Joe Boutross - IR Rob Wagman - President and CEO John Quinn - EVP and CFO.

Nate Brochmann - William Blair & Company Craig Kennison - Robert W. Baird & Company, Inc. Ben Bienvenu - Stephens Inc. Scott Stember - Sidoti & Company Bill Armstrong - CL King & Associates James Albertine - Stifel, Nicolaus.

Greetings, and welcome to the LKQ Corporation Fourth Quarter and Full Year 2014 Earnings Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation (Operator Instructions). As a reminder, this conference is being recorded.

It is now my pleasure to introduce your host, Joe Boutross, Investor Relations for LKQ Corporation. Thank you. Mr. Boutross, you may begin..

Thanks, Devon. Good morning, everyone, and thank you for joining us today. This morning, we released our fourth quarter and full year 2014 financial results and provided our full year 2015 guidance. In the room with me today are Rob Wagman, President and Chief Executive Officer; and John Quinn, Executive Vice President and Chief Financial Officer.

Rob and John has some prepared remarks and then we will open the call up for questions. In addition to the telephone access for today's call, we are providing an audiocast via the LKQ website. A replay of the audiocast and conference call will be available shortly after the conclusion of this call.

Before we begin our discussion, I would like to remind everyone that the statements made in this call that are not historical in nature, are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include statements regarding our expectations, beliefs, hopes, intentions or strategies.

Forward-looking statements involve risks and uncertainties, some of which are not currently known to us. Actual events or results may differ materially from those expressed or implied in the forward-looking statements as a result of various factors.

We assume no obligation to update any forward-looking statement to reflect events or circumstances arising after the date on which it was made except as required by law. Please refer to our Form 10-K and other subsequent documents filed with the SEC and the press release we issued this morning for more information on potential risks.

Also note that guidance for 2014 is based on current conditions, including acquisitions completed through February 26, 2015, and excludes any impact of restructuring and acquisition-related expenses, gains or losses related to acquisitions or divestitures, including changes in the fair value of contingent consideration liabilities, loss on debt extinguishment and any capital spending related to future business acquisitions.

Hopefully, everyone has had a chance to look at our 8-K, which we filed with the SEC earlier today. And as normal, we are planning to file our 10-K in the next few days. And with that, I am happy to turn the call over to Mr. Rob Wagman..

Thanks, Joe. Good morning and thank you for joining us on the call today. All things considered, a reasonable quarter to end the good year. With respect to activities under our control, the Company performed well. Unfortunately, there are items we don’t control and they has negative impact on our financial results.

Global revenue reached $1.68 billion in the quarter, an increase of 27.9% as compared to Q4 2013. Net income for the fourth quarter was $80.5 million and diluted earnings per share were $0.26, which was flat year-over-year. Adjusted diluted EPS was $0.27 for the quarter compared to $0.26 in the prior year, an increase of 3.8%.

During the quarter, we experienced significant impacts from deteriorating scrap markets, FX and tax rates. Adjusted diluted EPS for the fourth quarter of 2014 was negative affected by $0.04 as a result of these items. Without them, diluted adjusted EPS in the fourth quarter of 2014 would have increased 15% versus the fourth quarter of 2013.

During the quarter, we achieved companywide organic revenue growth and acquisition revenue growth for products and services of 8.7% and 23.9% respectively. I continue to be pleased with the North American organic revenue growth for products and services, which during the quarter grew 6.2% despite facing a seasonably mild December.

While we can’t say for certain, having the Christmas holiday in the middle of the week also seen slightly negative to results. European organic growth for the quarter was a robust 13.8%. For full year 2014, revenue reached 6.7 billion in 2014, an increase of 33% as compared to 2013.

Net income for the full year was 381.5 million compared with 311.6 million for the prior year, an increase of 22.4%. Importantly, organic revenue growth for products and service for 2014 was 9%, a clear indication of the strength of our company. And total organic revenue growth for the year reflecting the softness of scrap was 7.1%.

Our adjusted EPS for all 2014 was $1.27 representing an increase of 19.8% from a $1.06 reported in 2013. Full year 2014 and 2013 diluted earnings per share included charges equal to $0.02 and $0.04 respectively.

Resulting from restructuring and acquisition related expenses, loss on debt extinguishment and the change in fair value of contingent consideration liabilities. Including these charges on a diluted basis, our GAAP EPS was $1.25 in 2014 versus $1.02 in 2013.

Before I provide an update on our operations, I want to highlight a few factors that affected our Q4 2014 results. While on the last call we warned that scrap prices will be a headwind in Q4, the actual deterioration of prices was worse than expected.

During the quarter, scrap prices were down 15% sequentially, an 18% year-over-year taken as a whole for the climb in scrap prices at about $0.02 negative effect on Q4 2014 relative to last year. Secondly, there were negative impacts from the devaluations of the British pound, euro and the Canadian dollar relative to the U.S.

dollar which fell 2.2%, 8.2% and 7.6% in Q4 2014. Furthermore, this devaluation combined with the decline in scrap sequentially negatively impacted top-line revenue by $37 million.

And increase in the effected tax rate car buying shifted earnings to higher tax rate jurisdictions and higher losses from our joint venture at a negative impact on the Q4 results, when combined with the FX impact just noted these items represented an additional $0.02 negative effect of relative to Q4 of 2013.

So while adjusted diluted EPS increased by just 4% over the prior year, Q4 EPS would have increased 15% if scrap prices FX rates and the tax rate had remained confident with Q4 of 2013. John will provide further details on these guidance during his comments. And now moving to our operations.

During the fourth quarter, we purchased over 74,000 vehicles for dismantling by our wholesale operations, which is a 5.4% increase over Q4 2013. Our full year 2014 vehicle procurement was approximately 290,000 which is a 3.2% increase over 2013. As we entered 2015, the volume of the auctions is robust and the outlook for supply remains steady.

In addition, one benefit of the strengthening dollar is that we are more favorably positioned against our export competitors who are now disadvantaged by the stronger U.S. dollar. We continue to buy what we believe is a better quality vehicle of the auction for the goal driving top-line with higher revenue per vehicle.

These trends coupled with inventory already on hand should provide sufficient inventory to grow our recycle parts operation in 2015. In our self-service retail business, during the fourth quarter, we acquired over a 116,000 lower-cost self-service and crush-only cars, which is a 3.4% decrease over Q4 2013.

This decrease was intention given a downward trend in scrap prices in a continued pressure on margins, for full year 2014, vehicle procurements approximately 514,000, which was flat over 2013.

And lastly on North America throughout 2014, we continue to make significant progress with the intelligent part solution initiative with CCC information services. The revenue in number of purchased orders process through the CCC platform during the quarter grew 90% and 84% respectively year-over-year.

Clearly the trend towards sharp adopting this [feature] in the CCC platform continues to gain traction. With this initiative, currently NOI is annualizing over $20 million in revenue less than two years from initial launch.

And now turning to our European operations, we continue to be pleased with the performance of euro car parts ability to increase market-share. In Q4, ECP achieved organic revenue growth of 18.2% and for branches open more in 12 months, ECP’s organic growth during the quarter was 10.8%.

For full year 2014, ECP achieved organic revenue growth of 20.6% and 12.7% for branches open more in 12 months. We did however experienced some unbudgeted expenses in Q4 for the continued integration cost of Unipart Automotive acquisition and also on the purchase of APX.

During the quarter, ECP opened a total of 10 branches, three new ECP branches and seven converted Unipart branches, bringing our network to 189 branch locations. For the full year, ECP opened 44 branches which included 19 for Unipart locations.

With some impressive track record, the ECP’s management’s team effectively open, grow and gain market-share, I am pleased to announce that we have improved an additional 13 new ECP branches for 2015.

And finally on ECP, during the quarter we continue to win the strong double-digit year-over-year growth of nearly 24% of our closing part sales and full year 2014 growth of over 35%. Turning to our Sator business; during the quarter, Sator started to win us some gross margin benefit from the shift in network from a three step to a two step mall.

With targeted acquisitions in the pipeline and its innovative partner strategy Sator’s national footprint will be completed in 2015. This step-shift also positions Sator to enter the collision market in Benelux 2015 as well.

We are confident that the carrier relationships we’re developing in UK will assist the launch of Sator’s collision efforts given seven of the top 10 carriers in UK right insurance in their markets. Sator posted 2.6% organic growth in Q4.

Now onto the specialty segment, our specialty segment continued strong performance by posting year-over-year growth of 35.4% in the quarter including the benefit of Stag Parkway the distributor we acquired in October. Full year organic growth for our specialty segment was 12% against pre-acquisition results.

In 2014, Keystone’s management team made tremendous progress on synergy and cost savings initiatives by closing and relocating 12 of their cross docks and adding 26 new cross dock into existing LKQ locations. Keystone also opened a new 231,000 square foot distribution center in Dallas.

The Keystone team continue to deliver on synergy initiatives with the previously announced Stag-Parkway holding company and acquisition. During the quarter, four of the 13 Stag-Parkway locations we finalized the transaction on October 3rd were closed and relocated into existing Keystone locations. Now moving on to corporate development.

In addition to Stag-Parkway, the company made two additional acquisitions during the quarter including a specialty aftermarket distributor with locations in Ohio and Pennsylvania and a salvage business with locations in Sweden and Norway.

Our acquisition of the European salvage business demonstrates our commitment to replicating the success of our collision model in Europe and to actively grow the use of alternative collision parts beyond North America.

Our traction to this market was heightened by the company’s strong insurance relationships allowing us to test of our North American APU business model. Our Swedish insurance partners are enthusiastic about our entry into this market and we are in active discussions with them regarding enhanced programs and services.

I am proud of our development efforts and what our team was able to accomplish in 2014 with the completion of 23 acquisitions. As we head to 2015 I am confident of their ability to identify additional acquisition candidates across our operating segments.

At this time, I’d like to ask John Quinn to provide some more detail on the financial results for the quarter and full year..

Thank you, Rob. Good morning and thank you for joining us today. Revenue for Q4 2014 was $1.7 billion, an increase of $367 million or 28% over the $1.3 billion we achieved in Q4 2013. Net income in Q4 2014 of $80.5 million was 3.3% higher than Q4 2013.

Obviously we expected better pull through of the top line growth to the bottom line as opposed to the net income margin compression we saw. As Rob said, some of the drivers of the lower margin are outside of our control but we are taking actions in an attempt to mitigate them.

Before I get into the details on the high level as I characterize the quarter’s results is having the strong top line and organic growth set by a difficult scrap and foreign exchange environment. Also the relative performance of Europe caused our tax rate to increase.

As I will discuss in a moment the scrap and foreign exchange issues continue through Q1, but we believe we’ll eventually stabilize and at least in the case of scrap possibly improve over time. We also believe the European operations will improve over time helping not only our pretax income but also our tax rate.

The revenue growth breakdown as follows, for Q4 our total organic revenue growth was 7.1% and we delivered an additional growth of 22.2% from acquisitions, the foreign exchange being negative 1.4%.

Organic growth in products and services was 8.7% and within that we saw our North American operations grow organically 6.2% while the European segment to 13.8%. North American organic growth of 6.2% was 30 basis higher than that reported in Q4 2013.

There are no definitive statistics available but our sense is that while the weather in Q4 2014 was not as favorable to us as in Q4 2013 we may be starting to see the benefit of higher miles driven and higher new car sales starting to come into our sweet spot for alternative parts demand.

October and November 2014 miles driven averaged 2% year-over-year increase one of the stronger rates we’ve seen recently. New car sales in the U.S.

reached 16.5 million light vehicles their highest level since 2006 it will take a few years before those cars fall in the age group for peak demand for alternative parts so we believe its clear evidence that the dynamics of the cars in use are moving in favor of LKQ.

During the quarter, our European segment reported 13.8% organic growth with ECP continuing to show strong organic growth by achieving 18.2% in quarter. Sator reported organic revenue growth of 2.6% which was 50 basis points higher than our Q3 2014 results.

We continue to execute on our plant and converting another one’s distribution to a two step model. Given the potential for channel conflict as we execute the strategy, we’re pleased that Sator continues to show positive organic growth.

Acquisitions completed during 2014 contributed $292 million of Q4 revenue on a reported basis including $38 million from acquisitions completed in Q4 2014.

The annualized revenues from acquisitions completed in Q4 2014 was approximately $225 million, or roughly $56 million per quarter, I remind listeners that the annualized revenue acquired includes Stag-Parkway acquisition completed in the October.

And during our Q3 2014 call we indicated that Stag Parkway had an annual revenue of approximately 180 million which is included in the 225 million figure I just mentioned. Total change in other revenue which where we recorded our scrap commodity sales is marginally positive at 2.9%.

Acquisitions contributed 8.4% positive growth and we had negative 5.3% organic growth. Volume increases were more than offset by falling commodity prices as scrap pricing was about 18% lower year-over-year. Average price we received for scraps deal of a $197 per ton this year as compared to $241 per ton in 2013.

Other revenue was 9% of our total revenue as compared to 11.1% for the same period last year continuing the trend of declining relative important of this revenue to our overall results although that I will discuss in the moment the commodity price swings can still impact our short-term earnings.

In Q4 2014, revenue for our self-serve business was $97 million or 5.7% of LKQ’s total revenue. As scrap prices have fallen and our other lines of businesses are growing this business is become less material to the overall company.

Approximately 35% of this revenue was part sales included in North American parts and services revenue and 65% scrap and core sales included in other revenue. Our reported gross margin for Q4 2014 was $665 million or 39.5% of revenue. Decline of 200 basis points from our gross margin percentage of 41.4% from Q4 2013.

There is a 130 basis points decline attributable to the specialty segment and other small acquisitions. North American margins contributed about 30 basis points of the decline mainly due to the scrap price falls. European margin attributed approximately 20 basis points of decline as we saw heavier discount in ECP.

Mix contributed about 20 basis points of the decline. We have taken actions and ECP to reverse the decline we saw in Q4 and believe will be begin to see positive results in Q1 2015. Moving to our operating expenses, some of these comparisons are being affected by our specialty segment.

In the specialty line of business gross margins tend to be lower but they incur relatively lower facility and SG&A cost. January 2015 was the anniversary of the Keystone Automotive acquisition that stay we continue to have some influence on these margins year-over-year through October 2015.

Facility and warehouse costs were 8.2% of revenue in Q4 2014, a 40 basis points improvement over 8.6% in Q4 last year. This improvement was primarily due to the specialty segment. Distribution cost increased slightly from 8.5% of revenue in Q4 2013 to 8.6% this quarter.

This change is mainly attributable to higher cost in Europe which was associated with the ECP new branch openings and some start-up cost we incurred with the former Unipart branch locations and relatively higher distribution cost that bringing a two step model in the Midland.

Selling and G&A expenses decreased from 12.2% of revenue in Q4 last year to 11.8% in Q4 this year, an improvement of 40 basis points. The specialty segment accounts for 40 basis points of the improvement that 30 basis points of that was offset by the Netherlands acquisitions and increased cost at ECP.

Excluding the acquisitions we saw North American leverage generated a 30 basis points improvement in this line. During Q4 2014 we recorded $2 million of restructuring and acquisition related expenses down from $2.8 million in Q4 last year. The 2014 costs are primarily related to the integration of our specialty in Netherlands acquisition.

Depreciation and amortization was 2% of revenue during Q4 this year as compared to 1.8% of revenue in Q4 2013. Although a small percentage of revenue that these costs have been rising faster than our revenue. The increase year-over-year of $10.5 million equates to roughly $0.02 EPS impact in Q4 2014.

But half of this increase was due to a larger asset base and fixed assets. The balance relates to the non-cash amortization of intangibles such as customer relationships associated with acquisitions.

I point this out simply because these costs are function of our acquisition activity and if we stop our acquisition activity this cost would actually fall overtime.

We don’t intend to stop our acquisition strategy but as we do large deals the accounting conventions were acquired are recognizing these cost and that could impact our operating margin for these non-cash charges.

Other expenses net increased to $16.5 million in the three months ended December 2014, compared to $15.2 million for the same period last year an increase of $1.3 million.

The main reason for the change was the net interest expense which is $1.3 million higher with $2.5 million attributable to higher debt levels partially offset by $1.2 million reduction from lower interest rates. Our effective borrowing rate for the quarter was 3.3%. Our year-to- date effective tax rate is 34.7% as compared to 34.5% in the prior year.

In Q4 2014, our effective tax rate was 37.3% versus 34.3% in Q4 last year. Our tax rate is a blend of the rates of the countries in which we operate it will proportionately earn less in lower tax offshore locations our tax rate increases.

The income from our foreign businesses was negative to both our expectations and our tax rate due to foreign exchange in relative operating performance. On a reported basis diluted earnings per share was $0.26 in Q4 2014, flat to the $0.26 Q4 2013.

Adjusting for the restructuring acquisition related expenses and consideration adjustments EPS would have been about a $0.01 higher this year. On an adjusted basis Q4 2014 would have been $0.27 as compared to $0.26 last year, an improvement of 4%.

Rob spoke to scrap impacting us approximately $0.02 negatively and foreign exchange joint venture in tax causing further $0.02 loss. Before I move to the balance sheet, I just reference the segment revenue in EBITDA disclosures in our press release.

In the fourth quarter 2014, North American revenue grew year-over-year from $937 million to $1 billion and we saw EBITDA increase from $123 million to $129 million. The scrap impacts were entirely related to the segment and about those impacts we would have seen EBITDA improvements more proportionate to the revenue growth.

The European segment saw year-over-year revenue growth from $379 million to $465 million, an increase of $86 million; EBITDA was $38 million was flat year-over-year. This segment was impacted by foreign currency deteriorations we expect the better EBITDA growth more in line with the revenue growth.

We attribute the flat EBITDA to the lower margin ECP in higher cost associated with the acquisitions and Unipart locations we acquired. The cost structure at Sator is also higher than we expected to be once the conversion to a two set model is complete and the acquisitions are fully integrated.

The specialty segments are revenue of $210 million and EBITDA of $15 million in Q4 2014 we did not have a comparable segment in 2015. As previously discussed the specialty segment is seasonal and Q4 tends to be a lower performing quarter. The seasonality is evident when comparing Q4 to the full year EBITDA of $79 million.

Stag Parkway contributed very little EBITDA in Q4, so the $79 million compares favorably to be approximately $450 million we paid for the Keystone Automotive acquisition with the first year multiple to 5.7 times. Net cash provided by operating activities totaled $371 million for the year 2014 as compared to $428 million in 2013.

Net income and depreciation were favorable to cash flow by $70 million and $39 million respectively, growth in the accounts receivable was an incremental $17 million use of cash as we continue to grow with revenue organically. Similarly, inventory was an incremental use of cash of $53 million as we invest in inventory for the expanded business.

We had been concerned about the recently threatened port strikes on the West Coast and we build some additional inventories as risk mitigation measure. The timing to cash tax is result in a higher outsource front in 2014 to 2013 of $32 million.

Changes in accounts payable and other operating assets was a net source of cash of $13 million in 2014, as compared to the source of cash of $76 million in 2013. The timing of accounts payable this disbursements and higher interest and bonus payments been the primary driver the relatively lower contribution of these items.

Capital spending is a 141 million in 2014 and in 2014 we spend $776 million in cash and acquisitions the largest being specialty which accounted for $427 million of the total.

We closed 2014 with $1.9 billion in debt and cash and cash equivalents were $115 million, availability in our credit facility was approximately $1.1 billion and with the cash total liquidity was approximately $1.2 billion, so we have the capacity to pursue additional acquisitions if suitable opportunities are arose. And now turning to guidance.

The 2015 annual guidance cost for net income between $420 million and $460 million that equates to earnings per share of $1.36 to $1.46.

Our guidance for 2015 for organic revenue growth from parking services is 6.5% to 9% and our guidance for capital expenditures is $150 million to $180 million cash flow from operations for approximately $450 million. We don’t give quarterly guidance, but I want to give you some insight into what we’re seeing so far this year.

Starting with foreign exchange, the U.S. dollar has strengthened appreciably against the pound, euro and Canadian dollar compared to last year’s averages.

As earlier this week compared to last year’s averages, these currencies will respectively 6.2%, 14.7% and 12.2% Lower compared to the average over last year we believe that currencies represent approximately $0.04 to $0.05 headwind at current rates. Obviously we don’t know where these trends would lead.

Scrap steel has also weakened since Q4 I mentioned that our Q4 average scrap sales were $197 per ton. Our report for this business last week shows that we’re achieving only $130 per ton.

At this time we don’t know where the floor is on these prices or when the recovery will start as we’ve discussed many times in price aggressively manage the cost of our vehicles lower but we incur lower than expected income as we sell the cars acquired last quarter when prices were higher.

Q1 will be impacted by this phenomena and expect that to carry into Q2. We estimate that this will be a negative impact of approximately $0.05 to $0.06 over the year. In 2008 we saw large drop in commodity prices.

This situation this time is different and the decline in the prices to-date has not been severe and as we’ve been discussing in past calls the total portion of revenue impacted is a much smaller percent of our total revenue.

So while we’re not immune to these changes, we believe that we can adjust our buying to account for them and once we see stability or perhaps seen a reversal of prices, we’ll see the kind of recovery that we saw in 2009 and 2010.

I mentioned the performance of the European segment in Q4 relative to the prior year in our expectations we believe that we’ll see improvements in that segment in relatively short order. We’ve charged our European team to take active steps to focus on gross margin improvement for simultaneously improving their cost structure.

We continue to anticipate improvements in Sator as we build out our footprint in Netherlands. If the European operations improves at a faster rate than the U.S. operations, we’ll also see our tax rate improves. Finally, turning to what we see in the broader economic market.

We continue to believe that our margins in North America are going to benefit from the larger number of later model cars entering our space. The European markets despite the currency issues appear to be pulling out their proactive slow growth model. Lower fuel cost and higher employment figures should lead to more miles driven.

So we need to through the challenges at lower scrap pricing and the stronger dollar crate ultimately we see the markets moving in our favor for next few years. With that I’d like to turn the call back to Rob before we open to questions..

Thanks John. To summarize we faced significant headwinds in the fourth quarter many of which were outside of our control. Yet despite these challenges we delivered solid results in 2014.

Looking ahead in North America the recent upswing in miles driven, lower gas prices and increased new car sale should provide a nice tailwind to our collision business. In addition the recent inclement weather in North America could provide some momentum as we enter the second quarter.

For our aftermarket parts business, we continue to see improvement in our full SKU offering as well as our certified parts offering both growing 6% and 18.6% respectively.

In UK, new car registrations reached a level not seen since 2005 which we believe boards well for ECP’s mechanical parts business and their growing alternative collision parts business.

