What changed in this filing

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Item 1. Financial Statements

2020-08-04 compared with 2020-05-07 · 505 added, 254 removed, 653 unchanged (54% of the section changed)

3 unchanged sentences

(In thousands, except per share data)

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2020 2019 2020 2019

Revenue $ 2,626,323 $ 3,248,173 $ 5,627,258 $ 6,348,476

Cost of goods sold 1,615,319 2,000,986 3,402,378 3,893,025

Gross margin 1,011,004 1,247,187 2,224,880 2,455,451

Selling, general and administrative expenses 737,369 898,368 1,637,180 1,794,900

Restructuring and acquisition related expenses 24,950 8,377 31,920 11,684

(Gain on disposal of business) and impairment of net assets held for sale

Loss on disposal of businesses and impairment of net assets held for sale 2,485 33,497 2,236 48,520

Depreciation and amortization 65,747 70,834 131,242 141,836

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Provision for income taxes 41,869 55,825 102,280 107,375

Equity in earnings (losses) of unconsolidated subsidiaries

Equity in (losses) earnings of unconsolidated subsidiaries ( 2,649 ) 1,572 ( 2,133 ) ( 37,977 )

Income from continuing operations 118,493 151,707 265,387 250,770

Net loss from discontinued operations

net income attributable to continuing noncontrolling interest

Net income (loss) from discontinued operations 277 398 ( 638 ) 398

Net income 118,770 152,105 264,749 251,168

net (loss) income attributable to continuing noncontrolling interest ( 22 ) 1,352 718 2,367

net income attributable to discontinued noncontrolling interest — 192 103 192

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Income from continuing operations $ 0.39 $ 0.49 $ 0.87 $ 0.80

Net loss from discontinued operations

net income attributable to continuing noncontrolling interest

Net income (loss) from discontinued operations 0.00 0.00 ( 0.00 ) 0.00

Net income 0.39 0.49 0.87 0.80

net (loss) income attributable to continuing noncontrolling interest ( 0.00 ) 0.00 0.00 0.01

net income attributable to discontinued noncontrolling interest — 0.00 0.00 0.00

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Income from continuing operations $ 0.39 $ 0.49 $ 0.87 $ 0.80

Net loss from discontinued operations

net income attributable to continuing noncontrolling interest

Net income (loss) from discontinued operations 0.00 0.00 ( 0.00 ) 0.00

Net income 0.39 0.49 0.87 0.80

net (loss) income attributable to continuing noncontrolling interest ( 0.00 ) 0.00 0.00 0.01

net income attributable to discontinued noncontrolling interest — 0.00 0.00 0.00

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(In thousands)

Three Months Ended

net income attributable to continuing noncontrolling interest

Three Months Ended Six Months Ended

June 30, June 30,

2020 2019 2020 2019

Net income $ 118,770 $ 152,105 $ 264,749 $ 251,168

net (loss) income attributable to continuing noncontrolling interest ( 22 ) 1,352 718 2,367

net income attributable to discontinued noncontrolling interest — 192 103 192

Net income attributable to LKQ stockholders 118,792 150,561 263,928 248,609

Other comprehensive (loss) income:

Other comprehensive income (loss):

Foreign currency translation, net of tax 31,334 5,602 ( 72,631 ) ( 4,293 )

Net change in unrealized gains/losses on cash flow hedges, net of tax

( 31 ) ( 5,650 ) ( 7,352 ) ( 8,387 )

Net change in unrealized gains/losses on pension plans, net of tax

Net change in other comprehensive loss from unconsolidated subsidiaries

Other comprehensive loss

1,875 28 1,995 219

Other comprehensive income (loss) from unconsolidated subsidiaries 962 2,321 ( 890 ) ( 1,142 )

Other comprehensive income (loss) 34,140 2,301 ( 78,878 ) ( 13,603 )

Comprehensive income 152,910 154,406 185,871 237,565

comprehensive income attributable to continuing noncontrolling interest

comprehensive (loss) income attributable to continuing noncontrolling interest

( 22 ) 1,352 718 2,367

comprehensive income attributable to discontinued noncontrolling interest

— 192 103 192

Comprehensive income attributable to LKQ stockholders

$ 152,932 $ 152,862 $ 185,050 $ 235,006

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

2 unchanged sentences

(In thousands, except share and per share data)

June 30, December 31,

Current assets:

1 unchanged sentence

Receivables, net 1,125,816 1,131,132

Inventories 2,288,293 2,772,777

Prepaid expenses and other current assets 216,438 260,890

3 unchanged sentences

Intangible assets:

Goodwill 4,377,350 4,406,535

Other intangibles, net 798,799 850,338

1 unchanged sentence

Other noncurrent assets 146,486 153,110

Total assets $ 12,035,299 $ 12,779,956

Liabilities and Stockholders' Equity

4 unchanged sentences

Refund liability 103,679 97,314

Value added taxes payable 160,294 46,490

Other accrued expenses 258,490 243,193

Income taxes payable 114,202 26,959

Other current liabilities 67,410 94,664

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Stockholders' equity:

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;

Common stock, $0.01 par value, 1,000,000,000 shares authorized, 320,530,156 shares issued and 304,034,241 shares outstanding at June 30, 2020;

319,927,243 shares issued and 306,731,328 shares outstanding at December 31, 2019

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Treasury stock, at cost;

16,495,915 shares at March 31, 2020 and 13,195,915 shares at December 31, 2019

16,495,915 shares at June 30, 2020 and 13,195,915 shares at December 31, 2019

( 439,819 ) ( 351,813 )

Total Company stockholders' equity 5,118,506 5,008,876

6 unchanged sentences

(In thousands)

Three Months Ended

Six Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income $ 264,749 $ 251,168

Adjustments to reconcile net income to net cash provided by operating activities:

1 unchanged sentence

Impairment of equity method investments — 39,551

(Gain on disposal of business) and impairment of net assets held for sale

Loss on disposal of businesses and impairment of net assets held for sale 2,236 48,520

Stock-based compensation expense 15,763 13,659

Loss on debt extinguishment 12,751 —

Other ( 3,554 ) ( 3,516 )

Changes in operating assets and liabilities, net of effects from acquisitions and dispositions:

Receivables, net ( 5,111 ) ( 149,052 )

Inventories 445,493 131,229

Prepaid income taxes/income taxes payable 84,125 25,967

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Repayment of U.S.

