false2021Q10001065696--12-310.010.011,000,000,0001,000,000,000321,170,573320,867,602302,370,072303,553,00018,800,50117,314,602183.43.31.11.23.53.5181.2

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 30, 2020~~March 31, 2021


☐			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.)

500 West Madison Street,

Suite 2800

Chicago,

Illinois

60661

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (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	☐
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 29, 2020~~,April 30, 2021, the registrant had outstanding an aggregate of ~~304,345,280~~302,159,885 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					Three Months Ended
		September 30,				September 30,					March 31,
		2020		2019		2020		2019			2021		2020
Revenue	Revenue	$	3,047,684	$	3,147,773	$	8,674,942	$	9,496,249	Revenue	$	3,170,786	$	3,000,935
Cost of goods sold	Cost of goods sold	1,849,142		1,947,444		5,251,520		5,840,469		Cost of goods sold	1,877,072		1,787,059

Gross margin	Gross margin	1,198,542		1,200,329		3,423,422		3,655,780		Gross margin	1,293,714		1,213,876
Selling, general and administrative expenses	Selling, general and administrative expenses	813,893		892,124		2,451,073		2,687,024		Selling, general and administrative expenses	848,565		899,811
Restructuring and acquisition related expenses	Restructuring and acquisition related expenses	20,495		8,929		52,415		20,613		Restructuring and acquisition related expenses	7,885		6,970
(Gain) loss on disposal of businesses and impairment of net assets held for sale		(503)		(3,601)		1,733		44,919
Impairment of net assets held for sale and (gain on disposal of business)										Impairment of net assets held for sale and (gain on disposal of business)	15		(249)
Depreciation and amortization	Depreciation and amortization	68,655		71,513		199,897		213,349		Depreciation and amortization	65,801		65,495

Operating income	Operating income	296,002		231,364		718,304		689,875		Operating income	371,448		241,849
Other expense (income):	Other expense (income):									Other expense (income):
Interest expense, net of interest income	Interest expense, net of interest income	25,182		32,104		76,729		104,077		Interest expense, net of interest income	24,179		25,931
(Gain) loss on debt extinguishment		0		(128)		12,751		(128)
Other expense (income), net		2,492		(5,939)		(9,304)		(15,523)
Loss on debt extinguishment										Loss on debt extinguishment	0		12,751
Other income, net										Other income, net	(6,213)		(3,622)
Total other expense, net	Total other expense, net	27,674		26,037		80,176		88,426		Total other expense, net	17,966		35,060
Income from continuing operations before provision for income taxes	Income from continuing operations before provision for income taxes	268,328		205,327		638,128		601,449		Income from continuing operations before provision for income taxes	353,482		206,789
Provision for income taxes	Provision for income taxes	78,510		57,747		180,790		165,122		Provision for income taxes	92,969		60,411
Equity in earnings (losses) of unconsolidated subsidiaries		4,113		4,232		1,980		(33,745)
Equity in earnings of unconsolidated subsidiaries										Equity in earnings of unconsolidated subsidiaries	5,819		516
Income from continuing operations	Income from continuing operations	193,931		151,812		459,318		402,582		Income from continuing operations	266,332		146,894
Net income (loss) from discontinued operations		0		781		(638)		1,179
Net loss from discontinued operations										Net loss from discontinued operations	0		(915)
Net income	Net income	193,931		152,593		458,680		403,761		Net income	266,332		145,979
Less: net income (loss) attributable to continuing noncontrolling interest		448		(46)		1,166		2,321
Less: net income attributable to continuing noncontrolling interest										Less: net income attributable to continuing noncontrolling interest	419		740
Less: net income attributable to discontinued noncontrolling interest	Less: net income attributable to discontinued noncontrolling interest	0		376		103		568		Less: net income attributable to discontinued noncontrolling interest	0		103
Net income attributable to LKQ stockholders	Net income attributable to LKQ stockholders	$	193,483	$	152,263	$	457,411	$	400,872	Net income attributable to LKQ stockholders	$	265,913	$	145,136

Basic earnings per share: (1)	Basic earnings per share: (1)									Basic earnings per share: (1)
Income from continuing operations	Income from continuing operations	$	0.64	$	0.49	$	1.51	$	1.29	Income from continuing operations	$	0.88	$	0.48
Net income (loss) from discontinued operations		0		0.00		(0.00)		0.00
Net loss from discontinued operations										Net loss from discontinued operations	0		(0.00)
Net income	Net income	0.64		0.50		1.50		1.30		Net income	0.88		0.48
Less: net income (loss) attributable to continuing noncontrolling interest		0.00		(0.00)		0.00		0.01
Less: net income attributable to continuing noncontrolling interest										Less: net income attributable to continuing noncontrolling interest	0.00		0.00
Less: net income attributable to discontinued noncontrolling interest	Less: net income attributable to discontinued noncontrolling interest	0		0.00		0.00		0.00		Less: net income attributable to discontinued noncontrolling interest	0		0.00
Net income attributable to LKQ stockholders	Net income attributable to LKQ stockholders	$	0.64	$	0.50	$	1.50	$	1.29	Net income attributable to LKQ stockholders	$	0.88	$	0.47

Diluted earnings per share: (1)	Diluted earnings per share: (1)									Diluted earnings per share: (1)
Income from continuing operations	Income from continuing operations	$	0.64	$	0.49	$	1.51	$	1.29	Income from continuing operations	$	0.88	$	0.48
Net income (loss) from discontinued operations		0		0.00		(0.00)		0.00
Net loss from discontinued operations										Net loss from discontinued operations	0		(0.00)
Net income	Net income	0.64		0.50		1.50		1.29		Net income	0.88		0.48
Less: net income (loss) attributable to continuing noncontrolling interest		0.00		(0.00)		0.00		0.01
Less: net income attributable to continuing noncontrolling interest										Less: net income attributable to continuing noncontrolling interest	0.00		0.00
Less: net income attributable to discontinued noncontrolling interest	Less: net income attributable to discontinued noncontrolling interest	0		0.00		0.00		0.00		Less: net income attributable to discontinued noncontrolling interest	0		0.00
Net income attributable to LKQ stockholders	Net income attributable to LKQ stockholders	$	0.64	$	0.49	$	1.50	$	1.28	Net income attributable to LKQ stockholders	$	0.88	$	0.47

(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

Unaudited Condensed Consolidated Statements of Comprehensive Income

(In thousands)


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2020		2019		2020		2019			2021		2020
Net income	Net income	$	193,931	$	152,593	$	458,680	$	403,761	Net income	$	266,332	$	145,979
Less: net income (loss) attributable to continuing noncontrolling interest		448		(46)		1,166		2,321
Less: net income attributable to continuing noncontrolling interest										Less: net income attributable to continuing noncontrolling interest	419		740
Less: net income attributable to discontinued noncontrolling interest	Less: net income attributable to discontinued noncontrolling interest	0		376		103		568		Less: net income attributable to discontinued noncontrolling interest	0		103
Net income attributable to LKQ stockholders	Net income attributable to LKQ stockholders	193,483		152,263		457,411		400,872		Net income attributable to LKQ stockholders	265,913		145,136

Other comprehensive income (loss):	Other comprehensive income (loss):									Other comprehensive income (loss):
Foreign currency translation, net of tax	Foreign currency translation, net of tax	70,178		(69,819)		(2,453)		(74,112)		Foreign currency translation, net of tax	(24,572)		(103,965)
Net change in unrealized gains/losses on cash flow hedges, net of tax	Net change in unrealized gains/losses on cash flow hedges, net of tax	222		(1,261)		(7,130)		(9,648)		Net change in unrealized gains/losses on cash flow hedges, net of tax	658		(7,321)
Net change in unrealized gains/losses on pension plans, net of tax	Net change in unrealized gains/losses on pension plans, net of tax	2,803		(2,353)		4,798		(2,134)		Net change in unrealized gains/losses on pension plans, net of tax	313		120
Other comprehensive (loss) income from unconsolidated subsidiaries		(3,162)		1,240		(4,052)		98
Other comprehensive income (loss)		70,041		(72,193)		(8,837)		(85,796)
Other comprehensive loss from unconsolidated subsidiaries										Other comprehensive loss from unconsolidated subsidiaries	(3,512)		(1,852)
Other comprehensive loss										Other comprehensive loss	(27,113)		(113,018)

Comprehensive income	Comprehensive income	263,972		80,400		449,843		317,965		Comprehensive income	239,219		32,961
Less: comprehensive income (loss) attributable to continuing noncontrolling interest		448		(46)		1,166		2,321
Less: comprehensive income attributable to continuing noncontrolling interest										Less: comprehensive income attributable to continuing noncontrolling interest	419		740
Less: comprehensive income attributable to discontinued noncontrolling interest	Less: comprehensive income attributable to discontinued noncontrolling interest	0		376		103		568		Less: comprehensive income attributable to discontinued noncontrolling interest	0		103
Comprehensive income attributable to LKQ stockholders	Comprehensive income attributable to LKQ stockholders	$	263,524	$	80,070	$	448,574	$	315,076	Comprehensive income attributable to LKQ stockholders	$	238,800	$	32,118

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

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)


		September 30,		December 31,			March 31,		December 31,
		2020		2019			2021		2020
Assets	Assets					Assets
Current assets:	Current assets:					Current assets:
Cash and cash equivalents	Cash and cash equivalents	$	421,382	$	523,020	Cash and cash equivalents	$	590,194	$	312,154
Receivables, net	Receivables, net	1,174,504		1,131,132		Receivables, net	1,252,374		1,073,389
Inventories	Inventories	2,245,846		2,772,777		Inventories	2,392,714		2,414,612
Prepaid expenses and other current assets	Prepaid expenses and other current assets	260,776		260,890		Prepaid expenses and other current assets	218,664		233,877

Total current assets	Total current assets	4,102,508		4,687,819		Total current assets	4,453,946		4,034,032
Property, plant and equipment, net	Property, plant and equipment, net	1,204,766		1,234,400		Property, plant and equipment, net	1,204,643		1,248,703
Operating lease assets, net	Operating lease assets, net	1,283,212		1,308,511		Operating lease assets, net	1,373,238		1,353,124
Intangible assets:	Intangible assets:					Intangible assets:
Goodwill	Goodwill	4,473,576		4,406,535		Goodwill	4,515,634		4,591,569
Other intangibles, net	Other intangibles, net	799,460		850,338		Other intangibles, net	777,372		814,219
Equity method investments	Equity method investments	147,536		139,243		Equity method investments	170,729		155,224
Other noncurrent assets	Other noncurrent assets	150,154		153,110		Other noncurrent assets	169,895		163,662
Total assets	Total assets	$	12,161,212	$	12,779,956	Total assets	$	12,665,457	$	12,360,533
Liabilities and Stockholders' Equity	Liabilities and Stockholders' Equity					Liabilities and Stockholders' Equity
Current liabilities:	Current liabilities:					Current liabilities:
Accounts payable	Accounts payable	$	847,733	$	942,795	Accounts payable	$	1,228,524	$	932,406
Accrued expenses:	Accrued expenses:					Accrued expenses:
Accrued payroll-related liabilities	Accrued payroll-related liabilities	196,581		179,203		Accrued payroll-related liabilities	202,333		208,718
Refund liability	Refund liability	106,442		97,314		Refund liability	104,534		102,148

Other accrued expenses	Other accrued expenses	356,858		289,683		Other accrued expenses	356,126		334,890

Other current liabilities	Other current liabilities	102,374		121,623		Other current liabilities	104,510		130,021
Current portion of operating lease liabilities	Current portion of operating lease liabilities	219,239		221,527		Current portion of operating lease liabilities	200,637		221,811
Current portion of long-term obligations	Current portion of long-term obligations	97,268		326,367		Current portion of long-term obligations	239,962		58,497

Total current liabilities	Total current liabilities	1,926,495		2,178,512		Total current liabilities	2,436,626		1,988,491
Long-term operating lease liabilities, excluding current portion	Long-term operating lease liabilities, excluding current portion	1,122,116		1,137,597		Long-term operating lease liabilities, excluding current portion	1,219,267		1,197,963
Long-term obligations, excluding current portion	Long-term obligations, excluding current portion	3,009,638		3,715,389		Long-term obligations, excluding current portion	2,471,730		2,812,641
Deferred income taxes	Deferred income taxes	304,898		310,129		Deferred income taxes	285,584		291,421
Other noncurrent liabilities	Other noncurrent liabilities	358,402		365,672		Other noncurrent liabilities	369,546		374,640
Commitments and contingencies	Commitments and contingencies					Commitments and contingencies
Redeemable noncontrolling interest	Redeemable noncontrolling interest	24,077		24,077		Redeemable noncontrolling interest	24,077		24,077
Stockholders' equity:	Stockholders' equity:					Stockholders' equity:
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 320,830,051 shares issued and 304,334,136 shares outstanding at September 30, 2020; 319,927,243 shares issued and 306,731,328 shares outstanding at December 31, 2019		3,208		3,199
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 321,170,573 shares issued and 302,370,072 shares outstanding at March 31, 2021; 320,867,602 shares issued and 303,553,000 shares outstanding at December 31, 2020						Common stock, $0.01 par value, 1,000,000,000 shares authorized, 321,170,573 shares issued and 302,370,072 shares outstanding at March 31, 2021; 320,867,602 shares issued and 303,553,000 shares outstanding at December 31, 2020	3,212		3,208
Additional paid-in capital	Additional paid-in capital	1,439,493		1,418,239		Additional paid-in capital	1,449,667		1,444,584
Retained earnings	Retained earnings	4,595,028		4,140,136		Retained earnings	5,041,953		4,776,040
Accumulated other comprehensive loss	Accumulated other comprehensive loss	(209,722)		(200,885)		Accumulated other comprehensive loss	(126,122)		(99,009)
Treasury stock, at cost; 16,495,915 shares at September 30, 2020 and 13,195,915 shares at December 31, 2019		(439,819)		(351,813)
Treasury stock, at cost; 18,800,501 shares at March 31, 2021 and 17,314,602 shares at December 31, 2020						Treasury stock, at cost; 18,800,501 shares at March 31, 2021 and 17,314,602 shares at December 31, 2020	(526,084)		(469,105)
Total Company stockholders' equity	Total Company stockholders' equity	5,388,188		5,008,876		Total Company stockholders' equity	5,842,626		5,655,718
Noncontrolling interest	Noncontrolling interest	27,398		39,704		Noncontrolling interest	16,001		15,582
Total stockholders' equity	Total stockholders' equity	5,415,586		5,048,580		Total stockholders' equity	5,858,627		5,671,300
Total liabilities and stockholders' equity	Total liabilities and stockholders' equity	$	12,161,212	$	12,779,956	Total liabilities and stockholders' equity	$	12,665,457	$	12,360,533

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

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)


		Nine Months Ended					Three Months Ended
		September 30,					March 31,
		2020		2019			2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:	CASH FLOWS FROM OPERATING ACTIVITIES:					CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	Net income	$	458,680	$	403,761	Net income	$	266,332	$	145,979
Adjustments to reconcile net income to net cash provided by operating activities:	Adjustments to reconcile net income to net cash provided by operating activities:					Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	Depreciation and amortization	220,636		230,239		Depreciation and amortization	71,597		71,379
Impairment of equity method investments		0		39,551

Loss on disposal of businesses and impairment of net assets held for sale		1,733		44,919

Stock-based compensation expense	Stock-based compensation expense	22,851		20,837		Stock-based compensation expense	7,792		7,968
Loss (gain) on debt extinguishment		12,751		(128)
Loss on debt extinguishment						Loss on debt extinguishment	0		12,751
Other	Other	(12,053)		(13,192)		Other	(9,202)		(2,970)
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions:	Changes in operating assets and liabilities, net of effects from acquisitions and dispositions:					Changes in operating assets and liabilities, net of effects from acquisitions and dispositions:
Receivables, net	Receivables, net	(28,622)		(102,381)		Receivables, net	(197,594)		(63,938)
Inventories	Inventories	535,348		148,237		Inventories	(13,469)		(7,522)

Prepaid income taxes/income taxes payable	Prepaid income taxes/income taxes payable	(22,510)		40,711		Prepaid income taxes/income taxes payable	(20,694)		41,585
Accounts payable	Accounts payable	(105,719)		90,879		Accounts payable	331,383		(27,170)
Other operating assets and liabilities	Other operating assets and liabilities	51,546		61,738		Other operating assets and liabilities	86,367		16,501
Net cash provided by operating activities	Net cash provided by operating activities	1,134,641		965,171		Net cash provided by operating activities	522,512		194,563
CASH FLOWS FROM INVESTING ACTIVITIES:	CASH FLOWS FROM INVESTING ACTIVITIES:					CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	Purchases of property, plant and equipment	(109,949)		(165,551)		Purchases of property, plant and equipment	(41,779)		(44,538)
Proceeds from disposals of property, plant and equipment	Proceeds from disposals of property, plant and equipment	12,937		6,402		Proceeds from disposals of property, plant and equipment	7,601		5,528
Acquisitions, net of cash acquired	Acquisitions, net of cash acquired	(7,107)		(14,517)		Acquisitions, net of cash acquired	(2,385)		(7,220)
Proceeds from disposal of businesses, net of cash sold	Proceeds from disposal of businesses, net of cash sold	4,603		19,505		Proceeds from disposal of businesses, net of cash sold	5,944		1,763
Investments in unconsolidated subsidiaries	Investments in unconsolidated subsidiaries	(6,917)		(6,894)		Investments in unconsolidated subsidiaries	(2,824)		(405)

Other investing activities, net		0		966

Net cash used in investing activities	Net cash used in investing activities	(106,433)		(160,089)		Net cash used in investing activities	(33,443)		(44,872)
CASH FLOWS FROM FINANCING ACTIVITIES:	CASH FLOWS FROM FINANCING ACTIVITIES:					CASH FLOWS FROM FINANCING ACTIVITIES:

Early-redemption premium	Early-redemption premium	(9,498)		0		Early-redemption premium	0		(9,498)
Repayment of U.S. Notes (2023)	Repayment of U.S. Notes (2023)	(600,000)		0		Repayment of U.S. Notes (2023)	0		(600,000)
Borrowings under revolving credit facilities	Borrowings under revolving credit facilities	599,485		390,275		Borrowings under revolving credit facilities	1,287,810		460,186
Repayments under revolving credit facilities	Repayments under revolving credit facilities	(949,381)		(613,758)		Repayments under revolving credit facilities	(1,392,004)		(134,674)
Repayments under term loans	Repayments under term loans	(13,125)		(6,563)		Repayments under term loans	(4,375)		(4,375)
Borrowings under receivables securitization facility	Borrowings under receivables securitization facility	111,300		36,600		Borrowings under receivables securitization facility	0		111,300
Repayments under receivables securitization facility	Repayments under receivables securitization facility	(111,300)		(146,600)		Repayments under receivables securitization facility	0		(12,900)
Payment of notes issued from acquisitions		0		(19,123)
Repayments of other debt, net		(74,822)		(31,587)

Borrowings (repayments) of other debt, net						Borrowings (repayments) of other debt, net	25,574		(49,481)
Settlement of derivative instruments, net						Settlement of derivative instruments, net	(56,804)		0
Purchase of treasury stock	Purchase of treasury stock	(88,006)		(291,813)		Purchase of treasury stock	(56,979)		(88,006)
Other financing activities, net	Other financing activities, net	(15,436)		(7,125)		Other financing activities, net	(11,717)		(7,291)
Net cash used in financing activities	Net cash used in financing activities	(1,150,783)		(689,694)		Net cash used in financing activities	(208,495)		(334,739)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	Effect of exchange rate changes on cash, cash equivalents and restricted cash	9,100		(9,702)		Effect of exchange rate changes on cash, cash equivalents and restricted cash	(2,534)		(11,746)
Net (decrease) increase in cash, cash equivalents and restricted cash		(113,475)		105,686
Net increase (decrease) in cash, cash equivalents and restricted cash						Net increase (decrease) in cash, cash equivalents and restricted cash	278,040		(196,794)
Cash, cash equivalents and restricted cash of continuing operations, beginning of period	Cash, cash equivalents and restricted cash of continuing operations, beginning of period	528,387		337,250		Cash, cash equivalents and restricted cash of continuing operations, beginning of period	312,154		528,387
Add: Cash, cash equivalents and restricted cash of discontinued operations, beginning of period	Add: Cash, cash equivalents and restricted cash of discontinued operations, beginning of period	6,470		0		Add: Cash, cash equivalents and restricted cash of discontinued operations, beginning of period	0		6,470
Cash, cash equivalents and restricted cash of continuing and discontinued operations, beginning of period	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, beginning of period	312,154		534,857
Cash, cash equivalents and restricted cash of continuing and discontinued operations, end of period		421,382		442,936
Less: Cash and cash equivalents of discontinued operations, end of period		0		4,328
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	421,382	$	438,608	Cash, cash equivalents and restricted cash, end of period	$	590,194	$	338,063

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


		Nine Months Ended					Three Months Ended
		September 30,					March 31,
		2020		2019			2021		2020
Reconciliation of cash, cash equivalents and restricted cash	Reconciliation of cash, cash equivalents and restricted cash					Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	Cash and cash equivalents	$	421,382	$	433,391	Cash and cash equivalents	$	590,194	$	332,784
Restricted cash included in Other noncurrent assets	Restricted cash included in Other noncurrent assets	0		5,217		Restricted cash included in Other noncurrent assets	0		5,279
Cash, cash equivalents and restricted cash, end of period	Cash, cash equivalents and restricted cash, end of period	$	421,382	$	438,608	Cash, cash equivalents and restricted cash, end of period	$	590,194	$	338,063

Supplemental disclosure of cash paid for:	Supplemental disclosure of cash paid for:					Supplemental disclosure of cash paid for:
Income taxes, net of refunds	Income taxes, net of refunds	$	210,952	$	134,998	Income taxes, net of refunds	$	116,135	$	22,014
Interest	Interest	97,858		86,525		Interest	5,751		13,772
Supplemental disclosure of noncash investing and financing activities:	Supplemental disclosure of noncash investing and financing activities:					Supplemental disclosure of noncash investing and financing activities:
Leased assets obtained in exchange for new finance lease liabilities		$	14,716	$	9,639
Leased assets obtained in exchange for new operating lease liabilities		57,603		126,336
Noncash property, plant and equipment additions		8,339		6,597
Notes payable and other financing obligations, including notes issued, debt assumed and settlement of pre-existing balances in connection with business acquisitions and disposals		4,593		45,311
Notes receivable and contingent consideration receivable acquired in connection with disposal of businesses		8,549		14,196
Leased assets obtained in exchange for finance lease liabilities						Leased assets obtained in exchange for finance lease liabilities	$	1,828	$	7,718
Leased assets obtained in exchange for operating lease liabilities						Leased assets obtained in exchange for operating lease liabilities	90,784		39,460
Noncash property, plant and equipment and software intangible additions in accounts payable and other accrued expenses						Noncash property, plant and equipment and software intangible additions in accounts payable and other accrued expenses	9,127		7,594
Notes payable and other financing obligations, including notes issued and debt assumed in connection with business acquisitions and disposals						Notes payable and other financing obligations, including notes issued and debt assumed in connection with business acquisitions and disposals	179		6,136
Notes receivable acquired in connection with disposal of business						Notes receivable acquired in connection with disposal of business	0		7,994
Contingent consideration liabilities	Contingent consideration liabilities	3,045		5,377		Contingent consideration liabilities	—		2,933

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) Income Noncontrolling Interest Total Stockholders' Equity
Shares Amount Shares Amount
BALANCE, July 1, 2020 320,530 $ 3,205 (16,496) $ (439,819) $ 1,433,338 $ 4,401,545 $ (279,763) $ 29,435 $ 5,147,941
Net income — — — — — 193,483 — 448 193,931
Other comprehensive income — — — — — — 70,041 — 70,041
Vesting of restricted stock units, net of shares withheld for employee tax 300 3 — — (933) — — — (930)
Stock-based compensation expense — — — — 7,088 — — — 7,088
Dividends declared to noncontrolling interest shareholder — — — — — — — (2,485) (2,485)
BALANCE, September 30, 2020 320,830 $ 3,208 (16,496) $ (439,819) $ 1,439,493 $ 4,595,028 $ (209,722) $ 27,398 $ 5,415,586


	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, 2021	320,868	$	3,208	(17,315)	$	(469,105)	$	1,444,584	$	4,776,040	$	(99,009)	$	15,582	$	5,671,300
Net income	—	—		—	—		—		265,913		—		419		266,332
Other comprehensive loss	—	—		—	—		—		—		(27,113)		—		(27,113)
Purchase of treasury stock	—	—		(1,486)	(56,979)		—		—		—		—		(56,979)
Vesting of restricted stock units, net of shares withheld for employee tax	303	4		—	—		(2,709)		—		—		—		(2,705)
Stock-based compensation expense	—	—		—	—		7,792		—		—		—		7,792






BALANCE, March 31, 2021	321,171	$	3,212	(18,801)	$	(526,084)	$	1,449,667	$	5,041,953	$	(126,122)	$	16,001	$	5,858,627


		LKQ Stockholders																	LKQ Stockholders
		Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total Stockholders' Equity			Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total Stockholders' Equity
		Shares	Amount		Shares	Amount													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
BALANCE, January 1, 2020																		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	Net income	—	—		—	—		—		152,263		—		330		152,593		Net income	—	—		—	—		—		145,136		—		843		145,979
Other comprehensive loss	Other comprehensive loss	—	—		—	—		—		—		(72,193)		—		(72,193)		Other comprehensive loss	—	—		—	—		—		—		(113,018)		—		(113,018)
Purchase of treasury stock	Purchase of treasury stock	—	—		(3,881)	(101,051)		—		—		—		—		(101,051)		Purchase of treasury stock	—	—		(3,300)	(88,006)		—		—		—		—		(88,006)
Vesting of restricted stock units, net of shares withheld for employee tax	Vesting of restricted stock units, net of shares withheld for employee tax	313	3		—	—		(650)		—		—		—		(647)		Vesting of restricted stock units, net of shares withheld for employee tax	400	4		—	—		(2,073)		—		—		—		(2,069)
Stock-based compensation expense	Stock-based compensation expense	—	—		—	—		7,178		—		—		—		7,178		Stock-based compensation expense	—	—		—	—		7,968		—		—		—		7,968
Exercise of stock options	Exercise of stock options	370	4		—	—		3,594		—		—		—		3,598		Exercise of stock options	112	1		—	—		1,466		—		—		—		1,467
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	Capital contributions from, net of dividends declared to, noncontrolling interest shareholder	—	—		—	—		—		—		—		(4,644)		(4,644)		Capital contributions from, net of dividends declared to, noncontrolling interest shareholder	—	—		—	—		—		—		—		341		341
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
Adoption of ASU 2016-13																		Adoption of ASU 2016-13	—	—		—	—		—		(2,519)		—		—		(2,519)
Disposition of subsidiary with noncontrolling interests (1)																		Disposition of subsidiary with noncontrolling interests (1)	—	—		—	—		—		—		—		(11,404)		(11,404)
BALANCE, March 31, 2020																		BALANCE, March 31, 2020	320,439	$	3,204	(16,496)	$	(439,819)	$	1,425,600	$	4,282,753	$	(313,903)	$	29,484	$	4,987,319

(1) The amount ~~acquired~~disposed of during ~~2019~~2020 relates to discontinued operations. See Note 2, "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 3, "Financial Statement Information" for further information.

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, 2020 319,927 $ 3,199 (13,196) $ (351,813) $ 1,418,239 $ 4,140,136 $ (200,885) $ 39,704 $ 5,048,580
Net income — — — — — 457,411 — 1,269 458,680
Other comprehensive loss — — — — — — (8,837) — (8,837)
Purchase of treasury stock — — (3,300) (88,006) — — — — (88,006)
Vesting of restricted stock units, net of shares withheld for employee tax 791 8 — — (3,063) — — — (3,055)
Stock-based compensation expense — — — — 22,851 — — — 22,851
Exercise of stock options 112 1 — — 1,466 — — — 1,467
Capital contributions from, net of dividends declared to, noncontrolling interest shareholder — — — — — — — (2,171) (2,171)
Adoption of ASU 2016-13 (see Note 3) — — — — — (2,519) — — (2,519)
Disposition of subsidiary with noncontrolling interests(1)
— — — — — — — (11,404) (11,404)
BALANCE, September 30, 2020 320,830 $ 3,208 (16,496) $ (439,819) $ 1,439,493 $ 4,595,028 $ (209,722) $ 27,398 $ 5,415,586

~~(1)~~ ~~The amount disposed of in 2020 relates to discontinued operations. See Note 2, "Discontinued Operations," for further 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 — — — — — 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

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

~~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

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.

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, ~~2019~~2020 filed with the SEC o~~n February 27,~~ on February 26, 2021 ("2020 ~~("2019~~ Form 10-K").

The coronavirus disease 2019 ("COVID-19") pandemic and the resulting governmental actions taken to control the virus have impacted, and are expected to continue to impact, our business in 2020 and ~~into~~ 2021. The effects include, but are not limited to, a reduction in 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 financial statements and footnotes as of and for the three ~~and nine~~ months ended ~~September 30, 2020.~~March 31, 2021. Specific disclosures are presented in the following footnotes as applicable.

The ~~ultimate~~continuing impact of COVID-19 on our business, results of operations, financial condition and cash flows is dependent on future developments, including the severity and duration of the pandemic and the related impact on the global economy, which are uncertain and cannot be predicted at this ~~time.~~time, but may be material.

Note 2. Discontinued Operations

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. Prior to closing, on May 3, 2018, the European Commission cleared the acquisition of Stahlgruber for the entire European Union, except with respect to the wholesale automotive parts business in the Czech Republic. The acquisition of Stahlgruber’s Czech Republic wholesale business was referred to the Czech Republic competition authority for review. On May 10, 2019, the Czech Republic competition authority approved our acquisition of Stahlgruber’s Czech Republic wholesale business subject to the requirement that we divest certain of the acquired locations. We acquired Stahlgruber’s Czech Republic wholesale business on May 29, 2019 and decided to divest all of the acquired ~~Czech Republic~~ locations. We immediately classified the business as discontinued operations because the business was never integrated into our Europe segment.

We completed the sale of Stahlgruber's Czech Republic business on February 28, 2020, resulting in aan immaterial loss on sale ~~of $1 million~~ (presented in Net (loss) income ~~(loss)~~ from discontinued operations in the Unaudited Condensed Consolidated Statements of Income). As part of the transaction, we purchased the 48.2% noncontrolling interest from the minority shareholder for a purchase price of €8 million, which included the issuance of €4 million of notes payable, and then immediately thereafter 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 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 December 31, 2019, the assets held for sale, liabilities held for sale, and noncontrolling interest 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 Sheets.

Note 3. Financial Statement Information

Allowance for Credit Losses

Receivables, net are reported net of an allowance for credit losses. 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 expected lifetime credit losses was $68 million and ~~$53~~$70 million ~~at September 30, 2020~~as of March 31, 2021 and December 31, ~~2019,~~2020, respectively. Bad debt expense totaled ~~$23~~$2 million and ~~$10~~$9 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and September 30, 2019, respectively. The increase in our allowance for credit losses since December 31, 2019 is attributable~~ to an increase in expected lifetime losses, primarily attributable to the downturn in the global economy related to the effects of the COVID-19 pandemic, and the $3 million effect of the adoption of ASU No. 2016-13, "Financial Instruments - Credit Losses (Topic 326): Measurement o~~f 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).~~respectively.

Inventories

Inventories consist of the following (in thousands):


		September 30,		December 31,			March 31,		December 31,
		2020		2019			2021		2020
Aftermarket and refurbished products	Aftermarket and refurbished products	$	1,862,044	$	2,297,895	Aftermarket and refurbished products	$	2,020,707	$	2,025,002
Salvage and remanufactured products	Salvage and remanufactured products	364,082		447,908		Salvage and remanufactured products	349,539		368,815
Manufactured products	Manufactured products	19,720		26,974		Manufactured products	22,468		20,795
Total inventories	Total inventories	$	2,245,846	$	2,772,777	Total inventories	$	2,392,714	$	2,414,612

Aftermarket and refurbished products and salvage and remanufactured products are primarily composed of finished goods. As of ~~September 30,~~March 31, 2021, manufactured products inventory was composed of $17 million of raw materials, $4 million of work in process, and $2 million of finished goods. As of December 31, 2020, manufactured products inventory was composed of ~~$15~~$16 million of raw materials, $3 million of work in process, and $1$2 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.~~

~~Net Assets Held for Sale~~

During 2019 and the first nine months of 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 a $1 million adjustment to reduce a previously recorded loss on disposal for the three months ended September 30, 2020, and net impairment charges of $2 million for the nine months ended September 30, 2020. As of September 30, 2020, assets and liabilities held for sale were immaterial.

In the 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 (Gain) loss on disposal of businesses and impairment of net assets held for sale in the Unaudited Condensed Consolidated Statements of Income). The disposed business was immaterial, generating annualized revenue of approximately $78 million during the twelve-month period ended May 31, 2020.

~~In the third quarter of 2019, we completed the sales of two of these businesses, our aviation busine~~ss 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 (presented in (Gain) loss on disposal of businesses and impairment of net assets held for sale in the Unaudited Condensed Consolidated Statements of Income). Excluding the Stahlgruber Czech Republic wholesale business discussed in Note 2, "Discontinued Operations," as of December 31, 2019, assets and liabilities held for sale were immaterial, and were recorded within Prepaid expenses and other current assets and Other current liabilities, respectively, on the Unaudited Condensed Consolidated Balance Sheet.

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 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 30, 2020.

Intangible Assets

Goodwill and indefinite-lived ~~intangibles~~intangible assets are tested for impairment at least ~~annually, and we~~annually. We performed our annual impairment ~~tests~~test during the fourth quarter of ~~2019.~~2020 and we determined no impairment existed as all of our reporting units had a fair value estimate which exceeded the carrying value by at least 30%. 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 or third quarters~~first quarter of 2021 that necessitated an interim test of goodwill ~~impairment. Actual results for the second and third quarters 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")impairment or indefinite-lived intangible 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 secured rent relief from some of our lessors during the second quarter of 2020. The rent relief offered was primarily 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. As of September 30, 2020, most of the deferrals recognized in the prior quarter were repaid. Any remaining payment deferrals were immaterial and were recorded in Other current liabilities on the Unaudited Condensed Consolidated Balance Sheets. During the second quarter of 2020, we also received other concessions consisting of abated rent or discounted rent, with payback not required, from various landlords, which resulted in reductions to Selling, general and administrative expenses of $2 million in our Unaudited Condensed Consolidated Statements of Income. We received additional concessions of less than $1 million during the third quarter of 2020.

impairment.

Investments in Unconsolidated Subsidiaries

Our investment in unconsolidated subsidiaries was ~~$148~~$171 million and ~~$139~~$155 million as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively.

Europe Segment

Our investment in unconsolidated subsidiaries in Europe was ~~$129~~$150 million and ~~$122~~$137 million as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. We recorded equity in earnings of $4$6 million and $5$1 million during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~respectively, and equity in earnings of $4 million and equity in losses of $35 million during the three and nine months ended September 30, 2019,~~ respectively, 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 30, 2020,~~March 31, 2021, our share of the book value of Mekonomen's net assets exceeded the book value of our investment in Mekonomen by $6$7 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, we recognized an other-than-temporary impairment charge of $40 million, which represented the difference between the carrying value and the fair value of our investment in Mekonomen. The fair value of our investment in Mekonomen was determined using the Mekonomen share price of SEK 65 as of March 31, 2019. The impairment charge was recorded in Equity in earnings (losses) of unconsolidated subsidiaries in our Unaudited Condensed Consolidated Statements of Income.

Mekonomen announced in March 2020 and February 2021, respectively, that ~~it would not make a~~the Mekonomen Board of Directors proposed no dividend payment in ~~2020.~~2020 or 2021. The Level 1 fair value of our equity investment in the publicly traded Mekonomen common stock at ~~September 30, 2020~~March 31, 2021 was ~~$151~~$230 million (using the Mekonomen share price of SEK 93129 as of ~~September 30, 2020)~~March 31, 2021) compared to a carrying value of ~~$118~~$139 million.

North America Segment

Our investment in unconsolidated subsidiaries in the North America segment was ~~$19~~$21 million and ~~$18~~$19 million as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019, respectively. We recorded equity in earnings of $0.4 million and equity in losses of $3 million during the three and nine months ended September 30,~~ 2020, ~~respectively. The equity in earnings for the North America equity investments was $0.4 million and $1 million during the three and nine months ended September 30, 2019,~~ respectively.

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, ~~2019~~2020	$	~~25,441~~27,914
Warranty expense	~~48,778~~18,470
Warranty claims	~~(45,091)~~(17,917)
Balance as of ~~September 30, 2020~~March 31, 2021	$	~~29,128~~28,467

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 ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, we recorded ~~$12~~$9 million ~~and $45 million, respectively,~~ in financial assistance from foreign governments, primarily in the form of grants, of which $7 million and $2 million related to ~~offset personnel expenses in~~ Europe and ~~Canada.~~Canada, respectively. For ~~each of~~ the three ~~and nine~~ months ended ~~September 30, 2020, $1 million~~March 31, 2021, an immaterial amount was recorded as a reduction to Cost of goods sold, and ~~$12~~$9 million ~~and $44 million were reductions~~was a reduction to Selling, general and administrative expenses, ~~respectively,~~ in our Unaudited Condensed Consolidated Statement of Income. Financial assistance received from governments is recorded during the period in which we incur the costs that 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). No government assistance was recorded for the three months ended March 31, 2020.

OnLeases - Cash Flow Disclosure

The amount disclosed for Leased assets obtained in exchange for operating lease liabilities for the three months ended March ~~27,~~31, 2020 ~~the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was enacted~~ in the ~~U.S.~~supplemental disclosure of noncash investing and financing activities in the Unaudited Condensed Consolidated Statements of Cash Flows includes an immaterial correction of $18 million to ~~provide economic relief to individuals and businesses facing economic hardship as a result~~address an omission of the ~~COVID-19 pandemic. Similar legislation was enacted in many~~impact 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 nine months ended September 30, 2020. Those initiatives did provide the Company with the opportunity to defer the timing of certain income tax, indirect taxlease modifications and payroll tax payments in various jurisdictions. As of September 30, 2020, approximately $33 million of payments otherwise due by the third quarter of 2020 were deferred, of which we estimate approximately $30 million will be paid in 2021 or later.terminations.

Stockholders' Equity

Treasury Stock

As of ~~September 30, 2020,~~March 31, 2021, our Board of Directors had authorized a stock repurchase program under which we may purchase up to $1.0 billion of our common stock from time to time through October 25, 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~~three months ended ~~September 30,~~March 31, 2021, we repurchased 1.5 million shares of common stock for an aggregate price of $57 million. During the three months ended March 31, 2020, we repurchased 3.3 million shares of common stock for an aggregate price of $88 million; we did not repurchase any shares during the three months ended September 30, 2020. During the three and nine months ended September 30, 2019, we repurchased 3.9 million and 10.9 million shares of common stock for an aggregate price of $101 million and $292 million, respectively.million. As of ~~September 30, 2020,~~March 31, 2021, there was ~~$560~~$474 million of remaining capacity under our repurchase program. Repurchased shares are accounted for as treasury stock using the cost method.

Noncontrolling Interest

In February 2020, as part of the sale of Stahlgruber's Czech Republic business, we divested the noncontrolling interest of the business, which resulted in a net decrease to Noncontrolling interest of $11 million in our unaudited condensed consolidated financial statements as of March 31, 2020. See Note 2, "Discontinued Operations," for further information.

In July 2019, we purchased substantially all of the noncontrolling interest of a subsidiary acquired in connection with the Stahlgruber acquisition for a purchase price of $19 million, 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 million in our unaudited condensed consolidated financial statements as of September 30, 2019.

In December 2019, we modified the shares ~~representing~~of a noncontrolling interest inof 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 $24 million (€21 million) ~~exercisable by~~for the minority shareholder exercisable in the fourth quarter of 2023, (ii) a call option for all noncontrolling interest shares at a fixed price of $26 million (€23 million) ~~exercisable by~~for the Company exercisable beginning in the first quarter of 2026 through the end of the fourth quarter of 2027, and (iii) a guaranteed dividend to be paid quarterly to the minority shareholder through the fourth quarter of 2023. The new redeemable shares do not provide the minority shareholder with rights to participate in the profits and losses of the subsidiary prior to the exercise date of the put option. As the put option is outside the control of the Company, we recorded a $24 million Redeemable noncontrolling interest at the put option's ~~exercise~~redemption value outside of permanent equity on our Unaudited Condensed Consolidated Balance Sheets.

~~In October 2020, we purchased all of the noncontrolling interest of a subsidiary in our North America segment for a purchase price of $10 million.~~

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

~~During~~In the first quarter of ~~2020,~~2021, we adopted ASU 2016-13 and ASU No. 2018-19, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses" ("ASU 2018-19"). ASU 2016-13 significantly changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income. ASU 2016-13 replaces the prior “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost. ASU 2018-19 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 on 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 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 FASB issued~~ ASU No. 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 fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early~~We adopted the standard in the first quarter using the prospective approach. The adoption ~~is permitted, including adoption in an interim period. We are currently evaluating the impact~~ of this accounting standard did not have a material impact on our unaudited condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

In March 2020, the 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 of 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.~~2022. We are currently evaluating the impact of this standard on our consolidated financial statements and related disclosures, and we have not yet elected an adoption date.

Note 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				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2020		2019		2020		2019			2021		2020
North America	North America	$	1,007,001	$	1,145,402	$	3,007,169	$	3,466,582	North America	$	1,018,437	$	1,107,342
Europe	Europe	1,479,174		1,446,392		4,043,473		4,398,185		Europe	1,455,370		1,357,969
Specialty	Specialty	399,554		394,204		1,150,962		1,157,023		Specialty	457,959		347,406
Parts and services	Parts and services	2,885,729		2,985,998		8,201,604		9,021,790		Parts and services	2,931,766		2,812,717
Other	Other	161,955		161,775		473,338		474,459		Other	239,020		188,218
Total revenue	Total revenue	$	3,047,684	$	3,147,773	$	8,674,942	$	9,496,249	Total revenue	$	3,170,786	$	3,000,935

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; recreational vehicles; 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~~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~~2021	$	~~27,067~~25,622
Additional warranty revenue deferred	~~32,310~~13,511
Warranty revenue recognized	~~(33,508)~~(11,834)
Balance as of ~~September 30, 2020~~March 31, 2021	$	~~25,869~~27,299

Other Revenue

Revenue from other sources includes sales of scrap 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. Revenue from the sale of hulks in our wholesale and self service recycling operations is recognized based on a price per 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 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 including returns, discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, or other similar items. Under FASB Accounting Standards Codification Topic 606 ("ASC ~~606~~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 ~~$106~~$105 million and ~~$61~~$59 million, respectively, as of ~~September 30, 2020,~~March 31, 2021, and ~~$97~~$102 million and ~~$52~~$57 million, respectively, as of December 31, ~~2019.~~2020. The refund liability is presented separately on the 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 that are recorded in Receivables, net on the Unaudited Condensed Consolidated Balance Sheets. We recorded a reserve for our variable consideration of ~~$103~~$87 million and ~~$108~~$127 million as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, 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 5. Restructuring and Acquisition Related Expenses

~~Acquisition Related Expenses~~

We incurred $8 million of acquisition related expenses in each of the three and nine months ended September 30, 2020. The expenses primarily resulted from the resolution of a purchase price matter related to the Stahlgruber transaction for an amount above our prior estimate.

We incurred $2 million of acquisition related expenses in each of the three and nine months ended September 30, 2019. These expenses included external costs such as legal, accounting and advisory fees related to our acquisitions.

2019 Global Restructuring Program

In the second quarter of 2019, we ~~implemented~~commenced 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; 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.

During the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, we ~~incur~~redincurred $1 million and $6$3 million, re~~spectively,~~respectively, of restructuring expenses under this program, primarily related to facility exit costs and employee-related costs. These costs were recorded within Restructuring and acquisition related expenses in the Unaudited Condensed Consolidated Statements of Income. ~~During~~The program costs incurred during the three ~~and nine~~ months ended ~~September 30, 2019, we incurred $18 million and $23 million, respectively, of restructuring expenses~~March 31, 2021 primarily related to ~~inventory write-downs, facility exit~~our Europe segment. Of the program costs incurred during the three months ended March 31, 2020, $2 million and ~~employee-related costs. Of these expenses, $13~~$1 million ~~primarily~~ related to ~~Andrew Page branch consolidation~~our Europe and brand rationalization, were recorded within Cost of goods sold in the Unaudited Condensed Consolidated Statement of Income during each of the three and nine months ended September 30, 2019, and $4 million and $10 million, respectively, were recorded within Restructuring and acquisition related expenses.North America segments, respectively.

The actions under this program are substantially complete. We estimate that total program costs will be approximately ~~$45~~$46 million, of which ~~$37 million was incurred in the year ended December 31, 2019. The total program costs include~~approximately $31 million, $14 million and $1 million ~~related to~~will be incurred by our Europe, North America and Specialty segments, respectively. ~~Costs~~As of March 31, 2021, the remaining expected costs and restructuring liabilities related to ~~be incurred through 2021 under~~ this program ~~are estimated to be between $2 million and $4 million.~~were immaterial.

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 thethe end of the previously estimated useful lives. We expanded this program during the second and third quarters of 2020 as we identified additional opportunities to eliminate inefficiencies, including actions in response to impacts to our business from COVID-19.

During the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, we recognized restructuring expenses ~~totaling $10~~of $2 million, ~~and $38~~representing $5 million ~~respectively, for~~of employee-related costs and facility exit costs, ~~and inventory write-downs. Of these~~partially offset by a $3 million gain from the sale of a building to be closed as part of the restructuring plan. During the three months ended March 31, 2020, we recognized $2 million of expenses ~~$1 million and $7 million resulted from inventory impairment charges~~ related to ~~facility consolidation actions and brand rationalizations and were recorded in Cost of goods sold in~~ the ~~Unaudited Condensed Consolidated Statement of Income for three months and nine months ended September 30, 2020, respectively.~~program. Of the cumulative program costs incurred to date, ~~$22~~$27 million, ~~$15~~$23 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~~2023 will be between $65 million and $75 million, of which approximately ~~$39~~$36 million, $31 million, and $1$2 million will be incurred by our Europe, North America and Specialty segments, respectively; these segment amounts represent the midpoints of the expected ranges of costs to be incurred by each segment.

As of March 31, 2021 and December 31, 2020, restructuring liabilities incurred related to this program totaled $16 million and $21 million, respectively, including $13 million and $17 million, respectively, related to leases we have exited or expect to exit prior to the end of the lease term (reported in Current portion of operating lease liabilities and Long-term operating lease liabilities, excluding current portion on our Unaudited Condensed Consolidated Balance Sheets), and $3 million and $4 million, respectively, for employee termination costs (reported in Accrued payroll-related liabilities on our Unaudited Condensed Consolidated Balance Sheets). Our lease-related restructuring liabilities are estimated based on remaining rent payments after our actual exit date for facilities closed through the first quarter of 2021 and after our planned exit date for facilities we expect to close in future periods; these liabilities do not reflect any estimated proceeds we may be able to achieve through subleasing the facilities.

Acquisition Integration Plans

During the three ~~and nine~~ months ended ~~September 30, 2020,~~March 31, 2021, we incurred ~~$2 million and $8 million of~~immaterial restructuring expenses ~~respectively,~~ 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 nine~~ months ended ~~September 30, 2019,~~March 31, 2020, we incurred ~~$7 million and $13~~$2 million of restructuring expenses ~~respectively, primarily related to~~for our acquisition integration ~~efforts in our Europe segment.~~plans. These expenses ~~included approximately $4 million and $7 million for the three and nine months ended September 30, 2019, respectively,~~were primarily related to the integration of our acquisition of Andrew Page Limited. ~~The $4 million recorded during the three months ended September 30, 2019 for Andrew Page Limited was recorded within Cost of goods sold in the Unaudited Condensed Consolidated Statement of Income.~~

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. While certain projects were delayed in 2020 as a result of the COVID-19 pandemic, such as our procurement initiatives and the new ~~head office~~headquarters in Switzerland, we also accelerated certain projects, such as the integration of previously acquired networks and sharing resources across LKQ Europe. We ~~expect~~are targeting to complete the organizational design and implementation projects by the middle of 2021, with the remaining projects scheduled to be completed by 2024.

During the three months ended March 31, 2021, we incurred $5 million of restructuring charges related to the 1 LKQ Europe program related to employee-related costs. We estimate that we will incur between $45 million and $55 million in total

personnel and ~~inventory related~~inventory-related restructuring charges through 2024 under the ~~program, although we are undertaking a full review of most projects under the program in the fourth quarter, and will provide updated restructuring estimates once we have completed that effort.~~program. We may 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. As of March 31, 2021, the restructuring liabilities related to this program were immaterial.

Note 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 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. 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.

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 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~~three months ended ~~September 30, 2020~~March 31, 2021 was ~~$26~~$14 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~~three months ended ~~September 30, 2020:~~March 31, 2021:


		Number Outstanding	Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands) (1)			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
Unvested as of January 1, 2021								Unvested as of January 1, 2021	1,479,672	$	31.71
Granted(2)	Granted(2)	901,215	$	31.67				Granted(2)	690,011	$	38.52
Vested	Vested	(883,578)	$	31.52				Vested	(362,750)	$	32.86
Forfeited / Canceled	Forfeited / Canceled	(87,071)	$	32.79				Forfeited / Canceled	(13,774)	$	33.92
Unvested as of September 30, 2020		1,542,592	$	31.74
Expected to vest after September 30, 2020		1,344,073	$	31.65	2.9	$	37,271
Unvested as of March 31, 2021								Unvested as of March 31, 2021	1,793,159	$	34.08
Expected to vest after March 31, 2021								Expected to vest after March 31, 2021	1,604,984	$	34.25	3.3	$	67,939

(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 the expected to vest RSUs vested. This amount changes based on the market price of the Company’s common stock.

(2) The weighted average grant date fair value of RSUs granted during the three months ended March 31, 2020 was $33.14.

In ~~2019~~2021 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 performance periods.

The following table summarizes activity related to our PSUs under the Equity Incentive Plan for the ~~nine~~three months ended ~~September 30, 2020:~~March 31, 2021:

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 September 30, 2020 292,947 $ 29.97
Expected to vest after September 30, 2020 292,947 $ 29.97 1.7 $ 8,123


	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, 2021	291,601	$	29.98
Granted (2)	121,810	$	38.50
Forfeited / Canceled	0	$	0
Unvested as of March 31, 2021	413,411	$	32.49
Expected to vest after March 31, 2021	413,411	$	32.49	1.7	$	17,500

(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 the expected to vest 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 vested over periods~~ The weighted average grant date fair value of ~~up to five years, subject to a continued service condition. Stock options expired either six years or ten years from the date they were granted. No options were~~PSUs granted during the ~~nine~~three months ended ~~September 30, 2020. No options vested during the nine months ended September 30, 2020.~~

~~The following table summarizes activity related to our stock options under the Equity Incentive Plan for the nine months ended September 30, 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 September 30, 2020 0 $ 0 — $ 0

~~All stock options were exercised or canceled as of September 30, 2020.~~March 31, 2020 was $32.21.

Stock-Based Compensation Expense

Pre-tax stock-based compensation expense for RSUs and PSUs totaled ~~$7 million and $23~~$8 million for both the three ~~and nine~~ months ended ~~September 30, 2020, respectively,~~March 31, 2021 and ~~$7 million and $21 million for the three and nine months ended September 30, 2019, respectively.~~2020. As of ~~September 30, 2020,~~March 31, 2021, unrecognized compensation expense related to unvested RSUs and PSUs was ~~$44~~$61 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 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					Three Months Ended
		September 30,				September 30,					March 31,
		2020		2019		2020		2019			2021		2020
Income from continuing operations	Income from continuing operations	$	193,931	$	151,812	$	459,318	$	402,582	Income from continuing operations	$	266,332	$	146,894
Denominator for basic earnings per share—Weighted-average shares outstanding	Denominator for basic earnings per share—Weighted-average shares outstanding	304,271		307,230		304,837		311,360		Denominator for basic earnings per share—Weighted-average shares outstanding	303,043		306,238
Effect of dilutive securities:	Effect of dilutive securities:									Effect of dilutive securities:
RSUs	RSUs	295		293		333		341		RSUs	628		515
PSUs	PSUs	0		0		0		0		PSUs	94		0
Stock options	Stock options	0		437		1		503		Stock options	0		4
Denominator for diluted earnings per share—Adjusted weighted-average shares outstanding	Denominator for diluted earnings per share—Adjusted weighted-average shares outstanding	304,566		307,960		305,171		312,204		Denominator for diluted earnings per share—Adjusted weighted-average shares outstanding	303,765		306,757
Basic earnings per share from continuing operations	Basic earnings per share from continuing operations	$	0.64	$	0.49	$	1.51	$	1.29	Basic earnings per share from continuing operations	$	0.88	$	0.48
Diluted earnings per share from continuing operations (1)	Diluted earnings per share from continuing operations (1)	$	0.64	$	0.49	$	1.51	$	1.29	Diluted earnings per share from continuing operations (1)	$	0.88	$	0.48

(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~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ (in thousands):


		Three Months Ended		Nine Months Ended			Three Months Ended
		September 30,		September 30,			March 31,
		2020	2019	2020	2019		2021	2020
Antidilutive securities:	Antidilutive securities:					Antidilutive securities:
RSUs	RSUs	717	942	847	700	RSUs	117	381
Stock options		0	31	0	32

1915

Note 8. Accumulated Other Comprehensive Income (Loss)

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

Three Months Ended
September 30, 2020
Foreign
Currency
Translation Unrealized (Loss) Gain
on Cash Flow Hedges Unrealized (Loss) Gain
on Pension Plans Other Comprehensive Loss from Unconsolidated Subsidiaries Accumulated
Other
Comprehensive
(Loss) Income
BALANCE, July 1, 2020 $ (243,524) $ (1,994) $ (29,939) $ (4,306) $ (279,763)
Pretax income (loss) 70,178 (19,865) (34) 0 50,279
Income tax effect 0 4,690 9 0 4,699
Reclassification of unrealized loss 0 20,153 3,794 0 23,947
Reclassification of deferred income taxes 0 (4,756) (966) 0 (5,722)
Other comprehensive loss from unconsolidated subsidiaries 0 0 0 (3,162) (3,162)
BALANCE, September 30, 2020 $ (173,346) $ (1,772) $ (27,136) $ (7,468) $ (209,722)


	Three Months Ended
	March 31, 2021
	Foreign Currency Translation		Unrealized (Loss) Gain on Cash Flow Hedges		Unrealized (Loss) Gain on Pension Plans		Other Comprehensive Loss from Unconsolidated Subsidiaries		Accumulated Other Comprehensive (Loss) Income
BALANCE, January 1, 2021	$	(57,126)	$	(968)	$	(32,967)	$	(7,948)	$	(99,009)
Pretax (loss) income	(24,572)		3,119		0		0		(21,453)
Income tax effect	0		(736)		0		0		(736)
Reclassification of unrealized (gain) loss	0		(2,343)		437		0		(1,906)
Reclassification of deferred income taxes	0		618		(124)		0		494

Other comprehensive loss from unconsolidated subsidiaries	0		0		0		(3,512)		(3,512)
BALANCE, March 31, 2021	$	(81,698)	$	(310)	$	(32,654)	$	(11,460)	$	(126,122)

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
BALANCE, July 1, 2019 $ (181,890) $ 5,987 $ (7,856) $ (4,794) $ (188,553)
Pretax (loss) income (69,440) 28,594 (3,087) 0 (43,933)
Income tax effect 0 (6,739) 782 0 (5,957)
Reclassification of unrealized gain 0 (30,256) (61) 0 (30,317)
Reclassification of deferred income taxes 0 7,140 13 0 7,153
Disposal of business (379) 0 0 0 (379)
Other comprehensive income from unconsolidated subsidiaries 0 0 0 1,240 1,240
BALANCE, September 30, 2019 $ (251,709) $ 4,726 $ (10,209) $ (3,554) $ (260,746)

Nine Months Ended
September 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
BALANCE, January 1, 2020 $ (170,893) $ 5,358 $ (31,934) $ (3,416) $ (200,885)
Pretax loss (3,219) (23,490) (34) 0 (26,743)
Income tax effect 0 5,548 9 0 5,557
Reclassification of unrealized loss 0 14,207 6,563 0 20,770
Reclassification of deferred income taxes 0 (3,395) (1,740) 0 (5,135)
Disposal of business 766 0 0 0 766
Other comprehensive loss from unconsolidated subsidiaries 0 0 0 (4,052) (4,052)
BALANCE, September 30, 2020 $ (173,346) $ (1,772) $ (27,136) $ (7,468) $ (209,722)


		Nine Months Ended											Three Months Ended
		September 30, 2019											March 31, 2020
		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
BALANCE, January 1, 2019		$	(177,597)	$	14,374	$	(8,075)	$	(3,652)	$	(174,950)
BALANCE, January 1, 2020												BALANCE, January 1, 2020	$	(170,893)	$	5,358	$	(31,934)	$	(3,416)	$	(200,885)
Pretax (loss) income	Pretax (loss) income	(73,733)		34,769		(3,087)		0		(42,051)		Pretax (loss) income	(104,060)		4,182		0		0		(99,878)
Income tax effect	Income tax effect	0		(8,163)		782		0		(7,381)		Income tax effect	0		(984)		0		0		(984)
Reclassification of unrealized (gain) loss	Reclassification of unrealized (gain) loss	0		(47,431)		229		0		(47,202)		Reclassification of unrealized (gain) loss	0		(13,707)		114		0		(13,593)
Reclassification of deferred income taxes	Reclassification of deferred income taxes	0		11,177		(58)		0		11,119		Reclassification of deferred income taxes	0		3,188		6		0		3,194
Disposal of business	Disposal of business	(379)		0		0		0		(379)		Disposal of business	95		0		0		0		95
Other comprehensive income from unconsolidated subsidiaries		0		0		0		98		98
BALANCE, September 30, 2019		$	(251,709)	$	4,726	$	(10,209)	$	(3,554)	$	(260,746)
Other comprehensive loss from unconsolidated subsidiaries												Other comprehensive loss from unconsolidated subsidiaries	0		0		0		(1,852)		(1,852)
BALANCE, March 31, 2020												BALANCE, March 31, 2020	$	(274,858)	$	(1,963)	$	(31,814)	$	(5,268)	$	(313,903)

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						Three Months Ended
			September 30,				September 30,						March 31,
		Classification	2020		2019		2020		2019			Classification	2021		2020
Unrealized (losses) gains on interest rate swaps	Unrealized (losses) gains on interest rate swaps	Interest expense, net of interest income	$	(2,538)	$	1,459	$	(1,011)	$	4,914	Unrealized (losses) gains on interest rate swaps	Interest expense, net of interest income	$	(693)	$	3,296
Unrealized gains on cross currency swaps	Unrealized gains on cross currency swaps	Interest expense, net of interest income	2,696		4,071		8,043		12,720		Unrealized gains on cross currency swaps	Interest expense, net of interest income	539		2,551
Unrealized (losses) gains on cross currency swaps (1)		Other expense (income), net	(20,874)		24,726		(21,802)		29,797
Unrealized gains on cross currency swaps (1)											Unrealized gains on cross currency swaps (1)	Other income, net	1,973		7,860
Unrealized gains on foreign currency forward contracts (1)	Unrealized gains on foreign currency forward contracts (1)	Other expense (income), net	563		0		563		0		Unrealized gains on foreign currency forward contracts (1)	Other income, net	524		0
Total	Total		$	(20,153)	$	30,256	$	(14,207)	$	47,431	Total		$	2,343	$	13,707

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

Net unrealized losses and gains related to our pension plans were reclassified to Other ~~expense (income),~~income, net in our Unaudited Condensed Consolidated Statements of Income during ~~each of~~ the three ~~and nine~~ months ended ~~September 30, 2020~~March 31, 2021 and ~~2019.~~2020.

Our policy is to reclassify the income tax effect from Accumulated other comprehensive loss to the Provision for income taxes when the related gains and losses are released to the Unaudited Condensed Consolidated Statements of Income.

Note 9. Long-Term Obligations

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


		September 30,		December 31,			March 31,		December 31,
		2020		2019			2021		2020
Senior secured credit agreement:	Senior secured credit agreement:					Senior secured credit agreement:
Term loans payable	Term loans payable	$	328,125	$	341,250	Term loans payable	$	319,375	$	323,750
Revolving credit facilities	Revolving credit facilities	918,099		1,268,008		Revolving credit facilities	533,882		642,958
U.S. Notes (2023)		0		600,000

Euro Notes (2024)	Euro Notes (2024)	586,050		560,650		Euro Notes (2024)	586,500		610,800
Euro Notes (2026/28)	Euro Notes (2026/28)	1,172,100		1,121,300		Euro Notes (2026/28)	1,173,000		1,221,600
Receivables securitization facility	Receivables securitization facility	0		0		Receivables securitization facility	0		0
Notes payable through October 2030 at weighted average interest rates of 3.1% and 3.2%, respectively		26,490		26,971
Finance lease obligations at weighted average interest rates of 4.1% and 4.1%, respectively		48,567		40,837
Other debt at weighted average interest rates of 1.5% and 1.8%, respectively		54,034		113,010
Notes payable through October 2030 at weighted average interest rates of 3.4% and 3.3%, respectively						Notes payable through October 2030 at weighted average interest rates of 3.4% and 3.3%, respectively	21,420		24,526
Finance lease obligations at weighted average interest rates of 3.5% and 3.5%, respectively						Finance lease obligations at weighted average interest rates of 3.5% and 3.5%, respectively	54,505		57,336
Other debt at weighted average interest rates of 1.1% and 1.2%, respectively						Other debt at weighted average interest rates of 1.1% and 1.2%, respectively	46,340		15,706
Total debt	Total debt	3,133,465		4,072,026		Total debt	2,735,022		2,896,676
Less: long-term debt issuance costs	Less: long-term debt issuance costs	(26,243)		(29,990)		Less: long-term debt issuance costs	(15,379)		(25,225)
Less: current debt issuance costs	Less: current debt issuance costs	(316)		(280)		Less: current debt issuance costs	(7,951)		(313)
Total debt, net of debt issuance costs	Total debt, net of debt issuance costs	3,106,906		4,041,756		Total debt, net of debt issuance costs	2,711,692		2,871,138
Less: current maturities, net of debt issuance costs	Less: current maturities, net of debt issuance costs	(97,268)		(326,367)		Less: current maturities, net of debt issuance costs	(239,962)		(58,497)
Long term debt, net of debt issuance costs	Long term debt, net of debt issuance costs	$	3,009,638	$	3,715,389	Long term debt, net of debt issuance costs	$	2,471,730	$	2,812,641

Senior Secured Credit Agreement

On June 11, 2020, LKQ Corporation and certain other subsidiaries of LKQ (collectively, the "Borrowers") entered into Amendment No. 4 to the Fourth Amended and Restated Credit Agreement dated January 29, 2016 (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 September 30, 2020, December 31, 2020 and~~quarter ended 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 other immaterial modifications.

On December 14, 2020, we entered into Amendment No. 5 to the Credit Agreement; the amendment added as a borrower our subsidiary LKQ Europe GmbH, a Swiss limited liability company, and made certain other immaterial or clarifying modifications.

The total availability under the revolving credit facility's multicurrency component is $3.15 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 ~~$328~~$319 million as of ~~September 30, 2020,~~March 31, 2021, are due and payable in quarterly installments equal to approximately $4 million on the last day of each fiscal quarter, with the remaining balance due and payable on January 29, 2024.

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 10, "Derivative Instruments and Hedging Activities," the weighted average interest rates on borrowings outstanding under the Credit Agreement at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 were ~~1.7%~~1.2% and ~~1.6%~~1.7%, 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 $18 million classified as current maturities at both ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020. As of ~~September 30, 2020,~~March 31, 2021, there were letters of credit outstanding in the aggregate amount of $71 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 30, 2020~~March 31, 2021 was ~~$2.2~~$2.5 billion.

Related to the execution of Amendment No. 4 to the Fourth Amended and Restated Credit Agreement in 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,~~On January 10, 2020, we ~~issued~~redeemed the $600 million aggregate principal amount of 4.75% senior notes due 2023 (the ~~"U.S.~~"U.S Notes (2023)"). The U.S. Notes (2023) 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) were registered under the Securities Act of 1933.

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

The U.S. Notes (2023) and the related guarantees were, respectively, LKQ Corporation's and each Guarantor's senior unsecured obligations and 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) were effectively subordinated to all of the liabilities of our subsidiaries that were not guaranteeing the U.S. Notes (2023) to the extent of the assets of those subsidiaries.

~~On January 10, 2020, we redeemed the U.S Notes (2023)~~ at a redemption price equal to 101.583% of the principal amount of the U.S. Notes (2023) plus accrued and unpaid interest thereon to, but not including, January 10, 2020. The total redemption payment was $614 million, including an 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 the redemption due to the early-redemption premium and the write-off of 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 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 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~~On April 1, 2021, we redeemed the Euro Notes ~~(2026/28) in~~2026 at a redemption price equal to 101.813% of the principal amount of the 2026 notes plus accrued and unpaid interest thereon to, but not including, April ~~2018, we incurred~~1, 2021. The total redemption payment was $915 million (€777 million), including an early-redemption premium of $16 million (€14 million) and accrued and unpaid interest of ~~fees, which were capitalized as an offset~~$16 million (€14 million). In the second quarter of 2021, we will record a loss on debt extinguishment of $24 million related to ~~Long-Term Obligations~~the redemption due to the early-redemption premium and ~~are amortized over~~ the ~~term~~write-off of the ~~Euro Notes (2026/28).~~unamortized debt issuance costs.

Receivables Securitization Facility

On December 20, 2018, we amended the terms of our receivables securitization facility with MUFG Bank, Ltd. ("MUFG") 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. Net receivables totaling

2419

$~~107~~111 million and ~~$132~~$121 million were collateral for the investments under the receivables facility as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, 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")~~, 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. There was no outstanding balance as of ~~September 30, 2020~~March 31, 2021 or December 31, ~~2019.~~2020.

Note 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 in ~~January 2021 and~~ June 2021.

~~We hold~~At December 31, 2020, we held cross currency swaps, which ~~contain~~contained 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~~were intended to minimize the impact of fluctuating exchange rates and interest rates on the cash flows resulting from the related intercompany financing arrangements. Changes in the fair value of the derivative instruments ~~are~~were recorded in Accumulated other comprehensive income (loss) and ~~are~~were reclassified to Interest expense, net of interest income and Other ~~expense (income),~~income, net when the underlying transactions ~~have~~had an impact on earnings. ~~Our cross currency swaps have maturity dates in October 2020 and January 2021.~~

WeFrom 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 where we are applying hedge accounting are recorded in Accumulated other comprehensive income (loss) and reclassified to Other ~~expense (income),~~income, net when the underlying transaction has an impact on earnings. ~~Our foreign currency forward contracts have maturity dates in December 2020 to coincide with the maturities of the related intercompany loans.~~

As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, we held cash flow hedges with the following notional amounts (in thousands):


		September 30, 2020		December 31, 2019			March 31, 2021		December 31, 2020
Interest rate swap agreements	Interest rate swap agreements					Interest rate swap agreements
USD denominated	USD denominated	$	480,000	$	480,000	USD denominated	$	150,000	$	480,000
Cross currency swap agreements	Cross currency swap agreements					Cross currency swap agreements
Euro denominated ~~(1)~~	Euro denominated ~~(1)~~	€	423,750	€	435,000	Euro denominated ~~(1)~~	€	0	€	340,000
Foreign currency forward contracts	Foreign currency forward contracts					Foreign currency forward contracts
Euro denominated (2)		€	91,000	€	0
GBP denominated		£	75,000	£	0
SEK denominated						SEK denominated	kr	0	kr	227,000

~~(1) The notional amount of our cross currency swap agreements steps down by €4 million quarterly, with the balance maturing at the end of the contract.~~

~~(2) In October 2020, we entered into an additional foreign currency forward contract for €51 million, also maturing in December 2020.~~

The following tables summarize the fair values of our designated cash flow hedges as of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 (in thousands):

Fair Value at September 30, 2020
Other Current Assets Other Noncurrent Assets Other Accrued Expenses Other Noncurrent Liabilities
Interest rate swap agreements $ 0 $ 0 $ 1,952 $ 0
Cross currency swap agreements 0 0 42,121 0
Foreign currency forward contracts 402 0 252 0
Total cash flow hedges $ 402 $ 0 $ 44,325 $ 0


		Fair Value at December 31, 2019									Other Accrued Expenses
		Other Current Assets		Other Noncurrent Assets		Other Accrued Expenses		Other Noncurrent Liabilities			Fair Value at March, 31 2021		Fair Value at December 31, 2020
Interest rate swap agreements	Interest rate swap agreements	$	0	$	3,262	$	0	$	0	Interest rate swap agreements	$	335	$	899
Cross currency swap agreements	Cross currency swap agreements	2,975		181		970		23,349		Cross currency swap agreements	0		56,328
Foreign currency forward contracts										Foreign currency forward contracts	0		1,350
Total cash flow hedges	Total cash flow hedges	$	2,975	$	3,443	$	970	$	23,349	Total cash flow hedges	$	335	$	58,577

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 have an immaterial impact to our Unaudited Condensed Consolidated Balance Sheet at September 30, 2020. At December 31, 2019 the impact of netting the fair values of our derivative contracts would result in a $1 million decrease to Prepaid expenses and other current assets and Other accrued expenses, and a $1 million decrease to Other noncurrent assets and Other noncurrent liabilitiesno effect on our Unaudited Condensed Consolidated Balance ~~Sheet.~~Sheets at March 31, 2021 and December 31, 2020.

The activity related to our cash flow hedges is included in Note 8, "Accumulated Other Comprehensive Income (Loss)." As of September 30, 2020, we estimate that we will reclassify $1 million of derivative losses (net of tax) from Accumulated other comprehensive income (loss) 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 $1 million of derivative losses (net of tax) from Accumulated other comprehensive income (loss) to Other expense (income), net in our Unaudited Condensed Consolidated Statements of Income within the next 12 months; the reclassification of derivative losses to Other expense (income), net offsets the projected impact of the remeasurement of the underlying transactions.

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

Other Derivative Instruments Not Designated as Hedges

To manage our foreign currency exposure on non-functional currency denominated borrowings, we have entered into short term foreign currency forward contracts. We ~~hold other short-term derivative~~expect to enter into similar instruments ~~including~~as each instrument matures and expect to continue to do so until the foreign currency denominated borrowings are repaid. As of March 31, 2021, we held foreign currency forward contracts ~~to manage our exposure to variability related to inventory purchases denominated~~with notional amounts of $315 million and €184 million. At December 31, 2020, the notional amounts of similar contracts were €142 million and £75 million. On April 1, 2021, in connection with the redemption of the Euro Notes 2026, we entered into an additional foreign currency forward contract with a ~~non-functional currency.~~ notional amount of $720 million.

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~~fair values of these other short-term derivative instruments are recorded in either Prepaid expenses and other current assets or Other accrued expenses on our Consolidated Balance Sheets. The fair ~~value~~values of these contracts at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, along with the effect on our results of operations during the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, were immaterial.

We hold other short-term derivative instruments, including foreign currency forward contracts, to manage our exposure to variability in the cash flows related to inventory purchases denominated in a non-functional currency. We have elected not to apply hedge accounting for these transactions. The notional amount and ~~2019,~~fair value of these contracts at March 31, 2021 and December 31, 2020, along with the effect on our results of operations during the three months ended March 31, 2021 and 2020, were immaterial.

Note 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~~ months ended ~~September 30, 2020,~~March 31, 2021, 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 for 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 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 (in thousands):

Balance as of September 30, 2020 Fair Value Measurements as of September 30, 2020
Level 1 Level 2 Level 3
Assets:
Cash surrender value of life insurance $ 63,490 $ 0 $ 63,490 $ 0
Foreign currency forward contracts 402 0 402 0
Total Assets $ 63,892 $ 0 $ 63,892 $ 0
Liabilities:
Contingent consideration liabilities $ 11,928 $ 0 $ 0 $ 11,928
Interest rate swaps 1,952 0 1,952 0
Deferred compensation liabilities 67,500 0 67,500 0
Cross currency swap agreements 42,121 0 42,121 0
Foreign currency forward contracts 252 0 252 0
Total Liabilities $ 123,753 $ 0 $ 111,825 $ 11,928


	Balance as of March 31, 2021		Fair Value Measurements as of March 31, 2021
			Level 1		Level 2		Level 3
Assets:
Cash surrender value of life insurance	$	79,435	$	0	$	79,435	$	0


Foreign currency forward contracts	4,451		0		4,451		0
Total Assets	$	83,886	$	0	$	83,886	$	0
Liabilities:
Contingent consideration liabilities	$	3,422	$	0	$	0	$	3,422
Interest rate swaps	335		0		335		0
Deferred compensation liabilities	81,231		0		81,231		0


Foreign currency forward contracts	632		0		632		0
Total Liabilities	$	85,620	$	0	$	82,198	$	3,422


		Balance as of December 31, 2019		Fair Value Measurements as of December 31, 2019							Balance as of December 31, 2020		Fair Value Measurements as of December 31, 2020
				Level 1		Level 2		Level 3					Level 1		Level 2		Level 3
Assets:	Assets:									Assets:
Cash surrender value of life insurance	Cash surrender value of life insurance	$	60,637	$	0	$	60,637	$	0	Cash surrender value of life insurance	$	72,250	$	0	$	72,250	$	0
Interest rate swaps		3,262		0		3,262		0
Cross currency swap agreements		3,156		0		3,156		0

Total Assets	Total Assets	$	67,055	$	0	$	67,055	$	0	Total Assets	$	72,250	$	0	$	72,250	$	0
Liabilities:	Liabilities:									Liabilities:
Contingent consideration liabilities	Contingent consideration liabilities	$	11,539	$	0	$	0	$	11,539	Contingent consideration liabilities	$	13,263	$	0	$	0	$	13,263
Interest rate swaps										Interest rate swaps	899		0		899		0
Deferred compensation liabilities	Deferred compensation liabilities	63,981		0		63,981		0		Deferred compensation liabilities	76,240		0		76,240		0
Cross currency swap agreements	Cross currency swap agreements	24,319		0		24,319		0		Cross currency swap agreements	56,328		0		56,328		0
Foreign currency forward contracts										Foreign currency forward contracts	5,190		0		5,190		0
Total Liabilities	Total Liabilities	$	99,839	$	0	$	88,300	$	11,539	Total Liabilities	$	151,920	$	0	$	138,657	$	13,263

The cash surrender value of life insurance is included in Other noncurrent assets on our Unaudited Condensed Consolidated Balance Sheets. The current portion of contingent consideration liabilities is included in Other current liabilities on our Unaudited Condensed Consolidated Balance Sheets; the noncurrent portion of 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, cross currency swap agreements, and foreign currency forward contracts is presented in Note 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.

We also have equity investments recorded in Other noncurrent assets that are reported at fair value. We have used net asset value as a practical expedient to value these equity investments and thus they are excluded from the fair value hierarchy disclosure.

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 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the fair value of our credit agreement borrowings reasonably approximated the carrying values of ~~$1.2 billion~~$853 million and ~~$1.6 billion,~~$967 million, respectively. As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 there were no outstanding borrowings under the receivables facility. As of ~~December~~March 31, ~~2019, the fair value of the U.S. Notes (2023) was approximately $609 million compared to a carrying value of~~ ~~$600 million; as of September 30, 2020, there were no outstanding borrowings on the U.S. Notes (2023). As of September 30, 2020~~2021 and December 31, ~~2019,~~2020, the fair values of the Euro Notes (2024) were approximately ~~$617~~$633 million and ~~$632~~$662 million, respectively, compared to carrying values of ~~$586~~$587 million and ~~$561~~$611 million, respectively. As of ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the fair ~~value~~values of the Euro Notes (2026/28) ~~was~~were $1.2 billion ~~at each date,~~and $1.3 billion, respectively, compared to a carrying value of $1.2 billion ~~and $1.1 billion, respectively.~~as of both dates.

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 30, 2020~~March 31, 2021 and December 31, ~~2019~~2020 to assume these obligations. The fair value of our U.S. Notes (2023) was classified as Level 1 within the fair value hierarchy since it was 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 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 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, the aggregate funded status of the defined benefit plans was a liability of $146 million~~$141 million~~ and ~~$142~~$153 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. U.S. Plan participants were able to 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 was 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 reclassified $2 million of unrealized loss from Accumulated other comprehensive loss to Other expense (income), net in our Unaudited Condensed Consolidated Statements of Income as of June 30, 2020 to reflect the partial settlement of the plan. During the three months ended September 30, 2020, we recorded a further $4 million reclassification of unrealized loss from Accumulated other comprehensive loss to Other expense (income), net based on the annuity purchase cost to settle the plan obligations.

Net periodic benefit cost for our defined benefit plans included the following components for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ (in thousands):


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2020		2019		2020		2019			2021		2020
Service cost	Service cost	$	688	$	551	$	2,214	$	2,212	Service cost	$	895	$	670
Interest cost	Interest cost	682		959		2,131		2,954		Interest cost	342		718
Expected return on plan assets	Expected return on plan assets	(411)		(455)		(1,551)		(1,795)		Expected return on plan assets	(423)		(478)

Amortization of actuarial loss (gain)		238		(61)		907		229
Amortization of actuarial loss										Amortization of actuarial loss	437		114

Settlement loss		3,556		0		5,656		0

Net periodic benefit cost	Net periodic benefit cost	$	4,753	$	994	$	9,357	$	3,600	Net periodic benefit cost	$	1,251	$	1,024

For the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 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 ~~expense (income),~~income, net in our Unaudited Condensed Consolidated Statements of Income.

Note 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~~three months ended ~~September 30, 2020~~March 31, 2021 was ~~28.3%~~26.3%, compared to ~~27.5%~~29.2% for the comparable prior year period. The ~~increase is attributable to a higher expected~~lower estimated annual effective tax rate ~~in 2020 as a result of~~for 2021 is primarily attributable to the ~~estimated unfavorable impact of the COVID-19 pandemic on the Company’s~~higher forecasted 2021 results of operations, ~~particularly~~as compared to the forecasts available during the comparable quarter in ~~certain international jurisdictions. Primary factors in the increase include~~2020, when COVID-19 pandemic economic disruptions were depressing forecasted 2020 results. Higher projected income contributes to lower anticipated valuation allowances on the tax benefit of net operating losses ~~in certain jurisdictions where realization is uncertain,~~ and ~~the impact of lower available~~suspended interest deductions in certain ~~foreign~~

jurisdictions ~~due to legislative thin capitalization constraints, typically based on profitability.~~where realization may be uncertain. For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, the effective tax rate was ~~increased 0.3%~~decreased 0.2% by ~~unfavorable~~favorable discrete items, primarily ~~valuation allowances~~excess tax benefits on ~~net operating loss carryforwards~~stock-based compensation. Net discrete items for the three months ended March 31, 2020 reduced the effective tax rate by 0.8%, primarily due to excess tax benefits on stock-based compensation and deferred tax adjustments as a result of statutory tax rate changes. Net discrete items for the nine months ended September 30, 2019 were immaterial 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 volatility in the effective tax rate driven generally by the level of profitability and changes in the mix of earnings across the Company’s jurisdictions.

Note 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, 2020
Revenue:
Third Party $ 1,164,031 $ 1,484,099 $ 399,554 $ 0 $ 3,047,684
Intersegment 210 0 875 (1,085) 0
Total segment revenue $ 1,164,241 $ 1,484,099 $ 400,429 $ (1,085) $ 3,047,684
Segment EBITDA $ 204,957 $ 136,165 $ 48,340 $ 0 $ 389,462
Depreciation and amortization (1)
24,479 44,412 7,436 0 76,327
Three Months Ended September 30, 2019
Revenue:
Third Party $ 1,302,086 $ 1,451,483 $ 394,204 $ 0 $ 3,147,773
Intersegment 61 0 1,110 (1,171) 0
Total segment revenue $ 1,302,147 $ 1,451,483 $ 395,314 $ (1,171) $ 3,147,773
Segment EBITDA $ 166,310 $ 124,712 $ 45,464 $ 0 $ 336,486
Depreciation and amortization (1)
23,593 47,302 6,983 0 77,878


		North America		Europe		Specialty		Eliminations		Consolidated			North America		Europe		Specialty		Eliminations		Consolidated
Nine Months Ended September 30, 2020
Three Months Ended March 31, 2021												Three Months Ended March 31, 2021
Revenue:	Revenue:											Revenue:
Third Party	Third Party	$	3,465,102	$	4,058,878	$	1,150,962	$	0	$	8,674,942	Third Party	$	1,249,374	$	1,463,453	$	457,959	$	0	$	3,170,786
Intersegment	Intersegment	729		0		2,923		(3,652)		0		Intersegment	319		0		980		(1,299)		0
Total segment revenue	Total segment revenue	$	3,465,831	$	4,058,878	$	1,153,885	$	(3,652)	$	8,674,942	Total segment revenue	$	1,249,693	$	1,463,453	$	458,939	$	(1,299)	$	3,170,786
Segment EBITDA	Segment EBITDA	$	565,949	$	303,814	$	132,805	$	0	$	1,002,568	Segment EBITDA	$	249,167	$	140,958	$	61,482	$	0	$	451,607
Depreciation and amortization (1)	Depreciation and amortization (1)	72,677		126,000		21,959		0		220,636		Depreciation and amortization (1)	24,260		40,258		7,079		0		71,597
Nine Months Ended September 30, 2019
Three Months Ended March 31, 2020												Three Months Ended March 31, 2020
Revenue:	Revenue:											Revenue:
Third Party	Third Party	$	3,925,962	$	4,413,264	$	1,157,023	$	0	$	9,496,249	Third Party	$	1,289,935	$	1,363,594	$	347,406	$	0	$	3,000,935
Intersegment	Intersegment	260		0		3,664		(3,924)		0		Intersegment	260		0		1,176		(1,436)		0
Total segment revenue	Total segment revenue	$	3,926,222	$	4,413,264	$	1,160,687	$	(3,924)	$	9,496,249	Total segment revenue	$	1,290,195	$	1,363,594	$	348,582	$	(1,436)	$	3,000,935
Segment EBITDA	Segment EBITDA	$	532,994	$	346,291	$	135,790	$	0	$	1,015,075	Segment EBITDA	$	211,438	$	78,262	$	32,232	$	0	$	321,932
Depreciation and amortization (1)	Depreciation and amortization (1)	68,257		141,087		20,895		0		230,239		Depreciation and amortization (1)	23,148		41,095		7,136		0		71,379

(1) Amounts presented include depreciation and amortization expense recorded within Cost of goods sold and Restructuring and acquisition related expenses.

The key measure of segment profit or loss reviewed by our chief operating decision maker, our Chief Executive Officer, is Segment EBITDA. We use Segment EBITDA to compare profitability among our segments and evaluate business strategies. 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; equity investment mark to market adjustments; and impairment charges. EBITDA, which is the basis for Segment EBITDA, is calculated as net income attributable to LKQ stockholders 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,
2020 2019 2020 2019
Net income $ 193,931 $ 152,593 $ 458,680 $ 403,761
Less: net income (loss) attributable to continuing noncontrolling interest 448 (46) 1,166 2,321
Less: net income attributable to discontinued noncontrolling interest 0 376 103 568
Net income attributable to LKQ stockholders 193,483 152,263 457,411 400,872
Subtract:
Net income (loss) from discontinued operations 0 781 (638) 1,179
Net income attributable to discontinued noncontrolling interest 0 (376) (103) (568)
Net income from continuing operations attributable to LKQ stockholders 193,483 151,858 458,152 400,261
Add:
Depreciation and amortization 68,655 71,513 199,897 213,349
Depreciation and amortization - cost of goods sold 7,067 5,391 16,162 15,916
Depreciation and amortization - restructuring expenses (1)
605 974 4,577 974
Interest expense, net of interest income 25,182 32,104 76,729 104,077
(Gain) loss on debt extinguishment 0 (128) 12,751 (128)
Provision for income taxes 78,510 57,747 180,790 165,122
EBITDA 373,502 319,459 949,058 899,571
Subtract:
Equity in earnings (losses) of unconsolidated subsidiaries (2)
4,113 4,232 1,980 (33,745)
Add:
Restructuring and acquisition related expenses (1)
19,890 7,955 47,838 19,639
Restructuring expenses - cost of goods sold 833 17,130 6,494 17,130
(Gain) loss on disposal of businesses and impairment of net assets held for sale (3)
(503) (3,601) 1,733 44,919
Change in fair value of contingent consideration liabilities (147) (225) (575) 71
Segment EBITDA $ 389,462 $ 336,486 $ 1,002,568 $ 1,015,075


	Three Months Ended
	March 31,
	2021		2020
Net income	$	266,332	$	145,979
Less: net income attributable to continuing noncontrolling interest	419		740
Less: net income attributable to discontinued noncontrolling interest	0		103
Net income attributable to LKQ stockholders	265,913		145,136
Subtract:
Net loss from discontinued operations	0		(915)
Net income attributable to discontinued noncontrolling interest	0		(103)
Net income from continuing operations attributable to LKQ stockholders	265,913		146,154
Add:
Depreciation and amortization	65,801		65,495
Depreciation and amortization - cost of goods sold	5,615		5,085
Depreciation and amortization - restructuring expenses (1)	181		799
Interest expense, net of interest income	24,179		25,931
Loss on debt extinguishment	0		12,751
Provision for income taxes	92,969		60,411
EBITDA	454,658		316,626
Subtract:
Equity in earnings of unconsolidated subsidiaries (2)	5,819		516
Equity investment mark to market adjustments	4,739		0

Add:
Restructuring and acquisition related expenses (1)	7,704		6,171
Restructuring expenses - cost of goods sold	(163)		(4)



Impairment of net assets held for sale and (gain on disposal of business)	15		(249)
Change in fair value of contingent consideration liabilities	(49)		(96)
Segment EBITDA	$	451,607	$	321,932

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

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


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2020		2019		2020		2019			2021		2020
Capital Expenditures	Capital Expenditures									Capital Expenditures
North America	North America	$	12,352	$	29,430	$	52,565	$	83,833	North America	$	13,335	$	29,321
Europe	Europe	17,420		30,916		49,970		72,333		Europe	26,298		13,048
Specialty	Specialty	2,876		3,937		7,414		9,385		Specialty	2,146		2,169
Total capital expenditures	Total capital expenditures	$	32,648	$	64,283	$	109,949	$	165,551	Total capital expenditures	$	41,779	$	44,538

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


		September 30,		December 31,			March 31,		December 31,
		2020		2019			2021		2020
Receivables, net	Receivables, net					Receivables, net
North America	North America	$	380,907	$	419,452	North America	$	401,737	$	386,289
Europe	Europe	688,175		636,216		Europe	680,067		598,615
Specialty	Specialty	105,422		75,464		Specialty	170,570		88,485
Total receivables, net	Total receivables, net	1,174,504		1,131,132		Total receivables, net	1,252,374		1,073,389
Inventories	Inventories					Inventories
North America	North America	805,681		991,062		North America	776,512		810,798
Europe	Europe	1,228,332		1,401,801		Europe	1,278,147		1,302,649
Specialty	Specialty	211,833		379,914		Specialty	338,055		301,165
Total inventories	Total inventories	2,245,846		2,772,777		Total inventories	2,392,714		2,414,612
Property, plant and equipment, net	Property, plant and equipment, net					Property, plant and equipment, net
North America	North America	579,693		610,573		North America	569,428		583,985
Europe	Europe	544,745		538,951		Europe	556,489		583,439
Specialty	Specialty	80,328		84,876		Specialty	78,726		81,279
Total property, plant and equipment, net	Total property, plant and equipment, net	1,204,766		1,234,400		Total property, plant and equipment, net	1,204,643		1,248,703
Operating lease assets, net	Operating lease assets, net					Operating lease assets, net
North America	North America	761,928		768,164		North America	777,546		755,430
Europe	Europe	441,223		457,035		Europe	520,857		520,131
Specialty	Specialty	80,061		83,312		Specialty	74,835		77,563
Total operating lease assets, net	Total operating lease assets, net	1,283,212		1,308,511		Total operating lease assets, net	1,373,238		1,353,124
Equity method investments	Equity method investments					Equity method investments
North America	North America	18,730		17,624		North America	21,098		18,676
Europe	Europe	128,806		121,619		Europe	149,631		136,548
Total equity method investments	Total equity method investments	147,536		139,243		Total equity method investments	170,729		155,224
Other unallocated assets	Other unallocated assets	6,105,348		6,193,893		Other unallocated assets	6,271,759		6,115,481
Total assets	Total assets	$	12,161,212	$	12,779,956	Total assets	$	12,665,457	$	12,360,533

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~~the U.K. and ~~the U.K.~~Germany. Additional European operations are located in the Netherlands, Italy, Czech Republic, Belgium, Austria, Slovakia, Poland, and other European countries. Our operations in other countries include wholesale operations in Canada, remanufacturing operations in Mexico, an aftermarket

parts freight consolidation warehouse in Taiwan, and administrative support functions in India. Our net sales are attributed to geographic area based on the location of the selling operation.

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


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2020		2019		2020		2019			2021		2020
Revenue	Revenue									Revenue
United States	United States	$	1,463,063	$	1,579,691	$	4,327,563	$	4,735,134	United States	$	1,605,433	$	1,533,945
United Kingdom										United Kingdom	403,438		390,619
Germany	Germany	396,119		394,115		1,129,805		1,196,527		Germany	387,876		374,552
United Kingdom		411,861		394,621		1,080,899		1,217,199
Other countries	Other countries	776,641		779,346		2,136,675		2,347,389		Other countries	774,039		701,819
Total revenue	Total revenue	$	3,047,684	$	3,147,773	$	8,674,942	$	9,496,249	Total revenue	$	3,170,786	$	3,000,935

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

September 30, December 31,
2020 2019
Long-lived assets
United States $ 1,429,743 $ 1,467,701
Germany 348,260 340,995
United Kingdom 295,658 330,113
Other countries 414,317 404,102
Total long-lived assets $ 2,487,978 $ 2,542,911


	March 31,		December 31,
	2021		2020
Long-lived assets
United States	$	1,423,988	$	1,419,113
Germany	344,602		360,184
United Kingdom	310,013		315,333
Other countries	499,278		507,197
Total long-lived assets	$	2,577,881	$	2,601,827

3327

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

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, 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~~2020 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, the Benelux region (Belgium, Netherlands, and Luxembourg), Italy, Czech Republic, Austria, Slovakia, 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. Through 2018, our acquisition strategy was focused on consolidation to build scale in fragmented markets across North America and Europe. We targeted companies that were market leaders, expanded our geographic presence and enhanced our ability to provide a wide array of vehicle products through our distribution network. In the last few years, we have shifted our focus from larger transactions to tuck-in acquisitions that target high synergies and/or add critical capabilities. Additionally, we have made investments in various businesses to advance our strategic objectives.

See "Investments in Unconsolidated

3428

~~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 additional information related to our 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. Revenue from other sources includes scrap and other metal (including precious metals - platinum, palladium and rhodium) 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 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

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 ~~2019~~2020 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 as described below, there~~There have been no changes to those critical accounting policies orand estimates that have had a material impact on our reported amounts of assets, liabilities, revenue or expenses during the ~~nine~~three months ended ~~September 30, 2020.~~

~~COVID-19 Projections and Assumptions~~

In the first, second and third 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. Actual results have shown an improving trend, with profitability in both the second and third quarters exceeding our prior forecast prepared in the first quarter of 2020. We expect to face continued pressure on revenue with COVID-19 infection rates rising in a number of our geographies, but we believe that profit margins will remain above the prior year due to margin and overhead cost initiatives implemented this year. Additionally, we expect to generate higher free cash flows (as defined in the Key Performance Indicators section below) for the full year of 2020 than we generated in the prior 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 intangibl~~e 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 or third 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 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 or third quarter that necessitated an interim test of impairment.2021.

Recently Issued Accounting Pronouncements

See "Recent Accounting Pronouncements" 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 related to new accounting standards.

Financial Information by Geographic Area

See Note 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 expect 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 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. Beginning in the second half of March 2020, 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. While certain projects were delayed as a result of the COVID-19 pandemic, such as our procurement initiatives and the new ~~head office~~headquarters in Switzerland, we also accelerated certain projects, such as the integration of previously acquired networks and sharing resources across LKQ Europe. We ~~expect~~have continued the project on schedule after the restart. We are targeting to complete the organizational design and implementation projects by the middle of 2021, with the remaining projects scheduled to be

completed by 2024. During the three months ended March 31, 2021, we incurred $14 million in costs across all three categories noted above. We expect that costs of the program, reflecting all three categories noted above, will range between ~~$100~~$50 million and ~~$125~~$70 million ~~for the period from 2020 through~~in 2021 with an additional $80 million to $100 million between 2022 and the ~~original~~ projected program completion date ~~of the project~~ in ~~2024; however, we are undertaking a full review of most projects under the program in the fourth quarter, and will provide updated program estimates once we have completed that effort.~~2024. In the future, we may also identify additional initiatives and projects under the 1 LKQ Europe program that may result in additional expenditures, although we are currently unable to estimate the range of charges for such potential future initiatives and projects. We expect the transformation and restructuring expenses will be entirely funded by the improved trade working capital initiatives across our Europe segment.

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%, 4.5% and ~~4.5%~~5.2% in the second, third, and ~~third~~fourth quarters of 2020, respectively, relative to the comparable prior ~~periods, but~~periods. We showed improvement ~~over~~in the ~~periods~~third quarter of 2020 as governments gradually lifted restrictions for non-essential businesses and personal ~~movement.~~movement; however, in the fourth quarter of 2020 revenue declined as certain jurisdictions put restrictions back into place. As anticipated, April 2020 experienced the most negative revenue impact, with organic parts and services revenue (on a per day basis) down 30.3% compared to the prior year period. As movement restrictions lessened in May and June 2020, we experienced organic parts and services revenue declines (on a per day basis) of 13.2% and 7.3%, respectively, compared to the prior year periods. However, the pace of improvement flattened into the third quarter of 2020 as the increasing level of COVID-19 cases, especially in the United States, slowed the recovery. During the third quarter of 2020, organic parts and services revenue declined by 4.5% compared to the prior year period, a small improvement from the June 2020 decline of 7.3% (on a per day basis). InDuring the fourth quarter of 2020, ~~we expect~~organic parts and services revenue ~~to remain lower~~declined by 6.1% (on a per day basis) and gradually worsened during the quarter with a decline of 7.2% (on a per day basis) in December. During the first quarter of 2021, organic parts and services revenue increased by 2.2% (on a per day basis) despite the continued COVID-19 impact on ~~a year over year basis as COVID-19 continues to impact~~ economic activity in the U.S. and Europe. Our revenue has been impacted to varying degrees depending on the segment, with North America experiencing the most negative impact due to the decrease in miles driven and collision activity. After seeing year over year decreases early in the pandemic, Specialty revenue has grown due to favorable trends in recreational vehicle activity. We expect consolidated revenue to continue to increase in the second quarter of 2021 off of a low base and a gradual recovery in the second half of 2021. The level of the year over year ~~decrease~~increase in revenue will depend on the extent of lockdown measures taken in response to ~~an increase in~~ the prevalence of the virus ~~outbreak.~~outbreak and the timing and effectiveness of the vaccination efforts.

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. In the second quarter of 2020, these cost actions contributed to a reduction of approximately 18% in quarterly selling, general and administrative expenses compared to our first quarter 2020 run rate. We estimate that the cost actions generated a $10 million benefit in cost of goods sold compared to our second quarter of 2019. 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. During the third and fourth quarters of 2020 and first quarter of 2021, we were able to sustain a portion of the cost benefits, with quarterly selling, general and administrative costs down between 6% and 10% for all periods compared to the first quarter 2020 run rate. ~~We estimate that the cost actions generated a $10 million benefit in cost of goods sold compared to our third quarter of 2019.~~ If revenue increases ~~going forward into~~during the remainder of 2021, ~~as projected,~~ we 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 as seen in the third and fourth quarter ~~results.We~~of 2020 and first quarter of 2021 results.

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 September 30, 2020,~~expenses. During the quarter ended March 31, 2021, we qualified for ~~$45~~$9 million of assistance. No government assistance ~~although that figure~~ was ~~heavily weighted to~~recorded for the three months ended March 31, 2020. We received $52 million of government assistance in 2020, with the largest portion coming in the second quarter. We currently do not anticipate qualifying for significant additional assistance in the ~~fourth quarter~~remainder of ~~2020, although this~~2021, but we still will receive some government assistance in England. This view may change in the future based on developments with the ~~recent~~ resurgence of the virus outbreak.

These cost actions lagged the revenue impact in the first and second quarters of 2020, which meant there was a negative timing impact of COVID-19 on our profitability in those periods in addition to the negative effect from reduced revenue. By the third

quarter, the cost actions were aligned with the revenue changes, and we generated higher Segment

EBITDA dollars and margins than in the third quarter of 2019. In the fourth quarter of 2020 and first quarter of 2021, profitability remained higher than the prior year.

We also emphasized the preservation of capital in 2020 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 (the majority of which were paid during the third ~~quarter)~~quarter of 2020), and suspension of our share buyback ~~program.~~program (which was reinstated during the fourth quarter of 2020). This focus was successful as we improved our liquidity position at March 31, 2021 by approximately $1.4 billion relative to March 31, 2020 while managing through the disruption caused by the pandemic.

In each quarter 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. Actual results showed an improving trend, with profitability in the second, third and fourth quarters all exceeding our prior forecast prepared in the first quarter of 2020. We will continue to assess COVID-19 developments and the potential impacts on our business in 2021 and update the applicable analyses as necessary.

One of our top priorities is the health and safety of our employees, customers and the communities in which we operate. We are using all reasonable 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 designed 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 at our facilities; use of personal ~~protection~~protective 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~~our 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~~in determining 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.

3831

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				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2020		2019		2020		2019			2021		2020
Revenue	Revenue	100.0	%	100.0	%	100.0	%	100.0	%	Revenue	100.0	%	100.0	%
Cost of goods sold	Cost of goods sold	60.7	%	61.9	%	60.5	%	61.5	%	Cost of goods sold	59.2	%	59.6	%

Gross margin	Gross margin	39.3	%	38.1	%	39.5	%	38.5	%	Gross margin	40.8	%	40.4	%
Selling, general and administrative expenses	Selling, general and administrative expenses	26.7	%	28.3	%	28.3	%	28.3	%	Selling, general and administrative expenses	26.8	%	30.0	%
Restructuring and acquisition related expenses	Restructuring and acquisition related expenses	0.7	%	0.3	%	0.6	%	0.2	%	Restructuring and acquisition related expenses	0.2	%	0.2	%
(Gain) loss on disposal of businesses and impairment of net assets held for sale		(0.0)	%	(0.1)	%	0.0	%	0.5	%
Impairment of net assets held for sale and (gain on disposal of business)										Impairment of net assets held for sale and (gain on disposal of business)	0.0	%	(0.0)	%
Depreciation and amortization	Depreciation and amortization	2.3	%	2.3	%	2.3	%	2.2	%	Depreciation and amortization	2.1	%	2.2	%
Operating income	Operating income	9.7	%	7.4	%	8.3	%	7.3	%	Operating income	11.7	%	8.1	%
Total other expense, net	Total other expense, net	0.9	%	0.8	%	0.9	%	0.9	%	Total other expense, net	0.6	%	1.2	%
Income from continuing operations before provision for income taxes	Income from continuing operations before provision for income taxes	8.8	%	6.5	%	7.4	%	6.3	%	Income from continuing operations before provision for income taxes	11.1	%	6.9	%
Provision for income taxes	Provision for income taxes	2.6	%	1.8	%	2.1	%	1.7	%	Provision for income taxes	2.9	%	2.0	%
Equity in earnings (losses) of unconsolidated subsidiaries		0.1	%	0.1	%	0.0	%	(0.4)	%
Equity in earnings of unconsolidated subsidiaries										Equity in earnings of unconsolidated subsidiaries	0.2	%	0.0	%
Income from continuing operations	Income from continuing operations	6.4	%	4.8	%	5.3	%	4.2	%	Income from continuing operations	8.4	%	4.9	%
Net income (loss) from discontinued operations		—	%	0.0	%	(0.0)	%	0.0	%
Net loss from discontinued operations										Net loss from discontinued operations	—	%	(0.0)	%
Net income	Net income	6.4	%	4.8	%	5.3	%	4.3	%	Net income	8.4	%	4.9	%
Less: net income (loss) attributable to continuing noncontrolling interest		0.0	%	(0.0)	%	0.0	%	0.0	%
Less: net income attributable to continuing noncontrolling interest										Less: net income attributable to continuing noncontrolling interest	0.0	%	0.0	%
Less: net income attributable to discontinued noncontrolling interest	Less: net income attributable to discontinued noncontrolling interest	—	%	0.0	%	0.0	%	0.0	%	Less: net income attributable to discontinued noncontrolling interest	—	%	0.0	%
Net income attributable to LKQ stockholders	Net income attributable to LKQ stockholders	6.3	%	4.8	%	5.3	%	4.2	%	Net income attributable to LKQ stockholders	8.4	%	4.8	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.	Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.									Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

Three Months Ended ~~September 30, 2020~~March 31, 2021 Compared to Three Months Ended ~~September 30, 2019~~March 31, 2020

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


		Three Months Ended													Three Months Ended
		September 30,				Percentage Change in Revenue									March 31,				Percentage Change in Revenue
		2020		2019		Organic		Acquisition and Divestiture		Foreign Exchange		Total Change			2021		2020		Organic		Acquisition and Divestiture		Foreign Exchange		Total Change
Parts & services revenue	Parts & services revenue	$	2,885,729	$	2,985,998	(4.5)	%	(1.0)	%	2.1	%	(3.4)	%	Parts & services revenue	$	2,931,766	$	2,812,717	0.6	%	(0.6)	%	4.2	%	4.2	%
Other revenue	Other revenue	161,955		161,775		(0.1)	%	—	%	0.2	%	0.1	%	Other revenue	239,020		188,218		26.6	%	—	%	0.4	%	27.0	%
Total revenue	Total revenue	$	3,047,684	$	3,147,773	(4.3)	%	(0.9)	%	2.0	%	(3.2)	%	Total revenue	$	3,170,786	$	3,000,935	2.3	%	(0.6)	%	4.0	%	5.7	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.	Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.													Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

The ~~decline~~increase in parts and services revenue of ~~3.4%~~4.2% represented ~~a decrease~~increases in segment revenue of ~~12.1%~~31.8% in Specialty and 7.2% in Europe, partially offset by a decline of 8.0% in North America ~~partially offset by increases of 2.3% in Europe and 1.4% in Specialty.~~segment revenue. Organic parts and services revenue ~~declined by 4.5%~~growth was 0.6%, which included a 1.6% negative effect from approximately one less selling day in the ~~third~~first quarter, resulting in a per day organic increase of ~~2020 primarily~~2.2%. Through February 2021, parts and services revenue was down 4.4% per day due to the continuing effects of lockdown measures related to the ~~impact~~pandemic. In March 2021, revenue growth was 15.7% on a per day basis as the negative pandemic effect in March 2020 was more severe than in the current year. We expect to report organic growth in the second quarter of ~~COVID-19 on~~2021 coming off a low base as April and May 2020 had the most significant negative effects from the lockdown measures. The increase in other revenue of 27.0% was primarily driven by a $50 million organic increase, largely attributable to our North America ~~(refer to the "COVID-19 Impact on Our Operations" section above for further details).~~segment. Refer to the discussion of our segment results of operations for factors contributing to the change in revenue by segment during the ~~third~~first quarter of ~~2020~~2021 compared to the prior year period.

Cost of Goods Sold. Cost of goods sold decreased to ~~60.7%~~59.2% of revenue in the three months ended ~~September 30, 2020~~March 31, 2021 from ~~61.9%~~59.6% of revenue in the three months ended ~~September 30, 2019.~~March 31, 2020. Cost of goods sold decreased ~~by 0.8%~~0.6%, 0.2% and ~~0.6%~~0.2% in our

Europe, ~~and~~ North America and Specialty segments, respectively, partially offset by a ~~0.3%~~0.7% increase in cost of goods sold attributable to mix. The mix impact was a result of the decreased volumes in our North America segment primarily due to the COVID-19 pandemic, as the higher margin North America segment made up a smaller percentage of the consolidated results, causing an unfavorable effect on the gross margin percentage. ~~For the three months ended September 30, 2020, we recorded inventory~~

write downs of $1 million, primarily related to restructuring plans in our North America segment, compared to $17 million for the three months ended September 30, 2019; these inventory write-downs were principally due to our Europe segment, and related to the U.K. branch consolidation and brand rationalization initiated as part of our restructuring programs. The lower inventory write downs in the three months ended September 30, 2020 compared to the prior year period resulted in a favorable impact on cost of goods sold of 0.5%. Our restructuring plans are described in 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. 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 30, 2020~~March 31, 2021 compared to the same period of ~~2019.~~2020.

Selling, General and Administrative Expenses. Our selling, general and administrative ("SG&A") expenses as a percentage of revenue decreased to ~~26.7%~~26.8% in the three months ended ~~September 30, 2020~~March 31, 2021 from ~~28.3%~~30.0% in the three months ended ~~September 30, 2019.~~March 31, 2020. SG&A expenses decreased ~~due to~~over the prior year period as a result of (i) ~~a decrease~~decreases of ~~1.3%~~1.2% in both our North America and Europe segments, (ii) a 0.4% decrease in our Specialty segment and ~~(ii)~~(iii) a ~~0.2%~~0.4% decrease in SG&A expenses attributable to mix. The mix impact was a result of the ~~decreased volumes~~increased revenues in our ~~North America~~Specialty segment, ~~primarily due to the COVID-19 pandemic,~~ as the ~~higher~~lower SG&A expense percentage ~~North America~~for the Specialty segment made up a ~~smaller~~larger percentage of the consolidated results, which had 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 30, 2020~~March 31, 2021 compared to the ~~same period of 2019.~~three months ended March 31, 2020.

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

Three Months Ended
September 30,
2020 2019 Change
Restructuring expenses $ 12,701 (1) $ 7,284 (2) $ 5,417
Acquisition related expenses 7,794 (3) 1,645 (4) 6,149
Total restructuring and acquisition related expenses $ 20,495 $ 8,929 $ 11,566


	Three Months Ended
	March 31,
	2021			2020			Change


Total restructuring and acquisition related expenses	$	7,885	(1)	$	6,970	(2)	$	915

(1)Restructuring expenses for the three months ended ~~September 30,~~March 31, 2021 primarily consisted of (i) $5 million related to our 1 LKQ Europe program and (ii) $2 million related to the 2020 global restructuring program.

(2) Restructuring expenses for the three months ended March 31, 2020 primarily consisted of (i) ~~$10~~$3 million related to our 2019 global restructuring program, (ii) $2 million related to our 2020 global restructuring program ~~(ii)~~and (iii) $2 million related to integration costs from ~~acquisitions, and (iii) $1 million related to our 2019 global restructuring program.~~acquisitions.

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

(3) Acquisition related expenses for the three months ended September 30, 2020 consisted of an $8 million adjustment for the resolution of a purchase price matter related to the Stahlgruber transaction for an amount above our prior estimate.

(4) 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.

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.

~~(Gain) Loss on Disposal of Businesses and Impairment of Net Assets Held for Sale.~~ For the three months ended September 30, 2020, we recorded an adjustment to reduce a previously recorded loss on disposal by $1 million; this adjustment was partially offset by immaterial impairment charges on net assets held for sale. For the three months ended September 30, 2019, we recorded a ~~$4 million net~~ reversal of impairment charges on net assets held for sale, primarily attributable to our North America segment. 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 adjustment and impairment charges.

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


		Three Months Ended								Three Months Ended
		September 30,								March 31,
		2020		2019		Change				2021		2020		Change
Depreciation	Depreciation	$	38,346	$	36,873	$	1,473	(1)	Depreciation	$	38,995	$	37,204	$	1,791	(1)
Amortization	Amortization	30,309		34,640		(4,331)		(2)	Amortization	26,806		28,291		(1,485)		(2)
Total depreciation and amortization	Total depreciation and amortization	$	68,655	$	71,513	$	(2,858)		Total depreciation and amortization	$	65,801	$	65,495	$	306

(1)Depreciation expense increased by $1$2 million, primarily due to capital expenditures in our North America ~~segment.~~and Europe segments since March 31, 2020.

(2)The decrease in amortization expense primarily reflected ~~(ii)~~(i) decreases of $4$3 million and $1 million related to the customer relationship intangible assets recorded upon our acquisitions of Stahlgruber and Rhiag, respectively, as the accelerated amortization of the customer relationship intangible assets resulted in lower amortization expense during the three months ended ~~September 30, 2020~~March 31, 2021 compared to the prior year period, partially offset by (ii) ana $2 million increase ~~of $1 million related to the impact of~~from foreign currency translation, ~~principally due~~primarily related to an increase in the euro exchange rate during the three months ended ~~September 30, 2020~~March 31, 2021 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, 2019 $ 26,037
(Decrease) increase due to:
Interest expense, net of interest income (6,922) (1)
Gain on debt extinguishment 128
Other expense (income), net 8,431 (2)
Net increase 1,637
Other expense, net for the three months ended September 30, 2020 $ 27,674


Other expense, net for the three months ended March 31, 2020	$	35,060
Decrease due to:
Interest expense, net of interest income	(1,752)		(1)


Loss on debt extinguishment	(12,751)		(2)
Other income, net	(2,591)		(3)
Net decrease	(17,094)
Other expense, net for the three months ended March 31, 2021	$	17,966

(1)The decrease in interest is primarily related to (i) a $9$5 million decrease resulting from lower outstanding debt during the three months ended ~~September 30, 2020~~March 31, 2021 compared to the prior year period, partially offset by (ii) ~~several individually immaterial factors that increased interest by~~a $2 million ~~in the~~ ~~aggregate in 2020.~~

~~(2)The~~ increase ~~in other expense (income), net primarily consisted of (i) a $4 million unfavorable variance in~~from foreign currency gains and losses, and (ii) a $4 million pension settlement loss recorded in the third quarter of 2020 based on the annuity purchase cost to settle the obligations of our primary defined benefit plan in the U.S. (the "U.S. Plan").

~~Provision for Income Taxes~~. Our effective income tax rate for the three months ended September 30, 2020 was 29.3%, compared to 28.1% for the comparable prior year period. The rate in the third quarter of 2020 includes an unfavorable discrete item impact of 1.3%, primarily attributable to valuation allowances on net operating loss carryforwards and deferred tax adjustments as a result of statutory tax rate changes. The prior year comparative quarter included an unfavorable discrete item impact of 0.6%, including an unfavorable adjustment to the projected 2019 full year estimated tax rate as a result of a shift in the projected geographic blend of earnings, partially offset by excess tax benefits on stock based compensation. Additionally, the increased rate 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, particularly in certain international jurisdictions. Primary factors in the increase include valuation allowances on the tax benefit of net operating losses in certain jurisdictions where realization is uncertain, and the impact of lower available interest deductions in certain foreign jurisdictions due to legislative thin capitalization constraints, typically based on profitability. Ongoing uncertainties due to the impact of the COVID-19 pandemic on the Company’s operations for the remainder of 2020 may result in volatility in the effective tax rate driven generally by the level of profitability and changes in the mix of earnings across the Company’s jurisdictions.

~~Equity in Earnings (Losses) of Unconsolidated Subsidiaries.~~ ~~Equity in earnings (losses) of unconsolidated subsidiaries for the three months ended~~ ~~September 30, 2020~~ ~~and 2019~~translation, primarily related to ~~our investment~~an increase in ~~Mekonomen, and~~ the ~~change in earnings was roughly flat from the third quarter of 2020 compared to the prior year period.~~

~~Foreign Currency Impact.~~ ~~We translate our statements of income at the average~~euro exchange ~~rates in effect for the period. Relative to the rates used~~rate during the three months ended September 30, 2019, the euro, pound sterling, and Czech koruna rates used to translate the 2020 statements of income increased by 5.2%, 4.8%, and 2.3%, respectively. The positive translation effect of the change in foreign currencies against the U.S. dollar netted against the negative impact of realized and unrealized currency

~~gains and losses for the three months ended September 30, 2020, resulting in an immaterial negative effect on diluted earnings per share relative to the prior year period.~~

~~Net Income (Loss) Attributable to Continuing and Discontinued Noncontrolling Interest.~~ Net income (loss) attributable to continuing noncontrolling interest for the three months ended September 30, 2020 increased an immaterial amount compared to the three months ended September 30, 2019 primarily due to the noncontrolling interest of subsidiaries acquired in connection with the Stahlgruber acquisition.

~~Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019~~

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

Nine Months Ended
September 30, Percentage Change in Revenue
2020 2019 Organic Acquisition and Divestiture Foreign Exchange Total Change
Parts & services revenue $ 8,201,604 $ 9,021,790 (8.4) % (0.5) % (0.2) % (9.1) %
Other revenue 473,338 474,459 (0.7) % 0.5 % (0.0) % (0.2) %
Total revenue $ 8,674,942 $ 9,496,249 (8.0) % (0.4) % (0.2) % (8.6) %
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 9.1% represented decreases in segment revenue of 13.3% in North America, 8.1% in Europe, and 0.5% in Specialty. Organic parts and services revenue declined by 8.4%, which included a 0.4% positive effect from one additional selling day in the first nine months of 2020, resulting in a per day organic decline of 8.8%. The decline in the first nine months of 2020 is primarily related to the impact of COVID-19 from March 2020 through September 2020 (refer to the "COVID-19 Impact on Our Operations" section above for further details). The decrease in other revenue of 0.2% 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 nine months of 2020 compared to the prior yea~~r period.~~

~~Cost of Goods Sold. Cost of goods sold decreased to 60.5% of revenue in the~~ ~~nine months ended~~ ~~September 30, 2020 from 61.5% of revenue in the nine months ended September 30, 2019. Cost of goods~~ sold decreased 0.7% and 0.6% in our North America and Europe segments, respectively, partially offset by a 0.2% increase in cost of goods sold attributable to mix. The mix impact was a result of the decreased volumes in our North America segment primarily due to the COVID-19 pandemic, as the higher margin North America segment made up a smaller percentage of the consolidated results, causing an unfavorable effect on the gross margin percentage. For the nine months ended September 30, 2020, we recorded inventory write downs related to restructuring plans of $4 million and $3 million in our North America and Europe segments, respectively. For the nine months ended September 30, 2019, we recorded inventory write downs of $17 million, principally due to our Europe segment related to U.K. branch consolidation and brand rationalization initiated as part of our restructuring plans. The lower inventory write downs in the nine months ended September 30, 2020 compared to the prior year period resulted in a favorable impact on cost of goods sold of 0.1%. Our restructuring plans are described in 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. 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, 2020 compared to the nine months ended September 30, 2019.

~~Selling, General and Administrative Expenses.~~ ~~Our SG&A expenses as a percentage of revenue remained flat at~~ ~~28.3%~~ ~~in the nine months ended September 30, 2020 compared to the nine months ended~~ September 30, 2019. SG&A expenses remained flat over the prior year period as a result of (i) a decrease of 0.3% in our North America segment and (ii) a 0.2% decrease in SG&A expenses attributable to mix, offset by (iii) an increase of 0.5% in our Europe segment. The ~~mix impact was a result of the decreased volumes in our North America segment primarily due to the COVID-19 pan~~demic, as the higher SG&A expense percentage for the North America segment made up a smaller percentage of the consolidated results, which had 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 nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

~~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,
2020 2019 Change
Restructuring expenses $ 44,498 (1) $ 18,482 (2) $ 26,016
Acquisition related expenses 7,917 (3) 2,131 (4) 5,786
Total restructuring and acquisition related expenses $ 52,415 $ 20,613 $ 31,802

~~(1)Restructuring expenses for the~~ nine months ended September 30, 2020 primarily consisted of (i) $31 million related to our 2020 global restructuring program, (ii) $8 million related to integration costs from acquisitions, and (iii) $6 million related to our 2019 global restructuring program.

~~(2) Restructuring expenses for the~~ ~~nine months ended~~ ~~September 30, 2019 primarily consisted of $10 million related to our 2019 global restructuring program and $9 million related to integration costs from acquisitions.~~

(3) Acquisition related expenses for the nine months ended September 30, 2020 primarily consisted of an $8 million adjustment for the resolution of a purchase price matter related to the Stahlgruber transaction for an amount above our prior estimate.

(4) 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.

~~(Gain) Loss on Disposal of Businesses and Impairment of Net Assets Held for Sale.~~ ~~For the nine months ended~~ ~~September 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 $45 million of net impairment charges on net assets held for sale for the nine months ended September 30, 2019 primarily attributable to our North America segment. 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):~~

Nine Months Ended
September 30,
2020 2019 Change
Depreciation $ 112,462 $ 109,245 $ 3,217 (1)
Amortization 87,435 104,104 (16,669) (2)
Total depreciation and amortization $ 199,897 $ 213,349 $ (13,452)

~~(1)Depreciation expense increased by $3 million, primarily due to capital expenditures in our North America segment.~~

~~(2)The decrease in amortization expense primarily reflected decreases~~ ~~of $12 million and $4 million relate~~d to the customer relationship intangible assets recorded upon our acquisitions of Stahlgruber and Rhiag, respectively, as the accelerated amortization of the customer relationship intangible assets resulted in lower amortization expense during ~~the~~ ~~nine months ended~~ ~~September 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 nine months ended September 30, 2019 $ 88,426
(Decrease) increase due to:
Interest expense, net of interest income (27,348) (1)
Loss/gain on debt extinguishment 12,879 (2)
Other expense (income), net 6,219 (3)
Net decrease (8,250)
Other expense, net for the nine months ended September 30, 2020 $ 80,176

~~(1)The decrease in interest is primarily~~ related to (i) a $23 million decrease resulting from lower outstanding debt during the nine months ended September 30, 2020 compared to the prior year period, and (ii) a $5 million decrease from lower interest rates on borrowings under our senior secured credit agreement31, 2021 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~~ favorable variance in ~~other expense (income),~~Other income, net primarily ~~consisted of (i) pension settlement losses of $6 million~~ related to ~~the U.S. Plan, (ii)~~ a $4 million ~~unfavorable variance~~mark to market adjustment in ~~foreign currency gains and losses, and (iii) several individually~~

~~immaterial factors that increased other expense (income), net by $1 million in the aggregate in 2020, partially offset by (iv) a $5 million increase in insurance settlement proceeds~~2021 for appreciation in our ~~North America segment compared to~~equity investments not accounted for under the ~~prior year period.~~equity method.

Provision for Income Taxes. Our effective income tax rate for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 was ~~28.3%~~26.3%, compared to ~~27.5%~~29.2% for the comparable prior year period. The ~~increase is attributable to a higher expected~~lower estimated annual effective tax rate ~~in 2020 as a result of~~for 2021 is primarily attributable to the ~~estimated unfavorable impa~~ct ~~of the COVID-19 pandemic on the Company��s~~higher forecasted 2021 results of operations, ~~particularly~~as compared to the forecasts available during the comparable quarter in ~~certain international jurisdictions. Primary factors in the increase include~~2020, when COVID-19 pandemic economic disruptions were depressing forecasted 2020 results. Higher projected income contributes to lower anticipated valuation allowances on the tax benefit of net operating losses and suspended interest deductions in certain jurisdictions where realization ~~is uncertain, and the impact of lower available interest deductions in certain foreign jurisdictions due to legislative thin capitalization constraints, typically based on profitability.~~may be uncertain. For the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, the effective tax rate was ~~increased 0.3%~~decreased 0.2% by ~~unfavorable~~favorable discrete items, primarily ~~valuation allowances~~excess tax benefits on ~~net operating loss carryforwards~~stock-based compensation. Net discrete items for the three months ended March 31, 2020 reduced the effective tax rate by 0.8%, primarily due to excess tax benefits on stock-based compensation and deferred tax adjustments as a result of statutory tax rate changes. Net discrete items for the nine months ended September 30, 2019 were immaterial 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 volatility in the effective tax rate driven generally by the level of profitability and changes in the mix of earnings across the Company’s jurisdictions.

~~Equity in Earnings (Losses) of Unconsolidated Subsidiaries.~~ Equity in earnings (losses) of unconsolidated subsidiaries for the nine months ended September 30, 2020 primarily related to our investment in Mekonomen. 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"~~13, "Income Taxes" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further ~~information on~~information.

Equity in Earnings of Unconsolidated Subsidiaries. Equity in earnings of unconsolidated subsidiaries for the ~~impairment charge.~~three months ended March 31, 2021 increased by $5 million primarily related to improved year over year results reported by Mekonomen, which is our largest equity method investment.

Foreign Currency Impact. We translate our statements of income at the average exchange rates in effect for the period. Relative to the ~~rate~~rates used during the ~~nine~~three months ended ~~September 30, 2019,~~March 31, 2020, the euro, pound sterling, Czech koruna and Canadian dollar rates usedused to translate the ~~2020~~2021 statements of income ~~decreased~~increased by ~~2.5%~~9.3%, 7.8%, 7.2% and ~~1.7%~~6.0%, ~~respectively; the year to date average rates for the euro and pound sterling were roughly flat in the current year compared to the prior year period.~~respectively. The ~~minimal negative~~positive translation effect of the change in foreign currencies against the U.S. dollar ~~combined with~~netted against the ~~more significant~~ negative impact of realized and unrealized currency gains and losses for the ~~nine~~three months ended ~~September 30, 2020, resulted~~March 31, 2021, resulting in ~~a $0.01~~an immaterial negative effect on d~~iluted~~diluted earnings per share relative to the prior year period.

Net Income ~~(Loss)~~ Attributable to Continuing and Discontinued Noncontrolling Interest. Net income ~~(loss)~~ attributable to continuing noncontrolling interest for the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 decreased ~~$1 million~~an immaterial amount compared to the ~~nine~~three months ended ~~September 30, 2019 primarily due to the noncontrolling interest of subsidiaries acquired in connection with the Stahlgruber acquisition.~~March 31, 2020. Net income attributable to discontinued noncontrolling interest was immaterial for the ~~nine~~three months ended ~~September 30,~~March 31, 2020 ~~and 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.

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,									Three Months Ended March 31,
		2020		% of Total Segment Revenue		2019		% of Total Segment Revenue		2020		% of Total Segment Revenue		2019		% of Total Segment Revenue			2021		% of Total Segment Revenue		2020		% of Total Segment Revenue
Third Party Revenue	Third Party Revenue																	Third Party Revenue
North America	North America	$	1,164,031			$	1,302,086			$	3,465,102			$	3,925,962			North America	$	1,249,374			$	1,289,935
Europe	Europe	1,484,099				1,451,483				4,058,878				4,413,264				Europe	1,463,453				1,363,594
Specialty	Specialty	399,554				394,204				1,150,962				1,157,023				Specialty	457,959				347,406
Total third party revenue	Total third party revenue	$	3,047,684			$	3,147,773			$	8,674,942			$	9,496,249			Total third party revenue	$	3,170,786			$	3,000,935
Total Revenue	Total Revenue																	Total Revenue
North America	North America	$	1,164,241			$	1,302,147			$	3,465,831			$	3,926,222			North America	$	1,249,693			$	1,290,195
Europe	Europe	1,484,099				1,451,483				4,058,878				4,413,264				Europe	1,463,453				1,363,594
Specialty	Specialty	400,429				395,314				1,153,885				1,160,687				Specialty	458,939				348,582
Eliminations	Eliminations	(1,085)				(1,171)				(3,652)				(3,924)				Eliminations	(1,299)				(1,436)
Total revenue	Total revenue	$	3,047,684			$	3,147,773			$	8,674,942			$	9,496,249			Total revenue	$	3,170,786			$	3,000,935
Segment EBITDA	Segment EBITDA																	Segment EBITDA
North America	North America	$	204,957	17.6	%	$	166,310	12.8	%	$	565,949	16.3	%	$	532,994	13.6	%	North America	$	249,167	19.9	%	$	211,438	16.4	%
Europe	Europe	136,165		9.2	%	124,712		8.6	%	303,814		7.5	%	346,291		7.8	%	Europe	140,958		9.6	%	78,262		5.7	%
Specialty	Specialty	48,340		12.1	%	45,464		11.5	%	132,805		11.5	%	135,790		11.7	%	Specialty	61,482		13.4	%	32,232		9.2	%

The key measure of segment profit or loss reviewed by our chief operating decision maker, 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; equity investment mark to market adjustments; and impairment charges. EBITDA, which is the basis for Segment EBITDA, is calculated as net income attributable to LKQ stockholders excluding discontinued operations and discontinued noncontrolling interest, depreciation, amortization, interest (which includes gains and losses on debt extinguishment) and income tax expense. See Note 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 a reconciliation of total Segment EBITDA to net income.

Three Months Ended ~~September 30, 2020~~March 31, 2021 Compared to Three Months Ended ~~September 30, 2019~~March 31, 2020

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 September 30,				Percentage Change in Revenue										Three Months Ended March 31,				Percentage Change in Revenue
North America	North America	2020		2019		Organic			Acquisition and Divestiture (3)		Foreign Exchange		Total Change		North America	2021		2020		Organic			Acquisition and Divestiture		Foreign Exchange		Total Change
Parts & services revenue	Parts & services revenue	$	1,007,001	$	1,145,402	(11.3)	%	(1)	(0.7)	%	(0.1)	%	(12.1)	%	Parts & services revenue	$	1,018,437	$	1,107,342	(8.4)	%	(1)	0.0	%	0.4	%	(8.0)	%
Other revenue	Other revenue	157,030		156,684		0.2	%	(2)	0.0	%	(0.0)	%	0.2	%	Other revenue	230,937		182,593		26.4	%	(2)	—	%	0.1	%	26.5	%
Total third party revenue	Total third party revenue	$	1,164,031	$	1,302,086	(9.9)	%		(0.6)	%	(0.1)	%	(10.6)	%	Total third party revenue	$	1,249,374	$	1,289,935	(3.5)	%		0.0	%	0.3	%	(3.1)	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.	Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.														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 ~~11.3%~~with one fewer selling day in the ~~third quarter of 2020. T~~hethree months ended March 31, 2021 compared to the prior year period. On a per day basis, organic revenue declined 7.0%. The organic decline was impacted by collision and liability repairable auto claims, which, according to industry data, ~~from CCC Information Services, Inc. ("CCC"),~~ were ~~24.4%~~approximately 14% lower for the three months ended ~~September 30, 2020~~March 31, 2021 compared to the prior year p~~eriod.~~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~~Certain product lines did produce year over year growth, including remanufactured products and self service ~~parts sales~~part sales. We expect to report organic growth in the second quarter of 2021 coming off a low base as April and ~~admissions.~~May 2020 had the most significant negative effects from the lockdown measures.

(2)~~Other~~The $48 million year over year organic increase in other revenue ~~increased by less than $1 million in the third quarter of 2020~~is primarily ~~driven by~~related to (i) a $23 million increase in revenue from scrap steel due to higher prices and (ii) a $22 million increase in revenue from precious metals (platinum, palladium, and rhodium) primarily due to higher prices ~~slightly offset by lower volumes~~ compared to the prior year. Revenue growth from precious metals was partially offset by (i) a $14 million decrease in other scrap metals (e.g. aluminum) and fluids due to lower volumes, and (ii) a $6 million decrease in revenueThe higher prices from scrap steel ~~due to lower volumes. The volume declines in other revenue~~and precious metals were partially offset due to lower purchase volumes and throughput mainly in our salvage ~~and self service~~ operations as a result of the COVID-19 pa~~ndemic.~~

~~(3)~~Acquisition related growth in the third quarter of 2020 reflected revenue from our acquisition of two wholesale businesses since the beginning of the third quarter 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 during this period.pandemic.

Segment EBITDA. Segment EBITDA ~~increased $39~~increased $38 million, or ~~23.2%~~17.8%, in the ~~third~~first quarter of ~~2020~~2021 including the impact of one fewer selling day compared to the prior year period. The ~~increase~~adverse impact of the COVID-19 pandemic on sales volumes in our wholesale operations had a negative effect on Segment EBITDA but was ~~primarily~~more than offset in part due to higher revenue from precious metals and scrap steel prices, operational ~~efficiency~~efficiencies, and rightsizing ~~actions and favorable precious metals pricing.~~ ~~Additionally, net~~actions. Net sequential increases in scrap steel prices in our salvage and self service operations had a $21 million f~~favorable~~avorable impact ~~of $5 million~~ on Segment EBITDA during the three months ended ~~September 30, 2020,~~March 31, 2021, compared to ~~an $8~~a $6 million ~~unfavorable~~favorable impact during the three months ended ~~September 30, 2019~~March 31, 2020 resulting from net sequential ~~decreases~~increases in scrap steel prices. This favorable impact for the three months ended ~~September 30, 2020~~March 31, 2021 resulted from the 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. Additionally, increases in precious metals prices contributed an estimated $19 million in Segment EBITDA improvement relative to the first quarter of 2020.

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


North America	North America	Percentage of Total Segment Revenue			North America	Percentage of Total Segment Revenue
Segment EBITDA for the three months ended September 30, 2019		12.8	%
Segment EBITDA for the three months ended March 31, 2020					Segment EBITDA for the three months ended March 31, 2020	16.4	%
Increase (decrease) due to:	Increase (decrease) due to:				Increase (decrease) due to:
Change in gross margin	Change in gross margin	1.7	%	(1)	Change in gross margin	0.6	%	(1)
Change in segment operating expenses	Change in segment operating expenses	3.5	%	(2)	Change in segment operating expenses	3.1	%	(2)
Change in other expense, net and net income attributable to continuing noncontrolling interest	Change in other expense, net and net income attributable to continuing noncontrolling interest	(0.4)	%	(3)	Change in other expense, net and net income attributable to continuing noncontrolling interest	(0.2)	%	(3)
Segment EBITDA for the three months ended September 30, 2020		17.6	%
Segment EBITDA for the three months ended March 31, 2021					Segment EBITDA for the three months ended March 31, 2021	19.9	%
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 favorable impacts of ~~1.1%~~0.8% from our wholesale operations ~~and~~offset by a

decline of 0.4% from our self service operations. ~~The increase~~Despite the adverse impact of the COVID-19 pandemic on sales volumes in our wholesale operations, gross margin was favorable primarily ~~attributable~~due to the positive impact of higher precious metals and scrap steel prices, lower discounting, cost reductions from operational ~~efficiency~~efficiencies and rightsizing ~~actions;~~efforts, and strategic inventory purchases in the fourth quarter of 2020. The decline in self service gross margin ~~initiatives;~~percentage was primarily attributable to increased purchase costs in 2021 due to reduced availability of cars for purchase, partially offset by higher ~~prices of~~ precious ~~metals~~metal prices and sequential increases in scrap steel ~~prices; and~~prices. Although we expect precious metals prices to decrease from near record levels, in the short term, we continue to expect a favorable ~~return rates~~impact on gross margin dollars due to lower precious metals prices in the prior year. In the mid to long term time frame, the year over year margin benefit from precious metals will decline if prices decrease as expected in 2021 compared to higher comparable prices in the prior year period. The increase in self service gross margin was primarily attributable to higher prices of precious metals as well as sequential increases in scrap steel prices. We expect downward pressure on our salvage and self service margins in the fourth quarter of 2020 as purchase costs have increased in recent months due to the reduced availability of cars for purchase, reflecting the impact of the COVID-19 pandemic. We are attempting to mitigate this margin pressure by adjusting our prices and driving further efficiencies.year.

(2) The decrease in segment ~~operating~~operating expense as a percentage of revenue, despite the deleveraging impact of the organic revenue parts and services revenue decline of ~~11.3%~~7.0% compared to the prior year, on a per day basis, reflects (i) a favorable impact of ~~3.0%~~2.4% from personnel expenses related to permanent and temporary headcount reductions, ~~reduced hours,~~operational efficiencies, limitations on travel, and government grants in ~~Canad~~Canada, partially offset by higher incentive compensation, (ii) a ~~and favorable medical costs, (ii)~~ a0.6% favorable impact ~~of 0.4% on~~from distribution expenses due to rightsizing efforts and reduced miles driven and (iii) a 0.3% favorable impact from bad debt ~~expense~~ due to ~~strong collection efforts~~collections on past due debt as customers improve solvency and ~~improving economic conditions compared to~~an increase in reserve in the ~~first half~~prior year at the beginning of ~~2020, (iii) a favorable~~the pandemic. The impact ~~of 0.4% for a gain on sale of property, and (iv) a favorable impact of 0.3% from fuel usage and prices.~~ ~~This~~ was partially offset by a negative leverage effect of ~~0.4%~~0.3% from facility expenses, which are largely ~~fixed and do not fluctuate with revenue, and several individually immaterial factors that had an unfavorable impact of 0.2%.~~fixed. As the market ~~continues to recover~~recovers and volumes increase, we expect to bring back necessary resources to support our operations; however, we expect that ~~certain~~ permanent actions taken ~~this year~~in 2020 will continue to provide a long-term favorable impact for the segment. The year over year improvement will moderate in subsequent quarters as we annualize the cost actions.

(3) The increase in other expense, net and net income attributable to continuing noncontrolling interest was ~~primarily~~ due to several individually immaterial factors that had an unfavorable impact of ~~0.3% from pension expense resulting from a pension settlement loss recorded~~0.2% in the ~~third quarter of 2020.~~

aggregate.

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 September 30,				Percentage Change in Revenue									Three Months Ended March 31,				Percentage Change in Revenue
Europe	Europe	2020		2019		Organic (1)		Acquisition and Divestiture (2)		Foreign Exchange (3)		Total Change		Europe	2021		2020		Organic (1)		Acquisition and Divestiture (2)		Foreign Exchange (3)		Total Change
Parts & services revenue	Parts & services revenue	$	1,479,174	$	1,446,392	(0.7)	%	(1.5)	%	4.5	%	2.3	%	Parts & services revenue	$	1,455,370	$	1,357,969	0.3	%	(1.4)	%	8.3	%	7.2	%
Other revenue	Other revenue	4,925		5,091		(8.8)	%	—	%	5.5	%	(3.3)	%	Other revenue	8,083		5,625		33.1	%	—	%	10.6	%	43.7	%
Total third party revenue	Total third party revenue	$	1,484,099	$	1,451,483	(0.7)	%	(1.5)	%	4.5	%	2.2	%	Total third party revenue	$	1,463,453	$	1,363,594	0.4	%	(1.4)	%	8.3	%	7.3	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.	Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.													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~~ ~~0.7%~~increased for the three months ended March 31, 2021 despite having one fewer selling day compared to the three months ended March 31, 2020. On a per day basis, organic parts and services revenue increased 1.8%. Through February 2021, Europe parts and services revenue was down 3.4% per day due to the continuing effects of lockdown measures related to the pandemic. In March 2021, Europe reported per day revenue growth of 13.1% as the negative pandemic effect in March 2020 was more severe than in the ~~third~~current year. We expect to report organic growth in the second quarter of 2021 coming off a low base as April and May 2020 had the most significant negative effects from the lockdown measures.

(2) ~~mainly as~~The decline for the three months ended March 31, 2021 was primarily a result of the COVID-19 pandemic disruptions that adversely affected volumes in our European operations. Not all regions were impacted by the pandemic to the same degree, creating a different growth profile for each of our European businesses. During the third quarter of 2020, the U.K., the Netherlands and Germany recovered at a faster rate and posted slightly positive organic growth, with the recovery in Eastern Europe and Italy lagging behind.

~~(2)Revenue decreased as a result of the disposals~~disposal of a non-core telecommunications operation in Germany in the second quarter of 2020 and ~~a wholesale business~~two additional smaller disposals in ~~Bulgaria in the third quarter of 2019.~~2020.

(3)Compared to the prior year, exchange rates increased our revenue growth by ~~$65~~$114 million,, or ~~4.5%~~8.3%, primarily due to the weaker U.S. dollar against the euro, pound sterling and Czech koruna d~~uring~~during the ~~third~~first quarter of ~~2020~~2021 relative to the prior year period.

Segment EBITDA. Segment EBITDA increased ~~$11~~$63 million,, or ~~9.2%~~80.1%, in the ~~third~~first quarter of ~~2020~~2021 compared to the prior year period. Our Europe Segment EBITDA included a positive year over year impact of $6$7 million related to the translation of local currency results into U.S. dollars at higher exchange rates than those experienced during the ~~third~~first quarter of ~~2019.~~2020. On a constant currency basis (i.e., excluding the translation impact), Segment EBITDA increased by $6$55 million,, or ~~4.7%~~70.7%, 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 30, 2020.~~March 31, 2021.

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


Europe	Europe	Percentage of Total Segment Revenue			Europe	Percentage of Total Segment Revenue
Segment EBITDA for the three months ended September 30, 2019		8.6	%
Increase (decrease) due to:
Segment EBITDA for the three months ended March 31, 2020					Segment EBITDA for the three months ended March 31, 2020	5.7	%
Increase due to:					Increase due to:
Change in gross margin	Change in gross margin	0.6	%	(1)	Change in gross margin	1.2	%	(1)
Change in segment operating expenses	Change in segment operating expenses	0.2	%	(2)	Change in segment operating expenses	2.7	%	(2)
Change in other expense, net and net income attributable to continuing noncontrolling interest		(0.3)	%	(3)
Segment EBITDA for the three months ended September 30, 2020		9.2	%

Segment EBITDA for the three months ended March 31, 2021					Segment EBITDA for the three months ended March 31, 2021	9.6	%
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 was primarily attributable to favorable impacts of (i) ~~0.3%~~ ~~from the disposal of a non-core telecommunications operation in Germany in the second quarter of 2020 and (ii) 0.2% across our operations principally~~0.8% as a result of net price increases and margin improvement initiatives supporting the pursuit of profitable revenue growth, and ~~decreased inventory write-downs.~~(ii) 0.4% from the disposal of non-core operations in 2020.

(2) The decrease in segment operating expenses as a percentage of revenue reflects favorable impacts of (i) 0.8% from personnel costs primarily ~~reflects actions~~due to ~~reduce personnel expenses, which generated a favorable impact of 0.4%. Over half of the benefit came from government grants to cover employee costs in various countries, primarily the U.K. Other personnel cost decreases resulted from~~temporary and permanent ~~and temporary~~ headcount reductions, ~~limitations on~~government assistance utilized by management and limited travel and reduced hours. As the markets have recovered, volumes increased and government programs ceased, we brought back necessary resources to support our operations; however, we expect that certain permanent actions taken this year will provide a long-term favorable impact for the segment. The improvement wasexpenses, partially offset by increased incentive compensation, (ii) 0.6% from bad debt expense due to customers' improved solvency and an increase in ~~non-recurring costs for personnel matters~~reserve in the prior year at the beginning of the COVID-19 pandemic, (iii) 0.3% from freight, vehicle and fuel expenses due to cost savings from restructuring activities primarily due to exiting facilities and route consolidation, (iv) 0.2% in transformation expenses related to the 1 LKQ Europe program, and (v) other individually immaterial factors that had an ~~unfavorable~~ impact of ~~0.2%.~~

~~(3) The increase~~0.8% in ~~other expense, net and net income attributable to continuing noncontrolling interest of 0.3% was mainly due to higher foreign exchange losses compared to~~ the ~~prior period.~~aggregate.

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 September 30,				Percentage Change in Revenue									Three Months Ended March 31,				Percentage Change in Revenue
Specialty	Specialty	2020		2019		Organic (1)		Acquisition and Divestiture		Foreign Exchange		Total Change		Specialty	2021		2020		Organic (1)		Acquisition and Divestiture		Foreign Exchange		Total Change
Parts & services revenue	Parts & services revenue	$	399,554	$	394,204	1.1	%	0.3	%	(0.1)	%	1.4	%	Parts & services revenue	$	457,959	$	347,406	30.9	%	0.4	%	0.5	%	31.8	%
Other revenue	Other revenue	—		—		—	%	—	%	—	%	—	%	Other revenue	—		—		—	%	—	%	—	%	—	%
Total third party revenue	Total third party revenue	$	399,554	$	394,204	1.1	%	0.3	%	(0.1)	%	1.4	%	Total third party revenue	$	457,959	$	347,406	30.9	%	0.4	%	0.5	%	31.8	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.	Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.													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 ~~1.1% in the third~~30.9% for the first quarter of ~~2020, primarily~~2021 compared to the prior year first quarter despite one fewer selling day. On a per day basis, organic revenue increased 33.0%. The organic increase was primarily due to ~~the continued~~ strong demand for ~~recreational vehicle~~our products ~~and high drop ship fulfillment. The organic~~across all channels of our business. We believe the revenue ~~increase would have been more favorable had we not experienced issues~~growth was driven by our competitive advantage with our delivery service teams that enabled us to keep up with the ~~availability of supply, as certain suppliers were not able to meet~~strong demand and have more available inventory than our ~~demand.~~competitors.

Segment EBITDA. Segment EBITDA increased $3$29 million, or ~~6.3%~~90.7%, in the ~~third~~first quarter of ~~2020~~2021 compared to the prior year ~~third~~first quarter.

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


Specialty	Specialty	Percentage of Total Segment Revenue			Specialty	Percentage of Total Segment Revenue
Segment EBITDA for the three months ended September 30, 2019		11.5	%
Segment EBITDA for the three months ended March 31, 2020					Segment EBITDA for the three months ended March 31, 2020	9.2	%
Increase due to:	Increase due to:				Increase due to:
Change in gross margin	Change in gross margin	0.3	%	(1)	Change in gross margin	1.5	%	(1)
Change in segment operating expenses	Change in segment operating expenses	0.2	%	(2)	Change in segment operating expenses	2.7	%	(2)

Segment EBITDA for the three months ended September 30, 2020		12.1	%
Segment EBITDA for the three months ended March 31, 2021					Segment EBITDA for the three months ended March 31, 2021	13.4	%
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 reflects a favorable ~~impact~~impacts of ~~0.8%~~(i) 2.3% due to favorable product and channel mix as well as changes in customer discounts due to inventory availability for the first quarter of 2021 and (ii) 0.4% due to freight income, reflecting higher shipping and handling fees tied to increased usage of ~~third party~~third-party carriers (the

offsetting delivery cost is a component of freight expense as mentioned below in the operating expenses discussion), partially offset by ~~an unfavorable impact~~(iii) 0.9% related to customer rebates that were lower in the first quarter of ~~0.4% driven by~~2020 due to lower volumes attributable to the COVID-19 pandemic and (iv) 0.3% higher product cost due to ~~lower supplier discounts received~~strategic purchase efforts in the ~~current year compared to~~fourth quarter of 2019 which benefited the ~~prior year period.~~first quarter of 2020 as they were recognized over a turn of inventory.

(2) The decrease in segment operating expenses as a percentage of revenue, which includes the operating leverage impact from the organic parts and services revenue growth of 33.0% compared to the prior year, reflects a favorable impact of ~~1.1%~~(i) 2.3% in personnel costs ~~primarily~~ due to ~~reduced headcount and reduced hours,~~cost reductions in the second half of 2020, partially offset by ~~an unfavorable impact of 0.9% in freight, vehicle and fuel expenses due to an~~ increased ~~use of third party freight.~~

~~Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 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):~~

Nine Months Ended
September 30, Percentage Change in Revenue
North America 2020 2019 Organic
Acquisition and Divestiture (3)
Foreign Exchange Total Change
Parts & services revenue $ 3,007,169 $ 3,466,582 (12.7) % (1) (0.4) % (0.1) % (13.3) %
Other revenue 457,933 459,380 (0.8) % (2) 0.5 % (0.0) % (0.3) %
Total third party revenue $ 3,465,102 $ 3,925,962 (11.3) % (0.3) % (0.1) % (11.7) %
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 nine months of 2020 compared to the prior year period. On a per day basis, organic revenue declined~~ ~~13.1%. The organic decline was impacted by collision and liability repairable auto claims, which, according to data from CCC, were~~ ~~25.5%~~ ~~lower for the~~ ~~nine months ended~~ ~~September 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 September 2020, parts and services organic revenue declined 16.5% 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 24.4% and 41.7% in the third and second quarters of 2020, respectively, according to data from CCC).

~~(2)~~The $1 million year over year organic decrease in other revenue is primarily related to (i) a $41 million decrease in revenue from other scrap metals (e.g. aluminum) and fluids due to lower volumes, (ii) a $32 million decrease in revenue from scrap steel due to lower prices and volumes, and (iii) a decrease in core revenue of $10 million due to lower volumes, mostly offset by a $79 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 nine months 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 during this period.~~

Segment EBITDA. Segment EBITDA increased $33 million, or 6.2%, in the first nine months of 2020, including the impact of one additional selling day compared to the prior year period. The increase in Segment EBITDA was primarily due to operational efficiency and rightsizing actions and favorable precious metals pricing. Additionally, net sequential increases in scrap steel prices in our salvage and self service operations had a $5 million favorable impact on North America Segment EBITDA during the nine months ended September 30, 2020, compared to a $14 million unfavorable impact during the nine months ended September 30, 2019 resulting from net sequential decreases in scrap steel prices. This favorable impact for the nine months ended September 30, 2020 resulted from the 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 nine months ended September 30, 2019 13.6 %
Increase due to:
Change in gross margin 2.1 % (1)
Change in segment operating expenses 0.7 % (2)
Change in other expense, net and net income attributable to continuing noncontrolling interest (0.1) % (3)
Segment EBITDA for the nine months ended September 30, 2020 16.3 %
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 favorable impa~~cts of 1.5% from our wholesale operations and 0.5% from our self service operations. The increase in wholesale gross margin was primarily attributable to the positive impact of cost reductions from operational efficiency and rightsizing actions, higher prices of precious metals and scrap steel, and improved return rates compared to the prior year period. The increase in self service gross margin was primarily attributable to higher prices of precious metals as well as sequential increases in scrap steel prices. We expect downward pressure on our salvage and self service margins in the fourth quarter of 2020 as purchase costs have increased in recent months due to the reduced availability of cars for purchase reflecting the impact of the COVID-19 pandemic. We are attempting to mitigate this margin pressure by adjusting our prices and driving further efficiencies.

(2) The decrease in segment operating expense as a percentage of revenue, despite the deleveraging impact of the organic revenue parts and services revenue decline of 13.1% compared to the prior year, on a per day basis, reflects a favorable impact of 1.1% from personnel expenses related to permanent and temporary headcount reductions, reduced hours, limitations on travel and governm~~ent grants in Canada. The impact was partially offset by a negative leverage effect of 0.6% from~~ ~~facility expenses, which are largely fixed.~~ As the market continues to recover and volumes increase, we expect to bring back necessary resources to support our operations; however, we expect that certain permanent actions taken this year will provide a long-term favorable impact for the segment.

(3) The increase in other expense, net and net income attributable to continuing noncontrolling interest was primarily due to an unfavorable impact of 0.2% from pension expense resulting from pension settlement losses of $6 million related to the U.S. Plan, partially offset by proceeds from business interruption insurance that had a year over year favorable impact of 0.1%.

~~Europe~~

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

Nine Months Ended
September 30, Percentage Change in Revenue
Europe 2020 2019
Organic (1)
Acquisition and Divestiture (2)
Foreign Exchange (3)
Total Change
Parts & services revenue $ 4,043,473 $ 4,398,185 (7.0) % (0.7) % (0.4) % (8.1) %
Other revenue 15,405 15,079 2.4 % (0.0) % (0.3) % 2.2 %
Total third party revenue $ 4,058,878 $ 4,413,264 (7.0) % (0.7) % (0.4) % (8.0) %
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 nine months of 2020 was affected by having one additional selling day compared to the first nine months of 2019. On a per day basis, organic parts and services revenue decreased 7.5%, mainly driven by the COVID-19 pandemic disruptions in all of our European operations. Prior to the pandemic, organic revenue in Europe had increased~~ ~~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 September 2020, organic revenue declined 9.6% on a per day basis compared to the prior year period primarily due to volume effects caused by the ~~COVID-19 pan~~demic. Germany and the Netherlands recovered at a faster rate, with the recovery in Italy, the U.K. (although we have experienced an improvement in the third quarter) and Eastern Europe lagging behind.

~~(2)~~Acquisition related growth in the first nine months 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~~.

~~(3)Compared to the prior year, exchange rates decreased our revenue growth by~~ ~~$16 million, or~~ ~~0.4%, primarily due to the stronger U.S. dollar against the Czech koruna and pound sterling during the first nine months of 2020 relative to the prior year period.~~

~~Segment EBITDA. Segment EBITDA decreased~~ ~~$42 million, or~~ ~~12.3%, in the first nine months of 2020 compared to the prior year period. Our Europe Segment EBITDA included a negative year over year impact of~~ ~~$1 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 of 2019. On a constant currency basis (i.e., excluding the translation impact), Segment EBITDA decreased by ~~$42 million, or~~ ~~12.1%~~, 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 nine months ended September 30, 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 nine months ended September 30, 2019 7.8 %
Increase (decrease) due to:
Change in gross margin 0.7 % (1)
Change in segment operating expenses (1.0) % (2)
Segment EBITDA for the nine months ended September 30, 2020 7.5 %
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 (i) a 0.5%~~ ~~favorable impact across almost all our operations principally as a result of margin improvement initiatives supporting the pursuit of profitable revenue growth,~~incentive compensation, and (ii) several individually immaterial factors that had a favorable impact of ~~0.2%~~ ~~in the aggregate.~~

~~(2)~~ ~~The increase in segment operating expenses as a percentage of revenue reflects unfavorable impacts of (i)~~ ~~0.4%~~ ~~from bad debt expense due to the downturn in economic conditions caused by the COVID-19 pa~~nd~~emic, (ii)~~ ~~0.2%~~ ~~from professional fees, (iii) a~~ ~~0.2%~~ ~~increase in non-recurring costs for personnel matters and a loan guarantee and (iv) several individually immaterial factors that had an unfavorable impact of~~ ~~0.4%~~ in the aggregate. These negative impacts were partially mitigated by actions to reduce personnel expense which generated a favorable impact of 0.2%. Despite the third party parts and services organic revenue decline of 7.5%, on a per day basis, and deleverage of the business, management was able to utilize government assistance, permanent and temporary headcount reductions, and limited travel expenses to achieve this 0.2% reduction as a percentage of revenue. As the markets have recovered, volumes increased and government programs ceased, we brought back necessary resources to support our operations; however, we expect that certain permanent actions taken this year will provide a long-term favorable impact for the segment.

~~Specialty~~

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

Nine Months Ended
September 30, Percentage Change in Revenue
Specialty 2020 2019
Organic (1)
Acquisition and Divestiture Foreign Exchange Total Change
Parts & services revenue $ 1,150,962 $ 1,157,023 (0.6) % 0.2 % (0.2) % (0.5) %
Other revenue — — — % — % — % — %
Total third party revenue $ 1,150,962 $ 1,157,023 (0.6) % 0.2 % (0.2) % (0.5) %
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 nine months of 2020 compared to the prior year period. On a per day basis, organic revenue declined 1.1%. The organic decline was primarily due to the adverse effects on demand resulting from t~~he 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 September 2020, organic revenue declined 2.4% on a per day basis compared to the prior year period primarily due to volume effects caused by the COVID-19 pa~~ndemic. 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, despite the third quarter impact of availability issues at certain suppliers that were not able to meet our demand due to the COVID-19 pandemic.~~

~~Segment EBITDA. Segment EBITDA decreased $3 million, or 2.2%, in the first nine months of 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 nine months ended September 30, 2019 11.7 %
(Decrease) increase due to:
Change in gross margin (0.7) % (1)
Change in segment operating expenses 0.5 % (2)
Segment EBITDA for the nine months ended September 30, 2020 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 primarily reflects unfavorable impacts of (i)~~ ~~0.6% due to unfavorable product and channel mix in the first nine months of 2020, and (ii)~~ ~~several individually immaterial factors that had an unfavorable impact of 0.5%~~0.8% in the aggregate, partially offset by ~~a favorable impact of~~ (iii) 0.4% due to freight income, reflecting higher shipping and handling fees tied to increased usage of third party carriers (the offsetting delivery cost is a component of freight expense as mentioned below in the operating expenses discussion).

~~(2) The decrease in segment operating expenses reflects a favorable impact of (i) 1.3% in personnel costs due to reduced headcount and reduced hours, partially offset by (ii)~~ a 0.4% 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 0.4% in the aggregate.~~

due to customer mix.

Liquidity and Capital Resources

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


		September 30, 2020		December 31, 2019		September 30, 2019			March 31, 2021		December 31, 2020		March 31, 2020
Cash and cash equivalents	Cash and cash equivalents	$	421,382	$	523,020	$	433,391	Cash and cash equivalents	$	590,194	$	312,154	$	332,784
Total debt (1)	Total debt (1)	3,133,465		4,072,026		3,896,722		Total debt (1)	2,735,022		2,896,676		3,788,555
Current maturities (2)	Current maturities (2)	97,584		326,648		128,426		Current maturities (2)	247,913		58,810		91,241
Capacity under credit facilities (3)	Capacity under credit facilities (3)	3,260,000		3,260,000		3,260,000		Capacity under credit facilities (3)	3,260,000		3,260,000		3,260,000
Availability under credit facilities (3)	Availability under credit facilities (3)	2,270,953		1,922,671		2,044,940		Availability under credit facilities (3)	2,654,767		2,546,081		1,528,449
Total liquidity (cash and cash equivalents plus availability under credit facilities)	Total liquidity (cash and cash equivalents plus availability under credit facilities)	2,692,335		2,445,691		2,478,331		Total liquidity (cash and cash equivalents plus availability under credit facilities)	3,244,961		2,858,235		1,861,233

(1) Debt amounts reflect the gross values to be repaid (excluding debt issuance costs of ~~$27~~$23 million, ~~$30~~$26 million and ~~$31~~$25 million as of ~~September 30, 2020,~~March 31, 2021, December 31, ~~2019~~2020 and ~~September 30, 2019,~~March 31, 2020, respectively).

(2) Debt amounts reflect the gross values to be repaid (excluding ~~immaterial amounts of~~ debt issuance costs of $8 million as of ~~September 30, 2020,~~March 31, 2021 and immaterial amounts as of both December 31, ~~2019~~2020 and ~~September 30, 2019)~~March 31, 2020).

(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, paying down outstanding debt or repurchasing our common stock. As we have pursued acquisitions as part of our historical growth strategy, our cash flows from operations have not always been sufficient to cover our investing activities. To fund our acquisitions, we have accessed various forms of debt financing, including revolving credit facilities, senior notes and ~~our~~a receivables securitization facility.

As of ~~September 30, 2020,~~March 31, 2021, 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 $350 million ($~~328~~319 million outstanding at ~~September 30, 2020)~~March 31, 2021) and $3.15 billion in revolving credit ($~~918~~534 million outstanding at ~~September 30, 2020)~~March 31, 2021), bearing interest at variable rates (although a portion of the outstanding debt is hedged through interest rate swap contracts), with availability reduced by $71 million of amounts outstanding under letters of credit

•Euro Notes (2024) totaling $~~586~~587 million (€500 million), maturing in April 2024 and bearing interest at a 3.875% fixed rate

•Euro Notes (2026/28) totaling $1.2 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 30, 2020)~~March 31, 2021), maturing in November 2021 and bearing interest at variable commercial paper rates

As of ~~September 30, 2020,~~March 31, 2021, we had approximately ~~$2.3~~$2.7 billion available under our credit facilities. Combined with ~~$421~~$590 million of cash and cash equivalents at ~~September 30, 2020,~~March 31, 2021, we had approximately ~~$2.7~~$3.2 billion in available liquidity, an increase of ~~$247~~

$387 million from our available liquidity as of December 31, ~~2019.~~2020. On April 1, 2021, we redeemed the Euro Notes (2026) with proceeds from borrowings on our revolving credit facility and cash on hand. After giving effect to this transaction, we had approximately $1.9 billion available under our credit facilities and $2.3 billion in available liquidity. The redemption will lower our weighted average cost of debt and provide meaningful interest expense savings in the current rate environment.

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 focused on preserving cash during the expected period of reduced demand. Our action plan to strengthen our liquidity position included 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. Given our success in strengthening our liquidity position as of September 30, 2020, we ~~intend to recommence~~recommenced our share buyback ~~program.~~program during the fourth quarter of 2020. Our 2021 plan includes spending to rebuild inventory levels and support growth driven capital projects. 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 negatively in the future.

With $~~2.7~~3.2 billion of total liquidity as of ~~September 30, 2020~~March 31, 2021 and ~~$98 mill~~$248 million ~~ion~~ 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 $256 million in~~ ~~borrowings from free cash flows generated in the third quarter as well as cash on hand. Our total liquidity has increased by~~ ~~$831 million since March 31, 2020, which we believe puts us in a solid position to manage through the pandemic.~~

~~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 ~~September 30, 2020)~~March 31, 2021):


	Covenant Level	Ratio Achieved as of ~~September 30, 2020~~March 31, 2021
Maximum net leverage ratio	5.00:1.00	~~2.0~~1.4
Minimum interest coverage ratio	3.00:1.00	~~13.1~~16.3

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 with respect to 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 from the first quarter of 2020 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 insince the ~~third quarter,~~pandemic began, we believe that we have significantly reduced the risk of a covenant breach, including by reducing our net leverage ratio ~~further in the third quarter~~ relative to the second quarter of 2020 in each successive quarter.

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.~~arrangements, 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. 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.

Beginning in 2019, a number of our European suppliers began participating in a supply chain financing initiative in select countries under which they may sell their accounts receivable to the participating financial institutions, allowing us to extend payment ~~terms.~~terms which in turn improves our operating cash flows. The initiative allows our suppliers to monetize the receivables prior to their payment date, subject to payment of a discount. We expect more suppliers towill begin participating in our European supply chain financing initiative in ~~the fourth quarter of 2020 and into~~ 2021. Financial institutions participate in the supply chain financing initiative on an uncommitted basis and can cease purchasing receivables from our suppliers at any time. The initiative is 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 the initiative, 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 facility to increase. All outstanding payments owed under the initiative to the participating financial institutions are recorded within Accounts payable in our 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 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, from time to time, 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 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 30, 2020~~March 31, 2021 was ~~1.7%~~1.2%. Including our senior notes, our overall weighted average interest rate on borrowings was ~~2.9%~~3.0% at ~~September 30, 2020.~~March 31, 2021.

After 2021, it is unclear whether banks will continue to provide LIBOR submissions to the administrator of ~~LIBOR, and~~LIBOR. At this time, no consensus ~~currently~~ exists as to ~~what benchmark rate or~~which reference rates may become accepted alternatives to LIBOR, although the Alternative Reference Rates Committee, a group of market participants convened by the Federal Reserve Board and the Federal Reserve Bank of New York, has identified the Secured Overnight Financing Rate (“SOFR”) as the recommended alternative to LIBOR. On November 30, 2020, ICE Benchmark Administration, the administrator of LIBOR, with the support of the United States Federal Reserve and the United Kingdom’s Financial Conduct Authority, announced plans to consult on ceasing publication of USD LIBOR on December 31, 2021 for the one week and two month USD LIBOR tenors, and on June 30, 2023 for all other USD LIBOR tenors. While this announcement extends the transition period to June 2023, the United States Federal Reserve concurrently issued a statement advising banks to stop new USD LIBOR issuances by the end of 2021. 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 alternative rate of interest. We do not believe that the discontinuation of LIBOR, or its replacement with an alternative reference rate or rates such as the SOFR, will have a material impact on our results of operations, financial position or liquidity.

Cash interest payments were ~~$98~~$6 million for the ~~nine~~three months ended ~~September 30, 2020, including $64~~March 31, 2021; these payments will increase by $33 million in the second quarter of 2021 as a result of our semi-annual interest payments on our Euro Notes (2024) and Euro Notes (2026/~~28)~~2028). Interest payments on our Euro Notes (2024) and Euro

Notes (2026/~~28)~~2028) are made in April and October. The cash interest payments for the nine months ended September 30, 2020, include approximately $34 million of interest paid for the Euro Notes (2024) and Euro Notes (2026/28) that was due on October 1, 2020.

We had outstanding credit agreement borrowings of ~~$1.2 billion~~$853 million and ~~$1.6 billion~~$967 million at ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019,~~2020, respectively. Of these amounts, $18 million was classified as current maturities at both ~~September 30, 2020~~March 31, 2021 and December 31, ~~2019.~~2020.

The scheduled maturities of long-term obligations ~~inclusive of finance lease obligations,~~ outstanding at ~~September 30, 2020~~March 31, 2021 are as follows (in thousands):


Three months ending December 31, 2020 (1):		$	71,363
Nine months ending December 31, 2021 (1):				Nine months ending December 31, 2021 (1):	$	237,439
Years ending December 31:	Years ending December 31:			Years ending December 31:
2021		33,809
2022	2022	30,485		2022	32,964
2023	2023	24,119		2023	25,859
2024	2024	1,779,859		2024	2,119,764
2025				2025	7,408
Thereafter	Thereafter	1,193,830		Thereafter	311,588
Total debt (2)	Total debt (2)	$	3,133,465	Total debt (2)	$	2,735,022

(1) Maturities of long-term obligations due by December 31, ~~2020~~2021 includes ~~$59~~$55 million of short-term debt that may be extended beyond the current due date. Of the €750 million 2026 notes that were redeemed on April 1, 2021, in the table above $159 million is included in 2021 (reflecting the amount repaid with cash on hand) and $721 million is included in 2024 (reflecting the amount repaid using borrowings under the revolving credit facility).

(2) The total debt amounts presented above reflect the gross values to be repaid (excluding debt issuance costs of ~~$27~~$23 million as of ~~September 30, 2020)~~March 31, 2021).

Our credit agreement contains customary covenants that ~~provide~~impose 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 30, 2020.~~March 31, 2021.

As of ~~September 30, 2020,~~March 31, 2021, the Company had cash and cash equivalents of $~~421~~590 million, of which ~~$327~~$496 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.~~tax on the deemed repatriation of historical earnings of foreign subsidiaries as of December 31, 2017. Distributions of dividends from our foreign subsidiaries, if any, would be generally exempt from further U.S. taxation, either as a result of the 100% participation exemption under the Tax Act, or due to the previous taxation of foreign earnings under the transition tax and the Global Intangible Low-Taxed Income ~~regime, a regime of taxation on foreign subsidiary earnings.~~(“GILTI”) regime. 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~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ (in thousands):


		Three Months Ended						Nine Months Ended							Three Months Ended
		September 30,						September 30,							March 31,
		2020		2019		Change		2020		2019		Change (1)			2021		2020		Change
North America	North America	$	270,600	$	325,600	$	(55,000)	$	760,600	$	1,005,000	$	(244,400)	North America	$	260,000	$	328,700	$	(68,700)	(1)
Europe	Europe	940,400		1,009,700		(69,300)		2,491,600		2,931,300		(439,700)		Europe	893,600		867,800		25,800		(2)
Specialty	Specialty	252,200		288,100		(35,900)		678,400		825,800		(147,400)		Specialty	391,300		307,300		84,000		(3)
Total	Total	$	1,463,200	$	1,623,400	$	(160,200)	$	3,930,600	$	4,762,100	$	(831,500)	Total	$	1,544,900	$	1,503,800	$	41,100

(1)Inventory purchases across ~~all segments~~the North America segment have decreased in the three months ended March 31, 2021 compared to the prior year period. We are rebuilding our inventory levels after decreases in 2020 due to ~~a slowdown~~the COVID-19 pandemic, however, they did not reach our desired levels in ~~procurement beginning~~the first quarter due to ocean freight driven delays in ~~March 2020 as a response to~~ t~~he COVID-19 p~~a~~ndemic.~~shipping and overall pandemic driven lower production volumes.

56(2)The increase in inventory purchases in our Europe segment was primarily due to the increase of $77 million attributable to the increase in the value of the euro, and to a lesser extent, the pound sterling in the three months ended March, 31 2021 compared to the prior year period. On a constant currency basis, inventory purchases decreased compared to 2020, primarily due to ocean freight driven delays in shipping and overall pandemic driven lower production volumes as we attempt to rebuild our inventory levels.

(3)

The increase in inventory purchases in the Specialty segment was primarily due to required restocking to keep up with the high demand for our products.

The following table sets forth a summary of our global wholesale salvage and self service procurement for the three ~~and nine~~ months ended ~~September 30,~~March 31, 2021 and 2020 ~~and 2019~~ (in thousands):


		Three Months Ended				Nine Months Ended					Three Months Ended
		September 30,				September 30,					March 31,
		2020	2019	% Change		2020	2019	% Change			2021	2020	% Change
North America wholesale salvage cars and trucks	North America wholesale salvage cars and trucks	57	78	(26.9)	%	165	230	(28.3)	%	North America wholesale salvage cars and trucks	50	72	(30.6)	%
Europe wholesale salvage cars and trucks	Europe wholesale salvage cars and trucks	6	5	20.0	%	18	19	(5.3)	%	Europe wholesale salvage cars and trucks	7	7	0.0	%
Self service and "crush only" cars	Self service and "crush only" cars	148	151	(2.0)	%	434	455	(4.6)	%	Self service and "crush only" cars	137	149	(8.1)	%

Salvage purchases decreased relative to the prior year ~~as we reduced buying~~primarily due to ~~reflect lower demand during~~limitations on vehicles at auctions due to the COVID-19 pandemic. ~~Purchasing began to increase as the second quarter progressed and revenue increased and continued to increase during the third quarter.~~ Self service ~~car~~vehicle purchases declined due to ~~supply constraints as certain outlets, such as city impound lots, were unavailable for a portion~~(i) increased competition in the market due to rising costs of precious metals and scrap steel and (ii) fewer purchases due to the ~~year and individuals held onto cars longer during~~elimination of underperforming locations in accordance with the ~~lockdown measures. Purchases increased towards the end of June and continued to increase through the end of the third quarter.~~2020 restructuring plan.

We expect to increase inventory purchases in ~~the fourth quarter of 2020~~2021 to support the service and fill rate requirements of our businesses based on the revenue trend and expectations for full year 2021, including normal seasonality, as ~~we approach winter.~~our inventory levels in 2020 decreased due to the COVID-19 pandemic. However, we expect to be able to operate effectively at a lower inventory balance than at the end of ~~2019.~~

2019, before the impacts of the pandemic.

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, 2019		$	965
Net cash provided by operating activities for the three months ended March 31, 2020					Net cash provided by operating activities for the three months ended March 31, 2020	$	195
Increase (decrease) due to:	Increase (decrease) due to:				Increase (decrease) due to:
Operating income	Operating income	28		(1)	Operating income	130		(1)
Non-cash depreciation and amortization expense		(10)
Loss/gain on disposal of businesses and impairment of net assets held for sale		(43)		(2)

Cash paid for taxes	Cash paid for taxes	(76)		(3)	Cash paid for taxes	(94)		(2)
Cash paid for interest	Cash paid for interest	(11)		(4)	Cash paid for interest	8
Working capital accounts: ~~(5)~~(3)	Working capital accounts: ~~(5)~~(3)				Working capital accounts: ~~(5)~~(3)
Receivables, net	Receivables, net	74			Receivables, net	(134)
Inventories	Inventories	387			Inventories	(6)
Accounts payable	Accounts payable	(197)			Accounts payable	359
Other operating activities	Other operating activities	18		(6)	Other operating activities	65		(4)
Net cash provided by operating activities for the nine months ended September 30, 2020		$	1,135
Net cash provided by operating activities for the three months ended March 31, 2021					Net cash provided by operating activities for the three months ended March 31, 2021	$	523

(1) Refer to the Results of Operations - Consolidated section for further information on the increase in operating income.

(2) Refer to "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 information on the net impairment activity recorded in the nine months ended September 30, 2020 and September 30, 2019.

~~(3)~~ Cash ~~flows~~payments related to income taxes ~~were a net increase due to timing, with roughly half of the increase attributable to the timing of estimated~~increased for U.S. federal and state income ~~tax payments. The remaining year over year~~taxes due to a projected increase ~~primarily related to tax payment benefits~~ in ~~2019 from the loss on disposal of our aviation business and overpayment credits carried forward.~~

~~(4) Increases in interest payments resulted in a decrease to cash flows, primarily due to~~pretax income and the timing of ~~interest payments on the Euro Notes (2024) and Euro Notes (2026/28), partially offset by a decrease in interest payments due to the early redemption of the U.S. Notes (2023).~~estimated tax payments.

~~(5)~~(3) Cash flows related to our primary working capital accounts can be volatile as the purchases, payments and ~~collections~~collections can be timed differently from period to period.

Receivables, net was a ~~$74~~$134 million ~~greater inflow~~greater outflow in ~~2020~~2021 primarily due to ~~greater cash conversion of accounts receivable~~a significant increase in March 2021 revenue compared to March 2020, which translated to higher receivables balances and larger net outflows in ~~the first nine months of 2020 in the Europe segment (of $50 million) and~~ the North America segment (of ~~$34~~$36 million), in the Europe segment (of $57 million) and in the ~~lower revenues d~~u~~e to the COVID-19 pandemic.~~ Specialty segment (of $42 million).

Inventories represented ~~$387~~$6 million in incremental cash ~~inflows~~outflows in the first ~~nine~~three months of ~~2020 as~~2021 compared to the same period of 2020. We expected a ~~result of inventory decreases~~larger cash outflow in the (i) Specialty segment of $151 million, (ii) North America segment of $129 million, and (iii) Europe segment of $106 million, due to a slowdown in inventory purchases starting in March 2020 due to the COVID-19 pandemicfirst quarter as we ~~aligned~~work to rebuild our inventory ~~balances to~~levels, but as described in the ~~projected demand.~~procurement section, we were delayed in doing so. We now anticipate that the inventory build will take place over the balance of the year.

Accounts payable produced ~~$197~~$359 million in higher cash ~~outflows~~inflows primarily due to ~~lower~~higher accounts payable balances in the North America segment (of ~~$191~~$205 million) due to timing of payments, and the ~~Specialty~~Europe segment (of ~~$15~~$148 million) compared to the prior year period, as a result of timing of payments and benefits of extended payment terms, including through our supply chain financing initiatives.

(4) Cash flows from other operating activities increased $22 million as a ~~slowdown in inventory purchases starting in March 2020 due~~result of the timing of value added tax payables payments compared to the ~~COVID-19 pandemic.~~

~~(6) Reflects~~prior year. The remaining amount reflects a number of individually insignificant fluctuations in cash paid for other operating activities.

Net cash used in investing activities totaled ~~$106~~$33 million and ~~$160~~$45 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. Property, plant and equipment purchases were ~~$110~~$42 million in the ~~first nine~~three months ~~of 2020~~ended March 31, 2021 compared to ~~$166~~$45 million in the prior year period. ~~The period over period decrease in cash outflows for purchases of property, plant and equipment was due to decreased capital spending across our businesses as a result of the COVID-19 pandemic.~~ We invested $7$2 million of cash, net of cash acquired, in business acquisitions during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 compared to ~~$15~~$7 million during the ~~nine~~three months ended ~~September 30, 2019.~~March 31, 2020. We received ~~$18~~$14 million of net proceeds from

divestitures of businesses held for sale and property, plant and equipment ~~during~~in the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021, compared to ~~$26~~$7 million in the prior year period.

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

Nine Months Ended
September 30,
2020 2019
Net cash provided by operating activities $ 1,134,641 $ 965,171
Less: purchases of property, plant and equipment 109,949 165,551
Free cash flow $ 1,024,692 $ 799,620


	Three Months Ended
	March 31,
		2021		2020
Net cash provided by operating activities		$	522,512	$	194,563
Less: purchases of property, plant and equipment		41,779		44,538
Free cash flow		$	480,733	$	150,025

Net cash used in financing activities totaled ~~$1.2 billion~~$208 million and ~~$690~~$335 million for the ~~nine~~three months ended ~~September 30,~~March 31, 2021 and 2020, ~~and 2019,~~ respectively. During the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, net repayments of our borrowings totaled ~~$1.0 billion~~$83 million compared to ~~$391~~$230 million during the ~~nine~~three months ended ~~September 30, 2019. The period over period increase in net repayments of our borrowings includes~~March 31, 2020. Financing cash outflows for the three months ended March 31, 2020 included the $600 million repayment of our U.S. Notes (2023) in January 2020. We repurchased ~~$88~~$57 million of our common stock in the ~~nine~~three months ended ~~September 30, 2020,~~March 31, 2021, compared to ~~$292~~$88 million in the ~~nine~~three months ended ~~September 30, 2019.~~

~~Although~~March 31, 2020. In January 2021, we settled our ~~efforts are currently scaled back~~cross currency swap with the counterparty for $57 million due to strengthening in the ~~COVID-19 pandemic, we~~Euro exchange rate relative to the contract rate.

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.~~

costs.

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%~~49.4% and ~~50.3%~~50.5% of our revenue during the ~~nine~~three months ended ~~September 30, 2020~~March 31, 2021 and the year ended December 31, ~~2019,~~2020, 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 ~~2.6%~~3.0% change in our operating income for the ~~nine~~three months ended ~~September 30, 2020.~~March 31, 2021. 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 30, 2020 were immaterial.~~March 31, 2021 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.

To the extent that we are exposed to foreign currency fluctuations related to ~~intercompany~~non-functional currency denominated financing transactions, we may hedge the exposure through the use of foreign currency forward contracts. ~~In the third quarter~~As of ~~2020,~~March 31, 2021, we ~~entered into~~held short term foreign currency forward contracts with notional amounts of ~~€91~~$315 million and ~~£75 million; in October 2020,~~€184 million. In connection with the redemption of the Euro Notes (2026) on April 1, 2021, we entered into ~~an additional~~a short term foreign currency forward contract for ~~€51~~$720 million. ~~These~~We expect to enter into similar instruments as each instrument matures and expect to continue to do so until the foreign currency ~~forward contracts mature in December~~

~~2020. As of September 30, 2020, the fair values of our outstanding foreign currency forward contracts were immaterial.~~denominated borrowings are repaid. The values of these contracts are subject to changes in foreign currency exchange rates.

Other than with respect to a portion of our foreign currency denominated inventory purchases and certain ~~intercompany~~ financing transactions, 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 third party borrowings as we generate cash flows in the local currencies that can be used to fund debt payments. As of ~~September 30,~~March 31, 2021, we had outstanding borrowings of €500 million under our Euro Notes (2024) and €1.0 billion under our Euro Notes (2026/28) (€250 million after our April 2021 redemption of the 2026 notes), and £40 million, €85 million, and SEK 210 million under our revolving credit facilities. As of December 31, 2020, we had outstanding borrowings of €500 million under our Euro Notes (2024), and €1.0 billion under our Euro Notes (2026/28)~~, and CAD $130 million, £33 million, €35 million, and SEK 257 million~~; we had no foreign borrowings 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 £208 million, €229 million, CAD $130 million, and SEK 270 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. We designate our interest rate swap contracts as cash flow hedges, and net interest payments or receipts from interest rate swap contracts are included as adjustments to interest expense.

As of ~~September 30, 2020,~~March 31, 2021, we held interest rate swap contracts with a total notional amount of ~~$480~~$150 million, maturing in ~~January 2021 and~~ June 2021. 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 30, 2020,~~March 31, 2021, the fair value of the interest rate swap contracts was a liability of ~~$2 million.~~$0.3 million. The values of such contracts are subject to changes in interest rates.

In addition to these interest rate swaps, as of September 30, 2020, we held cross currency swap agreements for a total notional amount of €424 million with maturity dates in 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.; and MUFG). As of September 30, 2020, the fair value of our cross currency swaps was a liability of $42 million. The values of these contracts are subject to changes in interest rates and foreign currency exchange rates.

In total, we had ~~75%~~18% of our variable rate debt under our credit facilities at fixed rates at ~~September 30, 2020~~March 31, 2021 compared to ~~59%~~87% at December 31, ~~2019.~~2020. See Note 9, "Long-Term Obligations" and Note 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 30, 2020,~~March 31, 2021, we had approximately ~~$311~~$703 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 $3$7 million over the next twelve months.

Commodity Prices

We are exposed to market risk related to price fluctuations in scrap metal and other 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 ~~metals~~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 30, 2020~~March 31, 2021 increased ~~14%~~35% over the average for the ~~second~~fourth quarter of 2020. The average prices of rhodium, platinum and palladium for the three months ended March 31, 2021 increased by 59%, 20% and 5%, respectively, over the average for the fourth quarter of 2020.

6045

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of ~~September 30, 2020,~~March 31, 2021, 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 30, 2020~~March 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

6146

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

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. There have been no material changes to the legal proceedings previously disclosed in our ~~2019~~2020 Form 10-K ~~and in~~other than as follows:

In April 2021, the Company was advised that the U.S. Environmental Protection Agency ("EPA") planned to issue enforcement letters regarding concerns with our ~~Quarterly Report~~NPDES stormwater permits at seven of our facilities. We have not yet received those letters. We do not expect that any proposed penalty will have a material effect on ~~Form 10-Q for the three months ended June 30, 2020 filed with the SEC on August 4, 2020.~~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 ~~2019~~2020 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.

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 at management's discretion in the open market, in privately negotiated transactions or pursuant to instruments or plans complying with Rule 10b5-1. 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.

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.

The following ~~represents changes and or additions to the risks and uncertainties previously disclosed in the 2019 Form 10-K and Form 10-Q~~table summarizes our stock repurchases for the three months ended March 31, ~~2020 filed with the SEC on May 7, 2020.~~2021 (in thousands, except per share data):

~~Our operating results and financial condition have been and will likely continue to be adversely affected by the COVID-19 pandemic and could be adversely affected by other public health emergencies.~~


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
January 1, 2021 - January 31, 2021	410	$	35.20	410	$	516,477
February 1, 2021 - February 28, 2021	503	$	38.43	503	$	497,127
March 1, 2021 - March 31, 2021	573	$	40.52	573	$	473,916
Total	1,486			1,486

The COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, our business and operations. Government authorities in the jurisdictions in which we operate have recommended or mandated precautions to mitigate the spread of COVID-19, including prohibitions on congregating in various locations, travel restrictions, shelter-in-place orders, and similar measures. These measures have resulted in a significant reduction in miles driven. As a result, we have experienced and expect to continue to experience unpredictable reductions in demand for our products. Although we have been permitted to continue to operate in most of the jurisdictions in which we operate, including in jurisdictions that have mandated the closure of certain businesses, there is no assurance that we will be permitted to continue operations under future government orders or other restrictions.

In order to reduce costs in an attempt to offset reductions in revenue, we have implemented various cost reductions to align with the lower level of economic activity, including employee layoffs and furloughs. These actions may result in a significant increase in employment-related claims and the associated risks and expenses related thereto. Due to the self-insured nature of our health insurance program, we may be subject to substantial increases in healthcare costs in the event that a significant number of our employees become ill and require medical treatment due to COVID-19 infections. Also, we may suffer workforce shortages and/or lose the services of key management personnel due to employees contracting the COVID-19 virus or due to employees being subject to quarantine because of possible exposure to a person who tested positive for the virus. Although we have been taking precautions as recommended by governmental agencies to protect the health and safety of our employees who are continuing to work, we may be subject to claims that we did not take adequate or appropriate measures in this regard. We have also implemented remote work arrangements for many of our employees, which may expose us to an increased risk of cyber-attack or other cyber-security threats.

In the event that the pandemic subsides and business increases, there can be no assurance that we will be able to recall or rehire the appropriate number of employees with the proper skill sets to handle the increase in business.

We are evaluating the applicability of certain financial assistance and relief programs from foreign governments. While we intend to pursue this government assistance where possible and advisable, there is no guarantee as to what amount, if any, we would qualify for and receive.

The COVID-19 pandemic is adversely affecting our business partners, including our suppliers and customers. Depending on the extent of the adverse effects, we may not be able to source sufficient inventory to provide products to our customers even at reduced-demand levels, and the ability of our customers to continue operating or to pay us for our products may be disrupted.

Depending on the length and severity of the adverse effects on our business of the COVID-19 pandemic, we may determine that our goodwill or other long-lived assets have become impaired or that the carrying value of our receivables and inventory may no longer be recoverable. If either or both occur, we may incur significant charges to our pre-tax income.

Depending on the length and severity of the adverse effects on our business of the COVID-19 pandemic, we may not satisfy one or more of the financial or other covenants in our credit facility. Failure to satisfy any such covenant could inhibit

our ability to borrow money under our credit facility should we need to do so or could result in a default under our credit facility. The COVID-19 pandemic has caused severe macroeconomic disruptions, including substantial price volatility in the equities markets, including the price of our common stock, and concerns about the liquidity of the credit markets. These macroeconomic disruptions may also affect our ability to borrow money or otherwise raise cash.

There is uncertainty with respect to the duration and breadth of the COVID-19 pandemic. Moreover, even after the mitigation measures are relaxed by government authorities, the timing and extent of the recovery of the economies in the countries where we operate is difficult to estimate. Thus, the ultimate impact on our business, financial results and financial condition cannot reasonably be estimated at this time; however, we expect our full year 2020 results to be adversely impacted. In addition, even if the adverse effects of the COVID-19 pandemic subside, there is the possibility of a recurrence of COVID-19 or the emergence of a different pandemic or health emergency with similar economic disruptions.

6347

Item 6. Exhibits

Exhibits

(b) Exhibits


4.1			Amendment No. 5 dated as of December 14, 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, LKQ Delaware LLP, and certain additional subsidiaries of LKQ Corporation, as borrowers, certain financial institutions, as lenders, and Wells Fargo Bank, National Association, as administrative agent.
10.1			Change of Control Agreement between LKQ Corporation and Genevieve L. Dombrowski dated as of March 22, 2021.
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)

6448

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 3, 2020.~~May 5, 2021.


			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)

6549


	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 September 30, 2020	0	$	0	—	$	0


	Fair Value at September 30, 2020
	Other Current Assets		Other Noncurrent Assets		Other Accrued Expenses		Other Noncurrent Liabilities
Interest rate swap agreements	$	0	$	0	$	1,952	$	0
Cross currency swap agreements	0		0		42,121		0
Foreign currency forward contracts	402		0		252		0
Total cash flow hedges	$	402	$	0	$	44,325	$	0


	Balance as of September 30, 2020		Fair Value Measurements as of September 30, 2020
			Level 1		Level 2		Level 3
Assets:
Cash surrender value of life insurance	$	63,490	$	0	$	63,490	$	0


Foreign currency forward contracts	402		0		402		0
Total Assets	$	63,892	$	0	$	63,892	$	0
Liabilities:
Contingent consideration liabilities	$	11,928	$	0	$	0	$	11,928
Interest rate swaps	1,952		0		1,952		0
Deferred compensation liabilities	67,500		0		67,500		0
Cross currency swap agreements	42,121		0		42,121		0
Foreign currency forward contracts	252		0		252		0
Total Liabilities	$	123,753	$	0	$	111,825	$	11,928


Other expense, net for the three months ended September 30, 2019	$	26,037
(Decrease) increase due to:
Interest expense, net of interest income	(6,922)		(1)


Gain on debt extinguishment	128
Other expense (income), net	8,431		(2)
Net increase	1,637
Other expense, net for the three months ended September 30, 2020	$	27,674


	Nine Months Ended September 30,				Percentage Change in Revenue
North America	2020		2019		Organic			Acquisition and Divestiture (3)		Foreign Exchange		Total Change
Parts & services revenue	$	3,007,169	$	3,466,582	(12.7)	%	(1)	(0.4)	%	(0.1)	%	(13.3)	%
Other revenue	457,933		459,380		(0.8)	%	(2)	0.5	%	(0.0)	%	(0.3)	%
Total third party revenue	$	3,465,102	$	3,925,962	(11.3)	%		(0.3)	%	(0.1)	%	(11.7)	%
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, 2019	13.6	%
Increase due to:
Change in gross margin	2.1	%	(1)
Change in segment operating expenses	0.7	%	(2)
Change in other expense, net and net income attributable to continuing noncontrolling interest	(0.1)	%	(3)
Segment EBITDA for the nine months ended September 30, 2020	16.3	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.