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Item 2. Management’s Discussion and Analysis

2021-05-05 compared with 2020-11-03 · 247 added, 500 removed, 323 unchanged (70% of the section changed)

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Additionally, we have made investments in various businesses to advance our strategic objectives.

See "Investments in Unconsolidated Subsidiaries" in Note 3, "Financial Statement Information," to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to our investments.

See "Investments in Unconsolidated

Subsidiaries" in Note 3, "Financial Statement Information," to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to our investments.

Sources of Revenue

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Our service revenue is generated primarily from the sale of service-type warranties, fees for admission to our self service yards, and diagnostic and repair services.

Revenue from other sources includes scrap sales, bulk sales to mechanical manufacturers (including cores) and sales of aluminum ingots and sows from our furnace operations.

Revenue from other sources includes scrap and other metal (including precious metals - platinum, palladium and rhodium) sales, bulk sales to mechanical manufacturers (including cores) and sales of aluminum ingots and sows from our furnace operations.

Other revenue will vary from period to period based on fluctuations in commodity prices and the volume of materials sold.

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Our 2020 Form 10-K includes a summary of the critical accounting policies and estimates we believe are the most important to aid in understanding our financial results.

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

COVID-19 Project ions and Assumptions

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

Actual results have shown an improving trend, with profitability in both the second and third quarters exceeding our prior forecast prepared in the first quarter of 2020.

We expect to face continued pressure on revenue with COVID-19 infection rates rising in a number of our geographies, but we believe that profit margins will remain above the prior year due to margin and overhead cost initiatives implemented this year.

Additionally, we expect to generate higher free cash flows (as defined in the Key Performance Indicators section below) for the full year of 2020 than we generated in the prior year.

As the economic impact of the pandemic is dependent on variables that are difficult to project and in many cases are outside of our control, it is possible that the estimates underlying our analyses may change materially in future periods.

This is particularly the case because it appears that the prevalence of the virus outbreak fluctuates depending on various factors, including the level of economic and social activity in a region.

Goodwill and Indefinite-Lived Intangibles Impairment

We are required to test goodwill and indefinite-lived intangibl e assets for impairment at least annually and between annual tests whenever events indicate that an impairment may exist.

When testing goodwill for impairment, we are required to evaluate events and circumstances that may affect the performance of the reporting unit and the extent to which the events and circumstances may impact the future cash flows of the reporting unit to determine whether the fair value of the assets exceeds the carrying value.

Developing the estimated future cash flows and fair value of the reporting unit requires management's judgment in projecting revenues and profits, allocation of shared corporate costs, tax rates, capital expenditures, working capital requirements, discount rates and market multiples.

Many of the factors used in assessing fair value are outside the control of management, and it is reasonably likely that assumptions and estimates can change in future periods.

If these assumptions or estimates change in the future, we may be required to record impairment charges for these assets.

In response to changes in industry and market conditions, we may be required to strategically realign our resources and consider restructuring, disposing of, or otherwise exiting businesses, which could result in an impairment of goodwill.

Our goodwill impairment assessment is performed at the reporting unit level.

A reporting unit is an operating segment, or a business one level below an operating segment (the "component" level), for which discrete financial information is prepared and regularly reviewed by segment management.

However, components are aggregated as a single reporting unit if they have similar economic characteristics.

For the purpose of aggregating our components into reporting units, we review the long-term performance of Segment EBITDA.

Additionally, we review qualitative factors such as type or class of customers, nature of products, distribution methods, inventory procurement methods, level of integration, and interdependency of

processes across components.

Our assessment of the aggregation includes both qualitative and quantitative factors and is based on the facts and circumstances specific to the components.

We have four operating segments:

Wholesale – North America, Europe, Specialty and Self Service.

Each of these operating segments consists of multiple components that have discrete financial information available that is reviewed by segment management on a regular basis.

We have evaluated these components and concluded that the components that compose each of the Wholesale – North America, Europe, Specialty, and Self Service operating segments are economically similar and thus were aggregated into those four separate reporting units for our interim goodwill impairment test in the first quarter of 2020.

Our goodwill would be considered impaired if the carrying value of a reporting unit exceeded its estimated fair value.

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

We believe that using two methods to determine fair value limits the chances of an unrepresentative valuation.

Discount rates, growth rates and cash flow projections are the assumptions that are most sensitive and susceptible to change as they require significant management judgment.

Impairment may result from, among other things, deterioration in the performance of our reporting units' businesses, increases in our cost of capital, adverse market conditions, and adverse changes in applicable laws or regulations, including modifications that restrict the activities of our reporting units' businesses.

To assess the reasonableness of the fair value estimates, we compare the sum of the reporting units’ fair values to the Company’s market capitalization and calculate an implied control premium, which is then evaluated against recent market transactions in our industry, or in the case of our interim test, against transactions during the 2008-2009 financial crisis.

If we were required to recognize goodwill impairments, we would report those impairment losses as part of our operating results.

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

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

See Note 3, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to our interim goodwill impairment test.

We review indefinite-lived intangible assets for impairment annually or on an interim basis if events or changes in circumstances indicate th at the carrying value may not be recoverable.

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

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

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

There have been no changes to those critical accounting policies and estimates that have had a material impact on our reported amounts of assets, liabilities, revenue or expenses during the three months ended March 31, 2021.

Recently Issued Accounting Pronouncements

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Based on our expectations in the second quarter of 2020 that the impacts on our business from COVID-19 had stabilized, we restarted the program in July 2020 with substantially the same initiatives and projects as prior to the pandemic.

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

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

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

however, we are undertaking a full review of most projects under the program in the fourth quarter, and will provide updated program estimates once we have completed that effort.

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

We have continued the project on schedule after the restart.

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 $14 million in costs across all three categories noted above.

We expect that costs of the program, reflecting all three categories noted above, will range between $50 million and $70 million in 2021 with an additional $80 million to $100 million between 2022 and the projected program completion date in 2024.

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

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

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

Our organic parts and services revenue declined by 16.8%, 4.5% and 5.2% in the second, third, and fourth quarters of 2020, respectively, relative to the comparable prior periods.

We showed improvement in the third quarter of 2020 as governments gradually lifted restrictions for non-essential businesses and personal movement;

however, in the fourth quarter of 2020 revenue declined as certain jurisdictions put restrictions back into place.

As anticipated, April 2020 experienced the most negative revenue impact, with organic parts and services revenue (on a per day basis) down 30.3% compared to the prior year period.

As movement restrictions lessened in May and June 2020, we experienced organic parts and services revenue declines (on a per day basis) of 13.2% and 7.3%, respectively, compared to the prior year periods.

However, the pace of improvement flattened into the third quarter as the increasing level of COVID-19 cases, especially in the United States, slowed the recovery.

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

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

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

However, the pace of improvement flattened into the third quarter of 2020 as the increasing level of COVID-19 cases, especially in the United States, slowed the recovery.

During the third quarter of 2020, organic parts and services revenue declined by 4.5% compared to the prior year period, a small improvement from the June 2020 decline of 7.3% (on a per day basis).

During the fourth quarter of 2020, organic parts and services revenue declined by 6.1% (on a per day basis) and gradually worsened during the quarter with a decline of 7.2% (on a per day basis) in December.

During the first quarter of 2021, organic parts and services revenue increased by 2.2% (on a per day basis) despite the continued COVID-19 impact on economic activity in the U.S.

Our revenue has been impacted to varying degrees depending on the segment, with North America experiencing the most negative impact due to the decrease in miles driven and collision activity.

After seeing year over year decreases early in the pandemic, Specialty revenue has grown due to favorable trends in recreational vehicle activity.

We expect consolidated revenue to continue to increase in the second quarter of 2021 off of a low base and a gradual recovery in the second half of 2021.

The level of the year over year increase in revenue will depend on the extent of lockdown measures taken in response to the prevalence of the virus outbreak and the timing and effectiveness of the vaccination efforts.

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

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

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

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

We estimate that the cost actions generated a $10 million benefit in cost of goods sold compared to our second quarter of 2019.

Some of the savings from the cost actions were delayed as we paid out vacation balances in April and covered medical benefits for employees in the United States during their furlough period.

During the third quarter, we were able to sustain a portion of the cost benefits, with quarterly selling, general and administrative costs down 10% compared to the first quarter 2020 run rate.

We estimate that the cost actions generated a $10 million benefit in cost of goods sold compared to our third quarter of 2019.

If revenue increases going forward into 2021 as projected, we expect that some of the costs that were reduced as a result of COVID-19 will remain at a lower level;

the management team has been implementing productivity initiatives to create lower cost structures going forward as seen in the third quarter results.We pursued certain financial assistance and relief programs that were available to us from governments in Europe and Canada, primarily in the form of grants to offset personnel expenses;

through September 30, 2020, we qualified for $45 million of assistance, although that figure was heavily weighted to the second quarter.

We currently do not anticipate qualifying for significant additional assistance in the fourth quarter of 2020, although this view may change in the future based on developments with the recent resurgence of the virus outbreak.

These cost actions lagged the revenue impact in the first and second quarters, which meant there was a negative timing impact of COVID-19 on our profitability in those periods in addition to the negative effect from reduced revenue.

quarter, the cost actions were aligned with the revenue changes, and we generated higher Segment EBITDA dollars and margins than in the third quarter of 2019.

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

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

During the third and fourth quarters of 2020 and first quarter of 2021, we were able to sustain a portion of the cost benefits, with quarterly selling, general and administrative costs down between 6% and 10% for all periods compared to the first quarter 2020 run rate.

If revenue increases during the remainder of 2021, we expect that some of the costs that were reduced as a result of COVID-19 will remain at a lower level;

the management team has been implementing productivity initiatives to create lower cost structures going forward as seen in the third and fourth quarter of 2020 and first quarter of 2021 results.

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

During the quarter ended March 31, 2021, we qualified for $9 million of assistance.

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

We received $52 million of government assistance in 2020, with the largest portion coming in the second quarter.

We currently do not anticipate qualifying for significant additional assistance in the remainder of 2021, but we still will receive some government assistance in England.

This view may change in the future based on developments with the resurgence of the virus outbreak.

These cost actions lagged the revenue impact in the first and second quarters of 2020, which meant there was a negative timing impact of COVID-19 on our profitability in those periods in addition to the negative effect from reduced revenue.

By the third quarter, the cost actions were aligned with the revenue changes, and we generated higher Segment

EBITDA dollars and margins than in the third quarter of 2019.

In the fourth quarter of 2020 and first quarter of 2021, profitability remained higher than the prior year.

We also emphasized the preservation of capital in 2020 with a deferral of growth driven capital projects, reductions in inventory orders, more active monitoring of customer receivables and terms, income and value added tax payment deferrals (the majority of which were paid during the third quarter of 2020), and suspension of our share buyback program (which was reinstated during the fourth quarter of 2020).

This focus was successful as we improved our liquidity position at March 31, 2021 by approximately $1.4 billion relative to March 31, 2020 while managing through the disruption caused by the pandemic.

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

Actual results showed an improving trend, with profitability in the second, third and fourth quarters all exceeding our prior forecast prepared in the first quarter of 2020.

We will continue to assess COVID-19 developments and the potential impacts on our business in 2021 and update the applicable analyses as necessary.

This is particularly the case because it appears that the prevalence of the virus outbreak fluctuates depending on various factors, including the level of economic and social activity in a region.

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

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

We have implemented protocols across our business units to help ensure the health and safety of our employees, customers and communities including, but not limited to:

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

We have implemented protocols across our business units designed to help ensure the health and safety of our employees, customers and communities including, but not limited to:

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

use of personal protection equipment;

use of personal protective equipment;

adhering to social distancing guidelines;

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and restricting travel.

See the Results of Operations and Liquidity sections for further detail on the year over year trends.

See the Results of Operations and Liquidity sections for further detail on our year over year trends.

Key Performance Indicators

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Free cash flow provides insight into our liquidity and provides useful information to management and investors concerning our cash flow available to meet future debt service obligations and working capital requirements, to make strategic acquisitions and to repurchase stock.

These three key performance indicators are used as targets to determine incentive compensation at various levels of the organization, including senior management.

These three key performance indicators are used as targets in determining incentive compensation at various levels of the organization, including senior management.

By using these performance measures, we attempt to motivate a balanced approach to the business that rewards growth, profitability and cash flow generation in a manner that enhances our long-term prospects.

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

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 2020 2019

Three Months Ended

Revenue 100.0 % 100.0 %

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Restructuring and acquisition related expenses 0.2 % 0.2 %

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

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

0.0 % (0.0) %

Depreciation and amortization 2.1 % 2.2 %

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Income from continuing operations before provision for income taxes

8.8 % 6.5 % 7.4 % 6.3 %

Provision for income taxes 2.9 % 2.0 %

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

Equity in earnings of unconsolidated subsidiaries 0.2 % 0.0 %

Income from continuing operations 8.4 % 4.9 %

Net income (loss) from discontinued operations — % 0.0 % (0.0) % 0.0 %

Net loss from discontinued operations — % (0.0) %

Net income 8.4 % 4.9 %

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

net income attributable to continuing noncontrolling interest 0.0 % 0.0 %

net income attributable to discontinued noncontrolling interest

— % 0.0 % 0.0 % 0.0 %

Net income attributable to LKQ stockholders 8.4 % 4.8 %

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

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

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

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

Three Months Ended

September 30, Percentage Change in Revenue

March 31, Percentage Change in Revenue

2021 2020 Organic Acquisition and Divestiture Foreign Exchange Total Change

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

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

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

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

The increase in parts and services revenue of 4.2% represented increases in segment revenue of 31.8% in Specialty and 7.2% in Europe, partially offset by a decline of 8.0% in North America segment revenue.

Organic parts and services revenue growth was 0.6%, which included a 1.6% negative effect from approximately one less selling day in the first quarter, resulting in a per day organic increase of 2.2%.

Through February 2021, parts and services revenue was down 4.4% per day due to the continuing effects of lockdown measures related to the pandemic.

In March 2021, revenue growth was 15.7% on a per day basis as the negative pandemic effect in March 2020 was more severe than in the current year.

We expect to report organic growth in the second quarter of 2021 coming off a low base as April and May 2020 had the most significant negative effects from the lockdown measures.

The increase in other revenue of 27.0% was primarily driven by a $50 million organic increase, largely attributable to our North America segment.

Refer to the discussion of our segment results of operations for factors contributing to the change in revenue by segment during the first quarter of 2021 compared to the prior year period.

Cost of Goods Sold .

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

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

Cost of goods sold decreased to 59.2% of revenue in the three months ended March 31, 2021 from 59.6% of revenue in the three months ended March 31, 2020.

Cost of goods sold decreased 0.6%, 0.2% and 0.2% in our

Europe, North America and Specialty segments, respectively, partially offset by a 0.7% increase in cost of goods sold attributable to mix.

The mix impact was a result of the decreased volumes in our North America segment primarily due to the COVID-19 pandemic, as the higher margin North America segment made up a smaller percentage of the consolidated results, causing an unfavorable effect on the gross margin percentage.

For the three months ended September 30, 2020, we recorded inventory

write downs of $1 million, primarily related to restructuring plans in our North America segment, compared to $17 million for the three months ended September 30, 2019;

these inventory write-downs were principally due to our Europe segment, and related to the U.K.

branch consolidation and brand rationalization initiated as part of our restructuring programs.

The lower inventory write downs in the three months ended September 30, 2020 compared to the prior year period resulted in a favorable impact on cost of goods sold of 0.5%.

Our restructuring plans are described in Note 5, "Restructuring and Acquisition Related Expenses" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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

Refer to the discussion of our segment results of operations for factors contributing to the changes in cost of goods sold as a percentage of revenue by segment for the three months ended March 31, 2021 compared to the same period of 2020.

Selling, General and Administrative Expenses.

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

SG&A expenses decreased due to (i) a decrease of 1.3% in our North America segment, and (ii) a 0.2% decrease in SG&A expenses attributable to mix.

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

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

Our selling, general and administrative ("SG&A") expenses as a percentage of revenue decreased to 26.8% in the three months ended March 31, 2021 from 30.0% in the three months ended March 31, 2020.

SG&A expenses decreased over the prior year period as a result of (i) decreases of 1.2% in both our North America and Europe segments, (ii) a 0.4% decrease in our Specialty segment and (iii) a 0.4% decrease in SG&A expenses attributable to mix.

The mix impact was a result of the increased revenues in our Specialty segment, as the lower SG&A expense percentage for the Specialty segment made up a larger percentage of the consolidated results, which had a favorable effect on the SG&A expense percentage.

Refer to the discussion of our segment results of operations for factors contributing to the changes in SG&A expenses as a percentage of revenue by segment for the three months ended March 31, 2021 compared to the three months ended March 31, 2020.

Restructuring and Acquisition Related Expenses .

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Three Months Ended

September 30,

2021 2020 Change

Restructuring expenses $ 12,701 (1)

Acquisition related expenses 7,794 (3)

Total restructuring and acquisition related expenses $ 7,885 (1)

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

(2) Restructuring expenses for the three months ended September 30, 2019 primarily consisted of $4 million related to our 2019 global restructuring program and $3 million related to integration costs from acquisitions.

(3) Acquisition related expenses for the three months ended September 30, 2020 consisted of an $8 million adjustment for the resolution of a purchase price matter related to the Stahlgruber transaction for an amount above our prior estimate.

(4) Acquisition related expenses for the three months ended September 30, 2019 included approximately $1 million of costs related to the acquisition of an immaterial wholesale business in Europe.

(1) Restructuring expenses for the three months ended March 31, 2021 primarily consisted of (i) $5 million related to our 1 LKQ Europe program and (ii) $2 million related to the 2020 global restructuring program.

(2) Restructuring expenses for the three months ended March 31, 2020 primarily consisted of (i) $3 million related to our 2019 global restructuring program, (ii) $2 million related to our 2020 global restructuring program and (iii) $2 million related to integration costs from acquisitions.