Notes (2023) ( 600,000 ) —

Borrowings under revolving credit facilities 494,485 312,880

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Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 5,358 ) ( 102 )

Net decrease in cash, cash equivalents and restricted cash

Net (decrease) increase in cash, cash equivalents and restricted cash ( 58,431 ) 49,544

Cash, cash equivalents and restricted cash of continuing operations, beginning of period

528,387 337,250

Cash, cash equivalents and restricted cash of discontinued operations, beginning of period

Cash, cash equivalents and restricted cash of continuing and discontinued operations, beginning of period

534,857 337,250

Cash, cash equivalents and restricted cash of continuing and discontinued operations, end of period

476,426 386,794

Cash and cash equivalents of discontinued operations, end of period

Cash, cash equivalents and restricted cash, end of period $ 476,426 $ 381,422

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)

Six Months Ended

Reconciliation of cash, cash equivalents and restricted cash

4 unchanged sentences

Income taxes, net of refunds $ 24,452 $ 88,001

Interest 55,910 75,259

Supplemental disclosure of noncash investing and financing activities:

2 unchanged sentences

Noncash property, plant and equipment additions 7,200 14,227

Notes payable and other financing obligations, including notes issued and debt assumed in connection with business acquisitions and disposals

Notes receivable acquired in connection with disposal of business

Notes payable and other financing obligations, including notes issued, debt assumed and settlement of pre-existing balances in connection with business acquisitions and disposals

Notes receivable and contingent consideration receivable acquired in connection with disposal of businesses

Contingent consideration liabilities 3,045 5,377

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LKQ Stockholders

Treasury Stock

Additional Paid-In Capital

Retained Earnings

Comprehensive Loss

Noncontrolling Interest

Total Stockholders' Equity

Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Accumulated

Comprehensive (Loss) Income Noncontrolling Interest Total Stockholders' Equity

Shares Amount Shares Amount

BALANCE, April 1, 2020

320,439 $ 3,204 ( 16,496 ) $ ( 439,819 ) $ 1,425,600 $ 4,282,753 $ ( 313,903 ) $ 29,484 $ 4,987,319

Net income (loss)

— — — — — 118,792 — ( 22 ) 118,770

Other comprehensive income

— — — — — — 34,140 — 34,140

Vesting of restricted stock units, net of shares withheld for employee tax

91 1 — — ( 57 ) — — — ( 56 )

Stock-based compensation expense

— — — — 7,795 — — — 7,795

Capital contributions from, net of dividends declared to, noncontrolling interest shareholder

— — — — — — — ( 27 ) ( 27 )

BALANCE, June 30, 2020

320,530 $ 3,205 ( 16,496 ) $ ( 439,819 ) $ 1,433,338 $ 4,401,545 $ ( 279,763 ) $ 29,435 $ 5,147,941

LKQ Stockholders

Common Stock Treasury Stock Additional Paid-In Capital Retained

Earnings Accumulated

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

— — — — — 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

— — — — — — — 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

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

Comprehensive Loss Noncontrolling Interest Total Stockholders' Equity

Shares Amount Shares Amount

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

— — — — — 263,928 — 821 264,749

Other comprehensive loss

— — — — — — ( 78,878 ) — ( 78,878 )

Purchase of treasury stock

— — ( 3,300 ) ( 88,006 ) — — — — ( 88,006 )

Vesting of restricted stock units, net of shares withheld for employee tax

491 5 — — ( 2,130 ) — — — ( 2,125 )

Stock-based compensation expense

— — — — 15,763 — — — 15,763

Exercise of stock options

112 1 — — 1,466 — — — 1,467

Capital contributions from, net of dividends declared to, noncontrolling interest shareholder

— — — — — — — 314 314

Adoption of ASU 2016-13 (see Note 3)

— — — — — ( 2,519 ) — — ( 2,519 )

Disposition of subsidiary with noncontrolling interests (1)

BALANCE, March 31, 2020

— — — — — — — ( 11,404 ) ( 11,404 )

BALANCE, June 30, 2020

320,530 $ 3,205 ( 16,496 ) $ ( 439,819 ) $ 1,433,338 $ 4,401,545 $ ( 279,763 ) $ 29,435 $ 5,147,941

(1) The amount disposed of in 2020 relates to discontinued operations.

1 unchanged sentence

LKQ Stockholders

Treasury Stock

Additional Paid-In Capital

Comprehensive Loss

Noncontrolling Interest

Total Stockholders' Equity

Common Stock Treasury Stock Additional Paid-In Capital Retained

Earnings Accumulated

Comprehensive Loss 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

— — — — — 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

Dividends declared to noncontrolling interest shareholder

BALANCE, March 31, 2019

( 15 ) — — — ( 428 ) — — — ( 428 )

Capital contributions from, net of dividends declared to, noncontrolling interest shareholder

— — — — — — — ( 15 ) ( 15 )

Acquired noncontrolling interest

— — — — — — — 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

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

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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, 2019 filed with the SEC on February 27, 2020 ("2019 Form 10-K").

The coronavirus disease 2019 ("COVID-19") pandemic and the resulting governmental actions taken to control the virus have impacted, and are expected to continue to impact, our business in 2020.

The effects include, but are not limited to, a reduction in demand for our products and 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 the preparation of our financial statements and footnotes as of and for the three months ended March 31, 2020.

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.

The coronavirus disease 2019 ("COVID-19") pandemic and the resulting governmental actions taken to control the virus have impacted, and are expected to continue to impact, our business in 2020 and into 2021.

We have considered COVID-19 impacts in the preparation of our financial statements and footnotes as of and for the three and six months ended June 30, 2020.

Specific disclosures are presented in the following footnotes as applicable.

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We immediately classified the business as discontinued operations because the business was never integrated into our Europe segment.

We completed the 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 Statements of Income).

We completed the sale of Stahlgruber's Czech Republic business on February 28, 2020, resulting in a loss on sale of $ 1 million (presented in Net income (loss) from discontinued operations in the Unaudited Condensed Consolidated Statements of Income).

As part of the transaction, we purchased the 48.2 % noncontrolling interest from the minority shareholder for a purchase price of € 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.

1 unchanged sentence

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 the business, of which an immaterial amount was attributable to the noncontrolling interest.

During the three months ended June 30, 2020, we recorded an immaterial adjustment related to the loss on disposal of the business.

As of December 31, 2019, the assets held for sale, liabilities held for sale, and noncontrolling interest 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 Sheets.

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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 expected lifetime credit losses was approximately $ 60 million and $ 53 million at March 31, 2020 and December 31, 2019 , respectively.

Our reserve for expected lifetime credit losses was approximately $ 70 million and $ 53 million at June 30, 2020 and December 31, 2019, respectively.

Bad debt expense totaled $ 24 million and $ 6 million for the six months ended June 30, 2020 and June 30, 2019, respectivel y.

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.

2016-13, "Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13") in the first quarter of 2020 (see the Recently Adopted Accounting Pronouncements section below for further details) 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 consist of the following (in thousands):

June 30, December 31,

Aftermarket and refurbished products $ 1,895,922 $ 2,297,895

3 unchanged sentences

Aftermarket and refurbished products and salvage and remanufactured products are primarily composed of finished goods.

As of March 31, 2020 , manufactured products inventory was composed of $ 19 million of raw materials, $ 4 million of work in process, and $ 5 million of finished goods.

As of June 30, 2020, manufactured products inventory was composed of $ 18 million of raw materials, $ 3 million of work in process, and $ 4 million of finished goods.

As of December 31, 2019, manufactured products inventory was composed of $ 17 million of raw materials, $ 3 million of work in process, and $ 6 million of finished goods.

Net Assets Held for Sale

During 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 an immaterial net reduction of previously reported impairment charges for the three months ended March 31, 2020, and impairment charges totaling $ 15 million for the three months ended March 31, 2019 (presented in

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

As of March 31, 2020 , there were $ 15 million of assets held for sale, including $ 3 million of goodwill that was reclassified as held for sale related to our Europe segment, and $ 7 million of liabilities held for sale, which were recorded within Prepaid expenses and other current assets and Other current liabilities, respectively, on the Unaudited Condensed Consolidated Balance Sheets.

