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 March 31, 2021

OR

☐ 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 April 30, 2021, the registrant had outstanding an aggregate of 302,159,885 shares of Common Stock.

1

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Income

(In thousands, except per share data)

	Three Months Ended
	March 31,
	2021		2020
Revenue	$	3,170,786	$	3,000,935
Cost of goods sold	1,877,072		1,787,059
Gross margin	1,293,714		1,213,876
Selling, general and administrative expenses	848,565		899,811
Restructuring and acquisition related expenses	7,885		6,970
Impairment of net assets held for sale and (gain on disposal of business)	15		(249)
Depreciation and amortization	65,801		65,495
Operating income	371,448		241,849
Other expense (income):
Interest expense, net of interest income	24,179		25,931
Loss on debt extinguishment	—		12,751
Other income, net	(6,213)		(3,622)
Total other expense, net	17,966		35,060
Income from continuing operations before provision for income taxes	353,482		206,789
Provision for income taxes	92,969		60,411
Equity in earnings of unconsolidated subsidiaries	5,819		516
Income from continuing operations	266,332		146,894
Net loss from discontinued operations	—		(915)
Net income	266,332		145,979
Less: net income attributable to continuing noncontrolling interest	419		740
Less: net income attributable to discontinued noncontrolling interest	—		103
Net income attributable to LKQ stockholders	$	265,913	$	145,136
Basic earnings per share: (1)
Income from continuing operations	$	0.88	$	0.48
Net loss from discontinued operations	—		(0.00)
Net income	0.88		0.48
Less: net income attributable to continuing noncontrolling interest	0.00		0.00
Less: net income attributable to discontinued noncontrolling interest	—		0.00
Net income attributable to LKQ stockholders	$	0.88	$	0.47
Diluted earnings per share: (1)
Income from continuing operations	$	0.88	$	0.48
Net loss from discontinued operations	—		(0.00)
Net income	0.88		0.48
Less: net income attributable to continuing noncontrolling interest	0.00		0.00
Less: net income attributable to discontinued noncontrolling interest	—		0.00
Net income attributable to LKQ stockholders	$	0.88	$	0.47

(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.

2

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Comprehensive Income

(In thousands)

	Three Months Ended
	March 31,
	2021		2020
Net income	$	266,332	$	145,979
Less: net income attributable to continuing noncontrolling interest	419		740
Less: net income attributable to discontinued noncontrolling interest	—		103
Net income attributable to LKQ stockholders	265,913		145,136
Other comprehensive income (loss):
Foreign currency translation, net of tax	(24,572)		(103,965)
Net change in unrealized gains/losses on cash flow hedges, net of tax	658		(7,321)
Net change in unrealized gains/losses on pension plans, net of tax	313		120
Other comprehensive loss from unconsolidated subsidiaries	(3,512)		(1,852)
Other comprehensive loss	(27,113)		(113,018)
Comprehensive income	239,219		32,961
Less: comprehensive income attributable to continuing noncontrolling interest	419		740
Less: comprehensive income attributable to discontinued noncontrolling interest	—		103
Comprehensive income attributable to LKQ stockholders	$	238,800	$	32,118

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

3

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

(In thousands, except share and per share data)

	March 31,		December 31,
	2021		2020
Assets
Current assets:
Cash and cash equivalents	$	590,194	$	312,154
Receivables, net	1,252,374		1,073,389
Inventories	2,392,714		2,414,612
Prepaid expenses and other current assets	218,664		233,877
Total current assets	4,453,946		4,034,032
Property, plant and equipment, net	1,204,643		1,248,703
Operating lease assets, net	1,373,238		1,353,124
Intangible assets:
Goodwill	4,515,634		4,591,569
Other intangibles, net	777,372		814,219
Equity method investments	170,729		155,224
Other noncurrent assets	169,895		163,662
Total assets	$	12,665,457	$	12,360,533
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	1,228,524	$	932,406
Accrued expenses:
Accrued payroll-related liabilities	202,333		208,718
Refund liability	104,534		102,148
Other accrued expenses	356,126		334,890
Other current liabilities	104,510		130,021
Current portion of operating lease liabilities	200,637		221,811
Current portion of long-term obligations	239,962		58,497
Total current liabilities	2,436,626		1,988,491
Long-term operating lease liabilities, excluding current portion	1,219,267		1,197,963
Long-term obligations, excluding current portion	2,471,730		2,812,641
Deferred income taxes	285,584		291,421
Other noncurrent liabilities	369,546		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, 321,170,573 shares issued and 302,370,072 shares outstanding at March 31, 2021; 320,867,602 shares issued and 303,553,000 shares outstanding at December 31, 2020	3,212		3,208
Additional paid-in capital	1,449,667		1,444,584
Retained earnings	5,041,953		4,776,040
Accumulated other comprehensive loss	(126,122)		(99,009)
Treasury stock, at cost; 18,800,501 shares at March 31, 2021 and 17,314,602 shares at December 31, 2020	(526,084)		(469,105)
Total Company stockholders' equity	5,842,626		5,655,718
Noncontrolling interest	16,001		15,582
Total stockholders' equity	5,858,627		5,671,300
Total liabilities and stockholders' equity	$	12,665,457	$	12,360,533

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

4

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

(In thousands)

	Three Months Ended
	March 31,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	266,332	$	145,979
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	71,597		71,379
Stock-based compensation expense	7,792		7,968
Loss on debt extinguishment	—		12,751
Other	(9,202)		(2,970)
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions:
Receivables, net	(197,594)		(63,938)
Inventories	(13,469)		(7,522)
Prepaid income taxes/income taxes payable	(20,694)		41,585
Accounts payable	331,383		(27,170)
Other operating assets and liabilities	86,367		16,501
Net cash provided by operating activities	522,512		194,563
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(41,779)		(44,538)
Proceeds from disposals of property, plant and equipment	7,601		5,528
Acquisitions, net of cash acquired	(2,385)		(7,220)
Proceeds from disposal of businesses, net of cash sold	5,944		1,763
Investments in unconsolidated subsidiaries	(2,824)		(405)
Net cash used in investing activities	(33,443)		(44,872)
CASH FLOWS FROM FINANCING ACTIVITIES:
Early-redemption premium	—		(9,498)
Repayment of U.S. Notes (2023)	—		(600,000)
Borrowings under revolving credit facilities	1,287,810		460,186
Repayments under revolving credit facilities	(1,392,004)		(134,674)
Repayments under term loans	(4,375)		(4,375)
Borrowings under receivables securitization facility	—		111,300
Repayments under receivables securitization facility	—		(12,900)
Borrowings (repayments) of other debt, net	25,574		(49,481)
Settlement of derivative instruments, net	(56,804)		—
Purchase of treasury stock	(56,979)		(88,006)
Other financing activities, net	(11,717)		(7,291)
Net cash used in financing activities	(208,495)		(334,739)
Effect of exchange rate changes on cash, cash equivalents and restricted cash	(2,534)		(11,746)
Net increase (decrease) in cash, cash equivalents and restricted cash	278,040		(196,794)
Cash, cash equivalents and restricted cash of continuing operations, beginning of period	312,154		528,387
Add: Cash, cash equivalents and restricted cash of discontinued operations, beginning of period	—		6,470
Cash, cash equivalents and restricted cash of continuing and discontinued operations, beginning of period	312,154		534,857
Cash, cash equivalents and restricted cash, end of period	$	590,194	$	338,063

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

5

	Three Months Ended
	March 31,
	2021		2020
Reconciliation of cash, cash equivalents and restricted cash
Cash and cash equivalents	$	590,194	$	332,784
Restricted cash included in Other noncurrent assets	—		5,279
Cash, cash equivalents and restricted cash, end of period	$	590,194	$	338,063
Supplemental disclosure of cash paid for:
Income taxes, net of refunds	$	116,135	$	22,014
Interest	5,751		13,772
Supplemental disclosure of noncash investing and financing activities:
Leased assets obtained in exchange for finance lease liabilities	$	1,828	$	7,718
Leased assets obtained in exchange for operating lease liabilities	90,784		39,460
Noncash property, plant and equipment and software intangible additions in accounts payable and other accrued expenses	9,127		7,594
Notes payable and other financing obligations, including notes issued and debt assumed in connection with business acquisitions and disposals	179		6,136
Notes receivable acquired in connection with disposal of business	—		7,994
Contingent consideration liabilities	—		2,933

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

6

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		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	—	—		—	—		—		265,913		—		419		266,332
Other comprehensive loss	—	—		—	—		—		—		(27,113)		—		(27,113)
Purchase of treasury stock	—	—		(1,486)	(56,979)		—		—		—		—		(56,979)
Vesting of restricted stock units, net of shares withheld for employee tax	303	4		—	—		(2,709)		—		—		—		(2,705)
Stock-based compensation expense	—	—		—	—		7,792		—		—		—		7,792
BALANCE, March 31, 2021	321,171	$	3,212	(18,801)	$	(526,084)	$	1,449,667	$	5,041,953	$	(126,122)	$	16,001	$	5,858,627

	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	—	—		—	—		—		145,136		—		843		145,979
Other comprehensive loss	—	—		—	—		—		—		(113,018)		—		(113,018)
Purchase of treasury stock	—	—		(3,300)	(88,006)		—		—		—		—		(88,006)
Vesting of restricted stock units, net of shares withheld for employee tax	400	4		—	—		(2,073)		—		—		—		(2,069)
Stock-based compensation expense	—	—		—	—		7,968		—		—		—		7,968
Exercise of stock options	112	1		—	—		1,466		—		—		—		1,467
Capital contributions from, net of dividends declared to, noncontrolling interest shareholder	—	—		—	—		—		—		—		341		341
Adoption of ASU 2016-13	—	—		—	—		—		(2,519)		—		—		(2,519)
Disposition of subsidiary with noncontrolling interests (1)	—	—		—	—		—		—		—		(11,404)		(11,404)
BALANCE, March 31, 2020	320,439	$	3,204	(16,496)	$	(439,819)	$	1,425,600	$	4,282,753	$	(313,903)	$	29,484	$	4,987,319

(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.

7

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 pursuant to the rules and regulations of the 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 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 filed with the SEC on February 26, 2021 ("2020 Form 10-K").

The coronavirus disease 2019 ("COVID-19") pandemic and the resulting governmental actions taken to control the virus have impacted, and are expected to continue to impact, our business in 2020 and 2021. The effects include, but are not limited to, a reduction in demand for our products and services, liquidity challenges for certain of our customers and suppliers, and organizational changes, such as personnel reductions and route consolidation, driven by cost actions to mitigate the actual and expected revenue decline. We have considered COVID-19 impacts in the preparation of our financial statements and footnotes as of and for the three months ended March 31, 2021. 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.

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.

8

Note 3. 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 $68 million and $70 million as of March 31, 2021 and December 31, 2020, respectively. Bad debt expense totaled $2 million and $9 million for the three months ended March 31, 2021 and 2020, respectively.

Inventories

Inventories consist of the following (in thousands):

	March 31,		December 31,
	2021		2020
Aftermarket and refurbished products	$	2,020,707	$	2,025,002
Salvage and remanufactured products	349,539		368,815
Manufactured products	22,468		20,795
Total inventories	$	2,392,714	$	2,414,612

Aftermarket and refurbished products and salvage and remanufactured products are primarily composed of finished goods. As of March 31, 2021, manufactured products inventory was composed of $17 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 million of finished goods.

Intangible Assets

Goodwill and indefinite-lived intangible assets are tested for impairment at least annually. We performed our annual impairment test during the fourth quarter of 2020 and we determined no impairment existed as all of our reporting units had a fair value estimate which exceeded the carrying value by at least 30%. 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. We did not identify a triggering event in the first quarter of 2021 that necessitated an interim test of goodwill impairment or indefinite-lived intangible assets impairment.

Investments in Unconsolidated Subsidiaries

Our investment in unconsolidated subsidiaries was $171 million and $155 million as of March 31, 2021 and December 31, 2020, respectively.

Europe Segment

Our investment in unconsolidated subsidiaries in Europe was $150 million and $137 million as of March 31, 2021 and December 31, 2020, respectively. We recorded equity in earnings of $6 million and $1 million during the three months ended March 31, 2021 and 2020, respectively, mainly related to our investment in Mekonomen AB ("Mekonomen").    

