LKQ CORP 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ***** INDEX TO FINANCIAL STATEMENTS Page LKQ CORPORATION AND SUBSIDIARIES Report s of Independent Registered Public Accounting Firm 59 Consolidated Statements of Income for the years ended December 31, 2020, 2019 and 2018 62 Consolidated Statements of Comprehensive Income for the years ended December 31, 2020, 2019 and 2018 63 Consolidated Balance Sheets as of December 31, 2020 and 2019 64 Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019 and 2018 65 Consolidated Statements of Stockholders' Equity for the years ended December 31, 20 20 , 201 9 and 201 8 67 Notes to Consolidated Financial Statements 69 58 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of LKQ Corporation: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of LKQ Corporation and subsidiaries (the "Company") as of December 31, 2020 and 2019, the related consolidated statements of income, comprehensive income, cash flows, and stockholders' equity for each of the three years in the period ended December 31, 2020, and the related notes and the financial statement schedule listed in the Index at Item 15 (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2021 , expressed an unqualified opinion on the Company's internal control over financial reporting. Change in Accounting Principle As discussed in Note 13 to the financial statements, the Company changed its method of accounting for leases in 2019 due to adoption of ASC 842, Leases . Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Goodwill Impairment Assessment – Refer to Note 4 to the financial statements. Critical Audit Matter Description The Company’s interim and annual evaluations of goodwill for impairment involve the comparison of the fair value of each reporting unit to its carrying value. The Company determines the fair value of its reporting units using a discounted cash flow model and the market approach, which require management to make significant estimates and assumptions. The goodwill balance subject to the impairment assessments was $4.6 billion as of December 31, 2020, and is allocated to four reporting units. Auditing the estimates and assumptions that impacted the valuation of certain reporting units involved especially subjective judgment; specifically, the forecasts of future revenue and profit margins (“forecasts”), the determination of market multiples, and the selection of discount rates. 59 How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the forecasts, determination of market multiples, and the selection of discount rates included the following, among others: · We tested the effectiveness of controls over the goodwill impairment assessments, including those over the forecasts and the selection of the discount rates and market multiples. · We evaluated management’s ability to accurately forecast by comparing actual results to management’s historical forecasts. · We evaluated the reasonableness of management’s forecasts by comparing the forecasts to (1) historical results, (2) internal communications to management and the Board of Directors, (3) analyst and industry reports of the Company and companies in its peer group, and (4) forecasts used in the preceding impairment assessments. · With the assistance of our fair value specialists, we evaluated the discount rates, including (1) testing the underlying source information and the mathematical accuracy of the calculations, (2) developing a range of independent estimates and comparing those to the discount rates used by management, and (3) comparing the discount rates used by management to those used in the preceding impairment assessments. · With the assistance of our fair value specialists, we evaluated the market multiples, including testing the underlying source information and mathematical accuracy of the calculations, and comparing the multiples selected by management to its guideline public companies and the multiples used in the preceding impairment assessments. /s/ DELOITTE & TOUCHE LLP Chicago, Illinois February 25, 2021 We have served as the Company's auditor since 1998. 60 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of LKQ Corporation: Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of LKQ Corporation and subsidiaries (the “Company”) as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2020, of the Company and our report dated February 25, 2021, expressed an unqualified opinion on those consolidated financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America ("generally accepted accounting principles"). A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ DELOITTE & TOUCHE LLP Chicago, Illinois February 25, 2021 61 LKQ CORPORATION AND SUBSIDIARIES Consolidated Statements of Income (In thousands, except per share data) Year Ended December 31, 2020 2019 2018 Revenue $ 11,628,830 $ 12,506,109 $ 11,876,674 Cost of goods sold 7,035,559 7,654,315 7,301,817 Gross margin 4,593,271 4,851,794 4,574,857 Selling, general and administrative expenses 3,266,065 3,580,300 3,352,731 Restructuring and acquisition related expenses 66,163 36,979 32,428 Loss on disposal of businesses and impairment of net assets held for sale and goodwill 3,174 47,102 33,244 Depreciation and amortization 272,292 290,770 274,213 Operating income 985,577 896,643 882,241 Other expense (income): Interest expense 103,784 138,504 146,377 Loss (gain) on debt extinguishment 12,751 ( 128 ) 1,350 Interest income and other income, net ( 15,953 ) ( 32,755 ) ( 8,917 ) Total other expense, net 100,582 105,621 138,810 Income from continuing operations before provision for income taxes 884,995 791,022 743,431 Provision for income taxes 249,498 215,330 191,395 Equity in earnings (losses) of unconsolidated subsidiaries 5,012 ( 32,277 ) ( 64,471 ) Income from continuing operations 640,509 543,415 487,565 Net (loss) income from discontinued operations ( 95 ) 1,619 ( 4,397 ) Net income 640,414 545,034 483,168 Less: net income attributable to continuing noncontrolling interest 1,888 2,800 3,050 Less: net income attributable to discontinued noncontrolling interest 103 974 — Net income attributable to LKQ stockholders $ 638,423 $ 541,260 $ 480,118 Basic earnings per share: (1) Income from continuing operations $ 2.10 $ 1.75 $ 1.55 Net (loss) income from discontinued operations ( 0.00 ) 0.01 ( 0.01 ) Net income 2.10 1.76 1.54 Less: net income attributable to continuing noncontrolling interest 0.01 0.01 0.01 Less: net income attributable to discontinued noncontrolling interest 0.00 0.00 — Net income attributable to LKQ stockholders $ 2.10 $ 1.75 $ 1.53 Diluted earnings per share: (1) Income from continuing operations $ 2.10 $ 1.75 $ 1.54 Net (loss) income from discontinued operations ( 0.00 ) 0.01 ( 0.01 ) Net income 2.10 1.75 1.53 Less: net income attributable to continuing noncontrolling interest 0.01 0.01 0.01 Less: net income attributable to discontinued noncontrolling interest 0.00 0.00 — Net income attributable to LKQ stockholders $ 2.09 $ 1.74 $ 1.52 (1) The sum of the individual earnings per share amounts may not equal the total due to rounding. The accompanying notes are an integral part of the consolidated financial statements. 62 LKQ CORPORATION AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (In thousands) Year Ended December 31, 2020 2019 2018 Net income $ 640,414 $ 545,034 $ 483,168 Less: net income attributable to continuing noncontrolling interest 1,888 2,800 3,050 Less: net income attributable to discontinued noncontrolling interest 103 974 — Net income attributable to LKQ stockholders 638,423 541,260 480,118 Other comprehensive income (loss): Foreign currency translation, net of tax 113,767 6,704 ( 108,523 ) Net change in unrealized gains/losses on cash flow hedges, net of tax ( 6,326 ) ( 9,016 ) 350 Net change in unrealized gains/losses on pension plans, net of tax ( 1,033 ) ( 23,859 ) 697 Other comprehensive (loss) income from unconsolidated subsidiaries ( 4,532 ) 236 ( 2,343 ) Other comprehensive income (loss) 101,876 ( 25,935 ) ( 109,819 ) Comprehensive income 742,290 519,099 373,349 Less: comprehensive income attributable to continuing noncontrolling interest 1,888 2,800 3,050 Less: comprehensive income attributable to discontinued noncontrolling interest 103 974 — Comprehensive income attributable to LKQ stockholders $ 740,299 $ 515,325 $ 370,299 The accompanying notes are an integral part of the consolidated financial statements. 63 LKQ CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except share and per share data) December 31, 2020 2019 Assets Current assets: Cash and cash equivalents $ 312,154 $ 523,020 Receivables, net 1,073,389 1,131,132 Inventories 2,414,612 2,772,777 Prepaid expenses and other current assets 233,877 260,890 Total current assets 4,034,032 4,687,819 Property, plant and equipment, net 1,248,703 1,234,400 Operating lease assets, net 1,353,124 1,308,511 Intangible assets: Goodwill 4,591,569 4,406,535 Other intangibles, net 814,219 850,338 Equity method investments 155,224 139,243 Other noncurrent assets 163,662 153,110 Total assets $ 12,360,533 $ 12,779,956 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 932,406 $ 942,795 Accrued expenses: Accrued payroll-related liabilities 208,718 179,203 Refund liability 102,148 97,314 Other accrued expenses 334,890 289,683 Other current liabilities 130,021 121,623 Current portion of operating lease liabilities 221,811 221,527 Current portion of long-term obligations 58,497 326,367 Total current liabilities 1,988,491 2,178,512 Long-term operating lease liabilities, excluding current portion 1,197,963 1,137,597 Long-term obligations, excluding current portion 2,812,641 3,715,389 Deferred income taxes 291,421 310,129 Other noncurrent liabilities 374,640 365,672 Commitments and contingencies Redeemable noncontrolling interest 24,077 24,077 Stockholders' equity: Common stock, $0.01 par value, 1,000,000,000 shares authorized, 320,867,602 shares issued and 303,553,000 shares outstanding at December 31, 2020; 319,927,243 shares issued and 306,731,328 shares outstanding at December 31, 2019 3,208 3,199 Additional paid-in capital 1,444,584 1,418,239 Retained earnings 4,776,040 4,140,136 Accumulated other comprehensive loss ( 99,009 ) ( 200,885 ) Treasury stock, at cost; 17,314,602 shares at December 31, 2020 and 13,195,915 shares at December 31, 2019 ( 469,105 ) ( 351,813 ) Total Company stockholders' equity 5,655,718 5,008,876 Noncontrolling interest 15,582 39,704 Total stockholders' equity 5,671,300 5,048,580 Total liabilities and stockholders' equity $ 12,360,533 $ 12,779,956 The accompanying notes are an integral part of the consolidated financial statements. 64 LKQ CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands) Year Ended December 31, 2020 2019 2018 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 640,414 $ 545,034 $ 483,168 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 299,497 314,406 294,077 Impairment of equity method investments — 41,057 70,895 Loss on disposal of businesses and impairment of net assets held for sale and goodwill 3,174 47,102 33,244 Stock-based compensation expense 29,078 27,695 22,760 Loss (gain) on debt extinguishment 12,751 ( 128 ) 1,350 Deferred income taxes ( 33,827 ) 7,109 ( 2,180 ) Other ( 3,934 ) ( 16,183 ) 7,116 Changes in operating assets and liabilities, net of effects from acquisitions and dispositions: Receivables, net 93,588 26,419 241 Inventories 433,072 15,460 ( 127,153 ) Prepaid income taxes/income taxes payable 34,945 25,776 ( 2,125 ) Accounts payable ( 64,032 ) 3,712 ( 77,621 ) Other operating assets and liabilities ( 856 ) 26,574 6,967 Net cash provided by operating activities 1,443,870 1,064,033 710,739 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment ( 172,695 ) ( 265,730 ) ( 250,027 ) Proceeds from disposals of property, plant and equipment 16,750 16,045 27,659 Acquisitions, net of cash and restricted cash acquired ( 7,363 ) ( 27,296 ) ( 1,214,995 ) Proceeds from disposal of businesses, net of cash sold 5,138 18,469 — Investments in unconsolidated subsidiaries ( 7,717 ) ( 7,594 ) ( 60,300 ) Receipts of deferred purchase price on receivables under factoring arrangements — — 36,991 Other investing activities, net — 1,253 1,733 Net cash used in investing activities ( 165,887 ) ( 264,853 ) ( 1,458,939 ) CASH FLOWS FROM FINANCING ACTIVITIES: Early-redemption premium ( 9,498 ) — — Debt issuance costs ( 3,313 ) — ( 21,128 ) Redemption of U.S. Notes (2023) ( 600,000 ) — — Proceeds from issuance of Euro Notes (2026/28) — — 1,232,100 Borrowings under revolving credit facilities 841,485 605,708 1,667,325 Repayments under revolving credit facilities ( 1,472,920 ) ( 734,471 ) ( 1,528,970 ) Repayments under term loans ( 17,500 ) ( 8,750 ) ( 354,800 ) Borrowings under receivables securitization facility 111,300 36,600 10,120 Repayments under receivables securitization facility ( 111,300 ) ( 146,600 ) ( 120 ) Payment of notes issued and assumed debt from acquisitions — ( 19,123 ) ( 54,888 ) Repayments of other debt, net ( 115,609 ) ( 33,922 ) ( 11,730 ) Purchase of treasury stock ( 117,292 ) ( 291,813 ) ( 60,000 ) Other financing activities, net ( 17,904 ) ( 8,298 ) 5,086 Net cash (used in) provided by financing activities ( 1,512,551 ) ( 600,669 ) 882,995 Effect of exchange rate changes on cash, cash equivalents and restricted cash 11,865 ( 904 ) ( 77,311 ) Net (decrease) increase in cash, cash equivalents and restricted cash ( 222,703 ) 197,607 57,484 Cash, cash equivalents and restricted cash of continuing operations, beginning of period 528,387 337,250 279,766 Add: Cash, cash equivalents and restricted cash of discontinued operations, beginning of period 6,470 — — Cash, cash equivalents and restricted cash of continuing and discontinued operations, beginning of period 534,857 337,250 279,766 Cash, cash equivalents and restricted cash of continuing and discontinued operations, end of period 312,154 534,857 337,250 Less: Cash and cash equivalents of discontinued operations, end of period — 6,470 — Cash, cash equivalents and restricted cash, end of period $ 312,154 $ 528,387 $ 337,250 The accompanying notes are an integral part of the consolidated financial statements. 65 Year Ended December 31, 2020 2019 2018 Reconciliation of cash, cash equivalents and restricted cash: Cash and cash equivalents $ 312,154 $ 523,020 $ 331,761 Restricted cash included in Other noncurrent assets — 5,367 5,489 Cash, cash equivalents and restricted cash, end of period $ 312,154 $ 528,387 $ 337,250 Supplemental disclosure of cash paid for: Income taxes, net of refunds $ 248,083 $ 181,306 $ 200,098 Interest 106,866 143,121 137,866 Supplemental disclosure of noncash investing and financing activities: Stock issued in acquisitions $ — $ — $ 251,334 Noncash property, plant and equipment and software intangible additions in accounts payable and other accrued expenses 18,841 10,154 16,518 Notes payable and other financing obligations, including notes issued, debt assumed and settlement of pre-existing balances in connection with business acquisitions and disposals 4,316 47,887 105,566 Notes receivable and contingent consideration receivable acquired in connection with disposal of businesses 8,990 — — Trade and note receivables forgiven and assets held for sale sold with purchase of noncontrolling interest 6,079 — — Notes issued in connection with purchase of noncontrolling interest — 14,196 — Contingent consideration liabilities 3,045 6,627 3,107 The accompanying notes are an integral part of the consolidated financial statements. 66 LKQ CORPORATION AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity (In thousands) LKQ Stockholders Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive (Loss) Income Noncontrolling Interest Total Stockholders' Equity Shares Amount Shares Amount BALANCE, January 1, 2018 309,127 $ 3,091 — $ — $ 1,141,451 $ 3,124,103 $ ( 70,476 ) $ 8,484 $ 4,206,653 Net income — — — — — 480,118 — 3,050 483,168 Other comprehensive loss — — — — — — ( 109,819 ) — ( 109,819 ) Stock issued in acquisitions 8,056 81 — — 251,253 — — — 251,334 Purchase of treasury stock — — ( 2,272 ) ( 60,000 ) — — — — ( 60,000 ) Vesting of restricted stock units, net of shares withheld for employee tax 603 6 — — ( 3,802 ) — — — ( 3,796 ) Stock-based compensation expense — — — — 22,760 — — — 22,760 Exercise of stock options 686 7 — — 5,296 — — — 5,303 Tax withholdings related to net share settlements of stock-based compensation awards ( 54 ) ( 1 ) — — ( 1,770 ) — — — ( 1,771 ) Adoption of ASU 2018-02 (see Note 9) — — — — — ( 5,345 ) 5,345 — — Capital contributions from, net of dividends declared to, noncontrolling interest shareholder — — — — — — — 810 810 Noncontrolling interests of businesses acquired — — — — — — — 44,110 44,110 BALANCE, December 31, 2018 318,418 $ 3,184 ( 2,272 ) $ ( 60,000 ) $ 1,415,188 $ 3,598,876 $ ( 174,950 ) $ 56,454 $ 4,838,752 Net income — — — — — 541,260 — 3,774 545,034 Other comprehensive loss — — — — — — ( 25,935 ) — ( 25,935 ) Purchase of treasury stock — — ( 10,924 ) ( 291,813 ) — — — — ( 291,813 ) Vesting of restricted stock units, net of shares withheld for employee tax 719 7 — — ( 2,091 ) — — — ( 2,084 ) Stock-based compensation expense — — — — 27,695 — — — 27,695 Exercise of stock options 927 9 — — 9,046 — — — 9,055 Tax withholdings related to net share settlements of stock-based compensation awards ( 137 ) ( 1 ) — — ( 4,494 ) — — — ( 4,495 ) Capital contributions from, net of dividends declared to, noncontrolling interest shareholder — — — — — — — ( 8,474 ) ( 8,474 ) Acquired noncontrolling interest (1) — — — — — — — 10,365 10,365 Purchase and modification of noncontrolling interests (2) — — — — ( 27,105 ) — — ( 22,415 ) ( 49,520 ) BALANCE, December 31, 2019 319,927 $ 3,199 ( 13,196 ) $ ( 351,813 ) $ 1,418,239 $ 4,140,136 $ ( 200,885 ) $ 39,704 $ 5,048,580 The accompanying notes are an integral part of the consolidated financial statements. 67 LKQ Stockholders Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive (Loss) Income Noncontrolling Interest Total Stockholders' Equity Shares Amount Shares Amount BALANCE, December 31, 2019 319,927 $ 3,199 ( 13,196 ) $ ( 351,813 ) $ 1,418,239 $ 4,140,136 $ ( 200,885 ) $ 39,704 $ 5,048,580 Net income — — — — — 638,423 — 1,991 640,414 Other comprehensive income — — — — — — 101,876 — 101,876 Purchase of treasury stock — — ( 4,119 ) ( 117,292 ) — — — — ( 117,292 ) Vesting of restricted stock units, net of shares withheld for employee tax 829 8 — — ( 3,063 ) — — — ( 3,055 ) Stock-based compensation expense — — — — 29,078 — — — 29,078 Exercise of stock options 112 1 — — 1,466 — — — 1,467 Capital contributions from, net of dividends declared to, noncontrolling interest shareholder — — — — — — — ( 3,757 ) ( 3,757 ) Adoption of ASU 2016-13 (see Note 4) — — — — — ( 2,519 ) — — ( 2,519 ) Disposition of subsidiary with noncontrolling interests (1) — — — — — — — ( 11,404 ) ( 11,404 ) Purchase of noncontrolling interests (3) — — — — ( 1,136 ) — — ( 10,952 ) ( 12,088 ) BALANCE, December, 31, 2020 320,868 $ 3,208 ( 17,315 ) $ ( 469,105 ) $ 1,444,584 $ 4,776,040 $ ( 99,009 ) $ 15,582 $ 5,671,300 (1) The amounts acquired during 2019 and disposed of in 2020 relate to discontinued operations. See Note 2, "Business Combinations," and Note 3, "Discontinued Operations," for further details on the amounts acquired and disposed of, respectively. (2) The amount recorded in 2019 relates to (i) the purchase of noncontrolling interest unrelated to a business combination, and (ii) the modification of noncontrolling interest shares. Refer to "Stockholders' Equity–Noncontrolling Interest" in Note 4, "Summary of Significant Accounting Policies," for further information. (3) Th e amount recorded in 2020 relates to the purchase of noncontrolling interest shares unrelated to a business combination. Refer to "Stockholders' Equity–Noncontrolling Interest" in Note 4, "Summary of Significant Accounting Policies," for further information. The accompanying notes are an integral part of the consolidated financial statements. 