What changed in this filing

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Item 2. Management’s Discussion and Analysis

2022-05-04 compared with 2021-11-03 · 248 added, 504 removed, 241 unchanged (76% of the section changed)

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Words such as “may,” “will,” “plan,” “should,” “expect,” “anticipate,” “believe,” “if,” “estimate,” “intend,” “project” and similar words or expressions are used to identify these forward-looking statements.

These statements are subject to a number of risks, uncertainties, assumptions and other factors, including the unfavorable effects of COVID-19, that may cause our actual results, performance or achievements to be materially different.

These statements are subject to a number of risks, uncertainties, assumptions and other factors that may cause our actual results, performance or achievements to be materially different.

All forward-looking statements are based on information available to us at the time the statements are made.

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Actual events or results may differ materially from those expressed or implied in the forward-looking statements.

The risks, uncertainties, assumptions and other factors that could cause actual results to differ from the results predicted or implied by our forward-looking statements include factors discussed in our filings with the SEC, including those disclosed under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2020 Form 10-K and in our subsequent Quarterly Reports on Form 10-Q (including this Quarterly Report).

The risks, uncertainties, assumptions and other factors that could cause actual results to differ from the results predicted or implied by our forward-looking statements include factors discussed in our filings with the SEC, including those disclosed under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our 2021 Form 10-K and our Quarterly Reports on Form 10-Q (including this Quarterly Report).

We are a global distributor of vehicle products, including replacement parts, components and systems used in the repair and maintenance of vehicles, and specialty products and accessories to improve the performance, functionality and appearance of vehicles.

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Wholesale – North America;

Specialty and Self Service.

We aggregate our Wholesale – North America and Self Service operating segments into one reportable segment, North America, resulting in three reportable segments:

North America, Europe and Specialty.

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.

Our operating results have fluctuated on a quarterly and annual basis in the past and can be expected to continue to fluctuate in the future as a result of a number of factors, some of which are beyond our control.

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

See "Investments in Unconsolidated

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

See "Investments in Unconsolidated Subsidiaries" in Note 2, "Financial Statement Information," to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to our investments.

Sources of Revenue

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

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

Our 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 used to improve the performance, functionality and appearance of vehicles.

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

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

Revenue from other sources includes scrap and other metals (including precious metals - platinum, palladium and rhodium - contained in recycled parts such as catalytic converters) sales, bulk sales to mechanical manufacturers (including cores) and sales of aluminum ingots and sows from our furnace operations.

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

See Note 3, "Revenue Recognition" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to our sources of revenue.

Critical Accounting Policies and Estimates

Critical Accounting Estimates

The discussion and analysis of our financial condition and results of operations are based upon our Unaudited Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP.

The preparation of these financial statements requires us to make estimates, assumptions and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities.

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

There have been no changes to those critical accounting policies and estimates that have had a material impact on our reported amounts of assets, liabilities, revenue or expenses during the nine months ended September 30, 2021.

Recently Issued Accounting Pronouncements

See "Recent Accounting Pronouncements" in Note 3, "Financial Statement Information" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information related to new accounting standards.

The preparation of these financial statements requires management to make use of certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities.

Our 2021 Form 10-K includes a summary of the critical accounting estimates we believe are the most important to aid in understanding our financial results.

There have been no changes to those critical accounting estimates that have had a material impact on our reported amounts of assets, liabilities, revenues or expenses during the three months ended March 31, 2022.

Financial Information by Geographic Area

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• Restructuring expenses — Non-recurring costs resulting directly from the implementation of the 1 LKQ Europe program from which the business will derive no ongoing benefit.

See Note 5, “Restructuring and Acquisition Related Expenses” to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details.

See Note 4, "Restructuring and Transaction Related Expenses” to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details.

• Transformation expenses — Period costs incurred to execute the 1 LKQ Europe program that are expected to contribute to ongoing benefits to the business (e.g.

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

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

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

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

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

We have continued the project on schedule after the restart.

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

During the three and nine months ended September 30, 2021 we incurred $6 million and $26 million, respectively, in costs across all three categories noted above.

We expect that costs of the program, reflecting all three categories noted above, will range between $30 million and $40 million in 2021 with an additional $100 million to $130 million between 2022 and the projected program completion date in 2024.

Costs related to the 1 LKQ Europe program incurred to date are reflected in Selling, general and administrative expenses, Restructuring and transaction related expenses and Purchases of property, plant and equipment in our Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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 incurred $6 million in costs across all three categories noted above.

We expect that costs of the program, reflecting all three categories noted above, will range between $30 million and $50 million in 2022 with an additional $50 million to $70 million in 2023 and 2024 through the projected program completion date.

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

We expect the transformation and restructuring expenses will be entirely funded by the improved trade working capital initiatives across our Europe segment.

COVID-19 Impact on Our Operations

In late February 2020, the Italian government began placing restrictions on activity as a result of the COVID-19 outbreak.

Sales volumes fell as fewer cars were on the road and less maintenance activity was performed.

While our Italian operation is an important part of our European business, it represented approximately 10% of the segment’s revenue in 2019, and thus the disruption did not have a material impact on the Company.

By mid-March, the COVID-19 impact began spreading across the rest of the geographies where we operate at a very rapid pace.

Governments adopted aggressive restrictions on the operation of non-essential businesses and personal movement, which reduced miles driven and collisions.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

encouraging vaccination of our employees;

use of personal protective equipment;

adhering to social distancing guidelines;

instituting remote work arrangements for many of our employees;

and restricting travel.

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

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

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

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

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

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

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

If revenue continues to increase, we expect that some of the costs that were reduced as a result of COVID-19 will remain at a lower level;

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

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

During the nine months ended September 30, 2021, we qualified for $16 million of assistance.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

We expect the transformation and restructuring expenses will be entirely funded by trade working capital initiatives across our Europe segment.

Ukraine/Russia Conflict

The Russian invasion of Ukraine and resulting global governmental response have impacted, and are expected to continue to impact, our business in 2022.

Governmental sanctions imposed on Russia have restricted our ability to sell and collect from customers based in Russia, and Russian military activity in Ukrainian territory has temporarily changed the way in which we operate in Ukraine.

Many of our branches have remained open, although operating at less than full capacity, during the conflict, while others have closed temporarily.

We expect to continue operating in this manner unless conditions change.

While we do anticipate to experience some negative impact from the consequences of this conflict, we do not expect it to have a material impact on our results of operations or cash flows.

