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Letter to the Editor

LKQ Corporation Q3 Net Income Up Almost 30%

"Our company reported an impressive revenue growth of 27% for the third quarter, in spite of the adverse effects of the hurricanes on our business and a reported decrease in automotive claims by major insurance carriers. Our organic revenue growth was 8.3%, and revenue growth from acquisitions was 18.7%. While our net income increased by nearly 30%, our EPS showed a slight decline as we had a 39% increase in the number of shares outstanding. We were particularly pleased with the strong operating cash flows of the business, which improved 72% over Q3 of the prior year to $11.6 million, as we drew down the inventory of unprocessed vehicles, which we accumulated earlier in the year. Today, we are also announcing the acquisition of a major recycler in the Northwest United States that significantly adds to our asset base and facilitates our growth in the Oregon and Washington markets," said Joe Holsten, President and Chief Executive Officer.

For the third quarter of 2004, revenue increased 27.0% to $106.0 million compared with $83.5 million for the third quarter of 2003. Approximately $15.7 million in revenue growth was attributable to businesses we acquired in the first half of 2004. For the third quarter of 2004, net income increased 29.7% to $4.6 million compared with $3.5 million for the third quarter of 2003. Diluted earnings per share was $0.20 for the third quarter of 2004 compared with $0.22 for the third quarter of 2003; however, the decline in diluted earnings per share was primarily attributable to the increase in weighted average diluted shares outstanding by 6.3 million shares or 39.0%, partially offset by the increase in net income.

Business in the third quarter was adversely affected by the severe weather in the Southeast U.S., a decrease in the number of accidents and higher cost of sales. Automobile damage caused by the weather in Florida and the other Eastern seaboard states should have a positive impact on LKQ's business in future quarters.

For the nine months ended September 30, 2004, revenue increased 27.6% to $311.0 million compared with $243.7 million for the same period in 2003. Organic revenue growth was 12.1%. For the nine months ended September 30, 2004, net income increased 34.2% to $15.5 million compared with $11.6 million for the same period in 2003. Diluted earnings per share was $0.69 for the nine months ended September 30, 2004 compared with $0.68 for the same period a year ago.

The Action Crash Parts acquisition, an aftermarket collision automotive replacement parts company acquired in the first quarter of 2004, generated $29.0 million of revenue from the date of acquisition through September 30, 2004 with a related gross margin of 44.1%.

In October LKQ acquired for approximately $19 million net of acquired cash, Foster Auto Parts, Inc. and related companies, a recycled OEM automotive replacement parts business located in Portland, Oregon, which serves the Oregon and Washington market areas. This company has seven primary locations including three self-service facilities. The trailing annual revenue through September 30, 2004 of this business is approximately $28 million.

LKQ expects full year 2004 revenue to be within a range of $423 million to $427 million, net income to be within a range of $19.7 million to $20.8 million and diluted earnings per share to be between $0.88 and $0.92.

LKQ Corporation is a nationwide provider of recycled OEM automotive replacement parts and related services, with 45 sales and processing facilities, 7 self-service retail automotive parts facilities and 11 redistribution centers that reach most major markets in the United States. In addition, 3 facilities are located in Central America.

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