Also with UK insurance premiums down 13% since 2012 we continue to believe that the value proposition of alternative collision parts is attractive to carriers trying to mirage cost. Also we continue to be pleased with the performance of our specialty segment and the timing of our entry into the large and highly fragmented market.

In 2013 the specialty equipment market produced the highest growth rate since the recent recession posting a 7% gain and pushing the overall market to over 33 billion. These dynamics coupled with the projected increase in SAR over the next four years positions us well for 2015 and beyond within this segment.

In closing I am proud of hard work and dedication our 29,000 plus employees delivered for the company, our stockholders and most importantly our customers in 2014.

I am equally proud of our team’s commitment to effectively manage the dynamics of our business that they can control while not losing focus on growing the business, developing our people and continuously looking for opportunities to generate leverage and synergies from our existing and recently acquired operations.

Finally, as you probably saw in our second press release John Quinn has been appointed to head our European operations. I want to thank John for his five years of service as our CFO. Our commitment to Europe requires strong leadership. John has extensive knowledge of European business market having held key positions there in previous company.

He is ideal person to take our European operations for the next level. Also, I want to welcome Nick Zarcone as our new CFO. Nick has extensive CFO experience and a great knowledge of our company.

He was the key person at our lead underwriter Baird during our IPO in 2003 follow on offerings in 2005 and 2007 and has advised on several of our strategic initiatives over the years. We are fortunate to have him join our team. And Devon with that we are now prepared to open the call for Q&A..

Thank you. We will now be conducting the question-and-answer session (Operator Instructions). Our first question comes from the line of Nate Brochmann, William Blair. Please proceed with your question. .

Hey, wanted to talk a little bit. I get all the noise certainly created by scrap and FX and the tax rate, and thank you for explaining that very well. There still seems to be an ounce of a gap in terms of guidance. I get the fact that there's some lingering issues in the fourth quarter in terms of cost with Europe and some margin things here and there.

But in terms of guidance, you talked about the expectations that those things would get better, but there still seems to be a little bit of a gap between where expectations were, even adjusting for scrap and FX and kind of where guidance is.

Some of that seems to be a little bit of a gap in terms of operational, some of that, again, still might be some gross margin. Some of that may be higher cost with Europe, and just getting the platform established in 2015.

Wondering if you could go through a little bit more in detail where the perception on the gap might be?.

Just I guess the way that we look at where came out with guidance if you look at the fundamentals of the company and there was Q4 underperformed a bit in terms of European operations obviously that drove the tax rate little bit higher and there is a pickup year-to-date increase in the tax rate we have the pickup in Q4.

We also have some increases in the amortization on some of the intangibles. So if take that component then roll it forward say we have a $1.27 on adjusted basis in 2014. If you drove that in any kind of reasonable rate probably be in the $1.45 to $1.50 range, we then see about a $0.10 headwind within this scrap and the FX impact.

And that’s kind of where we ended up on the guidance. Keep in mind we don’t have a lot of big acquisitions in these numbers, back if you look in 2011 maybe you see peak coming into 2012 we had the benefit of Keystone Automotive last year. The fundamentals of the business, I think are quite strong.

We do have this scrap which is we view is been a temporary headwind, I don’t know when FX is going to turn or if it ever does, but there are some things we are obviously doing and trying to improve those things as well.

Not all the currencies moved in the same direction at the same time and if that does a little bit of an opportunity for arbitress and some of the procurement as we look in that so if you can mitigate or mitigating some of these impacts.

The FX is not just and we have to accept that there are some things we can do to move cost around from different currencies. .

Okay, that's fair. I know that obviously you guys been very successful with your strategy in terms of buying acquisitions and the putting them into the business. Clearly, the top-line revenue remains fairly impressive, and certainly within expectations. Again, I'm sure that the answer will be no, we're not going to change what we're doing.

Again, I wouldn't expect necessarily you to as you've been successful with that. But at some point you wonder, with the stock price bring down here, whether you might look for shareholder returns that could be a little bit better, whether that's buying back stock, or whether that's kind of laying off anything very large.

I know timing's always unpredictable.

I know that if you go back to the couple years post-Keystone one, you showed some impressive margin improvement, whether there would be an opportunity to be able to do that and kind of enhance the quality of the earnings and overall shareholder value, or whether that's just really not in the cards and there's just so much opportunity that, that's really still the foremost thing to ultimately create shareholder value.

.

I am going to just touch a little bit on the acquisition front and then let Rob to address your second question which was shareholder and buybacks or something. In terms of the acquisition strategy I called out specifically the Keystone Automotive acquisition we did last year which we paid about roughly $450 million for that acquisition.

We got some good synergies out of it and it looks like last year first year multiples are around 5.7 times. I still believe that what interest rates where they are, our credit facility allows us to borrow that’s good opportunity create shareholder value of multiple.

One-third business get go into relatively low capital intensity business, and lot of additional CapEx required becomes very attractive distribution business from our perspective. To the extend we can identify additional opportunities like that actually that is the best use of the capital.

in terms of just on comment in terms of some other foreign exchange issues that we have, it does impact the income when we buy assets in foreign countries be it Canada or Europe then we try to match that with a foreign currency hedge in so much as we try to borrow as much of the currency in the foreign currency we can.

So underlying the foreign currency cash flows coming in with the foreign currency debt. So although we end up with volatility in the income statement and we know we understand that’s important. The underlying economics we do create hedge on the asset itself.

Do you want to comment on the others?.

I will comment on the stock buyback, it’s something that we consider every quarter, we meet with our Board and we discuss that and honestly to your point as of today, we just believe there are other opportunities that issues of our capital it's not to say that it wouldn’t change at some point but it's the topic that we discuss regularly with our Board and as we stated our plan right now was to continue the path we’re on.

Acquisition as you said are sticky, they come and go and could have big yield come on play tomorrow absolutely it could and if we didn’t have a good balance sheet which we’re and the great position to do. So, our liquidity is great at this time, I think we’re going to continue with the strategy of trying to build up a network.

We think there is first move advantages in many markets and those opportunities are something that we just kept as up at this point..

Thank you. Our next question comes from the line of Craig Kennison from Robert W. Baird. Please proceed with your question..

Thanks for taking my questions. Wanted to start with Europe and the European margins. Clearly, they have been under significant pressure in the last year and there are some outside factors.

I'm asking, are you getting the synergy you expect to get out of that business? And then maybe, Rob, you could cover the two to three year margin outlook for that business. John, maybe you can talk about your priorities as you move into a leadership role there. .

Let me just talk about the ECP gross margin first Craig, for Q4 after the Unipart bankruptcy basically, there was a grab for a lot of the business and it got quite competitive in the marketplace. So that is behind us now, we certainly think things are starting now to settle down in terms of that.

We have put in pricing programs not only for single customers, but also for our national accounts. We are now truly the only national player for all of UK, there are other competitors that can team up together, but we’re the only true single company that can do that. So, we do a special margin expansion there as well.

We constantly are working on our front cost initiative with vendors and we’re going to start seeing some progress there as well. Just a little bit of a drag on ECP’s margins, gross margins was -- that win Unipart going down we did pick up some more national accounts which are obviously slightly dilutive to your overall margins.

But I think we’re going to start to see some nice turns in the margins of ECP certainly through January, February very pleased with that.

As far as Sator goes in the margin year, we are still building hope the three step and two step model, we have 64 locations now I report in the last quarter that we wanted to have about 80, we’ll have that done by 2015 and at that point we’ll get the significant synergies.

In terms of your second questions, are we seeing the synergies, we probably are going to see. We’re about 80% done with the purchasing synergies between Sator and ECP is just 20% more to go and I think that will continue to comment we continue to grow mass and size on being able to leverage that with our vendors. John as far as…..

First, we believe we have a great set of management teams both in the Netherlands and in the UK, so this is not my new role s not change things there is really a focus of making through the integration between those goes a little bit better in terms of things like cataloging and some of the non-procurement related synergies and some of those other back office we can do a little bit better.

And then I’ll be focusing on the integration trying to reduce the cost structure over there and improve the value proposition to the customer in terms of some of the ecommerce things that we could do, we have a decent ECP ecommerce strategy we like to bring that to the year.

And then looking for additional acquisition both in terms of things that we can adjacencies where we can tuck and things, so as a example we did the paint deals in UK, we don’t distribute paint to the Netherlands that’s collision we don’t do in the Netherlands.

So once we get our footprint build out in the Netherlands will be looking to further our adjacencies. And then additional markets, we’ve talk many times here large car park, large in the U.S. and then you define it and we think that, that is a good opportunity. Rob talked about the first-mover advantages.

We do also have a couple of large projects going on there ECP is building a new warehouse necessarily large project. So we just going to be focusing on making sure we’ve got execution on that front..

That's really helpful. So when we look at European EBITDA margins, I think you finished the year with a quarter of 8.2% EBITDA margin. For the full year, it was probably closer to 9%, down from maybe approximately 11% last year.

What is the right outlook? Can that business get back to double-digit EBITDA margins within the next two, three years?.

I believe it can, we’re carrying a lot of cost there associated with the start-ups with the Unipart branches that we took over that they are not generating as much revenue in Q4 and we’re still carrying the fair amount of duplicate cost in terms of some of the infrastructure is around the Sator acquisitions.

As we expanded the collision business, you know we opened additional warehousing space in the UK which is causing additional distribution cost, I mentioned a moment ago the project rationalize that’s probably a 2017, 2018 project whether that actually it's a large we have to start it now.

So eventually those things will bring down our average cost from the distribution front and some of I think talked about in terms of rationalize in the cataloging and some of those other expenses, we believe there is opportunity there. Yes, we definitely targeting to get back to double-digit..

I’ll answer that Craig, in 2012, after we did the aggressive branch opening at ECP we did 42 in 2012 we took the first half of 2013 on but we saw margin expansions. We’re 189 now we’ve always said the right number of somewhere between 200 and 225.

I believe in two to three years you will see that margin expansions will be done with that build out and you will starting to see those margin expansion like we did in 2013..

Thank you. Our next question comes from the line of James Albertine with Stifel, Nicolaus. Please proceed with your question..

Great, thanks for taking the question. Let me just thank John for his years of service. Wish him the best of luck in his new role and welcome, Nick, to the team here at the outset. Lots of moving pieces, Rob, as you said, some of which are out of your control. Just a quick history lesson.

Has there ever been a period of sustained scrap pressures while wholesale pricing, at least the Manheim index, moves higher? It seems like those, generally if they move down together and move up together.

Do you recall a period where you've ever gone through what we're seeing today?.

We did go through it in a way Jamie I believe Manheim actually came down in ’08 but we’re seeing Manheim go up but scrap actually imploded in 2008 so just in a way now though is our weight was very sudden the scrap went from about $325 a ton as I recall down to very, very low numbers.

This has been more gradual and actually ’08 from our perspective was better because it went down so quickly it drilled down the cost of our salvage so much. It is interesting when I look at what we’re paying in auction. In Q4, we paid $1990 on average sequentially it was down $48 in Q3 so we’re starting to see the scrap impact at the auctions.

Because Manheim went up, you would think that our prices were gone so we believe that the decrease in the car cost of $48 was related to the scrap. So the problem is, we see a gradual drop but we did see this in ’08, ’09 and ’10 were good years for us as scrap recovered.

One or two things was going to happen here either scrap will recover and that will be obviously a good thing or scrap will continue to be low and then we can adjust our buying appropriately which is one of the things that John mentioned one of the things we’re actively doing we’re driving down our cost on the acquisition side.

So you will start to see that margin improve as that scrap stabilizes..

Got it. Very helpful. As relates to your guidance for organic growth, first of all, looking back it FY14, 9% looks quite strong. Just kind of stuck out with me that the range of 6.5 % to 9% seems fairly wide. What are the key swing factors that you are seeing there or anticipating? Particularly in light of what John mentioned around the sweet spot.

Starting see the early stages of the benefits from SARs -- the SAR recovery, if you will. .

The wide range is a couple of factors obviously winter we think we’re having a good winter obviously and we started about the quarter so far I am sure someone to ask that anyway on January we were on plan for our numbers, February has been a interesting month because there was such weather inclement weather we had obviously major shutdowns in Boston and I understand Atlanta was shutdown yesterday by the governor.

So February is going to be interesting months because of the inclement weather we certain do believe it’s going to be a snapback whether it’d be in March or April in the Q2 most likely due to it’s going to be likely have a snapback on all those cars getting into the repair shops. We are up against a huge comp in Q1 though.

As you will recall last winter was really strong winter in terms of being very snowy very icy for the entire Untied States actually Atlanta had two ice clumps last year so we’re up against the top comp but we certainly believe this weather has been good to us.

And in terms of our European organic growth ECP continue to built out so there are more opportunities there. As we get Sator through that three sub to two sub again which we’ve completed this year I think we’ll start to see some running there on the organic growth rate.

So I think it’s some good things there are some headwinds of course in terms of just the core in back of the collision losses and where they are going to be in the spring and fall but we’re pretty bullish actually on our organic growth..

Again, very helpful. If I could sneak one more in, as it relates to your leverage ratio, just getting a kind of a sense of where you ended up at the end of FY14 and really with an eye toward your comments around the interest rate environment being favorable. There's some deals you can't pass up.

Have you adjusted your max ratio, the most leverage that you could take on and still feel comfortable running the business day to day? Thanks. .

I think we really adjusted it in the -- if you look at just on the reported EBITDA basis I think we’re around 2.4 times if you adjust for the main covenant where we get credit for acquisitions we did late in the year and so forward and we’re closer to 2 times leverage. So leverage right now is very modest I would say and reasonable.

And we haven’t changed if you just model during a very large acquisitions a $1 billion acquisition intent we had a reasonable multiple however did go up around 3 times. We’re still very comfortable with that. Historically we’ve had taken the leverage higher and one time back 2007 we ended up to about 4.8 times after the Keystone Automotive.

I don’t see us that high but just because of the math it would be very difficult to do that. So it’s good opportunity in terms of we have take no leverage up before if we start doing acquisitions, the Company generates a lot of cash flow. Somebody just handed me a note. I think I misspoke. Our cash flow guidance, I think said $450 million approximately.

It should be $425 million approximately, according to Press Release. So the company would deliver fairly quickly if we would ever stop doing acquisitions and as I said earlier if we can sign good accretive deals we are continue to try to do that. .

Our next question comes from the line of John Lawrence with Stephens. Please proceed with your question. .

It's actually Ben Bienvenu on for John. I wanted to talk about the ECP branch growth anticipated for next year, the 13 units.

Do any of those include Unipart sites? And then as you look at your longer-term opportunity for ECP branches, as market dynamics change and as you learn more data about the customer set in that market, is there are opportunity for that to move up? Or do you think we're fairly zeroed in on what the opportunity is?.

The new branches do consume Unipart conversions, it’s a tricky question because some of those branches move. We are taking one branch ECP brand and UA branch and bringing them together. So overall though it’s a combination of both new branches and combined branches as well. .

In the question on the longer-term opportunity, do you feel like you've zeroed in on that or is there an opportunity for that to move?.

I think in terms of the once we get the branch builder we are going to continue to expand the commission business in UK. We got the pretty much coverage in terms of country in terms of paint but the penetration of commission part is still relatively low when you compare the UK to the U.S.

We believe there is a penetration of alternative parts is probably still maybe little bit under 10% versus 36% 37% in North America. So there is a quite a bit of opportunity for expansion on the commission business as well.

And then just looking at other penetration as I mentioned the e-commerce business is been growing fairly well which is getting that a retail customer more than traditional mechanical repaired market. .

Just one other thing I would add to that for the UK down the road. I did mention on the call that we entered Swedish salvage market this is still an opportunity we are looking at. So that’s an opportunity as all remanufactured.

We have a remanufactured base here in the United States and we are looking to bring that into the UK as well as the continent as well. So that’s could be an opportunity for us. You will see us move on that within the next year or so. .

That's very helpful color, thanks. The second question, just related to State Farm, I assumed if there was any meaningful change in the activity there we would have heard something. I'd just like to get an update on what you are seeing there on terms of their buying of alternative parts. .

They continue to by our chrome bumpers the one that they did allow about year-ago. Our chrome bumper sales were up 22.3% for us. So they will continue to buy those products and we are cautiously optimistic that and we know they are happy with the results they told us that, we are cautiously optimistic that they actually turn up more and more parks.

So nothing new update other than the fact that they continue to our chrome bumpers at a very healthy rate. .

Our next question comes from the line of Scott Stember with Sidoti & Company. Please proceed with your question. .

Could you talk about how fuel costs, assuming they stay as low as they are right now, how that will impact margin as regards to your distribution set?.

John speaking, we did see a little bit of benefit in Q2 -- excuse me in Q4. We have our annual spend is about $90 million on fuel and that will be offset to some of these other negatives that we have been talking about and really in 2015. .

Okay. Rob, you mentioned the West Coast ports earlier.

Could you maybe talk about what you have been doing and what you plan to do? Are you diverting parts shipments to other ports throughout the country?.

We did do that Scott, the good news is that they have resolved and they are I believe the union has approved it. That was the one thing that was left outstanding but they have come to a settlement there is a backlog at the ports we are in very good shape actually.

Our purchasing department done a phenomenal job of diverting cans from West Coast to the East Coast to north ports to other ports as well. So we are in good shape, we think it’s going to be a month or two before that backlog comes out. As John mentioned in his prepared remarks we did move some of that buying in the Q4, we did see this coming.

So actually we are in great shape our fuel rate. No major concerns there at all..

And last, just touching base on the commentary you made about the collision parts, potentially selling them in Sweden.

Could you talk about penetration within the core European markets, such as where Sator is right now?.

The rents are just about identical, although interesting about last quarter we reported that UK alternate part rates are now up 9%, when we got into business at 7. We believe the economy is more on a 7 right now and we think there is an opportunity as I mentioned in my remarks that right there in programs with us in UK are ready on continent as well.

So there should be a great opportunity all the way for us as far as to get that three step to two step model done, so we can get everybody on the same page, get our synergies and bring those products in. So, hopefully we’ll start seeing some parts moving in the side of the business by the end of this year..

Thank you. Our next question comes from the line of Bret Jordan with BB&T Capital Markets. Please proceed with your question..

Just a little bit more color on the ECP margin issues, and I guess trying to understand was there brief price war that has since ended? I guess you are talking about seeing some recovery there.

I'm just trying to understand what did impact the traditional auto parts market?.

Yes, there absolutely was what I’ll call ramp grab to that business, I think quite competitive it was also another entry into the marketplace that we have since acquired quite frankly APX Autopart.

So it did quite aggressive for little bit, those days are behind us now and that we had in January and February margins of come out nicely in the UK business..

What’s your market share, do you think, in traditional parts through ECP?.

Is very difficult to say it include the dealers, other -- dealers are still very important part of distribution network. We do include the dealers generally speaking Bret because they are selling parts as well of course into their maintenance sort of market. When you throw them in their it's in the 20% range, 20% to 25% range..

Okay. And then a question on alternative parts penetration in North America.

I think John might have thrown a number out there, but what's your feeling for 2014 ending? Was it the use of 36 or 37?.

It's going to be in that number for sure. One of the downsides of course the strong rate is the fact almost gets -- almost all they get OEM parts when they are [random moving parts] when they are new parallel.

So, when those parts walk their way through to two, three, four years old out, we do expect that to take back up again, but it will mean the 36, 37 range again..

Thank you. Our next question comes from the line of Bill Armstrong with CL King & Associates. Please proceed with your question..

My question also is on the potential pricing pressure. You discussed the UK.

Any other pressure in the parts and service in North America or perhaps on the Continent, either from competitive pricing or from any softening in demand?.

I’ll talk about the buying environment, as I mentioned though the stronger dollar is, I think on acute some of the exporters on the marketplace here, so I think we’ll be able to buy little bit better on salvage. We’ve seen though price pressure on the aftermarket side of the business both on the buy and sell.

So, I don’t think we’re going to see any pressure on either sides of presence is here..

Did I hear you say before that Sator will have higher costs as you migrate to a two-step model from a three-step? If I got that right, why -- what sort of costs would increase? Why would that happen?.

So, and there if you think on the traditional three step model we buy the product we ship it out one to date our customers and typically in large loads with on semi-trucks, when you go to a two step distribution model we’re still starting those same locations, but then we have the additional distribution accounts to take it to that final model as you will to smaller van to deliver with half hour, one hour service.

So you got all those additional distribution cost. What you should be able to pick up is the margin, the gross margin from that distributor gets added to our gross margin so to speak you can met them obviously, but you do pick up the two margins instead of the one.

So ultimately we believe the overall EBITDA margin when you take out all the cost individual customers should be better than operating independently.

But in terms of the SG&A and in terms of the distribution cost it doesn’t go up slightly when you go into a two step distribution model versus a three step -- if you use the three step ever, does that make sense?.

Yes, that completely makes sense. And just one last quick question.

What sort of income tax rate are you baking into your guidance for the new year?.

Some are between 34.5 and 35 given their size that can drive the $0.02 other way, it really going to depend on the mix, we don’t anticipating the changes I the taxes, the rates in the individual countries and as I mentioned in Q4 the income shifted for the full year more to the U.S.

and way from some of the lower tax jurisdiction including the UK and the Netherlands and so is really you going to come down where the mix comes out..

To your earlier question about the margins in the U.S. and I just want to comment on some of just macro trends we’re seeing here, why, I think the margins won’t be get too much pressures because some of the tailwinds we’re seeing in the businesses likely to be strong.

We got some of these but gas price is coming down and miles driving is increasing, unemployment is coming down, so see more people go to work and be it on the roads. Sator remain strong, which is really great for our KAO business.

So it's interesting with the new car we got this information from CCC with the new strong rate total losses are actually flat now because there are much higher dollar cars coming to the repair process. So, we think the repair market is going to get a nice shot in the arm here.

It’s pretty interesting they also pulled us repair costs are trending up 3.4% again also likely because of the newer car part which again bodes well for us because insurance companies are looking to drive the cost out.

The other stack that CCC gave us which was really shocking to me is the 0.4 more parts per estimate being used in 2014 versus 2013 based on 19 million repairable so that’s roughly 7 million new parts coming on to estimates that weren’t there a year ago so that’s also impressive.

The other thing that they told us which really caught me off guard quite frankly in 2009 39% of estimates had at least one aftermarket part on it in 2014 15% of estimates had at least one aftermarket part on it.

So aftermarket continues to gain market share so I really think all those considered we’re in really good shape for the growth for the business and the core business remains strong and scrap deals and it will heal itself there is no doubt in my mind and FX will eventually the foreign exchange rates will settle down at some point I think we’re going to be in good shape..

I think that’s it. So I want to thank everyone for the time this morning. And look forward to speak to you in April for our first quarter results. Thanks everybody. Have a good day..

This concludes today’s teleconference. You may disconnect your lines at this time. Thank you for your participation..