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Item 1A. Risk Factors

2021-02-26 compared with 2020-02-27 · 280 added, 295 removed, 276 unchanged (68% of the section changed)

The following risk factors and other information included in this Annual Report on Form 10-K should be carefully considered.

The occurrence of any of the following risks or of unknown risks and uncertainties may adversely affect our business, operating results and financial condition.

For a summary of risk factors refer to "Special Note on Forward-Looking Statements" in Part I of this Annual Report on Form 10-K.

Risks Relating to Our Business

Our operating results and financial condition have been and could continue to be adversely affected by the economic, political and social conditions in the U.S.

and elsewhere.

Our operating results and financial condition have been and will likely continue to be adversely affected by the COVID-19 pandemic and could be adversely affected by other public health emergencies.

The COVID-19 pandemic is adversely affecting, and is expected to continue to adversely affect, our business and operations.

Government authorities in the jurisdictions in which we operate have recommended or mandated precautions to mitigate the spread of COVID-19, including prohibitions on congregating in various locations, travel restrictions, shelter-in-place orders, and similar measures.

These measures have resulted in a significant reduction in miles driven.

As a result, we have experienced and expect to continue to experience unpredictable reductions in demand for our products.

Although we have been permitted to continue to operate in most of the jurisdictions in which we operate, including in jurisdictions that have mandated the closure of certain businesses, there is no assurance that we will be permitted to continue operations under future government orders or other restrictions.

In order to reduce costs in an attempt to offset reductions in revenue, we have implemented various cost reductions to align with the lower level of economic activity, including employee layoffs and furloughs.

These actions may result in a significant increase in employment-related claims and the associated risks and expenses related thereto.

Due to the self-insured nature of our health insurance program, we may be subject to substantial increases in healthcare costs in the event that a significant number of our employees become ill and require medical treatment due to COVID-19 infections.

Also, we may suffer workforce shortages and/or lose the services of key management personnel due to employees contracting the COVID-19 virus or due to employees being subject to quarantine because of possible exposure to a person who tested positive for the virus.

Although we have been taking precautions as recommended by governmental agencies to protect the health and safety of our employees who are continuing to work, we may be subject to claims that we did not take adequate or appropriate measures in this regard.

We have also implemented remote work arrangements for many of our employees, which may expose us to an increased risk of cyber-attack or other cyber-security threats.

In the event that the pandemic subsides and business increases, there can be no assurance that we will be able to recall or rehire the appropriate number of employees with the proper skill sets to handle the increase in business.

We are continuing to evaluate the applicability of certain financial assistance and relief programs from foreign governments.

While we have pursued and will continue to pursue this government assistance where possible and advisable, there is no guarantee as to what amount, if any, we would qualify for and receive in the future.

The COVID-19 pandemic is adversely affecting our business partners, including our suppliers and customers.

Depending on the extent of the adverse effects, we may not be able to source sufficient inventory to provide products to our customers even at reduced-demand levels, and the ability of our customers to continue operating or to pay us for our products may be disrupted.

Depending on the length and severity of the adverse effects on our business of the COVID-19 pandemic, we may determine that our goodwill or other long-lived assets have become impaired or that the carrying value of our receivables and inventory may no longer be recoverable.

If either or both occur, we may incur significant charges to our pre-tax income.

Depending on the length and severity of the adverse effects on our business of the COVID-19 pandemic, we may not satisfy one or more of the financial or other covenants in our credit facility.

Failure to satisfy any such covenant could inhibit our ability to borrow money under our credit facility should we need to do so or could result in a default under our credit facility.

The COVID-19 pandemic has caused severe macroeconomic disruptions, including substantial price volatility in the equities markets, including the price of our common stock, and concerns about the liquidity of the credit markets.

These macroeconomic disruptions may also affect our ability to borrow money or otherwise raise cash.

There is uncertainty with respect to the duration and breadth of the COVID-19 pandemic.

Moreover, even after the mitigation measures are relaxed by government authorities, the timing and extent of the recovery of the economies in the countries where we operate is difficult to estimate.

Thus, the ultimate impact on our business, financial results and financial condition cannot reasonably be estimated at this time.

In addition, even if the adverse effects of the COVID-19 pandemic subside, there is the possibility of a recurrence of COVID-19 or the emergence of a different pandemic or health emergency with similar economic disruptions.

Certain jurisdictions are reinstating mitigation measures at least through February 2021.

Our operating results and financial condition have been and could continue to be adversely affected by the economic, political and social conditions in the U.S., Europe and elsewhere, as well as the economic health of vehicle owners and numbers and types of vehicles sold.

Changes in economic, political and social conditions in the U.S., Europe and other countries in which we are located or do business could have a material effect on our company.

Negative effects to our supply chain, costs of doing business, sales and distribution activity may occur due to factors such as war or threats of war, natural disasters, nuclear facility accidents, public health emergencies, utility interruptions and terrorism.

Our business is also affected by a number of other factors.

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decided by referendum to withdraw from the European Union (also known as Brexit).

The precise timing and impacts of this action on our businesses in the U.K.

and other parts of Europe are unknown at this time.

Since the vote, we have seen fluctuations in exchange rates leading to cost pressures and unfavorable translation effects on our sterling denominated earnings.

The U.K.’s withdrawal from the European Union became effective on January 31, 2020.

and the European Union now have an 11-month transition period to negotiate a trade deal and come to terms on other issues such as security and law enforcement.

Depending upon the outcome of these negotiations, our European businesses could be adversely affected as a result of further fluctuations in exchange rates, disruptions to access to markets by U.K.

and ROI 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.

and the European Union negotiated a Trade and Cooperation Agreement (“TCA”) to govern the new relationship, which became effective on January 1, 2021.

Following the adoption of the TCA, duties have increased on some of the products we import into the U.K., and we have observed shipment delays, particularly with respect to the products we supply to our business in the ROI.

While the extent and impact of these issues is not clear at this point, they could have adverse impacts on our business.

Notwithstanding the TCA, there continues to be uncertainty regarding the effects of Brexit on our U.K.

and European businesses, including with respect to tariffs or trade sanctions on goods moving between the jurisdictions, increased administrative burdens, fluctuations in exchange rates, disruptions in access to markets by U.K.

and ROI companies, and disagreements about the interpretation of the TCA.

The widespread use of social media platforms has increased the speed and scope that information or misinformation about us can be disseminated and could hamper our ability to correct misrepresentations or to otherwise respond effectively to negative publicity.

Negative posts about us, our employees, our business practices, or our products or services, whether or not valid, could seriously damage our brands and reputation.

We face competition from local, national, international, and internet-based vehicle products providers, and this competition could negatively affect our business.

The vehicle replacement products industry and vehicle accessory parts industry are highly competitive and are served by numerous suppliers of OEM, recycled, aftermarket, refurbished and remanufactured products.

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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.

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.

In addition, vehicles are being equipped with systems that transmit data to the OEMs wirelessly regarding, among other items, accident incidents, maintenance requirements, location of the vehicle, identification of the closest dealership, and other statistics about the vehicle and its driving history.

From time to time, the OEMs have engaged in efforts seeking to increase OEM market share and to restrict consumers’ choice to use recycled or aftermarket parts to repair consumers’ vehicles.

Examples of these efforts include blocking the use of vehicle telematics by the independent repair industry, demanding that suppliers provide certain parts exclusively to the OEMs, embedding software in certain vehicle parts that prevents them from being recycled and used to repair other vehicles, repair shop certification programs that, in some cases, require the repair shops to use only OEM parts, refusing to sell certain OEM parts unless the buyer is an OEM-certified shop, obtaining patents and trademarks on various subcomponents of vehicles to prohibit the use of an aftermarket part alternative, and price matching and rebate programs on certain aftermarket products.

See the risk factor entitled “ Intellectual property claims relating to aftermarket products could adversely affect our business ” for further information about the OEM patents and trademarks.

With respect to telematics, vehicles are increasingly being equipped with systems that transmit data to the OEMs wirelessly regarding, among other items, accident incidents, maintenance requirements, location of the vehicle, identification of the closest dealership, and other statistics about the vehicle and its driving history.

To the extent that this data is not shared with alternative suppliers, the OEMs will have an advantage with respect to such matters as contacting the vehicle driver, recommending repairs and maintenance, and directing the vehicle owner to an affiliated dealership.

The frequency and intensity of these OEM efforts has been increasing over time.

