UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________________________________

FORM 10-Q

____________________________


☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~June 30, 2021~~March 31, 2022


☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission File Number: 000-50404

____________________________

LKQ CORPORATION

(Exact name of registrant as specified in its charter)

____________________________

Delaware

36-4215970

(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)

500 West Madison Street,

Suite 2800

Chicago,

Illinois

60661

(Address of principal executive offices)

(Zip Code)

Registrant’s telephone number, including area code: (312) 621-1950

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class

Trading Symbol(s)

Name of each exchange on which registered

Common Stock, par value $.01 per share

LKQ

NASDAQ

Global Select Market

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.


Large Accelerated Filer	☒	Accelerated Filer	☐
Non-accelerated Filer	☐	Smaller Reporting Company	☐
Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

At ~~July 30, 2021~~April 29, 2022, the registrant had outstanding an aggregate of ~~293,875,364~~282,832,938 shares of Common Stock.

*****

TABLE OF CONTENTS


Item		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Unaudited Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2022 and 2021	3
	Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2022 and 2021	4
	Unaudited Condensed Consolidated Balance Sheets as of March 31, 2022 and December 31, 2021	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2022 and 2021	6
	Unaudited Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2022 and 2021	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	26
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41
Item 4.	Controls and Procedures	42
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	43
Item 1A.	Risk Factors	43
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43
Item 6.	Exhibits	44
SIGNATURES		45

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Income

(In ~~thousands,~~millions, except per share data)

Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
Revenue $ 3,435,114 $ 2,626,323 $ 6,605,900 $ 5,627,258
Cost of goods sold 2,019,405 1,615,319 3,896,477 3,402,378
Gross margin 1,415,709 1,011,004 2,709,423 2,224,880
Selling, general and administrative expenses 901,667 737,369 1,750,232 1,637,180
Restructuring and acquisition related expenses 5,069 24,950 12,954 31,920
(Gain) loss on disposal of businesses and impairment of net assets held for sale (597) 2,485 (582) 2,236
Depreciation and amortization 64,896 65,747 130,697 131,242
Operating income 444,674 180,453 816,122 422,302
Other expense (income):
Interest expense, net of interest income 16,172 25,616 40,351 51,547
Loss on debt extinguishment 23,564 0 23,564 12,751
Other income, net (4,311) (8,174) (10,524) (11,796)
Total other expense, net 35,425 17,442 53,391 52,502
Income from continuing operations before provision for income taxes 409,249 163,011 762,731 369,800
Provision for income taxes 107,719 41,869 200,688 102,280
Equity in earnings (losses) of unconsolidated subsidiaries 3,478 (2,649) 9,297 (2,133)
Income from continuing operations 305,008 118,493 571,340 265,387
Net income (loss) from discontinued operations 0 277 0 (638)
Net income 305,008 118,770 571,340 264,749
Less: net income (loss) attributable to continuing noncontrolling interest 384 (22) 803 718
Less: net income attributable to discontinued noncontrolling interest 0 0 0 103
Net income attributable to LKQ stockholders $ 304,624 $ 118,792 $ 570,537 $ 263,928
Basic earnings per share: (1)
Income from continuing operations $ 1.01 $ 0.39 $ 1.89 $ 0.87
Net income (loss) from discontinued operations 0 0.00 0 (0.00)
Net income 1.01 0.39 1.89 0.87
Less: net income (loss) attributable to continuing noncontrolling interest 0.00 (0.00) 0.00 0.00
Less: net income attributable to discontinued noncontrolling interest 0 0 0 0.00
Net income attributable to LKQ stockholders $ 1.01 $ 0.39 $ 1.89 $ 0.86
Diluted earnings per share: (1)
Income from continuing operations $ 1.01 $ 0.39 $ 1.89 $ 0.87
Net income (loss) from discontinued operations 0 0.00 0 (0.00)
Net income 1.01 0.39 1.89 0.87
Less: net income (loss) attributable to continuing noncontrolling interest 0.00 (0.00) 0.00 0.00
Less: net income attributable to discontinued noncontrolling interest 0 0 0 0.00
Net income attributable to LKQ stockholders $ 1.01 0.39 $ 1.89 $ 0.86


	Three Months Ended March 31,
	2022		2021
Revenue	$	3,348	$	3,171
Cost of goods sold	1,991		1,877

Gross margin	1,357		1,294
Selling, general and administrative expenses	924		849
Restructuring and transaction related expenses	3		8

Depreciation and amortization	59		66

Operating income	371		371
Other expense (income):
Interest expense, net of interest income	15		24

Other income, net	—		(6)
Total other expense, net	15		18
Income from continuing operations before provision for income taxes	356		353
Provision for income taxes	89		93
Equity in earnings of unconsolidated subsidiaries	2		6
Income from continuing operations	269		266
Net income from discontinued operations	4		—
Net income	$	273	$	266




Basic earnings per share: (1)
Income from continuing operations	$	0.94	$	0.88
Net income from discontinued operations	0.02		—
Net income	$	0.96	$	0.88




Diluted earnings per share: (1)
Income from continuing operations	$	0.94	$	0.88
Net income from discontinued operations	0.02		—
Net income	$	0.95	$	0.88

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

The accompanying notes are an integral part of the ~~unaudited condensed consolidated financial statements.~~Unaudited Condensed Consolidated Financial Statements.

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Comprehensive Income

(In ~~thousands)~~millions)

Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
Net income $ 305,008 $ 118,770 $ 571,340 $ 264,749
Less: net income (loss) attributable to continuing noncontrolling interest 384 (22) 803 718
Less: net income attributable to discontinued noncontrolling interest 0 0 0 103
Net income attributable to LKQ stockholders 304,624 118,792 570,537 263,928
Other comprehensive income (loss):
Foreign currency translation, net of tax 21,864 31,334 (2,708) (72,631)
Net change in unrealized gains/losses on cash flow hedges, net of tax 211 (31) 869 (7,352)
Net change in unrealized gains/losses on pension plans, net of tax 313 1,875 626 1,995
Other comprehensive income (loss) from unconsolidated subsidiaries 2,644 962 (868) (890)
Other comprehensive income (loss) 25,032 34,140 (2,081) (78,878)
Comprehensive income 330,040 152,910 569,259 185,871
Less: comprehensive income (loss) attributable to continuing noncontrolling interest 384 (22) 803 718
Less: comprehensive income attributable to discontinued noncontrolling interest 0 0 0 103
Comprehensive income attributable to LKQ stockholders $ 329,656 $ 152,932 $ 568,456 $ 185,050


	Three Months Ended March 31,
	2022		2021
Net income	$	273	$	266




Other comprehensive (loss) income:
Foreign currency translation, net of tax	(54)		(25)
Net change in unrealized gains/losses on cash flow hedges, net of tax	—		1

Other comprehensive income (loss) from unconsolidated subsidiaries	1		(3)
Other comprehensive loss	(53)		(27)

Comprehensive income	$	220	$	239

The accompanying notes are an integral part of the ~~unaudited condensed consolidated financial statements.~~Unaudited Condensed Consolidated Financial Statements.

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

(In ~~thousands,~~millions, except ~~share and~~ per share data)

June 30, December 31,
2021 2020
Assets
Current assets:
Cash and cash equivalents $ 328,700 $ 312,154
Receivables, net 1,225,735 1,073,389
Inventories 2,394,147 2,414,612
Prepaid expenses and other current assets 219,952 233,877
Total current assets 4,168,534 4,034,032
Property, plant and equipment, net 1,207,156 1,248,703
Operating lease assets, net 1,368,143 1,353,124
Intangible assets:
Goodwill 4,568,087 4,591,569
Other intangibles, net 768,471 814,219
Equity method investments 168,467 155,224
Other noncurrent assets 189,201 163,662
Total assets $ 12,438,059 $ 12,360,533
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 1,191,250 $ 932,406
Accrued expenses:
Accrued payroll-related liabilities 214,288 208,718
Refund liability 106,331 102,148
Other accrued expenses 363,891 334,890
Other current liabilities 110,500 130,021
Current portion of operating lease liabilities 201,071 221,811
Current portion of long-term obligations 90,825 58,497
Total current liabilities 2,278,156 1,988,491
Long-term operating lease liabilities, excluding current portion 1,215,279 1,197,963
Long-term obligations, excluding current portion 2,360,685 2,812,641
Deferred income taxes 285,426 291,421
Other noncurrent liabilities 380,427 374,640
Commitments and contingencies
Redeemable noncontrolling interest 24,077 24,077
Stockholders' equity:
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 321,260,012 shares issued and 296,287,913 shares outstanding at June 30, 2021; 320,867,602 shares issued and 303,553,000 shares outstanding at December 31, 2020 3,212 3,208
Additional paid-in capital 1,458,993 1,444,584
Retained earnings 5,346,577 4,776,040
Accumulated other comprehensive loss (101,090) (99,009)
Treasury stock, at cost; 24,972,099 shares at June 30, 2021 and 17,314,602 shares at December 31, 2020 (829,768) (469,105)
Total Company stockholders' equity 5,877,924 5,655,718
Noncontrolling interest 16,085 15,582
Total stockholders' equity 5,894,009 5,671,300
Total liabilities and stockholders' equity $ 12,438,059 $ 12,360,533


	March 31, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	327	$	274
Receivables, net	1,239		1,073
Inventories	2,573		2,611
Assets held for sale	290		2
Prepaid expenses and other current assets	253		294

Total current assets	4,682		4,254
Property, plant and equipment, net	1,256		1,299
Operating lease assets, net	1,301		1,361
Goodwill	4,426		4,540
Other intangibles, net	715		746
Equity method investments	179		181
Other noncurrent assets	219		225
Total assets	$	12,778	$	12,606
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	1,370	$	1,176
Accrued expenses:
Accrued payroll-related liabilities	219		261
Refund liability	106		107

Other accrued expenses	330		271

Liabilities held for sale	127		—
Current portion of operating lease liabilities	192		203
Current portion of long-term obligations	31		35
Other current liabilities	120		112

Total current liabilities	2,495		2,165
Long-term operating lease liabilities, excluding current portion	1,161		1,209
Long-term obligations, excluding current portion	2,680		2,777
Deferred income taxes	270		279
Other noncurrent liabilities	349		365
Commitments and contingencies
Redeemable noncontrolling interest	24		24
Stockholders' equity:
Common stock, $0.01 par value, 1,000.0 shares authorized, 322.0 shares issued and 284.7 shares outstanding at March 31, 2022; 321.6 shares issued and 287.0 shares outstanding at December 31, 2021	3		3
Additional paid-in capital	1,482		1,474
Retained earnings	5,995		5,794
Accumulated other comprehensive loss	(206)		(153)
Treasury stock, at cost; 37.3 shares at March 31, 2022 and 34.6 shares at December 31, 2021	(1,490)		(1,346)
Total Company stockholders' equity	5,784		5,772
Noncontrolling interest	15		15
Total stockholders' equity	5,799		5,787
Total liabilities and stockholders' equity	$	12,778	$	12,606

The accompanying notes are an integral part of the ~~unaudited condensed consolidated financial statements.~~Unaudited Condensed Consolidated Financial Statements.

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

(In ~~thousands)~~millions)

Six Months Ended
June 30,
2021 2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 571,340 $ 264,749
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 142,340 144,309
Stock-based compensation expense 16,793 15,763
Loss on debt extinguishment 23,564 12,751
Other (24,516) (1,318)
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions:
Receivables, net (161,334) (5,111)
Inventories 7,284 445,493
Prepaid income taxes/income taxes payable (18,800) 84,125
Accounts payable 284,472 (172,140)
Other operating assets and liabilities 91,947 124,431
Net cash provided by operating activities 933,090 913,052
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (87,854) (77,301)
Proceeds from disposals of property, plant and equipment 11,820 6,110
Acquisitions, net of cash acquired (29,480) (5,465)
Other investing activities, net (3,502) 685
Net cash used in investing activities (109,016) (75,971)
CASH FLOWS FROM FINANCING ACTIVITIES:
Early-redemption premium (16,014) (9,498)
Repayment of Euro Notes (2026) (883,275) 0
Repayment of U.S. Notes (2023) 0 (600,000)
Borrowings under revolving credit facilities 3,613,568 494,485
Repayments under revolving credit facilities (2,792,867) (601,480)
Repayments under term loans (323,750) (8,750)
Borrowings under receivables securitization facility 0 111,300
Repayments under receivables securitization facility 0 (111,300)
Borrowings (repayments) of other debt, net 39,533 (66,073)
Settlement of derivative instruments, net (88,743) 0
Purchase of treasury stock (343,830) (88,006)
Other financing activities, net (13,329) (10,832)
Net cash used in financing activities (808,707) (890,154)
Effect of exchange rate changes on cash, cash equivalents and restricted cash 1,179 (5,358)
Net increase (decrease) in cash, cash equivalents and restricted cash 16,546 (58,431)
Cash, and cash equivalents of continuing operations, beginning of period (1)
312,154 528,387
Add: Cash, and cash equivalents of discontinued operations, beginning of period 0 6,470
Cash, and cash equivalents of continuing and discontinued operations, beginning of period 312,154 534,857
Cash, and cash equivalents, end of period $ 328,700 $ 476,426
(1) The balance as of January 1, 2020 included restricted cash of $5 million.


	Three Months Ended March 31,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	273	$	266
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	65		72


Stock-based compensation expense	13		8

Other	(4)		(9)
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions:
Receivables, net	(230)		(198)
Inventories	(98)		(13)
Prepaid income taxes/income taxes payable	60		(21)
Accounts payable	309		331
Other operating assets and liabilities	21		87
Net cash provided by operating activities	409		523
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(59)		(42)
Proceeds from disposals of property, plant and equipment	2		8



Other investing activities, net	(6)		1
Net cash used in investing activities	(63)		(33)
CASH FLOWS FROM FINANCING ACTIVITIES:

Borrowings under revolving credit facilities	289		1,288
Repayments under revolving credit facilities	(334)		(1,392)
Repayments under term loans	—		(4)



(Repayments) borrowings of other debt, net	(8)		26
Settlement of derivative instruments, net	—		(57)
Dividends paid to LKQ stockholders	(71)		—
Purchase of treasury stock	(144)		(57)
Other financing activities, net	(10)		(12)
Net cash used in financing activities	(278)		(208)
Effect of exchange rate changes on cash and cash equivalents	(6)		(4)
Net increase in cash and cash equivalents, including cash classified within current assets held for sale	62		278
Less: increase in cash classified within current assets held for sale	9		—
Net increase in cash and cash equivalents	53		278
Cash and cash equivalents, beginning of period	274		312
Cash and cash equivalents, end of period	$	327	$	590

Supplemental disclosure of cash paid for:
Income taxes, net of refunds	$	28	$	116
Interest	$	6	$	6

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

Six Months Ended
June 30,
2021 2020
Supplemental disclosure of cash paid for:
Income taxes, net of refunds $ 226,400 $ 24,452
Interest 45,184 55,910
Supplemental disclosure of noncash investing and financing activities:
Leased assets obtained in exchange for finance lease liabilities $ 4,279 $ 8,225
Leased assets obtained in exchange for operating lease liabilities 137,129 90,961
Noncash property, plant and equipment and software intangible additions in accounts payable and other accrued expenses 8,878 7,200
Notes payable and other financing obligations, including notes issued and debt assumed in connection with business acquisitions and disposals 2,556 6,136
Notes receivable and contingent consideration receivable acquired in connection with disposal of business 0 8,549
Contingent consideration liabilities 0 3,045

~~The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.~~Unaudited Condensed Consolidated Financial Statements.

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Stockholders' Equity

(In ~~thousands)~~

LKQ Stockholders
Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Accumulated
Other
Comprehensive (Loss) Income Noncontrolling Interest Total Stockholders' Equity
Shares Amount Shares Amount
BALANCE, April 1, 2021 321,171 $ 3,212 (18,801) $ (526,084) $ 1,449,667 $ 5,041,953 $ (126,122) $ 16,001 $ 5,858,627
Net income — — — — — 304,624 — 384 305,008
Other comprehensive income — — — — — — 25,032 — 25,032
Purchase of treasury stock — — (6,171) (303,684) — — — — (303,684)
Vesting of restricted stock units, net of shares withheld for employee tax 89 0 — — 325 — — — 325
Stock-based compensation expense — — — — 9,001 — — — 9,001
Capital contributions from, net of dividends declared to, noncontrolling interest shareholder — — — — — — — (142) (142)
Foreign currency translation adjustment on noncontrolling interest — — — — — — — (158) (158)
BALANCE, June 30, 2021 321,260 $ 3,212 (24,972) $ (829,768) $ 1,458,993 $ 5,346,577 $ (101,090) $ 16,085 $ 5,894,009
millions, except per share data)

LKQ Stockholders
Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Accumulated
Other
Comprehensive (Loss) Income Noncontrolling Interest Total Stockholders' Equity
Shares Amount Shares Amount
BALANCE, April 1, 2020 320,439 $ 3,204 (16,496) $ (439,819) $ 1,425,600 $ 4,282,753 $ (313,903) $ 29,484 $ 4,987,319
Net income (loss) — — — — — 118,792 — (22) 118,770
Other comprehensive income — — — — — — 34,140 — 34,140
Vesting of restricted stock units, net of shares withheld for employee tax 91 1 — — (57) — — — (56)
Stock-based compensation expense — — — — 7,795 — — — 7,795
Capital contributions from, net of dividends declared to, noncontrolling interest shareholder — — — — — — — (27) (27)
BALANCE, June 30, 2020 320,530 $ 3,205 (16,496) $ (439,819) $ 1,433,338 $ 4,401,545 $ (279,763) $ 29,435 $ 5,147,941


	LKQ Stockholders
	Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
Balance as of January 1, 2022	321.6	$	3	(34.6)	$	(1,346)	$	1,474	$	5,794	$	(153)	$	15	$	5,787
Net income	—	—		—	—		—		273		—		—		273
Other comprehensive loss	—	—		—	—		—		—		(53)		—		(53)
Purchase of treasury stock	—	—		(2.7)	(144)		—		—		—		—		(144)
Vesting of restricted stock units, net of shares withheld for employee tax	0.4	—		—	—		(5)		—		—		—		(5)
Stock-based compensation expense	—	—		—	—		13		—		—		—		13

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




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


	LKQ Stockholders
	Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
Balance as of January 1, 2021	320.9	$	3	(17.3)	$	(469)	$	1,444	$	4,776	$	(99)	$	16	$	5,671
Net income	—	—		—	—		—		266		—		—		266
Other comprehensive loss	—	—		—	—		—		—		(27)		—		(27)
Purchase of treasury stock	—	—		(1.5)	(57)		—		—		—		—		(57)
Vesting of restricted stock units, net of shares withheld for employee tax	0.3	—		—	—		(2)		—		—		—		(2)
Stock-based compensation expense	—	—		—	—		8		—		—		—		8






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

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

~~LKQ CORPORATION AND SUBSIDIARIES~~

Unaudited Condensed Consolidated ~~Statements of Stockholders' Equity~~Financial Statements.

~~(In thousands)~~

LKQ Stockholders
Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Accumulated
Other
Comprehensive Loss Noncontrolling Interest Total Stockholders' Equity
Shares Amount Shares Amount
BALANCE, January 1, 2021 320,868 $ 3,208 (17,315) $ (469,105) $ 1,444,584 $ 4,776,040 $ (99,009) $ 15,582 $ 5,671,300
Net income — — — — — 570,537 — 803 571,340
Other comprehensive loss — — — — — — (2,081) — (2,081)
Purchase of treasury stock — — (7,657) (360,663) — — — — (360,663)
Vesting of restricted stock units, net of shares withheld for employee tax 392 4 — — (2,384) — — — (2,380)
Stock-based compensation expense — — — — 16,793 — — — 16,793
Capital contributions from, net of dividends declared to, noncontrolling interest shareholder — — — — — — — (142) (142)
Foreign currency translation adjustment on noncontrolling interest — — — — — — — (158) (158)
BALANCE, June 30, 2021 321,260 $ 3,212 (24,972) $ (829,768) $ 1,458,993 $ 5,346,577 $ (101,090) $ 16,085 $ 5,894,009

LKQ Stockholders
Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Accumulated
Other
Comprehensive Loss Noncontrolling Interest Total Stockholders' Equity
Shares Amount Shares Amount
BALANCE, January 1, 2020 319,927 $ 3,199 (13,196) $ (351,813) $ 1,418,239 $ 4,140,136 $ (200,885) $ 39,704 $ 5,048,580
Net income — — — — — 263,928 — 821 264,749
Other comprehensive loss — — — — — — (78,878) — (78,878)
Purchase of treasury stock — — (3,300) (88,006) — — — — (88,006)
Vesting of restricted stock units, net of shares withheld for employee tax 491 5 — — (2,130) — — — (2,125)
Stock-based compensation expense — — — — 15,763 — — — 15,763
Exercise of stock options 112 1 — — 1,466 — — — 1,467
Capital contributions from, net of dividends declared to, noncontrolling interest shareholder — — — — — — — 314 314
Adoption of ASU 2016-13 — — — — — (2,519) — — (2,519)
Disposition of subsidiary with noncontrolling interests(1)
— — — — — — — (11,404) (11,404)
BALANCE, June 30, 2020 320,530 $ 3,205 (16,496) $ (439,819) $ 1,433,338 $ 4,401,545 $ (279,763) $ 29,435 $ 5,147,941

~~(1)~~ ~~The amount disposed of during 2020 relates to discontinued operations. See Note 2, "Discontinued Operations," for further details.~~

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

LKQ CORPORATION AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Interim Financial Statements

~~The accompanying unaudited condensed consolidated financial statements represent the consolidation of~~

LKQ Corporation, a Delaware corporation, ~~and its subsidiaries. LKQ Corporation~~ is a holding company and all operations are conducted by subsidiaries. When the terms "LKQ," "the Company," "we," "us," or "our" are used in this document, those terms refer to LKQ Corporation and its consolidated subsidiaries.

We have prepared the accompanying ~~unaudited condensed consolidated financial statements~~Unaudited Condensed Consolidated Financial Statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC") applicable to interim financial statements. Accordingly, certain information related to our significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted. These ~~unaudited condensed consolidated financial statements~~Unaudited Condensed Consolidated Financial Statements reflect, in the opinion of management, all material adjustments (which include only normally recurring adjustments) necessary to fairly state, in all material respects, our financial position, results of operations and cash flows for the periods presented.

Results for interim periods are not necessarily indicative of the results that can be expected for any subsequent interim period or for a full year. These interim financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, ~~2020~~2021 filed with the SEC on February ~~26,~~ 25, 2022 ("2021 ~~("2020~~ Form 10-K").

~~The coronavirus disease 2019 ("COVID-19") pandemic and~~

In the ~~resulting governmental actions taken to control~~current year, we changed the virus have impacted, and are expected to continue to impact, our business in 2020 and 2021. The effects include, but are not limited to, a reduction in demand for our products and services relative to 2019, liquidity challenges for certainpresentation of our ~~customers~~Unaudited Condensed Consolidated Financial Statements from thousands to millions and, ~~suppliers, and organizational changes, such~~ as ~~personnel reductions and route consolidation undertaken mostly in 2020, driven by cost actions~~a result, any necessary rounding adjustments have been made to mitigate the revenue decline. We have considered COVID-19 impacts in the preparation of our financial statements and footnotes. Specific disclosures are presented in the following footnotes as applicable.

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

~~Note 2. Discontinued Operations~~

On May 30, 2018, we acquired Stahlgruber GmbH ("Stahlgruber"), a leading European wholesale distributor of aftermarket spare parts for passenger cars, tools, capital equipment and accessories with operations in Germany, Austria, Italy, Slovenia, and Croatia, with further sales to Switzerland. Prior to closing, on May 3, 2018, the European Commission cleared the acquisition of Stahlgruber for the entire European Union, except with respect to the wholesale automotive parts business in the Czech Republic. The acquisition of Stahlgruber’s Czech Republic wholesale business was referred to the Czech Republic competition authority for review. On May 10, 2019, the Czech Republic competition authority approved our acquisition of Stahlgruber’s Czech Republic wholesale business subject to the requirement that we divest certain of the acquired locations. We acquired Stahlgruber’s Czech Republic wholesale business on May 29, 2019 and decided to divest all of the acquired locations. We immediately classified the business as discontinued operations because the business was never integrated into our Europe segment.

We completed the sale of Stahlgruber's Czech Republic business on February 28, 2020, resulting in an immaterial loss on sale (presented in Net (loss) income from discontinued operations in the Unaudited Condensed Consolidated Statements of Income). As part of the transaction, we purchased the 48.2% noncontrolling interest from the minority shareholder for a purchase price of €8 million, which included the issuance of €4 million of notes payable, and then immediately thereafter sold 100% of the business for a purchase price of €14 million, which included €7 million of notes receivable. This transaction resulted in a disposition of noncontrolling interest of $11 million. From January 1, 2020 through the date of sale, we recorded an immaterial amount of net income (excluding the loss on sale) from discontinued operations related to the business, of which an immaterial amount was attributable to the noncontrolling interest.

