LKQ filing — read by section

Item 7. Management’s Discussion and Analysis

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 
 The following discussion of our financial condition and results of operations should be read in conjunction with our audited consolidated financial statements and notes thereto included in Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K. Discussion of 2018 items and the year-over-year comparison of changes in our financial condition and the results of operations as of and for the years ended December 31, 2019 and December 31, 2018 can be found in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC on February 27, 2020. 
 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 and Risk Factors 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. 
 On May 30, 2018, we acquired Stahlgruber, a leading European wholesale distributor of aftermarket spare parts for passenger cars, tools, capital equipment and accessories with operations in Germany, Austria, Italy, Slovenia, and Croatia with further sales to Switzerland. This acquisition expanded LKQ's geographic presence in continental Europe and serves as an additional strategic hub for our European operations. In addition, this acquisition should allow for continued improvement in procurement, logistics and infrastructure optimization. 
 In addition to the acquisition mentioned above, during the years ended December 31, 2020, 2019 and 2018, we acquired various smaller businesses across our North America, Europe, and Specialty segments. 
 See Note 2, "Business Combinations" and "Investments in Unconsolidated Subsidiaries" 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 for additional information related to our acquisitions and investments. 
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 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. During the year ended December 31, 2020, parts and services revenue represented approximately 94% of our consolidated revenue. Revenue from other sources includes scrap and other metals sales, bulk sales to mechanical manufacturers (including cores) and sales of aluminum ingots and sows from our furnace operations. Other revenue will vary from period to period based on fluctuations in commodity prices and the volume of materials sold. See Note 5, "Revenue Recognition" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K 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 consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America ("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. On an ongoing basis, we evaluate our estimates, assumptions, and judgments, including those related to revenue recognition, inventory valuation, lease accounting, business combinations and goodwill impairment. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of these estimates form the basis for our judgments about the carrying values of assets and liabilities and our recognition of revenue. Actual results may differ from these estimates. 
 Revenue Recognition 
 For information regarding our critical accounting policies related to revenue, refer to Note 5, "Revenue Recognition," to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K. 
 Inventory Accounting 
 For all inventory, carrying value is recorded at the lower of cost or net realizable value. Net realizable value can be influenced by current anticipated demand. If actual demand differs from our estimates, additional reductions to inventory carrying value would be necessary in the period such determination is made. 
 
 
 For our aftermarket products, excluding our aftermarket automotive glass products, cost is established based on the average price we pay for parts; for our aftermarket automotive glass products inventory, cost is established using the first-in first-out method. Inventory cost for our aftermarket products includes expenses incurred for freight in and overhead costs; for items purchased from foreign companies, import fees and duties and transportation insurance are also included. Refurbished inventory cost is based upon the average price we pay for cores. The cost of our refurbished inventory also includes expenses incurred for freight in, labor and other overhead costs. Our salvage inventory cost is established based upon the price we pay for a vehicle, including auction, towing and storage fees, as well as expenditures for buying and dismantling vehicles. Inventory carrying value is determined using the average cost to sales percentage at each of our facilities and applying that percentage to the facility's inventory at expected selling prices, the assessment of which incorporates the sales probability based on a part's days in stock and historical demand. The average cost to sales percentage is derived from each facility's historical profitability for salvage vehicles. Remanufactured inventory cost is based upon the price paid for cores, and also includes expenses incurred for freight, direct manufacturing costs and overhead related to our remanufacturing operations. The cost of manufactured product inventory is established using the first-in first-out method. 
 Lease Accounting 
 For information regarding our critical accounting policies related to leases, refer to Note 13, "Leases," to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K. 
 Business Combinations 
 We record our acquisitions using the purchase method of accounting, under which the acquisition purchase price is allocated to the assets acquired and liabilities assumed based upon their respective fair values. We utilize management estimates and, in some instances, independent third party valuation firms to assist in determining the fair values of assets acquired, liabilities assumed and contingent consideration granted. There are inherent assumptions and estimates used in developing the future cash flows and fair values of tangible and intangible assets, such as projecting revenues and profits, discount rates, income tax rates, royalty rates, customer attrition rates and other various valuation assumptions. We use various valuation 
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 methods to value property, plant and equipment. When valuing real property, we typically use the sales comparison approach for land and the income approach for buildings and building improvements. When valuing personal property, we typically use either the income or cost approach. We used the relief-from-royalty method to value trade names, trademarks, software and other technology assets, and we used the multi-period excess earnings method to value customer relationships. The relief-from-royalty method assumes that the intangible asset has value to the extent that its owner is relieved of the obligation to pay royalties for the benefits received from the intangible asset. The multi-period excess earnings method is based on the present value of the incremental after-tax cash flows attributable only to the customer relationship after deducting contributory asset charges. 
 Goodwill and Indefinite-Lived Intangibles Impairment 
 We are required to test goodwill and indefinite-lived intangible assets for impairment at least annually and between annual tests whenever events indicate that an impairment may exist. When testing goodwill for impairment, we are required to evaluate events and circumstances that may affect the performance of the reporting unit and the extent to which the events and circumstances may impact the future cash flows of the reporting unit to determine whether the fair value of the assets exceeds the carrying value. Developing the estimated future cash flows and fair value of the reporting unit requires management's judgment in projecting revenues and profits, allocation of shared corporate costs, tax rates, capital expenditures, working capital requirements, discount rates and market multiples. Many of the factors used in assessing fair value are outside the control of management, and it is reasonably likely that assumptions and estimates can change in future periods. If these assumptions or estimates change in the future, we may be required to record impairment charges for these assets. In response to changes in industry and market conditions, we may be required to strategically realign our resources and consider restructuring, disposing of, or otherwise exiting businesses, which could result in an impairment of goodwill. 
 We perform goodwill impairment tests annually in the fourth quarter and between annual tests whenever events indicate that an impairment may exist. LKQ’s market capitalization declined by approximately 40% between February 20, 2020, when the Company released its 2019 financial results, and March 31, 2020. While we believed that the decrease was driven by market reaction to COVID-19, the magnitude of the market capitalization decrease was deemed to be a triggering event requiring an interim test of goodwill impairment in the first quarter, which did not result in a goodwill impairment. We did not perform an impairment test in the second or third quarters of 2020. 
 Our goodwill impairment assessment is performed at the reporting unit level. A reporting unit is an operating segment, or a business one level below an operating segment (the "component" level), for which discrete financial information is prepared and regularly reviewed by segment management. However, components are aggregated as a single reporting unit if they have similar economic characteristics. For the purpose of aggregating our components into reporting units, we review the long-term performance of Segment EBITDA. Additionally, we review qualitative factors such as type or class of customers, nature of products, distribution methods, inventory procurement methods, level of integration, and interdependency of processes across components. Our assessment of the aggregation includes both qualitative and quantitative factors and is based on the facts and circumstances specific to the components. 
 We have four operating segments: Wholesale – North America, Europe, Specialty and Self Service. Each of these operating segments consists of multiple components that have discrete financial information available that is reviewed by segment management on a regular basis. We have evaluated these components and concluded that the components that compose each of the Wholesale – North America, Europe, Specialty, and Self Service operating segments are economically similar and thus were aggregated into those four separate reporting units for our interim goodwill impairment test in the first quarter of 2020 and annual goodwill impairment test. 
 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. 
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 We determined no impairments existed when we performed our annual goodwill impairment testing in the fourth quarter of 2020 on all four reporting units as each of those reporting units had a fair value estimate that exceeded the carrying value by at least 30%. As of December 31, 2020, we had a total of $4.6 billion in goodwill subject to future impairment tests. 
 We review indefinite-lived intangible assets for impairment annually or on an interim basis if events or changes in circumstances indicate that the carrying value may not be recoverable. In the first quarter of 2020, 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, might 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. We performed a quantitative impairment test in the fourth quarter as of October 31, 2020, using the relief-from-royalty method to value the Warn trademark; we determined no impairment existed at that time as the trademark had a fair value estimate which exceeded the carrying value by approximately 13%. 
 Recently Issued Accounting Pronouncements 
 See "Recent Accounting Pronouncements" 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 for information related to new accounting standards. 
 Financial Information by Geographic Area 
 See Note 16, "Segment and Geographic Information" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K 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 6, “Restructuring and Acquisition Related Expenses” to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further details. 
 • Transformation expenses — Period costs incurred to execute the 1 LKQ Europe program that are expected to contribute to ongoing benefits to the business (e.g. non-capitalizable implementation costs related to a common ERP system). These expenses are recorded in Selling, general and administrative expenses. 
 • Transformation capital expenditures — Capitalizable costs for long-lived assets, such as software and facilities, that directly relate to the execution of the 1 LKQ Europe program. 
 Costs related to the 1 LKQ Europe program incurred to date are reflected in Selling, general and administrative expenses and Purchases of property, plant and equipment in our consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K. 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 headquarters in Switzerland, we also accelerated certain projects, such as the integration of previously acquired networks and sharing resources across LKQ Europe. We have continued the project on schedule during the second wave of COVID-19. We are targeting to complete the organizational design and implementation projects by the middle of 2021, with the remaining projects scheduled to be completed by 2024. During the year ended December 31, 2020, we incurred $38 million in costs across all three categories noted above. We expect that costs of the program, reflecting all three categories noted above, will range between $60 million and $80 million in 2021 with an additional $80 million to $100 million between 2022 and the projected program completion date in 2024. In the future, we may also identify additional initiatives and projects under the 1 LKQ Europe program that may result in additional expenditures, although we are currently unable to estimate the range of charges for such potential future initiatives and projects. We expect the transformation and restructuring expenses will be entirely funded by the improved trade working capital initiatives across our Europe segment. 
 
 
 
 
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 COVID-19 Impact on Our Operations 
 In late February 2020, the Italian government began placing restrictions on activity as a result of the COVID-19 outbreak. Sales volumes fell as fewer cars were on the road and less maintenance activity was performed. While our Italian operation is an important part of our European business, it represented approximately 10% of the segment’s revenue in 2019, and thus the disruption did not have a material impact on the Company. By mid-March, the COVID-19 impact began spreading across the rest of the geographies where we operate at a very rapid pace. Governments adopted aggressive restrictions on the operation of non-essential businesses and personal movement, which reduced miles driven and collisions. While our businesses have been deemed essential in most jurisdictions in which we operate, the change in behavior driven by the COVID-19 restrictions negatively impacted our sales volume. Our organic parts and services revenue declined by 16.8%, 4.5%, and 5.2% in the second, third, and fourth quarters of 2020, respectively, relative to the comparable prior periods. We showed improvement in the third quarter of 2020 as governments gradually lifted restrictions for non-essential businesses and personal movement, however, in the fourth quarter of 2020 revenue declined as certain jurisdictions put restrictions back into place. 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). During the fourth quarter, organic parts and services revenue declined by 6.1% (on a per day basis) and gradually worsened during the quarter with a decline of 7.2% (on a per day basis) in December. In the first quarter of 2021, 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, as the pandemic did not begin meaningfully impacting our results until March 2020. 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 and the timing and effectiveness of the vaccination efforts. We expect revenue to increase in the second quarter of 2021 off of a low base and a gradual recovery in the second half of 2021. 
 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 and fourth quarters, we were able to sustain a portion of the cost benefits, with quarterly selling, general and administrative costs down approximately 10% for both periods compared to the first quarter 2020 run rate. We estimate that the cost actions generated an approximately $15 million benefit in cost of goods sold for the second half of 2020 compared to the same period of 2019. If revenue increases during 2021, we expect that some of the costs that were reduced as a result of COVID-19 will remain at a lower level; the management team has been implementing productivity initiatives to create lower cost structures going forward as seen in the third and fourth quarter results. 
 We 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 December 31, 2020, we qualified for $52 million of assistance, although that figure was heavily weighted to the second quarter. We currently do not anticipate qualifying for significant additional assistance in 2021, but we still will receive some government assistance in England. This view may change in the future based on developments with the 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 quarter, the cost actions were aligned with the revenue changes, and we generated higher Segment EBITDA dollars and margins than in the third quarter of 2019. In the fourth quarter, selling, general and administrative ("SG&A") costs remained consistent with the third quarter and profitability remained higher than the prior year. 
 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 (which was reinstated during the fourth quarter). This focus was successful as we improved our liquidity position at year-end by approximately $1.0 billion relative to March 31, 2020 while managing through the disruption caused by the pandemic. 
 In each quarter of 2020, we prepared forecasts of future revenues, profits and cash flows to use in multiple analyses, including the interim and annual goodwill impairment test, other impairment tests of long-lived assets, assessments of the 
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 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 exceeded our initial forecast prepared in the first quarter of 2020 with a full year organic parts and service revenue decline of 8.2% on a per day basis, diluted earnings per share attributable to LKQ stockholders of $2.09 and operating cash flow of $1.4 billion. We expect to face continued pressure on revenue with COVID-19 infection rates remaining at heightened levels in a number of our geographies, but we believe that consolidated profit margins in 2021 will remain above those realized during 2020 due to margin and overhead cost initiatives implemented in 2019 and 2020. 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. This is particularly the case as 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 and progress in vaccination efforts. 
 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 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 protective equipment; adhering to social distancing guidelines; instituting remote work arrangements for many of our employees; and restricting travel. 
 See the Results of Operations and Liquidity sections for further detail on our year over year trends. 
 Key Performance Indicators 
 We believe that organic revenue growth, Segment EBITDA and free cash flow are key performance indicators for our business. Segment EBITDA is our key measure of segment profit or loss reviewed by our chief operating decision maker. Free cash flow is a financial measure that is not prepared in accordance with U.S. generally accepted accounting principles (“non-GAAP”). 
 • Organic revenue growth - We define organic revenue growth as total revenue growth from continuing operations excluding the effects of acquisitions and divestitures (i.e., revenue generated from the date of acquisition to the first anniversary of that acquisition, net of reduced revenue due to the disposal of businesses) and foreign currency movements (i.e., impact of translating revenue at prior period exchange rates). Organic revenue growth includes incremental sales from both existing and new (i.e., opened within the last twelve months) locations and is derived from expanding business with existing customers, securing new customers and offering additional products and services. We believe that organic revenue growth is a key performance indicator as this statistic measures our ability to serve and grow our customer base successfully. 
 • Segment EBITDA - Refer to Note 16, "Segment and Geographic Information,” in Part II, Item 8 of this Form 10-K 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 cash flow available to meet our future debt service obligations and working capital requirements, to make strategic acquisitions and to repurchase our stock. 
 These three key performance indicators are used as targets in determining incentive compensation at various levels of the organization, including senior management. By using these performance measures, we attempt to motivate a balanced approach to the business that rewards growth, profitability and cash flow generation in a manner that enhances our long-term prospects. 
 
 
 
 
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 Results of Operations—Consolidated 
 The following table sets forth statements of income data as a percentage of total revenue for the periods indicated: 
 
 Year Ended December 31, 
 2020 2019 
 Revenue 100.0 % 100.0 % 
 Cost of goods sold 60.5 % 61.2 % 
 Gross margin 39.5 % 38.8 % 
 Selling, general and administrative expenses 28.1 % 28.6 % 
 Restructuring and acquisition related expenses 0.6 % 0.3 % 
 Loss on disposal of businesses and impairment of net assets held for sale 
 0.0 % 0.4 % 
 
 Depreciation and amortization 2.3 % 2.3 % 
 Operating income 8.5 % 7.2 % 
 Total other expense, net 0.9 % 0.8 % 
 Income from continuing operations before provision for income taxes 7.6 % 6.3 % 
 Provision for income taxes 2.1 % 1.7 % 
 Equity in earnings (losses) of unconsolidated subsidiaries 0.0 % (0.3) % 
 Income from continuing operations 5.5 % 4.3 % 
 Net (loss) income from discontinued operations (0.0) % 0.0 % 
 Net income 5.5 % 4.4 % 
 Less: net income attributable to continuing noncontrolling interest 0.0 % 0.0 % 
 Less: net income attributable to discontinued noncontrolling interest 0.0 % 0.0 % 
 Net income attributable to LKQ stockholders 5.5 % 4.3 % 
 Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. 
 
 
 

 
 Year Ended December 31, 2020 Compared to Year Ended December 31, 2019 
 Revenue. The following table summarizes the changes in revenue by category (in thousands): 
 
 
 Year Ended December 31, Percentage Change in Revenue 
 2020 2019 Organic Acquisition and Divestiture Foreign Exchange Total Change 
 Parts & services revenue $ 10,963,713 $ 11,877,846 (7.6) % (0.5) % 0.5 % (7.7) % 
 Other revenue 665,117 628,263 5.5 % 0.4 % 0.0 % 5.9 % 
 Total revenue $ 11,628,830 $ 12,506,109 (7.0) % (0.5) % 0.4 % (7.0) % 
 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 7.7% represented decreases in segment revenue of 13.3% in North America and 6.0% in Europe, partially offset by an increase of 3.1% in Specialty segment revenue. Organic parts and services revenue declined by 7.6%, which included a 0.6% positive effect from approximately two additional selling days in the year ended December 31, 2020, resulting in a per day organic decline of 8.2%. The decline in 2020 is primarily related to the impact of COVID-19 from March 2020 through December 2020 (refer to the "COVID-19 Impact on Our Operations" section above for further details). The increase in other revenue of 5.9% was primarily driven by a $34 million organic increase, 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 year ended December 31, 2020 compared to the year ended December 31, 2019. 
 Cost of Goods Sold . Cost of goods sold decreased to 60.5% of revenue in the year ended December 31, 2020 from 61.2% of revenue in the year ended December 31, 2019. Cost of goods sold decreased 0.6% and 0.5% in our North America and Europe 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 year ended December 31, 2020, we recorded inventory write downs related to restructuring plans of $5 million and $3 million in our North America and Europe segments, respectively. For the year ended December 31, 2019, we recorded inventory write downs of $21 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 year 
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 ended December 31, 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 6, "Restructuring and Acquisition Related Expenses" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K. 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 year ended December 31, 2020 compared to the year ended December 31, 2019 . 
 Selling, General and Administrative Expenses. Our SG&A expenses as a percentage of reven ue decreased to 28.1% in the year ended December 31, 2020 compared to 28.6% in the year ended December 31, 2019. SG&A expenses decreased over the prior year period as a result of (i) a decrease of 0.5% in our North America segment and (ii) a 0.2% decrease in SG&A expenses attributable to mix, partially offset by (iii) an increase of 0.3% in our Europe segment. The mix impact was a result of the decreased volumes in our North America segment primarily due to the COVID-19 pandemic, 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 year ended December 31, 2020 compared to the year ended December 31, 2019. 
 Restructuring and Acquisition Related Expenses . The following table summarizes restructuring and acquisition related expenses for the periods indicated (in thousands): 
 
 
 Year Ended December 31, 
 2020 2019 Change 
 Restructuring expenses $ 58,204 (1) 
 $ 34,832 (2) 
 $ 23,372 
 Acquisition related expenses 7,959 (3) 
 2,147 (4) 
 5,812 
 Total restructuring and acquisition related expenses $ 66,163 $ 36,979 $ 29,184 

 (1) Restructuring expenses for the year ended December 31, 2020 consisted of (i) $42 million related to our 2020 global restructuring program, (ii) $9 million related to integration costs from acquisitions, and (iii) $7 million related to our 2019 global restructuring program. 
 (2) Restructuring expenses for the year ended December 31, 2019 primarily consisted of $20 million related to our 2019 global restructuring program and $14 million related to integration costs from acquisitions. 
 (3) Acquisition related expenses for the year ended December 31, 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 year ended December 31, 2019 included costs primarily related to the acquisition of an immaterial wholesale business in Europe. 
 See Note 6, "Restructuring and Acquisition Related Expenses" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information on our restructuring and integration plans. 
 Loss on Disposal of Businesses and Impairment of Net Assets Held for Sale. For the year ended December 31, 2020, we recorded a net loss on the disposal of businesses and impairment charges on net assets held for sale totaling $3 million, compared to $47 million of net impairment charges on net assets held for sale for the year ended December 31, 2019 primarily attributable to our North America segment. See "Net Assets Held for Sale" 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 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): 
 
 
 Year Ended December 31, 
 2020 2019 Change 
 Depreciation $ 153,027 $ 150,649 $ 2,378 (1) 
 
 Amortization 119,265 140,121 (20,856) (2) 
 
 Total depreciation and amortization $ 272,292 $ 290,770 $ (18,478) 

 (1) Depreciation expense incre ased by $2 million, primarily due to capital expenditures in our North America segment. 
 (2) The decrease in amortization expense primarily reflected decrea ses of $17 million and $6 million relate d to the customer relationship intangible assets recorded upon our acquisitions of Stahlgruber and Rhiag, respectively, as the 
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 accelerated amortization of the customer relationship intangible assets resulted in lower amortization expense during the year ended December 31, 2020 compared to the prior year peri od. 
 Other Expense, Net. The following table summarizes the components of the change in other expense, net (in thousands): 
 
 Other expense, net for the year ended December 31, 2019 $ 105,621 
 (Decrease) increase due to: 
 Interest expense (34,720) (1) 
 
 Loss/gain on debt extinguishment 12,879 (2) 
 
 Interest income and other expense (income), net 16,802 (3) 
 
 Net decrease (5,039) 
 Other expense, net for the year ended December 31, 2020 $ 100,582 

 (1) The decrease in interest is primarily related to (i) a $32 million decrease resulting from lower outstanding debt during the year ended December 31, 2020 compared to the prior year period, and (ii) a $4 million decrease from lower interest rates on borrowings under our senior secured credit agreement compared to the prior year period, partially offset by (iii) a $2 million increase from foreign currency translation, primarily related to an increase in the euro exchange rate during the year ended December 31, 2020 compared to the prior year period. 
 (2) In January 2020, we recorded a loss on debt extinguishment of $13 million related to the redemption of the U.S. Notes (2023) due to the early-redemption premium and the write-off of the unamortized debt issuance costs. 
 (3) The decrease in interest income and other expense (income), net primarily consisted of (i) a $12 million non-recurring gain related to resolution of an acquisition related matter in the fourth quarter of 2019, (ii) pension settlement losses of $6 million related to our primary defined benefit plan in the U.S. (the "U.S. Plan") in 2020, and (iii) several individually immaterial factors that decreased interest income and other expense (income), net by $4 million in the aggregate in 2020, partially offset by (iv) a $6 million increase in insurance settlement proceeds compared to the prior year period, primarily due to our North America segment. 
 Provision for Income Taxes. Our effective income tax rate for the year ended December 31, 2020 was 28.2%, compared to 27.2% for the comparable prior year period. Primary factors in the increase include valuation allowances on the tax benefit of net operating losses in certain jurisdictions where realization is uncertain and shifts in the geographic blend of international earnings. Net discrete items in both years were immaterial to the effective tax rate. See Note 15, "Income Taxes" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information. 
 Equity in Earnings (Losses) of Unconsolidated Subsidiaries. Equity in earnings (losses) of unconsolidated subsidiaries for the year ended December 31, 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. There were no impairment charges for Mekonomen in 2020. See "Investments in Unconsolidated Subsidiaries" 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 for further information on the impairment charge. 
 Foreign Currency Impact. We translate our statements of income at the average exchange rates in effect for the period. Relative to the rates used during the year ended December 31, 2019, the euro and pound sterling rates used to translate the 2020 statements of income increased by 2.0% and 0.6%, respectively, and the year to date average rates for the Canadian dollar and Czech koruna decreased by 1.0% and 0.9%, respectively. The unfavorable impact of realized and unrealized currency gains and losses for the year ended December 31, 2020 resulted in a $0.01 negative effect on d iluted earnings per share relative to the prior year. 
 Net Income Attributable to Continuing and Discontinued Noncontrolling Interest. Net income attributable to continuing noncontrolling interest for the year ended December 31, 2020 decreased $1 million compared to the year ended December 31, 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 and $1 million for the years ended December 31, 2020 and 2019, respectively, and related to the Stahlgruber Czech Republic wholesale business. See Note 3, "Discontinued Operations" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information on this business. 
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 Results of Operations—Segment Reporting 
 We have four operating segments: Wholesale – North America, Europe, Specialty and Self Service. Our Wholesale – North America and Self Service operating segments are aggregated into one reportable segment, North America, because they possess similar economic characteristics and have common products and services, customers, and methods of distribution. Therefore, we present three reportable segments: North America, Europe and Specialty. 
 We have presented the growth of our revenue and profitability in our operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our growth and profitability, consistent with how we evaluate our performance, as this statistic removes the translation impact of exchange rate fluctuations, which are outside of our control and do not reflect our operational performance. Constant currency revenue and Segment EBITDA results are calculated by translating prior year revenue and Segment EBITDA in local currency using the current year's currency conversion rate. This non-GAAP financial measure has important limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of our results as reported under GAAP. Our use of this term may vary from the use of similarly-titled measures by other issuers due to potential inconsistencies in the method of calculation and differences due to items subject to interpretation. In addition, not all companies that report revenue or profitability on a constant currency basis calculate such measures in the same manner as we do, and accordingly, our calculations are not necessarily comparable to similarly-named measures of other companies and may not be appropriate measures for performance relative to other companies. 
 The following table presents our financial performance, including third party revenue, total revenue and Segment EBITDA, by reportable segment for the periods indicated (in thousands): 
 
 Year Ended December 31, 
 2020 % of Total Segment Revenue 2019 % of Total Segment Revenue 
 Third Party Revenue 
 North America $ 4,631,306 $ 5,208,589 
 Europe 5,492,184 5,838,124 
 Specialty 1,505,340 1,459,396 
 Total third party revenue $ 11,628,830 $ 12,506,109 
 Total Revenue 
 North America $ 4,632,339 $ 5,209,294 
 Europe 5,492,184 5,838,124 
 Specialty 1,508,995 1,464,042 
 Eliminations (4,688) (5,351) 
 Total revenue $ 11,628,830 $ 12,506,109 
 Segment EBITDA 
 North America $ 778,504 16.8 % $ 712,957 13.7 % 
 Europe 427,582 7.8 % 454,220 7.8 % 
 Specialty 162,673 10.8 % 161,184 11.0 % 
 

 The key measure of segment profit or loss reviewed by our chief operating decision maker, our Chief Executive Officer, is Segment EBITDA. We use Segment EBITDA to compare profitability among our segments and evaluate business strategies. Segment EBITDA includes revenue and expenses that are controllable by the segment. Corporate general and administrative expenses are allocated to the segments based on usage, with shared expenses apportioned based on the segment's percentage of consolidated revenue. We calculate Segment EBITDA as EBITDA excluding restructuring and acquisition related expenses (which includes restructuring expenses recorded in Cost of goods sold); change in fair value of contingent consideration liabilities; other gains and losses related to acquisitions, equity method investments, or divestitures; equity in losses and earnings of unconsolidated subsidiaries; 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 16, "Segment and Geographic Information" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for a reconciliation of total Segment EBITDA to net income. 
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 Year Ended December 31, 2020 Compared to Year Ended December 31, 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): 
 
 Year Ended December 31, Percentage Change in Revenue 
 North America 2020 2019 Organic Acquisition and Divestiture (3) 
 Foreign Exchange Total Change 
 Parts & services revenue $ 3,988,214 $ 4,600,903 (12.9) % (1) 
 (0.3) % (0.1) % (13.3) % 
 Other revenue 643,092 607,686 5.5 % (2) 
 0.4 % (0.0) % 5.8 % 
 Total third party revenue $ 4,631,306 $ 5,208,589 (10.8) % (0.2) % (0.1) % (11.1) % 
 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 year ended December 31, 2020 compared to the prior year period. On a per day basis, organic revenue declined 13.3%. The organic decline was impacted by collision and liability repairable auto claims, which, according to data from CCC, were 26.0% lower for the year ended December 31, 2020 compared to the prior year period. This decrease in claims activity was primarily due to the COVID-19 pandemic and had an adverse impact on sales volumes in our wholesale operations. The volume decline in collision parts was partially offset by an outperformance of the claims trend attributable to share gains, mechanical part sales and self service parts sales and admissions. Prior to the pandemic, parts and services organic revenue in North America was slightly less than the same period in the prior year, declining 1.1% through February 2020, principally due to (i) the termination in the fourth quarter of 2019 of an agreement signed in December 2017 for the distribution of batteries which had an unfavorable impact of 0.8% through February 2020 compared to the prior year period, and, (ii) to a lesser extent, milder winter weather conditions compared to the prior year period. During the period of March 2020 through December 2020, parts and services organic revenue declined 15.6% on a per day basis compared to the prior year period primarily due to volume effects caused by the COVID-19 pandemic (collision and liability repairable auto claims were down approximately 41.7%, 24.4%, and 27.2% in the second, third, and fourth quarters of 2020, respectively, according to data from CCC). Going into the first quarter of 2021, we anticipate downward pressures on aftermarket fill rates due to continued ocean freight delays, which in turn may adversely impact sales. 
 (2) The $33 million year over year organic increase in other revenue is primarily related to a $106 million increase in revenue from precious metals (platinum, palladium and rhodium) primarily due to higher prices compared to the prior year, partially offset by (i) a $46 million decrease in revenue from other scrap metals (e.g. aluminum) and fluids due to lower volumes, (ii) an $18 million decrease in revenue from scrap steel due to lower prices and volumes, and (iii) a decrease in core revenue of $9 million 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 pandemic. 
 (3) Acquisition related growth for the year ended December 31, 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 $66 million, or 9.2%, in the year ended December 31, 2020, including the impact of one additional selling day compared to the prior year period. The adverse impact of the COVID-19 pandemic on sales volumes in our wholesale operations had a significant unfavorable impact on Segment EBITDA. This adverse impact was more than offset in part due to operational efficiency and rightsizing actions and higher revenue from precious metals. Net sequential increases in scrap steel prices in our salvage and self service operations had a $16 million favorable impact on North America Segment EBITDA during the year ended December 31, 2020, compared to a $23 million unfavorable impact during the year ended December 31, 2019 resulting from net sequential decreases in scrap steel prices. This favorable impact for the year ended December 31, 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. 
 
 
 
 
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 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 year ended December 31, 2019 13.7 % 
 Increase due to: 
 Change in gross margin 1.7 % (1) 
 Change in segment operating expenses 1.3 % (2) 
 Segment EBITDA for the year ended December 31, 2020 16.8 % 
 Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. 
 

 (1) The increase in gross margin primarily reflected favorable impa cts of 1.2% from our wholesale operations and 0.4% from our self service operations. Despite the adverse impact of the COVID-19 pandemic on sales volumes in our wholesale operations, wholesale gross margin was favorable primarily due 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 going into 2021 as purchase costs increased in the second half of 2020 due to the reduced availability of cars for purchase reflecting the impact of the COVID-19 pandemic. We plan to continue to address this downward pressure through price adjustments and further operational efficiencies. We expect commodity prices to have a favorable impact on margin, at least in the short-term, as precious metals and scrap prices hold or improve from recent levels. 
 (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 13.3% compared to the prior year, on a per day basis, reflects (i) a favorable impact o f 1.6% from personnel expenses related to permanent and temporary headcount reductions, reduced hours, limitations on travel and governm ent grants in Canada and (ii) a 0.2% favorable impact from vehicle and fuel expenses due to fuel usage and prices. The impact was partially offset by a negative leverage effect of 0.5% from facility expenses, which are largely fixed. As the market recovers and volumes increase, we expect to bring back necessary resources to support our operations; however, we expect that permanent actions taken this year will provide a long-term favorable impact for the segment. 
 
 
 
 Europe 
 Third Party Revenue . The following table summarizes the changes in third party revenue by category in our Europe segment (in thousands): 
 
 Year Ended December 31, Percentage Change in Revenue 
 Europe 2020 2019 Organic (1) 
 Acquisition and Divestiture (2) 
 Foreign Exchange (3) 
 Total Change 
 Parts & services revenue $ 5,470,159 $ 5,817,547 (6.1) % (0.9) % 1.1 % (6.0) % 
 Other revenue 22,025 20,577 5.4 % (0.0) % 1.6 % 7.0 % 
 Total third party revenue $ 5,492,184 $ 5,838,124 (6.0) % (0.9) % 1.1 % (5.9) % 
 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 decrease for the year ended December 31, 2020 was partially offset by having two additional selling days in 2020 compa red to the year ended December 31, 2019 . On a per day basis, organic parts and services revenue decreased 6.9%, mainly driven by the COVID-19 pandemic disruptions in all of our European operations. Prior to the pandemic, organic revenue in Europe had increased 0.3% through February, principally driven by the Central and Eastern European region, and to a lesser extent, Germany. During the period of March 2020 through December 2020, organic revenue declined 8.3% on a per day basis compared to the prior year period primarily due to volume effects caused by the COVID-19 pandemic. Germany and the Netherlands have been recovering at a faster rate, with the recovery in Italy and the U.K. laggi ng behind. 
 (2) Acquisition related growth for the year ended December 31, 2020 reflected revenue from our acquisition of three immaterial 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 
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 quarter of 2020 and two smaller disposals during 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 increased our revenue growth by $62 million , or 1.1% , primarily due to the weaker U.S. dollar against the euro and pound sterling during the year ended December 31, 2020 relative to the prior year period. 
 Segment EBITDA . Segment EBITDA decreased $27 million , or 5.9% , for the year ended December 31, 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 year ended December 31, 2019. On a constant currency basis (i.e., excluding the translation impact), Segment EBITDA decreased by $32 million , or 7.1% , 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 year ended December 31, 2020. 
 
 Europe Percentage of Total Segment Revenue 
 Segment EBITDA for the year ended December 31, 2019 7.8 % 
 Increase (decrease) due to: 
 Change in gross margin 0.5 % (1) 
 Change in segment operating expenses (0.5) % (2) 
 Change in other expense, net and net income attributable to continuing noncontrolling interest 
 0.1 % 
 Segment EBITDA for the year ended December 31, 2020 7.8 % 
 Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. 
 

 (1) The increase in gross margin was primarily attributable to favorable impacts of (i) 0.2% across almost all our operations principally as a result of margin improvement initiatives supporting the pursuit of profitable revenue growth and (ii) 0.2% from the disposal of a non-core telecommunications operation in Germany in the second quarter of 2020 . 
 (2) The increase in segment operating expenses as a percentage of revenue reflects unfavorable impacts of (i) 0.2% from bad debt expense due to the downturn in economic conditions caused by the COVID-19 pandemic, (ii) 0.2% in transformation expenses related to the 1 LKQ Europe program, and (iii) 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 0.3% . Despite the deleveraging impact from the third party parts and services organic revenue decline of 6.9% on a per day basis, management was able to utilize government assistance, permanent and temporary headcount reductions, and limited travel expenses to achieve this 0.3% reduction as a percentage of revenue. As the markets recovered from the second quarter low point, volumes increased and government programs ceased, we brought back necessary resources to support our operations; however, we expect that 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): 
 
 Year Ended December 31, Percentage Change in Revenue 
 Specialty 2020 2019 Organic (1) 
 Acquisition and Divestiture Foreign Exchange Total Change 
 Parts & services revenue $ 1,505,340 $ 1,459,396 3.0 % 0.3 % (0.1) % 3.1 % 
 Other revenue — — — % — % — % — % 
 Total third party revenue $ 1,505,340 $ 1,459,396 3.0 % 0.3 % (0.1) % 3.1 % 
 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 3.0% for the year ended December 31, 2020 compared to the prior year. On a per day basis, organic revenue increas ed 2.6%. T he organic increa se was primarily due to strong demand for recreational vehicle products and high drop ship fulfillment. We believe that organic growth was constrained by the 
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 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 increased $1 million, or 0.9%, for the year ended December 31, 2020 compared to the prior year. 
 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 year ended December 31, 2019 11.0 % 
 (Decrease) increase due to: 
 Change in gross margin (0.6) % (1) 
 Change in segment operating expenses 0.5 % (2) 
 
 Segment EBITDA for the year ended December 31, 2020 10.8 % 
 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) 0.7% due t o unfavorable product and channel mix for the year ended December 31, 2020 and (ii) 0.4% driven by higher product cost due to lower supplier discounts received in the current year compared to the prior year, partially offset by a favorable impact of (iii) 0.5% 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) 1.2% in personnel costs due to reduced headcount and reduced hours, partially offset by (ii) a 0.5% 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 0.2% in the aggregate. 
 
 
 
 Liquidity and Capital Resources 
 The following table summarizes liquidity data as of the dates indicated (in thousands): 
 
 December 31, 2020 December 31, 2019 
 Cash and cash equivalents $ 312,154 $ 523,020 
 Total debt (1) 
 2,896,676 4,072,026 
 Current maturities (2) 
 58,810 326,648 
 Capacity under credit facilities (3) 
 3,260,000 3,260,000 
 Availability under credit facilities (3) 
 2,546,081 1,922,671 
 Total liquidity (cash and cash equivalents plus availability under credit facilities) 
 2,858,235 2,445,691 

 (1) Debt amounts reflect the gross values to be repaid (excluding debt issuance costs of $26 million and $30 million as of December 31, 2020 and December 31, 2019, respectively). 
 (2) Debt amounts reflect the gross values to be repaid (excluding debt issuance costs of immaterial amounts as of both December 31, 2020 and December 31, 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. 
 We assess our liquidity in terms of our ability to fund our operations and provide for expansion through both internal development and acquisitions. Our primary sources of liquidity are cash flows from operations and our credit facilities. We utilize our cash flows from operations to fund working capital and capital expenditures, with the excess amounts going towards funding acquisitions, paying down outstanding debt or repurchasing our common stock. As we have pursued acquisitions as part of our historical growth strategy, our cash flows from operations have not always been sufficient to cover our investing activities. To fund our acquisitions, we have accessed various forms of debt financing, including revolving credit facilities, senior notes and a receivables securitization facility. 
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 As of December 31, 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 ($324 million outstanding at December 31, 2020) and $3.15 billion in revolving credit ($643 million outstanding at December 31, 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 $611 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 December 31, 2020), maturing in November 2021 and bearing interest at variable commercial paper rates 
 As of December 31, 2020, we had approximately $2.5 billion available under our credit facilities. Combined with $312 million of cash and cash equivalents at December 31, 2020, we had approximately $2.9 billion in available liquidity, an increase of $413 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 recommenced our share buyback program during the fourth quarter of 2020. However, due to the rapidly evolving global situation, it is not possible to predict whether unanticipated consequences of the COVID-19 pandemic are reasonably likely to materially affect our liquidity and capital resources negatively in the future. 
 With $2.9 billion of total liquidity as of December 31, 2020 and $59 million of current maturities, we have access to funds to meet our near term commitments even if the pandemic effect extends longer than our current expectations. We have a surplus of current assets over current liabilities, which further reduces the risk of short term cash shortfalls. 
 Our capital preservation plans delivered the desired results as we repaid approxima tely $327 million in borrowings from free cash flows generated in the fourth quarter as well as cash on hand and overall in 2020 repaid approximately $1.4 billion in borrowings. Our total liquidity has increased by $997 million sinc e March 31, 2020, which we believe puts us in 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 December 31, 2020): 
 
 Covenant Level Ratio Achieved as of December 31, 2020 
 Maximum net leverage ratio 5.00:1.00 1.9 
 Minimum interest coverage ratio 3.00:1.00 14.6 

 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 10, "Long-Term Obligations" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for information on the June 2020 amendment. We entered into the amendment out of an abundance of caution to reduce the risk of breaching the net leverage covenant if the pandemic had a severe and extended effect on profitability. Our internal models from the first quarter of 2020 suggested that we would be able to meet our payment obligations during the pandemic, but there was a risk that we might exceed the maximum 4.0x net leverage ratio in the event a severe downside scenario developed. With the amendment and the better than forecasted perform ance since the pandemic began, we believ e that we have significantly reduced 
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 the risk of a covenant breach, including by reducing our net leverage ratio further in the third and fourth quarters of 2020 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. In January 2020, we redeemed our U.S. Notes (2023) to eliminate higher cost debt with lower interest rate borrowings on our credit facilities and cash on hand. 
 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 which in turn improves our operating cash flows. The initiative allows our suppliers to monetize the receivables prior to their payment date, subject to payment of a discount. We expect more suppliers will begin participating in our European supply chain financing initiative in 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 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 currency swaps that contain an interest rate swap component and a foreign currency forward contract component that, when combined with related intercompany financing arrangements, effectively convert variable rate U.S. dollar-denominated borrowings into fixed rate euro-denominated borrowings. These derivative transactions are described in Note 11, "Derivative Instruments and Hedging Activities" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K. After giving effect to these contracts, the weighted average interest rate on borrowings outstanding under our credit agreement at December 31, 2020 was 1.7%. Including our senior notes, our overall weighted average interest rate on borrowings was 3.1% at December 31, 2020. 
 After 2021, it is unclear whether banks will continue to provide LIBOR submissions to the administrator of LIBOR. At this time, no consensus exists as to which reference rate or rates may become accepted alternatives to LIBOR, although the Alternative Reference Rates Committee, a group of market participants convened by the Federal Reserve Board and the Federal Reserve Bank of New York, has identified the Secured Overnight Financing Rate (“SOFR”) as the recommended alternative to LIBOR. On November 30, 2020, ICE Benchmark Administration, the administrator of LIBOR, with the support of the United States Federal Reserve and the United Kingdom’s Financial Conduct Authority, announced plans to consult on ceasing publication of USD LIBOR on December 31, 2021 for the one week and two month USD LIBOR tenors, and on June 30, 2023 for all other USD LIBOR tenors. While this announcement extends the transition period to June 2023, the United States Federal Reserve concurrently issued a statement advising banks to stop new USD LIBOR issuances by the end of 2021. We cannot currently predict the effect of the discontinuation of, or other changes to, LIBOR or any establishment of alternative reference rates in the United States, the European Union or elsewhere on the global capital markets. Outstanding debt under our Credit Agreement, which constitutes the most significant of our LIBOR-based debt obligations, contains provisions that address the potential discontinuation of LIBOR and facilitate the adoption of an alternative rate of interest. We do not believe that the discontinuation of LIBOR, or its replacement with an alternative reference rate or rates, such as the SOFR, will have a material impact on our results of operations, financial position or liquidity. 
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 Cash interest payments were $107 million for the year ended December 31, 2020, including $64 million in semi-annual interest payments on our Euro Notes (2024) and Euro Notes (2026/2028). Interest payments on our Euro Notes (2024) and Euro Notes (2026/2028) are made in April and October. 
 We had outstanding credit agreement borrowings of $967 million and $1.6 billion at December 31, 2020 and December 31, 2019, respectively. Of these amounts, $18 million was classified as current maturities at December 31, 2020 and 2019, respectively. 
 The scheduled maturities of long-term obligations outstanding at December 31, 2020 are as follows (in thousands): 
 
 Years ending December 31: 
 2021 (1) 
 $ 58,810 
 2022 32,757 
 2023 25,737 
 2024 1,532,638 
 2025 7,104 
 Thereafter 1,239,630 
 Total debt (2) 
 $ 2,896,676 

 (1) Maturities of long-term obligations due by December 31, 2021 includes $24 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 $26 million as of December 31, 2020). 
 Our credit agreement contains customary covenants that impose limitations and conditions on our ability to enter into certain transactions. The credit agreement also contains financial and affirmative covenants, including limitations on our net leverage ratio and a minimum interest coverage ratio. We were in compliance with all restrictive covenants under our credit agreement as of December 31, 2020. 
 As of December 31, 2020, the Company had cash and cash equivalents of $312 million, of which $275 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 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 GILTI regime. We believe that we have sufficient cash flow and liquidity to meet our financial obligations in the U.S. without repatriating our foreign earnings. We may, from time to time, choose to selectively repatriate foreign earnings if doing so supports our financing or liquidity objectives. 
 The procurement of inventory is the largest operating use of our funds. We normally pay for aftermarket product purchases on standard payment terms or at the time of shipment, depending on the manufacturer and the negotiated payment terms. We normally pay for salvage vehicles acquired at salvage auctions and under direct procurement arrangements at the time that we take possession of the vehicles. 
 The following table sets forth a summary of our aftermarket and manufactured inventory procurement for the years ended December 31, 2020 and 2019 (in thousands): 
 
 Year Ended December 31, 
 2020 2019 Change (1) 
 
 North America $ 1,033,500 $ 1,372,600 $ (339,100) 
 Europe 3,503,300 3,966,000 (462,700) (2) 
 
 Specialty 1,056,200 1,107,200 (51,000) 
 Total $ 5,593,000 $ 6,445,800 $ (852,800) 

 (1) Inventory purchases across all segments have decreased due to a slowdown in procurement beginning in March 2020 as a response to the COVID-19 pandemic. 
 (2) The decrease in inventory purchases in our Europe segment was partially offset by an increase of $71 million attributable to the increase in the value of the euro, and to a lesser extent, the pound sterling, in the year ended December 31, 2020 compared to the prior year period. 
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 The following table sets forth a summary of our global wholesale salvage and self service procurement of vehicles for the years ended December 31, 2020 and 2019 (in thousands): 
 
 Year Ended December 31, 
 2020 2019 % Change 
 North America wholesale salvage cars and trucks 230 309 (25.6) % 
 Europe wholesale salvage cars and trucks 24 25 (4.0) % 
 Self service and "crush only" cars 574 591 (2.9) % 

 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 through the fourth quarter. Self service vehicle 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 vehicles longer during the lockdown measures. Purchases increased towards the end of June 2020 and continued to increase through the end of the fourth quarter. 
 We expect to continue to increase inventory purchases in the first quarter of 2021 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 continue into winter. However, we expect to be able to operate effectively at a lower inventory balance than at the end of 2019. 
 The following table summarizes the components of the year-over-year increase in cash provided by operating activities (in millions): 
 
 Net cash provided by operating activities for the year ended December 31, 2019 $ 1,064 
 Increase (decrease) due to: 
 
 Operating income 89 (1) 
 
 Non-cash depreciation and amortization expense 
 (15) 
 Loss/gain on disposal of businesses and impairment of net assets held for sale (44) (2) 
 
 Cash paid for taxes 
 (67) (3) 
 
 Cash paid for interest 
 36 
 Working capital accounts: (4) 
 
 Receivables, net 67 
 Inventories 418 
 Accounts payable 
 (68) 
 Other operating activities (36) (5) 
 
 Net cash provided by operating activities for the year ended December 31, 2020 $ 1,444 

 (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 4, "Summary of Significant Accounting Policies" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for information on the net impairment activity recorded for the years ended December 31, 2020 and December 31, 2019. 
 (3) Cash payments related to income taxes increased for U.S. federal and state income taxes due to (i) $94 million increase in income from continuing operations before income taxes, (ii) tax payment benefits from the loss on disposal of our aviation business in 2019, and (iii) 2018 overpayment credits carried forward into 2019. 
 (4) Cash flows related to our primary working capital accounts can be volatile as the purchases, payments and collections can be timed differently from period to period. 
 Receivables, net w as a $67 million grea ter infl ow in 2020 primarily due to greater cash conversion of accounts receivable balances in the year 2020 in the Europe segment (of $60 million) and the North America segment (of $38 million) and the lower revenues due to the COVID-19 pandemic. The inflows in North America and Europe were partially offset by outflows for the Specialty segment (of $31 million) as a result of increased revenues in the fourth quarter of 2020. 
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 Inventories represented $418 million in incremental cash inflows in the year 2020 as a result of inventory decreases in the (i) Europe segment of $167 million, (ii) North America segment of $141 million, and (iii) Specialty segment of $110 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 $68 million in higher cash outflows primarily due to lower accounts payable balances in the North America segment (of $259 million) and the Specialty segment (of $8 million) compared to the prior year period, as a result of a slowdown in inventory purchases due to the COVID-19 pandemic, partially offset by cash inflows for the Europe segment (of $199 million) primarily due to benefits from both improved payment terms and our supply chain financing initiative. 
 (5) Cash flows from other operating activities decreased $18 million as a result of the timing of value added tax payables payments compared to the prior year. The remaining amount reflects a number of individually insignificant fluctuations in cash paid for other operating activities. 
 Net cash used in investing activities totaled $166 million and $265 million for the years ended December 31, 2020 and 2019, respectively. Property, plant and equipment purchases were $173 million in 2020 compared to $266 million in the prior year. 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 year ended December 31, 2020 compared to $27 million during the year ended December 31, 2019. We received $22 million of net proceeds from divestitures of businesses held for sale and property, plant and equipment during the year ended December 31, 2020 compared to $35 million in the prior year period. 
 The following table reconciles Net Cash Provided by Operating Activities to Free Cash Flow (in thousands): 
 
 Year Ended December 31, 
 2020 2019 
 Net cash provided by operating activities $ 1,443,870 $ 1,064,033 
 Less: purchases of property, plant and equipment 
 172,695 265,730 
 Free cash flow $ 1,271,175 $ 798,303 

 Net cash used in financing activities totaled $1.5 billion and $601 million for the years ended December 31, 2020 and 2019, respectively. During the year ended December 31, 2020, net repayments of our borrowings totaled $1.4 billion compared to $301 million during the year ended December 31, 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 $117 million of our common stock in the year ended December 31, 2020, compared to $292 million in the year ended December 31, 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. 
 
 
 
 Off-Balance Sheet Arrangements and Future Commitments 
 Except as described below, we do not have any off-balance sheet arrangements or undisclosed borrowings or debt that would be required to be disclosed pursuant to Item 303 of Regulation S-K under the Securities Exchange Act of 1934. Additionally, we do not have any synthetic leases. 
 As of December 31, 2020, there were letters of credit outstanding in the aggregate amount of $71 million. 
 We guarantee the residual values for the majority of our leased vehicles. Had we terminated all of our operating leases subject to these guarantees at December 31, 2020, our portion of the guaranteed residual value would have totaled approximately $63 million. See Note 13, "Leases" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information on leases. 
 In December 2019, we modified the shares of a noncontrolling interest of a subsidiary acquired in connection with the Stahlgruber acquisition and issued new redeemable shares to the minority shareholder. The new redeemable shares contain a put option for all noncontrolling interest shares at a fixed price of $24 million (€21 million) for the minority shareholder exercisable in the fourth quarter of 2023. The put option is outside the control of the Company to exercise. See "Stockholders' 
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 Equity–Noncontrolling Interest" 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 for further information. 
 The following table represents our future commitments under contractual obligations as of December 31, 2020 (in millions): 
 
 Total Less than 
1 Year 1-3 Years 3-5 Years More than 
5 Years 
 Contractual obligations 
 Long-term debt (1) 
 $ 3,275.6 $ 140.5 $ 225.8 $ 1,628.5 $ 1,280.8 
 Finance lease obligations (2) 
 69.0 13.1 19.3 12.2 24.4 
 Operating leases (3) 
 1,877.5 298.1 473.4 328.8 777.2 
 Purchase obligations (4) 
 831.8 831.8 — — — 
 Other long-term obligations (5) 
 258.2 128.5 94.7 30.0 5.0 
 Total $ 6,312.1 $ 1,412.0 $ 813.2 $ 1,999.5 $ 2,087.4 

 (1) Our long-term debt under contractual obligations above includes interest of $436 million on the balances outstanding as of December 31, 2020. The long-term debt balance excludes debt issuance costs, as these expenses have already been paid. Interest on our senior notes, notes payable, and other long-term debt is calculated based on the respective stated rates. Interest on our variable rate credit facilities is calculated based on the weighted average rates, including the impact of interest rate swaps through their respective expiration dates, in effect for each tranche of borrowings as of December 31, 2020. Future estimated interest expense for the next year, one to three years, and three to five years is $94 million, $185 million and $100 million, respectively. Estimated interest expense beyond five years is $57 million. 
 (2) Interest on finance lease obligations of $12 million is included based on incremental borrowing or implied rates. Future estimated interest expense for the next year, one to three years, and three to five years is $1 million, $1 million and $1 million, respectively. Estimated interest expense beyond five years is $9 million. 
 (3) The operating lease payments above do not include certain tax, insurance and maintenance costs, which are also required contractual obligations under our operating leases but are generally not fixed and can fluctuate from year to year. Also, we have excluded future minimum lease payments for leases that have been signed but have not commenced as of December 31, 2020. 
 (4) Our purchase obligations include open purchase orders for aftermarket inventory. 
 (5) Our other long-term obligations consist of (i) estimated payments for our self-insurance reserves of $98 million, (ii) outstanding estimated payments of $32 million on the repatriation of earnings as a result of the Tax Act, (iii) $30 million of social security tax deferrals related to COVID-19 relief, (iv) a total of $5 million of guaranteed dividend payments to be made in quarterly installments through January 2024 to the minority shareholder of a subsidiary acquired in connection with the Stahlgruber acquisition, and (v) $93 million representing primarily other asset purchase commitments and payments for deferred compensation plans. 
 The table above excludes amounts related to our defined benefit pension plans. As of December 31, 2020, the projected benefit obligation for our defined benefit pension plans was $212 million , and the fair value of the related plan assets was $59 million . Total expected contributions to our pension plans, including amounts that we expect to pay in benefits directly to participants, are $4 million for the year ended December 31, 2021. Benefit payments for our funded plans will be made from plan assets, whereas benefit payments for our unfunded plans are made from cash flows from operating activities. See Note 14, "Employee Benefit Plans" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information related to our pension plans, including information related to expected benefit payments for the next 10 years and the plan assets available to satisfy those benefit payments.
LKQ CORP 10-K

Item 7. Management’s Discussion and Analysis
