What changed in this filing

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Item 2. Management’s Discussion and Analysis

2021-11-03 compared with 2021-08-04 · 270 added, 261 removed, 475 unchanged (53% of the section changed)

56 unchanged sentences

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 six months ended June 30, 2021.

Recently Issued Accounting Pronouncements

17 unchanged sentences

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.

During the three and nine months ended September 30, 2021 we incurred $6 million and $26 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 $30 million and $40 million in 2021 with an additional $100 million to $130 million between 2022 and the projected program completion date in 2024.

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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.

During the third quarter of 2021, the recovery continued with organic parts and services revenue increasing by 4.0%.

Since the start of the pandemic, 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 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.

We expect consolidated parts and services revenue to grow organically in future periods, but the level of the year over year increase in revenue will depend on, among other factors, the extent of reopening activities across the geographies in which we operate, the pace of recovery in miles driven and access to inventory, which has been constrained with supply chain issues.

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 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;

encouraging vaccination of our employees;

use of personal protective equipment;

adhering to social distancing guidelines;

instituting remote work arrangements for many of our employees;

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.

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.

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.

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

If revenue continues to increase, 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 year to date 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 six months ended June 30, 2021, we qualified for $15 million of assistance.

During the nine months ended September 30, 2021, we qualified for $16 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 COVID-19.

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

We currently do not anticipate qualifying for significant additional assistance in the remainder of 2021.

The 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.

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

In the third quarter of 2021, profitability remained higher than the prior year.

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

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

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

use of personal protective equipment;

adhering to social distancing guidelines;

instituting remote work arrangements for many of our employees;

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

Three Months Ended Six Months Ended

June 30, June 30,

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

4 unchanged sentences

Restructuring and acquisition related expenses 0.1 % 0.7 % 0.2 % 0.6 %

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

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

0.0 % (0.0) % 0.0 % 0.0 %

5 unchanged sentences

Provision for income taxes 2.7 % 2.6 % 2.9 % 2.1 %

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

Equity in earnings of unconsolidated subsidiaries 0.2 % 0.1 % 0.2 % 0.0 %

Income from continuing operations 8.6 % 6.4 % 8.6 % 5.3 %

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

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

Net income 8.6 % 6.4 % 8.6 % 5.3 %

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

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

net income attributable to discontinued noncontrolling interest

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

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

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

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

Three Months Ended

June 30, Percentage Change in Revenue

September 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 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 parts and services revenue of 6.1% represented increases in segment revenue of 16.4% in Specialty, 6.9% in North America, and 2.7% in Europe.

Organic parts and services revenue growth was 4.0%, with varying growth rates by segment as recovery from the negative effects of the pandemic in 2020 differed across the individual countries and markets in which we operate.

The increase in other revenue of 45.3% was primarily driven by a $73 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 second 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 third quarter of 2021 compared to the prior year period.

Cost of Goods Sold .

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.

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

Cost of goods sold decreased to 59.2% of revenue in the three months ended September 30, 2021 from 60.7% of revenue in the three months ended September 30, 2020.

The cost of goods sold decrease reflects impacts of

1.2% , and 0.2% in our Europe and North America segments, respectively.

Selling, General and Administrative Expenses.

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.

Our selling, general and administrative ("SG&A") expenses as a percentage of revenue increased to 27.2% in the three months ended September 30, 2021 from 26.7% in the three months ended September 30, 2020.

SG&A expenses increased over the prior year period as a result of (i) a 0.4% increase attributable to our North America segment and (ii) a 0.2% increase 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 September 30, 2021 compared to the three months ended September 30, 2020.

Restructuring and Acquisition Related Expenses .

1 unchanged sentence

Three Months Ended

September 30,

2021 2020 Change

Restructuring expenses $ 1,843 (1)

Acquisition related expenses 682 (3)

Restructuring and acquisition related expenses $ 2,525 $ 20,495 $ (17,970)

(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.

