LKQ CORP, 10-Q filed on 8/2/2019
Quarterly Report
v3.19.2
Document and Entity Information - shares
6 Months Ended
Jun. 30, 2019
Jul. 26, 2019
Cover page.    
Document Type 10-Q  
Document Quarterly Report true  
Document Period End Date Jun. 30, 2019  
Document Transition Report false  
Entity File Number 000-50404  
Entity Registrant Name LKQ CORPORATION  
Entity Incorporation, State or Country Code DE  
Entity Tax Identification Number 36-4215970  
Entity Address, Address Line One 500 West Madison Street,  
Entity Address, Address Line Two Suite 2800  
Entity Address, City or Town Chicago  
Entity Address, Postal Zip Code 60661  
City Area Code 312  
Local Phone Number 621-1950  
Title of 12(b) Security Common Stock, par value $.01 per share  
Trading Symbol LKQ  
Security Exchange Name NASDAQ  
Entity Current Reporting Status Yes  
Entity Interactive Data Current Yes  
Entity Filer Category Large Accelerated Filer  
Entity Small Business false  
Entity Emerging Growth Company false  
Entity Shell Company false  
Entity Common Stock, Shares Outstanding   308,205,030
Amendment Flag false  
Document Fiscal Year Focus 2019  
Document Fiscal Period Focus Q2  
Entity Central Index Key 0001065696  
Current Fiscal Year End Date --12-31  
Entity Address, State or Province IL  
v3.19.2
Consolidated Statements of Income Statement - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Income Statement [Abstract]        
Revenue $ 3,248,173 $ 3,030,751 $ 6,348,476 $ 5,751,515
Cost of goods sold 2,000,986 1,868,872 3,893,025 3,535,665
Gross margin 1,247,187 1,161,879 2,455,451 2,215,850
Selling, general and administrative expenses 898,368 826,044 1,794,900 1,592,935
Restructuring and acquisition related expenses 8,377 15,878 11,684 19,932
Impairment of net assets held for sale 33,497 0 48,520 0
Depreciation and amortization 70,834 63,163 141,836 119,621
Operating income 236,111 256,794 458,511 483,362
Other expense (income):        
Interest expense, net of interest income 35,884 38,272 71,973 66,787
Gain on bargain purchase 0 (328) 0 (328)
Other (income) expense, net (5,733) 427 (9,584) (2,455)
Total other expense, net 30,151 38,699 62,389 64,332
Income from continuing operations before provision for income taxes 205,960 218,095 396,122 419,030
Provision for income taxes 55,825 60,775 107,375 110,359
Equity in earnings (losses) of unconsolidated subsidiaries 1,572 546 (37,977) 1,958
Income from continuing operations 151,707 157,866 250,770 310,629
Net income from discontinued operations 398 0 398 0
Net income 152,105 157,866 251,168 310,629
Less: net income attributable to continuing noncontrolling interest 1,352 859 2,367 662
Less: net income attributable to discontinued noncontrolling interest 192 0 192 0
Net income attributable to LKQ stockholders $ 150,561 $ 157,007 $ 248,609 $ 309,967
Basic earnings per share: (1)        
Income from continuing operations $ 0.49 $ 0.51 $ 0.80 $ 1.00
Net income from discontinued operations 0.00 0 0.00 0
Net income 0.49 0.51 0.80 1.00
Less: net income attributable to continuing noncontrolling interest 0.00 0.00 0.01 0.00
Less: net income attributable to discontinued noncontrolling interest 0.00 0 0.00 0
Net income attributable to LKQ stockholders 0.48 0.50 0.79 1.00
Diluted earnings per share: (1)        
Income from continuing operations 0.49 0.50 0.80 0.99
Net income from discontinued operations 0.00 0 0.00 0
Net income 0.49 0.50 0.80 0.99
Less: net income attributable to continuing noncontrolling interest 0.00 0.00 0.01 0.00
Less: net income attributable to discontinued noncontrolling interest 0.00 0 0.00 0
Net income attributable to LKQ stockholders $ 0.48 $ 0.50 $ 0.79 $ 0.99
v3.19.2
Consolidated Statements of Comprehensive Income - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
Statement of Comprehensive Income [Abstract]        
Net income from discontinued operations $ 398 $ 0 $ 398 $ 0
Net income 152,105 157,866 251,168 310,629
Less: net income attributable to continuing noncontrolling interest 1,352 859 2,367 662
Less: net income attributable to discontinued noncontrolling interest 192 0 192 0
Net income attributable to LKQ stockholders 150,561 157,007 248,609 309,967
Other comprehensive income (loss):        
Foreign currency translation, net of tax 5,602 (105,164) (4,293) (56,679)
Net change in unrealized gains/losses on cash flow hedges, net of tax (5,650) 2,406 (8,387) 5,660
Net change in unrealized gains/losses on pension plans, net of tax 28 (807) 219 (1,428)
Net change in other comprehensive income (loss) from unconsolidated subsidiaries 2,321 2,122 (1,142) 1,517
Other comprehensive income (loss) 2,301 (101,443) (13,603) (50,930)
Comprehensive income 154,406 56,423 237,565 259,699
Less: comprehensive income attributable to continuing noncontrolling interest 1,352 859 2,367 662
Less: comprehensive income attributable to discontinued noncontrolling interest 192 0 192 0
Comprehensive income attributable to LKQ stockholders $ 152,862 $ 55,564 $ 235,006 $ 259,037
v3.19.2
Consolidated Balance Sheets - USD ($)
$ in Thousands
Jun. 30, 2019
Dec. 31, 2018
Current assets:    
Cash and cash equivalents $ 375,967 $ 331,761
Receivables, net 1,285,802 1,154,083
Inventories 2,650,138 2,836,075
Prepaid expenses and other current assets 319,942 199,030
Total current assets 4,631,849 4,520,949
Property, plant and equipment, net 1,206,690 1,220,162
Operating lease assets, net 1,294,541 0
Intangible assets:    
Goodwill 4,409,925 4,381,458
Other intangibles, net 880,123 928,752
Equity method investments 133,154 179,169
Other noncurrent assets 147,954 162,912
Total assets 12,704,236 11,393,402
Current liabilities:    
Accounts payable 1,031,952 942,398
Accrued expenses:    
Accrued payroll-related liabilities 171,650 172,005
Refund liability 106,612 104,585
Other accrued expenses 309,734 288,425
Other current liabilities 134,855 61,109
Current portion of operating lease liabilities 219,502 0
Current portion of long-term obligations 132,641 121,826
Total current liabilities 2,106,946 1,690,348
Long-term operating lease liabilities, excluding current portion 1,122,276 0
Long-term obligations, excluding current portion 3,919,902 4,188,674
Deferred income taxes 303,179 311,434
Other noncurrent liabilities 342,185 364,194
Commitments and contingencies  
Stockholders' equity:    
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 319,010,278 shares issued and 309,695,052 shares outstanding at June 30, 2019; 318,417,821 shares issued and 316,146,114 shares outstanding at December 31, 2018 3,190 3,184
Additional paid-in capital 1,429,129 1,415,188
Retained earnings 3,847,485 3,598,876
Accumulated other comprehensive loss (188,553) (174,950)
Treasury stock, at cost; 9,315,226 shares at June 30, 2019 and 2,271,707 shares at December 31, 2018 (250,762) (60,000)
Total Company stockholders' equity 4,840,489 4,782,298
Noncontrolling interest 69,259 56,454
Total stockholders' equity 4,909,748 4,838,752
Total liabilities and stockholders' equity $ 12,704,236 $ 11,393,402
v3.19.2
