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Item 9A. Controls and Procedures

2021-02-26 compared with 2020-02-27 · 61 added, 105 removed, 277 unchanged (37% of the section changed)

2 unchanged sentences

As of December 31, 2020, the end of the period covered by this report, an evaluation was carried out under the supervision and with the participation of LKQ Corporation's management, including our Chief Executive Officer and our Chief Financial Officer, of our "disclosure controls and procedures" (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934).

Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file with the Securities and Exchange Commission ("SEC") is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that information required to be disclosed is accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that LKQ Corporation and subsidiaries' (the "Company") disclosure controls and procedures were effective to ensure that information required to be disclosed in the reports we file with the Securities and Exchange Commission ("SEC") is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that information required to be disclosed is accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Report of Management on Internal Control over Financial Reporting dated February 25, 2021

Management of LKQ Corporation and subsidiaries (the "Company") is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.

Management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934.

The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.

11 unchanged sentences

There was no change in the Company’s internal control over financial reporting that occurred during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of LKQ Corporation:

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of LKQ Corporation and subsidiaries (the “Company”) as of December 31, 2019 , based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019 , based on criteria established in Internal Control – Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2019 , of the Company and our report dated February 27, 2020 , expressed an unqualified opinion on those consolidated financial statements and included an explanatory paragraph regarding the Company's adoption of ASC Topic 842, Leases.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting.

Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S.

federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.

Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances.

We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America ("generally accepted accounting principles").

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;

and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.

Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ DELOITTE & TOUCHE LLP

Chicago, Illinois

February 27, 2020

OTHER INFORMATION

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Our executive officers are elected by and serve at the discretion of our Board of Directors.

Dominick Zarcone

President, Chief Executive Officer and Director

Varun Laroyia

Executive Vice President and Chief Financial Officer

Chief Executive Officer, LKQ Europe

Senior Vice President, General Counsel and Corporate Secretary

Senior Vice President - Development

Senior Vice President of Operations - Wholesale Parts Division

Senior Vice President and Chief Information Officer

Senior Vice President - Human Resources

Vice President - Finance and Controller

Name Age Position

Dominick Zarcone 62 President, Chief Executive Officer and Director

Varun Laroyia 49 Executive Vice President and Chief Financial Officer

Arnd Franz 55 Chief Executive Officer, LKQ Europe

Casini 58 Senior Vice President, General Counsel and Corporate Secretary

Hanley 54 Senior Vice President - Development

Jude 44 Senior Vice President of Operations - Wholesale Parts Division

Brooks 51 Senior Vice President and Chief Information Officer

McKay 43 Senior Vice President - Human Resources

Clark 46 Vice President - Finance and Controller

Dominick Zarcone became our President and Chief Executive Officer in May 2017.

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Casini was the Executive Vice President and General Counsel of Flynn Enterprises, Inc., a venture capital, hedging and consulting firm.

Casini served as Senior Vice President, General Counsel and Corporate Secretary of Discovery Zone, Inc., an operator and franchiser of family entertainment centers, from July 1992 until May 1995.

Casini served as Senior Vice President, General Counsel

and Corporate Secretary of Discovery Zone, Inc., an operator and franchiser of family entertainment centers, from July 1992 until May 1995.

Prior to July 1992, Mr.

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Prior to joining us, Mr.

Brooks held various Senior Vice President positions, including Chief Information Officer, for GATX Corporation, a global railcar leasing company, from 2008 to 2020.

Prior to GATX, he served as Chief Information Officer for Constellation Energy, a retail energy company, from 2003 to 2008.

Brooks also spent over ten years in consulting roles with a focus on process improvement and systems implementations with firms such as Accenture and Oracle.

Brooks held various senior management positions with GATX Corporation, a global railcar leasing company, from 2008 to 2020, including Chief Information Officer and Chief Operations Officer.

Prior to GATX, he served as Chief Information Officer for Constellation NewEnergy, a retail energy company, from 2003 to 2008.

Brooks also spent over ten years in consulting focusing on process improvement and systems implementations with firms including Accenture and Oracle.

McKay became our Senior Vice President of Human Resources in June 2016.

20 unchanged sentences

Equity Compensation Plan Information

Plan Category

Plan Category Number of

securities to be issued

2 unchanged sentences

warrants, and rights

Weighted-average

(a) Weighted-average

exercise price of

1 unchanged sentence

warrants, and rights

Number of securities remaining

(b) Number of securities remaining

available for future

7 unchanged sentences

Total equity compensation plans approved by stockholders

1,771,273 9,577,770

Equity compensation plans not approved by stockholders

Total 1,771,273 9,577,770

See Note 7, "Stock-Based Compensation," to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information related to the equity incentive plans listed above.

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(in thousands)

Balance at End

Description Balance at

Period Additions

Expenses Deductions Acquisitions and Other Balance at End

ALLOWANCE FOR DOUBTFUL ACCOUNTS:

1 unchanged sentence

Year ended December 31, 2018 57,609 13,970 ( 15,945 ) 1,573 57,207

Year ended December 31, 2017

ALLOWANCE FOR ESTIMATED RETURNS, DISCOUNTS & ALLOWANCES:

Year ended December 31, 2017

Subsequent to our adoption of ASC 606 in 2018, we present a refund liability and a returns asset within the Consolidated Balance Sheet, whereas in periods prior to adoption, we presented the estimated margin impact of expected returns as a contra-asset within accounts receivable.

See Note 5, "Revenue Recognition ," to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information.

(1) The 2020 information is omitted from the table above as the information has been provided in "Allowance for Credit Losses" in Note 4, "Summary of Significant Accounting Policies," to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.

(a)(3) Exhibits

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Form of LKQ Corporation Executive Officer Long Term Incentive Plan Award Memorandum.

Change of Control Agreement between LKQ Corporation and John S.

Quinn dated as of July 24, 2014.

Change of Control Agreement between LKQ Corporation and Walter P.

17 unchanged sentences

LKQ Severance Policy for Key Executives.

Offer Letter to John S.

Quinn dated February 12, 2015, as amended.

Services Agreement dated as of February 26, 2015 between LKQ Corporation and John S.

Offer Letter to Dominick P.

3 unchanged sentences

Offer letter to Varun Laroyia dated September 5, 2017.

Service Agreement between Euro Car Parts Limited and Sukhpal Singh Ahluwalia dated as of September 7, 2017.

Settlement Agreement among Euro Car Parts Limited, LKQ Corporation and Sukhpal Singh Ahluwalia dated as of January 2, 2019.

Offer Letter to Arnd Franz dated September 27, 2018.

Services Agreement dated as of November 27, 2018 between LKQ Corporation and Arnd Franz.

Services Agreement dated as of June 1, 2020 between LKQ Europe GmbH, an indirect wholly-owned subsidiary of LKQ Corporation, and Arnd Franz.

Restated Certificate of Incorporation of LKQ Corporation (incorporated herein by reference to Exhibit 3.1 to the Company’s report on Form 10-Q filed with the SEC on October 31, 2014).

10 unchanged sentences

3 dated as of November 20, 2018 to the Fourth Amended and Restated Credit Agreement, which is Exhibit A to the Amendment and Restatement Agreement dated as of January 29, 2016 by and among LKQ Corporation, LKQ Delaware LLP, and certain additional subsidiaries of LKQ Corporation, as borrowers, certain financial institutions, as lenders, and Wells Fargo Bank, National Association, as administrative agent (incorporated herein by reference to Exhibit 4.5 to the Company's report on Form 10-K filed with the SEC on March 1, 2019).

Indenture dated as of May 9, 2013 among LKQ Corporation, as Issuer, the Guarantors, and U.S.

Bank National Association, as Trustee (incorporated herein by reference to Exhibit 4.1 to the Company's report on Form 8-K filed with the SEC on May 10, 2013).

Supplemental Indenture dated as of May 8, 2014 among LKQ Corporation, as Issuer, the Guarantors, and U.S.

Bank National Association, as Trustee (incorporated herein by reference to Exhibit 4.1 to the Company’s report on Form 10-Q filed with the SEC on August 1, 2014).

Supplemental Indenture dated as of September 9, 2016 among LKQ Corporation, as Issuer, certain subsidiaries of LKQ Corporation, as Guarantors, and U.S.

Bank National Association, as Trustee (incorporated herein by reference to Exhibit 4.11 to the Company's report on Form 10-K filed with the SEC on February 27, 2017).

Supplemental Indenture dated as of July 20, 2017 among LKQ Corporation, as Issuer, certain subsidiaries of LKQ Corporation, as Guarantors, and U.S.

Bank National Association, as Trustee (incorporated herein by reference to Exhibit 4.8 to the Company's report on Form 10-K filed with the SEC on February 28, 2018).

Supplemental Indenture dated as of November 29, 2017 among LKQ Corporation, as Issuer, certain subsidiaries of LKQ Corporation, as Guarantors, and U.S.

Bank National Association, as Trustee (incorporated herein by reference to Exhibit 4.9 to the Company's report on Form 10-K filed with the SEC on February 28, 2018).

Supplemental Indenture dated as of April 6, 2018 among LKQ Corporation, as Issuer, certain subsidiaries of LKQ Corporation, as Guarantors, and U.S.

Bank National Association, as Trustee (incorporated herein by reference to Exhibit 4.2 to the Company's report on Form 10-Q filed with the SEC on May 7, 2018).

Supplemental Indenture dated as of July 12, 2018 among LKQ Corporation, as Issuer, certain subsidiaries of LKQ Corporation, as Guarantors, and U.S.

Bank National Association, as Trustee (incorporated herein by reference to Exhibit 4.4 to the Company's report on Form 10-Q filed with the SEC on August 6, 2018).

Amendment No.

4 dated as of June 11, 2020 to the Fourth Amended and Restated Credit Agreement, which is Exhibit A to the Amendment and Restatement Agreement dated as of January 29, 2016 by and among LKQ Corporation, LKQ Delaware LLP, and certain additional subsidiaries of LKQ Corporation, as borrowers, certain financial institutions, as lenders, and Wells Fargo Bank, National Association, as administrative agent (incorporated herein by reference to Exhibit 4.1 to the Company's report on Form 8-K filed with the SEC on June 16, 2020).

Indenture dated as of April 14, 2016 among LKQ Italia Bondco S.p.A., as Issuer, LKQ Corporation, certain subsidiaries of LKQ Corporation, the Trustee, and the Paying Agent, Transfer Agent and Registrar (incorporated herein by reference to Exhibit 4.1 to the Company’s report on Form 8-K filed with the SEC on April 18, 2016).

13 unchanged sentences

Supplemental Indenture dated as of July 16, 2018 among LKQ Italia Bondco S.p.A., as Issuer, certain subsidiaries of LKQ Corporation, as Guarantors, and BNP Paribas Trust Corporation UK Limited, as Trustee (incorporated herein by reference to Exhibit 4.5 to the Company's report on Form 10-Q filed with the SEC on August 6, 2018).

Supplemental Indenture dated as of June 21, 2019 among LKQ Italia Bondco S.p.A, as Issuer, certain subsidiaries of LKQ Corporation, as Guarantors, and BNP Paribas Trust Corporation UK Limited, as Trustee (incorporated herein by reference to Exhibit 4.1 to the Company's report on Form 10-Q filed with the SEC on August 2, 2019).

Indenture dated as of April 9, 2018 among LKQ European Holdings B.V., as Issuer, LKQ Corporation, certain subsidiaries of LKQ Corporation, the trustee, paying agent, transfer agent, and registrar (incorporated herein by reference to Exhibit 4.1 to the Company's report on Form 8-K filed with the SEC on April 12, 2018).

Supplemental Indenture dated as of July 16, 2018 among LKQ European Holdings B.V., as Issuer, LKQ Corporation, certain subsidiaries of LKQ Corporation, as Guarantors, and BNP Paribas Trust Corporation UK Limited, as Trustee (incorporated herein by reference to Exhibit 4.6 to the Company's report on Form 10-Q filed with the SEC on August 6, 2018).

Supplemental Indenture dated as of June 21, 2019 among LKQ European Holdings B.V., as Issuer, LKQ Corporation, certain subsidiaries of LKQ Corporation, as Guarantors, and BNP Paribas Trust Corporation UK Limited, as Trustee (incorporated herein by reference to Exhibit 4.2 to the Company's report on Form 10-Q filed with the SEC on August 2, 2019).

9 unchanged sentences

Form of LKQ Corporation Restricted Stock Unit Agreement for Non-Employee Directors.

Form of LKQ Corporation Performance-Based Restricted Stock Unit Agreement (PSU 1 Award).

Form of LKQ Corporation Performance-Based Restricted Stock Unit Agreement (PSU 2 Award).

Form of LKQ Corporation Performance-Based Restricted Stock Unit Agreement (PSU 1 Award) (incorporated herein by reference to Exhibit 10.7 to the Company's report on Form 10-K filed with the SEC on February 27, 2020).

Form of LKQ Corporation Performance-Based Restricted Stock Unit Agreement (PSU 2 Award) (incorporated herein by reference to Exhibit 10.8 to the Company's report on Form 10-K filed with the SEC on February 27, 2020).

LKQ Corporation Cash Incentive Plan (incorporated herein by reference to Exhibit 10.6 to the Company’s report on Form 10-Q filed with the SEC on May 2, 2019).

Form of LKQ Corporation Annual Cash Bonus Award Memorandum.

Form of LKQ Corporation Annual Cash Bonus Award Memorandum (incorporated herein by reference to Exhibit 10.10 to the Company's report on Form 10-K filed with the SEC on February 27, 2020).

Form of LKQ Corporation Long-Term Cash Incentive Award Memorandum.

4 unchanged sentences

Form of LKQ Corporation Executive Officer Long Term Incentive Plan Award Memorandum (incorporated herein by reference to Exhibit 10.15 to the Company's report on Form 10-K filed with the SEC on March 1, 2019).

Change of Control Agreement between LKQ Corporation and John S.

Quinn dated as of July 24, 2014 (incorporated herein by reference to Exhibit 10.3 to the Company’s report on Form 8-K filed with the SEC on July 28, 2014).

Change of Control Agreement between LKQ Corporation and Walter P.

13 unchanged sentences

Change of Control Agreement between LKQ Corporation and Varun Laroyia dated as of October 1, 2017 (incorporated herein by reference to Exhibit 10.26 to the Company's report on Form 10-K filed with the SEC on February 28, 2018).

Change of Control Agreement between LKQ Corporation and Arnd Franz dated as of October 1, 2019.

Change of Control Agreement between LKQ Corporation and Arnd Franz dated as of October 1, 2019 (incorporated herein by reference to Exhibit 10.25 to the Company's report on Form 10-K filed with the SEC on February 27, 2020).

Change of Control Agreement between LKQ Corporation and Michael T.

Brooks dated as of January 31, 2020.

Brooks dated as of January 31, 2020 (incorporated herein by reference to Exhibit 10.26 to the Company's report on Form 10-K filed with the SEC on February 27, 2020).

LKQ Severance Policy for Key Executives (incorporated herein by reference to Exhibit 10.1 to the Company’s report on Form 8-K filed with the SEC on July 28, 2014).

8 unchanged sentences

3 to Receivables Purchase Agreement dated as of December 20, 2018 among LKQ Receivables Finance Company, LLC, as Seller, LKQ Corporation, as Servicer, Victory Receivables Corporation, as a Conduit, MUFG Bank, a Financial Institution as Administrative Agent and as a Managing Agent (incorporated herein by reference to Exhibit 10.31 to the Company's report on Form 10-K filed with the SEC on March 1, 2019).

Offer Letter to John S.

Quinn dated February 12, 2015, as amended (incorporated herein by reference to Exhibit 10.41 to the Company’s report on Form 10-K filed with the SEC on February 25, 2016).

Services Agreement dated as of February 26, 2015 between LKQ Corporation and John S.

Quinn (incorporated herein by reference to Exhibit 10.3 to the Company’s report on Form 8-K filed with the SEC on March 3, 2015).

Offer Letter to Dominick P.

4 unchanged sentences

Offer letter to Varun Laroyia dated September 5, 2017 (incorporated herein by reference to Exhibit 10.1 to the Company's report on Form 8-K filed with the SEC on September 6, 2017).

Service Agreement between Euro Car Parts Limited and Sukhpal Singh Ahluwalia dated as of September 7, 2017 (incorporated herein by reference to Exhibit 10.1 to the Company's report on Form 8-K filed with the SEC on September 13, 2017).

Settlement Agreement among Euro Car Parts Limited, LKQ Corporation and Sukhpal Singh Ahluwalia dated as of January 2, 2019 (incorporated herein by reference to Exhibit 10.40 to the Company's report on Form 10-K filed with the SEC on March 1, 2019).

Offer Letter to Arnd Franz dated September 27, 2018 (incorporated herein by reference to Exhibit 10.1 to the Company's report on Form 10-Q filed with the SEC on May 7, 2020).

Services Agreement dated as of November 27, 2018 between LKQ Corporation and Arnd Franz (incorporated herein by reference to Exhibit 10.2 to the Company's report on Form 10-Q filed with the SEC on May 7, 2020).

Services Agreement dated as of June 1, 2020 between LKQ Europe GmbH, an indirect wholly-owned subsidiary of LKQ Corporation, and Arnd Franz (incorporated herein by reference to Exhibit 10.1 to the Company's report on Form 10-Q filed with the SEC on August 4, 2020).

List of subsidiaries, jurisdictions and assumed names.

6 unchanged sentences

Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

XBRL Instance Document

XBRL Taxonomy Extension Schema Document

XBRL Taxonomy Extension Calculation Linkbase Document

XBRL Taxonomy Extension Definition Linkbase Document

XBRL Taxonomy Extension Label Linkbase Document

XBRL Taxonomy Extension Presentation Linkbase Document

101.INS XBRL Instance Document

101.SCH XBRL Taxonomy Extension Schema Document

101.CAL XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF XBRL Taxonomy Extension Definition Linkbase Document

101.LAB XBRL Taxonomy Extension Label Linkbase Document

101.PRE XBRL Taxonomy Extension Presentation Linkbase Document

104 Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

8 unchanged sentences

Principal Executive Officer:

/s/ DOMINICK ZARCONE

President and Chief Executive Officer

/s/ DOMINICK ZARCONE President and Chief Executive Officer

Dominick Zarcone

Principal Financial Officer:

/s/ VARUN LAROYIA

Executive Vice President and Chief Financial Officer

/s/ VARUN LAROYIA Executive Vice President and Chief Financial Officer

Varun Laroyia

1 unchanged sentence

/s/ MICHAEL S.

Vice President—Finance and Controller

CLARK Vice President—Finance and Controller

A Majority of the Directors:

CLINTON ALLEN

Clinton Allen

/s/ PATRICK BERARD

/s/ PATRICK BERARD Director

Patrick Berard

/s/ MEG ANN DIVITTO

/s/ MEG ANN DIVITTO Director

Meg Ann Divitto

/s/ ROBERT M.

HANSER Director

/s/ JOSEPH M.

HOLSTEN Director

/s/ BLYTHE J.

/s/ GUHAN SUBRAMANIAN

MCGARVIE Director

MENDEL Director

MILLER Director

O'BRIEN Director

/s/ GUHAN SUBRAMANIAN Director

Guhan Subramanian

/s/ XAVIER URBAIN

/s/ XAVIER URBAIN Director

Xavier Urbain

/s/ WILLIAM M.

/s/ DOMINICK ZARCONE

/s/ JACOB WELCH Director

/s/ DOMINICK ZARCONE Director

Dominick Zarcone

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

What changed 10-K

Item 9A. Controls and Procedures