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

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

(3) Acquisition related expenses for the three months ended September 30, 2021 primarily relate to professional fees related to completed and potential transactions.

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

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.

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

For the three months ended September 30, 2021, we recorded immaterial impairment charges on net assets held for sale .

For the three months ended September 30, 2020, we recorded an immaterial adjustment to reduce a previously recorded loss on disposal.

Depreciation and Amortization .

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Three Months Ended

September 30,

2021 2020 Change

2 unchanged sentences

Total depreciation and amortization $ 63,995 $ 68,655 $ (4,660)

(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.

(1) Depreciation expense increased an immaterial amount due to capital expenditures and foreign currency translation primarily related to an increase in the pound sterling and euro exchange rates for the three months ended September 30, 2021 compared to the prior year period.

(2) The decrease in amortization expense primarily reflected a decrease of $5 million related to the customer relationship intangible assets recorded upon our acquisition of Stahlgruber as the accelerated amortization of the customer relationship intangible assets resulted in lower amortization expense during the three months ended September 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 June 30, 2020 $ 17,442

(Decrease) increase due to:

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

Increase (decrease) due to:

Interest expense, net of interest income (9,755) (1)

Loss on debt extinguishment 23,564 (2)

Other income, net 3,863 (3)

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.

Other (income) expense, net (5,380) (2)

Net decrease (15,135)

Other expense, net for the three months ended September 30, 2021 $ 12,539

(1) The decrease in interest is related to a $10 million decrease resulting from lower outstanding debt and lower interest rates during the three months ended September 30, 2021 compared to the prior year period.

(2) The favorable variance in Other (income) expense, net is primarily related t o (i) a $4 million pension settlement loss recorded in the third quarter of 2020 based on the annuity purchase cost to settle the obligations of our primary defined benefit plan in the U.S (the "U.S.

Plan") and (ii) a $2 million mark to market adjustment in 2021 for appreciation in our equity investments not accounted for under the equity method, partially offset by (iii) several individually immaterial factors that had an unfavorable impact of $1 million in the aggregate.

Provision for Income Taxes .

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.

Our effective income tax rate for the three months ended September 30, 2021 was 24.4%, compared to 29.3% for the compara ble prior year period, reflecting (i) a 2.3% lower projected annual effective tax rate in 2021, (ii) a 1.0% favorable revision in the third quarter of 2021 due to a reduction in our projected annual effective tax rate, and (iii) a 1.6% favorable variance related to discrete items (primarily related to excess tax benefits from stock-based payments in 2021 and increased valuation allowances on net operating loss carryforwards and deferred tax adjustments as a result of statutory tax rate changes in 2020).

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 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.

Equity in earnings of unconsolidated subsidiaries for the three months ended September 30, 2021 increased by $4 million primarily related to improved year over year results reported by our North America investments.

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 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.

Relative to the rates used during the three months ended September 30, 2020 , the pound sterling, Canadian dollar, Czech koruna, and euro rates used to translate the 2021 statements of income increased by 6.7%, 5.8%, 4.5% and 0.8%, respectively.

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

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 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

dollar combined with the favorable impact of realized and unrealized currency gains and losses for the three months ended September 30, 2021 to generate a positive $0.01 effect on diluted earnings per share relative to the prior year period.

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

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

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

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

Six Months Ended

June 30, Percentage Change in Revenue

Nine Months Ended

September 30, Percentage Change in Revenue

2021 2020 Organic Acquisition and Divestiture Foreign Exchange Total Change

4 unchanged sentences

The growth in parts and services revenue of 11.8% represented increases in segment revenue of 26.4% in Specialty, 12.4% in Europe, and 5.5% 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.

Organic parts and services revenue growth was 8.3% , which included a 0.4% negative effec t from one fewer selling day in the first nine months of 2021, resulting in per day organic growth of 8.7% as the negative pandemic effect in the first nine months of 2020 was more severe than in the current year.

The increase in other revenue of 54.5% was primarily driven by a $256 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.

Refer to the discussion of our segment results of operations for factors contributing to the change in revenue by segment during the first nine months of 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.

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

Cost of goods sold decreased to 59.1% of revenue in the nine months ended September 30, 2021 from 60.5% of revenue in the nine months ended September 30, 2020.

The cost of goods sold decrease reflects impacts of 0.8% , 0.6% and 0.2% in our Europe, North America and Specialty segments, respectively, partially offset by a 0.2% increase in cost of goods sold attributable to mix.

The mix impact was caused by higher growth in the Specialty segment which has lower margins than our North America and Europe segments, 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 nine months ended September 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.

Our SG&A expenses as a percentage of revenue decreased to 26.7% in the nine months ended September 30, 2021 from 28.3% in the nine months ended September 30, 2020.

SG&A expenses decreased over the prior year period as a result of (i) a 0.6% decrease attributable to our North America segment, (ii) a 0.6% decrease from our Europe segment, (iii) a 0.1% decrease from our Specialty segment and (iv) a 0.2% 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 six months ended June 30, 2021 compared to the six months ended June 30, 2020.

Refer to the discussion of our segment results of operations for factors contributing to the changes in SG&A expenses as a percentage of revenue by segment for the nine months ended September 30, 2021 compared to the nine months ended September 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

Nine Months Ended

September 30,

2021 2020 Change

Restructuring expenses $ 14,679 (1)

Acquisition related expenses 800 (3)

Restructuring and acquisition related expenses $ 15,479 $ 52,415 $ (36,936)

(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.

(1) Restructuring expenses for the nine months ended September 30, 2021 primarily consisted of (i) $7 million related to our 2020 global restructuring program and (ii) $6 million related to our 1 LKQ Europe program.

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

(3) Acquisition related expenses for the nine months ended September 30, 2021 primarily relate to professional fees related to completed and potential transactions.

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

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

For both the nine months ended September 30, 2021 and 2020, we recorded immaterial losses on the disposal of businesses and impairment charges on net assets held for sale.

Depreciation and Amortization .

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

Six Months Ended

Nine Months Ended

September 30,

2021 2020 Change

2 unchanged sentences

Total depreciation and amortization $ 194,692 $ 199,897 $ (5,205)

(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.

(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 and Europe segments during the nine months ended September 30, 2021 compared to the prior year period.

(2) The decrease in amortization expense primarily reflected (i) decreases of $11 million and $2 million r elated to the customer relationship intangible assets recorded upon our acquisitions of Stahlgruber and Rhiag, respectively, as the accelerated amortization of the customer relationship intangible assets resulted in lower amortization expense during the nine months ended September 30, 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 nine months ended September 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:

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

Increase (decrease) due to:

Interest expense, net of interest income (20,951) (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.

Other (income) expense, net (4,108) (3)

Net decrease (14,246)

Other expense, net for the nine months ended September 30, 2021 $ 65,930

(1) The lower interest expense is primarily related to (i) a $24 million decrease resulting from lower outstanding debt and lower interest rates during the nine months ended September 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.

(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 Euro Notes (2026) 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.

(3) The favorable variance in Other (income) expense, net primarily related to (i) $8 million of mark to market adjustments in 2021 for appreciation in our equity investments not accounted for under the equity method and (ii) $6 million in pension settlement losses in the prior year related to the U.S.

Plan, partially offset by (iii) a $6 million reduction in proceeds related to insurance settlements compared to the prior year, (iv) unfavorable contingent payment

liability adjustments of $2 million and (v) several individually immaterial factors that had an unfavorable impact of $2 million in the aggregate.

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.

Our effective income tax rate for the nine months ended September 30, 2021 was 25.7%, compared to 28.3% 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.

For the nine months ended September 30, 2021, the effective tax rate was decreased 0.1% by net favorable discrete items, primarily for excess tax benefits from stock-based payments.

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

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.

Equity in Earnings of Unconsolidated Subsidiaries.

Equity in earnings of unconsolidated subsidiaries for the nine months ended September 30, 2021 increased by $15 million related to improved year over year results reported by Mekonomen, which is our largest equity method investment, and our North America investments, which generated income in 2021 after posting losses in 2020.

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.

Relative to the rate used during the nine months ended September 30, 2020, the Czech koruna, pound sterling, Canadian dollar and euro rates used to translate the 2021 statements of income incr eased by 9.2%, 9.0%, 8.1% and 6.3%, re spectively.

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.

dollar combined with the positive impact of realized and unrealized currency gains and losses for the nine months ended September 30, 2021 resulted in a $0.02 positive 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 nine months ended September 30, 2021 decreased an immaterial amount compared to the nine months ended September 30, 2020.

Net income attributable to discontinued noncontrolling interest was immaterial for the nine months ended September 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 June 30, Six Months Ended June 30,

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

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

25 unchanged sentences

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

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

North America

2 unchanged sentences

Three Months Ended

June 30, Percentage Change in Revenue

September 30, Percentage Change in Revenue

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

5 unchanged sentences

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 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.

(1) Parts and services organic revenue increased 5.9% for the three months ended September 30, 2021 compared to the prior year period, primarily driven by pricing and growth from recycled and remanufactured major mechanical parts.

While mobility statistics have improved relative to 2020, aftermarket collision parts revenue was roughly flat year-over-year due to the availability constraints of parts caused by current year supply chain issues.

Until these issues are resolved, we expect to see a negative effect on aftermarket fill rates across the sector that will impact revenue growth rates.

(2) The $72 million year over year organic increase in other revenue is primarily related to (i) a $40 million increase in revenue from scrap steel due to higher prices, (ii) a $20 million increase in revenue from other scrap and cores primarily related to higher prices, and (iii) a $13 million increase in revenue from precious metals (platinum, palladium, and rhodium) primarily due to higher prices.

Segment EBITDA .

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.

Segment EBITDA increased $21 million, or 10.1%, in the third quarter of 2021 compared to the prior year period.

This increase is attributable to margin initiatives, rightsizing actions, favorable commodity prices, and improving revenue compared to the prior year.

Increases in precious metals prices contributed an estimated $10 million in Segment EBITDA improvement relative to the third quarter of 2020.

Additionally, net sequential increases in scrap steel prices in our salvage and self service operations had a $7 million favorable impact on Segment EBITDA during the three months ended September 30, 2021, compared to a $5 million favorable impact during the three months ended September 30, 2020 resulting from net sequential increases in scrap steel prices.

This favorable impact for the three months ended September 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.

We estimate that precious metals and scrap steel pricing had a favorable effect of 0.2% on Segment EBITDA margin relative to the comparable prior year period.

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 June 30, 2020 14.8 %

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

Increase (decrease) due to:

2 unchanged sentences

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 20.8 %

Segment EBITDA for the three months ended September 30, 2021 17.3 %

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

(1) The increase in gross margin primarily reflected favorable 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.

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

While inflationary pressures have driven increases in product and freight costs for our wholesale operations relative to the prior year, we are adjusting prices dynamically to address input cost increases and market conditions such as inventory availability and demand, resulting in a net positive effect on gross margin in 2021.

This was partially offset by a negative impact of 0.4% from our self service operations.

While nominal gross margin dollars improved, gross margin as a percentage of revenue from self service declined due to higher car costs as well as a sequential dip in precious metal prices.

(2) The increase in segment operating expense as a percentage of revenue reflects (i) a 0.9% unfavorable impact from personnel expenses related to inflation and increased incentive compensation, (ii) a 0.4% unfavorable impact from a prior year gain on sale of property, and (iii) a 0.3% increase in charitable contributions, partially offset by (iv) a favorable 0.3% impact from facility related expenses which are relatively fixed in nature, and (v) several individually immaterial factors that had a 0.3% favorable impact in the aggregate.

Third Party Revenue .

1 unchanged sentence

Three Months Ended

June 30, Percentage Change in Revenue

September 30, Percentage Change in Revenue

Europe 2021 2020 Organic (1)

Acquisition and Divestiture (2)

Foreign Exchange (3)

Acquisition and Divestiture Foreign Exchange (2)

Parts & services revenue $ 1,519,682 $ 1,479,174 0.1 % (0.0) % 2.6 % 2.7 %

2 unchanged sentences

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 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.

(1) Parts and services organic revenue for the three months ended September 30, 2021 increased by 0.1%, as 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.

The flat overall growth rate is attributable to a relatively strong comparable period in 2020 in certain markets with pent up demand coming out of the lockdowns.

Strong revenue growth in central and eastern Europe ("CEE") and Germany was offset by softness in Italy, which was down compared to the prior year period.

(2) Compared to the prior year, exchange rates increased our revenue growth by $39 million, or 2.6%, primarily due to the weaker U.S.

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

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

Segment EBITDA .

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

Segment EBITDA increased $39 million, or 28.6%, in the third quarter of 2021 compared to the prior year period.

Our Europe Segment EBITDA included a positive year over year impact of $4 million related to the translation of local currency results into U.S.

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

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

On a constant currency basis (i.e., excluding the translation impact), Segment EBITDA increased by $35 million, or 25.6%, 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 June 30, 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 June 30, 2020 7.4 %

Increase due to:

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

Increase (decrease) due to:

Change in gross margin 2.5 % (1)

1 unchanged sentence

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

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

Segment EBITDA for the three months ended September 30, 2021 11.5 %

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 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.

(1) The increase in gross margin was primarily attributable to favorable impacts of 2.5% as a result of net price increases implemented in response to inflationary pressures that are impacting product and freight costs and other margin improvement initiatives related to procurement.

(2) The increase in segment operating expenses as a percentage of revenue reflects an unfavorable impact of (i) 0.8% 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 (ii) several individually immaterial factors that had a favorable impact of 0.5% in the aggregate.

Third Party Revenue .

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

Three Months Ended June 30, Percentage Change in Revenue

Three Months Ended September 30, Percentage Change in Revenue

Specialty 2021 2020 Organic (1)

4 unchanged sentences

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

(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.

(1) The organic increase was primarily due to strong demand for our products across all channels of the segment.

We believe the revenue growth was driven by our competitive advantage with our delivery service teams that enabled us to fulfill the strong demand owing to a stronger inventory position 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.

Segment EBITDA increased $3 million, or 6.8%, in the third quarter of 2021 compared to the prior year third quarter.

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

Specialty Percentage of Total Segment Revenue

Segment EBITDA for the three months ended June 30, 2020 12.9 %

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

Increase (decrease) due to:

1 unchanged sentence

Change in segment operating expenses (0.6) % (2)

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

Segment EBITDA for the three months ended September 30, 2021 11.1 %

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

(1) The increase in gross margin primarily reflects 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

(1) The decrease in gross margin reflects (i) an unfavorable impact of 0.4% driven by inflation in the manufacturing part of the business, and (ii) several individually immaterial factors that had an impact of 0.2% in the aggregate, partially offset by (iii) a 0.3% change due to 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, and (ii) an unfavorable impact of 0.2% due to duplicative costs related to 2021 acquisitions.

Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020

North America

1 unchanged sentence

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

Nine Months Ended

September 30, Percentage Change in Revenue

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

5 unchanged sentences

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.

(1) Parts and services organic revenue increased 4.7% (5.3% on a per day basis) in the nine months ended September 30, 2021 compared to the prior year period.

The growth was primarily driven by an increase in repairable claims related to the COVID-19 recovery as well as growth from major mechanical parts.

Aftermarket collision parts revenue was roughly flat year-over-year due to availability constraints of aftermarket parts caused by current year supply chain issues.

Until these issues are resolved, we expect to see a negative effect on aftermarket fill rates across the sector that will impact revenue growth rates.

(2) The $252 million year over year organic increase in other revenue is primarily related to (i) a $107 million increase in revenue from scrap steel due to higher prices, and (ii) a $99 million increase in revenue from precious metals (platinum, palladium, and rhodium) primarily due to higher prices, and (iii) a $47 million increase in revenue from other scrap and cores primarily related to higher prices.

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.

Segment EBITDA increased $185 million, or 32.7%, in the first nine months 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.

Increases in precious metals prices contributed an estimated $70 million in Segment EBITDA improvement relative to the first nine months of 2020.

Additionally, net sequential increases in scrap steel prices in our salvage and self service operations had a $38 million favorable impact on Segment EBITDA during the nine months ended September 30, 2021, compared to a $5 million favorable impact during the nine months ended September 30, 2020.

This favorable impact for the nine months ended September 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.

We estimate that precious metals and scrap steel pricing had a favorable effect of 1.9% on Segment EBITDA margin relative to the comparable prior year period.

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 %

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

Increase (decrease) due to:

2 unchanged sentences

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

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

Segment EBITDA for the nine months ended September 30, 2021 19.3 %

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

(1) The increase in gross margin primarily reflected favorable impacts of 2.1% from our wholesale operations.

(1) The increase in gross margin primarily reflected favorable impacts from our wholesale operations.

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

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.

We are adjusting prices dynamically to address input cost increases and market conditions such as inventory availability and demand, and, in some cases, we experienced a margin benefit in 2021 as higher prices were enacted ahead of turning the 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 1.0% 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 0.4% from facility expenses, which are largely fixed and (iii) several individually immaterial factors that had a favorable impact of 0.2% in the aggregate.

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)

Nine Months Ended

September 30, Percentage Change in Revenue

Europe 2021 2020 Organic Acquisition and Divestiture (2)

Foreign Exchange (3)

Parts & services revenue $ 4,544,749 $ 4,043,473 6.3 % (1)

(0.7) % 6.8 % 12.4 %

Other revenue 20,639 15,405 25.6 % — % 8.4 % 34.0 %

1 unchanged sentence

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.

(1) Parts and services organic revenue for the nine months ended September 30, 2021 increased by 6.3% 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.

While most of our businesses reported year over year growth, CEE and the U.K.

reported the greatest increases for the first nine months.

(2) The decline for the nine months ended September 30, 2021 was primarily a result of the disposal of a non-core telecommunications operation in Germany in the second quarter of 2020 and three additional smaller disposals in 2021 and 2020.

(3) Compared to the prior year, exchange rates increased our revenue growth by $277 million , or 6.8% , 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.

dollar against the euro, pound sterling and Czech koruna during the first nine months 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.

Segment EBITDA increased $180 million , or 59.4% , in the first nine months of 2021 compared to the prior year period.

Our Europe Segment EBITDA included a positive year over year impact of $21 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.

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

On a constant currency basis (i.e., excluding the translation impact), Segment EBITDA increased by $159 million, or 52.5%, com pared 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:

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

Increase (decrease) due to:

Change in gross margin 1.7 % (1)

1 unchanged sentence

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 %

Segment EBITDA for the nine months ended September 30, 2021 10.6 %

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

(1) The increase in gross margin was primarily attributable to 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.

(1) The increase in gross margin was primarily attributable to a favorable impact of 1.5% as a result of net price increases implemented in response to inflationary pressures that are impacting product and freight costs and other margin improvement initiatives related to procurement.

Additionally, there was a 0.2% benefit 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) 0.5% 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) 0.4% 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.

Personnel costs were relatively flat compared to the prior year, as the unfavorable impact 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 were offset by a favorable leverage effect and headcount reductions.

Several other individually immaterial factors had a favorable impact of 0.4% 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

Nine Months Ended

September 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 30.5% for the first half of 2021 compared to the prior year period despite one fewer selling day.

(1) Parts and services organic revenue increased 24.6% for the first nine months of 2021 compared to the prior year period despite one fewer selling day.

On a per day basis, organic revenue increased 25.3%.

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Segment EBITDA .

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

Segment EBITDA increased $60 million, or 45.0%, in the first nine months of 2021 compared to the prior year period.

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 six months ended June 30, 2020 11.2 %

Increase due to:

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

Increase (decrease) due to:

Change in gross margin 1.2 % (1)

Change in segment operating expenses 0.5 % (2)

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

Segment EBITDA for the nine months ended September 30, 2021 13.2 %

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 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.

(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 24.6% compared to the prior year, reflects a favorable impact of (i) 0.5% in personnel costs, and (ii) several individually immaterial factors that had a favorable impact of 0.3% in the aggregate, partially offset by (iii) an unfavorable impact of 0.3% due to increased incentive compensation.

Liquidity and Capital Resources

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

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

September 30, 2021 December 31, 2020 September 30, 2020

Cash and cash equivalents $ 402,703 $ 312,154 $ 421,382

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2,040,456 2,858,235 2,692,335

(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.

(1) Debt amounts reflect the gross values to be repaid (excluding debt issuance costs of $13 million , $26 million and $27 million as of September 30, 2021, December 31, 2020 and September 30, 2020, respectively).

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

(3) Capacity under credit facilities includes our revolving credit facilities and our receivables securitization facility (through July 30, 2021, at which time the facility was terminated).

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 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

As of September 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 September 30, 2021), bearing interest at variable rates, with availability reduced by $69 million of amounts outstanding under letters of credit

• Euro Notes (2024) totaling $579 million (€500 million), maturing in April 2024 and bearing interest at a 3.875% fixed rate

• 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.

• Euro Notes (2028) totaling $290 million (€250 million) maturing in April 2028 and bearing interest at a 4.125% fixed rate

As of September 30, 2021, we had approximately $1.6 billion available under our credit facilities.

Combined with $403 million of cash and cash equivalents at September 30, 2021, we had approximately $2.0 billion in available liquidity, a decrease of $818 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.

Also, we terminated our receivables securitization facility effective July 30, 2021.

With these transactions, we reduced our overall liquidity by utilizing available capacity on the revolving credit facility and reducing the overall facility size.

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.

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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 $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.

Beginning in the fourth quarter of 2021, we expanded our capital allocation strategy to include the payment of dividends as an additional mechanism to return value to our stockholders.

On October 26, 2021, the Board of Directors of LKQ declared a cash dividend to stockholders.

The quarterly cash dividend of $0.25 per share of common stock will be payable on December 2, 2021 to stockholders of record at the close of business on November 11, 2021.

The expected payout for this dividend is $73 million, which will be reflected as a financing cash outflow.

We believe that our future cash flow generation will permit us to continue paying dividends in future periods;

however, the timing, amount and frequency of such future dividends will be subject to approval by our Board of Directors, and based on considerations of capital availability, compliance with covenants within our credit facilities, senior note indentures, and various other factors, many of which are outside of our control.

Additionally, 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 or alter our capital allocation strategy.

With $2.0 billion of total liquidity as of September 30, 2021 and $37 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 June 30, 2021):

Covenant Level Ratio Achieved as of June 30, 2021

Covenant Level Ratio Achieved as of September 30, 2021

Maximum net leverage ratio 4.25:1.00 1.1

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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 were in compliance with all restrictive covenants under our credit agreement as of September 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.

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.

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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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.

We expect more suppliers will begin participating in our European supply chain financing initiative in the fourth quarter 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.

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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.

LIBOR will begin to be phased out on December 31, 2021 and will be replaced entirely by June 2023.

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

We are working with our bank group on this transition and will migrate to the new benchmark rates when applicable.

We do not expect the change in benchmark rates will have a material impact on our results of operations, financial position or liquidity.

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.

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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.

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.

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

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

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

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

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

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

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).

As of September 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 September 30, 2021.

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

Cash interest payments were $53 million for the nine months ended September 30, 2021, including 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 $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) :

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

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

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

Three 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 $20 million of short-term debt that may be extended beyond the current due date.

(2) The total debt amounts presented above reflect the gross values to be repaid (excluding debt issuance costs of $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.

(2) The total debt amounts presented above reflect the gross values to be repaid (excluding debt issuance costs of $13 million as of September 30, 2021).

As of September 30, 2021, the Company had cash and cash equivalents o f $403 million, of which $332 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.

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

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

Three Months Ended Six Months Ended

June 30, June 30,

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

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 Change 2021 2020 Change

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Total $ 1,590,100 $ 1,463,200 $ 126,900 $ 4,764,200 $ 3,930,600 $ 833,600

(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.

(1) Inventory purchases across the North America segment have increased in the nine months ended September 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 nine months 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 $168 million attributable to the increase in the value of the euro, and to a lesser extent, the pound sterling in the nine months ended September 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.

However, we did not reach our desired levels in the first nine months 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 and six months ended June 30, 2021 and 2020 (in thousands):

Three Months Ended Six Months Ended

June 30, June 30,

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

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 % Change 2021 2020 % Change

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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 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.

Self service vehicle purchases declined due to (i) increased competition in the market due to high 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 2022 to support the service and fill rate requirements of our businesses based on the revenue trend and expectations for full year 2022, including normal seasonality, as supply chain challenges in 2021 deferred the inventory build to 2022 (although if supply chain challenges continue our ability to increase inventory purchases to the desired level could be affected).

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 six months ended June 30, 2020 $ 913

Net cash provided by operating activities for the nine months ended September 30, 2020 $ 1,135

Increase (decrease) due to:

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Other operating activities 41 (5)

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

Net cash provided by operating activities for the nine months ended September 30, 2021 $ 1,362

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

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pretax income and the timing of estimated tax payments.

(3) Decrease in cash payments for interest is due to lower outstanding borrowing and the payoff of the Euro Notes (2026) in April 2021.

(4) 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 $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 $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.

Receivables, net was a $105 million greater outflow in 2021 primarily due to a significant increase in the revenue for the nine months ended September 2021 compared to the nine months ended September 2020, which translated to higher receivables balances and larger net outflows in the North America segment (of $49 million ) and in the Europe segment (of $57 million ).

Inventories represented $588 million in incremental cash outflows in the first nine 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 nine months of 2021 as we worked to rebuild our inventory levels, but as described in the procurement section above, we were delayed in doing so.

Accounts payable produced $484 million in higher cash inflows primarily due to higher accounts payable balances in the North America segment (of $199 million) and in the Specialty segment (of $23 million) due to timing of payments, and in the Europe segment (of $261 million) compared to the prior year period, as a result of timing of payments and benefits from extended payment terms, including through our supply chain financing initiatives .

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

Net cash used in investing activities totaled $201 million and $106 million during the nine months ended September 30, 2021 and 2020, respectively.

Property, plant and equipment purchases were $133 million during the nine months ended September 30, 2021 compared to $110 million in the prior year period.

We invested $67 million of cash, net of cash acquired, in business acquisitions during the nine months ended September 30, 2021 compared to $7 million during the nine months ended September 30, 2020.

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

Six Months Ended

Nine Months Ended

September 30,

Net cash provided by operating activities $ 1,362,028 $ 1,134,641

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Free cash flow $ 1,229,323 $ 1,024,692

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.

Net cash used in financing activities totaled $1.1 billion and $1.2 billion for the nine months ended September 30, 2021 and 2020, respectively.

During the nine months ended September 30, 2021, net repayments of our borrowings totaled $370 million compared to $1.0 billion during the nine months ended September 30, 2020.

The net repayments in 2021 and 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.

We repurchased $575 million of our common stock in the nine months ended September 30, 2021 (reflecting the cash outflow for transactions that settled in the period), compared to $88 million in the nine months ended September 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.

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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