UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________________________________

FORM 10-Q

____________________________



☒	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~June 30, 2019~~March 31, 2020



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission File Number: 000-50404

____________________________

LKQ CORPORATION

(Exact name of registrant as specified in its charter)

____________________________



Delaware		36-4215970
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

500 West Madison Street,	Suite 2800
Chicago	Illinois	60661
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (312) 621-1950

Securities registered pursuant to Section 12(b) of the Act:

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act. ~~(Check one):~~



Large Accelerated Filer	☒	Accelerated Filer	☐
Non-accelerated Filer	☐~~(Do not check if a smaller reporting company)~~	Smaller Reporting Company	☐
Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At ~~July 26, 2019,~~May 1, 2020, the registrant had outstanding an aggregate of ~~308,205,030~~303,968,001 shares of Common Stock.

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Income (In thousands, except per share data)	LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Income (In thousands, except per share data)											LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Income (In thousands, except per share data)

	Three Months Ended					Six Months Ended						Three Months Ended
	June 30,					June 30,						March 31,
	2019			2018		2019			2018			2020			2019
Revenue	$	3,248,173		$	3,030,751	$	6,348,476		$	5,751,515		$	3,000,935		$	3,100,303
Cost of goods sold	2,000,986			1,868,872		3,893,025			3,535,665			1,787,059			1,892,039
Gross margin	1,247,187			1,161,879		2,455,451			2,215,850			1,213,876			1,208,264
Selling, general and administrative expenses	898,368			826,044		1,794,900			1,592,935			899,811			896,532
Restructuring and acquisition related expenses	8,377			15,878		11,684			19,932			6,970			3,307
Impairment of net assets held for sale	33,497			—		48,520			—
(Gain on disposal of business) and impairment of net assets held for sale												(249		)	15,023
Depreciation and amortization	70,834			63,163		141,836			119,621			65,495			71,002
Operating income	236,111			256,794		458,511			483,362			241,849			222,400
Other expense (income):
Interest expense, net of interest income	35,884			38,272		71,973			66,787			25,931			36,089
Other (income) expense, net	(5,733		)	427		(9,584		)	(2,455		)
Loss on debt extinguishment												12,751			—
Other income, net												(3,622		)	(3,851		)
Total other expense, net	30,151			38,699		62,389			64,332			35,060			32,238
Income from continuing operations before provision for income taxes	205,960			218,095		396,122			419,030			206,789			190,162
Provision for income taxes	55,825			60,775		107,375			110,359			60,411			51,550
Equity in earnings (losses) of unconsolidated subsidiaries	1,572			546		(37,977		)	1,958			516			(39,549		)
Income from continuing operations	151,707			157,866		250,770			310,629			146,894			99,063
Net income from discontinued operations	398			—		398			—
Net loss from discontinued operations												(915		)	—
Net income	152,105			157,866		251,168			310,629			145,979			99,063
Less: net income attributable to continuing noncontrolling interest	1,352			859		2,367			662			740			1,015
Less: net income attributable to discontinued noncontrolling interest	192			—		192			—			103			—
Net income attributable to LKQ stockholders	$	150,561		$	157,007	$	248,609		$	309,967		$	145,136		$	98,048

Basic earnings per share: ⁽¹⁾
Income from continuing operations	$	0.49		$	0.51	$	0.80		$	1.00		$	0.48		$	0.31
Net income from discontinued operations	0.00			—		0.00			—
Net loss from discontinued operations												(0.00		)	—
Net income	0.49			0.51		0.80			1.00			0.48			0.31
Less: net income attributable to continuing noncontrolling interest	0.00			0.00		0.01			0.00			0.00			0.00
Less: net income attributable to discontinued noncontrolling interest	0.00			—		0.00			—			0.00			—
Net income attributable to LKQ stockholders	$	0.48		$	0.50	$	0.79		$	1.00		$	0.47		$	0.31

Diluted earnings per share:⁽¹⁾
Income from continuing operations	$	0.49		$	0.50	$	0.80		$	0.99		$	0.48		$	0.31
Net income from discontinued operations	0.00			—		0.00			—
Net loss from discontinued operations												(0.00		)	—
Net income	0.49			0.50		0.80			0.99			0.48			0.31
Less: net income attributable to continuing noncontrolling interest	0.00			0.00		0.01			0.00			0.00			0.00
Less: net income attributable to discontinued noncontrolling interest	0.00			—		0.00			—			0.00			—
Net income attributable to LKQ stockholders	$	0.48		$	0.50	$	0.79		$	0.99		$	0.47		$	0.31

⁽¹⁾ The sum of the individual earnings per share amounts may not equal the total due to rounding.

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Comprehensive Income (In thousands)	LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Comprehensive Income (In thousands)												LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Comprehensive Income (In thousands)

	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
	2019			2018			2019			2018			2020			2019
Net income	$	152,105		$	157,866		$	251,168		$	310,629		$	145,979		$	99,063
Less: net income attributable to continuing noncontrolling interest	1,352			859			2,367			662			740			1,015
Less: net income attributable to discontinued noncontrolling interest	192			—			192			—			103			—
Net income attributable to LKQ stockholders	150,561			157,007			248,609			309,967			145,136			98,048

Other comprehensive income (loss):
Other comprehensive (loss) income:
Foreign currency translation, net of tax	5,602			(105,164		)	(4,293		)	(56,679		)	(103,965		)	(9,895		)
Net change in unrealized gains/losses on cash flow hedges, net of tax	(5,650		)	2,406			(8,387		)	5,660			(7,321		)	(2,737		)
Net change in unrealized gains/losses on pension plans, net of tax	28			(807		)	219			(1,428		)	120			191
Net change in other comprehensive income (loss) from unconsolidated subsidiaries	2,321			2,122			(1,142		)	1,517
Other comprehensive income (loss)	2,301			(101,443		)	(13,603		)	(50,930		)
Net change in other comprehensive loss from unconsolidated subsidiaries													(1,852		)	(3,463		)
Other comprehensive loss													(113,018		)	(15,904		)

Comprehensive income	154,406			56,423			237,565			259,699			32,961			83,159
Less: comprehensive income attributable to continuing noncontrolling interest	1,352			859			2,367			662			740			1,015
Less: comprehensive income attributable to discontinued noncontrolling interest	192			—			192			—			103			—
Comprehensive income attributable to LKQ stockholders	$	152,862		$	55,564		$	235,006		$	259,037		$	32,118		$	82,144

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidated Balance Sheets (In thousands, except share and per share data)	LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidated Balance Sheets (In thousands, except share and per share data)						LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidated Balance Sheets (In thousands, except share and per share data)

	June 30,			December 31,			March 31,			December 31,
	2019			2018			2020			2019
Assets
Current assets:
Cash and cash equivalents	$	375,967		$	331,761		$	332,784		$	523,020
Receivables, net	1,285,802			1,154,083			1,168,626			1,131,132
Inventories	2,650,138			2,836,075			2,718,630			2,772,777
Prepaid expenses and other current assets	319,942			199,030			222,624			260,890
Total current assets	4,631,849			4,520,949			4,442,664			4,687,819
Property, plant and equipment, net	1,206,690			1,220,162			1,202,329			1,234,400
Operating lease assets, net	1,294,541			—			1,269,280			1,308,511
Intangible assets:
Goodwill	4,409,925			4,381,458			4,334,725			4,406,535
Other intangibles, net	880,123			928,752			819,335			850,338
Equity method investments	133,154			179,169			145,859			139,243
Other noncurrent assets	147,954			162,912			139,878			153,110
Total assets	$	12,704,236		$	11,393,402		$	12,354,070		$	12,779,956
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	1,031,952		$	942,398		$	893,807		$	942,795
Accrued expenses:
Accrued payroll-related liabilities	171,650			172,005			162,944			179,203
Refund liability	106,612			104,585			99,680			97,314
Other accrued expenses	309,734			288,425			341,671			289,683
Other current liabilities	134,855			61,109			130,903			121,623
Current portion of operating lease liabilities	219,502			—			218,998			221,527
Current portion of long-term obligations	132,641			121,826			90,965			326,367
Total current liabilities	2,106,946			1,690,348			1,938,968			2,178,512
Long-term operating lease liabilities, excluding current portion	1,122,276			—			1,104,936			1,137,597
Long-term obligations, excluding current portion	3,919,902			4,188,674			3,672,221			3,715,389
Deferred income taxes	303,179			311,434			300,117			310,129
Other noncurrent liabilities	342,185			364,194			326,432			365,672
Commitments and contingencies
Redeemable noncontrolling interest							24,077			24,077
Stockholders' equity:
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 319,010,278 shares issued and 309,695,052 shares outstanding at June 30, 2019; 318,417,821 shares issued and 316,146,114 shares outstanding at December 31, 2018	3,190			3,184
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 320,439,059 shares issued and 303,943,144 shares outstanding at March 31, 2020; 319,927,243 shares issued and 306,731,328 shares outstanding at December 31, 2019							3,204			3,199
Additional paid-in capital	1,429,129			1,415,188			1,425,600			1,418,239
Retained earnings	3,847,485			3,598,876			4,282,753			4,140,136
Accumulated other comprehensive loss	(188,553		)	(174,950		)	(313,903		)	(200,885		)
Treasury stock, at cost; 9,315,226 shares at June 30, 2019 and 2,271,707 shares at December 31, 2018	(250,762		)	(60,000		)
Treasury stock, at cost; 16,495,915 shares at March 31, 2020 and 13,195,915 shares at December 31, 2019							(439,819		)	(351,813		)
Total Company stockholders' equity	4,840,489			4,782,298			4,957,835			5,008,876
Noncontrolling interest	69,259			56,454			29,484			39,704
Total stockholders' equity	4,909,748			4,838,752			4,987,319			5,048,580
Total liabilities and stockholders' equity	$	12,704,236		$	11,393,402		$	12,354,070		$	12,779,956

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Cash Flows (In thousands)	LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Cash Flows (In thousands)						LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Cash Flows (In thousands)

	Six Months Ended						Three Months Ended
	June 30,						March 31,
	2019			2018			2020			2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	251,168		$	310,629		$	145,979		$	99,063
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	152,361			129,504			71,379			76,207
Impairment of Mekonomen equity method investment	39,551			—
Impairment of net assets held for sale	48,520			—
Impairment of equity method investments							—			39,551
(Gain on disposal of business) and impairment of net assets held for sale							(249		)	15,023
Stock-based compensation expense	13,659			11,844			7,968			5,673
Loss on debt extinguishment							12,751			—
Other	(3,516		)	4,356			(2,721		)	(310		)
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions:
Receivables, net	(149,052		)	(112,178		)	(63,938		)	(205,029		)
Inventories	131,229			(12,777		)	(7,522		)	71,811
Prepaid income taxes/income taxes payable	25,967			6,090			41,585			42,917
Accounts payable	96,888			(25,380		)	(27,170		)	23,291
Other operating assets and liabilities	31,629			16,581			16,501			9,028
Net cash provided by operating activities	638,404			328,669			194,563			177,225
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(101,268		)	(115,421		)	(44,538		)	(53,016		)
Proceeds from disposals of property, plant and equipment							5,528			1,252
Acquisitions, net of cash acquired	(14,767		)	(1,135,970		)	(7,220		)	(4,785		)
Proceeds from disposal of businesses, net of cash sold							1,763			—
Other investing activities, net	(735		)	2,174			(405		)	(1,235		)
Net cash used in investing activities	(116,770		)	(1,249,217		)	(44,872		)	(57,784		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt issuance costs	(35		)	(16,759		)
Proceeds from issuance of Euro Notes (2026/28)	—			1,232,100
Purchase of treasury stock	(190,762		)	—
Early-redemption premium							(9,498		)	—
Repayment of U.S. Notes (2023)							(600,000		)	—
Borrowings under revolving credit facilities	312,880			613,658			460,186			284,641
Repayments under revolving credit facilities	(471,439		)	(766,597		)	(134,674		)	(312,339		)
Repayments under term loans	(4,375		)	(8,810		)	(4,375		)	(2,188		)
Borrowings under receivables securitization facility	36,600			—			111,300			6,600
Repayments under receivables securitization facility	(146,600		)	—			(12,900		)	(36,910		)
Repayments of other debt, net	(8,367		)	(2,444		)	(49,481		)	(625		)
Purchase of treasury stock							(88,006		)	(70,462		)
Other financing activities, net	110			3,195			(7,291		)	(1,448		)
Net cash (used in) provided by financing activities	(471,988		)	1,054,343
Net cash used in financing activities							(334,739		)	(132,731		)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(102		)	(68,359		)	(11,746		)	(2,513		)
Net increase in cash, cash equivalents and restricted cash	49,544			65,436
Net decrease in cash, cash equivalents and restricted cash							(196,794		)	(15,803		)
Cash, cash equivalents and restricted cash of continuing operations, beginning of period	337,250			279,766			528,387			337,250
Cash, cash equivalents and restricted cash of continuing and discontinued operations, end of period	386,794			345,202
Less: Cash and cash equivalents of discontinued operations, end of period	5,372			—
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, end of period	$	381,422		$	345,202		$	338,063		$	321,447

Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	375,967		$	345,202
Restricted cash included in Other noncurrent assets	5,455			—
Cash, cash equivalents and restricted cash, end of period	$	381,422		$	345,202

Supplemental disclosure of cash paid for:
Income taxes, net of refunds	$	88,001		$	110,745
Interest	75,259			55,768
Supplemental disclosure of noncash investing and financing activities:
Stock issued in acquisitions	$	—		$	251,334
Noncash property, plant and equipment additions	14,227			7,004
Notes payable and other financing obligations, including notes issued, debt assumed and settlement of pre-existing balances in connection with business acquisitions	45,420			65,460
Contingent consideration liabilities	5,377			34

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Stockholders' Equity
(In thousands)
LKQ Stockholders
Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings
Accumulated
Other
Comprehensive (Loss) Income
Noncontrolling Interest Total Stockholders' Equity
Shares Amount Shares Amount
BALANCE, April 1, 2019 318,889
$ 3,189
(4,915 ) $ (130,462 ) $ 1,420,685
$ 3,696,924
$ (190,854 ) $ 57,292
$ 4,856,774
Net income —
—
—
—
—
150,561
—
1,544
152,105
Other comprehensive income —
—
—
—
—
—
2,301
—
2,301
Purchase of treasury stock —
—
(4,400 ) (120,300 ) —
—
—
—
(120,300 )
Vesting of restricted stock units, net of shares withheld for employee tax 68
1
—
—
(78 ) —
—
—
(77 )
Stock-based compensation expense —
—
—
—
7,986
—
—
—
7,986
Exercise of stock options 53
0
—
—
536
—
—
—
536
Capital contributions from, net of dividends declared to, noncontrolling interest shareholder —
—
—
—
—
—
—
162
162
Acquired noncontrolling interest ⁽¹⁾
—
—
—
—
—
—
—
10,261
10,261
BALANCE, June 30, 2019 319,010
$ 3,190
(9,315 ) $ (250,762 ) $ 1,429,129
$ 3,847,485
$ (188,553 ) $ 69,259
$ 4,909,748

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Stockholders' Equity
(In thousands)
LKQ Stockholders
Common Stock Treasury Stock Additional Paid-In Capital
Retained
Earnings

Accumulated
Other
Comprehensive (Loss) Income
Noncontrolling Interest Total Stockholders' Equity
Shares Amount Shares Amount
BALANCE, January 1, 2019 318,418
$ 3,184
(2,272 ) $ (60,000 ) $ 1,415,188
$ 3,598,876
$ (174,950 ) $ 56,454
$ 4,838,752
Net income —
—
—
—
—
248,609
—
2,559
251,168
Other comprehensive loss —
—
—
—
—

(13,603 )

(13,603 )
Purchase of treasury stock —
—
(7,043 ) (190,762 ) —
—
—
—
(190,762 )
Vesting of restricted stock units, net of shares withheld for employee tax 371
4
—
—
(1,158 ) —
—
—
(1,154 )
Stock-based compensation expense —
—
—
—
13,659
—
—
—
13,659
Exercise of stock options 236
2
—
—
1,868
—
—
—
1,870
Tax withholdings related to net share settlements of stock-based compensation awards (15 ) —
—
—
—
(428 ) —
—
—
(428 )
Capital contributions from, net of dividends declared to, noncontrolling interest shareholder —
—
—
—
—
—
—
(15 ) (15 )
Acquired noncontrolling interest ⁽¹⁾
—
—
—
—
—
—
—
10,261
10,261
BALANCE, June 30, 2019 319,010
$ 3,190
(9,315 ) $ (250,762 ) $ 1,429,129
$ 3,847,485
$ (188,553 ) $ 69,259
$ 4,909,748

⁽¹⁾ ~~The amount acquired during 2019 relates to discontinued operations. See Note 3, "Discontinued Operations," for further details.~~

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Cash Flows (In thousands)

Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	332,784	$	316,066
Restricted cash included in Other noncurrent assets	5,279		5,381
Cash, cash equivalents and restricted cash, end of period	$	338,063	$	321,447

Supplemental disclosure of cash paid for:
Income taxes, net of refunds	$	22,014	$	11,775
Interest	13,772		14,462
Supplemental disclosure of noncash investing and financing activities:
Leased assets obtained in exchange for new finance lease liabilities	$	7,718	$	5,245
Leased assets obtained in exchange for new operating lease liabilities	21,433		28,563
Noncash property, plant and equipment additions	7,594		9,054
Notes payable and other financing obligations, including notes issued and debt assumed in connection with business acquisitions and disposals	6,136		8,424
Notes receivable acquired in connection with disposal of business	7,994		—
Contingent consideration liabilities	2,933		—

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Stockholders' Equity (In thousands)	LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Stockholders' Equity (In thousands)																	LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Stockholders' Equity (In thousands)

	LKQ Stockholders																	LKQ Stockholders
	Common Stock				Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive (Loss) Income			Noncontrolling Interest		Total Stockholders' Equity			Common Stock			Treasury Stock					Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Noncontrolling Interest			Total Stockholders' Equity
	Shares Issued		Amount		Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive (Loss) Income			Noncontrolling Interest		Total Stockholders' Equity			Shares	Amount		Shares		Amount			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Loss			Noncontrolling Interest			Total Stockholders' Equity
BALANCE, April 1, 2018	309,631		$	3,096	$	1,146,391		$	3,271,718	$	(14,618	)	$	12,394	$	4,418,981
BALANCE, January 1, 2020																		319,927	$	3,199	(13,196	)	$	(351,813	)	$	1,418,239		$	4,140,136		$	(200,885	)	$	39,704		$	5,048,580
Net income	—		—		—			157,007		—			859		157,866			—	—		—		—			—			145,136			—			843			145,979
Other comprehensive loss	—		—		—			—		(101,443		)	—		(101,443		)	—	—		—		—			—			—			(113,018		)	—			(113,018		)
Stock issued in acquisitions	8,056		81		251,253			—		—			—		251,334
Purchase of treasury stock																		—	—		(3,300	)	(88,006		)	—			—			—			—			(88,006		)
Vesting of restricted stock units, net of shares withheld for employee tax	44		—		(381		)	—		—			—		(381		)	400	4		—		—			(2,073		)	—			—			—			(2,069		)
Stock-based compensation expense	—		—		5,862			—		—			—		5,862			—	—		—		—			7,968			—			—			—			7,968
Exercise of stock options	95		1		666			—		—			—		667			112	1		—		—			1,466			—			—			—			1,467
Shares withheld for net share settlement of stock option awards	(5	)	—		(161		)	—		—			—		(161		)
Acquired noncontrolling interest	—		—		—			—		—			44,250		44,250
BALANCE, June 30, 2018	317,821		$	3,178	$	1,403,630		$	3,428,725	$	(116,061	)	$	57,503	$	4,776,975
Capital contributions from, net of dividends declared to, noncontrolling interest shareholder																		—	—		—		—			—			—			—			341			341
Adoption of ASU 2016-13 (see Note 3)																		—	—		—		—			—			(2,519		)	—			—			(2,519		)
Disposition of subsidiary with noncontrolling interests⁽¹⁾																		—	—		—		—			—			—			—			(11,404		)	(11,404		)
BALANCE, March 31, 2020																		320,439	$	3,204	(16,496	)	$	(439,819	)	$	1,425,600		$	4,282,753		$	(313,903	)	$	29,484		$	4,987,319

⁽¹⁾The amount disposed of in 2020 relates to discontinued operations. See Note 2, "Discontinued Operations," for further information.



	LKQ Stockholders
	Common Stock				Treasury Stock					Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Loss			Noncontrolling Interest			Total Stockholders' Equity
	Shares		Amount		Shares		Amount			Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive Loss			Noncontrolling Interest			Total Stockholders' Equity
BALANCE, January 1, 2019	318,418		$	3,184	(2,272	)	$	(60,000	)	$	1,415,188		$	3,598,876	$	(174,950	)	$	56,454		$	4,838,752
Net income	—		—		—		—			—			98,048		—			1,015			99,063
Other comprehensive loss	—		—		—		—			—			—		(15,904		)	—			(15,904		)
Purchase of treasury stock	—		—		(2,643	)	(70,462		)	—			—		—			—			(70,462		)
Vesting of restricted stock units, net of shares withheld for employee tax	303		3		—		—			(1,080		)	—		—			—			(1,077		)
Stock-based compensation expense	—		—		—		—			5,673			—		—			—			5,673
Exercise of stock options	183		2		—		—			1,332			—		—			—			1,334
Tax withholdings related to net share settlements of stock-based compensation awards	(15	)	—		—		—			(428		)	—		—			—			(428		)
Dividends declared to noncontrolling interest shareholder	—		—		—		—			—			—		—			(177		)	(177		)
BALANCE, March 31, 2019	318,889		$	3,189	(4,915	)	$	(130,462	)	$	1,420,685		$	3,696,924	$	(190,854	)	$	57,292		$	4,856,774

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Stockholders' Equity
(In thousands)
LKQ Stockholders
Common Stock Additional Paid-In Capital
Retained
Earnings

Accumulated
Other
Comprehensive (Loss) Income
Noncontrolling Interest Total Stockholders' Equity

Shares
Issued
Amount
BALANCE, January 1, 2018 309,127
$ 3,091
$ 1,141,451
$ 3,124,103
$ (70,476 ) $ 8,484
$ 4,206,653
Net income —
—
—
309,967
—
662
310,629
Other comprehensive loss —
—
—
—
(50,930 ) —
(50,930 )
Stock issued in acquisitions 8,056
81
251,253
—
—
—
251,334
Vesting of restricted stock units, net of shares withheld for employee tax 344
3
(2,780 ) —
—
—
(2,777 )
Stock-based compensation expense —
—
11,844
—
—
—
11,844
Exercise of stock options 321
3
2,919
—
—
—
2,922
Shares withheld for net share settlement of stock option awards (27 ) —
(1,057 ) —
—
—
(1,057 )
Adoption of ASU 2018-02 (see Note 9) —
—
—
(5,345 ) 5,345
—
—
Capital contributions from noncontrolling interest shareholder —
—
—
—
—
4,107
4,107
Acquired noncontrolling
interest
—
—
—
—
—
44,250
44,250
BALANCE, June 30, 2018 317,821
$ 3,178
$ 1,403,630
$ 3,428,725
$ (116,061 ) $ 57,503
$ 4,776,975

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

LKQ CORPORATION AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements


~~Note 1.~~	~~Interim Financial Statements~~

Note 1. Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements represent the consolidation of LKQ Corporation, a Delaware corporation, and its subsidiaries. LKQ Corporation is a holding company and all operations are conducted by subsidiaries. When the terms "LKQ," "the Company," "we," "us," or "our" are used in this document, those terms refer to LKQ Corporation and its consolidated subsidiaries.

We have prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") applicable to interim financial statements. Accordingly, certain information related to our significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted. These unaudited condensed consolidated financial statements reflect, in the opinion of management, all material adjustments (which include only normally recurring adjustments) necessary to fairly state, in all material respects, our financial position, results of operations and cash flows for the periods presented.

Operating results for interim periods are not necessarily indicative of the results that can be expected for any subsequent interim period or for a full year. These interim financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2018~~2019 filed with the SEC on ~~March 1,~~ February 27, 2020 ("2019 ~~("2018~~ Form 10-K").

~~Note 2. Business Combinations~~

~~During~~The coronavirus disease 2019 ("COVID-19") pandemic and the ~~six months ended June 30, 2019, we completed five acquisitions, including one wholesale business~~resulting governmental actions taken to control the virus have impacted, and ~~one self service~~are expected to continue to impact, our business in ~~North America,~~2020. The effects include, but are not limited to, a reduction in demand for our products and ~~three wholesale businesses~~services, liquidity challenges for certain of our customers and suppliers, and organizational changes, such as personnel reductions and route consolidation, driven by cost actions to mitigate the expected revenue decline. We have considered COVID-19 impacts in ~~Europe. These acquisitions were not material to~~the preparation of our ~~results of operations or~~ financial ~~position~~statements and footnotes as of and for the three ~~and six~~ months ended ~~June 30, 2019. Total acquisition date fair value~~March 31, 2020. Specific disclosures are presented in the following footnotes as applicable.

The ultimate impact of COVID-19 on our business, results of operations, financial condition and cash flows is dependent on future developments, including the severity and duration of the ~~consideration for our acquisitions for~~pandemic and the ~~six months ended June 30, 2019 was $48 million, composed of $17 million of cash paid (net of cash acquired), $5 million for~~related impact on the estimated value of contingent payments to former owners (with maximum payments totaling $7 million), $1 million of other purchase price obligations (non-interest bearing), $21 million of notes payable,global economy, which are uncertain and ~~$4 million of pre-existing balances considered to~~cannot be ~~effectively settled as a result of the acquisitions. In addition, we assumed $8 million of existing debt as of the acquisition dates.~~predicted at this time.

On ~~May 30, 2018~~, we acquired Stahlgruber GmbH ("Stahlgruber"), a leading European wholesale distributor of aftermarket spare parts for passenger cars, tools, capital equipment and accessories with operations in Germany, Austria, Italy, Slovenia, and Croatia, with further sales to Switzerland. Total acquisition date fair value of the consideration for our Stahlgruber acquisition was €1.2 billion ($1.4 billion), composed of €1.0 billion ($1.1 billion) of cash paid (net of cash acquired), and €215 million ($251 million) of newly issued shares of LKQ common stock. We financed the acquisition with the proceeds from €1.0 billion ($1.2 billion) of senior notes, the direct issuance to Stahlgruber's owner of 8,055,569 newly issued shares of LKQ common stock, and borrowings under our existing revolving credit facility. We recorded $915 million ($908 million in 2018 and $7 million of adjustments in the six months ended June 30, 2019) of goodwill related to our acquisition of Stahlgruber.

On May 3, 2018, the European Commission cleared the acquisition of Stahlgruber for the entire European Union, except with respect to the wholesale automotive parts business in the Czech Republic. The acquisition of Stahlgruber’s Czech Republic wholesale business was referred to the Czech Republic competition authority for review. On May 10, 2019, the Czech Republic competition authority approved our acquisition of Stahlgruber’s Czech Republic wholesale business subject to the requirement that we divest certain of the acquired locations. We acquired Stahlgruber’s Czech Republic wholesale business on May 29, 2019 and decided to divest all of the acquired locations. We immediately classified the business as discontinued operations because the business was never integrated into our Europe segment; see Note 3, "Discontinued Operations" for further information. The Czech Republic wholesale business represents an immaterial portion of Stahlgruber's revenue and profitability. There was no additional consideration beyond the previously remitted amounts for the Stahlgruber transaction required to complete the acquisition of the Czech Republic wholesale business.

In addition to our acquisition of Stahlgruber, during the year ended December 31, 2018, we completed acquisitions of four wholesale businesses in North America and nine wholesale businesses in Europe. Total acquisition date fair value of the consideration for these acquisitions was $99 million, composed of $85 million of cash paid (net of cash and restricted cash acquired), $11 million of notes payable, and $3 million for the estimated value of contingent payments to former owners (with maximum potential payments totaling $5 million). During the year ended December 31, 2018, we recorded $68 million of goodwill related to these acquisitions.

Our acquisitions are accounted for under the purchase method of accounting and are included in our consolidated financial statements from the dates of acquisition. The purchase prices were allocated to the net assets acquired based upon estimated fair values at the dates of acquisition. The purchase price allocations for the acquisitions made during the six months ended June 30, 2019 and the last six months of the year ended December 31, 2018 are preliminary as we are in the process of determining the following: 1) valuation amounts for certain receivables, inventories and fixed assets acquired; 2) valuation amounts for certain intangible assets acquired; 3) the acquisition date fair value of certain liabilities assumed; and 4) the tax basis of the entities acquired. We have recorded preliminary estimates for certain of the items noted above and will record adjustments, if any, to the preliminary amounts upon finalization of the valuations.

During the second quarter of 2019, the measurement period adjustments recorded for acquisitions completed in prior periods were not material. The income statement effect of these measurement period adjustments that would have been recorded in previous reporting periods if the adjustments had been recognized as of the acquisition dates was immaterial.

~~The purchase price allocations for the acquisitions completed during the year ended December 31, 2018 are as follows (in thousands):~~

Year Ended
December 31, 2018
Stahlgruber
Other Acquisitions ⁽¹⁾
Total
Receivables $ 144,826
$ 19,171
$ 163,997
Receivable reserves (2,818 ) (918 ) (3,736 )
Inventories 380,238
14,021
394,259
Prepaid expenses and other current assets 10,970
1,851
12,821
Property, plant and equipment
271,292
5,711
277,003
Goodwill 908,253
64,637
972,890
Other intangibles 285,255
35,159
320,414
Other noncurrent assets 16,625
37
16,662
Deferred income taxes (78,130 ) (5,285 ) (83,415 )
Current liabilities assumed (346,788 ) (20,116 ) (366,904 )
Debt assumed (79,925 ) (4,875 ) (84,800 )
Other noncurrent liabilities assumed ⁽²⁾
(80,824 ) (10,306 ) (91,130 )
Noncontrolling interest (44,110 ) —
(44,110 )
Contingent consideration liabilities —
(3,107 ) (3,107 )
Other purchase price obligations (6,084 ) 3,623
(2,461 )
Stock issued (251,334 ) —
(251,334 )
Notes issued —
(11,347 ) (11,347 )
Gains on bargain purchases ⁽³⁾
—
(2,418 ) (2,418 )
Settlement of other purchase price obligations (non-interest bearing) —
1,711
1,711
Cash used in acquisitions, net of cash and restricted cash acquired $ 1,127,446
$ 87,549
$ 1,214,995


~~(1)~~	The amounts recorded during the year ended December 31, 2018 include a $5 million adjustment to increase other intangibles related to our acquisition of Warn Industries, Inc. in 2017 and $4 million of adjustments to reduce other purchase price obligations related to other 2017 acquisitions.


~~(2)~~	~~The amount recorded for our acquisition of Stahlgruber includes a $79 million liability for certain pension obligations.~~

~~(3)~~

The amounts recorded during the year ended December 31, 2018 are due to the gains on bargain purchases related to (i) an acquisition in Europe completed in the second quarter of 2017 as a result of changes in the acquisition date fair value of the consideration, and (ii) three acquisitions in Europe completed during 2018 as a result of changes to our estimates of the fair values of the net assets acquired.

The fair value of our intangible assets is based on a number of inputs, including projections of future cash flows, discount rates, assumed royalty rates and customer attrition rates, all of which are Level 3 inputs. We used the relief-from-royalty method to value trade names, trademarks, software and other technology assets, and we used the multi-period excess earnings method to value customer relationships. The relief-from-royalty method assumes that the intangible asset has value to the extent that its owner is relieved of the obligation to pay royalties for the benefits received from the intangible asset. The multi-period excess earnings method is based on the present value of the incremental after-tax cash flows attributable only to the customer relationship after deducting contributory asset charges. The fair value of our property, plant and equipment is determined using inputs such as market comparables and current replacement or reproduction costs of the asset, adjusted for physical, functional and economic factors; these adjustments to arrive at fair value use unobservable inputs in which little or no market data exists, and therefore, these inputs are considered to be Level 3 inputs. See Note 12, "Fair Value Measurements" for further information regarding the tiers in the fair value hierarchy.

The acquisition of Stahlgruber expanded LKQ's geographic presence in continental Europe and serves as an additional strategic hub for our European operations. In addition, the acquisition of Stahlgruber allows for continued improvement in procurement, logistics and infrastructure optimization. The primary objectives of our other acquisitions made during the six months ended June 30, 2019 and the year ended December 31, 2018 were to create economic value for our stockholders by enhancing our position as a leading source for alternative collision and mechanical repair products and to expand into other product lines and businesses that may benefit from our operating strengths.

When we identify potential acquisitions, we attempt to target companies with a leading market presence, an experienced management team and workforce that provides a fit with our existing operations, and strong cash flows. For certain of our acquisitions, we have identified cost savings and synergies as a result of integrating the company with our existing business that provide additional value to the combined entity. In many cases, acquiring companies with these characteristics will result in purchase prices that include a significant amount of goodwill.

The following pro forma summary presents the effect of the businesses acquired during the six months ended June 30, 2019 as though the businesses had been acquired as of January 1, 2018, and the businesses acquired during the year ended December 31, 2018 as though they had been acquired as of January 1, 2017. We have excluded the May 29, 2019 acquisition of the Czech Republic wholesale business as the business was never integrated into our Europe segment. The pro forma adjustments are based upon unaudited financial information of the acquired entities (in thousands, except per share data):

Three Months Ended Six Months Ended
June 30, June 30,
2019 2018 2019 2018
Revenue, as reported $ 3,248,173
$ 3,030,751
$ 6,348,476
$ 5,751,515
Revenue of purchased businesses for the period prior to acquisition:
Stahlgruber —
325,871
—
815,405
Other acquisitions 1,417
47,680
16,481
99,837
Pro forma revenue $ 3,249,590
$ 3,404,302
$ 6,364,957
$ 6,666,757

Income from continuing operations, as reported ⁽¹⁾
$ 151,707
$ 157,866
$ 250,770
$ 310,629
Income from continuing operations of purchased businesses for the period prior to acquisition, and pro forma purchase accounting adjustments:
Stahlgruber 3,042
7,217
6,116
8,490
Other acquisitions 353
1,502
1,990
3,106
Acquisition related expenses, net of tax ⁽²⁾
100
11,779
324
13,305
Pro forma income from continuing operations 155,202
178,364
259,200
335,530
Less: Net income attributable to continuing noncontrolling interest, as reported 1,352
859
2,367
662
Less: Pro forma net income attributable to continuing noncontrolling interest —
2,271
—
2,799
Pro forma net income from continuing operations attributable to LKQ stockholders ⁽³⁾
$ 153,850
$ 175,234
$ 256,833
$ 332,069


~~(1)~~	~~2018 amounts include interest expense for the period from April 9, 2018 through June 30, 2018 recorded on the senior notes issued in connection with our acquisition of Stahlgruber.~~


~~(2)~~	~~Includes expenses related to acquisitions closed in the period and excludes expenses for acquisitions not yet completed.~~


~~(3)~~	~~Excludes our acquisition of the Czech Republic wholesale business which is classified as discontinued operations.~~

Unaudited pro forma supplemental information is based upon accounting estimates and judgments that we believe are reasonable. The unaudited pro forma supplemental information includes the effect of purchase accounting adjustments, such as the adjustment of inventory acquired to fair value, adjustments to depreciation on acquired property, plant and equipment, adjustments to rent expense for above or below market leases, adjustments to amortization on acquired intangible assets, adjustments to interest expense, and the related tax effects. The pro forma impact of our acquisitions also reflects the elimination of acquisition related expenses, net of tax. Refer to Note 6, "Restructuring and Acquisition Related Expenses," for further information regarding our acquisition related expenses. These pro forma results are not necessarily indicative of what would have occurred if the acquisitions had been in effect for the periods presented or of future results.

Note 3.2. Discontinued Operations

~~As described~~On May 30, 2018, we acquired Stahlgruber GmbH ("Stahlgruber"), a leading European wholesale distributor of aftermarket spare parts for passenger cars, tools, capital equipment and accessories with operations in ~~Note 2, "Business Combinations," we classified~~Germany, Austria, Italy, Slovenia, and Croatia, with further sales to Switzerland. Prior to closing, on May 3, 2018, the ~~acquired~~European Commission cleared the acquisition of Stahlgruber for the entire European Union, except with respect to the wholesale automotive parts business in the Czech Republic. The acquisition of Stahlgruber’s Czech Republic wholesale business was referred to the Czech Republic competition authority for review. On May 10, 2019, the Czech Republic competition authority approved our acquisition of Stahlgruber’s Czech Republic wholesale business subject to the requirement that we divest certain of the acquired locations. We acquired Stahlgruber’s Czech Republic wholesale business on May 29, 2019 and decided to divest all of the acquired locations. We immediately classified the business as discontinued ~~operations. We intend to divest~~operations because the business ~~within~~was never integrated into our Europe segment.

We completed the ~~next year, and thus, the net assets are reflected~~sale of Stahlgruber's Czech Republic business on February 28, 2020, resulting in a loss on sale of $1 million (presented in Net loss from discontinued operations in the Unaudited Condensed Consolidated ~~Balance Sheet at~~Statements of Income). As part of the ~~lower~~transaction, we purchased the 48.2% noncontrolling interest from the minority shareholder for a purchase price of ~~fair value less cost~~€8 million, which included the issuance of €4 million of notes payable, and then concurrently sold 100% of the business for a purchase price of €14 million, which included €7 million of notes receivable. This transaction resulted in a disposition of noncontrolling interest of $11 million. From January 1, 2020 through the date of sale, we recorded an immaterial amount of net income (excluding the loss on sale) from discontinued operations related to ~~sell or carrying value.~~ the business, of which an immaterial amount was attributable to the noncontrolling interest.

As of ~~June 30,~~December 31, 2019, the assets held for sale, liabilities held for sale, and noncontrolling interest ~~are~~of Stahlgruber's Czech Republic business were recorded within Prepaid expenses and other current assets, Other current liabilities, and Noncontrolling interest, respectively, on the Unaudited Condensed Consolidated Balance ~~Sheet. As of the acquisition date, we acquired $5 million of cash and assumed $6 million of existing debt.~~

Fair value was based on the estimated selling price, with factors including projected market multiples and any reasonable offers. Due to the uncertainties in the estimation process, it is possible that actual results could differ from the estimates used in the Company's analysis. The inputs utilized in the fair value estimate are classified as Level 3 within the fair value hierarchy. The fair value of the net assets was measured on a non-recurring basis as of June 30, 2019.Sheets.

Note 4.3. Financial Statement Information

Allowance for ~~Doubtful Accounts~~Credit Losses

~~We have~~Management evaluates the aging of customer receivable balances, the financial condition of our customers, historical trends, and macroeconomic factors to estimate the amount of customer receivables that may not be collected in the future and records a provision it believes is appropriate. Our reserve for ~~uncollectible accounts, which~~expected lifetime credit losses was approximately ~~$52~~$60 million and ~~$57~~$53 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. The increase in our allowance for credit losses since December 31, 2019 is attributable to the $3 million effect of the adoption of ASU No. 2016-13 (see the Recently Adopted Accounting Pronouncements section below for further detail) and an increase in expected lifetime losses primarily attributable to the downturn in the global economy related to the effects of the COVID-19 pandemic.

Inventories

Inventories consist of the following (in thousands):


	June 30,		December 31,		March 31,		December 31,
	2019		2018		2020		2019
Aftermarket and refurbished products	$	2,181,873	$	2,309,458	$	2,254,953	$	2,297,895
Salvage and remanufactured products	441,579		503,199		436,132		447,908
Manufactured products	26,686		23,418		27,545		26,974
Total inventories ⁽¹⁾	$	2,650,138	$	2,836,075	$	2,718,630	$	2,772,777


~~(1)~~	~~As of June 30, 2019, $61 million of inventory was included in assets held for sale. Refer to the "Net Assets Held for Sale" section for further information.~~

Aftermarket and refurbished products and salvage and remanufactured products are primarily composed of finished goods. As of ~~June 30, 2019,~~March 31, 2020, manufactured products inventory was composed of ~~$18~~$19 million of raw materials, $3$4 million of work in process, and $6$5 million of finished goods. As of December 31, ~~2018,~~2019, manufactured products inventory was composed of $17 million of raw materials, $2$3 million of work in process, and $4$6 million of finished goods.

Net Assets Held for Sale

During ~~the first half of~~ 2019, we committed to plans to sell certain businesses in our North America and Europe segments. As a result, these businesses were classified as net assets held for sale and were required to be adjusted to the lower of fair value less cost to sell or carrying value, resulting in ~~total~~an immaterial net reduction of previously reported impairment charges ~~of $33 million and $49 million during~~for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020, and impairment charges totaling $15 million for the three months ended March 31, 2019 ~~respectively, which were recorded within Impairment~~(presented in

(Gain on disposal of business) and impairment of net assets held for sale in the Unaudited Condensed Consolidated ~~Statement~~Statements of ~~Income.~~Income).

~~Excluding the Stahlgruber Czech Republic wholesale business discussed in Note 3, "Discontinued Operations," as~~As of ~~June 30, 2019,~~March 31, 2020, there were ~~$56~~$15 million of assets held for sale, including $5$3 million of goodwill that was reclassified as held for sale related to our Europe segment, and ~~$17~~$7 million of liabilities held for sale, which ~~are~~were recorded within Prepaid expenses and other current assets and Other current liabilities, respectively, on the Unaudited Condensed Consolidated Balance ~~Sheet.~~Sheets. We expect ~~these businesses~~the assets held for sale to be disposed of during the next twelve months. The ~~businesses do not meet the requirements to be considered discontinued operations. These businesses~~assets held for sale generated annualized revenue of approximately ~~$165~~$81 million during the twelve-month period ended ~~June 30, 2019.~~March 31, 2020.

We are required to record net assets of our held for sale businesses at the lower of fair value less cost to sell or carrying value. Fair values were based on projected discounted cash flows and/or estimated selling prices. Management's assumptions for our discounted cash flow analysis of the businesses were based on ~~projecting~~projected revenues and profits, tax rates, capital expenditures, working capital requirements and discount rates. For businesses for which we utilized estimated selling prices to calculate the fair value, ~~factors~~the inputs to our estimates included projected market multiples and any reasonable offers. Due to ~~the~~ uncertainties in the estimation process, it is possible that actual results could differ from the estimates used in ~~the Company's~~our analysis. The inputs utilized in the fair value estimates are classified as Level 3 within the fair value hierarchy. The fair values of the net assets were measured on a non-recurring basis as of ~~June 30,~~March 31, 2020.

Intangible Assets

Goodwill is tested for impairment at least annually, and we performed our annual impairment tests during the fourth quarter of 2019. Goodwill impairment testing may also be performed on an interim basis when events or circumstances arise that may lead to impairment. LKQ’s market capitalization declined by roughly 40% between February 20, 2020, when the Company released its 2019 financial results, and March 31, 2020. While we believe that the decrease was driven by market reaction to COVID-19, the magnitude of the market capitalization decrease was deemed to be a triggering event requiring an interim test of goodwill impairment.

The fair value estimates of our reporting units are established using weightings of the results of a discounted cash flow methodology and a comparative market multiples approach. Our projections for the interim impairment test assumed that the COVID-19 impact would be severe, with revenue down by as much as 50% in the second quarter of 2020 compared to our prior forecast used in the 2019 impairment analysis, but temporary, as revenue would improve gradually in the second half of 2020. We expect that cost mitigation actions and cash preservation measures will dampen the negative impact of the projected revenue decline.

Based on the annual goodwill impairment test in 2019, we determined no impairment existed as of the date of that test, as all of our reporting units had a fair value estimate which exceeded the carrying value by at least 25%. The fair values of each of our reporting units have since declined relative to the 2019 test, but in the interim test in the first quarter of 2020, we determined no impairments existed as all reporting units had a fair value estimate that exceeded the carrying value by at least 12%, the level at which our Europe reporting unit exceeded its carrying value.

As the economic impact of the pandemic will be dependent on variables that are difficult to project and in many cases are outside of our control, it is possible that the estimates underlying our interim impairment test may change materially in the next year. Since we prepared the interim impairment analysis in early April, actual revenue has trended favorably relative to our forecast. In the event conditions change that affect our ability to realize the underlying cash flows associated with our goodwill, we may record an impairment charge. As of March 31, 2020, the carrying value of our goodwill was $4.3 billion.

We review indefinite-lived intangible assets for impairment annually or on an interim basis if events or changes in circumstances indicate that the carrying value may not be recoverable. We determined that the effect of the uncertainty relating to the COVID-19 pandemic on our forecasted results represented a change in circumstances indicating that the carrying value of the Warn Industries, Inc. ("Warn") trademark, which is our only indefinite-lived intangible asset, may not be recoverable. As a result, we performed a quantitative impairment test in the first quarter as of March 31, 2020 using the relief-from-royalty method and determined no impairment existed, as the trademark had a fair value estimate which exceeded the carrying value by approximately 9%. As of March 31, 2020, the carrying value of the trademark was $81 million.

Investments in Unconsolidated Subsidiaries

Our investment in unconsolidated subsidiaries was ~~$133~~$146 million and ~~$179~~$139 million as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

Europe Segment

Our investment in unconsolidated subsidiaries in Europe was $127 million and $122 million as of March 31, 2020 and December 31, 2019, respectively. We recorded equity in earnings of $1 million and equity in losses of $41 million during the

three months ended March 31, 2020 and March 31, 2019, respectively, mainly related to our investment in Mekonomen AB ("Mekonomen").

On December 1, 2016, we acquired a 26.5% equity interest in Mekonomen ~~AB ("Mekonomen")~~ for an aggregate purchase price of $181 million. In October 2018, we acquired an additional $48 million of equity in Mekonomen at a discounted share price as part of its rights issue, increasing our equity interest to 26.6%. We are accounting for our interest in Mekonomen using the equity method of accounting, as our investment gives us the ability to exercise significant influence, but not control, over the investee. As of ~~June 30, 2019,~~March 31, 2020, our share of the book value of Mekonomen's net assets exceeded the book value of our investment in Mekonomen by $5$6 million; this difference is primarily related to Mekonomen's Accumulated Other Comprehensive Income balance as of our acquisition date in 2016. We are recording our equity in the net earnings of Mekonomen on a one quarter lag. We recorded equity in earnings of $3 million and an equity loss of $37 million during the three and six months ended June 30, 2019, respectively, and equity in earnings of $1 million and $2 million during the three and six months ended June 30, 2018, respectively, related to our investment in Mekonomen, including adjustments to convert the results to GAAP and to recognize the impact of our purchase accounting adjustments and the other-than-temporary impairment (three months ended March 31, 2019 only) described below. In May 2018, we received a cash dividend of $8 million (SEK 67 million) related to our investment in Mekonomen. Mekonomen announced in February 2019 that the Mekonomen Board of Directors has proposed no dividend payment in 2019. The Level 1 fair value of our equity investment in the publicly traded Mekonomen common stock at June 30, 2019 was $125 million (using the Mekonomen share price of SEK 77 as of June 30, 2019) compared to a carrying value of $110 million.

During the three months ended March 31, 2019, we recognized an other-than-temporary impairment charge of $40 million, which represented the difference in the carrying value and the fair value of our investment in Mekonomen. The fair value of our investment in Mekonomen was determined using the Mekonomen share price of SEK 65 as of March 31, 2019. The impairment charge iswas recorded in Equity in earnings (losses) of unconsolidated subsidiaries onin our Unaudited Condensed Consolidated Statements of Income. ~~Equity~~

Mekonomen announced in ~~losses and earnings from~~March 2020 that it would not make a dividend payment in 2020. The Level 1 fair value of our equity investment in the publicly traded Mekonomen common stock at March 31, 2020 was $67 million (using the Mekonomen share price of SEK 44 as of March 31, 2020) compared to a carrying value of $116 million. We evaluated our investment in Mekonomen ~~are reported~~for other-than-temporary impairment and concluded the decline in fair value was not other-than-temporary, however, a prolonged impairment may cause us to account for the decline as an other-than-temporary impairment in a future period, resulting in a charge in our Unaudited Condensed Consolidated Statements of Income.

North America Segment

Our investment in unconsolidated subsidiaries in the ~~Europe segment.~~North America segment was $19 million and $18 million as of March 31, 2020 and December 31, 2019, respectively. We recorded equity in losses of an immaterial amount and equity in earnings of $1 million during the three months ended March 31, 2020 and March 31, 2019, respectively, related to our North America equity investments.

Warranty Reserve

Some of our salvage mechanical products are sold with a standard six month warranty against defects. Additionally, some of our remanufactured engines are sold with a standard three or four year warranty against defects. We also provide a limited lifetime warranty for certain of our aftermarket products. These assurance-type warranties are not considered a separate performance obligation, and thus no transaction price is allocated to them. We record the warranty costs in Cost of goods sold onin our Unaudited Condensed Consolidated Statements of Income. Our warranty reserve is calculated using historical claim information to project future warranty claims activity and is recorded within Other accrued expenses and Other noncurrent liabilities on our Unaudited Condensed Consolidated Balance Sheets based on the expected timing of the related payments.

The changes in the warranty reserve are as follows (in thousands):


Balance as of December 31, 2018	$	23,262
Balance as of December 31, 2019				$	25,441
Warranty expense	29,529			16,531
Warranty claims	(22,770		)	(14,898		)
Balance as of June 30, 2019	$	30,021
Balance as of March 31, 2020				$	27,074

Litigation and Related Contingencies

We have certain contingencies resulting from litigation, claims and other commitments and are subject to a variety of environmental and pollution control laws and regulations incident to the ordinary course of business. We currently expect that the resolution of such contingencies will not materially affect our financial position, results of operations or cash flows.

Stockholders' Equity

Treasury Stock

~~On October 25, 2018,~~As of December 31, 2019, our Board of Directors had authorized a stock repurchase program under which we may purchase up to ~~$500 million~~$1.0 billion of our common stock from time to time through October 25, ~~2021.~~2022. Repurchases under the program may be made in the open market or in privately negotiated transactions, with the amount and timing of repurchases depending on market conditions and corporate needs. The repurchase program does not obligate us to acquire any specific number of shares and may be suspended or discontinued at any time. Delaware law imposes restrictions on stock repurchases.

During the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, we repurchased ~~7.0~~3.3 million shares of common stock for an aggregate price of ~~$191~~$88 million. During ~~2018,~~the three months ended March 31, 2019, we repurchased ~~2.3~~2.6 million shares of common stock for an aggregate price of ~~$60~~$70 million. As of ~~June 30, 2019,~~March 31, 2020, there ~~is $249~~was $560 million of remaining capacity under our repurchase program. Repurchased shares are accounted for as treasury stock using the cost method.

~~Recent Accounting Pronouncements~~NoncontrollingInterest

~~Adoption of New Lease Standard~~

In February ~~2016,~~2020, as part of the ~~Financial Accounting Standards Board ("FASB")~~sale of Stahlgruber's Czech Republic business, we divested the noncontrolling interest of the business, which resulted in a net decrease to Noncontrolling interest of $11 million in our unaudited condensed consolidated financial statements as of March 31, 2020. See Note 2, "Discontinued Operations," for further information.

In December 2019, we modified the shares representing a noncontrolling interest in a subsidiary acquired in connection with the Stahlgruber acquisition and issued ~~Accounting Standards Update 2016-02, "Leases" ("ASU 2016-02"), which represents~~new redeemable shares to the ~~FASB Accounting Standard Codification Topic 842 ("ASC 842"), to increase transparency and comparability~~minority shareholder. The new redeemable shares contain (i) a put option for all noncontrolling interest shares at a fixed price of $24 million (€21 million) exercisable by ~~recognizing lease assets and lease liabilities on~~ the ~~Unaudited Condensed Consolidated Balance Sheets and disclosing key information about leasing arrangements. The main difference between~~minority shareholder in the ~~prior standard and ASU 2016-02 is~~fourth quarter of 2023, (ii) a call option for all noncontrolling interest shares at a fixed price of $26 million (€23 million) exercisable by the ~~recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under the prior standard.~~

~~We adopted the standard~~Company beginning in the first quarter of ~~2019 using~~2026 through the ~~modified retrospective approach and took advantage~~end of the ~~transition package~~fourth quarter of ~~practical expedients permitted within~~2027, and (iii) a guaranteed dividend to be paid quarterly to the minority shareholder through the fourth quarter of 2023. The new ~~standard, which, among other things, allows us~~redeemable shares do not provide the minority shareholder with rights to carryforward the historical lease classification. For leases with a term of 12 months or less, we elected the short-term lease exemption, which allowed us to not recognize right-of-use assets or lease liabilities for qualifying leases existing at transition and new leases we may enter intoparticipate in the ~~future. Additionally, we adopted~~profits and losses of the ~~practical expedient~~subsidiary prior to ~~combine lease and non-lease components.~~

the exercise date of the put option. As the put option is outside the control of ~~January 1, 2019,~~the Company, we recorded ~~both an operating lease asset and operating lease liability~~a $24 million Redeemable noncontrolling interest at the put option's exercise value outside of $1.3 billion. The preexisting deferred rent liability balances from the historical straight-line treatment of operating leases was reclassified as a reduction of the lease asset upon adoption. The adoption of the standard did not materially affectpermanent equity on our Unaudited Condensed Consolidated Statements of Income or Statements of Cash Flows as operating lease payments will still be an operating cash outflow and capital lease payments will still be a financing cash outflow. The new standard did not have a material impact on our liquidity. The standard will have no impact on our debt covenant compliance under our current agreements as the covenant calculations are based on the prior lease accounting rules.Balance Sheets.

Recent Accounting Pronouncements

~~Other~~ Recently Adopted Accounting Pronouncements

During the first quarter of ~~2019,~~2020, we adopted ASU No. 2017-12, "Targeted Improvements to Accounting for Hedging Activities" ("ASU 2017-12"), which amends the hedge accounting recognition and presentation requirements in ASC 815 ("Derivatives and Hedging"). ASU 2017-12 significantly alters the hedge accounting model by making it easier for an entity to achieve and maintain hedge accounting and provides for accounting that better reflects an entity's risk management activities. We adopted the provisions of ASU 2017-12 by applying a modified retrospective approach to existing hedging relationships as of the adoption date. The adoption of ASU 2017-12 did not have a material impact on our unaudited condensed consolidated financial statements.

~~Recently Issued Accounting Pronouncements~~

In August 2018, the FASB issued ASU No. 2018-13, "Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement" ("ASU 2018-13"), which removes, modifies, and adds certain disclosure requirements in ASC 820. ASU 2018-13 is effective for fiscal years and interim periods beginning after December 15, 2019; early adoption is permitted. We are in the process of evaluating the impact of this standard on our disclosures but do not currently believe that it will have a material impact.

~~In June 2016, the FASB issued ASU~~ 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"), and ~~in November 2018 issued a subsequent~~

~~amendment,~~ ASU 2018-19, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses" ("ASU 2018-19"). ASU 2016-13 significantly changes how entities ~~will~~ measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 ~~will replace today’s~~replaces the prior “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. ASU 2018-19 ~~will affect~~affects loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope of this amendment that represent the contractual right to receive cash. We applied ASU 2016-13 and ASU 2018-19 ~~should be applied~~ on ~~either~~a modified retrospective basis. As of January 1, 2020, we recorded a cumulative effect adjustment to retained earnings of $3 million.

During the first quarter of 2020, we adopted ASU No. 2018-13, "Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement" ("ASU 2018-13"), which removes, modifies, and adds certain disclosure requirements in ASC 820. We adopted the provisions of ASU 2018-13 by applying a prospective ~~transition or modified-retrospective approach depending~~approach. The adoption of ASU 2018-13 did not have a material impact on our unaudited condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

In December 2019, the ~~subtopic.~~FASB issued ASU ~~2016-13~~2019-12, "Income Taxes" (Topic 740) ("ASU 2019-12"), which simplifies the accounting for income taxes and adds guidance to reduce complexity in certain areas. ASU 2019-12 is effective for ~~annual periods~~fiscal years beginning after December 15, ~~2019, and~~2020, including interim periods ~~therein.~~within those fiscal years. Early adoption is permitted, ~~for annual periods beginning after December 15, 2018, and~~including adoption in an interim ~~periods therein.~~period. We are currently evaluating the impact of this standard on our consolidated financial statements.

In March 2020, the ~~adoption~~FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04"), which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. ASU 2020-04 provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. These transactions include contract modifications, hedging relationships, and sale or transfer of debt securities classified as held-to-maturity. Entities may apply the provisions of the new standard as of the beginning of the reporting period when the election is made (i.e. as early as the first quarter 2020). Unlike other topics, the provisions of this update are only available until December 31, 2022, when the reference rate replacement activity is expected to have been completed. We are currently evaluating the impact of this standard on our consolidated financial ~~statements.~~statements and related disclosures, and we have not yet elected an adoption date.

Note 5.4. Revenue Recognition

The majority of our revenue is derived from the sale of vehicle parts. We recognize revenue when the products are shipped to, delivered to or picked up by customers, which is the point when title has transferred and risk of ownership has passed.

Sources of Revenue

We report our revenue in two categories: (i) parts and services and (ii) other. The following table sets forth our revenue by category, with our parts and services revenue further disaggregated by reportable segment (in thousands):


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
	2019		2018		2019		2018		2020		2019
North America	$	1,165,482	$	1,165,422	$	2,321,180	$	2,338,007	$	1,107,342	$	1,155,698
Europe	1,510,952		1,279,996		2,951,793		2,317,042		1,357,969		1,440,841
Specialty	410,263		411,633		762,819		762,307		347,406		352,556
Parts and services	3,086,697		2,857,051		6,035,792		5,417,356		2,812,717		2,949,095
Other	161,476		173,700		312,684		334,159		188,218		151,208
Total revenue	$	3,248,173	$	3,030,751	$	6,348,476	$	5,751,515	$	3,000,935	$	3,100,303

Parts and Services

Our parts revenue is generated from the sale of vehicle products including replacement parts, components and systems used in the repair and maintenance of vehicles and specialty products and accessories to improve the performance, functionality and appearance of vehicles. Services revenue includes (i) additional services that are generally billed concurrently with the related product sales, such as the sale of service-type warranties, (ii) fees for admission to our self service yards, and (iii) diagnostic and repair services.

In North America, our vehicle replacement products include sheet metal collision parts such as doors, hoods, and fenders; bumper covers; head and tail lamps; automotive glass products such as windshields; mirrors and grilles; wheels; and large mechanical items such as engines and transmissions. In Europe, our products include a wide variety of small mechanical products such as brake pads, discs and sensors; clutches; electrical products such as spark plugs and batteries; steering and suspension products; filters; and oil and automotive fluids. In our Specialty operations, we serve six product segments: truck and off-road; speed and performance; RV; towing; wheels, tires and performance handling; and miscellaneous accessories.

Our service-type warranties typically have service periods ranging from 6 months to 36 months. Under FASB Accounting Standards Codification Topic 606 ("ASC 606"), proceeds from these service-type warranties are deferred at contract inception and amortized on a straight-line basis to revenue over the contract period. The changes in deferred service-type warranty revenue are as follows (in thousands):


Balance as of January 1, 2019	$	24,006
Balance as of January 1, 2020				$	27,067
Additional warranty revenue deferred	21,241			11,086
Warranty revenue recognized	(19,171		)	(11,353		)
Balance as of June 30, 2019	$	26,076
Balance as of March 31, 2020				$	26,800

Other Revenue

Revenue from other sources includes sales of scrap ~~sales,~~and precious metals (platinum, palladium, and rhodium), bulk sales to mechanical manufacturers (including cores) and sales of aluminum ingots and sows from our furnace operations. We derive scrap metal and other precious metals from several sources, including vehicles that have been used in both our wholesale and self service recycling operations and from original equipment manufacturers ("OEMs") and other entities that contract with us for secure disposal of "crush only" vehicles. ~~The~~Revenue from the sale of hulks in our wholesale and self service recycling operations ~~represents one performance obligation, and revenue~~ is recognized based on a price per ~~weight~~ton of delivered material when the customer (processor) collects the scrap. Some adjustments may occur when the customer weighs the scrap at their location, and revenue is adjusted accordingly.

Revenue by Geographic Area

See Note ~~16,~~14, "Segment and Geographic Information" for information related to our revenue by geographic region.

Variable Consideration

The amount of revenue ultimately received from the customer can vary due to variable consideration ~~which includes~~including returns, discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, or other similar items. Under ASC 606 we are required to select the “expected value method” or the “most likely amount” method in order to estimate variable consideration. We utilize both methods in practice depending on the type of variable consideration, with contemplation of any expected reversals in revenue. We recorded a refund liability and return asset for expected returns of ~~$107 million and $57 million as of June 30, 2019, respectively and $105~~$100 million and $56 million, respectively, as of March 31, 2020, and $97 million and $52 million, respectively, as of December 31, ~~2018.~~2019. The refund liability is presented separately on the ~~balance sheet~~Unaudited Condensed Consolidated Balance Sheets within current liabilities while the return asset is presented within ~~prepaid~~Prepaid expenses and other current assets. Other types of variable consideration consist primarily of discounts, volume rebates, and other customer sales incentives ~~which~~that are recorded in Receivables, net on the Unaudited Condensed Consolidated Balance Sheets. We recorded a reserve for our variable consideration of ~~$86~~$67 million and ~~$103~~$108 million as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. While other customer incentive programs exist, we characterize them as material rights in the context of our sales transactions. We consider these programs to be immaterial to our unaudited condensed consolidated financial statements.

Note 6.5. Restructuring and Acquisition Related Expenses

~~Acquisition Related Expenses~~

~~Acquisition related expenses, which include external costs such as legal, accounting and advisory fees, were immaterial for the three and six months ended June 30, 2019.~~

Acquisition related expenses for the three and six months ended June 30, 2018 were $14 million and $16 million, respectively, which included external costs primarily related to our May 2018 acquisition of Stahlgruber.

~~Acquisition Integration Plans and Restructuring~~

~~During the three and six months ended June 30,~~ 2019 we incurred $3 million and $6 million of restructuring expenses, respectively, related to our acquisition integration efforts. These expenses included approximately $1 million and $3 million for the three and six months ended June 30, 2019, respectively, related to the integration of our acquisition of Andrew Page Limited ("Andrew Page").

During the three and six months ended June 30, 2018, we incurred $2 million and $4 million of restructuring expenses, respectively. Restructuring expenses incurred during the three and six months ended June 30, 2018 were primarily related to the integration of our acquisition of Andrew Page. This integration included the closure of duplicate facilities and termination of employees.

We expect to incur additional expenses related to the integration of certain of our acquisitions into our existing operations. These integration activities are expected to include the closure of duplicate facilities, rationalization of personnel in connection with the consolidation of overlapping facilities with our existing business, and moving expenses. Future expenses to complete these integration plans are currently expected to be approximately $15 million.

~~2019~~Global Restructuring Program

In the second quarter of 2019, we began implementing a cost reduction initiative, covering all three of our reportable segments, designed to eliminate underperforming assets and cost ~~ineffectiveness.~~inefficiencies. We have incurred and expect to incur costs for inventory write-downs, employee severance and other expenditures related to employee ~~termination benefits;~~terminations; lease exit costs, such as lease termination fees, ~~and~~ accelerated amortization of operating lease assets and impairment of operating lease assets; ~~and~~ other costs related to facility ~~closures,~~exits, such as moving expenses to relocate inventory and ~~equipment.~~equipment; and accelerated depreciation of fixed assets to be disposed of earlier than the end of the previously estimated useful lives.

During the three months ended ~~June 30, 2019,~~March 31, 2020, we incurred $3 million of restructuring expenses under this program, primarily related to facility exit costs and employee-related costs. These costs were recorded within Restructuring and acquisition related expenses in the Unaudited Condensed Consolidated Statement of Income during the three months ended March 31, 2020. We expect to incur up to an additional $5 million of ~~restructuring~~ expense ~~primarily related to employee severance and related termination benefits. We currently expect to incur additional expenses of between $20 million and $25 million through~~during the ~~end~~remainder of 2020 to complete the program, for total program costs of $45 million ($37 million was incurred during the year ended December 31, 2019).

2020 Global Restructuring Program

Beginning in the first quarter of 2020, we initiated a further restructuring program aimed at cost reductions across all our reportable segments through the elimination of underperforming assets and cost inefficiencies. These actions are incremental to those initiated as part of the 2019 Global Restructuring Program, and will include costs for inventory write-downs, employee severance and other expenditures related to employee terminations; lease exit costs, such as lease termination fees, accelerated amortization of operating lease assets and impairment of operating lease assets; other costs related to facility exits, such as moving expenses to relocate inventory and equipment; and accelerated depreciation of fixed assets to be disposed of earlier than the end of the previously estimated useful lives. We currently estimate we will incur between $50 million and $60 million under this program, and we recognized $2 million during the three months ended March 31, 2020. We may expand this program during the remainder of 2020 as we continue to analyze our cost structure for additional opportunities to eliminate inefficiencies, including actions in response to impacts to the business from COVID-19. These actions may include additional facility closures and severance for employee terminations based on an assessment of projected demand and strategic priorities.

Acquisition Integration Plans

During the three months ended March 31, 2020 and 2019, we incurred $2 million and $3 million of restructuring expenses, respectively, for our acquisition integration plans. These expenses included $1 million and $2 million during the three months ended March 31, 2020 and 2019, respectively, related to the integration of our acquisition of Andrew Page Limited ("Andrew Page"). Future expenses to complete these integration plans are expected to be less than $5 million.

1 LKQ Europe Program

In September 2019, we announced a multi-year program called "1 LKQ Europe" which is intended to create structural centralization and standardization of key functions to facilitate the operation of the Europe segment as a single business. Under the 1 LKQ Europe program, we will reorganize our non-customer-facing teams and support systems through various projects including the implementation of a common ERP platform, rationalization of our product portfolio, and creation of a Europe headquarters office and central back office. We continue to expect to incur between $45 million and $55 million in personnel and inventory related restructuring charges through 2024 as a result of executing the 1 LKQ Europe program. While certain projects are currently delayed in response to the COVID-19 pandemic, we expect to continue the program once the impacts on our business from COVID-19 have stabilized, although the initiatives and projects included in the program, and our estimates

1514

of the related expenditures and timelines, may change in the future depending on the duration and severity of COVID-19 impacts on our business. We may also identify additional initiatives and projects under the 1 LKQ Europe program in future periods that may result in additional restructuring expense, although we are currently unable to estimate the range of charges for such potential future initiatives and projects.

Note 7.6. Stock-Based Compensation

In order to attract and retain employees, non-employee directors, consultants, and other persons associated with us, we grant equity-based awards under the LKQ Corporation 1998 Equity Incentive Plan (the “Equity Incentive Plan”). We have granted restricted stock units ("RSUs"), stock options, and restricted stock under the Equity Incentive Plan. We expect to issue new or treasury shares of common stock to cover past and future equity grants.

RSUs

The RSUs we have issued vest over periods of up to five years,, subject to a continued service condition. Currently outstanding RSUs (other than PSUs, which are described below) contain either a time-based vesting condition or a combination of a performance-based vesting condition and a time-based vesting condition, in which case both conditions must be met before any RSUs vest. For ~~most~~all of the RSUs containing a performance-based vesting condition, the Company must report positive diluted earnings per share, subject to certain adjustments, during any fiscal year period within five years following the grant ~~date; we have an immaterial amount of RSUs containing other performance-based vesting conditions.~~date. Each RSU converts into one share of LKQ common stock on the applicable vesting date. The grant date fair value of RSUs is based on the market price of LKQ stock on the grant date. ~~Our 2019 annual grant of RSUs occurred on March 1, 2019; in previous years, the annual grant occurred in mid-January.~~

Starting with our 2019 grants, participants who are eligible for retirement (defined as a voluntary separation of service from the Company after the participant has attained at least 60 years of age and completed at least five years of service) will continue to vest in their ~~awards;~~awards following retirement; if retirement occurs during the first year of the vesting period (for RSUs subject to a time-based vesting condition) or the first year of the performance period (for RSUs with a performance-based vesting condition), the participant vests in a prorated amount of the RSU grant based on the portion of the year employed. For our RSU grants prior to 2019, participants forfeit their unvested shares upon retirement.

The fair value of RSUs that vested during the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 was ~~$11~~$15 million; the fair value of RSUs vested is based on the market price of LKQ stock on the date vested.

The following table summarizes activity related to our RSUs under the Equity Incentive Plan for the ~~six~~three months ended ~~June 30, 2019:~~March 31, 2020:


	Number Outstanding		Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands) ⁽¹⁾		Number Outstanding		Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands) ⁽¹⁾
Unvested as of January 1, 2019	1,475,682		$	34.94
Unvested as of January 1, 2020								1,612,026		$	31.72
Granted	981,906		$	27.86				777,439		$	33.14
Vested	(416,262	)	$	32.72				(472,192	)	$	30.98
Forfeited / Canceled	(48,674	)	$	34.25				(12,173	)	$	33.64
Unvested as of June 30, 2019	1,992,652		$	31.93
Expected to vest after June 30, 2019	1,813,605		$	31.97	2.9	$	48,260
Unvested as of March 31, 2020								1,905,100		$	32.47
Expected to vest after March 31, 2020								1,777,842		$	32.55	3.3	$	36,463


(1)	The aggregate intrinsic value of expected to vest RSUs represents the total pretax intrinsic value (the fair value of the Company's stock on the last day of each period multiplied by the number of units) that would have been received by the holders had all RSUs vested. This amount changes based on the market price of the Company’s common stock.

In 2019 and 2020, we granted performance-based three-year RSUs ("PSUs") to certain employees, including our executive officers, under our Equity Incentive Plan. As these awards are performance-based, the exact number of shares to be paid out may be up to twice the grant amount, depending on the Company's performance and the achievement of certain performance metrics (adjusted earnings per share, average organic parts and services revenue growth, and average return on invested capital) over the applicable three year ~~period ending December 31, 2021. In 2019, we also granted an immaterial amount of performance-based RSUs to employees that have different~~ performance ~~metrics than those described above.~~periods.

The following table summarizes activity related to our PSUs under the Equity Incentive Plan for the ~~six~~three months ended ~~June 30, 2019:~~

March 31, 2020:

Number
Outstanding

Weighted
Average
Grant Date
Fair Value

Weighted Average Remaining Contractual Term
(in years)

Aggregate Intrinsic Value
(in thousands) ⁽¹⁾
Unvested as of January 1, 2019 —
$ —

Granted⁽²⁾
136,170
$ 27.69

Unvested as of June 30, 2019 136,170
$ 27.69

Expected to vest after June 30, 2019 136,170
$ 27.69
2.8 $ 3,623



	Number Outstanding	Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands) ⁽¹⁾
Unvested as of January 1, 2020	136,170	$	27.69
Granted⁽²⁾	159,683	$	32.21
Unvested as of March 31, 2020	295,853	$	30.13
Expected to vest after March 31, 2020	295,853	$	30.13	2.2	$	6,068

(1)

The aggregate intrinsic value of expected to vest PSUs represents the total pretax intrinsic value (the fair value of the Company's stock on the last day of each period multiplied by the number of units at target) that would have been received by the holders had all PSUs vested. This amount changes based on the market price of the Company’s common stock and the achievement of the performance metrics relative to the established targets.


(2)	Represents the number of PSUs at target payout.

Stock Options

Stock options ~~vest~~vested over periods of up to five years, subject to a continued service condition. Stock options ~~expire~~expired either six years or ten years from the date they ~~are~~were granted. No options were granted during the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. No options vested during the ~~six~~three months ended ~~June 30, 2019;~~March 31, 2020; all of our outstanding options are fully vested.

The following table summarizes activity related to our stock options under the Equity Incentive Plan for the ~~six~~three months ended ~~June 30, 2019:~~March 31, 2020:

Number
Outstanding

Weighted
Average Exercise Price

Weighted Average Remaining Contractual Term
(in years)

Aggregate Intrinsic Value
(in thousands) ⁽¹⁾
Balance as of January 1, 2019 1,051,494
$ 10.15

Exercised (236,241 ) $ 7.92
$ 4,324
Canceled (7,037 ) $ 16.45

Balance as of June 30, 2019 808,216
$ 10.75
0.5 $ 13,000
Exercisable as of June 30, 2019 808,216
$ 10.75
0.5 $ 13,000



	Number Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Balance as of January 1, 2020	114,594		$	12.26
Exercised	(112,472	)	$	11.88		$	2,629
Canceled	(2,122	)	$	32.31
Balance as of March 31, 2020	—		$	—	—	$	—

~~(1)~~

The aggregate intrinsic value of outstanding and exercisable options represents the total pretax intrinsic value (the difference between the fair value of the Company's stock on the last day of each period and the exercise price, multiplied by the number of options where the fair value exceeds the exercise price) that would have been received by the option holders had all option holders exercised their options as of the last day of the period indicated. This amount changes based on the market price of the Company’s common stock.

All stock options have been exercised or canceled as of March 31, 2020.

Stock-Based Compensation Expense

Pre-tax stock-based compensation expense for RSUs and PSUs totaled $8 million and ~~$14~~$6 million, respectively, for the three ~~and six~~ months ended ~~June 30, 2019, respectively,~~March 31, 2020 and ~~$6 million and $12 million for the three and six months ended June 30, 2018, respectively.~~2019. As of ~~June 30, 2019,~~March 31, 2020, unrecognized compensation expense related to unvested RSUs and PSUs was ~~$51~~$59 million. Stock-based compensation expense related to these awards will be different to the extent that forfeitures are realized and performance under the PSUs differs from target.

1716

Note 8.7. Earnings Per Share

The following chart sets forth the computation of earnings per share (in thousands, except per share amounts):


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
	2019		2018		2019		2018		2020		2019
Income from continuing operations	$	151,707	$	157,866	$	250,770	$	310,629	$	146,894	$	99,063
Denominator for basic earnings per share—Weighted-average shares outstanding	311,891		312,556		313,460		311,045		306,238		315,046
Effect of dilutive securities:
RSUs	315		406		364		512		515		414
PSUs	—		—		—		—		—		—
Stock options	513		1,050		536		1,131		4		558
Denominator for diluted earnings per share—Adjusted weighted-average shares outstanding	312,719		314,012		314,360		312,688		306,757		316,018
Basic earnings per share from continuing operations	$	0.49	$	0.51	$	0.80	$	1.00	$	0.48	$	0.31
Diluted earnings per share from continuing operations(1)	$	0.49	$	0.50	$	0.80	$	0.99	$	0.48	$	0.31


(1)	Diluted earnings per share from continuing operations was computed using the treasury stock method for dilutive securities.

The following table sets forth the number of employee stock-based compensation awards outstanding but not included in the computation of diluted earnings per share because their effect would have been antidilutive for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in thousands):


	Three Months Ended		Six Months Ended		Three Months Ended
	June 30,		June 30,		March 31,
	2019	2018	2019	2018	2020	2019
Antidilutive securities:
RSUs	559	575	579	288	381	599
Stock options	32	—	32	—	—	32

1817

Note 9.8. Accumulated Other Comprehensive Income (Loss)

The components of Accumulated Other Comprehensive Income (Loss) are as follows (in thousands):


	Three Months Ended															Three Months Ended
	June 30, 2019															March 31, 2020
	Foreign Currency Translation			Unrealized Gain (Loss) on Cash Flow Hedges			Unrealized (Loss) Gain on Pension Plans			Other Comprehensive (Loss) Income from Unconsolidated Subsidiaries			Accumulated Other Comprehensive (Loss) Income			Foreign Currency Translation			Unrealized Gain (Loss) on Cash Flow Hedges			Unrealized (Loss) Gain on Pension Plans			Other Comprehensive Loss from Unconsolidated Subsidiaries			Accumulated Other Comprehensive (Loss) Income
Beginning balance	$	(187,492	)	$	11,637		$	(7,884	)	$	(7,115	)	$	(190,854	)	$	(170,893	)	$	5,358		$	(31,934	)	$	(3,416	)	$	(200,885	)
Pretax (loss) income	5,602			(9,418		)	—			—			(3,816		)	(104,060		)	4,182			—			—			(99,878		)
Income tax effect	—			2,230			—			—			2,230			—			(984		)	—			—			(984		)
Reclassification of unrealized (gain) loss	—			2,013			37			—			2,050			—			(13,707		)	114			—			(13,593		)
Reclassification of deferred income taxes	—			(475		)	(9		)	—			(484		)	—			3,188			6			—			3,194
Other comprehensive income from unconsolidated subsidiaries	—			—			—			2,321			2,321
Disposal of business																95			—			—			—			95
Other comprehensive loss from unconsolidated subsidiaries																—			—			—			(1,852		)	(1,852		)
Ending balance	$	(181,890	)	$	5,987		$	(7,856	)	$	(4,794	)	$	(188,553	)	$	(274,858	)	$	(1,963	)	$	(31,814	)	$	(5,268	)	$	(313,903	)

Three Months Ended
June 30, 2018
Foreign
Currency
Translation Unrealized Gain (Loss)
on Cash Flow Hedges Unrealized (Loss) Gain
on Pension Plans Other Comprehensive (Loss) Income from Unconsolidated Subsidiaries Accumulated
Other
Comprehensive
(Loss) Income
Beginning balance $ (20,589 ) $ 17,278
$ (9,393 ) $ (1,914 ) $ (14,618 )
Pretax (loss) income (107,167 ) 30,721
(690 ) —
(77,136 )
Income tax effect 2,003
(7,183 ) (174 ) —
(5,354 )
Reclassification of unrealized (gain) loss —
(27,580 ) 76
—
(27,504 )
Reclassification of deferred income taxes —
6,448
(19 ) —
6,429
Other comprehensive income from unconsolidated subsidiaries —
—
—
2,122
2,122
Ending balance $ (125,753 ) $ 19,684
$ (10,200 ) $ 208
$ (116,061 )

Six Months Ended
June 30, 2019
Foreign
Currency
Translation Unrealized Gain (Loss)
on Cash Flow Hedges Unrealized (Loss) Gain
on Pension Plans Other Comprehensive Loss from Unconsolidated Subsidiaries Accumulated
Other
Comprehensive
(Loss) Income
Beginning balance $ (177,597 ) $ 14,374
$ (8,075 ) $ (3,652 ) $ (174,950 )
Pretax (loss) income (4,293 ) 6,175
—
—
1,882
Income tax effect —
(1,424 ) —
—
(1,424 )
Reclassification of unrealized (gain) loss —
(17,175 ) 290
—
(16,885 )
Reclassification of deferred income taxes —
4,037
(71 ) —
3,966
Other comprehensive loss from unconsolidated subsidiaries —
—
—
(1,142 ) (1,142 )
Ending balance $ (181,890 ) $ 5,987
$ (7,856 ) $ (4,794 ) $ (188,553 )

Six Months Ended
June 30, 2018
Foreign
Currency
Translation Unrealized Gain (Loss)
on Cash Flow Hedges Unrealized (Loss) Gain
on Pension Plans Other Comprehensive (Loss) Income from Unconsolidated Subsidiaries Accumulated
Other
Comprehensive
(Loss) Income
Beginning balance $ (71,933 ) $ 11,538
$ (8,772 ) $ (1,309 ) $ (70,476 )
Pretax (loss) income (58,732 ) 26,220
(1,319 ) —
(33,831 )
Income tax effect 2,053
(6,130 ) (166 ) —
(4,243 )
Reclassification of unrealized (gain) loss —
(18,833 ) 76
—
(18,757 )
Reclassification of deferred income taxes —
4,403
(19 ) —
4,384
Other comprehensive income from unconsolidated subsidiaries —
—
—
1,517
1,517
Adoption of ASU 2018-02 2,859
2,486
—
—
5,345
Ending balance $ (125,753 ) $ 19,684
$ (10,200 ) $ 208
$ (116,061 )



	Three Months Ended
	March 31, 2019
	Foreign Currency Translation			Unrealized Gain (Loss) on Cash Flow Hedges			Unrealized (Loss) Gain on Pension Plans			Other Comprehensive Loss from Unconsolidated Subsidiaries			Accumulated Other Comprehensive (Loss) Income
Beginning balance	$	(177,597	)	$	14,374		$	(8,075	)	$	(3,652	)	$	(174,950	)
Pretax (loss) income	(9,895		)	15,593			—			—			5,698
Income tax effect	—			(3,654		)	—			—			(3,654		)
Reclassification of unrealized (gain) loss	—			(19,188		)	253			—			(18,935		)
Reclassification of deferred income taxes	—			4,512			(62		)	—			4,450
Other comprehensive loss from unconsolidated subsidiaries	—			—			—			(3,463		)	(3,463		)
Ending balance	$	(187,492	)	$	11,637		$	(7,884	)	$	(7,115	)	$	(190,854	)

The amounts of unrealized gains and losses on our Cash Flow Hedges reclassified to our Unaudited Condensed Consolidated Statements of Income are as follows (in thousands):

Three Months Ended Six Months Ended
June 30, June 30,
2019 2018 2019 2018
Unrealized gains on interest rate swaps ^{(1) (2)}
$ 2,479
$ 1,034
$ 4,942
$ 2,609
Unrealized gains on foreign currency forwards ^{(2) (3)}
3,602
2,776
7,162
4,156
Unrealized (losses) gains on cross currency swaps ⁽⁴⁾
(8,094 ) 23,770
5,071
12,068
Total $ (2,013 ) $ 27,580
$ 17,175
$ 18,833



		Three Months Ended
		March 31,
	Classification	2020		2019
Unrealized gains on interest rate swaps	Interest expense, net of interest income	$	3,296	$	1,692
Unrealized gains on cross currency swaps	Interest expense, net of interest income	2,551		4,330
Unrealized gains on cross currency swaps ⁽¹⁾	Other income, net	7,860		13,166
Total		$	13,707	$	19,188


(1)	~~Inclusive of our interest rate swap agreements and the interest rate swap component of our cross currency swaps.~~


~~(2)~~	~~Amounts reclassified to Interest expense, net of interest income in our Unaudited Condensed Consolidated Statements of Income.~~


~~(3)~~	~~Related to the foreign currency forward component of our cross currency swaps.~~


~~(4)~~	~~Amounts~~The amounts reclassified to Other ~~(income) expense,~~income, net in our Unaudited Condensed Consolidated Statements of ~~Income. These gains and losses~~Income offset the impact of the remeasurement of the underlying ~~contracts.~~transactions.

Net unrealized losses related to our pension plans were reclassified to Other ~~(income) expense,~~income, net in our ~~Unaudited Condensed~~ Consolidated Statements of Income ~~during each of~~for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 and ~~2018.~~ 2019.

Our policy is to reclassify the income tax effect from Accumulated other comprehensive income (loss) to the Provision for income taxes when the related gains and losses are released to the Unaudited Condensed Consolidated Statements of Income.

During the first quarter of 2018, we adopted ASU No. 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" ("ASU 2018-02"), which allowed a reclassification from Accumulated other comprehensive income (loss) to Retained earnings for stranded tax effects resulting from the reduction of the U.S. federal statutory income tax rate to 21% from 35% due to the enactment of the Tax Cuts and Jobs Act of 2017 (the "Tax Act"). As a result of the adoption of ASU 2018-02 in the first quarter of 2018, we recorded a $5 million reclassification to increase Accumulated other comprehensive income (loss) and decrease Retained earnings.

Note ~~10.~~9. Long-Term Obligations

Long-term obligations consist of the following (in thousands):


	June 30,			December 31,			March 31,			December 31,
	2019			2018			2020			2019
Senior secured credit agreement:
Term loans payable	$	345,625		$	350,000		$	336,875		$	341,250
Revolving credit facilities	1,228,219			1,387,177			1,562,875			1,268,008
U.S. Notes (2023)	600,000			600,000			—			600,000
Euro Notes (2024)	568,650			573,350			551,550			560,650
Euro Notes (2026/28)	1,137,300			1,146,700			1,103,100			1,121,300
Receivables securitization facility	—			110,000			98,400			—
Notes payable through October 2030 at weighted average interest rates of 3.0% and 2.0%, respectively	41,465			23,056
Finance lease obligations	41,935			39,966
Other long-term debt at weighted average interest rates of 1.8% and 1.8%, respectively	123,104			117,448
Notes payable through October 2030 at weighted average interest rates of 3.5% and 3.2%, respectively							30,164			26,971
Finance lease obligations at weighted average interest rates of 3.9% and 4.1%, respectively							44,386			40,837
Other debt at weighted average interest rates of 2.1% and 1.8%, respectively							61,205			113,010
Total debt	4,086,298			4,347,697			3,788,555			4,072,026
Less: long-term debt issuance costs	(33,469		)	(36,906		)	(25,093		)	(29,990		)
Less: current debt issuance costs	(286		)	(291		)	(276		)	(280		)
Total debt, net of debt issuance costs	4,052,543			4,310,500			3,763,186			4,041,756
Less: current maturities, net of debt issuance costs	(132,641		)	(121,826		)	(90,965		)	(326,367		)
Long term debt, net of debt issuance costs	$	3,919,902		$	4,188,674		$	3,672,221		$	3,715,389

Senior Secured Credit Agreement

On November 20, 2018, LKQ Corporation, LKQ Delaware LLP, and certain other subsidiaries (collectively, the "Borrowers") entered into Amendment No. 3 to the Fourth Amended and Restated Credit Agreement ("Credit Agreement"), which amended the Fourth Amended and Restated Credit Agreement dated January 29, 2016 by modifying certain terms to (1) increase the total availability under the revolving credit facility's multicurrency component from $2.75 billion to $3.15 billion; (2) reduce the margin on borrowings by 25 basis points at the September 30, 2018 leverage ratio, and reduce the number of leverage pricing tiers; (3) extend the maturity date by one year to January 29, 2024; (4) reduce the unused facility fee depending on leverage category; (5) increase the capacity for incurring additional indebtedness under our receivables securitization facility; (6) increase the maximum borrowing limit of swingline loans and add the ability to borrow in British Pounds and Euros; and (7) make other immaterial or clarifying modifications and amendments to the terms of the Credit Agreement. Borrowings will continue to bear interest at variable rates.

Amounts outstanding under the revolving credit facility are due and payable upon maturity of the Credit Agreement on January 29, 2024. Term loan borrowings, which totaled ~~$346~~$337 million as of ~~June 30, 2019,~~March 31, 2020, are due and payable in quarterly installments equal to ~~$2 million on the last day of each of the first four fiscal quarters ending on or after March 31, 2019 and~~ approximately $4 million on the last day of each fiscal quarter, ~~thereafter,~~ with the remaining balance due and payable on January 29, 2024.

The increase in the revolving credit facility's multicurrency component of $400 million was used in part to pay down $240 million of the term loan (to the new $350 million amount that was outstanding as of the date of the amendment); the remainder will be used for general corporate purposes.

We are required to prepay the term loan by amounts equal to proceeds from the sale or disposition of certain assets if the proceeds are not reinvested within twelve months. We also have the option to prepay outstanding amounts under the Credit Agreement without penalty.

The Credit Agreement contains customary representations and warranties and customary covenants that provide limitations and conditions on our ability to enter into certain transactions. The Credit Agreement also contains financial and affirmative covenants, including limitations on our net leverage ratio and a minimum interest coverage ratio.

Borrowings under the Credit Agreement bear interest at variable rates, which depend on the currency and duration of the borrowing elected, plus an applicable margin. The applicable margin is subject to change in increments of 0.25% depending on our net leverage ratio. Interest payments are due on the last day of the selected interest period or quarterly in arrears depending on the type of borrowing. Including the effect of the interest rate swap agreements described in Note ~~11,~~10, "Derivative

Instruments and Hedging Activities," the weighted average interest rates on borrowings outstanding under the Credit Agreement at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 were 1.6% ~~and 1.9%, respectively.~~at each date. We also pay a commitment fee based on the average daily unused amount of the revolving credit facilities. The commitment fee is subject to change in increments of 0.05%

depending on our net leverage ratio. In addition, we pay a participation commission on outstanding letters of credit at an applicable rate based on our net leverage ratio, and a fronting fee of 0.125% to the issuing bank, which are due quarterly in arrears.

Of the total borrowings outstanding under the Credit Agreement, there were ~~$13~~$18 million classified as current maturities at ~~June 30, 2019 compared to $9 million at~~both March 31, 2020 and December 31, ~~2018.~~2019. As of ~~June 30, 2019,~~March 31, 2020, there were letters of credit outstanding in the aggregate amount of ~~$69~~$70 million. The amounts available under the revolving credit facilities are reduced by the amounts outstanding under letters of credit, and thus availability under the revolving credit facilities at ~~June 30, 2019~~March 31, 2020 was ~~$1.9~~$1.5 billion.

Related to the execution of Amendment No. 3 to the Fourth Amended and Restated Credit Agreement in November 2018, we incurred $4 million of fees, the majority of which were capitalized as an offset to Long-Term Obligations and are amortized over the term of the agreement.

U.S. Notes (2023)

In 2013, we issued $600 million aggregate principal amount of 4.75% senior notes due 2023 (the "U.S. Notes (2023)"). The U.S. Notes (2023) ~~are~~were governed by the Indenture dated as of May 9, 2013 (the "U.S. Notes (2023) Indenture") among LKQ Corporation, certain of our subsidiaries (the "Guarantors"), the trustee, paying agent, transfer agent and registrar. The U.S. Notes (2023) ~~are~~were registered under the Securities Act of 1933.

The U.S. Notes (2023) ~~bear~~bore interest at a rate of 4.75% per year from the most recent payment date on which interest ~~has~~had been paid or provided for. Interest on the U.S. Notes (2023) iswas payable in arrears on May 15 and November 15 of each year. The U.S. Notes (2023) ~~are~~were fully and unconditionally guaranteed, jointly and severally, by the Guarantors.

The U.S. Notes (2023) and the related guarantees ~~are,~~were, respectively, LKQ Corporation's and each Guarantor's senior unsecured obligations and ~~are~~were subordinated to all of the Guarantors' existing and future secured debt to the extent of the assets securing that secured debt. In addition, the U.S. Notes (2023) ~~are~~were effectively subordinated to all of the liabilities of our subsidiaries that ~~are~~were not guaranteeing the U.S. Notes (2023) to the extent of the assets of those subsidiaries.

On January 10, 2020, we redeemed the U.S Notes (2023) at a redemption price equal to 101.583% of the principal amount of the U.S. Notes (2023) plus accrued and unpaid interest thereon to, but not including, January 10, 2020. The total redemption payment was $614 million, including an early-redemption premium of $9 million and accrued and unpaid interest of $4 million. In the first quarter of 2020, we recorded a loss on debt extinguishment of $13 million on the Unaudited Condensed Consolidated Statements of Income related to the redemption due to the early-redemption premium and the write-off of the unamortized debt issuance costs.

Euro Notes (2024)

On April 14, 2016, LKQ Italia Bondco S.p.A. (“("LKQ ~~Italia”~~Italia"), an indirect, wholly-owned subsidiary of LKQ Corporation, completed an offering of €500 million aggregate principal amount of senior notes due April 1, 2024 (the ~~“Euro~~"Euro Notes (2024)”") in a private placement conducted pursuant to Regulation S and Rule 144A under the Securities Act of 1933. The proceeds from the offering were used to repay a portion of the revolver borrowings under the Credit Agreement and to pay related fees and expenses. The Euro Notes (2024) are governed by the Indenture dated as of April 14, 2016 (the ~~“Euro~~"Euro Notes (2024) ~~Indenture”~~Indenture") among LKQ Italia, LKQ Corporation and certain of our subsidiaries (the ~~“Euro~~"Euro Notes (2024) ~~Subsidiaries”~~Subsidiaries"), the trustee, and the paying agent, transfer agent, and registrar.

The Euro Notes (2024) bear interest at a rate of 3.875% per year from the date of original issuance or from the most recent payment date on which interest has been paid or provided for. Interest on the Euro Notes (2024) is payable in arrears on April 1 and October 1 of each year. The Euro Notes (2024) are fully and unconditionally guaranteed by LKQ Corporation and the Euro Notes (2024) Subsidiaries (the "Euro Notes (2024) Guarantors").

The Euro Notes (2024) and the related guarantees are, respectively, LKQ ~~Italia’s~~Italia's and each Euro Notes (2024) ~~Guarantor’s~~Guarantor's senior unsecured obligations and are subordinated to all of LKQ Italia's and the Euro Notes (2024) ~~Guarantors’~~Guarantors' existing and future secured debt to the extent of the assets securing that secured debt. In addition, the Euro Notes (2024) are effectively subordinated to all of the liabilities of our subsidiaries that are not guaranteeing the Euro Notes (2024) to the extent of the assets of those subsidiaries. The Euro Notes (2024) have been listed on the ExtraMOT, Professional Segment of the Borsa Italia S.p.A. securities exchange and the Global Exchange Market of Euronext Dublin.

The Euro Notes (2024) are redeemable, in whole or in part, at any time at a redemption price of 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date plus a "make whole" premium. On or after January 1, 2024, we may redeem some or all of the Euro Notes (2024) at a redemption price of 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date. We may be required to make an offer to purchase the Euro Notes (2024) upon the sale of certain assets, subject to certain exceptions, and upon a change of control. In addition, in

the event of certain developments affecting taxation or under certain other circumstances which, in any case, require the payment of certain additional amounts, we may redeem the Euro Notes (2024) in whole, but not in part, at any time at a redemption price of 100% of the principal amount thereof plus accrued but unpaid interest, if any, and such certain additional amounts, if any, to the redemption date.

Euro Notes (2026/28)

On April 9, 2018, LKQ European Holdings B.V. ("LKQ Euro Holdings"), a wholly-owned subsidiary of LKQ Corporation, completed an offering of €1.0 billion aggregate principal amount of senior notes. The offering consisted of €750 million senior notes due 2026 (the "2026 notes") and €250 million senior notes due 2028 (the "2028 notes" and, together with the 2026 notes, the "Euro Notes (2026/28)") in a private placement conducted pursuant to Regulation S and Rule 144A under the Securities Act of 1933. The proceeds from the offering, together with borrowings under our senior secured credit facility, were ~~or will be~~ used to (i) finance a portion of the consideration paid for the Stahlgruber acquisition, (ii) for general corporate

purposes and (iii) to pay related fees and expenses, including the refinancing of net financial debt. The Euro Notes (2026/28) are governed by the Indenture dated as of April 9, 2018 (the “Euro Notes (2026/28) Indenture”) among LKQ Euro Holdings, LKQ Corporation and certain of our subsidiaries (the “Euro Notes (2026/28) Subsidiaries”), the trustee, paying agent, transfer agent, and registrar.

The 2026 notes and 2028 notes bear interest at ~~a rate~~rates of 3.625% and 4.125%, respectively, per year from the date of original issuance or from the most recent payment date on which interest has been paid or provided for. Interest on the Euro Notes (2026/28) is payable in arrears on April 1 and October 1 of each year. The Euro Notes (2026/28) are fully and unconditionally guaranteed by LKQ Corporation and the Euro Notes (2026/28) Subsidiaries (the "Euro Notes (2026/28) Guarantors").

The Euro Notes (2026/28) and the related guarantees are, respectively, LKQ Euro Holdings' and each Euro Notes (2026/28) Guarantor’s senior unsecured obligations and will be subordinated to all of LKQ Euro Holdings' and the Euro Notes (2026/28) Guarantors’ existing and future secured debt to the extent of the assets securing that secured debt. In addition, the Euro Notes (2026/28) are effectively subordinated to all of the liabilities of our subsidiaries that are not guaranteeing the Euro Notes (2026/28) to the extent of the assets of those subsidiaries. The Euro Notes (2026/28) have been listed on the Global Exchange Market of Euronext Dublin.

The Euro Notes (2026/28) are redeemable, in whole or in part, at any time at a redemption price of 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date plus a "make whole" premium. On or after April 1, 2021, we may redeem some or all of the 2026 notes at the applicable redemption prices set forth in the Euro Notes (2026/28) Indenture. On or after April 1, 2023, we may redeem some or all of the 2028 notes at the applicable redemption prices set forth in the Euro Notes (2026/28) Indenture. We also may redeem up to 35% of the 2026 notes and up to 35% of the 2028 notes before April 1, 2021 with the net cash proceeds from certain equity offerings. We may be required to make an offer to purchase the Euro Notes (2026/28) upon the sale of certain assets, subject to certain exceptions, and upon a change of control. In addition, in the event of certain developments affecting taxation or under certain other circumstances which, in any case, require the payment of certain additional amounts, we may redeem the Euro Notes (2026/28) in whole, but not in part, at any time at a redemption price of 100% of the principal amount thereof, plus accrued but unpaid interest, if any, and such certain additional amounts, if any, to the redemption date.

Related to the execution of the Euro Notes (2026/28) in April 2018, we incurred $16 million of fees, which were capitalized as an offset to Long-Term Obligations and are amortized over the term of the Euro Notes (2026/28).

Receivables Securitization Facility

On December 20, 2018, we amended the terms of our receivables securitization facility with MUFG Bank, Ltd. ("MUFG") (formerly known as The Bank of Tokyo-Mitsubishi UFJ, Ltd.) to: (i) extend the term of the facility to November 8, 2021; (ii) increase the maximum amount available to $110 million; and (iii) make other clarifying and updating changes. Under the facility, LKQ sells an ownership interest in certain receivables, related collections and security interests to MUFG for the benefit of conduit investors and/or financial institutions for cash proceeds. Upon payment of the receivables by customers, rather than remitting to MUFG the amounts collected, LKQ retains such collections as proceeds for the sale of new receivables generated by certain of the ongoing operations of the Company.

The sale of the ownership interest in the receivables is accounted for as a secured borrowing inon our Unaudited Condensed Consolidated Balance Sheets, under which the receivables included in the program collateralize the amounts invested by MUFG, the conduit investors and/or financial institutions (the "Purchasers"). The receivables are held by LKQ Receivables Finance Company, LLC ("LRFC"), a wholly owned bankruptcy-remote special purpose subsidiary of LKQ, and therefore, the receivables are available first to satisfy the creditors of LRFC, including the Purchasers. ~~While there~~Net receivables totaling

$116 million and $132 million were ~~no borrowings on our receivables securitization facility as of June 30, 2019, $129 million of net receivables were available as~~ collateral for the investment under the receivables facility ~~compared to $132 million~~ as of as March 31, 2020 and December 31, ~~2018.~~2019, respectively.

Under the receivables facility, we pay variable interest rates plus a margin on the outstanding amounts invested by the Purchasers. The variable rates are based on (i) commercial paper rates, (ii) London Interbank Offered Rate ("LIBOR"), or (iii) base rates, and are payable monthly in arrears. The commercial paper rate is the applicable variable rate unless conduit investors are not available to invest in the receivables at commercial paper rates. In such case, financial institutions will invest at the LIBOR rate or at base rates. We also pay a commitment fee on the excess of the investment maximum over the average daily outstanding investment, payable monthly in arrears. ~~As of June 30, 2019, the interest rate under the receivables facility was based on commercial paper rates and was 3.4%.~~ The outstanding balance was ~~$110~~$98 million as of March 31, 2020, and there was 0 outstanding balance as of December 31, ~~2018 and there was no outstanding balance as of June 30,~~ 2019. At December 31, 2018, we classified the outstanding balance as long-term on the Unaudited Condensed Consolidated Balance Sheets because we have the ability and intent to refinance these borrowings on a long-term basis.

Note ~~11.~~10. Derivative Instruments and Hedging Activities

We are exposed to market risks, including the effect of changes in interest rates, foreign currency exchange rates and commodity prices. Under our current policies, we use derivatives to manage our exposure to variable interest rates on our senior secured debt and changing foreign exchange rates for certain foreign currency denominated transactions. We do not hold or issue derivatives for trading purposes.

Cash Flow Hedges

We hold interest rate swap agreements to hedge a portion of the variable interest rate risk on our variable rate borrowings under our Credit Agreement, with the objective of minimizing the impact of interest rate fluctuations and stabilizing cash flows. Under the terms of the interest rate swap agreements, we pay the fixed interest rate and receive payment

at a variable rate of interest based on LIBOR for the respective currency of each interest rate swap agreement’s notional amount. Changes in the fair value of the interest rate swap agreements are recorded in Accumulated Other Comprehensive Income (Loss) and are reclassified to Interest expense, net of interest ~~expense~~income when the underlying interest payment has an impact on earnings. Our interest rate swap contracts have maturity dates ~~ranging from~~in January to2021 and June 2021.

From time to time, we may hold foreign currency forward contracts related to certain foreign currency denominated intercompany transactions, with the objective of minimizing the impact of fluctuating exchange rates on these future cash flows. Under the terms of the foreign currency forward contracts, we will sell the foreign currency in exchange for U.S. dollars at a fixed rate on the maturity dates of the contracts. Changes in the fair value of the foreign currency forward contracts are recorded in Accumulated Other Comprehensive Income (Loss) and reclassified to ~~other~~Other income, net when the underlying transaction has an impact on earnings.

~~In 2016, we entered into three~~We hold cross currency swap agreements for a total notional amount of $422 million (€400 million). The notional amount steps down by €15 million annually through 2020 with the remainder maturing in January 2021. These cross currency swaps, which contain an interest rate swap component and a foreign currency forward contract component that, combined with related intercompany financing arrangements, effectively convert variable rate U.S. dollar-denominated borrowings into fixed rate euro-denominated borrowings. The swaps are intended to minimize the impact of fluctuating exchange rates and interest rates on the cash flows resulting from the related intercompany financing arrangements. ~~The changes~~Changes in the fair value of the derivative instruments are recorded in Accumulated Other Comprehensive Income (Loss) and are reclassified to ~~interest~~Interest expense, net of interest income and Other income, net when the underlying transactions have an impact on earnings.

~~In October 2018, we entered into two cross currency swap agreements for a total notional amount~~ For certain of ~~$184 million (€160 million). Half of~~the swaps, the notional amount ~~matures~~steps down by €4 million quarterly, with the balance maturing at the end of the contract. Our cross currency swaps have maturity dates in October ~~2019 with the remainder in October 2020. The purpose of,~~2020 and ~~accounting for, the swaps are similar to those described in the previous paragraph.~~January 2021.

The activity related to our cash flow hedges is presented in operating activities in our Unaudited Condensed Consolidated Statements of Cash Flows.

The following tables summarize the notional amounts and fair values of our designated cash flow hedges as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):


		Notional Amount		Fair Value at June 30, 2019 (USD)									Notional Amount		Fair Value at March 31, 2020 (USD)
		June 30, 2019		Other Current Assets		Other Noncurrent Assets		Other Accrued Expenses		Other Noncurrent Liabilities			March 31, 2020		Other Current Assets		Other Noncurrent Assets		Other Accrued Expenses		Other Noncurrent Liabilities
Interest rate swap agreements	Interest rate swap agreements											Interest rate swap agreements
USD denominated		$	480,000	$	—	$	5,519	$	—	$	—		$	480,000	$	—	$	—	$	1,925	$	1,316
Cross currency swap agreements	Cross currency swap agreements											Cross currency swap agreements
USD/euro		$	566,384	1,004		3,006		181		32,998			$	462,655	4,789		—		18,292		—
Total cash flow hedges	Total cash flow hedges			$	1,004	$	8,525	$	181	$	32,998	Total cash flow hedges			$	4,789	$	—	$	20,217	$	1,316


		Notional Amount		Fair Value at December 31, 2018 (USD)									Notional Amount		Fair Value at December 31, 2019 (USD)
		December 31, 2018		Other Current Assets		Other Noncurrent Assets		Other Accrued Expenses		Other Noncurrent Liabilities			December 31, 2019		Other Current Assets		Other Noncurrent Assets		Other Accrued Expenses		Other Noncurrent Liabilities
Interest rate swap agreements	Interest rate swap agreements											Interest rate swap agreements
USD denominated		$	480,000	$	—	$	14,967	$	—	$	—		$	480,000	$	—	$	3,262	$	—	$	—
Cross currency swap agreements	Cross currency swap agreements											Cross currency swap agreements
USD/euro		$	574,315	211		7,669		127		40,870			$	466,621	2,975		181		970		23,349
Total cash flow hedges	Total cash flow hedges			$	211	$	22,636	$	127	$	40,870	Total cash flow hedges			$	2,975	$	3,443	$	970	$	23,349

While certain derivative instruments executed with the same counterparty are subject to master netting arrangements, we present our cash flow hedge derivative instruments on a gross basis inon our Unaudited Condensed Consolidated Balance Sheets. The impact of netting the fair values of these contracts would result in a decrease to ~~Other Noncurrent Assets~~Prepaid expenses and other current assets and Other ~~Noncurrent Liabilities~~accrued expenses on our Unaudited Condensed Consolidated Balance Sheets of $5 million and ~~$14~~$1 million at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively.

The impact of netting the fair values of these contracts would result in a decrease to Other noncurrent assets and Other noncurrent liabilities on our Unaudited Condensed Consolidated Balance Sheets of $1 million at December 31, 2019; there would be 0 impact at March 31, 2020.

The activity related to our cash flow hedges is included in Note 9,8, "Accumulated Other Comprehensive Income (Loss)." As of ~~June 30, 2019,~~March 31, 2020, we estimate that $1we will reclassify $2 million of derivative gains (net of tax) ~~included in~~from Accumulated Other Comprehensive Income (Loss) ~~will be reclassified into~~to Interest expense, net of interest income in our Unaudited Condensed Consolidated Statements of Income within the next 12 months. We estimate that we will also reclassify $3 million of derivative losses (net of tax) from Accumulated Other Comprehensive Income (Loss) to Other income, net in our Unaudited Condensed Consolidated Statements of Income within the next 12 months; the reclassification of derivative losses to Other income, net offsets the projected impact of the remeasurement of the underlying transactions.

Other Derivative Instruments

We hold other short-term derivative instruments, including foreign currency forward contracts, to manage our exposure to variability related to inventory purchases ~~and intercompany financing transactions~~ denominated in a non-functional currency. We have elected not to apply hedge accounting for these transactions, and therefore the contracts are adjusted to fair value through our results of operations as of each balance sheet date, which could result in volatility in our earnings. The notional amount and fair value of these contracts at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, along with the effect on our results of operations during the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ were immaterial.

Note ~~12.~~11. Fair Value Measurements

Financial Assets and Liabilities Measured at Fair Value

We use the market and income approaches to estimate the fair value of our financial assets and liabilities, and during the three ~~and six~~ months ended ~~June 30, 2019,~~March 31, 2020, there were no significant changes in valuation techniques or inputs related to the financial assets or liabilities that we have historically recorded at fair value. The tiers in the fair value hierarchy include: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as significant unobservable inputs infor which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The following tables present information about our financial assets and liabilities measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation inputs we utilized to determine such fair value as of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018~~2019 (in thousands):


	Balance as of June 30, 2019		Fair Value Measurements as of June 30, 2019						Balance as of March 31, 2020		Fair Value Measurements as of March 31, 2020
	Balance as of June 30, 2019		Level 1		Level 2		Level 3		Balance as of March 31, 2020		Level 1		Level 2		Level 3
Assets:
Cash surrender value of life insurance	$	55,501	$	—	$	55,501	$	—	$	50,724	$	—	$	50,724	$	—
Interest rate swaps	5,519		—		5,519		—
Cross currency swap agreements	4,010		—		4,010		—		4,789		—		4,789		—
Total Assets	$	65,030	$	—	$	65,030	$	—	$	55,513	$	—	$	55,513	$	—
Liabilities:
Contingent consideration liabilities	$	10,884	$	—	$	—	$	10,884	$	12,069	$	—	$	—	$	12,069
Interest rate swaps									3,241		—		3,241		—
Deferred compensation liabilities	59,012		—		59,012		—		56,395		—		56,395		—
Cross currency swap agreements	33,179		—		33,179		—		18,292		—		18,292		—
Total Liabilities	$	103,075	$	—	$	92,191	$	10,884	$	89,997	$	—	$	77,928	$	12,069


	Balance as of December 31, 2018		Fair Value Measurements as of December 31, 2018						Balance as of December 31, 2019		Fair Value Measurements as of December 31, 2019
	Balance as of December 31, 2018		Level 1		Level 2		Level 3		Balance as of December 31, 2019		Level 1		Level 2		Level 3
Assets:
Cash surrender value of life insurance	$	47,649	$	—	$	47,649	$	—	$	60,637	$	—	$	60,637	$	—
Interest rate swaps	14,967		—		14,967		—		3,262		—		3,262		—
Cross currency swap agreements	7,880		—		7,880		—		3,156		—		3,156		—
Total Assets	$	70,496	$	—	$	70,496	$	—	$	67,055	$	—	$	67,055	$	—
Liabilities:
Contingent consideration liabilities	$	5,209	$	—	$	—	$	5,209	$	11,539	$	—	$	—	$	11,539
Deferred compensation liabilities	48,984		—		48,984		—		63,981		—		63,981		—
Cross currency swap agreements	40,997		—		40,997		—		24,319		—		24,319		—
Total Liabilities	$	95,190	$	—	$	89,981	$	5,209	$	99,839	$	—	$	88,300	$	11,539

The cash surrender value of life insurance is included in Other noncurrent assets on our Unaudited Condensed Consolidated Balance Sheets. The ~~current portion of deferred compensation is included in Accrued payroll-related liabilities and the~~ current portion of contingent consideration liabilities is included in Other current liabilities on our Unaudited Condensed Consolidated Balance Sheets; the noncurrent portion of these amounts is included in Other noncurrent liabilities on our Unaudited Condensed Consolidated Balance Sheets based on the expected timing of the related payments. The balance sheet classification of the interest rate swaps and cross currency swap agreements is presented in Note ~~11,~~10, "Derivative Instruments and Hedging Activities."

Our Level 2 assets and liabilities are valued using inputs from third parties and market observable data. We obtain valuation data for the cash surrender value of life insurance and deferred compensation liabilities from third party sources, which determine the net asset values for our accounts using quoted market prices, investment allocations and reportable trades. We value our other derivative instruments using a third party valuation model that performs a discounted cash flow analysis based on the terms of the contracts and market observable inputs such as current and forward interest rates and current and forward foreign exchange rates.

Our contingent consideration liabilities are related to our business acquisitions. Under the terms of the contingent consideration agreements, payments may be made at specified future dates depending on the performance of the acquired

business subsequent to the acquisition. The liabilities for these payments are classified as Level 3 liabilities because the related fair value measurement, which is determined using an income approach, includes significant inputs not observable in the market.

Financial Assets and Liabilities Not Measured at Fair Value

Our debt is reflected on the Unaudited Condensed Consolidated Balance Sheets at cost. Based on market conditions as of both ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the fair value of our credit agreement borrowings reasonably approximated the carrying values of ~~$1.6~~$1.9 billion and ~~$1.7~~$1.6 billion, respectively. In addition, based on market conditions, the fair value of the outstanding borrowings under the receivables facility ~~reasonably~~ approximated the carrying value of ~~$110~~$98 million ~~at December 31, 2018;~~ as of ~~June 30,~~March 31, 2020; as of December 31, 2019, there were no0 outstanding borrowings under the receivables facility. As of ~~June 30, 2019 and~~ December 31, ~~2018,~~2019, the fair ~~values~~value of the U.S. Notes (2023) ~~were~~was approximately ~~$608~~$609 million ~~and $574 million, respectively,~~ compared to a carrying value of $600 ~~million at each date.~~million; as of March 31, 2020, there were 0 outstanding borrowings on the U.S. Notes (2023). As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the fair values of the Euro Notes (2024) were approximately ~~$631~~$544 million and ~~$586~~$632 million compared to carrying values of ~~$569~~$552 million and ~~$573~~$561 million, respectively. As of ~~June 30,~~March 31, 2020 and December 31, 2019, the fair ~~value~~values of the Euro Notes (2026/28) ~~was~~were $1.0 billion and $1.2 billion compared to a carrying value of $1.1 ~~billion; as of December 31, 2018, the fair value of the Euro Notes (2026/28) approximated the carrying value of $1.1 billion.~~billion at each date.

The fair value measurements of the borrowings under our credit agreement and receivables facility are classified as Level 2 within the fair value hierarchy since they are determined based upon significant inputs observable in the market, including interest rates on recent financing transactions with similar terms and maturities. We estimated the fair value by calculating the upfront cash payment a market participant would require at ~~June 30,~~March 31, 2020 and December 31, 2019 to assume these obligations. The fair value of our U.S. Notes (2023) iswas classified as Level 1 within the fair value hierarchy since it iswas determined based upon observable market inputs including quoted market prices in an active market. The fair values of our Euro Notes (2024) and Euro Notes (2026/28) are determined based upon observable market inputs including quoted market prices in markets that are not active, and therefore are classified as Level 2 within the fair value hierarchy.

~~Note 13. Leases~~

~~We lease certain warehouses, distribution centers, retail stores, office space, land, vehicles and equipment.~~

We determine if an arrangement is a lease at inception. Operating lease right-of-use ("ROU") assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As the implicit rate for most of our leases is not readily determinable, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. Upon adoption of the new lease standard, we utilized the incremental borrowing rate as of the date of adoption. We determine our incremental borrowing rate by analyzing yield curves with consideration of lease term, and country and company specific factors. The operating lease ROU asset also includes any lease prepayments and excludes lease incentives.

Many of our leases include one or more options to renew, with renewal terms that can extend the lease term from 1 to 40 years or more. Our lease terms assumed in our measurement of the ROU assets and lease liabilities may include options to extend or terminate the lease when it is reasonably certain that we will exercise that option. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Some of our lease agreements include rental payments adjusted periodically for inflation. Most of these adjustments are considered variable lease costs. Other variable lease costs consist of certain non-lease components that are disclosed as lease costs due to our election of the practical expedient to combine lease and non-lease components and include items such as variable payments for utilities, property taxes, common area maintenance, sales taxes, and insurance.

For leases with an initial term of 12 months or less, we have not recognized an operating lease ROU asset or operating lease liability on the Unaudited Condensed Consolidated Balance Sheets; we recognize lease expense for these leases on a straight-line basis over the lease terms.

We guarantee the residual values for the majority of our vehicles. The residual values decline over the lease terms to a defined percentage of original cost. In the event the lessor does not realize the residual value when a vehicle is sold, we would be responsible for a portion of the shortfall. Similarly, if the lessor realizes more than the residual value when a vehicle is sold, we would be paid the amount realized over the residual value. Had we terminated all of our operating leases subject to these guarantees at June 30, 2019, our portion of the guaranteed residual value would have totaled approximately $75 million. Other than the residual value guarantees associated with our vehicles discussed above, we do not have any other material residual value guarantees or restrictive covenants.

~~The amounts recorded in the unaudited condensed consolidated balance sheet as of June 30, 2019 related to our lease agreements are as follows (in thousands):~~

Leases Classification June 30, 2019

Assets
Operating lease assets, net Operating lease assets, net $ 1,294,541
Finance lease assets, net Property, plant and equipment, net 41,911
Total leased assets $ 1,336,452
Liabilities
Current
Operating Current portion of operating lease liabilities $ 219,502
Finance Current portion of long-term obligations 10,802
Noncurrent
Operating Long-term operating lease liabilities 1,122,276
Finance Long-term obligations, excluding current portion 31,133
Total lease liabilities $ 1,383,713

~~The components of lease expense are as follows (in thousands):~~

Three Months Ended Six Months Ended
Lease Cost Classification June 30, 2019 June 30, 2019

Operating lease cost Cost of goods sold $ 5,876
$ 9,712
Operating lease cost Selling, general and administrative expenses 77,142
150,423
Short-term lease cost Selling, general and administrative expenses 3,799
4,466
Variable lease cost Selling, general and administrative expenses 25,199
51,189
Finance lease cost
Amortization of leased assets Depreciation and amortization 2,624
5,222
Interest on lease liabilities Interest expense, net of interest income 405
853
Sublease income Other income, net (151 ) (426 )
Net lease cost $ 114,894
$ 221,439

~~The future minimum lease commitments under our noncancelable operating leases at December 31, 2018 were as follows (in thousands):~~

Years ending December 31:
2019 $ 294,269
2020 256,172
2021 210,632
2022 158,763
2023 131,518
Thereafter 777,165
Future Minimum Lease Payments $ 1,828,519

~~The future minimum lease commitments under our leases at June 30, 2019 are as follows (in thousands):~~

Operating leases
Finance leases ⁽¹⁾
Total
Six months ending December 31, 2019 $ 151,302
$ 6,374
$ 157,676
Years ending December 31:
2020 276,873
11,109
287,982
2021 230,912
9,229
240,141
2022 178,807
6,718
185,525
2023 148,754
2,888
151,642
2024 123,190
2,773
125,963
Thereafter 724,388
15,953
740,341
Future minimum lease payments 1,834,226
55,044
1,889,270
Less: Interest 492,448
13,109
505,557
Present value of lease liabilities $ 1,341,778
$ 41,935
$ 1,383,713


~~(1)~~	Amounts are included in the scheduled maturities of long-term obligations in the “Liquidity and Capital Resources” section of Management's Discussion and Analysis of Financial Condition and Results of Operations in Part I, Item 2 of this Quarterly Report on Form 10-Q.

As of June 30, 2019, we have additional minimum operating lease payments for leases that have not yet commenced of $75 million. These operating leases will commence between July 1, 2019 and December 31, 2020 with lease terms of 3 to 20 years. Most of these leases have not commenced as the assets are in the process of being constructed. We have appropriately considered the build-to-suit and sale-leaseback guidance where appropriate on these leases. No significant build-to-suit or sale-leaseback transactions have been identified.

~~Other information related to leases was as follows:~~



~~Lease Term and Discount Rate~~	~~June 30, 2019~~

~~Weighted-average remaining lease term (years)~~
~~Operating leases~~	~~9.6~~
~~Finance leases~~	~~8.6~~
~~Weighted-average discount rate~~
~~Operating leases~~	~~5.4~~	%
~~Finance leases~~	~~4.5~~	%

Six Months Ended
Supplemental cash flows information (in thousands) June 30, 2019

Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases $ 147,897
Financing cash flows from finance leases 5,464
Leased assets obtained in exchange for new finance lease liabilities 7,568
Leased assets obtained in exchange for new operating lease liabilities 61,891

Note ~~14.~~12. Employee Benefit Plans

We have funded and unfunded defined benefit plans covering certain employee groups in the U.S. and various European countries. Local statutory requirements govern many of our European plans. The defined benefit plans are mostly closed to new participants and, in some cases, existing participants no longer accrue benefits. As of ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, the aggregate funded status of the defined benefit plans was a liability of ~~$115~~$139 million and ~~$110~~$142 million, respectively, and is reported in Other noncurrent liabilities and Accrued payroll-related liabilities on our Unaudited Condensed Consolidated Balance Sheets.

On June 28, 2019, we approved an amendment to terminate our primary defined benefit plan in the U.S. (the "U.S. Plan") and to freeze all related benefit accruals, effective June 30, 2019. The distribution of the ~~U.S~~U.S. Plan assets pursuant to the termination will not be made until the plan termination satisfies all regulatory requirements, which is expected to ~~be completed~~occur in 2020. U.S. Plan participants will receive their full accrued benefits from plan assets by electing either lump sum distributions or annuity contracts with a qualifying third-party annuity provider. The resulting settlement effect of the U.S. Plan termination will be determined based on prevailing market conditions, the lump sum offer participation rate of eligible participants, the actual lump sum distributions, and annuity purchase rates at the date of distribution. As a result, we are currently unable to reasonably estimate either the timing or the final amount of such settlement charges. Based on the valuation performed as of ~~June 28,~~December 31, 2019, the U.S. Plan ~~has~~had an underfunded status of $3$8 million.

Net periodic benefit cost for our defined benefit plans included the following components for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in thousands):


	Three Months Ended						Six Months Ended						Three Months Ended
	June 30,						June 30,						March 31,
	2019			2018			2019			2018			2020			2019
Service cost	$	1,074		$	516		$	1,661		$	984		$	670		$	587
Interest cost	1,010			776			1,995			1,446			718			985
Expected return on plan assets	(560		)	(783		)	(1,340		)	(1,500		)	(478		)	(780		)
Amortization of actuarial loss	37			76			290			76
Amortization of actuarial (gain) loss													114			253
Net periodic benefit cost	$	1,561		$	585		$	2,606		$	1,006		$	1,024		$	1,045

For the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019, ~~and 2018,~~ the service cost component of net periodic benefit cost was classified in Selling, general and administrative expenses, while the other components of net periodic benefit cost were classified in Other ~~(income) expense,~~income, net in our Unaudited Condensed Consolidated Statements of Income.

Note ~~15.~~13. Income Taxes

At the end of each interim period, we estimate our annual effective tax rate and apply that rate to our interim earnings. We also record the tax impact of certain unusual or infrequently occurring items, including changes in judgment about valuation allowances and the effects of changes in tax laws or rates, in the interim period in which they occur.

The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in state and foreign jurisdictions, permanent and temporary differences between book and taxable income, and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as the tax environment changes.

Our effective income tax rate for the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 was ~~27.1%~~29.2%, compared to ~~26.3%~~27.1% for the comparable prior year period. The increase is attributable to a higher expected annual effective tax rate in 2020 as a result of the estimated unfavorable impact of the COVID-19 pandemic on the Company’s results of operations. The primary factor in the increase is the impact of lower available interest deductions in certain foreign jurisdictions due to legislative thin capitalization constraints, typically based on profitability. In the current quarter the effective tax rate was reduced 0.8% by favorable discrete items, primarily ~~attributable~~excess tax benefits on stock-based compensation and deferred tax adjustments as a result of statutory tax rate changes. Net discrete items in the prior year quarter added 0.1% to the effective tax rate. Ongoing uncertainties due to the impact of the COVID-19 pandemic on the Company’s operations for the remainder of 2020 may result in volatile effective tax rates driven generally by the level of profitability and changes in the mix of earnings across the Company’s jurisdictions.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was enacted in the U.S. to provide economic relief to individuals and businesses facing economic hardship as a ~~favorable discrete item~~result of the COVID-19 pandemic. Similar legislation was enacted in many of the Company’s international jurisdictions. Tax measures in these legislative actions did not have a material impact on the Company’s results of operations for the three months ended March 31, 2020. As a result of those initiatives, the Company plans to defer the timing of certain income, indirect and payroll tax payments in various jurisdictions, which we currently estimate will result in the deferral of approximately $3$60 million ~~for the six months ended June 30, 2018, for excess~~of 2020 tax benefits from stock-based payments; there was an immaterial amount for the six months ended June 30, 2019. The year over year change for this discrete item increased the effective tax rate by 0.7% comparedpayments to ~~the prior year period, while the remaining discrete items increased the effective tax rate by an immaterial amount compared to the prior year period.~~2021 and later.

Note ~~16.~~14. Segment and Geographic Information

We have ~~four~~4 operating segments: Wholesale – North America, Europe, Specialty and Self Service. Our Wholesale – North America and Self Service operating segments are aggregated into ~~one~~1 reportable segment, North America, because they possess similar economic characteristics and have common products and services, customers, and methods of distribution. Our reportable segments are organized based on a combination of geographic areas served and type of product lines offered. The reportable segments are managed separately as each business serves different customers (i.e. geographic in the case of North America and Europe and product type in the case of Specialty) and is affected by different economic conditions. Therefore, we present ~~three~~3 reportable segments: North America, Europe and Specialty.

The following tables present our financial performance by reportable segment for the periods indicated (in thousands):

North America Europe Specialty Eliminations Consolidated
Three Months Ended June 30, 2019
Revenue:
Third Party $ 1,321,670

$ 1,516,240

$ 410,263
$ —
$ 3,248,173
Intersegment 96
—
1,373
(1,469 ) —
Total segment revenue $ 1,321,766

$ 1,516,240

$ 411,636

$ (1,469 ) $ 3,248,173
Segment EBITDA $ 190,048

$ 116,281

$ 52,367
$ —
$ 358,696
Depreciation and amortization ⁽¹⁾
22,425
46,774
6,955
—
76,154
Three Months Ended June 30, 2018
Revenue:
Third Party $ 1,334,965
$ 1,284,153
$ 411,633
$ —
$ 3,030,751
Intersegment 201
—
1,240
(1,441 ) —
Total segment revenue $ 1,335,166
$ 1,284,153
$ 412,873
$ (1,441 ) $ 3,030,751
Segment EBITDA $ 175,010
$ 110,893
$ 56,068
$ —
$ 341,971
Depreciation and amortization ⁽¹⁾
21,606
39,801
7,031
—
68,438


	North America		Europe		Specialty		Eliminations			Consolidated		North America		Europe		Specialty		Eliminations			Consolidated
Six Months Ended June 30, 2019
Three Months Ended March 31, 2020
Revenue:
Third Party	$	2,623,876	$	2,961,781	$	762,819	$	—		$	6,348,476	$	1,289,935	$	1,363,594	$	347,406	$	—		$	3,000,935
Intersegment	199		—		2,554		(2,753		)	—		260		—		1,176		(1,436		)	—
Total segment revenue	$	2,624,075	$	2,961,781	$	765,373	$	(2,753	)	$	6,348,476	$	1,290,195	$	1,363,594	$	348,582	$	(1,436	)	$	3,000,935
Segment EBITDA	$	366,684	$	221,579	$	90,326	$	—		$	678,589	$	211,438	$	78,262	$	32,232	$	—		$	321,932
Depreciation and amortization ⁽¹⁾	44,664		93,785		13,912		—			152,361		23,148		41,095		7,136		—			71,379
Six Months Ended June 30, 2018
Three Months Ended March 31, 2019
Revenue:
Third Party	$	2,664,625	$	2,324,583	$	762,307	$	—		$	5,751,515	$	1,302,206	$	1,445,541	$	352,556	$	—		$	3,100,303
Intersegment	384		—		2,358		(2,742		)	—		103		—		1,181		(1,284		)	—
Total segment revenue	$	2,665,009	$	2,324,583	$	764,665	$	(2,742	)	$	5,751,515	$	1,302,309	$	1,445,541	$	353,737	$	(1,284	)	$	3,100,303
Segment EBITDA	$	352,723	$	186,427	$	98,037	$	—		$	637,187	$	176,636	$	105,298	$	37,959	$	—		$	319,893
Depreciation and amortization ⁽¹⁾	42,834		72,558		14,112		—			129,504		22,239		47,011		6,957		—			76,207

~~(1) Amounts presented include depreciation and amortization expense recorded within cost of goods sold.~~


(1)	Amounts presented include depreciation and amortization expense recorded within cost of goods sold.

The key measure of segment profit or loss reviewed by our chief operating decision maker, who is our Chief Executive Officer, is Segment EBITDA. 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. 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, less net income (loss) attributable to continuing and discontinued noncontrolling interest, excluding discontinued operations and discontinued noncontrolling interest, depreciation, amortization, interest (which includes gains and losses on debt extinguishment) and income tax expense.

The table below provides a reconciliation of Net Income to EBITDA and Segment EBITDA (in thousands):


	Three Months Ended					Six Months Ended					Three Months Ended
	June 30,					June 30,					March 31,
	2019			2018		2019			2018		2020			2019
Net income	$	152,105		$	157,866	$	251,168		$	310,629	$	145,979		$	99,063
Less: net income attributable to continuing noncontrolling interest	1,352			859		2,367			662		740			1,015
Less: net income attributable to discontinued noncontrolling interest	192			—		192			—		103			—
Net income attributable to LKQ stockholders	150,561			157,007		248,609			309,967		145,136			98,048
Subtract:
Net income from discontinued operations	398			—		398			—
Net loss from discontinued operations											(915		)	—
Net income attributable to discontinued noncontrolling interest	(192		)	—		(192		)	—		(103		)	—
Net income from continuing operations attributable to LKQ stockholders	150,355			157,007		248,403			309,967		146,154			98,048
Add:
Depreciation and amortization	70,834			63,163		141,836			119,621		65,495			71,002
Depreciation and amortization - cost of goods sold	5,320			5,275		10,525			9,883		5,085			5,205
Depreciation and amortization - restructuring expenses ⁽²⁾											799			—
Interest expense, net of interest income	35,884			38,272		71,973			66,787		25,931			36,089
Loss on debt extinguishment											12,751			—
Provision for income taxes	55,825			60,775		107,375			110,359		60,411			51,550
EBITDA	318,218			324,492		580,112			616,617		316,626			261,894
Subtract:
Equity in earnings (losses) of unconsolidated subsidiaries ⁽¹⁾	1,572			546		(37,977		)	1,958		516			(39,549		)
Gains on bargain purchase	—			328		—			328
Add:
Restructuring and acquisition related expenses ⁽²⁾	8,377			15,878		11,684			19,932		6,171			3,307
Inventory step-up adjustment - acquisition related	—			—		—			403
Impairment of net assets held for sale ^{(3) (4)}	33,497			2,438		48,520			2,438
Restructuring expenses - cost of goods sold											(4		)	—
(Gain on disposal of business) and impairment of net assets held for sale ⁽³⁾											(249		)	15,023
Change in fair value of contingent consideration liabilities	176			37		296			83		(96		)	120
Segment EBITDA	$	358,696		$	341,971	$	678,589		$	637,187	$	321,932		$	319,893


(1)	Refer to "Investments in Unconsolidated Subsidiaries" in Note 4,3, "Financial Statement Information," for further information.


(2)	The sum of these two amounts represents the total amount that is reported in Restructuring and acquisition related expenses in our Unaudited Condensed Consolidated Statements of Income. Refer to Note 6,5, "Restructuring and Acquisition Related Expenses," for further information.

~~(3) Refer to "Net Assets Held for Sale" in Note 4, "Financial Statement Information," for further information.~~

~~(4) In 2018, amounts were recorded in Other (income) expense, net in our Unaudited Condensed Consolidated Statements of Income.~~


(3)	Refer to "Net Assets Held for Sale" in Note 3, "Financial Statement Information," for further information.

The following table presents capital expenditures by reportable segment (in thousands):


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
	2019		2018		2019		2018		2020		2019
Capital Expenditures
North America	$	23,169	$	29,206	$	54,403	$	58,868	$	29,321	$	31,234
Europe	21,840		16,863		41,417		45,678		13,048		19,577
Specialty	3,243		7,163		5,448		10,875		2,169		2,205
Total capital expenditures	$	48,252	$	53,232	$	101,268	$	115,421	$	44,538	$	53,016

3228

The following table presents assets by reportable segment (in thousands):


	June 30,		December 31,		March 31,		December 31,
	2019		2018		2020		2019
Receivables, net
North America	$	423,626	$	411,818	$	395,890	$	419,452
Europe	725,834		649,174		657,954		636,216
Specialty	136,342		93,091		114,782		75,464
Total receivables, net	1,285,802		1,154,083		1,168,626		1,131,132
Inventories
North America	996,548		1,076,306		991,753		991,062
Europe	1,326,836		1,410,264		1,318,033		1,401,801
Specialty	326,754		349,505		408,844		379,914
Total inventories	2,650,138		2,836,075		2,718,630		2,772,777
Property, plant and equipment, net
North America	577,799		570,508		605,299		610,573
Europe	543,772		562,600		513,582		538,951
Specialty	85,119		87,054		83,448		84,876
Total property, plant and equipment, net	1,206,690		1,220,162		1,202,329		1,234,400
Operating lease assets, net ⁽¹⁾
North America	781,119		—		758,400		768,164
Europe	431,288		—		428,414		457,035
Specialty	82,134		—		82,466		83,312
Total operating lease assets, net	1,294,541		—		1,269,280		1,308,511
Equity method investments
North America	16,882		16,404		19,141		17,624
Europe⁽²⁾⁽¹⁾	116,272		162,765		126,718		121,619
Total equity method investments	133,154		179,169		145,859		139,243
Other unallocated assets	6,133,911		6,003,913		5,849,346		6,193,893
Total assets	$	12,704,236	$	11,393,402	$	12,354,070	$	12,779,956


(1)	Refer to ~~Note 13, "Leases," for further information.~~


~~(2)~~	~~Refer to~~ "Investments in Unconsolidated Subsidiaries" in Note 4,3, "Financial Statement Information," for further information.

We report net receivables; inventories; net property, plant and equipment; net operating lease assets; and equity method investments by segment as that information is used by the chief operating decision maker in assessing segment performance. These assets provide a measure for the operating capital employed in each segment. Unallocated assets include cash and cash equivalents, prepaid and other current and noncurrent assets, goodwill and other intangibles.

Our largest countries of operation are the U.S., followed by the U.K. and Germany. Additional European operations are located in the Netherlands, Italy, Czech Republic, Belgium, Poland, Slovakia, Austria, and other European countries. Our operations in other countries include wholesale operations in Canada, ~~engine~~ remanufacturing ~~and bumper refurbishing~~ operations in Mexico, an aftermarket parts freight consolidation warehouse in Taiwan, and administrative support functions in India. Our net sales are attributed to geographic area based on the location of the selling operation.

3329

The following table sets forth our revenue by geographic area (in thousands):


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
	2019		2018		2019		2018		2020		2019
Revenue
United States	$	1,613,417	$	1,621,343	$	3,155,443	$	3,181,370	$	1,533,945	$	1,542,026
United Kingdom	409,765		454,689		822,578		885,681		390,619		412,813
Germany	415,947		148,147		802,412		148,950		374,552		386,465
Other countries	809,044		806,572		1,568,043		1,535,514		701,819		758,999
Total revenue	$	3,248,173	$	3,030,751	$	6,348,476	$	5,751,515	$	3,000,935	$	3,100,303

The following table sets forth our tangible long-lived assets by geographic area (in thousands):

June 30, December 31,
2019 2018
Long-lived assets⁽¹⁾

United States $ 1,445,337
$ 620,125
Germany 306,861
217,476
United Kingdom 325,417
165,145
Other countries 423,616
217,416
Total long-lived assets $ 2,501,231
$ 1,220,162


~~(1)~~	The increase in long-lived assets is primarily related to the net operating lease assets added as a result of the adoption of the new lease accounting standard. Refer to Note 13, "Leases," for further information.

~~Note 17. Condensed Consolidating Financial Information~~

LKQ Corporation (the "Parent") issued, and the Guarantors have fully and unconditionally guaranteed, jointly and severally, the U.S. Notes (2023) due on May 15, 2023. A Guarantor's guarantee will be unconditionally and automatically released and discharged upon the occurrence of any of the following events: (i) a transfer (including as a result of consolidation or merger) by the Guarantor to any person that is not a Guarantor of all or substantially all assets and properties of such Guarantor, provided the Guarantor is also released from its obligations with respect to indebtedness under the Credit Agreement or other indebtedness of ours, which obligation gave rise to the guarantee of the U.S. Notes (2023); (ii) a transfer (including as a result of consolidation or merger) to any person that is not a Guarantor of the equity interests of a Guarantor or issuance by a Guarantor of its equity interests such that the Guarantor ceases to be a subsidiary, as defined in the U.S. Notes (2023) Indenture, provided the Guarantor is also released from its obligations with respect to indebtedness under the Credit Agreement or other indebtedness of ours, which obligation gave rise to the guarantee of the U.S. Notes (2023); (iii) the release of the Guarantor from its obligations with respect to indebtedness under the Credit Agreement or other indebtedness of ours, which obligation gave rise to the guarantee of the U.S. Notes (2023); and (iv) upon legal defeasance, covenant defeasance or satisfaction and discharge of the U.S. Notes (2023) Indenture, as defined in the U.S. Notes (2023) Indenture.

Presented below are the unaudited condensed consolidating financial statements of the Parent, the Guarantors, the non-guarantor subsidiaries (the "Non-Guarantors"), and the elimination entries necessary to present our financial statements on a consolidated basis as required by Rule 3-10 of Regulation S-X of the Securities Exchange Act of 1934 resulting from the guarantees of the U.S. Notes (2023). Investments in consolidated subsidiaries have been presented under the equity method of accounting. The principal elimination entries eliminate investments in subsidiaries, intercompany balances, and intercompany revenue and expenses. The unaudited condensed consolidating financial statements below have been prepared from our financial information on the same basis of accounting as the unaudited condensed consolidated financial statements, and may not necessarily be indicative of the financial position, results of operations or cash flows had the Parent, Guarantors and Non-Guarantors operated as independent entities.

