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Item 1. Financial Statements

2022-11-01 compared with 2022-08-02 · 139 added, 116 removed, 628 unchanged (29% of the section changed)

3 unchanged sentences

(In millions, except per share data)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

4 unchanged sentences

Restructuring and transaction related expenses 3 3 10 16

Gain on disposal of businesses ( 155 ) ( 1 ) ( 155 ) ( 1 )

(Gain) on disposal of businesses and impairment of net assets held for sale ( 4 ) 1 ( 159 ) —

Depreciation and amortization 58 64 178 195

3 unchanged sentences

Loss on debt extinguishment — — — 24

Other expense (income), net 2 ( 6 ) 2 ( 12 )

Other income, net ( 6 ) ( 3 ) ( 4 ) ( 15 )

Total other expense, net 11 13 42 65

24 unchanged sentences

(In millions)

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

2 unchanged sentences

Net income attributable to LKQ stockholders 262 284 955 855

Other comprehensive (loss) income:

Other comprehensive loss:

Foreign currency translation, net of tax ( 187 ) ( 48 ) ( 391 ) ( 51 )

2 unchanged sentences

Other comprehensive income (loss) from unconsolidated subsidiaries 2 — 4 ( 1 )

Other comprehensive (loss) income ( 149 ) 25 ( 202 ) ( 2 )

Other comprehensive loss ( 184 ) ( 48 ) ( 386 ) ( 50 )

Comprehensive income 78 236 569 806

5 unchanged sentences

(In millions, except per share data)

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Current assets:

29 unchanged sentences

Stockholders' equity:

Common stock, $ 0.01 par value, 1,000.0 shares authorized, 322.0 shares issued and 276.6 shares outstanding at June 30, 2022;

Common stock, $ 0.01 par value, 1,000.0 shares authorized, 322.3 shares issued and 270.1 shares outstanding at September 30, 2022;

321.6 shares issued and 287.0 shares outstanding at December 31, 2021

3 unchanged sentences

Treasury stock, at cost;

45.4 shares at June 30, 2022 and 34.6 shares at December 31, 2021

52.2 shares at September 30, 2022 and 34.6 shares at December 31, 2021

( 2,237 ) ( 1,346 )

7 unchanged sentences

(In millions)

Six Months Ended June 30,

Nine Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

2 unchanged sentences

Depreciation and amortization 197 212

Gain on disposal of businesses ( 155 ) ( 1 )

(Gain) on disposal of businesses and impairment of net assets held for sale ( 159 ) —

Stock-based compensation expense 31 25

12 unchanged sentences

Acquisitions, net of cash acquired ( 4 ) ( 67 )

Proceeds from disposal of businesses 372 6

Proceeds from disposals of businesses 399 6

Other investing activities, net ( 8 ) ( 23 )

6 unchanged sentences

Repayments under term loans — ( 324 )

Borrowings of other debt, net 8 40

Borrowings (repayments) of other debt, net 9 ( 18 )

Settlement of derivative instruments, net — ( 89 )

18 unchanged sentences

Shares Amount Shares Amount

Balance as of April 1, 2022 322.0 $ 3 ( 37.3 ) $ ( 1,490 ) $ 1,482 $ 5,995 $ ( 206 ) $ 15 $ 5,799

Balance as of July 1, 2022 322.0 $ 3 ( 45.4 ) $ ( 1,894 ) $ 1,492 $ 6,344 $ ( 355 ) $ 15 $ 5,605

Net income — — — — — 262 — — 262

1 unchanged sentence

Purchase of treasury stock — — ( 6.8 ) ( 343 ) — — — — ( 343 )

Vesting of restricted stock units, net of shares withheld for employee tax 0.3 — — — ( 1 ) — — — ( 1 )

Stock-based compensation expense — — — — 8 — — — 8

Dividends declared to LKQ stockholders ($0.25 per share) — — — — — ( 70 ) — — ( 70 )

Balance as of June 30, 2022 322.0 $ 3 ( 45.4 ) $ ( 1,894 ) $ 1,492 $ 6,344 $ ( 355 ) $ 15 $ 5,605

Balance as of September 30, 2022 322.3 $ 3 ( 52.2 ) $ ( 2,237 ) $ 1,499 $ 6,536 $ ( 539 ) $ 15 $ 5,277

LKQ Stockholders

Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Accumulated

Comprehensive (Loss) Income Noncontrolling Interest Total Stockholders' Equity

Comprehensive Loss Noncontrolling Interest Total Stockholders' Equity

Shares Amount Shares Amount

Balance as of April 1, 2021 321.2 $ 3 ( 18.8 ) $ ( 526 ) $ 1,450 $ 5,042 $ ( 126 ) $ 16 $ 5,859

Balance as of July 1, 2021 321.3 $ 3 ( 25.0 ) $ ( 830 ) $ 1,459 $ 5,347 $ ( 101 ) $ 17 $ 5,895

Net income — — — — — 284 — — 284

Other comprehensive income — — — — — — 25 — 25

Other comprehensive loss — — — — — — ( 48 ) — ( 48 )

Purchase of treasury stock — — ( 4.3 ) ( 219 ) — — — — ( 219 )

1 unchanged sentence

Stock-based compensation expense — — — — 8 — — — 8

Balance as of June 30, 2021 321.3 $ 3 ( 25.0 ) $ ( 830 ) $ 1,459 $ 5,347 $ ( 101 ) $ 17 $ 5,895

Balance as of September 30, 2021 321.6 $ 3 ( 29.3 ) $ ( 1,049 ) $ 1,465 $ 5,631 $ ( 149 ) $ 17 $ 5,918

The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.

13 unchanged sentences

Dividends declared to LKQ stockholders ($0.75 per share) — — — — — ( 213 ) — — ( 213 )

Balance as of June 30, 2022 322.0 $ 3 ( 45.4 ) $ ( 1,894 ) $ 1,492 $ 6,344 $ ( 355 ) $ 15 $ 5,605

Balance as of September 30, 2022 322.3 $ 3 ( 52.2 ) $ ( 2,237 ) $ 1,499 $ 6,536 $ ( 539 ) $ 15 $ 5,277

LKQ Stockholders

8 unchanged sentences

Stock-based compensation expense — — — — 25 — — — 25

Balance as of June 30, 2021 321.3 $ 3 ( 25.0 ) $ ( 830 ) $ 1,459 $ 5,347 $ ( 101 ) $ 17 $ 5,895

Balance as of September 30, 2021 321.6 $ 3 ( 29.3 ) $ ( 1,049 ) $ 1,465 $ 5,631 $ ( 149 ) $ 17 $ 5,918

The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements.

15 unchanged sentences

Management evaluates the aging of customer receivable balances, the financial condition of our customers, historical trends, and macroeconomic factors to estimate the amount of customer receivables that may not be collected in the future and records a provision it believes is appropriate.

Our reserve for expected credit losses was $ 56 million and $ 53 million as of June 30, 2022 and December 31, 2021, respectively.

The provision for credit losses was $ 1 million for both the three months ended June 30, 2022 and 2021 and $ 9 million and $ 4 million for the six months ended June 30, 2022 and 2021, respectively.

Our reserve for expected credit losses was $ 51 million and $ 53 million as of September 30, 2022 and December 31, 2021, respectively.

The provision for credit losses was insignificant for both the three months ended September 30, 2022 and 2021 and $ 9 million and $ 3 million for the nine months ended September 30, 2022 and 2021, respectively.

Inventories consist of the following (in millions):

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Aftermarket and refurbished products $ 2,167 $ 2,168

3 unchanged sentences

Aftermarket and refurbished products and salvage and remanufactured products are primarily composed of finished goods.

As of June 30, 2022, manufactured products inventory was composed of $ 22 million of raw materials, $ 5 million of work in process, and $ 12 million of finished goods.

As of September 30, 2022, manufactured products inventory was composed of $ 26 million of raw materials, $ 6 million of work in process, and $ 13 million of finished goods.

As of December 31, 2021, manufactured products inventory was composed of $ 27 million of raw materials, $ 4 million of work in process, and $ 5 million of finished goods.

1 unchanged sentence

The sale was completed in April 2022 for $ 361 million resulting in recognition of a $ 155 million pretax gain ($ 127 million after tax).

In September 2022, we completed the sale of a business within our Self Service segment, to a third party, resulting in proceeds of $ 25 million and the recognition of a $ 4 million pretax gain ($ 3 million after tax).

Discontinued Operations

For the three months ended September 30, 2022, we recorded a $ 1 million benefit related to the settlement of a previously recorded use tax liability connected to a disposed business.

For the nine months ended September 30, 2022, we recorded a $ 5 million benefit primarily related to the reassessment of a previously recorded valuation allowance on a deferred tax asset connected to a disposed business.

Intangible Assets

3 unchanged sentences

Goodwill impairment testing may also be performed on an interim basis when events or circumstances arise that may lead to impairment.

We did not identify any indicators of impairment in the first six months of 2022 that necessitated an interim test of goodwill impairment or indefinite-lived intangible assets impairment.

We did not identify any indicators of impairment in the first nine months of 2022 that necessitated an interim test of goodwill impairment or indefinite-lived intangible assets impairment.

Investments in Unconsolidated Subsidiaries

1 unchanged sentence

The carrying value of our Investments in unconsolidated subsidiaries were as follows (in millions):

Ownership as of June 30, 2022

June 30, 2022 December 31, 2021

Ownership as of September 30, 2022

September 30, 2022 December 31, 2021

MEKO AB (1)(2)

1 unchanged sentence

Total $ 146 $ 181

(1) As of June 30, 2022, the fair value of our investment in MEKO AB ("Mekonomen") was $ 173 million based on the quoted market price for Mekonomen's common stock using the same foreign exchange rate as the carrying value.