Consolidated Balance Sheets (Parenthetical) - $ / shares
Jun. 30, 2019
Dec. 31, 2018
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 319,010,278 318,417,821
Common stock, shares outstanding 309,695,052 316,146,114
Treasury Stock, Common, Shares 9,315,226 2,271,707
v3.19.2
Consolidated Statements of Cash Flows - USD ($)
$ in Thousands
3 Months Ended 6 Months Ended
Jun. 30, 2019
Jun. 30, 2018
Jun. 30, 2019
Jun. 30, 2018
CASH FLOWS FROM OPERATING ACTIVITIES:        
Net income $ 152,105 $ 157,866 $ 251,168 $ 310,629
Adjustments to reconcile net income to net cash provided by operating activities:        
Depreciation and amortization 76,154 68,438 152,361 129,504
Impairment of Mekonomen equity method investment     39,551 0
Impairment of net assets held for sale 33,497 0 48,520 0
Stock-based compensation expense 8,000 6,000 13,659 11,844
Other     (3,516) 4,356
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions:        
Receivables, net     (149,052) (112,178)
Inventories     131,229 (12,777)
Prepaid income taxes/income taxes payable     25,967 6,090
Accounts payable     96,888 (25,380)
Other operating assets and liabilities     31,629 16,581
Net cash provided by operating activities     638,404 328,669
CASH FLOWS FROM INVESTING ACTIVITIES:        
Purchases of property, plant and equipment (48,252) (53,232) (101,268) (115,421)
Acquisitions, net of cash acquired     (14,767) (1,135,970)
Other investing activities, net     (735) 2,174
Net cash used in investing activities     (116,770) (1,249,217)
CASH FLOWS FROM FINANCING ACTIVITIES:        
Debt issuance costs     35 16,759
Proceeds from issuance of Euro Notes (2026/28)     0 1,232,100
Purchase of treasury stock     (190,762) 0
Borrowings under revolving credit facilities     312,880 613,658
Repayments under revolving credit facilities     (471,439) (766,597)
Repayments under term loans     (4,375) (8,810)
Borrowings under receivables securitization facility     36,600 0
Repayments under receivables securitization facility     (146,600) 0
Repayments of other debt, net     (8,367) (2,444)
Other financing activities, net     (110) (3,195)
Net cash (used in) provided by financing activities     (471,988) 1,054,343
Effect of exchange rate changes on cash, cash equivalents and restricted cash     (102) (68,359)
Net increase in cash, cash equivalents and restricted cash     49,544 65,436
Cash, cash equivalents and restricted cash of continuing operations, beginning of period     337,250 279,766
Cash, cash equivalents and restricted cash of continuing and discontinued operations, end of period 386,794 345,202 386,794 345,202
Less: Cash and cash equivalents of discontinued operations, end of period (5,372)   (5,372)  
Cash, cash equivalents and restricted cash, end of period 381,422 345,202 381,422 345,202
Reconciliation of cash, cash equivalents and restricted cash        
Cash and Cash Equivalents 375,967 345,202 375,967 345,202
Restricted cash included in Other noncurrent assets 5,455 0 5,455 0
Cash, cash equivalents and restricted cash, end of period $ 381,422 345,202 381,422 345,202
Supplemental disclosure of cash paid for:        
Income taxes, net of refunds     88,001 110,745
Interest     75,259 55,768
Supplemental disclosure of noncash investing and financing activities:        
Stock issued in acquisitions   $ 251,334 0 251,334
Noncash property, plant and equipment additions     14,227 7,004
Notes payable and other financing obligations, including notes issued, debt assumed and settlement of pre-existing balances in connection with business acquisitions     45,420 65,460
Contingent consideration liabilities     $ 5,377 $ 34
v3.19.2
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
June 30, 2019 at Dec. 31, 2017   309,127          
June 30, 2019 at Dec. 31, 2017 $ 4,206,653 $ 3,091   $ 1,141,451 $ 3,124,103 $ (70,476) $ 8,484
Adoption of ASU 2018-02 (see Note 9)           5,000  
June 30, 2019 at Mar. 31, 2018   309,631          
June 30, 2019 at Mar. 31, 2018 4,418,981 $ 3,096   1,146,391 3,271,718 (14,618) 12,394
June 30, 2019 at Dec. 31, 2017   309,127          
June 30, 2019 at Dec. 31, 2017 4,206,653 $ 3,091   1,141,451 3,124,103 (70,476) 8,484
Net income 309,967       309,967    
Net income (662)           662
Other comprehensive loss (50,930)         (50,930)  
Stock issued in acquisitions   8,056          
Stock issued in acquisitions 251,334 $ 81   251,253      
Vesting of restricted stock units, net of shares withheld for employee tax   344          
Vesting of restricted stock units, net of shares withheld for employee tax (2,777) $ 3   (2,780)      
Stock-based compensation expense 11,844     11,844      
Exercise of stock options   321          
Exercise of stock options 2,922 $ 3   2,919      
Shares withheld for net share settlement of stock option awards   (27)          
Shares withheld for net share settlement of stock option awards (1,057)     (1,057)      
Adoption of ASU 2018-02 (see Note 9) 5,345       (5,345) 5,345  
Capital contributions from, net of dividends declared to, noncontrolling interest shareholder 4,107           4,107
Acquired noncontrolling interest 44,250           44,250
June 30, 2019 at Jun. 30, 2018   317,821          
June 30, 2019 at Jun. 30, 2018 4,776,975 $ 3,178   1,403,630 3,428,725 (116,061) 57,503
June 30, 2019 at Dec. 31, 2017   309,127          
June 30, 2019 at Dec. 31, 2017 4,206,653 $ 3,091   1,141,451 3,124,103 (70,476) 8,484
Stock issued in acquisitions 251,334            
Acquired noncontrolling interest 44,110            
June 30, 2019 at Dec. 31, 2018   318,418          
June 30, 2019 at Dec. 31, 2018 4,838,752 $ 3,184 $ (60,000) 1,415,188 3,598,876 (174,950) 56,454
June 30, 2019 at Mar. 31, 2018   309,631          
June 30, 2019 at Mar. 31, 2018 4,418,981 $ 3,096   1,146,391 3,271,718 (14,618) 12,394
Net income 157,007       157,007    
Net income             859
Other comprehensive loss (101,443)         (101,443)  
Stock issued in acquisitions   8,056          
Stock issued in acquisitions 251,334 $ 81   251,253      
Vesting of restricted stock units, net of shares withheld for employee tax   44          
Vesting of restricted stock units, net of shares withheld for employee tax (381)     (381)      
Stock-based compensation expense 5,862     5,862      
Exercise of stock options   95          
Exercise of stock options 667 $ 1   666      
Shares withheld for net share settlement of stock option awards   (5)          
Shares withheld for net share settlement of stock option awards 161     161      
Acquired noncontrolling interest 44,250           44,250
June 30, 2019 at Jun. 30, 2018   317,821          
June 30, 2019 at Jun. 30, 2018 4,776,975 $ 3,178   1,403,630 3,428,725 (116,061) 57,503
Treasury Stock, Shares     (2,272)        
June 30, 2019 at Dec. 31, 2018   318,418          
June 30, 2019 at Dec. 31, 2018 4,838,752 $ 3,184 $ (60,000) 1,415,188 3,598,876 (174,950) 56,454
Net income 248,609       248,609    
Net income             2,559
Other comprehensive loss $ (13,603)         (13,603)  
Purchase of treasury stock (7,043)            
Purchase of treasury stock $ 190,762            
Stock issued in acquisitions 0            
Vesting of restricted stock units, net of shares withheld for employee tax   371          
Vesting of restricted stock units, net of shares withheld for employee tax (1,154) $ 4   (1,158)      
Stock-based compensation expense 13,659     13,659      
Exercise of stock options   236          
Exercise of stock options 1,870 $ 2   1,868      
Shares withheld for net share settlement of stock option awards   (15)          
Shares withheld for net share settlement of stock option awards (428) $ 0   (428)      
Capital contributions from, net of dividends declared to, noncontrolling interest shareholder (15)           (15)
Acquired noncontrolling interest 10,261           10,261
June 30, 2019 at Jun. 30, 2019   319,010          
June 30, 2019 at Jun. 30, 2019 4,909,748 $ 3,190 $ (250,762) 1,429,129 3,847,485 (188,553) 69,259
Treasury Stock, Shares     (4,915)        
June 30, 2019 at Mar. 31, 2019   318,889          
June 30, 2019 at Mar. 31, 2019 4,856,774 $ 3,189 $ (130,462) 1,420,685 3,696,924 (190,854) 57,292
Net income 150,561       150,561    
Net income             1,544
Other comprehensive loss $ 2,301         2,301  
Purchase of treasury stock (4,400)            
Purchase of treasury stock $ 120,300            
Vesting of restricted stock units, net of shares withheld for employee tax   68          
Vesting of restricted stock units, net of shares withheld for employee tax (77) $ 1   (78)      
Stock-based compensation expense 7,986     7,986      
Exercise of stock options   53          
Exercise of stock options 536 $ 0   536      
Capital contributions from, net of dividends declared to, noncontrolling interest shareholder 162           162
Acquired noncontrolling interest 10,261           10,261
June 30, 2019 at Jun. 30, 2019   319,010          
June 30, 2019 at Jun. 30, 2019 $ 4,909,748 $ 3,190 $ (250,762) $ 1,429,129 $ 3,847,485 $ (188,553) $ 69,259
Treasury Stock, Shares     (9,315)        
v3.19.2
Interim Financial Statements
6 Months Ended
Jun. 30, 2019
Organization, Consolidation and Presentation of Financial Statements [Abstract]  
Business
Interim Financial Statements
The accompanying unaudited condensed consolidated financial statements represent the consolidation of LKQ Corporation, a Delaware corporation, and its subsidiaries. LKQ Corporation is a holding company and all operations are conducted by subsidiaries. When the terms "LKQ," "the Company," "we," "us," or "our" are used in this document, those terms refer to LKQ Corporation and its consolidated subsidiaries.
We have prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") applicable to interim financial statements. Accordingly, certain information related to our significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted. These unaudited condensed consolidated financial statements reflect, in the opinion of management, all material adjustments (which include only normally recurring adjustments) necessary to fairly state, in all material respects, our financial position, results of operations and cash flows for the periods presented.
Operating results for interim periods are not necessarily indicative of the results that can be expected for any subsequent interim period or for a full year. These interim financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2018 filed with the SEC on March 1, 2019 ("2018 Form 10-K").
v3.19.2
Business Combinations (Notes)
6 Months Ended
Jun. 30, 2019
Business Combinations [Abstract]  
Business Combination Disclosure [Text Block] Business Combinations
During the six months ended June 30, 2019, we completed five acquisitions, including one wholesale business and one self service business in North America, and three wholesale businesses in Europe. These acquisitions were not material to our results of operations or financial position as of and for the three and six months ended June 30, 2019. Total acquisition date fair value of the consideration for our acquisitions for the six months ended June 30, 2019 was $48 million, composed of $17 million of cash paid (net of cash acquired), $5 million for the estimated value of contingent payments to former owners (with maximum payments totaling $7 million), $1 million of other purchase price obligations (non-interest bearing), $21 million of notes payable, and $4 million of pre-existing balances considered to be effectively settled as a result of the acquisitions. In addition, we assumed $8 million of existing debt as of the acquisition dates.
On May 30, 2018, we acquired Stahlgruber GmbH ("Stahlgruber"), a leading European wholesale distributor of aftermarket spare parts for passenger cars, tools, capital equipment and accessories with operations in Germany, Austria, Italy, Slovenia, and Croatia, with further sales to Switzerland. 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. We recorded $915 million ($908 million in 2018 and $7 million of adjustments in the six months ended June 30, 2019) of goodwill related to our acquisition of Stahlgruber.
On May 3, 2018, the European Commission cleared the acquisition of Stahlgruber for the entire European Union, except with respect to the wholesale automotive parts business in the Czech Republic. The acquisition of Stahlgruber’s Czech Republic wholesale business was referred to the Czech Republic competition authority for review. On May 10, 2019, the Czech Republic competition authority approved our acquisition of Stahlgruber’s Czech Republic wholesale business subject to the requirement that we divest certain of the acquired locations. We acquired Stahlgruber’s Czech Republic wholesale business on May 29, 2019 and decided to divest all of the acquired locations. We immediately classified the business as discontinued operations because the business was never integrated into our Europe segment; see Note 3, "Discontinued Operations" for further information. The Czech Republic wholesale business represents an immaterial portion of Stahlgruber's revenue and profitability. There was no additional consideration beyond the previously remitted amounts for the Stahlgruber transaction required to complete the acquisition of the Czech Republic wholesale business.
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.
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 six months ended June 30, 2019 and the last six months of 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.
During the second quarter of 2019, the measurement period adjustments recorded for acquisitions completed in prior periods were not material. The income statement effect of these measurement period adjustments that would have been recorded in previous reporting periods if the adjustments had been recognized as of the acquisition dates was immaterial.
The purchase price allocations for the acquisitions completed during the year ended December 31, 2018 are as follows (in thousands):
 
Year Ended
 
December 31, 2018
 
Stahlgruber
 
Other Acquisitions (1)
 
Total
Receivables
$
144,826

 
$
19,171

 
$
163,997

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

 
14,021

 
394,259

Prepaid expenses and other current assets
10,970

 
1,851

 
12,821

Property, plant and equipment
271,292

 
5,711

 
277,003

Goodwill
908,253

 
64,637

 
972,890

Other intangibles
285,255

 
35,159

 
320,414

Other noncurrent assets
16,625

 
37

 
16,662

Deferred income taxes
(78,130
)
 
(5,285
)
 
(83,415
)
Current liabilities assumed
(346,788
)
 
(20,116
)
 
(366,904
)
Debt assumed
(79,925
)
 
(4,875
)
 
(84,800
)
Other noncurrent liabilities assumed (2)
(80,824
)
 
(10,306
)
 
(91,130
)
Noncontrolling interest
(44,110
)
 

 
(44,110
)
Contingent consideration liabilities

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

 
(2,461
)
Stock issued
(251,334
)
 

 
(251,334
)
Notes issued

 
(11,347
)
 
(11,347
)
Gains on bargain purchases (3)

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

 
1,711

 
1,711

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

 
$
87,549

 
$
1,214,995

(1)
The amounts recorded during the year ended December 31, 2018 include a $5 million adjustment to increase other intangibles related to our acquisition of Warn Industries, Inc. in 2017 and $4 million of adjustments to reduce other purchase price obligations related to other 2017 acquisitions.
(2)
The amount recorded for our acquisition of Stahlgruber includes a $79 million liability for certain pension obligations.
(3)
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 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 expanded LKQ's geographic presence in continental Europe and serves as an additional strategic hub for our European operations. In addition, the acquisition of Stahlgruber allows for continued improvement in procurement, logistics and infrastructure optimization. The primary objectives of our other acquisitions made during the six months ended June 30, 2019 and the year ended December 31, 2018 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.
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 pro forma summary presents the effect of the businesses acquired during the six months ended June 30, 2019 as though the businesses had been acquired as of January 1, 2018, and the businesses acquired during the year ended December 31, 2018 as though they had been acquired as of January 1, 2017. We have excluded the May 29, 2019 acquisition of the Czech Republic wholesale business as the business was never integrated into our Europe segment. The pro forma adjustments are based upon unaudited financial information of the acquired entities (in thousands, except per share data):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2019
 
2018
 
2019
 
2018
Revenue, as reported
$
3,248,173

 
$
3,030,751

 
$
6,348,476

 
$
5,751,515

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

 
325,871

 

 
815,405

Other acquisitions
1,417

 
47,680

 
16,481

 
99,837

Pro forma revenue
$
3,249,590

 
$
3,404,302

 
$
6,364,957

 
$
6,666,757

 
 
 
 
 
 
 
 
Income from continuing operations, as reported (1)
$
151,707

 
$
157,866

 
$
250,770

 
$
310,629

Income from continuing operations of purchased businesses for the period prior to acquisition, and pro forma purchase accounting adjustments:
 
 
 
 
 
 
 
Stahlgruber
3,042

 
7,217

 
6,116

 
8,490

Other acquisitions
353

 
1,502

 
1,990

 
3,106

Acquisition related expenses, net of tax (2)
100

 
11,779

 
324

 
13,305

Pro forma income from continuing operations
155,202

 
178,364

 
259,200

 
335,530

Less: Net income attributable to continuing noncontrolling interest, as reported
1,352

 
859

 
2,367

 
662

Less: Pro forma net income attributable to continuing noncontrolling interest

 
2,271

 

 
2,799

Pro forma net income from continuing operations attributable to LKQ stockholders (3)
$
153,850

 
$
175,234

 
$
256,833

 
$
332,069


(1)
2018 amounts include interest expense for the period from April 9, 2018 through June 30, 2018 recorded on the senior notes issued in connection with our acquisition of Stahlgruber.
(2)
Includes expenses related to acquisitions closed in the period and excludes expenses for acquisitions not yet completed.
(3)
Excludes our acquisition of the Czech Republic wholesale business which is classified as discontinued operations.
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. 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.
v3.19.2
Discontinued Operations (Notes)
6 Months Ended
Jun. 30, 2019
Discontinued Operations [Abstract]  
Disposal Groups, Including Discontinued Operations, Disclosure [Text Block] Discontinued Operations
As described in Note 2, "Business Combinations," we classified the acquired Stahlgruber Czech Republic wholesale business as discontinued operations. We intend to divest the business within the next year, and thus, the net assets are reflected on the Unaudited Condensed Consolidated Balance Sheet at the lower of fair value less cost to sell or carrying value. As of June 30, 2019, the assets held for sale, liabilities held for sale, and noncontrolling interest are recorded within Prepaid expenses and other current assets, Other current liabilities, and Noncontrolling interest, respectively, on the Unaudited Condensed Consolidated Balance Sheet. As of the acquisition date, we acquired $5 million of cash and assumed $6 million of existing debt.
Fair value was based on the estimated selling price, with factors including projected market multiples and any reasonable offers. Due to the uncertainties in the estimation process, it is possible that actual results could differ from the estimates used in the Company's analysis. The inputs utilized in the fair value estimate are classified as Level 3 within the fair value hierarchy. The fair value of the net assets was measured on a non-recurring basis as of June 30, 2019.
v3.19.2
Financial Statement Information (Notes)
6 Months Ended
Jun. 30, 2019
Accounting Policies [Abstract]  
Financial Statement Information [Text Block] Financial Statement Information
Allowance for Doubtful Accounts
We have a reserve for uncollectible accounts, which was approximately $52 million and $57 million at June 30, 2019 and December 31, 2018, respectively.
Inventories
Inventories consist of the following (in thousands):
 
June 30,
 
December 31,
 
2019
 
2018
Aftermarket and refurbished products
$
2,181,873

 
$
2,309,458

Salvage and remanufactured products
441,579

 
503,199

Manufactured products
26,686

 
23,418

Total inventories (1)
$
2,650,138

 
$
2,836,075


(1)
As of June 30, 2019, $61 million of inventory was included in assets held for sale. Refer to the "Net Assets Held for Sale" section for further information.
Aftermarket and refurbished products and salvage and remanufactured products are primarily composed of finished goods. As of June 30, 2019, manufactured products inventory was composed of $18 million of raw materials, $3 million of work in process, and $6 million 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.
Net Assets Held for Sale
During the first half of 2019, we committed to plans to sell certain businesses in our North America and Europe segments. As a result, these businesses were classified as net assets held for sale and were required to be adjusted to the lower of fair value less cost to sell or carrying value, resulting in total impairment charges of $33 million and $49 million during the three and six months ended June 30, 2019, respectively, which were recorded within Impairment of net assets held for sale in the Unaudited Condensed Consolidated Statement of Income.
Excluding the Stahlgruber Czech Republic wholesale business discussed in Note 3, "Discontinued Operations," as of June 30, 2019, there were $56 million of assets held for sale, including $5 million of goodwill that was reclassified as held for sale related to our Europe segment, and $17 million of liabilities held for sale, which are recorded within Prepaid expenses and other current assets and Other current liabilities, respectively, on the Unaudited Condensed Consolidated Balance Sheet. We expect these businesses to be disposed of during the next twelve months. The businesses do not meet the requirements to be considered discontinued operations. These businesses generated annualized revenue of approximately $165 million during the twelve-month period ended June 30, 2019.
We are required to record net assets of our held for sale businesses at the lower of fair value less cost to sell or carrying value. Fair values were based on projected discounted cash flows and/or estimated selling prices. Management's assumptions for our discounted cash flow analysis of the businesses were based on projecting revenues and profits, tax rates, capital expenditures, working capital requirements and discount rates. For businesses for which we utilized estimated selling prices to calculate the fair value, factors included projected market multiples and any reasonable offers. Due to the uncertainties in the estimation process, it is possible that actual results could differ from the estimates used in the Company's analysis. The inputs utilized in the fair value estimates are classified as Level 3 within the fair value hierarchy. The fair values of the net assets were measured on a non-recurring basis as of June 30, 2019.
Investments in Unconsolidated Subsidiaries
Our investment in unconsolidated subsidiaries was $133 million and $179 million as of June 30, 2019 and December 31, 2018, respectively. On December 1, 2016, we acquired a 26.5% equity interest in Mekonomen AB ("Mekonomen") for an aggregate purchase price of $181 million. In October 2018, we acquired an additional $48 million of equity in Mekonomen at a discounted share price as part of its rights issue, increasing our equity interest to 26.6%. 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 June 30, 2019, our share of the book value of Mekonomen's net assets exceeded the book value of our investment in Mekonomen by $5 million; this difference is primarily related to Mekonomen's Accumulated Other Comprehensive Income balance as of our acquisition date in 2016. We are recording our equity in the net earnings of Mekonomen on a one quarter lag. We recorded equity in earnings of $3 million and an equity loss of $37 million during the three and six months ended June 30, 2019, respectively, and equity in earnings of $1 million and $2 million during the three and six months ended June 30, 2018, respectively, related to our investment in Mekonomen, including adjustments to convert the results to GAAP and to recognize the impact of our purchase accounting adjustments and the other-than-temporary impairment (three months ended March 31, 2019 only) described below. In May 2018, we received a cash dividend of $8 million (SEK 67 million) related to our investment in Mekonomen. Mekonomen announced in February 2019 that the Mekonomen Board of Directors has proposed no dividend payment in 2019. The Level 1 fair value of our equity investment in the publicly traded Mekonomen common stock at June 30, 2019 was $125 million (using the Mekonomen share price of SEK 77 as of June 30, 2019) compared to a carrying value of $110 million.
During the three months ended March 31, 2019, we recognized an other-than-temporary impairment of $40 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 65 as of March 31, 2019. The impairment charge is recorded in Equity in earnings (losses) of unconsolidated subsidiaries on our Unaudited Condensed Consolidated Statements of Income. Equity in losses and earnings from our investment in Mekonomen are reported in the Europe segment.
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. These assurance-type warranties are not considered a separate performance obligation, and thus no transaction price is allocated to them. We record the warranty costs in Cost of goods sold on our Unaudited Condensed Consolidated Statements of Income. Our warranty reserve is calculated using historical claim information to project future warranty claims activity and is recorded within Other accrued expenses and Other noncurrent liabilities on our Unaudited Condensed Consolidated Balance Sheets based on the expected timing of the related payments.
The changes in the warranty reserve are as follows (in thousands):
Balance as of December 31, 2018
$
23,262

