10-K 1 lkq-20151231_10k.htm 10-K

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
________________________________________
FORM 10-K
________________________________________
(Mark One)

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

For the fiscal year ended December 31, 2015
OR

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

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

Title of Each Class |  | Name of each exchange on which registered
Common Stock, par value $.01 per share |  | NASDAQ Global Select Market

Securities registered pursuant to Section 12(g) of the Act: None
________________________________________
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ¨ No x
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
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
As of June 30, 2015, the aggregate market value of common stock outstanding held by stockholders who were not affiliates (as defined by regulations of the Securities and Exchange Commission) of the registrant was approximately $9.1 billion (based on the closing sale price on the NASDAQ Global Select Market on such date). The number of outstanding shares of the registrant's common stock as of February 19, 2016 was 306,204,125.
Documents Incorporated by Reference
Those sections or portions of the registrant's proxy statement for the Annual Meeting of Stockholders to be held on May 2, 2016, described in Part III hereof, are incorporated by reference in this report.

PART I
SPECIAL NOTE ON FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K includes forward-looking statements. 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. We have based these forward-looking statements on our current expectations and projections about future events. However, these forward-looking statements are subject to risks, uncertainties, assumptions and other factors that may cause our actual results, performance or achievements to be materially different. These factors include, among other things:

• | changes in economic and political activity in the U.S. and other countries in which we are located or do business, and the impact of these changes on the demand for our products and our ability to obtain financing for operations;

• | increasing competition in the automotive parts industry;

• | fluctuations in the pricing of new original equipment manufacturer (“OEM”) replacement products;

• | changes in the level of acceptance and promotion of alternative automotive parts by insurance companies and auto repairers;

• | changes to our business relationships with insurance companies or changes by insurance companies to their business practices relating to the use of our products;

• | our ability to identify sufficient acquisition candidates at reasonable prices to maintain our growth objectives;

• | our ability to integrate, realize expected synergies, and successfully operate acquired companies and any companies acquired in the future, and the risks associated with these companies;

• | restrictions or prohibitions on selling certain aftermarket products to the extent OEMs seek and obtain more design patents than they have in the past and are successful in asserting infringement of these patents and defending their validity;

• | variations in the number of vehicles sold, vehicle accident rates, miles driven, and the age profile of vehicles in accidents;

• | fluctuations in the prices of fuel, scrap metal and other commodities;

• | changes in state or federal laws or regulations affecting our business;

• | higher costs and the resulting potential inability to service our customers to the extent that our suppliers decide to discontinue business relationships with us;

• | price increases, interruptions or disruptions to the supply of vehicle parts from aftermarket suppliers and from salvage auctions;

• | changes in the demand for our products and the supply of our inventory due to severity of weather and seasonality of weather patterns;

• | the risks associated with operating in foreign jurisdictions, including foreign laws and economic and political instabilities;

• | declines in the values of our assets;

• | additional unionization efforts, new collective bargaining agreements, and work stoppages;

• | our ability to develop and implement the operational and financial systems needed to manage our operations;

• | interruptions, outages or breaches of our operational systems, security systems, or infrastructure as a result of attacks on, or malfunctions of, our systems;

• | product liability claims by the end users of our products or claims by other parties who we have promised to indemnify for product liability matters;

• | costs associated with recalls of the products we sell;

• | inaccuracies in the data relating to our industry published by independent sources upon which we rely;

• | currency fluctuations in the U.S. dollar, pound sterling and euro versus other currencies;

• | our ability to obtain financing on acceptable terms to finance our growth; and

• | our ability to satisfy our debt obligations and to operate within the limitations imposed by financing agreements.

Other matters set forth in this Annual Report may also cause our actual future results to differ materially from these forward-looking statements, including the risk factors set forth in Item 1A of this Annual Report. We cannot assure you that our expectations will prove to be correct. In addition, all subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the cautionary statements mentioned above. You should not place undue reliance on these forward-looking statements. All of these forward-looking statements are based on our
2

expectations as of the date of this Annual Report. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
Copies of our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 are available free of charge through our website (www.lkqcorp.com) as soon as reasonably practicable after we electronically file the material with, or furnish it to, the Securities and Exchange Commission.
3

ITEM 1. BUSINESS
OVERVIEW
LKQ Corporation ("LKQ" or the "Company") is a global distributor of vehicle products, including replacement parts, components and systems used in the repair and maintenance of vehicles, as well as specialty vehicle products and accessories.
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 U.S. and Canada. We are also a leading provider of alternative vehicle replacement and maintenance products in the United Kingdom and the Benelux region (Belgium, Netherlands, & Luxembourg) of continental Europe. 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. With our 2014 acquisition of Keystone Automotive Holdings, Inc. (“Keystone Specialty”), we are also a leading distributor of specialty vehicle products and accessories reaching most major markets in the U.S. and Canada.
We are organized into four operating segments: Wholesale - North America; Europe; Specialty; and Self Service. We aggregate our Wholesale - North America and Self Service operating segments into one reportable segment, North America, resulting in three reportable segments: North America, Europe and Specialty. See Note 13, "Segment and Geographic Information" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for financial information by reportable segment and by geographic region.
HISTORY
LKQ was initially formed in 1998 through the combination of a number of wholesale recycled products businesses located in Florida, Michigan, Ohio and Wisconsin. We subsequently expanded through internal development and over 220 acquisitions of aftermarket, recycled, refurbished, and remanufactured product suppliers and manufacturers; self service retail businesses; and specialty vehicle aftermarket equipment and accessories suppliers. Our most significant acquisitions include:

• | 2007 acquisition of Keystone Automotive Industries, Inc., which, at the time of acquisition, was the leading domestic distributor of aftermarket products, including collision replacement products, paint products, refurbished steel bumpers, bumper covers and alloy wheels.

• | 2011 acquisition of Euro Car Parts Holdings Limited ("ECP"), a vehicle mechanical aftermarket parts distribution company operating in the United Kingdom. This acquisition allowed us to expand our operations into the European automotive aftermarket business.

• | 2013 acquisition of Sator Beheer B.V. ("Sator"), a vehicle mechanical aftermarket parts distribution company based in the Netherlands, with operations in the Netherlands, Belgium and Northern France. This acquisition allowed us to further expand our geographic presence into continental Europe.

• | 2014 acquisition of Keystone Specialty, which expanded our product offering and increased our addressable market to include specialty vehicle aftermarket equipment and accessories.

• | On December 22, 2015, LKQ announced that it has signed a definitive agreement to acquire the holding company of Rhiag-Inter Auto Parts Italia S.p.A (“Rhiag”), a leading pan-European business-to-business distributor of aftermarket spare parts for passenger cars and commercial vehicles. Rhiag has operations in Italy, Czech Republic, Switzerland, Hungary, Romania, Ukraine, Bulgaria, Slovakia, Poland and Spain. The transaction is expected to be completed in the first half of 2016 and is subject to customary closing conditions and necessary regulatory approvals.

Further information regarding our acquisitions is included in Note 8, "Business Combinations" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.
STRATEGY
We are focused on creating economic value for our stockholders by enhancing our position as a leading source for alternative collision and mechanical repair products, and by expanding into other product lines and businesses that may benefit from our operating strengths. We believe a supply network with a broad inventory of quality alternative collision and
4

mechanical repair products, specialty vehicle aftermarket products, high fulfillment rates, and superior customer service provides us with a competitive advantage.
Other than OEMs, the competition in the markets that we serve is extremely fragmented and the supply of products tends to be localized, often leading to low fulfillment rates, particularly with recycled products. In North America, the distribution channels for aftermarket and refurbished products have historically been distinct and separate from those for recycled and remanufactured products despite serving the same customer segment. We provide value to our customers by bringing these two channels together to provide a broader product offering and more efficient distribution process.
To execute our strategy in North America, we have expanded our network of parts warehouses and dismantling plants in major metropolitan areas and employ a distribution system that allows for order fulfillment from regional warehouses located across the U.S. and Canada. By increasing local inventory levels and expanding our network to provide timely access to a greater range of parts, we have increased fulfillment rates beyond the levels that we believe most of our competitors realize, particularly for recycled products.
In our European operations, we will continue to develop our existing branch networks in the U.K. and Benelux markets and add locations where needed. In the U.K., we have undertaken a major project to expand our distribution capabilities in Tamworth. This project is expected to be completed in 2018. Between now and completion, we will incur some duplicate operating and other start-up costs, which may be material, as a result of having multiple warehouses during the build out phase. In the Benelux markets, we will continue the integration of the distributor acquisitions we have completed in that market and look for further expansion opportunities. We continue to look for opportunities to lever our growing presence in Europe through reduced cost of goods purchased and a lower total cost structure. Over time we anticipate further integration of our European operations as we optimize purchasing, cataloging, logistics and back-office functions. Assuming we are successful in our acquisition of Rhiag, we expect to follow similar strategies in its respective markets.
Sources of high quality, reliable alternatives to OEM products are important to insurance companies and to our direct customers as they seek to control repair costs. Lower parts costs and quicker completion of orders save money and reduce repair times. We believe that we provide customers (and indirectly, insurance companies) with a value proposition that includes high quality products at a lower cost than new OEM products, extensive product availability due to our expansive distribution network, responsive service, and quick delivery. The breadth of our alternative parts offerings allows us to serve as a "one-stop" solution for our customers looking for the most cost effective way to provide quality repairs. In order to execute this strategy and build on our progress thus far, we will continue to seek to expand into new markets, and to improve penetration both organically and through acquisitions.
Similarly in our Specialty operations, the supplier base for the specialty vehicle aftermarket parts and accessories market is highly fragmented, typically consisting of suppliers that are small to medium-sized, independent businesses that focus on a narrow product or market niche. While our Specialty operations had an extensive distribution network already in place, we integrated the distribution network for our North American and Specialty operations to create synergies and efficiencies with our existing infrastructure. We believe this provides added value to our customers through a broader product offering and more efficient distribution process.
Extensive in-place network
We have invested significant capital to develop a network of alternative parts facilities across our operating segments. We believe our extensive network gives us a distinct ability to benefit the major automobile insurance companies, which are generally operated on a national or regional level. Additionally, the difficulty and time required to obtain proper zoning, as well as dismantling and other environmental permits necessary to operate newly-sited recycled parts facilities, would make establishing a new network of recycled parts locations a challenge for a competitor. There are also difficulties associated with recruiting and hiring an experienced management team that has strong industry knowledge.
We are attempting to utilize a similar strategy in Europe with our acquisitions of ECP, Sator and certain of Sator's distributors. These companies have a national presence in their respective countries, and we are working to integrate the operations to take advantage of shared procurement, warehousing and product offerings.
Strong business relationships
We have developed business relationships with key constituents, including automobile insurance companies, suppliers and other industry participants in North America, the United Kingdom, and the Netherlands. Insurance companies, as payers for most collision repairs, help drive demand, and take active roles in the selection of alternative replacement products for vehicle repairs in order to minimize the repair portion of the claims costs and reduce repair time. The use of our products lowers the cost of repairs, decreases the time required to return the repaired vehicle to the customer, and provides a replacement product that is of high quality and comparable performance to the part replaced, all of which are favorable to insurance companies.
5

Because of their importance to the process, we have formed relationships with certain insurance companies in North America for which we are designated a preferred products supplier.
Within our North American Segment, we provide quality assurance programs that offer additional product support to automobile insurance companies. These product support programs identify specific subsets of aftermarket products by vendor and product type that can be used in the repair of vehicles that these companies insure. The programs typically offer aftermarket products that have been produced by manufacturers certified by a third party testing lab. We may provide additional validation of the quality of the products beyond our standard warranties, and identification details that make the products traceable back to a manufacturer's specific production run.
Broad product offering
The breadth and depth of our inventory across all of our operating segments reinforces LKQ's ability to provide a "one-stop" solution for our customers' alternative vehicle replacement, maintenance, and specialty vehicle product needs. Customers place a high value on the availability of a broad range of vehicle replacement products. Historically, in our North American operations, we have been able to provide the collision and mechanical repair industry with premium products at costs typically 20% to 50% below new OEM replacement products. The availability of alternative products means that vehicles can be repaired with lower parts costs, and in some instances, reduced labor costs. In fact, many insurance companies in North America will not authorize the use of higher cost, new OEM replacement products if alternative products are available because the use of alternative products provides insurers a method to manage and reduce total repair costs. Some insurance companies designate us as a preferred supplier for their affiliated repair shops because of our ability to provide these products. With our distribution network and extensive range of products, we believe we are the only supplier that is able to support the insurance industry in this manner. We leverage this same distribution network to provide a broad offering of specialty vehicle aftermarket products and accessories used to customize or enhance the performance, handling or appearance of new or used vehicles. Additionally, we believe we are well-positioned in Europe to continue developing our distribution network of a broad offering of vehicle replacement products to support mechanical repair shops in that market.
High fulfillment rates
We manage local inventory levels to improve delivery time and maximize customer service. Improving local order fulfillment rates reduces transfer costs and delivery times, and improves customer satisfaction. Our ability to move inventory throughout our distribution networks increases the availability of our products and also helps us to fill a higher percentage of our customers' requests.
We deploy inventory management systems at our facilities that are similar to those used by other leading distribution companies. For example, we make extensive use of bar code technology and wireless data transmission to track parts from the time a vehicle or product arrives at a facility to its placement on a truck for delivery to the customer. With this real-time information, we are able to actively monitor inventory levels throughout our distribution channels.
Technology driven business processes
We focus on technology development as a way to support our competitive advantage. We believe that we can more cost effectively leverage our data to make better business decisions than our smaller competitors. We continue to develop our technology to better manage and analyze our inventory, assist our salespeople with up-to-date pricing and availability of our products, and further enhance our inventory procurement process.
We employ proprietary methodologies and information systems to help us identify high demand wholesale aftermarket and recycled products. Our aftermarket inventory systems track products sold and sales lost due to a lack of inventory, and make purchase recommendations based on this information. The inventory systems also recommend purchases and transfers based on the extent and location of demand, as well as other replenishment factors. When we procure aftermarket products or refurbish collision replacement products such as wheels, bumper covers and lights, we focus on products that are in the most demand at all levels of the automotive parts value chain including the professional repair market, the jobber market and the general insured repair market. Because lead times may take 40 days or more on imported products, sales volume and in-stock inventory are important factors in the procurement process. We use historical sales records of vehicles by model and year to estimate the demand for our products. We also analyze new vehicle designs that are expected to come to market to assure that we are working with suppliers to project future supply and demand trends. Combining this information with proprietary data that aggregate customer requests for products, we are able to source aftermarket products and salvage vehicles at prices that we believe will allow us to sell products profitably.
In Europe, we use a number of systems to manage our business. These systems assist with our purchasing, inventory management, order fulfillment, logistics, and other business functions at each location. Our systems allow customers to review our inventory and make purchases, and in many cases assist our customers with locating the appropriate part for repairs.
6

In our Specialty operations, we believe a focus on technology allows us to develop our business processes and enhance the customer experience. Our inventory forecasting systems help us ensure that the correct product is stocked in the right place to meet customer demand. Our warehousing and logistics systems help us deliver products to customers across the U.S. and Canada. Our online catalogs offer industry leading product information across all segments of automotive and recreational vehicle ("RV") aftermarket parts and accessories and allow customers to search, compare, and order products based upon the specifications of a vehicle. Furthermore, enhancements to our phone systems allow us to improve our customer support capability and the overall customer experience.
NORTH AMERICA SEGMENT
Wholesale Automotive Products
Our wholesale automobile product operations in North America are organized by geographic regions serving the U.S. and Canada that sell all five product types (aftermarket, recycled, remanufactured, refurbished and OEM parts) to professional collision and mechanical automobile repair businesses. Our combined distribution channels for our alternative parts offerings leverage our facility and warehouse costs and improve local product availability by locating multiple product operations together. Our aftermarket product operations may include a combination of sales, warehousing and distribution functions, and in many cases will be co-located with our refurbishing operations. Our wholesale recycling operations typically have processing, sales, distribution and administrative operations on site, indoor and outdoor storage areas, and include a large warehouse with multiple bays to dismantle vehicles. Our engine remanufacturing operations are conducted primarily at our facilities in Mexico as well as the U.S., with sales, warehousing and distribution operations in the U.S. As of December 31, 2015, our North American wholesale operations conducted business from 348 facilities.
Wholesale Aftermarket Products
Our 2015 sales included more than 110,000 SKUs of aftermarket automotive products, excluding refurbished products, for the most common models of domestic and foreign automobiles and light trucks, primarily for the repair of vehicles three to twelve years old. Our principal aftermarket product types consist of those most frequently damaged in collisions, including bumper covers, automotive body panels and lights. We also distribute paint and other materials used in repairing damaged vehicles, including sandpaper, abrasives, masking products and plastic filler. The paint and other materials distributed by us are purchased from numerous suppliers in the U.S. and Canada.
We expanded our wholesale aftermarket operations through the acquisition of PartsChannel, Inc. (“Parts Channel”) in July 2015. At the time of acquisition, Parts Channel was one of the leading domestic distributors of aftermarket products, including collision replacement products.
Platinum Plus is our exclusive product line offered in the Keystone brand of aftermarket products. The Platinum Plus products are held to high quality standards and tested by quality assurance teams or independent third parties. We also developed a product line called "Value Line" for more value conscious, often self-pay, consumers. Our Value Line products offer quality products at reasonable prices, providing additional choices for repairs or rebuilding of vehicles.
Certain of our products are certified by independent organizations such as the Certified Automotive Parts Association ("CAPA") and NSF International ("NSF"). CAPA and NSF are associations that evaluate the functional equivalence of aftermarket collision replacement products to OEM collision replacement products. Members of CAPA and NSF include insurance companies, product distributors (including LKQ), collision repair shops and consumers. CAPA and NSF develop engineering specifications for aftermarket collision replacement products based upon examinations of OEM products; certify the factories, manufacturing processes and quality control procedures used by independent manufacturers; and certify the materials, fit and finish of specific aftermarket collision replacement products.
LKQ is certified under the NSF International Automotive Parts Distributor Certification Program, which addresses the needs of collision repair shops and insurers by maintaining quality management systems to address part traceability, service and quality. This certification program complements the existing parts certification program with NSF under which a broad range of automotive replacement parts are certified by NSF. Many major insurance companies have adopted policies recommending or requiring the use of products certified by CAPA or NSF. A number of CAPA and NSF certified products are also marketed under the Platinum Plus brand.
Procurement of Inventory
The aftermarket products we distribute are purchased from independent manufacturers and distributors located primarily in the U.S., Taiwan, and China. In 2015, approximately 29% of our aftermarket purchases were made from our top four vendors, with our largest vendor providing approximately 11% of our annual inventory purchases. We believe we are one of the largest customers of each of these suppliers. Outside of this group, no other supplier provided more than 5% of our supply of aftermarket products in 2015. We purchased approximately 54% of our aftermarket products in 2015 directly from
7

manufacturers in Taiwan and other Asian countries. Approximately 45% of our aftermarket products were purchased from vendors located in the U.S. and Canada; however, we believe the majority of these products were manufactured in Taiwan, Mexico or other foreign countries. We have business arrangements with manufacturers to produce certain of our products. These agreements automatically renew for additional 12 month periods unless written notice is given. While we compete with other distributors for production capacity, we believe that our sources of supply and our relationships with our suppliers are satisfactory.
We usually receive orders from domestic suppliers within ten days from the date ordered. Foreign orders typically are shipped in sea containers directly to certain of our aftermarket locations, and are received within 30 to 55 days from the date ordered. We operate an aftermarket parts warehouse in Taiwan that aggregates inventory from certain of our vendors for shipment to our North American locations. As of December 31, 2015, we operated 24 regional hubs and three distribution centers, which act as sources for our warehouse locations that do not receive containers directly and serve as redistribution centers for our operations.
Wholesale Recycled Products
Our recycled products include engines, transmissions, door assemblies, sheet metal products such as trunk lids, fenders and hoods, lights, and bumper assemblies. Some insurance companies mandate that the recycled products must be of the same model year or newer as the vehicle being repaired. As a result, the majority of the products we sell are from vehicles not more than ten years of age. Installing recycled products often means that collision shops not only save on product cost, but, because several products may come pre-assembled, the shops are also able to reduce labor costs.
We strive to be environmentally responsible. Our recycled automotive products provide an alternative to the manufacture of new products, which would require the expenditure of more resources and energy and would generate additional pollution. In addition, we save landfill space because the parts that we recycle would otherwise be discarded. We also collect materials, such as metals, plastics, fuel and motor oil, from the salvage vehicles that we procure, and use them in our operations or sell them to other users.
Procurement of Inventory
We procure recycled products for our wholesale operations by acquiring severely damaged or totaled vehicles, and then dismantling and inventorying the parts. Vehicles that have been declared "total losses" typically are sold at regional salvage auctions throughout the U.S. and Canada. Salvage auctions charge fees both to the suppliers of vehicles, which are primarily insurance companies, and to the purchasers. Additionally, we typically pay third parties to tow the vehicles from the auction to our facilities.
The availability and pricing of the salvage vehicles we procure for our wholesale recycled product operations may be impacted by a variety of factors, including the production level of new vehicles and the portion of damaged vehicles declared total losses. Over the past several years, the frequency with which vehicles are declared total losses has increased as a result¸ we believe, of the rise in repair costs relative to vehicle replacement cost and salvage vehicle prices. In 2000, approximately 9% of accident claims resulted in a total loss; by 2014, this percentage increased to almost 14%, with more than 70% of these total losses being declared for vehicles aged seven years or older. Additionally, sales of new vehicles have increased since 2010 and are projected to continue to increase over the next 3 years, which should result in a greater volume of salvage vehicles at auction.
In 2015, we acquired 287,000 salvage vehicles for our wholesale recycled product operations, primarily from salvage auctions. Prior to the scheduled auction date, our salvage buyers may preview the auctions online to investigate the vehicles to be sold and determine our interest in buying them. They obtain key information such as the model and mileage, and perform visual damage assessments to determine which parts on the targeted vehicles are recyclable. With the data from this preview, we deploy a bidding system that performs a valuation calculation for each vehicle. In order to recommend a maximum bid price, the calculation incorporates demand for a vehicle's recyclable parts, current inventory levels, average selling prices, auction costs, projected margins and instances of out-of-stock. Using this disciplined supply and demand procurement approach, we place bids on the targeted vehicles.
Vehicle Processing
Vehicle processing for our wholesale recycled operations involves dismantling a salvage vehicle into recycled products that are ready for sale. When a salvage vehicle arrives at our facility, an inventory specialist identifies, catalogs, and schedules the vehicle for dismantling. Prior to dismantling, we remove from each vehicle its battery, fluids, refrigerants, and parts containing hazardous substances or precious metals such as catalytic converters. The extracted fluids are stored in bulk and subsequently sold to recyclers. In the case of gasoline, the fuel retrieved is primarily used to power our delivery vehicles. A small portion of the recycled motor oil we collect is used at certain of our plants that have high-efficiency oil burning furnaces; the balance is sold to motor oil recyclers.
8

When ready for dismantling, each vehicle has an inventory report that indicates to the dismantler which parts should be removed and placed in a warehouse for future sales to customers, which parts should be collected in bulk for our refurbishing and remanufacturing operations or for sale to parts remanufacturers, and which parts have value but should remain on the vehicle until sold. We utilize bar coding systems and wireless transmission to keep track of inventory from the time a product is removed and inventoried to the time it is sold and put on a truck for delivery.
Refurbished and Remanufactured Products
As of December 31, 2015, we operated 25 refurbishing facilities and 4 engine remanufacturing facilities. We refurbish products such as wheels, lights, plastic bumpers, and chrome bumpers.
When identifying the products that we refurbish or remanufacture, we focus on products that have high demand. The majority of our refurbished and remanufactured products are processed from cores obtained from salvage vehicles purchased by our recycled operations, parts received in trade from customers purchasing replacement products from us, and cores collected by our route delivery drivers from vehicles under repair by our customers. These products are accumulated from our wholesale operations at our core sorting facilities, and are then either sent to our refurbishing or remanufacturing facilities or sold in bulk to other mechanical remanufacturers.
Heavy-Duty Truck Products
As of December 31, 2015, we operated a total of 25 heavy-duty truck facilities in the U.S. and Canada. Our inventory is composed of used heavy-duty trucks, usually at least five years old, which are purchased at salvage and truck auctions or directly from insurance companies or large fleet operators. During 2015, we purchased approximately 7,000 vehicles. Depending on the condition of the vehicles, they may be dismantled for parts or resold as running vehicles. If certain mechanical parts are damaged, such as transmissions, we may remanufacture them and offer them to our customers. The vehicles that are acquired for resale are typically special purpose or vocational use trucks such as those used for garbage pickup or cement delivery. If requested by the sellers of the vehicles, we provide assurance that the vehicles will be sold to foreign buyers and exported to countries for use outside of the U.S., or to domestic buyers after the vehicles have been reconditioned and modified for use other than their original purpose.
Scrap and Other Materials
Our wholesale recycled product operations generate scrap metal and other materials that we sell to recyclers. Vehicles that have been dismantled for recycled products and "crush only" end of life vehicles acquired from other companies, including OEMs, are typically crushed using equipment on site. In other cases, we will hire mobile crushing equipment to crush the vehicles before they are transported to shredders and scrap metal processors. Damaged and unusable wheel cores are melted in our aluminum furnace and sold to consumers of aluminum ingot and sow for the production of various automotive products, including wheels. We also extract and sell the precious metals contained in certain of our recycled parts such as catalytic converters.
Customers
We sell our products to wholesale customers that include collision and mechanical repair shops and new and used car dealerships, as well as to retail customers. Customers of our heavy-duty truck products may also include owner/operators, local cartage companies, or exporters. Most of our refurbished and remanufactured products are sold through our wholesale distribution channels. The balance is sold to retail automotive stores, wholesale distributors and via internet sales. We also generate a portion of our revenue from scrap sales to metal recyclers. No single customer accounted for 2% or more of our revenue in 2015.
Repair Shops and Others
We sell the majority of our wholesale products to collision and mechanical repair shops. Industry reports estimate there were approximately 41,000 collision repair shops, including those owned by new car dealerships, in the U.S. in 2014. The same reports estimate there were approximately 79,000 general (including mechanical) repair garages, excluding new car dealership service departments, in the U.S. in 2014. The majority of these customers tend to be individually-owned small businesses, although the number of independent and dealer-operated collision repair facilities has declined over the last decade, as regional or national multiple location operators have increased their geographic presence through acquisitions. We also sell our products to car rental companies and fleet management groups.
Insurance Companies
Automobile insurance companies affect the demand for our collision products. While insurance companies do not pay for our products directly, they ultimately pay for the repair costs of insured vehicles in excess of any deductible amount. As a result, insurance companies often influence the types of products used in a repair.
9

Our presence in most major markets in the U.S. and Canada gives us a distinctive ability to benefit the major automobile insurance companies. Insurance companies generally operate at a national or regional level. The use of our products provides a direct benefit to these companies by lowering the cost of repairs, decreasing the time required to return the repaired vehicle to the customer, and providing a replacement product that is of high quality and comparable performance to the part replaced.
We assist insurance companies by providing high quality aftermarket, recycled, refurbished and remanufactured products to collision repair shops, especially to repair shops that are part of an insurance company's Direct Repair Program ("DRP") network. A repair shop participating in a DRP is referred potential work from the insurance company in exchange for providing assurances to the insurance company of quality, timeliness, and cost. Industry reports indicate that over half the claims paid for by top insurance companies in 2012 were paid through a DRP, compared to 42% in 2009. To meet the needs of the DRPs, professional repairers have been required to become fluent in claims handling. We offer our repair shop customers access to our proprietary system, Keyless, which provides a link between their estimating systems and our inventory to identify the availability of alternative products for use in their repair. This data also helps insurance companies monitor the body shops' compliance with their DRP product guidelines that might, for instance, stipulate the use of the lowest cost products that meet quality specifications. In addition, in some markets insurance companies are able to dispose of low value total loss vehicles directly to us so they can save the transaction fees associated with selling these vehicles through salvage auctions.
Sales and Marketing
In the case of repairs paid for as a result of insurance claims, which industry publications estimate are approximately 85% of all repairs, insurance companies give collision repair shops information as to what type of replacement products are eligible for reimbursement. Typically insurance carriers have established a hierarchy or decision tree prioritizing the types of products to be used for repairs. As an example, a protocol may require recycled products if available; if recycled products are not available, then refurbished products; and, if recycled or refurbished products are not available, aftermarket products. If none of these alternative product types is available, the shop may then use new OEM replacement products. Once the estimated repair cost is determined, the body shop will begin its search for required products. The sourcing of products typically begins with a call to one of our recycled operations or one of our competitors. Our recycled sales personnel are encouraged to capture the sale as a "one-stop shop" and, if recycled products are out of stock, to fill orders from our refurbished or aftermarket product inventory. To support these efforts, we have provided our sales staff with access to both recycled and aftermarket sales systems, and we have developed sales incentive programs that encourage cross selling throughout our wholesale operations.
As of December 31, 2015, we had approximately 2,300 full-time sales staff in our North American wholesale operating segment. The full time sales personnel are located at sales desks at our facilities or at one of the regional call centers we operate. We deploy a call routing system that redirects overflow calls to alternative call centers, typically located within the same region. We also operate two other call centers, one to support national accounts, and the other to support insurance adjusters' needs and questions. Our sales personnel are encouraged to initiate outbound calls in addition to the inbound calls they handle. Our sales staff can use customer estimates from our Keyless estimating system to generate sales leads for both aftermarket and recycled products.
We are continually reviewing and revising the pricing of wholesale products. Our pricing specialists consider factors such as recent demand levels, inventory quantity on hand and turnover rates, new OEM product prices and local competitive pricing, with the goal of optimizing revenue. We set list prices and then sell items at a discount to list, with the discount typically based on each customer's purchasing volume. We may adjust prices during the year in response to material price changes of new OEM replacement products.
We believe our commitment to stock inventory in local warehouses, supplemented by the inventory sharing system within our regional trading zones, improves our ability to meet our customers' requirements more frequently than our competitors and gives us a competitive advantage.
Distribution
We have a distribution network of 348 wholesale plants and warehouses across the U.S. and Canada as of December 31, 2015, of which 66 function as cross dock facilities. Our network of facilities allows us to develop and maintain our relationships with local repair shops while providing a level of service that is made possible by our nationwide presence. Our local presence allows us to provide daily deliveries as required by our customers, using drivers who routinely deliver to the same customers. Our sales force and local delivery drivers develop and maintain critical personal relationships with the local repair shops that benefit from access to our wide selection of products, which we are able to offer as a result of our regional inventory network.
We have developed an internal distribution network to allow our sales representatives to sell our products within regional trading zones, thus improving our ability to fulfill customer requests and accelerating inventory turnover. Each weekday we operate approximately 310 transfer runs between our cross dock facilities and our plants and warehouses within
10

our regional trading zones to redistribute our alternative products for delivery on the next day. In addition, we have over 2,900 local delivery routes serving our customers each weekday.
Each sale results in the generation of a work order at the location housing the specific product. A dispatcher is then responsible for ensuring fulfillment accuracy, printing the final invoice, and including the product on the appropriate truck route for delivery to the customer. In markets where we offer more than one alternative product type, we are integrating the delivery of multiple product types on the same delivery routes to help minimize distribution costs and improve customer service. We operate a delivery fleet of medium-sized trucks and smaller trucks and vans. Over time, we expect that our delivery vehicles will become more consistent as we reconfigure the fleet to include vehicles that can carry all five product types.
Competition
We consider all suppliers of vehicle collision and mechanical products to be competitors, including aftermarket suppliers, recycling businesses, refurbishing operations, parts remanufacturers, OEMs and internet-based suppliers. We believe the principal areas of differentiation in our industry include availability of inventory, pricing, product quality and service.
The aftermarket product distribution business is highly fragmented and our competitors, other than OEMs, are generally independently owned distributors with one to three distribution centers. Similarly, we compete with domestic vehicle product recyclers, most of which are single-unit operators. In some markets, smaller competitors have organized affiliations to share marketing and distribution resources, including internet sites. We compete with alternative parts distributors on the basis of our nationwide distribution system, our product lines and inventory availability, customer service, our relationships with insurance companies, and to a lesser extent, price. We do not consider retail chains that focus on the do-it-yourself market to be our direct competitors since many of our wholesale product sales are paid for by insurance companies rather than the end user.
Manufacturers of original equipment products sell the majority of automobile collision replacement products. We believe, however, that the insurance and repair industries recognize advantages of using aftermarket, recycled, refurbished and remanufactured products for collision repairs. Industry sources estimate that alternative collision parts usage in the U.S. ranged between approximately 36% and 37% during 2015. We compete with OEMs primarily on the basis of price and, to a lesser extent, on service and product quality.
Self Service Retail Products
Our self service retail operations sell parts from older cars and light-duty trucks directly to consumers. In addition to revenue from the sale of parts, core, and scrap, we charge a nominal admission fee to access the property. Our self service facilities typically consist of a fenced or enclosed area of several acres with vehicles stored outdoors and a retail building through which customers are able to access the yard. As of December 31, 2015, we conducted our self service operations from 78 facilities in North America, most of which operate under the name "LKQ Pick Your Part."
Inventory
We acquire inventory for our self service retail product operations from a variety of sources, including but not limited to towing companies, auctions, the general public, municipality sales, insurance carriers, and charitable organizations. We typically procure salvage vehicles that are more than seven model years old for our self service retail product operations. These vehicles are generally older and of lower quality than the salvage vehicles we purchase for our wholesale recycled product operations. Using our new car buying system implemented in 2015, we have streamlined the car buying process and are better able to facilitate the quoting, purchasing, and processing of cars. In 2015, we purchased approximately 471,000 lower cost self service and "crush only" vehicles.
Vehicles are delivered to our locations by the seller, or we arrange for transportation. Once on our property, minimal labor is required to process the vehicle other than removing the battery, fluids, refrigerants, catalytic converters and hazardous materials. Vehicles are then placed in the yard for customers to remove parts. The vehicle inventory is usually organized according to domestic and import cars (further organized by make), passenger vans and trucks. In our self service business, availability of a specific part will depend on which vehicles are currently at the site and to what extent parts may have been previously sold. We usually keep a vehicle at our facility for 30 to 90 days, depending on the capacity of the yard and size of the market, before it is crushed and sold to scrap metal processors. By maintaining a relatively short turnover period, we ensure that our inventory is continually updated with different car options or removed from the yard when the saleable parts are depleted.
Scrap and Other Materials
Our self service operations generate scrap metal, alloys and other materials that we sell to recyclers. Vehicles that we no longer make available to the public and "crush only" vehicles acquired from other companies, including OEMs, are typically crushed using equipment on site.
11

Customers
The customers of our self service yards are frequently do-it-yourself mechanics, small independent repair shops servicing older vehicles, auto rebuilders, and resellers. The scrap from the vehicle hulks, when not processed by us, is sold to metals recyclers, with whom we may also compete when procuring salvage vehicles for our operations.
Sales and Marketing
We list part prices for automobiles and light-duty trucks on regularly updated price sheets, with prices varying by part type, but not by make or model. For instance, four cylinder engines are priced the same regardless of vehicle make, model, age or condition. While we do not consider retail automotive chains to be our direct competitors, as their product offerings are focused on maintenance products and mechanical parts, we may reference their prices on certain parts as a benchmark to ensure our prices remain competitive.
Competition
There are competitors operating self service businesses in all of the markets in which we operate. In some markets, there are numerous competitors, often operating in close proximity to our operations. We try to differentiate our business by the quality of the inventory and the size and cleanliness of the property.
EUROPE SEGMENT
Wholesale Automotive Products
Our European wholesale operating segment was formed in the fourth quarter of 2011 with our acquisition of ECP, a leading distributor of automotive aftermarket parts in the U.K. ECP has approximately 8,800 employees with a large customer base of both commercial and retail accounts. The majority of ECP’s revenue comes directly from the professional repair segment. ECP’s national distribution centers support its regional hubs and branch network with daily replenishment of stock, providing our customers with what we believe to be the highest in-stock rate in the U.K. As of December 31, 2015, we operated 218 selling locations, supported by 3 national distribution centers and 17 regional hubs (many of which are co-located with selling locations), which allows us to reach most major markets within the U.K.
Our European aftermarket collision parts program is managed by our ECP branch network through which we sell our Platinum Plus aftermarket products. We believe the historically low alternative collision parts usage percentage in Europe, which is currently less than 10%, provides an opportunity for us in this segment, particularly as insurance companies look to lower their costs. To further our commitment to expanding our European alternative collision parts program and becoming a leading one-stop shop supplier to the collision repair industry in the U.K., we also offer automotive paint products and related accessories.
In May 2013, we acquired Sator, which allowed us to expand our presence in Europe to continental Europe. Headquartered in Schiedam, the Netherlands, Sator is a market leading distributor of automotive aftermarket parts in Western Europe. The acquisition of Sator expanded LKQ's European presence, and provides a potential platform to capitalize on the large and fragmented mechanical replacement parts market in Europe. Sator also complements our existing ECP operations in the U.K. given the significant overlap in suppliers and product mix, which allows for potential cost savings from the leveraging of our combined purchasing power. Efforts to combine the purchasing function in Europe are ongoing and are expected to be a continuous effort over the coming years. We have modified Sator's distribution model to be consistent with our U.K operations, primarily through acquisitions since the second quarter of 2014 of 18 warehouse distributors, 14 of which were customers of Sator. These acquisitions are integral to our plan to implement a two-step distribution model for Sator, under which we are selling directly to repair shops in order to improve our margins, drive product sales, and ultimately sell collision parts in the Benelux region.
Sator has over 2,800 employees at 97 aftermarket warehouses that serve a diverse base of repair shop and warehouse distributor customers. Sator generates approximately 89% of its revenue from sales in the Netherlands and Belgium, with the remainder in Northern France and other European countries. With their respective distribution networks, IT infrastructure and unique customer base, we believe ECP and Sator will serve as a platform to expand into complementary products to increase market penetration in this segment, as well as to further develop a collision repair parts business throughout Europe similar to our wholesale operations in North America.
In November 2014, we expanded our European segment to include wholesale recycling operations through our acquisition of a business with salvage and vehicle repair facilities in Sweden and Norway. We acquired an additional salvage business in Sweden in October 2015 bringing our Scandinavian employee headcount and warehouse count to 178 and 7, respectively. In addition to expanding our geographic presence in Europe, we believe these acquisitions provide us with the opportunity to leverage our experience in operating salvage facilities in a new market and leaves us well positioned to expand our aftermarket operations to include these countries.
12

Inventory
In 2015, ECP’s and Sator’s sales included 137,000 SKUs and 166,000 SKUs, respectively. Our inventory is primarily composed of mechanical aftermarket parts for the repair of vehicles 3 to 15 years old. Our top selling products include brake pads, discs and sensors; clutches; electrical products such as spark plugs and batteries; steering and suspension products; filters; and oil and automotive fluids. In 2015, our top five suppliers represented 20% of our inventory purchases, with our top supplier representing approximately 8% of our purchases. No suppliers outside of our top five suppliers provided more than 2% of our purchases during 2015.
The aftermarket products we distribute are purchased from vendors located primarily in the U.K. and continental Europe. In 2015, we purchased 90% of our products from companies in Europe. The remaining 10% of our 2015 purchases were sourced from vendors located primarily in China or Taiwan, some of which also supply collision parts for our Wholesale - North American operations. In 2015, 52%, 38%, and 10% of our total inventory purchases were made in Euros, Pounds Sterling, and U.S Dollars, respectively.
In our Scandinavia operations, we purchase severely damaged or totaled vehicles from insurance companies, which are transferred to our dismantling facilities or sold to other third party dismantlers. In 2015, we acquired over 8,150 salvage vehicles for our wholesale recycled product operations and resold 11,700 salvage vehicles to other third party dismantlers.
Customers
In our U.K. operations, we sell the majority of our products to over 37,000 commercial customers primarily consisting of professional repairers, including both independent mechanical repair shops and collision repair shops. In addition to our sales to repair shops, we generate a portion of our revenue through sales to retail customers from ECP’s e-commerce platform and from counter sales at the branch locations. This retail component of ECP’s business has historically represented approximately 10% of its revenue.
Historically our distribution network in the Benelux Region operated under a three-step distribution model where the immediate customers were warehouse distributors. Since the second quarter of 2014, we have acquired 18 aftermarket parts distributors in the Netherlands. These acquisitions have enabled us to transform the original distribution model to a two-step distribution model. Our customer base currently consists of a combination of warehouse distributors and local repair shops, and the demand for our products is driven by the needs of the same types of professional repairers we service in our ECP operations. As a result, our customer base primarily consists of local repair shops. We still sell to some warehouse distributors, although the proportion of revenue from the distributors has declined over time as we internalize this function. Sator markets directly to the mechanical repair shops through fliers and other promotional materials and provides software to the repair shops, which the shops need for their operations. During 2015, no customer accounted for more than 3% of revenue for ECP or Sator.
Sales and Marketing
ECP’s customers will generally call a sales representative at the nearest branch to place an order. Using an electronic automotive exchange and our integrated IT platform displaying inventory availability, our sales representatives locate the appropriate replacement part for a customer. We set list prices for our products, and then apply a discount off of list, primarily depending on each customer's purchasing volume. We utilize a business-to-business website with certain of our customers to enable them to place product orders online through a customized interface that includes detailed parts specifications, customer-specific pricing, local branch availability, and account information. We believe this customer interface will result in fewer parts returns by improving order accuracy and will also reduce the time required by parts specialists to advise customers. Whether placed via a phone order or online, customer orders are filled from the local branch or routed to another location as necessary to fill the order.
Sator’s sales and marketing platform is a proprietary stock management system that provides repair shops, jobbers and end users with an efficient system for ordering from our product catalog directly online. Through this online system, Sator is able to actively monitor inventory levels at all stages in the aftermarket automotive parts value chain in its markets.
Similar to our North American wholesale operations, insurance companies significantly influence the purchasing decisions for collision products in Europe. As a result, we are attempting to establish business relationships with insurance companies and implement insurer-based marketing models in the U.K. by emphasizing the cost savings that can be achieved through the use of alternative parts. As we continue to grow our collision parts offerings in the U.K., we believe we will be well-positioned to serve as a lower-cost alternative for insured repairs throughout Europe given the majority of U.K. carriers offer coverage in multiple European countries outside of the U.K.
Distribution
Our European operations employ a distribution model in which inventory is stored at regional distribution centers or hubs, with fast moving product stored at branch locations or at local warehouse distributors (for some of our Sator operations) for timely delivery to the repair shop customers. Product is moved through the distribution network on our vans or via common
13

carrier. In our ECP operations, we also sometimes employ a third party motorcycle fleet to deliver parts from our branch locations to nearby repair shop customers; as a result, our ECP branches can deliver certain in-stock parts within one hour.
Competition
We view all suppliers of replacement repair products as our competitors, including other alternative parts suppliers and OEMs and their dealer networks. While we compete with all alternative parts suppliers, there are few with national distribution networks like ECP and Sator that can reach the majority of repair shop customers within the required delivery time within their respective markets. We believe we have been able to distinguish ourselves from other alternative parts suppliers primarily through our distribution network, efficient stock management systems and proprietary technology which allows us to deliver our products quickly, as well as through our product lines and inventory availability, pricing, and service. We compete with OEMs primarily on the basis of price, service, and availability.
SPECIALTY SEGMENT
Specialty Vehicle Aftermarket Equipment and Accessories
Our Specialty operating segment was formed in January 2014 with our acquisition of Keystone Specialty. Keystone Specialty is a leading distributor and marketer of specialty vehicle aftermarket equipment and accessories in North America serving the following six product segments: truck and off-road; speed and performance; RV; towing; wheels, tires and performance handling; and miscellaneous accessories. Our specialty segment has over 2,200 employees. We expanded our Specialty operating segment through our October 2014 acquisition of a supplier of replacement parts, supplies and accessories for RVs. Our August 2015 acquisition of The Coast Distribution System, Inc. (“Coast”) added to product offerings for the RV and outdoor recreation markets. With these acquisitions, we are a leading distributor and marketer of specialty vehicle aftermarket products and accessories, reaching most major markets in the U.S. and Canada.
Inventory
Our 2015 sales included more than 250,000 SKUs of specialty vehicle aftermarket equipment and accessories. Our top selling products are trailer hitches and RV products including satellite antennas, generators, waterproofing sealants, combination washer/dryer units and water pumps. The specialty vehicle aftermarket equipment and accessories we distribute are purchased from suppliers located primarily in the U.S., Canada, and China. Specialty aftermarket suppliers are typically small to medium-sized, independent businesses that focus on a narrow product or market niche. Due to the highly fragmented supplier base for specialty vehicle aftermarket products, we have very little supplier concentration. In 2015, approximately 17% of our specialty vehicle aftermarket purchases were made from our top five vendors, with our largest vendor providing approximately 5% of our inventory.
Customers
Specialty automotive and RV aftermarket accessories and equipment are purchased by our customers to improve the performance, functionality and appearance of their vehicles. Overall, the specialty vehicle aftermarket parts and accessories market contains a fragmented customer base comprised of specialty vehicle product installation outlets, automotive parts chains, or mail-order. In 2015, we sold products to approximately 20,000 customers. Our customers are principally small, independent retailers and installers of specialty vehicle automotive equipment. These businesses depend on us to provide a broad range of products, rapid delivery, marketing support and technical assistance. In addition to traditional customers, in recent years we have increased sales to several large automotive parts and online retailers. During 2015, our top two customers accounted for approximately 6% of Specialty segment revenue while no other customer accounted for more than 1% of revenue.
Sales and Marketing
Our employee sales force is comprised of inside sales personnel located within geographically-disbursed call centers and outside sales personnel who call directly on customers in the field. This sales force receives customer orders, responds to technical and other inquiries and proactively places outbound sales calls to customers. The focus of our outside sales force is to identify and acquire new customers, and to further develop relationships with existing customers. Outside sales personnel are responsible for specific geographic regions across the U.S. and Canada, and they work with regional managers to penetrate and service new and existing markets. Outside sales personnel also sell value-added marketing services, such as merchandising support.
Marketing programs include: catalogs; advertising, sponsorships and promotional activities; product level marketing and merchandising support; and online initiatives. Our national footprint allows us to stage trade shows across the U.S., which provide an opportunity to improve sales through the showcasing of new and innovative products from our vendors to our customers.
14

