What changed in this filing

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Item 1. Financial Statements

2020-11-03 compared with 2020-08-04 · 289 added, 283 removed, 875 unchanged (40% of the section changed)

3 unchanged sentences

(In thousands, except per share data)

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

4 unchanged sentences

Restructuring and acquisition related expenses 20,495 8,929 52,415 20,613

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

(Gain) loss on disposal of businesses and impairment of net assets held for sale ( 503 ) ( 3,601 ) 1,733 44,919

Depreciation and amortization 68,655 71,513 199,897 213,349

2 unchanged sentences

Interest expense, net of interest income 25,182 32,104 76,729 104,077

Loss on debt extinguishment — — 12,751 —

Other income, net ( 8,174 ) ( 5,733 ) ( 11,796 ) ( 9,584 )

(Gain) loss on debt extinguishment — ( 128 ) 12,751 ( 128 )

Other expense (income), net 2,492 ( 5,939 ) ( 9,304 ) ( 15,523 )

Total other expense, net 27,674 26,037 80,176 88,426

1 unchanged sentence

Provision for income taxes 78,510 57,747 180,790 165,122

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

Equity in earnings (losses) of unconsolidated subsidiaries 4,113 4,232 1,980 ( 33,745 )

Income from continuing operations 193,931 151,812 459,318 402,582

1 unchanged sentence

Net income 193,931 152,593 458,680 403,761

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

net income (loss) attributable to continuing noncontrolling interest 448 ( 46 ) 1,166 2,321

net income attributable to discontinued noncontrolling interest — 376 103 568

4 unchanged sentences

Net income 0.64 0.50 1.50 1.30

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

net income (loss) 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

4 unchanged sentences

Net income 0.64 0.50 1.50 1.29

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

net income (loss) 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

5 unchanged sentences

(In thousands)

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Net income $ 193,931 $ 152,593 $ 458,680 $ 403,761

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

net income (loss) attributable to continuing noncontrolling interest 448 ( 46 ) 1,166 2,321

net income attributable to discontinued noncontrolling interest — 376 103 568

6 unchanged sentences

2,803 ( 2,353 ) 4,798 ( 2,134 )

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

Other comprehensive (loss) income from unconsolidated subsidiaries ( 3,162 ) 1,240 ( 4,052 ) 98

Other comprehensive income (loss) 70,041 ( 72,193 ) ( 8,837 ) ( 85,796 )

Comprehensive income 263,972 80,400 449,843 317,965

comprehensive (loss) income attributable to continuing noncontrolling interest

( 22 ) 1,352 718 2,367

comprehensive income (loss) attributable to continuing noncontrolling interest 448 ( 46 ) 1,166 2,321

comprehensive income attributable to discontinued noncontrolling interest

6 unchanged sentences

(In thousands, except share and per share data)

June 30, December 31,

September 30, December 31,

Current assets:

18 unchanged sentences

Refund liability 106,442 97,314

Value added taxes payable 160,294 46,490

Other accrued expenses 356,858 289,683

Income taxes payable 114,202 26,959

Other current liabilities 102,374 121,623

9 unchanged sentences

Stockholders' equity:

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;

Common stock, $0.01 par value, 1,000,000,000 shares authorized, 320,830,051 shares issued and 304,334,136 shares outstanding at September 30, 2020;

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

3 unchanged sentences

Treasury stock, at cost;

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

( 439,819 ) ( 351,813 )

16,495,915 shares at September 30, 2020 and 13,195,915 shares at December 31, 2019 ( 439,819 ) ( 351,813 )

Total Company stockholders' equity 5,388,188 5,008,876

6 unchanged sentences

(In thousands)

Six Months Ended

Nine Months Ended

September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

5 unchanged sentences

Stock-based compensation expense 22,851 20,837

Loss on debt extinguishment 12,751 —

Loss (gain) on debt extinguishment 12,751 ( 128 )

Other ( 12,053 ) ( 13,192 )

11 unchanged sentences

Proceeds from disposal of businesses, net of cash sold 4,603 19,505

Investments in unconsolidated subsidiaries ( 6,917 ) ( 6,894 )

Other investing activities, net — 966

9 unchanged sentences

Repayments under receivables securitization facility ( 111,300 ) ( 146,600 )

Payment of notes issued from acquisitions — ( 19,123 )

Repayments of other debt, net ( 74,822 ) ( 31,587 )

5 unchanged sentences

Cash, cash equivalents and restricted cash of continuing operations, beginning of period 528,387 337,250

528,387 337,250

Cash, cash equivalents and restricted cash of discontinued operations, beginning of period 6,470 —

Cash, cash equivalents and restricted cash of continuing and discontinued operations, beginning of period 534,857 337,250

534,857 337,250

Cash, cash equivalents and restricted cash of continuing and discontinued operations, end of period 421,382 442,936

476,426 386,794

Cash and cash equivalents of discontinued operations, end of period — 4,328

1 unchanged sentence

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

Six Months Ended

Nine Months Ended

September 30,

Reconciliation of cash, cash equivalents and restricted cash

20 unchanged sentences

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)

BALANCE, July 1, 2020

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

Net income — — — — — 193,483 — 448 193,931

Other comprehensive income

4 unchanged sentences

— — — — 7,088 — — — 7,088

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

— — — — — — — ( 27 ) ( 27 )

BALANCE, June 30, 2020

Dividends declared to noncontrolling interest shareholder — — — — — — — ( 2,485 ) ( 2,485 )

BALANCE, September 30, 2020

320,830 $ 3,208 ( 16,496 ) $ ( 439,819 ) $ 1,439,493 $ 4,595,028 $ ( 209,722 ) $ 27,398 $ 5,415,586

2 unchanged sentences

Earnings Accumulated

Comprehensive (Loss) Income Noncontrolling Interest Total Stockholders' Equity

Comprehensive Loss 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

BALANCE, July 1, 2019

319,010 $ 3,190 ( 9,315 ) $ ( 250,762 ) $ 1,429,129 $ 3,847,485 $ ( 188,553 ) $ 69,259 $ 4,909,748

Other comprehensive income

— — — — — 152,263 — 330 152,593

Other comprehensive loss — — — — — — ( 72,193 ) — ( 72,193 )

Purchase of treasury stock

6 unchanged sentences

370 4 — — 3,594 — — — 3,598

Tax withholdings related to net share settlements of stock-based compensation awards

( 95 ) ( 1 ) — — ( 3,105 ) — — — ( 3,106 )

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

2 unchanged sentences

— — — — — — — 104 104

BALANCE, June 30, 2019

Purchase of noncontrolling interest (2)

— — — — ( 8,764 ) — — ( 10,116 ) ( 18,880 )

BALANCE, September 30, 2019

319,598 $ 3,196 ( 13,196 ) $ ( 351,813 ) $ 1,427,382 $ 3,999,748 $ ( 260,746 ) $ 54,933 $ 4,872,700

(1) The amount acquired during 2019 relates to discontinued operations.

See Note 2, "Discontinued Operations," for further details.

(2) The amount recorded in 2019 relates to the purchase of noncontrolling interest unrelated to a business combination.

Refer to "Stockholders' Equity" in Note 3, "Financial Statement Information" for further information.

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

25 unchanged sentences

— — — — — — — ( 11,404 ) ( 11,404 )

BALANCE, June 30, 2020

BALANCE, September 30, 2020

320,830 $ 3,208 ( 16,496 ) $ ( 439,819 ) $ 1,439,493 $ 4,595,028 $ ( 209,722 ) $ 27,398 $ 5,415,586

25 unchanged sentences

— — — — — — — 10,365 10,365

BALANCE, June 30, 2019

Purchase of noncontrolling interest (2)

— — — — ( 8,764 ) — — ( 10,116 ) ( 18,880 )

BALANCE, September 30, 2019

319,598 $ 3,196 ( 13,196 ) $ ( 351,813 ) $ 1,427,382 $ 3,999,748 $ ( 260,746 ) $ 54,933 $ 4,872,700

(1) The amount acquired during 2019 relates to discontinued operations.

See Note 2, "Discontinued Operations," for further details.

(2) The amount recorded in 2019 relates to the purchase of noncontrolling interest unrelated to a business combination.

Refer to "Stockholders' Equity" in Note 3, "Financial Statement Information" for further information.

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

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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 o n 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 and into 2021.

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 actual and expected revenue decline.

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.

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

Specific disclosures are presented in the following footnotes as applicable.

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On May 10, 2019, the Czech Republic competition authority approved our acquisition of Stahlgruber’s Czech Republic wholesale business subject to the requirement that we divest certain of the acquired locations.

We acquired Stahlgruber’s Czech Republic wholesale business on May 29, 2019 and decided to divest all of the acquired locations.

We acquired Stahlgruber’s Czech Republic wholesale business on May 29, 2019 and decided to divest all of the acquired Czech Republic locations.

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 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.

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 immediately thereafter sold 100 % of the business for a purchase price of € 14 million, which included € 7 million of notes receivable.

This transaction resulted in a disposition of noncontrolling interest of $ 11 million.

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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 $ 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.

Our reserve for expected lifetime credit losses was $ 68 million and $ 53 million at September 30, 2020 and December 31, 2019, respectively.

Bad debt expense totaled $ 23 million and $ 10 million for the nine months ended September 30, 2020 and September 30, 2019, respectivel y.

The increase in our allowance for credit losses since December 31, 2019 is attributable to an increase in expected lifetime losses, primarily attributable to the downturn in the global economy related to the effects of the COVID-19 pandemic, and the $ 3 million effect of the adoption of ASU No.

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.

Measurement o f 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).

Inventories consist of the following (in thousands):

June 30, December 31,

September 30, December 31,

Aftermarket and refurbished products $ 1,862,044 $ 2,297,895

3 unchanged sentences

Aftermarket and refurbished products and salvage and remanufactured products are primarily composed 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 September 30, 2020, manufactured products inventory was composed of $ 15 million of raw materials, $ 3 million of work in process, and $ 1 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 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).

During 2019 and the first nine months 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 a $ 1 million adjustment to reduce a previously recorded loss on disposal for the three months ended September 30, 2020, and net impairment charges of $ 2 million for the nine months ended September 30, 2020.

As of September 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 (Gain) 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.

In the third quarter of 2019, we completed the sales of two of these businesses, our aviation busine ss in North America and a wholesale business in Bulgaria.

The proceeds exceeded our prior fair value estimates, resulting in a net $ 4 million reduction of previously reported impairment charges for the three months ended September 30, 2019 and a net $ 45 million impairment charge for the nine months ended September 30, 2019 (presented in (Gain) 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, assets and liabilities held for sale were immaterial, and were recorded within Prepaid expenses and other current assets and Other current liabilities, respectively, on the Unaudited Condensed Consolidated Balance Sheet.

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.

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The inputs utilized in the fair value estimates are classified as Level 3 within the fair value hierarchy.

