# UNITED	STATES

# SECURITIES	AND	EXCHANGE	COMMISSION

# (Mark	One)

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

# For	the	fiscal	year	ended	December	31,	2016

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

# LKQ	CORPORATION

(Exact	name	of	registrant	as	specified	in	its	charter)

Delaware

(State	or	other	jurisdiction	of incorporation	or	organization)

(Address	of	principal	executive	offices)

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

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

(I.R.S.	Employer Identification	Number)

(Zip	Code)

Title	of	Each	Class

Common	Stock,	par	value	$.01	per	share

Name	of	each	exchange	on	which	registered

# 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.		¨

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

Non-accelerated	filer ¨		(Do	not	check	if	a	smaller	reporting	company)

Accelerated	filer

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,	2016,	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	$9.6	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	17,	2017	was	308,000,350.

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	8,	2017,	described	in	Part	III	hereof,	are incorporated	by	reference	in	this	report.

# PART	I

# SPECIAL	NOTE	ON	FORWARD-LOOKING	STATEMENTS

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

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

You	should	not	place	undue	reliance	on	our	forward-looking	statements.		Actual	events	or	results	may	differ	materially	from	those	expressed	or	implied	in	the forward-looking	statements.		The	risks	and	uncertainties	that	could	cause	actual	results	to	differ	from	the	results	predicted	or	implied	by	our	forward-looking	statements include	the	following	(not	necessarily	in	the	order	of	importance):

•changes	in	economic	and	political	activity	in	the	U.S.	and	other	countries	in	which	we	are	located	or	do	business,	including	the	U.K.	withdrawal	from	the European	Union,	and	the	impact	of	these	changes	on	our	businesses,	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;

•the	implementation	of	a	border	tax	or	tariff	on	imports	and	the	negative	impact	on	our	business	due	to	the	amount	of	inventory	we import;

•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	manufactured	and	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	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	vehicles	or	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;

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

Other	matters	set	forth	in	this	Annual	Report	may	also	cause	our	actual	results	to	differ	materially	from	our	forward-looking	statements,	including	the	risk factors	disclosed	in	Item	1A	of	this	Annual	Report.

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.

# OVERVIEW

LKQ	Corporation	("LKQ"	or	the	"Company")	is	a	leading	provider	of	alternative	and	specialty	parts	to	repair	and	accessorize	automobiles	and	other	vehicles. LKQ	has	operations	in	North	America,	Europe	and	Taiwan.	LKQ	offers	its	customers	a	broad	range	of	replacement	systems,	components,	equipment	and	parts	to	repair and	accessorize	automobiles,	trucks,	and	recreational	and	performance	vehicles.

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.	Collectively,	we	refer	to	the	four	sources	that	are	not	new OEM	products	as	alternative	parts.

Specialty	automotive	and	RV	aftermarket	accessories	and	equipment	are	purchased	by	consumers	to	improve	the	performance,	functionality	and	appearance	of their	vehicles.

We	are	organized	into	five	operating	segments:	Wholesale	-	North	America;	Europe;	Specialty;	Glass	and	Self	Service.	We	aggregate	our	Wholesale	-	North America,	Glass	and	Self	Service	operating	segments	into	one	reportable	segment,	North	America,	resulting	in	three	reportable	segments:	North	America,	Europe,	and Specialty.	See	Note	14,	"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	235	acquisitions	of	aftermarket,	recycled,	refurbished,	and	remanufactured	product suppliers	and	manufacturers;	self	service	retail	businesses;	specialty	vehicle	aftermarket	equipment	and	accessories	suppliers;	and	a	distributor	of	automotive	glass products.	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	Automotive	Holdings,	Inc.	("Keystone	Specialty"),	which	expanded	our	product	offering	and	increased	our	addressable	market	to include	specialty	vehicle	aftermarket	equipment	and	accessories.

•2016	acquisition	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,	Slovakia,	Switzerland,	Hungary,	Romania,	Ukraine,	Bulgaria,	Poland	and	Spain.	This	acquisition	expanded	LKQ's	geographic	presence	in continental	Europe.

•2016	acquisition	of	Pittsburgh	Glass	Works	LLC	("PGW"),	which	performs	wholesale	and	retail	distribution	services	and	automotive	glass	manufacturing.	The acquisition	expanded	our	addressable	market	in	North	America	and	globally.	In	December	2016,	we	reached	an	agreement	to	sell	the	glass	manufacturing business	of	PGW;	the	transaction	is	expected	to	be	completed	in	the	first	quarter	of	2017.	The	continuing	portion	of	PGW's	business	related	to	wholesale	and retail	distribution	services	is	included	in	our	North	America	reportable	segment	as	of	December	31,	2016.

Further	information	regarding	our	recent	acquisitions	is	included	in	Note	2,	"Business	Combinations"	and	information	related	to	our	discontinued	operations	is included	in	Note	3,	"Discontinued	Operations"	to	the	consolidated	financial	statements	in	Part	II,	Item	8	of	this	Annual	Report	on	Form	10-K.

# STRATEGY

Our	strategy	is	to	build	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	strive	to	offer	our	customers	the	most comprehensive,	available	and	cost	effective	selection	of

part	solutions	while	building	strong	partnerships	with	our	employees	and	the	communities	in	which	we	operate.	We	believe	a	supply	network	with	a	broad	inventory	of quality	alternative	collision	and	mechanical	repair	products	and	specialty	vehicle	aftermarket	products,	high	fulfillment	rates,	and	superior	customer	service	provides	us with	a	competitive	advantage.	To	execute	our	strategy,	we	are	focused	on	the	following	key	areas:

•Extensive	in-place	network.	We	have	invested	significant	capital	to	develop	a	network	of	alternative	and	specialty	vehicle	parts	facilities	across	our	operating segments.	Additionally,	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.	In	order	to	expand	our	distribution	network,	we	will	continue	to	seek	to	grow	into	new	markets	and	to	improve penetration	through	acquisitions.	We	will	continue	to	seek	opportunities	to	leverage	the	distribution	network	by	delivering	more	parts	through	our	existing network	in	our	North	America	and	Specialty	operations.	In	our	Europe	segment,	we	are	attempting	to	implement	the	same	strategy	as	our	North	America operations	to	build	a	Pan-European	distribution	network.

•Acquisitions.	We	have	focused	on	growth	through	acquisitions	both	domestically	and	abroad.	The	primary	objective	of	our	acquisitions	is	to	expand	our presence	to	new	or	adjacent	markets,	to	expand	into	other	product	lines	and	business	that	may	benefit	from	our	operating	strengths,	and	to	increase	the	size	of our	addressable	market.	When	we	identify	potential	acquisitions,	we	attempt	to	target	companies	with	a	leading	market	presence,	an	experienced	management team	and	workforce	that	provide	a	fit	with	our	existing	operations,	and	strong	cash	flows.	After	completing	an	acquisition,	we	focus	on	integrating	the company	with	our	existing	business	to	provide	additional	value	to	the	combined	entity	through	cost	savings	and	synergies,	such	as	logistics	cost	synergies resulting	from	integration	with	our	existing	distribution	network,	administrative	cost	savings,	shared	procurement,	and	cross-selling	opportunities.

•Strong	business	relationships.	We	have	developed	business	relationships	with	key	constituents,	including	automobile	insurance	companies,	suppliers	and	other industry	participants	in	North	America	and	Europe.

•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.

•High	fulfillment	rates.	We	manage	local	inventory	levels	to	improve	delivery	and	maximize	customer	service.	Improving	local	order	fulfillment	rates	reduces transfer	costs	and	delivery	times,	and	improves	customer	satisfaction.

•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.

# NORTH	AMERICA	SEGMENT

Our	North	America	segment	is	composed	of	wholesale	operations,	which	consists	of	aftermarket	and	salvage	operations,	and	self	service	retail	operations.	We are	a	leading	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.

# Wholesale	Operations

# Inventory

Our	wholesale	automobile	product	operations	in	North	America	sell	all	five	product	types	(aftermarket,	recycled,	remanufactured,	refurbished	and	OEM	parts) to	professional	collision	and	mechanical	automobile	repair	businesses.	Our	principal	aftermarket	product	types	consist	of	those	most	frequently	damaged	in	collisions, including	bumper	covers,	automotive	body	panels,	lights	and	automotive	glass	products	such	as	windshields.	Platinum	Plus	is	our	exclusive	product	line	offered	under the	Keystone	brand	of	aftermarket	products.	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	quality	of	aftermarket	collision	replacement	products	compared	to	OEM collision	replacement	products.	We	also	developed	a	product	line	called	"Value	Line"	for	more	value	conscious,	often	self-pay,	consumers.	Our	salvage	products	include both	mechanical	and	collision	parts,	including	engines;	transmissions;	door	assemblies;	sheet	metal	products	such	as	trunk	lids,	fenders	and	hoods;	lights;	and	bumper assemblies.

The	aftermarket	products	we	distribute	are	purchased	from	independent	manufacturers	and	distributors	located	primarily	in	the	U.S.,	Taiwan,	and	China.	In 2016,	approximately	39%	of	our	aftermarket	purchases	were	made	from	our	top	four	vendors,	with	our	largest	vendor	providing	approximately	16%	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	2016.	We	purchased	approximately	48%	of	our	aftermarket	products	in	2016	directly	from

manufacturers	in	Taiwan	and	other	Asian	countries.	Approximately	50%	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	procure	recycled	products	for	our	wholesale	operations	by	acquiring	total	loss	vehicles,	typically	sold	at	regional	salvage	auctions,	and	then	dismantling and	inventorying	the	parts.	The	availability	and	pricing	of	the	salvage	vehicles	we	procure	for	our	wholesale	recycled	products	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.	Our	bidding	specialists	are	equipped	with	a proprietary	software	application	that	allows	our	bidding	specialist	to	compare	the	vehicles	at	the	salvage	auctions	against	our	current	inventory	levels,	historical demand,	and	recent	average	selling	prices	to	arrive	at	an	estimated	maximum	bid.

Within	our	wholesale	operations,	we	focus	our	procurement	on	products	that	are	in	the	most	demand,	based	on	a	number	of	factors	such	as	historical	sales records	of	vehicles	by	model	and	year,	customer	requests,	projections	of	future	supply	and	demand	trends.	Because	lead	times	may	take	40	days	or	more	on	imported aftermarket	products,	sales	volume	and	in-stock	inventory	are	important	factors	in	the	procurement	process.

In	our	aftermarket	operations,	we	use	a	third	party	enterprise	management	system	and	other	third	party	software	packages	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	electronic	data interchange	tool,	and	E-commerce	tools	to	enhance	our	online	business-to-business	initiatives	-	OrderKeystone.com	and	Keyless.

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.

# Scrap	and	Other	Materials

Our	salvage	operations	generate	scrap	metal	and	other	materials	that	we	sell	to	metals	recyclers.	Vehicles	that	have	been	dismantled	for	recycled	products	and "crush	only"	end-of-life	vehicles	acquired	from	other	companies	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. 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.	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.	The	use	of	our	products provides	a	direct	benefit	to	insurance	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.

Our	sales	personnel	are	encouraged	to	promote	LKQ	to	customers	as	a	"one-stop	shop"	by	offering	comparable	options	from	our	other	product	lines	if	the desired	part	isn't	in	stock.	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.

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.

# Distribution

We	have	a	distribution	network	of	warehouses	and	cross	dock	facilities,	which	allows	us	to	develop	and	maintain	our	service	levels	with	local	repair	shops while	providing	fulfillment	rates	that	are	made	possible	by	our	nationwide	presence.	Our	delivery	fleet	utilizes	a	third	party	software	provider	to	optimize	delivery routes,	and	to	track	the	progress	of	delivery	vehicles	throughout	their	runs.	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	operate	a	delivery	fleet	of	medium- sized	trucks	and	smaller	trucks	and	vans,	which	deliver	multiple	product	types	on	the	same	delivery	routes	to	help	minimize	distribution	costs	and	improve	customer service.

# 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	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	compete	with	OEMs primarily	on	the	basis	of	price	and,	to	a	lesser	extent,	on	service	and	product	quality.	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.

# Self	Service	Operations

Our	self	service	retail	operations,	most	of	which	operate	under	the	name	"LKQ	Pick	Your	Part,"	sell	parts	from	end-of-life	vehicles	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.

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.	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.	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.	Vehicles	are	then	placed	in	the	yard	for	customers	to	remove	parts. 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	120	days,	depending	on	the	capacity	of	the	yard	and	size	of	the	market,	before	it	is	crushed	and	sold	to	scrap	metal processors.

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.

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.

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

As	noted	in	the	History	section,	the	Europe	segment	was	built	on	three	key	acquisitions:	ECP	(2011),	Sator	(2013)	and	Rhiag	(2016).	Our	Rhiag	acquisition provides	a	potential	platform	to	capitalize	on	the	large	and	fragmented	aftermarket	mechanical	replacement	parts	market	in	Europe,	and	also	complements	our	existing operations	in	the	U.K.	and	the	Benelux	region	given	the	significant	overlap	in	suppliers	and	product	mix,	which	allows	for	potential	cost	savings	from	the	leveraging	of our	combined	purchasing	power.	In	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.	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	to	expand	our	aftermarket	operations	to	include	these	countries.	In December	2016,	we	acquired	an	equity	investment	in	Mekonomen	AB	("Mekonomen"),	the	leading	independent	car	parts	and	service

chain	in	the	Nordic	region	of	Europe.	Mekonomen	will	remain	independent	of	our	existing	European	operations,	but	we	plan	to	explore	areas	where	the	companies	can work	together	in	a	mutually	beneficial	manner.	We	have	acquired	many	smaller	businesses	within	these	regions	and	over	time,	we	anticipate	further	integration	of	our European	operations	as	we	optimize	purchasing,	warehousing,	cataloging,	logistics	and	back-office	functions.

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	addition	to mechanical	aftermarket	parts,	we	also	sell	collision	parts	in	our	Europe	operations.	We	believe	the	historically	low	alternative	collision	parts	usage	percentage	in	Europe provides	an	opportunity	for	us	in	this	segment,	particularly	as	insurance	companies	look	to	lower	their	costs.

In	2016,	our	top	five	suppliers	represented	22%	of	our	aftermarket	inventory	purchases,	with	each	of	our	top	two	suppliers	representing	approximately	6%	of our	purchases.	No	other	suppliers	comprised	a	significant	portion	of	our	purchases	during	2016.	The	aftermarket	products	we	distribute	are	purchased	from	vendors located	primarily	in	the	U.K.	and	continental	Europe.	In	2016,	we	purchased	92%	of	our	products	from	companies	in	Europe.	The	remaining	8%	of	our	2016	purchases were	sourced	from	vendors	located	primarily	in	China	or	Taiwan,	some	of	which	also	supply	collision	parts	for	our	Wholesale	-	North	America	operations.	In	2016, 57%,	29%,	and	8%	of	our	total	inventory	purchases	were	made	in	Euros,	Pounds	Sterling,	and	U.S	Dollars,	respectively.

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.	Certain	of	our	IT	systems	can	interface	with	our	repair	shop customers'	respective	IT	systems,	which	enables	them	to	identify	the	part	required	for	the	repair.

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.

We	operate	under	both	two-step	(i.e.	direct	sales	to	customers)	and	three-step	(i.e.	sales	to	distributors	who	in	turn	sell	to	customers)	distribution	models	in Europe.	In	our	two-step	operations,	such	as	the	UK	and	Czech	Republic,	we	sell	the	majority	of	our	products	to	commercial	customers	primarily	consisting	of professional	repairers,	including	both	independent	mechanical	repair	shops	and	collision	repair	shops.	In	our	three-step	operations,	such	as	Italy,	Belgium	and Switzerland,	we	sell	products	to	wholesale	distributors	or	jobbers.	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	a	number	of	aftermarket	parts	distributors	in	the Netherlands,	which	has	enabled	us	to	transform	the	original	distribution	model	in	this	region	to	a	two-step	distribution	model.	In	addition	to	our	sales	to	repair	shops	and wholesale	distributors,	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.

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	Netherlands,	Italy	and	Check	Republic	operations)	for	timely	delivery	to	the	repair	shop	customers. Product	is	moved	through	the	distribution	network	on	our	vans	or	via	common	carrier.	In	our	U.K.	operations,	we	also	sometimes	employ	a	third	party	motorcycle	fleet to	deliver	parts	from	our	branch	locations	to	nearby	repair	shop	customers.

In	the	U.K.,	we	have	undertaken	a	major	project	to	expand	our	distribution	capabilities	by	building	a	new	national	distribution	center	in	Tamworth,	which	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.

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	ours	that	can	reach	the	majority	of	repair	shop	customers	within	the required	delivery	time	in	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

Our	Specialty	operating	segment	was	formed	in	2014	with	our	acquisition	of	Keystone	Specialty,	a	leading	distributor	and	marketer	of	specialty	vehicle aftermarket	products	and	accessories	in	North	America.	Our	Specialty	operations	reach	most	major	markets	in	the	U.S.	and	Canada	and	serve	the	following	six	product segments:	truck	and	off-road;	speed	and	performance;	RV;	towing;	wheels,	tires	and	performance	handling;	and	miscellaneous	accessories.

The	specialty	vehicle	aftermarket	equipment	and	accessories	we	distribute	are	purchased	from	suppliers	located	primarily	in	the	U.S.,	Canada,	and	China.	Our top	selling	products	are	RV	appliances	&	air	conditioners,	towing	hitches,	truck	bed	covers,	vehicle	protection	products,	cargo	management	products,	and	wheels,	tires &	suspension	products.	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	limited	supplier	concentration.	In	2016,	approximately	24%	of	our	specialty vehicle	aftermarket	purchases	were	made	from	our	top	five	suppliers,	with	our	largest	vendor	providing	approximately	8%	of	our	annual	inventory	purchases.

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.

Overall,	the	specialty	vehicle	aftermarket	parts	and	accessories	market	contains	a	fragmented	customer	base	composed	of	RV	and	specialty	automotive	dealers, installers,	jobbers,	builders,	parts	chains,	and	mail-order	businesses.	Our	customers	are	principally	small,	independent	businesses.	These	customers	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	parts	and	accessory	online	retailers.	Our	Specialty	segment	also	operates	retail	stores	in	northeast	Pennsylvania.

We	promote	our	products	to	customers	through	marketing	programs,	which	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.

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	Specialty	segment	operations	employ	a	hub-and-spoke	distribution	model	which	enables	us	to	transport	products	from	our	primary	distribution	centers	to our	non-inventory	stocking	cross	docks,	a	majority	of	which	are	co-located	with	our	North	America	wholesale	operations	and	provide	distribution	points	to	key	regional markets	and	synergies	with	our	existing	infrastructure.	We	believe	this	provides	added	value	to	our	customers	through	a	broader	product	offering	and	more	efficient distribution	process.	We	use	our	delivery	routes	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	other	countries.	Our	delivery	fleet	utilizes	a	third	party	software	provider	to optimize	delivery	routes,	and	to	track	the	progress	of	delivery	vehicles	throughout	their	runs.

Industry	participants	have	a	variety	of	supply	choices.	Vendors	can	deliver	products	to	market	via	warehouse	distributors	and	mail	order	catalog	businesses,	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	and	equipment	suppliers	primarily	through	our	broad product	selection,	which	encompasses	both	popular	and	hard-to-find	products,	our	distribution	network,	and	efficient	inventory	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	has	been	both	internally	developed	and	obtained	through	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,	2016,	we	employed	approximately	42,500	persons,	which	includes	approximately	3,000	persons	employed	by	PGW's	glass	manufacturing business	that	we	expect	to	sell	in	the	first	quarter	of	2017.	Of	the	approximately	39,500	employees	of	our	continuing	operations,	approximately	20,500	were	employed	in North	America	and	approximately	19,000	were	employed	outside	of	North	America.	Of	our	employees	in	North	America	associated	with	continuing	operations, approximately	1,370	were	represented	by	unions.	Outside	of	North	America,	we	have	government-mandated	collective	bargaining	agreements	and	union	contracts	in certain	countries,	particularly	in	Europe	where	many	of	our	employees	are	represented	by	unions	and/or	works	councils.	We	consider	our	employee	relations	to	be	good.

# FACILITIES

Our	continuing	operations	include	1,339	facilities,	including	548	facilities	in	the	U.S.	and	791	facilities	located	in	20	other	countries,	most	of	which	are	leased. Many	of	our	locations	stock	multiple	product	types	or	serve	more	than	one	function.

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;	in	2017,	we	announced our	plans	to	expand	the	size	of	our	field	support	center	via	construction	of	a	new	100,000	square	foot	facility	in	Nashville.	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	Tamworth,	England;	in	Schiedam,	the Netherlands;	in	Milan,	Italy;	and	in	Prague,	Czech	Republic.	In	addition	to	these	offices,	we	have	a	500,000	square	foot	national	distribution	center	in	Tamworth	that houses	inventory	to	supply	the	hubs	and	branches	of	our	U.K.	operations.	We	are	in	the	process	of	constructing	a	second	national	distribution	center	in	Tamworth;	we expect	the	750,000	square	foot	facility	will	be	fully	operational	by	2018.	Additionally,	we	operate	an	aftermarket	parts	warehouse	in	Taiwan	to	aggregate	inventory	for shipment	to	our	locations	in	North	America.

# REGULATION

												Our	operations	and	properties	are	subject	to	laws	and	regulations	relating	to	the	protection	of	the	environment	in	the	U.S.	and	the	other	countries	in	which	we operate.	See	the	risk	factor	"We	are	subject	to	environmental	regulations	and	incur	costs	relating	to	environmental	matters"	in	Part	I,	Item	1A	of	this	Annual	Report	on Form	10-K	for	further	information	regarding	the	effects	of	environmental	laws	and	regulations	on	us.

# 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	repairs.	Our	specialty	vehicle	operations typically	generate	greater	revenue	and	earnings	in	the	first	half	of	the	year,	when	vehicle	owners	tend	to	install	this	equipment.	We	expect	our	aftermarket	glass operations	to	generate	greater	revenue	and	earnings	in	the	second	and	third	quarters,	when	the	demand	for	glass	replacements	increases	after	the	winter	weather.

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.	The	number	of	new	vehicles	produced	and	sold	by	manufacturers	affects	our	business.	A	decrease	in	the	number	of	vehicles	on	the	road results	in	a	decrease	in	accidents	requiring	repairs.	Moreover,	we	supply	vehicle	glass	directly	to	vehicle	manufacturers,	and	a	decrease	in	the	number	of	vehicles produced	would	result	in	a	decrease	in	the	demand	for	our	glass	products.

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 hedge	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	have	a	substantial	business	presence	in	Europe,	including	a	significant	presence	in	the	United	Kingdom.	In	June	2016,	voters	in	the	United	Kingdom decided	by	referendum	to	withdraw	from	the	European	Union.	The	precise	timing	and	impacts	of	this	action	on	our	businesses	in	the	United	Kingdom	and	other	parts	of Europe	are	unknown	at	this	time.	Since	the	vote,	we	have	seen	fluctuations	in	exchange	rates	leading	to	pricing	pressures	and	unfavorable	translation	effects	on	our sterling	denominated	earnings.	As	the	details	of	the	United	Kingdom's	withdrawal	from	the	European	Union	are	negotiated	and	implemented,	our	European	businesses could	be	adversely	affected	as	a	result	of	further	fluctuations	in	exchange	rates,	disruptions	to	access	to	markets	by	United	Kingdom	companies,	interruptions	of	the movement	of	goods	and	services	between	countries,	a	decrease	of	economic	activity	in	Europe,	and	political	or	social	unrest.

# 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	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	of	alternative	aftermarket, recycled,	refurbished	and	remanufactured	collision	parts	like	us.	The	OEMs	are	therefore	able	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	reduced	prices	on	specific	products	to	match	the	lower	prices	of	alternative	products	and	introduced	other rebate	programs	that	may	disrupt	our	sales.	The	growth	of	these	programs	or	the	introduction	of	new	ones	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	collision	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.	Alternative	part	usage	in	the	U.S.	has	been	relatively	flat	over	the last	three	years.	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

•customers	of	the	acquired	company	may	decide	not	to	purchase	products	from

•suppliers	of	the	acquired	company	may	decide	not	to	sell	products	to

•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;

•we	may	intentionally	assume	the	liabilities	of	the	companies	we	acquire,	which	could	result	in	material	adverse	effects	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;

•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	is	currently	scheduled	to	expire	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.	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.	To	the	extent	that	a	relatively	higher	percentage	of	damaged	vehicles	are	declared	total	losses,	there	will	be	less	demand	for	our products	to	repair	such	vehicles.	In	addition,	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,	drivers	distracted	by	electronic	equipment,	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.	Electric	vehicles	do	not	have	traditional engines,	our	biggest	selling	product.	Thus,	an	increase	in	electric	vehicles	as	a	percentage	of	vehicles	sold	will	have	a	negative	impact	on	our	engine	sales.

# 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	processed	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	prices	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.

# Existing	or	new	laws	and	regulations	may	prohibit,	restrict	or	burden	the	sale	of	aftermarket,	recycled,	refurbished	or	remanufactured	products.

Most	states	have	passed	laws	that	prohibit	or	limit	the	use	of	aftermarket	products	in	collision	repair	work.	These	laws	include	requirements	relating	to 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.	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.

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.	The	passage	of	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	or	recycled	automotive	products	used	in	the	course	of	vehicle	repairs.

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.

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	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.

# 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.	The	current	U.S.	administration	has	discussed	the	implementation	of	a	tariff	on	imports	into	the	U.S.,	the	imposition	of	which	would	likely have	a	negative	impact	on	our	business	due	to	the	amount	of	inventory	we	import.

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	OEMs	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	other	bidders.	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	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.	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.

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	North	America,	Europe,	Taiwan	and	China,	and	we	may	expand	our	operations	in	the	countries	in	which	we	do	business	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	some	of	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, certain	countries	in	which	we	operate	have	a	higher	level	of	political	instability	and	criminal	activity	relative	to	the	U.S.	that	could	affect	our	operations	and	the	ability	to maintain	our	supply	of	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,	2016,	our	total	goodwill	subject	to	future	impairment	testing	was	$3.1	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,	2016,	the	value	of	our	other intangible	assets,	net	of	accumulated	amortization,	was	$584	million.

# Our	business	may	be	adversely	affected	by	union	activities	and	labor	and	employment	laws.

Certain	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,	union	and	works	council	campaigns,	and	other	labor disruptions	and	disputes.	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.

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.

We	believe	we	have	taken	reasonable	and	appropriate	steps	to	protect	our	information	systems	and	personal	information	about	our	customers	and	employees; 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	our	systems	and	personal	data	are adequate	to	safeguard	against	all	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	serve	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 U.S.	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.	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.

We	have	made	and	will	continue	to	make	capital	and	other	expenditures	relating	to	environmental	matters.	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.

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.	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.	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.

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.

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	the	event	we	discover	new	information	or	if	laws	change,	we	may	incur	significant	liabilities,	which	may	exceed	our reserves.

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.

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.

# 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,	adversely	affected	by	allegations	made	or	reports	issued	by short	sellers,	analysts,	activists	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,	2016,	we	had	approximately	$2.2	billion	aggregate	principal	amount	of	secured	debt	outstanding	and	approximately	$1.1	billion	of availability	under	the	Senior	Secured	Credit	Facilities	(without	giving	effect	to	approximately	$72.7	million	of	letters	of	credit	outstanding).	In	addition,	we	had approximately	$1.1	billion	aggregate	principal	amount	of	unsecured	debt	outstanding	comprising	$600	million	aggregate	principal	amount	of	the	4.75%	senior	notes	due 2023	(the	"U.S.	Notes")	and	€500	million	($526	million)	aggregate	principal	amount	of	the	senior	notes	due	April	1,	2024	(the	"Euro	Notes,"	and	together	with	the	U.S. Notes,	the	"senior	notes").

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,	our	debt	and	our	debt	service	obligations	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

•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;

•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.

# Our	senior	notes	do	not	impose	any	limitations	on	our	ability	to	incur	additional	debt	or	protect	against	certain	other	types	of	transactions.

Although	we	are	subject	to	our	senior	secured	credit	facilities	for	so	long	as	they	remain	in	effect,	the	indenture	governing	the	U.S.	Notes	and	the	indenture governing	the	Euro	Notes	do	not	restrict	the	future	incurrence	of	unsecured	indebtedness,	guarantees	or	other	obligations.	The	indentures	contain	certain	limitations	on our	ability	to	incur	liens	on	assets	and	engage	in	sale	and	leaseback	transactions.	However,	these	limitations	are	subject	to	important	exceptions.	In	addition,	the indentures	do	not	contain	many	other	restrictions,	including	certain	restrictions	contained	in	our	senior	secured	credit	facilities,	including,	without	limitation, investments	or	prepaying	subordinated	indebtedness	or	engaging	in	transactions	with	our	affiliates.

Our	senior	secured	credit	facilities	will	permit,	subject	to	specified	conditions	and	limitations,	the	incurrence	of	a	significant	amount	of	additional	indebtedness. As	of	December	31,	2016,	we	would	have	been	able	to	incur	an	additional	$1.1	billion	of	indebtedness	under	our	revolving	credit	facility	(without	giving	effect	to approximately	$72.7	million	of	outstanding	letters	of	credit).	If	we	or	our	subsidiaries	incur	additional	debt,	the	risks	associated	with	our	substantial	leverage	and	the ability	to	service	such	debt	would	increase.

# 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	indentures	that	govern	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	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	the	U.S.	Notes	on	our	ability	to refinance	such	notes	prior	to	2018.	There	are	also	restrictions	in	the	indenture	that	governs	the	Euro	Notes	on	our	ability	to	refinance	such	notes	prior	to	2024.	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	the	notes.	Assuming	all	revolving	loans	were	fully	drawn	and	no	interest	rate	swaps	were	in	place,	each one	percentage	point	change	in	interest	rates	would	result	in	a	$32.8	million	change	in	annual	cash	interest	expense	under	our	senior	secured	credit	facilities	and	our accounts	receivable	securitization	facility.

# Repayment	of	our	indebtedness,	including	our	senior	notes,	is	dependent	on	cash	flow	generated	by	our	subsidiaries.

We	are	a	holding	company	and	repayment	of	our	senior	notes	will	be	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	guarantors	of	the	notes,	our	subsidiaries	do	not	have	any	obligation	to	pay	amounts	due on	the	notes	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,	including	the notes.	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.	While	the	indentures	governing	the	notes	limit	the	ability	of	our	subsidiaries	to	restrict	the	payment	of	dividends	or	make	other	intercompany	payments	to us,	these	limitations	are	subject	to	certain	qualifications	and	exceptions.	In	the	event	that	we	do	not	receive	distributions	from	our	subsidiaries,	we	may	be	unable	to make	required	principal	and	interest	payments	on	our	indebtedness,	including	the	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	our	senior	notes	and	our	guarantors'	obligations	under	their	guarantees	of	the	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	our	notes,	even	if	an	event	of	default	exists	under	the	applicable	indenture	governing	the notes.	Furthermore,	if	the	lenders	foreclose	and	sell	the	pledged	equity	interests	in	any	subsidiary	guarantor	under	our	notes,	then	that	guarantor	will	be	released	from	its guarantee	of	the	notes	automatically	and	immediately	upon	such	sale.	In	any	such	event,	because	the	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	notes	could	be	satisfied	or,	if	any	assets	remained,	they might	be	insufficient	to	satisfy	claims	fully.	As	of	December	31,	2016,	we	had	approximately	$2.2	billion	aggregate	principal	amount	of	secured	debt	outstanding	and approximately	$1.1	billion	of	availability	under	the	senior	secured	credit	facilities	(without	giving	effect	to	approximately	$72.7	million	of	letters	of	credit	outstanding).

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	guarantee	the	obligations	under	our	senior	notes.	In addition,	certain	subsidiaries	of	the	issuer	of	the	Euro	Notes	guarantee	the	obligations	under	the	Euro	Notes.	The	issuance	of	our	senior	notes	and	the	issuance	of	the guarantees	by	the	guarantors	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	of	the	United	States	and	comparable	provisions	of	state	fraudulent	transfer	laws,	a	court	may	avoid	or	otherwise	decline	to	enforce	the notes,	or	a	guarantor's	guarantee,	or	may	subordinate	the	notes,	or	such	guarantee,	to	our	or	the	applicable	guarantor's	existing	and	future	indebtedness.	While	the relevant	laws	may	vary	from	jurisdiction	to	jurisdiction,	a	court	might	do	so	if	it	found	that	when	indebtedness	under	the	notes	was	issued,	or	when	the	applicable guarantor	entered	into	its	guarantee,	or,	in	some	jurisdictions,	when	payments	became	due	under	the	notes,	or	such	guarantee,	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;

•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	notes	or	such	guarantee	if	we	or	such guarantor	did	not	substantially	benefit	directly	or	indirectly	from	the	issuance	of	the

notes.	Thus,	if	the	guarantees	were	legally	challenged,	any	guarantee	could	be	subject	to	the	claim	that,	since	the	guarantee	was	incurred	for	our	benefit,	and	only indirectly	for	the	benefit	of	the	guarantor,	the	obligations	of	the	applicable	guarantor	were	incurred	for	less	than	reasonably	equivalent	value	or	fair	consideration.	If	a court	were	to	void	the	issuance	of	the	notes	or	any	guarantee,	a	holder	of	the	notes	would	no	longer	have	any	claim	against	us	or	the	applicable	guarantor.	In	the	event	of a	finding	that	a	fraudulent	transfer	or	conveyance	occurred,	a	holder	of	the	notes	may	not	receive	any	repayment	on	the	notes.	Further,	the	avoidance	of	the	notes	could result	in	an	event	of	default	with	respect	to	our	and	our	subsidiaries'	other	debt,	which	could	result	in	acceleration	of	that	debt.	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,	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	value	of	its

•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

A	court	might	also	void	the	notes,	or	a	guarantee,	without	regard	to	the	above	factors,	if	the	court	found	that	the	notes	were	incurred	or	issued	or	the	applicable guarantor	entered	into	its	guarantee	with	actual	intent	to	hinder,	delay	or	defraud	its	creditors.	We	cannot	give	any	assurance	as	to	what	standard	a	court	would	apply	in determining	whether	we	or	the	guarantors	were	solvent	at	the	relevant	time	or	that	a	court	would	agree	with	our	conclusions	in	this	regard,	or,	regardless	of	the	standard that	a	court	uses,	that	it	would	not	determine	that	we	or	a	guarantor	were	indeed	insolvent	on	that	date;	that	any	payments	to	the	holders	of	the	notes	(including	under	the guarantees)	did	not	constitute	preferences,	fraudulent	transfers	or	conveyances	on	other	grounds;	or	that	the	issuance	of	the	notes	and	the	guarantees	would	not	be subordinated	to	our	or	any	guarantor's	other	debt.	In	addition,	any	payment	by	us	or	a	guarantor	pursuant	to	the	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	holders	of	the	notes	to	repay any	amounts	already	received	from	us	or	such	guarantor.	Among	other	things,	under	U.S.	bankruptcy	law,	any	payment	by	us	pursuant	to	the	notes	or	by	a	guarantor under	a	guarantee	made	at	a	time	we	or	such	guarantor	were	found	to	be	insolvent	could	be	voided	and	required	to	be	returned	to	us	or	such	guarantor	or	to	a	fund	for	the benefit	of	our	or	such	guarantor's	creditors	if	such	payment	is	made	to	an	insider	within	a	one-year	period	prior	to	a	bankruptcy	filing	or	within	90	days	for	any	outside party	and	such	payment	would	give	such	insider	or	outsider	party	more	than	such	party	would	have	received	in	a	distribution	under	the	Bankruptcy	Code	in	a hypothetical	Chapter	7	case.	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	as	a	legal	matter to	protect	any	subsidiary	guarantees	from	being	avoided	under	fraudulent	transfer	law.	In	that	regard,	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 our	indentures	was	unenforceable.	As	a	result,	the	subsidiary	guarantees	were	found	to	be	fraudulent	conveyances.	The	United	States	Court	of	Appeals	for	the	Eleventh Circuit	subsequently	affirmed	the	liability	findings	of	the	Bankruptcy	Court	without	ruling	directly	on	the	enforceability	of	savings	clauses	generally.	If	the	decision	of the	bankruptcy	court	in	TOUSA	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	notes	or	any	of	the	guarantees	as	fraudulent	transfers	or	holds	the	notes	or	any	of	the	guarantees	unenforceable	for	any	other reason,	the	holders	of	the	notes	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	notes. Sufficient	funds	to	repay	the	notes	may	not	be	available	from	other	sources,	including	the	remaining	guarantors,	if	any.	In	addition,	the	Euro	Notes	and	the	guarantees may	be	subject	to	avoidance	under	the	laws	of	other	foreign	jurisdictions,	including	Italy	and	the	Czech	Republic,	to	the	extent	that	we	or	any	of	the	guarantors	(as applicable)	were	to	be	the	subject	of	an	insolvency	or	related	proceeding	in	such	jurisdiction(s).

# 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,	our	U.S.	Notes	or	our	Euro	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	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 subsidiaries	that	are	not	guarantors	of	such	instruments,	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,

2016,	our	subsidiaries	that	are	not	borrowers	under	or	do	not	guarantee	the	senior	secured	credit	facilities	and	our	subsidiaries	that	do	not	guarantee	the	U.S.	Notes represented	approximately	38%	and	27%	of	our	total	revenue	and	operating	income,	respectively.	In	addition,	these	non-guarantor	subsidiaries	represented approximately	46%	and	34%	of	our	total	assets	and	total	liabilities,	respectively,	as	of	December	31,	2016	(excluding,	in	each	case,	intercompany	amounts).	As	of	the same	date,	our	subsidiaries	that	do	not	guarantee	the	senior	secured	credit	facilities	or	the	U.S.	Notes	had	approximately	$923.0	million	of	outstanding	indebtedness (which	includes	$267.8	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	U.S.	Notes).	The	group	of	subsidiaries	that	does	not	guarantee	the	Euro	Notes	is	similar	to	the	group	that	does	not	guarantee	the	U.S.	Notes,	except that	there	are	four	additional	subsidiaries	that	guarantee	the	Euro	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	indentures	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	indentures	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	indentures	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	indentures.	Our	failure	to	purchase	any	such	senior	notes	when required	under	the	indenture	would	be	an	event	of	default	under	the	indentures.

# 	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	indentures	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	November	2019.		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.

# Our	credit	ratings	may	not	reflect	all	risks	associated	with	an	investment	in	our	senior	notes.

Credit	rating	agencies	rate	our	debt	securities	on	factors	that	include	our	results	of	operations,	actions	that	we	take,	their	view	of	the	general	outlook	for	our industry	and	their	view	of	the	general	outlook	for	the	economy.	The	rating	agencies	can	upgrade	or	downgrade	our	current	rating	or	place	us	on	a	watch	list	for	possible future	downgrading.	Downgrading	the	credit	rating	of	our	debt	securities	or	placing	us	on	a	watch	list	for	possible	future	downgrading	would	likely	increase	our	cost	of financing,	limit	our	access	to	the	capital	markets	and	have	an	adverse	effect	on	the	market	price	of	our	securities,	including	our	senior	notes.

# ITEM	1B.					UNRESOLVED	STAFF	COMMENTS

None.

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.	The	resolution	of	this	matter	may	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	(if	any)	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.

# 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,	2016,	there	were	20	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 |
| :--- | :--- | :--- |
| 2016 |  |  |
| Fourth\tQuarter | $35.58 | $29.57 |
| Third\tQuarter | $36.35 | $31.18 |
| Second\tQuarter | $34.26 | $29.37 |
| First\tQuarter | $32.12 | $23.95 |
| 2015 |  |  |
| Fourth\tQuarter | $30.50 | $27.08 |
| Third\tQuarter | $32.25 | $26.67 |
| Second\tQuarter | $30.82 | $24.92 |
| First\tQuarter | $28.23 | $22.90 |

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	indentures	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	indentures,	the	maximum	amount	of	dividends	we	could	pay	as	of	December	31,	2016	was approximately	$1.0	billion.	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	Standard	&	Poor's	500	Stock	Index	("S&P	500 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,	2011	and	ending	on	December	31,	2016	(which	was	the	last	day	of	our	2016	fiscal	year).	In	May	2016,	S&P	Dow	Jones	added	us	to the	S&P	500	Index.	Accordingly,	pursuant	to	Securities	and	Exchange	Commission	rules,	we	were	required	to	change	the	broad	equity	market	index	in	our	graph	from the	NASDAQ	Stock	Market	(U.S.)	Index,	which	we	used	last	year,	to	the	S&P	500	Index.	The	stock	price	performance	in	the	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	S&P	500	Index	and	the	Peer	Group	was	$100 on	December	31,	2011	and	that	all	dividends,	where	applicable,	were	reinvested.

# Comparison	of	Cumulative	Return

# Among	LKQ	Corporation,	the	NASDAQ	Stock	Market	(U.S.)	Index	and	the	Peer	Group

|  | 12/31/2011 | 12/31/2012 | 12/31/2013 | 12/31/2014 | 12/31/2015 | 12/31/2016 |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| LKQ\tCorporation | $100 | $140 | $219 | $187 | $197 | $204 |
| S&P\t500\tIndex | $100 | $113 | $147 | $164 | $163 | $178 |
| Peer\tGroup | $100 | $111 | $140 | $177 | $188 | $217 |

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,	2016	included	in	Part	III,	Item	12	of	this Annual	Report	on	Form	10-K	is	incorporated	herein	by	reference.

# 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.

| (in	thousands,	except	per	share	data) | 2016 | 2015 | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | (1) | (2) | (3) | (4) | (5) |
| Statements\tof\tIncome\tData: |  |  |  |  |  |
| Revenue | $8,584,031 | $7,192,633 | $6,740,064 | $5,062,528 | $4,122,930 |
| Cost\tof\tgoods\tsold | 5,232,328 | 4,359,104 | 4,088,151 | 2,987,126 | 2,398,790 |
| Gross\tmargin | 3,351,703 | 2,833,529 | 2,651,913 | 2,075,402 | 1,724,140 |
| Operating\tincome | 763,398 | 704,627 | 649,868 | 530,180 | 437,953 |
| Other\texpense\t(income): |  |  |  |  |  |
| Interest\texpense | 88,263 | 57,860 | 64,542 | 51,184 | 31,429 |
| Other\t(income)\texpense,\tnet | (2,146) | (2,263) | (2,562) | 3,169 | (2,643) |
| Income\tfrom\tcontinuing\toperations\tbefore\nprovision\tfor\tincome\ttaxes | 677,281 | 649,030 | 587,888 | 475,827 | 409,167 |
| Provision\tfor\tincome\ttaxes | 220,566 | 219,703 | 204,264 | 164,204 | 147,942 |
| Equity\tin\tearnings\t(loss)\tof\tunconsolidated\nsubsidiaries | (592) | (6,104) | (2,105) | — | — |
| Income\tfrom\tcontinuing\toperations | 456,123 | 423,223 | 381,519 | 311,623 | 261,225 |
| Income\tfrom\tdiscontinued\toperations,\tnet\tof\ttax | 7,852 | — | — | — | — |
| Net\tincome | $463,975 | $423,223 | $381,519 | $311,623 | $261,225 |
| Basic\tearnings\tper\tshare:\t(6) |  |  |  |  |  |
| Income\tfrom\tcontinuing\toperations | $1.49 | $1.39 | $1.26 | $1.04 | $0.88 |
| Income\tfrom\tdiscontinued\toperations | 0.03 | — | — | — | — |
| Net\tincome | $1.51 | $1.39 | $1.26 | $1.04 | $0.88 |
| Diluted\tearnings\tper\tshare:\t(6) |  |  |  |  |  |
| Income\tfrom\tcontinuing\toperations | $1.47 | $1.38 | $1.25 | $1.02 | $0.87 |
| Income\tfrom\tdiscontinued\toperations | 0.03 | — | — | — | — |
| Net\tincome | $1.50 | $1.38 | $1.25 | $1.02 | $0.87 |
| Weighted\taverage\tshares\toutstanding-basic | 306,897 | 304,722 | 302,343 | 299,574 | 295,810 |
| Weighted\taverage\tshares\toutstanding-diluted | 309,784 | 307,496 | 306,045 | 304,131 | 300,693 |

| (in	thousands) | 2016 | 2015 | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | (1) | (2) | (3) | (4) | (5) |
| Other\tFinancial\tData: |  |  |  |  |  |
| Net\tcash\tprovided\tby\toperating\tactivities\t(7) | $635,014 | $544,282 | $388,711 | $446,404 | $221,927 |
| Net\tcash\tused\tin\tinvesting\tactivities | (1,709,928) | (329,993) | (920,994) | (505,606) | (352,534) |
| Net\tcash\t(used\tin)\tprovided\tby\tfinancing\tactivities |  |  |  |  |  |
| (7) | 1,225,737 | (238,537) | 501,189 | 147,593 | 141,335 |
| Capital\texpenditures | 207,074 | 170,490 | 140,950 | 90,186 | 88,255 |
| Cash\tpaid\tfor\tacquisitions,\tnet\tof\tcash\tacquired | 1,349,339 | 160,517 | 775,921 | 408,384 | 265,336 |
| Depreciation\tand\tamortization | 206,086 | 128,192 | 125,437 | 86,463 | 70,165 |
| Balance\tSheet\tData: |  |  |  |  |  |
| Total\tassets | $8,303,199 | $5,647,837 | $5,475,739 | $4,438,058 | $3,664,503 |
| Working\tcapital\t(8) | 2,045,273 | 1,588,742 | 1,491,169 | 1,062,926 | 843,689 |
| Long-term\tobligations,\tincluding\tcurrent\tportion | 3,341,771 | 1,584,702 | 1,846,148 | 1,287,242 | 1,111,058 |
| Stockholders'\tequity | 3,442,949 | 3,114,682 | 2,720,657 | 2,350,745 | 1,964,094 |

(1) Includes	the	results	of	operations	of:	(i)	Rhiag,	from	its	acquisition	effective	March	18,	2016;	(ii)	PGW,	from	its	acquisition	effective	April	21,	2016;	and	(iii) 13	other	businesses	from	their	respective	acquisition	dates	in	2016.

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

(3) Includes	the	results	of	operations	of	Keystone	Specialty	from	its	acquisition	effective	January	3,	2014	and	22	other	businesses	from	their	respective	acquisition dates	in	2014.

(4) Includes	the	results	of	operations	of	Sator	from	its	acquisition	effective	May	1,	2013	and	19	other	businesses	from	their	respective	acquisition	dates	in 2013.

(5) 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.

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

(7)	Prior	year	balances	have	been	updated	to	reflect	the	adjustments	resulting	from	the	retrospective	adoption	of	ASU	2016-09	during	2016	as	described	in	Recent Accounting	Pronouncements	within	Note	4,	"Summary	of	Significant	Accounting	Policies"	in	Part	II,	Item	8	of	this	Annual	Report	on	Form	10-K.	The adjustments	to	prior	year	amounts	are	reflected	in	the	table	below:

|  | 2015 | 2014 | 2013 | 2012 |
| :--- | :--- | :--- | :--- | :--- |
| Net\tcash\tprovided\tby\toperating\tactivities |  |  |  |  |
| Prior\tto\tadoption\tof\tASU\t2016-09 | $529,837 | $370,897 | \t $428,056 | \t $206,190 |
| Adjustment\t-\tadoption\tof\tASU\t2016-09 | 14,445 | 17,814 | 18,348 | 15,737 |
| As\tadjusted | $544,282 | $388,711 | \t $446,404 | \t $221,927 |
| Net\tcash\t(used\tin)\tprovided\tby\tfinancing\tactivities |  |  |  |  |
| Prior\tto\tadoption\tof\tASU\t2016-09 | $(224,092) | $519,003 | \t $165,941 | \t $157,072 |
| Adjustment\t-\tadoption\tof\tASU\t2016-09 | (14,445) | (17,814) | (18,348) | (15,737) |
| As\tadjusted | $(238,537) | $501,189 | \t $147,593 | \t $141,335 |

(8)				Working	capital	amounts	exclude	assets	and	liabilities	of	discontinued	operations.

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

# OPERATIONS

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

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

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

On	April	21,	2016,	we	expanded	our	product	offerings	to	include	aftermarket	automotive	glass	products	through	our	acquisition	of	PGW.	With	our	acquisition of	PGW,	we	are	a	leading	global	distributor	of	automotive	glass	products	reaching	most	major	markets	in	North	America.

We	are	organized	into	five	operating	segments:	Wholesale	–	North	America;	Europe;	Specialty;	Glass	and	Self	Service.	We	aggregate	our	Wholesale	–North America,	Glass	and	Self	Service	operating	segments	into	one	reportable	segment,	North	America,	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.	Due	to	these	factors and	others,	which	may	be	unknown	to	us	at	this	time,	our	operating	results	in	future	periods	can	be	expected	to	fluctuate.	Accordingly,	our	historical	results	of operations	may	not	be	indicative	of	future	performance.

# Acquisitions	and	Investments

Since	our	inception	in	1998,	we	have	pursued	a	growth	strategy	through	both	organic	growth	and	acquisitions.	We	have	pursued	acquisitions	that	we	believe will	help	drive	profitability,	cash	flow	and	stockholder	value.	We	target	companies	that	are	market	leaders,	will	expand	our	geographic	presence	and	enhance	our	ability to	provide	a	wide	array	of	automotive	products	to	our	customers	through	our	distribution	network.

On	March	18,	2016,	LKQ	acquired	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.	This	acquisition	expanded	LKQ's	geographic	presence	in	continental	Europe,	and	we believe	the	acquisition	will	generate	potential	purchasing	synergies.

On	April	21,	2016,	LKQ	acquired	PGW,	a	leading	global	distributor	and	manufacturer	of	automotive	glass	products.	PGW's	business	comprises	wholesale	and retail	distribution	services,	automotive	glass	manufacturing,	and	retailer	alliance	partnerships.	We	have	signed	an	agreement	to	divest	the	automotive	glass manufacturing	component	of	PGW,	which	we	expect	to	close	in	the	first	quarter	of	2017.	Unless	otherwise	noted,	the	discussion	related	to	PGW	throughout	Part	II,	Item 7	of	this	annual	report	on	Form	10-K	refers	to	the	aftermarket	glass	distribution	operations	of	PGW,	which	are	included	within	continuing	operations.	See	Note	3, "Discontinued	Operations"	in	Item	8	of	this	annual	report	on	Form	10-K	for	further	information	related	to	our	discontinued	operations.	The	acquisition	of	PGW's aftermarket	glass	distribution	business	expanded	our	addressable	market	in	North	America.	Additionally,	we	believe	the	acquisition	will	create	potential	distribution synergies	with	our	existing	network.

In	addition	to	our	acquisitions	of	Rhiag	and	PGW,	we	acquired	eight	wholesale	businesses	in	Europe,	and	five	wholesale	businesses	in	North	America	during the	year	ended	December	31,	2016.

On	December	1,	2016,	we	acquired	a	26.5%	equity	interest	in	Mekonomen	AB	("Mekonomen"),	the	leading	independent	car	parts	and	service	chain	in	the Nordic	region	of	Europe,	offering	a	wide	range	of	quality	products	including	spare	parts	and	accessories	for	cars,	and	workshop	services	for	consumers	and	businesses. We	are	accounting	for	our	interest	in	Mekonomen	using	the	equity	method	of	accounting,	as	our	investment	gives	us	the	ability	to	exercise	significant	influence,	but	not control,	over	the	investee.

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	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,	the	acquisition	created	logistics	and	administrative	cost	synergies	and	cross-selling	opportunities.

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	7	aftermarket	parts	distribution businesses	in	the	Netherlands,	5	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 instead	of	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.

# Sources	of	Revenue

We	report	our	revenue	in	two	categories:	(i)	parts	and	services	and	(ii)	other.	Our	parts	revenue	is	generated	from	the	sale	of	vehicle	products	and	related services	including	(i)	aftermarket,	other	new	and	refurbished	products	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,	2016,	parts	and	services	revenue	represented	approximately	95%	of	our	consolidated	revenue.

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

Our	revenue	from	aftermarket,	other	new	and	refurbished	products	also	includes	revenue	generated	from	the	sale	of	specialty	aftermarket	vehicle	equipment and	accessories.	These	products	are	primarily	sold	to	a	large	customer	base	of	specialty

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

For	the	year	ended	December	31,	2016,	revenue	from	other	sources	represented	approximately	5%	of	our	consolidated	sales.	These	other	sources	include	scrap sales,	bulk	sales	to	mechanical	manufacturers	(including	cores)	and	sales	of	aluminum	ingots	and	sows	from	our	furnace	operations.	We	derive	scrap	metal	from	several sources,	including	vehicles	that	have	been	used	in	both	our	wholesale	and	self	service	recycling	operations	and	from	OEMs	and	other	entities	that	contract	with	us	for secure	disposal	of	"crush	only"	vehicles.	Other	revenue	will	vary	from	period	to	period	based	on	fluctuations	in	commodity	prices	and	the	volume	of	materials	sold.

# Cost	of	Goods	Sold

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

Our	cost	of	goods	sold	for	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	13%	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	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.

# 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	of	America.	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	using	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.

# 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	perform	goodwill	impairment	tests	annually	in	the	fourth	quarter	and	between	annual	tests	whenever	events	indicate	that	an	impairment	may	exist.	During 2016,	we	did	not	identify	any	events	or	changes	in	circumstances	that	would	more	likely	than	not	reduce	the	fair	value	of	our	reporting	units	below	their	carrying amounts.	Therefore,	we	did	not	perform	any	impairment	tests	other	than	our	annual	test	in	the	fourth	quarter	of	2016.	As	of	the	date	of	our	annual	goodwill	impairment test,	we	were	organized	into	five	operating	segments:	Wholesale	-	North	America;	Europe;	Specialty;	Glass;	and	Self	Service.	Our	Glass	operating	segment	was composed	of	two	reporting	units,	the	aftermarket	business	and	the	glass	manufacturing	business;	however,	goodwill	was	recorded	only	in	the	aftermarket	reporting	unit. The	other	four	operating	segments	were	single	reporting	units	for	purposes	of	goodwill	testing	in	2016.

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.	As	of	December	31,	2016,	we	had	a	total	of	$3.1	billion	in	goodwill	subject	to	future	impairment	tests.	We determined	that	no	adjustments	were	necessary	when	we	performed	our	annual	impairment	testing	in	the	fourth	quarter	of	2016	on	all	five	reporting	units.	We	noted	that the	proximity	of	the	PGW	acquisition	to	the	goodwill	testing	date	resulted	in	a	fair	value	estimate	for	the	Glass	aftermarket	reporting	unit	which	exceeded	the	carrying value	by	less	than	10%.	This	result	aligns	with	our	expectations	as	there	has	not	been	a	significant	change	in	the	value	of	the	business	since	the	acquisition	date	while	we continue	to	execute	our	integration	plans.	No	other	reporting	unit	had	a	fair	value	estimate	which	exceeded	the	carrying	value	by	less	than	25%.	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	4,	"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	14,	"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.

# Results	of	Operations—Consolidated

In	the	"Results	of	Operations	-	Consolidated"	and	"Results	of	Operations	-	Segment	Reporting"	sections	below,	we	discuss	the	impact	of	PGW	on	our consolidated	and	segment	results	for	the	year	ended	December	31,	2016.	Unless	otherwise	noted,	the	discussion	related	to	PGW	refers	only	to	the	aftermarket	glass distribution	operations	of	PGW,	which	are	included	within	continuing	operations.

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

|  | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Revenue | 100.0\t% | 100.0\t% | 100.0\t% |
| Cost\tof\tgoods\tsold | 61.0\t% | 60.6\t% | 60.7\t% |
| Gross\tmargin | 39.0\t% | 39.4\t% | 39.3\t% |
| Facility\tand\twarehouse\texpenses | 8.0\t% | 7.7\t% | 7.8\t% |
| Distribution\texpenses | 8.0\t% | 8.4\t% | 8.6\t% |
| Selling,\tgeneral\tand\tadministrative\texpenses | 11.5\t% | 11.5\t% | 11.3\t% |
| Restructuring\tand\tacquisition\trelated\texpenses | 0.4\t% | 0.3\t% | 0.2\t% |
| Depreciation\tand\tamortization | 2.2\t% | 1.7\t% | 1.8\t% |
| Operating\tincome | 8.9\t% | 9.8\t% | 9.6\t% |
| Other\texpense,\tnet | 1.0\t% | 0.8\t% | 0.9\t% |
| Income\tfrom\tcontinuing\toperations\tbefore\tprovision\tfor\tincome\ttaxes | 7.9\t% | 9.0\t% | 8.7\t% |
| Provision\tfor\tincome\ttaxes | 2.6\t% | 3.1\t% | 3.0\t% |
| Equity\tin\tearnings\t(loss)\tof\tunconsolidated\tsubsidiaries | (0.0\t)% | (0.1)% | (0.0\t)% |
| Income\tfrom\tcontinuing\toperations | 5.3\t% | 5.9\t% | 5.7\t% |
| Income\tfrom\tdiscontinued\toperations | 0.1\t% | —\t% | —\t% |
| Net\tincome | 5.4\t% | 5.9\t% | 5.7\t% |

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

|  | Year	Ended	December	31, | Year	Ended	December	31, |  | Percentage	Change	in	Revenue | Percentage	Change	in	Revenue |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2016 | 2015 | Organic | Acquisition | Foreign\tExchange | Total\tChange |
| Parts\t&\tservices\trevenue | $8,144,645 | \t $6,713,951 | 4.8\t% | 19.0% | (2.5)% | 21.3\t% |
| Other\trevenue | 439,386 | 478,682 | (11.2)% | 3.1% | (0.2)% | (8.2)% |
| Total\trevenue | $8,584,031 | \t $7,192,633 | 3.7\t% | 18.0% | (2.4)% | 19.3\t% |

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	21.3%	represents	increases	in	segment	revenue	of	9.9%	in	North	America,	46.4%	in	Europe	and	13.5%	in Specialty.	The	decrease	in	other	revenue	of	8.2%	primarily	consisted	of	a	$53.4	million	organic	decline	partially	offset	by	$15.0	million	of	acquisition	related	growth. Refer	to	the	discussion	of	our	segment	results	of	operations	for	factors	contributing	to	revenue	change	during	2016	compared	to	the	prior	year.

Cost	of	Goods	Sold.	Our	cost	of	goods	sold	increased	to	61.0%	of	revenue	in	2016	from	60.6%	of	revenue	in	2015.	The	increase	in	cost	of	goods	sold	reflects	a negative	effect	of	0.6%	from	our	Rhiag	acquisition,	which	has	lower	gross	margins	than	our	prior	year	consolidated	gross	margin.	In	addition,	our	cost	of	goods	sold increased	0.2%	as	a	result	of	mix,	as	we	generated	a	greater	proportion	of	our	revenue	in	our	Specialty	operations,	which	has	lower	gross	margins	than	our	prior	year consolidated	gross	margin.	These	negative	impacts	were	partially	offset	by	lower	cost	of	goods	sold	as	a	percentage	of	revenue	of	0.5%	primarily	related	to	our	self service	and	wholesale	operations	in	our	North	America	segment.	Refer	to	the	discussion	of	our	segment	results	of	operations	for	factors	contributing	to	the	changes	in cost	of	goods	sold	as	a	percentage	of	revenue	by	segment	for	the	year	ended	December	31,	2016	compared	to	the	prior	year.

Facility	and	Warehouse	Expenses.	As	a	percentage	of	revenue,	facility	and	warehouse	expenses	for	the	year	ended	December	31,	2016	increased	to	8.0%	from 7.7%	in	the	prior	year.	The	change	in	facility	and	warehouse	expense	reflects	(i)	a

0.3%	increase	as	a	percentage	of	revenue	in	our	North	America	operations	related	to	a	realignment	of	plant	manager	responsibilities,	which	shifted	these	expenses	from selling,	general	and	administrative	expenses	to	facility	and	warehouse	expenses	and	(ii)	a	0.2%	increase	as	a	percentage	of	revenue	in	our	Europe	operations	for	branch openings	and	the	addition	of	facility	costs	for	the	partly	operational	Tamworth,	England	distribution	center.	These	negative	impacts	were	partially	offset	by	a	decrease	of 0.3%	from	our	acquisition	of	Rhiag,	which	has	lower	facility	and	warehouse	expenses	as	a	percentage	of	revenue	than	our	prior	year	consolidated	facility	and warehouse	expenses.

Distribution	Expenses.	As	a	percentage	of	revenue,	distribution	expenses	decreased	to	8.0%	in	2016	from	8.4%	in	2015.	The	decrease	in	distribution	expense reflects	a	positive	impact	of	0.4%	from	our	Rhiag	acquisition,	which	has	lower	distribution	expenses	as	a	percentage	of	revenue	than	our	prior	year	consolidated distribution	expenses.

Selling,	General	and	Administrative	Expenses.	Our	selling,	general	and	administrative	("SG&A")	expenses	for	the	year	ended	December	31,	2016	remained	flat compared	to	the	prior	year	at	11.5%	of	revenue.	SG&A	increased	0.2%	as	a	result	of	our	Rhiag	acquisition,	which	has	higher	SG&A	than	our	prior	year	consolidated SG&A.	Offsetting	this	increase	was	a	0.2%	favorable	impact	from	our	Specialty	operations	as	a	result	of	a	decline	in	personnel	costs	from	the	realization	of	integration synergies,	a	decrease	in	bad	debt	expense	and	other	individually	insignificant	decreases	across	various	SG&A	categories.	Within	our	North	America	segment,	SG&A personnel	expenses	were	flat	as	a	percentage	of	revenue,	as	the	decrease	in	expense	as	a	percentage	of	revenue	related	to	the	realignment	of	plant	manager responsibilities	discussed	above	was	offset	by	increases	in	other	personnel	expenses	as	a	percentage	of	revenue.

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

|  | 2016 |  | 2015 |  | Change |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Restructuring\texpenses | $15,782 | (1) | $13,083 | (1) | $2,699 |
| Acquisition\trelated\texpenses | 21,980 | (2) | 6,428 | (3) | 15,552 |
| Total\trestructuring\tand\tacquisition\trelated\texpenses | $37,762 |  | $19,511 |  | $18,251 |

(1) Restructuring	expenses	of	$10.4	million,	$3.1	million,	$2.3	million	for	the	year	ended	December	31,	2016	related	to	the	integration	of	acquired	businesses	in our	Specialty,	North	America	and	Europe	segments,	respectively.	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	our	acquisitions	into	our existing	business.

(2) Acquisition	related	expenses	for	the	year	ended	December	31,	2016	reflect	$10.9	million	and	$4.1	million	related	to	the	acquisitions	of	Rhiag	and	PGW, respectively.	The	remaining	$7.0	million	of	expense	was	related	to	other	completed	and	potential	acquisitions.

(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,	$0.2	million	for	other	European	acquisitions,	and	$1.0	million	related	to	our	North	America	and	Specialty	acquisitions	during	the year.	Acquisition	related	expenses	also	included	$3.6	million	for	acquisitions	that	were	pending	as	of	December	31,	2015.

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

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

|  | 2016 | 2015 | Change |  |
| :--- | :--- | :--- | :--- | :--- |
| Depreciation | $107,945 | $88,335 | $19,610 | (1) |
| Amortization | 83,488 | 33,785 | 49,703 | (2) |
| Total\tdepreciation\tand\tamortization | $191,433 | $122,120 | $69,313 |  |

(1) The	increase	in	depreciation	expense	primarily	reflects	the	depreciation	expense	for	property	and	equipment	related	to	our	acquisitions	of	Rhiag	and	PGW	of $14.0	million	and	$1.8	million,	respectively.	The	remaining	change	primarily	reflects	increased	levels	of	property	and	equipment	to	support	our	organic	related growth.

(2) The	increase	in	amortization	expense	primarily	reflects	amortization	expense	for	intangible	assets	related	to	our	acquisitions	of	Rhiag	and	PGW	of	$42.7 million	and	$8.4	million,	respectively.	These	increases	are	partially	offset	by	a	decline	in	accelerated	amortization	for	intangibles	recognized	in	previous	years.

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

| Other	expense,	net	for	the	year	ended	December	31,	2015 | $55,597 |  |
| :--- | :--- | :--- |
| Increase\t(decrease)\tdue\tto: |  |  |
| Interest\texpense | 30,403 | (1) |
| Loss\ton\tdebt\textinguishment | 26,650 | (2) |
| Gains\ton\tforeign\texchange\tcontracts\t-\tacquisition\trelated | (18,342) | (3) |
| Gain\ton\tbargain\tpurchase | (8,207) | (4) |
| Interest\tand\tother\tincome,\tnet | 16 |  |
| Net\tincrease | 30,520 |  |
| Other\texpense,\tnet\tfor\tthe\tyear\tended\tDecember\t31,\t2016 | $86,117 |  |

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

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

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

(4) In	October	2016,	we	acquired	Andrew	Page	Limited	("Andrew	Page")	out	of	receivership.	The	fair	value	of	the	net	assets	acquired	exceeded	the	purchase	price, resulting	in	a	gain	on	bargain	purchase	of	$8.2	million.

