LKQ CORP 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements Statements and information in this Quarterly Report on Form 10-Q that are not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are made pursuant to the “safe harbor” provisions of such Act. Forward-looking statements include, but are not limited to, statements regarding our outlook, guidance, expectations, beliefs, hopes, intentions and strategies. Words such as “may,” “will,” “plan,” “should,” “expect,” “anticipate,” “believe,” “if,” “estimate,” “intend,” “project” and similar words or expressions are used to identify these forward-looking statements. These statements are subject to a number of risks, uncertainties, assumptions and other factors, including the unfavorable effects of COVID-19, that may cause our actual results, performance or achievements to be materially different. All forward-looking statements are based on information available to us at the time the statements are made. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. You should not place undue reliance on our forward-looking statements. Actual events or results may differ materially from those expressed or implied in the forward-looking statements. The risks, uncertainties, assumptions and other factors that could cause actual results to differ from the results predicted or implied by our forward-looking statements include factors discussed in our filings with the SEC, including those disclosed under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2019 Form 10-K and in our subsequent Quarterly Reports on Form 10-Q (including this Quarterly Report). Overview We are a global distributor of vehicle products, including replacement parts, components and systems used in the repair and maintenance of vehicles, and specialty products and accessories to improve the performance, functionality and appearance of vehicles. Buyers of vehicle replacement products have the option to purchase from primarily five sources: new products produced by OEMs; new products produced by companies other than the OEMs, which are referred to as aftermarket products; recycled products obtained from salvage and total loss vehicles; recycled products that have been refurbished; and recycled products that have been remanufactured. We distribute a variety of products to collision and mechanical repair shops, including aftermarket collision and mechanical products; recycled collision and mechanical products; refurbished collision products such as wheels, bumper covers and lights; and remanufactured engines and transmissions. Collectively, we refer to the four sources that are not new OEM products as alternative parts. We are a leading provider of alternative vehicle collision replacement products and alternative vehicle mechanical replacement products, with our sales, processing, and distribution facilities reaching most major markets in the United States and Canada. We are also a leading provider of alternative vehicle replacement and maintenance products in Germany, the United Kingdom, the Benelux region (Belgium, Netherlands, and Luxembourg), Italy, Czech Republic, Austria, Slovakia, Poland, and various other European countries. In addition to our wholesale operations, we operate self service retail facilities across the U.S. that sell recycled automotive products from end-of-life-vehicles. We are also a leading distributor of specialty vehicle aftermarket equipment and accessories reaching most major markets in the U.S. and Canada. We are organized into four operating segments: Wholesale – North America; Europe; Specialty and Self Service. We aggregate our Wholesale – North America and Self Service operating segments into one reportable segment, North America, resulting in three reportable segments: North America, Europe and Specialty. Our operating results have fluctuated on a quarterly and annual basis in the past and can be expected to continue to fluctuate in the future as a result of a number of factors, some of which are beyond our control. Please refer to the factors referred to in Forward-Looking Statements above. Due to these factors and others, which may be unknown to us at this time, our operating results in future periods can be expected to fluctuate. Accordingly, our historical results of operations may not be indicative of future performance. Acquisitions and Investments Since our inception in 1998, we have pursued a growth strategy through both organic growth and acquisitions. Through 2018, our acquisition strategy was focused on consolidation to build scale in fragmented markets across North America and Europe. We targeted companies that were market leaders, expanded our geographic presence and enhanced our ability to provide a wide array of vehicle products through our distribution network. In the last few years, we have shifted our focus from larger transactions to tuck-in acquisitions that target high synergies and/or add critical capabilities. Additionally, we have made investments in various businesses to advance our strategic objectives. 34 See "Investments in Unconsolidated Subsidiaries" in Note 3, "Financial Statement Information," to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to our investments. Sources of Revenue We report our revenue in two categories: (i) parts and services and (ii) other. Our parts revenue is generated from the sale of vehicle products, including replacement parts, components and systems used in the repair and maintenance of vehicles, and specialty products and accessories to improve the performance, functionality and appearance of vehicles. Our service revenue is generated primarily from the sale of service-type warranties, fees for admission to our self service yards, and diagnostic and repair services. Revenue from other sources includes scrap sales, bulk sales to mechanical manufacturers (including cores) and sales of aluminum ingots and sows from our furnace operations. Other revenue will vary from period to period based on fluctuations in commodity prices and the volume of materials sold. See Note 4, "Revenue Recognition" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to our sources of revenue. Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Our 2019 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 nine months ended September 30, 2020. 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. This is particularly the case because it appears that the prevalence of the virus outbreak fluctuates depending on various factors, including the level of economic and social activity in a region. Goodwill and Indefinite-Lived Intangibles Impairment We are required to test goodwill and indefinite-lived intangibl e assets for impairment at least annually and between annual tests whenever events indicate that an impairment may exist. When testing goodwill for impairment, we are required to evaluate events and circumstances that may affect the performance of the reporting unit and the extent to which the events and circumstances may impact the future cash flows of the reporting unit to determine whether the fair value of the assets exceeds the carrying value. Developing the estimated future cash flows and fair value of the reporting unit requires management's judgment in projecting revenues and profits, allocation of shared corporate costs, tax rates, capital expenditures, working capital requirements, discount rates and market multiples. Many of the factors used in assessing fair value are outside the control of management, and it is reasonably likely that assumptions and estimates can change in future periods. If these