UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________________________________ 

FORM 10-Q

____________________________ 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended June 30, 2021

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from              to

Commission File Number: 000-50404

____________________________ 

LKQ CORPORATION

(Exact name of registrant as specified in its charter)

____________________________ 

Delaware		36-4215970
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
500 West Madison Street,	Suite 2800
Chicago,	Illinois	60661
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code: (312) 621-1950

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.01 per share	LKQ	NASDAQ	Global Select Market

________________________________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☒	Accelerated Filer	☐
Non-accelerated Filer	☐	Smaller Reporting Company	☐
Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ☐   No ☒

At July 30, 2021, the registrant had outstanding an aggregate of 293,875,364 shares of Common Stock.

1

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Income

(In thousands, except per share data)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Revenue	$	3,435,114	$	2,626,323	$	6,605,900	$	5,627,258
Cost of goods sold	2,019,405		1,615,319		3,896,477		3,402,378
Gross margin	1,415,709		1,011,004		2,709,423		2,224,880
Selling, general and administrative expenses	901,667		737,369		1,750,232		1,637,180
Restructuring and acquisition related expenses	5,069		24,950		12,954		31,920
(Gain) loss on disposal of businesses and impairment of net assets held for sale	(597)		2,485		(582)		2,236
Depreciation and amortization	64,896		65,747		130,697		131,242
Operating income	444,674		180,453		816,122		422,302
Other expense (income):
Interest expense, net of interest income	16,172		25,616		40,351		51,547
Loss on debt extinguishment	23,564		—		23,564		12,751
Other income, net	(4,311)		(8,174)		(10,524)		(11,796)
Total other expense, net	35,425		17,442		53,391		52,502
Income from continuing operations before provision for income taxes	409,249		163,011		762,731		369,800
Provision for income taxes	107,719		41,869		200,688		102,280
Equity in earnings (losses) of unconsolidated subsidiaries	3,478		(2,649)		9,297		(2,133)
Income from continuing operations	305,008		118,493		571,340		265,387
Net income (loss) from discontinued operations	—		277		—		(638)
Net income	305,008		118,770		571,340		264,749
Less: net income (loss) attributable to continuing noncontrolling interest	384		(22)		803		718
Less: net income attributable to discontinued noncontrolling interest	—		—		—		103
Net income attributable to LKQ stockholders	$	304,624	$	118,792	$	570,537	$	263,928
Basic earnings per share: (1)
Income from continuing operations	$	1.01	$	0.39	$	1.89	$	0.87
Net income (loss) from discontinued operations	—		0.00		—		(0.00)
Net income	1.01		0.39		1.89		0.87
Less: net income (loss) attributable to continuing noncontrolling interest	0.00		(0.00)		0.00		0.00
Less: net income attributable to discontinued noncontrolling interest	—		—		—		0.00
Net income attributable to LKQ stockholders	$	1.01	$	0.39	$	1.89	$	0.86
Diluted earnings per share: (1)
Income from continuing operations	$	1.01	$	0.39	$	1.89	$	0.87
Net income (loss) from discontinued operations	—		0.00		—		(0.00)
Net income	1.01		0.39		1.89		0.87
Less: net income (loss) attributable to continuing noncontrolling interest	0.00		(0.00)		0.00		0.00
Less: net income attributable to discontinued noncontrolling interest	—		—		—		0.00
Net income attributable to LKQ stockholders	$	1.01	0.39		$	1.89	$	0.86

(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 unaudited condensed consolidated financial statements.

2

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Comprehensive Income

(In thousands)

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Net income	$	305,008	$	118,770	$	571,340	$	264,749
Less: net income (loss) attributable to continuing noncontrolling interest	384		(22)		803		718
Less: net income attributable to discontinued noncontrolling interest	—		—		—		103
Net income attributable to LKQ stockholders	304,624		118,792		570,537		263,928
Other comprehensive income (loss):
Foreign currency translation, net of tax	21,864		31,334		(2,708)		(72,631)
Net change in unrealized gains/losses on cash flow hedges, net of tax	211		(31)		869		(7,352)
Net change in unrealized gains/losses on pension plans, net of tax	313		1,875		626		1,995
Other comprehensive income (loss) from unconsolidated subsidiaries	2,644		962		(868)		(890)
Other comprehensive income (loss)	25,032		34,140		(2,081)		(78,878)
Comprehensive income	330,040		152,910		569,259		185,871
Less: comprehensive income (loss) attributable to continuing noncontrolling interest	384		(22)		803		718
Less: comprehensive income attributable to discontinued noncontrolling interest	—		—		—		103
Comprehensive income attributable to LKQ stockholders	$	329,656	$	152,932	$	568,456	$	185,050