Warranty expense
29,529

Warranty claims
(22,770
)
Balance as of June 30, 2019
$
30,021


Litigation and Related Contingencies
We have certain contingencies resulting from litigation, claims and other commitments and are subject to a variety of environmental and pollution control laws and regulations incident to the ordinary course of business. We currently expect that the resolution of such contingencies will not materially affect our financial position, results of operations or cash flows.
Treasury Stock    
On October 25, 2018, our Board of Directors authorized a stock repurchase program under which we may purchase up to $500 million of our common stock from time to time through October 25, 2021. Repurchases under the program may be made in the open market or in privately negotiated transactions, with the amount and timing of repurchases depending on market conditions and corporate needs. The repurchase program does not obligate us to acquire any specific number of shares and may be suspended or discontinued at any time. Delaware law imposes restrictions on stock repurchases. During the six months ended June 30, 2019, we repurchased 7.0 million shares of common stock for an aggregate price of $191 million. During 2018, we repurchased 2.3 million shares of common stock for an aggregate price of $60 million. As of June 30, 2019, there is $249 million of remaining capacity under our repurchase program. Repurchased shares are accounted for as treasury stock using the cost method.
Recent Accounting Pronouncements
Adoption of New Lease Standard
In February 2016, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2016-02, "Leases" ("ASU 2016-02"), which represents the FASB Accounting Standard Codification Topic 842 ("ASC 842"), to increase transparency and comparability by recognizing lease assets and lease liabilities on the Unaudited Condensed Consolidated Balance Sheets and disclosing key information about leasing arrangements. The main difference between the prior standard and ASU 2016-02 is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under the prior standard.
We adopted the standard in the first quarter of 2019 using the modified retrospective approach and took advantage of the transition package of practical expedients permitted within the new standard, which, among other things, allows us to carryforward the historical lease classification. For leases with a term of 12 months or less, we elected the short-term lease exemption, which allowed us to not recognize right-of-use assets or lease liabilities for qualifying leases existing at transition and new leases we may enter into in the future. Additionally, we adopted the practical expedient to combine lease and non-lease components.
As of January 1, 2019, we recorded both an operating lease asset and operating lease liability of $1.3 billion. The preexisting deferred rent liability balances from the historical straight-line treatment of operating leases was reclassified as a reduction of the lease asset upon adoption. The adoption of the standard did not materially affect our Unaudited Condensed Consolidated Statements of Income or Statements of Cash Flows as operating lease payments will still be an operating cash outflow and capital lease payments will still be a financing cash outflow. The new standard did not have a material impact on our liquidity. The standard will have no impact on our debt covenant compliance under our current agreements as the covenant calculations are based on the prior lease accounting rules.
Other Recently Adopted Accounting Pronouncements
During the first quarter of 2019, we adopted ASU 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. We adopted the provisions of ASU 2017-12 by applying a modified retrospective approach to existing hedging relationships as of the adoption date. The adoption of ASU 2017-12 did not have a material impact on our unaudited condensed consolidated financial statements.
Recently Issued Accounting Pronouncements
In August 2018, the FASB issued ASU No. 2018-13, "Disclosure Framework- Changes to the Disclosure Requirements for Fair Value Measurement" ("ASU 2018-13"), which removes, modifies, and adds certain disclosure requirements in ASC 820. ASU 2018-13 is effective for fiscal years and interim periods beginning after December 15, 2019; early adoption is permitted. We are in the process of evaluating the impact of this standard on our disclosures but do not currently believe that it will have a material impact.
In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13"), and in November 2018 issued a subsequent
amendment, ASU 2018-19, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses" ("ASU 2018-19"). ASU 2016-13 significantly changes how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 will replace today’s “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. ASU 2018-19 will affect loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope of this amendment that represent the contractual right to receive cash. ASU 2016-13 and ASU 2018-19 should be applied on either a prospective transition or modified-retrospective approach depending on the subtopic. ASU 2016-13 is effective for annual periods beginning after December 15, 2019, and interim periods therein. Early adoption is permitted for annual periods beginning after December 15, 2018, and interim periods therein. We are currently evaluating the impact of the adoption of this standard on our consolidated financial statements.
v3.19.2
Earnings Per Share Earnings Per Share (Notes)
6 Months Ended
Jun. 30, 2019
Earnings Per Share [Abstract]  
Earnings Per Share [Text Block] Earnings Per Share
The following chart sets forth the computation of earnings per share (in thousands, except per share amounts):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2019
 
2018
 
2019
 
2018
Income from continuing operations
$
151,707

 
$
157,866

 
$
250,770

 
$
310,629

Denominator for basic earnings per share—Weighted-average shares outstanding
311,891

 
312,556

 
313,460

 
311,045

Effect of dilutive securities:
 
 
 
 
 
 
 
RSUs
315

 
406

 
364

 
512

PSUs

 

 

 

Stock options
513

 
1,050

 
536

 
1,131

Denominator for diluted earnings per share—Adjusted weighted-average shares outstanding
312,719

 
314,012

 
314,360

 
312,688

Basic earnings per share from continuing operations
$
0.49

 
$
0.51

 
$
0.80

 
$
1.00

Diluted earnings per share from continuing operations
$
0.49

 
$
0.50

 
$
0.80

 
$
0.99


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 three and six months ended June 30, 2019 and 2018 (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2019
 
2018
 
2019
 
2018
Antidilutive securities:
 
 
 
 
 
 
 
RSUs
559

 
575

 
579

 
288

Stock options
32

 

 
32

 


v3.19.2
Restructuring and Acquisition Related Expenses (Notes)
6 Months Ended
Jun. 30, 2019
Restructuring and Acquisition Related Expenses [Abstract]  
Business Acquisition, Integration, Restructuring and Other Related Costs [Text Block] Restructuring and Acquisition Related Expenses
Acquisition Related Expenses
Acquisition related expenses, which include external costs such as legal, accounting and advisory fees, were immaterial for the three and six months ended June 30, 2019.
Acquisition related expenses for the three and six months ended June 30, 2018 were $14 million and $16 million, respectively, which included external costs primarily related to our May 2018 acquisition of Stahlgruber.
Acquisition Integration Plans and Restructuring
During the three and six months ended June 30, 2019, we incurred $3 million and $6 million of restructuring expenses, respectively, related to our acquisition integration efforts. These expenses included approximately $1 million and $3 million for the three and six months ended June 30, 2019, respectively, related to the integration of our acquisition of Andrew Page Limited ("Andrew Page").
During the three and six months ended June 30, 2018, we incurred $2 million and $4 million of restructuring expenses, respectively. Restructuring expenses incurred during the three and six months ended June 30, 2018 were primarily related to the integration of our acquisition of Andrew Page. This integration included the closure of duplicate facilities and termination of employees.
We expect to incur additional expenses related to the integration of certain of our acquisitions into our existing operations. These integration activities are expected to include the closure of duplicate facilities, rationalization of personnel in connection with the consolidation of overlapping facilities with our existing business, and moving expenses. Future expenses to complete these integration plans are currently expected to be approximately $15 million.
2019 Restructuring Program
In the second quarter, we began implementing a cost reduction initiative, covering all three of our reportable segments, designed to eliminate underperforming assets and cost ineffectiveness. We have incurred and expect to incur costs for employee severance and related employee termination benefits; lease exit costs, such as lease termination fees and accelerated amortization of operating lease assets; and other costs related to facility closures, such as moving expenses to relocate inventory and equipment.
During the three months ended June 30, 2019, we incurred $5 million of restructuring expense primarily related to employee severance and related termination benefits. We currently expect to incur additional expenses of between $20 million and $25 million through the end of 2020 to complete the program.
v3.19.2
Accumulated Other Comprehensive Income (Loss)
6 Months Ended
Jun. 30, 2019
Accumulated Other Comprehensive Income (Loss) [Line Items]  
Comprehensive Income (Loss) Note [Text Block] Accumulated Other Comprehensive Income (Loss)
The components of Accumulated Other Comprehensive Income (Loss) are as follows (in thousands):
 
 
Three Months Ended
 
 
June 30, 2019
 
 
Foreign
Currency
Translation
 
Unrealized Gain (Loss)
on Cash Flow Hedges
 
Unrealized (Loss) Gain
on Pension Plans
 
Other Comprehensive (Loss) Income from Unconsolidated Subsidiaries
 
Accumulated
Other
Comprehensive
(Loss) Income
Beginning balance
 
$
(187,492
)
 
$
11,637

 
$
(7,884
)
 
$
(7,115
)
 
$
(190,854
)
Pretax (loss) income
 
5,602

 
(9,418
)
 

 

 
(3,816
)
Income tax effect
 

 
2,230

 

 

 
2,230

Reclassification of unrealized (gain) loss
 

 
2,013

 
37

 

 
2,050

Reclassification of deferred income taxes
 

 
(475
)
 
(9
)
 

 
(484
)
Other comprehensive income from unconsolidated subsidiaries
 

 

 

 
2,321

 
2,321

Ending balance
 
$
(181,890
)
 
$
5,987

 
$
(7,856
)
 
$
(4,794
)
 
$
(188,553
)


 
 
Three Months Ended
 
 
June 30, 2018
 
 
Foreign
Currency
Translation
 
Unrealized Gain (Loss)
on Cash Flow Hedges
 
Unrealized (Loss) Gain
on Pension Plans
 
Other Comprehensive (Loss) Income from Unconsolidated Subsidiaries
 
Accumulated
Other
Comprehensive
(Loss) Income
Beginning balance
 
$
(20,589
)
 
$
17,278

 
$
(9,393
)
 
$
(1,914
)
 
$
(14,618
)
Pretax (loss) income
 
(107,167
)
 
30,721

 
(690
)
 

 
(77,136
)
Income tax effect
 
2,003

 
(7,183
)
 
(174
)
 

 
(5,354
)
Reclassification of unrealized (gain) loss
 

 
(27,580
)
 
76

 

 
(27,504
)
Reclassification of deferred income taxes
 

 
6,448

 
(19
)
 

 
6,429

Other comprehensive income from unconsolidated subsidiaries
 

 

 

 
2,122

 
2,122

Ending balance
 
$
(125,753
)
 
$
19,684

 
$
(10,200
)
 
$
208

 
$
(116,061
)

 
 
Six Months Ended
 
 
June 30, 2019
 
 
Foreign
Currency
Translation
 
Unrealized Gain (Loss)
on Cash Flow Hedges
 
Unrealized (Loss) Gain
on Pension Plans
 
Other Comprehensive Loss from Unconsolidated Subsidiaries
 
Accumulated
Other
Comprehensive
(Loss) Income
Beginning balance
 
$
(177,597
)
 
$
14,374

 
$
(8,075
)
 
$
(3,652
)
 
$
(174,950
)
Pretax (loss) income
 
(4,293
)
 
6,175

 

 

 
1,882

Income tax effect
 

 
(1,424
)
 

 

 
(1,424
)
Reclassification of unrealized (gain) loss
 

 
(17,175
)
 
290

 

 
(16,885
)
Reclassification of deferred income taxes
 

 
4,037

 
(71
)
 

 
3,966

Other comprehensive loss from unconsolidated subsidiaries
 

 

 

 
(1,142
)
 
(1,142
)
Ending balance
 
$
(181,890
)
 
$
5,987

 
$
(7,856
)
 
$
(4,794
)
 
$
(188,553
)

 
 
Six Months Ended
 
 
June 30, 2018
 
 
Foreign
Currency
Translation
 
Unrealized Gain (Loss)
on Cash Flow Hedges
 
Unrealized (Loss) Gain
on Pension Plans
 
Other Comprehensive (Loss) Income from Unconsolidated Subsidiaries
 
Accumulated
Other
Comprehensive
(Loss) Income
Beginning balance
 
$
(71,933
)
 
$
11,538

 
$
(8,772
)
 
$
(1,309
)
 
$
(70,476
)
Pretax (loss) income
 
(58,732
)
 
26,220

 
(1,319
)
 

 
(33,831
)
Income tax effect
 
2,053

 
(6,130
)
 
(166
)
 

 
(4,243
)
Reclassification of unrealized (gain) loss
 

 
(18,833
)
 
76

 

 
(18,757
)
Reclassification of deferred income taxes
 

 
4,403

 
(19
)
 

 
4,384

Other comprehensive income from unconsolidated subsidiaries
 

 

 

 
1,517

 
1,517

Adoption of ASU 2018-02
 
2,859

 
2,486

 

 

 
5,345

Ending balance
 
$
(125,753
)
 
$
19,684

 
$
(10,200
)
 
$
208

 
$
(116,061
)

The amounts of unrealized gains and losses on our Cash Flow Hedges reclassified to our Unaudited Condensed Consolidated Statements of Income are as follows (in thousands):
 
Three Months Ended
 
Six Months Ended
 
June 30,
 
June 30,
 
2019
 
2018
 
2019
 
2018
Unrealized gains on interest rate swaps (1) (2)
$
2,479

 
$
1,034

 
$
4,942

 
$
2,609

Unrealized gains on foreign currency forwards (2) (3)
3,602

 
2,776

 
7,162

 
4,156

Unrealized (losses) gains on cross currency swaps (4)
(8,094
)
 
23,770

 
5,071

 
12,068

Total
$
(2,013
)
 
$
27,580

 
$
17,175

 
$
18,833


(1)
Inclusive of our interest rate swap agreements and the interest rate swap component of our cross currency swaps.
(2)
Amounts reclassified to Interest expense, net of interest income in our Unaudited Condensed Consolidated Statements of Income.
(3)
Related to the foreign currency forward component of our cross currency swaps.
(4)
Amounts reclassified to Other (income) expense, net in our Unaudited Condensed Consolidated Statements of Income. These gains and losses offset the impact of the remeasurement of the underlying contracts.
Net unrealized losses related to our pension plans were reclassified to Other (income) expense, net in our Unaudited Condensed Consolidated Statements of Income during each of the six months ended June 30, 2019 and 2018. Our policy is to reclassify the income tax effect from Accumulated other comprehensive income (loss) to the Provision for income taxes when the related gains and losses are released to the Unaudited Condensed Consolidated Statements of Income.
During the first quarter of 2018, we adopted ASU No. 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" ("ASU 2018-02"), which allowed a reclassification from Accumulated other comprehensive income (loss) to Retained earnings for stranded tax effects resulting from the reduction of the U.S. federal statutory income tax rate to 21% from 35% due to the enactment of the Tax Cuts and Jobs Act of 2017 (the "Tax Act"). As a result of the adoption of ASU 2018-02 in the first quarter of 2018, we recorded a $5 million reclassification to increase Accumulated other comprehensive income (loss) and decrease Retained earnings.
Accumulated Other Comprehensive Income (Loss)
The components of Accumulated Other Comprehensive Income (Loss) are as follows (in thousands):
 
 
Three Months Ended
 
 
June 30, 2019
 
 
Foreign
Currency
Translation
 
Unrealized Gain (Loss)
on Cash Flow Hedges
 
Unrealized (Loss) Gain
on Pension Plans
 
Other Comprehensive (Loss) Income from Unconsolidated Subsidiaries
 
Accumulated
Other
Comprehensive
(Loss) Income
Beginning balance
 
$
(187,492
)
 
$
11,637

 
$
(7,884
)
 
$
(7,115
)
 
$
(190,854
)
Pretax (loss) income
 
5,602

 
(9,418
)
 

 

 
(3,816
)
Income tax effect
 

 
2,230

 

 

 
2,230

Reclassification of unrealized (gain) loss
 

 
2,013

 
37

 

 
2,050

Reclassification of deferred income taxes
 

 
(475
)
 
(9
)
 

 
(484
)
Other comprehensive income from unconsolidated subsidiaries
 

 

 

 
2,321

 
2,321

Ending balance
 
$
(181,890
)
 
$
5,987

 
$
(7,856
)
 
$
(4,794
)
 
$
(188,553
)


 
 
Three Months Ended
 
 
June 30, 2018
 
 
Foreign
Currency
Translation
 
Unrealized Gain (Loss)
on Cash Flow Hedges
 
Unrealized (Loss) Gain
on Pension Plans
 
Other Comprehensive (Loss) Income from Unconsolidated Subsidiaries
 
Accumulated
Other
Comprehensive
(Loss) Income
Beginning balance
 
$
(20,589
)
 
$
17,278

 
$
(9,393
)
 
$
(1,914
)
 
$
(14,618
)
Pretax (loss) income
 
(107,167
)
 
30,721

 
(690
)
 

 
(77,136
)
Income tax effect
 
2,003

 
(7,183
)
 
(174
)
 

 
(5,354
)
Reclassification of unrealized (gain) loss
 

 
(27,580
)
 
76

 

 
(27,504
)
Reclassification of deferred income taxes
 

 
6,448

 
(19
)
 

 
6,429

Other comprehensive income from unconsolidated subsidiaries
 

 

 

 
2,122

 
2,122

Ending balance
 
$
(125,753
)
 
$
19,684

 
$
(10,200
)
 
$
208

 
$
(116,061
)

 
 
Six Months Ended
 
 
June 30, 2019
 
 
Foreign
Currency
Translation
 
Unrealized Gain (Loss)
on Cash Flow Hedges
 
Unrealized (Loss) Gain
on Pension Plans
 
Other Comprehensive Loss from Unconsolidated Subsidiaries
 
Accumulated
Other
Comprehensive
(Loss) Income
Beginning balance
 
$
(177,597
)
 
$
14,374

 
$
(8,075
)
 
$
(3,652
)
 
$
(174,950
)
Pretax (loss) income
 
(4,293
)
 
6,175

 

 

 
1,882

Income tax effect
 

 
(1,424
)
 

 

 
(1,424
)
Reclassification of unrealized (gain) loss
 

 
(17,175
)
 
290

 

 
(16,885
)
Reclassification of deferred income taxes
 

 
4,037

 
(71
)
 

 
3,966

Other comprehensive loss from unconsolidated subsidiaries
 

 

 

 
(1,142
)
 
(1,142
)
Ending balance
 
$
(181,890
)
 
$
5,987

 
$
(7,856
)
 
$
(4,794
)
 
$
(188,553
)

 
 
Six Months Ended
 
 
June 30, 2018
 
 
Foreign
Currency
Translation
 
Unrealized Gain (Loss)
on Cash Flow Hedges
 
Unrealized (Loss) Gain
on Pension Plans
 
Other Comprehensive (Loss) Income from Unconsolidated Subsidiaries
 
Accumulated
Other
Comprehensive
(Loss) Income
Beginning balance
 
$
(71,933
)
 
$
11,538

 
$
(8,772
)
 
$
(1,309
)
 
$
(70,476
)
Pretax (loss) income
 
(58,732
)
 
26,220

 
(1,319
)
 

 
(33,831
)
Income tax effect
 
2,053

 
(6,130
)
 
(166
)
 

 
(4,243
)
Reclassification of unrealized (gain) loss