See Note 5, "Restructuring and Acquisition Related Expenses" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on our restructuring and integration plans.

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

For the three months ended September 30, 2020, we recorded an adjustment to reduce a previously recorded loss on disposal by $1 million;

this adjustment was partially offset by immaterial impairment charges on net assets held for sale.

For the three months ended September 30, 2019, we recorded a $4 million net reversal of impairment charges on net assets held for sale, primarily attributable to our North America segment.

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

Depreciation and Amortization .

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Three Months Ended

September 30,

2021 2020 Change

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Total depreciation and amortization $ 65,801 $ 65,495 $ 306

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

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

Other Expense, Net.

The following table summarizes the components of the change in other expense, net (in thousands):

Other expense, net for the three months ended September 30, 2019 $ 26,037

(Decrease) increase due to:

Interest expense, net of interest income (6,922) (1)

Gain on debt extinguishment 128

Other expense (income), net 8,431 (2)

Net increase 1,637

Other expense, net for the three months ended September 30, 2020 $ 27,674

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

(2) The increase in other expense (income), net primarily consisted of (i) a $4 million unfavorable variance in foreign currency gains and losses, and (ii) a $4 million pension settlement loss recorded in the third quarter of 2020 based on the annuity purchase cost to settle the obligations of our primary defined benefit plan in the U.S.

Provision for Income Taxes .

Our effective income tax rate for the three months ended September 30, 2020 was 29.3%, compared to 28.1% for the comparable prior year period.

The rate in the third quarter of 2020 includes an unfavorable discrete item impact of 1.3%, primarily attributable to valuation allowances on net operating loss carryforwards and deferred tax adjustments as a result of statutory tax rate changes.

The prior year comparative quarter included an unfavorable discrete item impact of 0.6%, including an unfavorable adjustment to the projected 2019 full year estimated tax rate as a result of a shift in the projected geographic blend of earnings, partially offset by excess tax benefits on stock based compensation.

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

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

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

Equity in Earnings (Losses) of Unconsolidated Subsidiaries.

Equity in earnings (losses) of unconsolidated subsidiaries for the three months ended September 30, 2020 and 2019 primarily related to our investment in Mekonomen, and the change in earnings was roughly flat from the third quarter of 2020 compared to the prior year period.

Foreign Currency Impact.

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

Relative to the rates used during the three months ended September 30, 2019, the euro, pound sterling, and Czech koruna rates used to translate the 2020 statements of income increased by 5.2%, 4.8%, and 2.3%, respectively.

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

dollar netted against the negative impact of realized and unrealized currency

gains and losses for the three months ended September 30, 2020, resulting in an immaterial negative effect on diluted earnings per share relative to the prior year period.

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

Net income (loss) attributable to continuing noncontrolling interest for the three months ended September 30, 2020 increased an immaterial amount compared to the three months ended September 30, 2019 primarily due to the noncontrolling interest of subsidiaries acquired in connection with the Stahlgruber acquisition.

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

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

Nine Months Ended

September 30, Percentage Change in Revenue

2020 2019 Organic Acquisition and Divestiture Foreign Exchange Total Change

Parts & services revenue $ 8,201,604 $ 9,021,790 (8.4) % (0.5) % (0.2) % (9.1) %

Other revenue 473,338 474,459 (0.7) % 0.5 % (0.0) % (0.2) %

Total revenue $ 8,674,942 $ 9,496,249 (8.0) % (0.4) % (0.2) % (8.6) %

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

The decline in parts and services revenue of 9.1% represented decreases in segment revenue of 13.3% in North America, 8.1% in Europe, and 0.5% in Specialty.

Organic parts and services revenue declined by 8.4%, which included a 0.4% positive effect from one additional selling day in the first nine months of 2020, resulting in a per day organic decline of 8.8%.

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

The decrease in other revenue of 0.2% was primarily driven by a $3 million organic decrease, largely attributable to our North America segment.

Refer to the discussion of our segment results of operations for factors contributing to the change in revenue by segment during the first nine months of 2020 compared to the prior yea r period.

Cost of Goods Sold .

Cost of goods sold decreas ed to 60.5% of revenu e in the nine months ended September 30, 2020 from 61.5% of revenue in the nine months ended September 30, 2019.

Cost of goods sold decreased 0.7% and 0.6% in our North America and Europe segments, respectively, partially offset by a 0.2% increase in cost of goods sold attributable to mix.

For the nine months ended September 30, 2020, we recorded inventory write downs related to restructuring plans of $4 million and $3 million in our North America and Europe segments, respectively.

For the nine months ended September 30, 2019, we recorded inventory write downs of $17 million, principally due to our Europe segment related to U.K.

branch consolidation and brand rationalization initiated as part of our restructuring plans.

The lower inventory write downs in the nine months ended September 30, 2020 compared to the prior year period resulted in a favorable impact on cost of goods sold of 0.1%.

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

Selling, General and Administrative Expenses.

Our SG&A expenses as a percentage of revenue remained flat at 28.3% in the nine months ended September 30, 2020 compared to the nine months ended September 30, 2019.

SG&A expenses remained flat over the prior year period as a result of (i) a decrease of 0.3% in our North America segment and (ii) a 0.2% decrease in SG&A expenses attributable to mix, offset by (iii) an increase of 0.5% in our Europe segment.

The mix impact was a result of the decreased volumes in our North America segment primarily due t o the COVID-19 pan de mic, as the higher SG&A expense percentage for the North America segment made up a smaller percentage of the consolidated results, which had a favorable effect on the SG&A expense percentage.

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

Restructuring and Acquisition Related Expenses .

The following table summarizes restructuring and acquisition related expenses for the periods indicated (in thousands):

Nine Months Ended

September 30,

2020 2019 Change

Restructuring expenses $ 44,498 (1)

Acquisition related expenses 7,917 (3)

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

(1) Restructuring expenses for the nine months ended September 30, 2020 primarily consisted of (i) $31 million related to our 2020 global restructuring program, (ii) $8 million related to integration costs from acquisitions, and (iii) $6 million related to our 2019 global restructuring program.

(2) Restructuring expenses for the nine months ended September 30, 2019 primarily consisted of $10 million related to our 2019 global restructuring program and $9 million related to integration costs from acquisitions.

(3) Acquisition related expenses for the nine months ended September 30, 2020 primarily consisted of an $8 million adjustment for the resolution of a purchase price matter related to the Stahlgruber transaction for an amount above our prior estimate.

(4) Acquisition related expenses for the nine months ended September 30, 2019 included approximately $1 million of costs related to the acquisition of an immaterial wholesale business in Europe.

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

For the nine months ended September 30, 2020 , we recorded a net loss on the disposal of businesses and impairment charges on net assets held for sale totaling $2 million, compared to $45 million of net impairment charges on net assets held for sale for the nine months ended September 30, 2019 primarily attributable to our North America segment.

Depreciation and Amortization .

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

Nine Months Ended

September 30,

2020 2019 Change

Depreciation $ 112,462 $ 109,245 $ 3,217 (1)

Amortization 87,435 104,104 (16,669) (2)

Total depreciation and amortization $ 199,897 $ 213,349 $ (13,452)

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

(2) The decrease in amortization expense primarily reflected decreases of $12 million and $4 million relate d to the customer relationship intangible assets recorded upon our acquisitions of Stahlgruber and Rhiag, respectively, as the accelerated amortization of the customer relationship intangible assets resulted in lower amortization expense during the nine months ended September 30, 2020 compared to the prior year period.

(1) Depreciation expense increased by $2 million, primarily due to capital expenditures in our North America and Europe segments since March 31, 2020.

(2) The decrease in amortization expense primarily reflected (i) decreases of $3 million and $1 million related to the customer relationship intangible assets recorded upon our acquisitions of Stahlgruber and Rhiag, respectively, as the accelerated amortization of the customer relationship intangible assets resulted in lower amortization expense during the three months ended March 31, 2021 compared to the prior year period, partially offset by (ii) a $2 million increase from foreign currency translation, primarily related to an increase in the euro exchange rate during the three months ended March 31, 2021 compared to the prior year period.

Other Expense, Net.

The following table summarizes the components of the change in other expense, net (in thousands):

Other expense, net for the nine months ended September 30, 2019 $ 88,426

(Decrease) increase due to:

Other expense, net for the three months ended March 31, 2020 $ 35,060

Decrease due to:

Interest expense, net of interest income (1,752) (1)

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

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

Loss on debt extinguishment (12,751) (2)

Other income, net (2,591) (3)

Net decrease (17,094)

Other expense, net for the nine months ended September 30, 2020 $ 80,176

(1) The decrease in interest is primarily related to (i) a $23 million decrease resulting from lower outstanding debt during the nine months ended September 30, 2020 compared to the prior year period, and (ii) a $5 million decrease from lower interest rates on borrowings under our senior secured credit agreement compared to the prior year period.

Other expense, net for the three months ended March 31, 2021 $ 17,966

(1) The decrease in interest is primarily relat ed to (i) a $5 million decrease resulting from lower outstanding debt during the three months ended March 31, 2021 compared to the prior year period, partially offset by (ii) a $2 million increase from foreign currency translation, primarily related to an increase in the euro exchange rate during the three months ended March 31, 2021 compared to the prior year period.

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

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

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

Plan, (ii) a $4 million unfavorable variance in foreign currency gains and losses, and (iii) several individually

immaterial factors that increased other expense (income), net by $1 million in the aggregate in 2020, partially offset by (iv) a $5 million increase in insurance settlement proceeds in our North America segment compared to the prior year period.

(3) The favorable variance in Other income, net primarily related to a $4 million mark to market adjustment in 2021 for appreciation in our equity investments not accounted for under the equity method.

Provision for Income Taxes .

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

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

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

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

Equity in Earnings (Losses) of Unconsolidated Subsidiaries.

Equity in earnings (losses) of unconsolidated subsidiaries for the nine months ended September 30, 2020 primarily related to our investment in Mekonomen.

During the first quarter of 2019, we recorded a $40 million other-than-temporary impairment related to our investment in Mekonomen.

See "Investments in Unconsolidated Subsidiaries" in Note 3, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on the impairment charge.

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.

See Note 13, "Income Taxes" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

Equity in Earnings of Unconsolidated Subsidiaries.

Equity in earnings of unconsolidated subsidiaries for the three months ended March 31, 2021 increased by $5 million primarily related to improved year over year results reported by Mekonomen, which is our largest equity method investment.

Foreign Currency Impact.

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

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

the year to date average rates for the euro and pound sterling were roughly flat in the current year compared to the prior year period.

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

dollar, combined with the more significant negative impact of realized and unrealized currency gains and losses for the nine months ended September 30, 2020, resulted in a $0.01 negative effect on d iluted earnings per share relative to the prior year period.

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

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

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

Relative to the rates used during the three months ended March 31, 2020, the euro, pound sterling, Czech koruna and Canadian dollar rates used to translate the 2021 statements of income increased by 9.3%, 7.8%, 7.2% and 6.0%, respectively.

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

dollar netted against the negative impact of realized and unrealized currency gains and losses for the three months ended March 31, 2021, resulting in an immaterial negative effect on diluted earnings per share relative to the prior year period.

Net Income Attributable to Continuing and Discontinued Noncontrolling Interest.

Net income attributable to continuing noncontrolling interest for the three months ended March 31, 2021 decreased an immaterial amount compared to the three months ended March 31, 2020.

Net income attributable to discontinued noncontrolling interest was immaterial for the three months ended March 31, 2020 and related to the Stahlgruber Czech Republic wholesale business.

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

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The following table presents our financial performance, including third party revenue, total revenue and Segment EBITDA, by reportable segment for the periods indicated (in thousands):

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

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

Three Months Ended March 31,

2021 % of Total Segment Revenue 2020 % of Total Segment Revenue

Third Party Revenue

20 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.

See Note 14, "Segment and Geographic Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a reconciliation of total Segment EBITDA to net income.

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

See Note 14, "Segment and Geographic Information" to the

unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a reconciliation of total Segment EBITDA to net income.

Three Months Ended March 31, 2021 Compared to Three Months Ended March 31, 2020

North America

2 unchanged sentences

Three Months Ended

September 30, Percentage Change in Revenue

North America 2020 2019 Organic Acquisition and Divestiture (3)

Foreign Exchange Total Change

March 31, Percentage Change in Revenue

North America 2021 2020 Organic Acquisition and Divestiture Foreign Exchange Total Change

Parts & services revenue $ 1,018,437 $ 1,107,342 (8.4) % (1)

4 unchanged sentences

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

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

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

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

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

wholesale operations.

The volume decline in collision parts was partially offset by an outperformance of the claims trend attributable to share gains, mechanical part sales and self service parts sales and admissions.

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

Revenue growth from precious metals was partially offset by (i) a $14 million decrease in other scrap metals (e.g.

aluminum) and fluids due to lower volumes, and (ii) a $6 million decrease in revenue from scrap steel due to lower volumes.

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

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

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

(1) Parts a nd services organic revenue declined with one fewer selling day in the three months ended March 31, 2021 compared to the prior year period.

On a per day basis, organic revenue declined 7.0%.

The organic decline was impacted by collision and liability repairable auto claims, which, according to industry data, were approximately 14% lower for the three months ended March 31, 2021 compared to the prior year period.

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

Certain product lines did produce year over year growth, including remanufactured products and self service part sales.

We expect to report organic growth in the second quarter of 2021 coming off a low base as April and May 2020 had the most significant negative effects from the lockdown measures.

(2) The $48 million year over year organic increase in other revenue is primarily related to (i) a $23 million increase in revenue from scrap steel due to higher prices and (ii) a $22 million increase in revenue from precious metals (platinum, palladium, and rhodium) primarily due to higher prices compared to the prior year.

The higher prices from scrap steel and precious metals were partially offset due to lower purchase volumes and throughput mainly in our salvage operations as a result of the COVID-19 pandemic.

Segment EBITDA .

Segment EBITDA increa sed $39 million, or 23.2%, in the third quarter of 2020 compared to the prior year period.

The increase in Segment EBITDA was primarily due to operational efficiency and rightsizing actions and favorable precious metals pricing.

Additionally, net sequential increases in scrap steel prices in our salvage and self service operations had a favorable impact of $5 million on Segment EBITDA during the three months ended September 30, 2020, compared to an $8 million unfavorable impact during the three months ended September 30, 2019 resulting from net sequential decreases in scrap steel prices.

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

Segment EBITDA increased $38 million, or 17.8%, in the first quarter of 2021 including the impact of one fewer selling day compared to the prior year period.

The adverse impact of the COVID-19 pandemic on sales volumes in our wholesale operations had a negative effect on Segment EBITDA but was more than offset in part due to higher revenue from precious metals and scrap steel prices, operational efficiencies, and rightsizing actions.

Net sequential increases in scrap steel prices in our salvage and self service operations had a $21 million f avorable impact on Segment EBITDA during the three months ended March 31, 2021, compared to a $6 million favorable impact during the three months ended March 31, 2020 resulting from net sequential increases in scrap steel prices.

This favorable impact for the three months ended March 31, 2021 resulted from the increase in scrap steel prices between the date we purchased a vehicle, which influences the price we pay for a vehicle, and the date we scrapped a vehicle, which influences the price we receive for scrapping a vehicle.

Additionally, increases in precious metals prices contributed an estimated $19 million in Segment EBITDA improvement relative to the first quarter of 2020.

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

North America Percentage of Total Segment Revenue

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

Segment EBITDA for the three months ended March 31, 2020 16.4 %

Increase (decrease) due to:

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Change in other expense, net and net income attributable to continuing noncontrolling interest (0.2) % (3)

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

Segment EBITDA for the three months ended March 31, 2021 19.9 %

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

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

The increase in wholesale gross margin was primarily attributable to the positive impact of cost reductions from operational efficiency and rightsizing actions;

margin initiatives;

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

and favorable return rates compared to the prior year period.

The increase in self service gross margin was primarily attributable to higher prices of precious metals as well as sequential increases in scrap steel prices.

We expect downward pressure on our salvage and self service margins in the fourth quarter of 2020 as purchase costs have increased in recent months due to the reduced availability of cars for purchase, reflecting the impact of the COVID-19 pandemic.

We are attempting to mitigate this margin pressure by adjusting our prices and driving further efficiencies.

(2) The decrease in segment operating expense as a percentage of revenue, despite the deleveraging impact of the organic revenue parts and services revenue decline of 11.3% compared to the prior year, reflects (i) a favorable impact of 3.0% from personnel expenses related to permanent and temporary headcount reductions, reduced hours, limitations on travel, government grants in Canad a and favorable medical costs, (ii) a favorable impact of 0.4% on bad debt expense due to strong collection efforts and improving economic conditions compared to the first half of 2020, (iii) a favorable impact of 0.4% for a gain on sale of property, and (iv) a favorable impact of 0.3% from fuel usage and prices.

This was partially offset by a negative leverage effect of 0.4% from facility expenses which are largely fixed and do not fluctuate with revenue, and several individually immaterial factors that had an unfavorable impact of 0.2%.

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

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

(3) The increase in other expense, net and net income attributable to continuing noncontrolling interest was primarily due to an unfavorable impact of 0.3% from pension expense resulting from a pension settlement loss recorded in the third quarter of 2020.

(1) The increase in gross margin primarily reflected favorable impacts of 0.8% from our wholesale operations offset by a

decline of 0.4% from our self service operations.

Despite the adverse impact of the COVID-19 pandemic on sales volumes in our wholesale operations, gross margin was favorable primarily due to the positive impact of higher precious metals and scrap steel prices, lower discounting, cost reductions from operational efficiencies and rightsizing efforts, and strategic inventory purchases in the fourth quarter of 2020.

The decline in self service gross margin percentage was primarily attributable to increased purchase costs in 2021 due to reduced availability of cars for purchase, partially offset by higher precious metal prices and sequential increases in scrap steel prices.

Although we expect precious metals prices to decrease from near record levels, in the short term, we continue to expect a favorable impact on gross margin dollars due to lower precious metals prices in the prior year.

In the mid to long term time frame, the year over year margin benefit from precious metals will decline if prices decrease as expected in 2021 compared to higher comparable prices in the prior year.

(2) The decrease in segment opera ting expense as a percentage of revenue, despite the deleveraging impact of the organic revenue parts and services revenue decline of 7.0% compared to the prior year, on a per day basis, reflects (i) a favorable impact of 2.4% from personnel expenses related to permanent and temporary headcount reductions, operational efficiencies, limitations on travel, and government grants in Canada, partially offset by higher incentive compensation, (ii) a 0.6% favorable impact from distribution expenses due to rightsizing efforts and reduced miles driven and (iii) a 0.3% favorable impact from bad debt due to collections on past due debt as customers improve solvency and an increase in reserve in the prior year at the beginning of the pandemic.

The impact was partially offset by a negative leverage effect of 0.3% from facility expenses, which are largely fixed.

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

however, we expect that permanent actions taken in 2020 will continue to provide a long-term favorable impact for the segment.

The year over year improvement will moderate in subsequent quarters as we annualize the cost actions.

(3) The increase in other expense, net and net income attributable to continuing noncontrolling interest was due to several individually immaterial factors that had an unfavorable impact of 0.2% in the aggregate.

Third Party Revenue .

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

Three Months Ended September 30, Percentage Change in Revenue

Three Months Ended

March 31, Percentage Change in Revenue

Europe 2021 2020 Organic (1)

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

(1) Parts and services organic revenue declined 0.7% in the third quarter of 2020, mainly as a result of the COVID-19 pandemic disruptions that adversely affected volumes in our European operations.

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

During the third quarter of 2020, the U.K., the Netherlands and Germany recovered at a faster rate and posted slightly positive organic growth, with the recovery in Eastern Europe and Italy lagging behind.

(2) Revenue decreased as a result of the disposals of a non-core telecommunications operation in Germany in the second quarter of 2020 and a wholesale business in Bulgaria in the third quarter of 2019.

(1) Parts and services organic revenue increased for the three months ended March 31, 2021 despite having one fewer selling day compared to the three months ended March 31, 2020.

On a per day basis, organic parts and services revenue increased 1.8%.

Through February 2021, Europe parts and services revenue was down 3.4% per day due to the continuing effects of lockdown measures related to the pandemic.

In March 2021, Europe reported per day revenue growth of 13.1% as the negative pandemic effect in March 2020 was more severe than in the current year.

We expect to report organic growth in the second quarter of 2021 coming off a low base as April and May 2020 had the most significant negative effects from the lockdown measures.

(2) The decline for the three months ended March 31, 2021 was primarily a result of the disposal of a non-core telecommunications operation in Germany in the second quarter of 2020 and two additional smaller disposals in 2020.

(3) Compared to the prior year, exchange rates increased our revenue growth by $114 million, or 8.3%, primarily due to the weaker U.S.

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

dollar against the euro, pound sterling and Czech koruna during the first quarter of 2021 relative to the prior year period.

Segment EBITDA .

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

Segment EBITDA increased $63 million, or 80.1%, in the first quarter of 2021 compared to the prior year period.

Our Europe Segment EBITDA included a positive year over year impact of $7 million related to the translation of local currency results into U.S.

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

dollars at higher exchange rates than those experienced during the first quarter of 2020.

On a constant currency basis (i.e., excluding the translation impact), Segment EBITDA increased by $55 million, or 70.7%, compared to the prior year.

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

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

Europe Percentage of Total Segment Revenue

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

Increase (decrease) due to:

Change in gross margin 0.6 % (1)

Change in segment operating expenses 0.2 % (2)

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

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

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

(1) The increase in gross margin was primarily attributable to favorable impacts of (i) 0.3% from the disposal of a non-core telecommunications operation in Germany in the second quarter of 2020 and (ii) 0.2% across our operations principally as a result of margin improvement initiatives supporting the pursuit of profitable revenue growth, and decreased inventory write-downs.

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

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

Other personnel cost decreases resulted from permanent and temporary headcount reductions, limitations on travel and reduced hours.

As the markets have recovered, volumes increased and government programs ceased, we brought back necessary resources to support our operations;

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

The improvement was partially offset by an increase in non-recurring costs for personnel matters that had an unfavorable impact of 0.2%.

(3) The increase in other expense, net and net income attributable to continuing noncontrolling interest of 0.3% was mainly due to higher foreign exchange losses compared to the prior period.

Third Party Revenue .

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

Three Months Ended September 30, Percentage Change in Revenue

Specialty 2020 2019 Organic (1)

Acquisition and Divestiture Foreign Exchange Total Change

Parts & services revenue $ 399,554 $ 394,204 1.1 % 0.3 % (0.1) % 1.4 %

Other revenue — — — % — % — % — %

Total third party revenue $ 399,554 $ 394,204 1.1 % 0.3 % (0.1) % 1.4 %

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

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

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

Segment EBITDA .

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

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

Specialty Percentage of Total Segment Revenue

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

Increase due to:

Change in gross margin 0.3 % (1)

Change in segment operating expenses 0.2 % (2)

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

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

(1) The increase in gross margin primarily reflects a favorable impact of 0.8% due to freight income, reflecting higher shipping and handling fees tied to increased usage of third party carriers (the offsetting delivery cost is a component of freight expense as mentioned below in the operating expenses discussion), partially offset by an unfavorable impact of 0.4% driven by higher product cost due to lower supplier discounts received in the current year compared to the prior year period.

(2) The decrease in segment operating expenses reflects a favorable impact of 1.1% in personnel costs primarily due to reduced headcount and reduced hours, partially offset by an unfavorable impact of 0.9% in freight, vehicle and fuel expenses due to an increased use of third party freight.

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

North America

Third Party Revenue .

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

Nine Months Ended

September 30, Percentage Change in Revenue

North America 2020 2019 Organic Acquisition and Divestiture (3)

Foreign Exchange Total Change

Parts & services revenue $ 3,007,169 $ 3,466,582 (12.7) % (1)

(0.4) % (0.1) % (13.3) %

Other revenue 457,933 459,380 (0.8) % (2)

0.5 % (0.0) % (0.3) %

Total third party revenue $ 3,465,102 $ 3,925,962 (11.3) % (0.3) % (0.1) % (11.7) %

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

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

On a per day basis, organic revenue declined 13.1%.

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

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

The volume decline in collision parts was partially offset by an outperformance of the claims trend attributable to share gains, mechanical part sales and self service parts sales and admissions .

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

During the period of March 2020 through September 2020, parts and services organic revenue declined 16.5% on a per day basis compared to the prior year period primarily due to volume effects caused by the COVID-19 pandemic (collision and liability repairable auto claims were down approximately 24.4% and 41.7% in the third and second quarters of 2020, respectively, according to data from CCC).

(2) The $1 million year over year organic decrease in other revenue is primarily related to (i) a $41 million decrease in revenue from other scrap metals (e.g.

aluminum) and fluids due to lower volumes, (ii) a $32 million decrease in revenue from scrap steel due to lower prices and volumes, and (iii) a decrease in core revenue of $10 million due to lower volumes, mostly offset by a $79 million increase in revenue from precious metals (platinum, palladium and rhodium) primarily due to higher prices compared to the prior year.

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

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

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

Segment EBITDA.

Segment EBITDA increased $33 million, or 6.2%, in the first nine months of 2020, including the impact of one additional selling day compared to the prior year period.

The increase in Segment EBITDA was primarily due to operational efficiency and rightsizing actions and favorable precious metals pricing.

Additionally, net sequential increases in scrap steel prices in our salvage and self service operations had a $5 million favorable impact on North America Segment EBITDA during the nine months ended September 30, 2020, compared to a $14 million unfavorable impact during the nine months ended September 30, 2019 resulting from net sequential decreases in scrap steel prices.

This favorable impact for the nine months ended September 30, 2020 resulted from the increase in scrap steel prices between the date we purchased a vehicle, which influences the price we pay for a vehicle, and the date we scrapped a vehicle, which influences the price we receive for scrapping a vehicle.

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

North America Percentage of Total Segment Revenue

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

Segment EBITDA for the three months ended March 31, 2020 5.7 %

Increase due to:

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Change in segment operating expenses 2.7 % (2)

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

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

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

(1) The increase in gross margin primarily reflected favorable impa cts of 1.5% from our wholesale operations and 0.5% from our self service operations.

The increase in wholesale gross margin was primarily attributable to the positive impact of cost reductions from operational efficiency and rightsizing actions, higher prices of precious metals and scrap steel, and improved return rates compared to the prior year period.

The increase in self service gross margin was primarily attributable to higher prices of precious metals as well as sequential increases in scrap steel prices.

We are attempting to mitigate this margin pressure by adjusting our prices and driving further efficiencies.

(2) The decrease in segment operating expense as a percentage of revenue, despite the deleveraging impact of the organic revenue parts and services revenue decline of 13.1% compared to the prior year, on a per day basis, reflects a favorable impact of 1.1% from personnel expenses related to permanent and temporary headcount reductions, reduced hours, limitations on travel and governm ent grants in Canada.

The impact was partially offset by a negative leverage effect of 0.6% from facility expenses, which are largely fixed.

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

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

(3) The increase in other expense, net and net income attributable to continuing noncontrolling interest was primarily due to an unfavorable impact of 0.2% from pension expense resulting from pension settlement losses of $6 million related to the U.S.

Plan, partially offset by proceeds from business interruption insurance that had a year over year favorable impact of 0.1%.

Third Party Revenue .

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

Nine Months Ended

September 30, Percentage Change in Revenue

Europe 2020 2019 Organic (1)

Acquisition and Divestiture (2)

Foreign Exchange (3)

Parts & services revenue $ 4,043,473 $ 4,398,185 (7.0) % (0.7) % (0.4) % (8.1) %

Other revenue 15,405 15,079 2.4 % (0.0) % (0.3) % 2.2 %

Total third party revenue $ 4,058,878 $ 4,413,264 (7.0) % (0.7) % (0.4) % (8.0) %

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

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

On a per day basis, organic parts and services revenue decreased 7.5%, mainly driven by t he COVID-19 p andemic disruptions in all of our European operations.

Prior to the pandemic, organic revenue in Europe had increased 0.3% through February, principally driven by the Central and Eastern European region, and to a lesser extent, Germany.

During the period of March 2020 through September 2020, organic revenue declined 9.6% on a per day basis compared to the prior year period primarily due to volume effects caused by the COVID-19 pan demic.

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

(although we have experienced an improvement in the third quarter) and Eastern Europe lagging behind.

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

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

(3) Compared to the prior year, exchange rates decreased our revenue growth by $16 million , or 0.4% , primarily due to the stronger U.S.

dollar against the Czech koruna and pound sterling during the first nine months of 2020 relative to the prior year period.

Segment EBITDA .

Segment EBITDA decreased $42 million , or 12.3% , in the first nine months of 2020 compared to the prior year period.

Our Europe Segment EBITDA included a negative year over year impact of $1 million related to the translation of local currency results into U.S.

dollars at lower exchange rates than those experienced during the first nine months of 2019.

On a constant currency basis (i.e., excluding the translation impact), Segment EBITDA decreased by $42 million , or 12.1% , compared to the prior year.

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

Europe Percentage of Total Segment Revenue

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

Increase (decrease) due to:

Change in gross margin 0.7 % (1)

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

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

Segment EBITDA for the three months ended March 31, 2021 9.6 %

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

(1) The increase in gross margin was primarily attributable to (i) a 0.5% favorable impact across almost all our operations principally as a result of margin improvement initiatives supporting the pursuit of profitable revenue growth, and (ii) several individually immaterial factors that had a favorable impact of 0.2% in the aggregate.

(2) The increase in segment operating expenses as a percentage of revenue reflects unfavorable impacts of (i) 0.4% from bad debt expense due to the downturn in economic conditions caused by the COVID-19 pa nd emic, (ii) 0.2% from professional fees, (iii) a 0.2% increase in non-recurring costs for personnel matters and a loan guarantee and (iv) several individually immaterial factors that had an unfavorable impact of 0.4% in the aggregate.

These negative impacts were partially mitigated by actions to reduce personnel expense which generated a favorable impact of 0.2%.

Despite the third party parts and services organic revenue decline of 7.5%, on a per day basis, and deleverage of the business, management was able to utilize government assistance, permanent and temporary headcount reductions, and limited travel expenses to achieve this 0.2% reduction as a percentage of revenue.

As the markets have recovered, volumes increased and government programs ceased, we brought back necessary resources to support our operations;

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

(1) The increase in gross margin was primarily attributable to favorable impacts of (i) 0.8% as a result of net price increases and margin improvement initiatives supporting the pursuit of profitable revenue growth, and (ii) 0.4% from the disposal of non-core operations in 2020.

(2) The decrease in segment operating expenses as a percentage of revenue reflects favorable impacts of (i) 0.8% from personnel costs primarily due to temporary and permanent headcount reductions, government assistance utilized by management and limited travel expenses, partially offset by increased incentive compensation, (ii) 0.6% from bad debt expense due to customers' improved solvency and an increase in reserve in the prior year at the beginning of the COVID-19 pandemic, (iii) 0.3% from freight, vehicle and fuel expenses due to cost savings from restructuring activities primarily due to exiting facilities and route consolidation, (iv) 0.2% in transformation expenses related to the 1 LKQ Europe program, and (v) other individually immaterial factors that had an impact of 0.8% in the aggregate.

Third Party Revenue .

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

Nine Months Ended

September 30, Percentage Change in Revenue

Three Months Ended March 31, Percentage Change in Revenue

Specialty 2021 2020 Organic (1)

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

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

On a per day basis, organic revenue declin ed 1.1%.

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

Prior to the pandemic, organic revenue in Specialty was greater than the same period in the prior year, increasing 4.3% through February, and in line with our expectations.

During the period of March 2020 through September 2020, organic revenue declined 2.4% on a per day basis compared to the prior year period primarily due to volume effects caused by the COVID-19 pa ndemic.

While down on a year over year basis, revenue held near the prior year level due to strong demand for recreatio nal vehicle products and high drop ship fulfillment, despite the third quarter impact of availability issues at certain suppliers that were not able to meet our demand due to the COVID-19 pandemic.

(1) Parts and services organic revenue increased 30.9% for the first quarter of 2021 compared to the prior year first quarter despite one fewer selling day.

On a per day basis, organic revenue increased 33.0%.

The organic increase was primarily due to strong demand for our products across all channels of our business.

We believe the revenue growth was driven by our competitive advantage with our delivery service teams that enabled us to keep up with the strong demand and have more available inventory than our competitors.

Segment EBITDA .

Segment EBITDA decreased $3 million, or 2.2%, in the first nine months of 2020 compared to the prior year period.

Segment EBITDA increased $29 million, or 90.7%, in the first quarter of 2021 compared to the prior year first quarter.

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

Specialty Percentage of Total Segment Revenue

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

(Decrease) increase due to:

Segment EBITDA for the three months ended March 31, 2020 9.2 %

Increase due to:

Change in gross margin 1.5 % (1)

Change in segment operating expenses 2.7 % (2)

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

Segment EBITDA for the three months ended March 31, 2021 13.4 %

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

(1) The decrease in gross margin primarily reflects unfavorable impacts of (i) 0.6% due t o unfavorable product and channel mix in the first nine months of 2020, and (ii) several individually immaterial factors that had an unfavorable impact of 0.5% in the aggregate, partially offset by a favorable impact of (iii) 0.4% due to freight income, reflecting higher shipping and handling fees tied to increased usage of third party carriers (the offsetting delivery cost is a component of freight expense as mentioned below in the operating expenses discussion).

(2) The decrease in se gment operating expenses reflects a favorable impact of (i) 1.3% in personnel costs due to reduced headcount and reduced hours, partially offset by (ii) a 0.4% unfavorable impact in freight, vehicle and fuel expenses due to an increased use of third party freight, and (iii) several individually immaterial factors that had an unfavorable impact of 0.4% in the ag gregate.

(1) The increase in gross margin primarily reflects favorable impacts of (i) 2.3% due to favorable product and channel mix as well as changes in customer discounts due to inventory availability for the first quarter of 2021 and (ii) 0.4% due to freight income, reflecting higher shipping and handling fees tied to increased usage of third-party carriers (the

offsetting delivery cost is a component of freight expense as mentioned below in the operating expenses discussion), partially offset by (iii) 0.9% related to customer rebates that were lower in the first quarter of 2020 due to lower volumes attributable to the COVID-19 pandemic and (iv) 0.3% higher product cost due to strategic purchase efforts in the fourth quarter of 2019 which benefited the first quarter of 2020 as they were recognized over a turn of inventory.

(2) The decrease in segment operating expenses as a percentage of revenue, which includes the operating leverage impact from the organic parts and services revenue growth of 33.0% compared to the prior year, reflects a favorable impact of (i) 2.3% in personnel costs due to cost reductions in the second half of 2020, partially offset by increased incentive compensation, and (ii) several individually immaterial factors that had a favorable impact of 0.8% in the aggregate, partially offset by (iii) a 0.4% unfavorable impact in freight, vehicle and fuel expenses due to an increased use of third party freight due to customer mix.

Liquidity and Capital Resources

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

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

March 31, 2021 December 31, 2020 March 31, 2020

Cash and cash equivalents $ 590,194 $ 312,154 $ 332,784

9 unchanged sentences

3,244,961 2,858,235 1,861,233

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

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

(1) Debt amounts reflect the gross values to be repaid (excluding debt issuance costs of $23 million, $26 million and $25 million as of March 31, 2021, December 31, 2020 and March 31, 2020, respectively).

(2) Debt amounts reflect the gross values to be repaid (excluding debt issuance costs of $8 million as of March 31, 2021 and immaterial amounts as of both December 31, 2020 and March 31, 2020).

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

4 unchanged sentences

As we have pursued acquisitions as part of our historical growth strategy, our cash flows from operations have not always been sufficient to cover our investing activities.

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

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

• Senior secured credit facilities maturing in January 2024, composed of term loans totaling $350 million ( $328 million outstanding at September 30, 2020) and $3.15 billion in revolving credit ( $918 million outstanding at September 30, 2020), bearing interest at variable rates (although a portion of the outstanding debt is hedged through interest rate swap contracts), with availability reduced by $71 million of amounts outstanding under letters of credit

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

As of March 31, 2021, we had debt outstanding and additional available sources of financing as follows:

• Senior secured credit facilities maturing in January 2024, composed of term loans totaling $350 million ( $319 million outstanding at March 31, 2021) and $3.15 billion in revolving credit ( $534 million outstanding at March 31, 2021), bearing interest at variable rates (although a portion of the outstanding debt is hedged through interest rate swap contracts), with availability reduced by $71 million of amounts outstanding under letters of credit

• Euro Notes (2024) totaling $587 million (€500 million), maturing in April 2024 and bearing interest at a 3.875% fixed rate

• Euro Notes (2026/28) totaling $1.2 billion (€1.0 billion), consisting of (i) €750 million maturing in April 2026 and bearing interest at a 3.625% fixed rate, and (ii) €250 million maturing in April 2028 and bearing interest at a 4.125% fixed rate

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

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

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

• Receivables securitization facility with availability up to $110 million (no outstanding balance as of March 31, 2021), maturing in November 2021 and bearing interest at variable commercial paper rates

As of March 31, 2021, we had approximately $2.7 billion available under our credit facilities.

Combined with $590 million of cash and cash equivalents at March 31, 2021, we had approximately $3.2 billion in available liquidity, an increase of

$387 million from our available liquidity as of December 31, 2020.

On April 1, 2021, we redeemed the Euro Notes (2026) with proceeds from borrowings on our revolving credit facility and cash on hand.

After giving effect to this transaction, we had approximately $1.9 billion a vailable under our credit facilities an d $2.3 billion in available liquidity.

The redemption will lower our weighted average cost of debt and provide meaningful interest expense savings in the current rate environment.

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

1 unchanged sentence

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

Given our success in strengthening our liquidity position as of September 30, 2020, we intend to recommence our share buyback program.

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

With $2.7 billion of total liquidity as of September 30, 2020 and $98 mill ion of current maturities, we have access to funds to meet our near term commitments even if the pandemic effect extends longer than our current expectations.

Given our success in strengthening our liquidity position as of September 30, 2020, we recommenced our share buyback program during the fourth quarter of 2020.

Our 2021 plan includes spending to rebuild inventory levels and support growth driven capital projects.

With $3.2 billion of total liquidity as of March 31, 2021 and $248 million of current maturities, we have access to funds to meet our near term commitments even if the pandemic effect extends longer than our current expectations.

We have a surplus of current assets over current liabilities, which further reduces the risk of short term cash shortfalls.

Our capital preservation plans delivered the desired results as we repaid approxima tely $256 million in borrowings from free cash flows generated in the third quarter as well as cash on hand.

Our total liquidity has increased by $831 million sinc e March 31, 2020, which we believe puts us in a solid position to manage through the pandemic.

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

Covenant Level Ratio Achieved as of September 30, 2020

Covenant Level Ratio Achieved as of March 31, 2021

Maximum net leverage ratio 5.00:1.00 1.4

3 unchanged sentences

refer to "Senior Secured Credit Agreement" in Note 9, "Long-Term Obligations" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information on the June 2020 amendment.

We entered into the amendment out of an abundance of

caution to reduce the risk of breaching the net leverage covenant if the pandemic had a severe and extended effect on profitability.

We entered into the amendment out of an abundance of caution to reduce the risk of breaching the net leverage covenant if the pandemic had a severe and extended effect on profitability.

Our internal models from the first quarter of 2020 suggested that we would be able to meet our payment obligations during the pandemic, but there was a risk that we might exceed the maximum 4.0x net leverage ratio in the event a severe downside scenario developed.

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

With the amendment and the better than forecasted perform ance since the pandemic began, we believe that we have significantly reduced the risk of a covenant br each, including by reducing our net leverage ratio relative to the second quarter of 2020 in each successive quarter.

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

The indentures do not prohibit amendments to the financial covenants under the credit facility as needed.

In the long term, while we believe that we have adequate capacity under our existing credit facilities, from time to time we may need to raise additional funds through public or private financing, strategic relationships or other arrangements, such as (i) our November 2018 amendment to our senior secured credit facility and (ii) the issuance of the Euro Notes (2026/28) in April 2018 related to the Stahlgruber acquisition.

There can be no assurance that additional funding, or refinancing of our credit facilities, if needed, will be available on terms attractive to us, or at all.

1 unchanged sentence

Our failure to raise capital if and when needed could have a material adverse impact on our business, operating results, and financial condition.

From time to time, we may undertake financing transactions to increase our available liquidity, such as (i) our November 2018 amendment to our senior secured credit facility and (ii) the issuance of the Euro Notes (2026/28) in April 2018 related to the Stahlgruber acquisition.

Given the long-term nature of our investment in Stahlgruber, combined with favorable interest rates, we decided to fund the acquisition primarily through long-term, fixed rate notes.

We believe this approach provides financial flexibility to execute our long-term growth strategy while maintaining availability under our revolver.

If we see an attractive acquisition opportunity, we have the ability to use our revolver to move quickly and have certainty of funding up to the amount of our then-available liquidity.

Beginning in 2019, a number of our European suppliers began participating in a supply chain financing initiative in select countries under which they may sell their accounts receivable to the participating financial institutions, allowing us to extend payment terms.

We expect more suppliers to begin participating in our European supply chain financing initiative in the fourth quarter of 2020 and into 2021.

The initiative allows our suppliers to monetize the receivables prior to their payment date, subject to payment of a discount.

We expect more suppliers will begin participating in our European supply chain financing initiative in 2021.

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

The initiative is at the sole discretion of both the supplier and the financial institution on terms that are negotiated between them.

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

In the future, if the

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

All outstanding payments owed under the initiative to the participating financial institutions are recorded within Accounts payable in our Unaudited Condensed Consolidated Balance Sheets.

1 unchanged sentence

We hold interest rate swaps to hedge the variable rates on a portion of our credit agreement borrowings, with the effect of fixing the interest rates on the respective notional amounts.

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

In addition, from time to time, we hold currency swaps that contain an interest rate swap component and a foreign currency forward contract component that, when combined with related intercompany financing arrangements, effectively convert variable rate U.S.

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

These derivative transactions are described in Note 10, "Derivative Instruments and Hedging Activities" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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

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

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

After giving effect to these contracts, the weighted average interest rate on borrowings outstanding under our credit agreement at March 31, 2021 was 1.2%.

Including our senior notes, our overall weighted average interest rate on borrowings was 3.0% at March 31, 2021.

After 2021, it is unclear whether banks will continue to provide LIBOR submissions to the administrator of LIBOR.

At this time, no consensus exists as to which reference rates may become accepted alternatives to LIBOR, although the Alternative Reference Rates Committee, a group of market participants convened by the Federal Reserve Board and the Federal Reserve Bank of New York, has identified the Secured Overnight Financing Rate (“SOFR”) as the recommended alternative to LIBOR.

On November 30, 2020, ICE Benchmark Administration, the administrator of LIBOR, with the support of the United States Federal Reserve and the United Kingdom’s Financial Conduct Authority, announced plans to consult on ceasing publication of USD LIBOR on December 31, 2021 for the one week and two month USD LIBOR tenors, and on June 30, 2023 for all other USD LIBOR tenors.

While this announcement extends the transition period to June 2023, the United States Federal Reserve concurrently issued a statement advising banks to stop new USD LIBOR issuances by the end of 2021.

We cannot currently predict the effect of the discontinuation of, or other changes to, LIBOR or any establishment of alternative reference rates in the United States, the European Union or elsewhere on the global capital markets.

The uncertainty regarding the future of LIBOR, as well as the transition from LIBOR to any alternative reference rate or rates, could have adverse impacts on our variable rate obligations that currently use LIBOR as a benchmark rate.

We are in the process of evaluating our financing obligations and other contracts that refer to LIBOR.

Outstanding debt under our Credit Agreement, which constitutes the most significant of our LIBOR-based debt obligations, contains provisions that address the potential discontinuation of LIBOR and facilitate the adoption of an alternative rate of interest.

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

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

Interest payments on our Euro Notes (2024) and Euro

Notes (2026/28) are made in April and October.

The cash interest payments for the nine months ended September 30, 2020, include approximately $34 million of interest paid for the Euro Notes (2024) and Euro Notes (2026/28) that was due on October 1, 2020.

We had outstanding credit agreement borrowings of $1.2 billion and $1.6 billion at September 30, 2020 and December 31, 2019, respectively.

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

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

Three months ending December 31, 2020 (1) :

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

Cash interest payments were $6 million for the three months ended March 31, 2021;

these payments will increase by $33 million in the second quarter of 2021 as a result of our semi-annual interest payments on our Euro Notes (2024) and Euro Notes (2026/2028).

Interest payments on our Euro Notes (2024) and Euro Notes (2026/2028) are made in April and October.

We had outstanding credit agreement borrowings of $853 million and $967 million at March 31, 2021 and December 31, 2020, respectively.

Of these amounts, $18 million was classified as current maturities at both March 31, 2021 and December 31, 2020.

The scheduled maturities of long-term obligations outstanding at March 31, 2021 are as follows (in thousands):

Nine months ending December 31, 2021 (1) :

Years ending December 31:

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(1) Maturities of long-term obligations due by December 31, 2021 includes $55 million of short-term debt that may be extended beyond the current due date.

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

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

Of the €750 million 2026 notes that were redeemed on April 1, 2021, in the table above $159 million is included in 2021 (reflecting the amount repaid with cash on hand) and $721 million is included in 2024 (reflecting the amount repaid using borrowings under the revolving credit facility).

(2) The total debt amounts presented above reflect the gross values to be repaid (excluding debt issuance costs of $23 million as of March 31, 2021).

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

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

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

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

In general, it is our practice and intention to permanently reinvest the undistributed earnings of our foreign subsidiaries, and that position has not changed following the enactment of the Tax Cuts and Jobs Act of 2017 (the "Tax Act") and the related imposition of the transition tax.

We were in compliance with all restrictive covenants under our credit agreement as of March 31, 2021.

As of March 31, 2021, the Company had cash and cash equivalents o f $590 million , of which $496 million was held by foreign subsidiaries.

In general, it is our practice and intention to permanently reinvest the undistributed earnings of our foreign subsidiaries, and that position has not changed following the enactment of the Tax Cuts and Jobs Act (the "Tax Act") and the related imposition of the transition tax on the deemed repatriation of historical earnings of foreign subsidiaries as of December 31, 2017.

Distributions of dividends from our foreign subsidiaries, if any, would be generally exempt from further U.S.

taxation, either as a result of the 100% participation exemption under the Tax Act, or due to the previous taxation of foreign earnings under the transition tax and the Global Intangible Low-Taxed Income regime, a regime of taxation on foreign subsidiary earnings.

We believe that we have sufficient cash flow and liquidity to meet our financial obligations in the U.S.

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We normally pay for salvage vehicles acquired at salvage auctions and under direct procurement arrangements at the time that we take possession of the vehicles.

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

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 Change 2020 2019 Change (1)

The following table sets forth a summary of our aftermarket and manufactured inventory procurement for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended

2021 2020 Change

North America $ 260,000 $ 328,700 $ (68,700) (1)

$ 760,600 $ 1,005,000 $ (244,400)

Europe 893,600 867,800 25,800 (2)

2,491,600 2,931,300 (439,700)

Specialty 391,300 307,300 84,000 (3)

678,400 825,800 (147,400)

Total $ 1,544,900 $ 1,503,800 $ 41,100

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

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

Three Months Ended Nine Months Ended

September 30, September 30,

2020 2019 % Change 2020 2019 % Change

(1) Inventory purchases across the North America segment have decreased in the three months ended March 31, 2021 compared to the prior year period.

We are rebuilding our inventory levels after decreases in 2020 due to the COVID-19 pandemic, however, they did not reach our desired levels in the first quarter due to ocean freight driven delays in shipping and overall pandemic driven lower production volumes.

(2) The increase in inventory purchases in our Europe segment was primarily due to the increase of $77 million attributable to the increase in the value of the euro, and to a lesser extent, the pound sterling in the three months ended March, 31 2021 compared to the prior year period.

On a constant currency basis, inventory purchases decreased compared to 2020, primarily due to ocean freight driven delays in shipping and overall pandemic driven lower production volumes as we attempt to rebuild our inventory levels.

(3) The increase in inventory purchases in the Specialty segment was primarily due to required restocking to keep up with the high demand for our products.

The following table sets forth a summary of our global wholesale salvage and self service procurement for the three months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended

2021 2020 % Change

North America wholesale salvage cars and trucks 50 72 (30.6) %

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Self service and "crush only" cars 137 149 (8.1) %

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

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

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

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

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

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

Salvage purchases decreased relative to the prior year primarily due to limitations on vehicles at auctions due to the COVID-19 pandemic.

Self service vehicle purchases declined due to (i) increased competition in the market due to rising costs of precious metals and scrap steel and (ii) fewer purchases due to the elimination of underperforming locations in accordance with the 2020 restructuring plan.

We expect to increase inventory purchases in 2021 to support the service and fill rate requirements of our businesses based on the revenue trend and expectations for full year 2021, including normal seasonality, as our inventory levels in 2020 decreased due to the COVID-19 pandemic.

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

The following table summarizes the components of the year-over-year increase in cash provided by operating activities (in millions):

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

Net cash provided by operating activities for the three months ended March 31, 2020 $ 195

Increase (decrease) due to:

Operating income 130 (1)

Non-cash depreciation and amortization expense

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

Cash paid for taxes

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Other operating activities 65 (4)

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

Net cash provided by operating activities for the three months ended March 31, 2021 $ 523

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

(2) Refer to "Net Assets Held for Sale" in Note 3, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information on the net impairment activity recorded in the nine months ended September 30, 2020 and September 30, 2019.

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

federal and state income tax payments.

The remaining year over year increase primarily related to tax payment benefits in 2019 from the loss on disposal of our aviation business and overpayment credits carried forward.

(4) Increases in interest payments resulted in a decrease to cash flows, primarily due to the timing of interest payments on the Euro Notes (2024) and Euro Notes (2026/28), partially offset by a decrease in interest payments due to the early redemption of the U.S.

Notes (2023).

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

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

Inventories represented $387 million in incremental cash inflows in the first nine months of 2020 as a result of inventory decreases in the (i) Specialty segment of $151 million, (ii) North America segment of $129 million, and (iii) Europe segment of $106 million, due to a slowdown in inventory purchases starting in March 2020 due to the COVID-19 pandemic as we aligned our inventory balances to the projected demand.

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

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

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

Property, plant and equipment purchases were $110 million in the first nine months of 2020 compared to $166 million in the prior year period.

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

We invested $7 million of cash, net of cash acquired, in business acquisitions during the nine months ended September 30, 2020 compared to $15 million during the nine months ended September 30, 2019.

We received $18 million of net proceeds from

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

(2) Cash payments related to income taxes increased for U.S.

federal and state income taxes due to a projected increase in

pretax income and the timing of estimated tax payments.

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

Receivables, net w as a $134 million greater outflow in 2021 primarily due to a significant increase in March 2021 revenue compared to March 2020, which translated to higher receivables balances and larger net outflows in the North America segment (of $36 million), in the Europe segment (of $57 million) and in the Specialty segment (of $42 million).

Inventories represented $6 million in incremental cash outflows in the first three months of 2021 compared to the same period of 2020.

We expected a larger cash outflow in the first quarter as we work to rebuild our inventory levels, but as described in the procurement section, we were delayed in doing so.

We now anticipate that the inventory build will take place over the balance of the year.

Accounts payable produced $359 million in higher cash inflows primarily due to higher accounts payable balances in the North America segment (of $205 million) due to timing of payments, and the Europe segment (of $148 million) compared to the prior year period, as a result of timing of payments and benefits of extended payment terms, including through our supply chain financing initiatives.

(4) Cash flows from other operating activities increased $22 million as a result of the timing of value added tax payables payments compared to the prior year.

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

Net cash used in investing activities totaled $33 million and $45 million for the three months ended March 31, 2021 and 2020, respectively.

Property, plant and equipment purchases were $42 million in the three months ended March 31, 2021 compared to $45 million in the prior year period.

We invested $2 million of cash, net of cash acquired, in business acquisitions during the three months ended March 31, 2021 compared to $7 million during the three months ended March 31, 2020.

We received $14 million of net proceeds from divestitures of businesses held for sale and property, plant and equipment in the three months ended March 31, 2021, compared to $7 million in the prior year period.

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

Nine Months Ended

September 30,

Three Months Ended

Net cash provided by operating activities $ 522,512 $ 194,563

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Free cash flow $ 480,733 $ 150,025

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

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

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

Net cash used in financing activities totaled $208 million and $335 million for the three months ended March 31, 2021 and 2020, respectively.

During the three months ended March 31, 2021, net repayments of our borrowings totaled $83 million compared to $230 million during the three months ended March 31, 2020.

Financing cash outflows for the three months ended March 31, 2020 included the $600 million repayment of our U.S.

Notes (2023) in January 2020.

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

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

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

We repurchased $57 million of our common stock in the three months ended March 31, 2021, compared to $88 million in the three months ended March 31, 2020.

In January 2021, we settled our cross currency swap with the counterparty for $57 million due to strengthening in the Euro exchange rate relative to the contract rate.

We intend to continue to evaluate markets for potential growth through the internal development of distribution centers, processing and sales facilities, and warehouses, through further integration of our facilities, and through selected business acquisitions.

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis