Discontinued Operations (Notes)

12 Months Ended

Dec. 31, 2019

Disposal Groups, Including Discontinued Operations, Disclosure [Text Block]

Discontinued Operations

Glass Manufacturing Business

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. 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 Purchase and Supply Agreement expires in the first quarter of 2020, while the Intellectual Property Agreement has a perpetual term; as of December 31, 2019, the Transition Services Agreement had expired.

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, 2019, 2018 and 2017, as presented in Net income (loss) from discontinued operations in the Consolidated Statements of Income (in thousands):



	Year Ended December 31,
	2019 ⁽³⁾			2018			2017
Revenue	$	—		$	—		$	111,130
Cost of goods sold	—			—			100,084
Selling, general and administrative expenses	1,626			—			8,369
Operating (loss) income	(1,626		)	—			2,677
Total other expense, net ⁽¹⁾	—			—			1,204
(Loss) income from discontinued operations before taxes	(1,626		)	—			3,881
(Benefit) provision for income taxes	(1,572		)	—			3,598
Equity in loss of unconsolidated subsidiaries	—			—			(534		)
Loss from discontinued operations, net of tax	(54		)	—			(251		)
Loss on sale of discontinued operations, net of tax ⁽²⁾	—			(4,397		)	(6,495		)
Net loss from discontinued operations	$	(54	)	$	(4,397	)	$	(6,746	)


(1)	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. The other expenses, net were foreign currency gains and losses.

(2) 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 current 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 current 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.


(3)	During the fourth quarter of 2019, we recorded a reserve related to a pre-disposition matter and the related deferred tax benefit, and we settled certain tax matters with Vitro, which are reflected in the benefit for income taxes.

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.

Pursuant to the Purchase and Supply Agreement, our aftermarket automotive glass distribution business agreed to 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, 2019, 2018 and 2017, were $30 million, $24 million and $42 million, respectively.

Czech Republic

As described in Note 2, "Business Combinations," we classified the acquired Stahlgruber Czech Republic wholesale business as discontinued operations. We expect to divest the business within the first half of 2020, and thus, the net assets are reflected on the Consolidated Balance Sheets at the lower of fair value less cost to sell or carrying value. As of December 31, 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 Consolidated Balance Sheets. As of the acquisition date, we acquired $5 million of cash, assumed $6 million of existing debt and settled $6 million of pre-existing balances. During the year ended December 31, 2019, we recorded $2 million of net income from discontinued operations related to the business, of which $1 million was attributable to the noncontrolling interest.

Fair value was based on the estimated selling price, the inputs of which 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 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 December 31, 2019.