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Item 2. Management’s Discussion and Analysis

2021-08-04 compared with 2021-05-05 · 361 added, 195 removed, 375 unchanged (60% of the section changed)

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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.

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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• Transformation capital expenditures - Capitalizable costs for long-lived assets, such as software and facilities, that directly relate to the execution of the 1 LKQ Europe program.

Costs related to the 1 LKQ Europe program incurred to date are reflected in Selling, general and administrative expenses and Purchases of property, plant and equipment in our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Costs related to the 1 LKQ Europe program incurred to date are reflected in Selling, general and administrative expenses, Restructuring expenses and Purchases of property, plant and equipment in our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

Beginning in the second half of March 2020, management delayed certain projects under the 1 LKQ Europe program to reduce expenses and preserve capital in response to the COVID-19 pandemic.

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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 completed the organizational design and implementation projects in June 2021, with the remaining projects scheduled to be completed by

During the three and six months ended June 30, 2021 we incurred $6 million and $20 million , respectively, 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.

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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%, 4.5% and 5.2% in the second, third, and fourth quarters of 2020, respectively, relative to the comparable prior periods.

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 year periods.

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

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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.

During the second quarter of 2021, organic parts and services revenue increased by 21.1% (on a per day basis) reflecting the low prior year comparable figure owing to COVID-19 and the gradual recovery in mobility.

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.

We expect consolidated revenue to continue recovering gradually in the second half of 2021.

The level of the year over year increase in revenue will depend on the extent of reopening activities across the geographies in which we operate and the pace of recovery in miles driven.

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

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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 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.

From the third quarter 2020 through the second quarter 2021, we were able to sustain a portion of the cost benefits.

If revenue continues to increase 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 and second 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.

During the six months ended June 30, 2021, we qualified for $15 million of assistance.

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.

This view may change in the future based on developments with COVID-19.

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.

In the second quarter of 2021, profitability continued to improve and was the highest in the company's history.

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.

This focus was successful as we improved our liquidity position at December 31, 2020 by approximately $1.0 billion relative to March 31, 2020 while managing through the disruption caused by the pandemic.

Beginning in late 2020 and continuing in 2021, we returned to our stated capital allocation strategy with an emphasis on internal investments in capital expenditures and inventory, tuck-in acquisitions and share repurchases.

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.

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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.

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

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 and vaccination status in a region.

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

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

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

We 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;

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and restricting travel.

We are monitoring developments related to vaccination levels and governmental standards and have adjusted our practices where appropriate to comply with the latest guidance.

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

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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.

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.

Results of Operations—Consolidated

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

Three Months Ended

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 2021 2020

Revenue 100.0 % 100.0 % 100.0 % 100.0 %

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Restructuring and acquisition related expenses 0.1 % 0.9 % 0.2 % 0.6 %

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

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

(0.0) % 0.1 % (0.0) % 0.0 %

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Income from continuing operations before provision for income taxes

11.9 % 6.2 % 11.5 % 6.6 %

Provision for income taxes 3.1 % 1.6 % 3.0 % 1.8 %

Equity in earnings of unconsolidated subsidiaries 0.2 % 0.0 %

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

Income from continuing operations 8.9 % 4.5 % 8.6 % 4.7 %

Net loss from discontinued operations — % (0.0) %

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

Net income 8.9 % 4.5 % 8.6 % 4.7 %

net income attributable to continuing noncontrolling interest 0.0 % 0.0 %

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

net income attributable to discontinued noncontrolling interest

— % — % — % 0.0 %

Net income attributable to LKQ stockholders 8.9 % 4.5 % 8.6 % 4.7 %

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

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

Three Months Ended June 30, 2021 Compared to Three Months Ended June 30, 2020

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

Three Months Ended

March 31, Percentage Change in Revenue

June 30, 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 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 parts and services revenue of 27.0% represented increases in segment revenue of 31.5% in Specialty, 30.1% in Europe, and 20.6% in North America.

Organic parts and services revenue growth was 21.9% as the negative effect of the pandemic in the second quarter of 2020 was more severe than in the current year.

We expect to report organic growth in the third quarter of 2021, although at a lower rate than the second quarter, coming off a low base as the third quarter of 2020 continued to experience negative effects from the lockdown measures of 2020.

The increase in other revenue of 108.5% was primarily driven by a $133 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.

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

Cost of Goods Sold .

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.

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.

Cost of goods sold decreased to 58.8% of revenue in the three months ended June 30, 2021 from 61.5% of revenue in the three months ended June 30, 2020.

The cost of goods sold decrease reflects impacts of 1.5%, 0.7% and 0.3% in our North America, Europe and Specialty segments, respectively.

Selling, General and Administrative Expenses.

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.

Our selling, general and administrative ("SG&A") expenses as a percentage of revenue decreased to 26.2% in the three months ended June 30, 2021 from 28.1% in the three months ended June 30, 2020.

SG&A expenses decreased over the prior year period as a result of (i) a 1.1% decrease attributable to our North America segment and (ii) a 0.8% decrease from our Europe segment.

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 June 30, 2021 compared to the three months ended June 30, 2020.

Restructuring and Acquisition Related Expenses .

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2021 2020 Change

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

(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.

Restructuring and acquisition related expenses $ 5,069 (1)

(1) Restructuring expenses for the three months ended June 30, 2021 primarily consisted of (i) $4 million related to our 2020 global restructuring program.

(2) Restructuring expenses for the three months ended June 30, 2020 primarily consisted of (i) $20 million related to our 2020 global restructuring program, (ii) $4 million related to integration costs from acquisitions, and (iii) $2 million related to our 2019 global restructuring program.

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.

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Total depreciation and amortization $ 64,896 $ 65,747 $ (851)

(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.

(1) Depreciation expense increased by $2 million from foreign currency translation primarily related to an increase in the euro and pound sterling exchange rates during the three months ended June 30, 2021 compared to the prior year period.

(2) The decrease in amortization expense primarily reflected (i) 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 June 30, 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 June 30, 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 three months ended March 31, 2020 $ 35,060

Decrease due to:

Other expense, net for the three months ended June 30, 2020 $ 17,442

(Decrease) increase due to:

Interest expense, net of interest income (9,444) (1)

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Other income, net 3,863 (3)

Net decrease (17,094)

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 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.

Net increase 17,983

Other expense, net for the three months ended June 30, 2021 $ 35,425

(1) The decrease in interest is primarily related to (i) an $11 million decrease resulting from lower outstanding debt during the three months ended June 30, 2021 compared to the prior year period, partially offset by several individually immaterial factors that had an unfavorable impact of $2 million in the aggregate.

(2) In April 2021, we recorded a loss on debt extinguishment of $24 million related to the redemption of the 2026 notes due to the early-redemption premium and the write-off of the unamortized debt issuance costs.

(3) The unfavorable variance in Other income, net primarily related to (i) $8 million of proceeds in the second quarter of 2020 related to insurance settlements in our North America segment, partially offset by (ii) a $2 million pension settlement loss recorded in the second quarter of 2020, and (iii) several individually immaterial factors that had a favorable impact of $2 million in the aggregate.

Provision for Income Taxes .

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.

Our effective income tax rate for the three months ended June 30, 2021 was 26.3%, compared to 25.7% for the comparable prior year period.

The tax provision for the prior year period was impacted by volatility of earnings projections as a result of the COVID-19 pandemic.

The prior year rate was lowered in the second quarter as a result of a favorable revision to our expected full year 2020 effective tax rate.

Without such adjustment, the effective tax rate for the three months ended June 30, 2020 would have been 28.2%.

While we updated the expected full year 2021 effective tax rate in the second quarter, the true-up benefit was smaller than experienced in the prior year.

For the three months ended June 30, 2021, the effective tax rate was increased 0.3% by unfavorable discrete items, primarily a deferred tax adjustment required as a result of a United Kingdom staged tax rate increase that will become effective April 1, 2023.

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.

Equity in earnings of unconsolidated subsidiaries for the three months ended June 30, 2021 increased by $6 million primarily related to improved year over year results reported by Mekonomen, which is our largest equity method investment, and an immaterial North America investment, which incurred a loss in the second quarter of 2020.

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 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.

Relative to the rates used during the three months ended June 30, 2020, the Czech koruna, Canadian dollar, pound sterling and euro rates used to translate the 2021 statements of income increased by 15.5%, 12.8%, 12.6% and 9.4%, 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.

dollar combined with the favorable impact of realized and unrealized currency gains and losses for the three months ended June 30, 2021 to generate a positive $0.01 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.

Net income attributable to continuing noncontrolling interest for the three months ended June 30, 2021 increased an immaterial amount compared to the three months ended June 30, 2020.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

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

Six Months Ended

June 30, Percentage Change in Revenue

2021 2020 Organic Acquisition and Divestiture Foreign Exchange Total Change

Parts & services revenue $ 6,110,037 $ 5,315,875 10.6 % (0.5) % 4.8 % 14.9 %

Other revenue 495,863 311,383 58.8 % 0.0 % 0.4 % 59.2 %

Total revenue $ 6,605,900 $ 5,627,258 13.3 % (0.4) % 4.5 % 17.4 %

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

The growth in parts and services revenue of 14.9% represented increases in segment revenue of 31.7% in Specialty, 18.0% in Europe, and 4.8% in North America.

Organic parts and services revenue growth was 10.6%, which included a 0.6% negative effect from one less selling day in the first half of 2021, resulting in per day organic growth of 11.2% as the negative pandemic effect in the first half of 2020 was more severe than in the current year.

The increase in other revenue of 59.2% was primarily driven by a $183 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 six months of 2021 compared to the prior year period.

Cost of Goods Sold .

Cost of goods sold decreased to 59.0% of revenue in the six months ended June 30, 2021 from 60.5% of revenue in the six months ended June 30, 2020.

The cost of goods sold decrease reflects impacts of 0.8%, 0.6% and 0.3% in our North America, Europe and Specialty segments, respectively, partially offset by a 0.3% increase in cost of goods sold attributable to mix.

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 six months ended June 30, 2021 compared to the same period of 2020.

Selling, General and Administrative Expenses.

Our SG&A expenses as a percentage of revenue decreased to 26.5% in the six months ended June 30, 2021 from 29.1% in the six months ended June 30, 2020.

SG&A expenses decreased over the prior year period as a result of (i) a 1.2% decrease attributable to our North America segment, (ii) a 1.0% decrease from our Europe segment, (iii) a 0.2% decrease from our Specialty segment and (iv) a 0.2% decrease in SG&A expenses attributable to mix.

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 six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Restructuring and Acquisition Related Expenses .

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

Six Months Ended

2021 2020 Change

Restructuring and acquisition related expenses $ 12,954 (1)

(1) Restructuring expenses for the six months ended June 30, 2021 primarily consisted of (i) $6 million related to our 2020 global restructuring program and (ii) $5 million related to our 1 LKQ Europe program.

(2) Restructuring expenses for the six months ended June 30, 2020 primarily consisted of (i) $22 million related to our 2020 global restructuring program, (ii) $5 million related to integration costs from acquisitions, and (iii) $5 million related to our 2019 global restructuring program.

Depreciation and Amortization .

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

Six Months Ended

2021 2020 Change

Depreciation $ 77,725 $ 74,116 $ 3,609 (1)

Amortization 52,972 57,126 (4,154) (2)

Total depreciation and amortization $ 130,697 $ 131,242 $ (545)

(1) The increase in depreciation expense reflected (i) $3 million from foreign currency translation primarily related to an increase in the euro and pound sterling exchange rates and (ii) $1 million due to capital expenditures in our North America segment during the six months ended June 30, 2021 compared to the prior year period.

(2) The decrease in amortization expense primarily reflected (i) decreases of $6 million and $2 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 six months ended June 30, 2021 compared to the prior year period, partially offset by (ii) a $4 million increase from foreign currency translation, primarily related to an increase in the euro exchange rate during the six months ended June 30, 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 six months ended June 30, 2020 $ 52,502

(Decrease) increase due to:

Interest expense, net of interest income (11,196) (1)

Loss on debt extinguishment 10,813 (2)

Other expense (income), net 1,272 (3)

Net increase 889

Other expense, net for the six months ended June 30, 2021 $ 53,391

(1) The decrease in interest is primarily related to (i) a $16 million decrease resulting from lower outstanding debt during the six months ended June 30, 2021 compared to the prior year period, partially offset by (ii) a $3 million increase from foreign currency translation, primarily related to an increase in the euro exchange rate during the six months ended June 30, 2021 compared to the prior year period.

(2) The $11 million increase in loss on debt extinguishment is due to the $24 million charge recorded in April 2021 related to the redemption of the 2026 notes compared to a $13 million charge related to the redemption of the U.S.

Notes (2023) in January 2020.

(3) The unfavorable variance in Other income, net primarily related to (i) a $6 million reduction in proceeds related to insurance settlements, and (ii) various factors totaling $3 million, partially offset by (iii) $6 million mark to market adjustments in 2021 for appreciation in our equity investments not accounted for under the equity method, and (iv) a $2 million pension settlement loss recorded in the second quarter of 2020.

Provision for Income Taxes .

Our effective income tax rate for the six months ended June 30, 2021 was 26.3%, compared to 27.7% 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 period in 2020, when COVID-19 pandemic economic disruptions were depressing forecasted 2020 results.

For the six months ended June 30, 2021, the effective tax rate was increased 0.1% by net unfavorable discrete items, primarily a deferred tax adjustment required as a result of a United Kingdom staged tax rate increase that will become effective April 1, 2023.

Net discrete items for the six months ended June 30, 2020 reduced the effective tax rate by 0.3%, 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 (Losses) of Unconsolidated Subsidiaries.

Equity in earnings of unconsolidated subsidiaries for the six months ended June 30, 2021 increased by $11 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 six months ended June 30, 2020, the Czech koruna, pound sterling, Canadian dollar and euro rates used to translate the 2021 statements of income increased by 11.2%, 10.2%, 9.4% and 9.3%, respectively.

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

dollar combined with the positive impact of realized and unrealized currency gains and losses for the six months ended June 30, 2021 resulted in a $0.01 positive 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 six months ended June 30, 2021 increased an immaterial amount compared to the six months ended June 30, 2020.

Net income attributable to discontinued noncontrolling interest was immaterial for the six months ended June 30, 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 March 31,

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

Three Months Ended June 30, Six Months Ended June 30,

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

Third Party Revenue

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

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 June 30, 2021 Compared to Three Months Ended June 30, 2020

North America

2 unchanged sentences

Three Months Ended

March 31, Percentage Change in Revenue

June 30, Percentage Change in Revenue

North America 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.

(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.

(1) Parts and services organic revenue increased 19.7% for the three months ended June 30, 2021 compared to the prior period.

This is primarily driven by an increase in collision and liability related auto claims related to the COVID-19 recovery as well as growth from major mechanical parts.

(2) The $131 million year over year organic increase in other revenue is primarily related to (i) a $63 million increase in revenue from precious metals (platinum, palladium, and rhodium) primarily due to higher prices and to a lesser extent, increased volumes, (ii) a $44 million increase in revenue from scrap steel due to higher prices and to a lesser extent,

increased volumes, and (iii) a $24 million increase in revenue from other scrap and cores primarily related to higher prices as well as increased volumes.

Segment EBITDA .

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.

Segment EBITDA increased $127 million, or 84.7%, in the second quarter of 2021 compared to the prior year period.

This increase is attributable to higher precious metals and scrap steel prices, margin initiatives, rightsizing actions and the favorable effect from the revenue recovery compared to the prior year when the COVID-19 impact was more severe.

Increases in precious metals prices contributed an estimated $40 million in Segment EBITDA improvement relative to the second quarter of 2020.

Additionally, net sequential increases in scrap steel prices in our salvage and self service operations had an $11 million favorable impact on Segment EBITDA during the three months ended June 30, 2021, compared to a $6 million unfavorable impact during the three months ended June 30, 2020 resulting from net sequential decreases in scrap steel prices.

This favorable impact for the three months ended June 30, 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.

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 March 31, 2020 16.4 %

Segment EBITDA for the three months ended June 30, 2020 14.8 %

Increase (decrease) due to:

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Change in other expense, net and net income attributable to continuing noncontrolling interest (0.6) % (3)

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

Segment EBITDA for the three months ended June 30, 2021 20.8 %

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 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.

(1) The increase in gross margin primarily reflected favorable impacts of 3.4% from our wholesale operations and 0.5% from our self service operations.

Wholesale operations gross margin was favorable primarily due to the positive impact of higher precious metals and scrap steel prices, lower discounting and cost reductions from operational efficiencies and rightsizing efforts.

Compared to the prior year, input costs for our wholesale operations have risen, with (i) inflationary pressures impacting product and freight costs in aftermarket and (ii) limited supply combined with heightened competition at auctions contributing to higher salvage costs.

We are passing through price increases, and we experienced a margin benefit in the second quarter of 2021 as the higher prices were enacted ahead of turning the recent, higher cost inventory.

The favorable gross margin impact from self service was primarily due to higher precious metals and scrap steel prices.

(2) The decrease in segment operating expense as a percentage of revenue reflects (i) a 1.3% favorable impact from personnel expenses due to a positive leverage effect, mostly related to the increase in other revenue, which does not require significant additional headcount to support, and other personnel cost savings from headcount reductions were primarily offset by increased incentive compensation expense and inflationary increases, (ii) a 1.3% favorable impact from facility expenses due to a positive leverage effect and rightsizing actions, and (iii) a 0.3% favorable impact due to improved collections on bad debt.

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

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

(3) The unfavorable impact in other expense, net and net income attributable to continuing noncontrolling interest was primarily due to proceeds from business interruption insurance received in the second quarter of 2020 that had a year over year impact of 0.8%, which was partially offset by a favorable impact from pension expense resulting from a pension settlement loss recorded in the second quarter of 2020.

Third Party Revenue .

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Three Months Ended

March 31, Percentage Change in Revenue

June 30, 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 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.

(1) Parts and services organic revenue for the three months ended June 30, 2021 increased by 19.2% on a per day basis, as the negative pandemic effect on volume in 2020 was more severe than in the current year.

Not all regions were impacted by the pandemic at the same time and to the same degree in 2020, and the easing of lockdown measures has varied across the continent in 2021.

These conditions created a different growth profile for each of our European businesses.

While all of our businesses reported year over year growth, the U.K.

and Italy reported the greatest increases for the quarter.

(2) The decline for the three months ended June 30, 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 $124 million, or 10.3%, primarily due to the weaker U.S.

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

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

Segment EBITDA .

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

Segment EBITDA increased $79 million, or 88.1%, in the second quarter of 2021 compared to the prior year period.

Our Europe Segment EBITDA included a positive year over year impact of $9 million related to the translation of local currency results into U.S.

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

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

On a constant currency basis (i.e., excluding the translation impact), Segment EBITDA increased by $69 million, or 77.6%, 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 March 31, 2021.

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 March 31, 2020 5.7 %

Segment EBITDA for the three months ended June 30, 2020 7.4 %

Increase due to:

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Change in segment operating expenses 1.7 % (2)

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

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

Segment EBITDA for the three months ended June 30, 2021 10.7 %

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) 1.2% as a result of net price increases and margin improvement initiatives supporting the pursuit of profitable revenue growth, and (ii) 0.2% 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.

(2) The decrease in segment operating expenses as a percentage of revenue reflects favorable impacts of (i) 0.8% from bad debt expense due to customers' improved solvency and an increase in reserve in the prior year related to the COVID-19 pandemic, (ii) 0.7% from freight, vehicle and fuel expenses due to higher internet and mail order sales in the prior year, which have higher freight costs, and favorable leverage effect, (iii) 0.3% favorable leverage effect from facility expenses, which are largely fixed, and (iv) other individually immaterial factors that had an impact of 0.3% in the aggregate, partially offset by (v) an unfavorable impact of 0.4% from personnel costs primarily due to government grants received in the prior year to cover employee costs in countries such as the U.K.

and Germany (a lesser amount was received in 2021) and increased incentive compensation, partially offset by a favorable leverage effect and headcount reductions.

Third Party Revenue .

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

Three Months Ended March 31, Percentage Change in Revenue

Three Months Ended June 30, 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 increased 30.9% for the first quarter of 2021 compared to the prior year first quarter despite one fewer selling day.

(1) 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 increased $27 million, or 52.0%, in the second quarter of 2021 compared to the prior year second 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 June 30, 2020 12.9 %

Increase (decrease) due to:

Change in gross margin 2.2 % (1)

Change in segment operating expenses (0.2) % (2)

Segment EBITDA for the three months ended June 30, 2021 14.9 %

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 reflects favorable product and channel mix as well as lower discounting to recover increased input costs.

(2) The increase in segment operating expenses as a percentage of revenue reflects (i) an unfavorable impact of 0.4% due to increased incentive compensation, partially offset by (ii) several individually immaterial factors that had a favorable impact of 0.2% in the aggregate.

Six Months Ended June 30, 2021 Compared to Six Months Ended June 30, 2020

North America

Third Party Revenue .

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

Six Months Ended

June 30, Percentage Change in Revenue

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

Parts & services revenue $ 2,095,608 $ 2,000,168 4.1 % (1)

0.1 % 0.5 % 4.8 %

Other revenue 480,816 300,903 59.7 % (2)

0.0 % 0.1 % 59.8 %

Total third party revenue $ 2,576,424 $ 2,301,071 11.4 % 0.1 % 0.5 % 12.0 %

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 4.1% (4.9% on a per day basis) in the six months ended June 30, 2021 compared to the prior year period.

This growth is primarily driven by an increase in collision and liability related auto claims related to the COVID-19 recovery during the second quarter of 2021.

(2) The $180 million year over year organic increase in other revenue is primarily related to (i) an $86 million increase in revenue from precious metals (platinum, palladium, and rhodium) primarily due to higher prices, (ii) a $67 million increase in revenue from scrap steel due to higher prices, and (iii) a $27 million increase in revenue from other scrap and cores primarily related to higher prices and to a lesser extent, increased volumes.

Segment EBITDA.

Segment EBITDA increased $164 million, or 45.5%, in the first half of 2021 despite the impact of one fewer selling day compared to the prior year period.

Increases in precious metals prices contributed an estimated $60 million in Segment EBITDA improvement relative to the first half of 2020.

Additionally, net sequential increases in scrap steel prices in our salvage and self service operations had a $31 million favorable impact on Segment EBITDA during the six months ended June 30, 2021, compared to an immaterial favorable impact during the six months ended June 30, 2020 resulting from net sequential increases in scrap steel prices.

This favorable impact for the six months ended June 30, 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.

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 six months ended June 30, 2020 15.7 %

Increase (decrease) due to:

Change in gross margin 2.1 % (1)

Change in segment operating expenses 2.9 % (2)

Change in other expense, net and net income attributable to continuing noncontrolling interest (0.3) % (3)

Segment EBITDA for the six months ended June 30, 2021 20.4 %

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 2.1% from our wholesale operations.

We are passing through price increases to our customers to protect our margins, and we experienced a margin benefit in the first half of 2021 as the higher prices were enacted ahead of turning the recent, higher cost inventory.

(2) The decrease in segment operating expense as a percentage of revenue on a per day basis reflects (i) a favorable impact of 2.0% from personnel expenses related to headcount reductions, operational efficiencies, and a positive leverage effect, mostly related to the increase in other revenue, partially offset by increased incentive compensation expense and inflationary increases, (ii) a positive leverage effect of 0.5% from facility expenses, which are largely fixed and (iii) a 0.3% favorable impact from bad debt due to improved collections.

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

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

(3) The unfavorable impact in other expense, net and net income attributable to continuing noncontrolling interest of 0.3% was primarily related to higher insurance proceeds received in the first half of 2020.

Third Party Revenue .

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

Six Months Ended

June 30, Percentage Change in Revenue

Europe 2021 2020 Organic (1)

Acquisition and Divestiture (2)

Foreign Exchange (3)

Parts & services revenue $ 3,025,067 $ 2,564,299 9.9 % (1.2) % 9.2 % 18.0 %

Other revenue 15,047 10,480 32.5 % — % 11.1 % 43.6 %

Total third party revenue $ 3,040,114 $ 2,574,779 10.0 % (1.2) % 9.3 % 18.1 %

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

(1) Parts and services organic revenue for the six months ended June 30, 2021 increased by 9.9% as the negative pandemic effect on volume in 2020 was more severe than in the current year.

Not all regions were impacted by the pandemic at the same time and to the same degree in 2020, and the easing of lockdown measures has varied across the continent in 2021.

These conditions created a different growth profile for each of our European businesses.

While all of our businesses reported year over year growth, the U.K.

and Italy reported the greatest increases for the first half.

(2) The decline for the six months ended June 30, 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 $238 million, or 9.3%, primarily due to the weaker U.S.

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

Segment EBITDA .

Segment EBITDA increased $141 million, or 84.4%, in the first half of 2021 compared to the prior year period.

Our Europe Segment EBITDA included a positive year over year impact of $17 million related to the translation of local currency results into U.S.

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

On a constant currency basis (i.e., excluding the translation impact), Segment EBITDA increased by $125 million, or 74.3%, 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 six months ended June 30, 2020 6.5 %

Increase due to:

Change in gross margin 1.3 % (1)

Change in segment operating expenses 2.2 % (2)

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

Segment EBITDA for the six months ended June 30, 2021 10.2 %

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) 1.0% as a result of net price increases and margin improvement initiatives supporting the pursuit of profitable revenue growth, and (ii) 0.3% 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) 0.7% from bad debt expense due to customers' improved solvency and an increase in reserve in the prior year related to the COVID-19 pandemic, (ii) 0.5% from freight, vehicle and fuel expenses due to higher internet and mail order sales in the prior year, which have higher freight costs, favorable leverage effect, and cost savings from restructuring activities primarily due to exiting facilities and route consolidation, (iii) 0.3% from personnel costs primarily due to a favorable leverage effect, headcount reductions, and limited travel expenses, partially offset by government grants received in the prior year to cover employee costs in countries such as the U.K.

and Germany (a lesser amount was received in 2021) and increased incentive compensation, and (iv) other individually immaterial factors that had an impact of 0.7% in the aggregate.

Third Party Revenue .

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

Six Months Ended

June 30, Percentage Change in Revenue

Specialty 2021 2020 Organic (1)

Acquisition and Divestiture Foreign Exchange Total Change

Parts & services revenue $ 989,362 $ 751,408 30.5 % 0.4 % 0.8 % 31.7 %

Other revenue — — — % — % — % — %

Total third party revenue $ 989,362 $ 751,408 30.5 % 0.4 % 0.8 % 31.7 %

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

(1) Parts and services organic revenue increased 30.5% for the first half of 2021 compared to the prior year period despite one fewer selling day.

On a per day basis, organic revenue increased 31.5%.

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Segment EBITDA .

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

Segment EBITDA increased $56 million, or 66.8%, in the first half of 2021 compared to the prior

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 March 31, 2020 9.2 %

Segment EBITDA for the six months ended June 30, 2020 11.2 %

Increase due to:

1 unchanged sentence

Change in segment operating expenses 1.1 % (2)

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

Segment EBITDA for the six months ended June 30, 2021 14.2 %

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

(1) The increase in gross margin 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.

(1) The increase in gross margin primarily reflects favorable product and channel mix as well as lower discounting to recover increased input costs.

(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 30.5% compared to the prior year, reflects a favorable impact of (i) 0.6% 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 0.7% in the aggregate, partially offset by (iii) a 0.2% unfavorable impact in freight, vehicle and fuel expenses due to an increased use of third party freight due to customer mix.

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

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

June 30, 2021 December 31, 2020 June 30, 2020

Cash and cash equivalents $ 328,700 $ 312,154 $ 476,426

9 unchanged sentences

2,082,466 2,858,235 2,527,310

(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).

(1) Debt amounts reflect the gross values to be repaid (excluding debt issuance costs of $15 million , $26 million and $28 million as of June 30, 2021, December 31, 2020 and June 30, 2020, respectively).

(2) Debt amounts reflect the gross values to be repaid (excluding debt issuance costs of immaterial amounts as of June 30, 2021, December 31, 2020 and June 30, 2020).

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

Availability under credit facilities is reduced by our outstanding letters of credit.

Capacity was reduced by $110 million to $3.15 billion with the July 30, 2021 termination of the receivables securitization facility.

We assess our liquidity in terms of our ability to fund our operations and provide for expansion through both internal development and acquisitions.

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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

As of June 30, 2021, we had debt outstanding and additional available sources of financing as follows:

• Senior secured credit facilities maturing in January 2024, composed of $3.15 billion in revolving credit ($1.4 billion outstanding at June 30, 2021), bearing interest at variable rates, and term loans totaling $350 million (repaid in full as of June 30, 2021) with availability reduced by $71 million of amounts outstanding under letters of credit

• Euro Notes (2024) totaling $593 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 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.

• 2028 Notes totaling $296 million (€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 June 30, 2021), maturing in November 2021 and bearing interest at variable commercial paper rates (facility terminated effective July 30, 2021)

As of June 30, 2021, we had approximately $1.8 billion available under our credit facilities.

Combined with $329 million of cash and cash equivalents at June 30, 2021, we had approximately $2.1 billion in available liquidity, a decrease of $776 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, resulting in a decrease in available liquidity compared to December 31, 2020.

Additionally, in the second quarter of 2021, we used free cash flow generated in our domestic operations and borrowings on our revolving credit facility to repay all of our term loan ($319 million).

As of June 30, 2021, we have $282 million of debt drawn in North America on our credit facilities.

With these second quarter transactions, we reduced our overall liquidity by utilizing available capacity on the revolving credit facility.

We believe our future cash flow needs can be supported by a smaller credit facility, so we redeemed the Euro Notes (2026) and eliminated the term loan using funds from the revolving credit facility, which in turn will lower our interest expense and non-usage fees.

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.

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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.

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

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

With $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.

With $2.1 billion of total liquidity as of June 30, 2021 and $91 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 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 March 31, 2021):

Covenant Level Ratio Achieved as of March 31, 2021

Covenant Level Ratio Achieved as of June 30, 2021

Maximum net leverage ratio 4.50:1.00 1.2

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The terms net leverage ratio and minimum interest coverage ratio used in the credit agreement are specifically calculated per the credit agreement and differ in specified ways from comparable GAAP or common usage terms.

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 June 30, 2021.

We amended our senior secured credit facility in June 2020 to increase the maximum net leverage ratio effective with our compliance certificate filed with respect to the second quarter of 2020;

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

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

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

With the amendment and the better than forecasted perform ance since the pandemic began, we 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.

With the amendment and strong cash flow generation 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.

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

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

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

The initiative allows our suppliers to monetize their 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 the second half of 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 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.

Borrowings under the credit agreement accrue interest at variable rates which are tied to LIBOR or the Canadian Dollar Offered Rate ("CDOR"), depending on the currency and the duration of the borrowing, plus an applicable margin rate that is subject to change quarterly based on our reported leverage ratio.

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

Borrowings under the credit agreement accrue interest at variable rates which are tied to the prime rate, LIBOR or the Canadian Dollar Offered Rate ("CDOR"), depending on the currency and the duration of the borrowing, plus an applicable margin rate that is subject to change quarterly based on our reported leverage ratio.

We have held 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, 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.

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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 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.

As of June 30, 2021, we did not have any of these types of contracts outstanding, and the weighted average interest rate on borrowings outstanding under our credit agreement was 1.1% at June 30, 2021.

Including our senior notes, our overall weighted average interest rate on borrowings was 2.2% at June 30, 2021.

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

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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).

Cash interest payments were $45 million for the six months ended June 30, 2021;

these payments increased by $39 million in the second quarter compared to the first quarter of 2021 as a result of our semi-annual interest payments on our Euro Notes (2024) and Euro Notes (2028) as well as the interest owed when we settled the Euro Notes (2026).

Interest payments on our Euro Notes (2024) and Euro Notes (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) :

We had outstanding credit agreement borrowings of $1.4 billion and $967 million at June 30, 2021 and December 31, 2020, respectively.

Of these amounts, there were no current maturities as of June 30, 2021 and maturities of $18 million at December 31, 2020.

The scheduled maturities of long-term obligations outstanding at June 30, 2021 are as follows (in thousands):

Six 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 $74 million of short-term debt that may be extended beyond the current due date.

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 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.

(2) The total debt amounts presented above reflect the gross values to be repaid (excluding debt issuance costs of $15 million as of June 30, 2021).

As of June 30, 2021, the Company had cash and cash equivalents o f $329 million, of which $248 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 (“GILTI”) regime.

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

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We may, from time to time, choose to selectively repatriate foreign earnings if doing so supports our financing or liquidity objectives.

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

The procurement of inventory is the largest operating use of our funds.

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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 months ended March 31, 2021 and 2020 (in thousands):

Three Months Ended

2021 2020 Change

The following table sets forth a summary of our aftermarket and manufactured inventory procurement for the three and six months ended June 30, 2021 and 2020 (in thousands):

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 Change 2021 2020 Change

North America $ 262,100 $ 161,300 $ 100,800 $ 522,100 $ 490,000 $ 32,100 (1)

Europe 1,005,700 683,400 322,300

1,899,300 1,551,200 348,100 (2)

Specialty 361,400 118,900 242,500 752,700 426,200 326,500 (3)

Total $ 1,629,200 $ 963,600 $ 665,600 $ 3,174,100 $ 2,467,400 $ 706,700

(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.

(1) Inventory purchases across the North America segment have increased in the six months ended June 30, 2021 compared to the prior year period due to the low base as we scaled back buying in recognition of demand changes in 2020.

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 half of 2021 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 included an increase of $147 million attributable to the increase in the value of the euro, and to a lesser extent, the pound sterling in the six months ended June 30, 2021 compared to the prior year period.

On a constant currency basis, inventory purchases increased compared to 2020, primarily due to the low base as we scaled back buying in recognition of demand changes in 2020.

However, we did not reach our desired levels in the first half of 2021 due to ocean freight driven delays in shipping and overall pandemic driven lower production volumes.

(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

The following table sets forth a summary of our global wholesale salvage and self service procurement for the three and six months ended June 30, 2021 and 2020 (in thousands):

Three Months Ended Six Months Ended

June 30, June 30,

2021 2020 % Change 2021 2020 % Change

North America wholesale salvage cars and trucks 63 36 75.0 % 113 108 4.6 %

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Self service and "crush only" cars 141 137 2.9 % 277 286 (3.1) %

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

Salvage purchases increased relative to the prior year due to reduced buying in the prior year to reflect lower demand during 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.

We expect to increase inventory purchases in the remainder of 2021 compared to the second half of 2020 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 three months ended March 31, 2020 $ 195

Net cash provided by operating activities for the six months ended June 30, 2020 $ 913

Increase (decrease) due to:

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Other operating activities (45) (4)

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.

Net cash provided by operating activities for the six months ended June 30, 2021 $ 933

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

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

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(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.

Receivables, net w as a $156 million greater outflow in 2021 primarily due to a significant increase in June 2021 revenue compared to June 2020, which translated to higher receivables balances and larger net outflows in the North America segment (of $79 million ) and in the Europe segment (of $81 million ).

We had a cash inflow in the Specialty segment (of $4 million).

Inventories represented $438 million in incremental cash outflows in the first six months of 2021 compared to the same period of 2020.The change is primarily attributable to the reduction in inventory purchases during 2020 as we scaled back buying in the recognition of demand changes.

Additionally, we expected a larger cash outflow in the first half of 2021 as we worked to rebuild our inventory levels, but as described in the procurement section above, 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.

Accounts payable produced $456 million in higher cash inflows primarily due to higher accounts payable balances in the North America segment (of $161 million) and in the Specialty segment (of $24 million ) due to timing of payments, and in the Europe segment (of $271 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 decreased $45 million, primarily due to a $54 million decrease related to the timing of value added tax payables payments compared to the prior year partially offset by a number of individually insignificant fluctuations in other operating activities.

Net cash used in investing activities totaled $109 million and $76 million during the six months ended June 30, 2021 and 2020, respectively.

Property, plant and equipment purchases were $88 million during the six months ended June 30, 2021 compared to $77 million in the prior year period.

We invested $29 million of cash, net of cash acquired, in business acquisitions during the six months ended June 30, 2021 compared to $5 million during the six months ended June 30, 2020.

We received $18 million of net proceeds from divestitures of businesses held for sale and property, plant and equipment in the six months ended June 30, 2021, compared to $11 million in the prior year period.

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

Three Months Ended

Six Months Ended

Net cash provided by operating activities $ 933,090 $ 913,052

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Free cash flow $ 845,236 $ 835,751

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 $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.

Net cash used in financing activities totaled $809 million and $890 million for the six months ended June 30, 2021 and 2020, respectively.

During the six months ended June 30, 2021, net repayments of our borrowings totaled $347 million compared to $782 million during the six months ended June 30, 2020.

The net repayments in 2021and 2020 include the redemption of the €750 million Euro Notes (2026) and the $600 million U.S.

Notes, respectively.

We repurchased $344 million of our common stock in the six months ended June 30, 2021 (reflecting the cash outflow for transactions that settled in the period), compared to $88 million in the six months ended June 30, 2020.

In 2021, we settled our cross currency swap and other foreign exchange forward contracts with the counterparties for $89 million due primarily to strengthening in the Euro exchange rate relative to the contract rates.

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.

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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