(2) As of June 30, 2022, our share of the book value of Mekonomen's net assets exceeded the book value of our investment by $ 8 million ;

(1) As of September 30, 2022, the fair value of our investment in MEKO AB ("Mekonomen") was $ 135 million based on the quoted market price for Mekonomen's common stock using the same foreign exchange rate as the carrying value.

(2) As of September 30, 2022, our share of the book value of Mekonomen's net assets exceeded the book value of our investment by $ 8 million;

this difference is primarily related to Mekonomen's Accumulated Other Comprehensive Income balance as of our acquisition date in 2016.

3 unchanged sentences

Some of our salvage mechanical products are sold with a standard six month warranty against defects.

Additionally, some of the remanufactured engines are sold with a standard three or four year warranty against defects.

Additionally, some of our remanufactured engines are sold with a standard three or four year warranty against defects.

We also provide a limited lifetime warranty for certain of our aftermarket products.

7 unchanged sentences

Warranty claims ( 55 )

Balance as of June 30, 2022 $ 30

Balance as of September 30, 2022 $ 31

Litigation and Related Contingencies

3 unchanged sentences

Treasury Stock

Our Board of Directors had authorized a stock repurchase program under which we are able to purchase our common stock from time to time through October 25, 2024.

Our Board of Directors has authorized a stock repurchase program under which we are able to purchase our common stock from time to time.

Repurchases under the program may be made in the open market or in privately negotiated transactions, with the amount and timing of repurchases depending on market conditions and corporate needs.

1 unchanged sentence

Repurchased shares are accounted for as treasury stock using the cost method.

On May 10, 2022, our Board of Directors authorized a $ 500 million increase to our existing stock repurchase program, raising the aggregate program authorization to $ 2,500 million as of June 30, 2022.

During the three and six months ended June 30, 2022, we repurchased 8.1 million and 10.8 million shares of common stock, respectively, for an aggregate price of $ 404 million and $ 548 million, respectively.

During the three and six months ended June 30, 2021, we repurchased 6.2 million and 7.7 million shares of common stock, respectively, for an aggregate price of $ 304 million and $ 361 million, respectively.

As of June 30, 2022, there was $606 million of remaining capacity under our repurchase program.

On May 10, 2022, our Board of Directors authorized a $ 500 million increase to our existing stock repurchase program to $ 2,500 million.

On October 25, 2022, our Board of Directors authorized an additional $ 1,000 million increase to our existing stock repurchase program, raising the aggregate program authorization to $ 3,500 million, and extended the duration through October 25, 2025.

During the three and nine months ended September 30, 2022, we repurchased 6.8 million and 17.6 million shares of common stock, respectively, for an aggregate price of $ 343 million and $ 891 million, respectively.

During the three and nine months ended September 30, 2021, we repurchased 4.3 million and 12.0 million shares of common stock, respectively, for an aggregate price of $ 219 million and $ 580 million, respectively.

As of September 30, 2022, there was $ 263 million of remaining capacity under our repurchase program.

Noncontrolling Interest

3 unchanged sentences

As the put option is outside our control, we recorded a $ 24 million Redeemable noncontrolling interest at the put option's redemption value outside of permanent equity on our Unaudited Condensed Consolidated Balance Sheets.

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements

In September 2022, the Financial Accounting Standards Board issued Accounting Standards Update No.

2022-04, “Liabilities—Supplier Finance Programs (Subtopic 405-50):

Disclosure of Supplier Finance Program Obligations” ("ASU 2022-04"), which requires the buyer in a supplier finance program to disclose certain information about their program, including key terms, balance sheet presentation of amounts, outstanding amounts at the end of each period, and rollforwards of balances.

ASU 2022-04 is effective for fiscal years beginning after December 15, 2022 on a retrospective basis, including interim periods within those fiscal years, except for the disclosure of rollforward information, which is effective prospectively for fiscal years beginning after December 15, 2023.

We are currently evaluating the impact ASU 2022-04 will have on our Consolidated Financial Statements.

Revenue Recognition

5 unchanged sentences

The following table sets forth our revenue by category, disaggregated by reportable segment (in millions):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

33 unchanged sentences

Warranty revenue recognized ( 43 )

Balance as of June 30, 2022 $ 32

Balance as of September 30, 2022 $ 33

Other Revenue

7 unchanged sentences

We utilize the “expected value method” or the “most likely amount” method in order to estimate variable consideration, depending on the type of variable consideration, with contemplation of any expected reversals in revenue.

We recorded a refund liability and return asset for expected returns of $ 108 million and $ 58 million, respectively, as of June 30, 2022, and $ 107 million and $ 58 million, respectively, as of December 31, 2021.

We recorded a refund liability and return asset for expected returns of $ 108 million and $ 58 million, respectively, as of September 30, 2022, and $ 107 million and $ 58 million, respectively, as of December 31, 2021.

The refund liability is presented separately on the Unaudited Condensed Consolidated Balance Sheets within current liabilities while the return asset is presented within Prepaid expenses and other current assets.

Other types of variable consideration consist primarily of discounts, volume rebates, and other customer sales incentives that are recorded in Receivables, net on the Unaudited Condensed Consolidated Balance Sheets.

We recorded a reserve for our variable consideration of $ 110 million and $ 144 million as of June 30, 2022 and December 31, 2021, respectively.

We recorded a reserve for our variable consideration of $ 120 million and $ 144 million as of September 30, 2022 and December 31, 2021, respectively.

Restructuring and Transaction Related Expenses

7 unchanged sentences

and accelerated depreciation of fixed assets to be disposed of earlier than the end of the previously estimated useful lives.

During the three and six months ended June 30, 2022, we did not incur a significant amount of restructuring expenses under these programs.

During the three and six months ended June 30, 2021, we recognized net restructuring expenses totaling $ 4 million and $ 7 million, respectively, which included employee-related costs, facility exit costs, and a $ 3 million gain in the first quarter from the sale of a building to be closed.

During the three and nine months ended September 30, 2022, we incurred restructuring expenses totaling $ 1 million and $ 2 million, respectively, primarily related to employee-related costs and facility exit costs under these programs.

During the three and nine months ended September 30, 2021, we recognized net restructuring expenses totaling $ 2 million and $ 9 million, respectively, which included employee-related costs, facility exit costs, and a $ 3 million gain in the first quarter from the sale of a building to be closed.

Of the cumulative program costs incurred to date, $ 59 million, $ 43 million, $ 2 million and $ 2 million related to our Europe, Wholesale - North America, Specialty and Self Service segments, respectively.

2 unchanged sentences

these segment amounts represent the approximate midpoints of the expected ranges of costs to be incurred by each segment.

As of June 30, 2022 and December 31, 2021, restructuring liabilities incurred related to these programs totaled $ 11 million and $ 14 million, respectively, including $ 7 million and $ 9 million, respectively, related to leases we have exited or expect to exit prior to the end of the lease term (reported in Current portion of operating lease liabilities and Long-term operating lease liabilities, excluding current portion on our Unaudited Condensed Consolidated Balance Sheets).

Our lease-related restructuring liabilities are estimated based on remaining rent payments after our actual exit date for facilities closed as of June 30, 2022 and after our planned exit date for facilities we expect to close in future periods;

As of September 30, 2022 and December 31, 2021, restructuring liabilities incurred related to these programs totaled $ 10 million and $ 14 million, respectively, including $ 6 million and $ 9 million, respectively, related to leases we have exited or expect to exit prior to the end of the lease term (reported in Current portion of operating lease liabilities and Long-term operating lease liabilities, excluding current portion on our Unaudited Condensed Consolidated Balance Sheets).

Our lease-related restructuring liabilities are estimated based on remaining rent payments after our actual exit date for facilities closed as of September 30, 2022 and after our planned exit date for facilities we expect to close in future periods;

these liabilities do not reflect any estimated proceeds we may be able to achieve through subleasing the facilities.

Acquisition Integration Plans

We incurred $ 2 million of restructuring expenses for both the three and six months ended June 30, 2022.

These expenses were primarily related to the integration of acquisitions completed in our Europe segment.

We incurred $2 million of restructuring expenses for the nine months ended September 30, 2022, primarily related to the integration of acquisitions completed in our Europe segment.

We did not incur a significant amount of expenses for the three months ended September 30, 2022.

We expect to incur future expenses of up to $ 5 million to complete an integration plan related to 2021 acquisitions completed in our Specialty segment.

During the three and six months ended June 30, 2021, we did not incur a significant amount of restructuring expenses for our acquisition integration plans.

During the three and nine months ended September 30, 2021, we did not incur a significant amount of restructuring expenses for our acquisition integration plans.

1 LKQ Europe Program

2 unchanged sentences

We completed the organizational design and implementation projects in June 2021, with the remaining projects scheduled to be completed by the end of 2025.

During the three and six months ended June 30, 2022, we did not incur a significant amount of expenses under our 1 LKQ Europe program.

During the six months ended June 30, 2021, we incurred $ 5 million of employee-related restructuring charges.

We did not incur a significant amount of expenses for the three months ended June 30, 2021.

During the three and nine months ended September 30, 2022, we incurred $ 1 million of employee-related charges under our 1 LKQ Europe program.

During the nine months ended September 30, 2021, we incurred $ 6 million of employee-related restructuring charges.

We did not incur a significant amount of expenses for the three months ended September 30, 2021.

We estimate that we will incur between $ 40 million and $ 50 million in total personnel and inventory-related restructuring charges through 2025 under the program.

We may identify additional initiatives and projects under the 1 LKQ Europe program in future periods that may result in additional restructuring expense, although we are currently unable to estimate the range of charges for such potential future initiatives and projects.

As of June 30, 2022, the restructuring liabilities related to this program were insignificant.

As of September 30, 2022, the restructuring liabilities related to this program were insignificant.

Transaction Related Expenses

During the three and six months ended June 30, 2022, we incurred $ 1 million and $ 4 million of transaction related expenses, respectively.

During the three and nine months ended September 30, 2022, we incurred $ 1 million and $ 5 million of transaction related expenses, respectively.

During the three and nine months ended September 30, 2021, we incurred $ 1 million of transaction related expenses.

These expenses included external costs such as legal, accounting and advisory fees related to completed and potential transactions.

Stock-Based Compensation

The following table summarizes activity related to our restricted stock units ("RSUs") under the Equity Incentive Plan for the six months ended June 30, 2022 (in millions, except years and per share amounts):

The following table summarizes activity related to our restricted stock units ("RSUs") under the LKQ Corporation 1998 Equity Incentive Plan (the "Equity Incentive Plan") for the nine months ended September 30, 2022 (in millions, except years and per share amounts):

Number Outstanding Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (1)

1 unchanged sentence

Vested ( 0.7 ) $ 37.03

Unvested as of June 30, 2022 1.6 $ 40.14

Expected to vest after June 30, 2022 1.3 $ 40.28 2.9 $ 66

Forfeited / Canceled ( 0.1 ) $ 42.99

Unvested as of September 30, 2022 1.3 $ 40.89

Expected to vest after September 30, 2022 1.1 $ 41.23 2.8 $ 52

(1) The aggregate intrinsic value of expected to vest RSUs represents the total pretax intrinsic value (the fair value of LKQ's stock on the last day of the period multiplied by the number of units) that would have been received by the holders had all the expected to vest RSUs vested.

This amount changes based on the market price of LKQ’s common stock.

(2) The weighted average grant date fair value of RSUs granted during the six months ended June 30, 2021 was $ 39.02 .

The fair value of RSUs that vested during the six months ended June 30, 2022 was $ 21 million;

(2) The weighted average grant date fair value of RSUs granted during the nine months ended September 30, 2021 was $ 39.12 .

The fair value of RSUs that vested during the nine months ended September 30, 2022 was $ 36 million;

the fair value of RSUs vested is based on the market price of LKQ stock on the date vested.

The following table summarizes activity related to our performance-based RSUs ("PSUs") under the Equity Incentive Plan for the six months ended June 30, 2022 (in millions, except years and per share amounts):

The following table summarizes activity related to our performance-based RSUs ("PSUs") under the Equity Incentive Plan for the nine months ended September 30, 2022 (in millions, except years and per share amounts):

Number Outstanding Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (1)

1 unchanged sentence

Vested ( 0.2 ) $ 27.74

Unvested as of June 30, 2022 0.4 $ 38.64

Expected to vest after June 30, 2022 0.4 $ 38.64 1.5 $ 19

Unvested as of September 30, 2022 0.4 $ 38.84

Expected to vest after September 30, 2022 0.4 $ 38.81 1.2 $ 18

(1) The aggregate intrinsic value of expected to vest PSUs represents the total pretax intrinsic value (the fair value of LKQ'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 the expected to vest PSUs vested.

1 unchanged sentence

(2) Represents the number of PSUs at target payout.

The weighted average grant date fair value of PSUs granted during the six months ended June 30, 2021 was $ 38.50 .

The fair value of PSUs that vested during the six months ended June 30, 2022 was $ 8 million;

The weighted average grant date fair value of PSUs granted during the nine months ended September 30, 2021 was $ 38.31 .

The fair value of PSUs that vested during the nine months ended September 30, 2022 was $ 8 million;

the fair value of PSUs vested is based on the market price of LKQ stock on the date vested.

Stock-Based Compensation Expense

Pre-tax stock-based compensation expense for RSUs and PSUs totaled $ 10 million and $ 23 million for the three and six months ended June 30, 2022, respectively, and $ 9 million and $ 17 million for the three and six months ended June 30, 2021, respectively.

As of June 30, 2022, unrecognized compensation expense related to unvested RSUs and PSUs was $ 58 million.

Pre-tax stock-based compensation expense for RSUs and PSUs totaled $ 8 million and $ 31 million for the three and nine months ended September 30, 2022, respectively, and $ 8 million and $ 25 million for the three and nine months ended September 30, 2021, respectively.

As of September 30, 2022, unrecognized compensation expense related to unvested RSUs and PSUs was $ 51 million.

Stock-based compensation expense related to these awards will be different to the extent that forfeitures are realized and performance under the PSUs dif fers from current achievement estimates.

1 unchanged sentence

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

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

12 unchanged sentences

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

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Foreign Currency Translation Unrealized Gain (Loss) on Pension Plans Other Comprehensive Income (Loss) from Unconsolidated Subsidiaries Accumulated Other Comprehensive Income (Loss)

Balance as of April 1, 2022 $ ( 175 ) $ ( 24 ) $ ( 7 ) $ ( 206 )

Balance as of July 1, 2022 $ ( 325 ) $ ( 24 ) $ ( 6 ) $ ( 355 )

Pretax loss ( 187 ) — — ( 187 )

Disposal of business 4 — — 4

Other comprehensive income from unconsolidated subsidiaries — — 1 1

Balance as of June 30, 2022 $ ( 325 ) $ ( 24 ) $ ( 6 ) $ ( 355 )

Three Months Ended June 30, 2021

Foreign Currency Translation Unrealized Gain (Loss) on Pension Plans Other Comprehensive Income (Loss) from Unconsolidated Subsidiaries Accumulated Other Comprehensive Income (Loss)

Balance as of April 1, 2021 $ ( 82 ) $ ( 33 ) $ ( 11 ) $ ( 126 )

Pretax income 22 — — 22

Reclassification of unrealized loss — 1 — 1

Other comprehensive income from unconsolidated subsidiaries — — 2 2

Balance as of June 30, 2021 $ ( 60 ) $ ( 32 ) $ ( 9 ) $ ( 101 )

Six Months Ended June 30, 2022

Balance as of September 30, 2022 $ ( 512 ) $ ( 23 ) $ ( 4 ) $ ( 539 )

Three Months Ended September 30, 2021

Foreign Currency Translation Unrealized Gain (Loss) on Pension Plans Other Comprehensive Income (Loss) from Unconsolidated Subsidiaries Accumulated Other Comprehensive Income (Loss)

Balance as of July 1, 2021 $ ( 60 ) $ ( 32 ) $ ( 9 ) $ ( 101 )

Pretax loss ( 48 ) — — ( 48 )

Balance as of September 30, 2021 $ ( 108 ) $ ( 32 ) $ ( 9 ) $ ( 149 )

Nine Months Ended September 30, 2022

Foreign Currency Translation Unrealized Gain (Loss) on Pension Plans Other Comprehensive Income (Loss) from Unconsolidated Subsidiaries Accumulated Other Comprehensive Income (Loss)

Balance as of January 1, 2022 $ ( 121 ) $ ( 24 ) $ ( 8 ) $ ( 153 )

Pretax loss ( 395 ) — — ( 395 )

Reclassification of unrealized loss — 1 — 1

Disposal of business 4 — — 4

Other comprehensive income from unconsolidated subsidiaries — — 4 4

Balance as of June 30, 2022 $ ( 325 ) $ ( 24 ) $ ( 6 ) $ ( 355 )

Six Months Ended June 30, 2021

Balance as of September 30, 2022 $ ( 512 ) $ ( 23 ) $ ( 4 ) $ ( 539 )

Nine Months Ended September 30, 2021

Translation Unrealized Gain (Loss)

8 unchanged sentences

Other comprehensive loss from unconsolidated subsidiaries — — — ( 1 ) ( 1 )

Balance as of June 30, 2021 $ ( 60 ) $ — $ ( 32 ) $ ( 9 ) $ ( 101 )

During each of the three and six months ended June 30, 2021, net unrealized losses on interest rate swaps totaling $ 1 million were recorded to Interest expense, net of interest income in the Unaudited Condensed Consolidated Statements of Income.

During the six months ended June 30, 2021, net unrealized gains on cross currency swaps totaling $ 2 million were recorded to Other income, net in the Unaudited Condensed Consolidated Statements of Income;

Balance as of September 30, 2021 $ ( 108 ) $ — $ ( 32 ) $ ( 9 ) $ ( 149 )

During the nine months ended September 30, 2021, net unrealized losses on interest rate swaps totaling $ 1 million were recorded to Interest expense, net of interest income in the Unaudited Condensed Consolidated Statements of Income.

During the nine months ended September 30, 2021, net unrealized gains on cross currency swaps totaling $ 1 million were recorded to Interest expense, net of interest income in the Unaudited Condensed Consolidated Statements of Income.

During the nine months ended September 30, 2021, net unrealized gains on cross currency swaps totaling $ 2 million were recorded to Other income, net in the Unaudited Condensed Consolidated Statements of Income;

these amounts offset the impact of the remeasurement of the underlying transactions.

Net unrealized losses and gains related to our pension plans were recorded to Other income, net in the Unaudited Condensed Consolidated Statements of Income during each of the three and six-month periods ended June 30, 2022 and 2021.

Our policy is to reclassify the income tax effect from Accumulated other comprehensive income (loss) to the Provision for income taxes when the related gains and losses are released to the Unaudited Condensed Consolidated Statements of Income.

1 unchanged sentence

Long-term obligations consist of the following (in millions):

June 30, 2022

September 30, 2022

December 31, 2021

24 unchanged sentences

We were required to prepay the term loan by amounts equal to proceeds from the sale or disposition of certain assets if the proceeds were not reinvested within twelve months.

During the second quarter of 2021, we exercised our option to prepay the outstanding amount on the term loan, and thus did not have any term loan borrowings as of June 30, 2022.

During the second quarter of 2021, we exercised our option to prepay the outstanding amount on the term loan, and thus did not have any term loan borrowings as of September 30, 2022.

The Credit Agreement contains customary representations and warranties and customary covenants that provide limitations and conditions on our ability to enter into certain transactions.

9 unchanged sentences

The total capacity under the revolving credit facility's multicurrency component is $ 3,150 million.

Of the total borrowings outstanding under the Credit Agreement, there we re no current maturities as of June 30, 2022 or December 31, 2021.

As of June 30, 2022, there were letters of credit outstanding in the aggregate amount of $ 69 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 June 30, 2022 was $ 1,587 million .

Of the total borrowings outstanding under the Credit Agreement, there we re no current maturities as of September 30, 2022 or December 31, 2021.

As of September 30, 2022, there were letters of credit outstanding in the aggregate amount of $ 69 million .

Euro Notes (2024)

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dollar-denominated borrowings into fixed rate euro-denominated borrowings.

The interest rate swap agreements and cross currency swaps were settled as of June 2021 and no cash flow hedges remained outstanding as of June 30, 2022 and December 31, 2021, respectively.

The interest rate swap agreements and cross currency swaps were settled as of June 2021 and no cash flow hedges remained outstanding as of September 30, 2022 and December 31, 2021, respectively.

The activity related to our previously matured cash flow hedges is included in Note 7, "Accumulated Other Comprehensive Income (Loss)" and presented in either operating activities or financing activities in our Unaudited Condensed Consolidated Statements of Cash Flows.

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We have elected not to apply hedge accounting for these transactions.

The notional amount and fair value of these contracts at June 30, 2022 and December 31, 2021, along with the effect on our results of operations during the three and six months ended June 30, 2022 and 2021, were not material.

The notional amount and fair value of these contracts at September 30, 2022 and December 31, 2021, along with the effect on our results of operations during the three and nine months ended September 30, 2022 and 2021, were not material.

Fair Value Measurements

Financial Assets and Liabilities Measured at Fair Value

We use the market and income approaches to estimate the fair value of our financial assets and liabilities, and during the three and six months ended June 30, 2022, 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.

We use the market and income approaches to estimate the fair value of our financial assets and liabilities, and during the three and nine months ended September 30, 2022, 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:

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and Level 3, defined as significant unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions.

The following tables present information about our financial 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 June 30, 2022 and December 31, 2021 (in millions):

Balance as of June 30, 2022 Fair Value Measurements as of June 30, 2022

Balance as of September 30, 2022 Fair Value Measurements as of September 30, 2022

Level 1 Level 2 Level 3

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Our debt is reflected on the Unaudited Condensed Consolidated Balance Sheets at cost.

Based on market conditions as of both June 30, 2022 and December 31, 2021, the fair value of the credit agreement borrowings reasonably approximated the carrying values of $ 1,494 million and $ 1,887 million, respectively.

As of June 30, 2022 and December 31, 2021, the fair values of the Euro Notes (2024) were approximately $ 527 million and $ 605 million, respectively, compared to carrying values of $ 524 million and $ 569 million, respectively.

As of June 30, 2022 and December 31, 2021, the fair values of the Euro Notes (2028) were $ 251 million and $ 301 million, respectively, compared to carrying values of $ 262 million and $ 284 million, respectively.

The fair value measurements of the borrowings under the 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 June 30, 2022 and December 31, 2021 to assume these obligations.

Based on market conditions as of both September 30, 2022 and December 31, 2021, the fair value of the credit agreement borrowings reasonably approximated the carrying values of $ 1,621 million and $ 1,887 million, respectively.

As of September 30, 2022 and December 31, 2021, the fair values of the Euro Notes (2024) were approximately $ 479 million and $ 605 million, respectively, compared to carrying values of $ 490 million and $ 569 million, respectively.

As of September 30, 2022 and December 31, 2021, the fair values of the Euro Notes (2028) were $ 229 million and $ 301 million, respectively, compared to carrying values of $ 245 million and $ 284 million, respectively.

The fair value measurements of the borrowings under the credit agreement are classified as Level 2 within the fair value hierarchy since they are determined based upon significant inputs observable in the market, including interest rates on recent financing transactions with similar terms and maturities.

We estimated the fair value by calculating the upfront cash payment a market participant would require at September 30, 2022 and December 31, 2021 to assume these obligations.

The fair values of the Euro Notes (2024) and Euro Notes (2028) are determined based upon observable market inputs including quoted market prices in markets that are not active, and therefore are classified as Level 2 within the fair value hierarchy.

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The defined benefit plans are mostly closed to new participants and, in some cases, existing participants no longer accrue benefits.

As of June 30, 2022 and December 31, 2021, the aggregate funded status of the defined benefit plans was a liability of $ 119 million and $ 131 million , respectively, and is reported in Other noncurrent liabilities and Accrued payroll-related liabilities on our Unaudited Condensed Consolidated Balance Sheets.

Net periodic benefit cost for our defined benefit plans totaled $ 2 million and $ 3 million for the three and six months ended June 30, 2022, respectively, and $ 1 million and $ 3 million for the three and six months ended June 30, 2021, respectively, and primarily related to service cost which is recorded in Selling, general and administrative expenses on the Unaudited Condensed Consolidated Statements of Income.

As of September 30, 2022 and December 31, 2021, the aggregate funded status of the defined benefit plans was a liability of $ 112 million and $ 131 million , respectively, and is reported in Other noncurrent liabilities and Accrued payroll-related liabilities on our Unaudited Condensed Consolidated Balance Sheets.

Net periodic benefit cost for our defined benefit plans totaled $ 1 million and $ 4 million for the three and nine months ended September 30, 2022, respectively, and $ 1 million and $ 4 million for the three and nine months ended September 30, 2021, respectively, and primarily related to service cost which is recorded in Selling, general and administrative expenses on the Unaudited Condensed Consolidated Statements of Income.

At the end of each interim period, we estimate our annual effective tax rate and apply that rate to our interim earnings.

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The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as the tax environment changes.

Our effective income tax rate for the six months ended June 30, 2022 was 24.1 %, compared to 26.3 % for the six months ended June 30, 2021.

The decrease in the effective tax rate for the six months ended June 30, 2022 compared to the six months ended June 30, 2021 was attributable to net favorable discrete items of 1.2 %, primarily related to the sale of PGW, and the geographic distribution of income.

Net discrete items for the six months ended June 30, 2021 increased the effective tax rate by 0.1 %, primarily due to a deferred tax adjustment required as a result of a United Kingdom staged tax rate increase that will become effective April 1, 2023.

Our effective income tax rate for the nine months ended September 30, 2022 was 24.4 %, compared to 25.7 % for the nine months ended September 30, 2021.

The decrease in the effective tax rate for the nine months ended September 30, 2022 compared to the nine months ended September 30, 2021 was attributable to net favorable discrete items of 1.1 %, primarily related to the sale of PGW, and the geographic distribution of income.

On August 16, 2022, the Inflation Reduction Act of 2022 (“IRA”) was signed into law.

The IRA, among other provisions, enacted a 15% corporate minimum tax effective for taxable years beginning after December 31, 2022 and a 1% excise tax on the repurchase of corporate stock after December 31, 2022.

We do not currently expect the corporate minimum tax provisions of the IRA to have a material impact on our financial results.

The impact of the excise tax provisions will be dependent upon the volume of any future stock repurchases.

Segment and Geographic Information

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Wholesale - North America Europe Specialty Self Service Eliminations Consolidated

Three Months Ended June 30, 2022

Three Months Ended September 30, 2022

Third Party $ 1,108 $ 1,380 $ 452 $ 164 $ — $ 3,104

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19 34 8 3 — 64

Three Months Ended June 30, 2021

Three Months Ended September 30, 2021

Third Party $ 1,112 $ 1,525 $ 465 $ 195 $ — $ 3,297

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Wholesale - North America Europe Specialty Self Service Eliminations Consolidated

Six Months Ended June 30, 2022

Nine Months Ended September 30, 2022

Third Party $ 3,453 $ 4,345 $ 1,424 $ 571 $ — $ 9,793

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56 107 23 11 — 197

Six Months Ended June 30, 2021

Nine Months Ended September 30, 2021

Third Party $ 3,281 $ 4,565 $ 1,454 $ 603 $ — $ 9,903

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

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

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Depreciation and amortization - cost of goods sold 6 6 19 16

Depreciation and amortization - restructuring expenses (1)

Interest expense, net of interest income 17 16 46 56

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Restructuring and transaction related expenses (1)

Gain on disposal of businesses (2)

(Gain) on disposal of businesses and impairment of net assets held for sale (3)

( 4 ) 1 ( 159 ) —

Change in fair value of contingent consideration liabilities — — — 1

Losses on previously held equity interests — — 1 —

Gains on previously held equity interests ( 2 ) — ( 1 ) —

Direct impacts of Ukraine/Russia conflict (4)

Segment EBITDA $ 424 $ 453 $ 1,346 $ 1,428

In the table above, the sum of the individual amounts may not equal the total due to rounding.

(1) The sum of these two captions represents the total amount that is reported in Restructuring and transaction related expenses in our Unaudited Condensed Consolidated Statements of Income.

Refer to Note 4, "Restructuring and Transaction Related Expenses," for further information.

(2) Refer to "Investments in Unconsolidated Subsidiaries" in Note 2, "Financial Statement Information," for further information.

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

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Receivables, net

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Additional European operations are located in the Netherlands, Italy, Czech Republic, Belgium, Austria, Slovakia, Poland, and other European countries.

Our operations in other countries include wholesale operations in Canada, remanufacturing operations in Mexico, an aftermarket parts freight consolidation warehouse in Taiwan, and administrative support functions in India.

Our operations in other countries include wholesale operations in Canada, remanufacturing 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 millions):

Three Months Ended June 30, Six Months Ended June 30,

Three Months Ended September 30, Nine Months Ended September 30,

2022 2021 2022 2021

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

June 30, 2022 December 31, 2021

September 30, 2022 December 31, 2021

Long-lived assets

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Total long-lived assets $ 2,362 $ 2,660

Subsequent Event

On October 25, 2022, our Board of Directors declared a quarterly cash dividend of $ 0.275 per share of common stock, payable on December 1, 2022, to stockholders of record at the close of business on November 17, 2022.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements