Segment and Geographic Information

12 Months Ended

Dec. 31, 2019

We have four operating segments: Wholesale – North America, Europe, Specialty and Self Service. Our Wholesale – North America and Self Service operating segments are aggregated into one reportable segment, North America, because they possess similar economic characteristics and have common products and services, customers, and methods of distribution. Our reportable segments are organized based on a combination of geographic areas served and type of product lines offered. The reportable segments are managed separately as each business serves different customers (i.e. geographic in the case of North America and Europe and product type in the case of Specialty) and is affected by different economic conditions. Therefore, we present three reportable segments: North America, Europe and Specialty.

The following tables present our financial performance by reportable segment for the periods indicated (in thousands):



	North America		Europe		Specialty		Eliminations			Consolidated
Year Ended December 31, 2019
Revenue:
Third Party	$	5,208,589	$	5,838,124	$	1,459,396	$	—		$	12,506,109
Intersegment	705		—		4,646		(5,351		)	—
Total segment revenue	$	5,209,294	$	5,838,124	$	1,464,042	$	(5,351	)	$	12,506,109
Segment EBITDA	$	712,957	$	454,220	$	161,184	$	—		$	1,328,361
Depreciation and amortization ⁽¹⁾	93,747		191,195		29,464		—			314,406
Year Ended December 31, 2018
Revenue:
Third Party	$	5,181,964	$	5,221,754	$	1,472,956	$	—		$	11,876,674
Intersegment	645		—		4,724		(5,369		)	—
Total segment revenue	$	5,182,609	$	5,221,754	$	1,477,680	$	(5,369	)	$	11,876,674
Segment EBITDA	$	660,153	$	422,721	$	168,525	$	—		$	1,251,399
Depreciation and amortization ⁽¹⁾	87,348		178,473		28,256		—			294,077
Year Ended December 31, 2017
Revenue:
Third Party	$	4,798,901	$	3,636,811	$	1,301,197	$	—		$	9,736,909
Intersegment	750		—		4,319		(5,069		)	—
Total segment revenue	$	4,799,651	$	3,636,811	$	1,305,516	$	(5,069	)	$	9,736,909
Segment EBITDA	$	655,275	$	319,156	$	142,159	$	—		$	1,116,590
Depreciation and amortization ⁽¹⁾	86,303		120,805		23,095		—			230,203

(1) Amounts presented include depreciation and amortization expense recorded within cost of goods sold.

The key measure of segment profit or loss reviewed by our chief operating decision maker, who is our Chief Executive Officer, is Segment EBITDA. Segment EBITDA includes revenue and expenses that are controllable by the segment. Corporate general and administrative expenses are allocated to the segments based on usage, with shared expenses apportioned based on the segment's percentage of consolidated revenue. We calculate Segment EBITDA as EBITDA excluding restructuring and acquisition related expenses (which includes restructuring expenses recorded in Cost of goods sold), change in fair value of contingent consideration liabilities, other gains and losses related to acquisitions, equity method investments or divestitures, equity in losses and earnings of unconsolidated subsidiaries, and impairment charges. EBITDA, which is the basis for Segment EBITDA, is calculated as net income, less net income (loss) attributable to continuing and discontinued noncontrolling interest, excluding discontinued operations and discontinued noncontrolling interest, depreciation, amortization, interest (which includes gains and losses on debt extinguishment) and income tax expense.

The table below provides a reconciliation of Net Income to Segment EBITDA (in thousands):



	Year Ended December 31,
	2019			2018			2017
Net income	$	545,034		$	483,168		$	530,228
Less: net income attributable to continuing noncontrolling interest	2,800			3,050			(3,516		)
Less: net income attributable to discontinued noncontrolling interest	974			—			—
Net income attributable to LKQ stockholders	541,260			480,118			533,744
Subtract:
Net income (loss) from discontinued operations	1,619			(4,397		)	(6,746		)
Net income attributable to discontinued noncontrolling interest	(974		)	—			—
Net income from continuing operations attributable to LKQ stockholders	540,615			484,515			540,490
Add:
Depreciation and amortization	290,770			274,213			219,546
Depreciation and amortization - cost of goods sold	21,007			19,864			10,657
Depreciation and amortization - restructuring expenses - cost of goods sold	305			—			—
Depreciation and amortization - restructuring expenses	2,324			—			—
Interest expense, net of interest income	136,274			144,536			100,620
(Gain) loss on debt extinguishment	(128		)	1,350			456
Provision for income taxes	215,330			191,395			235,560
EBITDA	1,206,497			1,115,873			1,107,329
Subtract:
Equity in (losses) earnings of unconsolidated subsidiaries ⁽¹⁾	(32,277		)	(64,471		)	5,907
Fair value loss on Mekonomen derivative instrument ⁽¹⁾	—			(5,168		)	—
Gain due to resolution of acquisition related matter	12,063			—			—
Gains on bargain purchases and previously held equity interests ⁽²⁾	1,157			2,418			3,870
Add:
Restructuring and acquisition related expenses ⁽³⁾	34,658			32,428			19,672
Restructuring expenses - cost of goods sold ⁽⁴⁾	20,654			—			—
Inventory step-up adjustment - acquisition related	—			403			3,584
Impairment of net assets held for sale and goodwill ^{(5) (6)}	47,102			35,682			—
Change in fair value of contingent consideration liabilities	393			(208		)	(4,218		)
Segment EBITDA	$	1,328,361		$	1,251,399		$	1,116,590


(1)	Refer to "Investments in Unconsolidated Subsidiaries" in Note 4, "Summary of Significant Accounting Policies," for further information.


(2)	Reflects the gains on bargain purchases and previously held equity interests related to our acquisitions of wholesale businesses in Europe and Andrew Page. See Note 2, "Business Combinations," for further information on bargain purchases.


(3)	Excludes $2 million of depreciation expense that is reported in Restructuring and acquisition related expenses in our Consolidated Statements of Income. Refer to Note 6, "Restructuring and Acquisition Related Expenses," for further information.


(4)	Refer to Note 6, "Restructuring and Acquisition Related Expenses," for further information.


(5)	Refer to "Intangible Assets" in Note 4, "Summary of Significant Accounting Policies," for further information on the impairment of goodwill recorded in 2018.


(6)	Refer to "Net Assets Held for Sale" in Note 4, "Summary of Significant Accounting Policies," for further information on the impairment charges recorded during 2019. In 2018, amounts were recorded in Interest income and other income, net in our Consolidated Statements of Income.

The following table presents capital expenditures by reportable segment (in thousands):



	Year Ended December 31,
	2019		2018		2017
Capital Expenditures
North America	$	131,643	$	129,391	$	95,823
Europe	121,596		99,885		71,494
Specialty	12,491		20,751		8,175
Discontinued operations	—		—		3,598
Total capital expenditures	$	265,730	$	250,027	$	179,090

The following table presents assets by reportable segment (in thousands):



	December 31,
	2019		2018		2017
Receivables, net
North America	$	419,452	$	411,818	$	379,666
Europe	636,216		649,174		555,372
Specialty	75,464		93,091		92,068
Total receivables, net	1,131,132		1,154,083		1,027,106
Inventories
North America	991,062		1,076,306		1,076,393
Europe	1,401,801		1,410,264		964,068
Specialty	379,914		349,505		340,322
Total inventories	2,772,777		2,836,075		2,380,783
Property, plant and equipment, net
North America	610,573		570,508		537,286
Europe	538,951		562,600		293,539
Specialty	84,876		87,054		82,264
Total property, plant and equipment, net	1,234,400		1,220,162		913,089
Operating lease assets, net ⁽¹⁾
North America	768,164		—		—
Europe	457,035		—		—
Specialty	83,312		—		—
Total operating lease assets, net	1,308,511		—		—
Equity method investments
North America	17,624		16,404		336
Europe⁽²⁾	121,619		162,765		208,068
Total equity method investments	139,243		179,169		208,404
Other unallocated assets	6,193,893		6,003,913		4,837,490
Total assets	$	12,779,956	$	11,393,402	$	9,366,872


(1)	Refer to Note 13, "Leases," for further information.


(2)	Refer to "Investments in Unconsolidated Subsidiaries" in Note 4, "Summary of Significant Accounting Policies," for further information on the decrease in the balance from December 31, 2018 to December 31, 2019.

We report net receivables; inventories; net property, plant and equipment; net operating lease assets; and equity method investments by segment as that information is used by the chief operating decision maker in assessing segment performance. These assets provide a measure for the operating capital employed in each segment. Unallocated assets include cash and cash equivalents, prepaid and other current and noncurrent assets, goodwill and other intangibles.

Our largest countries of operation are the U.S., followed by the U.K. and Germany. Additional European operations are located in the Netherlands, Italy, Czech Republic, Belgium, Poland, Slovakia, Austria, and other European countries. Our

operations in other countries include operations in Canada, engine remanufacturing operations in Mexico, an aftermarket parts freight consolidation warehouse in Taiwan, and administrative support functions in India. Our net sales are attributed to geographic area based on the location of the selling operation.

The following table sets forth our revenue by geographic area (in thousands):



	Year Ended December 31,
	2019		2018		2017
Revenue
United States	$	6,220,267	$	6,192,636	$	5,662,016
United Kingdom	1,599,074		1,665,317		1,548,212
Germany	1,578,543		974,514		1,744
Other countries	3,108,225		3,044,207		2,524,937
Total revenue	$	12,506,109	$	11,876,674	$	9,736,909

The following table sets forth our tangible long-lived assets by geographic area (in thousands):



	December 31,
	2019		2018		2017
Long-lived assets ⁽¹⁾
United States	$	1,467,701	$	620,125	$	583,236
Germany	340,995		217,476		41
United Kingdom	330,113		165,145		178,021
Other countries	404,102		217,416		151,791
Total long-lived assets	$	2,542,911	$	1,220,162	$	913,089

(1)

The increase in long-lived assets is primarily related to the net operating lease assets added as a result of the adoption of the new lease accounting standard. Refer to Note 13, "Leases," for further information.