Note 3.2. Financial Statement Information

Allowance for Credit Losses

Receivables, net are reported net of an allowance for credit losses. Management evaluates the aging of customer receivable balances, the financial condition of our customers, historical trends, and macroeconomic factors to estimate the

amount of customer receivables that may not be collected in the future and records a provision it believes is appropriate. Our reserve for expected ~~lifetime~~ credit losses was ~~$69~~$58 million and ~~$70~~$53 million as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. ~~Bad debt expense totaled $1~~The provision for credit losses was $8 million and ~~$14~~$2 million for the three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020, respectively, and $4 million and $24 million for the six months ended June 30, 2021 and 2020,~~ respectively.

Inventories

Inventories consist of the following (in ~~thousands)~~millions):


		June 30,		December 31,
		2021		2020			March 31, 2022		December 31, 2021
Aftermarket and refurbished products	Aftermarket and refurbished products	$	1,984,301	$	2,025,002	Aftermarket and refurbished products	$	2,117	$	2,168
Salvage and remanufactured products	Salvage and remanufactured products	382,565		368,815		Salvage and remanufactured products	421		406
Manufactured products	Manufactured products	27,281		20,795		Manufactured products	35		37
Total inventories	Total inventories	$	2,394,147	$	2,414,612	Total inventories	$	2,573	$	2,611

Aftermarket and refurbished products and salvage and remanufactured products are primarily composed of finished goods. As of ~~June 30,~~March 31, 2022, manufactured products inventory was composed of $25 million of raw materials, $5 million of work in process, and $5 million of finished goods. As of December 31, 2021, manufactured products inventory was composed of ~~$21~~$27 million of raw materials, $4 million of work in process, and ~~$2 million of finished goods. As of December 31, 2020, manufactured products inventory was composed of $16 million of raw materials, $3 million of work in process, and $2~~$5 million of finished goods.

Net Assets Held for Sale

In March 2022, we entered into a definitive agreement to sell PGW Auto Glass (“PGW”), our aftermarket glass business within our Wholesale - North America segment. In connection with entering into this agreement, we concluded that this disposal group met the held for sale criteria and classified PGW's assets and liabilities as held for sale. The sale was completed in April 2022 for a sales price of $362 million, subject to customary post-closing purchase price adjustments.

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


	March 31, 2022
Cash and cash equivalents	$	9
Receivables, net	47
Inventories	100
Prepaid expenses and other current assets	1
Total current assets held for sale	157
Property, plant and equipment, net	31
Operating lease assets, net	39
Goodwill	56
Other intangibles, net	6
Other noncurrent assets	1
Total assets held for sale	$	290

Accounts payable	$	83
Accrued payroll-related liabilities	2
Other accrued expenses	3
Current portion of operating lease liabilities	11
Total current liabilities held for sale	99
Long term operating lease liabilities, excluding current portion	27
Other noncurrent liabilities	1
Total liabilities held for sale	$	127

Intangible Assets

Goodwill and indefinite-lived intangible assets are tested for impairment at least annually. We performed our annual impairment test during the fourth quarter of ~~2020~~2021, and we determined no impairment existed as all of our reporting units had a fair value estimate which exceeded the carrying value by at least ~~30%~~70%. ~~Goodwill impairment testing may also be performed on an interim basis when events or circumstances arise that may lead to impairment.~~ The fair value estimates of our reporting units were established using weightings of the results of a discounted cash flow methodology and a comparative market multiples approach. Goodwill impairment testing may also be performed on an interim basis when events or circumstances arise that may lead to impairment. We did not identify ~~a triggering event~~any indicators of impairment in ~~2021~~the first quarter of 2022 that necessitated an interim test of goodwill impairment or indefinite-lived intangible assets impairment.

Investments in Unconsolidated Subsidiaries

~~Our investment~~

We account for our Investments in unconsolidated subsidiaries ~~was $168 million and $155 million as of June 30, 2021 and December 31, 2020, respectively.~~

~~Europe Segment~~

Our investment in unconsolidated subsidiaries in Europe was $147 million and $137 million as of June 30, 2021 and December 31, 2020, respectively. We recorded equity in earnings of $3 million and $9 million during the three and six months ended June 30, 2021, respectively, and equity in losses of an immaterial amount and equity in earnings of $1 million during the three and six months ended June 30, 2020, respectively, mainly related to our investment in Mekonomen AB ("Mekonomen").

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

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


	Ownership as of March 31, 2022	March 31, 2022		December 31, 2021
Mekonomen AB(1)(2)	26.6%	$	145	$	145
Other		34		36
Total		$	179	$	181

(1) As of ~~June 30, 2021,~~March 31, 2022, the fair value of our investment in Mekonomen AB ("Mekonomen") was $183 million based on the quoted market price for Mekonomen's common stock.

(2) As of March 31, 2022, our share of the book value of Mekonomen's net assets exceeded the book value of our investment ~~in Mekonomen~~ by $7$8 million; this difference is primarily related to Mekonomen's Accumulated Other Comprehensive Income balance as of our acquisition date in 2016. We ~~are recording~~record our equity in the net earnings of Mekonomen on a one quarter lag.

Mekonomen announced in March 2020 and February 2021, respectively, that the Mekonomen Board of Directors proposed no dividend payment in 2020 or 2021. The Level 1 fair value of our equity investment in the publicly traded Mekonomen common stock at June 30, 2021 was $245 million (using the Mekonomen share price of SEK 141 as of June 30, 2021) compared to a carrying value of $137 million.

~~North America Segment~~

Our investment in unconsolidated subsidiaries in the North America segment was $21 million and $19 million as of June 30, 2021 and December 31, 2020, respectively. We recorded equity in earnings of an immaterial amount for each of the three and six months ended June 30, 2021, and equity in losses of $3 million during both the three and six months ended June 30, 2020, related to our North America equity method investments.

~~Warranty Reserve~~

109

Warranty Reserve

Some of our salvage mechanical products are sold with a standard six month warranty against defects. Additionally, some of ~~our~~the remanufactured engines are sold with a standard three or four year warranty against defects. We also provide a limited lifetime warranty for certain of our aftermarket products. These assurance-type warranties are not considered a separate performance obligation, and thus no transaction price is allocated to them. We record ~~the~~ warranty costs in Cost of goods sold in our Unaudited Condensed Consolidated Statements of Income. Our warranty reserve is calculated using historical claim information to project future warranty claims activity and is recorded within Other accrued expenses and Other noncurrent liabilities on our Unaudited Condensed Consolidated Balance Sheets based on the expected timing of the related payments.

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


	Warranty Reserve
Balance as of December 31, ~~2020~~2021	$	~~27,914~~30
Warranty expense	~~37,117~~ 18
Warranty claims	~~(35,238)~~(16)


Balance as of ~~June 30, 2021~~March 31, 2022	$	~~29,793~~32

Litigation and Related Contingencies

We have certain contingencies resulting from litigation, claims and other commitments and are subject to a variety of environmental and pollution control laws and regulations incident to the ordinary course of business. We currently expect that the resolution of such contingencies will not materially affect our financial position, results of operations or cash flows.

~~Government Assistance~~

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

Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
Cost of goods sold $ 219 $ 469 $ 363 $ 469
Selling, general and administrative expenses 5,393 32,174 14,238 32,174
Total government assistance $ 5,612 $ 32,643 $ 14,601 $ 32,643

~~For the~~
~~six months ended~~ ~~June 30, 2021 and 2020, we received grants from European governments of $11 million and $28 million, respectively, with the remaining amounts related to Canada.~~

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

~~Leases - Cash Flow Disclosure~~

The amount disclosed for Leased assets obtained in exchange for operating lease liabilities for the six months ended June 30, 2020 in the supplemental disclosure of noncash investing and financing activities in the Unaudited Condensed Consolidated Statements of Cash Flows includes an immaterial correction of $55 million to address an omission of the impact of lease modifications and terminations.

Stockholders' Equity

Treasury Stock

As of ~~June 30, 2021,~~March 31, 2022, our Board of Directors had authorized a stock repurchase program under which we ~~may~~are able to purchase up to ~~$1.0 billion~~$2,000 million of our common stock from time to time through October 25, ~~2022.~~2024. Repurchases under the program may be made in the open market or in privately negotiated transactions, with the amount and timing of repurchases depending on market conditions and corporate needs. The repurchase program does not obligate us to acquire any specific number of shares and may be suspended or discontinued at any time. Repurchased shares are accounted for as treasury stock using the cost method.

During the three ~~and six~~ months ended ~~June 30, 2021,~~March 31, 2022, we repurchased 6.2 million and 7.7 million shares of common stock, respectively, for an aggregate price of $304 million and $361 million, respectively, of which $17 million settled for cash in July. During the six months ended June 30, 2020, we repurchased 3.32.7 million shares of common stock for an aggregate price

of ~~$88 million; we did not repurchase any shares during~~$144 million. During the three months ended ~~June 30, 2020.~~March 31, 2021, we repurchased 1.5 million shares of common stock for an aggregate price of $57 million. As of ~~June 30, 2021,~~March 31, 2022, there was ~~$170~~$510 million of remaining capacity under our repurchase program. ~~Subsequent to quarter end through July 23, 2021, we repurchased an additional 2.0 million shares for $100 million.~~

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

Noncontrolling Interest

~~In February 2020, as part of the sale of Stahlgruber's Czech Republic business, we divested the~~

We present redeemable noncontrolling interest ~~of the business, which resulted in a net decrease~~on our balance sheet related to ~~Noncontrolling interest of $11 million in our unaudited condensed consolidated financial statements as of March 31, 2020. See Note 2, "Discontinued Operations," for further information.~~

~~In December 2019, we modified the shares of a noncontrolling interest of a subsidiary acquired in connection with the Stahlgruber acquisition and issued new~~ redeemable shares issued to ~~the~~a minority ~~shareholder.~~shareholder in conjunction with a previous acquisition. The ~~new~~ redeemable shares contain (i) a put option for all noncontrolling interest shares at a fixed price of $24 million (€21 million) for the minority shareholder exercisable in the fourth quarter of 2023, (ii) a call option for all noncontrolling interest shares at a fixed price of $26 million (€23 million) for ~~the Company~~us exercisable beginning in the first quarter of 2026 through the end of the fourth quarter of 2027, and (iii) a guaranteed dividend to be paid quarterly to the minority shareholder through the fourth quarter of 2023. The ~~new~~ redeemable shares do not provide the minority shareholder with rights to participate in the profits and losses of the subsidiary prior to the exercise date of the put option. As the put option is outside ~~the~~our control, ~~of the Company,~~ we recorded a $24 million Redeemable noncontrolling interest at the put option's redemption value outside of permanent equity on our Unaudited Condensed Consolidated Balance Sheets.

~~Recent Accounting Pronouncements~~

~~Recently Adopted Accounting Pronouncements~~

In the first quarter of 2021, we adopted ASU No. 2019-12, "Income Taxes" (Topic 740) ("ASU 2019-12"), which simplifies the accounting for income taxes and adds guidance to reduce complexity in certain areas. We adopted the standard in the first quarter using the prospective approach. The adoption of this accounting standard did not have a material impact on our unaudited condensed consolidated financial statements.

~~Recently Issued Accounting Pronouncements~~

In March 2020, the FASB issued ASU No. 2020-04, "Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04"), which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform. ASU 2020-04 provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met. These transactions include contract modifications, hedging relationships, and sale or transfer of debt securities classified as held-to-maturity. Entities may apply the provisions of the new standard as of the beginning of the reporting period when the election is made (i.e., as early as the first quarter of 2020). Unlike other topics, the provisions of this update are only available until December 31, 2022. We are currently evaluating the impact of this standard on our consolidated financial statements and related disclosures, and we have not yet elected an adoption date.

Note 4.3. Revenue Recognition

The majority of our revenue is derived from the sale of vehicle parts. We recognize revenue for the sale of products at the point in time when the ~~products are shipped to, delivered to or picked up by customers, which is the point when title~~performance obligation has been satisfied and control has transferred ~~and risk~~to the customer, which generally occurs upon shipment or delivery to a customer based on terms of ~~ownership has passed.~~the sale.

~~Sources of Revenue~~

1210

Sources of Revenue

We report our revenue in two categories: (i) parts and services and (ii) other. The following table sets forth our revenue by category, ~~with our parts and services revenue further~~ disaggregated by reportable segment (in ~~thousands)~~millions):

Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
North America $ 1,077,171 $ 892,826 $ 2,095,608 $ 2,000,168
Europe 1,569,697 1,206,330 3,025,067 2,564,299
Specialty 531,403 404,002 989,362 751,408
Parts and services 3,178,271 2,503,158 6,110,037 5,315,875
Other 256,843 123,165 495,863 311,383
Total revenue $ 3,435,114 $ 2,626,323 $ 6,605,900 $ 5,627,258


	Three Months Ended March 31,
	2022		2021
Wholesale - North America	$	1,106	$	969
Europe	1,481		1,455
Specialty	460		458
Self Service	57		50
Parts and services	3,104		2,932
Wholesale - North America	95		82
Europe	7		8

Self Service	142		149
Other	244		239
Total revenue	$	3,348	$	3,171

Parts and Services

~~Our parts~~

Parts revenue is generated from the sale of vehicle products including replacement parts, components and systems used in the repair and maintenance of vehicles and specialty products and accessories to improve the performance, functionality and appearance of vehicles. Services revenue includes (i) additional services that are generally billed concurrently with the related product sales, such as the sale of service-type warranties, (ii) fees for admission to our self service yards, and (iii) diagnostic and repair services.

For Wholesale - North America ~~our~~and Self Service, vehicle replacement products include sheet metal collision parts such as doors, hoods, and fenders; bumper covers; head and tail lamps; automotive glass products such as windshields; ~~mirrors and~~mirrors; grilles; wheels; and large mechanical items such as engines and transmissions. InFor Europe, ~~our~~vehicle replacement products include a wide variety of small mechanical products such as brake pads, discs and sensors; clutches; electrical products such as spark plugs and batteries; steering and suspension products; filters; and oil and automotive fluids. InFor our Specialty operations, we serve ~~six~~seven product segments: truck and off-road; speed and performance; recreational vehicles; towing; wheels, tires and performance handling; marine; and miscellaneous accessories.

Our service-type warranties typically have service periods ranging from 6 months to 36 months. Proceeds from these service-type warranties are deferred at contract inception and amortized on a straight-line basis to revenue over the contract period. The changes in deferred service-type warranty revenue are as follows (in ~~thousands)~~millions):


	Service-Type Warranties
Balance as of January 1, ~~2021~~2022	$	~~25,622~~32
Additional warranty revenue deferred	~~30,962~~11
Warranty revenue recognized	~~(26,966)~~(13)
Balance as of ~~June 30, 2021~~March 31, 2022	$	~~29,618~~30

Other Revenue

Revenue from other sources ~~includes~~include sales of scrap and precious metals (platinum, palladium, and rhodium), bulk sales to mechanical manufacturers (including cores) and sales of aluminum ingots and sows from ~~our~~ furnace operations. We derive scrap metal and other precious metals from several sources in both our Wholesale - North America and Self Service segments, including vehicles that have been used in ~~both~~ our ~~wholesale and self service~~ recycling operations and vehicles from original equipment manufacturers ("OEMs") and other entities that contract with us for secure disposal of "crush only" vehicles. Revenue from the sale of hulks in our ~~wholesale~~Wholesale - North America and ~~self service recycling operations~~Self Service segments is recognized based on a price per ton of delivered material when the customer (processor) collects the scrap. ~~Some adjustments may occur when the customer weighs the scrap at their location, and revenue is adjusted accordingly.~~

Revenue by Geographic Area

See Note ~~14,~~13, "Segment and Geographic Information" for information related to our revenue by geographic region.

Variable Consideration

The amount of revenue ultimately received from the customer can vary due to variable consideration including returns, discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, or other similar items. ~~Under FASB Accounting Standards Codification Topic 606 ("ASC 606"),we are required to select~~We utilize the “expected value method” or the “most

likely amount” method in order to estimate variable ~~consideration. We utilize both methods in practice~~consideration, depending on the type of variable consideration, with contemplation of any expected reversals in revenue. We recorded a refund liability and return asset for expected returns of ~~$106~~$106 million and ~~$59~~$57 million, respectively, as of ~~June 30, 2021,~~March 31, 2022, and ~~$102~~$107 million and ~~$57~~$58 million, respectively, as of December 31, ~~2020.~~2021. The refund liability is presented separately on the Unaudited Condensed Consolidated Balance Sheets within current liabilities while the return asset is presented within Prepaid expenses and other current assets. Other types of variable consideration consist primarily of discounts, volume rebates, and other customer sales incentives that are recorded in Receivables, net on the Unaudited Condensed Consolidated Balance Sheets. We recorded a reserve for our variable consideration of ~~$102~~$93 million and ~~$127~~$144 million as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. While other customer incentive programs exist, we characterize them as material rights in the context of our sales transactions. We consider these programs to be immaterial to our unaudited condensed consolidated financial statements.

Note 5.4. Restructuring and ~~Acquisition~~Transaction Related Expenses

~~2019~~

Global Restructuring ~~Program~~Programs

In ~~the second quarter of~~ 2019, we commenced a cost reduction initiative, covering all ~~three~~ of our reportable segments, designed to eliminate underperforming assets and cost inefficiencies. This program was expanded in 2020 as we identified additional opportunities to eliminate inefficiencies, including actions in response to impacts to the business from COVID-19. We have incurred and expect to incur costs for inventory write-downs; employee severance and other expenditures related to employee terminations; lease exit costs, such as lease termination fees, accelerated amortization of operating lease assets and impairment of operating lease assets; other costs related to facility exits, such as moving expenses to relocate inventory and equipment; and accelerated depreciation of fixed assets to be disposed of earlier than the end of the previously estimated useful lives.

During the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2022, we did not incur~~red $2 million and $5 million, respectively,~~ a significant amount of restructuring expenses under this program, primarily related to facility exit costs and employee-related costs. The program costs incurred during the three and six months ended June 30, 2020, primarily related to our Europe and North America segments.

The actions under this program are substantially complete, and the expenses incurred during the three and six months ended June 30, 2021 were immaterial. We estimate that total program costs will be approximately $46 million, of which approximately $31 million, $14 million and $1 million will be in our Europe, North America and Specialty segments, respectively. As of June 30, 2021, the remaining expected costs and restructuring liabilities related to this program were immaterial.

~~2020 Global Restructuring Program~~

Beginning in the first quarter of 2020, we initiated a further restructuring program aimed at cost reductions across all our reportable segments through the elimination of underperforming assets and cost inefficiencies. These actions are incremental to those initiated as part of the 2019 Global Restructuring Program, and include costs for inventory write-downs; employee severance and other expenditures related to employee terminations; lease exit costs, such as lease termination fees, accelerated amortization of operating lease assets and ~~impairment~~ of operating lease assets; other costs related to facility exits, such as moving expenses to relocate inventory and equipment; and accelerated depreciation of fixed assets to be disposed of earlier than the end of the previously estimated useful lives. We expanded this program during the second and third quarters of 2020 as we identified additional opportunities to eliminate inefficiencies, including actions in response to impacts to our business from COVID-19.

these programs. During the three ~~and six~~ months ended ~~June 30,~~March 31, 2021, we recognized net restructuring expenses ~~of $4~~totaling $3 million ~~and $6 million, respectively,~~ which included employee-related costs, facility exit costs, and a $3 million gain ~~in the first quarter~~ from the sale of a building to be closed as part of the restructuring plan in the first half of 2021. During the three and six months ended June 30, 2020, we recognized restructuring expenses totaling $25 million and $27 million, respectively, for employee-related costs, facility exit costs and inventory write-downs.closed. Of the cumulative program costs incurred to date, ~~$28~~$58 million, ~~$26~~$43 million, $2 million and $1$2 million related to our Europe, Wholesale – North America, ~~Europe~~Specialty and ~~Specialty~~Self Service segments, respectively. The actions under the 2019 Global Restructuring Program are substantially complete and the 2020 Global Restructuring Program are expected to be completed in 2023. We estimate total costs under the ~~program~~programs through ~~its~~their expected completion ~~date in 2023~~dates will be between ~~$65~~$105 million and ~~$75~~$115 million, of which approximately ~~$36~~$63 million, ~~$31~~$44 million, $2 million and $2 million will be incurred by our Europe, Wholesale – North America, Specialty and ~~Specialty~~Self Service segments, respectively; these segment amounts represent the midpoints of the expected ranges of costs to be incurred by each segment.

As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, restructuring liabilities incurred related to ~~this program~~these programs totaled ~~$17~~$12 million and ~~$21~~$14 million, respectively, including ~~$13~~$8 million and ~~$17~~$9 million, respectively, related to leases we have exited or expect to exit prior to the end of the lease term (reported in Current portion of operating lease liabilities and Long-term operating lease liabilities, excluding current portion on our Unaudited Condensed Consolidated Balance Sheets)~~, and $3 million and $4 million, respectively, for employee termination costs (reported in Accrued payroll-related liabilities on our Unaudited Condensed Consolidated Balance Sheets)~~. Our lease-related restructuring liabilities are estimated based on remaining rent payments after our actual exit date for facilities closed ~~through the second quarter~~as of ~~2021~~March 31, 2022 and after our planned exit date for facilities we expect to close in future periods; these liabilities do not reflect any estimated proceeds we may be able to achieve through subleasing the facilities.

Acquisition Integration Plans

~~During the three and six months ended June 30, 2021, we incurred immaterial~~

We did not incur a significant amount of restructuring expenses for our acquisition integration ~~plans.~~plans for either of the three-month periods ended March 31, 2022 or March 31, 2021. We expect to incur future expenses of up to $5 million to complete an integration plan related to ~~an acquisition~~acquisitions completed in our Specialty segment induring 2021.

~~During the three and six months ended June 30, 2020, we incurre~~

~~d $4 million and $5 million of restructuring expenses, respectively, for our acquisition integration plans. These expenses were primarily related to the integ~~
~~ration of our operations in Belgium.~~

1 LKQ Europe Program

In ~~September~~ 2019, we announced a multi-year program called "1 LKQ Europe" which is intended to create structural centralization and standardization of key functions to facilitate the operation of the Europe segment as a single business. Under the 1 LKQ Europe program, we ~~will reorganize~~are reorganizing our non-customer-facing teams and support systems through various projects including the implementation of a common ERP platform, rationalization of our product portfolio, and creation of a Europe headquarters office and central back office. While certain projects were delayed in 2020 as a result of the COVID-19 pandemic, such as our procurement initiatives and the new headquarters in Switzerland, we also accelerated certain projects, such as the integration of previously acquired networks and sharing resources across LKQ Europe. We completed the organizational design and implementation projects in June 2021, with the remaining projects scheduled to be completed by the end of 2024.

During the ~~six~~three months ended ~~June 30,~~March 31, 2022, we did not incur a significant amount of expenses under our 1 LKQ Europe program. During the three months ended March 31, 2021, we ~~incurred~~recognized $5 million of employee-related restructuring ~~charges under our 1 LKQ Europe program; costs incurred in the three months ended June 30, 2021 were immaterial.~~charges. We estimate that we will incur between ~~$45~~$40 million and ~~$55~~$50 million in total personnel and inventory-related restructuring charges through 2024 under the program. We may identify additional initiatives and projects under the 1 LKQ Europe program in future periods that may result in additional restructuring expense, although we are currently unable to estimate the range of charges for such potential future initiatives and projects. As of ~~June 30, 2021,~~March 31, 2022, the restructuring liabilities related to this program were ~~immaterial.~~insignificant.

Transaction Related Expenses

During the three months ended March 31, 2022, we incurred $3 million of transaction related expenses. These expenses included external costs such as legal, accounting and advisory fees related to completed and potential transactions.

Note 6.5. Stock-Based Compensation

In order to attract and retain employees, non-employee directors, consultants, and other persons associated with ~~us,~~the Company, we grant equity-based awards under the LKQ Corporation 1998 Equity Incentive Plan (the “Equity Incentive Plan”). We have granted restricted stock units ("RSUs"), stock options, and restricted stock under the Equity Incentive Plan. We expect to issue new or treasury shares of common stock to cover past and future equity grants.

RSUs

The RSUs we have issued vest over periods of up to five years, subject to a continued service condition. Currently outstanding RSUs (other than PSUs, which are described below) contain either a time-based vesting condition or a combination of a performance-based vesting condition and a time-based vesting condition, in which case both conditions must be met before any RSUs vest. For all of the RSUs containing a performance-based vesting condition, ~~the Company~~we must report positive diluted earnings per share, subject to certain adjustments, during any fiscal year period within five years following the grant date. Each RSU converts into one share of LKQ common stock on the applicable vesting date. The grant date fair value of RSUs is based on the market price of LKQ stock on the grant date.

Starting with our 2019 grants, participants who are eligible for retirement (defined as a voluntary separation of service from the Company after the participant has attained at least 60 years of age and completed at least five years of service) will continue to vest in their awards following retirement; if retirement occurs during the first year of the vesting period (for RSUs subject to a time-based vesting condition) or the first year of the performance period (for RSUs with a performance-based vesting condition), the participant vests in a prorated amount of the RSU grant based on the portion of the year employed. For our RSU grants prior to 2019, participants forfeit their unvested shares upon retirement.

Outstanding unvested RSUs earn dividend equivalents at the same rate as dividends on LKQ's common stock. The dividend equivalents are subject to the same vesting requirements, restrictions and forfeiture provisions as the original award.

The fair value of RSUs that vested during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 was ~~$19 million;~~$18 million; the fair value of RSUs vested is based on the market price of LKQ stock on the date vested.

The following table summarizes activity related to our RSUs under the Equity Incentive Plan for the ~~six~~three months ended ~~June 30, 2021:~~March 31, 2022 (in millions, except years and per share amounts):


	Number Outstanding	Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value(1)
Unvested as of January 1, 2022	1.4	$	34.85
Granted (2)	0.6	$	48.97
Vested	(0.4)	$	34.23

Unvested as of March 31, 2022	1.6	$	40.24
Expected to vest after March 31, 2022	1.4	$	40.33	3.2	$	62

(1)

Number
Outstanding Weighted
Average
Grant Date
Fair Value Weighted Average Remaining Contractual Term
(in years)
Aggregate Intrinsic Value
(in thousands) (1)
Unvested as of January 1, 2021 1,479,672 $ 31.71
Granted (2)
725,478 $ 39.02
Vested (452,189) $ 32.10
Forfeited / Canceled (29,950) $ 34.06
Unvested as of June 30, 2021 1,723,011 $ 34.55
Expected to vest after June 30, 2021 1,539,272 $ 34.78 3.1 $ 75,763

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

(2) The weighted average grant date fair value of RSUs granted during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 was ~~$31.71.~~$38.52.

Starting in 2019, we granted performance-based three-year RSUs ("PSUs") to certain employees, including ~~our~~ executive officers, under our Equity Incentive Plan. As these awards are performance-based, the exact number of shares to be paid out may be up to twice the grant amount, depending on ~~the Company's~~our performance and the achievement of certain performance metrics (adjusted earnings per share, average organic parts and services revenue growth, and average return on invested capital) over the applicable ~~three year~~three-year performance periods.

Outstanding unvested PSUs earn dividend equivalents at the same rate as dividends on LKQ's common stock. The dividend equivalents are subject to the same vesting requirements, restrictions and forfeiture provisions as the original award.

The fair value of PSUs that vested during the three months ended March 31, 2022 was $8 million; the fair value of PSUs vested is based on the market price of LKQ stock on the date vested.

The following table summarizes activity related to our PSUs under the Equity Incentive Plan for the ~~six~~three months ended ~~June 30, 2021:~~March 31, 2022 (in millions, except years and per share amounts):

Number
Outstanding Weighted
Average
Grant Date
Fair Value Weighted Average Remaining Contractual Term
(in years)
Aggregate Intrinsic Value
(in thousands) (1)
Unvested as of January 1, 2021 291,601 $ 29.98
Granted (2)
121,810 $ 38.50
Forfeited / Canceled (1,166) $ 30.26
Unvested as of June 30, 2021 412,245 $ 32.50
Expected to vest after June 30, 2021 412,245 $ 32.50 1.4 $ 20,291


	Number Outstanding	Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value(1)
Unvested as of January 1, 2022	0.5	$	31.96
Granted (2)	0.1	$	48.92
Vested	(0.2)	$	27.75

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

(1) The aggregate intrinsic value of expected to vest PSUs represents the total pretax intrinsic value (the fair value of ~~the Company's~~LKQ's stock on the last day of each period multiplied by the number of ~~units at target)~~units) that would have been received by the holders had all the expected to vest PSUs vested. This amount changes based on the market price of ~~the Company’s~~LKQ’s common stock and the achievement of the performance metrics relative to the established targets.

(2) Represents the number of PSUs at target payout. The weighted average grant date fair value of PSUs granted during the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 was ~~$31.85.~~$38.50.

Stock-Based Compensation Expense

Pre-tax stock-based compensation expense for RSUs and PSUs totaled $9$13 million and ~~$17 million the three and six months ended June 30, 2021, respectively, and~~ $8 ~~million and $16~~ million for the three ~~and six~~ months ended ~~June 30, 2020,~~March 31, 2022 and 2021, respectively. As of ~~June 30, 2021,~~March 31, 2022, unrecognized compensation expense related to unvested RSUs and PSUs was ~~$58 million.~~$66 million. Stock-based compensation expense related to these awards will be different to the extent that forfeitures are realized and performance under the PSUs differs from ~~target.~~current achievement estimates.

1614

Note 7.6. Earnings Per Share

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


		Three Months Ended				Six Months Ended
		June 30,				June 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Income from continuing operations	Income from continuing operations	$	305,008	$	118,493	$	571,340	$	265,387	Income from continuing operations	$	269	$	266
Denominator for basic earnings per share—Weighted-average shares outstanding	Denominator for basic earnings per share—Weighted-average shares outstanding	300,581		304,001		301,805		305,123		Denominator for basic earnings per share—Weighted-average shares outstanding	285.7		303.1
Effect of dilutive securities:	Effect of dilutive securities:									Effect of dilutive securities:
RSUs	RSUs	712		189		670		352		RSUs	0.8		0.6
PSUs	PSUs	174		0		134		0		PSUs	0.3		0.1
Stock options		0		0		0		2

Denominator for diluted earnings per share—Adjusted weighted-average shares outstanding	Denominator for diluted earnings per share—Adjusted weighted-average shares outstanding	301,467		304,190		302,609		305,477		Denominator for diluted earnings per share—Adjusted weighted-average shares outstanding	286.8		303.8
Basic earnings per share from continuing operations	Basic earnings per share from continuing operations	$	1.01	$	0.39	$	1.89	$	0.87	Basic earnings per share from continuing operations	$	0.94	$	0.88
Diluted earnings per share from continuing operations (1)	Diluted earnings per share from continuing operations (1)	$	1.01	$	0.39	$	1.89	$	0.87	Diluted earnings per share from continuing operations (1)	$	0.94	$	0.88

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

The following table sets forth the number of employee stock-based compensation awards outstanding but not included in the computation of diluted earnings per share because their effect would have been antidilutive for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ (in ~~thousands)~~millions):


		Three Months Ended		Six Months Ended
		June 30,		June 30,			Three Months Ended March 31,
		2021	2020	2021	2020		2022	2021
Antidilutive securities:	Antidilutive securities:					Antidilutive securities:
RSUs	RSUs	0	1,444	59	913	RSUs	—	0.1

Note 8.7. Accumulated Other Comprehensive Income (Loss)

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

Three Months Ended
June 30, 2021
Foreign
Currency
Translation Unrealized (Loss) Gain
on Cash Flow Hedges Unrealized (Loss) Gain
on Pension Plans Other Comprehensive (Loss) Income from Unconsolidated Subsidiaries Accumulated
Other
Comprehensive
(Loss) Income
BALANCE, April 1, 2021 $ (81,698) $ (310) $ (32,654) $ (11,460) $ (126,122)
Pretax income (loss) 21,864 (296) 0 0 21,568
Income tax effect 0 59 0 0 59
Reclassification of unrealized loss 0 585 437 0 1,022
Reclassification of deferred income taxes 0 (137) (124) 0 (261)
Other comprehensive income from unconsolidated subsidiaries 0 0 0 2,644 2,644
BALANCE, June 30, 2021 $ (59,834) $ (99) $ (32,341) $ (8,816) $ (101,090)


	Three Months Ended March 31, 2022
	Foreign Currency Translation		Unrealized Gain (Loss) on Pension Plans		Other Comprehensive Income (Loss) from Unconsolidated Subsidiaries		Accumulated Other Comprehensive Income (Loss)
Balance as of January 1, 2022	$	(121)	$	(24)	$	(8)	$	(153)
Pretax loss	(54)		—		—		(54)




Other comprehensive income from unconsolidated subsidiaries	—		—		1		1
Balance as of March 31, 2022	$	(175)	$	(24)	$	(7)	$	(206)

1715

Three Months Ended
June 30, 2020
Foreign
Currency
Translation Unrealized (Loss) Gain
on Cash Flow Hedges Unrealized (Loss) Gain
on Pension Plans Other Comprehensive (Loss) Income from Unconsolidated Subsidiaries Accumulated
Other
Comprehensive
(Loss) Income
BALANCE, April 1, 2020 $ (274,858) $ (1,963) $ (31,814) $ (5,268) $ (313,903)
Pretax income (loss) 30,663 (7,807) 0 0 22,856
Income tax effect 0 1,842 0 0 1,842
Reclassification of unrealized loss 0 7,761 2,655 0 10,416
Reclassification of deferred income taxes 0 (1,827) (780) 0 (2,607)
Disposal of business 671 0 0 0 671
Other comprehensive income from unconsolidated subsidiaries 0 0 0 962 962
BALANCE, June 30, 2020 $ (243,524) $ (1,994) $ (29,939) $ (4,306) $ (279,763)


	Three Months Ended March 31, 2021
	Foreign Currency Translation		Unrealized Gain (Loss) on Cash Flow Hedges		Unrealized Gain (Loss) on Pension Plans		Other Comprehensive Income (Loss) from Unconsolidated Subsidiaries		Accumulated Other Comprehensive Income (Loss)
Balance as of January 1, 2021	$	(57)	$	(1)	$	(33)	$	(8)	$	(99)
Pretax (loss) income	(25)		3		—		—		(22)
Income tax effect	—		(1)		—		—		(1)
Reclassification of unrealized gain	—		(2)		—		—		(2)
Reclassification of deferred income taxes	—		1		—		—		1

Other comprehensive loss from unconsolidated subsidiaries	—		—		—		(3)		(3)
Balance as of March 31, 2021	$	(82)	$	—	$	(33)	$	(11)	$	(126)

Six Months Ended
June 30, 2021
Foreign
Currency
Translation Unrealized (Loss) Gain
on Cash Flow Hedges Unrealized (Loss) Gain
on Pension Plans Other Comprehensive Loss from Unconsolidated Subsidiaries Accumulated
Other
Comprehensive
(Loss) Income
BALANCE, January 1, 2021 $ (57,126) $ (968) $ (32,967) $ (7,948) $ (99,009)
Pretax (loss) income (2,708) 2,823 0 0 115
Income tax effect 0 (677) 0 0 (677)
Reclassification of unrealized (gain) loss 0 (1,758) 874 0 (884)
Reclassification of deferred income taxes 0 481 (248) 0 233
Other comprehensive loss from unconsolidated subsidiaries 0 0 0 (868) (868)
BALANCE, June 30, 2021 $ (59,834) $ (99) $ (32,341) $ (8,816) $ (101,090)

Six Months Ended
June 30, 2020
Foreign
Currency
Translation Unrealized Gain (Loss)
on Cash Flow Hedges Unrealized (Loss) Gain
on Pension Plans Other Comprehensive Loss from Unconsolidated Subsidiaries Accumulated
Other
Comprehensive
(Loss) Income
BALANCE, January 1, 2020 $ (170,893) $ 5,358 $ (31,934) $ (3,416) $ (200,885)
Pretax loss (73,397) (3,625) 0 0 (77,022)
Income tax effect 0 858 0 0 858
Reclassification of unrealized (gain) loss 0 (5,946) 2,769 0 (3,177)
Reclassification of deferred income taxes 0 1,361 (774) 0 587
Disposal of business 766 0 0 0 766
Other comprehensive loss from unconsolidated subsidiaries 0 0 0 (890) (890)
BALANCE, June 30, 2020 $ (243,524) $ (1,994) $ (29,939) $ (4,306) $ (279,763)

~~The amounts of~~During the three months ended March 31, 2021, net unrealized gains ~~and losses~~ on ~~our Cash Flow Hedges reclassified~~cross currency swaps totaling $2 million were recorded to ~~our~~Other income, net in the Unaudited Condensed Consolidated Statements of ~~Income are as follows (in thousands):~~

Three Months Ended Six Months Ended
June 30, June 30,
Classification 2021 2020 2021 2020
Unrealized (losses) gains on interest rate swaps Interest expense, net of interest income $ (495) $ (1,769) $ (1,188) $ 1,527
Unrealized gains on cross currency swaps Interest expense, net of interest income 0 2,796 539 5,347
Unrealized (losses) gains on cross currency swaps (1)
Other income, net 0 (8,788) 1,973 (928)
Unrealized (losses) gains on foreign currency forward contracts (1)
Other income, net (90) 0 434 0
Total $ (585) $ (7,761) $ 1,758 $ 5,946

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

Net unrealized losses and gains related to our pension plans were ~~reclassified~~recorded to Other income, net in ~~our~~the Unaudited Condensed Consolidated Statements of Income during each of the ~~three~~three-month periods ended March 31, 2022 and ~~six months ended June 30, 2021 and 2020.~~2021.

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

Note 9.8. Long-Term Obligations

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


		June 30,		December 31,
		2021		2020			March 31, 2022		December 31, 2021
Senior secured credit agreement:	Senior secured credit agreement:					Senior secured credit agreement:
Term loans payable		$	0	$	323,750

Revolving credit facilities	Revolving credit facilities	1,434,898		642,958		Revolving credit facilities	$	1,813	$	1,887

Euro Notes (2024)	Euro Notes (2024)	592,900		610,800		Euro Notes (2024)	553		569
Euro Notes (2026/28)		296,450		1,221,600
Receivables securitization facility		0		0
Notes payable through October 2030 at weighted average interest rates of 3.3% and 3.3%, respectively		22,605		24,526
Euro Notes (2028)						Euro Notes (2028)	277		284
Notes payable through October 2030 at weighted average interest rates of 2.9% and 2.8%, respectively						Notes payable through October 2030 at weighted average interest rates of 2.9% and 2.8%, respectively	21		23
Finance lease obligations at weighted average interest rates of 3.5% and 3.5%, respectively	Finance lease obligations at weighted average interest rates of 3.5% and 3.5%, respectively	53,841		57,336		Finance lease obligations at weighted average interest rates of 3.5% and 3.5%, respectively	50		52
Other debt at weighted average interest rates of 0.8% and 1.2%, respectively		65,446		15,706
Other debt at weighted average interest rates of 1.5% and 1.1%, respectively						Other debt at weighted average interest rates of 1.5% and 1.1%, respectively	7		9
Total debt	Total debt	2,466,140		2,896,676		Total debt	2,721		2,824
Less: long-term debt issuance costs	Less: long-term debt issuance costs	(14,324)		(25,225)		Less: long-term debt issuance costs	(10)		(12)
Less: current debt issuance costs		(306)		(313)

Total debt, net of debt issuance costs	Total debt, net of debt issuance costs	2,451,510		2,871,138		Total debt, net of debt issuance costs	2,711		2,812
Less: current maturities, net of debt issuance costs	Less: current maturities, net of debt issuance costs	(90,825)		(58,497)		Less: current maturities, net of debt issuance costs	(31)		(35)
Long term debt, net of debt issuance costs	Long term debt, net of debt issuance costs	$	2,360,685	$	2,812,641	Long term debt, net of debt issuance costs	$	2,680	$	2,777

Senior Secured Credit Agreement

On ~~June 11, 2020,~~November 23, 2021, LKQ Corporation and certain other subsidiaries of LKQ (collectively, the "Borrowers") entered into Amendment No. 46 to the Fourth Amended and Restated Credit Agreement dated January 29, 2016 (the "Credit Agreement"), which ~~modifies the maximum permitted net leverage ratio through the quarter ending September 30, 2021. Prior~~modified certain interest rates to provide that (1) Loans denominated in euros shall bear interest at a rate per annum equal to the ~~amendment,~~Euro Interbank Offered Rate as administered by the ~~maximum permitted net leverage ratio was 4.00:1.00. After~~European Money Markets Institute (or a comparable or successor administrator approved by the ~~amendment,~~Administrative Agent) plus the maximum permitted net leverage ratio became (i) 4.50:1.00 for the quarter ended June 30, 2021 and (ii) 4.25:1.00 for the quarter ending September 30, 2021. Beginning with the quarter ending December 31, 2021, the maximum permitted net leverage ratio revertsApplicable Rate, (2) Swingline Loans denominated in pound sterling shall bear interest at a rate per annum equal to the ~~terms in effect prior to~~Sterling Overnight Index Average as administered by the ~~amendment. In~~Bank of England (or any successor administrator of the ~~event that~~Sterling Overnight Index Average) (“SONIA”) plus the net leverage ratio is greater than 4.00:1.00, the Company would be restricted from repurchasing its shares. We can at any time elect to cancel the modifications to the maximum permitted net leverage ratioApplicable Rate, (3)

1916

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

On April 18, 2022, S&P Global Ratings assigned LKQ an issuer credit rating of 'BBB-' with a stable outlook. This rating upgrade triggered the banks in ~~effect prior~~our credit facility to ~~the amendment, subject to compliance with the 4.00:1.00 ratio. Amendment No. 4 to~~release all collateral required under the Credit Agreement ~~also made certain other immaterial modifications.~~and suspend all collateral requirements.

On December 14, 2020, we entered into Amendment No. 5 to the Credit Agreement; the amendment added as a borrower our subsidiary LKQ Europe GmbH, a Swiss limited liability company, and made certain other immaterial or clarifying modifications.

The total ~~availability~~capacity under the revolving credit facility's multicurrency component is $~~3.15 billion~~3,150 million. Amounts outstanding under the revolving credit facility are due and payable upon maturity of the Credit Agreement on January 29, 2024.

We also had the option to prepay outstanding amounts under the Credit Agreement without penalty. We were required to prepay the term loan by amounts equal to proceeds from the sale or disposition of certain assets if the proceeds ~~are~~were not reinvested within twelve months. ~~We also have the option to prepay outstanding amounts under the Credit Agreement without penalty.~~ During the second quarter of 2021, we exercised ~~this~~our option to prepay the outstanding amount on the term loan, and thus we did not have any term loan borrowings as of ~~June 30, 2021.~~March 31, 2022.

The Credit Agreement contains customary representations and warranties and customary covenants that provide limitations and conditions on our ability to enter into certain transactions. The Credit Agreement also contains financial and affirmative covenants, including limitations on our net leverage ratio and a minimum interest coverage ratio.

Borrowings under the Credit Agreement bear interest at variable rates, which depend on the currency and duration of the borrowing elected, plus an applicable margin. The applicable margin is subject to change in increments of 0.25% depending on ~~our~~the net leverage ratio. Interest payments are due on the last day of the selected interest period or quarterly in arrears depending on the type of borrowing. ~~Including the effect of the interest rate swap agreements described in Note 10, "Derivative Instruments and Hedging Activities," the~~The weighted average interest rates on borrowings outstanding under the Credit Agreement at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 were ~~1.1%~~1.2% and ~~1.7%~~1.1%, respectively. We also pay a commitment fee based on the average daily unused amount of the revolving credit facilities. The commitment fee is subject to change in increments of 0.05% depending on our net leverage ratio. In addition, we pay a participation commission on outstanding letters of credit at an applicable rate based on our net leverage ratio, and a fronting fee of 0.125% to the issuing bank, which are due quarterly in arrears.

Of the total borrowings outstanding under the Credit Agreement, there were no current maturities as of ~~June 30, 2021 and $18 million classified as current maturities as of~~March 31, 2022 or December 31, ~~2020.~~2021. As of ~~June 30, 2021,~~March 31, 2022, there were letters of credit outstanding in the aggregate amount of $7169 million. The amounts available under the revolving credit facilities are reduced by the amounts outstanding under letters of credit, and thus availability under the revolving credit facilities at ~~June 30, 2021~~March 31, 2022 was $~~1.6 billion~~1,268 million.

~~Related to the execution of Amendment No. 4 to the Fourth Amended and Restated Credit Agreement in June 2020, we incurred~~
~~$4 million of~~ ~~fees, the majority of which were capitalized as an offset to Long-Term Obligations and are amortized over the term of the agreement.~~

~~U.S. Notes (2023)~~

On January 10, 2020, we redeemed the $600 million aggregate principal amount of 4.75% senior notes due 2023 (the "U.S Notes (2023)") at a redemption price equal to 101.583% of the principal amount of the U.S. Notes (2023) plus accrued and unpaid interest thereon to, but not including, January 10, 2020. The total redemption payment was $614 million, including an early-redemption premium of $9 million and accrued and unpaid interest of $4 million. In the first quarter of 2020, we recorded a loss on debt extinguishment of $13 million on the Unaudited Condensed Consolidated Statements of Income related to the redemption due to the early-redemption premium and the write-off of the unamortized debt issuance costs.

Euro Notes (2024)

On April 14, 2016, LKQ Italia Bondco S.p.A. ("LKQ Italia"), an indirect, wholly-owned subsidiary of LKQ Corporation, completed an offering of €500 million aggregate principal amount of senior notes due April 1, 2024 (the "Euro Notes (2024)") in a private placement conducted pursuant to Regulation S and Rule 144A under the Securities Act of 1933. The proceeds from the offering were used to repay a portion of the revolver borrowings under the Credit Agreement and to pay related fees and expenses. The Euro Notes (2024) are governed by the Indenture dated as of April 14, 2016 (the "Euro Notes (2024) Indenture") among LKQ Italia, LKQ Corporation and certain of our subsidiaries (the "Euro Notes (2024) Subsidiaries"), the trustee, and the paying agent, transfer agent, and registrar.

The Euro Notes (2024) bear interest at a rate of 3.875% per year from the date of original issuance or from the most recent payment date on which interest has been paid or provided for. Interest on the Euro Notes (2024) is payable in arrears on April 1 and October 1 of each year. The Euro Notes (2024) are fully and unconditionally guaranteed by LKQ Corporation and the Euro Notes (2024) Subsidiaries (the "Euro Notes (2024) Guarantors").

The Euro Notes (2024) and the related guarantees are, respectively, LKQ Italia's and each Euro Notes (2024) Guarantor's senior unsecured obligations and are subordinated to all of LKQ Italia's and the Euro Notes (2024) Guarantors' existing and future secured debt to the extent of the assets securing that secured debt. In addition, the Euro Notes (2024) are effectively subordinated to all of the liabilities of our subsidiaries that are not guaranteeing the Euro Notes (2024) to the extent of the assets of those subsidiaries. The Euro Notes (2024) have been listed on the ExtraMOT, Professional Segment of the Borsa Italia S.p.A. securities exchange and the Global Exchange Market of Euronext Dublin.

The Euro Notes (2024) are redeemable, in whole or in part, at any time at a redemption price of 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date plus a "make whole" premium. On or after January 1, 2024, we may redeem some or all of the Euro Notes (2024) at a redemption price of 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date. We may be required to make an offer to purchase the Euro Notes (2024) upon the sale of certain assets, subject to certain exceptions, and upon a change of control. In addition, in the event of certain developments affecting taxation or under certain other circumstances which, in any case, require the payment of certain additional amounts, we may redeem the Euro Notes (2024) in whole, but not in part, at any time at a redemption price of 100% of the principal amount thereof plus accrued but unpaid interest, if any, and such certain additional amounts, if any, to the redemption date.

Euro Notes (2026/~~28)~~2028)

On April 9, 2018, LKQ European Holdings B.V. ("LKQ Euro Holdings"), a wholly-owned subsidiary of LKQ Corporation, completed an offering of ~~€1.0 billion~~€1,000 million aggregate principal amount of senior notes. The offering consisted of €750 million senior notes due 2026 (the "Euro Notes (2026)") and €250 million senior notes due 2028 (the "Euro Notes (2028)" and, together with the Euro Notes (2026), the "Euro Notes (2026/28)") in a private placement conducted pursuant to Regulation S and Rule 144A under the Securities Act of 1933. The proceeds from the offering, together with borrowings under our senior secured credit facility, were used (i) to finance a portion of the consideration paid for the Stahlgruber acquisition, (ii) for general corporate purposes and (iii) to pay related fees and expenses, including the refinancing of net financial debt. The Euro Notes (2026/28) are governed by the Indenture dated as of April 9, 2018 (the “Euro Notes (2026/28) Indenture”) among LKQ Euro Holdings, LKQ Corporation and certain of our subsidiaries (the “Euro Notes (2026/28) Subsidiaries”), the trustee, paying agent, transfer agent, and registrar.

On April 1, 2021, we redeemed the 3.625% Euro Notes (2026) at a redemption price equal to 101.813% of the principal amount of the Euro Notes (2026) plus accrued and unpaid interest thereon to, but not including, April 1, 2021. The total redemption payment was $915 million (€777 million), including an ~~early-redemption~~early redemption premium of $16 million (€14 million) and accrued and unpaid interest of $16 million (€14 million). In the second quarter of 2021, we recorded a loss on debt extinguishment of $24 million related to the redemption due to the early-redemption premium and the write-off of the unamortized debt issuance costs.

The Euro Notes (2028) ~~notes~~ bear interest at a rate of 4.125% per year from the date of original issuance or from the most recent payment date on which interest has been paid or provided for. Interest on the Euro Notes (2028) is payable in arrears on April 1 and October 1 of each year. The Euro Notes (2028) are fully and unconditionally guaranteed by LKQ Corporation and the Euro Notes (2028) Subsidiaries (the "Euro Notes (2028) Guarantors").

The Euro Notes (2028) and the related guarantees are, respectively, LKQ Euro Holdings' and each Euro Notes (2028) ~~Guarantor’s~~Guarantor's senior unsecured obligations and will be subordinated to all of LKQ Euro Holdings' and the Euro Notes (2028) ~~Guarantors’~~Guarantors' existing and future secured debt to the extent of the assets securing that secured debt. In addition, the Euro Notes (2028) are effectively subordinated to all of the liabilities of our subsidiaries that are not guaranteeing the Euro Notes (2028) to the extent of the assets of those subsidiaries. The Euro Notes (2028) have been listed on the Global Exchange Market of Euronext Dublin.

The Euro Notes (2028) are redeemable, in whole or in part, at any time at a redemption price of 100% of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date plus a "make whole" premium. On or after April 1, 2023, we may redeem some or all of the Euro Notes (2028) at the applicable redemption prices set forth in the Euro Notes (2026/28) Indenture. We may be required to make an offer to purchase the Euro Notes (2028) upon the sale of certain assets, subject to certain exceptions, and upon a change of control. In addition, in the event of certain developments affecting taxation or under certain other circumstances which, in any case, require the payment of certain additional amounts, we may redeem the Euro Notes (2028) in whole, but not in part, at any time at a redemption price of 100% of the principal amount thereof, plus accrued but unpaid interest, if any, and such certain additional amounts, if any, to the redemption date.

~~Receivables Securitization Facility~~

~~On December 20, 2018, we amended~~Restricted Payments

Our senior secured credit agreement and our senior notes indentures contain limitations on payment of cash dividends or other distributions of assets. Delaware law also imposes restrictions on dividend payments. These restrictions did not impact the ~~terms~~payment of our ~~receivables securitization facility with MUFG Bank, Ltd. ("MUFG") to: (i) extend the term of the facility~~dividend declared in February 2022 and paid in March 2022 and are not expected to ~~November 8, 2021; (ii) increase the maximum amount available to $110~~impact future dividend payments.

2118

million; and (iii) make other clarifying and updating changes. Under the facility, LKQ sells an ownership interest in certain receivables, related collections and security interests to MUFG for the benefit of conduit investors and/or financial institutions for cash proceeds. Upon payment of the receivables by customers, rather than remitting to MUFG the amounts collected, LKQ retains such collections as proceeds for the sale of new receivables generated by certain of the ongoing operations of the Company.

The sale of the ownership interest in the receivables is accounted for as a secured borrowing on our Unaudited Condensed Consolidated Balance Sheets, under which the receivables included in the program collateralize the amounts invested by MUFG, the conduit investors and/or financial institutions (the "Purchasers"). The receivables are held by LKQ Receivables Finance Company, LLC ("LRFC"), a wholly owned bankruptcy-remote special purpose subsidiary of LKQ, and therefore, the receivables are available first to satisfy the creditors of LRFC, including the Purchasers. Net receivables totaling ~~$113 million~~ ~~and $121 million were collateral for the investments under the receivables facility as of June 30, 2021 and December 31, 2020, respectively.~~

Under the receivables facility, we pay variable interest rates plus a margin on the outstanding amounts invested by the Purchasers. The variable rates are based on (i) commercial paper rates, (ii), LIBOR, or (iii) base rates, and are payable monthly in arrears. The commercial paper rate is the applicable variable rate unless conduit investors are not available to invest in the receivables at commercial paper rates. In such case, financial institutions will invest at the LIBOR rate or at base rates. We also pay a commitment fee on the excess of the investment maximum over the average daily outstanding investment, payable monthly in arrears.

~~There was no outstanding balance as of June 30, 2021 or December 31, 2020. Effective July 30, 2021, we terminated the receivables securitization facility.~~

Note ~~10.~~9. Derivative Instruments and Hedging Activities

We are exposed to market risks, including the effect of changes in interest rates, foreign currency exchange rates and commodity prices. Under our current policies, we may use derivatives to manage our exposure to variable interest rates on our senior secured debt and changing foreign exchange rates for certain foreign currency denominated transactions. We do not hold or issue derivatives for trading purposes.

Cash Flow Hedges

Through June 30, 2021, we held interest rate swap agreements to hedge a portion of the variable interest rate risk on our variable rate borrowings under our Credit Agreement, with the objective of minimizing the impact of interest rate fluctuations and stabilizing cash flows. Under the terms of the interest rate swap agreements, we paid the fixed interest rate and received payment at a variable rate of interest based on LIBOR for the respective currency of each interest rate swap agreement’s notional amount. Changes in the fair value of the interest rate swap agreements were recorded in Accumulated other comprehensive income (loss) and were reclassified to Interest expense, net of interest income when the underlying interest payment impacted earnings.

~~At December 31, 2020, we~~

We held cross currency swaps in the beginning of 2021, which contained an interest rate swap component and a foreign currency forward contract component that, combined with related intercompany financing arrangements, effectively ~~converted~~convert variable rate U.S. dollar-denominated borrowings into fixed rate euro-denominated borrowings. The swaps were intended to minimize the impact of fluctuating exchange rates and interest rates on the cash flows resulting from the related intercompany financing arrangements. Changes in the fair value of the derivative instruments were recorded in Accumulated other comprehensive income (loss) and were reclassified to Interest expense, net of interest income and Other income, net when the underlying transactions had an impact on earnings. We had no outstanding cross currency swaps as of March 31, 2022.

From time to time, we may hold foreign currency forward contracts related to certain foreign currency denominated intercompany transactions, with the objective of minimizing the impact of fluctuating exchange rates on these future cash flows. Under the terms of the foreign currency forward contracts, we will sell the foreign currency in exchange for U.S. dollars at a fixed rate on the maturity dates of the contracts. Changes in the fair value of the foreign currency forward contracts where we ~~are applying~~apply hedge accounting are recorded in Accumulated other comprehensive income (loss) and reclassified to Other ~~income,~~(income) expense, net when the underlying transaction has an impact on earnings.

As of ~~June 30,~~March 31, 2022 and December 31, 2021, we held no cash flow ~~hedges, and as of December 31, 2020, we held cash flow hedges with the following notional amounts and fair values (in thousands):~~

~~December 31, 2020~~

~~Interest rate swap agreements~~

~~USD denominated~~

~~480,000~~

~~Cross currency swap agreements~~

~~Euro denominated~~

€

~~340,000~~

~~Foreign currency forward contracts~~

~~SEK denominated~~

~~227,000~~

~~Other Accrued Expenses~~

~~Fair Value at December 31, 2020~~

~~Interest rate swap agreements~~

~~899~~

~~Cross currency swap agreements~~

~~56,328~~

~~Foreign currency forward contracts~~

~~1,350~~

~~Total cash flow hedges~~

~~58,577~~

While certain derivative instruments executed with the same counterparty are subject to master netting arrangements, we present our cash flow hedge derivative instruments on a gross basis on our Unaudited Condensed Consolidated Balance Sheets. The impact of netting the fair values of these contracts would have no effect on our Unaudited Condensed Consolidated Balance Sheets at December 31, 2020.

hedges. The activity related to our previously matured cash flow hedges is included in Note 8,7, "Accumulated Other Comprehensive Income (Loss)."

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

Other Derivative Instruments Not Designated as Hedges

To manage our foreign currency exposure on non-functional currency denominated borrowings, we entered into ~~short term~~short-term foreign currency forward ~~contracts.~~contracts in 2021. As of ~~June 30, 2021, we~~March 31, 2022, we held no foreign currency forward contracts ~~related~~related to non-functional currency denominated borrowings. ~~At December 31, 2020, the notional amounts of foreign currency forward contracts related to non-functional currency denominated borrowings were €142 million and £75 million.~~

We elected not to apply hedge accounting for these transactions, and therefore the contracts ~~are~~were adjusted to fair value through our results of operations as of each balance sheet date. The fair values of these short-term derivative instruments ~~are~~were recorded in either Prepaid expenses and other current assets or Other accrued expenses on our Unaudited Condensed Consolidated Balance Sheets. ~~The fair values of these contracts at December 31, 2020, along with the effect on our results of operations during the three and six months ended June 30, 2021 and 2020, were~~

~~immaterial.~~

We hold other short-term derivative instruments, including foreign currency forward contracts, to manage our exposure to variability in the cash flows related to inventory purchases denominated in a non-functional currency. We have elected not to apply hedge accounting for these transactions. The notional amount and fair value of these contracts at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, along with the effect on our results of operations during the three ~~and six~~ months ended ~~June 30,~~ March 31, 2022 and 2021, ~~and 2020~~, were immaterial.

Note ~~11.~~10. Fair Value Measurements

Financial Assets and Liabilities Measured at Fair Value

We use the market and income approaches to estimate the fair value of our financial assets and liabilities, and during the three ~~and six~~ months ended ~~June 30, 2021,~~March 31, 2022, there were no significant changes in valuation techniques or inputs related to the financial assets or liabilities that we have historically recorded at fair value. The tiers in the fair value hierarchy include: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as significant unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The following tables present information about our financial ~~assets and~~ liabilities measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation inputs we utilized to determine such fair value as of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 (in ~~thousands)~~millions):


		Balance as of June 30, 2021		Fair Value Measurements as of June 30, 2021							Balance as of March 31, 2022		Fair Value Measurements as of March 31, 2022
				Level 1		Level 2		Level 3					Level 1		Level 2		Level 3
Assets:
Cash surrender value of life insurance		$	86,706	$	0	$	86,706	$	0

Total Assets		$	86,706	$	0	$	86,706	$	0

Liabilities:	Liabilities:									Liabilities:
Contingent consideration liabilities	Contingent consideration liabilities	$	3,056	$	0	$	0	$	3,056	Contingent consideration liabilities	$	14	$	—	$	—	$	14

Deferred compensation liabilities	Deferred compensation liabilities	86,865		0		86,865		0		Deferred compensation liabilities	86		—		86		—

Total Liabilities	Total Liabilities	$	89,921	$	0	$	86,865	$	3,056	Total Liabilities	$	100	$	—	$	86	$	14

Balance as of December 31, 2020 Fair Value Measurements as of December 31, 2020
Level 1 Level 2 Level 3
Assets:
Cash surrender value of life insurance $ 72,250 $ 0 $ 72,250 $ 0
Total Assets $ 72,250 $ 0 $ 72,250 $ 0
Liabilities:
Contingent consideration liabilities $ 13,263 $ 0 $ 0 $ 13,263
Interest rate swaps 899 0 899 0
Deferred compensation liabilities 76,240 0 76,240 0
Cross currency swap agreements 56,328 0 56,328 0
Foreign currency forward contracts 5,190 0 5,190 0
Total Liabilities $ 151,920 $ 0 $ 138,657 $ 13,263


	Balance as of December 31, 2021		Fair Value Measurements as of December 31, 2021
			Level 1		Level 2		Level 3





Liabilities:
Contingent consideration liabilities	$	18	$	—	$	—	$	18
Deferred compensation liabilities	89		—		89		—
Total Liabilities	$	107	$	—	$	89	$	18

~~The cash surrender value of life insurance is included in Other noncurrent assets on our Unaudited Condensed Consolidated Balance Sheets.~~ The current portion of contingent consideration liabilities is included in Other current liabilities on ~~our~~the Unaudited Condensed Consolidated Balance Sheets; the noncurrent portion of deferred compensation liabilities and contingent consideration liabilities is included in Other noncurrent liabilities on ~~our~~the Unaudited Condensed Consolidated Balance Sheets based on the expected timing of the related payments. The balance sheet classification of the interest rate swaps, cross currency swap agreements, and foreign currency forward contracts is presented in Note 10, "Derivative Instruments and Hedging Activities."

Our Level 2 ~~assets and~~ liabilities are valued using inputs from third parties and market observable data. We obtain valuation data for the ~~cash surrender value of life insurance and~~ deferred compensation liabilities from third party sources, which ~~determine the net asset values for our accounts using~~use quoted market prices, investment allocations and reportable trades. We value our other derivative instruments using a third party valuation model that performs a discounted cash flow analysis based on the terms of the contracts and market observable inputs such as current and forward interest rates and current and forward foreign exchange rates.

Our contingent consideration liabilities are related to our business acquisitions. Under the terms of the contingent consideration agreements, payments may be made at specified future dates depending on the performance of the acquired business subsequent to the acquisition. The liabilities for these payments are classified as Level 3 liabilities because the related fair value measurement, which is determined using an income approach, includes significant inputs not observable in the market.

We also have equity investments recorded in Other noncurrent assets that are reported at fair value. We have used net asset value as a practical expedient to value these equity investments and thus they are excluded from the fair value hierarchy disclosure.

Financial Assets and Liabilities Not Measured at Fair Value

Our debt is reflected on the Unaudited Condensed Consolidated Balance Sheets at cost. Based on market conditions as of both ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the fair value of ~~our~~the credit agreement borrowings reasonably approximated the carrying values of ~~$1.4 billion~~$1,813 million and ~~$967~~$1,887 million, respectively. As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020, there were no outstanding borrowings under the receivables facility. As of June 30,~~ 2021, ~~and December 31, 2020,~~ the fair values of the Euro Notes (2024) were approximately ~~$642~~$573 million and ~~$662~~$605 million, respectively, compared to carrying values of ~~$593~~$553 million and ~~$611~~$569 million, respectively. As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the fair values of the Euro Notes ~~(2026/28)~~(2028) were ~~$319~~$287 million and ~~$1.3 billion,~~$301 million, respectively, compared to carrying values of ~~$296~~$277 million and ~~$1.2 billion,~~$284 million, respectively.

The fair value measurements of the borrowings under ~~our~~the credit agreement and receivables facility are classified as Level 2 within the fair value hierarchy since they are determined based upon significant inputs observable in the market, including interest rates on recent financing transactions with similar terms and maturities. We estimated the fair value by calculating the upfront cash payment a market participant would require at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020~~2021 to assume these obligations. The fair values of ~~our~~the Euro Notes (2024) and Euro Notes ~~(2026/28)~~(2028) are determined based upon observable market inputs including quoted market prices in markets that are not active, and therefore are classified as Level 2 within the fair value hierarchy.

Note ~~12.~~11. Employee Benefit Plans

We have funded and unfunded defined benefit plans covering certain employee groups in the U.S. and various European countries. Local statutory requirements govern many of our European plans. The defined benefit plans are mostly closed to new participants and, in some cases, existing participants no longer accrue benefits.

As of ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, the aggregate funded status of the defined benefit plans was a liability of ~~$148~~$125 million and ~~$153~~$131 million, respectively, and is reported in Other noncurrent liabilities and Accrued payroll-related liabilities on our Unaudited Condensed Consolidated Balance Sheets.

Net periodic benefit cost for our defined benefit plans ~~included~~totaled $1 million for each of the ~~following components for the three~~three-month periods ended March 31, 2022 and ~~six months ended June 30,~~ 2021 and ~~2020 (in thousands):~~

Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
Service cost $ 933 $ 856 $ 1,828 $ 1,526
Interest cost 353 731 695 1,449
Expected return on plan assets (423) (662) (846) (1,140)
Amortization of actuarial loss 437 555 874 669
Settlement loss (1)
0 2,100 0 2,100
Net periodic benefit cost $ 1,300 $ 3,580 $ 2,551 $ 4,604

~~(1)Related~~primarily related to ~~the partial settlement of a U.S. plan in 2020.~~

~~For the three and six months ended June 30, 2021 and 2020, the~~ service cost ~~component of net periodic benefit cost was classified in~~which is recorded to Selling, general and administrative expenses ~~while~~on the ~~other components of net periodic benefit cost were classified in Other income, net in our~~ Unaudited Condensed Consolidated Statements of Income.

Note ~~13.~~12. Income Taxes

At the end of each interim period, we estimate our annual effective tax rate and apply that rate to our interim earnings. We also record the tax impact of certain unusual or infrequently occurring items, including changes in judgment about valuation allowances and the effects of changes in tax laws or rates, in the interim period in which they occur.

The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in state and foreign jurisdictions, permanent and temporary differences between book and taxable income, and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as the tax environment changes.

Our effective income tax rate for the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 was ~~26.3%~~25.0%, compared to ~~27.7%~~26.3% for the ~~comparable prior year period.~~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 ~~higher forecasted 2021 results~~geographic distribution 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.~~income. For the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, the effective tax rate was ~~increased 0.1%~~partially decreased by net ~~unfavorable~~favorable discrete items ~~primarily a~~including excess tax benefits from stock-based payments partially offset by the revaluation of deferred tax ~~adjustment required as a result of a United Kingdom staged tax~~balances in connection with an enacted rate ~~increase that will become effective April 1, 2023.~~change. Net discrete items for the ~~six~~three months ended ~~June 30, 2020~~March 31, 2021 reduced the effective tax rate by ~~0.3%~~0.2%, primarily due to excess tax benefits on stock-based ~~compensation and~~payments. Additionally, for the three months ended March 31, 2022, we recorded a $4 million benefit related to the reassessment of a previously recorded valuation allowance on a deferred tax ~~adjustments as a result of statutory tax rate changes.~~asset. This item was recorded to Net income from discontinued operations.

Note ~~14.~~13. Segment and Geographic Information

We have 4 operating segments: Wholesale – North America, Europe, Specialty and Self ~~Service. Our~~Service, each of which is presented as a reportable segment. Beginning in 2022, the Wholesale –- North America and Self Service operating ~~segments are aggregated into 1~~segment results were separated from the previous reportable segment, North America, ~~because they possess similar economic characteristics~~ and each of Wholesale - North America and Self Service is now a separate reportable segment. Segment results have ~~common products and services, customers, and methods of distribution. Our reportable~~been adjusted retrospectively to reflect this change.

The segments are organized based on a combination of geographic areas served and type of product lines offered. The ~~reportable~~ segments are managed separately as ~~each business serves~~the businesses serve different customers ~~(i.e. geographic in the case of North America~~ and ~~Europe and product type in the case of Specialty) and is~~are affected by different economic conditions. ~~Therefore, we present 3 reportable segments:~~Wholesale - North America ~~Europe~~ and ~~Specialty.~~Self Service have similar economic characteristics and have common products and services, customers and methods of distribution. We are reporting these operating segments separately to provide greater transparency to investors.

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


		North America		Europe		Specialty		Eliminations		Consolidated			Wholesale - North America		Europe		Specialty		Self Service		Eliminations		Consolidated
Three Months Ended June 30, 2021
Three Months Ended March 31, 2022												Three Months Ended March 31, 2022
Revenue:	Revenue:											Revenue:
Third Party	Third Party	$	1,327,050	$	1,576,661	$	531,403	$	0	$	3,435,114	Third Party	$	1,201	$	1,488	$	460	$	199	$	—	$	3,348
Intersegment	Intersegment	644		0		876		(1,520)		0		Intersegment	—		—		1		—		(1)		—
Total segment revenue	Total segment revenue	$	1,327,694	$	1,576,661	$	532,279	$	(1,520)	$	3,435,114	Total segment revenue	$	1,201	$	1,488	$	461	$	199	$	(1)	$	3,348
Segment EBITDA	Segment EBITDA	$	276,186	$	168,106	$	79,399	$	0	$	523,691	Segment EBITDA	$	218	$	131	$	58	$	40	$	—	$	447
Depreciation and amortization (1)	Depreciation and amortization (1)	23,721		39,984		7,038		0		70,743		Depreciation and amortization (1)	19		34		8		4		—		65
Three Months Ended June 30, 2020
Three Months Ended March 31, 2021												Three Months Ended March 31, 2021
Revenue:	Revenue:											Revenue:
Third Party	Third Party	$	1,011,136	$	1,211,185	$	404,002	$	0	$	2,626,323	Third Party	$	1,051	$	1,463	$	458	$	199	$	—	$	3,171
Intersegment	Intersegment	259		0		872		(1,131)		0		Intersegment	—		—		1		—		(1)		—
Total segment revenue	Total segment revenue	$	1,011,395	$	1,211,185	$	404,874	$	(1,131)	$	2,626,323	Total segment revenue	$	1,051	$	1,463	$	459	$	199	$	(1)	$	3,171
Segment EBITDA	Segment EBITDA	$	149,554	$	89,387	$	52,233	$	0	$	291,174	Segment EBITDA	$	194	$	141	$	61	$	56	$	—	$	452
Depreciation and amortization (1)	Depreciation and amortization (1)	25,050		40,493		7,387		0		72,930		Depreciation and amortization (1)	21		40		7		4		—		72

(1)

North America Europe Specialty Eliminations Consolidated
Six Months Ended June 30, 2021
Revenue:
Third Party $ 2,576,424 $ 3,040,114 $ 989,362 $ 0 $ 6,605,900
Intersegment 963 0 1,856 (2,819) 0
Total segment revenue $ 2,577,387 $ 3,040,114 $ 991,218 $ (2,819) $ 6,605,900
Segment EBITDA $ 525,353 $ 309,064 $ 140,881 $ 0 $ 975,298
Depreciation and amortization (1)
47,981 80,242 14,117 0 142,340
Six Months Ended June 30, 2020
Revenue:
Third Party $ 2,301,071 $ 2,574,779 $ 751,408 $ 0 $ 5,627,258
Intersegment 519 0 2,048 (2,567) 0
Total segment revenue $ 2,301,590 $ 2,574,779 $ 753,456 $ (2,567) $ 5,627,258
Segment EBITDA $ 360,992 $ 167,649 $ 84,465 $ 0 $ 613,106
Depreciation and amortization (1)
48,198 81,588 14,523 0 144,309

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

The key measure of segment profit or loss reviewed by our chief operating decision maker, our Chief Executive Officer, is Segment EBITDA. We use Segment EBITDA to compare profitability among ~~our~~the segments and evaluate business strategies. Segment EBITDA includes revenue and expenses that are controllable by the segment. Corporate general and administrative expenses are allocated to the segments based on usage, with shared expenses apportioned based on the segment's percentage of consolidated revenue. We calculate Segment EBITDA as EBITDA excluding restructuring and ~~acquisition~~transaction related expenses (which includes restructuring expenses recorded in Cost of goods sold); change in fair value of contingent consideration liabilities; other gains and losses related to acquisitions, equity method investments, or divestitures; equity in losses and earnings of unconsolidated subsidiaries; equity investment ~~mark~~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 ~~market adjustments;~~support our employees and ~~impairment charges.~~their families). EBITDA, which is the basis for Segment EBITDA, is calculated as net income ~~attributable to LKQ stockholders~~ excluding discontinued operations, ~~and discontinued noncontrolling interest,~~ depreciation, amortization, interest (which includes gains and losses on debt extinguishment) and income tax expense.

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


	Three Months Ended March 31,
	2022		2021
Net income	$	273	$	266


Subtract:
Net income from discontinued operations	4		—
Net income from continuing operations	269		266
Add:
Depreciation and amortization	59		66
Depreciation and amortization - cost of goods sold	6		6

Interest expense, net of interest income	15		24

Provision for income taxes	89		93
EBITDA	438		455
Subtract:
Equity in earnings of unconsolidated subsidiaries (1)	2		6
Equity investment fair value adjustments	(1)		5

Add:
Restructuring and transaction related expenses	3		8






Losses on previously held equity interests	1		—
Direct impacts of Ukraine/Russia conflict (2)	6		—
Segment EBITDA	$	447	$	452

(1)

Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 2021 2020
Net income $ 305,008 $ 118,770 $ 571,340 $ 264,749
Less: net income (loss) attributable to continuing noncontrolling interest 384 (22) 803 718
Less: net income attributable to discontinued noncontrolling interest 0 0 0 103
Net income attributable to LKQ stockholders 304,624 118,792 570,537 263,928
Subtract:
Net income (loss) from discontinued operations 0 277 0 (638)
Net income attributable to discontinued noncontrolling interest 0 0 0 (103)
Net income from continuing operations attributable to LKQ stockholders 304,624 118,515 570,537 264,669
Add:
Depreciation and amortization 64,896 65,747 130,697 131,242
Depreciation and amortization - cost of goods sold 5,649 4,010 11,264 9,095
Depreciation and amortization - restructuring expenses (1)
198 3,173 379 3,972
Interest expense, net of interest income 16,172 25,616 40,351 51,547
Loss on debt extinguishment 23,564 0 23,564 12,751
Provision for income taxes 107,719 41,869 200,688 102,280
EBITDA 522,822 258,930 977,480 575,556
Subtract:
Equity in earnings (losses) of unconsolidated subsidiaries (2)
3,478 (2,649) 9,297 (2,133)
Equity investment mark to market adjustments 1,061 0 5,800 0
Add:
Restructuring and acquisition related expenses (1)
4,871 21,777 12,575 27,948
Restructuring expenses - cost of goods sold 0 5,665 (163) 5,661
(Gain) loss on disposal of businesses and impairment of net assets held for sale (597) 2,485 (582) 2,236
Change in fair value of contingent consideration liabilities 1,134 (332) 1,085 (428)
Segment EBITDA $ 523,691 $ 291,174 $ 975,298 $ 613,106

(1) The sum of these two captions represents the total amount that is reported in Restructuring and acquisition related expenses in our Unaudited Condensed Consolidated Statements of Income. Refer to Note 5, "Restructuring and Acquisition Related Expenses," for further information.

~~(2)~~ Refer to "Investments in Unconsolidated Subsidiaries" in Note 3,2, "Financial Statement Information," for further information.

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

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


		Three Months Ended				Six Months Ended
		June 30,				June 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Capital Expenditures	Capital Expenditures									Capital Expenditures
North America		$	16,817	$	10,892	$	30,152	$	40,213
Wholesale – North America										Wholesale – North America	$	29	$	11
Europe	Europe	21,203		19,502		47,501		32,550		Europe	23		26
Specialty	Specialty	8,055		2,369		10,201		4,538		Specialty	4		2
Self Service										Self Service	3		3
Total capital expenditures	Total capital expenditures	$	46,075	$	32,763	$	87,854	$	77,301	Total capital expenditures	$	59	$	42

2823

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


							March 31, 2022 (1)		December 31, 2021
Receivables, net						Receivables, net
Wholesale – North America						Wholesale – North America	$	374	$	367
Europe						Europe	702		586
Specialty						Specialty	142		102
Self Service						Self Service	21		18
Total receivables, net						Total receivables, net	1,239		1,073
Inventories						Inventories
Wholesale – North America						Wholesale – North America	696		776
Europe						Europe	1,300		1,327
Specialty						Specialty	519		458
Self Service						Self Service	58		50
Total inventories						Total inventories	2,573		2,611
Property, plant and equipment, net						Property, plant and equipment, net
Wholesale – North America						Wholesale – North America	501		526
Europe						Europe	561		577
Specialty						Specialty	92		93
Self Service						Self Service	102		103
Total property, plant and equipment, net						Total property, plant and equipment, net	1,256		1,299
Operating lease assets, net						Operating lease assets, net
Wholesale – North America						Wholesale – North America	563		611
Europe						Europe	498		515
Specialty						Specialty	92		83
Self Service						Self Service	148		152
Total operating lease assets, net						Total operating lease assets, net	1,301		1,361

		June 30,		December 31,
		2021		2020
Receivables, net
North America		$	403,761	$	386,289
Europe		669,432		598,615
Specialty		152,542		88,485
Total receivables, net		1,225,735		1,073,389
Inventories
North America		785,064		810,798
Europe		1,286,067		1,302,649
Specialty		323,016		301,165
Total inventories		2,394,147		2,414,612
Property, plant and equipment, net
North America		568,905		583,985
Europe		554,321		583,439
Specialty		83,930		81,279
Total property, plant and equipment, net		1,207,156		1,248,703
Operating lease assets, net
North America		772,614		755,430
Europe		521,703		520,131
Specialty		73,826		77,563
Total operating lease assets, net		1,368,143		1,353,124
Equity method investments
North America		21,255		18,676
Europe		147,212		136,548
Total equity method investments		168,467		155,224

Other unallocated assets	Other unallocated assets	6,074,411		6,115,481		Other unallocated assets	6,409		6,262
Total assets	Total assets	$	12,438,059	$	12,360,533	Total assets	$	12,778	$	12,606

(1) The Wholesale - North America segment excludes amounts which are held for sale. See Note 2, "Financial Statement Information" for information related to the held for sale balances.

We report net receivables; inventories; net property,, plant and equipment; and net operating lease ~~assets; and equity method investments~~assets by segment as that information is used by the chief operating decision maker in assessing segment performance. These assets provide a measure for the operating capital employed in each segment. Unallocated assets include cash and cash equivalents, prepaid expenses and other current and noncurrent assets, goodwill, other intangibles and ~~other intangibles.~~equity method investments.

Our largest countries of operation are the U.S., followed by the U.K. and Germany. Additional European operations are located in the Netherlands, Italy, Czech Republic, Belgium, Austria, Slovakia, Poland, and other European countries. Our operations in other countries include wholesale operations in Canada, remanufacturing operations in Mexico, an aftermarket parts freight consolidation warehouse in Taiwan, and administrative support functions in India. Our net sales are attributed to geographic area based on the location of the selling operation.

2924

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


		Three Months Ended				Six Months Ended
		June 30,				June 30,					Three Months Ended March 31,
		2021		2020		2021		2020			2022		2021
Revenue	Revenue									Revenue
United States	United States	$	1,749,496	$	1,330,543	$	3,354,929	$	2,864,489	United States	$	1,750	$	1,605
United Kingdom	United Kingdom	421,314		278,419		824,752		669,038		United Kingdom	425		403
Germany	Germany	418,817		359,134		806,693		733,686		Germany	386		388
Other countries	Other countries	845,487		658,227		1,619,526		1,360,045		Other countries	787		775
Total revenue	Total revenue	$	3,435,114	$	2,626,323	$	6,605,900	$	5,627,258	Total revenue	$	3,348	$	3,171

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


		June 30,		December 31,
		2021		2020			March 31, 2022		December 31, 2021
Long-lived assets	Long-lived assets					Long-lived assets
United States	United States	$	1,414,705	$	1,419,113	United States	$	1,419	$	1,487
Germany	Germany	347,531		360,184		Germany	314		329
United Kingdom	United Kingdom	304,395		315,333		United Kingdom	290		305
Other countries	Other countries	508,668		507,197		Other countries	534		539
Total long-lived assets	Total long-lived assets	$	2,575,299	$	2,601,827	Total long-lived assets	$	2,557	$	2,660

3025

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Statements and information in this Quarterly Report on Form 10-Q that are not historical are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 and are made pursuant to the “safe harbor” provisions of such Act.

Forward-looking statements include, but are not limited to, statements regarding our outlook, guidance, expectations, beliefs, hopes, intentions and strategies. Words such as “may,” “will,” “plan,” “should,” “expect,” “anticipate,” “believe,” “if,” “estimate,” “intend,” “project” and similar words or expressions are used to identify these forward-looking statements. These statements are subject to a number of risks, uncertainties, assumptions and other factors ~~including the unfavorable effects of COVID-19,~~ that may cause our actual results, performance or achievements to be materially different. All forward-looking statements are based on information available to us at the time the statements are made. We undertake no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

You should not place undue reliance on our forward-looking statements. Actual events or results may differ materially from those expressed or implied in the forward-looking statements. The risks, uncertainties, assumptions and other factors that could cause actual results to differ from the results predicted or implied by our forward-looking statements include factors discussed in our filings with the SEC, including those disclosed under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our ~~2020~~2021 Form 10-K and in our ~~subsequent~~ Quarterly Reports on Form 10-Q (including this Quarterly Report).

Overview

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

Buyers of vehicle replacement products have the option to purchase from primarily five sources: new products produced by OEMs; new products produced by companies other than the OEMs, which are referred to as aftermarket products; recycled products obtained from salvage and total loss vehicles; recycled products that have been refurbished; and recycled products that have been remanufactured. We distribute a variety of products to collision and mechanical repair shops, including aftermarket collision and mechanical products; recycled collision and mechanical products; refurbished collision products such as wheels, bumper covers and lights; and remanufactured engines and transmissions. Collectively, we refer to the four sources that are not new OEM products as alternative parts.

We are a leading provider of alternative vehicle collision replacement products and alternative vehicle mechanical replacement products, with our sales, processing, and distribution facilities reaching most major markets in the United States and Canada. We are also a leading provider of alternative vehicle replacement and maintenance products in Germany, the United Kingdom, the Benelux region (Belgium, Netherlands, and Luxembourg), Italy, Czech Republic, Austria, Slovakia, Poland, and various other European countries. In addition to our wholesale operations, we operate self service retail facilities across the U.S. that sell recycled automotive products from end-of-life-vehicles. We are also a leading distributor of specialty vehicle aftermarket equipment and accessories reaching most major markets in the U.S. and Canada.

We are organized into four operating segments: Wholesale – North America; Europe; ~~Specialty~~Specialty; and Self ~~Service. We aggregate our~~Service, each of which is presented as a reportable segment. Beginning in 2022, the Wholesale –- North America and Self Service operating ~~segments into one~~segment results were separated from the previous reportable segment, North America, ~~resulting in three reportable segments:~~and each of Wholesale - North America ~~Europe~~ and ~~Specialty.~~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. Please refer to the factors referred to in Forward-Looking Statements above. Due to these factors and others, which may be unknown to us at this time, our operating results in future periods can be expected to fluctuate. Accordingly, our historical results of operations may not be indicative of future performance.

Acquisitions and Investments

Since our inception in 1998, we have pursued a growth strategy through both organic growth and acquisitions. Through 2018, our acquisition strategy was focused on consolidation to build scale in fragmented markets across North America and Europe. We targeted companies that were market leaders, expanded our geographic presence and enhanced our ability to provide a wide array of vehicle products through our distribution network. In the last few years, we have shifted our focus from larger transactions to tuck-in acquisitions that target high synergies and/or add critical capabilities. Additionally, we have made investments in various businesses to advance our strategic objectives. See "Investments in Unconsolidated

Subsidiaries" in Note 3,2, "Financial Statement Information," to the ~~unaudited condensed consolidated financial statements~~Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to our investments.

Sources of Revenue

We report our revenue in two categories: (i) parts and services and (ii) other. Our parts revenue is generated from the sale of vehicle products, including replacement parts, components and systems used in the repair and maintenance of vehicles, and specialty products and accessories 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~~metals (including precious metals - platinum, palladium and ~~rhodium)~~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 4,3, "Revenue Recognition" to the ~~unaudited condensed consolidated financial statements~~Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to our sources of revenue.

Critical Accounting ~~Policies and~~ Estimates

The discussion and analysis of our financial condition and results of operations are based upon our ~~unaudited condensed consolidated financial statements,~~Unaudited Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires usmanagement to make use of certain estimates ~~assumptions~~ and ~~judgments~~assumptions that affect the reported amounts of assets, liabilities, ~~revenue~~revenues and expenses, and related disclosure of contingent assets and liabilities. Our ~~2020~~2021 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~~revenues or expenses during the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022.

~~Recently Issued Accounting Pronouncements~~

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

Financial Information by Geographic Area

See Note ~~14,~~13, "Segment and Geographic Information" to the ~~unaudited condensed consolidated financial statements~~Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information related to our revenue and long-lived assets by geographic region.

1 LKQ Europe Program

We have undertaken the 1 LKQ Europe program to create structural centralization and standardization of key functions to facilitate the operation of the Europe segment as a single business. Under this multi-year program, we expect to recognize the following:

•Restructuring expenses -— Non-recurring costs resulting directly from the implementation of the 1 LKQ Europe program from which the business will derive no ongoing benefit. See Note ~~5, “Restructuring~~4, "Restructuring and ~~Acquisition~~Transaction Related Expenses” to the ~~unaudited condensed consolidated financial statements~~Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further details.

•Transformation expenses -— Period costs incurred to execute the 1 LKQ Europe program that are expected to contribute to ongoing benefits to the business (e.g. non-capitalizable implementation costs related to a common ERP system). These expenses are recorded in Selling, general and administrative expenses.

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

Costs related to the 1 LKQ Europe program incurred to date are reflected in Selling, general and administrative expenses, Restructuring and transaction related expenses and Purchases of property, plant and equipment in our ~~unaudited condensed consolidated financial statements~~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

the end of 2024. During the three ~~and six~~ months ended ~~June 30, 2021~~March 31, 2022 we incurred $6$6 million ~~and~~ ~~$20 million, respectively,~~ in costs across all three categories noted above. We expect that costs of the program, reflecting all three categories noted above, will range between $30 million and $50 million ~~and~~in 2022 with an additional $50 million to $70 million in ~~2021 with an additional $80 million to $100 million between 2022~~2023 and 2024 through the projected program completion ~~date in 2024.~~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~~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 ~~Our Operations~~

~~In late February 2020,~~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 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 partway in which we operate in Ukraine. Many of our ~~European business,~~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 ~~represented approximately 10% of the segment’s revenue in 2019, and thus the disruption did not~~to have a material impact on ~~the Company. By mid-March, the COVID-19 impact began spreading across the rest~~our results of ~~the geographies where we operate at a very rapid pace. Governments adopted aggressive restrictions on the operation~~operations or cash flows. Our operations in Ukraine represent less than 1% of ~~non-essential businesses~~both our total annual revenue and ~~personal movement, which reduced miles driven~~total annual operating profit and ~~collisions. While~~comprised approximately $40 million of gross assets as of March 31, 2022. In addition, LKQ revenue from customers in Russia represents less than 0.3% of 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 servicestotal revenue ~~declined by 16.8%, 4.5% and 5.2%~~. As future developments in the second, third, and fourth quarters of 2020, respectively, relative to the comparable prior year periods. We showed improvement in the third quarter of 2020 as governments gradually lifted restrictions for non-essential businesses and personal movement; however, in the fourth quarter of 2020 revenue declined as certain jurisdictions put restrictions back into place. As anticipated, April 2020 experienced the most negative revenue impact, with organic parts and services revenue (on a per day basis) down 30.3% compared to the prior year period. As movement restrictions lessened in May and June 2020, we experienced organic parts and services revenue declines (on a per day basis) of 13.2% and 7.3%, respectively, compared to the prior year periods. However, the pace of improvement flattened into the third quarter of 2020 as the increasing level of COVID-19 cases, especially in the United States, slowed the recovery. During the third quarter of 2020, organic parts and services revenue declined by 4.5% compared to the prior year period, a small improvement from the June 2020 decline of 7.3% (on a per day basis). During the fourth quarter of 2020, organic parts and services revenue declined by 6.1% (on a per day basis) and gradually worsened during the quarter with a decline of 7.2% (on a per day basis) in December. During the first quarter of 2021, organic parts and services revenue increased by 2.2% (on a per day basis) despite the continued COVID-19 impact on economic activity in the U.S. and Europe. During the second quarter of 2021, organic parts and services revenue increased by 21.1% (on a per day basis) reflecting the low prior year comparable figure owing to COVID-19 and the gradual recovery in mobility. Our revenue has been impacted to varying degrees depending on the segment, with North America experiencing the most negative impact due to the decrease in miles driven and collision activity. After seeing year over year decreases early in the pandemic, Specialty revenue has grown due to favorable trends in recreational vehicle activity. We expect consolidated revenue to continue recovering gradually in the second half of 2021. The level of the year over year increase in revenue will depend on the extent of reopening activities across the geographies in which we operate and the pace of recovery in miles driven.

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 2020 through the second quarter 2021, we were able to sustain a portion of the cost benefits. If revenue continues to increase during the remainder of 2021, we expect that some of the costs that were reduced as a result of COVID-19 will remain at a lower level; the management team has been implementing productivity initiatives to create lower cost structures going forward as seen in the third and fourth quarter of 2020 and first and second quarter of 2021 results.

We pursued certain financial assistance and relief programs that were available to us from governments in Europe and Canada, primarily in the form of grants to offset personnel expenses. During the six months ended June 30, 2021, we qualified for $15 million of assistance. We received $52 million of government assistance in 2020, with the largest portion coming in the second quarter. We currently do not anticipate qualifying for significant additional assistance in the remainder of 2021, but we still will receive some government assistance in England. This view may change in the future based on developments with COVID-19.

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

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.

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~~conflict are difficult to project and ~~in many cases are~~ outside of our control, it is possible that the estimates underlying our ~~analyses~~financials may change ~~materially~~significantly 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.

Our top priority is the health and safety of our employees, customers and the communities in which we operate. We are using all reasonable efforts to follow governmental instructions and safety guidelines with respect to the operations of our facilities. We implemented protocols across our business units designed to help ensure the health and safety of our employees, customers and communities including, but not limited to: restricting access to and enhancing cleaning and disinfecting protocols at our facilities; use of personal protective equipment; adhering to social distancing guidelines; instituting remote work arrangements for many of our employees; and restricting travel. We are monitoring developments related to vaccination levels and governmental standards and have adjusted our practices where appropriate to comply with the latest guidance.

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

Key Performance Indicators

We believe that organic revenue growth, Segment EBITDA and free cash flow are key performance indicators for our business. Segment EBITDA is our key measure of segment profit or loss reviewed by our chief operating decision maker. Free cash flow is a financial measure that is not prepared in accordance with U.S. generally accepted accounting principles (“non-GAAP”).

•Organic revenue growth - We define organic revenue growth as total revenue growth from continuing operations excluding the effects of acquisitions and divestitures (i.e., revenue generated from the date of acquisition to the first anniversary of that acquisition, net of reduced revenue due to the disposal of businesses) and foreign currency movements (i.e., impact of translating revenue at prior period exchange rates). Organic revenue growth includes incremental sales from both existing and new (i.e., opened within the last twelve months) locations and is derived from expanding business with existing customers, securing new customers and offering additional products and services. We believe that organic revenue growth is a key performance indicator as this statistic measures our ability to serve and grow our customer base successfully.

•Segment EBITDA - ~~Refer to~~See Note ~~14,~~13, "Segment and Geographic ~~Information,”~~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, to repurchase stock, and to ~~repurchase stock.~~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.

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 Six Months Ended
June 30, June 30,
2021 2020 2021 2020
Revenue 100.0 % 100.0 % 100.0 % 100.0 %
Cost of goods sold 58.8 % 61.5 % 59.0 % 60.5 %
Gross margin 41.2 % 38.5 % 41.0 % 39.5 %
Selling, general and administrative expenses 26.2 % 28.1 % 26.5 % 29.1 %
Restructuring and acquisition related expenses 0.1 % 0.9 % 0.2 % 0.6 %
(Gain) loss on disposal of businesses and impairment of net assets held for sale (0.0) % 0.1 % (0.0) % 0.0 %
Depreciation and amortization 1.9 % 2.5 % 2.0 % 2.3 %
Operating income 12.9 % 6.9 % 12.4 % 7.5 %
Total other expense, net 1.0 % 0.7 % 0.8 % 0.9 %
Income from continuing operations before provision for income taxes 11.9 % 6.2 % 11.5 % 6.6 %
Provision for income taxes 3.1 % 1.6 % 3.0 % 1.8 %
Equity in earnings (losses) of unconsolidated subsidiaries 0.1 % (0.1) % 0.1 % (0.0) %
Income from continuing operations 8.9 % 4.5 % 8.6 % 4.7 %
Net income (loss) from discontinued operations — % 0.0 % — % (0.0) %
Net income 8.9 % 4.5 % 8.6 % 4.7 %
Less: net income (loss) attributable to continuing noncontrolling interest 0.0 % (0.0) % 0.0 % 0.0 %
Less: net income attributable to discontinued noncontrolling interest — % — % — % 0.0 %
Net income attributable to LKQ stockholders 8.9 % 4.5 % 8.6 % 4.7 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.


	Three Months Ended March 31,
	2022		2021
Revenue	100.0	%	100.0	%
Cost of goods sold	59.5	%	59.2	%

Gross margin	40.5	%	40.8	%
Selling, general and administrative expenses	27.6	%	26.8	%
Restructuring and transaction related expenses	0.1	%	0.2	%

Depreciation and amortization	1.8	%	2.1	%
Operating income	11.1	%	11.7	%
Total other expense, net	0.4	%	0.6	%
Income from continuing operations before provision for income taxes	10.6	%	11.1	%
Provision for income taxes	2.7	%	2.9	%
Equity in earnings of unconsolidated subsidiaries	0.1	%	0.2	%
Income from continuing operations	8.0	%	8.4	%
Net income from discontinued operations	0.1	%	—	%
Net income	8.2	%	8.4	%

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

Three Months Ended ~~June 30, 2021~~March 31, 2022 Compared to Three Months Ended ~~June 30, 2020~~March 31, 2021

~~Revenue.~~

Revenue

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


		Three Months Ended
		June 30,				Percentage Change in Revenue									Three Months Ended March 31,				Percentage Change in Revenue
		2021		2020		Organic		Acquisition and Divestiture		Foreign Exchange		Total Change			2022		2021		Organic		Acquisition and Divestiture		Foreign Exchange		Total Change
Parts & services revenue	Parts & services revenue	$	3,178,271	$	2,503,158	21.9	%	(0.3)	%	5.4	%	27.0	%	Parts & services revenue	$	3,104	$	2,932	6.9	%	1.7	%	(2.7)	%	5.9	%
Other revenue	Other revenue	256,843		123,165		108.0	%	0.0	%	0.5	%	108.5	%	Other revenue	244		239		2.1	%	0.1	%	(0.2)	%	2.0	%
Total revenue	Total revenue	$	3,435,114	$	2,626,323	25.9	%	(0.3)	%	5.2	%	30.8	%	Total revenue	$	3,348	$	3,171	6.5	%	1.6	%	(2.5)	%	5.6	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.	Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.													Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

The ~~increase~~growth in parts and services revenue of ~~27.0%~~5.9% represented increases in segment revenue of ~~31.5%~~14.6% in ~~Specialty, 30.1%~~Self Service, 14.2% in Wholesale – North America, 1.8% in Europe, and ~~20.6%~~0.4% in ~~North America.~~Specialty. Organic parts and services revenue growth was ~~21.9% as the negative~~6.9%, which included a 1.3% positive effect ~~of the pandemic~~from one additional selling day in the ~~second~~first quarter, ~~of 2020 was more severe than~~resulting in ~~the current year. We expect to report~~per day organic growth ~~in the third quarter~~ of ~~2021, although at a lower rate than the second quarter, coming off a low base as the third quarter of 2020 continued to experience negative effects from the lockdown measures of 2020.~~5.6%. The increase in other revenue of ~~108.5%~~2.0% was primarily driven by a ~~$133~~$5 million organic increase, ~~largely~~ 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 ~~second~~first quarter of ~~2021~~2022 compared to the prior year period.

Cost of Goods Sold

Cost of goods sold ~~decreased~~increased to ~~58.8%~~59.5% of revenue in the three months ended ~~June 30, 2021~~March 31, 2022 from ~~61.5%~~59.2% of revenue in the three months ended ~~June 30, 2020.~~March 31, 2021. The cost of goods sold ~~decrease~~increase reflects impacts of ~~1.5%, 0.7%~~(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 ~~Europe~~which has higher margins and (iv) 0.2% in our Specialty ~~segments, respectively.~~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 ~~June 30, 2021~~March 31, 2022 compared to the ~~same period of 2020.~~three months ended March 31, 2021.

Selling, General and Administrative ~~Expenses.~~ Expenses

Our selling, general and administrative ("SG&A") expenses as a percentage of revenue ~~decreased~~increased to ~~26.2%~~27.6% in the three months ended ~~June 30, 2021~~March 31, 2022 from ~~28.1%~~26.8% in the three months ended ~~June 30, 2020.~~March 31, 2021. The SG&A ~~expenses decreased over the prior year period as a result~~expense increase reflects impacts of ~~(i) a 1.1% decrease attributable to~~0.3% in our Specialty segment and 0.2% in each of our Wholesale - North America ~~segment~~ and ~~(ii) a 0.8% decrease from our~~ Europe ~~segment.~~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 ~~June 30, 2021~~March 31, 2022 compared to the three months ended ~~June 30, 2020.~~March 31, 2021.

Restructuring and ~~Acquisition~~Transaction Related Expenses

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

Three Months Ended
June 30,
2021 2020 Change
Restructuring and acquisition related expenses $ 5,069 (1) $ 24,950 (2) $ (19,881)


	Three Months Ended March 31,
	2022			2021			Change
Restructuring expenses	$	—		$	8	(1)	$	(8)
Transaction related expenses	3		(2)	—			3
Restructuring and transaction related expenses	$	3		$	8		$	(5)

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

~~(2)~~Restructuring expenses for the three months ended ~~June 30, 2020~~March 31, 2021 primarily consisted of (i) ~~$20~~$5 million related to our ~~2020 global restructuring~~1 LKQ Europe program and (ii) $4$3 million ~~related to integration costs from acquisitions, and (iii) $2 million~~ related to our ~~2019~~ global restructuring ~~program.~~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 5,4, "Restructuring and ~~Acquisition~~Transaction Related Expenses" to the ~~unaudited condensed consolidated financial statements~~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)~~millions):


		Three Months Ended
		June 30,								Three Months Ended March 31,
		2021		2020		Change				2022		2021		Change
Depreciation	Depreciation	$	38,730	$	36,912	$	1,818	(1)	Depreciation	$	36	$	39	$	(3)	(1)
Amortization	Amortization	26,166		28,835		(2,669)		(2)	Amortization	23		27		(4)		(2)
Total depreciation and amortization	Total depreciation and amortization	$	64,896	$	65,747	$	(851)		Total depreciation and amortization	$	59	$	66	$	(7)

(1)~~Depreciation~~The decrease in depreciation expense ~~increased by $2~~included $1 million from foreign currency translation primarily related to ~~an increase~~a decrease in the euro and pound sterling exchange rates during the three months ended ~~June 30, 2021~~March 31, 2022 compared to the prior year ~~period.~~period with the remaining decrease relating to lower expense in Wholesale - North America and Europe.

(2)The decrease in amortization expense primarily reflected (i) ~~decreases~~a decrease of ~~$4 million and $1~~$2 million related to the customer relationship intangible assets recorded upon our ~~acquisitions~~acquisition of Stahlgruber ~~and Rhiag, respectively,~~ as the accelerated amortization of the customer relationship intangible assets resulted in lower amortization expense during the three months ended ~~June 30, 2021~~March 31, 2022 compared to the prior year period ~~partially offset by~~and (ii) a $2$1 million ~~increase~~decrease from foreign ~~currency~~exchange translation, primarily related to ~~an increase~~a decrease in the euro exchange ~~rate during the three months ended June 30, 2021 compared to the prior year period.~~rate.

Other Expense, ~~Net.~~Net

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

Other expense, net for the three months ended June 30, 2020 $ 17,442
(Decrease) increase due to:
Interest expense, net of interest income (9,444) (1)
Loss on debt extinguishment 23,564 (2)
Other income, net 3,863 (3)
Net increase 17,983
Other expense, net for the three months ended June 30, 2021 $ 35,425


	Other Expense, Net
Other expense, net for the three months ended March 31, 2021	$	18
(Decrease) increase due to:
Interest expense, net of interest income	(9)		(1)



Lower Other income, net	6		(2)
Net decrease	(3)
Other expense, net for the three months ended March 31, 2022	$	15

(1)The ~~decrease in~~lower Interest expense, net of interest income is primarily related to (i) an ~~$11~~$8 million decrease resulting from lower ~~outstanding debt~~interest rates during the three months ended ~~June 30, 2021~~March 31, 2022 compared to the prior year period ~~partially offset by several individually immaterial factors that had an unfavorable impact of $2~~and (ii) a $1 million decrease from foreign exchange translation, primarily related to a decrease in the ~~aggregate.~~euro exchange rate.

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

~~(3)~~The unfavorable variance in Other income, net primarily related ~~to (i) $8~~to $5 million of ~~proceeds~~fair value adjustments in the ~~second~~first quarter of ~~2020 related to insurance settlements~~2021 for appreciation in our ~~North America segment, partially offset by (ii)~~equity investments not accounted for under the equity method compared to a $2$1 million ~~pension settlement loss~~reduction in fair value recorded in the ~~second~~first quarter of ~~2020, and (iii) several individually immaterial factors that had a favorable impact of $2 million in the aggregate.~~2022.

Provision for Income Taxes

Our effective income tax rate for the three months ended ~~June 30, 2021~~March 31, 2022 was ~~26.3%~~25.0%, compared to ~~25.7%~~26.3% for the ~~comparable prior year period.~~three months ended March 31, 2021. The tax provision for the prior year period was impacted by volatility of earnings projections as a result of the COVID-19 pandemic. The prior year rate was lowered in the second quarter as a result of a favorable revision to our expected full year 2020 effective tax rate. Without such adjustment, thelower estimated annual effective tax rate for the three months ended ~~June 30, 2020 would have been 28.2%. While we updated~~March 31, 2022 compared to the ~~expected full year~~three months ended March 31, 2021 ~~effective tax rate in~~is primarily attributable to the ~~second quarter, the true-up benefit was smaller than experienced in the prior year.~~geographic distribution of income. For the three months ended ~~June 30, 2021,~~March 31, 2022, the effective tax rate was ~~increased 0.3%~~partially decreased by ~~unfavorable~~net favorable discrete items ~~primarily a~~including excess tax benefits from stock-based payments partially offset by the revaluation of deferred tax ~~adjustment required as a result of a United Kingdom staged~~balances in connection with an enacted rate change. Net discrete items for the three months ended March 31, 2021 reduced the effective tax rate ~~increase that will become effective April 1, 2023.~~by 0.2%, primarily due to excess tax benefits on stock-based payments. See Note ~~13,~~12, "Income Taxes" to the ~~unaudited condensed consolidated financial statements~~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.~~Subsidiaries

Equity in earnings of unconsolidated subsidiaries for the three months ended ~~June 30, 2021 increased~~March 31, 2022 decreased by $6$4 million primarily related to ~~improved~~a decline in year over year results reported by Mekonomen, which is our largest equity method investment, and an immaterial ~~North America~~Self Service investment, which incurred a loss in the ~~second~~first quarter of ~~2020.~~2022.

Foreign Currency ~~Impact.~~Impact

We translate our statements of income at the average exchange rates in effect for the period. Relative to the rates used during the three months ended ~~June 30, 2020,~~March 31, 2021, the ~~Czech koruna, Canadian dollar,~~euro and pound sterling ~~and euro~~ rates used to translate the ~~2021~~2022 statements of income ~~increased~~ decreased by ~~15.5%, 12.8%, 12.6%~~7% and ~~9.4%~~3%, respectively. The ~~positive~~negative translation effect of the change in foreign currencies against the U.S. dollar combined with the ~~favorable~~negative impact of realized and unrealized currency gains and losses for the three months ended ~~June 30, 2021~~March 31, 2022 to generate a ~~positive $0.01~~negative $0.02 effect on diluted earnings per share relative to the prior year period.

~~Net Income Attributable to Continuing and Discontinued Noncontrolling Interest.~~ ~~Net income attributable to continuing noncontrolling interest for the three months ended June 30, 2021 increased an immaterial amount compared to the three months ended June 30, 2020.~~

3731

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

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

Six Months Ended
June 30, Percentage Change in Revenue
2021 2020 Organic Acquisition and Divestiture Foreign Exchange Total Change
Parts & services revenue $ 6,110,037 $ 5,315,875 10.6 % (0.5) % 4.8 % 14.9 %
Other revenue 495,863 311,383 58.8 % 0.0 % 0.4 % 59.2 %
Total revenue $ 6,605,900 $ 5,627,258 13.3 % (0.4) % 4.5 % 17.4 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

The growth in parts and services revenue of 14.9% represented increases in segment revenue of 31.7% in Specialty, 18.0% in Europe, and 4.8% in North America. Organic parts and services revenue growth was 10.6%, which included a 0.6% negative effect from one less selling day in the first half of 2021, resulting in per day organic growth of 11.2% as the negative pandemic effect in the first half of 2020 was more severe than in the current year. We expect to report organic growth in the third quarter of 2021, although at a lower rate than the second quarter, coming off a low base as the third quarter of 2020 continued to experience negative effects from the lockdown measures of 2020. The increase in other revenue of 59.2% was primarily driven by a $183 million organic increase, largely attributable to our North America segment. Refer to the discussion of our segment results of operations for factors contributing to the change in revenue by segment during the first six months of 2021 compared to the prior year period.

~~Cost of Goods Sold~~. Cost of goods sold decreased to 59.0% of revenue in the six months ended June 30, 2021 from 60.5% of revenue in the six months ended June 30, 2020. The cost of goods sold decrease reflects impacts of 0.8%, 0.6% and 0.3% in our North America, Europe and Specialty segments, respectively, partially offset by a 0.3% increase in cost of goods sold attributable to mix. The mix impact was a result of the decreased volumes in our North America segment primarily due to the COVID-19 pandemic, as the higher margin North America segment made up a smaller percentage of the consolidated results, causing an unfavorable effect on the gross margin percentage. Refer to the discussion of our segment results of operations for factors contributing to the changes in cost of goods sold as a percentage of revenue by segment for the six months ended June 30, 2021 compared to the same period of 2020.

~~Selling, General and Administrative Expenses.~~ Our SG&A expenses as a percentage of revenue decreased to 26.5% in the six months ended June 30, 2021 from 29.1% in the six months ended June 30, 2020. SG&A expenses decreased over the prior year period as a result of (i) a 1.2% decrease attributable to our North America segment, (ii) a 1.0% decrease from our Europe segment, (iii) a 0.2% decrease from our Specialty segment and (iv) a 0.2% decrease in SG&A expenses attributable to mix. The mix impact was a result of the increased revenues in our Specialty segment, as the lower SG&A expense percentage for the Specialty segment made up a larger percentage of the consolidated results, which had a favorable effect on the SG&A expense percentage. Refer to the discussion of our segment results of operations for factors contributing to the changes in SG&A expenses as a percentage of revenue by segment for the six months ended June 30, 2021 compared to the six months ended June 30, 2020.

~~Restructuring and Acquisition Related Expenses. The following table summarizes restructuring and acquisition related expenses for the periods indicated (in thousands):~~

Six Months Ended
June 30,
2021 2020 Change
Restructuring and acquisition related expenses $ 12,954 (1) $ 31,920 (2) $ (18,966)

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

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

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.

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

Six Months Ended
June 30,
2021 2020 Change
Depreciation $ 77,725 $ 74,116 $ 3,609 (1)
Amortization 52,972 57,126 (4,154) (2)
Total depreciation and amortization $ 130,697 $ 131,242 $ (545)

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

~~(2)~~The decrease in amortization expense primarily reflected (i) decreases of $6 million and $2 million related to the customer relationship intangible assets recorded upon our acquisitions of Stahlgruber and Rhiag, respectively, as the accelerated amortization of the customer relationship intangible assets resulted in lower amortization expense during the six months ended June 30, 2021 compared to the prior year period, partially offset by (ii) a $4 million increase from foreign currency translation, primarily related to an increase in the euro exchange rate during the six months ended June 30, 2021 compared to the prior year period.

~~Other Expense, Net.~~ ~~The following table summarizes the components of the change in other expense, net (in thousands):~~

Other expense, net for the six months ended June 30, 2020 $ 52,502
(Decrease) increase due to:
Interest expense, net of interest income (11,196) (1)
Loss on debt extinguishment 10,813 (2)
Other expense (income), net 1,272 (3)
Net increase 889
Other expense, net for the six months ended June 30, 2021 $ 53,391

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

~~(2)~~The $11 million increase in loss on debt extinguishment is due to the $24 million charge recorded in April 2021 related to the redemption of the 2026 notes compared to a $13 million charge related to the redemption of the U.S. Notes (2023) in January 2020.

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

~~Provision for Income Taxes~~. Our effective income tax rate for the six months ended June 30, 2021 was 26.3%, compared to 27.7% for the comparable prior year period. The lower estimated annual effective tax rate for 2021 is primarily attributable to the higher forecasted 2021 results of operations, as compared to the forecasts available during the comparable period in 2020, when COVID-19 pandemic economic disruptions were depressing forecasted 2020 results. For the six months ended June 30, 2021, the effective tax rate was increased 0.1% by net unfavorable discrete items, primarily a deferred tax adjustment required as a result of a United Kingdom staged tax rate increase that will become effective April 1, 2023. Net discrete items for the six months ended June 30, 2020 reduced the effective tax rate by 0.3%, primarily due to excess tax benefits on stock-based compensation and deferred tax adjustments as a result of statutory tax rate changes. See Note 13, "Income Taxes" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information.

~~Equity in Earnings (Losses) of Unconsolidated Subsidiaries.~~ Equity in earnings of unconsolidated subsidiaries for the six months ended June 30, 2021 increased by $11 million primarily related to improved year over year results reported by Mekonomen, which is our largest equity method investment.

~~Foreign Currency Impact.~~ We translate our statements of income at the average exchange rates in effect for the period. Relative to the rate used during the six months ended June 30, 2020, the Czech koruna, pound sterling, Canadian dollar and euro rates used to translate the 2021 statements of income increased by 11.2%, 10.2%, 9.4% and 9.3%, respectively. The positive translation effect of the change in foreign currencies against the U.S. dollar combined with the positive impact of realized and unrealized currency gains and losses for the six months ended June 30, 2021 resulted in a $0.01 positive effect on diluted earnings per share relative to the prior year period.

~~Net Income (Loss) Attributable to Continuing and Discontinued Noncontrolling Interest.~~ Net income (loss) attributable to continuing noncontrolling interest for the six months ended June 30, 2021 increased an immaterial amount compared to the six months ended June 30, 2020. Net income attributable to discontinued noncontrolling interest was immaterial for the six months ended June 30, 2020 and related to the Stahlgruber Czech Republic wholesale business. See Note 2, "Discontinued Operations" to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on this business.

Results of Operations—Segment Reporting

We have four ~~operating~~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. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our growth and profitability, consistent with how we evaluate our performance, as this statistic removes the translation impact of exchange rate fluctuations, which are outside of our control and do not reflect our operational performance. Constant currency revenue and Segment EBITDA results are calculated by translating prior year revenue and Segment EBITDA in local currency using the current year's currency conversion rate. This non-GAAP financial measure has important limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of our results as reported under 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)~~millions):


	Three Months Ended March 31,
	2022		% of Total Segment Revenue		2021		% of Total Segment Revenue
Third Party Revenue
Wholesale – North America	$	1,201			$	1,051
Europe	1,488				1,463
Specialty	460				458
Self Service	199				199
Total third party revenue	$	3,348			$	3,171
Total Revenue
Wholesale – North America	$	1,201			$	1,051
Europe	1,488				1,463
Specialty	461				459
Self Service	199				199
Eliminations	(1)				(1)
Total revenue	$	3,348			$	3,171
Segment EBITDA
Wholesale – North America	$	218	18.1	%	$	194	18.4	%
Europe	131		8.8	%	141		9.6	%
Specialty	58		12.6	%	61		13.4	%
Self Service	40		20.0	%	56		27.9	%
Note: In the table above, the percentages of total segment revenue may not recalculate due to rounding.

Three Months Ended June 30, Six Months Ended June 30,
�� 2021 % of Total Segment Revenue 2020 % of Total Segment Revenue 2021 % of Total Segment Revenue 2020 % of Total Segment Revenue
Third Party Revenue
North America $ 1,327,050 $ 1,011,136 $ 2,576,424 $ 2,301,071
Europe 1,576,661 1,211,185 3,040,114 2,574,779
Specialty 531,403 404,002 989,362 751,408
Total third party revenue $ 3,435,114 $ 2,626,323 $ 6,605,900 $ 5,627,258
Total Revenue
North America $ 1,327,694 $ 1,011,395 $ 2,577,387 $ 2,301,590
Europe 1,576,661 1,211,185 3,040,114 2,574,779
Specialty 532,279 404,874 991,218 753,456
Eliminations (1,520) (1,131) (2,819) (2,567)
Total revenue $ 3,435,114 $ 2,626,323 $ 6,605,900 $ 5,627,258
Segment EBITDA
North America $ 276,186 20.8 % $ 149,554 14.8 % $ 525,353 20.4 % $ 360,992 15.7 %
Europe 168,106 10.7 % 89,387 7.4 % 309,064 10.2 % 167,649 6.5 %
Specialty 79,399 14.9 % 52,233 12.9 % 140,881 14.2 % 84,465 11.2 %

The key measure of segment profit or loss reviewed by our chief operating decision maker, our Chief Executive Officer, is Segment EBITDA. Segment EBITDA includes revenue and expenses that are controllable by the segment. Corporate general and administrative expenses are allocated to the segments based on usage, with shared expenses apportioned based on the segment's percentage of consolidated revenue. We calculate Segment EBITDA as EBITDA excluding restructuring and ~~acquisition~~transaction related expenses (which includes restructuring expenses recorded in Cost of goods sold); change in fair value of contingent consideration liabilities; other gains and losses related to acquisitions, equity method investments, or divestitures; equity in losses and earnings of unconsolidated subsidiaries; equity investment ~~mark~~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 ~~market adjustments;~~support our employees and ~~impairment charges.~~their families). EBITDA, which is the basis for Segment EBITDA, is calculated

as net income ~~attributable to LKQ stockholders~~ excluding discontinued operations, ~~and discontinued noncontrolling interest,~~ depreciation, amortization, interest (which includes gains and losses on debt extinguishment) and income tax expense. See Note ~~14,~~13, "Segment and Geographic Information" to the ~~unaudited condensed consolidated financial statements~~Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for a reconciliation of total Segment EBITDA to net income.

Three Months Ended ~~June 30, 2021~~March 31, 2022 Compared to Three Months Ended ~~June 30, 2020~~March 31, 2021

Wholesale –North America

Third Party Revenue

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


		Three Months Ended June 30,				Percentage Change in Revenue										Three Months Ended March 31,				Percentage Change in Revenue
North America		2021		2020		Organic			Acquisition and Divestiture		Foreign Exchange		Total Change
Wholesale – North America															Wholesale – North America	2022		2021		Organic			Acquisition and Divestiture		Foreign Exchange		Total Change
Parts & services revenue	Parts & services revenue	$	1,077,171	$	892,826	19.7	%	(1)	0.2	%	0.7	%	20.6	%	Parts & services revenue	$	1,106	$	969	13.6	%	(1)	0.6	%	—	%	14.2	%
Other revenue	Other revenue	249,879		118,310		111.1	%	(2)	0.0	%	0.1	%	111.2	%	Other revenue	95		82		15.8	%	(2)	0.4	%	—	%	16.2	%
Total third party revenue	Total third party revenue	$	1,327,050	$	1,011,136	30.4	%		0.2	%	0.7	%	31.2	%	Total third party revenue	$	1,201	$	1,051	13.7	%		0.6	%	—	%	14.3	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.	Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.														Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1)Parts and services organic revenue increased ~~19.7%~~13.6% (11.8% on a per day basis) for the three months ended ~~June 30, 2021~~March 31, 2022 compared to the prior ~~period. This is~~year period, primarily driven by ~~an increase in~~pricing for both collision and ~~liability related auto claims related~~mechanical parts. Aftermarket collision parts volumes decreased year over year due to ~~the COVID-19 recovery as well as growth~~ongoing ocean freight delays and supply chain challenges, and were largely offset by increased volumes of aftermarket automotive glass products and collision parts from ~~major mechanical parts.~~our salvage business.

(2)The ~~$131~~15.8%, or $13 million, year over year organic increase in other revenue is primarily related to (i) ~~a $63~~an $11 million increase in ~~revenue~~revenue from ~~precious metals (platinum, palladium,~~other scrap (e.g., aluminum) and ~~rhodium) primarily~~cores due to higher prices as well as higher volumes,and ~~to a lesser extent, increased volumes,~~ (ii) a ~~$44~~$2 million increase in revenue from scrap steel due to higher ~~prices~~prices. Revenue from precious metals (platinum, palladium, and rhodium) was flat year over year due to ~~a lesser extent,~~higher volumes offset by lower prices.

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

Segment EBITDA.

Segment EBITDA increased ~~$127~~$24 million, or ~~84.7%~~12.4%, in the ~~second~~first quarter of ~~2021~~2022 compared to the prior year period. This increase is attributable to higher ~~precious metals~~prices on parts and ~~scrap steel prices, margin~~productivity initiatives ~~rightsizing actions~~helping to offset inflationary pressures related to ocean freight, labor, supplies and ~~the favorable effect from the revenue recovery compared to the prior year when the COVID-19 impact was more severe. Increases~~fuel. Decreases in precious metals prices contributed ~~an estimated $40~~a $4 million decline in Segment EBITDA ~~improvement~~ relative to the ~~second~~first quarter of ~~2020.~~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 during 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:
Change in gross margin	0.1	%	(1)
Change in segment operating expenses	(0.4)	%	(2)

Segment EBITDA for the three months ended March 31, 2022	18.1	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(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.

Europe

Third Party Revenue

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)		Total Change
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)	%
Total third party revenue	$	1,488	$	1,463	6.8	%		0.3	%	(5.5)	%	1.7	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1)Parts and services organic revenue for the 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 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 related 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%, compared to the prior year. Refer to the Foreign Currency Impact discussion within the Results of Operations–Consolidated section above for further detail regarding foreign currency impact on our results for the three months ended March 31, 2022.

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


Europe	Percentage of Total Segment Revenue
Segment EBITDA for the three months ended March 31, 2021	9.6	%
Increase (decrease) due to:
Change in gross margin	(0.5)	%	(1)
Change in segment operating expenses	(0.3)	%	(2)

Segment EBITDA for the three months ended March 31, 2022	8.8	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) The decrease in gross margin 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.

Specialty

Third Party 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 (2)		Foreign Exchange		Total Change
Parts & services revenue	$	460	$	458	(8.3)	%	8.8	%	—	%	0.4	%
Other revenue	—		—		—	%	—	%	—	%	—	%
Total third party revenue	$	460	$	458	(8.3)	%	8.8	%	—	%	0.4	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1)Parts and services organic revenue 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 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 March 31, 2021	13.4	%
Increase (decrease) due to:
Change in gross margin	1.1	%	(1)
Change in segment operating expenses	(1.9)	%	(2)

Segment EBITDA for the three months ended March 31, 2022	12.6	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) The increase in gross margin 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.

Self Service

Third Party Revenue

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
Self Service	2022		2021		Organic			Acquisition and Divestiture		Foreign Exchange		Total Change
Parts & services revenue	$	57	$	50	14.6	%	(1)	—	%	—	%	14.6	%
Other revenue	142		149		(5.0)	%	(2)	—	%	—	%	(5.0)	%
Total third party revenue	$	199	$	199	(0.1)	%		—	%	—	%	(0.1)	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1)Parts and services organic revenue increased 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 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 ~~an $11~~a $2 million favorable impact on Segment EBITDA during the three months ended ~~June 30, 2021,~~March 31, 2022, compared to a $6$15 million ~~unfavorable~~favorable impact during the three months ended ~~June 30, 2020 resulting from net sequential decreases in scrap steel prices.~~March 31, 2021. This favorable impact for ~~the three months ended June 30, 2021~~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 ~~North America~~Self Service segment:


North America		Percentage of Total Segment Revenue
Segment EBITDA for the three months ended June 30, 2020		14.8	%
Self Service					Self Service	Percentage of Total Segment Revenue
Segment EBITDA for the three months ended March 31, 2021					Segment EBITDA for the three months ended March 31, 2021	27.9	%
Increase (decrease) due to:	Increase (decrease) due to:				Increase (decrease) due to:
Change in gross margin	Change in gross margin	3.8	%	(1)	Change in gross margin	(7.0)	%	(1)
Change in segment operating expenses	Change in segment operating expenses	2.8	%	(2)	Change in segment operating expenses	(0.9)	%	(2)
Change in other expense, net and net income attributable to continuing noncontrolling interest		(0.6)	%	(3)
Segment EBITDA for the three months ended June 30, 2021		20.8	%

Segment EBITDA for the three months ended March 31, 2022					Segment EBITDA for the three months ended March 31, 2022	20.0	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) The ~~increase~~decrease in gross margin ~~primarily reflected~~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 ~~impacts~~impact of ~~3.4% from our wholesale operations and 0.5% from our self service operations. Wholesale operations gross margin was favorable primarily~~4.1% due to ~~the positive impact of higher precious metals~~increased prices for parts and scrap steel prices, lower discounting and cost reductions from operational efficiencies and rightsizing efforts. Compared to the prior year, input costs for our wholesale operations have risen, with (i) inflationary pressures impacting product and freight costs in aftermarket and (ii) limited supply combined with heightened competition at auctions contributing to higher salvage costs. We are passing through price increases, and we experienced a margin benefit in the second quarter of 2021 as the higher prices were enacted ahead of turning the recent, higher cost inventory.services.

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

~~(2) The decrease~~increase in segment operating expense as a percentage of revenue reflects (i) a ~~1.3% favorable~~0.5% unfavorable impact from personnel expenses due to a positive leverage effect, mostly related to the increase in other revenue, which does not require significant additional headcount to support, and other personnel cost savings from headcount reductions were primarily offset by increased incentive compensation expense and inflationary increases, (ii) a 1.3% favorable impact from facility expenses due to a positive leverage effect and rightsizing actions, and (iii) a 0.3% favorable impact due to improved collections on bad debt. As the market continues to recover and volumes increase, we expect to bring back necessary resources to support our operations; however, we expect permanent actions taken in 2020 will continue to provide a long-term favorable impact for the segment.

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

~~Europe~~

~~Third Party Revenue. The following table summarizes the changes in third party revenue by category in our Europe segment (in thousands):~~

Three Months Ended
June 30, Percentage Change in Revenue
Europe 2021 2020
Organic (1)
Acquisition and Divestiture (2)
Foreign Exchange (3)
Total Change
Parts & services revenue $ 1,569,697 $ 1,206,330 20.7 % (0.9) % 10.3 % 30.1 %
Other revenue 6,964 4,855 31.7 % — % 11.7 % 43.4 %
Total third party revenue $ 1,576,661 $ 1,211,185 20.7 % (0.8) % 10.3 % 30.2 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

~~(1)~~Parts and services organic revenue for the three months ended June 30, 2021 increased by 19.2% on a per day basis, as the negative pandemic effect on volume in 2020 was more severe than in the current year. Not all regions were impacted by the pandemic at the same time and to the same degree in 2020, and the easing of lockdown measures has varied across the continent in 2021. These conditions created a different growth profile for each of our European businesses. While all of our businesses reported year over year growth, the U.K. and Italy reported the greatest increases for the quarter.

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

~~(3)~~Compared to the prior year, exchange rates increased our revenue growth by $124 million, or 10.3%, primarily due to the weaker U.S. dollar against the euro, pound sterling and Czech koruna during the second quarter of 2021 relative to the prior year period.

~~Segment EBITDA~~. Segment EBITDA increased $79 million, or 88.1%, in the second quarter of 2021 compared to the prior year period. Our Europe Segment EBITDA included a positive year over year impact of $9 million related to the translation of local currency results into U.S. dollars at higher exchange rates than those experienced during the second quarter of 2020. On a constant currency basis (i.e., excluding the translation impact), Segment EBITDA increased by $69 million, or 77.6%, compared to the prior year. Refer to the Foreign Currency Impact discussion within the Results of Operations–Consolidated section above for further detail regarding foreign currency impact on our results for the three months ended June 30, 2021.

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

Europe Percentage of Total Segment Revenue
Segment EBITDA for the three months ended June 30, 2020 7.4 %
Increase due to:
Change in gross margin 1.4 % (1)
Change in segment operating expenses 1.7 % (2)
Change in other expense, net and net income attributable to continuing noncontrolling interest 0.1 %
Segment EBITDA for the three months ended June 30, 2021 10.7 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

~~(1)~~ The increase in gross margin was primarily attributable to favorable impacts of (i) 1.2% as a result of net price increases and margin improvement initiatives supporting the pursuit of profitable revenue growth, and (ii) 0.2% from the disposal of non-core operations in 2020.

~~(2)~~ The decrease in segment operating expenses as a percentage of revenue reflects favorable impacts of (i) 0.8% from bad debt expense due to customers' improved solvency and an increase in reserve in the prior year related to the COVID-19 pandemic, (ii) 0.7% from freight ~~vehicle~~ and fuel ~~expenses due to higher internet and mail order sales in the prior year, which have higher freight~~ costs and favorable leverage effect, (iii) 0.3% favorable leverage effect from facility expenses, which are largely fixed, and (iv) other individually immaterial factors that had an impact of 0.3% in the aggregate, partially offset by (v) an unfavorable impact of 0.4% from personnel costs primarily due to government grants received in the prior year to cover employee costs in countries such as the U.K. and Germany (a lesser amount was received in 2021) and increased incentive compensation, partially offset by a favorable leverage effect and headcount reductions.

~~Specialty~~

~~Third Party Revenue. The following table summarizes the changes in third party revenue by category in our Specialty segment (in thousands):~~

Three Months Ended June 30, Percentage Change in Revenue
Specialty 2021 2020
Organic (1)
Acquisition and Divestiture Foreign Exchange Total Change
Parts & services revenue $ 531,403 $ 404,002 30.1 % 0.4 % 1.1 % 31.5 %
Other revenue — — — % — % — % — %
Total third party revenue $ 531,403 $ 404,002 30.1 % 0.4 % 1.1 % 31.5 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

~~(1)~~The organic increase was primarily due to strong demand for our products across all channels of our business. We believe the revenue growth was driven by our competitive advantage with our delivery service teams that enabled us to keep up with the strong demand and have more available inventory than our competitors.

~~Segment EBITDA. Segment EBITDA increased $27 million, or 52.0%, in the second quarter of 2021 compared to the prior year second quarter.~~

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

Specialty Percentage of Total Segment Revenue
Segment EBITDA for the three months ended June 30, 2020 12.9 %
Increase (decrease) due to:
Change in gross margin 2.2 % (1)
Change in segment operating expenses (0.2) % (2)
Segment EBITDA for the three months ended June 30, 2021 14.9 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

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

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

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

~~North America~~

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

Six Months Ended
June 30, Percentage Change in Revenue
North America 2021 2020 Organic Acquisition and Divestiture Foreign Exchange Total Change
Parts & services revenue $ 2,095,608 $ 2,000,168 4.1 % (1) 0.1 % 0.5 % 4.8 %
Other revenue 480,816 300,903 59.7 % (2) 0.0 % 0.1 % 59.8 %
Total third party revenue $ 2,576,424 $ 2,301,071 11.4 % 0.1 % 0.5 % 12.0 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

~~(1)~~Parts and services organic revenue increased 4.1% (4.9% on a per day basis) in the six months ended June 30, 2021 compared to the prior year period. This growth is primarily driven by an increase in collision and liability related auto claims related to the COVID-19 recovery during the second quarter of 2021.

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

Segment EBITDA. Segment EBITDA increased $164 million, or 45.5%, in the first half of 2021 despite the impact of one fewer selling day compared to the prior year period. 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 $60 million in Segment EBITDA improvement relative to the first half of 2020. Additionally, net sequential increases in scrap steel prices in our salvage and self service operations had a $31 million favorable impact on Segment EBITDA during the six months ended June 30, 2021, compared to an immaterial favorable impact during the six months ended June 30, 2020 resulting from net sequential increases in scrap steel prices. This favorable impact for the six months ended June 30, 2021 resulted from the increase in scrap steel prices between the date we purchased a vehicle, which influences the price we pay for a vehicle, and the date we scrapped a vehicle, which influences the price we receive for scrapping a vehicle.

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

North America Percentage of Total Segment Revenue
Segment EBITDA for the six months ended June 30, 2020 15.7 %
Increase (decrease) due to:
Change in gross margin 2.1 % (1)
Change in segment operating expenses 2.9 % (2)
Change in other expense, net and net income attributable to continuing noncontrolling interest (0.3) % (3)
Segment EBITDA for the six months ended June 30, 2021 20.4 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) The increase in gross margin primarily reflected favorable impacts of 2.1% from our wholesale operations. Wholesale operations gross margin was favorable primarily due to the positive impact of higher precious metals and scrap steel prices, lower discounting and cost reductions from operational efficiencies and rightsizing efforts. Compared to the prior year, input costs for our wholesale operations have risen, with (i) inflationary pressures impacting product and freight costs in aftermarket and (ii) limited supply combined with heightened competition at auctions contributing to higher salvage costs. We are passing through price increases to our customers to protect our margins, and we experienced a margin benefit in the first half of 2021 as the higher prices were enacted ahead of turning the recent, higher cost inventory.

(2) The decrease in segment operating expense as a percentage of revenue on a per day basis reflects (i) a favorable impact of 2.0% from personnel expenses related to headcount reductions, operational efficiencies, and a positive leverage effect, mostly related to the increase in other revenue, partially offset by increased incentive compensation expense and inflationary increases, (ii) a positive leverage effect of 0.5% from facility expenses, which are largely fixed and (iii) a 0.3% favorable impact from bad debt due to improved collections. As the market recovers and volumes increase, we expect to bring back necessary resources to support our operations; however, we expect permanent actions taken in 2020 will continue to provide a long-term favorable impact for the segment.

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

~~Europe~~

~~Third Party Revenue. The following table summarizes the changes in third party revenue by category in our Europe segment (in thousands):~~

Six Months Ended
June 30, Percentage Change in Revenue
Europe 2021 2020
Organic (1)
Acquisition and Divestiture (2)
Foreign Exchange (3)
Total Change
Parts & services revenue $ 3,025,067 $ 2,564,299 9.9 % (1.2) % 9.2 % 18.0 %
Other revenue 15,047 10,480 32.5 % — % 11.1 % 43.6 %
Total third party revenue $ 3,040,114 $ 2,574,779 10.0 % (1.2) % 9.3 % 18.1 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

~~(1)~~Parts and services organic revenue for the six months ended June 30, 2021 increased by 9.9% as the negative pandemic effect on volume in 2020 was more severe than in the current year. Not all regions were impacted by the pandemic at the same time and to the same degree in 2020, and the easing of lockdown measures has varied across the continent in 2021. These conditions created a different growth profile for each of our European businesses. While all of our businesses reported year over year growth, the U.K. and Italy reported the greatest increases for the first half.

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

~~(3)~~Compared to the prior year, exchange rates increased our revenue growth by $238 million, or 9.3%, primarily due to the weaker U.S. dollar against the euro, pound sterling and Czech koruna during the first half of 2021 relative to the prior year period.

~~Segment EBITDA~~. Segment EBITDA increased $141 million, or 84.4%, in the first half of 2021 compared to the prior year period. Our Europe Segment EBITDA included a positive year over year impact of $17 million related to the translation of local currency results into U.S. dollars at higher exchange rates than those experienced during the first half of 2020. On a constant currency basis (i.e., excluding the translation impact), Segment EBITDA increased by $125 million, or 74.3%, compared to the prior year. 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 six months ended June 30, 2021.

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

Europe Percentage of Total Segment Revenue
Segment EBITDA for the six months ended June 30, 2020 6.5 %
Increase due to:
Change in gross margin 1.3 % (1)
Change in segment operating expenses 2.2 % (2)
Change in other expense, net and net income attributable to continuing noncontrolling interest 0.1 %
Segment EBITDA for the six months ended June 30, 2021 10.2 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) The increase in gross margin was primarily attributable to favorable impacts of (i) 1.0% as a result of net price increases and margin improvement initiatives supporting the pursuit of profitable revenue growth, and (ii) 0.3% from the disposal of non-core operations in 2020.

(2) The decrease in segment operating expenses as a percentage of revenue reflects favorable impacts of (i) 0.7% from bad debt expense due to customers' improved solvency and an increase in reserve in the prior year related to the COVID-19 pandemic, (ii) 0.5% from freight, vehicle and fuel expenses due to higher internet and mail order sales in the prior year, which have higher freight costs, favorable leverage effect, and cost savings from restructuring activities primarily due to exiting facilities and route consolidation, (iii) 0.3% from personnel costs primarily due to a favorable leverage effect, headcount reductions, and limited travel expenses, partially offset by government grants received in the prior year to cover employee costs in countries such as the U.K. and Germany (a lesser amount was received in 2021) and increased incentive compensation, and (iv) other individually immaterial factors that had an impact of 0.7% in the aggregate.

~~Specialty~~

~~Third Party Revenue. The following table summarizes the changes in third party revenue by category in our Specialty segment (in thousands):~~

Six Months Ended
June 30, Percentage Change in Revenue
Specialty 2021 2020
Organic (1)
Acquisition and Divestiture Foreign Exchange Total Change
Parts & services revenue $ 989,362 $ 751,408 30.5 % 0.4 % 0.8 % 31.7 %
Other revenue — — — % — % — % — %
Total third party revenue $ 989,362 $ 751,408 30.5 % 0.4 % 0.8 % 31.7 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

~~(1)~~Parts and services organic revenue increased 30.5% for the first half of 2021 compared to the prior year period despite one fewer selling day. On a per day basis, organic revenue increased 31.5%. The organic increase was primarily due to strong demand for our products across all channels of our business. We believe the revenue growth was driven by our competitive advantage with our delivery service teams that enabled us to keep up with the strong demand and have more available inventory than our competitors.

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

~~year period.~~

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

Specialty Percentage of Total Segment Revenue
Segment EBITDA for the six months ended June 30, 2020 11.2 %
Increase due to:
Change in gross margin 1.9 % (1)
Change in segment operating expenses 1.1 % (2)
Segment EBITDA for the six months ended June 30, 2021 14.2 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

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

(2) The decrease in segment operating expenses as a percentage of revenue, which includes the operating leverage impact from the organic parts and services revenue growth of 30.5% compared to the prior year, reflects a favorable impact of (i) 0.6% in personnel costs due to cost reductions in the second half of 2020, partially offset by increased incentive compensation, and (ii) several individually immaterial factors that had a ~~favorable impact of 0.7% in the aggregate, partially offset by (iii) a 0.2%~~0.4% unfavorable impact in ~~freight, vehicle and fuel expenses due to an increased use of third party freight due to customer mix.~~the aggregate.

Liquidity and Capital Resources

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


		June 30, 2021		December 31, 2020		June 30, 2020			March 31, 2022		December 31, 2021
Cash and cash equivalents	Cash and cash equivalents	$	328,700	$	312,154	$	476,426	Cash and cash equivalents	$	327	$	274
Total debt (1)	Total debt (1)	2,466,140		2,896,676		3,278,453		Total debt (1)	2,721		2,824
Current maturities (2)	Current maturities (2)	91,131		58,810		93,520		Current maturities (2)	31		35
Capacity under credit facilities (3)	Capacity under credit facilities (3)	3,260,000		3,260,000		3,260,000		Capacity under credit facilities (3)	3,150		3,150
Availability under credit facilities (3)	Availability under credit facilities (3)	1,753,766		2,546,081		2,050,884		Availability under credit facilities (3)	1,268		1,194
Total liquidity (cash and cash equivalents plus availability under credit facilities)	Total liquidity (cash and cash equivalents plus availability under credit facilities)	2,082,466		2,858,235		2,527,310		Total liquidity (cash and cash equivalents plus availability under credit facilities)	1,595		1,468

(1) Debt amounts reflect the gross values to be repaid (excluding debt issuance costs of ~~$15 million, $26~~$10 million and ~~$28~~$12 million as of ~~June 30, 2021,~~March 31, 2022 and December 31, ~~2020 and June 30, 2020,~~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 ~~June 30, 2021,~~March 31, 2022 and December 31, ~~2020 and June 30, 2020)~~2021).

(3) Capacity under credit facilities includes our revolving credit facilities and ~~our receivables securitization facility. Availability~~availability under credit facilities is reduced by our outstanding letters of credit. ~~Capacity was reduced by $110 million to $3.15 billion with the July 30, 2021 termination of the receivables securitization facility.~~

We assess our liquidity in terms of our ability to fund our operations and provide for expansion through both internal development and acquisitions. 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, paying dividends 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 acquisitions, we have accessed various forms of debt financing, including revolving credit facilities and senior ~~notes and a receivables securitization facility.~~notes.

As of ~~June 30, 2021,~~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 ~~$3.15 billion~~$3,150 million in revolving credit ($~~1.4 billion~~1,813 million outstanding at ~~June 30, 2021)~~March 31, 2022), bearing interest at variable rates, ~~and term loans totaling $350 million (repaid in full as of June 30, 2021)~~ with availability reduced by~~$71~~ $69 million of amounts outstanding under letters of credit

•Euro Notes (2024) totaling ~~$593~~$553 million (€500 million), maturing in April 2024 and bearing interest at a 3.875% fixed rate

•~~2028~~Euro Notes (2028) totaling ~~$296~~$277 million (€250 million) maturing in April 2028 and bearing interest at a 4.125% fixed rate

•Receivables securitization facility with availability up to $110 million (no outstanding balance as of June 30, 2021), maturing in November 2021 and bearing interest at variable commercial paper rates (facility terminated effective July 30, 2021)

As of ~~June 30, 2021,~~March 31, 2022, we had approximately $~~1.8 billion~~1,268 million available under our credit facilities. Combined with ~~$329~~$327 million of cash and cash equivalents at ~~June 30, 2021,~~March 31, 2022, we had approximately ~~$2.1 billion in~~$1,595 million in available liquidity, ~~a decrease~~an increase of ~~$776~~$127 million from our available liquidity as of December 31, ~~2020.~~2021.

On April 1, 2021, we redeemed the Euro Notes (2026) with proceeds from borrowings on our revolving credit facility and cash on hand, resulting in a decrease in available liquidity compared to December 31, 2020. Additionally, in the second quarter of 2021, we used free cash flow generated in our domestic operations and borrowings on our revolving credit facility to repay all of our term loan ($319 million). As of June 30, 2021, we have $282 million of debt drawn in North America on our credit facilities. With these second quarter transactions, we reduced our overall liquidity by utilizing available capacity on the revolving credit facility. We believe our future cash flow needs can be supported by a smaller credit facility, so we redeemed the Euro Notes (2026) and eliminated the term loan using funds from the revolving credit facility, which in turn will lower our interest expense and non-usage fees.

We believe that our current liquidity and cash expected to be generated by operating activities in future periods will be sufficient to meet our current operating and capital requirements. ~~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 20212022 plan includes further spending to rebuild inventory levels, support growth driven capital projects, and complete strategic acquisitions. ~~However, due~~

Beginning in the fourth quarter of 2021, we expanded our capital allocation strategy to include the ~~rapidly evolving global situation, it is not possible~~payment of dividends as an additional mechanism to ~~predict whether unanticipated consequences~~return value to our stockholders. A summary of the ~~COVID-19 pandemic~~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 in our credit facilities and senior note indentures, and various other factors, many of which are ~~reasonably likely to materially affect~~outside of our ~~liquidity and capital resources negatively in the future.~~control.

With ~~$2.1 billion~~$1,595 million of total liquidity as of ~~June 30, 2021~~ March 31, 2022 and~~$91~~ $31 millionof current maturities, we have access to funds to meet our near term ~~commitments even if the pandemic effect extends longer than our current expectations.~~commitments. We have a surplus of current assets over current liabilities, which further reduces the risk of ~~short term~~short-term cash shortfalls. Furthermore, in April 2022, we received $362 million in gross proceeds related to the PGW sale, which increased our cash liquidity.

Our total liquidity includes availability under our senior secured credit facility, which includes the two financial maintenance covenants presented below (our required debt covenants and our actual ratios with respect to those covenants as calculated per the credit agreement as of ~~June 30, 2021)~~March 31, 2022):


	Covenant Level	Ratio Achieved as of ~~June 30, 2021~~March 31, 2022
Maximum net leverage ratio	~~4.50:~~4.00 : 1.00	~~1.2~~1.3
Minimum interest coverage ratio	~~3.00:~~3.00 : 1.00	~~20.8~~32.6

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 US GAAP or common usage terms.

Our credit agreement contains customary covenants that impose limitations and conditions on our ability to enter into certain transactions. The credit agreement also contains financial and affirmative covenants, including limitations on our net leverage ratio and a minimum interest coverage ratio. We were in compliance with all restrictive covenants under our credit agreement as of ~~June 30, 2021.~~March 31, 2022.

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 breach, including by reducing our net leverage ratio relative to the second quarter of 2020 in each successive quarter.~~

The indentures relating to our Euro Notes do 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~~"Euro Notes ~~(2026/28)~~(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. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants or higher interest costs. Our failure to raise capital if and when needed could have a material adverse impact on our business, operating results, and financial condition.

Beginning in 2019, a number of our European suppliers began participating in a supply chain financing initiative in select countries under which they may sell their accounts receivable to the participating financial institutions, allowing us to extend payment terms which in turn improves our operating cash flows. The initiative allows our suppliers to monetize their receivables prior to their payment date, subject to payment of a discount. We expect more suppliers will begin participating in our European supply chain financing initiative in ~~the second half of 2021.~~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~~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"),~~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.

We have held interest rate swaps to hedge the variable rates on a portion of our credit agreement borrowings, with the effect of fixing the interest rates on the respective notional amounts. In addition, from time to time, we hold currency swaps that contain an interest rate swap component and a foreign currency forward contract component that, when combined with related intercompany financing arrangements, effectively convert variable rate U.S. dollar-denominated borrowings into fixed rate euro-denominated borrowings. These derivative transactions are described in Note ~~10,~~9, "Derivative Instruments and Hedging ~~Activities"~~ Activities," to the ~~unaudited condensed consolidated financial statements~~Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q. As of ~~June 30, 2021,~~March 31, 2022, we did not have any of these ~~types of~~ contracts ~~outstanding, and the~~outstanding. The weighted average interest rate on

borrowings outstanding under our credit agreement was ~~1.1%~~1.2% at ~~June 30, 2021.~~March 31, 2022. Including our senior notes, our overall weighted average interest rate on borrowings was ~~2.2%~~2.1% at ~~June 30, 2021.~~

After 2021, it is unclear whether banks will continue to provide LIBOR submissions to the administrator of LIBOR. At this time, no consensus exists as to which reference rates may become accepted alternatives to LIBOR, although the Alternative Reference Rates Committee, a group of market participants convened by the Federal Reserve Board and the Federal Reserve Bank of New York, has identified the Secured Overnight Financing Rate (“SOFR”) as the recommended alternative to LIBOR. On November 30, 2020, ICE Benchmark Administration, the administrator of LIBOR, with the support of the United States Federal Reserve and the United Kingdom’s Financial Conduct Authority, announced plans to consult on ceasing publication of USD LIBOR on DecemberMarch 31, 2021 for the one week and two month USD LIBOR tenors, and on June 30, 2023 for all other USD LIBOR tenors. While this announcement extends the transition period to June 2023, the United States Federal Reserve concurrently issued a statement advising banks to stop new USD LIBOR issuances by the end of 2021. We cannot currently predict the effect of the discontinuation of, or other changes to, LIBOR or any establishment of alternative reference rates in the United States, the European Union or elsewhere on the global capital markets. Outstanding debt under our Credit Agreement, which constitutes the most significant of our LIBOR-based debt obligations, contains provisions that address the potential discontinuation of LIBOR and facilitate the adoption of an alternative rate of interest. We do not believe that the discontinuation of LIBOR, or its replacement with an alternative reference rate or rates such as the SOFR, will have a material impact on our results of operations, financial position or liquidity.2022.

~~Cash interest payments were~~ ~~$45 million~~ ~~for the six months ended June 30, 2021; these payments increased by~~ ~~$39 million~~ in the second quarter compared to the first quarter of 2021 as a result of our semi-annual interest payments on our Euro Notes (2024) and Euro Notes (2028) as well as the interest owed when we settled the Euro Notes (2026). Interest payments on our Euro Notes (2024) and Euro Notes (2028) are made in April and October.

We had outstanding credit agreement ~~borrowings~~borrowings of $1,813 million ~~$1.4 billion~~and ~~$967~~$1,887 million at ~~June 30, 2021~~March 31, 2022 and December 31, ~~2020,~~2021, respectively. Of these amounts, ~~there~~there were no current maturities ~~as of June 30, 2021 and maturities of~~ ~~$18 million~~at atMarch 31, 2022 or December 31, ~~2020.~~2021.

The scheduled maturities of long-term obligations outstanding at ~~June 30, 2021~~March 31, 2022 are as follows (in ~~thousands)~~millions):


Six months ending December 31, 2021 (1):		$	81,018
					Amount
Nine months ending December 31, 2022 (1)				Nine months ending December 31, 2022 (1)	$	24
Years ending December 31:	Years ending December 31:			Years ending December 31:
2022		17,379
2023	2023	9,006		2023	18
2024	2024	2,035,307		2024	2,375
2025	2025	9,446		2025	10
2026				2026	3
Thereafter	Thereafter	313,984		Thereafter	291
Total debt (2)	Total debt (2)	$	2,466,140	Total debt (2)	$	2,721

(1) ~~Maturities of long-term~~Long-term obligations ~~due~~maturing by December 31, ~~2021 includes~~2022 include $7414 million of short-term debt that may be extended beyond the current ~~due date.~~year ending December 31, 2022.

(2)The total debt amounts presented above reflect the gross values to be repaid (excluding debt issuance costs of ~~$15~~$10 million as of ~~June 30, 2021)~~March 31, 2022).

As of ~~June 30, 2021,~~March 31, 2022, the Company had cash and cash equivalents o~~f $329~~of $327 million, of which ~~$248~~$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, 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.subsidiaries. We believe that we have sufficient cash flow and liquidity to meet our financial obligations in the U.S. without repatriating our foreign earnings. We may, from time to time, choose to selectively repatriate foreign earnings if doing so supports our financing or liquidity objectives. Distributions of dividends from our foreign subsidiaries, if any, would be generally exempt from further U.S. taxation, either as a result of the 100% participation exemption under the Tax Cuts and Jobs Act, or due to the previous taxation of foreign earnings under the transition tax and the Global Intangible Low-Taxed Income ~~(“GILTI”)~~ regime.

The procurement of inventory is the largest operating use of our funds. We normally pay for aftermarket product purchases on standard payment terms or at the time of shipment, depending on the manufacturer and the negotiated payment terms. We normally pay for salvage vehicles acquired at salvage auctions and under direct procurement arrangements at the time that we take possession of the vehicles.

The following table sets forth a summary of our aftermarket and manufactured inventory procurement for the three ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ (in ~~thousands)~~millions):


		Three Months Ended						Six Months Ended								Three Months Ended March 31,
		June 30,						June 30,								2022		2021		Change
		2021		2020		Change		2021		2020		Change
North America		$	262,100	$	161,300	$	100,800	$	522,100	$	490,000	$	32,100	(1)
Wholesale - North America															Wholesale - North America	$	317	$	260	$	57	(1)
Europe	Europe	1,005,700		683,400		322,300		1,899,300		1,551,200		348,100		(2)	Europe	955		894		61		(2)
Specialty	Specialty	361,400		118,900		242,500		752,700		426,200		326,500		(3)	Specialty	403		391		12		(3)
Total	Total	$	1,629,200	$	963,600	$	665,600	$	3,174,100	$	2,467,400	$	706,700		Total	$	1,675	$	1,545	$	130

(1)Inventory purchases across the Wholesale - North America segment ~~have~~ increased in the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 compared to the prior year period primarily due to required restocking to keep up with the ~~low base as we scaled back buying in recognition of~~high demand ~~changes in 2020. We are rebuilding~~for our products. Our inventory ~~levels after decreases in 2020 due to the COVID-19 pandemic, however, they~~purchases did not reach our desired levels in the first ~~half~~three months of ~~2021~~2022 due to ocean freight driven delays in ~~shipping and overall pandemic driven lower production volumes.~~shipping.

(2)The increase in inventory purchases in our Europe segment included ~~an increase~~a decrease of ~~$147~~$53 million attributable to the ~~increase~~decrease in the value of the euro, and to a lesser extent, the pound sterling in the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 compared to the prior year period. On a constant currency basis, inventory purchases increased compared to ~~2020, primarily due to~~ the low base as we scaled back buying in recognition of demand changes in 2020. However, we did not reach our desired levels in the first half of 2021 due to ocean freight driven delays in shipping and overall pandemic driven lower production volumes.

~~(3)The increase in inventory purchases in the Specialty segment was primarily~~prior year period, due to required restocking to keep up with the high demand for our ~~products.~~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 ~~and six~~ months ended ~~June 30,~~March 31, 2022 and 2021 ~~and 2020~~ (in thousands):

Three Months Ended Six Months Ended
June 30, June 30,
2021 2020 % Change 2021 2020 % Change
North America wholesale salvage cars and trucks 63 36 75.0 % 113 108 4.6 %
Europe wholesale salvage cars and trucks 6 5 20.0 % 13 12 8.3 %
Self service and "crush only" cars 141 137 2.9 % 277 286 (3.1) %


	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)	%

~~Salvage~~

Wholesale - North America salvage purchases in 2022 increased relative to the prior year due to ~~reduced buying~~limitations in the prior year ~~to reflect lower demand during the COVID-19 pandemic.~~ on vehicles at auctions. Self service vehicle purchases ~~declined due to (i) increased competition~~ in ~~the market due to rising costs of precious metals and scrap steel and (ii) fewer purchases due to the elimination of underperforming locations in accordance with the 2020 restructuring plan.~~2022 were roughly flat year over year.

We expect to increase inventory purchases in ~~the remainder of 2021 compared to the second half of 2020~~2022 to support the service and fill rate requirements of our businesses based on the revenue trend and expectations for full year ~~2021,~~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 ~~levels in 2020 decreased due~~purchases to the ~~COVID-19 pandemic. However, we expect to~~desired level could be ~~able to operate effectively at a lower inventory balance than at the end of 2019, before the impacts of the pandemic.~~affected).

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


Net cash provided by operating activities for the six months ended June 30, 2020		$	913
Increase (decrease) due to:
Operating income		394		(1)

						Operating Cash
Net cash provided by operating activities for the three months ended March 31, 2021					Net cash provided by operating activities for the three months ended March 31, 2021	$	523
Increase (decrease) due to:					Increase (decrease) due to:
Cash paid for taxes	Cash paid for taxes	(202)		(2)	Cash paid for taxes	88		(1)
Cash paid for interest		11
Working capital accounts: (3)
Working capital accounts: (2)					Working capital accounts: (2)
Receivables, net	Receivables, net	(156)			Receivables, net	(32)
Inventories	Inventories	(438)			Inventories	(85)
Accounts payable	Accounts payable	456			Accounts payable	(22)
Other operating activities	Other operating activities	(45)		(4)	Other operating activities	(63)		(3)
Net cash provided by operating activities for the six months ended June 30, 2021		$	933
Net cash provided by operating activities for the three months ended March 31, 2022					Net cash provided by operating activities for the three months ended March 31, 2022	$	409

(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~~were lower for U.S. federal and state income taxes due to ~~a projected increase in~~

~~pretax income and~~ the timing of estimated tax payments.

~~(3)~~(2) Cash flows related to our primary working capital accounts can be volatile as the purchases, payments and collections can be timed differently from period to period.

•Receivables, net waswas a ~~$156~~$32 million greater outflow in ~~2021~~2022 primarily due to ~~a significant~~an increase in ~~June 2021~~the revenue for the three months ended March 31, 2022 compared to ~~June 2020,~~the three months ended March 31, 2021, which translated to higher receivables balances and larger net outflows in the Wholesale - North America segment ~~(of~~ ~~$79~~ of $43 million) and in the Europe segment ~~(of~~ ~~$81 million~~).of $32 million. We had a smaller cash ~~inflow~~outflow in the Specialty segment ~~(of $4 million).~~of $42 million compared to prior period due to lower revenue.

•Inventories represented ~~$438~~$85 million in incremental cash outflows in the first ~~six~~three months of ~~2021~~2022 compared to the same period of ~~2020.The~~2021. The change is primarily attributable to ~~the reduction in~~increased inventory purchases ~~during 2020 as we scaled back buying~~ in the ~~recognition~~current year as a result of strong demand ~~changes. Additionally, we expected a larger cash outflow in~~and strategic inventory purchases to curb the ~~first half~~impacts of 2021 as we worked to rebuild our inventory levels, but as described in the procurement section above, we were delayed in doing so. We now anticipate that the inventory build will take place over the balance of the year.supply chain constraints.

•

Accounts payable produced ~~$456~~$22 million in ~~higher~~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 ~~the~~our Wholesale - North America segment ~~(of $161 million) and in the Specialty segment (of~~ ~~$24 million) due to timing~~ of ~~payments, and in the Europe segment (of~~ ~~$271 million) compared to the prior year period, as a result of timing of payments and benefits of extended payment terms, including through our supply chain financing initiatives.~~$86 million.

~~(4) Cash flows from other operating activities decreased~~(3) ~~$45 million, primarily due to a $54 million~~ ~~decrease related to the timing of value added tax payables payments compared to the prior year partially offset by~~Reflects a number of individually insignificant fluctuations in cash paid for other operating activities.

Net cash used in investing activities ~~totaled~~ tota~~$109~~led $63 million a ~~and $76~~nd $33 million during the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. Property, plant and equipment purchases were $8859 million ~~during~~in the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 compared to ~~$77~~$42 million in the prior year ~~period. We invested~~ ~~$29 million~~ ~~of cash, net of cash acquired,~~period, primarily driven by capital projects in ~~business acquisitions during the six months ended June 30, 2021 compared to $5 million during the six months ended June 30, 2020. We received~~ our Wholesale - North America segment.

~~$18 million~~

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

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


		Six Months Ended
		June 30,						Three Months Ended March 31,
			2021		2020				2022		2021
Net cash provided by operating activities	Net cash provided by operating activities		$	933,090	$	913,052	Net cash provided by operating activities		$	409	$	523
Less: purchases of property, plant and equipment	Less: purchases of property, plant and equipment		87,854		77,301		Less: purchases of property, plant and equipment		59		42
Free cash flow	Free cash flow		$	845,236	$	835,751	Free cash flow		$	350	$	481

Net cash used in financing activities totaled $~~809~~278 million and ~~$890~~$208 million for the ~~six~~three months ended ~~June 30,~~March 31, 2022 and 2021, ~~and 2020,~~ respectively. During the ~~six~~three months ended ~~June 30, 2021,~~March 31, 2022, net repayments of our borrowings totaled $~~347~~53 million compared to ~~$782~~$83 million during the ~~six~~three months ended ~~June 30, 2020. The net repayments in 2021and 2020 include the redemption of the €750~~March 31, 2021. We repurchased $144 million ~~Euro Notes (2026) and the $600 million U.S. Notes, respectively. We repurchased~~ o~~$344 million~~ off our common stock in the ~~six~~three months ended ~~June 30, 2021 (reflecting the cash outflow for transactions that settled in the period),~~March 31, 2022, compared to ~~$88~~$57 million in the ~~six~~three months ended ~~June 30, 2020.~~March 31, 2021. In January 2021, we settled our cross currency swap and other foreign exchange forward contracts with the counterparties for $8957 million due primarily to strengthening in the Euro exchange rate relative to the contract ~~rates.~~rate. We also paid $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.~~efforts.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks arising from adverse changes in:

•foreign exchange rates;

•interest rates; and

•commodity prices.

Foreign Exchange Rates

Foreign currency fluctuations may impact the financial results we report for the portions of our business that operate in functional currencies other than the U.S. dollar. Our operations outside of the U.S. represented ~~49.2%~~47.7% and ~~50.5%~~49.4% of our revenue during the ~~six~~three months ended ~~June 30, 2021~~March 31, 2022 and the year ended December 31, ~~2020,~~2021, respectively. An increase or decrease in the strength of the U.S. dollar against these currencies by 10% would result in a ~~4.9%~~4.8% change in our consolidated revenue and a ~~3.1%~~2.9% change in our operating income for the ~~six~~three months ended ~~June 30, 2021.~~March 31, 2022. See our Results of Operations discussion in Part I, Item 2 of this Quarterly Report on Form 10-Q for additional information regarding the impact of fluctuations in exchange rates on our year over year results.

Additionally, we are exposed to foreign currency fluctuations with respect to the purchase of aftermarket products from foreign countries, primarily in Europe and Asia. To the extent that our inventory purchases are not denominated in the functional currency of the purchasing location, we are exposed to exchange rate fluctuations. In several of our operations, we purchase inventory from manufacturers in Taiwan in U.S. dollars, which exposes us to fluctuations in the relationship between

the local functional currency and the U.S. dollar, as well as fluctuations between the U.S. dollar and the Taiwan dollar. We hedge our exposure to foreign currency fluctuations related to a portion of inventory purchases in our Europe operations, but the notional amount and fair value of these foreign currency forward contracts at ~~June 30, 2021~~March 31, 2022 were immaterial. WWee do not currently attempt to hedge foreign currency exposure related to our foreign currency denominated inventory purchases in our Wholesale - North America operations, and we may not be able to pass on any resulting price increases to our customers.

To the extent that we are exposed to foreign currency fluctuations related to non-functional currency denominated financing transactions, we may hedge the exposure through the use of foreign currency forward contracts. As of ~~June 30, 2021, we~~March 31, 2022, we did not hold ~~foreign~~foreign currency forward contracts related to non-functional currency denominated debt.

Other than with respect to a portion of our foreign currency denominated inventory purchases and, from time to time, certain financing transactions, we do not hold derivative contracts to hedge foreign currency risk. Our net investment in foreign operations is partially hedged by the foreign currency denominated borrowings we use to fund foreign acquisitions; however, our ability to use foreign currency denominated borrowings to finance our foreign operations may be limited based on local tax laws. We have elected not to hedge the foreign currency risk related to the interest payments on foreign third party borrowings as we generate cash flows in the local currencies that can be used to fund debt payments. As of ~~June 30,~~March 31, 2022, we had

outstanding borrowings of €500 million under our Euro Notes (2024) and €250 million under our Euro Notes (2028), and €929 million and Swedish Krona ("SEK") 125 million under our revolving credit facilities. As of December 31, 2021, we had outstanding borrowings of €500 million under our Euro N~~otes~~Notes (2024) and €250 ~~millio~~nmillion under our Euro Notes (2028), and ~~€954~~€940 million and SEK ~~185~~145 million under our revolving credit facilities. As of December 31, 2020, we had outstanding borrowings of €500 million under our Euro Notes (2024), and €1.0 billion under our Euro Notes (2026/28); we had no foreign borrowings under our revolving credit facilities.

Interest Rates

Our results of operations are exposed to changes in interest rates primarily with respect to borrowings under our credit facilities, where interest rates are tied to the prime rate, LIBOR, Canadian Dollar Offered Rate, Euro interbank Offered Rate, SONIA, or ~~CDOR.~~Swiss Average Rate Overnight. Therefore, we implemented a policy to manage our exposure to variable interest rates on a portion of our outstanding variable rate debt instruments through the use of interest rate swap contracts. These contracts convert a portion of our variable rate debt to fixed rate debt, matching the currency, effective dates and maturity dates to specific debt instruments. We designate our interest rate swap contracts as cash flow hedges, and net interest payments or receipts from interest rate swap contracts are included as adjustments to interest expense.

We had none ofof our variable rate debt under our credit facilities at fixed rates at ~~June 30, 2021 compared to 87% at~~March 31, 2022 or December 31, ~~2020.~~2021. See Note 9,8, "Long-Term Obligations" and Note ~~10,~~9, "Derivative Instruments and Hedging Activities" to the ~~unaudited condensed consolidated financial statements~~Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information.

At ~~June 30, 2021,~~March 31, 2022, we had approximately $~~1.5 billion~~1,813 million of variable rate debt that was not hedged. Using sensitivity analysis, a 100 basis point movement in interest rates would change interest expense by $1518 million over the next twelve months.

Commodity Prices

We are exposed to market risk related to price fluctuations in scrap metal and other metals (including precious metals, such as platinum, palladium, and ~~rhodium)~~rhodium, contained in some recycled parts, such as catalytic converters). Market prices of these metals affect the amount that we pay for our inventory and the revenue that we generate from sales of these metals. As both our revenue and costs are affected by the price fluctuations, we have a natural hedge against the changes. However, there is typically a lag between the effect on our revenue from metal price fluctuations and inventory cost changes, and there is no guarantee that the vehicle costs will decrease or increase at the same rate as the metals prices. Therefore, we can experience positive or negative gross margin effects in periods of rising or falling metals prices, particularly when such prices move rapidly. Additionally, if market prices were to change at a greater rate than our vehicle acquisition costs, we could experience a positive or negative effect on our operating margin. The average of scrap metal prices for the three months ended ~~June 30, 2021~~March 31, 2022 increased by~~18%~~4% over the average for the ~~first~~fourth quarter of 2021. The average prices of rhodium, platinum, and ~~platinum~~palladium decreased by 2%24%, 12% and 1%, respectively, for the three months ended March 31, 2022 over the average prices for the three months ended ~~June 30, 2021, and the price of palladium increased by 16%, over the averages for the first quarter of~~March 31, 2021.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of ~~June 30, 2021,~~March 31, 2022, the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of LKQ Corporation's management, including our Chief Executive Officer and our Chief Financial Officer, of our "disclosure controls and procedures" (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective in providing reasonable assurance that information we are required to disclose in this Quarterly Report on Form 10-Q has been recorded, processed, summarized and reported as of the end of the period covered by this Quarterly Report on Form 10-Q. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file under the Securities Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended ~~June 30, 2021~~March 31, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

5542

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

We are from time to time subject to various claims and lawsuits incidental to our business. In the opinion of management, currently outstanding claims and suits will not, individually or in the aggregate, have a material adverse effect on our financial position, results of operations or cash flows. There have been no material changes to the legal proceedings previously disclosed in our ~~2020~~2021 Form ~~10-K and Form 10-Q for the quarter ended March 31, 2021 other than as follows:~~

In July 2021, (i) Region 3 of the U.S. Environmental Protection Agency ("EPA") initiated enforcement actions against eight of the Company's facilities by delivery of a Notice of Potential Violations and (ii) Region 4 of the EPA initiated enforcement actions against four of the Company's facilities by delivery of a Notice of Violation. The EPA has not communicated any potential penalty amounts that it may seek with respect to these facilities. We do not expect that any proposed penalty will have a material effect on our financial position, results of operations or cash flows.10-K.

Item 1A. Risk Factors

~~Our operations and financial results are subject~~

The statements in this section describe the known material risks to ~~various risks and uncertainties that could adversely affect~~ our business ~~financial condition~~ and ~~results of operations, and the trading price of~~should be considered carefully. The risk factor below updates our ~~common stock. Please refer to~~risk factors previously discussed in our ~~2020~~Annual Report on Form 10-K for ~~information concerning risks~~the year ended December 31, 2021.

Our operating results have been and ~~uncertainties that could~~will likely continue to be adversely affected by the Russian invasion of Ukraine and the resulting governmental sanctions imposed on Russia.

The Russian invasion of Ukraine and resulting global governmental response have impacted, and are expected to continue to impact, our business. 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 changed the way in which we operate in Ukraine. Since the invasion, many of our 45 branches in Ukraine have remained open, although operating at less than full capacity due to supply chain and other issues, while other branches have temporarily ceased operating due to the invasion. We expect to continue operating in this manner; however, the extent and duration of the military action, resulting sanctions and future market disruptions in the region are difficult to predict. Moreover, the ongoing effects of the hostilities and sanctions may not be limited to Russia and Russian companies and may negatively impact ~~us.~~other regional and global economic markets of the world, including Europe and the United States. The ongoing military action, along with the potential for a wider conflict, could further increase financial market volatility and cause negative effects on regional and global economic markets, industries, and companies, such as LKQ and our suppliers and customers.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Issuer Purchases of Equity Securities

~~On October 25, 2018,~~

Under our repurchase program, our Board of Directors has authorized ~~a stock~~the Company to repurchase ~~program under which we may purchase~~ up to ~~$500~~$2,000 million of our common stock ~~from time to time~~ through October 25, ~~2021.~~2024. Repurchases under the program may be made ~~at management's discretion~~ in the open market or in privately negotiated transactions, ~~or pursuant to instruments or plans complying~~ with ~~Rule 10b5-1.~~the amount and timing of repurchases depending on market conditions and corporate needs. The repurchase program does not obligate us to acquire any specific number of shares and may be suspended or discontinued at any time. Delaware law imposes restrictions on stock repurchases.

On October 25, 2019, our Board of Directors authorized an increase to our existing stock repurchase program under which the Company may purchase up to an additional $500 million of our common stock from time to time through October 25, 2022; this extended date also applies to the original repurchase program. With the increase, the Board of Directors had authorized a total of $1.0 billion of common stock repurchases.

On July 28, 2021, our Board of Directors authorized an increase to our existing stock repurchase program under which the Company may purchase up to an additional $1.0 billion of our common stock from time to time through October 25, 2024; this extended date also applies to the original repurchase program. With the increase, the Board of Directors has authorized a total of $2.0 billion of common stock repurchases.

The following table summarizes our stock repurchases for the three months ended ~~June 30, 2021~~March 31, 2022 (in ~~thousands,~~millions, except per share data):

Period Total Number of Shares Purchased Average Price Paid per Share Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs Approximate Dollar Value of Shares that May Yet Be Purchased Under the Plans or Programs
April 1, 2021 - April 30, 2021 100 $ 46.78 100 $ 469,238
May 1, 2021 - May 31, 2021 2,348 $ 49.68 2,348 $ 352,573
June 1, 2021 - June 30, 2021 3,723 $ 48.97 3,723 $ 170,232
Total 6,171 6,171


Period	Total Number of Shares Purchased	Average Price Paid per Share		Total Number of Shares Purchased as Part of Publicly Announced Program	Approximate Dollar Value of Shares that May Yet Be Purchased Under the Program
January 1, 2022 - January 31, 2022	1.2	$	54.88	1.2	$	591
February 1, 2022 - February 28, 2022	1.0	$	54.53	1.0	$	533
March 1, 2022 - March 31, 2022	0.5	$	46.55	0.5	$	510
Total	2.7			2.7

5643

Item 6. Exhibits

~~Exhibits~~

~~(b) Exhibits~~


Exhibit						Description
31.1						Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2						Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1						Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2						Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS						Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document.
101.SCH						Inline XBRL Taxonomy Extension Schema Document
101.CAL						Inline XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF						Inline XBRL Taxonomy Extension Definition Linkbase Document
101.LAB						Inline XBRL Taxonomy Extension Label Linkbase Document
101.PRE						Inline XBRL Taxonomy Extension Presentation Linkbase Document
104						Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101)

5744

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on ~~August~~May 4, ~~2021.~~2022.


			LKQ CORPORATION

			/s/ Varun Laroyia
			Varun Laroyia
			Executive Vice President and Chief Financial Officer
			(As duly authorized officer and Principal Financial Officer)

			/s/ Michael S. Clark
			Michael S. Clark
			Vice President - Finance and Controller
			(As duly authorized officer and Principal Accounting Officer)

5845


	Number Outstanding	Weighted Average Grant Date Fair Value		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands) (1)
Unvested as of January 1, 2021	1,479,672	$	31.71
Granted (2)	725,478	$	39.02
Vested	(452,189)	$	32.10
Forfeited / Canceled	(29,950)	$	34.06
Unvested as of June 30, 2021	1,723,011	$	34.55
Expected to vest after June 30, 2021	1,539,272	$	34.78	3.1	$	75,763


	Three Months Ended
	June 30, 2021
	Foreign Currency Translation		Unrealized (Loss) Gain on Cash Flow Hedges		Unrealized (Loss) Gain on Pension Plans		Other Comprehensive (Loss) Income from Unconsolidated Subsidiaries		Accumulated Other Comprehensive (Loss) Income
BALANCE, April 1, 2021	$	(81,698)	$	(310)	$	(32,654)	$	(11,460)	$	(126,122)
Pretax income (loss)	21,864		(296)		0		0		21,568
Income tax effect	0		59		0		0		59
Reclassification of unrealized loss	0		585		437		0		1,022
Reclassification of deferred income taxes	0		(137)		(124)		0		(261)

Other comprehensive income from unconsolidated subsidiaries	0		0		0		2,644		2,644
BALANCE, June 30, 2021	$	(59,834)	$	(99)	$	(32,341)	$	(8,816)	$	(101,090)


	Balance as of December 31, 2020		Fair Value Measurements as of December 31, 2020
			Level 1		Level 2		Level 3
Assets:
Cash surrender value of life insurance	$	72,250	$	0	$	72,250	$	0


Total Assets	$	72,250	$	0	$	72,250	$	0
Liabilities:
Contingent consideration liabilities	$	13,263	$	0	$	0	$	13,263
Interest rate swaps	899		0		899		0
Deferred compensation liabilities	76,240		0		76,240		0
Cross currency swap agreements	56,328		0		56,328		0
Foreign currency forward contracts	5,190		0		5,190		0
Total Liabilities	$	151,920	$	0	$	138,657	$	13,263


Other expense, net for the three months ended June 30, 2020	$	17,442
(Decrease) increase due to:
Interest expense, net of interest income	(9,444)		(1)


Loss on debt extinguishment	23,564		(2)
Other income, net	3,863		(3)
Net increase	17,983
Other expense, net for the three months ended June 30, 2021	$	35,425


Other expense, net for the six months ended June 30, 2020	$	52,502
(Decrease) increase due to:
Interest expense, net of interest income	(11,196)		(1)
Loss on debt extinguishment	10,813		(2)

Other expense (income), net	1,272		(3)
Net increase	889
Other expense, net for the six months ended June 30, 2021	$	53,391


	Three Months Ended June 30,								Six Months Ended June 30,
��	2021		% of Total Segment Revenue		2020		% of Total Segment Revenue		2021		% of Total Segment Revenue		2020		% of Total Segment Revenue
Third Party Revenue
North America	$	1,327,050			$	1,011,136			$	2,576,424			$	2,301,071
Europe	1,576,661				1,211,185				3,040,114				2,574,779
Specialty	531,403				404,002				989,362				751,408
Total third party revenue	$	3,435,114			$	2,626,323			$	6,605,900			$	5,627,258
Total Revenue
North America	$	1,327,694			$	1,011,395			$	2,577,387			$	2,301,590
Europe	1,576,661				1,211,185				3,040,114				2,574,779
Specialty	532,279				404,874				991,218				753,456
Eliminations	(1,520)				(1,131)				(2,819)				(2,567)
Total revenue	$	3,435,114			$	2,626,323			$	6,605,900			$	5,627,258
Segment EBITDA
North America	$	276,186	20.8	%	$	149,554	14.8	%	$	525,353	20.4	%	$	360,992	15.7	%
Europe	168,106		10.7	%	89,387		7.4	%	309,064		10.2	%	167,649		6.5	%
Specialty	79,399		14.9	%	52,233		12.9	%	140,881		14.2	%	84,465		11.2	%


	Six Months Ended June 30,				Percentage Change in Revenue
North America	2021		2020		Organic			Acquisition and Divestiture		Foreign Exchange		Total Change
Parts & services revenue	$	2,095,608	$	2,000,168	4.1	%	(1)	0.1	%	0.5	%	4.8	%
Other revenue	480,816		300,903		59.7	%	(2)	0.0	%	0.1	%	59.8	%
Total third party revenue	$	2,576,424	$	2,301,071	11.4	%		0.1	%	0.5	%	12.0	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.


North America	Percentage of Total Segment Revenue
Segment EBITDA for the six months ended June 30, 2020	15.7	%
Increase (decrease) due to:
Change in gross margin	2.1	%	(1)
Change in segment operating expenses	2.9	%	(2)
Change in other expense, net and net income attributable to continuing noncontrolling interest	(0.3)	%	(3)
Segment EBITDA for the six months ended June 30, 2021	20.4	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.