What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-05-05 compared with 2020-11-03 · 225 added, 496 removed, 668 unchanged (52% of the section changed)

3 unchanged sentences

(In thousands, except per share data)

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Three Months Ended

Revenue $ 3,170,786 $ 3,000,935

3 unchanged sentences

Restructuring and acquisition related expenses 7,885 6,970

(Gain) loss on disposal of businesses and impairment of net assets held for sale ( 503 ) ( 3,601 ) 1,733 44,919

Impairment of net assets held for sale and (gain on disposal of business) 15 ( 249 )

Depreciation and amortization 65,801 65,495

2 unchanged sentences

Interest expense, net of interest income 24,179 25,931

(Gain) loss on debt extinguishment — ( 128 ) 12,751 ( 128 )

Other expense (income), net 2,492 ( 5,939 ) ( 9,304 ) ( 15,523 )

Loss on debt extinguishment — 12,751

Other income, net ( 6,213 ) ( 3,622 )

Total other expense, net 17,966 35,060

1 unchanged sentence

Provision for income taxes 92,969 60,411

Equity in earnings (losses) of unconsolidated subsidiaries 4,113 4,232 1,980 ( 33,745 )

Equity in earnings of unconsolidated subsidiaries 5,819 516

Income from continuing operations 266,332 146,894

Net income (loss) from discontinued operations — 781 ( 638 ) 1,179

Net loss from discontinued operations — ( 915 )

Net income 266,332 145,979

net income (loss) attributable to continuing noncontrolling interest 448 ( 46 ) 1,166 2,321

net income attributable to continuing noncontrolling interest 419 740

net income attributable to discontinued noncontrolling interest — 103

2 unchanged sentences

Income from continuing operations $ 0.88 $ 0.48

Net income (loss) from discontinued operations — 0.00 ( 0.00 ) 0.00

Net loss from discontinued operations — ( 0.00 )

Net income 0.88 0.48

net income (loss) attributable to continuing noncontrolling interest 0.00 ( 0.00 ) 0.00 0.01

net income attributable to continuing noncontrolling interest 0.00 0.00

net income attributable to discontinued noncontrolling interest — 0.00

2 unchanged sentences

Income from continuing operations $ 0.88 $ 0.48

Net income (loss) from discontinued operations — 0.00 ( 0.00 ) 0.00

Net loss from discontinued operations — ( 0.00 )

Net income 0.88 0.48

net income (loss) attributable to continuing noncontrolling interest 0.00 ( 0.00 ) 0.00 0.01

net income attributable to continuing noncontrolling interest 0.00 0.00

net income attributable to discontinued noncontrolling interest — 0.00

5 unchanged sentences

(In thousands)

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Three Months Ended

Net income $ 266,332 $ 145,979

net income (loss) attributable to continuing noncontrolling interest 448 ( 46 ) 1,166 2,321

net income attributable to continuing noncontrolling interest 419 740

net income attributable to discontinued noncontrolling interest — 103

5 unchanged sentences

Net change in unrealized gains/losses on pension plans, net of tax

2,803 ( 2,353 ) 4,798 ( 2,134 )

Other comprehensive (loss) income from unconsolidated subsidiaries ( 3,162 ) 1,240 ( 4,052 ) 98

Other comprehensive income (loss) 70,041 ( 72,193 ) ( 8,837 ) ( 85,796 )

Other comprehensive loss from unconsolidated subsidiaries ( 3,512 ) ( 1,852 )

Other comprehensive loss ( 27,113 ) ( 113,018 )

Comprehensive income 239,219 32,961

comprehensive income (loss) attributable to continuing noncontrolling interest 448 ( 46 ) 1,166 2,321

comprehensive income attributable to continuing noncontrolling interest 419 740

comprehensive income attributable to discontinued noncontrolling interest

— 376 103 568

Comprehensive income attributable to LKQ stockholders

4 unchanged sentences

(In thousands, except share and per share data)

September 30, December 31,

March 31, December 31,

Current assets:

30 unchanged sentences

Stockholders' equity:

Common stock, $0.01 par value, 1,000,000,000 shares authorized, 320,830,051 shares issued and 304,334,136 shares outstanding at September 30, 2020;

Common stock, $0.01 par value, 1,000,000,000 shares authorized, 321,170,573 shares issued and 302,370,072 shares outstanding at March 31, 2021;

320,867,602 shares issued and 303,553,000 shares outstanding at December 31, 2020

3 unchanged sentences

Treasury stock, at cost;

16,495,915 shares at September 30, 2020 and 13,195,915 shares at December 31, 2019 ( 439,819 ) ( 351,813 )

18,800,501 shares at March 31, 2021 and 17,314,602 shares at December 31, 2020 ( 526,084 ) ( 469,105 )

Total Company stockholders' equity 5,842,626 5,655,718

6 unchanged sentences

(In thousands)

Nine Months Ended

September 30,

Three Months Ended

CASH FLOWS FROM OPERATING ACTIVITIES:

2 unchanged sentences

Depreciation and amortization 71,597 71,379

Impairment of equity method investments — 39,551

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

Stock-based compensation expense 7,792 7,968

Loss (gain) on debt extinguishment 12,751 ( 128 )

Loss on debt extinguishment — 12,751

Other ( 9,202 ) ( 2,970 )

12 unchanged sentences

Investments in unconsolidated subsidiaries ( 2,824 ) ( 405 )

Other investing activities, net — 966

Net cash used in investing activities ( 33,443 ) ( 44,872 )

8 unchanged sentences

Repayments under receivables securitization facility — ( 12,900 )

Payment of notes issued from acquisitions — ( 19,123 )

Repayments of other debt, net ( 74,822 ) ( 31,587 )

Borrowings (repayments) of other debt, net 25,574 ( 49,481 )

Settlement of derivative instruments, net ( 56,804 ) —

Purchase of treasury stock ( 56,979 ) ( 88,006 )

2 unchanged sentences

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 2,534 ) ( 11,746 )

Net (decrease) increase in cash, cash equivalents and restricted cash ( 113,475 ) 105,686

Net increase (decrease) in cash, cash equivalents and restricted cash 278,040 ( 196,794 )

Cash, cash equivalents and restricted cash of continuing operations, beginning of period 312,154 528,387

1 unchanged sentence

Cash, cash equivalents and restricted cash of continuing and discontinued operations, beginning of period 312,154 534,857

Cash, cash equivalents and restricted cash of continuing and discontinued operations, end of period 421,382 442,936

Cash and cash equivalents of discontinued operations, end of period — 4,328

Cash, cash equivalents and restricted cash, end of period $ 590,194 $ 338,063

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

Nine Months Ended

September 30,

Three Months Ended

Reconciliation of cash, cash equivalents and restricted cash

6 unchanged sentences

Supplemental disclosure of noncash investing and financing activities:

Leased assets obtained in exchange for new finance lease liabilities $ 14,716 $ 9,639

Leased assets obtained in exchange for new operating lease liabilities 57,603 126,336

Noncash property, plant and equipment additions 8,339 6,597

Notes payable and other financing obligations, including notes issued, debt assumed and settlement of pre-existing balances in connection with business acquisitions and disposals 4,593 45,311

Notes receivable and contingent consideration receivable acquired in connection with disposal of businesses

Leased assets obtained in exchange for finance lease liabilities $ 1,828 $ 7,718

Leased assets obtained in exchange for operating lease liabilities 90,784 39,460

Noncash property, plant and equipment and software intangible additions in accounts payable and other accrued expenses 9,127 7,594

Notes payable and other financing obligations, including notes issued and debt assumed in connection with business acquisitions and disposals 179 6,136

Notes receivable acquired in connection with disposal of business

Contingent consideration liabilities — 2,933

5 unchanged sentences

Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Accumulated

Comprehensive (Loss) Income Noncontrolling Interest Total Stockholders' Equity

Shares Amount Shares Amount

BALANCE, July 1, 2020

320,530 $ 3,205 ( 16,496 ) $ ( 439,819 ) $ 1,433,338 $ 4,401,545 $ ( 279,763 ) $ 29,435 $ 5,147,941

Net income — — — — — 193,483 — 448 193,931

Other comprehensive income

— — — — — — 70,041 — 70,041

Vesting of restricted stock units, net of shares withheld for employee tax

300 3 — — ( 933 ) — — — ( 930 )

Stock-based compensation expense

— — — — 7,088 — — — 7,088

Dividends declared to noncontrolling interest shareholder — — — — — — — ( 2,485 ) ( 2,485 )

BALANCE, September 30, 2020

320,830 $ 3,208 ( 16,496 ) $ ( 439,819 ) $ 1,439,493 $ 4,595,028 $ ( 209,722 ) $ 27,398 $ 5,415,586

LKQ Stockholders

Common Stock Treasury Stock Additional Paid-In Capital Retained

Earnings Accumulated

Comprehensive Loss Noncontrolling Interest Total Stockholders' Equity

Shares Amount Shares Amount

BALANCE, July 1, 2019

319,010 $ 3,190 ( 9,315 ) $ ( 250,762 ) $ 1,429,129 $ 3,847,485 $ ( 188,553 ) $ 69,259 $ 4,909,748

— — — — — 152,263 — 330 152,593

Other comprehensive loss — — — — — — ( 72,193 ) — ( 72,193 )

Purchase of treasury stock

— — ( 3,881 ) ( 101,051 ) — — — — ( 101,051 )

Vesting of restricted stock units, net of shares withheld for employee tax

313 3 — — ( 650 ) — — — ( 647 )

Stock-based compensation expense

— — — — 7,178 — — — 7,178

Exercise of stock options

370 4 — — 3,594 — — — 3,598

Tax withholdings related to net share settlements of stock-based compensation awards

( 95 ) ( 1 ) — — ( 3,105 ) — — — ( 3,106 )

Capital contributions from, net of dividends declared to, noncontrolling interest shareholder

— — — — — — — ( 4,644 ) ( 4,644 )

Acquired noncontrolling interest (1)

— — — — — — — 104 104

Purchase of noncontrolling interest (2)

— — — — ( 8,764 ) — — ( 10,116 ) ( 18,880 )

BALANCE, September 30, 2019

319,598 $ 3,196 ( 13,196 ) $ ( 351,813 ) $ 1,427,382 $ 3,999,748 $ ( 260,746 ) $ 54,933 $ 4,872,700

(1) The amount acquired during 2019 relates to discontinued operations.

See Note 2, "Discontinued Operations," for further details.

(2) The amount recorded in 2019 relates to the purchase of noncontrolling interest unrelated to a business combination.

Refer to "Stockholders' Equity" in Note 3, "Financial Statement Information" for further information.

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

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Stockholders' Equity

(In thousands)

LKQ Stockholders

Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Accumulated

Comprehensive Loss Noncontrolling Interest Total Stockholders' Equity

Shares Amount Shares Amount

BALANCE, January 1, 2021 320,868 $ 3,208 ( 17,315 ) $ ( 469,105 ) $ 1,444,584 $ 4,776,040 $ ( 99,009 ) $ 15,582 $ 5,671,300

319,927 $ 3,199 ( 13,196 ) $ ( 351,813 ) $ 1,418,239 $ 4,140,136 $ ( 200,885 ) $ 39,704 $ 5,048,580

— — — — — 457,411 — 1,269 458,680

Net income — — — — — 265,913 — 419 266,332

Other comprehensive loss — — — — — — ( 27,113 ) — ( 27,113 )

— — — — — — ( 8,837 ) — ( 8,837 )

Purchase of treasury stock

1 unchanged sentence

Vesting of restricted stock units, net of shares withheld for employee tax 303 4 — — ( 2,709 ) — — — ( 2,705 )

791 8 — — ( 3,063 ) — — — ( 3,055 )

Stock-based compensation expense — — — — 7,792 — — — 7,792

— — — — 22,851 — — — 22,851

Exercise of stock options

112 1 — — 1,466 — — — 1,467

Capital contributions from, net of dividends declared to, noncontrolling interest shareholder

— — — — — — — ( 2,171 ) ( 2,171 )

Adoption of ASU 2016-13 (see Note 3)

— — — — — ( 2,519 ) — — ( 2,519 )

Disposition of subsidiary with noncontrolling interests (1)

— — — — — — — ( 11,404 ) ( 11,404 )

BALANCE, September 30, 2020

320,830 $ 3,208 ( 16,496 ) $ ( 439,819 ) $ 1,439,493 $ 4,595,028 $ ( 209,722 ) $ 27,398 $ 5,415,586

(1) The amount disposed of in 2020 relates to discontinued operations.

See Note 2, "Discontinued Operations," for further information.

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

LKQ Stockholders

5 unchanged sentences

— — — — — 145,136 — 843 145,979

— — — — — 400,872 — 2,889 403,761

Other comprehensive loss — — — — — — ( 113,018 ) — ( 113,018 )

— — — — — ( 85,796 ) ( 85,796 )

Purchase of treasury stock

6 unchanged sentences

112 1 — — 1,466 — — — 1,467

Tax withholdings related to net share settlements of stock-based compensation awards

( 110 ) ( 1 ) — — ( 3,533 ) — — — ( 3,534 )

Capital contributions from, net of dividends declared to, noncontrolling interest shareholder — — — — — — — 341 341

— — — — — — — ( 4,659 ) ( 4,659 )

Acquired noncontrolling interest (1)

— — — — — — — 10,365 10,365

Purchase of noncontrolling interest (2)

— — — — ( 8,764 ) — — ( 10,116 ) ( 18,880 )

BALANCE, September 30, 2019

Adoption of ASU 2016-13 — — — — — ( 2,519 ) — — ( 2,519 )

Disposition of subsidiary with noncontrolling interests (1)

— — — — — — — ( 11,404 ) ( 11,404 )

(1) The amount acquired during 2019 relates to discontinued operations.

BALANCE, March 31, 2020 320,439 $ 3,204 ( 16,496 ) $ ( 439,819 ) $ 1,425,600 $ 4,282,753 $ ( 313,903 ) $ 29,484 $ 4,987,319

(1) The amount disposed of during 2020 relates to discontinued operations.

See Note 2, "Discontinued Operations," for further details.

(2) The amount recorded in 2019 relates to the purchase of noncontrolling interest unrelated to a business combination.

Refer to "Stockholders' Equity" in Note 3, "Financial Statement Information" for further information.

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

9 unchanged sentences

Results for interim periods are not necessarily indicative of the results that can be expected for any subsequent interim period or for a full year.

These interim financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC o n F ebruary 27, 2020 ("2019 Form 10-K").

The coronavirus disease 2019 ("COVID-19") pandemic and the resulting governmental actions taken to control the virus have impacted, and are expected to continue to impact, our business in 2020 and into 2021.

These interim financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 26, 2021 ("2020 Form 10-K").

The effects include, but are not limited to, a reduction in demand for our products and services, liquidity challenges for certain of our customers and suppliers, and organizational changes, such as personnel reductions and route consolidation, driven by cost actions to mitigate the actual and expected revenue decline.

We have considered COVID-19 impacts in the preparation of our financial statements and footnotes as of and for the three and nine months ended September 30, 2020.

We have considered COVID-19 impacts in the preparation of our financial statements and footnotes as of and for the three months ended March 31, 2021.

Specific disclosures are presented in the following footnotes as applicable.

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

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

Discontinued Operations

3 unchanged sentences

On May 10, 2019, the Czech Republic competition authority approved our acquisition of Stahlgruber’s Czech Republic wholesale business subject to the requirement that we divest certain of the acquired locations.

We acquired Stahlgruber’s Czech Republic wholesale business on May 29, 2019 and decided to divest all of the acquired Czech Republic locations.

We acquired Stahlgruber’s Czech Republic wholesale business on May 29, 2019 and decided to divest all of the acquired locations.

We immediately classified the business as discontinued operations because the business was never integrated into our Europe segment.

We completed the sale of Stahlgruber's Czech Republic business on February 28, 2020, resulting in a loss on sale of $ 1 million (presented in Net income (loss) from discontinued operations in the Unaudited Condensed Consolidated Statements of Income).

We completed the sale of Stahlgruber's Czech Republic business on February 28, 2020, resulting in an immaterial loss on sale (presented in Net (loss) income from discontinued operations in the Unaudited Condensed Consolidated Statements of Income).

As part of the transaction, we purchased the 48.2 % noncontrolling interest from the minority shareholder for a purchase price of € 8 million, which included the issuance of € 4 million of notes payable, and then immediately thereafter sold 100 % of the business for a purchase price of € 14 million, which included € 7 million of notes receivable.

1 unchanged sentence

From January 1, 2020 through the date of sale, we recorded an immaterial amount of net income (excluding the loss on sale) from discontinued operations related to the business, of which an immaterial amount was attributable to the noncontrolling interest.

During the three months ended June 30, 2020, we recorded an immaterial adjustment related to the loss on disposal of the business.

As of December 31, 2019, the assets held for sale, liabilities held for sale, and noncontrolling interest of Stahlgruber's Czech Republic business were recorded within Prepaid expenses and other current assets, Other current liabilities, and Noncontrolling interest, respectively, on the Unaudited Condensed Consolidated Balance Sheets.

Financial Statement Information

Allowance for Credit Losses

Receivables, net are reported net of an allowance for credit losses.

Management evaluates the aging of customer receivable balances, the financial condition of our customers, historical trends, and macroeconomic factors to estimate the amount of customer receivables that may not be collected in the future and records a provision it believes is appropriate.

Our reserve for expected lifetime credit losses was $ 68 million and $ 53 million at September 30, 2020 and December 31, 2019, respectively.

Bad debt expense totaled $ 23 million and $ 10 million for the nine months ended September 30, 2020 and September 30, 2019, respectivel y.

The increase in our allowance for credit losses since December 31, 2019 is attributable to an increase in expected lifetime losses, primarily attributable to the downturn in the global economy related to the effects of the COVID-19 pandemic, and the $ 3 million effect of the adoption of ASU No.

2016-13, "Financial Instruments - Credit Losses (Topic 326):

Measurement o f Credit Losses on Financial Instruments" ("ASU 2016-13") in the first quarter of 2020 (see the Recently Adopted Accounting Pronouncements section below for further details).

Our reserve for expected lifetime credit losses was $ 68 million and $ 70 million as of March 31, 2021 and December 31, 2020, respectively.

Bad debt expense totaled $ 2 million and $ 9 million for the three months ended March 31, 2021 and 2020, respectively.

Inventories consist of the following (in thousands):

September 30, December 31,

March 31, December 31,

Aftermarket and refurbished products $ 2,020,707 $ 2,025,002

3 unchanged sentences

Aftermarket and refurbished products and salvage and remanufactured products are primarily composed of finished goods.

As of September 30, 2020, manufactured products inventory was composed of $ 15 million of raw materials, $ 3 million of work in process, and $ 1 million of finished goods.

As of March 31, 2021, manufactured products inventory was composed of $ 17 million of raw materials, $ 4 million of work in process, and $ 2 million of finished goods.

As of December 31, 2020, manufactured products inventory was composed of $ 16 million of raw materials, $ 3 million of work in process, and $ 2 million of finished goods.

Net Assets Held for Sale

During 2019 and the first nine months of 2020, we committed to plans to sell certain businesses in our North America and Europe segments.

As a result, these businesses were classified as net assets held for sale and were required to be adjusted to the lower of fair value less cost to sell or carrying value, resulting in a $ 1 million adjustment to reduce a previously recorded loss on disposal for the three months ended September 30, 2020, and net impairment charges of $ 2 million for the nine months ended September 30, 2020.

As of September 30, 2020, assets and liabilities held for sale were immaterial.

In the second quarter of 2020, we completed the sale of one of these businesses, a non-core telecommunications operation in Germany, resulting in an immaterial loss on sale (presented in (Gain) loss on disposal of businesses and impairment of net assets held for sale in the Unaudited Condensed Consolidated Statements of Income).

The disposed business was immaterial, generating annualized revenue of approximately $ 78 million during the twelve-month period ended May 31, 2020.

In the third quarter of 2019, we completed the sales of two of these businesses, our aviation busine ss in North America and a wholesale business in Bulgaria.

The proceeds exceeded our prior fair value estimates, resulting in a net $ 4 million reduction of previously reported impairment charges for the three months ended September 30, 2019 and a net $ 45 million impairment charge for the nine months ended September 30, 2019 (presented in (Gain) loss on disposal of businesses and impairment of net assets held for sale in the Unaudited Condensed Consolidated Statements of Income).

Excluding the Stahlgruber Czech Republic wholesale business discussed in Note 2, "Discontinued Operations," as of December 31, 2019, assets and liabilities held for sale were immaterial, and were recorded within Prepaid expenses and other current assets and Other current liabilities, respectively, on the Unaudited Condensed Consolidated Balance Sheet.

We are required to record net assets of our held for sale businesses at the lower of fair value less cost to sell or carrying value.

Fair values were based on projected discounted cash flows and/or estimated selling prices.

Management's assumptions for our discounted cash flow analyses of the businesses were based on projected revenues and profits, tax rates, capital expenditures, working capital requirements and discount rates.

For businesses for which we utilized estimated selling prices to calculate the fair value, the inputs to our estimates included projected market multiples and any reasonable offers.

Due to uncertainties in the estimation process, it is possible that actual results could differ from the estimates used in our analysis.

The inputs utilized in the fair value estimates are classified as Level 3 within the fair value hierarchy.

The fair values of the net assets were measured on a non-recurring basis as of September 30, 2020.

Intangible Assets

Goodwill and indefinite-lived intangibles are tested for impairment at least annually, and we performed our annual impairment tests during the fourth quarter of 2019.

Goodwill and indefinite-lived intangible assets are tested for impairment at least annually.

We performed our annual impairment test during the fourth quarter of 2020 and we determined no impairment existed as all of our reporting units had a fair value estimate which exceeded the carrying value by at least 30 %.

Goodwill impairment testing may also be performed on an interim basis when events or circumstances arise that may lead to impairment.

LKQ’s market capitalization declined by approximately 40 % between February 20, 2020, when the Company released its 2019 financial results, and March 31, 2020.

While we believed that the decrease was driven by market reaction to COVID-19, the magnitude of the market capitalization decrease was deemed to be a triggering event requiring an interim test of goodwill impairment in the first quarter.

The fair value estimates of our reporting units were established using weightings of the results of a discounted cash flow methodology and a comparative market multiples approach.

At the time of our analysis, our projections for the interim impairment test assumed that the COVID-19 impact would be severe, with revenue down by as much as 50 % in the second quarter of 2020 compared to our prior forecast used in the 2019 impairment analysis, but temporary, as revenue would improve gradually in the second half of 2020.

We expected that cost mitigation actions and cash preservation measures would dampen the negative impact of the projected revenue decline.

Based on the interim test in the first quarter of 2020, we determined no impairments existed as all reporting units had a fair value estimate that exceeded the carrying value by at least 12 %, the level at which our Europe reporting unit exceeded its carrying value.

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

Actual results for the second and third quarters were favorable relative to the forecast used in the first quarter interim test.

We lease certain warehouses, distribution centers, retail stores, office space, land, vehicles and equipment.

We determine if an arrangement is a lease at inception.

Operating and finance lease right-of-use ("ROU") assets and lease liabilities are recognized based on the present value of the future minimum lease payments over the lease term at the commencement date.

As the implicit rate for most of our leases is not readily determinable, we use our incremental borrowing rate based on the information available at the commencement date in determining the present value of future payments.

We determine our incremental borrowing rate by analyzing yield curves with consideration of lease term, country and company specific factors.

The ROU asset also includes any lease prepayments and excludes lease incentives.

Many of our leases include one or more options to renew, with renewal terms that can extend the lease term from 1 year to 40 years or more.

For each lease, we consider whether we are reasonably certain to exercise these options to extend.

Other contracts may contain termination options that we assess to determine whether we are reasonably certain not to exercise those options.

Certain leases also include options to purchase the leased property.

The depreciable lives of assets and leasehold improvements are limited by the expected lease term, unless there is a transfer of title or purchase option reasonably certain of exercise.

Some of our lease agreements include rental payments adjusted periodically for inflation.

Most of these adjustments are considered variable lease costs.

Other variable lease costs consist of certain non-lease components that are disclosed as lease costs due to our election of the practical expedient to combine lease and non-lease components and include items such as variable payments for utilities, property taxes, common area maintenance, sales taxes, and insurance.

For leases with an initial term of 12 months or less, we have not recognized an ROU asset or lease liability on the Unaudited Condensed Consolidated Balance Sheets;

we recognize lease expense for these leases on a straight-line basis over the lease terms.

In response to the COVID-19 global pandemic, we secured rent relief from some of our lessors during the second quarter of 2020.

The rent relief offered was primarily in the form of rent payment deferrals for one or more months to be paid back over a specified period of time ranging from one month to the remaining term of the lease.

As of September 30, 2020, most of the deferrals recognized in the prior quarter were repaid.

Any remaining payment deferrals were immaterial and were recorded in Other current liabilities on the Unaudited Condensed Consolidated Balance Sheets.

During the second quarter of 2020, we also received other concessions consisting of abated rent or discounted rent, with payback not required, from various landlords, which resulted in reductions to Selling, general and administrative expenses of $ 2 million in our Unaudited Condensed Consolidated Statements of Income.

We received additional concessions of less than $ 1 million during the third quarter of 2020.

We did not identify a triggering event in the first quarter of 2021 that necessitated an interim test of goodwill impairment or indefinite-lived intangible assets impairment.

Investments in Unconsolidated Subsidiaries

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

Our investment in unconsolidated subsidiaries was $ 171 million and $ 155 million as of March 31, 2021 and December 31, 2020, respectively.

Europe Segment

Our investment in unconsolidated subsidiaries in Europe was $ 129 million and $ 122 million as of September 30, 2020 and December 31, 2019, respectively.

We recorded equity in earnings of $ 4 million and $ 5 million during the three and nine months ended September 30, 2020, respectively, and equity in earnings of $ 4 million and equity in losses of $ 35 million during the three and nine months ended September 30, 2019, respectively, mainly related to our investment in Mekonomen AB ("Mekonomen").

Our investment in unconsolidated subsidiaries in Europe was $ 150 million and $ 137 million as of March 31, 2021 and December 31, 2020, respectively.

We recorded equity in earnings of $ 6 million and $ 1 million during the three months ended March 31, 2021 and 2020, respectively, mainly related to our investment in Mekonomen AB ("Mekonomen").

On December 1, 2016, we acquired a 26.5 % equity interest in Mekonomen for an aggregate purchase price of $ 181 million.

1 unchanged sentence

We are accounting for our interest in Mekonomen using the equity method of accounting, as our investment gives us the ability to exercise significant influence, but not control, over the investee.

As of September 30, 2020, our share of the book value of Mekonomen's net assets exceeded the book value of our investment in Mekonomen by $ 6 million;

As of March 31, 2021, our share of the book value of Mekonomen's net assets exceeded the book value of our investment in Mekonomen by $ 7 million;

this difference is primarily related to Mekonomen's Accumulated Other Comprehensive Income balance as of our acquisition date in 2016.

We are recording our equity in the net earnings of Mekonomen on a one quarter lag.

During the three months ended March 31, 2019, we recognized an other-than-temporary impairment charge of $ 40 million, which represented the difference between the carrying value and the fair value of our investment in Mekonomen.

The fair value of our investment in Mekonomen was determined using the Mekonomen share price of SEK 65 as of March 31, 2019.

The impairment charge was recorded in Equity in earnings (losses) of unconsolidated subsidiaries in our Unaudited Condensed Consolidated Statements of Income.

Mekonomen announced in March 2020 that it would not make a dividend payment in 2020.

The Level 1 fair value of our equity investment in the publicly traded Mekonomen common stock at September 30, 2020 was $ 151 million (using the Mekonomen share price of SEK 93 as of September 30, 2020) compared to a carrying value of $ 118 million.

Mekonomen announced in March 2020 and February 2021, respectively, that the Mekonomen Board of Directors proposed no dividend payment in 2020 or 2021.

The Level 1 fair value of our equity investment in the publicly traded Mekonomen common stock at March 31, 2021 was $ 230 million (using the Mekonomen share price of SEK 129 as of March 31, 2021) compared to a carrying value of $ 139 million.

North America Segment

Our investment in unconsolidated subsidiaries in the North America segment was $ 19 million and $ 18 million as of September 30, 2020 and December 31, 2019, respectively.

We recorded equity in earnings of $ 0.4 million and equity in losses of $ 3 million during the three and nine months ended September 30, 2020, respectively.

The equity in earnings for the North America equity investments was $ 0.4 million and $ 1 million during the three and nine months ended September 30, 2019, respectively.

Our investment in unconsolidated subsidiaries in the North America segment was $ 21 million and $ 19 million as of March 31, 2021 and December 31, 2020, respectively.

Warranty Reserve

9 unchanged sentences

Warranty claims ( 17,917 )

Balance as of September 30, 2020 $ 29,128

Balance as of March 31, 2021 $ 28,467

Litigation and Related Contingencies

2 unchanged sentences

Government Assistance

During the three and nine months ended September 30, 2020, we recorded $ 12 million and $ 45 million, respectively, in financial assistance from foreign governments, primarily in the form of grants to offset personnel expenses in Europe and Canada.

For each of the three and nine months ended September 30, 2020, $ 1 million was recorded as a reduction to Cost of goods sold, and $ 12 million and $ 44 million were reductions to Selling, general and administrative expenses, respectively, in our Unaudited Condensed Consolidated Statement of Income.

During the three months ended March 31, 2021, we recorded $ 9 million in financial assistance from foreign governments, primarily in the form of grants, of which $ 7 million and $ 2 million related to Europe and Canada, respectively.

For the three months ended March 31, 2021, an immaterial amount was recorded as a reduction to Cost of goods sold, and $ 9 million was a reduction to Selling, general and administrative expenses, in our Unaudited Condensed Consolidated Statement of Income.

Financial assistance received from governments is recorded during the period in which we incur the costs that the assistance is intended to offset (and only if it is probable that we will meet the conditions required under the terms of the assistance).

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was enacted in the U.S.

to provide economic relief to individuals and businesses facing economic hardship as a result of the COVID-19 pandemic.

Similar legislation was enacted in many of the Company’s international jurisdictions.

Tax measures in these legislative actions did not have a material impact on the Company’s results of operations for the nine months ended September 30, 2020.

Those initiatives did provide the Company with the opportunity to defer the timing of certain income tax, indirect tax and payroll tax payments in various jurisdictions.

As of September 30, 2020, approximately $ 33 million of payments otherwise due by the third quarter of 2020 were deferred, of which we estimate approximately $ 30 million will be paid in 2021 or later.

No government assistance was recorded for the three months ended March 31, 2020.

Leases - Cash Flow Disclosure

The amount disclosed for Leased assets obtained in exchange for operating lease liabilities for the three months ended March 31, 2020 in the supplemental disclosure of noncash investing and financing activities in the Unaudited Condensed Consolidated Statements of Cash Flows includes an immaterial correction of $ 18 million to address an omission of the impact of lease modifications and terminations.

Stockholders' Equity

Treasury Stock

As of September 30, 2020, our Board of Directors had authorized a stock repurchase program under which we may purchase up to $ 1.0 billion of our common stock from time to time through October 25, 2022.

As of March 31, 2021, our Board of Directors had authorized a stock repurchase program under which we may purchase up to $ 1.0 billion of our common stock from time to time through October 25, 2022.

Repurchases under the program may be made in the open market or in privately negotiated transactions, with the amount and timing of repurchases depending on market conditions and corporate needs.

The repurchase program does not obligate us to acquire any specific number of shares and may be suspended or discontinued at any time.

Delaware law imposes restrictions on stock repurchases.

During the nine months ended September 30, 2020, we repurchased 3.3 million shares of common stock for an aggregate price of $ 88 million;

we did not repurchase any shares during the three months ended September 30, 2020.

During the three and nine months ended September 30, 2019, we repurchased 3.9 million and 10.9 million shares of common stock for an aggregate price of $ 101 million and $ 292 million, respectively.

As of September 30, 2020, there was $ 560 million of remaining capacity under our repurchase program.

During the three months ended March 31, 2021, we repurchased 1.5 million shares of common stock for an aggregate price of $ 57 million.

During the three months ended March 31, 2020, we repurchased 3.3 million shares of common stock for an aggregate price of $ 88 million.

As of March 31, 2021, there was $ 474 million of remaining capacity under our repurchase program.

Repurchased shares are accounted for as treasury stock using the cost method.

2 unchanged sentences

See Note 2, "Discontinued Operations," for further information.

In July 2019, we purchased substantially all of the noncontrolling interest of a subsidiary acquired in connection with the Stahlgruber acquisition for a purchase price of $ 19 million, which included the issuance of $ 14 million of notes payable.

This purchase resulted in a net decrease to Noncontrolling interest of $ 10 million and a decrease to Additional paid-in capital of $ 9 million in our unaudited condensed consolidated financial statements as of September 30, 2019.

In December 2019, we modified the shares representing a noncontrolling interest in a subsidiary acquired in connection with the Stahlgruber acquisition and issued new redeemable shares to the minority shareholder.

The new redeemable shares contain (i) a put option for all noncontrolling interest shares at a fixed price of $ 24 million (€ 21 million) exercisable by the minority shareholder in the fourth quarter of 2023, (ii) a call option for all noncontrolling interest shares at a fixed price of $ 26 million (€ 23 million) exercisable by the Company beginning in the first quarter of 2026 through the end of the fourth quarter of 2027, and (iii) a guaranteed dividend to be paid quarterly to the minority shareholder through the fourth quarter of 2023.

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 (i) 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, (ii) a call option for all noncontrolling interest shares at a fixed price of $ 26 million (€ 23 million) for the Company exercisable beginning in the first quarter of 2026 through the end of the fourth quarter of 2027, and (iii) a guaranteed dividend to be paid quarterly to the minority shareholder through the fourth quarter of 2023.

The new redeemable shares do not provide the minority shareholder with rights to participate in the profits and losses of the subsidiary prior to the exercise date of the put option.

As the put option is outside the control of the Company, we recorded a $ 24 million Redeemable noncontrolling interest at the put option's exercise value outside of permanent equity on our Unaudited Condensed Consolidated Balance Sheets.

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

As the put option is outside the control of the Company, we recorded a $ 24 million Redeemable noncontrolling interest at the put option's redemption value outside of permanent equity on our Unaudited Condensed Consolidated Balance Sheets.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

During the first quarter of 2020, we adopted ASU 2016-13 and ASU No.

2018-19, "Codification Improvements to Topic 326, Financial Instruments - Credit Losses" ("ASU 2018-19").

ASU 2016-13 significantly changes how entities measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income.

ASU 2016-13 replaces the prior “incurred loss” approach with an “expected loss” model for instruments measured at amortized cost.

ASU 2018-19 affects loans, debt securities, trade receivables, net investments in leases, off balance sheet credit exposures, reinsurance receivables, and any other financial assets not excluded from the scope of this amendment that represent the contractual right to receive cash.

We applied ASU 2016-13 and ASU 2018-19 on a modified retrospective basis.

As of January 1, 2020, we recorded a cumulative effect adjustment to retained earnings of $ 3 million.

During the first quarter of 2020, we adopted ASU No.

2018-13, "Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement" ("ASU 2018-13"), which removes, modifies, and adds certain disclosure requirements in ASC 820.

We adopted the provisions of ASU 2018-13 by applying a prospective approach.

The adoption of ASU 2018-13 did not have a material impact on our unaudited condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

In December 2019, the FASB issued ASU No.

In the first quarter of 2021, we adopted ASU No.

2019-12, "Income Taxes" (Topic 740) ("ASU 2019-12"), which simplifies the accounting for income taxes and adds guidance to reduce complexity in certain areas.

ASU 2019-12 is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years.

Early adoption is permitted, including adoption in an interim period.

We are currently evaluating the impact of this standard on our consolidated financial statements.

We adopted the standard in the first quarter using the prospective approach.

The adoption of this accounting standard did not have a material impact on our unaudited condensed consolidated financial statements.

Recently Issued Accounting Pronouncements

In March 2020, the FASB issued ASU No.

4 unchanged sentences

Entities may apply the provisions of the new standard as of the beginning of the reporting period when the election is made (i.e., as early as the first quarter of 2020).

Unlike other topics, the provisions of this update are only available until December 31, 2022, when the reference rate replacement activity is expected to have been completed.

Unlike other topics, the provisions of this update are only available until December 31, 2022.

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

6 unchanged sentences

The following table sets forth our revenue by category, with our parts and services revenue further disaggregated by reportable segment (in thousands):

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Three Months Ended

North America $ 1,018,437 $ 1,107,342

6 unchanged sentences

Our parts revenue is generated from the sale of vehicle products including replacement parts, components and systems used in the repair and maintenance of vehicles and specialty products and accessories to improve the performance, functionality and appearance of vehicles.

Services revenue includes (i) additional services that are generally billed concurrently with the related product sales, such as the sale of service-type warranties, (ii) fees for admission to our self service yards, and (iii) diagnostic and repair services.

Services revenue includes (i) additional services that are generally billed concurrently with the

related product sales, such as the sale of service-type warranties, (ii) fees for admission to our self service yards, and (iii) diagnostic and repair services.

In North America, our vehicle replacement products include sheet metal collision parts such as doors, hoods, and fenders;

15 unchanged sentences

Our service-type warranties typically have service periods ranging from 6 months to 36 months.

Under FASB Accounting Standards Codification Topic 606 ("ASC 606"), proceeds from these service-type warranties are deferred at contract inception and amortized on a straight-line basis to revenue over the contract period.

Proceeds from these service-type warranties are deferred at contract inception and amortized on a straight-line basis to revenue over the contract period.

The changes in deferred service-type warranty revenue are as follows (in thousands):

2 unchanged sentences

Warranty revenue recognized ( 11,834 )

Balance as of September 30, 2020 $ 25,869

Balance as of March 31, 2021 $ 27,299

Other Revenue

7 unchanged sentences

The amount of revenue ultimately received from the customer can vary due to variable consideration including returns, discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, or other similar items.

Under ASC 606 we are required to select the “expected value method” or the “most likely amount” method in order to estimate variable consideration.

Under FASB Accounting Standards Codification Topic 606 ("ASC 606"), we are required to select the “expected value method” or the “most likely amount” method in order to estimate variable consideration.

We utilize both methods in practice depending on the type of variable consideration, with contemplation of any expected reversals in revenue.

We recorded a refund liability and return asset for expected returns of $ 106 million and $ 61 million, respectively, as of September 30, 2020, and $ 97 million and $ 52 million, respectively, as of December 31, 2019.

We recorded a refund liability and return asset for expected returns of $ 105 million and $ 59 million, respectively, as of March 31, 2021, and $ 102 million and $ 57 million, respectively, as of December 31, 2020.

The refund liability is presented separately on the Unaudited Condensed Consolidated Balance Sheets within current liabilities while the return asset is presented within Prepaid expenses and other current assets.

Other types of variable consideration consist primarily of discounts, volume rebates, and other customer sales incentives that are recorded in Receivables, net on the Unaudited Condensed Consolidated Balance Sheets.

We recorded a reserve for our variable consideration of $ 103 million and $ 108 million as of September 30, 2020 and December 31, 2019, respectively.

We recorded a reserve for our variable consideration of $ 87 million and $ 127 million as of March 31, 2021 and December 31, 2020, respectively.

While other customer incentive programs exist, we characterize them as material rights in the context of our sales transactions.

1 unchanged sentence

Restructuring and Acquisition Related Expenses

Acquisition Related Expenses

We incurred $ 8 million of acquisition related expenses in each of the three and nine months ended September 30, 2020.

The expenses primarily resulted from the resolution of a purchase price matter related to the Stahlgruber transaction for an amount above our prior estimate.

We incurred $ 2 million of acquisition related expenses in each of the three and nine months ended September 30, 2019.

These expenses included external costs such as legal, accounting and advisory fees related to our acquisitions.

2019 Global Restructuring Program

In the second quarter of 2019, we implemented a cost reduction initiative, covering all three of our reportable segments, designed to eliminate underperforming assets and cost inefficiencies.

In the second quarter of 2019, we commenced a cost reduction initiative, covering all three of our reportable segments, designed to eliminate underperforming assets and cost inefficiencies.

We have incurred and expect to incur costs for inventory write-downs;

2 unchanged sentences

other costs related to facility exits, such as moving expenses to relocate inventory and equipment;

and accelerated depreciation of fixed assets to be disposed of earlier than the end of the previously estimated useful lives.

During the three and nine months ended September 30, 2020, we incur r ed $ 1 million and $ 6 million, re spectively, of restructuring expenses under this program, primarily related to facility exit costs and employee-related costs.

and accelerated depreciation of fixed assets to be disposed earlier than the end of the previously estimated useful lives.

During the three months ended March 31, 2021 and 2020, we incurred $ 1 million and $ 3 million, respectively, of restructuring expenses under this program, primarily related to facility exit costs and employee-related costs.

These costs were recorded within Restructuring and acquisition related expenses in the Unaudited Condensed Consolidated Statements of Income.

During the three and nine months ended September 30, 2019, we incurred $ 18 million and $ 23 million, respectively, of restructuring expenses primarily related to inventory write-downs, facility exit costs, and employee-related costs.

Of these expenses, $ 13 million, primarily related to Andrew Page branch consolidation and brand rationalization, were recorded within Cost of goods sold in the Unaudited Condensed Consolidated Statement of Income during each of the three and nine months ended September 30, 2019, and $ 4 million and $ 10 million, respectively, were recorded within Restructuring and acquisition related expenses.

The program costs incurred during the three months ended March 31, 2021 primarily related to our Europe segment.

Of the program costs incurred during the three months ended March 31, 2020, $ 2 million and $ 1 million related to our Europe and North America segments, respectively.

The actions under this program are substantially complete.

We estimate that total program costs will be approximately $ 45 million, of which $ 37 million was incurred in the year ended December 31, 2019.

The total program costs include $ 31 million, $ 14 million and $ 1 million related to our Europe, North America and Specialty segments, respectively.

Costs to be incurred through 2021 under this program are estimated to be between $ 2 million and $ 4 million.

We estimate that total program costs will be approximately $ 46 million, of which approximately $ 31 million, $ 14 million and $ 1 million will be incurred by our Europe, North America and Specialty segments, respectively.

As of March 31, 2021, the remaining expected costs and restructuring liabilities related to this program were immaterial.

2020 Global Restructuring Program

4 unchanged sentences

other costs related to facility exits, such as moving expenses to relocate inventory and equipment;

and accelerated depreciation of fixed assets to be disposed of earlier than t he end of the previously estimated useful lives.

We expanded this program during the second and third quarters as we identified additional opportunities to eliminate inefficiencies, including actions in response to impacts to our business from COVID-19.

During the three and nine months ended September 30, 2020, we recognized restructuring expenses totaling $ 10 million and $ 38 million, respectively, for employee-related costs, facility exit costs and inventory write-downs.

Of these expenses, $ 1 million and $ 7 million resulted from inventory impairment charges related to facility consolidation actions and brand rationalizations and were recorded in Cost of goods sold in the Unaudited Condensed Consolidated Statement of Income for three months and nine months ended September 30, 2020, respectively.

and accelerated depreciation of fixed assets to be disposed of earlier than the end of the previously estimated useful lives.

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

During the three months ended March 31, 2021, we recognized restructuring expenses of $ 2 million, representing $ 5 million of employee-related costs and facility exit costs, partially offset by a $ 3 million gain from the sale of a building to be closed as part of the restructuring plan.

During the three months ended March 31, 2020, we recognized $ 2 million of expenses related to the program.

Of the cumulative program costs incurred to date, $ 27 million, $ 23 million and $ 1 million related to our North America, Europe and Specialty segments, respectively.

1 unchanged sentence

these segment amounts represent the midpoints of the expected ranges of costs to be incurred by each segment.

As of March 31, 2021 and December 31, 2020, restructuring liabilities incurred related to this program totaled $ 16 million and $ 21 million, respectively, including $ 13 million and $ 17 million, respectively, related to leases we have exited or expect to exit prior to the end of the lease term (reported in Current portion of operating lease liabilities and Long-term operating lease liabilities, excluding current portion on our Unaudited Condensed Consolidated Balance Sheets), and $ 3 million and $ 4 million, respectively, for employee termination costs (reported in Accrued payroll-related liabilities on our Unaudited Condensed Consolidated Balance Sheets).

Our lease-related restructuring liabilities are estimated based on remaining rent payments after our actual exit date for facilities closed through the first quarter of 2021 and after our planned exit date for facilities we expect to close in future periods;

these liabilities do not reflect any estimated proceeds we may be able to achieve through subleasing the facilities.

Acquisition Integration Plans

During the three and nine months ended September 30, 2020, we incurred $ 2 million and $ 8 million of restructuring expenses, respectively, for our acquisition integration plans.

These expenses were primarily related to the integration of our operations in Belgium.

During the three months ended March 31, 2021, we incurred immaterial restructuring expenses for our acquisition integration plans.

Future expenses to complete our existing integration plans are expected to be immaterial.

During the three and nine months ended September 30, 2019, we incurred $ 7 million and $ 13 million of restructuring expenses, respectively, primarily related to our acquisition integration efforts in our Europe segment.

These expenses included approximately $ 4 million and $ 7 million for the three and nine months ended September 30, 2019, respectively, related to the integration of our acquisition of Andrew Page Limited.

The $ 4 million recorded during the three months ended September 30, 2019 for Andrew Page Limited was recorded within Cost of goods sold in the Unaudited Condensed Consolidated Statement of Income.

During the three months ended March 31, 2020, we incurred $ 2 million of restructuring expenses for our acquisition integration plans.

These expenses were primarily related to the integration of our acquisition of Andrew Page Limited.

1 LKQ Europe Program

1 unchanged sentence

Under the 1 LKQ Europe program, we will reorganize our non-customer-facing teams and support systems through various projects including the implementation of a common ERP platform, rationalization of our product portfolio, and creation of a Europe headquarters office and central back office.

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

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

We estimate that we will incur between $ 45 million and $ 55 million in total personnel and inventory related restructuring charges through 2024 under the program, although we are undertaking a full review of most projects under the program in the fourth quarter, and will provide updated restructuring estimates once we have completed that effort.

While certain projects were delayed in 2020 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 are targeting to complete the organizational design and implementation projects by the middle of 2021, with the remaining projects scheduled to be completed by 2024.

During the three months ended March 31, 2021, we incurred $ 5 million of restructuring charges related to the 1 LKQ Europe program related to employee-related costs.

We estimate that we will incur between $ 45 million and $ 55 million in total

personnel and inventory-related restructuring charges through 2024 under the program.

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

As of March 31, 2021, the restructuring liabilities related to this program were immaterial.

Stock-Based Compensation

10 unchanged sentences

For our RSU grants prior to 2019, participants forfeit their unvested shares upon retirement.

The fair value of RSUs that vested during the nine months ended September 30, 2020 was $ 26 million;

The fair value of RSUs that vested during the three months ended March 31, 2021 was $ 14 million;

the fair value of RSUs vested is based on the market price of LKQ stock on the date vested.

The following table summarizes activity related to our RSUs under the Equity Incentive Plan for the nine months ended September 30, 2020:

The following table summarizes activity related to our RSUs under the Equity Incentive Plan for the three months ended March 31, 2021:

Outstanding Weighted

6 unchanged sentences

Forfeited / Canceled ( 13,774 ) $ 33.92

Unvested as of September 30, 2020 1,542,592 $ 31.74

Expected to vest after September 30, 2020 1,344,073 $ 31.65 2.9 $ 37,271

Unvested as of March 31, 2021 1,793,159 $ 34.08

Expected to vest after March 31, 2021 1,604,984 $ 34.25 3.3 $ 67,939

(1) The aggregate intrinsic value of expected to vest RSUs represents the total pretax intrinsic value (the fair value of the Company's stock on the last day of each period multiplied by the number of units) that would have been received by the holders had all the expected to vest RSUs vested.

This amount changes based on the market price of the Company’s common stock.

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

In 2021 and 2020, we granted performance-based three-year RSUs ("PSUs") to certain employees, including our executive officers, under our Equity Incentive Plan.

As these awards are performance-based, the exact number of shares to be paid out may be up to twice the grant amount, depending on the Company's performance and the achievement of certain performance metrics (adjusted earnings per share, average organic parts and services revenue growth, and average return on invested capital) over the applicable three year performance periods.

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

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

Outstanding Weighted

5 unchanged sentences

Forfeited / Canceled — $ —

Unvested as of September 30, 2020 292,947 $ 29.97

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

Unvested as of March 31, 2021 413,411 $ 32.49

Expected to vest after March 31, 2021 413,411 $ 32.49 1.7 $ 17,500

(1) The aggregate intrinsic value of expected to vest PSUs represents the total pretax intrinsic value (the fair value of the Company's stock on the last day of each period multiplied by the number of units at target) that would have been received by the holders had all the expected to vest PSUs vested.

1 unchanged sentence

(2) Represents the number of PSUs at target payout.

Stock Options

Stock options vested over periods of up to five years , subject to a continued service condition.

Stock options expired either six years or ten years from the date they were granted.

No options were granted during the nine months ended September 30, 2020.

No options vested during the nine months ended September 30, 2020.

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

Outstanding Weighted

Average Exercise Price Weighted Average Remaining Contractual Term

(in years) Aggregate Intrinsic Value

(in thousands)

Balance as of January 1, 2020 114,594 $ 12.26

Exercised ( 112,472 ) $ 11.88 $ 2,629

Canceled ( 2,122 ) $ 32.31

Balance as of September 30, 2020 — $ — — $ —

All stock options were exercised or canceled as of September 30, 2020.

The weighted average grant date fair value of PSUs granted during the three months ended March 31, 2020 was $ 32.21 .

Stock-Based Compensation Expense

Pre-tax stock-based compensation expense for RSUs and PSUs totaled $ 7 million and $ 23 million for the three and nine months ended September 30, 2020, respectively, and $ 7 million and $ 21 million for the three and nine months ended September 30, 2019, respectively.

As of September 30, 2020, unrecognized compensation expense related to unvested RSUs and PSUs was $ 44 million.

Pre-tax stock-based compensation expense for RSUs and PSUs totaled $ 8 million for both the three months ended March 31, 2021 and 2020.

As of March 31, 2021, unrecognized compensation expense related to unvested RSUs and PSUs was $ 61 million.

Stock-based compensation expense related to these awards will be different to the extent that forfeitures are realized and performance under the PSUs dif fers from target.

1 unchanged sentence

The following chart sets forth the computation of earnings per share (in thousands, except per share amounts):

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Three Months Ended

Income from continuing operations $ 266,332 $ 146,894

2 unchanged sentences

Effect of dilutive securities:

RSUs 295 293 333 341

Stock options — 4

5 unchanged sentences

(1) Diluted earnings per share from continuing operations was computed using the treasury stock method for dilutive securities.

The following table sets forth the number of employee stock-based compensation awards outstanding but not included in the computation of diluted earnings per share because their effect would have been antidilutive for the three and nine months ended September 30, 2020 and 2019 (in thousands):

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

The following table sets forth the number of employee stock-based compensation awards outstanding but not included in the computation of diluted earnings per share because their effect would have been antidilutive for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended

Antidilutive securities:

RSUs 717 942 847 700

Stock options — 31 — 32

Accumulated Other Comprehensive Income (Loss)

1 unchanged sentence

Three Months Ended

September 30, 2020

March 31, 2021

Translation Unrealized (Loss) Gain

3 unchanged sentences

(Loss) Income

BALANCE, July 1, 2020 $ ( 243,524 ) $ ( 1,994 ) $ ( 29,939 ) $ ( 4,306 ) $ ( 279,763 )

Pretax income (loss) 70,178 ( 19,865 ) ( 34 ) — 50,279

BALANCE, January 1, 2021 $ ( 57,126 ) $ ( 968 ) $ ( 32,967 ) $ ( 7,948 ) $ ( 99,009 )

Pretax (loss) income ( 24,572 ) 3,119 — — ( 21,453 )

Income tax effect — ( 736 ) — — ( 736 )

Reclassification of unrealized loss — 20,153 3,794 — 23,947

Reclassification of unrealized (gain) loss — ( 2,343 ) 437 — ( 1,906 )

Reclassification of deferred income taxes — 618 ( 124 ) — 494

Other comprehensive loss from unconsolidated subsidiaries — — — ( 3,512 ) ( 3,512 )

BALANCE, September 30, 2020 $ ( 173,346 ) $ ( 1,772 ) $ ( 27,136 ) $ ( 7,468 ) $ ( 209,722 )

BALANCE, March 31, 2021 $ ( 81,698 ) $ ( 310 ) $ ( 32,654 ) $ ( 11,460 ) $ ( 126,122 )

Three Months Ended

September 30, 2019

Translation Unrealized Gain (Loss)

on Cash Flow Hedges Unrealized (Loss) Gain

on Pension Plans Other Comprehensive (Loss) Income from Unconsolidated Subsidiaries Accumulated

Comprehensive

(Loss) Income

BALANCE, July 1, 2019 $ ( 181,890 ) $ 5,987 $ ( 7,856 ) $ ( 4,794 ) $ ( 188,553 )

Pretax (loss) income ( 69,440 ) 28,594 ( 3,087 ) — ( 43,933 )

Income tax effect — ( 6,739 ) 782 — ( 5,957 )

Reclassification of unrealized gain — ( 30,256 ) ( 61 ) — ( 30,317 )

Reclassification of deferred income taxes — 7,140 13 — 7,153

Disposal of business ( 379 ) — — — ( 379 )

Other comprehensive income from unconsolidated subsidiaries — — — 1,240 1,240

BALANCE, September 30, 2019 $ ( 251,709 ) $ 4,726 $ ( 10,209 ) $ ( 3,554 ) $ ( 260,746 )

Nine Months Ended

September 30, 2020

March 31, 2020

Translation Unrealized Gain (Loss)

4 unchanged sentences

BALANCE, January 1, 2020 $ ( 170,893 ) $ 5,358 $ ( 31,934 ) $ ( 3,416 ) $ ( 200,885 )

Pretax loss ( 3,219 ) ( 23,490 ) ( 34 ) — ( 26,743 )

Income tax effect — 5,548 9 — 5,557

Reclassification of unrealized loss — 14,207 6,563 — 20,770

Reclassification of deferred income taxes — ( 3,395 ) ( 1,740 ) — ( 5,135 )

Disposal of business 766 — — — 766

Other comprehensive loss from unconsolidated subsidiaries — — — ( 4,052 ) ( 4,052 )

BALANCE, September 30, 2020 $ ( 173,346 ) $ ( 1,772 ) $ ( 27,136 ) $ ( 7,468 ) $ ( 209,722 )

Nine Months Ended

September 30, 2019

Translation Unrealized Gain (Loss)

on Cash Flow Hedges Unrealized (Loss) Gain

on Pension Plans Other Comprehensive (Loss) Income from Unconsolidated Subsidiaries Accumulated

Comprehensive

(Loss) Income

BALANCE, January 1, 2019 $ ( 177,597 ) $ 14,374 $ ( 8,075 ) $ ( 3,652 ) $ ( 174,950 )

Pretax (loss) income ( 104,060 ) 4,182 — — ( 99,878 )

3 unchanged sentences

Disposal of business 95 — — — 95

Other comprehensive income from unconsolidated subsidiaries — — — 98 98

BALANCE, September 30, 2019 $ ( 251,709 ) $ 4,726 $ ( 10,209 ) $ ( 3,554 ) $ ( 260,746 )

Other comprehensive loss from unconsolidated subsidiaries — — — ( 1,852 ) ( 1,852 )

BALANCE, March 31, 2020 $ ( 274,858 ) $ ( 1,963 ) $ ( 31,814 ) $ ( 5,268 ) $ ( 313,903 )

The amounts of unrealized gains and losses on our Cash Flow Hedges reclassified to our Unaudited Condensed Consolidated Statements of Income are as follows (in thousands):

Three Months Ended Nine Months Ended

September 30, September 30,

Three Months Ended

Classification 2021 2020

1 unchanged sentence

Unrealized gains on cross currency swaps Interest expense, net of interest income 539 2,551

Unrealized (losses) gains on cross currency swaps (1)

Other expense (income), net ( 20,874 ) 24,726 ( 21,802 ) 29,797

Unrealized gains on cross currency swaps (1)

Other income, net 1,973 7,860

Unrealized gains on foreign currency forward contracts (1)

Other expense (income), net 563 — 563 —

Other income, net 524 —

Total $ 2,343 $ 13,707

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

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

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

Net unrealized losses and gains related to our pension plans were reclassified to Other income, net in our Unaudited Condensed Consolidated Statements of Income during the three months ended March 31, 2021 and 2020.

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

1 unchanged sentence

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

September 30, December 31,

March 31, December 31,

Senior secured credit agreement:

1 unchanged sentence

Revolving credit facilities 533,882 642,958

Notes (2023) — 600,000

Euro Notes (2024) 586,500 610,800

14 unchanged sentences

Prior to the amendment, the maximum permitted net leverage ratio was 4.00 :1.00.

After the amendment, the maximum permitted net leverage ratio is (i) 5.00 :1.00 for the quarters ending September 30, 2020, December 31, 2020 and March 31, 2021, (ii) 4.50 :1.00 for the quarter ending June 30, 2021, and (iii) 4.25 :1.00 for the quarter ending September 30, 2021.

After the amendment, the maximum permitted net leverage ratio is (i) 5.00 :1.00 for the quarter ended March 31, 2021, (ii) 4.50 :1.00 for the quarter ending June 30, 2021, and (iii) 4.25 :1.00 for the quarter ending September 30, 2021.

Beginning with the quarter ending December 31, 2021, the maximum permitted net leverage ratio reverts to the terms in effect prior to the amendment.

3 unchanged sentences

4 to the Credit Agreement also made certain other immaterial modifications.

On December 14, 2020, we entered into Amendment No.

5 to the Credit Agreement;

the amendment added as a borrower our subsidiary LKQ Europe GmbH, a Swiss limited liability company, and made certain other immaterial or clarifying modifications.

The total availability under the revolving credit facility's multicurrency component is $ 3.15 billion.

Amounts outstanding under the revolving credit facility are due and payable upon maturity of the Credit Agreement on January 29, 2024.

Term loan borrowings, which totaled $ 328 million as of September 30, 2020, are due and payable in quarterly installments equal to approximately $ 4 million on the last day of each fiscal quarter, with the remaining balance due and payable on January 29, 2024.

Term loan borrowings, which totaled $ 319 million as of March 31, 2021, are due and payable in quarterly installments equal to approximately $ 4 million on the last day of each fiscal quarter, with the remaining balance due and payable on January 29, 2024.

We are required to prepay the term loan by amounts equal to proceeds from the sale or disposition of certain assets if the proceeds are not reinvested within twelve months.

5 unchanged sentences

Interest payments are due on the last day of the selected interest period or quarterly in arrears depending on the type of borrowing.

Including the effect of the interest rate swap agreements described in Note 10, "Derivative Instruments and Hedging Activities," the weighted average interest rates on borrowings outstanding under the Credit Agreement at September 30, 2020 and December 31, 2019 were 1.7 % and 1.6 %, respectively.

Including the effect of the interest rate swap agreements described in Note 10, "Derivative Instruments and Hedging Activities," the weighted average interest rates on borrowings outstanding under the Credit Agreement at March 31, 2021 and December 31, 2020 were 1.2 % and 1.7 %, respectively.

We also pay a commitment fee based on the average daily unused amount of the revolving credit facilities.

The commitment fee is subject to change in

increments of 0.05 % depending on our net leverage ratio.

The commitment fee is subject to change in increments of 0.05 % depending on our net leverage ratio.

In addition, we pay a participation commission on outstanding letters of credit at an applicable rate based on our net leverage ratio, and a fronting fee of 0.125 % to the issuing bank, which are due quarterly in arrears.

Of the total borrowings outstanding under the Credit Agreement, there were $ 18 million classified as current maturities at both September 30, 2020 and December 31, 2019.

As of September 30, 2020, there were letters of credit outstanding in the aggregate amount of $ 71 million.

The amounts available under the revolving credit facilities are reduced by the amounts outstanding under letters of credit, and thus availability under the revolving credit facilities at September 30, 2020 was $ 2.2 billion.

Of the total borrowings outstanding under the Credit Agreement, there were $ 18 million classified as current maturities at both March 31, 2021 and December 31, 2020.

As of March 31, 2021, there were letters of credit outstanding in the aggregate amount of $ 71 million.

Related to the execution of Amendment No.

4 to the Fourth Amended and Restated Credit Agreement in June 2020, we incurred $ 4 million of fees, the majority of which were capitalized as an offset to Long-Term Obligations and are amortized over the term of the agreement.

In 2013, we issued $ 600 million aggregate principal amount of 4.75 % senior notes due 2023 (the "U.S.

Notes (2023)").

Notes (2023) were governed by the Indenture dated as of May 9, 2013 (the "U.S.

Notes (2023) Indenture") among LKQ Corporation, certain of our subsidiaries (the "Guarantors"), the trustee, paying agent, transfer agent and registrar.

Notes (2023) were registered under the Securities Act of 1933.

Notes (2023) bore interest at a rate of 4.75 % per year from the most recent payment date on which interest had been paid or provided for.

Interest on the U.S.

Notes (2023) was payable in arrears on May 15 and November 15 of each year.

Notes (2023) were fully and unconditionally guaranteed, jointly and severally, by the Guarantors.

Notes (2023) and the related guarantees were, respectively, LKQ Corporation's and each Guarantor's senior unsecured obligations and were subordinated to all of the Guarantors' existing and future secured debt to the extent of the assets securing that secured debt.

In addition, the U.S.

Notes (2023) were effectively subordinated to all of the liabilities of our subsidiaries that were not guaranteeing the U.S.

Notes (2023) to the extent of the assets of those subsidiaries.

On January 10, 2020, we redeemed the U.S Notes (2023) at a redemption price equal to 101.583 % of the principal amount of the U.S.

On January 10, 2020, we redeemed the $ 600 million aggregate principal amount of 4.75 % senior notes due 2023 (the "U.S Notes (2023)") at a redemption price equal to 101.583 % of the principal amount of the U.S.

Notes (2023) plus accrued and unpaid interest thereon to, but not including, January 10, 2020.

15 unchanged sentences

On or after January 1, 2024, we may redeem some or all of the Euro Notes (2024) at a redemption price of 100 % of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date.

We may be required to make an offer to purchase the

Euro Notes (2024) upon the sale of certain assets, subject to certain exceptions, and upon a change of control.

In addition, in the event of certain developments affecting taxation or under certain other circumstances which, in any case, require the payment of certain additional amounts, we may redeem the Euro Notes (2024) in whole, but not in part, at any time at a redemption price of 100 % of the principal amount thereof plus accrued but unpaid interest, if any, and such certain additional amounts, if any, to the redemption date.

We may be required to make an offer to purchase the Euro Notes (2024) upon the sale of certain assets, subject to certain exceptions, and upon a change of control.

100 % of the principal amount thereof plus accrued but unpaid interest, if any, and such certain additional amounts, if any, to the redemption date.

Euro Notes (2026/28)

13 unchanged sentences

On or after April 1, 2023, we may redeem some or all of the 2028 notes at the applicable redemption prices set forth in the Euro Notes (2026/28) Indenture.

We also may redeem up to 35 % of the 2026 notes and up to 35 % of the 2028 notes before April 1, 2021 with the net cash proceeds from certain equity offerings.

We may be required to make an offer to purchase the Euro Notes (2026/28) upon the sale of certain assets, subject to certain exceptions, and upon a change of control.

In addition, in the event of certain developments affecting taxation or under certain other circumstances which, in any case, require the payment of certain additional amounts, we may redeem the Euro Notes (2026/28) in whole, but not in part, at any time at a redemption price of 100 % of the principal amount thereof, plus accrued but unpaid interest, if any, and such certain additional amounts, if any, to the redemption date.

Related to the execution of the Euro Notes (2026/28) in April 2018, we incurred $ 16 million of fees, which were capitalized as an offset to Long-Term Obligations and are amortized over the term of the Euro Notes (2026/28).

On April 1, 2021, we redeemed the Euro Notes 2026 at a redemption price equal to 101.813 % of the principal amount of the 2026 notes plus accrued and unpaid interest thereon to, but not including, April 1, 2021.

The total redemption payment was $ 915 million (€ 777 million), including an early-redemption premium of $ 16 million (€ 14 million) and accrued and unpaid interest of $ 16 million (€ 14 million).

In the second quarter of 2021, we will record a loss on debt extinguishment of $ 24 million related to the redemption due to the early-redemption premium and the write-off of the unamortized debt issuance costs.

Receivables Securitization Facility

8 unchanged sentences

Net receivables totaling

$ 107 million and $ 132 million were collateral for the investments under the receivables facility as of September 30, 2020 and December 31, 2019, respectively.

$ 111 million and $ 121 million were collateral for the investments under the receivables facility as of March 31, 2021 and December 31, 2020, respectively.

Under the receivables facility, we pay variable interest rates plus a margin on the outstanding amounts invested by the Purchasers.

The variable rates are based on (i) commercial paper rates, (ii) London Interbank Offered Rate ("LIBOR"), or (iii) base rates, and are payable monthly in arrears.

The variable rates are based on (i) commercial paper rates, (ii), LIBOR, or (iii) base rates, and are payable monthly in arrears.

The commercial paper rate is the applicable variable rate unless conduit investors are not available to invest in the receivables at commercial paper rates.

1 unchanged sentence

We also pay a commitment fee on the excess of the investment maximum over the average daily outstanding investment, payable monthly in arrears.

There was no outstanding balance as of September 30, 2020 or December 31, 2019.

There was no outstanding balance as of March 31, 2021 or December 31, 2020.

Derivative Instruments and Hedging Activities

6 unchanged sentences

Changes in the fair value of the interest rate swap agreements are recorded in Accumulated other comprehensive income (loss) and are reclassified to Interest expense, net of interest income when the underlying interest payment has an impact on earnings.

Our interest rate swap contracts have maturity dates in January 2021 and June 2021.

We hold cross currency swaps, which contain an interest rate swap component and a foreign currency forward contract component that, combined with related intercompany financing arrangements, effectively convert variable rate U.S.

Our interest rate swap contracts have maturity dates in June 2021.

At December 31, 2020, we held cross currency swaps, which contained an interest rate swap component and a foreign currency forward contract component that, combined with related intercompany financing arrangements, effectively convert variable rate U.S.

dollar-denominated borrowings into fixed rate euro-denominated borrowings.

The swaps are intended to minimize the impact of fluctuating exchange rates and interest rates on the cash flows resulting from the related intercompany financing arrangements.

Changes in the fair value of the derivative instruments are recorded in Accumulated other comprehensive income (loss) and are reclassified to Interest expense, net of interest income and Other expense (income), net when the underlying transactions have an impact on earnings.

Our cross currency swaps have maturity dates in October 2020 and January 2021.

We hold foreign currency forward contracts related to certain foreign currency denominated intercompany transactions, with the objective of minimizing the impact of fluctuating exchange rates on these future cash flows.

The swaps were intended to minimize the impact of fluctuating exchange rates and interest rates on the cash flows resulting from the related intercompany financing arrangements.

Changes in the fair value of the derivative instruments were recorded in Accumulated other comprehensive income (loss) and were reclassified to Interest expense, net of interest income and Other income, net when the underlying transactions had an impact on earnings.

From time to time, we may hold foreign currency forward contracts related to certain foreign currency denominated intercompany transactions, with the objective of minimizing the impact of fluctuating exchange rates on these future cash flows.

Under the terms of the foreign currency forward contracts, we will sell the foreign currency in exchange for U.S.

dollars at a fixed rate on the maturity dates of the contracts.

Changes in the fair value of the foreign currency forward contracts are recorded in Accumulated other comprehensive income (loss) and reclassified to Other expense (income), net when the underlying transaction has an impact on earnings.

Our foreign currency forward contracts have maturity dates in December 2020 to coincide with the maturities of the related intercompany loans.

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

September 30, 2020 December 31, 2019

Changes in the fair value of the foreign currency forward contracts where we are applying hedge accounting are recorded in Accumulated other comprehensive income (loss) and reclassified to Other income, net when the underlying transaction has an impact on earnings.

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

March 31, 2021 December 31, 2020

Interest rate swap agreements

2 unchanged sentences

Euro denominated € — € 340,000

€ 423,750 € 435,000

Foreign currency forward contracts

Euro denominated (2)

GBP denominated £ 75,000 £ —

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

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

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

Fair Value at September 30, 2020

Other Current Assets Other Noncurrent Assets Other Accrued Expenses Other Noncurrent Liabilities

SEK denominated kr — kr 227,000

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

Other Accrued Expenses

Fair Value at March, 31 2021 Fair Value at December 31, 2020

Interest rate swap agreements $ 335 $ 899

2 unchanged sentences

Total cash flow hedges $ 335 $ 58,577

Fair Value at December 31, 2019

Other Current Assets Other Noncurrent Assets Other Accrued Expenses Other Noncurrent Liabilities

Interest rate swap agreements $ — $ 3,262 $ — $ —

Cross currency swap agreements 2,975 181 970 23,349

Total cash flow hedges $ 2,975 $ 3,443 $ 970 $ 23,349

While certain derivative instruments executed with the same counterparty are subject to master netting arrangements, we present our cash flow hedge derivative instruments on a gross basis on our Unaudited Condensed Consolidated Balance Sheets.

The impact of netting the fair values of these contracts would have an immaterial impact to our Unaudited Condensed Consolidated Balance Sheet at September 30, 2020.

At December 31, 2019 the impact of netting the fair values of our derivative contracts would result in a $ 1 million decrease to Prepaid expenses and other current assets and Other accrued expenses, and a $ 1 million decrease to Other noncurrent assets and Other noncurrent liabilities on our Unaudited Condensed Consolidated Balance Sheet.

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

We estimate that we will also reclassify $ 1 million of derivative losses (net of tax) from Accumulated other comprehensive income (loss) to Other expense (income), net in our Unaudited Condensed Consolidated Statements of Income within the next 12 months;

the reclassification of derivative losses to Other expense (income), net offsets the projected impact of the remeasurement of the underlying transactions.

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

Other Derivative Instruments

We hold other short-term derivative instruments, including foreign currency forward contracts, to manage our exposure to variability related to inventory purchases denominated in a non-functional currency.

The impact of netting the fair values of these contracts would have no effect on our Unaudited Condensed Consolidated Balance Sheets at March 31, 2021 and December 31, 2020.

The activity related to our cash flow hedges is included in Note 8, "Accumulated Other Comprehensive Income (Loss)."

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

Other Derivative Instruments Not Designated as Hedges

To manage our foreign currency exposure on non-functional currency denominated borrowings, we have entered into short term foreign currency forward contracts.

We expect to enter into similar instruments as each instrument matures and expect to continue to do so until the foreign currency denominated borrowings are repaid.

As of March 31, 2021, we held foreign currency forward contracts with notional amounts of $ 315 million and € 184 million.

At December 31, 2020, the notional amounts of similar contracts were € 142 million and £ 75 million.

On April 1, 2021, in connection with the redemption of the Euro Notes 2026, we entered into an additional foreign currency forward contract with a notional amount of $ 720 million.

We have elected not to apply hedge accounting for these transactions, and therefore the contracts are adjusted to fair value through our results of operations as of each balance sheet date, which could result in volatility in our earnings.

The notional amount and fair value of these contracts at September 30, 2020 and December 31, 2019, along with the effect on our results of operations during the three and nine months ended September 30, 2020 and 2019, were immaterial.

The fair values of these other short-term derivative instruments are recorded in either Prepaid expenses and other current assets or Other accrued expenses on our Consolidated Balance Sheets.

The fair values of these contracts at March 31, 2021 and December 31, 2020, along with the effect on our results of operations during the three months ended March 31, 2021 and 2020, were immaterial.

We hold other short-term derivative instruments, including foreign currency forward contracts, to manage our exposure to variability in the cash flows related to inventory purchases denominated in a non-functional currency.

We have elected not to apply hedge accounting for these transactions.

The notional amount and fair value of these contracts at March 31, 2021 and December 31, 2020, along with the effect on our results of operations during the three months ended March 31, 2021 and 2020, were immaterial.

Fair Value Measurements

Financial Assets and Liabilities Measured at Fair Value

We use the market and income approaches to estimate the fair value of our financial assets and liabilities, and during the three and nine months ended September 30, 2020, there were no significant changes in valuation techniques or inputs related to the financial assets or liabilities that we have historically recorded at fair value.

We use the market and income approaches to estimate the fair value of our financial assets and liabilities, and during the three months ended March 31, 2021, there were no significant changes in valuation techniques or inputs related to the financial assets or liabilities that we have historically recorded at fair value.

The tiers in the fair value hierarchy include:

2 unchanged sentences

and Level 3, defined as significant unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The following tables present information about our financial assets and liabilities measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation inputs we utilized to determine such fair value as of September 30, 2020 and December 31, 2019 (in thousands):

Balance as of September 30, 2020 Fair Value Measurements as of September 30, 2020

The following tables present information about our financial assets and liabilities measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation inputs we utilized to determine such fair value as of March 31, 2021 and December 31, 2020 (in thousands):

Balance as of March 31, 2021 Fair Value Measurements as of March 31, 2021

Level 1 Level 2 Level 3

5 unchanged sentences

Deferred compensation liabilities 81,231 — 81,231 —

Cross currency swap agreements 42,121 — 42,121 —

Foreign currency forward contracts 632 — 632 —

3 unchanged sentences

Cash surrender value of life insurance $ 72,250 $ — $ 72,250 $ —

Interest rate swaps

3,262 — 3,262 —

Cross currency swap agreements 3,156 — 3,156 —

Total Assets $ 72,250 $ — $ 72,250 $ —

Contingent consideration liabilities $ 13,263 $ — $ — $ 13,263

Interest rate swaps 899 — 899 —

Deferred compensation liabilities 76,240 — 76,240 —

Cross currency swap agreements 56,328 — 56,328 —

Foreign currency forward contracts 5,190 — 5,190 —

Total Liabilities $ 151,920 $ — $ 138,657 $ 13,263

9 unchanged sentences

The liabilities for these payments are classified as Level 3 liabilities because the related fair value measurement, which is determined using an income approach, includes significant inputs not observable in the market.

We also have equity investments recorded in Other noncurrent assets that are reported at fair value.

We have used net asset value as a practical expedient to value these equity investments and thus they are excluded from the fair value hierarchy disclosure.

Financial Assets and Liabilities Not Measured at Fair Value

Our debt is reflected on the Unaudited Condensed Consolidated Balance Sheets at cost.

Based on market conditions as of both September 30, 2020 and December 31, 2019, the fair value of our credit agreement borrowings reasonably approximated the carrying values of $ 1.2 billion and $ 1.6 billion, respectively.

As of September 30, 2020 and December 31, 2019 there were no outstanding borrowings under the receivables facility.

As of December 31, 2019, the fair value of the U.S.

Notes (2023) was approximately $ 609 million compared to a carrying value of $ 600 million ;

as of September 30, 2020, there were no outstanding borrowings on the U.S.

Notes (2023).

As of September 30, 2020 and December 31, 2019, the fair values of the Euro Notes (2024) were approximately $ 617 million and $ 632 million, respectively, compared to carrying values of $ 586 million and $ 561 million, respectively.

As of September 30, 2020 and December 31, 2019, the fair value of the Euro Notes (2026/28) was $ 1.2 billion at each date, compared to a carrying value of $ 1.2 billion and $ 1.1 billion, respectively.

Based on market conditions as of both March 31, 2021 and December 31, 2020, the fair value of our credit agreement borrowings reasonably approximated the carrying values of $ 853 million and $ 967 million, respectively.

As of March 31, 2021 and December 31, 2020 there were no outstanding borrowings under the receivables facility.

As of March 31, 2021 and December 31, 2020, the fair values of the Euro Notes (2024) were approximately $ 633 million and $ 662 million, respectively, compared to carrying values of $ 587 million and $ 611 million, respectively.

As of March 31, 2021 and December 31, 2020, the fair values of the Euro Notes (2026/28) were $ 1.2 billion and $ 1.3 billion, respectively, compared to a carrying value of $ 1.2 billion as of both dates.

The fair value measurements of the borrowings under our credit agreement and receivables facility are classified as Level 2 within the fair value hierarchy since they are determined based upon significant inputs observable in the market, including interest rates on recent financing transactions with similar terms and maturities.

We estimated the fair value by calculating the upfront cash payment a market participant would require at September 30, 2020 and December 31, 2019 to assume these obligations.

The fair value of our U.S.

Notes (2023) was classified as Level 1 within the fair value hierarchy since it was determined based upon observable market inputs including quoted market prices in an active market.

We estimated the fair value by calculating the upfront cash payment a market participant would require at March 31, 2021 and December 31, 2020 to assume these obligations.

The fair values of our Euro Notes (2024) and Euro Notes (2026/28) are determined based upon observable market inputs including quoted market prices in markets that are not active, and therefore are classified as Level 2 within the fair value hierarchy.

4 unchanged sentences

The defined benefit plans are mostly closed to new participants and, in some cases, existing participants no longer accrue benefits.

As of September 30, 2020 and December 31, 2019, the aggregate funded status of the defined benefit plans was a liability of $ 141 million and $ 142 million , respectively, and is reported in Other noncurrent liabilities and Accrued payroll-related liabilities on our Unaudited Condensed Consolidated Balance Sheets.

On June 28, 2019, we approved an amendment to terminate our primary defined benefit plan in the U.S.

Plan") and to freeze all related benefit accruals, effective June 30, 2019.

Plan participants were able to receive their full accrued benefits from plan assets by electing either lump sum distributions or annuity contracts with a qualifying third-party annuity provider.

The resulting settlement effect of the U.S.

Plan termination was determined based on prevailing market conditions, the lump sum offer participation rate of eligible participants, the actual lump sum distributions, and annuity purchase rates at the date of distribution.

During the quarter ended June 30, 2020, participants were able to elect lump-sum distributions.

As a result of these elections and subsequent payments, we reclassified $ 2 million of unrealized loss from Accumulated other comprehensive loss to Other expense (income), net in our Unaudited Condensed Consolidated Statements of Income as of June 30, 2020 to reflect the partial settlement of the plan.

During the three months ended September 30, 2020, we recorded a further $ 4 million reclassification of unrealized loss from Accumulated other comprehensive loss to Other expense (income), net based on the annuity purchase cost to settle the plan obligations.

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

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

As of March 31, 2021 and December 31, 2020, the aggregate funded status of the defined benefit plans was a liability of $ 146 million and $ 153 million , respectively, and is reported in Other noncurrent liabilities and Accrued payroll-related liabilities on our Unaudited Condensed Consolidated Balance Sheets.

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

Three Months Ended

Service cost $ 895 $ 670

1 unchanged sentence

Expected return on plan assets ( 423 ) ( 478 )

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

Settlement loss 3,556 — 5,656 —

Amortization of actuarial loss 437 114

Net periodic benefit cost $ 1,251 $ 1,024

For the three and nine months ended September 30, 2020 and 2019, the service cost component of net periodic benefit cost was classified in Selling, general and administrative expenses, while the other components of net periodic benefit cost were classified in Other expense (income), net in our Unaudited Condensed Consolidated Statements of Income.

For the three months ended March 31, 2021 and 2020, the service cost component of net periodic benefit cost was classified in Selling, general and administrative expenses, while the other components of net periodic benefit cost were classified in Other income, net in our Unaudited Condensed Consolidated Statements of Income.

At the end of each interim period, we estimate our annual effective tax rate and apply that rate to our interim earnings.

2 unchanged sentences

The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as the tax environment changes.

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

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

Primary factors in the increase include valuation allowances on the tax benefit of net operating losses in certain jurisdictions where realization is uncertain, and the impact of lower available interest deductions in certain foreign jurisdictions due to legislative thin capitalization constraints, typically based on profitability.

For the nine months ended September 30, 2020, the effective tax rate was increased 0.3 % by unfavorable discrete items, primarily valuation allowances on net operating loss carryforwards and deferred tax adjustments as a result of statutory tax rate changes.

Net discrete items for the nine months ended September 30, 2019 were immaterial to the effective tax rate.

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

Our effective income tax rate for the three months ended March 31, 2021 was 26.3 %, compared to 29.2 % for the comparable prior year period.

The lower estimated annual effective tax rate for 2021 is primarily attributable to the higher forecasted 2021 results of operations, as compared to the forecasts available during the comparable quarter in 2020, when COVID-19 pandemic economic disruptions were depressing forecasted 2020 results.

Higher projected income contributes to lower anticipated valuation allowances on the tax benefit of net operating losses and suspended interest deductions in certain

jurisdictions where realization may be uncertain.

For the three months ended March 31, 2021, the effective tax rate was decreased 0.2 % by favorable discrete items, primarily excess tax benefits on stock-based compensation.

Net discrete items for the three months ended March 31, 2020 reduced the effective tax rate by 0.8 %, primarily due to excess tax benefits on stock-based compensation and deferred tax adjustments as a result of statutory tax rate changes.

Segment and Geographic Information

3 unchanged sentences

Our reportable segments are organized based on a combination of geographic areas served and type of product lines offered.

The reportable segments are managed separately as each business serves different customers (i.e., geographic in the case of North America and Europe and product type in the case of Specialty) and is affected by different economic conditions.

The reportable segments are managed separately as each business serves different customers (i.e.

geographic in the case of North America and Europe and product type in the case of Specialty) and is affected by different economic conditions.

Therefore, we present three reportable segments:

2 unchanged sentences

North America Europe Specialty Eliminations Consolidated

Three Months Ended September 30, 2020

Third Party $ 1,164,031 $ 1,484,099 $ 399,554 $ — $ 3,047,684

Intersegment 210 — 875 ( 1,085 ) —

Total segment revenue $ 1,164,241 $ 1,484,099 $ 400,429 $ ( 1,085 ) $ 3,047,684

Segment EBITDA $ 204,957 $ 136,165 $ 48,340 $ — $ 389,462

Depreciation and amortization (1)

24,479 44,412 7,436 — 76,327

Three Months Ended September 30, 2019

Third Party $ 1,302,086 $ 1,451,483 $ 394,204 $ — $ 3,147,773

Intersegment 61 — 1,110 ( 1,171 ) —

Total segment revenue $ 1,302,147 $ 1,451,483 $ 395,314 $ ( 1,171 ) $ 3,147,773

Segment EBITDA $ 166,310 $ 124,712 $ 45,464 $ — $ 336,486

Depreciation and amortization (1)

23,593 47,302 6,983 — 77,878

North America Europe Specialty Eliminations Consolidated

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Third Party $ 1,249,374 $ 1,463,453 $ 457,959 $ — $ 3,170,786

4 unchanged sentences

24,260 40,258 7,079 — 71,597

Nine Months Ended September 30, 2019

Three Months Ended March 31, 2020

Third Party $ 1,289,935 $ 1,363,594 $ 347,406 $ — $ 3,000,935

6 unchanged sentences

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.

4 unchanged sentences

equity in losses and earnings of unconsolidated subsidiaries;

equity investment mark to market adjustments;

and impairment charges.

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

The table below provides a reconciliation of Net Income to EBITDA and Segment EBITDA (in thousands):

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

The table below provides a reconciliation of Net Income to Segment EBITDA (in thousands):

Three Months Ended

Net income $ 266,332 $ 145,979

net income (loss) attributable to continuing noncontrolling interest 448 ( 46 ) 1,166 2,321

net income attributable to continuing noncontrolling interest 419 740

net income attributable to discontinued noncontrolling interest — 103

Net income attributable to LKQ stockholders 265,913 145,136

Net income (loss) from discontinued operations — 781 ( 638 ) 1,179

Net loss from discontinued operations — ( 915 )

Net income attributable to discontinued noncontrolling interest — ( 103 )

3 unchanged sentences

Depreciation and amortization - restructuring expenses (1)

605 974 4,577 974

Interest expense, net of interest income 24,179 25,931

(Gain) loss on debt extinguishment — ( 128 ) 12,751 ( 128 )

Loss on debt extinguishment — 12,751

Provision for income taxes 92,969 60,411

EBITDA 454,658 316,626

Equity in earnings (losses) of unconsolidated subsidiaries (2)

4,113 4,232 1,980 ( 33,745 )

Equity in earnings of unconsolidated subsidiaries (2)

Equity investment mark to market adjustments 4,739 —

Restructuring and acquisition related expenses (1)

19,890 7,955 47,838 19,639

Restructuring expenses - cost of goods sold ( 163 ) ( 4 )

(Gain) loss on disposal of businesses and impairment of net assets held for sale (3)

( 503 ) ( 3,601 ) 1,733 44,919

Impairment of net assets held for sale and (gain on disposal of business) 15 ( 249 )

Change in fair value of contingent consideration liabilities ( 49 ) ( 96 )

3 unchanged sentences

(2) Refer to "Investments in Unconsolidated Subsidiaries" in Note 3, "Financial Statement Information," for further information.

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

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

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Three Months Ended

Capital Expenditures

4 unchanged sentences

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

September 30, December 31,

March 31, December 31,

Receivables, net

29 unchanged sentences

Unallocated assets include cash and cash equivalents, prepaid and other current and noncurrent assets, goodwill and other intangibles.

Our largest countries of operation are the U.S., followed by Germany and the U.K.

Our largest countries of operation are the U.S., followed by the U.K.

Additional European operations are located in the Netherlands, Italy, Czech Republic, Belgium, Austria, Slovakia, Poland, and other European countries.

Our operations in other countries include wholesale operations in Canada, remanufacturing operations in Mexico, an aftermarket

parts freight consolidation warehouse in Taiwan, and administrative support functions in India.

Our operations in other countries include wholesale operations in Canada, remanufacturing operations in Mexico, an aftermarket parts freight consolidation warehouse in Taiwan, and administrative support functions in India.

Our net sales are attributed to geographic area based on the location of the selling operation.

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

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Three Months Ended

United States $ 1,605,433 $ 1,533,945

Germany 396,119 394,115 1,129,805 1,196,527

United Kingdom 403,438 390,619

Germany 387,876 374,552

Other countries 774,039 701,819

1 unchanged sentence

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

September 30, December 31,

March 31, December 31,

Long-lived assets

5 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements