LKQ CORP, 10-K filed on 2/28/2018
Annual Report
Document and Entity Information (USD $)
In Billions, except Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Feb. 16, 2018
Jun. 30, 2017
Document and Entity Information [Abstract]
 
 
 
Document Type
10-K 
 
 
Amendment Flag
false 
 
 
Document Period End Date
Dec. 31, 2017 
 
 
Document Fiscal Year Focus
2017 
 
 
Document Fiscal Period Focus
FY 
 
 
Trading Symbol
LKQ 
 
 
Entity Registrant Name
LKQ CORP 
 
 
Entity Central Index Key
0001065696 
 
 
Current Fiscal Year End Date
--12-31 
 
 
Entity Well-known Seasoned Issuer
Yes 
 
 
Entity Voluntary Filers
No 
 
 
Entity Current Reporting Status
Yes 
 
 
Entity Filer Category
Large Accelerated Filer 
 
 
Entity Common Stock, Shares Outstanding
 
309,574,741 
 
Entity Public Float
 
 
$ 10.1 
Consolidated Statements of Income (USD $)
In Thousands, except Per Share data, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Income Statement [Abstract]
 
 
 
Revenue
$ 9,736,909 
$ 8,584,031 
$ 7,192,633 
Cost of goods sold
5,937,286 
5,232,328 
4,359,104 
Gross margin
3,799,623 
3,351,703 
2,833,529 
Facility and warehouse expenses
797,388 
688,918 
556,041 
Distribution expenses
784,485 
683,812 
602,897 
Selling, general and administrative expenses
1,131,214 
986,380 
828,333 
Restructuring and acquisition related expenses
19,672 
37,762 
19,511 
Depreciation and amortization
219,546 
191,433 
122,120 
Operating income
847,318 
763,398 
704,627 
Other expense (income):
 
 
 
Interest expense
101,640 
88,263 
57,860 
Loss on debt extinguishment
456 
26,650 
Gain on foreign exchange contracts - acquisition related
(18,342)
Gains on bargain purchases
(3,870)
(8,207)
Interest and other income, net
(17,535)
(2,247)
(2,263)
Total other expense, net
80,691 
86,117 
55,597 
Income from continuing operations before provision for income taxes
766,627 
677,281 
649,030 
Provision for income taxes
235,560 
220,566 
219,703 
Equity in earnings (loss) of unconsolidated subsidiaries
5,907 
(592)
(6,104)
Income from continuing operations
536,974 
456,123 
423,223 
Net (loss) income from discontinued operations
(6,746)
7,852 
Net income
530,228 
463,975 
423,223 
Less: net loss attributable to noncontrolling interest
(3,516)
Net income attributable to LKQ stockholders
$ 533,744 
$ 463,975 
$ 423,223 
Basic earnings per share: (1)
 
 
 
Income from continuing operations
$ 1.74 
$ 1.49 
$ 1.39 
Net (loss) income from discontinued operations
$ (0.02)
$ 0.03 
$ 0.00 
Net income
$ 1.72 
$ 1.51 
$ 1.39 
Less: net loss attributable to noncontrolling interest
$ (0.01)
$ 0.00 
$ 0.00 
Net income attributable to LKQ stockholders
$ 1.73 
$ 1.51 
$ 1.39 
Diluted earnings per share: (1)
 
 
 
Income from continuing operations
$ 1.73 
$ 1.47 
$ 1.38 
Net (loss) income from discontinued operations
$ (0.02)
$ 0.03 
$ 0.00 
Net income
$ 1.71 
$ 1.50 
$ 1.38 
Less: net loss attributable to noncontrolling interest
$ (0.01)
$ 0.00 
$ 0.00 
Net income attributable to LKQ stockholders
$ 1.72 
$ 1.50 
$ 1.38 
Consolidated Statements of Comprehensive Income (USD $)
In Thousands, unless otherwise specified
3 Months Ended 12 Months Ended
Dec. 31, 2017
Sep. 30, 2017
Jun. 30, 2017
Mar. 31, 2017
Dec. 31, 2016
Sep. 30, 2016
Jun. 30, 2016
Mar. 31, 2016
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
Statement of Comprehensive Income [Abstract]
 
 
 
 
 
 
 
 
 
 
 
Net income
 
 
 
 
 
 
 
 
$ 530,228 
$ 463,975 
$ 423,223 
Less: net loss attributable to noncontrolling interest
3,516 
 
 
 
 
 
 
 
3,516 
Net income attributable to LKQ stockholders
124,171 
122,381 
150,914 
136,278 
86,331 
122,688 
142,785 
112,171 
533,744 
463,975 
423,223 
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation, net of tax
 
 
 
 
 
 
 
 
200,596 
(175,639)
(69,817)
Net change in unrecognized gains/losses on derivative instruments, net of tax
 
 
 
 
 
 
 
 
3,447 
9,023 
2,469 
Net change in unrealized gains/losses on pension plans, net of tax
 
 
 
 
 
 
 
 
6,035 
(4,911)
(2,103)
Net change in other comprehensive loss from unconsolidated subsidiaries
 
 
 
 
 
 
 
 
(1,309)
Other comprehensive income (loss)
 
 
 
 
 
 
 
 
196,699 
(161,705)
(65,245)
Comprehensive income
 
 
 
 
 
 
 
 
726,927 
302,270 
357,978 
Less: comprehensive loss attributable to noncontrolling interest
 
 
 
 
 
 
 
 
(3,516)
Comprehensive income attributable to LKQ stockholders
 
 
 
 
 
 
 
 
$ 730,443 
$ 302,270 
$ 357,978 
Consolidated Balance Sheets (USD $)
In Thousands, unless otherwise specified
Dec. 31, 2017
Dec. 31, 2016
Current assets:
 
 
Cash and cash equivalents
$ 279,766 
$ 227,400 
Receivables, net
1,027,106 
860,549 
Inventories
2,380,783 
1,935,237 
Prepaid expenses and other current assets
134,479 
87,768 
Assets of discontinued operations
456,640 
Total current assets
3,822,134 
3,567,594 
Property, plant and equipment, net
913,089 
811,576 
Intangible assets:
 
 
Goodwill
3,536,511 
3,054,769 
Other intangibles, net
743,769 
584,231 
Equity method investments
208,404 
183,467 
Other assets
142,965 
101,562 
Total assets
9,366,872 
8,303,199 
Current liabilities:
 
 
Accounts payable
788,613 
633,773 
Accrued expenses:
 
 
Accrued payroll-related liabilities
143,424 
118,755 
Other accrued expenses
218,600 
209,101 
Other current liabilities
45,727 
37,943 
Current portion of long-term obligations
126,360 
66,109 
Liabilities of discontinued operations
145,104 
Total current liabilities
1,322,724 
1,210,785 
Long-term obligations, excluding current portion
3,277,620 
3,275,662 
Deferred income taxes
252,359 
199,657 
Other noncurrent liabilities
307,516 
174,146 
Commitments and contingencies
   
   
Stockholders’ equity:
 
 
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 309,126,386 and 307,544,759 shares issued and outstanding at December 31, 2017 and December 31, 2016, respectively
3,091 
3,075 
Additional paid-in capital
1,141,451 
1,116,690 
Retained earnings
3,124,103 
2,590,359 
Accumulated other comprehensive loss
(70,476)
(267,175)
Total Company stockholders' equity
4,198,169 
3,442,949 
Noncontrolling interest
8,484 
 
Total stockholders' equity
4,206,653 
3,442,949 
Total liabilities and stockholders’ equity
$ 9,366,872 
$ 8,303,199 
Consolidated Balance Sheets (Parenthetical) (USD $)
Dec. 31, 2017
Dec. 31, 2016
Statement of Financial Position [Abstract]
 
 
Common stock, par value
$ 0.01 
$ 0.01 
Common stock, shares authorized
1,000,000,000 
1,000,000,000 
Common stock, shares issued
309,126,386 
307,544,759 
Common stock, shares outstanding
309,126,386 
307,544,759 
Consolidated Statements of Cash Flows (USD $)
In Thousands, unless otherwise specified
12 Months Ended
Dec. 31, 2017
Dec. 31, 2016
Dec. 31, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:
 
 
 
Net income
$ 530,228 
$ 463,975 
$ 423,223 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
230,203 
198,334 
128,192 
Stock-based compensation expense
22,832 
22,345 
21,336 
Loss on debt extinguishment
456 
26,650 
Loss on sale of business
6,495 
Impairment on net assets of discontinued operations
(26,677)
 
Gain on foreign exchange contracts - acquisition related
(18,342)
Gains on bargain purchases
(3,870)
(8,207)
Deferred income taxes
(46,537)
(11,646)
22,388 
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions:
 
 
 
Net cash provided by operating activities
518,900 
635,014 
544,282 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Purchases of property, plant and equipment
(179,090)
(207,074)
(170,490)
Acquisitions, net of cash acquired
(513,088)
(1,349,339)
(160,517)
Proceeds from disposals of business/investment
316,000 
 
 
Investments in unconsolidated subsidiaries
(7,664)
 
 
Proceeds from foreign exchange contracts
 
18,342 
 
Other investing activities, net
13,950 
3,510 
1,014 
Net cash used in investing activities
(384,595)
(1,709,928)
(329,993)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Proceeds from exercise of stock options
7,470 
7,963 
8,168 
Taxes paid related to net share settlements of stock-based compensation awards
(5,525)
(4,438)
(7,581)
Debt issuance costs
(4,267)
(16,554)
(97)
Proceeds from issuance of Euro Notes (2024)
 
563,450 
 
Borrowings under revolving credit facilities
839,171 
2,636,596 
313,142 
Repayments under revolving credit facilities
(946,477)
(1,748,664)
(445,282)
Borrowings under term loans
 
582,115 
 
Repayments under term loans
(27,884)
(255,792)
(22,500)
Borrowings under receivables securitization facility
11,245 
106,400 
3,858 
Repayments under receivables securitization facility
(11,245)
(69,400)
(35,758)
Borrowings (repayments) of other debt, net
19,706 
(31,156)
(29,696)
Payments of Rhiag debt and related payments
 
(543,347)
 
Payments of other obligations
(2,077)
(1,436)
(22,791)
Other financing activities, net
7,316 
 
 
Net cash (used in) provided by financing activities
(112,567)
1,225,737 
(238,537)
Effect of exchange rate changes on cash and cash equivalents
23,512 
(3,704)
(2,960)
Net increase (decrease) in cash and cash equivalents
45,250 
147,119 
(27,208)
Cash and cash equivalents of continuing operations, beginning of period
227,400 
87,397 
114,605 
Add: Cash and cash equivalents of discontinued operations, beginning of period
(7,116)
Cash and cash equivalents of continuing and discontinued operations, end of period
279,766 
227,400 
87,397 
Supplemental disclosure of noncash investing and financing activities:
 
 
 
Notes payable and other financing obligations, including notes issued and debt assumed in connection with business acquisitions
59,045 
568,032 
28,348 
Continuing and Discontinued Operations
 
 
 
Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
230,203 
206,086 
128,192 
Stock-based compensation expense
22,832 
22,472 
21,336 
Loss on debt extinguishment
456 
26,650 
Loss on sale of business
(10,796)
 
 
Impairment on net assets of discontinued operations
26,677 
Gain on foreign exchange contracts - acquisition related
(18,342)
Gains on bargain purchases
(3,870)
(8,207)
Deferred income taxes
(46,537)
(16,162)
22,388 
Other
1,301 
19,550 
7,348 
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions:
 
 
 
Receivables, net
(55,979)
(50,801)
14,704 
Inventories
(203,857)
(64,114)
(83,188)
Prepaid income taxes/income taxes payable
8,376 
14,944 
17,474 
Accounts payable
45,136 
18,577 
(4,222)
Other operating assets and liabilities
(20,185)
(6,291)
(2,973)
Net cash provided by operating activities
518,900 
635,014 
544,282 
CASH FLOWS FROM INVESTING ACTIVITIES:
 
 
 
Purchases of property, plant and equipment
(179,090)
(207,074)
(170,490)
Acquisitions, net of cash acquired
(513,088)
(1,349,339)
(160,517)
Proceeds from disposals of business/investment
301,297 
10,304 
Investments in unconsolidated subsidiaries
(7,664)
(185,671)
(9,682)
Proceeds from foreign exchange contracts
18,342 
Other investing activities, net
13,950 
3,510 
10,696 
Net cash used in investing activities
(384,595)
(1,709,928)
(329,993)
CASH FLOWS FROM FINANCING ACTIVITIES:
 
 
 
Proceeds from exercise of stock options
7,470 
7,963 
8,168 
Taxes paid related to net share settlements of stock-based compensation awards
(5,525)
(4,438)
(7,581)
Debt issuance costs
(4,267)
(16,554)
(97)
Proceeds from issuance of Euro Notes (2024)
563,450 
Borrowings under revolving credit facilities
839,171 
2,636,596 
313,142 
Repayments under revolving credit facilities
(946,477)
(1,748,664)
(445,282)
Borrowings under term loans
582,115 
Repayments under term loans
(27,884)
(255,792)
(22,500)
Borrowings under receivables securitization facility
11,245 
106,400 
3,858 
Repayments under receivables securitization facility
(11,245)
(69,400)
(35,758)
Borrowings (repayments) of other debt, net
19,706 
(31,156)
(29,696)
Payments of Rhiag debt and related payments
(543,347)
Payments of other obligations
(2,077)
(1,436)
(22,791)
Other financing activities, net
7,316 
Net cash (used in) provided by financing activities
(112,567)
1,225,737 
(238,537)
Effect of exchange rate changes on cash and cash equivalents
23,512 
(3,704)
(2,960)
Net increase (decrease) in cash and cash equivalents
45,250 
147,119 
(27,208)
Cash and cash equivalents of continuing operations, beginning of period
234,516 
87,397 
114,605 
Cash and cash equivalents of continuing and discontinued operations, end of period
279,766 
234,516 
87,397 
Supplemental disclosure of cash paid for:
 
 
 
Income taxes, net of refunds
273,019 
230,036 
180,126 
Interest
95,707 
86,021 
54,917 
Supplemental disclosure of noncash investing and financing activities:
 
 
 
Contingent consideration liabilities
 
Non-cash property and equipment additions
18,122 
10,715 
8,846 
Notes and other financing receivables in connection with disposals of business/investment
$ 4,000 
$ 0 
$ 0 
Consolidated Statements of Stockholders' Equity (USD $)
In Thousands, except Share data
Total
Common Stock
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Beginning Balance at Dec. 31, 2013
 
 
 
 
 
Tax withholdings related to net share settlements of stock-based compensation awards, value
 
 
 
$ 0 
$ 0 
Ending balance, total Company stockholders' equity at Dec. 31, 2014
2,720,657 
3,035 
1,054,686 
1,703,161 
(40,225)
Beginning Balance, shares at Dec. 31, 2014
 
303,453,000 
 
 
 
Restricted stock units vested, net of shares withheld for employee tax, shares
 
840,000 
 
 
 
Exercise of stock options, shares
 
1,425,000 
 
 
 
Tax withholdings related to net share settlements of stock-based compensation awards, shares
 
(144,000)
 
 
 
Net income attributable to LKQ stockholders
423,223 
423,223 
Less: net loss attributable to noncontrolling interest
 
 
 
 
Net income
423,223 
 
 
 
 
Other comprehensive income (loss)
(65,245)
(65,245)
Restricted stock units vested, net of shares withheld for employee tax, value
(4,341)
(4,349)
Stock-based compensation expense
21,336 
21,336 
Exercise of stock options, value
8,863 
14 
8,849 
Tax withholdings related to net share settlements of stock-based compensation awards, value
(3,936)
(2)
(3,934)
 
 
Excess tax benefit from stock-based payments
14,125 
14,125 
Ending balance, total Company stockholders' equity at Dec. 31, 2015
3,114,682 
3,055 
1,090,713 
2,126,384 
(105,470)
Ending Balance, shares at Dec. 31, 2015
 
305,574,000 
 
 
 
Restricted stock units vested, net of shares withheld for employee tax, shares
 
847,000 
 
 
 
Exercise of stock options, shares
 
1,124,000 
 
 
 
Net income attributable to LKQ stockholders
463,975 
463,975 
Less: net loss attributable to noncontrolling interest
 
 
 
 
Net income
463,975 
 
 
 
 
Other comprehensive income (loss)
(161,705)
(161,705)
Restricted stock units vested, net of shares withheld for employee tax, value
(4,438)
(4,447)
Stock-based compensation expense
22,472 
22,472 
Exercise of stock options, value
7,963 
11 
7,952 
Ending balance, total stockholders' equity at Dec. 31, 2016
3,442,949 
 
 
 
 
Ending balance, total Company stockholders' equity at Dec. 31, 2016
3,442,949 
3,075 
1,116,690 
2,590,359 
(267,175)
Ending Balance, shares at Dec. 31, 2016
 
307,545,000 
 
 
 
Restricted stock units vested, net of shares withheld for employee tax, shares
 
749,000 
 
 
 
Exercise of stock options, shares
866,799 
867,000 
 
 
 
Tax withholdings related to net share settlements of stock-based compensation awards, shares
 
(34,000)
 
 
 
Net income attributable to LKQ stockholders
533,744 
533,744 
Less: net loss attributable to noncontrolling interest
(3,516)
 
 
 
 
Net income
530,228 
 
 
 
 
Other comprehensive income (loss)
196,699 
196,699 
Restricted stock units vested, net of shares withheld for employee tax, value
(4,325)
(4,332)
Stock-based compensation expense
22,832 
22,832 
Exercise of stock options, value
7,470 
7,461 
Tax withholdings related to net share settlements of stock-based compensation awards, value
(1,200)
 
(1,200)
 
 
Sales of subsidiary shares to noncontrolling interest
12,000 
 
 
 
 
Ending balance, noncontrolling interest at Dec. 31, 2017
8,484 
 
 
 
 
Ending balance, total stockholders' equity at Dec. 31, 2017
4,206,653 
 
 
 
 
Ending balance, total Company stockholders' equity at Dec. 31, 2017
$ 4,198,169 
$ 3,091 
$ 1,141,451 
$ 3,124,103 
$ (70,476)
Ending Balance, shares at Dec. 31, 2017
 
309,127,000 
 
 
 
Business (Notes)
Business
Business
The financial statements presented in this report 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 are a leading provider of alternative vehicle collision replacement products and alternative vehicle mechanical replacement products, with our sales, processing, and distribution facilities reaching most major markets in the United States and Canada. We are also a leading provider of alternative vehicle replacement and maintenance products in Europe. In addition to our wholesale operations, we operate self service retail facilities across the U.S. that sell recycled automotive products from end-of-life-vehicles. We are also a leading distributor of specialty vehicle aftermarket equipment and accessories reaching most major markets in the U.S. and Canada. In total, we operate approximately 1,500 facilities.
Business Combinations (Notes)
Business Combinations
Business Combinations
During the year ended December 31, 2017, we completed 26 acquisitions including 6 wholesale businesses in North America, 16 wholesale businesses in Europe and 4 Specialty vehicle aftermarket businesses. Our acquisitions in Europe included the acquisition of four aftermarket parts distribution businesses in Belgium in July 2017. Our acquisitions in Specialty included the acquisition of Warn in November 2017.
Total acquisition date fair value of the consideration for these acquisitions was $542 million, composed of $510 million of cash paid (net of cash acquired), $6 million for the estimated value of contingent payments to former owners (with maximum potential payments totaling $19 million), $5 million of other purchase price obligations (non-interest bearing) and $20 million of notes payable. We typically fund our acquisitions using borrowings under our credit facilities or other financing arrangements. During the year ended December 31, 2017, we recorded $307 million of goodwill related to these acquisitions, of which we expect $21 million to be deductible for income tax purposes. In the period between the acquisition dates and December 31, 2017, these acquisitions generated revenue of $227 million and an operating loss of $2 million.
On December 10, 2017, we entered into an agreement to acquire Stahlgruber, a leading European wholesale distributor of aftermarket spare parts for passenger cars, tools, capital equipment and accessories with operations in Germany, Austria, Czech Republic, Italy, Slovenia, and Croatia with further sales to Switzerland. The transaction is expected to be completed in the first half of 2018 and is subject to regulatory approvals. This acquisition will expand LKQ's geographic presence in continental Europe and serve as an additional strategic hub for our European operations. In addition, we believe this acquisition will allow for continued improvement in procurement, logistics and infrastructure optimization.
On March 18, 2016, we acquired Rhiag, a distributor of aftermarket spare parts for passenger cars and commercial vehicles in Italy, Czech Republic, Slovakia, Switzerland, Hungary, Romania, Ukraine, Bulgaria, Poland and Spain. This acquisition expanded LKQ's geographic presence in continental Europe, and we believe the acquisition will generate potential purchasing synergies. Total acquisition date fair value of the consideration for our Rhiag acquisition was €534 million ($602 million), composed of €534 million ($601 million) of cash paid (net of cash acquired) and €1 million ($1 million) of intercompany balances considered to be effectively settled as part of the transaction. In addition, we assumed €489 million ($551 million) of existing Rhiag debt as of the acquisition date. We recorded $591 million ($585 million in 2016 and $5 million in the three months ended March 31, 2017) of goodwill related to our acquisition of Rhiag, which we do not expect to be deductible for income tax purposes.
Related to the funding of the purchase price of the Rhiag acquisition, LKQ entered into foreign currency forward contracts in March 2016 to acquire a total of €588 million. The rates locked in under the foreign currency forwards were favorable to the spot rate on the settlement date, and as a result, these derivative contracts generated a gain of $18 million during the year ended December 31, 2016. The gain on the foreign currency forwards was recorded in Gains on foreign exchange contracts - acquisition related on our consolidated statement of income for the year ended December 31, 2016.     
On April 21, 2016, we acquired PGW. At acquisition, PGW’s business comprised aftermarket automotive replacement glass distribution services and automotive glass manufacturing. The acquisition expanded our addressable market in North America. Additionally, the acquisition created distribution synergies with our existing network. Total acquisition date fair value of the consideration for our PGW acquisition was $662 million, consisting of cash paid (net of cash acquired). We recorded $208 million ($205 million in 2016 and $3 million in the six months ended June 30, 2017) of goodwill related to our acquisition of PGW, of which we expect $104 million to be deductible for income tax purposes.
On October 4, 2016, we acquired substantially all of the business assets of Andrew Page, a distributor of aftermarket automotive parts in the U.K., out of receivership. The acquisition was subject to regulatory approval by the CMA in the U.K. The CMA concluded its review on October 31, 2017 and determined that we must divest less than 10% of the acquired locations. Total acquisition date fair value of the consideration for this acquisition was £16 million ($20 million). In connection with the acquisition, we recorded a gain on bargain purchase of $10 million ($8 million recorded in 2016 and $2 million recorded in 2017), which is reported on a separate line in our consolidated statements of income. We believe that we were able to acquire the net assets of Andrew Page for less than fair value as a result of (i) Andrew Page's financial difficulties that put the company into receivership prior to our acquisition and (ii) a motivated seller that desired to complete the sale in an expedient manner to ensure continuity of the business.
In addition to our acquisitions of Rhiag, PGW and Andrew Page, we acquired seven wholesale businesses in Europe and five wholesale businesses in North America during the year ended December 31, 2016. Total acquisition date fair value of the consideration for these acquisitions was $76 million, composed of $68 million of cash paid (net of cash acquired), $4 million of notes payable and $4 million of other purchase price obligations (non-interest bearing). During the year ended December 31, 2016, we recorded $52 million of goodwill related to these acquisitions and immaterial adjustments to preliminary purchase price allocations related to certain of our 2015 acquisitions. We expect that substantially all of the goodwill recorded for these acquisitions will not be deductible for income tax purposes.
During the year ended December 31, 2015, we completed 18 acquisitions, including four wholesale businesses in North America, 12 wholesale businesses in Europe, a self service retail operation, and a specialty vehicle aftermarket business. Our wholesale business acquisitions in North America included Parts Channel, an aftermarket collision parts distributor. We also acquired Coast, a specialty aftermarket business that distributes replacement parts, supplies and accessories in North America for the RV and outdoor recreation markets. Our European acquisitions included 11 aftermarket parts distribution businesses in the Netherlands, nine of which were former customers of and distributors for our Netherlands subsidiary, Sator, and were acquired with the objective of expanding our distribution network in the Netherlands. Our other acquisitions completed during the year ended December 31, 2015 enabled us to expand our geographic presence. Total acquisition date fair value of the consideration for these acquisitions was $188 million, composed of $161 million of cash (net of cash acquired), $4 million of notes payable, $21 million of other purchase price obligations, and $1 million of pre-existing balances between us and the acquired entities considered to be effectively settled as a result of the acquisitions. During the year ended December 31, 2015, we recorded $92 million of goodwill related to these acquisitions and immaterial adjustments to preliminary purchase price allocations related to certain of our 2014 acquisitions. We expect $70 million of the $92 million of goodwill recorded to be deductible for income tax purposes.
Our acquisitions are accounted for under the purchase method of accounting and are included in our consolidated financial statements from the dates of acquisition. The purchase prices were allocated to the net assets acquired based upon estimated fair market values at the dates of acquisition. The purchase price allocations for the acquisitions made during the year ended December 31, 2017 are preliminary as we are in the process of determining the following: 1) valuation amounts for certain receivables, inventories and fixed assets acquired; 2) valuation amounts for certain intangible assets acquired; 3) the acquisition date fair value of certain liabilities assumed; and 4) the final estimation of the tax basis of the entities acquired. We have recorded preliminary estimates for certain of the items noted above and will record adjustments, if any, to the preliminary amounts upon finalization of the valuations.
From the date of our preliminary allocation for Rhiag in the first quarter of 2016 through March 31, 2017, we recorded adjustments based on our valuation procedures for our acquisition of Rhiag that resulted in a decrease of $154 million to goodwill recorded in 2016, partially offset by a $5 million increase to goodwill recorded in 2017. The 2016 adjustments were primarily attributable to an increase in the value allocated to acquired assets, primarily intangible assets and property, plant and equipment; the 2017 adjustments were primarily attributable to a decline in the value allocated to property, plant and equipment. Additionally, from the date of our preliminary allocation for PGW in the second quarter of 2016 through June 30, 2017, we recorded adjustments based on our valuation procedures that resulted in a $24 million increase to goodwill recorded, of which $3 million was recorded in 2017. These adjustments were primarily attributable to a decline in the value allocated to property, plant and equipment, partially offset by an increase in the value allocated to deferred taxes. Finally, from the date of our preliminary allocations for our acquisitions completed in the first nine months of 2017 through December 31, 2017, we recorded adjustments based on our valuation procedures that resulted in a decrease to goodwill of $15 million. This decrease to goodwill was primarily a result of (i) an increase in the value allocated to acquired assets, primarily intangible assets and property, plant and equipment, and (ii) a decrease in our estimate of the acquisition date fair value of the contingent payment liability to the former owners. The income statement effect of these measurement period adjustments for our Rhiag and PGW acquisitions as well as our acquisitions completed in the first nine months of 2017 that would have been recorded in previous reporting periods if the adjustments had been recognized as of the acquisition dates was immaterial. The balance sheet impact and income statement effect of other measurement-period adjustments recorded for acquisitions completed in prior periods were immaterial.
The purchase price allocations for the acquisitions completed during the years ended December 31, 2017 and 2016 are as follows (in thousands):
 
 
Year Ended
 
Year Ended
 
December 31, 2017
 
December 31, 2016
 
All
Acquisitions (1)
 
Rhiag
 
PGW (2)
 
Other
Acquisitions
 
Total
Receivables
$
73,782

 
$
230,670

 
$
136,523

 
$
13,216

 
$
380,409

Receivable reserves
(7,032
)
 
(28,242
)
 
(7,135
)
 
(794
)
 
(36,171
)
Inventories (3)
150,342

 
239,529

 
169,159

 
62,223

 
470,911

Prepaid expenses and other current assets
(295
)
 
10,793

 
42,573

 
4,445

 
57,811

Property, plant and equipment
41,039

 
56,774

 
225,645

 
17,140

 
299,559

Goodwill
314,817

 
585,415

 
205,058

 
52,336

 
842,809

Other intangibles
181,216

 
429,360

 
37,954

 
2,537

 
469,851

Other assets (4)
3,257

 
2,092

 
57,671

 
(133
)
 
59,630

Deferred income taxes
(65,087
)
 
(110,791
)
 
17,506

 
(1,000
)
 
(94,285
)
Current liabilities assumed
(111,484
)
 
(239,665
)
 