Through these sales and marketing initiatives, our goal is to continue to enhance our brand and reputation as a leading distributor in the industry.
Distribution
Our Specialty operations employ a hub-and-spoke distribution model which enables us to transport products from our 6 primary distribution centers and 18 inventory-stocking warehouses to our 54 non-inventory stocking cross docks, a majority of which are co-located with our Wholesale - North America operations and provide distribution points to key regional markets. Over 375 delivery routes are used to provide multi-day per week delivery and returns of our products directly to and from our customers in all 48 continental U.S. states and 9 Canadian provinces, and we ship globally to customers in over 40 countries. Keystone Specialty also operates 18 retail stores in northeastern Pennsylvania. Our retail stores accounted for less than 4% of Specialty segment revenue in 2015.
Competition
Industry participants have a variety of supply choices. Vendors can deliver products to market via warehouse distributors and mail order catalogs, or directly to retailers and/or consumers. We view all suppliers of specialty vehicle aftermarket equipment and accessories as our competitors. While we compete with all specialty vehicle aftermarket parts suppliers, there are few with national distribution networks like LKQ’s that can reach the majority of customers within the optimum delivery time. We believe we have been able to distinguish ourselves from other specialty vehicle aftermarket parts suppliers primarily through our broad product selection, which encompasses both popular and hard-to-find products, our distribution network, and efficient stock management systems, as well as through our service. We compete on the basis of product breadth and depth, rapid and dependable delivery, marketing initiatives, support services, and price.
INTELLECTUAL PROPERTY
We own various trade names and trademarks as a result of past acquisitions. In addition to acquired trade names and trademarks, we also have technology based intellectual property that includes both internally developed websites and license agreements. We do not believe that our business is materially dependent on any single or group of related trademarks, licenses or registrations, nor would the expiration of any particular intellectual property right or termination of any particular intellectual property license agreement materially affect our business.
EMPLOYEES
As of December 31, 2015, we had approximately 31,100 employees. We are a party to a collective bargaining agreement with a union that represents 45 employees at our Totowa, New Jersey facility. Approximately 790 of our employees at our bumper refurbishing and engine remanufacturing operations in Mexico and 160 of our employees at our recycled parts facility in Quebec City, Canada are also represented by unions. Other than these locations, none of our employees are members of a union or participate in other collective bargaining arrangements. We consider our employee relations to be good.
FACILITIES
Our corporate headquarters are located at 500 West Madison Street, Chicago, Illinois 60661. We operate a field support center in Nashville, Tennessee that performs certain centralized functions for our North American operations, including accounting, procurement, and information systems support. Our Specialty operations maintain primary procurement, accounting and finance functions in Exeter, Pennsylvania. Certain back-office support functions for our segments are performed in Bangalore, India. Our European operations maintain procurement, accounting, and finance functions in Wembley, outside of London, England and in Schiedam, the Netherlands. In addition to these offices, we have numerous operating facilities that handle wholesale and self service retail product operations. We operate out of more than 790 locations in total, most of which are leased. Many of our locations stock multiple product types or serve more than one function.
Included in our total locations are 424 facilities in the U.S. and 219 facilities in the U.K., including the 500,000 square foot national distribution center in Tamworth that houses inventory to supply the hubs and branches of our U.K. operations. In 2015, we began working with a developer on a second national distribution center in Tamworth. The 750,000 square foot facility will be fully operational by 2018. We also operate 97 facilities in continental Europe, 41 facilities in Canada, seven facilities in Scandinavia, four facilities in Mexico and two facilities in Central America. Additionally, we operate an aftermarket parts warehouse in Taiwan to aggregate inventory for shipment to our locations in North America.
INFORMATION TECHNOLOGY
In our North American operations, our aftermarket operations use a third party enterprise management system. Additional third party software packages have been implemented to leverage the centralized data and information that a single system provides, such as a data warehouse to conduct enhanced analytics and reporting, an integrated budgeting system, an
15

electronic data interchange tool, and E-commerce tools to enhance our online business-to-business initiatives -OrderKeystone.com and Keyless. The systems used by our aftermarket operations are also used by all of our refurbishing operations.
Our wholesale recycled product locations in North America operate an internally-developed, proprietary enterprise management system called LKQX. We believe that the use of a single system across all of our wholesale recycled product operations helps facilitate the sales process, allows for continued implementation of standard operating procedures, and yields improved training efficiency, employee transferability, access to our national inventory database, management reporting and data storage. The system also supports an electronic exchange process for identifying and locating parts at other select recyclers and facilitates brokered sales to fill customer orders for items not in stock. Our bidding specialists responsible for procuring vehicles for our wholesale salvage operations are equipped with a proprietary software application that compares the vehicles at the salvage auctions to our current inventory, historical demand, and recent average selling prices to arrive at an estimated maximum bid. This bidding system reduces the likelihood of purchasing unneeded parts that might result in obsolete inventory.
To better serve our customers, a consolidated approach has been taken for the electronic sale of wholesale products in our North American Segment. A full suite of E-commerce services is available to approved partners that helps us improve order accuracy, reduce return rate and better fit our customer workflow. Using these services in coordination with our partners, products can be searched, priced and ordered without leaving the customers' own operating systems.
We operate a single enterprise system for all of our heavy-duty truck operations that supports inter-region sales to reduce the potential for lost sales due to out-of-stock parts. We are also transitioning to a single IT platform to support our remanufacturing operations. We operate an internally-developed point of sale system in our self service retail operations, which allows enhanced management reporting as well as improved system reliability. Through www.lkqpickyourpart.com our self service customers can access key information including yard location, vehicle inventory, and pricing by part type.
Our aftermarket operations in the U.K. use a single integrated IT platform for our purchasing, branch stock, and finance activities, which are further supported by a national distribution center system to manage inventory movement. The IT system allows customers to identify the correct part for repairs, thereby improving customer satisfaction and reducing return rates. Our aftermarket operations in continental Europe use several IT systems, which are linked to transfer data between systems, to manage customer orders and inventory movement, and for financial reporting purposes. This IT system can interface with our repair shop customers' respective IT systems, which enables them to identify the part required for the repair.
Our Specialty operations utilize an internally developed inventory management and order entry system that interfaces with third party software systems for accounting, transaction processing, data analytics, and reporting. Online sales of our Specialty products take place through our ekeystone.com and viantp.com sites. These sites provide customers (i) the ability to match products with the make and model of car thus allowing the customer to order the right part, (ii) the product information (e.g. pictures, attributes) available for review and (iii) the convenience of searching inventory availability and ordering the product on the site. Additionally, the site can provide sales opportunities by suggesting other parts to purchase based on an inquiry submitted by the customer. Our delivery fleet utilizes a third party software provider to optimize delivery routes, and to track the progress of delivery vehicles throughout their runs.
The hardware that supports the systems used in our operations is located in offsite data centers. The centers are in secure environments with around-the-clock monitoring, redundant power backup, and multiple, diverse data and telecommunication routing. We use separate third party provided software for our financial systems such as financial and budget reporting, general ledger accounting, accounts payable, payroll, and fixed assets. We currently protect our local customer, inventory, and corporate consolidated data, such as financial information, e-mail files, and other user files, with daily backups. These backups are stored off site with a third party data protection vendor. Additionally, we restrict access to customer, employee and vendor data to those users that have permission granted to them as part of their job function. We have made investments in various logging, encryption, event correlation and data loss prevention software to reduce the risk of unauthorized access and extraction of personally identifiable information of all types including that of vendors, customers and employees. Customer credit card information is not stored within the company’s computing environment, and the card information is encrypted when it is transmitted and processed for authorization.
We continually evaluate our systems with the goal of ensuring that all critical systems remain secure, scalable, and operational as our business grows.
16

REGULATION
Environmental Compliance
Our operations and properties are subject to extensive laws and regulations relating to environmental protection and health and safety in the U.S. as well as other countries in which we operate. These environmental laws govern, among other things, the emission and discharge of hazardous materials into the ground, air, or water; exposure to hazardous materials; and the generation, handling, storage, use, treatment, identification, transportation, and disposal of industrial by-products, waste water, storm water, mercury, and other hazardous materials.
We have made and will continue to make capital and other expenditures relating to environmental matters. We have an environmental management process designed to facilitate and support our compliance with these requirements. We cannot assure you, however, that we will at all times be in complete compliance with such requirements.
Although we presently do not expect to incur any capital or other expenditures relating to environmental controls or other environmental matters in amounts that would be material to us, we may be required to make such expenditures in the future. Environmental laws are complex, change frequently and have tended to become more stringent over time. Accordingly, environmental laws may change or become more stringent in the future in a manner that could have a material adverse effect on our business.
Contamination resulting from vehicle recycling processes can include soil and ground water contamination from the release, storage, transportation, or disposal of gasoline, motor oil, antifreeze, transmission fluid, chlorofluorocarbons ("CFCs") from air conditioners, other hazardous materials, or metals such as aluminum, cadmium, chromium, lead, and mercury. Contamination from the refurbishment of chrome plated bumpers can occur from the release of the plating material. Contamination can migrate on-site or off-site which can increase the risk, and the amount, of any potential liability.
In addition, many of our facilities are located on or near properties with a history of industrial use that may have involved hazardous materials. As a result, some of our properties may be contaminated. Some environmental laws hold current or previous owners or operators of real property liable for the costs of cleaning up contamination, even if these owners or operators did not know of and were not responsible for such contamination. These environmental laws also impose liability on any person who disposes of, treats, or arranges for the disposal or treatment of hazardous substances, regardless of whether the affected site is owned or operated by such person, and at times can impose liability on companies deemed under law to be a successor to such person. Third parties may also make claims against owners or operators of properties, or successors to such owners or operators, for personal injuries and property damage associated with releases of hazardous or toxic substances.
When we identify a potential material environmental issue during our acquisition due diligence process, we analyze the risks, and, when appropriate, perform further environmental assessment to verify and quantify the extent of the potential contamination. Furthermore, where appropriate, we have established financial reserves for certain environmental matters. In addition, at times we, or sellers from whom we purchased a business, have undertaken remediation projects. We do not anticipate, based on currently available information and current laws, that we will incur liabilities in excess of reserves to address environmental matters. However, in the event we discover new information or if laws change, we may incur significant liabilities, which may exceed our reserves.
Title Laws
In some states, when a vehicle is deemed a total loss, a salvage title is issued. Whether states issue salvage titles is important to the supply of inventory for the vehicle recycling industry because an increase in vehicles that qualify as salvage vehicles provides greater availability and typically lowers the price of such vehicles. Currently, these titling issues are a matter of state law. In 1992, the U.S. Congress commissioned an advisory committee to study problems relating to vehicle titling, registration, and salvage. Since then, legislation has been introduced seeking to establish national uniform requirements in this area, including a uniform definition of a salvage vehicle. The vehicle recycling industry will generally favor a uniform definition, since it will avoid inconsistencies across state lines, and will generally favor a definition that expands the number of damaged vehicles that qualify as salvage. However, certain interest groups, including repair shops and some insurance associations, may oppose this type of legislation. National legislation has not yet been enacted in this area, and there can be no assurance that such legislation will be enacted in the future.
Anti-Car Theft Act
In 1992, Congress enacted the Anti-Car Theft Act to deter trafficking in stolen vehicles. The purpose of the law is to implement an electronic system to track and monitor vehicle identification numbers and major automotive parts. In January 2009, the U.S. Department of Justice implemented the portion of the system to track and monitor vehicle identification numbers. The portion of the system that would track and monitor major automotive parts would require various entities, including automotive parts recyclers like us, to inspect salvage vehicles for the purpose of collecting the part number for any
17

"covered major part." The Department of Justice has not promulgated rules on this portion of the system, and therefore there has been no progress on the implementation of the system to track and monitor major automotive parts. However, if this system is fully implemented, the requirement to collect the information would place substantial burdens on vehicle recyclers, including us, that otherwise would not normally exist. It would place similar burdens on repair shops, which may discourage the use by such shops of recycled products. There is no pending initiative to implement the parts registration from a law enforcement point of view. However, there is a risk that a heightened legislative concern over safety of parts might precipitate an effort to push for the implementation of such rules.
Legislation Affecting Automotive Repair Parts
Most states have laws relating to the use of aftermarket products in motor vehicle collision repair work. The provisions of these laws may include consumer disclosure, vehicle owner's consent regarding the use of aftermarket products in the repair process, and the requirement to have aftermarket products certified by an independent testing organization. Some jurisdictions have laws that regulate the sale of certain recycled products that we provide, such as airbags. Additional laws of this kind may be enacted in the future. An increase in the number of states passing such legislation with prohibitions or restrictions that are more severe than current laws could have a material adverse impact on our business. Additionally, Congress could enact federal legislation restricting the use of aftermarket and recycled automotive products used in the course of collision repair.
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 operations to generate greater revenue and earnings in the first half of the year, when vehicle owners tend to install specialty products.
ITEM 1A. RISK FACTORS
Risks Relating to Our Business
Our operating results and financial condition have been and could continue to be adversely affected by the economic and political conditions in the U.S. and elsewhere.
Changes in economic and political conditions in the U.S. and other countries in which we are located or do business could have a material effect on our company. Changes in such conditions have, in some periods, resulted in fewer miles driven, fewer accident claims, and a reduction of vehicle repairs, all of which could negatively affect our business. Our sales are also impacted by changes to the economic health of vehicle owners. The economic health of vehicle owners is affected by many factors, including, among others, general business conditions, interest rates, inflation, consumer debt levels, the availability of consumer credit, taxation, fuel prices, unemployment trends and other matters that influence consumer confidence and spending. Many of these factors are outside of our control. If any of these conditions worsen, our business, results of operations, financial condition and cash flows could be adversely affected.
In addition, economic conditions, including decreased access to credit, may result in financial difficulties leading to restructurings, bankruptcies, liquidations and other unfavorable events for our customers, suppliers, logistics and other service providers and financial institutions that are counterparties to our credit facilities and interest rate swap transactions. These unfavorable events affecting our business partners could have an adverse effect on our business, results of operations, financial condition and cash flows.
We face intense competition from local, national, international, and internet-based vehicle products providers, and this competition could negatively affect our business.
The vehicle replacement products industry is highly competitive and is served by numerous suppliers of OEM, recycled, aftermarket, refurbished and remanufactured products. Within each of these categories of suppliers, there are local owner-operated companies, larger regional suppliers, national and international providers, and internet-based suppliers. Providers of vehicle replacement products that have traditionally sold only certain categories of such products may decide to expand their product offerings into other categories of vehicle replacement products, which may further increase competition. Some of our current and potential competitors may have more operational expertise; greater financial, technical, manufacturing, distribution, and other resources; longer operating histories; lower cost structures; and better relationships in the insurance and vehicle repair industries or with consumers, than we do. In certain regions of the U.S., local vehicle recycling companies have formed cooperative efforts to compete in the wholesale recycled products industry. Similarly in Europe, some local companies
18

are part of cooperative efforts to compete in the aftermarket parts industry. As a result of these factors, our competitors may be able to provide products that we are unable to supply, provide their products at lower costs, or supply products to customers that we are unable to serve.
We believe that a majority of collision parts by dollar amount are supplied by OEMs, with the balance being supplied by distributors like us. The OEMs are therefore in a position to exert pricing pressure in the marketplace. We compete with the OEMs primarily on price and to a lesser extent on service and quality. From time to time, the OEMs have implemented programs seeking to increase their market share in the collision repair parts industry. For example, they have experimented with reducing prices on specific products to match the lower prices of alternative products and with other initiatives that may disrupt our sales. If such price reductions were to become widespread, it could have a material adverse impact on our business.
We rely upon our customers and insurance companies to promote the usage of alternative parts.
Our success depends, in part, on the acceptance and promotion of alternative parts usage by automotive insurance companies. There can be no assurance that current levels of alternative parts usage will be maintained or will increase in the future. In addition, in some places we operate, alternative parts usage is relatively low. We also rely on business relationships with insurance companies. These insurance companies encourage vehicle repair facilities to use products we provide. The business relationships include in some cases participation in aftermarket quality and service assurance programs that may result in a higher usage of our aftermarket products than would be the case without the programs. Our arrangements with these companies may be terminated by them at any time, including in connection with their own business concerns relating to the offering, availability, standards or operations of the aftermarket quality and service assurance programs. We rely on these relationships for sales to some collision repair shops, and a termination of these relationships may result in a loss of sales, which could adversely affect our results of operations.
In an Illinois lawsuit involving State Farm Mutual Automobile Insurance Company ("Avery v. State Farm"), a jury decided in October 1999 that State Farm breached certain insurance contracts with its policyholders by using non-OEM replacement products to repair damaged vehicles when use of such products did not restore the vehicle to its "pre-loss condition." The jury found that State Farm misled its customers by not disclosing the use of non-OEM replacement products and the alleged inferiority of those products. The jury assessed damages against State Farm of $456 million, and the judge assessed an additional $730 million of disgorgement and punitive damages for violations of the Illinois Consumer Fraud Act. In April 2001, the Illinois Appellate Court upheld the verdict but reduced the damage award by $130 million because of duplicative damage awards. On August 18, 2005, the Illinois Supreme Court reversed the awards made by the circuit court and found, among other things, that the plaintiffs had failed to establish any breach of contract by State Farm. The U.S. Supreme Court declined to hear an appeal of this case. As a result of this case, some insurance companies reduced or eliminated their use of aftermarket products. Our financial results could be adversely affected if insurance companies modified or terminated the arrangements pursuant to which repair shops buy aftermarket or recycled products from us due to a fear of similar claims.
In addition, to the extent that the collision repair industry continues to consolidate, the buying power of collision repair shop customers may further increase, putting additional pressure on our financial returns.
We may not be able to successfully acquire new businesses or integrate acquisitions, which could cause our business to suffer.
We may not be able to successfully complete potential strategic acquisitions if we cannot reach agreement on acceptable terms, if we do not obtain antitrust or other regulatory approvals on applicable terms, or for other reasons. Moreover, we may not be able to identify a sufficient number of acquisition candidates at reasonable prices to maintain our growth objectives. Also, over time, we will likely seek to make acquisitions that are relatively larger as we grow. Larger acquisition candidates may attract additional competitive buyers, which could increase our cost or could cause us to lose such acquisitions.
If we buy a company or a division of a company, we may experience difficulty integrating that company's or division's personnel and operations, which could negatively affect our operating results. In addition:
•the key personnel of the acquired company may decide not to work for us;
•customers of the acquired company may decide not to purchase products from us;
•suppliers of the acquired company may decide not to sell products to us;
•we may experience business disruptions as a result of information technology systems conversions;
•we may experience additional financial and accounting challenges and complexities in areas such as tax planning, treasury management, and financial reporting;
•we may be held liable for environmental, tax or other risks and liabilities as a result of our acquisitions, some of which we may not have discovered during our due diligence;
19

•we may intentionally assume the liabilities of the companies we acquire, which could result in material adverse affects on our business;
•our existing business may be disrupted or receive insufficient management attention;
•we may not be able to realize the cost savings or other financial benefits we anticipated, either in the amount or in the time frame that we expect; and
•we may incur debt or issue equity securities to pay for any future acquisition, the issuance of which could involve the imposition of restrictive covenants or be dilutive to our existing stockholders.
Claims by OEMs relating to aftermarket products could adversely affect our business.
OEMs and other manufacturers have attempted to use claims of intellectual property infringement against manufacturers and distributors of aftermarket products to restrict or eliminate the sale of aftermarket products that are the subject of the claims. The OEMs have brought such claims in federal court and with the U.S. International Trade Commission.
To the extent OEMs and other manufacturers are seeking and obtaining more design patents than they have in the past and are successful in asserting infringement of these patents and defending their validity, we could be restricted or prohibited from selling certain aftermarket products, which could have an adverse effect on our business. We will likely incur significant expenses investigating and defending intellectual property infringement claims. In addition, aftermarket products certifying organizations may revoke the certification of parts that are the subject of the claims. Lack of certification may negatively impact us because many major insurance companies recommend or require the use of aftermarket products only if they have been certified by an independent certifying organization.
In December 2005 and May 2008, Ford Global Technologies, LLC filed complaints with the International Trade Commission against us and others alleging that certain aftermarket products imported into the U.S. infringed on Ford design patents. The parties settled these matters in April 2009 pursuant to a patent license arrangement that expires in March 2020. In January 2014, Chrysler Group, LLC filed a complaint against us in the U.S. District Court in the Eastern District of Michigan contending that certain aftermarket parts we sell infringe Chrysler design patents relating to the Dodge Ram pickup truck. The parties settled this matter in June 2014 pursuant to a patent license arrangement that expires in June 2019. In the event that these license arrangements, or other similar license arrangements with OEMs, are terminated or we are unable to agree upon renewal terms, we may be subject to costs and uncertainties of litigation as well as restrictions on our ability to sell aftermarket parts that replicate parts covered by design patents.
If the number of vehicles involved in accidents declines or the number of cars being repaired declines, our business could suffer.
Our business depends on vehicle accidents and mechanical failures for both the demand for repairs using our products and the supply of recycled, remanufactured and refurbished parts. Thus, our business is impacted by factors which influence the number and/or severity of accidents and mechanical failures including, but not limited to, the number of vehicles on the road, the number of miles driven, the ages of drivers, the occurrence and severity of certain weather conditions, the congestion of traffic, the use of cellular telephones and other electronic equipment by drivers, the use of alcohol and drugs by drivers, the effectiveness of accident avoidance systems in new vehicles, the reliability of new OEM parts, and the condition of roadways. For example, an increase of the acceptance of the ride-sharing business model would reduce the number of vehicles on the road. Additionally, an increase in fuel prices may cause the number of vehicles on the road, the number of miles driven, and the need for mechanical repairs and maintenance to decline, as motorists seek alternative transportation options. Mild weather conditions, particularly during winter months, tend to result in a decrease in vehicle accidents. Moreover, a number of states and municipalities have adopted, or are considering adopting, legislation banning the use of handheld cellular telephones or other electronic devices while driving, and such restrictions could lead to a decline in accidents.
Systems designed to help drivers avoid accidents are becoming more prevalent and more technologically sophisticated. To the extent OEMs install or are mandated by law to install accident avoidance systems in their vehicles, the number and severity of accidents could decrease, which could have a material adverse effect on our business.
The average number of new vehicles sold annually has fluctuated from year-to-year. Periods of decreased sales could result in a reduction in the number of vehicles on the road and consequently fewer vehicles involved in accidents or in need of mechanical repair or maintenance. Substantial further declines in automotive sales in the future could have a material adverse effect on our business, results of operations and/or financial condition. In addition, if vehicle population trends result in a disproportionately high number of older vehicles on the road, insurance companies may find it uneconomical to repair such vehicles or there could be less costly repairs. If vehicle population trends result in a disproportionately high number of newer vehicles on the road, the demand generally for mechanical repairs and maintenance would likely decline due to the newer, longer-lasting parts in the vehicle population and mechanical failures being covered by OEM warranties for the first years of a vehicle's life. Moreover, alternative collision and mechanical parts are less likely to be used on newer vehicles.
20

Fluctuations in the prices of metals and other commodities could adversely affect our financial results.
Our recycling operations generate scrap metal and other metals that we sell. After we dismantle a salvage vehicle for wholesale parts and after vehicles have been used in our self service retail business, the remaining vehicle hulks are sold to scrap processors and other remaining metals are sold to processors and brokers of metals. In addition, we receive "crush only" vehicles from other companies, including OEMs, which we dismantle and which generate scrap metal and other metals. The prices of scrap and other metals have historically fluctuated, sometimes significantly, due to market factors. In addition, buyers may stop purchasing metals entirely due to excess supply. To the extent that the prices of metals decrease materially or buyers stop purchasing metals, our revenue from such sales will suffer and a write-down of our inventory value could be required. The cost of our wholesale recycled and our self service retail inventory purchases will change as a result of fluctuating scrap metal and other metals prices. In a period of falling metal prices, there can be no assurance that our inventory purchasing cost will decrease the same amount or at the same rate as the scrap metal and other metals prices decline, and there may be a delay between the scrap metal and other metals price reductions and any inventory cost reductions. The prices of steel, aluminum, and plastics are components of the cost to manufacture products for our aftermarket business. If the price of commodities rise and result in higher costs to us for products we sell, we may not be able to pass these higher costs on to our customers.
We may not be able to sell our products due to existing or new laws and regulations prohibiting or restricting the sale of aftermarket, recycled, refurbished or remanufactured products.
Some jurisdictions have enacted laws prohibiting or severely restricting the sale of certain recycled products that we provide, such as airbags. These and other jurisdictions could enact similar laws or could prohibit or severely restrict the sale of additional recycled products. In addition, the Federal Trade Commission (FTC) has issued guides which regulate the use of certain terms such as “rebuilt” or “remanufactured” in connection with the sale of automotive parts. Restrictions on the products we are able to sell and on the marketing of such products could decrease our revenue and have an adverse effect on our business and operations.
Most states have passed laws that prohibit or limit the use of aftermarket products in collision repair work and/or require enhanced disclosure or vehicle owner consent before using aftermarket products in such repair work. Additional legislation of this kind may be introduced in the future. If additional laws prohibiting or restricting the use of aftermarket products are passed, it could have an adverse impact on our aftermarket products business. Certain organizations test the quality and safety of vehicle replacement products. If these organizations decide not to test a particular vehicle product or in the event that such organizations decide that a particular vehicle product does not meet applicable quality or safety standards, we may decide to discontinue sales of such product or insurance companies may decide to discontinue authorization of repairs using such product. Such events could adversely affect our business.
An adverse change in our relationships with our suppliers or auction companies or a disruption to our supply of inventory could increase our expenses and impede our ability to serve our customers.
Our business is dependent on a relatively small number of suppliers of aftermarket products, a large portion of which are sourced from Taiwan. We incur substantial freight costs to import parts from our suppliers, many of which are located in Asia. If the cost of freight rose we might not be able to pass the cost increases on to our customers. Furthermore, although alternative suppliers exist for substantially all aftermarket products distributed by us, the loss of any one supplier could have a material adverse effect on us until alternative suppliers are located and have commenced providing products. In addition, we are subject to disruptions from work stoppages and other labor disputes at port facilities through which we import our inventory. Moreover, our operations are subject to the customary risks of doing business abroad, including, among other things, natural disasters, transportation costs and delays, political instability, currency fluctuations and the imposition of tariffs, import and export controls and other non-tariff barriers (including changes in the allocation of quotas), as well as the uncertainty regarding future relations between China, Japan and Taiwan. Because a substantial volume of our sales involves products manufactured from sheet metal, we can be adversely impacted if sheet metal becomes unavailable or is only available at higher prices, which we may not be able to pass on to our customers. Additionally, as manufacturers convert to raw materials other than steel, it may be more difficult or expensive to source aftermarket parts made with such materials and it may be more difficult for repair shops to work with such materials in the repair process.
Most of our salvage and a portion of our self service inventory is obtained from vehicles offered at salvage auctions operated by several companies that own auction facilities in numerous locations across the U.S. We do not typically have contracts with the auction companies. According to industry analysts, a small number of companies control a large percentage of the salvage auction market in the U.S. If an auction company prohibited us from participating in its auctions, began competing with us, or significantly raised its fees, our business could be adversely affected through higher costs or the resulting potential inability to service our customers. Moreover, we face competition in the purchase of vehicles from direct competitors, rebuilders, exporters and others. To the extent that the number of bidders increases, it may have the effect of increasing our cost of goods sold for wholesale recycled products. Some states regulate bidders to help ensure that salvage vehicles are purchased for legal purposes by qualified buyers. Auction companies have been actively seeking to reduce, circumvent or eliminate these
21

regulations, which would further increase the number of bidders. In addition, there is a limited supply of salvage vehicles in the U.S. As we grow and our demand for salvage vehicles increases, the costs of these incremental vehicles could be higher.
We also acquire inventory directly from insurance companies, OEMs, and others. To the extent that these suppliers decide to discontinue these arrangements, our business could be adversely affected through higher costs or the resulting potential inability to service our customers.
Our annual and quarterly performance may fluctuate.
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. Future factors that may affect our operating results include, but are not limited to, those listed in the Special Note on Forward-Looking Statements in this Annual Report on Form 10-K. Accordingly, our results of operations may not be indicative of future performance. These fluctuations in our operating results may cause our results to fall below our published financial guidance and the expectations of public markets, which could cause our stock price or the value of our debt instruments to decline.
If we lose our key management personnel, we may not be able to successfully manage our business or achieve our objectives.
Our future success depends in large part upon the leadership and performance of our executive management team and key employees at the operating level. If we lose the services of one or more of our executive officers or key employees, or if one or more of them decides to join a competitor or otherwise compete directly or indirectly with us, we may not be able to successfully manage our business or achieve our business objectives. If we lose the services of any of our key employees at the operating or regional level, we may not be able to replace them with similarly qualified personnel, which could harm our business.
We operate in foreign jurisdictions, which exposes us to foreign exchange and other risks.
We have operations in Belgium, Canada, France, Mexico, Sweden, The Netherlands, Taiwan and the U.K., and we may expand our operations in these countries and into other countries. Our foreign operations expose us to additional risks associated with international business, which could have an adverse effect on our business, results of operations and/or financial condition, including import and export requirements and compliance with anti-corruption laws, such as the U.K. Bribery Act 2010 and the Foreign Corrupt Practices Act. We also incur costs in currencies, other than our functional currencies, in the countries in which we operate. We are thus subject to foreign exchange exposure to the extent that we operate in different currencies, as well as exposure to foreign tax and other foreign and domestic laws. In addition, Mexico is currently experiencing a heightened level of criminal activity that could affect our ability to maintain our supply of certain aftermarket products.
If we determine that our goodwill or other intangible assets have become impaired, we may incur significant charges to our pre-tax income.
Goodwill represents the excess of cost over the fair market value of net assets acquired in business combinations. In the future, goodwill and intangible assets may increase as a result of acquisitions. Goodwill is reviewed at least annually for impairment. Impairment may result from, among other things, deterioration in the performance of acquired businesses, increases in our cost of capital, adverse market conditions, and adverse changes in applicable laws or regulations, including modifications that restrict the activities of the acquired business. As of December 31, 2015, our total goodwill subject to future impairment testing was $2.3 billion. For further discussion of our annual impairment test, see "Goodwill Impairment" in the Critical Accounting Policies and Estimates section of Item 7 in this Annual Report on Form 10-K.
We amortize other intangible assets over the assigned useful lives, each of which is based upon the expected period to be benefited. We review other intangible assets for possible impairment whenever events or circumstances indicate that the carrying value may not be recoverable. In the event conditions change that affect our ability to realize the underlying cash flows associated with our intangible assets, we may record an impairment charge. As of December 31, 2015, the value of our other intangible assets, net of accumulated amortization, was $215 million.
Our business may be adversely affected by union activities and labor laws.
A small percentage of our employees are represented by labor unions and work under collective bargaining or similar agreements, which are subject to periodic renegotiation. From time to time, there have been efforts to organize additional portions of our workforce and those efforts can be expected to continue. In addition, the U.S. Department of Labor or applicable foreign government agencies could adopt new regulations or interpret existing regulations that could make it significantly easier for unionization efforts to be successful. Also, we may in the future be subject to strikes or work stoppages and other labor disruptions. Additional unionization efforts, new collective bargaining agreements, and work stoppages could materially increase our costs and reduce revenue and could limit our flexibility in terms of work schedules, reductions in force and other operational matters.
22

We also are subject to federal and state laws and regulations, such as the Fair Labor Standards Act, that govern such matters as minimum wage, overtime and other working conditions. Some of these laws are technical in nature and could be subject to interpretation by government agencies different than our interpretations. Efforts to comply with existing laws, changes to such laws and newly-enacted laws may increase our labor costs. If we were found not to be in compliance with such laws, we could be subject to fines, penalties and liabilities to our employees or government agencies.
We rely on information technology and communication systems in critical areas of our operations and a disruption relating to such technology could harm our business.
Some of the information technology systems and communication systems we use for management of our facilities and our financial functions are leased from or operated by other companies, while others are owned by us. In the event that the providers of these systems terminate their relationships with us or if we suffer prolonged outages of these or our own systems for whatever reason, we could suffer disruptions to our operations.
In the event that we decide to switch providers or to implement upgrades or replacements to our own systems, we may also suffer disruptions to our business. We may be unsuccessful in the development of our own systems, and we may underestimate the costs and expenses of developing and implementing our own systems. Also, our revenue may be hampered during the period of implementing an alternative system, which period could extend longer than we anticipated.
Our business involves the storage of personal information about our customers and employees. We have taken reasonable and appropriate steps to protect this information; however, if we experience a significant data security breach, we could be exposed to damage to our reputation, additional costs, lost sales or possible regulatory action. The regulatory environment related to information security and privacy is constantly changing, and compliance with those requirements could result in additional costs. There is no guarantee that the procedures that we have implemented to protect against unauthorized access to secured data are adequate to safeguard against all data security breaches, and such a breach could potentially have a negative impact on our results of operations and financial condition.
Business interruptions in our distribution centers or other facilities may affect our operations, the function of our computer systems, and/or the availability and distribution of merchandise, which may affect our business.
Weather, terrorist activities, war or other disasters, or the threat of any of them, may result in the closure of our distribution centers (“DC”s) or other facilities or may adversely affect our ability to deliver inventory through our system on a timely basis. This may affect our ability to timely provide products to our customers, resulting in lost sales or a potential loss of customer loyalty. Some of our merchandise is imported from other countries and these goods could become difficult or impossible to bring into the United States or into the other countries in which we operate, and we may not be able to obtain such merchandise from other sources at similar prices. Such a disruption in revenue could potentially have a negative impact on our results of operations and financial condition.
We are subject to environmental regulations and incur costs relating to environmental matters.
We are subject to various federal, state, and local environmental protection and health and safety laws and regulations governing, among other things: the emission and discharge of hazardous materials into the ground, air, or water; exposure to hazardous materials; and the generation, handling, storage, use, treatment, identification, transportation, and disposal of industrial by-products, waste water, storm water, and mercury and other hazardous materials. We are also required to obtain environmental permits from governmental authorities for certain of our operations. If we violate or fail to obtain or comply with these laws, regulations, or permits, we could be fined or otherwise sanctioned by regulators. We could also become liable if employees or other parties are improperly exposed to hazardous materials.
Under certain environmental laws, we could be held responsible for all of the costs relating to any contamination at, or migration to or from, our or our predecessors' past or present facilities and at independent waste disposal sites. These laws often impose liability even if the owner or operator did not know of, or was not responsible for, the release of such hazardous substances.
Environmental laws are complex, change frequently, and have tended to become more stringent over time. Our costs of complying with current and future environmental and health and safety laws, and our liabilities arising from past or future releases of, or exposure to, hazardous substances, may adversely affect our business, results of operations, or financial condition.
We could be subject to product liability claims and involved in product recalls.
If customers of repair shops that purchase our products are injured or suffer property damage, we could be subject to product liability claims by such customers. The successful assertion of this type of claim could have an adverse effect on our business, results of operations or financial condition. In addition, we may become involved in the recall of a product that is determined to be defective. The expenses of a recall and the damage to our reputation could have an adverse effect on our business, results of operations or financial condition.
23

We have agreed to defend and indemnify in certain circumstances insurance companies and customers against claims and damages relating to product liability and product recalls. The existence of claims or damages for which we must defend and indemnify these parties could also negatively impact our business, results of operations or financial condition.
Governmental agencies may refuse to grant or renew our operating licenses and permits.
Our operating subsidiaries in our salvage, self-service, and refurbishing operations must obtain licenses and permits from state and local governments to conduct their operations. When we develop or acquire a new facility, we must seek the approval of state and local units of government. Governmental agencies may resist the establishment of a vehicle recycling or refurbishing facility in their communities. There can be no assurance that future approvals or transfers will be granted. In addition, there can be no assurance that we will be able to maintain and renew the licenses and permits our operating subsidiaries currently hold.
New regulations related to conflict-free minerals may force us to incur additional expenses and otherwise adversely impact our business.
In August 2012, as mandated by the Dodd-Frank Wall Street Reform and Consumer Protection Act, the SEC adopted final rules regarding disclosure of the use of certain minerals, known as conflict minerals, originating from the Democratic Republic of Congo (DRC) or adjoining countries. These new requirements impose significant burdens on U.S. public companies. Compliance with the rules requires substantial due diligence in an effort to determine whether products contain the conflict minerals. The results of such due diligence efforts must be disclosed on an annual basis in a filing with the SEC.
Our supply chain is complex and we may incur significant costs to determine the source of any such minerals used in our products. We may also incur costs with respect to potential changes to products, processes or sources of supply as a consequence of our diligence activities. Further, the implementation of these rules and their effect on customer, supplier and/or consumer behavior could adversely affect the sourcing, supply and pricing of materials used in our products. As there may be only a limited number of suppliers offering products free of conflict minerals in some circumstances, we cannot be sure that we will be able to obtain necessary products from such suppliers in sufficient quantities or at competitive prices. We may face reputational challenges if we determine that certain of our products contain minerals not determined to be conflict-free or if we are unable to sufficiently verify the origins for all conflict minerals used in our products through the procedures we implement. Accordingly, these rules could have a material adverse effect on our business, results of operations and/or financial condition.
If we experience problems with our fleet of trucks, our business could be harmed.
We use a fleet of trucks to deliver the majority of the products we sell. We are subject to the risks associated with providing trucking services, including inclement weather, disruptions in the transportation infrastructure, governmental regulation, availability and price of fuel, liabilities arising from accidents to the extent we are not covered by insurance, and insurance premium increases. In addition, our failure to deliver products in a timely and accurate manner could harm our reputation and brand, which could have a material adverse effect on our business.
Regulations that may be issued under the Anti-Car Theft Act could harm our business.
In 1992, Congress enacted the Anti-Car Theft Act to deter trafficking in stolen vehicles. The purpose of the law is to implement an electronic system to track and monitor vehicle identification numbers and major automotive parts. In January 2009, the U.S. Department of Justice implemented the portion of the system to track and monitor vehicle identification numbers. The portion of the system that would track and monitor major automotive parts would require various entities, including automotive parts recyclers like us, to inspect salvage vehicles for the purpose of collecting the part number for any "covered major part." The Department of Justice has not promulgated rules on this portion of the system, and therefore there has been no progress on the implementation of the system to track and monitor major automotive parts. However, if this system is fully implemented, the requirement to collect the information would place substantial burdens on automotive parts recyclers, including us, that otherwise would not normally exist. It would place similar burdens on repair shops, which may discourage the use of recycled products by such shops.
Risks Relating to Our Common Stock and Financial Structure
The market price of our common stock may be volatile and could expose us to securities class action litigation.
The stock market and the price of our common stock may be subject to wide fluctuations based upon general economic and market conditions. The market price for our common stock may also be affected by our ability to meet analysts’ expectations. Failure to meet such expectations, even slightly, could have an adverse effect on the market price of our common stock. In addition, stock market volatility has had a significant effect on the market prices of securities issued by many companies for reasons unrelated to the operating performance of these companies. Downturns in the stock market may cause the price of our common stock to decline. Additionally, the market price for our common stock has been in the past, and in the future may be,
24

adversely affected by allegations made or reports issued by short sellers, analysts or others regarding our business model, our management or our financial accounting.
Following periods of volatility in the market price of a company’s securities, securities class action litigation has often been instituted against such companies. If similar litigation were instituted against us, it could result in substantial costs and a diversion of our management’s attention and resources, which could have an adverse effect on our business.
Delaware law, our charter documents and our loan documents may impede or discourage a takeover, which could affect the price of our stock.
The anti-takeover provisions of our certificate of incorporation and bylaws, our loan documents and Delaware law could, together or separately, impose various impediments to the ability of a third party to acquire control of us, even if a change in control would be beneficial to our existing stockholders. Our certificate of incorporation and bylaws have provisions that could discourage potential takeover attempts and make attempts by stockholders to change management more difficult. Our credit agreement provides that a change of control is an event of default. Our incorporation under Delaware law and these provisions could also impede an acquisition, takeover, or other business combination involving us or discourage a potential acquirer from making a tender offer for our common stock, which, under certain circumstances, could reduce the price of our common stock.
Future sales of our common stock or other securities may depress our stock price.
We and our stockholders may sell shares of common stock or other equity, debt or instruments which constitute an element of our debt and equity (collectively, "securities") in the future. We may also issue shares of common stock under our equity incentive plan or in connection with future acquisitions. We cannot predict the size of future issuances of securities or the effect, if any, that future issuances and sales of shares of our common stock or other securities will have on the price of our common stock. Sales of substantial amounts of common stock (including shares issued in connection with an acquisition), the issuance of additional debt securities, or the perception that such sales or issuances could occur, may cause the price of our common stock to fall.
We have a substantial amount of indebtedness, which could have a material adverse effect on our financial condition and our ability to obtain financing in the future and to react to changes in our business.
As of December 31, 2015, we had $1.6 billion aggregate principal amount of debt outstanding, including $480 million under our senior secured credit facilities, $600 million aggregate principal amount of 4.75% senior notes due 2023, $410.6 million under our term loan, and $63 million under our accounts receivable securitization program. As of December 31, 2015, we also had $1.3 billion of undrawn availability (after giving effect to approximately $66 million of outstanding letters of credit) under our revolving credit facilities and $34 million of undrawn availability under our accounts receivable securitization program.
On January 29, 2016, we entered into an amendment to our senior secured credit facility to increase the capacity to $3.2 billion (composed of approximately $750 million in term loans and $2.45 billion in a multicurrency revolving credit line). The credit facility matures in January 2021.
Our significant amount of debt and our debt service obligations could limit our ability to satisfy our obligations, limit our ability to operate our business and impair our competitive position.
For example, it could:

• | increase our vulnerability to adverse economic and general industry conditions, including interest rate fluctuations, because a portion of our borrowings are and will continue to be at variable rates of interest;

• | require us to dedicate a substantial portion of our cash flow from operations to payments on our debt, which would reduce the availability of our cash flow from operations to fund working capital, capital expenditures or other general corporate purposes;

• | limit our flexibility in planning for, or reacting to, changes in our business and industry;

• | place us at a disadvantage compared to competitors that may have proportionately less debt;

• | limit our ability to obtain additional debt or equity financing due to applicable financial and restrictive covenants in our debt agreements; and

• | increase our cost of borrowing.

In addition, if we or our subsidiaries incur additional debt, the risks associated with our substantial leverage and the ability to service such debt would increase.
25

Although we are subject to our senior secured credit facilities for so long as they remain in effect, the indenture that governs the senior notes does not restrict the future incurrence of unsecured indebtedness, guarantees or other obligations. The indenture contains certain limitations on our ability to incur liens on assets, sell our assets, make dividends and distributions and engage in sale and leaseback transactions. However, these limitations are subject to important exceptions. In addition, the indenture does not contain many other restrictions, including certain restrictions contained in our senior secured credit facilities, including, without limitation, restrictions on investments, incurring indebtedness or prepaying subordinated indebtedness or engaging in transactions with our affiliates.
Our senior secured credit facilities impose significant operating and financial restrictions on us and our subsidiaries, which may prevent us from capitalizing on business opportunities.
Our senior secured credit facilities impose significant operating and financial restrictions on us. These restrictions limit our ability, among other things, to:
•incur, assume or permit to exist additional indebtedness (including guarantees thereof);
•pay dividends or certain other distributions on our capital stock or repurchase our capital stock or prepay subordinated indebtedness;
•incur liens on assets;
•make certain investments or other restricted payments;
•engage in transactions with affiliates;
•sell certain assets or merge or consolidate with or into other companies;
•guarantee indebtedness; and
•alter the business we conduct.
As a result of these covenants and restrictions, we will be limited in how we conduct our business and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. The terms of any future indebtedness we may incur could include more restrictive covenants. We cannot assure you that we will be able to maintain compliance with these covenants in the future and, if we fail to do so, that we will be able to obtain waivers from the lenders and/or amend the covenants. The failure to comply with any of these covenants would cause a default under the credit agreement. A default, if not waived, could result in acceleration of our debt, in which case the debt would become immediately due and payable. If this occurs, we may not be able to repay our debt or borrow sufficient funds to refinance it. Even if new financing were available, it may be on terms that are less attractive to us than our existing credit facilities or it may be on terms that are not acceptable to us.
We may not be able to generate sufficient cash to service all of our indebtedness, and may be forced to take other actions to satisfy our obligations under our indebtedness, which may not be successful.
Our ability to make scheduled payments on or to refinance our debt obligations depends on our financial condition and operating performance, which is subject to prevailing economic and competitive conditions and to certain financial, business and other factors beyond our control. We cannot assure you that we will maintain a level of cash flows from operating activities sufficient to permit us to pay the principal, premium, if any, and interest on our indebtedness. If our cash flows and capital resources are insufficient to fund our debt service obligations, we may be forced to reduce or delay investments and capital expenditures, or to sell assets, seek additional capital or restructure or refinance our indebtedness. These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations. If our operating results and available cash are insufficient to meet our debt service obligations, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations. We may not be able to consummate those dispositions or to obtain the proceeds that we could realize from them, and these proceeds may not be adequate to meet any debt service obligations then due. Any future refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants which could further restrict our business operations. Additionally, the senior secured credit facilities and the indenture that governs our senior notes limit the use of the proceeds from certain dispositions of our assets; as a result, our senior secured credit facilities and our senior notes may prevent us from using the proceeds from such dispositions to satisfy all of our debt service obligations.
In addition, we are a holding company and repayment of our indebtedness is dependent upon cash flow generated by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise. Unless they are borrowers or guarantors of the indebtedness, our subsidiaries do not have any obligation to pay amounts due on the indebtedness or to make funds available for that purpose. Our subsidiaries may not be able to, or be permitted to, make distributions to enable us to make payments in respect of our indebtedness. Each of our subsidiaries is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries
26

and, under certain circumstances, distributions from our subsidiaries may be subject to significant taxes that reduce the amount of such distributions available to us. In the event that we do not receive sufficient distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness.
Our future capital needs may require that we seek to refinance our debt or obtain additional debt or equity financing, events that could have a negative effect on our business.
We may need to raise additional funds in the future to, among other things, refinance existing debt, fund our existing operations, improve or expand our operations, respond to competitive pressures, or make acquisitions. From time to time, we may raise additional funds through public or private financing, strategic alliances, or other arrangements. Funds may not be available or available on terms acceptable to us as a result of different factors, including but not limited to turmoil in the credit markets that results in the tightening of credit conditions and current or future regulations applicable to the financial institutions from whom we seek financing. If adequate funds are not available on acceptable terms, we may be unable to meet our business or strategic objectives or compete effectively. If we raise additional funds by issuing equity securities, stockholders may experience dilution of their ownership interests, and the newly issued securities may have rights superior to those of the common stock. If we raise additional funds by issuing debt, we may be subject to higher borrowing costs and further limitations on our operations. If we refinance or restructure our debt, we may incur charges to write off the unamortized portion of deferred debt issuance costs from a previous financing, or we may incur charges related to hedge ineffectiveness from our interest rate swap obligations. In addition, there are restrictions in the indenture that governs our senior notes on our ability to refinance the notes prior to 2018. If we fail to raise capital when needed, our business may be negatively affected.
Our variable rate indebtedness subjects us to interest rate risk, which could cause our indebtedness service obligations to increase significantly and could affect the value of our senior notes.
Certain borrowings under our senior secured credit facilities and the borrowing under our accounts receivable securitization facility are at variable rates of interest and expose us to interest rate risk. If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, would correspondingly decrease. Moreover, changes in market interest rates could affect the trading value of our senior notes.
A downgrade in our credit rating would impact our cost of capital and could impact the market value of our senior notes.
Credit ratings have an important effect on our cost of capital. Credit rating agencies rate our debt securities on factors that include, among other items, our results of operations, business decisions that we make, their view of the general outlook for our industry, and their view of the general outlook for the economy. Actions taken by the rating agencies can include maintaining, upgrading, or downgrading the current rating or placing us on a watch list for possible future downgrading. We believe our current credit ratings enhance our ability to borrow funds at favorable rates. A downgrade in our current credit rating from a rating agency could adversely affect our cost of capital by causing us to pay a higher interest rate on borrowed funds under our credit facilities. A downgrade could also adversely affect the market price and/or liquidity of our senior notes, preventing a holder from selling the notes at a favorable price, as well as adversely affect our ability to issue new notes in the future or incur other indebtedness upon favorable terms.
The right to receive payments on the senior notes is effectively junior to those lenders who have a security interest in our assets.
Our obligations under the senior notes and our guarantors’ obligations under their guarantees of the senior notes are unsecured, but our and each co-borrower’s obligations under our senior secured credit facilities and each guarantor’s obligations under their respective guarantees of the senior secured credit facilities are secured by a security interest in substantially all of our domestic tangible and intangible assets, including the stock of most of our wholly-owned United States subsidiaries and the stock of certain of our non-United States subsidiaries. If we are declared bankrupt or insolvent, or if we default under our senior secured credit facilities, the lenders could declare all of the funds borrowed thereunder, together with accrued interest, immediately due and payable. If we were unable to repay such indebtedness, the lenders could foreclose on the pledged assets to the exclusion of holders of the senior notes, even if an event of default exists under the indenture governing the notes. Furthermore, if the lenders foreclose and sell the pledged equity interests in any subsidiary guarantor under the senior notes, then that guarantor will be released from its guarantee of the senior notes automatically and immediately upon such sale. In any such event, because the senior notes are not secured by any of our assets or the equity interests in subsidiary guarantors, it is possible that there would be no assets remaining from which claims by holders of the senior notes could be satisfied or, if any assets remained, they might be insufficient to satisfy claims fully.
United States federal and state statutes allow courts, under specific circumstances, to void the senior notes and the guarantees, subordinate claims in respect of the senior notes and the guarantees, and require holders of the senior notes to return payments received from us or the guarantors.
Our direct and indirect domestic subsidiaries that are obligors under the senior secured credit facilities also guarantee the
27

obligations under the senior notes. Our issuance of the senior notes and the issuance of the guarantees by the guarantors under the secured credit facilities and the senior notes may be subject to review under state and federal laws if a bankruptcy, liquidation or reorganization case or a lawsuit, including in circumstances in which bankruptcy is not involved, were commenced at some future date by, or on behalf of, our unpaid creditors or the unpaid creditors of a guarantor. Under the federal bankruptcy laws and comparable provisions of state fraudulent transfer laws, a court may avoid or otherwise decline to enforce the senior secured credit facilities, the senior notes or a guarantor’s guarantee, or may subordinate the senior secured credit facilities, the senior notes or such guarantee to our or the applicable guarantor’s existing and future indebtedness. While the relevant laws may vary from state to state, a court might do so if it found that when indebtedness under the senior secured credit facilities was incurred, or the senior notes were issued, or when the applicable guarantor entered into its guarantee, or, in some states, when payments became due under the senior secured credit facilities, the senior notes or such guarantee, the borrower, the issuer or the applicable guarantor received less than reasonably equivalent value or fair consideration and:

• | was insolvent or rendered insolvent by reason of such incurrence;

•was engaged in a business or transaction for which its remaining assets constituted unreasonably small capital; or
•intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature.
A court would likely find that we or a guarantor did not receive reasonably equivalent value or fair consideration for the senior secured credit facilities, the senior notes or such guarantee if we or such guarantor did not substantially benefit directly or indirectly from the senior secured credit facilities or the issuance of the senior notes. The measures of insolvency for purposes of these fraudulent transfer laws vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred. Generally, however, a borrower, an issuer or a guarantor, as applicable, would be considered insolvent if:

• | the sum of its debts, including contingent liabilities, was greater than the fair saleable value of its assets;

• | the present fair saleable value of its assets was less than the amount that would be required to pay its probable liability on its existing debts, including contingent liabilities, as they become absolute and mature; or

• | it could not pay its debts as they become due.

A court might also void the senior secured credit facilities, the senior notes or a guarantee, without regard to the above factors, if the court found that the senior secured credit facilities or the senior notes were incurred or issued or the applicable guarantor entered into its guarantee with actual intent to hinder, delay or defraud its creditors. In addition, any payment by us or a guarantor pursuant to the senior secured credit facilities, the senior notes or its guarantee could be avoided and required to be returned to us or such guarantor or to a fund for the benefit of our or such guarantor’s creditors, and accordingly the court might direct the lenders under the senior secured credit facilities or the holders of the senior notes to repay any amounts already received from us or such guarantor. Although each guarantee contains a “savings clause” intended to limit the subsidiary guarantor’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its subsidiary guarantee to be a fraudulent transfer, this provision may not be effective to protect any subsidiary guarantees from being avoided under fraudulent transfer law. Furthermore, in Official Committee of Unsecured Creditors of TOUSA, Inc. v Citicorp North America, Inc., the United States Bankruptcy Court in the Southern District of Florida held that a savings clause similar to the savings clause included in the documents relating to our senior secured credit facilities and senior notes was unenforceable. As a result, the subsidiary guarantees were found to be fraudulent conveyances. The United States Court of Appeals for the Eleventh Circuit recently affirmed the liability findings of the Bankruptcy Court without ruling directly on the enforceability of savings clauses generally. If the TOUSA decision were followed by other courts, the risk that the guarantees would be deemed fraudulent conveyances would be significantly increased.
To the extent a court avoids the senior secured credit facilities or the senior notes or any of the guarantees as fraudulent transfers or holds the senior secured credit facilities or the senior notes or any of the guarantees unenforceable for any other reason, the lenders under the senior secured credit facilities or the holders of the senior notes, as the case may be, would cease to have any direct claim against us or the applicable guarantor. If a court were to take this action, our or the applicable guarantor’s assets would be applied first to satisfy our or the applicable guarantor’s other liabilities, if any, and might not be applied to the payment of the senior secured credit facilities or the senior notes, as the case may be. Sufficient funds to repay the senior secured credit facilities and the senior notes may not be available from other sources, including the remaining guarantors, if any.
Not all of our subsidiaries have guaranteed our senior secured credit facilities or our senior notes, and the assets of our non-guarantor subsidiaries may not be available to make payments on such obligations.
Not all of our subsidiaries have guaranteed the senior secured credit facilities or the senior notes. In the event that any non-guarantor subsidiary becomes insolvent, liquidates, reorganizes, dissolves or otherwise winds up, holders of its indebtedness and its trade creditors generally will be entitled to payment on their claims from the assets of that subsidiary
28

before any of those assets are made available to the lenders under the senior secured credit facilities or the holders of the senior notes. Consequently, claims in respect of the senior secured credit facilities and the senior notes are structurally subordinated to all of the liabilities of our non-guarantor subsidiaries, including trade payables, and any claims of third party holders of preferred equity interests, if any, in our non-guarantor subsidiaries. For the year ended December 31, 2015, our subsidiaries that are not borrowers under or do not guarantee the senior secured credit facilities and our subsidiaries that do not guarantee the senior notes represented approximately 33% and 26% of our total revenue and operating income, respectively. In addition, these non-guarantor subsidiaries represented approximately 35% and 37% of our total assets and total liabilities, respectively, as of December 31, 2015 (excluding, in each case, intercompany amounts) with respect to both the senior secured credit facilities and the senior notes. Of these amounts, as of the same date, our subsidiaries that do not guarantee the senior notes and our subsidiaries that do not guarantee the senior secured credit facilities had approximately $543.5 million of outstanding indebtedness (which includes $480.5 million of borrowings under our revolving credit facilities by foreign subsidiaries that are borrowers under the revolving credit facilities but that do not guarantee the notes).
We may not be able to repurchase the senior notes upon a change of control or pursuant to an asset sale offer.
Upon a change of control, as defined in the indenture governing the senior notes, the holders of the notes will have the right to require us to offer to purchase all of the notes then outstanding at a price equal to 101% of their principal amount plus accrued and unpaid interest. Such a change of control would also be an event of default under our senior secured credit facilities. In order to obtain sufficient funds to pay amounts due under the senior secured credit facilities and the purchase price of the outstanding senior notes, we expect that we would have to refinance our indebtedness. We cannot assure you that we would be able to refinance our indebtedness on reasonable terms, if at all. Our failure to offer to purchase all outstanding senior notes or to purchase all validly tendered senior notes would be an event of default under the indenture. Such an event of default may cause the acceleration of our other debt. Our other debt also may contain restrictions on repayment requirements with respect to specified events or transactions that constitute a change of control under the indenture.
The definition of change of control in the indenture governing the senior notes includes a phrase relating to the sale of “all or substantially all” of our assets. There is no precise established definition of the phrase “substantially all” under applicable law. Accordingly, the ability of a holder of senior notes to require us to repurchase its notes as a result of a sale of less than all our assets to another person may be uncertain.
In addition, in certain circumstances as specified in the indenture governing the senior notes, we will be required to commence an asset sale offer, as defined in the indenture, pursuant to which we will be obligated to purchase certain senior notes at a price equal to 100% of their principal amount plus accrued and unpaid interest with the proceeds we receive from certain asset sales. Our other debt may contain restrictions that would limit or prohibit us from completing any such asset sale offer. In particular, our senior secured credit facilities contain provisions that require us, upon the sale of certain assets, to apply all of the proceeds from such asset sale to the prepayment of amounts due under the senior secured credit facilities. The mandatory prepayment obligations under the senior secured credit facilities will be effectively senior to our obligations to make an asset sale offer with respect to the senior notes under the terms of the indenture. Our failure to purchase any such senior notes when required under the indenture would be an event of default under the indenture.
Key terms of the senior notes will be suspended if the notes achieve investment grade ratings and no default or event of default has occurred and is continuing.
Many of the covenants in the indenture governing the senior notes will be suspended if the notes are rated investment grade by Standard & Poor’s and Moody’s provided at such time no default or event of default has occurred and is continuing, including those covenants that restrict, among other things, our ability to pay dividends, incur liens and to enter into certain other transactions. There can be no assurance that the senior notes will ever be rated investment grade. However, suspension of these covenants would allow us to engage in certain transactions that would not be permitted while these covenants were in force (although provisions under our other debt, like the senior secured credit facilities, may continue to restrict us from engaging in these transactions), and the effects of any such transactions will be permitted to remain in place even if the senior notes are subsequently downgraded below investment grade.
The liquidity and market value of the senior notes may change due to a variety of factors.
The liquidity of any trading market in the senior notes, and the market price quoted for the senior notes, may be adversely affected by changes in the overall market for these types of securities, changes in interest rates, changes in our ratings, and changes in our financial performance or prospects or in the prospects for companies in our industries generally.
We rely on an accounts receivable securitization program for a portion of our liquidity.
We have an arrangement whereby we sell an interest in a portion of our accounts receivable to a special purpose vehicle and receive funding through the commercial paper market. This arrangement expires in October 2017. In the event that the market for commercial paper were to close or otherwise become constrained, our cost of credit relative to this program could rise, or credit could be unavailable altogether.
29

ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
Our properties are described in Item 1 of this Annual Report on Form 10-K, and such description is incorporated by reference into this Item 2. Our properties are sufficient to meet our present needs, and we do not anticipate any difficulty in securing additional space to conduct operations or additional office space, as needed, on terms acceptable to us.
ITEM 3. LEGAL PROCEEDINGS
The Office of the District Attorney of Harris County, Texas has been investigating a possible violation of the Texas Clean Water Act in connection with alleged discharges of petroleum products at two of our facilities in Texas. We are in negotiations with the Office of the District Attorney to resolve this matter. The resolution will likely involve a monetary payment to Harris County for the alleged violations at each location. The amount of each payment individually and the amount of the payments in the aggregate are expected to have a de minimis effect on our financial position, results of operations and cash flows.
In addition, we are from time to time subject to various claims and lawsuits incidental to our business. In the opinion of management, currently outstanding claims and suits will not, individually or in the aggregate, have a material adverse effect on our financial position, results of operations or cash flows.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
30

PART II

ITEM 5. | MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on the NASDAQ Global Select Market ("NASDAQ") under the symbol "LKQ." At December 31, 2015, there were 25 record holders of our common stock. The following table sets forth, for the periods indicated, the range of the high and low sales prices of shares of our common stock on NASDAQ.

| High |  | Low
2014 |  |  |
First Quarter | $ | 32.90 |  |  | $ | 24.46 |
Second Quarter | 29.84 |  |  | 24.95 |
Third Quarter | 29.21 |  |  | 25.15 |
Fourth Quarter | 29.64 |  |  | 25.04 |
2015 |  |  |
First Quarter | $ | 28.23 |  |  | $ | 22.90 |
Second Quarter | 30.82 |  |  | 24.92 |
Third Quarter | 32.25 |  |  | 26.67 |
Fourth Quarter | 30.50 |  |  | 27.08 |

We have not paid any cash dividends on our common stock. We intend to continue to retain our earnings to finance our growth and for general corporate purposes. We do not anticipate paying any cash dividends on our common stock in the foreseeable future. In addition, our senior secured credit agreement and our senior notes indenture contain, and future financing agreements may contain, limitations on payment of cash dividends or other distributions of assets. Based on limitations in effect under our senior secured credit agreement and senior notes indenture, the maximum amount of dividends we could pay as of December 31, 2015 was approximately $970 million. The limit on the payment of dividends is calculated using historical financial information and will change from period to period.
The following graph compares the percentage change in the cumulative total returns on our common stock, the NASDAQ Stock Market (U.S.) Index and the following group of peer companies (the "Peer Group"): Copart, Inc.; O'Reilly Automotive, Inc.; Genuine Parts Company; and Fastenal Co., for the period beginning on December 31, 2010 and ending on December 31, 2015 (which was the last day of our 2015 fiscal year). The stock price performance in the following graph is not necessarily indicative of future stock price performance. The graph assumes that the value of an investment in each of the Company's common stock, the NASDAQ Stock Market (U.S.) Index and the Peer Group was $100 on December 31, 2010 and that all dividends, where applicable, were reinvested.
31

Comparison of Cumulative Return
Among LKQ Corporation, the NASDAQ Stock Market (U.S.) Index and the Peer Group

| 12/31/2010 |  | 12/31/2011 |  | 12/31/2012 |  | 12/31/2013 |  | 12/31/2014 |  | 12/31/2015
LKQ Corporation | $ | 100 |  |  | $ | 132 |  |  | $ | 186 |  |  | $ | 290 |  |  | $ | 248 |  |  | $ | 261 |
NASDAQ Stock Market (U.S.) Index | $ | 100 |  |  | $ | 99 |  |  | $ | 117 |  |  | $ | 163 |  |  | $ | 187 |  |  | $ | 200 |
Peer Group | $ | 100 |  |  | $ | 134 |  |  | $ | 150 |  |  | $ | 189 |  |  | $ | 239 |  |  | $ | 255 |

This stock performance information is "furnished" and shall not be deemed to be "soliciting material" or subject to Rule 14A, shall not be deemed "filed" for purposes of Section 18 of the Securities Exchange Act of 1934 or otherwise subject to the liabilities of that section, and shall not be deemed incorporated by reference in any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, whether made before or after the date of this report and irrespective of any general incorporation by reference language in any such filing, except to the extent that it specifically incorporates the information by reference.
Information about our common stock that may be issued under our equity compensation plans as of December 31, 2015 included in Part III, Item 12 of this Annual Report on Form 10-K is incorporated herein by reference.
32

ITEM 6. SELECTED FINANCIAL DATA
The following selected consolidated financial data should be read together with "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 of this Annual Report on Form 10-K and our consolidated financial statements and related notes included in Item 8 of this Annual Report on Form 10-K.

| Year Ended December 31,
(in thousands, except per share data) | 2015 |  | 2014 |  | 2013 |  | 2012 |  | 2011
| (1) |  | (2) |  | (3) |  | (4) |  | (5)
Statements of Income Data: |  |  |  |  |  |  |  |  |
Revenue | $ | 7,192,633 |  |  | $ | 6,740,064 |  |  | $ | 5,062,528 |  |  | $ | 4,122,930 |  |  | $ | 3,269,862 |
Cost of goods sold | 4,359,104 |  |  | 4,088,151 |  |  | 2,987,126 |  |  | 2,398,790 |  |  | 1,877,869 |
Gross margin | 2,833,529 |  |  | 2,651,913 |  |  | 2,075,402 |  |  | 1,724,140 |  |  | 1,391,993 |
Operating income | 704,627 |  |  | 649,868 |  |  | 530,180 |  |  | 437,953 |  |  | 361,483 |
Other expense (income) |  |  |  |  |  |  |  |  |
Interest expense | 57,860 |  |  | 64,542 |  |  | 51,184 |  |  | 31,429 |  |  | 24,307 |
Other (income) expense, net | (2,263 | ) |  | (2,562 | ) |  | 3,169 |  |  | (2,643 | ) |  | 1,405 |
Income from continuing operations before provision for income taxes | 649,030 |  |  | 587,888 |  |  | 475,827 |  |  | 409,167 |  |  | 335,771 |
Provision for income taxes | 219,703 |  |  | 204,264 |  |  | 164,204 |  |  | 147,942 |  |  | 125,507 |
Equity in earnings of unconsolidated subsidiaries | (6,104 | ) |  | (2,105 | ) |  | — |  |  | — |  |  | — |
Income from continuing operations | $ | 423,223 |  |  | $ | 381,519 |  |  | $ | 311,623 |  |  | $ | 261,225 |  |  | $ | 210,264 |
Basic earnings per share from continuing operations | $ | 1.39 |  |  | $ | 1.26 |  |  | $ | 1.04 |  |  | $ | 0.88 |  |  | $ | 0.72 |
Diluted earnings per share from continuing operations | $ | 1.38 |  |  | $ | 1.25 |  |  | $ | 1.02 |  |  | $ | 0.87 |  |  | $ | 0.71 |
Weighted average shares outstanding-basic | 304,722 |  |  | 302,343 |  |  | 299,574 |  |  | 295,810 |  |  | 292,252 |
Weighted average shares outstanding-diluted | 307,496 |  |  | 306,045 |  |  | 304,131 |  |  | 300,693 |  |  | 296,750 |
| Year Ended December 31,
| 2015 |  | 2014 |  | 2013 |  | 2012 |  | 2011
Other Financial Data: |  |  |  |  |  |  |  |  |
Net cash provided by operating activities | $ | 529,837 |  |  | $ | 370,897 |  |  | $ | 428,056 |  |  | $ | 206,190 |  |  | $ | 211,772 |
Net cash used in investing activities | (329,993 | ) |  | (920,994 | ) |  | (505,606 | ) |  | (352,534 | ) |  | (571,607 | )
Net cash provided by financing activities | (224,092 | ) |  | 519,003 |  |  | 165,941 |  |  | 157,072 |  |  | 311,411 |
Capital expenditures | 170,490 |  |  | 140,950 |  |  | 90,186 |  |  | 88,255 |  |  | 86,416 |
Business acquisitions(6) | 160,517 |  |  | 775,921 |  |  | 408,384 |  |  | 265,336 |  |  | 486,934 |
Depreciation and amortization | 128,192 |  |  | 125,437 |  |  | 86,463 |  |  | 70,165 |  |  | 54,505 |
Balance Sheet Data: |  |  |  |  |  |  |  |  |
Total assets(7) | $ | 5,647,837 |  |  | $ | 5,475,739 |  |  | $ | 4,438,058 |  |  | $ | 3,664,503 |  |  | $ | 3,146,262 |
Working capital(7) | 1,588,742 |  |  | 1,491,169 |  |  | 1,062,926 |  |  | 843,689 |  |  | 708,690 |
Long-term obligations, including current portion(7) | 1,584,702 |  |  | 1,846,148 |  |  | 1,287,242 |  |  | 1,111,058 |  |  | 946,494 |
Stockholders' equity | 3,114,682 |  |  | 2,720,657 |  |  | 2,350,745 |  |  | 1,964,094 |  |  | 1,644,085 |

(1) | Includes the results operations of 18 businesses from their respective acquisition dates in 2015.

(2) | Includes the results of operations of Keystone Automotive Holdings, Inc. (“Keystone Specialty”) from its acquisition effective January 3, 2014 and 22 other businesses from their respective acquisition dates in 2014.

33

(3) | Includes the results of operations of Sator Beheer B.V. ("Sator") from its acquisition effective May 1, 2013 and 19 other businesses from their respective acquisition dates in 2013.

(4) | Includes the results of operations of 30 businesses from their respective acquisition dates in 2012. Our 2012 results include gains totaling $17.9 million, which are included in Cost of goods sold, resulting from lawsuit settlements with certain of our aftermarket product suppliers.

(5) | Includes the results of operations of Euro Car Parts Holdings Limited ("ECP") from its acquisition effective October 1, 2011 and 20 other businesses from their respective acquisition dates in 2011. Our 2011 results include a loss on debt extinguishment of $5.3 million related to the execution of the senior secured credit facilities on March 25, 2011. The loss on debt extinguishment is included in Other expense, net.

(6) | Includes cash paid for acquisitions, net of cash acquired.

(7) | Prior year balances have been updated to reflect the balance sheet reclassifications resulting from the adoption of two new accounting pronouncements in the fourth quarter of 2015 as described in Recent Accounting Pronouncements within Note 2, "Summary of Significant Accounting Policies" in Part II, Item 8 of this Annual Report on Form 10-K. The reclassifications made for each year are reflected in the table below:

| December 31,
| 2014 |  | 2013 |  | 2012 |  | 2011
Total Assets |  |  |  |  |  |  |
As reported | $ | 5,573,492 |  |  | $ | 4,518,774 |  |  | $ | 3,723,456 |  |  | $ | 3,199,704 |
Adjustment - adoption of ASU 2015-03 | (18,414 | ) |  | (18,539 | ) |  | (7,420 | ) |  | (9,582 | )
Adjustment - adoption of ASU 2015-17 | (79,339 | ) |  | (62,177 | ) |  | (51,533 | ) |  | (43,860 | )
As adjusted | $ | 5,475,739 |  |  | $ | 4,438,058 |  |  | $ | 3,664,503 |  |  | $ | 3,146,262 |
Working Capital |  |  |  |  |  |  |
As reported | $ | 1,566,721 |  |  | $ | 1,121,864 |  |  | $ | 896,407 |  |  | $ | 752,042 |
Adjustment - adoption of ASU 2015-03 | 1,577 |  |  | 1,645 |  |  | 762 |  |  | 777 |
Adjustment - adoption of ASU 2015-17 | (77,129 | ) |  | (60,583 | ) |  | (53,480 | ) |  | (44,129 | )
As adjusted | $ | 1,491,169 |  |  | $ | 1,062,926 |  |  | $ | 843,689 |  |  | $ | 708,690 |

34

ITEM 7. | 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, as well as specialty vehicle products and accessories.
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 and the Benelux region (Belgium, Netherlands, & Luxembourg) of continental Europe. In addition to our wholesale operations, we operate heavy duty truck facilities and self service retail facilities across the U.S. that sell recycled automotive products from end-of-life-vehicles. In 2014, we expanded our product offering to include specialty vehicle aftermarket equipment and accessories through the acquisition of Keystone Specialty.
We are organized into four operating segments: Wholesale - North America; Europe; Specialty; and Self Service. We aggregate our North American operating segments (Wholesale - North America and Self Service) into one reportable segment, resulting in three reportable segments: North America, Europe and Specialty.
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. Factors that may affect our operating results include, but are not limited to, those listed in the Special Note on Forward-Looking Statements in Part I, Item 1 and Risk Factors in Part I, Item 1A of this Annual Report on Form 10-K. 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. Our principal focus for acquisitions is companies that are market leaders, will expand our geographic presence and enhance our ability to provide a wide array of automotive products to our customers through our distribution network.
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 recreational vehicle ("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.
On December 22, 2015, LKQ and its wholly-owned subsidiary LKQ Italia S.r.l. entered into an agreement to acquire the holding company of 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, Switzerland, Hungary, Romania, Ukraine, Bulgaria, Slovakia, Poland and Spain. The transaction is expected to be completed in the first half of 2016 and is subject to customary closing conditions and necessary regulatory approvals. This acquisition will expand LKQ's geographic presence in continental Europe. We believe the acquisition will create potential purchasing synergies.
On January 3, 2014, we completed our acquisition of Keystone Specialty. Keystone Specialty is a leading distributor and marketer of specialty vehicle aftermarket equipment and accessories in North America serving the following six product segments: truck and off-road; speed and performance; recreational vehicle; towing; wheels, tires and performance handling; and miscellaneous accessories. Our acquisition of Keystone Specialty allowed us to enter into new product lines and increase the size of our addressable market. In addition, we believe that the acquisition creates logistics and administrative cost synergies and potential cross-selling opportunities.
35

In addition to our acquisition of Keystone Specialty, we made 22 acquisitions during 2014, including 9 wholesale businesses in North America, 9 wholesale businesses in Europe, 2 self service retail operations, and 2 specialty vehicle aftermarket businesses. Our European acquisitions included seven aftermarket parts distribution businesses in the Netherlands, five of which were customers of and distributors for our Netherlands subsidiary, Sator. Our acquisitions in the Netherlands enabled us to transform the existing distribution model to better align with that of our U.K. operations. This realignment has allowed us to sell directly to the end repair shop customer versus through a local wholesale distributor, and to improve margins, customer service, and fulfillment rates, and positioned us well to introduce additional product categories in the long term. Our other acquisitions completed during the year ended December 31, 2014 enabled us to expand into new product lines and enter new markets.
During the year ended December 31, 2013, we completed 20 acquisitions, including our May 2013 acquisition of Sator, a vehicle mechanical aftermarket parts distribution company based in the Netherlands, with operations in the Netherlands, Belgium and Northern France. With the acquisition of Sator, we expanded our geographic presence in the European vehicle mechanical aftermarket products market into continental Europe to complement our existing U.K. operations. In addition to our acquisition of Sator, we acquired 10 wholesale businesses in North America, 7 wholesale businesses in Europe and 2 self service operations. Our European acquisitions included five automotive paint distribution businesses in the U.K., which enabled us to expand our collision product offerings. The other acquisitions completed during 2013 enabled us to expand into new product lines and enter new markets.
In August 2013, we entered into an agreement with Suncorp Group, a leading general insurance group in Australia and New Zealand, to develop an alternative vehicle replacement parts business, ACM Parts Pty Ltd ("ACM Parts"), in those countries. As of December 31, 2015, this investment was classified as held for sale and included within Other Current Assets on the Consolidated Balance Sheets. The sale of this investment was completed in February 2016. Refer to Note 2, "Summary of Significant Accounting Policies" within the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for more information related to this investment.
Sources of Revenue
We report our revenue in two categories: (i) parts and services and (ii) other. Our parts and services revenue is generated from the sale of vehicle products and related services including (i) aftermarket, other new and refurbished products and (ii) recycled, remanufactured and related products and services. 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. For the year ended December 31, 2015, parts and services revenue represented approximately 93% 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 product availability, quality, demand, new OEM product prices, the age and mileage of the vehicle from which the 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
36

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.
For the year ended December 31, 2015, revenue from other sources represented approximately 7% of our consolidated sales. These other sources include scrap sales and sales of aluminum ingots and sows. 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 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 Consolidated Statements of Income.
Our distribution expenses primarily include our costs to prepare and deliver our products to our customers. 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 75% and 80% 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
37

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; 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 specialty products.
Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our 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. On an ongoing basis, we evaluate our estimates, assumptions, and judgments, including those related to revenue recognition, inventory valuation, business combinations, and goodwill impairment. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. The results of these estimates form the basis for our judgments about the carrying values of assets and liabilities and our recognition of revenue. Actual results may differ from these estimates.
Revenue Recognition
We recognize and report revenue from the sale of vehicle products when they are shipped to or picked up by the customers and title has transferred, subject to an allowance for estimated returns, discounts and allowances that management estimates based upon historical information. In instances where a product is returned by a customer, the product would ordinarily be returned within a few days of shipment. Our customers may earn discounts based upon sales volumes or sales volumes coupled with prompt payment. Allowances are normally given within a few days following product shipment. We analyze historical returns and allowances activity by comparing the items to the original invoice amounts and dates. We use this information to project future returns and allowances on products sold. If actual returns and allowances are higher than our historical experience, there would be an adverse impact on our operating results in the period of occurrence.
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.
Inventory Accounting
Salvage and Remanufactured Inventory. Our salvage inventory cost is established based upon the price we pay for a vehicle, including auction, towing and storage fees, as well as expenditures for buying and dismantling vehicles. Inventory carrying value is determined using the average cost to sales percentage at each of our facilities and applying that percentage to the facility's inventory at expected selling prices, the assessment of which incorporates the sales probability based on a part's days in stock and historical demand. The average cost to sales percentage is derived from each facility's historical profitability for salvage vehicles. Remanufactured inventory cost is based upon the price paid for cores, and also includes expenses incurred for freight, direct manufacturing costs and overhead related to our remanufacturing operations.
For all inventory, carrying value is recorded at the lower of cost or market and is reduced to reflect current anticipated demand. If actual demand differs from our estimates, additional reductions to inventory carrying value would be necessary in the period such determination is made.
Business Combinations
We record our acquisitions under the acquisition method of accounting, under which the acquisition purchase price is allocated to the assets acquired and liabilities assumed based upon their respective fair values. We utilize management estimates and, in some instances, independent third-party valuation firms to assist in determining the fair values of assets acquired, liabilities assumed and contingent consideration granted. Such estimates and valuations require us to make significant assumptions, including projections of future events and operating performance.
38

Goodwill Impairment
We are required to test our goodwill for impairment at least annually. When testing goodwill for impairment, we are required to evaluate events and circumstances that may affect the performance of the reporting unit and the extent to which the events and circumstances may impact the future cash flows of the reporting unit to determine whether the fair value of the assets exceed the carrying value. If these assumptions or estimates change in the future, we may be required to record impairment charges for these assets. In response to changes in industry and market conditions, we may be required to strategically realign our resources and consider restructuring, disposing of, or otherwise exiting businesses, which could result in an impairment of goodwill.
We are organized into four operating segments: Wholesale-North America; Europe; Specialty; and Self Service. We have also concluded that these four operating segments are reporting units for purposes of goodwill impairment testing in 2015. We perform goodwill impairment tests annually in the fourth quarter and between annual tests whenever events indicate that an impairment may exist.
Our goodwill would be considered impaired if the net book value of a reporting unit exceeded its estimated fair value. The fair value estimates are established using weightings of the results of a discounted cash flow methodology and a comparative market multiples approach. We believe that using two methods to determine fair value limits the chances of an unrepresentative valuation.
During the quarter ended September 30, 2015, we noted that our North American operating margins continued to be negatively affected by the decline in scrap steel and other metals prices, which began in the fourth quarter of 2014. Our Self Service reporting unit has been most impacted by the change in scrap steel prices as the sale of crushed car bodies comprises a relatively large percentage of its sales. It is anticipated that scrap steel prices will continue to have a negative impact on operating margins during 2016. Given the decrease in scrap steel prices throughout 2015 and projected softness in 2016 and the corresponding negative effect on our current and expected results, we performed an interim goodwill impairment test for the Self Service reporting unit as of August 31, 2015. Based on the step one analysis performed for the Self Service reporting unit, no impairment adjustment was required. Our forecasts assume scrap steel prices will continue at their current depressed level through all of 2016 before returning to our seven year historical average price of approximately $200 per ton in 2018. Based on this forecast, the impairment test indicated the fair value of the Self Service reporting unit, determined using both market and income approaches, exceeded the reporting unit’s carrying value by approximately 11%. Declines in expected future cash flows (which are driven by scrap steel and other metals prices), reduction in terminal value growth rates, or an increase to the risk-adjusted discount rate used to estimate the fair value of the Self Service reporting unit may result in the determination that an impairment adjustment is required.
As of December 31, 2015, we had a total of $2.3 billion in goodwill subject to future impairment tests with approximately $259.0 million allocated to our Self Service reporting unit. We determined that no adjustments were necessary when we performed our annual impairment testing in the fourth quarter of 2015 on all four reporting units. A 10% decrease in the fair value estimates of the reporting units in the annual impairment test would not have changed this determination, but the excess over carrying value for our Self Service reporting unit was 11% in the most recent test. If we were required to recognize goodwill impairments, we would report those impairment losses as part of our operating results.
Recently Issued Accounting Pronouncements
See “Recent Accounting Pronouncements” in Note 2, "Summary of Significant Accounting Policies" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for information related to new accounting standards.
Financial Information by Geographic Area
See Note 13, "Segment and Geographic Information" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for information related to our revenue and long-lived assets by geographic region.
39

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

| Year Ended December 31,
| 2015 |  | 2014 |  | 2013
Revenue | 100.0 | % |  | 100.0 | % |  | 100.0 | %
Cost of goods sold | 60.6 | % |  | 60.7 | % |  | 59.0 | %
Gross margin | 39.4 | % |  | 39.3 | % |  | 41.0 | %
Facility and warehouse expenses | 7.7 | % |  | 7.8 | % |  | 8.4 | %
Distribution expenses | 8.4 | % |  | 8.6 | % |  | 8.5 | %
Selling, general and administrative expenses | 11.5 | % |  | 11.3 | % |  | 11.8 | %
Restructuring and acquisition related expenses | 0.3 | % |  | 0.2 | % |  | 0.2 | %
Depreciation and amortization | 1.7 | % |  | 1.8 | % |  | 1.6 | %
Operating income | 9.8 | % |  | 9.6 | % |  | 10.5 | %
Other expense, net | 0.8 | % |  | 0.9 | % |  | 1.1 | %
Income before provision for income taxes | 9.0 | % |  | 8.7 | % |  | 9.4 | %
Provision for income taxes | 3.1 | % |  | 3.0 | % |  | 3.2 | %
Equity in earnings of unconsolidated subsidiaries | (0.1 | )% |  | 0.0 | % |  | 0.0 | %
Net income | 5.9 | % |  | 5.7 | % |  | 6.2 | %

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
Revenue. The following table summarizes the changes in revenue by category (amounts in thousands):

| Year Ended December 31, |  | Percentage Change in Revenue
| 2015 |  | 2014 |  | Organic |  | Acquisition |  | Foreign Exchange |  | Total Change
Parts & services revenue | $ | 6,713,951 |  |  | $ | 6,086,759 |  |  | 7.0 | % |  | 7.1 | % |  | (3.8 | )% |  | 10.3 | %
Other revenue | 478,682 |  |  | 653,305 |  |  | (28.6 | )% |  | 2.2 | % |  | (0.3 | )% |  | (26.7 | )%
Total revenue | $ | 7,192,633 |  |  | $ | 6,740,064 |  |  | 3.5 | % |  | 6.6 | % |  | (3.4 | )% |  | 6.7 | %
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 10.3% represents increases of 6.8% in North America, 8% in Europe, and 30.6% in Specialty. The decline in other revenue of 26.7% primarily reflects the decline in the price of scrap steel and other metals. Refer to the discussion of our segment results of operations for factors contributing to revenue changes during 2015 compared to the prior year.
Cost of Goods Sold. Our cost of goods sold decreased to 60.6% of revenue for the year ended December 31, 2015 from 60.7% of revenue in the prior year. The decrease is related to (i) a decline of 0.3% in costs of goods sold in our European operations, as a result of a 0.2% decrease in our U.K. operations due to lower product costs and 0.1% due to internalizing gross margin from our May 2014 acquisitions of seven Netherlands distributors, and (ii) improved net pricing to customers in our North American operations; as our purchase costs were flat on average, the increase in revenue from favorable pricing resulted in a decrease of 0.2% in cost of goods sold as a percentage of revenue. These decreases were offset by (i) an increase of 0.2% in our Specialty operations due to higher inventory costs and unfavorable net customer pricing, and (ii) a negative mix effect of 0.3% primarily resulting from growth of our Specialty segment from our October 2014 acquisition of a supplier of parts for recreational vehicles, as this business yields lower gross margins than our North American and European segments. Refer to the discussion of our segment results of operations for factors contributing to the change in cost of goods sold as a percentage of revenue by segment for the year ended December 31, 2015 compared to the prior year.
Facility and Warehouse Expenses. As a percentage of revenue, facility and warehouse expenses for the year ended December 31, 2015 decreased to 7.7% from 7.8% in the prior year. Compared to the prior year, we experienced a negative impact on operating leverage due to a decrease in other revenue, primarily as a result of declining prices of scrap steel and other metals. Excluding the impact of the decline in scrap and other metal prices of 0.1%, facility and warehouse expenses would have improved by 0.2% primarily reflecting a positive mix effect as a greater proportion of revenue was generated from our Specialty segment. Compared to our North American operations, Specialty stores a greater portion of inventory at their regional
40

distribution centers, the costs of which are capitalized into inventory and expensed through cost of goods sold. In our North American wholesale operations, most of the inventory sold by our local operations is stored on site rather than in distribution centers, and the related facility and warehouse expenses of the local operations are recorded in this line item.
Distribution Expenses. As a percentage of revenue, distribution expenses for the year ended December 31, 2015 decreased to 8.4% from 8.6% in the prior year. Distribution expenses decreased by 0.4% compared to the prior year due to fuel cost savings driven by lower average prices. The decline in other revenue caused a 0.2% loss in operating leverage due to the revenue mix shift (scrap and other metals revenue has lower distribution costs than parts sales).
Selling, General and Administrative Expenses. As a percentage of revenue, selling, general and administrative expenses for the year ended December 31, 2015 increased to 11.5% from 11.3% in the prior year. Compared to the prior year, other revenue decreased as a result of declining prices of scrap steel and other metals, which negatively impacted our operating leverage and increased our selling, general and administrative expenses as percentage of revenue by 0.2%. Excluding this impact, our selling, general and administrative expenses as a percentage of revenue were flat over the prior year.
Restructuring and Acquisition Related Expenses. The following table summarizes restructuring and acquisition related expenses for the periods indicated (in thousands):

| Year Ended December 31,
| 2015 |  | 2014 |  | Change
Restructuring expenses | $ | 13,083 |  | (1) | $ | 11,123 |  | (2) | $ | 1,960 |
Acquisition related expenses | 6,428 |  | (3) | 3,683 |  | (4) | 2,745 |
Total restructuring and acquisition related expenses | $ | 19,511 |  |  | $ | 14,806 |  |  | $ | 4,705 |

(1) | Restructuring expenses of $10.5 million, $2.0 million, and $0.6 million for the year ended December 31, 2015 were primarily related to the integration of acquired businesses in our Specialty, North America, 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 expense for the year ended December 31, 2014 included $5.8 million of expense related to the integration of our Keystone Specialty acquisition, as well as $1.9 million, $1.0 million, and $0.8 million of expense related to the integration of acquired businesses in our European, North American and Specialty segments, respectively. Additionally, we incurred $1.6 million of severance costs to terminated employees as part of the ongoing rationalization of our European operations.

(3) | Acquisition related expenses for the year ended December 31, 2015 included $1.6 million for our acquisitions of eleven aftermarket parts distribution businesses in the Netherlands and $0.2 million for other European acquisitions, $3.6 million for potential and pending acquisitions, and $1.0 million related to our North America and Specialty acquisitions during the year.

(4) | Acquisition related expenses for the prior year ended December 31, 2014 include external costs primarily related to our acquisitions of seven distribution companies in the Netherlands.

See Note 9, "Restructuring and Acquisition Related Expenses" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information on our restructuring and integration plans.
Depreciation and Amortization. The following table provides additional information about the increase in depreciation and amortization compared to the prior year (in thousands):

| Year Ended December 31, |
| 2015 |  | 2014 |  | Change |
Depreciation | $ | 88,335 |  |  | $ | 86,216 |  |  | $ | 2,119 |  | (1)
Amortization | 33,785 |  |  | 34,503 |  |  | (718 | ) | (2)
Total depreciation and amortization | $ | 122,120 |  |  | $ | 120,719 |  |  | $ | 1,401 |  |

(1) | The increase in depreciation expense was a result of increased levels of property and equipment to support our acquisition and organic related growth, partially offset by a decline of $3.1 million attributable to the impact of foreign exchange rates.

(2) | The decrease in amortization expense reflects a $1.6 million decline due to foreign exchange rates partially offset by net increases in amortization expense for intangibles recorded related to our 2014 and 2015 acquisitions. The

41

amortization expense for the year ended December 31, 2014 included accelerated amortization for intangibles recognized during 2014 for the January 2014 acquisition of Keystone Specialty.
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 year ended December 31, 2014 | $ | 61,980 |  |
Increase (decrease) due to: |  |
Interest expense | (6,682 | ) | (1)
Loss on debt extinguishment | (324 | ) | (2)
Changes in fair value of contingent consideration liabilities | 2,305 |  | (3)
Interest and other income, net | (1,682 | ) | (4)
Total decrease | (6,383 | ) |
Other expense, net for the year ended December 31, 2015 | $ | 55,597 |  |

(1) | Approximately $4.2 million of the reduction in interest expense from the prior year is due to lower outstanding borrowings. The remaining $2.5 million is attributable to lower interest rates under our senior secured credit agreement. The higher outstanding debt levels in the prior year were primarily related to borrowings used to finance the Keystone Specialty acquisition in January 2014 and cash flow from operations in 2015 that was used to pay down debt.

(2) | During the year ended December 31, 2014, we incurred a $0.3 million loss on debt extinguishment as a result of our March 2014 amendment to our senior secured credit agreement. We did not incur a similar charge during 2015.

(3) | See Note 6, "Fair Value Measurements" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information on our contingent payment arrangements.

(4) | The increase in Interest and other income, net reflects an increase in customer finance fees of $1.3 million and a favorable impact due to a decrease in foreign currency losses of $0.5 million, including the impact of unrealized mark-to-market losses on foreign currency forward contracts used to hedge the purchase of inventory and, to a lesser extent, unrealized and realized gains and losses on foreign currency transactions for the year ended December 31, 2015 compared to the prior year.

Provision for Income Taxes. Our effective income tax rate was 33.9% for the year ended December 31, 2015, compared to 34.7% for the year ended December 31, 2014. The lower effective tax rate in 2015 reflects a 0.5% benefit relative to the prior year as a result of an increase in earnings in our lower tax rate international operations. In addition, the effective tax rate for the current year benefited from discrete items, including favorable return to provision adjustments of $1.9 million and the favorable settlement of a Canada tax matter totaling $1.8 million.
Equity in Earnings of Unconsolidated Subsidiaries. During the year ended December 31, 2015, we recorded impairment charges of $2.0 million in our equity method investments. No tax benefit was recognized related to these charges. Our share of net operating losses in our equity method investments totaled $4.1 million through the year ended December 31, 2015 compared to $2.1 million during the prior year. With our divestiture of ACM Parts in February 2016, we expect our equity in earnings of unconsolidated subsidiaries to be nominal in 2016.
Foreign Currency Impact. We translate our statements of income at the average exchange rates in effect for the period. Relative to the average rates used in 2014, the pound sterling, euro and Canadian dollar rates used to translate the 2015 statements of income declined by 7.2%, 16.4%, and 13.5%, respectively. The translation effect of the decline of these currencies against the U.S. dollar and realized and unrealized currency losses for the year resulted in an approximately $0.04 negative effect on diluted earnings per share relative to the prior year.
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Revenue. The following table summarizes the changes in revenue by category (in thousands):
42

| Year Ended December 31, |  | Percentage Change in Revenue
| 2014 |  | 2013 |  | Organic |  | Acquisition |  | Foreign Exchange |  | Total Change
Parts & services revenue | $ | 6,086,759 |  |  | $ | 4,429,580 |  |  | 9.0 | % |  | 27.8 | % |  | 0.6 | % |  | 37.4 | %
Other revenue | 653,305 |  |  | 632,948 |  |  | (6.0 | )% |  | 9.3 | % |  | (0.1 | )% |  | 3.2 | %
Total revenue | $ | 6,740,064 |  |  | $ | 5,062,528 |  |  | 7.1 | % |  | 25.5 | % |  | 0.6 | % |  | 33.1 | %
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 37.4% represents increases in segment revenue of 8.4% in North America, 46.6% in Europe, and the addition of our Specialty segment in 2014. Refer to the discussion of our segment results of operations for factors contributing to revenue growth during 2014 compared to the prior year.
Cost of Goods Sold. Our cost of goods sold increased to 60.7% of revenue in 2014 from 59.0% of revenue in 2013. The increase in cost of goods sold was primarily the result of lower margins generated by certain of our acquired businesses, which increased cost of goods sold by 2.0% of revenue. Our Keystone Specialty business operates a three step distribution model, which generates lower gross margins compared to our revenue from sales directly to repairers, and therefore was responsible for 1.2% of the increase in cost of goods sold as a percentage of revenue. Our other acquisitions completed since the beginning of the prior year were responsible for the remainder of the acquisition impact on cost of goods sold, none of which had a material impact on our gross margins individually. Partially offsetting the impact of our acquisitions, improvement in our North American gross margins decreased cost of goods sold by 0.4% of revenue. Refer to the discussion of our segment results of operations for factors contributing to the changes in cost of goods sold by segment for the year ended December 31, 2014 compared to the year ended December 31, 2013.
Facility and Warehouse Expenses. As a percentage of revenue, facility and warehouse expenses for the year ended December 31, 2014 decreased to 7.8% from 8.4% in the prior year, which was primarily due to the effect of our Keystone Specialty acquisition. As discussed in our current year section, Specialty operates with lower facility and warehouse expenses than our North American operations.
Distribution Expenses. As a percentage of revenue, distribution expenses increased to 8.6% in 2014 from 8.5% in 2013, primarily due to greater costs in our European segment. In our U.K. operations, we incurred greater personnel expenditures as a result of 59 new branch openings since the beginning of the prior year, which increased distribution expenses by 0.1% of revenue.
Selling, General and Administrative Expenses. Our selling, general and administrative expenses for the year ended December 31, 2014 decreased to 11.3% of revenue from 11.8% of revenue in the prior year. Our acquisitions contributed 0.4% of the reduction in expense, including primarily the effect of Keystone Specialty, which has lower selling, general and administrative costs compared to our other operations. Greater leverage of our sales force and general and administrative personnel in our North American operations contributed an additional 0.3% improvement in costs as a percentage of revenue. These reductions in expense as a percentage of revenue were partially offset by greater expenses in our European operations, including greater expenditures for our sales force, primarily related to new branch openings, and higher advertising costs compared to the prior year period, which increased selling, general and administrative expenses by 0.2% of revenue.
Restructuring and Acquisition Related Expenses. The following table summarizes restructuring and acquisition related expenses for the periods indicated (in thousands):

| Year Ended December 31, |  |
| 2014 |  | 2013 |  | Change
Restructuring expenses | $ | 11,123 |  | (1) | $ | 3,526 |  | (2) | $ | 7,597 |
Acquisition related expenses | 3,683 |  | (1) | 6,647 |  | (3) | (2,964 | )
Total restructuring and acquisition related expenses | $ | 14,806 |  |  | $ | 10,173 |  |  | $ | 4,633 |

(1) | Refer to our Year Ended December 31, 2015 compared to Year Ended December 31, 2014 discussion for details.

(2) | Restructuring expenses for the year ended December 31, 2013 include $2.1 million related to the integration of certain of our 2013 European acquisitions and $1.4 million related to the integration of certain of our 2012 North American acquisitions.

(3) | Acquisition related expenses for the year ended December 31, 2013 include external costs primarily related to our acquisitions of Sator, five automotive paint distribution businesses in the U.K. and our January 2014 acquisition of Keystone Specialty.

43

See Note 9, "Restructuring and Acquisition Related Expenses" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information on our restructuring and integration plans.
Depreciation and Amortization. The following table provides additional information about the increase in depreciation and amortization compared to the prior year (in thousands):

| Year Ended December 31, |
| 2014 |  | 2013 |  | Change |
Depreciation | $ | 86,216 |  |  | $ | 67,122 |  |  | $ | 19,094 |  | (1)
Amortization | 34,503 |  |  | 13,847 |  |  | 20,656 |  | (2)
Total depreciation and amortization | $ | 120,719 |  |  | $ | 80,969 |  |  | $ | 39,750 |  |

(1) | The increase in depreciation is a result of increased levels of property and equipment to support our organic and acquisition related growth.

(2) | The increase in amortization is a result of amortization of intangible assets related to our acquisitions completed since the beginning of the prior year. We recognized $78.1 million of intangibles related to our January 2014 acquisition of Keystone Specialty and $45.3 million of intangibles related to our May 2013 acquisition of Sator.

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 year ended December 31, 2013 | $ | 54,353 |  |
Increase (decrease) due to: |  |
Interest expense | 13,358 |  | (1)
Loss on debt extinguishment | (2,471 | ) | (2)
Changes in fair value of contingent consideration liabilities | (4,355 | ) | (3)
Interest and other income, net | 1,095 |  | (4)
Net increase | 7,627 |  |
Other expense, net for the year ended December 31, 2014 | $ | 61,980 |  |

(1) | Interest expense increased $17.8 million as a result of higher average outstanding debt levels, primarily to finance our Keystone Specialty and 2014 European acquisitions, partially offset by a decrease of $4.4 million as a result of lower interest rates relative to the prior year, primarily due to a lower applicable margin on our credit agreement borrowings as a result of our March 2014 amendment.

(2) | In 2014, we incurred a loss on debt extinguishment of $0.3 million related to the March 2014 amendment to our senior secured credit agreement, compared to a loss on debt extinguishment of $2.8 million during the prior year related to our May 2013 amendment to our senior secured credit credit agreement.

(3) | During 2014, we recorded gains of $1.9 million as a result of fair value adjustments to our contingent consideration liabilities, compared to losses of $2.5 million in the prior year. See Note 6, "Fair Value Measurements" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information on our contingent payment arrangements.

(4) | Interest and other income, net decreased primarily due to $0.9 million of greater losses as a result of foreign currency exchange for the year ended December 31, 2014 compared to the year ended December 31, 2013.

See Note 4, "Long-Term Obligations" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information on the amendments to our credit agreement.
Provision for Income Taxes. Our effective income tax rate was 34.7% for the year ended December 31, 2014, compared to 34.5% for the year ended December 31, 2013. The lower effective income tax rate in 2013 primarily reflects the discrete benefit related to the revaluation of our net U.K. deferred tax liabilities as a result of reductions in the U.K. corporate income tax rate.
Equity in Earnings of Unconsolidated Subsidiaries. Our share of net operating losses in our equity method investments totaled $2.1 million through the year ended December 31, 2014. Net operating losses during the year ended December 31, 2013 were not material.
44

Foreign Currency Impact. We translate our statements of income at the average exchange rates in effect for the period. Relative to the average rates used in 2013, the Canadian dollar and Euro rates used to translate the 2014 statements of income declined by 6.8% and 0.5%, respectively and the pound sterling rate increased by 5.3%. The translation effect of the change in these currencies against the U.S. dollar and realized and unrealized currency losses for the year resulted in approximately a $0.01 positive effect on diluted earnings per share relative to the prior year.
45

Results of Operations—Segment Reporting
We have four operating segments: Wholesale – North America; Europe; Specialty; and Self Service. Our Specialty operating segment was formed with our January 3, 2014 acquisition of Keystone Specialty, as discussed in Note 8, "Business Combinations" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K. Our Wholesale – North America and Self Service operating segments are aggregated into one reportable segment, North America, because they possess similar economic characteristics and have common products and services, customers, and methods of distribution. Therefore, we present three reportable segments: North America, Europe and Specialty.
We evaluate growth and profitability in our operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP ("Generally Accepted Accounting Principles") 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. Constant currency Segment EBITDA results are calculated by translating prior year Segment EBITDA in local currency using the current year's currency conversion rate. This non-GAAP 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.
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):

| Year Ended December 31,
| 2015 |  | % of Total Segment Revenue |  | 2014 |  | % of Total Segment Revenue |  | 2013 |  | % of Total Segment Revenue
Third Party Revenue |  |  |  |  |  |  |  |  |  |  |
North America | $ | 4,145,998 |  |  |  |  | $ | 4,088,701 |  |  |  |  | $ | 3,802,929 |  |  |
Europe | 1,995,385 |  |  |  |  | 1,846,155 |  |  |  |  | 1,259,599 |  |  |
Specialty | 1,051,250 |  |  |  |  | 805,208 |  |  |  |  | — |  |  |
Total third party revenue | $ | 7,192,633 |  |  |  |  | $ | 6,740,064 |  |  |  |  | $ | 5,062,528 |  |  |
Total Revenue |  |  |  |  |  |  |  |  |  |  |
North America | $ | 4,146,833 |  |  |  |  | $ | 4,089,290 |  |  |  |  | $ | 3,802,929 |  |  |
Europe | 1,995,455 |  |  |  |  | 1,846,155 |  |  |  |  | 1,259,599 |  |  |
Specialty | 1,054,584 |  |  |  |  | 807,015 |  |  |  |  | — |  |  |
Eliminations | (4,239 | ) |  |  |  | (2,396 | ) |  |  |  | — |  |  |
Total revenue | $ | 7,192,633 |  |  |  |  | $ | 6,740,064 |  |  |  |  | $ | 5,062,528 |  |  |
Segment EBITDA |  |  |  |  |  |  |  |  |  |  |
North America | $ | 547,405 |  |  | 13.2% |  | $ | 543,943 |  |  | 13.3% |  | $ | 486,831 |  |  | 12.8%
Europe | 200,563 |  |  | 10.1% |  | 167,155 |  |  | 9.1% |  | 141,756 |  |  | 11.3%
Specialty | 106,561 |  |  | 10.1% |  | 79,453 |  |  | 9.8% |  | — |  |  | n/m
Total Segment EBITDA | $ | 854,529 |  |  | 11.9% |  | $ | 790,551 |  |  | 11.7% |  | $ | 628,587 |  |  | 12.4%

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. Segment EBITDA is calculated as EBITDA excluding restructuring and acquisition related expenses, change in fair value of contingent consideration liabilities and equity in earnings of unconsolidated subsidiaries. EBITDA, which is the basis for Segment EBITDA, is calculated as net income excluding depreciation, amortization, interest (including loss on debt extinguishment) and taxes. Loss on debt extinguishment is considered a component of interest in calculating EBITDA, as the write-off of debt issuance costs is similar to the treatment of debt issuance cost amortization. See Note 13, "Segment and Geographic Information" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for a reconciliation of total Segment EBITDA to Net Income.
46

Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
North America
Third Party Revenue. The following table summarizes the changes in third party revenue by category in our North American segment (in thousands):

| Year Ended December 31, |  | Percentage Change in Revenue
North America | 2015 |  | 2014 |  | Organic |  | Acquisition (1) |  | Foreign Exchange |  | Total Change
Parts & services revenue | $ | 3,671,595 |  |  | $ | 3,437,821 |  |  | 5.6 | % | (2 | ) | 2.2 | % |  | (1.0 | )% |  | 6.8 | %
Other revenue | 474,403 |  |  | 650,880 |  |  | (28.8 | )% | (3 | ) | 2.0 | % |  | (0.3 | )% |  | (27.1 | )%
Total revenue | $ | 4,145,998 |  |  | $ | 4,088,701 |  |  | 0.1 | % |  | 2.2 | % |  | (0.9 | )% |  | 1.4 | %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) | The acquisition growth in revenue reflects the impact of 13 wholesale businesses and 3 self service retail operations acquired since the beginning of 2014 up to the one year anniversary of the acquisition date.

(2) | Approximately 60% of our organic growth in parts and services revenue was due to increased net pricing in our wholesale operations. In our aftermarket operations, we increased our net prices to customers compared to the prior year. In our salvage operations, we shifted our salvage vehicle purchasing to higher quality vehicles beginning in the third quarter of 2014, which increased the average revenue per part sold during 2015. The remainder of our organic growth in parts and services revenue was primarily due to increased sales volumes in our salvage operations and to a lesser extent, our aftermarket operations.

(3) | Approximately $161 million of the $187 million organic decline in other revenue was a result of lower prices received from the sale of scrap and other metals. This was primarily due to lower prices from the sale of crushed auto bodies, which fluctuate based on steel prices. Lower sales volumes were responsible for the remaining decline, primarily due to fewer vehicles processed relative to the prior year.

Segment EBITDA. Segment EBITDA increased $3.5 million, or 0.6%, in 2015 compared to the prior year. The decline in scrap steel and other metals prices as described in the revenue section above had a negative year over year impact of $34.4 million on North American Segment EBITDA and a $0.07 negative effect on diluted earnings per share relative to the prior year.
The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our North American segment:

North America |  | Percentage of Total Segment Revenue |
Segment EBITDA for the year ended December 31, 2014 |  | 13.3 | % |
Increase (decrease) due to: |  |  |
Change in gross margin |  | 0.4 | % | (1)
Change in segment operating expenses |  | (0.5 | )% | (2)
Segment EBITDA for the year ended December 31, 2015 |  | 13.2 | % |
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 0.2% favorable impact from our aftermarket product lines and a 0.1% favorable mix impact resulting from more revenue being derived from our wholesale operations, which have higher gross margin percentages relative to our self service operations during periods when scrap and other metal prices decline. In our aftermarket products, we improved our gross margin through increases in net prices to our customers. Despite the continued decline in scrap and other metal prices, margins in our self service operations have remained consistent year over year, resulting from the continued effort to reduce car costs and purchase higher quality cars that will yield more parts revenue per vehicle to offset the loss in scrap and other metal revenue.

(2) | The decline in Segment EBITDA margin related to operating expenses was primarily the result of the negative impact on operating leverage caused by the decrease in other revenue related to the declining prices of scrap steel and other metals. In periods of falling scrap revenue, we do not experience a commensurate decline in operating expenses, as we

47

have few variable costs associated with the sale of scrap and other metals. The 0.5% increase in segment operating expenses as a percentage of revenue included an unfavorable impact of 1.1% related to the decline in prices for scrap steel and other metals. This increase was partially offset by an improvement in segment operating expenses of 0.6%, which is primarily the result of a 0.4% improvement in distribution expenses due to a reduction in fuel costs.
Europe
Third Party Revenue. The following table summarizes the changes in third party revenue by category in our European segment (in thousands):

| Year Ended December 31, |  | Percentage Change in Revenue
Europe | 2015 |  | 2014 |  | Organic (1) |  | Acquisition (2) |  | Foreign Exchange (3) |  | Total Change
Parts & services revenue | $ | 1,991,106 |  |  | $ | 1,843,730 |  |  | 9.2 | % |  | 8.5 | % |  | (9.7 | )% |  | 8.0 | %
Other revenue | 4,279 |  |  | 2,425 |  |  | 23.7 | % |  | 60.3 | % |  | (7.5 | )% |  | 76.4 | %
Total revenue | $ | 1,995,385 |  |  | $ | 1,846,155 |  |  | 9.3 | % |  | 8.6 | % |  | (9.7 | )% |  | 8.1 | %
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 11.8%, while in our continental European operations, parts and services revenue grew organically by 2.8%, resulting in net organic revenue growth of 9.2% over the prior year. Our organic revenue growth in the U.K., which resulted from higher sales volumes, was composed of a 7.5% increase in revenue from stores open more than 12 months and a 4.3% increase from revenue generated by 54 branch openings since the beginning of the prior year through the one year anniversary of their respective opening dates. Organic revenue growth in our continental European operations was primarily due to the opening of a new warehouse location in France in 2014 and, to a lesser extent, growth in our Belgian market.

(2) | Acquisition related growth for the year-ended December 31, 2015 includes $158.1 million from our acquisitions of 18 distribution companies in the Netherlands since the beginning of 2014 and the purchase of a salvage business in Sweden through the one year anniversary of the acquisitions.

(3) | Compared to the prior year, exchange rates reduced our revenue growth by $179.8 million, or 9.7%, primarily due to the strengthening of the U.S. dollar against both the pound sterling and euro relative to 2014.

Segment EBITDA. Segment EBITDA increased $33.4 million, or 20%, to $200.6 million through the year ended December 31, 2015 compared to $167.2 million in the prior year. Our European Segment EBITDA includes a negative year over year impact of $15.7 million related to the translation of local currency results into U.S. dollars at lower exchange rates than those experienced during 2014. On a constant currency basis (i.e. excluding the translation impact), Segment EBITDA increased by $49.1 million, or 29.4%, compared to the prior year. Refer to the Foreign Currency Impact discussion within the Results of Operations - Consolidated section above for further detail regarding foreign currency impact on our results for the year ended December 31, 2015. The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our European segment:

Europe |  | Percentage of Total Segment Revenue |
Segment EBITDA for the year ended December 31, 2014 |  | 9.1 | % |
Increase (decrease) due to: |  |  |
Change in gross margin |  | 1.3 | % | (1)
Change in segment operating expenses |  | (0.3 | )% | (2)
Segment EBITDA for the year ended December 31, 2015 |  | 10.1 | % |
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) | The increase in gross margin reflects improvement of 0.7% in our UK operations, primarily as a result of a reduction in product costs and an increase in supplier rebates, and 0.6% in our continental European operations as a result of internalizing incremental gross margin from our 2014 acquisitions of seven Netherlands distributors.

(2) | The increase in segment operating expenses reflects higher selling, general and administrative expenses of 0.5%, related to higher personnel costs to support the growth of the business, including our e-commerce business, in the UK

48

and continental Europe. Distribution costs improved over the prior year period by 0.2% due to internalizing previously outsourced delivery expenses as well as lower fuel costs.
Specialty
Third Party Revenue. The following table summarizes the changes in third party revenue by category in our Specialty segment (in thousands):

| Year Ended December 31, |  | Percentage Change in Revenue
Specialty | 2015 |  | 2014 |  | Organic (1) |  | Acquisition (2) |  | Foreign Exchange (3) |  | Total Change
Parts & services revenue | $ | 1,051,250 |  |  | $ | 805,208 |  |  | 7.8 | % |  | 24.6 | % |  | (1.9 | )% |  | 30.6 | %
Other revenue | — |  |  | — |  |  | — | % |  | — | % |  | — | % |  | — | %
Total revenue | $ | 1,051,250 |  |  | $ | 805,208 |  |  | 7.8 | % |  | 24.6 | % |  | (1.9 | )% |  | 30.6 | %
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 increased sales volumes as a result of favorable economic conditions.

(2) | Acquisition related growth reflects the impact of two Specialty businesses acquired in the fourth quarter of 2014, as well as the acquisition of Coast on August 19, 2015.

(3) | Compared to the prior year, exchange rates reduced our revenue growth by 1.9%, primarily due to the strengthening of the U.S. dollar against the Canadian dollar in 2015 compared to the prior year.

Segment EBITDA. Segment EBITDA increased $27.1 million, or 34.1%, in 2015 compared to 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 year ended December 31, 2014 |  | 9.8 | % |
(Decrease) increase due to: |  |  |
Change in gross margin |  | (1.2 | )% | (1)
Change in segment operating expenses |  | 1.5 | % | (2)
Change in other expenses |  | 0.1 | % |
Segment EBITDA for the year ended December 31, 2015 |  | 10.1 | % |
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 a 0.7% increase in inventory costs, most of which we expect to be temporary as integration plans are completed, and a decrease in gross margin of 0.4% due to unfavorable net customer pricing. Our acquisition completed in the fourth quarter of 2014 of a supplier of parts for recreational vehicles resulted in a 0.4% decline in gross margin compared to the prior year. Compared to our existing Specialty business, this acquisition realizes lower gross margins than our other specialty product sales. These negative effects on gross margin were partially offset by a favorable mix effect of 0.2% resulting from a shift toward higher margin product lines, particularly truck and off road products.

(2) | Reflects a 0.8% reduction in selling, general and administrative expenses as a percentage of revenue related to (i) a 0.6% decline in personnel expenses as a percentage of revenue primarily as a result of integration synergies and (ii) a reduction in professional fees and advertising expenses of 0.2%. Distribution expenses decreased 0.7% due to (i) favorable fuel pricing compared to the prior year of 0.6%, (ii) logistics synergies as we leverage our North American distribution network for the delivery of specialty products of 0.5%, partially offset by (iii) higher freight costs of 0.4% driven by higher use of third party freight to handle increased volumes, as well as sales related to our October 2014 acquisition of a supplier of parts for recreational vehicles and our 2015 acquisition of Coast, which are all shipped via third party carriers. We expect to realize additional integration synergies throughout 2016 as we continue to rationalize our facilities within this segment.

49

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
North America
Third Party Revenue. The following table summarizes the changes in third party revenue by category in our North American segment (in thousands):

| Year Ended December 31, |  | Percentage Change in Revenue
North America | 2014 |  | 2013 |  | Organic |  | Acquisition (1) |  | Foreign Exchange |  | Total Change
Parts & services revenue | $ | 3,437,821 |  |  | $ | 3,171,733 |  |  | 6.1 | % | (2) | 2.8 | % |  | (0.5 | )% |  | 8.4 | %
Other revenue | 650,880 |  |  | 631,196 |  |  | (6.0 | )% | (3) | 9.3 | % |  | (0.1 | )% |  | 3.1 | %
Total revenue | $ | 4,088,701 |  |  | $ | 3,802,929 |  |  | 4.1 | % |  | 3.8 | % |  | (0.5 | )% |  | 7.5 | %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) | Reflects the impact of 9 wholesale businesses and 2 self service retail operations acquired during 2014.

(2) | Our organic growth in parts and services revenue was primarily due to higher sales volumes, as severe winter weather conditions during the second half of the fourth quarter of 2013 and through the first quarter of 2014 contributed to increased vehicle accidents, resulting in higher insurance claims activity. In addition, we believe the increased new car production since 2009 and greater miles driven has increased the demand for automotive parts used in repairs, including alternative parts. Industry reports also indicate that the number of parts used in each insured repair is increasing compared to historical levels.

(3) | Approximately half of the reduction in other revenue was due to reduced volume of scrap and other metals, with the remaining decline a result of lower prices for scrap and other metals. Compared to the prior year, our furnace operations processed lower volumes of aluminum. Additionally, we purchased fewer self service and "crush only" cars in the first quarter of 2014 as the prices demanded for vehicles in certain markets exceeded our acceptable cost given the prices of scrap and other metals. While we increased our purchasing levels during the remainder of the year to offset the shortfall, we crushed fewer vehicles compared to the prior year period due to the lag time to process these cars.

Segment EBITDA. Segment EBITDA increased $57.1 million, or 11.7%, in 2014 compared to the prior year. The decline in scrap steel and other metals prices as described in the revenue section above had a negative year over year impact of $9.6 million on North American Segment EBITDA and a $0.02 negative effect on diluted earnings per share relative to the prior year.
The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our North American segment:

North America |  | Percentage of Total Segment Revenue |
Segment EBITDA for the year ended December 31, 2013 |  | 12.8 | % |
Increase due to: |  |  |
Change in gross margin |  | 0.2 | % | (1)
Change in segment operating expenses |  | 0.3 | % | (2)
Segment EBITDA for the year ended December 31, 2014 |  | 13.3 | % |
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) | Our wholesale operations increased gross margin by 0.6%, including a 0.5% improvement from lower inventory purchase costs and a favorable mix effect of 0.2% as a result of generating less revenue from our lower margin sales of scrap and precious metals. The improvement in gross margin as a percentage of revenue was partially offset by the impact of our acquisition of an automotive core business in January 2014, which increased our revenue in product lines that are complementary to our existing vehicle replacement parts offerings but generate lower gross margins, thereby decreasing gross margins by 0.5% of revenue.

(2) | Selling, general and administrative expenses declined by 0.5% of revenue, primarily due to improved leverage of our

50

sales force and general and administrative personnel, but this was partially offset by an increase of facility and warehouse expenses by 0.2% of revenue due to higher personnel expenditures.
Europe
Third Party Revenue. The following table summarizes the changes in third party revenue by category in our European segment (in thousands):

| Year Ended December 31, |  | Percentage Change in Revenue
Europe | 2014 |  | 2013 |  | Organic (1) |  | Acquisition (2) |  | Foreign Exchange (3) |  | Total Change
Parts & services revenue | $ | 1,843,730 |  |  | $ | 1,257,847 |  |  | 16.1 | % |  | 27.0 | % |  | 3.6 | % |  | 46.6 | %
Other revenue | 2,425 |  |  | 1,752 |  |  | 19.7 | % |  | 12.8 | % |  | 5.8 | % |  | 38.4 | %
Total revenue | $ | 1,846,155 |  |  | $ | 1,259,599 |  |  | 16.1 | % |  | 26.9 | % |  | 3.6 | % |  | 46.6 | %
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, revenue grew organically by 20.6%, while our continental European operations were flat with the prior year post-acquisition period, resulting in net organic revenue growth of 16.1% over the prior year. Our organic revenue growth in the U.K., which resulted from higher sales volumes, was composed of a 13.3% increase from stores open more than 12 months and a 7.3% increase from revenue generated by 59 branch openings since the beginning of the prior year through the one year anniversary of their respective opening dates. In our continental European operations, a new warehouse location in France resulted in greater sales volumes compared to the prior year period, but this growth was offset by a decline in sales into Eastern Europe as a result of the devaluation of local currencies and political instability.

(2) | Includes $131.3 million from our May 2013 acquisition of Sator, $85.6 million from our August 2013 acquisitions of five paint distributors in the U.K. and $100.3 million from our 2014 acquisitions of seven distribution companies in the Netherlands.

(3) | Compared to the prior year, exchange rates contributed 3.6% of the revenue growth, primarily due to the strengthening of the British pound against the U.S. dollar in the first nine months of 2014. While exchanges rates positively affected revenue on a year-to-date basis, the British pound weakened against the U.S. dollar in the fourth quarter to partially offset the benefit realized during the first nine months of the year.

Segment EBITDA. Segment EBITDA increased $25.4 million, or 17.9%, in 2014 compared to the prior year. Our European Segment EBITDA includes a positive year over year impact of $6.3 million related to the strengthening of the pound sterling relative to the U.S. dollar in 2014. On a constant currency basis (i.e. excluding the translation impact), Segment EBITDA increased by $19.1 million, or 13.5%, compared to the prior year. Refer to the Foreign Currency Impact discussion within the Results of Operations - Consolidated section above for further detail regarding the foreign currency impact on our results for the year ended December 31, 2014. The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our European segment:

Europe |  | Percentage of Total Segment Revenue |
Segment EBITDA for the year ended December 31, 2013 |  | 11.3 | % |
Decrease due to: |  |  |
Change in gross margin |  | (1.0 | )% | (1)
Change in segment operating expenses |  | (1.1 | )% | (1)
Change in other income, net |  | (0.1 | )% |
Segment EBITDA for the year ended December 31, 2014 |  | 9.1 | % |
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

(1) | Our acquisitions completed since the beginning of the prior year were responsible for 1.1% of the decline in Segment EBITDA as a percentage of revenue, including primarily the effect of the Netherlands distributors we acquired in May 2014. The effect of the Netherlands distributors includes a negative gross margin impact of 0.3% that will not affect future periods once the higher cost acquired inventory has turned and we are able to internalize the incremental

51

distributor margin. Additionally, as we transition our continental European operations to a two step distribution model, including the effect of these acquisitions, our operating expenses will increase as we internalize the cost of the distribution network; during the year ended December 31, 2014, these greater operating costs resulted in a decline in Segment EBITDA as a percentage of revenue, thereby accounting for the remaining negative impact on Segment EBITDA margins. Our existing operations were responsible for the remaining decline in Segment EBITDA, including a 0.7% effect from 59 new branch openings in the U.K. since the beginning of the prior year in our U.K. operations. Additionally, we incurred 0.2% in higher advertising expenses compared to the prior year.
Specialty
Because our Specialty segment was formed on January 3, 2014 with our Keystone Specialty 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 Specialty operations on our consolidated results. Compared to Keystone Specialty's unaudited results for the year ended December 31, 2013, revenue in our Specialty segment increased 15.8%. During the fourth quarter of 2014, we completed two additional acquisitions in our Specialty segment, which contributed approximately one quarter of the revenue growth. The remaining revenue growth was primarily due to greater sales volumes as a result of favorable economic conditions. Additionally, during the year ended December 31, 2014, we generated a greater proportion of revenue from our higher-end specialty vehicle products, such as truck and RV accessories, which resulted in a favorable mix of revenue compared to the prior year unaudited results.
2016 Outlook
We estimate that adjusted net income and adjusted diluted earnings per share for the year ending December 31, 2016, excluding the impact of any restructuring and acquisition related expenses, amortization expense related to acquired intangibles and any gains or losses related to acquisitions or divestitures (including changes in the fair value of contingent consideration liabilities), will be in the range of $490 million to $520 million and $1.59 to $1.69, respectively.
Liquidity and Capital Resources
The following table summarizes liquidity data as of the dates indicated (in thousands):

| December 31, 2015 |  | December 31, 2014
Cash and equivalents | $ | 87,397 |  |  | $ | 114,605 |
Total debt (1) | 1,599,695 |  |  | 1,864,562 |
Net debt (total debt less cash and equivalents) | 1,512,298 |  |  | 1,749,957 |
Current maturities | 57,494 |  |  | 63,515 |
Capacity under credit facilities (2) | 1,947,000 |  |  | 1,947,000 |
Availability under credit facilities (2) | 1,337,653 |  |  | 1,127,810 |
Total liquidity (cash and equivalents plus availability on credit facilities) | 1,425,050 |  |  | 1,242,415 |

(1) Debt amounts reflect the gross values to be repaid (excluding debt issuance costs of $15.0 million and $18.4 million as of December 31, 2015 and 2014, respectively).
(2) Includes our revolving credit facilities, our receivables securitization facility, and letters of credit. The amounts do not reflect the impact of the amendment to our senior secured credit facility on January 29, 2016.
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 our March 2014 amendment to our senior secured credit facilities and the issuance of $600 million of senior notes in May 2013.
As of December 31, 2015, we had debt outstanding and additional available sources of financing, as follows:
52

• | Senior secured credit facilities maturing in May 2019, composed of $450 million in term loans ($411 million outstanding at December 31, 2015) and $1.85 billion in revolving credit ($480 million outstanding at December 31, 2015), bearing interest at variable rates (although a portion of this debt is hedged through interest rate swap contracts)

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

• | Receivables securitization facility with availability up to $97 million ($63 million outstanding as of December 31, 2015), maturing in October 2017 and bearing interest at variable commercial paper rates

On January 29, 2016, LKQ Corporation, LKQ Delaware LLP, and certain other subsidiaries entered into a fourth amended and restated credit agreement 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. See Note 4, "Long-Term Obligations" within the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for more information related to our long-term obligations.
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 our September 2014 amendment to our receivables securitization facility. Our financing structure, which includes our senior secured credit facilities, senior notes, and receivables securitization facility, provides financial flexibility to execute our long-term growth strategy. If we see an attractive acquisition opportunity, we have the ability to move quickly and have certainty of funding up to the amount of our then-available liquidity.
As of December 31, 2015, we had approximately $1.3 billion available under our credit facilities. Combined with approximately $87.4 million of cash and equivalents at December 31, 2015, we had approximately $1.4 billion in available liquidity, an increase of $182.6 million over our available liquidity as of December 31, 2014.
After giving effect to the January 2016 amendment, we will have an additional $600 million of availability under our revolving credit facilities and an increase in term loan borrowings of approximately $339 million which, combined with our existing capacity, will be used to finance the potential Rhiag acquisition. Total consideration transferred for the purchase price is expected to include approximately $616 million of cash and approximately $500 million in assumed debt. We plan to refinance the assumed debt with revolver borrowings under our secured credit facility and/or other long term obligations. Additional amounts are expected to be transferred for acquisition related costs.
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 with the amended credit facility we 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 depend 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 a portion of our credit agreement borrowings (as described in Note 5, "Derivative Instruments and Hedging Activities" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K), 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 agreement at December 31, 2015 was 1.76%. Including the borrowings on our senior notes and receivables securitization program, our overall weighted average interest rate on borrowings was 2.89% at December 31, 2015. Cash interest payments were $54.9 million for the year ended December 31, 2015, including interest payments totaling $28.5 million related to our senior notes. The semi-annual interest payments on our senior notes are made in May and November each year, and began in November 2013. We had outstanding credit agreement borrowings of $0.9 billion and $1.1 billion at December 31, 2015 and December 31, 2014, respectively. Of these amounts, $22.5 million were classified as current maturities at December 31, 2015 and December 31, 2014.
Under the terms of the January 2016 amendment, we have scheduled repayments of $3.1 million for the fiscal quarters ending on June 30, 2016, September 30, 2016 and December 31, 2016, and $6.2 million each fiscal quarter thereafter through the maturity of the USD term loan maturity in January 2021. We also have scheduled repayments of €1.4 million for the fiscal quarters ending on June 30, 2016, September 30, 2016 and December 31, 2016, and €2.9 million each fiscal quarter thereafter
53

through the maturity of the Euro term loan in January 2021. We have no other significant principal payments on our credit facilities scheduled prior to the maturity of the receivables securitization program in October 2017. In addition to the repayments under our credit facilities, we will make payments on notes payable and other debt totaling $35.0 million in the next 12 months.
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 December 31, 2015.
As of December 31, 2015, the Company had cash of $87.4 million, of which $59.4 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 resort to repatriation of foreign earnings.
Year Ended December 31, 2015 Compared to Year Ended December 31, 2014
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 inventory procurement for 2015 and 2014 (in thousands):

| Year Ended December 31, |
| 2015 |  | 2014 |  | Change |
North America | $ | 1,023,400 |  |  | $ | 985,300 |  |  | $ | 38,100 |  | (1)
Europe | 1,143,668 |  |  | 1,087,020 |  |  | 56,648 |  | (2)
Specialty | 776,611 |  |  | 612,970 |  |  | 163,641 |  | (3)
Total | $ | 2,943,679 |  |  | $ | 2,685,290 |  |  | $ | 258,389 |  |

(1) | In North America, we accelerated our aftermarket inventory purchases in the fourth quarter of 2014 in anticipation of potential labor issues at West Coast ports in the U.S., leading to growth in the year-end inventory balance. As a result, our aftermarket inventory purchases in the first half of 2015 fell below 2014 levels. During the second half of 2015, we increased our aftermarket inventory purchases above the prior year levels as a result of an increase in sales and the depletion of the inventory acquired in the fourth quarter of 2014. Our July 2015 acquisition of Parts Channel also contributed to the increase in purchases in the second half of 2015. For the year ended December 31, 2015, our North American purchases were $38.1 million higher than the prior year.

(2) | In our European segment, our acquisitions of the Netherlands distributors in 2014 and 2015 contributed incremental inventory purchases of $49.4 million for the year ended December 31, 2015. Purchases for our U.K. operations increased in 2015 compared to the prior period primarily as a result of opening five new regional distribution centers. However, the greater purchase levels in Europe were partially offset by the devaluation of the pound sterling and euro compared to the prior year period.

(3) | The increase in Specialty aftermarket inventory purchases of $163.6 million during the year ended December 31, 2015, was related to accelerated inventory purchases to stock two new distribution centers scheduled to open in the first quarter of 2016. Our August 2015 acquisition of Coast and our October 2014 acquisition of a supplier of parts for recreational vehicles also contributed to the increase in purchases compared to prior year period.

The following table sets forth a summary of our salvage and self service procurement for 2015 and 2014 (in thousands):

| Year Ended December 31, |
| 2015 |  | 2014 |  | % Change |
Wholesale salvage cars and trucks | 310 |  |  | 290 |  |  | 6.9 | % | (1)
Self Service and "crush only" cars | 471 |  |  | 514 |  |  | (8.4 | )% | (2)

54

(1) | The increase in our salvage car and truck purchases is primarily due to the inclusion of a full year of purchasing activity related to our November 2014 acquisition of a business with salvage and vehicle repair facilities in Sweden and Norway.

(2) | Compared to the prior year, we reduced our purchases of lower cost self service and "crush only" cars as prices demanded for vehicles in certain markets exceeded our acceptable cost given the prices of scrap and other metals. The decrease in purchases was partially offset by the acquisition of a self service yard operation in 2015.

Net cash provided by operating activities totaled $529.8 million for the year ended December 31, 2015, compared to $370.9 million in 2014. Compared to the prior year, our 2015 EBITDA increased by $52.9 million, due to both acquisition related growth and organic growth. Cash outflows for our primary working capital accounts (receivables, inventory and payables) totaled $72.7 million during 2015 compared to $189.8 million during 2014. In 2015, cash outflows for inventory totaled $83.2 million as a result of inventory growth, particularly in our Specialty operations; cash outflows for inventory were $122.6 million in the prior year. As discussed above, we increased our North American aftermarket inventory purchases in the fourth quarter of 2014 in anticipation of port issues in the U.S., which resulted in a larger cash outflow in the prior year as compared to 2015. Accounts receivable represented a cash inflow of $14.7 million in 2015 compared to a cash outflow of $61.7 million in 2014. In Europe, our Netherlands operations experienced a reduction in accounts receivable in 2015 as result of a higher rate of collections due to the implementation of an automatic payment program. In the prior year, receivables balances increased primarily as a result of increased sales levels in our U.K. operations. 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.
Net cash used in investing activities totaled $330.0 million for the year ended December 31, 2015, compared to $921.0 million in 2014. We invested $160.5 million of cash, net of cash acquired, in business acquisitions during 2015, compared to $775.9 million for business acquisitions in 2014, which included $427.1 million for our Keystone Specialty acquisition. Property and equipment purchases were $170.5 million in the year ended December 31, 2015 compared to $141.0 million in the prior year. The increase in capital expenditures relative to the prior year period reflects an increase of $33.0 million in our U.K. operations primarily due to costs incurred to develop and equip a new distribution center. During 2015, cash provided by other investing activities, net was $1.0 million and primarily consisted of proceeds from disposals of fixed assets totaling $10.7 million, partially offset by payments of $9.7 million for investments in unconsolidated subsidiaries, including a $7.5 million payment to increase our investment in ACM Parts. During 2014, we paid $2.2 million for investments in unconsolidated subsidiaries.
Net cash used in financing activities totaled $224.1 million for the year ended December 31, 2015, compared to an inflow of $519.0 million in 2014. During 2015, net repayments under our credit facilities were $186.5 million compared to net borrowings of $578.4 million in 2014. Compared to the prior year period, our cash investment in acquisitions was lower, and therefore, we used the excess cash generated by operations to repay outstanding amounts under our revolving credit facilities. During 2014, we used the proceeds from the net borrowings primarily to fund acquisitions, including $370 million of revolver borrowings and $80 million of borrowings under our receivables facility to finance the Keystone Specialty acquisition. Our March 2014 amendment of our credit facilities generated $11.3 million in additional term loan borrowings, which were used to pay $3.7 million in debt issuance costs related to the amendment, as well as to repay outstanding revolver borrowings. During 2014, we made a payment of $44.8 million ($39.5 million included in financing cash flows and $5.3 million included in operating cash flows) for the final earnout period under the contingent payment agreement related to our 2011 ECP acquisition. Cash generated from exercises of stock options provided $8.2 million and $9.3 million in the years ended December 31, 2015 and 2014, respectively. The excess tax benefit from share-based payment arrangements reduced income taxes payable by $14.4 million and $17.8 million in the years ended December 31, 2015 and 2014, respectively. We paid $7.6 million and $0.4 million related to taxes for net share settlements of stock-based compensation in the years ended December 31, 2015 and 2014, respectively. During the year ended December 31, 2014, we paid $12.6 million related to the settlement of foreign currency forward contracts; no such payment occurred in 2015.
55

Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
The following table sets forth a summary of our aftermarket inventory procurement for 2014 and 2013 (in thousands):

| Year Ended December 31, |
| 2014 |  | 2013 |  | Change |
North America | $ | 985,300 |  |  | $ | 900,000 |  |  | $ | 85,300 |  | (1)
Europe | 1,087,020 |  |  | 807,088 |  |  | 279,932 |  | (2)
Specialty | 612,970 |  |  | — |  |  | 612,970 |  | (3)
Total | $ | 2,685,290 |  |  | $ | 1,707,088 |  |  | $ | 978,202 |  |

(1) | In North America, we increased our aftermarket inventory purchases above the prior year levels as a result of an increase in sales. Additionally, we accelerated our aftermarket inventory purchases in the fourth quarter of 2014 in anticipation of potential labor issues at West Coast ports in the U.S., leading to an increase in the year-end inventory balance compared to 2013.

(2) | In our European segment, our acquisitions of five Netherlands distributors in 2014 contributed incremental inventory purchases of $63.5 million. Our ECP operations contributed incremental inventory purchases of $146.4 million as a result of opening 44 new branches in 2014 and the appreciation of the pound sterling compared to 2013.

(3) | Our Specialty operating segment was formed with our January 3, 2014 acquisition of Keystone Specialty, as discussed in Note 8, "Business Combinations." Total purchases in 2014 include both Keystone Specialty and our October 2014 acquisition of a supplier of replacement parts, supplies and accessories for RVs.

The following table sets forth a summary of our salvage and self service procurement for 2014 and 2013 (in thousands):

| Year Ended December 31, |
| 2014 |  | 2013 |  | % Change |
Wholesale salvage cars and trucks | 290 |  |  | 281 |  |  | 3.2 | % |
Self Service and "crush only" cars | 514 |  |  | 513 |  |  | 0.2 | % |

Net cash provided by operating activities totaled $370.9 million for the year ended December 31, 2014, compared to $428.1 million in 2013. Compared to the prior year, our 2014 EBITDA increased by $159.6 million, due to both acquisition related growth and organic growth. Cash outflows for our primary working capital accounts (receivables, inventory and payables) increased to $189.8 million during 2014, from $64.3 million during 2013, as a result of greater inventory growth, particularly in our aftermarket products, as well as increased receivables balances, including the effect of increased sales levels in our U.K. operations. 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 paid for income taxes increased to $177.0 million from $110.9 million due to the overpayment of taxes in 2012 that we offset against the estimated tax payments in 2013, as well as greater earnings that required higher estimated tax payments in 2014 compared to the prior year. During 2014, we made two semi-annual interest payments totaling $28.5 million on our senior notes, whereas in 2013 we made one semi-annual interest payment of $14.2 million. Cash payments for bonuses were $7.8 million higher during 2014 than they were in 2013.
Net cash used in investing activities totaled $921.0 million for the year ended December 31, 2014, compared to $505.6 million for the same period of 2013.We invested $775.9 million of cash, net of cash acquired, in business acquisitions during 2014, including $427.1 million for our Keystone Specialty acquisition. We invested $408.4 million for business acquisitions in the comparable prior year, including our acquisition of Sator for $272.8 million. Property and equipment purchases were $141.0 million in the year ended December 31, 2014 compared to $90.2 million in the prior year. The increase in capital expenditures relative to the prior year period reflects an increase of $17.4 million in our U.K. operations, including greater expenditures for leasehold improvements and vehicles for 44 new branch locations opened during the year ended December 31, 2014. Capital expenditures in our North American segment increased by $19.9 million, primarily due to costs incurred to build a facility that we subsequently sold and leased back from the buyer. The proceeds of the sale-leaseback transaction are reflected as financing cash inflows in the year ended December 31, 2014. In 2013, we entered into an agreement with Suncorp Group to develop an alternative vehicle products business in Australia and New Zealand, for which our initial investment totaled $9.1 million; during 2014, we paid $2.2 million for investments in unconsolidated subsidiaries.
56

Net cash provided by financing activities totaled $519.0 million for the year ended December 31, 2014, compared to $165.9 million in 2013. During 2014, net borrowings under our credit facilities were $578.4 million compared to net borrowings of $227.1 million in 2013. In both periods, we used the proceeds from the net borrowings primarily to fund acquisitions, including borrowings to finance our acquisition of Keystone Specialty in 2014 and our acquisition of Sator in 2013. During 2013, we completed a $600 million senior notes offering, as well as an amendment to our credit agreement that resulted in $35 million in term loan proceeds, which were used to pay $16.9 million in debt issuance costs as well as to repay outstanding amounts on our revolving credit facilities. In March 2013, we made a payment of $33.9 million ($31.5 million included in financing cash flows and $2.4 million included in operating cash flows) for the 2012 earnout period under the contingent payment agreement related to our 2011 ECP acquisition; we made a similar payment of $44.8 million in 2014 ($39.5 million included in financing cash flows and $5.3 million included in operating cash flows) for the final earnout period. Cash generated from exercises of stock options provided $9.3 million and $15.4 million in the years ended December 31, 2014 and 2013, respectively. The excess tax benefit from share-based payment arrangements reduced income taxes payable by $17.8 million and $18.3 million in the years ended December 31, 2014 and 2013, respectively. During the year ended December 31, 2014, we paid $12.6 million related to the settlement of foreign currency forward contracts.
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.
2016 Outlook
We estimate that our capital expenditures for 2016, excluding business acquisitions, will be between $170 million and $180 million. We expect to use these funds for the development of a new distribution center in the U.K., several major facility expansions, improvement of current facilities, real estate acquisitions and systems development projects. We anticipate that net cash provided by operating activities for 2016 will be between $520 million and $550 million
Off-Balance Sheet Arrangements and Future Commitments
We do not have any off-balance sheet arrangements or undisclosed borrowings or debt that would be required to be disclosed pursuant to Item 303 of Regulation S-K under the Securities Exchange Act of 1934. Additionally, we do not have any synthetic leases.
The following table represents our future commitments under contractual obligations as of December 31, 2015 (in millions):

| Total |  | Less than 1 Year |  | 1-3 Years |  | 3-5 Years |  | More than 5 Years
Contractual obligations |  |  |  |  |  |  |  |  |
Long-term debt (1) | $ | 1,868.0 |  |  | $ | 101.0 |  |  | $ | 198.8 |  |  | $ | 894.1 |  |  | $ | 674.1 |
Capital lease obligations (2) | 16.0 |  |  | 2.0 |  |  | 1.9 |  |  | 0.7 |  |  | 11.4 |
Operating leases (3) | 856.4 |  |  | 155.1 |  |  | 248.2 |  |  | 167.0 |  |  | 286.1 |
Purchase obligations (4) | 226.0 |  |  | 226.0 |  |  | — |  |  | — |  |  | — |
Contingent consideration liabilities (5) | 4.8 |  |  | 4.4 |  |  | 0.4 |  |  | — |  |  | — |
Outstanding letters of credit | 65.9 |  |  | 65.9 |  |  | — |  |  | — |  |  | — |
Other asset purchase commitments (6) | 98.0 |  |  | 56.7 |  |  | 37.5 |  |  | 3.8 |  |  | — |
Other long-term obligations |  |  |  |  |  |  |  |  |
Self-insurance reserves (7) | 69.1 |  |  | 33.2 |  |  | 23.5 |  |  | 8.3 |  |  | 4.1 |
Deferred compensation plans and other retirement obligations (8) | 31.8 |  |  | 1.8 |  |  | — |  |  | — |  |  | 30.0 |
Long term incentive plan | 5.1 |  |  | 2.2 |  |  | 2.9 |  |  | — |  |  | — |
Liabilities for unrecognized tax benefits | 2.3 |  |  | 0.1 |  |  | 1.3 |  |  | 0.6 |  |  | 0.3 |
Other | 3.7 |  |  | 3.7 |  |  | — |  |  | — |  |  | — |
Total | $ | 3,247.1 |  |  | $ | 652.1 |  |  | $ | 514.5 |  |  | $ | 1,074.5 |  |  | $ | 1,006.0 |

57

(1) | Our long-term debt under contractual obligations above includes interest on the balances outstanding as of December 31, 2015. The Long-term debt balance excludes debt issuances costs as these expenses have already been paid. Interest on our senior notes, notes payable, and other long-term debt is calculated based on the respective stated rates. Interest on our variable rate credit facilities is calculated based on the weighted average rates, including the impact of interest rate swaps through their respective expiration dates, in effect for each tranche of borrowings as of December 31, 2015. Future estimated interest expense for the next year, one to three years, and three to five years is $45.2 million, $88.2 million and $69.5 million, respectively. Estimated interest expense beyond five years is $71.9 million.

(2) | Interest on capital lease obligations is included based on incremental borrowing or implied rates. Future estimated interest expense for the next year, one to three years, and three to five years is $0.3 million, $0.6 million and $0.5 million, respectively. Estimated interest expense beyond five years is $8.2 million.

(3) | The operating lease payments above do not include certain tax, insurance and maintenance costs, which are also required contractual obligations under our operating leases but are generally not fixed and can fluctuate from year to year. Historically, these expenses have averaged approximately 25% of the corresponding lease payments.

(4) | Our purchase obligations include open purchase orders for aftermarket inventory.

(5) | Our contingent consideration liabilities reflect the undiscounted estimated payments of additional consideration related to business combinations. The actual payments will be determined at the end of the applicable performance periods based on the acquired entities' achievement of the targets specified in the purchase agreements.

(6) | Includes asset purchase commitments related to the construction of a new distribution center for our U.K. operations, commitments to purchase land and buildings, IT related expenditures, and other asset purchase commitments.

(7) | Self-insurance reserves include undiscounted estimated payments, net of estimated insurance recoveries, for our employee medical benefits, automobile liability, general liability, directors and officers liability, workers' compensation and property insurance.

(8) | Deferred compensation payments are dependent on elected payment dates. While we expect that these payments will be made more than five years from the latest balance sheet date, payments may be made earlier depending on such elections. Our deferred compensation plans are funded through investments in life insurance policies. Other retirement obligations consist of our expected required contributions to Sator's pension plan. We have not included future funding requirements beyond 2016 in the table above, as these funding projections are not practicable to estimate.

58

ITEM 7A. | 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. and RBS Citizens, N.A.).
As of December 31, 2015, we held five interest rate swap contracts representing a total of $170 million of U.S. dollar-denominated notional amount debt, £50 million of pound sterling-denominated notional amount debt, and CAD $25 million of Canadian dollar-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 March 2016 through December 2016.
In total, we had 29% of our variable rate debt under our credit facilities at fixed rates at December 31, 2015 compared to 47% at December 31, 2014. As of December 31, 2015, the fair market value of these swap contracts was a net liability of $1.3 million. The values of such contracts are subject to changes in interest rates.
At December 31, 2015, we had $692 million of variable rate debt that was not hedged. Using sensitivity analysis, a 100 basis point movement in interest rates would change interest expense by $6.9 million over the next twelve months.
In January 2016, we entered into four interest rate swap contracts representing a total of $200 million of U.S. dollar-denominated debt. In February 2016, we entered into four additional interest rate swap contracts representing a total of $240 million of U.S. dollar-denominated debt. All new swaps mature in January 2021. Further information regarding our interest rate swaps is included in Note 5, "Derivative Instruments and Hedging Activities" to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K.
The proceeds of our May 2013 senior notes offering were used to finance our euro-denominated acquisition of Sator, as well as to repay a portion of our pound sterling-denominated revolver borrowings held by our European operations. In connection with these transactions, in 2013 we entered into euro-denominated and pound sterling-denominated intercompany notes, which incurred transaction gains and losses from fluctuations in the U.S. dollar against these currencies. To mitigate these fluctuations, we entered into foreign currency forward contracts to sell €150.0 million for $195.0 million and £70.0 million for $105.8 million. The gains or losses from the remeasurement of these contracts are recorded to earnings to offset the remeasurement of the related notes. During the year ended December 31, 2014, we settled these forward contracts through payments to the counterparties totaling $20.0 million. While there are no such forward contracts outstanding as of December 31, 2015, we may enter into additional foreign currency forward contracts from time to time to mitigate the impact of fluctuations in exchange rates on similar intercompany financing transactions.
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. also source a portion of their inventory from Taiwan, as well as 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. 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 December 31, 2015 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 32.8% and 33.2% of our revenue during 2015 and 2014, respectively. An increase or decrease in the strength of the U.S. dollar against these currencies by 10% would result in a 3% change in our consolidated revenue and our operating income for the year ended December 31, 2015.
Other than with respect to our intercompany transactions denominated in euro and pound sterling and a portion of our foreign currency denominated inventory purchases in the U.K., 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
59

on these borrowings as we generate Canadian dollar, pound sterling and euro cash flows that can be used to fund debt payments. As of December 31, 2015, we had amounts outstanding under our revolving credit facilities of €247.7 million, £73.3 million, CAD $130.4 million, and kr78.0 million. As of December 31, 2014, we had amounts outstanding under our revolving credit facilities of €216.5 million, £96.2 million, and CAD $130.4 million. Since December 31, 2013, we have replaced certain of our U.S. dollar denominated borrowings with foreign-currency denominated borrowings, primarily in Europe, which more closely aligns the functional currency of our borrowings and the cash flows used to fund debt payments.
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 the car 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 and other metal prices declined in 2015 and have decreased 56% since the fourth quarter of 2014. As of December 31, 2015, we held short-term metals forward contracts to mitigate a portion of our exposure to fluctuations in metals prices specifically related to our precious metals refining and reclamation business. The notional amount and fair value of these forward contracts at December 31, 2015 were immaterial.
60

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
*****
INDEX TO FINANCIAL STATEMENTS

| Page
LKQ CORPORATION AND SUBSIDIARIES |
Report of Independent Registered Public Accounting Firm | 62
Consolidated Balance Sheets as of December 31, 2015 and 2014 | 63
Consolidated Statements of Income for the years ended December 31, 2015, 2014, and 2013 | 64
Consolidated Statements of Comprehensive Income for the years ended December 31, 2015, 2014, and 2013 | 64
Consolidated Statement of Cash Flows for the years ended December 31, 2015, 2014, and 2013 | 65
Consolidated Statements of Stockholder's Equity for the years ended December 31, 2015, 2014, and 2013 | 66
Notes to Consolidated Financial Statements | 67

61

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of LKQ Corporation:
We have audited the accompanying consolidated balance sheets of LKQ Corporation and subsidiaries (the "Company") as of December 31, 2015 and 2014, and the related consolidated statements of income, comprehensive income, cash flows and stockholders' equity for each of the three years in the period ended December 31, 2015. Our audits also included the financial statement schedule listed in the Index at Item 15. These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on the financial statements and financial statement schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of LKQ Corporation and subsidiaries as of December 31, 2015 and 2014, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the Company's internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 25, 2016 expressed an unqualified opinion on the Company's internal control over financial reporting.

/s/ DELOITTE & TOUCHE LLP

Chicago, Illinois
February 25, 2016
62

LKQ CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (In thousands, except share and per share data)
| December 31,
| 2015 |  | 2014
Assets |  |  |
Current Assets: |  |  |
Cash and equivalents | $ | 87,397 |  |  | $ | 114,605 |
Receivables, net | 590,160 |  |  | 601,422 |
Inventory | 1,556,552 |  |  | 1,433,847 |
Prepaid expenses and other current assets | 106,603 |  |  | 85,799 |
Total Current Assets | 2,340,712 |  |  | 2,235,673 |
Property and Equipment, net | 696,567 |  |  | 629,987 |
Intangible Assets: |  |  |
Goodwill | 2,319,246 |  |  | 2,288,895 |
Other intangibles, net | 215,117 |  |  | 245,525 |
Other Assets | 76,195 |  |  | 75,659 |
Total Assets | $ | 5,647,837 |  |  | $ | 5,475,739 |
Liabilities and Stockholders’ Equity |  |  |
Current Liabilities: |  |  |
Accounts payable | $ | 415,588 |  |  | $ | 400,202 |
Accrued expenses: |  |  |
Accrued payroll-related liabilities | 86,527 |  |  | 86,016 |
Self-insurance reserves | 37,759 |  |  | 36,369 |
Other accrued expenses | 124,466 |  |  | 127,779 |
Other current liabilities | 31,596 |  |  | 32,200 |
Current portion of long-term obligations | 56,034 |  |  | 61,938 |
Total Current Liabilities | 751,970 |  |  | 744,504 |
Long-Term Obligations, Excluding Current Portion | 1,528,668 |  |  | 1,784,210 |
Deferred Income Taxes | 127,239 |  |  | 106,938 |
Other Noncurrent Liabilities | 125,278 |  |  | 119,430 |
Commitments and Contingencies |  |  |
Stockholders’ Equity: |  |  |
Common stock, $0.01 par value, 1,000,000,000 shares authorized, 305,574,384 and 303,452,655 shares issued and outstanding at December 31, 2015 and 2014, respectively | 3,055 |  |  | 3,035 |
Additional paid-in capital | 1,090,713 |  |  | 1,054,686 |
Retained earnings | 2,126,384 |  |  | 1,703,161 |
Accumulated other comprehensive loss | (105,470 | ) |  | (40,225 | )
Total Stockholders' Equity | 3,114,682 |  |  | 2,720,657 |
Total Liabilities and Stockholders’ Equity | $ | 5,647,837 |  |  | $ | 5,475,739 |

The accompanying notes are an integral part of the consolidated financial statements.
63

LKQ CORPORATION AND SUBSIDIARIES Consolidated Statements of Income (In thousands, except per share data)
| Year Ended December 31,
| 2015 |  | 2014 |  | 2013
Revenue | $ | 7,192,633 |  |  | $ | 6,740,064 |  |  | $ | 5,062,528 |
Cost of goods sold | 4,359,104 |  |  | 4,088,151 |  |  | 2,987,126 |
Gross margin | 2,833,529 |  |  | 2,651,913 |  |  | 2,075,402 |
Facility and warehouse expenses | 556,041 |  |  | 526,291 |  |  | 425,081 |
Distribution expenses | 602,897 |  |  | 577,341 |  |  | 431,947 |
Selling, general and administrative expenses | 828,333 |  |  | 762,888 |  |  | 597,052 |
Restructuring and acquisition related expenses | 19,511 |  |  | 14,806 |  |  | 10,173 |
Depreciation and amortization | 122,120 |  |  | 120,719 |  |  | 80,969 |
Operating income | 704,627 |  |  | 649,868 |  |  | 530,180 |
Other expense (income): |  |  |  |  |
Interest expense | 57,860 |  |  | 64,542 |  |  | 51,184 |
Loss on debt extinguishment | — |  |  | 324 |  |  | 2,795 |
Change in fair value of contingent consideration liabilities | 454 |  |  | (1,851 | ) |  | 2,504 |
Interest and other income, net | (2,717 | ) |  | (1,035 | ) |  | (2,130 | )
Total other expense, net | 55,597 |  |  | 61,980 |  |  | 54,353 |
Income before provision for income taxes | 649,030 |  |  | 587,888 |  |  | 475,827 |
Provision for income taxes | 219,703 |  |  | 204,264 |  |  | 164,204 |
Equity in earnings of unconsolidated subsidiaries | (6,104 | ) |  | (2,105 | ) |  | — |
Net income | $ | 423,223 |  |  | $ | 381,519 |  |  | $ | 311,623 |
Earnings per share: |  |  |  |  |
Basic | $ | 1.39 |  |  | $ | 1.26 |  |  | $ | 1.04 |
Diluted | $ | 1.38 |  |  | $ | 1.25 |  |  | $ | 1.02 |

Consolidated Statements of Comprehensive Income (In thousands)
| Year Ended December 31,
| 2015 |  | 2014 |  | 2013
Net income | $ | 423,223 |  |  | $ | 381,519 |  |  | $ | 311,623 |
Other comprehensive (loss) income: |  |  |  |  |
Foreign currency translation | (69,817 | ) |  | (51,979 | ) |  | 14,056 |
Net change in unrecognized gains/losses on derivative instruments, net of tax | 2,469 |  |  | 2,195 |  |  | 4,495 |
Net change in unrealized gains/losses on pension plan, net of tax | 2,103 |  |  | (10,452 | ) |  | 701 |
Total other comprehensive (loss) income | (65,245 | ) |  | (60,236 | ) |  | 19,252 |
Total comprehensive income | $ | 357,978 |  |  | $ | 321,283 |  |  | $ | 330,875 |

The accompanying notes are an integral part of the consolidated financial statements.
64

LKQ CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (In thousands)
| Year Ended December 31,
| 2015 |  | 2014 |  | 2013
CASH FLOWS FROM OPERATING ACTIVITIES: |  |  |  |  |
Net income | $ | 423,223 |  |  | $ | 381,519 |  |  | $ | 311,623 |
Adjustments to reconcile net income to net cash provided by operating activities: |  |  |  |  |
Depreciation and amortization | 128,192 |  |  | 125,437 |  |  | 86,463 |
Stock-based compensation expense | 21,336 |  |  | 22,021 |  |  | 22,036 |
Deferred income taxes | 22,388 |  |  | 6,242 |  |  | 4,279 |
Excess tax benefit from stock-based payments | (14,445 | ) |  | (17,814 | ) |  | (18,348 | )
Other | 7,348 |  |  | 6,593 |  |  | 9,630 |
Changes in operating assets and liabilities, net of effects from acquisitions: |  |  |  |  |
Receivables | 14,704 |  |  | (61,739 | ) |  | (44,670 | )
Inventory | (83,188 | ) |  | (122,590 | ) |  | (69,222 | )
Prepaid income taxes/income taxes payable | 17,474 |  |  | 18,428 |  |  | 49,993 |
Accounts payable | (4,222 | ) |  | (5,474 | ) |  | 49,641 |
Other operating assets and liabilities | (2,973 | ) |  | 18,274 |  |  | 26,631 |
Net cash provided by operating activities | 529,837 |  |  | 370,897 |  |  | 428,056 |
CASH FLOWS FROM INVESTING ACTIVITIES: |  |  |  |  |
Purchases of property and equipment | (170,490 | ) |  | (140,950 | ) |  | (90,186 | )
Acquisitions, net of cash acquired | (160,517 | ) |  | (775,921 | ) |  | (408,384 | )
Other investing activities, net | 1,014 |  |  | (4,123 | ) |  | (7,036 | )
Net cash used in investing activities | (329,993 | ) |  | (920,994 | ) |  | (505,606 | )
CASH FLOWS FROM FINANCING ACTIVITIES: |  |  |  |  |
Proceeds from exercise of stock options | 8,168 |  |  | 9,324 |  |  | 15,392 |
Excess tax benefit from stock-based payments | 14,445 |  |  | 17,814 |  |  | 18,348 |
Taxes paid related to net share settlements of stock-based compensation awards | (7,581 | ) |  | (443 | ) |  | — |
Debt issuance costs | (97 | ) |  | (3,750 | ) |  | (16,940 | )
Proceeds from issuance of senior notes | — |  |  | — |  |  | 600,000 |
Borrowings under revolving credit facilities | 313,142 |  |  | 1,587,644 |  |  | 437,023 |
Repayments under revolving credit facilities | (445,282 | ) |  | (1,098,518 | ) |  | (748,086 | )
Borrowings under term loans | — |  |  | 11,250 |  |  | 35,000 |
Repayments under term loans | (22,500 | ) |  | (16,875 | ) |  | (16,875 | )
Borrowings under receivables securitization facility | 3,858 |  |  | 95,050 |  |  | 41,500 |
Repayments under receivables securitization facility | (35,758 | ) |  | (150 | ) |  | (121,500 | )
Repayments of other debt, net | (29,696 | ) |  | (40,051 | ) |  | (45,062 | )
Payments of other obligations | (22,791 | ) |  | (41,992 | ) |  | (32,859 | )
Other financing activities, net | — |  |  | (300 | ) |  | — |
Net cash (used in) provided by financing activities | (224,092 | ) |  | 519,003 |  |  | 165,941 |
Effect of exchange rate changes on cash and equivalents | (2,960 | ) |  | (4,789 | ) |  | 2,327 |
Net (decrease) increase in cash and equivalents | (27,208 | ) |  | (35,883 | ) |  | 90,718 |
Cash and equivalents, beginning of period | 114,605 |  |  | 150,488 |  |  | 59,770 |
Cash and equivalents, end of period | $ | 87,397 |  |  | $ | 114,605 |  |  | $ | 150,488 |
Supplemental disclosure of cash paid for: |  |  |  |  |
Income taxes, net of refunds | $ | 180,126 |  |  | $ | 176,955 |  |  | $ | 110,862 |
Interest | 54,917 |  |  | 59,678 |  |  | 45,253 |
Supplemental disclosure of noncash investing and financing activities: |  |  |  |  |
Notes payable and other obligations, including notes issued and debt assumed in connection with business acquisitions | $ | 28,348 |  |  | $ | 96,258 |  |  | $ | 8,360 |
Contingent consideration liabilities | — |  |  | 5,854 |  |  | 3,854 |
Non-cash property and equipment additions | 8,846 |  |  | 2,293 |  |  | 6,615 |

The accompanying notes are an integral part of the consolidated financial statements.
65

LKQ CORPORATION AND SUBSIDIARIES Consolidated Statements of Stockholders’ Equity (In thousands)
| Common Stock |  | Additional Paid-In Capital |  | Retained Earnings |  | Accumulated Other Comprehensive Income (Loss) |  | Total Stockholders' Equity
| Shares Issued |  | Amount |
BALANCE, January 1, 2013 | 297,811 |  |  | $ | 2,978 |  |  | $ | 950,338 |  |  | $ | 1,010,019 |  |  | $ | 759 |  |  | $ | 1,964,094 |
Net income | — |  |  | — |  |  | — |  |  | 311,623 |  |  | — |  |  | 311,623 |
Other comprehensive income | — |  |  | — |  |  | — |  |  | — |  |  | 19,252 |  |  | 19,252 |
Restricted stock units vested | 595 |  |  | 6 |  |  | (6 | ) |  | — |  |  | — |  |  | — |
Stock-based compensation expense | — |  |  | — |  |  | 22,036 |  |  | — |  |  | — |  |  | 22,036 |
Exercise of stock options | 2,399 |  |  | 24 |  |  | 15,368 |  |  | — |  |  | — |  |  | 15,392 |
Excess tax benefit from stock-based payments | — |  |  | — |  |  | 18,348 |  |  | — |  |  | — |  |  | 18,348 |
BALANCE, December 31, 2013 | 300,805 |  |  | $ | 3,008 |  |  | $ | 1,006,084 |  |  | $ | 1,321,642 |  |  | $ | 20,011 |  |  | $ | 2,350,745 |
Net income | — |  |  | — |  |  | — |  |  | 381,519 |  |  | — |  |  | 381,519 |
Other comprehensive loss | — |  |  | — |  |  | — |  |  | — |  |  | (60,236 | ) |  | (60,236 | )
Restricted stock units vested | 975 |  |  | 10 |  |  | (10 | ) |  | — |  |  | — |  |  | — |
Stock-based compensation expense | — |  |  | — |  |  | 22,021 |  |  | — |  |  | — |  |  | 22,021 |
Exercise of stock options | 1,688 |  |  | 17 |  |  | 9,307 |  |  | — |  |  | — |  |  | 9,324 |
Tax withholdings related to net share settlements of stock-based compensation awards | (15 | ) |  | — |  |  | (443 | ) |  | — |  |  | — |  |  | (443 | )
Excess tax benefit from stock-based payments | — |  |  | — |  |  | 17,727 |  |  | — |  |  | — |  |  | 17,727 |
BALANCE, December 31, 2014 | 303,453 |  |  | $ | 3,035 |  |  | $ | 1,054,686 |  |  | $ | 1,703,161 |  |  | $ | (40,225 | ) |  | $ | 2,720,657 |
Net income | — |  |  | — |  |  | — |  |  | 423,223 |  |  | — |  |  | 423,223 |
Other comprehensive loss | — |  |  | — |  |  | — |  |  | — |  |  | (65,245 | ) |  | (65,245 | )
Restricted stock units vested, net of shares withheld for employee tax | 840 |  |  | 8 |  |  | (4,349 | ) |  | — |  |  | — |  |  | (4,341 | )
Stock-based compensation expense | — |  |  | — |  |  | 21,336 |  |  | — |  |  | — |  |  | 21,336 |
Exercise of stock options | 1,425 |  |  | 14 |  |  | 8,849 |  |  | — |  |  | — |  |  | 8,863 |
Tax withholdings related to net share settlements of stock-based compensation awards | (144 | ) |  | (2 | ) |  | (3,934 | ) |  | — |  |  | — |  |  | (3,936 | )
Excess tax benefit from stock-based payments | — |  |  | — |  |  | 14,125 |  |  | — |  |  | — |  |  | 14,125 |
BALANCE, December 31, 2015 | 305,574 |  |  | $ | 3,055 |  |  | $ | 1,090,713 |  |  | $ | 2,126,384 |  |  | $ | (105,470 | ) |  | $ | 3,114,682 |

The accompanying notes are an integral part of the consolidated financial statements.
66

LKQ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Note 1. | Business

The 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 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 and the Benelux region of continental Europe. 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 also have operations in the Netherlands, Belgium, Northern France, Sweden, Norway, Mexico, Taiwan and India. In total, we operate more than 790 facilities.

Note 2. | Summary of Significant Accounting Policies

Principles of Consolidation
The accompanying consolidated financial statements include the accounts of LKQ Corporation and its subsidiaries. All intercompany transactions and accounts have been eliminated.
Use of Estimates
In preparing our financial statements in conformity with accounting principles generally accepted in the United States, we are required to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.
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 $32.8 million and $31.3 million at December 31, 2015 and 2014, respectively. We present taxes assessed by governmental authorities collected from customers on a net basis. Therefore, the taxes are excluded from revenue on our Consolidated Statements of Income and are shown as a current liability on our Consolidated Balance Sheets until remitted. We recognize revenue from the sale of scrap, cores and other metals when title has transferred, which typically occurs upon delivery to the customer. Revenue also includes amounts billed to customers for shipping and handling. Distribution expenses in the accompanying Consolidated Statements of Income are the costs incurred to prepare and deliver products to customers.
Receivables and Allowance for Doubtful Accounts
In the normal course of business, we extend credit to customers after a review of each customer's credit history. We recorded a reserve for uncollectible accounts of approximately $24.6 million and $19.4 million at December 31, 2015 and 2014, respectively. The reserve is based upon the aging of the accounts receivable, our assessment of the collectability of specific customer accounts and historical experience. Receivables are written off once collection efforts have been exhausted. Recoveries of receivables previously written off are recorded when received.
Concentrations of Credit Risk
Financial instruments that potentially subject us to significant concentration of credit risk consist primarily of cash and equivalents and accounts receivable. We control our exposure to credit risk associated with these instruments by (i) placing our cash and equivalents with several major financial institutions; (ii) holding high-quality financial instruments; and (iii) maintaining strict policies over credit extension that include credit evaluations, credit limits and monitoring procedures. In addition, our overall credit risk with respect to accounts receivable is limited to some extent because our customer base is composed of a large number of geographically diverse customers.
67

Inventory
We classify our inventory into the following categories: aftermarket and refurbished products, and salvage and remanufactured products.
An aftermarket product is a new vehicle product manufactured by a company other than the original equipment manufacturer. Cost is established based on the average price we pay for parts, and includes expenses incurred for freight and overhead costs. For items purchased from foreign companies, import fees and duties and transportation insurance are also included. Refurbished inventory cost is based on the average price we pay for cores, which are recycled automotive parts that are not suitable for sale as a replacement part without further processing. The cost of our refurbished inventory also includes expenses incurred for freight, labor and other overhead.
A salvage product is a recycled vehicle part suitable for sale as a replacement part. Cost is established based upon the price we pay for a vehicle, including auction, storage and towing fees, as well as expenditures for buying and dismantling. Inventory carrying value is determined using the average cost to sales percentage at each of our facilities and applying that percentage to the facility's inventory at expected selling prices, the assessment of which incorporates the sales probability based on a part's days in stock and historical demand. The average cost to sales percentage is derived from each facility's historical profitability for salvage vehicles. Remanufactured inventory cost is based upon the price paid for cores, and also includes expenses incurred for freight, direct manufacturing costs and overhead.
For all inventory, carrying value is recorded at the lower of cost or market and is reduced to reflect current anticipated demand. If actual demand differs from our estimates, additional reductions to inventory carrying value would be necessary in the period such determination is made.
Inventory consists of the following (in thousands):

| December 31,
| 2015 |  | 2014
Aftermarket and refurbished products | $ | 1,146,162 |  |  | $ | 1,022,549 |
Salvage and remanufactured products | 410,390 |  |  | 411,298 |
| $ | 1,556,552 |  |  | $ | 1,433,847 |

Our acquisitions completed during 2015 and adjustments to preliminary valuations of inventory for certain of our 2014 acquisitions contributed $73.4 million to our aftermarket and refurbished products inventory and $6.3 million to our salvage and remanufactured products inventory during 2015. See Note 8, "Business Combinations" for further information on our acquisitions.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation. Expenditures for major additions and improvements that extend the useful life of the related asset are capitalized. As property and equipment are sold or retired, the applicable cost and accumulated depreciation are removed from the accounts and any resulting gain or loss thereon is recognized. Construction in progress consists primarily of building and land improvements at our existing facilities. Depreciation is calculated using the straight-line method over the estimated useful lives or, in the case of leasehold improvements, the term of the related lease and reasonably assured renewal periods, if shorter.
Our estimated useful lives are as follows:

Land improvements | 10-20 years
Buildings and improvements | 20-40 years
Furniture, fixtures and equipment | 3-20 years
Computer equipment and software | 3-10 years
Vehicles and trailers | 3-10 years

68

Property and equipment consists of the following (in thousands):

| December 31,
| 2015 |  | 2014
Land and improvements | $ | 118,420 |  |  | $ | 112,582 |
Buildings and improvements | 183,480 |  |  | 173,366 |
Furniture, fixtures and equipment | 379,645 |  |  | 337,125 |
Computer equipment and software | 130,363 |  |  | 125,888 |
Vehicles and trailers | 101,201 |  |  | 87,944 |
Leasehold improvements | 140,732 |  |  | 129,309 |
| 1,053,841 |  |  | 966,214 |
Less—Accumulated depreciation | (437,946 | ) |  | (374,291 | )
Construction in progress | 80,672 |  |  | 38,064 |
| $ | 696,567 |  |  | $ | 629,987 |

We record depreciation expense within Depreciation and Amortization on our Consolidated Statements of Income. Additionally, included in Cost of Goods Sold on the Consolidated Statements of Income is depreciation expense associated with our refurbishing, remanufacturing, and furnace operations and our distribution centers. Total depreciation expense for the years ended December 31, 2015, 2014 and 2013 was $94.4 million, $90.9 million, and $72.7 million, respectively.
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 relationships, software and other technology related assets, and covenants not to compete.
Goodwill is tested for impairment at least annually, and we performed annual impairment tests during the fourth quarters of 2015, 2014 and 2013. The results of all of these tests indicated that goodwill was not impaired. Goodwill impairment testing may also be performed on an interim basis when events or circumstances arise that may lead to impairment. We performed an interim impairment test in the third quarter for our Self Service reporting unit based on the impact of declining scrap steel and other metals prices on operating margin in addition to our annual test performed in the fourth quarter. The impairment test indicated the fair value of the Self Service reporting unit, determined using both market and income approaches, exceeded the reporting unit’s carrying value by approximately 11% and no impairment adjustment was required.
The changes in the carrying amount of goodwill by reportable segment are as follows (in thousands):

| North America |  | Europe |  | Specialty |  | Total
Balance as of January 1, 2013 | $ | 1,339,831 |  |  | $ | 350,453 |  |  | $ | — |  |  | $ | 1,690,284 |
Business acquisitions and adjustments to previously recorded goodwill | 27,035 |  |  | 208,412 |  |  | — |  |  | 235,447 |
Exchange rate effects | (7,929 | ) |  | 19,642 |  |  | — |  |  | 11,713 |
Balance as of December 31, 2013 | $ | 1,358,937 |  |  | $ | 578,507 |  |  | $ | — |  |  | $ | 1,937,444 |
Business acquisitions and adjustments to previously recorded goodwill | 43,752 |  |  | 91,916 |  |  | 280,035 |  |  | 415,703 |
Exchange rate effects | (10,657 | ) |  | (53,604 | ) |  | 9 |  |  | (64,252 | )
Balance as of December 31, 2014 | $ | 1,392,032 |  |  | $ | 616,819 |  |  | $ | 280,044 |  |  | $ | 2,288,895 |
Business acquisitions and adjustments to previously recorded goodwill | 72,355 |  |  | 21,217 |  |  | (1,397 | ) |  | 92,175 |
Exchange rate effects | (18,537 | ) |  | (43,554 | ) |  | 267 |  |  | (61,824 | )
Balance as of December 31, 2015 | $ | 1,445,850 |  |  | $ | 594,482 |  |  | $ | 278,914 |  |  | $ | 2,319,246 |

In 2015 and 2014, we finalized the valuation of certain intangible assets acquired related to our 2014 and 2013 acquisitions, respectively. As these adjustments did not have a material impact on our financial position or results of operations, we recorded these adjustments to goodwill and amortization expense in 2015 and 2014.
69

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

| December 31, 2015 |  | December 31, 2014
| Gross Carrying Amount |  | Accumulated Amortization |  | Net |  | Gross Carrying Amount |  | Accumulated Amortization |  | Net
Trade names and trademarks | $ | 172,219 |  |  | $ | (43,458 | ) |  | $ | 128,761 |  |  | $ | 173,340 |  |  | $ | (35,538 | ) |  | $ | 137,802 |
Customer and supplier relationships | 95,508 |  |  | (41,007 | ) |  | 54,501 |  |  | 92,972 |  |  | (26,751 | ) |  | 66,221 |
Software and other technology related assets | 44,500 |  |  | (17,844 | ) |  | 26,656 |  |  | 44,640 |  |  | (10,387 | ) |  | 34,253 |
Covenants not to compete | 10,774 |  |  | (5,575 | ) |  | 5,199 |  |  | 11,074 |  |  | (3,825 | ) |  | 7,249 |
| $ | 323,001 |  |  | $ | (107,884 | ) |  | $ | 215,117 |  |  | $ | 322,026 |  |  | $ | (76,501 | ) |  | $ | 245,525 |

During 2015, we recorded $3.6 million of trade names, $4.6 million of customer and supplier relationships, $1.2 million of software and other technology related assets and $0.6 million of covenants not to compete resulting from our 2015 acquisitions and adjustments to certain preliminary intangible asset valuations from our 2014 acquisitions.
During 2014, we recorded $35.5 million of trade names, $65.1 million of customer and supplier relationships, $26.7 million of software and other technology related assets and $1.9 million of covenants not to compete resulting from our 2014 acquisitions and adjustments to certain preliminary intangible asset valuations from our 2013 acquisitions. The trade names, customer relationships, and software and other technology related assets recorded in 2014 included $22.0 million, $30.5 million, and $25.5 million, respectively, related to our acquisition of Keystone Specialty as discussed in Note 8, "Business Combinations." Other intangible assets resulting from our acquisition of Keystone Specialty were not material. We also recognized trade names and customer relationships of $10.1 million and $17.6 million, respectively, related to our 2014 acquisition of a supplier of replacement parts, supplies and accessories for recreational vehicles in our Specialty segment and customer relationships of $12.0 million related to our 2014 acquisition of an automotive core business.
Trade names and trademarks are amortized over a useful life ranging from 4 to 30 years on a straight-line basis. Customer and supplier relationships are amortized over the expected period to be benefited (4 to 20 years) on an accelerated basis. Software and other technology related assets are amortized on a straight-line basis over the expected period to be benefited (three to six years). Covenants not to compete are amortized over the lives of the respective agreements, which range from one to five years, on a straight-line basis. The weighted average amortization period for our intangible assets acquired during 2015 is 11 years. Amortization expense for intangibles was $33.8 million, $34.5 million and $13.8 million during the years ended December 31, 2015, 2014 and 2013, respectively. Estimated amortization expense for each of the five years in the period ending December 31, 2020 is $29.8 million, $27.3 million, $22.9 million, $18.3 million and $12.5 million, respectively.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. If such review indicates that the carrying amount of long-lived assets is not recoverable, the carrying amount of such assets is reduced to fair value. There were no material adjustments to the carrying value of long-lived assets during the years ended December 31, 2015, 2014 or 2013.
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, 2014 | $ | 12,447 |
Warranty expense | 30,370 |
Warranty claims | (27,936 | )
Balance as of December 31, 2014 | $ | 14,881 |
Warranty expense | 33,727 |
Warranty claims | (31,245 | )
Balance as of December 31, 2015 | $ | 17,363 |

70

Self-Insurance Reserves
We self-insure a portion of employee medical benefits under the terms of our employee health insurance program. We purchase certain stop-loss insurance to limit our liability exposure. We also self-insure a portion of our property and casualty risk, which includes automobile liability, general liability, directors and officers liability, workers' compensation, and property coverage, under deductible insurance programs. The insurance premium costs are expensed over the contract periods. A reserve for liabilities associated with these losses is established for claims filed and claims incurred but not yet reported based upon our estimate of ultimate cost, which is calculated using analysis of historical data. We monitor new claims and claim development as well as trends related to the claims incurred but not reported in order to assess the adequacy of our insurance reserves. Total self-insurance reserves were $78.4 million and $76.0 million, of which $37.8 million and $36.4 million was classified as current as of December 31, 2015 and 2014, respectively. The remaining balances of self-insurance reserves are classified as Other Noncurrent Liabilities, which reflects management's estimates of when claims will be paid. The reserves presented on the Consolidated Balance Sheets are net of claims deposits of $0.6 million at both December 31, 2015 and 2014, respectively. In addition to these claims deposits, we had outstanding letters of credit of $64.9 million and $59.2 million at December 31, 2015 and 2014, to guarantee self-insurance claims payments. While we do not expect the amounts ultimately paid to differ significantly from our estimates, our insurance reserves and corresponding expenses could be affected if future claims experience differs significantly from historical trends and assumptions.
Income Taxes
Current income taxes are provided on income reported for financial reporting purposes, adjusted for transactions that do not enter into the computation of income taxes payable in the same year. Deferred income taxes have been provided to show the effect of temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before we are able to realize their benefit or that future deductibility is uncertain.
We recognize the benefits of uncertain tax positions taken or expected to be taken in tax returns in the provision for income taxes only for those positions that are more likely than not to be realized. We follow a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes. Our policy is to include interest and penalties associated with income tax obligations in income tax expense.
U.S. federal income taxes are not provided on our interest in undistributed earnings of foreign subsidiaries when it is management's intent that such earnings will remain invested in those subsidiaries or other foreign subsidiaries. Taxes will be provided on these earnings in the period in which a decision is made to repatriate the earnings.
Investment in Unconsolidated Subsidiary
As of December 31, 2015, the carrying value of our investments in unconsolidated subsidiaries was $10.9 million; of this amount, $8.2 million relates to our investment in ACM Parts which was included within Other Current Assets on the Consolidated Balance Sheet as the investment was classified as held for sale as of year-end. In August 2013, we entered into an agreement with Suncorp Group, a leading general insurance group in Australia and New Zealand, to develop ACM Parts, an alternative vehicle replacement parts business in those countries. We held a 49% interest in the entity and contributed our experience to help establish automotive parts recycling operations and to facilitate the procurement of aftermarket parts; Suncorp Group held a 51% equity interest and supplied salvage vehicles to the venture as well as assisting in establishing relationships with repair shops as customers. We accounted for our interest in this subsidiary using the equity method of accounting, as our investment gave us the ability to exercise significant influence, but not control, over the investee. We divested our interest in ACM Parts in February 2016. Our equity in the net earnings of the investees for the years ended December 31, 2015 and 2014 was not material.
Rental Expense
We recognize rental expense on a straight-line basis over the respective lease terms, including reasonably assured renewal periods, for all of our operating leases.
71

Foreign Currency Translation
For most of our foreign operations, the local currency is the functional currency. Assets and liabilities are translated into U.S. dollars at the period-ending exchange rate. Statements of Income amounts are translated to U.S. dollars using monthly average exchange rates during the period. Translation gains and losses are reported as a component of Accumulated Other Comprehensive Income (Loss) in stockholders' equity.
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. We are still evaluating the impact that ASU 2014-09 will have on our consolidated financial statements and related disclosures.
In April 2015, the FASB issued Accounting Standards Update 2015-03, "Interest-Imputation of Interest" ("ASU 2015-03"). This update simplifies the presentation of debt issuance costs on the financial statements by requiring companies to deduct debt issuance costs from the carrying value of their corresponding liability on the balance sheet, rather than presenting debt issuance costs as deferred charges. ASU 2015-03 required that the Company adopt the ASU during the first quarter of our fiscal year 2016; however, early adoption was permitted. Entities must retrospectively apply this guidance within the balance sheet for all periods presented in order to reflect the period-specific effects of this new guidance. We elected to early adopt this guidance during the fourth quarter of 2015. We have disclosed the amounts reclassified for December 31, 2014 in Note 4, "Long-term Obligations" as well as in the table below.
In July 2015, the FASB issued Accounting Standards Update 2015-11, "Simplifying the Measurement of Inventory" ("ASU 2015-11"), which requires entities to measure inventory at the lower of cost or net realizable value. Net realizable value is defined as the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal and transportation. ASU 2015-11 will be effective for the Company during the first quarter of our fiscal year 2017 and must be applied on a prospective basis. Early adoption is permitted. We do not anticipate the adoption of this guidance will have a material impact on our financial position, results of operations, or cash flows.
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 adjustment 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 will be effective for the Company during the first quarter of our fiscal year 2016 and must be applied on a prospective basis. Early adoption is permitted for financial statements that have not been issued. We do not anticipate that the adoption of this guidance will have a material impact on our financial position, results of operations, or cash flows.
In November 2015 the FASB issued Accounting Standards Update 2015-17, "Balance Sheet Classification of Deferred Taxes" ("ASU 2015-17"), which requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. As a result, each jurisdiction will now only have one net noncurrent deferred tax asset or liability. The new guidance does not change the existing requirement that only permits offsetting within a jurisdiction - that is, companies are still prohibited from offsetting deferred tax liabilities from one jurisdiction against deferred tax assets of another jurisdiction. ASU 2015-17 requires adoption by the Company during the first quarter of our fiscal year 2017 and can be applied prospectively and retrospectively. Early adoption is permitted for financial statements that have not been issued, and we elected to adopt this standard on a retrospective basis for the fourth quarter of 2015.
72

The reclassification adjustments made to our December 31, 2014 balances to conform with our presentation as of December 31, 2015 for the adoption of ASU 2015-03 and ASU 2015-17 have been presented below (in thousands):

| December 31, 2014
| Deferred Income Taxes(1) |  | Other Assets |  | Other Current Liabilities |  | Current Portion of Long-Term Obligations |  | Long-Term Obligations, Excluding Current Portion |  | Deferred Income Taxes
As reported | $ | 81,744 |  |  | $ | 91,668 |  |  | $ | 36,815 |  |  | $ | 63,515 |  |  | $ | 1,801,047 |  |  | $ | 181,662 |
Adjustment - adoption of ASU 2015-03 | — |  |  | (18,414 | ) |  | — |  |  | (1,577 | ) |  | (16,837 | ) |  | — |
Adjustment - adoption of ASU 2015-17 | (81,744 | ) |  | 2,405 |  |  | (4,615 | ) |  | — |  |  | — |  |  | (74,724 | )
As adjusted | $ | — |  |  | $ | 75,659 |  |  | $ | 32,200 |  |  | $ | 61,938 |  |  | $ | 1,784,210 |  |  | $ | 106,938 |

(1)As of December 31, 2014, the current portion of deferred tax assets was included as a separate line item within the Consolidated Balance Sheets. With the adoption of ASU 2015-17 in the fourth quarter of 2015, we no longer present the current portion of deferred taxes; all deferred taxes are presented as non-current.

Note 3. | Equity Incentive Plans

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”). The total number of shares approved by our stockholders for issuance under the Equity Incentive Plan is 69.9 million shares, subject to antidilution and other adjustment provisions. We have granted RSUs, stock options, and restricted stock under the Equity Incentive Plan. Of the shares approved by our stockholders for issuance under the Equity Incentive Plan, 12.5 million shares remained available for issuance as of December 31, 2015. 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. Each RSU converts into one share of LKQ common stock on the applicable vesting date. RSUs may not be sold, pledged or otherwise transferred until they vest. The grant date fair value of RSUs is based on the market price of LKQ stock on the grant date.
We also grant RSUs to our executive officers that include both a performance-based vesting condition and a time-based vesting condition. The performance-based vesting condition is the report by the Company of positive diluted earnings per share, subject to certain adjustments, during any fiscal year period within five years following the grant date. The time-based vesting condition is the vesting of the number of RSUs subject to the grant in each of the six months following the grant date over a total of three years. The Compensation Committee approved the grant of 215,076; 175,800; and 946,800 RSUs to our executive officers that include both a performance-based vesting condition and a time-based vesting condition in 2015, 2014, and 2013, respectively. Of the amounts approved in 2013, 671,400 represented a replacement for the cancellation of an equal number of then unvested RSUs that had only a time-based vesting condition. The performance-based vesting condition for the 2015, 2014, and 2013 grants to our executive officers has been satisfied.
The fair value of RSUs that vested during the years ended December 31, 2015, 2014 and 2013 was $28.2 million, $27.7 million and $14.4 million, respectively.
In January 2016, our Board of Directors granted 746,558 RSUs to employees (including executive officers).
73

The following table summarizes activity related to our RSUs under the Equity Incentive Plan:

| Number Outstanding |  | Weighted Average Grant Date Fair Value |  | Weighted Average Remaining Contractual Term (in years) |  | Aggregate Intrinsic Value (in thousands) (1)
Unvested as of January 1, 2013 | 2,351,362 |  |  | $ | 14.02 |  |  |  |  |
Granted | 924,312 |  |  | $ | 22.18 |  |  |  |  |
Vested | (594,961 | ) |  | $ | 15.05 |  |  |  |  |
Forfeited / Canceled | (122,500 | ) |  | $ | 16.25 |  |  |  |  |
Unvested as of December 31, 2013 | 2,558,213 |  |  | $ | 16.63 |  |  |  |  |
Granted | 664,897 |  |  | $ | 31.82 |  |  |  |  |
Vested | (975,462 | ) |  | $ | 17.01 |  |  |  |  |
Forfeited / Canceled | (96,416 | ) |  | $ | 20.73 |  |  |  |  |
Unvested as of December 31, 2014 | 2,151,232 |  |  | $ | 20.97 |  |  |  |  |
Granted | 926,051 |  |  | $ | 27.08 |  |  |  |  |
Vested | (994,130 | ) |  | $ | 19.87 |  |  |  |  |
Forfeited / Canceled | (101,861 | ) |  | $ | 24.66 |  |  |  |  |
Unvested as of December 31, 2015 | 1,981,292 |  |  | $ | 24.19 |  |  |  |  |
Expected to vest after December 31, 2015 | 1,940,820 |  |  | $ | 24.13 |  |  | 2.3 |  | $ | 57,506 |

(1) The aggregate intrinsic value of expected to vest RSUs represents the total pretax intrinsic value (the fair value of the Company's stock on the last day of each period multiplied by the number of units) that would have been received by the holders had all RSUs vested. This amount changes based on the market price of the Company’s common stock.
The RSUs containing a performance-based vesting condition that were granted in replacement of canceled RSUs were accounted for as a modification of the original awards, and therefore are not reflected as grants or cancellations in the table above.
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. During 2015, we granted no stock options to employees.
The total grant-date fair value of options that vested during the years ended December 31, 2015, 2014 and 2013 was $1.2 million, $3.3 million and $5.1 million, respectively.
74

The following table summarizes activity related to our stock options under the Equity Incentive Plan:

| Number Outstanding |  | Weighted Average Exercise Price |  | Weighted Average Remaining Contractual Term (in years) |  | Aggregate Intrinsic Value (in thousands) (1)
Balance as of January 1, 2013 | 9,355,070 |  |  | $ | 6.90 |  |  |  |  |
Exercised | (2,399,419 | ) |  | $ | 6.41 |  |  |  |  | $ | 46,899 |
Forfeited / Canceled | (123,320 | ) |  | $ | 8.89 |  |  |  |  |
Balance as of December 31, 2013 | 6,832,331 |  |  | $ | 7.04 |  |  |  |  |
Granted | 126,755 |  |  | $ | 32.31 |  |  |  |  |
Exercised | (1,687,700 | ) |  | $ | 5.52 |  |  |  |  | $ | 38,373 |
Forfeited / Canceled | (63,614 | ) |  | $ | 16.10 |  |  |  |  |
Balance as of December 31, 2014 | 5,207,772 |  |  | $ | 8.04 |  |  |  |  |
Exercised | (1,425,075 | ) |  | $ | 6.22 |  |  |  |  | $ | 32,375 |
Forfeited / Canceled | (16,745 | ) |  | $ | 28.12 |  |  |  |  |
Balance as of December 31, 2015 | 3,765,952 |  |  | $ | 8.63 |  |  | 2.9 |  | $ | 79,317 |
Exercisable as of December 31, 2015 | 3,673,816 |  |  | $ | 8.04 |  |  | 2.9 |  | $ | 79,317 |
Exercisable as of December 31, 2015 and expected to vest thereafter | 3,756,738 |  |  | $ | 8.58 |  |  | 2.9 |  | $ | 79,317 |

(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 the last day of the period indicated. This amount changes based on the market price of the Company’s common stock.
Restricted Stock
Restricted stock vested over a five year period, subject to a continued service condition. Shares of restricted stock may not be sold, pledged or otherwise transferred until they vest. During the year ended December 31, 2014, all remaining unvested restricted stock became fully vested.
The fair value of restricted stock that vested during the years ended December 31, 2014 and 2013 was $0.5 million and $2.3 million, respectively.
The following table summarizes activity related to our restricted stock under the Equity Incentive Plan:

| Number Outstanding |  | Weighted Average Grant Date Fair Value
Unvested as of January 1, 2013 | 116,000 |  |  | $ | 9.47 |
Vested | (96,000 | ) |  | $ | 9.51 |
Unvested as of December 31, 2013 | 20,000 |  |  | $ | 9.30 |
Vested | (20,000 | ) |  | $ | 9.30 |
Unvested as of December 31, 2014 | — |  |  | $ | — |

Stock-Based Compensation Expense
For the RSUs that contain both a performance-based vesting condition and a time-based vesting condition, we recognize compensation expense under the accelerated attribution method, pursuant to which expense is recognized over the requisite service period for each separate vesting tranche of the award. For the RSUs that were canceled and replaced, the fair values of the RSUs immediately before and after the modification were the same. As a result, there was no charge recorded in 2013 and the expense for these RSUs was continued at the grant date fair value. During the years ended December 31, 2015, 2014, and 2013, we recognized $8.2 million, $8.2 million, and $8.3 million, respectively, of stock based compensation expense related to the RSUs containing a performance-based vesting condition. For all other awards, which are subject to only a time-
75

based vesting condition, we recognize compensation expense on a straight-line basis over the requisite service period of the entire award.
In all cases, compensation expense is adjusted to reflect estimated forfeitures. When estimating forfeitures, we consider voluntary and involuntary termination behavior as well as analysis of historical forfeitures.
The components of pre-tax stock-based compensation expense are as follows (in thousands):

| Year Ended December 31,
| 2015 |  | 2014 |  | 2013
RSUs | $ | 21,058 |  |  | $ | 18,965 |  |  | $ | 17,299 |
Stock options | 278 |  |  | 2,917 |  |  | 4,529 |
Restricted stock | — |  |  | 139 |  |  | 208 |
Total stock-based compensation expense | $ | 21,336 |  |  | $ | 22,021 |  |  | $ | 22,036 |

The following table sets forth the classification of total stock-based compensation expense included in our Consolidated Statements of Income (in thousands):

| Year Ended December 31,
| 2015 |  | 2014 |  | 2013
Cost of goods sold | $ | 358 |  |  | $ | 410 |  |  | $ | 392 |
Facility and warehouse expenses | 2,271 |  |  | 2,195 |  |  | 2,745 |
Selling, general and administrative expenses | 18,707 |  |  | 19,416 |  |  | 18,899 |
| 21,336 |  |  | 22,021 |  |  | 22,036 |
Income tax benefit | (8,221 | ) |  | (8,478 | ) |  | (8,594 | )
Total stock-based compensation expense, net of tax | $ | 13,115 |  |  | $ | 13,543 |  |  | $ | 13,442 |

We have not capitalized any stock-based compensation costs during the years ended December 31, 2015, 2014 or 2013.
As of December 31, 2015, unrecognized compensation expense related to unvested RSUs and stock options is expected to be recognized as follows (in thousands):

| RSUs |  | Stock Options |  | Total
2016 | $ | 13,997 |  |  | $ | 267 |  |  | $ | 14,264 |
2017 | 8,760 |  |  | 7 |  |  | 8,767 |
2018 | 5,334 |  |  | — |  |  | 5,334 |
2019 | 2,754 |  |  | — |  |  | 2,754 |
2020 | 30 |  |  | — |  |  | 30 |
Total unrecognized compensation expense | $ | 30,875 |  |  | $ | 274 |  |  | $ | 31,149 |

76

Note 4. | Long-Term Obligations

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

| December 31,
| 2015 |  | 2014
Senior secured credit agreement: |  |  |
Term loans payable | $ | 410,625 |  |  | $ | 433,125 |
Revolving credit facilities | 480,481 |  |  | 663,912 |
Senior notes | 600,000 |  |  | 600,000 |
Receivables securitization facility | 63,000 |  |  | 94,900 |
Notes payable through October 2025 at weighted average interest rates of 2.2% and 1.0%, respectively | 16,104 |  |  | 45,891 |
Other long-term debt at weighted average interest rates of 2.4% and 3.1%, respectively | 29,485 |  |  | 26,734 |
Total debt | 1,599,695 |  |  | 1,864,562 |
Less: long-term debt issuance costs | (13,533 | ) |  | (16,837 | )
Less: current debt issuance costs | (1,460 | ) |  | (1,577 | )
Total debt, net of debt issuance costs | 1,584,702 |  |  | 1,846,148 |
Less: current maturities, net of debt issuance costs | (56,034 | ) |  | (61,938 | )
Long term debt, net of debt issuance costs | $ | 1,528,668 |  |  | $ | 1,784,210 |

The scheduled maturities of long-term obligations outstanding at December 31, 2015 are as follows (in thousands):

2016 | $ | 57,494 |
2017 | 89,036 |
2018 | 22,907 |
2019 | 824,572 |
2020 | 225 |
Thereafter | 605,461 |
| $ | 1,599,695 |
The total debt amounts presented above exclude debt issuance costs totaling $15 million as of December 31, 2015.

Senior Secured Credit Agreement
On March 27, 2014, LKQ Corporation, LKQ Delaware LLP, and certain other subsidiaries (collectively, the "Borrowers") entered into a third amended and restated credit agreement (the "Third Amended and Restated Credit Agreement"). On January 29, 2016, the Borrowers entered into a fourth amended and restated credit agreement (the “Fourth Amended and Restated Credit Agreement”). The terms of the Fourth Amended and Restated Credit Agreement are discussed below. The Third Amended and Restated Credit Agreement retained many of the terms of the Company’s second amended and restated credit agreement dated May 3, 2013 while also modifying certain terms to (1) extend the maturity date by one year to May 3, 2019; (2) increase the total availability under the Third Amended and Restated Credit Agreement from $1.8 billion to $2.3 billion (composed of $1.69 billion in the revolving credit facility's multicurrency component, $165 million in the revolving credit facility's U.S. dollar only component, and $450 million of term loans); (3) reduce both the applicable margin on outstanding borrowings under the Third Amended and Restated Credit Agreement and the commitment fee percentage we paid on average daily unused amounts under the revolving credit facilities; and (4) make other immaterial or clarifying modifications and amendments to the terms of the Company's second amended and restated credit agreement. The Third Amended and Restated Credit Agreement allowed the Company to increase the amount of the revolving credit facility or obtain incremental term loans up to the greater of $400 million or the amount that may be borrowed while maintaining a senior secured leverage ratio of less than or equal to 2.50 to 1.00, subject to the agreement of the lenders. The proceeds of the Credit Agreement were used to repay outstanding revolver borrowings and to pay fees related to the amendment and restatement.
77

The Third Amended and Restated Credit Agreement included customary representations and warranties, and included customary covenants that provide limitations and conditions on our ability to enter into certain transactions. The Credit Agreement also contained financial and affirmative covenants, including limitations on our net leverage ratio and a minimum interest coverage ratio.
Borrowings under the Third Amended and Restated Credit Agreement accrued interest at variable rates, which depended on the currency and duration of the borrowing elected, plus an applicable margin. The applicable margin was subject to change in increments of 0.25% depending on our net leverage ratio. Interest payments were 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 5, "Derivative Instruments and Hedging Activities," the weighted average interest rates on borrowings outstanding under the Third Amended and Restated Credit Agreement at December 31, 2015 and December 31, 2014 were 1.76% and 2.10%, respectively. We also paid a commitment fee based on the average daily unused amount of the revolving credit facilities. The commitment fee was subject to change in increments of 0.05% depending on our net leverage ratio. In addition, we paid 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 Third Amended and Restated Credit Agreement, $22.5 million was classified as current maturities at both December 31, 2015 and December 31, 2014. As of December 31, 2015, there were letters of credit outstanding in the aggregate amount of $65.9 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 December 31, 2015 was $1.3 billion.
Related to the execution of the Third Amended and Restated Credit Agreement in March 2014, we incurred $3.7 million of fees, of which $3.4 million were capitalized as an offset to Long-Term Obligations and are amortized over the term of the agreement. The remaining $0.3 million of fees were expensed during the year ended December 31, 2014 as a loss on debt extinguishment. Related to the execution of the second amended and restated credit agreement in May 2013, we incurred $7.2 million of fees, of which $6.1 million were capitalized as an offset to Long-Term Obligations. The remaining $1.1 million of fees, together with $1.7 million of capitalized debt issuance costs related to the original credit agreement, were expensed during the year ended December 31, 2013 as a loss on debt extinguishment.
On January 29, 2016, the Borrowers entered into the Fourth Amended and Restated 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 will be used for general corporate purposes.
Amounts under the revolving credit facility are due and payable upon maturity of the Fourth Amended and Restated 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 Fourth Amended and Restated 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.
Senior Notes
On May 9, 2013, LKQ Corporation completed an offering of $600 million aggregate principal amount of senior notes due May 15, 2023 (the "Original Notes") in a private placement conducted pursuant to Rule 144A and Regulation S under the Securities Act of 1933. 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 the Original Notes. 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 the Original Notes, except the Notes are registered under the Securities Act of 1933, and the transfer restrictions, registration rights, and related additional interest provisions applicable to the Original Notes do not apply to the Notes.
78

The Notes bear interest at a rate of 4.75% per year from the date of the original issuance or 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 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.
Restricted Payments
Our senior secured credit agreement and our senior notes indenture contain limitations on payment of cash dividends or other distributions of assets. Based on limitations in effect under our senior secured credit agreement and senior notes indenture, the maximum amount of dividends we could pay as of December 31, 2015 was approximately $970 million. The limit on the payment of dividends is calculated using historical financial information and will change from period to period.
Receivables Securitization Facility
On September 28, 2012, LKQ entered into a three year receivables securitization facility with The Bank of Tokyo-Mitsubishi UFJ, LTD. ("BTMU") as Administrative Agent. On September 29, 2014, we amended the terms of the facility 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 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 December 31, 2015 and December 31, 2014, $136.1 million and $129.5 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 December 31, 2015, the interest rate under the receivables facility was based on commercial paper rates and was 1.13%. The outstanding balance of $63.0 million as of December 31, 2015 was classified as long-term on the Consolidated Balance Sheets because we have the ability and intent to refinance these borrowings on a long-term basis.

Note 5. | 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, changing foreign exchange rates for certain foreign currency denominated transactions and changes in metals prices. We do not hold or issue derivatives for trading purposes.
Cash Flow Hedges
At December 31, 2015, 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 minimizing 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 or the Canadian Dealer Offered Rate (“CDOR”) 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 outstanding as of December 31, 2015 mature in 2016.
79

From time to time, we may hold foreign currency forward contracts related to certain foreign currency denominated intercompany transactions, with the objective of minimizing the impact of changing exchange rates on these future cash flows, as well as minimizing 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. During 2013, we entered into two foreign exchange forward currency contracts with notional amounts of £70 million and €150 million. During 2014, these foreign currency forward contracts were settled through payments to the counterparties totaling $20.0 million. At that time, we also settled the underlying intercompany debt transactions.
The following table summarizes the notional amounts and fair values of our designated cash flow hedges as of December 31, 2015 and 2014 (in thousands):

|  | Notional Amount |  | Fair Value at December 31, 2015 (USD) |  | Fair Value at December 31, 2014 (USD)
|  | December 31, 2015 |  | December 31, 2014 |  | Other Accrued Expenses |  | Other Noncurrent Liabilities |  | Other Accrued Expenses |  | Other Noncurrent Liabilities
Interest rate swap agreements |  |  |  |  |  |  |  |
USD denominated |  | $ | 170,000 |  |  | $ | 420,000 |  |  | $ | 858 |  |  | $ | — |  |  | $ | 2,691 |  |  | $ | 1,615 |
GBP denominated |  | £ | 50,000 |  |  | £ | 50,000 |  |  | 465 |  |  | — |  |  | — |  |  | 893 |
CAD denominated |  | C$ | 25,000 |  |  | C$ | 25,000 |  |  | 24 |  |  | — |  |  | — |  |  | 19 |
Total cash flow hedges |  | $ | 1,347 |  |  | $ | — |  |  | $ | 2,691 |  |  | $ | 2,527 |

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 Consolidated Balance Sheets. The impact of netting the fair values of these contracts would not have a material effect on our Consolidated Balance Sheets at December 31, 2015 or 2014.
The activity related to our cash flow hedges is included in Note 12, "Accumulated Other Comprehensive Income (Loss)." Ineffectiveness related to our cash flow hedges was immaterial to our results of operations during 2015, 2014 and 2013. We do not expect future ineffectiveness related to our cash flow hedges to have a material effect on our results of operations.
As of December 31, 2015, we estimate that $0.9 million of derivative losses (net of tax) included in Accumulated Other Comprehensive Income will be reclassified into our Consolidated Statements of Income within the next 12 months.
In January 2016, we entered into four interest rate swap contracts representing a total of $200 million of U.S. dollar-denominated debt. In February 2016, we entered into four additional interest rate swap contracts representing a total of $240 million of U.S. dollar-denominated debt. All new swaps mature in January 2021. All of the swaps convert floating to fixed interest rates.
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, as well as commodity forward contracts to manage our exposure to fluctuations in metals prices. 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. The notional amount and fair value of these contracts at December 31, 2015 and 2014, along with the effect on our results of operations in 2015, 2014 and 2013, were immaterial.
80

Note 6. | 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 year ended December 31, 2015, 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 December 31, 2015 and 2014 (in thousands):

| Balance as of December 31, 2015 |  | Fair Value Measurements 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 |

| Balance as of December 31, 2014 |  | Fair Value Measurements as of December 31, 2014
| Level 1 |  | Level 2 |  | Level 3
Assets: |  |  |  |  |  |  |
Cash surrender value of life insurance | $ | 28,242 |  |  | $ | — |  |  | $ | 28,242 |  |  | $ | — |
Total Assets | $ | 28,242 |  |  | $ | — |  |  | $ | 28,242 |  |  | $ | — |
Liabilities: |  |  |  |  |  |  |
Contingent consideration liabilities | $ | 7,295 |  |  | $ | — |  |  | $ | — |  |  | $ | 7,295 |
Deferred compensation liabilities | 27,580 |  |  | — |  |  | 27,580 |  |  | — |
Interest rate swaps | 5,218 |  |  | — |  |  | 5,218 |  |  | — |
Total Liabilities | $ | 40,093 |  |  | $ | — |  |  | $ | 32,798 |  |  | $ | 7,295 |

The cash surrender value of life insurance and deferred compensation liabilities are included in Other Assets and Other Noncurrent Liabilities, respectively, on our Consolidated Balance Sheets. The current portion of contingent consideration liabilities is included in Other Current Liabilities and the noncurrent portion is included in Other Noncurrent Liabilities on our Consolidated Balance Sheets based on the expected timing of the related payments. The balance sheet classification of the interest rate swaps and foreign currency forward contracts is presented in Note 5, "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 and current and forward foreign exchange rates.
Our contingent consideration liabilities are related to our business acquisitions as further described in Note 8, "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 unobservable inputs include internally-developed assumptions of the probabilities of achieving specified targets, which are used to determine the resulting cash flows and the
81

applicable discount rate. Our Level 3 fair value measurements are established and updated quarterly by our corporate accounting department using current information about these key assumptions, with the input and oversight of our operational and executive management teams. We evaluate the performance of the business during the period compared to our previous expectations, along with any changes to our future projections, and update the estimated cash flows accordingly. In addition, we consider changes to our cost of capital and changes to the probability of achieving the earnout payment targets when updating our discount rate on a quarterly basis.
The significant unobservable inputs used in the fair value measurements of our Level 3 contingent consideration liabilities were as follows:

| December 31,
| 2015 |  | 2014
Unobservable Input | (Weighted Average)
Probability of achieving payout targets | 76.2 | % |  | 79.1 | %
Discount rate | 7.5 | % |  | 7.5 | %

A decrease in the assessed probabilities of achieving the targets or an increase in the discount rate, in isolation, would result in a lower fair value measurement. Changes in the values of the liabilities are recorded in Change in Fair Value of Contingent Consideration Liabilities within Other Expense (Income) on our Consolidated Statements of Income.
Changes in the fair value of our contingent consideration obligations are as follows (in thousands):

Balance as of January 1, 2014 | $ | 55,653 |
Contingent consideration liabilities recorded for business acquisitions | 5,854 |
Payments | (52,363 | )
Decrease in fair value included in earnings | (1,851 | )
Exchange rate effects | 2 |
Balance as of December 31, 2014 | $ | 7,295 |
Contingent consideration liabilities recorded for business acquisitions | — |
Payments | (2,815 | )
Increase in fair value included in earnings | 454 |
Exchange rate effects | (350 | )
Balance as of December 31, 2015 | $ | 4,584 |

The purchase price for our 2011 acquisition of Euro Car Parts Holdings Limited ("ECP") included contingent payments depending on the achievement of certain annual performance targets. The performance target for each of the measurement periods was exceeded, and therefore, we settled the liabilities related to the 2012 and 2013 performance periods for the maximum amounts of £25 million and £30 million, respectively. During 2014, we settled the liability for the 2013 performance period through a cash payment of $44.8 million (£26.9 million) and the issuance of notes for $5.1 million (£3.1 million). The cash payments made for the settlement of these contingent consideration liabilities are included within Payments of Other Obligations and Other Cash Outflows in the Cash Flows from Financing Activities and Cash Flows from Operating Activities sections, respectively, of our Consolidated Statements of Cash Flows.
Of the amounts included in earnings for the twelve months ended December 31, 2015, $0.3 million of losses were related to contingent consideration obligations outstanding as of December 31, 2015. Of the amounts included in earnings for the twelve months ended December 31, 2014, $0.2 million of losses were related to contingent consideration obligations outstanding as of December 31, 2015.
The changes in the fair value of contingent consideration obligations included in earnings during 2015 and 2014 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 Consolidated Balance Sheets at cost. Based on market conditions as of December 31, 2015 and 2014, the fair value of our credit agreement borrowings reasonably approximated the carrying value of $891.1 million and $1.1 billion, respectively. In addition, based on market conditions, the fair value of the outstanding borrowings under the receivables facility reasonably approximated the carrying value of $63.0 million and $94.9 million at December 31, 2015 and
82

2014, respectively. As of December 31, 2015 and 2014, the fair value of our senior notes was approximately $567 million and $569 million, respectively, compared to a carrying value of $600 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 December 31, 2015 to assume these obligations. The fair value of our senior 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.

Note 7. | 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 December 31, 2015 are as follows (in thousands):

Years ending December 31: |
2016 | $ | 155,104 |
2017 | 134,774 |
2018 | 113,440 |
2019 | 91,927 |
2020 | 75,084 |
Thereafter | 286,127 |
Future Minimum Lease Payments | $ | 856,456 |

Rental expense for operating leases was approximately $168.4 million, $148.5 million and $122.4 million during the years ended December 31, 2015, 2014 and 2013, respectively.
We guarantee the residual values of the majority of our truck and equipment operating leases. The residual values decline over the lease terms to a defined percentage of original cost. In the event the lessor does not realize the residual value when a piece of equipment is sold, we would be responsible for a portion of the shortfall. Similarly, if the lessor realizes more than the residual value when a piece of equipment is sold, we would be paid the amount realized over the residual value. Had we terminated all of our operating leases subject to these guarantees at December 31, 2015, our portion of the guaranteed residual value would have totaled approximately $32.9 million. We have not recorded a liability for the guaranteed residual value of equipment under operating leases as the recovery on disposition of the equipment under the leases is expected to approximate the guaranteed residual value.
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 8. | Business Combinations

During the year ended December 31, 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 Parts Channel, an aftermarket collision parts distributor. We also acquired Coast, a specialty aftermarket business that distributes replacement parts, supplies and accessories in North America 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 during the year ended December 31, 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,
83

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. In the period between the acquisition dates and December 31, 2015, these acquisitions generated revenue of $159.6 million and net income of $4.5 million.
On December 22, 2015, LKQ and its wholly-owned subsidiary LKQ Italia S.r.l. entered into an agreement to acquire Rhiag, a distributor of aftermarket spare parts for passenger cars and commercial vehicles in Italy, Czech Republic, Switzerland, Hungary, Romania, Ukraine, Bulgaria, Slovakia, Poland and Spain. The transaction is expected to be completed in the first half of 2016 and is subject to customary closing conditions and necessary regulatory approvals. This acquisition will expand LKQ's geographic presence in continental Europe. In addition, we believe the acquisition will create potential purchasing synergies.
On January 3, 2014, we completed our acquisition of Keystone Specialty, which is a leading distributor and marketer of specialty vehicle aftermarket equipment and accessories in North America. This acquisition enabled us to expand into new product lines and enter new markets. Total acquisition date fair value of the consideration for our Keystone Specialty acquisition was $471.9 million, composed of $427.1 million of cash (net of cash acquired), $31.5 million of notes payable and $13.4 million of other purchase price obligations (non-interest bearing). We recorded $237.7 million of goodwill related to our acquisition of Keystone Specialty, which we do not expect to be deductible for income tax purposes.
In addition to our acquisition of Keystone Specialty, we made 22 acquisitions during 2014, including 9 wholesale businesses in North America, 9 wholesale businesses in Europe, 2 self service retail operations, and 2 specialty vehicle aftermarket businesses. Our European acquisitions included seven aftermarket parts distribution businesses in the Netherlands, five of which were customers of and distributors for our Netherlands subsidiary, Sator. Our European acquisitions were completed with the objective of aligning our Netherlands and U.K. distribution models; our other acquisitions completed during the year ended December 31, 2014 enabled us to expand in existing markets, introduce new product lines, and enter new markets. Total acquisition date fair value of the consideration for these additional acquisitions was $359.1 million, composed of $334.3 million of cash (net of cash acquired), $13.5 million of notes payable, $0.3 million of other purchase price obligations (non-interest bearing), $5.9 million for the estimated value of contingent payments to former owners (with maximum potential payments totaling $8.3 million), and $5.1 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, 2014, we recorded $178.0 million of goodwill related to these acquisitions and immaterial adjustments to preliminary purchase price allocations related to certain of our 2013 acquisitions. We expect $44.2 million of the $178.0 million of goodwill recorded to be deductible for income tax purposes.
On May 1, 2013, we acquired the shares of Sator, a vehicle mechanical aftermarket parts distribution company based in the Netherlands, with operations in the Netherlands, Belgium and Northern France. With the acquisition of Sator, we expanded our geographic presence in the European vehicle mechanical aftermarket products market into continental Europe to complement our existing U.K. operations. Total acquisition date fair value of the consideration for the acquisition of Sator was €209.8 million ($272.8 million) of cash, net of cash acquired. We recorded $142.7 million of goodwill related to our acquisition of Sator, which we do not expect will be deductible for income tax purposes.
In addition to our acquisition of Sator, we made 19 acquisitions during 2013, including 10 wholesale businesses in North America, 7 wholesale businesses in Europe and 2 self service retail operations. Our European acquisitions included five automotive paint distribution businesses in the U.K., which enabled us to expand our collision product offerings. Our other acquisitions completed during 2013 enabled us to expand into new product lines and enter new markets. Total acquisition date fair value of the consideration for these additional 2013 acquisitions was $146.1 million, composed of $134.6 million of cash (net of cash acquired), $7.5 million of notes payable, $0.2 million of other purchase price obligations (non-interest bearing) and $3.9 million for the estimated value of contingent payments to former owners (with maximum potential payments totaling $5.0 million). During the year ended December 31, 2013 we recorded $92.7 million of goodwill related to these acquisitions and immaterial adjustments to preliminary purchase price allocations related to certain of our 2012 acquisitions. We expect $18.3 million of the $92.7 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 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. In connection with the 2015 acquisitions, certain of the purchase price allocations 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.
84

The purchase price allocations for the acquisitions completed during 2015 and 2014 are as follows (in thousands):

| Year Ended |  | Year Ended
| December 31, 2015 |  | December 31, 2014
| All Acquisitions |  | Keystone Specialty |  | Other Acquisitions |  | Total
Receivables | $ | 29,628 |  |  | $ | 48,473 |  |  | $ | 75,330 |  |  | $ | 123,803 |
Receivable reserves | (3,926 | ) |  | (7,748 | ) |  | (7,383 | ) |  | (15,131 | )
Inventory | 79,646 |  |  | 150,696 |  |  | 123,815 |  |  | 274,511 |
Income taxes receivable | — |  |  | 14,096 |  |  | — |  |  | 14,096 |
Prepaid expenses and other current assets | 3,337 |  |  | 8,085 |  |  | 4,050 |  |  | 12,135 |
Property and equipment | 11,989 |  |  | 38,080 |  |  | 27,026 |  |  | 65,106 |
Goodwill | 92,175 |  |  | 237,729 |  |  | 177,974 |  |  | 415,703 |
Other intangibles | 9,926 |  |  | 78,110 |  |  | 51,135 |  |  | 129,245 |
Other assets | 5,166 |  |  | 6,159 |  |  | 2,793 |  |  | 8,952 |
Deferred income taxes | 4,102 |  |  | (26,591 | ) |  | 313 |  |  | (26,278 | )
Current liabilities assumed | (39,191 | ) |  | (63,513 | ) |  | (52,961 | ) |  | (116,474 | )
Debt assumed | (2,365 | ) |  | — |  |  | (32,441 | ) |  | (32,441 | )
Other noncurrent liabilities assumed | (2,651 | ) |  | (11,675 | ) |  | (10,573 | ) |  | (22,248 | )
Contingent consideration liabilities | — |  |  | — |  |  | (5,854 | ) |  | (5,854 | )
Other purchase price obligations | (21,199 | ) |  | (13,351 | ) |  | (333 | ) |  | (13,684 | )
Notes issued | (4,296 | ) |  | (31,500 | ) |  | (13,535 | ) |  | (45,035 | )
Settlement of pre-existing balances | (1,073 | ) |  | — |  |  | (5,052 | ) |  | (5,052 | )
Cash used in acquisitions, net of cash acquired | $ | 161,268 |  |  | $ | 427,050 |  |  | $ | 334,304 |  |  | $ | 761,354 |

We pursue acquisitions to create economic value for our stockholders by enhancing our position as a leading source for alternative collision and mechanical repair products and expanding into other product lines and businesses that may benefit from our operating strengths. Our acquisitions in the last three years reflect this strategy through (i) broadening our product offering, (ii) entering new geographic markets and (iii) strengthening our position in our existing markets through tuck-in acquisitions.
Our 2014 acquisition of Keystone Specialty allows us to enter into new product lines and increase the size of our addressable market. In addition, we believe that the acquisition creates logistics and administrative cost synergies as well as cross-selling opportunities, which contributed to the goodwill recorded on the Keystone Specialty acquisition. Additionally, our 2013 acquisitions of five automotive paint distribution businesses in the U.K. expanded our product offering beyond the core mechanical parts sold by ECP.
Our 2013 acquisition of Sator enabled us to expand our market presence to continental Europe. We believe that our Sator acquisition will allow for synergies within our European operations, most notably in procurement, warehousing and product management. These projected synergies contributed to the goodwill recorded on the Sator acquisition.
The majority of our other acquisitions completed during the last three years were completed to strengthen our position in existing markets by achieving greater geographic coverage, adding capacity in key locations and improving customer service. These tuck-in acquisitions tend to have high synergies as we are able to leverage our existing infrastructure to eliminate redundant warehouse, distribution and administrative costs.
When we identify potential acquisitions, we attempt to target companies with a leading market share, an experienced management team and workforce that provide a fit with our existing operations, and strong cash flows. As described above, 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.
85

The following pro forma summary presents the effect of the businesses acquired during the year ended December 31, 2015 as though the businesses had been acquired as of January 1, 2014, the businesses acquired during the year ended December 31, 2014 as though they had been acquired as of January 1, 2013 and the businesses acquired during the year ended December 31, 2013 as though they had been acquired as of January 1, 2012. The pro forma adjustments are based upon unaudited financial information of the acquired entities (in thousands, except per share data):

| Year Ended December 31,
| 2015 |  | 2014 |  | 2013
Revenue, as reported | $ | 7,192,633 |  |  | $ | 6,740,064 |  |  | $ | 5,062,528 |
Revenue of purchased businesses for the period prior to acquisition: |  |  |  |  |
Keystone Specialty | — |  |  | 3,443 |  |  | 696,960 |
Sator | — |  |  | — |  |  | 126,309 |
Other acquisitions | 213,630 |  |  | 676,965 |  |  | 695,596 |
Pro forma revenue | $ | 7,406,263 |  |  | $ | 7,420,472 |  |  | $ | 6,581,393 |
Net income, as reported | $ | 423,223 |  |  | $ | 381,519 |  |  | $ | 311,623 |
Net income of purchased businesses for the period prior to acquisition, and pro forma purchase accounting adjustments: |  |  |  |  |
Keystone Specialty | — |  |  | 637 |  |  | 40,460 |
Sator | — |  |  | — |  |  | 5,712 |
Other acquisitions | 6,005 |  |  | 20,550 |  |  | 19,367 |
Pro forma net income | $ | 429,228 |  |  | $ | 402,706 |  |  | $ | 377,162 |
Earnings per share-basic, as reported | $ | 1.39 |  |  | $ | 1.26 |  |  | $ | 1.04 |
Effect of purchased businesses for the period prior to acquisition: |  |  |  |  |
Keystone Specialty | — |  |  | 0.00 |  |  | 0.14 |
Sator | — |  |  | — |  |  | 0.02 |
Other acquisitions | 0.02 |  |  | 0.07 |  |  | 0.06 |
Pro forma earnings per share-basic (1) | $ | 1.41 |  |  | $ | 1.33 |  |  | $ | 1.26 |
Earnings per share-diluted, as reported | $ | 1.38 |  |  | $ | 1.25 |  |  | $ | 1.02 |
Effect of purchased businesses for the period prior to acquisition: |  |  |  |  |
Keystone Specialty | — |  |  | 0.00 |  |  | 0.13 |
Sator | — |  |  | — |  |  | 0.02 |
Other acquisitions | 0.02 |  |  | 0.07 |  |  | 0.06 |
Pro forma earnings per share-diluted (1) | $ | 1.40 |  |  | $ | 1.31 |  |  | $ | 1.24 |

(1) The sum of the individual earnings per share amounts may not equal the total due to rounding.
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 net realizable value, adjustments to depreciation on acquired property 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 2014 pro forma impact of our other acquisitions includes an adjustment for intercompany sales between Sator and the five Netherlands distributors that would have been reflected as intercompany transactions if the acquisitions had occurred on January 1, 2013. Our cost of sales in the initial months after the acquisitions reflects the increased valuation of acquired inventory, which has the impact of temporarily reducing our gross margin. Moving this negative gross margin impact to the year ended December 31, 2013 for our pro forma disclosure has the effect of increasing our pro forma net income during the year ended December 31, 2014.
The pro forma impact of our acquisitions reflects the elimination of acquisition related expenses totaling $2.6 million for the year ended December 31, 2015, primarily related to acquisitions of Parts Channel, Coast, and our acquisition of the aftermarket parts distribution businesses in the Netherlands. Additionally, the pro forma impact of our acquisitions reflects the elimination of acquisition related expenses totaling $3.2 million for the year ended December 31, 2014, primarily related to our
86

May 2014 acquisitions of five aftermarket parts distribution businesses in the Netherlands. The pro forma impact of our Sator acquisition reflects the elimination of acquisition related expenses totaling $3.6 million for the year ended December 31, 2013. Additionally, the pro-forma impact of our other acquisitions reflects the elimination of acquisition related expenses totaling $2.2 million for the year ended December 31, 2013. Refer to Note 9, "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 9. | Restructuring and Acquisition Related Expenses

Acquisition Related Expenses
Acquisition related expenses, which include external costs such as legal, accounting and advisory fees, totaled $6.4 million, $3.7 million, and $6.7 million, for the years ended December 31, 2015, 2014 and 2013, respectively. Of our 2015 expenses, $2.5 million was related to our definitive agreement to acquire the holding company of Rhiag-Inter Auto Parts Italia S.p.A, $1.6 million was related to our acquisitions of eleven aftermarket parts distribution businesses in the Netherlands, $0.8 million was related to our acquisition of Coast, and $1.5 million was related to other completed and potential acquisitions.
Our 2014 expenses included $1.9 million related to our acquisitions of seven aftermarket parts distribution businesses in the Netherlands; the remainder of our 2014 expenses related to our acquisition of a supplier of replacement parts, supplies and accessories for recreational vehicles in our Specialty segment as well as other completed and potential acquisitions.
Our 2013 expenses included $3.6 million related to our acquisition of Sator in May 2013, $1.4 million related to our acquisitions of five U.K.-based paint distribution businesses, and $0.9 million related to our acquisition of Keystone Specialty in January 2014. Acquisition related costs are expensed as incurred.
Acquisition Integration Plans
During the year ended December 31, 2015, we incurred $13.1 million of restructuring expenses. Expenses incurred were primarily a result of the integration of our acquisition of Parts Channel into our existing North American wholesale business, and the integration of our Coast acquisition and our October 2014 acquisition of a supplier of parts for recreational vehicles into our Specialty business. These integration activities included the closure of duplicate facilities, termination of employees in connection with the consolidation of overlapping facilities with our existing business, and moving expenses.
During the year ended December 31, 2014, we incurred $5.8 million of restructuring expenses as a result of the integration of our acquisition of Keystone Specialty into our existing business. These integration activities included the closure of duplicate facilities, termination of employees in connection with the consolidation of overlapping facilities with our existing business, and moving expenses.
Also during 2014, we incurred $1.9 million, $1.0 million, and $0.8 million of other restructuring costs related to our European, North American, and Specialty acquisitions, respectively. These costs are a result of activities to integrate our acquisitions into our existing business, including the closure of duplicate facilities, termination of employees in connection with the consolidation of overlapping facilities with our existing business, moving expenses, and other third party services directly related to our acquisitions.
We expect to incur additional expenses related to the integration of certain of our acquisitions into our existing operations in 2016. These integration activities are expected to include the closure of duplicate facilities, termination of employees 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 $9.0 million.
During the year ended December 31, 2013, we incurred $2.1 million of restructuring expenses related to the integration of certain of our 2013 European acquisitions and $1.4 million of restructuring expenses related to the integration of certain of our 2012 North American acquisitions. Our integration activities included the closure of duplicate facilities, termination of employees in connection with the consolidation of overlapping facilities with our existing business, moving expenses, and other third party services directly related to the integration of these acquisitions.
European Restructuring Plan
In the third quarter of 2014, we initiated restructuring activities to eliminate overlapping positions within certain of our European operations. As a result of these restructuring activities, we incurred $1.6 million of expenses during the year ended December 31, 2014, primarily for severance costs to terminated employees.

Note 10. | Earnings Per Share

Basic earnings per share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share incorporate the incremental shares issuable upon the assumed exercise of stock options and
87

the assumed vesting of RSUs and restricted stock. Certain of our RSUs and stock options were excluded from the calculation of diluted earnings per share because they were antidilutive, but these equity instruments could be dilutive in the future.
The following chart sets forth the computation of earnings per share (in thousands, except per share amounts):

| Year Ended December 31,
| 2015 |  | 2014 |  | 2013
Net Income | $ | 423,223 |  |  | $ | 381,519 |  |  | $ | 311,623 |
Denominator for basic earnings per share—Weighted-average shares outstanding | 304,722 |  |  | 302,343 |  |  | 299,574 |
Effect of dilutive securities: |  |  |  |  |
RSUs | 667 |  |  | 791 |  |  | 845 |
Stock options | 2,107 |  |  | 2,905 |  |  | 3,696 |
Restricted stock | — |  |  | 6 |  |  | 16 |
Denominator for diluted earnings per share—Adjusted weighted-average shares outstanding | 307,496 |  |  | 306,045 |  |  | 304,131 |
Earnings per share, basic | $ | 1.39 |  |  | $ | 1.26 |  |  | $ | 1.04 |
Earnings per share, diluted | $ | 1.38 |  |  | $ | 1.25 |  |  | $ | 1.02 |

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 (in thousands):

| Year Ended December 31,
| 2015 |  | 2014 |  | 2013
Antidilutive securities: |  |  |  |  |
RSUs | 230 |  |  | 289 |  |  | — |
Stock options | 96 |  |  | 116 |  |  | — |

Note 11. | Income Taxes

The provision for income taxes consists of the following components (in thousands):

| Year Ended December 31,
| 2015 |  | 2014 |  | 2013
Current: |  |  |  |  |
Federal | $ | 138,432 |  |  | $ | 144,924 |  |  | $ | 115,150 |
State | 25,952 |  |  | 24,052 |  |  | 20,869 |
Foreign | 32,931 |  |  | 29,046 |  |  | 23,906 |
| $ | 197,315 |  |  | $ | 198,022 |  |  | $ | 159,925 |
Deferred: |  |  |  |  |
Federal | $ | 22,233 |  |  | $ | 9,321 |  |  | $ | 6,225 |
State | 1,212 |  |  | (179 | ) |  | (550 | )
Foreign | (1,057 | ) |  | (2,900 | ) |  | (1,396 | )
| $ | 22,388 |  |  | $ | 6,242 |  |  | $ | 4,279 |
Provision for income taxes | $ | 219,703 |  |  | $ | 204,264 |  |  | $ | 164,204 |

Income taxes have been based on the following components of income before provision for income taxes (in thousands):

| Year Ended December 31,
| 2015 |  | 2014 |  | 2013
Domestic | $ | 478,819 |  |  | $ | 460,637 |  |  | $ | 361,283 |
Foreign | 170,211 |  |  | 127,251 |  |  | 114,544 |
| $ | 649,030 |  |  | $ | 587,888 |  |  | $ | 475,827 |

88

The U.S. federal statutory rate is reconciled to the effective tax rate as follows:

| Year Ended December 31,
| 2015 |  | 2014 |  | 2013
U.S. federal statutory rate | 35.0 | % |  | 35.0 | % |  | 35.0 | %
State income taxes, net of state credits and federal tax impact | 2.9 | % |  | 2.8 | % |  | 2.9 | %
Impact of international operations | (4.1 | )% |  | (3.6 | )% |  | (3.7 | )%
Non-deductible expenses | 0.8 | % |  | 0.5 | % |  | 0.9 | %
Federal production incentives and credits | (0.2 | )% |  | (0.2 | )% |  | (0.3 | )%
Other, net | (0.5 | )% |  | 0.2 | % |  | (0.3 | )%
Effective tax rate | 33.9 | % |  | 34.7 | % |  | 34.5 | %

Undistributed earnings of the Company's foreign subsidiaries amounted to approximately $398 million at December 31, 2015. Those earnings are considered to be indefinitely reinvested, and accordingly no provision for U.S. income taxes has been provided thereon. Upon repatriation of those earnings, in the form of dividends or otherwise, the Company 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. Determination of the amount of unrecognized deferred U.S. income tax liability is not practicable due to the complexities associated with its hypothetical calculation; however, unrecognized foreign tax credits would be available to reduce materially any U.S. liability.
The significant components of our deferred tax assets and liabilities are as follows (in thousands):

| December 31,
| 2015 |  | 2014
Deferred Tax Assets: |  |  |
Inventory | $ | 27,184 |  |  | $ | 33,452 |
Accrued expenses and reserves | 46,837 |  |  | 40,349 |
Accounts receivable | 13,971 |  |  | 12,894 |
Stock-based compensation | 11,096 |  |  | 11,978 |
Qualified and nonqualified retirement plans | 14,130 |  |  | 14,049 |
Net operating loss carryforwards | 8,946 |  |  | 6,744 |
Tax credit carryforwards | 3,189 |  |  | 4,424 |
Other | 5,023 |  |  | 8,275 |
| 130,376 |  |  | 132,165 |
Less valuation allowance | (3,880 | ) |  | (5,239 | )
Total deferred tax assets | $ | 126,496 |  |  | $ | 126,926 |
Deferred Tax Liabilities: |  |  |
Goodwill and other intangible assets | $ | 141,442 |  |  | $ | 121,728 |
Property and equipment | 67,065 |  |  | 60,215 |
Trade name | 36,532 |  |  | 43,325 |
Other | 5,342 |  |  | 5,988 |
Total deferred tax liabilities | $ | 250,381 |  |  | $ | 231,256 |
Net deferred tax liability | $ | (123,885 | ) |  | $ | (104,330 | )

Deferred tax assets and liabilities are reflected on our Consolidated Balance Sheets as follows (in thousands):

| December 31,
| 2015 |  | 2014
Noncurrent deferred tax assets | $ | 3,354 |  |  | $ | 2,608 |
Noncurrent deferred tax liabilities | 127,239 |  |  | 106,938 |

Our deferred tax assets and liabilities are presented within Other Assets and Deferred Income Taxes, respectively, on our Consolidated Balance Sheets. Refer to Recent Accounting Pronouncements in Note 2, "Summary of Significant Accounting
89

Policies" for a summary of the retrospective adjustments made to current deferred tax balances as of December 31, 2014 under ASU 2015-17 to conform to the current year presentation.
We had net operating loss carryforwards for federal and certain of our state tax jurisdictions, the tax benefits of which total approximately $8.9 million and $6.7 million at December 31, 2015 and 2014, respectively. At December 31, 2015 and 2014, we had foreign, state, and local tax credit carryforwards of $3.2 million and $4.4 million, respectively. As of December 31, 2015 and 2014, valuation allowances of $3.9 million and $5.2 million, respectively, were recorded for a portion of the deferred tax assets related to net operating loss and tax credit carryforwards. The $1.3 million net decrease in valuation allowances was primarily due to a $2.6 million decrease related to a reduction in foreign tax credit carryovers as a result of the favorable reassessment by the Canada Revenue Agency of certain prior period filings by our Specialty operations in Canada, and a $0.2 million decrease due to our judgment regarding the realization of other net operating losses. These decreases were partially offset by a $1.5 million increase attributable to acquired foreign, federal and state tax credits.
The net operating loss carryforwards expire over the period from 2016 through 2035. Foreign tax credit carryforwards expire over the period from 2016 through 2025, while the state and local tax credits primarily have no expiration. Realization of these deferred tax assets is dependent on the generation of sufficient taxable income prior to the expiration dates. Based on historical and projected operating results, we believe that it is more likely than not that earnings will be sufficient to realize the deferred tax assets for which valuation allowances have not been provided. While we expect to realize the deferred tax assets, net of valuation allowances, changes in estimates of future taxable income or in tax laws may alter this expectation.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):

| 2015 |  | 2014 |  | 2013
Balance at January 1 | $ | 2,630 |  |  | $ | 1,445 |  |  | $ | 1,693 |
Additions for acquired tax positions | 80 |  |  | 2,322 |  |  | — |
Additions based on tax positions related to the current year | 302 |  |  | 302 |  |  | 302 |
Reductions for tax positions of prior years | (743 | ) |  | — |  |  | — |
Lapse of statutes of limitations | (119 | ) |  | (134 | ) |  | (550 | )
Settlements with taxing authorities | — |  |  | (1,182 | ) |  | — |
Currency exchange rate fluctuations | 123 |  |  | (123 | ) |  | — |
Balance at December 31 | $ | 2,273 |  |  | $ | 2,630 |  |  | $ | 1,445 |

Included in the balance of unrecognized tax benefits above as of December 31, 2015, 2014 and 2013 are $1.5 million, $1.9 million and $0.9 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate. The balance of unrecognized tax benefits at December 31, 2015, 2014 and 2013 also includes $0.8 million, $0.7 million, and $0.5 million respectively, of tax benefits that, if recognized, would result in adjustments to deferred taxes.
The Company recognizes interest and penalties accrued related to unrecognized tax benefits as income tax expense. Attributable to the unrecognized tax benefits noted above, at December 31, 2015 and 2014, the Company had accumulated interest and penalties of $0.8 million and $0.7 million respectively. During each of the years ended December 31, 2015, 2014, and 2013, $0.1 million, $0.1 million and $0.1 million, respectively, of interest and penalties were recorded through the income tax provision, prior to any reversals for lapses in the statutes of limitations.
During the twelve months beginning January 1, 2016, it is reasonably possible that we will reduce unrecognized tax benefits by up to approximately $0.1 million, all of which would impact our effective tax rate, primarily as a result of the expiration of certain statutes of limitations.
During 2015, the U.S. Internal Revenue Service completed examinations of the Company’s Federal consolidated tax returns for the years 2011 to 2013, without material adjustment. In the U.K., with limited exception, tax years through 2010 are no longer subject to inquiry. Certain Canadian operations are under examination for the years 2010 to 2012. In the Netherlands, tax years through 2012 have been assessed. Tax years from 2011 are subject to income tax examinations by various U.S. state and local jurisdictions. Adjustments from such examinations, if any, are not expected to have a material effect on our consolidated financial statements.
90

Note 12. | Accumulated Other Comprehensive Income (Loss)

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

|  | Foreign Currency Translation |  | Unrealized (Loss)Gain on Cash Flow Hedges |  | Unrealized Gain (Loss) on Pension Plan |  | Accumulated Other Comprehensive (Loss) Income
Balance at January 1, 2013 |  | $ | 10,850 |  |  | $ | (10,091 | ) |  | $ | — |  |  | $ | 759 |
Pretax income (loss) |  | 14,056 |  |  | (21,250 | ) |  | 935 |  |  | (6,259 | )
Income tax effect |  | — |  |  | 7,984 |  |  | (234 | ) |  | 7,750 |
Reclassification of unrealized loss |  | — |  |  | 27,481 |  |  | — |  |  | 27,481 |
Reclassification of deferred income taxes |  | — |  |  | (10,011 | ) |  | — |  |  | (10,011 | )
Hedge ineffectiveness |  | — |  |  | 460 |  |  | — |  |  | 460 |
Income tax effect |  | — |  |  | (169 | ) |  | — |  |  | (169 | )
Balance at December 31, 2013 |  | $ | 24,906 |  |  | $ | (5,596 | ) |  | $ | 701 |  |  | $ | 20,011 |
Pretax loss |  | (51,979 | ) |  | (1,586 | ) |  | (13,506 | ) |  | (67,071 | )
Income tax effect |  | — |  |  | 382 |  |  | 3,179 |  |  | 3,561 |
Reclassification of unrealized loss (gain) |  | — |  |  | 5,200 |  |  | (166 | ) |  | 5,034 |
Reclassification of deferred income taxes |  | — |  |  | (1,801 | ) |  | 41 |  |  | (1,760 | )
Balance at December 31, 2014 |  | $ | (27,073 | ) |  | $ | (3,401 | ) |  | $ | (9,751 | ) |  | $ | (40,225 | )
Pretax (loss) income |  | (69,817 | ) |  | (1,664 | ) |  | 2,245 |  |  | (69,236 | )
Income tax effect |  | — |  |  | 538 |  |  | (561 | ) |  | (23 | )
Reclassification of unrealized loss |  | — |  |  | 5,366 |  |  | 559 |  |  | 5,925 |
Reclassification of deferred income taxes |  | — |  |  | (1,771 | ) |  | (140 | ) |  | (1,911 | )
Balance at December 31, 2015 |  | $ | (96,890 | ) |  | $ | (932 | ) |  | $ | (7,648 | ) |  | $ | (105,470 | )

Unrealized losses on our interest rate swap contracts totaling $5.4 million, $6.2 million, and $6.2 million were reclassified to interest expense in our Consolidated Statements of Income during each of the years ended December 31, 2015, 2014, and 2013. The remaining reclassification of unrealized gains and losses during these periods related to our foreign currency forward contracts and were recorded to other income in our Consolidated Statements of Income. These gains and losses offset the remeasurement of certain of our intercompany balances as discussed in Note 5, "Derivative Instruments and Hedging Activities." The deferred income taxes related to our cash flow hedges were reclassified from Accumulated Other Comprehensive Income to income tax expense.

Note 13. | Segment and Geographic Information

We have four operating segments: Wholesale – North America; Europe; Specialty; and Self Service. Our Specialty operating segment was formed with our January 3, 2014 acquisition of Keystone Specialty, as discussed in Note 8, "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 is affected by different economic conditions. Therefore, we present three reportable segments: North America, Europe and Specialty.
The following tables present our financial performance by reportable segment for the periods indicated (in thousands):
91

| North America |  | Europe |  | Specialty |  | Eliminations |  | Consolidated
Year Ended December 31, 2015 |  |  |  |  |  |  |  |  |
Revenue: |  |  |  |  |  |  |  |  |
Third Party | $ | 4,145,998 |  |  | $ | 1,995,385 |  |  | $ | 1,051,250 |  |  | $ | — |  |  | $ | 7,192,633 |
Intersegment | 835 |  |  | 70 |  |  | 3,334 |  |  | (4,239 | ) |  | — |
Total segment revenue | $ | 4,146,833 |  |  | $ | 1,995,455 |  |  | $ | 1,054,584 |  |  | $ | (4,239 | ) |  | $ | 7,192,633 |
Segment EBITDA | $ | 547,405 |  |  | $ | 200,563 |  |  | $ | 106,561 |  |  | $ | — |  |  | $ | 854,529 |
Depreciation and amortization (1) | 70,369 |  |  | 36,446 |  |  | 21,377 |  |  | — |  |  | 128,192 |
Year Ended December 31, 2014 |  |  |  |  |  |  |  |  |
Revenue: |  |  |  |  |  |  |  |  |
Third Party | $ | 4,088,701 |  |  | $ | 1,846,155 |  |  | $ | 805,208 |  |  | $ | — |  |  | $ | 6,740,064 |
Intersegment | 589 |  |  | — |  |  | 1,807 |  |  | (2,396 | ) |  | — |
Total segment revenue | $ | 4,089,290 |  |  | $ | 1,846,155 |  |  | $ | 807,015 |  |  | $ | (2,396 | ) |  | $ | 6,740,064 |
Segment EBITDA | $ | 543,943 |  |  | $ | 167,155 |  |  | $ | 79,453 |  |  | $ | — |  |  | $ | 790,551 |
Depreciation and amortization (1) | 70,434 |  |  | 34,391 |  |  | 20,612 |  |  | — |  |  | 125,437 |
Year Ended December 31, 2013 |  |  |  |  |  |  |  |  |
Revenue: |  |  |  |  |  |  |  |  |
Third Party | $ | 3,802,929 |  |  | $ | 1,259,599 |  |  | $ | — |  |  | $ | — |  |  | $ | 5,062,528 |
Intersegment | — |  |  | — |  |  | — |  |  | — |  |  | — |
Total segment revenue | $ | 3,802,929 |  |  | $ | 1,259,599 |  |  | $ | — |  |  | $ | — |  |  | $ | 5,062,528 |
Segment EBITDA | $ | 486,831 |  |  | $ | 141,756 |  |  | $ | — |  |  | $ | — |  |  | $ | 628,587 |
Depreciation and amortization (1) | 65,606 |  |  | 20,857 |  |  | — |  |  | — |  |  | 86,463 |

(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. Segment EBITDA is calculated as EBITDA excluding restructuring and acquisition related expenses, change in fair value of contingent consideration liabilities and equity in earnings of unconsolidated subsidiaries. EBITDA, which is the basis for Segment EBITDA, is calculated as net income excluding depreciation, amortization, interest (including loss on debt extinguishment) and taxes. Loss on debt extinguishment is considered a component of interest in calculating EBITDA, as the write-off of debt issuance costs is similar to the treatment of debt issuance cost amortization.
92

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

| Year Ended December 31,
| 2015 |  | 2014 |  | 2013
Segment EBITDA | $ | 854,529 |  |  | $ | 790,551 |  |  | $ | 628,587 |
Deduct: |  |  |  |  |
Restructuring and acquisition related expenses(1) | 19,511 |  |  | 14,806 |  |  | 10,173 |
Change in fair value of contingent consideration liabilities (2) | 454 |  |  | (1,851 | ) |  | 2,504 |
Add: |  |  |  |  |
Equity in earnings of unconsolidated subsidiaries | (6,104 | ) |  | (2,105 | ) |  | — |
EBITDA | 828,460 |  |  | 775,491 |  |  | 615,910 |
Depreciation and amortization - cost of goods sold | 6,072 |  |  | 4,718 |  |  | 5,494 |
Depreciation and amortization | 122,120 |  |  | 120,719 |  |  | 80,969 |
Interest expense, net | 57,342 |  |  | 63,947 |  |  | 50,825 |
Loss on debt extinguishment | — |  |  | 324 |  |  | 2,795 |
Provision for income taxes | 219,703 |  |  | 204,264 |  |  | 164,204 |
Net income | $ | 423,223 |  |  | $ | 381,519 |  |  | $ | 311,623 |

(1) See Note 9, "Restructuring and Acquisition Related Expenses," for further information.
(2) See Note 6, "Fair Value Measurements," for further information on our contingent consideration liabilities.
The following table presents capital expenditures by reportable segment (in thousands):

| Year Ended December 31,
| 2015 |  | 2014 |  | 2013
Capital Expenditures |  |  |  |  |
North America | $ | 72,048 |  |  | $ | 86,172 |  |  | $ | 66,288 |
Europe | 79,072 |  |  | 44,896 |  |  | 23,898 |
Specialty | 19,370 |  |  | 9,882 |  |  | — |
| $ | 170,490 |  |  | $ | 140,950 |  |  | $ | 90,186 |

93

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

| December 31,
| 2015 |  | 2014 |  | 2013
Receivables, net |  |  |  |  |
North America | $ | 314,743 |  |  | $ | 322,713 |  |  | $ | 277,395 |
Europe | 215,710 |  |  | 227,987 |  |  | 180,699 |
Specialty | 59,707 |  |  | 50,722 |  |  | — |
Total receivables, net | 590,160 |  |  | 601,422 |  |  | 458,094 |
Inventory |  |  |  |  |
North America | 847,787 |  |  | 826,429 |  |  | 748,167 |
Europe | 427,323 |  |  | 402,488 |  |  | 328,785 |
Specialty | 281,442 |  |  | 204,930 |  |  | — |
Total inventory | 1,556,552 |  |  | 1,433,847 |  |  | 1,076,952 |
Property and Equipment, net |  |  |  |  |
North America | 467,961 |  |  | 456,288 |  |  | 447,528 |
Europe | 175,455 |  |  | 128,309 |  |  | 99,123 |
Specialty | 53,151 |  |  | 45,390 |  |  | — |
Total property and equipment, net | 696,567 |  |  | 629,987 |  |  | 546,651 |
Other unallocated assets (1) | 2,804,558 |  |  | 2,810,483 |  |  | 2,356,361 |
Total assets (1) | $ | 5,647,837 |  |  | $ | 5,475,739 |  |  | $ | 4,438,058 |

(1) Prior year balances have been updated to reflect the adoption of two new accounting pronouncements in the fourth quarter of 2015 as described in Recent Accounting Pronouncements in Note 2, "Summary of Significant Accounting Policies". The adoption of these new accounting pronouncements resulted in a reclassification of $18.5 million of debt issuance costs from Other Assets to Long-term obligations, and a reclassification of $62.2 million of deferred tax assets to noncurrent deferred tax liabilities for the year ended December 31, 2013.
We report net receivables, inventories, and net property 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 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. 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):

| Year Ended December 31,
| 2015 |  | 2014 |  | 2013
Revenue |  |  |  |  |
United States | $ | 4,831,875 |  |  | $ | 4,499,743 |  |  | $ | 3,544,360 |
United Kingdom | 1,382,432 |  |  | 1,321,786 |  |  | 981,585 |
Other countries | 978,326 |  |  | 918,535 |  |  | 536,583 |
| $ | 7,192,633 |  |  | $ | 6,740,064 |  |  | $ | 5,062,528 |

94

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

| December 31,
| 2015 |  | 2014
Long-lived Assets |  |  |
United States | $ | 493,300 |  |  | $ | 469,450 |
United Kingdom | 138,546 |  |  | 92,813 |
Other countries | 64,721 |  |  | 67,724 |
| $ | 696,567 |  |  | $ | 629,987 |

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

| Year Ended December 31,
| 2015 |  | 2014 |  | 2013
Aftermarket, other new and refurbished products | $ | 5,116,373 |  |  | $ | 4,613,454 |  |  | $ | 3,034,599 |
Recycled, remanufactured and related products and services | 1,597,578 |  |  | 1,473,305 |  |  | 1,394,981 |
Other | 478,682 |  |  | 653,305 |  |  | 632,948 |
| $ | 7,192,633 |  |  | $ | 6,740,064 |  |  | $ | 5,062,528 |

Our North American reportable segment generates revenue from all of our product categories, while our European and Specialty segments generate revenue primarily from the sale of aftermarket 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. | Selected Quarterly Data (unaudited)

The following table presents unaudited selected quarterly financial data for the two years ended December 31, 2015. The operating results for any quarter are not necessarily indicative of the results for any future period.

| Quarter Ended
(In thousands, except per share data) | Mar. 31 |  | Jun. 30 |  | Sep. 30 |  | Dec. 31
2014 |  |  |  |  |  |  |
Revenue | $ | 1,625,777 |  |  | $ | 1,709,132 |  |  | $ | 1,721,024 |  |  | $ | 1,684,131 |
Gross margin | 651,884 |  |  | 671,059 |  |  | 664,411 |  |  | 664,559 |
Operating income | 173,834 |  |  | 173,596 |  |  | 156,188 |  |  | 146,250 |
Net income | 104,653 |  |  | 104,882 |  |  | 91,515 |  |  | 80,469 |
Basic earnings per share(1) | $ | 0.35 |  |  | $ | 0.35 |  |  | $ | 0.30 |  |  | $ | 0.27 |
Diluted earnings per share(1) | $ | 0.34 |  |  | $ | 0.34 |  |  | $ | 0.30 |  |  | $ | 0.26 |

| Quarter Ended
(In thousands, except per share data) | Mar. 31 |  | Jun. 30 |  | Sep. 30 |  | Dec. 31
2015 |  |  |  |  |  |  |
Revenue | $ | 1,773,912 |  |  | $ | 1,838,070 |  |  | $ | 1,831,732 |  |  | $ | 1,748,919 |
Gross margin | 699,479 |  |  | 723,944 |  |  | 712,779 |  |  | 697,327 |
Operating income | 185,926 |  |  | 200,285 |  |  | 166,745 |  |  | 151,671 |
Net income | 107,095 |  |  | 119,722 |  |  | 101,346 |  |  | 95,060 |
Basic earnings per share(1) | $ | 0.35 |  |  | $ | 0.39 |  |  | $ | 0.33 |  |  | $ | 0.31 |
Diluted earnings per share(1) | $ | 0.35 |  |  | $ | 0.39 |  |  | $ | 0.33 |  |  | $ | 0.31 |

(1) | The sum of the quarters may not equal the total of the respective year's earnings per share on either a basic or diluted basis due to changes in weighted average shares outstanding throughout the year.

95

Note 15. | Condensed Consolidating Financial Information

LKQ Corporation (the "Parent") issued, and certain of its 100% owned subsidiaries (the "Guarantors") have fully and unconditionally guaranteed, jointly and severally, the Company's 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 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 revenues and expenses. The condensed consolidating financial statements below have been prepared from the Company's financial information on the same basis of accounting as the 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.
96

LKQ CORPORATION AND SUBSIDIARIES 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 | ) |  | — |
Inventory | — |  |  | 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 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 |
Self-insurance reserves | — |  |  | 37,499 |  |  | 260 |  |  | — |  |  | 37,759 |
Other accrued expenses | 5,399 |  |  | 43,387 |  |  | 75,680 |  |  | — |  |  | 124,466 |
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 |

97

LKQ CORPORATION AND SUBSIDIARIES Condensed Consolidating Balance Sheets (In thousands)
| December 31, 2014
| Parent |  | Guarantors |  | Non-Guarantors |  | Eliminations |  | Consolidated
Assets |  |  |  |  |  |  |  |  |
Current Assets: |  |  |  |  |  |  |  |  |
Cash and equivalents | $ | 14,930 |  |  | $ | 32,103 |  |  | $ | 67,572 |  |  | $ | — |  |  | $ | 114,605 |
Receivables, net | 145 |  |  | 217,542 |  |  | 383,735 |  |  | — |  |  | 601,422 |
Intercompany receivables, net | 1,360 |  |  | — |  |  | 8,048 |  |  | (9,408 | ) |  | — |
Inventory | — |  |  | 964,477 |  |  | 469,370 |  |  | — |  |  | 1,433,847 |
Prepaid expenses and other current assets | 20,640 |  |  | 36,553 |  |  | 28,606 |  |  | — |  |  | 85,799 |
Total Current Assets | 37,075 |  |  | 1,250,675 |  |  | 957,331 |  |  | (9,408 | ) |  | 2,235,673 |
Property and Equipment, net | 494 |  |  | 470,791 |  |  | 158,702 |  |  | — |  |  | 629,987 |
Intangible Assets: |  |  |  |  |  |  |  |  |
Goodwill | — |  |  | 1,563,796 |  |  | 725,099 |  |  | — |  |  | 2,288,895 |
Other intangibles, net | — |  |  | 155,819 |  |  | 89,706 |  |  | — |  |  | 245,525 |
Investment in Subsidiaries | 3,216,039 |  |  | 279,967 |  |  | — |  |  | (3,496,006 | ) |  | — |
Intercompany Notes Receivable | 667,949 |  |  | 23,449 |  |  | — |  |  | (691,398 | ) |  | — |
Other Assets | 35,380 |  |  | 24,457 |  |  | 22,960 |  |  | (7,138 | ) |  | 75,659 |
Total Assets | $ | 3,956,937 |  |  | $ | 3,768,954 |  |  | $ | 1,953,798 |  |  | $ | (4,203,950 | ) |  | $ | 5,475,739 |
Liabilities and Stockholders’ Equity |  |  |  |  |  |  |  |  |
Current Liabilities: |  |  |  |  |  |  |  |  |
Accounts payable | $ | 682 |  |  | $ | 182,607 |  |  | $ | 216,913 |  |  | $ | — |  |  | $ | 400,202 |
Intercompany payables, net | — |  |  | 8,048 |  |  | 1,360 |  |  | (9,408 | ) |  | — |
Accrued expenses: |  |  |  |  |  |  |  |  |
Accrued payroll-related liabilities | 8,075 |  |  | 48,850 |  |  | 29,091 |  |  | — |  |  | 86,016 |
Self-Insurance reserves | — |  |  | 36,173 |  |  | 196 |  |  | — |  |  | 36,369 |
Other accrued expenses | 8,061 |  |  | 47,684 |  |  | 72,034 |  |  | — |  |  | 127,779 |
Other current liabilities | 283 |  |  | 16,197 |  |  | 15,720 |  |  | — |  |  | 32,200 |
Current portion of long-term obligations | 53,595 |  |  | 4,599 |  |  | 3,744 |  |  | — |  |  | 61,938 |
Total Current Liabilities | 70,696 |  |  | 344,158 |  |  | 339,058 |  |  | (9,408 | ) |  | 744,504 |
Long-Term Obligations, Excluding Current Portion | 1,133,916 |  |  | 6,561 |  |  | 643,733 |  |  | — |  |  | 1,784,210 |
Intercompany Notes Payable | — |  |  | 649,824 |  |  | 41,574 |  |  | (691,398 | ) |  | — |
Deferred Income Taxes | — |  |  | 93,877 |  |  | 20,199 |  |  | (7,138 | ) |  | 106,938 |
Other Noncurrent Liabilities | 31,668 |  |  | 60,213 |  |  | 27,549 |  |  | — |  |  | 119,430 |
Stockholders’ Equity | 2,720,657 |  |  | 2,614,321 |  |  | 881,685 |  |  | (3,496,006 | ) |  | 2,720,657 |
Total Liabilities and Stockholders’ Equity | $ | 3,956,937 |  |  | $ | 3,768,954 |  |  | $ | 1,953,798 |  |  | $ | (4,203,950 | ) |  | $ | 5,475,739 |

98

LKQ CORPORATION AND SUBSIDIARIES Condensed Consolidating Statements of Income (In thousands)
| Year Ended December 31, 2015
| Parent |  | Guarantors |  | Non-Guarantors |  | Eliminations |  | Consolidated
Revenue | $ | — |  |  | $ | 4,965,355 |  |  | $ | 2,357,655 |  |  | $ | (130,377 | ) |  | $ | 7,192,633 |
Cost of goods sold | — |  |  | 3,010,820 |  |  | 1,478,661 |  |  | (130,377 | ) |  | 4,359,104 |
Gross margin | — |  |  | 1,954,535 |  |  | 878,994 |  |  | — |  |  | 2,833,529 |
Facility and warehouse expenses | — |  |  | 408,828 |  |  | 147,213 |  |  | — |  |  | 556,041 |
Distribution expenses | — |  |  | 408,112 |  |  | 194,785 |  |  | — |  |  | 602,897 |
Selling, general and administrative expenses | 32,946 |  |  | 490,530 |  |  | 304,857 |  |  | — |  |  | 828,333 |
Restructuring and acquisition related expenses | — |  |  | 13,962 |  |  | 5,549 |  |  | — |  |  | 19,511 |
Depreciation and amortization | 154 |  |  | 82,058 |  |  | 39,908 |  |  | — |  |  | 122,120 |
Operating (loss) income | (33,100 | ) |  | 551,045 |  |  | 186,682 |  |  | — |  |  | 704,627 |
Other expense (income): |  |  |  |  |  |  |  |  |
Interest expense | 47,626 |  |  | 669 |  |  | 9,565 |  |  | — |  |  | 57,860 |
Intercompany interest (income) expense, net | (41,904 | ) |  | 28,944 |  |  | 12,960 |  |  | — |  |  | — |
Change in fair value of contingent consideration liabilities | — |  |  | 230 |  |  | 224 |  |  | — |  |  | 454 |
Interest and other expense (income), net | 99 |  |  | (7,644 | ) |  | 4,828 |  |  | — |  |  | (2,717 | )
Total other expense, net | 5,821 |  |  | 22,199 |  |  | 27,577 |  |  | — |  |  | 55,597 |
(Loss) income before (benefit) provision for income taxes | (38,921 | ) |  | 528,846 |  |  | 159,105 |  |  | — |  |  | 649,030 |
(Benefit) provision for income taxes | (16,054 | ) |  | 205,176 |  |  | 30,581 |  |  | — |  |  | 219,703 |
Equity in earnings of unconsolidated subsidiaries | (1,000 | ) |  | 59 |  |  | (5,163 | ) |  | — |  |  | (6,104 | )
Equity in earnings of subsidiaries | 447,090 |  |  | 24,632 |  |  | — |  |  | (471,722 | ) |  | — |
Net income | $ | 423,223 |  |  | $ | 348,361 |  |  | $ | 123,361 |  |  | $ | (471,722 | ) |  | $ | 423,223 |

99

LKQ CORPORATION AND SUBSIDIARIES Condensed Consolidating Statements of Income (In thousands)
| Year Ended December 31, 2014
| Parent |  | Guarantors |  | Non-Guarantors |  | Eliminations |  | Consolidated
Revenue | $ | — |  |  | $ | 4,649,391 |  |  | $ | 2,221,831 |  |  | $ | (131,158 | ) |  | $ | 6,740,064 |
Cost of goods sold | — |  |  | 2,813,427 |  |  | 1,405,882 |  |  | (131,158 | ) |  | 4,088,151 |
Gross margin | — |  |  | 1,835,964 |  |  | 815,949 |  |  | — |  |  | 2,651,913 |
Facility and warehouse expenses | — |  |  | 382,937 |  |  | 143,354 |  |  | — |  |  | 526,291 |
Distribution expenses | — |  |  | 389,430 |  |  | 187,911 |  |  | — |  |  | 577,341 |
Selling, general and administrative expenses | 25,770 |  |  | 460,516 |  |  | 276,602 |  |  | — |  |  | 762,888 |
Restructuring and acquisition related expenses | — |  |  | 8,628 |  |  | 6,178 |  |  | — |  |  | 14,806 |
Depreciation and amortization | 218 |  |  | 81,253 |  |  | 39,248 |  |  | — |  |  | 120,719 |
Operating (loss) income | (25,988 | ) |  | 513,200 |  |  | 162,656 |  |  | — |  |  | 649,868 |
Other expense (income): |  |  |  |  |  |  |  |  |
Interest expense | 50,636 |  |  | 635 |  |  | 13,271 |  |  | — |  |  | 64,542 |
Intercompany interest (income) expense, net | (48,556 | ) |  | 23,865 |  |  | 24,691 |  |  | — |  |  | — |
Loss on debt extinguishment | 324 |  |  | — |  |  | — |  |  | — |  |  | 324 |
Change in fair value of contingent consideration liabilities | — |  |  | (2,081 | ) |  | 230 |  |  | — |  |  | (1,851 | )
Interest and other expense (income), net | 230 |  |  | (6,278 | ) |  | 5,013 |  |  | — |  |  | (1,035 | )
Total other expense, net | 2,634 |  |  | 16,141 |  |  | 43,205 |  |  | — |  |  | 61,980 |
(Loss) income before (benefit) provision for income taxes | (28,622 | ) |  | 497,059 |  |  | 119,451 |  |  | — |  |  | 587,888 |
(Benefit) provision for income taxes | (10,536 | ) |  | 190,456 |  |  | 24,344 |  |  | — |  |  | 204,264 |
Equity in earnings of unconsolidated subsidiaries | — |  |  | 40 |  |  | (2,145 | ) |  | — |  |  | (2,105 | )
Equity in earnings of subsidiaries | 399,605 |  |  | 28,846 |  |  | — |  |  | (428,451 | ) |  | — |
Net income | $ | 381,519 |  |  | $ | 335,489 |  |  | $ | 92,962 |  |  | $ | (428,451 | ) |  | $ | 381,519 |

100

LKQ CORPORATION AND SUBSIDIARIES Condensed Consolidating Statements of Income (In thousands)
| Year Ended December 31, 2013
| Parent |  | Guarantors |  | Non-Guarantors |  | Eliminations |  | Consolidated
Revenue | $ | — |  |  | $ | 3,576,269 |  |  | $ | 1,598,832 |  |  | $ | (112,573 | ) |  | $ | 5,062,528 |
Cost of goods sold | — |  |  | 2,100,804 |  |  | 998,895 |  |  | (112,573 | ) |  | 2,987,126 |
Gross margin | — |  |  | 1,475,465 |  |  | 599,937 |  |  | — |  |  | 2,075,402 |
Facility and warehouse expenses | — |  |  | 323,042 |  |  | 102,039 |  |  | — |  |  | 425,081 |
Distribution expenses | — |  |  | 297,908 |  |  | 134,039 |  |  | — |  |  | 431,947 |
Selling, general and administrative expenses | 26,778 |  |  | 377,481 |  |  | 192,793 |  |  | — |  |  | 597,052 |
Restructuring and acquisition related expenses | — |  |  | 1,406 |  |  | 8,767 |  |  | — |  |  | 10,173 |
Depreciation and amortization | 250 |  |  | 55,802 |  |  | 24,917 |  |  | — |  |  | 80,969 |
Operating (loss) income | (27,028 | ) |  | 419,826 |  |  | 137,382 |  |  | — |  |  | 530,180 |
Other expense (income): |  |  |  |  |  |  |  |  |
Interest expense | 42,442 |  |  | 640 |  |  | 8,102 |  |  | — |  |  | 51,184 |
Intercompany interest (income) expense, net | (45,459 | ) |  | 21,978 |  |  | 23,481 |  |  | — |  |  | — |
Loss on debt extinguishment | 2,795 |  |  | — |  |  | — |  |  | — |  |  | 2,795 |
Change in fair value of contingent consideration liabilities | — |  |  | (744 | ) |  | 3,248 |  |  | — |  |  | 2,504 |
Interest and other expense (income), net | 252 |  |  | (2,858 | ) |  | 476 |  |  | — |  |  | (2,130 | )
Total other expense, net | 30 |  |  | 19,016 |  |  | 35,307 |  |  | — |  |  | 54,353 |
(Loss) income before (benefit) provision for income taxes | (27,058 | ) |  | 400,810 |  |  | 102,075 |  |  | — |  |  | 475,827 |
(Benefit) provision for income taxes | (7,193 | ) |  | 151,369 |  |  | 20,028 |  |  | — |  |  | 164,204 |
Equity in earnings of subsidiaries | 331,488 |  |  | 22,050 |  |  | — |  |  | (353,538 | ) |  | — |
Net income | $ | 311,623 |  |  | $ | 271,491 |  |  | $ | 82,047 |  |  | $ | (353,538 | ) |  | $ | 311,623 |

101

LKQ CORPORATION AND SUBSIDIARIES Condensed Consolidating Statements of Comprehensive Income (In thousands)
| Year Ended December 31, 2015
| Parent |  | Guarantors |  | Non-Guarantors |  | Eliminations |  | Consolidated
Net income | $ | 423,223 |  |  | $ | 348,361 |  |  | $ | 123,361 |  |  | $ | (471,722 | ) |  | $ | 423,223 |
Other comprehensive (loss) income: |  |  |  |  |  |  |  |  |
Foreign currency translation | (69,817 | ) |  | (20,359 | ) |  | (65,878 | ) |  | 86,237 |  |  | (69,817 | )
Net change in unrecognized gains/losses on derivative instruments, net of tax | 2,469 |  |  | — |  |  | 294 |  |  | (294 | ) |  | 2,469 |
Net change in unrealized gains/losses on pension plan, net of tax | 2,103 |  |  | — |  |  | 2,103 |  |  | (2,103 | ) |  | 2,103 |
Total other comprehensive loss | (65,245 | ) |  | (20,359 | ) |  | (63,481 | ) |  | 83,840 |  |  | (65,245 | )
Total comprehensive income | $ | 357,978 |  |  | $ | 328,002 |  |  | $ | 59,880 |  |  | $ | (387,882 | ) |  | $ | 357,978 |

LKQ CORPORATION AND SUBSIDIARIES Condensed Consolidating Statements of Comprehensive Income (In thousands)
| Year Ended December 31, 2014
| Parent |  | Guarantors |  | Non-Guarantors |  | Eliminations |  | Consolidated
Net income | $ | 381,519 |  |  | $ | 335,489 |  |  | $ | 92,962 |  |  | $ | (428,451 | ) |  | $ | 381,519 |
Other comprehensive (loss) income: |  |  |  |  |  |  |  |  |
Foreign currency translation | (51,979 | ) |  | (17,710 | ) |  | (49,559 | ) |  | 67,269 |  |  | (51,979 | )
Net change in unrecognized gains/losses on derivative instruments, net of tax | 2,195 |  |  | — |  |  | (444 | ) |  | 444 |  |  | 2,195 |
Net change in unrealized gains/losses on pension plan, net of tax | (10,452 | ) |  | — |  |  | (10,452 | ) |  | 10,452 |  |  | (10,452 | )
Total other comprehensive loss | (60,236 | ) |  | (17,710 | ) |  | (60,455 | ) |  | 78,165 |  |  | (60,236 | )
Total comprehensive income | $ | 321,283 |  |  | $ | 317,779 |  |  | $ | 32,507 |  |  | $ | (350,286 | ) |  | $ | 321,283 |

LKQ CORPORATION AND SUBSIDIARIES Condensed Consolidating Statements of Comprehensive Income (In thousands)
| Year Ended December 31, 2013
| Parent |  | Guarantors |  | Non-Guarantors |  | Eliminations |  | Consolidated
Net income | $ | 311,623 |  |  | $ | 271,491 |  |  | $ | 82,047 |  |  | $ | (353,538 | ) |  | $ | 311,623 |
Other comprehensive income: |  |  |  |  |  |  |  |  |
Foreign currency translation | 14,056 |  |  | 7,168 |  |  | 15,495 |  |  | (22,663 | ) |  | 14,056 |
Net change in unrecognized gains/losses on derivative instruments, net of tax | 4,495 |  |  | — |  |  | 1,322 |  |  | (1,322 | ) |  | 4,495 |
Net change in unrealized gain on pension plan, net of tax | 701 |  |  | — |  |  | 701 |  |  | (701 | ) |  | 701 |
Total other comprehensive income | 19,252 |  |  | 7,168 |  |  | 17,518 |  |  | (24,686 | ) |  | 19,252 |
Total comprehensive income | $ | 330,875 |  |  | $ | 278,659 |  |  | $ | 99,565 |  |  | $ | (378,224 | ) |  | $ | 330,875 |

102

LKQ CORPORATION AND SUBSIDIARIES Condensed Consolidating Statements of Cash Flows (In thousands)
| Year Ended December 31, 2015
| Parent |  | Guarantors |  | Non-Guarantors |  | Eliminations |  | Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES: |  |  |  |  |  |  |  |  |
Net cash provided by operating activities | $ | 248,367 |  |  | $ | 393,422 |  |  | $ | 136,361 |  |  | $ | (248,313 | ) |  | $ | 529,837 |
CASH FLOWS FROM INVESTING ACTIVITIES: |  |  |  |  |  |  |  |  |
Purchases of property and equipment | (1 | ) |  | (85,868 | ) |  | (84,621 | ) |  | — |  |  | (170,490 | )
Investment and intercompany note activity with subsidiaries | (66,712 | ) |  | — |  |  | — |  |  | 66,712 |  |  | — |
Acquisitions, net of cash acquired | — |  |  | (118,963 | ) |  | (41,554 | ) |  | — |  |  | (160,517 | )
Other investing activities, net | — |  |  | 5,446 |  |  | (4,432 | ) |  | — |  |  | 1,014 |
Net cash used in investing activities | (66,713 | ) |  | (199,385 | ) |  | (130,607 | ) |  | 66,712 |  |  | (329,993 | )
CASH FLOWS FROM FINANCING ACTIVITIES: |  |  |  |  |  |  |  |  |
Proceeds from exercise of stock options | 8,168 |  |  | — |  |  | — |  |  | — |  |  | 8,168 |
Excess tax benefit from stock-based payments | 14,445 |  |  | — |  |  | — |  |  | — |  |  | 14,445 |
Taxes paid related to net share settlements of stock-based compensation awards | (7,581 | ) |  | — |  |  | — |  |  | — |  |  | (7,581 | )
Debt issuance costs | — |  |  | — |  |  | (97 | ) |  | — |  |  | (97 | )
Borrowings under revolving credit facilities | 212,000 |  |  | — |  |  | 101,142 |  |  | — |  |  | 313,142 |
Repayments under revolving credit facilities | (352,000 | ) |  | — |  |  | (93,282 | ) |  | — |  |  | (445,282 | )
Repayments under term loans | (22,500 | ) |  | — |  |  | — |  |  | — |  |  | (22,500 | )
Borrowings under receivables securitization facility | — |  |  | — |  |  | 3,858 |  |  | — |  |  | 3,858 |
Repayments under receivables securitization facility | — |  |  | — |  |  | (35,758 | ) |  | — |  |  | (35,758 | )
(Repayments) borrowings of other debt, net | (31,500 | ) |  | (3,457 | ) |  | 5,261 |  |  | — |  |  | (29,696 | )
Payments of other obligations | — |  |  | (21,896 | ) |  | (895 | ) |  | — |  |  | (22,791 | )
Investment and intercompany note activity with parent | — |  |  | 60,910 |  |  | 5,802 |  |  | (66,712 | ) |  | — |
Dividends | — |  |  | (248,313 | ) |  | — |  |  | 248,313 |  |  | — |
Net cash used in financing activities | (178,968 | ) |  | (212,756 | ) |  | (13,969 | ) |  | 181,601 |  |  | (224,092 | )
Effect of exchange rate changes on cash and equivalents | — |  |  | 48 |  |  | (3,008 | ) |  | — |  |  | (2,960 | )
Net increase (decrease) in cash and equivalents | 2,686 |  |  | (18,671 | ) |  | (11,223 | ) |  | — |  |  | (27,208 | )
Cash and equivalents, beginning of period | 14,930 |  |  | 32,103 |  |  | 67,572 |  |  | — |  |  | 114,605 |
Cash and equivalents, end of period | $ | 17,616 |  |  | $ | 13,432 |  |  | $ | 56,349 |  |  | $ | — |  |  | $ | 87,397 |

103

LKQ CORPORATION AND SUBSIDIARIES Condensed Consolidating Statements of Cash Flows (In thousands)
| Year Ended December 31, 2014
| Parent |  | Guarantors |  | Non-Guarantors |  | Eliminations |  | Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES: |  |  |  |  |  |  |  |  |
Net cash provided by (used in) operating activities | $ | 271,221 |  |  | $ | 427,249 |  |  | $ | (53,348 | ) |  | $ | (274,225 | ) |  | $ | 370,897 |
CASH FLOWS FROM INVESTING ACTIVITIES: |  |  |  |  |  |  |  |  |
Purchases of property and equipment | (44 | ) |  | (85,182 | ) |  | (55,724 | ) |  | — |  |  | (140,950 | )
Investment and intercompany note activity with subsidiaries | (477,007 | ) |  | (608 | ) |  | — |  |  | 477,615 |  |  | — |
Acquisitions, net of cash acquired | — |  |  | (635,171 | ) |  | (140,750 | ) |  | — |  |  | (775,921 | )
Other investing activities, net | — |  |  | 768 |  |  | (4,891 | ) |  | — |  |  | (4,123 | )
Net cash used in investing activities | (477,051 | ) |  | (720,193 | ) |  | (201,365 | ) |  | 477,615 |  |  | (920,994 | )
CASH FLOWS FROM FINANCING ACTIVITIES: |  |  |  |  |  |  |  |  |
Proceeds from exercise of stock options | 9,324 |  |  | — |  |  | — |  |  | — |  |  | 9,324 |
Excess tax benefit from stock-based payments | 17,814 |  |  | — |  |  | — |  |  | — |  |  | 17,814 |
Taxes paid related to net share settlements of stock-based compensation awards | (443 | ) |  | — |  |  | — |  |  | — |  |  | (443 | )
Debt issuance costs | (3,675 | ) |  | — |  |  | (75 | ) |  | — |  |  | (3,750 | )
Borrowings under revolving credit facilities | 867,000 |  |  | — |  |  | 720,644 |  |  | — |  |  | 1,587,644 |
Repayments under revolving credit facilities | (727,000 | ) |  | — |  |  | (371,518 | ) |  | — |  |  | (1,098,518 | )
Borrowings under term loans | 11,250 |  |  | — |  |  | — |  |  | — |  |  | 11,250 |
Repayments under term loans | (16,875 | ) |  | — |  |  | — |  |  | — |  |  | (16,875 | )
Borrowings under receivables securitization facility | — |  |  | — |  |  | 95,050 |  |  | — |  |  | 95,050 |
Repayments under receivables securitization facility | — |  |  | — |  |  | (150 | ) |  | — |  |  | (150 | )
Repayments of other debt, net | (1,921 | ) |  | (2,310 | ) |  | (35,820 | ) |  | — |  |  | (40,051 | )
Payments of other obligations | — |  |  | (464 | ) |  | (41,528 | ) |  | — |  |  | (41,992 | )
Other financing activities, net | (12,640 | ) |  | 12,340 |  |  | — |  |  | — |  |  | (300 | )
Investment and intercompany note activity with parent | — |  |  | 576,384 |  |  | (98,769 | ) |  | (477,615 | ) |  | — |
Dividends | — |  |  | (274,225 | ) |  | — |  |  | 274,225 |  |  | — |
Net cash provided by financing activities | 142,834 |  |  | 311,725 |  |  | 267,834 |  |  | (203,390 | ) |  | 519,003 |
Effect of exchange rate changes on cash and equivalents | — |  |  | (371 | ) |  | (4,418 | ) |  | — |  |  | (4,789 | )
Net (decrease) increase in cash and equivalents | (62,996 | ) |  | 18,410 |  |  | 8,703 |  |  | — |  |  | (35,883 | )
Cash and equivalents, beginning of period | 77,926 |  |  | 13,693 |  |  | 58,869 |  |  | — |  |  | 150,488 |
Cash and equivalents, end of period | $ | 14,930 |  |  | $ | 32,103 |  |  | $ | 67,572 |  |  | $ | — |  |  | $ | 114,605 |

104

LKQ CORPORATION AND SUBSIDIARIES Condensed Consolidating Statements of Cash Flows (In thousands)
| Year Ended December 31, 2013
| Parent |  | Guarantors |  | Non-Guarantors |  | Eliminations |  | Consolidated
CASH FLOWS FROM OPERATING ACTIVITIES: |  |  |  |  |  |  |  |  |
Net cash provided by operating activities | $ | 160,620 |  |  | $ | 260,567 |  |  | $ | 126,681 |  |  | $ | (119,812 | ) |  | $ | 428,056 |
CASH FLOWS FROM INVESTING ACTIVITIES: |  |  |  |  |  |  |  |  |
Purchases of property and equipment | — |  |  | (57,219 | ) |  | (32,967 | ) |  | — |  |  | (90,186 | )
Investment and intercompany note activity with subsidiaries | (434,172 | ) |  | (84,894 | ) |  | — |  |  | 519,066 |  |  | — |
Acquisitions, net of cash acquired | — |  |  | (33,436 | ) |  | (374,948 | ) |  | — |  |  | (408,384 | )
Other investing activities, net | — |  |  | 1,191 |  |  | (8,227 | ) |  | — |  |  | (7,036 | )
Net cash used in investing activities | (434,172 | ) |  | (174,358 | ) |  | (416,142 | ) |  | 519,066 |  |  | (505,606 | )
CASH FLOWS FROM FINANCING ACTIVITIES: |  |  |  |  |  |  |  |  |
Proceeds from exercise of stock options | 15,392 |  |  | — |  |  | — |  |  | — |  |  | 15,392 |
Excess tax benefit from stock-based payments | 18,348 |  |  | — |  |  | — |  |  | — |  |  | 18,348 |
Debt issuance costs | (16,858 | ) |  | — |  |  | (82 | ) |  | — |  |  | (16,940 | )
Proceeds from issuance of senior notes | 600,000 |  |  | — |  |  | — |  |  | — |  |  | 600,000 |
Borrowings under revolving credit facilities | 315,000 |  |  | — |  |  | 122,023 |  |  | — |  |  | 437,023 |
Repayments under revolving credit facilities | (616,000 | ) |  | — |  |  | (132,086 | ) |  | — |  |  | (748,086 | )
Borrowings under term loans | 35,000 |  |  | — |  |  | — |  |  | — |  |  | 35,000 |
Repayments under term loans | (16,875 | ) |  | — |  |  | — |  |  | — |  |  | (16,875 | )
Borrowings under receivables securitization facility | — |  |  | — |  |  | 41,500 |  |  | — |  |  | 41,500 |
Repayments under receivables securitization facility | — |  |  | — |  |  | (121,500 | ) |  | — |  |  | (121,500 | )
Repayments of other debt, net | (925 | ) |  | (8,930 | ) |  | (35,207 | ) |  | — |  |  | (45,062 | )
Payments of other obligations | — |  |  | (473 | ) |  | (32,386 | ) |  | — |  |  | (32,859 | )
Investment and intercompany note activity with parent | — |  |  | 38,446 |  |  | 480,620 |  |  | (519,066 | ) |  | — |
Dividends | — |  |  | (119,812 | ) |  | — |  |  | 119,812 |  |  | — |
Net cash provided by (used in) financing activities | 333,082 |  |  | (90,769 | ) |  | 322,882 |  |  | (399,254 | ) |  | 165,941 |
Effect of exchange rate changes on cash and equivalents | — |  |  | — |  |  | 2,327 |  |  | — |  |  | 2,327 |
Net increase (decrease) in cash and equivalents | 59,530 |  |  | (4,560 | ) |  | 35,748 |  |  | — |  |  | 90,718 |
Cash and equivalents, beginning of period | 18,396 |  |  | 18,253 |  |  | 23,121 |  |  | — |  |  | 59,770 |
Cash and equivalents, end of period | $ | 77,926 |  |  | $ | 13,693 |  |  | $ | 58,869 |  |  | $ | — |  |  | $ | 150,488 |

105

ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
As of December 31, 2015, the end of the period covered by this report, 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 to ensure that information required to be disclosed in the reports we file with the Securities and Exchange Commission ("SEC") is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that information required to be disclosed is accumulated and communicated to the Company’s management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Report of Management on Internal Control over Financial Reporting dated February 25, 2016
Management of LKQ Corporation and subsidiaries (the "Company") is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Securities Exchange Act of 1934. The Company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the Company, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company's assets that could have a material effect on the Company's financial statements.
Internal control over financial reporting includes the controls themselves, monitoring and internal auditing practices, and actions taken to correct deficiencies as identified. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of the Company's internal control over financial reporting as of December 31, 2015. Management based this assessment on criteria for effective internal control over financial reporting described in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Management's assessment included an evaluation of the design of the Company's internal control over financial reporting and testing of the operational effectiveness of its internal control over financial reporting. Management reviewed the results of its assessment with the Audit Committee of the Company's Board of Directors.
Based on this assessment, management determined that, as of December 31, 2015, the Company maintained effective internal control over financial reporting. Deloitte & Touche LLP, independent registered public accounting firm, who audited and reported on the consolidated financial statements of the Company included in this report, has issued an attestation report on the effectiveness of our internal control over financial reporting as of December 31, 2015.
Changes in Internal Control over Financial Reporting
There was no change in the Company’s internal control over financial reporting that occurred during the Company’s most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.
106

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of LKQ Corporation:
We have audited the internal control over financial reporting of LKQ Corporation and subsidiaries (the "Company") as of December 31, 2015, based on criteria established in Internal Control-Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting dated February 25, 2016. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company's internal control over financial reporting is a process designed by, or under the supervision of, the company's principal executive and principal financial officers, or persons performing similar functions, and effected by the company's board of directors, management, and other personnel 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. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.
Because of the inherent limitations of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2015, based on the criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated financial statements and financial statement schedule as of and for the year ended December 31, 2015 of the Company and our report dated February 25, 2016 expressed an unqualified opinion on those financial statements and financial statement schedule.

/s/ DELOITTE & TOUCHE LLP

Chicago, Illinois
February 25, 2016
107

ITEM 9B. OTHER INFORMATION
None.
108

PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Directors
The information appearing under the caption "Election of our Board of Directors" in our Proxy Statement for the Annual Meeting of Stockholders to be held May 2, 2016 (the "Proxy Statement") is incorporated herein by reference.
Executive Officers
Our executive officers, their ages at December 31, 2015, and their positions with us are set forth below. Our executive officers are elected by and serve at the discretion of our Board of Directors.

Name |  | Age |  | Position
Robert L. Wagman |  | 51 |  | President, Chief Executive Officer and Director
John S. Quinn |  | 57 |  | Chief Executive Officer and Managing Director, LKQ Europe
Dominick Zarcone |  | 57 |  | Executive Vice President and Chief Financial Officer
Victor M. Casini |  | 53 |  | Senior Vice President, General Counsel and Corporate Secretary
Walter P. Hanley |  | 49 |  | Senior Vice President - Development
Steven Greenspan |  | 54 |  | Senior Vice President - Recycled & Refurbished Products
Justin L. Jude |  | 39 |  | Senior Vice President of Operations - Wholesale Parts Division
Michael S. Clark |  | 41 |  | Vice President - Finance and Controller
Robert A. Alberico |  | 66 |  | Senior Vice President - Human Resources

Robert L. Wagman became our President and Chief Executive Officer in January 2012. He was elected to our Board of Directors in November 2011. Mr. Wagman was our President and Co-Chief Executive Officer from January 1, 2011 to January 1, 2012. Prior thereto, he had been our Senior Vice President of Operations—Wholesale Parts Division, with oversight of our wholesale late model operations, since August 2009. Prior thereto, from October 1998, Mr. Wagman managed our insurance company relationships, and from February 2004, added to his responsibilities the oversight of our aftermarket product operations. He was elected our Vice President of Insurance Services and Aftermarket Operations in August 2005. Before joining us, Mr. Wagman served from April 1995 to October 1998 as the Outside Sales Manager of Triplett Auto Parts, Inc., a recycled auto parts company that we acquired in July 1998. He started in our industry in 1987 as an Account Executive for Copart Auto Auctions, a processor and seller of salvage vehicles through auctions.
John S. Quinn became our Chief Executive Officer and Managing Director, LKQ Europe in February 2015. Prior to that he was our Executive Vice President and Chief Financial Officer from November 2009. Prior to joining our Company, he was the Senior Vice President, Chief Financial Officer and Treasurer of Casella Waste Systems, Inc., a company in the solid waste management services industry, from January 2009. From January 2001 to January 2009 he held various positions of increasing responsibility with Allied Waste Industries, Inc., a company also in the solid waste management services industry, including Senior Vice President of Finance from January 2005 to January 2009, Controller and Chief Accounting Officer from November 2006 to September 2007 and Vice President Financial Analysis and Planning from January 2003 to January 2005. From August 1987 to January 2001, he held various positions with Waste Management Inc.'s foreign subsidiaries, and Waste Management International, plc. in Canada and the United Kingdom. Prior to working for Waste Management, he worked for Ford Glass Ltd., a subsidiary of Ford Motor Company.
Dominick Zarcone became our Executive Vice President and Chief Financial Officer in March 2015. Prior to joining our company, he was the Managing Director and the Chief Financial Officer of Baird Financial Group, a capital markets and wealth management company, and certain of its affiliates from April 2011 to March 2015. He also served from April 2011 to March 2015 as Treasurer of Baird Funds, Inc., a family of fixed income and equity mutual funds managed by Robert W. Baird & Co. Incorporated, a registered broker/dealer. From February 1995 to April 2011, Mr. Zarcone was a Managing Director of the Investment Banking department of Robert W. Baird & Co. Incorporated. From February 1986 to February 1995, he was with the investment banking company Kidder, Peabody & Co., Incorporated, most recently as Senior Vice President of Investment Banking.
Victor M. Casini has been our Vice President, General Counsel and Corporate Secretary from our inception in February 1998. In March 2008, he was elected Senior Vice President. Mr. Casini was a member of our Board of Directors from May 2010 until May 2012. From July 1992 to December 2011, Mr. Casini was the Executive Vice President and General Counsel of Flynn Enterprises, Inc., a venture capital, hedging and consulting firm. Mr. Casini served as Senior Vice President, General Counsel and Corporate Secretary of Discovery Zone, Inc., an operator and franchiser of family entertainment centers, from July 1992
109

until May 1995. Prior to July 1992, Mr. Casini practiced corporate and securities law with the law firm of Bell, Boyd & Lloyd LLP (now known as K&L Gates LLP) in Chicago, Illinois for more than five years.
Walter P. Hanley joined us in December 2002 as our Vice President of Development, Associate General Counsel and Assistant Secretary. In December 2005, he became our Senior Vice President of Development. Mr. Hanley served as Senior Vice President, General Counsel and Secretary of Emerald Casino, Inc., an owner of a license to operate a riverboat casino in the State of Illinois, from June 1999 until August 2002. Mr. Hanley served as Senior Vice President, General Counsel and Secretary of Blue Chip Casino, Inc., an owner and operator of a riverboat gaming vessel in Michigan City, Indiana, from July 1996 until November 1999. Mr. Hanley served as Vice President and Associate General Counsel of Flynn Enterprises, Inc. from May 1995 until February 1998 and as Associate General Counsel of Discovery Zone, Inc. from March 1993 until May 1995. Prior to March 1993, Mr. Hanley practiced corporate and securities law with the law firm of Bell, Boyd & Lloyd LLP (now known as K&L Gates LLP) in Chicago, Illinois.
Steven Greenspan became our Senior Vice President - Recycled & Refurbished Products in July 2015. Prior to that Mr. Greenspan had been serving as our Senior Vice President of Operations - Wholesale Parts Division from January 2012. Mr. Greenspan has been in the recycled automotive parts industry for approximately 30 years. He served as our Regional Vice President—Mid-Atlantic Region from January 2003 to December 2011. He was the Manager of our Atlanta facility from May 1998 until December 2002. Prior thereto, he was the Manager of a company that we acquired in 1998.
Justin L. Jude became our Senior Vice President of Operations - Wholesale Parts Division in July 2015. Mr. Jude has been with us since February 2004 in various roles, including from March 2008 to February 2011 as Vice President - Supply Chain, from February 2011 to May 2014 as Vice President - Information Systems (North America), and from June 2014 to July 2015 as President of Keystone Automotive Operations, Inc., our specialty automotive business. Mr. Jude has been in the Company’s industry for over 18 years.
Michael S. Clark has been our Vice President—Finance and Controller since February 2011. Prior thereto, he served as our Assistant Controller since May 2008. Prior to joining our Company, he was the SEC Reporting Manager of FMC Technologies, Inc., a global provider of technology solutions for the energy industry, from December 2004 to May 2008. Before joining FMC Technologies, Mr. Clark, a certified public accountant, worked in public accounting for more than eight years, leaving as a Senior Manager in the audit practice of Deloitte & Touche.
Robert A. Alberico joined us in January 2014 as our Senior Vice President of Human Resources. Mr. Alberico has had over 35 years of experience in the Human Resources field. He was the Vice President of Human Resources at Morton Salt, a producer of salt and other consumer products, from January 2008 to December 2013; the Vice President of Human Resources at Allied Waste Industries, a waste services company, from 2004 to 2007; held positions as both Vice President and Director, Human Resources, for TRW Automotive, a manufacturer of automotive safety products, and certain of its business units from 1988 to 2003; and held various human resources positions from 1975 to 1988 at the Admiral Products Division of Rockwell International, which manufactures consumer electronics, and the Graphic Systems Division at Rockwell International, which manufactures press equipment.
Code of Ethics
A copy of our Code of Ethics for Financial Officers is available free of charge through our website at www.lkqcorp.com.
Section 16 Compliance
Information appearing under the caption "Other Information—Section 16(a) Beneficial Ownership Reporting Compliance" in the Proxy Statement is incorporated herein by reference.
Audit Committee
Information appearing under the caption "Corporate Governance—Committees of the Board—Audit Committee" in the Proxy Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information appearing under the captions "Director Compensation—Director Compensation Table," "Executive Compensation—Compensation Discussion and Analysis," "Corporate Governance—Compensation Committee Interlocks and Insider Participation" and "Executive Compensation—Compensation Tables" in the Proxy Statement is incorporated herein by reference.
110

ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information appearing under the caption "Other Information—Principal Stockholders" in the Proxy Statement is incorporated herein by reference.
The following table provides information about our common stock that may be issued under our equity compensation plans as of December 31, 2015.
Equity Compensation Plan Information

Plan Category |  | Number of securities to be issued upon exercise of outstanding options, warrants, and rights (a) |  | Weighted-average exercise price of outstanding options, warrants, and rights (b) |  | Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c)
Equity compensation plans approved by stockholders |  |  |  |  |  |
Stock options |  | 3,765,952 |  |  | $ | 8.63 |  |  |
Restricted stock units |  | 1,981,292 |  |  | $ | — |  |  |
Total equity compensation plans approved by stockholders |  | 5,747,244 |  |  |  |  | 12,526,373 |
Equity compensation plans not approved by stockholders |  | — |  |  | $ | — |  |  | — |
Total |  | 5,747,244 |  |  |  |  | 12,526,373 |

See Note 3, "Equity Incentive Plans," to the consolidated financial statements in Part II, Item 8 of this Annual Report on Form 10-K for further information related to the equity incentive plans listed above.

ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information appearing under the caption "Other Information—Certain Transactions," "Election of our Board of Directors" and "Corporate Governance - Director Independence" in the Proxy Statement is incorporated herein by reference.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Information appearing under the caption "Appointment of Our Independent Registered Public Accounting Firm—Audit Fees and Non-Audit Fees" and "Appointment of Our Independent Registered Public Accounting Firm—Policy on Audit Committee Approval of Audit and Non-Audit Services" in the Proxy Statement is incorporated herein by reference.
111

PART IV
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a)(1) Financial Statements
Reference is made to the information set forth in Part II, Item 8 of this Annual Report on Form 10-K, which information is incorporated herein by reference.
(a)(2) Financial Statement Schedules
Other than as set forth below, all schedules for which provision is made in the applicable accounting regulations of the SEC have been omitted because they are not required under the related instructions, are not applicable, or the information has been provided in the consolidated financial statements or the notes thereto.
Schedule II—Valuation and Qualifying Accounts and Reserves

Descriptions |  | Balance at Beginning of Period |  | Additions Charged to Costs and Expenses |  | Deductions |  | Acquisitions and Other |  | Balance at End of Period
ALLOWANCE FOR DOUBTFUL ACCOUNTS: |  |  |  |  |  |  |  |  |  |
Year ended December 31, 2013 |  | $ | 9,470 |  |  | $ | 7,148 |  |  | $ | (5,891 | ) |  | $ | 3,633 |  |  | $ | 14,360 |
Year ended December 31, 2014 |  | 14,360 |  |  | 9,814 |  |  | (9,184 | ) |  | 4,436 |  |  | 19,426 |
Year ended December 31, 2015 |  | 19,426 |  |  | 13,654 |  |  | (9,486 | ) |  | 989 |  |  | 24,583 |
ALLOWANCE FOR ESTIMATED RETURNS, DISCOUNTS & ALLOWANCES: |  |  |  |  |  |  |  |  |  |
Year ended December 31, 2013 |  | $ | 24,692 |  |  | $ | 797,380 |  |  | $ | (796,261 | ) |  | $ | 825 |  |  | $ | 26,636 |
Year ended December 31, 2014 |  | 26,636 |  |  | 955,615 |  |  | (961,658 | ) |  | 10,695 |  |  | 31,288 |
Year ended December 31, 2015 |  | 31,288 |  |  | 1,049,987 |  |  | (1,051,439 | ) |  | 2,938 |  |  | 32,774 |

112

(a)(3) Exhibits
The exhibits to this Annual Report on Form 10-K are listed in Item 15(b) of this Annual Report on Form 10-K. Included in the exhibits listed therein are the following exhibits which constitute management contracts or compensatory plans or arrangements:

10.1 | LKQ Corporation 401(k) Plus Plan dated August 1, 1999.
10.2 | Amendment to LKQ Corporation 401(k) Plus Plan.
10.3 | Trust for LKQ Corporation 401(k) Plus Plan.
10.4 | LKQ Corporation 401(k) Plus Plan II, as amended and restated effective as of January 1, 2011.
10.5 | LKQ Corporation 1998 Equity Incentive Plan, as amended.
10.6 | Form of LKQ Corporation Award Agreement for options granted under the 1998 Equity Incentive Plan.
10.7 | Form of LKQ Corporation Restricted Stock Unit Agreement for Non-Employee Directors.
10.8 | Form of LKQ Corporation Restricted Stock Unit Agreement.
10.9 | Form of LKQ Corporation Performance-Based Restricted Stock Unit Agreement.
10.10 | LKQ Corporation Amended and Restated Stock Option and Compensation Plan for Non-Employee Directors, as amended.
10.11 | Form of Indemnification Agreement between directors and officers of LKQ Corporation and LKQ Corporation.
10.12 | LKQ Corporation Management Incentive Plan.
10.13 | Form of LKQ Corporation Executive Officer Management Incentive Plan Award Memorandum.
10.14 | Amended and Restated LKQ Corporation Long Term Incentive Plan.
10.15 | Form of LKQ Corporation Executive Officer Long Term Incentive Plan Award Memorandum.
10.16 | Consulting Agreement, as amended and restated, dated as of May 21, 2009 between LKQ Corporation and Joseph M. Holsten.
10.17 | Amendment Agreement dated as of January 31, 2011 to the Consulting Agreement between LKQ Corporation and Joseph M. Holsten dated as of May 21, 2009.
10.24 | Change of Control Agreement between LKQ Corporation and Robert L. Wagman dated as of July 24, 2014.
10.25 | Change of Control Agreement between LKQ Corporation and John S. Quinn dated as of July 24, 2014.
10.26 | Change of Control Agreement between LKQ Corporation and Walter P. Hanley dated as of July 24, 2014.
10.27 | Change of Control Agreement between LKQ Corporation and Victor M. Casini dated as of July 24, 2014.
10.28 | Change of Control Agreement between LKQ Corporation and Steven Greenspan dated as of July 24, 2014.
10.29 | Change of Control Agreement between LKQ Corporation and Robert A. Alberico dated as of July 24, 2014.
10.30 | Change of Control Agreement between LKQ Corporation and Michael S. Clark dated as of July 24, 2014.
10.31 | Change of Control Agreement between LKQ Corporation and Dominick P. Zarcone dated as of March 30, 2015.
10.32 | Change of Control Agreement between LKQ Corporation and Justin L. Jude dated as of May 13, 2015.
10.33 | LKQ Severance Policy for Key Executives.
10.39 | Service Agreement between Euro Car Parts Limited and Sukhpal Singh Ahluwalia dated as of November 7, 2014.
10.40 | Deed of Variation dated November 17, 2015 amending the Service Agreement dated November 7, 2014 between Euro Car Parts Limited and Sukhpal Singh Ahluwalia.
10.41 | Services Agreement dated as of February 26, 2015 between LKQ Corporation and Robert L. Wagman.
10.42 | Offer Letter to John S. Quinn dated February 12, 2015, as amended.
10.43 | Services Agreement dated as of February 26, 2015 between LKQ Corporation and John S. Quinn.
10.44 | Offer Letter to Dominick P. Zarcone dated February 12, 2015.

(b) Exhibits

3.1 | Restated Certificate of Incorporation of LKQ Corporation (incorporated herein by reference to Exhibit 3.1 to the Company’s report on Form 10-Q filed with the SEC on October 31, 2014).
3.2 | Amended and Restated Bylaws of LKQ Corporation (incorporated herein by reference to Exhibit 3.1 to the Company’s report on Form 8-K filed with the SEC on August 8, 2014).
4.1 | Specimen of common stock certificate (incorporated herein by reference to Exhibit 4.1 to the Company’s Registration Statement on Form S-1/A, Registration No. 333-107417 filed with the SEC on September 12, 2003).

113

4.2 | Amendment and Restatement Agreement dated as of January 29, 2016 by and among LKQ Corporation, LKQ Delaware LLP, and certain additional subsidiaries of LKQ Corporation, as borrowers, certain financial institutions, as lenders, and Wells Fargo Bank, National Association, as administrative agent (incorporated herein by reference to Exhibit 4.1 to the Company's report on Form 8-K filed with the SEC on February 2, 2016).
4.3 | Indenture dated as of May 9, 2013 among LKQ Corporation, as Issuer, the Guarantors, and U.S. Bank National Association, as Trustee (incorporated herein by reference to Exhibit 4.1 to the Company's report on Form 8-K filed with the SEC on May 10, 2013).
4.4 | Supplemental Indenture dated as of May 8, 2014 among LKQ Corporation, as Issuer, the Guarantors, and U.S. Bank National Association, as Trustee (incorporated herein by reference to Exhibit 4.1 to the Company’s report on Form 10-Q filed with the SEC on August 1, 2014).
10.1 | LKQ Corporation 401(k) Plus Plan dated August 1, 1999 (incorporated herein by reference to Exhibit 10.23 to the Company’s Registration Statement on Form S-1, Registration No. 333-107417 filed with the SEC on July 28, 2003).
10.2 | Amendment to LKQ Corporation 401(k) Plus Plan (incorporated herein by reference to Exhibit 10.24 to the Company’s Registration Statement on Form S-1, Registration No. 333-107417 filed with the SEC on July 28, 2003).
10.3 | Trust for LKQ Corporation 401(k) Plus Plan (incorporated herein by reference to Exhibit 10.25 to the Company’s Registration Statement on Form S-1, Registration No. 333-107417 filed with the SEC on July 28, 2003).
10.4 | LKQ Corporation 401(k) Plus Plan II, as amended and restated effective as of January 1, 2011 (incorporated herein by reference to Exhibit 10.8 to the Company’s report on Form 10-K for the year ended December 31, 2010).
10.5 | LKQ Corporation 1998 Equity Incentive Plan, as amended.
10.6 | Form of LKQ Corporation Award Agreement for options granted under the 1998 Equity Incentive Plan (incorporated herein by reference to Exhibit 99.1 to the Company’s report on Form 8-K filed with the SEC on January 11, 2005).
10.7 | Form of LKQ Corporation Restricted Stock Unit Agreement for Non-Employee Directors (incorporated herein by reference to Exhibit 10.4 to the Company’s report on Form 10-Q filed with the SEC on August 2, 2013).
10.8 | Form of LKQ Corporation Restricted Stock Unit Agreement.
10.9 | Form of LKQ Corporation Performance-Based Restricted Stock Unit Agreement.
10.10 | LKQ Corporation Amended and Restated Stock Option and Compensation Plan for Non-Employee Directors, as amended (incorporated herein by reference to Exhibit 10.5 to the Company’s report on Form 10-Q filed with the SEC on November 7, 2008).
10.11 | Form of Indemnification Agreement between directors and officers of LKQ Corporation and LKQ Corporation (incorporated herein by reference to Exhibit 10.30 to the Company’s Registration Statement on Form S-1, Registration No. 333-107417 filed with the SEC on July 28, 2003).
10.12 | LKQ Corporation Management Incentive Plan (incorporated herein by reference to Exhibit 10.5 to the Company’s report on Form 10-K filed with the SEC on March 2, 2015).
10.13 | Form of LKQ Corporation Executive Officer Management Incentive Plan Award Memorandum (incorporated herein by reference to Exhibit 10.1 to the Company’s report on Form 10-Q filed with the SEC on May 1, 2015).
10.14 | Amended and Restated LKQ Corporation Long Term Incentive Plan (incorporated herein by reference to Exhibit 10.1 to the Company’s report on Form 8-K filed with the SEC on November 7, 2014).
10.15 | Form of LKQ Corporation Executive Officer Long Term Incentive Plan Award Memorandum (incorporated herein by reference to Exhibit 10.2 to the Company’s report on Form 10-Q filed with the SEC on May 1, 2015).
10.16 | Consulting Agreement, as amended and restated, dated as of May 21, 2009 between LKQ Corporation and Joseph M. Holsten (incorporated herein by reference to Exhibit 10.2 to the Company’s report on Form 8-K filed with the SEC on May 21, 2009).
10.17 | Amendment Agreement dated as of January 31, 2011 to the Consulting Agreement between LKQ Corporation and Joseph M. Holsten dated as of May 21, 2009 (incorporated herein by reference to Exhibit 10.1 to the Company’s report on Form 8-K filed with the SEC on February 2, 2011).
10.18 | ISDA 2002 Master Agreement between Bank of America, N.A. and LKQ Corporation, and related Schedule (incorporated by reference to Exhibit 10.23 to the Company’s report on Form 10-K filed with the SEC on March 3, 2014).

114

10.19 | ISDA 2002 Master Agreement between Citizens Bank of Pennsylvania and LKQ Corporation, and related Schedule (incorporated by reference to Exhibit 10.24 to the Company’s report on Form 10-K filed with the SEC on March 3, 2014).
10.20 | ISDA 2002 Master Agreement between RBS Citizens, N.A. and LKQ Corporation, and related Schedule (incorporated by reference to Exhibit 10.25 to the Company’s report on Form 10-K filed with the SEC on March 3, 2014).
10.21 | ISDA 2002 Master Agreement between Fifth Third Bank and LKQ Corporation, and related Schedule (incorporated by reference to Exhibit 10.26 to the Company’s report on Form 10-K filed with the SEC on March 3, 2014).
10.22 | ISDA Master Agreement between Wells Fargo Bank, National Association and LKQ Corporation, and related Schedule (incorporated by reference to Exhibit 10.3 to the Company’s report on Form 10-Q filed with the SEC on August 2, 2013).
10.23 | ISDA 2002 Master Agreement between HSBC Bank USA, National Association and LKQ Corporation, and related Schedule.
10.24 | Change of Control Agreement between LKQ Corporation and Robert L. Wagman dated as of July 24, 2014 (incorporated herein by reference to Exhibit 10.2 to the Company’s report on Form 8-K filed with the SEC on July 28, 2014).
10.25 | Change of Control Agreement between LKQ Corporation and John S. Quinn dated as of July 24, 2014 (incorporated herein by reference to Exhibit 10.3 to the Company’s report on Form 8-K filed with the SEC on July 28, 2014).
10.26 | Change of Control Agreement between LKQ Corporation and Walter P. Hanley dated as of July 24, 2014 (incorporated herein by reference to Exhibit 10.4 to the Company’s report on Form 8-K filed with the SEC on July 28, 2014).
10.27 | Change of Control Agreement between LKQ Corporation and Victor M. Casini dated as of July 24, 2014 (incorporated herein by reference to Exhibit 10.5 to the Company’s report on Form 8-K filed with the SEC on July 28, 2014).
10.28 | Change of Control Agreement between LKQ Corporation and Steven Greenspan dated as of July 24, 2014 (incorporated herein by reference to Exhibit 10.6 to the Company’s report on Form 8-K filed with the SEC on July 28, 2014).
10.29 | Change of Control Agreement between LKQ Corporation and Robert A. Alberico dated as of July 24, 2014 (incorporated herein by reference to Exhibit 10.7 to the Company’s report on Form 8-K filed with the SEC on July 28, 2014).
10.30 | Change of Control Agreement between LKQ Corporation and Michael S. Clark dated as of July 24, 2014 (incorporated herein by reference to Exhibit 10.8 to the Company’s report on Form 8-K filed with the SEC on July 28, 2014).
10.31 | Change of Control Agreement between LKQ Corporation and Dominick Zarcone dated as of March 30, 2015 (incorporated herein by reference to Exhibit 10.7 to the Company’s report on Form 10-Q filed with the SEC on May 1, 2015).
10.32 | Change of Control Agreement between LKQ Corporation and Justin Jude dated as of May 13, 2015.
10.33 | LKQ Severance Policy for Key Executives (incorporated herein by reference to Exhibit 10.1 to the Company’s report on Form 8-K filed with the SEC on July 28, 2014).
10.34 | Receivables Sale Agreement dated as of September 28, 2012 among Keystone Automotive Industries, Inc., as an Originator, Greenleaf Auto Recyclers, LLC, as an Originator, and LKQ Receivables Finance Company, LLC, as Buyer (incorporated herein by reference to Exhibit 10.1 to the Company’s report on Form 8-K filed with the SEC on October 4, 2012).
10.35 | Receivables Purchase Agreement dated as of September 28, 2012 among LKQ Receivables Finance Company, LLC, as Seller, LKQ Corporation, as Servicer, Victory Receivables Corporation, as a Conduit and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as a Financial Institution, as Administrative Agent and as a Managing Agent (incorporated herein by reference to Exhibit 10.2 to the Company’s report on Form 8-K filed with the SEC on October 4, 2012).
10.36 | Amendment No. 1 to Receivables Purchase Agreement dated as of September 29, 2014 among LKQ Receivables Finance Company, LLC, as Seller, LKQ Corporation, as Servicer, Victory Receivables Corporation, as a Conduit and The Bank of Tokyo-Mitsubishi UFJ, Ltd., as a Financial Institution, as Administrative Agent and as a Managing Agent (incorporated herein by reference to Exhibit 10.1 to the Company’s report on Form 8-K filed with the SEC on October 3, 2014).

115

10.37 | Performance Undertaking, dated as of September 28, 2012 by LKQ Corporation in favor of LKQ Receivables Finance Company, LLC (incorporated herein by reference to Exhibit 10.3 to the Company’s report on Form 8-K filed with the SEC on October 4, 2012).
10.38 | APX Agreement between Euro Car Parts Limited, LKQ Corporation, Sukhpal Singh Ahluwalia and APX Autopart Express Limited dated as of November 7, 2014 (incorporated herein by reference to Exhibit 10.1 to the Company's report on Form 8-K filed with the SEC on November 13, 2014).
10.39 | Service Agreement between Euro Car Parts Limited and Sukhpal Singh Ahluwalia dated as of November 7, 2014 (incorporated herein by reference to Exhibit 10.2 to the Company's report on Form 8-K filed with the SEC on November 13, 2014).
10.40 | Deed of Variation dated November 17, 2015 amending the Service Agreement dated November 7, 2014 between Euro Car Parts Limited and Sukhpal Singh Ahluwalia.
10.41 | Services Agreement dated as of February 26, 2015 between LKQ Corporation and Robert L. Wagman (incorporated herein by reference to Exhibit 10.1 to the Company’s report on Form 8-K filed with the SEC on March 3, 2015).
10.42 | Offer Letter to John S. Quinn dated February 12, 2015, as amended.
10.43 | Services Agreement dated as of February 26, 2015 between LKQ Corporation and John S. Quinn (incorporated herein by reference to Exhibit 10.1 to the Company’s report on Form 8-K filed with the SEC on March 3, 2015).
10.44 | Offer Letter to Dominick Zarcone dated February 12, 2015 (incorporated herein by reference to Exhibit 10.1 to the Company’s report on Form 8-K filed with the SEC on March 3, 2015).
10.45 | Sale and Purchase Agreement dated as of December 22, 2015 among the Company, LKQ Italia S.r.l., a company incorporated in Italy and an indirect wholly-owned subsidiary of the Company, and the owners of Rhino HoldCo Limited, a company incorporated in England and Wales.
12.1 | Computation of Ratio of Earnings to Fixed Charges.
14.1 | LKQ Corporation Code of Ethics (incorporated by reference to Exhibit 14.1 to the Company’s report on Form 10-Q filed with the SEC on August 2, 2013).
21.1 | List of subsidiaries, jurisdictions and assumed names.
23.1 | Consent of Independent Registered Public Accounting Firm.
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

116

SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on February 25, 2016.

| LKQ CORPORATION
By: | /s/ R OBERT L. W AGMAN
| Robert L. Wagman
| President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on February 25, 2016.

Signature | Title
Principal Executive Officer: |
/s/ ROBERT L. WAGMAN | President and Chief Executive Officer
Robert L. Wagman |
Principal Financial Officer: |
/s/ DOMINICK ZARCONE | Executive Vice President and Chief Financial Officer
Dominick Zarcone |
Principal Accounting Officer: |
/s/ MICHAEL S. CLARK | Vice President—Finance and Controller
Michael S. Clark |
A Majority of the Directors: |
/s/ SUKHPAL SINGH AHLUWALIA | Director
Sukhpal Singh Ahluwalia |
/s/ A. CLINTON ALLEN | Director
A. Clinton Allen |
/s/ RONALD G. FOSTER | Director
Ronald G. Foster |
/s/ ROBERT M. HANSER | Director
Robert M. Hanser |
/s/ JOSEPH M. HOLSTEN | Director
Joseph M. Holsten |
/s/ BLYTHE J. MCGARVIE | Director
Blythe J. McGarvie |
/s/ PAUL M. MEISTER | Director
Paul M. Meister |
/s/ JOHN F. O'BRIEN | Director
John F. O'Brien |
/s/ GUHAN SUBRAMANIAN | Director
Guhan Subramanian |
/s/ ROBERT L. WAGMAN | Director
Robert L. Wagman |
/s/ WILLIAM M. WEBSTER, IV | Director
William M. Webster, IV |

117