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Item 1A. Risk Factors

2023-02-23 compared with 2022-02-25 · 58 added, 154 removed, 416 unchanged (34% of the section changed)

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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 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 resulted in additional risks that could materially adversely affect our business, financial condition, results of operations, and/or cash flows.

The COVID-19 pandemic has resulted and may continue to result in risks that could materially adversely affect our business, financial condition, results of operations, and/or cash flows.

Efforts to combat the virus have been complicated by viral variants and uneven access to, and acceptance and effectiveness of, vaccines globally.

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

We were permitted to operate in most of the jurisdictions we serve, including in jurisdictions that mandated the closure of certain businesses.

We have been permitted to operate in most of the jurisdictions we serve, including in jurisdictions that mandated the closure of certain businesses.

However, there is no assurance that we will be permitted to continue operations under future government orders or other restrictions, and although certain restrictions related to the COVID-19 pandemic have eased, uncertainty continues to exist regarding such measures and potential future measures.

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additional closures or other actions as mandated or otherwise made necessary by governmental authorities, including employee vaccine mandates;

disruptions in the supply chain, including those caused by industry capacity constraints, material availability, and global logistics delays and constraints arising from, among other things, the transportation capacity of ocean shipping containers, and a prolonged delay in resumption of operations by one or more key suppliers, or the

failure of any key supplier;

an increasingly competitive labor market due to a sustained labor shortage or increased turnover caused by the COVID-19 pandemic;

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These factors, and others that are currently unknown or considered immaterial, could materially and adversely affect the Company’s business, liquidity, results of operations, and financial position.

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.

Our operating results and financial condition have been and could continue to be adversely affected by the economic, political and social conditions in North America, Europe, Taiwan 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 North America, Europe, Taiwan 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, terrorism and social unrest.

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A decrease in the number of vehicles on the road may result in a decrease in repairs.

Our sales are also impacted by changes to the economic health of vehicle owners.

The economic health of vehicle owners is affected by many factors, including, among others, general business conditions, interest rates, inflation, consumer debt levels, the availability of consumer credit, taxation, fuel prices, unemployment trends and other matters that influence consumer confidence and spending.

Additionally, our sales are impacted by changes to the economic health of vehicle owners.

consumer confidence and spending.

Many of these factors are outside of our control.

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We have a substantial business presence in Europe, including a significant presence in the U.K.

and the Republic of Ireland (“ROI”).

In June 2016, voters in the U.K.

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

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

The U.K.’s withdrawal from the European Union (also known as Brexit) became effective on January 31, 2020.

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

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

We also have a presence in the Ukraine and are monitoring the political situation there carefully.

We also have a presence in the Ukraine and are monitoring the situation there carefully.

Additionally, a number of our suppliers are based in China and Taiwan and so increasing strains and any political repercussions may have implications upon our supply chain.

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.

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in addition, facilitators of these online marketplaces control access to this channel and may prohibit us from participating.

and Europe, local companies have formed cooperative efforts in an attempt to more efficiently compete against us in all aspects of our business.

In North America and Europe, local companies have formed cooperative efforts in an attempt to more efficiently compete against us in all aspects of our business.

As a result of these factors, our competitors may be able to provide products that we are unable to supply, provide their products at lower costs, or supply products to customers that we are unable to serve.

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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.

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.

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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.

The growth and effectiveness of these efforts or the introduction of new ones could have a material adverse effect on our business.

We rely upon our customers and insurance companies to promote the usage of alternative parts.

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We rely on these relationships for sales to some collision repair shops, and a termination of these relationships may result in a loss of sales, which could adversely affect our results of operations.

In an Illinois lawsuit involving State Farm Mutual Automobile Insurance Company ("Avery v.

State Farm"), a jury decided in October 1999 that State Farm breached certain insurance contracts with its policyholders by using non-OEM replacement products to repair damaged vehicles when use of such products did not restore the vehicle to its "pre-loss condition." The jury found that State Farm misled its customers by not disclosing the use of non-OEM replacement products and the alleged inferiority of those products.

Damages in excess of $1 billion were assessed against State Farm.

In August 2005, the Illinois Supreme Court reversed the awards made by the lower courts and found, among other things, that the plaintiffs had failed to establish any breach of contract by State Farm.

The plaintiffs filed a subsequent claim alleging that State Farm improperly influenced one of the justices on the Illinois Supreme Court.

Prior to trial on the subsequent claim, the parties settled the case;

as part of the settlement, State Farm paid the plaintiffs $250 million.

As a result of this case, some insurance companies reduced or eliminated their use of aftermarket products.

As a result of an Illinois lawsuit decided in 1999 involving State Farm Mutual Automobile Insurance Company and relating to the use of non-OEM replacement products in the repair of damaged vehicles, some insurance companies have reduced or eliminated their use of aftermarket products.

Our financial results could be adversely affected if insurance companies modified or terminated the arrangements pursuant to which repair shops buy aftermarket or recycled products from us due to a fear of similar claims.

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Lack of certification may negatively impact us because many major insurance companies recommend or require the use of aftermarket products only if they have been certified by an independent certifying organization.

If the number of vehicles involved in accidents declines or the number of vehicles being repaired declines, or the mix of the types of vehicles in the overall vehicle population changes, our business could suffer.

If the number of vehicles involved in accidents or being repaired declines, or the mix of the types of vehicles in the overall vehicle population changes, our business could suffer.

Our business depends on vehicle accidents, mechanical failures and routine maintenance for both the demand for repairs using our products and the supply of recycled, remanufactured and refurbished parts.

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Additionally, an increase in fuel prices may cause the number of vehicles on the road, the number of miles driven, and the need for mechanical repairs and maintenance to decline, as motorists seek alternative transportation options.

conditions, particularly during winter months, tend to result in a decrease in vehicle accidents.

Mild weather conditions, particularly during winter months, tend to result in a decrease in vehicle accidents.

Moreover, legislation banning the use of handheld cellular telephones or other electronic devices while driving could lead to a decline in accidents.

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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.

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

Our European business also acquires products from Asian sources.

We incur substantial freight costs to import parts from our suppliers, many of which are located in Asia.

The cost of freight and shipping containers has risen in 2021 and if the cost of freight and shipping containers continue to rise, we might not be able to pass the cost increases on to our customers.

The cost of freight and shipping containers rose in 2021 and 2022 relative to historical levels, and if the cost of freight and shipping containers continue to rise, we might not be able to pass the cost increases on to our customers.

Furthermore, although alternative suppliers exist for substantially all aftermarket products distributed by us, the loss of any one supplier could have a material adverse effect on us until alternative suppliers are located and have commenced manufacturing and providing the relevant products.

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Currently, these titling issues are a matter of state law.

In 1992, the U.S.

Congress commissioned an advisory committee to study problems relating to vehicle titling, registration, and salvage.

Since then, legislation has been introduced seeking to establish national uniform requirements in this area, including a uniform definition of a salvage vehicle.

The vehicle recycling industry will generally favor a uniform definition, since it will avoid inconsistencies across state lines, and will generally favor a definition that expands the number of damaged vehicles that qualify as salvage.

National legislation seeking to establish national uniform requirements in this area, including a uniform definition of a salvage vehicle, has been introduced but not enacted.

The vehicle recycling industry generally favors a uniform definition, since it would avoid inconsistencies across state lines, and generally favors a definition that expands the number of damaged vehicles that qualify as salvage.

However, certain interest groups, including repair shops and some insurance associations, may oppose this type of legislation.

National legislation has not yet been enacted in this area, and there can be no assurance that such legislation will be enacted in the future.

There can be no assurance that such legislation will be enacted in the future.

We also acquire inventory directly from insurance companies, OEMs, and others.

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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.

See the risk factor entitled “ The costs of complying with the requirements of laws pertaining to the privacy and security of personnel information and the potential liability associated with the failure to comply with such laws could materially adversely affect our business and results of operations ” for further information about the security and confidentiality of our information and data.

See the risk factor entitled “ 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 ” for further information about the security and confidentiality of our information and data.

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.

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

Goodwill represents the excess of cost over the fair market value of net assets acquired in business combinations.

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Impairment may result from, among other things, deterioration in the performance of acquired businesses, deterioration of expected future cash flows or performance, increases in our cost of capital, adverse market conditions, and adverse changes in applicable laws or regulations, including modifications that restrict the activities of the acquired business.

As of December 31, 2021, our total goodwill subject to future impairment testing was $4.5 billion.

As of December 31, 2022, our total goodwill subject to future impairment testing was $4,319 million.

For further discussion of our annual impairment test, see "Goodwill Impairment" in the Critical Accounting Estimates section of Part II, Item 7 and "Intangible Assets" in Note 3, "Summary of Significant Accounting Policies" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

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We could be subject to product liability claims and involved in product recalls.

If customers of repair shops that purchase our products are injured or suffer property damage, we could be subject to product liability claims by such customers.

If our products cause injury or property damage, we could be subject to product liability claims.

The successful assertion of this type of claim could have an adverse effect on our business, results of operations or financial condition.

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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.

The COVID-19 pandemic impacted certain 1 LKQ Europe initiatives resulting in minor delays in 2020.

this program has presented and will continue to present a number of execution challenges.

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

In addition to acquisitions, we have divested, and will continue to divest, certain businesses, either because they do not meet our performance standards or for other reasons.

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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, 2021, we had approxi mately $1,887 million aggregate principal amount of secured debt outstanding and approximate ly $1,194 million of availability under our credit agreement ($1,263 million of availability reduced by $69 million of amounts outstanding under letters of credit).

As of December 31, 2022, we had approxi mately $1,786 million aggregate principal amount of unsecured debt outstanding and approximate ly $1,295 million of availability under our credit agreement ( $1,364 million of availability reduced by $69 million of amounts outstanding under letters of credit).

In addition, we had approximately $803 million aggregate principal amount of unsecured debt outstanding comprised o f €500 million ( $535 million ) aggregate principal amount of 3.875% senior notes due April 1, 2024 (the "Euro Notes (2024)"), and €250 million ( $268 million ) of 4.125% senior n otes due 2028 (the "Euro Notes (2028)," and together with the Euro Notes (2024), the "senior notes").

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

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

Our senior notes do not impose any limitations on our ability to incur additional debt or protect against certain other types of transactions, and we may incur additional indebtedness under our credit agreement.

Although we are subject to our credit agreement for so long as it remains in effect, the indentures governing the senior notes do not restrict the future incurrence of unsecured indebtedness, guarantees or other obligations.

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• 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;

• make certain investments or other restricted payments;

• engage in transactions with affiliates;

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These alternative measures may not be successful and may not permit us to meet our scheduled debt service obligations.

If our operating results and

available cash are insufficient to meet our debt service obligations, we could face substantial liquidity problems and might be required to dispose of material assets or operations to meet our debt service and other obligations.

We may not be able to consummate those dispositions or to obtain the proceeds that we hope to realize from them, and these proceeds may not be adequate to meet any debt service obligations then due.

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.

Any future refinancing of our indebtedness could be at higher interest rates and may require us to comply with more onerous covenants which could further restrict our business operations.

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If we refinance or restructure our debt, we may incur charges to write off the unamortized portion of deferred debt issuance costs from a previous financing, or we may incur charges related to hedge ineffectiveness from our interest rate swap obligations.

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

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

We could refinance the senior 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.

Our variable rate indebtedness subjects us to interest rate risk, which could cause our indebtedness service obligations to increase significantly and could affect the value of our senior notes.

Certain borrowings under our credit agreement are at variable rates of interest and expose us to interest rate risk.

Our variable rate indebtedness subjects us to interest rate risk, which could cause our indebtedness service obligations to increase significantly.

Borrowings under our credit agreement are at variable rates of interest and expose us to interest rate risk.

If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, would correspondingly decrease.

Moreover, changes in market interest rates could affect the trading value of the senior notes.

Because of reforms relating to the use of the London Interbank Offered Rate ("LIBOR") as a benchmark for establishing the interest rate and the move toward risk free rates, we recently amended our credit facility to provide that loans denominated in euros will use the European Money Markets Institute as a benchmark for establishing the interest rate, swingline and revolving loans denominated in Pound Sterling will use the Sterling Overnight Index Average ("SONIA") and loans denominated in Swiss Francs will use the Swiss Average Rate Overnight as administered by SIX Swiss Exchange AG.

We expect to amend our credit facility in the future to incorporate other risk free rates for those loans that still bear interest at LIBOR plus the Applicable Margin as the syndicated loan market continues to transition away from LIBOR.

The consequences of a move away from LIBOR cannot be entirely predicted but could result in an increase in the cost of our variable rate debt.

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

We are a holding company and repayment of our senior notes will be dependent upon cash flow generated by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise.

Repayment of our indebtedness is dependent on cash flow generated by our subsidiaries.

We are a holding company and repayment of our indebtedness will be dependent upon cash flow generated by our subsidiaries and their ability to make such cash available to us, by dividend, debt repayment or otherwise.

Unless they are borrowers or guarantors of the indebtedness, our subsidiaries do not have any obligation to pay amounts due on the indebtedness or to make funds available for that purpose.

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While the indentures governing the senior notes limit the ability of our subsidiaries to restrict the payment of dividends or to restrict other intercompany payments to us, these limitations are subject to certain qualifications and exceptions.

In the event that we do not receive distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness, including the senior notes.

A downgrade in our credit rating would impact our cost of capital and could impact the market value of our senior notes.

In the event that we do not receive sufficient distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness, including the senior notes.

A downgrade in our credit rating would impact our cost of capital.

Credit ratings have an important effect on our cost of capital.

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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.

The right to receive payments on the senior notes is effectively junior to those lenders who have a security interest in our assets.

Our obligations under our senior notes and our guarantors’ obligations under their guarantees of the senior notes are unsecured, but our and each co-borrower’s obligations under our credit agreement and each guarantor’s obligations under their respective guarantees of the credit agreement are secured by a security interest in substantially all of our domestic tangible and intangible assets, including the stock of most of our wholly-owned United States subsidiaries and the stock of certain of our non-United States subsidiaries.

If we are declared bankrupt or insolvent, or if we default under our credit agreement, the lenders could declare all of the funds borrowed thereunder, together with accrued interest, immediately due and payable.

If we were unable to repay such indebtedness, the lenders could foreclose on the pledged assets to the exclusion of holders of our senior notes, even if an event of default exists under the applicable indenture governing the senior notes.

Furthermore, if the lenders foreclose and sell the pledged equity interests in any subsidiary guarantor under our senior notes, then that guarantor will be released from its guarantee of the senior notes automatically and immediately upon such sale.

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

As of December 31, 2021, we had approximately $1,887 million aggregate principal amount of secured debt outstanding and approximately $1,194 million of availability under our credit agreement ($1,263 million of availability reduced by $69 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.

Our direct and indirect domestic subsidiaries that are obligors under the credit agreement guarantee the obligations under our senior notes.

The issuance of our senior notes and the issuance of the guarantees by the guarantors may be subject to review under state and federal laws if a bankruptcy, liquidation or reorganization case or a lawsuit, including in circumstances in which bankruptcy is not involved, were commenced at some future date by, or on behalf of, our unpaid creditors or the unpaid creditors of a guarantor.

Under the federal bankruptcy laws of the United States and comparable provisions of state fraudulent transfer laws, a court may avoid or otherwise decline to enforce the senior notes, or a guarantor’s guarantee, or may subordinate the senior notes, or such guarantee, to our or the applicable guarantor’s existing and future indebtedness.

While the relevant laws may vary from jurisdiction to jurisdiction, a court might do so if it found that when indebtedness under the senior notes was issued, or when the applicable guarantor entered into its guarantee, or, in some jurisdictions, when payments became due under the senior notes, or such guarantee, the issuer or the applicable guarantor received less than reasonably equivalent value or fair consideration and:

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

• was engaged in a business or transaction for which its remaining assets constituted unreasonably small capital;

• intended to incur, or believed that it would incur, debts beyond its ability to pay such debts as they mature.

A court would likely find that we or a guarantor did not receive reasonably equivalent value or fair consideration for the senior notes or such guarantee if we or such guarantor did not substantially benefit directly or indirectly from the issuance of the senior notes.

Thus, if the guarantees were legally challenged, any guarantee could be subject to the claim that, since the guarantee was incurred for our benefit, and only indirectly for the benefit of the guarantor, the obligations of the applicable guarantor were incurred for less than reasonably equivalent value or fair consideration.

If a court were to void the issuance of the senior notes or any guarantee, a holder of the senior notes would no longer have any claim against us or the applicable

In the event of a finding that a fraudulent transfer or conveyance occurred, a holder of the senior notes may not receive any repayment on the senior notes.

Further, the avoidance of the senior notes could result in an event of default with respect to our and our subsidiaries’ other debt, which could result in acceleration of that debt.

The measures of insolvency for purposes of these fraudulent transfer laws vary depending upon the law applied in any proceeding to determine whether a fraudulent transfer has occurred.

Generally, however, an issuer or a guarantor, as applicable, would be considered insolvent if:

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

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

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

A court might also void the senior notes, or a guarantee, without regard to the above factors, if the court found that the senior notes were incurred or issued or the applicable guarantor entered into its guarantee with actual intent to hinder, delay or defraud its creditors.

We cannot give any assurance as to what standard a court would apply in determining whether we or the guarantors were solvent at the relevant time or that a court would agree with our conclusions in this regard, or, regardless of the standard that a court uses, that it would not determine that we or a guarantor were indeed insolvent on that date;

that any payments to the holders of the senior notes (including under the guarantees) did not constitute preferences, fraudulent transfers or conveyances on other grounds;

or that the issuance of the senior notes and the guarantees would not be subordinated to our or any guarantor’s other debt.

In addition, any payment by us or a guarantor pursuant to the senior notes, or its guarantee, could be avoided and required to be returned to us or such guarantor or to a fund for the benefit of our or such guarantor’s creditors, and accordingly the court might direct holders of the senior notes to repay any amounts already received from us or such guarantor.

Among other things, under U.S.

bankruptcy law, any payment by us pursuant to the senior notes or by a guarantor under a guarantee made at a time we or such guarantor were found to be insolvent could be voided and required to be returned to us or such guarantor or to a fund for the benefit of our or such guarantor’s creditors if such payment is made to an insider within a one-year period prior to a bankruptcy filing or within 90 days for any outside party and such payment would give such insider or outsider party more than such party would have received in a distribution under the Bankruptcy Code in a hypothetical Chapter 7 case.

Although each guarantee contains a “savings clause” intended to limit the subsidiary guarantor’s liability to the maximum amount that it could incur without causing the incurrence of obligations under its subsidiary guarantee to be a fraudulent transfer, this provision may not be effective as a legal matter to protect any subsidiary guarantees from being avoided under fraudulent transfer law.

In that regard, in Official Committee of Unsecured Creditors of TOUSA, Inc.

v Citicorp North America, Inc ., the United States Bankruptcy Court in the Southern District of Florida held that a savings clause similar to the savings clause included in our indentures was unenforceable.

As a result, the subsidiary guarantees were found to be fraudulent conveyances.

The United States Court of Appeals for the Eleventh Circuit subsequently affirmed the liability findings of the Bankruptcy Court without ruling directly on the enforceability of savings clauses generally.

If the decision of the bankruptcy court in TOUSA were followed by other courts, the risk that the guarantees would be deemed fraudulent conveyances would be significantly increased.

To the extent a court avoids the senior notes or any of the guarantees as fraudulent transfers or holds the senior notes or any of the guarantees unenforceable for any other reason, the holders of the senior notes would cease to have any direct claim against us or the applicable guarantor.

If a court were to take this action, our or the applicable guarantor’s assets would be applied first to satisfy our or the applicable guarantor’s other liabilities, if any, and might not be applied to the payment of the senior notes.

Sufficient funds to repay the senior notes may not be available from other sources, including the remaining guarantors, if any.

In addition, the Euro Notes (2024) and the related guarantees may be subject to avoidance under the laws of foreign jurisdictions, including Italy and Czech Republic, to the extent that we, the issuer of the Euro Notes (2024), or any of the guarantors (as applicable) were to be the subject of an insolvency or related proceeding in such jurisdiction(s).

Not all of our subsidiaries have guaranteed our 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, Euro Notes (2024) 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.

As of the most recent practicable date, our subsidiaries that are not borrowers under or do not guarantee the credit agreement represented approx imately 50% and 34% o f our total revenue

and operating income, respectively.

In addition, these non-guarantor subsidiaries represented approximat ely 53% and 62% of our total assets and total liabilities, respectively (excluding, in each case, intercompany amounts).

As of the same date, our subsidiaries that do not guarantee the credit agreement had approximately $2,000 million of outstanding indebtedness (which includes $1,085 million of borrowings under our revolving credit facilities by foreign subsidiaries that are borrowers under these facilities).

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 (2028), except that, in addition to the issuer of the Euro No tes (2024), there are four subsidiaries in the group that do not guarantee the 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.

We cannot assure you that we would be able to refinance our indebtedness on reasonable terms, if at all.

Our failure to offer to purchase all outstanding senior notes or to purchase all validly tendered senior notes would be an event of default under the indentures governing the senior notes.

Such an event of default may cause the acceleration of our other debt.

Our other debt also may contain restrictions or repayment requirements with respect to specified events or transactions that constitute a change of control under the indentures governing the senior notes.

The definition of change of control in the indentures governing the senior notes includes a phrase relating to the sale of “all or substantially all” of our assets.

There is no precise established definition of the phrase “substantially all” under applicable law.

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

Many of the covenants in the indentures governing the senior notes will be suspended if the senior notes are rated investment grade by Standard & Poor’s and Moody’s provided at such time no default or event of default has occurred and is continuing, including those covenants that restrict, among other things, our ability to pay dividends, incur liens and to enter into certain other transactions.

There can be no assurance that the senior notes will ever be rated investment grade.

However, suspension of these covenants would allow us to engage in certain transactions that would not be permitted while these covenants were in force (although provisions under our other debt, like the credit agreement, may continue to restrict us from engaging in these transactions), and the effects of any such transactions will be permitted to remain in place even if the senior notes are subsequently downgraded below investment grade.

The liquidity and market value of the senior notes may change due to a variety of factors.

The liquidity of any trading market in the senior notes, and the market price quoted for the senior notes, may be adversely affected by changes in the overall market for these types of securities, changes in interest rates, changes in our ratings, and changes in our financial performance or prospects or in the prospects for companies in our industries generally.

A downgrade could also adversely affect our ability to issue debt securities in the future or incur other indebtedness upon favorable terms.

If we are downgraded to a rating that is below investment grade, we may also become subject to additional covenants under our senior notes.

The amount and frequency of our share repurchases and dividend payments may fluctuate.

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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.

The passage of legislation with prohibitions or restrictions that are more severe than current laws could have a material adverse effect 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.

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The 2010 MVBER are due to expire in May 2023.

The current indications are that the 2012 MVBER will be extended for 5 years, with additional guidance to be provided by the EU Commission in a supplementary guidance regarding new technology and software provided by OEMs.

The new EU proposals with respect to MVBER will be proposed for consultation in mid-2022.

The current indications are that the 2010 MVBER will be extended for 5 years, with additional guidance to be provided by the European Commission in a supplementary guidance regarding new technology and software provided by OEMs.

In July 2022, the European Commission published for consultation its proposal to extend the MVBER to May 31, 2028 and amend the supplementary guidelines.

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.

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We may be adversely affected by legal, regulatory or market responses to global climate change.

Growing concern over climate change has led policy makers in the U.S.

to consider the enactment of legislative and regulatory proposals that would impose mandatory requirements on greenhouse gas emissions.

Growing concern over climate change has led policy makers to consider the enactment of legislative and regulatory proposals that would impose mandatory requirements on greenhouse gas emissions.

Such laws, if enacted, are likely to impact our business in a number of ways.

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Alternatively, if a court were to find the choice of forum provision contained in our bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could materially adversely affect our business, financial condition and operating results.

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.

Our effective tax rate could materially increase as a consequence of various factors, including U.S.

and/or international tax legislation, applicable interpretations and administrative guidance, our mix of earnings by jurisdiction, and U.S.

and foreign jurisdictional audits.

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and a number of foreign jurisdictions.

Therefore, we are subject to changes in tax laws in each of these jurisdictions, including as a result of changes proposed by the new U.S.

administration, 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.

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 August 16, 2022, the U.S.

enacted legislation commonly referred to as the Inflation Reduction Act (the "IRA").

The IRA contained a number of new provisions the most significant of which are a new Corporate Alternative Minimum Tax and a new Stock Repurchase Excise Tax.

Additionally, 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.

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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.

General Risks

General Risk Factors

Our employees are important to successfully manage our business and achieve our objectives.

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The occurrence of any of these events involving us or involving the third parties with whom we do business could compromise our or the third parties' 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.

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.

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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.

Many foreign countries and governmental bodies, including the European Union, Canada, U.K., Switzerland 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 imposes 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, possible restrictions on cross border transfers of PII and higher standards for data controllers to demonstrate that they have obtained valid consent for certain data processing activities.

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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-K

Item 1A. Risk Factors