Restructuring and Acquisition Related Expenses (Notes)

9 Months Ended

Sep. 30, 2020

Restructuring and Acquisition Related Expenses [Abstract]

Business Acquisition, Integration, Restructuring and Other Related Costs [Text Block]

Restructuring and Acquisition Related Expenses

Acquisition Related Expenses

We incurred $8 million of acquisition related expenses in each of the three and nine months ended September 30, 2020. The expenses primarily resulted from the resolution of a purchase price matter related to the Stahlgruber transaction for an amount above our prior estimate.

We incurred $2 million of acquisition related expenses in each of the three and nine months ended September 30, 2019. These expenses included external costs such as legal, accounting and advisory fees related to our acquisitions.

2019 Global Restructuring Program

In the second quarter of 2019, we implemented 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 of earlier than the end of the previously estimated useful lives.

During the three and nine months ended September 30, 2020, we incurred $1 million and $6 million, respectively, of restructuring expenses under this program, primarily related to facility exit costs and employee-related costs. These costs were recorded within Restructuring and acquisition related expenses in the Unaudited Condensed Consolidated Statements of Income. During the three and nine months ended September 30, 2019, we incurred $18 million and $23 million, respectively, of restructuring expenses primarily related to inventory write-downs, facility exit costs, and employee-related costs. Of these expenses, $13 million, primarily related to Andrew Page branch consolidation and brand rationalization, were recorded within Cost of goods sold in the Unaudited Condensed Consolidated Statement of Income during each of the three and nine months ended September 30, 2019, and $4 million and $10 million, respectively, were recorded within Restructuring and acquisition related expenses.

The actions under this program are substantially complete. We estimate that total program costs will be approximately $45 million, of which $37 million was incurred in the year ended December 31, 2019. The total program costs include $31 million, $14 million and $1 million related to our Europe, North America and Specialty segments, respectively. Costs to be incurred through 2021 under this program are estimated to be between $2 million and $4 million.

2020 Global Restructuring Program

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

During the three and nine months ended September 30, 2020, we recognized restructuring expenses totaling $10 million and $38 million, respectively, for employee-related costs, facility exit costs and inventory write-downs. Of these expenses, $1 million and $7 million resulted from inventory impairment charges related to facility consolidation actions and brand rationalizations and were recorded in Cost of goods sold in the Unaudited Condensed Consolidated Statement of Income for three months and nine months ended September 30, 2020, respectively. Of the cumulative program costs incurred to date, $22 million, $15 million and $1 million related to our North America, Europe and Specialty segments, respectively. We estimate total costs under the program through its expected completion date in 2022 will be between $65 million and $75 million, of which approximately $39 million, $31 million, and $1 million will be incurred by our Europe, North America and Specialty segments, respectively; these segment amounts represent the midpoints of the expected ranges of costs to be incurred by each segment.

Acquisition Integration Plans

During the three and nine months ended September 30, 2020, we incurred $2 million and $8 million of restructuring expenses, respectively, for our acquisition integration plans. These expenses were primarily related to the integration of our operations in Belgium. Future expenses to complete our existing integration plans are expected to be immaterial.

During the three and nine months ended September 30, 2019, we incurred $7 million and $13 million of restructuring expenses, respectively, primarily related to our acquisition integration efforts in our Europe segment. These expenses included approximately $4 million and $7 million for the three and nine months ended September 30, 2019, respectively, related to the integration of our acquisition of Andrew Page Limited. The $4 million recorded during the three months ended September 30, 2019 for Andrew Page Limited was recorded within Cost of goods sold in the Unaudited Condensed Consolidated Statement of Income.

1 LKQ Europe Program

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 head office in Switzerland, we also accelerated certain projects, such as the integration of previously acquired networks and sharing resources across LKQ Europe. We expect to complete the organizational design and implementation projects by the middle of 2021, with the remaining projects to be completed by 2024.

We estimate that we will incur between $45 million and $55 million in total personnel and inventory related restructuring charges through 2024 under the program, although we are undertaking a full review of most projects under the program in the fourth quarter, and will provide updated restructuring estimates once we have completed that effort. We may identify additional initiatives and projects under the 1 LKQ Europe program in future periods that may result in additional restructuring expense, although we are currently unable to estimate the range of charges for such potential future initiatives and projects.