LKQ Corporation Announces Results for Third Quarter 2020
LKQ Corporation reported a third quarter 2020 revenue of $3.0 billion, down 3.2% year-over-year. Despite this decline, net income rose by 27.4% to $193 million, with diluted EPS increasing 30.6% to $0.64. Year-to-date operating cash flow improved by 17.6% to $1.1 billion, while free cash flow surged by 28.1% to $1.0 billion. The company reduced borrowings by $256 million, achieving a net leverage of 2.0x EBITDA. The share repurchase program is set to resume in the fourth quarter of 2020, reflecting a strong balance sheet and operational efficiency.
- Net income for Q3 2020 rose to $193 million, a 27.4% increase year-over-year.
- Diluted EPS increased by 30.6% to $0.64.
- Operating cash flow reached $1.1 billion year-to-date, up 17.6%.
- Free cash flow totaled $1.0 billion for the first nine months, up 28.1%.
- Debt decreased by $256 million in Q3, totaling a $1.0 billion reduction year-to-date.
- Net leverage improved to 2.0x EBITDA, the lowest level since Q2 2017.
- Revenue declined by 3.2% year-over-year, with organic parts and services revenue down 4.5%.
- Acquisition and divestiture revenue impact reduced overall revenue by 1.0%.
- Third quarter 2020 revenue of
$3.0 billion (down3.2% year-over-year) - Parts and services organic revenue declined
4.5% year-over-year - Net income¹ of
$193 million (up27.4% ); adjusted net income of$228 million (up20.9% ) - Targeted cost and productivity actions continue to contribute to operating leverage
- Diluted EPS¹ of
$0.64 (up30.6% ); adjusted diluted EPS of$0.75 (up23.0% ) - Year-to-date 2020 operating cash flow of
$1.1 billion (up17.6% ); free cash flow of$1.0 billion (up28.1% ) - Reduced borrowings by
$256 million ; year-to-date debt paydown of$1.0 billion - Net leverage down to 2.0x EBITDA
- Liquidity up to
$2.7 billion as of September 30, 2020 - Share repurchase program to recommence in the fourth quarter 2020
CHICAGO, Oct. 29, 2020 (GLOBE NEWSWIRE) -- LKQ Corporation (Nasdaq: LKQ) today reported third quarter 2020 results that reflect continued improvement in revenue trends, operational and balance sheet productivity, and further debt reduction.
“We delivered exceptionally strong third quarter results owing to the resilience and dedication of the entire LKQ organization. I couldn’t be prouder of what our global team accomplished during these unprecedented times,” noted Dominick Zarcone, President and Chief Executive Officer. “Facing a continued challenging demand environment, our team maintained their sharp focus on the cost structure, and we achieved the highest quarterly earnings in the Company’s history and delivered year-over-year margin improvements in each of our operating segments, with North America also achieving its highest level of segment EBITDA margin in the Company’s history. Additionally, year-to-date we have generated over
Third Quarter 2020 Financial Results
Revenue for the third quarter of 2020 was
Net income for the third quarter of 2020 was
¹ References to Net income and Diluted earnings per share, and the corresponding adjusted figures, in this release reflect amounts from continuing operations attributable to LKQ stockholders.
On an adjusted basis, net income was
Cash Flow and Balance Sheet
Cash flow from operations totaled
Varun Laroyia, Executive Vice President and Chief Financial Officer, commented, “At the onset of the pandemic, we prioritized cash flow and a strong balance sheet, and during the quarter we maintained that focus by yet again delivering strong operating cash flow pushing the year to date total to over
Non-GAAP Financial Measures
This release contains, and management’s presentation on the conference call will refer to, non-GAAP financial measures within the meaning of Regulation G promulgated by the Securities and Exchange Commission. Included with this release are reconciliations of each non-GAAP financial measure with the most directly comparable financial measure calculated in accordance with GAAP.
Conference Call Details
LKQ will host a conference call and webcast on October 29, 2020 at 8:00 a.m. Eastern Time (7:00 a.m. Central Time) with members of senior management to discuss the Company's results. To access the investor conference call, please dial (833) 236-5754. International access to the call may be obtained by dialing (647) 689-4182. The investor conference call will require you to enter conference ID: 7976288#.
Webcast and Presentation Details
The audio webcast and accompanying slide presentation can be accessed at (www.lkqcorp.com) in the Investor Relations section.
A replay of the conference call will be available by telephone at (800) 585-8367 or (416) 621-4642 for international calls. The telephone replay will require you to enter conference ID: 7976288#. An online replay of the audio webcast will be available on the Company's website. Both formats of replay will be available through November 12, 2020. Please allow approximately two hours after the live presentation before attempting to access the replay.
About LKQ Corporation
LKQ Corporation (www.lkqcorp.com) is a leading provider of alternative and specialty parts to repair and accessorize automobiles and other vehicles. LKQ has operations in North America, Europe and Taiwan. LKQ offers its customers a broad range of OE recycled and aftermarket parts, replacement systems, components, equipment, and services to repair and accessorize automobiles, trucks, and recreational and performance vehicles.
Forward Looking Statements
Statements and information in this press release that are not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are made pursuant to the “safe harbor” provisions of such Act.
Forward-looking statements include, but are not limited to, statements regarding our outlook, guidance, expectations, beliefs, hopes, intentions and strategies. These statements are subject to a number of risks, uncertainties, assumptions and other factors including those identified below.
All forward-looking statements are based on information available to us at the time the statements are made. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
You should not place undue reliance on our forward-looking statements. Actual events or results may differ materially from those expressed or implied in the forward-looking statements. The risks, uncertainties, assumptions and other factors that could cause actual events or results to differ from the events or results predicted or implied by our forward-looking statements include the factors set forth below, and other factors discussed in our filings with the SEC, including those disclosed under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2019 and in our subsequent Quarterly Reports on Form 10-Q. These reports are available on our investor relations website at lkqcorp.com and on the SEC website at sec.gov.
These factors include the following (not necessarily in order of importance):
- effects on our business from the disruption to economic activity caused by the COVID-19 pandemic, including a substantial decrease in the demand for our products and services, interruptions to supply chains, and the inability of customers to pay for products and services;
- employment-related issues arising from the COVID-19 pandemic, including employment law claims resulting from the layoffs and furloughs of employees to reduce costs during the period of decreased demand, increased healthcare costs, workforce shortages, and health and safety issues at the workplace;
- changes in economic, political and social conditions in the U.S. and other countries in which we are located or do business, including the U.K. withdrawal from the European Union (also known as Brexit), and the impact of these changes on our businesses, the demand for our products and our ability to obtain financing for operations;
- increasing competition in the automotive parts industry (including parts sold on online marketplaces and the potential competitive advantage to original equipment manufacturers (“OEMs”) with "connected car" technology);
- fluctuations in the pricing of new OEM replacement products;
- changes in the level of acceptance and promotion of alternative automotive parts by insurance companies and vehicle repairers;
- changes to our business relationships with insurance companies or changes by insurance companies to their business practices relating to the use of our products;
- our ability to identify acquisition candidates at reasonable prices and our ability to successfully divest underperforming businesses;
- our ability to integrate, realize expected synergies, and successfully operate acquired companies and any companies acquired in the future, and the risks associated with these companies;
- the implementation of a border tax or tariff on imports and the negative impact on our business due to the amount of inventory we import;
- restrictions or prohibitions on selling certain aftermarket products through enforcement by OEMs or government agencies of intellectual property rights;
- restrictions or prohibitions on importing certain aftermarket products by border enforcement agencies based on, among other things, intellectual property infringement claims;
- variations in the number of vehicles manufactured and sold, vehicle accident rates, miles driven, and the age profile of vehicles in accidents;
- the increase of accident avoidance systems being installed in vehicles;
- the potential loss of sales of certain mechanical parts due to the rise of electric vehicle sales;
- fluctuations in the prices of fuel, scrap metal and other commodities;
- changes in laws or regulations affecting our business;
- higher costs and the resulting potential inability to service our customers to the extent that our suppliers decide to discontinue business relationships with us;
- price increases, interruptions or disruptions to the supply of vehicle parts from aftermarket suppliers and vehicles from salvage auctions;
- changes in the demand for our products and the supply of our inventory due to severity of weather and seasonality of weather patterns;
- the risks associated with operating in foreign jurisdictions, including foreign laws and economic and political instabilities;
- declines in the values of our assets, including as a result of the effects of the COVID-19 pandemic on our business;
- additional unionization efforts, new collective bargaining agreements, and work stoppages;
- our ability to develop and implement the operational and financial systems needed to manage our operations;
- interruptions, outages or breaches of our operational systems, security systems, or infrastructure as a result of attacks on, or malfunctions of, our systems;
- costs of complying with laws relating to the security of personal information;
- product liability claims by the end users of our products or claims by other parties who we have promised to indemnify for product liability matters;
- costs associated with recalls of the products we sell;
- potential losses of our right to operate at key locations if we are not able to negotiate lease renewals;
- inaccuracies in the data relating to our industry published by independent sources upon which we rely;
- currency fluctuations in the U.S. dollar, pound sterling and euro versus other currencies;
- our ability to obtain financing on acceptable terms to finance our growth;
- our ability to satisfy our debt obligations and to operate within the limitations imposed by financing arrangements, including the possibility of not satisfying one or more of the financial covenants in our credit facility due to the effects of the COVID-19 pandemic on our business;
- changes to applicable U.S. and foreign tax laws, changes to interpretations of tax laws, and changes in our mix of earnings among the jurisdictions in which we operate; and
- disruptions to the management and operations of our business and the uncertainties caused by activist investors.
Contact:
Joseph P. Boutross
Vice President, Investor Relations
LKQ Corporation
(312) 621-2793
jpboutross@lkqcorp.com
LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated
Statements of Income, with Supplementary Data
(In thousands, except per share data)
| Three Months Ended September 30, | |||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||
| % of Revenue (1) | % of Revenue (1) | $ Change | % Change | ||||||||||||||||||
| Revenue | $ | 3,047,684 | 100.0 | % | $ | 3,147,773 | 100.0 | % | $ | (100,089 | ) | (3.2 | %) | ||||||||
| Cost of goods sold | 1,848,309 | 60.6 | % | 1,930,146 | 61.3 | % | (81,837 | ) | (4.2 | %) | |||||||||||
| Restructuring expenses - cost of goods sold | 833 | 0.0 | % | 17,298 | 0.5 | % | (16,465 | ) | (95.2 | %) | |||||||||||
| Gross margin | 1,198,542 | 39.3 | % | 1,200,329 | 38.1 | % | (1,787 | ) | (0.1 | %) | |||||||||||
| Selling, general and administrative expenses | 813,893 | 26.7 | % | 892,124 | 28.3 | % | (78,231 | ) | (8.8 | %) | |||||||||||
| Restructuring and acquisition related expenses | 20,495 | 0.7 | % | 8,929 | 0.3 | % | 11,566 | n/m | |||||||||||||
| Gain on disposal of businesses and impairment of net assets held for sale | (503 | ) | (0.0 | %) | (3,601 | ) | (0.1 | %) | 3,098 | (86.0 | %) | ||||||||||
| Depreciation and amortization | 68,655 | 2.3 | % | 71,513 | 2.3 | % | (2,858 | ) | (4.0 | %) | |||||||||||
| Operating income | 296,002 | 9.7 | % | 231,364 | 7.4 | % | 64,638 | 27.9 | % | ||||||||||||
| Other expense (income): | |||||||||||||||||||||
| Interest expense, net of interest income | 25,182 | 0.8 | % | 32,104 | 1.0 | % | (6,922 | ) | (21.6 | %) | |||||||||||
| Gain on debt extinguishment | — | 0.0 | % | (128 | ) | (0.0 | %) | 128 | n/m | ||||||||||||
| Other expense (income), net | 2,492 | 0.1 | % | (5,939 | ) | (0.2 | %) | 8,431 | n/m | ||||||||||||
| Total other expense, net | 27,674 | 0.9 | % | 26,037 | 0.8 | % | 1,637 | 6.3 | % | ||||||||||||
| Income from continuing operations before provision for income taxes | 268,328 | 8.8 | % | 205,327 | 6.5 | % | 63,001 | 30.7 | % | ||||||||||||
| Provision for income taxes | 78,510 | 2.6 | % | 57,747 | 1.8 | % | 20,763 | 36.0 | % | ||||||||||||
| Equity in earnings of unconsolidated subsidiaries | 4,113 | 0.1 | % | 4,232 | 0.1 | % | (119 | ) | (2.8 | %) | |||||||||||
| Income from continuing operations | 193,931 | 6.4 | % | 151,812 | 4.8 | % | 42,119 | 27.7 | % | ||||||||||||
| Net income from discontinued operations | — | 0.0 | % | 781 | 0.0 | % | (781 | ) | n/m | ||||||||||||
| Net income | 193,931 | 6.4 | % | 152,593 | 4.8 | % | 41,338 | 27.1 | % | ||||||||||||
| Less: net income (loss) attributable to continuing noncontrolling interest | 448 | 0.0 | % | (46 | ) | (0.0 | %) | 494 | n/m | ||||||||||||
| Less: net income attributable to discontinued noncontrolling interest | — | 0.0 | % | 376 | 0.0 | % | (376 | ) | n/m | ||||||||||||
| Net income attributable to LKQ stockholders | $ | 193,483 | 6.3 | % | $ | 152,263 | 4.8 | % | $ | 41,220 | 27.1 | % | |||||||||
| Basic earnings per share: (2) | |||||||||||||||||||||
| Income from continuing operations | $ | 0.64 | $ | 0.49 | $ | 0.15 | 30.6 | % | |||||||||||||
| Net income from discontinued operations | — | 0.00 | (0.00 | ) | n/m | ||||||||||||||||
| Net income | 0.64 | 0.50 | 0.14 | 28.0 | % | ||||||||||||||||
| Less: net income (loss) attributable to continuing noncontrolling interest | 0.00 | (0.00 | ) | 0.00 | n/m | ||||||||||||||||
| Less: net income attributable to discontinued noncontrolling interest | — | 0.00 | (0.00 | ) | n/m | ||||||||||||||||
| Net income attributable to LKQ stockholders | $ | 0.64 | $ | 0.50 | $ | 0.14 | 28.0 | % | |||||||||||||
| Diluted earnings per share: (2) | |||||||||||||||||||||
| Income from continuing operations | $ | 0.64 | $ | 0.49 | $ | 0.15 | 30.6 | % | |||||||||||||
| Net income from discontinued operations | — | 0.00 | (0.00 | ) | n/m | ||||||||||||||||
| Net income | 0.64 | 0.50 | 0.14 | 28.0 | % | ||||||||||||||||
| Less: net income (loss) attributable to continuing noncontrolling interest | 0.00 | (0.00 | ) | 0.00 | n/m | ||||||||||||||||
| Less: net income attributable to discontinued noncontrolling interest | — | 0.00 | (0.00 | ) | n/m | ||||||||||||||||
| Net income attributable to LKQ stockholders | $ | 0.64 | $ | 0.49 | $ | 0.15 | 30.6 | % | |||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||
| Basic | 304,271 | 307,230 | (2.959 | ) | (1.0 | %) | |||||||||||||||
| Diluted | 304,566 | 307,960 | (3.394 | ) | (1.1 | %) | |||||||||||||||
| (1) The sum of the individual percentage of revenue components may not equal the total due to rounding. | |||||||||||||||||||||
| (2) The sum of the individual earnings per share amounts may not equal the total due to rounding. | |||||||||||||||||||||
LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated
Statements of Income, with Supplementary Data
(In thousands, except per share data)
| Nine Months Ended September 30, | |||||||||||||||||||||
| 2020 | 2019 | ||||||||||||||||||||
| % of Revenue (1) | % of Revenue (1) | $ Change | % Change | ||||||||||||||||||
| Revenue | $ | 8,674,942 | 100.0 | % | $ | 9,496,249 | 100.0 | % | $ | (821,307 | ) | (8.6 | %) | ||||||||
| Cost of goods sold | 5,244,946 | 60.5 | % | 5,823,171 | 61.3 | % | (578,225 | ) | (9.9 | %) | |||||||||||
| Restructuring expenses - cost of goods sold | 6,574 | 0.1 | % | 17,298 | 0.2 | % | (10,724 | ) | (62.0 | %) | |||||||||||
| Gross margin | 3,423,422 | 39.5 | % | 3,655,780 | 38.5 | % | (232,358 | ) | (6.4 | %) | |||||||||||
| Selling, general and administrative expenses | 2,451,073 | 28.3 | % | 2,687,024 | 28.3 | % | (235,951 | ) | (8.8 | %) | |||||||||||
| Restructuring and acquisition related expenses | 52,415 | 0.6 | % | 20,613 | 0.2 | % | 31,802 | n/m | |||||||||||||
| Loss on disposal of businesses and impairment of net assets held for sale | 1,733 | 0.0 | % | 44,919 | 0.5 | % | (43,186 | ) | (96.1 | %) | |||||||||||
| Depreciation and amortization | 199,897 | 2.3 | % | 213,349 | 2.2 | % | (13,452 | ) | (6.3 | %) | |||||||||||
| Operating income | 718,304 | 8.3 | % | 689,875 | 7.3 | % | 28,429 | 4.1 | % | ||||||||||||
| Other expense (income): | |||||||||||||||||||||
| Interest expense, net of interest income | 76,729 | 0.9 | % | 104,077 | 1.1 | % | (27,348 | ) | (26.3 | %) | |||||||||||
| Loss (gain) on debt extinguishment | 12,751 | 0.1 | % | (128 | ) | (0.0 | %) | 12,879 | n/m | ||||||||||||
| Other income, net | (9,304 | ) | (0.1 | %) | (15,523 | ) | (0.2 | %) | 6,219 | (40.1 | %) | ||||||||||
| Total other expense, net | 80,176 | 0.9 | % | 88,426 | 0.9 | % | (8,250 | ) | (9.3 | %) | |||||||||||
| Income from continuing operations before provision for income taxes | 638,128 | 7.4 | % | 601,449 | 6.3 | % | 36,679 | 6.1 | % | ||||||||||||
| Provision for income taxes | 180,790 | 2.1 | % | 165,122 | 1.7 | % | 15,668 | 9.5 | % | ||||||||||||
| Equity in earnings (losses) of unconsolidated subsidiaries | 1,980 | 0.0 | % | (33,745 | ) | (0.4 | %) | 35,725 | n/m | ||||||||||||
| Income from continuing operations | 459,318 | 5.3 | % | 402,582 | 4.2 | % | 56,736 | 14.1 | % | ||||||||||||
| Net (loss) income from discontinued operations | (638 | ) | (0.0 | %) | 1,179 | 0.0 | % | (1,817 | ) | n/m | |||||||||||
| Net income | 458,680 | 5.3 | % | 403,761 | 4.3 | % | 54,919 | 13.6 | % | ||||||||||||
| Less: net income attributable to continuing noncontrolling interest | 1,166 | 0.0 | % | 2,321 | 0.0 | % | (1,155 | ) | (49.8 | %) | |||||||||||
| Less: net income attributable to discontinued noncontrolling interest | 103 | 0.0 | % | 568 | 0.0 | % | (465 | ) | (81.9 | %) | |||||||||||
| Net income attributable to LKQ stockholders | $ | 457,411 | 5.3 | % | $ | 400,872 | 4.2 | % | $ | 56,539 | 14.1 | % | |||||||||
| Basic earnings per share: (2) | |||||||||||||||||||||
| Income from continuing operations | $ | 1.51 | $ | 1.29 | $ | 0.22 | 17.1 | % | |||||||||||||
| Net (loss) income from discontinued operations | (0.00 | ) | 0.00 | (0.00 | ) | n/m | |||||||||||||||
| Net income | 1.50 | 1.30 | 0.20 | 15.4 | % | ||||||||||||||||
| Less: net income attributable to continuing noncontrolling interest | 0.00 | 0.01 | (0.01 | ) | n/m | ||||||||||||||||
| Less: net income attributable to discontinued noncontrolling interest | 0.00 | 0.00 | (0.00 | ) | n/m | ||||||||||||||||
| Net income attributable to LKQ stockholders | $ | 1.50 | $ | 1.29 | $ | 0.21 | 16.3 | % | |||||||||||||
| Diluted earnings per share: (2) | |||||||||||||||||||||
| Income from continuing operations | $ | 1.51 | $ | 1.29 | $ | 0.22 | 17.1 | % | |||||||||||||
| Net (loss) income from discontinued operations | (0.00 | ) | 0.00 | (0.00 | ) | n/m | |||||||||||||||
| Net income | 1.50 | 1.29 | 0.21 | 16.3 | % | ||||||||||||||||
| Less: net income attributable to continuing noncontrolling interest | 0.00 | 0.01 | (0.01 | ) | n/m | ||||||||||||||||
| Less: net income attributable to discontinued noncontrolling interest | 0.00 | 0.00 | (0.00 | ) | n/m | ||||||||||||||||
| Net income attributable to LKQ stockholders | $ | 1.50 | $ | 1.28 | $ | 0.22 | 17.2 | % | |||||||||||||
| Weighted average common shares outstanding: | |||||||||||||||||||||
| Basic | 304,837 | 311,360 | (6,523 | ) | (2.1 | %) | |||||||||||||||
| Diluted | 305,171 | 312,204 | (7,033 | ) | (2.3 | %) | |||||||||||||||
| (1) The sum of the individual percentage of revenue components may not equal the total due to rounding. | |||||||||||||||||||||
| (2) The sum of the individual earnings per share amounts may not equal the total due to rounding. | |||||||||||||||||||||
LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
| September 30, 2020 | December 31, 2019 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 421,382 | $ | 523,020 | ||||
| Receivables, net | 1,174,504 | 1,131,132 | ||||||
| Inventories | 2,245,846 | 2,772,777 | ||||||
| Prepaid expenses and other current assets | 260,776 | 260,890 | ||||||
| Total current assets | 4,102,508 | 4,687,819 | ||||||
| Property, plant and equipment, net | 1,204,766 | 1,234,400 | ||||||
| Operating lease assets, net | 1,283,212 | 1,308,511 | ||||||
| Intangible assets: | ||||||||
| Goodwill | 4,473,576 | 4,406,535 | ||||||
| Other intangibles, net | 799,460 | 850,338 | ||||||
| Equity method investments | 147,536 | 139,243 | ||||||
| Other noncurrent assets | 150,154 | 153,110 | ||||||
| Total assets | $ | 12,161,212 | $ | 12,779,956 | ||||
| Liabilities and Stockholders' Equity | ||||||||
| Current liabilities: | ||||||||
| Accounts payable | $ | 847,733 | $ | 942,795 | ||||
| Accrued expenses: | ||||||||
| Accrued payroll-related liabilities | 196,581 | 179,203 | ||||||
| Refund liability | 106,442 | 97,314 | ||||||
| Other accrued expenses | 356,858 | 289,683 | ||||||
| Other current liabilities | 102,374 | 121,623 | ||||||
| Current portion of operating lease liabilities | 219,239 | 221,527 | ||||||
| Current portion of long-term obligations | 97,268 | 326,367 | ||||||
| Total current liabilities | 1,926,495 | 2,178,512 | ||||||
| Long-term operating lease liabilities, excluding current portion | 1,122,116 | 1,137,597 | ||||||
| Long-term obligations, excluding current portion | 3,009,638 | 3,715,389 | ||||||
| Deferred income taxes | 304,898 | 310,129 | ||||||
| Other noncurrent liabilities | 358,402 | 365,672 | ||||||
| Commitments and contingencies | ||||||||
| Redeemable noncontrolling interest | 24,077 | 24,077 | ||||||
| Stockholders' equity: | ||||||||
| Common stock, | 3,208 | 3,199 | ||||||
| Additional paid-in capital | 1,439,493 | 1,418,239 | ||||||
| Retained earnings | 4,595,028 | 4,140,136 | ||||||
| Accumulated other comprehensive loss | (209,722 | ) | (200,885 | ) | ||||
| Treasury stock, at cost; 16,495,915 shares at September 30, 2020 and 13,195,915 shares at December 31, 2019 | (439,819 | ) | (351,813 | ) | ||||
| Total Company stockholders' equity | 5,388,188 | 5,008,876 | ||||||
| Noncontrolling interest | 27,398 | 39,704 | ||||||
| Total stockholders' equity | 5,415,586 | 5,048,580 | ||||||
| Total liabilities and stockholders' equity | $ | 12,161,212 | $ | 12,779,956 | ||||
LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
| Nine Months Ended | ||||||||||||||
| September 30, | ||||||||||||||
| 2020 | 2019 | |||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||
| Net income | $ | 458,680 | $ | 403,761 | ||||||||||
| Adjustments to reconcile net income to net cash provided by operating activities: | ||||||||||||||
| Depreciation and amortization | 220,636 | 230,239 | ||||||||||||
| Impairment of equity method investments | — | 39,551 | ||||||||||||
| Loss on disposal of businesses and impairment of net assets held for sale | 1,733 | 44,919 | ||||||||||||
| Stock-based compensation expense | 22,851 | 20,837 | ||||||||||||
| Loss (gain) on debt extinguishment | 12,751 | (128 | ) | |||||||||||
| Other | (12,053 | ) | (13,192 | ) | ||||||||||
| Changes in operating assets and liabilities, net of effects from acquisitions and dispositions: | ||||||||||||||
| Receivables, net | (28,622 | ) | (102,381 | ) | ||||||||||
| Inventories | 535,348 | 148,237 | ||||||||||||
| Prepaid income taxes/income taxes payable | (22,510 | ) | 40,711 | |||||||||||
| Accounts payable | (105,719 | ) | 90,879 | |||||||||||
| Other operating assets and liabilities | 51,546 | 61,738 | ||||||||||||
| Net cash provided by operating activities | 1,134,641 | 965,171 | ||||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||
| Purchases of property, plant and equipment | (109,949 | ) | (165,551 | ) | ||||||||||
| Proceeds from disposals of property, plant and equipment | 12,937 | 6,402 | ||||||||||||
| Acquisitions, net of cash acquired | (7,107 | ) | (14,517 | ) | ||||||||||
| Proceeds from disposal of businesses, net of cash sold | 4,603 | 19,505 | ||||||||||||
| Investments in unconsolidated subsidiaries | (6,917 | ) | (6,894 | ) | ||||||||||
| Other investing activities, net | — | 966 | ||||||||||||
| Net cash used in investing activities | (106,433 | ) | (160,089 | ) | ||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||
| Early-redemption premium | (9,498 | ) | — | |||||||||||
| Repayment of U.S. Notes (2023) | (600,000 | ) | — | |||||||||||
| Borrowings under revolving credit facilities | 599,485 | 390,275 | ||||||||||||
| Repayments under revolving credit facilities | (949,381 | ) | (613,758 | ) | ||||||||||
| Repayments under term loans | (13,125 | ) | (6,563 | ) | ||||||||||
| Borrowings under receivables securitization facility | 111,300 | 36,600 | ||||||||||||
| Repayments under receivables securitization facility | (111,300 | ) | (146,600 | ) | ||||||||||
| Payment of notes issued from acquisitions | — | (19,123 | ) | |||||||||||
| Repayments of other debt, net | (74,822 | ) | (31,587 | ) | ||||||||||
| Purchase of treasury stock | (88,006 | ) | (291,813 | ) | ||||||||||
| Other financing activities, net | (15,436 | ) | (7,125 | ) | ||||||||||
| Net cash used in financing activities | (1,150,783 | ) | (689,694 | ) | ||||||||||
| Effect of exchange rate changes on cash, cash equivalents and restricted cash | 9,100 | (9,702 | ) | |||||||||||
| Net (decrease) increase in cash, cash equivalents and restricted cash | (113,475 | ) | 105,686 | |||||||||||
| Cash, cash equivalents and restricted cash of continuing operations, beginning of period | 528,387 | 337,250 | ||||||||||||
| Add: Cash, cash equivalents and restricted cash of discontinued operations, beginning of period | 6,470 | — | ||||||||||||
| Cash, cash equivalents and restricted cash of continuing and discontinued operations, beginning of period | 534,857 | 337,250 | ||||||||||||
| Cash, cash equivalents and restricted cash of continuing and discontinued operations, end of period | 421,382 | 442,936 | ||||||||||||
| Less: Cash and cash equivalents of discontinued operations, end of period | — | 4,328 | ||||||||||||
| Cash, cash equivalents and restricted cash, end of period | $ | 421,382 | $ | 438,608 | ||||||||||
The following unaudited tables compare certain third party revenue categories:
| Three Months Ended | |||||||||||||||
| September 30, | |||||||||||||||
| 2020 | 2019 | $ Change | % Change | ||||||||||||
| (In thousands) | |||||||||||||||
| Included in Unaudited Condensed Consolidated | |||||||||||||||
| Statements of Income of LKQ Corporation | |||||||||||||||
| North America | $ | 1,007,001 | $ | 1,145,402 | $ | (138,401 | ) | (12.1 | %) | ||||||
| Europe | 1,479,174 | 1,446,392 | 32,782 | 2.3 | % | ||||||||||
| Specialty | 399,554 | 394,204 | 5,350 | 1.4 | % | ||||||||||
| Parts and services | 2,885,729 | 2,985,998 | (100,269 | ) | (3.4 | %) | |||||||||
| Other | 161,955 | 161,775 | 180 | 0.1 | % | ||||||||||
| Total | $ | 3,047,684 | $ | 3,147,773 | $ | (100,089 | ) | (3.2 | %) | ||||||
Revenue changes by category for the three months ended September 30, 2020 vs. 2019:
| Revenue Change Attributable to: | ||||||||||||
| Organic | Acquisition and Divestiture | Foreign Exchange | Total Change (1) | |||||||||
| North America | (11.3 | %) | (0.7 | %) | (0.1 | %) | (12.1 | %) | ||||
| Europe | (0.7 | %) | (1.5 | %) | 4.5 | % | 2.3 | % | ||||
| Specialty | 1.1 | % | 0.3 | % | (0.1 | %) | 1.4 | % | ||||
| Parts and services | (4.5 | %) | (1.0 | %) | 2.1 | % | (3.4 | %) | ||||
| Other | (0.1 | %) | — | % | 0.2 | % | 0.1 | % | ||||
| Total | (4.3 | %) | (0.9 | %) | 2.0 | % | (3.2 | %) | ||||
The following unaudited tables compare certain third party revenue categories:
| Nine Months Ended | |||||||||||||||
| September 30, | |||||||||||||||
| 2020 | 2019 | $ Change | % Change | ||||||||||||
| (In thousands) | |||||||||||||||
| Included in Unaudited Condensed Consolidated | |||||||||||||||
| Statements of Income of LKQ Corporation | |||||||||||||||
| North America | $ | 3,007,169 | $ | 3,466,582 | $ | (459,413 | ) | (13.3 | %) | ||||||
| Europe | 4,043,473 | 4,398,185 | (354,712 | ) | (8.1 | %) | |||||||||
| Specialty | 1,150,962 | 1,157,023 | (6,061 | ) | (0.5 | %) | |||||||||
| Parts and services | 8,201,604 | 9,021,790 | (820,186 | ) | (9.1 | %) | |||||||||
| Other | 473,338 | 474,459 | (1,121 | ) | (0.2 | %) | |||||||||
| Total | $ | 8,674,942 | $ | 9,496,249 | $ | (821,307 | ) | (8.6 | %) | ||||||
Revenue changes by category for the nine months ended September 30, 2020 vs 2019:
| Revenue Change Attributable to: | ||||||||||||
| Organic | Acquisition and Divestiture | Foreign Exchange | Total Change (1) | |||||||||
| North America | (12.7 | %) | (0.4 | %) | (0.1 | %) | (13.3 | %) | ||||
| Europe | (7.0 | %) | (0.7 | %) | (0.4 | %) | (8.1 | %) | ||||
| Specialty | (0.6 | %) | 0.2 | % | (0.2 | %) | (0.5 | %) | ||||
| Parts and services | (8.4 | %) | (0.5 | %) | (0.2 | %) | (9.1 | %) | ||||
| Other | (0.7 | %) | 0.5 | % | (0.0 | %) | (0.2 | %) | ||||
| Total | (8.0 | %) | (0.4 | %) | (0.2 | %) | (8.6 | %) | ||||
(1) The sum of the individual revenue change components may not equal the total percentage change due to rounding.
The following unaudited table reconciles revenue growth for parts & services to constant currency revenue growth for the same measure:
| Three Months Ended | Nine Months Ended | |||||||||||
| September 30, 2020 | September 30, 2020 | |||||||||||
| Consolidated | Europe | Consolidated | Europe | |||||||||
| Parts & Services | ||||||||||||
| Revenue growth as reported | (3.4 | %) | 2.3 | % | (9.1 | %) | (8.1 | %) | ||||
| Less: Currency impact | 2.1 | % | 4.5 | % | (0.2 | %) | (0.4 | %) | ||||
| Revenue growth at constant currency | (5.5 | %) | (2.2 | %) | (8.9 | %) | (7.7 | %) | ||||
We have presented the growth of our revenue on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP financial measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency revenue information provides valuable supplemental information regarding our growth, consistent with how we evaluate our performance, as this statistic removes the translation impact of exchange rate fluctuations, which are outside of our control and do not reflect our operational performance. Constant currency revenue results are calculated by translating prior year revenue in local currency using the current year's currency conversion rate. This non-GAAP financial measure has limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of our results as reported under GAAP. Our use of this term may vary from the use of similarly-named measures by other issuers due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation. In addition, not all companies that report revenue growth on a constant currency basis calculate such measure in the same manner as we do and, accordingly, our calculations are not necessarily comparable to similarly-named measures of other companies and may not be appropriate measures for performance relative to other companies.
The following unaudited table compares revenue and Segment EBITDA by reportable segment:
| Three Months Ended | Nine Months Ended | |||||||||||||||||||||||
| September 30, | September 30, | |||||||||||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||||||||||
| (In thousands) | % of Revenue | % of Revenue | % of Revenue | % of Revenue | ||||||||||||||||||||
| Revenue | ||||||||||||||||||||||||
| North America | $ | 1,164,241 | $ | 1,302,147 | $ | 3,465,831 | $ | 3,926,222 | ||||||||||||||||
| Europe | 1,484,099 | 1,451,483 | 4,058,878 | 4,413,264 | ||||||||||||||||||||
| Specialty | 400,429 | 395,314 | 1,153,885 | 1,160,687 | ||||||||||||||||||||
| Eliminations | (1,085 | ) | (1,171 | ) | (3,652 | ) | (3,924 | ) | ||||||||||||||||
| Total revenue | $ | 3,047,684 | $ | 3,147,773 | $ | 8,674,942 | $ | 9,496,249 | ||||||||||||||||
| Segment EBITDA | ||||||||||||||||||||||||
| North America | $ | 204,957 | 17.6 | % | $ | 166,310 | 12.8 | % | $ | 565,949 | 16.3 | % | $ | 532,994 | 13.6 | % | ||||||||
| Europe | 136,165 | 9.2 | % | 124,712 | 8.6 | % | 303,814 | 7.5 | % | 346,291 | 7.8 | % | ||||||||||||
| Specialty | 48,340 | 12.1 | % | 45,464 | 11.5 | % | 132,805 | 11.5 | % | 135,790 | 11.7 | % | ||||||||||||
| Total Segment EBITDA | $ | 389,462 | 12.8 | % | $ | 336,486 | 10.7 | % | $ | 1,002,568 | 11.6 | % | $ | 1,015,075 | 10.7 | % | ||||||||
We have presented Segment EBITDA solely as a supplemental disclosure that offers investors, securities analysts and other interested parties useful information to evaluate our segment profit and loss and underlying trends in our ongoing operations. We calculate Segment EBITDA as EBITDA excluding restructuring and acquisition related expenses (which includes restructuring expenses recorded in Cost of goods sold); change in fair value of contingent consideration liabilities; other gains and losses related to acquisitions, equity method investments or divestitures; equity in losses and earnings of unconsolidated subsidiaries; and impairment charges. EBITDA, which is the basis for Segment EBITDA, is calculated as net income attributable to LKQ stockholders excluding discontinued operations and discontinued noncontrolling interest, depreciation, amortization, interest (which includes gains and losses on debt extinguishment) and income tax expense. Our chief operating decision maker, who is our Chief Executive Officer, uses Segment EBITDA as the key measure of our segment profit or loss. We use Segment EBITDA to compare profitability among our segments and evaluate business strategies. This financial measure is included in the metrics used to determine incentive compensation for our senior management. We also consider Segment EBITDA to be a useful financial measure in evaluating our operating performance, as it provides investors, securities analysts and other interested parties with supplemental information regarding the underlying trends in our ongoing operations. Segment EBITDA includes revenue and expenses that are controllable by the segment. Corporate general and administrative expenses are allocated to the segments based on usage, with shared expenses apportioned based on the segment's percentage of consolidated revenue. Refer to the table on the following page for a reconciliation of net income to EBITDA and Segment EBITDA.
The following unaudited table reconciles Net Income to EBITDA and Segment EBITDA:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| (In thousands) | ||||||||||||||||
| Net income | $ | 193,931 | $ | 152,593 | $ | 458,680 | $ | 403,761 | ||||||||
| Less: net income (loss) attributable to continuing noncontrolling interest | 448 | (46 | ) | 1,166 | 2,321 | |||||||||||
| Less: net income attributable to discontinued noncontrolling interest | — | 376 | 103 | 568 | ||||||||||||
| Net income attributable to LKQ stockholders | 193,483 | 152,263 | 457,411 | 400,872 | ||||||||||||
| Subtract: | ||||||||||||||||
| Net income (loss) from discontinued operations | — | 781 | (638 | ) | 1,179 | |||||||||||
| Net income attributable to discontinued noncontrolling interest | — | (376 | ) | (103 | ) | (568 | ) | |||||||||
| Net income from continuing operations attributable to LKQ stockholders | 193,483 | 151,858 | 458,152 | 400,261 | ||||||||||||
| Add: | ||||||||||||||||
| Depreciation and amortization | 68,655 | 71,513 | 199,897 | 213,349 | ||||||||||||
| Depreciation and amortization - cost of goods sold | 7,067 | 5,391 | 16,162 | 15,916 | ||||||||||||
| Depreciation and amortization - restructuring expenses (1) | 605 | 974 | 4,577 | 974 | ||||||||||||
| Interest expense, net of interest income | 25,182 | 32,104 | 76,729 | 104,077 | ||||||||||||
| (Gain) loss on debt extinguishment | — | (128 | ) | 12,751 | (128 | ) | ||||||||||
| Provision for income taxes | 78,510 | 57,747 | 180,790 | 165,122 | ||||||||||||
| EBITDA | 373,502 | 319,459 | 949,058 | 899,571 | ||||||||||||
| Subtract: | ||||||||||||||||
| Equity in earnings (losses) of unconsolidated subsidiaries | 4,113 | 4,232 | 1,980 | (33,745 | ) | |||||||||||
| Add: | ||||||||||||||||
| Restructuring and acquisition related expenses (1) | 19,890 | 7,955 | 47,838 | 19,639 | ||||||||||||
| Restructuring expenses - cost of goods sold | 833 | 17,130 | 6,494 | 17,130 | ||||||||||||
| (Gain) loss on disposal of businesses and impairment of net assets held for sale | (503 | ) | (3,601 | ) | 1,733 | 44,919 | ||||||||||
| Change in fair value of contingent consideration liabilities | (147 | ) | (225 | ) | (575 | ) | 71 | |||||||||
| Segment EBITDA | $ | 389,462 | $ | 336,486 | $ | 1,002,568 | $ | 1,015,075 | ||||||||
| Net income from continuing operations attributable to LKQ stockholders as a percentage of revenue | 6.3 | % | 4.8 | % | 5.3 | % | 4.2 | % | ||||||||
| EBITDA as a percentage of revenue | 12.3 | % | 10.1 | % | 10.9 | % | 9.5 | % | ||||||||
| Segment EBITDA as a percentage of revenue | 12.8 | % | 10.7 | % | 11.6 | % | 10.7 | % | ||||||||
| (1) The sum of these two amounts represents the total amount that is reported in Restructuring and acquisition related expenses in the Unaudited Condensed Consolidated Statements of Income. | ||||||||||||||||
We have presented EBITDA solely as a supplemental disclosure that offers investors, securities analysts and other interested parties useful information to evaluate our operating performance and the value of our business. We calculate EBITDA as net income attributable to LKQ stockholders excluding discontinued operations and discontinued noncontrolling interest, depreciation, amortization, interest (which includes gains and losses on debt extinguishment) and income tax expense. We believe EBITDA provides insight into our profitability trends and allows management and investors to analyze our operating results with the impact of continuing noncontrolling interest and without the impact of discontinued noncontrolling interest, discontinued operations, depreciation, amortization, interest (which includes gains and losses on debt extinguishment) and income tax expense. We believe EBITDA is used by investors, securities analysts and other interested parties in evaluating the operating performance and the value of other companies, many of which present EBITDA when reporting their results.
We have presented Segment EBITDA solely as a supplemental disclosure that offers investors, securities analysts and other interested parties useful information to evaluate our segment profit and loss and underlying trends in our ongoing operations. We calculate Segment EBITDA as EBITDA excluding restructuring and acquisition related expenses (which includes restructuring expenses recorded in Cost of goods sold); change in fair value of contingent consideration liabilities; other gains and losses related to acquisitions, equity method investments or divestitures; equity in losses and earnings of unconsolidated subsidiaries; and impairment charges. Our chief operating decision maker, who is our Chief Executive Officer, uses Segment EBITDA as the key measure of our segment profit or loss. We use Segment EBITDA to compare profitability among our segments and evaluate business strategies. This financial measure is included in the metrics used to determine incentive compensation for our senior management. Segment EBITDA includes revenue and expenses that are controllable by the segment. Corporate general and administrative expenses are allocated to the segments based on usage, with shared expenses apportioned based on the segment's percentage of consolidated revenue.
EBITDA and Segment EBITDA should not be construed as alternatives to operating income, net income or net cash provided by operating activities, as determined in accordance with accounting principles generally accepted in the United States. In addition, not all companies that report EBITDA or Segment EBITDA information calculate EBITDA or Segment EBITDA in the same manner as we do and, accordingly, our calculations are not necessarily comparable to similarly-named measures of other companies and may not be appropriate measures for performance relative to other companies.
The following unaudited table reconciles Net Income and Diluted Earnings per Share to Adjusted Net Income from Continuing Operations Attributable to LKQ Stockholders and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders, respectively:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| (In thousands, except per share data) | ||||||||||||||||
| Net income | $ | 193,931 | $ | 152,593 | $ | 458,680 | $ | 403,761 | ||||||||
| Less: net income (loss) attributable to continuing noncontrolling interest | 448 | (46 | ) | 1,166 | 2,321 | |||||||||||
| Less: net income attributable to discontinued noncontrolling interest | — | 376 | 103 | 568 | ||||||||||||
| Net income attributable to LKQ stockholders | 193,483 | 152,263 | 457,411 | 400,872 | ||||||||||||
| Subtract: | ||||||||||||||||
| Net income (loss) from discontinued operations | — | 781 | (638 | ) | 1,179 | |||||||||||
| Net income attributable to discontinued noncontrolling interest | — | (376 | ) | (103 | ) | (568 | ) | |||||||||
| Net income from continuing operations attributable to LKQ stockholders | 193,483 | 151,858 | 458,152 | 400,261 | ||||||||||||
| Adjustments - continuing operations attributable to LKQ stockholders: | ||||||||||||||||
| Amortization of acquired intangibles | 24,916 | 31,176 | 73,238 | 94,111 | ||||||||||||
| Restructuring and acquisition related expenses | 20,495 | 8,929 | 52,415 | 20,613 | ||||||||||||
| Restructuring expenses - cost of goods sold | 833 | 17,298 | 6,574 | 17,298 | ||||||||||||
| Change in fair value of contingent consideration liabilities | (147 | ) | (225 | ) | (575 | ) | 71 | |||||||||
| (Gain) loss on debt extinguishment | — | (128 | ) | 12,751 | (128 | ) | ||||||||||
| (Gain) loss on disposal of businesses and impairment of net assets held for sale | (503 | ) | (3,601 | ) | 1,733 | 44,919 | ||||||||||
| Impairment of equity method investments | — | — | — | 39,551 | ||||||||||||
| Excess tax expense (benefit) from stock-based payments | 428 | (1,055 | ) | (273 | ) | (1,333 | ) | |||||||||
| Tax effect of adjustments | (11,360 | ) | (15,511 | ) | (38,320 | ) | (46,438 | ) | ||||||||
| Adjusted net income from continuing operations attributable to LKQ stockholders | $ | 228,145 | $ | 188,741 | $ | 565,695 | $ | 568,925 | ||||||||
| Weighted average diluted common shares outstanding | 304,566 | 307,960 | 305,171 | 312,204 | ||||||||||||
| Diluted earnings per share from continuing operations attributable to LKQ stockholders | ||||||||||||||||
| Reported | $ | 0.64 | $ | 0.49 | $ | 1.50 | $ | 1.28 | ||||||||
| Adjusted | $ | 0.75 | $ | 0.61 | $ | 1.85 | $ | 1.82 | ||||||||
We have presented Adjusted Net Income and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders as we believe these measures are useful for evaluating the core operating performance of our continuing business across reporting periods and in analyzing our historical operating results. We define Adjusted Net Income and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders as Net Income and Diluted Earnings per Share adjusted to eliminate the impact of continuing and discontinued noncontrolling interest, discontinued operations, restructuring and acquisition related expenses, amortization expense related to all acquired intangible assets, gains and losses on debt extinguishment, the change in fair value of contingent consideration liabilities, other gains and losses related to acquisitions, equity method investments or divestitures, impairment charges, excess tax benefits and deficiencies from stock-based payments and any tax effect of these adjustments. The tax effect of these adjustments is calculated using the effective tax rate for the applicable period or for certain discrete items the specific tax expense or benefit for the adjustment. Given the variability and volatility of the amount and frequency of costs related to acquisitions, management believes that these costs are not normal operating expenses and should be adjusted in our calculation of Adjusted Net Income from Continuing Operations Attributable to LKQ Stockholders. Our adjustment of the amortization of all acquisition-related intangible assets does not exclude the amortization of other assets, which represents expense that is directly attributable to ongoing operations. Management believes that the adjustment relating to amortization of acquisition-related intangible assets supplements the GAAP information with a measure that can be used to assess the comparability of operating performance. The acquired intangible assets were recorded as part of purchase accounting and contribute to revenue generation. Amortization of intangible assets that relate to past acquisitions will recur in future periods until such intangible assets have been fully amortized. Any future acquisitions may result in the amortization of additional intangible assets. These financial measures are used by management in its decision making and overall evaluation of our operating performance and are included in the metrics used to determine incentive compensation for our senior management. Adjusted Net Income and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders should not be construed as alternatives to Net Income or Diluted Earnings per Share as determined in accordance with accounting principles generally accepted in the United States. In addition, not all companies that report measures similar to Adjusted Net Income and Adjusted Diluted Earnings per Share from Continuing Operations Attributable to LKQ Stockholders calculate such measures in the same manner as we do and, accordingly, our calculations are not necessarily comparable to similarly-named measures of other companies and may not be appropriate measures for performance relative to other companies.
The following unaudited table reconciles Net Cash Provided by Operating Activities to Free Cash Flow:
| Three Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| (In thousands) | ||||||||||||||||
| Net cash provided by operating activities | $ | 221,589 | $ | 326,767 | $ | 1,134,641 | $ | 965,171 | ||||||||
| Less: purchases of property, plant and equipment | 32,648 | 64,283 | 109,949 | 165,551 | ||||||||||||
| Free cash flow | $ | 188,941 | $ | 262,484 | $ | 1,024,692 | $ | 799,620 | ||||||||
We have presented free cash flow solely as a supplemental disclosure that offers investors, securities analysts and other interested parties useful information to evaluate our liquidity. We calculate free cash flow as net cash provided by operating activities, less purchases of property, plant and equipment. We believe free cash flow provides insight into our liquidity and provides useful information to management and investors concerning our cash flow available to meet future debt service obligations and working capital requirements, make strategic acquisitions and repurchase stock. We believe free cash flow is used by investors, securities analysts and other interested parties in evaluating the liquidity of other companies, many of which present free cash flow when reporting their results. This financial measure is included in the metrics used to determine incentive compensation for our senior management. Free cash flow should not be construed as an alternative to net cash provided by operating activities, as determined in accordance with accounting principles generally accepted in the United States. In addition, not all companies that report free cash flow information calculate free cash flow in the same manner as we do and, accordingly, our calculation is not necessarily comparable to similarly-named measures of other companies and may not be an appropriate measure for liquidity relative to other companies.
The following unaudited tables reconcile Gross Margin to Adjusted Gross Margin:
| Consolidated Adjusted Gross Margin | Three Months Ended | Nine Months Ended | ||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| (In thousands) | ||||||||||||||||
| Gross margin | $ | 1,198,542 | $ | 1,200,329 | $ | 3,423,422 | $ | 3,655,780 | ||||||||
| Add: Restructuring expenses - cost of goods sold | 833 | 17,298 | 6,574 | 17,298 | ||||||||||||
| Adjusted gross margin | $ | 1,199,375 | $ | 1,217,627 | $ | 3,429,996 | $ | 3,673,078 | ||||||||
| Gross margin % | 39.3 | % | 38.1 | % | 39.5 | % | 38.5 | % | ||||||||
| Adjusted gross margin % | 39.4 | % | 38.7 | % | 39.5 | % | 38.7 | % | ||||||||
| North America Adjusted Gross Margin | Three Months Ended | Nine Months Ended | ||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| (In thousands) | ||||||||||||||||
| Gross margin | $ | 534,357 | $ | 576,081 | $ | 1,599,704 | $ | 1,734,520 | ||||||||
| Add: Restructuring expenses - cost of goods sold | 918 | 311 | 4,036 | 311 | ||||||||||||
| Adjusted gross margin | $ | 535,275 | $ | 576,392 | $ | 1,603,740 | $ | 1,734,831 | ||||||||
| Gross margin % | 45.9 | % | 44.2 | % | 46.2 | % | 44.2 | % | ||||||||
| Adjusted gross margin % | 46.0 | % | 44.3 | % | 46.3 | % | 44.2 | % | ||||||||
| Europe Adjusted Gross Margin | Three Months Ended | Nine Months Ended | ||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| (In thousands) | ||||||||||||||||
| Gross margin | $ | 549,975 | $ | 512,756 | $ | 1,502,445 | $ | 1,590,292 | ||||||||
| Add: Restructuring expenses - cost of goods sold | (85 | ) | 16,987 | 2,538 | 16,987 | |||||||||||
| Adjusted gross margin | $ | 549,890 | $ | 529,743 | $ | 1,504,983 | $ | 1,607,279 | ||||||||
| Gross margin % | 37.1 | % | 35.3 | % | 37.0 | % | 36.0 | % | ||||||||
| Adjusted gross margin % | 37.1 | % | 36.5 | % | 37.1 | % | 36.4 | % | ||||||||
We have presented adjusted gross margin solely as a supplemental disclosure that offers investors, securities analysts and other interested parties useful information to evaluate the operating performance of our continuing business across reporting periods and in analyzing our historical operating results. We calculate adjusted gross margin as gross margin plus restructuring expenses recorded in cost of goods sold. We believe adjusted gross margin provides insight into our operating performance and provides useful information to management and investors concerning our gross margins. We believe adjusted gross margin is used by investors, securities analysts and other interested parties in evaluating the operating performance of other companies, many of which present adjusted gross margin when reporting their results. Adjusted gross margin should not be construed as an alternative to gross margin, as determined in accordance with accounting principles generally accepted in the United States. In addition, not all companies that report adjusted gross margin information calculate adjusted gross margin in the same manner as we do and, accordingly, our calculation is not necessarily comparable to similarly-named measures of other companies and may not be an appropriate measure for performance relative to other companies.
The following unaudited table reconciles Total Debt to Net Debt:
| September 30, 2020 | December 31, 2019 | |||||||
| (In thousands) | ||||||||
| Current portion of long-term obligations | $ | 97,268 | $ | 326,367 | ||||
| Long-term obligations, excluding current portion | 3,009,638 | 3,715,389 | ||||||
| Total debt, net of debt issuance costs | 3,106,906 | 4,041,756 | ||||||
| Add: Debt issuance costs | 26,559 | 30,270 | ||||||
| Total debt | 3,133,465 | 4,072,026 | ||||||
| Less: Cash and cash equivalents | 421,382 | 523,020 | ||||||
| Net debt | $ | 2,712,083 | $ | 3,549,006 | ||||
We have presented net debt solely as a supplemental disclosure that offers investors, securities analysts and other interested parties useful information to evaluate our liquidity and financial position. We calculate net debt as total debt less cash and cash equivalents. We believe net debt provides insight into our liquidity and provides useful information to management and investors concerning our financial position. We believe net debt is used by investors, securities analysts and other interested parties in evaluating the liquidity and financial position of other companies, many of which present net debt when reporting their results. Net debt should not be construed as an alternative to total debt, as determined in accordance with accounting principles generally accepted in the United States. In addition, not all companies that report net debt information calculate net debt in the same manner as we do and, accordingly, our calculation is not necessarily comparable to similarly-named measures of other companies and may not be an appropriate measure for performance relative to other companies.
FAQ
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