68 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Business The financial statements represent the consolidation of LKQ Corporation, a Delaware corporation, and its subsidiaries. LKQ Corporation is a holding company and all operations are conducted by subsidiaries. When the terms "LKQ," "the Company," "we," "us," or "our" are used in this document, those terms refer to LKQ Corporation and its consolidated subsidiaries. We are a leading provider of alternative vehicle collision and mechanical replacement products, with our sales, processing, and distribution facilities reaching most major markets in the United States and Canada. We are also a leading provider of alternative vehicle replacement and maintenance products in Germany, the United Kingdom, the Benelux region (Belgium, Netherlands, and Luxembourg), Italy, Czech Republic, Austria, Slovakia, Poland, and various other European countries. In addition to our wholesale operations, we operate self service retail facilities across the U.S. that sell recycled automotive products from end-of-life-vehicles. We are also a leading distributor of specialty vehicle aftermarket equipment and accessories reaching most major markets in the U.S. and Canada. In total, we operate approximately 1,600 facilities. The 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 year ended December 31, 2020. Specific disclosures are presented in the following footnotes as applicable. The ultimate impact of COVID-19 on our business, results of operations, financial condition and cash flows is dependent on future developments, including the severity and duration of the pandemic and the related impact on the global economy, which are uncertain and cannot be predicted at this time, but may be material. Note 2. Business Combinations During the year ended December 31, 2020, we completed two acquisitions, including one wholesale business in North America and one business in our Specialty segment. These acquisitions were not material to our results of operations or financial position as of and for the year ended December 31, 2020. During the year ended December 31, 2019, we completed seven acquisitions, including three wholesale businesses and one self service business in North America, and three wholesale businesses in Europe. These acquisitions were not material to our results of operations or financial position as of and for the year ended December 31, 2019. Total acquisition date fair value of the consideration for our acquisitions for the year ended December 31, 2019 was $ 63 million, composed of $ 29 million of cash paid (net of cash acquired), $ 7 million for the estimated value of contingent payments to former owners (with maximum payments totaling $ 8 million), $ 2 million of other purchase price obligations (non-interest bearing), $ 21 million of notes payable, and $ 5 million of pre-existing balances considered to be effectively settled as a result of the acquisitions. In addition, we assumed $ 8 million of existing debt as of the acquisition dates. On May 30, 2018 , we acquired Stahlgruber, a leading European wholesale distributor of aftermarket spare parts for passenger cars, tools, capital equipment and accessories with operations in Germany, Austria, Italy, Slovenia, and Croatia, with further sales to Switzerland. Total acquisition date fair value of the consideration for our Stahlgruber acquisition was € 1.2 billion ($ 1.4 billion), composed of € 1.0 billion ($ 1.1 billion) of cash paid (net of cash acquired), and € 215 million ($ 251 million) of newly issued shares of LKQ common stock. We financed the acquisition with the proceeds from € 1.0 billion ($ 1.2 billion) of senior notes, the direct issuance to Stahlgruber's owner of 8,055,569 newly issued shares of LKQ common stock, and borrowings under our existing revolving credit facility. We recorded $ 915 million ($ 908 million in 2018 and $ 7 million of adjustments in the six months ended June 30, 2019) of goodwill related to our acquisition of Stahlgruber, of which we expected $ 300 million to be deductible for income tax purposes. In the period between the acquisition date and December 31, 2018, Stahlgruber, which is reported in our Europe reportable segment, generated third party revenue of $ 1.1 billion and operating income of $ 52 million. On May 3, 2018, the European Commission cleared the acquisition of Stahlgruber for the entire European Union, except with respect to the wholesale automotive parts business in the Czech Republic. The acquisition of Stahlgruber’s Czech Republic wholesale business was referred to the Czech Republic competition authority for review. On May 10, 2019, the Czech Republic competition authority approved our acquisition of Stahlgruber’s Czech Republic wholesale business subject to the requirement that we divest certain of the acquired locations. We acquired Stahlgruber’s Czech Republic wholesale business on 69 May 29, 2019 and decided to divest all of the acquired locations. We recorded a noncontrolling interest of $ 10 million as part of the acquisition. We immediately classified the business as discontinued operations because the business was never integrated into our Europe segment; see Note 3, "Discontinued Operations" for further information. The Czech Republic wholesale business represented an immaterial portion of Stahlgruber's revenue and profitability. There was no additional consideration beyond the previously remitted amounts for the Stahlgruber transaction required to complete the acquisition of the Czech Republic wholesale business. In addition to our acquisition of Stahlgruber, during the year ended December 31, 2018, we completed acquisitions of four wholesale businesses in North America and nine wholesale businesses in Europe. Total acquisition date fair value of the consideration for these acquisitions was $ 99 million, composed of $ 85 million of cash paid (net of cash and restricted cash acquired), $ 11 million of notes payable, and $ 3 million for the estimated value of contingent payments to former owners (with maximum potential payments totaling $ 5 million). During the year ended December 31, 2018, we recorded $ 68 million of goodwill related to these acquisitions, of which we expected $ 4 million to be deductible for income tax purposes. In the period between the acquisition dates and December 31, 2018, these acquisitions generated third party revenue of $ 46 million and operating income of $ 3 million. Our acquisitions are accounted for under the purchase method of accounting and are included in our consolidated financial statements from the dates of acquisition. The purchase prices were allocated to the net assets acquired based upon estimated fair values at the dates of acquisition. During the year ended December 31, 2020, the measurement period adjustments recorded for acquisitions completed in prior periods were not material. The income statement effect of these measurement period adjustments that would have been recorded in previous reporting periods if the adjustments had been recognized as of the acquisition dates was immaterial. 70 The purchase price allocations for the acquisitions completed during the year ended December 31, 2018 are as follows (in thousands): Year Ended December 31, 2018 Stahlgruber Other Acquisitions (1) Total Receivables $ 144,826 $ 19,171 $ 163,997 Receivable reserves ( 2,818 ) ( 918 ) ( 3,736 ) Inventories 380,238 14,021 394,259 Prepaid expenses and other current assets 10,970 1,851 12,821 Property , plant and equipment 271,292 5,711 277,003 Goodwill 908,253 64,637 972,890 Other intangibles 285,255 35,159 320,414 Other noncurrent assets 16,625 37 16,662 Deferred income taxes ( 78,130 ) ( 5,285 ) ( 83,415 ) Current liabilities assumed ( 346,788 ) ( 20,116 ) ( 366,904 ) Debt assumed ( 79,925 ) ( 4,875 ) ( 84,800 ) Other noncurrent liabilities assumed (2) ( 80,824 ) ( 10,306 ) ( 91,130 ) Noncontrolling interest ( 44,110 ) — ( 44,110 ) Contingent consideration liabilities — ( 3,107 ) ( 3,107 ) Other purchase price obligations ( 6,084 ) 3,623 ( 2,461 ) Stock issued ( 251,334 ) — ( 251,334 ) Notes issued — ( 11,347 ) ( 11,347 ) Gains on bargain purchases (3) — ( 2,418 ) ( 2,418 ) Settlement of other purchase price obligations (non-interest bearing) — 1,711 1,711 Cash used in acquisitions, net of cash and restricted cash acquired $ 1,127,446 $ 87,549 $ 1,214,995 (1) The amounts recorded during the year ended December 31, 2018 include a $ 5 million adjustment to increase other intangibles related to our Warn acquisition and $ 4 million of adjustments to reduce other purchase price obligations related to other 2017 acquisitions. (2) The amount recorded for our acquisition of Stahlgruber includes a $ 79 million liability for certain pension obligations. (3) The amounts recorded during the year ended December 31, 2018 are due to the gains on bargain purchases related to (i) an acquisition in Europe completed in the second quarter of 2017 as a result of changes in the acquisition date fair value of the consideration, and (ii) three acquisitions in Europe completed during 2018. The fair value of our intangible assets is based on a number of inputs, including projections of future cash flows, discount rates, assumed royalty rates and customer attrition rates, all of which are Level 3 inputs. We used the relief-from-royalty method to value trade names, trademarks, software and other technology assets, and we used the multi-period excess earnings method to value customer relationships. The relief-from-royalty method assumes that the intangible asset has value to the extent that its owner is relieved of the obligation to pay royalties for the benefits received from the intangible asset. The multi-period excess earnings method is based on the present value of the incremental after-tax cash flows attributable only to the customer relationship after deducting contributory asset charges. The fair value of our property, plant and equipment is determined using inputs such as market comparables and current replacement or reproduction costs of the asset, adjusted for physical, functional and economic factors; these adjustments to arrive at fair value use unobservable inputs in which little or no market data exists, and therefore, these inputs are considered to be Level 3 inputs. See Note 12, "Fair Value Measurements" for further information regarding the tiers in the fair value hierarchy. The acquisition of Stahlgruber expanded LKQ's geographic presence in continental Europe and serves as an additional strategic hub for our European operations. In addition, the acquisition of Stahlgruber should allow for continued improvement in procurement, logistics and infrastructure optimization. The primary objectives of our other acquisitions made during the years ended December 31, 2020, 2019 and 2018 were to create economic value for our stockholders by enhancing our position 71 as a leading source for alternative collision and mechanical repair products and to expand into other product lines and businesses that may benefit from our operating strengths. When we identify potential acquisitions, we attempt to target companies with a leading market presence, an experienced management team and workforce that provides a fit with our existing operations, and strong cash flows. For certain of our acquisitions, we have identified cost savings and synergies as a result of integrating the company with our existing business that provide additional value to the combined entity. In many cases, acquiring companies with these characteristics will result in purchase prices that include a significant amount of goodwill. The following pro forma summary presents the effect of the businesses acquired during the year ended December 31, 2018 as though they had been acquired as of January 1, 2017. The pro forma adjustments are based upon unaudited financial information of the acquired entities (in thousands): Year Ended December 31, 2018 Revenue, as reported $ 11,876,674 Revenue of purchased businesses for the period prior to acquisition: Stahlgruber 815,405 Other acquisitions 164,133 Pro forma revenue $ 12,856,212 Income from continuing operations, as reported (1) $ 487,565 Income from continuing operations of purchased businesses for the period prior to acquisition, and pro forma purchase accounting adjustments: Stahlgruber 17,309 Other acquisitions 6,591 Acquisition related expenses, net of tax (2) 14,524 Pro forma income from continuing operations 525,989 Less: Net income attributable to continuing noncontrolling interest, as reported 3,050 Less: Pro forma net income attributable to noncontrolling interest 2,799 Pro forma income from continuing operations attributable to LKQ stockholders $ 520,140 (1) 2018 amounts include interest expense for the period from April 9, 2018 through December 31, 2018 recorded on the senior notes issued in connection with our acquisition of Stahlgruber. (2) Includes expenses related to acquisitions closed in the period and excludes expenses for acquisitions not yet completed. Unaudited pro forma supplemental information is based upon accounting estimates and judgments that we believe are reasonable. The unaudited pro forma supplemental information includes the effect of purchase accounting adjustments, such as the adjustment of inventory acquired to fair value, adjustments to depreciation on acquired property, plant and equipment, adjustments to rent expense for above or below market leases, adjustments to amortization on acquired intangible assets, adjustments to interest expense, and the related tax effects. The pro forma impact of our acquisitions also reflects the elimination of acquisition related expenses, net of tax. Refer to Note 6, "Restructuring and Acquisition Related Expenses," for further information regarding our acquisition related expenses. These pro forma results are not necessarily indicative of what would have occurred if the acquisitions had been in effect for the periods presented or of future results. Note 3. Discontinued Operations Czech Republic As described in Note 2, "Business Combinations," we classified the acquired Stahlgruber Czech Republic wholesale business as discontinued operations. We completed the sale of Stahlgruber's Czech Republic business on February 28, 2020, resulting in an immaterial loss on sale (presented in Net (loss) income from discontinued operations in the 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 immediately thereafter sold 100 % of the business for a purchase price of € 14 million, which included € 7 million of notes 72 receivable. This transaction resulted in a disposition of noncontrolling interest of $ 11 million. From January 1, 2020 through the date of sale, we recorded an immaterial amount of net income (excluding the loss on sale) from discontinued operations related to the business, of which an immaterial amount was attributable to the noncontrolling interest. As of December 31, 2019, the assets held for sale, liabilities held for sale, and noncontrolling interest of Stahlgruber's Czech Republic business were recorded within Prepaid expenses and other current assets, Other current liabilities, and Noncontrolling interest, respectively, on the Consolidated Balance Sheets. Glass Manufacturing Business On March 1, 2017, LKQ completed the sale of the glass manufacturing business of its PGW subsidiary to a subsidiary of Vitro S.A.B. de C.V. ("Vitro"). During the fourth quarter of 2019, we recorded an immaterial net loss from discontinued operations resulting from a reserve related to a pre-disposition matter and the related deferred tax benefit, and we settled certain tax matters with Vitro, which were recorded as a benefit for income taxes. During the fourth quarter of 2018, we recorded a final current tax expense adjustment of $ 4 million to the loss on sale as a result of the completion of the tax return reporting the 2017 transaction. The adjustment was primarily attributable to a valuation allowance recognized on the carryforward of a capital loss arising from the sale, the tax benefit of which is not certain to be realized during the carryforward period. Upon execution of the Stock and Asset Purchase Agreement (the "Vitro Agreement") in December 2016, LKQ concluded that the glass manufacturing business met the criteria to be classified as held for sale in LKQ's consolidated financial statements. In connection with the Vitro Agreement, the Company and Vitro entered into a twelve month Transition Services Agreement commencing on the transaction date with two six-month renewal periods, a three-year Purchase and Supply Agreement, and an Intellectual Property Agreement. The Purchase and Supply Agreement expired in the first quarter of 2020, while the Intellectual Property Agreement has a perpetual term; as of December 31, 2019, the Transition Services Agreement had expired. Pursuant to the Purchase and Supply Agreement, our aftermarket automotive glass distribution business agreed to source various products from Vitro's glass manufacturing business annually for a three-year period beginning on March 1, 2017. All purchases from Vitro, including those outside of the Purchase and Supply Agreement, for the two months ended February 29, 2020 and the years ended December 31, 2019 and 2018, were $ 4 million, $ 30 million and $ 24 million, respectively. Note 4. Summary of Significant Accounting Policies Principles of Consolidation The accompanying consolidated financial statements include the accounts of LKQ Corporation and its subsidiaries. All intercompany transactions and accounts have been eliminated. Use of Estimates In preparing our financial statements in conformity with accounting principles generally accepted in the United States of America, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Revenue Recognition See Note 5, "Revenue Recognition" for our accounting policies related to revenue. Cost of Goods Sold Our cost of goods sold includes: the price we pay for inventory, net of vendor discounts, rebates or other incentives; inbound freight and other transportation costs to bring inventory into our facilities; and overhead costs related to purchasing, warehousing and transporting our products from our distribution warehouses to our selling locations. For our salvage, remanufactured, and refurbished products, our cost of goods sold also includes direct and indirect labor, equipment costs, depreciation, and other overhead to transform inventory into finished products suitable for sale. Cost of goods sold also includes expenses for our service-type warranties and for our assurance-type warranty programs. See Note 5, "Revenue Recognition" for additional information related to our warranty programs. Selling, General and Administrative Expenses Selling, general and administrative expenses include: personnel costs for employees in selling, general and administrative functions; costs to operate our branch locations, corporate offices and back office support centers; costs to 73 transport our products from our facilities to our customers; and other selling, general and administrative expenses, such as professional fees, supplies, and advertising expenses. The costs included in selling, general and administrative expenses do not relate to inventory processing or conversion activities, and, as such, are classified below the gross margin line in our Consolidated Statements of Income. Cash, Cash Equivalents and Restricted Cash Cash and cash equivalents include cash on hand, operating accounts, and deposits readily convertible to known amounts of cash. Restricted cash includes cash for which the Company's ability to withdraw funds at any time is contractually limited. As of December 31, 2019, we had $ 5 million of restricted cash recorded in Other noncurrent assets on the Consolidated Balance Sheets; there was no restricted cash balance as of December 31, 2020. Allowance for Credit Losses Receivables, net are reported net of an allowance for credit losses. During the first quarter of 2020, we adopted ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement o f Credit Losses on Financial Instruments" ("ASU 2016-13") (see the Recently Adopted Accounting Pronouncements section below for further details). Prior to the adoption of ASU 2016-13, Receivables, net were reported net of an allowance for doubtful accounts. 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 $ 70 million at December 31, 2020. Our allowance for doubtful accounts was $ 53 million at December 31, 2019. Bad debt expense totaled $ 25 million, $ 12 million and $ 14 million for the years ended December 31, 2020, 2019, and 2018, 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 a $ 3 million effect of the adoption of ASU 2016-13 . A rollforward of our allowance for credit losses is as follows (in thousands): Balance as of January 1, 2020 $ 52,685 Adjustment for adoption of new standard 2,519 Additions, net of recoveries 24,686 Write-offs ( 14,024 ) Impact of foreign currency 4,065 Balance as of December 31, 2020 $ 69,931 Concentrations of Credit Risk Financial instruments that potentially subject us to significant concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable. We control our exposure to credit risk associated with these instruments by (i) placing our cash and cash equivalents with several major financial institutions; (ii) holding high-quality financial instruments; and (iii) maintaining strict policies over credit extension that include credit evaluations, credit limits and monitoring procedures. In addition, our overall credit risk with respect to accounts receivable is limited to some extent because our customer base is composed of a large number of geographically diverse customers. Inventories We classify our inventory into the following categories: (i) aftermarket and refurbished products, (ii) salvage and remanufactured products, and (iii) manufactured products. An aftermarket product is a new vehicle product manufactured by a company other than the original equipment manufacturer. For our aftermarket products, excluding our aftermarket automotive glass products, cost is established based on the average price we pay for parts; for our aftermarket automotive glass products inventory, cost is established using the first-in first-out method. Inventory cost for our aftermarket products includes expenses incurred for freight in and overhead costs; for items purchased from foreign companies, import fees and duties and transportation insurance are also included. Refurbished products are parts that require cosmetic repairs, such as wheels, bumper covers and lights; LKQ will apply new parts, products or materials to these parts in order to produce the finished product. Refurbished inventory cost is based upon the average price we pay for cores. The cost of our refurbished inventory also includes expenses incurred for freight in, labor and other overhead costs. 74 A salvage product is a recycled vehicle part suitable for sale as a replacement part. Cost is established based upon the price we pay for a vehicle, including auction, storage and towing fees, as well as expenditures for buying and dismantling the vehicle. Inventory carrying value is determined using the average cost to sales percentage at each of our facilities and applying that percentage to the facility's inventory at expected selling prices, the assessment of which incorporates the sales probability based on a part's number of days in stock and historical demand. The average cost to sales percentage is derived from each facility's historical profitability for salvage vehicles. Remanufactured products are used parts that have been inspected, rebuilt, or reconditioned to restore functionality and performance, such as remanufactured engines and transmissions. Remanufactured inventory cost is based upon the price paid for cores, which are recycled automotive parts that are not suitable for sale as a replacement part without further processing, and also includes expenses incurred for freight in, direct manufacturing costs and other overhead costs. A manufactured product is a new vehicle product. Manufactured product inventory can be a raw material, work-in-process or finished good. Cost is established using the first-in first-out method. For all inventory, carrying value is recorded at the lower of cost or net realizable value. Net realizable value can be influenced by current anticipated demand. If actual demand is lower than our estimates, additional reductions to inventory carrying value would be necessary in the period such determination is made. Inventories consist of the following (in thousands): December 31, 2020 2019 Aftermarket and refurbished products $ 2,025,002 $ 2,297,895 Salvage and remanufactured products 368,815 447,908 Manufactured products 20,795 26,974 Total inventories $ 2,414,612 $ 2,772,777 Aftermarket and refurbished products and salvage and remanufactured products are primarily composed of finished goods. As of December 31, 2020, manufactured products inventory was composed of $ 16 million of raw materials, $ 3 million of work in process, and $ 2 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. Property, Plant and Equipment Property, plant and equipment are recorded at cost less accumulated depreciation. Expenditures for major additions and improvements that extend the useful life of the related asset are capitalized. As property, plant and equipment are sold or retired, the applicable cost and accumulated depreciation are removed from the accounts and any resulting gain or loss thereon is recognized. Construction in progress consists primarily of building and land improvements at our existing facilities. Depreciation is calculated using the straight-line method over the estimated useful lives or, in the case of leasehold improvements, the term of the related lease and reasonably assured renewal periods, if shorter. Our estimated useful lives are as follows: Land improvements 10-20 years Buildings and improvements 20-40 years Machinery and equipment 3-20 years Computer equipment and software 3-10 years Vehicles and trailers 3-10 years Furniture and fixtures 5-7 years 75 Property, plant and equipment consists of the following (in thousands): December 31, 2020 2019 Land and improvements $ 200,955 $ 194,437 Buildings and improvements 415,810 384,918 Machinery and equipment 707,674 679,292 Computer equipment and software 121,859 153,900 Vehicles and trailers 149,922 156,334 Furniture and fixtures 57,082 52,601 Leasehold improvements 314,567 295,534 Finance lease assets 99,061 71,724 2,066,930 1,988,740 Less—Accumulated depreciation ( 895,149 ) ( 807,680 ) Construction in progress 76,922 53,340 Total property, plant and equipment, net $ 1,248,703 $ 1,234,400 We record depreciation expense associated with our refurbishing, remanufacturing, manufacturing and furnace operations as well as our distribution centers in Cost of goods sold in the Consolidated Statements of Income. We report depreciation expense resulting from restructuring programs in Restructuring and acquisition related expenses. All other depreciation expense is reported in Depreciation and amortization. Total depreciation expense for the years ended December 31, 2020, 2019, and 2018 was $ 180 million, $ 174 million, and $ 157 million, respectively. Intangible Assets Intangible assets consist primarily of goodwill (the cost of purchased businesses in excess of the fair value of the identifiable net assets acquired) and other specifically identifiable intangible assets, such as trade names, trademarks, customer and supplier relationships, software and other technology related assets, and covenants not to compete. Goodwill is tested for impairment at least annually, and we performed annual impairment tests during the fourth quarters of 2020, 2019 and 2018. Goodwill impairment testing may also be performed on an interim basis when events or circumstances arise that may lead to impairment. The fair value estimates of our reporting units were established using weightings of the results of a discounted cash flow methodology and a comparative market multiples approach. 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. At the time of our analysis, our projections for the interim impairment test assumed that the COVID-19 impact would be severe, with revenue down by as much as 50 % in the second quarter of 2020 compared to our prior forecast used in the 2019 impairment analysis, but temporary, as revenue would improve gradually in the second half of 2020. We expected that cost mitigation actions and cash preservation measures would dampen the negative impact of the projected revenue decline. Based on the interim test in the first quarter of 2020, we determined no impairments existed as all reporting units had a fair value estimate that exceeded the carrying value by at least 12 %, the level at which our Europe reporting unit exceeded its carrying value. We did not identify a triggering event in the second or third quarter that necessitated an interim test of goodwill impairment. Based on the annual goodwill impairment test performed in the fourth quarter of 2020, we determined no impairment existed as all of our reporting units had a fair value estimate which exceeded the carrying value by at least 30 %. Based on our annual goodwill impairment test in 2018, we determined the carrying value of our Aviation reporting unit exceeded the fair value estimate by more than the carrying value, thus we recorded an impairment charge of $ 33 million, which represented the total carrying value of goodwill in our Aviation reporting unit (subsequently sold in the third quarter of 2019). The impairment charge was due to a decrease in the fair value estimate from the prior year fair value estimate, primarily driven by a significant deterioration in the outlook for the Aviation reporting unit due to competition, customer financial issues and changing market conditions for the airplane platforms that the business services, which lowered our projected gross margin and related future cash flows. We reported the impairment charge in Loss on disposal of businesses and impairment of net assets held for sale and goodwill in the Consolidated Statements of Income for the year ended December 31, 2018. We review indefinite-lived intangible assets for impairment annually or on an interim basis if events or changes in circumstances indicate that the carrying value may not be recoverable. In the first quarter of 2020, we determined that the effect 76 of the uncertainty relating to the COVID-19 pandemic on our forecasted results represented a change in circumstances indicating that the carrying value of the Warn trademark, which is our only indefinite-lived intangible asset, might not be recoverable. As a result, we performed a quantitative impairment test as of March 31, 2020 using the relief-from-royalty method and determined no impairment existed, as the trademark had a fair value estimate which exceeded the carrying value by approximately 9 %. We did not identify a triggering event in the second or third quarter that necessitated an interim test of impairment. Based on the annual impairment test performed in the fourth quarter of 2020, we determined no impairment existed at that time as the trademark had a fair value estimate which exceeded the carrying value by approximately 13 %. The changes in the carrying amount of goodwill by reportable segment are as follows (in thousands): North America Europe Specialty Total Balance as of January 1, 2019 $ 1,673,532 $ 2,300,289 $ 407,637 $ 4,381,458 Business acquisitions and adjustments to previously recorded goodwill 38,913 15,099 — 54,012 Reclassified to net assets held for sale and discontinued operations — ( 4,721 ) — ( 4,721 ) Disposal of business — ( 1,919 ) — ( 1,919 ) Exchange rate effects 5,599 ( 27,847 ) ( 47 ) ( 22,295 ) Balance as of December 31, 2019 $ 1,718,044 $ 2,280,901 $ 407,590 $ 4,406,535 Business acquisitions and adjustments to previously recorded goodwill ( 123 ) 419 5,291 5,587 Exchange rate effects 2,346 176,915 186 179,447 Balance as of December 31, 2020 $ 1,720,267 $ 2,458,235 $ 413,067 $ 4,591,569 Accumulated impairment losses as of December 31, 2020 $ ( 33,244 ) $ — $ — $ ( 33,244 ) The components of other intangibles, net are as follows (in thousands): December 31, 2020 December 31, 2019 Intangible assets subject to amortization $ 732,919 $ 769,038 Indefinite-lived intangible assets Trademarks 81,300 81,300 Total $ 814,219 $ 850,338 The components of intangible assets subject to amortization are as follows (in thousands): December 31, 2020 December 31, 2019 Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net Trade names and trademarks $ 519,577 $ ( 152,668 ) $ 366,909 $ 488,945 $ ( 119,957 ) $ 368,988 Customer and supplier relationships 617,952 ( 405,237 ) 212,715 580,052 ( 321,650 ) 258,402 Software and other technology related assets 326,988 ( 174,513 ) 152,475 248,941 ( 108,979 ) 139,962 Covenants not to compete 13,700 ( 12,880 ) 820 13,435 ( 11,749 ) 1,686 Total $ 1,478,217 $ ( 745,298 ) $ 732,919 $ 1,331,373 $ ( 562,335 ) $ 769,038 The components of intangible assets acquired as part of our acquisitions in 2018 are as follows (in thousands): Year Ended December 31, 2018 Stahlgruber Other Acquisitions (1) Total Trade names and trademarks $ 173,946 $ 8,870 $ 182,816 Customer and supplier relationships 77,980 20,779 98,759 Software and other technology related assets 33,329 376 33,705 Total $ 285,255 $ 30,025 $ 315,280 77 (1) The amounts recorded during the year ended December 31, 2018 exclude amounts related to our 2017 acquisitions, including a $ 5 million adjustment to increase other intangibles related to our 2017 acquisition of Warn. The weighted-average amortization periods for our intangible assets acquired during the year ended December 31, 2018 are as follows (in years): Year Ended December 31, 2018 Stahlgruber Other Acquisitions Total Trade names and trademarks 18.0 10.0 17.6 Customer and supplier relationships 3.0 7.9 4.0 Software and other technology related assets 5.2 6.5 5.2 Total acquired finite-lived intangible assets 12.4 8.5 12.0 Our estimated useful lives for our finite-lived intangible assets are as follows: Method of Amortization Useful Life Trade names and trademarks Straight-line 4-30 years Customer and supplier relationships Accelerated 3-20 years Software and other technology related assets Straight-line 3-15 years Covenants not to compete Straight-line 2-5 years Amortization expense for intangibles was $ 119 million, $ 140 million, and $ 137 million during the years ended December 31, 2020, 2019, and 2018, respectively. Estimated amortization expense for each of the five years in the period ending December 31, 2025 is $ 101 million, $ 89 million, $ 77 million, $ 69 million and $ 62 million, respectively. Leases See Note 13, "Leases" for our accounting policies related to leases. Net Assets Held for Sale During 2019 and 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 net impairment charges totaling $ 3 million for the year ended December 31, 2020. As of December 31, 2020, assets and liabilities held for sale we re 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 and goodwill in the 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 business in North America and a wholesale business in Bulgaria, resulting in a net $ 47 million impairment charge for the year ended December 31, 2019 (presented in Loss on disposal of businesses and impairment of net assets held for sale and goodwill in the Consolidated Statements of Income). Excluding the Stahlgruber Czech Republic wholesale business discussed in Note 3, "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 Consolidated Balance Sheet. The disposed businesses were immaterial, generating annualized revenue of approximately $ 55 million prior to the divestitures. We are required to record net assets of our held for sale businesses at the lower of fair value less cost to sell or carrying value. Fair values were based on projected discounted cash flows and/or estimated selling prices. Management's assumptions for our discounted cash flow analyses of the businesses were based on projected revenues and profits, tax rates, capital expenditures, working capital requirements and discount rates. For businesses for which we utilized estimated selling prices to calculate the fair value, the inputs to our estimates included projected market multiples and any reasonable offers. Due to uncertainties in the estimation process, it is possible that actual results could differ from the estimates used in our analysis. The 78 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 December 31, 2020. Impairment of Long-Lived Assets Long-lived assets are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. If such review indicates that the carrying amount of long-lived assets is not recoverable, the carrying amount of such assets is reduced to fair value. Other than the impairment charges recorded upon the classification of certain businesses in our North America and Europe segments as held for sale discussed in the "Net Assets Held for Sale" section above, there were no material adjustments to the carrying value of long-lived assets during the years ended December 31, 2020, 2019 or 2018. Investments in Unconsolidated Subsidiaries Our investment in unconsolidated subsidiaries was $ 155 million and $ 139 million as of December 31, 2020 and December 31, 2019, respectively. Europe Segment Our investment in unconsolidated subsidiaries in Europe was $ 137 million and $ 122 million as of December 31, 2020 and December 31, 2019, respectively. We recorded equity in earnings of $ 8 million during the year ended December 31, 2020 and equity in losses of $ 33 million and $ 65 million during the years ended December 31, 2019 and December 31, 2018, respectively, mainly related to our investment in Mekonomen. On December 1, 2016, we acquired a 26.5 % equity interest in Mekonomen for an aggregate purchase price of $ 181 million. In October 2018, we acquired an additional $ 48 million of equity in Mekonomen at a discounted share price as part of its rights issue, increasing our equity interest to 26.6 %. We are accounting for our interest in Mekonomen using the equity method of accounting, as our investment gives us the ability to exercise significant influence, but not control, over the investee. As of December 31, 2020, our share of the book value of Mekonomen's net assets exceeded the book value of our investment in Mekonomen by $ 6 million; this difference is primarily related to Mekonomen's Accumulated Other Comprehensive Income balance as of our acquisition date in 2016. We are recording our equity in the net earnings of Mekonomen on a one quarter lag. During the years ended December 31, 2019 and 2018, we recognized other-than-temporary impairment charges of $ 40 million and $ 71 million, which represented the difference in the carrying value and the fair value of our investment in Mekonomen. The fair value of our investment in Mekonomen was determined using the Mekonomen share prices as of the dates of our impairment tests. The impairment charges are recorded in Equity in earnings (losses) of unconsolidated subsidiaries in our Consolidated Statements of Income. In May 2018, we received a cash dividend of $ 8 million (SEK 67 million) related to our investment in Mekonomen. Mekonomen announced in February 2019 and March 2020, respectively, that the Mekonomen Board of Directors proposed no dividend payment in 2019 or 2020. The Level 1 fair value of our equity investment in the publicly traded Mekonomen common stock at December 31, 2020 was $ 155 million (using the Mekonomen share price of SEK 91 as of December 31, 2020) compared to a carrying value of $ 126 million. In 2018, we participated in a rights issue with preferential rights for Mekonomen's existing shareholders, who were given the right to subscribe for four new Mekonomen shares per seven existing owned shares at a discounted share price. The rights issue represented a derivative instrument related to our right to acquire Mekonomen shares at a discount. We measured the derivative instrument at fair value, and we recorded a derivative loss of $ 5 million in Interest income and other income, net in the Consolidated Statements of Income in October 2018 upon the settlement of the derivative instrument. North America Segment Our investment in unconsolidated subsidiaries in the North America segment was $ 19 million and $ 18 million as of December 31, 2020 and December 31, 2019, respectively. We recorded equity in losses of $ 3 million and equity in earnings of $ 1 million for the North America equity investments during the years ended December 31, 2020 and 2019, respectively, and an immaterial amount for the year ended December 31, 2018. 79 Warranty Reserve Some of our salvage mechanical products are sold with a standard six month warranty against defects. Additionally, some of our remanufactured engines are sold with a standard three or four year warranty against defects. We also provide a limited lifetime warranty for certain of our aftermarket products. These assurance-type warranties are not considered a separate performance obligation, and thus no transaction price is allocated to them. We record the warranty costs in Cost of goods sold in our Consolidated Statements of Income. Our warranty reserve is calculated using historical claim information to project future warranty claims activity and is recorded within Other accrued expenses and Other noncurrent liabilities on our Consolidated Balance Sheets based on the expected timing of the related payments. The changes in the warranty reserve are as follows (in thousands): Balance as of January 1, 2019 $ 23,262 Warranty expense 58,253 Warranty claims ( 56,074 ) Balance as of December 31, 2019 25,441 Warranty expense 67,365 Warranty claims ( 64,892 ) Balance as of December 31, 2020 $ 27,914 Self-Insurance Reserves We self-insure a portion of employee medical benefits under the terms of our employee health insurance program. We purchase certain stop-loss insurance to limit our liability exposure. We also self-insure a portion of our property and casualty risk, which includes automobile liability, general liability, directors and officers liability, workers' compensation, and property coverage, under deductible insurance programs. The insurance premium costs are expensed over the contract periods. A reserve for liabilities associated with these losses is established for claims filed and claims incurred but not yet reported based upon our estimate of ultimate cost, which is calculated using analysis of historical data. We monitor new claims and claim development as well as trends related to the claims incurred but not reported in order to assess the adequacy of our insurance reserves. Total self-insurance reserves were $ 110 million and $ 109 million, of which $ 55 million and $ 54 million was classified as current, as of December 31, 2020 and 2019, respectively, and are classified as Other accrued expenses on the Consolidated Balance Sheets. The remaining balances of self-insurance reserves are classified as Other noncurrent liabilities, which reflects management's estimates of when claims will be paid. We had outstanding letters of credit of $ 71 million and $ 69 million at December 31, 2020 and 2019, respectively, to guarantee self-insurance claims payments. While we do not expect the amounts ultimately paid to differ significantly from our estimates, our insurance reserves and corresponding expenses could be affected if future claims experience differs significantly from historical trends and assumptions. Litigation and Related Contingencies We have certain contingencies resulting from litigation, claims and other commitments and are subject to a variety of environmental and pollution control laws and regulations incident to the ordinary course of business. We currently expect that the resolution of such contingencies will not materially affect our financial position, results of operations or cash flows. Government Assistance During the year ended December 31, 2020, we recorded $ 52 million in financial assistance from foreign governments, primarily in the form of grants, of which $ 43 million and $ 9 million related to Europe and Canada, respectively. For the year ended December 31, 2020, $ 1 million was recorded as a reduction to Cost of goods sold and $ 51 million was a reduction to Selling, general and administrative expenses in our 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. to provide economic relief to individuals and businesses facing economic hardship as a result of the COVID-19 pandemic. Similar legislation was enacted in many of the Company’s international jurisdictions. Tax measures in these legislative actions did not have a material impact on the Company’s results of operations for the year ended December 31, 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 December 31, 2020, approximately $ 30 million of payments otherwise due by the end of 2020 were deferred, of which we estimate approximately half will be paid in 2021 and half in 2022. 80 Income Taxes Current income taxes are provided on income reported for financial reporting purposes, adjusted for transactions that do not enter into the computation of income taxes payable in the same year. Deferred income taxes are provided for temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before we are able to realize their benefit or that future deductibility is uncertain. Provision is made for taxes on undistributed earnings of foreign subsidiaries and related companies to the extent that such earnings are not deemed to be permanently invested. We recognize the benefits of uncertain tax positions taken or expected to be taken in tax returns in the provision for income taxes only for those positions that are more likely than not to be realized. We follow a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50 % likely of being realized upon ultimate settlement. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes. Our policy is to include interest and penalties associated with income tax obligations in income tax expense. Stockholders' Equity Treasury Stock On October 25, 2018, our Board of Directors authorized a stock repurchase program under which we may purchase up to $ 500 million of our common stock from time to time through October 25, 2021. On October 25, 2019, our Board of Directors authorized an increase to our existing stock repurchase program under which the Company may purchase up to an additional $ 500 million of our common stock from time to time through October 25, 2022; this extended date also applies to the original repurchase program. With the increase, the Board of Directors has authorized a total of $ 1.0 billion of common stock repurchases. Repurchases under the program may be made in the open market or in privately negotiated transactions, with the amount and timing of repurchases depending on market conditions and corporate needs. The repurchase program does not obligate us to acquire any specific number of shares and may be suspended or discontinued at any time. Delaware law imposes restrictions on stock repurchases. During the year ended December 31, 2020, we repurchased 4.1 million shares of common stock for an aggregate price of $ 117 million. During the year ended December 31, 2019, we repurchased 10.9 million shares of common stock for an aggregate price of $ 292 million. During 2018, we repurchased 2.3 million shares of common stock for an aggregate price of $ 60 million. As of December 31, 2020, there was $ 531 million of remaining capacity under our repurchase program. Repurchased shares are accounted for as treasury stock using the cost method. Noncontrolling Interest 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. This purchase resulted in a net decrease to Noncontrolling interest of $ 10 million and a decrease to Additional paid-in-capital of $ 1 million in our consolidated financial statements as of December 31, 2020. In February 2020, as part of the sale of Stahlgruber's Czech Republic business, we divested the noncontrolling interest of the business, which resulted in a net decrease to Noncontrolling interest of $ 11 million in our consolidated financial statements as of March 31, 2020. See Note 3, "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 consolidated financial statements as of December 31, 2019. In December 2019, we modified the shares of a noncontrolling interest of a subsidiary acquired in connection with the Stahlgruber acquisition and issued new redeemable shares to the minority shareholder. The new redeemable shares contain (i) a put option for all noncontrolling interest shares at a fixed price of $ 24 million (€ 21 million) for the minority shareholder exercisable in the fourth quarter of 2023, (ii) a call option for all noncontrolling interest shares at a fixed price of $ 26 million (€ 23 million) for the Company exercisable beginning in the first quarter of 2026 through the end of the fourth quarter of 2027, and (iii) a guaranteed dividend to be paid quarterly to the minority shareholder through the fourth quarter of 2023. The new redeemable shares do not provide the minority shareholder with rights to participate in the profits and losses of the subsidiary prior to the exercise date of the put option. As the put option is outside the control of the Company, we recorded a $ 24 million Redeemable noncontrolling interest at the put option's redemption value outside of permanent equity on our Consolidated Balance Sheets. This transaction also resulted in a decrease to Additional paid-in capital of $ 18 million, a decrease to Noncontrolling interest of $ 12 million, and a $ 7 million dividend payable ($ 2 million recorded in Other current liabilities and 81 $ 5 million in Other noncurrent liabilities) in our consolidated financial statements as of December 31, 2019. The redeemable noncontrolling interest and dividend payable represent noncash financing activities in our Consolidated Statements of Cash Flows. Foreign Currency Translation For most of our foreign operations, the local currency is the functional currency. Assets and liabilities are translated into U.S. dollars at the period-ending exchange rate. Statements of Income amounts are translated to U.S. dollars using monthly average exchange rates during the period. Translation gains and losses are reported as a component of Accumulated other comprehensive income (loss) in stockholders' equity. Recent Accounting Pronouncements Recently Adopted Accounting Pronouncements 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. As of January 1, 2020, we recorded a cumulative effect adjustment to retained earnings of $ 3 million. During the first quarter of 2020, we adopted ASU No. 2018-13, "Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement" ("ASU 2018-13"), which removes, modifies, and adds certain disclosure requirements in ASC 820. We adopted the provisions of ASU 2018-13 by applying a prospective approach. The adoption of ASU 2018-13 did not have a material impact on our consolidated financial statements. Recently Issued Accounting Pronouncements 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. We do not anticipate the adoption of this accounting standard will have a material impact on our consolidated financial statements. In March 2020, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04"), which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. ASU 2020-04 provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. These transactions include contract modifications, hedging relationships, and sale or transfer of debt securities classified as held-to-maturity. Entities may apply the provisions of the new standard as of the beginning of the reporting period when the election is made (i.e., as early as the first quarter 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. We are currently evaluating the impact of this standard on our consolidated financial statements and related disclosures, and we have not yet elected an adoption date. Note 5. Revenue Recognition The majority of our revenue is derived from the sale of vehicle parts. We recognize revenue when the products are shipped to, delivered to or picked up by customers, which is the point when title has transferred and risk of ownership has passed. 82 Sources of Revenue We report our revenue in two categories: (i) parts and services and (ii) other. The following table sets forth our revenue by category, with our parts and services revenue further disaggregated by reportable segment (in thousands): Year Ended December 31, 2020 2019 2018 North America $ 3,988,214 $ 4,600,903 $ 4,558,220 Europe 5,470,159 5,817,547 5,202,231 Specialty 1,505,340 1,459,396 1,472,956 Parts and services 10,963,713 11,877,846 11,233,407 Other 665,117 628,263 643,267 Total revenue $ 11,628,830 $ 12,506,109 $ 11,876,674 Parts and Services Our parts revenue is generated from the sale of vehicle products including replacement parts, components and systems used in the repair and maintenance of vehicles and specialty products and accessories to improve the performance, functionality and appearance of vehicles. Services revenue includes (i) additional services that are generally billed concurrently with the related product sales, such as the sale of service-type warranties, (ii) fees for admission to our self service yards, and (iii) diagnostic and repair services. In North America, our vehicle replacement products include sheet metal collision parts such as doors, hoods, and fenders; bumper covers; head and tail lamps; automotive glass products such as windshields; mirrors and grilles; wheels; and large mechanical items such as engines and transmissions. In Europe, our products include a wide variety of small mechanical products such as brake pads, discs and sensors; clutches; electrical products such as spark plugs and batteries; steering and suspension products; filters; and oil and automotive fluids. In our Specialty operations, we serve six product segments: truck and off-road; speed and performance; recreational vehicles; towing; wheels, tires and performance handling; and miscellaneous accessories. Our service-type warranties typically have service periods ranging from 6 months to 36 months. Under FASB Accounting Standards Codification Topic 606 ("ASC 606"), proceeds from these service-type warranties are deferred at contract inception and amortized on a straight-line basis to revenue over the contract period. The changes in deferred service-type warranty revenue are as follows (in thousands): Balance as of January 1, 2019 $ 24,006 Additional warranty revenue deferred 43,381 Warranty revenue recognized ( 40,320 ) Balance as of December 31, 2019 27,067 Additional warranty revenue deferred 43,214 Warranty revenue recognized ( 44,659 ) Balance as of December 31, 2020 $ 25,622 Other Revenue Revenue from other sources includes sales of scrap and precious metals (platinum, palladium, and rhodium), bulk sales to mechanical manufacturers (including cores) and sales of aluminum ingots and sows from our furnace operations. We derive scrap metal and other precious metals from several sources, including vehicles that have been used in both our wholesale and self service recycling operations and from original equipment manufacturers ("OEMs") and other entities that contract with us for secure disposal of "crush only" vehicles. Revenue from the sale of hulks in our wholesale and self service recycling operations is recognized based on a price per ton of delivered material when the customer (processor) collects the scrap. Some adjustments may occur when the customer weighs the scrap at their location, and revenue is adjusted accordingly. Revenue by Geographic Area See Note 16, "Segment and Geographic Information" for information related to our revenue by geographic region. Variable Consideration The amount of revenue ultimately received from the customer can vary due to variable consideration including returns, discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, or other similar items. Under ASC 606 83 we are required to select the “expected value method” or the “most likely amount” method in order to estimate variable consideration. We utilize both methods in practice depending on the type of variable consideration, with contemplation of any expected reversals in revenue. We recorded a refund liability and return asset for expected returns of $ 102 million and $ 57 million, respectively, as of December 31, 2020, and $ 97 million and $ 52 million, respectively, as of December 31, 2019. The refund liability is presented separately on the 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 Consolidated Balance Sheets. We recorded a reserve for our variable consideration of $ 127 million and $ 108 million as of December 31, 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. We consider these programs to be immaterial to our consolidated financial statements. Contract Costs Under ASC 340, "Other Assets and Deferred Costs," we have elected to recognize incremental costs of obtaining a contract (commissions earned by our sales representatives on product sales) as an expense when incurred, as we believe the amortization period of the asset would be one year or less due to the short-term nature of our contracts. Sales Taxes We present taxes assessed by governmental authorities collected from customers on a net basis. Therefore, the taxes are excluded from revenue in our Consolidated Statements of Income and are shown as a current liability on our Consolidated Balance Sheets until remitted. Note 6. Restructuring and Acquisition Related Expenses Acquisition Related Expenses We incurred $ 8 million of acquisition related expenses for the year ended December 31, 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 for the year ended December 31, 2019. These expenses included external costs such as legal, accounting and advisory fees related to our acquisitions. We incurred $ 18 million of acquisition related expenses for the year ended December 31, 2018. These expenses included external costs primarily related to our May 2018 acquisition of Stahlgruber. 2019 Global Restructuring Program In the second quarter of 2019, we commenced a cost reduction initiative, covering all three of our reportable segments, designed to eliminate underperforming assets and cost inefficiencies. We have incurred and expect to incur costs for inventory write-downs; employee severance and other expenditures related to employee terminations; lease exit costs, such as lease termination fees, accelerated amortization of operating lease assets and impairment of operating lease assets; other costs related to facility exits, such as moving expenses to relocate inventory and equipment; and accelerated depreciation of fixed assets to be disposed earlier than the end of the previously estimated useful lives. During the year ended December 31, 2020, we incur r ed $ 7 million of restructuring expenses under this program, primarily related to facility exit costs and employee-related costs. These costs were recorded within Restructuring and acquisition related expenses in the Consolidated Statements of Income. Of the program costs incurred during 2020, $ 4 million and $ 3 million related to our Europe and North America segments, respectively. During the year ended December 31, 2019, we incurred $ 37 million of restructuring expenses primarily related to inventory write-downs, facility exit costs, and employee-related costs. Of these expenses, $ 17 million, primarily related to Andrew Page Limited ("Andrew Page") branch consolidation and brand rationalization, was recorded within Cost of goods sold in the Consolidated Statement of Income during the year ended December 31, 2019, and $ 20 million was recorded within Restructuring and acquisition related expenses. The actions under this program are substantially complete. We estimate that total program costs will be approximately $ 46 million, of which approximately $ 31 million, $ 14 million and $ 1 million will be incurred by our Europe, North America and Specialty segments, respectively. Costs to be incurred through 2021 under this program are estimated to be between $ 1 million and $ 3 million. As of December 31, 2020, restructuring liabilities related to this program were immaterial. 84 2020 Global Restructuring Program Beginning in the first quarter of 2020, we initiated a further restructuring program aimed at cost reductions across all our reportable segments through the elimination of underperforming assets and cost inefficiencies. These actions are incremental to those initiated as part of the 2019 Global Restructuring Program, and include costs for inventory write-downs; employee severance and other expenditures related to employee terminations; lease exit costs, such as lease termination fees, accelerated amortization of operating lease assets and impairment of operating lease assets; other costs related to facility exits, such as moving expenses to relocate inventory and equipment; and accelerated depreciation of fixed assets to be disposed of earlier than t he end of the previously estimated useful lives. We expanded this program during the second and third quarters of 2020 as we identified additional opportunities to eliminate inefficiencies, including actions in response to impacts to our business from COVID-19. During the year ended December 31, 2020, we recognized restructuring expenses totaling $ 50 million for employee-related costs, facility exit costs and inventory write-downs. Of these expenses, $ 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 Consolidated Statement of Income. Of the cumulative program costs incurred to date, $ 26 million, $ 23 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 2023 will be between $ 65 million and $ 75 million, of which approximately $ 40 million, $ 31 million, and $ 2 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. As of December 31, 2020, restructuring liabilities related to this program totaled $ 21 million, including $ 17 million related to leases we have exited or expect to exit prior to the end of the lease term (reported in Current portion of operating lease liabilities and Long-term operating lease liabilities, excluding current portion on our Consolidated Balance Sheets), and $ 4 million for employee termination costs (reported in Accrued payroll-related liabilities on our Consolidated Balance Sheets). Our lease-related restructuring liabilities are estimated based on remaining rent payments after our actual exit date for facilities closed in 2020 and after our planned exit date for facilities we expect to close in future periods; these liabilities do not reflect any estimated proceeds we may be able to achieve through subleasing the facilities. Acquisition Integration Plans During the year ended December 31, 2020, we incurred $ 9 million of restructuring expenses 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 year ended December 31, 2019, we incurred $ 18 million of restructuring expenses primarily related to our acquisition integration efforts in our Europe segment. These expenses included $ 14 million related to the integration of our acquisition of Andrew Page, including $ 4 million within Cost of goods sold in the Consolidated Statement of Income. During the year ended December 31, 2018, we incurred $ 14 million of restructuring expenses. Expenses incurred during the year ended December 31, 2018 primarily consisted of $ 10 million related to the integration of our acquisition of Andrew Page and $ 3 million related to our Specialty segment. These integration activities included the closure of duplicate facilities and termination of employees. 