Segment and Geographic Information

6 Months Ended

Jun. 30, 2020

Segment Reporting [Abstract]

Segment and Geographic Information

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.

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 June 30, 2020
Revenue:
Third Party	$	1,011,136	$	1,211,185	$	404,002	$	—	$	2,626,323
Intersegment	259		—		872		(1,131)		—
Total segment revenue	$	1,011,395	$	1,211,185	$	404,874	$	(1,131)	$	2,626,323
Segment EBITDA	$	149,554	$	89,387	$	52,233	$	—	$	291,174
Depreciation and amortization (1)	25,050		40,493		7,387		—		72,930
Three Months Ended June 30, 2019
Revenue:
Third Party	$	1,321,670	$	1,516,240	$	410,263	$	—	$	3,248,173
Intersegment	96		—		1,373		(1,469)		—
Total segment revenue	$	1,321,766	$	1,516,240	$	411,636	$	(1,469)	$	3,248,173
Segment EBITDA	$	190,048	$	116,281	$	52,367	$	—	$	358,696
Depreciation and amortization (1)	22,425		46,774		6,955		—		76,154

	North America		Europe		Specialty		Eliminations		Consolidated
Six Months Ended June 30, 2020
Revenue:
Third Party	$	2,301,071	$	2,574,779	$	751,408	$	—	$	5,627,258
Intersegment	519		—		2,048		(2,567)		—
Total segment revenue	$	2,301,590	$	2,574,779	$	753,456	$	(2,567)	$	5,627,258
Segment EBITDA	$	360,992	$	167,649	$	84,465	$	—	$	613,106
Depreciation and amortization (1)	48,198		81,588		14,523		—		144,309
Six Months Ended June 30, 2019
Revenue:
Third Party	$	2,623,876	$	2,961,781	$	762,819	$	—	$	6,348,476
Intersegment	199		—		2,554		(2,753)		—
Total segment revenue	$	2,624,075	$	2,961,781	$	765,373	$	(2,753)	$	6,348,476
Segment EBITDA	$	366,684	$	221,579	$	90,326	$	—	$	678,589
Depreciation and amortization (1)	44,664		93,785		13,912		—		152,361

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

The key measure of segment profit or loss reviewed by our chief operating decision maker, who is our Chief Executive Officer, is Segment EBITDA. 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				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Net income	$	118,770	$	152,105	$	264,749	$	251,168
Less: net (loss) income attributable to continuing noncontrolling interest	(22)		1,352		718		2,367
Less: net income attributable to discontinued noncontrolling interest	—		192		103		192
Net income attributable to LKQ stockholders	118,792		150,561		263,928		248,609
Subtract:
Net income (loss) from discontinued operations	277		398		(638)		398
Net income attributable to discontinued noncontrolling interest	—		(192)		(103)		(192)
Net income from continuing operations attributable to LKQ stockholders	118,515		150,355		264,669		248,403
Add:
Depreciation and amortization	65,747		70,834		131,242		141,836
Depreciation and amortization - cost of goods sold	4,010		5,320		9,095		10,525
Depreciation and amortization - restructuring expenses (1)	3,173		—		3,972		—
Interest expense, net of interest income	25,616		35,884		51,547		71,973
Loss on debt extinguishment	—		—		12,751		—
Provision for income taxes	41,869		55,825		102,280		107,375
EBITDA	258,930		318,218		575,556		580,112
Subtract:
Equity in (losses) earnings of unconsolidated subsidiaries (2)	(2,649)		1,572		(2,133)		(37,977)
Add:
Restructuring and acquisition related expenses (1)	21,777		8,377		27,948		11,684
Restructuring expenses - cost of goods sold	5,665		—		5,661		—
Loss on disposal of businesses and impairment of net assets held for sale (3)	2,485		33,497		2,236		48,520
Change in fair value of contingent consideration liabilities	(332)		176		(428)		296
Segment EBITDA	$	291,174	$	358,696	$	613,106	$	678,589

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

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

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

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Capital Expenditures
North America	$	10,892	$	23,169	$	40,213	$	54,403
Europe	19,502		21,840		32,550		41,417
Specialty	2,369		3,243		4,538		5,448
Total capital expenditures	$	32,763	$	48,252	$	77,301	$	101,268

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

	June 30,		December 31,
	2020		2019
Receivables, net
North America	$	355,421	$	419,452
Europe	629,355		636,216
Specialty	141,040		75,464
Total receivables, net	1,125,816		1,131,132
Inventories
North America	829,049		991,062
Europe	1,223,628		1,401,801
Specialty	235,616		379,914
Total inventories	2,288,293		2,772,777
Property, plant and equipment, net
North America	587,230		610,573
Europe	527,255		538,951
Specialty	82,020		84,876
Total property, plant and equipment, net	1,196,505		1,234,400
Operating lease assets, net
North America	756,128		768,164
Europe	434,221		457,035
Specialty	82,164		83,312
Total operating lease assets, net	1,272,513		1,308,511
Equity method investments
North America	15,299		17,624
Europe	121,374		121,619
Total equity method investments	136,673		139,243
Other unallocated assets	6,015,499		6,193,893
Total assets	$	12,035,299	$	12,779,956

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.

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

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2020		2019		2020		2019
Revenue
United States	$	1,330,543	$	1,613,417	$	2,864,489	$	3,155,443
Germany	359,134		415,947		733,686		802,412
United Kingdom	278,419		409,765		669,038		822,578
Other countries	658,227		809,044		1,360,045		1,568,043
Total revenue	$	2,626,323	$	3,248,173	$	5,627,258	$	6,348,476

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

	June 30,		December 31,
	2020		2019
Long-lived assets
United States	$	1,435,244	$	1,467,701
Germany	340,681		340,995
United Kingdom	286,952		330,113
Other countries	406,141		404,102
Total long-lived assets	$	2,469,018	$	2,542,911