The growth and effectiveness of these efforts 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.

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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, and we may not be able to successfully divest certain businesses.

We may not be able to successfully complete potential strategic acquisitions if we cannot reach agreement on acceptable terms, if we do not obtain required antitrust or other regulatory approvals, or for other reasons.

Moreover, we may not be able to identify acquisition candidates at reasonable prices and/or be able to successfully integrate 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.

the key personnel of the acquired company may decide not to work for us;

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

suppliers of the acquired company may decide not to sell products to us;

we may experience business disruptions as a result of information technology systems conversions;

we may experience additional financial and accounting challenges and complexities in areas such as tax planning, treasury management, and financial reporting;

we may be held liable for environmental, tax or other risks and liabilities as a result of our acquisitions, some of which we may not have discovered during our due diligence;

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.

For example, we have undertaken the 1 LKQ Europe program to create structural centralization and standardization of key functions to facilitate the operation of the Europe segment as a single business;

this program will present a number of execution challenges.

In addition to acquisitions, we have divested, and will continue to divest, certain businesses that do not meet our performance standards.

As a result of a divestment, we may not recover the carrying value of our investment in the divested business;

in addition, such divestment transactions require significant management time and attention.

Intellectual property claims relating to aftermarket products could adversely affect our business.

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To the extent OEMs and other manufacturers obtain design patents or trademarks and are successful in asserting claims of infringement of these patents or trademarks against us, we could be restricted or prohibited from selling certain aftermarket products, which could have an adverse effect on our business.

In the event that our license agreements, or other similar license arrangements with OEMs or others, 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 those design patents or trademarks.

In the event that our license agreements, or other similar license arrangements with OEMs or others, 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 those design patents or trademarks.

We have filed, and may file in the future, challenges to OEM patents, including patents owned by OEMs with which we have patent license agreements.

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Customs and Border Protection has taken the position that certain of our aftermarket parts infringe certain OEM trademarks and seized our aftermarket parts as we attempted to import them into the U.S.

We incur costs and expenses attempting to convince Customs and Border Protection to release the seized goods and in litigation where we are seeking a determination of non-infringement.

We incur costs and expenses attempting to convince Customs and Border Protection to release the seized goods and in litigation where we seek a determination of non-infringement.

In the event we are unsuccessful in obtaining their release, such goods may be subject to forfeiture and other penalties.

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Engines and transmissions represent some of our largest revenue generating SKUs in North America, and parts for engines and transmissions represent a significant amount of the revenue of our European operations.

Thus, an increase in electric vehicles as a percentage of vehicles sold will have a negative impact on our sales of engines, transmissions, and other related parts.

Thus, an increase in electric vehicles as a percentage of vehicles sold could have a negative impact on our sales of engines, transmissions, and other related parts.

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.

Our recycling operations generate scrap metal and precious metals (such as platinum, palladium, and rhodium) as well as 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.

In addition, we receive "crush only" vehicles or vehicles to be further processed from other

companies, including OEMs, which we dismantle and which generate scrap metal and other metals, in accordance with the guidelines of our agreements with the providing company.

The prices of scrap and other metals have historically fluctuated, sometimes significantly, due to market factors.

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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.

For example, in 2018 China imposed a ban on the importation of various types of solid waste allegedly in an effort to reduce environmental pollution.

This ban includes certain metals that we sell and continues to have the effect of reducing the prices of such products.

For example, in 2018 China imposed stringent purity restrictions on the importation of various types of solid waste allegedly in an effort to reduce environmental pollution.

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.

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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, or changes to enforcement or interpretation of existing laws or 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.

In addition, laws relating to the regulation of parts affecting vehicle emissions, such as California’s Proposition 65, may impact the ability of our Specialty segment to sell certain accessory products.

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 has issued guides that 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 a disruption to our supply of inventory could increase our expenses and impede our ability to serve our customers.

An adverse change in our relationships with our suppliers, disruption to our supply of inventory, or the misconduct, performance failures or negligence of our third party vendors or service providers could increase our expenses, impede our ability to serve our customers, or expose us to liability.

Our North American business is dependent on a relatively small number of suppliers of aftermarket products, a large portion of which are sourced from Taiwan.

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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.

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.

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More complex parts may be difficult to repair and may require expensive or difficult to obtain software updates, limiting our ability to compete with the OEMs.

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, many 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.

Additionally, the number of selling days can fluctuate each quarter causing volatility in revenue and net income.

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.

Our key management personnel are important to successfully manage our business and 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.

In addition, to the extent wage inflation occurs in jurisdictions in which we operate, we may not be able to retain key employees or we may experience increased costs.

We operate in foreign jurisdictions, which exposes us to foreign exchange and other risks.

We have operations in North America, Europe and Taiwan, 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 than the U.S.

that could affect our operations and the ability to maintain our supply of products.

We rely on third parties to provide products and services that are integral to our operations.

If we fail to adequately assess, monitor and regulate the performance of our third party vendors and service providers, we could be subject to additional risk caused by the misconduct, performance failures or negligence of these third parties.

For example, these could include violations of, or noncompliance with, laws and/or regulations governing our business (including, but not limited to, bribery, cybersecurity or privacy laws), which could lead to sanctions and/or fines from governmental agencies.

Our arrangements with third party vendors and service providers may cause us financial and reputational harm if those third parties fail to satisfy their obligations to us, including their obligations to maintain and protect the security and confidentiality of our information and data or the information and data relating to our customers.

Further, noncompliance with contract terms by our third party vendors or service providers could expose us to liability to other third parties or our employees.

If we determine that our goodwill or other intangible assets have become impaired, we may incur significant charges to our pre-tax income.

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We review indefinite-lived intangible assets for impairment annually or sooner if events or changes in circumstances indicate that the carrying value may not be recoverable.

We review finite-lived intangible assets for possible impairment whenever events or changes in circumstances indicate that the carrying value may not

be recoverable.

We review finite-lived intangible assets for possible impairment whenever events or changes in 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, 2020 , the value of our other intangible assets, net of accumulated amortization, was $814 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 other employee representative bodies 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, legislators and government agencies could adopt new regulations, or interpret existing regulations in a manner, 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 or similar 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 laws and regulations 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 and courts different than our interpretations.

Efforts to comply with existing laws, changes to such laws and newly-enacted laws may increase our labor costs and limit our flexibility.

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.

In addition, efforts to better protect local markets from foreign workers and decisions of countries to withdraw from treaties and joint economic areas may lead to increased restrictions on the free movement of people and labor and may limit our ability to place key personnel where they could best serve our needs.

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.

In the ordinary course of business, we rely upon information technology networks and systems, some of which are leased from third parties, to process, transmit and store electronic information and to manage and support a variety of business processes and activities.

The secure operation of these information technology networks and the processing and maintenance of this information is critical to our business operations and strategy.

Despite security measures and business continuity plans, our information technology networks and infrastructure may be vulnerable to damage, disruptions or shutdowns due to attacks by cyber criminals, breaches due to employee error or malfeasance, disruptions during the process of upgrading or replacing computer software or hardware, terminations of business relationships by third party service providers, power outages, computer viruses, telecommunication or utility failures, terrorist acts, natural disasters or other catastrophic events.

The occurrence of any of these events could compromise our networks, and the information stored there could be accessed, publicly disclosed, lost or stolen.

Any such access, disclosure or loss of information could result in legal claims or proceedings, disruption to our operations and damage to our reputation, any of which could adversely affect our business.

In addition, as security threats continue to evolve, we will likely need to invest additional resources to protect the security of our systems.

In the event that we decide to switch providers or to implement upgrades or replacements to our own systems, we may be unsuccessful in the development of our own systems or we may underestimate the costs and expenses of switching providers or 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 are in the midst of a systems conversion project for our European businesses, which will be subject to all of these risks.

The costs of complying with the requirements of laws pertaining to the privacy and security of personal information and the potential liability associated with the failure to comply with such laws could materially adversely affect our business and results of operations .

We collect personally identifiable information ("PII") and other data as part of our business processes and operations.

The legislative and regulatory framework relating to privacy and data protection is rapidly evolving worldwide and is likely to remain uncertain for the foreseeable future.

This data is subject to a variety of U.S.

and international laws and regulations.

Many foreign countries and governmental bodies, including the European Union, Canada and other jurisdictions where we conduct business, have laws and regulations concerning the collection and use of PII and other data obtained from their residents or by businesses operating within their jurisdictions that are more restrictive than those in the U.S.

Additionally, the European Union adopted the General Data Protection Regulation ("GDPR") that will impose more stringent data protection requirements for processors and controllers of personal data, including expanded disclosures about how PII is to be used, limitations on retention of PII, mandatory data breach notification requirements, and higher standards for data controllers to demonstrate that they have obtained valid consent for certain data processing activities.

The GDPR became effective in May 2018, and there can be no assurance that we have timely implemented all processes required for full compliance with the regulation.

The GDPR provides severe penalties for noncompliance.

In addition, stricter laws in this area are being enacted in certain states in the U.S.

and in other countries, and more jurisdictions are likely to follow this trend.

Any inability, or perceived inability, to adequately address privacy and data protection issues, even if unfounded, or comply with applicable laws, regulations, policies, industry standards, contractual obligations or other legal obligations (including at newly-acquired companies) could result in additional cost and liability to us, result in governmental investigations and enforcement actions, give rise to civil litigation, result in damage to our reputation (including the loss of trust by our customers and employees), inhibit sales, and otherwise adversely affect our business.

We also may be subject to these adverse effects if other parties with whom we do business, including lenders, suppliers, consultants and advisors, violate applicable laws or contractual obligations or suffer a security breach.

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 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 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 or lose our operating permits.

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.

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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.

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 or adjoining countries.

These 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 and other vehicles, our business could be harmed.

We use a fleet of trucks and other vehicles to deliver the majority of the products we sell.

We are subject to the risks associated with providing delivery 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.

We may lose the right to operate at key locations.

We lease most of the properties at which we conduct our businesses.

At the end of a lease term, we must negotiate a renewal, exercise a purchase option (to the extent we have that right), or find a new location.

There can be no assurance that we will be able to negotiate renewals on terms acceptable to us or that we will find a suitable alternative location, especially with respect to our salvage operations (which have characteristics that are often not attractive to landlords, local governments, or neighbors).

In such cases, we may lose the right to operate at key locations.

Our effective tax rate could materially increase as a consequence of various factors, including interpretations and administrative guidance in regard to the Tax Act (defined below), U.S.

and/or international tax legislation, mix of earnings by jurisdiction, and U.S.

and foreign jurisdictional audits.

We are a U.S.

based multinational company subject to income taxes in the U.S.

and a number of foreign jurisdictions.

Therefore, we are subject to changes in tax laws in each of these jurisdictions and such changes could have a material adverse effect on our effective tax rate and cash flows.

On December 22, 2017, the U.S.

enacted legislation commonly referred to as the Tax Cuts and Jobs Act (the "Tax Act").

Among other things, the Tax Act reduced the U.S.

statutory corporate tax rate from 35% to 21% for tax years beginning after December 31, 2017.

Additionally, beginning in 2018, the Tax Act imposed a regime of taxation on foreign subsidiary earnings (Global Intangible Low-Taxed Income, “GILTI”) and on certain related party payments (Base Erosion Anti-abuse Tax, “BEAT”).

Other important changes potentially material to our operations included the full expensing of certain assets placed into service after September 27, 2017, the repeal of the domestic manufacturing deduction, and additional limitations on the deductibility of executive compensation.

Finally, as part of the transition of U.S.

international taxation from a worldwide tax system to a territorial tax system, the Tax Act imposed a one-time transition tax on the deemed repatriation of historical earnings of foreign subsidiaries as of December 31, 2017.

Many non-U.S.

jurisdictions are implementing tax legislation based upon recommendations made by the Organization for Economic Co-operation and Development in connection with its Base Erosion and Profit Shifting study, as well as certain anti-tax-avoidance initiatives advanced by the European Commission.

The outcome of these legislative developments could have a material adverse effect on our effective tax rate and cash flows.

The tax rates applicable in the jurisdictions within which we operate vary widely.

Therefore, our effective tax rate may be adversely affected by changes in the mix of our earnings by jurisdiction.

We are also subject to ongoing audits of our income tax returns in various jurisdictions both in the U.S.

and internationally.

While we believe that our tax positions will be sustained, the outcomes of such audits could result in the assessment of additional taxes, which could adversely impact our cash flows and financial results.

If significant tariffs or other restrictions are placed on products or materials we import or any related counter-measures are taken by countries to which we export products, our revenue and results of operations may be materially harmed .

The current U.S.

administration has imposed tariffs on certain materials imported into the U.S.

from China and announced additional tariffs on other goods from China and other countries.

Moreover, counter-measures have been taken by other countries in retaliation for the U.S.-imposed tariffs.

The tariffs cover products and materials that we import, and the counter-measures may affect products we export.

The effects currently are not material;

however, depending on the breadth of products and materials ultimately affected by, and the duration of, the tariffs and countermeasures, our financial results may be materially harmed.

In addition, countries may impose other restrictions on the importation of products.

For example, in 2018 China imposed a ban on the importation of various types of solid waste allegedly in an effort to reduce environmental pollution.

This ban includes certain scrap metals that we sell and continues to have the effect of reducing the prices of such products.

Activist investors could cause us to incur substantial costs, divert management’s attention, and have an adverse effect on our business.

We have in the past received, and we may in the future be subject to, proposals by activist investors urging us to take certain corporate actions.

Activist investor activities could cause our business to be adversely affected because responding to proxy contests and other demands by activist investors can be costly and time-consuming, disrupt our operations, and divert the attention of management and our employees.

For example, we have retained, and may in the future be required to retain, the services of various professionals to advise us on activist investor matters, including legal, financial and communications advisors, the costs of which may negatively impact our future financial results.

Campaigns by activist investors to effect changes at publicly-traded companies are sometimes led by investors seeking to increase short term investor value through actions such as financial restructuring, increased debt, special dividends, stock repurchases, or sales of assets or the entire company.

Perceived uncertainties as to our future direction, strategy or leadership that arise as a consequence of activist investor initiatives may result in the loss of potential business opportunities, harm our ability to attract new investors, employees and business partners, and cause our stock price to experience periods of volatility or stagnation.

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 that 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 cannot guarantee that our stock repurchase program will be fully implemented.

In October 2018, our Board of Directors approved a stock repurchase program totaling $500 million.

In October 2019, our Board of Directors authorized an increase to our existing stock repurchase program under which the Company may purchase up to an additional $500 million of our common stock, bringing the authorized total to $1.0 billion.

We are not obligated to repurchase a specified number or dollar value of shares, and our repurchase program may be suspended or terminated at any time.

We may not be able to successfully acquire new businesses or integrate acquisitions, and we may not be able to successfully divest certain businesses.

Moreover, we may not be able to identify acquisition candidates at reasonable prices and/or be able to successfully integrate 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.

• the key personnel of the acquired company may decide not to work for us;

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

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

• we may experience business disruptions as a result of information technology systems conversions;

• we may experience additional financial and accounting challenges and complexities in areas such as tax planning, treasury management, and financial reporting;

• we may be held liable for environmental, tax or other risks and liabilities as a result of our acquisitions, some of which we may not have discovered during our due diligence;

• 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.

this program will present a number of execution challenges.

The COVID-19 pandemic has also impacted certain 1 LKQ Europe initiatives resulting in minor delays of certain initiatives.

In addition to acquisitions, we have divested, and will continue to divest, certain businesses that do not meet our performance standards.

As a result of a divestment, we may not recover the carrying value of our investment in the divested business;

in addition, such divestment transactions require significant management time and attention.

Risks Relating to Our Financial Structure

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, 2019 , we had approximately $1.6 billion aggregate principal amount of secured debt outstanding and approximately $1.8 billion of availability under our credit agreement ( $1.9 billion of availability reduced by $69 million of amounts outstanding under letters of credit).

In addition, we had approximately $2.3 billion aggregate principal amount of unsecured debt outstanding comprising $600 million aggregate principal amount of 4.75% senior notes due May 15, 2023 (the "U.S.

Notes (2023)"), €500 million ($561 million) aggregate principal amount of 3.875% senior notes due April 1, 2024 (the "Euro Notes (2024)"), and €1.0 billion ($1.1 billion) aggregate principal amount consisting of €750 million of 3.625% senior notes due 2026 (the "Euro Notes (2026)") and €250 million of 4.125% senior notes due 2028 (the "Euro Notes (2028)," together with the 2026 notes, the "Euro Notes (2026/28)," and together with the U.S.

Notes (2023), Euro Notes (2024), and Euro Notes (2026), the "senior notes").

As of December 31, 2020, we had approximately $967 million aggregate principal amount of secured debt outstanding and approximately $2.4 billion of availability under our credit agreement ($2.5 billion of availability reduced by $71 million of amounts outstanding under letters of credit).

In addition, we had approximately $1.8 billion aggregate principal amount of unsecured debt outstanding comprised of €500 million ($611 million) aggregate principal amount of 3.875% senior notes due April 1, 2024 (the "Euro Notes (2024)"), and €1.0 billion ($1.2 billion) aggregate principal amount consisting of €750 million of 3.625% senior notes due 2026 (the "Euro Notes (2026)") and €250 million of 4.125% senior notes due 2028 (the "Euro Notes (2028)," together with the 2026 notes, the "Euro Notes (2026/28)," and together with the Euro Notes (2024), and Euro Notes (2026), the "senior notes").

Borrowings under the credit agreement mature in January 2024.

On January 10, 2020, we redeemed the U.S.

Notes (2023) at a redemption price equal to 101.583% of the principal amount of the U.S.

Notes (2023) plus accrued and unpaid interest.

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.

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In addition, the indentures do not contain many other restrictions, including certain restrictions contained in our credit agreement, including, without limitation, making investments, prepaying subordinated indebtedness or engaging in transactions with our affiliates.

Our credit agreement will permit, subject to specified conditions and limitations, the incurrence of a significant amount of additional indebtedness.

Our credit agreement will permit, subject to specified conditions and limitations, the incurrence of a significant amount of additional indebtedness under the existing agreement.

As of December 31, 2020, we would have been able to incur an additional $2.4 billion of indebtedness under our credit agreement ($2.5 billion of availability reduced by $71 million of amounts outstanding under letters of credit).

If we or our subsidiaries incur additional debt, the risks associated with our substantial leverage and the need to service such debt would increase.

Our credit agreement imposes significant operating and financial restrictions on us and our subsidiaries, which may prevent us from capitalizing on business opportunities.

Our credit agreement imposes 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;

Our credit agreement imposes operating and financial restrictions on us and our subsidiaries, which may prevent us from capitalizing on business opportunities.

Our credit agreement imposes operating and financial restrictions on us.

These restrictions may limit our ability, among other things, to:

• incur, assume or permit to exist additional indebtedness (including guarantees thereof) outside of our credit agreement;

• pay dividends or make certain other distributions on our capital stock or repurchase our capital stock or prepay subordinated indebtedness;

• incur liens on assets;

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• 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.

As a result of these covenants and restrictions, we may 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.

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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.

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.

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 hope to realize from them, and these proceeds may not be adequate to meet any debt service obligations then due.

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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.

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There are restrictions in the indenture that governs the Euro Notes (2024), Euro Notes (2026) and Euro Notes (2028) on our ability to refinance such notes prior to January 1, 2024, April 1, 2021, and April 1, 2023, respectively.

We could refinance the notes through open market purchases, subject to a limitation in our credit agreement on the amount of such purchases.

If we fail to raise capital when needed, our business may be negatively affected.

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Certain of our variable rate debt, including our revolving credit facility, currently uses the London Interbank Offered Rate ("LIBOR") as a benchmark for establishing the interest rate.

LIBOR is the subject of recent proposals for reform.

These reforms and other pressures may cause LIBOR to disappear entirely or to perform differently than in the past.

LIBOR is the subject of proposals for reform.

These reforms and other pressures may cause LIBOR to disappear entirely, potentially as soon as the end of 2021, or to perform differently than in the past.

The consequences of these developments with respect to LIBOR cannot be entirely predicted but could result in an increase in the cost of our variable rate debt.

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 $36 million change in annual cash interest expense under our credit agreement and our accounts receivable securitization facility.

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

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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.

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 senior notes at a favorable price, as well as adversely affecting our ability to issue new notes in the future or incur other indebtedness upon favorable terms.

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In any such event, because the senior notes are not secured by any of our assets or the equity interests in subsidiary guarantors, it is possible that there would be no assets remaining from which claims by holders of the senior notes could be satisfied or, if any assets remained, they might be insufficient to satisfy claims fully.

As of December 31, 2020 , we had approximately $967 million aggregate principal amount of secured debt outstanding and approximately $2.4 billion of availability under our credit agreement ($2.5 billion of availability reduced by $71 million of amounts outstanding under letters of credit).

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.

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Not all of our subsidiaries have guaranteed our credit agreement 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 credit agreement, our U.S.

Notes (2023), Euro Notes (2024), Euro Notes (2026), and Euro Notes (2028).

Not all of our subsidiaries have guaranteed the credit agreement, Euro Notes (2024), Euro Notes (2026), and Euro Notes (2028).

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 credit agreement or the holders of the senior notes.

Consequently, claims in respect of the credit agreement 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, 2019 , our subsidiaries that are not borrowers under or do not guarantee the credit agreement and our subsidiaries that do not guarantee the U.S.

Notes (2023) represented approximately 51% and 30% of our total revenue and operating income, respectively.

In addition, these non-guarantor subsidiaries represented approximately 54% and 55% of our total assets and total liabilities, respectively, as of December 31, 2019 (excluding, in each case, intercompany amounts).

As of the same date, our subsidiaries that do not guarantee the credit agreement or the U.S.

Notes (2023) had approximately $2.5 billion of outstanding indebtedness (which includes $662 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 (2023)).

The group of subsidiaries that does not guarantee the Euro Notes (2024) is similar to the group that does not guarantee the U.S.

Notes (2023), Euro Notes (2026) and Euro Notes (2028), except that, in addition to the issuer of the Euro Notes (2024), there are four subsidiaries in the group that do not guarantee the U.S.

Notes (2023), Euro Notes (2026) and Euro Notes (2028) that guarantee the Euro Notes (2024).

As of the most recent practicable date, our subsidiaries that are not borrowers under or do not guarantee the credit agreement represented approximately 50% and 24% of our total revenue and operating income, respectively.

In addition, these non-guarantor subsidiaries represented approximately 55% and 60% of our total assets and total liabilities, respectively (excluding, in each case, intercompany amounts).

As of the most recent practicable date, our subsidiaries that do not guarantee the credit agreement had approximately $1.9 billion of outstanding indebtedness.

The group of subsidiaries that does not guarantee the Euro Notes (2024) is substantially similar to the group that does not guarantee the Euro Notes (2026) and Euro Notes (2028), except that, in addition to the issuer of the Euro Notes (2024), there are four subsidiaries in the group that do not guarantee the Euro Notes (2026) and Euro Notes (2028) that guarantee the Euro Notes (2024).

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 senior notes will have the right to require us to offer to purchase all of the senior 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 credit agreement.

In order to obtain sufficient funds to pay amounts due under the credit agreement and the purchase price of the outstanding senior notes, we expect that we would have to refinance our indebtedness.

In order to obtain sufficient funds to pay amounts due under the credit agreement 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.

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Accordingly, the ability of a holder of senior notes to require us to repurchase its senior 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 indentures governing the senior notes, 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.

In addition, in certain circumstances as specified in the indentures governing the senior notes, if we sell certain assets, we will be required to either prepay secured debt of the issuer or guarantors of the senior notes, prepay debt of non-guarantor wholly-owned subsidiaries, reinvest the sale proceeds in other assets or commence an asset sale offer, as defined in the indentures governing the senior notes, 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 such asset sales.

Our other debt may contain restrictions that would limit or prohibit us from completing any such asset sale offer.

In particular, our credit agreement contains 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 credit agreement.

The mandatory prepayment obligations under the credit agreement 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 governing the senior notes.

Our failure to purchase any such senior notes when required under the indentures would be an event of default under the indentures.

In particular, our credit agreement contains provisions that require us, upon the sale of certain assets, to either apply all of the proceeds from such asset sale to the prepayment of the term loan amounts due under the credit agreement or to reinvest such proceeds in real estate, equipment or tangible assets.

If we chose to prepay the term loan obligations instead of reinvesting in assets, the mandatory prepayment obligations under the credit agreement 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 governing the senior notes.

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.

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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 2021.

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.

Legal and Regulatory Risks

Many states have introduced or passed laws that limit the use of aftermarket products in collision repair.

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.

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 has issued guides that 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.

We are subject to environmental regulations and incur costs relating to environmental matters.