1 LKQ Europe Program In September 2019, we announced a multi-year program called "1 LKQ Europe" which is intended to create structural centralization and standardization of key functions to facilitate the operation of the Europe segment as a single business. Under the 1 LKQ Europe program, we will reorganize our non-customer-facing teams and support systems through various projects including the implementation of a common ERP platform, rationalization of our product portfolio, and creation of a Europe headquarters office and central back office. While certain projects were delayed as a result of the COVID-19 pandemic, such as our procurement initiatives and the new headquarters in Switzerland, we also accelerated certain projects, such as the integration of previously acquired networks and sharing resources across LKQ Europe. We are targeting to complete the organizational design and implementation projects by the middle of 2021, with the remaining projects scheduled 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. 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. As of December 31, 2020, there were no restructuring liabilities related to this program. 85 Note 7. Stock-Based Compensation In order to attract and retain employees, non-employee directors, consultants, and other persons associated with us, we grant equity-based awards under the LKQ Corporation 1998 Equity Incentive Plan (the “Equity Incentive Plan”). The total number of shares approved by our stockholders for issuance under the Equity Incentive Plan is 70 million shares, subject to antidilution and other adjustment provisions. We have granted restricted stock units ("RSUs"), stock options, and restricted stock under the Equity Incentive Plan. Of the shares approved by our stockholders for issuance under the Equity Incentive Plan, 10 million shares remained available for issuance as of December 31, 2020. We expect to issue new or treasury shares of common stock to cover past and future equity grants. RSUs The RSUs we have issued vest over periods of up to five years , subject to a continued service condition. Currently outstanding RSUs (other than PSUs, which are described below) contain either a time-based vesting condition or a combination of a performance-based vesting condition and a time-based vesting condition, in which case both conditions must be met before any RSUs vest. For all of the RSUs containing a performance-based vesting condition, the Company must report positive diluted earnings per share, subject to certain adjustments, during any fiscal year period within five years following the grant date. Each RSU converts into one share of LKQ common stock on the applicable vesting date. The grant date fair value of RSUs is based on the market price of LKQ stock on the grant date. Starting with our 2019 grants, participants who are eligible for retirement (defined as a voluntary separation of service from the Company after the participant has attained at least 60 years of age and completed at least five years of service) will continue to vest in their awards following retirement; if retirement occurs during the first year of the vesting period (for RSUs subject to a time-based vesting condition) or the first year of the performance period (for RSUs with a performance-based vesting condition), the participant vests in a prorated amount of the RSU grant based on the portion of the year employed. For our RSU grants prior to 2019, participants forfeit their unvested shares upon retirement. The Compensation Committee of our Board of Directors (the "Compensation Committee") approved the grant of 230,360 ; 270,388 ; and 189,204 RSUs to our executive officers that included both a performance-based vesting condition and a time-based vesting condition in 2020, 2019, and 2018, respectively. The performance-based vesting conditions for the 2020, 2019, and 2018 grants to our executive officers have been satisfied. The fair value of RSUs that vested during the years ended December 31, 2020, 2019, and 2018 was $ 27 million, $ 22 million, and $ 27 million, respectively; 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 year ended December 31, 2020: Number Outstanding Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) (1) Unvested as of January 1, 2020 1,612,026 $ 31.72 Granted (2) 902,786 $ 31.68 Vested ( 921,129 ) $ 31.57 Forfeited / Canceled ( 114,011 ) $ 32.69 Unvested as of December 31, 2020 1,479,672 $ 31.71 Expected to vest after December 31, 2020 1,281,785 $ 31.60 2.7 $ 45,170 (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 the expected to vest RSUs vested. This amount changes based on the market price of the Company’s common stock. (2) The weighted average grant date fair value of RSUs granted during the years ended December 31, 2019 and 2018 was $ 27.82 and $ 42.58 , respectively. In 2020 and 2019, we granted performance-based three-year RSUs ("PSUs") to certain employees, including our executive officers, under our Equity Incentive Plan. As these awards are performance-based, the exact number of shares to be paid out may be up to twice the grant amount, depending on the Company's performance and the achievement of certain 86 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 year ended December 31, 2020: Number Outstanding Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) (1) Unvested as of January 1, 2020 136,170 $ 27.69 Granted (2) 164,152 $ 31.85 Forfeited / Canceled ( 8,721 ) $ 29.35 Unvested as of December 31, 2020 291,601 $ 29.98 Expected to vest after December 31, 2020 291,601 $ 29.98 1.5 $ 10,276 (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 the expected to vest PSUs vested. This amount changes based on the market price of the Company’s common stock and the achievement of the performance metrics relative to the established targets. (2) Represents the number of PSUs at target payout. The weighted average grant date fair value of PSUs granted during the year ended December 31, 2019 was $ 27.69 . Stock Options Stock options vested over periods of up to five years , subject to a continued service condition. Stock options expired either six years or ten years from the date they were granted. No options were granted during 2020 and 2019. No options vested during the year ended December 31, 2020. The following table summarizes activity related to our stock options under the Equity Incentive Plan for the year ended December 31, 2020: Number Outstanding Weighted Average Exercise Price Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (in thousands) Balance as of January 1, 2020 114,594 $ 12.26 Exercised ( 112,472 ) $ 11.88 $ 2,629 Canceled ( 2,122 ) $ 32.31 Balance as of December 31, 2020 — $ — — $ — All stock options were exercised or canceled as of December 31, 2020. Stock-Based Compensation Expense For the RSUs that contain both a performance-based vesting condition and a time-based vesting condition, we recognize compensation expense under the accelerated attribution method, pursuant to which expense is recognized over the requisite service period for each separate vesting tranche of the award. The PSU expense is calculated using the projected award value, which is based on an estimate of the achievement of the performance objectives. During the years ended December 31, 2020, 2019, and 2018, we recognized $ 11 million, $ 11 million, and $ 8 million, respectively, of stock based compensation expense related to the RSUs containing a performance-based vesting condition. For all other awards, which are subject to only a time-based vesting condition, we recognize compensation expense on a straight-line basis over the requisite service period of the entire award. Forfeitures are recorded as they occur. Pre-tax stock-based compensation expense for RSUs and PSUs totaled $ 29 million, $ 28 million, and $ 23 million for the years ended December 31, 2020, 2019, and 2018; respectively. 87 The following table sets forth the classification of total stock-based compensation expense included in our Consolidated Statements of Income for our continuing operations (in thousands): Year Ended December 31, 2020 2019 2018 Cost of goods sold $ 506 $ 477 $ 469 Selling, general and administrative expenses 28,572 27,218 22,291 Total stock-based compensation expense 29,078 27,695 22,760 Income tax benefit ( 6,614 ) ( 6,227 ) ( 5,220 ) Total stock-based compensation expense, net of tax $ 22,464 $ 21,468 $ 17,540 We have not capitalized any stock-based compensation costs during the years ended December 31, 2020, 2019, and 2018. As of December 31, 2020, unrecognized compensation expense related to unvested RSUs and PSUs is expected to be recognized as follows (in thousands): 2021 $ 18,034 2022 10,963 2023 5,352 2024 2,875 2025 136 Total unrecognized compensation expense $ 37,360 Stock-based compensation expense related to these awards will be different to the extent that forfeitures are realized and performance under the PSUs differs from target. Note 8. Earnings Per Share Basic earnings per share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share incorporate the incremental shares issuable upon the assumed exercise of stock options and the assumed vesting of RSUs. Certain of our RSUs and stock options were excluded from the calculation of diluted earnings per share because they were antidilutive, but these equity instruments could be dilutive in the future. The following chart sets forth the computation of earnings per share (in thousands, except per share amounts): Year Ended December 31, 2020 2019 2018 Income from continuing operations $ 640,509 $ 543,415 $ 487,565 Denominator for basic earnings per share—Weighted-average shares outstanding 304,640 310,155 314,428 Effect of dilutive securities: RSUs 362 393 409 PSUs 3 — — Stock options 1 421 1,012 Denominator for diluted earnings per share—Adjusted weighted-average shares outstanding 305,006 310,969 315,849 Basic earnings per share from continuing operations $ 2.10 $ 1.75 $ 1.55 Diluted earnings per share from continuing operations (1) $ 2.10 $ 1.75 $ 1.54 (1) Diluted earnings per share from continuing operations was computed using the treasury stock method for dilutive securities. 88 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 years ended December 31, 2020, 2019, and 2018 (in thousands): Year Ended December 31, 2020 2019 2018 Antidilutive securities: RSUs 673 586 410 Stock options — 24 8 Note 9. Accumulated Other Comprehensive Income (Loss) The components of Accumulated Other Comprehensive Income (Loss) are as follows (in thousands): Foreign Currency Translation Unrealized Gain (Loss) on Cash Flow Hedges Unrealized (Loss) Gain on Pension Plans Other Comprehensive (Loss) Income from Unconsolidated Subsidiaries Accumulated Other Comprehensive (Loss) Income BALANCE, January 1, 2018 $ ( 71,933 ) $ 11,538 $ ( 8,772 ) $ ( 1,309 ) $ ( 70,476 ) Pretax (loss) income ( 113,030 ) 37,552 1,132 — ( 74,346 ) Income tax effect 4,507 ( 8,846 ) ( 403 ) — ( 4,742 ) Reclassification of unrealized gain — ( 37,009 ) ( 54 ) — ( 37,063 ) Reclassification of deferred income taxes — 8,653 22 — 8,675 Other comprehensive loss from unconsolidated subsidiaries — — — ( 2,343 ) ( 2,343 ) Adoption of ASU 2018-02 2,859 2,486 — — 5,345 BALANCE, December 31, 2018 $ ( 177,597 ) $ 14,374 $ ( 8,075 ) $ ( 3,652 ) $ ( 174,950 ) Pretax income (loss) 7,083 23,850 ( 31,801 ) — ( 868 ) Income tax effect — ( 5,579 ) 8,579 — 3,000 Reclassification of unrealized gain — ( 35,686 ) ( 782 ) — ( 36,468 ) Reclassification of deferred income taxes — 8,399 145 — 8,544 Disposal of business ( 379 ) — — — ( 379 ) Other comprehensive income from unconsolidated subsidiaries — — — 236 236 BALANCE, December 31, 2019 $ ( 170,893 ) $ 5,358 $ ( 31,934 ) $ ( 3,416 ) $ ( 200,885 ) Pretax income (loss) 112,695 ( 48,540 ) ( 9,165 ) — 54,990 Income tax effect — 11,559 3,058 — 14,617 Reclassification of unrealized loss — 40,359 6,926 — 47,285 Reclassification of deferred income taxes — ( 9,704 ) ( 1,852 ) — ( 11,556 ) Disposal of businesses 1,072 — — — 1,072 Other comprehensive loss from unconsolidated subsidiaries — — — ( 4,532 ) ( 4,532 ) BALANCE, December 31, 2020 $ ( 57,126 ) $ ( 968 ) $ ( 32,967 ) $ ( 7,948 ) $ ( 99,009 ) 89 The amounts of unrealized gains and losses on our Cash Flow Hedges reclassified to our Consolidated Statements of Income are as follows (in thousands): Year Ended December 31, Classification 2020 2019 2018 Unrealized (losses) gains on interest rate swaps Interest expense $ ( 3,160 ) $ 5,872 $ 5,482 Unrealized gains on cross currency swaps Interest expense 10,188 15,794 11,105 Unrealized (losses) gains on cross currency swaps (1) Interest income and other income, net ( 38,198 ) 14,020 20,422 Unrealized losses on foreign currency forward contracts (1) Interest income and other income, net ( 9,189 ) — — Total $ ( 40,359 ) $ 35,686 $ 37,009 (1) The amounts reclassified to Interest income and other income, net in our 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 Interest income and other income, net in our Consolidated Statements of Income during each of the years ended December 31, 2020, 2019 and 2018. 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 Consolidated Statements of Income. During the first quarter of 2018, we adopted ASU No. 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" ("ASU 2018-02"), which allowed a reclassification from Accumulated other comprehensive income (loss) to Retained earnings for stranded tax effects resulting from the reduction of the U.S. federal statutory income tax rate to 21 % from 35 % due to the enactment of the Tax Cuts and Jobs Act of 2017 (the "Tax Act"). As a result of the adoption of ASU 2018-02 in the first quarter of 2018, we recorded a $ 5 million reclassification to increase Accumulated other comprehensive income (loss) and decrease Retained earnings. Note 10. Long-Term Obligations Long-term obligations consist of the following (in thousands): December 31, 2020 2019 Senior secured credit agreement: Term loans payable $ 323,750 $ 341,250 Revolving credit facilities 642,958 1,268,008 U.S. Notes (2023) — 600,000 Euro Notes (2024) 610,800 560,650 Euro Notes (2026/28) 1,221,600 1,121,300 Receivables securitization facility — — Notes payable through October 2030 at weighted average interest rates of 3.3% and 3.2%, respectively 24,526 26,971 Finance lease obligations at weighted average interest rates of 3.5% and 4.1%, respectively 57,336 40,837 Other debt at weighted average interest rates of 1.2% and 1.8%, respectively 15,706 113,010 Total debt 2,896,676 4,072,026 Less: long-term debt issuance costs ( 25,225 ) ( 29,990 ) Less: current debt issuance costs ( 313 ) ( 280 ) Total debt, net of debt issuance costs 2,871,138 4,041,756 Less: current maturities, net of debt issuance costs ( 58,497 ) ( 326,367 ) Long term debt, net of debt issuance costs $ 2,812,641 $ 3,715,389 90 The scheduled maturities of long-term obligations outstanding at December 31, 2020 are as follows (in thousands): 2021 (1) $ 58,810 2022 32,757 2023 25,737 2024 1,532,638 2025 7,104 Thereafter 1,239,630 Total debt (2) $ 2,896,676 (1) Maturities of long-term obligations due by December 31, 2021 includes $ 24 million of short-term debt that may be extended beyond the current due date. (2) The total debt amounts presented above reflect the gross values to be repaid (excluding debt issuance costs of $ 26 million as of December 31, 2020). Senior Secured Credit Agreement On June 11, 2020, LKQ Corporation and certain other subsidiaries of LKQ (collectively, the "Borrowers") entered into Amendment No. 4 to the Fourth Amended and Restated Credit Agreement dated January 29, 2016 (the "Credit Agreement"), which modifies the maximum permitted net leverage ratio through the quarter ending September 30, 2021. Prior to the amendment, the maximum permitted net leverage ratio was 4.00 :1.00. After the amendment, the maximum permitted net leverage ratio is (i) 5.00 :1.00 for the quarters ending December 31, 2020 and March 31, 2021, (ii) 4.50 :1.00 for the quarter ending June 30, 2021, and (iii) 4.25 :1.00 for the quarter ending September 30, 2021. Beginning with the quarter ending December 31, 2021, the maximum permitted net leverage ratio reverts to the terms in effect prior to the amendment. In the event that the net leverage ratio is greater than 4.00 :1.00, the Company would be restricted from repurchasing its shares. We can at any time elect to cancel the modifications to the maximum permitted net leverage ratio and revert to the terms in effect prior to the amendment subject to compliance with the 4.00 :1.00 ratio. Amendment No. 4 to the Credit Agreement also made certain other immaterial modifications. The total availability under the revolving credit facility's multicurrency component is $ 3.15 billion. Amounts outstanding under the revolving credit facility are due and payable upon maturity of the Credit Agreement on January 29, 2024. Term loan borrowings, which totaled $ 324 million as of December 31, 2020, are due and payable in quarterly installments equal to approximately $ 4 million on the last day of each fiscal quarter, with the remaining balance due and payable on January 29, 2024. We are required to prepay the term loan by amounts equal to proceeds from the sale or disposition of certain assets if the proceeds are not reinvested within twelve months. We also have the option to prepay outstanding amounts under the Credit Agreement without penalty. The Credit Agreement contains customary representations and warranties and customary covenants that provide limitations and conditions on our ability to enter into certain transactions. The Credit Agreement also contains financial and affirmative covenants, including limitations on our net leverage ratio and a minimum interest coverage ratio. Borrowings under the Credit Agreement bear interest at variable rates, which depend on the currency and duration of the borrowing elected, plus an applicable margin. The applicable margin is subject to change in increments of 0.25 % depending on our net leverage ratio. Interest payments are due on the last day of the selected interest period or quarterly in arrears depending on the type of borrowing. Including the effect of the interest rate swap agreements described in Note 11, "Derivative Instruments and Hedging Activities," the weighted average interest rates on borrowings outstanding under the Credit Agreement at December 31, 2020 and 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 December 31, 2020 and December 31, 2019. As of December 31, 2020, there were letters of credit outstanding in the aggregate amount of $ 71 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 December 31, 2020 was $ 2.4 billion. 91 Related to the execution of Amendment No. 4 to the Fourth Amended and Restated Credit Agreement in June 2020, we incurred $ 4 million of fees, the majority of which were capitalized as an offset to Long-Term Obligations and are amortized over the term of the agreement. U.S. Notes (2023) In 2013, we issued $ 600 million aggregate principal amount of 4.75 % senior notes due 2023 (the "U.S. Notes (2023)"). The U.S. Notes (2023) were governed by the Indenture dated as of May 9, 2013 (the "U.S. Notes (2023) Indenture") among LKQ Corporation, certain of our subsidiaries (the "Guarantors"), the trustee, paying agent, transfer agent and registrar. The U.S. Notes (2023) were registered under the Securities Act of 1933. The U.S. Notes (2023) bore interest at a rate of 4.75 % per year from the most recent payment date on which interest had been paid or provided for. Interest on the U.S. Notes (2023) was payable in arrears on May 15 and November 15 of each year. The U.S. Notes (2023) were fully and unconditionally guaranteed, jointly and severally, by the Guarantors. The U.S. Notes (2023) and the related guarantees were, respectively, LKQ Corporation's and each Guarantor's senior unsecured obligations and were subordinated to all of the Guarantors' existing and future secured debt to the extent of the assets securing that secured debt. In addition, the U.S. Notes (2023) were effectively subordinated to all of the liabilities of our subsidiaries that were not guaranteeing the U.S. Notes (2023) to the extent of the assets of those subsidiaries. On January 10, 2020, we redeemed the U.S Notes (2023) at a redemption price equal to 101.583 % of the principal amount of the U.S. Notes (2023) plus accrued and unpaid interest thereon to, but not including, January 10, 2020. The total redemption payment was $ 614 million, including an early-redemption premium of $ 9 million and accrued and unpaid interest of $ 4 million. In the first quarter of 2020, we recorded a loss on debt extinguishment of $ 13 million on the Consolidated Statement of Income related to the redemption due to the early-redemption premium and the write-off of the unamortized debt issuance costs. Euro Notes (2024) On April 14, 2016, LKQ Italia Bondco S.p.A. ("LKQ Italia"), an indirect, wholly-owned subsidiary of LKQ Corporation, completed an offering of € 500 million aggregate principal amount of senior notes due April 1, 2024 (the "Euro Notes (2024)") in a private placement conducted pursuant to Regulation S and Rule 144A under the Securities Act of 1933. The proceeds from the offering were used to repay a portion of the revolver borrowings under the Credit Agreement and to pay related fees and expenses. The Euro Notes (2024) are governed by the Indenture dated as of April 14, 2016 (the "Euro Notes (2024) Indenture") among LKQ Italia, LKQ Corporation and certain of our subsidiaries (the "Euro Notes (2024) Subsidiaries"), the trustee, and the paying agent, transfer agent, and registrar. The Euro Notes (2024) bear interest at a rate of 3.875 % per year from the date of original issuance or from the most recent payment date on which interest has been paid or provided for. Interest on the Euro Notes (2024) is payable in arrears on April 1 and October 1 of each year. The Euro Notes (2024) are fully and unconditionally guaranteed by LKQ Corporation and the Euro Notes (2024) Subsidiaries (the "Euro Notes (2024) Guarantors"). The Euro Notes (2024) and the related guarantees are, respectively, LKQ Italia's and each Euro Notes (2024) Guarantor’s senior unsecured obligations and are subordinated to all of LKQ Italia's and the Euro Notes (2024) Guarantors' existing and future secured debt to the extent of the assets securing that secured debt. In addition, the Euro Notes (2024) are effectively subordinated to all of the liabilities of our subsidiaries that are not guaranteeing the Euro Notes (2024) to the extent of the assets of those subsidiaries. The Euro Notes (2024) have been listed on the ExtraMOT, Professional Segment of the Borsa Italia S.p.A. securities exchange and the Global Exchange Market of Euronext Dublin. The Euro Notes (2024) are redeemable, in whole or in part, at any time at a redemption price of 100 % of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date plus a "make whole" premium. On or after January 1, 2024, we may redeem some or all of the Euro Notes (2024) at a redemption price of 100 % of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date. We may be required to make an offer to purchase the Euro Notes (2024) upon the sale of certain assets, subject to certain exceptions, and upon a change of control. In addition, in the event of certain developments affecting taxation or under certain other circumstances which, in any case, require the payment of certain additional amounts, we may redeem the Euro Notes (2024) in whole, but not in part, at any time at a redemption price of 100 % of the principal amount thereof plus accrued but unpaid interest, if any, and such certain additional amounts, if any, to the redemption date. Euro Notes (2026/28) On April 9, 2018, LKQ European Holdings B.V. ("LKQ Euro Holdings"), a wholly-owned subsidiary of LKQ Corporation, completed an offering of € 1.0 billion aggregate principal amount of senior notes. The offering consisted of € 750 92 million senior notes due 2026 (the "2026 notes") and € 250 million senior notes due 2028 (the "2028 notes" and, together with the 2026 notes, the "Euro Notes (2026/28)") in a private placement conducted pursuant to Regulation S and Rule 144A under the Securities Act of 1933. The proceeds from the offering, together with borrowings under our senior secured credit facility, were used to (i) finance a portion of the consideration paid for the Stahlgruber acquisition, (ii) for general corporate purposes and (iii) to pay related fees and expenses, including the refinancing of net financial debt. The Euro Notes (2026/28) are governed by the Indenture dated as of April 9, 2018 (the “Euro Notes (2026/28) Indenture”) among LKQ Euro Holdings, LKQ Corporation and certain of our subsidiaries (the “Euro Notes (2026/28) Subsidiaries”), the trustee, paying agent, transfer agent, and registrar. The 2026 notes and 2028 notes bear interest at rates of 3.625 % and 4.125 %, respectively, per year from the date of original issuance or from the most recent payment date on which interest has been paid or provided for. Interest on the Euro Notes (2026/28) is payable in arrears on April 1 and October 1 of each year. The Euro Notes (2026/28) are fully and unconditionally guaranteed by LKQ Corporation and the Euro Notes (2026/28) Subsidiaries (the "Euro Notes (2026/28) Guarantors"). The Euro Notes (2026/28) and the related guarantees are, respectively, LKQ Euro Holdings' and each Euro Notes (2026/28) Guarantor’s senior unsecured obligations and will be subordinated to all of LKQ Euro Holdings' and the Euro Notes (2026/28) Guarantors’ existing and future secured debt to the extent of the assets securing that secured debt. In addition, the Euro Notes (2026/28) are effectively subordinated to all of the liabilities of our subsidiaries that are not guaranteeing the Euro Notes (2026/28) to the extent of the assets of those subsidiaries. The Euro Notes (2026/28) have been listed on the Global Exchange Market of Euronext Dublin. The Euro Notes (2026/28) are redeemable, in whole or in part, at any time at a redemption price of 100 % of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date plus a "make whole" premium. On or after April 1, 2021, we may redeem some or all of the 2026 notes at the applicable redemption prices set forth in the Euro Notes (2026/28) Indenture. On or after April 1, 2023, we may redeem some or all of the 2028 notes at the applicable redemption prices set forth in the Euro Notes (2026/28) Indenture. We also may redeem up to 35 % of the 2026 notes and up to 35 % of the 2028 notes before April 1, 2021 with the net cash proceeds from certain equity offerings. We may be required to make an offer to purchase the Euro Notes (2026/28) upon the sale of certain assets, subject to certain exceptions, and upon a change of control. In addition, in the event of certain developments affecting taxation or under certain other circumstances which, in any case, require the payment of certain additional amounts, we may redeem the Euro Notes (2026/28) in whole, but not in part, at any time at a redemption price of 100 % of the principal amount thereof, plus accrued but unpaid interest, if any, and such certain additional amounts, if any, to the redemption date. Related to the execution of the Euro Notes (2026/28) in April 2018, we incurred $ 16 million of fees, which were capitalized as an offset to Long-Term Obligations and are amortized over the term of the Euro Notes (2026/28). Restricted Payments Our senior secured credit agreement and our senior notes indentures contain limitations on payment of cash dividends or other distributions of assets. Delaware law also imposes restrictions on dividend payments. Based on limitations in effect under our senior secured credit agreement, senior notes indentures and Delaware law, the maximum amount of dividends we could have paid as of December 31, 2020 was approximately $ 2.3 billion. The limit on the payment of dividends is calculated using historical financial information and will change from period to period. Receivables Securitization Facility On December 20, 2018, we amended the terms of our receivables securitization facility with MUFG to: (i) extend the term of the facility to November 8, 2021; (ii) increase the maximum amount available to $ 110 million; and (iii) make other clarifying and updating changes. Under the facility, LKQ sells an ownership interest in certain receivables, related collections and security interests to MUFG for the benefit of conduit investors and/or financial institutions for cash proceeds. Upon payment of the receivables by customers, rather than remitting to MUFG the amounts collected, LKQ retains such collections as proceeds for the sale of new receivables generated by certain of the ongoing operations of the Company. The sale of the ownership interest in the receivables is accounted for as a secured borrowing on our Consolidated Balance Sheets, under which the receivables included in the program collateralize the amounts invested by MUFG, the conduit investors and/or financial institutions (the "Purchasers"). The receivables are held by LKQ Receivables Finance Company, LLC ("LRFC"), a wholly owned bankruptcy-remote special purpose subsidiary of LKQ, and therefore, the receivables are available first to satisfy the creditors of LRFC, including the Purchasers. Net receivables totaling $ 121 million and $ 132 million were collateral for the investments under the receivables facility as of December 31, 2020 and December 31, 2019, respectively. 93 Under the receivables facility, we pay variable interest rates plus a margin on the outstanding amounts invested by the Purchasers. The variable rates are based on (i) commercial paper rates, (ii) LIBOR, or (iii) base rates, and are payable monthly in arrears. The commercial paper rate is the applicable variable rate unless conduit investors are not available to invest in the receivables at commercial paper rates. In such case, financial institutions will invest at the LIBOR rate or at base rates. We also pay a commitment fee on the excess of the investment maximum over the average daily outstanding investment, payable monthly in arrears. There was no outstanding balance as of December 31, 2020 or December 31, 2019. Note 11. Derivative Instruments and Hedging Activities We are exposed to market risks, including the effect of changes in interest rates, foreign currency exchange rates and commodity prices. Under our current policies, we use derivatives to manage our exposure to variable interest rates on our senior secured debt and changing foreign exchange rates for certain foreign currency denominated transactions. We do not hold or issue derivatives for trading purposes. Cash Flow Hedges We hold interest rate swap agreements to hedge a portion of the variable interest rate risk on our variable rate borrowings under our Credit Agreement, with the objective of minimizing the impact of interest rate fluctuations and stabilizing cash flows. Under the terms of the interest rate swap agreements, we pay the fixed interest rate and receive payment at a variable rate of interest based on LIBOR for the respective currency of each interest rate swap agreement’s notional amount. Changes in the fair value of the interest rate swap agreements are recorded in Accumulated other comprehensive income (loss) and are reclassified to Interest expense when the underlying interest payment has an impact on earnings. Our interest rate swap contracts have maturity dates in January 2021 (notional amount of $ 330 million) and June 2021 (notional amount of $ 150 million). At December 31, 2020 and 2019, we held cross currency swaps, which contained an interest rate swap component and a foreign currency forward contract component that, combined with related intercompany financing arrangements, effectively convert variable rate U.S. dollar-denominated borrowings into fixed rate euro-denominated borrowings. The swaps were 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 were recorded in Accumulated other comprehensive income (loss) and were reclassified to Interest expense and Interest income and other income, net when the underlying transactions had an impact on earnings. Our cross currency swaps matured in January 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 Interest income and other income, net when the underlying transaction has an impact on earnings. As of December 31, 2020, we held one SEK denominated foreign currency contract that matured in January 2021. As of December 31, 2020 and December 31, 2019, we held cash flow hedges with the following notional amounts (in thousands): December 31, 2020 December 31, 2019 Interest rate swap agreements USD denominated $ 480,000 $ 480,000 Cross currency swap agreements Euro denominated (1) € 340,000 € 435,000 Foreign currency forward contracts SEK denominated kr 227,000 kr — (1) The notional amount of our cross currency swap agreements steps down by € 4 million quarterly. The remaining notional amount at December 31, 2020 matured in January 2021. 94 The following tables summarize the fair values of our designated cash flow hedges as of December 31, 2020 and December 31, 2019 (in thousands): Fair Value at December 31, 2020 Other Current Assets Other Noncurrent Assets Other Accrued Expenses Other Noncurrent Liabilities Interest rate swap agreements $ — $ — $ 899 $ — Cross currency swap agreements — — 56,328 — Foreign currency forward contracts — — 1,350 — Total cash flow hedges $ — $ — $ 58,577 $ — Fair Value at December 31, 2019 Other Current Assets Other Noncurrent Assets Other Accrued Expenses Other Noncurrent Liabilities Interest rate swap agreements $ — $ 3,262 $ — $ — Cross currency swap agreements 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 Consolidated Balance Sheets. The impact of netting the fair values of these contracts would have no effect on our Consolidated Balance Sheet at December 31, 2020 and an immaterial impact on our Consolidated Balance Sheet at December 31, 2019. The activity related to our cash flow hedges is included in Note 9, "Accumulated Other Comprehensive Income (Loss)." As of December 31, 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 in our Consolidated Statements of Income within the next 12 months. We estimate that we will also reclassify an immaterial amount of derivative losses (net of tax) from Accumulated other comprehensive income (loss) to Interest income and other income, net in our Consolidated Statements of Income within the next 12 months; the reclassification of derivative losses to Interest income and other income, net offsets the projected impact of the remeasurement of the underlying transactions. The activity related to our cash flow hedges is presented in either operating activities or financing activities in our Consolidated Statements of Cash Flows. Other Derivative Instruments We hold other short-term derivative instruments, including foreign currency forward contracts, to manage our exposure to variability in the cash flows related to (i) non-functional currency denominated borrowings and (ii) inventory purchases denominated in a non-functional currency. We have elected not to apply hedge accounting for these transactions, and therefore the contracts are adjusted to fair value through our results of operations as of each balance sheet date, which could result in volatility in our earnings. The fair values of these other short-term derivative instruments are recorded in either Prepaid expenses and other current assets or Other accrued expenses on our Consolidated Balance Sheets. To manage our foreign currency exposure on non-functional currency denominated borrowings, we held short-term foreign currency forward contracts with notional amounts of £ 75 million and € 142 million at December 31, 2020; we did not hold similar contracts at December 31, 2019. The fair values and effect on our results of operations of these contracts at December 31, 2020 was immaterial. In February 2021, we entered into a short term foreign currency forward contract to mitigate our exposure to non-functional currency denominated borrowings in our European operations. The forward contract has a notional amount of $ 250 million and matures in the first quarter of 2021. We currently expect to enter into a similar instrument when this one matures. The notional amount and fair value of the other short-term derivative contracts at December 31, 2020 and 2019, along with the effect on our results of operations in 2020, 2019 and 2018, were immaterial. 95 Note 12. 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 year ended December 31, 2020, there were no significant changes in valuation techniques or inputs related to the financial assets or liabilities that we have historically recorded at fair value. The tiers in the fair value hierarchy include: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as significant unobservable inputs 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 December 31, 2020 and December 31, 2019 (in thousands): Balance as of December 31, 2020 Fair Value Measurements as of December 31, 2020 Level 1 Level 2 Level 3 Assets: Cash surrender value of life insurance $ 72,250 $ — $ 72,250 $ — Total Assets $ 72,250 $ — $ 72,250 $ — Liabilities: Contingent consideration liabilities $ 13,263 $ — $ — $ 13,263 Interest rate swaps 899 — 899 — Deferred compensation liabilities 76,240 — 76,240 — Cross currency swap agreements 56,328 — 56,328 — Foreign currency forward contracts 5,190 — 5,190 — Total Liabilities $ 151,920 $ — $ 138,657 $ 13,263 Balance as of December 31, 2019 Fair Value Measurements as of December 31, 2019 Level 1 Level 2 Level 3 Assets: Cash surrender value of life insurance $ 60,637 $ — $ 60,637 $ — Interest rate swaps 3,262 — 3,262 — Cross currency swap agreements 3,156 — 3,156 — Total Assets $ 67,055 $ — $ 67,055 $ — Liabilities: Contingent consideration liabilities $ 11,539 $ — $ — $ 11,539 Deferred compensation liabilities 63,981 — 63,981 — Cross currency swap agreements 24,319 — 24,319 — Total Liabilities $ 99,839 $ — $ 88,300 $ 11,539 The cash surrender value of life insurance is included in Other noncurrent assets on our Consolidated Balance Sheets. The current portion of contingent consideration liabilities is included in Other current liabilities on our Consolidated Balance Sheets; the noncurrent portion of deferred compensation liabilities and contingent consideration liabilities is included in Other noncurrent liabilities on our Consolidated Balance Sheets based on the expected timing of the related payments. The balance sheet classification of the interest rate swaps, cross currency swap agreements, and foreign currency forward contracts is presented in Note 11, "Derivative Instruments and Hedging Activities." Our Level 2 assets and liabilities are valued using inputs from third parties and market observable data. We obtain valuation data for the cash surrender value of life insurance and deferred compensation liabilities from third party sources, which determine the net asset values for our accounts using quoted market prices, investment allocations and reportable trades. We value our other derivative instruments using a third party valuation model that performs a discounted cash flow analysis based on the terms of the contracts and market observable inputs such as current and forward interest rates and current and forward foreign exchange rates. 96 Our contingent consideration liabilities are related to our business acquisitions. Under the terms of the contingent consideration agreements, payments may be made at specified future dates depending on the performance of the acquired business subsequent to the acquisition. The liabilities for these payments are classified as Level 3 liabilities because the related fair value measurement, which is determined using an income approach, includes significant inputs not observable in the market. Financial Assets and Liabilities Not Measured at Fair Value Our debt is reflected on the Consolidated Balance Sheets at cost. Based on market conditions as of both December 31, 2020 and December 31, 2019, the fair value of our credit agreement borrowings reasonably approximated the carrying values of $ 1.0 billion and $ 1.6 billion, respectively. As of December 31, 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 December 31, 2020, there were no outstanding borrowings on the U.S. Notes (2023) as the notes were redeemed on January 10, 2020. As of December 31, 2020 and December 31, 2019, the fair values of the Euro Notes (2024) were approximately $ 662 million and $ 632 million, respectively, compared to carrying values of $ 611 million and $ 561 million, respectively. As of December 31, 2020 and December 31, 2019, the fair value of the Euro Notes (2026/28) was $ 1.3 billion and $ 1.2 billion, respectively, 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 December 31, 2020 and December 31, 2019 to assume these obligations. The fair value of our U.S. Notes (2023) was classified as Level 1 within the fair value hierarchy since it was determined based upon observable market inputs including quoted market prices in an active market. The fair values of our Euro Notes (2024) and Euro Notes (2026/28) are determined based upon observable market inputs including quoted market prices in markets that are not active, and therefore are classified as Level 2 within the fair value hierarchy. Note 13. Leases We adopted the new leases accounting standard (Accounting Standards Update 2016-02, "Leases") in the first quarter of 2019 using the modified retrospective approach and elected the transition package of practical expedients permitted within the new standard, which, among other things, allowed us to carryforward the historical lease classification. For leases with a term of 12 months or less, we elected the short-term lease exemption, which allowed us to not recognize right-of-use assets or lease liabilities for qualifying leases existing at transition and new leases we may enter into in the future. Additionally, we adopted the practical expedient to combine lease and non-lease components. As of January 1, 2019, we recorded both an operating lease asset and operating lease liability of $ 1.3 billion. We lease certain warehouses, distribution centers, retail stores, office space, land, vehicles and equipment. We determine if an arrangement is a lease at inception. Operating lease right-of-use ("ROU") assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As the implicit rate for most of our leases is not readily determinable, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. We determine our incremental borrowing rate by analyzing yield curves with consideration of lease term, country and company specific factors. The ROU asset also includes any lease prepayments and excludes lease incentives. Many of our leases include one or more options to renew, with renewal terms that can extend the lease term from 1 year to 40 years or more. For each lease, we consider whether we are reasonably certain to exercise these options to extend. Other contracts may contain termination options that we assess to determine whether we are reasonably certain not to exercise those options. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise. Some of our lease agreements include rental payments adjusted periodically for inflation. Most of these adjustments are considered variable lease costs. Other variable lease costs consist of certain non-lease components that are disclosed as lease costs due to our election of the practical expedient to combine lease and non-lease components and include items such as variable payments for utilities, property taxes, common area maintenance, sales taxes, and insurance. We guarantee the residual values for the majority of our leased vehicles. The residual values decline over the lease terms to a defined percentage of original cost. In the event the lessor does not realize the residual value when a vehicle is sold, we would be responsible for a portion of the shortfall. Similarly, if the lessor realizes more than the residual value when a vehicle is sold, we would be paid the amount realized over the residual value. Had we terminated all of our operating leases 97 subject to these guarantees at December 31, 2020, our portion of the guaranteed residual value would have totaled approximately $ 63 million . Other than the residual value guarantees associated with our vehicles discussed above, we do not have any other material residual value guarantees or restrictive covenants. 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 December 31, 2020, most of the deferrals recognized in the prior quarters were repaid. Any remaining payment deferrals were immaterial and were recorded in Other current liabilities on the Consolidated Balance Sheets. During the year ended December 31, 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 $ 3 million in our Consolidated Statements of Income. The amounts recorded on the Consolidated Balance Sheets as of December 31, 2020 and 2019 related to our lease agreements are as follows (in thousands): December 31, Leases Classification 2020 2019 Assets Operating lease ROU assets, net Operating lease assets, net $ 1,353,124 $ 1,308,511 Finance lease assets, net Property, plant and equipment, net 55,423 39,077 Total leased assets $ 1,408,547 $ 1,347,588 Liabilities Current Operating Current portion of operating lease liabilities $ 221,811 $ 221,527 Finance Current portion of long-term obligations 12,239 9,409 Noncurrent Operating Long-term operating lease liabilities, excluding current portion 1,197,963 1,137,597 Finance Long-term obligations, excluding current portion 45,097 31,428 Total lease liabilities $ 1,477,110 $ 1,399,961 The components of lease expense are as follows (in thousands): Year Ended December 31, Lease Cost Classification 2020 2019 Operating lease cost Cost of goods sold $ 12,447 $ 13,416 Operating lease cost SG&A expenses 297,350 303,619 Short-term lease cost SG&A expenses 6,568 9,392 Variable lease cost SG&A expenses 97,599 95,899 Finance lease cost Amortization of leased assets Depreciation and amortization 9,876 10,277 Interest on lease liabilities Interest expense 1,785 1,546 Sublease income SG&A expenses ( 2,372 ) ( 1,640 ) Net lease cost $ 423,253 $ 432,509 98 The future minimum lease commitments under our leases at December 31, 2020 are as follows (in thousands): Operating leases Finance leases (1) Total Years ending December 31: 2021 $ 298,118 $ 13,087 $ 311,205 2022 256,544 11,562 268,106 2023 216,851 7,711 224,562 2024 180,425 7,032 187,457 2025 148,363 5,183 153,546 Thereafter 777,194 24,472 801,666 Future minimum lease payments 1,877,495 69,047 1,946,542 Less: Interest 457,721 11,711 469,432 Present value of lease liabilities $ 1,419,774 $ 57,336 $ 1,477,110 (1) Amounts are included in the scheduled maturities of long-term obligations in Note 10, "Long-Term Obligations" and in the “Liquidity and Capital Resources” section of Management's Discussion and Analysis of Financial Condition and Results of Operations in Part II, Item 7 of this Annual Report on Form 10-K. As of December 31, 2020, we have additional minimum operating lease payments for leases that have not yet commenced of $ 84 million . These operating leases will commence in the nex t 18 months with lease terms of 1 to 15 years. Most of these leases have not commenced because the assets are in the process of being constructed. Other information related to leases was as follows: December 31, Lease Term and Discount Rate 2020 2019 Weighted-average remaining lease term (years) Operating leases 9.7 9.5 Finance leases 9.0 9.2 Weighted-average discount rate Operating leases 5.3 % 5.2 % Finance leases 3.5 % 4.1 % Year Ended December 31, Supplemental cash flows information (in thousands) 2020 2019 Cash paid for amounts included in the measurement of lease liabilities Operating cash outflows from operating leases $ 299,260 $ 297,712 Financing cash outflows from finance leases (1) 11,772 11,744 Leased assets obtained in exchange for new finance lease liabilities (1) 25,049 13,326 Leased assets obtained in exchange for new operating lease liabilities 128,539 144,142 (1) During the year ended December 31, 2018, the financing cash outflow from finance leases was $ 9 million, and there were $ 13 million of leased assets obtained in exchange for new finance lease liabilities. 99 Note 14. Employee Benefit Plans Defined Benefit Plans We have funded and unfunded defined benefit plans covering certain employee groups in the U.S. and various European countries. Local statutory requirements govern many of our European plans. The defined benefit plans are mostly closed to new participants and, in some cases, existing participants no longer accrue benefits. On June 28, 2019, we approved an amendment to terminate the U.S. Plan and to freeze all related benefit accruals, effective June 30, 2019. U.S. 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 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. As a result of these elections, subsequent payments and annuity purchase cost to settle the plan obligations, we reclassified $ 6 million of unrealized loss from Accumulated other comprehensive loss to Interest income and other income, net in our Consolidated Statements of Income during the year ended December 31, 2020 to reflect the final settlement of the plan obligations. Funded Status The table below summarizes the funded status of our defined benefit plans (in thousands): December 31, 2020 2019 Change in projected benefit obligation: Projected benefit obligation - beginning of year $ 225,388 $ 201,492 Acquisitions and divestitures ( 506 ) 2,071 Service cost 3,565 3,592 Interest cost 2,740 4,077 Participant contributions 438 408 Actuarial (gain) / loss 10,662 32,018 Benefits paid (1) ( 6,841 ) ( 6,849 ) Curtailment — ( 6 ) Settlement (2) (3) ( 40,565 ) ( 8,493 ) Currency impact 16,658 ( 2,922 ) Projected benefit obligation - end of year $ 211,539 $ 225,388 Change in fair value of plan assets: Fair value - beginning of year $ 83,305 $ 91,672 Actual return on plan assets 3,663 2,558 Employer contributions 14,028 4,740 Participant contributions 438 408 Benefits paid ( 6,798 ) ( 6,770 ) Settlement (2) (3) ( 40,565 ) ( 8,493 ) Currency impact 4,891 ( 810 ) Fair value - end of year $ 58,962 $ 83,305 Funded status at end of year (liability) $ ( 152,577 ) $ ( 142,083 ) Accumulated benefit obligation $ 208,712 $ 222,607 (1) Includes amounts paid from plan assets as well as amounts paid from Company assets. (2) Reflects the settlement of the plan obligations for the U.S. Plan in 2020. (3) During 2019, settlement accounting was triggered for three of our European pension plans resulting in a net gain of less than $ 1 million recognized in Interest income and other income, net in our Consolidated Statements of Income. 100 The net amounts recognized for defined benefit plans in the Consolidated Balance Sheets were as follows (in thousands): December 31, 2020 2019 Current liabilities $ ( 3,603 ) $ ( 11,754 ) Non-current liabilities ( 148,974 ) ( 130,329 ) $ ( 152,577 ) $ ( 142,083 ) The following table summarizes the accumulated benefit obligation and aggregate fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets (in thousands): December 31, 2020 2019 Accumulated benefit obligation $ 208,712 $ 222,607 Aggregate fair value of plan assets 58,962 83,305 The following table summarizes the projected benefit obligation and aggregate fair value of plan assets for pension plans with projected benefit obligations in excess of plan assets (in thousands): December 31, 2020 2019 Projected benefit obligation $ 211,539 $ 225,388 Aggregate fair value of plan assets 58,962 83,305 The table below summarizes the weighted-average assumptions used to calculate the year-end benefit obligations: 2020 2019 Discount rate used to determine benefit obligation 0.7 % 1.4 % Rate of future compensation increase 1.8 % 1.7 % Net Periodic Benefit Cost The table below summarizes the components of net periodic benefit cost for our defined benefit plans (in thousands): Year Ended December 31, 2020 2019 2018 Service cost $ 3,565 $ 3,592 $ 3,215 Interest cost 2,740 4,077 3,476 Expected return on plan assets (1) ( 2,129 ) ( 2,337 ) ( 2,949 ) Amortization of actuarial loss (gain) (2) 1,272 ( 404 ) ( 54 ) Settlement loss (gain) 5,654 ( 378 ) 74 Net periodic benefit cost $ 11,102 $ 4,550 $ 3,762 (1) We use the fair value of our plan assets to calculate the expected return on plan assets. (2) Actuarial gains and losses are amortized using a corridor approach. Gains and losses are amortized if, as of the beginning of the year, the cumulative net gain or loss exceeds 10 percent of the greater of the projected benefit obligation or the fair value of the plan assets. Gains and losses in excess of the corridor are amortized over the average remaining service period of active members expected to receive benefits under the plan or, in the case of closed plans, the expected future lifetime of the employees participating in the plan. For the years ended December 31, 2020, 2019 and 2018, the service cost component of net periodic benefit cost was classified in Selling, general and administrative expenses, while the other components of net periodic benefit cost were classified in Interest income and other income, net in our Consolidated Statements of Income. 101 The table below summarizes the weighted-average assumptions used to calculate the net periodic benefit cost in the table above: 2020 2019 2018 Discount rate used to determine service cost 0.7 % 1.3 % 1.3 % Discount rate used to determine interest cost 1.8 % 2.5 % 2.5 % Rate of future compensation increase 2.1 % 1.8 % 1.9 % Expected long-term return on plan assets (1) 2.9 % 3.1 % 4.8 % (1) Our expected long-term return on plan assets is determined based on our asset allocation and estimate of future long-term returns by asset class. Assumed mortality is also a key assumption in determining benefit obligations and net periodic benefit cost. In some of our European plans, a price inflation index is also an assumption in determining benefit obligations and net periodic benefit cost. As of December 31, 2020, the pre-tax amounts recognized in Accumulated other comprehensive loss consisted of $ 47 million of net actuarial losses for our defined benefit plans that have not yet been recognized in net periodic benefit cost. Of this amount, we expect $ 2 million to be recognized as a component of net periodic benefit cost during the year ending December 31, 2021. Fair Value of Plan Assets Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants. The tiers in the fair value hierarchy include: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as significant unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions. Investments that are valued using net asset value ("NAV") (or its equivalent) as a practical expedient are excluded from the fair value hierarchy disclosure. The following is a description of the valuation methodologies used for assets reported at fair value. The methodologies used at December 31, 2020 and December 31, 2019 are the same. Level 1 investments: Short-term investments are valued initially at cost and adjusted for amortization of any discount or premium. U.S. Bond funds are priced by industry vendors such as Intercontinental Exchange (ICE) Data Services using benchmark yields, reported trades, issuer spreads, and broker/dealer quotes. Level 3 investments: Investments in insurance contracts represent the cash surrender value of the insurance policy. These are actuarially determined amounts based on projections of future benefit payments, discount rates, and expected long-term rate of return on assets. The remaining pension assets are valued at net asset value based on the underlying assets owned by the fund administrator, minus liabilities, divided by the number of units outstanding and are included in the table below to reconcile the total investment fair value of our plan assets. For our unfunded pension plans, the Company pays the defined benefit plan obligations when they become due. The table below summarizes the fair value of our defined benefit plan assets by asset category within the fair value hierarchy for our funded defined benefit pension plans (in thousands): December 31, 2020 2019 Level 1 Level 2 Level 3 NAV Total Level 1 Level 2 Level 3 NAV Total Short-term investments $ — $ — $ — $ — $ — $ 433 $ — $ — $ — $ 433 U.S. Bonds (1) — — — — — 29,035 — — — 29,035 Insurance contracts — — 44,753 — 44,753 — — 40,676 — 40,676 Mutual fund (2) — — — 14,209 14,209 — — — 13,161 13,161 Total investments at fair value $ — $ — $ 44,753 $ 14,209 $ 58,962 $ 29,468 $ — $ 40,676 $ 13,161 $ 83,305 (1) Consists primarily of U.S. Treasury notes with readily available pricing data. (2) The underlying assets of the mutual fund valued at NAV consist of international bonds, equity, real estate and other investments. 102 The following table summarizes the changes in fair value measurements of Level 3 investments for our defined benefit plans (in thousands): December 31, 2020 2019 Balance at beginning of year $ 40,676 $ 60,988 Actual return on plan assets: Relating to assets held at the reporting date 1,394 1,424 Purchases, sales and settlements ( 992 ) ( 1,181 ) Transfers in and/or out of Level 3 — ( 19,640 ) Currency impact 3,675 ( 915 ) Balance at end of year $ 44,753 $ 40,676 Assets for our defined benefit pension plans in Europe are invested primarily in insurance policies. Under these contracts, we pay premiums to the insurance company, which are based on an internal actuarial analysis performed by the insurance company; the insurance company then funds the pension payments to the plan participants upon retirement. In 2019, we changed our funding for one of our European plans from insurance contracts to a direct investment in a mutual fund which is invested in various international bond, equity, real estate and other investments. The assets for our U.S. plan were managed by a master trust, with oversight responsibility by our Benefits Committee. During 2019, we engaged an investment advisor to help minimize the volatility in our funded status as we began the process of terminating our U.S. Plan. As a result, we updated our investment strategy such that as of December 31, 2019, our U.S. Plan assets resided primarily in U.S. Bonds, with a smaller allocation of assets in short-term investments. The new investment policy and allocation of the assets was approved by our Benefits Committee. The master trust was liquidated in 2020 to fund the U.S. Plan settlement. Employer Contributions and Estimated Future Benefit Payments During the year ended December 31, 2020, we contributed $ 14 million to our pension plans. We estimate that contributions to our pension plans during 2021 will be $ 4 million . The following table summarizes estimated future benefit payments as of December 31, 2020 (in thousands): Year Ended December 31, Amount 2021 $ 5,015 2022 5,410 2023 5,573 2024 5,991 2025 5,938 2026 - 2030 33,802 103 Note 15. Income Taxes The provision for income taxes consists of the following components (in thousands): Year Ended December 31, 2020 2019 2018 Current: Federal $ 155,887 $ 101,839 $ 90,216 State 37,981 24,925 25,851 Foreign 89,123 81,081 77,508 Total current provision for income taxes $ 282,991 $ 207,845 $ 193,575 Deferred: Federal $ ( 6,805 ) $ 22,173 $ 14,977 State ( 6,521 ) 6,376 4,386 Foreign ( 20,167 ) ( 21,064 ) ( 21,543 ) Total deferred (benefit) provision for income taxes $ ( 33,493 ) $ 7,485 $ ( 2,180 ) Provision for income taxes $ 249,498 $ 215,330 $ 191,395 Income taxes have been based on the following components of income from continuing operations before provision for income taxes (in thousands): Year Ended December 31, 2020 2019 2018 Domestic $ 713,087 $ 616,842 $ 562,758 Foreign 171,908 174,180 180,673 Income from continuing operations before provision for income taxes $ 884,995 $ 791,022 $ 743,431 The U.S. federal statutory rate is reconciled to the effective tax rate as follows: Year Ended December 31, 2020 2019 2018 U.S. federal statutory rate 21.0 % 21.0 % 21.0 % State income taxes, net of state credits and federal tax impact 3.2 % 3.2 % 3.5 % Impact of rates on international operations 1.9 % 1.4 % 0.9 % Change in valuation allowances 1.7 % 1.0 % 1.4 % Non-deductible expenses 0.8 % 0.9 % 1.6 % U.S. federal tax reform - transition tax on foreign earnings — % 0.1 % ( 1.3 ) % Excess tax benefits from stock-based compensation — % ( 0.3 ) % ( 0.6 ) % Other, net ( 0.4 ) % ( 0.1 ) % ( 0.8 ) % Effective tax rate 28.2 % 27.2 % 25.7 % On December 22, 2017, the U.S. government enacted the Tax Act. The Tax Act introduced broad and complex changes to U.S. income tax laws that impact us, most notably a reduction of the U.S. statutory corporate tax rate from 35 % to 21 % for tax years beginning after December 31, 2017. Additionally, beginning in 2018 the Tax Act imposed a regime of taxation on foreign subsidiary earnings, GILTI. As part of the transition of U.S. international taxation from a worldwide tax system to a modified territorial tax system, the Tax Act imposed a one-time transition tax on the deemed repatriation of historical earnings of foreign subsidiaries as of December 31, 2017. Transition Tax on Foreign Earnings: During the third quarter of 2018, we recorded a $ 10 million favorable adjustment to the provisional income tax expense amount related to the one-time transition tax on foreign earnings recognized in 2017. As of December 31, 2018, we substantially completed our analysis of the transition tax, and the liability was no longer considered provisional. In the third quarter of 2019, we amended our 2017 transition tax calculation and recorded an additional expense of $ 1 million. As permitted by the Tax Act, we elected to pay the final $ 42 million liability in installments over 8 years. This liability has been reduced by the first three installments and other payment credits to $ 32 million. The next required installment of $ 3 million is recorded in Other current liabilities, and the remaining $ 28 million is recorded in Other noncurrent liabilities on our Consolidated Balance Sheets. 104 GILTI: While the Tax Act provides for a modified territorial tax system, under a highly complex provision commonly known as GILTI, the Tax Act subjects a U.S. shareholder to current tax on certain earnings of foreign subsidiaries, subject to relief for available foreign tax credits. We have elected to account for GILTI in the year the tax is incurred. For the years ended December 31, 2020, 2019 and 2018, the impact of GILTI increased our effective tax rate by approximately 0.4 %, 0.6 % and 0.3 %, respectively. Indefinite Reinvestment Assertion: Undistributed earnings of our foreign subsidiaries amounted to approximately $ 807 million at December 31, 2020. Beginning in 2018, the Tax Act generally provided a 100% participation exemption from further U.S. taxation of dividends received from 10-percent or more owned foreign corporations held by U.S. corporate shareholders. Although future dividend income is exempt from U.S. federal tax in the hands of the U.S. corporate shareholders, either as a result of the participation exemption, or due to the previous taxation of such earnings under the transition tax and GILTI regime, companies must still apply the guidance of ASC 740 to account for the tax consequences of outside basis differences and other tax impacts of their investments in non-U.S. subsidiaries. Further, the 2017 transition tax reduced a majority of the previous outside basis differences in our foreign subsidiaries, and most of any new differences arising have extensive interaction with the GILTI regime discussed above. Based on a review of our global financing and capital expenditure requirements as of December 31, 2020, we continue to plan to permanently reinvest the undistributed earnings of our international subsidiaries. Thus, no deferred U.S. income taxes or potential foreign withholding taxes have been recorded. Due to the complexity of the new U.S. tax regime, it remains impractical to estimate the amount of deferred taxes potentially payable were such earnings to be repatriated. The significant components of our deferred tax assets and liabilities are as follows (in thousands): December 31, 2020 2019 Deferred Tax Assets: Accrued expenses and reserves $ 59,241 $ 51,869 Qualified and nonqualified retirement plans 34,143 31,053 Inventory 15,591 12,679 Accounts receivable 15,449 14,025 Interest deduction carryforwards 34,485 25,448 Stock-based compensation 5,362 4,755 Operating lease liabilities 331,327 303,705 Net operating loss carryforwards 27,538 16,287 Other 24,961 11,777 Total deferred tax assets, gross 548,097 471,598 Less: valuation allowance ( 60,275 ) ( 41,815 ) Total deferred tax assets $ 487,822 $ 429,783 Deferred Tax Liabilities: Goodwill and other intangible assets $ 229,330 $ 219,879 Property, plant and equipment 95,007 100,461 Trade name 108,883 108,039 Operating lease assets, net 317,694 292,498 Other 11,364 8,916 Total deferred tax liabilities $ 762,278 $ 729,793 Net deferred tax liability $ ( 274,456 ) $ ( 300,010 ) Deferred tax assets and liabilities are reflected on our Consolidated Balance Sheets as follows (in thousands): December 31, 2020 2019 Noncurrent deferred tax assets $ 16,965 $ 10,119 Noncurrent deferred tax liabilities 291,421 310,129 Noncurrent deferred tax assets and noncurrent deferred tax liabilities are included in Other noncurrent assets and Deferred income taxes, respectively, on our Consolidated Balance Sheets. 105 We had net operating loss carryforwards, primarily for certain international tax jurisdictions, the tax benefits of which were approximately $ 28 million and $ 16 million at December 31, 2020 and 2019, respectively. At December 31, 2020 and 2019, we had tax credit carryforwards for certain U.S. state jurisdictions, the tax benefits of which totaled less than $ 1 million at both dates. As of December 31, 2020 and 2019, we had interest deduction carryforwards, primarily in Italy and Germany, the tax benefits of which were $ 34 million and $ 25 million, respectively. As of both December 31, 2020 and 2019, we had a U.S. capital loss carryforward, the tax benefit of which was $ 5 million. As of December 31, 2020 and 2019, valuation allowances of $ 60 million and $ 42 million, respectively, were recorded for deferred tax assets related to the Italy and Germany interest deduction carryforwards, the U.S. capital loss carryforward, and for certain foreign and U.S. net operating loss carryforwards. The $ 18 million net increase in valuation allowances was primarily attributable to a $ 9 million valuation allowance provided on the interest deduction carryforwards generated in 2020 due to thin capitalization constraints in Italy and Germany and an $ 8 million valuation allowance provided on the cumulative Belgium net operating loss carryforward. The net operating losses generally carry forward for an indefinite period. The interest deduction carryforwards in Italy and Germany do not expire. U.S. capital losses carry forward for five years. Realization of these deferred tax assets is dependent on the generation of sufficient taxable income prior to the expiration dates, where applicable, or in the case of interest carryforwards subject to legislative thin capitalization constraints, typically based on profitability. Based on historical and projected operating results, we believe that it is more likely than not that earnings will be sufficient to realize the deferred tax assets for which valuation allowances have not been provided. While we expect to realize the deferred tax assets, net of valuation allowances, changes in tax laws or in estimates of future taxable income may alter this expectation. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands): 2020 2019 2018 Balance at January 1 $ 2,317 $ 1,237 $ 1,690 Additions for acquired tax positions — 1,376 — Additions based on tax positions related to the current year 1,147 50 5 Lapse of statutes of limitations ( 297 ) ( 297 ) ( 458 ) Settlements with taxing authorities ( 958 ) — — Cumulative translation adjustment 99 ( 49 ) — Balance at December 31 $ 2,308 $ 2,317 $ 1,237 Included in the balance of unrecognized tax benefits above as of December 31, 2020, 2019 and 2018, are approximately $ 2 million, $ 2 million and $ 1 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate. The balance of unrecognized tax benefits at December 31, 2020, 2019 and 2018 includes approximately $ 1 million of tax benefits that, if recognized, would result in adjustments to deferred taxes. We recognize interest and penalties accrued related to unrecognized tax benefits as income tax expense. Attributable to the unrecognized tax benefits noted above, we had accumulated interest and penalties of less than $ 1 million at December 31, 2020, 2019 and 2018. During each of the years ended December 31, 2020, 2019 and 2018, an immaterial amount of interest and penalties were recorded through the income tax provision, prior to any reversals for lapses in the statutes of limitations. During the twelve months beginning January 1, 2021, it is reasonably possible that we will reduce unrecognized tax benefits by less than $ 1 million, an immaterial amount of which would impact our effective tax rate, primarily as a result of the expiration of certain statutes of limitations. We and/or our subsidiaries file income tax returns in the U.S. federal jurisdiction, and various U.S. state and international jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local, or international income tax examinations by tax authorities for years before 2015. Adjustments from examinations, if any, are not expected to have a material effect on our consolidated financial statements. Note 16. Segment and Geographic Information We have four operating segments: Wholesale – North America, Europe, Specialty and Self Service. Our Wholesale – North America and Self Service operating segments are aggregated into one reportable segment, North America, because they possess similar economic characteristics and have common products and services, customers, and methods of distribution. Our reportable segments are organized based on a combination of geographic areas served and type of product lines offered. The reportable segments are managed separately as each business serves different customers (i.e. geographic in the case of North America and Europe and product type in the case of Specialty) and is affected by different economic conditions. Therefore, we present three reportable segments: North America, Europe and Specialty. 106 The following tables present our financial performance by reportable segment for the periods indicated (in thousands): North America Europe Specialty Eliminations Consolidated Year Ended December 31, 2020 Revenue: Third Party $ 4,631,306 $ 5,492,184 $ 1,505,340 $ — $ 11,628,830 Intersegment 1,033 — 3,655 ( 4,688 ) — Total segment revenue $ 4,632,339 $ 5,492,184 $ 1,508,995 $ ( 4,688 ) $ 11,628,830 Segment EBITDA $ 778,504 $ 427,582 $ 162,673 $ — $ 1,368,759 Depreciation and amortization (1) 97,390 172,927 29,180 — 299,497 Year Ended December 31, 2019 Revenue: Third Party $ 5,208,589 $ 5,838,124 $ 1,459,396 $ — $ 12,506,109 Intersegment 705 — 4,646 ( 5,351 ) — Total segment revenue $ 5,209,294 $ 5,838,124 $ 1,464,042 $ ( 5,351 ) $ 12,506,109 Segment EBITDA $ 712,957 $ 454,220 $ 161,184 $ — $ 1,328,361 Depreciation and amortization (1) 93,747 191,195 29,464 — 314,406 Year Ended December 31, 2018 Revenue: Third Party $ 5,181,964 $ 5,221,754 $ 1,472,956 $ — $ 11,876,674 Intersegment 645 — 4,724 ( 5,369 ) — Total segment revenue $ 5,182,609 $ 5,221,754 $ 1,477,680 $ ( 5,369 ) $ 11,876,674 Segment EBITDA $ 660,153 $ 422,721 $ 168,525 $ — $ 1,251,399 Depreciation and amortization (1) 87,348 178,473 28,256 — 294,077 (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. We use Segment EBITDA to compare profitability among our segments and evaluate business strategies. 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 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. 107 The table below provides a reconciliation of Net Income to Segment EBITDA (in thousands): Year Ended December 31, 2020 2019 2018 Net income $ 640,414 $ 545,034 $ 483,168 Less: net income attributable to continuing noncontrolling interest 1,888 2,800 3,050 Less: net income attributable to discontinued noncontrolling interest 103 974 — Net income attributable to LKQ stockholders 638,423 541,260 480,118 Subtract: Net (loss) income from discontinued operations ( 95 ) 1,619 ( 4,397 ) Net income attributable to discontinued noncontrolling interest ( 103 ) ( 974 ) — Net income from continuing operations attributable to LKQ stockholders 638,621 540,615 484,515 Add: Depreciation and amortization 272,292 290,770 274,213 Depreciation and amortization - cost of goods sold 21,672 21,312 19,864 Depreciation and amortization - restructuring expenses (1) 5,533 2,324 — Interest expense, net of interest income 101,874 136,274 144,536 Loss (gain) on debt extinguishment 12,751 ( 128 ) 1,350 Provision for income taxes 249,498 215,330 191,395 EBITDA 1,302,241 1,206,497 1,115,873 Subtract: Equity in earnings (losses) of unconsolidated subsidiaries (2) 5,012 ( 32,277 ) ( 64,471 ) Fair value loss on Mekonomen derivative instrument (2) — — ( 5,168 ) Gain due to resolution of acquisition related matter — 12,063 — Gains on bargain purchases and previously held equity interests (3) — 1,157 2,418 Add: Restructuring and acquisition related expenses (1) 60,630 34,658 32,428 Restructuring expenses - cost of goods sold 7,141 20,654 — Inventory step-up adjustment - acquisition related — — 403 Loss on disposal of businesses and impairment of net assets held for sale and goodwill (4) (5) 3,174 47,102 35,682 Change in fair value of contingent consideration liabilities 585 393 ( 208 ) Segment EBITDA $ 1,368,759 $ 1,328,361 $ 1,251,399 (1) The sum of these two captions represents the total amount that is reported in Restructuring and acquisition related expenses in our Consolidated Statements of Income. Refer to Note 6, "Restructuring and Acquisition Related Expenses," for further information. (2) Refer to "Investments in Unconsolidated Subsidiaries" in Note 4, "Summary of Significant Accounting Policies," for further information. (3) Reflects the gains on bargain purchases and previously held equity interests related to our acquisitions of wholesale businesses in Europe and Andrew Page. See Note 2, "Business Combinations," for further information on bargain purchases. (4) Refer to "Net Assets Held for Sale" in Note 4, "Summary of Significant Accounting Policies," for further information. (5) Refer to "Intangible Assets" in Note 4, "Summary of Significant Accounting Policies," for further information on the impairment of goodwill recorded in 2018. 108 The following table presents capital expenditures by reportable segment (in thousands): Year Ended December 31, 2020 2019 2018 Capital Expenditures North America $ 76,300 $ 131,643 $ 129,391 Europe 85,039 121,596 99,885 Specialty 11,356 12,491 20,751 Total capital expenditures $ 172,695 $ 265,730 $ 250,027 The following table presents assets by reportable segment (in thousands): December 31, 2020 2019 2018 Receivables, net North America $ 386,289 $ 419,452 $ 411,818 Europe 598,615 636,216 649,174 Specialty 88,485 75,464 93,091 Total receivables, net 1,073,389 1,131,132 1,154,083 Inventories North America 810,798 991,062 1,076,306 Europe 1,302,649 1,401,801 1,410,264 Specialty 301,165 379,914 349,505 Total inventories 2,414,612 2,772,777 2,836,075 Property, plant and equipment, net North America 583,985 610,573 570,508 Europe 583,439 538,951 562,600 Specialty 81,279 84,876 87,054 Total property, plant and equipment, net 1,248,703 1,234,400 1,220,162 Operating lease assets, net (1) North America 755,430 768,164 — Europe 520,131 457,035 — Specialty 77,563 83,312 — Total operating lease assets, net 1,353,124 1,308,511 — Equity method investments North America 18,676 17,624 16,404 Europe 136,548 121,619 162,765 Total equity method investments 155,224 139,243 179,169 Other unallocated assets 6,115,481 6,193,893 6,003,913 Total assets $ 12,360,533 $ 12,779,956 $ 11,393,402 (1) Refer to Note 13, "Leases," for further information. We report net receivables; inventories; net property , plant and equipment; net operating lease assets; and equity method investments by segment as that information is used by the chief operating decision maker in assessing segment performance. These assets provide a measure for the operating capital employed in each segment. Unallocated assets include cash and cash equivalents, prepaid and other current and noncurrent assets, goodwill and other intangibles. Our largest countries of operation are the U.S., followed by Germany and the U.K. Additional European operations are located in the Netherlands, Italy, Czech Republic, Belgium, Austria, Slovakia, Poland, and other European countries. Our operations in other countries include wholesale operations in Canada, remanufacturing operations in Mexico, an aftermarket parts freight consolidation warehouse in Taiwan, and administrative support functions in India. Our net sales are attributed to geographic area based on the location of the selling operation. 109 The following table sets forth our revenue by geographic area (in thousands): Year Ended December 31, 2020 2019 2018 Revenue United States $ 5,755,437 $ 6,220,267 $ 6,192,636 Germany 1,522,529 1,578,543 974,514 United Kingdom 1,460,600 1,599,074 1,665,317 Other countries 2,890,264 3,108,225 3,044,207 Total revenue $ 11,628,830 $ 12,506,109 $ 11,876,674 The following table sets forth our tangible long-lived assets by geographic area (in thousands): December 31, 2020 2019 2018 Long-lived assets (1) United States $ 1,419,113 $ 1,467,701 $ 620,125 Germany 360,184 340,995 217,476 United Kingdom 315,333 330,113 165,145 Other countries 507,197 404,102 217,416 Total long-lived assets $ 2,601,827 $ 2,542,911 $ 1,220,162 (1) The increase in long-lived assets from December 31, 2018 to December 31, 2019 was primarily related to the net operating lease assets added as a result of the adoption of the new lease accounting standard. Refer to Note 13, "Leases," for further information. Note 17. Selected Quarterly Data (unaudited) The following table presents unaudited selected quarterly financial data for the two years ended December 31, 2020. The operating results for any quarter are not necessarily indicative of the results for any future period. Quarter Ended (In thousands, except per share data) Dec. 31 Sep. 30 Jun. 30 Mar. 31 2020 Revenue $ 2,953,888 $ 3,047,684 $ 2,626,323 $ 3,000,935 Gross margin 1,169,849 1,198,542 1,011,004 1,213,876 Operating income (1) 267,273 296,002 180,453 241,849 Income from continuing operations (2) 181,191 193,931 118,493 146,894 Net income (loss) from discontinued operations (6) 543 — 277 ( 915 ) Net income 181,734 193,931 118,770 145,979 Net income (loss) attributable to continuing noncontrolling interest 722 448 ( 22 ) 740 Net income attributable to discontinued noncontrolling interest — — — 103 Net income attributable to LKQ stockholders 181,012 193,483 118,792 145,136 Basic earnings per share from continuing operations (8) $ 0.60 $ 0.64 $ 0.39 $ 0.48 Diluted earnings per share from continuing operations (8) $ 0.59 $ 0.64 $ 0.39 $ 0.48 110 Quarter Ended (In thousands, except per share data) Dec. 31 Sep. 30 Jun. 30 Mar. 31 2019 Revenue $ 3,009,860 $ 3,147,773 $ 3,248,173 $ 3,100,303 Gross margin 1,196,014 1,200,329 1,247,187 1,208,264 Operating income (1) (3) 206,768 231,364 236,111 222,400 Income from continuing operations (4) (5) 140,833 151,812 151,707 99,063 Net income from discontinued operations (6) (7) 440 781 398 — Net income 141,273 152,593 152,105 99,063 Net income (loss) attributable to continuing noncontrolling interest 479 ( 46 ) 1,352 1,015 Net income attributable to discontinued noncontrolling interest 406 376 192 — Net income attributable to LKQ stockholders 140,388 152,263 150,561 98,048 Basic earnings per share from continuing operations (8) $ 0.46 $ 0.49 $ 0.49 $ 0.31 Diluted earnings per share from continuing operations (8) $ 0.46 $ 0.49 $ 0.49 $ 0.31 (1) Reflects total restructuring and acquisition related expenses recorded within Cost of goods sold and SG&A expenses of $ 7 million, $ 31 million, $ 21 million, and $ 14 million in the first, second, third, and fourth quarters of 2020, respectively, and $ 3 million, $ 8 million, $ 26 million, and $ 20 million recorded in the first, second, third, and fourth quarters of 2019, respectively. See Note 6, "Restructuring and Acquisition Related Expenses," for further information. (2) In the first quarter 2020, we recorded a loss on debt extinguishment of $ 13 million related to the redemption of the U.S. Notes (2023) due to the early-redemption premium and the write-off of the unamortized debt issuance costs. See "U.S. Notes (2023)" in Note 10, "Long-Term Obligations," for further information. (3) Reflects impairment charges of $ 15 million, $ 33 million, and $ 2 million to net assets held for sale recorded in the first, second, and fourth quarters of 2019, respectively, and a $ 4 million net reversal of impairment in the third quarter of 2019. See "Net Assets Held for Sale" in Note 4, "Summary of Significant Accounting Policies," for further information. (4) In the fourth quarter of 2019, we recorded a $ 12 million non-recurring gain related to resolution of an acquisition related matter. (5) Reflects an impairment charge of $ 40 million in the first quarter of 2019, related to the Mekonomen equity investment. See "Investments in Unconsolidated Subsidiaries" in Note 4, "Summary of Significant Accounting Policies," for further information. (6) In the second quarter of 2019, we classified the acquired Stahlgruber Czech Republic wholesale business as discontinued operations; we completed the sale of the business in the first quarter of 2020. From January 1, 2020 through the date of sale, we recorded an immaterial amount of net income (excluding the loss on sale) from discontinued operations related to the business, of which an immaterial amount was attributable to the noncontrolling interest. Subsequent to the completion of the sale, we recorded immaterial adjustments related to the loss on disposal of the business. See "Czech Republic" in Note 3, "Discontinued Operations" for further information regarding the disposal of the Czech Republic business. (7) In the first quarter of 2017, we completed the sale of the glass manufacturing business of our PGW subsidiary. During the fourth quarter of 2019, we incurred costs related to the disposal of the glass manufacturing business of PGW and settled certain tax matters. (8) The sum of the quarters may not equal the total of the respective year's earnings per share on either a basic or diluted basis due to changes in weighted average shares outstanding throughout the year. 111 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. 112