On December 1, 2016, we acquired a 26.5% equity interest in Mekonomen for an aggregate purchase price of $181 million. In October 2018, we acquired an additional $48 million of equity in Mekonomen at a discounted share price as part of its rights issue, increasing our equity interest to 26.6%. We are accounting for our interest in Mekonomen using the equity method of accounting, as our investment gives us the ability to exercise significant influence, but not control, over the investee. As of March 31, 2021, our share of the book value of Mekonomen's net assets exceeded the book value of our investment in Mekonomen by $7 million; this difference is primarily related to Mekonomen's Accumulated Other Comprehensive Income balance as of our acquisition date in 2016. We are recording our equity in the net earnings of Mekonomen on a one quarter lag.

Mekonomen announced in March 2020 and February 2021, respectively, that the Mekonomen Board of Directors proposed no dividend payment in 2020 or 2021. The Level 1 fair value of our equity investment in the publicly traded Mekonomen common stock at March 31, 2021 was $230 million (using the Mekonomen share price of SEK 129 as of March 31, 2021) compared to a carrying value of $139 million.

North America Segment

9

Our investment in unconsolidated subsidiaries in the North America segment was $21 million and $19 million as of March 31, 2021 and December 31, 2020, respectively.

Warranty Reserve

Some of our salvage mechanical products are sold with a standard six month warranty against defects. Additionally, some of our remanufactured engines are sold with a standard three or four year warranty against defects. 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):

Balance as of December 31, 2020	$	27,914
Warranty expense	18,470
Warranty claims	(17,917)
Balance as of March 31, 2021	$	28,467

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 months ended March 31, 2021, we recorded $9 million in financial assistance from foreign governments, primarily in the form of grants, of which $7 million and $2 million related to Europe and Canada, respectively. For the three months ended March 31, 2021, an immaterial amount was recorded as a reduction to Cost of goods sold, and $9 million was a reduction to Selling, general and administrative expenses, in our Unaudited Condensed Consolidated Statement of Income. 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). No government assistance was recorded for the three months ended March 31, 2020.

Leases - Cash Flow Disclosure

The amount disclosed for Leased assets obtained in exchange for operating lease liabilities for the three months ended March 31, 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 $18 million to address an omission of the impact of lease modifications and terminations.

Stockholders' Equity

Treasury Stock

As of March 31, 2021, our Board of Directors had authorized a stock repurchase program under which we may purchase up to $1.0 billion of our common stock from time to time through October 25, 2022. 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.

During the three months ended March 31, 2021, we repurchased 1.5 million shares of common stock for an aggregate price of $57 million. During the three months ended March 31, 2020, we repurchased 3.3 million shares of common stock for an aggregate price of $88 million. As of March 31, 2021, there was $474 million of remaining capacity under our repurchase program. Repurchased shares are accounted for as treasury stock using the cost method.

Noncontrolling Interest

In February 2020, as part of the sale of Stahlgruber's Czech Republic business, we divested the noncontrolling interest of the business, which resulted in a net decrease to Noncontrolling interest of $11 million in our unaudited condensed consolidated financial statements as of March 31, 2020. See Note 2, "Discontinued Operations," for further information.

10

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

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

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

Recently Issued Accounting Pronouncements

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

Note 4. Revenue Recognition

The majority of our revenue is derived from the sale of vehicle parts. We recognize revenue when the products are shipped to, delivered to or picked up by customers, which is the point when title has transferred and risk of ownership has passed.

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):

	Three Months Ended
	March 31,
	2021		2020
North America	$	1,018,437	$	1,107,342
Europe	1,455,370		1,357,969
Specialty	457,959		347,406
Parts and services	2,931,766		2,812,717
Other	239,020		188,218
Total revenue	$	3,170,786	$	3,000,935

Parts and Services

Our parts revenue is generated from the sale of vehicle products including replacement parts, components and systems used in the repair and maintenance of vehicles and specialty products and accessories to improve the performance, functionality and appearance of vehicles. Services revenue includes (i) additional services that are generally billed concurrently with the

11

related product sales, such as the sale of service-type warranties, (ii) fees for admission to our self service yards, and (iii) diagnostic and repair services.

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

Balance as of January 1, 2021	$	25,622
Additional warranty revenue deferred	13,511
Warranty revenue recognized	(11,834)
Balance as of March 31, 2021	$	27,299

Other Revenue

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

Revenue by Geographic Area

See Note 14, "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 the “expected value method” or the “most likely amount” method in order to estimate variable consideration. We utilize both methods in practice depending on the type of variable consideration, with contemplation of any expected reversals in revenue. We recorded a refund liability and return asset for expected returns of $105 million and $59 million, respectively, as of March 31, 2021, and $102 million and $57 million, respectively, as of December 31, 2020. 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 $87 million and $127 million as of March 31, 2021 and December 31, 2020, respectively. While other customer incentive programs exist, we characterize them as material rights in the context of our sales transactions. We consider these programs to be immaterial to our unaudited condensed consolidated financial statements.

Note 5. Restructuring and Acquisition Related Expenses

2019 Global Restructuring Program

In the second quarter of 2019, we commenced a cost reduction initiative, covering all three of our reportable segments, designed to eliminate underperforming assets and cost inefficiencies. We 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 earlier than the end of the previously estimated useful lives.

12

During the three months ended March 31, 2021 and 2020, we incurred $1 million and $3 million, respectively, of restructuring expenses under this program, primarily related to facility exit costs and employee-related costs. These costs were recorded within Restructuring and acquisition related expenses in the Unaudited Condensed Consolidated Statements of Income. The program costs incurred during the three months ended March 31, 2021 primarily related to our Europe segment. Of the program costs incurred during the three months ended March 31, 2020, $2 million and $1 million related to our Europe and North America segments, respectively.

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

2020 Global Restructuring Program

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

During the three months ended March 31, 2021, we recognized restructuring expenses of $2 million, representing $5 million of employee-related costs and facility exit costs, partially offset by a $3 million gain from the sale of a building to be closed as part of the restructuring plan. During the three months ended March 31, 2020, we recognized $2 million of expenses related to the program. Of the cumulative program costs incurred to date, $27 million, $23 million and $1 million related to our North America, Europe and Specialty segments, respectively. We estimate total costs under the program through its expected completion date in 2023 will be between $65 million and $75 million, of which approximately $36 million, $31 million, and $2 million will be incurred by our Europe, North America and Specialty segments, respectively; these segment amounts represent the midpoints of the expected ranges of costs to be incurred by each segment.

As of March 31, 2021 and December 31, 2020, restructuring liabilities incurred related to this program totaled $16 million and $21 million, respectively, including $13 million and $17 million, respectively, related to leases we have exited or expect to exit prior to the end of the lease term (reported in Current portion of operating lease liabilities and Long-term operating lease liabilities, excluding current portion on our Unaudited Condensed Consolidated Balance Sheets), and $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 first quarter of 2021 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 months ended March 31, 2021, we incurred immaterial restructuring expenses for our acquisition integration plans. Future expenses to complete our existing integration plans are expected to be immaterial.

During the three months ended March 31, 2020, we incurred $2 million of restructuring expenses for our acquisition integration plans. These expenses were primarily related to the integration of our acquisition of Andrew Page Limited.

1 LKQ Europe Program

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

During the three months ended March 31, 2021, we incurred $5 million of restructuring charges related to the 1 LKQ Europe program related to employee-related costs. We estimate that we will incur between $45 million and $55 million in total

13

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 March 31, 2021, the restructuring liabilities related to this program were immaterial.

Note 6. Stock-Based Compensation

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

The fair value of RSUs that vested during the three months ended March 31, 2021 was $14 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 three months ended March 31, 2021:

	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)	690,011	$	38.52
Vested	(362,750)	$	32.86
Forfeited / Canceled	(13,774)	$	33.92
Unvested as of March 31, 2021	1,793,159	$	34.08
Expected to vest after March 31, 2021	1,604,984	$	34.25	3.3	$	67,939

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

(2)    The weighted average grant date fair value of RSUs granted during the three months ended March 31, 2020 was $33.14.

In 2021 and 2020, we granted performance-based three-year RSUs ("PSUs") to certain employees, including our executive officers, under our Equity Incentive Plan. As these awards are performance-based, the exact number of shares to be paid out may be up to twice the grant amount, depending on the Company's performance and the achievement of certain performance metrics (adjusted earnings per share, average organic parts and services revenue growth, and average return on invested capital) over the applicable three year performance periods.

The following table summarizes activity related to our PSUs under the Equity Incentive Plan for the three months ended March 31, 2021:

14

	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	—	$	—
Unvested as of March 31, 2021	413,411	$	32.49
Expected to vest after March 31, 2021	413,411	$	32.49	1.7	$	17,500

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

(2)    Represents the number of PSUs at target payout. The weighted average grant date fair value of PSUs granted during the three months ended March 31, 2020 was $32.21.

Stock-Based Compensation Expense

Pre-tax stock-based compensation expense for RSUs and PSUs totaled $8 million for both the three months ended March 31, 2021 and 2020. As of March 31, 2021, unrecognized compensation expense related to unvested RSUs and PSUs was $61 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.

Note 7. Earnings Per Share

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

	Three Months Ended
	March 31,
	2021		2020
Income from continuing operations	$	266,332	$	146,894
Denominator for basic earnings per share—Weighted-average shares outstanding	303,043		306,238
Effect of dilutive securities:
RSUs	628		515
PSUs	94		—
Stock options	—		4
Denominator for diluted earnings per share—Adjusted weighted-average shares outstanding	303,765		306,757
Basic earnings per share from continuing operations	$	0.88	$	0.48
Diluted earnings per share from continuing operations (1)	$	0.88	$	0.48

(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 months ended March 31, 2021 and 2020 (in thousands):

	Three Months Ended
	March 31,
	2021	2020
Antidilutive securities:
RSUs	117	381

15

Note 8. Accumulated Other Comprehensive Income (Loss)

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

	Three Months Ended
	March 31, 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	(24,572)		3,119		—		—		(21,453)
Income tax effect	—		(736)		—		—		(736)
Reclassification of unrealized (gain) loss	—		(2,343)		437		—		(1,906)
Reclassification of deferred income taxes	—		618		(124)		—		494
Other comprehensive loss from unconsolidated subsidiaries	—		—		—		(3,512)		(3,512)
BALANCE, March 31, 2021	$	(81,698)	$	(310)	$	(32,654)	$	(11,460)	$	(126,122)

	Three Months Ended
	March 31, 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) income	(104,060)		4,182		—		—		(99,878)
Income tax effect	—		(984)		—		—		(984)
Reclassification of unrealized (gain) loss	—		(13,707)		114		—		(13,593)
Reclassification of deferred income taxes	—		3,188		6		—		3,194
Disposal of business	95		—		—		—		95
Other comprehensive loss from unconsolidated subsidiaries	—		—		—		(1,852)		(1,852)
BALANCE, March 31, 2020	$	(274,858)	$	(1,963)	$	(31,814)	$	(5,268)	$	(313,903)

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

		Three Months Ended
		March 31,
	Classification	2021		2020
Unrealized (losses) gains on interest rate swaps	Interest expense, net of interest income	$	(693)	$	3,296
Unrealized gains on cross currency swaps	Interest expense, net of interest income	539		2,551
Unrealized gains on cross currency swaps (1)	Other income, net	1,973		7,860
Unrealized gains on foreign currency forward contracts (1)	Other income, net	524		—
Total		$	2,343	$	13,707

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

16

Net unrealized losses and gains related to our pension plans were reclassified to Other income, net in our Unaudited Condensed Consolidated Statements of Income during the three months ended March 31, 2021 and 2020.

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

Note 9. Long-Term Obligations

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

	March 31,		December 31,
	2021		2020
Senior secured credit agreement:
Term loans payable	$	319,375	$	323,750
Revolving credit facilities	533,882		642,958
Euro Notes (2024)	586,500		610,800
Euro Notes (2026/28)	1,173,000		1,221,600
Receivables securitization facility	—		—
Notes payable through October 2030 at weighted average interest rates of 3.4% and 3.3%, respectively	21,420		24,526
Finance lease obligations at weighted average interest rates of 3.5% and 3.5%, respectively	54,505		57,336
Other debt at weighted average interest rates of 1.1% and 1.2%, respectively	46,340		15,706
Total debt