(168,332
)
 
(42,290
)
 
(450,287
)
Debt assumed
(33,586
)
 
(550,843
)
 
(4,027
)
 
(2,378
)
 
(557,248
)
Other noncurrent liabilities assumed
(1,917
)
 
(23,085
)
 
(50,847
)
 
(103
)
 
(74,035
)
Contingent consideration liabilities
(6,234
)
 

 

 

 

Other purchase price obligations
(5,074
)
 

 

 
(6,698
)
 
(6,698
)
Notes issued
(20,187
)
 

 

 
(4,087
)
 
(4,087
)
Settlement of pre-existing balances
242

 
(591
)
 

 
(32
)
 
(623
)
Gains on bargain purchases (5)
(3,870
)
 

 

 
(8,207
)
 
(8,207
)
Settlement of other purchase price obligations (non-interest bearing)
3,159

 

 

 

 

Cash used in acquisitions, net of cash acquired
$
513,088

 
$
601,416

 
$
661,748

 
$
86,175

 
$
1,349,339


(1)
Includes $6 million and $3 million of adjustments to reduce property, plant and equipment and other assets for Rhiag and PGW, respectively.
(2)
Includes both continuing and discontinued operations of PGW. See Note 3, "Discontinued Operations" for further information on our discontinued operations.
(3)
The PGW inventory balance includes the impact of a $10 million step-up adjustment to report the inventory at its fair value. The amount for our 2017 acquisitions includes a $4 million step-up adjustment related to our Warn acquisition.
(4)
The balance for PGW includes $24 million of investments in unconsolidated subsidiaries which relate to the discontinued portion of our PGW operations.
(5)
The amount recorded during the year ended December 31, 2017 includes a $2 million increase to the gain on bargain purchase recorded for our Andrew Page acquisition as a result of changes to our estimate of the fair value of the net assets acquired. The remainder of the gain on bargain purchase recorded during the year ended December 31, 2017 is an immaterial amount related to another acquisition in Europe completed in the second quarter of 2017.
The fair value of our intangible assets is based on a number of inputs including projections of future cash flows, assumed royalty rates and customer attrition rates, all of which are Level 3 inputs. The fair value of our property, plant and equipment is determined using inputs such as market comparables and current replacement or reproduction costs of the asset, adjusted for physical, functional and economic factors; these adjustments to arrive at fair value use unobservable inputs in which little or no market data exists, and therefore, these inputs are considered to be Level 3 inputs. See Note 2, "Fair Value Measurements" for further information regarding the tiers in the fair value hierarchy.
Other noncurrent liabilities recorded for our acquisitions of Rhiag and PGW includes a liability for certain pension and other post-retirement obligations we assumed with the acquisitions. A portion of PGW's liability for pension and post-retirement obligations relates to the glass manufacturing operations business, which was classified as discontinued operations, and was recorded within Liabilities of discontinued operations on our consolidated balance sheet as of December 31, 2016; these amounts were included in the net assets disposed of as part of the sale of the business, which occurred in the first quarter of 2017. Due to the immateriality of our pension plans for our continuing operations, we have not provided the detailed disclosures otherwise prescribed by the accounting guidance on pensions and other post-retirement obligations.
The primary objectives of our acquisitions made during the years ended December 31, 2017 and 2016 were to create economic value for our stockholders by enhancing our position as a leading source for alternative collision and mechanical repair products and to expand into other product lines and businesses that may benefit from our operating strengths. Certain 2017 acquisitions were completed to enable us to align our distribution model in the Benelux region. Our 2016 acquisition of Rhiag enabled us to expand our market presence in continental Europe. We believe that our Rhiag acquisition will allow for synergies within our European operations, most notably in procurement, and these projected synergies contributed to the goodwill recorded on the Rhiag acquisition. Our acquisition of PGW autoglass enabled us to enter into new product lines and increase the size of our addressable market. In addition, the acquisition of PGW autoglass created distribution synergies with our existing network in North America, which contributed to the goodwill recorded on the acquisition.
When we identify potential acquisitions, we attempt to target companies with a leading market presence, an experienced management team and workforce that provide a fit with our existing operations, and strong cash flows. For certain of our acquisitions, we have identified cost savings and synergies as a result of integrating the company with our existing business that provide additional value to the combined entity. In many cases, acquiring companies with these characteristics will result in purchase prices that include a significant amount of goodwill.
The following pro forma summary presents the effect of the businesses acquired during the year ended December 31, 2017 as though the businesses had been acquired as of January 1, 2016, the businesses acquired during the year ended December 31, 2016 as though they had been acquired as of January 1, 2015, and the businesses acquired during the year ended December 31, 2015 as though they had been acquired as of January 1, 2014. The pro forma adjustments are based upon unaudited financial information of the acquired entities (in thousands, except per share data):
 
Year Ended December 31,
 
2017
 
2016
 
2015
Revenue, as reported
$
9,736,909

 
$
8,584,031

 
$
7,192,633

Revenue of purchased businesses for the period prior to acquisition:
 
 
 
 
 
Rhiag

 
213,376

 
994,903

PGW (1)

 
102,540

 
339,012

Other acquisitions
333,995

 
854,601

 
615,140

Pro forma revenue
$
10,070,904

 
$
9,754,548

 
$
9,141,688

 
 
 
 
 
 
Income from continuing operations, as reported
$
536,974

 
$
456,123

 
$
423,223

Income (loss) from continuing operations of purchased businesses for the period prior to acquisition, and pro forma purchase accounting adjustments:
 
 
 
 
 
Rhiag

 
(84
)
 
10,310

PGW (1),(2)

 
7,574

 
3,334

Other acquisitions
15,431

 
19,323

 
15,266

Acquisition related expenses, net of tax (3)
5,870

 
11,602

 
1,830

Pro forma income from continuing operations
$
558,275

 
$
494,538

 
$
453,963

 
 
 
 
 
 
Earnings per share from continuing operations, basic - as reported
$
1.74

 
$
1.49

 
$
1.39

Effect of purchased businesses for the period prior to acquisition:
 
 
 
 
 
Rhiag

 
(0.00)

 
0.03

PGW (1),(2)

 
0.02

 
0.01

Other acquisitions
0.05

 
0.06

 
0.05

Acquisition related expenses, net of tax (3)
0.02

 
0.04

 
0.01

Pro forma earnings per share from continuing operations, basic (4) 
$
1.81

 
$
1.61

 
$
1.49

 
 
 
 
 
 
Earnings per share from continuing operations, diluted - as reported
$
1.73

 
$
1.47

 
$
1.38

Effect of purchased businesses for the period prior to acquisition:
 
 
 
 
 
Rhiag

 
(0.00)

 
0.03

PGW (1),(2)

 
0.02

 
0.01

Other acquisitions
0.05

 
0.06

 
0.05

Acquisition related expenses, net of tax (3)
0.02

 
0.04

 
0.01

Pro forma earnings per share from continuing operations, diluted (4) 
$
1.80

 
$
1.60

 
$
1.48

(1)
PGW reflects the results for the continuing aftermarket automotive glass distribution business only.
(2)
Excludes $18 million and $5 million of corporate costs for 2015 and 2016, respectively, that we do not expect to incur going forward as a result of the sale of our glass manufacturing business.
(3)
Includes expenses related to acquisitions closed in the period and excludes expenses for acquisitions not yet completed.
(4)
The sum of the individual earnings per share amounts may not equal the total due to rounding.
Unaudited pro forma supplemental information is based upon accounting estimates and judgments that we believe are reasonable. The unaudited pro forma supplemental information includes the effect of purchase accounting adjustments, such as the adjustment of inventory acquired to fair value, adjustments to depreciation on acquired property, plant and equipment, adjustments to rent expense for above or below market leases, adjustments to amortization on acquired intangible assets, adjustments to interest expense, and the related tax effects. The pro forma impact of our acquisitions also reflects the elimination of acquisition related expenses, net of tax. Refer to Note 5, "Restructuring and Acquisition Related Expenses," for further information regarding our acquisition related expenses. These pro forma results are not necessarily indicative of what would have occurred if the acquisitions had been in effect for the periods presented or of future results.
Discontinued Operations (Notes)
Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]
Discontinued Operations
On March 1, 2017, LKQ completed the sale of the glass manufacturing business of its PGW subsidiary to a subsidiary of Vitro S.A.B. de C.V. ("Vitro") for a sales price of $301 million, including cash received of $316 million, net of cash disposed of $15 million. Related to this transaction, the remaining portion of the Glass operating segment was combined with our Wholesale - North America operating segment, which is part of our North America reportable segment, in the first quarter of 2017. See Note 14, "Segment and Geographic Information" for further information regarding our segments.
Upon execution of the Stock and Asset Purchase Agreement (the "Vitro Agreement") in December 2016, LKQ concluded that the glass manufacturing business met the criteria to be classified as held for sale in LKQ’s consolidated financial statements. As a result, the assets related to the glass manufacturing business were reflected on the Consolidated Balance Sheet at the lower of the net asset carrying value or fair value less cost to sell as of December 31, 2016. The fair value of the assets was determined using the negotiated sale price as an indicator of fair value, which is considered a Level 2 input as it is observable in a non-active market. See Note 2, "Fair Value Measurements" for further information regarding the tiers in the fair value hierarchy.
As part of the Vitro Agreement, the Company and Vitro entered into a twelve-month Transition Services Agreement commencing on the transaction date with two six-month renewal periods, a three-year Purchase and Supply Agreement, and an Intellectual Property Agreement.
The following table summarizes the operating results of the Company’s discontinued operations related to the sale described above for the years ended December 31, 2017 and 2016, as presented in “Net (loss) income from discontinued operations, net of tax” on the Consolidated Statements of Income (in thousands):
 
