LKQ CORP (LKQ) FY 2021 MD&A

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with our audited Consolidated Financial Statements and notes thereto included in Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K. Discussion of 2019 items and the year-over-year comparison of changes in our financial condition and the results of operations as of and for the years ended December 31, 2020 and December 31, 2019 can be found in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of our Annual Report on Form 10-K for the year ended December 31, 2020 filed with the SEC on February 26, 2021. Unless otherwise indicated or the context otherwise requires, as used in this "Management's Discussion and Analysis of Financial Condition and Results of Operations," the terms "we," "us," "the Company," "our," "LKQ" and similar terms refer to LKQ Corporation and its subsidiaries.

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Overview

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

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

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

We are organized into four operating segments: Wholesale – North America; Europe; Specialty and Self Service. We aggregate our Wholesale – North America and Self Service operating segments into one reportable segment, North America, resulting in three reportable segments: North America, Europe and Specialty.

Our operating results have fluctuated on a quarterly and annual basis in the past and can be expected to continue to fluctuate in the future as a result of a number of factors, some of which are beyond our control. Please refer to the factors referred to in Forward-Looking Statements and Risk Factors 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.

During the years ended December 31, 2021, 2020 and 2019, we acquired various immaterial businesses across our North America, Europe, and Specialty segments.

Sources of Revenue

We report our revenue in two categories: (i) parts and services and (ii) other. Our parts revenue is generated from the sale of vehicle products, including replacement parts, components and systems used in the repair and maintenance of vehicles, and specialty products and accessories to improve the performance, functionality and appearance of vehicles. Our service revenue is generated primarily from the sale of service-type warranties, fees for admission to our self service yards, and diagnostic and repair services. During the year ended December 31, 2021, parts and services revenue represented approximately 93% of our consolidated revenue. Revenue from other sources includes scrap and other metals (including precious metals - platinum, palladium and rhodium) sales, bulk sales to mechanical manufacturers (including cores) and sales of aluminum ingots and sows from our furnace operations. Other revenue will vary from period to period based on fluctuations in commodity prices and the volume of materials sold. See Note 4, "Revenue Recognition" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information related to our sources of revenue.

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Critical Accounting Estimates

The preparation of the Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America ("US GAAP") requires management to make use of certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities in the Consolidated Financial Statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Historically, we have not made significant changes to the methods for determining these estimates as our actual results have not differed materially from our estimates. We do not believe it is reasonably likely that the estimates and related assumptions will change materially in the foreseeable future; however, actual results could differ from those estimates under different assumptions, judgments or conditions.

Critical accounting estimates are those that are most important to the portrayal of our financial condition and results of operations, and which require us to make our most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting estimates addressed below. For additional information related to significant accounting policies used in the preparation of our Consolidated Financial Statements, see Note 3, "Summary of Significant Accounting Policies" to the accompanying Consolidated Financial Statements.

Goodwill Impairment

Description

Goodwill is obtained through business acquisitions and recorded at the estimated fair value at the date of acquisition. Goodwill is not amortized but instead tested for impairment annually or sooner if events indicate that an impairment may exist. In performing this test, we compare the carrying value of the asset to its fair value. To derive the fair value for our reporting units which carry goodwill, we consider the use of various valuation techniques, with the primary technique being an income approach via a discounted cash flow method and another being a market approach via a guideline public company method. If the carrying value of these assets exceeds the estimated fair value, the asset is considered impaired and an impairment charge is recognized. In performing the test for impairment of goodwill, goodwill is allocated to the reporting units expected to benefit from the business combination.

Judgments and Uncertainties

Determining whether impairment indicators exist and estimating fair values as part of impairment testing require significant judgment. Estimating the fair values of our reporting units which have goodwill requires the use of significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. As part of applying the discounted cash flow method and guideline public company method, we use significant assumptions which include sales growth, operating margins, discount rates, perpetual growth rates and valuation multiples which consider our budgets, business plans, economic projections and marketplace data.

Sensitivity of Estimate to Change

We have not made material changes in the accounting methodology used to evaluate impairment of goodwill during the last three years. The assumptions used to assess impairment consider historical trends, macroeconomic conditions, and projections consistent with the Company’s operating strategy. Changes in these estimates can have a significant impact on the assessment of fair value which could result in material impairment losses. During fiscal year 2021, we elected to perform a quantitative impairment test for our goodwill. No impairment charges were recorded as a result of the testing as the fair value of each goodwill reporting unit exceeded the calculated carrying value. A 10% decline in projected cash flows or a 10% increase in the discount rate would not have resulted in an impairment to goodwill.

Recently Issued Accounting Pronouncements

See "Recent Accounting Pronouncements" in Note 3, "Summary of Significant Accounting Policies" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for information related to new accounting standards.

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Financial Information by Geographic Area

See Note 15, "Segment and Geographic Information" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for information related to our revenue and long-lived assets by geographic region.

1 LKQ Europe Program

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

•Restructuring expenses — Non-recurring costs resulting directly from the implementation of the 1 LKQ Europe program from which the business will derive no ongoing benefit. See Note 5, "Restructuring and Acquisition Related Expenses,” to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K 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 acquisition related expenses and Purchases of property, plant and equipment in our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K. 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 2024. During the year ended December 31, 2021, we incurred $37 million in costs across all three categories noted above. We expect that costs of the program, reflecting all three categories noted above, will range between $100 million and $130 million between 2022 and the projected program completion date in 2024. In the future, we may also identify additional initiatives and projects under the 1 LKQ Europe program that may result in additional expenditures, although we are currently unable to estimate the range of charges for such potential future initiatives and projects. We expect the transformation and restructuring expenses will be entirely funded by the improved trade working capital initiatives across our Europe segment.

COVID-19 Impact on Our Operations

In late February 2020, the Italian government began placing restrictions on activity as a result of the COVID-19 outbreak. Sales volumes fell as fewer cars were on the road and less maintenance activity was performed. While our Italian operation is an important part of our European business, it represented approximately 10% of the segment’s revenue in 2019, and thus the disruption did not have a material impact on the Company. By mid-March, the COVID-19 impact began spreading across the rest of the geographies where we operate at a very rapid pace. Governments adopted aggressive restrictions on the operation of non-essential businesses and personal movement, which reduced miles driven and collisions. While our businesses were deemed essential in most jurisdictions in which we operate, the change in behavior driven by the COVID-19 restrictions negatively impacted our sales volume. Our organic parts and services revenue declined by 16.8%, 4.5% and 5.2% in the second, third, and fourth quarters of 2020, respectively, relative to the comparable prior year periods. We showed improvement in the third quarter of 2020 as governments gradually lifted restrictions for non-essential businesses and personal movement; however, in the fourth quarter of 2020 revenue declined as certain jurisdictions put restrictions back into place. As anticipated, April 2020 experienced the most negative revenue impact, with organic parts and services revenue (on a per day basis) down 30.3% compared to the prior year period. As movement restrictions lessened in May and June of 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

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basis). During the fourth quarter of 2020, organic parts and services revenue declined by 6.1% (on a per day basis) and gradually worsened during the quarter with a decline of 7.2% (on a per day basis) in December. During the first quarter of 2021, organic parts and services revenue increased by 2.2% (on a per day basis) despite the continued COVID-19 impact on economic activity in the U.S. and Europe. During the second quarter of 2021, organic parts and services revenue increased by 21.1% (on a per day basis) reflecting the low prior year comparable figure owing to COVID-19 and the gradual recovery in mobility. During the third quarter of 2021, the recovery continued with organic parts and services revenue increasing by 4.0%. During the fourth quarter of 2021, organic parts and services revenue increased by 7.3% (on a per day basis). Since the start of the pandemic, our revenue has been impacted to varying degrees depending on the segment, with North America experiencing the most negative impact due to the decrease in miles driven and collision activity. Europe was also negatively affected by mobility restrictions and reduced miles driven but has experienced a quicker recovery than North America and reached its 2019 revenue level in the fourth quarter of 2021. After seeing year over year decreases early in the pandemic, Specialty revenue has grown due to favorable trends in recreational vehicle activity and online sales. We expect consolidated parts and services revenue to grow organically in future periods, but the level of the year over year increase in revenue will depend on, among other factors, the extent of COVID-19 related restrictions across the geographies in which we operate as strategies to address the virus evolve, the pace of recovery in miles driven and access to inventory, which has been constrained with supply chain issues.

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

Recognizing the demand changes in the first quarter of 2020, we took action in all of our business units to reduce our cost structure. These actions included, but were not limited to, employee furloughs and reductions in force, decreases in hours and overtime, lowering compensation for salaried employees, a hiring freeze, elimination of temporary labor, route consolidation, deferral of projects, and temporary branch closures. In the second quarter of 2020, these cost actions contributed to a reduction of approximately 18% in quarterly selling, general and administrative expenses compared to our first quarter 2020 run rate. Since then, we have been able to sustain a portion of these cost benefits. As revenue has increased, some of the costs that were reduced as a result of COVID-19 remained at a lower level; the management team has implemented productivity initiatives to create lower cost structures going forward which has contributed to profitability reported in 2020 and 2021. Inflationary pressures around wages and freight experienced in 2021 drove expenses higher, which partially offset some of the prior cost savings initiatives.

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 year ended December 31, 2021, we qualified for $16 million of assistance. We received $52 million of government assistance in 2020, with the largest portion coming in the second quarter. We currently do not anticipate qualifying for significant additional assistance in 2022.

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 $1,000 million 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 while also issuing the Company's first dividend in the fourth quarter of 2021.

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 continued to assess COVID-19 developments and the potential impacts on our business in 2021, and will continue to do so in 2022 and update the applicable analyses as necessary.

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As the economic impact of the pandemic is dependent on variables that are difficult to project and in many cases are outside of our control, it is possible that the estimates underlying our analyses may change materially in future periods. This is particularly the case because it appears that the prevalence of the virus outbreak fluctuates depending on various factors, including the development of variants and the level of economic and social activity and vaccination status in a region.

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

Key Performance Indicators

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

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

•Segment EBITDA - Refer to Note 15, "Segment and Geographic Information,” to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K 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 cash flow available to meet future debt service obligations and working capital requirements, to make strategic acquisitions, to repurchase stock, and to pay dividends.

These three key performance indicators are used as targets in determining incentive compensation at various levels of the organization, including senior management. By using these performance measures, we attempt to motivate a balanced approach to the business that rewards growth, profitability and cash flow generation in a manner that enhances our long-term prospects.

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Results of Operations—Consolidated

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

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

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

The growth in parts and services revenue of 10.7% represented increases in segment revenue of 23.8% in Specialty, 10.3% in Europe, and 6.4% in North America. Organic parts and services revenue growth was 7.9%, which included a 0.4% negative effect from one fewer selling day for the year ended December 31, 2021, resulting in per day organic growth of 8.3% as the current year effect of the pandemic was less severe than the prior year. The increase in other revenue of 42.5% was primarily driven by a $281 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 changes in revenue by segment for the year ended December 31, 2021 compared to the year ended December 31, 2020.

Cost of Goods Sold. Cost of goods sold decreased to 59.3% of revenue for the year ended December 31, 2021 from 60.5% of revenue for the year ended December 31, 2020. The cost of goods sold decrease reflects impacts of 0.7%, 0.4% and 0.1% in our Europe, North America and Specialty segments, respectively. Refer to the discussion of our segment results of operations for factors contributing to the changes in cost of goods sold as a percentage of revenue by segment for the year ended December 31, 2021 compared to the year ended December 31, 2020.

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Selling, General and Administrative Expenses. Our selling, general and administrative ("SG&A") expenses as a percentage of revenue decreased to 27.3% for the year ended December 31, 2021 from 28.1% for the year ended December 31, 2020. The SG&A expense decrease reflects impacts of 0.4% and 0.3% in our Europe and North America segments, respectively and 0.2% 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 SG&A expense as a percentage of revenue. 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 year ended December 31, 2021 compared to the year ended December 31, 2020.

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

(1)Restructuring expenses for the year ended December 31, 2021 primarily consisted of (i) $9 million related to our 2020 global restructuring program and (ii) $6 million related to our 1 LKQ Europe program.

(2)    Restructuring expenses for the year ended December 31, 2020 primarily consisted of (i) $42 million related to our 2020 global restructuring program, (ii) $9 million related to integration costs from acquisitions, and (iii) $7 million related to our 2019 global restructuring program.

(3)    Acquisition related expenses for the year ended December 31, 2021 primarily relate to professional fees related to completed and potential transactions.

(4)    Acquisition related expenses for the year ended December 31, 2020 primarily consisted of an $8 million adjustment for the resolution of a purchase price matter related to the Stahlgruber transaction for an amount above our prior estimate.

See Note 5, "Restructuring and Acquisition Related Expenses" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information on our restructuring and integration plans.

Loss on disposal of businesses and impairment of net assets held for sale. For the year ended December 31, 2021, we recorded immaterial impairment charges on net assets held for sale, compared to $3 million of net impairment charges on net assets held for sale for the year ended December 31, 2020 primarily attributable to our Europe segment. See "Net Assets Held for Sale" in Note 3, "Summary of Significant Accounting Policies" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information on the net loss on disposals and impairment charges.

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

(1)The increase in depreciation expense primarily reflected (i) $3 million from foreign currency translation primarily related to an increase in the euro and pound sterling exchange rates.

(2)The decrease in amortization expense primarily reflected (i) a decrease of $16 million related to the customer relationship intangible assets recorded upon our acquisition of Stahlgruber as the accelerated amortization of the customer relationship intangible assets resulted in lower amortization expense for the year ended December 31, 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 for the year ended December 31, 2021 compared to the prior year period.

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

(1)The lower interest expense is primarily related to (i) a $32 million decrease resulting from lower outstanding debt and lower interest rates for the year ended December 31, 2021 compared to the prior year period, partially offset by (ii) a $2 million increase from foreign currency translation, primarily related to an increase in the euro exchange rate.

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

(3)The favorable variance in Interest income and other income, net primarily related to (i) $11 million of fair value adjustments in 2021 for appreciation in our equity investments not accounted for under the equity method, (ii) $6 million in pension settlement losses in the prior year related to our primary defined benefit plan in the U.S. (the "U.S. Plan"), (iii) several individually immaterial factors that had a favorable impact of $1 million in the aggregate, partially offset by (iv) an $8 million reduction in proceeds related to insurance settlements compared to the prior year and (v) a $5 million reduction due to a decrease in non-operating income from a North American contract.

Provision for Income Taxes. Our effective income tax rate for the year ended December 31, 2021 was 23.6%, compared to 28.2% for the comparable prior year period. The 2021 base rate decreased due to higher pretax income in our international operations in the current year. Additionally, the lower annual effective tax rate for 2021 included a 0.8% rate benefit primarily from the reversal of valuation allowances on certain interest deduction carryforwards in Europe because of improved profitability and lower interest expense. The prior year rate was increased by 1.7% due to valuation allowances on the tax benefit of net operating loss and interest deduction carryforwards in certain jurisdictions where realization was uncertain. See Note 14, "Income Taxes" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information.

Equity in Earnings (Losses) of Unconsolidated Subsidiaries. Equity in earnings of unconsolidated subsidiaries for the year ended December 31, 2021 increased by $18 million related to improved year over year results reported by Mekonomen, which is our largest equity method investment, and our North America investments, which generated income in 2021 after posting losses in 2020. See "Investments in Unconsolidated Subsidiaries" in Note 3, "Summary of Significant Accounting Policies" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further discussion.

Foreign Currency Impact. We translate our statements of income at the average exchange rates in effect for the period. Relative to the rate used for the year ended December 31, 2020, pound sterling, Canadian dollar, Czech koruna and euro rates used to translate the 2021 statements of income increased by 7.1%, 6.9%, 6.7% and 3.6%, 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 year ended December 31, 2021 resulted in a $0.03 positive effect on diluted earnings per share relative to the prior year period.

Net Income Attributable to Continuing and Discontinued Noncontrolling Interest. Net income attributable to continuing noncontrolling interest for the year ended December 31, 2021 decreased $1 million compared to the year ended December 31, 2020. Net income attributable to discontinued noncontrolling interest was immaterial for the year ended December 31, 2020 and related to the Stahlgruber Czech Republic wholesale business. See Note 2, "Discontinued Operations" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information on this business.

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Results of Operations—Segment Reporting

We have four operating segments: Wholesale – North America, Europe, Specialty and Self Service. Our Wholesale – North America and Self Service operating segments are aggregated into one reportable segment, North America, because they possess similar economic characteristics and have common products and services, customers, and methods of distribution. Therefore, we present three reportable segments: North America, Europe and Specialty.

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

The key measure of segment profit or loss reviewed by our chief operating decision maker, our Chief Executive Officer, is Segment EBITDA. Segment EBITDA includes revenue and expenses that are controllable by the segment. Corporate general and administrative expenses are allocated to the segments based on usage, with shared expenses apportioned based on the segment's percentage of consolidated revenue. We calculate Segment EBITDA as EBITDA excluding restructuring and acquisition related expenses (which includes restructuring expenses recorded in Cost of goods sold); change in fair value of contingent consideration liabilities; other gains and losses related to acquisitions, equity method investments, or divestitures; equity in losses and earnings of unconsolidated subsidiaries; equity investment fair value adjustments; and impairment charges. EBITDA, which is the basis for Segment EBITDA, is calculated as net income attributable to LKQ stockholders excluding discontinued operations and discontinued noncontrolling interest, depreciation, amortization, interest (which includes gains and losses on debt extinguishment) and income tax expense. See Note 15, "Segment and Geographic Information" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for a reconciliation of total Segment EBITDA to net income.

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Year Ended December 31, 2021 Compared to Year Ended December 31, 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):

(1)Parts and services organic revenue increased 5.6% (6.4% on a per day basis) for the year ended December 31, 2021 compared to the prior year period, primarily driven by pricing and growth from recycled and remanufactured major mechanical parts and aftermarket automotive glass products. While mobility statistics have improved relative to 2020, aftermarket collision parts revenue was roughly flat year-over-year due to the constraints on availability of parts caused by supply chain issues in 2021. Until these issues are resolved, we expect to see a negative effect on aftermarket fill rates across the sector that will impact revenue growth rates.

(2)The $276 million year over year organic increase in other revenue is primarily related to (i) a $134 million increase in revenue from scrap steel due to higher prices, (ii) an $81 million increase in revenue from precious metals (platinum, palladium, and rhodium) primarily due to higher prices, and (iii) a $61 million increase in revenue from other scrap and cores primarily related to higher prices.

Segment EBITDA. Segment EBITDA increased $166 million, or 21.3%, for the year ended December 31, 2021 despite the impact of two fewer selling days 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. These were partially offset by negative impacts due to aftermarket fill rates and inflationary increases in costs. Increases in precious metals prices contributed an estimated $60 million in Segment EBITDA improvement relative to the year ended December 31, 2020. Additionally, net sequential increases in scrap steel prices in our salvage and self service operations had a $42 million favorable impact on Segment EBITDA for the year ended December 31, 2021, compared to a $16 million favorable impact for the year ended December 31, 2020. This favorable impact for the year ended December 31, 2021 resulted from the increase in scrap steel prices between the date we purchased a vehicle, which influences the price we pay for a vehicle, and the date we scrapped a vehicle, which influences the price we receive for scrapping a vehicle. We estimate that precious metals and scrap steel pricing had a favorable effect of 1.0% on Segment EBITDA margin relative to the comparable prior year period.

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

(1)    The increase in gross margin primarily reflected favorable impacts from our wholesale operations. Wholesale operations gross margin was favorable primarily due to the positive impact of higher precious metals and scrap steel prices, pricing initiatives and cost reductions from operational efficiencies and rightsizing efforts. Compared to the prior year, input costs for our wholesale operations have risen, with (i) inflationary pressures impacting product and freight costs in aftermarket and (ii) limited supply combined with heightened competition at auctions contributing to higher salvage costs. We are adjusting prices dynamically to address input cost increases and market conditions such as inventory availability and

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demand, and, in some cases, we experienced a margin benefit in 2021 as higher prices were enacted ahead of turning the higher cost inventory.

(2)    The decrease in segment operating expense as a percentage of revenue on a per day basis primarily reflects (i) a favorable impact of 0.4% 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 inflationary cost increases and increased incentive compensation expense and (ii) a positive leverage effect of 0.4% from facility expenses, which are largely fixed.

(3)    The unfavorable impact in other expense, net and net income attributable to continuing noncontrolling interest of 0.2% was primarily related to higher insurance proceeds received for the year ended December 31, 2020.

Europe

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

(1)Parts and services organic revenue for the year ended December 31, 2021 increased by 6.2% as the negative pandemic effect on volume in 2020 was more severe than in 2021. Not all regions were impacted by the pandemic at the same time and to the same degree as in 2020, and the easing of lockdown measures has varied across the continent in 2021. These conditions created a different growth profile for each of our European businesses. While most of our businesses reported year over year growth, Central and Eastern Europe, the U.K. and Benelux reported the largest incremental increases for the year ended December 31, 2021.

(2)Acquisition and divestiture related decline for the year ended December 31, 2021 was primarily as a result of the disposals of a non-core telecommunications operation in Germany in the second quarter of 2020 and five additional smaller disposals in 2021 and 2020.

(3)Compared to the prior year, exchange rates increased our revenue growth by $251 million, or 4.6%, primarily due to the weaker U.S. dollar against the euro, pound sterling and Czech koruna for the year ended December 31, 2021 relative to the prior year period.

Segment EBITDA. Segment EBITDA increased $190 million, or 44.5%, for the year ended December 31, 2021 compared to the prior year period. Our Europe Segment EBITDA included a positive year over year impact of $20 million related to the translation of local currency results into U.S. dollars at higher exchange rates than those experienced for the year ended December 31, 2020. On a constant currency basis (i.e., excluding the translation impact), Segment EBITDA increased by $170 million, or 39.8%, 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 year ended December 31, 2021.

(1)    The increase in gross margin was primarily attributable to a favorable impact of 1.4% as a result of net price increases implemented in response to inflationary pressures that are impacting product and freight costs and other margin improvement initiatives related to procurement. Additionally, there was a 0.2% benefit from the disposal of non-core operations in 2020.

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(2)    The decrease in segment operating expenses as a percentage of revenue reflects favorable impacts of (i) 0.4% 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) 0.3% from freight, vehicle and fuel expenses due to higher internet and mail order sales in the prior year, which have higher freight costs, and (iii) several individually immaterial factors that had a favorable impact of 0.3% in the aggregate. These were partially offset by personnel costs that had an unfavorable impact of 0.2% compared to the prior year 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 that was 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):

(1)Parts and services organic revenue increased 20.2% (21.1% on a per day basis) for the year ended December 31, 2021 compared to the prior year despite two fewer selling days. 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.

(2)Acquisition related growth for 2021 reflected revenue from our acquisitions of four Specialty businesses since the beginning of 2020 through the one-year anniversary of the acquisition dates.

Segment EBITDA. Segment EBITDA increased $60 million, or 37.2%, for the year ended December 31, 2021 compared to the prior year primarily due to increased revenue as noted above and expanded margin as discussed below.

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

(1)    The increase in gross margin primarily reflects lower discounting to recover increased input costs and, to a lesser extent, favorable product and channel mix.

(2)    The decrease in segment operating expenses as a percentage of revenue reflects a favorable impact of (i) 0.3% in personnel costs, partially offset by (ii) an unfavorable impact of 0.2% due to increased incentive compensation.

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Liquidity and Capital Resources

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

(1)    Debt amounts reflect the gross values to be repaid (excluding debt issuance costs of $12 million, $26 million, and $30 million as of December 31, 2021, 2020, and 2019, respectively).

(2)    Debt amounts reflect the gross values to be repaid (excluding debt issuance costs of immaterial amounts as of December 31, 2021, 2020, and 2019, respectively).

(3)    Capacity under credit facilities includes our revolving credit facilities and our receivables securitization facility (through July 30, 2021, at which time the facility was terminated). Availability under credit facilities is reduced by our outstanding letters of credit.

We assess our liquidity in terms of our ability to fund our operations and provide for expansion through both internal development and acquisitions. Our primary sources of liquidity are cash flows from operations and our credit facilities. We utilize our cash flows from operations to fund working capital and capital expenditures, with the excess amounts going towards funding acquisitions, paying down outstanding debt, 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, senior notes and a receivables securitization facility (terminated on July 30, 2021).

As of December 31, 2021, we had debt outstanding and additional available sources of financing as follows:

•Senior secured credit facilities maturing in January 2024, composed of $3,150 million in revolving credit ($1,887 million outstanding at December 31, 2021), bearing interest at variable rates, with availability reduced by $69 million of amounts outstanding under letters of credit

•Euro Notes (2024) totaling $569 million (€500 million), maturing in April 2024 and bearing interest at a 3.875% fixed rate

•Euro Notes (2028) totaling $284 million (€250 million) maturing in April 2028 and bearing interest at a 4.125% fixed rate

As of December 31, 2021, we had approximately $1,194 million available under our credit facilities. Combined with $274 million of cash and cash equivalents at December 31, 2021, we had approximately $1,468 million in available liquidity, a decrease of $1,390 million from our available liquidity as of December 31, 2020, as a result of the following activity. On April 1, 2021, we redeemed the €750 million Euro Notes (2026) with proceeds from borrowings on our revolving credit facility and cash on hand, resulting in a decrease in available liquidity compared to December 31, 2020. Additionally, in the second quarter of 2021, we used free cash flow generated in our domestic operations and borrowings on our revolving credit facility to repay all of our term loan ($319 million). Also, we terminated our $110 million receivables securitization facility effective July 30, 2021. With these transactions, we reduced our overall liquidity by utilizing available capacity under the revolving credit facility and reducing the overall facility size. We believe our future cash flow needs can be supported by a smaller credit facility, so we redeemed the Euro Notes (2026) and eliminated the term loan using funds from the revolving credit facility, which in turn will lower our interest expense and non-usage fees. Since December 31, 2019, we have lowered the debt balance by $1,248 million.

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 following the onset of 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

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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, and we returned to our stated capital allocation strategy. Our 2022 plan includes further spending to rebuild inventory levels, support growth driven capital projects, and complete strategic acquisitions.

Beginning in the fourth quarter of 2021, we expanded our capital allocation strategy to include the payment of dividends as an additional mechanism to return value to our stockholders. On October 26, 2021, the Board of Directors of LKQ declared a cash dividend to stockholders. The quarterly cash dividend of $0.25 per share of common stock was paid on December 2, 2021 to stockholders of record at the close of business on November 11, 2021, for an aggregate payout of $73 million, which is reflected as a financing cash outflow. On February 15, 2022, our Board of Directors declared a quarterly cash dividend of $0.25 per share of common stock, payable on March 24, 2022, to stockholders of record at the close of business on March 3, 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 outside of our control. Additionally, due to the rapidly evolving global situation, it is not possible to predict whether unanticipated consequences of the COVID-19 pandemic are reasonably likely to materially affect our liquidity and capital resources negatively in the future or alter our capital allocation strategy.

With $1,468 million of total liquidity as of December 31, 2021 and $35 million of current maturities, we have access to funds to meet our near term commitments even if the pandemic effect extends longer than our current expectations. We have a surplus of current assets over current liabilities, which further reduces the risk of short term cash shortfalls.

Our total liquidity 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 December 31, 2021):

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 December 31, 2021.

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 €750 million senior notes due 2026 and €250 million senior notes due 2028 the "Euro Notes (2026/28)" in April 2018 related to the Stahlgruber acquisition. There can be no assurance that additional funding, or refinancing of our credit facilities, if needed, will be available on terms attractive to us, or at all. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants or higher interest costs. Our failure to raise capital if and when needed could have a material adverse impact on our business, operating results, and financial condition.

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

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financial institutions did not continue to purchase receivables from our suppliers under the initiative, the participating vendors may need to renegotiate their payment terms with us, which in turn could cause our borrowings under our revolving credit facility to increase. All outstanding payments owed under the initiative to the participating financial institutions are recorded within Accounts payable in our Consolidated Balance Sheets.

Borrowings under the credit agreement accrue interest at variable rates which are tied to various indices, depending on the currency and the duration of the borrowing, plus an applicable margin rate that is subject to change quarterly based on our reported leverage ratio. As detailed in Note 9, "Long-Term Obligations" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K, certain of the available interest rates were modified in November in connection with the phase out of LIBOR. Borrowings in U.S. dollars will 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, "Derivative Instruments and Hedging Activities" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K. As of December 31, 2021, we did not have any of these types of contracts outstanding, and the weighted average interest rate on borrowings outstanding under our credit agreement was 1.1% at December 31, 2021. Including our senior notes, our overall weighted average interest rate on borrowings was 2.0% at December 31, 2021.

Cash interest payments were $76 million for the year ended December 31, 2021, including interest payments on our Euro Notes (2024) and Euro Notes (2028) as well as the interest owed when we settled the Euro Notes (2026). Interest payments on our Euro Notes (2024) and Euro Notes (2028) are made in April and October.

We had outstanding credit agreement borrowings of $1,887 million and $967 million at December 31, 2021 and 2020, respectively. Of these amounts, there were no current maturities as of December 31, 2021 and current maturities of $18 million at December 31, 2020.

As of December 31, 2021, the Company had cash and cash equivalents of $274 million, of which $211 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 Act and the related imposition of the transition tax on deemed repatriation of historical earnings of foreign subsidiaries as of December 31, 2017. We believe that we have sufficient cash flow and liquidity to meet our financial obligations in the U.S. without repatriating our foreign earnings. We may, from time to time, choose to selectively repatriate foreign earnings if doing so supports our financing or liquidity objectives. Distributions of dividends from our foreign subsidiaries, if any, would be generally exempt from further U.S. taxation, either as a result of the 100% participation exemption under the Tax Act, or due to the previous taxation of foreign earnings under the transition tax and the 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.

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The following table sets forth a summary of our aftermarket and manufactured inventory procurement for the years ended December 31, 2021, 2020 and 2019 (in thousands):

(1)Inventory purchases across the North America segment have increased for the year ended December 31, 2021 compared to the prior year period due to the low base as we scaled back buying in recognition of demand changes in 2020. We are rebuilding our inventory levels after decreases in 2020 due to the COVID-19 pandemic, however, they did not reach our desired levels for the year ended December 31, 2021 due to ocean freight driven delays in shipping.

(2)The increase in inventory purchases in our Europe segment included an increase of $142 million attributable to the increase in the value of the euro, and to a lesser extent, the pound sterling for the year ended December 31, 2021 compared to the prior year period. On a constant currency basis, inventory purchases increased compared to 2020, primarily due to the low base as we scaled back buying in recognition of demand changes in 2020. However, we did not reach our desired levels for the year ended December 31, 2021 due to ocean freight driven delays in shipping.

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

As shown in the table above, while inventory procurement increased for the year ended December 31, 2021 compared to December 31, 2020, procurement is still below pre-pandemic levels for the North America and Europe segments.

The following table sets forth a summary of our global wholesale salvage and self service procurement of vehicles for the years ended December 31, 2021, 2020 and 2019 (in thousands):

Salvage purchases in 2021 increased relative to the prior year due to reduced buying in the prior year to reflect lower demand during the COVID-19 pandemic. Self service vehicle purchases in 2021 declined due to (i) increased competition in the market due to high costs of precious metals and scrap steel and (ii) the elimination of underperforming locations in accordance with the 2020 Global Restructuring Program.

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

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

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

(2)    Cash payments related to income taxes increased due to an increase in pretax income and the timing of estimated tax payments.

(3)    Decrease in cash payments for interest is due to lower outstanding borrowings and the payoff of the Euro Notes (2026) in April 2021 with proceeds from lower interest rate debt.

(4)    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 was a $110 million greater outflow in 2021 primarily due to an increase in revenue for the year ended December 31, 2021 compared to the year ended December 31, 2020, which translated to larger net outflows in the North America segment (of $25 million) and in the Europe segment (of $95 million). We had a smaller cash outflow in the Specialty segment (of $10 million).

•Inventories represented $668 million in incremental cash outflows for the year ended December 31, 2021 compared to the same period of 2020. The change is primarily attributable to increased inventory purchases in the current year as a result of recovering demand from prior year pandemic lows and strategic inventory purchases to curb the impacts of supply chain constraints.

•Accounts payable produced $347 million in higher cash inflows primarily due to higher accounts payable balances in the North America segment (of $196 million) and in the Specialty segment (of $20 million) due to timing of payments, and in the Europe segment (of $131 million) compared to the prior year period, as a result of timing of payments and benefits from extended payment terms, including through our supply chain financing initiatives.

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

Net cash used in investing activities totaled $419 million and $166 million for the years ended December 31, 2021 and 2020, respectively. Property, plant and equipment purchases were $293 million in 2021 compared to $173 million in the prior year. The increase in capital spending in 2021 is partially attributable to the low base as we scaled back asset purchases during the initial stages of the pandemic. Additionally, we increased real estate purchases in 2021 to support our long-term strategic objectives in the salvage business. We invested $124 million of cash, net of cash acquired, in business acquisitions during the year ended December 31, 2021 compared to $7 million during the year ended December 31, 2020.

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

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Net cash used in financing activities totaled $985 million and $1,513 million for the years ended December 31, 2021 and 2020, respectively. During the year ended December 31, 2021, net borrowings totaled $85 million compared to net repayments of our borrowings of $1,365 million during the year ended December 31, 2020. Repayments in 2021 and 2020 include the redemption of the €750 million Euro Notes (2026) and the $600 million U.S. Notes, respectively. We repurchased $877 million of our common stock in the year ended December 31, 2021 compared to $117 million in the year ended December 31, 2020. In 2021, we settled our cross currency swap and other foreign exchange forward contracts with the counterparties for $89 million due primarily to strengthening in the Euro exchange rate relative to the contract rates. We also paid $73 million in dividends to our stockholders during the year ended December 31, 2021 (no dividends were paid in 2020).

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.

We have various contractual obligations and commitments arising in the normal course of business. The following represent our anticipated material cash requirements from known contractual and other obligations as of December 31, 2021.

•Long-term debt of $2,824 million and related interest totaling $176 million, of which $35 million and $59 million, respectively is expected to be paid within twelve months. See Note 9, "Long-Term Obligations" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for more information related to debt amounts outstanding at December 31, 2021.

•Operating lease payments of $1,861 million, of which $293 million is expected to be paid within twelve months. See Note 12, "Leases" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for more information related to lease amounts outstanding at December 31, 2021.

•Purchase obligations of $915 million for open purchase orders for aftermarket inventory all expected to be paid within twelve months.

•Net pension obligations of $131 million, of which $5 million is expected to be paid within twelve months. Benefit payments for our funded plans will be made from plan assets, whereas benefit payments for our unfunded plans are made from cash flows from operating activities. See Note 13, "Employee Benefit Plans" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for more information related to net pension obligations at December 31, 2021.

•Self-insurance reserves of $117 million, of which $61 million is expected to be paid within twelve months. See Note 3, "Summary of Significant Accounting Policies" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for more information relates to self-insurance reserves at December 31, 2021.