The fair values of the net assets were measured on a non-recurring basis as of June 30, 2020.

The fair values of the net assets were measured on a non-recurring basis as of September 30, 2020.

Intangible Assets

1 unchanged sentence

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 approximately 40 %

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

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.

3 unchanged sentences

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 did not identify a triggering event in the second or third quarters that necessitated an interim test of goodwill impairment.

Actual results for the second and third quarters 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.

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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.

In response to the COVID-19 global pandemic, we secured rent relief from some of our lessors during the second quarter of 2020.

The rent relief offered was primarily 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.

As of September 30, 2020, most of the deferrals recognized in the prior quarter were repaid.

Any remaining payment deferrals were immaterial and were recorded in Other current liabilities on the Unaudited Condensed Consolidated Balance Sheets.

During the second quarter of 2020, we also received other concessions consisting of abated rent or discounted rent, with payback not required, from various landlords, which resulted in reductions to Selling, general and administrative expenses of $ 2 million in our Unaudited Condensed Consolidated Statements of Income.

We received additional concessions of less than $ 1 million during the third quarter of 2020.

Investments in Unconsolidated Subsidiaries

Our investment in unconsolidated subsidiaries was $ 137 million and $ 139 million as of June 30, 2020 and December 31, 2019, respectively.

Our investment in unconsolidated subsidiaries was $ 148 million and $ 139 million as of September 30, 2020 and December 31, 2019, respectively.

Europe Segment

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").

Our investment in unconsolidated subsidiaries in Europe was $ 129 million and $ 122 million as of September 30, 2020 and December 31, 2019, respectively.

We recorded equity in earnings of $ 4 million and $ 5 million during the three and nine months ended September 30, 2020, respectively, and equity in earnings of $ 4 million and equity in losses of $ 35 million during the three and nine months ended September 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.

1 unchanged sentence

We are accounting for our interest in Mekonomen using the equity method of accounting, as our investment gives us the ability to exercise significant influence, but not control, over the investee.

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

As of September 30, 2020, our share of the book value of Mekonomen's net assets exceeded the book value of our investment in Mekonomen by $ 6 million;

this difference is primarily related to Mekonomen's Accumulated Other Comprehensive Income balance as of our acquisition date in 2016.

2 unchanged sentences

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 (losses) earnings of unconsolidated subsidiaries in our Unaudited Condensed Consolidated Statements of Income.

The impairment charge was recorded in Equity in earnings (losses) 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 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.

The Level 1 fair value of our equity investment in the publicly traded Mekonomen common stock at September 30, 2020 was $ 151 million (using the Mekonomen share price of SEK 93 as of September 30, 2020) compared to a carrying value of $ 118 million.

North America Segment

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.

Our investment in unconsolidated subsidiaries in the North America segment was $ 19 million and $ 18 million as of September 30, 2020 and December 31, 2019, respectively.

We recorded equity in earnings of $ 0.4 million and equity in losses of $ 3 million during the three and nine months ended September 30, 2020, respectively.

The equity in earnings for the North America equity investments was $ 0.4 million and $ 1 million during the three and nine months ended September 30, 2019, respectively.

Warranty Reserve

9 unchanged sentences

Warranty claims ( 45,091 )

Balance as of June 30, 2020 $ 28,862

Balance as of September 30, 2020 $ 29,128

Litigation and Related Contingencies

2 unchanged sentences

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.

During the three and nine months ended September 30, 2020, we recorded $ 12 million and $ 45 million, respectively, in financial assistance from foreign governments, primarily in the form of grants to offset personnel expenses in Europe and Canada.

For each of the three and nine months ended September 30, 2020, $ 1 million was recorded as a reduction to Cost of goods sold, and $ 12 million and $ 44 million were reductions to Selling, general and administrative expenses, respectively, in our Unaudited Condensed Consolidated Statement of Income.

Financial assistance received from governments is recorded during the period in which we incur the costs that 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).

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was enacted in the U.S.

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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.

Tax measures in these legislative actions did not have a material impact on the Company’s results of operations for the nine months ended September 30, 2020.

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

As of September 30, 2020, approximately $ 33 million of payments otherwise due by the third quarter of 2020 were deferred, of which we estimate approximately $ 30 million will be paid in 2021 or later.

Stockholders' Equity

Treasury Stock

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.

As of September 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 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.

During the nine months ended September 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 September 30, 2020.

During the three and nine months ended September 30, 2019, we repurchased 3.9 million and 10.9 million shares of common stock for an aggregate price of $ 101 million and $ 292 million, respectively.

As of September 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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See Note 2, "Discontinued Operations," for further information.

In July 2019, we purchased substantially all of the noncontrolling interest of a subsidiary acquired in connection with the Stahlgruber acquisition for a purchase price of $ 19 million, which included the issuance of $ 14 million of notes payable.

This purchase resulted in a net decrease to Noncontrolling interest of $ 10 million and a decrease to Additional paid-in capital of $ 9 million in our unaudited condensed consolidated financial statements as of September 30, 2019.

In December 2019, we modified the shares representing a noncontrolling interest in a subsidiary acquired in connection with the Stahlgruber acquisition and issued new redeemable shares to the minority shareholder.

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As the put option is outside the control of the Company, we recorded a $ 24 million Redeemable noncontrolling interest at the put option's exercise value outside of permanent equity on our Unaudited Condensed Consolidated Balance Sheets.

In October 2020, we purchased all of the noncontrolling interest of a subsidiary in our North America segment for a purchase price of $ 10 million.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

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

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

During the first quarter of 2020, we adopted ASU 2016-13 and ASU No.

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.

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

5 unchanged sentences

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU 2019-12, "Income Taxes" (Topic 740) ("ASU 2019-12"), which simplifies the accounting for income taxes and adds guidance to reduce complexity in certain areas.

In December 2019, the FASB issued ASU No.

2019-12, "Income Taxes" (Topic 740) ("ASU 2019-12"), which simplifies the accounting for income taxes and adds guidance to reduce complexity in certain areas.

ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

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These transactions include contract modifications, hedging relationships, and sale or transfer of debt securities classified as held-to-maturity.

Entities may apply the provisions of the new standard as of the beginning of the reporting period when the election is made (i.e.

as early as the first quarter 2020).

Entities may apply the provisions of the new standard as of the beginning of the reporting period when the election is made (i.e., as early as the first quarter of 2020).

Unlike other topics, the provisions of this update are only available until December 31, 2022, when the reference rate replacement activity is expected to have been completed.

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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 Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

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electrical products such as spark plugs and batteries;

suspension products;

steering and suspension products;

and oil and automotive fluids.

2 unchanged sentences

speed and performance;

recreational vehicles;

wheels, tires and performance handling;

6 unchanged sentences

Warranty revenue recognized ( 33,508 )

Balance as of June 30, 2020 $ 25,439

Balance as of September 30, 2020 $ 25,869

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 $ 104 million and $ 58 million, respectively, as of June 30, 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 $ 106 million and $ 61 million, respectively, as of September 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 $ 72 million and $ 108 million as of June 30, 2020 and December 31, 2019, respectively.

We recorded a reserve for our variable consideration of $ 103 million and $ 108 million as of September 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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Restructuring and Acquisition Related Expenses

Acquisition Related Expenses

We incurred $ 8 million of acquisition related expenses in each of the three and nine months ended September 30, 2020.

The expenses primarily resulted from the resolution of a purchase price matter related to the Stahlgruber transaction for an amount above our prior estimate.

We incurred $ 2 million of acquisition related expenses in each of the three and nine months ended September 30, 2019.

These expenses included external costs such as legal, accounting and advisory fees related to our acquisitions.

2019 Global Restructuring Program

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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 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.

During the three and nine months ended September 30, 2020, we incur r ed $ 1 million and $ 6 million, re spectively, 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 Statements of Income.

During the three and nine months ended September 30, 2019, we incurred $ 18 million and $ 23 million, respectively, of restructuring expenses primarily related to inventory write-downs, facility exit costs, and employee-related costs.

Of these expenses, $ 13 million, primarily related to Andrew Page branch consolidation and brand rationalization, were recorded within Cost of goods sold in the Unaudited Condensed Consolidated Statement of Income during each of the three and nine months ended September 30, 2019, and $ 4 million and $ 10 million, respectively, were recorded within Restructuring and acquisition related expenses.

The actions under this program are substantially complete.

We estimate that total program costs will be approximately $ 45 million, of which $ 37 million was incurred in the year ended December 31, 2019.

The total program costs include $ 31 million, $ 14 million and $ 1 million related to our Europe, North America and Specialty segments, respectively.

Costs to be incurred through 2021 under this program are estimated to be between $ 2 million and $ 4 million.

2020 Global Restructuring Program

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other costs related to facility exits, such as moving expenses to relocate inventory and equipment;

and accelerated depreciation of fixed assets to be disposed of earlier than the end of the previously estimated useful lives.

We 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.

and accelerated depreciation of fixed assets to be disposed of earlier than t he end of the previously estimated useful lives.

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

During the three and nine months ended September 30, 2020, we recognized restructuring expenses totaling $ 10 million and $ 38 million, respectively, for employee-related costs, facility exit costs and inventory write-downs.

Of these expenses, $ 1 million and $ 7 million resulted from inventory impairment charges related to facility consolidation actions and brand rationalizations and were recorded in Cost of goods sold in the Unaudited Condensed Consolidated Statement of Income for three months and nine months ended September 30, 2020, respectively.

Of the cumulative program costs incurred to date, $ 22 million, $ 15 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 $ 39 million, $ 31 million, and $ 1 million will be incurred by our Europe, North America and Specialty segments, respectively;

these segment amounts represent the midpoints of the expected ranges of costs to be incurred by each segment.

Acquisition Integration Plans

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.

During the three and nine months ended September 30, 2020, we incurred $ 2 million and $ 8 million of restructuring expenses, respectively, for our acquisition integration plans.

These expenses were primarily related to the integration 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.

During the three and nine months ended September 30, 2019, we incurred $ 7 million and $ 13 million of restructuring expenses, respectively, primarily related to our acquisition integration efforts in our Europe segment.

These expenses included approximately $ 4 million and $ 7 million for the three and nine months ended September 30, 2019, respectively, related to the integration of our acquisition of Andrew Page Limited.

The $ 4 million recorded during the three months ended September 30, 2019 for Andrew Page Limited was recorded within Cost of goods sold in the Unaudited Condensed Consolidated Statement of Income.

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 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.

While certain projects were delayed as a result of the COVID-19 pandemic, such as our procurement initiatives and the new head office in Switzerland, we also accelerated certain projects, such as the integration of previously acquired networks and sharing resources across LKQ Europe.

We expect to complete the organizational design and implementation projects by the middle of 2021, with the remaining projects to be completed by 2024.

We estimate that we will incur between $ 45 million and $ 55 million in total personnel and inventory related restructuring charges through 2024 under the program, although we are undertaking a full review of most projects under the program in the fourth quarter, and will provide updated restructuring estimates once we have completed that effort.

We may 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.

Stock-Based Compensation

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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

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 six months ended June 30, 2020 was $ 17 million ;

The fair value of RSUs that vested during the nine months ended September 30, 2020 was $ 26 million;

the fair value of RSUs vested is based on the market price of LKQ stock on the date vested.

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

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

Outstanding Weighted

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Forfeited / Canceled ( 87,071 ) $ 32.79

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.

Unvested as of September 30, 2020 1,542,592 $ 31.74

Expected to vest after September 30, 2020 1,344,073 $ 31.65 2.9 $ 37,271

This amount changes based on the market price of the Company’s common stock.

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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 six months ended June 30, 2020:

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

Outstanding Weighted

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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.

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

Expected to vest after September 30, 2020 292,947 $ 29.97 1.7 $ 8,123

This amount changes based on the market price of the Company’s common stock and the achievement of the performance metrics relative to the established targets.

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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 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:

No options were granted during the nine months ended September 30, 2020.

No options vested during the nine months ended September 30, 2020.

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

Outstanding Weighted

5 unchanged sentences

Canceled ( 2,122 ) $ 32.31

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

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

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

All stock options were exercised or canceled as of September 30, 2020.

Stock-Based Compensation Expense

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.

Pre-tax stock-based compensation expense for RSUs and PSUs totaled $ 7 million and $ 23 million for the three and nine months ended September 30, 2020, respectively, and $ 7 million and $ 21 million for the three and nine months ended September 30, 2019, respectively.

As of September 30, 2020, unrecognized compensation expense related to unvested RSUs and PSUs was $ 44 million.

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

Earnings Per Share

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

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

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

Three Months Ended Six Months Ended

June 30, June 30,

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 nine months ended September 30, 2020 and 2019 (in thousands):

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

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Three Months Ended

June 30, 2020

September 30, 2020

Translation Unrealized (Loss) Gain

on Cash Flow Hedges Unrealized (Loss) Gain

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

on Pension Plans Other Comprehensive Loss from Unconsolidated Subsidiaries Accumulated

Comprehensive

(Loss) Income

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

BALANCE, July 1, 2020 $ ( 243,524 ) $ ( 1,994 ) $ ( 29,939 ) $ ( 4,306 ) $ ( 279,763 )

Pretax income (loss) 70,178 ( 19,865 ) ( 34 ) — 50,279

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Reclassification of unrealized loss — 20,153 3,794 — 23,947

— 7,761 2,655 — 10,416

Reclassification of deferred income taxes — ( 4,756 ) ( 966 ) — ( 5,722 )

— ( 1,827 ) ( 780 ) — ( 2,607 )

Disposal of business

671 — — — 671

Other comprehensive income from unconsolidated subsidiaries

— — — 962 962

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

Other comprehensive loss from unconsolidated subsidiaries — — — ( 3,162 ) ( 3,162 )

BALANCE, September 30, 2020 $ ( 173,346 ) $ ( 1,772 ) $ ( 27,136 ) $ ( 7,468 ) $ ( 209,722 )

Three Months Ended

June 30, 2019

September 30, 2019

Translation Unrealized Gain (Loss)

3 unchanged sentences

(Loss) Income

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

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

BALANCE, July 1, 2019 $ ( 181,890 ) $ 5,987 $ ( 7,856 ) $ ( 4,794 ) $ ( 188,553 )

Pretax (loss) income ( 69,440 ) 28,594 ( 3,087 ) — ( 43,933 )

Income tax effect — ( 6,739 ) 782 — ( 5,957 )

Reclassification of unrealized loss

— 2,013 37 — 2,050

Reclassification of unrealized gain — ( 30,256 ) ( 61 ) — ( 30,317 )

Reclassification of deferred income taxes — 7,140 13 — 7,153

— ( 475 ) ( 9 ) — ( 484 )

Disposal of business ( 379 ) — — — ( 379 )

Other comprehensive income from unconsolidated subsidiaries — — — 1,240 1,240

— — — 2,321 2,321

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

Six Months Ended

June 30, 2020

BALANCE, September 30, 2019 $ ( 251,709 ) $ 4,726 $ ( 10,209 ) $ ( 3,554 ) $ ( 260,746 )

Nine Months Ended

September 30, 2020

Translation Unrealized Gain (Loss)

3 unchanged sentences

(Loss) Income

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

BALANCE, January 1, 2020 $ ( 170,893 ) $ 5,358 $ ( 31,934 ) $ ( 3,416 ) $ ( 200,885 )

Pretax loss ( 3,219 ) ( 23,490 ) ( 34 ) — ( 26,743 )

Income tax effect — 5,548 9 — 5,557

Reclassification of unrealized (gain) loss

— ( 5,946 ) 2,769 — ( 3,177 )

Reclassification of unrealized loss — 14,207 6,563 — 20,770

Reclassification of deferred income taxes — ( 3,395 ) ( 1,740 ) — ( 5,135 )

— 1,361 ( 774 ) — 587

Disposal of business 766 — — — 766

766 — — — 766

Other comprehensive loss from unconsolidated subsidiaries — — — ( 4,052 ) ( 4,052 )

— — — ( 890 ) ( 890 )

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

Six Months Ended

June 30, 2019

BALANCE, September 30, 2020 $ ( 173,346 ) $ ( 1,772 ) $ ( 27,136 ) $ ( 7,468 ) $ ( 209,722 )

Nine Months Ended

September 30, 2019

Translation Unrealized Gain (Loss)

on Cash Flow Hedges Unrealized (Loss) Gain

on Pension Plans Other Comprehensive Loss from Unconsolidated Subsidiaries Accumulated

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

Comprehensive

(Loss) Income

Beginning balance $ ( 177,597 ) $ 14,374 $ ( 8,075 ) $ ( 3,652 ) $ ( 174,950 )

BALANCE, January 1, 2019 $ ( 177,597 ) $ 14,374 $ ( 8,075 ) $ ( 3,652 ) $ ( 174,950 )

Pretax (loss) income ( 73,733 ) 34,769 ( 3,087 ) — ( 42,051 )

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Reclassification of unrealized (gain) loss — ( 47,431 ) 229 — ( 47,202 )

— ( 17,175 ) 290 — ( 16,885 )

Reclassification of deferred income taxes — 11,177 ( 58 ) — 11,119

— 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 )

Disposal of business ( 379 ) — — — ( 379 )

Other comprehensive income from unconsolidated subsidiaries — — — 98 98

BALANCE, September 30, 2019 $ ( 251,709 ) $ 4,726 $ ( 10,209 ) $ ( 3,554 ) $ ( 260,746 )

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

Classification 2020 2019 2020 2019

Unrealized (losses) gains on interest rate swaps

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

Unrealized (losses) gains on interest rate swaps Interest expense, net of interest income $ ( 2,538 ) $ 1,459 $ ( 1,011 ) $ 4,914

Unrealized gains on cross currency swaps Interest expense, net of interest income 2,696 4,071 8,043 12,720

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

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

Other expense (income), net ( 20,874 ) 24,726 ( 21,802 ) 29,797

Unrealized gains on foreign currency forward contracts (1)

Other expense (income), net 563 — 563 —

Total $ ( 20,153 ) $ 30,256 $ ( 14,207 ) $ 47,431

(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 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.

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

Net unrealized losses and gains related to our pension plans were reclassified to Other expense (income), net in our Consolidated Statements of Income during each of the three and nine months ended September 30, 2020 and 2019.

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

Long-Term Obligations

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

June 30, December 31,

September 30, December 31,

Senior secured credit agreement:

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Notes payable through October 2030 at weighted average interest rates of 3.1% and 3.2%, respectively 26,490 26,971

27,202 26,971

Finance lease obligations at weighted average interest rates of 4.1% and 4.1%, respectively 48,567 40,837

43,472 40,837

Other debt at weighted average interest rates of 1.5% and 1.8%, respectively 54,034 113,010

51,251 113,010

Total debt 3,133,465 4,072,026

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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.

After the amendment, the maximum permitted net leverage ratio is (i) 5.00 :1.00 for the quarters ending 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.

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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 $ 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.

Term loan borrowings, which totaled $ 328 million as of September 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 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.

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 September 30, 2020 and December 31, 2019 were 1.7 % 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 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.

The amounts available under the revolving credit facilities are reduced by the amounts outstanding under letters of credit, and thus availability under the revolving credit facilities at June 30, 2020 was $ 1.9 billion.

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

As of September 30, 2020, there were letters of credit outstanding in the aggregate amount of $ 71 million.

Related to the execution of Amendment No.

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Net receivables totaling

$ 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.

$ 107 million and $ 132 million were collateral for the investments under the receivables facility as of September 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.

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

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

Derivative Instruments and Hedging Activities

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Our interest rate swap contracts have maturity dates in January 2021 and June 2021.

From time to time, we may hold foreign currency forward contracts related to certain foreign currency denominated intercompany transactions, with the objective of minimizing the impact of fluctuating exchange rates on these future cash flows.

Under the terms of the foreign currency forward contracts, we will sell the foreign currency in exchange for U.S.

dollars at a fixed rate on the maturity dates of the contracts.

Changes in the fair value of the foreign currency forward contracts are recorded in Accumulated Other Comprehensive Income (Loss) and reclassified to Other income, net when the underlying transaction has an impact on earnings.

We hold cross currency swaps, which contain an interest rate swap component and a foreign currency forward contract component that, combined with related intercompany financing arrangements, effectively convert variable rate U.S.

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The swaps are intended to minimize the impact of fluctuating exchange rates and interest rates on the cash flows resulting from the related intercompany financing arrangements.

Changes in the fair value of the derivative instruments are recorded in Accumulated Other Comprehensive Income (Loss) and are reclassified to Interest expense, net of interest income and Other income, net when the underlying transactions have an impact on earnings.

For certain of the swaps, the notional amount steps down by € 4 million quarterly, with the balance maturing at the end of the contract.

Changes in the fair value of the derivative instruments are recorded in Accumulated other comprehensive income (loss) and are reclassified to Interest expense, net of interest income and Other expense (income), net when the underlying transactions have an impact on earnings.

Our cross currency swaps have maturity dates in October 2020 and January 2021.

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

The following tables summarize the notional amounts and fair values of our designated cash flow hedges as of June 30, 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

We hold foreign currency forward contracts related to certain foreign currency denominated intercompany transactions, with the objective of minimizing the impact of fluctuating exchange rates on these future cash flows.

Under the terms of the foreign currency forward contracts, we will sell the foreign currency in exchange for U.S.

dollars at a fixed rate on the maturity dates of the contracts.

Changes in the fair value of the foreign currency forward contracts are recorded in Accumulated other comprehensive income (loss) and reclassified to Other expense (income), net when the underlying transaction has an impact on earnings.

Our foreign currency forward contracts have maturity dates in December 2020 to coincide with the maturities of the related intercompany loans.

As of September 30, 2020 and December 31, 2019, we held cash flow hedges with the following notional amounts (in thousands):

September 30, 2020 December 31, 2019

Interest rate swap agreements

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Cross currency swap agreements

USD/euro $ 458,689 2,717 — 24,559 —

Euro denominated (1)

€ 423,750 € 435,000

Foreign currency forward contracts

Euro denominated (2)

GBP denominated £ 75,000 £ —

(1) The notional amount of our cross currency swap agreements steps down by € 4 million quarterly, with the balance maturing at the end of the contract.

(2) In October 2020, we entered into an additional foreign currency forward contract for € 51 million, also maturing in December 2020.

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

Fair Value at September 30, 2020

Other Current Assets Other Noncurrent Assets Other Accrued Expenses Other Noncurrent Liabilities

Interest rate swap agreements $ — $ — $ 1,952 $ —

Cross currency swap agreements — — 42,121 —

Foreign currency forward contracts 402 — 252 —

Total cash flow hedges $ 402 $ — $ 44,325 $ —

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

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

Fair Value at December 31, 2019

Other Current Assets Other Noncurrent Assets Other Accrued Expenses Other Noncurrent Liabilities

Interest rate swap agreements $ — $ 3,262 $ — $ —

USD denominated $ 480,000 $ — $ 3,262 $ — $ —

Cross currency swap agreements 2,975 181 970 23,349

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 $ 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 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;

the reclassification of derivative losses to Other income, net offsets the projected impact of the remeasurement of the underlying transactions.

The impact of netting the fair values of these contracts would have an immaterial impact to our Unaudited Condensed Consolidated Balance Sheet at September 30, 2020.

At December 31, 2019 the impact of netting the fair values of our derivative contracts would result in a $ 1 million decrease to Prepaid expenses and other current assets and Other accrued expenses, and a $ 1 million decrease to Other noncurrent assets and Other noncurrent liabilities on our Unaudited Condensed Consolidated Balance Sheet.

The activity related to our cash flow hedges is included in Note 8, "Accumulated Other Comprehensive Income (Loss)." As of September 30, 2020, we estimate that we will reclassify $ 1 million 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 $ 1 million of derivative losses (net of tax) from Accumulated other comprehensive income (loss) to Other expense (income), net in our Unaudited Condensed Consolidated Statements of Income within the next 12 months;

the reclassification of derivative losses to Other expense (income), net offsets the projected impact of the remeasurement of the underlying transactions.

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

Other Derivative Instruments

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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 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.

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

We use the market and income approaches to estimate the fair value of our financial assets and liabilities, and during the three and nine months ended September 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 June 30, 2020 and December 31, 2019 (in thousands):

Balance as of June 30, 2020 Fair Value Measurements as of June 30, 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 September 30, 2020 and December 31, 2019 (in thousands):

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

Level 1 Level 2 Level 3

Cash surrender value of life insurance $ 63,490 $ — $ 63,490 $ —

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

Foreign currency forward contracts 402 — 402 —

Total Assets $ 63,892 $ — $ 63,892 $ —

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Cross currency swap agreements 42,121 — 42,121 —

Foreign currency forward contracts 252 — 252 —

Total Liabilities $ 123,753 $ — $ 111,825 $ 11,928

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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."

The balance sheet classification of the interest rate swaps, cross currency swap agreements, and foreign currency forward contracts is presented in Note 10, "Derivative Instruments and Hedging Activities."

Our Level 2 assets and liabilities are valued using inputs from third parties and market observable data.

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

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.

Based on market conditions as of both September 30, 2020 and December 31, 2019, the fair value of our credit agreement borrowings reasonably approximated the carrying values of $ 1.2 billion and $ 1.6 billion, respectively.

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

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

Notes (2023).

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.

As of September 30, 2020 and December 31, 2019, the fair values of the Euro Notes (2024) were approximately $ 617 million and $ 632 million, respectively, compared to carrying values of $ 586 million and $ 561 million, respectively.

As of September 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 $ 1.2 billion and $ 1.1 billion, respectively.

The fair value measurements of the borrowings under our credit agreement and receivables facility are classified as Level 2 within the fair value hierarchy since they are determined based upon significant inputs observable in the market, including interest rates on recent financing transactions with similar terms and maturities.

We estimated the fair value by calculating the upfront cash payment a market participant would require at June 30, 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 September 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 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.

As of September 30, 2020 and December 31, 2019, the aggregate funded status of the defined benefit plans was a liability of $ 141 million and $ 142 million , respectively, and is reported in Other noncurrent liabilities and Accrued payroll-related liabilities on our Unaudited Condensed Consolidated Balance Sheets.

On June 28, 2019, we approved an amendment to terminate our primary defined benefit plan in the U.S.

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

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.

Plan participants were able to receive their full accrued benefits from plan assets by electing either lump sum distributions or annuity contracts with a qualifying third-party annuity provider.

The resulting settlement effect of the U.S.

Plan termination will be determined based on prevailing market conditions, the lump sum offer participation rate of eligible participants, the actual lump sum distributions, and annuity purchase rates at the date of distribution.

Plan termination was 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.

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,

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

During the three months ended September 30, 2020, we recorded a further $ 4 million reclassification of unrealized loss from Accumulated other comprehensive loss to Other expense (income), net based on the annuity purchase cost to settle the plan obligations.

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

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

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Expected return on plan assets ( 411 ) ( 455 ) ( 1,551 ) ( 1,795 )

Amortization of actuarial loss 555 37 669 290

Amortization of actuarial loss (gain) 238 ( 61 ) 907 229

Settlement loss 3,556 — 5,656 —

Net periodic benefit cost $ 4,753 $ 994 $ 9,357 $ 3,600

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.

For the three and nine months ended September 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 expense (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 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.

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.

Our effective income tax rate for the nine months ended September 30, 2020 was 28.3 %, compared to 27.5 % 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 o f the COVID-19 pandemic on the Company’s results of operations, particularly in certain international jurisdictions.

Primary factors in the increase include valuation allowances on the tax benefit of net operating losses in certain jurisdictions where realization is uncertain, and the impact of lower available interest deductions in certain foreign jurisdictions due to legislative thin capitalization constraints, typically based on profitability.

For the nine months ended September 30, 2020, the effective tax rate was increased 0.3 % by unfavorable discrete items, primarily valuation allowances on net operating loss carryforwards and deferred tax adjustments as a result of statutory tax rate changes.

Net discrete items for the nine months ended September 30, 2019 were immaterial 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 volatility in the effective tax rate 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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Our reportable segments are organized based on a combination of geographic areas served and type of product lines offered.

The reportable segments are managed separately as each business serves different customers (i.e.

geographic in the case of North America and Europe and product type in the case of Specialty) and is affected by different economic conditions.

The reportable segments are managed separately as each business serves different customers (i.e., geographic in the case of North America and Europe and product type in the case of Specialty) and is affected by different economic conditions.

Therefore, we present three reportable segments:

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North America Europe Specialty Eliminations Consolidated

Three Months Ended June 30, 2020

Three Months Ended September 30, 2020

Third Party $ 1,164,031 $ 1,484,099 $ 399,554 $ — $ 3,047,684

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24,479 44,412 7,436 — 76,327

Three Months Ended June 30, 2019

Three Months Ended September 30, 2019

Third Party $ 1,302,086 $ 1,451,483 $ 394,204 $ — $ 3,147,773

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North America Europe Specialty Eliminations Consolidated

Six Months Ended June 30, 2020

Nine Months Ended September 30, 2020

Third Party $ 3,465,102 $ 4,058,878 $ 1,150,962 $ — $ 8,674,942

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72,677 126,000 21,959 — 220,636

Six Months Ended June 30, 2019

Nine Months Ended September 30, 2019

Third Party $ 3,925,962 $ 4,413,264 $ 1,157,023 $ — $ 9,496,249

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68,257 141,087 20,895 — 230,239

(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.

(1) Amounts presented include depreciation and amortization expense recorded within Cost of goods sold and Restructuring and acquisition related expenses.

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

Segment EBITDA includes revenue and expenses that are controllable by the segment.

Corporate general and administrative expenses are allocated to the segments based on usage, with shared expenses apportioned based on the segment's percentage of consolidated revenue.

We calculate Segment EBITDA as EBITDA excluding restructuring and acquisition related expenses (which includes restructuring expenses recorded in Cost of goods sold), change in fair value of contingent consideration liabilities, other gains and losses related to acquisitions, equity method investments, or divestitures, equity in losses and earnings of unconsolidated subsidiaries, and impairment charges.

EBITDA, which is the basis for Segment EBITDA, is calculated as net income, less net income (loss) attributable to continuing and discontinued noncontrolling interest, excluding discontinued operations and discontinued noncontrolling interest, depreciation, amortization, interest (which includes gains and losses on debt extinguishment) and income tax expense.

We calculate Segment EBITDA as EBITDA excluding restructuring and acquisition related expenses (which includes restructuring expenses recorded in Cost of goods sold);

change in fair value of contingent consideration liabilities;

other gains and losses related to acquisitions, equity method investments, or divestitures;

equity in losses and earnings of unconsolidated subsidiaries;

and impairment charges.

EBITDA, which is the basis for Segment EBITDA, is calculated as net income attributable to LKQ stockholders excluding discontinued operations and discontinued noncontrolling interest, depreciation, amortization, interest (which includes gains and losses on debt extinguishment) and income tax expense.

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Net income $ 193,931 $ 152,593 $ 458,680 $ 403,761

net (loss) income attributable to continuing noncontrolling interest

( 22 ) 1,352 718 2,367

net income (loss) attributable to continuing noncontrolling interest 448 ( 46 ) 1,166 2,321

net income attributable to discontinued noncontrolling interest — 376 103 568

— 192 103 192

Net income attributable to LKQ stockholders 193,483 152,263 457,411 400,872

Net income (loss) from discontinued operations — 781 ( 638 ) 1,179

277 398 ( 638 ) 398

Net income attributable to discontinued noncontrolling interest — ( 376 ) ( 103 ) ( 568 )

— ( 192 ) ( 103 ) ( 192 )

Net income from continuing operations attributable to LKQ stockholders 193,483 151,858 458,152 400,261

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Interest expense, net of interest income 25,182 32,104 76,729 104,077

Loss on debt extinguishment — — 12,751 —

(Gain) loss on debt extinguishment — ( 128 ) 12,751 ( 128 )

Provision for income taxes 78,510 57,747 180,790 165,122

EBITDA 373,502 319,459 949,058 899,571

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

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

4,113 4,232 1,980 ( 33,745 )

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Restructuring expenses - cost of goods sold 833 17,130 6,494 17,130

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

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

( 503 ) ( 3,601 ) 1,733 44,919

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

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

June 30, December 31,

September 30, December 31,

Receivables, net

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

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

June 30, December 31,

September 30, December 31,

Long-lived assets

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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