,144 | — | — | |||||||||
|
|
|
|
|
|
|||||||
Total EBITDA |
$ | 418,068 | $ | 339,869 | $ | 273,666 | ||||||
|
|
|
|
|
|
|||||||
Depreciation and Amortization |
||||||||||||
North America |
$ | 52,481 | $ | 41,428 | $ | 37,450 | ||||||
Europe |
2,024 | — | — | |||||||||
|
|
|
|
|
|
|||||||
Total depreciation and amortization |
$ | 54,505 | $ | 41,428 | $ | 37,450 | ||||||
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|
|
|
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The table below provides a reconciliation from EBITDA to Income from Continuing Operations (in thousands):
Year Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
EBITDA |
$ | 418,068 | $ | 339,869 | $ | 273,666 | ||||||
Depreciation and amortization |
54,505 | 41,428 | 37,450 | |||||||||
Interest expense, net |
22,447 | 28,316 | 30,899 | |||||||||
Loss on debt extinguishment |
5,345 | — | — | |||||||||
Provision for income taxes |
125,507 | 103,007 | 78,180 | |||||||||
|
|
|
|
|
|
|||||||
Income from continuing operations |
$ | 210,264 | $ | 167,118 | $ | 127,137 | ||||||
|
|
|
|
|
|
The key measure of segment profit or loss reviewed by our chief operating decision maker, who is our Chief Executive Officer, is EBITDA. Segment EBITDA includes revenue and expenses that are controllable by the segment. Corporate and administrative expenses are allocated to the segments based on usage. Since the European segment was initiated in the fourth quarter of 2011, its usage of the shared corporate and administrative costs has been minimal. Segment EBITDA excludes depreciation, amortization, interest (including loss on debt extinguishment) and taxes. Loss on debt extinguishment is considered a component of interest in calculating EBITDA, as the write-off of debt issuance costs is similar to the treatment of debt issuance cost amortization.
The following table presents capital expenditures, which represents additions to property and equipment, by reportable segment (in thousands):
Year Ended December 31, | ||||||||||||
Capital Expenditures |
2011 | 2010 | 2009 | |||||||||
North America |
$ | 84,856 | $ | 61,438 | $ | 55,870 | ||||||
Europe |
1,560 | — | — | |||||||||
|
|
|
|
|
|
|||||||
$ | 86,416 | $ | 61,438 | $ | 55,870 | |||||||
|
|
|
|
|
|
The following table presents assets by reportable segment (in thousands):
December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Receivables, net |
||||||||||||
North America |
$ | 230,871 | $ | 191,085 | $ | 152,443 | ||||||
Europe |
50,893 | — | — | |||||||||
|
|
|
|
|
|
|||||||
Total receivables, net |
281,764 | 191,085 | 152,443 | |||||||||
|
|
|
|
|
|
|||||||
Inventory |
||||||||||||
North America |
636,145 | 492,688 | 385,686 | |||||||||
Europe |
100,701 | — | — | |||||||||
|
|
|
|
|
|
|||||||
Total inventory |
736,846 | 492,688 | 385,686 | |||||||||
|
|
|
|
|
|
|||||||
Property and Equipment, net |
||||||||||||
North America |
380,282 | 331,312 | 289,902 | |||||||||
Europe |
43,816 | — | — | |||||||||
|
|
|
|
|
|
|||||||
Total property and equipment, net |
424,098 | 331,312 | 289,902 | |||||||||
|
|
|
|
|
|
|||||||
Other unallocated assets |
1,756,996 | 1,284,424 | 1,192,090 | |||||||||
|
|
|
|
|
|
|||||||
Total assets |
$ | 3,199,704 | $ | 2,299,509 | $ | 2,020,121 | ||||||
|
|
|
|
|
|
We report net trade receivables, inventories, and net property and equipment by segment as that information is used by the chief operating decision maker in assessing segment performance. These assets provide a measure for the operating capital employed in each segment. Unallocated assets include cash, prepaid and other current and noncurrent assets, goodwill, intangibles and income taxes.
Our operations are primarily conducted in the U.S. Our European operations, which we started with the acquisition of ECP in the fourth quarter of 2011, are located in the U.K. We have recycled and aftermarket product operations in Canada, which were expanded in 2010 through the acquisition of Cross Canada, an aftermarket product supplier. We also have operations in Mexico, Guatemala and Costa Rica. Our locations in Mexico include an engine remanufacturer and a bumper refurbishing operation.
The following table sets forth our revenue by geographic area (in thousands):
Year Ended December 31, | ||||||||||||
Revenue |
2011 | 2010 | 2009 | |||||||||
United States. |
$ | 2,952,620 | $ | 2,366,224 | $ | 1,971,654 | ||||||
United Kingdom |
138,486 | — | — | |||||||||
Other countries |
178,756 | 103,657 | 76,288 | |||||||||
|
|
|
|
|
|
|||||||
$ | 3,269,862 | $ | 2,469,881 | $ | 2,047,942 | |||||||
|
|
|
|
|
|
The following table sets forth our tangible long-lived assets, including primarily property and equipment, by geographic area (in thousands):
December 31, | ||||||||
Long-lived Assets |
2011 | 2010 | ||||||
United States. |
$ | 360,961 | $ | 316,002 | ||||
United Kingdom |
43,816 | — | ||||||
Other countries |
19,321 | 15,310 | ||||||
|
|
|
|
|||||
$ | 424,098 | $ | 331,312 | |||||
|
|
|
|
The following table sets forth our revenue by product category (in thousands):
Year Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Aftermarket, other new and refurbished products |
$ | 1,634,003 | $ | 1,236,806 | $ | 1,093,157 | ||||||
Recycled, remanufactured and related products and services |
1,115,088 | 888,320 | 749,012 | |||||||||
Other |
520,771 | 344,755 | 205,773 | |||||||||
|
|
|
|
|
|
|||||||
$ | 3,269,862 | $ | 2,469,881 | $ | 2,047,942 | |||||||
|
|
|
|
|
|
All of the product categories reflect revenue from our North American reportable segment, while our European segment, which is composed of ECP, an automotive aftermarket products distributor, only generates revenue from the sale of aftermarket products. Revenue from other sources includes scrap sales, bulk sales to mechanical remanufacturers (including cores) and sales of aluminum ingots and sows from our furnace operations.
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Note 17. Selected Quarterly Data (unaudited)
The following table represents unaudited selected quarterly financial data for the two years ended December 31, 2011. The operating results for any quarter are not necessarily indicative of the results for any future period.
Quarter Ended | ||||||||||||||||
Mar. 31 | Jun. 30 | Sep. 30 | Dec. 31 | |||||||||||||
(In thousands, except per share data) | ||||||||||||||||
2010 |
||||||||||||||||
Revenue |
$ | 603,516 | $ | 584,681 | $ | 607,621 | $ | 674,063 | ||||||||
Gross margin |
283,290 | 261,266 | 261,424 | 287,500 | ||||||||||||
Operating income |
89,929 | 69,609 | 65,207 | 73,132 | ||||||||||||
Income from continuing operations |
51,983 | 37,906 | 35,901 | 41,328 | ||||||||||||
Income from discontinued operations |
1,953 | — | — | — | ||||||||||||
Net income |
53,936 | 37,906 | 35,901 | 41,328 | ||||||||||||
Basic earnings per share from continuing operations(1) |
0.37 | 0.27 | 0.25 | 0.29 | ||||||||||||
Diluted earnings per share from continuing operations(1) |
0.36 | 0.26 | 0.25 | 0.28 |
Quarter Ended | ||||||||||||||||
Mar. 31 | Jun. 30 | Sep. 30 | Dec. 31(2) | |||||||||||||
(In thousands, except per share data) | ||||||||||||||||
2011 |
||||||||||||||||
Revenue |
$ | 786,648 | $ | 759,684 | $ | 783,898 | $ | 939,632 | ||||||||
Gross margin |
343,646 | 322,236 | 334,322 | 391,789 | ||||||||||||
Operating income |
107,371 | 78,486 | 85,488 | 90,138 | ||||||||||||
Income from continuing operations |
58,182 | 46,706 | 49,231 | 56,145 | ||||||||||||
Income from discontinued operations |
— | — | — | — | ||||||||||||
Net income |
58,182 | 46,706 | 49,231 | 56,145 | ||||||||||||
Basic earnings per share from continuing operations(1) |
0.40 | 0.32 | 0.34 | 0.38 | ||||||||||||
Diluted earnings per share from continuing operations(1) |
0.39 | 0.32 | 0.33 | 0.38 |
(1) | The sum of the quarters may not equal the total of the respective year's earnings per share on either a basic or diluted basis due to changes in weighted average shares outstanding throughout the year. |
(2) | Results for the quarter ended December 31, 2011 include the results of ECP from the acquisition effective as of October 1, 2011 through the end of the quarter. |
|
Schedule II—Valuation and Qualifying Accounts and Reserves
Descriptions |
Balance at Beginning of Period |
Additions Charged to Costs and Expenses |
Acquisitions and Other |
Deductions | Balance at End of Period |
|||||||||||||||
(in thousands) | ||||||||||||||||||||
ALLOWANCE FOR DOUBTFUL ACCOUNTS: |
||||||||||||||||||||
Year ended December 31, 2009 |
$ | 5,757 | $ | 5,102 | $ | 831 | $ | (5,183 | ) | $ | 6,507 | |||||||||
Year ended December 31, 2010 |
6,507 | 4,326 | 1,125 | (5,063 | ) | 6,895 | ||||||||||||||
Year ended December 31, 2011 |
6,895 | 5,084 | 2,199 | (5,831 | ) | 8,347 | ||||||||||||||
ALLOWANCE FOR ESTIMATED RETURNS, DISCOUNTS & ALLOWANCES: |
||||||||||||||||||||
Year ended December 31, 2009 |
$ | 11,169 | $ | 469,178 | $ | 1,915 | $ | (466,460 | ) | $ | 15,802 | |||||||||
Year ended December 31, 2010 |
15,802 | 541,314 | 1,061 | (539,992 | ) | 18,185 | ||||||||||||||
Year ended December 31, 2011 |
18,185 | 668,936 | 2,754 | (667,071 | ) | 22,804 |
|
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of LKQ Corporation and its subsidiaries. All intercompany transactions and accounts have been eliminated.
Use of Estimates
In preparing our financial statements in conformity with accounting principles generally accepted in the United States we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
The majority of our revenue is derived from the sale of aftermarket and recycled products. Revenue is recognized when the products are shipped or picked up and title has transferred, subject to an allowance for estimated returns, discounts and allowances that we estimate based upon historical information. We recorded a reserve for estimated returns, discounts and allowances of approximately $22.8 million and $18.2 million at December 31, 2011 and 2010, respectively. We present taxes assessed by governmental authorities collected from customers on a net basis. Therefore, the taxes are excluded from revenue and are shown as a liability on our Consolidated Balance Sheet until remitted. Revenue from the sale of separately-priced extended warranty contracts is reported as deferred revenue and recognized ratably over the term of the contracts or three years in the case of lifetime warranties.
Shipping & Handling
Revenue also includes amounts billed to customers related to shipping and handling of approximately $23.9 million, $17.3 million and $15.5 million during the years ended December 31, 2011, 2010 and 2009, respectively. Distribution expenses in the accompanying Consolidated Statements of Income are the costs incurred to prepare and deliver products to customers.
Cash and Equivalents
We consider all highly liquid investments with original maturities of 90 days or less to be cash equivalents. Cash equivalents are carried at cost, which approximates market value. Our cash equivalents primarily include holdings in money market funds and overnight securities. We did not hold any cash equivalents at December 31, 2011, while cash equivalents at December 31, 2010 were $57.2 million.
Receivables and Allowance for Doubtful Accounts
In the normal course of business, we extend credit to customers after a review of each customer's credit history. We recorded a reserve for uncollectible accounts of approximately $8.3 million and $6.9 million at December 31, 2011 and 2010, respectively. The reserve is based upon the aging of the accounts receivable, our assessment of the collectability of specific customer accounts and historical experience. Receivables are written off once collection efforts have been exhausted. Recoveries of receivables previously written off are recorded when received.
Concentrations of Credit Risk
Financial instruments that potentially subject us to significant concentration of credit risk consist primarily of cash and equivalents and accounts receivable. We control our exposure to credit risk associated with these instruments by (i) placing our cash and equivalents with several major financial institutions; (ii) holding high-quality financial instruments; and (iii) maintaining strict policies over credit extension that include credit evaluations, credit limits and monitoring procedures. In addition, our overall credit risk with respect to accounts receivable is limited to some extent because our customer base is composed of a large number of geographically diverse customers.
Inventory
Our inventory includes aftermarket and refurbished vehicle replacement products, salvage and remanufactured vehicle replacement products and core facilities inventory. A core is a recycled automotive part that is not suitable for sale as a replacement part without further refurbishing or remanufacturing work.
An aftermarket product is a new vehicle product manufactured by a company other than the original equipment manufacturer. Cost is established based on the average price we pay for parts, and includes expenses incurred for freight and overhead costs. For items purchased from foreign companies, import fees and duties and transportation insurance are also included. Refurbished inventory cost is based on the average price we pay for cores, and includes expenses incurred for freight, refurbishing costs and overhead.
A salvage product is a recycled vehicle part suitable for sale as a replacement part. Salvage inventory is recorded at the lower of cost or market. Cost is established based upon the price we pay for a vehicle, including auction, storage and towing fees, as well as expenditures for buying and dismantling. Inventory carrying value is determined using the average cost to sales percentage at each of our facilities and applying that percentage to the facility's inventory at expected selling prices. The average cost to sales percentage is derived from each facility's historical vehicle profitability for salvage vehicles purchased at auction or from contracted rates for salvage vehicles acquired under certain direct procurement arrangements. Remanufactured inventory cost is based upon the price paid for cores, and also includes expenses incurred for freight, direct manufacturing costs and overhead.
For all inventory, carrying value is reduced regularly to the lower of cost or market to reflect the age of the inventory and current anticipated demand. If actual demand differs from our estimates, additional reductions to inventory carrying value would be necessary in the period such determination is made.
Inventory consists of the following (in thousands):
December 31, | ||||||||
2011 | 2010 | |||||||
Aftermarket and refurbished products |
$ | 445,787 | $ | 274,728 | ||||
Salvage and remanufactured products |
282,106 | 209,514 | ||||||
Core facilities inventory |
8,953 | 8,446 | ||||||
|
|
|
|
|||||
$ | 736,846 | $ | 492,688 | |||||
|
|
|
|
Property and Equipment
Property and equipment are recorded at cost. Expenditures for major additions and improvements that extend the useful life of the related asset are capitalized. As property and equipment are sold or retired, the applicable cost and accumulated depreciation are removed from the accounts and any resulting gain or loss thereon is recognized. Construction in progress consists primarily of building and land improvements at our existing facilities. Depreciation is calculated using the straight-line method over the estimated useful lives or, in the case of leasehold improvements, the term of the related lease and reasonably assured renewal periods, if shorter.
The internal and external costs incurred to develop internal use computer software during the application development stage of the implementation, including the design of the chosen path, are capitalized. Other costs, including expenses incurred during the preliminary project stage, training expenses, data conversion costs and expenses incurred in the post implementation stage are expensed in the period incurred. Capitalized costs are amortized ratably over the useful life of the software when the software becomes operational. Upgrades and enhancements to internal use software are capitalized only if the costs result in additional functionality. We do not plan to sell or market our internal use computer software to third parties.
Our estimated useful lives are as follows:
Land improvements |
10-20 years | |||
Buildings and improvements |
20-40 years | |||
Furniture, fixtures and equipment |
3- 20 years | |||
Computer equipment and software |
3-10 years | |||
Vehicles and trailers |
3-10 years |
Property and equipment consists of the following (in thousands):
December 31, | ||||||||
2011 | 2010 | |||||||
Land and improvements |
$ | 81,170 | $ | 71,931 | ||||
Buildings and improvements |
119,414 | 103,198 | ||||||
Furniture, fixtures and equipment |
192,514 | 145,196 | ||||||
Computer equipment and software |
79,195 | 63,341 | ||||||
Vehicles and trailers |
40,825 | 27,218 | ||||||
Leasehold improvements |
69,079 | 41,939 | ||||||
|
|
|
|
|||||
582,197 | 452,823 | |||||||
Less—Accumulated depreciation |
(179,950 | ) | (142,401 | ) | ||||
Construction in progress |
21,851 | 20,890 | ||||||
|
|
|
|
|||||
$ | 424,098 | $ | 331,312 | |||||
|
|
|
|
Intangible Assets
Intangible assets consist primarily of goodwill (the cost of purchased businesses in excess of the fair value of the identifiable net assets acquired), and other specifically identifiable intangible assets such as trade names, trademarks, covenants not to compete and customer relationships.
Goodwill is tested for impairment at least annually, and we performed annual impairment tests during the fourth quarters of 2011, 2010 and 2009. With the decision to sell a portion of our self service operations (as described in Note 3, "Discontinued Operations"), we also conducted a goodwill impairment test as of September 30, 2009 for both the allocated goodwill associated with the facilities to be disposed of and our ongoing self service reporting unit. The results of all of these tests indicated that goodwill was not impaired.
The changes in the carrying amount of goodwill are as follows (in thousands):
Balance as of January 1, 2009 |
$ | 907,218 | ||
Business acquisitions and adjustments to previously recorded goodwill |
26,137 | |||
Exchange rate effects |
5,428 | |||
|
|
|||
Balance as of December 31, 2009 |
$ | 938,783 | ||
Business acquisitions and adjustments to previously recorded goodwill |
91,757 | |||
Exchange rate effects |
2,433 | |||
|
|
|||
Balance as of December 31, 2010 |
$ | 1,032,973 | ||
Business acquisitions and adjustments to previously recorded goodwill |
442,208 | |||
Exchange rate effects |
882 | |||
|
|
|||
Balance as of December 31, 2011 |
$ | 1,476,063 | ||
|
|
In 2009, we adjusted previously recorded goodwill related to the Pick-Your-Part Auto Wrecking ("PYP") acquisition by $3.2 million, primarily related to various pre-acquisition liabilities.
In 2011, we finalized the valuation of certain intangible assets acquired related to our 2010 acquisitions. As these adjustments did not have a material impact on our financial position or results of operations, we recorded these adjustments to goodwill and amortization expense in 2011.
The components of other intangibles are as follows (in thousands):
December 31, 2011 | December 31, 2010 | |||||||||||||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Net | Gross Carrying Amount |
Accumulated Amortization |
Net | |||||||||||||||||||
Trade names and trademarks |
$ | 115,954 | $ | (16,305 | ) | $ | 99,649 | $ | 75,661 | $ | (12,020 | ) | $ | 63,641 | ||||||||||
Covenants not to compete |
3,194 | (918 | ) | 2,276 | 2,688 | (1,382 | ) | 1,306 | ||||||||||||||||
Customer relationships |
10,050 | (3,065 | ) | 6,985 | 4,355 | — | 4,355 | |||||||||||||||||
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|
|||||||||||||
$ | 129,198 | $ | (20,288 | ) | $ | 108,910 | $ | 82,704 | $ | (13,402 | ) | $ | 69,302 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
In 2011, we recorded $40.1 million of trade names, $1.5 million of covenants not to compete and $5.7 million of customer relationships resulting from our 2011 acquisitions and adjustments to certain preliminary intangible asset valuations from our 2010 acquisitions. The trade names recorded in 2011 included $39.3 million for the Euro Car Parts trade name related to our acquisition of Euro Car Parts Holdings Limited ("ECP") effective October 1, 2011. In 2010, we recognized $0.9 million of trade names, $1.0 million of covenants not to compete, and $4.4 million of customer relationships resulting from our acquisitions during the year. Trade names are amortized over a useful life ranging from 10 to 30 years on a straight-line basis. Covenants not to compete are amortized over the lives of the respective agreements, which range from one to five years, on a straight-line basis. Customer relationships are amortized over the expected period to be benefitted (5 to 10 years) on either a straight-line or accelerated basis. Amortization expense for intangibles was approximately $7.9 million, $4.2 million and $4.1 million during the years ended December 31, 2011, 2010 and 2009, respectively. Estimated amortization expense for each of the five years in the period ending December 31, 2016 is $8.4 million, $7.7 million, $7.0 million, $6.3 million and $5.6 million, respectively.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. If such review indicates that the carrying amount of long-lived assets is not recoverable, the carrying amount of such assets is reduced to fair value. During the year ended December 31, 2010, we recognized impairment charges on certain long-lived assets during the normal course of business of $1.3 million. There were no adjustments to the carrying value of long-lived assets of continuing operations during the years ended December 31, 2011 or 2009.
Fair Value of Financial Instruments
Our debt is reflected on the balance sheet at cost. As discussed in Note 5, "Long-Term Obligations," we entered into a new senior secured credit agreement on March 25, 2011, which was subsequently amended and restated effective September 30, 2011. Based on current market conditions, our interest rate margins are below the rate available in the market, which causes the fair value of our debt to fall below the carrying value. The fair value of our credit facility borrowings is approximately $893 million at December 31, 2011, as compared to the carrying value of $901.4 million. At December 31, 2010, the fair value of our borrowings under the previous credit agreement reasonably approximated the carrying value of $590.1 million. We estimated the fair value of our credit facility borrowings by calculating the upfront cash payment a market participant would require to assume our obligations. The upfront cash payment, excluding any issuance costs, is the amount that a market participant would be able to lend at December 31, 2011 and 2010 to an entity with a credit rating similar to ours and achieve sufficient cash inflows to cover the scheduled cash outflows under our credit facility.
The carrying amounts of our cash and equivalents, net trade receivables and accounts payable approximate fair value.
We apply the market and income approaches to value our financial assets and liabilities, which include the cash surrender value of life insurance, deferred compensation liabilities, interest rate swaps and contingent consideration liabilities. Required fair value disclosures are included in Note 7, "Fair Value Measurements."
Product Warranties
Some of our salvage mechanical products are sold with a standard six month warranty against defects. Additionally, some of our remanufactured engines are sold with a standard three year warranty against defects. We record the estimated warranty costs at the time of sale using historical warranty claim information to project future warranty claims activity and related expenses. The changes in the warranty reserve are as follows (in thousands):
Balance as of January 1, 2010 |
$ | 604 | ||
Warranty expense |
9,351 | |||
Warranty claims |
(8,882 | ) | ||
Business acquisitions |
990 | |||
|
|
|||
Balance as of December 31, 2010 |
$ | 2,063 | ||
Warranty expense |
22,364 | |||
Warranty claims |
(20,802 | ) | ||
Business acquisitions |
3,722 | |||
|
|
|||
Balance as of December 31, 2011 |
$ | 7,347 | ||
|
|
Our 2011 and 2010 warranty expense reflects $8.5 million and $0.2 million of expense related to our engine remanufacturing operations, which we began in 2010 through an acquisition in the fourth quarter, and subsequently expanded through two additional acquisitions in 2011.
Self-Insurance Reserves
We self-insure a portion of employee medical benefits under the terms of our employee health insurance program. We purchase certain stop-loss insurance to limit our liability exposure. We also self-insure a portion of our property and casualty risk, which includes automobile liability, general liability, directors and officers liability, workers' compensation and property coverage, under deductible insurance programs. The insurance premium costs are expensed over the contract periods. A reserve for liabilities associated with these losses is established for claims filed and claims incurred but not yet reported based upon our estimate of ultimate cost, which is calculated using analyses of historical data. We monitor new claims and claim development as well as trends related to the claims incurred but not reported in order to assess the adequacy of our insurance reserves. Total self-insurance reserves were $37.4 million and $32.9 million, including $18.2 million and $16.8 million classified in current liabilities, as of December 31, 2011 and 2010, respectively. The remaining balances of self-insurance reserves are classified as Other Noncurrent Liabilities, which reflects management's estimates of when claims will be paid. The reserves presented on the Consolidated Balance Sheets are net of claims deposits of $0.5 million and $0.6 million, at December 31, 2011 and 2010, respectively. In addition to these claims deposits, we had outstanding letters of credit of $31.8 million and $24.2 million at December 31, 2011 and 2010, respectively, to guarantee self-insurance claims payments. While we do not expect the amounts ultimately paid to differ significantly from our estimates, our insurance reserves and corresponding expenses could be affected if future claims experience differs significantly from historical trends and assumptions.
Income Taxes
Current income taxes are provided on income reported for financial reporting purposes, adjusted for transactions that do not enter into the computation of income taxes payable in the same year. Deferred income taxes have been provided to show the effect of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before we are able to realize their benefit or that future deductibility is uncertain.
We recognize the benefits of uncertain tax positions taken or expected to be taken in tax returns in the provision for income taxes only for those positions that are more likely than not to be realized. We follow a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes. Our policy is to include interest and penalties associated with income tax obligations in income tax expense.
U.S. federal income taxes are not provided on our interest in undistributed earnings of foreign subsidiaries when it is management's intent that such earnings will remain invested in those subsidiaries or other foreign subsidiaries. Taxes will be provided on these earnings in the period in which a decision is made to repatriate the earnings.
Depreciation Expense
Included in Cost of Goods Sold is depreciation expense associated with refurbishing, remanufacturing, our furnace operations and our distribution centers.
Rental Expense
We recognize rental expense on a straight-line basis over the respective lease terms for all of our operating leases.
Foreign Currency Translation
For most of our foreign operations, the local currency is the functional currency. Assets and liabilities are translated into U.S. dollars at the period-ending exchange rate. Statements of Income amounts are translated to U.S. dollars using average exchange rates during the period. Translation gains and losses are reported as a component of Accumulated Other Comprehensive Income (Loss) in stockholders' equity.
Recent Accounting Pronouncements
In September 2011, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2011-08, "Testing Goodwill for Impairment," which grants entities the option to first perform a qualitative assessment of whether it is more likely than not that a reporting unit's fair value is less than its carrying value. If an entity concludes that it is more likely than not that the fair value of a reporting unit is less than its carrying amount, the entity would be required to perform the two-step impairment test for the reporting unit. The ASU is effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. Early adoption is permitted, and we elected to early adopt this guidance for our 2011 annual impairment test during the fourth quarter. Since this ASU did not change the accounting guidance for testing goodwill if the "more likely than not" qualitative threshold is met, the adoption of this guidance did not affect our financial position, results of operations or cash flows.
In June 2011, the FASB released ASU No. 2011-05, "Presentation of Comprehensive Income," which eliminates the option to present the components of other comprehensive income in the statement of changes in stockholders' equity. Instead, entities will have the option to present the components of net income, the components of other comprehensive income and total comprehensive income in a single continuous statement or in two separate but consecutive statements. In addition, this update requires entities to present the reclassification adjustments out of accumulated other comprehensive income by component in both the statement where net income is presented and the statement where other comprehensive income is presented. However, in December 2011, the FASB issued ASU No. 2011-12, "Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items Out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05," which indefinitely deferred this provision of ASU 2011-05. The amendments do not change the items reported in other comprehensive income or when an item of other comprehensive income is reclassified to net income. This guidance is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, and will be applied retrospectively. As this guidance only revises the presentation of comprehensive income, the adoption of this guidance will not affect our financial position, results of operations or cash flows.
In May 2011, the FASB issued ASU No. 2011-04, "Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs." This update provides clarification on existing fair value measurement requirements, amends existing guidance primarily related to fair value measurements for financial instruments, and requires enhanced disclosures on fair value measurements. The additional disclosures are specific to Level 3 fair value measurements, transfers between Level 1 and Level 2 of the fair value hierarchy, financial instruments not measured at fair value and use of an asset measured or disclosed at fair value differing from its highest and best use. This ASU is effective for interim and annual periods beginning after December 15, 2011, and will be applied prospectively. We are currently assessing the impact that the adoption of ASU No. 2011-04 will have on our financial position, results of operations and cash flows.