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidating Statements of Income
(In thousands)
For the Three Months Ended June 30, 2019
Parent Guarantors Non-Guarantors Eliminations Consolidated
Revenue $ —
$ 1,629,925
$ 1,656,317
$ (38,069 ) $ 3,248,173
Cost of goods sold —
974,156
1,064,899
(38,069 ) 2,000,986
Gross margin —

655,769

591,418

—

1,247,187
Selling, general and administrative expenses 12,691
426,886
458,791
—
898,368
Restructuring and acquisition related expenses —
4,031
4,346
—
8,377
Impairment of net assets held for sale —
33,233
264
—
33,497
Depreciation and amortization 38
25,176
45,620
—
70,834
Operating (loss) income (12,729 )
166,443

82,397

—

236,111
Other expense (income):
Interest expense, net of interest income 12,786
217
22,881
—
35,884
Intercompany interest (income) expense, net

(14,763 ) 8,471
6,292
—
—
Other income, net (4 ) (4,342 ) (1,387 ) —
(5,733 )
Total other (income) expense, net (1,981 )
4,346

27,786

—

30,151
(Loss) income before (benefit) provision for income taxes (10,748 )
162,097

54,611

—
205,960
(Benefit) provision for income taxes (2,992 ) 43,118
15,699
—
55,825
Equity in (losses) earnings of unconsolidated subsidiaries —
(669 ) 2,241
—
1,572
Equity in earnings (losses) of subsidiaries 157,919
(600 ) —
(157,319 ) —
Income from continuing operations 150,163
117,710
41,153
(157,319 ) 151,707
Net income from discontinued operations 398
—
398
(398 ) 398
Net income 150,561

117,710

41,551

(157,717 ) 152,105
Less: net income attributable to continuing noncontrolling interest —
—
1,352
—
1,352
Less: net income attributable to discontinued noncontrolling interest —
—
192
—
192
Net income attributable to LKQ stockholders $ 150,561
$ 117,710
$ 40,007
$ (157,717 ) $ 150,561

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidating Statements of Income
(In thousands)
For the Three Months Ended June 30, 2018
Parent Guarantors Non-Guarantors Eliminations Consolidated
Revenue $ —
$ 1,640,396
$ 1,426,650
$ (36,295 ) $ 3,030,751
Cost of goods sold —
988,671
916,496
(36,295 ) 1,868,872
Gross margin —

651,725

510,154

—
1,161,879
Selling, general and administrative expenses 9,683
430,693
385,668
—
826,044
Restructuring and acquisition related expenses —
—
15,878
—
15,878
Depreciation and amortization 21
24,526
38,616
—
63,163
Operating (loss) income (9,704 )
196,506

69,992

—
256,794
Other expense (income):
Interest expense, net of interest income 17,805
(113 ) 20,580
—
38,272
Intercompany interest (income) expense, net (15,406 ) 9,865
5,541
—
—
Other expense (income), net 117

(4,397 )
4,707

—
427
Total other expense, net 2,516
5,355
30,828

—
38,699
(Loss) income before (benefit) provision for income taxes (12,220 ) 191,151
39,164
—
218,095
(Benefit) provision for income taxes (3,744 ) 53,543
10,976
—
60,775
Equity in earnings of unconsolidated subsidiaries —
—
546
—
546
Equity in earnings of subsidiaries 165,483

4,451

—

(169,934 ) —
Net income 157,007
142,059
28,734
(169,934 ) 157,866
Less: net income attributable to continuing noncontrolling interest —
—
859
—
859
Net income attributable to LKQ stockholders $ 157,007
$ 142,059
$ 27,875
$ (169,934 ) $ 157,007



	March 31,		December 31,
	2020		2019
Long-lived assets
United States	$	1,456,104	$	1,467,701
Germany	335,771		340,995
United Kingdom	300,143		330,113
Other countries	379,591		404,102
Total long-lived assets	$	2,471,609	$	2,542,911

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidating Statements of Income
(In thousands)
For the Six Months Ended June 30, 2019
Parent Guarantors Non-Guarantors Eliminations Consolidated
Revenue $ —
$ 3,180,605
$ 3,243,194
$ (75,323 ) $ 6,348,476
Cost of goods sold —
1,895,645
2,072,703
(75,323 ) 3,893,025
Gross margin —
1,284,960
1,170,491
—
2,455,451
Selling, general and administrative expenses 21,729
859,273
913,898
—
1,794,900
Restructuring and acquisition related expenses —
4,637
7,047
—
11,684
Impairment of net assets held for sale —
41,694
6,826
—
48,520
Depreciation and amortization 92
50,249
91,495
—
141,836
Operating (loss) income (21,821 ) 329,107
151,225
—
458,511
Other expense (income):
Interest expense, net of interest income 26,622
(119 ) 45,470
—
71,973
Intercompany interest (income) expense, net

(29,849 ) 17,660
12,189
—
—
Other expense (income), net 15
(12,173 ) 2,574
—
(9,584 )
Total other (income) expense, net (3,212 ) 5,368
60,233
—
62,389
(Loss) income before (benefit) provision for income taxes (18,609 ) 323,739
90,992
—
396,122
(Benefit) provision for income taxes (5,038 ) 86,421
25,992
—
107,375
Equity in earnings (losses) of unconsolidated subsidiaries —
478
(38,455 ) —
(37,977 )
Equity in earnings of subsidiaries 261,782
9,112
—
(270,894 ) —
Income from continuing operations 248,211
246,908
26,545
(270,894 ) 250,770
Net income from discontinued operations 398
—
398
(398 ) 398
Net income 248,609
246,908
26,943
(271,292 ) 251,168
Less: net income attributable to continuing noncontrolling interest —
—
2,367
—
2,367
Less: net income attributable to discontinued noncontrolling interest —
—
192
—
192
Net income attributable to LKQ stockholders $ 248,609
$ 246,908
$ 24,384
$ (271,292 ) $ 248,609

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidating Statements of Income
(In thousands)
For the Six Months Ended June 30, 2018
Parent Guarantors Non-Guarantors Eliminations Consolidated
Revenue $ —
$ 3,217,991
$ 2,606,892
$ (73,368 ) $ 5,751,515
Cost of goods sold —
1,934,586
1,674,447
(73,368 ) 3,535,665
Gross margin —
1,283,405
932,445
—
2,215,850
Selling, general and administrative expenses 18,813
857,490
716,632
—
1,592,935
Restructuring and acquisition related expenses —
330
19,602
—
19,932
Depreciation and amortization 50
48,864
70,707
—
119,621
Operating (loss) income (18,863 ) 376,721
125,504
—
483,362
Other expense (income): —
Interest expense, net of interest income 35,813
99
30,875
—
66,787
Intercompany interest (income) expense, net (30,806 ) 19,545
11,261
—
—
Other (income) expense, net (898 ) (10,279 ) 8,722
—
(2,455 )
Total other expense, net 4,109
9,365
50,858
—
64,332
(Loss) income before (benefit) provision for income taxes (22,972 ) 367,356
74,646
—
419,030
(Benefit) provision for income taxes (7,648 ) 99,420
18,587
—
110,359
Equity in earnings of unconsolidated subsidiaries —
—
1,958
—
1,958
Equity in earnings of subsidiaries 325,291
9,561
—
(334,852 ) —
Net income 309,967
277,497
58,017
(334,852 ) 310,629
Less: net income attributable to continuing noncontrolling interest —
—
662
—
662
Net income attributable to LKQ stockholders $ 309,967
$ 277,497
$ 57,355
$ (334,852 ) $ 309,967

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidating Statements of Comprehensive Income
(In thousands)
For the Three Months Ended June 30, 2019
Parent Guarantors Non-Guarantors Eliminations Consolidated
Net income $ 150,561
$ 117,710
$ 41,551
$ (157,717 ) $ 152,105
Less: net income attributable to continuing noncontrolling interest —
—
1,352
—
1,352
Less: net income attributable to discontinued noncontrolling interest —
—
192
—
192
Net income attributable to LKQ stockholders 150,561
117,710
40,007
(157,717 ) 150,561

Other comprehensive income (loss):
Foreign currency translation, net of tax 5,602
2,342
5,086
(7,428 ) 5,602
Net change in unrealized gains/losses on cash flow hedges, net of tax (5,650 ) —
—
—
(5,650 )
Net change in unrealized gains/losses on pension plans, net of tax 28
(10 ) 38
(28 ) 28
Net change in other comprehensive income from unconsolidated subsidiaries 2,321
—
2,321
(2,321 ) 2,321
Other comprehensive income 2,301
2,332
7,445
(9,777 ) 2,301

Comprehensive income 152,862
120,042
48,996
(167,494 ) 154,406
Less: comprehensive income attributable to continuing noncontrolling interest —
—
1,352
—
1,352
Less: comprehensive income attributable to discontinued noncontrolling interest —

—
192
—
192
Comprehensive income attributable to LKQ stockholders $ 152,862
$ 120,042
$ 47,452
$ (167,494 ) $ 152,862

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidating Statements of Comprehensive Income
(In thousands)
For the Three Months Ended June 30, 2018
Parent Guarantors Non-Guarantors Eliminations Consolidated
Net income $ 157,007
$ 142,059
$ 28,734
$ (169,934 ) $ 157,866
Less: net income attributable to continuing noncontrolling interest —
—
859
—
859
Net income attributable to LKQ stockholders 157,007
142,059
27,875
(169,934 ) 157,007

Other comprehensive (loss) income:
Foreign currency translation, net of tax (105,164 ) (2,303 ) (106,610 ) 108,913
(105,164 )
Net change in unrealized gains/losses on cash flow hedges, net of tax 2,406
—
—
—
2,406
Net change in unrealized gains/losses on pension plans, net of tax (807 ) (864 ) 57
807
(807 )
Net change in other comprehensive income from unconsolidated subsidiaries 2,122
—
2,122
(2,122 ) 2,122
Other comprehensive loss (101,443 ) (3,167 ) (104,431 ) 107,598
(101,443 )

Comprehensive income (loss) 55,564
138,892
(75,697 ) (62,336 ) 56,423
Less: comprehensive income attributable to continuing noncontrolling interest —
—
859
—
859
Comprehensive income (loss) attributable to LKQ stockholders $ 55,564
$ 138,892
$ (76,556 ) $ (62,336 ) $ 55,564

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidating Statements of Comprehensive Income
(In thousands)
For the Six Months Ended June 30, 2019
Parent Guarantors Non-Guarantors Eliminations Consolidated
Net income $ 248,609
$ 246,908
$ 26,943
$ (271,292 ) $ 251,168
Less: net income attributable to continuing noncontrolling interest —
—
2,367
—
2,367
Less: net income attributable to discontinued noncontrolling interest —
—
192
—
192
Net income attributable to LKQ stockholders 248,609
246,908
24,384
(271,292 ) 248,609

Other comprehensive (loss) income:
Foreign currency translation, net of tax (4,293 ) 4,536
(5,380 ) 844
(4,293 )
Net change in unrealized gains/losses on cash flow hedges, net of tax (8,387 ) —
—
—
(8,387 )
Net change in unrealized gains/losses on pension plans, net of tax 219
(14 ) 233
(219 ) 219
Net change in other comprehensive loss from unconsolidated subsidiaries (1,142 ) —
(1,142 ) 1,142
(1,142 )
Other comprehensive (loss) income (13,603 ) 4,522
(6,289 ) 1,767
(13,603 )

Comprehensive income 235,006
251,430
20,654
(269,525 ) 237,565
Less: comprehensive income attributable to continuing noncontrolling interest —
—
2,367
—
2,367
Less: comprehensive income attributable to discontinued noncontrolling interest —
—
192
—
192
Comprehensive income attributable to LKQ stockholders $ 235,006
$ 251,430
$ 18,095
$ (269,525 ) $ 235,006

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidating Statements of Comprehensive Income
(In thousands)
For the Six Months Ended June 30, 2018
Parent Guarantors Non-Guarantors Eliminations Consolidated
Net income $ 309,967
$ 277,497
$ 58,017
$ (334,852 ) $ 310,629
Less: net income attributable to continuing noncontrolling interest —
—
662
—
662
Net income attributable to LKQ stockholders 309,967
277,497
57,355
(334,852 ) 309,967

Other comprehensive (loss) income:
Foreign currency translation, net of tax (56,679 ) (4,486 ) (57,555 ) 62,041
(56,679 )
Net change in unrealized gains/losses on cash flow hedges, net of tax 5,660
—
—
—
5,660
Net change in unrealized gains/losses on pension plans, net of tax (1,428 ) (1,485 ) 57
1,428
(1,428 )
Net change in other comprehensive income from unconsolidated subsidiaries 1,517
—
1,517
(1,517 ) 1,517
Other comprehensive loss (50,930 ) (5,971 ) (55,981 ) 61,952
(50,930 )

Comprehensive income 259,037
271,526
2,036
(272,900 ) 259,699
Less: comprehensive income attributable to continuing noncontrolling interest —
—
662
—
662
Comprehensive income attributable to LKQ stockholders $ 259,037
$ 271,526
$ 1,374
$ (272,900 ) $ 259,037

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidating Balance Sheets
(In thousands)
June 30, 2019
Parent Guarantors Non-Guarantors Eliminations Consolidated
Assets
Current assets:
Cash and cash equivalents $ 59,244
$ 42,654
$ 274,069
$ —
$ 375,967
Receivables, net 562
362,043
923,197
—
1,285,802
Intercompany receivables, net 8,116
—
28,079
(36,195 ) —
Inventories —
1,239,102
1,411,036
—
2,650,138
Prepaid expenses and other current assets 13,563
134,382
171,997
—
319,942
Total current assets 81,485
1,778,181
2,808,378
(36,195 ) 4,631,849
Property, plant and equipment, net 1,067
605,005
600,618
—
1,206,690
Operating lease assets, net 3,806
818,994
471,741
—
1,294,541
Intangible assets:
Goodwill —
2,004,702
2,405,223
—
4,409,925
Other intangibles, net 208
257,517
622,398
—
880,123
Investment in subsidiaries 5,323,410
125,028
—
(5,448,438 ) —
Intercompany notes receivable 1,167,714
117,962
—
(1,285,676 ) —
Equity method investments —
16,882
116,272
—
133,154
Other noncurrent assets 64,026
40,146
43,782
—
147,954
Total assets $ 6,641,716
$ 5,764,417
$ 7,068,412
$ (6,770,309 ) $ 12,704,236
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,120
$ 386,282
$ 643,550
$ —
$ 1,031,952
Intercompany payables, net —
28,079
8,116
(36,195 ) —
Accrued expenses:
Accrued payroll-related liabilities 6,405
60,151
105,094
—
171,650
Refund liability —
51,875
54,737
—
106,612
Other accrued expenses 5,167
113,832
190,735
—
309,734
Other current liabilities 282
27,576
106,997
—
134,855
Current portion of operating lease liabilities 210
119,744
99,548
—
219,502
Current portion of long-term obligations 14,510
3,311
114,820
—
132,641
Total current liabilities 28,694
790,850
1,323,597
(36,195 ) 2,106,946
Long-term operating lease liabilities, excluding current portion 4,000
727,838
390,438
—
1,122,276
Long-term obligations, excluding current portion 1,636,839
16,242
2,266,821
—
3,919,902
Intercompany notes payable —
557,324
728,352
(1,285,676 ) —
Deferred income taxes 5,432
135,283
162,464
—
303,179
Other noncurrent liabilities 126,262
79,658
136,265
—
342,185
Stockholders' equity:
Total Company stockholders' equity 4,840,489
3,457,222
1,991,216
(5,448,438 ) 4,840,489
Noncontrolling interest —
—
69,259
—
69,259
Total stockholders' equity 4,840,489
3,457,222
2,060,475
(5,448,438 ) 4,909,748
Total liabilities and stockholders' equity $ 6,641,716
$ 5,764,417
$ 7,068,412
$ (6,770,309 ) $ 12,704,236

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidating Balance Sheets
(In thousands)
December 31, 2018
Parent Guarantors Non-Guarantors Eliminations Consolidated
Assets
Current assets:
Cash and cash equivalents $ 25,633
$ 29,285
$ 276,843
$ —
$ 331,761
Receivables, net 310
316,726
837,047
—
1,154,083
Intercompany receivables, net 6,978
—
12,880
(19,858 ) —
Inventories —
1,343,612
1,492,463
—
2,836,075
Prepaid expenses and other current assets 18,611
99,356
81,063
—
199,030
Total current assets 51,532
1,788,979
2,700,296
(19,858 ) 4,520,949
Property, plant and equipment, net 1,547
600,054
618,561
—
1,220,162
Intangible assets:
Goodwill —
1,973,364
2,408,094
—
4,381,458
Other intangibles, net 260
272,451
656,041
—
928,752
Investment in subsidiaries 5,224,006
111,826
—
(5,335,832 ) —
Intercompany notes receivable 1,220,582
10,515
—
(1,231,097 ) —
Equity method investments —
16,404
162,765
—
179,169
Other noncurrent assets 70,283
40,548
52,081
—
162,912
Total assets $ 6,568,210
$ 4,814,141
$ 6,597,838
$ (6,586,787 ) $ 11,393,402
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,454
$ 343,116
$ 596,828
$ —
$ 942,398
Intercompany payables, net —
12,880
6,978
(19,858 ) —
Accrued expenses:
Accrued payroll-related liabilities 6,652
70,267
95,086
—
172,005
Refund liability —
50,899
53,686
—
104,585
Other accrued expenses 5,454
105,672
177,299
—
288,425
Other current liabilities 283
17,860
42,966
—
61,109
Current portion of long-term obligations 8,459
2,932
110,435
—
121,826
Total current liabilities 23,302
603,626
1,083,278
(19,858 ) 1,690,348
Long-term obligations, excluding current portion 1,628,677
13,532
2,546,465
—
4,188,674
Intercompany notes payable —
597,283
633,814
(1,231,097 ) —
Deferred income taxes 8,045
135,355
168,034
—
311,434
Other noncurrent liabilities 125,888
99,147
139,159
—
364,194
Stockholders' equity:
Total Company stockholders' equity 4,782,298
3,365,198
1,970,634
(5,335,832 ) 4,782,298
Noncontrolling interest —
—
56,454
—
56,454
Total stockholders' equity 4,782,298
3,365,198
2,027,088
(5,335,832 ) 4,838,752
Total liabilities and stockholders' equity $ 6,568,210
$ 4,814,141
$ 6,597,838
$ (6,586,787 ) $ 11,393,402

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidating Statements of Cash Flows
(In thousands)
For the Six Months Ended June 30, 2019
Parent Guarantors
Non-Guarantors⁽¹⁾
Eliminations Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities $ 221,964
$ 95,544
$ 329,868
$ (8,972 ) $ 638,404
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (465 ) (54,687 ) (46,116 ) —
(101,268 )
Investment and intercompany note activity with subsidiaries 10,199
—
—
(10,199 ) —
Acquisitions, net of cash acquired —
(10,118 ) (4,649 ) —
(14,767 )
Receipts of deferred purchase price on receivables under factoring arrangements —
186,479
—
(186,479 ) —
Other investing activities, net —
(495 ) (240 ) —
(735 )
Net cash provided by (used in) investing activities 9,734
121,179
(51,005 ) (196,678 ) (116,770 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt issuance costs (35 ) —
—
—
(35 )
Purchase of treasury stock (190,762 ) —
—
—
(190,762 )
Borrowings under revolving credit facilities 196,000
—
116,880
—
312,880
Repayments under revolving credit facilities (198,931 ) —
(272,508 ) —
(471,439 )
Repayments under term loans (4,375 ) —
—
—
(4,375 )
Borrowings under receivables securitization facility —
—
36,600
—
36,600
Repayments under receivables securitization facility —
—
(146,600 ) —
(146,600 )
(Repayments) borrowings of other debt, net (272 ) 176
(8,271 ) —
(8,367 )
Other financing activities, net 288
—
(178 ) —
110
Investment and intercompany note activity with parent —
(8,928 ) (1,271 ) 10,199
—
Dividends —
(195,451 ) —
195,451
—
Net cash used in financing activities (198,087 ) (204,203 ) (275,348 ) 205,650
(471,988 )
Effect of exchange rate changes on cash, cash equivalents and restricted cash —
849
(951 ) —
(102 )
Net increase in cash, cash equivalents and restricted cash 33,611
13,369
2,564
—
49,544
Cash, cash equivalents and restricted cash of continuing operations, beginning of period 25,633
29,285
282,332
—
337,250
Cash, cash equivalents and restricted cash of continuing and discontinued operations, end of period 59,244
42,654
284,896
—
386,794
Less: Cash and cash equivalents of discontinued operations, end of period —
—
5,372
—
5,372
Cash, cash equivalents and restricted cash, end of period $ 59,244
$ 42,654
$ 279,524
$ —
$ 381,422

⁽¹⁾~~Restricted cash is only included in the unaudited condensed consolidating financial statements of the Non-Guarantors.~~

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidating Statements of Cash Flows
(In thousands)
For the Six Months Ended June 30, 2018
Parent Guarantors Non-Guarantors Eliminations Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities $ 149,253
$ 115,247
$ 68,285
$ (4,116 ) $ 328,669
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (260 ) (62,744 ) (52,417 ) —
(115,421 )
Investment and intercompany note activity with subsidiaries 48,339
—
—
(48,339 ) —
Acquisitions, net of cash acquired —
(2,527 ) (1,133,443 ) —
(1,135,970 )
Receipts of deferred purchase price on receivables under factoring arrangements ⁽¹⁾
—
143,983
—
(143,983 ) —
Other investing activities, net 887
423
864
—
2,174
Net cash provided by (used in) investing activities 48,966
79,135
(1,184,996 ) (192,322 ) (1,249,217 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt issuance costs (682 ) —
(16,077 ) —
(16,759 )
Proceeds from issuance of Euro Notes (2026/28) —
—
1,232,100
—
1,232,100
Borrowings under revolving credit facilities 264,000
—
349,658
—
613,658
Repayments under revolving credit facilities (451,931 ) —
(314,666 ) —
(766,597 )
Repayments under term loans (8,810 ) —
—
—
(8,810 )
(Repayments) borrowings of other debt, net (385 ) 289
(2,348 ) —
(2,444 )
Other financing activities, net (912 ) —
4,107
—
3,195
Investment and intercompany note activity with parent —
(42,596 ) (5,743 ) 48,339
—
Dividends —
(148,099 ) —
148,099
—
Net cash (used in) provided by financing activities (198,720 ) (190,406 ) 1,247,031
196,438
1,054,343
Effect of exchange rate changes on cash and cash equivalents —
(805 ) (67,554 ) —
(68,359 )
Net (decrease) increase in cash and cash equivalents (501 ) 3,171
62,766
—
65,436
Cash and cash equivalents, beginning of period 34,360
35,131
210,275
—
279,766
Cash and cash equivalents, end of period $ 33,859
$ 38,302
$ 273,041
$ —
$ 345,202


~~(1)~~	~~The amount was updated to reflect daily transactions compared to the monthly transactions as was initially calculated in 2018.~~

~~Forward-Looking Statements~~

Statements and information in this Quarterly Report on Form 10-Q 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. Words such as “may,” “will,” “plan,” “should,” “expect,” “anticipate,” “believe,” “if,” “estimate,” “intend,” “project” and similar words or expressions are used to identify these forward-looking statements. These statements are subject to a number of risks, uncertainties, assumptions and other factors that may cause our actual results, performance or achievements to be materially different. 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 results to differ from the results predicted or implied by our forward-looking statements include 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 2018 Form 10-K and in our subsequent Quarterly Reports on Form 10-Q (including this Quarterly Report).

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Forward-looking statements include, but are not limited to, statements regarding our outlook, guidance, expectations, beliefs, hopes, intentions and strategies. Words such as “may,” “will,” “plan,” “should,” “expect,” “anticipate,” “believe,” “if,” “estimate,” “intend,” “project” and similar words or expressions are used to identify these forward-looking statements. These statements are subject to a number of risks, uncertainties, assumptions and other factors, including the unfavorable effects of COVID-19, that may cause our actual results, performance or achievements to be materially different. 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 results to differ from the results predicted or implied by our forward-looking statements include 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 2019 Form 10-K and in our subsequent Quarterly Reports on Form 10-Q (including this Quarterly Report).

Overview

We are a global distributor of vehicle products, including replacement parts, components and systems used in the repair and maintenance of vehicles, and specialty products and accessories to improve the performance, functionality and appearance of vehicles.

Buyers of vehicle replacement products have the option to purchase from primarily five sources: new products produced by OEMs; new products produced by companies other than the OEMs, which are referred to as aftermarket products; recycled products obtained from salvage and total loss vehicles; recycled products that have been refurbished; and recycled products that have been remanufactured. We distribute a variety of products to collision and mechanical repair shops, including aftermarket collision and mechanical products; recycled collision and mechanical products; refurbished collision products such

as wheels, bumper covers and lights; and remanufactured engines and transmissions. Collectively, we refer to the four sources that are not new OEM products as alternative parts.

We are a leading provider of alternative vehicle collision replacement products and alternative vehicle mechanical replacement products, with our sales, processing, and distribution facilities reaching most major markets in the United States and Canada. We are also a leading provider of alternative vehicle replacement and maintenance products in the United Kingdom, Germany, the Benelux region (Belgium, Netherlands, and Luxembourg), Italy, Czech Republic, Poland, Slovakia, Austria, and various other European countries. In addition to our wholesale operations, we operate self service retail facilities across the U.S. that sell recycled automotive products from end-of-life-vehicles. We are also a leading distributor of specialty vehicle aftermarket equipment and accessories reaching most major markets in the U.S. and Canada.

We are organized into four operating segments: Wholesale – North America; Europe; Specialty and Self Service. We aggregate our Wholesale – North America and Self Service operating segments into one reportable segment, North America, resulting in three reportable segments: North America, Europe and Specialty.

Our operating results have fluctuated on a quarterly and annual basis in the past and can be expected to continue to fluctuate in the future as a result of a number of factors, some of which are beyond our control. Please refer to the factors referred to in Forward-Looking Statements above. Due to these factors and others, which may be unknown to us at this time, our operating results in future periods can be expected to fluctuate. Accordingly, our historical results of operations may not be indicative of future performance.

Acquisitions and Investments

Since our inception in 1998, we have pursued a growth strategy through both organic growth and acquisitions. We have pursued acquisitions that we believe will help drive profitability, cash flow and stockholder value. We target companies that are market leaders, will expand our geographic presence and will enhance our ability to provide a wide array of vehicle products to our customers through our distribution network.

~~During the six months ended June 30, 2019, we completed five acquisitions, including one wholesale business and one self service business in North America, and three wholesale businesses in Europe.~~

On May 30, 2018, we acquired Stahlgruber, a leading European wholesale distributor of aftermarket spare parts for passenger cars, tools, capital equipment and accessories with operations in Germany, Austria, Italy, Slovenia, and Croatia with further sales to Switzerland. This acquisition expanded LKQ's geographic presence in continental Europe and serves as an additional strategic hub for our European operations. In addition, this acquisition allows for continued improvement in procurement, logistics and infrastructure optimization.

~~In addition to the Stahlgruber acquisition, during the year ended December 31, 2018, we acquired various smaller businesses across our North America and Europe segments.~~

On December 1, 2016, we acquired a 26.5% equity interest in Mekonomen, the leading independent car parts and service chain in the Nordic region of Europe, offering a wide range of quality products including spare parts and accessories for cars, and workshop services for consumers and businesses. We acquired additional shares in the fourth quarter of 2018, increasing our equity interest to 26.6%. We are accounting for our interest in Mekonomen using the equity method of accounting, as our investment gives us the ability to exercise significant influence, but not control, over the investee.

See ~~Note 2, "Business Combinations," and~~ "Investments in Unconsolidated Subsidiaries" in Note 4,3, "Financial Statement Information," to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to our acquisitions and investments.

Sources of Revenue

We report our revenue in two categories: (i) parts and services and (ii) other. Our parts revenue is generated from the sale of vehicle products, including replacement parts, components and systems used in the repair and maintenance of vehicles, and specialty products and accessories to improve the performance, functionality and appearance of vehicles. Our service revenue is generated primarily from the sale of service-type warranties, fees for admission to our self service yards, and diagnostic and repair ~~services, and processing fees related to the secure disposal of vehicles.~~services. Revenue from other sources includes scrap sales, bulk sales to mechanical manufacturers (including cores) and sales of aluminum ingots and sows from our furnace operations. Other revenue will vary from period to period based on fluctuations in commodity prices and the volume of materials sold. See Note 5,4, "Revenue Recognition" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to our sources of revenue.

Critical Accounting Policies and Estimates

On January 1, 2019, we adopted ASU 2016-02, which represents FASB ASC 842. We adopted the new guidance using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application with no restatement of comparative periods. The most significant impact was the recognition of lease assets and liabilities for operating leases. Refer to “Adoption of New Lease Standard” in Note 4, "Financial Statement Information” and Note 13, "Leases” to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

The discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Our ~~2018~~2019 Form 10-K includes a summary of the critical accounting policies and estimates we believe are the most important to aid in understanding our financial results. Other than ~~the adoption of ASU 2016-02~~as described ~~above,~~below, there have been no changes to those critical accounting policies or estimates that have had a material impact on our reported amounts of assets, liabilities, revenue or expenses during the ~~six~~three months ended ~~June 30,~~March 31, 2020.

COVID-19 Projections and Assumptions

We prepared forecasts of future revenues, profits and cash flows to use in multiple analyses, including the interim goodwill impairment test, other impairment tests of long-lived assets, assessments of the recoverability of inventory, determination of customer and supplier rebate balances, calculation of the annual effective tax rate and evaluations of the realizability of deferred tax assets. Our projections assumed that the COVID-19 impact would be severe, with revenue down in the second quarter of 2020 compared to our prior forecasts, but temporary, as revenue would improve gradually in the second half of 2020. We expect that cost mitigation action will dampen the negative impact of the projected revenue decline but still result in a significant reduction in profitability in the second quarter of 2020. We expect profitability to improve with the projected recovery of revenue in the second half of 2020. We forecasted cash flow benefits from reductions to working capital,

deferral of tax payments and suspension of capital projects. We expect to generate positive free cash flows in 2020 but at a lower level than 2019.

Because the economic impact of the pandemic is dependent on variables that are difficult to project and in many cases are outside of our control, it is possible that the estimates underlying our analyses may change materially in future periods.

Goodwill and Indefinite-Lived Intangibles Impairment

We are required to test goodwill and indefinite-lived intangible assets for impairment at least annually and between annual tests whenever events indicate that an impairment may exist. When testing goodwill for impairment, we are required to evaluate events and circumstances that may affect the performance of the reporting unit and the extent to which the events and circumstances may impact the future cash flows of the reporting unit to determine whether the fair value of the assets exceeds the carrying value. Developing the estimated future cash flows and fair value of the reporting unit requires management's judgment in projecting revenues and profits, allocation of shared corporate costs, tax rates, capital expenditures, working capital requirements, discount rates and market multiples. Many of the factors used in assessing fair value are outside the control of management, and it is reasonably likely that assumptions and estimates can change in future periods. If these assumptions or estimates change in the future, we may be required to record impairment charges for these assets. In response to changes in industry and market conditions, we may be required to strategically realign our resources and consider restructuring, disposing of, or otherwise exiting businesses, which could result in an impairment of goodwill.

Our goodwill impairment assessment is performed at the reporting unit level. A reporting unit is an operating segment, or a business one level below an operating segment (the "component" level), for which discrete financial information is prepared and regularly reviewed by segment management. However, components are aggregated as a single reporting unit if they have similar economic characteristics. For the purpose of aggregating our components into reporting units, we review the long-term performance of Segment EBITDA. Additionally, we review qualitative factors such as type or class of customers, nature of products, distribution methods, inventory procurement methods, level of integration, and interdependency of processes across components. Our assessment of the aggregation includes both qualitative and quantitative factors and is based on the facts and circumstances specific to the components.

We have four operating segments: Wholesale – North America, Europe, Specialty and Self Service. Each of these operating segments consists of multiple components that have discrete financial information available that is reviewed by segment management on a regular basis. We have evaluated these components and concluded that the components that compose each of the Wholesale – North America, Europe, Specialty, and Self Service operating segments are economically similar and thus were aggregated into those four separate reporting units for our interim goodwill impairment test in the first quarter of 2020.

Our goodwill would be considered impaired if the carrying value of a reporting unit exceeded its estimated fair value. The fair value estimates are established using weightings of the results of a discounted cash flow methodology and a comparative market multiples approach. We believe that using two methods to determine fair value limits the chances of an unrepresentative valuation. Discount rates, growth rates and cash flow projections are the assumptions that are most sensitive and susceptible to change as they require significant management judgment. Impairment may result from, among other things, deterioration in the performance of our reporting units' businesses, increases in our cost of capital, adverse market conditions, and adverse changes in applicable laws or regulations, including modifications that restrict the activities of our reporting units' businesses. To assess the reasonableness of the fair value estimates, we compare the sum of the reporting units’ fair values to the Company’s market capitalization and calculate an implied control premium, which is then evaluated against recent market transactions in our industry, or in the case of our interim test against transactions during the 2008-2009 financial crisis. If we were required to recognize goodwill impairments, we would report those impairment losses as part of our operating results.

We determined no impairments existed on any of our four reporting units when we performed our interim goodwill impairment testing in the first quarter of 2020, as each of those reporting units had a fair value estimate that exceeded the carrying value by at least 12%, the level at which our Europe reporting unit exceeded its carrying value. See Note 3, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to our interim goodwill impairment test.

We review indefinite-lived intangible assets for impairment annually or on an interim basis if events or changes in circumstances indicate that the carrying value may not be recoverable. We determined that the effect of the uncertainty relating to the COVID-19 pandemic on our forecasted results represented a change in circumstances indicating that the carrying value of the Warn trademark, which is our only indefinite-lived intangible asset, may not be recoverable. As a result, we performed a quantitative impairment test in the first quarter as of March 31, 2020 using the relief-from-royalty method and determined no impairment existed, as the trademark had a fair value estimate which exceeded the carrying value by approximately 9%.

Recently Issued Accounting Pronouncements

See "Recent Accounting Pronouncements" in Note 4,3, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information related to new accounting standards.

Financial Information by Geographic Area

See Note ~~16,~~14, "Segment and Geographic Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information related to our revenue and long-lived assets by geographic region.

1 LKQ Europe Program

We have undertaken the 1 LKQ Europe program to create structural centralization and standardization of key functions to facilitate the operation of the Europe segment as a single business. Under this multi-year program, we have recognized to date and expect to continue to recognize the following:

Restructuring expenses - Non-recurring costs resulting directly from the implementation of the 1 LKQ Europe program from which the business will derive no ongoing benefit. See Note 5, “Restructuring and Acquisition Related Expenses” to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details.

Transformation expenses - Period costs incurred to execute the 1 LKQ Europe program that are expected to contribute to ongoing benefits to the business (e.g. non-capitalizable implementation costs related to a common ERP system). These expenses are recorded in Selling, general and administrative expenses.

Transformation capital expenditures - Capitalizable costs for long-lived assets, such as software and facilities, that directly relate to the execution of the 1 LKQ Europe program.

Costs related to the 1 LKQ Europe program incurred to date are reflected in Selling, general and administrative expenses and Purchases of property, plant and equipment in our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. We continue to expect that future costs of the program, reflecting all three categories noted above, will range between $100 million and $125 million for the period from 2020 through 2021 with an additional $80 million to $100 million between 2022 and the projected completion date of the project in 2024. Beginning the second half of March, management delayed certain projects under the 1 LKQ Europe program to reduce expenses and preserve capital in response to the COVID-19 pandemic. We expect to restart these projects once the impacts on our business from COVID-19 have stabilized, although the initiatives and projects included in the program, and our estimates of the related expenditures and timelines, may change in the future depending on the duration and severity of COVID-19 impacts on our business. We may also identify additional initiatives and projects under the 1 LKQ Europe program in future periods that may result in additional expenditures, although we are currently unable to estimate the range of charges for such potential future initiatives and projects.

COVID-19 Impact on Our Operations

In late February, the Italian government began placing restrictions on activity as a result of the COVID-19 outbreak. Sales volumes fell as fewer cars were on the road and less maintenance activity was performed. While our Italian operation is an important part of our European business, it represented approximately 10% of the segment’s revenue in 2019, and thus the disruption did not have a material impact on the Company. By mid-March, the COVID-19 impact began spreading across the rest of the geographies where we operate at a very rapid pace. Governments adopted aggressive restrictions on the operation of non-essential businesses and personal movement, which reduced miles driven and collisions. While our businesses have been deemed essential in most jurisdictions in which we operate, the change in behavior driven by the COVID-19 restrictions has negatively impacted our sales volume. Our revenue in each segment declined by significant percentages in the second half of March 2020 and into April. We expect that the volume will remain at these lower levels at least in the short term.

Recognizing the demand changes, we took action in all of our business units to reduce our cost structure. These actions included, but were not limited to, employee furloughs and reductions in force, decreases in hours and overtime, lowering compensation for salaried employees, a hiring freeze, elimination of temporary labor, route consolidation, deferral of projects, and temporary branch closures. We intend to pursue certain financial assistance and relief programs that may be available to us from governments in Europe, primarily in the form of grants to offset personnel expenses; at this time, we are unable to estimate the amount of assistance we may qualify for and receive. We also emphasized the preservation of capital with a deferral of growth driven capital projects, reductions in inventory orders, more active monitoring of customer receivables and terms, income tax deferrals, and a halt to our share buyback program. However, these actions lagged the revenue impact, which meant they did not significantly offset the negative impact of COVID-19 on our first quarter profitability.

4833

Key Performance Indicators

We believe that organic revenue growth, Segment EBITDA and free cash flow are key performance indicators for our business. Segment EBITDA is our key measure of segment profit or loss reviewed by our chief operating decision maker. Free cash flow is a financial measure that is not prepared in accordance with U.S. generally accepted accounting principles (“non-GAAP”).

•

Organic revenue growth - We define organic revenue growth as total revenue growth from continuing operations excluding the effects of acquisitions (i.e. revenue generated from the date of acquisition to the first anniversary of that acquisition) and foreign currency movements (i.e. impact of translating revenue at prior period exchange rates). Organic revenue growth includes incremental sales from both existing and new (i.e. opened within the last twelve months) locations and is derived from expanding business with existing customers, securing new customers and offering additional products and services. We believe that organic revenue growth is a key performance indicator as this statistic measures our ability to serve and grow our customer base successfully.


•	Segment EBITDA - Refer to Note 14, "Segment and Geographic Information,” in Part I, Item 1 of this Form 10-Q for a description of the calculation of Segment EBITDA. We believe that Segment EBITDA provides useful information to evaluate our segment profitability by focusing on the indicators of ongoing operational results.

•

Free Cash Flow - We calculate free cash flow as net cash provided by operating activities, less purchases of property, plant and equipment. 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, to make strategic acquisitions and to repurchase stock.

These three key performance indicators are used as targets to determine incentive compensation at various levels of the organization, including senior management. By using these performance measures, we attempt to motivate a balanced approach to the business that rewards growth, profitability and cash flow generation in a manner that enhances our long-term prospects.

Results of Operations—Consolidated

The following table sets forth statements of income data as a percentage of total revenue for the periods indicated:


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
	2019		2018		2019		2018		2020		2019
Revenue	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold	61.6	%	61.7	%	61.3	%	61.5	%	59.6	%	61.0	%
Gross margin	38.4	%	38.3	%	38.7	%	38.5	%	40.4	%	39.0	%
Selling, general and administrative expenses	27.7	%	27.3	%	28.3	%	27.7	%	30.0	%	28.9	%
Restructuring and acquisition related expenses	0.3	%	0.5	%	0.2	%	0.3	%	0.2	%	0.1	%
Impairment of net assets held for sale	1.0	%	—		0.8	%	—
(Gain on disposal of business) and impairment of net assets held for sale									(0.0	)%	0.5	%
Depreciation and amortization	2.2	%	2.1	%	2.2	%	2.1	%	2.2	%	2.3	%
Operating income	7.3	%	8.5	%	7.2	%	8.4	%	8.1	%	7.2	%
Other expense, net	0.9	%	1.3	%	1.0	%	1.1	%	1.2	%	1.0	%
Income from continuing operations before provision for income taxes	6.3	%	7.2	%	6.2	%	7.3	%	6.9	%	6.1	%
Provision for income taxes	1.7	%	2.0	%	1.7	%	1.9	%	2.0	%	1.7	%
Equity in earnings (losses) of unconsolidated subsidiaries	0.0	%	0.0	%	(0.6	)%	0.0	%	0.0	%	(1.3	)%
Income from continuing operations	4.7	%	5.2	%	4.0	%	5.4	%	4.9	%	3.2	%
Net income from discontinued operations	0.0	%	—		0.0	%	—
Net loss from discontinued operations									(0.0	)%	—
Net income	4.7	%	5.2	%	4.0	%	5.4	%	4.9	%	3.2	%
Less: net income attributable to continuing noncontrolling interest	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%	0.0	%
Less: net income attributable to discontinued noncontrolling interest	0.0	%	—		0.0	%	—		0.0	%	—
Net income attributable to LKQ stockholders	4.6	%	5.2	%	3.9	%	5.4	%	4.8	%	3.2	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.	Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.								Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

Three Months Ended ~~June 30, 2019~~ March 31, 2020 Compared to Three Months Ended ~~June 30, 2018~~ March 31, 2019

Revenue. The following table summarizes the changes in revenue by category (in thousands):


	Three Months Ended												Three Months Ended
	June 30,				Percentage Change in Revenue								March 31,				Percentage Change in Revenue
	2019		2018		Organic		Acquisition		Foreign Exchange		Total Change		2020		2019		Organic		Acquisition and Divestiture		Foreign Exchange		Total Change
Parts & services revenue	$	3,086,697	$	2,857,051	(2.1	)%	12.6	%	(2.5	)%	8.0	%	$	2,812,717	$	2,949,095	(3.5	)%	0.1	%	(1.3	)%	(4.6	)%
Other revenue	161,476		173,700		(8.4	)%	1.6	%	(0.2	)%	(7.0	)%	188,218		151,208		23.2	%	1.4	%	(0.1	)%	24.5	%
Total revenue	$	3,248,173	$	3,030,751	(2.4	)%	12.0	%	(2.4	)%	7.2	%	$	3,000,935	$	3,100,303	(2.2	)%	0.2	%	(1.2	)%	(3.2	)%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

The ~~change~~decline in parts and services revenue of ~~8.0%~~4.6% represented ~~an increase~~decreases in segment revenue of ~~18.0%~~5.8% in Europe, ~~and a decrease~~4.2% in ~~segment revenue of 0.3% in Specialty;~~ North America ~~segment~~and 1.5% in Specialty. Organic parts and services revenue ~~was flat compared~~declined by 3.5%, which included a 1.2% positive effect from one additional selling day in the first quarter of 2020, resulting in a per day organic decline of 4.7%. The decline in the first quarter of 2020 is primarily related to the ~~prior year second quarter.~~impact of COVID-19 in March 2020 (refer to the "COVID-19 Impact on Our Operations" section above for further details). The ~~decrease~~increase in other revenue of ~~7.0%~~24.5% was primarily driven by a ~~$15~~$35 million organic ~~decrease,~~increase, largely attributable to our North America segment. Refer to the discussion of our segment results of operations for factors contributing to the change in revenue by segment during the ~~second~~first quarter of ~~2019~~2020 compared to the prior year period.

Cost of Goods Sold. Cost of goods sold decreased to ~~61.6%~~59.6% of revenue in the three months ended ~~June 30, 2019~~March 31, 2020 from ~~61.7%~~61.0% of revenue in the three months ended ~~June 30, 2018.~~March 31, 2019. Cost of goods sold decreased ~~0.5%~~1.4% and 0.2% as a result of our North America ~~segment, partially offset by a 0.3% increase attributable to mix. The mix impact is a result of our Stahlgruber acquisition, as the lower margin~~and Europe ~~segment makes up a larger percentage of the consolidated results and has a dilutive effect on the gross margin percentage.~~segments, respectively. Refer to the discussion of our segment results of operations for factors contributing to the changes in cost of

goods sold as a percentage of revenue by segment for the three months ended ~~June 30, 2019~~March 31, 2020 compared to the three months ended ~~June 30, 2018.~~March 31, 2019.

Selling, General and Administrative Expenses. Our selling, general and administrative ("SG&A") expenses as a percentage of revenue increased to ~~27.7%~~30.0% in the three months ended ~~June 30, 2019~~March 31, 2020 from ~~27.3%~~28.9% in the three months ended ~~June 30, 2018,~~March 31, 2019, primarily as a result of a ~~0.6%~~1.0% increase from our Europe segment. Refer to the discussion of our segment results of operations for factors contributing to the changes in SG&A expenses as a percentage of revenue by segment for the three months ended ~~June 30, 2019~~March 31, 2020 compared to the three months ended ~~June 30, 2018.~~March 31, 2019.

Restructuring and Acquisition Related Expenses. The following table summarizes restructuring and acquisition related expenses for the periods indicated (in thousands):


	Three Months Ended									Three Months Ended
	June 30,									March 31,
	2019			2018			Change			2020			2019			Change
Restructuring expenses	$	8,212	⁽¹⁾	$	2,095	⁽²⁾	$	6,117		$	6,946	⁽¹⁾	$	2,986	⁽²⁾	$	3,960
Acquisition related expenses	165			13,783		⁽³⁾	(13,618		)	24			321			(297		)
Total restructuring and acquisition related expenses	$	8,377		$	15,878		$	(7,501	)	$	6,970		$	3,307		$	3,663


(1)	Restructuring expenses for the three months ended ~~June 30, 2019~~March 31, 2020 primarily consisted of $5(i) $3 million related to our 2019 global restructuring program, (ii) $2 million related to our 2020 global restructuring program and $3(iii) $2 million related to ~~acquisition~~ integration ~~costs.~~costs from acquisitions.


(2)	Restructuring expenses for the three months ended ~~June 30, 2018~~March 31, 2019 primarily consisted of $2 million related to the integration of our acquisition of Andrew Page.


~~(3)~~	~~Acquisition related expenses for the three months ended June 30, 2018 included $13 million of costs for our acquisition of Stahlgruber.~~

See Note 6,5, "Restructuring and Acquisition Related Expenses" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on our restructuring and integration plans.

(Gain on Disposal of Business) and Impairment of Net Assets Held for Sale. We recorded a ~~$33~~$15 million impairment charge on net assets held for sale infor the ~~second quarter of~~three months ended March 31, 2019. See "Net Assets Held for Sale" in Note 4,3, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on the impairment charge. The impairment charge is excluded from our calculation of Segment EBITDA. See Note 16, "Segment and Geographic Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for our reconciliation of Net Income to Segment EBITDA.

Depreciation and Amortization. The following table summarizes depreciation and amortization for the periods indicated (in thousands):


	Three Months Ended							Three Months Ended
	June 30,							March 31, 2020
	2019		2018		Change			2020		2019		Change
Depreciation	$	36,551	$	33,536	$	3,015	⁽¹⁾	$	37,204	$	35,821	$	1,383		⁽¹⁾
Amortization	34,283		29,627		4,656		⁽²⁾	28,291		35,181		(6,890		)	⁽²⁾
Total depreciation and amortization	$	70,834	$	63,163	$	7,671		$	65,495	$	71,002	$	(5,507	)


(1)	Depreciation expense increased by $2$1 million, primarily due to capital expenditures in our ~~Europe segment, principally due to incremental expense from our acquisition of Stahlgruber on May 30, 2018.~~North America segment.

(2)

~~Amortization~~The decrease in amortization expense ~~increased~~ primarily ~~due~~reflected (i) decreases of $4 million and $1 million related to ~~an incremental $7 million from~~ our ~~acquisition~~acquisitions of Stahlgruber ~~partially offset by~~and Rhiag, respectively, which had lower amortization expense during the three months ended March 31, 2020 compared to the prior year period as a result of the accelerated amortization on the customer relationship intangible assets, and (ii) a decrease of $2$1 million related to the impact of foreign currency translation, principally due to a decrease in the euro exchange rate during the three months ended ~~June 30, 2019~~March 31, 2020 compared to the prior year period.

Other Expense, Net. The following table summarizes the components of the change in other expense, net (in thousands):

Other expense, net for the three months ended June 30, 2018 $ 38,699

Increase (decrease) due to:
Interest expense, net of interest income (2,388 )
⁽¹⁾
Other expense (income), net (6,160 )
⁽²⁾
Net increase (8,548 )
Other expense, net for the three months ended June 30, 2019 $ 30,151



Other expense, net for the three months ended March 31, 2019	$	32,238
(Decrease) increase due to:
Interest expense, net of interest income	(10,158		)	⁽¹⁾
Loss on debt extinguishment	12,751			⁽²⁾
Other income, net	229			⁽³⁾
Net increase	2,822
Other expense, net for the three months ended March 31, 2020	$	35,060

(1)

The decrease in interest is primarily related to (i) a $2$7 million decrease resulting from lower outstanding debt during the three months ended March 31, 2020 compared to the prior year period, (ii) a $3 million decrease from lower interest rates on borrowings under our senior secured credit agreement compared to the prior year period, and (iii) a $1 million decrease from foreign currency translation, primarily related to a decrease in the euro exchange rate during the three months ended March 31, 2020 compared to the prior year period.


(2)	In January 2020, we recorded a loss on debt extinguishment of $13 million related to the redemption of the U.S. Notes (2023) due to the early-redemption premium and the write-off of the unamortized debt issuance costs.

(3)

The ~~increase~~decrease in other income primarily consisted of (i) ~~a $4~~$3 million ~~favorable variance~~of proceeds received in ~~foreign currency gains and losses, and (ii) a $2 million non-recurring impairment loss recorded during~~ the ~~second~~first quarter of ~~2018~~2019 related to an insurance settlement in our ~~Andrew Page operation.~~North America segment, which did not recur in the first quarter of 2020, partially offset by (ii) several individually immaterial factors that increased Other income, net by $3 million in the aggregate in 2020.

Provision for Income Taxes. Our effective income tax rate for the three months ended ~~June 30, 2019~~March 31, 2020 was ~~27.1%~~29.2%, compared to ~~27.9%~~27.1% for the comparable prior year period. The ~~decrease was primarily~~increase is attributable to ~~the impact of an unfavorable discrete item of approximately $2 million for the three months ended June 30, 2018, which adjusted the 2018 projected~~a higher expected annual effective tax rate in 2020 as a result of the ~~Stahlgruber acquisition, due to~~estimated unfavorable impact of the ~~higher effective tax rate~~COVID-19 pandemic on the Company’s results of operations. The primary factor in ~~Germany and~~the increase is the impact of ~~suspended~~lower available interest deductions in certain foreign jurisdictions due to legislative thin capitalization ~~constraints. The remaining discrete items impacted~~constraints, typically based on profitability. In the current quarter the effective tax rate was reduced 0.8% by ~~an immaterial amount compared to~~favorable discrete items, primarily excess tax benefits on stock-based compensation and deferred tax adjustments as a result of statutory tax rate changes. Net discrete items in the prior year ~~period.~~quarter added 0.1% to the effective tax rate. Ongoing uncertainties due to the impact of the COVID-19 pandemic on the Company’s operations for the remainder of 2020 may result in volatile effective tax rates driven generally by the level of profitability and changes in the mix of earnings across the Company’s jurisdictions.

Equity in Earnings (Losses) of Unconsolidated Subsidiaries. Equity in earnings (losses) of unconsolidated subsidiaries for the three months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ primarily related to our investment in Mekonomen. During the three months ended March 31, 2019, we recorded a $40 million other-than-temporary impairment related to our investment in Mekonomen. See "Investments in Unconsolidated Subsidiaries" in Note 3, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on the impairment charge.

Foreign Currency Impact. We translate our statements of income at the average exchange rates in effect for the period. Relative to the rates used during the three months ended ~~June 30, 2018,~~March 31, 2019, the euro, Czech koruna, ~~euro,~~and pound sterling ~~and Canadian dollar~~ rates used to translate the ~~2019~~2020 statements of income decreased by ~~6.2%~~2.9%, ~~5.8%~~2.5%, ~~5.5%~~ and ~~3.5%~~1.7%, respectively. The negative translation effect of the change in foreign currencies against the U.S. dollar netted against the positive impact of realized and unrealized currency gains and losses for the three months ended ~~June 30, 2019,~~March 31, 2020, resulting in ~~a negative effect of approximately half a penny~~an immaterial impact on diluted earnings per share relative to the prior year period.

Net (Loss) Income Attributable to Continuing and Discontinued Noncontrolling Interest. Net (loss) income attributable to continuing noncontrolling interest for the three months ended ~~June 30, 2019 increased~~March 31, 2020 decreased an immaterial amount compared to the three months ended ~~June 30, 2018 primarily due to the noncontrolling interest of subsidiaries acquired in connection with the Stahlgruber acquisition.~~March 31, 2019. Net income attributable to discontinued noncontrolling interest was immaterial for the three months ended ~~June 30, 2019~~March 31, 2020 and related to the Stahlgruber Czech Republic wholesale business. See Note ~~3, "Discontinued Operations" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on this business.~~

~~Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018~~

~~Revenue.~~ ~~The following table summarizes the changes in revenue by category (in thousands):~~

Six Months Ended
June 30, Percentage Change in Revenue
2019 2018 Organic Acquisition Foreign Exchange Total Change
Parts & services revenue $ 6,035,792
$ 5,417,356
(1.1 )% 15.3 % (2.8 )% 11.4 %
Other revenue 312,684
334,159
(7.5 )% 1.3 % (0.3 )% (6.4 )%
Total revenue $ 6,348,476
$ 5,751,515
(1.4 )% 14.5 % (2.7 )% 10.4 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

The change in parts and services revenue of 11.4% represented increases in segment revenue of 27.4% in Europe and 0.1% in Specialty and a decrease in segment revenue of 0.7% in North America. On average, there was one fewer selling day in the first half of 2019 compared to the prior year period, which negatively impacted the reported organic parts and services revenue decline for the first half of 2019 by 1.0%. The decrease in other revenue of 6.4% was primarily driven by a $25 million organic decrease, largely attributable to our North America segment. Refer to the discussion of our segment results of operations for factors contributing to the change in revenue by segment during the first quarter of 2019 compared to the prior year period.

~~Cost of Goods Sold~~. Cost of goods sold decreased to 61.3% of revenue in the six months ended June 30, 2019 from 61.5% of revenue in the comparable prior year period. Cost of goods sold decreased 0.5% and 0.2% as a result of our North America and Europe segments, respectively, partially offset by increases of 0.3% and 0.2% attributable to mix and our Specialty segment, respectively. The mix impact is a result of our Stahlgruber acquisition, as the lower margin Europe segment makes up a larger percentage of the consolidated results and has a dilutive effect on the gross margin percentage. Refer to the discussion of our segment results of operations for factors contributing to the changes in cost of goods sold as a percentage of revenue by segment for the six months ended June 30, 2019 compared to the six months ended June 30, 2018.

~~Selling, General and Administrative Expenses.~~ Our SG&A expenses as a percentage of revenue increased to 28.3% in the six months ended June 30, 2019 from 27.7% in the six months ended June 30, 2018, primarily as a result of a 0.4% and 0.2% increase from our Europe and North America segments, respectively. Refer to the discussion of our segment results of operations for factors contributing to the changes in SG&A expenses as a percentage of revenue by segment for the six months ended June 30, 2019 compared to the six months ended June 30, 2018.

~~Restructuring and Acquisition Related Expenses. The following table summarizes restructuring and acquisition related expenses for the periods indicated (in thousands):~~

Six Months Ended
June 30,
2019 2018 Change
Restructuring expenses $ 11,198
⁽¹⁾
$ 4,132
⁽²⁾
$ 7,066
Acquisition related expenses 486
15,800
⁽³⁾
(15,314 )
Total restructuring and acquisition related expenses $ 11,684
$ 19,932
$ (8,248 )


~~(1)~~	~~Restructuring expenses for the six months ended June 30, 2019 primarily consisted of $5 million related to our 2019 restructuring program and $6 million related to acquisition integration costs.~~


~~(2)~~	~~Restructuring expenses for the six months ended June 30, 2018 primarily related to the integration of our acquisition of Andrew Page.~~


~~(3)~~	~~Acquisition related expenses for the six months ended June 30, 2018 included $15 million of costs for our acquisition of Stahlgruber.~~

See Note 6, "Restructuring and Acquisition Related Expenses" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on our restructuring and integration plans.

~~Impairment of Net Assets Held for Sale.~~ We recorded a $49 million impairment charge on net assets held for sale for the six months ended June 30, 2019. See Note 4, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on the impairment charge. The impairment charge is excluded from our calculation of Segment EBITDA. See Note 16, "Segment and Geographic Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for our reconciliation of Net Income to Segment EBITDA.

~~Depreciation and Amortization. The following table summarizes depreciation and amortization for the periods indicated (in thousands):~~

Six Months Ended
June 30,
2019 2018 Change
Depreciation $ 72,372
$ 65,801
$ 6,571
⁽¹⁾
Amortization 69,464
53,820
15,644
⁽²⁾
Total depreciation and amortization $ 141,836
$ 119,621
$ 22,215

~~(1)~~

Depreciation expense included an incremental $5 million in our Europe segment, principally due to (i) a $6 million increase in depreciation expense from our acquisition of Stahlgruber, partially offset by (ii) a decrease of $2 million related to the impact of foreign currency translation, primarily due to decreases in the euro and pound sterling exchange rates during the six months ended June 30, 2019 compared to the prior year period.


~~(2)~~	The increase in amortization expense primarily reflected an incremental $19 million from our acquisition of Stahlgruber, partially offset by a decrease of $4 million related to the impact of foreign currency translation, principally due to a decrease in the euro exchange rate during the six months ended June 30, 2019 compared to the prior year period.

~~Other Expense, Net.~~ ~~The following table summarizes the components of the change in other expense, net (in thousands):~~

Other expense, net for the six months ended June 30, 2018 $ 64,332

Increase (decrease) due to:
Interest expense, net of interest income 5,186
⁽¹⁾
Other expense (income), net (7,129 )
⁽²⁾
Net decrease (1,943 )
Other expense, net for the six months ended June 30, 2019 $ 62,389

~~(1)~~

Additional interest related to (i) a $10 million increase resulting from higher outstanding debt during the six months ended June 30, 2019 compared to the prior year period (including the borrowings under our Euro Notes (2026/28)), partially offset by (ii) a $4 million decrease from lower interest rates on borrowings under our senior secured credit agreement compared to the prior year period, and (iii) a $2 million decrease from foreign currency translation, primarily related to a decrease in the euro exchange rate during the first six months of 2019 compared to the prior year period.


~~(2)~~	The increase in other income primarily consisted of (i) $3 million of proceeds received in the first quarter of 2019 related to an insurance settlement in our North America segment, (ii) a $2 million non-recurring impairment loss recorded during the second quarter of 2018 related to our Andrew Page operation, and (iii) a $2 million favorable variance in foreign currency gains and losses.

~~Provision for Income Taxes~~. Our effective income tax rate for the six months ended June 30, 2019 was 27.1%, compared to 26.3% for the comparable prior year period. The increase was primarily attributable to the impact of a favorable discrete item of approximately $3 million for the six months ended June 30, 2018, for excess tax benefits from stock-based payments; there was an immaterial amount for the six months ended June 30, 2019. The year over year change for this discrete item increased the effective tax rate by 0.7% compared to the prior year period, while the remaining discrete items increased the effective tax rate by an immaterial amount compared to the prior year period.

~~Equity in Earnings (Losses) of Unconsolidated Subsidiaries.~~ Equity in earnings (losses) of unconsolidated subsidiaries for the six months ended June 30, 2019 primarily related to our investment in Mekonomen. During the first quarter of 2019, we recorded a $40 million other-than-temporary impairment related to our investment in Mekonomen. See Note 4, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on the impairment charge. The impairment charge is excluded from our calculation of Segment EBITDA. See Note 16, "Segment and Geographic Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for our reconciliation of Net Income to Segment EBITDA.

~~Foreign Currency Impact.~~ We translate our statements of income at the average exchange rates in effect for the period. Relative to the rates used during the six months ended June 30, 2019, the Czech koruna, euro, pound sterling and Canadian dollar rates used to translate the 2019 statements of income decreased by 7.4%, 6.7%, 6.0% and 4.2%, respectively. The negative translation effect of the change in foreign currencies against the U.S. dollar and realized and unrealized currency losses for the six months ended June 30, 2019 resulted in a $0.02 negative effect on diluted earnings per share relative to the prior year period.

~~Net Income Attributable to Continuing and Discontinued Noncontrolling Interest.~~ Net income attributable to continuing noncontrolling interest for the six months ended June 30, 2019 increased $2 million compared to the six months ended June 30, 2018 primarily due to the noncontrolling interest of subsidiaries acquired in connection with the Stahlgruber acquisition. Net income attributable to discontinued noncontrolling interest for the six months ended June 30, 2019 related to the Stahlgruber Czech Republic wholesale business. See Note 3,2, "Discontinued Operations" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on this business.

5337

Results of Operations—Segment Reporting

We have four operating segments: Wholesale – North America, Europe, Specialty and Self Service. Our Wholesale – North America and Self Service operating segments are aggregated into one reportable segment, North America, because they possess similar economic characteristics and have common products and services, customers, and methods of distribution. Therefore, we present three reportable segments: North America, Europe and Specialty.

We have presented the growth of our revenue and profitability in our operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our growth and profitability, 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 and Segment EBITDA results are calculated by translating prior year revenue and Segment EBITDA in local currency using the current year's currency conversion rate. This non-GAAP financial measure has important 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-titled measures by other issuers due to potential inconsistencies in the method of calculation and differences due to items subject to interpretation. In addition, not all companies that report revenue or profitability on a constant currency basis 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 table presents our financial performance, including third party revenue, total revenue and Segment EBITDA, by reportable segment for the periods indicated (in thousands):


	Three Months Ended June 30,										Six Months Ended June 30,										Three Months Ended March 31,
	2019			% of Total Segment Revenue		2018			% of Total Segment Revenue		2019			% of Total Segment Revenue		2018			% of Total Segment Revenue		2020			% of Total Segment Revenue		2019			% of Total Segment Revenue
Third Party Revenue
North America	$	1,321,670				$	1,334,965				$	2,623,876				$	2,664,625				$	1,289,935				$	1,302,206
Europe	1,516,240					1,284,153					2,961,781					2,324,583					1,363,594					1,445,541
Specialty	410,263					411,633					762,819					762,307					347,406					352,556
Total third party revenue	$	3,248,173				$	3,030,751				$	6,348,476				$	5,751,515				$	3,000,935				$	3,100,303
Total Revenue
North America	$	1,321,766				$	1,335,166				$	2,624,075				$	2,665,009				$	1,290,195				$	1,302,309
Europe	1,516,240					1,284,153					2,961,781					2,324,583					1,363,594					1,445,541
Specialty	411,636					412,873					765,373					764,665					348,582					353,737
Eliminations	(1,469		)			(1,441		)			(2,753		)			(2,742		)			(1,436		)			(1,284		)
Total revenue	$	3,248,173				$	3,030,751				$	6,348,476				$	5,751,515				$	3,000,935				$	3,100,303
Segment EBITDA
North America	$	190,048		14.4	%	$	175,010		13.1	%	$	366,684		14.0	%	$	352,723		13.2	%	$	211,438		16.4	%	$	176,636		13.6	%
Europe	116,281			7.7	%	110,893			8.6	%	221,579			7.5	%	186,427			8.0	%	78,262			5.7	%	105,298			7.3	%
Specialty	52,367			12.7	%	56,068			13.6	%	90,326			11.8	%	98,037			12.8	%	32,232			9.2	%	37,959			10.7	%

unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a reconciliation of total Segment EBITDA to net income.

Three Months Ended ~~June 30, 2019~~ March 31, 2020 Compared to Three Months Ended ~~June 30, 2018~~ March 31, 2019

North America

Third Party Revenue. The following table summarizes the changes in third party revenue by category in our North America segment (in thousands):


	Three Months Ended June 30,				Percentage Change in Revenue										Three Months Ended March 31,				Percentage Change in Revenue
North America	2019		2018		Organic				Acquisition ⁽³⁾		Foreign Exchange		Total Change		2020		2019		Organic				Acquisition and Divestiture ⁽³⁾		Foreign Exchange		Total Change
Parts & services revenue	$	1,165,482	$	1,165,422	(0.4	)%	⁽¹	⁾	0.6	%	(0.2	)%	0.0	%	$	1,107,342	$	1,155,698	(4.2	)%	⁽¹	⁾	0.1	%	(0.1	)%	(4.2	)%
Other revenue	156,188		169,543		(8.9	)%	⁽²	⁾	1.1	%	(0.1	)%	(7.9	)%	182,593		146,508		23.2	%	⁽²	⁾	1.4	%	(0.0	)%	24.6	%
Total third party revenue	$	1,321,670	$	1,334,965	(1.4	)%			0.7	%	(0.2	)%	(1.0	)%	$	1,289,935	$	1,302,206	(1.1	)%			0.2	%	(0.1	)%	(0.9	)%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1)

Parts and services organic revenue declined ~~0.4%~~despite one more selling day in the ~~second~~first quarter of ~~2019~~2020 compared to the prior year period. ~~This~~On a per day basis, organic revenue declined 5.6%. The organic decline was impacted by ~~(i) lower revenue in our glass and aviation businesses, which had unfavorable effects on organic growth of 0.6% and 0.4%, respectively, and (ii)~~ collision and liability ~~related~~ auto claims being ~~2.6%~~9.9% lower inaccording to data from CCC Information Services, Inc. ("CCC"), primarily due to COVID-19, for the ~~second quarter of 2019~~three months ended March 31, 2020 compared to the prior year period, which adversely impacted volume in ~~our~~ wholesale operations. ~~Additionally, our North America segment generated a 7.4% organic growth rate for~~Prior to the pandemic, parts and services organic revenue in North America was slightly less than the ~~second~~same period in the prior year, declining 1.1% through February, principally due to (i) the termination in the fourth quarter of ~~2018, due~~2019 of an agreement signed in ~~part~~December 2017 for the distribution of batteries which had an unfavorable impact of 0.8% through February 2020 compared to ~~severe~~the prior year period, and, to a lesser extent, (ii) milder winter weather conditions ~~which increased backlog at our customers going into~~compared to the ~~second quarter. Facing a strong comparable period and with less favorable weather conditions in~~prior year period. During the ~~first half~~month of ~~2019, organic~~March 2020, parts and services organic revenue ~~growth was below our historical average.~~declined 13.7% on a per day basis compared to the prior year period primarily due to volume effects caused by the COVID-19 pandemic (collision and liability auto claims were down approximately 20% in March 2020 according to data from CCC).

(2)

The ~~$15~~$34 million year over year organic ~~decrease~~increase in other revenue primarily related to (i) a ~~$20~~$47 million increase in revenue from precious metals (platinum, palladium and rhodium) primarily due to higher prices, partially offset by (ii) a $7 million decrease in revenue from scrap steel and other metals primarily related to lower prices compared to the prior year period, partially offset by increased volumes, ~~and (ii)~~(iii) a $6$3 million decrease in core revenue ~~primarily~~principally related to decreased volumes, ~~partially offset by (iii)~~and (iv) a ~~$10~~$3 million ~~increase in revenue from metals found in catalytic converters (platinum, palladium, and rhodium) primarily~~decrease due to ~~higher~~several individually immaterial factors. We expect other revenue growth to moderate in the second quarter of 2020 as purchasing volumes and throughput in our salvage and self service operations decline as a result of the COVID-19 pandemic. Additionally, prices ~~and,~~of precious metals have decreased in April 2020 due to a ~~lesser extent, increased volumes.~~reduction in new car production.

(3)

Acquisition related growth, net, in the ~~second~~first quarter of ~~2019~~2020 reflected revenue from our acquisition of ~~four~~three wholesale businesses and one self service business since the beginning of the ~~second~~first quarter of ~~2018~~2019 through the one-year anniversary of the ~~acquisitions.~~acquisitions, partially offset by reduced revenue as a result of the disposal of our aviation business in the third quarter of 2019.

Segment EBITDA. Segment EBITDA increased ~~$15~~$35 million, or ~~8.6%~~19.7%, in the ~~second~~first quarter of ~~2019~~2020 with one additional selling day compared to the ~~second quarter of the~~ prior ~~year.~~year period. Sequential ~~decreases~~increases in scrap steel prices in our salvage and self service operations had ~~an unfavorable~~a favorable impact of $2$6 million on North America Segment EBITDA during the three months ended ~~June 30, 2019,~~March 31, 2020, compared to a $4 million ~~positive~~unfavorable impact on the three months ended ~~June 30, 2018.~~March 31, 2019. This ~~unfavorable~~favorable impact for the three months ended ~~June 30, 2019~~March 31, 2020 resulted from the ~~decrease~~increase in scrap steel prices between the date we purchased a vehicle, which influences the price we pay for a vehicle, and the date we scrapped a vehicle, which influences the price we receive for scrapping a vehicle.

~~The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our North America segment:~~

North America Percentage of Total Segment Revenue
Segment EBITDA for the three months ended June 30, 2018 13.1 %
Increase due to:
Change in gross margin 1.0 % (1)
Change in segment operating expenses 0.0 % (2)
Change in other expense, net and net income attributable to continuing noncontrolling interest 0.2 % (3)
Segment EBITDA for the three months ended June 30, 2019 14.4 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.


~~(1)~~	~~The increase in gross margin primarily reflected a favorable impact of 1.2% from our wholesale operations, partially~~

5539

offset by an unfavorable impact of 0.2% from our self service operations. The increase in wholesale gross margin was primarily attributable to ongoing pricing initiatives. The decrease in self service gross margin was primarily attributable to sequential decreases in scrap steel prices as higher cost vehicles, which were purchased in the first quarter of 2019 during a period of higher scrap prices, were scrapped. The unfavorable impact in self service gross margin was partially offset by a nonrecurring benefit of 0.2% due to $3 million of proceeds received in the second quarter of 2019 related to an insurance settlement.

~~(2)~~

Segment operating expenses as a percentage of revenue were flat year over year despite the negative leverage effect resulting from the $13 million year over year decline in other revenue, as incremental scrap revenue does not require additional overhead costs, such as commissions and delivery costs, thus creating a dilutive impact to margin in periods with declining scrap revenue. Lower personnel related expenses, including reductions in workers compensation claims, third party contract labor costs and overtime costs, helped to offset the negative leverage effect. Additionally, facility expenses increased 0.3% principally related to higher expenses in rent related to expansions and renewals. The offsetting decrease was primarily related to lower bad debt expense of 0.2%, principally due to increased collection efforts. In dollar terms, segment operating expenses were down by $5 million relative to the second quarter of 2018.


~~(3)~~	The decrease in other expense, net and net income attributable to continuing noncontrolling interest was primarily due to several individually immaterial factors that had a favorable impact of 0.2% in the aggregate.

~~Europe~~

~~Third Party Revenue. The following table summarizes the changes in third party revenue by category in our Europe segment (in thousands):~~

Three Months Ended June 30, Percentage Change in Revenue
Europe 2019 2018
Organic ⁽¹⁾

Acquisition ⁽²⁾

Foreign Exchange ⁽³⁾
Total Change
Parts & services revenue $ 1,510,952
$ 1,279,996
(4.3 )% 27.7 % (5.3 )% 18.0 %
Other revenue 5,288
4,157
9.6 % 24.6 % (6.9 )% 27.2 %
Total third party revenue $ 1,516,240
$ 1,284,153
(4.2 )% 27.6 % (5.3 )% 18.1 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

~~(1)~~

The parts and services organic revenue decline for the quarter was affected by softer economic conditions across the continent. Additionally, we believe the U.K.'s potential exit from the European Union continues to have a negative impact on that market. Warmer weather also negatively impacted some markets. Selling days differ by market, but, on average, we had one fewer selling day in our Europe segment in the second quarter of 2019 than in the prior year period. On a per day basis, organic parts and services revenue declined 2.8%.


~~(2)~~	~~Acquisition related growth for the three months ended June 30, 2019 was $355 million, or 27.6%, primarily from our acquisition of Stahlgruber.~~


~~(3)~~	Compared to the prior year, exchange rates decreased our revenue growth by $69 million, or 5.3%, primarily due to the stronger U.S. dollar against the euro, pound sterling and Czech koruna during the second quarter of 2019 relative to the second quarter of 2018.

~~Segment EBITDA~~. Segment EBITDA increased $5 million, or 4.9%, in the second quarter of 2019 compared to the second quarter of the prior year. Our Europe Segment EBITDA included a negative year over year impact of $6 million related to the translation of local currency results into U.S. dollars at lower exchange rates than those experienced during the second quarter of 2018. On a constant currency basis (i.e. excluding the translation impact), Segment EBITDA increased by $12 million, or 10.4%, compared to the prior year. Refer to the Foreign Currency Impact discussion within the Results of Operations - Consolidated section above for further detail regarding foreign currency impact on our results for the three months ended June 30, 2019.

~~The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Europe segment:~~

Europe Percentage of Total Segment Revenue
Segment EBITDA for the three months ended June 30, 2018 8.6 %
Increase (decrease) due to:
Change in gross margin 0.0 % (1)
Change in segment operating expenses (1.0 )% (2)
Change in other expense, net and net income attributable to continuing noncontrolling interest 0.1 %
Segment EBITDA for the three months ended June 30, 2019 7.7 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.


~~(1)~~	Gross margin was flat year over year primarily due to (i) a 0.5% favorable impact related to an increase in supplier rebates as a result of centralized procurement for our Europe segment, principally driven by our acquisition of Stahlgruber, offset by (ii) unfavorable impacts due to several individually immaterial factors.

~~(2)~~

~~related to the integration of the European businesses, partially offset by (iii) lower bad debt expense of 0.3%, principally due to increased collection efforts.~~

~~Specialty~~

~~Third Party Revenue. The following table summarizes the changes in third party revenue by category in our Specialty segment (in thousands):~~

Three Months Ended June 30, Percentage Change in Revenue
Specialty 2019 2018
Organic ⁽¹⁾
Acquisition Foreign Exchange Total Change
Parts & services revenue $ 410,263
$ 411,633
0.1 % — % (0.4 )% (0.3 )%
Other revenue —
—
— % — % — % — %
Total third party revenue $ 410,263
$ 411,633
0.1 % — % (0.4 )% (0.3 )%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.


~~(1)~~	Organic growth in parts and services revenue was roughly flat compared to the prior year second quarter as a result of modest volume growth in both our automotive and RV businesses in the U.S., partially offset by decreased sales volumes in our Canada operations compared to the prior year period, primarily due to softening economic conditions.

~~Segment EBITDA. Segment EBITDA decreased $4 million, or 6.6%, in the second quarter of 2019 compared to the prior year second quarter.~~

~~The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Specialty segment:~~

Specialty Percentage of Total Segment Revenue
Segment EBITDA for the three months ended June 30, 2018 13.6 %
(Decrease) increase due to:
Change in gross margin (1.3 )% (1)
Change in segment operating expenses 0.4 % (2)
Segment EBITDA for the three months ended June 30, 2019 12.7 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

~~(1)~~

The decrease in gross margin reflects unfavorable impacts of (i) 0.7% due to unfavorable product mix in the second quarter of 2019, and (ii) 0.6% of higher product costs, primarily due to non-recurring benefits from supplier discounts resulting from strategic purchasing efforts in the fourth quarter of 2017, which had a favorable impact on the second quarter of 2018 as they were recognized over a turn of inventory.

~~(2)~~

The decrease in segment operating expenses reflects favorable impacts of (i) 0.4% in personnel costs primarily due to reduced headcount, and (ii) 0.2% in freight, vehicle and fuel expenses due to a decreased use of third party freight, partially offset by (iii) a 0.2% increase in facility expenses due to higher rent and property taxes as a result of warehouse expansion projects that were completed in the second half of 2018.

~~Six Months Ended June 30, 2019 Compared to Six Months Ended June 30, 2018~~

~~North America~~

~~Third Party Revenue. The following table summarizes the changes in third party revenue by category in our North America segment (in thousands):~~

Six Months Ended June 30, Percentage Change in Revenue
North America 2019 2018 Organic
Acquisition ⁽³⁾
Foreign Exchange Total Change
Parts & services revenue $ 2,321,180
$ 2,338,007
(0.9 )%
⁽¹
⁾
0.4 % (0.3 )% (0.7 )%
Other revenue 302,696
326,618
(7.8 )%
⁽²
⁾
0.6 % (0.1 )% (7.3 )%
Total third party revenue $ 2,623,876
$ 2,664,625
(1.7 )% 0.5 % (0.3 )% (1.5 )%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

~~(1)~~

Parts and services organic revenue was negatively impacted by one fewer selling day in the first half of 2019 compared to the prior year period. On a per day basis, organic revenue declined 0.1%. This decline was impacted by (i) lower revenue in our glass and aviation businesses, which had unfavorable effects on organic growth of 0.7% and 0.6%, respectively, and (ii) collision and liability related auto claims being 2.6% lower in the first half of 2019, which adversely impacted volume in our wholesale operations. Additionally, our North America segment generated a 7.0% organic growth rate for parts and services revenue in the first half of 2018, due in part to severe winter weather conditions. Facing a strong comparable period and with less favorable weather conditions in the first half of 2019, organic parts and services revenue growth was below our historical average.

~~(2)~~

The $25 million year over year organic decrease in other revenue primarily related to (i) a $33 million decrease in revenue from scrap steel and other metals primarily related to lower prices, partially offset by increased volumes, and (ii) an $8 million decrease in core revenue primarily related to decreased volumes, partially offset by (iii) a $16 million increase in revenue from metals found in catalytic converters (platinum, palladium, and rhodium) primarily due to higher prices, partially offset by decreased volumes.


~~(3)~~	Acquisition related growth in the first half of 2019 reflected revenue from our acquisition of five wholesale businesses and one self service business from the beginning of 2018 through the one-year anniversary of the acquisitions.

~~Segment EBITDA~~. Segment EBITDA increased $14 million, or 4.0%, in the first half of 2019 compared to the prior year period. Sequential decreases in scrap steel prices in our salvage and self service operations had an unfavorable impact of $7 million on North America Segment EBITDA during the first half of 2019, compared to a $17 million positive impact on the first half of 2018. This unfavorable impact resulted from the decrease in scrap steel prices between the date we purchased a vehicle, which influences the price we pay for a vehicle, and the date we scrapped a vehicle, which influences the price we receive for scrapping a vehicle.

The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our North America segment:


North America	Percentage of Total Segment Revenue			Percentage of Total Segment Revenue
Segment EBITDA for the six months ended June 30, 2018	13.2	%
Segment EBITDA for the three months ended March 31, 2019				13.6	%
Increase (decrease) due to:
Change in gross margin	0.9	%	(1)	3.2	%	(1)
Change in segment operating expenses	(0.5	)%	(2)	(0.1	)%	(2)
Change in other expense, net and net income attributable to continuing noncontrolling interest	0.3	%	(3)	(0.3	)%	(3)
Segment EBITDA for the six months ended June 30, 2019	14.0	%
Segment EBITDA for the three months ended March 31, 2020				16.4	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1)

The increase in gross margin primarily reflected a favorable ~~impact~~impacts of ~~1.2%~~2.1% from our wholesale operations, ~~partially offset by an unfavorable impact of 0.3%~~0.9% from ~~our~~ self service ~~operations.~~operations, and 0.2% from the disposal of our aviation business in the third quarter of 2019. The increase in wholesale gross margin was primarily attributable to a positive impact from higher prices of precious metals (platinum, palladium and rhodium) as well as the favorable impact from ongoing ~~pricing initiatives.~~margin improvement initiatives compared to the prior year period. The ~~decrease~~increase in self service gross margin was primarily attributable to higher prices of precious metals and sequential ~~decreases~~increases in scrap steel prices as ~~higher~~lower cost vehicles, which were purchased in the fourth quarter of 2019 during a period of lower scrap prices, were scrapped. Prices for precious metals decreased in April 2020 relative to the first quarter of 2020, and if this trend continues in future months, North America margins will reflect a less favorable margin impact than experienced in the first quarter of 2020.

(2)

The increase in segment operating expenses as a percentage of revenue ~~is primarily related to~~reflects a ~~0.4% increase in facility expenses principally~~net 0.3% negative leverage effect due to ~~higher expenses in rent related to expansions and renewals. The increase in segment operating expenses also reflects the~~(i) an approximate 1.5% negative leverage effect resulting from the $48 million year over year decline in ~~revenue. Having one fewer selling day in~~third party parts and services revenue primarily due to COVID-19, partially offset by (ii) an approximate 1.2% positive leverage effect from the ~~first half of 2019 increased the expense as a percentage of revenue of fixed costs, such as facility rental expenses and personnel salaries. The decline~~increase in other revenue of ~~$24~~$36 million

due to precious metals and scrap pricing. The incremental precious metals and scrap revenue does not require additional overhead costs, such as commissions and delivery costs, compared to the parts and services revenue. The remaining positive offset of 0.2% was primarily related to productivity and rightsizing efforts.

contributed to the negative leverage effect as incremental scrap revenue does not require additional overhead costs, such as commissions and delivery costs, thus creating a dilutive impact to margin in periods with declining scrap revenue. Lower personnel related expenses, including reductions in workers compensation claims, third party contract labor costs and overtime costs, helped to offset the negative leverage effect.


(3)	The ~~decrease~~increase in other expense, net and net income attributable to continuing noncontrolling interest was primarily due to ~~several individually immaterial factors~~nonrecurring proceeds received in the first quarter of 2019 related to an insurance settlement that had a ~~favorable~~negative year over year impact of 0.3% ~~in the aggregate.~~.

Europe

Third Party Revenue. The following table summarizes the changes in third party revenue by category in our Europe segment (in thousands):


	Six Months Ended June 30,				Percentage Change in Revenue								Three Months Ended March 31,				Percentage Change in Revenue
Europe	2019		2018		Organic ⁽¹⁾		Acquisition ⁽²⁾		Foreign Exchange ⁽³⁾		Total Change		2020		2019		Organic ⁽¹⁾		Acquisition and Divestiture		Foreign Exchange ⁽²⁾		Total Change
Parts & services revenue	$	2,951,793	$	2,317,042	(1.8	)%	35.4	%	(6.2	)%	27.4	%	$	1,357,969	$	1,440,841	(3.4	)%	0.1	%	(2.5	)%	(5.8	)%
Other revenue	9,988		7,541		6.6	%	33.8	%	(7.9	)%	32.4	%	5,625		4,700		22.8	%	(0.0	)%	(3.1	)%	19.7	%
Total third party revenue	$	2,961,781	$	2,324,583	(1.7	)%	35.3	%	(6.2	)%	27.4	%	$	1,363,594	$	1,445,541	(3.3	)%	0.1	%	(2.5	)%	(5.7	)%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1)

~~Parts~~The parts and services organic revenue ~~declined~~change for the ~~first half of 2019, primarily~~quarter was affected by softer economic conditions across the continent. Additionally, we believe the U.K.'s potential exit from the European Union continues to have a negative impact on that market. Warmer weather also negatively impacted some markets. Selling days differ by market, but,having one additional selling day, on average, ~~we had one fewer~~due to the different selling ~~day~~days in ~~our Europe segment in~~each market compared to the first ~~half~~quarter of ~~2019 than in the prior year period.~~2019. On a per day basis, organic parts and services revenue ~~declined 0.6%.~~decreased 4.5%, mainly driven by the COVID-19 pandemic disruptions in almost all of our European operations. Prior to the pandemic, organic revenue in Europe was slightly greater than the same


~~(1)~~	~~Acquisition related growth for the six months ended June 30, 2019 was $822 million, or 35.3%, primarily from our acquisition of Stahlgruber.~~

period in the prior year, increasing 0.3% through February, principally driven by the Central and Eastern European region, and to a lesser extent, Germany. During the month of March 2020, organic revenue declined 13.7% on a per day basis compared to the prior year period primarily due to volume effects caused by the COVID-19 pandemic.


(2)	Compared to the prior year, exchange rates decreased our revenue growth by ~~$144~~$36 million, or ~~6.2%~~2.5%, primarily due to the stronger U.S. dollar against the euro, pound sterling and Czech koruna during the first ~~half~~quarter of ~~2019~~2020 relative to the ~~comparable period of 2018.~~prior year period.

Segment EBITDA. Segment EBITDA ~~increased $35~~decreased $27 million, or ~~18.9%~~25.7%, in the first ~~half~~quarter of ~~2019~~2020 compared to the ~~comparable period of the~~ prior ~~year.~~year period. Our Europe Segment EBITDA included a negative year over year impact of ~~$12~~$3 million related to the translation of local currency results into U.S. dollars at lower exchange rates than those experienced during the first ~~half~~quarter of ~~2018.~~2019. On a constant currency basis (i.e. excluding the translation impact), Segment EBITDA ~~increased~~decreased by ~~$47~~$24 million, or ~~25.2%~~23.0%, compared to the prior year. Refer to the Foreign Currency Impact discussion within the Results of ~~Operations -~~ Operations–Consolidated section above for further detail regarding foreign currency impact on our results for the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020.

The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Europe segment:



Europe	Percentage of Total Segment Revenue
Segment EBITDA for the three months ended March 31, 2019	7.3	%
Increase (decrease) due to:
Change in gross margin	0.4	%	(1)
Change in segment operating expenses	(2.2	)%	(2)
Change in other expense, net and net income attributable to continuing noncontrolling interest	0.2	%	(3)
Segment EBITDA for the three months ended March 31, 2020	5.7	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

Europe Percentage of Total Segment Revenue
Segment EBITDA for the six months ended June 30, 2018 8.0 %
Increase (decrease) due to:
Change in gross margin 0.5 % (1)
Change in segment operating expenses (0.9 )% (2)
Change in other expense, net and net income attributable to continuing noncontrolling interest (0.1 )%
Segment EBITDA for the six months ended June 30, 2019 7.5 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.


(1)	The increase in gross margin was primarily ~~due~~attributable to ~~a 0.6%~~margin improvement initiatives supporting the pursuit of profitable revenue growth and the favorable impact of product mix, partially offset by a decrease of 0.5% in our German operations related to ~~an increase in supplier rebates as a result of centralized procurement for our Europe segment.~~lower vendor rebates.

(2)

The increase in segment operating expenses as a percentage of revenue reflects the negative leverage effect resulting from the year over year decline in revenue. Having one fewer selling day in the first half of 2019 and a decline in organic revenue (per day) increased the expense as a percentage of revenue of fixed costs, such as facility rental expenses and personnel salaries. The increase in segment operating expenses was primarily due to (i) a ~~1.0%~~1.5% unfavorable leverage effect as a result of the $82 million decrease in revenues, mainly driven by the COVID-19 pandemic, (ii) a 0.4% increase in bad debt expense primarily due to an increase in expected lifetime losses, which in some cases resulted from the COVID-19 pandemic, (iii) a 0.3% increase in non-recurring costs for personnel matters and a loan guarantee, (iv) a 0.3% unfavorable impact from transformation expenses related to the 1 LKQ Europe program, and (v) a 0.2% increase in several individually immaterial operating expenses, partially offset by (vi) a 0.5% decrease in personnel expenses, principally as a result of ~~the negative leverage effect,~~lower employee costs due to productivity and ~~(ii) a~~rightsizing efforts.

(3)

The decrease in other expense, net and net income attributable to continuing noncontrolling interest of 0.2% ~~increase in non-recurring European systems and integration costs, including fees related~~was mainly due to ~~new information technology and other projects related~~lower foreign exchange losses compared to the ~~integration of the European businesses. The unfavorable effects were partially offset by lower bad debt expense of 0.2%, principally due to increased collection efforts.~~prior period.

Specialty

Third Party Revenue. The following table summarizes the changes in third party revenue by category in our Specialty segment (in thousands):


	Six Months Ended June 30,				Percentage Change in Revenue								Three Months Ended March 31,				Percentage Change in Revenue
Specialty	2019		2018		Organic ⁽¹⁾		Acquisition		Foreign Exchange		Total Change		2020		2019		Organic ⁽¹⁾		Acquisition and Divestiture		Foreign Exchange		Total Change
Parts & services revenue	$	762,819	$	762,307	0.5	%	—	%	(0.4	)%	0.1	%	$	347,406	$	352,556	(1.4	)%	0.1	%	(0.1	)%	(1.5	)%
Other revenue	—		—		—	%	—	%	—	%	—	%	—		—		—	%	—	%	—	%	—	%
Total third party revenue	$	762,819	$	762,307	0.5	%	—	%	(0.4	)%	0.1	%	$	347,406	$	352,556	(1.4	)%	0.1	%	(0.1	)%	(1.5	)%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1)

~~Organic growth in parts~~Parts and services organic revenue declined despite one more selling day in the first quarter of 2020 compared to the prior year period. On a per day basis, organic revenue declined 2.9%. The organic decline was primarily due to ~~higher volumes across both~~the adverse effects on demand resulting from the COVID-19 pandemic and the cancellation of our ~~automotive and RV businesses~~main customer conference in March, also due to the COVID-19 pandemic. Prior to the pandemic, organic revenue in Specialty was greater than the same period in the ~~U.S., largely due to expansion~~prior year, increasing 4.3% through February, and in line with our expectations as both jobber and drop ship businesses had increased. During the month of ~~our product line coverage, strong exclusive line performance, and continued roll-out of new product applications for new model year vehicles. The~~March 2020, organic ~~growth was partially offset by decreased sales volumes in our Canada operations~~revenue declined 15.1% on a per day basis compared to the prior year period primarily due to ~~softening economic conditions. Organic growth in parts and services revenue for our Specialty segment on a per day basis was 1.3% as there was one fewer selling day in~~volume effects caused by the ~~first half of 2019 compared to the prior year period.~~COVID-19 pandemic.

Segment EBITDA. Segment EBITDA decreased $8$6 million, or ~~7.9%~~15.1%, in the first ~~half~~quarter of ~~2019~~2020 compared to the prior year ~~period.~~first quarter.

The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Specialty segment:


Specialty	Percentage of Total Segment Revenue			Percentage of Total Segment Revenue
Segment EBITDA for the six months ended June 30, 2018	12.8	%
Segment EBITDA for the three months ended March 31, 2019				10.7	%
(Decrease) increase due to:
Change in gross margin	(1.4	)%	(1)	(1.1	)%	(1)
Change in segment operating expenses	0.4	%	(2)	(0.4	)%	(2)
Segment EBITDA for the six months ended June 30, 2019	11.8	%
Change in other expense, net				0.1	%
Segment EBITDA for the three months ended March 31, 2020				9.2	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1)

The decrease in gross margin reflects unfavorable impacts of (i) 0.7% of higher product costs, primarily due to non-recurring benefits from supplier discounts resulting from strategic purchasing efforts in the fourth quarter of 2017, which had a favorable impact on the first half of 2018 as they were recognized over a turn of inventory, (ii) 0.3%0.9% due to unfavorable product and channel mix in the first ~~half~~quarter of ~~2019, and (iii) 0.3%~~2020, (ii) 0.6% unfavorable inventory adjustments mainly driven by an increase to our inventory reserves as we have more inventory due to ~~higher capitalized overhead expenses as a result of warehouse expansion projects that were completed~~lower sales volumes, increasing excess inventory on hand, partially offset by (iii) 0.4% favorable customer rebates driven by the decline in ~~the second half of 2018.~~sales volumes.

(2)

The decrease in segment operating expenses reflects ~~favorable~~unfavorable impacts of (i) ~~0.3% in personnel costs primarily~~0.4% due to ~~reduced headcount and (ii)~~ several individually immaterial ~~factors that had a favorable impact of 0.3% in the aggregate,~~operating expenses and (ii) 0.2% related to unfavorable net advertising timing, partially offset by (iii) a 0.2% ~~increase in facility~~of favorable freight, vehicle and fuel expenses due to ~~higher rent and property taxes as~~ a ~~result~~decreased use of ~~warehouse expansion projects that were completed in the second half of 2018.~~third party freight.

Liquidity and Capital Resources

The following table summarizes liquidity data as of the dates indicated (in thousands):


	June 30, 2019		December 31, 2018		June 30, 2018		March 31, 2020		December 31, 2019		March 31, 2019
Cash and cash equivalents	$	375,967	$	331,761	$	345,202	$	332,784	$	523,020	$	316,066
Total debt ⁽¹⁾	4,086,298		4,347,697		4,476,000		3,788,555		4,072,026		4,264,148
Current maturities ⁽²⁾	132,927		122,117		181,992		91,241		326,648		136,572
Capacity under credit facilities ⁽³⁾	3,260,000		3,260,000		2,850,000		3,260,000		3,260,000		3,260,000
Availability under credit facilities ⁽³⁾	1,962,487		1,697,698		1,563,926		1,528,449		1,922,671		1,751,902
Total liquidity (cash and cash equivalents plus availability under credit facilities)	2,338,454		2,029,459		1,909,128		1,861,233		2,445,691		2,067,968


(1)	Debt amounts reflect the gross values to be repaid (excluding debt issuance costs of ~~$34~~$25 million, $30 million and $35 million as of ~~June 30,~~March 31, 2020, December 31, 2019 and ~~$37 million as of both December~~March 31, ~~2018 and June 30, 2018)~~2019, respectively).


(2)	Debt amounts reflect the gross values to be repaid (excluding immaterial amounts of debt issuance costs ~~of immaterial amounts~~ as of ~~both June 30,~~March 31, 2020, December 31, 2019 and ~~December~~March 31, ~~2018 and $5 million as of June 30, 2018)~~2019).


(3)	Capacity under credit facilities includes our revolving credit facilities and our receivables securitization facility. Availability under credit facilities is reduced by our outstanding letters of credit.

We assess our liquidity in terms of our ability to fund our operations and provide for expansion through both internal development and acquisitions. Our primary sources of liquidity are cash flows from operations and our credit facilities. We utilize our cash flows from operations to fund working capital and capital expenditures, with the excess amounts going towards funding acquisitions, or paying down outstanding ~~debt.~~debt or repurchasing our common stock. As we have pursued acquisitions as part of our growth strategy, our cash flows from operations have not always been sufficient to cover our investing activities. To fund our acquisitions, we have accessed various forms of debt financing, including revolving credit facilities, senior notes and our receivables securitization facility.

As of ~~June 30, 2019,~~March 31, 2020, we had debt outstanding and additional available sources of financing as follows:

Senior secured credit facilities maturing in January 2024, composed of term loans totaling $350 million ($~~346~~337 million outstanding at ~~June 30, 2019)~~March 31, 2020) and $3.15 billion in revolving credit ($~~1.2~~1.6 billion outstanding at ~~June 30, 2019)~~March 31, 2020), bearing interest at variable rates (although a portion of the outstanding debt is hedged through interest rate swap contracts), with availability reduced by ~~$69~~$70 million of amounts outstanding under letters of credit

~~U.S. Notes (2023) totaling $600 million, maturing in May 2023 and bearing interest at a 4.75% fixed rate~~

Euro Notes (2024) totaling ~~$569~~$552 million (€500 million), maturing in April 2024 and bearing interest at a 3.875% fixed rate

Euro Notes (2026/28) totaling $1.1 billion (€1.0 billion), consisting of (i) €750 million maturing in April 2026 and bearing interest at a 3.625% fixed rate, and (ii) €250 million maturing in April 2028 and bearing interest at a 4.125% fixed rate

Receivables securitization facility with availability up to $110 million ~~(no~~($98 million outstanding ~~balance~~ as of ~~June 30, 2019)~~March 31, 2020), maturing in November 2021 and bearing interest at variable commercial paper rates

As of March 31, 2020, we had approximately $1.5 billion available under our credit facilities. Combined with approximately $333 million of cash and cash equivalents at March 31, 2020, we had approximately $1.9 billion in available liquidity, a decrease of $584 million from our available liquidity as of December 31, 2019, which resulted from the redemption of our $600 million U.S. Notes (2023) in January 2020.

We believe that our current liquidity and cash expected to be generated by operating activities in future periods will be sufficient to meet our current operating and capital requirements. To support our liquidity position during the COVID-19 pandemic, we are focused on preserving cash during the expected period of reduced demand. Our action plan to strengthen our current position includes a deferral of growth driven capital projects, reductions in inventory orders, more active monitoring of customer receivables and terms, income tax deferrals, and a halt to our share buyback program, in addition to the cost saving measures included in the "COVID-19 Impact on Our Operations" section above. However, due to the rapidly evolving global situation, it is not possible to predict whether unanticipated consequences of the COVID-19 pandemic are reasonably likely to materially affect our liquidity and capital resources in the future.

With $1.9 billion of total liquidity as of March 31, 2020 and $91 million of current maturities, we have access to funds to meet our near term commitments even if the pandemic effect extends longer than our current expectations. We have a surplus of current assets over current liabilities, which further reduces the risk of short term cash shortfalls.

Our total liquidity includes availability under our senior secured credit facility, which includes the two financial maintenance covenants presented below (our required debt covenants and our actual ratios with respect to those covenants as calculated per the credit agreement as of March 31, 2020):



	Covenant Level	Ratio Achieved as of March 31, 2020
Maximum net leverage ratio	4.25:1.00	2.5
Minimum interest coverage ratio	3.00:1.00	11.3

The terms net leverage ratio and minimum interest coverage ratio used in the credit agreement are specifically calculated per the credit agreement and differ in specified ways from comparable GAAP or common usage terms.

The maximum net leverage ratio decreases to 4.00:1.00 effective with our compliance certificate to be filed for the second quarter of 2020. We currently believe that we will be in compliance with these financial covenants in the second quarter. We are in discussions with our bank group regarding an amendment to allow continued access to borrowings under our credit facility if the COVID-19 pandemic has a severe enough impact on our profitability to raise the risk of breaching the net leverage covenant. We believe that we will reach an agreement with our bank group with respect to such an amendment.

Our Euro Notes do not include financial maintenance covenants, and the indentures will not restrict our ability to draw funds on the credit facility, nor will the indentures prohibit our ability to amend the financial covenants under the credit facility as needed.

In the long-term, while we believe that we have adequate capacity under our existing credit facilities, from time to time we may need to raise additional funds through public or private financing, strategic relationships or other arrangements. There can be no assurance that additional funding, or refinancing of our credit facilities, if needed, will be available on terms attractive to us, or at all. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants or higher interest costs. Our failure to raise capital if and when needed could have a material adverse impact on our business, operating results, and financial condition.

From time to time, we may undertake financing transactions to increase our available liquidity, such as (i) our November 2018 amendment to our senior secured credit facility and (ii) the issuance of the Euro Notes (2026/28) in April 2018 related to the Stahlgruber acquisition. Given the long-term nature of our investment in Stahlgruber, combined with favorable interest rates, we decided to fund the acquisition primarily through long-term, fixed rate notes. We believe this approach provides financial flexibility to execute our long-term growth strategy while maintaining availability under our revolver. If we see an attractive acquisition opportunity, we have the ability to use our revolver to move quickly and have certainty of funding up to the amount of our then-available liquidity.

As of June 30, 2019, we had approximately $2.0 billion available under our credit facilities. Combined with approximately $376 million of cash and cash equivalents at June 30, 2019, we had approximately $2.3 billion in available liquidity, an increase of $309 million over our available liquidity as of December 31, 2018.

We believe that our current liquidity and cash expected to be generated by operating activities in future periods will be sufficient to meet our current operating and capital requirements, although such sources may not be sufficient for future acquisitions depending on their size. While we believe that we have adequate capacity, from time to time we may need to raise additional funds through public or private financing, strategic relationships or other arrangements. There can be no assurance that additional funding, or refinancing of our credit facilities, if needed, will be available on terms attractive to us, or at all. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants or higher interest costs. Our failure to raise capital if and when needed could have a material adverse impact on our business, operating results, and financial condition.

Borrowings under the credit agreement accrue interest at variable rates which are tied to LIBOR or the Canadian Dollar Offered Rate ("CDOR"), depending on the currency and the duration of the borrowing, plus an applicable margin rate which is subject to change quarterly based on our reported leverage ratio. We hold interest rate swaps to hedge the variable rates on a portion of our credit agreement borrowings, with the effect of fixing the interest rates on the respective notional amounts. In addition, we hold cross currency swaps that contain an interest rate swap component and a foreign currency forward contract component that, when combined with related intercompany financing arrangements, effectively convert variable rate U.S. dollar-denominated borrowings into fixed rate euro-denominated borrowings. These derivative transactions are described in Note ~~11,~~10, "Derivative Instruments and Hedging Activities" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. After giving effect to these contracts, the weighted average interest rate on borrowings outstanding under our credit agreement at ~~June 30, 2019~~March 31, 2020 was 1.6%. Including our senior notes and the borrowings under our receivables securitization program, our overall weighted average interest rate on borrowings was ~~3.0%~~2.6% at ~~June 30, 2019.~~March 31, 2020.

After 2021, it is unclear whether banks will continue to provide LIBOR submissions to the administrator of LIBOR, and no consensus currently exists as to what benchmark rate or rates may become accepted alternatives to LIBOR. We cannot currently predict the effect of the discontinuation of, or other changes to, LIBOR, or any establishment of alternative reference rates in the United States, the European Union or elsewhere, on the global capital markets. The uncertainty regarding the future of LIBOR, as well as the transition from LIBOR to any alternative reference rate or rates, could have adverse impacts on our variable rate obligations that currently use LIBOR as a benchmark rate. We are in the process of evaluating our financing obligations and other contracts that refer to LIBOR. Outstanding debt under our Credit Agreement, which constitutes the most significant of our LIBOR-based debt obligations, contains provisions that address the potential discontinuation of LIBOR and facilitate the adoption of an alternate rate of interest. We do not believe that the discontinuation of LIBOR, or its replacement with an alternative reference rate or rates, will have a material impact on our results of operations, financial position or liquidity.

Cash interest payments were ~~$75~~$14 million for the ~~six~~three months ended ~~June 30, 2019, including $46~~March 31, 2020; these payments will increase by approximately $31 million in the second quarter of 2020 as a result of our semi-annual interest payments on our ~~U.S. Notes (2023),~~ Euro Notes (2024) and Euro Notes (2026/~~28)~~2028). Interest ~~payments on our U.S. Notes (2023) are made in May and November, and interest~~ payments on our Euro Notes (2024) and Euro Notes (2026/28) are made in April and October.

We had outstanding credit agreement borrowings of $1.9 billion and $1.6 billion ~~and $1.7 billion~~ at ~~June 30, 2019~~March 31, 2020 and December 31, ~~2018,~~2019, respectively. Of these amounts, ~~$13 million and $9~~$18 million was classified as current maturities at ~~June 30, 2019~~both March 31, 2020 and December 31, ~~2018, respectively.~~2019.

The scheduled maturities of long-term obligations, inclusive of finance lease obligations, outstanding at ~~June 30, 2019~~March 31, 2020 are as follows (in thousands):


Six months ending December 31, 2019:	$	115,953
Nine months ending December 31, 2020 ⁽¹⁾:			$	82,643
Years ending December 31:
2020	53,517
2021	33,145		129,421
2022	28,132		28,975
2023	623,464		22,222
2024			2,403,078
Thereafter	3,232,087		1,122,216
Total debt ⁽¹⁾⁽²⁾	$	4,086,298	$	3,788,555


(1)	~~The total~~Maturities of long-term obligations due by December 31, 2020 includes $54 million of short-term debt ~~amounts presented above reflect~~that may be extended beyond the ~~gross values to be repaid (excluding debt issuance costs of $34 million as of June 30, 2019).~~current due date.

(2) The total debt amounts presented above reflect the gross values to be repaid (excluding debt issuance costs of $25 million as of March 31, 2020).

Our credit agreement contains customary covenants that provide limitations and conditions on our ability to enter into certain transactions. The credit agreement also contains financial and affirmative covenants, including limitations on our net leverage ratio and a minimum interest coverage ratio. We were in compliance with all restrictive covenants under our credit agreement as of ~~June 30, 2019.~~

~~The following summarizes our required debt covenants and our actual ratios with respect to those covenants as calculated per the credit agreement as of June 30, 2019:~~



	~~Covenant Level~~	~~Ratio Achieved as of June 30, 2019~~
~~Maximum net leverage ratio~~	~~4.25:1.00~~	~~2.8~~
~~Minimum interest coverage ratio~~	~~3.00:1.00~~	~~9.2~~

As of ~~June 30, 2019,~~March 31, 2020, the Company had cash and cash equivalents of ~~$376~~$333 million, of which ~~$272~~$252 million was held by foreign subsidiaries. In general, it is our practice and intention to permanently reinvest the undistributed earnings of our foreign subsidiaries, and that position has not changed following the enactment of the Tax Cuts and Jobs Act of 2017 (the "Tax Act") and the related imposition of the transition tax. Distributions of dividends from our foreign subsidiaries, if any, would be generally exempt from further U.S. taxation, either as a result of the ~~new~~ 100% participation exemption under the Tax Act, or due to the previous taxation of foreign earnings under the transition ~~tax.~~tax and the GILTI regime, a regime of taxation on foreign subsidiary earnings. We believe that we have sufficient cash flow and liquidity to meet our financial obligations in the U.S. without repatriating our foreign earnings. We may, from time to time, choose to selectively repatriate foreign earnings if doing so supports our financing or liquidity objectives.

The procurement of inventory is the largest operating use of our funds. We normally pay for aftermarket product purchases on standard payment terms or at the time of shipment, depending on the manufacturer and the negotiated payment terms. We normally pay for salvage vehicles acquired at salvage auctions and under direct procurement arrangements at the time that we take possession of the vehicles.

The following table sets forth a summary of our aftermarket and manufactured inventory procurement for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in thousands):


	Three Months Ended							Six Months Ended								Three Months Ended
	June 30,							June 30,								March 31,
	2019		2018		Change			2019		2018		Change				2020		2019		Change
North America	$	343,300	$	363,000	$	(19,700	)	$	679,400	$	721,800	$	(42,400	)	⁽¹⁾	$	328,700	$	336,100	$	(7,400	)	⁽¹⁾
Europe	982,900		827,100		155,800			1,921,600		1,494,200		427,400			⁽²⁾	867,800		938,700		(70,900		)	⁽²⁾
Specialty	287,100		296,600		(9,500		)	537,700		570,600		(32,900		)	⁽³⁾	307,300		250,600		56,700			⁽³⁾
Total	$	1,613,300	$	1,486,700	$	126,600		$	3,138,700	$	2,786,600	$	352,100			$	1,503,800	$	1,525,400	$	(21,600	)


(1)	In North America, aftermarket purchases during the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 decreased compared to the prior year period primarily as a result of an increased focus on inventory reduction.

(2)

In our Europe segment, the ~~increase~~decrease in purchases during the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 was primarily driven by ~~(i)~~ a ~~$588 million increase attributable to incremental inventory purchases as a result of our acquisition of Stahlgruber in the second quarter of 2018, partially offset by (ii) a $25~~$47 million decrease attributable to all of our ~~continental~~ European operations ~~and a $41 million decrease attributable to our UK operations primarily~~ due to inventory reduction efforts. There was also a decrease of ~~$95~~$25 million ~~in inventory purchases~~ attributable to the decrease in the value of the euro, and to a lesser extent, the pound sterling, in the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 compared to the prior year period.

(3)

Specialty inventory purchases ~~decreased $33~~increased $57 million during the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 compared to the prior year period primarily as a result of an increased ~~focus on inventory reduction.~~purchases in January and February to avoid supply issues due to COVID-19 and relatively low comparable purchases during the three months ended March 31, 2019.

The following table sets forth a summary of our global wholesale salvage and self service procurement for the three ~~and six~~ months ended ~~June 30,~~March 31, 2020 and 2019 ~~and 2018~~ (in thousands):


	Three Months Ended				Six Months Ended				Three Months Ended
	June 30,				June 30,				March 31,
	2019	2018	% Change		2019	2018	% Change		2020	2019	% Change
North America wholesale salvage cars and trucks	78	83	(6.0	)%	152	156	(2.6	)%	72	74	(2.7	)%
Europe wholesale salvage cars and trucks	6	7	(14.3	)%	14	15	(6.7	)%	7	8	(12.5	)%
Self service and "crush only" cars	165	150	10.0	%	304	291	4.5	%	149	139	7.2	%

The following table summarizes the components of the year-over-year increase in cash provided by operating activities (in millions):


Net cash provided by operating activities for the six months ended June 30, 2018	$	329
Net cash provided by operating activities for the three months ended March 31, 2019					$	177
Increase (decrease) due to:
Operating income	(25		)	⁽¹⁾	19			⁽¹⁾
Non-cash depreciation and amortization expense	23			⁽²⁾	(5		)	⁽²⁾
Impairment of net assets held for sale	49			⁽³⁾
(Gain on disposal of business) and impairment of net assets held for sale					(15		)	⁽³⁾
Cash paid for taxes	23				(10		)
Cash paid for interest	(19		)		1
Working capital accounts: ⁽⁴⁾
Accounts receivable	(37		)
Inventory	144
Receivables, net					141
Inventories					(79		)
Accounts payable	122				(50		)
Other operating activities	29			⁽⁵⁾	16			⁽⁵⁾
Net cash provided by operating activities for the six months ended June 30, 2019	$	638
Net cash provided by operating activities for the three months ended March 31, 2020					$	195


(1)	Refer to the Results of Operations - Consolidated section for further information on the ~~decrease~~increase in operating income.


(2)	Non-cash depreciation and amortization expense ~~increased~~decreased compared to the prior year period as discussed in the Results of Operations - Consolidated section.

(3)

~~In the first six months of 2019, we recorded impairment charges on net assets held for sale. See~~Refer to "Net Assets Held for Sale" in Note 4,3, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for ~~further~~ information on the net impairment ~~charges.~~activity recorded in the first three months of 2020 and 2019.


(4)	Cash flows related to our primary working capital accounts can be volatile as the purchases, payments and collections can be timed differently from period to period.

~~Inventory~~Receivables, net was a $141 million greater inflow in 2020 primarily due to greater cash conversion of accounts receivable balances in the first quarter of 2020 in the Europe segment (of $79 million) and the North America segment (of $57 million).

Inventories represented an incremental ~~$144~~$79 million in cash ~~inflows~~outflows in ~~2019~~2020 as a result of ~~judicious~~ inventory ~~reduction efforts~~increases in ~~all three segments~~the (i) Specialty segment of $44 million due to ~~reflect organic revenue conditions,~~increased inventory purchases as disclosed in the procurement section ~~above.~~above, and (ii) North America segment of $35 million due to a slowdown in converting inventory to cash relative to the prior year caused by declining revenue in March 2020 due to the COVID-19 pandemic. Europe had a minimal impact for the quarter because the reduction in inventory procurement offset the slowdown in converting inventory to cash caused by declining revenue.

Accounts payable produced an incremental ~~$122~~$50 million in cash ~~flows~~outflows primarily due to the timing ~~effects related~~of payments compared to ~~our May 30, 2018 acquisition of Stahlgruber. Additionally, we increased accounts payable through extension of vendor terms~~the prior year period in the North ~~America.~~

~~Accounts receivable was a $37 million greater outflow in 2019, primarily attributable to timing effects from~~America segment (of $28 million) and the ~~Stahlgruber acquisition, and also to a lesser extent, the unwind of a receivables factoring program at Stahlgruber.~~ Europe segment (of $26 million).


(5)	Reflects a number of individually insignificant fluctuations in cash paid for other operating activities.

Net cash used in investing activities totaled ~~$117~~$45 million for the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, compared to ~~$1.2 billion~~$58 million of cash used in investing activities during the ~~six~~three months ended ~~June 30, 2018.~~March 31, 2019. We invested ~~$15~~$7 million of cash, net of cash acquired, in business acquisitions during the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 compared to ~~$1.1 billion~~$5 million during the ~~six~~three months ended ~~June 30, 2018, primarily related to the Stahlgruber acquisition.~~March 31, 2019. Property, plant and equipment purchases were ~~$101~~$45 million in the first ~~half~~three months of ~~2019~~2020 compared to ~~$115~~$53 million in the prior year period. The period over period decrease in cash outflows for purchases of property, plant and equipment was due to ~~roughly equal~~ decreases in all segments. We received $2 million of net proceeds from divestitures of assets or businesses held for sale during the three ~~segments.~~months ended March 31, 2020; there were no proceeds from divestitures of assets held for sale during the three months ended March 31, 2019.

The following unaudited table reconciles Net Cash Provided by Operating Activities to Free Cash Flow (in thousands):



	Three Months Ended
	March 31,
	2020		2019
Net cash provided by operating activities	$	194,563	$	177,225
Less: purchases of property, plant and equipment	44,538		53,016
Free cash flow	$	150,025	$	124,209

Net cash used in financing activities totaled ~~$472~~$335 million for the ~~six~~three months ended ~~June 30, 2019,~~March 31, 2020, compared to ~~$1.1 billion provided by~~$133 million used in financing activities during the ~~six~~three months ended ~~June 30, 2018. We received $1.2 billion from~~March 31, 2019. During the three months ended March 31, 2020, net repayments of our ~~issuance of the Euro Notes (2026/2028)~~borrowings totaled $230 million compared to $61 million during the ~~six~~three months ended ~~June 30, 2018; no such proceeds were received~~March 31, 2019. The period over period increase in net repayments of our borrowings includes the ~~current year.~~$600 million repayment of our U.S. Notes (2023) in January 2020. We repurchased ~~$191~~$88 million of our common stock in the first ~~half~~quarter of ~~2019; we did not repurchase any shares~~2020 compared to $70 million in the ~~comparable period~~first quarter of ~~2018. During the six months ended June 30, 2019, net repayments under our credit facilities totaled $273 million compared to $162 million during the six months ended June 30, 2018.~~2019.

We intend to continue to evaluate markets for potential growth through the internal development of distribution centers, processing and sales facilities, and warehouses, through further integration of our facilities, and through selected business acquisitions. Our future liquidity and capital requirements will depend upon numerous factors, including the costs and timing of our internal development efforts and the success of those efforts, the costs and timing of expansion of our sales and marketing activities, and the costs and timing of future business acquisitions.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks arising from adverse changes in:

foreign exchange rates;

interest rates; and

commodity prices.

Foreign Exchange Rates

Foreign currency fluctuations may impact the financial results we report for the portions of our business that operate in functional currencies other than the U.S. dollar. Our operations outside of the U.S. represented ~~50.3%~~48.9% and ~~47.9%~~50.3% of our revenue during the ~~six~~three months ended ~~June 30, 2019~~March 31, 2020 and the year ended December 31, ~~2018,~~2019, respectively. An increase or decrease in the strength of the U.S. dollar against these currencies by 10% would result in a ~~5.0%~~4.9% change in our consolidated revenue and a ~~3.0%~~1.9% change in our operating income for the ~~six~~three months ended ~~June 30, 2019.~~March 31, 2020. See our Results of Operations discussion in Part I, Item 2 of this Quarterly Report on Form 10-Q for additional information regarding the impact of fluctuations in exchange rates on our year over year results.

Additionally, we are exposed to foreign currency fluctuations with respect to the purchase of aftermarket products from foreign countries, primarily in Europe and Asia. To the extent that our inventory purchases are not denominated in the functional currency of the purchasing location, we are exposed to exchange rate fluctuations. In several of our operations, we

purchase inventory from manufacturers in Taiwan in U.S. dollars, which exposes us to fluctuations in the relationship between the local functional currency and the U.S. dollar, as well as fluctuations between the U.S. dollar and the Taiwan dollar. We hedge our exposure to foreign currency fluctuations related to a portion of inventory purchases in our Europe operations, but the notional amount and fair value of these foreign currency forward contracts at ~~June 30, 2019~~March 31, 2020 were immaterial. We do not currently attempt to hedge foreign currency exposure related to our foreign currency denominated inventory purchases in our North America operations, and we may not be able to pass on any resulting price increases to our customers.

Other than with respect to a portion of our foreign currency denominated inventory purchases, we do not hold derivative contracts to hedge foreign currency risk. Our net investment in foreign operations is partially hedged by the foreign currency denominated borrowings we use to fund foreign acquisitions; however, our ability to use foreign currency denominated borrowings to finance our foreign operations may be limited based on local tax laws. We have elected not to hedge the foreign currency risk related to the interest payments on foreign borrowings as we generate cash flows in the local currencies that can be used to fund debt payments. As of ~~June 30,~~March 31, 2020, we had outstanding borrowings of €500 million under our Euro Notes (2024), €1.0 billion under our Euro Notes (2026/28), and £203 million, €262 million, CAD $130 million, and SEK 270 million under our revolving credit facilities. As of December 31, 2019, we had outstanding borrowings of €500 million under our Euro Notes (2024), €1.0 billion under our Euro Notes (2026/28), and ~~£189~~£208 million, ~~€139~~€229 million, CAD $130 million, and SEK 275 million under our revolving credit facilities. As of December 31, 2018, we had outstanding borrowings of €500 million under our Euro Notes (2024), €1.0 billion under our Euro Notes (2026/28), and £290 million, €163 million, CAD $130 million, and SEK 275270 million under our revolving credit facilities.

Interest Rates

Our results of operations are exposed to changes in interest rates primarily with respect to borrowings under our credit facilities, where interest rates are tied to the prime rate, LIBOR or CDOR. Therefore, we implemented a policy to manage our exposure to variable interest rates on a portion of our outstanding variable rate debt instruments through the use of interest rate swap contracts. These contracts convert a portion of our variable rate debt to fixed rate debt, matching the currency, effective dates and maturity dates to specific debt instruments. Net interest payments or receipts from interest rate swap contracts are included as adjustments to interest expense. All of our interest rate swap contracts have been executed with banks that we believe are creditworthy (Wells Fargo Bank, N.A.; Bank of America, N.A.; Citizens, N.A.; HSBC Bank USA, N.A.; and Banco Bilbao Vizcaya Argentaria, S.A.).

As of ~~June 30, 2019,~~March 31, 2020, we held eight interest rate swap contracts representing a total of $480 million of U.S. dollar-denominated notional amount debt. Our interest rate swap contracts are designated as cash flow hedges and modify the variable rate nature of that portion of our variable rate debt. These swaps have maturity dates ~~ranging from~~in January 2021 ~~through~~and June 2021. As of ~~June 30, 2019,~~March 31, 2020, the fair value of the interest rate swap contracts was ~~an asset~~a liability of $6$3 million. The values of such contracts are subject to changes in interest rates.

In addition to these interest rate swaps, as of ~~June 30, 2019~~March 31, 2020, we held ~~five~~four cross currency swap agreements for a total notional amount of ~~$566~~$463 million (€~~523~~431 million) with maturity dates in ~~October 2019,~~ October 2020 and January 2021. These cross currency swaps contain an interest rate swap component and a foreign currency forward contract component that, combined with related intercompany financing arrangements, effectively convert variable rate U.S. dollar-denominated borrowings into fixed rate euro-denominated borrowings. The swaps are intended to reduce uncertainty in cash flows in U.S.

dollars and euros in connection with intercompany financing arrangements. The cross currency swaps were also executed with banks we believe are creditworthy (Wells Fargo Bank, N.A.; Bank of America, N.A.; ~~MUFG;~~ and ~~SunTrust Bank)~~MUFG). As of ~~June 30, 2019,~~March 31, 2020, the fair value of the interest rate swap components of the cross currency swaps was ~~an asset of $1 million and~~ a liability of $2$5 million, and the fair ~~value~~values of the foreign currency forward components ~~was~~were an asset of $3$5 million and a liability of ~~$32~~$13 million. The values of these contracts are subject to changes in interest rates and foreign currency exchange rates.

In total, we had ~~66%~~47% of our variable rate debt under our credit facilities at fixed rates at ~~June 30, 2019~~March 31, 2020 compared to ~~57%~~59% at December 31, ~~2018.~~2019. See Note ~~10,~~9, "Long-Term Obligations" and Note ~~11,~~10, "Derivative Instruments and Hedging Activities" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

At ~~June 30, 2019,~~March 31, 2020, we had approximately ~~$527 million~~$1.1 billion of variable rate debt that was not hedged. Using sensitivity analysis, a 100 basis point movement in interest rates would change interest expense by $5$11 million over the next twelve months. Redeeming the U.S. Notes (2023) in January 2020 increased our unhedged variable rate debt by $415 million.

Commodity Prices

We are exposed to market risk related to price fluctuations in scrap metal and other ~~metals.~~metals (including precious metals such as platinum, palladium and rhodium). Market prices of these metals affect the amount that we pay for our inventory and the revenue that we generate from sales of these metals. As both our revenue and costs are affected by the price fluctuations, we have a natural hedge against the changes. However, there is typically a lag between the effect on our revenue from metal price fluctuations and inventory cost changes, and there is no guarantee that the vehicle costs will decrease or increase at the same rate as the metals prices. Therefore, we can experience positive or negative gross margin effects in periods of rising or falling metals prices, particularly when such prices move rapidly. Additionally, if market prices were to change at a greater rate than our vehicle acquisition costs, we could experience a positive or negative effect on our operating margin. The average of scrap metal prices for the three months ended ~~June 30, 2019 has decreased 4%~~March 31, 2020 increased 23% over the average for the ~~first~~fourth quarter of 2019.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of ~~June 30, 2019,~~March 31, 2020, the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of LKQ Corporation's management, including our Chief Executive Officer and our Chief Financial Officer, of our "disclosure controls and procedures" (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective in providing reasonable assurance that information we are required to disclose in this Quarterly Report on Form 10-Q has been recorded, processed, summarized and reported as of the end of the period covered by this Quarterly Report on Form 10-Q. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file under the Securities Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended ~~June 30, 2019~~March 31, 2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

6850

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

We are from time to time subject to various claims and lawsuits incidental to our business. In the opinion of management, currently outstanding claims and suits will not, individually or in the aggregate, have a material adverse effect on our financial position, results of operations or cash flows.

Item 1A. Risk Factors

Our operations and financial results are subject to various risks and uncertainties that could adversely affect our business, financial condition and results of operations, and the trading price of our common stock. Please refer to our ~~2018~~2019 Form 10-K for information concerning risks and uncertainties that could negatively impact us. The following represents changes and/or additions to the risks and uncertainties previously disclosed in the 2019 Form 10-K.

Our operating results and financial condition have been and will likely continue to be adversely affected by the COVID-19 pandemic and could be adversely affected by other public health emergencies.

The COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, our business and operations. Government authorities in the jurisdictions in which we operate have recommended or mandated precautions to mitigate the spread of COVID-19, including prohibitions on congregating in various locations, travel restrictions, shelter-in-place orders, and similar measures. These measures have resulted in a significant reduction in miles driven. As a result, we have experienced and expect to continue to experience unpredictable reductions in demand for our products. Although we have been permitted to continue to operate in most of the jurisdictions in which we operate, including in jurisdictions that have mandated the closure of certain businesses, there is no assurance that we will be permitted to continue operations under future government orders or other restrictions.

In order to reduce costs in an attempt to offset reductions in revenue, we have taken various cost-cutting measures, including layoffs and furloughs of thousands of employees. These actions may result in a significant increase in employment-related claims and the associated risks and expenses related thereto. Due to the self-insured nature of our health insurance program, we may be subject to substantial increases in healthcare costs in the event that a significant number of our employees become ill and require medical treatment due to COVID-19 infections. Also, we may suffer workforce shortages due to employees contracting the COVID-19 virus or due to employees being subject to quarantine because of possible exposure to a person who tested positive for the virus. Although we have been taking precautions as recommended by governmental agencies to protect the health and safety of our employees who are continuing to work, we may be subject to claims that we did not take adequate or appropriate measures in this regard. We have also implemented remote work arrangements for many of our employees, which may expose us to an increased risk of cyber-attack or other cyber-security threats.

In the event that the pandemic subsides and business increases, there can be no assurance that we will be able to recall or rehire the appropriate number of employees with the proper skill sets to handle the increase in business.

We are evaluating the applicability of certain financial assistance and relief programs from foreign governments. While we intend to pursue this government assistance where possible and advisable, there is no guarantee as to what amount, if any, we would qualify for and receive.

The COVID-19 pandemic is adversely affecting our business partners, including our suppliers and customers. Depending on the extent of the adverse effects, we may not be able to source sufficient inventory to provide products to our customers even at reduced-demand levels, and the ability of our customers to continue operating or to pay us for our products may be disrupted.

Depending on the length and severity of the adverse effects on our business of the COVID-19 pandemic, we may determine that our goodwill or other long-lived assets have become impaired or that the carrying value of our receivables and inventory may no longer be recoverable. If either or both occur, we may incur significant charges to our pre-tax income.

Depending on the length and severity of the adverse effects on our business of the COVID-19 pandemic, we may not satisfy one or more of the financial or other covenants in our credit facility. Failure to satisfy any such covenant could inhibit our ability to borrow money under our credit facility should we need to do so or could result in a default under our credit facility. The COVID-19 pandemic has caused severe macroeconomic disruptions, including substantial price volatility in the equities markets, including the price of our common stock, and concerns about the liquidity of the credit markets. These macroeconomic disruptions may also affect our ability to borrow money or otherwise raise cash.

There is uncertainty with respect to the duration and breadth of the COVID-19 pandemic. Moreover, even after the mitigation measures are relaxed by government authorities, the timing and extent of the recovery of the economies in the countries where we operate is difficult to estimate. Thus, the ultimate impact on our business, financial results and financial condition cannot reasonably be estimated at this time; however, we expect our full year 2020 results to be adversely impacted. In addition, even if the adverse effects of the COVID-19 pandemic subside, there is the possibility of a recurrence of COVID-19 or the emergence of a different pandemic or health emergency with similar economic disruptions.

The market price of our common stock may be volatile and could expose us to securities class action litigation.

The stock market and the price of our common stock may be subject to wide fluctuations based upon general economic and market conditions. The market price for our common stock may also be affected by our ability to meet analysts’ expectations. Failure to meet such expectations, even slightly, could have an adverse effect on the market price of our common stock. In addition, stock market volatility has had a significant effect on the market prices of securities issued by many companies for reasons unrelated to the operating performance of these companies. Downturns in the stock market may cause the price of our common stock to decline. The effect on economies around the world of the COVID-19 pandemic has caused severe declines and wide fluctuations in the prices of numerous equity and fixed income securities, including our common stock. Additionally, the market price for our common stock has been in the past, and in the future may be, adversely affected by allegations made or reports issued by short sellers, analysts, activists or others regarding our business model, our management or our financial accounting.

Following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against such companies. If similar litigation were instituted against us, it could result in substantial costs and a diversion of our management’s attention and resources, which could have an adverse effect on our business.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

On October 25, 2018, our Board of Directors authorized a stock repurchase program under which we may purchase up to $500 million of our common stock from time to time through October 25, 2021. Repurchases under the program may be made in the open market or in privately negotiated transactions, with the amount and timing of repurchases depending on market conditions and corporate needs. The repurchase program does not obligate us to acquire any specific number of shares and may be suspended or discontinued at any time. Delaware law imposes restrictions on stock repurchases.

On October 25, 2019, our Board of Directors authorized an increase to our existing stock repurchase program under which the Company may purchase up to an additional $500 million of our common stock from time to time through October 25, 2022; this extended date also applies to the original repurchase program. With the increase, the Board of Directors has authorized a total of $1.0 billion of common stock repurchases.

The following table summarizes our stock repurchases for the three months ended ~~June 30, 2019~~March 31, 2020 (in thousands, except per share data):

Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
April 1, 2019 - April 30, 2019 330
$ 29.88
330
$ 359,674
May 1, 2019 - May 31, 2019 3,320
$ 27.33
3,320
$ 268,929
June 1, 2019 - June 30, 2019 750
$ 26.26
750
$ 249,238
Total 4,400
4,400



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
January 1, 2020 - January 31, 2020	—	$	—	—	$	648,187
February 1, 2020 - February 29, 2020	300	$	29.39	300	$	639,371
March 1, 2020 - March 31, 2020	3,000	$	26.40	3,000	$	560,181
Total	3,300			3,300

6952

Item 6. Exhibits

Exhibits

(b) Exhibits



~~3.1~~10.1	~~Amended and Restated Bylaws of LKQ Corporation, as amended as of May 7, 2019 (incorporated herein by reference~~ Offer Letter to ~~Exhibit 3.1 to the Company's report on Form 8-K filed with the SEC on May 8, 2019)~~Arnd Franz dated September 27, 2018.
~~4.1~~10.2	~~Supplemental Indenture~~Services Agreement dated as of ~~June 21, 2019 among LKQ Italia Bondco S.p.A, as Issuer, certain subsidiaries of~~November 27, 2018 between LKQ Corporation ~~as Guarantors,~~ and ~~BNP Paribas Trust Corporation UK Limited, as Trustee.~~
~~4.2~~	Supplemental Indenture dated as of June 21, 2019 among LKQ European Holdings B.V., as Issuer, certain subsidiaries of LKQ Corporation, as Guarantors, and BNP Paribas Trust Corporation UK Limited, as Trustee.Arnd Franz.
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH	Inline XBRL Taxonomy Extension Schema Document
101.CAL	Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE	Inline XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

7053

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on ~~August 2, 2019.~~May 7, 2020.



	LKQ CORPORATION

	/s/ Varun Laroyia
	Varun Laroyia
	Executive Vice President and Chief Financial Officer
	(As duly authorized officer and Principal Financial Officer)

	/s/ Michael S. Clark
	Michael S. Clark
	Vice President - Finance and Controller
	(As duly authorized officer and Principal Accounting Officer)

7154



	Year Ended
	December 31, 2018
	Stahlgruber			Other Acquisitions ⁽¹⁾			Total
Receivables	$	144,826		$	19,171		$	163,997
Receivable reserves	(2,818		)	(918		)	(3,736		)
Inventories	380,238			14,021			394,259
Prepaid expenses and other current assets	10,970			1,851			12,821
Property, plant and equipment	271,292			5,711			277,003
Goodwill	908,253			64,637			972,890
Other intangibles	285,255			35,159			320,414
Other noncurrent assets	16,625			37			16,662
Deferred income taxes	(78,130		)	(5,285		)	(83,415		)
Current liabilities assumed	(346,788		)	(20,116		)	(366,904		)
Debt assumed	(79,925		)	(4,875		)	(84,800		)
Other noncurrent liabilities assumed ⁽²⁾	(80,824		)	(10,306		)	(91,130		)
Noncontrolling interest	(44,110		)	—			(44,110		)
Contingent consideration liabilities	—			(3,107		)	(3,107		)
Other purchase price obligations	(6,084		)	3,623			(2,461		)
Stock issued	(251,334		)	—			(251,334		)
Notes issued	—			(11,347		)	(11,347		)
Gains on bargain purchases ⁽³⁾	—			(2,418		)	(2,418		)
Settlement of other purchase price obligations (non-interest bearing)	—			1,711			1,711
Cash used in acquisitions, net of cash and restricted cash acquired	$	1,127,446		$	87,549		$	1,214,995



Leases	Classification	June 30, 2019

Assets
Operating lease assets, net	Operating lease assets, net	$	1,294,541
Finance lease assets, net	Property, plant and equipment, net	41,911
Total leased assets		$	1,336,452
Liabilities
Current
Operating	Current portion of operating lease liabilities	$	219,502
Finance	Current portion of long-term obligations	10,802
Noncurrent
Operating	Long-term operating lease liabilities	1,122,276
Finance	Long-term obligations, excluding current portion	31,133
Total lease liabilities		$	1,383,713



		Three Months Ended			Six Months Ended
Lease Cost	Classification	June 30, 2019			June 30, 2019

Operating lease cost	Cost of goods sold	$	5,876		$	9,712
Operating lease cost	Selling, general and administrative expenses	77,142			150,423
Short-term lease cost	Selling, general and administrative expenses	3,799			4,466
Variable lease cost	Selling, general and administrative expenses	25,199			51,189
Finance lease cost
Amortization of leased assets	Depreciation and amortization	2,624			5,222
Interest on lease liabilities	Interest expense, net of interest income	405			853
Sublease income	Other income, net	(151		)	(426		)
Net lease cost		$	114,894		$	221,439



Years ending December 31:
2019	$	294,269
2020	256,172
2021	210,632
2022	158,763
2023	131,518
Thereafter	777,165
Future Minimum Lease Payments	$	1,828,519



	Operating leases		Finance leases ⁽¹⁾		Total
Six months ending December 31, 2019	$	151,302	$	6,374	$	157,676
Years ending December 31:
2020	276,873		11,109		287,982
2021	230,912		9,229		240,141
2022	178,807		6,718		185,525
2023	148,754		2,888		151,642
2024	123,190		2,773		125,963
Thereafter	724,388		15,953		740,341
Future minimum lease payments	1,834,226		55,044		1,889,270
Less: Interest	492,448		13,109		505,557
Present value of lease liabilities	$	1,341,778	$	41,935	$	1,383,713



	Six Months Ended
Supplemental cash flows information (in thousands)	June 30, 2019

Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases	$	147,897
Financing cash flows from finance leases	5,464
Leased assets obtained in exchange for new finance lease liabilities	7,568
Leased assets obtained in exchange for new operating lease liabilities	61,891

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidating Statements of Income (In thousands)

	For the Three Months Ended June 30, 2019
	Parent			Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenue	$	—		$	1,629,925		$	1,656,317		$	(38,069	)	$	3,248,173
Cost of goods sold	—			974,156			1,064,899			(38,069		)	2,000,986
Gross margin	—			655,769			591,418			—			1,247,187
Selling, general and administrative expenses	12,691			426,886			458,791			—			898,368
Restructuring and acquisition related expenses	—			4,031			4,346			—			8,377
Impairment of net assets held for sale	—			33,233			264			—			33,497
Depreciation and amortization	38			25,176			45,620			—			70,834
Operating (loss) income	(12,729		)	166,443			82,397			—			236,111
Other expense (income):
Interest expense, net of interest income	12,786			217			22,881			—			35,884
Intercompany interest (income) expense, net	(14,763		)	8,471			6,292			—			—
Other income, net	(4		)	(4,342		)	(1,387		)	—			(5,733		)
Total other (income) expense, net	(1,981		)	4,346			27,786			—			30,151
(Loss) income before (benefit) provision for income taxes	(10,748		)	162,097			54,611			—			205,960
(Benefit) provision for income taxes	(2,992		)	43,118			15,699			—			55,825
Equity in (losses) earnings of unconsolidated subsidiaries	—			(669		)	2,241			—			1,572
Equity in earnings (losses) of subsidiaries	157,919			(600		)	—			(157,319		)	—
Income from continuing operations	150,163			117,710			41,153			(157,319		)	151,707
Net income from discontinued operations	398			—			398			(398		)	398
Net income	150,561			117,710			41,551			(157,717		)	152,105
Less: net income attributable to continuing noncontrolling interest	—			—			1,352			—			1,352
Less: net income attributable to discontinued noncontrolling interest	—			—			192			—			192
Net income attributable to LKQ stockholders	$	150,561		$	117,710		$	40,007		$	(157,717	)	$	150,561

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidating Statements of Income (In thousands)

	For the Three Months Ended June 30, 2018
	Parent			Guarantors			Non-Guarantors		Eliminations			Consolidated
Revenue	$	—		$	1,640,396		$	1,426,650	$	(36,295	)	$	3,030,751
Cost of goods sold	—			988,671			916,496		(36,295		)	1,868,872
Gross margin	—			651,725			510,154		—			1,161,879
Selling, general and administrative expenses	9,683			430,693			385,668		—			826,044
Restructuring and acquisition related expenses	—			—			15,878		—			15,878
Depreciation and amortization	21			24,526			38,616		—			63,163
Operating (loss) income	(9,704		)	196,506			69,992		—			256,794
Other expense (income):
Interest expense, net of interest income	17,805			(113		)	20,580		—			38,272
Intercompany interest (income) expense, net	(15,406		)	9,865			5,541		—			—
Other expense (income), net	117			(4,397		)	4,707		—			427
Total other expense, net	2,516			5,355			30,828		—			38,699
(Loss) income before (benefit) provision for income taxes	(12,220		)	191,151			39,164		—			218,095
(Benefit) provision for income taxes	(3,744		)	53,543			10,976		—			60,775
Equity in earnings of unconsolidated subsidiaries	—			—			546		—			546
Equity in earnings of subsidiaries	165,483			4,451			—		(169,934		)	—
Net income	157,007			142,059			28,734		(169,934		)	157,866
Less: net income attributable to continuing noncontrolling interest	—			—			859		—			859
Net income attributable to LKQ stockholders	$	157,007		$	142,059		$	27,875	$	(169,934	)	$	157,007

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidating Statements of Income (In thousands)

	For the Six Months Ended June 30, 2019
	Parent			Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenue	$	—		$	3,180,605		$	3,243,194		$	(75,323	)	$	6,348,476
Cost of goods sold	—			1,895,645			2,072,703			(75,323		)	3,893,025
Gross margin	—			1,284,960			1,170,491			—			2,455,451
Selling, general and administrative expenses	21,729			859,273			913,898			—			1,794,900
Restructuring and acquisition related expenses	—			4,637			7,047			—			11,684
Impairment of net assets held for sale	—			41,694			6,826			—			48,520
Depreciation and amortization	92			50,249			91,495			—			141,836
Operating (loss) income	(21,821		)	329,107			151,225			—			458,511
Other expense (income):
Interest expense, net of interest income	26,622			(119		)	45,470			—			71,973
Intercompany interest (income) expense, net	(29,849		)	17,660			12,189			—			—
Other expense (income), net	15			(12,173		)	2,574			—			(9,584		)
Total other (income) expense, net	(3,212		)	5,368			60,233			—			62,389
(Loss) income before (benefit) provision for income taxes	(18,609		)	323,739			90,992			—			396,122
(Benefit) provision for income taxes	(5,038		)	86,421			25,992			—			107,375
Equity in earnings (losses) of unconsolidated subsidiaries	—			478			(38,455		)	—			(37,977		)
Equity in earnings of subsidiaries	261,782			9,112			—			(270,894		)	—
Income from continuing operations	248,211			246,908			26,545			(270,894		)	250,770
Net income from discontinued operations	398			—			398			(398		)	398
Net income	248,609			246,908			26,943			(271,292		)	251,168
Less: net income attributable to continuing noncontrolling interest	—			—			2,367			—			2,367
Less: net income attributable to discontinued noncontrolling interest	—			—			192			—			192
Net income attributable to LKQ stockholders	$	248,609		$	246,908		$	24,384		$	(271,292	)	$	248,609

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidating Statements of Income (In thousands)

	For the Six Months Ended June 30, 2018
	Parent			Guarantors			Non-Guarantors		Eliminations			Consolidated
Revenue	$	—		$	3,217,991		$	2,606,892	$	(73,368	)	$	5,751,515
Cost of goods sold	—			1,934,586			1,674,447		(73,368		)	3,535,665
Gross margin	—			1,283,405			932,445		—			2,215,850
Selling, general and administrative expenses	18,813			857,490			716,632		—			1,592,935
Restructuring and acquisition related expenses	—			330			19,602		—			19,932
Depreciation and amortization	50			48,864			70,707		—			119,621
Operating (loss) income	(18,863		)	376,721			125,504		—			483,362
Other expense (income):												—
Interest expense, net of interest income	35,813			99			30,875		—			66,787
Intercompany interest (income) expense, net	(30,806		)	19,545			11,261		—			—
Other (income) expense, net	(898		)	(10,279		)	8,722		—			(2,455		)
Total other expense, net	4,109			9,365			50,858		—			64,332
(Loss) income before (benefit) provision for income taxes	(22,972		)	367,356			74,646		—			419,030
(Benefit) provision for income taxes	(7,648		)	99,420			18,587		—			110,359
Equity in earnings of unconsolidated subsidiaries	—			—			1,958		—			1,958
Equity in earnings of subsidiaries	325,291			9,561			—		(334,852		)	—
Net income	309,967			277,497			58,017		(334,852		)	310,629
Less: net income attributable to continuing noncontrolling interest	—			—			662		—			662
Net income attributable to LKQ stockholders	$	309,967		$	277,497		$	57,355	$	(334,852	)	$	309,967

Title of Each Class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $.01 per share

Global Select Market