LKQ CORP (Form: 10-Q, Received: 11/01/2016 06:11:36)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________________

FORM 10-Q

________________________



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

For the Quarterly Period Ended September 30, 2016



¨	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, IL		60661
(Address of principal executive offices)		(Zip Code)

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

________________________

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 x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes x No ¨

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



Large accelerated filer	x	Accelerated filer	¨
Non-accelerated filer	¨ (Do not check if a smaller reporting company)	Smaller reporting company	¨

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

At October 21, 2016 , the registrant had issued and outstanding an aggregate of 307,510,598 shares of Common Stock.

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidated Balance Sheets (In thousands, except share and per share data)

	September 30,			December 31,
	2016			2015
Assets
Current Assets:
Cash and equivalents	$	271,851		$	87,397
Receivables, net	959,321			590,160
Inventories, net	1,912,568			1,556,552
Prepaid expenses and other current assets	151,801			106,603
Total Current Assets	3,295,541			2,340,712
Property, Plant and Equipment, net	1,023,707			696,567
Intangible Assets:
Goodwill	3,117,150			2,319,246
Other intangibles, net	619,246			215,117
Other Assets	148,308			76,195
Total Assets	$	8,203,952		$	5,647,837
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	682,719		$	415,588
Accrued expenses:
Accrued payroll-related liabilities	106,544			86,527
Other accrued expenses	238,302			162,225
Other current liabilities	46,814			31,596
Current portion of long-term obligations	74,829			56,034
Total Current Liabilities	1,149,208			751,970
Long-Term Obligations, Excluding Current Portion	3,189,345			1,528,668
Deferred Income Taxes	226,682			127,239
Other Noncurrent Liabilities	211,440			125,278
Commitments and Contingencies
Stockholders’ Equity:
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 307,487,198 and 305,574,384 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively	3,074			3,055
Additional paid-in capital	1,110,841			1,090,713
Retained earnings	2,504,028			2,126,384
Accumulated other comprehensive loss	(190,666		)	(105,470		)
Total Stockholders’ Equity	3,427,277			3,114,682
Total Liabilities and Stockholders’ Equity	$	8,203,952		$	5,647,837

See notes to unaudited condensed consolidated financial statements

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Income (In thousands, except per share data)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Revenue	$	2,386,830		$	1,831,732		$	6,758,999		$	5,443,714
Cost of goods sold	1,503,418			1,118,953			4,193,203			3,307,512
Gross margin	883,412			712,779			2,565,796			2,136,202
Facility and warehouse expenses	183,048			143,918			519,323			412,954
Distribution expenses	172,566			158,768			509,240			450,521
Selling, general and administrative expenses	263,372			207,887			735,843			616,924
Restructuring and acquisition related expenses	8,412			4,578			32,303			12,729
Depreciation and amortization	53,016			30,883			137,233			90,118
Operating income	202,998			166,745			631,854			552,956
Other expense (income):
Interest expense, net	27,059			14,722			68,032			44,250
Loss on debt extinguishment	—			—			26,650			—
Gains on foreign exchange contracts - acquisition related	—			—			(18,342		)	—
Other income, net	(3,279		)	(2,928		)	(4,829		)	(912		)
Total other expense, net	23,780			11,794			71,511			43,338
Income before provision for income taxes	179,218			154,951			560,343			509,618
Provision for income taxes	56,797			52,475			182,751			177,255
Equity in earnings of unconsolidated subsidiaries	267			(1,130		)	52			(4,200		)
Net income	$	122,688		$	101,346		$	377,644		$	328,163
Earnings per share:
Basic	$	0.40		$	0.33		$	1.23		$	1.08
Diluted	$	0.40		$	0.33		$	1.22		$	1.07

Unaudited Condensed Consolidated Statements of Comprehensive Income (In thousands)

	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Net income	$	122,688		$	101,346		$	377,644		$	328,163
Other comprehensive income (loss):
Foreign currency translation	(12,317		)	(33,458		)	(85,434		)	(43,758		)
Net change in unrecognized gains/losses on derivative instruments, net of tax	3,059			612			(123		)	1,813
Net change in unrealized gains/losses on pension plans, net of tax	94			(25		)	361			82
Total other comprehensive income (loss)	(9,164		)	(32,871		)	(85,196		)	(41,863		)
Total comprehensive income	$	113,524		$	68,475		$	292,448		$	286,300

See notes to unaudited condensed consolidated financial statements

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Cash Flows (In thousands)

	Nine Months Ended
	September 30,
	2016			2015
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	377,644		$	328,163
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	150,370			94,688
Stock-based compensation expense	17,062			16,291
Loss on debt extinguishment	26,650			—
Gains on foreign exchange contracts - acquisition related	(18,342		)	—
Other	6,711			6,580
Changes in operating assets and liabilities, net of effects from acquisitions:
Receivables, net	(46,376		)	(6,304		)
Inventories, net	27,070			22,345
Prepaid income taxes/income taxes payable	4,134			39,639
Accounts payable	(12,412		)	(11,139		)
Other operating assets and liabilities	(8,360		)	14,732
Net cash provided by operating activities	524,151			504,995
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(152,746		)	(99,573		)
Acquisitions, net of cash acquired	(1,301,127		)	(157,357		)
Proceeds from foreign exchange contracts	18,342			—
Other investing activities, net	10,841			3,174
Net cash used in investing activities	(1,424,690		)	(253,756		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options	7,525			7,534
Taxes paid related to net share settlements of stock-based compensation awards	(4,440		)	(7,423		)
Debt issuance costs	(16,404		)	—
Proceeds from issuance of Euro notes	563,450			—
Borrowings under revolving credit facilities	1,961,702			282,421
Repayments under revolving credit facilities	(1,239,234		)	(433,840		)
Borrowings under term loans	338,478			—
Repayments under term loans	(9,461		)	(16,875		)
Borrowings under receivables securitization facility	100,480			3,858
Repayments under receivables securitization facility	(66,500		)	(8,958		)
Repayments of other debt, net	(2,362		)	(50,843		)
Repayment of Rhiag debt and related payments	(543,347		)	—
Payments of other obligations	(1,405		)	(2,491		)
Net cash provided by (used in) financing activities	1,088,482			(226,617		)
Effect of exchange rate changes on cash and equivalents	(3,489		)	(2,141		)
Net increase in cash and equivalents	184,454			22,481
Cash and equivalents, beginning of period	87,397			114,605
Cash and equivalents, end of period	$	271,851		$	137,086
Supplemental disclosure of cash paid for:
Income taxes, net of refunds	$	184,719		$	138,192
Interest	65,888			35,430
Supplemental disclosure of noncash investing and financing activities:
Notes payable and other financing obligations, including notes issued and debt assumed in connection with business acquisitions	$	560,955		$	28,598
Noncash property, plant and equipment additions	1,617			4,841

See notes to unaudited condensed consolidated financial statements

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Stockholders’ Equity (In thousands)

	Common Stock			Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive (Loss) Income			Total Stockholders’ Equity
	Shares Issued	Amount		Additional Paid-In Capital			Retained Earnings		Accumulated Other Comprehensive (Loss) Income			Total Stockholders’ Equity
BALANCE, January 1, 2016	305,574	$	3,055	$	1,090,713		$	2,126,384	$	(105,470	)	$	3,114,682
Net income	—	—		—			377,644		—			377,644
Other comprehensive income (loss)	—	—		—			—		(85,196		)	(85,196		)
Restricted stock units vested, net of shares withheld for employee tax	846	8		(4,448		)	—		—			(4,440		)
Stock-based compensation expense	—	—		17,062			—		—			17,062
Exercise of stock options	1,067	11		7,514			—		—			7,525
BALANCE, September 30, 2016	307,487	$	3,074	$	1,110,841		$	2,504,028	$	(190,666	)	$	3,427,277

See notes to unaudited condensed consolidated financial statements

LKQ CORPORATION AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements


Note 1.	Interim Financial Statements

The unaudited financial statements presented in this report 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.

Operating 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 most recent Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC on February 25, 2016.

As described in Note 2, "Business Combinations ," on April 21, 2016, we completed our acquisition of Pittsburgh Glass Works LLC ("PGW"), a leading global distributor and manufacturer of automotive glass products. With our acquisition of PGW, we present an additional reportable segment, Glass. Our unaudited condensed consolidated financial statements reflect the impact of PGW from the date of acquisition through September 30, 2016.


Note 2.	Business Combinations

On March 18, 2016, LKQ acquired Rhiag-Inter Auto Parts Italia S.p.A. ("Rhiag"), a distributor of aftermarket spare parts for passenger cars and commercial vehicles in Italy, Czech Republic, Slovakia, Switzerland, Hungary, Romania, Ukraine, Bulgaria, Poland and Spain. This acquisition expanded LKQ's geographic presence in continental Europe, and we believe the acquisition will generate potential purchasing synergies. Total acquisition date fair value of the consideration for our Rhiag acquisition was €534.2 million ( $602.0 million ), composed of €533.6 million ( $601.4 million ) of cash (net of cash acquired) and €0.6 million ( $0.6 million ) of intercompany balances considered to be effectively settled as part of the transaction. In addition, we assumed €488.8 million ( $550.8 million ) of existing Rhiag debt as of the acquisition date.

To fund the purchase price of the Rhiag acquisition, LKQ entered into foreign currency forward contracts in March 2016 to acquire a total of €588 million . The rates locked in under the foreign currency forwards were favorable to the spot rate on the settlement date, and as a result, these derivative contracts generated a gain of $18.3 million during the three months ended March 31, 2016. The gain on the foreign currency forwards was recorded in Gains on foreign exchange contracts - acquisition related on our unaudited condensed consolidated statement of income for the nine months ended September 30, 2016 .

We recorded $581.8 million of goodwill related to our acquisition of Rhiag, which we do not expect to be deductible for income tax purposes. In the period between the acquisition date and September 30, 2016 , Rhiag, which is reported in our Europe reportable segment, generated revenue of $586.4 million and operating income of $17.2 million , which included $10.9 million of acquisition related costs.

On April 21, 2016, LKQ acquired PGW. PGW’s business comprises wholesale and retail distribution services and automotive glass manufacturing. The acquisition expanded our addressable market in North America and globally. Additionally, we believe the acquisition will create potential distribution synergies with our existing network. Total acquisition date fair value of the consideration for our PGW acquisition was $661.7 million , consisting of cash paid (net of cash acquired). We recorded $221.6 million of goodwill related to our acquisition of PGW, of which we expect $91.6 million to be deductible for income tax purposes. In the period between the acquisition date and September 30, 2016 , PGW generated revenue of $468.5 million and operating income of $23.0 million , which included $2.1 million of acquisition related costs.

In addition to our acquisitions of Rhiag and PGW, we acquired five wholesale businesses in Europe and one wholesale business in North America during the nine months ended September 30, 2016 . Total acquisition date fair value of the consideration for these acquisitions was $42.3 million , composed of $38.0 million of cash (net of cash acquired), $1.4 million

of notes payable, and $3.0 million of other purchase price obligations. During the nine months ended September 30, 2016 , we recorded $30.1 million of goodwill related to these acquisitions and immaterial adjustments to preliminary purchase price

allocations related to certain of our 2015 acquisitions. We expect that substantially all of the goodwill recorded for these acquisitions will not be deductible for income tax purposes. In the period between the acquisition dates and September 30, 2016 , these acquisitions generated revenue of $14.9 million and operating income of $1.1 million .

In October 2016, we acquired substantially all of the business assets of Andrew Page Limited out of receivership. Andrew Page Limited is a distributor of aftermarket automotive parts in the United Kingdom, and the acquisition is subject to customary regulatory approval from the Competition and Markets Authority in the U.K. The preliminary aggregate cash purchase price for this acquisition was approximately £ 16.5 million ( $21.1 million ). We are in the process of completing the purchase accounting for this acquisition, and as a result, we are unable to disclose the amounts recognized for each major class of assets acquired and liabilities assumed, or the pro forma effect of the acquisition on our results of operations.

During 2015, we completed 18 acquisitions, including 4 wholesale businesses in North America, 12 wholesale businesses in Europe, a self service retail operation, and a specialty vehicle aftermarket business. Our wholesale business acquisitions in North America included PartsChannel, Inc. ("Parts Channel"), an aftermarket collision parts distributor. The specialty aftermarket business acquired was The Coast Distribution System, Inc. ("Coast"), a supplier of replacement parts, supplies and accessories in North America for the recreational vehicle and outdoor recreation markets. Our European acquisitions included 11 aftermarket parts distribution businesses in the Netherlands, 9 of which were former customers of and distributors for our Netherlands subsidiary, Sator Beheer B.V. ("Sator") and were acquired with the objective of expanding our distribution network in the Netherlands. Our other acquisitions completed during 2015 enabled us to expand our geographic presence. Total acquisition date fair value of the consideration for these acquisitions was $187.9 million , composed of $161.3 million of cash (net of cash acquired), $4.3 million of notes payable, $21.2 million of other purchase price obligations, and $ 1.1 million of pre-existing balances between us and the acquired entities considered to be effectively settled as a result of the acquisitions. During the year ended December 31, 2015 , we recorded $92.2 million of goodwill related to these acquisitions and immaterial adjustments to preliminary purchase price allocations related to certain of our 2014 acquisitions. We expect $69.9 million of the $92.2 million of goodwill recorded to be deductible for income tax purposes.

Our acquisitions are accounted for under the purchase method of accounting and are included in our unaudited condensed consolidated financial statements from the dates of acquisition. The purchase prices were allocated to the net assets acquired based upon estimated fair market values at the dates of acquisition. The purchase price allocations for the acquisitions made during the nine months ended September 30, 2016 and the last three months of 2015 are preliminary as we are in the process of determining the following: 1) valuation amounts for certain receivables, inventories and fixed assets acquired; 2) valuation amounts for certain intangible assets acquired; 3) the acquisition date fair value of certain liabilities assumed; and 4) the final estimation of the tax basis of the entities acquired. We have recorded preliminary estimates for certain of the items noted above and will record adjustments, if any, to the preliminary amounts upon finalization of the valuations. From the date of our preliminary allocation for Rhiag in the first quarter of 2016 through September 30, 2016 , we recorded adjustments based on our valuation procedures for our acquisition of Rhiag that resulted in the allocation of $158.0 million of goodwill to acquired assets, primarily intangible assets and property, plant and equipment. Additionally, from the date of our preliminary allocation for PGW as of June 30, 2016 through September 30, 2016 , we recorded adjustments based on our valuation procedures that resulted in a $ 37.6 million increase to goodwill recorded for our PGW acquisition. This was primarily

attributable to a decline in the value allocated to property, plant and equipment, partially offset by an allocation of goodwill to

acquired assets, primarily intangible assets. The income statement effect of the Rhiag and PGW measurement period adjustments that would have been recorded in previous reporting periods if the adjustment had been recognized as of the acquisition date was immaterial. The balance sheet impact and income statement effect of other measurement-period adjustments recorded for acquisitions completed in prior periods was immaterial.

The preliminary purchase price allocations for the acquisitions completed during the nine months ended September 30, 2016 and the year ended December 31, 2015 are as follows (in thousands):



	Nine Months Ended												Year Ended
	September 30, 2016												December 31, 2015
	Rhiag			PGW			Other Acquisitions			Total			All Acquisitions
Receivables	$	230,670		$	136,523		$	9,924		$	377,117		$	29,628
Receivable reserves	(28,242		)	(6,146		)	(780		)	(35,168		)	(3,926		)
Inventories, net ⁽¹⁾	239,529			169,159			12,690			421,378			79,646
Prepaid expenses and other current assets	10,822			42,573			2,027			55,422			3,337
Property, plant and equipment	58,062			225,712			3,736			287,510			11,989
Goodwill	581,777			221,571			30,069			833,417			92,175
Other intangibles	429,460			35,054			30			464,544			9,926
Other assets	2,092			57,672			(288		)	59,476			5,166
Deferred income taxes	(109,833		)	2,024			(306		)	(108,115		)	4,102
Current liabilities assumed	(238,375		)	(167,520		)	(13,022		)	(418,917		)	(39,191		)
Debt assumed	(550,843		)	(4,027		)	(1,734		)	(556,604		)	(2,365		)
Other noncurrent liabilities assumed	(23,112		)	(50,847		)	—			(73,959		)	(2,651		)
Other purchase price obligations	—			—			(2,991		)	(2,991		)	(21,199		)
Notes issued	—			—			(1,360		)	(1,360		)	(4,296		)
Settlement of pre-existing balances	(591		)	—			(32		)	(623		)	(1,073		)
Cash used in acquisitions, net of cash acquired	$	601,416		$	661,748		$	37,963		$	1,301,127		$	161,268

⁽¹⁾ The PGW inventory balance includes the impact of a $9.8 million step-up adjustment to report the inventory at its fair value.

Other noncurrent liabilities recorded for our acquisitions of Rhiag and PGW includes a liability for certain pension and other post-retirement obligations we assumed with the acquisitions. Due to the immateriality of these plans, we have not provided the detailed disclosures otherwise prescribed by the accounting guidance on pensions and other post-retirement obligations.

The primary objectives of our acquisitions made during the nine months ended September 30, 2016 and the year ended December 31, 2015 were to create economic value for our stockholders by enhancing our position as a leading source for alternative collision and mechanical repair products and to expand into other product lines and businesses that may benefit from our operating strengths. Our 2016 acquisition of Rhiag enabled us to expand our market presence in continental Europe. We believe that our Rhiag acquisition will allow for synergies within our European operations, most notably in procurement, and these projected synergies contributed to the goodwill recorded on the Rhiag acquisition. Our April 2016 acquisition of PGW enabled us to enter into new product lines and increase the size of our addressable market. In addition, we believe that our PGW acquisition will allow for distribution synergies with our existing network in North America, which contributed to the goodwill recorded on the acquisition.

When we identify potential acquisitions, we attempt to target companies with a leading market presence, an experienced management team and workforce that provide a fit with our existing operations, and strong cash flows. For certain of our acquisitions, we have identified cost savings and synergies as a result of integrating the company with our existing business that provide additional value to the combined entity. In many cases, acquiring companies with these characteristics will result in purchase prices that include a significant amount of goodwill.

The following pro forma summary presents the effect of the businesses acquired during the nine months ended September 30, 2016 as though the businesses had been acquired as of January 1, 2015 and the businesses acquired during the year ended December 31, 2015 as though they had been acquired as of January 1, 2014 . The pro forma adjustments are based upon unaudited financial information of the acquired entities (in thousands, except per share data):



	Three Months Ended					Nine Months Ended
	September 30,					September 30,
	2016		2015			2016			2015
Revenue, as reported	$	2,386,830	$	1,831,732		$	6,758,999		$	5,443,714
Revenue of purchased businesses for the period prior to acquisition:
Rhiag	—		256,479			213,376			738,364
PGW	—		281,004			328,000			818,389
Other acquisitions	5,551		48,061			44,763			269,402
Pro forma revenue	$	2,392,381	$	2,417,276		$	7,345,138		$	7,269,869

Net income, as reported	$	122,688	$	101,346		$	377,644		$	328,163
Net income of purchased businesses for the period prior to acquisition, and pro forma purchase accounting adjustments:
Rhiag	—		5,091			(447		)	9,670
PGW	—		8,466			13,573			11,121
Other acquisitions	239		(32		)	2,467			6,755
Acquisition related expenses, net of tax ⁽²⁾	375		636			10,781			1,440
Pro forma net income	$	123,302	$	115,507		$	404,018		$	357,149

Earnings per share, basic—as reported	$	0.40	$	0.33		$	1.23		$	1.08
Effect of purchased businesses for the period prior to acquisition:
Rhiag	—		0.02			0.00			0.03
PGW	—		0.03			0.04			0.04
Other acquisitions	0.00		0.00			0.01			0.02
Acquisition related expenses, net of tax ⁽²⁾	0.00		0.00			0.04			0.00
Pro forma earnings per share, basic ⁽¹⁾	$	0.40	$	0.38		$	1.32		$	1.17

Earnings per share, diluted—as reported	$	0.40	$	0.33		$	1.22		$	1.07
Effect of purchased businesses for the period prior to acquisition:
Rhiag	—		0.02			0.00			0.03
PGW	—		0.03			0.04			0.04
Other acquisitions	0.00		0.00			0.01			0.02
Acquisition related expenses, net of tax ⁽²⁾	0.00		0.00			0.03			0.00
Pro forma earnings per share, diluted ⁽¹⁾	$	0.40	$	0.38		$	1.30		$	1.16

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

⁽²⁾ Includes expenses related to acquisitions closed in the period and excludes expenses for acquisitions not yet completed.

Unaudited pro forma supplemental information is based upon accounting estimates and judgments that we believe are reasonable. The unaudited pro forma supplemental information includes the effect of purchase accounting adjustments, such as the adjustment of inventory acquired to fair value; adjustments to depreciation on acquired property, plant and equipment; adjustments to rent expense for above or below market leases; adjustments to amortization on acquired intangible assets; adjustments to interest expense; and the related tax effects. The pro forma impact of our acquisitions also reflects the elimination of acquisition related expenses, net of tax. Refer to Note 4, "Restructuring and Acquisition Related Expenses ," for further information regarding our acquisition related expenses. These pro forma results are not necessarily indicative of what would have occurred if the acquisitions had been in effect for the periods presented or of future results.


Note 3.	Financial Statement Information

Revenue Recognition

The majority of our revenue is derived from the sale of vehicle parts. Revenue is recognized when the products are shipped to, delivered to or picked up by customers and title has transferred, subject to an allowance for estimated returns, discounts and allowances that we estimate based upon historical information. We recorded a reserve for estimated returns, discounts and allowances of approximately $35.6 million and $32.8 million at September 30, 2016 and December 31, 2015 , respectively. We present taxes assessed by governmental authorities collected from customers on a net basis. Therefore, the taxes are excluded from revenue on our Unaudited Condensed Consolidated Statements of Income and are shown as a current liability on our Unaudited Condensed Consolidated Balance Sheets until remitted. We recognize revenue from the sale of scrap metal, other metals, and cores when title has transferred, which typically occurs upon delivery to the customer.

Allowance for Doubtful Accounts

We have a reserve for uncollectible accounts which was approximately $50.2 million and $24.6 million at September 30, 2016 and December 31, 2015 , respectively. Our March 2016 acquisition of Rhiag and our April 2016 acquisition of PGW contributed $23.0 million and $4.8 million , respectively, to our reserve for uncollectible accounts. See Note 2, "Business Combinations " for further information on our acquisitions.

Inventories, net

Inventories, net consists of the following (in thousands):



	September 30,		December 31,
	2016		2015
Aftermarket and refurbished products	$	1,450,981	$	1,146,162
Salvage and remanufactured products	386,688		410,390
Glass manufacturing products ⁽¹⁾	74,899		—
Total inventories, net	$	1,912,568	$	1,556,552

⁽¹⁾ Includes all inventory types related to PGW's manufacturing and fabrication of original equipment manufacturer ("OEM") automotive glass parts. Aftermarket automotive glass products distributed by PGW are included within aftermarket and refurbished products above. The balance of glass manufacturing products as of September 30, 2016 is composed of $14.3 million of raw materials, $22.7 million of work in process, and $37.9 million of finished goods. Our U.S. glass manufacturing products inventory is stated at the lower of cost, using the first-in first-out method, or market.

Our acquisitions completed during 2016 , including our March 2016 acquisition of Rhiag and our April 2016 acquisition of PGW, and adjustments to preliminary valuations of inventory for certain of our 2015 acquisitions as of the acquisition date, contributed $339.7 million to our aftermarket and refurbished products inventory, $3.9 million to our salvage and remanufactured products inventory, and $77.8 million to our glass manufacturing products inventory. See Note 2, "Business Combinations " for further information on our acquisitions.

Property, Plant and Equipment

In Note 3, "Financial Statement Information " in our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016 filed with the SEC on August 2, 2016, we included certain disclosures related to our property, plant and equipment as of June 30, 2016 due to the material changes resulting from the acquisitions of Rhiag and PGW. There have been no material changes to the information contained in those disclosures as of September 30, 2016.

Included in Cost of Goods Sold on the Unaudited Condensed Consolidated Statements of Income is depreciation expense associated with our refurbishing, remanufacturing, glass manufacturing, and furnace operations as well as our distribution centers.

Intangible Assets

Intangible assets consist primarily of goodwill (the cost of purchased businesses in excess of the fair value of the identifiable net assets acquired) and other specifically identifiable intangible assets, such as trade names, trademarks, customer and supplier relationships, software and other technology related assets, and covenants not to compete.

The changes in the carrying amount of goodwill by reportable segment during the nine months ended September 30, 2016 are as follows (in thousands):



	North America		Europe			Specialty			Glass			Total
Balance as of January 1, 2016	$	1,445,850	$	594,482		$	278,914		$	—		$	2,319,246
Business acquisitions and adjustments to previously recorded goodwill	2,304		605,877			3,665			221,571			833,417
Exchange rate effects	1,989		(36,608		)	(294		)	(600		)	(35,513		)
Balance as of September 30, 2016	$	1,450,143	$	1,163,751		$	282,285		$	220,971		$	3,117,150

During the nine months ended September 30, 2016 , we recorded $581.8 million of goodwill related to our acquisition of Rhiag and $221.6 million related to our acquisition of PGW. See Note 2, "Business Combinations " for further information on our acquisitions.

The components of other intangibles are as follows (in thousands):



	September 30, 2016							December 31, 2015
	Gross Carrying Amount		Accumulated Amortization			Net		Gross Carrying Amount		Accumulated Amortization			Net
Trade names and trademarks	$	300,248	$	(52,995	)	$	247,253	$	172,219	$	(43,458	)	$	128,761
Customer and supplier relationships	412,711		(77,914		)	334,797		95,508		(41,007		)	54,501
Software and other technology related assets	59,349		(27,131		)	32,218		44,500		(17,844		)	26,656
Covenants not to compete	11,795		(6,817		)	4,978		10,774		(5,575		)	5,199
	$	784,103	$	(164,857	)	$	619,246	$	323,001	$	(107,884	)	$	215,117

The components of other intangibles acquired during the nine months ended September 30, 2016 include the following (in thousands):



	Gross Amount
	Rhiag		PGW
Trade names and trademarks	$	127,351	$	4,700
Customer and supplier relationships	291,893		27,700
Software and other technology related assets	10,216		1,054
Covenants not to compete	—		1,600
	$	429,460	$	35,054

Amortization expense for intangible assets was $58.2 million and $25.0 million during the nine months ended September 30, 2016 and 2015 , respectively. Estimated amortization expense for each of the five years in the period ending December 31, 2020 is $82.8 million , $90.8 million , $75.1 million , $60.4 million and $49.3 million , 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 year warranty against defects. We also provide a limited lifetime warranty for certain of our aftermarket products. We record the estimated warranty costs at the time of sale using historical warranty claim information to project future warranty claims activity. The changes in the warranty reserve are as follows (in thousands):



Balance as of January 1, 2016	$	17,363
Warranty expense	23,789
Warranty claims	(21,917		)
Balance as of September 30, 2016	$	19,235

Investments in Unconsolidated Subsidiaries

In February 2016, we sold our investment in ACM Parts Pty Ltd ("ACM"). As part of the PGW acquisition, we obtained ownership interests in three joint ventures, including glass manufacturing operations in China and Mexico. Our investment in unconsolidated subsidiaries and our equity in the net earnings of the investees was not material as of and for the three and nine months ended September 30, 2016.

Recent Accounting Pronouncements

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update 2014-09, "Revenue from Contracts with Customers" ("ASU 2014-09"), which was amended in July 2015. This update outlines a new comprehensive revenue recognition model that supersedes most current revenue recognition guidance, and requires companies to recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. Entities adopting the standard have the option of using either a full retrospective or modified retrospective approach in the application of this guidance. ASU 2014-09 will be effective for the Company during the first quarter of our fiscal year 2018. Early adoption is permitted for annual reporting periods beginning after December 15, 2016; however, we do not plan to early adopt. Based on our preliminary assessment, the new guidance will change the way we present sales returns, but we do not anticipate the adoption will have a material impact on our current revenue recognition policies or practices. We will continue to evaluate the potential effect that ASU 2014-09 will have on our consolidated financial statements and related disclosures, which may identify other impacts.

In September 2015, the FASB issued Accounting Standards Update 2015-16, "Simplifying the Accounting for Measurement-Period Adjustments" ("ASU 2015-16"), which requires an acquirer to recognize adjustments to provisional amounts identified during the measurement period in the reporting period in which the adjustments are identified as opposed to recognition as if the accounting had been completed as of the acquisition date. The ASU also requires disclosure regarding amounts that would have been recorded in previous reporting periods if the adjustment had been recognized as of the acquisition date. ASU 2015-16 became effective for the Company during the first quarter of our fiscal year 2016 and is being applied on a prospective basis. The measurement-period adjustments for our acquisitions and the related impact on earnings of any amounts that would have been recorded in previous periods are disclosed in Note 2, "Business Combinations ."

In February 2016, the FASB issued Accounting Standards Update 2016-02, "Leases" ("ASU 2016-02"), t o increase transparency and comparability by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The main difference between current GAAP and this ASU is the recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under current GAAP. The ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. The standard requires that entities apply the effects of these changes using a modified retrospective approach, which includes a number of optional practical expedients. While we are still in the process of quantifying the impact that the adoption of ASU 2016-02 will have on our consolidated financial statements and related disclosures, we anticipate the adoption will materially affect our consolidated balance sheet and disclosures, as the majority of our operating leases will be recorded on the balance sheet under ASU 2016-02. We do not anticipate adoption of this accounting standard to have a material impact to our consolidated statements of income.

In March 2016, the FASB issued Accounting Standards Update No. 2016-09, "Improvements to Employee Share-Based Payment Accounting" (“ASU 2016-09”), to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows, the treatment of forfeitures, and calculation of earnings per share. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. During the three months ended September 30, 2016, the Company elected to early adopt ASU 2016-09 effective January 1, 2016. The provisions of the accounting standard related to the recognition of excess tax benefits in income tax expense were adopted prospectively, and resulted in the recognition of an $11.5 million income tax benefit and an increase of $0.04 to both basic and diluted earnings per share during the nine months ended September 30, 2016. The recognition of the income tax benefit during the nine months ended September 30, 2016 resulted in a corresponding increase of $11.5 million to retained earnings, with an equal offset to Additional Paid in Capital as of September 30, 2016 related to the recognition of excess tax benefits in 2016. While the full year-to-date impact is reported in the third quarter year-to-date results, the results for the three months ended September 30, 2016 reflect only the quarter-to-date impact of adopting this standard; quarterly information for the first and second quarters of 2016 will be recast in future filings when results for these periods are presented. Refer to the table below for the impact to quarterly net income, and basic and diluted earnings per share as a result of adopting this accounting standard. The presentation of excess tax benefits on share-based payments was adjusted retrospectively within the Unaudited Condensed Consolidated Statements of Cash Flows, resulting in an $11.7 million and $13.7 million increase in operating cash flows for the nine months ended September 30, 2016 and 2015, respectively, with a corresponding decrease to financing cash flows.

The impact to our quarterly financial statements as a result of adoption of ASU 2016-09 is presented below (in thousands, except per share amounts):



	Three Months Ended						Nine Months Ended
	March 31, 2016		June 30, 2016		September 30, 2016		September 30, 2016
Net Income
Prior to adoption of ASU 2016-09	$	107,732	$	140,737	$	117,704	$	366,173
Adjustment - adoption of ASU 2016-09	4,439		2,048		4,984		11,471
As adjusted	$	112,171	$	142,785	$	122,688	$	377,644

Basic Earnings per Share ⁽¹⁾
Prior to adoption of ASU 2016-09	$	0.35	$	0.46	$	0.38	$	1.19
Adjustment - adoption of ASU 2016-09	0.02		0.01		0.02		0.04
As adjusted	$	0.37	$	0.47	$	0.40	$	1.23

Diluted Earnings per Share ⁽¹⁾
Prior to adoption of ASU 2016-09	$	0.35	$	0.46	$	0.38	$	1.18
Adjustment - adoption of ASU 2016-09	0.01		0.00		0.02		0.04
As adjusted	$	0.36	$	0.46	$	0.40	$	1.22

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

In August 2016, the FASB issued Accounting Standards Update No. 2016-15, "Classification of Certain Cash Receipts and Cash Payments" ("ASU 2016-15"), to add and clarify guidance on the classification of certain cash receipts and payments in the statement of cash flows. The ASU includes guidance on classification for the following items: debt prepayment or debt extinguishment costs, settlement of zero coupon bonds, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims and corporate-owned or bank-owned life insurance policies, distributions received from equity method investees, beneficial interests in securitization transactions, and other separately identifiable cash flows where application of the predominance principle is prescribed. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2017; early adoption is permitted. The guidance requires retrospective application to all periods presented unless it is impracticable to do so. We are still evaluating the impact that ASU 2016-15 will have on our consolidated financial statements and related disclosures.


Note 4.	Restructuring and Acquisition Related Expenses

Acquisition Related Expenses

Acquisition related expenses, which include external costs such as legal, accounting, and advisory fees, totaled $2.7 million and $18.4 million for the three and nine months ended September 30, 2016 , respectively. Of our 2016 expenses, $10.9 million related to our acquisition of Rhiag, $4.1 million related to our acquisition of PGW, and $3.4 million related to other completed and potential acquisitions. Acquisition related expenses incurred during the three and nine months ended September 30, 2015 totaled $1.2 million and $2.4 million , respectively. The expenses incurred in the three and nine months ended September 30, 2015 were primarily related to our acquisition of eleven aftermarket distribution businesses in the Netherlands and our acquisition of Coast.

Acquisition Integration Plans

During the three and nine months ended September 30, 2016 , we incurred $5.7 million and $13.9 million of restructuring expenses, respectively. Expenses incurred during the three and nine months ended September 30, 2016 were primarily a result of the integration of our acquisition of Parts Channel into our existing North America wholesale business, the integration of our Coast acquisition into our existing Specialty business, and restructuring activities within our Glass segment.

Expenses incurred were primarily related to facility closure and relocation costs for duplicate facilities, the merger of existing facilities into larger distribution centers, and the termination of employees.

During the three and nine months ended September 30, 2015 , we incurred $3.4 million and $10.3 million of restructuring expenses, respectively. These expenses were primarily a result of the integration of our acquisition of Parts Channel into our existing North American wholesale business and our October 2014 acquisition of Stag Parkway Holding Company, a supplier of parts for recreational vehicles, into our Specialty business. Expenses incurred were primarily related to facility closure and relocation costs for duplicate facilities, and the termination of employees in connection with the consolidation of overlapping facilities with our existing business.

We expect to incur expenses related to the integration of certain of our other acquisitions into our existing operations during the fourth quarter of 2016 and extending into 2017. These integration activities are expected to include the closure of duplicate facilities, rationalization of personnel in connection with the consolidation of overlapping facilities with our existing business and moving expenses. Future expenses to complete these integration plans are expected to be less than $5.0 million ; this amount excludes any potential future restructuring expense related to the integration of our acquisitions of Rhiag and PGW with our existing business.


Note 5.	Stock-Based Compensation

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

RSUs

RSUs vest over periods of up to five years, subject to a continued service condition. Currently outstanding RSUs 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 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.

During the nine months ended September 30, 2016 , we granted 976,318 RSUs to employees. The fair value of RSUs that vested during the nine months ended September 30, 2016 was $29.2 million .

The following table summarizes activity related to our RSUs under the Equity Incentive Plan for the nine months ended September 30, 2016 :



	Number Outstanding		Weighted Average Grant Date Fair Value		Aggregate Intrinsic Value (in thousands) ⁽¹⁾
Unvested as of January 1, 2016	1,981,292		$	24.19	$	58,706
Granted	976,318		$	29.05
Vested	(996,607	)	$	22.30
Forfeited / Canceled	(74,196	)	$	27.18
Unvested as of September 30, 2016	1,886,807		$	27.58	$	66,906
Expected to vest after September 30, 2016	1,781,698		$	27.63	$	63,179

⁽¹⁾ The aggregate intrinsic value of unvested and 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 RSUs vested. This amount changes based on the market price of the Company’s common stock.

Stock Options

Stock options vest over periods of up to five years, subject to a continued service condition. Stock options expire either six or ten years from the date they are granted. No options were granted during the nine months ended September 30, 2016 .

The following table summarizes activity related to our stock options under the Equity Incentive Plan for the nine months ended September 30, 2016 :



	Number Outstanding		Weighted Average Exercise Price		Weighted Average Remaining Contractual Term (in years)	Aggregate Intrinsic Value (in thousands) ⁽¹⁾
Balance as of January 1, 2016	3,765,952		$	8.63	2.9	$	79,317
Exercised	(1,066,756	)	$	7.05
Forfeited / Canceled	(17,400	)	$	23.66
Balance as of September 30, 2016	2,681,796		$	9.16	2.5	$	70,519
Exercisable as of September 30, 2016	2,600,860		$	8.44	2.5	$	70,264
Exercisable as of September 30, 2016 and expected to vest thereafter	2,673,702		$	9.09	2.5	$	70,493

⁽¹⁾ The aggregate intrinsic value of outstanding, exercisable and expected to vest options represents the total pretax intrinsic value (the difference between the fair value of the Company's stock on the last day of each period and the exercise price, multiplied by the number of options where the fair value exceeds the exercise price) that would have been received by the option holders had all option holders exercised their options as of January 1, 2016 and September 30, 2016, respectively. This amount changes based on the market price of the Company’s common stock.

The following table summarizes the components of pre-tax stock-based compensation expense (in thousands):



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
RSUs	$	5,591	$	5,119	$	16,950	$	16,067
Stock options	46		58		112		224
Total stock-based compensation expense	$	5,637	$	5,177	$	17,062	$	16,291

As of September 30, 2016 , unrecognized compensation expense related to unvested RSUs and stock options is $41.3 million and $0.1 million , respectively, and is expected to be recognized over weighted-average periods of 3.1 years and 0.3 years, respectively. Stock-based compensation expense related to these awards will be different to the extent that forfeitures are realized.


Note 6.	Earnings Per Share

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



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Net Income	$	122,688	$	101,346	$	377,644	$	328,163
Denominator for basic earnings per share—Weighted-average shares outstanding	307,190		305,059		306,690		304,453
Effect of dilutive securities:
RSUs	681		603		686		678
Stock options	2,165		2,066		2,295		2,195
Denominator for diluted earnings per share—Adjusted weighted-average shares outstanding	310,036		307,728		309,671		307,326
Earnings per share, basic	$	0.40	$	0.33	$	1.23	$	1.08
Earnings per share, diluted	$	0.40	$	0.33	$	1.22	$	1.07

Our earnings per share calculation for the three and nine months ended September 30, 2016 reflects the adoption of ASU 2016-09 as discussed in Note 3, "Financial Statement Information ."

The following table sets forth the number of employee stock-based compensation awards outstanding but not included in the computation of diluted earnings per share because their effect would have been antidilutive for the three and nine months ended September 30, 2016 and 2015 (in thousands):



	Three Months Ended		Nine Months Ended
	September 30,		September 30,
	2016	2015	2016	2015
Antidilutive securities:
RSUs	—	272	76	306
Stock options	—	95	57	97


Note 7.	Accumulated Other Comprehensive Income (Loss)

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



	Three Months Ended												Three Months Ended
	September 30, 2016												September 30, 2015
	Foreign Currency Translation			Unrealized (Loss) Gain on Cash Flow Hedges			Unrealized (Loss) Gain on Pension Plans			Accumulated Other Comprehensive (Loss) Income			Foreign Currency Translation			Unrealized (Loss) Gain on Cash Flow Hedges			Unrealized (Loss) Gain on Pension Plan			Accumulated Other Comprehensive (Loss) Income
Beginning balance	$	(170,007	)	$	(4,114	)	$	(7,381	)	$	(181,502	)	$	(37,373	)	$	(2,200	)	$	(9,644	)	$	(49,217	)
Pretax (loss) income	(12,317		)	3,390			—			(8,927		)	(33,458		)	(575		)	—			(34,033		)
Income tax effect	—			(1,087		)	—			(1,087		)	—			185			—			185
Reclassification of unrealized loss	—			1,124			125			1,249			—			1,542			(34		)	1,508
Reclassification of deferred income taxes	—			(368		)	(31		)	(399		)	—			(540		)	9			(531		)
Ending Balance	$	(182,324	)	$	(1,055	)	$	(7,287	)	$	(190,666	)	$	(70,831	)	$	(1,588	)	$	(9,669	)	$	(82,088	)



	Nine Months Ended												Nine Months Ended
	September 30, 2016												September 30, 2015
	Foreign Currency Translation			Unrealized (Loss) Gain on Cash Flow Hedges			Unrealized (Loss) Gain on Pension Plans			Accumulated Other Comprehensive (Loss) Income			Foreign Currency Translation			Unrealized (Loss) Gain on Cash Flow Hedges			Unrealized (Loss) Gain on Pension Plan			Accumulated Other Comprehensive (Loss) Income
Beginning balance	$	(96,890	)	$	(932	)	$	(7,648	)	$	(105,470	)	$	(27,073	)	$	(3,401	)	$	(9,751	)	$	(40,225	)
Pretax (loss) income	(85,434		)	(3,332		)	—			(88,766		)	(43,758		)	(1,814		)	—			(45,572		)
Income tax effect	—			1,241			—			1,241			—			624			—			624
Reclassification of unrealized loss	—			2,912			482			3,394			—			4,627			109			4,736
Reclassification of deferred income taxes	—			(944		)	(121		)	(1,065		)	—			(1,624		)	(27		)	(1,651		)
Ending Balance	$	(182,324	)	$	(1,055	)	$	(7,287	)	$	(190,666	)	$	(70,831	)	$	(1,588	)	$	(9,669	)	$	(82,088	)

Unrealized losses on our interest rate swap contracts totaling $1.1 million and $2.9 million were reclassified to interest expense in our Unaudited Condensed Consolidated Statements of Income during the three and nine months ended September 30, 2016 , respectively. During the three and nine months ended September 30, 2015, unrealized losses of $1.5 million and $4.6 million , respectively, related to our interest rate swaps were reclassified to interest expense. The deferred income taxes related to our cash flow hedges were reclassified from Accumulated Other Comprehensive Income to income tax expense.


Note 8.	Long-Term Obligations

Long-Term Obligations consist of the following (in thousands):



	September 30,			December 31,
	2016			2015
Senior secured credit agreement:
Term loans payable	$	748,870		$	410,625
Revolving credit facilities	1,202,042			480,481
Senior notes	600,000			600,000
Euro notes	561,750			—
Receivables securitization facility	96,980			63,000
Notes payable through October 2025 at weighted average interest rates of 2.2% and 2.2%, respectively	10,457			16,104
Other long-term debt at weighted average interest rates of 2.2% and 2.4%, respectively	69,825			29,485
Total debt	3,289,924			1,599,695
Less: long-term debt issuance costs	(23,268		)	(13,533		)
Less: current debt issuance cost	(2,482		)	(1,460		)
Total debt, net of issuance costs	3,264,174			1,584,702
Less: current maturities, net of debt issuance costs	(74,829		)	(56,034		)
Long term debt, net of debt issuance costs	$	3,189,345		$	1,528,668

Senior Secured Credit Agreement

On January 29, 2016, LKQ Corporation, LKQ Delaware LLP, and certain other subsidiaries (collectively, the "Borrowers") entered into the Fourth Amended and Restated Credit Agreement ("Credit Agreement"), which amended the Company’s Third Amended and Restated Credit Agreement by modifying certain terms to (1) extend the maturity date by approximately two years to January 29, 2021; (2) increase the total availability under the credit agreement from $2.3 billion to $3.2 billion (composed of $2.45 billion in the revolving credit facility's multicurrency component; and $750 million of term loans, which consist of a term loan of approximately $500 million and a €230 million term loan); (3) increase our ability to incur additional indebtedness; and (4) make other immaterial or clarifying modifications and amendments to the terms of the Third Amended and Restated Credit Agreement. The additional term loan borrowing was used to repay outstanding revolver borrowings and the amount outstanding under our receivables securitization facility, and to pay fees and expenses relating to the amendment and restatement. The remaining additional term loan borrowing was used to fund the Rhiag acquisition.

Amounts under the revolving credit facility are due and payable upon maturity of the Credit Agreement on January 29, 2021. Amounts under the initial and additional term loan borrowings will be due and payable in quarterly installments equal to 0.625% of the original principal amount on each of June 30, September 30, and December 31, 2016, and quarterly installments thereafter equal to 1.25% of the original principal amount beginning on March 31, 2017, with the remaining balance due and payable on the maturity date of the Credit Agreement.

We are required to prepay the term loan by amounts equal to proceeds from the sale or disposition of certain assets if the proceeds are not reinvested within twelve months. We also have the option to prepay outstanding amounts under the Credit Agreement without penalty.

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

Borrowings under the Credit Agreement bear interest at variable rates, which depend on the currency and duration of the borrowing elected, plus an applicable margin. The applicable margin is subject to change in increments of 0.25% depending on our net leverage ratio. Interest payments are due on the last day of the selected interest period or quarterly in arrears depending on the type of borrowing. Including the effect of the interest rate swap agreements described in Note 9, "Derivative Instruments and Hedging Activities ," the weighted average interest rates on borrowings outstanding under the Credit Agreement at September 30, 2016 and December 31, 2015 were 2.2% and 1.8% , respectively. We also pay a commitment fee based on the average daily unused amount of the revolving credit facilities. The commitment fee is subject to change in increments of 0.05% depending on our net leverage ratio. In addition, we pay a participation commission on outstanding letters

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

Of the total borrowings outstanding under the Credit Agreement, $33.2 million and $22.5 million were classified as current maturities at September 30, 2016 and December 31, 2015 , respectively. As of September 30, 2016 , there were letters of credit outstanding in the aggregate amount of $70.9 million . The amounts available under the revolving credit facilities are reduced by the amounts outstanding under letters of credit, and thus availability under the revolving credit facilities at September 30, 2016 was $1.2 billion .

Related to the execution of the Credit Agreement in January 2016, we incurred $6.1 million of fees, of which $5.0 million were capitalized as an offset to Long-Term Obligations and are amortized over the term of the agreement. The remaining $1.1 million of fees, together with $1.8 million of capitalized debt issuance costs related to our Third Amended and Restated Credit Agreement, were expensed during the nine months ended September 30, 2016 as a loss on debt extinguishment.

Senior Notes

In April 2014, LKQ Corporation completed an offer to exchange $600 million aggregate principal amount of registered 4.75% Senior Notes due 2023 (the "Notes") for notes previously issued through a private placement. The Notes are governed by the Indenture dated as of May 9, 2013 among LKQ Corporation, certain of our subsidiaries (the "Guarantors") and U.S. Bank National Association, as trustee. The Notes are substantially identical to those previously issued through the private placement, except the Notes are registered under the Securities Act of 1933.

The Notes bear interest at a rate of 4.75% per year from the most recent payment date on which interest has been paid or provided for. Interest on the Notes is payable in arrears on May 15 and November 15 of each year. The first interest payment was made on November 15, 2013. The Notes are fully and unconditionally guaranteed, jointly and severally, by the Guarantors.

The Notes and the guarantees are, respectively, LKQ Corporation's and each Guarantor's senior unsecured obligations and are subordinated to all of LKQ Corporation's and the Guarantors' existing and future secured debt to the extent of the assets securing that secured debt. In addition, the Notes are effectively subordinated to all of the liabilities of our subsidiaries that are not guaranteeing the Notes to the extent of the assets of those subsidiaries.

Repayment of Rhiag Acquired Debt and Debt Related Liabilities

On March 24, 2016, LKQ Netherlands B.V., a wholly-owned subsidiary of ours, borrowed €508 million under our multi-currency revolving credit facility to repay the Rhiag acquired debt and debt related liabilities. The borrowed funds were passed through an intercompany note to Rhiag and then were used to pay (i) $519.6 million ( €465.0 million ) for the principal of Rhiag senior note debt assumed with the acquisition, (ii) accrued interest of $8.0 million ( €7.1 million ) on the notes, (iii) the call premium of $23.8 million ( €21.2 million ) associated with early redemption of the notes and (iv) $4.9 million ( €4.4 million ) to terminate Rhiag’s outstanding interest rate swap related to the floating portion of the notes. The call premium is recorded as a loss on debt extinguishment in the Unaudited Condensed Consolidated Statements of Income.

Euro Notes

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

The Euro Notes bear interest at a rate of 3.875% per year from the date of original issuance or from the most recent payment date on which interest has been paid or provided for. Interest on the Euro Notes is payable in arrears on April 1 and October 1 of each year, beginning on October 1, 2016. The Euro Notes are fully and unconditionally guaranteed by LKQ Corporation and the Euro Notes Subsidiaries (the "Euro Notes Guarantors").

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

Related to the execution of the Euro Notes in April 2016, we incurred $10.3 million of fees which were capitalized as an offset to Long-Term Obligations and are amortized over the term of the offering.

Receivables Securitization Facility

On September 29, 2014, we amended the terms of the receivables securitization facility with The Bank of Tokyo-Mitsubishi UFJ, LTD. ("BTMU") to: (i) extend the term of the facility to October 2, 2017; (ii) increase the maximum amount available to $97 million ; and (iii) make other clarifying and updating changes. Under the facility, LKQ sells an ownership interest in certain receivables, related collections and security interests to BTMU for the benefit of conduit investors and/or financial institutions for cash proceeds. Upon payment of the receivables by customers, rather than remitting to BTMU the amounts collected, LKQ retains such collections as proceeds for the sale of new receivables generated by certain of the ongoing operations of the Company.

The sale of the ownership interest in the receivables is accounted for as a secured borrowing in our Unaudited Condensed Consolidated Balance Sheets, under which the receivables included in the program collateralize the amounts invested by BTMU, the conduit investors and/or financial institutions (the "Purchasers"). The receivables are held by LKQ Receivables Finance Company, LLC ("LRFC"), a wholly-owned bankruptcy-remote special purpose subsidiary of LKQ, and therefore, the receivables are available first to satisfy the creditors of LRFC, including the investors. As of September 30, 2016 and December 31, 2015 , $129.6 million and $136.1 million , respectively, of net receivables were collateral for the investment under the receivables facility.

Under the receivables facility, we pay variable interest rates plus a margin on the outstanding amounts invested by the Purchasers. The variable rates are based on (i) commercial paper rates, (ii) the London InterBank Offered Rate ("LIBOR"), or (iii) base rates, and are payable monthly in arrears. Commercial paper rates will be the applicable variable rate unless conduit investors are not available to invest in the receivables at commercial paper rates. In such case, financial institutions will invest at the LIBOR rate or at base rates. We also pay a commitment fee on the excess of the investment maximum over the average daily outstanding investment, payable monthly in arrears. As of September 30, 2016 , the interest rate under the receivables facility was based on commercial paper rates and was 1.6% . The outstanding balances of $97.0 million and $63.0 million as of September 30, 2016 and December 31, 2015 , respectively, were classified as long-term on the Unaudited Condensed Consolidated Balance Sheets because we have the ability and intent to refinance these borrowings on a long-term basis.


Note 9.	Derivative Instruments and Hedging Activities

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

Cash Flow Hedges

At September 30, 2016 , we had interest rate swap agreements in place to hedge a portion of the variable interest rate risk on our variable rate borrowings under our Credit Agreement, with the objective of reducing the impact of interest rate fluctuations and stabilizing cash flows. Under the terms of the interest rate swap agreements, we pay the fixed interest rate and receive payment at a variable rate of interest based on LIBOR for the respective currency of each interest rate swap agreement’s notional amount. The effective portion of changes in the fair value of the interest rate swap agreements is recorded in Accumulated Other Comprehensive Income (Loss) and is reclassified to interest expense when the underlying interest payment has an impact on earnings. The ineffective portion of changes in the fair value of the interest rate swap agreements is reported in interest expense. Our interest rate swap contracts have maturity dates ranging from 2016 through 2021.

In the first quarter of 2016, we entered into interest rate swap contracts representing a total of $440 million of U.S. dollar-denominated debt. In the second quarter of 2016, we entered into interest rate swap contracts representing a total of $150 million of U.S. dollar-denominated debt. The new swaps entered into in 2016 have maturity dates ranging from January to June 2021, and convert floating to fixed interest rates.

From time to time, we may hold foreign currency forward contracts related to certain foreign currency denominated intercompany transactions, with the objective of reducing the impact of changing exchange rates on these future cash flows, as well as reducing the impact of fluctuating exchange rates on our results of operations through the respective dates of settlement. Under the terms of the foreign currency forward contracts, we will sell the foreign currency in exchange for U.S. dollars at a fixed rate on the maturity dates of the contracts. The effective portion of the changes in fair value of the foreign currency forward contracts is recorded in Accumulated Other Comprehensive Income (Loss) and reclassified to other income (expense) when the underlying transaction has an impact on earnings.

The following table summarizes the notional amounts and fair values of our interest rate swaps that are designated cash flow hedges as of September 30, 2016 and December 31, 2015 (in thousands):



	Notional Amount				Fair Value at September 30, 2016 (USD)						Fair Value at December 31, 2015 (USD)
	September 30, 2016		December 31, 2015		Other Assets		Other Accrued Expenses		Other Noncurrent Liabilities		Other Accrued Expenses
Interest rate swap agreements
USD denominated	$	760,000	$	170,000	$	431	$	152	$	2,414	$	858
GBP denominated	£	50,000	£	50,000	—		60		—		465
CAD denominated	C$	—	C$	25,000	—		—		—		24
Total cash flow hedges					$	431	$	212	$	2,414	$	1,347

While our derivative instruments executed with the same counterparty are subject to master netting arrangements, we present our cash flow hedge derivative instruments on a gross basis in our Unaudited Condensed Consolidated Balance Sheets. The impact of netting the fair values of these contracts would not have a material effect on our Unaudited Condensed Consolidated Balance Sheets at September 30, 2016 or December 31, 2015 .

The activity related to our cash flow hedges is included in Note 7, "Accumulated Other Comprehensive Income (Loss) ." Ineffectiveness related to our cash flow hedges was immaterial to our results of operations during the three and nine months ended September 30, 2016 and September 30, 2015 . We do not expect future ineffectiveness related to our cash flow hedges to have a material effect on our results of operations.

As of September 30, 2016 , we estimate that $1.4 million of derivative losses (net of tax) included in Accumulated Other Comprehensive Loss will be reclassified into our consolidated statements of income within the next 12 months.

Other Derivative Instruments

We hold other short-term derivative instruments, including foreign currency forward contracts, to manage our exposure to variability related to inventory purchases and intercompany financing transactions denominated in a non-functional currency. We have elected not to apply hedge accounting for these transactions, and therefore the contracts are adjusted to fair value through our results of operations as of each balance sheet date, which could result in volatility in our earnings.


Note 10.	Fair Value Measurements

Financial Assets and Liabilities Measured at Fair Value

We use the market and income approaches to value our financial assets and liabilities, and during the three and nine months ended September 30, 2016 , there were no significant changes in valuation techniques or inputs related to the financial assets or liabilities that we have historically recorded at fair value. The tiers in the fair value hierarchy include: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The following tables present information about our financial assets and liabilities measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation inputs we utilized to determine such fair value as of September 30, 2016 and December 31, 2015 (in thousands):



	Balance as of September 30, 2016		Fair Value Measurements as of September 30, 2016
	Balance as of September 30, 2016		Level 1		Level 2		Level 3
Assets:
Cash surrender value of life insurance	$	34,811	$	—	$	34,811	$	—
Interest rate swaps	431		—		431		—
Total Assets	$	35,242	$	—	$	35,242	$	—
Liabilities:
Contingent consideration liabilities	$	3,168	$	—	$	—	$	3,168
Deferred compensation liabilities	36,289		—		36,289		—
Interest rate swaps	2,626		—		2,626		—
Total Liabilities	$	42,083	$	—	$	38,915	$	3,168



	Balance as of December 31, 2015		Fair Value Measurements as of December 31, 2015
	Balance as of December 31, 2015		Level 1		Level 2		Level 3
Assets:
Cash surrender value of life insurance	$	29,782	$	—	$	29,782	$	—
Total Assets	$	29,782	$	—	$	29,782	$	—
Liabilities:
Contingent consideration liabilities	$	4,584	$	—	$	—	$	4,584
Deferred compensation liabilities	30,336		—		30,336		—
Interest rate swaps	1,347		—		1,347		—
Total Liabilities	$	36,267	$	—	$	31,683	$	4,584

The cash surrender value of life insurance is included in Other Assets on our Unaudited Condensed Consolidated Balance Sheets. The current portion of deferred compensation and contingent consideration liabilities is included in Other Current Liabilities, and the noncurrent portion is included in Other Noncurrent Liabilities on our Unaudited Condensed Consolidated Balance Sheets based on the expected timing of the related payments. The balance sheet classification of the interest rate swaps is presented in Note 9, "Derivative Instruments and Hedging Activities ."

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

Our contingent consideration liabilities are related to our business acquisitions as further described in Note 2, "Business Combinations ." Under the terms of the contingent consideration agreements, payments may be made at specified future dates depending on the performance of the acquired business subsequent to the acquisition. The liabilities for these payments are classified as Level 3 liabilities because the related fair value measurement, which is determined using an income approach, includes significant inputs not observable in the market. These liabilities are not considered material.

Changes in the fair value of our contingent consideration obligations are as follows (in thousands):



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016			2015
Beginning balance	$	3,134		$	5,191		$	4,584		$	7,295
Payments	—			(610		)	(1,667		)	(2,815		)
Increase in fair value included in earnings	57			89			176			365
Exchange rate effects	(23		)	(122		)	75			(297		)
Balance as of September 30	$	3,168		$	4,548		$	3,168		$	4,548

All the amounts included in earnings for the three and nine months ended September 30, 2016 were related to contingent consideration obligations outstanding as of September 30, 2016 . Of the amounts included in earnings for the three and nine months ended September 30, 2015 , $0.1 million and $0.2 million of losses, respectively, were related to contingent consideration obligations outstanding as of September 30, 2016 . Changes in the values of the liabilities are recorded in Other expense (income), net on our Unaudited Condensed Consolidated Statements of Income.

The changes in the fair value of contingent consideration obligations included in earnings during the respective periods in 2016 and 2015 reflect the quarterly reassessment of each obligation's fair value, including an analysis of the significant inputs used in the valuation, as well as the accretion of the present value discount.

Financial Assets and Liabilities Not Measured at Fair Value

Our debt is reflected on the Unaudited Condensed Consolidated Balance Sheets at cost. Based on market conditions as of September 30, 2016 and December 31, 2015 , the fair values of our credit agreement borrowings reasonably approximated the carrying values of $2.0 billion and $891.1 million , respectively. In addition, based on market conditions, the fair value of the outstanding borrowings under the receivables facility reasonably approximated the carrying value of $97.0 million and $63.0 million at September 30, 2016 and December 31, 2015 , respectively. As of September 30, 2016 and December 31, 2015 , the fair value of the Notes was approximately $618.8 million and $567.3 million , respectively, compared to a carrying value of $600 million . As of September 30, 2016 , the fair value of the Euro Notes was approximately $600.3 million compared to a carrying value of $561.8 million .

The fair value measurements of the borrowings under our credit agreement and receivables facility are classified as Level 2 within the fair value hierarchy since they are determined based upon significant inputs observable in the market, including interest rates on recent financing transactions with similar terms and maturities. We estimated the fair value by calculating the upfront cash payment a market participant would require at September 30, 2016 to assume these obligations. The fair value of our Notes is classified as Level 1 within the fair value hierarchy since it is determined based upon observable market inputs including quoted market prices in an active market. The fair value of our Euro Notes is determined based upon observable market inputs including quoted market prices in a market that is not active, and therefore is classified as Level 2 within the fair value hierarchy.


Note 11.	Commitments and Contingencies

Operating Leases

We are obligated under noncancelable operating leases for corporate office space, warehouse and distribution facilities, trucks and certain equipment.

The future minimum lease commitments under these leases at September 30, 2016 are as follows (in thousands):



Three months ending December 31, 2016	$	51,473
Years ending December 31:
2017	188,098
2018	162,716
2019	132,020
2020	106,987
2021	80,143
Thereafter	477,455
Future Minimum Lease Payments	$	1,198,892

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.


Note 12.	Income Taxes

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

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

Our effective income tax rate for the nine months ended September 30, 2016 was 32.6% , compared with 34.8% for the comparable prior year period. The lower effective income tax rate for the nine months ended September 30, 2016 reflects the $11.5 million discrete item for excess tax benefits from stock-based payments related to the adoption of ASU 2016-09 as described in Note 3, "Financial Statement Information ." The adoption of this accounting standard could result in fluctuations to the effective tax rate from period to period depending on the amount of excess tax benefits or deficiencies recognized. The other discrete tax items for the nine months ended September 30, 2016 and 2015 were immaterial.

Our acquisitions completed during the first nine months of 2016, including our March 2016 acquisition of Rhiag and our April 2016 acquisition of PGW, contributed $29.7 million and $137.5 million of deferred tax assets and liabilities, respectively, relating to intangible assets; property, plant and equipment; and reserves, including pension and other post-retirement benefit obligations.


Note 13.	Segment and Geographic Information

We have five operating segments: Wholesale – North America; Europe; Specialty; Glass; and Self Service. Our Glass operating segment was formed with our April 21, 2016 acquisition of PGW, as discussed in Note 2, "Business Combinations ." Our Wholesale – North America and Self Service operating segments are aggregated into one reportable segment, North America, because they possess similar economic characteristics and have common products and services, customers, and methods of distribution. Our reportable segments are organized based on a combination of geographic areas served and type of product lines offered. The reportable segments are managed separately as each business serves different customers (i.e. geographic in the case of North America and Europe and product type in the case of Specialty and Glass) and is affected by different economic conditions. Therefore, we present four reportable segments: North America, Europe, Specialty and Glass.

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



	North America		Europe		Specialty		Glass		Eliminations			Consolidated
Three Months Ended September 30, 2016
Revenue:
Third Party	$	1,046,579	$	770,219	$	311,621	$	258,411	$	—		$	2,386,830
Intersegment	86		—		969		114		(1,169		)	—
Total segment revenue	$	1,046,665	$	770,219	$	312,590	$	258,525	$	(1,169	)	$	2,386,830
Segment EBITDA	$	141,054	$	72,586	$	32,449	$	27,758	$	—		$	273,847
Depreciation and amortization ⁽¹⁾	17,551		27,792		5,628		8,517		—			59,488
Three Months Ended September 30, 2015
Revenue:
Third Party	$	1,037,130	$	511,146	$	283,456	$	—	$	—		$	1,831,732
Intersegment	160		—		850		—		(1,010		)	—
Total segment revenue	$	1,037,290	$	511,146	$	284,306	$	—	$	(1,010	)	$	1,831,732
Segment EBITDA	$	128,506	$	52,733	$	26,075	$	—	$	—		$	207,314
Depreciation and amortization ⁽¹⁾	17,918		9,478		5,578		—		—			32,974



	North America		Europe		Specialty		Glass		Eliminations			Consolidated
Nine Months Ended September 30, 2016
Revenue:
Third Party	$	3,214,343	$	2,141,186	$	934,955	$	468,515	$	—		$	6,758,999
Intersegment	419		—		3,014		188		(3,621		)	—
Total segment revenue	$	3,214,762	$	2,141,186	$	937,969	$	468,703	$	(3,621	)	$	6,758,999
Segment EBITDA	$	452,254	$	220,066	$	105,979	$	51,059	$	—		$	829,358
Depreciation and amortization ⁽¹⁾	52,688		66,380		16,254		15,048		—			150,370
Nine Months Ended September 30, 2015
Revenue:
Third Party	$	3,127,988	$	1,508,325	$	807,401	$	—	$	—		$	5,443,714
Intersegment	626		70		2,457		—		(3,153		)	—
Total segment revenue	$	3,128,614	$	1,508,395	$	809,858	$	—	$	(3,153	)	$	5,443,714
Segment EBITDA	$	416,774	$	153,199	$	91,677	$	—	$	—		$	661,650
Depreciation and amortization ⁽¹⁾	52,432		26,533		15,723		—		—			94,688

⁽¹⁾ Amounts presented include depreciation and amortization expense recorded within cost of goods sold.

The key measure of segment profit or loss reviewed by our chief operating decision maker, who is our Chief Executive Officer, is Segment EBITDA. Segment EBITDA includes revenue and expenses that are controllable by the segment. Corporate 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, change in fair value of contingent consideration liabilities, other acquisition related gains and losses and equity in earnings of unconsolidated subsidiaries. EBITDA, which is the basis for Segment EBITDA, is calculated as net income excluding depreciation, amortization, interest (which includes loss on debt extinguishment) and income tax expense.

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



	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2016			2015			2016		2015
Segment EBITDA	$	273,847		$	207,314		$	829,358	$	661,650
Deduct:
Restructuring and acquisition related expenses ⁽¹⁾	8,412			4,578			32,303		12,729
Inventory step-up adjustment - acquisition related ⁽²⁾	(387		)	—			9,826		—
Change in fair value of contingent consideration liabilities ⁽³⁾	57			89			176		365
Add:
Equity in earnings of unconsolidated subsidiaries	267			(1,130		)	52		(4,200		)
Gains on foreign exchange contracts - acquisition related ⁽⁴⁾	—			—			18,342		—
EBITDA	266,032			201,517			805,447		644,356
Depreciation and amortization - cost of goods sold	6,472			2,091			13,137		4,570
Depreciation and amortization	53,016			30,883			137,233		90,118
Interest expense, net	27,059			14,722			68,032		44,250
Loss on debt extinguishment	—			—			26,650		—
Provision for income taxes	56,797			52,475			182,751		177,255
Net income	$	122,688		$	101,346		$	377,644	$	328,163

⁽¹⁾ See Note 4, "Restructuring and Acquisition Related Expenses ," for further information.

⁽²⁾ Reflects the impact on Cost of Goods Sold of the step-up acquisition adjustment to record PGW inventory at its fair value.

⁽³⁾ See Note 10, "Fair Value Measurements ," for further information on our contingent consideration liabilities.

⁽⁴⁾ Reflects gains on foreign currency forwards used to fix the Euro purchase price of Rhiag. See Note 2, "Business Combinations ," for further information.

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



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Capital Expenditures
North America	$	24,394	$	11,615	$	66,625	$	41,762
Europe	16,554		16,966		57,105		47,138
Specialty	582		4,229		11,235		10,673
Glass	8,897		—		17,781		—
	$	50,427	$	32,810	$	152,746	$	99,573

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



	September 30,		December 31,
	2016		2015
Receivables, net
North America	$	315,656	$	314,743
Europe ⁽¹⁾	438,771		215,710
Specialty	79,415		59,707
Glass ⁽¹⁾	125,479		—
Total receivables, net	959,321		590,160
Inventories, net
North America	795,531		847,787
Europe ⁽¹⁾	664,658		427,323
Specialty	293,083		281,442
Glass ⁽¹⁾	159,296		—
Total inventories, net	1,912,568		1,556,552
Property, Plant and Equipment, net
North America	486,382		467,961
Europe ⁽¹⁾	246,544		175,455
Specialty	57,565		53,151
Glass ⁽¹⁾	233,216		—
Total property, plant and equipment, net	1,023,707		696,567
Other unallocated assets	4,308,356		2,804,558
Total assets	$	8,203,952	$	5,647,837

⁽¹⁾ The increase in assets for our Europe and Glass segments primarily relates to the Rhiag and PGW acquisitions, respectively (see Note 2, "Business Combinations " for further details).

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

The majority of our operations are conducted in the U.S. Our European operations are located in the U.K., the Netherlands, Belgium, France, Sweden, and Norway. As part of the Rhiag and PGW acquisitions we expanded our operations into Italy, Czech Republic, Switzerland, Hungary, Romania, Ukraine, Bulgaria, Slovakia, Poland, Spain, and Germany. Our operations in other countries include recycled and aftermarket operations in Canada, engine remanufacturing and bumper refurbishing operations in Mexico, an aftermarket parts freight consolidation warehouse in Taiwan, and administrative support functions in India. Our net sales are attributed to geographic area based on the location of the selling operation.

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



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Revenue
United States	$	1,475,276	$	1,229,958	$	4,244,083	$	3,653,326
United Kingdom	336,168		358,925		1,044,110		1,049,596
Other countries	575,386		242,849		1,470,806		740,792
	$	2,386,830	$	1,831,732	$	6,758,999	$	5,443,714

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



	September 30,		December 31,
	2016		2015
Long-lived Assets
United States	$	703,454	$	493,300
United Kingdom	150,625		138,546
Other countries	169,628		64,721
	$	1,023,707	$	696,567

The following table sets forth our revenue by product category (in thousands):



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Aftermarket, other new and refurbished products	$	1,673,147	$	1,307,399	$	4,817,217	$	3,850,038
Recycled, remanufactured and related products and services	424,876		401,292		1,290,488		1,207,917
Manufactured products ⁽¹⁾	177,300		—		317,932		—
Other	111,507		123,041		333,362		385,759
	$	2,386,830	$	1,831,732	$	6,758,999	$	5,443,714

⁽¹⁾ Includes sales of PGW's manufactured and fabricated OEM automotive glass products. Sales of PGW's aftermarket automotive glass products are included within Aftermarket, other new and refurbished products above.

Our North American reportable segment generates revenue from all of our product categories, except manufactured products, while our European and Specialty segments generate revenue primarily from the sale of aftermarket products. Our Glass segment generates revenue from both the sale of aftermarket products and the sale of manufactured products. Revenue from other sources includes scrap sales, bulk sales to mechanical remanufacturers (including cores) and sales of aluminum ingots and sows from our furnace operations.


Note 14.	Condensed Consolidating Financial Information

LKQ Corporation (the "Parent") issued, and the Guarantors have fully and unconditionally guaranteed, jointly and severally, the Notes due on May 15, 2023. A Guarantor's guarantee will be unconditionally and automatically released and discharged upon the occurrence of any of the following events: (i) a transfer (including as a result of consolidation or merger) by the Guarantor to any person that is not a Guarantor of all or substantially all assets and properties of such Guarantor, provided the Guarantor is also released from its obligations with respect to indebtedness under the Credit Agreement or other indebtedness of ours, which obligation gave rise to the guarantee of the Notes; (ii) a transfer (including as a result of consolidation or merger) to any person that is not a Guarantor of the equity interests of a Guarantor or issuance by a Guarantor of its equity interests such that the Guarantor ceases to be a subsidiary, as defined in the Indenture, provided the Guarantor is also released from its obligations with respect to indebtedness under the Credit Agreement or other indebtedness of ours, which obligation gave rise to the guarantee of the Notes; (iii) the release of the Guarantor from its obligations with respect to indebtedness under the Credit Agreement or other indebtedness of ours, which obligation gave rise to the guarantee of the Notes; and (iv) upon legal defeasance, covenant defeasance or satisfaction and discharge of the Indenture, as defined in the Indenture.

Presented below are the unaudited condensed consolidating financial statements of the Parent, the Guarantors, the non-guarantor subsidiaries (the "Non-Guarantors"), and the elimination entries necessary to present the Company's financial statements on a consolidated basis as required by Rule 3-10 of Regulation S-X of the Securities Exchange Act of 1934 resulting from the guarantees of the Notes. Investments in consolidated subsidiaries have been presented under the equity method of accounting. The principal elimination entries eliminate investments in subsidiaries, intercompany balances, and intercompany revenue and expenses. The unaudited condensed consolidating financial statements below have been prepared from the Company's financial information on the same basis of accounting as the unaudited condensed consolidated financial statements, and may not necessarily be indicative of the financial position, results of operations or cash flows had the Parent, Guarantors and Non-Guarantors operated as independent entities.

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidating Balance Sheets (In thousands)

	September 30, 2016
	Parent		Guarantors		Non-Guarantors		Eliminations			Consolidated
Assets
Current Assets:
Cash and equivalents	$	29,554	$	30,333	$	211,964	$	—		$	271,851
Receivables, net	—		344,318		615,003		—			959,321
Intercompany receivables, net	3,517		—		24,462		(27,979		)	—
Inventories, net	—		1,177,357		735,211		—			1,912,568
Prepaid expenses and other current assets	17,502		57,061		77,238		—			151,801
Total Current Assets	50,573		1,609,069		1,663,878		(27,979		)	3,295,541
Property, Plant and Equipment, net	274		697,601		325,832		—			1,023,707
Intangible Assets:
Goodwill	—		1,866,011		1,251,139		—			3,117,150
Other intangibles, net	—		157,305		461,941		—			619,246
Investment in Subsidiaries	5,075,832		281,123		—		(5,356,955		)	—
Intercompany Notes Receivable	1,110,376		819,982		—		(1,930,358		)	—
Other Assets	41,580		81,946		32,354		(7,572		)	148,308
Total Assets	$	6,278,635	$	5,513,037	$	3,735,144	$	(7,322,864	)	$	8,203,952
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	1,246	$	311,090	$	370,383	$	—		$	682,719
Intercompany payables, net	—		24,462		3,517		(27,979		)	—
Accrued expenses:
Accrued payroll-related liabilities	5,345		48,983		52,216		—			106,544
Other accrued expenses	12,920		96,875		128,507		—			238,302
Other current liabilities	284		17,546		28,984		—			46,814
Current portion of long-term obligations	22,410		2,469		49,950		—			74,829
Total Current Liabilities	42,205		501,425		633,557		(27,979		)	1,149,208
Long-Term Obligations, Excluding Current Portion	2,015,977		9,214		1,164,154		—			3,189,345
Intercompany Notes Payable	750,000		1,094,324		86,034		(1,930,358		)	—
Deferred Income Taxes	—		112,552		121,702		(7,572		)	226,682
Other Noncurrent Liabilities	43,176		127,770		40,494		—			211,440
Stockholders’ Equity	3,427,277		3,667,752		1,689,203		(5,356,955		)	3,427,277
Total Liabilities and Stockholders' Equity	$	6,278,635	$	5,513,037	$	3,735,144	$	(7,322,864	)	$	8,203,952

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidating Balance Sheets (In thousands)

	December 31, 2015
	Parent		Guarantors		Non-Guarantors		Eliminations			Consolidated
Assets
Current Assets:
Cash and equivalents	$	17,616	$	13,432	$	56,349	$	—		$	87,397
Receivables, net	—		214,502		375,658		—			590,160
Intercompany receivables, net	3		—		13,544		(13,547		)	—
Inventories, net	—		1,060,834		495,718		—			1,556,552
Prepaid expenses and other current assets	15,254		44,810		46,539		—			106,603
Total Current Assets	32,873		1,333,578		987,808		(13,547		)	2,340,712
Property, Plant and Equipment, net	339		494,658		201,570		—			696,567
Intangible Assets:
Goodwill	—		1,640,745		678,501		—			2,319,246
Other intangibles, net	—		141,537		73,580		—			215,117
Investment in Subsidiaries	3,456,837		285,284		—		(3,742,121		)	—
Intercompany Notes Receivable	630,717		61,764		—		(692,481		)	—
Other Assets	35,649		28,184		18,218		(5,856		)	76,195
Total Assets	$	4,156,415	$	3,985,750	$	1,959,677	$	(4,454,005	)	$	5,647,837
Liabilities and Stockholders’ Equity
Current Liabilities:
Accounts payable	$	681	$	229,519	$	185,388	$	—		$	415,588
Intercompany payables, net	—		13,544		3		(13,547		)	—
Accrued expenses:
Accrued payroll-related liabilities	4,395		48,698		33,434		—			86,527
Other accrued expenses	5,399		80,886		75,940		—			162,225
Other current liabilities	284		15,953		15,359		—			31,596
Current portion of long-term obligations	21,041		1,425		33,568		—			56,034
Total Current Liabilities	31,800		390,025		343,692		(13,547		)	751,970
Long-Term Obligations, Excluding Current Portion	976,353		7,487		544,828		—			1,528,668
Intercompany Notes Payable	—		615,488		76,993		(692,481		)	—
Deferred Income Taxes	—		113,905		19,190		(5,856		)	127,239
Other Noncurrent Liabilities	33,580		70,109		21,589		—			125,278
Stockholders’ Equity	3,114,682		2,788,736		953,385		(3,742,121		)	3,114,682
Total Liabilities and Stockholders’ Equity	$	4,156,415	$	3,985,750	$	1,959,677	$	(4,454,005	)	$	5,647,837

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidating Statements of Income (In thousands)

	For the Three Months Ended September 30, 2016
	Parent			Guarantors			Non-Guarantors		Eliminations			Consolidated
Revenue	$	—		$	1,549,617		$	909,040	$	(71,827	)	$	2,386,830
Cost of goods sold	—			982,278			592,967		(71,827		)	1,503,418
Gross margin	—			567,339			316,073		—			883,412
Facility and warehouse expenses	—			123,923			59,125		—			183,048
Distribution expenses	—			120,049			52,517		—			172,566
Selling, general and administrative expenses	8,095			138,131			117,146		—			263,372
Restructuring and acquisition related expenses	—			7,266			1,146		—			8,412
Depreciation and amortization	32			24,885			28,099		—			53,016
Operating (loss) income	(8,127		)	153,085			58,040		—			202,998
Other expense (income):
Interest expense, net	18,122			610			8,327		—			27,059
Intercompany interest (income) expense, net	(8,796		)	5,030			3,766		—			—
Other expense (income), net	17			(4,132		)	836		—			(3,279		)
Total other expense, net	9,343			1,508			12,929		—			23,780
(Loss) income before (benefit) provision for income taxes	(17,470		)	151,577			45,111		—			179,218
(Benefit) provision for income taxes	(9,546		)	57,012			9,331		—			56,797
Equity in earnings of unconsolidated subsidiaries	—			251			16		—			267
Equity in earnings of subsidiaries	130,612			11,075			—		(141,687		)	—
Net income	$	122,688		$	105,891		$	35,796	$	(141,687	)	$	122,688

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidating Statements of Income (In thousands)

	For the Three Months Ended September 30, 2015
	Parent			Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenue	$	—		$	1,263,397		$	595,769		$	(27,434	)	$	1,831,732
Cost of goods sold	—			773,957			372,430			(27,434		)	1,118,953
Gross margin	—			489,440			223,339			—			712,779
Facility and warehouse expenses	—			106,090			37,828			—			143,918
Distribution expenses	—			105,519			53,249			—			158,768
Selling, general and administrative expenses	8,484			124,678			74,725			—			207,887
Restructuring and acquisition related expenses	—			3,754			824			—			4,578
Depreciation and amortization	38			21,133			9,712			—			30,883
Operating (loss) income	(8,522		)	128,266			47,001			—			166,745
Other expense (income):
Interest expense, net	12,049			460			2,213			—			14,722
Intercompany interest (income) expense, net	(10,146		)	7,183			2,963			—			—
Other expense (income), net	8			(2,441		)	(495		)	—			(2,928		)
Total other expense, net	1,911			5,202			4,681			—			11,794
(Loss) income before (benefit) provision for income taxes	(10,433		)	123,064			42,320			—			154,951
(Benefit) provision for income taxes	(4,012		)	48,089			8,398			—			52,475
Equity in earnings of unconsolidated subsidiaries	—			17			(1,147		)	—			(1,130		)
Equity in earnings of subsidiaries	107,767			6,328			—			(114,095		)	—
Net income	$	101,346		$	81,320		$	32,775		$	(114,095	)	$	101,346

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidating Statements of Income (In thousands)

	For the Nine Months Ended September 30, 2016
	Parent			Guarantors			Non-Guarantors		Eliminations			Consolidated
Revenue	$	—		$	4,398,731		$	2,498,594	$	(138,326	)	$	6,758,999
Cost of goods sold	—			2,728,874			1,602,655		(138,326		)	4,193,203
Gross margin	—			1,669,857			895,939		—			2,565,796
Facility and warehouse expenses	—			357,782			161,541		—			519,323
Distribution expenses	—			342,524			166,716		—			509,240
Selling, general and administrative expenses	27,361			397,287			311,195		—			735,843
Restructuring and acquisition related expenses	—			18,384			13,919		—			32,303
Depreciation and amortization	101			68,890			68,242		—			137,233
Operating (loss) income	(27,462		)	484,990			174,326		—			631,854
Other expense (income):
Interest expense, net	48,043			444			19,545		—			68,032
Intercompany interest (income) expense, net	(21,828		)	13,996			7,832		—			—
Loss on debt extinguishment	2,894			—			23,756		—			26,650
Gains on foreign exchange contracts - acquisition related	(18,342		)	—			—		—			(18,342		)
Other (income) expense, net	(61		)	(7,216		)	2,448		—			(4,829		)
Total other expense, net	10,706			7,224			53,581		—			71,511
(Loss) income before (benefit) provision for income taxes	(38,168		)	477,766			120,745		—			560,343
(Benefit) provision for income taxes	(19,103		)	177,585			24,269		—			182,751
Equity in earnings of unconsolidated subsidiaries	(795		)	603			244		—			52
Equity in earnings of subsidiaries	397,504			23,448			—		(420,952		)	—
Net income	$	377,644		$	324,232		$	96,720	$	(420,952	)	$	377,644

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidating Statements of Income (In thousands)

	For the Nine Months Ended September 30, 2015
	Parent			Guarantors			Non-Guarantors			Eliminations			Consolidated
Revenue	$	—		$	3,758,846		$	1,778,456		$	(93,588	)	$	5,443,714
Cost of goods sold	—			2,284,786			1,116,314			(93,588		)	3,307,512
Gross margin	—			1,474,060			662,142			—			2,136,202
Facility and warehouse expenses	—			304,140			108,814			—			412,954
Distribution expenses	—			304,264			146,257			—			450,521
Selling, general and administrative expenses	24,876			366,298			225,750			—			616,924
Restructuring and acquisition related expenses	—			10,999			1,730			—			12,729
Depreciation and amortization	117			60,897			29,104			—			90,118
Operating (loss) income	(24,993		)	427,462			150,487			—			552,956
Other expense (income):
Interest expense, net	36,604			331			7,315			—			44,250
Intercompany interest (income) expense, net	(31,347		)	21,498			9,849			—			—
Other expense (income), net	35			(5,282		)	4,335			—			(912		)
Total other expense, net	5,292			16,547			21,499			—			43,338
(Loss) income before (benefit) provision for income taxes	(30,285		)	410,915			128,988			—			509,618
(Benefit) provision for income taxes	(12,061		)	163,361			25,955			—			177,255
Equity in earnings of unconsolidated subsidiaries	—			47			(4,247		)	—			(4,200		)
Equity in earnings of subsidiaries	346,387			20,923			—			(367,310		)	—
Net income	$	328,163		$	268,524		$	98,786		$	(367,310	)	$	328,163

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidating Statements of Comprehensive Income (In thousands)

	For the Three Months Ended September 30, 2016
	Parent			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net income	$	122,688		$	105,891		$	35,796		$	(141,687	)	$	122,688
Other comprehensive (loss) income:
Foreign currency translation	(12,317		)	(9,372		)	(11,450		)	20,822			(12,317		)
Net change in unrecognized gains/losses on derivative instruments, net of tax	3,059			170			318			(488		)	3,059
Net change in unrealized gains/losses on pension plans, net of tax	94			—			94			(94		)	94
Total other comprehensive loss	(9,164		)	(9,202		)	(11,038		)	20,240			(9,164		)
Total comprehensive income	$	113,524		$	96,689		$	24,758		$	(121,447	)	$	113,524

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidating Statements of Comprehensive Income (In thousands)

	For the Three Months Ended September 30, 2015
	Parent			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net income	$	101,346		$	81,320		$	32,775		$	(114,095	)	$	101,346
Other comprehensive (loss) income:
Foreign currency translation	(33,458		)	(11,459		)	(32,073		)	43,532			(33,458		)
Net change in unrecognized gains/losses on derivative instruments, net of tax	612			—			14			(14		)	612
Net change in unrealized gains/losses on pension plans, net of tax	(25		)	—			(25		)	25			(25		)
Total other comprehensive loss	(32,871		)	(11,459		)	(32,084		)	43,543			(32,871		)
Total comprehensive income	$	68,475		$	69,861		$	691		$	(70,552	)	$	68,475

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidating Statements of Comprehensive Income (In thousands)

	For the Nine Months Ended September 30, 2016
	Parent			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net income	$	377,644		$	324,232		$	96,720		$	(420,952	)	$	377,644
Other comprehensive (loss) income:
Foreign currency translation	(85,434		)	(27,343		)	(88,319		)	115,662			(85,434		)
Net change in unrecognized gains/losses on derivative instruments, net of tax	(123		)	170			513			(683		)	(123		)
Net change in unrealized gains/losses on pension plans, net of tax	361			—			361			(361		)	361
Total other comprehensive loss	(85,196		)	(27,173		)	(87,445		)	114,618			(85,196		)
Total comprehensive income	$	292,448		$	297,059		$	9,275		$	(306,334	)	$	292,448

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidating Statements of Comprehensive Income (In thousands)

	For the Nine Months Ended September 30, 2015
	Parent			Guarantors			Non-Guarantors			Eliminations			Consolidated
Net income	$	328,163		$	268,524		$	98,786		$	(367,310	)	$	328,163
Other comprehensive (loss) income:
Foreign currency translation	(43,758		)	(12,697		)	(40,656		)	53,353			(43,758		)
Net change in unrecognized gains/losses on derivative instruments, net of tax	1,813			—			143			(143		)	1,813
Change in unrealized gains/losses on pension plans, net of tax	82			—			82			(82		)	82
Total other comprehensive loss	(41,863		)	(12,697		)	(40,431		)	53,128			(41,863		)
Total comprehensive income	$	286,300		$	255,827		$	58,355		$	(314,182	)	$	286,300

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidating Statements of Cash Flows (In thousands)

	For the Nine Months Ended September 30, 2016
	Parent			Guarantors			Non-Guarantors			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities	$	240,495		$	404,164		$	119,623		$	(240,131	)	$	524,151
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(36		)	(89,917		)	(62,793		)	—			(152,746		)
Investment and intercompany note activity with subsidiaries	(1,285,939		)	—			—			1,285,939			—
Acquisitions, net of cash acquired	—			(666,052		)	(635,075		)	—			(1,301,127		)
Proceeds from foreign exchange contracts	18,342			—			—			—			18,342
Other investing activities, net	—			(452		)	11,293			—			10,841
Net cash used in investing activities	(1,267,633		)	(756,421		)	(686,575		)	1,285,939			(1,424,690		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options	7,525			—			—			—			7,525
Taxes paid related to net share settlements of stock-based compensation awards	(4,440		)	—			—			—			(4,440		)
Debt issuance costs	(7,079		)	—			(9,325		)	—			(16,404		)
Proceeds from issuance of Euro notes	—			—			563,450			—			563,450
Borrowings under revolving credit facilities	1,304,000			—			657,702			—			1,961,702
Repayments under revolving credit facilities	(344,000		)	—			(895,234		)	—			(1,239,234		)
Borrowings under term loans	89,317			—			249,161			—			338,478
Repayments under term loans	(6,247		)	—			(3,214		)	—			(9,461		)
Borrowings under receivables securitization facility	—			—			100,480			—			100,480
Repayments under receivables securitization facility	—			—			(66,500		)	—			(66,500		)
Repayments of other debt, net	—			(2,270		)	(92		)	—			(2,362		)
Repayment of Rhiag debt and related payments	—			—			(543,347		)	—			(543,347		)
Payments of other obligations	—			(1,405		)	—			—			(1,405		)
Investment and intercompany note activity with parent	—			612,961			672,978			(1,285,939		)	—
Dividends	—			(240,131		)	—			240,131			—
Net cash provided by financing activities	1,039,076			369,155			726,059			(1,045,808		)	1,088,482
Effect of exchange rate changes on cash and equivalents	—			3			(3,492		)	—			(3,489		)
Net increase in cash and equivalents	11,938			16,901			155,615			—			184,454
Cash and equivalents, beginning of period	17,616			13,432			56,349			—			87,397
Cash and equivalents, end of period	$	29,554		$	30,333		$	211,964		$	—		$	271,851

LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidating Statements of Cash Flows (In thousands)

	For the Nine Months Ended September 30, 2015
	Parent			Guarantors			Non-Guarantors			Eliminations			Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES:
Net cash provided by operating activities	$	257,660		$	329,740		$	136,686		$	(219,091	)	$	504,995
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(3		)	(49,023		)	(50,547		)	—			(99,573		)
Investment and intercompany note activity with subsidiaries	(66,644		)	—			—			66,644			—
Acquisitions, net of cash acquired	—			(120,766		)	(36,591		)	—			(157,357		)
Other investing activities, net	—			8,832			(5,658		)	—			3,174
Net cash used in investing activities	(66,647		)	(160,957		)	(92,796		)	66,644			(253,756		)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options	7,534			—			—			—			7,534
Taxes paid related to net share settlements of stock-based compensation awards	(7,423		)	—			—			—			(7,423		)
Borrowings under revolving credit facilities	207,000			—			75,421			—			282,421
Repayments under revolving credit facilities	(347,000		)	—			(86,840		)	—			(433,840		)
Repayments under term loans	(16,875		)	—			—			—			(16,875		)
Borrowings under receivables securitization facility	—			—			3,858			—			3,858
Repayments under receivables securitization facility	—			—			(8,958		)	—			(8,958		)
Repayments of other debt, net	(31,500		)	(5,962		)	(13,381		)	—			(50,843		)
Payments of other obligations	—			(1,596		)	(895		)	—			(2,491		)
Investment and intercompany note activity with parent	—			62,540			4,104			(66,644		)	—
Dividends	—			(219,091		)	—			219,091			—
Net cash used in financing activities	(188,264		)	(164,109		)	(26,691		)	152,447			(226,617		)
Effect of exchange rate changes on cash and equivalents	—			237			(2,378		)	—			(2,141		)
Net increase in cash and equivalents	2,749			4,911			14,821			—			22,481
Cash and equivalents, beginning of period	14,930			32,103			67,572			—			114,605
Cash and equivalents, end of period	$	17,679		$	37,014		$	82,393		$	—		$	137,086

Forward-Looking Statements

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

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

You should not place undue reliance on our forward-looking statements. Actual events or results may differ materially from those expressed or implied in the forward-looking statements. The risks, uncertainties, assumptions and other factors that could cause actual results to differ from the results predicted or implied by our forward-looking statements include factors discussed in our filings with the SEC, including those disclosed under the captions “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” in our Annual Report on Form 10-K for the year ended December 31, 2015 and in our subsequent Quarterly Reports on Form 10-Q (including this Quarterly Report).


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

Overview

We are a global distributor of vehicle products, including replacement parts, components and systems used in the repair and maintenance of vehicles, specialty vehicle products and accessories, and automotive glass products.

Buyers of vehicle replacement products have the option to purchase from primarily five sources: new products produced by original equipment manufacturers ("OEMs"); new products produced by companies other than the OEMs, which are sometimes referred to as aftermarket products; recycled products obtained from salvage vehicles; used products that have been refurbished; and used 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. Collectively, we refer to these products as alternative parts because they are not new OEM products.

We are the nation’s largest provider of alternative vehicle collision replacement products and a leading provider of 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 the United Kingdom, the Benelux region (Belgium, Netherlands, and Luxembourg), Italy, Czech Republic and Switzerland. 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.

On April 21, 2016, we expanded our product offerings to include OEM and aftermarket automotive glass products through our acquisition of Pittsburgh Glass Works LLC (“PGW”). With our acquisition of PGW, we are a leading global distributor and manufacturer of automotive glass products reaching most major markets in North America, Europe, and Asia.

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

Our revenue, cost of goods sold, and 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 discussed in Forward-Looking Statements above. Due to these factors and others, which may be unknown to us at this time, our operating results in future periods can be expected to fluctuate. Accordingly, our historical results of operations may not be indicative of future performance.

Acquisitions and Investments

Since our inception in 1998, we have pursued a growth strategy through both organic growth and acquisitions. We have pursued acquisitions that we believe will help drive profitability, cash flow and stockholder value. We target companies

that are market leaders, will expand our geographic presence and will enhance our ability to provide a wide array of automotive products to our customers through our distribution network.

On April 21, 2016, LKQ acquired PGW, a leading global distributor and manufacturer of automotive glass products. PGW’s business comprises wholesale and retail distribution services, automotive glass manufacturing, and retailer alliance partnerships. The acquisition expands our addressable market in North America and globally. Additionally, we believe the acquisition will create potential distribution synergies with our existing network.

In addition to our acquisitions of Rhiag and PGW, we acquired five wholesale businesses in Europe, and one wholesale business in North America during the nine months ended September 30, 2016 .

In October 2016, we acquired substantially all of the business assets of Andrew Page Limited, a distributor of aftermarket automotive parts in the United Kingdom; the acquisition is subject to customary regulatory approval from the Competition and Markets Authority in the U.K.

During the year ended December 31, 2015, we completed 18 acquisitions, including 4 wholesale businesses in North America and 12 wholesale businesses in Europe, a self service retail operation, and a specialty vehicle aftermarket business. Our wholesale business acquisitions in North America included PartsChannel, Inc. ("Parts Channel"), an aftermarket collision parts distributor. The specialty aftermarket business acquired was The Coast Distribution System, Inc. ("Coast"), a supplier of replacement parts, supplies and accessories for the RV and outdoor recreation markets. Our European acquisitions included 11 aftermarket parts distribution businesses in the Netherlands, 9 of which were former customers of and distributors for our Netherlands subsidiary, Sator, and were acquired with the objective of expanding our distribution network in the Netherlands. Our other acquisitions completed in 2015 enabled us to expand our geographic presence.

See Note 2, "Business Combinations " to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to our acquisitions.

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 and related services including (i) aftermarket, other new and refurbished products; (ii) recycled, remanufactured and related products and services; and (iii) manufactured products. Our service revenue is generated primarily from the sale of extended warranties, fees for admission to our self service yards, and processing fees related to the secure disposal of vehicles. During the nine months ended September 30, 2016 , parts and services revenue represented approximately 95% of our consolidated revenue.

The majority of our parts and services revenue is generated from the sale of vehicle replacement products to collision and mechanical repair shops. In North America, our vehicle replacement products include sheet metal crash parts such as doors, hoods, and fenders; bumper covers; mirrors and grills; head and tail lamps; wheels; and large mechanical items such as engines and transmissions. In Europe, our products include a wide variety of small mechanical products such as filters, belts and hoses, spark plugs, alternators and water pumps, batteries, suspension and brake parts, clutches, and oil and lubricants. The demand for these products is influenced by several factors, including the number of vehicles in operation, the number of miles being driven, the frequency and severity of vehicle accidents, the age profile of vehicles in accidents, seasonal weather patterns and local weather conditions, and the availability and pricing of new OEM parts. With respect to collision related products, automobile insurers exert significant influence over collision repair shops as to how an insured vehicle is repaired and the cost level of the products used in the repair process. Accordingly, we consider automobile insurers to be key demand drivers of our vehicle replacement products. While they are not our direct customers, we do provide insurance carriers services in an effort to promote the increased usage of alternative replacement products in the repair process. Such services include the review of vehicle repair order estimates, direct quotation services to insurance company adjusters, and an aftermarket parts quality and service assurance program. We neither charge a fee to the insurance carriers for these services nor adjust our pricing of products for our customers when we perform these services for insurance carriers. There is no standard price for many of our vehicle replacement products, but rather a pricing structure that varies from day to day based upon such factors as new OEM product prices, product availability, quality, demand, the age and mileage of the vehicle from which a recycled part was obtained, competitor pricing and our product cost.

Our revenue from aftermarket, other new and refurbished products also includes revenue generated from the sale of specialty aftermarket vehicle equipment and accessories. These products are primarily sold to a large customer base of specialty vehicle retailers and equipment installers, including mostly independent, single-site operators. Specialty vehicle aftermarket

products are typically installed on vehicles within the first year of ownership to enhance functionality, performance or aesthetics. As a result, the demand for these products is influenced by new and used vehicle sales and the overall economic health of vehicle owners, which may be affected by general business conditions, interest rates, inflation, consumer debt levels and other matters that influence consumer confidence and spending. The prices for our specialty vehicle products are based on manufacturers' suggested retail prices, with discounts applied based on prevailing market conditions, customer volumes and promotions that we may offer from time to time.

With our April 21, 2016 acquisition of PGW, we present a new revenue product category, manufactured products, which includes revenue from the production and fabrication of shaped glass parts and attachment of assemblies. Products include laminated, laminated coated, and tempered glass parts, which are delivered either directly to the assembly lines of vehicle manufacturers or to other suppliers performing additional complex assemblies. Additionally, our revenue from aftermarket, other new and refurbished products includes revenue generated from the distribution of purchased and internally manufactured automotive replacement glass and assemblies, such as backlites, roof panels, sidelites, windshields, and glass installation accessories. These products are sold primarily to glass repair and replacement shops, and prices for these products are based on manufacturers' suggested retail prices, with discounts applied based on prevailing market conditions, customer volumes and promotions that we may offer from time to time.

For the nine months ended September 30, 2016 , revenue from other sources represented approximately 5% of our consolidated sales. These other sources include scrap sales, bulk sales to mechanical remanufacturers (including cores), and sales of aluminum ingots and sows from our furnace operations. We derive scrap metal from several sources, including vehicles that have been used in both our wholesale and self service recycling operations and from OEMs and other entities that contract with us for secure disposal of "crush only" vehicles. Other revenue will vary from period to period based on fluctuations in commodity prices and the volume of materials sold.

Cost of Goods Sold

Our cost of goods sold for aftermarket products includes the price we pay for the parts, freight, and overhead costs related to the purchasing, warehousing and distribution of our inventory, including labor, facility and equipment costs and depreciation. Our aftermarket products are acquired from a number of vendors. Our cost of goods sold for refurbished products includes the price we pay for cores, freight, and costs to refurbish the parts, including direct and indirect labor, facility and equipment costs, depreciation and other overhead related to our refurbishing operations. Our cost of goods sold for manufactured automotive glass products includes the price we pay for raw materials, freight, and costs to produce the parts, including direct and indirect labor, facility and equipment costs, depreciation, energy costs and other overhead related to our glass operations.

Our cost of goods sold for recycled products includes the price we pay for the salvage vehicle and, where applicable, auction, towing and storage fees. Prices for salvage vehicles may be impacted by a variety of factors, including the number of buyers competing to purchase the vehicles, the demand and pricing trends for used vehicles, the number of vehicles designated as “total losses” by insurance companies, the production level of new vehicles (which provides the source from which salvage vehicles ultimately come), the age of vehicles at auction and the status of laws regulating bidders or exporters of salvage vehicles. From time to time, we may also adjust our buying strategy to target vehicles with different attributes (for example, age, level of damage, and revenue potential). Due to changes relating to these factors, we have seen the prices we pay for salvage vehicles fluctuate over time. Our cost of goods sold also includes labor and other costs we incur to acquire and dismantle such vehicles. Our labor and labor-related costs related to acquisition and dismantling generally account for between 9% and 11% of our cost of goods sold for vehicles we dismantle. The acquisition and dismantling of salvage vehicles is a manual process and, as a result, energy costs are not material. Our cost of goods sold for remanufactured products includes the price we pay for cores; freight; and costs to remanufacture the products, including direct and indirect labor, facility and equipment costs, depreciation and other overhead related to our remanufacturing operations.

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-year warranty against defects. We also provide a limited lifetime warranty for certain of our aftermarket products that is supported by certain of the suppliers of those products. We record the estimated warranty costs at the time of sale using historical warranty claims information to project future warranty claims activity and related expenses.

Other revenue is primarily generated from the hulks and unusable parts of the vehicles we acquire for our wholesale and self service recycled product operations, and therefore, the costs of these sales include the proportionate share of the price we pay for the salvage vehicles as well as the applicable auction, storage and towing fees and internal costs to purchase and dismantle the vehicles. Our cost of goods sold for other revenue will fluctuate based on the prices paid for salvage vehicles, which may be impacted by a variety of factors as discussed above.

Expenses

Our facility and warehouse expenses primarily include our costs to operate our aftermarket warehouses, salvage yards and self service retail facilities. These costs include personnel expenses such as wages, incentive compensation and employee benefits for plant management and facility and warehouse personnel, as well as rent for our facilities and related utilities, property taxes, repairs and maintenance. The costs included in facility and warehouse expenses do not relate to inventory processing or conversion activities and, as such, are classified below the gross margin line on our Unaudited Condensed Consolidated Statements of Income.

Our distribution expenses primarily include our costs to prepare and deliver our products to our customers, except for PGW's OEM glass products, which are generally picked up at our facilities by the customer. PGW's distribution costs thus tend to be lower than our other businesses. Included in our distribution expense category are personnel costs such as wages, employee benefits and incentive compensation for drivers; third party freight costs; fuel; and expenses related to our delivery and transfer trucks, including vehicle leases, repairs and maintenance and insurance.

Our selling and marketing expenses primarily include salary, commission and other incentive compensation expenses for sales personnel; advertising, promotion and marketing costs; credit card fees; telephone and other communication expenses; and bad debt expense. Personnel costs generally account for between 70% and 75% of our selling and marketing expenses. Most of our sales personnel are paid on a commission basis. The number and quality of our sales force is critical to our ability to respond to our customers’ needs and increase our sales volume. Our objective is to continually evaluate our sales force, develop and implement training programs, and utilize appropriate measurements to assess our selling effectiveness.

Our general and administrative expenses primarily include the costs of our corporate offices and field support center, which provide management, treasury, accounting, legal, payroll, business development, human resources and information systems functions. General and administrative expenses include wages, benefits, stock-based compensation and other incentive compensation for corporate, regional and administrative personnel; information systems support and maintenance expenses; research and development expenses; and accounting, legal and other professional fees.

Seasonality

Our operating results are subject to quarterly variations based on a variety of factors, influenced primarily by seasonal changes in weather patterns. During the winter months, we tend to have higher demand for our vehicle replacement products because there are more weather related accidents, which generate repairs. We expect our specialty vehicle operations to generate greater revenue and earnings in the first half of the year, when vehicle owners tend to install this equipment. We expect our aftermarket glass operations to generate greater revenue and earnings in the second and third quarters, when the demand for glass replacements increases after the winter weather. Operating results in our OEM glass operations fluctuate from quarter to quarter based on manufacturer production schedules, although production tends to slow down in late summer and near holidays, especially at calendar year-end.

Critical Accounting Policies and Estimates

The discussion and analysis of our financial condition and results of operations are based upon our unaudited condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates, assumptions, and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. Our Annual Report on Form 10-K for the fiscal year ended December 31, 2015 , which we filed with the SEC on February 25, 2016, includes a summary of the critical accounting policies and estimates we believe are the most important to aid in understanding our financial results. There have been no changes to those critical accounting policies or estimates that have had a material impact on our reported amounts of assets, liabilities, revenue or expenses during the nine months ended September 30, 2016 .

Goodwill Impairment

We are required to test our goodwill for impairment at least annually or whenever events or circumstances indicate that impairment may have occurred. In 2015, we performed the step one goodwill impairment test for our Self Service reporting unit; the results of our analysis indicated that the fair value of the Self Service reporting unit exceeded its carrying value by approximately 11%. In 2016, we have monitored the performance of our Self Service reporting unit as changes to our forecasts may result in the determination that an impairment adjustment is required. As of the quarter ended September 30, 2016, the forecasts utilized in our 2015 Self Service annual impairment test remain unchanged. We will complete our annual impairment test for the Self Service reporting unit during the fourth quarter.

Recently Issued Accounting Pronouncements

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

Financial Information by Geographic Area

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

Results of Operations—Consolidated

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



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016		2015		2016		2015
Revenue	100.0	%	100.0	%	100.0	%	100.0	%
Cost of goods sold	63.0	%	61.1	%	62.0	%	60.8	%
Gross margin	37.0	%	38.9	%	38.0	%	39.2	%
Facility and warehouse expenses	7.7	%	7.9	%	7.7	%	7.6	%
Distribution expenses	7.2	%	8.7	%	7.5	%	8.3	%
Selling, general and administrative expenses	11.0	%	11.3	%	10.9	%	11.3	%
Restructuring and acquisition related expenses	0.4	%	0.2	%	0.5	%	0.2	%
Depreciation and amortization	2.2	%	1.7	%	2.0	%	1.7	%
Operating income	8.5	%	9.1	%	9.3	%	10.2	%
Other expense, net	1.0	%	0.6	%	1.1	%	0.8	%
Income before provision for income taxes	7.5	%	8.5	%	8.3	%	9.4	%
Provision for income taxes	2.4	%	2.9	%	2.7	%	3.3	%
Equity in earnings of unconsolidated subsidiaries	0.0	%	(0.1	)%	0.0	%	(0.1	)%
Net income	5.1	%	5.5	%	5.6	%	6.0	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

Three Months Ended September 30, 2016 Compared to Three Months Ended September 30, 2015

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



	Three Months Ended
	September 30,				Percentage Change in Revenue
	2016		2015		Organic		Acquisition		Foreign Exchange		Total Change
Parts & services revenue	$	2,275,323	$	1,708,691	3.7	%	32.6	%	(3.2	)%	33.2	%
Other revenue	111,507		123,041		(10.1	)%	0.8	%	(0.2	)%	(9.4	)%
Total revenue	$	2,386,830	$	1,831,732	2.8	%	30.5	%	(3.0	)%	30.3	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

The change in parts and services revenue of 33.2% represents increases of 2.3% in North America, 50.8% in Europe, 9.9% in Specialty, and the addition of Glass segment revenue with the acquisition of PGW in April 2016. The decrease in other revenue of 9.4% primarily consisted of a $12.4 million organic decline in other revenue partially offset by $1.0 million of acquisition related growth. Refer to the discussion of our segment results of operations for factors contributing to revenue changes during the third quarter of 2016 compared to the prior year period.

Cost of Goods Sold . Cost of goods sold increased to 63.0% of revenue in the third quarter of 2016 from 61.1% of revenue in the comparable prior year quarter. The increase in cost of goods sold reflects a negative effect of 1.7% and 0.8%

from our PGW and Rhiag acquisitions, respectively, which have lower gross margins than our prior year consolidated gross margin. In addition, our cost of goods sold increased 0.2% as a result of our Europe operations (excluding Rhiag). Offsetting these negative impacts was a 0.9% decrease in cost of goods sold as a percentage of revenue attributable to our wholesale and self service operations in our North America segment. Refer to the discussion of our segment results of operations for factors contributing to the changes in cost of goods sold as a percentage of revenue by segment for the three months ended September 30, 2016 compared to the three months ended September 30, 2015 .

Facility and Warehouse Expenses . As a percentage of revenue, facility and warehouse expenses for the three months ended September 30, 2016 decreased to 7.7% from 7.9% in the same period of 2015. The change in facility and warehouse expense reflects decreases of 0.6% and 0.3% from our acquisitions of PGW and Rhiag, respectively, which have lower facility and warehouse expenses as a percentage of revenue than our prior year consolidated facility and warehouse expenses. These decreases were partially offset by (i) a 0.3% increase as a percentage of revenue in our North America operations primarily as a result of a realignment of plant manager responsibilities, which shifted these expenses from selling, general, and administrative expenses to facility and warehouse expenses, and (ii) a 0.3% increase in facility and warehouse expenses as a percentage of revenue primarily due to costs associated with the opening of new branch and hub locations in our U.K. operations and additional costs associated with the partly operational Tamworth, England distribution center.

Distribution Expenses. As a percentage of revenue, distribution expenses decreased to 7.2% in the third quarter of 2016 from 8.7% in the comparable prior year quarter. The change in distribution expense reflects a positive impact of 0.9% and 0.3% from our acquisitions of Rhiag and PGW, respectively, which have lower distribution expenses as a percentage of revenue than our prior year consolidated distribution expenses. In addition, distribution expenses reflects a 0.2% favorable impact from improved fuel prices, primarily in our North America operations.

Selling, General and Administrative Expenses. Our selling, general and administrative expenses for the three months ended September 30, 2016 decreased to 11.0% of revenue from 11.3% of revenue in the prior year third quarter. The change in selling, general and administrative expense reflects a positive impact of 0.7% related to our acquisition of PGW, as this business has lower selling, general and administrative expenses as a percentage of revenue than our prior year consolidated selling, general and administrative expenses. Selling, general and administrative expense also reflects an unfavorable impact of 0.3% related to our acquisition of Rhiag, which had higher selling, general and administrative expenses as a percentage of revenue than our prior year consolidated selling, general and administrative expenses. Overall selling, general and administrative expenses as a percentage of revenue increased 0.1% due to our North America operations, with a 0.3% increase from higher personnel costs partially offset by a 0.2% decrease related to the realignment of plant manager responsibilities discussed above.

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



	Three Months Ended
	September 30,
	2016			2015			Change
Restructuring expenses	$	5,738	⁽¹⁾	$	3,382	⁽²⁾	$	2,356
Acquisition related expenses	2,674		⁽³⁾	1,196		⁽⁴⁾	1,478
Total restructuring and acquisition related expenses	$	8,412		$	4,578		$	3,834

(1)

Restructuring expenses of $2.2 million, $1.6 million, $1.6 million and $0.3 million for the quarter ended September 30, 2016 were primarily related to the integration of acquired businesses in our Specialty, North America, Glass and Europe segments, respectively. These integration activities included the closure of duplicate facilities and termination of employees in connection with the integration of recent acquisitions into our existing business.


(2)	Restructuring expenses for the third quarter of 2015 were primarily related to the integration of acquired businesses in our North America and Specialty segments. These integration activities included the closure of duplicate facilities and termination of employees in connection with the integration of recent acquisitions into our existing business.


(3)	Acquisition related expenses for the quarter ended September 30, 2016 relates primarily to potential acquisitions.


(4)	Acquisition related expenses for the third quarter of 2015 include $0.5 million for our acquisitions of four aftermarket parts distribution businesses in the Netherlands, $0.3 million for potential acquisitions, and $0.4 million related to our North America and Specialty acquisitions during the third quarter of 2015.

See Note 4, "Restructuring and Acquisition Related Expenses " to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for further information on our restructuring and integration plans.

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



	Three Months Ended
	September 30,
	2016		2015		Change
Depreciation	$	27,976	$	22,569	$	5,407	⁽¹⁾
Amortization	25,040		8,314		16,726		⁽²⁾
Total depreciation and amortization	$	53,016	$	30,883	$	22,133


(1)	The increase in depreciation expense primarily reflects the depreciation expense for property, plant and equipment recorded related to our acquisitions of Rhiag and PGW of $4.3 million and $0.9 million, respectively. The remaining increase reflects increased levels of property and equipment to support our organic related growth.


(2)	The increase in amortization expense primarily reflects amortization expense for intangibles recorded related to the acquisitions of Rhiag and PGW of $14.3 million and $3.2 million, respectively. These increases are partially offset by a decline in accelerated amortization for intangibles recognized in previous years.

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



Other expense, net for the three months ended September 30, 2015	$	11,794
Increase (decrease) due to:
Interest expense, net	12,336			⁽¹⁾
Other income, net	(350		)
Net increase	11,986
Other expense, net for the three months ended September 30, 2016	$	23,780


(1)	Additional interest primarily relates to borrowings used to fund the acquisitions of Rhiag and PGW.

Provision for Income Taxes . Our effective income tax rate was 31.7% for the three months ended September 30, 2016 , compared to 33.9% for the three months ended September 30, 2015 . The lower effective income tax rate reflects the $5.0 million discrete item for excess tax benefits from stock-based payments related to the adoption of ASU 2016-09 as described in Note 3, "Financial Statement Information" of Part I, Item 1 of this report on Form 10Q. The other discrete tax items for the three months ended September 30, 2016 and 2015 were immaterial.

Equity in Earnings of Unconsolidated Subsidiaries. In February 2016, we divested our interest in ACM Parts. In April 2016, we obtained ownership interests in three joint ventures, including glass manufacturing operations in China and Mexico, as part of our acquisition of PGW. Our equity in the net earnings of the investees was not material for the three months ended September 30, 2016.

Foreign Currency Impact . We translate our statements of income at the average exchange rates in effect for the period. Relative to the rates used during the third quarter of 2015, the value of the pound sterling used to translate the 2016 statements of income declined by 15.2% while the euro and Canadian dollar remained relatively flat. The translation effect of the change of these currencies against the U.S. dollar and realized and unrealized currency losses for the quarter resulted in a $0.01 negative effect on diluted earnings per share relative to the prior year.

Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015

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



	Nine Months Ended
	September 30,				Percentage Change in Revenue
	2016		2015		Organic		Acquisition		Foreign Exchange		Total Change
Parts & services revenue	$	6,425,637	$	5,057,955	5.1	%	24.0	%	(2.1	)%	27.0	%
Other revenue	333,362		385,759		(17.2	)%	3.8	%	(0.2	)%	(13.6	)%
Total revenue	$	6,758,999	$	5,443,714	3.5	%	22.6	%	(2.0	)%	24.2	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

The change in parts and services revenue of 27.0% represents increases of 5.1% in North America, 42.0% in Europe, 15.8% in Specialty, and the addition of Glass segment revenue with the acquisition of PGW in April 2016. The decrease in other revenue of 13.6% primarily consisted of a $66.4 million organic decline in other revenue partially offset by $14.8 million of acquisition related growth. Refer to the discussion of our segment results of operations for factors contributing to revenue changes during the nine months ended September 30, 2016 compared to the prior year period.

Cost of Goods Sold . Our cost of goods sold increased to 62.0% of revenue in the nine months ended September 30, 2016 from 60.8% of revenue in the comparable prior year period. The increase in cost of goods sold reflects a negative effect of 1.3% and 0.5% from our PGW and Rhiag acquisitions, respectively, which have lower gross margins than our prior year consolidated gross margin. The increase in cost of goods sold related to PGW includes the impact of a one-time inventory step-up adjustment recorded upon acquisition, which reduced consolidated gross margin for the year-to-date period by 0.2%. In addition, our cost of goods sold increased 0.2% as a result of mix, as we generated a greater proportion of our revenue in our Specialty operations, which has lower gross margins than our prior year consolidated gross margin. These negative impacts were partially offset by lower cost of goods sold as a percentage of revenue of 0.6% related to our self service and wholesale operations in our North America segment and a 0.2% favorable impact related to our Europe operations (excluding Rhiag). Refer to the discussion of our segment results of operations for factors contributing to the changes in cost of goods sold as a percentage of revenue by segment for the nine months ended September 30, 2016 compared to the nine months ended September 30, 2015 .

Facility and Warehouse Expenses . As a percentage of revenue, facility and warehouse expenses for the nine months ended September 30, 2016 increased to 7.7% from 7.6% in the prior year period. The change in facility and warehouse expense reflects (i) a 0.4% increase as a percentage of revenue in our North America operations primarily related to a realignment of plant manager responsibilities, which shifted these expenses from selling, general and administrative expenses to facility and warehouse expenses and (ii) a 0.3% increase as a percentage of revenue in our Europe operations for branch openings and the addition of facility costs for the partly operational Tamworth, England distribution center. These negative impacts were partially offset by decreases of 0.4% and 0.2% from our acquisitions of PGW and Rhiag, respectively, which have lower facility and warehouse expenses as a percentage of revenue than our prior year consolidated facility and warehouse expenses.

Distribution Expenses. As a percentage of revenue, distribution expenses decreased to 7.5% for the nine months ended September 30, 2016 from 8.3% in the comparable prior year period. The decrease in distribution expense reflects a positive impact of 0.4% and 0.2% from our acquisitions of Rhiag and PGW, respectively, which have lower distribution expenses as a percentage of revenue than our prior year consolidated distribution expenses. In addition, distribution expenses reflects a 0.2% favorable impact related to improvement in fuel prices, primarily in our North America operations.

Selling, General and Administrative Expenses. Our selling, general and administrative expenses for the nine months ended September 30, 2016 decreased to 10.9% of revenue from 11.3% of revenue in the prior year period. The decrease primarily relates to an improvement of 0.5% from our acquisition of PGW, which has lower selling, general, and administrative expenses than our prior year consolidated selling, general and administrative expenses. Within our North America segment, selling, general and administrative personnel expenses were flat as a percentage of revenue, as the decrease in expense as a percentage of revenue related to the realignment of plant manager responsibilities discussed above was offset by increases in selling, general and administrative personnel expenses as a percentage of revenue.

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



	Nine Months Ended
	September 30,
	2016			2015			Change
Restructuring expenses	$	13,926	⁽¹⁾	$	10,283	⁽²⁾	$	3,643
Acquisition related expenses	18,377		⁽³⁾	2,446		⁽⁴⁾	15,931
Total restructuring and acquisition related expenses	$	32,303		$	12,729		$	19,574


(1)	Restructuring expenses of $8.3 million, $2.9 million, $1.6 million and $1.1 million for the nine months ended September 30, 2016 related to the integration of acquired businesses in our Specialty, North America, Glass and Europe segments, respectively. These integration activities included the closure of duplicate facilities and termination of employees.

(2)

Restructuring expenses through the nine months ended September 30, 2015 primarily related to our October 2014 acquisition of a supplier of parts for recreational vehicles in addition to the July 2015 acquisition of Parts Channel. These integration activities included the closure of duplicate facilities and termination of employees in connection with the integration of the acquisitions into our existing business.


(3)	Acquisition related expenses for the nine months ended September 30, 2016 reflect $10.9 million and $4.1 million related to the acquisitions of Rhiag and PGW, respectively. The remaining expense was related to other completed and potential acquisitions.


(4)	Acquisition related expenses through the nine months ended September 30, 2015 included $1.5 million of external costs related to our acquisitions of eleven aftermarket parts distribution businesses in the Netherlands through the third quarter of 2015. The remaining acquisition related expenses were primarily related to potential acquisitions.

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



	Nine Months Ended
	September 30,
	2016		2015		Change
Depreciation	$	79,042	$	65,126	$	13,916	⁽¹⁾
Amortization	58,191		24,992		33,199		⁽²⁾
Total depreciation and amortization	$	137,233	$	90,118	$	47,115


(1)	The increase in depreciation expense primarily reflects depreciation expense for property, plant and equipment recorded related to our acquisitions of Rhiag and PGW of $9.0 million and $1.8 million, respectively. The remaining change reflects increased levels of property and equipment to support our organic related growth.


(2)	The increase in amortization expense primarily reflects amortization expense for intangible assets recorded related to our acquisitions of Rhiag and PGW of $30.5 million and $5.0 million, respectively. These increases are partially offset by a decline in accelerated amortization for intangibles recognized in previous years.

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



Other expense, net for the nine months ended September 30, 2015	$	43,338
Increase (Decrease) due to:
Interest expense, net	23,782			⁽¹⁾
Loss on debt extinguishment	26,650			⁽²⁾
Gains on foreign exchange contracts - acquisition related	(18,342		)	⁽³⁾
Other income, net	(3,917		)	⁽⁴⁾
Net increase	28,173
Other expense, net for the nine months ended September 30, 2016	$	71,511


(1)	Additional interest primarily relates to borrowings used to fund the acquisitions of Rhiag and PGW.


(2)	During the first quarter of 2016, we incurred a $23.8 million loss on debt extinguishment as a result of our early payment of Rhiag debt assumed as part of the acquisition, and we incurred a $2.9 million loss on debt extinguishment as a result of our January 2016 amendment to our senior secured credit agreement.


(3)	In March 2016, we entered into foreign currency forward contracts to acquire a total of €588 million used to fund the purchase price of the Rhiag acquisition. The rates under the foreign currency forwards were favorable to the spot rate on March 17, 2016, and as result, these derivatives contracts generated a gain of $18.3 million.

(4)

The change in Other income, net primarily reflects the impact of foreign currency transaction gains and losses, which was a net $2.7 million favorable impact compared to the prior year period. This includes unrealized gains and losses on foreign currency transactions and unrealized mark-to-market gains and losses on foreign currency forward contracts used to hedge the purchase of inventory in our U.K. operations. The remaining change relates to miscellaneous other income.

Provision for Income Taxes . Our effective income tax rate was 32.6% for the nine months ended September 30, 2016 , compared to 34.8% for the nine months ended September 30, 2015 . The lower effective income tax rate reflects an $11.5 million discrete item for excess tax benefits from stock-based payments related to the adoption of ASU 2016-09 as described in Note 3, "Financial Statement Information" of Part I, Item 1 of this report on Form 10Q. The other discrete tax items for the nine months ended September 30, 2016 and 2015 were immaterial.

Equity in Earnings of Unconsolidated Subsidiaries. In February 2016, we divested our interest in ACM Parts. We obtained ownership interests in three joint ventures, including glass manufacturing operations in China and Mexico, in the second quarter as part of our acquisition of PGW. Our equity in the net earnings of the investees was not material for the nine months ended September 30, 2016.

Foreign Currency Impact . We translate our statements of income at the average exchange rates in effect for the period. Relative to the rates used through the third quarter of 2015, the pound sterling and Canadian dollar rates used to translate the 2016 statements of income declined by 9.1%, and 4.7%, respectively. The euro remained flat relative to the U.S. dollar through the third quarter of 2016. The translation effect of the decline of the pound sterling and Canadian dollar against the U.S. dollar and realized and unrealized currency losses through the third quarter of 2016 resulted in an approximately $0.025 negative effect on diluted earnings per share relative to the prior year period.

Results of Operations—Segment Reporting

We have five operating segments: Wholesale – North America; Europe; Specialty; Glass; and Self Service. The Glass segment was created as part of our acquisition of PGW as the business possesses different economic characteristics and has different products and services, customers, and methods of distribution. 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 four reportable segments: North America, Europe, Specialty and Glass.

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 does not reflect our operations. Constant currency revenue and Segment EBITDA results are calculated by translating prior year revenue and Segment EBITDA in local currency using the current year's currency conversion rate. This non-GAAP financial measure has important limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of our results as reported under GAAP. Our use of this

term may vary from the use of similarly-titled measures by other issuers due to the potential inconsistencies in the method of calculation and differences due to items subject to interpretation. In addition, not all companies that report revenue or profitability on a constant currency basis calculate such measures in the same manner as we do and, accordingly, our calculations are not necessarily comparable to similarly-named measures of other companies and may not be appropriate measures for performance relative to other companies.

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



	Three Months Ended September 30,								Nine Months Ended September 30,
	2016			% of Total Segment Revenue	2015			% of Total Segment Revenue	2016			% of Total Segment Revenue	2015			% of Total Segment Revenue
Third Party Revenue
North America	$	1,046,579			$	1,037,130			$	3,214,343			$	3,127,988
Europe	770,219				511,146				2,141,186				1,508,325
Specialty	311,621				283,456				934,955				807,401
Glass	258,411				—				468,515				—
Total third party revenue	$	2,386,830			$	1,831,732			$	6,758,999			$	5,443,714
Total Revenue
North America	$	1,046,665			$	1,037,290			$	3,214,762			$	3,128,614
Europe	770,219				511,146				2,141,186				1,508,395
Specialty	312,590				284,306				937,969				809,858
Glass	258,525				—				468,703				—
Eliminations	(1,169		)		(1,010		)		(3,621		)		(3,153		)
Total revenue	$	2,386,830			$	1,831,732			$	6,758,999			$	5,443,714
Segment EBITDA
North America	$	141,054		13.5%	$	128,506		12.4%	$	452,254		14.1%	$	416,774		13.3%
Europe	72,586			9.4%	52,733			10.3%	220,066			10.3%	153,199			10.2%
Specialty	32,449			10.4%	26,075			9.2%	105,979			11.3%	91,677			11.3%
Glass	27,758			10.7%	—			n/m	51,059			10.9%	—			n/m
Total Segment EBITDA	$	273,847		11.5%	$	207,314		11.3%	$	829,358		12.3%	$	661,650		12.2%

Because our Glass segment was formed on April 21, 2016 with our PGW acquisition, the discussion of our consolidated results of operations covers the factors driving the year-over-year performance of our existing business and also discusses the effect of the Glass operations on our consolidated results. Results for the Glass segment will not have a comparative period until the second quarter of 2017.

Three Months Ended September 30, 2016 Compared to Three Months Ended September 30, 2015

North America

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



	Three Months Ended September 30,				Percentage Change in Revenue
North America	2016		2015		Organic			Acquisition ⁽³⁾		Foreign Exchange		Total Change
Parts & services revenue	$	935,959	$	914,956	2.1	%	⁽¹⁾	0.2	%	0.0	%	2.3	%
Other revenue	110,620		122,174		(10.1	)%	⁽²⁾	0.8	%	(0.1	)%	(9.5	)%
Total third party revenue	$	1,046,579	$	1,037,130	0.6	%		0.3	%	(0.0	)%	0.9	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.


(1)	Organic growth in parts and services revenue is primarily attributable to favorable pricing in our salvage operations in the third quarter of 2016 compared to the same period in 2015.


(2)	The $12 million decrease in other revenue primarily relates to a $6 million decline in revenue from metals found in catalytic converters (platinum, palladium and rhodium) due to lower volumes year over year and a $3 million decline in revenue from aluminum due to lower prices year over year.


(3)	The acquired revenue growth reflects the impact of our acquisition of two wholesale businesses and one self service retail operation acquired since the beginning of the third quarter of 2015 up to the one year anniversary of the acquisition date.

Segment EBITDA . Segment EBITDA increased $12.5 million, or 9.8%, in the third quarter of 2016 compared to the prior year third quarter. The overall increase in Segment EBITDA was partially offset by the impact of decreases in sequential scrap steel prices in our salvage and self service operations. The decline in sequential scrap steel prices decreased gross margins and had a negative impact of $2.4 million on North America Segment EBITDA and approximately half a penny negative effect on diluted earnings per share during the third quarter of 2016. This unfavorable impact resulted from the decrease in scrap steel prices between the date we purchased the car, which influences the price we pay for the car, and the date we scrapped the car, which influences the price we receive for scrapping the vehicle.

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



North America	Percentage of Total Segment Revenue
Segment EBITDA for the three months ended September 30, 2015	12.4	%
Increase (decrease) due to:
Change in gross margin	1.6	%	(1)
Change in segment operating expenses	(0.5	)%	(2)
Segment EBITDA for the three months ended September 30, 2016	13.5	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1)

The improvement in gross margin reflects a 1.0% favorable impact from our aftermarket operations, as well as a favorable impact of 0.6% from our self service operations. We experienced a 0.6% favorable impact on gross margin as a result of procurement initiatives implemented in our aftermarket operations during 2016, which reduced our product costs; the remainder of our gross margin improvement in our aftermarket operations was primarily attributable to favorable sales prices. Gross margins at our self service operations improved as a result of the continued effort to reduce car costs to offset the loss in scrap and other metal revenue.


(2)	The increase in segment operating expenses as a percentage of revenue was primarily due to a 0.8% increase in personnel costs and a 0.3% increase in freight costs. Partially offsetting these increases was (i) a 0.3% reduction in vehicle expense as a result of lower auto claims expense and reduced maintenance costs due to a younger fleet and (ii) a 0.2% improvement in fuel prices.

Europe

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



	Three Months Ended September 30,				Percentage Change in Revenue
Europe	2016		2015		Organic ⁽¹⁾		Acquisition ⁽²⁾		Foreign Exchange ⁽³⁾		Total Change
Parts & services revenue	$	769,332	$	510,279	6.7	%	54.6	%	(10.6	)%	50.8	%
Other revenue	887		867		1.5	%	10.5	%	(9.7	)%	2.3	%
Total third party revenue	$	770,219	$	511,146	6.7	%	54.6	%	(10.6	)%	50.7	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1)

In our U.K. operations, parts and services revenue grew organically by 6.9%, while in our Benelux region operations, parts and services revenue grew organically by 5.1%. Our organic revenue growth in the U.K. operations, which primarily resulted from higher sales volumes, was composed of a 5.3% increase in revenue from stores open more than 12 months and a 1.6% increase from revenue generated by 15 branch openings since the third quarter of the prior year through the one year anniversary of their respective opening dates. Organic revenue growth in our Benelux operations was primarily due to higher sales volumes.

(2)

Acquisition related growth for the third quarter of 2016 includes $266.0 million from our acquisition of Rhiag. The remainder of our acquired revenue growth reflects revenue from the start of the quarter up to the one year anniversary of the acquisition date from our acquisitions of 4 distribution companies in the Netherlands, 2 wholesale businesses in the U.K., and 2 salvage businesses in Sweden acquired since the beginning of the third quarter of 2015.


(3)	Compared to the prior year quarter, exchange rates reduced our revenue growth by $54.2 million, or 10.6%, primarily due to the strengthening of the U.S. dollar against the pound sterling in the third quarter of 2016; the euro remained flat relative to the U.S. dollar through the third quarter of 2016.

Segment EBITDA. Segment EBITDA increased $19.9 million, or 37.6%, in the third quarter of 2016 compared to the prior year third quarter. Our Europe Segment EBITDA includes a negative year over year impact of $6.4 million related to the translation of local currency results into U.S. dollars at lower exchange rates than those experienced during 2015. On a constant currency basis (i.e. excluding the translation impact), Segment EBITDA increased by $26.3 million, or 50.0%, compared to the prior year. Refer to the Foreign Currency Impact discussion within the Results of Operations - Consolidated section above for further detail regarding foreign currency impact on our results for the three months ended September 30, 2016.

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



Europe	Percentage of Total Segment Revenue
Segment EBITDA for the three months ended September 30, 2015	10.3	%
(Decrease) increase due to:
Change in gross margin	(2.1	)%	(1)
Change in segment operating expenses	1.5	%	(2)
Change in other expense, net	(0.3	)%	(3)
Segment EBITDA for the three months ended September 30, 2016	9.4	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.


(1)	The decrease in gross margin is primarily due to a 1.5% decline as a result of the acquisition of Rhiag, which has lower gross margins than our other Europe operations. In addition, our U.K. margins declined 0.5% primarily due to an increase in customer rebates and additional costs associated with the partially operational Tamworth, England distribution center.


(2)	The decrease in segment operating expenses as a percentage of revenue reflects a 2.4% decrease related to the acquisition of Rhiag, which has lower operating expenses as a percentage of revenue than our existing Europe

operations. This decrease was offset by an increase of 0.8% in facility and warehouse expenses from our U.K. operations due to increases from opening 15 new branches and 6 new hubs since the beginning of the prior year third quarter as well as the addition of facility and personnel costs for the partly operational Tamworth distribution facility.


(3)	The increase in other expense, net as a percentage of revenue reflects losses on inventory purchases denominated in a foreign currency in our U.K. operations.

Specialty

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



	Three Months Ended September 30,				Percentage Change in Revenue
Specialty	2016		2015		Organic ⁽¹⁾		Acquisition ⁽²⁾		Foreign Exchange		Total Change
Parts & services revenue	$	311,621	$	283,456	3.7	%	6.2	%	—	%	9.9	%
Other revenue	—		—		—	%	—	%	—	%	—	%
Total third party revenue	$	311,621	$	283,456	3.7	%	6.2	%	—	%	9.9	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.


(1)	Organic growth in Specialty parts and services revenue reflects an increase in service levels in various regions of North America as we continue to expand the breadth and depth of our inventory offerings and add delivery capacity to our integrated distribution network to allow us to realize synergies associated with the integration of Coast.


(2)	Acquisition related growth reflects the impact of the acquisition of Coast on August 19, 2015.

Segment EBITDA. Segment EBITDA increased $6.4 million, or 24.4%, in the third quarter of 2016 compared to the prior year third quarter.

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



Specialty	Percentage of Total Segment Revenue
Segment EBITDA for the three months ended September 30, 2015	9.2	%
Increase due to:
Change in gross margin	0.1	%	(1)
Change in segment operating expenses	1.0	%	(2)
Change in other expense, net	0.1	%
Segment EBITDA for the three months ended September 30, 2016	10.4	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1)

Gross margin for the period was relatively flat compared to the prior year period due to the offsetting effects of (i) a 0.4% favorable impact from the timing of recognizing certain advertising credits in comparison to the prior year quarter and (ii) a 0.3% increase in inventory costs, which were higher due to the stocking of two distribution centers in the third quarter of 2016 which were not yet operational in the prior year period.


(2)	The decrease in segment operating expenses primarily reflects a (i) 0.4% improvement in bad debt expense due to improved customer collections, (ii) 0.3% improvement from the timing of advertising expense recognition, as we recognized more advertising expense in the first half of 2016, and (iii) 0.3% improvement related to Coast synergies.

Nine Months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015

North America

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



	Nine Months Ended September 30,				Percentage Change in Revenue
North America	2016		2015		Organic			Acquisition ⁽³⁾		Foreign Exchange ⁽⁴⁾		Total Change
Parts & services revenue	$	2,884,169	$	2,745,448	3.3	%	⁽¹⁾	2.0	%	(0.3	)%	5.1	%
Other revenue	330,174		382,540		(17.3	)%	⁽²⁾	3.7	%	(0.1	)%	(13.7	)%
Total third party revenue	$	3,214,343	$	3,127,988	0.8	%		2.3	%	(0.3	)%	2.8	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1)

Organic growth in parts and services revenue was primarily attributable to favorable pricing. Increased prices in our wholesale operations, primarily in our salvage operations, was a result of shifting our salvage vehicle purchasing to higher quality vehicles, which raised the average revenue per part sold. Organic revenue also grew as a result of increased sales volumes in our wholesale operations resulting from improved fill rates and in-stock rates, as well as increased purchasing levels, which contributed to a greater volume of parts available for sale. Organic revenue growth in parts and services was negatively affected by milder winter weather conditions in North America in the first quarter of 2016. The organic growth was partially offset by a negative mix impact as we saw a smaller percentage of sales from high value salvage part types in 2016.

(2)

The $52 million decrease in other revenue primarily relates to (i) a $21 million decline in revenue from metals, such as those found in catalytic converters (platinum, palladium and rhodium), aluminum wheels and copper wiring, all due to lower prices year over year, (ii) a $19 million decline in revenue from scrap steel and other metals primarily related to lower prices, and (iii) a $13 million reduction due to the sale of our precious metals business late in the second quarter of 2015.


(3)	The acquired revenue growth reflects the impact of our acquisition of five wholesale businesses and one self service retail operation acquired since the beginning of 2015 up to the one year anniversary of the acquisition date.


(4)	Compared to the prior year, exchange rates reduced our revenue growth by 0.3%, primarily due to the strengthening of the U.S. dollar against the Canadian dollar in the first nine months of 2016 compared to the prior year period.

Segment EBITDA . Segment EBITDA increased $35.5 million, or 8.5%, in the first nine months of 2016 compared to the prior year period. While other revenue for the first nine months of 2016 decreased from the prior year period, increases in sequential scrap steel prices in our salvage and self service operations benefited gross margins and had a favorable impact of $6.4 million on North America Segment EBITDA and approximately a $0.01 positive effect on diluted earnings per share. This favorable impact results from the increase in scrap steel prices between the date we purchased the car, which influences the price we pay for the car, and the date we scrapped the car, which influences the price we receive for scrapping the vehicle.

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



North America	Percentage of Total Segment Revenue
Segment EBITDA for the nine months ended September 30, 2015	13.3	%
Increase (decrease) due to:
Change in gross margin	1.1	%	(1)
Change in segment operating expenses	(0.4	)%	(2)
Change in other expense, net	0.1	%
Segment EBITDA for the nine months ended September 30, 2016	14.1	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.


(1)	The improvement in gross margin reflects a 0.7% favorable impact from our self service operations, as car costs have decreased by a greater percentage year over year than revenue. Within our wholesale operations, we experienced a 0.4% favorable impact on gross margin as a result of procurement initiatives implemented in our aftermarket operations during 2016, which reduced our product costs.


(2)	The increase in segment operating expenses as a percentage of revenue was primarily the result of a 0.5% increase in personnel costs as a percentage of revenue. Further contributing to the increase in operating expenses was a 0.2% increase in freight costs as a percentage of revenue, partially offset by a 0.2% improvement in fuel prices.

Europe

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



	Nine Months Ended September 30,				Percentage Change in Revenue
Europe	2016		2015		Organic ⁽¹⁾		Acquisition ⁽²⁾		Foreign Exchange ⁽³⁾		Total Change
Parts & services revenue	$	2,137,999	$	1,505,106	7.2	%	41.1	%	(6.3	)%	42.0	%
Other revenue	3,188		3,219		(10.0	)%	14.2	%	(5.2	)%	(1.0	)%
Total third party revenue	$	2,141,187	$	1,508,325	7.2	%	41.1	%	(6.3	)%	42.0	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1)

In our U.K. operations, parts and services revenue grew organically by 7.9%, while in our Benelux region operations, parts and services revenue grew organically by 5.2%. Our organic revenue growth in the U.K., which primarily resulted from higher sales volumes, was composed of a 6.3% increase in revenue from stores open more than 12 months and a 1.7% increase from revenue generated by 15 branch openings since the third quarter of the prior year through the one year anniversary of their respective opening dates. Organic revenue growth in our Benelux operations was primarily due to higher sales volumes as a result of the introduction of new product lines through the nine months ended September 30, 2016 compared to the prior year period and two additional selling days in the first nine months of 2016 compared to the prior year period.

(2)

Acquisition related growth through the third quarter of 2016 includes $584.0 million from our acquisition of Rhiag. The remainder of our acquired revenue growth reflects our acquisition of 4 distribution companies in the Netherlands, 2 wholesale businesses in the U.K., and 2 salvage businesses in Sweden acquired since the beginning of the third quarter of 2015 up to the one year anniversary of the acquisition date.


(3)	Compared to the prior year, exchange rates reduced our revenue growth by $95.2 million, or 6.3%, primarily due to the strengthening of the U.S. dollar against the pound sterling relative to the first nine months of 2015.

Segment EBITDA. Segment EBITDA increased $66.9 million, or 43.6%, in the third quarter of 2016 compared to the prior year period. Our Europe Segment EBITDA includes a negative year over year impact of $11.0 million related to the translation of local currency results into U.S. dollars at lower exchange rates than those experienced during 2015. On a constant currency basis (i.e. excluding the translation impact), Segment EBITDA increased by $77.9 million, or 50.8%, 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 nine months ended September 30, 2016.

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



Europe	Percentage of Total Segment Revenue
Segment EBITDA for the nine months ended September 30, 2015	10.2	%
(Decrease) Increase due to:
Change in gross margin	(0.5	)%	(1)
Change in segment operating expenses	0.6	%	(2)
Segment EBITDA for the nine months ended September 30, 2016	10.3	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.


(1)	The decrease in gross margin reflects a 1.1% decline in gross margin due to the acquisition of Rhiag, which has lower gross margins that our other Europe operations. This decline is partially offset by a 0.5% improvement in our Benelux

operations primarily as a result of internalizing incremental gross margin from our acquired distributors and the introduction of new product lines with higher margins than our existing product line sales.

(2)

The decrease in segment operating expenses as a percentage of revenue reflects (i) a decrease of 1.7% in operating expenses as a result of the acquisition of Rhiag, which has lower operating expenses as a percentage of revenue than our existing Europe operations and (ii) an increase in facility and warehouse expenses of 0.8% from our U.K. operations due to increases from opening 15 new branches and 6 new hubs since the prior year third quarter as well as the addition of facility and personnel costs for the Tamworth distribution facility.

Specialty

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



	Nine Months Ended September 30,				Percentage Change in Revenue
Specialty	2016		2015		Organic ⁽¹⁾		Acquisition ⁽²⁾		Foreign Exchange ⁽³⁾		Total Change
Parts & services revenue	$	934,955	$	807,401	7.3	%	8.9	%	(0.4	)%	15.8	%
Other revenue	—		—		—	%	—	%	—	%	—	%
Total third party revenue	$	934,955	$	807,401	7.3	%	8.9	%	(0.4	)%	15.8	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1)

Organic growth in Specialty parts and services revenue reflects an increase in service levels in various regions of North America as we continue to expand the breadth and depth of our inventory offerings and add delivery capacity to our integrated distribution network to allow us to realize synergies associated with the integration of Coast. In the first half of 2016, we saw growth from favorable macro trends and economic conditions, which increased consumer discretionary spending on automotive and recreational vehicle parts and accessories. In the third quarter, these macro trends and economic conditions were less favorable than the first half of the year, resulting in lower organic revenue growth during the third quarter.


(2)	Acquisition related growth reflects the impact of the acquisition of Coast on August 19, 2015.


(3)	Compared to the prior year, exchange rates reduced our revenue growth by 0.4%, primarily due to the strengthening U.S. dollar against the Canadian dollar through the third quarter of 2016 compared to the same period in the prior year.

Segment EBITDA. Segment EBITDA increased $14.3 million, or 15.6%, in the first nine months of 2016 compared to the comparative period in the prior year.

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



Specialty	Percentage of Total Segment Revenue
Segment EBITDA for the nine months ended September 30, 2015	11.3	%
(Decrease) increase due to:
Change in gross margin	(0.4	)%	(1)
Change in segment operating expenses	0.2	%	(2)
Change in other expense, net	0.2	%
Segment EBITDA for the nine months ended September 30, 2016	11.3	%
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1)

The decline in gross margin reflects (i) a 0.4% increase in inventory costs, which were higher due to the stocking of two distribution centers that were not yet operational in the prior year period and (ii) a 0.3% unfavorable gross margin impact due to customer volume rebate adjustments which have increased along with sales volume. These negative effects were partially offset by a 0.2% favorable mix effect resulting from a shift toward higher margin products, particularly truck and off road products.

(2)

The decrease in segment operating expenses reflects a 0.7% reduction in selling, general and administrative expenses primarily related to (i) a 0.2% decline in personnel costs from the realization of integration synergies and (ii) lower bad debt expense of 0.2% due to increased collection efforts and (iii) individually insignificant decreases across various selling, general and administrative expense categories totaling 0.3%. These positive effects were offset by an increase in facility and warehouse expense of 0.4% from the addition of two distribution facilities in late 2015 and the higher cost of Coast facilities in comparison to the rest of our Specialty business.

Liquidity and Capital Resources

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



	September 30, 2016		December 31, 2015		September 30, 2015
Cash and equivalents	$	271,851	$	87,397	$	137,086
Total debt ⁽¹⁾	3,289,924		1,599,695		1,607,230
Net debt (total debt less cash and equivalents)	3,018,073		1,512,298		1,470,144
Current maturities ⁽²⁾	77,311		57,494		37,174
Capacity under credit facilities ⁽³⁾	2,547,000		1,947,000		1,947,000
Availability under credit facilities ⁽³⁾	1,177,082		1,337,653		1,310,517
Total liquidity (cash and equivalents plus availability under credit facilities)	1,448,933		1,425,050		1,447,603

⁽¹⁾ Debt amounts reflect the gross values to be repaid (excluding debt issuance costs of $25.8 million , $15.0 million , and $15.8 million as of September 30, 2016 , December 31, 2015 and September 30, 2015 , respectively).

⁽²⁾ Debt amounts reflect the gross values to be repaid (excluding debt issuance costs of $2.5 million , $1.5 million and $1.5 million as of September 30, 2016 , December 31, 2015 and September 30, 2015 , respectively).

⁽³⁾ Includes our revolving credit facilities, our receivables securitization facility, and 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 or paying down outstanding debt. As we have pursued acquisitions as part of our 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.

As of September 30, 2016 , we had debt outstanding and additional available sources of financing as follows:

•

Senior secured credit facilities maturing in January 2021, composed of a term loan of $500 million and a €230 million term loan ( $749 million of term loans outstanding at September 30, 2016 ) and $2.45 billion in revolving credit ( $1.20 billion outstanding at September 30, 2016 ), bearing interest at variable rates (although a portion of this debt is hedged through interest rate swap contracts) reduced by $70.9 million of amounts outstanding under letters of credit


•	Senior Notes totaling $600 million , maturing in May 2023 and bearing interest at a 4.75% fixed rate


•	Euro Notes totaling $562 million (€500 million), maturing in April 2024 and bearing interest at a 3.875% fixed rate


•	Receivables securitization facility with availability up to $97 million ( $97 million outstanding as of September 30, 2016 ), maturing in October 2017 and bearing interest at variable commercial paper rates

From time to time, we may undertake financing transactions to increase our available liquidity, such as our January 2016 amendment to our senior secured credit facilities and the issuance of €500 million of Euro Notes in April 2016. The Rhiag acquisition was the catalyst for the April 2016 issuance of €500 million of Euro Notes. Given that Rhiag is a long term asset, we considered alternative financing options and decided to fund a portion of this acquisition through the issuance of long term notes. Additionally, the interest rates on Rhiag's acquired debt ranged between 6.45% and 7.25%. With the issuance of the €500 million of senior notes at a rate of 3.875%, we were able to replace Rhiag's borrowings with long term financing at favorable rates. This refinancing also provides financial flexibility to execute our long-term growth strategy by freeing up availability

under our revolver. If we see an attractive acquisition opportunity, we have the ability to use our revolver to move quickly and have certainty of funding.

As of September 30, 2016 , we had approximately $1.2 billion available under our credit facilities. Combined with approximately $272 million of cash and equivalents at September 30, 2016 , we had approximately $1.4 billion in available liquidity, an increase of $24 million over our available liquidity as of December 31, 2015.

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, although such sources may not be sufficient for future acquisitions depending on their size. While we believe that we currently have adequate capacity, from time to time we may need to raise additional funds through public or private financing, strategic relationships or other arrangements. 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.

Borrowings under the credit agreement accrue interest at variable rates which are tied to LIBOR or CDOR, depending on the currency and the duration of the borrowing, plus an applicable margin rate which is subject to change quarterly based on our reported leverage ratio. We hold interest rate swaps to hedge the variable rates on our credit agreement borrowings (as described in Note 9, "Derivative Instruments and Hedging Activities " to the unaudited condensed consolidated financial statements in Part I, Item I of this Quarterly Report on Form 10-Q), with the effect of fixing the interest rates on the respective notional amounts. After giving effect to these interest rate swap contracts, the weighted average interest rate on borrowings outstanding under our credit facilities at September 30, 2016 was 2.2% . Including our senior notes and the borrowings on our receivables securitization program, our overall weighted average interest rate on borrowings was 2.9% at September 30, 2016 .

Cash interest payments were $65.9 million for the nine months ended September 30, 2016 , including a $14.2 million semi-annual interest payment related to our Senior Notes. The semi-annual interest payments on our Senior Notes are made in May and November each year. In September 2016, we made our first semi-annual interest payment on our Euro Notes totaling €9 million ($10.1 million); the remaining semi-annual interest payments on our Euro Notes will be made in October and April each year. In the first quarter of 2016, we also paid $8.0 million of interest as part of the settlement of Rhiag's acquired debt and $4.9 million to settle the acquired Rhiag interest rate swap.

We had outstanding credit agreement borrowings of $2.0 billion and $0.9 billion at September 30, 2016 and December 31, 2015 , respectively. Of these amounts, $33.2 million and $22.5 million were classified as current maturities at September 30, 2016 and December 31, 2015 , respectively.

The scheduled maturities of long-term obligations outstanding at September 30, 2016 are as follows (in thousands):



Three months ending December 31, 2016	$	41,660
Years ending December 31:
2017	143,720
2018	42,809
2019	40,685
2020	39,724
2021	1,795,645
Thereafter	1,185,681
Total debt	$	3,289,924

⁽¹⁾ Debt amounts reflect the gross values to be repaid (excluding debt issuance costs of $25.8 million as of September 30, 2016 ).

Our credit agreement contains customary covenants that provide limitations and conditions on our ability to enter into certain transactions. The credit agreement also contains financial and affirmative covenants, including limitations on our net leverage ratio and a minimum interest coverage ratio. We were in compliance with all restrictive covenants under our credit agreement as of September 30, 2016 .

As of September 30, 2016 , the Company had cash of $271.9 million , of which $226.1 million was held by foreign subsidiaries. We consider the undistributed earnings of these foreign subsidiaries to be indefinitely reinvested, and accordingly, no provision for U.S. income taxes has been provided thereon. Should these earnings be repatriated in the future, in the form of dividends or otherwise, we would be subject to both U.S. income taxes (subject to adjustment for foreign tax credits) and

potential withholding taxes payable to the various foreign countries. We believe that we have sufficient cash flow and liquidity to meet our financial obligations in the U.S. without resorting to repatriation of foreign earnings.

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

The following table sets forth a summary of our aftermarket and manufactured inventory procurement for the three and nine months ended September 30, 2016 and 2015 (in thousands):



	Three Months Ended							Nine Months Ended
	September 30,							September 30,
	2016		2015		Change			2016		2015		Change
North America	$	250,000	$	251,200	$	(1,200	)	$	769,100	$	740,800	$	28,300	⁽¹⁾
Europe	596,107		306,412		289,695			1,464,207		830,976		633,231		⁽²⁾
Specialty	222,659		189,710		32,949			722,059		564,176		157,883		⁽³⁾
Glass	197,968		—		197,968			364,968		—		364,968		⁽⁴⁾
Total	$	1,266,734	$	747,322	$	519,412		$	3,320,334	$	2,135,952	$	1,184,382


(1)	In North America, aftermarket purchases during the nine months ended September 30, 2016 increased primarily as a result of our July 2015 acquisition of Parts Channel coupled with lower purchase levels in the first quarter of 2015 due to accelerated purchases in the fourth quarter of 2014 in anticipation of potential labor issues at West Coast ports in the United States.

(2)

In our Europe segment, the increase in purchases was primarily due to our acquisition of Rhiag in March 2016, which added incremental purchases of $236.1 million in the third quarter of 2016 and $498.7 million year to date. Purchases for our U.K. operations increased in the three and nine months ended September 30, 2016 compared to the prior year periods primarily as a result of opening six new hubs since the prior year third quarter and incremental inventory purchases to stock the Tamworth, England national distribution center. Purchases in our Netherlands operations increased as a result of organic and acquisition related growth. These increases were partially offset by the devaluation of the pound sterling in the nine months of 2016 compared to the prior year period.

(3)

The increase in Specialty aftermarket purchases during the three and nine months ended September 30, 2016 is primarily due to (i) accelerated inventory purchases to stock two new distribution centers during the first quarter of 2016, (ii) additional purchases to support the increased sales volume as a result of the Coast acquisition, and (iii) additional inventory purchases in 2016 due to stronger than anticipated sales volumes as a result of our annual trade shows.


(4)	Glass inventory purchases reflect inventory purchases made during the three and nine months ended September 30, 2016 as a result of our April 2016 acquisition of PGW. The amount includes purchases of raw materials used in PGW's manufacturing and fabrication of automotive glass products as well as purchases of aftermarket and refurbished automotive replacement glass and assemblies.

The following table sets forth a summary of our global salvage and self service procurement for the three and nine months ended September 30, 2016 and 2015 (in thousands):



	Three Months Ended				Nine Months Ended
	September 30,				September 30,
	2016	2015	% Change		2016	2015	% Change
North America Wholesale salvage cars and trucks	70	71	(1.4	)%	214	216	(0.9	)%
Europe Wholesale salvage cars and trucks	5	5	—	%	17	16	6.3	%
Self service and "crush only" cars	132	128	3.1	%	395	359	10.0	%	⁽¹⁾


(1)	Compared to the the prior year period, we increased our purchases of lower cost self service and "crush only" cars as prices for vehicles have come down in certain markets due to the decline in the prices of scrap and other metals, allowing us to purchase higher quality vehicles at favorable prices.

Net cash provided by operating activities totaled $524.2 million for the nine months ended September 30, 2016 , compared to $505.0 million during the nine months ended September 30, 2015 . During the first nine months of 2016, our EBITDA, excluding $18.3 million in gains on foreign currency forwards that are reflected in investing activities, increased by $142.7 million compared to the first nine months of 2015, due to both acquisition related growth and organic growth. Additionally, we recognized in costs of goods sold a $10.2 million non-cash inventory step-up adjustment in the second quarter of 2016 related to the sale of inventory acquired at the time of our PGW acquisition.

Cash outflows for our primary working capital accounts (receivables, inventory and payables) totaled $31.7 million during the nine months ended September 30, 2016 , compared to a $4.9 million cash inflow during the comparable period in 2015. 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 and can be influenced by factors outside of our control. However, we expect that the net change in these working capital items will generally be a cash outflow as we grow our business each year. Cash outflows related to receivables were $40.1 million higher in the first nine months of 2016 than the prior year period. The increase in accounts receivable is primarily related to our U.K. operations as a result of increased sales; the remaining increase primarily related to our Specialty operations, which experienced larger growth in receivables balances during the first nine months of 2016 than the prior year period from organic and acquisition revenue growth.

Cash paid for interest increased by $30.5 million in 2016 primarily as a result of payments for interest on the assumed Rhiag debt upon redemption in addition to payments to terminate Rhiag interest rate swaps and the interest on the debt to acquire PGW and Rhiag. Cash paid for taxes increased by $46.5 million during the first nine months of 2016 compared to the prior year period as a result of growth in the business, primarily related to our Rhiag and PGW acquisitions.

Net cash used in investing activities totaled $1.42 billion for the nine months ended September 30, 2016 , compared to $253.8 million during the nine months ended September 30, 2015 . We invested $1.30 billion of cash, net of cash acquired, in business acquisitions during the nine months ended September 30, 2016 , which included $601.4 million for our Rhiag acquisition and $661.9 million for our PGW acquisition, compared to $157.4 million for business acquisitions in the comparable period in 2015 . Property, plant and equipment purchases were $152.7 million in the nine months ended September 30, 2016 compared to $99.6 million in the comparable period in 2015 . Purchases of property, plant and equipment increased over the prior period primarily as a result of increases of $25 million, $18 million, and $10 million in our North America, Glass and Europe segments, respectively. In the first nine months of 2016, we entered into foreign currency contracts to fund the purchase price of the Rhiag acquisition, which generated $ 18.3 million of gains; we had no such contracts in the prior year period. During the nine months ended September 30, 2016 , cash provided by other investing activities, net was $10.8 million primarily from proceeds on the sale of our interest in our Australian joint venture.

Net cash provided by financing activities totaled $1.09 billion for the nine months ended September 30, 2016 , compared to $226.6 million in net cash used in financing activities during the nine months ended September 30, 2015 . During the nine months ended September 30, 2016 , net borrowings under our credit facilities were $1.09 billion compared to net repayments of $173.4 million during the nine months ended September 30, 2015 . The increase in borrowings during the first nine months of 2016 is primarily the result of borrowings under our multi-currency revolving credit facility in order to fund the acquisitions of Rhiag and PGW and repay $543.3 million of Rhiag acquired debt and debt related liabilities. Our January 2016 amendment of our credit facilities generated $338.5 million in additional term loan borrowings, a portion of which was used to repay outstanding revolver borrowings. In April 2016, we issued the Euro Notes generating proceeds of $563.5 million . The proceeds from the Euro Notes were used to repay a portion of the borrowings on the revolving credit facility. In connection with our January 2016 amendment of our credit facilities and our April 2016 issuance of the Euro Notes, we paid $16.4 million of debt issuance costs during the nine months ended September 30, 2016 ; no such costs were incurred in the prior year period.

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, the costs and timing of expansion of our sales and marketing activities, and the costs and timing of future business acquisitions.

Off-Balance Sheet Arrangements and Future Commitments

In the Management's Discussion and Analysis section of our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2016 filed with the SEC on August 2, 2016, we disclosed our contractual obligations as of June 30, 2016 due to the material changes to those obligations resulting from the acquisitions of Rhiag and PGW. There have been no material changes to the information contained in those disclosures as of September 30, 2016.


Item 3.	Quantitative and Qualitative Disclosures About Market Risk

Our results of operations are exposed to changes in interest rates primarily with respect to borrowings under our credit facilities, where interest rates are tied to the prime rate, LIBOR or CDOR. Therefore, we implemented a policy to manage our exposure to variable interest rates on a portion of our outstanding variable rate debt instruments through the use of interest rate swap contracts. These contracts convert a portion of our variable rate debt to fixed rate debt, matching the currency, effective dates and maturity dates to specific debt instruments. Net interest payments or receipts from interest rate swap contracts are included as adjustments to interest expense. All of our interest rate swap contracts have been executed with banks that we believe are creditworthy (Wells Fargo Bank, N.A., Bank of America, N.A., RBS Citizens, N.A., Fifth Third Bank and HSBC Bank USA, N.A.).

As of September 30, 2016 , we held 14 interest rate swap contracts representing a total of $760 million of U.S. dollar-denominated notional amount debt, and £50 million of pound sterling-denominated notional amount debt. Our interest rate swap contracts are designated as cash flow hedges and modify the variable rate nature of that portion of our variable rate debt. These swaps have maturity dates ranging from October 2016 through June 2021. We have swaps expiring in the fourth quarter of 2016 totaling $170 million of U.S dollar-denominated notional amount debt and £50 million of pound sterling-denominated notional amount debt.

In total, we had 36% of our variable rate debt under our credit facilities at fixed rates at September 30, 2016 compared to 29% at December 31, 2015 . The fair market value of our swap contracts was a net liability of $2.2 million. The values of such contracts are subject to changes in interest rates. See Note 9, "Derivative Instruments and Hedging Activities " to the unaudited condensed consolidated financial statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to our interest rate swaps.

At September 30, 2016 , we had $1.3 billion of variable rate debt that was not hedged. Using sensitivity analysis, a 100 basis point movement in interest rates would change interest expense by $13.4 million over the next twelve months.

Additionally, we are exposed to currency fluctuations with respect to the purchase of aftermarket products from foreign countries. The majority of our foreign inventory purchases are from manufacturers based in Taiwan. While our transactions with manufacturers based in Taiwan are conducted in U.S. dollars, changes in the relationship between the U.S. dollar and the Taiwan dollar might impact the purchase price of aftermarket products. Our aftermarket operations in Canada, which also purchase inventory from Taiwan in U.S. dollars, are further subject to changes in the relationship between the U.S. dollar and the Canadian dollar. Our aftermarket operations in the U.K. source a portion of their inventory from Taiwan and from other European countries and China, resulting in exposure to changes in the relationship of the pound sterling against the euro and the U.S. dollar. Our aftermarket operations in continental Europe source a portion of their inventory from the Czech Republic as well as Taiwan, resulting in exposure to changes in the relationship of the euro against the Czech koruna and the U.S. dollar. We hedge our exposure to foreign currency fluctuations for certain of our purchases in our European operations, but the notional amount and fair value of these foreign currency forward contracts at September 30, 2016 were immaterial. We do not currently attempt to hedge our foreign currency exposure related to our foreign currency denominated inventory purchases in our North American operations, and we may not be able to pass on any price increases to our customers.

Foreign currency fluctuations may also impact the financial results we report for the portions of our business that operate in functional currencies other than the U.S. dollar. Our operations in Europe and other countries represented 37.3% of our revenue during the nine months ended September 30, 2016 . An increase or decrease in the strength of the U.S. dollar against these currencies by 10% would result in a 4% change in our consolidated revenue and a 3% change in our operating income for the nine months ended September 30, 2016 . See discussion of our Results of Operations in Part I, Item 2 of this Quarterly Report on Form 10-Q for additional information regarding the impact of fluctuations in exchange rates on our year over year results.

Other than with respect to a portion of our foreign currency denominated inventory purchases in the U.K. and continental Europe, we do not hold derivative contracts to hedge foreign currency risk. Our net investment in foreign operations is partially hedged by the foreign currency denominated borrowings we use to fund foreign acquisitions. Additionally, we have elected not to hedge the foreign currency risk related to the interest payments on these borrowings as we generate Canadian dollar, pound sterling and euro cash flows that can be used to fund debt payments. As of September 30, 2016 , we had amounts outstanding under our term loan agreement of €227.1 million, our Euro Notes of €500 million, and our revolving credit facilities of €27.5 million, £79.2 million, CAD $130.4 million, and SEK 78.0 million.

We are also exposed to market risk related to price fluctuations in scrap metal and other metals. Market prices of these metals affect the amount that we pay for our inventory as well as the revenue that we generate from sales of these metals. As both our revenue and costs are affected by the price fluctuations, we have a natural hedge against the changes. However, there is typically a lag between the effect on our revenue from metal price fluctuations and inventory cost changes and there is no guarantee that vehicle costs will decrease at the same rate as the metal prices. Therefore, we can experience positive or negative gross margin effects in periods of rising or falling metals prices, particularly when such prices move rapidly. If market prices

were to fall at a greater rate than our vehicle acquisition costs, we could experience a decline in operating margin. Scrap metal prices have increased 43% since the fourth quarter of 2015.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As of September 30, 2016 , the end of the period covered by this Quarterly Report on Form 10-Q, an evaluation was carried out under the supervision and with the participation of LKQ Corporation's management, including our Chief Executive Officer and our Chief Financial Officer, of our "disclosure controls and procedures" (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that the Company's disclosure controls and procedures were effective in providing reasonable assurance that information we are required to disclose in this Quarterly Report on Form 10-Q has been recorded, processed, summarized and reported as of the end of the period covered by this Quarterly Report on Form 10-Q. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports we file under the Securities Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended September 30, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II

OTHER INFORMATION

Item 1A. Risk Factors

Our operations and financial results are subject to various risks and uncertainties that could adversely affect our business, financial condition and results of operations, and the trading price of our common stock. Please refer to our 2015 Annual Report on Form 10-K, filed with the SEC on February 25, 2016, and our Quarterly Reports on Form 10-Q filed subsequent to the Annual Report on Form 10-K, for information concerning risks and uncertainties that could negatively impact us.

Item 6. Exhibits

Exhibits

(b) Exhibits



4.1	Supplemental Indenture dated as of September 9, 2016 among LKQ Corporation, as Issuer, certain subsidiaries of LKQ Corporation, as Guarantors, and U.S. Bank National Association, as Trustee.
4.2	Supplemental Indenture dated as of September 9, 2016 among LKQ Corporation, LKQ Italia Bondco S.p.A., as Issuer, certain subsidiaries of LKQ Corporation, as Guarantors, and BNP Paribas Trust Corporation UK Limited, as Trustee.
10.1	LKQ Corporation 1998 Equity Incentive Plan, as amended.
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a) or Rule 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1	Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2	Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

Pursuant to the requirements of Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on November 1, 2016 .



	LKQ CORPORATION

	/s/ DOMINICK ZARCONE
	Dominick Zarcone
	Executive Vice President and Chief Financial Officer
	(As duly authorized officer and Principal Financial Officer)

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

Exhibit 4.1

LKQ Glass 2 Inc.

PGW Holdings, LLC

Pittsburgh Glass Works, LLC

PGW Auto Glass, LLC

KPGW Canadian Holdco, LLC

KPGW European Holdco, LLC

To:

BNP Paribas Trust Corporation UK Limited

55 Moorgate

London EC2R 6PA

United Kingdom

To:

LKQ Italia Bondco S.p.A.

Foro Buonaparte 70

20121 - Milan

Italy

Attention: Aldo Carrabino

-by express courier, anticipated by e-mail-

Chicago, September 9, 2016

Re: Supplemental Indenture - LKQ Italia Bondco S.p.A. 3.875% Senior Notes due 2024

Dear Sirs,

as discussed, please find below our proposal regarding the Supplemental Indenture (the “ Proposal ”).

* * *

Exhibit 4.1

SUPPLEMENTAL INDENTURE (this “ Supplemental Indenture ”), dated as of September 9, 2016, among the parties identified on Schedule 1 attached hereto (each a " Guaranteeing Subsidiary ") each of which is a direct or indirect subsidiary of LKQ Corporation, a Delaware corporation (“ Parent ”), LKQ Italia Bondco S.p.A., a joint stock company ( società per azioni ) organized under the laws of the Republic of Italy and a subsidiary of Parent (the “ Issuer ”), and BNP Paribas Trust Corporation UK Limited, as trustee under the Indenture referred to herein (the “ Trustee ”).

W I T N E S S E T H

WHEREAS, the Issuer has heretofore executed and delivered to the Trustee an indenture, dated as of April 14, 2016 (the “ Indenture ”), providing for the issuance of the Issuer’s 3.875% Senior Notes due 2024 (the “ Notes ”);

WHEREAS, the Indenture provides that under certain circumstances each Guaranteeing Subsidiary shall execute and deliver to the Trustee a supplemental indenture pursuant to which such Guaranteeing Subsidiary shall unconditionally guarantee all of the Issuer’s payment obligations under the Notes and the Indenture on the terms and conditions set forth herein (the “ Note Guarantee ”); and

WHEREAS, pursuant to Section 8.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.

NOW, THEREFORE, in consideration of the foregoing and for other good and valuable consideration, the receipt of which is hereby acknowledged, each Guaranteeing Subsidiary and the Trustee mutually covenant and agree for the equal and ratable benefit of the Holders of the Notes as follows:

1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

2. AGREEMENT TO GUARANTEE. Each Guaranteeing Subsidiary hereby agrees to provide an unconditional Guarantee on the terms and subject to the conditions set forth in the Note Guarantee and in the Indenture including but not limited to Article Ten thereof.

4. NO RECOURSE AGAINST OTHERS. No director, officer, employee, incorporator member of the Board of Directors or holder of Capital Stock of the Issuer or of any Guarantor, as such, shall have any liability for any obligations of the Issuer or the Guarantors under the Notes, this Supplemental Indenture or the Note Guarantees or for any claim based on, in respect of, or by reason of, such obligations or their creation. Each Holder of Notes by accepting a Note waives and releases all such liability.

5. THIS SUPPLEMENTAL INDENTURE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, BUT WITHOUT GIVING EFFECT TO APPLICABLE PRINCIPLES OF CONFLICTS OF LAW TO THE EXTENT THAT THE APPLICATION OF THE LAW OF ANOTHER JURISDICTION WOULD BE REQUIRED THEREBY.

Exhibit 4.1

6. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof.

7. THE TRUSTEE. The Trustee shall not be responsible in any manner whatsoever for or in respect of the validity or sufficiency of this Supplemental Indenture or for or in respect of the recitals contained herein, all of which recitals are made solely by each Guaranteeing Subsidiary and the Issuer.

8. GENERAL PROVISIONS. This Supplement Indenture to be entered by exchange of correspondence. Should a “Caso d’uso”, or an “Enunciazione” or a voluntary registration be triggered after the date hereof, then the relevant applicable registration tax shall be entirely borne by the party that has triggered the “Caso d’uso” or “Enunciazione” or voluntary registration.

[Remainder of Page Intentionally Blank]

Exhibit 4.1

Schedule 1

LKQ Glass 2 Inc.

PGW Holdings, LLC

Pittsburgh Glass Works, LLC

PGW Auto Glass, LLC

KPGW Canadian Holdco, LLC

KPGW European Holdco, LLC

Exhibit 4.1

* * *

If you agree with the foregoing, please send us a copy of this letter agreement, signed by a duly authorized representative as irrevocable and unconditional acceptance of the Proposal.

Yours faithfully,

LKQ Glass 2 Inc.

PGW Holdings, LLC

Pittsburgh Glass Works, LLC

PGW Auto Glass, LLC

KPGW Canadian Holdco, LLC

KPGW European Holdco, LLC

By:

Name: Dominick Zarcone

Title: Vice President and

Chief Financial Officer

Exhibit 4.2

LKQ Glass 2 Inc.

PGW Holdings, LLC

Pittsburgh Glass Works, LLC

PGW Auto Glass, LLC

KPGW Canadian Holdco, LLC

KPGW European Holdco, LLC

To:

BNP Paribas Trust Corporation UK Limited

55 Moorgate

London EC2R 6PA

United Kingdom

To:

LKQ Italia Bondco S.p.A.

Foro Buonaparte 70

20121 - Milan

Italy

Attention: Aldo Carrabino

-by express courier, anticipated by e-mail-

Chicago, September 9, 2016

Re: Supplemental Indenture - LKQ Italia Bondco S.p.A. 3.875% Senior Notes due 2024

Dear Sirs,

as discussed, please find below our proposal regarding the Supplemental Indenture (the “ Proposal ”).

* * *

Exhibit 4.2

W I T N E S S E T H

WHEREAS, pursuant to Section 8.01 of the Indenture, the Trustee is authorized to execute and deliver this Supplemental Indenture.

1. CAPITALIZED TERMS. Capitalized terms used herein without definition shall have the meanings assigned to them in the Indenture.

Exhibit 4.2

6. EFFECT OF HEADINGS. The Section headings herein are for convenience only and shall not affect the construction hereof.

[Remainder of Page Intentionally Blank]

Exhibit 4.2

Schedule 1

LKQ Glass 2 Inc.

PGW Holdings, LLC

Pittsburgh Glass Works, LLC

PGW Auto Glass, LLC

KPGW Canadian Holdco, LLC

KPGW European Holdco, LLC

Exhibit 4.2

* * *

If you agree with the foregoing, please send us a copy of this letter agreement, signed by a duly authorized representative as irrevocable and unconditional acceptance of the Proposal.

Yours faithfully,

LKQ Glass 2 Inc.

PGW Holdings, LLC

Pittsburgh Glass Works, LLC

PGW Auto Glass, LLC

KPGW Canadian Holdco, LLC

KPGW European Holdco, LLC

By:

Name: Dominick Zarcone

Title: Vice President and

Chief Financial Officer

Exhibit 10.1

LKQ CORPORATION

1998 EQUITY INCENTIVE PLAN

(as amended as of August 8, 2016)

ARTICLE 1

ESTABLISHMENT, OBJECTIVES, AND DURATION

1.1 ESTABLISHMENT OF THE PLAN. LKQ Corporation hereby establishes an incentive compensation plan to be known as the LKQ 1998 Equity Incentive Plan (hereinafter referred to as the “PLAN”) as set forth in this document. The Plan became effective as of February 13, 1998 (the “EFFECTIVE DATE”) and shall remain in effect as provided in Section 1.3 herein.

1.2 PURPOSE OF THE PLAN. The purpose of the Plan is to benefit the Company and its Subsidiaries by enabling the Company to offer to certain present and future executives, key personnel, Non-employee Directors, consultants and other persons providing services to the Company and its Subsidiaries stock-based incentives and other equity interests in the Company, thereby giving them a stake in the growth and prosperity of the Company and encouraging the continuance of their relationship with the Company or its Subsidiaries.

1.3 DURATION OF THE PLAN. The Plan shall commence on the Effective Date and shall remain in effect, subject to the right of the Board to amend or terminate the Plan at any time pursuant to Article 15 herein, until all Shares subject to it shall have been purchased or acquired according to the Plan provisions.

ARTICLE 2

DEFINITIONS

Whenever used in the Plan, the following terms shall have the meanings set forth below, and when the meaning is intended, the initial letter of the word shall be capitalized:

“AWARD” means, individually or collectively, a grant under the Plan of Nonqualified Stock Options, Incentive Stock Options, Stock Appreciation Rights, Restricted Stock, RSUs, Performance Shares or Performance Units.

“AWARD AGREEMENT” means a writing provided by the Company to each Participant setting forth the terms and provisions applicable to Awards. The Participant’s acceptance of the terms of the Award Agreement shall be evidenced by his or her continued Service without written objection before any exercise or payment of the Award. If the Participant objects in writing, the grant of the Award shall be revoked.

“BENEFICIAL OWNER” or “BENEFICIAL OWNERSHIP” shall have the meaning ascribed to such term in Rule 13d-3 of the Exchange Act.

“BOARD” means the Board of Directors of the Company.

“CAUSE” means, with respect to a Participant’s Separation from Service, the occurrence of any one or more of the following, as determined by the Committee, in the exercise of good faith and reasonable judgment:

(a) In the case where there is no employment, change of control, or similar agreement in effect between the Participant and the Company or a Subsidiary at the time of the grant of the Award, or where there is such an agreement but the agreement does not define “cause” (or similar words) or a “cause” termination would not be permitted under such agreement at that time because other conditions were not satisfied, the Separation from Service is due to the willful and continued failure or refusal by the Participant to substantially perform assigned duties (other than any such failure resulting from the Participant’s Disability), the Participant’s dishonesty or theft, the Participant’s violation of any obligations or duties under any employee agreement, or the Participant’s gross negligence or willful misconduct; or

Exhibit 10.1

(b) In the case where there is an employment, change of control, or similar agreement in effect between the Participant and the Company or a Subsidiary at the time of the grant of the Award that defines “cause” (or similar words) and a “cause” termination would be permitted under such agreement at that time, the Separation from Service is or would be deemed to be for “cause” (or similar words) as defined in such agreement.

No act or failure to act on a Participant’s part shall be considered willful unless done, or omitted to be done, by the Participant not in good faith and without reasonable belief that his action or omission was in the best interest of the Company.

“CHANGE OF CONTROL” of the Company means:

(a) the Company is merged or consolidated or reorganized into or with another corporation or other legal person (an “ACQUIROR”) and as a result of such merger, consolidation, or reorganization less than 50% of the outstanding voting securities or other capital interests of the surviving, resulting, or acquiring corporation or other legal person are owned in the aggregate by the Stockholders, directly or indirectly, immediately prior to such merger, consolidation, or reorganization, other than by the Acquiror or any corporation or other legal person controlling, controlled by, or under common control with the Acquiror;

(b) The Company sells all or substantially all of its business and/or assets to an Acquiror, of which less than 50% of the outstanding voting securities or other capital interests are owned in the aggregate by the Stockholders, directly or indirectly, immediately prior to such sale, other than by any corporation or other legal person controlling, controlled by, or under common control with the Acquiror;

(c) There is a report filed on Schedule 13D or Schedule 14D-1 (or any successor schedule, form, or report), each as promulgated pursuant to the Exchange Act, disclosing that any Person has become the Beneficial Owner of 50% or more of the issued and outstanding shares of voting securities of the Company; or

(d) During any period of two consecutive years, individuals who at the beginning of any such period constitute the Directors cease for any reason to constitute at least a majority thereof unless the election, or the nomination for election by the Stockholders, of each new Director was approved by a vote of at least two-thirds of such Directors then still in office who were Directors at the beginning of any such period.

“CHANGE OF CONTROL PRICE” means the price per Share paid in conjunction with any transaction resulting in a Change of Control. If any part of the offered price is payable other than in cash, the value of the non-cash portion of the Change of Control Price shall be determined by the Committee as constituted immediately prior to the Change of Control.

“CODE” means the Internal Revenue Code of 1986.

“COMMITTEE” means the Committee as specified in Article 3 herein appointed by the Board to administer the Plan with respect to grants of Awards.

“COMMON STOCK” means the common stock of the Company.

“COMPANY” means LKQ Corporation, a Delaware corporation, as well as any successor to such entity as provided in Article 17 herein.

“COVERED EMPLOYEE” means a Participant who is one of the group of covered employees under Section 162(m) of the Code.

“DIRECTOR” means any individual who is a member of the Board.

“DISABILITY” means the Participant is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or which has lasted or can be expected to last for a continuous period of not less than 12 months; provided however, a Participant shall not be deemed to have a Disability unless the Participant provides proof of the existence thereof to the Company in such form and manner as the Company may require in its sole discretion. Notwithstanding the foregoing, for any Awards that constitute

Exhibit 10.1

a nonqualified deferred compensation plan within the meaning of Section 409A of the Code and provide for an accelerated payment in connection with any Disability, Disability shall have the same meaning as set forth in Section 409A of the Code applicable to such plans.

“EFFECTIVE DATE” shall have the meaning ascribed to such term in Section 1.1 herein.

“EMPLOYEE” means any employee of the Company or any Subsidiary.

“EXCHANGE ACT” means the Securities Exchange Act of 1934.

“FAIR MARKET VALUE” means (a) if the Common Stock is not listed or traded on a stock exchange or market, the value of the Common Stock determined in good faith by the Committee; or (b) if the Common Stock is listed or traded on a stock exchange or market, (i) for purposes of setting any Option Price, (unless otherwise required by any applicable provision of the Code or unless the Committee otherwise determines) means as of the date of the Award, the average of the closing sales prices of the Common Stock on the applicable stock exchange or market each of the five trading dates immediately preceding such date; and (ii) for purposes of the valuation of any Shares delivered in payment of the Option Price upon the exercise of an Option, for purposes of the valuation of any Shares withheld in payment of the Option Price or to pay taxes due on an Award, for purposes of the provisions of Section 5.3 herein (regarding elections by Non-employee Directors to receive compensation in the form of Shares), or for purposes of the exercise of any SAR or conversion of a Performance Unit, (unless otherwise required by any applicable provision of the Code or unless the Committee otherwise determines) means the volume weighted average price of the Common Stock on the applicable stock exchange or market on the applicable day (or if the applicable day is not a trading day, on the trading day next preceding the applicable day).

“FREESTANDING SAR” means a stock appreciation right that is granted independently of any Options, as described in Article 7 herein.

“GOOD REASON” means, with respect to a Participant’s Separation from Service, (a) in the case where there is no employment, change of control, or similar agreement in effect between the Participant and the Company or a Subsidiary at the time of the grant of the Award, or where there is such an agreement but the agreement does not define “good reason” (or similar words) or a “good reason” termination would not be permitted under such agreement at that time because other conditions were not satisfied, any of the following actions if taken without the Participant’s prior consent: (i) a substantial reduction in the Participant’s aggregate level of compensation and benefits received from the Company or a Subsidiary (except for Company-wide changes that do not disproportionately impact the Participant), (ii) a substantial reduction or diminution in the Participant’s titles, responsibilities, or duties (except for Company-wide reorganizations), (iii) a substantial detrimental change in the Participant’s employment reporting relationship (except in connection with a Company-wide reorganization), or (iv) any relocation of the Participant’s principal place of business of 50 miles or more; provided that, in each case, not more than 30 days following the occurrence of such event the Participant provides written notice to the Company containing (A) the Participant’s belief that Good Reason exists and (B) a description of the circumstances believed to constitute Good Reason; and provided, further, that if the circumstances may reasonably be remedied, the Company shall have 30 days to effect such remedy. If such circumstances are not remedied within that 30-day period, the Participant shall be permitted to terminate the Participant’s service for Good Reason during the 30-day period that ends on the earlier of (x) the end of the Company’s 30-day cure period and (y) the delivery of written notice from the Company that it does not intend to cure such circumstances. In the event that the Participant does not terminate the Participant’s service during such period, the Participant shall be deemed to have accepted such circumstances and shall no longer be permitted to terminate for Good Reason due to such circumstances; or (b) in the case where there is an employment, change of control, or similar agreement in effect between the Participant and the Company or a Subsidiary at the time of the grant of the Award that defines “good reason” (or similar words) and a “good reason” termination would be permitted under such agreement at that time, the Separation from Service is or would be deemed to be for “good reason” (or similar words) as defined in such agreement.

Exhibit 10.1

“INCENTIVE STOCK OPTION” or “ISO” means an option to purchase Shares granted under Article 6 herein and which is designated as an Incentive Stock Option and which is intended to meet the requirements of Section 422 of the Code.

“INSIDER” means an individual who is, on the relevant date, an officer, director or more than 10% Beneficial Owner of any class of the Company’s equity securities that is registered pursuant to Section 12 of the Exchange Act, all as defined under Section 16 of the Exchange Act.

“NON-EMPLOYEE DIRECTOR” means a Director who is not an Employee.

“NONQUALIFIED STOCK OPTION” or “NQSO” means an option to purchase Shares granted under Article 6 herein and which is not intended to meet the requirements of Section 422 of the Code.

“OPTION” means an Incentive Stock Option or a Nonqualified Stock Option, as described in Article 6 herein.

“OPTION PRICE” means the price at which a Share may be purchased by a Participant pursuant to an Option.

“PARTICIPANT” means a Person who or which has outstanding an Award.

“PERFORMANCE-BASED EXCEPTION” means the exception for performance-based compensation from the tax deductibility limitations of Section 162(m) of the Code.

“PERFORMANCE-VESTING AWARD” means an Award that vests, in whole or in part, based upon the achievement of performance measures.

“PERFORMANCE PERIOD” means the time period during which performance goals must be achieved with respect to an Award, as determined by the Committee.

“PERFORMANCE SHARE” means an Award granted to a Participant, as described in Article 9 herein.

“PERFORMANCE UNIT” means an Award granted to a Participant, as described in Article 9 herein.

“PERIOD OF RESTRICTION” means the period during which the transfer of Shares of Restricted Stock or an Award of RSUs is limited in some way (based on the passage of time, the achievement of performance goals, or upon the occurrence of other events as determined by the Committee, at its discretion), and the Shares of Restricted Stock or the RSUs are subject to a substantial risk of forfeiture, as provided in Articles 8 and 8A herein.

“PERSON” shall have the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Section 13(d) and 14(d) thereof, including a group as defined in Section 13(d) thereof.

“PLAN” shall have the meaning ascribed to such term in Section 1.1 herein.

“RESTRICTED STOCK” means an Award granted to a Participant pursuant to Article 8 herein.

“RETIREMENT” means the date a Participant voluntarily terminates his/her employment with the Company: (a) on or after he/she has attained at least 65 years of age; (b) on or after he/she has attained at least 55 years of age and completed at least 10 years of service with the Company or its Subsidiaries; or (c) under circumstances that the Committee determines, in its sole discretion, that qualify as a Retirement termination from the Company.

“RSU” means an Award of restricted stock units granted to a Participant pursuant to Article 8A herein.

Exhibit 10.1

“SEPARATION FROM SERVICE” means a termination of Service by a Service Provider, as determined by the Committee; provided if any Award governed by Section 409A of the Code is to be distributed on a Separation from Service, then the definition of Separation from Service for such purposes shall comply with the definition provided in Section 409A of the Code.

“SERVICE” means service as a Service Provider to the Company or a Subsidiary. Unless otherwise stated in the applicable Award Agreement, a Participant’s change in position or duties shall not result in interrupted or terminated Service, so long as such Participant continues to be a Service Provider to the Company or a Subsidiary.

“SERVICE PROVIDER” means an employee, officer, Non-employee Director, consultant, or other advisor of the Company or a Subsidiary (in each case who may be offered securities registrable pursuant to a registration statement on Form S-8 under the Securities Act).

“SHARES” means shares of Common Stock of the Company.

“STOCK APPRECIATION RIGHT” or “SAR” means an Award, granted alone or in connection with a related Option, designated as an SAR, pursuant to the terms of Article 7 herein.

“STOCKHOLDER” means a stockholder of the Company.

“SUBSIDIARY” means any corporation, partnership, joint venture, affiliate, or other entity in which the Company is the direct or indirect beneficial owner of not less than 20% of all issued and outstanding equity interests. Notwithstanding the foregoing, for purposes of granting Options or SARs to Service Providers of a Subsidiary in which the Company is the direct or indirect beneficial owner of less than 50% of all issued and outstanding equity interests, such Service Providers shall not be eligible for an Award of Options or SARs unless the Committee first determines that such Award is “based upon legitimate business criteria” within the meaning of Treas. Reg. §1.409A-1(b)(5)(iii)(E).

“TANDEM SAR” means an SAR that is granted in connection with a related Option pursuant to Article 7 herein, the exercise of which shall require forfeiture of the right to purchase a Share under the related Option (and when a Share is purchased under the Option, the Tandem SAR shall similarly be forfeited).

ARTICLE 3

ADMINISTRATION

3.1 THE COMMITTEE. The Plan shall be administered by the Committee appointed by the Board. If and to the extent that no Committee exists that has the authority to administer the Plan, the functions of the Committee shall be exercised by the Board.

3.2 AUTHORITY OF THE COMMITTEE. Except as limited by law or by the Certificate of Incorporation or Bylaws of the Company, and subject to the provisions herein, the Committee shall have full power to select Persons who shall participate in the Plan; determine the sizes and types of Awards; determine the terms and conditions of Awards in a manner consistent with the Plan; construe and interpret the Plan and any agreement or instrument entered into under the Plan; establish, amend, or waive rules and regulations for the Plan’s administration; and (subject to the provisions of Article 15 herein) amend the terms and conditions of any outstanding Award to the extent such terms and conditions are within the discretion of the Committee as provided in the Plan. Further, the Committee shall make all other determinations which may be necessary or advisable for the administration of the Plan. As permitted by law, the Committee may delegate the authority granted to it herein.

Exhibit 10.1

3.3 DECISIONS BINDING. All determinations and decisions made by the Committee pursuant to the provisions of the Plan and all related orders and resolutions of the Board shall be final, conclusive, and binding on all Persons, including the Company, its Stockholders, Employees, Participants, and their estates and beneficiaries.

3.4 BOOK ENTRY. Notwithstanding any other provision of the Plan to the contrary, the Company may elect to satisfy any requirement under the Plan for the delivery of stock certificates through the use of book entry.

ARTICLE 4

SHARES SUBJECT TO THE PLAN AND MAXIMUM AWARDS

4.1 SHARES AVAILABLE FOR AWARDS. The aggregate number of Shares which may be issued for or used for reference purposes under the Plan or with respect to which Awards may be granted shall not exceed 69,888,834 Shares (subject to adjustment as provided in Section 4.3 herein), which may be either authorized and unissued Shares or Shares held in or acquired for the treasury of the Company. Upon (a) a payout of a Freestanding SAR, Tandem SAR, or Restricted Stock award in the form of cash; (b) a cancellation, termination, expiration, forfeiture, or lapse for any reason (with the exception of the termination of a Tandem SAR upon exercise of the related Options, or the termination of a related Option upon exercise of the corresponding Tandem SAR) of any Award; or (c) payment of an Option Price and/or payment of any taxes arising upon exercise of an Option or payout of any Award with previously acquired Shares or by withholding Shares which otherwise would be acquired on exercise or issued upon such payout, then the number of Shares underlying any such Award which were not issued as a result of any of the foregoing actions shall again be available for the purposes of Awards.

4.2 INDIVIDUAL PARTICIPANT LIMITATIONS. Unless and until the Committee determines that an Award to a Covered Employee shall not be designed to comply with the Performance-Based Exception, the following rules shall apply to grants of such Awards:

(a) Subject to adjustment as provided in Section 4.3 herein, the maximum number of each type of Award (other than cash-denominated Performance Units) granted to any Participant in any one fiscal year shall not exceed the following: (i) Options and SARs, 600,000 Shares, and (ii) Restricted Stock, RSUs, Performance Shares or Share-denominated Performance Units, 600,000 Shares.

(b) The maximum aggregate cash payout with respect to cash-denominated Performance Units granted in any one fiscal year which may be made to any Participant shall be $3,000,000.

4.3 ADJUSTMENTS IN AUTHORIZED SHARES. In the event of any change in corporate capitalization, such as a stock split, or a corporate transaction, such as any merger, consolidation, separation, including a spin-off, or other distribution of stock or property of the Company, any reorganization (whether or not such reorganization comes within the definition of such term in Section 368 of the Code), or any partial or complete liquidation of the Company, such adjustment shall be made in the number and class of Shares available for Awards, the number and class of and/or price of Shares subject to outstanding Awards, and the number of Shares set forth in Sections 4.1 and 4.2 herein, as may be determined to be appropriate and equitable by the Committee, in its sole discretion, to prevent dilution or enlargement of rights; provided, however, that the number of Shares subject to any Award shall always be a whole number.

ARTICLE 5

ELIGIBILITY AND PARTICIPATION

5.1 ELIGIBILITY. Persons eligible to participate in the Plan include all Service Providers, as determined by the Committee, including Service Providers who reside in countries other than the United States of America. Notwithstanding any provision of the Plan to the contrary, in order to foster and promote achievement of the purposes of the Plan or to comply with provisions of laws in other countries in which the Company or its Subsidiaries operate or have Service Providers, the Committee, in its sole discretion, shall have the power and authority to (a) determine which Service Providers (if any) providing Services outside the United States are eligible to participate in the Plan, (b) modify the terms and conditions of any Awards made to such Service Providers and (c) establish subplans and modified Option exercise and other terms and procedures to the extent such actions may be necessary or advisable.

Exhibit 10.1

5.2 ACTUAL PARTICIPATION. Subject to the provisions of the Plan, the Committee may, from time to time, select from all eligible Persons, those to whom Awards shall be granted and shall determine the nature and amount of each Award.

5.3 NON-EMPLOYEE DIRECTOR COMPENSATION. Non-Employee Directors shall have the right to elect to receive the compensation otherwise payable to them in cash in connection with their duties as members of the Board (or any committee thereof) in whole or in part in Shares (rounded up to the nearest whole Share) issued under the Plan. If such Director elects to receive Shares as described in this Section 5.3, the per Share value of the Common Stock shall equal the Fair Market Value on the applicable payment date. Such election must be made prior to the start of the calendar year in which the compensation is to be paid and shall be irrevocable for such calendar year.

ARTICLE 6

STOCK OPTIONS

6.1 GRANT OF OPTIONS. Subject to the terms and provisions of the Plan, Options may be granted to one or more Participants in such number, and upon such terms, and at any time and from time to time as shall be determined by the Committee. The Committee may grant Nonqualified Stock Options or Incentive Stock Options. The Committee shall have complete discretion in determining the number of Options granted to each Participant (subject to Article 4 herein).

6.2 AWARD AGREEMENT. Each Option grant shall be evidenced by an Award Agreement that shall specify the Option Price, the duration of the Option, the number of Shares to which the Option pertains, and such other provisions as the Committee shall determine. The Award Agreement with respect to the Option also shall specify whether the Option is intended to be an ISO within the meaning of Section 422 of the Code, or an NQSO whose grant is intended not to fall under the provisions of Section 422 of the Code.

6.3 OPTION PRICE. The Committee shall designate the Option Price for each grant of an Option which Option Price shall be at least equal to 100% of the Fair Market Value of a Share on the date the Option is granted, and which Option Price may not be subsequently changed by the Committee except pursuant to Section 4.3 herein or to the extent provided in the Award Agreement.

6.4 DURATION OF OPTIONS. Each Option granted to an Employee shall expire at such time as the Committee shall determine at the time of grant; provided, however, that unless otherwise designated by the Committee at the time of grant, no Option shall be exercisable later than the 10th anniversary date of its grant.

6.5 EXERCISE OF OPTIONS. Options shall be exercisable at such times and be subject to such restrictions and conditions as the Committee shall in each instance approve, which need not be the same for each grant or for each Participant.

6.6 PAYMENT. Options shall be exercised by the delivery of a written notice of exercise to the Company, setting forth the number of Shares with respect to which the Option is to be exercised, accompanied by full payment for the Shares. The Option Price upon exercise of any Option shall be payable to the Company in full either:

(a) in cash or its equivalent,

(b) by tendering previously acquired Shares having an aggregate Fair Market Value at the time of exercise equal to the total Option Price, or

Exhibit 10.1

The Committee also may allow cashless exercises as permitted under Federal Reserve Board’s Regulation T, subject to applicable securities law restrictions, or by any other means which the Committee determines to be consistent with the Plan’s purpose and applicable law. As soon as practicable after receipt of a written notification of exercise and full payment, the Company shall deliver to the Participant, in the Participant’s name, Share certificates in an appropriate amount based upon the number of Shares purchased under the Option(s).

6.7 RESTRICTIONS ON SHARE TRANSFERABILITY. The Committee may impose such restrictions on any Shares acquired pursuant to the exercise of an Option as it may deem advisable, including restrictions under applicable federal securities laws, under the requirements of any stock exchange or market upon which such Shares are then listed and/or traded, and under any blue sky or state securities laws applicable to such Shares.

6.8 SEPARATION FROM SERVICE. Each Option Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the Option following Separation from Service. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Options issued pursuant to the Plan, and may reflect distinctions based on the reasons for Separation from Service, including Separation from Service for Cause or Good Reason, or reasons relating to the breach or threatened breach of restrictive covenants. Subject to Article 14 herein, in the event that a Participant’s Option Award Agreement does not set forth such Separation from Service provisions, the following Separation from Service provisions shall apply:

(a) In the event of a Participant’s Separation from Service for any reason other than death, Disability, or Retirement, all Options held by the Participant shall expire and all rights to purchase Shares thereunder shall terminate immediately; provided, however, that notwithstanding the foregoing, all Options to which the Participant has a vested right immediately prior to such Separation from Service shall be exercisable for the lesser of (i) 30 days following the date of Separation from Service or (ii) the expiration date of the Option, unless the Separation from Service was for Cause.

(b) In the event of a Participant’s Separation from Service due to death or Disability, all Options shall immediately become fully vested on the date of the Separation from Service.

(c) Subject to Article 14 herein, in the event of Participant’s Separation from Service due to death or Disability, all Options in which the Participant has a vested right upon termination shall be exercisable until the expiration date of the Option.

(d) Subject to Article 14 herein, in the event a Participant’s Separation from Service due to Retirement, all Options in which the Participant has a vested right upon Separation from Service shall be exercisable for the lesser of (i) three years following the date of the Separation from Service or (ii) the expiration date of the Option.

6.9 NONTRANSFERABILITY OF OPTIONS.

(a) INCENTIVE STOCK OPTIONS. No ISO may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, all ISOs granted to a Participant shall be exercisable during his or her lifetime only by such Participant.

(b) NONQUALIFIED STOCK OPTIONS. Except as otherwise provided in a Participant’s Award Agreement, no NQSO may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant’s Award Agreement, all NQSOs shall be exercisable during a Participant’s lifetime only by such Participant.

Exhibit 10.1

ARTICLE 7

STOCK APPRECIATION RIGHTS

7.1 GRANT OF SARs. Subject to the terms and conditions of the Plan, SARs may be granted to Participants at any time and from time to time as shall be determined by the Committee. The Committee may grant Freestanding SARs, Tandem SARs, or any combination of these forms of SARs. The Committee shall have complete discretion in determining the number of SARs granted to each Participant (subject to Article 4 herein) and, consistent with the provisions of the Plan, in determining the terms and conditions pertaining to such SARs. The Committee shall designate, at the time of grant, the grant price of Freestanding SARs, which grant price shall at least equal the Fair Market Value of a Share on the date of grant of the SAR. The grant price of Tandem SARs shall equal the Option Price of the related Option. Grant prices of SARs shall not subsequently be changed by the Committee except pursuant to Section 4.3 herein.

7.2 EXERCISE OF TANDEM SARs. Tandem SARs may be exercised for all or part of the Shares subject to the related Option upon the surrender of the right to exercise the equivalent portion of the related Option. A Tandem SAR may be exercised only with respect to the Shares for which its related Option is then exercisable. Notwithstanding any other provision of the Plan to the contrary, with respect to a Tandem SAR granted in connection with an ISO: (a) the Tandem SAR will expire no later than the expiration of the underlying ISO; (b) the value of the payout with respect to the Tandem SAR may be for no more than 100% of the difference between the Option Price of the underlying ISO and the Fair Market Value of the Shares subject to the underlying ISO at the time the Tandem SAR is exercised; and (c) the Tandem SAR may be exercised only when the Fair Market Value of the Shares subject to the ISO exceeds the Option Price of the ISO.

7.3 EXERCISE OF FREESTANDING SARs. Freestanding SARs may be exercised upon whatever terms and conditions the Committee, in its sole discretion, imposes upon them.

7.4 SAR AGREEMENT. Each SAR grant shall be evidenced by an Award Agreement that shall specify the grant price, the term of the SAR, and such other provisions as the Committee shall determine.

7.5 TERM OF SARs. The term of an SAR granted shall be determined by the Committee, in its sole discretion; provided, however, that unless otherwise designated by the Committee, such term shall not exceed 10 years.

7.6 PAYMENT OF SAR AMOUNT. Upon exercise of an SAR, a Participant shall be entitled to receive payment from the Company in an amount determined by multiplying:

(a) The excess of the Fair Market Value of a Share on the date of exercise over the grant price; by

(b) The number of Shares with respect to which the SAR is exercised.

At the discretion of the Committee, the payment upon SAR exercise may be in cash, in Shares of equivalent value, or in some combination thereof.

7.7 SEPARATION FROM SERVICE. Each SAR Award Agreement shall set forth the extent to which the Participant shall have the right to exercise the SAR following the Participant’s Separation from Service. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all SARs issued pursuant to the Plan, and may reflect distinctions based on the reasons for Separation from Service, including Separation from Service for Cause or Good Reason, or reasons relating to the breach or threatened breach of restrictive covenants. Subject to Article 14 herein, in the event that a Participant’s SAR Award Agreement does not set forth such Separation from Service provisions, the following Separation from Service provisions shall apply:

(a) In the event of a Participant’s Separation from Service for any reason other than death, Disability, or Retirement, all SARs held by the Participant shall expire and all rights thereunder shall terminate immediately; provided, however, that notwithstanding the foregoing, all SARs to which the Participant has a vested right immediately prior to such Separation from Service shall be exercisable for the lesser of (i) 30 days following the date of the Separation from Service or (ii) the expiration date of the SAR, unless the Separation from Service was for Cause.

Exhibit 10.1

(b) In the event of a Participant’s Separation from Service due to death or Disability, all SARs shall immediately become fully vested on the date of the Separation from Service.

(c) Subject to Article 14 herein, in the event of a Separation from Service due to death or Disability, all SARs in which the Participant has a vested right upon Separation from Service shall be exercisable until the expiration date of the SAR.

(d) Subject to Article 14 herein, in the event of a Participant’s Separation from Service due to Retirement, all SARs in which the Participant has a vested right upon Separation from Service shall be exercisable for the lesser of (i) three years following the date of the Separation from Service or (ii) the expiration date of the SAR.

7.8 NONTRANSFERABILITY OF SARs. Except as otherwise provided in a Participant’s Award Agreement, no SAR may be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant’s Award Agreement, all SARs granted to a Participant shall be exercisable during his or her lifetime only by such Participant.

ARTICLE 8

RESTRICTED STOCK

8.1 GRANT OF RESTRICTED STOCK. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Shares of Restricted Stock to Participants in such amounts as the Committee shall determine.

8.2 RESTRICTED STOCK AGREEMENT. Each Restricted Stock grant shall be evidenced by an Award Agreement that shall specify the Period(s) of Restriction, the number of Shares of Restricted Stock granted, and such other provisions as the Committee shall determine.

8.3 TRANSFERABILITY. Except as provided in this Article 8, the Shares of Restricted Stock granted herein may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, voluntarily or involuntarily, until the end of the applicable Period of Restriction established by the Committee and specified in the Restricted Stock Award Agreement, or upon earlier satisfaction of any other conditions, as specified by the Committee in its sole discretion and set forth in the Restricted Stock Agreement. All rights with respect to the Restricted Stock granted to a Participant shall be available during his or her lifetime only to such Participant.

8.4 OTHER RESTRICTIONS. Subject to Article 10 herein, the Committee may impose such other conditions and/or restrictions on any Shares of Restricted Stock granted pursuant to the Plan as it may deem advisable including a requirement that Participants pay a stipulated purchase price for each Share of Restricted Stock, restrictions based upon the achievement of specific performance goals (Company-wide, Subsidiary-wide, divisional, and/or individual), time-based restrictions on vesting which may or may not be following the attainment of the performance goals, and/or restrictions under applicable federal or state securities laws. The Company shall retain the certificates representing Shares of Restricted Stock in the Company’s possession until such time as all conditions and/or restrictions applicable to such Shares have been satisfied. Except as otherwise provided in this Article 8, Shares of Restricted Stock covered by each Restricted Stock grant shall become freely transferable by the Participant after the last day of the applicable Period of Restriction.

8.5 VOTING RIGHTS. Unless otherwise designated by the Committee at the time of grant, Participants to whom Shares of Restricted Stock have been granted may exercise full voting rights with respect to those Shares during the Period of Restriction.

Exhibit 10.1

8.6 DIVIDENDS AND OTHER DISTRIBUTIONS. Unless otherwise designated by the Committee at the time of grant, Participants holding Shares of Restricted Stock shall be credited with regular cash dividends paid with respect to the underlying Shares while they are so held during the Period of Restriction. The Committee may apply any restrictions to the dividends that the Committee deems appropriate. Without limiting the generality of the preceding sentence, if the grant or vesting of Shares of Restricted Stock granted to a Covered Employee is designed to comply with the requirements of the Performance-Based Exception, the Committee may apply any restrictions it deems appropriate to the payment of dividends declared with respect to such Shares of Restricted Stock, such that the dividends and/or the Shares of Restricted Stock maintain eligibility for the Performance-Based Exception. In the event that any dividend constitutes a derivative security or an equity security pursuant to Section 16 of the Exchange Act, such dividend shall be subject to a vesting period equal to the remaining vesting period of the Shares of Restricted Stock with respect to which the dividend is paid.

8.7 SEPARATION FROM SERVICE. Each Restricted Stock Award Agreement shall set forth the extent to which the Participant shall have the right to receive unvested Shares of Restricted Stock following Separation from Service. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all Shares of Restricted Stock issued pursuant to the Plan, and may reflect distinctions based on the reasons for Separation from Service, including Separation from Service for Cause or Good Reason, or reasons relating to the breach or threatened breach of restrictive covenants; provided, however, that, except in the cases of Separation from Service connected with a Change of Control and Separation from Service by reason of death or Disability, the vesting of Shares of Restricted Stock which qualify for the Performance-Based Exception and which are held by Covered Employees shall not occur prior to the time they otherwise would have, but for the Separation from Service. Subject to Article 14 herein, in the event that a Participant’s Restricted Stock Award Agreement does not set forth such termination provisions, the following Separation from Service provisions shall apply:

(a) In the event of a Participant’s Separation from Service for any reason other than death or Disability, all Shares of Restricted Stock which are unvested at the date of termination shall be forfeited to the Company.

(b) Unless the Award qualifies for the Performance-Based Exception, in the event of a Participant’s Separation from Service due to death or Disability, all Shares of Restricted Stock of such participant shall immediately become fully vested on the date of termination and the restrictions shall lapse.

ARTICLE 8A

RESTRICTED STOCK UNITS

8A.1 GRANT OF RESTRICTED STOCK UNITS. Subject to the terms and provisions of the Plan, the Committee, at any time and from time to time, may grant Restricted Stock Units (“RSUs”) to Participants in such amounts as the Committee shall determine.

8A.2 RESTRICTED STOCK UNIT AGREEMENT. Each RSU grant shall be evidenced by an Award Agreement that shall specify (a) the Participant to whom the Award is made, (b) the number of RSUs that are subject to the Award, (c) the time that the Award is granted, (d) the duration and applicable conditions for any applicable Period of Restriction, and (e) such other provisions as the Committee shall determine. The number of RSUs granted to any Participant under any Award shall be credited, as of the date of such Award, to an account maintained on behalf of the Participant on the books of the Company. For all purposes of the Plan, the account maintained by the Company for each Participant shall constitute conclusive evidence of the Participant’s Awards, absent manifest error.

8A.3 TERMS AND CONDITIONS OF AWARD. RSUs shall be subject to the following terms and conditions:

Exhibit 10.1

(a) No Award and no right under any such Award may be sold, assigned, transferred, pledged, or otherwise encumbered, except by will or by the laws of descent and distribution, until the lapse of any applicable Period of Restriction and satisfaction of any other conditions specified by the Committee;

(b) Subject to the limitations of the Plan and any other terms and conditions applicable to a particular Award, at the end of any applicable Period of Restriction, each such whole unit (except for any RSU canceled to pay withholding taxes) shall automatically and without further action by the Company be converted into one Share (subject to adjustment as provided in Section 4.3 herein) and the Participant shall thereupon become a record holder of each such Share for all purposes. As promptly as practicable thereafter, the Company shall issue to the Participant (or his or her legal representative, beneficiary, or heir) certificates for the Shares issued upon such conversion. No fractional Shares shall be issued pursuant to the Plan or any Award and instead cash will be paid in lieu of any fractional Shares on such basis as is determined by the Committee; and

(c) At no time prior to the conversion of RSUs into Shares shall a Participant be entitled to any rights as a Stockholder in respect of such RSUs or the Shares into which such RSUs may be converted, including the right to receive dividends in respect of, or to vote, any such Shares. Notwithstanding the foregoing, an award of RSUs may include dividend equivalents, with such terms and conditions as may be approved by the Committee and set forth in the Award Agreement. Dividend equivalents credited to a Participant may be paid currently or may be deemed to be reinvested in additional Shares at a price per unit equal to the Fair Market Value of a Share on the date that such dividend was paid to Stockholders, as determined in the sole discretion of the Committee. Notwithstanding the foregoing, in no event will dividend equivalents on any RSUs that vest on the basis of pre-established performance goals be payable before the RSUs have become earned and payable.

8A.4 SEPARATION FROM SERVICE. Each Award Agreement shall set forth the extent to which the Participant shall have the right to receive unvested RSUs following Separation from Service. Such provisions shall be determined in the sole discretion of the Committee, shall be included in the Award Agreement entered into with each Participant, need not be uniform among all RSUs issued pursuant to the Plan, and may reflect distinctions based on the reasons for Separation from Service, including Separation from Service for Cause or Good Reason, or reasons relating to the breach or threatened breach of restrictive covenants; provided, however, that, except in the cases of Separation from Service connected with a Change of Control and Separation from Service by reason of death or Disability, the vesting of RSUs which qualify for the Performance-Based Exception and which are held by Covered Employees shall not occur prior to the time they otherwise would have, but for the Separation from Service. Subject to Article 14 herein, in the event that a Participant’s Award Agreement does not set forth such Separation from Service provisions, the following termination provisions shall apply:

(a) In the of event a Participant’s Separation from Service for any reason other than death or Disability, all RSUs of such Participant that are unvested at the date of Separation from Service shall be forfeited to the Company.

(b) Unless the Award qualifies for the Performance-Based Exception, in the event of a Participant’s Separation from Service due to death or Disability, all RSUs of such Participant shall immediately become fully vested on the date of Separation from Service and all restrictions shall lapse.

8A.5 DEFERRAL OF VESTING RSUs. The Committee may permit a Participant to defer the compensation that would otherwise be recognized upon vesting of RSUs by filing (or completing online if such form is electronic) an election to defer (in a form specified by the Company) with the Company that specifies the later fixed date on which the RSUs will be paid and distributed to the Participant. A Participant may make multiple subsequent deferral elections under this paragraph for any given vested RSUs but any time requirements set forth herein must be separately satisfied with respect to each subsequent deferral election. All deferral elections must comply, at all times, with Section 409A of the Code.

Exhibit 10.1

ARTICLE 9

PERFORMANCE UNITS AND PERFORMANCE SHARES

9.1 GRANT OF PERFORMANCE UNITS/SHARES. Subject to the terms of the Plan, Performance Units and/or Performance Shares may be granted to Participants in such amounts and upon such terms, and at any time and from time to time, as shall be determined by the Committee.

9.2 VALUE OF PERFORMANCE UNITS/SHARES. Each Performance Unit shall have an initial value that is established by the Committee at the time of grant. Each Performance Share shall have an initial value equal to the Fair Market Value of a Share on the date of grant. The Committee shall set performance goals in its discretion which, depending on the extent to which they are met, will determine the number and/or value of Performance Units/Shares that will be paid out to the Participant. For purposes of this Article 9, the Performance Period shall be a minimum of one year.

9.3 EARNING OF PERFORMANCE UNITS/SHARES. Subject to the terms of the Plan, after the applicable Performance Period has ended, the holder of Performance Units/Shares shall be entitled to receive payout on the number and value of Performance Units/Shares earned by the Participant over the Performance Period, to be determined as a function to the extent to which the corresponding performance goals have been achieved, as established by the Committee.

9.4 FORM AND TIMING OF PAYMENT OF PERFORMANCE UNITS/SHARES. (a) Except as provided below, payment of earned Performance Units/Shares shall be made in a single lump sum as soon as reasonably practicable following the close of the applicable Performance Period. Subject to the terms of the Plan, the Committee, in its sole discretion, may pay earned Performance Units/Shares in the form of cash or in Shares which have an aggregate Fair Market Value equal to the value of the earned Performance Units/Shares at the close of the applicable Performance Period (or in a combination thereof). Such Shares may be granted subject to any restrictions deemed appropriate by the Committee.

(b) At the time of grant or shortly thereafter, the Committee, at its discretion and in accordance with the terms designated by the Committee, may provide for a voluntary and/or mandatory deferral of all or any part of an otherwise earned Performance Unit/Share Award. All deferrals, whether mandatory or elective, must comply, at all times, with Section 409A of the Code.

(c) At the discretion of the Committee, Participants may be entitled to receive any dividends declared with respect to Shares which have been earned but not yet distributed to Participants in connection with grants of Performance Units and/or Performance Shares (such dividends shall be subject to the same accrual, forfeiture, and payout restrictions as apply to dividends earned with respect to Shares of Restricted Stock, as set forth in Section 8.6 herein). In addition, Participants may, at the discretion of the Committee, be entitled to exercise their voting rights with respect to such Shares.

9.5 SEPARATION FROM SERVICE. Subject to Article 14 herein, in the event of a Participant’s Separation from Service for any reason other than death, Disability, or Retirement, all Performance Units/Shares shall be forfeited by the Participant to the Company. Subject to Article 14 herein, in the event of a Participant’s Separation from Service during a Performance Period due to death, Disability, or Retirement, the Participant shall receive a prorated payout of the Performance Units/Shares, unless the Committee determines otherwise. The prorated payout shall be determined by the Committee, shall be based upon the length of time that the Participant held the Performance Units/Shares during the Performance Period, and shall further be adjusted based on the achievement of the pre-established performance goals. Subject to Article 14 herein, unless the Committee determines otherwise in the event of a Separation from Service due to death, Disability, or Retirement, payment of earned Performance Units/Shares shall be made at the same time as payments are made to Participants who did not have a Separation from Service during the applicable Performance Period.

Exhibit 10.1

9.6 NONTRANSFERABILITY. Except as otherwise provided in a Participant’s Award Agreement, Performance Units/Shares may not be sold, transferred, pledged, assigned, or otherwise alienated or hypothecated, other than by will or by the laws of descent and distribution. Further, except as otherwise provided in a Participant’s Award Agreement, a Participant’s rights under the Plan shall be exercisable during the Participant’s lifetime only by a Participant or the Participant’s legal representative.

ARTICLE 10

PERFORMANCE MEASURES

10.1 PERFORMANCE MEASURES. Unless and until the Committee proposes for Stockholder vote and Stockholders approve a change in the general performance measures set forth in this Article 10, the attainment of which may determine the degree of payout and/or vesting with respect to Awards to Covered Employees which are designed to qualify for the Performance-Based Exception, the performance goals to be used for purposes of such grants shall be established by the Committee in writing and stated in terms of the attainment of specified levels of, or percentage changes in, any one or more of the following measurements: revenue, primary or fully-diluted earnings per Share, pretax income, cash flow from operations, total cash flow, return on equity, return on capital, return on assets, net operating profits after taxes, economic value added, total stockholder return or return on sales, or any individual performance objective which is measured solely in terms of quantitative targets related to the Company or the Company’s business, or any combination thereof. In addition, such performance goals may be based in whole or in part upon the performance of the Company, a Subsidiary, division, and/or other operational unit, under one or more of such measures.

10.2 COMMITTEE CERTIFICATION AND ADJUSTMENTS. The degree of payout and/or vesting of Awards designed to qualify for the Performance-Based Exception shall be determined based upon the written certification of the Committee as to the extent to which the performance goals and any other material terms and conditions precedent to such payment and/or vesting have been satisfied. The Committee shall have the discretion to adjust the determinations of the degree of attainment of the pre-established performance goals; provided, however, that the performance goals applicable to Awards which are designed to qualify for the Performance-Based Exception, and which are held by Covered Employees, may not be adjusted so as to increase the payment under the Award (the Committee shall retain the discretion to adjust such performance goals upward, or to otherwise reduce the amount of the payment and/or vesting of the Award relative to the pre-established performance goals).

10.3 COMMITTEE DISCRETION. On or before the latest possible date that will not jeopardize the qualification of Awards for the Performance-Based Exception (to the extent applicable), the Committee shall have the discretion to include or exclude unusual, atypical, or non-recurring items in determining the applicable performance goals for a particular Performance Period.

10.4 APPLICABLE LAWS. In the event that applicable tax and/or securities laws change to permit Committee discretion to alter the governing performance measures without obtaining Stockholder approval of such changes, the Committee shall have sole discretion to make such changes without obtaining Stockholder approval. In addition, in the event that the Committee determines that it is advisable to grant Awards which shall not qualify for the Performance-Based Exception, the Committee may make such grants without satisfying the requirements of Section 162(m) of the Code and, thus, which use performance measures other than those specified above.

ARTICLE 11

BENEFICIARY DESIGNATION

Each Participant may, from time to time, name any beneficiary or beneficiaries (who may be named contingently or successively) to whom any benefit under the Plan is to be paid in case of his or her death before he or she receives any or all of such benefit. Each such designation shall revoke all prior designations by the same Participant, shall be in a form prescribed by the Company, and will be effective only when filed by the Participant in writing with the Secretary of the Company during the Participant’s lifetime. In the absence of any such designation, benefits remaining unpaid at the Participant’s death shall be paid to the Participant’s estate.

Exhibit 10.1

ARTICLE 12

DEFERRALS

The Committee may permit a Participant to defer such Participant’s receipt of the payment of cash or the delivery of Shares that would otherwise be due to such Participant upon the exercise of any Option or by virtue of the lapse or waiver of restrictions with respect to RSUs (as provided in Section 8A.5 herein) or with respect to Restricted Stock, or the satisfaction of any requirements or goals with respect to Performance Units/Shares. If any such deferral election is required or permitted, the Committee shall, in its sole discretion, establish rules and procedures for such payment deferrals. All deferral elections must comply, at all times, with Section 409A of the Code.

ARTICLE 13

RIGHTS OF SERVICE PROVIDERS

13.1 RIGHT TO TERMINATE SERVICES. Nothing in the Plan shall interfere with or limit in any way the right of the Company to terminate any Participant’s Services at any time, nor confer upon any Participant any right to continue in the Service of the Company or any Subsidiary. For purposes of the Plan, temporary absence from Service because of illness, vacation, approved leaves of absence, and transfers of employment among the Company and its Subsidiaries, shall not be considered a Separation from Service or to interrupt continuous Service. Conversion of a Participant’s employment relationship to a consulting or other Service arrangement shall not result in termination of previously granted Awards.

13.2 PARTICIPATION. No Service Provider shall have the right to be selected to receive an Award, or, having been so selected, to be selected to receive a future Award.

ARTICLE 14

CHANGE OF CONTROL

14.1 ALTERNATIVE AWARDS. Unless otherwise expressly provided in an Award Agreement, no cancellation, acceleration, or other payment shall occur in connection with a Change of Control pursuant to Section 14.2 herein with respect to any Award as a result of the Change of Control if the Committee determines, prior to the Change of Control, that such Award shall be honored or assumed, or new rights substituted therefor, following the Change of Control (such honored, assumed, or substituted award, an “ALTERNATIVE AWARD”), provided that any Alternative Award must (a) give the Participant who held the Award rights and entitlements substantially equivalent to or better than the rights and terms applicable under the Award immediately prior to the Change of Control and (b) have terms such that if a Participant’s Service is involuntarily (e.g., by the Company or its successor other than for Cause) or constructively (e.g., by the Participant with Good Reason) terminated within two years following a Change of Control at a time when any portion of the Alternative Award is unvested, the unvested portion of such Alternative Award shall immediately vest in full and become non-forfeitable and such Participant shall receive (as determined by the Committee prior to the Change of Control) either (i) a cash payment equal in value to the excess (if any) of the fair market value of the stock subject to the Alternative Award at the date of exercise or settlement over the price (if any) that such Participant would be required to pay to exercise such Alternative Award or (ii) publicly-traded shares or equity interests equal in value (as determined by the Committee) to the value in clause (i). Unless otherwise expressly provided in an Award Agreement, the amount of any Alternative Award issued for a Performance-Vesting Award shall be based on the actual or assumed achievement of the relevant performance goals as of the Change of Control (as determined in the sole discretion of the Committee prior to the Change of Control) and any vesting conditions of any such Alternative Award shall be based solely on continued service.

Exhibit 10.1

14.2. ACCELERATED VESTING AND PAYMENT. Except as otherwise provided in this Article 14 or in an Award Agreement or thereafter on terms more favorable to a Participant, upon a Change of Control:

(a) each outstanding vested and unvested Option and SAR shall be canceled in exchange for a payment equal to the excess, if any, of the Change of Control Price over the applicable Option Price or grant price;

(b) the vesting restrictions applicable to all other outstanding unvested Awards (other than Performance-Vesting Awards) shall lapse and all such Awards shall vest in full and become non-forfeitable and shall be canceled in exchange for a payment based on the Change of Control Price;

(c) all outstanding unvested Performance-Vesting Awards shall be deemed to have been earned as of the Change of Control based on the actual or assumed achievement of the relevant performance goals as of the Change of Control (as determined in the sole discretion of the Committee prior to the Change of Control), and such earned Performance-Vesting Awards shall vest and become non-forfeitable and shall be canceled in exchange for a payment based on the Change of Control Price; and

(d) all other Awards that were vested prior to the Change of Control but that have not been settled or converted into Shares prior to the Change of Control shall be canceled in exchange for a payment based on the Change of Control Price.

14.3 PAYMENT TERMS. To the extent any portion of the Change of Control Price is payable other than in cash and/or other than at the time of the Change of Control, Award holders may (to the extent consistent with Section 409A of the Code) receive the same form of payment in the Change of Control in substantially the same proportion and at the same time as the Stockholders (with such proportionality to be determined as relating to Options and SARs by the Committee), or the Committee may cause Award holders to be paid fully in cash or fully in liquid securities at the time of the Change of Control. For avoidance of doubt, upon a Change of Control the Committee may cancel Options and SARs for no consideration if the aggregate Fair Market Value of the Shares subject to the Options and SARs is less than or equal to the Option Price of such Options or the grant price of such SARs.

ARTICLE 15

AMENDMENT, MODIFICATION, AND TERMINATION

15.1 AMENDMENT, MODIFICATION, AND TERMINATION. The Board may at any time and from time to time, alter, amend, suspend, or terminate the Plan in whole or in part, subject to any requirement of Stockholder approval imposed by applicable law, rule, or regulation. The Board may not, without Stockholder approval, (a) materially increase the benefits accruing to Participants, (b) materially increase the number of securities which may be issued upon the Plan, or (c) materially modify the requirements for participation in the Plan.

15.2 AWARDS PREVIOUSLY GRANTED. No termination, amendment, or modification of the Plan shall adversely affect in any material way any Award previously granted, without the written consent of the Participant holding such Award.

15.3 NO REPRICING OF OPTIONS/SARs. Notwithstanding any provision herein to the contrary, the repricing of Options or SARs is prohibited without prior approval of the Stockholders. For this purpose, a “repricing” means any of the following (or any other action that has the same effect as any of the following): (a) changing the terms of an Option or SAR to lower its Option Price or SAR grant price; (b) any other action that is treated as a “repricing” under generally accepted accounting principles; and (c) repurchasing for cash or canceling an Option or SAR at a time when its Option Price or SAR grant price is greater than the Fair Market Value of the underlying Shares in exchange for another Award, unless the cancellation and exchange occurs in connection with a change in capitalization or similar change under Section 4.3 herein. A cancellation and exchange under clause (c) would be considered a “repricing” regardless of whether it is treated as a “repricing” under generally accepted accounting principles and regardless of whether it is voluntary on the part of the Participant.

Exhibit 10.1

ARTICLE 16

WITHHOLDING

16.1 TAX WITHHOLDING. The Company shall have the power and the right to deduct or withhold, or require a Participant to remit to the Company, an amount sufficient to satisfy federal, state, and local taxes, domestic or foreign, required by law or regulation to be withheld with respect to any taxable event arising as a result of the Plan.

16.2 SHARE WITHHOLDING. With respect to withholding required upon the exercise of Options or SARs, upon the lapse of restrictions on Restricted Stock or RSUs, or upon any other taxable event arising as a result of Awards, Participants may elect, subject to the approval of the Committee, or the Company may require, that such withholding requirement be satisfied, in whole or in part, by having the Company withhold Shares having a Fair Market Value on the date the tax is to be determined equal to the minimum statutory total tax which would be imposed on the transaction. All such elections shall be made in writing, signed by the Participant, and shall be subject to any restrictions or limitations that the Committee, in its sole discretion, deems appropriate.

ARTICLE 17

SUCCESSORS

All obligations of the Company under the Plan with respect to Awards shall be binding on any successor to the Company, whether the existence of such successor is the result of a direct or indirect merger, consolidation, purchase of all or substantially all of the business and/or assets of the Company, or otherwise.

ARTICLE 18

LEGAL CONSTRUCTION

18.1 GENDER AND NUMBER. Except where otherwise indicated by the context, any masculine term used herein also shall include the feminine, the plural shall include the singular, and the singular shall include the plural. In the Plan, unless otherwise stated, the words “include,” “includes,” and “including” (and the like) mean “include, without limitation,” “includes, without limitation,” and “including, without limitation” (and the like), respectively.

18.2 SEVERABILITY. In the event any provision of the Plan shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Plan, and the Plan shall be construed and enforced as if as if the illegal or invalid provision had not been included.

18.3 REQUIREMENTS OF LAW. The granting of Awards and the issuance of Shares under the Plan shall be subject to all applicable laws, rules, and regulations, and to such approvals by any governmental agencies or national securities exchanges as may be required. In the Plan, unless otherwise stated, references to a statute or law refer to the statute or law and any amendments and any successor statutes or laws, and to all valid and binding governmental regulations, court decisions, and other regulatory and judicial authority issued or rendered thereunder, as amended, or their successors, as in effect at the relevant time.

18.4 SECURITIES LAW COMPLIANCE. With respect to Insiders, transactions under the Plan are intended to comply with all applicable conditions of Rule 16b-3 under the Exchange Act. To the extent any provision of the Plan or action by the Committee fails to so comply, it shall be deemed null and void, to the extent permitted by law and deemed advisable by the Committee.

18.5 GOVERNING LAW. To the extent not pre-empted by federal law, the Plan, and all agreements hereunder, shall be construed in accordance with and governed by the laws of the State of Delaware.

18.6 COMPLIANCE WITH SECTION 409A. The Plan is intended to comply with Section 409A of the Code. Notwithstanding any provision of the Plan to the contrary, the Plan shall be interpreted, operated, and administered consistent with this intent. In that regard, and notwithstanding any provision of the Plan to the contrary, the Company reserves the right to amend the Plan or any Award, by action of the Committee, without the consent of any affected Participant, to the extent deemed necessary or appropriate for purposes of maintaining compliance with Section 409A of the Code. In addition, any payments under the Plan of an amount that is deferred compensation under Section 409A

Exhibit 10.1

of the Code in connection with a Participant’s termination of employment shall not be made earlier than six months after the date of termination of employment to the extent required by Section 409A of the Code.

18.7 CLAWBACK. All Awards, amounts, and benefits received or outstanding under the Plan shall be subject to potential clawback, cancellation, recoupment, rescission, payback, reduction, or other similar action in accordance with the terms and conditions of any applicable Company clawback or similar policy or any applicable law related to such actions, as may be in effect from time to time. A Participant’s acceptance of an Award shall be deemed to constitute the Participant’s acknowledgement of and consent to the Company’s application, implementation, and enforcement of any applicable Company clawback or similar policy that may apply to the Participant, whether adopted before or after the grant date of the Award, and any provision of applicable law relating to clawback, cancellation, recoupment, rescission, payback, or reduction of compensation, and the Participant’s agreement that the Company may take such actions as may be necessary to effectuate any such policy or applicable law, without further consideration or action.

Exhibit 31.1

CERTIFICATION

I, Robert L. Wagman, certify that:

1. I have reviewed this annual report on Form 10-Q of LKQ Corporation;

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 1, 2016



/s/ ROBERT L. WAGMAN
Robert L. Wagman
President and Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, Dominick Zarcone, certify that:

1. I have reviewed this annual report on Form 10-Q of LKQ Corporation;

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

November 1, 2016



/ S / DOMINICK ZARCONE
Dominick Zarcone
Executive Vice President and Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of LKQ Corporation (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2016 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, as President and Chief Executive Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:


(1)	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and


(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 1, 2016



	/ S / ROBERT L. WAGMAN
	Robert L. Wagman
	President and Chief Executive Officer

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of LKQ Corporation (the “Company”) on Form 10-Q for the quarterly period ended September 30, 2016 , as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, as Executive Vice President and Chief Financial Officer of the Company, hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:


(1)	the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and


(2)	the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: November 1, 2016



	/ S / DOMINICK ZARCONE
	Dominick Zarcone
	Executive Vice President and Chief Financial Officer