assumptions or estimates change in the future, we may be required to record impairment charges for these assets. In response to changes in industry and market conditions, we may be required to strategically realign our resources and consider restructuring, disposing of, or otherwise exiting businesses, which could result in an impairment of goodwill. Our goodwill impairment assessment is performed at the reporting unit level. A reporting unit is an operating segment, or a business one level below an operating segment (the "component" level), for which discrete financial information is prepared and regularly reviewed by segment management. However, components are aggregated as a single reporting unit if they have similar economic characteristics. For the purpose of aggregating our components into reporting units, we review the long-term performance of Segment EBITDA. Additionally, we review qualitative factors such as type or class of customers, nature of products, distribution methods, inventory procurement methods, level of integration, and interdependency of 35 processes across components. Our assessment of the aggregation includes both qualitative and quantitative factors and is based on the facts and circumstances specific to the components. We have four operating segments: Wholesale – North America, Europe, Specialty and Self Service. Each of these operating segments consists of multiple components that have discrete financial information available that is reviewed by segment management on a regular basis. We have evaluated these components and concluded that the components that compose each of the Wholesale – North America, Europe, Specialty, and Self Service operating segments are economically similar and thus were aggregated into those four separate reporting units for our interim goodwill impairment test in the first quarter of 2020. Our goodwill would be considered impaired if the carrying value of a reporting unit exceeded its estimated fair value. The fair value estimates are established using weightings of the results of a discounted cash flow methodology and a comparative market multiples approach. We believe that using two methods to determine fair value limits the chances of an unrepresentative valuation. Discount rates, growth rates and cash flow projections are the assumptions that are most sensitive and susceptible to change as they require significant management judgment. Impairment may result from, among other things, deterioration in the performance of our reporting units' businesses, increases in our cost of capital, adverse market conditions, and adverse changes in applicable laws or regulations, including modifications that restrict the activities of our reporting units' businesses. To assess the reasonableness of the fair value estimates, we compare the sum of the reporting units’ fair values to the Company’s market capitalization and calculate an implied control premium, which is then evaluated against recent market transactions in our industry, or in the case of our interim test, against transactions during the 2008-2009 financial crisis. If we were required to recognize goodwill impairments, we would report those impairment losses as part of our operating results. We determined no impairments existed on any of our four reporting units when we performed our interim goodwill impairment testing in the first quarter of 2020, as each of those reporting units had a fair value estimate that exceeded the carrying value by at least 12%, the level at which our Europe reporting unit exceeded its carrying value. We did not identify a triggering event in the second or third quarter that necessitated an interim test of goodwill impairment. See Note 3, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to our interim goodwill impairment test. We review indefinite-lived intangible assets for impairment annually or on an interim basis if events or changes in circumstances indicate th at the carrying value may not be recoverable. We determined that the effect of the uncertainty relating to the COVID-19 pandemic on our forecasted results represented a change in circumstances indicating that the carrying value of the Warn trademark, which is our only indefinite-lived intangible asset, may not be recoverable. As a result, we performed a quantitative impairment test as of March 31, 2020 using the relief-from-royalty method and determined no impairment existed, as the trademark had a fair value estimate which exceeded the carrying value by approximately 9%. We did not identify a triggering event in the second or third quarter that necessitated an interim test of impairment. Recently Issued Accounting Pronouncements See "Recent Accounting Pronouncements" in Note 3, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information related to new accounting standards. Financial Information by Geographic Area See Note 14, "Segment and Geographic Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information related to our revenue and long-lived assets by geographic region. 1 LKQ Europe Program We have undertaken the 1 LKQ Europe program to create structural centralization and standardization of key functions to facilitate the operation of the Europe segment as a single business. Under this multi-year program, we expect to recognize the following: • Restructuring expenses - Non-recurring costs resulting directly from the implementation of the 1 LKQ Europe program from which the business will derive no ongoing benefit. See Note 5, “Restructuring and Acquisition Related Expenses” to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details. • Transformation expenses - Period costs incurred to execute the 1 LKQ Europe program that are expected to contribute to ongoing benefits to the business (e.g. non-capitalizable implementation costs related to a common ERP system). These expenses are recorded in Selling, general and administrative expenses. • Transformation capital expenditures - Capitalizable costs for long-lived assets, such as software and facilities, that directly relate to the execution of the 1 LKQ Europe program. 36 Costs related to the 1 LKQ Europe program incurred to date are reflected in Selling, general and administrative expenses and Purchases of property, plant and equipment in our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. Beginning in the second half of March 2020, management delayed certain projects under the 1 LKQ Europe program to reduce expenses and preserve capital in response to the COVID-19 pandemic. Based on our expectations in the second quarter of 2020 that the impacts on our business from COVID-19 had stabilized, we restarted the program in July 2020 with substantially the same initiatives and projects as prior to the pandemic. While certain projects were delayed as a result of the COVID-19 pandemic, such as our procurement initiatives and the new head office 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 In late February 2020, the Italian government began placing restrictions on activity as a result of the COVID-19 outbreak. Sales volumes fell as fewer cars were on the road and less maintenance activity was performed. While our Italian operation is an important part of our European business, it represented approximately 10% of the segment’s revenue in 2019, and thus the disruption did not have a material impact on the Company. By mid-March, the COVID-19 impact began spreading across the rest of the geographies where we operate at a very rapid pace. Governments adopted aggressive restrictions on the operation of non-essential businesses and personal movement, which reduced miles driven and collisions. While our businesses have been deemed essential in most jurisdictions in which we operate, the change in behavior driven by the COVID-19 restrictions negatively impacted our sales volume. Our organic parts and services revenue declined by 16.8% 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. and Europe. 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. 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. 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. By the third 37 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. 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 (the majority of which were paid during the third quarter), and suspension of our share buyback program. 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 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 at our facilities; use of personal protection equipment; adhering to social distancing guidelines; instituting remote work arrangements for many of our employees; and restricting travel. See the Results of Operations and Liquidity sections for further detail on the year over year trends. Key Performance Indicators We believe that organic revenue growth, Segment EBITDA and free cash flow are key performance indicators for our business. Segment EBITDA is our key measure of segment profit or loss reviewed by our chief operating decision maker. Free cash flow is a financial measure that is not prepared in accordance with U.S. generally accepted accounting principles (“non-GAAP”). • Organic revenue growth - We define organic revenue growth as total revenue growth from continuing operations excluding the effects of acquisitions and divestitures (i.e., revenue generated from the date of acquisition to the first anniversary of that acquisition, net of reduced revenue due to the disposal of businesses) and foreign currency movements (i.e., impact of translating revenue at prior period exchange rates). Organic revenue growth includes incremental sales from both existing and new (i.e., opened within the last twelve months) locations and is derived from expanding business with existing customers, securing new customers and offering additional products and services. We believe that organic revenue growth is a key performance indicator as this statistic measures our ability to serve and grow our customer base successfully. • Segment EBITDA - Refer to Note 14, "Segment and Geographic Information,” in Part I, Item 1 of this Form 10-Q for a description of the calculation of Segment EBITDA. We believe that Segment EBITDA provides useful information to evaluate our segment profitability by focusing on the indicators of ongoing operational results. • Free Cash Flow - We calculate free cash flow as net cash provided by operating activities, less purchases of property, plant and equipment. Free cash flow provides insight into our liquidity and provides useful information to management and investors concerning our cash flow available to meet future debt service obligations and working capital requirements, to make strategic acquisitions and to repurchase stock. These three key performance indicators are used as targets to determine incentive compensation at various levels of the organization, including senior management. By using these performance measures, we attempt to motivate a balanced approach to the business that rewards growth, profitability and cash flow generation in a manner that enhances our long-term prospects. 38 Results of Operations—Consolidated The following table sets forth statements of income data as a percentage of total revenue for the periods indicated: Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 2020 2019 Revenue 100.0 % 100.0 % 100.0 % 100.0 % Cost of goods sold 60.7 % 61.9 % 60.5 % 61.5 % Gross margin 39.3 % 38.1 % 39.5 % 38.5 % Selling, general and administrative expenses 26.7 % 28.3 % 28.3 % 28.3 % Restructuring and acquisition related expenses 0.7 % 0.3 % 0.6 % 0.2 % (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 % Total other expense, net 0.9 % 0.8 % 0.9 % 0.9 % Income from continuing operations before provision for income taxes 8.8 % 6.5 % 7.4 % 6.3 % Provision for income taxes 2.6 % 1.8 % 2.1 % 1.7 % 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 % Net income (loss) from discontinued operations — % 0.0 % (0.0) % 0.0 % Net income 6.4 % 4.8 % 5.3 % 4.3 % Less: net income (loss) attributable to continuing noncontrolling interest 0.0 % (0.0) % 0.0 % 0.0 % Less: net income attributable to discontinued noncontrolling interest — % 0.0 % 0.0 % 0.0 % Net income attributable to LKQ stockholders 6.3 % 4.8 % 5.3 % 4.2 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019 Revenue. The following table summarizes the changes in revenue by category (in thousands): Three Months Ended September 30, Percentage Change in Revenue 2020 2019 Organic Acquisition and Divestiture Foreign Exchange Total Change Parts & services revenue $ 2,885,729 $ 2,985,998 (4.5) % (1.0) % 2.1 % (3.4) % Other revenue 161,955 161,775 (0.1) % — % 0.2 % 0.1 % Total revenue $ 3,047,684 $ 3,147,773 (4.3) % (0.9) % 2.0 % (3.2) % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. The decline in parts and services revenue of 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 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 39 write downs of $1 million, primarily related to restructuring plans in our North America segment, compared to $17 million for the three months ended September 30, 2019; these inventory write-downs were principally due to our Europe segment, and related to the U.K. branch consolidation and brand rationalization initiated as part of our restructuring programs. The lower inventory write downs in the three months ended September 30, 2020 compared to the prior year period resulted in a favorable impact on cost of goods sold of 0.5%. Our restructuring plans are described in Note 5, "Restructuring and Acquisition Related Expenses" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. Refer to the discussion of our segment results of operations for factors contributing to the changes in cost of goods sold as a percentage of revenue by segment for the three months ended September 30, 2020 compared to the same period of 2019. Selling, General and Administrative Expenses. 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. Refer to the discussion of our segment results of operations for factors contributing to the changes in SG&A expenses as a percentage of revenue by segment for the three months ended September 30, 2020 compared to the same period of 2019. Restructuring and Acquisition Related Expenses . The following table summarizes restructuring and acquisition related expenses for the periods indicated (in thousands): Three Months Ended September 30, 2020 2019 Change Restructuring expenses $ 12,701 (1) $ 7,284 (2) $ 5,417 Acquisition related expenses 7,794 (3) 1,645 (4) 6,149 Total restructuring and acquisition related expenses $ 20,495 $ 8,929 $ 11,566 (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. (Gain) Loss on Disposal of Businesses and Impairment of Net Assets Held for Sale. For the three months ended September 30, 2020, we recorded an adjustment to reduce a previously recorded loss on disposal by $1 million; this adjustment was partially offset by immaterial impairment charges on net assets held for sale. For the three months ended September 30, 2019, we recorded a $4 million net reversal of impairment charges on net assets held for sale, primarily attributable to our North America segment. See "Net Assets Held for Sale" in Note 3, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on the adjustment and impairment charges. 