LKQ CORP 10-Q

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements Statements and information in this Quarterly Report on Form 10-Q that are not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are made pursuant to the “safe harbor” provisions of such Act. Forward-looking statements include, but are not limited to, statements regarding our outlook, guidance, expectations, beliefs, hopes, intentions and strategies. Words such as “may,” “will,” “plan,” “should,” “expect,” “anticipate,” “believe,” “if,” “estimate,” “intend,” “project” and similar words or expressions are used to identify these forward-looking statements. These statements are subject to a number of risks, uncertainties, assumptions and other factors, including the unfavorable effects of COVID-19, that may cause our actual results, performance or achievements to be materially different. All forward-looking statements are based on information available to us at the time the statements are made. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law. You should not place undue reliance on our forward-looking statements. Actual events or results may differ materially from those expressed or implied in the forward-looking statements. The risks, uncertainties, assumptions and other factors that could cause actual results to differ from the results predicted or implied by our forward-looking statements include factors discussed in our filings with the SEC, including those disclosed under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Form 10-K and in our subsequent Quarterly Reports on Form 10-Q (including this Quarterly Report). Overview We are a global distributor of vehicle products, including replacement parts, components and systems used in the repair and maintenance of vehicles, and specialty products and accessories to improve the performance, functionality and appearance of vehicles. Buyers of vehicle replacement products have the option to purchase from primarily five sources: new products produced by OEMs; new products produced by companies other than the OEMs, which are referred to as aftermarket products; recycled products obtained from salvage and total loss vehicles; recycled products that have been refurbished; and recycled products that have been remanufactured. We distribute a variety of products to collision and mechanical repair shops, including aftermarket collision and mechanical products; recycled collision and mechanical products; refurbished collision products such as wheels, bumper covers and lights; and remanufactured engines and transmissions. Collectively, we refer to the four sources that are not new OEM products as alternative parts. We are a leading provider of alternative vehicle collision replacement products and alternative vehicle mechanical replacement products, with our sales, processing, and distribution facilities reaching most major markets in the United States and Canada. We are also a leading provider of alternative vehicle replacement and maintenance products in Germany, the United Kingdom, the Benelux region (Belgium, Netherlands, and Luxembourg), Italy, Czech Republic, Austria, Slovakia, Poland, and various other European countries. In addition to our wholesale operations, we operate self service retail facilities across the U.S. that sell recycled automotive products from end-of-life-vehicles. We are also a leading distributor of specialty vehicle aftermarket equipment and accessories reaching most major markets in the U.S. and Canada. We are organized into four operating segments: Wholesale – North America; Europe; Specialty and Self Service. We aggregate our Wholesale – North America and Self Service operating segments into one reportable segment, North America, resulting in three reportable segments: North America, Europe and Specialty. Our operating results have fluctuated on a quarterly and annual basis in the past and can be expected to continue to fluctuate in the future as a result of a number of factors, some of which are beyond our control. Please refer to the factors referred to in Forward-Looking Statements above. Due to these factors and others, which may be unknown to us at this time, our operating results in future periods can be expected to fluctuate. Accordingly, our historical results of operations may not be indicative of future performance. Acquisitions and Investments Since our inception in 1998, we have pursued a growth strategy through both organic growth and acquisitions. Through 2018, our acquisition strategy was focused on consolidation to build scale in fragmented markets across North America and Europe. We targeted companies that were market leaders, expanded our geographic presence and enhanced our ability to provide a wide array of vehicle products through our distribution network. In the last few years, we have shifted our focus from larger transactions to tuck-in acquisitions that target high synergies and/or add critical capabilities. Additionally, we have made investments in various businesses to advance our strategic objectives. See "Investments in Unconsolidated 31 Subsidiaries" in Note 3, "Financial Statement Information," to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to our investments. Sources of Revenue We report our revenue in two categories: (i) parts and services and (ii) other. Our parts revenue is generated from the sale of vehicle products, including replacement parts, components and systems used in the repair and maintenance of vehicles, and specialty products and accessories to improve the performance, functionality and appearance of vehicles. Our service revenue is generated primarily from the sale of service-type warranties, fees for admission to our self service yards, and diagnostic and repair services. Revenue from other sources includes scrap and other metal (including precious metals - platinum, palladium and rhodium) sales, bulk sales to mechanical manufacturers (including cores) and sales of aluminum ingots and sows from our furnace operations. Other revenue will vary from period to period based on fluctuations in commodity prices and the volume of materials sold. See Note 4, "Revenue Recognition" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to our sources of revenue. Critical Accounting Policies and Estimates The discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. 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 nine months ended September 30, 2021. Recently Issued Accounting Pronouncements See "Recent Accounting Pronouncements" in Note 3, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information related to new accounting standards. Financial Information by Geographic Area 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 information related to our revenue and long-lived assets by geographic region. 1 LKQ Europe Program We have undertaken the 1 LKQ Europe program to create structural centralization and standardization of key functions to facilitate the operation of the Europe segment as a single business. Under this multi-year program, we expect to recognize the following: • Restructuring expenses - Non-recurring costs resulting directly from the implementation of the 1 LKQ Europe program from which the business will derive no ongoing benefit. See Note 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 details. • Transformation expenses - Period costs incurred to execute the 1 LKQ Europe program that are expected to contribute to ongoing benefits to the business (e.g. non-capitalizable implementation costs related to a common ERP system). These expenses are recorded in Selling, general and administrative expenses. • Transformation capital expenditures - Capitalizable costs for long-lived assets, such as software and facilities, that directly relate to the execution of the 1 LKQ Europe program. Costs related to the 1 LKQ Europe program incurred to date are reflected in Selling, general and administrative expenses, Restructuring expenses and Purchases of property, plant and equipment in our unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. Beginning in the second half of March 2020, management delayed certain projects under the 1 LKQ Europe program to reduce expenses and preserve capital in response to the COVID-19 pandemic. Based on our expectations in the second quarter of 2020 that the impacts on our business from COVID-19 had stabilized, we restarted the program in July 2020 with substantially the same initiatives and projects as prior to the pandemic. While certain projects were delayed as a result of the COVID-19 pandemic, such as our procurement initiatives and the new headquarters in Switzerland, we also accelerated certain projects, such as the integration of previously acquired networks and sharing resources across LKQ Europe. We have continued the project on schedule after the restart. We completed the organizational design and implementation projects in June 2021, with the remaining projects scheduled to be completed by 32 2024. 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. In the future, we may also identify additional initiatives and projects under the 1 LKQ Europe program that may result in additional expenditures, although we are currently unable to estimate the range of charges for such potential future initiatives and projects. We expect the transformation and restructuring expenses will be entirely funded by the improved trade working capital initiatives across our Europe segment. COVID-19 Impact on Our Operations In late February 2020, the Italian government began placing restrictions on activity as a result of the COVID-19 outbreak. Sales volumes fell as fewer cars were on the road and less maintenance activity was performed. While our Italian operation is an important part of our European business, it represented approximately 10% of the segment’s revenue in 2019, and thus the disruption did not have a material impact on the Company. By mid-March, the COVID-19 impact began spreading across the rest of the geographies where we operate at a very rapid pace. Governments adopted aggressive restrictions on the operation of non-essential businesses and personal movement, which reduced miles driven and collisions. While our businesses have been deemed essential in most jurisdictions in which we operate, the change in behavior driven by the COVID-19 restrictions negatively impacted our sales volume. Our organic parts and services revenue declined by 16.8%, 4.5% and 5.2% in the second, third, and fourth quarters of 2020, respectively, relative to the comparable prior year periods. We showed improvement in the third quarter of 2020 as governments gradually lifted restrictions for non-essential businesses and personal movement; however, in the fourth quarter of 2020 revenue declined as certain jurisdictions put restrictions back into place. As anticipated, April 2020 experienced the most negative revenue impact, with organic parts and services revenue (on a per day basis) down 30.3% compared to the prior year period. As movement restrictions lessened in May and June 2020, we experienced organic parts and services revenue declines (on a per day basis) of 13.2% and 7.3%, respectively, compared to the prior year periods. However, the pace of improvement flattened into the third quarter of 2020 as the increasing level of COVID-19 cases, especially in the United States, slowed the recovery. During the third quarter of 2020, organic parts and services revenue declined by 4.5% compared to the prior year period, a small improvement from the June 2020 decline of 7.3% (on a per day basis). During the fourth quarter of 2020, organic parts and services revenue declined by 6.1% (on a per day basis) and gradually worsened during the quarter with a decline of 7.2% (on a per day basis) in December. During the first quarter of 2021, organic parts and services revenue increased by 2.2% (on a per day basis) despite the continued COVID-19 impact on economic activity in the U.S. and Europe. 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. 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 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. These actions included, but were not limited to, employee furloughs and reductions in force, decreases in hours and overtime, lowering compensation for salaried employees, a hiring freeze, elimination of temporary labor, route consolidation, deferral of projects, and temporary branch closures. In the second quarter of 2020, these cost actions contributed to a reduction of approximately 18% in quarterly selling, general and administrative expenses compared to our first quarter 2020 run rate. We estimate that the cost actions generated a $10 million benefit in cost of goods sold compared to our second quarter of 2019. Some of the savings from the cost actions were delayed as we paid out vacation balances in April and covered medical benefits for employees in the United States during their furlough period. 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. 33 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 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. 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. In the fourth quarter of 2020 and first quarter of 2021, profitability remained higher than the prior year. In the second quarter of 2021, profitability continued to improve and was the highest in the company's history. 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). This focus was successful as we improved our liquidity position at December 31, 2020 by approximately $1.0 billion relative to March 31, 2020 while managing through the disruption caused by the pandemic. Beginning in late 2020 and continuing in 2021, we returned to our stated capital allocation strategy with an emphasis on internal investments in capital expenditures and inventory, tuck-in acquisitions and share repurchases. In each quarter of 2020, we prepared forecasts of future revenues, profits and cash flows to use in multiple analyses, including the interim goodwill impairment test, other impairment tests of long-lived assets, assessments of the recoverability of inventory, determination of customer and supplier rebate balances, calculation of the annual effective tax rate and evaluations of the realizability of deferred tax assets. Actual results showed an improving trend, with profitability in the second, third and fourth quarters all exceeding our prior forecast prepared in the first quarter of 2020. We will continue to assess COVID-19 developments and the potential impacts on our business in 2021 and update the applicable analyses as necessary. As the economic impact of the pandemic is dependent on variables that are difficult to project and in many cases are outside of our control, it is possible that the estimates underlying our analyses may change materially in future periods. This is particularly the case because it appears that the prevalence of the virus outbreak fluctuates depending on various factors, including the level of economic and social activity and vaccination status in a region. See the Results of Operations and Liquidity sections for further detail on our year over year trends. Key Performance Indicators We believe that organic revenue growth, Segment EBITDA and free cash flow are key performance indicators for our business. Segment EBITDA is our key measure of segment profit or loss reviewed by our chief operating decision maker. Free cash flow is a financial measure that is not prepared in accordance with U.S. generally accepted accounting principles (“non-GAAP”). • Organic revenue growth - We define organic revenue growth as total revenue growth from continuing operations excluding the effects of acquisitions and divestitures (i.e., revenue generated from the date of acquisition to the first anniversary of that acquisition, net of reduced revenue due to the disposal of businesses) and foreign currency movements (i.e., impact of translating revenue at prior period exchange rates). Organic revenue growth includes incremental sales from both existing and new (i.e., opened within the last twelve months) locations and is derived from expanding business with existing customers, securing new customers and offering additional products and services. We believe that organic revenue growth is a key performance indicator as this statistic measures our ability to serve and grow our customer base successfully. • Segment EBITDA - Refer to Note 14, "Segment and Geographic Information,” in Part I, Item 1 of this Form 10-Q for a description of the calculation of Segment EBITDA. We believe that Segment EBITDA provides useful information to evaluate our segment profitability by focusing on the indicators of ongoing operational results. • Free Cash Flow - We calculate free cash flow as net cash provided by operating activities, less purchases of property, plant and equipment. Free cash flow provides insight into our liquidity and provides useful information to management and investors concerning our cash flow available to meet future debt service obligations and working capital requirements, to make strategic acquisitions and to repurchase stock. These three key performance indicators are used as targets in determining incentive compensation at various levels of the organization, including senior management. By using these performance measures, we attempt to motivate a balanced 34 approach to the business that rewards growth, profitability and cash flow generation in a manner that enhances our long-term prospects. Results of Operations—Consolidated The following table sets forth statements of income data as a percentage of total revenue for the periods indicated: Three Months Ended Nine Months Ended September 30, September 30, 2021 2020 2021 2020 Revenue 100.0 % 100.0 % 100.0 % 100.0 % Cost of goods sold 59.2 % 60.7 % 59.1 % 60.5 % Gross margin 40.8 % 39.3 % 40.9 % 39.5 % Selling, general and administrative expenses 27.2 % 26.7 % 26.7 % 28.3 % Restructuring and acquisition related expenses 0.1 % 0.7 % 0.2 % 0.6 % Impairment of net assets held for sale and (gain) loss on disposal of businesses 0.0 % (0.0) % 0.0 % 0.0 % Depreciation and amortization 1.9 % 2.3 % 2.0 % 2.3 % Operating income 11.5 % 9.7 % 12.1 % 8.3 % Total other expense, net 0.4 % 0.9 % 0.7 % 0.9 % Income from continuing operations before provision for income taxes 11.1 % 8.8 % 11.4 % 7.4 % Provision for income taxes 2.7 % 2.6 % 2.9 % 2.1 % 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 loss from discontinued operations — % — % — % (0.0) % Net income 8.6 % 6.4 % 8.6 % 5.3 % Less: net (loss) income attributable to continuing noncontrolling interest (0.0) % 0.0 % 0.0 % 0.0 % Less: net income attributable to discontinued noncontrolling interest — % — % — % 0.0 % Net income attributable to LKQ stockholders 8.6 % 6.3 % 8.6 % 5.3 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020 Revenue. The following table summarizes the changes in revenue by category (in thousands): Three Months Ended September 30, Percentage Change in Revenue 2021 2020 Organic Acquisition and Divestiture Foreign Exchange Total Change Parts & services revenue $ 3,061,308 $ 2,885,729 4.0 % 0.5 % 1.5 % 6.1 % Other revenue 235,303 161,955 45.1 % 0.1 % 0.1 % 45.3 % Total revenue $ 3,296,611 $ 3,047,684 6.2 % 0.5 % 1.5 % 8.2 % Note: 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 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 third quarter of 2021 compared to the prior year period. Cost of Goods Sold . Cost of goods sold decreased to 59.2% of revenue in the three months ended 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 35 1.2% , and 0.2% in our Europe and North America 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 September 30, 2021 compared to the same period of 2020. Selling, General and Administrative Expenses. Our selling, general and administrative ("SG&A") expenses as a percentage of revenue 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 . The following table summarizes restructuring and acquisition related expenses for the periods indicated (in thousands): Three Months Ended September 30, 2021 2020 Change Restructuring expenses $ 1,843 (1) $ 12,701 (2) $ (10,858) Acquisition related expenses 682 (3) 7,794 (4) (7,112) Restructuring and acquisition related expenses $ 2,525 $ 20,495 $ (17,970) (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 . The following table summarizes depreciation and amortization for the periods indicated (in thousands): Three Months Ended September 30, 2021 2020 Change Depreciation $ 38,555 $ 38,346 $ 209 (1) Amortization 25,440 30,309 (4,869) (2) Total depreciation and amortization $ 63,995 $ 68,655 $ (4,660) (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): 36 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) 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 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 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 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 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. 37 Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020 Revenue. The following table summarizes the changes in revenue by category (in thousands): Nine Months Ended September 30, Percentage Change in Revenue 2021 2020 Organic Acquisition and Divestiture Foreign Exchange Total Change Parts & services revenue $ 9,171,345 $ 8,201,604 8.3 % (0.1) % 3.6 % 11.8 % Other revenue 731,166 473,338 54.1 % 0.0 % 0.3 % 54.5 % Total revenue $ 9,902,511 $ 8,674,942 10.8 % (0.1) % 3.5 % 14.2 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. The growth in parts and services revenue of 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 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 nine months of 2021 compared to the prior year period. Cost of Goods Sold . 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 26.7% 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 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): Nine Months Ended September 30, 2021 2020 Change Restructuring expenses $ 14,679 (1) $ 44,498 (2) $ (29,819) Acquisition related expenses 800 (3) 7,917 (4) (7,117) Restructuring and acquisition related expenses $ 15,479 $ 52,415 $ (36,936) (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. 38 (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. 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 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): Nine Months Ended September 30, 2021 2020 Change Depreciation $ 116,280 $ 112,462 $ 3,818 (1) Amortization 78,412 87,435 (9,023) (2) 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 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 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 (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 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 39 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 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 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 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 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 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. Results of Operations—Segment Reporting We have four operating segments: Wholesale – North America, Europe, Specialty and Self Service. Our Wholesale – North America and Self Service operating segments are aggregated into one reportable segment, North America, because they possess similar economic characteristics and have common products and services, customers, and methods of distribution. Therefore, we present three reportable segments: North America, Europe and Specialty. We have presented the growth of our revenue and profitability in our operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our growth and profitability, consistent with how we evaluate our performance, as this statistic removes the translation impact of exchange rate fluctuations, which are outside of our control and do not reflect our operational performance. Constant currency revenue and Segment EBITDA results are calculated by translating prior year revenue and Segment EBITDA in local currency using the current year's currency conversion rate. This non-GAAP financial measure has important limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of our results as reported under GAAP. Our use of this term may vary from the use of similarly-titled measures by other issuers due to potential inconsistencies in the method of calculation and differences due to items subject to interpretation. In addition, not all companies that report revenue or profitability on a constant currency basis calculate such measures in the same manner as we do, and accordingly, our calculations are not necessarily comparable to similarly-named measures of other companies and may not be appropriate measures for performance relative to other companies. The following table presents our financial performance, including third party revenue, total revenue and Segment EBITDA, by reportable segment for the periods indicated (in thousands): 40 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 Third Party Revenue North America $ 1,306,310 $ 1,164,031 $ 3,882,734 $ 3,465,102 Europe 1,525,274 1,484,099 4,565,388 4,058,878 Specialty 465,027 399,554 1,454,389 1,150,962 Total third party revenue $ 3,296,611 $ 3,047,684 $ 9,902,511 $ 8,674,942 Total Revenue North America $ 1,306,965 $ 1,164,241 $ 3,884,352 $ 3,465,831 Europe 1,525,274 1,484,099 4,565,388 4,058,878 Specialty 465,842 400,429 1,457,060 1,153,885 Eliminations (1,470) (1,085) (4,289) (3,652) Total revenue $ 3,296,611 $ 3,047,684 $ 9,902,511 $ 8,674,942 Segment EBITDA North America $ 225,582 17.3 % $ 204,957 17.6 % $ 750,935 19.3 % $ 565,949 16.3 % Europe 175,093 11.5 % 136,165 9.2 % 484,157 10.6 % 303,814 7.5 % Specialty 51,644 11.1 % 48,340 12.1 % 192,525 13.2 % 132,805 11.5 % The key measure of segment profit or loss reviewed by our chief operating decision maker, our Chief Executive Officer, is Segment EBITDA. Segment EBITDA includes revenue and expenses that are controllable by the segment. Corporate general and administrative expenses are allocated to the segments based on usage, with shared expenses apportioned based on the segment's percentage of consolidated revenue. We calculate Segment EBITDA as EBITDA excluding restructuring and acquisition related expenses (which includes restructuring expenses recorded in Cost of goods sold); change in fair value of contingent consideration liabilities; other gains and losses related to acquisitions, equity method investments, or divestitures; equity in losses and earnings of unconsolidated subsidiaries; equity investment mark to market adjustments; and impairment charges. EBITDA, which is the basis for Segment EBITDA, is calculated as net income attributable to LKQ stockholders excluding discontinued operations and discontinued noncontrolling interest, depreciation, amortization, interest (which includes gains and losses on debt extinguishment) and income tax expense. See Note 14, "Segment and Geographic Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a reconciliation of total Segment EBITDA to net income. Three Months Ended September 30, 2021 Compared to Three Months Ended September 30, 2020 North America Third Party Revenue . The following table summarizes the changes in third party revenue by category in our North America segment (in thousands): Three Months Ended September 30, Percentage Change in Revenue North America 2021 2020 Organic Acquisition and Divestiture Foreign Exchange Total Change Parts & services revenue $ 1,076,599 $ 1,007,001 5.9 % (1) 0.6 % 0.4 % 6.9 % Other revenue 229,711 157,030 46.1 % (2) 0.1 % 0.0 % 46.3 % Total third party revenue $ 1,306,310 $ 1,164,031 11.3 % 0.6 % 0.3 % 12.2 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. (1) Parts and services organic revenue increased 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. 41 (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 $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 September 30, 2020 17.6 % Increase (decrease) due to: Change in gross margin 0.5 % (1) Change in segment operating expenses (1.0) % (2) Change in other expense, net and net income attributable to continuing noncontrolling interest 0.1 % Segment EBITDA for the three months ended September 30, 2021 17.3 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. (1) The increase in gross margin primarily reflected favorable 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. Europe Third Party Revenue . The following table summarizes the changes in third party revenue by category in our Europe segment (in thousands): Three Months Ended September 30, Percentage Change in Revenue Europe 2021 2020 Organic (1) Acquisition and Divestiture Foreign Exchange (2) Total Change Parts & services revenue $ 1,519,682 $ 1,479,174 0.1 % (0.0) % 2.6 % 2.7 % Other revenue 5,592 4,925 10.9 % — % 2.6 % 13.6 % Total third party revenue $ 1,525,274 $ 1,484,099 0.2 % (0.0) % 2.6 % 2.8 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. 42 (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 pound sterling, euro, and Czech koruna during the third quarter of 2021 relative to the prior year period. Segment EBITDA . 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 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 September 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 September 30, 2020 9.2 % Increase (decrease) due to: Change in gross margin 2.5 % (1) Change in segment operating expenses (0.3) % (2) Change in other expense, net and net income attributable to continuing noncontrolling interest 0.2 % Segment EBITDA for the three months ended September 30, 2021 11.5 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. (1) The increase in gross margin was primarily attributable to favorable impacts of 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. Specialty Third Party Revenue . The following table summarizes the changes in third party revenue by category in our Specialty segment (in thousands): Three Months Ended September 30, Percentage Change in Revenue Specialty 2021 2020 Organic (1) Acquisition and Divestiture Foreign Exchange Total Change Parts & services revenue $ 465,027 $ 399,554 13.7 % 2.1 % 0.6 % 16.4 % Other revenue — — — % — % — % — % Total third party revenue $ 465,027 $ 399,554 13.7 % 2.1 % 0.6 % 16.4 % Note: 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 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 $3 million, or 6.8%, in the third quarter of 2021 compared to the prior year third quarter. 43 The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Specialty segment: Specialty Percentage of Total Segment Revenue Segment EBITDA for the three months ended September 30, 2020 12.1 % Increase (decrease) due to: Change in gross margin (0.3) % (1) Change in segment operating expenses (0.6) % (2) Segment EBITDA for the three months ended September 30, 2021 11.1 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. (1) The decrease in gross margin 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. 44 Nine Months Ended September 30, 2021 Compared to Nine Months Ended September 30, 2020 North America Third Party Revenue . The following table summarizes the changes in third party revenue by category in our North America segment (in thousands): Nine Months Ended September 30, Percentage Change in Revenue North America 2021 2020 Organic Acquisition and Divestiture Foreign Exchange Total Change Parts & services revenue $ 3,172,207 $ 3,007,169 4.7 % (1) 0.3 % 0.5 % 5.5 % Other revenue 710,527 457,933 55.1 % (2) 0.0 % 0.0 % 55.2 % Total third party revenue $ 3,882,734 $ 3,465,102 11.4 % 0.3 % 0.4 % 12.1 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. (1) Parts and services organic revenue increased 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 $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. 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 $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. 45 The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our North America segment: North America Percentage of Total Segment Revenue Segment EBITDA for the nine months ended September 30, 2020 16.3 % Increase (decrease) due to: Change in gross margin 1.5 % (1) Change in segment operating expenses 1.6 % (2) Change in other expense, net and net income attributable to continuing noncontrolling interest (0.2) % Segment EBITDA for the nine months ended September 30, 2021 19.3 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. (1) The increase in gross margin primarily reflected favorable 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. 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 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. Europe Third Party Revenue . The following table summarizes the changes in third party revenue by category in our Europe segment (in thousands): Nine Months Ended September 30, Percentage Change in Revenue Europe 2021 2020 Organic Acquisition and Divestiture (2) Foreign Exchange (3) Total Change 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 % Total third party revenue $ 4,565,388 $ 4,058,878 6.4 % (0.7) % 6.8 % 12.5 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. (1) Parts and services organic revenue 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 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. 46 (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 nine months of 2021 relative to the prior year period. Segment EBITDA . 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 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. 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 nine months ended September 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 nine months ended September 30, 2020 7.5 % Increase (decrease) due to: Change in gross margin 1.7 % (1) Change in segment operating expenses 1.3 % (2) Change in other expense, net and net income attributable to continuing noncontrolling interest 0.1 % Segment EBITDA for the nine months ended September 30, 2021 10.6 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. (1) The increase in gross margin was primarily attributable to 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. Specialty Third Party Revenue . The following table summarizes the changes in third party revenue by category in our Specialty segment (in thousands): Nine Months Ended September 30, Percentage Change in Revenue Specialty 2021 2020 Organic (1) Acquisition and Divestiture Foreign Exchange Total Change Parts & services revenue $ 1,454,389 $ 1,150,962 24.6 % 1.0 % 0.7 % 26.4 % Other revenue — — — % — % — % — % Total third party revenue $ 1,454,389 $ 1,150,962 24.6 % 1.0 % 0.7 % 26.4 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. (1) Parts and services organic revenue increased 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%. 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. 47 Segment EBITDA . 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 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 nine months ended September 30, 2021 13.2 % Note: In the table above, the sum of the individual percentages may not equal the total due to rounding. (1) The increase in gross margin primarily 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 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): September 30, 2021 December 31, 2020 September 30, 2020 Cash and cash equivalents $ 402,703 $ 312,154 $ 421,382 Total debt (1) 2,398,502 2,896,676 3,133,465 Current maturities (2) 37,117 58,810 97,584 Capacity under credit facilities (3) 3,150,000 3,260,000 3,260,000 Availability under credit facilities (3) 1,637,753 2,546,081 2,270,953 Total liquidity (cash and cash equivalents plus availability under credit facilities) 2,040,456 2,858,235 2,692,335 (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. We assess our liquidity in terms of our ability to fund our operations and provide for expansion through both internal development and acquisitions. Our primary sources of liquidity are cash flows from operations and our credit facilities. We utilize our cash flows from operations to fund working capital and capital expenditures, with the excess amounts going towards funding acquisitions, paying down outstanding debt or repurchasing our common stock. As we have pursued acquisitions as part of our historical growth strategy, our cash flows from operations have not always been sufficient to cover our investing activities. To fund our acq uisitions, we have accessed various forms of debt financing, including revolving credit facilities, senior notes and a receivables securitization facility. As of September 30, 2021, we had debt outstanding and additional available sources of financing as follows: 48 • 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 • 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). 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. We believe that our current liquidity and cash expected to be generated by operating activities in future periods will be sufficient to meet our current operating and capital requirements. To support our liquidity position during the COVID-19 pandemic, we focused on preserving cash during the expected period of reduced demand. Our action plan to strengthen our liquidity position included a deferral of growth driven capital projects, reductions in inventory orders, more active monitoring of customer receivables and terms, income and value added tax deferrals, and suspension of our share buyback program, in addition to the cost saving measures discussed in the "COVID-19 Impact on Our Operations" section above. Given our success in strengthening our liquidity position as of September 30, 2020, we recommenced our share buyback program during the fourth quarter of 2020. Our 2021 plan includes spending to rebuild inventory levels, support growth driven capital projects, and complete strategic acquisitions. 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 September 30, 2021): Covenant Level Ratio Achieved as of September 30, 2021 Maximum net leverage ratio 4.25:1.00 1.1 Minimum interest coverage ratio 3.00:1.00 24.4 The terms net leverage ratio and minimum interest coverage ratio used in the credit agreement are specifically calculated per the credit agreement and differ in specified ways from comparable GAAP or common usage terms. Our credit agreement contains customary covenants that impose limitations and conditions on our ability to enter into certain transactions. The credit agreement also contains financial and affirmative covenants, including limitations on our net leverage ratio and a minimum interest coverage ratio. We were in compliance with all restrictive covenants under our credit agreement as of September 30, 2021. 49 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. The indentures relating to our Euro Notes d o not include financial maintenance covenants, and the indentures will not restrict our ability to draw funds on the credit facility. The indentures do not prohibit amendments to the financial covenants under the credit facility as needed. In the long term, while we believe that we have adequate capacity under our existing credit facilities, from time to time we may need to raise additional funds through public or private financing, strategic relationships or other arrangements, such as (i) our November 2018 amendment to our senior secured credit facility and (ii) the issuance of the Euro Notes (2026/28) in April 2018 related to the Stahlgruber acquisition. There can be no assurance that additional funding, or refinancing of our credit facilities, if needed, will be available on terms attractive to us, or at all. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants or higher interest costs. Our failure to raise capital if and when needed could have a material adverse impact on our business, operating results, and financial condition. Beginning in 2019, a number of our European suppliers began participating in a supply chain financing initiative in select countries under which they may sell their accounts receivable to the participating financial institutions, allowing us to extend payment terms which in turn improves our operating cash flows. The initiative allows our suppliers to monetize 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 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. The initiative is at the sole discretion of both the supplier and the financial institution on terms that are negotiated between them. In the future, if the financial institutions did not continue to purchase receivables from our suppliers under the initiative, the participating vendors may need to renegotiate their payment terms with us, which in turn could cause our borrowings under our revolving credit facility to increase. All outstanding payments owed under the initiative to the participating financial institutions are recorded within Accounts payable in our Unaudited Condensed Consolidated Balance Sheets. Borrowings under the credit agreement accrue interest at variable rates which are tied to 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. In addition, from time to time, we hold currency swaps that contain an interest rate swap component and a foreign currency forward contract component that, when combined with related intercompany financing arrangements, effectively convert variable rate U.S. dollar-denominated borrowings into fixed rate euro-denominated borrowings. These derivative transactions are described in Note 10, "Derivative Instruments and Hedging Activities" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. 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 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. 50 The scheduled maturities of long-term obligations outstanding at September 30, 2021 are as follows (in thousands): Three months ending December 31, 2021 (1) : $ 23,508 Years ending December 31: 2022 17,657 2023 10,658 2024 2,030,283 2025 9,663 Thereafter 306,733 Total debt (2) $ 2,398,502 (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 $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. We believe that we have sufficient cash flow and liquidity to meet our financial obligations in the U.S. without repatriating our foreign earnings. We may, from time to time, choose to selectively repatriate foreign earnings if doing so supports our financing or liquidity objectives. Distributions of dividends from our foreign subsidiaries, if any, would be generally exempt from further U.S. taxation, either as a result of the 100% participation exemption under the Tax Act, or due to the previous taxation of foreign earnings under the transition tax and the Global Intangible Low-Taxed Income (“GILTI”) regime. The procurement of inventory is the largest operating use of our funds. We normally pay for aftermarket product purchases on standard payment terms or at the time of shipment, depending on the manufacturer and the negotiated payment terms. We normally pay for salvage vehicles acquired at salvage auctions and under direct procurement arrangements at the time that we take possession of the vehicles. The following table sets forth a summary of our aftermarket and manufactured inventory procurement for the 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 North America $ 276,000 $ 270,600 $ 5,400 $ 798,100 $ 760,600 $ 37,500 (1) Europe 961,600 940,400 21,200 2,860,900 2,491,600 369,300 (2) Specialty 352,500 252,200 100,300 1,105,200 678,400 426,800 (3) 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 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 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. 51 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 North America wholesale salvage cars and trucks 61 57 7.0 % 174 165 5.5 % Europe wholesale salvage cars and trucks 6 6 0.0 % 19 18 5.6 % Self service and "crush only" cars 138 148 (6.8) % 414 434 (4.6) % 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 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 nine months ended September 30, 2020 $ 1,135 Increase (decrease) due to: Operating income 476 (1) Cash paid for taxes (126) (2) Cash paid for interest 45 (3) Working capital accounts: (4) Receivables, net (105) Inventories (588) Accounts payable 484 Other operating activities 41 (5) 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. (2) Cash payments related to income taxes increased for U.S. federal and state income taxes due to a projected increase in pretax income and the timing of estimated tax payments. (3) 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 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. 52 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): Nine Months Ended September 30, 2021 2020 Net cash provided by operating activities $ 1,362,028 $ 1,134,641 Less: purchases of property, plant and equipment 132,705 109,949 Free cash flow $ 1,229,323 $ 1,024,692 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 $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. We intend to continue to evaluate markets for potential growth through the internal development of distribution centers, processing and sales facilities, and warehouses, through further integration of our facilities, and through selected business acquisitions. Our future liquidity and capital requirements will depend upon numerous factors, including the costs and timing of our internal development efforts and the success of those efforts and costs.