Segment and Geographic Information

3 Months Ended

Mar. 31, 2020

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.

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



	North America		Europe		Specialty		Eliminations			Consolidated
Three Months Ended March 31, 2020
Revenue:
Third Party	$	1,289,935	$	1,363,594	$	347,406	$	—		$	3,000,935
Intersegment	260		—		1,176		(1,436		)	—
Total segment revenue	$	1,290,195	$	1,363,594	$	348,582	$	(1,436	)	$	3,000,935
Segment EBITDA	$	211,438	$	78,262	$	32,232	$	—		$	321,932
Depreciation and amortization ⁽¹⁾	23,148		41,095		7,136		—			71,379
Three Months Ended March 31, 2019
Revenue:
Third Party	$	1,302,206	$	1,445,541	$	352,556	$	—		$	3,100,303
Intersegment	103		—		1,181		(1,284		)	—
Total segment revenue	$	1,302,309	$	1,445,541	$	353,737	$	(1,284	)	$	3,100,303
Segment EBITDA	$	176,636	$	105,298	$	37,959	$	—		$	319,893
Depreciation and amortization ⁽¹⁾	22,239		47,011		6,957		—			76,207


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

The key measure of segment profit or loss reviewed by our chief operating decision maker, who is our Chief Executive Officer, is Segment EBITDA. Segment EBITDA includes revenue and expenses that are controllable by the segment. Corporate general and administrative expenses are allocated to the segments based on usage, with shared expenses apportioned based on the segment's percentage of consolidated revenue. We calculate Segment EBITDA as EBITDA excluding restructuring and acquisition related expenses (which includes restructuring expenses recorded in Cost of goods sold), change in fair value of contingent consideration liabilities, other gains and losses related to acquisitions, equity method investments, or divestitures, equity in losses and earnings of unconsolidated subsidiaries, and impairment charges. EBITDA, which is the basis for Segment EBITDA, is calculated as net income, less net income (loss) attributable to continuing and discontinued noncontrolling interest, excluding discontinued operations and discontinued noncontrolling interest, depreciation, amortization, interest (which includes gains and losses on debt extinguishment) and income tax expense.

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



	Three Months Ended
	March 31,
	2020			2019
Net income	$	145,979		$	99,063
Less: net income attributable to continuing noncontrolling interest	740			1,015
Less: net income attributable to discontinued noncontrolling interest	103			—
Net income attributable to LKQ stockholders	145,136			98,048
Subtract:
Net loss from discontinued operations	(915		)	—
Net income attributable to discontinued noncontrolling interest	(103		)	—
Net income from continuing operations attributable to LKQ stockholders	146,154			98,048
Add:
Depreciation and amortization	65,495			71,002
Depreciation and amortization - cost of goods sold	5,085			5,205
Depreciation and amortization - restructuring expenses ⁽²⁾	799			—
Interest expense, net of interest income	25,931			36,089
Loss on debt extinguishment	12,751			—
Provision for income taxes	60,411			51,550
EBITDA	316,626			261,894
Subtract:
Equity in earnings (losses) of unconsolidated subsidiaries ⁽¹⁾	516			(39,549		)
Add:
Restructuring and acquisition related expenses ⁽²⁾	6,171			3,307
Restructuring expenses - cost of goods sold	(4		)	—
(Gain on disposal of business) and impairment of net assets held for sale ⁽³⁾	(249		)	15,023
Change in fair value of contingent consideration liabilities	(96		)	120
Segment EBITDA	$	321,932		$	319,893


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


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


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

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



	Three Months Ended
	March 31,
	2020		2019
Capital Expenditures
North America	$	29,321	$	31,234
Europe	13,048		19,577
Specialty	2,169		2,205
Total capital expenditures	$	44,538	$	53,016

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



	March 31,		December 31,
	2020		2019
Receivables, net
North America	$	395,890	$	419,452
Europe	657,954		636,216
Specialty	114,782		75,464
Total receivables, net	1,168,626		1,131,132
Inventories
North America	991,753		991,062
Europe	1,318,033		1,401,801
Specialty	408,844		379,914
Total inventories	2,718,630		2,772,777
Property, plant and equipment, net
North America	605,299		610,573
Europe	513,582		538,951
Specialty	83,448		84,876
Total property, plant and equipment, net	1,202,329		1,234,400
Operating lease assets, net
North America	758,400		768,164
Europe	428,414		457,035
Specialty	82,466		83,312
Total operating lease assets, net	1,269,280		1,308,511
Equity method investments
North America	19,141		17,624
Europe⁽¹⁾	126,718		121,619
Total equity method investments	145,859		139,243
Other unallocated assets	5,849,346		6,193,893
Total assets	$	12,354,070	$	12,779,956


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

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

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

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



	Three Months Ended
	March 31,
	2020		2019
Revenue
United States	$	1,533,945	$	1,542,026
United Kingdom	390,619		412,813
Germany	374,552		386,465
Other countries	701,819		758,999
Total revenue	$	3,000,935	$	3,100,303

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



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