LKQ CORP, 10-K filed on 3/1/2019
Annual Report
v3.10.0.1
Document and Entity Information - USD ($)
$ in Billions
12 Months Ended
Dec. 31, 2018
Feb. 22, 2019
Jun. 30, 2018
Document and Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2018    
Document Fiscal Year Focus 2018    
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   314,775,176  
Entity Public Float     $ 10.1
v3.10.0.1
Consolidated Statements of Income Statement - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Income Statement [Abstract]      
Revenue $ 11,876,674 $ 9,736,909 $ 8,584,031
Cost of goods sold 7,301,817 5,937,286 5,232,328
Gross margin 4,574,857 3,799,623 3,351,703
Selling, general and administrative expenses (1), (2) 3,352,731 2,715,407 [1] 2,359,110
Restructuring and acquisition related expenses 32,428 19,672 37,762
Impairment of goodwill 33,244 0 0
Depreciation and amortization 274,213 219,546 191,433
Operating income 882,241 844,998 763,398
Other expense (income):      
Interest expense 146,377 101,640 88,263
Loss on debt extinguishment 1,350 456 26,650
Gains on foreign exchange contracts - acquisition related 0 0 (18,342)
Gains on bargain purchases (2,418) (3,870) (8,207)
Interest income and other income, net (2) (6,499) (19,855) (2,247)
Total other expense, net 138,810 78,371 86,117
Income from continuing operations before provision for income taxes 743,431 766,627 677,281
Provision for income taxes 191,395 235,560 220,566
Equity in (losses) earnings of unconsolidated subsidiaries (64,471) 5,907 (592)
Income from continuing operations 487,565 536,974 456,123
Net (loss) income from discontinued operations (4,397) (6,746) 7,852
Net income 483,168 530,228 463,975
Less: net income (loss) attributable to noncontrolling interest 3,050 (3,516) 0
Net income attributable to LKQ stockholders $ 480,118 $ 533,744 $ 463,975
Basic earnings per share: (3)      
Income from continuing operations $ 1.55 $ 1.74 $ 1.49
Net (loss) income from discontinued operations (0.01) (0.02) 0.03
Net income 1.54 1.72 1.51
Less: net income (loss) attributable to noncontrolling interest 0.01 (0.01) 0.00
Net income attributable to LKQ stockholders 1.53 1.73 1.51
Diluted earnings per share: (3)      
Income from continuing operations 1.54 1.73 1.47
Net (loss) income from discontinued operations (0.01) (0.02) 0.03
Net income 1.53 1.71 1.50
Less: net income (loss) attributable to noncontrolling interest 0.01 (0.01) 0.00
Net income attributable to LKQ stockholders $ 1.52 $ 1.72 $ 1.50
[1] (1) Selling, general and administrative expenses contain facility and warehouse expenses and distribution expenses that were previously shown separately.
v3.10.0.1
Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
Statement of Comprehensive Income [Abstract]      
Net income $ 483,168 $ 530,228 $ 463,975
Less: net income (loss) attributable to noncontrolling interest 3,050 (3,516) 0
Net income attributable to LKQ stockholders 480,118 533,744 463,975
Other comprehensive income (loss):      
Foreign currency translation, net of tax (108,523) 200,596 (175,639)
Net change in unrealized gains/losses on cash flow hedges, net of tax 350 3,447 9,023
Net change in unrealized gains/losses on pension plans, net of tax 697 (6,035) 4,911
Net change in other comprehensive loss from unconsolidated subsidiaries (2,343) (1,309) 0
Other comprehensive (loss) income (109,819) 196,699 (161,705)
Comprehensive income 373,349 726,927 302,270
Less: comprehensive income (loss) attributable to noncontrolling interest 3,050 (3,516) 0
Comprehensive income attributable to LKQ stockholders $ 370,299 $ 730,443 $ 302,270
v3.10.0.1
Consolidated Balance Sheets - USD ($)
$ in Thousands
Dec. 31, 2018
Dec. 31, 2017
Statement of Financial Position [Abstract]    
Treasury Stock, Common, Shares 2,271,707  
Assets    
Cash and cash equivalents $ 331,761 $ 279,766
Current assets:    
Receivables, net 1,154,083 1,027,106
Inventories 2,836,075 2,380,783
Prepaid expenses and other current assets 199,030 134,479
Total current assets 4,520,949 3,822,134
Property, plant and equipment, net 1,220,162 913,089
Intangible assets:    
Goodwill 4,381,458 3,536,511
Other intangibles, net 928,752 743,769
Equity method investments 179,169 208,404
Other assets 162,912 142,965
Total assets 11,393,402 9,366,872
Current liabilities:    
Accounts payable 942,398 788,613
Accrued expenses:    
Accrued payroll-related liabilities 172,005 143,424
Other accrued expenses 288,425 218,600
Refund liability 104,585 0
Other current liabilities 61,109 45,727
Current portion of long-term obligations 121,826 126,360
Total current liabilities 1,690,348 1,322,724
Long-term obligations, excluding current portion 4,188,674 3,277,620
Deferred income taxes 311,434 252,359
Other noncurrent liabilities 364,194 307,516
Commitments and contingencies
Stockholders’ equity:    
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 318,417,821 shares issued and 316,146,114 shares outstanding at December 31, 2018; 309,126,386 shares issued and outstanding at December 31, 2017 3,184 3,091
Additional paid-in capital 1,415,188 1,141,451
Retained earnings 3,598,876 3,124,103
Accumulated other comprehensive loss (174,950) (70,476)
Treasury stock, at cost; 2,271,707 shares at December 31, 2018 (60,000) 0
Total Company stockholders' equity 4,782,298 4,198,169
Noncontrolling interest 56,454 8,484
Total stockholders' equity 4,838,752 4,206,653
Total liabilities and stockholders’ equity $ 11,393,402 $ 9,366,872
v3.10.0.1
Consolidated Balance Sheets (Parenthetical) - $ / shares
Dec. 31, 2018
Dec. 31, 2017
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 318,417,821 309,126,386
Common stock, shares outstanding 316,146,114 309,126,386
Treasury Stock, Common, Shares 2,271,707  
v3.10.0.1
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
12 Months Ended
Dec. 31, 2018
Dec. 31, 2017
Dec. 31, 2016
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income $ 483,168 $ 530,228 $ 463,975
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 294,077 230,203 206,086
Impairment on Mekonomen equity method investment 70,895 0 0
Impairment of goodwill 33,244 0 0
Stock-based compensation expense 22,760 22,832 22,472
Loss on debt extinguishment 1,350 456 26,650
Loss on sale of business 0 10,796 0
Impairment on net assets of discontinued operations 0 0 26,677
Gains on foreign exchange contracts - acquisition related 0 0 (18,342)
Gains on bargain purchases (2,418) (3,870) (8,207)
Deferred income taxes (2,180) (46,537) (16,162)
Other 9,534 1,301 19,550
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions:      
Receivables, net 241 (55,979) (50,801)
Inventories (127,153) (203,857) (64,114)
Prepaid income taxes/income taxes payable (2,125) 8,376 14,944
Accounts payable (77,621) 45,136 18,577
Other operating assets and liabilities 6,967 (20,185) (6,291)
Net cash provided by operating activities 710,739 518,900 635,014
CASH FLOWS FROM INVESTING ACTIVITIES:      
Purchases of property, plant and equipment (250,027) (179,090) (207,074)
Proceeds from Disposal of Property, Plant, and Equipment 27,659 8,707 3,510
Acquisitions, net of cash and restricted cash acquired (1,214,995) (513,088) (1,349,339)
Proceeds from disposals of business/investment 0 301,297 10,304
Investments in unconsolidated subsidiaries (60,300) (7,664) (185,671)
Proceeds from foreign exchange contracts 0 0 18,342
Receipts of deferred purchase price on receivables under factoring arrangements 36,991 0 0
Other investing activities, net 1,733 5,243 0
Net cash used in investing activities (1,458,939) (384,595) (1,709,928)
CASH FLOWS FROM FINANCING ACTIVITIES:      
Proceeds from exercise of stock options 5,303 7,470 7,963
Taxes paid related to net share settlements of stock-based compensation awards (5,567) (5,525) (4,438)
Debt issuance costs (21,128) (4,267) (16,554)
Proceeds from issuance of Euro Notes (2024) 0 0 563,450
Proceeds from issuance of Euro Notes (2026/28) 1,232,100 0 0
Purchase of treasury stock 60,000 0 0
Borrowings under revolving credit facilities 1,667,325 839,171 2,636,596
Repayments under revolving credit facilities (1,528,970) (946,477) (1,748,664)
Borrowings under term loans 0 0 582,115
Repayments under term loans (354,800) (27,884) (255,792)
Borrowings under receivables securitization facility 10,120 11,245 106,400
Repayments under receivables securitization facility (120) (11,245) (69,400)
Repayments of assumed debt and notes issued from acquisitions (54,888) 0 0
(Repayments) borrowings of other debt, net (11,730) 19,706 (31,156)
Repayment of Rhiag debt and related payments 0 0 (543,347)
Other financing activities, net (5,350) (5,239) 1,436
Net cash provided by (used in) financing activities 882,995 (112,567) 1,225,737
Effect of exchange rate changes on cash, cash equivalents and restricted cash (77,311) 23,512 (3,704)
Net increase in cash, cash equivalents and restricted cash 57,484 45,250 147,119
Cash, cash equivalents and restricted cash of continuing operations, beginning of period 279,766 227,400 87,397
Add: Cash, cash equivalents and restricted cash of discontinued operations, beginning of period 0 (7,116) 0
Cash, cash equivalents and restricted cash of continuing and discontinued operations, beginning of period 279,766 234,516 87,397
Cash, cash equivalents and restricted cash, end of period 337,250 279,766 234,516
Reconciliation Of Cash, Cash Equivalents And Restricted Cash [Abstract]      
Cash and Cash Equivalents 331,761 279,766 227,400
Restricted Cash 5,489 0 0
Cash, Cash Equivalents, Restricted Cash and Restricted Cash Equivalents 337,250 279,766 227,400
Supplemental disclosure of cash paid for:      
Income taxes, net of refunds 200,098 273,019 230,036
Interest 137,866 95,707 86,021
Supplemental disclosure of noncash investing and financing activities:      
Stock issued in acquisitions 251,334 0 0
Contingent consideration liabilities 3,107 6,234 0
Notes payable and other financing obligations, including notes issued and debt assumed in connection with business acquisitions/investment 105,566 59,045 568,032
Noncash property, plant and equipment additions 16,518 18,122 10,715
Notes and other financing receivables in connection with disposals of business/investment $ 0 $ 4,000 $ 0
v3.10.0.1
Consolidated Statements of Stockholders' Equity - USD ($)
shares in Thousands, $ in Thousands
Total
Common Stock
Treasury Stock, Common [Member]
Additional Paid-In Capital
Retained Earnings
Accumulated Other Comprehensive Income (Loss)
Noncontrolling Interest
January 1, 2016 at Dec. 31, 2015   305,574          
January 1, 2016 at Dec. 31, 2015 $ 3,114,682 $ 3,055   $ 1,090,713 $ 2,126,384 $ (105,470)  
Net income 463,975            
Other comprehensive loss (161,705)         (161,705)  
Vesting of restricted stock units, net of shares withheld for employee tax   847          
Vesting of restricted stock units, net of shares withheld for employee tax (4,438) $ 9   (4,447)      
Stock-based compensation expense 22,472     22,472      
Exercise of stock options   1,124          
Exercise of stock options 7,963 $ 11   7,952      
January 1, 2016 at Dec. 31, 2016   307,545          
January 1, 2016 at Dec. 31, 2016 3,442,949 $ 3,075   1,116,690 2,590,359 (267,175)  
Net income attributable to LKQ stockholders 463,975       463,975    
Stock issued in acquisitions 0            
Net income 530,228            
Other comprehensive loss 196,699         196,699  
Vesting of restricted stock units, net of shares withheld for employee tax   749          
Vesting of restricted stock units, net of shares withheld for employee tax (4,325) $ 7   (4,332)      
Stock-based compensation expense 22,832     22,832      
Exercise of stock options   867          
Exercise of stock options 7,470 $ 9   7,461      
January 1, 2016 at Dec. 31, 2017   309,127          
January 1, 2016 at Dec. 31, 2017 4,206,653 $ 3,091   1,141,451 3,124,103 (70,476) $ 8,484
Net income attributable to LKQ stockholders 533,744       533,744    
Stock issued in acquisitions 0            
Tax withholdings related to net share settlements of stock-based compensation awards   (34)          
Shares withheld for net share settlement of stock option awards (1,200)     (1,200)      
Capital contributions from, net of dividends to, noncontrolling interest shareholder 12,000           12,000
Acquired noncontrolling interest 0            
Net income 483,168            
Other comprehensive loss (109,819)         (109,819)  
Vesting of restricted stock units, net of shares withheld for employee tax   603          
Vesting of restricted stock units, net of shares withheld for employee tax (3,796) $ 6   (3,802)      
Stock-based compensation expense 22,760     22,760      
Exercise of stock options   686          
Exercise of stock options 5,303 $ 7   5,296      
January 1, 2016 at Dec. 31, 2018   318,418          
January 1, 2016 at Dec. 31, 2018 4,838,752 $ 3,184 $ (60,000) 1,415,188 3,598,876 (174,950) 56,454
Net income attributable to LKQ stockholders 480,118       480,118    
Stock issued in acquisitions   8,056          
Stock issued in acquisitions 251,334 $ 81   251,253      
Treasury Stock, Shares, Acquired     (2,272)        
Treasury Stock, Value, Acquired, Cost Method 60,000   $ 60,000        
Tax withholdings related to net share settlements of stock-based compensation awards   (54)          
Shares withheld for net share settlement of stock option awards (1,771) $ (1)   $ (1,770)      
Adoption of ASU 2018-02 (see Note 4) 5,345       $ (5,345) $ 5,345  
Capital contributions from, net of dividends to, noncontrolling interest shareholder 810            
Proceeds from Contributed Capital             810
Acquired noncontrolling interest $ 44,110           $ 44,110
Treasury Stock, Value     (2,272)        
v3.10.0.1
Business
12 Months Ended
Dec. 31, 2018
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Business
Business
The financial statements presented reflect 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 the United Kingdom, Germany, the Benelux region (Belgium, Netherlands, and Luxembourg), Italy, Czech Republic, Poland, Slovakia, Austria, and various other European countries. 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 1,700 facilities.
v3.10.0.1
Business Combinations (Notes)
12 Months Ended
Dec. 31, 2018
Business Combinations [Abstract]  
Business Combinations
Business Combinations
On May 30, 2018, we acquired 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. Total acquisition date fair value of the consideration for our Stahlgruber acquisition was €1.2 billion ($1.4 billion), composed of €1.0 billion ($1.1 billion) of cash paid (net of cash acquired), and €215 million ($251 million) of newly issued shares of LKQ common stock. We financed the acquisition with the proceeds from €1.0 billion ($1.2 billion) of senior notes, the direct issuance to Stahlgruber's owner of 8,055,569 newly issued shares of LKQ common stock, and borrowings under our existing revolving credit facility.
On May 3, 2018, the European Commission cleared the acquisition for the entire European Union, except with respect to the wholesale automotive parts business in the Czech Republic. The acquisition of the Czech Republic wholesale business has been referred to the Czech Republic competition authority for review. The Czech Republic wholesale business represents an immaterial portion of Stahlgruber's revenue and profitability.
We recorded $908 million of goodwill related to our acquisition of Stahlgruber, of which we expect $300 million to be deductible for income tax purposes. In the period between the acquisition date and December 31, 2018, Stahlgruber, which is reported in our Europe reportable segment, generated third party revenue of $1.1 billion and operating income of $52 million.
In addition to our acquisition of Stahlgruber, during the year ended December 31, 2018, we completed acquisitions of four wholesale businesses in North America and nine wholesale businesses in Europe. Total acquisition date fair value of the consideration for these acquisitions was $99 million, composed of $85 million of cash paid (net of cash and restricted cash acquired), $11 million of notes payable, and $3 million for the estimated value of contingent payments to former owners (with maximum potential payments totaling $5 million). During the year ended December 31, 2018, we recorded $68 million of goodwill related to these acquisitions, of which we expect $4 million to be deductible for income tax purposes. In the period between the acquisition dates and December 31, 2018, these acquisitions generated third party revenue of $46 million and operating income of $3 million.
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 businesses. Our acquisitions in Europe included the acquisition of four aftermarket parts distribution businesses in Belgium in July 2017. Our Specialty acquisitions included the acquisition of the aftermarket business of Warn, a leading designer, manufacturer and marketer of high performance vehicle equipment and accessories, in November 2017.
Total acquisition date fair value of the consideration for our 2017 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.
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 provided additional 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.
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 and 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.
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 required us to 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.
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 values at the dates of acquisition. The purchase price allocations for the acquisitions made during the year ended December 31, 2018 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 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 Stahlgruber in the second quarter of 2018 through December 31, 2018, we recorded adjustments based on our valuation procedures, primarily related to current liabilities, inventory, deferred income taxes, debt assumed, and property, plant and equipment that resulted in the allocation of $22 million of goodwill to acquired net assets. From the date of our preliminary allocations for our other acquisitions completed in the first nine months of 2018, we recorded adjustments based on our valuation procedures, primarily related to other intangibles, that resulted in the allocation of $14 million of goodwill to acquired net assets. The income statement effect of these measurement period adjustments for our Stahlgruber acquisition and our other acquisitions completed in the first nine months of 2018 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, 2018 and 2017 are as follows (in thousands):
 
Year Ended
 
Year Ended
 
December 31, 2018
 
December 31, 2017
 
Stahlgruber
 
Other Acquisitions (1)
 
Total
 
All
Acquisitions
 (2)
Receivables
$
144,826

 
$
19,171

 
$
163,997

 
$
73,782

Receivable reserves
(2,818
)
 
(918
)
 
(3,736
)
 
(7,032
)
Inventories (3)
380,238

 
14,021

 
394,259

 
150,342

Prepaid expenses and other current assets
10,970

 
1,851

 
12,821

 
(295
)
Property, plant and equipment
271,292

 
5,711

 
277,003

 
41,039

Goodwill
908,253

 
64,637

 
972,890

 
314,817

Other intangibles
285,255

 
35,159

 
320,414

 
181,216

Other assets
16,625

 
37

 
16,662

 
3,257

Deferred income taxes
(78,130
)
 
(5,285
)
 
(83,415
)
 
(65,087
)
Current liabilities assumed
(346,788
)
 
(20,116
)
 
(366,904
)
 
(111,484
)
Debt assumed
(79,925
)
 
(4,875
)
 
(84,800
)
 
(33,586
)
Other noncurrent liabilities assumed (4)
(80,824
)
 
(10,306
)
 
(91,130
)
 
(1,917
)
Noncontrolling interest
(44,110
)
 

 
(44,110
)
 

Contingent consideration liabilities

 
(3,107
)
 
(3,107
)
 
(6,234
)
Other purchase price obligations
(6,084
)
 
3,623

 
(2,461
)
 
(5,074
)
Stock issued
(251,334
)
 

 
(251,334
)
 

Notes issued

 
(11,347
)
 
(11,347
)
 
(20,187
)
Settlement of pre-existing balances

 

 

 
242

Gains on bargain purchases (5)

 
(2,418
)
 
(2,418
)
 
(3,870
)
Settlement of other purchase price obligations (non-interest bearing)

 
1,711

 
1,711

 
3,159

Cash used in acquisitions, net of cash and restricted cash acquired
$
1,127,446

 
$
87,549

 
$
1,214,995

 
$
513,088

(1)
The amounts recorded during the year ended December 31, 2018 include a $5 million adjustment to increase other intangibles related to our Warn acquisition and $4 million of adjustments to reduce other purchase price obligations related to other 2017 acquisitions.
(2)
The amounts recorded during the year ended December 31, 2017 include $6 million and $3 million of adjustments to reduce property, plant and equipment and other assets for Rhiag and PGW, respectively.
(3)
The amounts for our 2017 acquisitions include a $4 million step-up adjustment related to our Warn acquisition.
(4)
The amount recorded for our acquisition of Stahlgruber includes a $79 million liability for certain pension obligations. See Note 14, "Employee Benefit Plans" for information related to our defined benefit plans.
(5)
The amounts recorded during the year ended December 31, 2018 are due to the gains on bargain purchases related to (i) an acquisition in Europe completed in the second quarter of 2017 as a result of changes in the acquisition date fair value of the consideration, and (ii) three acquisitions in Europe completed during 2018 as a result of changes to our estimates of the fair values of the net assets acquired. 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 the previously mentioned 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, discount rates, assumed royalty rates and customer attrition rates, all of which are Level 3 inputs. We used the relief-from-royalty method to value trade names, trademarks, software and other technology assets, and we used the multi-period excess earnings method to value customer relationships. The relief-from-royalty method assumes that the intangible asset has value to the extent that its owner is relieved of the obligation to pay royalties for the benefits received from the intangible asset. The multi-period excess earnings method is based on the present value of the incremental after-tax cash flows attributable only to the customer relationship after deducting contributory asset charges. 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 12, "Fair Value Measurements" for further information regarding the tiers in the fair value hierarchy.
The acquisition of Stahlgruber expands LKQ's geographic presence in continental Europe and serves as an additional strategic hub for our European operations. In addition, we believe the acquisition of Stahlgruber will allow for continued improvement in procurement, logistics and infrastructure optimization. The primary objectives of our other acquisitions made during the years ended December 31, 2018 and 2017 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.
When we identify potential acquisitions, we attempt to target companies with a leading market presence, an experienced management team and workforce that provides 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 unaudited pro forma summary presents the effect of the businesses acquired during the year ended December 31, 2018 as though the businesses had been acquired as of January 1, 2017, the businesses acquired during the year ended December 31, 2017 as though they had been acquired as of January 1, 2016, and the businesses acquired during the year ended December 31, 2016 as though they had been acquired as of January 1, 2015. The pro forma adjustments are based upon unaudited financial information of the acquired entities (in thousands, except per share data):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Revenue, as reported
$
11,876,674

 
$
9,736,909

 
$
8,584,031

Revenue of purchased businesses for the period prior to acquisition:
 
 
 
 
 
Stahlgruber
815,405

 
1,756,893

 

Rhiag

 

 
213,376

PGW (1)

 

 
102,540

Other acquisitions
72,301

 
448,721

 
854,601

Pro forma revenue
$
12,764,380

 
$
11,942,523

 
$
9,754,548

 
 
 
 
 
 
Income from continuing operations, as reported (2)
$
487,565

 
$
536,974

 
$
456,123

Income from continuing operations of purchased businesses for the period prior to acquisition, and pro forma purchase accounting adjustments:
 
 
 
 
 
Stahlgruber
17,309

 
4,796

 

Rhiag

 

 
(84
)
PGW (1), (3)

 

 
7,574

Other acquisitions
1,507

 
16,667

 
19,323

Acquisition related expenses, net of tax (4)
14,414

 
8,787

 
11,602

Pro forma income from continuing operations
520,795

 
567,224

 
494,538

Less: Pro forma net income attributable to noncontrolling interest
2,799

 
1,095

 

Pro forma income from continuing operations attributable to LKQ stockholders
$
517,996

 
$
566,129

 
$
494,538

 
 
 
 
 
 
Earnings per share from continuing operations, basic - as reported
$
1.55

 
$
1.74

 
$
1.49

Effect of purchased businesses for the period prior to acquisition:
 
 
 
 
 
Stahlgruber
0.06

 
0.02

 

Rhiag

 

 
(0.00
)
PGW (1), (3)

 

 
0.02

Other acquisitions
0.00

 
0.05

 
0.06

Acquisition related expenses, net of tax (4)
0.05

 
0.03

 
0.04

Impact of share issuance from acquisition of Stahlgruber
(0.02
)
 
(0.04
)
 

Pro forma earnings per share from continuing operations, basic (5) 
1.64

 
1.79

 
1.61

Less: Pro forma net income attributable to noncontrolling interest
0.01

 
0.00

 

Pro forma income from continuing operations attributable to LKQ stockholders
$
1.63

 
$
1.79

 
$
1.61

 
 
 
 
 
 
Earnings per share from continuing operations, diluted - as reported
$
1.54

 
$
1.73

 
$
1.47

Effect of purchased businesses for the period prior to acquisition:
 
 
 
 
 
Stahlgruber
0.05

 
0.02

 

Rhiag

 

 
(0.00
)
PGW (1), (3)

 

 
0.02

Other acquisitions
0.00

 
0.05

 
0.06

Acquisition related expenses, net of tax (4)
0.05

 
0.03

 
0.04

Impact of share issuance from acquisition of Stahlgruber
(0.02
)
 
(0.04
)
 

Pro forma earnings per share from continuing operations, diluted (5) 
1.63

 
1.78

 
1.60

Less: Pro forma net income attributable to noncontrolling interest
0.01

 
0.00

 

Pro forma income from continuing operations attributable to LKQ stockholders
$
1.62

 
$
1.78

 
$
1.60


(1)
PGW reflects the results for the continuing aftermarket automotive glass distribution business only.
(2)
Includes interest expense for the period from April 9, 2018 through December 31, 2018 recorded on the senior notes issued in connection with our acquisition of Stahlgruber.
(3)
Excludes $5 million of corporate costs for 2016 that did not reoccur after the sale of our glass manufacturing business.
(4)
Includes expenses related to acquisitions closed in the period and excludes expenses for acquisitions not yet completed.
(5)
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 6, "Restructuring and Acquisition Related Expenses," for further information regarding our acquisition related expenses. The pro forma information also includes the impact of the common stock issued to Stahlgruber as if it were issued on January 1, 2017. 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.
v3.10.0.1
Discontinued Operations (Notes)
12 Months Ended
Dec. 31, 2018
Discontinued Operations [Abstract]  
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 16, "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 12, "Fair Value Measurements" for further information regarding the tiers in the fair value hierarchy.
In connection with 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, 2018, 2017 and 2016, as presented in Net (loss) income from discontinued operations on the Consolidated Statements of Income (in thousands):
 
Year Ended December 31,
 
2018
 
2017
 
2016
Revenue
$

 
$
111,130

 
$
498,233

Cost of goods sold

 
100,084

 
424,161

Selling, general and administrative expenses

 
8,369

 
22,330

Impairment on net assets of discontinued operations (1)

 

 
26,677

Operating income

 
2,677

 
25,065

Interest income 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)
(4,397
)
 
(6,495
)
 

Net (loss) income from discontinued operations
$
(4,397
)
 
$
(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. During the fourth quarter of 2018, we recorded a final tax expense adjustment of $4 million to the loss on sale as a result of the completion of the tax return reporting the 2017 transaction. The adjustment was primarily attributable to a valuation allowance recognized on the carryforward of a capital loss arising from the sale, the tax benefit of which is not certain to be realized during the carryforward period.
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 financing cash outflows made up 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
)

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 years ended December 31, 2018 and 2017, were $24 million and $42 million, respectively. 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.
v3.10.0.1
Summary of Significant Accounting Policies
12 Months Ended
Dec. 31, 2018
Accounting Policies [Abstract]  
Property, Plant and Equipment, Policy [Policy Text Block]
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,
 
2018
 
2017
Land and improvements
$
177,998

 
$
137,790

Buildings and improvements
378,490

 
233,078

Machinery and equipment
626,615

 
521,526

Computer equipment and software
143,547

 
133,753

Vehicles and trailers
176,186

 
161,269

Furniture and fixtures
58,919

 
31,794

Leasehold improvements
278,687

 
257,506

 
1,840,442

 
1,476,716

Less—Accumulated depreciation
(685,751
)
 
(606,112
)
Construction in progress
65,471

 
42,485

Total property, plant and equipment, net
$
1,220,162

 
$
913,089


The components of opening property, plant and equipment acquired as part of our acquisition of Stahlgruber in May 2018 are as follows (in thousands):
 
 
 
Gross Amount
Land and improvements
$
47,281

Buildings and improvements
135,628

Machinery and equipment
49,384

Computer equipment and software
3,760

Vehicles and trailers
643

Furniture and fixtures
30,426

Leasehold improvements
1,890

 
269,012

Construction in progress
2,280

Total property, plant and equipment
$
271,292


We record depreciation expense associated with our refurbishing, remanufacturing, manufacturing and furnace operations as well as our distribution centers in Cost of goods sold on the Consolidated Statements of Income. All other depreciation expense is reported in Depreciation and amortization. Total depreciation expense for the years ended December 31, 2018, 2017, and 2016 was $157 million, $129 million, and $115 million, respectively.
Inventory
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,
 
2018
 
2017
Aftermarket and refurbished products
$
2,309,458

 
$
1,877,653

Salvage and remanufactured products
503,199

 
487,108

Manufactured products
23,418

 
16,022

Total inventories
$
2,836,075

 
$
2,380,783


    Aftermarket and refurbished products and salvage and remanufactured products are primarily composed of finished goods. As of December 31, 2018, manufactured products inventory was composed of $17 million of raw materials, $2 million of work in process, and $4 million of finished goods. As of December 31, 2017, manufactured products inventory was composed of $10 million of raw materials, $2 million of work in process, and $4 million of finished goods.
Our May 2018 acquisition of Stahlgruber contributed $380 million to our aftermarket and refurbished products inventory as of the acquisition date. See Note 2, "Business Combinations" for further information on our acquisitions.
Receivables, Policy [Policy Text Block]
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 $57 million and $58 million at December 31, 2018 and 2017, respectively. Our May 2018 acquisition of Stahlgruber contributed $3 million to our reserve for uncollectible accounts. See Note 2, "Business Combinations" for further information on our acquisitions. 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.
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
See Note 5, "Revenue Recognition" for our accounting policies related to revenue.
Cost of Goods Sold
Our cost of goods sold includes: the price we pay for inventory, net of vendor discounts, rebates or other incentives; inbound freight and other transportation costs to bring inventory into our facilities; and overhead costs related to purchasing, warehousing and transporting our products from our distribution warehouses to our selling locations. For our salvage, remanufactured, and refurbished products, our cost of goods sold also includes direct and indirect labor, equipment costs, depreciation, and other overhead to transform inventory into finished products suitable for sale. Cost of goods sold also includes expenses for our service-type warranties and for our assurance-type warranty programs. See Note 5, "Revenue Recognition" for additional information related to our warranty programs.
Selling, General and Administrative Expenses
Selling, general and administrative expenses include: personnel costs for employees in selling, general and administrative functions; costs to operate our branch locations, corporate offices and back office support centers; costs to transport our products from our facilities to our customers; and other selling, general and administrative expenses, such as professional fees, supplies, and advertising expenses. The costs included in selling, general and administrative expenses do not relate to inventory processing or conversion activities, and, as such, are classified below the gross margin line on our Consolidated Statements of Income.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include cash on hand, operating accounts, and deposits readily convertible to known amounts of cash. Restricted cash includes cash for which the Company's ability to withdraw funds at any time is contractually limited. As of December 31, 2018, we have $5 million of restricted cash that is recorded in Other assets on the Consolidated Balance Sheets.
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 $57 million and $58 million at December 31, 2018 and 2017, respectively. Our May 2018 acquisition of Stahlgruber contributed $3 million to our reserve for uncollectible accounts. See Note 2, "Business Combinations" for further information on our acquisitions. 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,
 
2018
 
2017
Aftermarket and refurbished products
$
2,309,458

 
$
1,877,653

Salvage and remanufactured products
503,199

 
487,108

Manufactured products
23,418

 
16,022

Total inventories
$
2,836,075

 
$
2,380,783


    Aftermarket and refurbished products and salvage and remanufactured products are primarily composed of finished goods. As of December 31, 2018, manufactured products inventory was composed of $17 million of raw materials, $2 million of work in process, and $4 million of finished goods. As of December 31, 2017, manufactured products inventory was composed of $10 million of raw materials, $2 million of work in process, and $4 million of finished goods.
Our May 2018 acquisition of Stahlgruber contributed $380 million to our aftermarket and refurbished products inventory as of the acquisition date. See Note 2, "Business Combinations" for further information on our acquisitions.
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,
 
2018
 
2017
Land and improvements
$
177,998

 
$
137,790

Buildings and improvements
378,490

 
233,078

Machinery and equipment
626,615

 
521,526

Computer equipment and software
143,547

 
133,753

Vehicles and trailers
176,186

 
161,269

Furniture and fixtures
58,919

 
31,794

Leasehold improvements
278,687

 
257,506

 
1,840,442

 
1,476,716

Less—Accumulated depreciation
(685,751
)
 
(606,112
)
Construction in progress
65,471

 
42,485

Total property, plant and equipment, net
$
1,220,162

 
$
913,089


The components of opening property, plant and equipment acquired as part of our acquisition of Stahlgruber in May 2018 are as follows (in thousands):
 
 
 
Gross Amount
Land and improvements
$
47,281

Buildings and improvements
135,628

Machinery and equipment
49,384

Computer equipment and software
3,760

Vehicles and trailers
643

Furniture and fixtures
30,426

Leasehold improvements
1,890

 
269,012

Construction in progress
2,280

Total property, plant and equipment
$
271,292


We record depreciation expense associated with our refurbishing, remanufacturing, manufacturing and furnace operations as well as our distribution centers in Cost of goods sold on the Consolidated Statements of Income. All other depreciation expense is reported in Depreciation and amortization. Total depreciation expense for the years ended December 31, 2018, 2017, and 2016 was $157 million, $129 million, and $115 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 2018, 2017 and 2016. 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 are established using weightings of the results of a discounted cash flow methodology and a comparative market multiples approach.
Based on our annual goodwill impairment test in the fourth quarter of 2018, we determined the carrying value of our Aviation reporting unit exceeded the fair value estimate by more than the carrying value, thus we recorded an impairment charge of $33 million, which represented the total carrying value of goodwill in our Aviation reporting unit. The impairment charge was due to a decrease in the fair value estimate from the prior year fair value estimate, primarily driven by a significant deterioration in the outlook for the Aviation reporting unit due to competition, customer financial issues and changing market conditions for the airplane platforms that the business services, which lowered our projected gross margin and related future cash flows. We reported the impairment charge in Impairment of goodwill on the Consolidated Statements of Income for the year ended December 31, 2018. We determined no other impairments existed when we performed our annual impairment testing on the remaining reporting units as all those reporting units had a fair value estimate which exceeded the carrying value by at least approximately 15%, the level at which our Europe reporting unit exceeded its carrying value.
The changes in the carrying amount of goodwill by reportable segment are as follows (in thousands):
 
North America
 
Europe
 
Specialty
 
Total
Balance as of January 1, 2016
$
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

Business acquisitions and adjustments to previously recorded goodwill
6,805

 
970,923

 
(4,838
)
 
972,890

Impairment of goodwill
(33,244
)
 

 

 
(33,244
)
Exchange rate effects
(9,383
)
 
(85,532
)
 
216

 
(94,699
)
Balance as of December 31, 2018
$
1,673,532

 
$
2,300,289

 
$
407,637

 
$
4,381,458

Accumulated impairment losses as of December 31, 2018
$
(33,244
)
 
$

 
$

 
$
(33,244
)
During the year ended December 31, 2018, we recorded $908 million of goodwill related to our acquisition of Stahlgruber. See Note 2, "Business Combinations" for further information on our acquisitions.
The components of other intangibles, net are as follows (in thousands):
 
December 31, 2018
 
December 31, 2017
Intangible assets subject to amortization
$
847,452

 
$
664,969

Indefinite-lived intangible assets
 
 
 
Trademarks
81,300

 
78,800

Total
$
928,752

 
$
743,769



The components of intangible assets subject to amortization are as follows (in thousands):
 
December 31, 2018
 
December 31, 2017
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Trade names and trademarks
$
496,166

 
$
(94,451
)
 
$
401,715

 
$
327,332

 
$
(75,095
)
 
$
252,237

Customer and supplier relationships
593,517

 
(247,464
)
 
346,053

 
510,113

 
(167,532
)
 
342,581

Software and other technology related assets
176,118

 
(79,283
)
 
96,835

 
124,049

 
(59,081
)
 
64,968

Covenants not to compete
13,344

 
(10,495
)
 
2,849

 
14,981

 
(9,798
)
 
5,183

Total
$
1,279,145

 
$
(431,693
)
 
$
847,452

 
$
976,475

 
$
(311,506
)
 
$
664,969



    
The components of intangible assets acquired as part of our acquisitions in 2018 are as follows (in thousands):
 
Year Ended
 
Year Ended
 
December 31, 2018
 
December 31, 2017
 
Stahlgruber
 
Other Acquisitions (1)
 
Total
 
All Acquisitions
Trade names and trademarks
$
173,946

 
$
8,870

 
$
182,816

 
$
87,306

Customer and supplier relationships
77,980

 
20,779

 
98,759

 
75,450

Software and other technology related assets
33,329

 
376

 
33,705

 
15,757

Covenants not to compete

 

 

 
2,703

Total
$
285,255

 
$
30,025

 
$
315,280

 
$
181,216


(1) The amounts recorded during the year ended December 31, 2018 exclude amounts related to our 2017 acquisitions, including a $5 million adjustment to increase other intangibles related to our 2017 acquisition of Warn.
The weighted-average amortization periods for our intangible assets acquired during the years ended December 31, 2018 and 2017 are as follows (in years):
 
Year Ended
 
Year Ended
 
December 31, 2018
 
December 31, 2017
 
Stahlgruber
 
Other Acquisitions
 
Total
 
All Acquisitions
Trade names and trademarks
18.0

 
10.0

 
17.6

 
11.2
Customer and supplier relationships
3.0

 
7.9

 
4.0

 
18.6
Software and other technology related assets
5.2

 
6.5

 
5.2

 
11.1
Covenants not to compete

 

 

 
4.4
Total acquired finite-lived intangible assets
12.4

 
8.5

 
12.0

 
16.5

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
 
3-20 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 $137 million, $102 million, and $83 million during the years ended December 31, 2018, 2017, and 2016, respectively. Estimated amortization expense for each of the five years in the period ending December 31, 2023 is $140 million, $110 million, $80 million, $66 million and $59 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, 2018, 2017 or 2016.
Investments in Unconsolidated Subsidiaries
Our investment in unconsolidated subsidiaries was $179 million and $208 million as of December 31, 2018 and December 31, 2017, respectively. On December 1, 2016, we acquired a 26.5% equity interest in Mekonomen AB ("Mekonomen") for an aggregate purchase price of $181 million. Headquartered in Stockholm, Sweden, Mekonomen is a leading independent car parts and service chain in northern Europe, offering a range of products including spare parts and accessories for cars, and workshop services for consumers and businesses. As a result of the investment, we nominated two representatives for election to Mekonomen's board of directors; both representatives were subsequently elected to and continue to serve on the board of directors, including one as the chairman of the board. 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, 2018, the book value of our investment in Mekonomen exceeded our share of the book value of Mekonomen's net assets by $85 million; this difference is primarily related to goodwill and the fair value of other intangible assets. We are recording our equity in the net earnings of Mekonomen on a one quarter lag. We recorded equity losses of $64 million during the year ended December 31, 2018, and equity in earnings of $7 million during the year ended December 31, 2017 related to our investment in Mekonomen, including adjustments to convert the results to GAAP and to recognize the impact of our purchase accounting adjustments. In May 2018 and May 2017, we received cash dividends of $8 million (SEK 67 million) and $7 million (SEK 67 million), respectively, related to our investment in Mekonomen. Mekonomen announced in February 2019 that the Mekonomen Board of Directors has proposed no dividend payments in 2019.
On July 6, 2018, Mekonomen announced the acquisition of two automotive spare parts distributors in Denmark and Poland. The objective of the acquisition was to strengthen Mekonomen's position in the sale of automotive spare parts in northern Europe and to establish a strong market position in Denmark and Poland, where Mekonomen previously had no operations. The acquisition was partially financed by a rights issue with preferential rights for Mekonomen's existing shareholders, who were given the right to subscribe for four new Mekonomen shares per seven existing owned shares at a discounted share price. On October 5, 2018, we subscribed for our pro rata share in the rights issue giving us the right to acquire an additional $48 million of equity in Mekonomen at a discounted share price, increasing our equity interest to 26.6%. During the third quarter of 2018, we recorded a derivative instrument of $29 million in Other assets on our Consolidated Balance Sheets, which represented our right to acquire Mekonomen shares at a discount. In the third quarter of 2018, we measured the derivative instrument at fair value, and we recorded a $3 million gain on our fair value remeasurement. We acquired the additional $48 million of equity in Mekonomen in October 2018. In the fourth quarter, we recorded an $8 million loss related to the settlement of the derivative instrument in October 2018 due to a decrease in the Mekonomen share price from the last day of the third quarter to the settlement date. The net derivative loss of $5 million is recorded in Interest income and other income, net on the Consolidated Statements of Income.
We evaluated our investment in Mekonomen for other-than-temporary impairment as of December 31, 2018, and concluded the decline in fair value was other-than-temporary due to a significant stock price decrease since September 30, 2018. Therefore, we recognized an other-than-temporary impairment of $48 million, which represented the difference in the carrying value and the fair value of our investment in Mekonomen. The fair value of our investment in Mekonomen was determined using the Mekonomen share price of SEK 92 as of December 31, 2018. During the third quarter of