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

3

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

	June 30,		December 31,
	2021		2020
Assets
Current assets:
Cash and cash equivalents	$	328,700	$	312,154
Receivables, net	1,225,735		1,073,389
Inventories	2,394,147		2,414,612
Prepaid expenses and other current assets	219,952		233,877
Total current assets	4,168,534		4,034,032
Property, plant and equipment, net	1,207,156		1,248,703
Operating lease assets, net	1,368,143		1,353,124
Intangible assets:
Goodwill	4,568,087		4,591,569
Other intangibles, net	768,471		814,219
Equity method investments	168,467		155,224
Other noncurrent assets	189,201		163,662
Total assets	$	12,438,059	$	12,360,533
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	1,191,250	$	932,406
Accrued expenses:
Accrued payroll-related liabilities	214,288		208,718
Refund liability	106,331		102,148
Other accrued expenses	363,891		334,890
Other current liabilities	110,500		130,021
Current portion of operating lease liabilities	201,071		221,811
Current portion of long-term obligations	90,825		58,497
Total current liabilities	2,278,156		1,988,491
Long-term operating lease liabilities, excluding current portion	1,215,279		1,197,963
Long-term obligations, excluding current portion	2,360,685		2,812,641
Deferred income taxes	285,426		291,421
Other noncurrent liabilities	380,427		374,640
Commitments and contingencies
Redeemable noncontrolling interest	24,077		24,077
Stockholders' equity:
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 321,260,012 shares issued and 296,287,913 shares outstanding at June 30, 2021; 320,867,602 shares issued and 303,553,000 shares outstanding at December 31, 2020	3,212		3,208
Additional paid-in capital	1,458,993		1,444,584
Retained earnings	5,346,577		4,776,040
Accumulated other comprehensive loss	(101,090)		(99,009)
Treasury stock, at cost; 24,972,099 shares at June 30, 2021 and 17,314,602 shares at December 31, 2020	(829,768)		(469,105)
Total Company stockholders' equity	5,877,924		5,655,718
Noncontrolling interest	16,085		15,582
Total stockholders' equity	5,894,009		5,671,300
Total liabilities and stockholders' equity	$	12,438,059	$	12,360,533

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

4

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)

	Six Months Ended
	June 30,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	571,340	$	264,749
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	142,340		144,309
Stock-based compensation expense	16,793		15,763
Loss on debt extinguishment	23,564		12,751
Other	(24,516)		(1,318)
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions:
Receivables, net	(161,334)		(5,111)
Inventories	7,284		445,493
Prepaid income taxes/income taxes payable	(18,800)		84,125
Accounts payable	284,472		(172,140)
Other operating assets and liabilities	91,947		124,431
Net cash provided by operating activities	933,090		913,052
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(87,854)		(77,301)
Proceeds from disposals of property, plant and equipment	11,820		6,110
Acquisitions, net of cash acquired	(29,480)		(5,465)
Other investing activities, net	(3,502)		685
Net cash used in investing activities	(109,016)		(75,971)
CASH FLOWS FROM FINANCING ACTIVITIES:
Early-redemption premium	(16,014)		(9,498)
Repayment of Euro Notes (2026)	(883,275)		—
Repayment of U.S. Notes (2023)	—		(600,000)
Borrowings under revolving credit facilities	3,613,568		494,485
Repayments under revolving credit facilities	(2,792,867)		(601,480)
Repayments under term loans	(323,750)		(8,750)
Borrowings under receivables securitization facility	—		111,300
Repayments under receivables securitization facility	—		(111,300)
Borrowings (repayments) of other debt, net	39,533		(66,073)
Settlement of derivative instruments, net	(88,743)		—
Purchase of treasury stock	(343,830)		(88,006)
Other financing activities, net	(13,329)		(10,832)
Net cash used in financing activities	(808,707)		(890,154)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	1,179		(5,358)
Net increase (decrease) in cash, cash equivalents and restricted cash	16,546		(58,431)
Cash, and cash equivalents of continuing operations, beginning of period (1)	312,154		528,387
Add: Cash, and cash equivalents of discontinued operations, beginning of period	—		6,470
Cash, and cash equivalents of continuing and discontinued operations, beginning of period	312,154		534,857
Cash, and cash equivalents, end of period	$	328,700	$	476,426
(1) The balance as of January 1, 2020 included restricted cash of $5 million.

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

5

	Six Months Ended
	June 30,
	2021		2020
Supplemental disclosure of cash paid for:
Income taxes, net of refunds	$	226,400	$	24,452
Interest	45,184		55,910
Supplemental disclosure of noncash investing and financing activities:
Leased assets obtained in exchange for finance lease liabilities	$	4,279	$	8,225
Leased assets obtained in exchange for operating lease liabilities	137,129		90,961
Noncash property, plant and equipment and software intangible additions in accounts payable and other accrued expenses	8,878		7,200
Notes payable and other financing obligations, including notes issued and debt assumed in connection with business acquisitions and disposals	2,556		6,136
Notes receivable and contingent consideration receivable acquired in connection with disposal of business	—		8,549
Contingent consideration liabilities	—		3,045

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

6

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed 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, April 1, 2021	321,171	$	3,212	(18,801)	$	(526,084)	$	1,449,667	$	5,041,953	$	(126,122)	$	16,001	$	5,858,627
Net income	—	—		—	—		—		304,624		—		384		305,008
Other comprehensive income	—	—		—	—		—		—		25,032		—		25,032
Purchase of treasury stock	—	—		(6,171)	(303,684)		—		—		—		—		(303,684)
Vesting of restricted stock units, net of shares withheld for employee tax	89	—		—	—		325		—		—		—		325
Stock-based compensation expense	—	—		—	—		9,001		—		—		—		9,001
Capital contributions from, net of dividends declared to, noncontrolling interest shareholder	—	—		—	—		—		—		—		(142)		(142)
Foreign currency translation adjustment on noncontrolling interest	—	—		—	—		—		—		—		(158)		(158)
BALANCE, June 30, 2021	321,260	$	3,212	(24,972)	$	(829,768)	$	1,458,993	$	5,346,577	$	(101,090)	$	16,085	$	5,894,009

	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, April 1, 2020	320,439	$	3,204	(16,496)	$	(439,819)	$	1,425,600	$	4,282,753	$	(313,903)	$	29,484	$	4,987,319
Net income (loss)	—	—		—	—		—		118,792		—		(22)		118,770
Other comprehensive income	—	—		—	—		—		—		34,140		—		34,140
Vesting of restricted stock units, net of shares withheld for employee tax	91	1		—	—		(57)		—		—		—		(56)
Stock-based compensation expense	—	—		—	—		7,795		—		—		—		7,795
Capital contributions from, net of dividends declared to, noncontrolling interest shareholder	—	—		—	—		—		—		—		(27)		(27)
BALANCE, June 30, 2020	320,530	$	3,205	(16,496)	$	(439,819)	$	1,433,338	$	4,401,545	$	(279,763)	$	29,435	$	5,147,941

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

7

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Stockholders' Equity

(In thousands)

	LKQ Stockholders
	Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
BALANCE, January 1, 2021	320,868	$	3,208	(17,315)	$	(469,105)	$	1,444,584	$	4,776,040	$	(99,009)	$	15,582	$	5,671,300
Net income	—	—		—	—		—		570,537		—		803		571,340
Other comprehensive loss	—	—		—	—		—		—		(2,081)		—		(2,081)
Purchase of treasury stock	—	—		(7,657)	(360,663)		—		—		—		—		(360,663)
Vesting of restricted stock units, net of shares withheld for employee tax	392	4		—	—		(2,384)		—		—		—		(2,380)
Stock-based compensation expense	—	—		—	—		16,793		—		—		—		16,793
Capital contributions from, net of dividends declared to, noncontrolling interest shareholder	—	—		—	—		—		—		—		(142)		(142)
Foreign currency translation adjustment on noncontrolling interest	—	—		—	—		—		—		—		(158)		(158)
BALANCE, June 30, 2021	321,260	$	3,212	(24,972)	$	(829,768)	$	1,458,993	$	5,346,577	$	(101,090)	$	16,085	$	5,894,009

	LKQ Stockholders
	Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
BALANCE, January 1, 2020	319,927	$	3,199	(13,196)	$	(351,813)	$	1,418,239	$	4,140,136	$	(200,885)	$	39,704	$	5,048,580
Net income	—	—		—	—		—		263,928		—		821		264,749
Other comprehensive loss	—	—		—	—		—		—		(78,878)		—		(78,878)
Purchase of treasury stock	—	—		(3,300)	(88,006)		—		—		—		—		(88,006)
Vesting of restricted stock units, net of shares withheld for employee tax	491	5		—	—		(2,130)		—		—		—		(2,125)
Stock-based compensation expense	—	—		—	—		15,763		—		—		—		15,763
Exercise of stock options	112	1		—	—		1,466		—		—		—		1,467
Capital contributions from, net of dividends declared to, noncontrolling interest shareholder	—	—		—	—		—		—		—		314		314
Adoption of ASU 2016-13	—	—		—	—		—		(2,519)		—		—		(2,519)
Disposition of subsidiary with noncontrolling interests(1)	—	—		—	—		—		—		—		(11,404)		(11,404)
BALANCE, June 30, 2020	320,530	$	3,205	(16,496)	$	(439,819)	$	1,433,338	$	4,401,545	$	(279,763)	$	29,435	$	5,147,941

(1) The amount disposed of during 2020 relates to discontinued operations. See Note 2, "Discontinued Operations," for further details.

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

8

LKQ CORPORATION AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Interim Financial Statements

The accompanying unaudited condensed consolidated 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 have prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") applicable to interim financial statements. Accordingly, certain information related to our significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted. These unaudited condensed consolidated financial statements reflect, in the opinion of management, all material adjustments (which include only normally recurring adjustments) necessary to fairly state, in all material respects, our financial position, results of operations and cash flows for the periods presented.

Results for interim periods are not necessarily indicative of the results that can be expected for any subsequent interim period or for a full year. These interim financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 26, 2021 ("2020 Form 10-K").

The coronavirus disease 2019 ("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 2021. The effects include, but are not limited to, a reduction in demand for our products and services relative to 2019, liquidity challenges for certain of our customers and suppliers, and organizational changes, such as personnel reductions and route consolidation undertaken mostly in 2020, driven by cost actions to mitigate the revenue decline. We have considered COVID-19 impacts in the preparation of our financial statements and footnotes. Specific disclosures are presented in the following footnotes as applicable.

The continuing 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. Discontinued Operations

On May 30, 2018, we acquired Stahlgruber GmbH ("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. Prior to closing, 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 May 29, 2019 and decided to divest all of the acquired locations. We immediately classified the business as discontinued operations because the business was never integrated into our Europe segment.

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 Unaudited Condensed 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 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.

Note 3. Financial Statement Information

Allowance for Credit Losses

Receivables, net are reported net of an allowance for credit losses. Management evaluates the aging of customer receivable balances, the financial condition of our customers, historical trends, and macroeconomic factors to estimate the

9

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 $69 million and $70 million as of June 30, 2021 and December 31, 2020, respectively. Bad debt expense totaled $1 million and $14 million for the three months ended June 30, 2021 and 2020, respectively, and $4 million and $24 million for the six months ended June 30, 2021 and 2020, respectively.

Inventories

Inventories consist of the following (in thousands):

	June 30,		December 31,
	2021		2020
Aftermarket and refurbished products	$	1,984,301	$	2,025,002
Salvage and remanufactured products	382,565		368,815
Manufactured products	27,281		20,795
Total inventories	$	2,394,147	$	2,414,612

Aftermarket and refurbished products and salvage and remanufactured products are primarily composed of finished goods. As of June 30, 2021, manufactured products inventory was composed of $21 million of raw materials, $4 million of work in process, and $2 million 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.

Intangible Assets

Goodwill and indefinite-lived intangible assets are tested for impairment at least annually. We performed our annual impairment test during the fourth quarter of 2020 and 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%. 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. We did not identify a triggering event in 2021 that necessitated an interim test of goodwill impairment or indefinite-lived intangible assets impairment.

Investments in Unconsolidated Subsidiaries

Our investment in unconsolidated subsidiaries was $168 million and $155 million as of June 30, 2021 and December 31, 2020, respectively.

Europe Segment

Our investment in unconsolidated subsidiaries in Europe was $147 million and $137 million as of June 30, 2021 and December 31, 2020, respectively. We recorded equity in earnings of $3 million and $9 million during the three and six months ended June 30, 2021, respectively, and equity in losses of an immaterial amount and equity in earnings of $1 million during the three and six months ended June 30, 2020, respectively, mainly related to our investment in Mekonomen AB ("Mekonomen").    

We are accounting for our 26.6% equity 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 June 30, 2021, our share of the book value of Mekonomen's net assets exceeded the book value of our investment in Mekonomen by $7 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.

Mekonomen announced in March 2020 and February 2021, respectively, that the Mekonomen Board of Directors proposed no dividend payment in 2020 or 2021. The Level 1 fair value of our equity investment in the publicly traded Mekonomen common stock at June 30, 2021 was $245 million (using the Mekonomen share price of SEK 141 as of June 30, 2021) compared to a carrying value of $137 million.

North America Segment

Our investment in unconsolidated subsidiaries in the North America segment was $21 million and $19 million as of June 30, 2021 and December 31, 2020, respectively. We recorded equity in earnings of an immaterial amount for each of the three and six months ended June 30, 2021, and equity in losses of $3 million during both the three and six months ended June 30, 2020, related to our North America equity method investments.

Warranty Reserve

10

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 Unaudited Condensed 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 Unaudited Condensed 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 December 31, 2020	$	27,914
Warranty expense	37,117
Warranty claims	(35,238)
Balance as of June 30, 2021	$	29,793

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 three and six months ended June 30, 2021 and 2020, we recorded financial assistance from foreign governments, primarily in the form of grants, as credits in the following amounts (in thousands):

	Three Months Ended				Six Months Ended
	June 30,				June 30,
	2021		2020		2021		2020
Cost of goods sold	$	219	$	469	$	363	$	469
Selling, general and administrative expenses