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Item 1. Financial Statements

2022-05-04 compared with 2021-11-03 · 279 added, 580 removed, 427 unchanged (67% of the section changed)

2 unchanged sentences

Unaudited Condensed Consolidated Statements of Income

(In thousands, except per share data)

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

(In millions, except per share data)

Three Months Ended March 31,

Revenue $ 3,348 $ 3,171

2 unchanged sentences

Selling, general and administrative expenses 924 849

Restructuring and acquisition related expenses 2,525 20,495 15,479 52,415

Impairment of net assets held for sale and (gain) loss on disposal of businesses 822 ( 503 ) 240 1,733

Restructuring and transaction related expenses 3 8

Depreciation and amortization 59 66

2 unchanged sentences

Interest expense, net of interest income 15 24

Loss on debt extinguishment — — 23,564 12,751

Other (income) expense, net ( 2,888 ) 2,492 ( 13,412 ) ( 9,304 )

Other income, net — ( 6 )

Total other expense, net 15 18

3 unchanged sentences

Income from continuing operations 269 266

Net loss from discontinued operations — — — ( 638 )

Net income from discontinued operations 4 —

Net income $ 273 $ 266

net (loss) income attributable to continuing noncontrolling interest ( 49 ) 448 754 1,166

net income attributable to discontinued noncontrolling interest — — — 103

Net income attributable to LKQ stockholders $ 284,055 $ 193,483 $ 854,592 $ 457,411

Basic earnings per share:

Income from continuing operations $ 0.94 $ 0.88

Net loss from discontinued operations — — — ( 0.00 )

Net income from discontinued operations 0.02 —

Net income $ 0.96 $ 0.88

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

net income attributable to discontinued noncontrolling interest — — — 0.00

Net income attributable to LKQ stockholders $ 0.97 $ 0.64 $ 2.86 $ 1.50

Diluted earnings per share:

Income from continuing operations $ 0.94 $ 0.88

Net loss from discontinued operations — — — ( 0.00 )

Net income from discontinued operations 0.02 —

Net income $ 0.95 $ 0.88

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

net income attributable to discontinued noncontrolling interest — — — 0.00

Net income attributable to LKQ stockholders $ 0.96 0.64 $ 2.85 $ 1.50

(1) The sum of the individual earnings per share amounts may not equal the total due to rounding.

2 unchanged sentences

Unaudited Condensed Consolidated Statements of Comprehensive Income

(In thousands)

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

(In millions)

Three Months Ended March 31,

Net income $ 273 $ 266

net (loss) income attributable to continuing noncontrolling interest ( 49 ) 448 754 1,166

net income attributable to discontinued noncontrolling interest — — — 103

Net income attributable to LKQ stockholders 284,055 193,483 854,592 457,411

Other comprehensive income (loss):

Other comprehensive (loss) income:

Foreign currency translation, net of tax ( 54 ) ( 25 )

Net change in unrealized gains/losses on cash flow hedges, net of tax — 1

— 222 869 ( 7,130 )

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

306 2,803 932 4,798

Other comprehensive income (loss) from unconsolidated subsidiaries 1 ( 3 )

Other comprehensive income (loss) ( 47,485 ) 70,041 ( 49,566 ) ( 8,837 )

Other comprehensive loss ( 53 ) ( 27 )

Comprehensive income $ 220 $ 239

comprehensive (loss) income attributable to continuing noncontrolling interest ( 49 ) 448 754 1,166

comprehensive income attributable to discontinued noncontrolling interest

Comprehensive income attributable to LKQ stockholders

$ 236,570 $ 263,524 $ 805,026 $ 448,574

The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.

1 unchanged sentence

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

September 30, December 31,

(In millions, except per share data)

March 31, 2022 December 31, 2021

Current assets:

2 unchanged sentences

Inventories 2,573 2,611

Assets held for sale 290 2

Prepaid expenses and other current assets 253 294

2 unchanged sentences

Operating lease assets, net 1,301 1,361

Intangible assets:

Goodwill 4,426 4,540

10 unchanged sentences

Other accrued expenses 330 271

Other current liabilities 123,105 130,021

Liabilities held for sale 127 —

Current portion of operating lease liabilities 192 203

Current portion of long-term obligations 31 35

Other current liabilities 120 112

Total current liabilities 2,495 2,165

6 unchanged sentences

Stockholders' equity:

Common stock, $0.01 par value, 1,000,000,000 shares authorized, 321,553,252 shares issued and 292,243,742 shares outstanding at September 30, 2021;

Common stock, $ 0.01 par value, 1,000.0 shares authorized, 322.0 shares issued and 284.7 shares outstanding at March 31, 2022;

321.6 shares issued and 287.0 shares outstanding at December 31, 2021

3 unchanged sentences

Treasury stock, at cost;

29,309,510 shares at September 30, 2021 and 17,314,602 shares at December 31, 2020 ( 1,048,809 ) ( 469,105 )

37.3 shares at March 31, 2022 and 34.6 shares at December 31, 2021

( 1,490 ) ( 1,346 )

Total Company stockholders' equity 5,784 5,772

5 unchanged sentences

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)

Nine Months Ended

September 30,

(In millions)

Three Months Ended March 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

3 unchanged sentences

Stock-based compensation expense 13 8

Loss on debt extinguishment 23,564 12,751

Other ( 4 ) ( 9 )

9 unchanged sentences

Proceeds from disposals of property, plant and equipment 2 8

Acquisitions, net of cash acquired ( 66,771 ) ( 7,107 )

Other investing activities, net ( 6 ) 1

1 unchanged sentence

CASH FLOWS FROM FINANCING ACTIVITIES:

Early-redemption premium ( 16,014 ) ( 9,498 )

Repayment of Euro Notes (2026) ( 883,275 ) —

Repayment of U.S.

Notes (2023) — ( 600,000 )

Borrowings under revolving credit facilities 289 1,288

1 unchanged sentence

Repayments under term loans — ( 4 )

Borrowings under receivables securitization facility — 111,300

Repayments under receivables securitization facility — ( 111,300 )

Repayments of other debt, net ( 18,109 ) ( 74,822 )

(Repayments) borrowings of other debt, net ( 8 ) 26

Settlement of derivative instruments, net — ( 57 )

Dividends paid to LKQ stockholders ( 71 ) —

Purchase of treasury stock ( 144 ) ( 57 )

1 unchanged sentence

Net cash used in financing activities ( 278 ) ( 208 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 4,826 ) 9,100

Net increase (decrease) in cash, cash equivalents and restricted cash 90,549 ( 113,475 )

Cash and cash equivalents of continuing operations, beginning of period (1)

312,154 528,387

Cash and cash equivalents of discontinued operations, beginning of period — 6,470

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

Effect of exchange rate changes on cash and cash equivalents ( 6 ) ( 4 )

Net increase in cash and cash equivalents, including cash classified within current assets held for sale 62 278

increase in cash classified within current assets held for sale 9 —

Net increase in cash and cash equivalents 53 278

Cash and cash equivalents, beginning of period 274 312

Cash and cash equivalents, end of period $ 327 $ 590

(1) The balance as of January 1, 2020 included restricted cash of $5 million.

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

Nine Months Ended

September 30,

Supplemental disclosure of cash paid for:

1 unchanged sentence

Interest $ 6 $ 6

Supplemental disclosure of noncash investing and financing activities:

Leased assets obtained in exchange for finance lease liabilities $ 6,240 $ 14,716

Leased assets obtained in exchange for operating lease liabilities 177,948 138,774

Noncash property, plant and equipment and software intangible additions in accounts payable and other accrued expenses 11,241 8,339

Notes payable and other financing obligations, including notes issued and debt assumed in connection with business acquisitions and disposals 4,214 4,593

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

Contingent consideration liabilities 2,135 3,045

The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.

1 unchanged sentence

Unaudited Condensed Consolidated Statements of Stockholders' Equity

(In thousands)

(In millions, except per share data)

LKQ Stockholders

2 unchanged sentences

Shares Amount Shares Amount

BALANCE, July 1, 2021 321,260 $ 3,212 ( 24,972 ) $ ( 829,768 ) $ 1,458,993 $ 5,346,577 $ ( 101,090 ) $ 16,085 $ 5,894,009

Balance as of January 1, 2022 321.6 $ 3 ( 34.6 ) $ ( 1,346 ) $ 1,474 $ 5,794 $ ( 153 ) $ 15 $ 5,787

Net income — — — — — 273 — — 273

1 unchanged sentence

Purchase of treasury stock — — ( 2.7 ) ( 144 ) — — — — ( 144 )

— — ( 4,338 ) ( 219,041 ) — — — — ( 219,041 )

Vesting of restricted stock units, net of shares withheld for employee tax 0.4 — — — ( 5 ) — — — ( 5 )

Stock-based compensation expense — — — — 13 — — — 13

Capital contributions from, net of dividends declared to, noncontrolling interest shareholder — — — — — — — ( 99 ) ( 99 )

Disposition of subsidiary with noncontrolling interests — — — — — — — (145) (145)

Foreign currency translation adjustment on noncontrolling interest — — — — — — — 256 256

BALANCE, September 30, 2021 321,553 $ 3,215 ( 29,310 ) $ ( 1,048,809 ) $ 1,465,346 $ 5,630,632 $ ( 148,575 ) $ 16,048 $ 5,917,857

LKQ Stockholders

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

Comprehensive (Loss) Income Noncontrolling Interest Total Stockholders' Equity

Shares Amount Shares Amount

BALANCE, July 1, 2020 320,530 $ 3,205 ( 16,496 ) $ ( 439,819 ) $ 1,433,338 $ 4,401,545 $ ( 279,763 ) $ 29,435 $ 5,147,941

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

Other comprehensive income

— — — — — — 70,041 — 70,041

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

300 3 — — ( 933 ) — — — ( 930 )

Stock-based compensation expense

— — — — 7,088 — — — 7,088

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

BALANCE, September 30, 2020 320,830 $ 3,208 ( 16,496 ) $ ( 439,819 ) $ 1,439,493 $ 4,595,028 $ ( 209,722 ) $ 27,398 $ 5,415,586

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

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Stockholders' Equity

(In thousands)

Dividends declared to LKQ stockholders ($0.25 per share) — — — — — ( 72 ) — — ( 72 )

Balance as of March 31, 2022 322.0 $ 3 ( 37.3 ) $ ( 1,490 ) $ 1,482 $ 5,995 $ ( 206 ) $ 15 $ 5,799

LKQ Stockholders

2 unchanged sentences

Shares Amount Shares Amount

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

Balance as of January 1, 2021 320.9 $ 3 ( 17.3 ) $ ( 469 ) $ 1,444 $ 4,776 $ ( 99 ) $ 16 $ 5,671

Net income — — — — — 266 — — 266

1 unchanged sentence

Purchase of treasury stock — — ( 1.5 ) ( 57 ) — — — — ( 57 )

— — ( 11,995 ) ( 579,704 ) — — — — ( 579,704 )

Vesting of restricted stock units, net of shares withheld for employee tax 0.3 — — — ( 2 ) — — — ( 2 )

Stock-based compensation expense — — — — 8 — — — 8

Capital contributions from, net of dividends declared to, noncontrolling interest shareholder — — — — — — — ( 241 ) ( 241 )

Disposition of subsidiary with noncontrolling interests — — — — — — — (145) (145)

Foreign currency translation adjustment on noncontrolling interest — — — — — — — 98 98

BALANCE, September 30, 2021 321,553 $ 3,215 ( 29,310 ) $ ( 1,048,809 ) $ 1,465,346 $ 5,630,632 $ ( 148,575 ) $ 16,048 $ 5,917,857

LKQ Stockholders

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

Comprehensive Loss Noncontrolling Interest Total Stockholders' Equity

Shares Amount Shares Amount

BALANCE, January 1, 2020

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

— — — — — 457,411 — 1,269 458,680

Other comprehensive loss

— — — — — — ( 8,837 ) — ( 8,837 )

Purchase of treasury stock

— — ( 3,300 ) ( 88,006 ) — — — — ( 88,006 )

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

791 8 — — ( 3,063 ) — — — ( 3,055 )

Stock-based compensation expense

— — — — 22,851 — — — 22,851

Exercise of stock options

112 1 — — 1,466 — — — 1,467

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

— — — — — — — ( 2,171 ) ( 2,171 )

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

Disposition of subsidiary with noncontrolling interests (1)

— — — — — — — ( 11,404 ) ( 11,404 )

BALANCE, September 30, 2020 320,830 $ 3,208 ( 16,496 ) $ ( 439,819 ) $ 1,439,493 $ 4,595,028 $ ( 209,722 ) $ 27,398 $ 5,415,586

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

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

Balance as of March 31, 2021 321.2 $ 3 ( 18.8 ) $ ( 526 ) $ 1,450 $ 5,042 $ ( 126 ) $ 16 $ 5,859

The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.

2 unchanged sentences

Interim Financial Statements

The accompanying unaudited condensed consolidated financial statements represent the consolidation of LKQ Corporation, a Delaware corporation, and its subsidiaries.

LKQ Corporation is a holding company and all operations are conducted by subsidiaries.

LKQ Corporation, a Delaware corporation, is a holding company and all operations are conducted by subsidiaries.

When the terms "LKQ," "the Company," "we," "us," or "our" are used in this document, those terms refer to LKQ Corporation and its consolidated subsidiaries.

We have prepared the accompanying unaudited condensed consolidated financial statements pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC") applicable to interim financial statements.

We have prepared the accompanying Unaudited Condensed Consolidated Financial Statements pursuant to the rules and regulations of the U.S.

Securities and Exchange Commission ("SEC") applicable to interim financial statements.

Accordingly, certain information related to our significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted.

2 unchanged sentences

These interim financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 25, 2022 ("2021 Form 10-K").

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

The effects include, but are not limited to, a reduction in demand for our products and services relative to 2019, liquidity challenges for certain of our customers and suppliers, and organizational changes, such as personnel reductions and route consolidation undertaken mostly in 2020, driven by cost actions to mitigate the revenue decline.

We have considered COVID-19 impacts in the preparation of our financial statements and footnotes.

Specific disclosures are presented in the following footnotes as applicable.

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

Discontinued Operations

On May 30, 2018, we acquired Stahlgruber GmbH ("Stahlgruber"), a leading European wholesale distributor of aftermarket spare parts for passenger cars, tools, capital equipment and accessories with operations in Germany, Austria, Italy, Slovenia, and Croatia, with further sales to Switzerland.

Prior to closing, on May 3, 2018, the European Commission cleared the acquisition of Stahlgruber for the entire European Union, except with respect to the wholesale automotive parts business in the Czech Republic.

The acquisition of Stahlgruber’s Czech Republic wholesale business was referred to the Czech Republic competition authority for review.

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

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

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

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

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

This transaction resulted in a disposition of noncontrolling interest of $ 11 million.

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

In the current year, we changed the presentation of our Unaudited Condensed Consolidated Financial Statements from thousands to millions and, as a result, any necessary rounding adjustments have been made to prior year disclosed amounts.

Financial Statement Information

1 unchanged sentence

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

Management evaluates the aging of customer receivable balances, the financial condition of our customers, historical trends, and macroeconomic factors to estimate the

amount of customer receivables that may not be collected in the future and records a provision it believes is appropriate.

Our reserve for expected lifetime credit losses was $ 63 million and $ 70 million as of September 30, 2021 and December 31, 2020, respectively.

Bad debt expense totaled $ 3 million and $ 23 million for the nine months ended September 30, 2021 and 2020, respectively.

Inventories consist of the following (in thousands):

September 30, December 31,

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

Our reserve for expected credit losses was $ 58 million and $ 53 million as of March 31, 2022 and December 31, 2021, respectively.

The provision for credit losses was $ 8 million and $ 2 million for the three months ended March 31, 2022 and 2021, respectively.

Inventories consist of the following (in millions):

March 31, 2022 December 31, 2021

Aftermarket and refurbished products $ 2,117 $ 2,168

3 unchanged sentences

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

As of September 30, 2021, manufactured products inventory was composed of $ 24 million of raw materials, $ 5 million of work in process, and $ 1 million of finished goods.

As of March 31, 2022, manufactured products inventory was composed of $ 25 million of raw materials, $ 5 million of work in process, and $ 5 million of finished goods.

As of December 31, 2021, manufactured products inventory was composed of $ 27 million of raw materials, $ 4 million of work in process, and $ 5 million of finished goods.

Net Assets Held for Sale

In March 2022, we entered into a definitive agreement to sell PGW Auto Glass (“PGW”), our aftermarket glass business within our Wholesale - North America segment.

In connection with entering into this agreement, we concluded that this disposal group met the held for sale criteria and classified PGW's assets and liabilities as held for sale.

The sale was completed in April 2022 for a sales price of $ 362 million, subject to customary post-closing purchase price adjustments.

As of March 31, 2022, total assets and liabilities of the combined disposal group held for sale on the Unaudited Condensed Consolidated Balance Sheet were as follows (in millions):

March 31, 2022

Cash and cash equivalents $ 9

Receivables, net 47

Inventories 100

Prepaid expenses and other current assets 1

Total current assets held for sale 157

Property, plant and equipment, net 31

Operating lease assets, net 39

Other intangibles, net 6

Other noncurrent assets 1

Total assets held for sale $ 290

Accounts payable $ 83

Accrued payroll-related liabilities 2

Other accrued expenses 3

Current portion of operating lease liabilities 11

Total current liabilities held for sale 99

Long term operating lease liabilities, excluding current portion 27

Other noncurrent liabilities 1

Total liabilities held for sale $ 127

Intangible Assets

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

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

We performed our annual impairment test during the fourth quarter of 2021, and determined no impairment existed as all of our reporting units had a fair value estimate which exceeded the carrying value by at least 70 %.

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

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

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

We did not identify any indicators of impairment in the first quarter of 2022 that necessitated an interim test of goodwill impairment or indefinite-lived intangible assets impairment.

Investments in Unconsolidated Subsidiaries

Our investment in unconsolidated subsidiaries was $ 178 million and $ 155 million as of September 30, 2021 and December 31, 2020, respectively.

Europe Segment

Our investment in unconsolidated subsidiaries in Europe was $ 155 million and $ 137 million as of September 30, 2021 and December 31, 2020, respectively.

We recorded equity in earnings of $ 4 million and $ 13 million during the three and nine months ended September 30, 2021, respectively, and equity in earnings of $ 4 million and $ 5 million during the three and nine months ended September 30, 2020, respectively, mainly related to our investment in Mekonomen AB ("Mekonomen").

We are accounting for our 26.6 % equity interest in Mekonomen using the equity method of accounting, as our investment gives us the ability to exercise significant influence, but not control, over the investee.

As of September 30, 2021, our share of the book value of Mekonomen's net assets exceeded the book value of our investment in Mekonomen by $ 8 million;

We account for our Investments in unconsolidated subsidiaries using the equity method of accounting, as our investments give us the ability to exercise significant influence, but not control, over the investee.

The carrying value of our Investments in unconsolidated subsidiaries were as follows (in millions):

Ownership as of March 31, 2022

March 31, 2022 December 31, 2021

Mekonomen AB (1)(2)

26.6 % $ 145 $ 145

Total $ 179 $ 181

(1) As of March 31, 2022, the fair value of our investment in Mekonomen AB ("Mekonomen") was $ 183 million based on the quoted market price for Mekonomen's common stock.

(2) As of March 31, 2022, our share of the book value of Mekonomen's net assets exceeded the book value of our investment by $ 8 million;

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

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

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

The Level 1 fair value of our equity investment in the publicly traded Mekonomen common stock at September 30, 2021 was $ 271 million (using the Mekonomen share price of SEK 156 as of September 30, 2021) compared to a carrying value of $ 144 million.

North America Segment

Our investment in unconsolidated subsidiaries in the North America segment was $ 24 million and $ 19 million as of September 30, 2021 and December 31, 2020, respectively.

We recorded equity in earnings of $ 3 million and $ 4 million during the three and nine months ended September 30, 2021, respectively, and equity in earnings of an immaterial amount and equity in losses of $ 3 million during the three and nine months ended September 30, 2020, respectively, related to our North America equity method investments.

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

Warranty Reserve

Some of our salvage mechanical products are sold with a standard six month warranty against defects.

Additionally, some of our remanufactured engines are sold with a standard three or four year warranty against defects.

Additionally, some of the remanufactured engines are sold with a standard three or four year warranty against defects.

We also provide a limited lifetime warranty for certain of our aftermarket products.

These assurance-type warranties are not considered a separate performance obligation, and thus no transaction price is allocated to them.

We record the warranty costs in Cost of goods sold in our Unaudited Condensed Consolidated Statements of Income.

We record warranty costs in Cost of goods sold in our Unaudited Condensed Consolidated Statements of Income.

Our warranty reserve is calculated using historical claim information to project future warranty claims activity and is recorded within Other accrued expenses and Other noncurrent liabilities on our Unaudited Condensed Consolidated Balance Sheets based on the expected timing of the related payments.

The changes in the warranty reserve are as follows (in thousands):

The changes in the warranty reserve are as follows (in millions):

Warranty Reserve

Balance as of December 31, 2021 $ 30

1 unchanged sentence

Warranty claims ( 16 )

Balance as of September 30, 2021 $ 30,929

Balance as of March 31, 2022 $ 32

Litigation and Related Contingencies

1 unchanged sentence

We currently expect that the resolution of such contingencies will not materially affect our financial position, results of operations or cash flows.

Government Assistance

During the three and nine months ended September 30, 2021 and 2020, we recorded financial assistance from foreign governments, primarily in the form of grants, as credits in the following amounts (in thousands):

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Cost of goods sold $ 163 $ 695 $ 526 $ 1,165

Selling, general and administrative expenses 884 11,754 15,121 43,928

Total government assistance $ 1,047 $ 12,449 $ 15,647 $ 45,093

For the nine months ended September 30, 2021 and 2020, we received grants from European governments of $ 11 million and $ 38 million, respectively, with the remaining amounts related to Canada.

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

Leases - Cash Flow Disclosure

The amount disclosed for Leased assets obtained in exchange for operating lease liabilities for the nine months ended September 30, 2020 in the supplemental disclosure of noncash investing and financing activities in the Unaudited Condensed Consolidated Statements of Cash Flows includes an immaterial correction of $ 81 million to address an omission of the impact of lease modifications and terminations.

Stockholders' Equity

Treasury Stock

As of June 30, 2021, our Board of Directors had authorized a stock repurchase program under which we were able to purchase up to $ 1.0 billion of our common stock from time to time through October 25, 2022.

On July 28, 2021, our Board of Directors authorized a $ 1.0 billion increase and a two year extension to our stock repurchase program, raising the aggregate authorization under the program to $ 2.0 billion and authorizing repurchases through October 25, 2024.

As of March 31, 2022, our Board of Directors had authorized a stock repurchase program under which we are able to purchase up to $ 2,000 million of our common stock from time to time through October 25, 2024.

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

1 unchanged sentence

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

During the three and nine months ended September 30, 2021, we repurchased 4.3 million and 12.0 million shares of common stock, respectively, for an aggregate price of $ 219 million and $ 580 million, respectively.

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

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

As of September 30, 2021, there was $ 951 million of remaining capacity under our repurchase program.

During the three months ended March 31, 2022, we repurchased 2.7 million shares of common stock for an aggregate price of $ 144 million.

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

As of March 31, 2022, there was $ 510 million of remaining capacity under our repurchase program.

Noncontrolling Interest

In February 2020, as part of the sale of Stahlgruber's Czech Republic business, we divested the noncontrolling interest of the business, which resulted in a net decrease to Noncontrolling interest of $ 11 million in our unaudited condensed consolidated financial statements as of March 31, 2020.

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

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

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

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

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

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

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

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

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

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

Recently Issued Accounting Pronouncements

In March 2020, the FASB issued ASU No.

2020-04, "Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04"), which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform.

ASU 2020-04 provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met.

These transactions include contract modifications, hedging relationships, and sale or transfer of debt securities classified as held-to-maturity.

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

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

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

We present redeemable noncontrolling interest on our balance sheet related to redeemable shares issued to a minority shareholder in conjunction with a previous acquisition.

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

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

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

Revenue Recognition

The majority of our revenue is derived from the sale of vehicle parts.

We recognize revenue when the products are shipped to, delivered to or picked up by customers, which is the point when title has transferred and risk of ownership has passed.

We recognize revenue for the sale of products at the point in time when the performance obligation has been satisfied and control has transferred to the customer, which generally occurs upon shipment or delivery to a customer based on terms of the sale.

Sources of Revenue

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(i) parts and services and (ii) other.

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

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

North America $ 1,076,599 $ 1,007,001 $ 3,172,207 $ 3,007,169

The following table sets forth our revenue by category, disaggregated by reportable segment (in millions):

Three Months Ended March 31,

Wholesale - North America $ 1,106 $ 969

Europe 1,481 1,455

Specialty 460 458

Self Service 57 50

Parts and services 3,104 2,932

Wholesale - North America 95 82

Self Service 142 149

Other 244 239

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Parts and Services

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.

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

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

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

For Wholesale - North America and Self Service, vehicle replacement products include sheet metal collision parts such as doors, hoods, and fenders;

bumper covers;

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automotive glass products such as windshields;

mirrors and grilles;

and large mechanical items such as engines and transmissions.

In Europe, our products include a wide variety of small mechanical products such as brake pads, discs and sensors;

For Europe, vehicle replacement products include a wide variety of small mechanical products such as brake pads, discs and sensors;

electrical products such as spark plugs and batteries;

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and oil and automotive fluids.

In our Specialty operations, we serve six product segments:

For our Specialty operations, we serve seven product segments:

truck and off-road;

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

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

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

Service-Type Warranties

Balance as of January 1, 2022 $ 32

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Warranty revenue recognized ( 13 )

Balance as of September 30, 2021 $ 31,747

Balance as of March 31, 2022 $ 30

Other Revenue

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

We derive scrap metal and other precious metals from several sources, including vehicles that have been used in both our wholesale and self service recycling operations and from original equipment manufacturers ("OEMs") and other entities that contract with us for secure disposal of "crush only" vehicles.

Revenue from the sale of hulks in our wholesale and self service recycling operations is recognized based on a price per ton of delivered material when the customer (processor) collects the scrap.

Some adjustments may occur when the customer weighs the scrap at their location, and revenue is adjusted accordingly.

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

We derive scrap metal and other precious metals from several sources in both our Wholesale - North America and Self Service segments, including vehicles that have been used in our recycling operations and vehicles from original equipment manufacturers ("OEMs") and other entities that contract with us for secure disposal of "crush only" vehicles.

Revenue from the sale of hulks in our Wholesale - North America and Self Service segments is recognized based on a price per ton of delivered material when the customer (processor) collects the scrap.

Revenue by Geographic Area

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

Under FASB Accounting Standards Codification Topic 606 ("ASC 606"), we are required to select the “expected value method” or the “most

likely amount” method in order to estimate variable consideration.

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

We recorded a refund liability and return asset for expected returns of $ 108 million and $ 59 million, respectively, as of September 30, 2021, and $ 102 million and $ 57 million, respectively, as of December 31, 2020.

We utilize the “expected value method” or the “most likely amount” method in order to estimate variable consideration, depending on the type of variable consideration, with contemplation of any expected reversals in revenue.

We recorded a refund liability and return asset for expected returns of $ 106 million and $ 57 million , respectively, as of March 31, 2022, and $ 107 million and $ 58 million, respectively, as of December 31, 2021.

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

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

We recorded a reserve for our variable consideration of $ 131 million and $ 127 million as of September 30, 2021 and December 31, 2020, respectively.

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

We consider these programs to be immaterial to our unaudited condensed consolidated financial statements.

Restructuring and Acquisition Related Expenses

2019 Global Restructuring Program

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

We recorded a reserve for our variable consideration of $ 93 million and $ 144 million as of March 31, 2022 and December 31, 2021, respectively.

Restructuring and Transaction Related Expenses

Global Restructuring Programs

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

This program was expanded in 2020 as we identified additional opportunities to eliminate inefficiencies, including actions in response to impacts to the business from COVID-19.

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

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

During the three and nine months ended September 30, 2020, we incurred $ 1 million and $ 6 million, respectively, of restructuring expenses under this program, primarily related to facility exit costs and employee-related costs in our Europe and North America segments.

The actions under this program are substantially complete, and the expenses incurred during the three and nine months ended September 30, 2021 were immaterial.

The total cumulative program costs incurred to date were $ 47 million, of which $ 31 million, $ 14 million and $ 1 million were in our Europe, North America and Specialty segments, respectively.

As of September 30, 2021, the remaining expected costs and restructuring liabilities related to this program were immaterial.

2020 Global Restructuring Program

Beginning in the first quarter of 2020, we initiated a further restructuring program aimed at cost reductions across all our reportable segments through the elimination of underperforming assets and cost inefficiencies.

These actions are incremental to those initiated as part of the 2019 Global Restructuring Program, and include costs for inventory write-downs;

employee severance and other expenditures related to employee terminations;

lease exit costs, such as lease termination fees, accelerated amortization of operating lease assets and impairment of operating lease assets;

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

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

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

During the three and nine months ended September 30, 2021, we recognized restructuring expenses of $ 1 million and $ 7 million, respectively, which included employee-related costs, facility exit costs, and a $ 3 million gain in the first quarter from the sale of a building to be closed as part of the restructuring plan.

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

Of the cumulative program costs incurred to date, $ 29 million, $ 26 million and $ 1 million related to our North America, Europe and Specialty segments, respectively.

We estimate total costs under the program through its expected completion date in 2023 will be between $ 60 million and $ 70 million, of which approximately $ 33 million, $ 32 million, and $ 1 million will be incurred by our Europe, North America and Specialty segments, respectively;

During the three months ended March 31, 2022, we did not incur a significant amount of restructuring expenses under these programs.

During the three months ended March 31, 2021, we recognized net restructuring expenses totaling $ 3 million which included employee-related costs, facility exit costs, and a $ 3 million gain from the sale of a building to be closed.

Of the cumulative program costs incurred to date, $ 58 million, $ 43 million, $ 2 million and $ 2 million related to our Europe, Wholesale – North America, Specialty and Self Service segments, respectively.

The actions under the 2019 Global Restructuring Program are substantially complete and the 2020 Global Restructuring Program are expected to be completed in 2023.

We estimate total costs under the programs through their expected completion dates will be between $ 105 million and $ 115 million, of which approximately $ 63 million, $ 44 million, $ 2 million and $ 2 million will be incurred by our Europe, Wholesale – North America, Specialty and Self Service segments, respectively;

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

As of September 30, 2021 and December 31, 2020, restructuring liabilities incurred related to this program totaled $ 13 million and $ 21 million, respectively, including $ 10 million and $ 17 million, respectively, related to leases we have exited or expect to exit prior to the end of the lease term (reported in Current portion of operating lease liabilities and Long-term operating lease liabilities, excluding current portion on our Unaudited Condensed Consolidated Balance Sheets), and $ 2 million and $ 4 million, respectively, for employee termination costs (reported in Accrued payroll-related liabilities on our Unaudited Condensed Consolidated Balance Sheets).

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

As of March 31, 2022 and December 31, 2021, restructuring liabilities incurred related to these programs totaled $ 12 million and $ 14 million, respectively, including $ 8 million and $ 9 million, respectively, related to leases we have exited or expect to exit prior to the end of the lease term (reported in Current portion of operating lease liabilities and Long-term operating lease liabilities, excluding current portion on our Unaudited Condensed Consolidated Balance Sheets).

Our lease-related restructuring liabilities are estimated based on remaining rent payments after our actual exit date for facilities closed as of March 31, 2022 and after our planned exit date for facilities we expect to close in future periods;

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

Acquisition Integration Plans

During the three and nine months ended September 30, 2021, we incurred immaterial restructuring expenses for our acquisition integration plans.

We expect to incur future expenses of up to $ 5 million to complete an integration plan related to acquisitions completed in our Specialty segment during the nine months ended September 30, 2021.

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

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

We did not incur a significant amount of restructuring expenses for our acquisition integration plans for either of the three-month periods ended March 31, 2022 or March 31, 2021.

We expect to incur future expenses of up to $ 5 million to complete an integration plan related to acquisitions completed in our Specialty segment during 2021.

1 LKQ Europe Program

In September 2019, we announced a multi-year program called "1 LKQ Europe" which is intended to create structural centralization and standardization of key functions to facilitate the operation of the Europe segment as a single business.

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

While certain projects were delayed in 2020 as a result of the COVID-19 pandemic, such as our procurement initiatives and the new headquarters in Switzerland, we also accelerated certain projects, such as the integration of previously acquired networks and sharing resources across LKQ Europe.

We completed the organizational design and implementation projects in June 2021, with the remaining projects scheduled to be completed by 2024.

During the nine months ended September 30, 2021, we incurred $ 6 million of employee-related restructuring charges under our 1 LKQ Europe program;

costs incurred in the three months ended September 30, 2021 were immaterial.

In 2019, we announced a multi-year program called "1 LKQ Europe" which is intended to create structural centralization and standardization of key functions to facilitate the operation of the Europe segment as a single business.

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

We completed the organizational design and implementation projects in June 2021, with the remaining projects scheduled to be completed by the end of 2024.

During the three months ended March 31, 2022, we did not incur a significant amount of expenses under our 1 LKQ Europe program.

During the three months ended March 31, 2021, we recognized $ 5 million of employee-related restructuring charges.

We estimate that we will incur between $ 40 million and $ 50 million in total personnel and inventory-related restructuring charges through 2024 under the program.

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

As of September 30, 2021, the restructuring liabilities related to this program were immaterial.

Acquisition Related Expenses

We incurred immaterial acquisition related expenses in each of the three and nine months ended September 30, 2021.

As of March 31, 2022, the restructuring liabilities related to this program were insignificant.

Transaction Related Expenses

During the three months ended March 31, 2022, we incurred $ 3 million of transaction related expenses.

These expenses included external costs such as legal, accounting and advisory fees related to completed and potential transactions.

During the three and nine months ended September 30, 2020, we incurred $ 8 million of acquisition related expenses, primarily related to the resolution of a purchase price matter related to the Stahlgruber transaction for an amount above our prior estimate.

Stock-Based Compensation

In order to attract and retain employees, non-employee directors, consultants, and other persons associated with us, we grant equity-based awards under the LKQ Corporation 1998 Equity Incentive Plan (the “Equity Incentive Plan”).

In order to attract and retain employees, non-employee directors, consultants, and other persons associated with the Company, we grant equity-based awards under the LKQ Corporation 1998 Equity Incentive Plan (the “Equity Incentive Plan”).

We have granted restricted stock units ("RSUs"), stock options, and restricted stock under the Equity Incentive Plan.

2 unchanged sentences

Currently outstanding RSUs (other than PSUs, which are described below) contain either a time-based vesting condition or a combination of a performance-based vesting condition and a time-based vesting condition, in which case both conditions must be met before any RSUs vest.

For all of the RSUs containing a performance-based vesting condition, the Company must report positive diluted earnings per share, subject to certain adjustments, during any fiscal year period within five years following the grant date.

For all of the RSUs containing a performance-based vesting condition, we must report positive diluted earnings per share, subject to certain adjustments, during any fiscal year period within five years following the grant date.

Each RSU converts into one share of LKQ common stock on the applicable vesting date.

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

Outstanding unvested RSUs earn dividend equivalents at the same rate as dividends on the Company’s common stock.

Outstanding unvested RSUs earn dividend equivalents at the same rate as dividends on LKQ's common stock.

The dividend equivalents are subject to the same vesting requirements, restrictions and forfeiture provisions as the original award.

The fair value of RSUs that vested during the nine months ended September 30, 2021 was $ 34 million;

The fair value of RSUs that vested during the three months ended March 31, 2022 was $ 18 million ;

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

The following table summarizes activity related to our RSUs under the Equity Incentive Plan for the nine months ended September 30, 2021:

Outstanding Weighted

Fair Value Weighted Average Remaining Contractual Term

(in years) Aggregate Intrinsic Value

(in thousands) (1)

The following table summarizes activity related to our RSUs under the Equity Incentive Plan for the three months ended March 31, 2022 (in millions, except years and per share amounts):

Number Outstanding Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (1)

Unvested as of January 1, 2022 1.4 $ 34.85

732,527 $ 39.12

Vested ( 0.4 ) $ 34.23

Forfeited / Canceled ( 46,552 ) $ 34.39

Unvested as of September 30, 2021 1,407,379 $ 34.86

Expected to vest after September 30, 2021 1,215,271 $ 34.89 2.9 $ 61,152

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

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

(2) The weighted average grant date fair value of RSUs granted during the nine months ended September 30, 2020 was $ 31.67 .

Starting in 2019, we granted performance-based three-year RSUs ("PSUs") to certain employees, including our executive officers, under our Equity Incentive Plan.

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

Outstanding unvested PSUs earn dividend equivalents at the same rate as dividends on the Company’s common stock.

Unvested as of March 31, 2022 1.6 $ 40.24

Expected to vest after March 31, 2022 1.4 $ 40.33 3.2 $ 62

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

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

(2) The weighted average grant date fair value of RSUs granted during the three months ended March 31, 2021 was $ 38.52 .

Starting in 2019, we granted performance-based three-year RSUs ("PSUs") to certain employees, including executive officers, under our Equity Incentive Plan.

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

Outstanding unvested PSUs earn dividend equivalents at the same rate as dividends on LKQ's common stock.

The dividend equivalents are subject to the same vesting requirements, restrictions and forfeiture provisions as the original award.

The following table summarizes activity related to our PSUs under the Equity Incentive Plan for the nine months ended September 30, 2021:

Outstanding Weighted

Fair Value Weighted Average Remaining Contractual Term

(in years) Aggregate Intrinsic Value

(in thousands) (1)

The fair value of PSUs that vested during the three months ended March 31, 2022 was $ 8 million ;

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

The following table summarizes activity related to our PSUs under the Equity Incentive Plan for the three months ended March 31, 2022 (in millions, except years and per share amounts):

Number Outstanding Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (1)

Unvested as of January 1, 2022 0.5 $ 31.96

125,656 $ 38.31

Forfeited / Canceled ( 7,398 ) $ 31.25

Unvested as of September 30, 2021 409,859 $ 32.51

Expected to vest after September 30, 2021 403,290 $ 32.44 1.2 $ 20,294

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

This amount changes based on the market price of the Company’s common stock and the achievement of the performance metrics relative to the established targets.

Vested ( 0.2 ) $ 27.75

Unvested as of March 31, 2022 0.4 $ 38.32

Expected to vest after March 31, 2022 0.4 $ 38.32 1.7 $ 18

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

This amount changes based on the market price of LKQ’s common stock and the achievement of the performance metrics relative to the established targets.

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

The weighted average grant date fair value of PSUs granted during the nine months ended September 30, 2020 was $ 31.85 .

The weighted average grant date fair value of PSUs granted during the three months ended March 31, 2021 was $ 38.50 .

Stock-Based Compensation Expense

Pre-tax stock-based compensation expense for RSUs and PSUs totaled $ 8 million and $ 25 million for the three and nine months ended September 30, 2021, respectively, and $ 7 million and $ 23 million for the three and nine months ended September 30, 2020, respectively.

As of September 30, 2021, unrecognized compensation expense related to unvested RSUs and PSUs was $ 50 million.

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

Pre-tax stock-based compensation expense for RSUs and PSUs totaled $ 13 million and $ 8 million for the three months ended March 31, 2022 and 2021, respectively.

As of March 31, 2022, unrecognized compensation expense related to unvested RSUs and PSUs was $ 66 million .

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

Earnings Per Share

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

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

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

Three Months Ended March 31,

Income from continuing operations $ 269 $ 266

Denominator for basic earnings per share—Weighted-average shares outstanding 285.7 303.1

294,026 304,271 299,184 304,837

Effect of dilutive securities:

RSUs 633 295 658 333

PSUs 226 — 164 —

Stock options — — — 1

Denominator for diluted earnings per share—Adjusted weighted-average shares outstanding 286.8 303.8

294,885 304,566 300,006 305,171

Basic earnings per share from continuing operations $ 0.94 $ 0.88

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

The following table sets forth the number of employee stock-based compensation awards outstanding but not included in the computation of diluted earnings per share because their effect would have been antidilutive for the three and nine months ended September 30, 2021 and 2020 (in thousands):

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

The following table sets forth the number of employee stock-based compensation awards outstanding but not included in the computation of diluted earnings per share because their effect would have been antidilutive for the three months ended March 31, 2022 and 2021 (in millions):

Three Months Ended March 31,

Antidilutive securities:

RSUs — 717 39 847

Accumulated Other Comprehensive Income (Loss)

The components of Accumulated Other Comprehensive Income (Loss) are as follows (in thousands):

Three Months Ended

September 30, 2021

Translation Unrealized Gain (Loss)

on Cash Flow Hedges Unrealized Gain (Loss)

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

Comprehensive

Income (Loss)

BALANCE, July 1, 2021 $ ( 59,834 ) $ ( 99 ) $ ( 32,341 ) $ ( 8,816 ) $ ( 101,090 )

The components of Accumulated Other Comprehensive Income (Loss) are as follows (in millions):

Three Months Ended March 31, 2022

Foreign Currency Translation Unrealized Gain (Loss) on Pension Plans Other Comprehensive Income (Loss) from Unconsolidated Subsidiaries Accumulated Other Comprehensive Income (Loss)

Balance as of January 1, 2022 $ ( 121 ) $ ( 24 ) $ ( 8 ) $ ( 153 )

Pretax loss ( 54 ) — — ( 54 )

Income tax effect — — — — —

Reclassification of unrealized loss — — 427 — 427

Reclassification of deferred income taxes — — ( 121 ) — ( 121 )

Other comprehensive income from unconsolidated subsidiaries — — 1 1

BALANCE, September 30, 2021 $ ( 107,973 ) $ ( 99 ) $ ( 32,035 ) $ ( 8,468 ) $ ( 148,575 )

Three Months Ended

September 30, 2020

Translation Unrealized Gain (Loss)

on Cash Flow Hedges Unrealized Gain (Loss)

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

Comprehensive Income

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

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

Income tax effect — 4,690 9 — 4,699

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

Reclassification of deferred income taxes — ( 4,756 ) ( 966 ) — ( 5,722 )

Other comprehensive loss from unconsolidated subsidiaries — — — ( 3,162 ) ( 3,162 )

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

Nine Months Ended

September 30, 2021

Translation Unrealized Gain (Loss)

on Cash Flow Hedges Unrealized Gain (Loss)

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

Comprehensive Income

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

Balance as of March 31, 2022 $ ( 175 ) $ ( 24 ) $ ( 7 ) $ ( 206 )

Three Months Ended March 31, 2021

Foreign Currency Translation Unrealized Gain (Loss) on Cash Flow Hedges Unrealized Gain (Loss) on Pension Plans Other Comprehensive Income (Loss) from Unconsolidated Subsidiaries Accumulated Other Comprehensive Income (Loss)

Balance as of January 1, 2021 $ ( 57 ) $ ( 1 ) $ ( 33 ) $ ( 8 ) $ ( 99 )

Pretax (loss) income ( 25 ) 3 — — ( 22 )

Income tax effect — ( 1 ) — — ( 1 )

Reclassification of unrealized (gain) loss — ( 1,758 ) 1,301 — ( 457 )

Reclassification of deferred income taxes — 481 ( 369 ) — 112

Other comprehensive loss from unconsolidated subsidiaries — — — ( 520 ) ( 520 )

BALANCE, September 30, 2021 $ ( 107,973 ) $ ( 99 ) $ ( 32,035 ) $ ( 8,468 ) $ ( 148,575 )

Nine Months Ended

September 30, 2020

Translation Unrealized Gain (Loss)

on Cash Flow Hedges Unrealized Gain (Loss)

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

Comprehensive Income

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

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

Income tax effect — 5,548 9 — 5,557

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

Reclassification of unrealized gain — ( 2 ) — — ( 2 )

Reclassification of deferred income taxes — 1 — — 1

— ( 3,395 ) ( 1,740 ) — ( 5,135 )

Disposal of business

766 — — — 766

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

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

Net unrealized losses and gains related to our pension plans were reclassified to Other (income) expense, net in our Unaudited Condensed Consolidated Statements of Income during each of the three and nine months ended September 30, 2021 and 2020.

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

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

Three Months Ended Nine Months Ended

September 30, September 30,

Classification 2021 2020 2021 2020

Unrealized losses on interest rate swaps Interest expense, net of interest income $ — $ ( 2,538 ) $ ( 1,188 ) $ ( 1,011 )

Unrealized gains on cross currency swaps Interest expense, net of interest income — 2,696 539 8,043

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

Other (income) expense, net — ( 20,874 ) 1,973 ( 21,802 )

Unrealized gains on foreign currency forward contracts (1)

Other (income) expense, net — 563 434 563

Total $ — $ ( 20,153 ) $ 1,758 $ ( 14,207 )

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

Balance as of March 31, 2021 $ ( 82 ) $ — $ ( 33 ) $ ( 11 ) $ ( 126 )

During the three months ended March 31, 2021, net unrealized gains on cross currency swaps totaling $ 2 million were recorded to Other income, net in the Unaudited Condensed Consolidated Statements of Income;

these amounts offset the impact of the remeasurement of the underlying transactions.

Net unrealized losses and gains related to our pension plans were recorded to Other income, net in the Unaudited Condensed Consolidated Statements of Income during each of the three-month periods ended March 31, 2022 and 2021.

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

Long-Term Obligations

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

September 30, December 31,

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

March 31, 2022 December 31, 2021

Senior secured credit agreement:

Term loans payable $ — $ 323,750

Revolving credit facilities $ 1,813 $ 1,887

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long-term debt issuance costs ( 10 ) ( 12 )

current debt issuance costs ( 302 ) ( 313 )

Total debt, net of debt issuance costs 2,711 2,812

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Senior Secured Credit Agreement

On June 11, 2020, LKQ Corporation and certain other subsidiaries of LKQ (collectively, the "Borrowers") entered into Amendment No.

4 to the Fourth Amended and Restated Credit Agreement dated January 29, 2016 (the "Credit Agreement"), which modified the maximum permitted net leverage ratio through the quarter ended September 30, 2021.

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

After the amendment, the maximum permitted net leverage ratio became 4.25 :1.00 for the quarter ended September 30, 2021.

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

In the event that the net leverage ratio is greater than 4.00 :1.00, the Company would be restricted from repurchasing its shares.

We can at any time elect to cancel the modifications to the maximum permitted net leverage ratio and revert to the terms in effect prior to the amendment, subject to compliance with the 4.00 :1.00 ratio.

Amendment No.

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

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

5 to the Credit Agreement;

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

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

On November 23, 2021, LKQ Corporation and certain other subsidiaries of LKQ (collectively, the "Borrowers") entered into Amendment No.

6 to the Fourth Amended and Restated Credit Agreement dated January 29, 2016 (the "Credit Agreement"), which modified certain interest rates to provide that (1) Loans denominated in euros shall bear interest at a rate per annum equal to the Euro Interbank Offered Rate as administered by the European Money Markets Institute (or a comparable or successor administrator approved by the Administrative Agent) plus the Applicable Rate, (2) Swingline Loans denominated in pound sterling shall bear interest at a rate per annum equal to the Sterling Overnight Index Average as administered by the Bank of England (or any successor administrator of the Sterling Overnight Index Average) (“SONIA”) plus the Applicable Rate, (3)

Revolving Loans denominated in pound sterling shall bear interest at a rate per annum equal to SONIA plus an adjustment equal to 0.0326 % per annum plus the Applicable Rate, and (4) Loans denominated in Swiss francs shall bear interest at a rate per annum equal to the Swiss Average Rate Overnight as administered by SIX Swiss Exchange AG (or any successor administrator of the Swiss Average Rate Overnight) plus the Applicable Rate.

All other interest rates remain the same.

On April 18, 2022, S&P Global Ratings assigned LKQ an issuer credit rating of 'BBB-' with a stable outlook.

This rating upgrade triggered the banks in our credit facility to release all collateral required under the Credit Agreement and suspend all collateral requirements.

The total capacity under the revolving credit facility's multicurrency component is $ 3,150 million .

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

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

We also had the option to prepay outstanding amounts under the Credit Agreement without penalty.

During the second quarter, we exercised this option to prepay the outstanding amount on the term loan, and thus we did not have any term loan borrowings as of September 30, 2021.

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

During the second quarter of 2021, we exercised our option to prepay the outstanding amount on the term loan, and thus did not have any term loan borrowings as of March 31, 2022.

The Credit Agreement contains customary representations and warranties and customary covenants that provide limitations and conditions on our ability to enter into certain transactions.

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Borrowings under the Credit Agreement bear interest at variable rates, which depend on the currency and duration of the borrowing elected, plus an applicable margin.

The applicable margin is subject to change in increments of 0.25 % depending on our net leverage ratio.

The applicable margin is subject to change in increments of 0.25 % depending on the net leverage ratio.

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

Including the effect of the interest rate swap agreements described in Note 10, "Derivative Instruments and Hedging Activities," the weighted average interest rates on borrowings outstanding under the Credit Agreement at September 30, 2021 and December 31, 2020 were 1.1 % and 1.7 %, respectively.

The weighted average interest rates on borrowings outstanding under the Credit Agreement at March 31, 2022 and December 31, 2021 were 1.2 % and 1.1 %, respectively.

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

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

In addition, we pay a participation commission on outstanding letters

of credit at an applicable rate based on our net leverage ratio, and a fronting fee of 0.125 % to the issuing bank, which are due quarterly in arrears.

Of the total borrowings outstanding under the Credit Agreement, there were no current maturities as of September 30, 2021 and $ 18 million classified as current maturities as of December 31, 2020.

As of September 30, 2021, there were letters of credit outstanding in the aggregate amount of $ 69 million .

The amounts available under the revolving credit facilities are reduced by the amounts outstanding under letters of credit, and thus availability under the revolving credit facilities at September 30, 2021 was $ 1.6 billion .

Related to the execution of Amendment No.

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

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

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

The total redemption payment was $ 614 million, including an early-redemption premium of $ 9 million and accrued and unpaid interest of $ 4 million.

In the first quarter of 2020, we recorded a loss on debt extinguishment of $ 13 million on the Unaudited Condensed Consolidated Statements of Income related to the redemption due to the early-redemption premium and the write-off of the unamortized debt issuance costs.

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

Of the total borrowings outstanding under the Credit Agreement, there were no current maturities as of March 31, 2022 or December 31, 2021.

As of March 31, 2022, there were letters of credit outstanding in the aggregate amount of $ 69 million .

Euro Notes (2024)

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On April 9, 2018, LKQ European Holdings B.V.

("LKQ Euro Holdings"), a wholly-owned subsidiary of LKQ Corporation, completed an offering of € 1.0 billion aggregate principal amount of senior notes.

("LKQ Euro Holdings"), a wholly-owned subsidiary of LKQ Corporation, completed an offering of € 1,000 million aggregate principal amount of senior notes.

The offering consisted of € 750 million senior notes due 2026 (the "Euro Notes (2026)") and € 250 million senior notes due 2028 (the "Euro Notes (2028)" and, together with the Euro Notes (2026), the "Euro Notes (2026/28)") in a private placement conducted pursuant to Regulation S and Rule 144A under the Securities Act of 1933.

general corporate purposes and (iii) to pay related fees and expenses, including the refinancing of net financial debt.

The proceeds from the offering, together with borrowings under our senior secured credit facility, were used (i) to finance a portion of the consideration paid for the Stahlgruber acquisition, (ii) for general corporate purposes and (iii) to pay related fees and expenses, including the refinancing of net financial debt.

The Euro Notes (2026/28) are governed by the Indenture dated as of April 9, 2018 (the “Euro Notes (2026/28) Indenture”) among LKQ Euro Holdings, LKQ Corporation and certain of our subsidiaries (the “Euro Notes (2026/28) Subsidiaries”), the trustee, paying agent, transfer agent, and registrar.

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Delaware law also imposes restrictions on dividend payments.

These restrictions will not impact the payment of our dividend declared in October 2021 as disclosed in Note 15, “Subsequent Event”.

Receivables Securitization Facility

On December 20, 2018, we amended the terms of our receivables securitization facility with MUFG Bank, Ltd.

(i) extend the term of the facility to November 8, 2021;

(ii) increase the maximum amount available to $ 110 million;

and (iii) make other clarifying and updating changes.

Under the facility, LKQ sells an ownership interest in certain receivables, related collections and security interests to MUFG for the benefit of conduit investors and/or financial institutions for cash proceeds.

Effective July 30, 2021, we terminated the receivables securitization facility.

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

Net receivables totaling $ 121 million were collateral for the investments under the receivables facility as of December 31, 2020.

These restrictions did not impact the payment of our dividend declared in February 2022 and paid in March 2022 and are not expected to impact future dividend payments.

Derivative Instruments and Hedging Activities

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Cash Flow Hedges

Through June 30, 2021, we held interest rate swap agreements to hedge a portion of the variable interest rate risk on our variable rate borrowings under our Credit Agreement, with the objective of minimizing the impact of interest rate

fluctuations and stabilizing cash flows.

Under the terms of the interest rate swap agreements, we paid the fixed interest rate and received payment at a variable rate of interest based on LIBOR for the respective currency of each interest rate swap agreement’s notional amount.

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

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

We held cross currency swaps in the beginning of 2021, which contained an interest rate swap component and a foreign currency forward contract component that, combined with related intercompany financing arrangements, effectively convert variable rate U.S.

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

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

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

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

We had no outstanding cross currency swaps as of March 31, 2022.

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

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

As of September 30, 2021, we held no cash flow hedges, and as of December 31, 2020, we held cash flow hedges with the following notional amounts and fair values (in thousands):

December 31, 2020

Interest rate swap agreements

USD denominated $ 480,000

Cross currency swap agreements

Euro denominated € 340,000

Foreign currency forward contracts

SEK denominated kr 227,000

Other Accrued Expenses

Fair Value at December 31, 2020

Interest rate swap agreements $ 899

Cross currency swap agreements 56,328

Foreign currency forward contracts 1,350

Total cash flow hedges $ 58,577

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

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

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

As of March 31, 2022 and December 31, 2021, we held no cash flow hedges.

The activity related to our previously matured cash flow hedges is included in Note 7, "Accumulated Other Comprehensive Income (Loss)."

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

Other Derivative Instruments Not Designated as Hedges

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

As of September 30, 2021, w e held no foreign currency forward contracts re lated to non-functional currency denominated borrowings.

At December 31, 2020, the notional amounts of foreign currency forward contracts related to non-functional currency denominated borrowings were € 142 million and £ 75 million.

To manage our foreign currency exposure on non-functional currency denominated borrowings, we entered into short-term foreign currency forward contracts in 2021.

As of March 31, 2022, w e held no foreign currency forward contracts re lated to non-functional currency denominated borrowings.

We elected not to apply hedge accounting for these transactions, and therefore the contracts were adjusted to fair value through our results of operations as of each balance sheet date.

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

The fair values of these contracts at December 31, 2020 , along with the effect on our results of operations during the three and nine months ended September 30, 2021 and 2020, were immaterial.

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

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

The notional amount and fair value of these contracts at September 30, 2021 and December 31, 2020 , along with the effect on our results of operations during the three and nine months ended September 30, 2021 and 2020, were immaterial.

The notional amount and fair value of these contracts at March 31, 2022 and December 31, 2021 , along with the effect on our results of operations during the three months ended March 31, 2022 and 2021, were immaterial.

Fair Value Measurements

Financial Assets and Liabilities Measured at Fair Value

We use the market and income approaches to estimate the fair value of our financial assets and liabilities, and during the three and nine months ended September 30, 2021, there were no significant changes in valuation techniques or inputs related to the financial assets or liabilities that we have historically recorded at fair value.

We use the market and income approaches to estimate the fair value of our financial assets and liabilities, and during the three months ended March 31, 2022, there were no significant changes in valuation techniques or inputs related to the financial assets or liabilities that we have historically recorded at fair value.

The tiers in the fair value hierarchy include:

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

The following tables present information about our financial assets and liabilities measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation inputs we utilized to determine such fair value as of September 30, 2021 and December 31, 2020 (in thousands):

Balance as of September 30, 2021 Fair Value Measurements as of September 30, 2021

The following tables present information about our financial liabilities measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation inputs we utilized to determine such fair value as of March 31, 2022 and December 31, 2021 (in millions):

Balance as of March 31, 2022 Fair Value Measurements as of March 31, 2022

Level 1 Level 2 Level 3

Cash surrender value of life insurance $ 85,934 $ — $ 85,934 $ —

Total Assets $ 85,934 $ — $ 85,934 $ —

Contingent consideration liabilities $ 14 $ — $ — $ 14

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Level 1 Level 2 Level 3

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

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

Contingent consideration liabilities $ 18 $ — $ — $ 18

Interest rate swaps 899 — 899 —

Deferred compensation liabilities 89 — 89 —

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

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

Total Liabilities $ 107 $ — $ 89 $ 18

The cash surrender value of life insurance is included in Other noncurrent assets on our Unaudited Condensed Consolidated Balance Sheets.

The current portion of contingent consideration liabilities is included in Other current liabilities on our Unaudited Condensed Consolidated Balance Sheets;

the noncurrent portion of deferred compensation liabilities and contingent consideration liabilities is included in Other noncurrent liabilities on our Unaudited Condensed Consolidated Balance Sheets based on the expected timing of the related payments.

The balance sheet classification of the interest rate swaps,

cross currency swap agreements, and foreign currency forward contracts is presented in Note 10, "Derivative Instruments and Hedging Activities."

Our Level 2 assets and liabilities are valued using inputs from third parties and market observable data.

We obtain valuation data for the cash surrender value of life insurance and deferred compensation liabilities from third party sources, which determine the net asset values for our accounts using quoted market prices, investment allocations and reportable trades.

We value our other derivative instruments using a third party valuation model that performs a discounted cash flow analysis based on the terms of the contracts and market observable inputs such as current and forward interest rates and current and forward foreign exchange rates.

The current portion of contingent consideration liabilities is included in Other current liabilities on the Unaudited Condensed Consolidated Balance Sheets;

the noncurrent portion of deferred compensation liabilities and contingent consideration liabilities is included in Other noncurrent liabilities on the Unaudited Condensed Consolidated Balance Sheets based on the expected timing of the related payments.

Our Level 2 liabilities are valued using inputs from third parties and market observable data.

We obtain valuation data for the deferred compensation liabilities from third party sources, which use quoted market prices, investment allocations and reportable trades.

Our contingent consideration liabilities are related to our business acquisitions.

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

Based on market conditions as of both September 30, 2021 and December 31, 2020, the fair value of our credit agreement borrowings reasonably approximated the carrying values of $ 1.4 billion and $ 967 million, respectively.

As of September 30, 2021 and December 31, 2020, the fair values of the Euro Notes (2024) were approximately $ 625 million and $ 662 million, respectively, compared to carrying values of $ 579 million and $ 611 million, respectively.

As of December 31, 2020, the fair value of the Euro Notes (2026) was $ 939 million compared to a carrying value of $ 916 million;

as of September 30, 2021, the Euro Notes (2026) were paid off.

As of September 30, 2021 and December 31, 2020, the fair values of the Euro Notes (2028) were $ 311 million and $ 332 million, respectively, compared to carrying values of $ 290 million and $ 305 million, respectively.

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

We estimated the fair value by calculating the upfront cash payment a market participant would require at September 30, 2021 and December 31, 2020 to assume these obligations.

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

Based on market conditions as of both March 31, 2022 and December 31, 2021, the fair value of the credit agreement borrowings reasonably approximated the carrying values of $ 1,813 million and $ 1,887 million, respectively.

As of March 31, 2022 and December 31, 2021, the fair values of the Euro Notes (2024) were approximately $ 573 million and $ 605 million, respectively, compared to carrying values of $ 553 million and $ 569 million, respectively.

As of March 31, 2022 and December 31, 2021, the fair values of the Euro Notes (2028) were $ 287 million and $ 301 million, respectively, compared to carrying values of $ 277 million and $ 284 million, respectively.

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

We estimated the fair value by calculating the upfront cash payment a market participant would require at March 31, 2022 and December 31, 2021 to assume these obligations.

The fair values of the Euro Notes (2024) and Euro Notes (2028) are determined based upon observable market inputs including quoted market prices in markets that are not active, and therefore are classified as Level 2 within the fair value hierarchy.

Employee Benefit Plans

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

As of September 30, 2021 and December 31, 2020, the aggregate funded status of the defined benefit plans was a liability of $ 145 million and $ 153 million , respectively, and is reported in Other noncurrent liabilities and Accrued payroll-related liabilities on our Unaudited Condensed Consolidated Balance Sheets.

Net periodic benefit cost for our defined benefit plans included the following components for the three and nine months ended September 30, 2021 and 2020 (in thousands):

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Service cost $ 921 $ 688 $ 2,749 $ 2,214

Interest cost 333 682 1,028 2,131

Expected return on plan assets ( 415 ) ( 411 ) ( 1,261 ) ( 1,551 )

Amortization of actuarial loss 427 238 1,301 907

Settlement loss (1)

— 3,556 — 5,656

Net periodic benefit cost $ 1,266 $ 4,753 $ 3,817 $ 9,357

(1) Related to the settlement of a U.S.

plan in 2020.

For the three and nine months ended September 30, 2021 and 2020, the service cost component of net periodic benefit cost was classified in Selling, general and administrative expenses, while the other components of net periodic benefit cost were classified in Other (income) expense, net in our Unaudited Condensed Consolidated Statements of Income.

As of March 31, 2022 and December 31, 2021, the aggregate funded status of the defined benefit plans was a liability of $ 125 million and $ 131 million , respectively, and is reported in Other noncurrent liabilities and Accrued payroll-related liabilities on our Unaudited Condensed Consolidated Balance Sheets.

Net periodic benefit cost for our defined benefit plans totaled $ 1 million for each of the three-month periods ended March 31, 2022 and 2021 and primarily related to service cost which is recorded to Selling, general and administrative expenses on the Unaudited Condensed Consolidated Statements of Income.

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

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

Our effective income tax rate for the nine months ended September 30, 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.

Our effective income tax rate for the three months ended March 31, 2022 was 25.0 %, compared to 26.3 % for the three months ended March 31, 2021.

The lower estimated annual effective tax rate for the three months ended March 31, 2022 compared to the three months ended March 31, 2021 is primarily attributable to the geographic distribution of income.

For the three months ended March 31, 2022, the effective tax rate was partially decreased by net favorable discrete items including excess tax benefits from stock-based payments partially offset by the revaluation of deferred tax balances in connection with an enacted rate change.

Net discrete items for the three months ended March 31, 2021 reduced the effective tax rate by 0.2 %, primarily due to excess tax benefits on stock-based payments.

Additionally, for the three months ended March 31, 2022, we recorded a $ 4 million benefit related to the reassessment of a previously recorded valuation allowance on a deferred tax asset.

This item was recorded to Net income from discontinued operations.

Segment and Geographic Information

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.

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

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

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

Therefore, we present three reportable segments:

North America, Europe and Specialty.

The following tables present our financial performance by reportable segment for the periods indicated (in thousands):

North America Europe Specialty Eliminations Consolidated

Three Months Ended September 30, 2021

Third Party $ 1,306,310 $ 1,525,274 $ 465,027 $ — $ 3,296,611

Intersegment 655 — 815 ( 1,470 ) —

Total segment revenue $ 1,306,965 $ 1,525,274 $ 465,842 $ ( 1,470 ) $ 3,296,611

Segment EBITDA $ 225,582 $ 175,093 $ 51,644 $ — $ 452,319

Depreciation and amortization (1)

24,022 38,752 7,576 — 70,350

Three Months Ended September 30, 2020

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

Intersegment 210 — 875 ( 1,085 ) —

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

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

Depreciation and amortization (1)

24,479 44,412 7,436 — 76,327

North America Europe Specialty Eliminations Consolidated

Nine Months Ended September 30, 2021

Wholesale – North America, Europe, Specialty and Self Service, each of which is presented as a reportable segment.

Beginning in 2022, the Wholesale - North America and Self Service operating segment results were separated from the previous reportable segment, North America, and each of Wholesale - North America and Self Service is now a separate reportable segment.

Segment results have been adjusted retrospectively to reflect this change.

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

The segments are managed separately as the businesses serve different customers and are affected by different economic conditions.

Wholesale - North America and Self Service have similar economic characteristics and have common products and services, customers and methods of distribution.

We are reporting these operating segments separately to provide greater transparency to investors.

The following tables present our financial performance by reportable segment for the periods indicated (in millions):

Wholesale - North America Europe Specialty Self Service Eliminations Consolidated

Three Months Ended March 31, 2022

Third Party $ 1,201 $ 1,488 $ 460 $ 199 $ — $ 3,348

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19 34 8 4 — 65

Nine Months Ended September 30, 2020

Three Months Ended March 31, 2021

Third Party $ 1,051 $ 1,463 $ 458 $ 199 $ — $ 3,171

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21 40 7 4 — 72

(1) Amounts presented include depreciation and amortization expense recorded within Cost of goods sold and Restructuring and acquisition related expenses.

(1) Amounts presented include depreciation and amortization expense recorded within Cost of goods sold and Restructuring and transaction related expenses.

The key measure of segment profit or loss reviewed by our chief operating decision maker, our Chief Executive Officer, is Segment EBITDA.

We use Segment EBITDA to compare profitability among our segments and evaluate business strategies.

We use Segment EBITDA to compare profitability among the segments and evaluate business strategies.

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);

We calculate Segment EBITDA as EBITDA excluding restructuring and transaction related expenses (which includes restructuring expenses recorded in Cost of goods sold);

change in fair value of contingent consideration liabilities;

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equity in losses and earnings of unconsolidated subsidiaries;

equity investment mark to market adjustments;

and impairment charges.

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

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

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

equity investment fair value adjustments;

impairment charges;

and direct impacts of the Ukraine/Russia conflict and related sanctions (including provisions for reserves for asset recoverability and expenditures to support our employees and their families).

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

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

Three Months Ended March 31,

Net income $ 273 $ 266

net (loss) income attributable to continuing noncontrolling interest ( 49 ) 448 754 1,166

net income attributable to discontinued noncontrolling interest — — — 103

Net income attributable to LKQ stockholders 284,055 193,483 854,592 457,411

Net loss from discontinued operations — — — ( 638 )

Net income attributable to discontinued noncontrolling interest — — — ( 103 )

Net income from continuing operations attributable to LKQ stockholders 284,055 193,483 854,592 458,152

Net income from discontinued operations 4 —

Net income from continuing operations 269 266

Depreciation and amortization 59 66

Depreciation and amortization - cost of goods sold 6 6

Depreciation and amortization - restructuring expenses (1)

408 605 787 4,577

Interest expense, net of interest income 15 24

Loss on debt extinguishment — — 23,564 12,751

Provision for income taxes 89 93

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Equity in earnings of unconsolidated subsidiaries (1)

7,731 4,113 17,028 1,980

Equity investment mark to market adjustments 2,445 — 8,245 —

Restructuring and acquisition related expenses (1)

2,117 19,890 14,692 47,838

Restructuring expenses - cost of goods sold — 833 ( 163 ) 6,494

Impairment of net assets held for sale and (gain) loss on disposal of businesses 822 ( 503 ) 240 1,733

Change in fair value of contingent consideration liabilities 384 ( 147 ) 1,469 ( 575 )

Equity investment fair value adjustments ( 1 ) 5

Restructuring and transaction related expenses 3 8

Losses on previously held equity interests 1 —

Direct impacts of Ukraine/Russia conflict (2)

Segment EBITDA $ 447 $ 452

(1) The sum of these two captions represents the total amount that is reported in Restructuring and acquisition related expenses in our Unaudited Condensed Consolidated Statements of Income.

Refer to Note 5, "Restructuring and Acquisition Related Expenses," for further information.

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

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

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

(2) Adjustments include provisions for reserves for asset recoverability (receivables and inventory) and expenditures to support our employees and their families in Ukraine.

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

Three Months Ended March 31,

Capital Expenditures

North America $ 22,654 $ 12,352 $ 52,806 $ 52,565

Europe 18,953 17,420 66,454 49,970

Wholesale – North America

Specialty 4 2

Self Service 3 3

Total capital expenditures $ 59 $ 42

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

September 30, December 31,

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

March 31, 2022 (1)

December 31, 2021

Receivables, net

North America $ 399,592 $ 386,289

Wholesale – North America

Europe 702 586

Specialty 142 102

Self Service 21 18

Total receivables, net 1,239 1,073

North America 799,790 810,798

Wholesale – North America

Europe 1,300 1,327

Specialty 519 458

Self Service 58 50

Total inventories 2,573 2,611

Property, plant and equipment, net

North America 572,191 583,985

Wholesale – North America

Europe 561 577

Specialty 92 93

Self Service 102 103

Total property, plant and equipment, net 1,256 1,299

Operating lease assets, net

North America 758,368 755,430

Wholesale – North America

Europe 498 515

Specialty 92 83

Self Service 148 152

Total operating lease assets, net 1,301 1,361

Equity method investments

North America 23,572 18,676

Europe 154,838 136,548

Total equity method investments 178,410 155,224

Other unallocated assets 6,409 6,262

Total assets $ 12,778 $ 12,606

(1) The Wholesale - North America segment excludes amounts which are held for sale.

See Note 2, "Financial Statement Information" for information related to the held for sale balances.

We report net receivables;

net property, plant and equipment;

net operating lease assets;

and equity method investments by segment as that information is used by the chief operating decision maker in assessing segment performance.

and net operating lease assets by segment as that information is used by the chief operating decision maker in assessing segment performance.

These assets provide a measure for the operating capital employed in each segment.

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

Unallocated assets include cash and cash equivalents, prepaid expenses and other current and noncurrent assets, goodwill, other intangibles and equity method investments.

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

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

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

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

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

Three Months Ended March 31,

United States $ 1,750 $ 1,605

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Total revenue $ 3,348 $ 3,171

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

September 30, December 31,

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

March 31, 2022 December 31, 2021

Long-lived assets

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Total long-lived assets $ 2,557 $ 2,660

Subsequent Event

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.

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

What changed 10-Q

Item 1. Financial Statements