Effective January 1, 2011, we adopted FASB ASU 2010-29, "Disclosure of Supplementary Pro Forma Information for Business Combinations," which clarifies the disclosure requirements for pro forma financial information related to a material business combination or a series of immaterial business combinations that are material in the aggregate. The guidance clarifies that the pro forma disclosures are prepared assuming the business combination occurred at the start of the prior annual reporting period. Additionally, a narrative description of the nature and amount of material, non-recurring pro forma adjustments would be required. As this newly issued accounting standard only requires enhanced disclosure, the adoption of this standard did not impact our financial position, results of operations or cash flows.
|
December 31, | ||||||||
2011 | 2010 | |||||||
Aftermarket and refurbished products |
$ | 445,787 | $ | 274,728 | ||||
Salvage and remanufactured products |
282,106 | 209,514 | ||||||
Core facilities inventory |
8,953 | 8,446 | ||||||
|
|
|
|
|||||
$ | 736,846 | $ | 492,688 | |||||
|
|
|
|
Land improvements |
10-20 years | |||
Buildings and improvements |
20-40 years | |||
Furniture, fixtures and equipment |
3- 20 years | |||
Computer equipment and software |
3-10 years | |||
Vehicles and trailers |
3-10 years |
December 31, | ||||||||
2011 | 2010 | |||||||
Land and improvements |
$ | 81,170 | $ | 71,931 | ||||
Buildings and improvements |
119,414 | 103,198 | ||||||
Furniture, fixtures and equipment |
192,514 | 145,196 | ||||||
Computer equipment and software |
79,195 | 63,341 | ||||||
Vehicles and trailers |
40,825 | 27,218 | ||||||
Leasehold improvements |
69,079 | 41,939 | ||||||
|
|
|
|
|||||
582,197 | 452,823 | |||||||
Less—Accumulated depreciation |
(179,950 | ) | (142,401 | ) | ||||
Construction in progress |
21,851 | 20,890 | ||||||
|
|
|
|
|||||
$ | 424,098 | $ | 331,312 | |||||
|
|
|
|
Balance as of January 1, 2009 |
$ | 907,218 | ||
Business acquisitions and adjustments to previously recorded goodwill |
26,137 | |||
Exchange rate effects |
5,428 | |||
|
|
|||
Balance as of December 31, 2009 |
$ | 938,783 | ||
Business acquisitions and adjustments to previously recorded goodwill |
91,757 | |||
Exchange rate effects |
2,433 | |||
|
|
|||
Balance as of December 31, 2010 |
$ | 1,032,973 | ||
Business acquisitions and adjustments to previously recorded goodwill |
442,208 | |||
Exchange rate effects |
882 | |||
|
|
|||
Balance as of December 31, 2011 |
$ | 1,476,063 | ||
|
|
December 31, 2011 | December 31, 2010 | |||||||||||||||||||||||
Gross Carrying Amount |
Accumulated Amortization |
Net | Gross Carrying Amount |
Accumulated Amortization |
Net | |||||||||||||||||||
Trade names and trademarks |
$ | 115,954 | $ | (16,305 | ) | $ | 99,649 | $ | 75,661 | $ | (12,020 | ) | $ | 63,641 | ||||||||||
Covenants not to compete |
3,194 | (918 | ) | 2,276 | 2,688 | (1,382 | ) | 1,306 | ||||||||||||||||
Customer relationships |
10,050 | (3,065 | ) | 6,985 | 4,355 | — | 4,355 | |||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||
$ | 129,198 | $ | (20,288 | ) | $ | 108,910 | $ | 82,704 | $ | (13,402 | ) | $ | 69,302 | |||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of January 1, 2010 |
$ | 604 | ||
Warranty expense |
9,351 | |||
Warranty claims |
(8,882 | ) | ||
Business acquisitions |
990 | |||
|
|
|||
Balance as of December 31, 2010 |
$ | 2,063 | ||
Warranty expense |
22,364 | |||
Warranty claims |
(20,802 | ) | ||
Business acquisitions |
3,722 | |||
|
|
|||
Balance as of December 31, 2011 |
$ | 7,347 | ||
|
|
|
Year Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Revenue |
$ | — | $ | 686 | $ | 23,957 | ||||||
|
|
|
|
|
|
|||||||
Income (loss) before income tax provision (benefit) |
$ | — | $ | 355 | $ | (3,314 | ) | |||||
Income tax provision (benefit) |
— | 131 | (1,226 | ) | ||||||||
|
|
|
|
|
|
|||||||
Income (loss) from discontinued operations, net of taxes, before gain on sale of discontinued operations |
— | 224 | (2,088 | ) | ||||||||
Gain on sale of discontinued operations, net of taxes of $1,015 and $1,452 in 2010 and 2009, respectively |
— | 1,729 | 2,472 | |||||||||
|
|
|
|
|
|
|||||||
Income from discontinued operations, net of taxes |
$ | — | $ | 1,953 | $ | 384 | ||||||
|
|
|
|
|
|
|
Shares Available For Grant |
Stock Options | RSUs | Restricted Stock | |||||||||||||||||||||||||
Number Outstanding |
Weighted Average Exercise Price |
Number Outstanding |
Weighted Average Grant Date Fair Value |
Number Outstanding |
Weighted Average Grant Date Fair Value |
|||||||||||||||||||||||
Balance, January 1, 2009 |
5,374,928 | 9,663,588 | $ | 7.27 | — | $ | — | 190,000 | $ | 19.14 | ||||||||||||||||||
Granted |
(1,886,400 | ) | 1,836,400 | 12.15 | — | — | 50,000 | 18.60 | ||||||||||||||||||||
Exercised |
— | (2,016,306 | ) | 4.09 | — | — | — | — | ||||||||||||||||||||
Vested |
— | — | — | — | — | (38,000 | ) | 19.14 | ||||||||||||||||||||
Cancelled |
154,275 | (154,275 | ) | 13.82 | — | — | — | — | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance, December 31, 2009 |
3,642,803 | 9,329,407 | $ | 8.81 | — | $ | — | 202,000 | $ | 19.00 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Granted |
(1,711,533 | ) | 1,711,533 | 19.95 | — | — | — | — | ||||||||||||||||||||
Exercised |
— | (2,758,155 | ) | 5.06 | — | — | — | — | ||||||||||||||||||||
Vested |
— | — | — | — | — | (48,000 | ) | 19.02 | ||||||||||||||||||||
Cancelled |
208,820 | (208,820 | ) | 16.11 | — | — | — | — | ||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance, December 31, 2010 |
2,140,090 | 8,073,965 | $ | 12.27 | — | $ | — | 154,000 | $ | 19.00 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Granted |
(821,674 | ) | — | — | 821,674 | 23.60 | — | — | ||||||||||||||||||||
Shares Issued for Director Compensation |
(15,583 | ) | — | — | — | — | — | — | ||||||||||||||||||||
Exercised |
— | (1,384,019 | ) | 8.61 | — | — | — | — | ||||||||||||||||||||
Vested |
— | — | — | (82,431 | ) | 23.68 | (48,000 | ) | 19.02 | |||||||||||||||||||
Cancelled |
173,352 | (150,900 | ) | 16.87 | (22,452 | ) | 23.54 | — | — | |||||||||||||||||||
Additional Shares Authorized |
6,400,000 | — | — | — | — | — | — | |||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||
Balance, December 31, 2011 |
7,876,185 | 6,539,046 | $ | 12.93 | 716,791 | $ | 23.59 | 106,000 | $ | 18.98 | ||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares | Weighted Average Remaining Contractual Life (Yrs) |
Intrinsic Value (in thousands) |
Weighted Average Exercise Price |
|||||||||||||
Stock options |
6,526,736 | 5.6 | $ | 111,978 | $ | 12.92 | ||||||||||
RSUs |
697,667 | 4.0 | 20,986 | — | ||||||||||||
Restricted stock |
106,000 | 1.5 | 3,188 | — |
Outstanding | Exercisable | |||||||||||||||||||||||
Range of Exercise Prices |
Shares | Weighted Average Remaining Contractual Life (Yrs) |
Weighted Average Exercise Price |
Shares | Weighted Average Remaining Contractual Life (Yrs) |
Weighted Average Exercise Price |
||||||||||||||||||
$0.75 - $5.00 |
1,369,911 | 2.2 | $ | 3.85 | 1,369,911 | 2.2 | $ | 3.85 | ||||||||||||||||
$5.01 - $10.00 |
536,180 | 4.0 | 9.24 | 536,180 | 4.0 | 9.24 | ||||||||||||||||||
$10.01 - $15.00 |
1,999,260 | 6.4 | 11.39 | 1,190,810 | 6.1 | 11.14 | ||||||||||||||||||
$15.01 - $20.00 |
2,611,695 | 7.2 | 19.57 | 1,136,909 | 6.8 | 19.39 | ||||||||||||||||||
$20.01 + |
22,000 | 6.4 | 21.28 | 14,850 | 6.4 | 21.31 | ||||||||||||||||||
|
|
|
|
|||||||||||||||||||||
6,539,046 | 5.6 | $ | 12.93 | 4,248,660 | 4.8 | $ | 10.79 | |||||||||||||||||
|
|
|
|
Year Ended December 31, |
||||||||
2010 | 2009 | |||||||
Expected life (in years) |
6.4 | 6.3 | ||||||
Risk-free interest rate |
3.17 | % | 1.87 | % | ||||
Volatility |
43.9 | % | 44.6 | % | ||||
Dividend yield |
0 | % | 0 | % | ||||
Weighted average fair value of options granted |
$ | 9.54 | $ | 5.57 |
Year Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Stock options |
$ | 8,129 | $ | 8,771 | $ | 6,219 | ||||||
RSUs |
3,666 | — | — | |||||||||
Restricted stock |
913 | 913 | 774 | |||||||||
Stock issued to non-employee directors |
399 | 290 | 290 | |||||||||
|
|
|
|
|
|
|||||||
Total stock-based compensation expense |
$ | 13,107 | $ | 9,974 | $ | 7,283 | ||||||
|
|
|
|
|
|
Year Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Cost of goods sold |
$ | 327 | $ | 278 | $ | 47 | ||||||
Facility and warehouse expenses |
2,391 | 2,069 | 2,620 | |||||||||
Selling, general and administrative expenses |
10,389 | 7,627 | 4,616 | |||||||||
|
|
|
|
|
|
|||||||
13,107 | 9,974 | 7,283 | ||||||||||
Income tax benefit |
(5,059 | ) | (3,920 | ) | (2,862 | ) | ||||||
|
|
|
|
|
|
|||||||
Total stock based compensation, net of tax |
$ | 8,048 | $ | 6,054 | $ | 4,421 | ||||||
|
|
|
|
|
|
Stock Options |
RSUs | Restricted Stock |
Total | |||||||||||||
2012 |
$ | 6,883 | $ | 3,791 | $ | 913 | $ | 11,587 | ||||||||
2013 |
4,722 | 3,702 | 208 | 8,632 | ||||||||||||
2014 |
3,116 | 3,639 | 139 | 6,894 | ||||||||||||
2015 |
78 | 3,602 | — | 3,680 | ||||||||||||
2016 |
— | 162 | — | 162 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total unrecognized compensation expense |
$ | 14,799 | $ | 14,896 | $ | 1,260 | $ | 30,955 | ||||||||
|
|
|
|
|
|
|
|
|
December 31, | ||||||||
2011 | 2010 | |||||||
Senior secured debt financing facility: |
||||||||
Term loans payable |
$ | 240,625 | $ | 590,099 | ||||
Revolving credit facility |
660,730 | — | ||||||
Notes payable through October 2018 at a weighted average interest rate of 2.0% and 2.4% at December 31, 2011 and 2010, respectively |
38,338 | 6,869 | ||||||
Other long-term debt at a weighted average interest rate of 3.2% and 6.6% at December 31, 2011 and 2010, respectively |
16,383 | 3,986 | ||||||
|
|
|
|
|||||
956,076 | 600,954 | |||||||
Less current maturities |
(29,524 | ) | (52,888 | ) | ||||
|
|
|
|
|||||
$ | 926,552 | $ | 548,066 | |||||
|
|
|
|
2012 |
$ | 29,524 | ||
2013 |
51,013 | |||
2014 |
27,105 | |||
2015 |
35,514 | |||
2016 |
811,841 | |||
Thereafter |
1,079 | |||
|
|
|||
$ | 956,076 | |||
|
|
|
Notional Amount |
Effective Date |
Maturity Date |
Fixed Interest Rate* | ||||||
USD $ 250,000,000 |
October 14, 2010 | October 14, 2015 | 3.06 | % | |||||
USD $ 100,000,000 |
April 14, 2011 | October 14, 2013 | 2.61 | % | |||||
USD $60,000,000 |
November 30, 2011 | October 31, 2016 | 2.70 | % | |||||
USD $60,000,000 |
November 30, 2011 | October 31, 2016 | 2.69 | % | |||||
USD $50,000,000 |
December 30, 2011 | December 30, 2016 | 2.69 | % | |||||
GBP £50,000,000 |
November 30, 2011 | October 30, 2016 | 2.86 | % | |||||
CAD $25,000,000 |
December 30, 2011 | March 24, 2016 | 2.92 | % |
* | Includes applicable margin of 1.50% per annum on LIBOR or CDOR-based debt in effect as of December 31, 2011 under the Amended and Restated 2011 Credit Agreement. |
Year Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Gain (loss) in Other Comprehensive Income (Loss) |
$ | (19,391 | ) | $ | 3,230 | $ | (7,994 | ) | ||||
Loss reclassified to interest expense |
(5,641 | ) | (10,377 | ) | (11,595 | ) | ||||||
Loss from hedge ineffectiveness |
(225 | ) | — | — |
|
Balance as of December 31, 2011 |
Fair Value Measurements as of December 31, 2011 | |||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||
Assets: |
||||||||||||||||
Cash surrender value of life insurance |
$ | 13,413 | $ | — | $ | 13,413 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Assets |
$ | 13,413 | $ | — | $ | 13,413 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities: |
||||||||||||||||
Contingent consideration liabilities |
$ | 82,382 | $ | — | $ | — | $ | 82,382 | ||||||||
Deferred compensation liabilities |
14,071 | — | 14,071 | — | ||||||||||||
Interest rate swaps |
10,576 | — | 10,576 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Liabilities |
$ | 107,029 | $ | — | $ | 24,647 | $ | 82,382 | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance as of December 31, 2010 |
Fair Value Measurements as of December 31, 2010 | |||||||||||||||
Level 1 | Level 2 | Level 3 | ||||||||||||||
Assets: |
||||||||||||||||
Cash surrender value of life insurance |
$ | 10,517 | $ | — | $ | 10,517 | $ | — | ||||||||
Interest rate swaps |
4,815 | — | 4,815 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Assets |
$ | 15,332 | $ | — | $ | 15,332 | $ | — | ||||||||
|
|
|
|
|
|
|
|
|||||||||
Liabilities: |
||||||||||||||||
Deferred compensation liabilities |
$ | 11,245 | $ | — | $ | 11,245 | $ | — | ||||||||
Contingent consideration liabilities |
2,000 | — | — | 2,000 | ||||||||||||
Interest rate swaps |
1,416 | — | 1,416 | — | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Liabilities |
$ | 14,661 | $ | — | $ | 12,661 | $ | 2,000 | ||||||||
|
|
|
|
|
|
|
|
Balance as of January 1, 2010 |
$ | — | ||
Contingent consideration liabilities recorded for business acquisitions |
2,000 | |||
|
|
|||
Balance as of December 31, 2010 |
$ | 2,000 | ||
Contingent consideration liabilities recorded for business acquisitions |
81,239 | |||
(Gain) loss included in earnings, net |
(1,408 | ) | ||
Exchange rate effects |
551 | |||
|
|
|||
Balance as of December 31, 2011 |
$ | 82,382 | ||
|
|
|
Years ending December 31: |
||||
2012 |
$ | 84,977 | ||
2013 |
77,306 | |||
2014 |
66,013 | |||
2015 |
56,116 | |||
2016 |
43,179 | |||
Thereafter |
123,137 | |||
|
|
|||
Future Minimum Lease Payments |
$ | 450,728 | ||
|
|
|
December 31, | ||||||||||||||||
2011 | 2010 (Final) |
|||||||||||||||
ECP (Preliminary) |
Other Acquisitions (Preliminary) |
Total (Preliminary) |
||||||||||||||
Receivables |
$ | 54,225 | $ | 23,538 | $ | 77,763 | $ | 27,774 | ||||||||
Receivable reserves |
(3,832 | ) | (1,121 | ) | (4,953 | ) | (2,186 | ) | ||||||||
Inventory |
93,835 | 59,846 | 153,681 | 38,121 | ||||||||||||
Prepaid expenses and other current assets |
3,189 | 2,820 | 6,009 | 1,480 | ||||||||||||
Property and equipment |
41,830 | 10,614 | 52,444 | 18,517 | ||||||||||||
Goodwill |
337,031 | 105,177 | 442,208 | 91,757 | ||||||||||||
Other intangibles |
39,583 | 7,683 | 47,266 | 6,163 | ||||||||||||
Other assets |
13 | 9,420 | 9,433 | 1,529 | ||||||||||||
Deferred income taxes |
(13,218 | ) | 7,235 | (5,983 | ) | 2,922 | ||||||||||
Current liabilities assumed |
(135,390 | ) | (17,257 | ) | (152,647 | ) | (15,665 | ) | ||||||||
Debt assumed |
(13,564 | ) | — | (13,564 | ) | — | ||||||||||
Other noncurrent liabilities assumed |
— | (619 | ) | (619 | ) | — | ||||||||||
Contingent consideration liabilities |
(77,539 | ) | (3,700 | ) | (81,239 | ) | (2,000 | ) | ||||||||
Other purchase price obligations |
(4,136 | ) | (4,510 | ) | (8,646 | ) | (4,359 | ) | ||||||||
Notes issued |
(28,302 | ) | (5,917 | ) | (34,219 | ) | (5,530 | ) | ||||||||
Stock issued |
— | — | — | (14,945 | ) | |||||||||||
|
|
|
|
|
|
|
|
|||||||||
Cash used in acquisitions, net of cash acquired |
$ | 293,725 | $ | 193,209 | $ | 486,934 | $ | 143,578 | ||||||||
|
|
|
|
|
|
|
|
Year ended December 31, | ||||||||
2011 | 2010 | |||||||
Revenue as reported |
$ | 3,269,862 | $ | 2,469,881 | ||||
Revenue of purchased businesses for the period prior to acquisition: |
||||||||
ECP |
407,042 | 420,769 | ||||||
Other acquisitions |
127,275 | 504,044 | ||||||
|
|
|
|
|||||
Pro forma revenue |
$ | 3,804,179 | $ | 3,394,694 | ||||
|
|
|
|
|||||
Income from continuing operations, as reported |
$ | 210,264 | $ | 167,118 | ||||
Net income of purchased businesses for the period prior to acquisition, including pro forma purchase accounting adjustments: |
||||||||
ECP |
22,266 | 9,669 | ||||||
Other acquisitions |
6,578 | 12,996 | ||||||
|
|
|
|
|||||
Pro forma income from continuing operations |
$ | 239,108 | $ | 189,783 | ||||
|
|
|
|
|||||
Basic earnings per share from continuing operations, as reported |
$ | 1.44 | $ | 1.17 | ||||
Effect of purchased businesses for the period prior to acquisition: |
||||||||
ECP |
0.15 | 0.07 | ||||||
Other acquisitions |
0.05 | 0.09 | ||||||
|
|
|
|
|||||
Pro forma basic earnings per share from continuing operations (a) |
$ | 1.64 | $ | 1.32 | ||||
|
|
|
|
|||||
Diluted earnings per share from continuing operations, as reported |
$ | 1.42 | $ | 1.15 | ||||
Effect of purchased businesses for the period prior to acquisition: |
||||||||
ECP |
0.15 | 0.07 | ||||||
Other acquisitions |
0.04 | 0.09 | ||||||
|
|
|
|
|||||
Pro forma diluted earnings per share from continuing operations (a) |
$ | 1.61 | $ | 1.30 | ||||
|
|
|
|
(a) | The sum of the individual earnings per share amounts may not equal the total due to rounding. |
|
Year Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Current: |
||||||||||||
Federal |
$ | 97,887 | $ | 75,009 | $ | 58,854 | ||||||
State |
14,435 | 16,552 | 12,619 | |||||||||
Foreign |
3,883 | 2,483 | 825 | |||||||||
|
|
|
|
|
|
|||||||
116,205 | 94,044 | 72,298 | ||||||||||
Deferred |
9,302 | 8,963 | 5,882 | |||||||||
|
|
|
|
|
|
|||||||
Provision for income taxes |
$ | 125,507 | $ | 103,007 | $ | 78,180 | ||||||
|
|
|
|
|
|
Year Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Domestic |
$ | 319,305 | $ | 264,438 | $ | 202,558 | ||||||
Foreign |
16,466 | 5,687 | 2,759 | |||||||||
|
|
|
|
|
|
|||||||
$ | 335,771 | $ | 270,125 | $ | 205,317 | |||||||
|
|
|
|
|
|
Year Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
U.S. federal statutory rate |
35.0 | % | 35.0 | % | 35.0 | % | ||||||
State income taxes, net of state credits and federal tax impact |
3.1 | 3.4 | 4.1 | |||||||||
Non-deductible expenses |
0.7 | 0.3 | 0.5 | |||||||||
Impact of international operations |
(0.8 | ) | (0.3 | ) | (0.2 | ) | ||||||
Federal production incentives and credits |
(0.4 | ) | (0.2 | ) | (0.4 | ) | ||||||
Revaluation of deferred taxes |
— | (0.5 | ) | — | ||||||||
Non-taxable gain on bargain purchase |
— | — | (0.8 | ) | ||||||||
Other, net |
(0.2 | ) | 0.4 | (0.1 | ) | |||||||
|
|
|
|
|
|
|||||||
Effective tax rate |
37.4 | % | 38.1 | % | 38.1 | % | ||||||
|
|
|
|
|
|
December 31, | ||||||||
2011 | 2010 | |||||||
Deferred Tax Assets: |
||||||||
Inventory |
$ | 22,267 | $ | 16,409 | ||||
Accrued expenses and reserves |
18,357 | 17,379 | ||||||
Accounts receivable |
10,860 | 9,330 | ||||||
Stock based compensation |
8,945 | 6,609 | ||||||
Qualified and nonqualified retirement plans |
5,157 | 4,422 | ||||||
Net operating loss carryforwards |
4,722 | 4,681 | ||||||
Interest rate swaps |
3,679 | — | ||||||
Long term incentive plan |
3,260 | 1,889 | ||||||
Unrecognized tax benefits |
1,669 | 1,657 | ||||||
Other |
3,692 | 2,015 | ||||||
|
|
|
|
|||||
82,608 | 64,391 | |||||||
Less valuation allowance |
(1,911 | ) | (2,607 | ) | ||||
|
|
|
|
|||||
Total deferred tax assets |
$ | 80,697 | $ | 61,784 | ||||
|
|
|
|
|||||
Deferred Tax Liabilities: |
||||||||
Goodwill and other intangible assets |
$ | 46,373 | $ | 38,648 | ||||
Property and equipment |
44,535 | 29,049 | ||||||
Trade name |
32,592 | 23,695 | ||||||
Other |
1,864 | 3,945 | ||||||
|
|
|
|
|||||
Total deferred tax liabilities |
$ | 125,364 | $ | 95,337 | ||||
|
|
|
|
|||||
Net deferred tax liability |
$ | (44,667 | ) | $ | (33,553 | ) | ||
|
|
|
|
December 31, | ||||||||
2011 | 2010 | |||||||
Current deferred tax assets |
$ | 45,690 | $ | 32,506 | ||||
Current deferred tax liabilities |
1,561 | — | ||||||
Noncurrent deferred tax liabilities |
88,796 | 66,059 |
2011 | 2010 | 2009 | ||||||||||
Balance at January 1 |
$ | 5,441 | $ | 8,526 | $ | 7,949 | ||||||
Additions based on tax positions related to the current year |
952 | 713 | 1,811 | |||||||||
Additions for tax positions of prior years |
192 | 281 | 483 | |||||||||
Reductions for tax positions of prior years |
— | (86 | ) | (90 | ) | |||||||
Reductions for tax positions of prior years—timing differences |
— | (2,041 | ) | — | ||||||||
Lapse of statutes of limitations |
(892 | ) | (1,952 | ) | (1,489 | ) | ||||||
Settlements with taxing authorities |
(196 | ) | — | (138 | ) | |||||||
|
|
|
|
|
|
|||||||
Balance at December 31 |
$ | 5,497 | $ | 5,441 | $ | 8,526 | ||||||
|
|
|
|
|
|
|
Foreign Currency Translation |
Unrealized Gain (Loss) on Pension Plan |
Unrealized (Loss) Gain on Interest Rate Swaps |
Accumulated Other Comprehensive Income (Loss) |
|||||||||||||
Balance at January 1, 2009 |
$ | (5,067 | ) | $ | 144 | $ | (8,841 | ) | $ | (13,764 | ) | |||||