Year Ended
December 31,
 
2017
 
2016
Revenue
$
111,130

 
$
498,233

Cost of goods sold
100,084

 
424,161

Operating expenses
8,369

 
22,330

Impairment on net assets of discontinued operations (1)

 
26,677

    Operating income
2,677

 
25,065

Interest and other income (expense), net (2)
1,204

 
(9,136
)
    Income from discontinued operations before taxes
3,881

 
15,929

Provision for income taxes
3,598

 
8,252

Equity in (loss) earnings of unconsolidated subsidiaries
(534
)
 
175

(Loss) income from discontinued operations, net of tax
(251
)
 
7,852

Loss on sale of discontinued operations, net of tax (3)
(6,495
)
 

    Net (loss) income from discontinued operations
$
(6,746
)
 
$
7,852


(1) Upon recognition of the glass manufacturing business net assets as held for sale, an impairment test was performed on the net assets of the glass manufacturing business resulting in a pre-tax impairment loss of $27 million and a tax benefit of $7 million. The impairment represents a $21 million impairment on long-lived assets, with the remaining $6 million representing a valuation allowance on the current assets held for sale.
(2) The Company elected to allocate interest expense to discontinued operations based on the expected debt to be repaid. Under this approach, allocated interest from January 1, 2017 through the date of sale was $2 million and from April 21, 2016 to December 31, 2016 was $6 million. The other expenses, net were foreign currency gains and losses.
(3) In the first quarter of 2017, upon closing of the sale and write-off of the net assets of the glass manufacturing business, we recorded a pre-tax loss on sale of $9 million, and a $4 million tax benefit. The incremental loss primarily reflects a $6 million payable for intercompany sales from the glass manufacturing business to the aftermarket automotive glass distribution business incurred prior to closing which was paid by LKQ during the second quarter of 2017 and capital expenditures in 2017 that were not reimbursed by the buyer. During the fourth quarter of 2017, we recorded an additional loss on sale of $2 million as a result of post sale net working capital adjustments.
    
Certain tax related matters remain open with Vitro as of December 31, 2017, which when resolved may impact our reported results and cash flows.
The glass manufacturing business had $4 million of operating cash outflows, $4 million of investing cash outflows mainly consisting of capital expenditures, and $15 million of financing cash inflows made up of parent financing for the period from January 1, 2017 through March 1, 2017. The glass manufacturing business had $64 million of operating cash inflows, $29 million of investing cash outflows mainly consisting of capital expenditures, and $1 million of capital lease debt payments for the period from April 21, 2016 through December 31, 2016. The following table summarizes the significant non-cash operating activities, capital expenditures and investments in unconsolidated subsidiaries of the Company's discontinued operations related to the glass manufacturing business (in thousands):
 
Period from January 1
 
Period from April 21
 
to March 1,
 
to December 31,
 
2017
 
2016
Non-cash operating activities:
 
 
 
Depreciation and amortization
$

 
$
7,752

Impairment of net assets of discontinued operations

 
26,677

Deferred income taxes

 
(4,516
)
Capital Expenditures
(3,598
)
 
(24,156
)
Investments in unconsolidated subsidiaries

 
(4,400
)

The major classes of assets and liabilities related to the glass manufacturing business as of December 31, 2016 were as follows (in thousands):
 
 
December 31, 2016
Cash and cash equivalents
 
$
7,116

Receivables, net
 
77,442

Inventories
 
71,952

Prepaid expenses and other current assets
 
42,426

Property, plant and equipment, net
 
199,136

Other assets
 
64,166

Valuation allowance
 
(5,598
)
Total assets from discontinued operations
 
$
456,640

 
 
 
Accounts payable
 
$
72,696

Other current liabilities
 
37,104

Long-term obligations
 
1,648

Other noncurrent liabilities (includes pension and post-retirement obligations)
 
33,656

Total liabilities from discontinued operations
 
145,104

Net assets from discontinued operations
 
$
311,536


Pursuant to the Purchase and Supply Agreement, our aftermarket automotive glass distribution business will source various products from Vitro's glass manufacturing business annually for a three year period beginning on March 1, 2017. Between January 1, 2017 and the sale date of March 1, 2017, intercompany sales between the glass manufacturing business and the continuing aftermarket automotive glass distribution business of PGW, which were eliminated in consolidation, were $8 million. All purchases from Vitro, including those outside of the Purchase and Supply Agreement, for the year ended December 31, 2017, were $42 million. For the period from April 21, 2016 through December 31, 2016, intercompany sales between the glass manufacturing business and PGW autoglass, which were eliminated in consolidation, were $29 million.
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Summary of Significant Accounting Policies
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of LKQ Corporation and its subsidiaries. All intercompany transactions and accounts have been eliminated.
Use of Estimates
In preparing our financial statements in conformity with accounting principles generally accepted in the United States of America, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
Revenue Recognition
The majority of our revenue is derived from the sale of vehicle parts. Revenue is recognized when the products are shipped to, delivered to or picked up by customers and title has transferred, subject to an allowance for estimated returns, discounts and allowances that we estimate based upon historical information. We recorded a reserve for estimated returns, discounts and allowances of approximately $42 million and $38 million at December 31, 2017 and 2016, respectively. We present taxes assessed by governmental authorities collected from customers on a net basis. Therefore, the taxes are excluded from revenue on our Consolidated Statements of Income and are shown as a current liability on our Consolidated Balance Sheets until remitted. We recognize revenue from the sale of scrap metal, other metals, and cores when title has transferred, which typically occurs upon delivery to the customer. Revenue also includes amounts billed to customers for shipping and handling. Distribution expenses in the accompanying Consolidated Statements of Income are the costs incurred to prepare and deliver products to customers.
Receivables and Allowance for Doubtful Accounts
In the normal course of business, we extend credit to customers after a review of each customer's credit history. We recorded a reserve for uncollectible accounts of approximately $58 million and $46 million at December 31, 2017 and 2016, respectively. The reserve is based upon the aging of the accounts receivable, our assessment of the collectability of specific customer accounts and historical experience. Receivables are written off once collection efforts have been exhausted. Recoveries of receivables previously written off are recorded when received.
Concentrations of Credit Risk
Financial instruments that potentially subject us to significant concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable. We control our exposure to credit risk associated with these instruments by (i) placing our cash and cash equivalents with several major financial institutions; (ii) holding high-quality financial instruments; and (iii) maintaining strict policies over credit extension that include credit evaluations, credit limits and monitoring procedures. In addition, our overall credit risk with respect to accounts receivable is limited to some extent because our customer base is composed of a large number of geographically diverse customers.
Inventories
We classify our inventory into the following categories: (i) aftermarket and refurbished products, (ii) salvage and remanufactured products, and (iii) manufactured products.
An aftermarket product is a new vehicle product manufactured by a company other than the original equipment manufacturer. For all of our aftermarket products, excluding our aftermarket automotive glass products, cost is established based on the average price we pay for parts; for our aftermarket automotive glass products inventory, cost is established using the first-in first-out method. Inventory cost for all of our aftermarket products includes expenses incurred for freight in and overhead costs; for items purchased from foreign companies, import fees and duties and transportation insurance are also included. Refurbished products are parts that require cosmetic repairs, such as wheels, bumper covers and lights; LKQ will apply new parts, products or materials to these parts in order to produce the finished product. Refurbished inventory cost is based upon the average price we pay for cores. The cost of our refurbished inventory also includes expenses incurred for freight in, labor and other overhead costs.
A salvage product is a recycled vehicle part suitable for sale as a replacement part. Cost is established based upon the price we pay for a vehicle, including auction, storage and towing fees, as well as expenditures for buying and dismantling the vehicle. Inventory carrying value is determined using the average cost to sales percentage at each of our facilities and applying that percentage to the facility's inventory at expected selling prices, the assessment of which incorporates the sales probability based on a part's number of days in stock and historical demand. The average cost to sales percentage is derived from each facility's historical profitability for salvage vehicles. Remanufactured products are used parts that have been inspected, rebuilt, or reconditioned to restore functionality and performance, such as remanufactured engines and transmissions. Remanufactured inventory cost is based upon the price paid for cores, which are recycled automotive parts that are not suitable for sale as a replacement part without further processing, and also includes expenses incurred for freight in, direct manufacturing costs and other overhead costs.
A manufactured product is a new vehicle product. Manufactured product inventory can be a raw material, work-in-process or finished good. Cost is established using the first-in first-out method.
For all inventory, carrying value is recorded at the lower of cost or net realizable value and is reduced to reflect current anticipated demand. If actual demand is lower than our estimates, additional reductions to inventory carrying value would be necessary in the period such determination is made.
Inventories consist of the following (in thousands):
 
December 31,
 
2017
 
2016
Aftermarket and refurbished products
$
1,877,653

 
$
1,540,257

Salvage and remanufactured products
487,108

 
394,980

Manufactured products
16,022

 

Total inventories
$
2,380,783

 
$
1,935,237


 
    Our acquisitions completed during 2017 contributed $95 million of the increase in our aftermarket and refurbished products inventory, $35 million of the increase in our salvage and remanufactured products inventory and $20 million of the increase in our manufactured inventory. See Note 2, "Business Combinations" for further information on our acquisitions. As of December 31, 2017, manufactured products inventory is composed of $10 million of raw materials, $2 million of work in process, and $4 million of finished goods.

Property, Plant and Equipment
Property, plant and equipment are recorded at cost less accumulated depreciation. Expenditures for major additions and improvements that extend the useful life of the related asset are capitalized. As property, plant and equipment are sold or retired, the applicable cost and accumulated depreciation are removed from the accounts and any resulting gain or loss thereon is recognized. Construction in progress consists primarily of building and land improvements at our existing facilities. Depreciation is calculated using the straight-line method over the estimated useful lives or, in the case of leasehold improvements, the term of the related lease and reasonably assured renewal periods, if shorter.
Our estimated useful lives are as follows:
Land improvements
10-20 years
Buildings and improvements
20-40 years
Machinery and equipment
3-20 years
Computer equipment and software
3-10 years
Vehicles and trailers
3-10 years
Furniture and fixtures
5-7 years

Property, plant and equipment consists of the following (in thousands):
 
December 31,
 
2017
 
2016
Land and improvements
$
137,790

 
$
127,211

Buildings and improvements
233,078

 
209,773

Machinery and equipment
521,526

 
429,446

Computer equipment and software
133,753

 
120,316

Vehicles and trailers
161,269

 
138,263

Furniture and fixtures
31,794

 
28,405

Leasehold improvements
257,506

 
152,356

 
1,476,716

 
1,205,770

Less—Accumulated depreciation
(606,112
)
 
(495,644
)
Construction in progress
42,485

 
101,450

Total property, plant and equipment, net
$
913,089

 
$
811,576



We record depreciation expense within Depreciation and amortization on our Consolidated Statements of Income. Additionally, depreciation expense associated with our refurbishing, remanufacturing, manufacturing and furnace operations as well as our distribution centers is included in Cost of goods sold on the Consolidated Statements of Income. Total depreciation expense for the years ended December 31, 2017, 2016 and 2015 was $129 million, $115 million, and $94 million, respectively.
Intangible Assets
Intangible assets consist primarily of goodwill (the cost of purchased businesses in excess of the fair value of the identifiable net assets acquired) and other specifically identifiable intangible assets, such as trade names, trademarks, customer and supplier relationships, software and other technology related assets, and covenants not to compete.
Goodwill is tested for impairment at least annually, and we performed annual impairment tests during the fourth quarters of 2017, 2016 and 2015. The results of all of these tests indicated that goodwill was not impaired. Goodwill impairment testing may also be performed on an interim basis when events or circumstances arise that may lead to impairment. We noted that the fair value estimate for the Aviation reporting unit exceeded the carrying value by less than 10%. This result aligns with our expectations as there has not been a significant change in the value of the business, which was acquired in March 2017, since the acquisition date while we continue to execute our business plan.
The changes in the carrying amount of goodwill by reportable segment are as follows (in thousands):
 
North America (1)
 
Europe
 
Specialty (1)
 
Total
Balance as of January 1, 2015
$
1,379,681

 
$
616,819

 
$
292,395

 
$
2,288,895

Business acquisitions and adjustments to previously recorded goodwill
72,355

 
21,217

 
(1,397
)
 
92,175

Exchange rate effects
(18,537
)
 
(43,554
)
 
267

 
(61,824
)
Balance as of December 31, 2015
$
1,433,499

 
$
594,482

 
$
291,265

 
$
2,319,246

Business acquisitions and adjustments to previously recorded goodwill
226,483

 
614,437

 
1,889

 
842,809

Exchange rate effects
1,818

 
(108,943
)
 
(161
)
 
(107,286
)
Balance as of December 31, 2016
$
1,661,800

 
$
1,099,976

 
$
292,993

 
$
3,054,769

Business acquisitions and adjustments to previously recorded goodwill
39,836

 
155,366

 
119,615

 
314,817

Exchange rate effects
7,718

 
159,556

 
(349
)
 
166,925

Balance as of December 31, 2017
$
1,709,354

 
$
1,414,898

 
$
412,259

 
$
3,536,511


(1)
In the first quarter of 2017, we realigned a portion of our North America operations under our Specialty segment. Prior year amounts have been recast to reflect the shift in reporting structure.
The components of other intangibles, net are as follows (in thousands):
 
December 31, 2017
December 31, 2016
Intangible assets subject to amortization
$
664,969

 
$
584,231

Indefinite-lived intangible assets (1)
78,800

 

Total
$
743,769

 
$
584,231


(1)
Indefinite-lived intangible assets are composed of trademarks.

The components of intangible assets subject to amortization are as follows (in thousands):
 
December 31, 2017
 
December 31, 2016
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Trade names and trademarks
$
327,332

 
$
(75,095
)
 
$
252,237

 
$
286,008

 
$
(51,104
)
 
$
234,904

Customer and supplier relationships
510,113

 
(167,532
)
 
342,581

 
395,284

 
(92,079
)
 
303,205

Software and other technology related assets
124,049

 
(59,081
)
 
64,968

 
77,329

 
(35,648
)
 
41,681

Covenants not to compete
14,981

 
(9,798
)
 
5,183

 
11,726

 
(7,285
)
 
4,441

Total
$
976,475

 
$
(311,506
)
 
$
664,969

 
$
770,347

 
$
(186,116
)
 
$
584,231



The components of other intangibles acquired during the years ended December 31, 2017 and 2016 include the following (in thousands):
 
Year Ended
 
Year Ended
 
December 31, 2017
 
December 31, 2016
 
All Acquisitions
 
Rhiag
 
PGW
 
Other Acquisitions
 
Total
Trade names and trademarks (1)
$
87,306

 
$
127,351

 
$
5,500

 
$
1,015

 
$
133,866

Customer and supplier relationships
75,450

 
291,893

 
29,700

 

 
321,593

Software and other technology related assets
15,757

 
10,116

 
1,154

 
1,420

 
12,690

Covenants not to compete
2,703

 

 
1,600

 
102

 
1,702

Total
$
181,216

 
$
429,360

 
$
37,954

 
$
2,537

 
$
469,851


(1)
Includes a trademark intangible asset of $79 million recorded as part of our acquisition of Warn in 2017. We assigned this trademark an indefinite life.
The weighted-average amortization periods for our intangible assets acquired during the years ended December 31, 2017 and 2016 are as follows (in years):
 
Year Ended
 
Year Ended
 
December 31, 2017
 
December 31, 2016
 
All Acquisitions
 
Rhiag
 
PGW
 
Other Acquisitions
 
Total
Trade names and trademarks
11.2
 
20.0

 
20.0
 
20.0

 
20.0
Customer and supplier relationships
18.6
 
15.0

 
10.0
 

 
14.5
Software and other technology related assets
11.1
 
5.0

 
14.6
 
5.4

 
5.7
Covenants not to compete
4.4
 

 
5.0
 
2.0

 
4.8
Total intangible assets
16.5
 
16.2

 
11.4
 
11.1

 
15.8

  
    

Our estimated useful lives for our finite-lived intangible assets are as follows:
 
Method of Amortization
 
Useful Life
Trade names and trademarks
Straight-line
 
4-30 years
Customer and supplier relationships
Accelerated
 
6-20 years
Software and other technology related assets
Straight-line
 
3-15 years
Covenants not to compete
Straight-line
 
2-5 years

Amortization expense for intangibles was $102 million, $83 million and $34 million during the years ended December 31, 2017, 2016 and 2015, respectively. Estimated amortization expense for each of the five years in the period ending December 31, 2022 is $97 million, $81 million, $65 million, $55 million and $48 million, respectively.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. If such review indicates that the carrying amount of long-lived assets is not recoverable, the carrying amount of such assets is reduced to fair value. Other than the impairment recorded upon recognition of the PGW glass manufacturing business net assets as held for sale as discussed in Note 3, "Discontinued Operations," there were no material adjustments to the carrying value of long-lived assets during the years ended December 31, 2017, 2016 or 2015.
Investments in Unconsolidated Subsidiaries
Our investment in unconsolidated subsidiaries was $208 million and $183 million as of December 31, 2017 and 2016, respectively. On December 1, 2016, we acquired a 26.5% equity interest in Mekonomen AB ("Mekonomen") from AxMeko AB, an affiliate of Axel Johnson AB, for an aggregate purchase price of $181 million. Headquartered in Stockholm, Sweden, Mekonomen is the leading independent car parts and service chain in the Nordic region of Europe, offering a range of products including spare parts and accessories for cars, and workshop services for consumers and businesses. We are accounting for our 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 December 31, 2017, the book value of our investment in Mekonomen exceeded our share of the book value of Mekonomen's net assets by $127 million; this difference is primarily related to goodwill and the fair value of other intangible assets. We are reporting our equity in the net earnings of Mekonomen on a one quarter lag, and therefore we recorded no equity in earnings for this investment in 2016. For the year ended December 31, 2017, we recorded equity in earnings totaling $7 million related to our investment in Mekonomen, which represents our share of the results from the investment date through September 30, 2017, including adjustments to convert the results to GAAP and to recognize the impact of our purchase accounting adjustments. In May 2017, we received a cash dividend of $7 million (SEK 67 million) related to our investment in Mekonomen. The Level 1 fair value of our equity investment in the publicly traded Mekonomen common stock at December 31, 2017 was $173 million compared to a carrying value of $202 million. We evaluated our investment in Mekonomen for other-than-temporary impairment and concluded the decline in investment value is temporary.
Warranty Reserve
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 year warranty against defects. We also provide a limited lifetime warranty for certain of our aftermarket products. We record the estimated warranty costs at the time of sale using historical warranty claim information to project future warranty claims activity. Our warranty reserve is recorded within Other accrued expenses and Other noncurrent liabilities on our 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 January 1, 2016
$
17,363

Warranty expense
32,096

Warranty claims
(29,825
)
Balance as of December 31, 2016
$
19,634

Warranty expense
38,608

Warranty claims
(35,091
)
Balance as of December 31, 2017
$
23,151


Self-Insurance Reserves
We self-insure a portion of employee medical benefits under the terms of our employee health insurance program. We purchase certain stop-loss insurance to limit our liability exposure. We also self-insure a portion of our property and casualty risk, which includes automobile liability, general liability, directors and officers liability, workers' compensation, and property coverage, under deductible insurance programs. The insurance premium costs are expensed over the contract periods. A reserve for liabilities associated with these losses is established for claims filed and claims incurred but not yet reported based upon our estimate of ultimate cost, which is calculated using analysis of historical data. We monitor new claims and claim development as well as trends related to the claims incurred but not reported in order to assess the adequacy of our insurance reserves. Total self-insurance reserves were $94 million and $84 million, of which $43 million and $40 million was classified as current, as of December 31, 2017 and 2016, respectively, and are classified as Other accrued expenses in the Consolidated Balance Sheets. The remaining balances of self-insurance reserves are classified as Other noncurrent liabilities, which reflects management's estimates of when claims will be paid. We had outstanding letters of credit of $71 million and $70 million at December 31, 2017 and 2016, respectively, to guarantee self-insurance claims payments. While we do not expect the amounts ultimately paid to differ significantly from our estimates, our insurance reserves and corresponding expenses could be affected if future claims experience differs significantly from historical trends and assumptions.
Income Taxes
Current income taxes are provided on income reported for financial reporting purposes, adjusted for transactions that do not enter into the computation of income taxes payable in the same year. Deferred income taxes have been provided to show the effect of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before we are able to realize their benefit or that future deductibility is uncertain. Provision is made for taxes on undistributed earnings of foreign subsidiaries and related companies to the extent that such earnings are not deemed to be permanently invested.
We recognize the benefits of uncertain tax positions taken or expected to be taken in tax returns in the provision for income taxes only for those positions that are more likely than not to be realized. We follow a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes. Our policy is to include interest and penalties associated with income tax obligations in income tax expense.
During 2017, new tax legislation was signed into law making significant changes to the Internal Revenue Code. See Note 13, "Income Taxes" for further information regarding the new tax law.
Rental Expense
We recognize rental expense on a straight-line basis over the respective lease terms, including reasonably assured renewal periods, for all of our operating leases.
Foreign Currency Translation
For most of our foreign operations, the local currency is the functional currency. Assets and liabilities are translated into U.S. dollars at the period-ending exchange rate. Statements of Income amounts are translated to U.S. dollars using monthly average exchange rates during the period. Translation gains and losses are reported as a component of Accumulated other comprehensive income (loss) in stockholders' equity.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In July 2015, the FASB issued Accounting Standards Update 2015-11, "Simplifying the Measurement of Inventory" ("ASU 2015-11"), which requires entities to measure inventory at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. We adopted ASU 2015-11 during the first quarter of 2017 on a prospective basis. Effective January 1, 2017, we are recording our inventory at the lower of cost or net realizable value, including application of the concept in determining our inventory reserves, in accordance with ASU 2015-11. The adoption of ASU 2015-11 did not have a material impact on our recorded inventory value.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04, "Simplifying the Test for Goodwill Impairment" ("ASU 2017-04"), which simplifies the accounting for goodwill impairment by eliminating step 2 from the goodwill impairment test. Under the new guidance, if the carrying value of a reporting unit exceeds the fair value, an impairment loss will be recognized for the amount of that excess, limited to the goodwill allocated to that reporting unit. ASU 2017-04 is effective for fiscal years and any interim impairment tests for periods beginning after December 15, 2019; early adoption is permitted for entities with annual and interim impairment tests occurring after January 1, 2017. We early adopted for the quarter ended June 30, 2017 in order for the guidance to be effective for our annual impairment test performed in the fourth quarter of 2017. Based on the results of our annual impairment test performed during the fourth quarter, the adoption of this standard did not have a material effect on our consolidated financial statements.
In May 2017, the FASB issued Accounting Standards Update No. 2017-09, "Scope of Modification Accounting" ("ASU 2017-09"), which provides guidance on changes to share based payment awards requiring application of modification accounting under FASB Accounting Standards Codification Topic 718, "Compensation - Stock Compensation." Under ASU 2017-09, modification accounting for awards will not be required if the fair value, vesting conditions, and classifications of awards both prior to and after the modification are the same. ASU 2017-09 is effective for fiscal years and interim periods beginning after December 15, 2017; early adoption is permitted with amendments resulting from ASU 2017-09 applied prospectively to awards modified after the effective date. We early adopted for the quarter ended June 30, 2017; the adoption of ASU 2017-09 did not have a material impact on our consolidated financial statements and related disclosures.
Recently Issued Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"). This update outlines a new comprehensive revenue recognition model that supersedes most current revenue recognition guidance and requires companies to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The FASB has issued several updates to ASU 2014-09. ASU 2014-09 will be effective for the Company during the first quarter of our fiscal year 2018. Entities adopting the standard have the option of using either a full retrospective or modified retrospective approach in the application of this guidance. We will be adopting the standard using the modified retrospective approach, with a cumulative effect adjustment recognized in the opening balance of retained earnings in the first quarter of fiscal 2018. As the majority of our revenue transactions generally consist of single performance obligations to transfer promised goods or services, no adjustments were identified related to the majority of our revenue streams. However, we have determined that we will change the presentation of the returns reserves on the balance sheet and the related reserve adjustments on the income statement. A refund liability will be presented on a gross basis as a current liability and a return asset will be presented separately in prepaid expenses and other current assets. The gross amount of changes to the refund liability will be presented as a reduction to revenue and a corresponding reduction to cost of goods sold will be presented for changes in the return asset. If we had presented the 2017 returns reserves on the balance sheet on a gross basis, accounts receivable, prepaid expenses and other current assets, and current liabilities would have increased by $38 million, $45 million, and $83 million, respectively. The impact to the income statement of presenting the changes to the returns reserve on a gross basis is immaterial. We do not expect to record a cumulative effect adjustment to the opening balance of retained earnings, as we do not expect there to be a net impact to the income statement as a result of adoption.
In January 2016, the FASB issued Accounting Standards Update No. 2016-01, “Recognition and Measurement of Financial Assets and Financial Liabilities” (“ASU 2016-01”), which changes how entities will recognize, measure, present and make disclosures about certain financial assets and financial liabilities. ASU 2016-01 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017; early adoption is permitted. The guidance requires adoption on a prospective basis. We do not expect adoption of ASU 2016-01 to have a significant impact on our financial position, results of operations, cash flows or disclosures.
In February 2016, the FASB issued Accounting Standards Update 2016-02, "Leases" ("ASU 2016-02"), to increase transparency and comparability by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The main difference between current GAAP and ASU 2016-02 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under current GAAP. ASU 2016-02 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The standard requires that entities apply the effects of these changes using a modified retrospective approach, which includes a number of optional practical expedients. While we are still in the process of quantifying the impact that the adoption of ASU 2016-02 will have on our consolidated financial statements and related disclosures, we anticipate the adoption will materially affect our consolidated balance sheet and disclosures, as the majority of our operating leases will be recorded on the balance sheet under ASU 2016-02. While we do not anticipate the adoption of this accounting standard to have a material impact on our consolidated statements of income at this time, this conclusion may change as we finalize our assessment. In order to assist in our timely implementation of the new standard, we have purchased new software to track our leases. We have engaged a third party to assist with the implementation of the new software with an expectation to complete the implementation by the end of 2018.
In August 2016, the FASB issued Accounting Standards Update No. 2016-15, "Classification of Certain Cash Receipts and Cash Payments" ("ASU 2016-15"), to add and clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows. ASU 2016-15 includes guidance on classification for the following items: debt prepayment or debt extinguishment costs, settlement of zero coupon bonds, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims and corporate-owned or bank-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and other separately identifiable cash flows where application of the predominance principle is prescribed. ASU 2016-15 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017; early adoption is permitted. The guidance requires retrospective application to all periods presented unless it is impracticable to do so. Based on our evaluation of the guidance, we do not expect a material change to our consolidated statement of cash flows upon adoption in the first quarter of our fiscal year 2018.
In August 2017, the FASB issued Accounting Standards Update No. 2017-12, "Targeted Improvements to Accounting for Hedging Activities" ("ASU 2017-12"), which amends the hedge accounting recognition and presentation requirements in ASC 815 ("Derivatives and Hedging"). ASU 2017-12 significantly alters the hedge accounting model by making it easier for an entity to achieve and maintain hedge accounting and provides for accounting that better reflects an entity's risk management activities. ASU 2017-12 is effective for fiscal years and interim periods beginning after December 15, 2018; early adoption is permitted. Entities will adopt the provisions of ASU 2017-12 by applying a modified retrospective approach to existing hedging relationships as of the adoption date. At this time, we are still evaluating the impact of this standard on our financial statements.
In February 2018, the FASB issued Accounting Standards Update No. 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" ("ASU 2018-12"), which allows a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Act. In addition, under ASU 2018-12, an entity will be required to provide certain disclosures regarding stranded tax effects. ASU 2018-02 is effective for fiscal years and interim periods beginning after December 15, 2018; early adoption is permitted. The amendments in this update should be applied either in the period of adoption or retrospectively to each period (or periods) in which the effect of the change in the U.S. federal corporate income tax rate in the Tax Act is recognized. At this time, we are still evaluating the impact of this standard on our financial statements.
Equity Incentive Plans
Equity Incentive Plans
Stock-Based Compensation
In order to attract and retain employees, non-employee directors, consultants, and other persons associated with us, we may grant qualified and nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units (“RSUs”), performance shares and performance units under the LKQ Corporation 1998 Equity Incentive Plan (the “Equity Incentive Plan”). The total number of shares approved by our stockholders for issuance under the Equity Incentive Plan is 70 million shares, subject to antidilution and other adjustment provisions. We have granted RSUs, stock options, and restricted stock under the Equity Incentive Plan. Of the shares approved by our stockholders for issuance under the Equity Incentive Plan, 12 million shares remained available for issuance as of December 31, 2017. We expect to issue new shares of common stock to cover past and future equity grants.
RSUs
RSUs vest over periods of up to five years, subject to a continued service condition. Currently outstanding RSUs contain either a time-based vesting condition or a combination of a performance-based vesting condition and a time-based vesting condition, in which case, both conditions must be met before any RSUs vest. For most of the RSUs containing a performance-based vesting condition, the Company must report positive diluted earnings per share, subject to certain adjustments, during any fiscal year period within five years following the grant date; we have an immaterial amount of RSUs containing other performance-based vesting conditions. Each RSU converts into one share of LKQ common stock on the applicable vesting date. The grant date fair value of RSUs is based on the market price of LKQ stock on the grant date.
The Compensation Committee approved the grant of 235,537; 261,851; and 215,076 RSUs to our executive officers that include both a performance-based vesting condition and a time-based vesting condition in 2017, 2016, and 2015, respectively. The performance-based vesting conditions for the 2017, 2016, and 2015 grants to our executive officers have been satisfied.
The fair value of RSUs that vested during the years ended December 31, 2017, 2016 and 2015 was $28 million, $29 million and $28 million, respectively.
In January 2018, our Board of Directors granted 556,160 RSUs to employees (including executive officers).
The following table summarizes activity related to our RSUs under the Equity Incentive Plan for the year ended December 31, 2017:
 
Number
Outstanding
 
Weighted
Average
Grant Date
Fair Value
 
Weighted Average Remaining Contractual Term
(in years)
 
Aggregate Intrinsic Value
   (in thousands) (1)
Unvested as of January 1, 2017
1,873,737

 
$
27.58

 
 
 
 
Granted
809,708

 
$
32.15

 
 
 
 
Vested
(883,844
)
 
$
26.80

 
 
 
 
Forfeited / Canceled
(175,211
)
 
$
30.81

 
 
 
 
Unvested as of December 31, 2017
1,624,390

 
$
29.94

 
 
 
 
Expected to vest after December 31, 2017
1,523,973

 
$
29.89

 
2.6
 
$
61,980


(1) The aggregate intrinsic value of expected to vest RSUs represents the total pretax intrinsic value (the fair value of the Company's stock on the last day of each period multiplied by the number of units) that would have been received by the holders had all RSUs vested. This amount changes based on the market price of the Company’s common stock.
Stock Options
Stock options vest over periods of up to five years, subject to a continued service condition. Stock options expire either six or ten years from the date they are granted. No options were granted during 2017. The total grant-date fair value of options that vested during each of the years ended December 31, 2017 and 2015 was $1 million; no options vested during the year ended December 31, 2016.
The following table summarizes activity related to our stock options under the Equity Incentive Plan for the year ended December 31, 2017:
 
Number
Outstanding
 
Weighted
Average Exercise Price
 
Weighted Average Remaining Contractual Term
(in years)
 
Aggregate Intrinsic Value
   (in thousands) (1)
Balance as of January 1, 2017
2,623,217

 
$
9.19

 
 
 
 
Exercised
(866,799
)
 
$
8.83

 
 
 
$
20,967

Forfeited / Canceled
(18,345
)
 
$
25.26

 
 
 
 
Balance as of December 31, 2017
1,738,073

 
$
9.20

 
1.5
 
$
54,693

Exercisable as of December 31, 2017
1,738,073

 
$
9.20

 
1.5
 
$
54,693

Exercisable as of December 31, 2017 and expected to vest thereafter
1,738,073

 
$
9.20

 
1.5
 
$
54,693


(1) The aggregate intrinsic value of outstanding, exercisable and expected to vest options represents the total pretax intrinsic value (the difference between the fair value of the Company's stock on the last day of each period and the exercise price, multiplied by the number of options where the fair value exceeds the exercise price) that would have been received by the option holders had all option holders exercised their options as of the last day of the period indicated. This amount changes based on the market price of the Company’s common stock. The aggregate intrinsic value of stock options exercised during the years ended December 31, 2016 and 2015 was $28 million and $32 million, respectively.
Stock-Based Compensation Expense
For the RSUs that contain both a performance-based vesting condition and a time-based vesting condition, we recognize compensation expense under the accelerated attribution method, pursuant to which expense is recognized over the requisite service period for each separate vesting tranche of the award. During the years ended December 31, 2017, 2016, and 2015, we recognized $7 million, $7 million, and $8 million, respectively, of stock based compensation expense related to the RSUs containing a performance-based vesting condition. For all other awards, which are subject to only a time-based vesting condition, we recognize compensation expense on a straight-line basis over the requisite service period of the entire award. Forfeitures are recorded as they occur.
The components of pre-tax stock-based compensation expense for our continuing operations are as follows (in thousands):
 
Year Ended December 31,
 
2017
 
2016
 
2015
RSUs
$
22,826

 
$
22,183

 
$
21,058

Stock options and other
6

 
162

 
278

Total stock-based compensation expense
$
22,832

 
$
22,345

 
$
21,336


The following table sets forth the classification of total stock-based compensation expense included in our Consolidated Statements of Income for our continuing operations (in thousands):
 
Year Ended December 31,
 
2017
 
2016
 
2015
Cost of goods sold
$
434

 
$
407

 
$
358

Facility and warehouse expenses
3,338

 
3,980

 
2,271

Selling, general and administrative expenses
19,060

 
17,958

 
18,707

Total stock-based compensation expense
22,832

 
22,345

 
21,336

Income tax benefit
(5,459
)
 
(8,268
)
 
(8,221
)
Total stock-based compensation expense, net of tax
$
17,373

 
$
14,077

 
$
13,115


We have not capitalized any stock-based compensation costs during the years ended December 31, 2017, 2016 or 2015.
As of December 31, 2017, unrecognized compensation expense related to unvested RSUs is expected to be recognized as follows (in thousands):
 
RSUs
2018
$
14,641

2019
9,232

2020
6,020

2021
3,249

2022
345

Total unrecognized compensation expense
$
33,487


Stock-based compensation expense related to these awards will be different to the extent that forfeitures are realized.
Earnings Per Share
Earnings Per Share
Earnings Per Share
Basic earnings per share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share incorporate the incremental shares issuable upon the assumed exercise of stock options and the assumed vesting of RSUs. Certain of our RSUs and stock options were excluded from the calculation of diluted earnings per share because they were antidilutive, but these equity instruments could be dilutive in the future.
The following chart sets forth the computation of earnings per share (in thousands, except per share amounts):
 
Year Ended December 31,
 
2017
 
2016
 
2015
Income from continuing operations
$
536,974

 
$
456,123

 
$
423,223

Denominator for basic earnings per share—Weighted-average shares outstanding
308,607

 
306,897

 
304,722

Effect of dilutive securities:
 
 
 
 
 
RSUs
544

 
689

 
667

Stock options
1,498

 
2,198

 
2,107

Denominator for diluted earnings per share—Adjusted weighted-average shares outstanding
310,649

 
309,784

 
307,496

Basic earnings per share from continuing operations
$
1.74

 
$
1.49

 
$
1.39

Diluted earnings per share from continuing operations
$
1.73

 
$
1.47

 
$
1.38

The following table sets forth the number of employee stock-based compensation awards outstanding but not included in the computation of diluted earnings per share because their effect would have been antidilutive for the years ended December 31, 2017, 2016 and 2015 (in thousands):
 
Year Ended December 31,
 
2017
 
2016
 
2015
Antidilutive securities:
 
 
 
 
 
RSUs
37

 
57

 
230

Stock options
39

 
63

 
96

Accumulated Other Comprehensive Income (Loss)
Accumulated Other Comprehensive Income (Loss)
The components of Accumulated Other Comprehensive Income (Loss) are as follows (in thousands):
 
 
Foreign
Currency
Translation
 
Unrealized (Loss) Gain
on Cash Flow Hedges
 
Unrealized (Loss) Gain on Pension Plans
 
Other Comprehensive Loss from Unconsolidated Subsidiaries
 
Accumulated
Other
Comprehensive (Loss) Income
Balance at January 1, 2015
 
$
(27,073
)
 
$
(3,401
)
 
$
(9,751
)
 
$

 
$
(40,225
)
Pretax (loss) income
 
(69,817
)
 
(1,664
)
 
2,245

 

 
(69,236
)
Income tax effect
 

 
538

 
(561
)
 

 
(23
)
Reclassification of unrealized loss
 

 
5,366

 
559

 

 
5,925

Reclassification of deferred income taxes
 

 
(1,771
)
 
(140
)
 

 
(1,911
)
Balance at December 31, 2015
 
$
(96,890
)
 
$
(932
)
 
$
(7,648
)
 
$

 
$
(105,470
)
Pretax (loss) income
 
(175,639
)
 
12,382

 
7,175

 

 
(156,082
)
Income tax effect
 

 
(4,581
)
 
(2,636
)
 

 
(7,217
)
Reclassification of unrealized loss
 

 
1,789

 
496

 

 
2,285

Reclassification of deferred income taxes
 

 
(567
)
 
(124
)
 

 
(691
)
Balance at December 31, 2016
 
$
(272,529
)
 
$
8,091

 
$
(2,737
)
 
$

 
$
(267,175
)
Pretax income (loss)
 
206,451

 
(44,550
)
 
361

 

 
162,262

Income tax effect
 
(7,366
)
 
16,390

 
(100
)
 

 
8,924

Reclassification of unrealized loss (gain)
 

 
50,090