Provision	for	Income	Taxes.	Our	effective	income	tax	rate	was	32.6%	for	the	year	ended	December	31,	2016,	compared	to	33.9%	for	the	year	ended December	31,	2015.	The	lower	effective	income	tax	rate	reflects	an	$11.4	million	discrete	item	in	2016	for	excess	tax	benefits	from	stock-based	payments	related	to	the early	adoption	of	ASU	2016-09	as	described	in	Note	4,	"Summary	of	Significant	Accounting	Policies"	to	the	consolidated	financial	statements	in	Part	II,	Item	8	of	this Annual	Report	on	Form	10-K.	The	adoption	of	this	ASU	reduced	the	effective	tax	rate	by	1.6%	compared	to	the	prior	year.	Partially	offsetting	this,	our	effective	tax	rate was	negatively	impacted	by	an	increase	in	the	proportion	of	earnings	generated	in	the	U.S.,	which	has	a	higher	tax	rate	than	our	foreign	operations,	as	well	as	an increase	in	nondeductible	acquisition	related	costs,	primarily	related	to	our	Rhiag	and	PGW	acquisitions	as	well	as	other	potential	acquisitions.	Excluding	the	impact	of discrete	items,	our	annual	effective	tax	rate	has	been	close	to	35%	over	the	last	three	years.	The	tax	rate	will	fluctuate	from	year	to	year	based	on	the	geographic	mix	of earnings	and	changes	in	tax	laws,	but	absent	significant	movements	in	either	of	these	factors,	we	expect	our	annual	effective	rate	to	hold	near	35%.

Equity	in	Earnings	(Loss)	of	Unconsolidated	Subsidiaries.	During	the	year	ended	December	31,	2015,	we	recorded	impairment	charges	of	$2.0	million	related to	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	for	the	year	ended	December	31,	2015.	With	our	divestiture	of	ACM	Parts	in	February	2016,	our	share	of	net	operating	losses	in	our	equity	method	investments was	nominal	for	the	year	ended	December	31,	2016.	We	are	reporting	our	equity	in	earnings	of	our	investment	in	Mekonomen	on	a	one	quarter	lag	and	therefore,	no amounts	were	recorded	for	this	investment	during	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 2015,	the	pound	sterling	and	Canadian	dollar	rates	used	to	translate	the	2016	statements	of	income	declined	by	11.3%	and	3.5%,	respectively;	the	Euro	remained	flat relative	to	the	U.S	dollar	during	2016.	The	translation	effect	of	the	decline	in	the	pound	sterling	and	Canadian	dollar	against	the	U.S.	dollar	and	realized	and	unrealized currency	losses	during	2016	resulted	in	an	approximately	$0.05	negative	effect	on	diluted	earnings	per	share	for	continuing	operations	relative	to	the	prior	year.

Income	from	Discontinued	Operations,	net	of	tax.	Income	from	discontinued	operations,	net	of	tax	totaled	$7.9	million	in	2016;	we	had	no	discontinued operations	in	the	prior	year.	Discontinued	operations	for	2016	represents	the	glass	manufacturing	business	of	PGW,	which	was	acquired	in	April	2016.	The	results include	a	$19.8	million,	net	of	tax,	impairment	charge	primarily	related	to	property,	plant	and	equipment	that	was	triggered	when	the	assets	were	classified	as	held	for sale.

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

|  | Year	Ended	December	31, | Year	Ended	December	31, |  | Percentage	Change	in	Revenue |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | 2015 | 2014 | Organic | Acquisition | Foreign\tExchange | Total\tChange |
| Parts\t&\tservices\trevenue | $6,713,951 | \t $6,086,759 | 7.0\t% | 7.1% | (3.8)% | 10.3\t% |
| Other\trevenue | 478,682 | 653,305 | (28.6)% | 2.2% | (0.3)% | (26.7)% |
| Total\trevenue | $7,192,633 | \t $6,740,064 | 3.5\t% | 6.6% | (3.4)% | 6.7\t% |

The	change	in	parts	and	services	revenue	of	10.3%	represents	increases	of	6.8%	in	North	America,	8.0%	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	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	a	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.

|  | 2015 |  | 2014 |  | Change |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Restructuring\texpenses | $13,083 | (1) | $11,123 | (2) | $1,960 |
| Acquisition\trelated\texpenses | 6,428 | (3) | 3,683 | (4) | 2,745 |
| Total\trestructuring\tand\tacquisition\trelated\texpenses | $19,511 |  | $14,806 |  | $4,705 |

(1) Refer	to	our	Year	Ended	December	31,	2016	compared	to	Year	Ended	December	31,	2015	discussion	for details.

(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.

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

|  | 2015 | 2014 | Change |  |
| :--- | :--- | :--- | :--- | :--- |
| Depreciation | $88,335 | $86,216 | $2,119 | (1) |
| Amortization | 33,785 | 34,503 | (718) | (2) |
| Total\tdepreciation\tand\tamortization | $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	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	decrease	in	other	expense,	net	(in	thousands):

| Interest	expense | (6,682) | (1) |
| :--- | :--- | :--- |
| Loss\ton\tdebt\textinguishment | (324) | (2) |
| Interest\tand\tother\tincome,\tnet | 623 | (3) |
| Total\tdecrease | (6,383) |  |
| Other\texpense,\tnet\tfor\tthe\tyear\tended\tDecember\t31,\t2015 | $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) The	decrease	in	Interest	and	other	income,	net	reflects	an	increase	in	contingent	consideration	expense	relative	to	the	prior	year	of	$2.3	million	partially	offset by	(i)	an	increase	in	customer	finance	fees	of	$1.3	million	and	(ii)	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	2015	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	(Loss)	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.

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.

# Results	of	Operations—Segment	Reporting

We	have	five	operating	segments:	Wholesale	–	North	America;	Europe;	Specialty;	Glass	and	Self	Service.	Our	Wholesale	–	North	America,	Glass	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.

Subsequent	to	the	sale	of	our	glass	manufacturing	business,	we	are	combining	our	continuing	Glass	aftermarket	products	operating	segment	into	our	Wholesale –	North	America	operating	segment,	which	we	expect	to	complete	in	2017.

We	have	presented	the	growth	of	our	revenue	and	profitability	in	our	operations	on	both	an	as	reported	and	a	constant	currency	basis.	The	constant	currency presentation,	which	is	a	non-GAAP	measure,	excludes	the	impact	of	fluctuations	in	foreign	currency	exchange	rates.	We	believe	providing	constant	currency information	provides	valuable	supplemental	information	regarding	our	growth	and	profitability,	consistent	with	how	we	evaluate	our	performance,	as	this	statistic removes	the	translation	impact	of	exchange	rate	fluctuations,	which	are	outside	of	our	control	and	do	not	reflect	our	operational	performance.	Constant	currency	revenue and	Segment	EBITDA	results	are	calculated	by	translating	prior	year	revenue	and	Segment	EBITDA	in	local	currency	using	the	current	year's	currency	conversion rate.	This	non-GAAP	financial	measure	has	important	limitations	as	an	analytical	tool	and	should	not	be	considered	in	isolation	or	as	a	substitute	for	an	analysis	of	our results	as	reported	under	GAAP.	Our	use	of	this	term	may	vary	from	the	use	of	similarly-titled	measures	by	other	issuers	due	to	the	potential	inconsistencies	in	the method	of	calculation	and	differences	due	to	items	subject	to	interpretation.	In	addition,	not	all	companies	that	report	revenue	or	profitability	on	a	constant	currency	basis calculate	such	measures	in	the	same	manner	as	we	do	and,	accordingly,	our	calculations	are	not	necessarily	comparable	to	similarly-named	measures	of	other	companies and	may	not	be	appropriate	measures	for	performance	relative	to	other	companies.

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

|  | 2016 | %	of	Total<br>Segment<br>Revenue | 2015 | Year	Ended	December	31,<br>%	of	Total<br>Segment<br>Revenue | 2014 | %	of	Total<br>Segment<br>Revenue |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Third\tParty\tRevenue |  |  |  |  |  |  |
| North\tAmerica | $4,470,900 |  | \t $4,145,998 |  | \t $4,088,701 |  |
| Europe | 2,920,470 |  | 1,995,385 | 1,995,385 | 1,846,155 |  |
| Specialty | 1,192,661 |  | 1,051,250 | 1,051,250 | 805,208 |  |
| Total\tthird\tparty\trevenue | $8,584,031 |  | \t $7,192,633 |  | \t $6,740,064 |  |
| Total\tRevenue |  |  |  |  |  |  |
| North\tAmerica | $4,471,639 |  | \t $4,146,833 |  | \t $4,089,290 |  |
| Europe | 2,920,470 |  | 1,995,455 |  | 1,846,155 |  |
| Specialty | 1,196,709 |  | 1,054,584 | 1,054,584 | 807,015 |  |
| Eliminations | (4,787) |  | (4,239) |  | (2,396) |  |
| Total\trevenue | $8,584,031 |  | \t $7,192,633 |  | \t $6,740,064 |  |
| Segment\tEBITDA |  |  |  |  |  |  |
| North\tAmerica | $596,333 | \t 13.3% | \t $547,405 | \t 13.2% | \t $543,943 | \t 13.3% |
| Europe | 283,608 | \t 9.7% | 200,563 | \t 10.1% | 167,155 | \t 9.1% |
| Specialty | 125,039 | \t 10.4% | 106,561 | \t 10.1% | 79,453 | \t 9.8% |

The	key	measure	of	segment	profit	or	loss	reviewed	by	our	chief	operating	decision	maker,	who	is	our	Chief	Executive	Officer,	is	Segment	EBITDA.	Segment EBITDA	includes	revenue	and	expenses	that	are	controllable	by	the	segment.	Corporate	and	administrative	expenses	are	allocated	to	the	segments	based	on	usage,	with shared	expenses	apportioned	based	on	the	segment's	percentage	of	consolidated	revenue.	We	calculate	Segment	EBITDA	as	EBITDA	excluding	restructuring	and acquisition	related	expenses,	change	in	fair	value	of	contingent	consideration	liabilities,	other	acquisition	related	gains	and	losses	and	equity	in	earnings	(loss)	of unconsolidated	subsidiaries.	EBITDA,	which	is	the	basis	for	Segment	EBITDA,	is	calculated	as	net	income	excluding	discontinued	operations,	depreciation, amortization,	interest	(including	loss	on	debt	extinguishment)	and	income	tax	expense.	See	Note	14,	"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.

# North	America

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

|  | Year	Ended	December	31, | Year	Ended	December	31, |  |  | Percentage	Change	in	Revenue |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  |  |  |  |  |  | Foreign\tExchange |  |
| North\tAmerica | 2016 | 2015 | Organic |  | Acquisition\t(3) | (4) | Total\tChange |
| Parts\t&amp;\tservices\trevenue | $4,036,143 | $3,671,595 | 2.9\t% | (1\t) | 7.3% | (0.2)% | 9.9\t% |
| Other\trevenue | 434,757 | 474,403 | (11.2)% | (2\t) | 3.0% | (0.1)% | (8.4)% |
| Total\tthird\tparty\trevenue | $4,470,900 | $4,145,998 | 1.3\t% |  | 6.8% | (0.2)% | 7.8\t% |

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

Organic	revenue	growth	in	parts	and	services	was	also	negatively	affected	by	milder	winter	weather	conditions	in	North	America	in	the	first	quarter	of	2016, which	we	believe	impacted	volume	for	the	rest	of	the	year.

(2) The	$40	million	decrease	in	other	revenue	primarily	relates	to	(i)	a	$21	million	decline	in	revenue	from	metals,	such	as	those	found	in	catalytic	converters (platinum,	palladium,	and	rhodium),	aluminum	wheels,	and	copper	wiring,	due	to	lower	prices	year	over	year,	(ii)	a	$13	million	reduction	due	to	the	sale	of	our precious	metals	business	late	in	the	second	quarter	of	2015,	and	(iii)	an	$8	million	decline	in	revenue	from	scrap	steel	and	other	metals	primarily	related	to lower	prices.

(3) Acquisition	related	growth	in	2016	includes	$208.6	million	from	our	acquisition	of	PGW.	The	remainder	of	our	acquired	revenue	growth	reflects	revenue	from our	acquisition	of	nine	wholesale	businesses	and	a	self	service	retail	operation	from	the	beginning	of	2015	up	to	the	one	year	anniversary	of	the	acquisition dates.

(4) Compared	to	the	prior	year,	exchange	rates	reduced	our	revenue	growth	by	0.2%,	primarily	due	to	the	strengthening	of	the	U.S.	dollar	against	the	Canadian dollar	compared	to	the	prior	year.

Segment	EBITDA.	Segment	EBITDA	increased	$48.9	million,	or	8.9%,	in	2016	compared	to	the	prior	year.	While	other	revenue	decreased	from	the	prior	year, sequential	increases	in	scrap	steel	prices	in	our	salvage	and	self	service	operations	benefited	gross	margins	and	had	a	favorable	impact	of	$7.7	million	on	North	America Segment	EBITDA	and	approximately	a	$0.02	positive	effect	on	diluted	earnings	per	share.	This	favorable	impact	resulted	from	the	increase	in	scrap	steel	prices	between the	date	we	purchased	the	car,	which	influences	the	price	we	pay	for	the	car,	and	the	date	we	scrapped	the	car,	which	influences	the	price	we	receive	for	scrapping	the vehicle.

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

| North	America | Percentage	of	Total<br>Segment	Revenue |  |
| :--- | :--- | :--- |
| Segment\tEBITDA\tfor\tthe\tyear\tended\tDecember\t31,\t2015 | 13.2\t% |  |
| Increase\t(decrease)\tdue\tto: |  |  |
| Change\tin\tgross\tmargin | 0.7\t% | (1) |
| Change\tin\tsegment\toperating\texpenses | (0.6)% | (2) |
| Segment\tEBITDA\tfor\tthe\tyear\tended\tDecember\t31,\t2016 | 13.3\t% |  |

(1) The	improvement	in	gross	margin	reflects	a	0.8%	favorable	impact	from	our	self	service	operations,	as	car	costs	have	decreased	by	a	greater	percentage	year over	year	than	revenue.	Within	our	wholesale	operations,	we	experienced	a	0.5%	favorable	impact	on	gross	margin	as	a	result	of	procurement	initiatives implemented	in	our	aftermarket	operations	during	2016,	which	reduced	our	product	costs.	Partially	offsetting	these	increases	was	an	unfavorable	impact	of 0.4%	related	to	our	acquisition	of	PGW,	which	had	lower	gross	margins	than	our	existing	North	America	operations	as	a	result	of	a	non-recurring	inventory step-up	adjustment	recorded	upon	acquisition	and	higher	cost	products	sourced	from	the	glass	manufacturing	side	of	the	business.

(2) The	increase	in	segment	operating	expenses	as	a	percentage	of	revenue	reflects	(i)	an	increase	in	operating	expenses	of	0.3%	related	to	our	PGW	acquisition, which	had	higher	operating	expenses	as	a	percentage	of	revenue	than	our	existing	North	America	operations	as	a	result	of	incremental	costs	related	to	shared Glass	corporate	expenses	that	are	not	expected	to	reoccur	after	the	sale	of	the	PGW	glass	manufacturing	business	closes,	and	(ii)	a	0.3%	increase	in	personnel costs	as	a	percentage	of	revenue.	These	increases	were	partially	offset	by	a	0.2%	improvement	in	fuel	prices	as	a	percentage	of	revenue.

# Europe

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

|  | Year	Ended	December	31, | Year	Ended	December	31, |  | Percentage	Change	in	Revenue |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Europe | 2016 | 2015 | Organic\t(1) | Acquisition\t(2) | Foreign\tExchange\t(3) | Total\tChange |
| Parts\t&amp;\tservices\trevenue | $2,915,841 | $1,991,106 | 7.2\t% | 47.1% | (7.9)% | 46.4% |
| Other\trevenue | 4,629 | 4,279 | (0.6)% | 15.7% | (7.0)% | 8.2% |
| Total\tthird\tparty\trevenue | $2,920,470 | $1,995,385 | 7.2\t% | 47.1% | (7.9)% | 46.4% |

(1) In	our	U.K.	operations,	parts	and	services	revenue	grew	organically	by	8.1%,	while	in	Benelux	region	operations,	parts	and	services	revenue	grew	organically by	4.5%.	Our	organic	revenue	growth	in	the	U.K.,	which	resulted	from	higher	sales	volumes,	was	composed	of	a	6.6%	increase	in	revenue	from	stores	open more	than	12	months	and	a	1.5%	increase	in	revenue	generated	by	21	branch	openings	since	the	beginning	of	the	prior	year	through	the	one-year	anniversary	of their	respective	opening	dates.	Organic	revenue	growth	in	our	Benelux	region	was	primarily	due	to	a	favorable	mix	impact	resulting	from	a	shift	in	sales	to higher	price	products	as	well	as	increased	prices;	organic	revenue	also	grew	as	a	result	of	an	additional	selling	day	in	2016	compared	to	the	prior	year.

(2) Acquisition	related	growth	for	the	year-ended	December	31,	2016	includes	$847.5	million	from	our	acquisition	of	Rhiag.	The	remainder	of	our	acquired revenue	growth	includes	revenue	from	our	acquisitions	of	14	distribution	companies	in	the	Netherlands,	3	wholesale	businesses	in	our	U.K.	operations,	and	3 salvage	businesses	in	Sweden	since	the	beginning	of	2015	through	the	one-year	anniversary	of	the	acquisitions.

(3) Compared	to	the	prior	year,	exchange	rates	reduced	our	revenue	growth	by	$158.2	million,	or	7.9%,	primarily	due	to	the	strengthening	of	the	U.S.	dollar against	the	pound	sterling	relative	to	2015.

Segment	EBITDA.	Segment	EBITDA	increased	$83.0	million,	or	41.4%,	in	2016	compared	to	the	prior	year.	Our	Rhiag	acquisition	contributed	$94.3	million to	Segment	EBITDA	in	2016,	while	our	Andrew	Page	acquisition	generated	a	loss	of	$4.8	million.	Our	Europe	Segment	EBITDA	includes	a	negative	year	over	year impact	of	$17.6	million	related	to	the	translation	of	local	currency	results	into	U.S.	dollars	at	lower	exchange	rates	than	those	experienced	during	2015.	On	a	constant currency	basis	(i.e.	excluding	the	translation	impact),	Segment	EBITDA	increased	by	$100.6	million,	or	50.2%,	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,	2016.

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

(1) The	decrease	in	gross	margin	reflects	a	1.3%	decline	in	gross	margin	due	to	the	acquisition	of	Rhiag,	which	has	lower	gross	margins	than	our	other	Europe operations.

(2) The	decrease	in	segment	operating	expenses	as	a	percentage	of	revenue	reflects	(i)	a	decrease	of	1.8%	in	operating	expenses	as	a	result	of	the	acquisition	of Rhiag,	which	has	lower	operating	expenses	as	a	percentage	of	revenue	than	our	other	Europe	operations	and	(ii)	a	0.3%	decrease	in	distribution	expenses	in	our U.K.	operations	due	to	reduced	personnel	costs.	Partially	offsetting	these	decreases	were	(i)	an	increase	in	facility	and	warehouse	expenses	of	0.8%	from	a	0.5% increase	primarily	related	to	the	opening	of	21	new	branches	and	6	new	hubs	since	the	prior	year	and

0.3%	related	to	the	addition	of	facility	and	personnel	costs	for	the	Tamworth	distribution	facility,	and	(ii)	an	increase	of	0.3%	in	operating	expenses	as	a	result of	the	acquisition	of	Andrew	Page,	which	has	higher	operating	expenses	as	a	percentage	of	revenue	than	our	other	Europe	operations.	While	we	have	closed	the Andrew	Page	acquisition	and	are	consolidating	its	results,	we	are	not	permitted	to	integrate	this	acquisition	with	our	existing	U.K.	operations	until	we	receive approval	from	the	U.K.	Competition	and	Markets	Authority.

# 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, | Year	Ended	December	31, |  | Percentage	Change	in	Revenue |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Specialty | 2016 | 2015 | Organic\t(1) | Acquisition\t(2) | Foreign\tExchange\t(3) | Total\tChange |
| Parts\t&amp;\tservices\trevenue | $1,192,661 | \t $1,051,250 | 6.9% | 6.8% | (0.3)% | 13.5% |
| Other\trevenue | — | — | —% | —% | —\t% | —% |
| Total\tthird\tparty\trevenue | $1,192,661 | \t $1,051,250 | 6.9% | 6.8% | (0.3)% | 13.5% |

(1) Organic	growth	in	Specialty	parts	and	services	revenue	reflects	an	increase	in	service	levels	throughout	North	America	as	we	continue	to	expand	the	breadth and	depth	of	our	inventory	offerings	and	add	delivery	capacity	to	our	integrated	distribution	network	to	allow	us	to	realize	synergies	associated	with	the integration	of	Coast.	Through	most	of	2016,	we	also	saw	growth	from	favorable	macro	trends	and	economic	conditions,	which	increased	consumer discretionary	spending	on	automotive	and	recreational	vehicle	parts	and	accessories.

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

(3) Compared	to	the	prior	year,	exchange	rates	reduced	our	revenue	growth	by	$3.3	million,	or	0.3%,	primarily	due	to	the	strengthening	of	the	U.S	dollar	against the	Canadian	dollar	relative	to	2015.

Segment	EBITDA.	Segment	EBITDA	increased	$18.5	million,	or	17.3%,	in	2016	compared	to	the	prior	year.

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

(1) The	decline	in	gross	margin	reflects	(i)	a	0.4%	unfavorable	impact	due	to	customer	volume	rebates	which	have	increased	along	with	sales	volume,	(ii)	a	0.3% increase	in	inventory	costs,	which	were	higher	due	to	the	stocking	of	two	distribution	centers,	one	of	which	was	not	yet	operational	in	the	prior	year	period	and one	which	became	operational	in	the	fourth	quarter	of	2015,	and	(iii)	a	decrease	in	advertising	credits	of	0.3%	due	to	higher	purchase	volume	in	2015	from	the initial	stocking	of	those	two	new	distribution	centers.	These	negative	effects	were	partially	offset	by	a	0.4%	improvement	due	to	Coast	related	freight	synergies as	more	volume	went	through	the	existing	Specialty	network.

(2) The	decrease	in	segment	operating	expenses	reflects	a	favorable	1.0%	reduction	in	selling,	general	and	administrative	expenses	primarily	related	to	(i)	a	0.4% decline	in	personnel	costs	from	the	realization	of	integration	synergies,	(ii)	lower	bad	debt	expense	of	0.2%	due	to	increased	collection	efforts	and	(iii) individually	insignificant	decreases	across

various	selling,	general	and	administrative	expense	categories	totaling	0.4%.	Favorable	distribution	expenses	of	0.2%	due	to	lower	fuel	and	freight	costs	were offset	by	an	increase	in	facilities	and	warehouse	expense	primarily	related	to	the	higher	cost	of	Coast	facilities	as	well	as	the	addition	of	two	new	distribution centers.

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, | Year	Ended	December	31, |  | Percentage	Change	in	Revenue |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| North\tAmerica | 2015 | 2014 | Organic | Acquisition\t(1) | Foreign\tExchange | Total\tChange |
| Parts\t&amp;\tservices\trevenue | $3,671,595 | $3,437,821 | 5.6\t% (2) | 2.2% | (1.0)% | 6.8\t% |
| Other\trevenue | 474,403 | 650,880 | (28.8)% (3) | 2.0% | (0.3)% | (27.1)% |
| Total\tthird\tparty\trevenue | $4,145,998 | $4,088,701 | 0.1\t% | 2.2% | (0.9)% | 1.4\t% |

(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	America	segment:

(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	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.

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, | Year	Ended	December	31, |  | Percentage	Change	in	Revenue |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Europe | 2015 | 2014 | Organic\t(1) | Acquisition\t(2) | Foreign\tExchange\t(3) | Total\tChange |
| Parts\t&amp;\tservices\trevenue | $1,991,106 | $1,843,730 | 9.2% | 8.5% | (9.7)% | 8.0% |
| Other\trevenue | 4,279 | 2,425 | 23.7% | 60.3% | (7.5)% | 76.4% |
| Total\tthird\tparty\trevenue | $1,995,385 | $1,846,155 | 9.3% | 8.6% | (9.7)% | 8.1% |

(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:

(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	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.

|  | Year	Ended	December	31, | Year	Ended	December	31, |  | Percentage	Change	in	Revenue |  |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Specialty | 2015 | 2014 | Organic\t(1) | Acquisition\t(2) | Foreign\tExchange\t(3) | Total\tChange |
| Parts\t&amp;\tservices\trevenue | $1,051,250 | \t $805,208 | 7.8% | 24.6% | (1.9)% | 30.6% |
| Other\trevenue | — | — | —% | —% | —\t% | —% |
| Total\tthird\tparty\trevenue | $1,051,250 | \t $805,208 | 7.8% | 24.6% | (1.9)% | 30.6% |

(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.

(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	of	0.5%	as	we	leverage	our	North

American	distribution	network	for	the	delivery	of	specialty	products,	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.

# Liquidity	and	Capital	Resources

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

|  | December	31,	2016 | December	31,	2015 |
| :--- | :--- | :--- |
| Cash\tand\tequivalents | $227,400 | $87,397 |
| Total\tdebt\t(1) | 3,365,687 | 1,599,695 |
| Current\tmaturities\t(2) | 68,414 | 57,494 |
| Capacity\tunder\tcredit\tfacilities\t(3) | 2,550,000 | 1,947,000 |
| Availability\tunder\tcredit\tfacilities\t(3) | 1,019,112 | 1,337,653 |
| Total\tliquidity\t(cash\tand\tequivalents\tplus\tavailability\ton\tcredit\nfacilities) | 1,246,512 | 1,425,050 |

(1)	Debt	amounts	reflect	the	gross	values	to	be	repaid	(excluding	debt	issuance	costs	of	$23.9	million	and	$15.0	million	as	of	December	31,	2016	and 2015,	respectively).

(2)	Debt	amounts	reflect	the	gross	values	to	be	repaid	(excluding	debt	issuance	costs	of	$2.3	million	and	$1.5	million	as	of	December	31,	2016	and	2015, respectively).

(3)	Includes	our	revolving	credit	facilities,	our	receivables	securitization	facility,	and	letters	of	credit.

We	assess	our	liquidity	in	terms	of	our	ability	to	fund	our	operations	and	provide	for	expansion	through	both	internal	development	and	acquisitions.	Our primary	sources	of	liquidity	are	cash	flows	from	operations	and	our	credit	facilities.	We	utilize	our	cash	flows	from	operations	to	fund	working	capital	and	capital expenditures,	with	the	excess	amounts	going	towards	funding	acquisitions	or	paying	down	outstanding	debt.	As	we	have	pursued	acquisitions	as	part	of	our	growth strategy,	our	cash	flows	from	operations	have	not	always	been	sufficient	to	cover	our	investing	activities.	To	fund	our	acquisitions,	we	have	accessed	various	forms	of debt	financing,	including	revolving	credit	facilities,	senior	notes,	and	a	receivables	securitization	facility.

As	of	December	31,	2016,	we	had	debt	outstanding	and	additional	available	sources	of	financing,	as	follows:

•Senior	secured	credit	facilities	maturing	in	January	2021,	composed	of	term	loans	totaling	$750	million	($732.7	million	outstanding	at	December	31, 2016)	and	$2.45	billion	in	revolving	credit	($1.36	billion	outstanding	at	December	31,	2016),	bearing	interest	at	variable	rates	(although	a	portion	of	this debt	is	hedged	through	interest	rate	swap	contracts)	reduced	by	$72.7	million	of	amounts	outstanding	under	letters	of	credit

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

•Receivables	securitization	facility	with	availability	up	to	$100	million	($100	million	outstanding	as	of	December	31,	2016),	maturing	in	November	2019 and	bearing	interest	at	variable	commercial	paper	rates

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

As	of	December	31,	2016,	we	had	approximately	$1.02	billion	available	under	our	credit	facilities.	Combined	with	approximately	$227.4	million	of	cash	and equivalents	at	December	31,	2016,	we	had	approximately	$1.25	billion	in	available	liquidity,	a	decrease	of	$178.5	million	from	our	available	liquidity	as	of December	31,	2015.	We	expect	to	use	the	proceeds	from	the	sale	of	PGW's	glass	manufacturing	business	to	pay	down	borrowings	under	our	revolving	credit	facilities, which	would	increase	our	available	liquidity	by	approximately	$310	million	when	the	transaction	closes.

We	believe	that	our	current	liquidity	and	cash	expected	to	be	generated	by	operating	activities	in	future	periods	will	be	sufficient	to	meet	our	current	operating and	capital	requirements,	although	such	sources	may	not	be	sufficient	for	future	acquisitions	depending	on	their	size.	While	we	believe	that	we	have	adequate	capacity, from	time	to	time	we	may	need	to	raise	additional	funds	through	public	or	private	financing,	strategic	relationships	or	other	arrangements.	There	can	be	no	assurance	that additional	funding,	or	refinancing	of	our	credit	facilities,	if	needed,	will	be	available	on	terms	attractive	to	us,	or	at	all.	Furthermore,	any	additional	equity	financing	may be	dilutive	to	stockholders,	and	debt	financing,	if	available,	may	involve	restrictive	covenants	or	higher	interest	costs.	Our	failure	to	raise	capital	if	and	when	needed could	have	a	material	adverse	impact	on	our	business,	operating	results,	and	financial	condition.

Borrowings	under	the	credit	agreement	accrue	interest	at	variable	rates,	which	are	tied	to	LIBOR	or	CDOR,	depending	on	the	currency	and	the	duration	of	the borrowing,	plus	an	applicable	margin	rate	which	is	subject	to	change	quarterly	based	on	our	reported	leverage	ratio.	We	hold	interest	rate	swaps	to	hedge	the	variable rates	on	a	portion	of	our	credit	agreement	borrowings,	with	the	effect	of	fixing	the	interest	rates	on	the	respective	notional	amounts.	In	addition,	in	2016,	we	entered	into cross	currency	swaps	that	contain	an	interest	rate	swap	component	and	a	foreign	currency	forward	contract	component	that,	when	combined	with	related	intercompany financing	arrangements,	effectively	convert	variable	rate	U.S.	dollar-denominated	borrowings	into	fixed	rate	euro-denominated	borrowings.	These	derivative transactions	are	described	in	Note	10,	"Derivative	Instruments	and	Hedging	Activities"	to	the	consolidated	financial	statements	in	Item	8	of	this	Annual	Report	on	Form 10-K.	After	giving	effect	to	these	contracts,	the	weighted	average	interest	rate	on	borrowings	outstanding	under	our	credit	agreement	at	December	31,	2016	was	2.0%. Including	our	senior	notes	and	the	borrowings	on	our	receivables	securitization	program,	our	overall	weighted	average	interest	rate	on	borrowings	was	2.8%	at December	31,	2016.

Cash	interest	payments	were	$86.0	million	for	the	year	ended	December	31,	2016,	including	interest	payments	totaling	$28.5	million	related	to	our	Senior Notes.	In	September	2016,	we	made	our	first	semi-annual	interest	payment	on	our	Euro	Notes	totaling	€9.0	million	($10.1	million);	the	remaining	semi-annual	interest payments	on	our	Euro	Notes	will	be	made	in	October	and	April	each	year.	Cash	interest	payments	in	2016	also	included	$8.0	million	of	interest	paid	as	part	of	the settlement	of	Rhiag's	acquired	debt	and	$4.9	million	to	settle	the	acquired	Rhiag	interest	rate	swap	in	the	first	quarter	of	2016.

We	had	outstanding	credit	agreement	borrowings	of	$2.1	billion	and	$0.9	billion	at	December	31,	2016	and	2015,	respectively.	Of	these	amounts,	$37.2	million and	$22.5	million	were	classified	as	current	maturities	at	December	31,	2016	and	2015,	respectively.

The	scheduled	maturities	of	long-term	obligations	outstanding	at	December	31,	2016	are	as	follows	(in	thousands):

| Years	ending	December	31: |  |
| :--- | :--- |
| 2017 | $68,414 |
| 2018 | 42,553 |
| 2019 | 140,594 |
| 2020 | 39,002 |
| 2021 | 1,942,680 |
| Thereafter | 1,132,444 |
| Total\tdebt\t(1) | $3,365,687 |

(1)	The	total	debt	amounts	presented	above	reflect	the	gross	values	to	be	repaid	(excluding	debt

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,	2016.

As	of	December	31,	2016,	the	Company	had	cash	and	equivalents	of	$227.4	million,	of	which	$175.4	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	resorting	to	repatriation	of	foreign	earnings.

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

The	following	table	sets	forth	a	summary	of	our	aftermarket	inventory	procurement	for	2016	and	2015	(in	thousands):

|  | 2016 | 2015 | Change |  |
| :--- | :--- | :--- | :--- | :--- |
| North\tAmerica | $1,198,556 | \t $1,023,400 | \t $175,156 | (1) |
| Europe | 2,012,804 | 1,143,668 | 869,136 | (2) |
| Specialty | 934,119 | 776,611 | 157,508 | (3) |
| Total | $4,145,479 | \t $2,943,679 | \t $1,201,800 |  |

(1) In	North	America,	aftermarket	purchases	for	the	year	increased	primarily	as	a	result	of	incremental	purchases	of	$140.7	million	related	to	our	April	2016 acquisition	of	PGW.	Additionally,	North	America	aftermarket	inventory	purchases	increased	as	a	result	of	our	July	2015	acquisition	of	Parts	Channel	coupled with	lower	purchase	levels	in	the	first	quarter	of	2015	due	to	accelerated	purchases	in	the	fourth	quarter	of	2014	in	anticipation	of	potential	labor	issues	at	West Coast	ports	in	the	United	States.

(2) In	our	Europe	segment,	the	increase	in	purchases	was	primarily	due	to	our	acquisition	of	Rhiag	in	March	2016,	which	added	incremental	purchases	of	$710.3 million	during	2016.	Purchases	for	our	U.K.	operations	increased	in	2016	compared	to	the	prior	year	primarily	as	a	result	of	21	branch	openings	since	the beginning	of	the	prior	year	and	incremental	inventory	purchases	to	stock	the	Tamworth,	England	national	distribution	center.	Purchases	in	our	Netherlands operations	increased	as	a	result	of	organic	and	acquisition	related	growth.	These	increases	were	partially	offset	by	the	devaluation	of	the	pound	sterling	in	2016 compared	to	the	prior	year.

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

Manufacturing	inventory	purchases	related	to	our	discontinued	operations	totaled	$397.5	million	during	2016,	and	consisted	of	raw	materials	used	in	PGW's manufacturing	and	fabrication	of	automotive	glass	products.

The	following	table	sets	forth	a	summary	of	our	global	salvage	and	self	service	procurement	for	2016	and	2015	(in	thousands):

|  | 2016 | 2015 | %	Change |
| :--- | :--- | :--- | :--- |
| North\tAmerica\twholesale\tsalvage\tcars\tand\ttrucks | 291 | 290 | 0.3% |
| Europe\twholesale\tsalvage\tcars\tand\ttrucks | 23 | 20 | 15.0% |
| Self\tService\tand\t"crush\tonly"\tcars | 524 | 471 | 11.3% |

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

Net	cash	provided	by	operating	activities	totaled	$635.0	million	for	the	year	ended	December	31,	2016,	an	increase	of	$90.7	million	compared	to	$544.3 million	in	2015.	During	2016,	our	glass	manufacturing	business,	which	was	acquired	in	April	2016,	generated	$64.4	million	of	cash	flows	from	operations	from	the acquisition	date	through	year-end.	These	operating	cash	flows	are	expected	to	be	nonrecurring	as	we	plan	to	close	the	sale	of	this	business	in	the	first	quarter	of	2017.

The	remaining	increase	in	cash	provided	by	operating	activities	was	attributable	to	our	continuing	operations.	During	2016,	our	income	from	continuing operations	increased	by	$32.9	million	compared	to	the	prior	year	due	to	both	acquisition	related	growth	and	organic	growth.	In	addition,	non-cash	depreciation	and amortization	expense	increased	by	$70.1	million	compared	to	the	prior	year,	primarily	as	a	result	of	our	Rhiag	and	PGW	acquisitions.	Cash	paid	for	taxes	for	our continuing

operations	increased	by	$37.0	million	during	2016	compared	to	the	prior	year	as	a	result	of	growth	in	the	business,	primarily	related	to	our	Rhiag	acquisition.

Cash	outflows	for	our	primary	working	capital	accounts	(receivables,	inventory	and	payables)	totaled	$115.1	million	during	2016	compared	to	$72.7 million	during	2015.	Cash	flows	related	to	our	primary	working	capital	accounts	can	be	volatile	as	the	purchases,	payments	and	collections	can	be	timed	differently from	period	to	period	and	can	be	influenced	by	factors	outside	of	our	control.	However,	we	expect	that	the	net	change	in	these	working	capital	items	will	generally	be	a cash	outflow	as	we	grow	our	business	each	year.	Cash	outflows	related	to	receivables	were	$80.2	million	higher	in	2016	than	the	prior	year.	The	increase	in	accounts receivable	is	primarily	related	to	our	U.K.	operations	as	a	result	of	increased	sales;	the	remaining	increase	primarily	related	to	our	Specialty	operations,	which experienced	larger	growth	in	receivables	balances	during	2016	than	the	prior	year	period	from	organic	and	acquisition	revenue	growth.	Compared	to	the	prior	year,	cash outflows	related	to	inventory	declined	$16.6	million,	primarily	a	result	of	our	North	America	and	Specialty	operations.	This	was	partially	offset	by	inventory	growth	in our	U.K.	operations	as	a	result	of	incremental	inventory	purchases	to	stock	new	branches	and	the	Tamworth,	England	national	distribution	center.	Accounts	payable represented	a	$17.0	million	cash	inflow	in	2016	compared	to	a	$4.2	million	cash	outflow	in	the	prior	year.	The	increase	is	primarily	related	to	a	rise	in	the	payables balance	in	our	U.K.	operations,	partially	offset	by	a	decline	in	the	payables	balance	in	our	North	America	and	Rhiag	operations	due	to	the	timing	of	payments.

Net	cash	used	in	investing	activities	totaled	$1.7	billion	for	the	year	ended	December	31,	2016,	compared	to	$330.0	million	in	2015.	We	invested	$1.3	billion	of cash,	net	of	cash	acquired,	in	business	acquisitions	during	2016,	which	included	$601.4	million	for	our	Rhiag	acquisition	and	$661.7	million	for	our	PGW	acquisition, compared	to	$160.5	million	for	business	acquisitions	in	2015.	Property	and	equipment	purchases	were	$207.1	million	in	the	year	ended	December	31,	2016	compared	to $170.5	million	in	the	prior	year.	Purchases	of	property	and	equipment	increased	over	the	prior	period	primarily	as	a	result	of	$24.2	million	of	purchases	in	our discontinued	operations	and	a	$19.6	million	increase	in	our	North	America	segment.	In	2016,	we	paid	$185.7	million	for	investments	in	unconsolidated	subsidiaries, primarily	related	to	our	investment	in	Mekonomen;	payments	for	investments	in	consolidated	subsidiaries	were	$9.7	million	in	2015.	In	2016,	we	entered	into	foreign currency	contracts	to	fund	the	purchase	price	of	the	Rhiag	acquisition,	which	generated	$18.3	million	of	gains;	we	had	no	such	contracts	in	the	prior	year	period.	During 2016,	cash	provided	by	other	investing	activities,	net	was	$13.8	million,	primarily	from	the	proceeds	on	the	sale	of	our	interest	in	our	Australian	joint	venture,	compared to	$10.7	million	in	2015	primarily	as	a	result	of	proceeds	from	disposals	of	fixed	assets.

Net	cash	provided	by	financing	activities	totaled	$1.2	billion	for	the	year	ended	December	31,	2016,	compared	to	net	cash	used	in	financing	activities	of	$238.5 million	in	2015.	During	2016,	net	borrowings	under	our	credit	facilities	were	$1.3	billion	compared	to	net	repayments	of	$186.5	million	in	2015.	The	increase	in borrowings	during	2016	is	primarily	the	result	of	borrowings	under	our	multi-currency	revolving	credit	facility	in	order	to	fund	the	acquisitions	of	Rhiag	and	PGW	and investment	in	Mekonomen	and	repay	$543.3	million	of	Rhiag	acquired	debt	and	debt	related	liabilities.	The	increase	in	borrowings	during	2016	also	reflects	our	2016 amendments	of	our	credit	facilities,	which	generated	$338.5	million	in	additional	term	loan	borrowings,	a	portion	of	which	was	used	to	repay	outstanding	revolver borrowings.	In	April	2016,	we	issued	the	Euro	Notes,	generating	proceeds	of	$563.5	million.	The	proceeds	from	the	Euro	Notes	were	used	to	repay	a	portion	of	the borrowings	on	the	revolving	credit	facility.	In	connection	with	our	January	and	December	2016	amendments	of	our	credit	facilities,	our	April	2016	issuance	of	the	Euro Notes,	and	our	November	2016	amendment	to	our	receivables	securitization	facility,	we	paid	$16.6	million	of	debt	issuance	costs	during	the	2016;	debt	issuance	costs incurred	in	the	prior	year	were	minimal.

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.

|  | 2015 | 2014 | Change |  |
| :--- | :--- | :--- | :--- | :--- |
| North\tAmerica | $1,023,400 | \t $985,300 | \t $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 | \t $2,685,290 | \t $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,	one	of	which	opened	in	late	2015	and	one	of	which	opened	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 the	prior	year	period.

|  | 2015 | 2014 | %	Change |
| :--- | :--- | :--- | :--- |
| North\tAmerica\twholesale\tsalvage\tcars\tand\ttrucks | 290 | 290 | —\t% |
| Europe\twholesale\tsalvage\tcars\tand\ttrucks | 20 | — | n/m |
| Self\tService\tand\t"crush\tonly"\tcars | 471 | 514 | (8.4)% |

Net	cash	provided	by	operating	activities	totaled	$544.3	million	for	the	year	ended	December	31,	2015,	compared	to	$388.7	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.	See	Note	14,	"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	EBITDA	to	Net	Income.

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	for	the	same	period	of	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	$10.7	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	provided	by	financing	activities	totaled	$238.5	million	for	the	year	ended	December	31,	2015,	compared	to	$501.2	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.

# 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,	2016	(in	millions):

|  |  | Less	than |  |  | More	than |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  | Total | 1\tYear | 1-3\tYears | 3-5\tYears | 5\tYears |
| Contractual\tobligations |  |  |  |  |  |
| Long-term\tdebt\t(1) | $3,897.5 | $166.5 | $380.0 | $2,136.5 | $1,214.5 |
| Capital\tlease\tobligations\t(2) | 24.8 | 4.5 | 4.9 | 2.2 | 13.2 |
| Operating\tleases\t(3) | 1,184.6 | 200.4 | 305.4 | 192.6 | 486.2 |
| Purchase\tobligations\t(4) | 344.8 | 342.5 | 1.9 | 0.4 | — |
| Other\tlong-term\tobligations\t(5) | 247.9 | 142.1 | 49.3 | 14.1 | 42.4 |
| Total | $5,699.6 | $856.0 | $741.5 | $2,345.8 | $1,756.3 |

Note:	This	table	only	includes	amounts	related	to	continuing	operations.

(1) Our	long-term	debt	under	contractual	obligations	above	includes	interest	of	$546.0	million	on	the	balances	outstanding	as	of	December	31,	2016.	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,	2016.	Future	estimated interest	expense	for	the	next	year,	one	to	three	years,	and	three	to	five	years	is	$102.1	million,	$201.0	million	and	$156.4	million,	respectively.	Estimated interest	expense	beyond	five	years	is	$86.5	million.

(2) Interest	on	capital	lease	obligations	of	$10.6	million	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	$0.4	million,	$0.7	million	and	$0.6	million,	respectively.	Estimated	interest	expense	beyond	five	years	is	$8.9 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.

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

(5) Our	other	long-term	obligations	consist	of	estimated	payments	for	our	self	insurance	reserves	of	$77.6	million	and	outstanding	letters	of	credit	of	$72.7	million, with	the	remaining	$97.6	million	representing	primarily	other	asset	purchase	commitments	and	payments	for	deferred	compensation	and	pension	plans.

# ITEM	7A. QUANTITATIVE	AND	QUALITATIVE	DISCLOSURES	ABOUT	MARKET RISK

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

•foreign	exchange	rates;

•interest	rates;	and

•commodity

prices.

# Foreign	Exchange

Foreign	currency	fluctuations	may	impact	the	financial	results	we	report	for	the	portions	of	our	business	that	operate	in	functional	currencies	other	than	the	U.S. dollar.	Our	operations	outside	of	the	U.S.	represented	39.1%	and	32.8%	of	our	revenue	during	2016	and	2015,	respectively.	An	increase	or	decrease	in	the	strength	of	the U.S.	dollar	against	these	currencies	by	10%	would	result	in	a	4%	change	in	our	consolidated	revenue	and	a	3%	change	in	our	operating	income	for	the	year	ended December	31,	2016.	See	our	Results	of	Operations	discussion	in	Item	7	of	this	Annual	Report	on	Form	10-K	for	additional	information	regarding	the	impact	of fluctuations	in	exchange	rates	on	our	year	over	year	results.

Additionally,	we	are	exposed	to	foreign	currency	fluctuations	with	respect	to	the	purchase	of	aftermarket	products	from	foreign	countries,	primarily	in	Europe and	Asia.	To	the	extent	that	our	inventory	purchases	are	not	denominated	in	the	functional	currency	of	the	purchasing	location,	we	are	exposed	to	exchange	rate fluctuations.	In	several	of	our	operations,	we	purchase	inventory	from	manufacturers	in	Taiwan	in	U.S.	dollars,	which	exposes	us	to	fluctuations	in	the	relationship between	the	local	functional	currency	and	the	U.S.	dollar,	as	well	as	fluctuations	between	the	U.S.	dollar	and	the	Taiwan	dollar.	We	hedge	our	exposure	to	foreign currency	fluctuations	related	to	a	portion	of	inventory	purchases	in	our	Europe	operations,	but	the	notional	amount	and	fair	value	of	these	foreign	currency	forward contracts	at	December	31,	2016	were	immaterial.	We	do	not	currently	attempt	to	hedge	foreign	currency	exposure	related	to	our	foreign	currency	denominated	inventory purchases	in	our	North	America	operations,	and	we	may	not	be	able	to	pass	on	any	price	increases	to	our	customers.

Other	than	with	respect	to	a	portion	of	our	foreign	currency	denominated	inventory	purchases,	we	do	not	hold	derivative	contracts	to	hedge	foreign	currency risk.	Our	net	investment	in	foreign	operations	is	partially	hedged	by	the	foreign	currency	denominated	borrowings	we	use	to	fund	foreign	acquisitions;	however,	our ability	to	use	foreign	currency	denominated	borrowings	to	finance	our	foreign	operations	may	be	limited	based	on	local	statutory	tax	laws.	We	have	elected	not	to	hedge the	foreign	currency	risk	related	to	the	interest	payments	on	foreign	borrowings	as	we	generate	cash	flows	in	the	local	currencies	that	can	be	used	to	fund	debt	payments. As	of	December	31,	2016,	we	had	outstanding	borrowings	of	€500.0	million	under	our	Euro	Notes,	and	£118.7	million,	CAD	$130.4	million,	SEK	116.0	million,	and €11.0	million	under	our	revolving	credit	facilities.

# Interest	Rates

Our	results	of	operations	are	exposed	to	changes	in	interest	rates	primarily	with	respect	to	borrowings	under	our	credit	facilities,	where	interest	rates	are	tied	to the	prime	rate,	LIBOR	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.; Citizens,	N.A.;	Fifth	Third	Bank;	HSBC	Bank	USA,	N.A;	and	Banco	Bilbao	Vizcaya	Argentaria,	S.A.).

As	of	December	31,	2016,	we	held	ten	interest	rate	swap	contracts	representing	a	total	of	$590	million	of	U.S.	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	January	2021	through	June	2021.	As	of	December	31,	2016,	the	fair	value	of	the	interest	rate	swap	contracts	was	an	asset	of	$16.4	million.	The values	of	such	contracts	are	subject	to	changes	in	interest	rates.

In	addition	to	these	interest	rate	swaps,	in	2016	we	entered	into	three	cross	currency	swap	agreements	for	a	total	notional	amount	of	$422.4	million	(€400 million)	with	maturity	dates	in	January	2021.	These	cross	currency	swaps	contain	an	interest	rate	swap	component	and	a	foreign	currency	forward	contract	component that,	combined	with	related	intercompany	financing	arrangements,	effectively	convert	variable	rate	U.S.	dollar-denominated	borrowings	into	fixed	rate	euro- denominated	borrowings.	The	swaps	are	intended	to	eliminate	uncertainty	in	cash	flows	in	U.S.	dollars	and	euros	in	connection	with	intercompany	financing arrangements.	The	cross	currency	swaps	were	also	executed	with	banks	we	believe	are	creditworthy	(Wells	Fargo	Bank,	N.A.;	Bank	of	America,	N.A.;	and	The	Bank	of Tokyo-Mitsubishi	UFJ,	Ltd.).	As	of	December	31,	2016,	the	fair	value	of	the	interest	rate	swap	components	of	the	cross	currency	swaps	was	an	asset	of	$1.5	million,	and the	fair	value

of	the	currency	forward	components	was	a	liability	of	$3.1	million.	The	values	of	these	contracts	are	subject	to	changes	in	interest	rates	and	foreign	currency	exchange rates.

In	total,	we	had	48%	of	our	variable	rate	debt	under	our	credit	facilities	at	fixed	rates	at	December	31,	2016	compared	to	29%	at	December	31,	2015.	See	Note 9,	"Long-Term	Obligations"	and	Note	10,	"Derivative	Instruments	and	Hedging	Activities"	to	the	consolidated	financial	statements	in	Part	II,	Item	8	of	this	Annual Report	on	Form	10-K	for	additional	information.

At	December	31,	2016,	we	had	$1.2	billion	of	variable	rate	debt	that	was	not	hedged.	Using	sensitivity	analysis,	a	100	basis	point	movement	in	interest	rates would	change	interest	expense	by	$11.8	million	over	the	next	twelve	months.

# Commodity	Prices

We	are	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	vehicle	costs	will	decrease	at	the	same	rate	as	the	metal	prices.	Therefore,	we	can	experience	positive	or	negative	gross	margin	effects	in	periods	of rising	or	falling	metals	prices,	particularly	when	such	prices	move	rapidly.	Additionally,	if	market	prices	were	to	change	at	a	greater	rate	than	our	vehicle	acquisition costs,	we	could	experience	a	positive	or	negative	effect	on	our	operating	margin.	Scrap	metal	prices	have	increased	44%	since	the	fourth	quarter	of	2015.

# ITEM	8.					FINANCIAL	STATEMENTS	AND	SUPPLEMENTARY	DATA

# INDEX	TO	FINANCIAL	STATEMENTS

|  | Page |
| :--- | :--- |
| LKQ\tCORPORATION\tAND\tSUBSIDIARIES |  |
| Report\tof\tIndependent\tRegistered\tPublic\tAccounting\tFirm | 58 |
| Consolidated\tStatements\tof\tIncome\tfor\tthe\tyears\tended\tDecember\t31,\t2016,\t2015\tand\t2014 | 59 |
| Consolidated\tStatements\tof\tComprehensive\tIncome\tfor\tthe\tyears\tended\tDecember\t31,\t2016,\t2015\tand\t2014 | 59 |
| Consolidated\tBalance\tSheets\tas\tof\tDecember\t31,\t2016\tand\t2015 | 60 |
| Consolidated\tStatement\tof\tCash\tFlows\tfor\tthe\tyears\tended\tDecember\t31,\t2016,\t2015\tand\t2014 | 61 |
| Consolidated\tStatements\tof\tStockholder's\tEquity\tfor\tthe\tyears\tended\tDecember\t31,\t2016,\t2015\tand\t2014 | 62 |
| Notes\tto\tConsolidated\tFinancial\tStatements | 63 |

# 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,	2016	and	2015,	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, 2016.	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,	2016	and	2015,	and	the	results	of	their	operations	and	their	cash	flows	for	each	of	the	three	years	in	the	period	ended	December	31,	2016,	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.

As	described	in	Note	4	to	the	consolidated	financial	statements,	effective	January	1,	2016,	the	Company	adopted	Accounting	Standards	Update	No.	2016-09, "Improvements	to	Employee	Share-Based	Payment	Accounting."

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,	2016,	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	27,	2017	expressed	an	unqualified	opinion	on	the	Company's	internal	control	over financial	reporting.

Chicago,	Illinois February	27,	2017

# LKQ	CORPORATION	AND	SUBSIDIARIES

# Consolidated	Statements	of	Income

# (In	thousands,	except	per	share	data)

|  | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Revenue | $8,584,031 | $7,192,633 | $6,740,064 |
| Cost\tof\tgoods\tsold | 5,232,328 | 4,359,104 | 4,088,151 |
| Gross\tmargin | 3,351,703 | 2,833,529 | 2,651,913 |
| Facility\tand\twarehouse\texpenses | 688,918 | 556,041 | 526,291 |
| Distribution\texpenses | 683,812 | 602,897 | 577,341 |
| Selling,\tgeneral\tand\tadministrative\texpenses | 986,380 | 828,333 | 762,888 |
| Restructuring\tand\tacquisition\trelated\texpenses | 37,762 | 19,511 | 14,806 |
| Depreciation\tand\tamortization | 191,433 | 122,120 | 120,719 |
| Operating\tincome | 763,398 | 704,627 | 649,868 |
| Other\texpense\t(income): |  |  |  |
| Interest\texpense | 88,263 | 57,860 | 64,542 |
| Loss\ton\tdebt\textinguishment | 26,650 | — | 324 |
| Gain\ton\tforeign\texchange\tcontracts\t-\tacquisition\trelated | (18,342) | — | — |
| Gain\ton\tbargain\tpurchase | (8,207) | — | — |
| Interest\tand\tother\tincome,\tnet | (2,247) | (2,263) | (2,886) |
| Total\tother\texpense,\tnet | 86,117 | 55,597 | 61,980 |
| Income\tfrom\tcontinuing\toperations\tbefore\tprovision\tfor\tincome\ttaxes | 677,281 | 649,030 | 587,888 |
| Provision\tfor\tincome\ttaxes | 220,566 | 219,703 | 204,264 |
| Equity\tin\tearnings\t(loss)\tof\tunconsolidated\tsubsidiaries | (592) | (6,104) | (2,105) |
| Income\tfrom\tcontinuing\toperations | 456,123 | 423,223 | 381,519 |
| Income\tfrom\tdiscontinued\toperations,\tnet\tof\ttax | 7,852 | — | — |
| Net\tincome | $463,975 | $423,223 | $381,519 |
| Basic\tearnings\tper\tshare: |  |  |  |
| Income\tfrom\tcontinuing\toperations | $1.49 | $1.39 | $1.26 |
| Income\tfrom\tdiscontinued\toperations | 0.03 | — | — |
| Net\tincome\t(1) | $1.51 | $1.39 | $1.26 |
| Diluted\tearnings\tper\tshare: |  |  |  |
| Income\tfrom\tcontinuing\toperations | $1.47 | $1.38 | $1.25 |
| Income\tfrom\tdiscontinued\toperations | 0.03 | — | — |
| Net\tincome\t(1) | $1.50 | $1.38 | $1.25 |

|  | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Net\tincome | $463,975 | $423,223 | $381,519 |
| Other\tcomprehensive\t(loss)\tincome: |  |  |  |
| Foreign\tcurrency\ttranslation | (175,639) | (69,817) | (51,979) |
| Net\tchange\tin\tunrecognized\tgains/losses\ton\tderivative\tinstruments,\tnet\tof\ttax | 9,023 | 2,469 | 2,195 |
| Net\tchange\tin\tunrealized\tgains/losses\ton\tpension\tplans,\tnet\tof\ttax | 4,911 | 2,103 | (10,452) |
| Total\tother\tcomprehensive\tloss | (161,705) | (65,245) | (60,236) |
| Total\tcomprehensive\tincome | $302,270 | $357,978 | $321,283 |

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

# Consolidated	Balance	Sheets

# (In	thousands,	except	share	and	per	share	data)

| Assets | 2016 | 2015 |
| :--- | :--- | :--- |
| Current\tAssets: |  |  |
| Cash\tand\tequivalents | $227,400 | $87,397 |
| Receivables,\tnet | 860,549 | 590,160 |
| Inventories | 1,935,237 | 1,556,552 |
| Prepaid\texpenses\tand\tother\tcurrent\tassets | 87,768 | 106,603 |
| Assets\tof\tdiscontinued\toperations | 456,640 | — |
| Total\tCurrent\tAssets | 3,567,594 | 2,340,712 |
| Property\tand\tEquipment,\tnet | 811,576 | 696,567 |
| Intangible\tAssets: |  |  |
| Goodwill | 3,054,769 | 2,319,246 |
| Other\tintangibles,\tnet | 584,231 | 215,117 |
| Equity\tMethod\tInvestments | 183,467 | 2,755 |
| Other\tAssets | 101,562 | 73,440 |
| Total\tAssets | $8,303,199 | $5,647,837 |
| Liabilities\tand\tStockholders'\tEquity |  |  |
| Current\tLiabilities: |  |  |
| Accounts\tpayable | $633,773 | $415,588 |
| Accrued\texpenses: |  |  |
| Accrued\tpayroll-related\tliabilities | 118,755 | 86,527 |
| Self-insurance\treserves | 39,548 | 37,759 |
| Other\taccrued\texpenses | 169,553 | 124,466 |
| Other\tcurrent\tliabilities | 37,943 | 31,596 |
| Current\tportion\tof\tlong-term\tobligations | 66,109 | 56,034 |
| Liabilities\tof\tdiscontinued\toperations | 145,104 | — |
| Total\tCurrent\tLiabilities | 1,210,785 | 751,970 |
| Long-Term\tObligations,\tExcluding\tCurrent\tPortion | 3,275,662 | 1,528,668 |
| Deferred\tIncome\tTaxes | 199,657 | 127,239 |
| Other\tNoncurrent\tLiabilities | 174,146 | 125,278 |
| Commitments\tand\tContingencies |  |  |
| Stockholders'\tEquity: |  |  |
| outstanding\tat\tDecember\t31,\t2016\tand\t2015,\trespectively | 3,075 | 3,055 |
| Additional\tpaid-in\tcapital | 1,116,690 | 1,090,713 |
| Retained\tearnings | 2,590,359 | 2,126,384 |
| Accumulated\tother\tcomprehensive\tloss | (267,175) | (105,470) |
| Total\tStockholders'\tEquity | 3,442,949 | 3,114,682 |
| Total\tLiabilities\tand\tStockholders'\tEquity | $8,303,199 | $5,647,837 |

# Consolidated	Statements	of	Cash	Flows

# (In	thousands)

|  | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| CASH\tFLOWS\tFROM\tOPERATING\tACTIVITIES: |  |  |  |
| Net\tincome | $463,975 | $423,223 | $381,519 |
| Adjustments\tto\treconcile\tnet\tincome\tto\tnet\tcash\tprovided\tby\toperating\tactivities: |  |  |  |
| Depreciation\tand\tamortization | 206,086 | 128,192 | 125,437 |
| Stock-based\tcompensation\texpense | 22,472 | 21,336 | 22,021 |
| Loss\ton\tdebt\textinguishment | 26,650 | — | 324 |
| Impairment\ton\tnet\tassets\tof\tdiscontinued\toperations | 26,677 | — | — |
| Gain\ton\tforeign\texchange\tcontracts\t-\tacquisition\trelated | (18,342) | — | — |
| Gain\ton\tbargain\tpurchase | (8,207) | — | — |
| Deferred\tincome\ttaxes | (16,162) | 22,388 | 6,242 |
| Other | 19,550 | 7,348 | 6,269 |
| Changes\tin\toperating\tassets\tand\tliabilities,\tnet\tof\teffects\tfrom\tacquisitions: |  |  |  |
| Receivables,\tnet | (50,801) | 14,704 | (61,739) |
| Inventories | (64,114) | (83,188) | (122,590) |
| Prepaid\tincome\ttaxes/income\ttaxes\tpayable | 14,944 | 17,474 | 18,428 |
| Accounts\tpayable | 18,577 | (4,222) | (5,474) |
| Other\toperating\tassets\tand\tliabilities | (6,291) | (2,973) | 18,274 |
| Net\tcash\tprovided\tby\toperating\tactivities | 635,014 | 544,282 | 388,711 |
| CASH\tFLOWS\tFROM\tINVESTING\tACTIVITIES: |  |  |  |
| Purchases\tof\tproperty\tand\tequipment | (207,074) | (170,490) | (140,950) |
| Acquisitions,\tnet\tof\tcash\tacquired | (1,349,339) | (160,517) | (775,921) |
| Investments\tin\tunconsolidated\tsubsidiaries | (185,671) | (9,682) | (2,240) |
| Proceeds\tfrom\tforeign\texchange\tcontracts | 18,342 | — | — |
| Other\tinvesting\tactivities,\tnet | 13,814 | 10,696 | (1,883) |
| Net\tcash\tused\tin\tinvesting\tactivities | (1,709,928) | (329,993) | (920,994) |
| CASH\tFLOWS\tFROM\tFINANCING\tACTIVITIES: |  |  |  |
| Proceeds\tfrom\texercise\tof\tstock\toptions | 7,963 | 8,168 | 9,324 |
| Taxes\tpaid\trelated\tto\tnet\tshare\tsettlements\tof\tstock-based\tcompensation\tawards | (4,438) | (7,581) | (443) |
| Debt\tissuance\tcosts | (16,554) | (97) | (3,750) |
| Proceeds\tfrom\tissuance\tof\tEuro\tnotes | 563,450 | — | — |
| Borrowings\tunder\trevolving\tcredit\tfacilities | 2,636,596 | 313,142 | 1,587,644 |
| Repayments\tunder\trevolving\tcredit\tfacilities | (1,748,664) | (445,282) | (1,098,518) |
| Borrowings\tunder\tterm\tloans | 582,115 | — | 11,250 |
| Repayments\tunder\tterm\tloans | (255,792) | (22,500) | (16,875) |
| Borrowings\tunder\treceivables\tsecuritization\tfacility | 106,400 | 3,858 | 95,050 |
| Repayments\tunder\treceivables\tsecuritization\tfacility | (69,400) | (35,758) | (150) |
| Repayments\tof\tother\tdebt,\tnet | (31,156) | (29,696) | (40,051) |
| Payments\tof\tRhiag\tdebt\tand\trelated\tpayments | (543,347) | — | — |
| Payments\tof\tother\tobligations | (1,436) | (22,791) | (41,992) |
| Other\tfinancing\tactivities,\tnet | — | — | (300) |
| Net\tcash\tprovided\tby\t(used\tin)\tfinancing\tactivities | 1,225,737 | (238,537) | 501,189 |
| Effect\tof\texchange\trate\tchanges\ton\tcash\tand\tequivalents | (3,704) | (2,960) | (4,789) |
| Net\tincrease\t(decrease)\tin\tcash\tand\tequivalents | 147,119 | (27,208) | (35,883) |
| Cash\tand\tequivalents,\tbeginning\tof\tperiod | 87,397 | 114,605 | 150,488 |
| Cash\tand\tequivalents\tof\tcontinuing\tand\tdiscontinued\toperations,\tend\tof\tperiod | 234,516 | 87,397 | 114,605 |
| Less:\tCash\tand\tequivalents\tof\tdiscontinued\toperations,\tend\tof\tperiod | (7,116) | — | — |
| Cash\tand\tequivalents,\tend\tof\tperiod | $227,400 | $87,397 | $114,605 |
| Supplemental\tdisclosure\tof\tcash\tpaid\tfor: |  |  |  |
| Income\ttaxes,\tnet\tof\trefunds | $230,036 | $180,126 | $176,955 |
| Interest | 86,021 | 54,917 | 59,678 |
| Supplemental\tdisclosure\tof\tnoncash\tinvesting\tand\tfinancing\tactivities: |  |  |  |
| Notes\tpayable\tand\tother\tfinancing\tobligations,\tincluding\tnotes\tissued\tand\tdebt\tassumed\tin\tconnection\twith\nbusiness\tacquisitions | 568,032 | $28,348 | $96,258 |
| Non-cash\tproperty\tand\tequipment\tadditions | 10,715 | 8,846 | 2,293 |
| Contingent\tconsideration\tliabilities | — | — | 5,854 |

# Consolidated	Statements	of	Stockholders'	Equity

|  | Common	Stock<br>Shares<br>Issued | Amount | Additional	Paid-<br>In	Capital | Retained<br>Earnings | Accumulated<br>Other<br>Comprehensive<br>Income	(Loss) | Total	Stockholders'<br>Equity |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| BALANCE,\tJanuary\t1,\t2014 | 300,805 | $3,008 | $1,006,084 | $1,321,642 | $20,011 | $2,350,745 |
| Net\tincome | — | — | — | 381,519 | — | 381,519 |
| Other\tcomprehensive\tloss | — | — | — | — | (60,236) | (60,236) |
| Restricted\tstock\tunits\tvested | 975 | 10 | (10) | — | — | — |
| Stock-based\tcompensation\texpense | — | — | 22,021 | — | — | 22,021 |
| Exercise\tof\tstock\toptions | 1,688 | 17 | 9,307 | — | — | 9,324 |
| Tax\twithholdings\trelated\tto\tnet\tshare |  |  |  |  |  |  |
| settlements\tof\tstock-based\tcompensation |  |  |  |  |  |  |
| awards | (15) | — | (443) | — | — | (443) |
| Excess\ttax\tbenefit\tfrom\tstock-based\tpayments | — | — | 17,727 | — | — | 17,727 |
| BALANCE,\tDecember\t31,\t2014 | 303,453 | $3,035 | $1,054,686 | $1,703,161 | $(40,225) | $2,720,657 |
| Net\tincome | — | — | — | 423,223 | — | 423,223 |
| Other\tcomprehensive\tloss | — | — | — | — | (65,245) | (65,245) |
| Restricted\tstock\tunits\tvested,\tnet\tof\tshares\nwithheld\tfor\temployee\ttax | 840 | 8 | (4,349) | — | — | (4,341) |
| Stock-based\tcompensation\texpense | — | — | 21,336 | — | — | 21,336 |
| Exercise\tof\tstock\toptions | 1,425 | 14 | 8,849 | — | — | 8,863 |
| Tax\twithholdings\trelated\tto\tnet\tshare |  |  |  |  |  |  |
| settlements\tof\tstock-based\tcompensation |  |  |  |  |  |  |
| awards | (144) | (2) | (3,934) | — | — | (3,936) |
| Excess\ttax\tbenefit\tfrom\tstock-based\tpayments | — | — | 14,125 | — | — | 14,125 |
| BALANCE,\tDecember\t31,\t2015 | 305,574 | $3,055 | $1,090,713 | $2,126,384 | $(105,470) | $3,114,682 |
| Net\tincome | — | — | — | 463,975 | — | 463,975 |
| Other\tcomprehensive\tloss | — | — | — | — | (161,705) | (161,705) |
| Restricted\tstock\tunits\tvested,\tnet\tof\tshares\nwithheld\tfor\temployee\ttax | 847 | 9 | (4,447) | — | — | (4,438) |
| Stock-based\tcompensation\texpense | — | — | 22,472 | — | — | 22,472 |
| Exercise\tof\tstock\toptions | 1,124 | 11 | 7,952 | — | — | 7,963 |
| BALANCE,\tDecember\t31,\t2016 | 307,545 | $3,075 | $1,116,690 | $2,590,359 | $(267,175) | $3,442,949 |

# 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,	the	Benelux	region	of	continental	Europe,	Italy	and	Eastern	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.	In	total,	we	operate	more than	1,300	facilities.

# Note	2.	Business	Combinations

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

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

We	recorded	$585.4	million	of	goodwill	related	to	our	acquisition	of	Rhiag,	which	we	do	not	expect	to	be	deductible	for	income	tax	purposes.	In	the	period between	the	acquisition	date	and	December	31,	2016,	Rhiag,	which	is	reported	in	our	Europe	reportable	segment,	generated	revenue	of	$854.2	million	and	operating income	of	$25.5	million,	which	included	$10.9	million	of	acquisition	related	costs.

On	April	21,	2016,	LKQ	acquired	PGW.	At	acquisition,	PGW's	business	comprised	wholesale	and	retail	distribution	services	and	automotive	glass manufacturing.	The	acquisition	expanded	our	addressable	market	in	North	America	and	globally.	Additionally,	we	believe	the	acquisition	will	create	potential distribution	synergies	with	our	existing	network.	Total	acquisition	date	fair	value	of	the	consideration	for	our	PGW	acquisition	was	$661.7	million,	consisting	of	cash paid	(net	of	cash	acquired).	We	recorded	$205.1	million	of	goodwill	related	to	our	acquisition	of	PGW,	of	which	we	expect	$104.0	million	to	be	deductible	for	income tax	purposes.	In	the	period	between	the	acquisition	date	and	December	31,	2016,	PGW	generated	revenue	of	$706.8	million	and	operating	income	of	$10.7	million, which	included	$2.1	million	of	acquisition	related	costs.	Of	these	amounts,	$498.2	million	of	revenue,	net	of	intercompany	sales	to	PGW's	aftermarket	business,	and $25.1	million	of	operating	income	relate	to	the	portion	of	the	automotive	glass	manufacturing	business	classified	as	discontinued	operations	as	of	December	31,	2016. Refer	to	Note	3,	"Discontinued	Operations"	for	further	information.	The	$14.3	million	operating	loss	generated	in	2016	by	the	aftermarket	portion	of	our	PGW operations	primarily	relates	to	incremental	costs	related	to	shared	corporate	expenses	that	are	not	expected	to	reoccur	after	the	sale	of	the	glass	manufacturing	business closes,	a	non-recurring	inventory	step-up	adjustment	recorded	upon	acquisition,	and	higher	cost	products	sourced	from	the	glass	manufacturing	side	of	the	business, which	reduced	our	gross	margin.

On	October	4,	2016,	we	acquired	substantially	all	of	the	business	assets	of	Andrew	Page	out	of	receivership.	Andrew	Page	is	a	distributor	of	aftermarket automotive	parts	in	the	United	Kingdom,	and	the	acquisition	is	subject	to	customary	regulatory	approval	from	the	Competition	and	Markets	Authority	in	the	U.K.	Total acquisition	date	fair	value	of	the	consideration	for	our	Andrew	Page	acquisition	was	£16.4	million	($20.9	million).	In	connection	with	the	acquisition,	we	recorded	a	gain on	bargain	purchase	of	$8.2	million,	which	is	recorded	on	a	separate	line	in	our	consolidated	statement	of	income	for	the	year	ended	December	31,	2016.	We	believe	that we	were	able	to	acquire	the	net	assets	of	Andrew	Page	for	less	than	fair	value	as	a	result	of	(i)	Andrew	Page's	financial	difficulties	which	put	the	company	into receivership	prior	to	our	acquisition	and	(ii)	a	motivated	seller	that	desired	to	complete	the	sale	in	an	expedient	manner	to	ensure	continuity	of	the	business.	We	continue to	evaluate	the	purchase	price	allocation,	including	the	opening	value	of	inventory,	fixed	assets,

intangible	assets,	accrued	liabilities,	and	deferred	taxes,	which	may	require	us	to	adjust	the	recorded	gain.	In	the	period	between	the	acquisition	date	and	December	31, 2016,	Andrew	Page	generated	revenue	of	$38.9	million	and	an	operating	loss	of	$6.5	million.

In	addition	to	our	acquisitions	of	Rhiag,	PGW	and	Andrew	Page,	we	acquired	7	wholesale	businesses	in	Europe	and	5	wholesale	businesses	in	North	America during	the	year	ended	December	31,	2016.	We	typically	fund	our	acquisitions	using	borrowings	under	our	credit	facilities	or	other	financing	arrangements.	Total acquisition	date	fair	value	of	the	consideration	for	these	acquisitions	was	$76.1	million,	composed	of	$67.8	million	of	cash	paid	(net	of	cash	acquired),	$4.1	million	of notes	payable	and	$4.2	million	of	other	purchase	price	obligations.	During	the	year	ended	December	31,	2016,	we	recorded	$52.3	million	of	goodwill	related	to	these acquisitions	and	immaterial	adjustments	to	preliminary	purchase	price	allocations	related	to	certain	of	our	2015	acquisitions.	We	expect	that	substantially	all	of	the goodwill	recorded	for	these	acquisitions	will	not	be	deductible	for	income	tax	purposes.	In	the	period	between	the	acquisition	dates	and	December	31,	2016,	these acquisitions	generated	revenue	of	$35.4	million	and	operating	income	of	$1.5	million.

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,	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	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	7	aftermarket	parts	distribution businesses	in	the	Netherlands,	5	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.

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.	The	purchase	price allocations	for	certain	of	our	2016	acquisitions	are	preliminary	as	we	are	in	the	process	of	determining	the	following:	1)	valuation	amounts	for	certain	receivables, inventories	and	fixed	assets	acquired;	2)	valuation	amounts	for	certain	intangible	assets	acquired;	3)	the	acquisition	date	fair	value	of	certain	liabilities	assumed;	and 4)	the	final	estimation	of	the	tax	basis	of	the	entities	acquired.	We	have	recorded	preliminary	estimates	for	certain	of	the	items	noted	above	and	will	record	adjustments, if	any,	to	the	preliminary	amounts	upon	finalization	of	the	valuations.	From	the	date	of	our	preliminary	allocation	for	Rhiag	in	the	first	quarter	of	2016	through December	31,	2016,	we	recorded	adjustments	based	on	our	valuation	procedures	for	our	acquisition	of	Rhiag	that	resulted	in	the	allocation	of	$154.3

million	of	goodwill	to	acquired	assets,	primarily	intangible	assets	and	property,	plant	and	equipment.	Additionally,	from	the	date	of	our	preliminary	allocation	for	PGW in	the	second	quarter	of	2016	through	December	31,	2016,	we	recorded	adjustments	based	on	our	valuation	procedures	that	resulted	in	a	$21.1	million	increase	to goodwill	recorded	for	our	PGW	acquisition;	this	was	primarily	attributable	to	a	decline	in	the	value	allocated	to	property,	plant	and	equipment,	partially	offset	by	an increase	in	the	value	allocated	to	deferred	taxes.	The	income	statement	impact	of	these	measurement	period	adjustments	for	PGW	that	would	have	been	recorded	in previous	periods	if	the	adjustment	had	been	recognized	as	of	the	acquisition	date	was	$4.8	million,	of	which	$4.0	million	was	related	to	discontinued	operations.	The income	statement	effect	of	the	Rhiag	measurement	period	adjustments	that	would	have	been	recorded	in	previous	reporting	periods	if	the	adjustment	had	been recognized	as	of	the	acquisition	date	was	immaterial.	The	balance	sheet	impact	and	income	statement	effect	of	other	measurement-period	adjustments	recorded	for acquisitions	completed	in	prior	periods	was	immaterial.

The	purchase	price	allocations	for	the	acquisitions	completed	during	2016	and	2015	are	as	follows	(in	thousands):

|  | Rhiag | PGW	(1) | Acquisitions | Total | All	Acquisitions |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Receivables | $230,670 | $136,523 | $13,216 | $380,409 | $29,628 |
| Receivable\treserves | (28,242) | (7,135) | (794) | (36,171) | (3,926) |
| Inventories\t(2) | 239,529 | 169,159 | 62,223 | 470,911 | 79,646 |
| Prepaid\texpenses\tand\tother\tcurrent\tassets | 10,793 | 42,573 | 4,445 | 57,811 | 3,337 |
| Property\tand\tequipment | 56,774 | 225,645 | 17,140 | 299,559 | 11,989 |
| Goodwill | 585,415 | 205,058 | 52,336 | 842,809 | 92,175 |
| Other\tintangibles | 429,360 | 37,954 | 2,537 | 469,851 | 9,926 |
| Other\tassets\t(3) | 2,092 | 57,671 | (133) | 59,630 | 5,166 |
| Deferred\tincome\ttaxes | (110,791) | 17,506 | (1,000) | (94,285) | 4,102 |
| Current\tliabilities\tassumed | (239,665) | (168,332) | (42,290) | (450,287) | (39,191) |
| Debt\tassumed | (550,843) | (4,027) | (2,378) | (557,248) | (2,365) |
| Other\tnoncurrent\tliabilities\tassumed | (23,085) | (50,847) | (103) | (74,035) | (2,651) |
| Other\tpurchase\tprice\tobligations | — | — | (6,698) | (6,698) | (21,199) |
| Notes\tissued | — | — | (4,087) | (4,087) | (4,296) |
| Settlement\tof\tpre-existing\tbalances | (591) | — | (32) | (623) | (1,073) |
| Gain\ton\tbargain\tpurchase | — | — | (8,207) | (8,207) | — |
| Cash\tused\tin\tacquisitions,\tnet\tof\tcash\tacquired | $601,416 | $661,748 | $86,175 | $1,349,339 | $161,268 |

(1)	Includes	both	continuing	and	discontinued	operations	of	PGW.

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

(3)	The	balance	for	PGW	includes	$23.6	million	of	investments	in	unconsolidated	subsidiaries	which	relate	to	the	discontinued	portion	of	our	PGW

The	fair	value	of	our	intangible	assets	is	based	on	a	number	of	inputs	including	projections	of	future	cash	flows,	assumed	royalty	rates	and	customer	attrition rates,	all	of	which	are	Level	3	inputs.	The	fair	value	of	our	property	and	equipment	is	determined	using	inputs	such	as	market	comparables	and	current	replacement	or reproduction	costs	of	the	asset,	adjusted	for	physical,	functional	and	economic	factors;	these	adjustments	to	arrive	at	fair	value	are	not	observable	in	the	market	and therefore,	these	inputs	are	considered	to	be	Level	3	inputs.

Other	noncurrent	liabilities	recorded	for	our	acquisitions	of	Rhiag	and	PGW	includes	a	liability	for	certain	pension	and	other	post-retirement	obligations	we assumed	with	the	acquisitions.	A	portion	of	PGW's	liability	for	pension	and	post-retirement	obligations	relates	to	the	glass	manufacturing	operations	business,	which	is classified	as	discontinued	operations,	and	is	recorded	within	Liabilities	of	discontinued	operations	on	our	consolidated	balance	sheets;	these	amounts	will	be	included	in the	net	assets	disposed	as	part	of	the	pending	sale	of	the	business,	which	we	expect	to	occur	in	the	first	quarter	of	2017.	Due

to	the	immateriality	of	these	plans,	we	have	not	provided	the	detailed	disclosures	otherwise	prescribed	by	the	accounting	guidance	on	pensions	and	other	post-retirement obligations.

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

Our	2014	acquisition	of	Keystone	Specialty	allowed	us	to	enter	into	new	product	lines	and	increase	the	size	of	our	addressable	market.	In	addition,	the acquisition	created	logistics	and	administrative	cost	synergies	as	well	as	cross-selling	opportunities,	which	contributed	to	the	goodwill	recorded	on	the	Keystone Specialty	acquisition.

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

The	following	pro	forma	summary	presents	the	effect	of	the	businesses	acquired	during	the	year	ended	December	31,	2016	as	though	the	businesses	had	been acquired	as	of	January	1,	2015,	the	businesses	acquired	during	the	year	ended	December	31,	2015	as	though	they	had	been	acquired	as	of	January	1,	2014	and	the businesses	acquired	during	the	year	ended	December	31,	2014	as	though	they	had	been	acquired	as	of	January	1,	2013.	The	pro	forma	adjustments	are	based	upon unaudited	financial	information	of	the	acquired	entities	(in	thousands,	except	per	share	data):

|  | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Revenue,\tas\treported | $8,584,031 | $7,192,633 | $6,740,064 |
| Revenue\tof\tpurchased\tbusinesses\tfor\tthe\tperiod\tprior\tto\tacquisition: |  |  |  |
| Rhiag | 213,376 | 994,903 | — |
| PGW\t(1) | 102,540 | 339,012 | — |
| Keystone\tSpecialty | — | — | 3,443 |
| Other\tacquisitions | 265,717 | 615,140 | 676,965 |
| Pro\tforma\trevenue | $9,165,664 | $9,141,688 | $7,420,472 |
| Income\tfrom\tcontinuing\toperations,\tas\treported | $456,123 | $423,223 | $381,519 |
| Income\tfrom\tcontinuing\toperations\tof\tpurchased\tbusinesses\tfor\tthe\tperiod\tprior\tto\tacquisition,\tand\tpro\nforma\tpurchase\taccounting\tadjustments: |  |  |  |
| Rhiag | (662) | 10,310 | — |
| PGW\t(1),(2) | 7,574 | 3,334 | — |
| Keystone\tSpecialty | — | — | 521 |
| Other\tacquisitions\t(3) | (807) | 15,266 | 18,371 |
| Acquisition\trelated\texpenses,\tnet\tof\ttax\t(4) | 11,034 | 1,830 | 2,295 |
| Pro\tforma\tincome\tfrom\tcontinuing\toperations | $473,262 | $453,963 | $402,706 |
| Earnings\tper\tshare\tfrom\tcontinuing\toperations,\tbasic\t-\tas\treported | $1.49 | $1.39 | $1.26 |
| Effect\tof\tpurchased\tbusinesses\tfor\tthe\tperiod\tprior\tto\tacquisition: |  |  |  |
| Rhiag | (0.00) | 0.03 | — |
| PGW\t(1),(2) | 0.02 | 0.01 | — |
| Keystone\tSpecialty | — | — | 0.00 |
| Other\tacquisitions | (0.00) | 0.05 | 0.06 |
| Acquisition\trelated\texpenses,\tnet\tof\ttax\t(4) | 0.04 | 0.01 | 0.01 |
| Pro\tforma\tearnings\tper\tshare\tfrom\tcontinuing\toperations,\tbasic\t(5) | $1.54 | $1.49 | $1.33 |
| Earnings\tper\tshare\tfrom\tcontinuing\toperations,\tdiluted\t-\tas\treported | $1.47 | $1.38 | $1.25 |
| Effect\tof\tpurchased\tbusinesses\tfor\tthe\tperiod\tprior\tto\tacquisition: |  |  |  |
| Rhiag | (0.00) | 0.03 | — |
| PGW\t(1),(2) | 0.02 | 0.01 | — |
| Keystone\tSpecialty | — | — | 0.00 |
| Other\tacquisitions | (0.00) | 0.05 | 0.06 |
| Acquisition\trelated\texpenses,\tnet\tof\ttax\t(4) | 0.04 | 0.01 | 0.01 |
| Pro\tforma\tearnings\tper\tshare\tfrom\tcontinuing\toperations,\tdiluted\t(5) | $1.53 | $1.48 | $1.31 |

(1)	PGW	reflects	the	results	for	the	continuing	aftermarket	glass	distribution	business	only.

(2)	Excludes	$17.8	million	and	$5.4	million	of	corporate	costs	for	2015	and	2016,	respectively,	that	we	do	not	expect	to	incur	going	forward	as	a	result	of	the sale	of	our	glass	manufacturing	business.

(3)	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.

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

Unaudited	pro	forma	supplemental	information	is	based	upon	accounting	estimates	and	judgments	that	we	believe	are	reasonable.	The	unaudited	pro	forma supplemental	information	includes	the	effect	of	purchase	accounting	adjustments,	such	as	the	adjustment	of	inventory	acquired	to	fair	value,	adjustments	to	depreciation on	acquired	property	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.	These	pro	forma	results	are	not	necessarily	indicative	of	what	would	have	occurred	if	the	acquisitions	had been	in	effect	for	the	periods	presented	or	of	future	results.

# Note	3.	Discontinued	Operations

On	December	18,	2016,	LKQ	entered	into	a	Stock	and	Asset	Purchase	Agreement	(the	"Agreement")	to	sell	the	glass	manufacturing	business	of	its	PGW subsidiary	to	a	subsidiary	of	Vitro	S.A.B.	de	C.V.	(Vitro)	for	a	sale	price	of	$310	million,	subject	to	potential	post-closing	purchase	price	adjustments.	The	transaction, which	is	subject	to	customary	representations	and	warranties,	covenants	and	conditions,	and	regulatory	approvals,	is	expected	to	close	in	the	first	quarter	of	2017.	As	a result	of	this	transaction,	the	remaining	portion	of	the	Glass	operating	segment	will	be	combined	with	our	Wholesale	-	North	America	operations	during	2017.	For	our reporting	as	of	December	31,	2016,	we	have	aggregated	the	remaining	Glass	operating	segment	with	our	North	America	reportable	segment.	See	Note	14,	"Segment	and Geographic	Information"	for	further	information.

Upon	execution	of	the	Agreement,	LKQ	concluded	that	the	glass	manufacturing	business	met	the	criteria	to	be	classified	as	held	for	sale	in	LKQ's	consolidated financial	statements.	As	a	result,	the	assets	related	to	the	glass	manufacturing	business	are	reflected	on	the	Consolidated	Balance	Sheet	at	the	lower	of	the	net	asset carrying	value	or	fair	value	less	cost	to	sell.		The	fair	value	of	the	assets	was	determined	using	the	negotiated	sale	price	as	an	indicator	of	fair	value,	which	is	considered	a Level	2	input	as	it	is	observable	in	a	non-active	market.

As	part	of	the	Agreement,	the	Company	and	Vitro	entered	into	a	twelve-month	Transition	Services	Agreement	with	two	six-month	renewal	periods,	a	three-year Purchase	and	Supply	Agreement,	and	an	Intellectual	Property	Agreement.

The	following	table	summarizes	the	operating	results	of	the	Company's	discontinued	operations	related	to	the	purchase	agreement	above	from	the	date	of acquisition,	April	21,	2016,	through	the	year	ended	December	31,	2016,	as	presented	in	"Income	from	discontinued	operations,	net"	on	the	Consolidated	Statements	of Income:

(1)	Upon	recognition	of	the	glass	manufacturing	business	net	assets	as	held	for	sale,	an	impairment	test	was	performed	on	the	net	assets	of	the	glass manufacturing	business	resulting	in	a	pre-tax	impairment	loss	of	$26.7	million	and	a	tax	benefit	of	$6.9	million.	The	impairment	represents	a	$21.1	million	impairment on	long-lived	assets,	with	the	remaining	$5.6	million	representing	a	valuation	allowance	on	the	current	assets	held	for	sale.

(2)	The	Company	elected	to	allocate	interest	expense	to	discontinued	operations	based	on	the	expected	debt	to	be	repaid.	Under	this	approach,	allocated	interest from	the	date	of	acquisition	through	the	year	ended	December	31,	2016	was	$6.2	million.	The	remaining	balance	represents	other	expense.

The	glass	manufacturing	business	had	$64.4	million	of	operating	cash	inflows,	$28.6	million	of	investing	cash	outflows	and	$1.0	million	of	capital	lease	debt payments.	The	following	table	summarizes	the	significant	non-cash	operating	activities,	capital	expenditures	and	investments	in	unconsolidated	subsidiaries	of	the Company's	discontinued	operations	related	to	the	glass	manufacturing	business:

|  | Period	from	April	21	to	December	31,<br>2016 |
| :--- | :--- |
| Non-cash\toperating\tactivities: |  |
| \t\t\t\t\t\tDepreciation\tand\tamortization | $7,752 |
| \t\t\t\t\t\tImpairment\ton\tnet\tassets\tof\tdiscontinued\toperations | 26,677 |
| \t\t\t\t\t\tDeferred\tincome\ttaxes | (4,516) |
| Capital\texpenditures | (24,156) |
| Investments\tin\tunconsolidated\tsubsidiaries | (4,400) |

The	major	classes	of	assets	and	liabilities	related	to	the	glass	manufacturing	business	are	as	follows:

|  | December	31,	2016 |
| :--- | :--- |
| Cash\tand\tequivalents | $7,116 |
| Receivables,\tnet | 77,442 |
| Inventories | 71,952 |
| Prepaid\texpenses\tand\tother\tcurrent\tassets | 42,426 |
| Property,\tplant\tand\tequipment,\tnet | 199,136 |
| Other\tassets | 64,166 |
| Valuation\tallowance | (5,598) |
| Total\tassets\tfrom\tdiscontinued\toperations | $456,640 |
| Accounts\tpayable | $72,696 |
| Other\tcurrent\tliabilities | 37,104 |
| Long-term\tobligations | 1,648 |
| Other\tnoncurrent\tliabilities\t(includes\tpension\tand\tpost-retirement\tobligations) | 33,656 |
| Total\tliabilities\tfrom\tdiscontinued\toperations | 145,104 |
| Net\tassets\tfrom\tdiscontinued\toperations | $311,536 |

Pursuant	to	the	Purchase	and	Supply	Agreement,	the	glass	manufacturing	business	will	supply	the	aftermarket	business	of	PGW	with	various	OEM	products annually	for	a	three	year	period	beginning	on	the	date	the	transaction	closes.	For	the	period	from	April	21,	2016	through	December	31,	2016,	intercompany	sales between	the	glass	manufacturing	business	and	the	continuing	aftermarket	business	of	PGW	which	were	eliminated	in	consolidation	were	$29.4	million.

# Note	4.	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	of	America,	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.

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	$38.3	million	and	$32.8	million	at	December	31,	2016	and	2015,	respectively.	We present	taxes	assessed	by	governmental	authorities	collected	from	customers	on	a	net	basis.	Therefore,	the	taxes	are	excluded	from	revenue	on	our	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	metal,	other metals	and	cores	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	$45.6	million	and	$24.6	million	at	December	31,	2016	and	2015,	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.	Our	March	2016	acquisition	of	Rhiag	and	our	April	2016	acquisition	of	PGW	contributed $23.0	million	and	$1.4	million,	respectively,	to	our	reserve	for	uncollectible	accounts.	See	Note	2,	"Business	Combinations"	for	further	information	on	our	acquisitions.

# 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.

# Inventories

We	classify	our	inventory	into	the	following	categories:	(i)	aftermarket	and	refurbished	products	and	(ii)	salvage	and	remanufactured	products.

An	aftermarket	product	is	a	new	vehicle	product	manufactured	by	a	company	other	than	the	original	equipment	manufacturer.	For	all	of	our	aftermarket products,	excluding	our	aftermarket	automotive	glass	products,	cost	is	established	based	on	the	average	price	we	pay	for	parts;	for	our	aftermarket	automotive	glass products	inventory,	cost	is	established	using	the	first-in	first-out	method.	Inventory	cost	for	all	of	our	aftermarket	products	includes	expenses	incurred	for	freight	in	and overhead	costs;	for	items	purchased	from	foreign	companies,	import	fees	and	duties	and	transportation	insurance	are	also	included.	Refurbished	products	are	parts	that require	cosmetic	repairs,	such	as	wheels,	bumper	covers	and	lights;	LKQ	will	apply	new	parts,	products	or	materials	to	these	parts	in	order	to	produce	the	finished product.	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	in,	labor	and	other	overhead	costs.

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	the	vehicle.	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	number	of	days	in	stock	and	historical	demand.	The	average	cost	to	sales	percentage	is	derived	from	each	facility's	historical	profitability	for salvage	vehicles.	Remanufactured	products	are	used	parts	that	have	been	inspected,	rebuilt,	or	reconditioned	to	restore	functionality	and	performance,	such	as remanufactured	engines	and	transmissions.	Remanufactured	inventory	cost	is	based	upon	the	price	paid	for	cores,	and	also	includes	expenses	incurred	for	freight	in, direct	manufacturing	costs	and	overhead	expenses.

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	is	lower	than our	estimates,	additional	reductions	to	inventory	carrying	value	would	be	necessary	in	the	period	such	determination	is	made.

Inventories	consist	of	the	following	(in	thousands):

|  | 2016 | 2015 |
| :--- | :--- | :--- |
| Aftermarket\tand\trefurbished\tproducts | $1,540,257 | \t $1,146,162 |
| Salvage\tand\tremanufactured\tproducts | 394,980 | 410,390 |
| Total\tinventories | $1,935,237 | \t $1,556,552 |

				Our	acquisitions	completed	during	2016,	including	our	March	2016	acquisition	of	Rhiag	and	our	April	2016	acquisition	of	PGW,	contributed	$387.4	million	to	our aftermarket	and	refurbished	products	inventory	and	$5.7	million	to	our	salvage	and	remanufactured	products	inventory.	See	Note	2,	"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:

|  | 2016 | 2015 |
| :--- | :--- | :--- |
| Land\tand\timprovements | $127,211 | $118,420 |
| Buildings\tand\timprovements | 209,773 | 183,480 |
| Machinery\tand\tequipment | 429,446 | 355,313 |
| Computer\tequipment\tand\tsoftware | 120,316 | 130,363 |
| Vehicles\tand\ttrailers | 138,263 | 101,201 |
| Furniture\tand\tfixtures | 28,405 | 24,332 |
| Leasehold\timprovements | 152,356 | 140,732 |
|  | 1,205,770 | 1,053,841 |
| Less—Accumulated\tdepreciation | (495,644) | (437,946) |
| Construction\tin\tprogress | 101,450 | 80,672 |
| Total\tproperty\tand\tequipment,\tnet | $811,576 | $696,567 |

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	as	well	as	our distribution	centers.	Total	depreciation	expense	for	the	years	ended	December	31,	2016,	2015	and	2014	was	$114.8	million,	$94.4	million,	and	$90.9	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	and	supplier	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	2016,	2015	and	2014.	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	noted	that	the	proximity	of	the	PGW	acquisition	to	the	goodwill	testing	date	resulted	in	a	fair	value	estimate	for	the	Glass	aftermarket reporting	unit	that	exceeded	the	carrying	value	by	less	than	10%.	This	aligns	with	our	expectations	as	there	has	not	been	a	significant	change	in	the	value	of	the	business since	the	acquisition	date	while	we	continue	to	execute	our	integration	plans.

The	changes	in	the	carrying	amount	of	goodwill	by	reportable	segment	are	as	follows	(in	thousands):

|  | North	America | Europe | Specialty | Total |
| :--- | :--- | :--- | :--- | :--- |
| Balance\tas\tof\tJanuary\t1,\t2014 | $1,358,937 | $578,507 | $— | $1,937,444 |
| Business\tacquisitions\tand\tadjustments\tto\tpreviously\trecorded\tgoodwill | 43,752 | 91,916 | 280,035 | 415,703 |
| Exchange\trate\teffects | (10,657) | (53,604) | 9 | (64,252) |
| Balance\tas\tof\tDecember\t31,\t2014 | $1,392,032 | $616,819 | $280,044 | $2,288,895 |
| Business\tacquisitions\tand\tadjustments\tto\tpreviously\trecorded\tgoodwill | 72,355 | 21,217 | (1,397) | 92,175 |
| Exchange\trate\teffects | (18,537) | (43,554) | 267 | (61,824) |
| Balance\tas\tof\tDecember\t31,\t2015 | $1,445,850 | $594,482 | $278,914 | $2,319,246 |
| Business\tacquisitions\tand\tadjustments\tto\tpreviously\trecorded\tgoodwill | 226,483 | 614,437 | 1,889 | 842,809 |
| Exchange\trate\teffects | 1,818 | (108,943) | (161) | (107,286) |
| Balance\tas\tof\tDecember\t31,\t2016 | $1,674,151 | $1,099,976 | $280,642 | $3,054,769 |

During	the	year	ended	December	31,	2016,	we	recorded	$585.4	million	of	goodwill	related	to	our	acquisition	of	Rhiag	and	$205.1	million	related	to	our acquisition	of	PGW.	See	Note	2,	"Business	Combinations"	for	further	information	on	our	acquisitions.

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

|  |  | December	31,	2016 |  |  | December	31,	2015 |  |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- |
|  | Gross\nCarrying\nAmount | Accumulated\nAmortization | Net | Gross\nCarrying\nAmount | Accumulated\nAmortization | Net |
| Trade\tnames\tand\ttrademarks | $286,008 | $(51,104) | $234,904 | $172,219 | $(43,458) | $128,761 |
| Customer\tand\tsupplier\trelationships | 395,284 | (92,079) | 303,205 | 95,508 | (41,007) | 54,501 |
| Software\tand\tother\ttechnology\trelated\nassets | 77,329 | (35,648) | 41,681 | 44,500 | (17,844) | 26,656 |
| Covenants\tnot\tto\tcompete | 11,726 | (7,285) | 4,441 | 10,774 | (5,575) | 5,199 |
|  | $770,347 | $(186,116) | $584,231 | $323,001 | $(107,884) | $215,117 |

The	components	of	other	intangibles	acquired	during	the	years	ended	December	31,	2016	and	2015	include	the	following	(in	thousands):

|  |  | Year	Ended | Year	Ended |  | Year	Ended |
| :--- | :--- | :--- | :--- | :--- | :--- |
|  |  | December\t31,\t2016 | December\t31,\t2016 |  | December\t31,\t2015 |
|  | Rhiag | PGW | Other\tAcquisitions | Total | All\tAcquisitions\t(1) |
| Trade\tnames\tand\ttrademarks | $127,351 | $5,500 | $1,015 | $133,866 | $3,555 |
| Customer\tand\tsupplier\trelationships | 291,893 | 29,700 | — | 321,593 | 4,601 |
| Software\tand\tother\ttechnology\trelated\tassets | 10,116 | 1,154 | 1,420 | 12,690 | 1,213 |
| Covenants\tnot\tto\tcompete | — | 1,600 | 102 | 1,702 | 557 |
|  | $429,360 | $37,954 | $2,537 | $469,851 | $9,926 |

(1)	Includes	adjustments	to	certain	preliminary	intangible	asset	valuations	from	our	2014	acquisitions.

Our	estimated	useful	lives	for	our	finite	lived	intangible	assets	are	as	follows:

|  | Amortization | Useful	Life |
| :--- | :--- | :--- |
| Trade\tnames\tand\ttrademarks | Straight-line | 4-30\tyears |
| Customer\tand\tsupplier\trelationships | Accelerated | 4-20\tyears |
| Software\tand\tother\ttechnology\trelated\tassets | Straight-line | 3-6\tyears |
| Covenants\tnot\tto\tcompete | Straight-line | 1-5\tyears |

Amortization	expense	for	intangibles	was	$83.5	million,	$33.8	million	and	$34.5	million	during	the	years	ended	December	31,	2016,	2015	and	2014, respectively.	Estimated	amortization	expense	for	each	of	the	five	years	in	the	period	ending	December	31,	2021	is	$90.7	million,	$75.5	million,	$62.2	million,	$49.0 million	and	$41.5	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.	Other than	the	impairment	recorded	upon	recognition	of	the	PGW	glass	manufacturing	business	net	assets	as	held	for	sale	as	discussed	in	Note	3,	"Discontinued	Operations," there	were	no	material	adjustments	to	the	carrying	value	of	long-lived	assets	during	the	years	ended	December	31,	2016,	2015	or	2014.

# 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.	Our	warranty	reserve	is	recorded	within	Other accrued	expenses	and	Other	Noncurrent	Liabilities	on	our	Consolidated	Balance	Sheets	based	on	the	expected	timing	of	the	related	payments.	The	changes	in	the warranty	reserve	are	as	follows	(in	thousands):

| Balance	as	of	January	1,	2015 | $14,881 |
| :--- | :--- |
| Warranty\texpense | 33,727 |
| Warranty\tclaims | (31,245) |
| Balance\tas\tof\tDecember\t31,\t2015 | $17,363 |
| Warranty\texpense | 32,096 |
| Warranty\tclaims | (29,825) |
| Balance\tas\tof\tDecember\t31,\t2016 | $19,634 |

# 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	$84.5	million	and	$78.4	million,	of	which	$39.5	million	and	$37.8	million	was classified	as	current	as	of	December	31,	2016	and	2015,	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.	We	had	outstanding	letters	of	credit	of	$70.5	million	and	$64.9	million	at	December	31,	2016	and 2015,	respectively,	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.

# Investments	in	Unconsolidated	Subsidiaries

Our	investment	in	unconsolidated	subsidiaries	was	$183.5	million	as	of	December	31,	2016.	On	December	1,	2016,	we	acquired	a	26.5%	equity	interest	in Mekonomen	AB	("Mekonomen")	from	AxMeko	AB,	an	affiliate	of	Axel	Johnson	AB,	for	an	aggregate	purchase	price	of	$181.3	million.	Headquartered	in	Stockholm, Sweden,	Mekonomen	is	the	leading	independent	car	parts	and	service	chain	in	the	Nordic	region	of	Europe,	offering	a	wide	range	of	products	including	spare	parts	and accessories	for	cars,	and	workshop	services	for	consumers	and	businesses.	We	are	accounting	for	our	interest	in	Mekonomen	using	the	equity	method	of	accounting,	as our	investment	gives	us	the	ability	to	exercise	significant	influence,	but	not	control,	over	the	investee.	We	are	reporting	our	equity	in	the	net	earnings	of	Mekonomen	on a	one	quarter	lag,	and	therefore	we	recorded	no	equity	in	earnings	for	this	investment	in	2016.

In	February	2016,	we	sold	our	investment	in	ACM	Parts	Pty	Ltd.	Our	remaining	investments	in	unconsolidated	subsidiaries	and	equity	in	earnings	of	the investees	as	of	and	for	the	year	ended	December	31,	2016	were	immaterial.

# 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.

# 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").	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.	The	FASB	has	issued	several	updates	to	ASU	2014-09.	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	will	continue	to	evaluate	the potential	effect	that	ASU	2014-09	will	have	on	our	consolidated	financial	statements	and	related	disclosures;	however,	we	do	not	plan	to	early	adopt.	Entities	adopting the	standard	have	the	option	of	using	either	a	full	retrospective	or	modified	retrospective	approach	in	the	application	of	this	guidance.	We	are	still	determining	which method	of	transition	we	will	follow.	We	are	currently	in	the	process	of	completing	customer	contract	reviews,	determining	necessary	adjustments	to	existing	accounting policies,	evaluating	new	disclosure	requirements	and	identifying	and	implementing	changes	to	business	processes	as	deemed	necessary	to	support	recognition	and disclosure	under	the	new	guidance.	Based	on	our	preliminary	assessment,	we	do	not	expect	a	significant	impact	for	the	majority	of	our	revenue	transactions	as	they generally	consist	of	single	performance	obligations	to	transfer	promised	goods	or	services;	however,	we	do	expect	the	new	guidance	will	change	the	way	we	present	sales returns	in	our	consolidated	financial	statements.	We	are	still	in	the	process	of	determining	the	magnitude	of	impact	for	this	change.

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	became effective	for	the	Company	during	the	first	quarter	of	our	fiscal	year	2016	and	is	being	applied	on	a	prospective	basis.	The	measurement-period	adjustments	for	our acquisitions	and	the	related	impact	on	earnings	of	any	amounts	that	would	have	been	recorded	in	previous	periods	are	disclosed	in	Note	2,	"Business	Combinations."

In	February	2016,	the	FASB	issued	Accounting	Standards	Update	2016-02,	"Leases"	("ASU	2016-02"),	to	increase	transparency	and	comparability	by recognizing	lease	assets	and	lease	liabilities	on	the	balance	sheet	and	disclosing	key	information	about	leasing	arrangements.	The	main	difference	between	current GAAP	and	this	ASU	is	the	recognition	of	lease	assets	and	lease	liabilities	by	lessees	for	those	leases	classified	as	operating	leases	under	current	GAAP.	The	ASU	is effective	for	fiscal	years,	and	interim	periods	within	those	years,	beginning	after	December	15,	2018.	The	standard	requires	that	entities	apply	the	effects	of	these changes	using	a	modified	retrospective	approach,	which	includes	a	number	of	optional	practical	expedients.	While	we	are	still	in	the	process	of	quantifying	the	impact that	the	adoption	of	ASU	2016-02	will	have	on	our	consolidated	financial	statements	and	related	disclosures,	we	anticipate	the	adoption	will	materially	affect	our consolidated	balance	sheet	and	disclosures,	as	the	majority	of	our	operating	leases	will	be	recorded	on	the	balance	sheet	under	ASU	2016-02.	While	we	do	not	anticipate the	adoption	of	this	accounting	standard	to	have	a	material	impact	to	our	consolidated	statements	of	income	at	this	time,	this	conclusion	may	change	as	we	finalize	our assessment.	In	order	to	assist	in	our	timely	implementation	of	the	new	standard,	we	have	purchased	new	software	to	track	our	leases.	We	have	engaged	a	third	party	to assist	with	the	implementation	of	the	new	software	with	an	expectation	to	complete	the	implementation	by	the	end	of	2017.

In	March	2016,	the	FASB	issued	Accounting	Standards	Update	No.	2016-09,	"Improvements	to	Employee	Share-Based	Payment	Accounting"	("ASU	2016- 09"),	to	simplify	several	aspects	of	the	accounting	for	share-based	payment	transactions,	including	the	income	tax	consequences,	classification	of	awards	as	either	equity or	liabilities,	classification	on	the	statement	of	cash	flows,	the	treatment	of	forfeitures,	and	calculation	of	earnings	per	share.	This	ASU	is	effective	for	fiscal	years,	and interim	periods	within	those	years,	beginning	after	December	15,	2016.	During	the	third	quarter	of	2016,	the	Company	elected	to	early	adopt	ASU	2016-09	effective January	1,	2016.	With	the	adoption	of	ASU	2016-09,	excess	tax	benefits	are	recognized	as	a	component	of	the	income	tax	provision,	whereas	these	amounts	were previously	recognized	in	equity.	See	Note	13,	"Income	Taxes"	for	the	impact	on	our	tax	provision	for	the	year	ended	December	31,	2016	as	a	result	of	adopting	this accounting	standard.	Within	the	Consolidated	Statements	of	Cash	Flows,	excess	tax	benefits	are	now	presented	as	an	operating	activity,	rather	than	a	financing	activity. The	presentation	of	excess	tax	benefits	on	share-based	payments	was	adjusted	retrospectively	within	the	Consolidated	Statements	of	Cash	Flows,	resulting	in	a	$14.4 million	and	a	$17.8	million	increase	in	operating	cash	flows	for	the	years	ended	December	31,	2015	and	2014,	respectively,	with	a	corresponding	decrease	to	financing cash	flows.

In	March	2016,	the	FASB	issued	Accounting	Standards	Update	No.	2016-05,	"Effect	of	Derivative	Contract	Novations	on	Existing	Hedge	Accounting Relationships"	("ASU	2016-05"),	which	clarifies	that	a	change	in	a	hedging	derivative's

counterparty	would	not	in	and	of	itself	be	considered	a	termination	of	a	derivative	instrument	or	a	change	in	the	critical	terms	of	a	hedging	relationship.	The	ASU	also clarifies	that	an	entity	should	continue	to	assess	the	creditworthiness	of	the	derivative	counterparty,	as	a	difference	in	creditworthiness	could	cause	the	hedging relationship	to	be	less	than	highly	effective	which	would	trigger	dedesignation	of	the	hedging	relationship.	The	ASU	is	effective	for	fiscal	years,	and	interim	periods within	those	years,	beginning	after	December	31,	2016;	early	adoption	and	prospective	application	is	permitted.	We	will	consider	this	guidance	going-forward	if	a novation	occurs	related	to	any	of	our	derivative	contracts	described	in	Note	10,	"Derivative	Instruments	and	Hedging	Activities."

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

In	January	2017,	the	FASB	issued	Accounting	Standards	Update	No.	2017-04,	"Simplifying	the	Test	for	Goodwill	Impairment"	("ASU	2017-04"),	which simplifies	the	accounting	for	goodwill	impairment	by	eliminating	step	2	from	the	goodwill	impairment	test.	Under	the	new	guidance,	if	the	carrying	value	of	a	reporting unit	exceeds	the	fair	value,	an	impairment	loss	will	be	recognized	for	the	amount	of	that	excess,	limited	to	the	goodwill	allocated	to	that	reporting	unit.	This	ASU	is effective	for	fiscal	years	and	any	interim	impairment	tests	for	periods	beginning	after	December	15,	2019;	early	adoption	is	permitted	for	entities	with	annual	and	interim impairment	tests	occurring	after	January	1,	2017.	The	guidance	requires	adoption	on	a	prospective	basis.	At	this	time,	we	do	not	expect	adoption	of	this	standard	to	have a	significant	impact	on	our	financial	position,	results	of	operations,	or	cash	flows.

# Note	5.	Restructuring	and	Acquisition	Related	Expenses

# Acquisition	Related	Expenses

Acquisition	related	expenses,	which	include	external	costs	such	as	legal,	accounting	and	advisory	fees,	totaled	$22.0	million,	$6.4	million,	and	$3.7	million	for the	years	ended	December	31,	2016,	2015	and	2014,	respectively.	Of	our	2016	expenses,	$10.9	million	related	to	our	acquisition	of	Rhiag,	$4.1	million	related	to	our acquisition	of	PGW,	and	$7.0	million	related	to	other	completed	and	potential	acquisitions.

Acquisition	related	expenses	for	2015	included	$2.5	million	related	to	our	Rhiag	acquisition,	$1.6	million	related	to	our	acquisitions	of	eleven	aftermarket	parts distribution	businesses	in	the	Netherlands,	$0.8	million	related	to	our	acquisition	of	Coast,	and	$1.5	million	related	to	other	completed	acquisitions	and	acquisitions	that were	pending	as	of	December	31,	2015.

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	acquisitions	and	acquisitions	that	were	pending	as	of	December	31,	2014.

# Acquisition	Integration	Plans

During	the	year	ended	December	31,	2016,	we	incurred	$15.8	million	of	restructuring	expenses.	Of	this	amount,	$10.4	million	was	related	to	ongoing integration	activities	in	our	Specialty	segment,	which	was	formed	in	2014	and	subsequently	expanded	through	acquisitions,	including	our	2015	Coast	acquisition. Expenses	incurred	were	primarily	related	to	facility	closure	and	relocation	costs	for	duplicate	facilities,	the	merger	of	existing	facilities	into	larger	distribution	centers, and	the	termination	of	employees.	We	also	incurred	$3.1	million	and	$2.3	million	of	restructuring	expenses,	including	primarily	facility	rationalization	activities,	related to	our	North	America	and	Europe	acquisitions,	respectively.

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	Coast	acquisition	and	our	October	2014	acquisition	of	a	supplier	of	parts	for	recreational	vehicles	into	our	Specialty	business	and	the	integration	of	our	acquisition	of Parts	Channel	into	our	existing	North	American	wholesale	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.	Also	during	2014,	we	incurred	$1.9	million,	$1.0	million,	and	$0.8	million	of	other	restructuring	costs	related	to	our	Europe,	North	America,	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	2017.	These	integration	activities are	expected	to	include	the	closure	of	duplicate	facilities,	rationalization	of	personnel	in	connection	with	the	consolidation	of	overlapping	facilities	with	our	existing business,	and	moving	expenses.	Future	expenses	to	complete	these	integration	plans	are	expected	to	be	less	than	$5.0	million;	this	amount	excludes	any	potential	future restructuring	expense	related	to	the	integration	of	our	acquisitions	of	Rhiag	and	PGW	with	our	existing	business.

# 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	6.	Stock-Based	Compensation

In	order	to	attract	and	retain	employees,	non-employee	directors,	consultants,	and	other	persons	associated	with	us,	we	may	grant	qualified	and	nonqualified stock	options,	stock	appreciation	rights,	restricted	stock,	restricted	stock	units	("RSUs"),	performance	shares	and	performance	units	under	the	LKQ	Corporation	1998 Equity	Incentive	Plan	(the	"Equity	Incentive	Plan").	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,	11.7	million	shares	remained	available	for	issuance	as	of	December	31,	2016.	We expect	to	issue	new	shares	of	common	stock	to	cover	past	and	future	equity	grants.

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

The	Compensation	Committee	approved	the	grant	of	261,851;	215,076;	and	175,800	RSUs	to	our	executive	officers	that	include	both	a	performance-based vesting	condition	and	a	time-based	vesting	condition	in	2016,	2015,	and	2014,	respectively.	The	performance-based	vesting	conditions	for	the	2016,	2015,	and	2014 grants	to	our	executive	officers	have	been	satisfied.

In	January	2017,	our	Board	of	Directors	granted	678,450	RSUs	to	employees	(including	executive	officers).

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

|  | Number<br>Outstanding | Weighted<br>Average<br>Grant	Date<br>Fair	Value | Weighted	Average<br>Remaining<br>Contractual	Term<br>(in	years) | Aggregate	Intrinsic<br>Value<br>			(in	thousands)	(1) |
| :--- | :--- | :--- | :--- | :--- |
| Unvested\tas\tof\tJanuary\t1,\t2016 | 1,981,292 | $24.19 |  |  |
| Granted | 976,318 | $29.05 |  |  |
| Vested | (996,607) | $22.30 |  |  |
| Forfeited\t/\tCanceled | (87,266) | $27.15 |  |  |
| Unvested\tas\tof\tDecember\t31,\t2016 | 1,873,737 | $27.58 |  |  |
| Expected\tto\tvest\tafter\tDecember\t31,\t2016 | 1,723,579 | $27.45 | 2.4 | $52,828 |

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

# Stock	Options

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

The	total	grant-date	fair	value	of	options	that	vested	during	the	years	ended	December	31,	2015	and	2014	was	$1.2	million	and	$3.3	million,	respectively;	no options	vested	during	the	year	ended	December	31,	2016.

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

|  | Number<br>Outstanding | Weighted<br>Average	Exercise<br>Price | Weighted	Average<br>Remaining<br>Contractual	Term<br>(in	years) | Aggregate	Intrinsic<br>Value<br>			(in	thousands)	(1) |
| :--- | :--- | :--- | :--- | :--- |
| Balance\tas\tof\tJanuary\t1,\t2016 | 3,765,952 | $8.63 |  |  |
| Exercised | (1,124,317) | $7.08 |  | $27,844 |
| Forfeited\t/\tCanceled | (18,418) | $24.14 |  |  |
| Balance\tas\tof\tDecember\t31,\t2016 | 2,623,217 | $9.19 | 2.3 | $56,427 |
| Exercisable\tas\tof\tDecember\t31,\t2016 | 2,543,299 | $8.46 | 2.3 | $56,427 |
| Exercisable\tas\tof\tDecember\t31,\t2016\tand\texpected\tto\tvest\tthereafter | 2,623,217 | $9.19 | 2.3 | $56,427 |

(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.	The	aggregate	intrinsic	value	of	stock	options	exercised	during	the	years	ended December	31,	2015	and	2014	was	$32.4	million	and	$38.4	million,	respectively.

# 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.	During	the	years ended	December	31,	2016,	2015,	and	2014,	we	recognized	$7.3	million,	$8.2	million,	and	$8.2	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-based	vesting	condition,	we	recognize	compensation expense	on	a	straight-line	basis	over	the	requisite	service	period	of	the	entire	award.

In	2015	and	2014,	compensation	expense	was	adjusted	to	reflect	estimated	forfeitures.	When	estimating	forfeitures,	we	considered	voluntary	and	involuntary termination	behavior	as	well	as	analysis	of	historical	forfeitures.	With	the	adoption	of	ASU	2016-09	beginning	in	2016,	we	no	longer	estimate	forfeitures;	rather, forfeitures	are	recorded	as	they	occur.

The	components	of	pre-tax	stock-based	compensation	expense	for	our	continuing	operations	are	as	follows	(in	thousands):

|  | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| RSUs | $22,183 | \t $21,058 | \t $18,965 |
| Stock\toptions\tand\tother | 162 | 278 | 3,056 |
| Total\tstock-based\tcompensation\texpense | $22,345 | \t $21,336 | \t $22,021 |

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

|  | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Cost\tof\tgoods\tsold | $407 | \t $358 | \t $410 |
| Facility\tand\twarehouse\texpenses | 3,980 | 2,271 | 2,195 |
| Selling,\tgeneral\tand\tadministrative\texpenses | 17,958 | 18,707 | 19,416 |
|  | 22,345 | 21,336 | 22,021 |
| Income\ttax\tbenefit | (8,268) | (8,221) | (8,478) |
| Total\tstock-based\tcompensation\texpense,\tnet\tof\ttax | $14,077 | \t $13,115 | \t $13,543 |

Income	from	discontinued	operations	included	$0.1	million	of	pre-tax	stock-based	compensation	expense.	We	have	not	capitalized	any	stock-based compensation	costs	during	the	years	ended	December	31,	2016,	2015	or	2014.

As	of	December	31,	2016,	unrecognized	compensation	expense	related	to	unvested	RSUs	is	expected	to	be	recognized	as	follows	(in	thousands):

|  | RSUs |
| :--- | :--- |
| 2017 | $15,356 |
| 2018 | 10,379 |
| 2019 | 6,261 |
| 2020 | 3,260 |
| 2021 | 353 |
| Total\tunrecognized\tcompensation\texpense | $35,609 |

Stock-based	compensation	expense	related	to	these	awards	will	be	different	to	the	extent	that	forfeitures	are	realized.

# Note	7.	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	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):

|  | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Income\tfrom\tcontinuing\toperations | $456,123 | $423,223 | $381,519 |
| Denominator\tfor\tbasic\tearnings\tper\tshare—Weighted-average\tshares\toutstanding | 306,897 | 304,722 | 302,343 |
| Effect\tof\tdilutive\tsecurities: |  |  |  |
| RSUs | 689 | 667 | 791 |
| Stock\toptions | 2,198 | 2,107 | 2,905 |
| Restricted\tstock | — | — | 6 |
| Denominator\tfor\tdiluted\tearnings\tper\tshare—Adjusted\tweighted-average\tshares\toutstanding | 309,784 | 307,496 | 306,045 |
| Basic\tearnings\tper\tshare\tfrom\tcontinuing\toperations | $1.49 | $1.39 | $1.26 |
| Diluted\tearnings\tper\tshare\tfrom\tcontinuing\toperations | $1.47 | $1.38 | $1.25 |

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):

|  | Foreign<br>Currency<br>Translation | Unrealized	(Loss)Gain<br>on	Cash	Flow	Hedges | Unrealized	Gain<br>(Loss)	on	Pension	Plans | Other<br>Comprehensive<br>Income	(Loss) |
| :--- | :--- | :--- | :--- | :--- |
| Balance\tat\tJanuary\t1,\t2014 | $24,906 | $(5,596) | $701 | $20,011 |
| Pretax\tloss | (51,979) | (1,586) | (13,506) | (67,071) |
| Income\ttax\teffect | — | 382 | 3,179 | 3,561 |
| Reclassification\tof\tunrealized\tloss\t(gain) | — | 5,200 | (166) | 5,034 |
| Reclassification\tof\tdeferred\tincome\ttaxes | — | (1,801) | 41 | (1,760) |
| Balance\tat\tDecember\t31,\t2014 | $(27,073) | $(3,401) | $(9,751) | $(40,225) |
| Pretax\t(loss)\tincome | (69,817) | (1,664) | 2,245 | (69,236) |
| Income\ttax\teffect | — | 538 | (561) | (23) |
| Reclassification\tof\tunrealized\tloss | — | 5,366 | 559 | 5,925 |
| Reclassification\tof\tdeferred\tincome\ttaxes | — | (1,771) | (140) | (1,911) |
| Balance\tat\tDecember\t31,\t2015 | $(96,890) | $(932) | $(7,648) | $(105,470) |
| Pretax\t(loss)\tincome | (175,639) | 12,382 | 7,175 | (156,082) |
| Income\ttax\teffect | — | (4,581) | (2,636) | (7,217) |
| Reclassification\tof\tunrealized\tloss\t(gain) | — | 1,789 | 496 | 2,285 |
| Reclassification\tof\tdeferred\tincome\ttaxes | — | (567) | (124) | (691) |
| Balance\tat\tDecember\t31,\t2016 | $(272,529) | $8,091 | $(2,737) | $(267,175) |

Net	unrealized	losses	on	our	interest	rate	swaps	totaling	$3.5	million,	$5.4	million,	and	$6.2	million	were	reclassified	to	interest	expense	in	our	Consolidated Statements	of	Income	during	each	of	the	years	ended	December	31,	2016,	2015,	and	2014.	We	also	reclassified	a	gain	of	$1.7	million	related	to	our	cross	currency swaps	and	a	gain	of	$1.0	million	related	to	other	foreign	currency	forward	contracts	to	Interest	and	other	income,	net	in	our	Consolidated	Statements	of	Income	for	the years

ended	December	31,	2016	and	2014,	respectively.	The	deferred	income	taxes	related	to	our	cash	flow	hedges	were	reclassified	from	Accumulated	other	comprehensive income	(loss)	to	income	tax	expense.

# Note	9.	Long-Term	Obligations

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

|  | 2016 | 2015 |
| :--- | :--- | :--- |
| Senior\tsecured\tcredit\tagreement: |  |  |
| Term\tloans\tpayable | $732,684 | $410,625 |
| Revolving\tcredit\tfacilities | 1,358,220 | 480,481 |
| Senior\tnotes | 600,000 | 600,000 |
| Euro\tnotes | 525,850 | — |
| Receivables\tsecuritization\tfacility | 100,000 | 63,000 |
|  | 11,808 | 16,104 |
|  | 37,125 | 29,485 |
| Total\tdebt | 3,365,687 | 1,599,695 |
| Less:\tlong-term\tdebt\tissuance\tcosts | (21,611) | (13,533) |
| Less:\tcurrent\tdebt\tissuance\tcosts | (2,305) | (1,460) |
| Total\tdebt,\tnet\tof\tdebt\tissuance\tcosts | 3,341,771 | 1,584,702 |
| Less:\tcurrent\tmaturities,\tnet\tof\tdebt\tissuance\tcosts | (66,109) | (56,034) |
| Long\tterm\tdebt,\tnet\tof\tdebt\tissuance\tcosts | $3,275,662 | $1,528,668 |

| 2017 | $68,414 |
| :--- | :--- |
| 2018 | 42,553 |
| 2019 | 140,594 |
| 2020 | 39,002 |
| 2021 | 1,942,680 |
| Thereafter | 1,132,444 |
| Total\tdebt\t(1) | $3,365,687 |

(1)	The	total	debt	amounts	presented	above	exclude	debt	issuance	costs	totaling	$23.9	million	as	of December	31,	2016.

# Senior	Secured	Credit	Agreement

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

On	December	14,	2016,	LKQ	Corporation	entered	into	Amendment	No.	1	to	the	Fourth	Amended	and	Restated	Credit	Agreement	under	which	the	€230 million	term	loan	was	prepaid	in	full	using	proceeds	from	borrowings	on	the	multicurrency	revolving	credit	facility.	Simultaneously,	LKQ	Corporation	borrowed incremental	U.S.	dollar	("USD")	term	loans	under	the	Credit	Agreement,	which	were	used	to	repay	outstanding	borrowings	on	the	USD	revolving	credit	facility.	LKQ Corporation

borrowed	additional	USD	amounts	on	the	revolving	credit	facility	and	entered	into	a	cross	currency	swap	transaction	to	exchange	the	borrowed	USD	for	euro	and	sent these	amounts	to	LKQ	Netherlands	B.V.	as	an	intercompany	loan,	which	LKQ	Netherlands	B.V.	used	to	repay	the	multicurrency	revolving	credit	facility	borrowings. These	transactions	had	the	effect	of	replacing	the	euro	term	loan	with	a	USD	term	loan.	Refer	to	Note	10,	"Derivative	Instruments	and	Hedging	Activities"	for	additional information	related	to	our	cross	currency	swaps.

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.

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

Borrowings	under	the	Credit	Agreement	bear	interest	at	variable	rates,	which	depend	on	the	currency	and	duration	of	the	borrowing	elected,	plus	an	applicable margin.	The	applicable	margin	is	subject	to	change	in	increments	of	0.25%	depending	on	our	net	leverage	ratio.	Interest	payments	are	due	on	the	last	day	of	the	selected interest	period	or	quarterly	in	arrears	depending	on	the	type	of	borrowing.	Including	the	effect	of	the	interest	rate	swap	agreements	described	in	Note	10,	"Derivative Instruments	and	Hedging	Activities,"	the	weighted	average	interest	rates	on	borrowings	outstanding	under	the	Credit	Agreement	at	December	31,	2016	and	2015	were 2.0%	and	1.8%,	respectively.	We	also	pay	a	commitment	fee	based	on	the	average	daily	unused	amount	of	the	revolving	credit	facilities.	The	commitment	fee	is	subject to	change	in	increments	of	0.05%	depending	on	our	net	leverage	ratio.	In	addition,	we	pay	a	participation	commission	on	outstanding	letters	of	credit	at	an	applicable rate	based	on	our	net	leverage	ratio,	as	well	as	a	fronting	fee	of	0.125%	to	the	issuing	bank,	which	are	due	quarterly	in	arrears.

Of	the	total	borrowings	outstanding	under	the	Credit	Agreement,	$37.2	million	and	$22.5	million	were	classified	as	current	maturities	at	December	31,	2016 and	2015,	respectively.	As	of	December	31,	2016,	there	were	letters	of	credit	outstanding	in	the	aggregate	amount	of	$72.7	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,	2016 was	$1.0	billion.

Related	to	the	execution	of	the	Credit	Agreement	in	January	2016,	we	incurred	$6.1	million	of	fees,	of	which	$5.0	million	were	capitalized	as	an	offset	to Long-Term	Obligations	and	are	amortized	over	the	term	of	the	agreement.	The	remaining	$1.1	million	of	fees,	together	with	$1.8	million	of	capitalized	debt	issuance costs	related	to	our	Third	Amended	and	Restated	Credit	Agreement,	were	expensed	during	the	year	ended	December	31,	2016	as	a	loss	on	debt	extinguishment.

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	was capitalized	as	an	offset	to	Long-Term	Obligations	and	amortized	over	the	term	of	the	agreement.	The	remaining	$0.3	million	of	fees	were	expensed	during	the	year ended	December	2014	as	a	loss	on	debt	extinguishment.

# Senior	Notes

In	April	2014,	LKQ	Corporation	completed	an	offer	to	exchange	$600	million	aggregate	principal	amount	of	4.75%	Senior	Notes	due	2023	(the	"	U.S.	Notes") for	notes	previously	issued	through	a	private	placement.	The	U.S.	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	U.S.	Notes	are	substantially	identical	to	those	previously	issued	through	the	private placement,	except	the	U.S.	Notes	are	registered	under	the	Securities	Act	of	1933.

The	U.S.	Notes	bear	interest	at	a	rate	of	4.75%	per	year	from	the	most	recent	payment	date	on	which	interest	has	been	paid	or	provided	for.	Interest	on	the	U.S. 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	U.S.	Notes	are	fully	and unconditionally	guaranteed,	jointly	and	severally,	by	the	Guarantors.

The	U.S.	Notes	and	the	guarantees	are,	respectively,	LKQ	Corporation	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	U.S.	Notes	to	the	extent	of	the assets	of	those	subsidiaries.

# Repayment	of	Rhiag	Acquired	Debt	and	Debt	Related	Liabilities

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

# Euro	Notes

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

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

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

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

# Restricted	Payments

Our	senior	secured	credit	agreement	and	our	senior	notes	indentures	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	indentures,	the	maximum	amount	of	dividends	we	could	pay	as	of	December	31,	2016 was	approximately	$1.0	billion.	The	limit	on	the	payment	of	dividends	is	calculated	using	historical	financial	information	and	will	change	from	period	to	period.

# Receivables	Securitization	Facility

On	November	29,	2016,	we	amended	the	terms	of	the	receivables	securitization	facility	with	The	Bank	of	Tokyo-Mitsubishi	UFJ,	LTD.	("BTMU")	to:	(i) extend	the	term	of	the	facility	to	November	8,	2019;	(ii)	increase	the	maximum	amount	available	to	$100	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,	2016	and	2015,	$140.3	million	and	$136.1	million,	respectively,	of	net	receivables were	collateral	for	the	investment	under	the	receivables	facility.

Under	the	receivables	facility,	we	pay	variable	interest	rates	plus	a	margin	on	the	outstanding	amounts	invested	by	the	Purchasers.	The	variable	rates	are	based on	(i)	commercial	paper	rates,	(ii)	the	London	InterBank	Offered	Rate	("LIBOR"),	or	(iii)	base	rates,	and	are	payable	monthly	in	arrears.	Commercial	paper	rates	will	be the	applicable	variable	rate	unless	conduit	investors	are	not	available	to	invest	in	the	receivables	at	commercial	paper	rates.	In	such	case,	financial	institutions	will	invest at	the	LIBOR	rate	or	at	base	rates.	We	also	pay	a	commitment	fee	on	the	excess	of	the	investment	maximum	over	the	average	daily	outstanding	investment,	payable monthly	in	arrears.	As	of	December	31,	2016,	the	interest	rate	under	the	receivables	facility	was	based	on	commercial	paper	rates	and	was	1.8%.	The	outstanding	balance of	$100.0	million	as	of	December	31,	2016	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	10.	Derivative	Instruments	and	Hedging	Activities

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

# Cash	Flow	Hedges

We	hold	interest	rate	swap	agreements	to	hedge	a	portion	of	the	variable	interest	rate	risk	on	our	variable	rate	borrowings	under	our	Credit	Agreement,	with	the objective	of	minimizing	the	impact	of	interest	rate	fluctuations	and	stabilizing	cash	flows.	Under	the	terms	of	the	interest	rate	swap	agreements,	we	pay	the	fixed	interest rate	and	receive	payment	at	a	variable	rate	of	interest	based	on	LIBOR	for	the	respective	currency	of	each	interest	rate	swap	agreement's	notional	amount.	The	effective portion	of	changes	in	the	fair	value	of	the	interest	rate	swap	agreements	is	recorded	in	Accumulated	Other	Comprehensive	Income	(Loss)	and	is	reclassified	to	interest expense	when	the	underlying	interest	payment	has	an	impact	on	earnings.	The	ineffective	portion	of	changes	in	the	fair	value	of	the	interest	rate	swap	agreements	is reported	in	interest	expense.

As	of	December	31,	2016,	we	held	interest	rate	swap	contracts	representing	$590	million	of	U.S.	dollar-denominated	debt.	These	interest	rate	swaps	were executed	during	2016	and	have	maturity	dates	ranging	from	January	to	June	2021.	During	2016,	existing	swaps	relating	to	a	total	of	$170	million	of	U.S	dollar- denominated	debt,	£50	million	of	GBP-denominated	debt,	and	C$25	million	of	CAD-denominated	debt	expired.

From	time	to	time,	we	may	hold	foreign	currency	forward	contracts	related	to	certain	foreign	currency	denominated	intercompany	transactions,	with	the objective	of	minimizing	the	impact	of	fluctuating	exchange	rates	on	these	future	cash	flows,	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	2014,	foreign	currency	forward	contracts	with	notional	amounts	of	£70	million	and	€150	million	were	settled	through	payments	to	the	counterparties	totaling $20.0	million.	At	that	time,	we	also	settled	the	underlying	intercompany	debt	transactions.

In	2016,	we	entered	into	three	cross	currency	swap	agreements	for	a	total	notional	amount	of	$422.4	million	(€400	million)	with	maturity	dates	in	January	2021. These	cross	currency	swaps	contain	an	interest	rate	swap	component	and	a	foreign	currency	forward	contract	component	that,	combined	with	related	intercompany financing	arrangements,	effectively	convert	variable	rate	U.S.	dollar-denominated	borrowings	into	fixed	rate	euro-denominated	borrowings.	The	swaps	are	intended	to minimize	the	impact	of	fluctuating	exchange	rates	and	interest	rates	on	the	cash	flows	resulting	from	the	related	intercompany	financing	arrangements.	The	effective portion	of	the	changes	in	the	fair	value	of	the	derivative	instruments	is	recorded	in	Accumulated	Other	Comprehensive	Income	(Loss)	and	is	reclassified	to	interest expense	and	other	income	(expense)	when	the	underlying	transactions	have	an	impact	on	earnings.

The	following	table	summarizes	the	notional	amounts	and	fair	values	of	our	designated	cash	flow	hedges	as	of	December	31,	2016	and	2015	(in	thousands):

|  | December	31,	2016 | December	31,	2016 | December	31,	2015 | December	31,	2015 | Other	Assets | Noncurrent<br>Liabilities | Other	Accrued<br>Expenses |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| Interest\trate\tswap\tagreements |  |  |  |  |  |  |  |
| USD\tdenominated | \t $590,000 | \t $590,000 | \t $170,000 | \t $170,000 | $16,421 | $— | $858 |
| GBP\tdenominated | \t £ | — | \t £ | 50,000 | — | — | 465 |
| CAD\tdenominated | \t C$ | — | \t C$ | 25,000 | — | — | 24 |
| Cross\tcurrency\tswap\tagreements |  |  |  |  |  |  |  |
| USD/euro | \t $422,408 | \t $422,408 | \t $— | \t $— | 1,486 | 3,128 | — |
| Total\tcash\tflow\thedges | Total\tcash\tflow\thedges | Total\tcash\tflow\thedges | Total\tcash\tflow\thedges | Total\tcash\tflow\thedges | $17,907 | $3,128 | $1,347 |

While	our	derivative	instruments	executed	with	the	same	counterparty	are	subject	to	master	netting	arrangements,	we	present	our	cash	flow	hedge	derivative instruments	on	a	gross	basis	in	our	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,	2016	or	2015.

The	activity	related	to	our	cash	flow	hedges	is	included	in	Note	8,	"Accumulated	Other	Comprehensive	Income	(Loss)."	Ineffectiveness	related	to	our	cash	flow hedges	was	immaterial	to	our	results	of	operations	during	2016,	2015	and	2014.	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,	2016,	we	estimate	that	$1.4	million	of	derivative	losses	(net	of	tax)	included	in	Accumulated	Other	Comprehensive	Income	(Loss)	will	be reclassified	into	our	Consolidated	Statements	of	Income	within	the	next	12	months.

# Other	Derivative	Instruments

We	hold	other	short-term	derivative	instruments,	including	foreign	currency	forward	contracts	to	manage	our	exposure	to	variability	related	to	inventory purchases	and	intercompany	financing	transactions	denominated	in	a	non-functional	currency.	We	have	elected	not	to	apply	hedge	accounting	for	these	transactions,	and therefore	the	contracts	are	adjusted	to	fair	value	through	our	results	of	operations	as	of	each	balance	sheet	date,	which	could	result	in	volatility	in	our	earnings.	The notional	amount	and	fair	value	of	these	contracts	at	December	31,	2016	and	2015,	along	with	the	effect	on	our	results	of	operations	in	2016,	2015	and	2014,	were immaterial.

# Note	11.	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,	2016,	there	were	no	significant changes	in	valuation	techniques	or	inputs	related	to	the	financial	assets	or	liabilities	that	we	have	historically	recorded	at	fair	value.	The	tiers	in	the	fair	value	hierarchy include:	Level	1,	defined	as	observable	inputs	such	as	quoted	market	prices	in	active	markets;	Level	2,	defined	as	inputs	other	than	quoted	prices	in	active	markets	that are	either	directly	or	indirectly	observable;	and	Level	3,	defined	as	unobservable	inputs	in	which	little	or	no	market	data	exists,	therefore	requiring	an	entity	to	develop its	own	assumptions.

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

|  | Balance	as	of | Fair	Value	Measurements	as	of	December	31,	2016 | Fair	Value	Measurements	as	of	December	31,	2016 |  |
| :--- | :--- | :--- | :--- | :--- |
|  | December\t31,\t2016 | Level\t1 | Level\t2 | Level\t3 |
| Assets: |  |  |  |  |
| Cash\tsurrender\tvalue\tof\tlife\tinsurance | $36,131 | $— | $36,131 | $— |
| Interest\trate\tswaps | 17,907 | — | 17,907 | — |
| Total\tAssets | $54,038 | $— | $54,038 | $— |
| Liabilities: |  |  |  |  |
| Contingent\tconsideration\tliabilities | $3,162 | $— | $— | $3,162 |
| Deferred\tcompensation\tliabilities | 36,865 | — | 36,865 | — |
| Foreign\tcurrency\tforward\tcontracts | 3,128 | — | 3,128 | — |
| Total\tLiabilities | $43,155 | $— | $39,993 | $3,162 |

|  | Balance	as	of<br>December	31,	2015 | Level	1 | Fair	Value	Measurements	as	of	December	31,	2015<br>Level	2 | Level	3 |
| :--- | :--- | :--- | :--- | :--- |
| Assets: |  |  |  |  |
| Cash\tsurrender\tvalue\tof\tlife\tinsurance | $29,782 | $— | $29,782 | $— |
| Total\tAssets | $29,782 | $— | $29,782 | $— |
| Liabilities: |  |  |  |  |
| Contingent\tconsideration\tliabilities | $4,584 | $— | $— | $4,584 |
| Deferred\tcompensation\tliabilities | 30,336 | — | 30,336 | — |
| Interest\trate\tswaps | 1,347 | — | 1,347 | — |
| Total\tLiabilities | $36,267 | $— | $31,683 | $4,584 |

The	cash	surrender	value	of	life	insurance	is	included	in	Other	Assets	on	our	Consolidated	Balance	Sheets.	The	current	portion	of	deferred	compensation	is included	in	Accrued	payroll-related	liabilities	and	the	current	portion	of	contingent	consideration	liabilities	is	included	in	Other	current	liabilities	on	our	Consolidated Balance	Sheets;	the	noncurrent	portion	of	these	amounts	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	10,	"Derivative	Instruments and	Hedging	Activities."

Our	Level	2	assets	and	liabilities	are	valued	using	inputs	from	third	parties	and	market	observable	data.	We	obtain	valuation	data	for	the	cash	surrender	value	of life	insurance	and	deferred	compensation	liabilities	from	third	party	sources,	which	determine	the	net	asset	values	for	our	accounts	using	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	2,	"Business	Combinations."	Under	the	terms	of	the contingent	consideration	agreements,	payments	may	be	made	at	specified	future	dates	depending	on	the	performance	of	the	acquired	business	subsequent	to	the acquisition.	The	liabilities	for	these	payments	are	classified	as	Level	3	liabilities	because	the	related	fair	value	measurement,	which	is	determined	using	an	income approach,	includes	significant	inputs	not	observable	in	the	market.

# 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,	2016	and	2015,	the	fair	value	of	our	credit agreement	borrowings	reasonably	approximated	the	carrying	value	of	$2.1	billion	and	$891.1	million,	respectively.	In	addition,	based	on	market	conditions,	the	fair value	of	the	outstanding	borrowings	under	the	receivables	facility	reasonably	approximated	the	carrying	value	of	$100.0	million	and	$63.0	million	at	December	31,	2016 and	2015,	respectively.	As	of	December	31,	2016	and	2015,	the	fair	value	of	the	U.S.	Notes	was	approximately	$599	million	and	$567	million,	respectively,	compared	to a	carrying	value	of	$600	million.	As	of	December	31,	2016,	the	fair	value	of	the	Euro	Notes	was	approximately	$561	million	million	compared	to	a	carrying	value	of $526	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,	2016	to	assume	these	obligations.	The	fair	value	of our	Notes	is	classified	as	Level	1	within	the	fair	value	hierarchy	since	it	is	determined	based	upon	observable	market	inputs	including	quoted	market	prices	in	an	active market.	The	fair	value	of	our	Euro	Notes	is	determined	based	upon	observable	market	inputs	including	quoted	market	prices	in	a	market	that	is	not	active,	and	therefore is	classified	as	Level	2	within	the	fair	value	hierarchy.

# Note	12.	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,	2016	are	as	follows	(in	thousands):

| Years	ending	December	31: |  |
| :--- | :--- |
| 2017 | $200,450 |
| 2018 | 168,926 |
| 2019 | 136,462 |
| 2020 | 110,063 |
| 2021 | 82,494 |
| Thereafter | 486,199 |
| Future\tMinimum\tLease\tPayments | $1,184,594 |

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,	2016,	our	portion	of	the	guaranteed	residual	value	would	have	totaled approximately	$59.0	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	13.	Income	Taxes

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

|  | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Current: |  |  |  |
| Federal | $159,547 | $138,432 | $144,924 |
| State | 27,120 | 25,952 | 24,052 |
| Foreign | 45,545 | 32,931 | 29,046 |
|  | $232,212 | $197,315 | $198,022 |
| Deferred: |  |  |  |
| Federal | $1,169 | $22,233 | $9,321 |
| State | 2,131 | 1,212 | (179) |
| Foreign | (14,946) | (1,057) | (2,900) |
|  | $(11,646) | $22,388 | $6,242 |
| Provision\tfor\tincome\ttaxes | $220,566 | $219,703 | $204,264 |

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

|  | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Domestic | $513,844 | $478,819 | $460,637 |
| Foreign | 163,437 | 170,211 | 127,251 |
|  | $677,281 | $649,030 | $587,888 |

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

|  | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| U.S.\tfederal\tstatutory\trate | 35.0\t% | 35.0\t% | 35.0\t% |
| State\tincome\ttaxes,\tnet\tof\tstate\tcredits\tand\tfederal\ttax\timpact | 2.7\t% | 2.9\t% | 2.8\t% |
| Impact\tof\tinternational\toperations | (3.2)% | (4.1)% | (3.6)% |
| Notional\tinterest\tdeductions | (2.5)% | —\t% | —\t% |
| Excess\ttax\tbenefits\tfrom\tstock-based\tcompensation\t(1) | (1.6)% | —\t% | —\t% |
| Non-deductible\texpenses | 1.3\t% | 0.8\t% | 0.5\t% |
| Other,\tnet | 0.9\t% | (0.7)% | —\t% |
| Effective\ttax\trate | 32.6\t% | 33.9\t% | 34.7\t% |

(1)	Represents	an	$11.4	million	discrete	item	in	2016	for	excess	tax	benefits	from	stock-based	payments	related	to	the	early	adoption	of	ASU	2016-09.	See	Note 4,	"Summary	of	Significant	Accounting	Policies"	to	the	consolidated	financial	statements	in	Part	II,	Item	8	of	this	Annual	Report	on	Form	10-K	for	further	information.

Undistributed	earnings	of	the	Company's	foreign	subsidiaries	amounted	to	approximately	$530	million	at	December	31,	2016.	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):

|  | 2016 | 2015 |
| :--- | :--- | :--- |
| Deferred\tTax\tAssets: |  |  |
| Accrued\texpenses\tand\treserves | $62,059 | $46,837 |
| Qualified\tand\tnonqualified\tretirement\tplans | 36,626 | 14,130 |
| Inventory | 35,565 | 27,184 |
| Accounts\treceivable | 19,046 | 13,971 |
| Interest\tdeduction\tcarryforwards | 9,806 | — |
| Stock-based\tcompensation | 9,687 | 11,096 |
| Net\toperating\tloss\tcarryforwards | 7,858 | 8,946 |
| Other | 7,699 | 8,212 |
|  | 188,346 | 130,376 |
| Less:\tvaluation\tallowance | (11,252) | (3,880) |
| Total\tdeferred\ttax\tassets | $177,094 | $126,496 |
| Deferred\tTax\tLiabilities: |  |  |
| Goodwill\tand\tother\tintangible\tassets | $222,476 | $141,442 |
| Property\tand\tequipment | 72,231 | 67,065 |
| Trade\tname | 59,002 | 36,532 |
| Other | 19,439 | 5,342 |
| Total\tdeferred\ttax\tliabilities | $373,148 | $250,381 |
| Net\tdeferred\ttax\tliability | $(196,054) | $(123,885) |

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

|  | 2016 | 2015 |
| :--- | :--- | :--- |
| Noncurrent\tdeferred\ttax\tassets | $3,603 | $3,354 |
| Noncurrent\tdeferred\ttax\tliabilities | 199,657 | 127,239 |

Our	noncurrent	deferred	tax	assets	and	noncurrent	deferred	tax	liabilities	are	included	in	Other	Assets	and	Deferred	Income	Taxes,	respectively,	on	our Consolidated	Balance	Sheets.

We	had	net	operating	loss	carryforwards	for	federal	and	certain	of	our	state	tax	jurisdictions,	the	tax	benefits	of	which	total	approximately	$7.9	million	and	$8.9 million	at	December	31,	2016	and	2015,	respectively.	At	December	31,	2016	and	2015,	we	had	foreign,	state,	and	local	tax	credit	carryforwards,	the	tax	benefits	of which	total	approximately	$1.8	million	and	$3.2	million,	respectively.	At	December	31,	2016	we	had	interest	deduction	carryforwards	in	Italy	of	$9.8	million.	As	of December	31,	2016	and	2015,	valuation	allowances	of	$11.3	million	and	$3.9	million,	respectively,	were	recorded	for	a	portion	of	the	deferred	tax	assets	related	to	net operating	loss,	tax	credit	carryforwards	and	interest	deduction	carryforwards.	The	$7.4	million	net	increase	in	valuation	allowances	was	primarily	due	to	a	$6.8	million valuation	allowance	provided	on	certain	interest	deduction	carryforwards	suspended	due	to	Italy's	thin	capitalization	constraints,	and	a	$1.0	million	increase	attributable to	acquired	foreign	net	operating	loss	carryforwards.	These	increases	were	partially	offset	by	a	$0.4	million	decrease	attributable	to	our	judgment	regarding	the realization	of	other	losses	and	tax	credits.

The	net	operating	loss	carryforwards	expire	over	the	period	from	2017	through	2037.	Foreign	tax	credit	carryforwards	expire	over	the	period	from	2017 through	2026,	while	the	state	and	local	tax	credits	primarily	have	no	expiration.	The	interest	deduction	carryforwards	do	not	expire.	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):

|  | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Balance\tat\tJanuary\t1 | $2,273 | $2,630 | $1,445 |
| Additions\tfor\tacquired\ttax\tpositions | — | 80 | 2,322 |
| Additions\tbased\ton\ttax\tpositions\trelated\tto\tthe\tcurrent\tyear | 5 | 302 | 302 |
| Reductions\tfor\ttax\tpositions\tof\tprior\tyears | — | (743) | — |
| Lapse\tof\tstatutes\tof\tlimitations | (132) | (119) | (134) |
| Settlements\twith\ttaxing\tauthorities | — | — | (1,182) |
| Currency\texchange\trate\tfluctuations | — | 123 | (123) |
| Balance\tat\tDecember\t31 | $2,146 | $2,273 | $2,630 |

Included	in	the	balance	of	unrecognized	tax	benefits	above	as	of	December	31,	2016,	2015	and	2014	are	$1.4	million,	$1.5	million	and	$1.9	million, respectively,	of	tax	benefits	that,	if	recognized,	would	affect	the	effective	tax	rate.	The	balance	of	unrecognized	tax	benefits	at	December	31,	2016,	2015	and	2014	also includes	$0.8	million,	$0.8	million,	and	$0.7	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,	the	Company	had	accumulated	interest	and	penalties	of	$0.8	million	at	both	December	31,	2016	and	2015.	During	each	of	the	years	ended December	31,	2016,	2015,	and	2014,	$0.1	million	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,	2017,	it	is	reasonably	possible	that	we	will	reduce	unrecognized	tax	benefits	by	up	to	approximately	$0.5 million,	all	of	which	would	impact	our	effective	tax	rate,	primarily	as	a	result	of	the	expiration	of	certain	statutes	of	limitations.

In	the	U.S.,	the	Internal	Revenue	Service	has	completed	an	examination	of	the	U.S.	Federal	consolidated	tax	returns	through	2013.	Tax	years	from	2011	and onward	are	subject	to	income	tax	examinations	by	various	U.S.	state	and	local	jurisdictions.	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	Italy,	certain	issues	from	2007	through	2012	are	subject	to	litigation with	the	Italian	tax	authorities.	In	addition,	certain	Italian	operations	are	under	examination	for	the	2011	tax	year.	In	the	Netherlands,	tax	years	through	2014	have	been assessed.	Adjustments	from	such	examinations,	if	any,	are	not	expected	to	have	a	material	effect	on	our	consolidated	financial	statements.

# Note	14.	Segment	and	Geographic	Information

We	have	five	operating	segments:	Wholesale	–	North	America;	Europe;	Specialty;	Glass	and	Self	Service.	Our	Wholesale	–	North	America,	Glass,	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.

We	are	combining	the	continuing	aftermarket	products	business	of	the	Glass	operating	segment	into	our	Wholesale	–	North	America	operating	segment,	which we	expect	to	complete	in	2017.

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

|  | North	America | Europe | Specialty | Eliminations | Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Year\tEnded\tDecember\t31,\t2016 |  |  |  |  |  |
| Revenue: |  |  |  |  |  |
| Third\tParty | $4,470,900 | \t $2,920,470 | \t $1,192,661 | \t $— | \t $8,584,031 |
| Intersegment | 739 | — | 4,048 | (4,787) | — |
| Total\tsegment\trevenue | $4,471,639 | \t $2,920,470 | \t $1,196,709 | \t $(4,787) | \t $8,584,031 |
| Segment\tEBITDA | $596,333 | \t $283,608 | \t $125,039 | \t $— | \t $1,004,980 |
| Depreciation\tand\tamortization\t(1) | 81,395 | 94,979 | 21,960 | — | 198,334 |
| Year\tEnded\tDecember\t31,\t2015 |  |  |  |  |  |
| Revenue: |  |  |  |  |  |
| Third\tParty | $4,145,998 | \t $1,995,385 | \t $1,051,250 | \t $— | \t $7,192,633 |
| Intersegment | 835 | 70 | 3,334 | (4,239) | — |
| Total\tsegment\trevenue | $4,146,833 | \t $1,995,455 | \t $1,054,584 | \t $(4,239) | \t $7,192,633 |
| Segment\tEBITDA | $547,405 | \t $200,563 | \t $106,561 | \t $— | \t $854,529 |
| Depreciation\tand\tamortization\t(1) | 70,369 | 36,446 | 21,377 | — | 128,192 |
| Year\tEnded\tDecember\t31,\t2014 |  |  |  |  |  |
| Revenue: |  |  |  |  |  |
| Third\tParty | $4,088,701 | \t $1,846,155 | \t $805,208 | \t $— | \t $6,740,064 |
| Intersegment | 589 | — | 1,807 | (2,396) | — |
| Total\tsegment\trevenue | $4,089,290 | \t $1,846,155 | \t $807,015 | \t $(2,396) | \t $6,740,064 |
| Segment\tEBITDA | $543,943 | \t $167,155 | \t $79,453 | \t $— | \t $790,551 |
| Depreciation\tand\tamortization\t(1) | 70,434 | 34,391 | 20,612 | — | 125,437 |

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

The	key	measure	of	segment	profit	or	loss	reviewed	by	our	chief	operating	decision	maker,	who	is	our	Chief	Executive	Officer,	is	Segment	EBITDA.	Segment EBITDA	includes	revenue	and	expenses	that	are	controllable	by	the	segment.	Corporate	and	administrative	expenses	are	allocated	to	the	segments	based	on	usage,	with shared	expenses	apportioned	based	on	the	segment's	percentage	of	consolidated	revenue.	We	calculate	Segment	EBITDA	as	EBITDA	excluding	restructuring	and acquisition	related	expenses,	change	in	fair	value	of	contingent	consideration	liabilities,	other	acquisition	related	gains	and	losses	and	equity	in	earnings	(loss)	of unconsolidated	subsidiaries.	EBITDA,	which	is	the	basis	for	Segment	EBITDA,	is	calculated	as	net	income	excluding	discontinued	operations,	depreciation, amortization,	interest	(which	includes	loss	on	debt	extinguishment)	and	income	tax	expense.

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

|  | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Net\tincome | $463,975 | \t $423,223 | \t $381,519 |
| Subtract: |  |  |  |
| Income\tfrom\tdiscontinued\toperations,\tnet\tof\ttax | 7,852 | — | — |
| Income\tfrom\tcontinuing\toperations | 456,123 | 423,223 | 381,519 |
| Add: |  |  |  |
| Depreciation\tand\tamortization | 191,433 | 122,120 | 120,719 |
| Depreciation\tand\tamortization\t-\tcost\tof\tgoods\tsold | 6,901 | 6,072 | 4,718 |
| Interest\texpense,\tnet | 87,682 | 57,342 | 63,947 |
| Loss\ton\tdebt\textinguishment | 26,650 | — | 324 |
| Provision\tfor\tincome\ttaxes | 220,566 | 219,703 | 204,264 |
| EBITDA | 989,355 | 828,460 | 775,491 |
| Subtract: |  |  |  |
| Equity\tin\tearnings\t(loss)\tof\tunconsolidated\tsubsidiaries | (592) | (6,104) | (2,105) |
| Gains\ton\tforeign\texchange\tcontracts-\tacquisition\trelated\t(1) | 18,342 | — | — |
| Gain\ton\tbargain\tpurchase\t(2) | 8,207 | — | — |
| Add: |  |  |  |
| Restructuring\tand\tacquisition\trelated\texpenses(3) | 37,762 | 19,511 | 14,806 |
| \t\t\t\tInventory\tstep-up\tadjustment\t-\tacquisition\trelated\t(4) | 3,614 | — | — |
| Change\tin\tfair\tvalue\tof\tcontingent\tconsideration\tliabilities | 206 | 454 | (1,851) |
| Segment\tEBITDA | $1,004,980 | \t $854,529 | \t $790,551 |

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

(2)	Reflects	the	gain	on	bargain	purchase	related	to	our	acquisition	of	Andrew	Page.	See	Note	2,	"Business	Combinations,"	for	further	information.

(3)	See	Note	5,	"Restructuring	and	Acquisition	Related	Expenses,"	for	further	information.

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

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

|  | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Capital\tExpenditures |  |  |  |
| North\tAmerica | $91,618 | \t $72,048 | \t $86,172 |
| Europe | 77,689 | 79,072 | 44,896 |
| Specialty | 13,611 | 19,370 | 9,882 |
| Discontinued\toperations | 24,156 | — | — |
| Total\tcapital\texpenditures | $207,074 | \t $170,490 | \t $140,950 |

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

|  | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Receivables,\tnet |  |  |  |
| North\tAmerica\t(1) | $352,930 | \t $314,743 | \t $322,713 |
| Europe\t(1) | 443,281 | 215,710 | 227,987 |
| Specialty | 64,338 | 59,707 | 50,722 |
| Total\treceivables,\tnet | 860,549 | 590,160 | 601,422 |
| Inventories |  |  |  |
| North\tAmerica\t(1) | 917,311 | 847,787 | 826,429 |
| Europe\t(1) | 718,729 | 427,323 | 402,488 |
| Specialty | 299,197 | 281,442 | 204,930 |
| Total\tinventories | 1,935,237 | 1,556,552 | 1,433,847 |
| Property\tand\tEquipment,\tnet |  |  |  |
| North\tAmerica\t(1) | 506,274 | 467,961 | 456,288 |
| Europe\t(1) | 247,910 | 175,455 | 128,309 |
| Specialty | 57,392 | 53,151 | 45,390 |
| Total\tproperty\tand\tequipment,\tnet | 811,576 | 696,567 | 629,987 |
| Equity\tMethod\tInvestments |  |  |  |
| North\tAmerica | 336 | 628 | 536 |
| Europe\t(2) | 183,131 | 2,127 | 7,592 |
| Total\tequity\tmethod\tinvestments | 183,467 | 2,755 | 8,128 |
| Other\tunallocated\tassets | 4,512,370 | 2,801,803 | 2,802,355 |
| Total\tassets | $8,303,199 | \t $5,647,837 | \t $5,475,739 |

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

(2)	The	increase	in	Europe	relates	primarily	to	our	investment	in	Mekonomen	as	described	in	Note	4,	"Summary	of	Significant	Accounting	Policies."

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	expenses and	other	current	and	noncurrent	assets,	goodwill,	intangibles,	assets	from	discontinued	operations	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.	As	part	of	the	Rhiag	acquisition,	we	expanded	our	operations	into	Italy,	Czech	Republic,	Switzerland,	Hungary,	Romania,	Ukraine,	Bulgaria,	Slovakia,	and Spain.	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):

|  | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Revenue |  |  |  |
| United\tStates | $5,226,918 | \t $4,831,875 | \t $4,499,743 |
| United\tKingdom | 1,390,775 | 1,382,432 | 1,321,786 |
| Other\tcountries | 1,966,338 | 978,326 | 918,535 |
| Total\trevenue | $8,584,031 | \t $7,192,633 | \t $6,740,064 |

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

|  | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Long-lived\tAssets |  |  |  |
| United\tStates | $531,425 | \t $493,300 | \t $469,450 |
| United\tKingdom | 159,689 | 138,546 | 92,813 |
| Other\tcountries | 120,462 | 64,721 | 67,724 |
| Total\tlong-lived\tassets | $811,576 | \t $696,567 | \t $629,987 |

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

|  | 2016 | 2015 | 2014 |
| :--- | :--- | :--- | :--- |
| Aftermarket,\tother\tnew\tand\trefurbished\tproducts | $6,441,160 | \t $5,116,373 | \t $4,613,454 |
| Recycled,\tremanufactured\tand\trelated\tproducts\tand\tservices | 1,703,485 | 1,597,578 | 1,473,305 |
| Other | 439,386 | 478,682 | 653,305 |
| Total\trevenue | $8,584,031 | \t $7,192,633 | \t $6,740,064 |

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	15. Selected	Quarterly	Data	(unaudited)

The	following	table	presents	unaudited	selected	quarterly	financial	data	for	the	two	years	ended	December	31,	2016.	The	operating	results	for	any	quarter	are not	necessarily	indicative	of	the	results	for	any	future	period.

| (In	thousands,	except	per	share	data) | Dec.	31 | Sep.	30 | Jun.	30 | Mar.	31 |
| :--- | :--- | :--- | :--- | :--- |
| 2016 |  |  |  |  |
| Revenue | $2,150,406 | $2,207,343 | $2,304,806 | $1,921,476 |
| Gross\tmargin | 830,006 | 855,444 | 905,816 | 760,437 |
| Operating\tincome | 161,880 | 183,401 | 232,445 | 185,672 |
| Income\tfrom\tcontinuing\toperations | 96,298 | 109,844 | 137,810 | 112,171 |
| (Loss)\tincome\tfrom\tdiscontinued\toperations | (9,967) | 12,844 | 4,975 | — |
| Net\tincome\t(1) | 86,331 | 122,688 | 142,785 | 112,171 |
| Basic\tearnings\tper\tshare\tfrom\tcontinuing\toperations\t(1),(2) | $0.31 | $0.36 | $0.45 | $0.37 |
| Diluted\tearnings\tper\tshare\tfrom\tcontinuing\toperations\t(1),(2) | $0.31 | $0.35 | $0.45 | $0.36 |

| (In	thousands,	except	per	share	data) | Dec.	31 | Sep.	30 | Jun.	30 | Mar.	31 |
| :--- | :--- | :--- | :--- | :--- |
| 2015 |  |  |  |  |
| Revenue | $1,748,919 | $1,831,732 | $1,838,070 | $1,773,912 |
| Gross\tmargin | 697,327 | 712,779 | 723,944 | 699,479 |
| Operating\tincome | 151,671 | 166,745 | 200,285 | 185,926 |
| Net\tincome | 95,060 | 101,346 | 119,722 | 107,095 |
| Basic\tearnings\tper\tshare\tfrom\tcontinuing\toperations\t(2) | $0.31 | $0.33 | $0.39 | $0.35 |
| Diluted\tearnings\tper\tshare\tfrom\tcontinuing\toperations\t(2) | $0.31 | $0.33 | $0.39 | $0.35 |

(1) During	the	third	quarter	of	2016,	the	Company	elected	to	early	adopt	ASU	2016-09	effective	January	1,	2016.	The	quarterly	amounts	above	reflect	the	impact of	adoption.	See	Note	4,	"Summary	of	Significant	Accounting	Policies"	for	further	information.

(2) 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.

The	2016	amounts	presented	above	include	the	results	of	operations	of	Rhiag,	from	its	acquisition	effective	March	18,	2016,	and	PGW,	from	its	acquisition effective	April	21,	2016.

# Note	16. 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	U.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	U.S.	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	U.S.	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	U.S.	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	our	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	U.S.	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	our	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	the	Parent,	the	Guarantors	and	the	Non-Guarantors	operated	as	independent entities.

# Condensed	Consolidating	Statements	of	Income

|  | Parent | Guarantors | Non-Guarantors | Eliminations | Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Revenue | $— | $5,467,430 | $3,301,503 | $(184,902) | $8,584,031 |
| Cost\tof\tgoods\tsold | — | 3,313,503 | 2,103,727 | (184,902) | 5,232,328 |
| Gross\tmargin | — | 2,153,927 | 1,197,776 | — | 3,351,703 |
| Facility\tand\twarehouse\texpenses | — | 475,487 | 213,431 | — | 688,918 |
| Distribution\texpenses | — | 453,192 | 230,620 | — | 683,812 |
| Selling,\tgeneral\tand\tadministrative\texpenses | 34,163 | 521,909 | 430,308 | — | 986,380 |
| Restructuring\tand\tacquisition\trelated\texpenses | — | 21,162 | 16,600 | — | 37,762 |
| Depreciation\tand\tamortization | 132 | 94,165 | 97,136 | — | 191,433 |
| Operating\t(loss)\tincome | (34,295) | 588,012 | 209,681 | — | 763,398 |
| Other\texpense\t(income): |  |  |  |  |  |
| Interest\texpense | 59,415 | 547 | 28,301 | — | 88,263 |
| Intercompany\tinterest\t(income)\texpense,\tnet | (27,470) | 17,124 | 10,346 | — | — |
| Loss\ton\tdebt\textinguishment | 2,894 | — | 23,756 | — | 26,650 |
| Gain\ton\tforeign\texchange\tcontracts\t-\tacquisition\trelated | (18,342) | — | — | — | (18,342) |
| Gain\ton\tbargain\tpurchase | — | — | (8,207) | — | (8,207) |
| Interest\tand\tother\texpense\t(income),\tnet | 470 | (3,773) | 1,056 | — | (2,247) |
| Total\tother\texpense,\tnet | 16,967 | 13,898 | 55,252 | — | 86,117 |
| (Loss)\tincome\tfrom\tcontinuing\toperations\tbefore\t(benefit)\nprovision\tfor\tincome\ttaxes | (51,262) | 574,114 | 154,429 | — | 677,281 |
| (Benefit)\tprovision\tfor\tincome\ttaxes | (20,498) | 213,794 | 27,270 | — | 220,566 |
| Equity\tin\tearnings\t(loss)\tof\tunconsolidated\tsubsidiaries | (795) | — | 203 | — | (592) |
| Equity\tin\tearnings\tof\tsubsidiaries | 487,682 | 22,314 | — | (509,996) | — |
| Income\tfrom\tcontinuing\toperations | 456,123 | 382,634 | 127,362 | (509,996) | 456,123 |
| Income\tfrom\tdiscontinued\toperations,\tnet\tof\ttax | 7,852 | 7,852 | 3,285 | (11,137) | 7,852 |
| Net\tincome | $463,975 | $390,486 | $130,647 | $(521,133) | $463,975 |

|  | Parent | Guarantors | Non-Guarantors | Eliminations | Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Revenue | $— | $4,965,355 | $2,357,655 | $(130,377) | $7,192,633 |
| Cost\tof\tgoods\tsold | — | 3,010,820 | 1,478,661 | (130,377) | 4,359,104 |
| Gross\tmargin | — | 1,954,535 | 878,994 | — | 2,833,529 |
| Facility\tand\twarehouse\texpenses | — | 408,828 | 147,213 | — | 556,041 |
| Distribution\texpenses | — | 408,112 | 194,785 | — | 602,897 |
| Selling,\tgeneral\tand\tadministrative\texpenses | 32,946 | 490,530 | 304,857 | — | 828,333 |
| Restructuring\tand\tacquisition\trelated\texpenses | — | 13,962 | 5,549 | — | 19,511 |
| Depreciation\tand\tamortization | 154 | 82,058 | 39,908 | — | 122,120 |
| Operating\t(loss)\tincome | (33,100) | 551,045 | 186,682 | — | 704,627 |
| Other\texpense\t(income): |  |  |  |  |  |
| Interest\texpense | 47,626 | 669 | 9,565 | — | 57,860 |
| Intercompany\tinterest\t(income)\texpense,\tnet | (41,904) | 28,944 | 12,960 | — | — |
| Interest\tand\tother\texpense\t(income),\tnet | 99 | (7,414) | 5,052 | — | (2,263) |
| Total\tother\texpense,\tnet | 5,821 | 22,199 | 27,577 | — | 55,597 |
| (Loss)\tincome\tfrom\tcontinuing\toperations\tbefore\t(benefit)\nprovision\tfor\tincome\ttaxes | (38,921) | 528,846 | 159,105 | — | 649,030 |
| (Benefit)\tprovision\tfor\tincome\ttaxes | (16,054) | 205,176 | 30,581 | — | 219,703 |
| Equity\tin\tearnings\t(loss)\tof\tunconsolidated\tsubsidiaries | (1,000) | 59 | (5,163) | — | (6,104) |
| Equity\tin\tearnings\tof\tsubsidiaries | 447,090 | 24,632 | — | (471,722) | — |
| Net\tincome | $423,223 | $348,361 | $123,361 | $(471,722) | $423,223 |

|  | Parent | Guarantors | Non-Guarantors | Eliminations | Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Revenue | $— | $4,649,391 | $2,221,831 | $(131,158) | $6,740,064 |
| Cost\tof\tgoods\tsold | — | 2,813,427 | 1,405,882 | (131,158) | 4,088,151 |
| Gross\tmargin | — | 1,835,964 | 815,949 | — | 2,651,913 |
| Facility\tand\twarehouse\texpenses | — | 382,937 | 143,354 | — | 526,291 |
| Distribution\texpenses | — | 389,430 | 187,911 | — | 577,341 |
| Selling,\tgeneral\tand\tadministrative\texpenses | 25,770 | 460,516 | 276,602 | — | 762,888 |
| Restructuring\tand\tacquisition\trelated\texpenses | — | 8,628 | 6,178 | — | 14,806 |
| Depreciation\tand\tamortization | 218 | 81,253 | 39,248 | — | 120,719 |
| Operating\t(loss)\tincome | (25,988) | 513,200 | 162,656 | — | 649,868 |
| Other\texpense\t(income): |  |  |  |  |  |
| Interest\texpense | 50,636 | 635 | 13,271 | — | 64,542 |
| Intercompany\tinterest\t(income)\texpense,\tnet | (48,556) | 23,865 | 24,691 | — | — |
| Loss\ton\tdebt\textinguishment | 324 | — | — | — | 324 |
| Interest\tand\tother\texpense\t(income),\tnet | 230 | (8,359) | 5,243 | — | (2,886) |
| Total\tother\texpense,\tnet | 2,634 | 16,141 | 43,205 | — | 61,980 |
| (Loss)\tincome\tfrom\tcontinuing\toperations\tbefore\t(benefit)\nprovision\tfor\tincome\ttaxes | (28,622) | 497,059 | 119,451 | — | 587,888 |
| (Benefit)\tprovision\tfor\tincome\ttaxes | (10,536) | 190,456 | 24,344 | — | 204,264 |
| Equity\tin\tearnings\t(loss)\tof\tunconsolidated\tsubsidiaries | — | 40 | (2,145) | — | (2,105) |
| Equity\tin\tearnings\tof\tsubsidiaries | 399,605 | 28,846 | — | (428,451) | — |
| Net\tincome | $381,519 | $335,489 | $92,962 | $(428,451) | $381,519 |

# Condensed	Consolidating	Statements	of	Comprehensive	Income

|  | Parent | Guarantors | Non-Guarantors | Eliminations | Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Net\tincome | $463,975 | $390,486 | $130,647 | $(521,133) | $463,975 |
| Other\tcomprehensive\t(loss)\tincome: |  |  |  |  |  |
| Foreign\tcurrency\ttranslation | (175,639) | (48,914) | (177,911) | 226,825 | (175,639) |
| Net\tchange\tin\tunrecognized\tgains/losses\ton\tderivative\tinstruments,\tnet\nof\ttax | 9,023 | 133 | 389 | (522) | 9,023 |
| Net\tchange\tin\tunrealized\tgains/losses\ton\tpension\tplans,\tnet\tof\ttax | 4,911 | 3,962 | 1,061 | (5,023) | 4,911 |
| Total\tother\tcomprehensive\tloss | (161,705) | (44,819) | (176,461) | 221,280 | (161,705) |
| Total\tcomprehensive\tincome | $302,270 | $345,667 | $(45,814) | $(299,853) | $302,270 |

|  | Parent | Guarantors | Non-Guarantors | Eliminations | Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Net\tincome | $423,223 | $348,361 | $123,361 | $(471,722) | $423,223 |
| Other\tcomprehensive\t(loss)\tincome: |  |  |  |  |  |
| Foreign\tcurrency\ttranslation | (69,817) | (20,359) | (65,878) | 86,237 | (69,817) |
| Net\tchange\tin\tunrecognized\tgains/losses\ton\tderivative\tinstruments,\tnet\nof\ttax | 2,469 | — | 294 | (294) | 2,469 |
| Net\tchange\tin\tunrealized\tgains/losses\ton\tpension\tplans,\tnet\tof\ttax | 2,103 | — | 2,103 | (2,103) | 2,103 |
| Total\tother\tcomprehensive\tloss | (65,245) | (20,359) | (63,481) | 83,840 | (65,245) |
| Total\tcomprehensive\tincome | $357,978 | $328,002 | $59,880 | $(387,882) | $357,978 |

|  | Parent | Guarantors | Non-Guarantors | Eliminations | Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Net\tincome | $381,519 | $335,489 | $92,962 | $(428,451) | $381,519 |
| Other\tcomprehensive\t(loss)\tincome: |  |  |  |  |  |
| Foreign\tcurrency\ttranslation | (51,979) | (17,710) | (49,559) | 67,269 | (51,979) |
| Net\tchange\tin\tunrecognized\tgains/losses\ton\tderivative\tinstruments,\tnet\nof\ttax | 2,195 | — | (444) | 444 | 2,195 |
| Net\tchange\tin\tunrealized\tgain\ton\tpension\tplans,\tnet\tof\ttax | (10,452) | — | (10,452) | 10,452 | (10,452) |
| Total\tother\tcomprehensive\tloss | (60,236) | (17,710) | (60,455) | 78,165 | (60,236) |
| Total\tcomprehensive\tincome | $321,283 | $317,779 | $32,507 | $(350,286) | $321,283 |

# Condensed	Consolidating	Balance	Sheets

| Assets | Parent | Guarantors | Non-Guarantors | Eliminations | Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Current\tAssets: |  |  |  |  |  |
| Cash\tand\tequivalents | $33,030 | $35,360 | $159,010 | $— | $227,400 |
| Receivables,\tnet | — | 248,188 | 612,361 | — | 860,549 |
| Intercompany\treceivables,\tnet | 2,805 | 11,237 | 8,837 | (22,879) | — |
| Inventories | — | 1,149,763 | 785,474 | — | 1,935,237 |
| Prepaid\texpenses\tand\tother\tcurrent\tassets | 1,640 | 43,165 | 42,963 | — | 87,768 |
| Assets\tof\tdiscontinued\toperations | — | 357,788 | 98,852 | — | 456,640 |
| Total\tCurrent\tAssets | 37,475 | 1,845,501 | 1,707,497 | (22,879) | 3,567,594 |
| Property\tand\tEquipment,\tnet | 239 | 527,705 | 283,632 | — | 811,576 |
| Intangible\tAssets: |  |  |  |  |  |
| Goodwill | — | 1,851,274 | 1,203,495 | — | 3,054,769 |
| Other\tintangibles,\tnet | — | 153,689 | 430,542 | — | 584,231 |
| Investment\tin\tSubsidiaries | 5,067,297 | 242,032 | — | (5,309,329) | — |
| Intercompany\tNotes\tReceivable | 1,510,534 | 800,283 | — | (2,310,817) | — |
| Equity\tMethod\tInvestments | — | 336 | 183,131 | — | 183,467 |
| Other\tAssets | 59,726 | 25,177 | 22,347 | (5,688) | 101,562 |
| Total\tAssets | $6,675,271 | $5,445,997 | $3,830,644 | $(7,648,713) | $8,303,199 |
| Liabilities\tand\tStockholders'\tEquity |  |  |  |  |  |
| Current\tLiabilities: |  |  |  |  |  |
| Accounts\tpayable | $1,309 | $244,074 | $388,390 | $— | $633,773 |
| Intercompany\tpayables,\tnet | 11,237 | 8,837 | 2,805 | (22,879) | — |
| Accrued\texpenses: |  |  |  |  |  |
| Accrued\tpayroll-related\tliabilities | 6,404 | 58,187 | 54,164 | — | 118,755 |
| Self-insurance\treserves | — | 39,059 | 489 | — | 39,548 |
| Other\taccrued\texpenses | 5,502 | 55,228 | 108,823 | — | 169,553 |
| Other\tcurrent\tliabilities | 4,283 | 18,456 | 15,204 | — | 37,943 |
| Current\tportion\tof\tlong-term\tobligations | 37,710 | 1,097 | 27,302 | — | 66,109 |
| Liabilities\tof\tdiscontinued\toperations | — | 110,890 | 34,214 | — | 145,104 |
| Total\tCurrent\tLiabilities | 66,445 | 535,828 | 631,391 | (22,879) | 1,210,785 |
| Long-Term\tObligations,\tExcluding\tCurrent\tPortion | 2,371,578 | 8,356 | 895,728 | — | 3,275,662 |
| Intercompany\tNotes\tPayable | 750,000 | 1,074,218 | 486,599 | (2,310,817) | — |
| Deferred\tIncome\tTaxes | — | 95,765 | 109,580 | (5,688) | 199,657 |
| Other\tNoncurrent\tLiabilities | 44,299 | 90,722 | 39,125 | — | 174,146 |
| Stockholders'\tEquity | 3,442,949 | 3,641,108 | 1,668,221 | (5,309,329) | 3,442,949 |
| Total\tLiabilities\tand\tStockholders'\tEquity | $6,675,271 | $5,445,997 | $3,830,644 | $(7,648,713) | $8,303,199 |

| Assets | Parent | Guarantors | Non-Guarantors | Eliminations | Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| Current\tAssets: |  |  |  |  |  |
| Cash\tand\tequivalents | $17,616 | $13,432 | $56,349 | $— | $87,397 |
| Receivables,\tnet | — | 214,502 | 375,658 | — | 590,160 |
| Intercompany\treceivables,\tnet | 3 | — | 13,544 | (13,547) | — |
| Inventories | — | 1,060,834 | 495,718 | — | 1,556,552 |
| Prepaid\texpenses\tand\tother\tcurrent\tassets | 15,254 | 44,810 | 46,539 | — | 106,603 |
| Total\tCurrent\tAssets | 32,873 | 1,333,578 | 987,808 | (13,547) | 2,340,712 |
| Property\tand\tEquipment,\tnet | 339 | 494,658 | 201,570 | — | 696,567 |
| Intangible\tAssets: |  |  |  |  |  |
| Goodwill | — | 1,640,745 | 678,501 | — | 2,319,246 |
| Other\tintangibles,\tnet | — | 141,537 | 73,580 | — | 215,117 |
| Investment\tin\tSubsidiaries | 3,456,837 | 285,284 | — | (3,742,121) | — |
| Intercompany\tNotes\tReceivable | 630,717 | 61,764 | — | (692,481) | — |
| Equity\tMethod\tInvestments | — | 628 | 2,127 | — | 2,755 |
| Other\tAssets | 35,649 | 27,556 | 16,091 | (5,856) | 73,440 |
| Total\tAssets | $4,156,415 | $3,985,750 | $1,959,677 | $(4,454,005) | $5,647,837 |
| Liabilities\tand\tStockholders'\tEquity |  |  |  |  |  |
| Current\tLiabilities: |  |  |  |  |  |
| Accounts\tpayable | $681 | $229,519 | $185,388 | $— | $415,588 |
| Intercompany\tpayables,\tnet | — | 13,544 | 3 | (13,547) | — |
| Accrued\texpenses: |  |  |  |  |  |
| Accrued\tpayroll-related\tliabilities | 4,395 | 48,698 | 33,434 | — | 86,527 |
| Self-insurance\treserves | — | 37,499 | 260 | — | 37,759 |
| Other\taccrued\texpenses | 5,399 | 43,387 | 75,680 | — | 124,466 |
| Other\tcurrent\tliabilities | 284 | 15,953 | 15,359 | — | 31,596 |
| Current\tportion\tof\tlong-term\tobligations | 21,041 | 1,425 | 33,568 | — | 56,034 |
| Total\tCurrent\tLiabilities | 31,800 | 390,025 | 343,692 | (13,547) | 751,970 |
| Long-Term\tObligations,\tExcluding\tCurrent\tPortion | 976,353 | 7,487 | 544,828 | — | 1,528,668 |
| Intercompany\tNotes\tPayable | — | 615,488 | 76,993 | (692,481) | — |
| Deferred\tIncome\tTaxes | — | 113,905 | 19,190 | (5,856) | 127,239 |
| Other\tNoncurrent\tLiabilities | 33,580 | 70,109 | 21,589 | — | 125,278 |
| Stockholders'\tEquity | 3,114,682 | 2,788,736 | 953,385 | (3,742,121) | 3,114,682 |
| Total\tLiabilities\tand\tStockholders'\tEquity | $4,156,415 | $3,985,750 | $1,959,677 | $(4,454,005) | $5,647,837 |

# Condensed	Consolidating	Statements	of	Cash	Flows

|  | Parent | Guarantors | Non-Guarantors | Eliminations | Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| CASH\tFLOWS\tFROM\tOPERATING\tACTIVITIES: |  |  |  |  |  |
| Net\tcash\tprovided\tby\toperating\tactivities | $308,299 | $539,318 | $99,894 | $(312,497) | $635,014 |
| CASH\tFLOWS\tFROM\tINVESTING\tACTIVITIES: |  |  |  |  |  |
| Purchases\tof\tproperty\tand\tequipment | (36) | (120,761) | (86,277) | — | (207,074) |
| Investment\tand\tintercompany\tnote\tactivity\twith\tsubsidiaries | (1,720,732) | — | — | 1,720,732 | — |
| Acquisitions,\tnet\tof\tcash\tacquired | — | (685,278) | (664,061) | — | (1,349,339) |
| Proceeds\tfrom\tforeign\texchange\tcontracts | 18,342 | — | — | — | 18,342 |
| Other\tinvesting\tactivities,\tnet | 3 | (2,447) | (169,413) | — | (171,857) |
| Net\tcash\tused\tin\tinvesting\tactivities | (1,702,423) | (808,486) | (919,751) | 1,720,732 | (1,709,928) |
| CASH\tFLOWS\tFROM\tFINANCING\tACTIVITIES: |  |  |  |  |  |
| Proceeds\tfrom\texercise\tof\tstock\toptions | 7,963 | — | — | — | 7,963 |
| Taxes\tpaid\trelated\tto\tnet\tshare\tsettlements\tof\tstock-based\ncompensation\tawards | (4,438) | — | — | — | (4,438) |
| Debt\tissuance\tcosts | (7,104) | — | (9,450) | — | (16,554) |
| Proceeds\tfrom\tissuance\tof\tEuro\tnotes | — | — | 563,450 | — | 563,450 |
| Borrowings\tunder\trevolving\tcredit\tfacilities | 1,744,408 | — | 892,188 | — | 2,636,596 |
| Repayments\tunder\trevolving\tcredit\tfacilities | (654,000) | — | (1,094,664) | — | (1,748,664) |
| Borrowings\tunder\tterm\tloans | 332,954 | — | 249,161 | — | 582,115 |
| Repayments\tunder\tterm\tloans | (10,898) | — | (244,894) | — | (255,792) |
| Borrowings\tunder\treceivables\tsecuritization\tfacility | — | — | 106,400 | — | 106,400 |
| Repayments\tunder\treceivables\tsecuritization\tfacility | — | — | (69,400) | — | (69,400) |
| Repayments\tof\tother\tdebt,\tnet | 653 | (2,935) | (28,874) | — | (31,156) |
| Repayment\tof\tRhiag\tdebt\tand\trelated\tpayments | — | — | (543,347) | — | (543,347) |
| Payments\tof\tother\tobligations | — | (1,436) |  | — | (1,436) |
| Investment\tand\tintercompany\tnote\tactivity\twith\tparent | — | 608,270 | 1,112,462 | (1,720,732) | — |
| Dividends | — | (312,497) | — | 312,497 | — |
| Net\tcash\tprovided\tby\tfinancing\tactivities | 1,409,538 | 291,402 | 933,032 | (1,408,235) | 1,225,737 |
| Effect\tof\texchange\trate\tchanges\ton\tcash\tand\tequivalents | — | (157) | (3,547) | — | (3,704) |
| Net\tincrease\tin\tcash\tand\tequivalents | 15,414 | 22,077 | 109,628 | — | 147,119 |
| Cash\tand\tequivalents,\tbeginning\tof\tperiod | 17,616 | 13,432 | 56,349 | — | 87,397 |
| Cash\tand\tequivalents\tof\tcontinuing\tand\tdiscontinued\toperations,\tend\tof\nperiod | 33,030 | 35,509 | 165,977 | — | 234,516 |
| Less:\tCash\tand\tequivalents\tof\tdiscontinued\toperations,\tend\tof\tperiod | — | (149) | (6,967) | — | (7,116) |
| Cash\tand\tequivalents,\tend\tof\tperiod | $33,030 | $35,360 | $159,010 | $— | $227,400 |

|  | Parent | Guarantors | Non-Guarantors | Eliminations | Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| CASH\tFLOWS\tFROM\tOPERATING\tACTIVITIES: |  |  |  |  |  |
| Net\tcash\tprovided\tby\toperating\tactivities | $262,812 | $393,422 | $136,361 | $(248,313) | $544,282 |
| CASH\tFLOWS\tFROM\tINVESTING\tACTIVITIES: |  |  |  |  |  |
| Purchases\tof\tproperty\tand\tequipment | (1) | (85,868) | (84,621) | — | (170,490) |
| Investment\tand\tintercompany\tnote\tactivity\twith\tsubsidiaries | (66,712) | — | — | 66,712 | — |
| Acquisitions,\tnet\tof\tcash\tacquired | — | (118,963) | (41,554) | — | (160,517) |
| Other\tinvesting\tactivities,\tnet | — | 5,446 | (4,432) | — | 1,014 |
| Net\tcash\tused\tin\tinvesting\tactivities | (66,713) | (199,385) | (130,607) | 66,712 | (329,993) |
| CASH\tFLOWS\tFROM\tFINANCING\tACTIVITIES: |  |  |  |  |  |
| Proceeds\tfrom\texercise\tof\tstock\toptions | 8,168 | — | — | — | 8,168 |
| Taxes\tpaid\trelated\tto\tnet\tshare\tsettlements\tof\tstock-based\tcompensation\nawards | (7,581) | — | — | — | (7,581) |
| Debt\tissuance\tcosts | — | — | (97) | — | (97) |
| Borrowings\tunder\trevolving\tcredit\tfacilities | 212,000 | — | 101,142 | — | 313,142 |
| Repayments\tunder\trevolving\tcredit\tfacilities | (352,000) | — | (93,282) | — | (445,282) |
| Repayments\tunder\tterm\tloans | (22,500) | — | — | — | (22,500) |
| Borrowings\tunder\treceivables\tsecuritization\tfacility | — | — | 3,858 | — | 3,858 |
| Repayments\tunder\treceivables\tsecuritization\tfacility | — | — | (35,758) | — | (35,758) |
| Repayments\t(borrowings)\tof\tother\tdebt,\tnet | (31,500) | (3,457) | 5,261 | — | (29,696) |
| Payments\tof\tother\tobligations | — | (21,896) | (895) | — | (22,791) |
| Investment\tand\tintercompany\tnote\tactivity\twith\tparent | — | 60,910 | 5,802 | (66,712) | — |
| Dividends | — | (248,313) | — | 248,313 | — |
| Net\tcash\tused\tin\tfinancing\tactivities | (193,413) | (212,756) | (13,969) | 181,601 | (238,537) |
| Effect\tof\texchange\trate\tchanges\ton\tcash\tand\tequivalents | — | 48 | (3,008) | — | (2,960) |
| Net\tincrease\t(decrease)\tin\tcash\tand\tequivalents | 2,686 | (18,671) | (11,223) | — | (27,208) |
| Cash\tand\tequivalents,\tbeginning\tof\tperiod | 14,930 | 32,103 | 67,572 | — | 114,605 |
| Cash\tand\tequivalents,\tend\tof\tperiod | $17,616 | $13,432 | $56,349 | $— | $87,397 |

|  | Parent | Guarantors | Non-Guarantors | Eliminations | Consolidated |
| :--- | :--- | :--- | :--- | :--- | :--- |
| CASH\tFLOWS\tFROM\tOPERATING\tACTIVITIES: |  |  |  |  |  |
| Net\tcash\tprovided\tby\t(used\tin)\toperating\tactivities | $289,035 | $427,249 | $(53,348) | $(274,225) | $388,711 |
| CASH\tFLOWS\tFROM\tINVESTING\tACTIVITIES: |  |  |  |  |  |
| Purchases\tof\tproperty\tand\tequipment | (44) | (85,182) | (55,724) | — | (140,950) |
| Investment\tand\tintercompany\tnote\tactivity\twith\tsubsidiaries | (477,007) | (608) | — | 477,615 | — |
| Acquisitions,\tnet\tof\tcash\tacquired | — | (635,171) | (140,750) | — | (775,921) |
| Other\tinvesting\tactivities,\tnet | — | 768 | (4,891) | — | (4,123) |
| Net\tcash\tused\tin\tinvesting\tactivities | (477,051) | (720,193) | (201,365) | 477,615 | (920,994) |
| CASH\tFLOWS\tFROM\tFINANCING\tACTIVITIES: |  |  |  |  |  |
| Proceeds\tfrom\texercise\tof\tstock\toptions | 9,324 | — | — | — | 9,324 |
| Taxes\tpaid\trelated\tto\tnet\tshare\tsettlements\tof\tstock-based\tcompensation\nawards | (443) | — | — | — | (443) |
| Debt\tissuance\tcosts | (3,675) | — | (75) | — | (3,750) |
| Borrowings\tunder\trevolving\tcredit\tfacilities | 867,000 | — | 720,644 | — | 1,587,644 |
| Repayments\tunder\trevolving\tcredit\tfacilities | (727,000) | — | (371,518) | — | (1,098,518) |
| Borrowings\tunder\tterm\tloans | 11,250 | — | — | — | 11,250 |
| Repayments\tunder\tterm\tloans | (16,875) | — | — | — | (16,875) |
| Borrowings\tunder\treceivables\tsecuritization\tfacility | — | — | 95,050 | — | 95,050 |
| Repayments\tunder\treceivables\tsecuritization\tfacility | — | — | (150) | — | (150) |
| Repayments\tof\tother\tdebt,\tnet | (1,921) | (2,310) | (35,820) | — | (40,051) |
| Payments\tof\tother\tobligations | — | (464) | (41,528) | — | (41,992) |
| Other\tfinancing\tactivities,\tnet | (12,640) | 12,340 | — | — | (300) |
| Investment\tand\tintercompany\tnote\tactivity\twith\tparent | — | 576,384 | (98,769) | (477,615) | — |
| Dividends | — | (274,225) | — | 274,225 | — |
| Net\tcash\tprovided\tby\tfinancing\tactivities | 125,020 | 311,725 | 267,834 | (203,390) | 501,189 |
| Effect\tof\texchange\trate\tchanges\ton\tcash\tand\tequivalents | — | (371) | (4,418) | — | (4,789) |
| Net\t(decrease)\tincrease\tin\tcash\tand\tequivalents | (62,996) | 18,410 | 8,703 | — | (35,883) |
| Cash\tand\tequivalents,\tbeginning\tof\tperiod | 77,926 | 13,693 | 58,869 | — | 150,488 |
| Cash\tand\tequivalents,\tend\tof\tperiod | $14,930 | $32,103 | $67,572 | $— | $114,605 |

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

# DISCLOSURE

# ITEM	9A.					CONTROLS	AND	PROCEDURES

# Evaluation	of	Disclosure	Controls	and	Procedures

As	of	December	31,	2016,	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	27,	2017

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.

We	have	excluded	from	our	assessment	the	internal	control	over	financial	reporting	at	Rhiag,	PGW	and	Andrew	Page,	all	of	which	were	acquired	during	2016, and	whose	financial	statements	constitute	28%	and	29%	of	net	and	total	assets,	respectively,	13%	of	revenue,	and	less	than	1%	of	net	income	of	the	consolidated financial	statement	amounts	as	of	and	for	the	year	ended	December	31,	2016.

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,	2016.	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,	2016,	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,	2016.

# 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.

We	have	audited	the	internal	control	over	financial	reporting	of	LKQ	Corporation	and	subsidiaries	(the	"Company")	as	of	December	31,	2016,	based	on	criteria established	in	Internal	Control-Integrated	Framework	(2013)	issued	by	the	Committee	of	Sponsoring	Organizations	of	the	Treadway	Commission.	As	described	in	the accompanying	Report	of	Management	on	Internal	Control	over	Financial	Reporting	dated	February	27,	2017,	management	excluded	from	its	assessment	the	internal control	over	financial	reporting	at	Rhiag-Inter	Auto	Parts	Italia	S.p.A.	("Rhiag"),	Pittsburgh	Glass	Works	LLC	("PGW")	and	Andrew	Page	Limited	("Andrew	Page"), which	were	acquired	on	March	18,	2016,	April	21,	2016,	and	October	4,	2016,	respectively,	and	whose	financial	statements	collectively	constitute	28%	and	29%	of	net and	total	assets,	respectively,	13%	of	revenue,	and	less	than	1%	of	net	income	of	the	consolidated	financial	statement	amounts	as	of	and	for	the	year	ended	December 31,	2016.	Accordingly,	our	audit	did	not	include	the	internal	control	over	financial	reporting	at	Rhiag,	PGW,	or	Andrew	Page.	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	27,	2017.	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,	2016,	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,	2016	of	the	Company	and	our	report	dated	February	27,	2017	expressed	an unqualified	opinion	on	those	financial	statements	and	financial	statement	schedule	and	included	an	explanatory	paragraph	regarding	the	Company's	adoption	of Accounting	Standards	Update	No.	2016-09,	"Improvements	to	Employee	Share-Based	Payment	Accounting."

Chicago,	Illinois

# ITEM	9B.					OTHER	INFORMATION

# 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	8,	2017	(the	"Proxy	Statement")	is	incorporated	herein	by	reference.

# Executive	Officers

Our	executive	officers,	their	ages	at	December	31,	2016,	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.

Michael	S.	Clark 42 	 Vice	President	-	Finance	and	Controller

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.	In	January	2017,	he	was	elected	to	the	Board	of	Directors	of	Mekonomen	Group,	an	automotive	spare	parts	chain	in	the	Nordic	region,	of	which	we are	26.5%	owner.

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.	Mr.	Zarcone	is	a	member	of	the	Board	of	Directors	of	Generac	Power	Systems,	Inc.,	a	designer	and	manufacturer	of power	generation	equipment	and	engine-powered	products.

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	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.

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.

Ashley	T.	Brooks	joined	us	as	Senior	Vice	President—Chief	Information	Officer	in	May	2016.	Prior	to	joining	us,	he	held	various	Information	Technology	positions from	1999	to	2016	with	Arrow	Electronics,	Inc.,	a	global	provider	of	products,	services	and	solutions	to	industrial	and	commercial	users	of	electronic	components	and enterprise	computing	solutions.	Mr.	Brooks'	most	recent	position	with	Arrow	Electronics	was	Chief	Information	Officer,	Global	Components	from	April	2012	to	May 2016.

Matthew	J.	McKay	became	our	Senior	Vice	President	of	Human	Resources	in	June	2016.	Prior	thereto,	he	served	as	our	Associate	General	Counsel	from	December 2007	to	May	2016,	focusing	on	employment-related	matters.	Prior	to	joining	us,	Mr.	McKay	served	as	a	law	clerk	for	Judge	William	Bauer	at	the	United	States	Court	of Appeals	for	the	Seventh	Circuit.

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.

# 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.

# 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,	2016:

# Equity	Compensation	Plan	Information

| Plan	Category | Number	of<br>securities	to	be	issued<br>upon	exercise	of<br>outstanding	options,<br>warrants,	and	rights<br>(a) | Weighted-average<br>exercise	price	of<br>outstanding	options,<br>warrants,	and	rights<br>(b) | Number	of	securities	remaining<br>available	for	future<br>issuance	under	equity<br>compensation	plans	(excluding<br>securities	reflected	in	column		(a))<br>(c) |
| :--- | :--- | :--- | :--- |
| Equity\tcompensation\tplans\tapproved\tby\tstockholders |  |  |  |
| Stock\toptions | 2,623,217 | $9.19 |  |
| Restricted\tstock\tunits | 1,873,737 | $— |  |
| Total\tequity\tcompensation\tplans\tapproved\tby\tstockholders | 4,496,954 |  | 11,655,739 |
| Equity\tcompensation\tplans\tnot\tapproved\tby\tstockholders | — | $— | — |
| Total | 4,496,954 |  | 11,655,739 |

See	Note	6,	"Stock-Based	Compensation,"	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	captions	"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	captions	"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.

# 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<br>Beginning	of<br>Period | Additions<br>Charged	to<br>Costs	and<br>Expenses | Deductions | Acquisitions		and<br>Other | Balance	at	End<br>of	Period |
| :--- | :--- | :--- | :--- | :--- | :--- |
| ALLOWANCE\tFOR\tDOUBTFUL\nACCOUNTS: |  |  |  |  |  |
| Year\tended\tDecember\t31,\t2016 | $24,583 | $13,280 | $(21,829) | $29,574 | $45,608 |
| Year\tended\tDecember\t31,\t2015 | 19,426 | 13,654 | (9,486) | 989 | 24,583 |
| Year\tended\tDecember\t31,\t2014 | 14,360 | 9,814 | (9,184) | 4,436 | 19,426 |
| ALLOWANCE\tFOR\tESTIMATED |  |  |  |  |  |
| RETURNS,\tDISCOUNTS\t&amp; |  |  |  |  |  |
| ALLOWANCES: |  |  |  |  |  |
| Year\tended\tDecember\t31,\t2016 | 32,774 | $1,088,426 | $(1,090,555) | $7,700 | $38,345 |
| Year\tended\tDecember\t31,\t2015 | 31,288 | 1,049,987 | (1,051,439) | 2,938 | 32,774 |
| Year\tended\tDecember\t31,\t2014 | 26,636 | 955,615 | (961,658) | 10,695 | 31,288 |

# 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	27,	2017.

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	27,	2017.

# Principal	Executive	Officer:

# Principal	Financial	Officer:

/s/	DOMINICK	ZARCONE

Dominick	Zarcone

# Principal	Accounting	Officer:

/s/	MICHAEL	S.	CLARK Michael	S.	Clark

Executive	Vice	President	and	Chief	Financial	Officer

Vice	President—Finance	and	Controller

A	Majority	of	the	Directors:

/s/	ROBERT	L.	WAGMAN Director Robert	L.	Wagman /s/	WILLIAM	M.	WEBSTER,	IV Director William	M.	Webster,	IV


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