UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________________________________

FORM 10-Q

____________________________



☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~September~~June 30, ~~2019~~2020



☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission File Number: 000-50404

____________________________

LKQ CORPORATION

(Exact name of registrant as specified in its charter)

____________________________

Delaware

36-4215970

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

~~Delaware~~

~~36-4215970~~

~~(State or other jurisdiction of~~

~~incorporation or organization)~~

~~(I.R.S. Employer~~

~~Identification No.)~~

500 West Madison Street,

Suite 2800

Chicago,

Illinois

60661

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (~~312~~) (312) 621-1950

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $.01 per share

LKQ

NASDAQ

Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer			☒	Accelerated Filer	☐
~~Non-accelerated Filer~~	☐	~~Smaller Reporting Company~~	☐
Non-accelerated Filer			☐	Smaller Reporting Company	☐
Emerging Growth Company			☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At ~~October 25, 2019,~~July 30, 2020, the registrant had outstanding an aggregate of ~~306,461,589~~304,292,579 shares of Common Stock.

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Income
(In thousands, except per share data)
Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
Revenue $ 3,147,773
$ 3,122,378
$ 9,496,249
$ 8,873,893
Cost of goods sold 1,947,444
1,925,180
5,840,469
5,460,845
Gross margin 1,200,329
1,197,198
3,655,780
3,413,048
Selling, general and administrative expenses 892,124
879,150
2,687,024
2,472,085
Restructuring and acquisition related expenses 8,929
6,614
20,613
26,546
Impairment of net assets held for sale (3,601 ) —
44,919
—
Depreciation and amortization 71,513
76,701
213,349
196,322
Operating income 231,364
234,733
689,875
718,095
Other expense (income):
Interest expense, net of interest income 31,976
40,860
103,949
107,647
Other income, net (5,939 ) (6,959 ) (15,523 ) (9,414 )
Total other expense, net 26,037
33,901
88,426
98,233
Income from continuing operations before provision for income taxes 205,327
200,832
601,449
619,862
Provision for income taxes 57,747
46,068
165,122
156,427
Equity in earnings (losses) of unconsolidated subsidiaries 4,232
(20,284 ) (33,745 ) (18,326 )
Income from continuing operations 151,812

134,480
402,582
445,109
Net income from discontinued operations 781
—
1,179
—
Net income 152,593
134,480
403,761
445,109
Less: net (loss) income attributable to continuing noncontrolling interest (46 ) 378
2,321
1,040
Less: net income attributable to discontinued noncontrolling interest 376
—
568
—
Net income attributable to LKQ stockholders $ 152,263
$ 134,102
$ 400,872
$ 444,069

Basic earnings per share: ⁽¹⁾

Income from continuing operations $ 0.49
$ 0.42
$ 1.29
$ 1.42
Net income from discontinued operations 0.00
—
0.00
—
Net income 0.50
0.42
1.30
1.42
Less: net (loss) income attributable to continuing noncontrolling interest (0.00 ) 0.00
0.01
0.00
Less: net income attributable to discontinued noncontrolling interest 0.00
—
0.00
—
Net income attributable to LKQ stockholders $ 0.50
$ 0.42
$ 1.29
$ 1.42

Diluted earnings per share:⁽¹⁾

Income from continuing operations $ 0.49
$ 0.42

$ 1.29
$ 1.41
Net income from discontinued operations 0.00
—
0.00
—
Net income 0.50
0.42
1.29
1.41
Less: net (loss) income attributable to continuing noncontrolling interest (0.00 ) 0.00
0.01
0.00
Less: net income attributable to discontinued noncontrolling interest 0.00
—
0.00
—
Net income attributable to LKQ stockholders $ 0.49
$ 0.42
$ 1.28
$ 1.41

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Income

(In thousands, except per share data)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020		2019		2020		2019
Revenue	$	2,626,323	$	3,248,173	$	5,627,258	$	6,348,476
Cost of goods sold	1,615,319		2,000,986		3,402,378		3,893,025

Gross margin	1,011,004		1,247,187		2,224,880		2,455,451
Selling, general and administrative expenses	737,369		898,368		1,637,180		1,794,900
Restructuring and acquisition related expenses	24,950		8,377		31,920		11,684
Loss on disposal of businesses and impairment of net assets held for sale	2,485		33,497		2,236		48,520
Depreciation and amortization	65,747		70,834		131,242		141,836

Operating income	180,453		236,111		422,302		458,511
Other expense (income):
Interest expense, net of interest income	25,616		35,884		51,547		71,973
Loss on debt extinguishment	—		—		12,751		—
Other income, net	(8,174)		(5,733)		(11,796)		(9,584)
Total other expense, net	17,442		30,151		52,502		62,389
Income from continuing operations before provision for income taxes	163,011		205,960		369,800		396,122
Provision for income taxes	41,869		55,825		102,280		107,375
Equity in (losses) earnings of unconsolidated subsidiaries	(2,649)		1,572		(2,133)		(37,977)
Income from continuing operations	118,493		151,707		265,387		250,770
Net income (loss) from discontinued operations	277		398		(638)		398
Net income	118,770		152,105		264,749		251,168
Less: net (loss) income attributable to continuing noncontrolling interest	(22)		1,352		718		2,367
Less: net income attributable to discontinued noncontrolling interest	—		192		103		192
Net income attributable to LKQ stockholders	$	118,792	$	150,561	$	263,928	$	248,609

Basic earnings per share: ⁽¹⁾
Income from continuing operations	$	0.39	$	0.49	$	0.87	$	0.80
Net income (loss) from discontinued operations	0.00		0.00		(0.00)		0.00
Net income	0.39		0.49		0.87		0.80
Less: net (loss) income attributable to continuing noncontrolling interest	(0.00)		0.00		0.00		0.01
Less: net income attributable to discontinued noncontrolling interest	—		0.00		0.00		0.00
Net income attributable to LKQ stockholders	$	0.39	$	0.48	$	0.86	$	0.79

Diluted earnings per share:⁽¹⁾
Income from continuing operations	$	0.39	$	0.49	$	0.87	$	0.80
Net income (loss) from discontinued operations	0.00		0.00		(0.00)		0.00
Net income	0.39		0.49		0.87		0.80
Less: net (loss) income attributable to continuing noncontrolling interest	(0.00)		0.00		0.00		0.01
Less: net income attributable to discontinued noncontrolling interest	—		0.00		0.00		0.00
Net income attributable to LKQ stockholders	$	0.39	$	0.48	$	0.86	$	0.79

⁽¹⁾ The sum of the individual earnings per share amounts may not equal the total due to rounding.

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

LKQ CORPORATION AND SUBSIDIARIES

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Comprehensive Income
(In thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
Net income $ 152,593
$ 134,480
$ 403,761
$ 445,109
Less: net (loss) income attributable to continuing noncontrolling interest (46 ) 378
2,321
1,040
Less: net income attributable to discontinued noncontrolling interest 376
—
568
—
Net income attributable to LKQ stockholders 152,263
134,102
400,872
444,069

Other comprehensive (loss) income:
Foreign currency translation, net of tax (69,819 ) (20,951 ) (74,112 ) (77,630 )
Net change in unrealized gains/losses on cash flow hedges, net of tax (1,261 ) 304
(9,648 ) 5,964
Net change in unrealized gains/losses on pension plans, net of tax (2,353 ) 1,274
(2,134 ) (154 )
Net change in other comprehensive income from unconsolidated subsidiaries 1,240
643
98
2,160
Other comprehensive loss (72,193 ) (18,730 ) (85,796 ) (69,660 )

Comprehensive income 80,400
115,750
317,965
375,449
Less: comprehensive (loss) income attributable to continuing noncontrolling interest (46 ) 378

2,321

1,040
Less: comprehensive income attributable to discontinued noncontrolling interest 376
—

568

—
Comprehensive income attributable to LKQ stockholders $ 80,070
$ 115,372
$ 315,076
$ 374,409

Unaudited Condensed Consolidated Statements of Comprehensive Income

(In thousands)


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020		2019		2020		2019
Net income	$	118,770	$	152,105	$	264,749	$	251,168
Less: net (loss) income attributable to continuing noncontrolling interest	(22)		1,352		718		2,367
Less: net income attributable to discontinued noncontrolling interest	—		192		103		192
Net income attributable to LKQ stockholders	118,792		150,561		263,928		248,609

Other comprehensive income (loss):
Foreign currency translation, net of tax	31,334		5,602		(72,631)		(4,293)
Net change in unrealized gains/losses on cash flow hedges, net of tax	(31)		(5,650)		(7,352)		(8,387)
Net change in unrealized gains/losses on pension plans, net of tax	1,875		28		1,995		219
Other comprehensive income (loss) from unconsolidated subsidiaries	962		2,321		(890)		(1,142)
Other comprehensive income (loss)	34,140		2,301		(78,878)		(13,603)

Comprehensive income	152,910		154,406		185,871		237,565
Less: comprehensive (loss) income attributable to continuing noncontrolling interest	(22)		1,352		718		2,367
Less: comprehensive income attributable to discontinued noncontrolling interest	—		192		103		192
Comprehensive income attributable to LKQ stockholders	$	152,932	$	152,862	$	185,050	$	235,006

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(In thousands, except share and per share data)
September 30, December 31,
2019 2018
Assets
Current assets:
Cash and cash equivalents $ 433,391
$ 331,761
Receivables, net 1,223,197
1,154,083
Inventories 2,582,188
2,836,075
Prepaid expenses and other current assets 245,082
199,030
Total current assets 4,483,858
4,520,949
Property, plant and equipment, net 1,184,188
1,220,162
Operating lease assets, net 1,303,260
—
Intangible assets:
Goodwill 4,309,822
4,381,458
Other intangibles, net 837,272
928,752
Equity method investments 144,009
179,169
Other noncurrent assets 149,281
162,912
Total assets $ 12,411,690
$ 11,393,402
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 997,874
$ 942,398
Accrued expenses:
Accrued payroll-related liabilities 162,152
172,005
Refund liability 100,327
104,585
Other accrued expenses 326,634
288,425
Other current liabilities 113,349
61,109
Current portion of operating lease liabilities 225,572
—
Current portion of long-term obligations 128,143
121,826
Total current liabilities 2,054,051
1,690,348
Long-term operating lease liabilities, excluding current portion 1,129,423
—
Long-term obligations, excluding current portion 3,737,112
4,188,674
Deferred income taxes 296,199
311,434
Other noncurrent liabilities 322,205
364,194
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 319,598,334 shares issued and 306,402,419 shares outstanding at September 30, 2019; 318,417,821 shares issued and 316,146,114 shares outstanding at December 31, 2018 3,196
3,184
Additional paid-in capital 1,427,382
1,415,188
Retained earnings 3,999,748
3,598,876
Accumulated other comprehensive loss (260,746 ) (174,950 )
Treasury stock, at cost; 13,195,915 shares at September 30, 2019 and 2,271,707 shares at December 31, 2018 (351,813 ) (60,000 )
Total Company stockholders' equity 4,817,767
4,782,298
Noncontrolling interest 54,933
56,454
Total stockholders' equity 4,872,700
4,838,752
Total liabilities and stockholders' equity $ 12,411,690
$ 11,393,402
(In thousands, except share and per share data)


	June 30,		December 31,
	2020		2019
Assets
Current assets:
Cash and cash equivalents	$	476,426	$	523,020
Receivables, net	1,125,816		1,131,132
Inventories	2,288,293		2,772,777
Prepaid expenses and other current assets	216,438		260,890

Total current assets	4,106,973		4,687,819
Property, plant and equipment, net	1,196,505		1,234,400
Operating lease assets, net	1,272,513		1,308,511
Intangible assets:
Goodwill	4,377,350		4,406,535
Other intangibles, net	798,799		850,338
Equity method investments	136,673		139,243
Other noncurrent assets	146,486		153,110
Total assets	$	12,035,299	$	12,779,956
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	756,846	$	942,795
Accrued expenses:
Accrued payroll-related liabilities	179,470		179,203
Refund liability	103,679		97,314
Value added taxes payable	160,294		46,490
Other accrued expenses	258,490		243,193
Income taxes payable	114,202		26,959
Other current liabilities	67,410		94,664
Current portion of operating lease liabilities	216,177		221,527
Current portion of long-term obligations	93,200		326,367

Total current liabilities	1,949,768		2,178,512
Long-term operating lease liabilities, excluding current portion	1,112,230		1,137,597
Long-term obligations, excluding current portion	3,157,725		3,715,389
Deferred income taxes	299,867		310,129
Other noncurrent liabilities	343,691		365,672
Commitments and contingencies
Redeemable noncontrolling interest	24,077		24,077
Stockholders' equity:
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 320,530,156 shares issued and 304,034,241 shares outstanding at June 30, 2020; 319,927,243 shares issued and 306,731,328 shares outstanding at December 31, 2019	3,205		3,199
Additional paid-in capital	1,433,338		1,418,239
Retained earnings	4,401,545		4,140,136
Accumulated other comprehensive loss	(279,763)		(200,885)
Treasury stock, at cost; 16,495,915 shares at June 30, 2020 and 13,195,915 shares at December 31, 2019	(439,819)		(351,813)
Total Company stockholders' equity	5,118,506		5,008,876
Noncontrolling interest	29,435		39,704
Total stockholders' equity	5,147,941		5,048,580
Total liabilities and stockholders' equity	$	12,035,299	$	12,779,956

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

LKQ CORPORATION AND SUBSIDIARIES

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
Nine Months Ended
September 30,
2019 2018
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 403,761
$ 445,109
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 230,239
210,977
Impairment of Mekonomen equity method investment 39,551
22,715
Impairment of net assets held for sale 44,919
—
Stock-based compensation expense 20,837
17,544
Other (13,320 ) (7,187 )
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions:
Receivables, net (102,381 ) (70,797 )
Inventories 148,237
(71,058 )
Prepaid income taxes/income taxes payable 40,711
7,262
Accounts payable 90,879
(71,997 )
Other operating assets and liabilities 61,738
38,599
Net cash provided by operating activities 965,171
521,167
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (165,551 ) (171,763 )
Acquisitions, net of cash acquired (14,517 ) (1,206,067 )
Proceeds from disposal of businesses 19,505
—
Investments in unconsolidated subsidiaries (6,894 ) (11,066 )
Receipts of deferred purchase price on receivables under factoring arrangements —
9,410
Other investing activities, net 7,368
7,970
Net cash used in investing activities (160,089 ) (1,371,516 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt issuance costs —
(16,938 )
Proceeds from issuance of Euro Notes (2026/28) —
1,232,100
Purchase of treasury stock (291,813 ) —
Borrowings under revolving credit facilities 390,275
1,025,496
Repayments under revolving credit facilities (613,758 ) (1,110,035 )
Repayments under term loans (6,563 ) (114,800 )
Borrowings under receivables securitization facility 36,600
—
Repayments under receivables securitization facility (146,600 ) —
Payment of notes issued from acquisitions (19,123 ) —
Repayments of other debt, net (31,587 ) (38,695 )
Other financing activities, net (7,125 ) 2,186
Net cash (used in) provided by financing activities (689,694 ) 979,314
Effect of exchange rate changes on cash, cash equivalents and restricted cash (9,702 ) (67,385 )
Net increase in cash, cash equivalents and restricted cash 105,686
61,580
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 442,936
341,346
Less: Cash and cash equivalents of discontinued operations, end of period 4,328
—
Cash, cash equivalents and restricted cash, end of period $ 438,608
$ 341,346

Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents $ 433,391
$ 341,346
Restricted cash included in Other noncurrent assets 5,217
—
Cash, cash equivalents and restricted cash, end of period $ 438,608
$ 341,346

Supplemental disclosure of cash paid for:
Income taxes, net of refunds $ 134,998
$ 158,740
Interest 86,525
74,417
Supplemental disclosure of noncash investing and financing activities:
Stock issued in acquisitions $ —
$ 251,334
Noncash property, plant and equipment additions 6,597
11,010
Notes payable and other financing obligations, including notes issued, debt assumed and settlement of pre-existing balances in connection with business acquisitions 45,311
82,664
Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)


	Six Months Ended
	June 30,
	2020		2019
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	264,749	$	251,168
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	144,309		152,361
Impairment of equity method investments	—		39,551

Loss on disposal of businesses and impairment of net assets held for sale	2,236		48,520
Stock-based compensation expense	15,763		13,659
Loss on debt extinguishment	12,751		—
Other	(3,554)		(3,516)
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions:
Receivables, net	(5,111)		(149,052)
Inventories	445,493		131,229

Prepaid income taxes/income taxes payable	84,125		25,967
Accounts payable	(172,140)		96,888
Other operating assets and liabilities	124,431		31,629
Net cash provided by operating activities	913,052		638,404
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(77,301)		(101,268)
Proceeds from disposals of property, plant and equipment	6,110		1,976
Acquisitions, net of cash acquired	(5,465)		(14,767)
Proceeds from disposal of businesses, net of cash sold	4,602		—


Other investing activities, net	(3,917)		(2,711)
Net cash used in investing activities	(75,971)		(116,770)
CASH FLOWS FROM FINANCING ACTIVITIES:
Early-redemption premium	(9,498)		—
Repayment of U.S. Notes (2023)	(600,000)		—
Borrowings under revolving credit facilities	494,485		312,880
Repayments under revolving credit facilities	(601,480)		(471,439)
Repayments under term loans	(8,750)		(4,375)
Borrowings under receivables securitization facility	111,300		36,600
Repayments under receivables securitization facility	(111,300)		(146,600)

Repayments of other debt, net	(66,073)		(8,367)
Purchase of treasury stock	(88,006)		(190,762)
Other financing activities, net	(10,832)		75
Net cash used in financing activities	(890,154)		(471,988)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(5,358)		(102)
Net (decrease) increase in cash, cash equivalents and restricted cash	(58,431)		49,544
Cash, cash equivalents and restricted cash of continuing operations, beginning of period	528,387		337,250
Add: Cash, cash equivalents and restricted cash of discontinued operations, beginning of period	6,470		—
Cash, cash equivalents and restricted cash of continuing and discontinued operations, beginning of period	534,857		337,250
Cash, cash equivalents and restricted cash of continuing and discontinued operations, end of period	476,426		386,794
Less: Cash and cash equivalents of discontinued operations, end of period	—		5,372
Cash, cash equivalents and restricted cash, end of period	$	476,426	$	381,422

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.


	Six Months Ended
	June 30,
	2020		2019
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	476,426	$	375,967
Restricted cash included in Other noncurrent assets	—		5,455
Cash, cash equivalents and restricted cash, end of period	$	476,426	$	381,422

Supplemental disclosure of cash paid for:
Income taxes, net of refunds	$	24,452	$	88,001
Interest	55,910		75,259
Supplemental disclosure of noncash investing and financing activities:
Leased assets obtained in exchange for new finance lease liabilities	$	8,225	$	7,568
Leased assets obtained in exchange for new operating lease liabilities	36,458		61,891
Noncash property, plant and equipment additions	7,200		14,227
Notes payable and other financing obligations, including notes issued, debt assumed and settlement of pre-existing balances in connection with business acquisitions and disposals	6,136		45,420
Notes receivable and contingent consideration receivable acquired in connection with disposal of businesses	8,549		—
Contingent consideration liabilities	3,045		5,377

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)
Notes issued in connection with purchase of noncontrolling interest 14,196
—
Contingent consideration liabilities 5,377
3,107

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

LKQ CORPORATION AND SUBSIDIARIES

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Stockholders' Equity
(In thousands)
LKQ Stockholders
Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings
Accumulated
Other
Comprehensive Loss
Noncontrolling Interest Total Stockholders' Equity
Shares Amount Shares Amount
BALANCE, July 1, 2019 319,010
$ 3,190
(9,315 ) $ (250,762 ) $ 1,429,129
$ 3,847,485
$ (188,553 ) $ 69,259
$ 4,909,748
Net income —
—
—
—
—
152,263
—
330
152,593
Other comprehensive loss —
—
—
—
—
—
(72,193 ) —
(72,193 )
Purchase of treasury stock —
—
(3,881 ) (101,051 ) —
—
—
—
(101,051 )
Vesting of restricted stock units, net of shares withheld for employee tax 313
3
—
—
(650 ) —
—
—
(647 )
Stock-based compensation expense —
—
—
—
7,178
—
—
—
7,178
Exercise of stock options 370
4
—
—
3,594
—
—
—
3,598
Tax withholdings related to net share settlements of stock-based compensation awards (95 ) (1 ) —
—
(3,105 ) —
—
—
(3,106 )
Capital contributions from, net of dividends declared to, noncontrolling interest shareholder —
—
—
—
—
—
—
(4,644 ) (4,644 )
Acquired noncontrolling interest ⁽¹⁾
—
—
—
—
—
—
—
104
104
Purchase of noncontrolling interest⁽²⁾
—
—
—
—
(8,764 ) —
—
(10,116 ) (18,880 )
BALANCE, September 30, 2019 319,598
$ 3,196
(13,196 ) $ (351,813 ) $ 1,427,382
$ 3,999,748
$ (260,746 ) $ 54,933
$ 4,872,700
Unaudited Condensed Consolidated Statements of Stockholders' Equity

(In thousands)


	LKQ Stockholders
	Common Stock				Treasury Stock						Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Noncontrolling Interest	Total Stockholders' Equity
	Shares	Amount		Shares	Amount














BALANCE, April 1, 2020	320,439	$	3,204	(16,496)	$	(439,819)	$	1,425,600	$	4,282,753	$	(313,903)	$	29,484	$	4,987,319
Net income (loss)	—	—		—	—		—		118,792		—		(22)		118,770
Other comprehensive income	—	—		—	—		—		—		34,140		—		34,140

Vesting of restricted stock units, net of shares withheld for employee tax	91	1		—	—		(57)		—		—		—		(56)
Stock-based compensation expense	—	—		—	—		7,795		—		—		—		7,795


Capital contributions from, net of dividends declared to, noncontrolling interest shareholder	—	—		—	—		—		—		—		(27)		(27)



BALANCE, June 30, 2020	320,530	$	3,205	(16,496)	$	(439,819)	$	1,433,338	$	4,401,545	$	(279,763)	$	29,435	$	5,147,941

⁽¹⁾ ~~The amount acquired during 2019 relates to discontinued operations. See Note 3, "Discontinued Operations," for further details.~~

⁽²⁾The amount recorded in 2019 relates to the purchase of noncontrolling interest unrelated to a business combination. Refer to "Stockholders' Equity" in Note 4, "Financial Statement Information" for further information.


	LKQ Stockholders
	Common Stock				Treasury Stock						Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive (Loss) Income		Noncontrolling Interest	Total Stockholders' Equity
	Shares	Amount		Shares	Amount
BALANCE, April 1, 2019	318,889	$	3,189	(4,915)	$	(130,462)	$	1,420,685	$	3,696,924	$	(190,854)	$	57,292	$	4,856,774
Net income	—	—		—	—		—		150,561		—		1,544		152,105
Other comprehensive income	—	—		—	—		—		—		2,301		—		2,301
Purchase of treasury stock	—	—		(4,400)	(120,300)		—		—		—		—		(120,300)
Vesting of restricted stock units, net of shares withheld for employee tax	68	1		—	—		(78)		—		—		—		(77)
Stock-based compensation expense	—	—		—	—		7,986		—		—		—		7,986
Exercise of stock options	53	0		—	—		536		—		—		—		536
Capital contributions from, net of dividends declared to, noncontrolling interest shareholder	—	—		—	—		—		—		—		162		162
Acquired noncontrolling interest	—	—		—	—		—		—		—		10,261		10,261
BALANCE, June 30, 2019	319,010	$	3,190	(9,315)	$	(250,762)	$	1,429,129	$	3,847,485	$	(188,553)	$	69,259	$	4,909,748

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Stockholders' Equity
(In thousands)
LKQ Stockholders
Common Stock Additional Paid-In Capital
Retained
Earnings

Accumulated
Other
Comprehensive Loss
Noncontrolling Interest Total Stockholders' Equity
Shares Amount
BALANCE, July 1, 2018 317,821
$ 3,178
$ 1,403,630
$ 3,428,725
$ (116,061 ) $ 57,503
$ 4,776,975
Net income —
—
—
134,102
—
378
134,480
Other comprehensive loss —
—
—
—
(18,730 ) —
(18,730 )
Vesting of restricted stock units, net of shares withheld for employee tax 256
3
(937 ) —
—
—
(934 )
Stock-based compensation expense —
—
5,700
—
—
—
5,700
Exercise of stock options 120
1
849
—
—
—
850
Capital contributions from, net of dividends to, noncontrolling interest shareholder —
—
—
—
—
(925 ) (925 )
BALANCE, September 30, 2018 318,197
$ 3,182
$ 1,409,242
$ 3,562,827
$ (134,791 ) $ 56,956
$ 4,897,416

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Stockholders' Equity
(In thousands)
LKQ Stockholders
Common Stock Treasury Stock Additional Paid-In Capital
Retained
Earnings

Accumulated
Other
Comprehensive Loss
Noncontrolling Interest Total Stockholders' Equity
Shares Amount Shares Amount
BALANCE, January 1, 2019 318,418
$ 3,184
(2,272 ) $ (60,000 ) $ 1,415,188
$ 3,598,876
$ (174,950 ) $ 56,454
$ 4,838,752
Net income —
—
—
—
—
400,872
—
2,889
403,761
Other comprehensive loss —
—
—
—
—

(85,796 )

(85,796 )
Purchase of treasury stock —
—
(10,924 ) (291,813 ) —
—
—
—
(291,813 )
Vesting of restricted stock units, net of shares withheld for employee tax 684
7
—
—
(1,808 ) —
—
—
(1,801 )
Stock-based compensation expense —
—
—
—
20,837
—
—
—
20,837
Exercise of stock options 606
6
—
—
5,462
—
—
—
5,468
Tax withholdings related to net share settlements of stock-based compensation awards (110 ) (1 ) —
—
(3,533 ) —
—
—
(3,534 )
Capital contributions from, net of dividends declared to, noncontrolling interest shareholder —
—
—
—
—
—
—
(4,659 ) (4,659 )
Acquired noncontrolling interest ⁽¹⁾
—
—
—
—
—
—
—
10,365
10,365
Purchase of noncontrolling interest⁽²⁾
—
—
—
—
(8,764 ) —
—
(10,116 ) (18,880 )
BALANCE, September 30, 2019 319,598
$ 3,196
(13,196 ) $ (351,813 ) $ 1,427,382
$ 3,999,748
$ (260,746 ) $ 54,933
$ 4,872,700

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Stockholders' Equity

(In thousands)


	LKQ Stockholders
	Common Stock				Treasury Stock						Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest	Total Stockholders' Equity
	Shares	Amount		Shares	Amount














BALANCE, January 1, 2020	319,927	$	3,199	(13,196)	$	(351,813)	$	1,418,239	$	4,140,136	$	(200,885)	$	39,704	$	5,048,580
Net income	—	—		—	—		—		263,928		—		821		264,749
Other comprehensive loss	—	—		—	—		—		—		(78,878)		—		(78,878)
Purchase of treasury stock	—	—		(3,300)	(88,006)		—		—		—		—		(88,006)
Vesting of restricted stock units, net of shares withheld for employee tax	491	5		—	—		(2,130)		—		—		—		(2,125)
Stock-based compensation expense	—	—		—	—		15,763		—		—		—		15,763
Exercise of stock options	112	1		—	—		1,466		—		—		—		1,467

Capital contributions from, net of dividends declared to, noncontrolling interest shareholder	—	—		—	—		—		—		—		314		314
Adoption of ASU 2016-13 (see Note 3)	—	—		—	—		—		(2,519)		—		—		(2,519)
Disposition of subsidiary with noncontrolling interests⁽¹⁾	—	—		—	—		—		—		—		(11,404)		(11,404)

BALANCE, June 30, 2020	320,530	$	3,205	(16,496)	$	(439,819)	$	1,433,338	$	4,401,545	$	(279,763)	$	29,435	$	5,147,941

⁽¹⁾The amount ~~acquired during 2019~~disposed of in 2020 relates to discontinued operations. See Note 3,2, "Discontinued Operations," for further ~~details.~~information.


	LKQ Stockholders
	Common Stock				Treasury Stock						Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest	Total Stockholders' Equity
	Shares	Amount		Shares	Amount
BALANCE, January 1, 2019	318,418	$	3,184	(2,272)	$	(60,000)	$	1,415,188	$	3,598,876	$	(174,950)	$	56,454	$	4,838,752
Net income	—	—		—	—		—		248,609		—		2,559		251,168
Other comprehensive loss	—	—		—	—		—		—		(13,603)		—		(13,603)
Purchase of treasury stock	—	—		(7,043)	(190,762)		—		—		—		—		(190,762)
Vesting of restricted stock units, net of shares withheld for employee tax	371	4		—	—		(1,158)		—		—		—		(1,154)
Stock-based compensation expense	—	—		—	—		13,659		—		—		—		13,659
Exercise of stock options	236	2		—	—		1,868		—		—		—		1,870
Tax withholdings related to net share settlements of stock-based compensation awards	(15)	—		—	—		(428)		—		—		—		(428)
Capital contributions from, net of dividends declared to, noncontrolling interest shareholder	—	—		—	—		—		—		—		(15)		(15)
Acquired noncontrolling interest	—	—		—	—		—		—		—		10,261		10,261
BALANCE, June 30, 2019	319,010	$	3,190	(9,315)	$	(250,762)	$	1,429,129	$	3,847,485	$	(188,553)	$	69,259	$	4,909,748

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Stockholders' Equity
(In thousands)
LKQ Stockholders
Common Stock Additional Paid-In Capital
Retained
Earnings

Accumulated
Other
Comprehensive (Loss) Income
Noncontrolling Interest Total Stockholders' Equity
Shares Amount
BALANCE, January 1, 2018 309,127
$ 3,091
$ 1,141,451
$ 3,124,103
$ (70,476 ) $ 8,484
$ 4,206,653
Net income —
—
—
444,069
—
1,040
445,109
Other comprehensive loss —
—
—
—
(69,660 ) —
(69,660 )
Stock issued in acquisitions 8,056
81
251,253
—
—
—
251,334
Vesting of restricted stock units, net of shares withheld for employee tax 600
6
(3,717 ) —
—
—
(3,711 )
Stock-based compensation expense —
—
17,544
—
—
—
17,544
Exercise of stock options 441
4
3,768
—
—
—
3,772
Shares withheld for net share settlement of stock option awards (27 ) —
(1,057 ) —
—
—
(1,057 )
Adoption of ASU 2018-02 (see Note 9) —
—
—
(5,345 ) 5,345
—
—
Capital contributions from, net of dividends to, noncontrolling interest shareholder —
—
—
—
—
3,182
3,182
Acquired noncontrolling interest —
—
—
—
—
44,250
44,250
BALANCE, September 30, 2018 318,197

$ 3,182

$ 1,409,242

$ 3,562,827

$ (134,791 )
$ 56,956

$ 4,897,416

The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.

LKQ CORPORATION AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements


~~Note 1.~~	~~Interim Financial Statements~~

Note 1. 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~~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~~2019 filed with the SEC ~~on March 1,~~ on February 27, 2020 ("2019 ~~("2018~~ Form 10-K").

~~Note 2. Business Combinations~~

~~During~~The coronavirus disease 2019 ("COVID-19") pandemic and the ~~nine months ended September 30, 2019, we completed 5 acquisitions, including 1 wholesale business~~resulting governmental actions taken to control the virus have impacted, and ~~1 self service~~are expected to continue to impact, our business in ~~North America,~~2020 and ~~3 wholesale businesses~~into 2021. The effects include, but are not limited to, a reduction in ~~Europe. These acquisitions were not material~~demand for our products and services, liquidity challenges for certain of our customers and suppliers, and organizational changes, such as personnel reductions and route consolidation, driven by cost actions to mitigate the actual and expected revenue decline. We have considered COVID-19 impacts in the preparation of our ~~results of operations or~~ financial ~~position~~statements and footnotes as of and for the three and nine months ended September 30, 2019. Total acquisition date fair value of the consideration for our acquisitions for the nine months ended September 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~~2020. Specific disclosures are presented in the ~~Czech Republic.~~ following footnotes as applicable.

The ~~acquisition~~ultimate impact of ~~Stahlgruber’s Czech Republic wholesale~~COVID-19 on our business, ~~was referred to~~results of operations, financial condition and cash flows is dependent on future developments, including 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 certainseverity and duration 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 4 wholesale businesses in North America and 9 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 nine months ended September 30, 2019 and the last three 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 third 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 should allow for continued improvement in procurement, logistics and infrastructure optimization. The primary objectives of our other acquisitions made during the nine months ended September 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 nine months ended September 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 Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
Revenue, as reported $ 3,147,773
$ 3,122,378
$ 9,496,249
$ 8,873,893
Revenue of purchased businesses for the period prior to acquisition:
Stahlgruber —
—
—
815,405
Other acquisitions —
33,708
16,481
133,545
Pro forma revenue $ 3,147,773
$ 3,156,086
$ 9,512,730
$ 9,822,843

Income from continuing operations, as reported ⁽¹⁾
$ 151,812
$ 134,480
$ 402,582
$ 445,109
Income from continuing operations of purchased businesses for the period prior to acquisition, and pro forma purchase accounting adjustments:
Stahlgruber 4,368
5,624
10,484
14,114
Other acquisitions 314
1,863
2,161
4,780
Acquisition related expenses, net of tax ⁽²⁾
1,174
681
1,498
13,986
Pro forma income from continuing operations 157,668
142,648
416,725
477,989
Less: Net (loss) income attributable to continuing noncontrolling interest, as reported (46 ) 378
2,321
1,040
Less: Pro forma net income attributable to continuing noncontrolling interest —
—
—
2,799
Pro forma net income from continuing operations attributable to LKQ stockholders ⁽³⁾
$ 157,714
$ 142,270
$ 414,404
$ 474,150


~~(1)~~	~~2018 amounts include interest expense for the period from April 9, 2018 through September 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,pandemic and the related ~~tax effects. The pro forma~~ impact ~~of our acquisitions also reflects~~on the ~~elimination of acquisition related expenses, net of tax. Refer to Note 6, "Restructuring~~global economy, which are uncertain 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.cannot be predicted at this time.

Note 3.2. Discontinued Operations

~~As described~~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 ~~Note 2, "Business Combinations," we classified~~Germany, Austria, Italy, Slovenia, and Croatia, with further sales to Switzerland. Prior to closing, on May 3, 2018, the ~~acquired~~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. We intend to divest~~operations because the business ~~within~~was never integrated into our Europe segment.

We completed the ~~next year, and thus, the net assets are reflected~~sale of Stahlgruber's Czech Republic business on February 28, 2020, resulting in a loss on sale of $1 million (presented in Net income (loss) from discontinued operations in the Unaudited Condensed Consolidated ~~Balance Sheet at~~Statements of Income). As part of the ~~lower~~transaction, we purchased the 48.2% noncontrolling interest from the minority shareholder for a purchase price of ~~fair value less cost~~€8 million, which included the issuance of €4 million of notes payable, and then concurrently sold 100% of the business for a purchase price of €14 million, which included €7 million of notes receivable. This transaction resulted in a disposition of noncontrolling interest of $11 million. From January 1, 2020 through the date of sale, we recorded an immaterial amount of net income (excluding the loss on sale) from discontinued operations related to ~~sell or carrying value.~~ the business, of which an immaterial amount was attributable to the noncontrolling interest. During the three months ended June 30, 2020, we recorded an immaterial adjustment related to the loss on disposal of the business.

As of ~~September 30,~~December 31, 2019, the assets held for sale, liabilities held for sale, and noncontrolling interest ~~are~~of Stahlgruber's Czech Republic business were 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.~~Sheets.

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 September 30, 2019.

Note 4.3. Financial Statement Information

Allowance for ~~Doubtful Accounts~~Credit Losses

~~We have~~Management evaluates the aging of customer receivable balances, the financial condition of our customers, historical trends, and macroeconomic factors to estimate the amount of customer receivables that may not be collected in the future and records a provision it believes is appropriate. Our reserve for ~~uncollectible accounts, which~~expected lifetime credit losses was approximately ~~$50~~$70 million and ~~$57~~$53 million at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. Bad debt expense totaled $24 million and $6 million for the six months ended June 30, 2020 and June 30, 2019, respectively. The increase in our allowance for credit losses since December 31, 2019 is attributable to the $3 million effect of the adoption of ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments" ("ASU 2016-13") in the first quarter of 2020 (see the Recently Adopted Accounting Pronouncements section below for further details) and an increase in expected lifetime losses primarily attributable to the downturn in the global economy related to the effects of the COVID-19 pandemic.

Inventories

Inventories consist of the following (in thousands):

September 30, December 31,
2019 2018
Aftermarket and refurbished products $ 2,117,275
$ 2,309,458
Salvage and remanufactured products 438,845
503,199
Manufactured products 26,068
23,418
Total inventories $ 2,582,188
$ 2,836,075


	June 30,		December 31,
	2020		2019
Aftermarket and refurbished products	$	1,895,922	$	2,297,895
Salvage and remanufactured products	366,699		447,908
Manufactured products	25,672		26,974
Total inventories	$	2,288,293	$	2,772,777

Aftermarket and refurbished products and salvage and remanufactured products are primarily composed of finished goods. As of ~~September~~June 30, 2020, manufactured products inventory was composed of $18 million of raw materials, $3 million of work in process, and $4 million of finished goods. As of December 31, 2019, manufactured products inventory was composed of $17 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 2019 and the first ~~six months~~half of ~~2019,~~2020, 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 ~~totaling~~of $2 million for each of the three and six months ended June 30, 2020 and $33 million and $49 million ~~through~~for the three and six months ended June 30, 2019 (presented in ~~Impairment~~Loss on disposal of businesses and impairment of net assets held for sale in the Unaudited Condensed Consolidated ~~Statement~~Statements of Income). In the third quarter of 2019, we completed the sales of 2 of these businesses, our aviation business in North America and a wholesale business in Bulgaria. The proceeds exceeded our prior fair value estimates, resulting in a net $4 million reduction of previously reported impairment charges for the three months ended September 30, 2019 and a net

$45 million impairment charge for the nine months ended September 30, 2019. The disposed businesses were immaterial, generating annualized revenue of approximately $55 million during the twelve-month period ended September 30, 2019.

Excluding the Stahlgruber Czech Republic wholesale business discussed in Note 3,2, "Discontinued Operations," as of ~~September 30,~~December 31, 2019, there were ~~$13~~$19 million of assets held for sale ~~including $3 million of goodwill that was reclassified as held for sale related to our Europe segment,~~ and $4$9 million of liabilities held for sale, which were recorded within Prepaid expenses and other current assets and Other current liabilities, respectively, on the Unaudited Condensed Consolidated Balance Sheet. ~~We expect~~As of June 30, 2020, assets and liabilities held for sale were immaterial.

In the ~~remaining~~second quarter of 2020, we completed the sale of one of these businesses, a non-core telecommunications operation in Germany, resulting in an immaterial loss on sale (presented in Loss on disposal of businesses and impairment of net assets held for sale ~~to be~~in the Unaudited Condensed Consolidated Statements of Income). The disposed ~~of during the next twelve months. The remaining assets held for sale generated~~business was immaterial, generating annualized revenue of approximately ~~$84~~$78 million during the twelve-month period ended ~~September 30, 2019.~~May 31, 2020.

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~~analyses of the businesses were based on projected 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, the inputs to our estimates included projected market multiples and any reasonable offers. Due to uncertainties in the estimation process, it is possible that actual results could differ from the estimates used in our 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 ~~September~~June 30, 2020.

Intangible Assets

Goodwill and indefinite-lived intangibles are tested for impairment at least annually, and we performed our annual impairment tests during the fourth quarter of 2019. Goodwill impairment testing may also be performed on an interim basis when events or circumstances arise that may lead to impairment. LKQ’s market capitalization declined by approximately 40%

between February 20, 2020, when the Company released its 2019 financial results, and March 31, 2020. While we believed that the decrease was driven by market reaction to COVID-19, the magnitude of the market capitalization decrease was deemed to be a triggering event requiring an interim test of goodwill impairment in the first quarter.

The fair value estimates of our reporting units were established using weightings of the results of a discounted cash flow methodology and a comparative market multiples approach. At the time of our analysis, our projections for the interim impairment test assumed that the COVID-19 impact would be severe, with revenue down by as much as 50% in the second quarter of 2020 compared to our prior forecast used in the 2019 impairment analysis, but temporary, as revenue would improve gradually in the second half of 2020. We expected that cost mitigation actions and cash preservation measures would dampen the negative impact of the projected revenue decline.

Based on the interim test in the first quarter of 2020, we determined no impairments existed as all reporting units had a fair value estimate that exceeded the carrying value by at least 12%, the level at which our Europe reporting unit exceeded its carrying value.

We did not identify a triggering event in the second quarter that necessitated an interim test of goodwill impairment, as LKQ’s market capitalization increased by approximately 28% between March 31 and June 30, 2020. Actual results for the second quarter were favorable relative to the forecast used in the first quarter interim test.

Leases

We lease certain warehouses, distribution centers, retail stores, office space, land, vehicles and equipment. We determine if an arrangement is a lease at inception. Operating and finance lease right-of-use ("ROU") assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As the implicit rate for most of our leases is not readily determinable, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments. We determine our incremental borrowing rate by analyzing yield curves with consideration of lease term, country and company specific factors. The ROU asset also includes any lease prepayments and excludes lease incentives.

Many of our leases include one or more options to renew, with renewal terms that can extend the lease term from 1 year to 40 years or more. For each lease, we consider whether we are reasonably certain to exercise these options to extend. Other contracts may contain termination options that we assess to determine whether we are reasonably certain not to exercise those options. Certain leases also include options to purchase the leased property. The depreciable lives of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Some of our lease agreements include rental payments adjusted periodically for inflation. Most of these adjustments are considered variable lease costs. Other variable lease costs consist of certain non-lease components that are disclosed as lease costs due to our election of the practical expedient to combine lease and non-lease components and include items such as variable payments for utilities, property taxes, common area maintenance, sales taxes, and insurance.

For leases with an initial term of 12 months or less, we have not recognized an ROU asset or lease liability on the Unaudited Condensed Consolidated Balance Sheets; we recognize lease expense for these leases on a straight-line basis over the lease terms.

In response to the COVID-19 global pandemic, we have secured rent relief from some of our lessors. The rent relief offered has most often been in the form of rent payment deferrals for one or more months to be paid back over a specified period of time ranging from one month to the remaining term of the lease. In accordance with FASB Staff Q&A - Topic 842 and Topic 840: Accounting for Lease Concessions Related to the Effects of the COVID-19 Pandemic ("FASB Staff Q&A") issued in April 2020, we are able to account for lease deferrals resulting directly from COVID-19 as if the enforceable rights and obligations for the deferrals existed in the respective contracts at lease inception as long as those concessions do not result in a substantial increase in our lease obligations. As a result, we have been able to apply the relief in most circumstances. Guidance from the FASB Staff Q&A provided methods to account for such rent deferrals, including the option to account for the lease as if no changes to the lease contract were made or to account for the deferred payments as variable lease payments. For the majority of our leases that were affected by rent relief actions, we elected to account for the deferrals as if no changes to the lease contract were made and continued to recognize lease expense, on a straight-line basis, during the deferral period. As of June 30, 2020, payment deferrals totaled $7 million and were recorded in Other current liabilities on the Unaudited Condensed Consolidated Balance Sheets. Other concessions consisting of abated rent or discounted rent, without payback, from various landlords of $2 million resulted in reductions to Selling, general and administrative expenses in our Unaudited Condensed Consolidated Statements of Income.

Investments in Unconsolidated Subsidiaries

Our investment in unconsolidated subsidiaries was ~~$144~~$137 million and ~~$179~~$139 million as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively.

Europe Segment

Our investment in unconsolidated subsidiaries in Europe was ~~$127~~$121 million and ~~$163~~$122 million as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. We recorded equity in losses of an immaterial amount and equity in earnings of $4$1 million during the three and six months ended June 30, 2020, respectively, and equity in earnings of $2 million and equity in losses of ~~$35~~$38 million during the three and ~~nine~~six months ended ~~September~~June 30, 2019, respectively, and equity in losses of $20 million and $18 million during the three and nine months ended September 30, 2018, respectively, related to our investments in unconsolidated subsidiaries in our Europe segment, mainly related to our investment in Mekonomen AB ("Mekonomen").

On December 1, 2016,, we acquired a 26.5% equity interest in 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 ~~September~~June 30, ~~2019,~~2020, 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.

During the three months ended March 31, 2019, ~~and September 30, 2018,~~ we recognized an other-than-temporary impairment ~~charges~~charge of $40 million, ~~and $23 million, respectively,~~ which represented the difference inbetween 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 ~~prices~~price of SEK 65 ~~and SEK 126~~ as of March 31, ~~2019 and September 30, 2018, respectively.~~2019. The impairment ~~charges are~~charge was recorded in Equity in (losses) earnings ~~(losses)~~ of unconsolidated subsidiaries in our Unaudited Condensed Consolidated Statements of Income.

~~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~~March 2020 that ~~the Mekonomen Board of Directors has proposed no~~it would not make a dividend payment in ~~2019.~~2020. The Level 1 fair value of our equity investment in the publicly traded Mekonomen common stock at ~~September~~June 30, ~~2019~~2020 was ~~$126~~$99 million (using the Mekonomen share price of SEK 8366 as of ~~September~~June 30, ~~2019)~~2020) compared to a carrying value of ~~$115~~$111 million.

~~In 2018, we participated~~ We evaluated our investment in Mekonomen for other-than-temporary impairment and concluded the decline in fair value was not other-than-temporary; however, a prolonged, material impairment may cause us to account for the decline as an other-than-temporary impairment in a ri~~ghts 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~~future period, resulting in a ~~discounted share price. As of September 30, 2018, we recorded a derivative instrument of $29 million~~charge in ~~Other noncurrent assets~~ on our ~~Unaudited Condensed Consolidated Balance Sheets, which represented our right to acquire Mekonomen shares at a discount. We measured the derivative instrument at fair value, and we recorded a$3 million gain on our fair value remeasurement during the three months ended September 30, 2018; the gain was recorded in Other income, net in the~~ Unaudited Condensed Consolidated Statements of Income.

North America Segment

Our investment in unconsolidated subsidiaries in the North America segment was ~~$17~~$15 million and ~~$16~~$18 million as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. ~~The~~We recorded equity in losses of $3 million during both the three and six months ended June 30, 2020, and equity in losses of $1 million and equity in earnings ~~for~~of an immaterial amount during the three and six months ended June 30, 2019, respectively, related to our North America equity ~~investments was immaterial during each of the three and nine months ended September 30, 2019 and 2018.~~method investments.

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 or four 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 in 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 43,883
Warranty claims (39,969 )
Balance as of September 30, 2019 $ 27,176


Balance as of December 31, 2019	$	25,441
Warranty expense	30,610
Warranty claims	(27,189)
Balance as of June 30, 2020	$	28,862

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.

Government Assistance

During the three months ended June 30, 2020, we recorded $33 million in financial assistance from foreign governments, primarily in the form of grants to offset personnel expenses in Europe and Canada. Financial assistance to be received from governments is recorded during the period in which we incur the costs which the assistance is intended to offset (and only if it is probable that we will meet the conditions required under the terms of the assistance). Of the $33 million recorded during the second quarter, $1 million and $32 million were reductions to Cost of goods sold and Selling, general and administrative expenses, respectively, in our Unaudited Condensed Consolidated Statement of Income.

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was enacted in the U.S. to provide economic relief to individuals and businesses facing economic hardship as a result of the COVID-19 pandemic. Similar legislation was enacted in many of the Company’s international jurisdictions. Tax measures in these legislative actions did not have a material impact on the Company’s results of operations for the six months ended June 30, 2020. Those initiatives did provide the Company with the opportunity to defer the timing of certain income, indirect and payroll tax payments in various jurisdictions. As of June 30, 2020, $160 million and $114 million were recorded in Value added taxes payable and Income taxes payable, respectively, on our Unaudited Condensed Consolidated Balance Sheets, compared to $46 million and $27 million, respectively, as of December 31, 2019. Approximately $175 million to $185 million of payments otherwise due in the second quarter of 2020 were deferred, of which we estimate approximately $125 million to $135 million will be paid during the third quarter of 2020, with the remainder to be paid in the fourth quarter or later.

Stockholders' Equity

Treasury Stock

~~On October 25, 2018,~~As of June 30, 2020, our Board of Directors had authorized a stock repurchase program under which we may purchase up to ~~$500 million~~$1.0 billion of our common stock from time to time through October 25, ~~2021.~~2022. 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 ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, we repurchased ~~10.9~~3.3 million shares of common stock for an aggregate price of ~~$292 million.~~$88 million; we did not repurchase any shares during the three months ended June 30, 2020. During ~~2018,~~the three and six months ended June 30, 2019, we repurchased ~~2.3~~4.4 million and 7.0 million shares of common stock for an aggregate price of ~~$60 million.~~$120 million and $191 million, respectively. As of ~~September~~June 30, ~~2019,~~2020, there was ~~$148~~$560 million of remaining capacity under our repurchase program. Repurchased shares are accounted for as treasury stock using the cost method.

On October 25, 2019, our Board of Directors authorized an increase to our existing stock repurchase program under which the Company may purchase up to an additional $500 million of our common stock from time to time through October 25, 2022; this extended date also applies to the original repurchase program. With the increase, the Board of Directors has authorized a total of $1.0 billion of common stock repurchases. As of the date of this filing, there was $648 million of remaining capacity under our repurchase program, with the additional $500 million authorization.

Noncontrolling Interest

In ~~July 2019,~~February 2020, as part of the sale of Stahlgruber's Czech Republic business, we ~~purchased substantially all of~~divested the noncontrolling interest of ~~a subsidiary acquired in connection with~~ the ~~Stahlgruber acquisition for a purchase price of $19 million,~~business, which ~~included the issuance of $14 million of notes payable. This purchase~~ resulted in a net decrease to Noncontrolling interest of ~~$10 million and a decrease to Additional paid-in capital of $9~~$11 million in our unaudited condensed consolidated financial statements as of ~~September 30, 2019.~~March 31, 2020. See Note 2, "Discontinued Operations," for further information.

~~Recent Accounting Pronouncements~~

~~Adoption~~In December 2019, we modified the shares representing a noncontrolling interest in a subsidiary acquired in connection with the Stahlgruber acquisition and issued new redeemable shares to the minority shareholder. The new redeemable shares contain (i) a put option for all noncontrolling interest shares at a fixed price of ~~New Lease Standard~~

~~In February 2016,~~$24 million (€21 million) exercisable by the ~~Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2016-02, "Leases" ("ASU 2016-02"), which represents~~minority shareholder in the ~~FASB Accounting Standard Codification Topic 842 ("ASC 842"), to increase transparency and comparability~~fourth quarter of 2023, (ii) a call option for all noncontrolling interest shares at a fixed price of $26 million (€23 million) exercisable 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~~Company beginning in the first quarter of ~~2019 using~~2026 through the ~~modified retrospective approach and took advantage~~end of the ~~transition package~~fourth quarter of ~~practical expedients permitted within~~2027, and (iii) a guaranteed dividend to be paid quarterly to the minority shareholder through the fourth quarter of 2023. The new ~~standard, which, among other things, allows us~~redeemable shares do not provide the minority shareholder with rights 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 intoparticipate in the ~~future. Additionally, we adopted~~profits and losses of the ~~practical expedient~~subsidiary prior to ~~combine lease and non-lease components.~~

the exercise date of the put option. As the put option is outside the control of ~~January 1, 2019,~~the Company, we recorded ~~both an operating lease asset and operating lease liability~~a $24 million Redeemable noncontrolling interest at the put option's exercise value outside 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 affectpermanent equity on 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.Balance Sheets.

Recent Accounting Pronouncements

~~Other~~ Recently Adopted Accounting Pronouncements

During the first quarter of ~~2019,~~2020, we adopted ASU No. ~~2017-12, "Targeted Improvements to Accounting for Hedging Activities" ("ASU 2017-12"), which amends the hedge accounting recognition~~2016-13 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~~replaces the prior “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. ASU 2018-19 ~~will affect~~affects 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. We applied ASU 2016-13 and ASU 2018-19 ~~should be applied~~ on ~~either~~a modified retrospective basis. As of January 1, 2020, we recorded a cumulative effect adjustment to retained earnings of $3 million.

During the first quarter of 2020, we adopted 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. We adopted the provisions of ASU 2018-13 by applying a prospective ~~transition or modified-retrospective approach depending~~approach. The adoption of ASU 2018-13 did not have a material impact on our unaudited condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

In December 2019, the ~~subtopic.~~FASB issued ASU ~~2016-13~~2019-12, "Income Taxes" (Topic 740) ("ASU 2019-12"), which simplifies the accounting for income taxes and adds guidance to reduce complexity in certain areas. ASU 2019-12 is effective for ~~annual periods~~fiscal years beginning after December 15, ~~2019, and~~2020, including interim periods ~~therein.~~within those fiscal years. Early adoption is permitted, ~~for annual periods beginning after December 15, 2018, and~~including adoption in an interim ~~periods therein.~~period. We are currently evaluating the impact of this standard on our consolidated financial statements.

In March 2020, the ~~adoption~~FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04"), which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. ASU 2020-04 provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. These transactions include contract modifications, hedging relationships, and sale or transfer of debt securities classified as held-to-maturity. Entities may apply the provisions of the new standard as of the beginning of the reporting period when the election is made (i.e. as early as the first quarter 2020). Unlike other topics, the provisions of this update are only available until December 31, 2022, when the reference rate replacement activity is expected to have been completed. We are currently evaluating the impact of this standard on our consolidated financial ~~statements.~~statements and related disclosures, and we have not yet elected an adoption date.

Note 5.4. Revenue Recognition

The majority of our revenue is derived from the sale of vehicle parts. We recognize revenue when the products are shipped to, delivered to or picked up by customers, which is the point when title has transferred and risk of ownership has passed.

Sources of Revenue

We report our revenue in two categories: (i) parts and services and (ii) other. The following table sets forth our revenue by category, with our parts and services revenue further disaggregated by reportable segment (in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020		2019		2020		2019
North America	$	892,826	$	1,165,482	$	2,000,168	$	2,321,180
Europe	1,206,330		1,510,952		2,564,299		2,951,793
Specialty	404,002		410,263		751,408		762,819
Parts and services	2,503,158		3,086,697		5,315,875		6,035,792
Other	123,165		161,476		311,383		312,684
Total revenue	$	2,626,323	$	3,248,173	$	5,627,258	$	6,348,476

Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
North America $ 1,145,402
$ 1,109,067
$ 3,466,582
$ 3,447,074
Europe 1,446,392
1,464,049
4,398,185
3,781,091
Specialty 394,204
388,865
1,157,023
1,151,172
Parts and services 2,985,998
2,961,981
9,021,790
8,379,337
Other 161,775
160,397
474,459
494,556
Total revenue $ 3,147,773
$ 3,122,378
$ 9,496,249
$ 8,873,893

Parts and Services

Our parts revenue is generated from the sale of vehicle products including replacement parts, components and systems used in the repair and maintenance of vehicles and specialty products and accessories to improve the performance, functionality and appearance of vehicles. Services revenue includes (i) additional services that are generally billed concurrently with the related product sales, such as the sale of service-type warranties, (ii) fees for admission to our self service yards, and (iii) diagnostic and repair services.

In North America, our vehicle replacement products include sheet metal collision parts such as doors, hoods, and fenders; bumper covers; head and tail lamps; automotive glass products such as windshields; mirrors and grilles; wheels; and large mechanical items such as engines and transmissions. In Europe, our products include a wide variety of small mechanical products such as brake pads, discs and sensors; clutches; electrical products such as spark plugs and batteries; steering and

suspension products; filters; and oil and automotive fluids. In our Specialty operations, we serve six product segments: truck and off-road; speed and performance; RV; towing; wheels, tires and performance handling; and miscellaneous accessories.

Our service-type warranties typically have service periods ranging from 6 months to 36 months. Under FASB Accounting Standards Codification Topic 606 ("ASC 606"), proceeds from these service-type warranties are deferred at contract inception and amortized on a straight-line basis to revenue over the contract period. The changes in deferred service-type warranty revenue are as follows (in thousands):


Balance as of January 1, 2020	$	27,067
Additional warranty revenue deferred	20,845
Warranty revenue recognized	(22,473)
Balance as of June 30, 2020	$	25,439

Balance as of January 1, 2019 $ 24,006
Additional warranty revenue deferred 32,118
Warranty revenue recognized (29,469 )
Balance as of September 30, 2019 $ 26,655

Other Revenue

Revenue from other sources includes sales of scrap ~~sales,~~and precious metals (platinum, palladium, and rhodium), bulk sales to mechanical manufacturers (including cores) and sales of aluminum ingots and sows from our furnace operations. We derive scrap metal and other precious metals from several sources, including vehicles that have been used in both our wholesale and self service recycling operations and from original equipment manufacturers ("OEMs") and other entities that contract with us for secure disposal of "crush only" vehicles. ~~The~~Revenue from the sale of hulks in our wholesale and self service recycling operations ~~represents one performance obligation, and revenue~~ is recognized based on a price per ~~weight~~ton of delivered material when the customer (processor) collects the scrap. Some adjustments may occur when the customer weighs the scrap at their location, and revenue is adjusted accordingly.

Revenue by Geographic Area

See Note ~~16,~~14, "Segment and Geographic Information" for information related to our revenue by geographic region.

Variable Consideration

The amount of revenue ultimately received from the customer can vary due to variable consideration ~~which includes~~including returns, discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, or other similar items. Under ASC 606 we are required to select the “expected value method” or the “most likely amount” method in order to estimate variable consideration. We utilize both methods in practice depending on the type of variable consideration, with contemplation of any expected reversals in revenue. We recorded a refund liability and return asset for expected returns of ~~$100~~$104 million and

~~$54~~ $58 million, respectively, as of ~~September~~June 30, ~~2019,~~2020, and ~~$105~~$97 million and ~~$56~~$52 million, respectively, as of December 31, ~~2018.~~2019. The refund liability is presented separately on the ~~balance sheet~~Unaudited Condensed Consolidated Balance Sheets within current liabilities while the return asset is presented within Prepaid expenses and other current assets. Other types of variable consideration consist primarily of discounts, volume rebates, and other customer sales incentives ~~which~~that are recorded in Receivables, net on the Unaudited Condensed Consolidated Balance Sheets. We recorded a reserve for our variable consideration of ~~$106~~$72 million and ~~$103~~$108 million as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. While other customer incentive programs exist, we characterize them as material rights in the context of our sales transactions. We consider these programs to be immaterial to our unaudited condensed consolidated financial statements.

Note 6.5. Restructuring and Acquisition Related Expenses

~~Acquisition Related Expenses~~

~~Acquisition related expenses, which include external costs such as legal, accounting and advisory fees, were $2 million in each of the three and nine months ended September 30, 2019.~~

Acquisition related expenses for the three and nine months ended September 30, 2018 were $1 million and $17 million, respectively, which included external costs primarily related to our May 2018 acquisition of Stahlgruber.

~~Acquisition Integration Plans~~

During the three and nine months ended September 30, 2019, we incurred $7 million and $13 million of restructuring expenses, respectively, primarily related to our acquisition integration efforts in our Europe segment. These expenses included approximately $4 million and $7 million for the three and nine months ended September 30, 2019, respectively, related to the integration of our acquisition of Andrew Page Limited ("Andrew Page"). The $4 million recorded during the three months ended September 30, 2019 for Andrew Page was recorded within Cost of goods sold in the Unaudited Condensed Consolidated Statement of Income.

During the three and nine months ended September 30, 2018, we incurred $5 million and $10 million of restructuring expenses, respectively. Restructuring expenses for the three months ended September 30, 2018 primarily consisted of $4 million related to the integration of our acquisition of Andrew Page and $1 million related to our Specialty segment; restructuring expenses for the nine months ended September 30, 2018 primarily consisted of $8 million related to the integration of our acquisition of Andrew Page and $2 million related to our Specialty segment. These integration activities 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 between $5 million and $10 million.

2019 Global Restructuring Program

In the second quarter of 2019, we ~~began implementing~~implemented a cost reduction initiative, covering all three of our reportable segments, designed to eliminate underperforming assets and cost inefficiencies. We have incurred and expect to incur costs for inventory ~~write-downs,~~write-downs; employee severance and other expenditures related to employee terminations; lease exit costs, such as lease termination fees, accelerated amortization of operating lease assets and impairment of operating lease assets; other costs related to facility exits, such as moving expenses to relocate inventory and equipment; and accelerated depreciation of fixed assets to be disposed of earlier than the end of the previously estimated ~~use~~useful lives.

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, we ~~incurred $18~~incurred $2 million and ~~$23~~$5 million, ~~respectively,~~respectively, of restructuring expenses under this program, primarily related to ~~inventory write-downs,~~ facility exit costs and employee-related costs. In the three months ended June 30, 2019, costs under the program totaled $5 million, primarily for employee severance. These costs were recorded within Restructuring and acquisition related expenses in the Unaudited Condensed Consolidated Statements of Income during the three and six months ended June 30, 2020 and 2019. We expect to incur between $2 million and $4 million of future costs through 2021 to complete the program, and total program costs will be approximately $45 million ($37 million was

incurred during the year ended December 31, 2019). Of the cumulative program costs incurred to date, $27 million, $14 million and $1 million related to our Europe, North America and Specialty segments, respectively.

2020 Global Restructuring Program

Beginning in the first quarter of 2020, we initiated a further restructuring program aimed at cost reductions across all our reportable segments through the elimination of underperforming assets and cost inefficiencies. These actions are incremental to those initiated as part of the 2019 Global Restructuring Program, and include costs for inventory write-downs; employee severance and other expenditures related to employee terminations; lease exit costs, such as lease termination fees, accelerated amortization of operating lease assets and impairment of operating lease assets; other costs related to facility exits, such as moving expenses to relocate inventory and equipment; and accelerated depreciation of fixed assets to be disposed of earlier than the end of the previously estimated useful lives. We expanded this program during the second quarter as we identified additional opportunities to eliminate inefficiencies, including actions in response to impacts to our business from COVID-19.

During the three and six months ended June 30, 2020, we recognized restructuring expenses totaling $25 million and $27 million, respectively, for employee-related costs, facility exit costs and inventory write-downs. Of these expenses, ~~$13~~$6 million ~~primarily~~resulted from inventory impairment charges related to ~~Andrew Page branch~~facility consolidation actions and brand ~~rationalization,~~rationalizations and was recorded ~~within~~in Cost of goods sold in the Unaudited Condensed Consolidated Statement of Income ~~during each~~for the three months ended June 30, 2020. Of the cumulative program costs incurred to date, $17 million, $10 million and $1 million related to our North America, Europe and Specialty segments, respectively. We estimate total costs under the program through its expected completion date in 2022 will be between $65 million and $75 million, of which approximately $40 million, $28 million, and $1 million will be incurred by our Europe, North America and Specialty segments, respectively.

Acquisition Integration Plans

During the three and ~~nine~~six months ended ~~September~~June 30, ~~2019, and~~2020, we incurred $4 million and ~~$10~~$5 million of restructuring expenses, respectively, ~~was recorded within Restructuring~~for our acquisition integration plans. These expenses were primarily related to the integration of our operations in Belgium. Future expenses to complete our existing integration plans are expected to be immaterial.

During the three and ~~acquisition related expenses. We currently expect to incur additional expenses between $15~~six months ended June 30, 2019, we incurred $3 million and ~~$20~~$6 million ~~through~~ of restructuring expenses, respectively, related to our acquisition integration efforts. These expenses included approximately $1 million and $3 million for the ~~end~~three and six months ended June 30, 2019, respectively, related to the integration of ~~2020 to complete the program.~~our acquisition of Andrew Page Limited.

1 LKQ Europe Program

In September 2019, we announced a multi-year program called "1 LKQ Europe" which is intended to create structural centralization and standardization of key functions to facilitate the operation of the Europe segment as a single business. Under the 1 LKQ Europe program, we will reorganize our non-customer-facing teams and support systems through various projects including the implementation of a common ERP platform, rationalization of our product portfolio, and creation of a Europe headquarters office and central back office. We ~~currently~~continue to expect to incur between $45 million and $55 million in ~~personnel~~total personnel and inventory related restructuring charges through 2024 as a result of executing the 1 LKQ Europe program. ~~In future periods,~~Certain projects were delayed in March 2020 in response to the COVID-19 pandemic. Based on our expectations in the second quarter of 2020 that the impacts on our business from COVID-19 had stabilized, we

restarted the program in July 2020 with substantially the same initiatives and projects as prior to the pandemic, although we are evaluating the impact of the delay on our estimates of the related expenditures and timelines. We may also identify additional initiatives and projects under the 1 LKQ Europe program in future periods that may result in additional restructuring expense, although we are currently unable to estimate the range of charges for such potential future initiatives and projects.

Note 7.6. Stock-Based Compensation

In order to attract and retain employees, non-employee directors, consultants, and other persons associated with us, we grant equity-based awards under the LKQ Corporation 1998 Equity Incentive Plan (the “Equity Incentive Plan”). We have granted restricted stock units ("RSUs"), stock options, and restricted stock under the Equity Incentive Plan. We expect to issue new or treasury shares of common stock to cover past and future equity grants.

RSUs

The RSUs we have issued vest over periods of up to five years, subject to a continued service condition. Currently outstanding RSUs (other than PSUs, which are described below) contain either a time-based vesting condition or a combination of a performance-based vesting condition and a time-based vesting condition, in which case both conditions must be met before any RSUs vest. For ~~most~~all of the RSUs containing a performance-based vesting condition, the Company must report positive diluted earnings per share, subject to certain adjustments, during any fiscal year period within five years following the grant ~~date; we have an immaterial amount of RSUs containing other performance-based vesting conditions.~~

date. Each RSU converts into one share of LKQ common stock on the applicable vesting date. The grant date fair value of RSUs is based on the market price of LKQ stock on the grant date. ~~Our 2019 annual grant of RSUs occurred in March 2019. In previous years, the annual grant occurred in mid-January.~~

Starting with our 2019 grants, participants who are eligible for retirement (defined as a voluntary separation of service from the Company after the participant has attained at least 60 years of age and completed at least five years of service) will continue to vest in their ~~awards;~~awards following retirement; if retirement occurs during the first year of the vesting period (for RSUs subject to a time-based vesting condition) or the first year of the performance period (for RSUs with a performance-based vesting condition), the participant vests in a prorated amount of the RSU grant based on the portion of the year employed. For our RSU grants prior to 2019, participants forfeit their unvested shares upon retirement.

The fair value of RSUs that vested during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was ~~$20 million;~~$17 million; the fair value of RSUs vested is based on the market price of LKQ stock on the date vested.

The following table summarizes activity related to our RSUs under the Equity Incentive Plan for the ~~nine~~six months ended ~~September~~June 30, ~~2019:~~2020:


	Number Outstanding	Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands) ⁽¹⁾
Unvested as of January 1, 2020	1,612,026	$	31.72
Granted	887,907	$	31.71
Vested	(550,661)	$	30.94
Forfeited / Canceled	(77,143)	$	32.81
Unvested as of June 30, 2020	1,872,129	$	31.90
Expected to vest after June 30, 2020	1,660,511	$	31.83	3.1	$	43,505

Number
Outstanding

Weighted
Average
Grant Date
Fair Value

Weighted Average Remaining Contractual Term
(in years)

Aggregate Intrinsic Value
(in thousands) ⁽¹⁾
Unvested as of January 1, 2019 1,475,682
$ 34.94

Granted
1,011,623
$ 27.82

Vested (753,276 ) $ 32.31

Forfeited / Canceled (70,851 ) $ 33.56

Unvested as of September 30, 2019 1,663,178
$ 31.86

Expected to vest after September 30, 2019 1,506,308
$ 31.90
2.7 $ 47,373
(1) The aggregate intrinsic value of expected to vest RSUs represents the total pretax intrinsic value (the fair value of the Company's stock on the last day of each period multiplied by the number of units) that would have been received by the holders had all RSUs vested. This amount changes based on the market price of the Company’s common stock.


~~(1)~~	The aggregate intrinsic value of expected to vest RSUs represents the total pretax intrinsic value (the fair value of the Company's stock on the last day of each period multiplied by the number of units) that would have been received by the holders had all RSUs vested. This amount changes based on the market price of the Company’s common stock.

In 2019 and 2020, we granted performance-based three-year RSUs ("PSUs") to certain employees, including our executive officers, under our Equity Incentive Plan. As these awards are performance-based, the exact number of shares to be paid out may be up to twice the grant amount, depending on the Company's performance and the achievement of certain performance metrics (adjusted earnings per share, average organic parts and services revenue growth, and average return on invested capital) over the applicable three year ~~period ending December 31, 2021. In 2019, we also granted an immaterial amount of performance-based RSUs to employees that have different~~ performance ~~metrics than those described above.~~periods.

The following table summarizes activity related to our PSUs under the Equity Incentive Plan for the ~~nine~~six months ended ~~September~~June 30, ~~2019:~~2020:


	Number Outstanding	Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands) ⁽¹⁾
Unvested as of January 1, 2020	136,170	$	27.69
Granted⁽²⁾	164,152	$	31.85
Forfeited / Canceled	(7,375)	$	29.65
Unvested as of June 30, 2020	292,947	$	29.97
Expected to vest after June 30, 2020	292,947	$	29.97	2.0	$	7,675

(1)The aggregate intrinsic value of expected to vest PSUs represents the total pretax intrinsic value (the fair value of the Company's stock on the last day of each period multiplied by the number of units at target) that would have been received by the holders had all PSUs vested. This amount changes based on the market price of the Company’s common stock and the achievement of the performance metrics relative to the established targets.

(2) Represents the number of PSUs at target payout.

Number
Outstanding

Weighted
Average
Grant Date
Fair Value

Weighted Average Remaining Contractual Term
(in years)

Aggregate Intrinsic Value
(in thousands) ⁽¹⁾
Unvested as of January 1, 2019 —
$ —

Granted⁽²⁾
136,170
$ 27.69

Unvested as of September 30, 2019 136,170
$ 27.69

Expected to vest after September 30, 2019 136,170
$ 27.69
2.5 $ 4,283

~~(1)~~

The aggregate intrinsic value of expected to vest PSUs represents the total pretax intrinsic value (the fair value of the Company's stock on the last day of each period multiplied by the number of units at target) that would have been received by the holders had all PSUs vested. This amount changes based on the market price of the Company’s common stock and the achievement of the performance metrics relative to the established targets.


~~(2)~~	~~Represents the number of PSUs at target payout.~~

Stock Options

Stock options ~~vest~~vested over periods of up to five years, subject to a continued service condition. Stock options ~~expire~~expired either six years or ten years from the date they ~~are~~were granted. ~~NaN~~No options were granted during the ~~nine~~six months ended ~~September~~June 30, ~~2019. NaN~~2020. No options vested during the ~~nine~~six months ended ~~September~~June 30, ~~2019; all of our outstanding options are fully vested.~~2020.

The following table summarizes activity related to our stock options under the Equity Incentive Plan for the ~~nine~~six months ended ~~September~~June 30, ~~2019:~~2020:


	Number Outstanding	Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands)
Balance as of January 1, 2020	114,594	$	12.26
Exercised	(112,472)	$	11.88		$	2,629
Canceled	(2,122)	$	32.31
Balance as of June 30, 2020	—	$	—	—	$	—

Number
Outstanding

Weighted
Average Exercise Price

Weighted Average Remaining Contractual Term
(in years)

Aggregate Intrinsic Value
(in thousands) ⁽¹⁾
Balance as of January 1, 2019 1,051,494
$ 10.15

Exercised (605,591 ) $ 9.03
$ 12,085
Canceled (8,055 ) $ 18.45

Balance as of September 30, 2019 437,848
$ 11.55
0.3 $ 8,739
Exercisable as of September 30, 2019 437,848
$ 11.55
0.3 $ 8,739
All stock options were exercised or canceled as of March 31, 2020.

~~(1)~~

The aggregate intrinsic value of outstanding and exercisable options represents the total pretax intrinsic value (the difference between the fair value of the Company's stock on the last day of each period and the exercise price, multiplied by the number of options where the fair value exceeds the exercise price) that would have been received by the option holders had all option holders exercised their options as of the last day of the period indicated. This amount changes based on the market price of the Company’s common stock.

Stock-Based Compensation Expense

Pre-tax stock-based compensation expense for RSUs and PSUs totaled $7$8 million and $16 million for the three and six months ended June 30, 2020, respectively, and $8 million and ~~$21~~$14 million for the three and ~~nine~~six months ended ~~September~~June 30, 2019, ~~respectively, and $6 million and $18 million for the three and nine months ended September 30, 2018,~~ respectively. As of ~~September~~June 30, ~~2019,~~2020, unrecognized compensation expense related to unvested RSUs and PSUs was ~~$44 million.~~$51 million. Stock-based compensation expense related to these awards will be different to the extent that forfeitures are realized and performance under the PSUs differs from target.

Note 8.7. Earnings Per Share

The following chart sets forth the computation of earnings per share (in thousands, except per share amounts):

Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
Income from continuing operations $ 151,812
$ 134,480
$ 402,582
$ 445,109
Denominator for basic earnings per share—Weighted-average shares outstanding 307,230
318,082
311,360
313,417
Effect of dilutive securities:
RSUs 293
333
341
452
PSUs —
—
—
—
Stock options 437
987
503
1,082
Denominator for diluted earnings per share—Adjusted weighted-average shares outstanding 307,960
319,402
312,204
314,951
Basic earnings per share from continuing operations $ 0.49
$ 0.42
$ 1.29
$ 1.42
Diluted earnings per share from continuing operations ⁽¹⁾
$ 0.49
$ 0.42
$ 1.29
$ 1.41


~~(1)~~	~~Diluted earnings per share from continuing operations was computed using the treasury stock method for dilutive securities.~~


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020		2019		2020		2019
Income from continuing operations	$	118,493	$	151,707	$	265,387	$	250,770
Denominator for basic earnings per share—Weighted-average shares outstanding	304,001		311,891		305,123		313,460
Effect of dilutive securities:
RSUs	189		315		352		364
PSUs	—		—		—		—
Stock options	—		513		2		536
Denominator for diluted earnings per share—Adjusted weighted-average shares outstanding	304,190		312,719		305,477		314,360
Basic earnings per share from continuing operations	$	0.39	$	0.49	$	0.87	$	0.80
Diluted earnings per share from continuing operations ⁽¹⁾	$	0.39	$	0.49	$	0.87	$	0.80

(1) Diluted earnings per share from continuing operations was computed using the treasury stock method for dilutive securities.

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 ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (in thousands):


	Three Months Ended			Six Months Ended
	June 30,			June 30,
	2020	2019	2020	2019
Antidilutive securities:
RSUs	1,444	559	913	579
Stock options	—	32	—	32

Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
Antidilutive securities:
RSUs 942
375
700
317
Stock options 31
—
32
—

Note 9.8. Accumulated Other Comprehensive Income (Loss)

The components of Accumulated Other Comprehensive Income (Loss) are as follows (in thousands):


	Three Months Ended
	June 30, 2020
	Foreign Currency Translation		Unrealized (Loss) Gain on Cash Flow Hedges		Unrealized (Loss) Gain on Pension Plans		Other Comprehensive (Loss) Income from Unconsolidated Subsidiaries		Accumulated Other Comprehensive (Loss) Income
Beginning balance	$	(274,858)	$	(1,963)	$	(31,814)	$	(5,268)	$	(313,903)
Pretax income (loss)	30,663		(7,807)		—		—		22,856
Income tax effect	—		1,842		—		—		1,842
Reclassification of unrealized loss	—		7,761		2,655		—		10,416
Reclassification of deferred income taxes	—		(1,827)		(780)		—		(2,607)
Disposal of business	671		—		—		—		671
Other comprehensive income from unconsolidated subsidiaries	—		—		—		962		962
Ending balance	$	(243,524)	$	(1,994)	$	(29,939)	$	(4,306)	$	(279,763)

Three Months Ended
September 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 $ (181,890 ) $ 5,987
$ (7,856 ) $ (4,794 ) $ (188,553 )
Pretax (loss) income (69,440 ) 28,594
(3,087 ) —
(43,933 )
Income tax effect —
(6,739 ) 782
—
(5,957 )
Reclassification of unrealized (gain) loss —
(30,256 ) (61 ) —
(30,317 )
Reclassification of deferred income taxes —
7,140
13
—
7,153
Disposal of business (379 ) —
—
—
(379 )
Other comprehensive income from unconsolidated subsidiaries —
—
—
1,240
1,240
Ending balance $ (251,709 ) $ 4,726
$ (10,209 ) $ (3,554 ) $ (260,746 )


	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 income (loss)	5,602		(9,418)		—		—		(3,816)
Income tax effect	—		2,230		—		—		2,230
Reclassification of unrealized 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
September 30, 2018
Foreign
Currency
Translation Unrealized Gain (Loss)
on Cash Flow Hedges Unrealized (Loss) Gain
on Pension Plans Other Comprehensive Income from Unconsolidated Subsidiaries Accumulated
Other
Comprehensive
(Loss) Income
Beginning balance $ (125,753 ) $ 19,684
$ (10,200 ) $ 208
$ (116,061 )
Pretax (loss) income (23,405 ) 7,681
1,217
—
(14,507 )
Income tax effect 2,454
(1,796 ) 41
—
699
Reclassification of unrealized (gain) loss —
(7,284 ) 21
—
(7,263 )
Reclassification of deferred income taxes —
1,703
(5 ) —
1,698
Other comprehensive income from unconsolidated subsidiaries —
—
—
643
643
Ending balance $ (146,704 ) $ 19,988
$ (8,926 ) $ 851
$ (134,791 )


	Six Months Ended
	June 30, 2020
	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	$	(170,893)	$	5,358	$	(31,934)	$	(3,416)	$	(200,885)
Pretax loss	(73,397)		(3,625)		—		—		(77,022)
Income tax effect	—		858		—		—		858
Reclassification of unrealized (gain) loss	—		(5,946)		2,769		—		(3,177)
Reclassification of deferred income taxes	—		1,361		(774)		—		587
Disposal of business	766		—		—		—		766
Other comprehensive loss from unconsolidated subsidiaries	—		—		—		(890)		(890)
Ending balance	$	(243,524)	$	(1,994)	$	(29,939)	$	(4,306)	$	(279,763)


	Nine Months Ended																Six Months Ended
	September 30, 2019																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				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	)	Beginning balance	$	(177,597)	$	14,374	$	(8,075)	$	(3,652)	$	(174,950)
Pretax (loss) income	(73,733		)	34,769			(3,087		)	—			(42,051		)	Pretax (loss) income	(4,293)		6,175		—		—		1,882
Income tax effect	—			(8,163		)	782			—			(7,381		)	Income tax effect	—		(1,424)		—		—		(1,424)
Reclassification of unrealized (gain) loss	—			(47,431		)	229			—			(47,202		)	Reclassification of unrealized (gain) loss	—		(17,175)		290		—		(16,885)
Reclassification of deferred income taxes	—			11,177			(58		)	—			11,119			Reclassification of deferred income taxes	—		4,037		(71)		—		3,966
Disposal of business	(379		)	—			—			—			(379		)
Other comprehensive income from unconsolidated subsidiaries	—			—			—			98			98

Other comprehensive loss from unconsolidated subsidiaries																Other comprehensive loss from unconsolidated subsidiaries	—		—		—		(1,142)		(1,142)
Ending balance	$	(251,709	)	$	4,726		$	(10,209	)	$	(3,554	)	$	(260,746	)	Ending balance	$	(181,890)	$	5,987	$	(7,856)	$	(4,794)	$	(188,553)

Nine Months Ended
September 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 (82,137 ) 33,901
(102 ) —
(48,338 )
Income tax effect 4,507
(7,926 ) (125 ) —
(3,544 )
Reclassification of unrealized (gain) loss —
(26,117 ) 97
—
(26,020 )
Reclassification of deferred income taxes —
6,106
(24 ) —
6,082
Other comprehensive income from unconsolidated subsidiaries —
—
—
2,160
2,160
Adoption of ASU 2018-02 2,859
2,486
—
—
5,345
Ending balance $ (146,704 ) $ 19,988
$ (8,926 ) $ 851
$ (134,791 )

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 Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
Unrealized gains on interest rate swaps ^{(1) (2)}
$ 1,863
$ 2,139
$ 6,805
$ 4,748
Unrealized gains on foreign currency forwards ^{(2) (3)}
3,667
2,131
10,829
6,287
Unrealized gains on cross currency swaps ⁽⁴⁾
24,726
3,014
29,797
15,082
Total $ 30,256
$ 7,284
$ 47,431
$ 26,117


~~(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, net in our Unaudited Condensed Consolidated Statements of Income. These gains and losses offset the impact of the remeasurement of the underlying contracts.~~


		Three Months Ended						Six Months Ended
		June 30,						June 30,
	Classification	2020		2019		2020		2019
Unrealized (losses) gains on interest rate swaps	Interest expense, net of interest income	$	(1,769)	$	1,763	$	1,527	$	3,455
Unrealized gains on cross currency swaps	Interest expense, net of interest income	2,796		4,319		5,347		8,649
Unrealized (losses) gains on cross currency swaps ⁽¹⁾	Other income, net	(8,788)		(8,095)		(928)		5,071
Total		$	(7,761)	$	(2,013)	$	5,946	$	17,175

(1)The amounts reclassified to Other income, net in our Unaudited Condensed Consolidated Statements of Income offset the impact of the remeasurement of the underlying transactions.

Net unrealized losses related to our pension plans were reclassified to Other income, net in our ~~Unaudited Condensed~~ Consolidated Statements of Income during each of the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018.~~ 2019.

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.

Note ~~10.~~9. Long-Term Obligations

Long-term obligations consist of the following (in thousands):

September 30, December 31,
2019 2018
Senior secured credit agreement:
Term loans payable $ 343,438
$ 350,000
Revolving credit facilities 1,145,781
1,387,177
U.S. Notes (2023) 600,000
600,000
Euro Notes (2024) 544,950
573,350
Euro Notes (2026/28) 1,089,900
1,146,700
Receivables securitization facility —
110,000
Notes payable through October 2030 at weighted average interest rates of 2.9% and 2.0%, respectively 34,325
23,056
Finance lease obligations 39,113
39,966
Other debt at weighted average interest rates of 1.9% and 1.8%, respectively 99,215
117,448
Total debt 3,896,722
4,347,697
Less: long-term debt issuance costs (31,184 ) (36,906 )
Less: current debt issuance costs (283 ) (291 )
Total debt, net of debt issuance costs 3,865,255
4,310,500
Less: current maturities, net of debt issuance costs (128,143 ) (121,826 )
Long term debt, net of debt issuance costs $ 3,737,112
$ 4,188,674


	June 30,		December 31,
	2020		2019
Senior secured credit agreement:
Term loans payable	$	332,500	$	341,250
Revolving credit facilities	1,138,928		1,268,008
U.S. Notes (2023)	—		600,000
Euro Notes (2024)	561,700		560,650
Euro Notes (2026/28)	1,123,400		1,121,300
Receivables securitization facility	—		—
Notes payable through October 2030 at weighted average interest rates of 3.1% and 3.2%, respectively	27,202		26,971
Finance lease obligations at weighted average interest rates of 3.9% and 4.1%, respectively	43,472		40,837
Other debt at weighted average interest rates of 1.3% and 1.8%, respectively	51,251		113,010
Total debt	3,278,453		4,072,026
Less: long-term debt issuance costs	(27,208)		(29,990)
Less: current debt issuance costs	(320)		(280)
Total debt, net of debt issuance costs	3,250,925		4,041,756
Less: current maturities, net of debt issuance costs	(93,200)		(326,367)
Long term debt, net of debt issuance costs	$	3,157,725	$	3,715,389

Senior Secured Credit Agreement

On ~~November 20, 2018,~~June 11, 2020, LKQ Corporation ~~LKQ Delaware LLP,~~ and certain other subsidiaries of LKQ (collectively, the "Borrowers") entered into Amendment No. 34 to ~~the Fourth Amended and Restated Credit Agreement ("Credit Agreement"), which amended~~ the Fourth Amended and Restated Credit Agreement dated January 29, 2016 ~~by modifying~~(the "Credit Agreement"), which modifies the maximum permitted net leverage ratio through the quarter ending September 30, 2021. Prior to the amendment, the maximum permitted net leverage ratio was 4.00:1.00. After the amendment, the maximum permitted net leverage ratio is (i) 5.00:1.00 for the quarters ending June 30, 2020, September 30, 2020, December 31, 2020 and March 31, 2021, (ii) 4.50:1.00 for the quarter ending June 30, 2021, and (iii) 4.25:1.00 for the quarter ending September 30, 2021. Beginning with the quarter ending December 31, 2021, the maximum permitted net leverage ratio reverts to the terms in effect prior to the amendment. In the event that the net leverage ratio is greater than 4.00:1.00, the Company would be restricted from repurchasing its shares. We can at any time elect to cancel the modifications to the maximum permitted net leverage ratio and revert to the terms in effect prior to the amendment subject to compliance with the 4.00:1.00 ratio. Amendment No. 4 to the Credit Agreement also made certain ~~terms to (1) increase the~~other immaterial modifications.

The total availability under the revolving credit facility's multicurrency component ~~from $2.75 billion to~~is $3.15 billion; (2) reduce the margin on borrowings by 25 basis points at the September 30, 2018 leverage ratio, and reduce the number of leverage pricing tiers; (3) extend the maturity date by one year to January 29, 2024; (4) reduce the unused facility fee depending on leverage category; (5) increase the capacity for incurring additional indebtedness under our receivables securitization facility; (6) increase the maximum borrowing limit of swingline loans and add the ability to borrow in British Pounds and Euros; and (7) make other immaterial or clarifying modifications and amendments to the terms of the Credit Agreement. Borrowings will continue to bear interest at variable rates.

billion. Amounts outstanding under the revolving credit facility are due and payable upon maturity of the Credit Agreement on January 29, 2024. Term loan borrowings, which totaled ~~$343~~$333 million as of ~~September~~June 30, ~~2019,~~2020, are due and payable in quarterly installments equal to $2approximately $4 million ~~on the last day of each of the first four fiscal quarters ending on or after March 31, 2019 and approximately $4 million~~ on the last day of each fiscal quarter, ~~thereafter,~~ with the remaining balance due and payable on January 29, 2024.

The increase in the revolving credit facility's multicurrency component of $400 million was used in part to pay down $240 million of the term loan (to the new $350 million amount that was outstanding as of the date of the amendment); the remainder will be used for general corporate purposes.

We are required to prepay the term loan by amounts equal to proceeds from the sale or disposition of certain assets if the proceeds are not reinvested within twelve months. We also have the option to prepay outstanding amounts under the Credit Agreement without penalty.

The Credit Agreement contains customary representations and warranties and customary covenants that provide limitations and conditions on our ability to enter into certain transactions. The Credit Agreement also contains financial and affirmative covenants, including limitations on our net leverage ratio and a minimum interest coverage ratio.

Borrowings under the Credit Agreement bear interest at variable rates, which depend on the currency and duration of the borrowing elected, plus an applicable margin. The applicable margin is subject to change in increments of 0.25% depending on our net leverage ratio. Interest payments are due on the last day of the selected interest period or quarterly in arrears depending on the type of borrowing. Including the effect of the interest rate swap agreements described in Note ~~11,~~10, "Derivative Instruments and Hedging Activities," the weighted average interest rates on borrowings outstanding under the Credit Agreement at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 were ~~1.6%~~1.5% and ~~1.9%~~1.6%, respectively. We also pay a commitment fee based

on the average daily unused amount of the revolving credit facilities. The commitment fee is subject to change in increments of 0.05% depending on our net leverage ratio. In addition, we pay a participation commission on outstanding letters of credit at an applicable rate based on our net leverage ratio, and a fronting fee of 0.125% to the issuing bank, which are due quarterly in arrears.

Of the total borrowings outstanding under the Credit Agreement, there were ~~$15~~$18 million classified as current maturities at ~~September~~both June 30, ~~2019 compared to $9 million at~~2020 and December 31, ~~2018.~~2019. As of ~~September~~June 30, ~~2019,~~2020, there were letters of credit outstanding in the aggregate amount of ~~$69~~$70 million. The amounts available under the revolving credit facilities are reduced by the amounts outstanding under letters of credit, and thus availability under the revolving credit facilities at ~~September~~June 30, ~~2019~~2020 was $1.9 billion.

Related to the execution of Amendment No. 34 to the Fourth Amended and Restated Credit Agreement in ~~November 2018,~~June 2020, we incurred $4 million of fees, the majority of which were capitalized as an offset to Long-Term Obligations and are amortized over the term of the agreement.

U.S. Notes (2023)

In 2013, we issued $600 million aggregate principal amount of 4.75% senior notes due 2023 (the "U.S. Notes (2023)"). The U.S. Notes (2023) ~~are~~were governed by the Indenture dated as of May 9, 2013 (the "U.S. Notes (2023) Indenture") among LKQ Corporation, certain of our subsidiaries (the "Guarantors"), the trustee, paying agent, transfer agent and registrar. The U.S. Notes (2023) ~~are~~were registered under the Securities Act of 1933.

The U.S. Notes (2023) ~~bear~~bore interest at a rate of 4.75% per year from the most recent payment date on which interest ~~has~~had been paid or provided for. Interest on the U.S. Notes (2023) iswas payable in arrears on May 15 and November 15 of each year. The U.S. Notes (2023) ~~are~~were fully and unconditionally guaranteed, jointly and severally, by the Guarantors.

The U.S. Notes (2023) and the related guarantees ~~are,~~were, respectively, LKQ Corporation's and each Guarantor's senior unsecured obligations and ~~are~~were subordinated to all of the Guarantors' existing and future secured debt to the extent of the assets securing that secured debt. In addition, the U.S. Notes (2023) ~~are~~were effectively subordinated to all of the liabilities of our subsidiaries that ~~are~~were not guaranteeing the U.S. Notes (2023) to the extent of the assets of those subsidiaries.

~~The U.S.~~On January 10, 2020, we redeemed the U.S Notes (2023) ~~are redeemable, in whole or in part,~~ at ~~any time on or after May 15, 2018 at~~a redemption price equal to 101.583% of the ~~respective redemption prices specified in~~principal amount of the U.S. Notes (2023) ~~Indenture,~~ plus accrued and unpaid interest ~~if any. We may be required~~thereon to, ~~make~~but not including, January 10, 2020. The total redemption payment was $614 million, including an ~~offer~~early-redemption premium of $9 million and accrued and unpaid interest of $4 million. In the first quarter of 2020, we recorded a loss on debt extinguishment of $13 million on the Unaudited Condensed Consolidated Statements of Income related to ~~purchase~~ the ~~U.S. Notes (2023) upon~~redemption due to the ~~sale~~early-redemption premium and the write-off of ~~certain assets, subject to certain exceptions, and upon a change of control.~~the unamortized debt issuance costs.

Euro Notes (2024)

On April 14, 2016, LKQ Italia Bondco S.p.A. ("LKQ Italia"), an indirect, wholly-owned subsidiary of LKQ Corporation, completed an offering of €500 million aggregate principal amount of senior notes due April 1, 2024 (the "Euro Notes (2024)") in a private placement conducted pursuant to Regulation S and Rule 144A under the Securities Act of 1933. The proceeds from the offering were used to repay a portion of the revolver borrowings under the Credit Agreement and to pay related fees and expenses. The Euro Notes (2024) are governed by the Indenture dated as of April 14, 2016 (the "Euro Notes (2024) Indenture") among LKQ Italia, LKQ Corporation and certain of our subsidiaries (the "Euro Notes (2024) Subsidiaries"), the trustee, and the paying agent, transfer agent, and registrar.

The Euro Notes (2024) bear interest at a rate of 3.875% per year from the date of original issuance or from the most recent payment date on which interest has been paid or provided for. Interest on the Euro Notes (2024) is payable in arrears on April 1 and October 1 of each year. The Euro Notes (2024) are fully and unconditionally guaranteed by LKQ Corporation and the Euro Notes (2024) Subsidiaries (the "Euro Notes (2024) Guarantors").

The Euro Notes (2024) and the related guarantees are, respectively, LKQ Italia's and each Euro Notes (2024) Guarantor's senior unsecured obligations and are subordinated to all of LKQ Italia's and the Euro Notes (2024) Guarantors' existing and future secured debt to the extent of the assets securing that secured debt. In addition, the Euro Notes (2024) are effectively subordinated to all of the liabilities of our subsidiaries that are not guaranteeing the Euro Notes (2024) to the extent of the assets of those subsidiaries. The Euro Notes (2024) have been listed on the ExtraMOT, Professional Segment of the Borsa Italia S.p.A. securities exchange and the Global Exchange Market of Euronext Dublin.

The Euro Notes (2024) are redeemable, in whole or in part, at any time at a redemption price of 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date plus a "make whole" premium. On or after January 1, 2024, we may redeem some or all of the Euro Notes (2024) at a redemption price of 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date. We may be required to make an offer to purchase the

Euro Notes (2024) upon the sale of certain assets, subject to certain exceptions, and upon a change of control. In addition, in the event of certain developments affecting taxation or under certain other circumstances which, in any case, require the payment of certain additional amounts, we may redeem the Euro Notes (2024) in whole, but not in part, at any time at a redemption price of 100% of the principal amount thereof plus accrued but unpaid interest, if any, and such certain additional amounts, if any, to the redemption date.

Euro Notes (2026/28)

On April 9, 2018, LKQ European Holdings B.V. ("LKQ Euro Holdings"), a wholly-owned subsidiary of LKQ Corporation, completed an offering of €1.0 billion aggregate principal amount of senior notes. The offering consisted of €750 million senior notes due 2026 (the "2026 notes") and €250 million senior notes due 2028 (the "2028 notes" and, together with the 2026 notes, the "Euro Notes (2026/28)") in a private placement conducted pursuant to Regulation S and Rule 144A under the Securities Act of 1933. The proceeds from the offering, together with borrowings under our senior secured credit facility, were ~~or will be~~ used to (i) finance a portion of the consideration paid for the Stahlgruber acquisition, (ii) for general corporate purposes and (iii) to pay related fees and expenses, including the refinancing of net financial debt. The Euro Notes (2026/28) are governed by the Indenture dated as of April 9, 2018 (the “Euro Notes (2026/28) Indenture”) among LKQ Euro Holdings, LKQ Corporation and certain of our subsidiaries (the “Euro Notes (2026/28) Subsidiaries”), the trustee, paying agent, transfer agent, and registrar.

The 2026 notes and 2028 notes bear interest at ~~a rate~~rates of 3.625% and 4.125%, respectively, per year from the date of original issuance or from the most recent payment date on which interest has been paid or provided for. Interest on the Euro Notes (2026/28) is payable in arrears on April 1 and October 1 of each year. The Euro Notes (2026/28) are fully and unconditionally guaranteed by LKQ Corporation and the Euro Notes (2026/28) Subsidiaries (the "Euro Notes (2026/28) Guarantors").

The Euro Notes (2026/28) and the related guarantees are, respectively, LKQ Euro Holdings' and each Euro Notes (2026/28) Guarantor’s senior unsecured obligations and will be subordinated to all of LKQ Euro Holdings' and the Euro Notes (2026/28) Guarantors’ existing and future secured debt to the extent of the assets securing that secured debt. In addition, the Euro Notes (2026/28) are effectively subordinated to all of the liabilities of our subsidiaries that are not guaranteeing the Euro Notes (2026/28) to the extent of the assets of those subsidiaries. The Euro Notes (2026/28) have been listed on the Global Exchange Market of Euronext Dublin.

The Euro Notes (2026/28) are redeemable, in whole or in part, at any time at a redemption price of 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date plus a "make whole" premium. On or after April 1, 2021, we may redeem some or all of the 2026 notes at the applicable redemption prices set forth in the Euro Notes (2026/28) Indenture. On or after April 1, 2023, we may redeem some or all of the 2028 notes at the applicable redemption prices set forth in the Euro Notes (2026/28) Indenture. We also may redeem up to 35% of the 2026 notes and up to 35% of the 2028 notes before April 1, 2021 with the net cash proceeds from certain equity offerings. We may be required to make an offer to purchase the Euro Notes (2026/28) upon the sale of certain assets, subject to certain exceptions, and upon a change of control. In addition, in the event of certain developments affecting taxation or under certain other circumstances which, in any case, require the payment of certain additional amounts, we may redeem the Euro Notes (2026/28) in whole, but not in part, at any time at a redemption price of 100% of the principal amount thereof, plus accrued but unpaid interest, if any, and such certain additional amounts, if any, to the redemption date.

Related to the execution of the Euro Notes (2026/28) in April 2018, we incurred $16 million of fees, which were capitalized as an offset to Long-Term Obligations and are amortized over the term of the Euro Notes (2026/28).

Receivables Securitization Facility

On December 20, 2018, we amended the terms of our receivables securitization facility with MUFG Bank, Ltd. ("MUFG"~~) (formerly known as The Bank of Tokyo-Mitsubishi UFJ, Ltd.~~) to: (i) extend the term of the facility to November 8, 2021; (ii) increase the maximum amount available to $110 million; and (iii) make other clarifying and updating changes. Under the facility, LKQ sells an ownership interest in certain receivables, related collections and security interests to MUFG for the benefit of conduit investors and/or financial institutions for cash proceeds. Upon payment of the receivables by customers, rather than remitting to MUFG the amounts collected, LKQ retains such collections as proceeds for the sale of new receivables generated by certain of the ongoing operations of the Company.

The sale of the ownership interest in the receivables is accounted for as a secured borrowing on our Unaudited Condensed Consolidated Balance Sheets, under which the receivables included in the program collateralize the amounts invested by MUFG, the conduit investors and/or financial institutions (the "Purchasers"). The receivables are held by LKQ Receivables Finance Company, LLC ("LRFC"), a wholly owned bankruptcy-remote special purpose subsidiary of LKQ, and therefore, the receivables are available first to satisfy the creditors of LRFC, including the Purchasers. ~~While there~~Net receivables totaling

$104 million and $132 million were ~~no borrowings on our receivables securitization facility as of September 30, 2019, $120 million of net receivables were available as~~ collateral for the ~~investment~~investments under the receivables facility ~~compared to $132 million~~ as of as June 30, 2020 and December 31, ~~2018.~~2019, respectively.

Under the receivables facility, we pay variable interest rates plus a margin on the outstanding amounts invested by the Purchasers. The variable rates are based on (i) commercial paper rates, (ii) London Interbank Offered Rate ("LIBOR"), or (iii) base rates, and are payable monthly in arrears. The commercial paper rate is the applicable variable rate unless conduit investors are not available to invest in the receivables at commercial paper rates. In such case, financial institutions will invest at the LIBOR rate or at base rates. We also pay a commitment fee on the excess of the investment maximum over the average daily outstanding investment, payable monthly in arrears. ~~The outstanding balance~~There was ~~$110 million as of December 31, 2018 and there was 0~~no outstanding balance as of ~~September~~June 30, ~~2019. At~~2020 or December 31, 2018, we classified the outstanding balance as long-term on the Unaudited Condensed Consolidated Balance Sheets because we have the ability and intent to refinance these borrowings on a long-term basis.2019.

Note ~~11.~~10. Derivative Instruments and Hedging Activities

We are exposed to market risks, including the effect of changes in interest rates, foreign currency exchange rates and commodity prices. Under our current policies, we use derivatives to manage our exposure to variable interest rates on our senior secured debt and changing foreign exchange rates for certain foreign currency denominated transactions. We do not hold or issue derivatives for trading purposes.

Cash Flow Hedges

We hold interest rate swap agreements to hedge a portion of the variable interest rate risk on our variable rate borrowings under our Credit Agreement, with the objective of minimizing the impact of interest rate fluctuations and stabilizing cash flows. Under the terms of the interest rate swap agreements, we pay the fixed interest rate and receive payment at a variable rate of interest based on LIBOR for the respective currency of each interest rate swap agreement’s notional amount. Changes in the fair value of the interest rate swap agreements are recorded in Accumulated Other Comprehensive Income (Loss) and are reclassified to Interest expense, net of interest income when the underlying interest payment has an impact on earnings. Our interest rate swap contracts have maturity dates ~~ranging from~~in January to2021 and June 2021.

From time to time, we may hold foreign currency forward contracts related to certain foreign currency denominated intercompany transactions, with the objective of minimizing the impact of fluctuating exchange rates on these future cash flows. Under the terms of the foreign currency forward contracts, we will sell the foreign currency in exchange for U.S. dollars at a fixed rate on the maturity dates of the contracts. Changes in the fair value of the foreign currency forward contracts are recorded in Accumulated Other Comprehensive Income (Loss) and reclassified to Other income, net when the underlying transaction has an impact on earnings.

~~In 2016, we entered into three~~We hold cross currency swap agreements for a total notional amount of $422 million (€400 million). The notional amount steps down by €15 million annually through 2020 with the remainder maturing in January 2021. These cross currency swaps, which contain an interest rate swap component and a foreign currency forward contract component that, combined with related intercompany financing arrangements, effectively convert variable rate U.S. dollar-denominated borrowings into fixed rate euro-denominated borrowings. The swaps are intended to minimize the impact of fluctuating exchange rates and interest rates on the cash flows resulting from the related intercompany financing arrangements. ~~The changes~~Changes in the fair value of the derivative instruments are recorded in Accumulated Other Comprehensive Income (Loss) and are reclassified to Interest expense, net of interest income and Other income, net when the underlying transactions have an impact on earnings.

~~In October 2018, we entered into two cross currency swap agreements for a total notional amount~~ For certain of ~~$184 million (€160 million). Half of~~the swaps, the notional amount ~~matured~~steps down by €4 million quarterly, with the balance maturing at the end of the contract. Our cross currency swaps have maturity dates in October ~~2019 with the remainder in October 2020. The purpose of,~~2020 and ~~accounting for, the swaps are similar to those described in the previous paragraph.~~January 2021.

The activity related to our cash flow hedges is presented in operating activities in our Unaudited Condensed Consolidated Statements of Cash Flows.

The following tables summarize the notional amounts and fair values of our designated cash flow hedges as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	Notional Amount		Fair Value at June 30, 2020 (USD)
	June 30, 2020		Other Current Assets		Other Noncurrent Assets		Other Accrued Expenses		Other Noncurrent Liabilities
Interest rate swap agreements
USD denominated	$	480,000	$	—	$	—	$	3,005	$	—
Cross currency swap agreements
USD/euro	$	458,689	2,717		—		24,559		—
Total cash flow hedges					$	2,717	$	—	$	27,564	$	—


		Notional Amount		Fair Value at September 30, 2019 (USD)									Notional Amount		Fair Value at December 31, 2019 (USD)
		September 30, 2019		Other Current Assets		Other Noncurrent Assets		Other Accrued Expenses		Other Noncurrent Liabilities			December 31, 2019		Other Current Assets		Other Noncurrent Assets		Other Accrued Expenses		Other Noncurrent Liabilities
Interest rate swap agreements	Interest rate swap agreements											Interest rate swap agreements
USD denominated		$	480,000	$	—	$	3,634	$	—	$	—	USD denominated	$	480,000	$	—	$	3,262	$	—	$	—
Cross currency swap agreements	Cross currency swap agreements											Cross currency swap agreements
USD/euro		$	562,418	4,678		5,766		53		14,544		USD/euro	$	466,621	2,975		181		970		23,349
Total cash flow hedges	Total cash flow hedges			$	4,678	$	9,400	$	53	$	14,544	Total cash flow hedges					$	2,975	$	3,443	$	970	$	23,349

Notional Amount Fair Value at December 31, 2018 (USD)
December 31, 2018 Other Current Assets Other Noncurrent Assets Other Accrued Expenses Other Noncurrent Liabilities
Interest rate swap agreements
USD denominated $ 480,000
$ —
$ 14,967
$ —
$ —
Cross currency swap agreements
USD/euro $ 574,315
211
7,669
127
40,870
Total cash flow hedges $ 211
$ 22,636
$ 127
$ 40,870

While certain derivative instruments executed with the same counterparty are subject to master netting arrangements, we present our cash flow hedge derivative instruments on a gross basis on our Unaudited Condensed Consolidated Balance Sheets. The impact of netting the fair values of these contracts would result in a decrease to ~~Other Noncurrent Assets~~Prepaid expenses and other current assets and Other ~~Noncurrent Liabilities~~accrued expenses on our Unaudited Condensed Consolidated Balance Sheets of $6$3 million and ~~$14~~$1 million at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. The impact of netting the fair values of these contracts would result in a decrease to Other noncurrent assets and Other noncurrent liabilities on our Unaudited Condensed Consolidated Balance Sheets of $1 million at December 31, 2019; there would be 0 impact at June 30, 2020.

The activity related to our cash flow hedges is included in Note 9,8, "Accumulated Other Comprehensive Income (Loss)." As of ~~September~~June 30, ~~2019,~~2020, we estimate that ~~$2 million~~we will reclassify an immaterial amount of derivative ~~gains~~losses (net of tax) ~~included in~~from Accumulated Other Comprehensive Income (Loss) ~~will be reclassified into~~to Interest expense, net of interest income in our Unaudited Condensed Consolidated Statements of Income within the next 12 months. We estimate that we will also reclassify $2 million of derivative losses (net of tax) from Accumulated Other Comprehensive Income (Loss) to Other income, net in our Unaudited Condensed Consolidated Statements of Income within the next 12 months; the reclassification of derivative losses to Other income, net offsets the projected impact of the remeasurement of the underlying transactions.

Other Derivative Instruments

We hold other short-term derivative instruments, including foreign currency forward contracts, to manage our exposure to variability related to inventory purchases denominated in a non-functional currency. We have elected not to apply hedge accounting for these transactions, and therefore the contracts are adjusted to fair value through our results of operations as of each balance sheet date, which could result in volatility in our earnings. The notional amount and fair value of these contracts at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, along with the effect on our results of operations during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, were immaterial.

Note ~~12.~~11. Fair Value Measurements

Financial Assets and Liabilities Measured at Fair Value

We use the market and income approaches to estimate the fair value of our financial assets and liabilities, and during the three and ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, there were no significant changes in valuation techniques or inputs related to the financial assets or liabilities that we have historically recorded at fair value. The tiers in the fair value hierarchy include: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as significant unobservable inputs infor which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The following tables present information about our financial assets and liabilities measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation inputs we utilized to determine such fair value as of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018~~2019 (in thousands):


	Balance as of June 30, 2020		Fair Value Measurements as of June 30, 2020
							Level 1			Level 2	Level 3
Assets:
Cash surrender value of life insurance	$	59,599	$	—	$	59,599		$	—

Cross currency swap agreements	2,717		—		2,717			—
Total Assets	$	62,316	$	—	$	62,316		$	—
Liabilities:
Contingent consideration liabilities	$	11,914	$	—	$	—		$	11,914
Interest rate swaps	3,005		—		3,005			—
Deferred compensation liabilities	63,863		—		63,863			—
Cross currency swap agreements	24,559		—		24,559			—
Total Liabilities	$	103,341	$	—	$	91,427		$	11,914

Balance as of
September 30, 2019
Fair Value Measurements as of September 30, 2019
Level 1 Level 2 Level 3
Assets:
Cash surrender value of life insurance $ 56,278
$ —
$ 56,278
$ —
Interest rate swaps 3,634
—
3,634
—
Cross currency swap agreements 10,444
—
10,444
—
Total Assets $ 70,356
$ —
$ 70,356
$ —
Liabilities:
Contingent consideration liabilities $ 9,873
$ —
$ —
$ 9,873
Deferred compensation liabilities 59,846
—
59,846
—
Cross currency swap agreements 14,597
—
14,597
—
Total Liabilities $ 84,316
$ —
$ 74,443
$ 9,873


	Balance as of December 31, 2019		Fair Value Measurements as of December 31, 2019
							Level 1			Level 2	Level 3
Assets:
Cash surrender value of life insurance	$	60,637	$	—	$	60,637		$	—
Interest rate swaps	3,262		—		3,262			—
Cross currency swap agreements	3,156		—		3,156			—
Total Assets	$	67,055	$	—	$	67,055		$	—
Liabilities:
Contingent consideration liabilities	$	11,539	$	—	$	—		$	11,539
Deferred compensation liabilities	63,981		—		63,981			—
Cross currency swap agreements	24,319		—		24,319			—
Total Liabilities	$	99,839	$	—	$	88,300		$	11,539

Balance as of December 31, 2018 Fair Value Measurements as of December 31, 2018
Level 1 Level 2 Level 3
Assets:
Cash surrender value of life insurance $ 47,649
$ —
$ 47,649
$ —
Interest rate swaps 14,967
—
14,967
—
Cross currency swap agreements 7,880
—
7,880
—
Total Assets $ 70,496
$ —
$ 70,496
$ —
Liabilities:
Contingent consideration liabilities $ 5,209
$ —
$ —
$ 5,209
Deferred compensation liabilities 48,984
—
48,984
—
Cross currency swap agreements 40,997
—
40,997
—
Total Liabilities $ 95,190
$ —
$ 89,981
$ 5,209

The cash surrender value of life insurance is included in Other noncurrent assets on our Unaudited Condensed Consolidated Balance Sheets. The current portion of ~~deferred compensation is included in Accrued payroll-related liabilities and the current portion of~~ contingent consideration liabilities is included in Other current liabilities on our Unaudited Condensed Consolidated Balance Sheets; the noncurrent portion of ~~these amounts~~deferred compensation liabilities and contingent consideration liabilities is included in Other noncurrent liabilities on our Unaudited Condensed Consolidated Balance Sheets based on the expected timing of the related payments. The balance sheet classification of the interest rate swaps and cross currency swap agreements is presented in Note ~~11,~~10, "Derivative Instruments and Hedging Activities."

Our Level 2 assets and liabilities are valued using inputs from third parties and market observable data. We obtain valuation data for the cash surrender value of life insurance and deferred compensation liabilities from third party sources, which determine the net asset values for our accounts using quoted market prices, investment allocations and reportable trades. We value our other derivative instruments using a third party valuation model that performs a discounted cash flow analysis based on the terms of the contracts and market observable inputs such as current and forward interest rates and current and forward foreign exchange rates.

Our contingent consideration liabilities are related to our business acquisitions. Under the terms of the contingent consideration agreements, payments may be made at specified future dates depending on the performance of the acquired business subsequent to the acquisition. The liabilities for these payments are classified as Level 3 liabilities because the related fair value measurement, which is determined using an income approach, includes significant inputs not observable in the market.

Financial Assets and Liabilities Not Measured at Fair Value

Our debt is reflected on the Unaudited Condensed Consolidated Balance Sheets at cost. Based on market conditions as of both ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the fair value of our credit agreement borrowings reasonably approximated the

carrying values of $1.5 billion and ~~$1.7~~$1.6 billion, respectively. ~~In addition, based on market conditions, the fair value~~As of ~~the outstanding borrowings under the receivables facility reasonably approximated the carrying value of $110 million at~~June 30, 2020 and December 31, ~~2018; as of September 30,~~ 2019 there were no0 outstanding borrowings under the receivables facility. As of ~~September 30, 2019 and~~ December 31, ~~2018,~~2019, the fair ~~values~~value of the U.S. Notes (2023) ~~were~~was approximately $609 million ~~and $574 million, respectively,~~ compared to a carrying value of ~~$600~~$600 million ~~at each date.~~; as of June 30, 2020, there were 0 outstanding borrowings on the U.S. Notes (2023). As of ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the fair values of the Euro Notes (2024) were approximately ~~$618~~$583 million and ~~$586~~$632 million, respectively, compared to carrying values of ~~$545~~$562 million and ~~$573~~$561 million, respectively. As of ~~September~~June 30, 2020 and December 31, 2019, the fair value of the Euro Notes (2026/28) was $1.2 billion at each date, compared to a carrying value of $1.1 ~~billion; as of December 31, 2018, the fair value of the Euro Notes (2026/28) approximated the carrying value of $1.1 billion.~~billion at each date.

The fair value measurements of the borrowings under our credit agreement and receivables facility are classified as Level 2 within the fair value hierarchy since they are determined based upon significant inputs observable in the market, including interest rates on recent financing transactions with similar terms and maturities. We estimated the fair value by calculating the upfront cash payment a market participant would require at ~~September~~June 30, 2020 and December 31, 2019 to assume these obligations. The fair value of our U.S. Notes (2023) iswas classified as Level 1 within the fair value hierarchy since it iswas determined based upon observable market inputs including quoted market prices in an active market. The fair values of our Euro Notes (2024) and Euro Notes (2026/28) are determined based upon observable market inputs including quoted market prices in markets that are not active, and therefore are classified as Level 2 within the fair value hierarchy.

~~Note 13. Leases~~

~~We lease certain warehouses, distribution centers, retail stores, office space, land, vehicles and equipment.~~

We determine if an arrangement is a lease at inception. Operating lease right-of-use ("ROU") assets and operating lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date. As the implicit rate for most of our leases is not readily determinable, we use our incremental borrowing rate based on the information available at commencement date in determining the present value of future payments. Upon adoption of the new lease standard, we utilized the incremental borrowing rate as of the date of adoption. We determine our incremental borrowing rate by analyzing yield curves with consideration of lease term, and country and company specific factors. The operating lease ROU asset also includes any lease prepayments and excludes lease incentives.

Many of our leases include one or more options to renew, with renewal terms that can extend the lease term from 1 to 40 years or more. For each lease, we consider whether we are reasonably certain to exercise these options to extend. Other contracts may contain termination options which we assess to determine whether we are reasonably certain not to exercise those options. Certain leases also include options to purchase the leased property. The depreciable life of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

For leases with an initial term of 12 months or less, we have not recognized an operating lease ROU asset or operating lease liability on the Unaudited Condensed Consolidated Balance Sheets; we recognize lease expense for these leases on a straight-line basis over the lease terms.

We guarantee the residual values for the majority of our vehicles. The residual values decline over the lease terms to a defined percentage of original cost. In the event the lessor does not realize the residual value when a vehicle is sold, we would be responsible for a portion of the shortfall. Similarly, if the lessor realizes more than the residual value when a vehicle is sold, we would be paid the amount realized over the residual value. Had we terminated all of our operating leases subject to these guarantees at September 30, 2019, our portion of the guaranteed residual value would have totaled approximately $71 million.

~~Other than the residual value guarantees associated with our vehicles discussed above, we do not have any other material residual value guarantees or restrictive covenants.~~

~~The amounts recorded on the Unaudited Condensed Consolidated Balance Sheet as of September 30, 2019 related to our lease agreements are as follows (in thousands):~~

Leases Classification September 30, 2019

Assets
Operating lease assets, net Operating lease assets, net $ 1,303,260
Finance lease assets, net Property, plant and equipment, net 39,504
Total leased assets $ 1,342,764
Liabilities
Current
Operating Current portion of operating lease liabilities $ 225,572
Finance Current portion of long-term obligations 10,361
Noncurrent
Operating Long-term operating lease liabilities 1,129,423
Finance Long-term obligations, excluding current portion 28,752
Total lease liabilities $ 1,394,108

~~The components of lease expense are as follows (in thousands):~~

Three Months Ended Nine Months Ended
Lease Cost Classification September 30, 2019 September 30, 2019

Operating lease cost Cost of goods sold $ 7,265
$ 16,977
Operating lease cost Selling, general and administrative expenses 75,371
225,794
Short-term lease cost Selling, general and administrative expenses 3,006
7,472
Variable lease cost Selling, general and administrative expenses 20,521
71,711
Finance lease cost
Amortization of leased assets Depreciation and amortization 2,675
7,897
Interest on lease liabilities Interest expense, net of interest income 413
1,266
Sublease income Other income, net (782 ) (1,208 )
Net lease cost $ 108,469
$ 329,909

~~The future minimum lease commitments under our noncancelable operating leases at December 31, 2018 were as follows (in thousands):~~

Years ending December 31:
2019 $ 294,269
2020 256,172
2021 210,632
2022 158,763
2023 131,518
Thereafter 777,165
Future Minimum Lease Payments $ 1,828,519

~~The future minimum lease commitments under our leases at September 30, 2019 are as follows (in thousands):~~

Operating leases
Finance leases ⁽¹⁾
Total
Three months ending December 31, 2019 $ 76,438
$ 2,904
$ 79,342
Years ending December 31:
2020 283,138
10,528
293,666
2021 242,333
9,105
251,438
2022 192,731
6,731
199,462
2023 160,862
2,940
163,802
2024 132,269
2,615
134,884
Thereafter 758,111
15,657
773,768
Future minimum lease payments 1,845,882
50,480
1,896,362
Less: Interest 490,887
11,367
502,254
Present value of lease liabilities $ 1,354,995
$ 39,113
$ 1,394,108


~~(1)~~	Amounts are included in the scheduled maturities of long-term obligations in the “Liquidity and Capital Resources” section of Management's Discussion and Analysis of Financial Condition and Results of Operations in Part I, Item 2 of this Quarterly Report on Form 10-Q.

As of September 30, 2019, we have additional minimum operating lease payments for leases that have not yet commenced of $30 million. These operating leases will commence between October 1, 2019 and December 31, 2020 with lease terms of 1 to 20 years. Most of these leases have not commenced as the assets are in the process of being constructed. We have appropriately considered the build-to-suit and sale-leaseback guidance where appropriate on these leases. No significant build-to-suit or sale-leaseback transactions have been identified.

~~Other information related to leases was as follows:~~



~~Lease Term and Discount Rate~~	~~September 30, 2019~~

~~Weighted-average remaining lease term (years)~~
~~Operating leases~~	~~9.6~~
~~Finance leases~~	~~8.6~~
~~Weighted-average discount rate~~
~~Operating leases~~	~~5.4~~	%
~~Finance leases~~	~~4.5~~	%

Nine Months Ended
Supplemental cash flows information (in thousands) September 30, 2019

Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows from operating leases $ 222,798
Financing cash outflows from finance leases 8,521
Leased assets obtained in exchange for new finance lease liabilities 9,639
Leased assets obtained in exchange for new operating lease liabilities 126,336

Note ~~14.~~12. Employee Benefit Plans

We have funded and unfunded defined benefit plans covering certain employee groups in the U.S. and various European countries. Local statutory requirements govern many of our European plans. The defined benefit plans are mostly closed to new participants and, in some cases, existing participants no longer accrue benefits. As of ~~September~~each of June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, the aggregate funded status of the defined benefit plans was a liability of ~~$111~~$142 million, ~~and $110 million, respectively,~~ and is reported in Other noncurrent liabilities and Accrued payroll-related liabilities on our Unaudited Condensed Consolidated Balance Sheets.

On June 28, 2019, we approved an amendment to terminate our primary defined benefit plan in the U.S. (the "U.S. Plan") and to freeze all related benefit accruals, effective June 30, 2019. ~~The distribution of the U.S. Plan assets pursuant to the termination will not be made until the plan termination satisfies all regulatory requirements, which is expected to be completed in 2020.~~ U.S. Plan participants will receive their full accrued benefits from plan assets by electing either lump sum distributions or annuity contracts with a qualifying third-party annuity provider. The resulting settlement effect of the U.S. Plan termination will be determined based on prevailing market conditions, the lump sum offer participation rate of eligible participants, the actual lump sum distributions, and annuity purchase rates at the date of distribution. During the quarter ended June 30, 2020, participants were able to elect lump-sum distributions. As a result of these elections and subsequent payments, we ~~are currently unable~~reclassified $2 million of unrealized loss from Accumulated Other Comprehensive Income to ~~reasonably estimate either the timing or the final amount~~Other income, net in our Unaudited Condensed Consolidated Statements of ~~such settlement charges. Based on the valuation performed~~Income as of June ~~28, 2019,~~30, 2020 to reflect the ~~U.S. Plan has an underfunded status~~partial settlement of ~~$3 million.~~the plan. We expect to settle the remaining obligations under the plan by the end of 2020 through the purchase of annuity contracts. Actuarial valuations to support settlement entries will be completed upon the finalization of lump sum distributions during the third quarter of 2020 and then additionally in the fourth quarter upon the purchase of annuity contracts. We expect that these valuations will result in additional charges recognized through Other income, net, but are unable to quantify them at this time.

Net periodic benefit cost for our defined benefit plans included the following components for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (in thousands):

Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
Service cost $ 551
$ 628
$ 2,212
$ 1,612
Interest cost 959
996
2,954
2,442
Expected return on plan assets (455 ) (720 ) (1,795 ) (2,220 )
Amortization of actuarial (gain) loss (61 ) 21
229
97
Net periodic benefit cost $ 994
$ 925
$ 3,600
$ 1,931


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020		2019		2020		2019
Service cost	$	856	$	1,074	$	1,526	$	1,661
Interest cost	731		1,010		1,449		1,995
Expected return on plan assets	(662)		(560)		(1,140)		(1,340)

Amortization of actuarial loss	555		37		669		290

Settlement loss	2,100		—		2,100		—
Net periodic benefit cost	$	3,580	$	1,561	$	4,604	$	2,606

For the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018,~~2019, the service cost component of net periodic benefit cost was classified in Selling, general and administrative expenses, while the other components of net periodic benefit cost were classified in Other income, net in our Unaudited Condensed Consolidated Statements of Income.

Note ~~15.~~13. Income Taxes

At the end of each interim period, we estimate our annual effective tax rate and apply that rate to our interim earnings. We also record the tax impact of certain unusual or infrequently occurring items, including changes in judgment about valuation allowances and the effects of changes in tax laws or rates, in the interim period in which they occur.

The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in state and foreign jurisdictions, permanent and temporary differences between book and taxable income, and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as the tax environment changes.

Our effective income tax rate for the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 was ~~27.5%~~27.7%, compared to ~~25.2%~~27.1% for the comparable prior year period. The increase is attributable to a higher expected annual effective tax rate in 2020 as a result of the estimated unfavorable impact of the COVID-19 pandemic on the Company’s results of operations. The primary factor in the increase is the impact of lower available interest deductions in certain foreign jurisdictions due to legislative thin capitalization constraints, typically based on profitability. For the six months ended June 30, 2020, the effective tax rate was reduced 0.3% by favorable discrete items, primarily ~~attributable~~excess tax benefits on stock-based compensation and deferred tax adjustments as a result of statutory tax rate changes. Net discrete items for the six months ended June 30, 2019 added 0.1% to the effective tax rate. Ongoing uncertainties due to the impact of ~~a favorable discrete item of $10 million~~the COVID-19 pandemic on the Company’s operations for the ~~nine months ended September 30, 2018, reflecting an adjustment to the Tax Act transition tax. The increase was also partially attributable to the impact~~remainder of a favorable discrete item of approximately $4 million for the nine months ended September 30, 2018, for excess tax benefits from stock-based payments; there were $1 million of excess tax benefits from stock-based payments for the nine months ended September 30, 2019. The year over year change for these discrete items increased the2020 may result in volatile effective tax ~~rate~~rates driven generally by ~~2.1% compared to~~ the ~~prior year period, while remaining discrete items increased~~level of profitability and changes in the ~~effective tax rate by an immaterial amount compared to~~mix of earnings across the ~~prior year period.~~Company’s jurisdictions.

Note ~~16.~~14. Segment and Geographic Information

We have 4 operating segments: Wholesale – North America, Europe, Specialty and Self Service. Our Wholesale – North America and Self Service operating segments are aggregated into 1 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 3 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
Three Months Ended September 30, 2019
Revenue:
Third Party $ 1,302,086

$ 1,451,483

$ 394,204
$ —
$ 3,147,773
Intersegment 61
—
1,110
(1,171 ) —
Total segment revenue $ 1,302,147

$ 1,451,483

$ 395,314

$ (1,171 ) $ 3,147,773
Segment EBITDA $ 166,310

$ 124,712

$ 45,464
$ —
$ 336,486
Depreciation and amortization ⁽¹⁾
23,593
47,302
6,983
—
77,878
Three Months Ended September 30, 2018
Revenue:
Third Party $ 1,262,657
$ 1,470,856
$ 388,865
$ —
$ 3,122,378
Intersegment 142
—
1,196
(1,338 ) —
Total segment revenue $ 1,262,799
$ 1,470,856
$ 390,061
$ (1,338 ) $ 3,122,378
Segment EBITDA $ 154,049
$ 129,358
$ 42,937
$ —
$ 326,344
Depreciation and amortization ⁽¹⁾
22,151
52,139
7,183
—
81,473

North America Europe Specialty Eliminations Consolidated
Nine Months Ended September 30, 2019
Revenue:
Third Party $ 3,925,962
$ 4,413,264
$ 1,157,023
$ —
$ 9,496,249
Intersegment 260
—
3,664
(3,924 ) —
Total segment revenue $ 3,926,222
$ 4,413,264
$ 1,160,687
$ (3,924 ) $ 9,496,249
Segment EBITDA $ 532,994
$ 346,291
$ 135,790
$ —
$ 1,015,075
Depreciation and amortization ⁽¹⁾
68,257
141,087
20,895
—
230,239
Nine Months Ended September 30, 2018
Revenue:
Third Party $ 3,927,282
$ 3,795,439
$ 1,151,172
$ —
$ 8,873,893
Intersegment 526
—
3,554
(4,080 ) —
Total segment revenue $ 3,927,808
$ 3,795,439
$ 1,154,726
$ (4,080 ) $ 8,873,893
Segment EBITDA $ 506,772
$ 315,785
$ 140,974
$ —
$ 963,531
Depreciation and amortization ⁽¹⁾
64,985
124,697
21,295
—
210,977


	North America		Europe		Specialty		Eliminations		Consolidated
Three Months Ended June 30, 2020
Revenue:
Third Party	$	1,011,136	$	1,211,185	$	404,002	$	—	$	2,626,323
Intersegment	259		—		872		(1,131)		—
Total segment revenue	$	1,011,395	$	1,211,185	$	404,874	$	(1,131)	$	2,626,323
Segment EBITDA	$	149,554	$	89,387	$	52,233	$	—	$	291,174
Depreciation and amortization ⁽¹⁾	25,050		40,493		7,387		—		72,930
Three Months Ended June 30, 2019
Revenue:
Third Party	$	1,321,670	$	1,516,240	$	410,263	$	—	$	3,248,173
Intersegment	96		—		1,373		(1,469)		—
Total segment revenue	$	1,321,766	$	1,516,240	$	411,636	$	(1,469)	$	3,248,173
Segment EBITDA	$	190,048	$	116,281	$	52,367	$	—	$	358,696
Depreciation and amortization ⁽¹⁾	22,425		46,774		6,955		—		76,154


	North America		Europe		Specialty		Eliminations		Consolidated
Six Months Ended June 30, 2020
Revenue:
Third Party	$	2,301,071	$	2,574,779	$	751,408	$	—	$	5,627,258
Intersegment	519		—		2,048		(2,567)		—
Total segment revenue	$	2,301,590	$	2,574,779	$	753,456	$	(2,567)	$	5,627,258
Segment EBITDA	$	360,992	$	167,649	$	84,465	$	—	$	613,106
Depreciation and amortization ⁽¹⁾	48,198		81,588		14,523		—		144,309
Six Months Ended June 30, 2019
Revenue:
Third Party	$	2,623,876	$	2,961,781	$	762,819	$	—	$	6,348,476
Intersegment	199		—		2,554		(2,753)		—
Total segment revenue	$	2,624,075	$	2,961,781	$	765,373	$	(2,753)	$	6,348,476
Segment EBITDA	$	366,684	$	221,579	$	90,326	$	—	$	678,589
Depreciation and amortization ⁽¹⁾	44,664		93,785		13,912		—		152,361

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

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 EBITDA and Segment EBITDA (in thousands):

Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
Net income $ 152,593
$ 134,480
$ 403,761
$ 445,109
Less: net (loss) income attributable to continuing noncontrolling interest (46 ) 378
2,321
1,040
Less: net income attributable to discontinued noncontrolling interest 376
—
568
—
Net income attributable to LKQ stockholders 152,263
134,102
400,872
444,069
Subtract:
Net income from discontinued operations 781
—
1,179
—
Net income attributable to discontinued noncontrolling interest (376 ) —
(568 ) —
Net income from continuing operations attributable to LKQ stockholders 151,858
134,102
400,261
444,069
Add:
Depreciation and amortization 71,513
76,701
213,349
196,322
Depreciation and amortization - cost of goods sold 5,223
4,772
15,748
14,655
Depreciation and amortization - restructuring expenses - cost of goods sold 168
—
168
—
Depreciation and amortization - restructuring expenses 974
—
974
—
Interest expense, net of interest income 31,976
40,860
103,949
107,647
Provision for income taxes 57,747
46,068
165,122
156,427
EBITDA 319,459
302,503
899,571
919,120
Subtract:
Equity in earnings (losses) of unconsolidated subsidiaries ⁽¹⁾
4,232
(20,284 ) (33,745 ) (18,326 )
Fair value gain on Mekonomen derivative instrument ⁽¹⁾
—
2,509
—
2,509
Gains on bargain purchase —
—
—
328
Add:
Restructuring and acquisition related expenses ⁽²⁾
7,955
6,614
19,639
26,546
Restructuring expenses - cost of goods sold ⁽³⁾
17,130
—
17,130
—
Inventory step-up adjustment - acquisition related —
—
—
403
Impairment of net assets held for sale ^{(4) (5)}
(3,601 ) —
44,919
2,438
Change in fair value of contingent consideration liabilities (225 ) (548 ) 71
(465 )
Segment EBITDA $ 336,486
$ 326,344
$ 1,015,075
$ 963,531


~~(1)~~	~~Refer to "Investments in Unconsolidated Subsidiaries" in Note 4, "Financial Statement Information," for further information.~~


~~(2)~~	Excludes $1 million of depreciation expense that is reported in Restructuring and acquisition related expenses in our Unaudited Condensed Consolidated Statements of Income. Refer to Note 6, "Restructuring and Acquisition Related Expenses," for further information.


	Three Months Ended									Six Months Ended
			June 30,									June 30,
			2020			2019			2020			2019
Net income	$	118,770		$	152,105		$	264,749		$	251,168
Less: net (loss) income attributable to continuing noncontrolling interest	(22)			1,352			718			2,367
Less: net income attributable to discontinued noncontrolling interest	—			192			103			192
Net income attributable to LKQ stockholders	118,792			150,561			263,928			248,609
Subtract:
Net income (loss) from discontinued operations	277			398			(638)			398
Net income attributable to discontinued noncontrolling interest	—			(192)			(103)			(192)
Net income from continuing operations attributable to LKQ stockholders	118,515			150,355			264,669			248,403
Add:
Depreciation and amortization	65,747			70,834			131,242			141,836
Depreciation and amortization - cost of goods sold	4,010			5,320			9,095			10,525
Depreciation and amortization - restructuring expenses ⁽¹⁾	3,173			—			3,972			—
Interest expense, net of interest income	25,616			35,884			51,547			71,973
Loss on debt extinguishment	—			—			12,751			—
Provision for income taxes	41,869			55,825			102,280			107,375
EBITDA	258,930			318,218			575,556			580,112
Subtract:
Equity in (losses) earnings of unconsolidated subsidiaries ⁽²⁾	(2,649)			1,572			(2,133)			(37,977)


Add:
Restructuring and acquisition related expenses ⁽¹⁾	21,777			8,377			27,948			11,684
Restructuring expenses - cost of goods sold	5,665			—			5,661			—



Loss on disposal of businesses and impairment of net assets held for sale ⁽³⁾	2,485			33,497			2,236			48,520
Change in fair value of contingent consideration liabilities	(332)			176			(428)			296
Segment EBITDA	$	291,174		$	358,696		$	613,106		$	678,589

(1) The sum of these two captions represents the total amount that is reported in Restructuring and acquisition related expenses in our Unaudited Condensed Consolidated Statements of Income. Refer to Note 5, "Restructuring and Acquisition Related Expenses," for further information.

(2) Refer to "Investments in Unconsolidated Subsidiaries" in Note 3, "Financial Statement Information," for further information.

(3)

~~Refer to Note 6, "Restructuring and Acquisition Related Expenses," for further information.~~

~~(4)~~ Refer to "Net Assets Held for Sale" in Note 4,3, "Financial Statement Information," for further information.

~~(5) In 2018, amounts were recorded in Other income, net in our Unaudited Condensed Consolidated Statements of Income.~~

3430

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


	Three Months Ended									Six Months Ended
			June 30,									June 30,
			2020			2019			2020			2019
Capital Expenditures
North America	$	10,892		$	23,169		$	40,213		$	54,403
Europe	19,502			21,840			32,550			41,417
Specialty	2,369			3,243			4,538			5,448
Total capital expenditures	$	32,763		$	48,252		$	77,301		$	101,268

Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
Capital Expenditures
North America $ 29,430
$ 27,996
$ 83,833
$ 86,864
Europe 30,916
23,904
72,333
69,582
Specialty 3,937
4,442
9,385
15,317
Total capital expenditures $ 64,283
$ 56,342
$ 165,551
$ 171,763

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


	June 30,			December 31,
			2020			2019
Receivables, net
North America	$	355,421		$	419,452
Europe	629,355			636,216
Specialty	141,040			75,464
Total receivables, net	1,125,816			1,131,132
Inventories
North America	829,049			991,062
Europe	1,223,628			1,401,801
Specialty	235,616			379,914
Total inventories	2,288,293			2,772,777
Property, plant and equipment, net
North America	587,230			610,573
Europe	527,255			538,951
Specialty	82,020			84,876
Total property, plant and equipment, net	1,196,505			1,234,400
Operating lease assets, net
North America	756,128			768,164
Europe	434,221			457,035
Specialty	82,164			83,312
Total operating lease assets, net	1,272,513			1,308,511
Equity method investments
North America	15,299			17,624
Europe	121,374			121,619
Total equity method investments	136,673			139,243
Other unallocated assets	6,015,499			6,193,893
Total assets	$	12,035,299		$	12,779,956

September 30, December 31,
2019 2018
Receivables, net
North America $ 405,218
$ 411,818
Europe 705,031
649,174
Specialty 112,948
93,091
Total receivables, net 1,223,197
1,154,083
Inventories
North America 975,561
1,076,306
Europe 1,274,483
1,410,264
Specialty 332,144
349,505
Total inventories 2,582,188
2,836,075
Property, plant and equipment, net
North America 582,157
570,508
Europe 516,106
562,600
Specialty 85,925
87,054
Total property, plant and equipment, net 1,184,188
1,220,162
Operating lease assets, net ⁽¹⁾

North America 813,412
—
Europe 404,444
—
Specialty 85,404
—
Total operating lease assets, net 1,303,260
—
Equity method investments
North America 17,275
16,404
Europe⁽²⁾
126,734
162,765
Total equity method investments 144,009
179,169
Other unallocated assets 5,974,848
6,003,913
Total assets $ 12,411,690
$ 11,393,402


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


~~(2)~~	~~Refer to "Investments in Unconsolidated Subsidiaries" in Note 4, "Financial Statement Information," for further information.~~

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 Germany and the U.K. ~~and Germany.~~ Additional European operations are located in the Netherlands, Italy, Czech Republic, Belgium, ~~Poland,~~Austria, Slovakia, ~~Austria,~~Poland, and other European countries. Our operations in other countries include wholesale operations in Canada, ~~engine~~ remanufacturing ~~and bumper refurbishing~~ 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):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020		2019		2020		2019
Revenue
United States	$	1,330,543	$	1,613,417	$	2,864,489	$	3,155,443
Germany	359,134		415,947		733,686		802,412
United Kingdom	278,419		409,765		669,038		822,578
Other countries	658,227		809,044		1,360,045		1,568,043
Total revenue	$	2,626,323	$	3,248,173	$	5,627,258	$	6,348,476

Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
Revenue
United States $ 1,579,691
$ 1,535,557
$ 4,735,134
$ 4,716,927
United Kingdom 394,621
408,474
1,217,199
1,294,155
Germany 394,115
415,748
1,196,527
564,698
Other countries 779,346
762,599
2,347,389
2,298,113
Total revenue $ 3,147,773
$ 3,122,378
$ 9,496,249
$ 8,873,893

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

September 30, December 31,
2019 2018
Long-lived assets⁽¹⁾

United States $ 1,485,843
$ 620,125
Germany 295,570
217,476
United Kingdom 306,611
165,145
Other countries 399,424
217,416
Total long-lived assets $ 2,487,448
$ 1,220,162


~~(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.


	June 30,		December 31,
	2020		2019
Long-lived assets
United States	$	1,435,244	$	1,467,701
Germany	340,681		340,995
United Kingdom	286,952		330,113
Other countries	406,141		404,102
Total long-lived assets	$	2,469,018	$	2,542,911

~~Note 17. Condensed Consolidating Financial Information~~

LKQ Corporation (the "Parent") issued, and the Guarantors have fully and unconditionally guaranteed, jointly and severally, the U.S. Notes (2023) due on May 15, 2023. A Guarantor's guarantee will be unconditionally and automatically released and discharged upon the occurrence of any of the following events: (i) a transfer (including as a result of consolidation or merger) by the Guarantor to any person that is not a Guarantor of all or substantially all assets and properties of such Guarantor, provided the Guarantor is also released from its obligations with respect to indebtedness under the Credit Agreement or other indebtedness of ours, which obligation gave rise to the guarantee of the U.S. Notes (2023); (ii) a transfer (including as a result of consolidation or merger) to any person that is not a Guarantor of the equity interests of a Guarantor or issuance by a Guarantor of its equity interests such that the Guarantor ceases to be a subsidiary, as defined in the U.S. Notes (2023) Indenture, provided the Guarantor is also released from its obligations with respect to indebtedness under the Credit Agreement or other indebtedness of ours, which obligation gave rise to the guarantee of the U.S. Notes (2023); (iii) the release of the Guarantor from its obligations with respect to indebtedness under the Credit Agreement or other indebtedness of ours, which obligation gave rise to the guarantee of the U.S. Notes (2023); and (iv) upon legal defeasance, covenant defeasance or satisfaction and discharge of the U.S. Notes (2023) Indenture, as defined in the U.S. Notes (2023) Indenture.

Presented below are the unaudited condensed consolidating financial statements of the Parent, the Guarantors, the non-guarantor subsidiaries (the "Non-Guarantors"), and the elimination entries necessary to present our financial statements on a consolidated basis as required by Rule 3-10 of Regulation S-X of the Securities Exchange Act of 1934 resulting from the guarantees of the U.S. Notes (2023). Investments in consolidated subsidiaries have been presented under the equity method of accounting. The principal elimination entries eliminate investments in subsidiaries, intercompany balances, and intercompany revenue and expenses. The unaudited condensed consolidating financial statements below have been prepared from our financial information on the same basis of accounting as the unaudited condensed consolidated financial statements, and may not necessarily be indicative of the financial position, results of operations or cash flows had the Parent, Guarantors and Non-Guarantors operated as independent entities.

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidating Statements of Income
(In thousands)
For the Three Months Ended September 30, 2019
Parent Guarantors Non-Guarantors Eliminations Consolidated
Revenue $ —
$ 1,593,983
$ 1,593,245
$ (39,455 ) $ 3,147,773
Cost of goods sold —
954,366
1,032,533
(39,455 ) 1,947,444
Gross margin —

639,617

560,712

—

1,200,329
Selling, general and administrative expenses 15,015
442,554
434,555
—
892,124
Restructuring and acquisition related expenses —
426
8,503
—
8,929
Impairment of net assets held for sale —
(2,339 ) (1,262 ) —
(3,601 )
Depreciation and amortization 285
25,893
45,335
—
71,513
Operating (loss) income (15,300 )
173,083

73,581

—

231,364
Other expense (income):
Interest expense, net of interest income 12,895
(166 ) 19,247
—
31,976
Intercompany interest (income) expense, net

(14,899 ) 7,923
6,976
—
—
Other income, net (929 ) (4,645 ) (365 ) —
(5,939 )
Total other (income) expense, net (2,933 )
3,112

25,858

—

26,037
(Loss) income from continuing operations before (benefit) provision for income taxes (12,367 )
169,971

47,723

—
205,327
(Benefit) provision for income taxes (2,268 ) 42,515
17,500
—
57,747
Equity in earnings of unconsolidated subsidiaries —
393
3,839
—
4,232
Equity in earnings of subsidiaries 161,581
4,098
—
(165,679 ) —
Income from continuing operations 151,482
131,947
34,062
(165,679 ) 151,812
Net income from discontinued operations 781
—
781
(781 ) 781
Net income 152,263

131,947

34,843

(166,460 ) 152,593
Less: net loss attributable to continuing noncontrolling interest —
—
(46 ) —
(46 )
Less: net income attributable to discontinued noncontrolling interest —
—
376
—
376
Net income attributable to LKQ stockholders $ 152,263
$ 131,947
$ 34,513
$ (166,460 ) $ 152,263

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidating Statements of Income
(In thousands)
For the Three Months Ended September 30, 2018
Parent Guarantors Non-Guarantors Eliminations Consolidated
Revenue $ —
$ 1,550,301
$ 1,609,525
$ (37,448 ) $ 3,122,378
Cost of goods sold —
934,913
1,027,715
(37,448 ) 1,925,180
Gross margin —

615,388

581,810

—
1,197,198
Selling, general and administrative expenses 6,725
434,965
437,460
—
879,150
Restructuring and acquisition related expenses —
1,638
4,976
—
6,614
Depreciation and amortization 34
25,238
51,429
—
76,701
Operating (loss) income (6,759 )
153,547

87,945

—
234,733
Other expense (income):
Interest expense, net of interest income 16,191
(193 ) 24,862
—
40,860
Intercompany interest (income) expense, net (15,121 ) 10,014
5,107
—
—
Other income, net (178 )
(3,514 )
(3,267 )
—
(6,959 )
Total other expense, net 892
6,307
26,702

—
33,901
(Loss) income before (benefit) provision for income taxes (7,651 ) 147,240
61,243
—
200,832
(Benefit) provision for income taxes (12,008 ) 41,875
16,201
—
46,068
Equity in losses of unconsolidated subsidiaries —
(156 ) (20,128 ) —
(20,284 )
Equity in earnings of subsidiaries 129,745
4,467
—
(134,212 ) —
Net income 134,102

109,676

24,914

(134,212 ) 134,480
Less: net income attributable to noncontrolling interest —
—
378
—
378
Net income attributable to LKQ stockholders $ 134,102
$ 109,676
$ 24,536
$ (134,212 ) $ 134,102

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidating Statements of Income
(In thousands)
For the Nine Months Ended September 30, 2019
Parent Guarantors Non-Guarantors Eliminations Consolidated
Revenue $ —
$ 4,774,588
$ 4,836,439
$ (114,778 ) $ 9,496,249
Cost of goods sold —
2,850,011
3,105,236
(114,778 ) 5,840,469
Gross margin —
1,924,577
1,731,203
—
3,655,780
Selling, general and administrative expenses 36,744
1,301,827
1,348,453
—
2,687,024
Restructuring and acquisition related expenses —
5,063
15,550
—
20,613
Impairment of net assets held for sale —
39,355
5,564
—
44,919
Depreciation and amortization 377
76,142
136,830
—
213,349
Operating (loss) income (37,121 ) 502,190

224,806
—
689,875
Other expense (income):
Interest expense, net of interest income 39,517
(285 ) 64,717
—
103,949
Intercompany interest (income) expense, net

(44,748 ) 25,583
19,165
—
—
Other (income) expense, net (914 ) (16,818 ) 2,209
—
(15,523 )
Total other (income) expense, net (6,145 ) 8,480
86,091
—
88,426
(Loss) income from continuing operations before (benefit) provision for income taxes (30,976 ) 493,710
138,715
—
601,449
(Benefit) provision for income taxes (7,306 ) 128,936
43,492
—
165,122
Equity in earnings (losses) of unconsolidated subsidiaries —
871
(34,616 ) —
(33,745 )
Equity in earnings of subsidiaries 423,363
13,210
—
(436,573 ) —
Income from continuing operations 399,693
378,855
60,607
(436,573 ) 402,582
Net income from discontinued operations 1,179
—
1,179
(1,179 ) 1,179
Net income 400,872
378,855
61,786
(437,752 ) 403,761
Less: net income attributable to continuing noncontrolling interest —
—
2,321
—
2,321
Less: net income attributable to discontinued noncontrolling interest —
—
568
—
568
Net income attributable to LKQ stockholders $ 400,872
$ 378,855
$ 58,897
$ (437,752 ) $ 400,872

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidating Statements of Income
(In thousands)
For the Nine Months Ended September 30, 2018
Parent Guarantors Non-Guarantors Eliminations Consolidated
Revenue $ —
$ 4,768,292
$ 4,216,417
$ (110,816 ) $ 8,873,893
Cost of goods sold —
2,869,499
2,702,162
(110,816 ) 5,460,845
Gross margin —
1,898,793
1,514,255
—
3,413,048
Selling, general and administrative expenses 25,538
1,292,455
1,154,092
—
2,472,085
Restructuring and acquisition related expenses —
1,968
24,578
—
26,546
Depreciation and amortization 84
74,102
122,136
—
196,322
Operating (loss) income (25,622 ) 530,268
213,449
—
718,095
Other expense (income):
Interest expense, net of interest income 52,004
(94 ) 55,737
—
107,647
Intercompany interest (income) expense, net (45,927 ) 29,559
16,368
—
—
Other (income) expense, net (1,076 ) (13,793 ) 5,455
—
(9,414 )
Total other expense, net 5,001
15,672
77,560
—
98,233
(Loss) income before (benefit) provision for income taxes (30,623 ) 514,596
135,889
—
619,862
(Benefit) provision for income taxes (19,656 ) 141,295
34,788
—
156,427
Equity in losses of unconsolidated subsidiaries —
(156 ) (18,170 ) —
(18,326 )
Equity in earnings of subsidiaries 455,036
14,028
—
(469,064 ) —
Net income 444,069

387,173

82,931

(469,064 ) 445,109
Less: net income attributable to noncontrolling interest —
—
1,040
—
1,040
Net income attributable to LKQ stockholders $ 444,069

$ 387,173

$ 81,891

$ (469,064 ) $ 444,069

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidating Statements of Comprehensive Income
(In thousands)
For the Three Months Ended September 30, 2019
Parent Guarantors Non-Guarantors Eliminations Consolidated
Net income $ 152,263
$ 131,947
$ 34,843
$ (166,460 ) $ 152,593
Less: net loss attributable to continuing noncontrolling interest —
—
(46 ) —
(46 )
Less: net income attributable to discontinued noncontrolling interest —
—
376
—
376
Net income attributable to LKQ stockholders 152,263
131,947
34,513
(166,460 ) 152,263

Other comprehensive (loss) income:
Foreign currency translation, net of tax (69,819 ) (1,429 ) (69,520 ) 70,949
(69,819 )
Net change in unrealized gains/losses on cash flow hedges, net of tax (1,261 ) —
—
—
(1,261 )
Net change in unrealized gains/losses on pension plans, net of tax (2,353 ) (2,385 ) 32
2,353
(2,353 )
Net change in other comprehensive income from unconsolidated subsidiaries 1,240
—
1,240
(1,240 ) 1,240
Other comprehensive loss (72,193 ) (3,814 ) (68,248 ) 72,062
(72,193 )

Comprehensive income (loss) 80,070
128,133
(33,405 ) (94,398 ) 80,400
Less: comprehensive loss attributable to continuing noncontrolling interest —
—
(46 ) —
(46 )
Less: comprehensive income attributable to discontinued noncontrolling interest —

—
376
—
376
Comprehensive income (loss) attributable to LKQ stockholders $ 80,070
$ 128,133
$ (33,735 ) $ (94,398 ) $ 80,070

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidating Statements of Comprehensive Income
(In thousands)
For the Three Months Ended September 30, 2018
Parent Guarantors Non-Guarantors Eliminations Consolidated
Net income $ 134,102
$ 109,676
$ 24,914
$ (134,212 ) $ 134,480
Less: net income attributable to continuing noncontrolling interest —
—
378
—
378
Net income attributable to LKQ stockholders 134,102
109,676
24,536
(134,212 ) 134,102

Other comprehensive (loss) income:
Foreign currency translation, net of tax (20,951 ) 1,686
(23,901 ) 22,215
(20,951 )
Net change in unrealized gains/losses on cash flow hedges, net of tax 304
—
—
—
304
Net change in unrealized gains/losses on pension plans, net of tax 1,274
1,246
28
(1,274 ) 1,274
Net change in other comprehensive income from unconsolidated subsidiaries 643
—
643
(643 ) 643
Other comprehensive (loss) income (18,730 ) 2,932
(23,230 ) 20,298
(18,730 )

Comprehensive income 115,372
112,608
1,684
(113,914 ) 115,750
Less: comprehensive income attributable to continuing noncontrolling interest —
—
378
—
378
Comprehensive income attributable to LKQ stockholders $ 115,372
$ 112,608
$ 1,306
$ (113,914 ) $ 115,372

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidating Statements of Comprehensive Income
(In thousands)
For the Nine Months Ended September 30, 2019
Parent Guarantors Non-Guarantors Eliminations Consolidated
Net income $ 400,872
$ 378,855
$ 61,786
$ (437,752 ) $ 403,761
Less: net income attributable to continuing noncontrolling interest —
—
2,321
—
2,321
Less: net income attributable to discontinued noncontrolling interest —
—
568
—
568
Net income attributable to LKQ stockholders 400,872
378,855
58,897
(437,752 ) 400,872

Other comprehensive (loss) income:
Foreign currency translation, net of tax (74,112 ) 3,107
(74,900 ) 71,793
(74,112 )
Net change in unrealized gains/losses on cash flow hedges, net of tax (9,648 ) —
—
—
(9,648 )
Net change in unrealized gains/losses on pension plans, net of tax (2,134 ) (2,399 ) 265
2,134
(2,134 )
Net change in other comprehensive income from unconsolidated subsidiaries 98
—
98
(98 ) 98
Other comprehensive (loss) income (85,796 ) 708
(74,537 ) 73,829
(85,796 )

Comprehensive income (loss) 315,076
379,563
(12,751 ) (363,923 ) 317,965
Less: comprehensive income attributable to continuing noncontrolling interest —
—
2,321
—
2,321
Less: comprehensive income attributable to discontinued noncontrolling interest —
—
568
—
568
Comprehensive income (loss) attributable to LKQ stockholders $ 315,076
$ 379,563
$ (15,640 ) $ (363,923 ) $ 315,076

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidating Statements of Comprehensive Income
(In thousands)
For the Nine Months Ended September 30, 2018
Parent Guarantors Non-Guarantors Eliminations Consolidated
Net income $ 444,069
$ 387,173
$ 82,931
$ (469,064 ) $ 445,109
Less: net income attributable to continuing noncontrolling interest —
—
1,040
—
1,040
Net income attributable to LKQ stockholders 444,069
387,173
81,891
(469,064 ) 444,069

Other comprehensive (loss) income:
Foreign currency translation, net of tax (77,630 ) (2,800 ) (81,456 ) 84,256
(77,630 )
Net change in unrealized gains/losses on cash flow hedges, net of tax 5,964
—
—
—
5,964
Net change in unrealized gains/losses on pension plans, net of tax (154 ) (239 ) 85
154
(154 )
Net change in other comprehensive income from unconsolidated subsidiaries 2,160
—
2,160
(2,160 ) 2,160
Other comprehensive loss (69,660 ) (3,039 ) (79,211 ) 82,250
(69,660 )

Comprehensive income 374,409
384,134
3,720
(386,814 ) 375,449
Less: comprehensive income attributable to continuing noncontrolling interest —
—
1,040
—
1,040
Comprehensive income attributable to LKQ stockholders $ 374,409
$ 384,134
$ 2,680
$ (386,814 ) $ 374,409

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidating Balance Sheets
(In thousands)
September 30, 2019
Parent Guarantors Non-Guarantors Eliminations Consolidated
Assets
Current assets:
Cash and cash equivalents $ 141,555
$ 31,533
$ 260,303
$ —
$ 433,391
Receivables, net —
337,543
885,654
—
1,223,197
Intercompany receivables, net 9,473
—
27,939
(37,412 ) —
Inventories —
1,228,576
1,353,612
—
2,582,188
Prepaid expenses and other current assets 6,347
95,389
143,346
—
245,082
Total current assets 157,375
1,693,041
2,670,854
(37,412 ) 4,483,858
Property, plant and equipment, net 459
612,127
571,602
—
1,184,188
Operating lease assets, net 3,754
854,956
444,550
—
1,303,260
Intangible assets:
Goodwill —
2,001,356
2,308,466
—
4,309,822
Other intangibles, net 629
254,255
582,388
—
837,272
Investment in subsidiaries 5,250,321
127,820
—
(5,378,141 ) —
Intercompany notes receivable 1,118,688
108,071
—
(1,226,759 ) —
Equity method investments —
17,275
126,734
—
144,009
Other noncurrent assets 65,679
40,503
43,099
—
149,281
Total assets $ 6,596,905
$ 5,709,404
$ 6,747,693
$ (6,642,312 ) $ 12,411,690
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,802
$ 346,907
$ 648,165
$ —
$ 997,874
Intercompany payables, net —
27,939
9,473
(37,412 ) —
Accrued expenses:
Accrued payroll-related liabilities 6,911
55,803
99,438
—
162,152
Refund liability —
49,526
50,801
—
100,327
Other accrued expenses 14,965
115,571
196,098
—
326,634
Other current liabilities 5,520
22,723
85,106
—
113,349
Current portion of operating lease liabilities 217
131,719
93,636
—
225,572
Current portion of long-term obligations 15,029
2,936
110,178
—
128,143
Total current liabilities 45,444
753,124
1,292,895
(37,412 ) 2,054,051
Long-term operating lease liabilities, excluding current portion 3,943
756,450
369,030
—
1,129,423
Long-term obligations, excluding current portion 1,613,249
15,533
2,108,330
—
3,737,112
Intercompany notes payable —
537,341
689,418
(1,226,759 ) —
Deferred income taxes 5,032
139,482
151,685
—
296,199
Other noncurrent liabilities 111,470
82,835
127,900
—
322,205
Stockholders' equity:
Total Company stockholders' equity 4,817,767
3,424,639
1,953,502
(5,378,141 ) 4,817,767
Noncontrolling interest —
—
54,933
—
54,933
Total stockholders' equity 4,817,767
3,424,639
2,008,435
(5,378,141 ) 4,872,700
Total liabilities and stockholders' equity $ 6,596,905
$ 5,709,404
$ 6,747,693
$ (6,642,312 ) $ 12,411,690

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidating Balance Sheets
(In thousands)
December 31, 2018
Parent Guarantors Non-Guarantors Eliminations Consolidated
Assets
Current assets:
Cash and cash equivalents $ 25,633
$ 29,285
$ 276,843
$ —
$ 331,761
Receivables, net 310
316,726
837,047
—
1,154,083
Intercompany receivables, net 6,978
—
12,880
(19,858 ) —
Inventories —
1,343,612
1,492,463
—
2,836,075
Prepaid expenses and other current assets 18,611
99,356
81,063
—
199,030
Total current assets 51,532
1,788,979
2,700,296
(19,858 ) 4,520,949
Property, plant and equipment, net 1,547
600,054
618,561
—
1,220,162
Intangible assets:
Goodwill —
1,973,364
2,408,094
—
4,381,458
Other intangibles, net 260
272,451
656,041
—
928,752
Investment in subsidiaries 5,224,006
111,826
—
(5,335,832 ) —
Intercompany notes receivable 1,220,582
10,515
—
(1,231,097 ) —
Equity method investments —
16,404
162,765
—
179,169
Other noncurrent assets 70,283
40,548
52,081
—
162,912
Total assets $ 6,568,210
$ 4,814,141
$ 6,597,838
$ (6,586,787 ) $ 11,393,402
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 2,454
$ 343,116
$ 596,828
$ —
$ 942,398
Intercompany payables, net —
12,880
6,978
(19,858 ) —
Accrued expenses:
Accrued payroll-related liabilities 6,652
70,267
95,086
—
172,005
Refund liability —
50,899
53,686
—
104,585
Other accrued expenses 5,454
105,672
177,299
—
288,425
Other current liabilities 283
17,860
42,966
—
61,109
Current portion of long-term obligations 8,459
2,932
110,435
—
121,826
Total current liabilities 23,302
603,626
1,083,278
(19,858 ) 1,690,348
Long-term obligations, excluding current portion 1,628,677
13,532
2,546,465
—
4,188,674
Intercompany notes payable —
597,283
633,814
(1,231,097 ) —
Deferred income taxes 8,045
135,355
168,034
—
311,434
Other noncurrent liabilities 125,888
99,147
139,159
—
364,194
Stockholders' equity:
Total Company stockholders' equity 4,782,298
3,365,198
1,970,634
(5,335,832 ) 4,782,298
Noncontrolling interest —
—
56,454
—
56,454
Total stockholders' equity 4,782,298
3,365,198
2,027,088
(5,335,832 ) 4,838,752
Total liabilities and stockholders' equity $ 6,568,210
$ 4,814,141
$ 6,597,838
$ (6,586,787 ) $ 11,393,402

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidating Statements of Cash Flows
(In thousands)
For the Nine Months Ended September 30, 2019
Parent Guarantors
Non-Guarantors⁽¹⁾
Eliminations Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities $ 404,790
$ 196,160
$ 451,224
$ (87,003 ) $ 965,171
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (563 ) (86,713 ) (78,275 ) —
(165,551 )
Investment and intercompany note activity with subsidiaries 33,838
—
—
(33,838 ) —
Acquisitions, net of cash acquired —
(10,118 ) (4,399 ) —
(14,517 )
Proceeds from disposal of businesses, net —
19,682
(177 ) —
19,505
Investments in unconsolidated subsidiaries —
(2,550 ) (4,344 ) —
(6,894 )
Receipts of deferred purchase price on receivables under factoring arrangements —
264,998
—
(264,998 ) —
Other investing activities, net 966
2,318
4,084
—
7,368
Net cash provided by (used in) investing activities 34,241
187,617
(83,111 ) (298,836 ) (160,089 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Purchase of treasury stock (291,813 ) —
—
—
(291,813 )
Borrowings under revolving credit facilities 216,000
—
174,275
—
390,275
Repayments under revolving credit facilities (220,896 ) —
(392,862 ) —
(613,758 )
Repayments under term loans (6,563 ) —
—
—
(6,563 )
Borrowings under receivables securitization facility —
—
36,600
—
36,600
Repayments under receivables securitization facility —
—
(146,600 ) —
(146,600 )
Payment of notes issued from acquisitions (19,123 ) —
—
—
(19,123 )
Repayments of other debt, net (747 ) (908 ) (29,932 ) —
(31,587 )
Other financing activities, net 33
—
(7,158 ) —
(7,125 )
Investment and intercompany note activity with parent —
(29,242 ) (4,596 ) 33,838
—
Dividends —
(352,001 ) —
352,001
—
Net cash used in financing activities (323,109 ) (382,151 ) (370,273 ) 385,839
(689,694 )
Effect of exchange rate changes on cash, cash equivalents and restricted cash —
622
(10,324 ) —
(9,702 )
Net increase (decrease) in cash, cash equivalents and restricted cash 115,922
2,248
(12,484 ) —
105,686
Cash, cash equivalents and restricted cash of continuing operations, beginning of period 25,633
29,285
282,332
—
337,250
Cash, cash equivalents and restricted cash of continuing and discontinued operations, end of period 141,555
31,533
269,848
—
442,936
Less: Cash and cash equivalents of discontinued operations, end of period —
—
4,328
—
4,328
Cash, cash equivalents and restricted cash, end of period $ 141,555
$ 31,533
$ 265,520
$ —
$ 438,608

⁽¹⁾~~Restricted cash is only included in the unaudited condensed consolidating financial statements of the Non-Guarantors.~~

LKQ CORPORATION AND SUBSIDIARIES
Unaudited Condensed Consolidating Statements of Cash Flows
(In thousands)
For the Nine Months Ended September 30, 2018
Parent Guarantors Non-Guarantors Eliminations Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities $ 334,226
$ 142,626
$ 97,506
$ (53,191 ) $ 521,167
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (315 ) (93,063 ) (78,385 ) —
(171,763 )
Investment and intercompany note activity with subsidiaries 73,096
—
—
(73,096 ) —
Return of investment in subsidiaries 152,443
—
—
(152,443 ) —
Acquisitions, net of cash acquired —
(2,888 ) (1,203,179 ) —
(1,206,067 )
Investments in unconsolidated subsidiaries —
(11,066 ) —
—
(11,066 )
Receipts of deferred purchase price on receivables under factoring arrangements —
224,753
9,410
(224,753 ) 9,410
Other investing activities, net 887
2,162
4,921
—
7,970
Net cash provided by (used in) investing activities 226,111
119,898
(1,267,233 ) (450,292 ) (1,371,516 )
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt issuance costs (1,354 ) —
(15,584 ) —
(16,938 )
Proceeds from issuance of Euro Notes (2026/28) —
—
1,232,100
—
1,232,100
Borrowings under revolving credit facilities 304,000
—
721,496
—
1,025,496
Repayments under revolving credit facilities (732,897 ) —
(377,138 ) —
(1,110,035 )
Repayments under term loans (114,800 ) —
—
—
(114,800 )
(Repayments) borrowings of other debt, net (385 ) 101
(38,411 ) —
(38,695 )
Other financing activities, net (996 ) —
3,182
—
2,186
Investment and intercompany note activity with parent —
(62,763 ) (10,333 ) 73,096
—
Dividends —
(203,448 ) (226,939 ) 430,387
—
Net cash (used in) provided by financing activities (546,432 ) (266,110 ) 1,288,373
503,483
979,314
Effect of exchange rate changes on cash and cash equivalents —
(463 ) (66,922 ) —
(67,385 )
Net increase (decrease) in cash and cash equivalents 13,905
(4,049 ) 51,724
—
61,580
Cash and cash equivalents, beginning of period 34,360
35,131
210,275
—
279,766
Cash and cash equivalents, end of period $ 48,265
$ 31,082
$ 261,999
$ —
$ 341,346

~~Forward-Looking Statements~~

Statements and information in this Quarterly Report on Form 10-Q that are not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are made pursuant to the “safe harbor” provisions of such Act.

Forward-looking statements include, but are not limited to, statements regarding our outlook, guidance, expectations, beliefs, hopes, intentions and strategies. Words such as “may,” “will,” “plan,” “should,” “expect,” “anticipate,” “believe,” “if,” “estimate,” “intend,” “project” and similar words or expressions are used to identify these forward-looking statements. These statements are subject to a number of risks, uncertainties, assumptions and other factors that may cause our actual results, performance or achievements to be materially different. All forward-looking statements are based on information available to us at the time the statements are made. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

You should not place undue reliance on our forward-looking statements. Actual events or results may differ materially from those expressed or implied in the forward-looking statements. The risks, uncertainties, assumptions and other factors that could cause actual results to differ from the results predicted or implied by our forward-looking statements include factors discussed in our filings with the SEC, including those disclosed under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2018 Form 10-K and in our subsequent Quarterly Reports on Form 10-Q (including this Quarterly Report).

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Forward-looking statements include, but are not limited to, statements regarding our outlook, guidance, expectations, beliefs, hopes, intentions and strategies. Words such as “may,” “will,” “plan,” “should,” “expect,” “anticipate,” “believe,” “if,” “estimate,” “intend,” “project” and similar words or expressions are used to identify these forward-looking statements. These statements are subject to a number of risks, uncertainties, assumptions and other factors, including the unfavorable effects of COVID-19, that may cause our actual results, performance or achievements to be materially different. All forward-looking statements are based on information available to us at the time the statements are made. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

You should not place undue reliance on our forward-looking statements. Actual events or results may differ materially from those expressed or implied in the forward-looking statements. The risks, uncertainties, assumptions and other factors that could cause actual results to differ from the results predicted or implied by our forward-looking statements include factors discussed in our filings with the SEC, including those disclosed under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2019 Form 10-K and in our subsequent Quarterly Reports on Form 10-Q (including this Quarterly Report).

Overview

We are a global distributor of vehicle products, including replacement parts, components and systems used in the repair and maintenance of vehicles, and specialty products and accessories to improve the performance, functionality and appearance of vehicles.

Buyers of vehicle replacement products have the option to purchase from primarily five sources: new products produced by OEMs; new products produced by companies other than the OEMs, which are referred to as aftermarket products; recycled products obtained from salvage and total loss vehicles; recycled products that have been refurbished; and recycled products that have been remanufactured. We distribute a variety of products to collision and mechanical repair shops, including aftermarket collision and mechanical products; recycled collision and mechanical products; refurbished collision products such as wheels, bumper covers and lights; and remanufactured engines and transmissions. Collectively, we refer to the four sources that are not new OEM products as alternative parts.

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 Germany, the United Kingdom, ~~Germany,~~ the Benelux region (Belgium, Netherlands, and Luxembourg), Italy, Czech Republic, ~~Poland,~~Austria, Slovakia, ~~Austria,~~Poland, 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.

We are organized into four operating segments: Wholesale – North America; Europe; Specialty and Self Service. We aggregate our Wholesale – North America and Self Service operating segments into one reportable segment, North America, resulting in three reportable segments: North America, Europe and Specialty.

Our operating results have fluctuated on a quarterly and annual basis in the past and can be expected to continue to fluctuate in the future as a result of a number of factors, some of which are beyond our control. Please refer to the factors referred to in Forward-Looking Statements above. Due to these factors and others, which may be unknown to us at this time, our operating results in future periods can be expected to fluctuate. Accordingly, our historical results of operations may not be indicative of future performance.

Acquisitions and Investments

Since our inception in 1998, we have pursued a growth strategy through both organic growth and acquisitions. We have pursued acquisitions that we believe will help drive profitability, cash flow and stockholder value. We target companies that are market leaders, will expand our geographic presence and will enhance our ability to provide a wide array of vehicle products to our customers through our distribution network.

During the nine months ended September 30, 2019, we completed five acquisitions, including one wholesale business and one self service business in North America, and three wholesale businesses in Europe.

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. This acquisition expanded LKQ's geographic presence in continental Europe and serves as an additional strategic hub for our European operations. In addition, this acquisition should allow for continued improvement in procurement, logistics and infrastructure optimization.

~~In addition to the Stahlgruber acquisition, during the year ended December 31, 2018, we acquired various smaller businesses across our North America and Europe segments.~~

On December 1, 2016, we acquired a 26.5% equity interest in Mekonomen, the leading independent car parts and service chain in the Nordic region of Europe, offering a wide range of quality products including spare parts and accessories for cars, and workshop services for consumers and businesses. We acquired additional shares in the fourth quarter of 2018, 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.

See ~~Note 2, "Business Combinations," and~~ "Investments in Unconsolidated Subsidiaries" in Note 4,3, "Financial Statement Information," to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to our ~~acquisitions and~~ investments.

Sources of Revenue

We report our revenue in two categories: (i) parts and services and (ii) other. Our parts revenue is generated from the sale of vehicle products, including replacement parts, components and systems used in the repair and maintenance of vehicles, and specialty products and accessories to improve the performance, functionality and appearance of vehicles. Our service revenue is generated primarily from the sale of service-type warranties, fees for admission to our self service yards, and diagnostic and repair ~~services, and processing fees related to the secure disposal of vehicles.~~services. Revenue from other sources includes scrap sales, bulk sales to mechanical manufacturers (including cores) and sales of aluminum ingots and sows from our furnace operations. Other revenue will vary from period to period based on fluctuations in commodity prices and the volume of materials sold. See Note 5,4, "Revenue Recognition" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to our sources of revenue.

Critical Accounting Policies and Estimates

On January 1, 2019, we adopted ASU 2016-02, which represents FASB ASC 842. We adopted the new guidance using the modified retrospective transition approach by applying the new standard to all leases existing at the date of initial application with no restatement of comparative periods. The most significant impact was the recognition of lease assets and liabilities for operating leases. Refer to “Recent Accounting Pronouncements–Adoption of New Lease Standard” in Note 4, "Financial Statement Information” and Note 13, "Leases” to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

The discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Our ~~2018~~2019 Form 10-K includes a summary of the critical accounting policies and estimates we believe are the most important to aid in understanding our financial results. Other than ~~the adoption of ASU 2016-02 described above,~~as described below, there have been no changes to those critical accounting policies or estimates that have had a material impact on our reported amounts of assets, liabilities, revenue or expenses during the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020.

COVID-19 Projections and Assumptions

In the first and second quarters of 2020, we prepared forecasts of future revenues, profits and cash flows to use in multiple analyses, including the interim goodwill impairment test, other impairment tests of long-lived assets, assessments of the recoverability of inventory, determination of customer and supplier rebate balances, calculation of the annual effective tax rate and evaluations of the realizability of deferred tax assets. Our first quarter projections assumed that the COVID-19 impact would be severe, with revenue down in the second quarter of 2020 compared to our prior forecasts, but temporary, as revenue would improve gradually in the second half of 2020. We expected that cost mitigation actions would dampen the negative impact of the projected revenue decline but still result in a significant reduction in profitability in the second quarter of 2020. Actual results for the three months ended June 30, 2020 tracked in the same direction as our forecast, but the decline was significantly less severe than projected. Our updated forecasts for use in preparing the June 30 financial statements reflect a further recovery in revenue and profitability in the second half but with amounts still below the comparable prior year period. We expect to generate positive free cash flows in the second half of 2020 but at a lower level than the first half of the year.

As the economic impact of the pandemic is dependent on variables that are difficult to project and in many cases are outside of our control, it is possible that the estimates underlying our analyses may change materially in future periods. This is particularly the case because it appears that the prevalence of the virus outbreak fluctuates depending on various factors, including the level of economic and social activity in a region.

Goodwill and Indefinite-Lived Intangibles Impairment

We are required to test goodwill and indefinite-lived intangible assets for impairment at least annually and between annual tests whenever events indicate that an impairment may exist. When testing goodwill for impairment, we are required to evaluate events and circumstances that may affect the performance of the reporting unit and the extent to which the events and circumstances may impact the future cash flows of the reporting unit to determine whether the fair value of the assets exceeds the carrying value. Developing the estimated future cash flows and fair value of the reporting unit requires management's judgment in projecting revenues and profits, allocation of shared corporate costs, tax rates, capital expenditures, working capital requirements, discount rates and market multiples. Many of the factors used in assessing fair value are outside the control of management, and it is reasonably likely that assumptions and estimates can change in future periods. If these assumptions or estimates change in the future, we may be required to record impairment charges for these assets. In response to changes in industry and market conditions, we may be required to strategically realign our resources and consider restructuring, disposing of, or otherwise exiting businesses, which could result in an impairment of goodwill.

Our goodwill impairment assessment is performed at the reporting unit level. A reporting unit is an operating segment, or a business one level below an operating segment (the "component" level), for which discrete financial information is prepared and regularly reviewed by segment management. However, components are aggregated as a single reporting unit if they have similar economic characteristics. For the purpose of aggregating our components into reporting units, we review the long-term performance of Segment EBITDA. Additionally, we review qualitative factors such as type or class of customers, nature of products, distribution methods, inventory procurement methods, level of integration, and interdependency of

processes across components. Our assessment of the aggregation includes both qualitative and quantitative factors and is based on the facts and circumstances specific to the components.

We have four operating segments: Wholesale – North America, Europe, Specialty and Self Service. Each of these operating segments consists of multiple components that have discrete financial information available that is reviewed by segment management on a regular basis. We have evaluated these components and concluded that the components that compose each of the Wholesale – North America, Europe, Specialty, and Self Service operating segments are economically similar and thus were aggregated into those four separate reporting units for our interim goodwill impairment test in the first quarter of 2020.

Our goodwill would be considered impaired if the carrying value of a reporting unit exceeded its estimated fair value. The fair value estimates are established using weightings of the results of a discounted cash flow methodology and a comparative market multiples approach. We believe that using two methods to determine fair value limits the chances of an unrepresentative valuation. Discount rates, growth rates and cash flow projections are the assumptions that are most sensitive and susceptible to change as they require significant management judgment. Impairment may result from, among other things, deterioration in the performance of our reporting units' businesses, increases in our cost of capital, adverse market conditions, and adverse changes in applicable laws or regulations, including modifications that restrict the activities of our reporting units' businesses. To assess the reasonableness of the fair value estimates, we compare the sum of the reporting units’ fair values to the Company’s market capitalization and calculate an implied control premium, which is then evaluated against recent market transactions in our industry, or in the case of our interim test against transactions during the 2008-2009 financial crisis. If we were required to recognize goodwill impairments, we would report those impairment losses as part of our operating results.

We determined no impairments existed on any of our four reporting units when we performed our interim goodwill impairment testing in the first quarter of 2020, as each of those reporting units had a fair value estimate that exceeded the carrying value by at least 12%, the level at which our Europe reporting unit exceeded its carrying value. We did not identify a triggering event in the second quarter that necessitated an interim test of goodwill impairment. See Note 3, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to our interim goodwill impairment test.

We review indefinite-lived intangible assets for impairment annually or on an interim basis if events or changes in circumstances indicate that the carrying value may not be recoverable. We determined that the effect of the uncertainty relating to the COVID-19 pandemic on our forecasted results represented a change in circumstances indicating that the carrying value of the Warn trademark, which is our only indefinite-lived intangible asset, may not be recoverable. As a result, we performed a quantitative impairment test in the first quarter as of March 31, 2020 using the relief-from-royalty method and determined no impairment existed, as the trademark had a fair value estimate which exceeded the carrying value by approximately 9%. We did not identify a triggering event in the second quarter that necessitated an interim test of impairment.

Recently Issued Accounting Pronouncements

See "Recent Accounting Pronouncements" in Note 4,3, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information related to new accounting standards.

Financial Information by Geographic Area

See Note ~~16,~~14, "Segment and Geographic Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information related to our revenue and long-lived assets by geographic region.

1 LKQ Europe Program

We have undertaken the 1 LKQ Europe program to create structural centralization and standardization of key functions to facilitate the operation of the Europe segment as a single business. Under this multi-year program, we have recognized to date and expect to continue to recognize the following:

•Restructuring expenses - Non-recurring costs resulting directly from the implementation of the 1 LKQ Europe program from which the business will derive no ongoing benefit. See Note 6,5, “Restructuring and Acquisition Related Expenses” to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details.

•Transformation expenses - Period costs incurred to execute the 1 LKQ Europe program that are expected to contribute to ongoing benefits to the business (e.g. non-capitalizable implementation costs related to a common ERP system). These expenses are recorded in Selling, general and administrative expenses.

•Transformation capital expenditures - Capitalizable costs for long-lived assets, such as software and facilities, that directly relate to the execution of the 1 LKQ Europe program.

Costs related to the 1 LKQ Europe program incurred to date are reflected in Selling, general and administrative expenses and Purchases of property, plant and equipment in our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. We continue to expect that ~~future~~ costs of the program, reflecting all three categories noted above, will range between ~~$135~~$100 million and ~~$160~~$125 million for the period from ~~2019~~2020 through 2021 with an additional $80 million to $100 million between 2022 and the original projected completion date of the project in 2024. Beginning in the second half of March, management delayed certain projects under the 1 LKQ Europe program to reduce expenses and preserve capital in response to the COVID-19 pandemic. Based on our expectations in the second quarter of 2020 that the impacts on our business from COVID-19 had stabilized, we restarted the program in July 2020 with substantially the same initiatives and projects as prior to the pandemic, although we are evaluating the impact of the delay on our estimates of the related expenditures and timelines. We may also identify additional initiatives and projects under the 1 LKQ Europe program in future periods that may result in additional expenditures, although we are currently unable to estimate the range of charges for such potential future initiatives and projects.

COVID-19 Impact on Our Operations

In late February 2020, the Italian government began placing restrictions on activity as a result of the COVID-19 outbreak. Sales volumes fell as fewer cars were on the road and less maintenance activity was performed. While our Italian operation is an important part of our European business, it represented approximately 10% of the segment’s revenue in 2019, and thus the disruption did not have a material impact on the Company. By mid-March, the COVID-19 impact began spreading across the rest of the geographies where we operate at a very rapid pace. Governments adopted aggressive restrictions on the operation of non-essential businesses and personal movement, which reduced miles driven and collisions. While our businesses have been deemed essential in most jurisdictions in which we operate, the change in behavior driven by the COVID-19 restrictions negatively impacted our sales volume. Our organic parts and services revenue declined by 16.8% in the second quarter of 2020, relative to the comparable prior period, but showed improvement over the quarter as governments gradually lifted restrictions for nonessential businesses and personal movement. As anticipated, April experienced the most negative revenue impact, with organic parts and services revenue (on a per day basis) down 30.3%. As movement restrictions lessened in May and June, we experienced organic parts and services revenue (on a per day basis) declines of 13.2% and 7.3%, respectively. However, the pace of improvement has flattened into July as the increasing level of COVID-19 cases, especially in the United States, appears to have slowed the recovery. In the second half of 2020, we expect revenue to decrease on a year over year basis, but at a lower rate than reported for the first half. This expectation is based on the assumption that there will not be a recurrence in the second half of 2020 of the extensive lockdown measures taken in March and April. Such measures may materialize with the expansion of economic and social activity in a region if the prevalence of the virus outbreak increases as a result thereof.

Recognizing the demand changes in the first quarter of 2020, we took action in all of our business units to reduce our cost structure. These actions included, but were not limited to, employee furloughs and reductions in force, decreases in hours and overtime, lowering compensation for salaried employees, a hiring freeze, elimination of temporary labor, route consolidation, deferral of projects, and temporary branch closures. These cost actions contributed to a reduction of approximately 18% of quarterly selling, general and administrative expenses compared to our first quarter 2020 run rate. We estimate that the cost actions generated an additional $10 million benefit in cost of goods sold. Some of the savings from the cost actions were delayed as we paid out vacation balances in April and covered medical benefits for employees in the United States during their furlough period. We pursued certain financial assistance and relief programs that were available to us from governments in Europe and Canada, primarily in the form of grants to offset personnel expenses; through June 30, 2020, we qualified for $33 million of assistance, and we estimate that we may qualify for additional assistance in the second half of 2020, but at a lower level than we received in the second quarter of 2020. However, these actions lagged the revenue impact, which meant there was a negative timing impact of COVID-19 on our first half profitability in addition to the negative effect from reduced revenue. If our revenue increases in the second half of 2020 as projected, we still expect that some of the costs that were reduced as a result of COVID-19 will remain at a lower level; the management team has been implementing productivity initiatives to create lower cost structures going forward. We also emphasized the preservation of capital with a deferral of growth driven capital projects, reductions in inventory orders, more active monitoring of customer receivables and terms, income and value added tax payment deferrals, and suspension of our share buyback program. This focus was successful as we improved our liquidity position relative to March 31 despite a decline in profitability.

One of our top priorities is the health and safety of our employees, customers and the communities in which we operate. We are using our best efforts to follow all governmental instructions and safety guidelines with respect to the operations of our facilities. We have implemented protocols across our business units to help ensure the health and safety of our employees, customers and communities including, but not limited to: restricting access to and enhancing cleaning and disinfecting protocols of our facilities; use of personal protection equipment; adhering to social distancing guidelines; instituting remote work arrangements for many of our employees; and restricting travel.

See the Results of Operations and Liquidity sections for further detail on the year over year trends.

Key Performance Indicators

We believe that organic revenue growth, Segment EBITDA and free cash flow are key performance indicators for our business. Segment EBITDA is our key measure of segment profit or loss reviewed by our chief operating decision maker. Free cash flow is a financial measure that is not prepared in accordance with U.S. generally accepted accounting principles (“non-GAAP”).

•Organic revenue growth - We define organic revenue growth as total revenue growth from continuing operations excluding the effects of acquisitions and divestitures (i.e. revenue generated from the date of acquisition to the first anniversary of that acquisition, net of reduced revenue due to the disposal of businesses) and foreign currency movements (i.e. impact of translating revenue at prior period exchange rates). Organic revenue growth includes incremental sales from both existing and new (i.e. opened within the last twelve months) locations and is derived from expanding business with existing customers, securing new customers and offering additional products and services. We believe that organic revenue growth is a key performance indicator as this statistic measures our ability to serve and grow our customer base successfully.

•Segment EBITDA - Refer to Note 14, "Segment and Geographic Information,” in Part I, Item 1 of this Form 10-Q for a description of the calculation of Segment EBITDA. We believe that Segment EBITDA provides useful information to evaluate our segment profitability by focusing on the indicators of ongoing operational results.

•Free Cash Flow - We calculate free cash flow as net cash provided by operating activities, less purchases of property, plant and equipment. Free cash flow provides insight into our liquidity and provides useful information to management and investors concerning our cash flow available to meet future debt service obligations and working capital requirements, to make strategic acquisitions and to repurchase stock.

These three key performance indicators are used as targets to determine incentive compensation at various levels of the organization, including senior management. By using these performance measures, we attempt to motivate a balanced approach to the business that rewards growth, profitability and cash flow generation in a manner that enhances our long-term prospects.

Results of Operations—Consolidated

The following table sets forth statements of income data as a percentage of total revenue for the periods indicated:


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020		2019		2020		2019
Revenue	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold	61.5	%	61.6	%	60.5	%	61.3	%

Gross margin	38.5	%	38.4	%	39.5	%	38.7	%
Selling, general and administrative expenses	28.1	%	27.7	%	29.1	%	28.3	%
Restructuring and acquisition related expenses	0.9	%	0.3	%	0.6	%	0.2	%
Loss on disposal of businesses and impairment of net assets held for sale	0.1	%	1.0	%	0.0	%	0.8	%
Depreciation and amortization	2.5	%	2.2	%	2.3	%	2.2	%
Operating income	6.9	%	7.3	%	7.5	%	7.2	%
Other expense, net	0.7	%	0.9	%	0.9	%	1.0	%
Income from continuing operations before provision for income taxes	6.2	%	6.3	%	6.6	%	6.2	%
Provision for income taxes	1.6	%	1.7	%	1.8	%	1.7	%
Equity in (losses) earnings of unconsolidated subsidiaries	(0.1)	%	0.0	%	(0.0)	%	(0.6)	%
Income from continuing operations	4.5	%	4.7	%	4.7	%	4.0	%
Net income (loss) from discontinued operations	0.0	%	0.0	%	(0.0)	%	0.0	%
Net income	4.5	%	4.7	%	4.7	%	4.0	%
Less: net (loss) income attributable to continuing noncontrolling interest	(0.0)	%	0.0	%	0.0	%	0.0	%
Less: net income attributable to discontinued noncontrolling interest	—	%	0.0	%	0.0	%	0.0	%
Net income attributable to LKQ stockholders	4.5	%	4.6	%	4.7	%	3.9	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 2019 2018
Revenue 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 61.9 % 61.7 % 61.5 % 61.5 %
Gross margin 38.1 % 38.3 % 38.5 % 38.5 %
Selling, general and administrative expenses 28.3 % 28.2 % 28.3 % 27.9 %
Restructuring and acquisition related expenses 0.3 % 0.2 % 0.2 % 0.3 %
Impairment of net assets held for sale (0.1 )% —
0.5 % —
Depreciation and amortization 2.3 % 2.5 % 2.2 % 2.2 %
Operating income 7.4 % 7.5 % 7.3 % 8.1 %
Other expense, net 0.8 % 1.1 % 0.9 % 1.1 %
Income from continuing operations before provision for income taxes 6.5 % 6.4 % 6.3 % 7.0 %
Provision for income taxes 1.8 % 1.5 % 1.7 % 1.8 %
Equity in earnings (losses) of unconsolidated subsidiaries 0.1 % (0.6 )% (0.4 )% (0.2 )%
Income from continuing operations 4.8 % 4.3 % 4.2 % 5.0 %
Net income from discontinued operations 0.0 % —
0.0 % —
Net income 4.8 % 4.3 % 4.3 % 5.0 %
Less: net (loss) income attributable to continuing noncontrolling interest (0.0 )% 0.0 % 0.0 % 0.0 %
Less: net income attributable to discontinued noncontrolling interest 0.0 % —
0.0 % —
Net income attributable to LKQ stockholders 4.8 % 4.3 % 4.2 % 5.0 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

Three Months Ended ~~September~~June 30, ~~2019~~2020 Compared to Three Months Ended ~~September~~June 30, ~~2018~~2019

Revenue. The following table summarizes the changes in revenue by category (in thousands):


	Three Months Ended
	June 30,						Percentage Change in Revenue
	2020		2019		Organic		Acquisition and Divestiture		Foreign Exchange		Total Change
Parts & services revenue	$	2,503,158	$	3,086,697	(16.8)	%	(0.5)	%	(1.5)	%	(18.9)	%
Other revenue	123,165		161,476		(23.7)	%	0.1	%	(0.1)	%	(23.7)	%
Total revenue	$	2,626,323	$	3,248,173	(17.2)	%	(0.5)	%	(1.5)	%	(19.1)	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

Three Months Ended
September 30, Percentage Change in Revenue
2019 2018 Organic Acquisition Foreign Exchange Total Change
Parts & services revenue $ 2,985,998
$ 2,961,981
2.3 % 0.8 % (2.3 )% 0.8 %
Other revenue 161,775
160,397
0.0 % 1.1 % (0.3 )% 0.9 %
Total revenue $ 3,147,773
$ 3,122,378
2.2 % 0.8 % (2.2 )% 0.8 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

The ~~growth~~decline in parts and services revenue of ~~0.8%~~18.9% represented ~~increases~~decreases in segment revenue of ~~3.3%~~23.4% in North America, 20.2% in Europe, and ~~1.4%~~1.5% in ~~Specialty and a decrease of segment revenue of 1.2% in Europe.~~Specialty. Organic parts and services revenue ~~grew~~declined by ~~2.3%, which included a 1.4% positive effect from one additional selling day~~16.8% in the ~~third~~second quarter of ~~2019, resulting in an organic growth~~2020 primarily related to the impact of ~~0.9%~~COVID-19 (refer to the "COVID-19 Impact on ~~a per day basis.~~Our Operations" section above for further details). The ~~increase~~decrease in other revenue of ~~0.9%~~23.7% was primarily driven by a $2$38 million ~~acquisition increase,~~organic decrease, largely attributable to our North America segment. Refer to the discussion of our segment results of operations for factors contributing to the change in revenue by segment during the ~~third~~second quarter of ~~2019~~2020 compared to the prior year period.

Cost of Goods Sold. Cost of goods sold ~~increased~~decreased to ~~61.9%~~61.5% of revenue in the three months ended ~~September~~June 30, ~~2019~~2020 from ~~61.7%~~61.6% of revenue in the three months ended ~~September~~June 30, ~~2018.~~2019. Cost of goods sold ~~increased 0.5% primarily due to inventory write-downs in~~decreased 0.4% and 0.3% as a result of our Europe ~~segment as part of our restructuring programs~~ and ~~0.2% related to other individually immaterial factors,~~North America segments, respectively, partially offset by a ~~0.5% improvement~~0.4% increase in ~~gross margin~~cost of goods sold attributable to mix and an increase of 0.2% in our Specialty segment. The mix impact is a result of the decreased volumes in our North America ~~segment.~~segment primarily due to the COVID-19 pandemic, as the higher margin North America segment makes up a smaller

percentage of the consolidated results resulting in an unfavorable effect on the gross margin percentage. We recorded ~~a $17~~inventory write downs of roughly $3 million ~~reduction of inventory~~ in ~~our Europe segment related to U.K. branch consolidation and brand rationalization initiated as part~~each of our North America and Europe segments related to the restructuring ~~programs. See~~plans described in Note 6,5, "Restructuring and Acquisition Related Expenses" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form ~~10-Q for further information on our restructuring plans.~~10-Q. Refer to the discussion of our segment results of operations for factors contributing to the changes in cost of goods sold as a percentage of revenue by segment for the three months ended ~~September~~June 30, ~~2019~~2020 compared to the ~~three months ended September 30, 2018.~~same period of 2019.

Selling, General and Administrative Expenses. Our selling, general and administrative ("SG&A") expenses as a percentage of revenue increased to ~~28.3%~~28.1% in the three months ended ~~September~~June 30, ~~2019~~2020 from ~~28.2%~~27.7% in the three months ended ~~September~~June 30, ~~2018, primarily~~2019. Our Europe and North America segments each had an increase in SG&A expenses as a percentage of revenue of 0.5%, which were partially offset by (i) a 0.4% decrease in SG&A expenses attributable to mix and (ii) a decrease of 0.2% in our Specialty segment. The mix impact is a result of ~~a 0.2% increase from~~the decreased volumes in our North America segment ~~partially offset by~~primarily due to the COVID-19 pandemic, as the higher SG&A expense percentage North America segment makes up a ~~0.2% decrease from our Specialty segment.~~smaller percentage of the consolidated results, which has a favorable effect on the SG&A expense percentage. Refer to the discussion of our segment results of operations for factors contributing to the changes in SG&A expenses as a percentage of revenue by segment for the three months ended ~~September~~June 30, ~~2019~~2020 compared to the ~~three months ended September 30, 2018.~~same period of 2019.

Restructuring and Acquisition Related Expenses. The following table summarizes restructuring and acquisition related expenses for the periods indicated (in thousands):


	Three Months Ended
	June 30,
	2020			2019			Change
Restructuring expenses	$	24,851	⁽¹⁾	$	8,212	⁽²⁾	$	16,639
Acquisition related expenses	99			165			(66)
Total restructuring and acquisition related expenses	$	24,950		$	8,377		$	16,573

Three Months Ended
September 30,
2019 2018 Change
Restructuring expenses $ 7,284
⁽¹⁾
$ 5,445
⁽²⁾
$ 1,839
Acquisition related expenses 1,645
⁽³⁾
1,169
⁽⁴⁾
476
Total restructuring and acquisition related expenses $ 8,929
$ 6,614
$ 2,315
(1)Restructuring expenses for the three months ended June 30, 2020 primarily consisted of (i) $20 million related to our 2020 global restructuring program, (ii) $4 million related to integration costs from acquisitions, and (iii) $2 million related to our 2019 global restructuring program.


~~(1)~~	Restructuring expenses for the three months ended September 30, 2019 primarily consisted of (i) $4 million related to our 2019 global restructuring program, and (ii) $3 million related to integration costs from acquisitions.


~~(2)~~	Restructuring expenses for the three months ended September 30, 2018 primarily consisted of $4 million related to the integration of our acquisition of Andrew Page and $1 million related to our Specialty segment. These integration activities included the closure of duplicate facilities and termination of employees.


~~(3)~~	~~Acquisition related expenses for the three months ended September 30, 2019 included approximately $1 million of costs related to the acquisition of an immaterial wholesale business in Europe.~~


~~(4)~~	~~Acquisition related expenses for the quarter ended September 30, 2018 included $1 million of costs related to our acquisition of Stahlgruber.~~

(2) Restructuring expenses for the three months ended June 30, 2019 primarily consisted of $5 million related to our 2019 global restructuring program and $3 million related to integration costs from acquisitions.

See Note 6,5, "Restructuring and Acquisition Related Expenses" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on our restructuring and integration plans.

Loss on Disposal of Businesses and Impairment of Net Assets Held for Sale. WeFor the three months ended June 30, 2020, we recorded a ~~$4 million net reversal~~loss on the disposal of a business and impairment charges on net assets held for sale intotaling $2 million, compared to a $33 million impairment charge on net assets held for sale for the third quarter of 2019 as the proceeds from our sales of two businesses exceeded our prior fair value estimates, resulting in a net reduction of previously reported impairment charges in the quarter. The net reversal of impairment charges was primarily attributable to our North America segment.three months ended June 30, 2019. See "Net Assets Held for Sale" in Note 4,3, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on the ~~net reversal of~~loss on disposal and impairment charges.

Depreciation and Amortization. The following table summarizes depreciation and amortization for the periods indicated (in thousands):


	Three Months Ended
	June 30,
	2020		2019		Change
Depreciation	$	36,912	$	36,551	$	361
Amortization	28,835		34,283		(5,448)		⁽¹⁾
Total depreciation and amortization	$	65,747	$	70,834	$	(5,087)

(1)The decrease in amortization expense primarily reflected decreases of $4 million and $1 million related to the customer relationship intangible assets recorded upon our acquisitions of Stahlgruber and Rhiag, respectively, as the accelerated amortization on the customer relationship intangible assets resulted in lower amortization expense during the three months ended June 30, 2020 compared to the prior year period.

Three Months Ended
September 30,
2019 2018 Change
Depreciation $ 36,873
$ 34,775
$ 2,098
⁽¹⁾
Amortization 34,640
41,926
(7,286 )
⁽²⁾
Total depreciation and amortization $ 71,513
$ 76,701
$ (5,188 )


~~(1)~~	~~Depreciation expense increased by $1 million in each of our North America and Europe segments, primarily driven by capital expenditures.~~

~~(2)~~

The decrease in amortization expense primarily reflected (i) decreases of $4 million and $2 million related to our acquisitions of Stahlgruber and Rhiag, respectively, which had lower amortization expense during the three months ended September 30, 2019 compared to the prior year period as a result of the accelerated amortization on the customer relationship intangible assets, and (ii) a decrease of $1 million related to the impact of foreign currency translation, principally due to a decrease in the euro exchange rate during the three months ended September 30, 2019 compared to the prior year period.

Other Expense, Net. The following table summarizes the components of the change in other expense, net (in thousands):

Other expense, net for the three months ended September 30, 2018 $ 33,901

(Decrease) increase due to:
Interest expense, net of interest income (8,884 )
⁽¹⁾
Other income, net 1,020
⁽²⁾
Net decrease (7,864 )
Other expense, net for the three months ended September 30, 2019 $ 26,037

~~(1)~~

The decrease in interest is primarily related to (i) a $3 million decrease from lower interest rates on borrowings under our senior secured credit agreement compared to the prior year period, (ii) a $2 million decrease resulting from lower outstanding debt duringOther expense, net for the three months ended ~~September~~June 30, 2019 ~~compared to the prior year period, (iii) a $1 million~~

30,151

Decrease due to:

Interest expense, net of interest income

(10,268)

⁽¹⁾

Other income, net

(2,441)

⁽²⁾

Net decrease ~~from foreign currency translation, primarily related to a decrease in the euro exchange rate during~~

(12,709)

Other expense, net for the three months ended ~~September~~June 30, ~~2019 compared to the prior year period, and (iv) several individually immaterial factors that decreased interest expense by $3 million in the aggregate.~~2020

			$	17,442
~~(2)~~	The decrease in other income primarily consisted of a $3 million fair value gain recorded during the third quarter of 2018 related to a preferential rights issue to subscribe for new shares in Mekonomen at a discounted share price. See "Investments in Unconsolidated Subsidiaries" in Note 4, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information. Partially offsetting the decrease was a $2 million favorable variance in foreign currency gains and losses.

(1)The decrease in interest is primarily related to (i) a $7 million decrease resulting from lower outstanding debt during the three months ended June 30, 2020 compared to the prior year period, and (ii) several individually immaterial factors that decreased interest by $3 million in the aggregate in 2020.

(2)The increase in other income primarily consisted of (i) $8 million of proceeds received in the second quarter of 2020 related to insurance settlements in our North America segment, partially offset by (ii) a $2 million pension settlement loss recorded in the second quarter of 2020, and (iii) several individually immaterial factors that decreased other income by $3 million in the aggregate in 2020.

Provision for Income ~~Taxes~~Taxes.. Our effective income tax rate for the three months ended ~~September~~June 30, ~~2019~~2020 was ~~28.1%~~25.7%, compared to ~~22.9%~~27.1% for the comparable prior year period. The ~~increase was~~decreased rate is primarily attributable to an adjustment to the ~~impact of a favorable discrete item of $10 million~~interim tax expense on earnings for the three months ended September 30, 2018, reflecting an adjustment to the Tax Act transition tax. The increase was also partially attributable to the impact of an unfavorable adjustment of $2 million for the three months ended September 30, 2019 due to an increase in our annual estimated tax rateMarch, 31, 2020 as a result of a ~~shift~~favorable revision in the second quarter of 2020 of our ~~projected geographic blend~~expected full year 2020 effective tax rate. Without such adjustment, the effective tax rate for the three months endedJune 30, 2020 would have been 28.2%. The primary factor in the increase in the full year estimated rate compared to the prior year period is the impact of ~~earnings.~~lower available interest deductions in certain foreign jurisdictions due to legislative thin capitalization constraints, typically based on profitability. Other discrete items in both comparative quarters were immaterial. Ongoing uncertainties due to the impact of the COVID-19 pandemic on the Company’s operations for the remainder of 2020 may result in volatile effective tax rates driven generally by the level of profitability and changes in the mix of earnings across the Company’s jurisdictions.

Equity in (Losses) Earnings ~~(Losses)~~ of Unconsolidated Subsidiaries. Equity in (losses) earnings ~~(losses)~~ of unconsolidated subsidiaries for the three months ended ~~September~~June 30, ~~2019 and 2018~~2020 was unfavorable compared to the prior year primarily due to losses related to ~~our~~an immaterial investment in ~~Mekonomen. During the three months ended September 30, 2018, we recorded a $23 million other-than-temporary impairment related to~~ our investment in Mekonomen. See "Investments in Unconsolidated Subsidiaries" in Note 4, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on the impairment charge.North America segment.

Foreign Currency Impact. We translate our statements of income at the average exchange rates in effect for the period. Relative to the rates used during the three months ended ~~September~~June 30, ~~2018,~~2019, the Czech koruna, Canadian dollar, pound sterling ~~Czech koruna,~~ and euro rates used to translate the ~~2019~~2020 statements of income decreased by ~~5.4%~~6.9%, ~~4.4%~~3.4%, 3.4% and ~~4.4%~~2.0%, respectively. The negative translation effect of the change in foreign currencies against the U.S. dollar netted against the positive impact of realized and unrealized currency gains and losses for the three months ended ~~September~~June 30, ~~2019,~~2020, resulting in an immaterial ~~impact~~negative effect on diluted earnings per share relative to the prior year period.

Net (Loss) Income Attributable to Continuing and Discontinued Noncontrolling Interest. Net (loss) income attributable to continuing noncontrolling interest for the three months ended ~~September~~June 30, ~~2019~~2020 decreased ~~an immaterial amount~~$1 million compared to the three months ended ~~September~~June 30, ~~2018~~2019 primarily due to the noncontrolling interest of ~~an immaterial subsidiary.~~subsidiaries acquired in connection with the Stahlgruber acquisition. Net income attributable to discontinued noncontrolling interest was immaterial for the three months ended ~~September~~June 30, 2019 and related to the Stahlgruber Czech Republic wholesale business. See Note 2, "Discontinued Operations" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on this business.

Six Months Ended June 30, 2020 Compared to Six Months Ended June 30, 2019

Revenue. The following table summarizes the changes in revenue by category (in thousands):


	Six Months Ended
	June 30,						Percentage Change in Revenue
	2020		2019		Organic		Acquisition and Divestiture		Foreign Exchange		Total Change
Parts & services revenue	$	5,315,875	$	6,035,792	(10.3)	%	(0.2)	%	(1.4)	%	(11.9)	%
Other revenue	311,383		312,684		(1.0)	%	0.7	%	(0.1)	%	(0.4)	%
Total revenue	$	5,627,258	$	6,348,476	(9.8)	%	(0.2)	%	(1.4)	%	(11.4)	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

The decline in parts and services revenue of 11.9% represented decreases in segment revenue of 13.8% in North America, 13.1% in Europe, and 1.5% in Specialty. Organic parts and services revenue declined by 10.3%, which included a 0.6% positive effect from one additional selling day in the first half of 2020, resulting in a per day organic decline of 10.9%. The decline in the first half of 2020 is primarily related to the impact of COVID-19 from March 2020 through June 2020 (refer to the "COVID-19 Impact on Our Operations" section above for further details). The decrease in other revenue of 0.4% was primarily driven by a $3 million organic decrease, largely attributable to our North America segment. Refer to the discussion of our segment results of operations for factors contributing to the change in revenue by segment during the first half of 2020 compared to the prior year period.

Cost of Goods Sold. Cost of goods sold decreased to 60.5% of revenue in the six months ended June 30, 2020 from 61.3% of revenue in the six months ended June 30, 2019. Cost of goods sold decreased 0.9% and 0.3% as a result of our North America and Europe segments, respectively, partially offset by an increase of 0.2% in our Specialty segment. Refer to the discussion of our segment results of operations for factors contributing to the changes in cost of goods sold as a percentage of revenue by segment for the six months ended June 30, 2020 compared to the six months ended June 30, 2019.

Selling, General and Administrative Expenses. Our SG&A expenses as a percentage of revenue increased to 29.1% in the six months ended June 30, 2020 from 28.3% in the six months ended June 30, 2019. Our Europe and North America segments negatively affected SG&A expenses as a percentage of revenue by 0.8% and 0.3%, respectively, which were partially offset by a 0.2% decrease in SG&A expenses attributable to mix. The mix impact is a result of the decreased volumes in our North America segment primarily due to the COVID-19 pandemic, as the higher SG&A expense percentage for the North America segment makes up a smaller percentage of the consolidated results, which has a favorable effect on the SG&A expense percentage. Refer to the discussion of our segment results of operations for factors contributing to the changes in SG&A expenses as a percentage of revenue by segment for the six months ended June 30, 2020 compared to the six months ended June 30, 2019.

Restructuring and Acquisition Related Expenses. The following table summarizes restructuring and acquisition related expenses for the periods indicated (in thousands):


	Six Months Ended
	June 30,
	2020			2019			Change
Restructuring expenses	$	31,797	⁽¹⁾	$	11,198	⁽²⁾	$	20,599
Acquisition related expenses	123			486			(363)
Total restructuring and acquisition related expenses	$	31,920		$	11,684		$	20,236

(1)Restructuring expenses for the six months ended June 30, 2020 primarily consisted of (i) $22 million related to our 2020 global restructuring program, (ii) $5 million related to integration costs from acquisitions, and (iii) $5 million related to our 2019 global restructuring program.

(2) Restructuring expenses for the six months ended June 30, 2019 primarily consisted of $5 million related to our 2019 global restructuring program and $6 million related to integration costs from acquisitions.

See Note 5, "Restructuring and Acquisition Related Expenses" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on our restructuring and integration plans.

Loss on Disposal of Businesses and Impairment of Net Assets Held for Sale. For the six months ended June 30, 2020, we recorded a net loss on the disposal of businesses and impairment charges on net assets held for sale totaling $2 million, compared to a $49 million impairment charge on net assets held for sale for the six months ended June 30, 2019. See "Net Assets Held for Sale" in Note 3, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on the net loss on disposals and impairment charges.

Depreciation and Amortization. The following table summarizes depreciation and amortization for the periods indicated (in thousands):


	Six Months Ended
	June 30,
	2020		2019		Change
Depreciation	$	74,116	$	72,372	$	1,744	⁽¹⁾
Amortization	57,126		69,464		(12,338)		⁽²⁾
Total depreciation and amortization	$	131,242	$	141,836	$	(10,594)

(1)Depreciation expense increased by $2 million, primarily due to capital expenditures in our North America segment.

(2)The decrease in amortization expense primarily reflected (i) decreases of $8 million and $3 million related to the customer relationship intangible assets recorded upon our acquisitions of Stahlgruber and Rhiag, respectively, as the accelerated amortization on the customer relationship intangible assets resulted in lower amortization expense during the six months ended June 30, 2020 compared to the prior year period, and (ii) a decrease of $1 million related to the impact of foreign currency translation, principally due to a decrease in the euro exchange rate during the six months ended June 30, 2020 compared to the prior year period.

Other Expense, Net. The following table summarizes the components of the change in other expense, net (in thousands):


Other expense, net for the six months ended June 30, 2019	$	62,389
(Decrease) increase due to:
Interest expense, net of interest income	(20,426)		⁽¹⁾
Loss on debt extinguishment	12,751		⁽²⁾

Other income, net	(2,212)		⁽³⁾
Net decrease	(9,887)
Other expense, net for the six months ended June 30, 2020	$	52,502

(1)The decrease in interest is primarily related to (i) a $14 million decrease resulting from lower outstanding debt during the six months ended June 30, 2020 compared to the prior year period, (ii) a $4 million decrease from lower interest rates on borrowings under our senior secured credit agreement compared to the prior year period, and (iii) a $1 million decrease from foreign currency translation, primarily related to a decrease in the euro exchange rate during the six months ended June 30, 2020 compared to the prior year period.

(2)In January 2020, we recorded a loss on debt extinguishment of $13 million related to the redemption of the U.S. Notes (2023) due to the early-redemption premium and the write-off of the unamortized debt issuance costs.

(3)The increase in other income primarily consisted of (i) a $5 million increase in insurance settlement proceeds in our North America segment compared to the prior year period, partially offset by (ii) a $2 million pension settlement loss recorded in the second quarter of 2020.

Provision for Income Taxes. Our effective income tax rate for the six months ended June 30, 2020 was 27.7%, compared to 27.1% for the comparable prior year period. The increase is attributable to a higher expected annual effective tax rate in 2020 as a result of the estimated unfavorable impact of the COVID-19 pandemic on the Company’s results of operations. The primary factor in the increase in the full year estimated rate is the impact of lower available interest deductions in certain foreign jurisdictions due to legislative thin capitalization constraints, typically based on profitability. For the six months ended June 30, 2020, the effective tax rate was reduced 0.3% by favorable discrete items, primarily excess tax benefits on stock-based compensation and deferred tax adjustments as a result of statutory tax rate changes. Net discrete items for the six months ended June 30, 2019 added 0.1% to the effective tax rate. Ongoing uncertainties due to the impact of the COVID-19 pandemic on the Company’s operations for the remainder of 2020 may result in volatile effective tax rates driven generally by the level of profitability and changes in the mix of earnings across the Company’s jurisdictions.

Equity in (Losses) Earnings of Unconsolidated Subsidiaries. Equity in (losses) earnings of unconsolidated subsidiaries for the six months ended June 30, 2020 primarily related to an immaterial investment in our North America segment. During the first quarter of 2019, we recorded a $40 million other-than-temporary impairment related to our investment in Mekonomen. See "Investments in Unconsolidated Subsidiaries" in Note 3, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on the impairment charge.

Foreign Currency Impact.We translate our statements of income at the average exchange rates in effect for the period. Relative to the rates used during the six months ended June 30, 2019, the Czech koruna, pound sterling, euro and Canadian dollar rates used to translate the 2020 statements of income decreased by 4.8%, 2.6%, 2.4% and 2.2%, respectively. The negative translation effect of the change in foreign currencies against the U.S. dollar combined with the negative impact of realized and unrealized currency gains and losses for the six months ended June 30, 2020, resulting in a $0.01 negative effect on diluted earnings per share relative to the prior year period.

Net (Loss) Income Attributable to Continuing and Discontinued Noncontrolling Interest. Net (loss) income attributable to continuing noncontrolling interest for the six months ended June 30, 2020 decreased $2 million compared to the six months ended June 30, 2019 primarily due to the noncontrolling interest of subsidiaries acquired in connection with the Stahlgruber acquisition. Net income attributable to discontinued noncontrolling interest was immaterial for the six months ended June 30, 2020 and 2019 and related to the Stahlgruber Czech Republic wholesale business. See Note 3, "Discontinued Operations" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on this business.

~~Nine Months Ended September 30, 2019 Compared to Nine Months Ended September 30, 2018~~

~~Revenue.~~ ~~The following table summarizes the changes in revenue by category (in thousands):~~

Nine Months Ended
September 30, Percentage Change in Revenue
2019 2018 Organic Acquisition Foreign Exchange Total Change
Parts & services revenue $ 9,021,790
$ 8,379,337
0.1 % 10.2 % (2.7 )% 7.7 %
Other revenue 474,459
494,556
(5.0 )% 1.2 % (0.3 )% (4.1 )%
Total revenue $ 9,496,249
$ 8,873,893
(0.1 )% 9.7 % (2.5 )% 7.0 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

The growth in parts and services revenue of 7.7% represented increases in segment revenue of 16.3% in Europe (driven by the Stahlgruber acquisition), 0.6% in North America and 0.5% in Specialty. The decrease in other revenue of 4.1% was primarily driven by a $25 million organic decrease, largely attributable to our North America segment. Refer to the discussion of our segment results of operations for factors contributing to the change in revenue by segment during the first nine months of 2019 compared to the prior year period.

~~Cost of Goods Sold~~. Cost of goods sold was flat in the nine months ended September 30, 2019 compared to the prior year period. Our North America segment generated a 0.5% improvement in gross margin, which was offset by (i) a 0.2% increase in cost of goods sold attributable to mix, (ii) an increase of 0.2% primarily due to inventory write-downs in our Europe segment, and (iii) an increase of 0.2% attributable to our Specialty segment. The mix impact is a result of our Stahlgruber acquisition, as the lower margin Europe segment makes up a larger percentage of the consolidated results and has a dilutive effect on the gross margin percentage. We recorded a $17 million reduction of inventory in our Europe segment related to U.K. branch consolidation and brand rationalization initiated as part of our restructuring program. See Note 6, "Restructuring and Acquisition Related Expenses" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on our restructuring plans. Refer to the discussion of our segment results of operations for factors contributing to the changes in cost of goods sold as a percentage of revenue by segment for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018.

~~Selling, General and Administrative Expenses.~~ Our SG&A expenses as a percentage of revenue increased to 28.3% in the nine months ended September 30, 2019 from 27.9% in the nine months ended September 30, 2018, primarily as a result of a 0.3% and 0.2% increase from our Europe and North America segments, respectively. Refer to the discussion of our segment results of operations for factors contributing to the changes in SG&A expenses as a percentage of revenue by segment for the nine months ended September 30, 2019 compared to the nine months ended September 30, 2018.

~~Restructuring and Acquisition Related Expenses. The following table summarizes restructuring and acquisition related expenses for the periods indicated (in thousands):~~

Nine Months Ended
September 30,
2019 2018 Change
Restructuring expenses $ 18,482
⁽¹⁾
$ 9,577
⁽²⁾
$ 8,905
Acquisition related expenses 2,131
⁽³⁾
16,969
⁽⁴⁾
(14,838 )
Total restructuring and acquisition related expenses $ 20,613
$ 26,546
$ (5,933 )


~~(1)~~	Restructuring expenses for the nine months ended September 30, 2019 primarily consisted of (i) $10 million related to our 2019 global restructuring program, and (ii) $9 million related to integration costs from acquisitions.


~~(2)~~	Restructuring expenses for the nine months ended September 30, 2018 primarily consisted of $8 million related to the integration of our acquisition of Andrew Page and $2 million related to our Specialty segment. These integration activities included the closure of duplicate facilities and termination of employees.


~~(3)~~	~~Acquisition related expenses for the nine months ended September 30, 2019 included approximately $1 million of costs related to the acquisition of an immaterial wholesale business in Europe.~~


~~(4)~~	Acquisition related expenses for the nine months ended September 30, 2018 primarily consisted of $15 million of costs for our acquisition of Stahlgruber. The remaining costs related to other completed acquisitions and acquisitions that were pending as of September 30, 2018.

See Note 6, "Restructuring and Acquisition Related Expenses" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on our restructuring and integration plans.

~~Impairment of Net Assets Held for Sale.~~ We recorded a $45 million impairment charge on net assets held for sale for the nine months ended September 30, 2019. The impairment charge was primarily attributable to our North America segment. See "Net Assets Held for Sale" in Note 4, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on the impairment charge.

~~Depreciation and Amortization. The following table summarizes depreciation and amortization for the periods indicated (in thousands):~~

Nine Months Ended
September 30,
2019 2018 Change
Depreciation $ 109,245
$ 100,576
$ 8,669
⁽¹⁾
Amortization 104,104
95,746
8,358
⁽²⁾
Total depreciation and amortization $ 213,349
$ 196,322
$ 17,027

~~(1)~~

Depreciation expense included an incremental $5 million in our Europe segment, principally due to (i) an $8 million increase in depreciation expense from our acquisition of Stahlgruber, partially offset by (ii) a decrease of $3 million related to the impact of foreign currency translation, primarily due to decreases in the euro and pound sterling exchange rates during the nine months ended September 30, 2019 compared to the prior year period. Depreciation expense also included an incremental $4 million in our North America segment, primarily due to capital expenditures related to new warehouse openings and upgrades to our existing information technology infrastructure.

~~(2)~~

The increase in amortization expense primarily reflected (i) an incremental $18 million from our acquisition of Stahlgruber, partially offset by (ii) a decrease of $5 million related to the impact of foreign currency translation, principally due to a decrease in the euro exchange rate during the nine months ended September 30, 2019 compared to the prior year period, and (iii) a decrease of $5 million related to our 2016 acquisition of Rhiag, which had lower amortization expense during the nine months ended September 30, 2019 compared to the prior year period as a result of the accelerated amortization on the customer relationship intangible asset.

~~Other Expense, Net.~~ ~~The following table summarizes the components of the change in other expense, net (in thousands):~~

Other expense, net for the nine months ended September 30, 2018 $ 98,233

Decrease due to:
Interest expense, net of interest income (3,698 )
⁽¹⁾
Other income, net (6,109 )
⁽²⁾
Net decrease (9,807 )
Other expense, net for the nine months ended September 30, 2019 $ 88,426

~~(1)~~

The decrease in interest is primarily related to (i) a $7 million decrease from lower interest rates on borrowings under our senior secured credit agreement compared to the prior year period, and (ii) a $4 million decrease from foreign currency translation, primarily related to a decrease in the euro exchange rate during the first nine months of 2019 compared to the prior year period, partially offset by (iii) an $8 million increase resulting from higher outstanding debt during the nine months ended September 30, 2019 compared to the prior year period (including the borrowings under our Euro Notes (2026/28)).


~~(2)~~	The increase in other income primarily consisted of (i) a $4 million favorable variance in foreign currency gains and losses, and (ii) $3 million of proceeds received in the first quarter of 2019 related to an insurance settlement in our North America segment.

~~Provision for Income Taxes~~. Our effective income tax rate for the nine months ended September 30, 2019 was 27.5%, compared to 25.2% for the comparable prior year period. The increase was primarily attributable to the impact of a favorable discrete item of $10 million for the nine months ended September 30, 2018, reflecting an adjustment to the Tax Act transition tax. The increase was also partially attributable to the impact of a favorable discrete item of approximately $4 million for the nine months ended September 30, 2018, for excess tax benefits from stock-based payments; there were $1 million of excess tax benefits from stock-based payments for the nine months ended September 30, 2019. The year over year change for these discrete items increased the effective tax rate by 2.1% compared to the prior year period, while remaining discrete items increased the effective tax rate by an immaterial amount compared to the prior year period.

~~Equity in Earnings (Losses) of Unconsolidated Subsidiaries.~~ Equity in earnings (losses) of unconsolidated subsidiaries for the nine months ended September 30, 2019 primarily related to our investment in Mekonomen. During the three months ended March 31, 2019 and September 30, 2018, we recognized other-than-temporary impairment charges of $40 million and $23 million, respectively, related to our investment in Mekonomen. See "Investments in Unconsolidated Subsidiaries" in Note 4, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on the impairment charge.

~~Foreign Currency Impact.~~ We translate our statements of income at the average exchange rates in effect for the period. Relative to the rates used during the nine months ended September 30, 2018, the Czech koruna, euro, pound sterling and Canadian dollar rates used to translate the 2019 statements of income decreased by 6.4%, 5.9%, 5.8% and 3.2%, respectively. The negative translation effect of the change in foreign currencies against the U.S. dollar netted against the positive impact of realized and unrealized currency gains and losses for the nine months ended September 30, 2019 resulted in a $0.02 negative effect on diluted earnings per share relative to the prior year period.

~~Net (Loss) Income Attributable to Continuing and Discontinued Noncontrolling Interest.~~ Net (loss) income attributable to continuing noncontrolling interest for the nine months ended September 30, 2019 increased $1 million compared to the nine months ended September 30, 2018 primarily due to the noncontrolling interest of subsidiaries acquired in connection with the Stahlgruber acquisition. Net income attributable to discontinued noncontrolling interest as immaterial for the nine months ended September 30, 2019 and related to the Stahlgruber Czech Republic wholesale business. See Note 3, "Discontinued Operations" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on this business.

Results of Operations—Segment Reporting

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. Therefore, we present three reportable segments: North America, Europe and Specialty.

We have presented the growth of our revenue and profitability in our operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our growth and profitability, consistent with how we evaluate our performance, as this statistic removes the translation impact of exchange rate fluctuations, which are outside of our control and do not reflect our operational performance. Constant currency revenue and Segment EBITDA results are calculated by translating prior year revenue and Segment EBITDA in local currency using the current year's currency conversion rate. This non-GAAP financial measure has important limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of our results as reported under GAAP. Our use of this term may vary from the use of similarly-titled measures by other issuers due to potential inconsistencies in the method of calculation and differences due to items subject to interpretation. In addition, not all companies that report revenue or profitability on a constant currency basis calculate such measures in the same manner as we do, and accordingly, our calculations are not necessarily comparable to similarly-named measures of other companies and may not be appropriate measures for performance relative to other companies.

The following table presents our financial performance, including third party revenue, total revenue and Segment EBITDA, by reportable segment for the periods indicated (in thousands):

Three Months Ended September 30, Nine Months Ended September 30,
2019 % of Total Segment Revenue 2018 % of Total Segment Revenue 2019 % of Total Segment Revenue 2018 % of Total Segment Revenue
Third Party Revenue
North America $ 1,302,086
$ 1,262,657
$ 3,925,962
$ 3,927,282

Europe 1,451,483
1,470,856
4,413,264
3,795,439

Specialty 394,204
388,865
1,157,023
1,151,172

Total third party revenue $ 3,147,773
$ 3,122,378
$ 9,496,249
$ 8,873,893

Total Revenue
North America $ 1,302,147
$ 1,262,799
$ 3,926,222
$ 3,927,808

Europe 1,451,483
1,470,856
4,413,264
3,795,439

Specialty 395,314
390,061
1,160,687
1,154,726

Eliminations (1,171 ) (1,338 ) (3,924 ) (4,080 )
Total revenue $ 3,147,773
$ 3,122,378
$ 9,496,249
$ 8,873,893

Segment EBITDA
North America $ 166,310
12.8 % $ 154,049
12.2 % $ 532,994
13.6 % $ 506,772
12.9 %
Europe 124,712
8.6 % 129,358
8.8 % 346,291
7.8 % 315,785
8.3 %
Specialty 45,464
11.5 % 42,937
11.0 % 135,790
11.7 % 140,974
12.2 %


	Three Months Ended June 30,														Six Months Ended June 30,
	2020		% of Total Segment Revenue		2019		% of Total Segment Revenue		2020		% of Total Segment Revenue		2019		% of Total Segment Revenue
Third Party Revenue
North America	$	1,011,136			$	1,321,670			$	2,301,071			$	2,623,876
Europe	1,211,185				1,516,240				2,574,779				2,961,781
Specialty	404,002				410,263				751,408				762,819
Total third party revenue	$	2,626,323			$	3,248,173			$	5,627,258			$	6,348,476
Total Revenue
North America	$	1,011,395			$	1,321,766			$	2,301,590			$	2,624,075
Europe	1,211,185				1,516,240				2,574,779				2,961,781
Specialty	404,874				411,636				753,456				765,373
Eliminations	(1,131)				(1,469)				(2,567)				(2,753)
Total revenue	$	2,626,323			$	3,248,173			$	5,627,258			$	6,348,476
Segment EBITDA
North America	$	149,554	14.8	%	$	190,048	14.4	%	$	360,992	15.7	%	$	366,684	14.0	%
Europe	89,387		7.4	%	116,281		7.7	%	167,649		6.5	%	221,579		7.5	%
Specialty	52,233		12.9	%	52,367		12.7	%	84,465		11.2	%	90,326		11.8	%

Three Months Ended ~~September~~June 30, ~~2019~~2020 Compared to Three Months Ended ~~September~~June 30, ~~2018~~2019

North America

Third Party Revenue. The following table summarizes the changes in third party revenue by category in our North America segment (in thousands):


	Three Months Ended June 30,							Percentage Change in Revenue
North America	2020		2019		Organic			Acquisition and Divestiture ⁽³⁾		Foreign Exchange		Total Change
Parts & services revenue	$	892,826	$	1,165,482	(22.5)	%	⁽¹⁾	(0.6)	%	(0.2)	%	(23.4)	%
Other revenue	118,310		156,188		(24.4)	%	⁽²⁾	0.1	%	(0.0)	%	(24.3)	%
Total third party revenue	$	1,011,136	$	1,321,670	(22.7)	%		(0.5)	%	(0.2)	%	(23.5)	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1)Parts and services organic revenue declined 22.5% in the second quarter of 2020. The organic decline was impacted by collision and liability repairable auto claims, which, according to data from CCC Information Services, Inc. ("CCC"), were 41.7% lower for the three months ended June 30, 2020 compared to the prior year period. This decrease in claims activity was primarily due to the COVID-19 pandemic and had an adverse impact on sales volumes in our wholesale

Three Months Ended September 30, Percentage Change in Revenue
North America 2019 2018 Organic
Acquisition ⁽³⁾
Foreign Exchange Total Change
Parts & services revenue $ 1,145,402
$ 1,109,067
2.9 %
⁽¹
⁾
0.4 % (0.1 )% 3.3 %
Other revenue 156,684
153,590
0.9 %
⁽²
⁾
1.1 % (0.0 )% 2.0 %
Total third party revenue $ 1,302,086
$ 1,262,657
2.7 % 0.5 % (0.1 )% 3.1 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.
operations. The volume decline in collision parts was partially offset by an outperformance of the claims trend attributable to share gains, mechanical part sales and self service parts sales and admissions.

~~(1)~~

~~Parts and services~~

(2)Other organic ~~revenue increased 1.4% on a per day basis. This per day increase was largely attributable to (i) favorable pricing, partially offset by sales volumes in our wholesale operations, and (ii) higher~~ revenue declined $38 million in the second quarter of 2020 primarily driven by (i) a $22 million decrease in revenue from scrap steel due to both lower volumes and prices, (ii) a $22 million decrease in other scrap metals (e.g. aluminum) and fluids due to lower volumes, and (iii) a decrease in core revenue of $4 million due to lower volumes, partially offset by a $9 million increase in revenue from precious metals (platinum, palladium, and rhodium) due to higher prices compared to the prior year. The volume declines in other revenue were due to lower purchase volumes and throughput in our salvage and self service operations as a result of the COVID-19 pandemic.

(3)Acquisition related growth in the second quarter of 2020 reflected revenue from our acquisition of two wholesale businesses and one self service business since the beginning of the second quarter of 2019 through the one-year anniversary of the acquisitions. Reduced revenue as a result of the disposal of our aviation business ~~prior to its disposal in August.~~

~~(2)~~

The $1 million year over year organic increase in other revenue primarily related to (i) a $19 million increase in revenue from precious metals (platinum, palladium and rhodium) primarily due to higher prices and, to a lesser extent, increased volumes, partially offset by (i) a $13 million decrease in revenue from scrap steel and other metals primarily related to lower prices, partially offset by increased volumes, (ii) a $2 million decrease in core revenue primarily related to decreased volumes, and (iii) several individually immaterial factors that decreased organic revenue by $2 million in the aggregate.


~~(3)~~	Acquisition related growth in the third quarter of 2019 reflected revenue from our acquisition of four wholesale businesses and one self service business since the beginning of the third quarter of 2018 through the one-year anniversary of the acquisitions.

~~Segment EBITDA. Segment EBITDA increased $12 million, or 8.0%,~~ in the third quarter of 2019 more than offset the acquisition growth.

Segment EBITDA. Segment EBITDA decreased $40 million, or 21.3%, in the second quarter of 2020 compared to the ~~third quarter~~prior year period. The decline in Segment EBITDA was primarily due to volume declines as a result of the ~~prior year. Sequential~~COVID-19 pandemic. Additionally, net sequential decreases in scrap steel prices in our salvage and self service operations had an unfavorable impact of $8$6 million on ~~North America~~ Segment EBITDA during the three months ended ~~September~~June 30, ~~2019,~~2020, compared to a $7$2 million unfavorable impact on the three months ended ~~September~~June 30, ~~2018.~~2019. This unfavorable impact for the three months ended ~~September~~June 30, ~~2019~~2020 resulted from the ~~decrease~~decline in scrap steel prices between the date we purchased a vehicle, which influences the price we pay for a vehicle, and the date we scrapped a vehicle, which influences the price we receive for scrapping a vehicle.

The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our North America segment:


North America	Percentage of Total Segment Revenue
Segment EBITDA for the three months ended June 30, 2019	14.4	%
Increase (decrease) due to:
Change in gross margin	1.1	%	(1)
Change in segment operating expenses	(1.2)	%	(2)
Change in other expense, net and net income attributable to continuing noncontrolling interest	0.5	%	(3)
Segment EBITDA for the three months ended June 30, 2020	14.8	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

North America Percentage of Total Segment Revenue
Segment EBITDA for the three months ended September 30, 2018 12.2 %
Increase (decrease) due to:
Change in gross margin 1.0 % (1)
Change in segment operating expenses (0.5 )% (2)
Change in other expense, net and net income attributable to continuing noncontrolling interest 0.0 %
Segment EBITDA for the three months ended September 30, 2019 12.8 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.


~~(1)~~	(1) The ~~increase in gross margin primarily reflected a favorable impact of 1.1% from our wholesale operations. The increase in wholesale gross margin was primarily attributable to ongoing margin initiatives.~~

~~(2)~~

Segment operating expenses increased as a percentage of revenue. Having one additional selling day in the third quarter of 2019 resulted in a positive leverage effect, but there were several offsetting factors that increased expenses compared to the prior year period. The increase in segment operating expenses was primarily due to (i) a 0.5% increase in incentive compensation expenses compared to the prior year, principally due to downward revisions of the bonus accruals in the third quarter of 2018 and upward revisions in the third quarter of 2019 as a result of our

~~performance in each period, and (ii) a 0.4%~~ increase in gross margin primarily reflected favorable impacts of 0.9% from our wholesale operations. The increase in wholesale gross margin was primarily attributable to the positive impact of cost reductions from rightsizing actions, higher prices of precious metals (platinum, palladium and rhodium), improved return rates, as well as favorable impacts from ongoing margin improvement initiatives compared to the prior year period. We expect downward pressure on our salvage and self service margins in the second half of 2020 as the number of cars available for purchase becomes more limited and purchase costs increase due to the COVID-19 pandemic.

(2) The increase in segment operating expense as a percentage of revenue reflects a negative leverage effect of 1.5% from facility expenses, ~~principally~~which are largely fixed. Additionally, incremental bad debt expense had an unfavorable impact of 0.4% due to ~~higher~~the downturn in economic conditions caused by the COVID-19 pandemic. The impact was partially mitigated by cost actions to reduce personnel expenses, ~~in rent~~which generated a favorable impact of 0.7% related to ~~expansions~~permanent and ~~renewals,~~temporary headcount reductions, reduced hours, limitations on travel, government grants in Canada and other one-time benefits. As the market recovers and volumes increase, we expect to bring back necessary resources to support our operations; however, we expect that certain permanent actions taken during the quarter will provide a long-term favorable impact for the segment.

(3) The decrease in other expense, net and net income attributable to continuing noncontrolling interest was primarily due to proceeds from business interruption insurance that had a year over year impact of 0.8%, which was partially offset by ~~(iii)~~an unfavorable impact of 0.2% from pension expense resulting from a ~~0.3% decrease from other personnel-related costs, including salaries and wages and non-incentive benefits, primarily due to reduced headcount and lower insurance claims.~~ pension settlement loss recorded in the second quarter of 2020.

Europe

Third Party Revenue. The following table summarizes the changes in third party revenue by category in our Europe segment (in thousands):


	Three Months Ended June 30,						Percentage Change in Revenue
Europe	2020		2019		Organic ⁽¹⁾		Acquisition and Divestiture ⁽²⁾		Foreign Exchange ⁽³⁾		Total Change
Parts & services revenue	$	1,206,330	$	1,510,952	(16.6)	%	(0.7)	%	(2.9)	%	(20.2)	%
Other revenue	4,855		5,288		(4.9)	%	0.0	%	(3.3)	%	(8.2)	%
Total third party revenue	$	1,211,185	$	1,516,240	(16.6)	%	(0.7)	%	(2.9)	%	(20.1)	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

Three Months Ended September 30, Percentage Change in Revenue
Europe 2019 2018
Organic ⁽¹⁾

Acquisition ⁽²⁾

Foreign Exchange ⁽³⁾
Total Change
Parts & services revenue $ 1,446,392
$ 1,464,049
2.1 % 1.3 % (4.6 )% (1.2 )%
Other revenue 5,091
6,807
(19.4 )% (0.3 )% (5.6 )% (25.2 )%
Total third party revenue $ 1,451,483
$ 1,470,856
2.0 % 1.3 % (4.6 )% (1.3 )%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.
(1)Parts and services organic revenue declined 16.6% in the second quarter of 2020, mainly driven by the COVID-19 pandemic disruptions which adversely affected volumes in all of our European operations. On a per day basis, organic parts and services revenue improved sequentially during the quarter, improving from a year-over-year decrease of 28.9% during the month of April 2020 to a decrease of 8.4% in the month of June 2020. Not all regions were impacted by the pandemic at the same time and to the same degree, creating a different growth profile for each of our European businesses. Germany and the Netherlands recovered at a faster rate, with the U.K. and Italy lagging.

~~(1)~~

The parts and services organic revenue growth for the quarter was affected by having one additional selling day. Selling days differ by market, but, on average, we had one additional selling day in our Europe segment in the third quarter of 2019 than in the prior year period. On a per day basis, organic parts and services revenue increased 0.7%, mainly driven by our U.K. and Eastern European operations. Softer economic conditions continue to have a negative impact on revenue growth, most notably in Italy and Germany.


~~(2)~~	Acquisition related growth for the three months ended September 30, 2019 was $19 million, or 1.3%, due to our acquisition of eight wholesale businesses since the beginning of the third quarter of 2018 through the one year anniversary of the acquisitions.


~~(3)~~	Compared to the prior year, exchange rates decreased our revenue growth by $68 million, or 4.6%, primarily due to the stronger U.S. dollar against the euro, pound sterling and Czech koruna during the third quarter of 2019 relative to the prior year period.

(2)Acquisition related growth in the second quarter of 2020 reflected revenue from our acquisition of one wholesale business since the beginning of the second quarter of 2019 through the one-year anniversary of the acquisition. Reduced revenue as a result of the disposals of a non-core telecommunications operation in Germany in the second quarter of 2020 and a wholesale business in Bulgaria in the third quarter of 2019 more than offset the acquisition growth.

(3)Compared to the prior year, exchange rates decreased our revenue growth by $44 million, or 2.9%, primarily due to the stronger U.S. dollar against the euro, pound sterling and Czech koruna during the second quarter of 2020 relative to the prior year period.

Segment EBITDA. Segment EBITDA decreased $5$27 million, or ~~3.6%~~23.1%, in the ~~third~~second quarter of ~~2019~~2020 compared to the prior year period. Our Europe Segment EBITDA included a negative year over year impact of $6$4 million related to the translation of local currency results into U.S. dollars at lower exchange rates than those experienced during the ~~third~~second quarter of ~~2018.~~2019. On a constant currency basis (i.e. excluding the translation impact), Segment EBITDA ~~increased~~decreased by $1$23 million, or ~~1.0%~~20.1%, compared to the prior year. Refer to the Foreign Currency Impact discussion within the Results of Operations–Consolidated section above for further detail regarding foreign currency impact on our results for the three months ended ~~September~~June 30, ~~2019.~~2020.

The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Europe segment:


Europe	Percentage of Total Segment Revenue
Segment EBITDA for the three months ended June 30, 2019	7.7	%
Increase (decrease) due to:
Change in gross margin	1.0	%	(1)
Change in segment operating expenses	(1.1)	%	(2)
Change in other expense, net and net income attributable to continuing noncontrolling interest	(0.1)	%
Segment EBITDA for the three months ended June 30, 2020	7.4	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

Europe Percentage of Total Segment Revenue
Segment EBITDA for the three months ended September 30, 2018 8.8 %
(Decrease) increase due to:
Change in gross margin (0.1 )% (1)
Change in segment operating expenses (0.3 )% (2)
Change in other expense, net and net income attributable to continuing noncontrolling interest 0.1 %
Segment EBITDA for the three months ended September 30, 2019 8.6 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.


~~(1)~~	~~The decrease in gross margin was primarily due to a 0.5% unfavorable impact related~~(1) The increase in gross margin was primarily attributable to (i) a 1.0% favorable impact across our ~~Central European~~ operations principally ~~due to lower prices and product mix, partially offset by a favorable increase of 0.3% in supplier~~

~~rebates~~ as a result of ~~centralized procurement~~margin improvement initiatives supporting the pursuit of profitable revenue growth and decreased inventory write-downs.

(2) The increase in segment operating expense as a percentage of revenue reflects a negative leverage effect of 0.3% from facility expenses, which are largely fixed. Other unfavorable factors include incremental bad debt expense of 0.8% due to the downturn in economic conditions caused by the COVID-19 pandemic. Professional fees had an unfavorable

impact of 0.4%. These negative impacts were partially mitigated by actions to reduce personnel expenses, which generated a favorable impact of 0.5%. Roughly half of the benefit came from government grants to cover employee costs in countries such as the U.K. and Germany. Other personnel cost decreases resulted from permanent and temporary headcount reductions, limitations on travel, reduced hours and other one-time benefits. As the market recovers, volumes increase and government programs cease, we expect to bring back necessary resources to support our operations; however, we expect that certain permanent actions taken during the quarter will provide a long-term favorable impact for ~~our Europe segment, principally driven by our acquisition of Stahlgruber, and a 0.2% increase related to our U.K. operations.~~the segment.

~~(2)~~

The increase in segment operating expenses as a percentage of revenue was primarily due to a 0.3% increase in personnel expenses, principally as a result of the timing of bonus accrual revisions and the negative leverage effect driven by lower sales growth compared to average wage inflation. Transformation expenses related to the 1 LKQ Europe program had an unfavorable impact of 0.1% on the three months ended September 30, 2019 compared to the prior year period.

Specialty

Third Party Revenue. The following table summarizes the changes in third party revenue by category in our Specialty segment (in thousands):


	Three Months Ended June 30,						Percentage Change in Revenue
Specialty	2020		2019		Organic ⁽¹⁾		Acquisition and Divestiture		Foreign Exchange		Total Change
Parts & services revenue	$	404,002	$	410,263	(1.4)	%	0.3	%	(0.4)	%	(1.5)	%
Other revenue	—		—		—	%	—	%	—	%	—	%
Total third party revenue	$	404,002	$	410,263	(1.4)	%	0.3	%	(0.4)	%	(1.5)	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

Three Months Ended September 30, Percentage Change in Revenue
Specialty 2019 2018
Organic ⁽¹⁾
Acquisition Foreign Exchange Total Change
Parts & services revenue $ 394,204
$ 388,865
1.5 % — % (0.1 )% 1.4 %
Other revenue —
—
— % — % — % — %
Total third party revenue $ 394,204
$ 388,865
1.5 % — % (0.1 )% 1.4 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.
(1)Parts and services organic revenue declined 1.4% in the second quarter of 2020, primarily due to the adverse effects on demand resulting from the COVID-19 pandemic. While down on a year over year basis, revenue held near the prior year level due to strong demand for recreational vehicle products and high drop ship fulfillment.

~~(1)~~

Organic growth in parts and services revenue was primarily due to an additional selling day in the third quarter of 2019 compared to the prior year period (organic revenue declined 0.1% on a per day basis). Modest volume growth in our RV business in the U.S. was offset by decreased sales volumes in our Canada operations compared to the prior year period, principally due to softening economic conditions.

Segment EBITDA. Segment EBITDA ~~increased $3~~decreased $0.1 million, or ~~5.9%~~0.3%, in the ~~third~~second quarter of ~~2019~~2020 compared to the prior year ~~third~~second quarter.

The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Specialty segment:


Specialty	Percentage of Total Segment Revenue
Segment EBITDA for the three months ended June 30, 2019	12.7	%
(Decrease) increase due to:
Change in gross margin	(1.2)	%	(1)
Change in segment operating expenses	1.5	%	(2)

Segment EBITDA for the three months ended June 30, 2020	12.9	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) The decrease in gross margin primarily reflects unfavorable impacts of (i) 0.9% due to unfavorable product and channel mix in the second quarter of 2020 and (ii) several individually immaterial factors that had an unfavorable impact of 0.3% in the aggregate.

(2) The increase in segment operating expenses reflects a favorable impact of (i) 2.5% in personnel costs primarily due to reduced headcount and reduced hours, partially offset by unfavorable impacts of (ii) 0.5% in freight, vehicle and fuel expenses due to an increased use of third party freight, (iii) 0.2% in e-commerce fees due to sales channel mix, and (iv) several individually immaterial factors that had an unfavorable impact of 0.3% in the aggregate.

Specialty Percentage of Total Segment Revenue
Segment EBITDA for the three months ended September 30, 2018 11.0 %
(Decrease) increase due to:
Change in gross margin (0.8 )% (1)
Change in segment operating expenses 1.3 % (2)
Segment EBITDA for the three months ended September 30, 2019 11.5 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.


~~(1)~~	The decrease in gross margin reflects unfavorable impacts of (i) 0.4% due to unfavorable product mix in the third quarter of 2019, (ii) 0.2% of higher product costs, primarily due to lower supplier discounts resulting from lower purchase volumes, and (iii) several individually immaterial factors that had an unfavorable impact of 0.2% in the aggregate.


~~(2)~~	The decrease in segment operating expenses reflects favorable impacts of (i) 0.7% in personnel costs primarily due to reduced headcount, (ii) 0.4% in freight, vehicle and fuel expenses due to a decreased use of third party freight, and (iii) 0.2% due to several individually immaterial factors.

~~Nine~~Six Months Ended ~~September~~June 30, ~~2019~~2020 Compared to ~~Nine~~Six Months Ended ~~September~~June 30, ~~2018~~2019

North America

Third Party Revenue. The following table summarizes the changes in third party revenue by category in our North America segment (in thousands):


	Six Months Ended June 30,							Percentage Change in Revenue
North America	2020		2019		Organic			Acquisition and Divestiture ⁽³⁾		Foreign Exchange		Total Change
Parts & services revenue	$	2,000,168	$	2,321,180	(13.4)	%	⁽¹⁾	(0.3)	%	(0.2)	%	(13.8)	%
Other revenue	300,903		302,696		(1.3)	%	⁽²⁾	0.8	%	(0.0)	%	(0.6)	%
Total third party revenue	$	2,301,071	$	2,623,876	(12.0)	%		(0.2)	%	(0.1)	%	(12.3)	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1)Parts and services organic revenue declined despite one additional selling day in the first half of 2020 compared to the prior year period. On a per day basis, organic revenue declined 14.0%. The organic decline was impacted by collision and liability repairable auto claims, which, according to data from CCC, were 26.0% lower for the six months ended June 30, 2020 compared to the prior year period. This decrease in claims activity was primarily due to the COVID-19 pandemic and had an adverse impact on sales volumes in our wholesale operations. The volume decline in collision parts was partially offset by an outperformance of the claims trend attributable to share gains, mechanical part sales and self service parts sales and admissions. Prior to the pandemic, parts and services organic revenue in North America was slightly less than the same period in the prior year, declining 1.1% through February 2020, principally due to (i) the termination in the fourth quarter of 2019 of an agreement signed in December 2017 for the distribution of batteries which had an unfavorable impact of 0.8% through February 2020 compared to the prior year period, and, (ii) to a lesser extent, milder winter weather conditions compared to the prior year period. During the period of March 2020 through June 2020, parts and services organic revenue declined 20.2% on a per day basis compared to the prior year period primarily due to volume effects caused by the COVID-19 pandemic (collision and liability repairable auto claims were down approximately 41.7% in the second quarter of 2020 according to data from CCC).

(2)The $2 million year over year organic decrease in other revenue is primarily related to (i) a $27 million decrease in revenue from other scrap metals (e.g. aluminum) and fluids due to lower volumes, (ii) a $26 million decrease in revenue from scrap steel primarily due to lower year over year prices, and (iii) a decrease in core revenue of $7 million due to lower volumes, partially offset by a $56 million increase in revenue from precious metals (platinum, palladium and rhodium) primarily due to higher prices compared to the prior year. The volume declines in other revenue were due to lower purchase volumes and throughput in our salvage and self service operations as a result of the COVID-19 pandemic.

(3)Acquisition related growth in the first half of 2020 reflected revenue from our acquisition of three wholesale businesses and one self service business since the beginning of 2019 through the one-year anniversary of the acquisitions. Reduced revenue as a result of the disposal of our aviation business in the third quarter of 2019 more than offset the acquisition growth.

Nine Months Ended
September 30,
Percentage Change in Revenue
North America 2019 2018 Organic
Acquisition ⁽³⁾
Foreign Exchange Total Change
Parts & services revenue $ 3,466,582
$ 3,447,074
0.4 %
⁽¹
⁾
0.4 % (0.2 )% 0.6 %
Other revenue 459,380
480,208
(5.0 )%
⁽²
⁾
0.7 % (0.1 )% (4.3 )%
Total third party revenue $ 3,925,962
$ 3,927,282
(0.3 )% 0.5 % (0.2 )% (0.0 )%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

~~(1)~~

Parts and services organic revenue increased 0.4% in the first nine months of 2019 compared to the prior year period. This relatively low growth rate was impacted by (i) lower revenue in our glass and aviation businesses, which had unfavorable effects on organic growth of 0.4% and 0.3%, respectively, and (ii) collision and liability related auto claims being 1.6% lower in the first nine months of 2019 compared to the prior year period, which adversely impacted volume in our wholesale operations. Additionally, our North America segment generated a 6.4% organic growth rate for parts and services revenue in the first nine months of 2018, due in part to severe winter weather conditions. Facing a strong comparable period and with less favorable weather conditions in the first half of 2019, organic parts and services revenue growth was below our historical average.

~~(2)~~

The $24 million year over year organic decrease in other revenue primarily related to (i) a $46 million decrease in revenue from scrap steel and other metals primarily related to lower prices, partially offset by increased volumes, and (ii) an $11 million decrease in core revenue primarily related to decreased volumes, partially offset by (iii) a $35 million increase in revenue from precious metals (platinum, palladium and rhodium) primarily due to higher prices.


~~(3)~~	Acquisition related growth in the first nine months of 2019 reflected revenue from our acquisition of five wholesale businesses and one self service business from the beginning of 2018 through the one-year anniversary of the acquisitions.

Segment ~~EBITDA~~.EBITDA. Segment EBITDA ~~increased $26~~decreased $6 million, or ~~5.2%~~1.6%, in the first ~~nine months~~half of ~~2019~~2020, though there was one additional selling day compared to the prior year period. Sequential decreases in scrap steel prices in our salvage and self service operations had an ~~unfavorable~~immaterial favorable impact ~~of $14 million~~ on North America Segment EBITDA ~~for~~during the ~~first nine~~six months ~~of 2019,~~ended June 30, 2020, compared to a ~~$10~~$7 million ~~positive~~unfavorable impact on the ~~first nine~~six months ~~of 2018.~~ended June 30, 2019. This ~~unfavorable~~favorable impact for the six months ended June 30, 2020 resulted from the ~~decrease~~increase in scrap steel prices between the date we purchased a vehicle, which influences the price we pay for a vehicle, and the date we scrapped a vehicle, which influences the price we receive for scrapping a vehicle.

The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our North America segment:


North America	Percentage of Total Segment Revenue
Segment EBITDA for the six months ended June 30, 2019	14.0	%
Increase (decrease) due to:
Change in gross margin	2.3	%	(1)
Change in segment operating expenses	(0.6)	%	(2)
Change in other expense, net and net income attributable to continuing noncontrolling interest	0.1	%	(3)
Segment EBITDA for the six months ended June 30, 2020	15.7	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

North America Percentage of Total Segment Revenue
Segment EBITDA for the nine months ended September 30, 2018 12.9 %
Increase (decrease) due to:
Change in gross margin 1.0 % (1)
Change in segment operating expenses (0.5 )% (2)
Change in other expense, net and net income attributable to continuing noncontrolling interest 0.2 % (3)
Segment EBITDA for the nine months ended September 30, 2019 13.6 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

~~(1)~~

The increase in gross margin primarily reflected a favorable impact of 1.3% from our wholesale operations, partially offset by an unfavorable impact of 0.2% from our self service operations. The increase in wholesale gross margin was primarily attributable to ongoing margin initiatives. The decrease in self service gross margin was primarily attributable to sequential decreases in scrap steel prices as higher cost vehicles were scrapped.

~~(2)~~

The increase in segment operating expenses as a percentage of revenue is primarily related to a 0.4% increase in facility expenses principally due to higher expenses in rent related to expansions and renewals. The increase in segment operating expenses also reflects the negative leverage effect resulting from the year over year decline in other revenue of $21 million, as incremental scrap revenue does not require additional overhead costs, such as commissions

(1) The increase in gross margin primarily reflected favorable impacts of 1.6% from our wholesale operations and 0.5% from our self service operations. The increase in wholesale gross margin was primarily attributable to a positive impact from higher prices of precious metals (platinum, palladium and rhodium) and improved return rates, as well as favorable impacts from ongoing rightsizing activities and margin improvement initiatives compared to the prior year period. The increase in self service gross margin was primarily attributable to higher prices of precious metals. We expect downward pressure on our salvage and self service margins in the second half of 2020 as the number of cars available for purchase becomes more limited and purchase costs increase due to the COVID-19 pandemic.

(2) The increase in segment operating expense as a percentage of revenue reflects a negative leverage effect of 0.7% from facility expenses, which are largely fixed. The impact was partially mitigated by cost actions to reduce personnel expenses, which generated a favorable impact of 0.2% related to permanent and temporary headcount reductions, reduced hours, limitations on travel, government grants in Canada and other one-time benefits. As the market recovers and volumes increase, we expect to bring back necessary resources to support our operations, however we expect that certain permanent actions taken during the quarter will provide a long-term favorable impact for the segment.

~~and delivery costs, thus creating a dilutive impact to margin in periods with declining scrap revenue.~~


~~(3)~~	The decrease in other expense, net and net income attributable to continuing noncontrolling interest was due to several individually immaterial factors that had a favorable impact of 0.2% in the aggregate.

Europe

Third Party Revenue. The following table summarizes the changes in third party revenue by category in our Europe segment (in thousands):


	Six Months Ended June 30,						Percentage Change in Revenue
Europe	2020		2019		Organic ⁽¹⁾		Acquisition and Divestiture ⁽²⁾		Foreign Exchange ⁽³⁾		Total Change
Parts & services revenue	$	2,564,299	$	2,951,793	(10.1)	%	(0.3)	%	(2.7)	%	(13.1)	%
Other revenue	10,480		9,988		8.2	%	—	%	(3.2)	%	4.9	%
Total third party revenue	$	2,574,779	$	2,961,781	(10.1)	%	(0.3)	%	(2.7)	%	(13.1)	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1)The parts and services organic revenue change for the first half of 2020 was affected by having one additional selling day, on average, due to the different selling days in each market compared to the first half of 2019. On a per day basis, organic parts and services revenue decreased 10.6%, mainly driven by the COVID-19 pandemic disruptions in all of our European operations. Prior to the pandemic, organic revenue in Europe was slightly greater than the same period in the prior year, increasing 0.3% through February, principally driven by the Central and Eastern European region, and to a lesser extent, Germany. During the period of March 2020 through June 2020, organic revenue declined 15.8% on a per day basis compared to the prior year period primarily due to volume effects caused by the COVID-19 pandemic.

Nine Months Ended
September 30,
Percentage Change in Revenue
Europe 2019 2018
Organic ⁽¹⁾

Acquisition ⁽²⁾

Foreign Exchange ⁽³⁾
Total Change
Parts & services revenue $ 4,398,185
$ 3,781,091
(0.3 )% 22.2 % (5.6 )% 16.3 %
Other revenue 15,079
14,348
(5.7 )% 17.6 % (6.8 )% 5.1 %
Total third party revenue $ 4,413,264
$ 3,795,439
(0.3 )% 22.1 % (5.6 )% 16.3 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.
(2)Acquisition related growth in the first half of 2020 reflected revenue from our acquisition of three wholesale businesses since the beginning of 2019 through the one-year anniversary of the acquisitions. Reduced revenue as a result of the disposals of a non-core telecommunications operation in Germany in the second quarter of 2020 and a wholesale business in Bulgaria in the third quarter of 2019 more than offset the acquisition growth.


~~(1)~~	Parts and services organic revenue declined for the first nine months of 2019, primarily affected by softer economic conditions across the continent. Additionally, we believe the U.K.'s potential exit from the European Union had a negative impact on that market for the year to date period.


~~(2)~~	~~Acquisition related growth for the nine months ended September 30, 2019 was $840 million, or 22.1%, primarily from our acquisition of Stahlgruber.~~


~~(3)~~	Compared to the prior year, exchange rates decreased our revenue growth by $212 million, or 5.6%, primarily due to the stronger U.S. dollar against the euro, pound sterling and Czech koruna during the first nine months of 2019 relative to the comparable period of 2018.

(3)Compared to the prior year, exchange rates decreased our revenue growth by $80 million, or 2.7%, primarily due to the stronger U.S. dollar against the euro, pound sterling and Czech koruna during the first half of 2020 relative to the prior year period.

Segment EBITDA. Segment EBITDA ~~increased $31~~decreased $54 million, or ~~9.7%~~24.3%, in the first ~~nine months~~half of ~~2019~~2020 compared to the ~~comparable period of the~~ prior ~~year.~~year period. Our Europe Segment EBITDA included a negative year over year impact of ~~$18~~$6 million related to the translation of local currency results into U.S. dollars at lower exchange rates than those experienced during the first ~~nine months~~half of ~~2018.~~2019. On a constant currency basis (i.e. excluding the translation impact), Segment EBITDA ~~increased~~decreased by ~~$48~~$48 million, or ~~15.2%~~21.5%, compared to the prior year. Refer to the Foreign Currency Impact discussion within the Results of Operations–Consolidated section above for further detail regarding foreign currency impact on our results for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020.

The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Europe segment:


Europe	Percentage of Total Segment Revenue
Segment EBITDA for the six months ended June 30, 2019	7.5	%
Increase (decrease) due to:
Change in gross margin	0.7	%	(1)
Change in segment operating expenses	(1.7)	%	(2)
Change in other expense, net and net income attributable to continuing noncontrolling interest	0.1	%
Segment EBITDA for the six months ended June 30, 2020	6.5	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

Europe Percentage of Total Segment Revenue
Segment EBITDA for the nine months ended September 30, 2018 8.3 %
Increase (decrease) due to:
Change in gross margin 0.2 % (1)
Change in segment operating expenses (0.6 )% (2)
Segment EBITDA for the nine months ended September 30, 2019 7.8 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.
(1) The increase in gross margin was primarily attributable to a 0.7% favorable impact across almost all our operations principally as a result of margin improvement initiatives supporting the pursuit of profitable revenue growth.


~~(1)~~	Gross margin increased primarily due to a 0.5% favorable impact related to an increase in supplier rebates as a result of centralized procurement for our Europe segment, partially offset by a 0.3% unfavorable impact related to our Central European operations, principally due to lower prices and product mix.

(2) The increase in segment operating expenses ~~was~~as a percentage of revenue reflects unfavorable impacts of (i) 0.6% from bad debt expense due to the downturn in economic conditions caused by the COVID-19 pandemic, (ii) 0.3% from professional fees, (iii) 0.2% from freight expense primarily due to ~~(i) a 0.7%~~an increase in ~~personnel~~drop shipments handled by third party carriers, (iv) 0.2% from facility expenses ~~principally as a result of the~~due to negative leverage ~~effect, and (ii)~~from lower revenue, (v) a 0.2% increase in ~~transformation expenses related to~~non-recurring costs for personnel matters and a loan guarantee and (vi) several individually immaterial factors that had an unfavorable impact of 0.2% in the ~~1 LKQ Europe program, partially offset by a 0.3% decrease in other expenses.~~aggregate.

Specialty

Third Party Revenue. The following table summarizes the changes in third party revenue by category in our Specialty segment (in thousands):


	Six Months Ended June 30,						Percentage Change in Revenue
Specialty	2020		2019		Organic ⁽¹⁾		Acquisition and Divestiture		Foreign Exchange		Total Change
Parts & services revenue	$	751,408	$	762,819	(1.4)	%	0.2	%	(0.2)	%	(1.5)	%
Other revenue	—		—		—	%	—	%	—	%	—	%
Total third party revenue	$	751,408	$	762,819	(1.4)	%	0.2	%	(0.2)	%	(1.5)	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1)Parts and services organic revenue declined despite one additional selling day in the first half of 2020 compared to the prior year period. On a per day basis, organic revenue declined 2.2%. The organic decline was primarily due to the adverse effects on demand resulting from the COVID-19 pandemic. Prior to the pandemic, organic revenue in Specialty was greater than the same period in the prior year, increasing 4.3% through February, and in line with our expectations. During the period of March 2020 through June 2020, organic revenue declined 4.9% on a per day basis

Nine Months Ended
September 30,
Percentage Change in Revenue
Specialty 2019 2018
Organic ⁽¹⁾
Acquisition Foreign Exchange Total Change
Parts & services revenue $ 1,157,023
$ 1,151,172
0.8 % — % (0.3 )% 0.5 %
Other revenue —
—
— % — % — % — %
Total third party revenue $ 1,157,023
$ 1,151,172
0.8 % — % (0.3 )% 0.5 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.
compared to the prior year period primarily due to volume effects caused by the COVID-19 pandemic. While down on a year over year basis, revenue held near the prior year level due to strong demand for recreational vehicle products and high drop ship fulfillment.

~~(1)~~

Organic growth in parts and services revenue was primarily due to higher volumes across both our automotive and RV businesses in the U.S., largely due to expansion of our product line coverage, strong exclusive line performance, and continued roll-out of new product applications for new model year vehicles. The organic growth was partially offset by decreased sales volumes in our Canada operations compared to the prior year period, primarily due to softening economic conditions.

Segment EBITDA. Segment EBITDA decreased $5$6 million, or ~~3.7%~~6.5%, in the first ~~nine months~~half of ~~2019~~2020 compared to the prior year period.

The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Specialty segment:


Specialty	Percentage of Total Segment Revenue
Segment EBITDA for the six months ended June 30, 2019	11.8	%
(Decrease) increase due to:
Change in gross margin	(1.2)	%	(1)
Change in segment operating expenses	0.6	%	(2)

Segment EBITDA for the six months ended June 30, 2020	11.2	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

Specialty Percentage of Total Segment Revenue
Segment EBITDA for the nine months ended September 30, 2018 12.2 %
(Decrease) increase due to:
Change in gross margin (1.2 )% (1)
Change in segment operating expenses 0.7 % (2)
Segment EBITDA for the nine months ended September 30, 2019 11.7 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

~~(1)~~

The decrease in gross margin reflects unfavorable impacts of (i) 0.5% of higher product costs, primarily due to non-recurring benefits from supplier discounts resulting from strategic purchasing efforts in the fourth quarter of 2017, which had a favorable impact on the first nine months of 2018 as they were recognized over a turn of inventory, (ii) 0.4% due to unfavorable product mix in the first nine months of 2019, and (iii) 0.2% due to higher capitalized overhead expenses as a result of warehouse expansion projects that were completed in the second half of 2018.


~~(2)~~	The decrease in segment operating expenses reflects favorable impacts of (i) 0.5% in personnel costs primarily due to reduced headcount and (ii) 0.2% in freight, vehicle and fuel expenses due to a decreased use of third party freight.

(1) The decrease in gross margin primarily reflects unfavorable impacts of (i) 1.0% due to unfavorable product and channel mix in the first half of 2020 and (ii) several individually immaterial factors that had an unfavorable impact of 0.2% in the aggregate.

(2) The decrease in segment operating expenses reflects a favorable impact of (i) 1.4% in personnel costs due to reduced headcount and reduced hours, partially offset by (ii) a 0.2% unfavorable impact in freight, vehicle and fuel expenses due to an increased use of third party freight, and (iii) several individually immaterial factors that had an unfavorable impact of 0.6% in the aggregate.

Liquidity and Capital Resources

The following table summarizes liquidity data as of the dates indicated (in thousands):


	September 30, 2019		December 31, 2018		September 30, 2018			June 30, 2020		December 31, 2019		June 30, 2019
Cash and cash equivalents	$	433,391	$	331,761	$	341,346	Cash and cash equivalents	$	476,426	$	523,020	$	375,967
Total debt ⁽¹⁾	3,896,722		4,347,697		4,404,369		Total debt ⁽¹⁾	3,278,453		4,072,026		4,086,298
Current maturities ⁽²⁾	128,426		122,117		122,981		Current maturities ⁽²⁾	93,520		326,648		132,927
Capacity under credit facilities ⁽³⁾	3,260,000		3,260,000		2,850,000		Capacity under credit facilities ⁽³⁾	3,260,000		3,260,000		3,260,000
Availability under credit facilities ⁽³⁾	2,044,940		1,697,698		1,501,226		Availability under credit facilities ⁽³⁾	2,050,884		1,922,671		1,962,487
Total liquidity (cash and cash equivalents plus availability under credit facilities)	2,478,331		2,029,459		1,842,572		Total liquidity (cash and cash equivalents plus availability under credit facilities)	2,527,310		2,445,691		2,338,454

(1) Debt amounts reflect the gross values to be repaid (excluding debt issuance costs of $28 million, $30 million and $34 million as of June 30, 2020, December 31, 2019 and June 30, 2019, respectively).

(2) Debt amounts reflect the gross values to be repaid (excluding immaterial amounts of debt issuance costs as of June 30, 2020, December 31, 2019 and June 30, 2019).

(3) Capacity under credit facilities includes our revolving credit facilities and our receivables securitization facility. Availability under credit facilities is reduced by our outstanding letters of credit.

~~(1)~~

Debt amounts reflect the gross values to be repaid (excluding debt issuance costs of $31 million, $37 million and $36 million as of September 30, 2019, December 31, 2018 and September 30, 2018, respectively).


~~(2)~~	~~Debt amounts reflect the gross values to be repaid (excluding debt issuance costs of immaterial amounts as of both September 30, 2019 and December 31, 2018 and $5 million as of September 30, 2018).~~


~~(3)~~	Capacity under credit facilities includes our revolving credit facilities and our receivables securitization facility. Availability under credit facilities is reduced by our outstanding letters of credit.

We assess our liquidity in terms of our ability to fund our operations and provide for expansion through both internal development and acquisitions. Our primary sources of liquidity are cash flows from operations and our credit facilities. We utilize our cash flows from operations to fund working capital and capital expenditures, with the excess amounts going towards funding acquisitions, or paying down outstanding ~~debt.~~debt or repurchasing our common stock. As we have pursued acquisitions as part of our growth strategy, our cash flows from operations have not always been sufficient to cover our investing activities. To fund our ~~acquisitions,~~acquisitions, we have accessed various forms of debt financing, including revolving credit facilities, senior notes and our receivables securitization facility.

As of ~~September~~June 30, ~~2019,~~2020, we had debt outstanding and additional available sources of financing as follows:

•Senior secured credit facilities maturing in January 2024, composed of term loans totaling $350 million ($~~343~~333 million outstanding at ~~September~~June 30, ~~2019)~~2020) and $3.15 billion in revolving credit ($1.1 billion outstanding at ~~September~~June 30, ~~2019)~~2020), bearing interest at variable rates (although a portion of the outstanding debt is hedged through interest rate swap contracts), with availability reduced by ~~$69~~$70 million of amounts outstanding under letters of credit

~~U.S. Notes (2023) totaling $600 million, maturing in May 2023 and bearing interest at a 4.75% fixed rate~~

•Euro Notes (2024) totaling ~~$545~~$562 million (€500 million), maturing in April 2024 and bearing interest at a 3.875% fixed rate

•Euro Notes (2026/28) totaling $1.1 billion (€1.0 billion), consisting of (i) €750 million maturing in April 2026 and bearing interest at a 3.625% fixed rate, and (ii) €250 million maturing in April 2028 and bearing interest at a 4.125% fixed rate

•Receivables securitization facility with availability up to $110 million (no outstanding balance as of ~~September~~June 30, ~~2019)~~2020), maturing in November 2021 and bearing interest at variable commercial paper rates

As of June 30, 2020, we had approximately $2.1 billion available under our credit facilities. Combined with approximately $476 million of cash and cash equivalents at June 30, 2020, we had approximately $2.5 billion in available liquidity, an increase of $82 million from our available liquidity as of December 31, 2019.

We believe that our current liquidity and cash expected to be generated by operating activities in future periods will be sufficient to meet our current operating and capital requirements. To support our liquidity position during the COVID-19 pandemic, we are focused on preserving cash during the expected period of reduced demand. Our action plan to strengthen our current position includes a deferral of growth driven capital projects, reductions in inventory orders, more active monitoring of customer receivables and terms, income and value added tax deferrals, and suspension of our share buyback program, in addition to the cost saving measures discussed in the "COVID-19 Impact on Our Operations" section above. However, due to the rapidly evolving global situation, it is not possible to predict whether unanticipated consequences of the COVID-19 pandemic are reasonably likely to materially affect our liquidity and capital resources in the future.

With $2.5 billion of total liquidity as of June 30, 2020 and $94 million of current maturities, we have access to funds to meet our near term commitments even if the pandemic effect extends longer than our current expectations. We have a surplus of current assets over current liabilities, which further reduces the risk of short term cash shortfalls.

Our capital preservation plans delivered the desired results as we repaid approximately $552 million in borrowings from free cash flows generated in the second quarter. Our total liquidity increased by $666 million since March 31, 2020, which we believe puts us in a solid position to manage through the pandemic. We expect the cash flow benefits to moderate in the second half of 2020 as we experience cash outflows for income and other taxes that were deferred in the first half of the year, and increase our inventory levels to support the improving revenue trend. However, we expect to be able to operate effectively at a lower inventory balance than at the end of 2019 and to begin to generate benefits to working capital through supply chain financing programs.

Our total liquidity includes availability under our senior secured credit facility, which includes the two financial maintenance covenants presented below (our required debt covenants and our actual ratios with respect to those covenants as calculated per the credit agreement as of June 30, 2020):


	Covenant Level	Ratio Achieved as of June 30, 2020
Maximum net leverage ratio	5.00:1.00	2.2
Minimum interest coverage ratio	3.00:1.00	11.7

The terms net leverage ratio and minimum interest coverage ratio used in the credit agreement are specifically calculated per the credit agreement and differ in specified ways from comparable GAAP or common usage terms.

We amended our senior secured credit facility in June 2020 to increase the maximum net leverage ratio effective with our compliance certificate filed in the second quarter of 2020; refer to "Senior Secured Credit Agreement" in Note 9, "Long-Term Obligations" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information on the June 2020 amendment. We entered into the amendment out of an abundance of caution to reduce the risk of breaching the net leverage covenant if the pandemic had a severe and extended effect on profitability. Our internal models suggested that we would be able to meet our payment obligations during the pandemic, but there was a risk that we might exceed the maximum 4.0x net leverage ratio in the event a severe downside scenario developed. With the amendment and the better than forecasted performance in the second quarter, we believe that we have significantly reduced the risk of a

covenant breach. We were able to reduce our net leverage ratio in the second quarter relative to the first quarter despite the negative impact on profitability caused by COVID-19.

The indentures relating to our Euro Notes do not include financial maintenance covenants, and the indentures will not restrict our ability to draw funds on the credit facility. The indentures do not prohibit amendments to the financial covenants under the credit facility as needed.

In the long term, while we believe that we have adequate capacity under our existing credit facilities, from time to time we may need to raise additional funds through public or private financing, strategic relationships or other arrangements. There can be no assurance that additional funding, or refinancing of our credit facilities, if needed, will be available on terms attractive to us, or at all. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants or higher interest costs. Our failure to raise capital if and when needed could have a material adverse impact on our business, operating results, and financial condition.

From time to time, we may undertake financing transactions to increase our available liquidity, such as (i) our November 2018 amendment to our senior secured credit facility and (ii) the issuance of the Euro Notes (2026/28) in April 2018 related to the Stahlgruber acquisition. Given the long-term nature of our investment in Stahlgruber, combined with favorable interest rates, we decided to fund the acquisition primarily through long-term, fixed rate notes. We believe this approach provides financial flexibility to execute our long-term growth strategy while maintaining availability under our revolver. If we see an attractive acquisition opportunity, we have the ability to use our revolver to move quickly and have certainty of funding up to the amount of our then-available liquidity.

AsBeginning in 2019, a number of ~~September 30, 2019, we had approximately $2.0 billion available~~our European suppliers began participating in supply chain financing programs in select countries under which they may sell their accounts receivable to the participating financial institutions, allowing us to extend payment terms. We expect more suppliers to begin participating in supply chain financing programs in the second half of 2020. Financial institutions participate in the supply chain financing programs on an uncommitted basis and can cease purchasing receivables from our suppliers at any time. These programs are at the sole discretion of both the supplier and the financial institution on terms that are negotiated between them. In the future, if the financial institutions did not continue to purchase receivables from our suppliers under these programs, the participating vendors may have a need to renegotiate their payment terms with us, which in turn could cause our borrowings under our revolving credit ~~facilities. Combined with approximately $433 million of cash and cash equivalents at September 30, 2019, we had approximately $2.5 billion~~facility to increase. All outstanding payments owed under the programs are recorded within Accounts payable in ~~available liquidity, an increase of $449 million over~~ our ~~available liquidity as of December 31, 2018.~~

We believe that our current liquidity and cash expected to be generated by operating activities in future periods will be sufficient to meet our current operating and capital requirements, although such sources may not be sufficient for future acquisitions depending on their size. While we believe that we have adequate capacity, from time to time we may need to raise additional funds through public or private financing, strategic relationships or other arrangements. There can be no assurance that additional funding, or refinancing of our credit facilities, if needed, will be available on terms attractive to us, or at all. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants or higher interest costs. Our failure to raise capital if and when needed could have a material adverse impact on our business, operating results, and financial condition.Unaudited Condensed Consolidated Balance Sheets.

Borrowings under the credit agreement accrue interest at variable rates which are tied to LIBOR or the Canadian Dollar Offered Rate ("CDOR"), depending on the currency and the duration of the borrowing, plus an applicable margin rate ~~which~~that is subject to change quarterly based on our reported leverage ratio. We hold interest rate swaps to hedge the variable rates on a portion of our credit agreement borrowings, with the effect of fixing the interest rates on the respective notional amounts. In addition, we hold cross currency swaps that contain an interest rate swap component and a foreign currency forward contract component that, when combined with related intercompany financing arrangements, effectively convert variable rate U.S. dollar-denominated borrowings into fixed rate euro-denominated borrowings. These derivative transactions are described in Note ~~11,~~10, "Derivative Instruments and Hedging Activities" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. After giving effect to these contracts, the weighted average interest rate on borrowings outstanding under our credit agreement at ~~September~~June 30, ~~2019~~2020 was ~~1.6%~~1.5%. Including our senior notes, ~~and the borrowings under our receivables securitization program,~~ our overall weighted average interest rate on borrowings was ~~3.1%~~2.7% at ~~September~~June 30, ~~2019.~~2020.

After 2021, it is unclear whether banks will continue to provide LIBOR submissions to the administrator of LIBOR, and no consensus currently exists as to what benchmark rate or rates may become accepted alternatives to LIBOR. We cannot currently predict the effect of the discontinuation of, or other changes to, LIBOR, or any establishment of alternative reference rates in the United States, the European Union or elsewhere, on the global capital markets. The uncertainty regarding the future of LIBOR, as well as the transition from LIBOR to any alternative reference rate or rates, could have adverse impacts on our variable rate obligations that currently use LIBOR as a benchmark rate. We are in the process of evaluating our financing obligations and other contracts that refer to LIBOR. Outstanding debt under our Credit Agreement, which constitutes the most significant of our LIBOR-based debt obligations, contains provisions that address the potential discontinuation of LIBOR and facilitate the adoption of an ~~alternate~~alternative rate of interest. We do not believe that the discontinuation of LIBOR, or its replacement with an alternative reference rate or rates, will have a material impact on our results of operations, financial position or liquidity.

Cash interest payments were ~~$87~~$56 million for the ~~nine~~six months ended ~~September~~June 30, ~~2019,~~2020, including ~~$46~~$31 million in semi-annual interest payments on our ~~U.S. Notes (2023),~~ Euro Notes (2024) and Euro Notes (2026/~~28)~~2028). Interest ~~payments on our U.S. Notes (2023) are made in May and November, and interest~~ payments on our Euro Notes (2024) and Euro Notes (2026/28) are made in April and October.

We had outstanding credit agreement borrowings of $1.5 billion and ~~$1.7~~$1.6 billion at ~~September~~June 30, ~~2019~~2020 and December 31, ~~2018,~~2019, respectively. Of these amounts, ~~$15~~$18 million ~~and $9 million were~~was classified as current maturities at ~~September~~both June 30, ~~2019~~2020 and December 31, ~~2018, respectively.~~2019.

The scheduled maturities of long-term obligations, inclusive of finance lease obligations, outstanding at ~~September~~June 30, ~~2019~~2020 are as follows (in thousands):


Six months ending December 31, 2020 ⁽¹⁾:	$	76,152
Years ending December 31:
2021	31,840
2022	28,780
2023	22,671
2024	1,975,701
Thereafter	1,143,309
Total debt ⁽²⁾	$	3,278,453

Three months ending December 31, 2019 ⁽¹⁾:
$ 103,696
Years ending December 31:
2020 34,105
2021 30,443
2022 26,190
2023 621,651
Thereafter 3,080,637
Total debt ⁽²⁾
$ 3,896,722
(1) Maturities of long-term obligations due by December 31, 2020 includes $54 million of short-term debt that may be extended beyond the current due date.


~~(1)~~	~~Maturities of long-term obligations due by December 31, 2019 includes $84 million of short-term debt that may be extended beyond the current due date.~~

(2) The total debt amounts presented above reflect the gross values to be repaid (excluding debt issuance costs of ~~$31~~$28 million as of ~~September~~June 30, ~~2019)~~2020).

Our credit agreement contains customary covenants that provide limitations and conditions on our ability to enter into certain transactions. The credit agreement also contains financial and affirmative covenants, including limitations on our net leverage ratio and a minimum interest coverage ratio. We were in compliance with all restrictive covenants under our credit agreement as of ~~September~~June 30, ~~2019.~~2020.

~~The following summarizes our required debt covenants and our actual ratios with respect to those covenants as calculated per the credit agreement as of September 30, 2019:~~



	~~Covenant Level~~	~~Ratio Achieved as of September 30, 2019~~
~~Maximum net leverage ratio~~	~~4.25:1.00~~	~~2.6~~
~~Minimum interest coverage ratio~~	~~3.00:1.00~~	~~9.9~~

As of ~~September~~June 30, ~~2019,~~2020, the Company had cash and cash equivalents ~~of $433~~of $476 million, of which ~~$256~~$347 million was held by foreign subsidiaries. In general, it is our practice and intention to permanently reinvest the undistributed earnings of our foreign subsidiaries, and that position has not changed following the enactment of the Tax Cuts and Jobs Act of 2017 (the "Tax Act") and the related imposition of the transition tax. Distributions of dividends from our foreign subsidiaries, if any, would be generally exempt from further U.S. taxation, either as a result of the ~~new~~ 100% participation exemption under the Tax Act, or due to the previous taxation of foreign earnings under the transition ~~tax.~~tax and the Global Intangible Low-Taxed Income regime, a regime of taxation on foreign subsidiary earnings. We believe that we have sufficient cash flow and liquidity to meet our financial obligations in the U.S. without repatriating our foreign earnings. We may, from time to time, choose to selectively repatriate foreign earnings if doing so supports our financing or liquidity objectives.

The procurement of inventory is the largest operating use of our funds. We normally pay for aftermarket product purchases on standard payment terms or at the time of shipment, depending on the manufacturer and the negotiated payment terms. We normally pay for salvage vehicles acquired at salvage auctions and under direct procurement arrangements at the time that we take possession of the vehicles.

The following table sets forth a summary of our aftermarket and manufactured inventory procurement for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (in thousands):


	Three Months Ended										Six Months Ended
	June 30,										June 30,
	2020		2019		Change		2020		2019		Change ⁽¹⁾
North America	$	161,300	$	343,300	$	(182,000)	$	490,000	$	679,400	$	(189,400)
Europe	683,400		982,900		(299,500)		1,551,200		1,921,600		(370,400)		⁽²⁾
Specialty	118,900		287,100		(168,200)		426,200		537,700		(111,500)
Total	$	963,600	$	1,613,300	$	(649,700)	$	2,467,400	$	3,138,700	$	(671,300)

Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 Change 2019 2018 Change
North America $ 325,600
$ 333,100
$ (7,500 )
$ 1,005,000
$ 1,054,900
$ (49,900 )
⁽¹⁾
Europe 1,009,700
1,096,800
(87,100 )
2,931,300
2,591,000
340,300
⁽²⁾
Specialty 288,100
271,400
16,700

825,800
842,000
(16,200 )
⁽³⁾
Total $ 1,623,400
$ 1,701,300
$ (77,900 ) $ 4,762,100
$ 4,487,900
$ 274,200

(1)Inventory purchases across all segments have decreased due to a slowdown in inventory purchases beginning in March 2020 as a response to the COVID-19 pandemic.


~~(1)~~	~~In North America, aftermarket purchases during the nine months ended September 30, 2019 decreased compared to the prior year period primarily as a result of an increased focus on inventory reduction.~~

~~(2)~~

In our Europe segment, the increase in purchases during the nine months ended September 30, 2019 was primarily driven by (i) a $588 million increase attributable to incremental inventory purchases as a result of our acquisition of Stahlgruber in the second quarter of 2018, partially offset by (ii) a $32 million decrease attributable to our continental European operations and a $61 million decrease attributable to our U.K. operations primarily due to inventory reduction efforts. There was also a decrease of $146 million in inventory purchases attributable to the decrease in the value of the euro and pound sterling in the nine months ended September 30, 2019 compared to the prior year period.


~~(3)~~	Specialty inventory purchases decreased $16 million during the nine months ended September 30, 2019 compared to the prior year period primarily as a result of an increased focus on inventory reduction.

(2)Europe inventory purchases were affected by a decrease of $47 million attributable to the decrease in the value of the euro, and to a lesser extent, the pound sterling, in the six months ended June 30, 2020 compared to the prior year period.

The following table sets forth a summary of our global wholesale salvage and self service procurement for the three and ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and ~~2018~~2019 (in thousands):


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2020	2019	% Change		2020	2019	% Change
North America wholesale salvage cars and trucks	36	78	(53.8)	%	108	152	(28.9)	%
Europe wholesale salvage cars and trucks	5	6	(16.7)	%	12	14	(14.3)	%
Self service and "crush only" cars	137	165	(17.0)	%	286	304	(5.9)	%

Three Months Ended Nine Months Ended
September 30, September 30,
2019 2018 % Change 2019 2018 % Change
North America wholesale salvage cars and trucks 78
73
6.8 % 230
229
0.4 %
Europe wholesale salvage cars and trucks 5
6
(16.7 )% 19
21
(9.5 )%
Self service and "crush only" cars 151
136
11.0 % 455
427
6.6 %
Salvage purchases decreased relative to the prior year as we reduced buying to reflect lower demand during the COVID-19 pandemic. Purchasing began to increase as the quarter progressed and revenue increased. Self service car purchases declined due to supply constraints as certain outlets, such as city impound lots, were unavailable for a portion of the quarter and individuals held onto cars longer during the lockdown measures. Purchases increased towards the end of June, and buying conditions are expected to be better in the second half of the year.

The following table summarizes the components of the year-over-year increase in cash provided by operating activities (in millions):

Net cash provided by operating activities for the nine months ended September 30, 2018 $ 521

(Decrease) increase due to:

Operating income (28 )
⁽¹⁾
Non-cash depreciation and amortization expense 19
⁽²⁾
Impairment of net assets held for sale 45
⁽³⁾
Cash paid for taxes 24

Cash paid for interest (12 )
Working capital accounts: ⁽⁴⁾

Accounts receivable (31 )
Inventory 219

Accounts payable 163

Other operating activities 45
⁽⁵⁾
Net cash provided by operating activities for the nine months ended September 30, 2019 $ 965


~~(1)~~Net cash provided by operating activities for the six months ended June 30, 2019			~~Refer to the Results of Operations - Consolidated section for further information on the decrease in operating income.~~$	638

(Decrease) increase due to:
~~(2)~~Operating income	(36)	⁽¹⁾
Non-cash depreciation and amortization expense ~~increased compared to the prior year period as discussed in the Results of Operations - Consolidated section.~~

	(8)
~~(3)~~		~~In the first nine months~~Loss on disposal of ~~2019, we recorded~~businesses and impairment ~~charges on~~of net assets held for ~~sale. See "Net Assets Held~~sale	(46)		⁽²⁾
Cash paid for ~~Sale" in Note 4, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q~~taxes		64		⁽³⁾
Cash paid for ~~further information on the net impairment charges.~~interest

19
Working capital accounts: ⁽⁴⁾	~~Cash flows related to our primary working capital accounts can be volatile as~~
Receivables, net	144
Inventories	314
Accounts payable	(269)
Other operating activities	93		⁽⁵⁾
Net cash provided by operating activities for the ~~purchases, payments and collections can be timed differently from period to period.~~six months ended June 30, 2020	$	913

~~Inventory represented an incremental $219 million~~(1) Refer to the Results of Operations - Consolidated section for further information on the decrease in ~~cash inflows~~operating income.

(2) Refer to "Net Assets Held for Sale" in ~~2019~~Note 3, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information on the net impairment activity recorded in the six months ended June 30, 2020 and June 30, 2019.

(3) Refer to "Government Assistance" in Note 3, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information on the deferral of certain income, indirect and payroll tax payments in various jurisdictions as a result of ~~deliberate inventory reduction efforts~~the CARES Act and other government programs.

(4) Cash flows related to our primary working capital accounts can be volatile as the purchases, payments and collections can be timed differently from period to period.

Receivables, net was a $144 million greater inflow in ~~all three segments~~2020 primarily due to ~~reflect organic revenue conditions, as disclosed~~greater cash conversion of accounts receivable balances in the ~~procurement section above.~~first half of 2020 in the Europe segment (of $88 million) and the North America segment (of $79 million) and the lower revenues due to the COVID-19 pandemic.

Inventories represented $314 million in incremental cash inflows in the first half of 2020 as a result of inventory decreases in the (i) North America segment of $129 million, (ii) Specialty segment of $122 million and (iii) Europe Segment of $63 million, due to a slowdown in inventory purchases starting in March 2020 due to the COVID-19 pandemic.

Accounts payable produced ~~an incremental $163~~$269 million in higher cash ~~flows~~outflows primarily due to ~~timing effects related to our May 30, 2018 acquisition of Stahlgruber. Additionally, we increased~~lower accounts payable ~~through extension of vendor terms~~balances in the North ~~America.~~

~~Accounts receivable was~~America segment (of $189 million) and the Europe segment (of $69 million) compared to the prior year period, as a ~~$31 million greater outflow in 2019, primarily attributable to timing effects from the Stahlgruber acquisition, and also to a lesser extent, the unwind~~result of a ~~receivables factoring program at Stahlgruber.~~ slowdown in inventory purchases starting in March 2020 due to the COVID-19 pandemic.


~~(5)~~	~~Reflects a number of individually insignificant fluctuations in cash paid for other operating activities.~~

(5) Cash flows from other operating activities increased $84 million as a result of value added tax payables due to government assistance programs to defer payments into the second half of 2020 and into 2021. The remaining amount reflects a number of individually insignificant fluctuations in cash paid for other operating activities.

Net cash used in investing activities totaled ~~$160~~$76 million and $117 million for the ~~nine~~six months ended ~~September~~June 30, 2020 and 2019, ~~compared to $1.4 billion of cash used in investing activities during the nine months ended September 30, 2018.~~respectively. We invested ~~$15~~$5 million of cash, net of cash acquired, in business acquisitions during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 compared to ~~$1.2 billion~~$15 million during the ~~nine~~six months ended ~~September~~June 30, ~~2018, primarily related to the Stahlgruber acquisition.~~2019. Property, plant and

equipment purchases were ~~$166~~$77 million in the first ~~nine months~~half of ~~2019~~2020 compared to ~~$172~~$101 million in the prior year period. The period over period decrease in cash outflows for purchases of property, plant and equipment was due to ~~decreases in our Specialty and North America segments.~~decreased capital spending across the business as a result of the COVID-19 pandemic. We received ~~$20~~$5 million of net proceeds from divestitures of ~~assets~~businesses held for sale during the ~~nine~~six months ended ~~September~~June 30, ~~2019;~~2020; there were no ~~such~~ proceeds ~~were received in 2018.~~from divestitures of businesses held for sale during the six months ended June 30, 2019.

The following table reconciles Net Cash Provided by Operating Activities to Free Cash Flow (in thousands):


	Six Months Ended
	June 30,
	2020		2019
Net cash provided by operating activities	$	913,052	$	638,404
Less: purchases of property, plant and equipment	77,301		101,268
Free cash flow	$	835,751	$	537,136

Net cash used in financing activities totaled ~~$690~~$890 million and $472 million for the ~~nine~~six months ended ~~September~~June 30, 2020 and 2019, respectively. During the six months ended June 30, 2020, net repayments of our borrowings totaled $782 million compared to ~~$1.0 billion provided by financing activities~~$281 million during the ~~nine~~six months ended ~~September~~June 30, ~~2018. We received $1.2 billion from~~2019. The period over period increase in net repayments of our ~~issuance~~borrowings includes the $600 million repayment of ~~the Euro~~our U.S. Notes ~~(2026/2028) during the nine months ended September 30, 2019; no such proceeds were received~~(2023) in ~~the current year.~~January 2020. We repurchased ~~$292~~$88 million of our common stock in the ~~first nine~~six months ~~of 2019; we did not repurchase any shares~~ended June 30, 2020, compared to $191 million in the ~~comparable period of 2018. During the nine~~six months ended ~~September~~June 30, ~~2019, net repayments of~~2019.

Although our ~~borrowings totaled $391 million compared~~efforts are currently scaled back due to ~~$238 million during the nine months ended September 30, 2018.~~

Wethe COVID-19 pandemic, we intend to continue to evaluate markets for potential growth through the internal development of distribution centers, processing and sales facilities, and warehouses, through further integration of our facilities, and through selected business acquisitions. Our future liquidity and capital requirements will depend upon numerous factors, including the costs and timing of our internal development efforts and the success of those efforts, the costs and timing of expansion of our sales and marketing activities, and the costs and timing of future business acquisitions.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks arising from adverse changes in:

•foreign exchange rates;

•interest rates; and

•commodity prices.

Foreign Exchange Rates

Foreign currency fluctuations may impact the financial results we report for the portions of our business that operate in functional currencies other than the U.S. dollar. Our operations outside of the U.S. represented ~~50.1%~~49.1% and ~~47.9%~~50.3% of our revenue during the ~~nine~~six months ended ~~September~~June 30, ~~2019~~2020 and the year ended December 31, ~~2018,~~2019, respectively. An increase or decrease in the strength of the U.S. dollar against these currencies by 10% would result in a ~~5.0%~~4.9% change in our consolidated revenue and a ~~3.0%~~2.2% change in our operating income for the ~~nine~~six months ended ~~September~~June 30, ~~2019.~~2020. See our Results of Operations discussion in Part I, Item 2 of this Quarterly Report on Form 10-Q for additional information regarding the impact of fluctuations in exchange rates on our year over year results.

Additionally, we are exposed to foreign currency fluctuations with respect to the purchase of aftermarket products from foreign countries, primarily in Europe and Asia. To the extent that our inventory purchases are not denominated in the

functional currency of the purchasing location, we are exposed to exchange rate fluctuations. In several of our operations, we purchase inventory from manufacturers in Taiwan in U.S. dollars, which exposes us to fluctuations in the relationship between the local functional currency and the U.S. dollar, as well as fluctuations between the U.S. dollar and the Taiwan dollar. We hedge our exposure to foreign currency fluctuations related to a portion of inventory purchases in our Europe operations, but the notional amount and fair value of these foreign currency forward contracts at ~~September~~June 30, ~~2019~~2020 were immaterial. We do not currently attempt to hedge foreign currency exposure related to our foreign currency denominated inventory purchases in our North America operations, and we may not be able to pass on any resulting price increases to our customers.

Other than with respect to a portion of our foreign currency denominated inventory purchases, we do not hold derivative contracts to hedge foreign currency risk. Our net investment in foreign operations is partially hedged by the foreign currency denominated borrowings we use to fund foreign acquisitions; however, our ability to use foreign currency denominated borrowings to finance our foreign operations may be limited based on local tax laws. We have elected not to hedge the foreign currency risk related to the interest payments on foreign borrowings as we generate cash flows in the local currencies that can be used to fund debt payments. As of ~~September~~June 30, 2020, we had outstanding borrowings of €500 million under our Euro Notes (2024), €1.0 billion under our Euro Notes (2026/28), and £133 million, €184 million, CAD $130 million, and SEK 265 million under our revolving credit facilities. As of December 31, 2019, we had outstanding borrowings of €500 million under our Euro Notes (2024), €1.0 billion under our Euro Notes (2026/28), and ~~£171~~£208 million, ~~€101~~€229 million, CAD $130 million, and SEK 270 million under our revolving credit facilities. As of December 31, 2018, we had outstanding borrowings of €500 million under our Euro Notes (2024), €1.0 billion under our Euro Notes (2026/28), and £290 million, €163 million, CAD $130 million, and SEK 275 million under our revolving credit facilities.

Interest Rates

Our results of operations are exposed to changes in interest rates primarily with respect to borrowings under our credit facilities, where interest rates are tied to the prime rate, LIBOR or CDOR. Therefore, we implemented a policy to manage our exposure to variable interest rates on a portion of our outstanding variable rate debt instruments through the use of interest rate swap contracts. These contracts convert a portion of our variable rate debt to fixed rate debt, matching the currency, effective dates and maturity dates to specific debt instruments. Net interest payments or receipts from interest rate swap contracts are included as adjustments to interest expense. All of our interest rate swap contracts have been executed with banks that we believe are creditworthy (Wells Fargo Bank, N.A.; Bank of America, N.A.; Citizens, N.A.; HSBC Bank USA, N.A.; and Banco Bilbao Vizcaya Argentaria, S.A.).

As of ~~September~~June 30, ~~2019,~~2020, we held eight interest rate swap contracts representing a total of $480 million of U.S. dollar-denominated notional amount debt. Our interest rate swap contracts are designated as cash flow hedges and modify the variable rate nature of that portion of our variable rate debt. These swaps have maturity dates ~~ranging from~~in January 2021 ~~through~~and June 2021. As of ~~September~~June 30, ~~2019,~~2020, the fair value of the interest rate swap contracts was ~~an asset~~a liability of $4$3 million. The values of such contracts are subject to changes in interest rates.

In addition to these interest rate swaps, as of ~~September~~June 30, ~~2019~~2020, we held ~~five~~four cross currency swap agreements for a total notional amount of ~~$562~~$459 million (€~~519~~428 million) with maturity dates in ~~October 2019,~~ October 2020 and January 2021. These cross currency swaps contain an interest rate swap component and a foreign currency forward contract component that, combined with related intercompany financing arrangements, effectively convert variable rate U.S. dollar-denominated borrowings into fixed rate euro-denominated borrowings. The swaps are intended to reduce uncertainty in cash flows in U.S. dollars and euros in connection with intercompany financing arrangements. The cross currency swaps were also executed with banks we believe are creditworthy (Wells Fargo Bank, N.A.; Bank of America, N.A.; ~~MUFG;~~ and ~~SunTrust Bank)~~MUFG). As of ~~September~~June 30, ~~2019,~~2020, the fair value of the interest rate swap components of the cross currency swaps was ~~an asset of an immaterial amount and~~ a liability of $1$4 million, and the fair ~~value~~values of the foreign currency forward components ~~was~~were an asset of ~~$10~~$3 million and a liability of ~~$13~~$21 million. The values of these contracts are subject to changes in interest rates and foreign currency exchange rates.

In total, we had ~~70%~~64% of our variable rate debt under our credit facilities at fixed rates at ~~September~~June 30, ~~2019~~2020 compared to ~~57%~~59% at December 31, ~~2018.~~2019. See Note ~~10,~~9, "Long-Term Obligations" and Note ~~11,~~10, "Derivative Instruments and Hedging Activities" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

At ~~September~~June 30, ~~2019,~~2020, we had approximately ~~$447~~$533 million of variable rate debt that was not hedged. Using sensitivity analysis, a 100 basis point movement in interest rates would change interest expense by $4$5 million over the next twelve months.

Commodity Prices

We are exposed to market risk related to price fluctuations in scrap metal and other ~~metals.~~metals (including precious metals such as platinum, palladium and rhodium). Market prices of these metals affect the amount that we pay for our inventory and the revenue that we generate from sales of these metals. As both our revenue and costs are affected by the price fluctuations, we have a natural hedge against the changes. However, there is typically a lag between the effect on our revenue from metal price fluctuations and inventory cost changes, and there is no guarantee that the vehicle costs will decrease or increase at the same rate as the metals prices. Therefore, we can experience positive or negative gross margin effects in periods of rising or falling

metals prices, particularly when such prices move rapidly. Additionally, if market prices were to change at a greater rate than our vehicle acquisition costs, we could experience a positive or negative effect on our operating margin. The average of scrap metal prices for the three months ended ~~September~~June 30, ~~2019 has~~2020 decreased ~~14%~~16% over the average for the ~~second~~first quarter of ~~2019.~~2020.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of ~~September~~June 30, ~~2019,~~2020, the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of LKQ Corporation's management, including our Chief Executive Officer and our Chief Financial Officer, of our "disclosure controls and procedures" (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective in providing reasonable assurance that information we are required to disclose in this Quarterly Report on Form 10-Q has been recorded, processed, summarized and reported as of the end of the period covered by this Quarterly Report on Form 10-Q. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file under the Securities Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended ~~September~~June 30, ~~2019~~2020 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

On June 2, 2020, we received a notice from the U.S. Environmental Protection Agency ("EPA") regarding alleged violations associated with our NPDES stormwater permit at certain of our facilities in Massachusetts. We are in negotiations with the EPA to resolve this matter, which may involve the payment of a civil penalty. Any penalty that is likely to be imposed is not expected to have a material effect on our financial position, results of operations or cash flows.

In addition, we are from time to time subject to various claims and lawsuits incidental to our business. In the opinion of management, currently outstanding claims and suits will not, individually or in the aggregate, have a material adverse effect on our financial position, results of operations or cash flows.

Item 1A. Risk Factors

Our operations and financial results are subject to various risks and uncertainties that could adversely affect our business, financial condition and results of operations, and the trading price of our common stock. Please refer to our ~~2018~~2019 Form 10-K, and our Quarterly Report on Form 10-Q for the three months ended March 31, 2020 filed with the SEC on May 7, 2020, for information concerning risks and uncertainties that could negatively impact us. ~~The following represents changes and/or additions to the risks and uncertainties previously disclosed in the 2018 Form 10-K.~~

~~Intellectual property claims relating to aftermarket products could adversely affect our business~~.

OEMs and others have attempted to use claims of intellectual property infringement against manufacturers and distributors of aftermarket products to restrict or eliminate the sale of aftermarket products that are the subject of the claims. OEMs have brought such claims in federal court and with the U.S. International Trade Commission. In some cases, we have entered into patent license agreements with OEMs that allow us to sell aftermarket parts that replicate the patented parts in exchange for a royalty and otherwise in accordance with the terms of the agreements.

To the extent OEMs and other manufacturers obtain design patents or trademarks and are successful in asserting claims of infringement of these patents or trademarks against us, we could be restricted or prohibited from selling certain aftermarket products, which could have an adverse effect on our business. In the event that our license agreements, or other similar license arrangements with OEMs or others, are terminated or we are unable to agree upon renewal terms, we may be subject to costs and uncertainties of litigation as well as restrictions on our ability to sell aftermarket parts that replicate parts covered by those design patents or trademarks.We have filed, and may file in the future, challenges to OEM patents. To the extent OEMs are successful in defending their patents, we could be restricted or prohibited from selling the corresponding aftermarket products, which could have an adverse effect on our business. Also, we will likely incur expenses investigating, pursuing and defending intellectual property claims.

U.S. Customs and Border Protection has taken the position that certain of our aftermarket parts infringe certain OEM trademarks and seized our aftermarket parts as we attempted to import them into the U.S. We incur costs and expenses attempting to convince Customs and Border Protection to release the seized goods and in litigation where we are seeking a determination of non-infringement. In the event we are unsuccessful in obtaining their release, such goods may be subject to forfeiture and other penalties.

Aftermarket products certifying organizations may revoke the certification of parts that are the subject of the intellectual property disputes. Lack of certification may negatively impact us because many major insurance companies recommend or require the use of aftermarket products only if they have been certified by an independent certifying organization.

~~Item 2. Unregistered Sales of Equity Securities and Use of Proceeds~~

~~Issuer Purchases of Equity Securities~~

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.

~~The following table summarizes our stock repurchases for the three months ended September 30, 2019 (in thousands, except per share data):~~

Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2019 - July 31, 2019 2,175
$ 26.44
2,175
$ 191,736
August 1, 2019 - August 31, 2019 1,706
$ 25.53
1,706
$ 148,187
September 1, 2019 - September 30, 2019 —
$ —
—
$ 148,187
Total 3,881
3,881

Item 6. Exhibits

Exhibits

(b) Exhibits



~~31.1~~4.1			Amendment No. 4 dated as of June 11, 2020 to the Fourth Amended and Restated Credit Agreement, which is Exhibit A to the Amendment and Restatement Agreement dated as of January 29, 2016 by and among LKQ Corporation and certain additional subsidiaries of LKQ Corporation, as borrowers, certain financial institutions, as lenders, and Wells Fargo Bank, National Association, as administrative agent (incorporated herein by reference to Exhibit 4.1 to the Company's report on Form 8-K filed with the SEC on June 16, 2020).
10.1			Services Agreement dated as of June 1, 2020 between LKQ Europe GmbH, an indirect wholly-owned subsidiary of LKQ Corporation, and Arnd Franz.
31.1			Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2			Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1			Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2			Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS			Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH			Inline XBRL Taxonomy Extension Schema Document
101.CAL			Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF			Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB			Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE			Inline XBRL Taxonomy Extension Presentation Linkbase Document
104			Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on ~~November 5, 2019.~~August 4, 2020.


			LKQ CORPORATION

			~~LKQ CORPORATION~~

	/s/ Varun Laroyia
			Varun Laroyia
			Executive Vice President and Chief Financial Officer
			(As duly authorized officer and Principal Financial Officer)

			/s/ Michael S. Clark
			Michael S. Clark
			Vice President - Finance and Controller
			(As duly authorized officer and Principal Accounting Officer)

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidated Balance Sheets (In thousands, except share and per share data)

	September 30,			December 31,
	2019			2018
Assets
Current assets:
Cash and cash equivalents	$	433,391		$	331,761
Receivables, net	1,223,197			1,154,083
Inventories	2,582,188			2,836,075
Prepaid expenses and other current assets	245,082			199,030
Total current assets	4,483,858			4,520,949
Property, plant and equipment, net	1,184,188			1,220,162
Operating lease assets, net	1,303,260			—
Intangible assets:
Goodwill	4,309,822			4,381,458
Other intangibles, net	837,272			928,752
Equity method investments	144,009			179,169
Other noncurrent assets	149,281			162,912
Total assets	$	12,411,690		$	11,393,402
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	997,874		$	942,398
Accrued expenses:
Accrued payroll-related liabilities	162,152			172,005
Refund liability	100,327			104,585
Other accrued expenses	326,634			288,425
Other current liabilities	113,349			61,109
Current portion of operating lease liabilities	225,572			—
Current portion of long-term obligations	128,143			121,826
Total current liabilities	2,054,051			1,690,348
Long-term operating lease liabilities, excluding current portion	1,129,423			—
Long-term obligations, excluding current portion	3,737,112			4,188,674
Deferred income taxes	296,199			311,434
Other noncurrent liabilities	322,205			364,194
Commitments and contingencies
Stockholders' equity:
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 319,598,334 shares issued and 306,402,419 shares outstanding at September 30, 2019; 318,417,821 shares issued and 316,146,114 shares outstanding at December 31, 2018	3,196			3,184
Additional paid-in capital	1,427,382			1,415,188
Retained earnings	3,999,748			3,598,876
Accumulated other comprehensive loss	(260,746		)	(174,950		)
Treasury stock, at cost; 13,195,915 shares at September 30, 2019 and 2,271,707 shares at December 31, 2018	(351,813		)	(60,000		)
Total Company stockholders' equity	4,817,767			4,782,298
Noncontrolling interest	54,933			56,454
Total stockholders' equity	4,872,700			4,838,752
Total liabilities and stockholders' equity	$	12,411,690		$	11,393,402

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Cash Flows (In thousands)

Notes issued in connection with purchase of noncontrolling interest	14,196	—
Contingent consideration liabilities	5,377	3,107



	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



Balance as of December 31, 2018	$	23,262
Warranty expense	43,883
Warranty claims	(39,969		)
Balance as of September 30, 2019	$	27,176



Balance as of January 1, 2019	$	24,006
Additional warranty revenue deferred	32,118
Warranty revenue recognized	(29,469		)
Balance as of September 30, 2019	$	26,655



	Notional Amount		Fair Value at December 31, 2018 (USD)
	December 31, 2018		Other Current Assets		Other Noncurrent Assets		Other Accrued Expenses		Other Noncurrent Liabilities
Interest rate swap agreements
USD denominated	$	480,000	$	—	$	14,967	$	—	$	—
Cross currency swap agreements
USD/euro	$	574,315	211		7,669		127		40,870
Total cash flow hedges			$	211	$	22,636	$	127	$	40,870



	Balance as of September 30, 2019		Fair Value Measurements as of September 30, 2019
	Balance as of September 30, 2019		Level 1		Level 2		Level 3
Assets:
Cash surrender value of life insurance	$	56,278	$	—	$	56,278	$	—
Interest rate swaps	3,634		—		3,634		—
Cross currency swap agreements	10,444		—		10,444		—
Total Assets	$	70,356	$	—	$	70,356	$	—
Liabilities:
Contingent consideration liabilities	$	9,873	$	—	$	—	$	9,873
Deferred compensation liabilities	59,846		—		59,846		—
Cross currency swap agreements	14,597		—		14,597		—
Total Liabilities	$	84,316	$	—	$	74,443	$	9,873



		Three Months Ended			Nine Months Ended
Lease Cost	Classification	September 30, 2019			September 30, 2019

Operating lease cost	Cost of goods sold	$	7,265		$	16,977
Operating lease cost	Selling, general and administrative expenses	75,371			225,794
Short-term lease cost	Selling, general and administrative expenses	3,006			7,472
Variable lease cost	Selling, general and administrative expenses	20,521			71,711
Finance lease cost
Amortization of leased assets	Depreciation and amortization	2,675			7,897
Interest on lease liabilities	Interest expense, net of interest income	413			1,266
Sublease income	Other income, net	(782		)	(1,208		)
Net lease cost		$	108,469		$	329,909



Years ending December 31:
2019	$	294,269
2020	256,172
2021	210,632
2022	158,763
2023	131,518
Thereafter	777,165
Future Minimum Lease Payments	$	1,828,519



	Operating leases		Finance leases ⁽¹⁾		Total
Three months ending December 31, 2019	$	76,438	$	2,904	$	79,342
Years ending December 31:
2020	283,138		10,528		293,666
2021	242,333		9,105		251,438
2022	192,731		6,731		199,462
2023	160,862		2,940		163,802
2024	132,269		2,615		134,884
Thereafter	758,111		15,657		773,768
Future minimum lease payments	1,845,882		50,480		1,896,362
Less: Interest	490,887		11,367		502,254
Present value of lease liabilities	$	1,354,995	$	39,113	$	1,394,108



	Nine Months Ended
Supplemental cash flows information (in thousands)	September 30, 2019

Cash paid for amounts included in the measurement of lease liabilities
Operating cash outflows from operating leases	$	222,798
Financing cash outflows from finance leases	8,521
Leased assets obtained in exchange for new finance lease liabilities	9,639
Leased assets obtained in exchange for new operating lease liabilities	126,336

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidating Statements of Income (In thousands)

	For the Three Months Ended September 30, 2019
	Parent			Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenue	$	—		$	1,593,983		$	1,593,245		$	(39,455	)	$	3,147,773
Cost of goods sold	—			954,366			1,032,533			(39,455		)	1,947,444
Gross margin	—			639,617			560,712			—			1,200,329
Selling, general and administrative expenses	15,015			442,554			434,555			—			892,124
Restructuring and acquisition related expenses	—			426			8,503			—			8,929
Impairment of net assets held for sale	—			(2,339		)	(1,262		)	—			(3,601		)
Depreciation and amortization	285			25,893			45,335			—			71,513
Operating (loss) income	(15,300		)	173,083			73,581			—			231,364
Other expense (income):
Interest expense, net of interest income	12,895			(166		)	19,247			—			31,976
Intercompany interest (income) expense, net	(14,899		)	7,923			6,976			—			—
Other income, net	(929		)	(4,645		)	(365		)	—			(5,939		)
Total other (income) expense, net	(2,933		)	3,112			25,858			—			26,037
(Loss) income from continuing operations before (benefit) provision for income taxes	(12,367		)	169,971			47,723			—			205,327
(Benefit) provision for income taxes	(2,268		)	42,515			17,500			—			57,747
Equity in earnings of unconsolidated subsidiaries	—			393			3,839			—			4,232
Equity in earnings of subsidiaries	161,581			4,098			—			(165,679		)	—
Income from continuing operations	151,482			131,947			34,062			(165,679		)	151,812
Net income from discontinued operations	781			—			781			(781		)	781
Net income	152,263			131,947			34,843			(166,460		)	152,593
Less: net loss attributable to continuing noncontrolling interest	—			—			(46		)	—			(46		)
Less: net income attributable to discontinued noncontrolling interest	—			—			376			—			376
Net income attributable to LKQ stockholders	$	152,263		$	131,947		$	34,513		$	(166,460	)	$	152,263

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidating Statements of Income (In thousands)

	For the Nine Months Ended September 30, 2019
	Parent			Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenue	$	—		$	4,774,588		$	4,836,439		$	(114,778	)	$	9,496,249
Cost of goods sold	—			2,850,011			3,105,236			(114,778		)	5,840,469
Gross margin	—			1,924,577			1,731,203			—			3,655,780
Selling, general and administrative expenses	36,744			1,301,827			1,348,453			—			2,687,024
Restructuring and acquisition related expenses	—			5,063			15,550			—			20,613
Impairment of net assets held for sale	—			39,355			5,564			—			44,919
Depreciation and amortization	377			76,142			136,830			—			213,349
Operating (loss) income	(37,121		)	502,190			224,806			—			689,875
Other expense (income):
Interest expense, net of interest income	39,517			(285		)	64,717			—			103,949
Intercompany interest (income) expense, net	(44,748		)	25,583			19,165			—			—
Other (income) expense, net	(914		)	(16,818		)	2,209			—			(15,523		)
Total other (income) expense, net	(6,145		)	8,480			86,091			—			88,426
(Loss) income from continuing operations before (benefit) provision for income taxes	(30,976		)	493,710			138,715			—			601,449
(Benefit) provision for income taxes	(7,306		)	128,936			43,492			—			165,122
Equity in earnings (losses) of unconsolidated subsidiaries	—			871			(34,616		)	—			(33,745		)
Equity in earnings of subsidiaries	423,363			13,210			—			(436,573		)	—
Income from continuing operations	399,693			378,855			60,607			(436,573		)	402,582
Net income from discontinued operations	1,179			—			1,179			(1,179		)	1,179
Net income	400,872			378,855			61,786			(437,752		)	403,761
Less: net income attributable to continuing noncontrolling interest	—			—			2,321			—			2,321
Less: net income attributable to discontinued noncontrolling interest	—			—			568			—			568
Net income attributable to LKQ stockholders	$	400,872		$	378,855		$	58,897		$	(437,752	)	$	400,872



Other expense, net for the three months ended September 30, 2018	$	33,901
(Decrease) increase due to:
Interest expense, net of interest income	(8,884		)	⁽¹⁾
Other income, net	1,020			⁽²⁾
Net decrease	(7,864		)
Other expense, net for the three months ended September 30, 2019	$	26,037



Other expense, net for the nine months ended September 30, 2018	$	98,233
Decrease due to:
Interest expense, net of interest income	(3,698		)	⁽¹⁾
Other income, net	(6,109		)	⁽²⁾
Net decrease	(9,807		)
Other expense, net for the nine months ended September 30, 2019	$	88,426



	Three Months Ended September 30,										Nine Months Ended September 30,
	2019			% of Total Segment Revenue		2018			% of Total Segment Revenue		2019			% of Total Segment Revenue		2018			% of Total Segment Revenue
Third Party Revenue
North America	$	1,302,086				$	1,262,657				$	3,925,962				$	3,927,282
Europe	1,451,483					1,470,856					4,413,264					3,795,439
Specialty	394,204					388,865					1,157,023					1,151,172
Total third party revenue	$	3,147,773				$	3,122,378				$	9,496,249				$	8,873,893
Total Revenue
North America	$	1,302,147				$	1,262,799				$	3,926,222				$	3,927,808
Europe	1,451,483					1,470,856					4,413,264					3,795,439
Specialty	395,314					390,061					1,160,687					1,154,726
Eliminations	(1,171		)			(1,338		)			(3,924		)			(4,080		)
Total revenue	$	3,147,773				$	3,122,378				$	9,496,249				$	8,873,893
Segment EBITDA
North America	$	166,310		12.8	%	$	154,049		12.2	%	$	532,994		13.6	%	$	506,772		12.9	%
Europe	124,712			8.6	%	129,358			8.8	%	346,291			7.8	%	315,785			8.3	%
Specialty	45,464			11.5	%	42,937			11.0	%	135,790			11.7	%	140,974			12.2	%



	Nine Months Ended September 30,				Percentage Change in Revenue
North America	2019		2018		Organic				Acquisition ⁽³⁾		Foreign Exchange		Total Change
Parts & services revenue	$	3,466,582	$	3,447,074	0.4	%	⁽¹	⁾	0.4	%	(0.2	)%	0.6	%
Other revenue	459,380		480,208		(5.0	)%	⁽²	⁾	0.7	%	(0.1	)%	(4.3	)%
Total third party revenue	$	3,925,962	$	3,927,282	(0.3	)%			0.5	%	(0.2	)%	(0.0	)%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.



North America	Percentage of Total Segment Revenue
Segment EBITDA for the nine months ended September 30, 2018	12.9	%
Increase (decrease) due to:
Change in gross margin	1.0	%	(1)
Change in segment operating expenses	(0.5	)%	(2)
Change in other expense, net and net income attributable to continuing noncontrolling interest	0.2	%	(3)
Segment EBITDA for the nine months ended September 30, 2019	13.6	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.



Three months ending December 31, 2019 ⁽¹⁾:	$	103,696
Years ending December 31:
2020	34,105
2021	30,443
2022	26,190
2023	621,651
Thereafter	3,080,637
Total debt ⁽²⁾	$	3,896,722



Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
July 1, 2019 - July 31, 2019	2,175	$	26.44	2,175	$	191,736
August 1, 2019 - August 31, 2019	1,706	$	25.53	1,706	$	148,187
September 1, 2019 - September 30, 2019	—	$	—	—	$	148,187
Total	3,881			3,881