40 Depreciation and Amortization . The following table summarizes depreciation and amortization for the periods indicated (in thousands): Three Months Ended September 30, 2020 2019 Change Depreciation $ 38,346 $ 36,873 $ 1,473 (1) Amortization 30,309 34,640 (4,331) (2) Total depreciation and amortization $ 68,655 $ 71,513 $ (2,858) (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 September 30, 2019 $ 26,037 (Decrease) increase due to: Interest expense, net of interest income (6,922) (1) Gain on debt extinguishment 128 Other expense (income), net 8,431 (2) Net increase 1,637 Other expense, net for the three months ended September 30, 2020 $ 27,674 (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. (the "U.S. Plan"). Provision for Income Taxes . Our effective income tax rate for the three months ended September 30, 2020 was 29.3%, compared to 28.1% for the comparable prior year period. The rate in the third quarter of 2020 includes an unfavorable discrete item impact of 1.3%, primarily attributable to valuation allowances on net operating loss carryforwards and deferred tax adjustments as a result of statutory tax rate changes. The prior year comparative quarter included an unfavorable discrete item impact of 0.6%, including an unfavorable adjustment to the projected 2019 full year estimated tax rate as a result of a shift in the projected geographic blend of earnings, partially offset by excess tax benefits on stock based compensation. Additionally, the increased rate is attributable to a higher expected annual effective tax rate in 2020 as a result of the estimated unfavorable impact of the COVID-19 pandemic on the Company’s results of operations, particularly in certain international jurisdictions. Primary factors in the increase include valuation allowances on the tax benefit of net operating losses in certain jurisdictions where realization is uncertain, and the impact of lower available interest deductions in certain foreign jurisdictions due to legislative thin capitalization constraints, typically based on profitability. Ongoing uncertainties due to the impact of the COVID-19 pandemic on the Company’s operations for the remainder of 2020 may result in volatility in the effective tax rate driven generally by the level of profitability and changes in the mix of earnings across the Company’s jurisdictions. Equity in Earnings (Losses) of Unconsolidated Subsidiaries. Equity in earnings (losses) of unconsolidated subsidiaries for the three months ended September 30, 2020 and 2019 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 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 41 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. 42 Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019 Revenue. The following table summarizes the changes in revenue by category (in thousands): Nine Months Ended September 30, Percentage Change in Revenue 2020 2019 Organic Acquisition and Divestiture Foreign Exchange Total Change Parts & services revenue $ 8,201,604 $ 9,021,790 (8.4) % (0.5) % (0.2) % (9.1) % Other revenue 473,338 474,459 (0.7) % 0.5 % (0.0) % (0.2) % Total revenue $ 8,674,942 $ 9,496,249 (8.0) % (0.4) % (0.2) % (8.6) % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. The decline in parts and services revenue of 9.1% represented decreases in segment revenue of 13.3% in North America, 8.1% in Europe, and 0.5% in Specialty. Organic parts and services revenue declined by 8.4%, which included a 0.4% positive effect from one additional selling day in the first nine months of 2020, resulting in a per day organic decline of 8.8%. The decline in the first nine months of 2020 is primarily related to the impact of COVID-19 from March 2020 through September 2020 (refer to the "COVID-19 Impact on Our Operations" section above for further details). The decrease in other revenue of 0.2% was primarily driven by a $3 million organic decrease, largely attributable to our North America segment. Refer to the discussion of our segment results of operations for factors contributing to the change in revenue by segment during the first nine months of 2020 compared to the prior yea r period. Cost of Goods Sold . Cost of goods sold 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. The mix impact was a result of the decreased volumes in our North America segment primarily due to the COVID-19 pandemic, as the higher margin North America segment made up a smaller percentage of the consolidated results, causing an unfavorable effect on the gross margin percentage. For the nine months ended September 30, 2020, we recorded inventory write downs related to restructuring plans of $4 million and $3 million in our North America and Europe segments, respectively. For the nine months ended September 30, 2019, we recorded inventory write downs of $17 million, principally due to our Europe segment related to U.K. branch consolidation and brand rationalization initiated as part of our restructuring plans. The lower inventory write downs in the nine months ended September 30, 2020 compared to the prior year period resulted in a favorable impact on cost of goods sold of 0.1%. Our restructuring plans are described in Note 5, "Restructuring and Acquisition Related Expenses" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. Refer 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 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): Nine Months Ended September 30, 2020 2019 Change Restructuring expenses $ 44,498 (1) $ 18,482 (2) $ 26,016 Acquisition related expenses 7,917 (3) 2,131 (4) 5,786 Total restructuring and acquisition related expenses $ 52,415 $ 20,613 $ 31,802 43 (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. See Note 5, "Restructuring and Acquisition Related Expenses" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on our restructuring and integration plans. (Gain) Loss on Disposal of Businesses and Impairment of Net Assets Held for Sale. For the nine months ended September 30, 2020 , we recorded a net loss on the disposal of businesses and impairment charges on net assets held for sale totaling $2 million, compared to $45 million of net impairment charges on net assets held for sale for the nine months ended September 30, 2019 primarily attributable to our North America segment. See "Net Assets Held for Sale" in Note 3, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on the net loss on disposals and impairment charges. Depreciation and Amortization . The following table summarizes depreciation and amortization for the periods indicated (in thousands): Nine Months Ended September 30, 2020 2019 Change Depreciation $ 112,462 $ 109,245 $ 3,217 (1) Amortization 87,435 104,104 (16,669) (2) Total depreciation and amortization $ 199,897 $ 213,349 $ (13,452) (1) Depreciation expense increas ed by $3 million, primarily due to capital expenditures in our North America segment. (2) The decrease in amortization expense primarily reflected decreases of $12 million and $4 million relate d to the customer relationship intangible assets recorded upon our acquisitions of Stahlgruber and Rhiag, respectively, as the accelerated amortization of the customer relationship intangible assets resulted in lower amortization expense during the nine months ended September 30, 2020 compared to the prior year period. Other Expense, Net. The following table summarizes the components of the change in other expense, net (in thousands): Other expense, net for the nine months ended September 30, 2019 $ 88,426 (Decrease) increase due to: Interest expense, net of interest income (27,348) (1) Loss/gain on debt extinguishment 12,879 (2) Other expense (income), net 6,219 (3) Net decrease (8,250) Other expense, net for the nine months ended September 30, 2020 $ 80,176 (1) The decrease in interest is primarily related to (i) a $23 million decrease resulting from lower outstanding debt during the nine months ended September 30, 2020 compared to the prior year period, and (ii) a $5 million decrease from lower interest rates on borrowings under our senior secured credit 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 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 44 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 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. 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. 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. Ongoing uncertainties due to the impact of the COVID-19 pandemic on the Company’s operations for the remainder of 2020 may result in volatility in the effective tax rate driven generally by the level of profitability and changes in the mix of earnings across the Company’s jurisdictions. Equity in Earnings (Losses) of Unconsolidated Subsidiaries. Equity in earnings (losses) of unconsolidated subsidiaries for the nine months ended September 30, 2020 primarily related to our investment in Mekonomen. During the first quarter of 2019, we recorded a $40 million other-than-temporary impairment related to our investment in Mekonomen. See "Investments in Unconsolidated Subsidiaries" in Note 3, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on the impairment charge. Foreign Currency Impact. We translate our statements of income at the average exchange rates in effect for the period. Relative to the 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. Results of Operations—Segment Reporting We have four operating segments: Wholesale – North America, Europe, Specialty and Self Service. Our Wholesale – North America and Self Service operating segments are aggregated into one reportable segment, North America, because they possess similar economic characteristics and have common products and services, customers, and methods of distribution. Therefore, we present three reportable segments: North America, Europe and Specialty. We have presented the growth of our revenue and profitability in our operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our growth and profitability, consistent with how we evaluate our performance, as this statistic removes the translation impact of exchange rate fluctuations, which are outside of our control and do not reflect our operational performance. Constant currency revenue and Segment EBITDA results are calculated by translating prior year revenue and Segment EBITDA in local currency using the current year's currency conversion rate. This non-GAAP financial measure has important limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of our results as reported under GAAP. Our use of this term may vary from the use of similarly-titled measures by other issuers due to potential inconsistencies in the method of calculation and differences due to items subject to interpretation. In addition, not all companies that report revenue or profitability on a constant currency basis calculate such measures in the same manner as we do, and accordingly, our calculations are not necessarily comparable to similarly-named measures of other companies and may not be appropriate measures for performance relative to other companies. 45 The following table presents our financial performance, including third party revenue, total revenue and Segment EBITDA, by reportable segment for the periods indicated (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2020 % of Total Segment Revenue 2019 % of Total Segment Revenue 2020 % of Total Segment Revenue 2019 % of Total Segment Revenue Third Party Revenue North America $ 1,164,031 $ 1,302,086 $ 3,465,102 $ 3,925,962 Europe 1,484,099 1,451,483 4,058,878 4,413,264 Specialty 399,554 394,204 1,150,962 1,157,023 Total third party revenue $ 3,047,684 $ 3,147,773 $ 8,674,942 $ 9,496,249 Total Revenue North America $ 1,164,241 $ 1,302,147 $ 3,465,831 $ 3,926,222 Europe 1,484,099 1,451,483 4,058,878 4,413,264 Specialty 400,429 395,314 1,153,885 1,160,687 Eliminations (1,085) (1,171) (3,652) (3,924) Total revenue $ 3,047,684 $ 3,147,773 $ 8,674,942 $ 9,496,249 Segment EBITDA North America $ 204,957 17.6 % $ 166,310 12.8 % $ 565,949 16.3 % $ 532,994 13.6 % Europe 136,165 9.2 % 124,712 8.6 % 303,814 7.5 % 346,291 7.8 % 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, 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 attributable to LKQ stockholders excluding discontinued operations and discontinued noncontrolling interest, depreciation, amortization, interest (which includes gains and losses on debt extinguishment) and income tax expense. See Note 14, "Segment and Geographic Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a reconciliation of total Segment EBITDA to net income. Three Months Ended September 30, 2020 Compared to Three Months Ended September 30, 2019 North America Third Party Revenue . The following table summarizes the changes in third party revenue by category in our North America segment (in thousands): Three Months Ended September 30, Percentage Change in Revenue North America 2020 2019 Organic Acquisition and Divestiture (3) Foreign Exchange Total Change Parts & services revenue $ 1,007,001 $ 1,145,402 (11.3) % (1) (0.7) % (0.1) % (12.1) % Other revenue 157,030 156,684 0.2 % (2) 0.0 % (0.0) % 0.2 % Total third party revenue $ 1,164,031 $ 1,302,086 (9.9) % (0.6) % (0.1) % (10.6) % Note: 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 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 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 46 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 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 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 September 30, 2019 12.8 % Increase (decrease) due to: Change in gross margin 1.7 % (1) Change in segment operating expenses 3.5 % (2) Change in other expense, net and net income attributable to continuing noncontrolling interest (0.4) % (3) Segment EBITDA for the three months ended September 30, 2020 17.6 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. (1) The increase in gross margin primarily reflected 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. 47 (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. Europe Third Party Revenue . The following table summarizes the changes in third party revenue by category in our Europe segment (in thousands): Three Months Ended September 30, Percentage Change in Revenue Europe 2020 2019 Organic (1) Acquisition and Divestiture (2) Foreign Exchange (3) Total Change Parts & services revenue $ 1,479,174 $ 1,446,392 (0.7) % (1.5) % 4.5 % 2.3 % Other revenue 4,925 5,091 (8.8) % — % 5.5 % (3.3) % Total third party revenue $ 1,484,099 $ 1,451,483 (0.7) % (1.5) % 4.5 % 2.2 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. (1) Parts and services organic revenue declined 0.7% 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 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. Refer to the Foreign Currency Impact discussion within the Results of Operations–Consolidated section above for further detail regarding foreign currency impact on our results for the three months ended September 30, 2020. 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 September 30, 2019 8.6 % Increase (decrease) due to: Change in gross margin 0.6 % (1) Change in segment operating expenses 0.2 % (2) Change in other expense, net and net income attributable to continuing noncontrolling interest (0.3) % (3) Segment EBITDA for the three months ended September 30, 2020 9.2 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. (1) The increase in gross margin was primarily attributable to favorable impacts of (i) 0.3% from the disposal of a non-core telecommunications operation in Germany in the second quarter of 2020 and (ii) 0.2% across our operations principally as a result of margin improvement initiatives supporting the pursuit of profitable revenue growth, and decreased inventory write-downs. 48 (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. Specialty Third Party Revenue . The following table summarizes the changes in third party revenue by category in our Specialty segment (in thousands): Three Months Ended September 30, Percentage Change in Revenue Specialty 2020 2019 Organic (1) Acquisition and Divestiture Foreign Exchange Total Change Parts & services revenue $ 399,554 $ 394,204 1.1 % 0.3 % (0.1) % 1.4 % Other revenue — — — % — % — % — % Total third party revenue $ 399,554 $ 394,204 1.1 % 0.3 % (0.1) % 1.4 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. (1) Parts and services organic revenue 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 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 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 September 30, 2020 12.1 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. (1) The increase in gross margin primarily reflects a favorable impact 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. 49 Nine Months Ended September 30, 2020 Compared to Nine Months Ended September 30, 2019 North America Third Party Revenue . The following table summarizes the changes in third party revenue by category in our North America segment (in thousands): Nine Months Ended September 30, Percentage Change in Revenue North America 2020 2019 Organic Acquisition and Divestiture (3) Foreign Exchange Total Change Parts & services revenue $ 3,007,169 $ 3,466,582 (12.7) % (1) (0.4) % (0.1) % (13.3) % Other revenue 457,933 459,380 (0.8) % (2) 0.5 % (0.0) % (0.3) % Total third party revenue $ 3,465,102 $ 3,925,962 (11.3) % (0.3) % (0.1) % (11.7) % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. (1) Parts and services organic revenue declined despite one additional selling day in the first nine months of 2020 compared to the prior year period. On a per day basis, organic revenue declined 13.1%. The organic decline was impacted by collision and liability repairable auto claims, which, according to data from 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. The volume decline in collision parts was partially offset by an outperformance of the claims trend attributable to share gains, mechanical part sales and self service parts sales and admissions . Prior to the pandemic, parts and services organic revenue in North America was slightly less than the same period in the prior year, declining 1.1% through February 2020, principally due to (i) the termination in the fourth quarter of 2019 of an agreement signed in December 2017 for the distribution of batteries which had an unfavorable impact of 0.8% through February 2020 compared to the prior year period, and, (ii) to a lesser extent, milder winter weather conditions compared to the prior year period. During the period of March 2020 through September 2020, parts and services organic revenue declined 16.5% on a per day basis compared to the prior year period primarily due to volume effects caused by the COVID-19 pandemic (collision and liability repairable auto claims were down approximately 24.4% and 41.7% in the third and second quarters of 2020, respectively, according to data from CCC). (2) The $1 million year over year organic decrease in other revenue is primarily related to (i) a $41 million decrease in revenue from other scrap metals (e.g. aluminum) and fluids due to lower volumes, (ii) a $32 million decrease in revenue from scrap steel due to lower prices and volumes, and (iii) a decrease in core revenue of $10 million due to lower volumes, mostly offset by a $79 million increase in revenue from precious metals (platinum, palladium and rhodium) primarily due to higher prices compared to the prior year. The volume declines in other revenue were due to lower purchase volumes and throughput in our salvage and self service operations as a result of the COVID-19 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 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. 50 The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our North America segment: North America Percentage of Total Segment Revenue Segment EBITDA for the nine months ended September 30, 2019 13.6 % Increase due to: Change in gross margin 2.1 % (1) Change in segment operating expenses 0.7 % (2) Change in other expense, net and net income attributable to continuing noncontrolling interest (0.1) % (3) Segment EBITDA for the nine months ended September 30, 2020 16.3 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. (1) The increase in gross margin primarily reflected favorable impa cts of 1.5% from our wholesale operations and 0.5% from our self service operations. The increase in wholesale gross margin was primarily attributable to the positive impact of cost reductions from operational efficiency and rightsizing actions, higher prices of precious metals and scrap steel, and improved return rates compared to the prior year period. The increase in self service gross margin was primarily attributable to higher prices of precious metals as well as sequential increases in scrap steel prices. We expect downward pressure on our salvage and self service margins in the fourth quarter of 2020 as purchase costs have increased in recent months due to the reduced availability of cars for purchase reflecting the impact of the COVID-19 pandemic. We are attempting to mitigate this margin pressure by adjusting our prices and driving further efficiencies. (2) The decrease in segment operating expense as a percentage of revenue, despite the deleveraging impact of the organic revenue parts and services revenue decline of 13.1% compared to the prior year, on a per day basis, reflects a favorable impact of 1.1% from personnel expenses related to permanent and temporary headcount reductions, reduced hours, limitations on travel and governm ent grants in Canada. The impact was partially offset by a negative leverage effect of 0.6% from facility expenses, which are largely fixed. As the market continues to recover and volumes increase, we expect to bring back necessary resources to support our operations; however, we expect that certain permanent actions taken this year will provide a long-term favorable impact for the segment. (3) The increase in other expense, net and net income attributable to continuing noncontrolling interest was primarily due to an unfavorable impact of 0.2% from pension expense resulting from pension settlement losses of $6 million related to the U.S. Plan, partially offset by proceeds from business interruption insurance that had a year over year favorable impact of 0.1%. Europe Third Party Revenue . The following table summarizes the changes in third party revenue by category in our Europe segment (in thousands): Nine Months Ended September 30, Percentage Change in Revenue Europe 2020 2019 Organic (1) Acquisition and Divestiture (2) Foreign Exchange (3) Total Change Parts & services revenue $ 4,043,473 $ 4,398,185 (7.0) % (0.7) % (0.4) % (8.1) % Other revenue 15,405 15,079 2.4 % (0.0) % (0.3) % 2.2 % Total third party revenue $ 4,058,878 $ 4,413,264 (7.0) % (0.7) % (0.4) % (8.0) % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. (1) The parts and services organic revenue change for the first nine months of 2020 was affected by having one additional selling day 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. 51 (2) Acquisition related growth in the first nine months of 2020 reflected revenue from our acquisition of three wholesale businesses since the beginning of 2019 through the one-year anniversary of the acquisitions. Reduced revenue as a result of the disposals of a non-core telecommunications operation in Germany in the second quarter of 2020 and a wholesale business in Bulgaria in the third quarter of 2019 more than offset the acquisition growth . (3) Compared to the prior year, exchange rates decreased our revenue growth by $16 million , or 0.4% , primarily due to the stronger U.S. dollar against the Czech koruna and pound sterling during the first nine months of 2020 relative to the prior year period. Segment EBITDA . Segment EBITDA decreased $42 million , or 12.3% , in the first nine months of 2020 compared to the prior year period. Our Europe Segment EBITDA included a negative year over year impact of $1 million related to the translation of local currency results into U.S. dollars at lower exchange rates than those experienced during the first nine months of 2019. On a constant currency basis (i.e., excluding the translation impact), Segment EBITDA decreased by $42 million , or 12.1% , compared to the prior year. Refer to the Foreign Currency Impact discussion within the Results of Operations–Consolidated section above for further detail regarding foreign currency impact on our results for the nine months ended September 30, 2020. The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Europe segment: Europe Percentage of Total Segment Revenue Segment EBITDA for the nine months ended September 30, 2019 7.8 % Increase (decrease) due to: Change in gross margin 0.7 % (1) Change in segment operating expenses (1.0) % (2) Segment EBITDA for the nine months ended September 30, 2020 7.5 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. (1) The increase in gross margin was primarily attributable to (i) a 0.5% favorable impact across almost all our operations principally as a result of margin improvement initiatives supporting the pursuit of profitable revenue growth, and (ii) several individually immaterial factors that had a favorable impact of 0.2% in the aggregate. (2) The increase in segment operating expenses as a percentage of revenue reflects unfavorable impacts of (i) 0.4% from bad debt expense due to the downturn in economic conditions caused by the COVID-19 pa nd emic, (ii) 0.2% from professional fees, (iii) a 0.2% increase in non-recurring costs for personnel matters and a loan guarantee and (iv) several individually immaterial factors that had an unfavorable impact of 0.4% in the aggregate. These negative impacts were partially mitigated by actions to reduce personnel expense which generated a favorable impact of 0.2%. Despite the third party parts and services organic revenue decline of 7.5%, on a per day basis, and deleverage of the business, management was able to utilize government assistance, permanent and temporary headcount reductions, and limited travel expenses to achieve this 0.2% reduction as a percentage of revenue. As the markets have recovered, volumes increased and government programs ceased, we brought back necessary resources to support our operations; however, we expect that certain permanent actions taken this year will provide a long-term favorable impact for the segment. Specialty Third Party Revenue . The following table summarizes the changes in third party revenue by category in our Specialty segment (in thousands): Nine Months Ended September 30, Percentage Change in Revenue Specialty 2020 2019 Organic (1) Acquisition and Divestiture Foreign Exchange Total Change Parts & services revenue $ 1,150,962 $ 1,157,023 (0.6) % 0.2 % (0.2) % (0.5) % Other revenue — — — % — % — % — % Total third party revenue $ 1,150,962 $ 1,157,023 (0.6) % 0.2 % (0.2) % (0.5) % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. 52 (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 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 $3 million, or 2.2%, in the first nine months of 2020 compared to the prior year period. The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Specialty segment: Specialty Percentage of Total Segment Revenue Segment EBITDA for the nine months ended September 30, 2019 11.7 % (Decrease) increase due to: Change in gross margin (0.7) % (1) Change in segment operating expenses 0.5 % (2) Segment EBITDA for the nine months ended September 30, 2020 11.5 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. (1) The decrease in gross margin primarily reflects unfavorable impacts of (i) 0.6% due 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): September 30, 2020 December 31, 2019 September 30, 2019 Cash and cash equivalents $ 421,382 $ 523,020 $ 433,391 Total debt (1) 3,133,465 4,072,026 3,896,722 Current maturities (2) 97,584 326,648 128,426 Capacity under credit facilities (3) 3,260,000 3,260,000 3,260,000 Availability under credit facilities (3) 2,270,953 1,922,671 2,044,940 Total liquidity (cash and cash equivalents plus availability under credit facilities) 2,692,335 2,445,691 2,478,331 (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. Availability under credit facilities is reduced by our outstanding letters of credit. 53 We assess our liquidity in terms of our ability to fund our operations and provide for expansion through both internal development and acquisitions. Our primary sources of liquidity are cash flows from operations and our credit facilities. We utilize our cash flows from operations to fund working capital and capital expenditures, with the excess amounts going towards funding acquisitions, paying down outstanding debt or repurchasing our common stock. As we have pursued acquisitions as part of our historical growth strategy, our cash flows from operations have not always been sufficient to cover our investing activities. To fund our acq uisitions, we have accessed various forms of debt financing, including revolving credit facilities, senior notes and our receivables securitization facility. 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 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 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 $2.7 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 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. 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 September 30, 2020): Covenant Level Ratio Achieved as of September 30, 2020 Maximum net leverage ratio 5.00:1.00 2.0 Minimum interest coverage ratio 3.00:1.00 13.1 The terms net leverage ratio and minimum interest coverage ratio used in the credit agreement are specifically calculated per the credit agreement and differ in specified ways from comparable GAAP or common usage terms. We amended our senior secured credit facility in June 2020 to increase the maximum net leverage ratio effective with our compliance certificate filed with respect to the second quarter of 2020; refer to "Senior Secured Credit Agreement" in Note 9, "Long-Term Obligations" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information on the June 2020 amendment. We entered into the amendment out of an abundance of 54 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. The indentures do not prohibit amendments to the financial covenants under the credit facility as needed. In the long term, while we believe that we have adequate capacity under our existing credit facilities, from time to time we may need to raise additional funds through public or private financing, strategic relationships or other arrangements. There can be no assurance that additional funding, or refinancing of our credit facilities, if needed, will be available on terms attractive to us, or at all. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants or higher interest costs. Our failure to raise capital if and when needed could have a material adverse impact on our business, operating results, and financial condition. From time to time, we may undertake financing transactions to increase our available liquidity, such as (i) our November 2018 amendment to our senior secured credit facility and (ii) the issuance of the Euro Notes (2026/28) in April 2018 related to the Stahlgruber acquisition. Given the long-term nature of our investment in Stahlgruber, combined with favorable interest rates, we decided to fund the acquisition primarily through long-term, fixed rate notes. We believe this approach provides financial flexibility to execute our long-term growth strategy while maintaining availability under our revolver. If we see an attractive acquisition opportunity, we have the ability to use our revolver to move quickly and have certainty of funding up to the amount of our then-available liquidity. 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. We hold interest rate swaps to hedge the variable rates on a portion of our credit agreement borrowings, with the effect of fixing the interest rates on the respective notional amounts. In addition, we hold cross currency swaps that contain an interest rate swap component and a foreign currency forward contract component that, when combined with related intercompany financing arrangements, effectively convert variable rate U.S. dollar-denominated borrowings into fixed rate euro-denominated borrowings. These derivative transactions are described in Note 10, "Derivative Instruments and Hedging Activities" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. After giving effect to these contracts, the weighted average interest rate on borrowings outstanding under our credit agreement at September 30, 2020 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. We cannot currently predict the effect of the discontinuation of, or other changes to, LIBOR, or any establishment of alternative reference rates in the United States, the European Union or elsewhere, on the global capital markets. The uncertainty regarding the future of LIBOR, as well as the transition from LIBOR to any alternative reference rate or rates, could have adverse impacts on our variable rate obligations that currently use LIBOR as a benchmark rate. We are in the process of evaluating our financing obligations and other contracts that refer to LIBOR. Outstanding debt under our Credit Agreement, which constitutes the most significant of our LIBOR-based debt obligations, contains provisions that address the potential discontinuation of LIBOR and facilitate the adoption of an alternative rate of interest. We do not believe that the discontinuation of LIBOR, or its replacement with an alternative reference rate or rates, will have a material impact on our results of operations, financial position or liquidity. 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 55 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) : $ 71,363 Years ending December 31: 2021 33,809 2022 30,485 2023 24,119 2024 1,779,859 Thereafter 1,193,830 Total debt (2) $ 3,133,465 (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 $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 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. Distributions of dividends from our foreign subsidiaries, if any, would be generally exempt from further U.S. taxation, either as a result of the 100% participation exemption under the Tax Act, or due to the previous taxation of foreign earnings under the transition tax and the Global Intangible Low-Taxed Income regime, a regime of taxation on foreign subsidiary earnings. We believe that we have sufficient cash flow and liquidity to meet our financial obligations in the U.S. without repatriating our foreign earnings. We may, from time to time, choose to selectively repatriate foreign earnings if doing so supports our financing or liquidity objectives. The procurement of inventory is the largest operating use of our funds. We normally pay for aftermarket product purchases on standard payment terms or at the time of shipment, depending on the manufacturer and the negotiated payment terms. We normally pay for salvage vehicles acquired at salvage auctions and under direct procurement arrangements at the time that we take possession of the vehicles. The following table sets forth a summary of our aftermarket and manufactured inventory procurement for the three and nine months ended September 30, 2020 and 2019 (in thousands): Three Months Ended Nine Months Ended September 30, September 30, 2020 2019 Change 2020 2019 Change (1) North America $ 270,600 $ 325,600 $ (55,000) $ 760,600 $ 1,005,000 $ (244,400) Europe 940,400 1,009,700 (69,300) 2,491,600 2,931,300 (439,700) Specialty 252,200 288,100 (35,900) 678,400 825,800 (147,400) 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 procurement beginning in March 2020 as a response to t he COVID-19 p a ndemic. 56 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 North America wholesale salvage cars and trucks 57 78 (26.9) % 165 230 (28.3) % Europe wholesale salvage cars and trucks 6 5 20.0 % 18 19 (5.3) % Self service and "crush only" cars 148 151 (2.0) % 434 455 (4.6) % Salvage purchases decreased relative to the prior year as we reduced buying to reflect lower demand during the COVID-19 pandemic. Purchasing began to increase as the 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. 57 The following table summarizes the components of the year-over-year increase in cash provided by operating activities (in millions): Net cash provided by operating activities for the nine months ended September 30, 2019 $ 965 Increase (decrease) due to: Operating income 28 (1) Non-cash depreciation and amortization expense (10) Loss/gain on disposal of businesses and impairment of net assets held for sale (43) (2) Cash paid for taxes (76) (3) Cash paid for interest (11) (4) Working capital accounts: (5) Receivables, net 74 Inventories 387 Accounts payable (197) Other operating activities 18 (6) Net cash provided by operating activities for the nine months ended September 30, 2020 $ 1,135 (1) Refer to the Results of Operations - Consolidated section for further information on the increase in operating income. (2) Refer to "Net Assets Held for Sale" in Note 3, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information on the net impairment activity recorded in the nine months ended September 30, 2020 and September 30, 2019. (3) Cash flows 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 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 58 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): Nine Months Ended September 30, 2020 2019 Net cash provided by operating activities $ 1,134,641 $ 965,171 Less: purchases of property, plant and equipment 109,949 165,551 Free cash flow $ 1,024,692 $ 799,620 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 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.