Our operations in Ukraine represent less than 1% of both our total annual revenue and total annual operating profit and comprised approximately $40 million of gross assets as of March 31, 2022.

In addition, LKQ r evenue from customers in Russia represents less than 0.3% of our total revenue .

As future developments in the conflict are difficult to project and outside of our control, it is possible that the estimates underlying our financials may change significantly in future periods.

Key Performance Indicators

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We believe that organic revenue growth is a key performance indicator as this statistic measures our ability to serve and grow our customer base successfully.

• Segment EBITDA - Refer to Note 14, "Segment and Geographic Information,” in Part I, Item 1 of this Form 10-Q for a description of the calculation of Segment EBITDA.

• Segment EBITDA - See Note 13, "Segment and Geographic Information" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a description of the calculation of Segment EBITDA.

We believe that Segment EBITDA provides useful information to evaluate our segment profitability by focusing on the indicators of ongoing operational results.

• Free Cash Flow - We calculate free cash flow as net cash provided by operating activities, less purchases of property, plant and equipment.

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

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

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

By using these performance measures, we attempt to motivate a balanced

approach to the business that rewards growth, profitability and cash flow generation in a manner that enhances our long-term prospects.

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

Results of Operations—Consolidated

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

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 2021 2020

Three Months Ended March 31,

Revenue 100.0 % 100.0 %

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Selling, general and administrative expenses 27.6 % 26.8 %

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

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

0.0 % (0.0) % 0.0 % 0.0 %

Restructuring and transaction related expenses 0.1 % 0.2 %

Depreciation and amortization 1.8 % 2.1 %

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Income from continuing operations before provision for income taxes 10.6 % 11.1 %

11.1 % 8.8 % 11.4 % 7.4 %

Provision for income taxes 2.7 % 2.9 %

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Income from continuing operations 8.0 % 8.4 %

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

Net income from discontinued operations 0.1 % — %

Net income 8.2 % 8.4 %

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

net income attributable to discontinued noncontrolling interest

— % — % — % 0.0 %

Net income attributable to LKQ stockholders 8.6 % 6.3 % 8.6 % 5.3 %

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

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

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

Three Months Ended

September 30, Percentage Change in Revenue

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

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

Three Months Ended March 31, Percentage Change in Revenue

2022 2021 Organic Acquisition and Divestiture Foreign Exchange Total Change

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

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

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

The increase in other revenue of 45.3% was primarily driven by a $73 million organic increase, largely attributable to our North America segment.

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

The growth in parts and services revenue of 5.9% represented increases in segment revenue of 14.6% in Self Service, 14.2% in Wholesale – North America, 1.8% in Europe, and 0.4% in Specialty.

Organic parts and services revenue growth was 6.9% , which included a 1.3% positive effect from one additional selling day in the first quarter, resulting in per day organic growth of 5.6% .

The increase in other revenue of 2.0% was primarily driven by a $5 million organic increase, attributable to a $13 million increase in our Wholesale - North America segment, partially offset by a $7 million decrease in our Self Service segment.

Refer to the discussion of our segment results of operations for factors contributing to the change in revenue by segment during the first quarter of 2022 compared to the prior year period.

Cost of Goods Sold

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

The cost of goods sold decrease reflects impacts of

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

Refer to the discussion of our segment results of operations for factors contributing to the changes in cost of goods sold as a percentage of revenue by segment for the three months ended September 30, 2021 compared to the same period of 2020.

Cost of goods sold increased to 59.5% of revenue in the three months ended March 31, 2022 from 59.2% of revenue in the three months ended March 31, 2021.

The cost of goods sold increase reflects impacts of (i) 0.4% in our Self Service segment and (ii) 0.3% in our Europe segment, partially offset by decreases of (iii) 0.3% attributable to mix as a greater portion of sales are coming from Wholesale - North America which has higher margins and (iv) 0.2% in our Specialty segment.

Refer to the discussion of our segment results of operations for factors contributing to the changes in cost of goods sold as a percentage of revenue by segment for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

Selling, General and Administrative Expenses

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

SG&A expenses increased over the prior year period as a result of (i) a 0.4% increase attributable to our North America segment and (ii) a 0.2% increase from our Europe segment.

Refer to the discussion of our segment results of operations for factors contributing to the changes in SG&A expenses as a percentage of revenue by segment for the three months ended September 30, 2021 compared to the three months ended September 30, 2020.

Restructuring and Acquisition Related Expenses .

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

Three Months Ended

September 30,

Our selling, general and administrative ("SG&A") expenses as a percentage of revenue increased to 27.6% in the three months ended March 31, 2022 from 26.8% in the three months ended March 31, 2021.

The SG&A expense increase reflects impacts of 0.3% in our Specialty segment and 0.2% in each of our Wholesale - North America and Europe segments.

Refer to the discussion of our segment results of operations for factors contributing to the changes in SG&A expenses as a percentage of revenue by segment for the three months ended March 31, 2022 compared to the three months ended March 31, 2021.

Restructuring and Transaction Related Expenses

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

Three Months Ended March 31,

2022 2021 Change

Restructuring expenses $ — $ 8 (1)

Acquisition related expenses 682 (3)

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

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

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

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

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

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

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

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

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

Transaction related expenses 3 (2)

Restructuring and transaction related expenses $ 3 $ 8 $ (5)

(1) Restructuring expenses for the three months ended March 31, 2021 primarily consisted of (i) $5 million related to our 1 LKQ Europe program and (ii) $3 million related to our global restructuring programs.

(2) Transaction related expenses for the three months ended March 31, 2022 primarily related to external costs such as legal, accounting and advisory fees for completed and potential transactions.

See Note 4, "Restructuring and Transaction Related Expenses" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on our restructuring and integration plans.

Depreciation and Amortization

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

Three Months Ended

September 30,

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

Three Months Ended March 31,

2022 2021 Change

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Total depreciation and amortization $ 59 $ 66 $ (7)

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

(2) The decrease in amortization expense primarily reflected a decrease of $5 million related to the customer relationship intangible assets recorded upon our acquisition of Stahlgruber as the accelerated amortization of the customer relationship intangible assets resulted in lower amortization expense during the three months ended September 30, 2021 compared to the prior year period.

(1) The decrease in depreciation expense included $1 million from foreign currency translation primarily related to a decrease in the euro and pound sterling exchange rates during the three months ended March 31, 2022 compared to the prior year period with the remaining decrease relating to lower expense in Wholesale - North America and Europe.

(2) The decrease in amortization expense primarily reflected (i) a decrease of $2 million related to the customer relationship intangible assets recorded upon our acquisition of Stahlgruber as the accelerated amortization of the customer relationship intangible assets resulted in lower amortization expense during the three months ended March 31, 2022 compared to the prior year period and (ii) a $1 million decrease from foreign exchange translation, primarily related to a decrease in the euro exchange rate.

Other Expense, Net

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

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

Increase (decrease) due to:

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

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

Net decrease (15,135)

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

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

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

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

Provision for Income Taxes .

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

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

Equity in Earnings of Unconsolidated Subsidiaries.

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

Foreign Currency Impact.

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

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

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

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

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

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

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

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

Nine Months Ended

September 30, Percentage Change in Revenue

2021 2020 Organic Acquisition and Divestiture Foreign Exchange Total Change

Parts & services revenue $ 9,171,345 $ 8,201,604 8.3 % (0.1) % 3.6 % 11.8 %

Other revenue 731,166 473,338 54.1 % 0.0 % 0.3 % 54.5 %

Total revenue $ 9,902,511 $ 8,674,942 10.8 % (0.1) % 3.5 % 14.2 %

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

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

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

The increase in other revenue of 54.5% was primarily driven by a $256 million organic increase, largely attributable to our North America segment.

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

Cost of Goods Sold .

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

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

The mix impact was caused by higher growth in the Specialty segment which has lower margins than our North America and Europe segments, causing an unfavorable effect on the gross margin percentage.

Refer to the discussion of our segment results of operations for factors contributing to the changes in cost of goods sold as a percentage of revenue by segment for the nine months ended September 30, 2021 compared to the same period of 2020.

Selling, General and Administrative Expenses.

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

SG&A expenses decreased over the prior year period as a result of (i) a 0.6% decrease attributable to our North America segment, (ii) a 0.6% decrease from our Europe segment, (iii) a 0.1% decrease from our Specialty segment and (iv) a 0.2% decrease in SG&A expenses attributable to mix.

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

Refer to the discussion of our segment results of operations for factors contributing to the changes in SG&A expenses as a percentage of revenue by segment for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020.

Restructuring and Acquisition Related Expenses .

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

Nine Months Ended

September 30,

2021 2020 Change

Restructuring expenses $ 14,679 (1)

Acquisition related expenses 800 (3)

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

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

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

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

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

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

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

Depreciation and Amortization .

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

Nine Months Ended

September 30,

2021 2020 Change

Depreciation $ 116,280 $ 112,462 $ 3,818 (1)

Amortization 78,412 87,435 (9,023) (2)

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

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

(2) The decrease in amortization expense primarily reflected (i) decreases of $11 million and $2 million r elated to the customer relationship intangible assets recorded upon our acquisitions of Stahlgruber and Rhiag, respectively, as the accelerated amortization of the customer relationship intangible assets resulted in lower amortization expense during the nine months ended September 30, 2021 compared to the prior year period, partially offset by (ii) a $4 million increase from foreign currency translation, primarily related to an increase in the euro exchange rate during the nine months ended September 30, 2021 compared to the prior year period.

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

Other Expense, Net

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

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

Increase (decrease) due to:

Other expense, net for the three months ended March 31, 2021 $ 18

(Decrease) increase due to:

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

Loss on debt extinguishment 10,813 (2)

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

Lower Other income, net 6 (2)

Net decrease (3)

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

(1) The lower interest expense is primarily related to (i) a $24 million decrease resulting from lower outstanding debt and lower interest rates during the nine months ended September 30, 2021 compared to the prior year period, partially offset by (ii) a $3 million increase from foreign currency translation, primarily related to an increase in the euro exchange rate.

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

Notes (2023) in January 2020.

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

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

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

Other expense, net for the three months ended March 31, 2022 $ 15

(1) The lower Interest expense, net of interest income is primarily related to (i) an $8 million decrease resulting from lower interest rates during the three months ended March 31, 2022 compared to the prior year period and (ii) a $1 million decrease from foreign exchange translation, primarily related to a decrease in the euro exchange rate.

(2) The unfavorable variance in Other income, net primarily related t o $5 million of fair value adjustments in the first quarter of 2021 for appreciation in our equity investments not accounted for under the equity method compared to a $1 million reduction in fair value recorded in the first quarter of 2022.

Provision for Income Taxes

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

The lower estimated annual effective tax rate for 2021 is primarily attributable to the higher forecasted 2021 results of operations, as compared to the forecasts available during the comparable period in 2020, when COVID-19 pandemic economic disruptions were depressing forecasted 2020 results.

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

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

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.

See Note 12, "Income Taxes" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

Equity in Earnings of Unconsolidated Subsidiaries

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

Equity in earnings of unconsolidated subsidiaries for the three months ended March 31, 2022 decreased by $4 million primarily related to a decline in year over year results reported by Mekonomen, which is our largest equity method investment, and an immaterial Self Service investment, which incurred a loss in the first quarter of 2022.

Foreign Currency Impact

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

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

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

dollar combined with the positive impact of realized and unrealized currency gains and losses for the nine months ended September 30, 2021 resulted in a $0.02 positive effect on diluted earnings per share relative to the prior year period.

Net Income Attributable to Continuing and Discontinued Noncontrolling Interest.

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

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

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

Relative to the rates used during the three months ended March 31, 2021 , the euro and pound sterling rates used to translate the 2022 statements of income decreased by 7% and 3%, respectively.

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

dollar combined with the negative impact of realized and unrealized currency gains and losses for the three months ended March 31, 2022 to generate a negative $0.02 effect on diluted earnings per share relative to the prior year period.

Results of Operations—Segment Reporting

We have four operating segments:

We have four reportable segments:

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

Our Wholesale – North America and Self Service operating segments are aggregated into one reportable segment, North America, because they possess similar economic characteristics and have common products and services, customers, and methods of distribution.

Therefore, we present three reportable segments:

North America, Europe and Specialty.

We have presented the growth of our revenue and profitability in our operations on both an as reported and a constant currency basis.

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Constant currency revenue and Segment EBITDA results are calculated by translating prior year revenue and Segment EBITDA in local currency using the current year's currency conversion rate.

This non-GAAP financial measure has important limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of our results as reported under GAAP.

This non-GAAP financial measure has important limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of our results as reported under US GAAP.

Our use of this term may vary from the use of similarly-titled measures by other issuers due to potential inconsistencies in the method of calculation and differences due to items subject to interpretation.

In addition, not all companies that report revenue or profitability on a constant currency basis calculate such measures in the same manner as we do, and accordingly, our calculations are not necessarily comparable to similarly-named measures of other companies and may not be appropriate measures for performance relative to other companies.

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

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

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

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

Three Months Ended March 31,

2022 % of Total Segment Revenue 2021 % of Total Segment Revenue

Third Party Revenue

North America $ 1,306,310 $ 1,164,031 $ 3,882,734 $ 3,465,102

Wholesale – North America

$ 1,201 $ 1,051

Europe 1,488 1,463

2 unchanged sentences

Total Revenue

North America $ 1,306,965 $ 1,164,241 $ 3,884,352 $ 3,465,831

Wholesale – North America

$ 1,201 $ 1,051

Europe 1,488 1,463

3 unchanged sentences

Segment EBITDA

North America $ 225,582 17.3 % $ 204,957 17.6 % $ 750,935 19.3 % $ 565,949 16.3 %

Wholesale – North America

$ 218 18.1 % $ 194 18.4 %

Europe 131 8.8 % 141 9.6 %

Specialty 58 12.6 % 61 13.4 %

40 20.0 % 56 27.9 %

In the table above, the percentages of total segment revenue may not recalculate due to rounding.

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

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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;

1 unchanged sentence

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.

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.

See Note 13, "Segment and Geographic Information" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a reconciliation of total Segment EBITDA to net income.

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

North America

Three Months Ended March 31, 2022 Compared to Three Months Ended March 31, 2021

Wholesale – North America

Third Party Revenue

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

Three Months Ended

September 30, Percentage Change in Revenue

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

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

Three Months Ended March 31, Percentage Change in Revenue

Wholesale – North America

2022 2021 Organic Acquisition and Divestiture

Foreign Exchange Total Change

Parts & services revenue $ 1,106 $ 969 13.6 % (1)

4 unchanged sentences

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

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

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

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

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

(1) Parts and services organic revenue increased 13.6% (11.8% on a per day basis) for the three months ended March 31, 2022 compared to the prior year period, primarily driven by pricing for both collision and mechanical parts.

Aftermarket collision parts volumes decreased year over year due to ongoing ocean freight delays and supply chain challenges, and were largely offset by increased volumes of aftermarket automotive glass products and collision parts from our salvage business.

(2) The 15.8%, or $13 million, year over year organic increase in other revenue is primarily related to (i) an $11 million increase in reven ue from other scrap (e.g., aluminum) and cores due to higher prices as well as higher volumes, and (ii) a $2 million increase in revenue from scrap steel due to higher prices.

Revenue from precious metals (platinum, palladium, and rhodium) was flat year over year due to higher volumes offset by lower prices.

Segment EBITDA

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

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

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

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

This favorable impact for the three months ended September 30, 2021 resulted from the increase in scrap steel prices between the date we purchased a vehicle, which influences the price we pay for a vehicle, and the date we scrapped a vehicle, which influences the price we receive for scrapping a vehicle.

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

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

North America Percentage of Total Segment Revenue

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

Segment EBITDA increased $24 million, or 12.4%, in the first quarter of 2022 compared to the prior year period.

This increase is attributable to higher prices on parts and productivity initiatives helping to offset inflationary pressures related to ocean freight, labor, supplies and fuel.

Decreases in precious metals prices contributed a $4 million decline in Segment EBITDA relative to the first quarter of 2021.

Additionally, net sequential increases in scrap steel prices in our salvage operations had an immaterial favorable impact on Segment EBITDA during the three months ended March 31, 2022 , compared to a $6 million favorable impact du ring the three months ended March 31, 2021.

We estimate that precious metals and scrap steel pricing had an unfavorable effect of 0.9% on Segment EBITDA margin relative to the comparable prior year period.

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

Wholesale – North America

Percentage of Total Segment Revenue

Segment EBITDA for the three months ended March 31, 2021 18.4 %

Increase (decrease) due to:

1 unchanged sentence

Change in segment operating expenses (0.4) % (2)

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

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

Segment EBITDA for the three months ended March 31, 2022 18.1 %

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

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

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

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

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

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

(1) Gross margin was favorable due to pricing initiatives to offset inflationary increases in material and freight costs.

In some cases, we experienced a margin benefit in the first quarter of 2022 as higher prices were enacted ahead of turning the higher cost inventory.

The favorable impact was partially offset by a 0.7% unfavorable impact from precious metals and scrap steel pricing.

(2) The increase in segment operating expense as a percentage of revenue reflects (i) a 0.2% unfavorable impact from personnel expenses related to inflation and increased stock-based compensation, (ii) a 0.3% unfavorable impact from increased freight and fuel costs, and (iii) several individually immaterial factors that had a 0.3% unfavorable impact in the aggregate, partially offset by (iv) a favorable 0.4% impact from facility related expenses which are relatively fixed in nature.

Third Party Revenue

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

Three Months Ended

September 30, Percentage Change in Revenue

Europe 2021 2020 Organic (1)

Acquisition and Divestiture Foreign Exchange (2)

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

Three Months Ended March 31, Percentage Change in Revenue

Europe 2022 2021 Organic Acquisition and Divestiture Foreign Exchange (2)

Parts & services revenue $ 1,481 $ 1,455 6.9 % (1)

0.3 % (5.5) % 1.8 %

Other revenue 7 8 (7.3) % — % (6.3) % (13.6) %

1 unchanged sentence

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

(1) Parts and services organic revenue for the three months ended September 30, 2021 increased by 0.1%, as not all regions were impacted by the pandemic at the same time and to the same degree in 2020, and the easing of lockdown measures has varied across the continent in 2021.

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

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

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

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

(1) Parts and services organic revenue for the three months ended March 31, 2022 increased by 6.9% (6.0% on a per day basis), driven by roughly equal effects from increased volumes and net price increases compared to the prior year.

Revenue growth from net price increases reflects actions taken to offset increased costs resulting from inflationary pressures.

The U.K., Germany, Central and Eastern Europe, and Benelux reported the largest incremental increases for the period.

(2) Compared to the prior year, exchange rates decreased our revenue growth by $80 million, or 5.5%, primarily due to the stronger U.S.

dollar against the euro and pound sterling during the first quarter of 2022 relative to the prior year period.

Segment EBITDA

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

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

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

On a constant currency basis (i.e., excluding the translation impact), Segment EBITDA increased by $35 million, or 25.6%, compared to the prior year.

Refer to the Foreign Currency Impact discussion within the Results of Operations–Consolidated section above for further detail regarding foreign currency impact on our results for the three months ended September 30, 2021.

Segment EBITDA decreased $10 million, or 6.8%, in the first quarter of 2022 compared to the prior year period.

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

dollars at lower exchange rates than those experienced during the first quarter of 2021.

On a constant currency basis (i.e., excluding the translation impact), Segment EBITDA decreased by $2 million, or 1.5%, co mpared to the prior year.

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

Europe Percentage of Total Segment Revenue

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

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

Increase (decrease) due to:

1 unchanged sentence

Change in segment operating expenses (0.3) % (2)

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

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

Segment EBITDA for the three months ended March 31, 2022 8.8 %

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

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

(2) The increase in segment operating expenses as a percentage of revenue reflects an unfavorable impact of (i) 0.8% from personnel costs primarily due to government grants received in the prior year to cover employee costs in countries such as the U.K.

and Germany (a lesser amount was received in 2021) and increased incentive compensation, partially offset by (ii) several individually immaterial factors that had a favorable impact of 0.5% in the aggregate.

(1) The decrease in gross margin was primarily attributable to (i) an unfavorable impact of 0.2% from increased excess and obsolete inventory reserves as an indirect result of the Ukraine/Russia conflict, primarily related to a portion of our inventory that fits Russian-made vehicles and may have limited use outside of Russian vehicle applications and (ii) several individually immaterial factors that had an unfavorable impact of 0.3% in the aggregate, including inflationary pressures that are impacting product and freight costs.

Net price increases and other margin improvement initiatives continue to be enacted in order to offset these inflationary pressures.

(2) The increase in segment operating expenses as a percentage of revenue reflects (i) an unfavorable impact of 0.3% related to a higher provision for credit losses, including impacts related to a customer bankruptcy, and (ii) an unfavorable impact of 0.2% from inflationary pressures around vehicle and fuel expense, partially offset by (iii) several individually immaterial factors that had a favorable impact of 0.2% in the aggregate.

Third Party Revenue

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

Three Months Ended September 30, Percentage Change in Revenue

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

Three Months Ended March 31, Percentage Change in Revenue

Specialty 2022 2021 Organic (1)

Acquisition and Divestiture Foreign Exchange Total Change

Acquisition and Divestiture (2)

Foreign Exchange Total Change

Parts & services revenue $ 460 $ 458 (8.3) % 8.8 % — % 0.4 %

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

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

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

(1) Parts and services organic revenue for the three months ended March 31, 2022 decreased by 8.3% (9.8% on a per day basis) due to the strong growth we experienced in the first quarter of 2021, when parts and services organic revenue growth was 30.9%, and demand softness from lower new vehicle sales caused by supply chain challenges.

(2) Acquisition related growth for the three months ended March 31, 2022 reflected revenue from our acquisitions of three Specialty businesses from the beginning of 2021 through the one-year anniversary of the acquisition dates.

Segment EBITDA

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

Segment EBITDA decreased $3 million, or 5.5%, in the first quarter of 2022 compared to the prior year first quarter primarily due to the effect of inflation on overhead expenses.

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

Specialty Percentage of Total Segment Revenue

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

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

Increase (decrease) due to:

1 unchanged sentence

Change in segment operating expenses (1.9) % (2)

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

Segment EBITDA for the three months ended March 31, 2022 12.6 %

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

(1) The decrease in gross margin reflects (i) an unfavorable impact of 0.4% driven by inflation in the manufacturing part of the business, and (ii) several individually immaterial factors that had an impact of 0.2% in the aggregate, partially offset by (iii) a 0.3% change due to favorable product and channel mix as well as lower discounting to recover increased input costs.

(2) The increase in segment operating expenses as a percentage of revenue reflects (i) an unfavorable impact of 0.4% due to increased incentive compensation, and (ii) an unfavorable impact of 0.2% due to duplicative costs related to 2021 acquisitions.

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

North America

(1) The increase in gross margin primarily reflects lower discounting to recover higher input costs and, to an extent, favorable product and channel mix, partially offset by a 0.9% unfavorable impact from acquisitions.

(2) The increase in segment operating expenses as a percentage of revenue primarily reflects unfavorable impacts of (i) 1.5% in personnel costs as a result of wage inflation and lower operating leverage due to the organic parts and services revenue decline, (ii) 0.4% in freight, vehicle and fuel expenses primarily due to higher fuel costs, (iii) 0.3% due to distribution center expansion, and (iv) several individual immaterial factors that had an unfavorable impact of 0.3% in the aggregate, partially offset by (v) a favorable impact of 0.6% from operating expense synergies and leverage generated from the 2021 acquisitions.

Third Party Revenue

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

Nine Months Ended

September 30, Percentage Change in Revenue

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

The following table summarizes the changes in third party revenue by category in our Self Service segment (in millions):

Three Months Ended March 31, Percentage Change in Revenue

2022 2021 Organic Acquisition and Divestiture Foreign Exchange Total Change

Parts & services revenue $ 57 $ 50 14.6 % (1)

4 unchanged sentences

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

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

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

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

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

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

Segment EBITDA .

Segment EBITDA increased $185 million, or 32.7%, in the first nine months of 2021 despite the impact of one fewer selling day compared to the prior year period.

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

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

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

This favorable impact for the nine months ended September 30, 2021 resulted from the increase in scrap steel prices between the date we purchased a vehicle, which influences the price we pay for a vehicle, and the date we scrapped a vehicle, which influences the price we receive for scrapping a vehicle.

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

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

North America Percentage of Total Segment Revenue

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

Increase (decrease) due to:

Change in gross margin 1.5 % (1)

Change in segment operating expenses 1.6 % (2)

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

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

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

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

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

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

We are adjusting prices dynamically to address input cost increases and market conditions such as inventory availability and demand, and, in some cases, we experienced a margin benefit in 2021 as higher prices were enacted ahead of turning the higher cost inventory.

(2) The decrease in segment operating expense as a percentage of revenue on a per day basis reflects (i) a favorable impact of 1.0% from personnel expenses related to headcount reductions, operational efficiencies, and a positive leverage effect, mostly related to the increase in other revenue, partially offset by increased incentive compensation expense and inflationary increases, (ii) a positive leverage effect of 0.4% from facility expenses, which are largely fixed and (iii) several individually immaterial factors that had a favorable impact of 0.2% in the aggregate.

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

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

Third Party Revenue .

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

Nine Months Ended

September 30, Percentage Change in Revenue

Europe 2021 2020 Organic Acquisition and Divestiture (2)

Foreign Exchange (3)

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

(0.7) % 6.8 % 12.4 %

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

Total third party revenue $ 4,565,388 $ 4,058,878 6.4 % (0.7) % 6.8 % 12.5 %

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

(1) Parts and services organic revenue for the nine months ended September 30, 2021 increased by 6.3% as the negative pandemic effect on volume in 2020 was more severe than in the current year.

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

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

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

reported the greatest increases for the first nine months.

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

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

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

Segment EBITDA .

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

Our Europe Segment EBITDA included a positive year over year impact of $21 million related to the translation of local currency results into U.S.

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

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

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

Europe Percentage of Total Segment Revenue

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

Increase (decrease) due to:

Change in gross margin 1.7 % (1)

Change in segment operating expenses 1.3 % (2)

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

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

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

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

Additionally, there was a 0.2% benefit from the disposal of non-core operations in 2020.

(2) The decrease in segment operating expenses as a percentage of revenue reflects favorable impacts of (i) 0.5% from bad debt expense due to customers' improved solvency and an increase in reserve in the prior year related to the COVID-19 pandemic, (ii) 0.4% from freight, vehicle and fuel expenses due to higher internet and mail order sales in the prior year, which have higher freight costs, and favorable leverage effect.

Personnel costs were relatively flat compared to the prior year, as the unfavorable impact due to government grants received in the prior year to cover employee costs in countries such as the U.K.

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

Several other individually immaterial factors had a favorable impact of 0.4% in the aggregate.

Third Party Revenue .

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

Nine Months Ended

September 30, Percentage Change in Revenue

Specialty 2021 2020 Organic (1)

Acquisition and Divestiture Foreign Exchange Total Change

Parts & services revenue $ 1,454,389 $ 1,150,962 24.6 % 1.0 % 0.7 % 26.4 %

Other revenue — — — % — % — % — %

Total third party revenue $ 1,454,389 $ 1,150,962 24.6 % 1.0 % 0.7 % 26.4 %

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

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

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

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

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

(1) Parts and services organic revenue increased 14.6% for the three months ended March 31, 2022 compared to the prior year period, primarily driven by pricing initiatives to mitigate significant increases in input costs resulting from greater competition for vehicles.

(2) The 5.0%, or $7 million, year over year organic decrease in other revenue is related to (i) a $15 million decrease in revenue from precious metals (platinum, palladium, and rhodium) due to both lower prices and volumes, partially offset by (ii) a $4 million increase in revenue from other scrap (including aluminum) and cores and (iii) a $4 million increase in revenue from scrap steel primarily related to higher prices, partially offset by lower volumes.

Segment EBITDA

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

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

Specialty Percentage of Total Segment Revenue

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

Segment EBITDA decreased $16 million, or 28.5%, in the first quarter of 2022 compared to the prior year period.

This decrease is primarily attributable to unfavorable movements in commodity prices compared to the prior year.

Decreases in precious metals prices contributed an estimated $9 million decline in Segment EBITDA relative to the first quarter of 2021.

Additionally, net sequential increases in scrap steel prices in our self service operations had a $2 million favorable impact on Segment EBITDA during the three months ended March 31, 2022, compared to a $15 million favorable impact during the three months ended March 31, 2021.

This favorable impact for both periods resulted from the increase in scrap steel prices between the date we purchased a vehicle, which influences the price we pay for a vehicle, and the date we scrapped a vehicle, which influences the price we receive for scrapping a vehicle.

We estimate that precious metals and scrap steel pricing had an unfavorable effect of 11.1% on Segment EBITDA margin relative to the comparable prior year period.

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

Percentage of Total Segment Revenue

Segment EBITDA for the three months ended March 31, 2021 27.9 %

Increase (decrease) due to:

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Change in segment operating expenses (0.9) % (2)

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

Segment EBITDA for the three months ended March 31, 2022 20.0 %

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

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

(2) The decrease in segment operating expenses as a percentage of revenue, which includes the operating leverage impact from the organic parts and services revenue growth of 24.6% compared to the prior year, reflects a favorable impact of (i) 0.5% in personnel costs, and (ii) several individually immaterial factors that had a favorable impact of 0.3% in the aggregate, partially offset by (iii) an unfavorable impact of 0.3% due to increased incentive compensation.

(1) The decrease in gross margin reflects (i) an unfavorable impact of 11.1% resulting from movements in metals prices compounded by car cost increases, partially offset by (ii) a favorable impact of 4.1% due to increased prices for parts and services.

(2) The increase in segment operating expense as a percentage of revenue reflects (i) a 0.5% unfavorable impact from increased freight and fuel costs and (ii) several individually immaterial factors that had a 0.4% unfavorable impact in the aggregate.

Liquidity and Capital Resources

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

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

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

March 31, 2022 December 31, 2021

Cash and cash equivalents $ 327 $ 274

Total debt (1)

2,398,502 2,896,676 3,133,465

Current maturities (2)

37,117 58,810 97,584

Capacity under credit facilities (3)

3,150,000 3,260,000 3,260,000

Availability under credit facilities (3)

1,637,753 2,546,081 2,270,953

Total liquidity (cash and cash equivalents plus availability under credit facilities) 1,595 1,468

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

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

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

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

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

(1) Debt amounts reflect the gross values to be repaid (excluding debt issuance costs of $10 million and $12 million as of March 31, 2022 and December 31, 2021, respectively).

(2) Debt amounts reflect the gross values to be repaid in the next 12 months (excluding debt issuance costs of immaterial amounts as of March 31, 2022 and December 31, 2021).

(3) Capacity under credit facilities includes our revolving credit facilities and availability under credit facilities is reduced by our outstanding letters of credit.

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

Our primary sources of liquidity are cash flows from operations and our credit facilities.

We utilize our cash flows from operations to fund working capital and capital expenditures, with the excess amounts going towards funding acquisitions, paying down outstanding debt or repurchasing our common stock.

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

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

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

• Senior secured credit facilities maturing in January 2024, composed of $3.15 billion in revolving credit ($1.4 billion outstanding at September 30, 2021), bearing interest at variable rates, with availability reduced by $69 million of amounts outstanding under letters of credit

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

As of March 31, 2022, we had debt outstanding and additional available sources of financing as follows:

• Senior secured credit facilities maturing in January 2024, composed of $3,150 million in revolving credit ($1,813 million outstanding at March 31, 2022), bearing interest at variable rates, with availability reduced by $69 million of amounts outstanding under letters of credit

• Euro Notes (2024) totaling $553 million (€500 million), maturing in April 2024 and bearing interest at a 3.875% fixed rate

• Euro Notes (2028) totaling $277 million (€250 million) maturing in April 2028 and bearing interest at a 4.125% fixed rate

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

Combined with $403 million of cash and cash equivalents at September 30, 2021, we had approximately $2.0 billion in available liquidity, a decrease of $818 million from our available liquidity as of December 31, 2020.

On April 1, 2021, we redeemed the Euro Notes (2026) with proceeds from borrowings on our revolving credit facility and cash on hand, resulting in a decrease in available liquidity compared to December 31, 2020.

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

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

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

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

As of March 31, 2022, we had approximately $1,268 million available under our credit facilities.

Combined with $327 million of cash and cash equivalents at March 31, 2022, we had approximately $1,595 million i n available liquidity, an increase of $127 million from our available liquidity as of December 31, 2021.

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

To support our liquidity position during the COVID-19 pandemic, we focused on preserving cash during the expected period of reduced demand.

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

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

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

Our 2022 plan includes further spending to rebuild inventory levels, support growth driven capital projects, and complete strategic acquisitions.

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

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

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

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

A summary of the dividend activity for our common stock for the three months ended March 31, 2022 is as follows:

Dividend Amount Declaration Date Record Date Payment Date

$0.25 February 15, 2022 March 3, 2022 March 24, 2022

On April 26, 2022, our Board of Directors declared a quarterly cash dividend of $0.25 per share of common stock, payable on June 2, 2022, to stockholders of record at the close of business on May 19, 2022.

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

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

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

With $2.0 billion of total liquidity as of September 30, 2021 and $37 million of current maturities, we have access to funds to meet our near term commitments even if the pandemic effect extends longer than our current expectations.

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

With $1,595 million of total liquidity as of March 31, 2022 and $31 million of current maturities, we have access to funds to meet our near term commitments.

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

Our total liquidity inclu des availability under our senior secured credit facility, which includes the two financial maintenance covenants presented below (our required debt covenants and our actual ratios with respect to those covenants as calculated per the credit agreement as of September 30, 2021):

Covenant Level Ratio Achieved as of September 30, 2021

Furthermore, in April 2022, we received $362 million in gross proceeds related to the PGW sale, which increased our cash liquidity.

Covenant Level Ratio Achieved as of March 31, 2022

Maximum net leverage ratio 4.00 :

Minimum interest coverage ratio 3.00 :

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

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

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

We were in compliance with all restrictive covenants under our credit agreement as of September 30, 2021.

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

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

With the amendment and strong cash flow generation since the pandemic began, we believe that we have significantly reduced the risk of a covenant br each, including by reducing our net leverage ratio relative to the second quarter of 2020 in each successive quarter.

We were in compliance with all restrictive covenants under our credit agreement as of March 31, 2022.

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

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

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

In the long term, while we believe that we have adequate capacity under our existing credit facilities, from time to time we may need to raise additional funds through public or private financing, strategic relationships or other arrangements, such as (i) our November 2018 amendment to our senior secured credit facility and (ii) the issuance of the "Euro Notes (2026)" and the "Euro Notes (2028)" in April 2018 related to the Stahlgruber acquisition.

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

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

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

We expect more suppliers will begin participating in our European supply chain financing initiative in 2022.

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

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

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

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

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

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

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

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

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

Borrowings under the credit agreement accrue interest at variable rates which are tied to various indices, depending on the currency and the duration of the borrowing, plus an applicable margin rate that is subject to change quarterly based on our reported leverage ratio.

Our borrowings in U.S.

dollars continue to accrue interest at LIBOR until a replacement rate is specified, which is expected to occur prior to June 2023.

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

3 unchanged sentences

These derivative transactions are described in Note 9, "Derivative Instruments and Hedging Activities," to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q.

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

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

Cash interest payments were $53 million for the nine months ended September 30, 2021, including interest payments on our Euro Notes (2024) and Euro Notes (2028) as well as the interest owed when we settled the Euro Notes (2026).

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

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

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

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

Three months ending December 31, 2021 (1) :

As of March 31, 2022, we did not have any of these contracts outstanding.

The weighted average interest rate on

borrowings outstanding under our credit agreement was 1.2% at March 31, 2022.

Including our senior notes, our overall weighted average interest rate on borrowings was 2.1% at March 31, 2022.

We had outstanding credit agreement borrowin gs of $1,813 million and $1,887 million at March 31, 2022 and December 31, 2021, respectively.

Of these amounts, t here were no current maturities at March 31, 2022 or December 31, 2021.

The scheduled maturities of long-term obligations outstanding at March 31, 2022 are as follows (in millions):

Nine months ending December 31, 2022 (1)

Years ending December 31:

2024 2,030,283

Thereafter 291

Total debt (2)

(1) Maturities of long-term obligations due by December 31, 2021 includes $20 million of short-term debt that may be extended beyond the current due date.

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

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

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

(1) Long-term obligations maturing by December 31, 2022 include $14 million of short-term debt that may be extended beyond the current year ending December 31, 2022.

(2) The total debt amounts presented above reflect the gross values to be repaid (excluding debt issuance costs of $10 million as of March 31, 2022).

As of March 31, 2022, the Company had cash and cash equivalents of $327 million, of which $237 million was held by foreign subsidiaries.

In general, it is our practice and intention to permanently reinvest the undistributed earnings of our foreign subsidiaries.

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

2 unchanged sentences

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

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

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

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

1 unchanged sentence

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

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

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 Change 2021 2020 Change

North America $ 276,000 $ 270,600 $ 5,400 $ 798,100 $ 760,600 $ 37,500 (1)

Europe 961,600 940,400 21,200

The following table sets forth a summary of our aftermarket and manufactured inventory procurement for the three months ended March 31, 2022 and 2021 (in millions):

Three Months Ended March 31,

2022 2021 Change

Wholesale - North America

$ 317 $ 260 $ 57 (1)

Europe 955 894 61 (2)

Specialty 403 391 12 (3)

Total $ 1,675 $ 1,545 $ 130

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

We are rebuilding our inventory levels after decreases in 2020 due to the COVID-19 pandemic, however, they did not reach our desired levels in the first nine months of 2021 due to ocean freight driven delays in shipping and overall pandemic driven lower production volumes.

(2) The increase in inventory purchases in our Europe segment included an increase of $168 million attributable to the increase in the value of the euro, and to a lesser extent, the pound sterling in the nine months ended September 30, 2021 compared to the prior year period.

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

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

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

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

Three Months Ended Nine Months Ended

September 30, September 30,

2021 2020 % Change 2021 2020 % Change

North America wholesale salvage cars and trucks 61 57 7.0 % 174 165 5.5 %

Europe wholesale salvage cars and trucks 6 6 0.0 % 19 18 5.6 %

Self service and "crush only" cars 138 148 (6.8) % 414 434 (4.6) %

Salvage purchases increased relative to the prior year due to reduced buying in the prior year to reflect lower demand during the COVID-19 pandemic.

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

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

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

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

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

(1) Inventory purchases across the Wholesale - North America segment increased in the three months ended March 31, 2022 compared to the prior year period primarily due to required restocking to keep up with the high demand for our products.

Our inventory purchases did not reach our desired levels in the first three months of 2022 due to ocean freight driven delays in shipping.

(2) The increase in inventory purchases in our Europe segment included a decrease of $53 million attributable to the decrease in the value of the euro, and to a lesser extent, the pound sterling in the three months ended March 31, 2022 compared to the prior year period.

On a constant currency basis, inventory purchases increased compared to the prior year period, due to required restocking to keep up with the high demand for our products as well as purchases to improve availability for customers in certain regions.

(3) The increase in inventory purchases in the Specialty segment compared to the prior year period was primarily due to inventory purchases made by acquired companies.

These companies were not acquired until the second half of 2021.

The following table sets forth a summary of our global wholesale salvage and self service procurement for the three months ended March 31, 2022 and 2021 (in thousands):

Three Months Ended March 31,

2022 2021 % Change

Wholesale - North America salvage vehicles 60 50 20 %

Europe wholesale salvage vehicles 8 7 14 %

Self Service salvage vehicles 135 137 (1) %

Wholesale - North America salvage purchases in 2022 increased relative to the prior year due to limitations in the prior year on vehicles at auctions .

Self service vehicle purchases in 2022 were roughly flat year over year.

We expect to increase inventory purchases in 2022 to support the service and fill rate requirements of our businesses based on the revenue trend and expectations for full year 2022, including normal seasonality as supply chain challenges in 2021 deferred a portion of the inventory build to 2022 (although if supply chain challenges continue our ability to increase inventory purchases to the desired level could be affected).

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

Operating Cash

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

Increase (decrease) due to:

Operating income 476 (1)

Cash paid for taxes 88 (1)

Cash paid for interest

Working capital accounts:

Receivables, net (32)

Inventories (85)

Accounts payable (22)

Other operating activities (63) (3)

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

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

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

federal and state income taxes due to a projected increase in

pretax income and the timing of estimated tax payments.

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

Net cash provided by operating activities for the three months ended March 31, 2022 $ 409

(1) Cash payments related to income taxes were lower for U.S.

federal and state income taxes due to the timing of estimated tax payments.

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

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

Inventories represented $588 million in incremental cash outflows in the first nine months of 2021 compared to the same period of 2020.The change is primarily attributable to the reduction in inventory purchases during 2020 as we scaled back buying in the recognition of demand changes.

Additionally, we expected a larger cash outflow in the first nine months of 2021 as we worked to rebuild our inventory levels, but as described in the procurement section above, we were delayed in doing so.

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

• Receivables, net was a $32 million greater outflow in 2022 primarily due to an increase in the revenue for the three months ended March 31, 2022 compared to the three months ended March 31, 2021, which translated to higher receivables balances and larger net outflows in the Wholesale - North America segment of $43 million and in the Europe segment of $32 million.

We had a smaller cash outflow in the Specialty segment of $42 million compared to prior period due to lower revenue.

• Inventories represented $85 million in incremental cash outflows in the first three months of 2022 compared to the same period of 2021.

The change is primarily attributable to increased inventory purchases in the current year as a result of strong demand and strategic inventory purchases to curb the impacts of supply chain constraints.

• Accounts payable produced $22 million in lower cash inflows primarily due to timing of payments with lower accounts payable balances in our Europe segment of $78 million and Specialty segment of $31 million, partially offset by higher accounts payable balances in our Wholesale - North America segment of $86 million.

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

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

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

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

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

Nine Months Ended

September 30,

Net cash used in investing activities tota led $63 million a nd $33 million during the three months ended March 31, 2022 and 2021, respectively.

Property, plant and equipment purchases were $59 million in the three months ended March 31, 2022 compared to $42 million in the prior year period, primarily driven by capital projects in our Wholesale - North America segment.

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

Three Months Ended March 31,

Net cash provided by operating activities $ 409 $ 523

purchases of property, plant and equipment 59 42

132,705 109,949

Free cash flow $ 350 $ 481

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

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

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

Notes, respectively.

We repurchased $575 million of our common stock in the nine months ended September 30, 2021 (reflecting the cash outflow for transactions that settled in the period), compared to $88 million in the nine months ended September 30, 2020.

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

Net cash used in financing activities totaled $278 million and $208 million for the three months ended March 31, 2022 and 2021, respectively.

During the three months ended March 31, 2022, net repayments of our borrowings totaled $53 million compared to $83 million during the three months ended March 31, 2021.

We repurcha sed $144 million o f our common stock in the three months ended March 31, 2022, compared to $57 million in the three months ended March 31, 2021.

In January 2021, we settled our cross currency swap and other foreign exchange forward contracts with the counterparties for $57 million due primarily to strengthening in the Euro exchange rate relative to the contract rate.

We also pai d $71 million in dividends to our stockholders in the three months ended March 31, 2022 (no dividends were paid in the three months ended March 31, 2021).

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

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

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

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

What changed 10-Q

Item 2. Management’s Discussion and Analysis