We expect the assets held for sale to be disposed of during the next twelve months.

The assets held for sale generated annualized revenue of approximately $ 81 million during the twelve-month period ended March 31, 2020 .

During 2019 and the first half of 2020, 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 impairment charges of $ 2 million for each of the three and six months ended June 30, 2020 and $ 33 million and $ 49 million for the three and six months ended June 30, 2019 (presented in Loss on disposal of businesses and impairment of net assets held for sale in the Unaudited Condensed Consolidated Statements of Income).

Excluding the Stahlgruber Czech Republic wholesale business discussed in Note 2, "Discontinued Operations," as of December 31, 2019, there were $ 19 million of assets held for sale and $ 9 million of liabilities held for sale, which were recorded within Prepaid expenses and other current assets and Other current liabilities, respectively, on the Unaudited Condensed Consolidated Balance Sheet.

As of June 30, 2020, assets and liabilities held for sale were immaterial.

In the second quarter of 2020, we completed the sale of one of these businesses, a non-core telecommunications operation in Germany, resulting in an immaterial loss on sale (presented in Loss on disposal of businesses and impairment of net assets held for sale in the Unaudited Condensed Consolidated Statements of Income).

The disposed business was immaterial, generating annualized revenue of approximately $ 78 million during the twelve-month period ended May 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 projected revenues and profits, tax rates, capital expenditures, working capital requirements and discount rates.

Management's assumptions for our discounted cash flow analyses of the businesses were based on 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, the inputs to our estimates included projected market multiples and any reasonable offers.

1 unchanged sentence

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 March 31, 2020 .

The fair values of the net assets were measured on a non-recurring basis as of June 30, 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 and indefinite-lived intangibles are 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 .

LKQ’s market capitalization declined by approximately 40 %

between February 20, 2020, when the Company released its 2019 financial results, and March 31, 2020.

While we believed 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 in the first quarter.

The fair value estimates of our reporting units were established using weightings of the results of a discounted cash flow methodology and a comparative market multiples approach.

At the time of our analysis, 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 expected that cost mitigation actions and cash preservation measures would dampen the negative impact of the projected revenue decline.

Based on 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.

We did not identify a triggering event in the second quarter that necessitated an interim test of goodwill impairment, as LKQ’s market capitalization increased by approximately 28 % between March 31 and June 30, 2020.

Actual results for the second quarter were favorable relative to the forecast used in the first quarter interim test.

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 and finance lease right-of-use ("ROU") assets and 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 the commencement date in determining the present value of future payments.

We determine our incremental borrowing rate by analyzing yield curves with consideration of lease term, country and company specific factors.

The 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 year to 40 years or more.

For each lease, we consider whether we are reasonably certain to exercise these options to extend.

Other contracts may contain termination options that we assess to determine whether we are reasonably certain not to exercise those options.

Certain leases also include options to purchase the leased property.

The depreciable lives 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 ROU asset or 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.

In response to the COVID-19 global pandemic, we have secured rent relief from some of our lessors.

The rent relief offered has most often been in the form of rent payment deferrals for one or more months to be paid back over a specified period of time ranging from one month to the remaining term of the lease.

In accordance with FASB Staff Q&A - Topic 842 and Topic 840:

Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic ("FASB Staff Q&A") issued in April 2020, we are able to account for lease deferrals resulting directly from COVID-19 as if the enforceable rights and obligations for the deferrals existed in the respective contracts at lease inception as long as those concessions do not result in a substantial increase in our lease obligations.

As a result, we have been able to apply the relief in most circumstances.

Guidance from the FASB Staff Q&A provided methods to account for such rent deferrals, including the option to account for the lease as if no changes to the lease contract were made or to account for the deferred payments as variable lease payments.

For the majority of our leases that were affected by rent relief actions, we elected to account for the deferrals as if no changes to the lease contract were made and continued to recognize lease expense, on a straight-line basis, during the deferral period.

As of June 30, 2020, payment deferrals totaled $ 7 million and were recorded in Other current liabilities on the Unaudited Condensed Consolidated Balance Sheets.

Other concessions consisting of abated rent or discounted rent, without payback, from various landlords of $ 2 million resulted in reductions to Selling, general and administrative expenses in our Unaudited Condensed Consolidated Statements of Income.

Investments in Unconsolidated Subsidiaries

Our investment in unconsolidated subsidiaries was $ 146 million and $ 139 million as of March 31, 2020 and December 31, 2019 , respectively.

Our investment in unconsolidated subsidiaries was $ 137 million and $ 139 million as of June 30, 2020 and December 31, 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").

Our investment in unconsolidated subsidiaries in Europe was $ 121 million and $ 122 million as of June 30, 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 and six months ended June 30, 2020, respectively, and equity in earnings of $ 2 million and equity in losses of $ 38 million during the three and six months ended June 30, 2019, respectively, mainly related to our investment in Mekonomen AB ("Mekonomen").

On December 1, 2016, we acquired a 26.5 % equity interest in Mekonomen for an aggregate purchase price of $ 181 million.

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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 March 31, 2020 , our share of the book value of Mekonomen's net assets exceeded the book value of our investment in Mekonomen by $ 6 million ;

As of June 30, 2020, our share of the book value of Mekonomen's net assets exceeded the book value of our investment in Mekonomen by $ 5 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.

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.

During the three months ended March 31, 2019, we recognized an other-than-temporary impairment charge of $ 40 million, which represented the difference between 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 was recorded in Equity in earnings (losses) of unconsolidated subsidiaries in our Unaudited Condensed Consolidated Statements of Income.

The impairment charge was recorded in Equity in (losses) earnings of unconsolidated subsidiaries in our Unaudited Condensed Consolidated Statements of Income.

Mekonomen announced in 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 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.

The Level 1 fair value of our equity investment in the publicly traded Mekonomen common stock at June 30, 2020 was $ 99 million (using the Mekonomen share price of SEK 66 as of June 30, 2020) compared to a carrying value of $ 111 million.

We evaluated our investment in Mekonomen for other-than-temporary impairment and concluded the decline in fair value was not other-than-temporary;

however, a prolonged, material 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 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.

Our investment in unconsolidated subsidiaries in the North America segment was $ 15 million and $ 18 million as of June 30, 2020 and December 31, 2019, respectively.

We recorded equity in losses of $ 3 million during both the three and six months ended June 30, 2020, and equity in losses of $ 1 million and equity in earnings of an immaterial amount during the three and six months ended June 30, 2019, respectively, related to our North America equity method investments.

Warranty Reserve

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Warranty claims ( 27,189 )

Balance as of March 31, 2020

Balance as of June 30, 2020 $ 28,862

Litigation and Related Contingencies

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We currently expect that the resolution of such contingencies will not materially affect our financial position, results of operations or cash flows.

Government Assistance

During the three months ended June 30, 2020, we recorded $ 33 million in financial assistance from foreign governments, primarily in the form of grants to offset personnel expenses in Europe and Canada.

Financial assistance to be received from governments is recorded during the period in which we incur the costs which the assistance is intended to offset (and only if it is probable that we will meet the conditions required under the terms of the assistance).

Of the $ 33 million recorded during the second quarter, $ 1 million and $ 32 million were reductions to Cost of goods sold and Selling, general and administrative expenses, respectively, in our Unaudited Condensed Consolidated Statement of Income.

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 result of the COVID-19 pandemic.

Similar legislation was enacted in many of the Company’s international jurisdictions.

Tax m easures in these legislative actions did not have a material impact on the Company’s results of operations for the six months ended June 30, 2020.

Those initiatives did provide the Company with the opportunity to defer the timing of certain income, indirect and payroll tax payments in various jurisdictions.

As of June 30, 2020, $ 160 million and $ 114 million were recorded in Value added taxes payable and Income taxes payable, respectively, on our Unaudited Condensed Consolidated Balance Sheets, compared to $ 46 million and $ 27 million, respectively, as of December 31, 20 19.

Approximately $ 175 million to $ 185 million of payments otherwise due in the second quarter of 2020 were deferred, of which we estimate approximately $ 125 million to $ 135 million will be paid during the third quarter of 2020, with the remainder to be paid in the fourth quarter or later.

Stockholders' Equity

Treasury Stock

As of December 31, 2019 , our Board of Directors had authorized a stock repurchase program under which we may purchase up to $ 1.0 billion of our common stock from time to time through October 25, 2022.

As of June 30, 2020, our Board of Directors had authorized a stock repurchase program under which we may purchase up to $ 1.0 billion of our common stock from time to time through October 25, 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.

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Delaware law imposes restrictions on stock repurchases.

During the three months ended March 31, 2020, we repurchased 3.3 million shares of common stock for an aggregate price of $ 88 million .

During the three months ended March 31, 2019, we repurchased 2.6 million shares of common stock for an aggregate price of $ 70 million .

As of March 31, 2020, there was $ 560 million of remaining capacity under our repurchase program.

During the six months ended June 30, 2020, we repurchased 3.3 million shares of common stock for an aggregate price of $ 88 million;

we did not repurchase any shares during the three months ended June 30, 2020.

During the three and six months ended June 30, 2019, we repurchased 4.4 million and 7.0 million shares of common stock for an aggregate price of $ 120 million and $ 191 million, respectively.

As of June 30, 2020, there was $ 560 million of remaining capacity under our repurchase program.

Repurchased shares are accounted for as treasury stock using the cost method.

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During the first quarter of 2020, we adopted ASU No.

2016-13, "Financial Instruments - Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"), and ASU 2018-19, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses" ("ASU 2018-19").

2016-13 and ASU 2018-19, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses" ("ASU 2018-19").

ASU 2016-13 significantly changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.

ASU 2016-13 replaces the prior “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost.

ASU 2018-19 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.

contractual right to receive cash.

We applied ASU 2016-13 and ASU 2018-19 on a modified retrospective basis.

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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

Three Months Ended Six Months Ended

June 30, June 30,

2020 2019 2020 2019

North America $ 892,826 $ 1,165,482 $ 2,000,168 $ 2,321,180

Europe 1,206,330 1,510,952 2,564,299 2,951,793

Specialty 404,002 410,263 751,408 762,819

Parts and services 2,503,158 3,086,697 5,315,875 6,035,792

Other 123,165 161,476 311,383 312,684

Total revenue $ 2,626,323 $ 3,248,173 $ 5,627,258 $ 6,348,476

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electrical products such as spark plugs and batteries;

steering and suspension products;

suspension products;

and oil and automotive fluids.

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Warranty revenue recognized ( 22,473 )

Balance as of March 31, 2020

Balance as of June 30, 2020 $ 25,439

Other Revenue

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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 $ 100 million and $ 56 million , respectively, as of March 31, 2020 , and $ 97 million and $ 52 million , respectively, as of December 31, 2019 .

We recorded a refund liability and return asset for expected returns of $ 104 million and $ 58 million, respectively, as of June 30, 2020, and $ 97 million and $ 52 million, respectively, as of December 31, 2019.

The refund liability is presented separately on the Unaudited Condensed Consolidated Balance Sheets within current liabilities while the return asset is presented within Prepaid expenses and other current assets.

Other types of variable consideration consist primarily of discounts, volume rebates, and other customer sales incentives that are recorded in Receivables, net on the Unaudited Condensed Consolidated Balance Sheets.

We recorded a reserve for our variable consideration of $ 67 million and $ 108 million as of March 31, 2020 and December 31, 2019 , respectively.

We recorded a reserve for our variable consideration of $ 72 million and $ 108 million as of June 30, 2020 and December 31, 2019, respectively.

While other customer incentive programs exist, we characterize them as material rights in the context of our sales transactions.

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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 inefficiencies.

We have incurred and expect to incur costs for inventory write-downs, employee severance and other expenditures related to employee terminations;

In the second quarter of 2019, we implemented a cost reduction initiative, covering all three of our reportable segments, designed to eliminate underperforming assets and cost inefficiencies.

We have incurred and expect to incur 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;

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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 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 expense during the 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).

During the three and six months ended June 30, 2020, we incur red $ 2 million and $ 5 million, re spectively, of restructuring expenses under this program, primarily related to facility exit costs and employee-related costs.

In the three months ended June 30, 2019, costs under the program totaled $ 5 million, primarily for employee severance.

These costs were recorded within Restructuring and acquisition related expenses in the Unaudited Condensed Consolidated Statements of Income during the three and six months ended June 30, 2020 and 2019.

We expect to incur between $ 2 million and $ 4 million of future costs through 2021 to complete the program, and total program costs will be approximately $ 45 million ($ 37 million was

incurred during the year ended December 31, 2019).

Of the cumulative program costs incurred to date, $ 27 million, $ 14 million and $ 1 million related to our Europe, North America and Specialty segments, respectively.

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;

These actions are incremental to those initiated as part of the 2019 Global Restructuring Program, and 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;

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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.

We expanded this program during the second quarter as we identified additional opportunities to eliminate inefficiencies, including actions in response to impacts to our business from COVID-19.

During the three and six months ended June 30, 2020, we recognized restructuring expenses totaling $ 25 million and $ 27 million, respectively, for employee-related costs, facility exit costs and inventory write-downs.

Of these expenses, $ 6 million resulted from inventory impairment charges related to facility consolidation actions and brand rationalizations and was recorded in Cost of goods sold in the Unaudited Condensed Consolidated Statement of Income for the three months ended June 30, 2020.

Of the cumulative program costs incurred to date, $ 17 million, $ 10 million and $ 1 million related to our North America, Europe and Specialty segments, respectively.

We estimate total costs under the program through its expected completion date in 2022 will be between $ 65 million and $ 75 million, of which approximately $ 40 million, $ 28 million, and $ 1 million will be incurred by our Europe, North America and Specialty segments, respectively.

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 .

During the three and six months ended June 30, 2020, we incurre d $ 4 million and $ 5 million of restructuring expenses, respectively, for our acquisition integration plans.

These expenses were primarily related to the integ ration of our operations in Belgium.

Future expenses to complete our existing integration plans are expected to be immaterial.

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.

1 LKQ Europe Program

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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

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 continue to expect to incur between $ 45 million and $ 55 million in total per sonnel and inventory related restructuring charges through 2024 as a result of executing the 1 LKQ Europe program.

Certain projects were delayed in March 2020 in response to the COVID-19 pandemic.

Based on our expectations in the second quarter of 2020 that the impacts on our business from COVID-19 had stabilized, we restarted the program in July 2020 with substantially the same initiatives and projects as prior to the pandemic, although we are evaluating the impact of the delay on our estimates of the related expenditures and timelines.

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.

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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 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.

Each RSU converts into one share of LKQ common stock on the applicable vesting date.

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For our RSU grants prior to 2019, participants forfeit their unvested shares upon retirement.

The fair value of RSUs that vested during the three months ended March 31, 2020 was $ 15 million ;

The fair value of RSUs that vested during the six months ended June 30, 2020 was $ 17 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 three months ended March 31, 2020 :

Weighted Average Remaining Contractual Term

Aggregate Intrinsic Value

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

Outstanding Weighted

Fair Value Weighted Average Remaining Contractual Term

(in years) Aggregate Intrinsic Value

(in thousands) (1)

Unvested as of January 1, 2020 1,612,026 $ 31.72

887,907 $ 31.71

Vested ( 550,661 ) $ 30.94

Forfeited / Canceled ( 77,143 ) $ 32.81

Unvested as of March 31, 2020

Expected to vest after March 31, 2020

Unvested as of June 30, 2020 1,872,129 $ 31.90

Expected to vest after June 30, 2020 1,660,511 $ 31.83 3.1 $ 43,505

(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.

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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 performance periods.

The following table summarizes activity related to our PSUs under the Equity Incentive Plan for the three months ended March 31, 2020 :

Weighted Average Remaining Contractual Term

Aggregate Intrinsic Value

The following table summarizes activity related to our PSUs under the Equity Incentive Plan for the six months ended June 30, 2020:

Outstanding Weighted

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

Unvested as of March 31, 2020

Expected to vest after March 31, 2020

164,152 $ 31.85

Forfeited / Canceled ( 7,375 ) $ 29.65

Unvested as of June 30, 2020 292,947 $ 29.97

Expected to vest after June 30, 2020 292,947 $ 29.97 2.0 $ 7,675

(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.

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Stock options expired either six years or ten years from the date they were granted.

No options were granted during the three months ended March 31, 2020 .

No options vested during the three months ended 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 three months ended March 31, 2020 :

Average Exercise Price

Weighted Average Remaining Contractual Term

Aggregate Intrinsic Value

No options were granted during the six months ended June 30, 2020.

No options vested during the six months ended June 30, 2020.

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

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

Balance as of March 31, 2020

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

Exercised ( 112,472 ) $ 11.88 $ 2,629

Canceled ( 2,122 ) $ 32.31

Balance as of June 30, 2020 — $ — — $ —

All stock options were 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 $ 6 million , respectively, for the three months ended March 31, 2020 and 2019.

As of March 31, 2020 , unrecognized compensation expense related to unvested RSUs and PSUs was $ 59 million .

Pre-tax stock-based compensation expense for RSUs and PSUs totaled $ 8 million and $ 16 million for the three and six months ended June 30, 2020, respectively, and $ 8 million and $ 14 million for the three and six months ended June 30, 2019, respectively.

As of June 30, 2020, unrecognized compensation expense related to unvested RSUs and PSUs was $ 51 million .

Stock-based compensation expense related to these awards will be different to the extent that forfeitures ar e realized and performance under the PSUs differs from target.

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

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2020 2019 2020 2019

Income from continuing operations $ 118,493 $ 151,707 $ 265,387 $ 250,770

Denominator for basic earnings per share—Weighted-average shares outstanding

304,001 311,891 305,123 313,460

Effect of dilutive securities:

RSUs 189 315 352 364

Stock options — 513 2 536

Denominator for diluted earnings per share—Adjusted weighted-average shares outstanding

304,190 312,719 305,477 314,360

Basic earnings per share from continuing operations $ 0.39 $ 0.49 $ 0.87 $ 0.80

Diluted earnings per share from continuing operations (1)

$ 0.39 $ 0.49 $ 0.87 $ 0.80

(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 months ended March 31, 2020 and 2019 (in thousands):

Three Months Ended

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, 2020 and 2019 (in thousands):

Three Months Ended Six Months Ended

June 30, June 30,

2020 2019 2020 2019

Antidilutive securities:

RSUs 1,444 559 913 579

Stock options — 32 — 32

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Three Months Ended

March 31, 2020

Unrealized Gain (Loss)

on Cash Flow Hedges

Unrealized (Loss) Gain

on Pension Plans

Other Comprehensive Loss from Unconsolidated Subsidiaries

June 30, 2020

Translation Unrealized (Loss) Gain

on Cash Flow Hedges Unrealized (Loss) Gain

on Pension Plans Other Comprehensive (Loss) Income from Unconsolidated Subsidiaries Accumulated

Comprehensive

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Beginning balance $ ( 274,858 ) $ ( 1,963 ) $ ( 31,814 ) $ ( 5,268 ) $ ( 313,903 )

Pretax (loss) income

Pretax income (loss) 30,663 ( 7,807 ) — — 22,856

Income tax effect — 1,842 — — 1,842

Reclassification of unrealized (gain) loss

Reclassification of unrealized loss

— 7,761 2,655 — 10,416

Reclassification of deferred income taxes

— ( 1,827 ) ( 780 ) — ( 2,607 )

Disposal of business

Other comprehensive loss from unconsolidated subsidiaries

671 — — — 671

Other comprehensive income from unconsolidated subsidiaries

— — — 962 962

Ending balance $ ( 243,524 ) $ ( 1,994 ) $ ( 29,939 ) $ ( 4,306 ) $ ( 279,763 )

Three Months Ended

March 31, 2019

Unrealized Gain (Loss)

on Cash Flow Hedges

Unrealized (Loss) Gain

on Pension Plans

June 30, 2019

Translation Unrealized Gain (Loss)

on Cash Flow Hedges Unrealized (Loss) Gain

on Pension Plans Other Comprehensive (Loss) Income from Unconsolidated Subsidiaries Accumulated

Comprehensive

(Loss) Income

Beginning balance $ ( 187,492 ) $ 11,637 $ ( 7,884 ) $ ( 7,115 ) $ ( 190,854 )

Pretax income (loss) 5,602 ( 9,418 ) — — ( 3,816 )

Income tax effect — 2,230 — — 2,230

Reclassification of unrealized loss

— 2,013 37 — 2,050

Reclassification of deferred income taxes

— ( 475 ) ( 9 ) — ( 484 )

Other comprehensive income from unconsolidated subsidiaries

— — — 2,321 2,321

Ending balance $ ( 181,890 ) $ 5,987 $ ( 7,856 ) $ ( 4,794 ) $ ( 188,553 )

Six Months Ended

June 30, 2020

Translation Unrealized Gain (Loss)

on Cash Flow Hedges Unrealized (Loss) Gain

on Pension Plans Other Comprehensive Loss from Unconsolidated Subsidiaries Accumulated

Comprehensive

(Loss) Income

Beginning balance $ ( 170,893 ) $ 5,358 $ ( 31,934 ) $ ( 3,416 ) $ ( 200,885 )

Pretax loss ( 73,397 ) ( 3,625 ) — — ( 77,022 )