Pretax income (loss) |
4,191 | (211 | ) | (7,994 | ) | (4,014 | ) | |||||||||
Income tax benefit |
— | 82 | 2,878 | 2,960 | ||||||||||||
Reversal of unrealized loss |
— | — | 11,595 | 11,595 | ||||||||||||
Reversal of deferred income taxes |
— | — | (4,174 | ) | (4,174 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2009 |
(876 | ) | 15 | (6,536 | ) | (7,397 | ) | |||||||||
Pretax income |
3,078 | — | 3,230 | 6,308 | ||||||||||||
Income tax expense |
— | — | (1,054 | ) | (1,054 | ) | ||||||||||
Reversal of unrealized (gain) loss |
— | (15 | ) | 10,377 | 10,362 | |||||||||||
Reversal of deferred income taxes |
— | — | (3,841 | ) | (3,841 | ) | ||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2010 |
2,202 | — | 2,176 | 4,378 | ||||||||||||
Pretax loss |
(4,273 | ) | — | (19,391 | ) | (23,664 | ) | |||||||||
Income tax benefit |
— | — | 6,847 | 6,847 | ||||||||||||
Reversal of unrealized loss |
— | — | 5,641 | 5,641 | ||||||||||||
Reversal of deferred income taxes |
— | — | (2,019 | ) | (2,019 | ) | ||||||||||
Hedge ineffectiveness |
— | — | (225 | ) | (225 | ) | ||||||||||
Income tax benefit |
— | — | 81 | 81 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Balance at December 31, 2011 |
$ | (2,071 | ) | $ | — | $ | (6,890 | ) | $ | (8,961 | ) | |||||
|
|
|
|
|
|
|
|
|
Year Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Revenue |
||||||||||||
North America |
$ | 3,131,376 | $ | 2,469,881 | $ | 2,047,942 | ||||||
Europe |
138,486 | — | — | |||||||||
|
|
|
|
|
|
|||||||
Total revenue |
$ | 3,269,862 | $ | 2,469,881 | $ | 2,047,942 | ||||||
|
|
|
|
|
|
|||||||
EBITDA |
||||||||||||
North America |
$ | 405,924 | $ | 339,869 | $ | 273,666 | ||||||
Europe |
12,144 | — | — | |||||||||
|
|
|
|
|
|
|||||||
Total EBITDA |
$ | 418,068 | $ | 339,869 | $ | 273,666 | ||||||
|
|
|
|
|
|
|||||||
Depreciation and Amortization |
||||||||||||
North America |
$ | 52,481 | $ | 41,428 | $ | 37,450 | ||||||
Europe |
2,024 | — | — | |||||||||
|
|
|
|
|
|
|||||||
Total depreciation and amortization |
$ | 54,505 | $ | 41,428 | $ | 37,450 | ||||||
|
|
|
|
|
|
Year Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
EBITDA |
$ | 418,068 | $ | 339,869 | $ | 273,666 | ||||||
Depreciation and amortization |
54,505 | 41,428 | 37,450 | |||||||||
Interest expense, net |
22,447 | 28,316 | 30,899 | |||||||||
Loss on debt extinguishment |
5,345 | — | — | |||||||||
Provision for income taxes |
125,507 | 103,007 | 78,180 | |||||||||
|
|
|
|
|
|
|||||||
Income from continuing operations |
$ | 210,264 | $ | 167,118 | $ | 127,137 | ||||||
|
|
|
|
|
|
Year Ended December 31, | ||||||||||||
Capital Expenditures |
2011 | 2010 | 2009 | |||||||||
North America |
$ | 84,856 | $ | 61,438 | $ | 55,870 | ||||||
Europe |
1,560 | — | — | |||||||||
|
|
|
|
|
|
|||||||
$ | 86,416 | $ | 61,438 | $ | 55,870 | |||||||
|
|
|
|
|
|
December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Receivables, net |
||||||||||||
North America |
$ | 230,871 | $ | 191,085 | $ | 152,443 | ||||||
Europe |
50,893 | — | — | |||||||||
|
|
|
|
|
|
|||||||
Total receivables, net |
281,764 | 191,085 | 152,443 | |||||||||
|
|
|
|
|
|
|||||||
Inventory |
||||||||||||
North America |
636,145 | 492,688 | 385,686 | |||||||||
Europe |
100,701 | — | — | |||||||||
|
|
|
|
|
|
|||||||
Total inventory |
736,846 | 492,688 | 385,686 | |||||||||
|
|
|
|
|
|
|||||||
Property and Equipment, net |
||||||||||||
North America |
380,282 | 331,312 | 289,902 | |||||||||
Europe |
43,816 | — | — | |||||||||
|
|
|
|
|
|
|||||||
Total property and equipment, net |
424,098 | 331,312 | 289,902 | |||||||||
|
|
|
|
|
|
|||||||
Other unallocated assets |
1,756,996 | 1,284,424 | 1,192,090 | |||||||||
|
|
|
|
|
|
|||||||
Total assets |
$ | 3,199,704 | $ | 2,299,509 | $ | 2,020,121 | ||||||
|
|
|
|
|
|
Year Ended December 31, | ||||||||||||
Revenue |
2011 | 2010 | 2009 | |||||||||
United States. |
$ | 2,952,620 | $ | 2,366,224 | $ | 1,971,654 | ||||||
United Kingdom |
138,486 | — | — | |||||||||
Other countries |
178,756 | 103,657 | 76,288 | |||||||||
|
|
|
|
|
|
|||||||
$ | 3,269,862 | $ | 2,469,881 | $ | 2,047,942 | |||||||
|
|
|
|
|
|
December 31, | ||||||||
Long-lived Assets |
2011 | 2010 | ||||||
United States. |
$ | 360,961 | $ | 316,002 | ||||
United Kingdom |
43,816 | — | ||||||
Other countries |
19,321 | 15,310 | ||||||
|
|
|
|
|||||
$ | 424,098 | $ | 331,312 | |||||
|
|
|
|
Year Ended December 31, | ||||||||||||
2011 | 2010 | 2009 | ||||||||||
Aftermarket, other new and refurbished products |
$ | 1,634,003 | $ | 1,236,806 | $ | 1,093,157 | ||||||
Recycled, remanufactured and related products and services |
1,115,088 | 888,320 | 749,012 | |||||||||
Other |
520,771 | 344,755 | 205,773 | |||||||||
|
|
|
|
|
|
|||||||
$ | 3,269,862 | $ | 2,469,881 | $ | 2,047,942 | |||||||
|
|
|
|
|
|
|
Quarter Ended | ||||||||||||||||
Mar. 31 | Jun. 30 | Sep. 30 | Dec. 31 | |||||||||||||
(In thousands, except per share data) | ||||||||||||||||
2010 |
||||||||||||||||
Revenue |
$ | 603,516 | $ | 584,681 | $ | 607,621 | $ | 674,063 | ||||||||
Gross margin |
283,290 | 261,266 | 261,424 | 287,500 | ||||||||||||
Operating income |
89,929 | 69,609 | 65,207 | 73,132 | ||||||||||||
Income from continuing operations |
51,983 | 37,906 | 35,901 | 41,328 | ||||||||||||
Income from discontinued operations |
1,953 | — | — | — | ||||||||||||
Net income |
53,936 | 37,906 | 35,901 | 41,328 | ||||||||||||
Basic earnings per share from continuing operations(1) |
0.37 | 0.27 | 0.25 | 0.29 | ||||||||||||
Diluted earnings per share from continuing operations(1) |
0.36 | 0.26 | 0.25 | 0.28 |
Quarter Ended | ||||||||||||||||
Mar. 31 | Jun. 30 | Sep. 30 | Dec. 31(2) | |||||||||||||
(In thousands, except per share data) | ||||||||||||||||
2011 |
||||||||||||||||
Revenue |
$ | 786,648 | $ | 759,684 | $ | 783,898 | $ | 939,632 | ||||||||
Gross margin |
343,646 | 322,236 | 334,322 | 391,789 | ||||||||||||
Operating income |
107,371 | 78,486 | 85,488 | 90,138 | ||||||||||||
Income from continuing operations |
58,182 | 46,706 | 49,231 | 56,145 | ||||||||||||
Income from discontinued operations |
— | — | — | — | ||||||||||||
Net income |
58,182 | 46,706 | 49,231 | 56,145 | ||||||||||||
Basic earnings per share from continuing operations(1) |
0.40 | 0.32 | 0.34 | 0.38 | ||||||||||||
Diluted earnings per share from continuing operations(1) |
0.39 | 0.32 | 0.33 | 0.38 |
(1) | The sum of the quarters may not equal the total of the respective year's earnings per share on either a basic or diluted basis due to changes in weighted average shares outstanding throughout the year. |
(2) | Results for the quarter ended December 31, 2011 include the results of ECP from the acquisition effective as of October 1, 2011 through the end of the quarter. |
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