Financial Statement Information Intangible Assets (Policies)

3 Months Ended

Mar. 31, 2020

Intangible Assets [Abstract]

Goodwill and Intangible Assets, Policy [Policy Text Block]

Intangible Assets

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

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

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

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

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