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Letter to the Editor

This article originally appeared in the September 2003 Issue of INSIGHT

LKQ IPO ASAP

On July 28, 2003, LKQ Corp. filed with the SEC Form S-1, a registration statement. This filing by LKQ was made to allow LKQ to offer to the public an initial offering of its stock, which is to be done as soon as possible after the registration is approved.

The portions of the automotive products market that automotive recyclers such as LKQ Corp. primarily serve are the collision repair market, which INSIGHT estimates being $26 billion in 2002, and the mechanical repair market.

Estimates of the aggregate size of the automotive recycling industry in the U.S. range from $3.7 to $6.5 billion. Industry sources estimate that recycled OEM products account for approximately 12 percent of insured replacement part sales and 4.7 percent of total collision repair costs. LKQ Corp. believes that recycled OEM products can account for a larger percentage of the replacement parts market based on the advantages offered by recycled OEM products rather than aftermarket.

LKQ was the first automotive recycler with a national network. Since its formation in 1998, the company has grown through both internal development and acquisitions. Since 1999, internal growth has been the principal driver of revenue and operating results.

Fiscal 2003 12-month sales for LKQ were shown at $160,273,000 in the S-1, providing a 47 percent gross margin of $75,798,000 and an after-tax net of $8,059,000. Significantly better than the $43+ million loss in 2003 and $38+ million in 2002 - losses which were effected by a "cumulative effect of change in accounting principal," which we did not find explained in the 591 pages of the S-1.

We will be adding LKQ Corp. to our list as soon as the IPO is effective and there is a market NASDAQ listing (LKQX) active.

Also notable this month, 3M, one of our chart’s premier stocks, has set a 2-for-1 split of its common stock, its first in nine years, spurring its shares to a new all-time high of $142.66, up nearly 13 percent YTD.

3M also adjusted its third-quarter earnings-per-share outlook to account for the split, predicting solid results despite a cautious view of global markets.

The stock has gained nearly 40 percent since the Dow peaked in January 2000, and 3M's P/E ratio of 23.3 times estimated 2003 earnings is the eighth highest.

The split will be in the form of a dividend to be distributed Sept. 29 to shareholders of record as of the close of business on Sept. 22.

-Charles Baker-

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