What changed in this filing

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Item 2. Management’s Discussion and Analysis

2020-11-03 compared with 2020-08-04 · 372 added, 327 removed, 451 unchanged (61% of the section changed)

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Since our inception in 1998, we have pursued a growth strategy through both organic growth and acquisitions.

We have pursued acquisitions that we believe will help drive profitability, cash flow and stockholder value.

We target companies that are market leaders, will expand our geographic presence and will enhance our ability to provide a wide array of vehicle products to our customers through our distribution network.

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 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.

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Our 2019 Form 10-K includes a summary of the critical accounting policies and estimates we believe are the most important to aid in understanding our financial results.

Other than as descr ibed below, there have been no changes to those critical accounting policies or estimates that have had a material impact on our reported amounts of assets, liabilities, revenue or expenses during the six months ended June 30, 2020.

COVID-19 Projections and Assumptions

In the first and second quarters of 2020, we prepared forecasts of future revenues, profits and cash flows to use in multiple analyses, including the interim goodwill impairment test, other impairment tests of long-lived assets, assessments of the recoverability of inventory, determination of customer and supplier rebate balances, calculation of the annual effective tax rate and evaluations of the realizability of deferred tax assets.

Our first quarter projections assumed that the COVID-19 impact would be severe, with revenue down in the second quarter of 2020 compared to our prior forecasts, but temporary, as revenue would improve gradually in the second half of 2020.

We expected that cost mitigation actions would dampen the negative impact of the projected revenue decline but still result in a significant reduction in profitability in the second quarter of 2020.

Actual results for the three months ended June 30, 2020 tracked in the same direction as our forecast, but the decline was significantly less severe than projected.

Our updated forecasts for use in preparing the June 30 financial statements reflect a further recovery in revenue and profitability in the second half but with amounts still below the comparable prior year period.

We expect to generate positive free cash flows in the second half of 2020 but at a lower level than the first half of the year.

COVID-19 Project ions 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.

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We determined no impairments existed on any of our four reporting units when we performed our interim goodwill impairment testing in the first quarter of 2020, as each of those reporting units had a fair value estimate that exceeded the carrying value by at least 12%, the level at which our Europe reporting unit exceeded its carrying value.

We did not identify a triggering event in the second quarter that necessitated an interim test of goodwill impairment.

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.

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We determined that the effect of the uncertainty relating to the COVID-19 pandemic on our forecasted results represented a change in circumstances indicating that the carrying value of the Warn trademark, which is our only indefinite-lived intangible asset, may not be recoverable.

As a result, we performed a quantitative impairment test in the first quarter as of March 31, 2020 using the relief-from-royalty method and determined no impairment existed, as the trademark had a fair value estimate which exceeded the carrying value by approximately 9%.

We did not identify a triggering event in the second quarter that necessitated an interim test of impairment.

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.

Recently Issued Accounting Pronouncements

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We have undertaken the 1 LKQ Europe program to create structural centralization and standardization of key functions to facilitate the operation of the Europe segment as a single business.

Under this multi-year program, we have recognized to date and expect to continue to recognize the following:

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.

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Costs related to the 1 LKQ Europe program incurred to date are reflected in Selling, general and administrative expenses and Purchases of property, plant and equipment in our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

We continue to expect that costs of the program, reflecting all three categories noted above, will range between $100 million and $125 million for the period from 2020 through 2021 with an additional $80 million to $100 million between 2022 and the original projected completion date of the project in 2024.

Beginning in the second half of March 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, although we are evaluating the impact of the delay on our estimates of the related expenditures and timelines.

We may also identify additional initiatives and projects under the 1 LKQ Europe program in future periods that may result in additional expenditures, although we are currently unable to estimate the range of charges for such potential future initiatives and projects.

While certain projects were delayed as a result of the COVID-19 pandemic, such as our procurement initiatives and the new head office in Switzerland, we also accelerated certain projects, such as the integration of previously acquired networks and sharing resources across LKQ Europe.

We expect to complete the organizational design and implementation projects by the middle of 2021, with the remaining projects to be completed by 2024.

We expect that costs of the program, reflecting all three categories noted above, will range between $100 million and $125 million for the period from 2020 through 2021 with an additional $80 million to $100 million between 2022 and the original projected 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.

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

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While our businesses have been deemed essential in most jurisdictions in which we operate, the change in behavior driven by the COVID-19 restrictions negatively impacted our sales volume.

Our organic parts and services revenue declined by 16.8% in the second quarter of 2020, relative to the comparable prior period, but showed improvement over the quarter as governments gradually lifted restrictions for nonessential businesses and personal movement.

As anticipated, April experienced the most negative revenue impact, with organic parts and services revenue (on a per day basis) down 30.3%.

As movement restrictions lessened in May and June, we experienced organic parts and services revenue (on a per day basis) declines of 13.2% and 7.3%, respectively.

However, the pace of improvement has flattened into July as the increasing level of COVID-19 cases, especially in the United States, appears to have slowed the recovery.

In the second half of 2020, we expect revenue to decrease on a year over year basis, but at a lower rate than reported for the first half.

This expectation is based on the assumption that there will not be a recurrence in the second half of 2020 of the extensive lockdown measures taken in March and April.

Such measures may materialize with the expansion of economic and social activity in a region if the prevalence of the virus outbreak increases as a result thereof.

Our organic parts and services revenue declined by 16.8% and 4.5% in the second and third quarters of 2020, respectively, relative to the comparable prior periods, but showed improvement over the periods as governments gradually lifted restrictions for non-essential businesses and personal movement.

As anticipated, April experienced the most negative revenue impact, with organic parts and services revenue (on a per day basis) down 30.3% compared to the prior year period.

As movement restrictions lessened in May and June, 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 as the increasing level of COVID-19 cases, especially in the United States, slowed the recovery.

During the third quarter, organic parts and services revenue declined by 4.5% compared to the prior year period, a small improvement from the June decline of 7.3% (on a per day basis).

In the fourth quarter of 2020, we expect revenue to remain lower on a year over year basis as COVID-19 continues to impact economic activity in the U.S.

The level of the year over year decrease in revenue will depend on the extent of lockdown measures taken in response to an increase in the prevalence of the virus outbreak.

Recognizing the demand changes in the first quarter of 2020, we took action in all of our business units to reduce our cost structure.

These actions included, but were not limited to, employee furloughs and reductions in force, decreases in hours and overtime, lowering compensation for salaried employees, a hiring freeze, elimination of temporary labor, route consolidation, deferral of projects, and temporary branch closures.

These cost actions contributed to a reduction of approximately 18% of quarterly selling, general and administrative expenses compared to our first quarter 2020 run rate.

We estimate that the cost actions generated an additional $10 million benefit in cost of goods sold.

In the second quarter, 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.

We pursued certain financial assistance and relief programs that were available to us from governments in Europe and Canada, primarily in the form of grants to offset personnel expenses;

through June 30, 2020, we qualified for $33 million of assistance, and we estimate that we may qualify for additional assistance in the second half of 2020, but at a lower level than we received in the second quarter of 2020.

However, these actions lagged the revenue impact, which meant there was a negative timing impact of COVID-19 on our first half profitability in addition to the negative effect from reduced revenue.

If our revenue increases in the second half of 2020 as projected, we still expect that some of the costs that were reduced as a result of COVID-19 will remain at a lower level;

the management team has been implementing productivity initiatives to create lower cost structures going forward.

We also emphasized the preservation of capital with a deferral of growth driven capital projects, reductions in inventory orders, more active monitoring of customer receivables and terms, income and value added tax payment deferrals, and suspension of our share buyback program.

This focus was successful as we improved our liquidity position relative to March 31 despite a decline in profitability.

During the third quarter, we were able to sustain a portion of the cost benefits, with quarterly selling, general and administrative costs down 10% 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 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 quarter 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, we qualified for $45 million of assistance, although that figure was heavily weighted to the second quarter.

We currently do not anticipate qualifying for significant additional assistance in the fourth quarter of 2020, although 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, 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.

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.

This focus was successful as we improved our liquidity position relative to March 31 while managing through the disruption caused by the pandemic.

One of our top priorities is the health and safety of our employees, customers and the communities in which we operate.

We are using our best efforts to follow all governmental instructions and safety guidelines with respect to the operations of our facilities.

We 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 to help ensure the health and safety of our employees, customers and communities including, but not limited to:

restricting access to and enhancing cleaning and disinfecting protocols of our facilities;

restricting access to and enhancing cleaning and disinfecting protocols at our facilities;

use of personal protection equipment;

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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.

• 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.

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

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Restructuring and acquisition related expenses 0.7 % 0.3 % 0.6 % 0.2 %

Loss on disposal of businesses and impairment of net assets held for sale

0.1 % 1.0 % 0.0 % 0.8 %

(Gain) loss on disposal of businesses and impairment of net assets held for sale (0.0) % (0.1) % 0.0 % 0.5 %

Depreciation and amortization 2.3 % 2.3 % 2.3 % 2.2 %

Operating income 9.7 % 7.4 % 8.3 % 7.3 %

Other expense, net 0.7 % 0.9 % 0.9 % 1.0 %

Total other expense, net 0.9 % 0.8 % 0.9 % 0.9 %

Income from continuing operations before provision for income taxes

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Provision for income taxes 2.6 % 1.8 % 2.1 % 1.7 %

Equity in (losses) earnings of unconsolidated subsidiaries (0.1) % 0.0 % (0.0) % (0.6) %

Equity in earnings (losses) of unconsolidated subsidiaries 0.1 % 0.1 % 0.0 % (0.4) %

Income from continuing operations 6.4 % 4.8 % 5.3 % 4.2 %

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Net income 6.4 % 4.8 % 5.3 % 4.3 %

net (loss) income attributable to continuing noncontrolling interest

(0.0) % 0.0 % 0.0 % 0.0 %

net income (loss) attributable to continuing noncontrolling interest 0.0 % (0.0) % 0.0 % 0.0 %

net income attributable to discontinued noncontrolling interest

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In the table above, the sum of the individual percentages may not equal the total due to rounding.

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

Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

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

Three Months Ended

June 30, Percentage Change in Revenue

September 30, Percentage Change in Revenue

2020 2019 Organic Acquisition and Divestiture Foreign Exchange Total Change

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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 18.9% represented decreases in segment revenue of 23.4% in North America, 20.2% in Europe, and 1.5% in Spec ialty.

Organic parts and services revenue declined by 16.8% in the second quarter of 2020 primarily related to the impact of COVID-19 (refer to the "COVID-19 Imp act on Our Operations" section above for further details).

The decrease in other revenue of 23.7% was primarily driven by a $38 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 second quarter of 2020 compared to the prior year period.

The decline in parts and services revenue of 3.4% represented a decrease in segment revenue of 12.1% in North America, partially offset by increases of 2.3% in Europe and 1.4% in Specialty.

Organic parts and services revenue declined by 4.5% in the third quarter of 2020 primarily related to the impact of COVID-19 on North America (refer to the "COVID-19 Impact on Our Operations" section above for further details).

Refer to the discussion of our segment results of operations for factors contributing to the change in revenue by segment during the third quarter of 2020 compared to the prior year period.

Cost of Goods Sold .

Cost of goods sold decreased to 61.5% of revenue in the three months ended June 30, 2020 from 61.6% of revenue in the three months ended June 30, 2019.

Cost of goods sold decreased 0.4% and 0.3% as a result of our Europe and North America segments, respectively, partially offset by a 0.4% increase in cost of goods sold attributable to mix and an increase of 0.2% in our Specialty segment.

The mix impact is a result of the decreased volumes in our North America segment primarily due to the COVID-19 pandemic, as the higher margin North America segment makes up a smaller

percentage of the consolidated results resulting in an unfavorable effect on the gross margin percentage.

We recorded inventory write downs of roughly $3 million in each of our North America and Europe segments relate d to the restructuring plans 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 June 30, 2020 compared to the same period of 2019.

Cost of goods sold decreased to 60.7% of revenue in the three months ended September 30, 2020 from 61.9% of revenue in the three months ended September 30, 2019.

Cost of goods sold decreased by 0.8% and 0.6% in our Europe and North America segments, respectively, partially offset by a 0.3% 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.

Selling, General and Administrative Expenses.

Our selling, general and administrative ("SG&A") expenses as a percentage of revenue increased to 28.1% in the three months ended June 30, 2020 from 27.7% in the three months ended June 30, 2019.

Our Europe and North America segments each had an increase in SG&A expenses as a percentage of revenue of 0.5%, which were partially offset by (i) a 0.4% decrease in SG&A expenses attributable to mix and (ii) a decrease of 0.2% in our Specialty segment.

The mix impact is a result of the decreased volumes in our North America segment primarily due to the COVID-19 pandemic, as the higher SG&A expense percentage North America segment makes up a smaller percentage of the consolidated results, which has a favorable effect on the SG&A expense percentage.

Refer to the discussion of our segment results of operations for factors contributing to the changes in SG&A expenses as a percentage of revenue by segment for the three months ended June 30, 2020 compared to the same period of 2019.

Our selling, general and administrative ("SG&A") expenses as a percentage of revenue decreased to 26.7% in the three months ended September 30, 2020 from 28.3% in the three months ended September 30, 2019.

SG&A expenses decreased due to (i) a decrease of 1.3% in our North America segment, and (ii) a 0.2% decrease in SG&A expenses 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 SG&A expense percentage North America segment made up a smaller percentage of the consolidated results, which had a favorable effect on the SG&A expense percentage.

Restructuring and Acquisition Related Expenses .

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Three Months Ended

September 30,

2020 2019 Change

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Total restructuring and acquisition related expenses $ 20,495 $ 8,929 $ 11,566

(1) Restructuring expenses for the three months ended June 30, 2020 primarily consisted of (i) $20 million related to our 2020 global restructuring program, (ii) $4 million related to integration costs from acquisitions, and (iii) $2 million related to our 2019 global restructuring program.

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

(1) Restructuring expenses for the three months ended September 30, 2020 primarily consisted of (i) $10 million related to our 2020 global restructuring program, (ii) $2 million related to integration costs from acquisitions, and (iii) $1 million related to our 2019 global restructuring program.

(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.

Loss on Disposal of Businesses and Impairment of Net Assets Held for Sale.

For the three months ended June 30, 2020, we recorded a loss on the disposal of a business and impairment charges on net assets held for sale totaling $2 million, compared to a $33 million impairment charge on net assets held for sale for the three months ended June 30, 2019.

See "Net Assets Held for Sale" in Note 3, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on the loss on disposal and impairment charges.

(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.

Depreciation and Amortization .

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Three Months Ended

September 30,

2020 2019 Change

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Total depreciation and amortization $ 68,655 $ 71,513 $ (2,858)

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

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

(2) The decrease in amortization expense primarily reflected (ii) decreases of $4 million and $1 million related to the customer relationship intangible assets recorded upon our acquisitions of Stahlgruber and Rhiag, respectively, as the accelerated amortization of the customer relationship intangible assets resulted in lower amortization expense during the three months ended September 30, 2020 compared to the prior year period, partially offset by (ii) an increase of $1 million related to the impact of foreign currency translation, principally due to an increase in the euro exchange rate during the three 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 three months ended June 30, 2019 $ 30,151

Decrease due to:

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)

Other income, net (2,441) (2)

Net decrease (12,709)

Other expense, net for the three months ended June 30, 2020 $ 17,442

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

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

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

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

(2) The increase in other expense (income), net primarily consisted of (i) a $4 million unfavorable variance in 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.

Provision for Income Taxes .

Our effective income tax rate for the three months ended June 30, 2020 was 25.7%, compared to 27.1% for the comparable prior year period.

The decreased rate is primarily attributable to an adjustment to the interim tax expense on earnings for the three months ended March, 31, 2020 as a result of a favorable revision in the second quarter of 2020 of our expected full year 2020 effective tax rate.

Without such adjustment, the effective tax rate for the three months ended June 30, 2020 would have been 28.2%.

The primary factor in the increase in the full year estimated rate compared to the prior year period is the impact of lower available interest deductions in certain foreign jurisdictions due to legislative thin capitalization constraints, typically based on profitability.

Other discrete items in both comparative quarters were immaterial.

Ongoing uncertainties due to the impact of the COVID-19 pa ndemic on the Company’s operations for the remainder of 2020 may result in volatile effective tax rates driven generally by the level of profitability and changes in the mix of earnings across the Company’s jurisdictions.

Equity in (Losses) Earnings of Unconsolidated Subsidiaries.

Equity in (losses) earnings of unconsolidated subsidiaries for the three months ended June 30, 2020 was unfavorable compared to the prior year primarily due to losses related to an immaterial investment in our North America segment.

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 primarily related to our investment 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 exchange rates in effect for the period.

Relative to the rates used during the three months ended June 30, 2019, the Czech koruna, Canadian dollar, pound sterling and euro rates used to translate the 2020 statements of income decreased by 6.9%, 3.4%, 3.4% and 2.0%, respectively.

The negative translation effect of the change in foreign currencies against the U.S.

dollar netted against the positive impact of realized and unrealized currency gains and losses for the three months ended June 30, 2020, resulting in an immaterial negative effect on diluted earnings per share relative to the prior year period.

Net (Loss) Income Attributable to Continuing and Discontinued Noncontrolling Interest.

Net (loss) income attributable to continuing noncontrolling interest for the three months ended June 30, 2020 decreased $1 million compared to the three months ended June 30, 2019 primarily due to the noncontrolling interest of subsidiaries acquired in connection with the Stahlgruber acquisition.

Net income attributable to discontinued noncontrolling interest was immaterial for the three months ended June 30, 2019 and related to the Stahlgruber Czech Republic wholesale business.

See Note 2, "Discontinued Operations" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on this business.

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

Relative to the rates used 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

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

Six Months Ended

June 30, Percentage Change in Revenue

Nine Months Ended

September 30, Percentage Change in Revenue

2020 2019 Organic Acquisition and Divestiture Foreign Exchange Total Change

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In the table above, the sum of the individual percentages may not equal the total due to rounding.

The decline in parts and services revenue of 11.9% represented decre ases in segment revenue of 13.8% in North America, 13.1% in Europe, and 1.5% in Specialty.

Organic parts and services revenue declined by 10.3%, which included a 0.6% positive effect from one additional selling day in the first half of 2020, resulting in a per day organic decline of 10.9%.

The decline in the first half of 2020 is primarily related to the impact of COVID-19 from March 2020 through June 2020 (refer to the "COVID-19 Impact on Our Operations" section above for further details).

The 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 half of 2020 compared to the prior year period.

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 six months ended June 30, 2020 from 61.3% of revenue in the six months ended June 30, 2019.

Cost of goods sold decreased 0.9% and 0.3% as a result of our North America and Europe segments, respectively, partially offset by an increase of 0.2% in our Specialty segment.

Refer to the discussion of our segment results of operations for factors contributing to the changes in cost of goods sold as a percentage of revenue by segment for the six months ended June 30, 2020 compared to the six months ended June 30, 2019.

Cost of goods sold decreas ed to 60.5% of revenu e 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.

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%.

Refer t o 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 increased to 29.1% in the six months ended June 30, 2020 from 28.3% in the six months ended June 30, 2019.

Our Europe and North America segments negatively affected SG&A expenses as a percentage of revenue by 0.8% and 0.3%, respectively, which were partially offset by a 0.2% decrease in SG&A expenses attributable to mix.

The mix impact is a result of the decreased volumes in our North America segment primarily due to the COVID-19 pande mic, as the higher SG&A expense percentage for the North America segment makes up a smaller percentage of the consolidated results, which has a favorable effect on the SG&A expense percentage.

Refer to the discussion of our segment results of operations for factors contributing to the changes in SG&A expenses as a percentage of revenue by segment for the six months ended June 30, 2020 compared to the six months ended June 30, 2019.

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 t o the COVID-19 pan de mic, 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):

Six Months Ended

Nine Months Ended

September 30,

2020 2019 Change

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Total restructuring and acquisition related expenses $ 52,415 $ 20,613 $ 31,802

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

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

(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.

Loss on Disposal of Businesses and Impairment of Net Assets Held for Sale.

For the six months ended June 30, 2020, we recorded a net loss on the disposal of businesses and impairment charges on net assets held for sale totaling $2 million, compared to a $49 million impairment charge on net assets held for sale for the six months ended June 30, 2019.

(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.

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

Six Months Ended

Nine Months Ended

September 30,

2020 2019 Change

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

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

(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 six months ended June 30, 2019 $ 62,389

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 on debt extinguishment 12,751 (2)

Other income, net (2,212) (3)

Loss/gain on debt extinguishment 12,879 (2)

Other expense (income), net 6,219 (3)

Net decrease (8,250)

Other expense, net for the six months ended June 30, 2020 $ 52,502

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

Other expense, net 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 agreement compared to the prior year period.

(2) In January 2020, we recorded a loss on debt extinguishment of $13 million related to the redemption of the U.S.

Notes (2023) due to the early-redemption premium and the write-off of the unamortized debt issuance costs.

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

(3) The increase in other expense (income), net primarily consisted of (i) pension settlement losses of $6 million related to the U.S.

Plan, (ii) a $4 million unfavorable variance 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 in our North America segment compared to the prior year period.

Provision for Income Taxes .

Our effective income tax rate for the six months ended June 30, 2020 was 27.7% , compared to 27.1% for the comparable prior year period.

Th e increase is attributable to a higher expected annual effective tax rate in 2020 as a result of the estimated unfavorable impact of the COVID-19 pandemic on the Company’s results of operations.

The primary factor in the increase in the full year estimated rate is the impact of lower available interest deductions in certain foreign jurisdictions due to legislative thin capitalization constraints, typically based on profitability.

For the six months ended June 30, 2020, the effective tax rate was reduced 0.3% by favorable discrete items, primarily excess tax benefits on stock-based compensation and deferred tax adjustments as a result of statutory tax rate changes.

Net discrete items for the six months ended June 30, 2019 added 0.1% to the effective tax rate.

Ongoing uncertainties due to the impact of the COVID-19 pandemic on the Company’s operations for the remainder of 2020 may result in volatile effective tax rates driven generally by the level of profitability and changes in the mix of earnings across the Company’s jurisdictions.

Equity in (Losses) Earnings of Unconsolidated Subsidiaries.

Equity in (losses) earnings of unconsolidated subsidiaries for the six months ended June 30, 2020 primarily related to an immaterial investment in our North America segment.

Our effective income tax rate for the nine months ended September 30, 2020 was 28.3%, compared to 27.5% for the comparable prior year period.

The increase is attributable to a higher expected annual effective tax rate in 2020 as a result of the estimated unfavorable impa ct of the COVID-19 pandemic on the Company’s results of operations, particularly in certain international jurisdictions.

For the nine months ended September 30, 2020, the effective tax rate was increased 0.3% by unfavorable discrete items, primarily valuation allowances on net operating loss carryforwards 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.

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.

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We translate our statements of income at the average exchange rates in effect for the period.

Relative to the rates used during the six months ended June 30, 2019, the Czech koruna, pound sterling, euro and Canadian dollar rates used to translate the 2020 statements of income decreased by 4.8%, 2.6%, 2.4% and 2.2%, respectively.

The negative translation effect of the change in foreign currencies against the U.S.

dollar combined with the negative impact of realized and unrealized currency gains and losses for the six months ended June 30, 2020, resulting in a $0.01 negative effect on diluted earnings per share relative to the prior year period.

Net (Loss) Income Attributable to Continuing and Discontinued Noncontrolling Interest.

Net (loss) income attributable to continuing noncontrolling interest for the six months ended June 30, 2020 decreased $2 million compared to the six months ended June 30, 2019 primarily due to the noncontrolling interest of subsidiaries acquired in connection with the Stahlgruber acquisition.

Net income attributable to discontinued noncontrolling interest was immaterial for the six months ended June 30, 2020 and 2019 and related to the Stahlgruber Czech Republic wholesale business.

Relative to the rate used during the nine months ended September 30, 2019, the Czech koruna and Canadian dollar rates us ed to translate the 2020 statements of income decreased by 2.5% and 1.7%, 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.

The minimal negative translation effect of the change in foreign currencies against the U.S.

dollar, combined with the more significant negative impact of realized and unrealized currency gains and losses for the nine months ended September 30, 2020, resulted in a $0.01 negative effect on d iluted 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 months ended September 30, 2020 decreased $1 million compared to the nine months ended September 30, 2019 primarily due to the noncontrolling interest of subsidiaries acquired in connection with the Stahlgruber acquisition.

Net income attributable to discontinued noncontrolling interest was immaterial for the nine months ended September 30, 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.

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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 June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2020 % of Total Segment Revenue 2019 % of Total Segment Revenue 2020 % of Total Segment Revenue 2019 % of Total Segment Revenue

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Specialty 48,340 12.1 % 45,464 11.5 % 132,805 11.5 % 135,790 11.7 %

The key measure of segment profit or loss reviewed by our chief operating decision maker, who is our Chief Executive Officer, is Segment EBITDA.

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, and impairment charges.

EBITDA, which is the basis for Segment EBITDA, is calculated as net income, less net income (loss) attributable to continuing and discontinued noncontrolling interest, excluding discontinued operations and discontinued noncontrolling interest, depreciation, amortization, interest (which includes gains and losses on debt extinguishment) and income tax expense.

We calculate Segment EBITDA as EBITDA excluding restructuring and acquisition related expenses (which includes restructuring expenses recorded in Cost of goods sold);

change in fair value of contingent consideration liabilities;

other gains and losses related to acquisitions, equity method investments, or divestitures;

equity in losses and earnings of unconsolidated subsidiaries;

and impairment charges.

EBITDA, which is the basis for Segment EBITDA, is calculated as net income 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 June 30, 2020 Compared to Three Months Ended June 30, 2019

Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019

North America

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

Three Months Ended June 30, Percentage Change in Revenue

Three Months Ended

September 30, Percentage Change in Revenue

North America 2020 2019 Organic Acquisition and Divestiture (3)

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In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) Parts a nd services organic revenue declined 22.5% in the second quarter of 2020.

(1) Parts a nd services organic revenue declined 11.3% in the third quarter of 2020.

T he organic decline was impacted by collision and liability repairable auto claims, which, according to data from CCC Information Services, Inc.

("CCC"), were 41.7% lower for the three months ended June 30, 2020 compared to the prior year p eriod.

This decrease in claims activity was primarily due to the COVID-19 pandemic and had an adverse impact on sales volumes in our wholesale

("CCC"), were 24.4% lower for the three months ended September 30, 2020 compared to the prior year p eriod.

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.

(2) Other organic revenue declined $38 million in the second quarter of 2020 primarily driven by (i) a $22 million decrease in revenue from scrap steel due to both lower volumes and prices, (ii) a $22 million decrease in other scrap metals (e.g.

aluminum) and fluids due to lower volumes, and (iii) a decrease in core revenue of $4 million due to lower volumes, partially offset by a $9 million increase in revenue from precious metals (platinum, palladium, and rhodium) due to higher prices compared to the prior year.

The volume declines in other revenue were due to lower purchase volumes and throughput in our salvage and self service operations as a result of the COVID-19 pandemic.

(3) Acquisition related growth in the second quarter of 2020 reflected revenue from our acquisition of two wholesale businesses and one self service business since the beginning of the second quarter of 2019 through the one-year anniversary of the acquisitions.

Reduced revenue as a result of the disposal of our aviation business in the third quarter of 2019 more than offset the acquisition growth.

(2) Other organic revenue increased by less than $1 million in the third quarter of 2020 primarily driven by a $23 million increase in revenue from precious metals (platinum, palladium, and rhodium) 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 revenue from scrap steel due to lower volumes.

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 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.

Segment EBITDA .

Segment EBITDA decreased $40 million, or 21.3%, in the second quarter of 2020 compared to the prior year period.

The decline in Segment EBITDA was primarily due to volume declines as a result of the COVID-19 pandemic.

Additionally, net sequential decreases in scrap steel prices in our salvage and self service operations had an unfavorable impact of $6 million on Segment EBITDA during the three months ended June 30, 2020, compared to a $2 million unfavorable impact on the three months ended June 30, 2019.

This unfavorable impact for the three months ended June 30, 2020 resulted from the decline in scrap steel prices between the date we purchased a vehicle, which influences the price we pay for a vehicle, and the date we scrapped a vehicle, which influences the price we receive for scrapping a vehicle.

Segment EBITDA increa sed $39 million, or 23.2%, in the third quarter of 2020 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 favorable impact of $5 million on Segment EBITDA during the three months ended September 30, 2020, compared to an $8 million unfavorable impact during the three months ended September 30, 2019 resulting from net sequential decreases in scrap steel prices.

This favorable impact for the three 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 three months ended June 30, 2019 14.4 %

Segment EBITDA for the three months ended September 30, 2019 12.8 %

Increase (decrease) due to:

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Change in other expense, net and net income attributable to continuing noncontrolling interest

Segment EBITDA for the three months ended June 30, 2020 14.8 %

Segment EBITDA for the three months ended September 30, 2020 17.6 %

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 0.9% from our wholesale operations.

The increase in wholesale gross margin was primarily attributable to the positive impact of cost reductions from rightsizing actions, higher prices of precious metals (platinum, palladium and rhodium), improved return rates, as well as favorable impacts from ongoing margin improvement initiatives compared to the prior year period.

We expect downward pressure on our salvage and self service margins in the second half of 2020 as the number of cars available for purchase becomes more limited and purchase costs increas e due to the COVID-19 pandemic.

(2) The increase in segment operating expense as a percentage of revenue reflects a negative leverage effect of 1.5% from facility expenses, which are largely fixed.

Additionally, incremental bad debt expense had an unfavorable impact of 0.4% due to the downturn in economic conditions caused by the COVID-19 pa ndemic.

The impact was partially mitigated by cost actions to reduce personnel expenses, which generated a favorable impact of 0.7% related to permanent and temporary headcount reductions, reduced hours, limitations on travel, government grants in Canada and other one-time benefits.

As the market recovers and volumes increase, we expect to bring back necessary resources to support our operations;

however, we expect that certain permanent actions taken during the quarter will provide a long-term favorable impact for the segment.

(3) The decrease in other expense, net and net income attributable to continuing noncontrolling interest was primarily due to proceeds from business interruption insurance that had a year over year impact of 0.8%, which was partially offset by an unfavorable impact of 0.2% from pension expense resulting from a pension settlement loss recorded in the second quarter of 2020.

(1) The increase in gross margin primarily reflected favorable impacts of 1.1% from our wholesale operations and 0.4% 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;

margin initiatives;

higher prices of precious metals and sequential increases in scrap steel prices;

and favorable 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 11.3% compared to the prior year, reflects (i) a favorable impact of 3.0% from personnel expenses related to permanent and temporary headcount reductions, reduced hours, limitations on travel, government grants in Canad a and favorable medical costs, (ii) a favorable impact of 0.4% on bad debt expense due to strong collection efforts and improving economic conditions compared to the first half of 2020, (iii) a favorable 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% 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%.

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 0.3% from pension expense resulting from a pension settlement loss recorded in the third quarter of 2020.

Third Party Revenue .

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

Three Months Ended June 30, Percentage Change in Revenue

Three Months Ended September 30, Percentage Change in Revenue

Europe 2020 2019 Organic (1)

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In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) Parts and services organic revenue declined 16.6% in the second quarter of 2020, mainly drive n by the COVID-19 pandemic disruptions which adversely affected volumes in all of our European operations.

On a per day basis, organic parts and services revenue improved sequentially during the quarter, improving from a year-over-year decrease of 28.9% during the month of April 2020 to a decrease of 8.4% in the month of June 2020.

Not all regions were impacted by the pandemic at the same time and to the same degree, creating a different growth profile for each of our European businesses.

Germany and the Netherlands recovered at a faster rate, with the U.K.

and Italy lagging.

(2) Acquisition related growth in the second quarter of 2020 reflected revenue from our acquisition of one wholesale business since the beginning of the second quarter of 2019 through the one-year anniversary of the acquisition.

Reduced revenue as a result of the disposals of a non-core telecommunications operation in Germany in the second quarter of 2020 and a wholesale business in Bulgaria in the third quarter of 2019 more than offset the acquisition growth .

(3) Compared to the prior year, exchange rates decreased our revenue growth by $44 million , or 2.9% , primarily due to the stronger U.S.

dollar against the euro, pound sterling and Czech koruna during the second quarter of 2020 relative to the prior year period.

(1) Parts and services organic revenue declined 0.7% in the third quarter of 2020, mainly as 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 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.

(3) Compared to the prior year, exchange rates increased our revenue growth by $65 million , or 4.5% , primarily due to the weaker U.S.

dollar against the euro, pound sterling and Czech koruna d uring the third quarter of 2020 relative to the prior year period.

Segment EBITDA .

Segment EBITDA decreased $27 million , or 23.1% , in the second quarter of 2020 compared to the prior year period.

Our Europe Segment EBITDA included a negative year over year impact of $4 million related to the translation of local currency results into U.S.

dollars at lower exchange rates than those experienced during the second quarter of 2019.

On a constant currency basis (i.e.

excluding the translation impact), Segment EBITDA decreased by $23 million , or 20.1% , compared to the prior year.

Refer to the Foreign Currency Impact discussion within the Results of Operations–Consolidated section above for further detail regarding foreign currency impact on our results for the three months ended June 30, 2020.

Segment EBITDA increased $11 million , or 9.2% , in the third quarter of 2020 compared to the prior year period.

Our Europe Segment EBITDA included a positive year over year impact of $6 million related to the translation of local currency results into U.S.

dollars at higher exchange rates than those experienced during the third quarter of 2019.

On a constant currency basis (i.e., excluding the translation impact), Segment EBITDA increased by $6 million , or 4.7% , compared to the prior year.

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

Europe Percentage of Total Segment Revenue

Segment EBITDA for the three months ended June 30, 2019 7.7 %

Segment EBITDA for the three months ended September 30, 2019 8.6 %

Increase (decrease) due to:

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Change in other expense, net and net income attributable to continuing noncontrolling interest

Segment EBITDA for the three months ended June 30, 2020 7.4 %

Segment EBITDA for the three months ended September 30, 2020 9.2 %

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 1.0% favorable impact across our operations principally as a result of margin improvement initiatives supporting the pursuit of profitable revenue growth and decreased inventory write-downs.

(2) The increase in segment operating expense as a percentage of revenue reflects a negative leverage effect of 0.3% from facility expenses, which are largely fixed.

Other unfavorable factors include incremental bad debt expense of 0.8% due to the downturn in economic conditions caused by the COVID-19 pan demic.

Professional fees had an unfavorable

impact of 0.4%.

These negative impacts were partially mitigated by actions to reduce personnel expenses, which generated a favorable impact of 0.5%.

Roughly half of the benefit came from government grants to cover employee costs in countries such as the U.K.

Other personnel cost decreases resulted from permanent and temporary headcount reductions, limitations on travel, reduced hours and other one-time benefits.

As the market recovers, volumes increase and government programs cease, we expect to bring back necessary resources to support our operations;

however, we expect that certain permanent actions taken during the quarter will provide a long-term favorable impact for the segment.

(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 as a result of margin improvement initiatives supporting the pursuit of profitable revenue growth, and decreased inventory write-downs.

(2) The decrease in segment operating expenses primarily reflects actions to reduce personnel expenses, which generated a favorable impact of 0.4%.

Ov er half of th e benefit came from government grants to cover employee costs in various countries, primarily the U.K.

Other personnel cost decreases resulted from permanent and temporary headcount reductions, limitations on 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 was partially offset by an increase in non-recurring costs for personnel matters that had an unfavorable impact of 0.2%.

(3) The increase 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.

Third Party Revenue .

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

Three Months Ended June 30, Percentage Change in Revenue

Three Months Ended September 30, Percentage Change in Revenue

Specialty 2020 2019 Organic (1)

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In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) Parts and services organic revenue declined 1.4% in the second quarter of 2020, pr imarily due to the adverse effects on demand resulting from 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.

(1) Parts and services organic revenue increased 1.1% in t he third quarter of 2020, pr imarily due to the continued strong demand for recreational vehicle products and high drop ship fulfillment.

The organic revenue increase would have been more favorable had we not experienced issues with the availability of supply, as certain suppliers were not able to meet our demand.

Segment EBITDA .

Segment EBITDA decreased $0.1 million , or 0.3% , in the second quarter of 2020 compared to the prior year second quarter.

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

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

Specialty Percentage of Total Segment Revenue

Segment EBITDA for the three months ended June 30, 2019 12.7 %

(Decrease) increase due to:

Segment EBITDA for the three months ended September 30, 2019 11.5 %

Increase due to:

Change in gross margin 0.3 % (1)

Change in segment operating expenses 0.2 % (2)

Segment EBITDA for the three months ended June 30, 2020 12.9 %

Segment EBITDA for the three months ended September 30, 2020 12.1 %

In the table above, the sum of the individual percentages may not equal the total due to rounding.

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

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

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

(1) The increase in gross margin primarily reflects a favorable impact of 0.8% 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), partially offset by an unfavorable impact of 0.4% driven by higher product cost due to lower supplier discounts received in the current year compared to the prior year period.

(2) The decrease in segment operating expenses reflects a favorable impact of 1.1% in personnel costs primarily due to reduced headcount and reduced hours, 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

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

Six Months Ended June 30, Percentage Change in Revenue

Nine Months Ended

September 30, Percentage Change in Revenue

North America 2020 2019 Organic Acquisition and Divestiture (3)

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In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) Parts and services organic revenue declined despite one additional selling day in the first half of 2020 compared to the prior year period.

(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 26.0% lower for the six months ended June 30, 2020 compared to the prior year p eriod.

The organic decline was impacted by collision and liability repairable auto claims, which, according to data from C CC, were 25.5% lower for the nine months ended September 30, 2020 compared to the prior year p eriod.

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.

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Prior to the pandemic, parts and services organic revenue in North America was slightly less than the same period in the prior year, declining 1.1% through February 2020, principally due to (i) the termination in the fourth quarter of 2019 of an agreement signed in December 2017 for the distribution of batteries which had an unfavorable impact of 0.8% through February 2020 compared to the prior year period, and, (ii) to a lesser extent, milder winter weather conditions compared to the prior year period.

During the period of March 2020 through June 2020, parts and services organic revenue declined 20.2% on a per day basis compared to the prior year period primarily due to volume effects caused by the COVID-19 pandemic (collision and liability repairable auto claims were down approximately 41.7% in the sec ond quarter of 2020 according to data from CCC).

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 $26 million decrease in revenue from scrap steel primarily due to lower year over year prices, and (iii) a decrease in core revenue of $7 million due to lower volumes, partially offset by a $56 million increase in revenue from precious metals (platinum, palladium and rhodium) primarily due to higher prices compared to the prior year.

The volume declines in other revenue were due to lower purchase volumes and throughput in our salvage and self service operations as a result of the COVID-19 pandemic.

(3) Acquisition related growth in the first half of 2020 reflected revenue from our acquisition of three wholesale businesses and one self service business since the beginning of 2019 through the one-year anniversary of the acquisitions.

Reduced revenue as a result of the disposal of our aviation business in the third quarter of 2019 more than offset the acquisition growth.

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 pa ndemic.

(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 decreased $6 million , or 1.6% , in the first half of 2020, though there was one additional selling day compared to the prior year period.

Sequential decreases in scrap steel prices in our salvage and self service operations had an immaterial favorable impact on North America Segment EBITDA during the six months ended June 30, 2020, compared to a $7 million unfavorable impact on the six months ended June 30, 2019.

This favorable impact for the six months ended June 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.

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 six months ended June 30, 2019 14.0 %

Increase (decrease) due to:

Segment EBITDA for the nine months ended September 30, 2019 13.6 %

Increase due to:

Change in gross margin 2.1 % (1)

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Change in other expense, net and net income attributable to continuing noncontrolling interest (0.1) % (3)

Segment EBITDA for the six months ended June 30, 2020 15.7 %

Segment EBITDA for the nine months ended September 30, 2020 16.3 %

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 1.6% from our wholesale operations and 0.5% from our self service operations.

The increase in wholesale gross margin was primarily attributable to a positive impact from higher prices of precious metals (platinum, palladium and rhodium) and improved return rates, as well as favorable impacts from ongoing rightsizing activities and margin improvement initiatives compared to the prior year period.

The increase in self service gross margin was primarily attributable to higher prices of precious metals.

(2) The increase in segment operating expense as a percentage of revenue reflects a negative leverage effect of 0.7% from facility expenses, which are largely fixed.

The impact was partially mitigated by cost actions to reduce personnel expenses, which generated a favorable impact of 0.2% related to permanent and temporary headcount reductions, reduced hours, limitations on travel, government grants in Canada and other one-time benefits.

As the market recovers and volumes increase, we expect to bring back necessary resources to support our operations, however we expect that certain permanent actions taken during the quarter will provide a long-term favorable impact for the segment.

(3) The decrease in other expense, net and net income attributable to continuing noncontrolling interest was primarily due to proceeds from business interruption insurance that had a year over year impact of 0.2%, which was partially offset by an unfavorable impact of 0.1% from pension expense resulting from a pension settlement loss recorded in the second quarter of 2020.

(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 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%.

Third Party Revenue .

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

Six Months Ended June 30, Percentage Change in Revenue

Nine Months Ended

September 30, Percentage Change in Revenue

Europe 2020 2019 Organic (1)

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In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) The parts and services organic revenue change for the first half of 2020 was affected by having one additional selling day, on average, due to the different selling days in each market compa red to the first half of 2019.

On a per day basis, organic parts and services revenue decreased 10.6%, mainly driven by the COVID-19 pandemic disruptions in all of our European operations.

Prior to the pandemic, organic revenue in Europe was slightly greater than the same period in the prior year, increasing 0.3% through February, principally driven by the Central and Eastern European region, and to a lesser extent, Germany.

During the period of March 2020 through June 2020, organic revenue declined 15.8% on a per day basis compared to the prior year period primarily due to volume effects caused by the COVID-19 pandemic.

(2) Acquisition related growth in the first half of 2020 reflected revenue from our acquisition of three wholesale businesses since the beginning of 2019 through the one-year anniversary of the acquisitions.

(1) The parts and services organic revenue change for the first nine months of 2020 was affected by having one additional selling day compa red to the first nine months of 2019.

On a per day basis, organic parts and services revenue decreased 7.5%, mainly driven by t he COVID-19 p andemic 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.

(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 euro, pound sterling and Czech koruna during the first half of 2020 relative to the prior year period.

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 $54 million , or 24.3% , in the first half of 2020 compared to the prior year period.

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 half of 2019.

On a constant currency basis (i.e.

excluding the translation impact), Segment EBITDA decreased by $48 million , or 21.5% , compared to the prior year.

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.

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

Europe Percentage of Total Segment Revenue

Segment EBITDA for the six months ended June 30, 2019 7.5 %

Segment EBITDA for the nine months ended September 30, 2019 7.8 %

Increase (decrease) due to:

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Change in segment operating expenses (1.0) % (2)

Change in other expense, net and net income attributable to continuing noncontrolling interest

Segment EBITDA for the six months ended June 30, 2020 6.5 %

Segment EBITDA for the nine months ended September 30, 2020 7.5 %

In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) The increase in gross margin was primarily attributable to a 0.7% favorable impact across almost all our operations principally as a result of margin improvement initiatives supporting the pursuit of profitable revenue growth.

(2) The increase in segment operating expenses as a percentage of revenue reflects unfavorable impacts of (i) 0.6% from bad debt expense due to the downturn in economic conditions caused by t he COVID-19 pand emic, (ii) 0.3% from professional fees, (iii) 0.2% from freight expense primarily due to an increase in drop shipments handled by third party carriers, (iv) 0.2% from facility expenses due to negative leverage from lower revenue, (v) a 0.2% increase in non-recurring costs for personnel matters and a loan guarantee and (vi) several individually immaterial factors that had an unfavorable impact of 0.2% in the aggregate.

(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, 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.

Third Party Revenue .

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

Six Months Ended June 30, Percentage Change in Revenue

Nine Months Ended

September 30, Percentage Change in Revenue

Specialty 2020 2019 Organic (1)

4 unchanged sentences

In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) Parts and services organic revenue declined despite one additional selling day in the first half of 2020 compared to the prior year period.

On a per day basis, organic revenue declined 2.2%.

The organic decline was primarily due to the adverse effects on demand resulting from the COVID-19 pandemic.

(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 declin ed 1.1%.

T he 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 June 2020, organic revenue declined 4.9% on a per day basis

compared to the prior year period primarily due to volume effects caused by the COVID-19 pandemic.

While down on a year over year basis, revenue held near the prior year level due to strong demand for recreatio nal vehicle products and high drop ship fulfillment.

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 recreatio nal 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 $6 million , or 6.5% , in the first half of 2020 compared to the prior year period.

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 six months ended June 30, 2019 11.8 %

Segment EBITDA for the nine months ended September 30, 2019 11.7 %

(Decrease) increase due to:

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Change in segment operating expenses 0.5 % (2)

Segment EBITDA for the six months ended June 30, 2020 11.2 %

Segment EBITDA for the nine months ended September 30, 2020 11.5 %

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) 1.0% due to unfavorable product and channel mix in the first half of 2020 and (ii) several individually immaterial factors that had an unfavorable impact of 0.2% in the aggregate.

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

(1) The decrease in gross margin primarily reflects unfavorable impacts of (i) 0.6% due t o 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% 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 se gment 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 ag gregate.

Liquidity and Capital Resources

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

June 30, 2020 December 31, 2019 June 30, 2019

September 30, 2020 December 31, 2019 September 30, 2019

Cash and cash equivalents $ 421,382 $ 523,020 $ 433,391

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2,692,335 2,445,691 2,478,331

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

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

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

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

(3) Capacity under credit facilities includes our revolving credit facilities and our receivables securitization facility.

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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 growth strategy, our cash flows from operations have not always been sufficient to cover our investing activities.

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 acq uisitions, we have accessed various forms of debt financing, including revolving credit facilities, senior notes and our receivables securitization facility.

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

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

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

• Senior secured credit facilities maturing in January 2024, composed of term loans totaling $350 million ( $328 million outstanding at September 30, 2020) and $3.15 billion in revolving credit ( $918 million outstanding at September 30, 2020), 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 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 June 30, 2020), maturing in November 2021 and bearing interest at variable commercial paper rates

As of June 30, 2020, we had approximately $2.1 billion available under our credit facilities.

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

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

As of September 30, 2020, we had approximately $2.3 billion available under our credit facilities.

Combined with $421 million of cash and cash equivalents at September 30, 2020, we had approximately $2.7 billion in available liquidity, an increase of $247 million from our available liquidity as of December 31, 2019.

We believe that our current liquidity and cash expected to be generated by operating activities in future periods will be sufficient to meet our current operating and capital requirements.

To support our liquidity position during the COVID-19 pandemic, we are focused on preserving cash during the expected period of reduced demand.

Our action plan to strengthen our current position includes a deferral of growth driven capital projects, reductions in inventory orders, more active monitoring of customer receivables and terms, income and value added tax deferrals, and suspension of our share buyback program, in addition to the cost saving measures discussed in the "COVID-19 Impact on Our Operations" section above.

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 our share buyback program.

However, due to the rapidly evolving global situation, it is not possible to predict whether unanticipated consequences of the COVID-19 pandemic are reasonably likely to materially affect our liquidity and capital resources in the future.

With $2.5 billion of total liquidity as of June 30, 2020 and $94 million of current maturities, we have access to funds to meet our near term commitments even if the pandemic effect extends longer than our current expectations.

With $2.7 billion of total liquidity as of September 30, 2020 and $98 mill 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 $552 million in borrowings from free cash flows generated in the second quarter.

Our total liquidity increased by $666 million since March 31, 2020, which we believe puts us in a solid position to manage through the pandemic.

We expect the cash flow benefits to moderate in the second half of 2020 as we experience cash outflows for income and other taxes that were deferred in the first half of the year, and increase our inventory levels to support the improving revenue trend.

However, we expect to be able to operate effectively at a lower inventory balance than at the end of 2019 and to begin to generate benefits to working capital through supply chain financing programs.

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

Covenant Level Ratio Achieved as of June 30, 2020

Our capital preservation plans delivered the desired results as we repaid approxima tely $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 sinc e March 31, 2020, which we believe puts us in a solid position to manage through the pandemic.

Covenant Level Ratio Achieved as of September 30, 2020

Maximum net leverage ratio 5.00:1.00 2.0

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

We amended our senior secured credit facility in June 2020 to increase the maximum net leverage ratio effective with our compliance certificate filed in the second quarter of 2020;

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 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 perform ance in the second quarter, we believe that we have significantly reduced the risk of a

covenant breach.

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

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 perform ance in the third quarter, we believe that we have significantly reduced the risk of a covenant br each, including by reducing our net leverage ratio further in the third quarter relative to the second quarter.

The indentures relating to our Euro Notes d o not include financial maintenance covenants, and the indentures will not restrict our ability to draw funds on the credit facility.

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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 supply chain financing programs in select countries under which they may sell their accounts receivable to the participating financial institutions, allowing us to extend payment terms.

We expect more suppliers to begin participating in supply chain financing programs in the second half of 2020.

Financial institutions participate in the supply chain financing programs on an uncommitted basis and can cease purchasing receivables from our suppliers at any time.

These programs are at the sole discretion of both the supplier and the financial institution on terms that are negotiated between them.

In the future, if the financial institutions did not continue to purchase receivables from our suppliers under these programs, the participating vendors may have a need to renegotiate their payment terms with us, which in turn could cause our borrowings under our revolving credit facility to increase.

All outstanding payments owed under the programs are recorded within Accounts payable in our Unaudited Condensed Consolidated Balance Sheets.

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.

We expect more suppliers to 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.

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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 June 30, 2020 was 1.5%.

Including our senior notes, our overall weighted average interest rate on borrowings was 2.7% at June 30, 2020.

After giving effect to these contracts, the weighted average interest rate on borrowings outstanding under our credit agreement at September 30, 2020 was 1.7%.

Including our senior notes, our overall weighted average interest rate on borrowings was 2.9% at September 30, 2020.

After 2021, it is unclear whether banks will continue to provide LIBOR submissions to the administrator of LIBOR, and no consensus currently exists as to what benchmark rate or rates may become accepted alternatives to LIBOR.

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We do not believe that the discontinuation of LIBOR, or its replacement with an alternative reference rate or rates, will have a material impact on our results of operations, financial position or liquidity.

Cash interest payments were $56 million for the six months ended June 30, 2020, including $31 million in semi-annual interest payments on our Euro Notes (2024) and Euro Notes (2026/2028).

Interest payments on our Euro Notes (2024) and Euro Notes (2026/28) are made in April and October.

We had outstanding credit agreement borrowings of $1.5 billion and $1.6 billion at June 30, 2020 and December 31, 2019, respectively.

Of these amounts, $18 million was classified as current maturities at both June 30, 2020 and December 31, 2019.

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

Six months ending December 31, 2020 (1) :

Cash interest payments were $98 million for the nine months ended September 30, 2020, including $64 million in interest payments on our Euro Notes (2024) and Euro Notes (2026/28).

Interest payments on our Euro Notes (2024) and Euro

Notes (2026/28) 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 and $1.6 billion at September 30, 2020 and December 31, 2019, respectively.

Of these amounts, $18 million was classified as current maturities at both September 30, 2020 and December 31, 2019.

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

Three months ending December 31, 2020 (1) :

Years ending December 31:

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(1) Maturities of long-term obligations due by December 31, 2020 includes $59 million of short-term debt that may be extended beyond the current due date.

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

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

Our credit agreement contains customary covenants that provide limitations and conditions on our ability to enter into certain transactions.

The credit agreement also contains financial and affirmative covenants, including limitations on our net leverage ratio and a minimum interest coverage ratio.

We were in compliance with all restrictive covenants under our credit agreement as of June 30, 2020.

As of June 30, 2020, the Company had cash and cash equivalents o f $476 million, of which $347 million was held by foreign subsidiaries.

We were in compliance with all restrictive covenants under our credit agreement as of September 30, 2020.

As of September 30, 2020, the Company had cash and cash equivalents o f $421 million , of which $327 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.

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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 six months ended June 30, 2020 and 2019 (in thousands):

Three Months Ended Six Months Ended

June 30, June 30,

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

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 Change 2020 2019 Change (1)

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Total $ 1,463,200 $ 1,623,400 $ (160,200) $ 3,930,600 $ 4,762,100 $ (831,500)

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

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

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

Three Months Ended Six Months Ended

June 30, June 30,

(1) Inventory purchases across all segments have decreased due to a slowdown in procurement beginning in March 2020 as a response to t he COVID-19 p a ndemic.

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, 2020 and 2019 (in thousands):

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 % Change 2020 2019 % Change

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Self service and "crush only" cars 148 151 (2.0) % 434 455 (4.6) %

Salva ge purchases decreased relative to the prior year as we reduced buying to reflect lower demand during the COVID-19 pan demic.

Purchasing began to increase as the quarter progressed and revenue increased.

Self service car purchases declined due to supply constraints as certain outlets, such as city impound lots, were unavailable for a portion of the quarter and individuals held onto cars longer during the lockdown measures.

Purchases increased towards the end of June, and buying conditions are expected to be better in the second half of the year.

Salvage purchases decreased relative to the prior year as we reduced buying to reflect lower demand during the COVID-19 pandemic.

Purchasing began to increase as the second quarter progressed and revenue increased and continued to increase during the third quarter.

Self service car purchases declined due to supply constraints as certain outlets, such as city impound lots, were unavailable for a portion of the year and individuals held onto cars longer during the lockdown measures.

Purchases increased towards the end of June and continued to increase through the end of the third quarter.

We expect to increase inventory purchases in the fourth quarter of 2020 to support the service and fill rate requirements of our businesses based on the revenue trend and expectations for 2021, including normal seasonality as we approach winter.

However, we expect to be able to operate effectively at a lower inventory balance than at the end of 2019.

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 six months ended June 30, 2019

(Decrease) increase due to:

Net cash provided by operating activities for the nine months ended September 30, 2019

Increase (decrease) due to:

Operating income 28 (1)

Non-cash depreciation and amortization expense

Loss on disposal of businesses and impairment of net assets held for sale

Loss/gain on disposal of businesses and impairment of net assets held for sale (43) (2)

Cash paid for taxes

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Other operating activities 18 (6)

Net cash provided by operating activities for the six months ended June 30, 2020

(1) Refer to the Results of Operations - Consolidated section for further information on the decrease 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 six months ended June 30, 2020 and June 30, 2019.

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

Net cash provided by operating activities for the nine months ended September 30, 2020

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

(3) Cash flows related to income taxes were a net increase due to timing, with roughly half of the increase attributable to the timing of estimated U.S.

federal and state income tax payments.

The remaining year over year 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 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).

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

Receivables, net was a $144 million greater inflow in 2020 primarily due to greater cash conversion of accounts receivable balances in the first half of 2020 in the Europe segment (of $88 million) and the North America segment (of $79 million) and the lower revenues due to the COVID-19 pandemic.

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

Accounts payable produced $269 million in higher cash outflows primarily due to lower accounts payable balances in the North America segment (of $189 million) and the Europe segment (of $69 million) compared to the prior year period, as a result of a slowdown in inventory purchases starting in March 2020 due to the COVID-19 pandemic.

(5) Cash flows from other operating activities increased $84 million as a result of value added tax payables due to government assistance programs to defer payments into the second half of 2020 and into 2021.

The r emaining amount reflects a number of individually insignificant fluctuations in cash paid for other operating activities.

Net cash used in investing activities totaled $76 million and $117 million for the six months ended June 30, 2020 and 2019, respectively.

We invested $5 million of cash, net of cash acquired, in business acquisitions during the six months ended June 30, 2020 compared to $15 million during the six months ended June 30, 2019.

Property, plant and equipment purchases were $77 million in the first half of 2020 compared to $101 million in the prior year period.

The period over period decrease in cash outflows for purchases of property, plant and equipment was due to decreased capital spending across the business as a result of the COVID-19 pa ndemic.

We received $5 million of net proceeds from divestitures of businesses held for sale during the six months ended June 30, 2020;

there were no proceeds from divestitures o f businesses held for sale during the six months ended June 30, 2019.

Receivables, net w as a $74 million grea ter inflow in 2020 primarily due to greater cash conversion of accounts receivable balances in the first nine months of 2020 in the Europe seg ment (of $50 million) and the North America segment (of $34 million) and the lower revenues d u e to the COVID-19 pandemic.

Inventories represented $387 million in incremental cash inflows in the first nine months of 2020 as a result of inventory decreases 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 pandemic as we aligned our inventory balances to the projected demand.

Accounts payable produced $197 million in higher cash outflows primarily due to lower accounts payable balances in the North America segment (of $191 million) and the Specialty segment (of $15 million) compared to the prior year period, as a result of a slowdown in inventory purchases starting in March 2020 due to the COVID-19 pandemic.

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

Net cash used in investing activities totaled $106 million and $160 million for the nine months ended September 30, 2020 and 2019, respectively.

Property, plant and equipment purchases were $110 million in the first nine months of 2020 compared to $166 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 million of cash, net of cash acquired, in business acquisitions during the nine months ended September 30, 2020 compared to $15 million during the nine months ended September 30, 2019.

We received $18 million of net proceeds from

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

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

Six Months Ended

Nine Months Ended

September 30,

Net cash provided by operating activities $ 1,134,641 $ 965,171

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Free cash flow $ 1,024,692 $ 799,620

Net cash used in financing activities totaled $890 million and $472 million for the six months ended June 30, 2020 and 2019, respectively.

During the six months ended June 30, 2020, net repayments of our borrowings totaled $782 million compared to $281 million during the six months ended June 30, 2019.

Net cash used in financing activities totaled $1.2 billion and $690 million for the nine months ended September 30, 2020 and 2019, respectively.

During the nine months ended September 30, 2020, net repayments of our borrowings totaled $1.0 billion compared to $391 million during the nine months ended September 30, 2019.

The period over period increase in net repayments of our borrowings includes the $600 million repayment of our U.S.

Notes (2023) in January 2020.

We repurchased $88 million of our common stock in the six months ended June 30, 2020, compared to $191 million in the six months ended June 30, 2019.

Although our efforts are currently scaled back due to t he COVID-19 pa ndemic, 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.

We repurchased $88 million of our common stock in the nine months ended September 30, 2020, compared to $292 million in the nine months ended September 30, 2019.

Although our efforts are currently scaled back due to the COVID-19 pandemic, we intend to continue to evaluate markets for potential growth through the internal development of distribution centers, processing and sales facilities, and warehouses, through further integration of our facilities, and through selected business acquisitions.

Our future liquidity and capital requirements will depend upon numerous factors, including the costs and timing of our internal development efforts and the success of those efforts, the costs and timing of expansion of our sales and marketing activities, and the costs and timing of future business acquisitions.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 2. Management’s Discussion and Analysis