Income tax effect — 858 — — 858

Reclassification of unrealized (gain) loss

— ( 5,946 ) 2,769 — ( 3,177 )

Reclassification of deferred income taxes

— 1,361 ( 774 ) — 587

Disposal of business

766 — — — 766

Other comprehensive loss from unconsolidated subsidiaries

— — — ( 890 ) ( 890 )

Ending balance $ ( 243,524 ) $ ( 1,994 ) $ ( 29,939 ) $ ( 4,306 ) $ ( 279,763 )

Six Months Ended

June 30, 2019

Translation Unrealized Gain (Loss)

on Cash Flow Hedges Unrealized (Loss) Gain

on Pension Plans Other Comprehensive Loss from Unconsolidated Subsidiaries Accumulated

Comprehensive

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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 )

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

Three Months Ended Six Months Ended

June 30, June 30,

Classification 2020 2019 2020 2019

Unrealized gains on interest rate swaps

Interest expense, net of interest income

Unrealized gains on cross currency swaps

Unrealized (losses) gains on interest rate swaps

Interest expense, net of interest income $ ( 1,769 ) $ 1,763 $ 1,527 $ 3,455

Unrealized gains on cross currency swaps (1)

Unrealized gains on cross currency swaps Interest expense, net of interest income 2,796 4,319 5,347 8,649

Unrealized (losses) gains on cross currency swaps (1)

Other income, net ( 8,788 ) ( 8,095 ) ( 928 ) 5,071

Total $ ( 7,761 ) $ ( 2,013 ) $ 5,946 $ 17,175

(1) The amounts reclassified to Other income, net in our Unaudited Condensed Consolidated Statements of Income offset the impact of the remeasurement of the underlying transactions.

Net unrealized losses related to our pension plans were reclassified to Other income, net in our Consolidated Statements of Income for the three months ended March 31, 2020 and 2019.

Net unrealized losses related to our pension plans were reclassified to Other income, net in our Consolidated Statements of Income during each of the six months ended June 30, 2020 and 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.

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

June 30, December 31,

Senior secured credit agreement:

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Revolving credit facilities 1,138,928 1,268,008

Notes (2023) — 600,000

Euro Notes (2024) 561,700 560,650

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Notes payable through October 2030 at weighted average interest rates of 3.1% and 3.2%, respectively

27,202 26,971

Finance lease obligations at weighted average interest rates of 3.9% and 4.1%, respectively

43,472 40,837

Other debt at weighted average interest rates of 1.3% and 1.8%, respectively

51,251 113,010

Total debt 3,278,453 4,072,026

long-term debt issuance costs ( 27,208 ) ( 29,990 )

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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.

On June 11, 2020, LKQ Corporation and certain other subsidiaries of LKQ (collectively, the "Borrowers") entered into Amendment No.

4 to the Fourth Amended and Restated Credit Agreement dated January 29, 2016 (the "Credit Agreement"), which modifies the maximum permitted net leverage ratio through the quarter ending September 30, 2021.

Prior to the amendment, the maximum permitted net leverage ratio was 4.00 :1.00.

After the amendment, the maximum permitted net leverage ratio is (i) 5.00 :1.00 for the quarters ending June 30, 2020, September 30, 2020, December 31, 2020 and March 31, 2021, (ii) 4.50 :1.00 for the quarter ending June 30, 2021, and (iii) 4.25 :1.00 for the quarter ending September 30, 2021.

Beginning with the quarter ending December 31, 2021, the maximum permitted net leverage ratio reverts to the terms in effect prior to the amendment.

In the event that the net leverage ratio is greater than 4.00 :1.00, the Company would be restricted from repurchasing its shares.

We can at any time elect to cancel the modifications to the maximum permitted net leverage ratio and revert to the terms in effect prior to the amendment subject to compliance with the 4.00 :1.00 ratio.

Amendment No.

4 to the Credit Agreement also made certain other immaterial modifications.

The total availability under the revolving credit facility's multicurrency component is $ 3.15 billion.

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 $ 337 million as of March 31, 2020 , are due and payable in quarterly installments equal to approximately $ 4 million on the last day of each fiscal quarter, with the remaining balance due and payable on January 29, 2024.

Term loan borrowings, which totaled $ 333 million as of June 30, 2020, are due and payable in quarterly installments equal to approximately $ 4 million on the last day of each fiscal quarter, with the remaining balance due and payable on January 29, 2024.

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.

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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 10, "Derivative Instruments and Hedging Activities ," the weighted average interest rates on borrowings outstanding under the Credit Agreement at March 31, 2020 and December 31, 2019 were 1.6 % 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.

Including the effect of the interest rate swap agreements described in Note 10, "Derivative Instruments and Hedging Activities," the weighted average interest rates on borrowings outstanding under the Credit Agreement at June 30, 2020 and December 31, 2019 were 1.5 % and 1.6 %, respectively.

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 $ 18 million classified as current maturities at both March 31, 2020 and December 31, 2019 .

As of March 31, 2020 , there were letters of credit outstanding in the aggregate amount of $ 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 March 31, 2020 was $ 1.5 billion .

Of the total borrowings outstanding under the Credit Agreement, there were $ 18 million classified as current maturities at both June 30, 2020 and December 31, 2019.

As of June 30, 2020, there were letters of credit outstanding in the aggregate amount of $ 70 million.

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.

4 to the Fourth Amended and Restated Credit Agreement in June 2020, 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.

In 2013, we issued $ 600 million aggregate principal amount of 4.75 % senior notes due 2023 (the "U.S.

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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.

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)

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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;

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Net receivables totaling

$ 116 million and $ 132 million were collateral for the investment under the receivables facility as of as March 31, 2020 and December 31, 2019 , respectively.

$ 104 million and $ 132 million were collateral for the investments under the receivables facility as of as June 30, 2020 and December 31, 2019, respectively.

Under the receivables facility, we pay variable interest rates plus a margin on the outstanding amounts invested by the Purchasers.

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We also pay a commitment fee on the excess of the investment maximum over the average daily outstanding investment, payable monthly in arrears.

The outstanding balance was $ 98 million as of March 31, 2020, and there was no outstanding balance as of December 31, 2019 .

There was no outstanding balance as of June 30, 2020 or December 31, 2019.

Derivative Instruments and Hedging Activities

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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 March 31, 2020 and December 31, 2019 (in thousands):

Notional Amount

Fair Value at March 31, 2020 (USD)

March 31, 2020

Other Current Assets

Other Noncurrent Assets

Other Accrued Expenses

Other Noncurrent Liabilities

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

Notional Amount Fair Value at June 30, 2020 (USD)

June 30, 2020 Other Current Assets Other Noncurrent Assets Other Accrued Expenses Other Noncurrent Liabilities

Interest rate swap agreements

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Cross currency swap agreements

USD/euro $ 458,689 2,717 — 24,559 —

Total cash flow hedges $ 2,717 $ — $ 27,564 $ —

Notional Amount

Fair Value at December 31, 2019 (USD)

December 31, 2019

Other Current Assets

Other Noncurrent Assets

Other Accrued Expenses

Other Noncurrent Liabilities

Notional Amount Fair Value at December 31, 2019 (USD)

December 31, 2019 Other Current Assets Other Noncurrent Assets Other Accrued Expenses Other Noncurrent Liabilities

Interest rate swap agreements

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Cross currency swap agreements

USD/euro $ 466,621 2,975 181 970 23,349

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 on our Unaudited Condensed Consolidated Balance Sheets.

The impact of netting the fair values of these contracts would result in a decrease to Prepaid expenses and other current assets and Other accrued expenses on our Unaudited Condensed Consolidated Balance Sheets of $ 5 million and $ 1 million at March 31, 2020 and December 31, 2019 , respectively.

The impact of netting the fair values of these contracts would result in a decrease to Prepaid expenses and other current assets and Other accrued expenses on our Unaudited Condensed Consolidated Balance Sheets of $ 3 million and $ 1 million at June 30, 2020 and December 31, 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 no impact at March 31, 2020 .

The activity related to our cash flow hedges is included in Note 8, "Accumulated Other Comprehensive Income (Loss) ." As of March 31, 2020 , we estimate that we will reclassify $ 2 million of derivative gains (net of tax) from Accumulated Other Comprehensive Income (Loss) to Interest expense, net of interest income in our Unaudited Condensed Consolidated Statements of Income within the next 12 months.

there would be no impact at June 30, 2020.

The activity related to our cash flow hedges is included in Note 8, "Accumulated Other Comprehensive Income (Loss)." As of June 30, 2020, we estimate that we will reclassify an immaterial amount of derivative losses (net of tax) from Accumulated Other Comprehensive Income (Loss) 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 $ 2 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;

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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 March 31, 2020 and December 31, 2019 , along with the effect on our results of operations during the three months ended March 31, 2020 and 2019 , were immaterial.

The notional amount and fair value of these contracts at June 30, 2020 and December 31, 2019, along with the effect on our results of operations during the three and six months ended June 30, 2020 and 2019, were immaterial.

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 months ended 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.

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, 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:

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and Level 3, defined as significant unobservable inputs for 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 March 31, 2020 and December 31, 2019 (in thousands):

Balance as of March 31, 2020

Fair Value Measurements as of March 31, 2020

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, 2020 and December 31, 2019 (in thousands):

Balance as of June 30, 2020 Fair Value Measurements as of June 30, 2020

Level 1 Level 2 Level 3

Cash surrender value of life insurance $ 59,599 $ — $ 59,599 $ —

Cross currency swap agreements 2,717 — 2,717 —

Total Assets $ 62,316 $ — $ 62,316 $ —

Contingent consideration liabilities $ 11,914 $ — $ — $ 11,914

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Total Liabilities $ 103,341 $ — $ 91,427 $ 11,914

Balance as of December 31, 2019

Fair Value Measurements as of December 31, 2019

Balance as of December 31, 2019 Fair Value Measurements as of December 31, 2019

Level 1 Level 2 Level 3

Cash surrender value of life insurance $ 60,637 $ — $ 60,637 $ —

Interest rate swaps

3,262 — 3,262 —

Cross currency swap agreements 3,156 — 3,156 —

Total Assets $ 67,055 $ — $ 67,055 $ —

Contingent consideration liabilities $ 11,539 $ — $ — $ 11,539

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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 noncurrent portion of deferred compensation liabilities and contingent consideration liabilities 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 10, "Derivative Instruments and Hedging Activities."

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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.

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.

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Our debt is reflected on the Unaudited Condensed Consolidated Balance Sheets at cost.

Based on market conditions as of both March 31, 2020 and December 31, 2019 , the fair value of our credit agreement borrowings reasonably approximated the carrying values of $ 1.9 billion and $ 1.6 billion , respectively.

In addition, based on market conditions, the fair value of the outstanding borrowings under the receivables facility approximated the carrying value of $ 98 million as of March 31, 2020 ;

as of December 31, 2019 , there were no outstanding borrowings under the receivables facility.

Based on market conditions as of both June 30, 2020 and December 31, 2019, the fair value of our credit agreement borrowings reasonably approximated the

carrying values of $ 1.5 billion and $ 1.6 billion, respectively.

As of June 30, 2020 and December 31, 2019 there were no outstanding borrowings under the receivables facility.

As of December 31, 2019, the fair value of the U.S.

Notes (2023) was approximately $ 609 million compared to a carrying value of $ 600 million ;

as of March 31, 2020 , there were no outstanding borrowings on the U.S.

as of June 30, 2020, there were no outstanding borrowings on the U.S.

Notes (2023).

As of March 31, 2020 and December 31, 2019 , the fair values of the Euro Notes (2024) were approximately $ 544 million and $ 632 million compared to carrying values of $ 552 million and $ 561 million , respectively.

As of March 31, 2020 and December 31, 2019 , the fair values of the Euro Notes (2026/28) were $ 1.0 billion and $ 1.2 billion compared to a carrying value of $ 1.1 billion at each date.

As of June 30, 2020 and December 31, 2019, the fair values of the Euro Notes (2024) were approximately $ 583 million and $ 632 million, respectively, compared to carrying values of $ 562 million and $ 561 million, respectively.

As of June 30, 2020 and December 31, 2019, the fair value of the Euro Notes (2026/28) was $ 1.2 billion at each date, compared to a carrying value of $ 1.1 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 March 31, 2020 and December 31, 2019 to assume these obligations.

We estimated the fair value by calculating the upfront cash payment a market participant would require at June 30, 2020 and December 31, 2019 to assume these obligations.

The fair value of our U.S.

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The defined benefit plans are mostly closed to new participants and, in some cases, existing participants no longer accrue benefits.

As of March 31, 2020 and December 31, 2019 , the aggregate funded status of the defined benefit plans was a liability of $ 139 million and $ 142 million , respectively, and is reported in Other noncurrent liabilities and Accrued payroll-related liabilities on our Unaudited Condensed Consolidated Balance Sheets.

As of each of June 30, 2020 and December 31, 2019, the aggregate funded status of the defined benefit plans was a liability of $ 142 million, 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.

Plan") and to freeze all related benefit accruals, effective June 30, 2019.

The distribution of the U.S.

Plan assets pursuant to the termination will not be made until the plan termination satisfies all regulatory requirements, which is expected to occur in 2020.

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.

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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 December 31, 2019, the U.S.

Plan had an underfunded status of $ 8 million .

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

Three Months Ended

During the quarter ended June 30, 2020, participants were able to elect lump-sum distributions.

As a result of these elections and subsequent payments, we reclassified $ 2 million of unrealized loss from Accumulated Other Comprehensive Income to Other income, net in our Unaudited Condensed Consolidated Statements of Income as of June 30, 2020 to reflect the partial settlement of the plan.

We expect to settle the remaining obligations under the plan by the end of 2020 through the purchase of annuity contracts.

Actuarial valuations to support settlement entries will be completed upon the finalization of lump sum distributions during the third quarter of 2020 and then additionally in the fourth quarter upon the purchase of annuity contracts.

We expect that these valuations will result in additional charges recognized through Other income, net, but are unable to quantify them at this time.

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

Three Months Ended Six Months Ended

June 30, June 30,

2020 2019 2020 2019

Service cost $ 856 $ 1,074 $ 1,526 $ 1,661

Interest cost 731 1,010 1,449 1,995

Expected return on plan assets ( 662 ) ( 560 ) ( 1,140 ) ( 1,340 )

Amortization of actuarial (gain) loss

Amortization of actuarial loss 555 37 669 290

Settlement loss 2,100 — 2,100 —

Net periodic benefit cost $ 3,580 $ 1,561 $ 4,604 $ 2,606

For the three months ended March 31, 2020 and 2019 , 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, net in our Unaudited Condensed Consolidated Statements of Income.

For the three and six months ended June 30, 2020 and 2019, 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, net in our Unaudited Condensed Consolidated Statements of Income.

At the end of each interim period, we estimate our annual effective tax rate and apply that rate to our interim earnings.

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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 three months ended March 31, 2020 was 29.2 % , compared to 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.

Our effective income tax rate for the six months ended June 30, 2020 was 27.7 % , compared to 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 impa ct 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 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 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 $ 60 million of 2020 tax payments to 2021 and later.

For the six months ended June 30, 2020, the effective tax rate was reduced 0.3 % by 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 for the six months ended June 30, 2019 added 0.1 % to the effective tax rate.

Ongoing uncertainties due to the impact of the COVID-19 p andemic 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.

Segment and Geographic Information

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

North America

Three Months Ended March 31, 2020

North America Europe Specialty Eliminations Consolidated

Three Months Ended June 30, 2020

Third Party $ 1,011,136 $ 1,211,185 $ 404,002 $ — $ 2,626,323

Intersegment 259 — 872 ( 1,131 ) —

Total segment revenue $ 1,011,395 $ 1,211,185 $ 404,874 $ ( 1,131 ) $ 2,626,323

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Depreciation and amortization (1)

Three Months Ended March 31, 2019

25,050 40,493 7,387 — 72,930

Three Months Ended June 30, 2019

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

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Depreciation and amortization (1)

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

22,425 46,774 6,955 — 76,154

North America Europe Specialty Eliminations Consolidated

Six Months Ended June 30, 2020

Third Party $ 2,301,071 $ 2,574,779 $ 751,408 $ — $ 5,627,258

Intersegment 519 — 2,048 ( 2,567 ) —

Total segment revenue $ 2,301,590 $ 2,574,779 $ 753,456 $ ( 2,567 ) $ 5,627,258

Segment EBITDA $ 360,992 $ 167,649 $ 84,465 $ — $ 613,106

Depreciation and amortization (1)

48,198 81,588 14,523 — 144,309

Six Months Ended June 30, 2019

Third Party $ 2,623,876 $ 2,961,781 $ 762,819 $ — $ 6,348,476

Intersegment 199 — 2,554 ( 2,753 ) —

Total segment revenue $ 2,624,075 $ 2,961,781 $ 765,373 $ ( 2,753 ) $ 6,348,476

Segment EBITDA $ 366,684 $ 221,579 $ 90,326 $ — $ 678,589

Depreciation and amortization (1)

44,664 93,785 13,912 — 152,361

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

The key measure of segment profit or loss reviewed by our chief operating decision maker, who is our Chief Executive Officer, is Segment EBITDA.

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

Three Months Ended

net income attributable to continuing noncontrolling interest

Three Months Ended Six Months Ended

June 30, June 30,

2020 2019 2020 2019

Net income $ 118,770 $ 152,105 $ 264,749 $ 251,168

net (loss) income attributable to continuing noncontrolling interest

( 22 ) 1,352 718 2,367

net income attributable to discontinued noncontrolling interest

— 192 103 192

Net income attributable to LKQ stockholders 118,792 150,561 263,928 248,609

Net loss from discontinued operations

Net income (loss) from discontinued operations

277 398 ( 638 ) 398

Net income attributable to discontinued noncontrolling interest

— ( 192 ) ( 103 ) ( 192 )

Net income from continuing operations attributable to LKQ stockholders 118,515 150,355 264,669 248,403

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Depreciation and amortization - restructuring expenses (1)

3,173 — 3,972 —

Interest expense, net of interest income 25,616 35,884 51,547 71,973

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Provision for income taxes 41,869 55,825 102,280 107,375

Equity in earnings (losses) of unconsolidated subsidiaries (1)

EBITDA 258,930 318,218 575,556 580,112

Equity in (losses) earnings of unconsolidated subsidiaries (2)

( 2,649 ) 1,572 ( 2,133 ) ( 37,977 )

Restructuring and acquisition related expenses (1)

21,777 8,377 27,948 11,684

Restructuring expenses - cost of goods sold 5,665 — 5,661 —

(Gain on disposal of business) and impairment of net assets held for sale (3)

Loss on disposal of businesses and impairment of net assets held for sale (3)

2,485 33,497 2,236 48,520

Change in fair value of contingent consideration liabilities ( 332 ) 176 ( 428 ) 296

Segment EBITDA $ 291,174 $ 358,696 $ 613,106 $ 678,589

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

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.

(1) The sum of these two captions represents the total amount that is reported in Restructuring and acquisition related expenses in our Unaudited Condensed Consolidated Statements of Income.

Refer to Note 5, "Restructuring and Acquisition Related Expenses," for further information.

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

(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

Three Months Ended Six Months Ended

June 30, June 30,

2020 2019 2020 2019

Capital Expenditures

North America $ 10,892 $ 23,169 $ 40,213 $ 54,403

Europe 19,502 21,840 32,550 41,417

Specialty 2,369 3,243 4,538 5,448

Total capital expenditures $ 32,763 $ 48,252 $ 77,301 $ 101,268

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

June 30, December 31,

Receivables, net

North America $ 355,421 $ 419,452

Europe 629,355 636,216

Specialty 141,040 75,464

Total receivables, net 1,125,816 1,131,132

North America 829,049 991,062

Europe 1,223,628 1,401,801

Specialty 235,616 379,914

Total inventories 2,288,293 2,772,777

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North America 587,230 610,573

Europe 527,255 538,951

Specialty 82,020 84,876

Total property, plant and equipment, net 1,196,505 1,234,400

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North America 756,128 768,164

Europe 434,221 457,035

Specialty 82,164 83,312

Total operating lease assets, net 1,272,513 1,308,511

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North America 15,299 17,624

Europe 121,374 121,619

Total equity method investments 136,673 139,243

Other unallocated assets 6,015,499 6,193,893

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

Total assets $ 12,035,299 $ 12,779,956

We report net receivables;

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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.

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, remanufacturing operations in Mexico, an aftermarket parts freight consolidation warehouse in Taiwan, and administrative support functions in India.

Our largest countries of operation are the U.S., followed by Germany and the U.K.

Additional European operations are located in the Netherlands, Italy, Czech Republic, Belgium, Austria, Slovakia, Poland, and other European countries.

Our operations in other countries include wholesale operations in Canada, remanufacturing 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.

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

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2020 2019 2020 2019

United States $ 1,330,543 $ 1,613,417 $ 2,864,489 $ 3,155,443

Germany 359,134 415,947 733,686 802,412

United Kingdom 278,419 409,765 669,038 822,578

2 unchanged sentences

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

June 30, December 31,

Long-lived assets

United States $ 1,435,244 $ 1,467,701

Germany 340,681 340,995

United Kingdom 286,952 330,113

2 unchanged sentences

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements