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Item 8. Financial Statements and Supplementary Data

2023-02-23 compared with 2022-02-25 · 599 added, 741 removed, 894 unchanged (60% of the section changed)

12 unchanged sentences

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of LKQ Corporation and subsidiaries (the "Company") as of December 31, 2021 and 2020, the related consolidated statements of income, comprehensive income, cash flows, and stockholders' equity for each of the three years in the period ended December 31, 2021, and the related notes and the financial statement schedule listed in the Index at Item 15 (collectively referred to as the "financial statements").

We have audited the accompanying consolidated balance sheets of LKQ Corporation and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements").

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

48 unchanged sentences

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America ("generally accepted accounting principles").

A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company;

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Consolidated Statements of Income

(In thousands, except per share data)

(In millions, except per share data)

Year Ended December 31,

4 unchanged sentences

Selling, general and administrative expenses 3,544 3,568 3,266

Restructuring and acquisition related expenses 20,311 66,163 36,979

Loss on disposal of businesses and impairment of net assets held for sale 28 3,174 47,102

Restructuring and transaction related expenses 20 20 66

(Gain) on disposal of businesses and impairment of net assets held for sale ( 159 ) — 3

Depreciation and amortization 237 260 272

2 unchanged sentences

Interest expense 78 72 104

Loss (gain) on debt extinguishment 23,564 12,751 ( 128 )

Loss on debt extinguishment — 24 13

Interest income and other income, net ( 15 ) ( 21 ) ( 16 )

2 unchanged sentences

Provision for income taxes 385 331 250

Equity in earnings (losses) of unconsolidated subsidiaries 22,937 5,012 ( 32,277 )

Equity in earnings of unconsolidated subsidiaries 11 23 5

Income from continuing operations 1,144 1,091 640

Net income (loss) from discontinued operations 648 ( 95 ) 1,619

Net income from discontinued operations 6 1 —

Net income 1,150 1,092 640

net income attributable to continuing noncontrolling interest 1 1 2

net income attributable to discontinued noncontrolling interest — 103 974

Net income attributable to LKQ stockholders $ 1,149 $ 1,091 $ 638

1 unchanged sentence

Income from continuing operations $ 4.13 $ 3.68 $ 2.10

Net income (loss) from discontinued operations 0.00 ( 0.00 ) 0.01

Net income from discontinued operations 0.02 — —

Net income 4.15 3.68 2.10

net income attributable to continuing noncontrolling interest 0.01 — 0.01

net income attributable to discontinued noncontrolling interest — 0.00 0.00

Net income attributable to LKQ stockholders $ 4.15 $ 3.68 $ 2.10

1 unchanged sentence

Income from continuing operations $ 4.12 $ 3.67 $ 2.10

Net income (loss) from discontinued operations 0.00 ( 0.00 ) 0.01

Net income from discontinued operations 0.02 — —

Net income 4.14 3.67 2.10

net income attributable to continuing noncontrolling interest 0.01 — 0.01

net income attributable to discontinued noncontrolling interest — 0.00 0.00

Net income attributable to LKQ stockholders $ 4.13 $ 3.66 $ 2.09

3 unchanged sentences

Consolidated Statements of Comprehensive Income

(In thousands)

(In millions)

Year Ended December 31,

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net income attributable to continuing noncontrolling interest 1 1 2

net income attributable to discontinued noncontrolling interest — 103 974

Net income attributable to LKQ stockholders 1,149 1,091 638

Other comprehensive income (loss):

Other comprehensive (loss) income:

Foreign currency translation, net of tax ( 212 ) ( 64 ) 114

1 unchanged sentence

Net change in unrealized gains/losses on pension plans, net of tax 35 9 ( 1 )

Other comprehensive (loss) income from unconsolidated subsidiaries ( 429 ) ( 4,532 ) 236

Other comprehensive income (loss) from unconsolidated subsidiaries 7 — ( 5 )

Other comprehensive (loss) income ( 170 ) ( 54 ) 102

1 unchanged sentence

comprehensive income attributable to continuing noncontrolling interest 1 1 2

comprehensive income attributable to discontinued noncontrolling interest — 103 974

Comprehensive income attributable to LKQ stockholders $ 979 $ 1,037 $ 740

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Consolidated Balance Sheets

(In thousands, except per share data)

(In millions, except per share data)

Current assets:

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Other accrued expenses 294 271

Other current liabilities 112,538 130,021

Current portion of operating lease liabilities 188 203

Current portion of long-term obligations 34 35

Other current liabilities 89 112

Total current liabilities 2,271 2,165

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55.1 shares at December 31, 2022 and 34.6 shares at December 31, 2021

( 2,389 ) ( 1,346 )

Total Company stockholders' equity 5,453 5,772

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Consolidated Statements of Cash Flows

(In thousands)

(In millions)

Year Ended December 31,

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Depreciation and amortization 264 284 299

Impairment of equity method investments — — 41,057

Loss on disposal of businesses and impairment of net assets held for sale 28 3,174 47,102

(Gain) on disposal of businesses and impairment of net assets held for sale ( 159 ) — 3

Stock-based compensation expense 38 34 29

Loss (gain) on debt extinguishment 23,564 12,751 ( 128 )

Loss on debt extinguishment — 24 13

Deferred income taxes 6 ( 27 ) ( 34 )

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Acquisitions, net of cash acquired ( 4 ) ( 124 ) ( 7 )

Proceeds from disposals of businesses 399 7 5

Other investing activities, net ( 10 ) ( 29 ) ( 8 )

Net cash used in investing activities ( 418,758 ) ( 165,887 ) ( 264,853 )

Net cash provided by (used in) investing activities 172 ( 419 ) ( 166 )

CASH FLOWS FROM FINANCING ACTIVITIES:

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Net cash used in financing activities ( 1,394 ) ( 985 ) ( 1,513 )

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 24 ) ( 1 ) 12

Net increase (decrease) in cash, cash equivalents and restricted cash 4 ( 38 ) ( 223 )

Cash and cash equivalents of continuing operations, beginning of period (1)

Cash and cash equivalents of discontinued operations, beginning of period — — 7

Cash and cash equivalents of continuing and discontinued operations, beginning of period 274 312 535

Cash and cash equivalents, end of period $ 278 $ 274 $ 312

(1) The balance as of January 1, 2020 included restricted cash of $ 5 million.

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

1 unchanged sentence

Consolidated Statements of Cash Flows

(In thousands)

(In millions)

Year Ended December 31,

2022 2021 2020

Effect of exchange rate changes on cash, cash equivalents and restricted cash ( 1,174 ) 11,865 ( 904 )

Net (decrease) increase in cash, cash equivalents and restricted cash ( 38,020 ) ( 222,703 ) 197,607

Cash, cash equivalents and restricted cash of continuing operations, beginning of period 312,154 528,387 337,250

Cash, cash equivalents and restricted cash of discontinued operations, beginning of period — 6,470 —

Cash, cash equivalents and restricted cash of continuing and discontinued operations, beginning of period 312,154 534,857 337,250

Cash, cash equivalents and restricted cash of continuing and discontinued operations, end of period 274,134 312,154 534,857

Cash and cash equivalents of discontinued operations, end of period — — 6,470

Cash, cash equivalents and restricted cash, end of period $ 274,134 $ 312,154 $ 528,387

Reconciliation of cash, cash equivalents and restricted cash:

Cash and cash equivalents $ 274,134 $ 312,154 $ 523,020

Restricted cash — — 5,367

Cash, cash equivalents and restricted cash, end of period $ 274,134 $ 312,154 $ 528,387

Supplemental disclosure of cash paid for:

1 unchanged sentence

Interest 71 76 107

Supplemental disclosure of noncash investing and financing activities:

Noncash property, plant and equipment and software intangible additions in accounts payable and other accrued expenses 14,173 18,841 10,154

Notes payable and other financing obligations, including notes issued, debt assumed and settlement of pre-existing balances in connection with business acquisitions and disposals 6,892 4,316 47,887

Notes receivable and contingent consideration receivable acquired in connection with disposal of businesses — 8,990 —

Trade and note receivables forgiven and assets held for sale sold with purchase of noncontrolling interest — 6,079 —

Notes issued in connection with purchase of noncontrolling interest

Contingent consideration liabilities

14,758 3,045 6,627

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

1 unchanged sentence

Consolidated Statements of Stockholders' Equity

(In thousands, except per share data)

(In millions, except per share data)

LKQ Stockholders

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

Comprehensive (Loss) Income Noncontrolling Interest Total Stockholders' Equity

Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Noncontrolling Interest Total Stockholders' Equity

Shares Amount Shares Amount

Balance as of January 1, 2019 318,418 $ 3,184 ( 2,272 ) $ ( 60,000 ) $ 1,415,188 $ 3,598,876 $ ( 174,950 ) $ 56,454 $ 4,838,752

Balance as of December 31, 2019 319.9 $ 3 ( 13.2 ) $ ( 352 ) $ 1,418 $ 4,141 $ ( 201 ) $ 40 $ 5,049

Net income — — — — — 638 — 2 640

Other comprehensive loss — — — — — — ( 25,935 ) — ( 25,935 )

Other comprehensive income — — — — — — 102 — 102

Purchase of treasury stock — — ( 4.1 ) ( 117 ) — — — — ( 117 )

2 unchanged sentences

Exercise of stock options 0.1 — — — 1 — — — 1

Tax withholdings related to net share settlements of stock-based compensation awards ( 137 ) ( 1 ) — — ( 4,494 ) — — — ( 4,495 )

Capital contributions from, net of dividends declared to, noncontrolling interest shareholder — — — — — — — ( 4 ) ( 4 )

Acquired noncontrolling interest (see Note 2) — — — — — — — 10,365 10,365

Purchase and modification of noncontrolling interests (see Note 3) — — — — ( 27,105 ) — — ( 22,415 ) ( 49,520 )

Adoption of ASU 2016-13 — — — — — ( 3 ) — — ( 3 )

Disposition of subsidiary with noncontrolling interests (see Note 2) — — — — — — — ( 11 ) ( 11 )

Purchase of noncontrolling interests (see Note 8) — — — — ( 1 ) — — ( 11 ) ( 12 )

Balance as of December 31, 2020 320.9 $ 3 ( 17.3 ) $ ( 469 ) $ 1,444 $ 4,776 $ ( 99 ) $ 16 $ 5,671

Net income — — — — — 1,091 — 1 1,092

Other comprehensive income — — — — — — 101,876 — 101,876

Other comprehensive loss — — — — — — ( 54 ) — ( 54 )

Purchase of treasury stock — — ( 17.3 ) ( 877 ) — — — — ( 877 )

1 unchanged sentence

Stock-based compensation expense — — — — 34 — — — 34

Exercise of stock options 112 1 — — 1,466 — — — 1,467

Dividends declared to LKQ stockholders ($0.25 per share) — — — — — ( 73 ) — — ( 73 )

Capital contributions from, net of dividends declared to, noncontrolling interest shareholder — — — — — — — ( 2 ) ( 2 )

Adoption of ASU 2016-13 (see Note 3) — — — — — ( 2,519 ) — — ( 2,519 )

Disposition of subsidiary with noncontrolling interests (see Note 2) — — — — — — — ( 11,404 ) ( 11,404 )

Purchase of noncontrolling interests (see Note 3) — — — — ( 1,136 ) — — ( 10,952 ) ( 12,088 )

Balance as of December 31, 2021 321.6 $ 3 ( 34.6 ) $ ( 1,346 ) $ 1,474 $ 5,794 $ ( 153 ) $ 15 $ 5,787

6 unchanged sentences

Capital contributions from, net of dividends declared to, noncontrolling interest shareholder — — — — — — — ( 1 ) ( 1 )

Disposition of subsidiary with noncontrolling interests — — — — — — — ( 222 ) ( 222 )

Foreign currency translation adjustment on noncontrolling interest — — — — — — — ( 1 ) ( 1 )

7 unchanged sentences

We are a global distributor of vehicle products, including replacement parts, components, and systems used in the repair and maintenance of vehicles, and specialty vehicle aftermarket products and accessories designed to improve the performance, functionality and appearance of vehicles.

We operate in the United States, Canada, Germany, the United Kingdom, the Benelux region (Belgium, Netherlands, and Luxembourg), Italy, Czech Republic, Austria, Slovakia, Poland, and various other European countries.

We operate in the United States, Canada, Germany, the U.K., the Benelux region (Belgium, Netherlands, and Luxembourg), Italy, Czech Republic, Austria, Slovakia, Poland, and various other European countries.

We are organized into four operating segments:

Wholesale - North America, Europe, Specialty, and Self Service.

We aggregate our Wholesale - North America and Self Service operating segments into one reportable segment, North America, resulting in three reportable segments:

North America, Europe and Specialty.

Basis of Presentation

The Consolidated Financial Statements have been prepared in conformity with US GAAP and the rules and regulations of the U.S.

Securities and Exchange Commission ("SEC").

Discontinued Operations

Wholesale - North America;

and Self Service, each of which is presented as a reportable segment.

Beginning in 2022, the Wholesale - North America and Self Service operating segment results were separated from the previous reportable segment, North America, and each of Wholesale - North America and Self Service is now a separate reportable segment.

Segment results have been adjusted retrospectively to reflect this change.

Discontinued Operations and Divestitures

Glass Manufacturing Business

In March 2017, we completed the sale of the PGW Auto Glass ("PGW") glass manufacturing business to a subsidiary of Vitro S.A.B.

In connection with the sale, LKQ and Vitro entered into a three-year Purchase and Supply Agreement in which our aftermarket automotive glass distribution business agreed to source various products from Vitro's glass manufacturing business for a three-year period beginning in March 2017 and ending in February 2020.

All purchases from Vitro, including those outside of the Purchase and Supply Agreement, for the two months ended February 29, 2020 were $ 4 million.

For the year ended December 31, 2022, we recorded to discontinued operations a $ 5 million benefit primarily related to the reassessment of a previously recorded valuation allowance on a deferred tax asset.

For the year ended December 31, 2021, we recorded an insignificant gain related to the settlement of certain tax matters with Vitro.

Czech Republic

On May 30, 2018, we acquired Stahlgruber, a leading European wholesale distributor of aftermarket spare parts for passenger cars, tools, capital equipment and accessories with operations in Germany, Austria, Italy, Slovenia, and Croatia, with further sales to Switzerland.

Prior to closing, on May 3, 2018, the European Commission cleared the acquisition of Stahlgruber for the entire European Union, except with respect to the wholesale automotive parts business in the Czech Republic.

The acquisition of Stahlgruber’s Czech Republic wholesale business was referred to the Czech Republic competition authority for review.

On May 10, 2019, the Czech Republic competition authority approved our acquisition of Stahlgruber’s Czech Republic wholesale business subject to the requirement that it divest certain of the acquired locations.

We acquired Stahlgruber’s Czech Republic wholesale business on May 29, 2019 and decided to divest all of the acquired locations.

We immediately classified the business as discontinued operations because the business was never integrated into our Europe segment.

We completed the sale of Stahlgruber's Czech Republic business on February 28, 2020, resulting in an immaterial loss on sale (presented in Net income (loss) from discontinued operations in the Consolidated Statements of Income).

In February 2020, we completed the sale of the Czech Republic business of Stahlgruber GmbH ("Stahlgruber"), resulting in an immaterial loss on the sale.

As part of the transaction, we purchased the 48.2 % noncontrolling interest from the minority shareholder for a purchase price of € 8 million, which included the issuance of € 4 million of notes payable, and then immediately thereafter sold 100 % of the business for a purchase price of € 14 million, which included € 7 million of notes receivable.

This transaction resulted in a disposition of noncontrolling interest of $ 11 million.

From January 1, 2020 through the date of sale, we recorded an immaterial amount of net income (excluding the loss on sale) from discontinued operations related to the business, of which an immaterial amount was attributable to the noncontrolling interest.

Glass Manufacturing Business

On March 1, 2017, LKQ completed the sale of the glass manufacturing business PGW to a subsidiary of Vitro S.A.B.

In connection with the sale, LKQ and Vitro entered into a twelve month Transition Services Agreement commencing on the transaction date with two six-month renewal periods, a three-year Purchase and Supply Agreement, and an Intellectual Property Agreement.

The Purchase and Supply Agreement expired in the first quarter of 2020, while the Intellectual Property Agreement has a perpetual term;

as of December 31, 2019, the Transition Services Agreement had expired.

Pursuant to the Purchase and Supply Agreement, our aftermarket automotive glass distribution business agreed to source various products from Vitro's glass manufacturing business annually for a three-year period beginning on March 1, 2017.

All purchases from Vitro, including those outside of the Purchase and Supply Agreement, for the two months ended February 29, 2020 and the year ended December 31, 2019, were $ 4 million and $ 30 million, respectively.

From January 1, 2020 through the date of sale, we recorded an insignificant amount of net income (excluding the loss on sale) from discontinued operations related to the business, of which an insignificant amount was attributable to the noncontrolling interest.

Other Divestitures (Not Classified in Discontinued Operations)

In April 2022, we completed the sale of our PGW aftermarket glass business within our Wholesale - North America segment, to a third party 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).

In May 2020, we completed the sale of a non-core telecommunications operation within our Europe segment, resulting in proceeds of $ 4 million and the recognition of an insignificant loss on sale.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the years ended December 31, 2021, 2020 and 2019, our net results from discontinued operations were insignificant.

The net results included the settlement of certain tax matters with Vitro, reserves related to a pre-disposition matter and reassessment of a previously recorded valuation allowance on a deferred tax asset balance.

Summary of Significant Accounting Policies

Basis of Presentation

The Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("US GAAP") and the rules and regulations of the U.S.

Securities and Exchange Commission.

In the current year, we changed the presentation of our Consolidated Financial Statements from thousands to millions and, as a result, any necessary rounding adjustments have been made to prior year disclosed amounts.

Principles of Consolidation

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The preparation of the Consolidated Financial Statements in accordance with US GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses during the reported periods.

We base our estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances including management’s current assumptions with respect to implications of the COVID-19 pandemic, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources.

We base our estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources.

Actual results and outcomes could differ from those estimates.

Foreign Currency Translation

Our reporting currency is the U.S.

For most of our international operations, the local currency is the functional currency.

Assets and liabilities are translated into U.S.

dollars at the period-ending exchange rate.

Statements of Income amounts are translated to U.S.

dollars using monthly average exchange rates during the period.

Translation gains and losses are reported as a component of Accumulated other comprehensive income (loss) in stockholders' equity.

Revenue Recognition

See Note 4, "Revenue Recognition" for our accounting policies related to revenue.

We recognize revenue when a sales arrangement with a customer exists (e.g., contract, purchase orders, others), the transaction price is fixed or determinable and we have satisfied its performance obligations per the sales arrangement.

The majority of our revenue originates from contracts with a single performance obligation to deliver parts, whereby the performance obligation is satisfied when control of the parts is transferred to the customer per the arranged shipping terms.

Some of our contracts contain a combination of delivering parts and performing services, which are distinct and accounted for as separate performance obligations.

Revenue for the service component is recognized as the services are rendered.

Our revenue is measured at the determinable transaction price, net of any variable considerations granted to customers.

Variable considerations include the right to return parts, discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, or other similar items.

These variable considerations are estimated throughout the year based on various factors, including contract terms, historical experience and performance levels.

Sales tax and other tax amounts collected from customers for remittance to governmental authorities are excluded from revenue in the Consolidated Statements of Income and are shown as a current liability on the Consolidated Balance Sheets until remitted.

Any incremental costs to obtain a contract (commissions earned by our sales representatives on product sales) are expensed when incurred, as the amortization period of the asset would be one year or less due to the short-term nature of our contracts.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cost of Goods Sold

3 unchanged sentences

and overhead costs related to purchasing, warehousing and transporting our products from our distribution warehouses to our selling locations.

For our salvage, remanufactured, and refurbished products, cost of goods sold also includes direct and indirect labor, equipment costs, depreciation, and other overhead to transform inventory into finished products suitable for sale.

For our salvage, remanufactured, refurbished and manufactured products, cost of goods sold also includes direct and indirect labor, equipment costs, depreciation, and other overhead to transform inventory into finished products suitable for sale.

Cost of goods sold also includes expenses for service-type warranties and for assurance-type warranty programs.

See Note 4, "Revenue Recognition" for additional information related to our warranty programs.

Selling, General and Administrative Expenses

4 unchanged sentences

and other selling, general and administrative expenses, such as professional fees, supplies, and advertising expenses.

The costs included in Selling, general and administrative expenses do not relate to inventory processing or conversion activities, and, as such, are classified below the gross margin line in the Consolidated Statements of Income.

Cash, Cash Equivalents and Restricted Cash

The costs included in Selling, general and administrative expenses do not relate to inventory processing or conversion activities, and, as such, are classified below Gross margin in the Consolidated Statements of Income.

Stock-Based Compensation

For the restricted stock units ("RSUs") that contain both a performance-based vesting condition and a time-based vesting condition, we recognize compensation expense using the accelerated attribution method, pursuant to which expense is recognized straight-line over the requisite service period for each separate vesting tranche of the award.

For all other awards, which are subject to only a time-based vesting condition, we recognize compensation expense on a straight-line basis over the requisite service period of the entire award.

For performance-based RSUs ("PSUs"), the expense is calculated using the projected award value, which is based on an estimate of the achievement of the performance objectives, and is recognized on a straight-line basis over the performance period.

The impacts of forfeitures on RSUs and PSUs expense are recorded as they occur.

Government Assistance

Financial assistance received from governments is recorded during the period in which we incur the costs that the assistance is intended to offset, only if it is probable that we will meet the conditions required under the terms of the assistance.

Current income taxes are provided on income reported for financial reporting purposes, adjusted for transactions that do not enter into the computation of income taxes payable in the same year.

Deferred income taxes are provided for temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements.

A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before we are able to realize their benefit or that future deductibility is uncertain.

Provision is made for taxes on undistributed earnings of foreign subsidiaries and related companies to the extent that such earnings are not deemed to be permanently invested.

We recognize the benefits of uncertain tax positions taken or expected to be taken in tax returns in the provision for income taxes only for those positions that are more likely than not to be realized.

We follow a two-step approach to recognizing and measuring uncertain tax positions.

The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any.

The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement.

We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes.

Our policy is to include any interest and penalties associated with income tax obligations in income tax expense.

Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, operating accounts, and deposits readily convertible to known amounts of cash.

Restricted cash includes cash for which our ability to withdraw funds at any time is contractually limited.

As of December 31, 2021 and 2020 we had no restricted cash balance in Other noncurrent assets on the Consolidated Balance Sheets.

LKQ CORPORATION AND SUBSIDIARIES

2 unchanged sentences

Receivables, net are reported net of an allowance for credit losses.

During the first quarter of 2020, we adopted ASU No.

2016-13, "Financial Instruments - Credit Losses (Topic 326):

Measurement o f Credit Losses on Financial Instruments" ("ASU 2016-13").

Prior to the adoption of ASU 2016-13, Receivables, net were reported net of an allowance for doubtful accounts.

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 lifetime credit losses was $ 53 million and $ 70 million at December 31, 2021 and 2020, respectively.

The provision for credit losses was a benefit of $ 5 million, and expense of $ 25 million and $ 12 million for the years ended December 31, 2021, 2020 and 2019, respectivel y.

The benefit in the provision for credit losses for the year ended December 31, 2021 is attributable primarily to the recovery of the global economy from the effects of the COVID-19 pandemic.

A roll-forward of our allowance for credit losses is as follows (in thousands):

Allowance for Credit Losses

Balance as of January 1, 2020 $ 52,685

Adjustment for adoption of new standard 2,519

Provision for credit losses 24,686

Write-offs ( 14,024 )

Impact of foreign currency 4,065

Balance as of December 31, 2020 69,931

Provision for credit losses ( 4,798 )

Write-offs ( 8,376 )

Impact of foreign currency ( 3,267 )

Balance as of December 31, 2021 $ 53,490

Concentrations of Credit Risk

The allowance is measured on a pool basis when similar risk characteristics exist, and a loss-rate for each pool is determined using historical credit loss experience as the basis for the estimation of expected credit losses.

Adjustments to historical loss information are made for differences in current conditions (e.g.

management's evaluation of the aging of customer receivable balances and the financial condition of our customers) as well as changes in forecasted macroeconomic conditions, such as changes in the unemployment rate, gross domestic product growth rate or credit default rates.

Concentrations of Credit Risks

Financial instruments that potentially subject us to significant concentration of credit risk consist primarily of cash and cash equivalents and accounts receivable.

3 unchanged sentences

In addition, our overall credit risk with respect to accounts receivable is limited to some extent because our customer base is composed of a large number of geographically diverse customers.

Our inventory is classified into the following categories:

Our inventory is stated at the lower of cost or net realizable value.

Net realizable value can be influenced by current anticipated demand.

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

The cost of our inventory is determined differently based on the category of inventory;

(i) aftermarket and refurbished products, (ii) salvage and remanufactured products, and (iii) manufactured products.

An aftermarket product is a new vehicle product manufactured by a company other than the original equipment manufacturer.

For the aftermarket products, excluding aftermarket automotive glass products, cost is established based on the average price paid for parts;

for the aftermarket automotive glass products, cost is established using the first-in first-out method.

For aftermarket products, cost is established based on the average price paid for parts.

Inventory cost for aftermarket products includes expenses incurred for freight in and overhead costs;

for items purchased from foreign companies, import fees and duties and transportation insurance are also included.

Aftermarket automotive glass products, which we no longer stock after the sale of PGW in 2022, were costed using the first-in first-out method.

Refurbished products are parts that require cosmetic repairs, such as wheels, bumper covers and lights;

LKQ will apply new parts, products or materials to these parts in order to produce the finished product.

we will apply new parts, products or materials to these parts to produce the finished product.

Refurbished inventory cost is based upon the average price we pay for cores, which are recycled automotive parts that are not suitable for sale as a replacement part without further processing.

1 unchanged sentence

A salvage product is a recycled vehicle part suitable for sale as a replacement part.

Cost is established based upon the price we pay for a vehicle, including auction, storage and towing fees, as well as expenditures for buying and dismantling the vehicle.

Salvage product cost is established based upon the price we pay for a vehicle, including auction, storage and towing fees, as well as expenditures for buying and dismantling the vehicle.

Inventory carrying value is determined using the average cost to sales percentage at each of our facilities and applying that percentage to the facility's inventory at expected selling prices, the assessment of which incorporates the sales probability based on a part's number of days in stock and historical demand.

The average cost to sales percentage is derived from each facility's

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

historical profitability for salvage vehicles.

The average cost to sales percentage is derived from each facility's historical profitability for salvage vehicles.

Remanufactured products are used parts that have been inspected, rebuilt, or reconditioned to restore functionality and performance, such as remanufactured engines and transmissions.

2 unchanged sentences

Manufactured product inventory can be a raw material, work-in-process or finished good.

Cost is established using the first-in first-out method.

For all inventory, carrying value is recorded at the lower of cost or net realizable value.

Net realizable value can be influenced by current anticipated demand.

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

Inventories consist of the following (in thousands):

Manufactured product cost is established using the first-in first-out method.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost less accumulated depreciation.

Depreciation is calculated using the straight-line method over the estimated useful lives or, in the case of leasehold improvements, the term of the related lease and reasonably assured renewal periods, if shorter.

Depreciation expense associated with refurbishing, remanufacturing, manufacturing and furnace operations as well as distribution centers are recorded in Cost of goods sold in the Consolidated Statements of Income.

Depreciation expense resulting from restructuring programs is recorded in Restructuring and transaction

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

related expenses in the Consolidated Statements of Income.

All other depreciation expense is reported in Depreciation and amortization in the Consolidated Statements of Income.

Expenditures for major additions and improvements that extend the useful life of the related asset are capitalized.

Expenditures for maintenance and repairs are recorded as incurred to Selling, general and administrative expenses in the Consolidated Statements of Income.

As property, plant and equipment are sold or retired, the applicable cost and accumulated depreciation are removed from the accounts and any resulting gain or loss thereon is recognized.

Construction in progress consists primarily of building and land improvements at our existing facilities.

Intangible Assets

Intangible assets consist primarily of goodwill (the cost of purchased businesses in excess of the fair value of the identifiable net assets acquired) and other specifically identifiable intangible assets, such as trade names, trademarks, customer and supplier relationships, software and other technology related assets, and covenants not to compete.

Goodwill and indefinite-lived intangible assets are tested for impairment at least annually.

We performed annual impairment tests during the fourth quarters of 2022, 2021 and 2020.

Goodwill and indefinite-lived intangible assets impairment testing may also be performed on an interim basis when events or circumstances arise that may lead to impairment.

The fair value estimates of our goodwill reporting units were established using weightings of the results of a discounted cash flow methodology and a comparative market multiples approach.

Based on the annual goodwill and indefinite-lived intangible assets impairment test performed in the fourth quarter of 2022, we determined no impairment existed.

The goodwill reporting units had a fair value estimate which exceeded the carrying value by at least 40%.

We determine if an arrangement is a lease at contract inception with lease right-of-use ("ROU") assets and lease liabilities being recognized based on the present value of the future minimum lease payments over the lease term at the commencement date.

In determining the present value of future lease payments, we use the incremental borrowing rate based on the information available at commencement date when the implicit rate is not readily determinable.

We determine the incremental borrowing rate by analyzing yield curves with consideration of lease term, country and Company specific factors.

In assessing the ROU asset, we include any lease prepayments and exclude lease incentives.

We account for the lease and non-lease components of a contract as a single lease component and for leases with an initial term of 12 months or less, we have elected to not record an ROU asset and lease liability.

In assessing the lease term, we include options to renew only when it is reasonably certain that the option will be exercised.

For certain lease agreements, rental payments are adjusted periodically for inflation.

Typically, these adjustments are considered variable lease costs.

Other variable lease costs consist of certain non-lease components that are disclosed as lease costs due to our election of the practical expedient to combine lease and non-lease components and include items such as variable payments for utilities, property taxes, common area maintenance, sales taxes, and insurance.

Net Assets Held for Sale

We record the net assets of held for sale businesses at the lower of fair value less cost to sell or carrying value.

Fair values are based on projected discounted cash flows and/or estimated selling prices.

Management's assumptions for the discounted cash flow analyses of the businesses are based on projected revenues and profits, tax rates, capital expenditures, working capital requirements and discount rates.

For businesses for which we utilized estimated selling prices to calculate the fair value, the inputs to the estimates included projected market multiples and any reasonable offers.

Due to uncertainties in the estimation process, it is possible that actual results could differ from the estimates used in management's analysis.

The inputs utilized in the fair value estimates are classified as Level 3 within the fair value hierarchy.

The fair values of the net assets were measured on a non-recurring basis as of December 31, 2022.

As of December 31, 2022 and 2021, assets and liabilities held for sale were insignificant.

For the year ended December 31, 2020, we recorded net impairment charges totaling $ 3 million on our net assets held for sale.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Impairment of Long-Lived Assets

Long-lived assets are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable.

If such review indicates that the carrying amount of long-lived assets is not recoverable, the carrying amount of such assets is reduced to fair value.

There were no material impairments to the carrying value of long-lived assets during the years ended December 31, 2022, 2021 or 2020.

Equity Method Investments

We account for our investments in unconsolidated subsidiaries using the equity method of accounting, as our investments give us the ability to exercise significant influence, but not control, over the investee.

Under the equity method of accounting, the initial investment is recorded at cost and the investment is subsequently adjusted for its proportionate share of earnings or losses and dividends, including consideration of basis differences resulting from the difference between the initial carrying amount of the investment and the underlying equity in net assets, as applicable.

Warranty Reserve

Assurance-type warranties are not considered a separate performance obligation, and thus no transaction price is allocated to them.

Our warranty reserve is calculated using historical claim information to project future warranty claims activity and is recorded within Other accrued expenses and Other noncurrent liabilities on our Consolidated Balance Sheets based on the expected timing of the related payments.

We record warranty costs in Cost of goods sold in our Consolidated Statements of Income.

Self-Insurance Reserves

We self-insure a portion of our employee medical benefits under the terms of our employee health insurance program.

We purchase certain stop-loss insurance to limit our liability exposure.

We also self-insure a portion of our property and casualty risk, which includes automobile liability, general liability, directors and officers liability, workers' compensation, and property coverage, under deductible insurance programs.

The insurance premium costs are expensed over the contract periods.

A reserve for liabilities associated with these losses is established for claims filed and claims incurred but not yet reported based upon our estimate of the ultimate cost, which is calculated using an analysis of historical data.

We monitor new claim and claim developments as well as trends related to the claims incurred but not reported in order to assess the adequacy of our insurance reserves.

The current portion of total self-insurance reserves is recorded in Other accrued expenses on the Consolidated Balance Sheet with the noncurrent portion is recorded in Other noncurrent liabilities on the Consolidated Balance Sheet, which reflects management's estimates of when claims will be paid.

Litigation and Related Contingencies

We have certain contingencies resulting from litigation, claims and other commitments and are subject to a variety of environmental and pollution control laws and regulations incident to the ordinary course of business.

We currently expect that the resolution of such contingencies will not materially affect our financial position, results of operations or cash flows.

Treasury Stock

We record common stock purchased for treasury stock at cost.

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 and will adopt ASU 2022-04 for all reporting periods in 2023.

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We classify our inventory into the following categories:

(i) aftermarket and refurbished products, (ii) salvage and remanufactured products, and (iii) manufactured products.

Inventories consist of the following (in millions):

Aftermarket and refurbished products $ 2,279 $ 2,168

6 unchanged sentences

Property, Plant and Equipment

Property, plant and equipment are recorded at cost less accumulated depreciation.

Expenditures for major additions and improvements that extend the useful life of the related asset are capitalized.

As property, plant and equipment are sold or retired, the applicable cost and accumulated depreciation are removed from the accounts and any resulting gain or loss thereon is recognized.

Construction in progress consists primarily of building and land improvements at our existing facilities.

The estimated useful lives are as follows:

Land improvements 10 - 20 years

Property, plant and equipment consists of the following (in millions):

Useful Life 2022 2021

Land and improvements 10 - 20 years (1)

Buildings and improvements 20 - 40 years 409 415

4 unchanged sentences

Leasehold improvements 1 - 20 years 398 350

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

Land and improvements $ 204,311 $ 200,955

Buildings and improvements 415,473 415,810

Machinery and equipment 738,962 707,674

Computer equipment and software 114,573 121,859

Vehicles and trailers 144,924 149,922

Furniture and fixtures 57,755 57,082

Leasehold improvements 349,980 314,567

Finance lease assets 107 101

2,127,004 2,066,930

Less—Accumulated depreciation ( 1,049 ) ( 987 )

1 unchanged sentence

Total property, plant and equipment, net $ 1,236 $ 1,299

Depreciation expense resulting from restructuring programs is recorded in Restructuring and acquisition related expenses.

All other depreciation expense is reported in Depreciation and amortization.

(1) Only applies to land improvements as land is not depreciated.

Total depreciation expense for the years ended December 31, 2022, 2021, and 2020 was $ 169 million, $ 180 million, and $ 180 million, respectively.

Supplemental disclosure of noncash investing activities is as follows (in millions):

Year Ended December 31,

2022 2021 2020

Noncash property, plant and equipment additions in accounts payable and other accrued expenses $ 17 $ 14 $ 19

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Self-Insurance Reserves

To provide for the potential liabilities for certain risks, we use a combination of insurance and self-insurance mechanisms, including a consolidated, wholly-owned captive insurance subsidiary which provides insurance coverage for workers' compensation and automotive liability claim payments that are below our deductibles under our third-party policies.

The activity related to our captive insurance subsidiary was not significant for the year ended December 31, 2022.

Total self-insurance reserves were $ 126 million and $ 117 million, of which $ 62 million and $ 61 million were classified as current, as of December 31, 2022 and 2021, respectively.

We had outstanding letters of credit of $ 69 million at both December 31, 2022 and 2021, respectively, to guarantee self-insurance claims payments.

While we do not expect the amounts ultimately paid to differ significantly from the estimates, the insurance reserves and corresponding expenses could be affected if future claims experience differs significantly from historical trends and assumptions.

Allowance for Credit Losses

Our reserve for expected credit losses was $ 54 million and $ 53 million as of December 31, 2022 and December 31, 2021, respectively.

The provision for credit losses was an expense of $ 9 million, benefit of $ 5 million, and expense of $ 25 million for the years ended December 31, 2022, 2021, and 2020, respectively.

A roll-forward of our allowance for credit losses is as follows (in millions):

Balance as of January 1, $ 53 $ 70

Provision for (benefit from) credit losses 9 ( 5 )

Write-offs ( 2 ) ( 8 )

Impact of foreign currency ( 6 ) ( 4 )

Balance as of December 31, $ 54 $ 53

Noncontrolling Interest

In October 2020, we purchased all of the noncontrolling interest of a subsidiary in our Self Service segment for a purchase price of $ 10 million.

This purchase resulted in a net decrease to Noncontrolling interest of $ 10 million and a decrease to Additional paid-in-capital of $ 1 million in our Consolidated Financial Statements as of December 31, 2020.

We present redeemable noncontrolling interest on our balance sheet related to redeemable shares issued to a minority shareholder in conjunction with a previous acquisition.

The redeemable shares contain (i) a put option for all noncontrolling interest shares at a fixed price of $ 24 million (€ 21 million) for the minority shareholder exercisable in the fourth quarter of 2023, (ii) a call option for all noncontrolling interest shares at a fixed price of $ 26 million (€ 23 million) for us exercisable beginning in the first quarter of 2026 through the end of the fourth quarter of 2027, and (iii) a guaranteed dividend to be paid quarterly to the minority shareholder through the fourth quarter of 2023.

The redeemable shares do not provide the minority shareholder with rights to participate in the profits and losses of the subsidiary prior to the exercise date of the put option.

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 Consolidated Balance Sheets.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Intangible Assets

Goodwill is tested for impairment at least annually.

We performed annual impairment tests during the fourth quarters of 2021, 2020 and 2019.

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

The fair value estimates of our reporting units were established using weightings of the results of a discounted cash flow methodology and a comparative market multiples approach.

Based on the annual goodwill impairment test performed in the fourth quarter of 2021, we determined no impairment existed as all of the reporting units had a fair value estimate which exceeded the carrying value by at least 70 % .

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

North America Europe Specialty Total

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

North America Europe Specialty Self Service Total

Balance as of January 1, 2021, gross $ 1,472 $ 2,458 $ 413 $ 282 $ 4,625

Accumulated impairment losses as of January 1, 2021 ( 33 ) — — — ( 33 )

Balance as of January 1, 2021 1,439 2,458 413 282 4,592

Business acquisitions and adjustments to previously recorded goodwill 23 18 43 — 84

( 123 ) 419 5,291 5,587

Exchange rate effects 1 ( 137 ) — — ( 136 )

1 unchanged sentence

Business acquisitions and adjustments to previously recorded goodwill — 7 — — 7

23,410 17,969 43,313 84,692

Reclassified to net assets held for sale — ( 269 ) — ( 269 )

Disposal of business — ( 479 ) — ( 479 )

Disposal of businesses ( 58 ) — — ( 7 ) ( 65 )

Exchange rate effects ( 8 ) ( 155 ) — — ( 163 )

Balance as of December 31, 2022 $ 1,397 $ 2,191 $ 456 $ 275 $ 4,319

Accumulated impairment losses as of December 31, 2021 $ ( 33,244 ) $ — $ — $ ( 33,244 )

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

December 31, 2021 December 31, 2020

Intangible assets subject to amortization $ 664,849 $ 732,919

Indefinite-lived intangible assets

Trademarks 81,300 81,300

Total $ 746,149 $ 814,219

The components of intangible assets subject to amortization are as follows (in thousands):

The components of other intangibles, net are as follows (in millions):

December 31, 2022 December 31, 2021

5 unchanged sentences

Customer and supplier relationships 479 ( 340 ) 139 604 ( 425 ) 179

603,621 ( 424,577 ) 179,044 617,952 ( 405,237 ) 212,715

Software and other technology related assets 361 ( 223 ) 138 345 ( 198 ) 147

345,122 ( 199,083 ) 146,039 326,988 ( 174,513 ) 152,475

Covenants not to compete 6 ( 6 ) — 13 ( 13 ) —

Total $ 1,475,924 $ ( 811,075 ) $ 664,849 $ 1,478,217 $ ( 745,298 ) $ 732,919

E stimated useful lives for the finite-lived intangible assets are as follows:

Total finite-lived intangible assets 1,335 ( 763 ) 572 1,476 ( 811 ) 665

Indefinite-lived trademarks 81 — 81 81 — 81

Total other intangible assets $ 1,416 $ ( 763 ) $ 653 $ 1,557 $ ( 811 ) $ 746

Estimated useful lives for the finite-lived intangible assets are as follows:

Method of Amortization Useful Life

5 unchanged sentences

Estimated amortization expense for each of the five years in the period ending December 31, 2027 is $ 88 million, $ 77 million, $ 69 million, $ 62 million and $ 52 million, respectively.

See Note 12, "Leases" for our accounting policies related to leases.

Net Assets Held for Sale

During 2021, we had immaterial impairment charges on net assets held for sale.

During 2019 and 2020, we committed to plans to sell certain businesses in the North America and Europe segments.

As a result, these businesses were classified as net assets held for sale and were required to be adjusted to the lower of fair value less cost to sell or carrying value, resulting in net impairment charges totaling $ 3 million for the year ended December 31, 2020.

As of December 31, 2021 and 2020, assets and liabilities held for sale were immaterial.

In the second quarter of 2020, we completed the sale of one of these businesses, a non-core telecommunications operation in Germany, resulting in an immaterial loss on sale (presented in Loss on disposal of businesses and impairment of net assets held for sale in the Consolidated Statements of Income).

The disposed business was immaterial, generating annualized revenue of approximately $ 78 million during the twelve-month period ended May 31, 2020.

In the third quarter of 2019, we completed the sales of two of these businesses, an aviation business in North America and a wholesale business in Bulgaria, resulting in a net $ 47 million impairment charge for the year ended December 31, 2019 (presented in Loss on disposal of businesses and impairment of net assets held for sale in the Consolidated Statements of Income).

Excluding the Stahlgruber Czech Republic wholesale business discussed in Note 2, "Discontinued Operations," as of December 31, 2019, assets and liabilities held for sale were immaterial, and were recorded within Prepaid expenses and other

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current assets and Other current liabilities, respectively, on the Consolidated Balance Sheet.

The disposed businesses in 2019 were immaterial, generating annualized revenue of approximately $ 55 million prior to the divestitures.

We record the net assets of held for sale businesses at the lower of fair value less cost to sell or carrying value.

Fair values were based on projected discounted cash flows and/or estimated selling prices.

Management's assumptions for the discounted cash flow analyses of the businesses were based on projected revenues and profits, tax rates, capital expenditures, working capital requirements and discount rates.

For businesses for which we utilized estimated selling prices to calculate the fair value, the inputs to the estimates included projected market multiples and any reasonable offers.

Due to uncertainties in the estimation process, it is possible that actual results could differ from the estimates used in management's analysis.

The inputs utilized in the fair value estimates are classified as Level 3 within the fair value hierarchy.

The fair values of the net assets were measured on a non-recurring basis as of December 31, 2021.

Impairment of Long-Lived Assets

Long-lived assets are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable.

If such review indicates that the carrying amount of long-lived assets is not recoverable, the carrying amount of such assets is reduced to fair value.

Other than the impairment charges recorded upon the classification of certain businesses in our North America and Europe segments as held for sale discussed in the "Net Assets Held for Sale" section above, there were no material impairments to the carrying value of long-lived assets during the years ended December 31, 2021, 2020 or 2019.

Investments in Unconsolidated Subsidiaries

Our investment in unconsolidated subsidiaries was $ 181 million and $ 155 million as of December 31, 2021 and December 31, 2020, respectively.

Europe Segment

Our investment in unconsolidated subsidiaries in Europe was $ 156 million and $ 137 million as of December 31, 2021 and 2020, respectively.

We recorded equity in earnings of $ 18 million and $ 8 million during the years ended December 31, 2021 and 2020, respectively, and equity in losses of $ 33 million during the year ended December 31, 2019, mainly related to the investment in Mekonomen.

On December 1, 2016, we acquired a 26.5 % equity interest in Mekonomen for an aggregate purchase price of $ 181 million.

In October 2018, we acquired an additional $ 48 million of equity in Mekonomen at a discounted share price as part of Mekonomen's rights issue, increasing our equity interest to 26.6 %.

We are accounting for our interest in Mekonomen using the equity method of accounting, as this investment gives us the ability to exercise significant influence, but not control, over the investee.

As of December 31, 2021, our share of the book value of Mekonomen's net assets exceeded the book value of the investment in Mekonomen by $ 8 million;

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

We are recording our equity in the net earnings of Mekonomen on a one quarter lag.

During the year ended December 31, 2019, we recognized an other-than-temporary impairment charge of $ 40 million, which represented the difference in the carrying value and the fair value of our investment in Mekonomen.

The fair value of the investment in Mekonomen was determined using the Mekonomen share price as of the date of our impairment test.

The impairment charge is recorded in Equity in earnings (losses) of unconsolidated subsidiaries in the Consolidated Statements of Income.

Mekonomen announced in February 2019, March 2020, and February 2021 that the Mekonomen Board of Directors proposed no dividend payment in 2019, 2020, or 2021.

In the event a dividend would be proposed, it would be payable in SEK.

The Level 1 fair value of our equity investment in the publicly traded Mekonomen common stock at December 31, 2021 was $ 265 million (using the Mekonomen share price of SEK 157 as of December 31, 2021) compared to a carrying value of $ 145 million.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

North America Segment

Our investment in unconsolidated subsidiaries in the North America segment was $ 25 million and $ 19 million as of December 31, 2021 and December 31, 2020, respectively.

We recorded equity in earnings or (losses) of $ 5 million, $( 3 ) million, and $ 1 million for the years ended December 31, 2021, 2020, and 2019, respectively.

Equity Method Investments

The carrying value of our Equity method investments were as follows (in millions):

Segment Ownership as of December 31, 2022

December 31, 2022 December 31, 2021

MEKO AB (1)(2)(3)

Europe 26.6 % $ 129 $ 145

Total $ 141 $ 181

(1) As of December 31, 2022, the Level 1 fair value of our investment in MEKO AB ("Mekonomen") was $ 154 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 December 31, 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.

We record our equity in the net earnings of Mekonomen on a one quarter lag.

(3) During the second quarter of 2022, we received a $ 3 million dividend payment from Mekonomen.

(4) In June 2022, we sold an investment in our Self Service segment resulting in a decrease to the carrying value of $ 22 million, recognizing an insignificant gain upon sale.

Government Assistance

During the years ended December 31, 2022, 2021 and 2020, we recorded financial assistance from foreign governments, primarily in the form of grants, as credits in the following amounts (in millions):

Year Ended December 31,

2022 2021 2020

Cost of goods sold $ — $ 1 $ 1

Selling, general and administrative expenses — 15 51

Total government assistance $ — $ 16 $ 52

During the years ended December 31, 2021 and 2020 we received grants from European governments of $ 11 million and $ 43 million, respectively, with the remaining amounts relating to Canada.

We did not receive material grants for the year ended December 31, 2022.

Warranty Reserve

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.

These assurance-type warranties are not considered a separate performance obligation, and thus no transaction price is allocated to them.

We record warranty costs in Cost of goods sold in our Consolidated Statements of Income.

The changes in the warranty reserve are as follows (in thousands):

The changes in the warranty reserve are as follows (in millions):

Warranty Reserve

6 unchanged sentences

Balance as of December 31, 2022 $ 32

Self-Insurance Reserves

We self-insure a portion of our employee medical benefits under the terms of our employee health insurance program.

We purchase certain stop-loss insurance to limit our liability exposure.

The insurance premium costs are expensed over the contract periods.

We monitor new claim and claim developments as well as trends related to the claims incurred but not reported in order to assess the adequacy of our insurance reserves.

Total self-insurance reserves were $ 117 million and $ 110 million, of which $ 61 million and $ 55 million was classified as current, as of December 31, 2021 and 2020, respectively, and are classified as Other accrued expenses on the Consolidated Balance Sheets.

The remaining balances of self-insurance reserves are classified as Other noncurrent liabilities, which reflects management's estimates of when claims will be paid.

We had outstanding letters of credit of $ 69 million and $ 71 million at December 31, 2021 and 2020, respectively, to guarantee self-insurance claims payments.

Litigation and Related Contingencies

We currently expect that the resolution of such contingencies will not materially affect our financial position, results of operations or cash flows.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Government Assistance

During the years ended December 31, 2021 and 2020, we recorded financial assistance from foreign governments, primarily in the form of grants, as credits in the following amounts (in thousands):

Year Ended December 31,

Cost of goods sold $ 547 $ 1,422

Selling, general and administrative expenses 15,419 50,647

Total government assistance $ 15,966 $ 52,069

During the years ended December 31, 2021 and 2020, we received grants from European governments of $ 11 million and $ 43 million, respectively, with the remaining amounts relating to Canada.

Financial assistance received from governments is recorded during the period in which we incur the costs that the assistance is intended to offset (and only if it is probable that we will meet the conditions required under the terms of the assistance).

On March 27, 2020, the Coronavirus Aid, Relief and Economic Security Act ("CARES Act") was enacted in the U.S.

to provide economic relief to individuals and businesses facing economic hardship as a result of the COVID-19 pandemic.

Similar legislation was enacted in many of the international jurisdictions in which we operate.

Tax impacts in these legislative actions did not have a material impact on our results of operations for the years ended December 31, 2021 and 2020.

Those initiatives did provide us with the opportunity to defer the timing of certain income tax, indirect tax and payroll tax payments in various jurisdictions.

As of December 31, 2020, approximately $ 30 million of payments otherwise due by the end of 2020 were deferred, of which we paid half in 2021 and will pay the other half in 2022.

Current income taxes are provided on income reported for financial reporting purposes, adjusted for transactions that do not enter into the computation of income taxes payable in the same year.

Deferred income taxes are provided for temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements.

Provision is made for taxes on undistributed earnings of foreign subsidiaries and related companies to the extent that such earnings are not deemed to be permanently invested.

We follow a two-step approach to recognizing and measuring uncertain tax positions.

The second step is to measure the tax benefit as the largest amount that is more than 50 % likely of being realized upon ultimate settlement.

We consider many factors when evaluating and estimating our tax positions and tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes.

Our policy is to include any interest and penalties associated with income tax obligations in income tax expense.

Stockholders' Equity

Treasury Stock

On October 25, 2018, our Board of Directors authorized a stock repurchase program under which we may purchase up to $ 500 million of our common stock from time to time through October 25, 2021.

On October 25, 2019, our Board of Directors authorized an increase to our existing stock repurchase program under which the Company may purchase up to an additional $ 500 million of our common stock from time to time through October 25, 2022;

this extended date also applied to the original repurchase program.

On July 28, 2021, our Board of Directors authorized an increase to our existing stock repurchase program under which the Company may purchase up to an additional $ 1,000 million of our common stock from time to time through October 25, 2024;

this extended date also applies to the original repurchase program, as previously extended.

With the increase, the Board of Directors has authorized a total of $ 2,000 million of common stock repurchases.

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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.

The repurchase program does not obligate us to acquire any specific number of shares and may be suspended or discontinued at any time.

Delaware law imposes restrictions on stock repurchases.

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

During the year ended December 31, 2021, we repurchased 17.2 million shares of common stock for an aggregate price of $ 877 million.

During the year ended December 31, 2020, we repurchased 4.1 million shares of common stock for an aggregate price of $ 117 million.

During 2019, we repurchased 10.9 million shares of common stock for an aggregate price of $ 292 million.

As of December 31, 2021, there was $ 654 million of remaining capacity under the repurchase program.

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

Noncontrolling Interest

In October 2020, we purchased all of the noncontrolling interest of a subsidiary in our North America segment for a purchase price of $ 10 million.

In February 2020, as part of the sale of Stahlgruber's Czech Republic business, we divested the noncontrolling interest of the business, which resulted in a net decrease to Noncontrolling interest of $ 11 million in the Consolidated Financial Statements as of December 31, 2020.

See Note 2, "Discontinued Operations," for further information.

In July 2019, we purchased substantially all of the noncontrolling interest of a subsidiary acquired in connection with the Stahlgruber acquisition for a purchase price of $ 19 million, which included the issuance of $ 14 million of notes payable.

This purchase resulted in a net decrease to Noncontrolling interest of $ 10 million and a decrease to Additional paid-in capital of $ 9 million in the Consolidated Financial Statements as of December 31, 2019.

In December 2019, we modified the shares of a noncontrolling interest of a subsidiary acquired in connection with the Stahlgruber acquisition and issued new redeemable shares to the minority shareholder.

The new redeemable shares contain (i) a put option for all noncontrolling interest shares at a fixed price of $ 24 million (€ 21 million) for the minority shareholder exercisable in the fourth quarter of 2023, (ii) a call option for all noncontrolling interest shares at a fixed price of $ 26 million (€ 23 million) for us exercisable beginning in the first quarter of 2026 through the end of the fourth quarter of 2027, and (iii) a guaranteed dividend to be paid quarterly to the minority shareholder through the fourth quarter of 2023.

The new redeemable shares do not provide the minority shareholder with rights to participate in the profits and losses of the subsidiary prior to the exercise date of the put option.

This transaction also resulted in a decrease to Additional paid-in capital of $ 18 million, a decrease to Noncontrolling interest of $ 12 million, and a $ 7 million dividend payable ($ 2 million recorded in Other current liabilities and $ 5 million in Other noncurrent liabilities) in the Consolidated Financial Statements as of December 31, 2019.

The redeemable noncontrolling interest and dividend payable represent noncash financing activities in the Consolidated Statements of Cash Flows in 2019.

Foreign Currency Translation

For most of our foreign operations, the local currency is the functional currency.

Assets and liabilities are translated into U.S.

dollars at the period-ending exchange rate.

Statements of Income amounts are translated to U.S.

dollars using monthly average exchange rates during the period.

Translation gains and losses are reported as a component of Accumulated other comprehensive income (loss) in stockholders' equity.

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In the first quarter of 2021, we adopted ASU No.

2019-12, "Income Taxes" (Topic 740) ("ASU 2019-12"), which simplifies the accounting for income taxes and adds guidance to reduce complexity in certain areas.

We adopted the standard using the prospective approach and adoption of this accounting standard did not have a material impact on our Consolidated Financial Statements.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

In the fourth quarter of 2021, we adopted ASU No.

2020-04, "Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting" ("ASU 2020-04"), which provides temporary optional guidance to ease the potential burden in accounting for reference rate reform.

ASU 2020-04 provides optional expedients and exceptions for applying generally accepted accounting principles to transactions affected by reference rate reform if certain criteria are met.

These transactions include contract modifications, hedging relationships, and sale or transfer of debt securities classified as held-to-maturity.

Entities may apply the provisions of the new standard as of the beginning of the reporting period when the election is made (i.e., as early as the first quarter of 2020).

Unlike other topics, the provisions of this update are only available until December 31, 2022.

The adoption of the standard did not have a significant impact on our financial position, results of operations, or cash flows.

Revenue Recognition

The majority of our revenue is derived from the sale of vehicle parts.

We recognize revenue for the sale of products at the point in time when the performance obligation has been satisfied and control has transferred to the customer, which generally occurs upon shipment or delivery to a customer based on terms of the sale.

Sources of Revenue

Disaggregated Revenue

We report revenue in two categories:

(i) parts and services and (ii) other.

The following table sets forth revenue by category, with parts and services revenue further disaggregated by reportable segment (in thousands):

Year Ended December 31,

2021 2020 2019

North America $ 4,243,203 $ 3,988,214 $ 4,600,903

Europe 6,033,396 5,470,159 5,817,547

Specialty 1,863,917 1,505,340 1,459,396

Parts and services 12,140,516 10,963,713 11,877,846

Other 947,988 665,117 628,263

Total revenue $ 13,088,504 $ 11,628,830 $ 12,506,109

Parts and Services

Parts revenue is generated from the sale of vehicle products including replacement parts, components and systems used in the repair and maintenance of vehicles and specialty products and accessories to improve the performance, functionality and appearance of vehicles.

Services revenue includes (i) additional services that are generally billed concurrently with the related product sales, such as the sale of service-type warranties, (ii) fees for admission to our self service yards, and (iii) diagnostic and repair services.

In North America, vehicle replacement products include sheet metal collision parts such as doors, hoods, and fenders;

For Wholesale - North America and Self Service, vehicle replacement products include sheet metal collision parts such as doors, hoods, and fenders;

bumper covers;

head and tail lamps;

automotive glass products such as windshields;

mirrors and grilles;

and large mechanical items such as engines and transmissions.

In Europe, vehicle replacement products include a wide variety of small mechanical products such as brake pads, discs and sensors;

For Europe, vehicle replacement products include a wide variety of small mechanical products such as brake pads, discs and sensors;

electrical products such as spark plugs and batteries;

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and oil and automotive fluids.

In Specialty operations, we serve seven product segments:

For our Specialty operations, we serve seven product segments:

truck and off-road;

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and miscellaneous accessories.

Other revenue includes sales of scrap and precious metals (platinum, palladium, and rhodium), bulk sales to mechanical manufacturers (including cores) and sales of aluminum ingots and sows from furnace operations.

We derive scrap metal and other precious metals from several sources in both our Wholesale - North America and Self Service segments, including vehicles that have been used in our recycling operations and vehicles from OEMs and other entities that contract with us for secure disposal of "crush only" vehicles.

Revenue from the sale of hulks in our Wholesale - North America and Self Service segments is recognized based on a price per ton of delivered material when the customer (processor) collects the scrap.

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

Year Ended December 31,

2022 2021 2020

Wholesale - North America $ 4,207 $ 4,037 $ 3,786

Europe 5,711 6,033 5,470

Specialty 1,788 1,864 1,505

Self Service 227 207 203

Parts and services 11,933 12,141 10,964

Wholesale - North America 349 339 253

Europe 24 29 22

Self Service 488 580 390

Other revenue 861 948 665

Total revenue $ 12,794 $ 13,089 $ 11,629

Contract Liabilities

Our service-type warranties typically have service periods ranging from 6 months to 36 months.

Proceeds from these service-type warranties are deferred at contract inception and amortized on a straight-line basis to revenue over the contract period.

The current portion of deferred service-type warranties are included in Other current liabilities on the Consolidated Balance Sheets and the noncurrent portion of deferred service-type warranties are included in Other noncurrent liabilities on the Consolidated Balance Sheets based on the length of the underlying service period.

The balances for deferred service-type warranties are as follows (in millions):

Deferred service-type warranties

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Our service-type warranties typically have service periods ranging from 6 months to 36 months.

Under FASB Accounting Standards Codification Topic 606 ("ASC 606"), proceeds from these service-type warranties are deferred at contract inception and amortized on a straight-line basis to revenue over the contract period.

The changes in deferred service-type warranty revenue are as follows (in thousands):

Service-Type Warranties

Balance as of January 1, 2020 $ 27,067

Additional warranty revenue deferred 43,214

Warranty revenue recognized ( 44,659 )

Balance as of December 31, 2020 25,622

Additional warranty revenue deferred 70,561

Warranty revenue recognized ( 64,526 )

Balance as of December 31, 2021 $ 31,657

Other Revenue

Revenue from other sources includes sales of scrap and precious metals (platinum, palladium, and rhodium), bulk sales to mechanical manufacturers (including cores) and sales of aluminum ingots and sows from furnace operations.

We derive scrap metal and other precious metals from several sources, including vehicles that have been used in both our wholesale and self service recycling operations and from OEMs and other entities that contract with us for secure disposal of "crush only" vehicles.

Revenue from the sale of hulks in wholesale and self service recycling operations is recognized based on a price per ton of delivered material when the customer (processor) collects the scrap.

Some adjustments may occur when the customer weighs the scrap at their location, and revenue is adjusted accordingly.

Revenue by Geographic Area

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Variable Consideration

The amount of revenue ultimately received from the customer can vary due to variable consideration including returns, discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, or other similar items.

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 $ 107 million and $ 58 million, respectively, as of December 31, 2021, and $ 102 million and $ 57 million, respectively, as of December 31, 2020.

The refund liability is presented separately on the 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 Consolidated Balance Sheets.

We recorded a reserve for variable consideration of $ 144 million and $ 127 million as of December 31, 2021 and 2020, respectively.

While other customer incentive programs exist, we characterize them as material rights in the context of our sales transactions.

We consider these programs to be immaterial to the Consolidated Financial Statements.

Contract Costs

Under ASC 340, "Other Assets and Deferred Costs," we have elected to recognize incremental costs of obtaining a contract (commissions earned by our sales representatives on product sales) as an expense when incurred, as we believe the amortization period of the asset would be one year or less due to the short-term nature of our contracts.

Sales tax amounts collected from customers for remittance to governmental authorities are presented on a net basis.

Therefore, the taxes are excluded from revenue in the Consolidated Statements of Income and are shown as a current liability on the Consolidated Balance Sheets until remitted.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restructuring and Acquisition Related Expenses

Acquisition Related Expenses

We incurred $ 3 million of acquisition related expenses for the year ended December 31, 2021.

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

We incurred $ 8 million of acquisition related expenses for the year ended December 31, 2020.

The expenses primarily resulted from the resolution of a purchase price matter related to the Stahlgruber transaction for an amount above our prior estimate.

We incurred $ 2 million of acquisition related expenses for the year ended December 31, 2019.

These expenses included external costs such as legal, accounting and advisory fees related to our acquisitions.

2019 Global Restructuring Program

In the second quarter of 2019, we commenced a cost reduction initiative, covering all three of our reportable segments, designed to eliminate underperforming assets and cost inefficiencies.

Amounts related to variable consideration on our Consolidated Balance Sheets are as follows (in millions):

Classification 2022 2021

Return asset Prepaid expenses and other current assets $ 58 $ 58

Refund liability Refund liability 109 107

Variable consideration reserve Receivables, net 136 144

Restructuring and Transaction Related Expenses

From time to time, we initiate restructuring plans to integrate acquired businesses, to align our workforce with strategic business activities, or to improve efficiencies in our operations.

Below is a summary of our current restructuring plans:

2022 Global Restructuring Plan

In the fourth quarter of 2022, we began a restructuring initiative covering all of our reportable segments designed to reduce costs, streamline operations, consolidate facilities and implement other strategic changes to the overall organization.

We have incurred and expect to incur costs primarily for employee severance, inventory or other asset write-downs, and exiting facilities.

This plan is scheduled to be substantially complete by 2024 with an estimated total incurred cost of between $ 30 million and $ 40 million.

1 LKQ Europe Plan

In 2019, we announced a multi-year plan called "1 LKQ Europe" which is intended to create structural centralization and standardization of key functions to facilitate the operation of the Europe segment as a single business.

Under the 1 LKQ Europe plan, we are reorganizing our non-customer-facing teams and support systems through various projects including the implementation of a common ERP platform, rationalization of our product portfolio, and creation of a Europe headquarters office and central back office.

We completed the organizational design and implementation projects in June 2021, with the remaining projects scheduled to be completed by the end of 2025 with a total incurred cost of between $ 30 million and $ 40 million.

2019/2020 Global Restructuring Plan

In 2019, we commenced a cost reduction initiative, covering all of our reportable segments, designed to eliminate underperforming assets and cost inefficiencies.

This plan was expanded in 2020 as we identified additional opportunities to eliminate inefficiencies, including actions in response to impacts to the business from COVID-19.

We have incurred and expect to incur costs for inventory write-downs;

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other costs related to facility exits, such as moving expenses to relocate inventory and equipment;

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

During the year ended December 31, 2020, we incurred $ 7 million of restructuring expenses primarily related to facility exit costs and employee-related costs.

These costs were recorded within Restructuring and acquisition related expenses in the Consolidated Statements of Income.

Of the program costs incurred during 2020, $ 4 million and $ 3 million related to the Europe and North America segments, respectively.

During the year ended December 31, 2019, we incurred $ 37 million primarily related to inventory write-downs, facility exit costs, and employee-related costs.

Of these expenses, $ 17 million, primarily related to Andrew Page Limited ("Andrew Page") branch consolidation and brand rationalization, was recorded within Cost of goods sold in the Consolidated Statement of Income during the year ended December 31, 2019, and $ 20 million was recorded within Restructuring and acquisition related expenses.

Of the program costs incurred during 2019, $ 25 million, $ 11 million and $ 1 million related to the Europe, North America and Specialty segments, respectively.

The actions under this program are substantially complete, and the expenses incurred during the year ended December 31, 2021 were $ 2 million.

The total cumulative program costs incurred to date were $ 47 million, of which $ 31 million, $ 14 million and $ 1 million were in the Europe, North America and Specialty segments, respectively.

As of December 31, 2021, restructuring liabilities related to this program were immaterial.

2020 Global Restructuring Program

Beginning in the first quarter of 2020, we initiated a further restructuring program aimed at cost reductions across all our reportable segments through the elimination of underperforming assets and cost inefficiencies.

These actions are incremental to those initiated as part of the 2019 Global Restructuring Program, and include costs for inventory write-downs;

employee severance and other expenditures related to employee terminations;

lease exit costs, such as lease termination fees, accelerated amortization of operating lease assets and impairment of operating lease assets;

other costs related to facility exits, such as moving expenses to relocate inventory and equipment;

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

We expanded this program during the second and third quarters of 2020 as we identified additional opportunities to eliminate inefficiencies, including actions in response to impacts to the business from COVID-19.

During the year ended December 31, 2021, we recognized net restructuring expenses totaling $ 9 million 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 as part of the restructuring plan.

During the year ended December 31, 2020, we recognized restructuring expenses totaling $ 50 million for employee-related costs, facility exit costs and inventory write-downs.

Of these expenses, $ 7 million resulted from inventory impairment charges related to facility consolidation actions and brand rationalizations and were recorded in Cost of goods sold in the Consolidated Statement of Income.

Of the cumulative program costs incurred to date, $ 30 million, $ 27 million, and $ 1 million related to our North America, Europe and Specialty segments, respectively.

We estimate total costs under the program through the program's expected completion date in 2023 will be between $ 60 million and $ 70 million, of

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

This plan is expected to be completed in 2023 with a total incurred cost of between $ 108 million to $ 115 million.

Acquisition Integration Plans

As we complete the acquisition of a business, we may incur costs related to integrating the acquired business into our current business structure and systems.

These costs are typically incurred within a year from the acquisition date and vary in magnitude depending on the size and complexity of the related integration activities.

We expect to incur an insignificant amount of future expenses to complete any open integration plans.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

which approximately $ 32 million, $ 32 million, and $ 1 million will be incurred by our Europe, North America and Specialty segments, respectively;

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

As of December 31, 2021 and December 31, 2020, restructuring liabilities related to this program totaled $ 11 million and $ 21 million, respectively, including $ 9 million and $ 17 million, respectively, related to leases we 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 Consolidated Balance Sheets), and $ 2 million and $ 4 million, respectively, for employee termination costs (reported in Accrued payroll-related liabilities on our Consolidated Balance Sheets).

Our lease-related restructuring liabilities are estimated based on the remaining rent payments after the actual exit date for facilities closed as of December 31, 2021 and after the planned exit date for facilities expected 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

During the year ended December 31, 2021, we incurred immaterial restructuring expenses for our acquisition plans.

We expect to incur future expenses of up to $ 5 million to complete an integration plan related to acquisitions completed in the Specialty segment during the year ended December 31, 2021.

During the year ended December 31, 2020, we incurred $ 9 million of restructuring expenses for our acquisition integration plans.

These expenses were primarily related to the integration of operations in Belgium.

During the year ended December 31, 2019, we incurred $ 18 million of restructuring expenses primarily related to the acquisition integration efforts in our Europe segment.

These expenses included $ 14 million related to the integration of the acquisition of Andrew Page, including $ 4 million within Cost of goods sold in the Consolidated Statement of Income.

1 LKQ Europe Program

In September 2019, we announced a multi-year program called "1 LKQ Europe" which is intended to create structural centralization and standardization of key functions to facilitate the operation of the Europe segment as a single business.

Under the 1 LKQ Europe program, we will reorganize our non-customer-facing teams and support systems through various projects including the implementation of a common ERP platform, rationalization of our product portfolio, and creation of a Europe headquarters office and central back office.

While certain projects were delayed in 2020 as a result of the COVID-19 pandemic, such as the procurement initiatives and the new headquarters in Switzerland, we also accelerated certain projects, such as the integration of previously acquired networks and sharing resources across LKQ Europe.

We completed the organizational design and implementation projects in June 2021, with the remaining projects scheduled to be completed by 2024.

During the year ended December 31, 2021, we incurred $ 6 million of employee-related restructuring charges under the 1 LKQ Europe program.

We estimate that we will incur between $ 40 million and $ 50 million in total personnel and inventory related restructuring charges through 2024 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 December 31, 2021, the restructuring liabilities related to this program were immaterial.

The following table sets forth the expenses incurred related to our restructuring plans (in millions):

Year Ended December 31,

Plan Expense Type 2022 2021 2020

2022 Global Plan Employee related costs $ 6 $ — $ —

Facility exit costs 1 — —

Other costs 3 — —

Total $ 10 $ — $ —

2019/2020 Global Plan Employee related costs $ — $ 4 $ 19

Facility exit costs 1 7 23

Inventory related costs (1)

Other costs — — 7

Total $ 1 $ 11 $ 56

1 LKQ Europe Plan Employee related costs $ 1 $ 6 $ —

Total $ 1 $ 6 $ —

Acquisition Integration Plans Employee related costs $ 2 $ — $ 7

Facility exit costs 1 — —

Other costs — — 2

Total $ 3 $ — $ 9

Total restructuring expenses $ 15 $ 17 $ 65

(1) Recorded to Cost of goods sold in the Consolidated Statement of Income

The following table sets forth the cumulative plan costs by segment related to our restructuring plans (in millions):

Cumulative Program Costs

Wholesale - North America Europe Specialty Self Service Total

2022 Global Plan $ — $ 10 $ — $ — $ 10

2019/2020 Global Plan 43 59 2 2 106

1 LKQ Europe Plan $ — $ 7 $ — $ — $ 7

The following table sets forth the liability recorded related to our restructuring plans (in millions):

2022 Global Plan 2019/20 Global Plan 1 LKQ Europe Plan

December 31, December 31, December 31,

2022 2021 2022 2021 2022 2021

Employee related costs (1)

$ 3 $ — $ 1 $ 2 $ 1 $ 4

Facility exit costs (2)

Other costs — — 2 3 — —

Total $ 4 $ — $ 9 $ 14 $ 1 $ 4

(1) Reported in Accrued payroll-related liabilities on our Consolidated Balance Sheets.

(2) Reported in Current portion of operating lease liabilities and Long-term operating lease liabilities, excluding current portion on our Consolidated Balance Sheets.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Transaction Related Expenses

The following table sets forth the transaction related expenses incurred (in millions):

Year Ended December 31,

2022 2021 2020

Professional fees (1)

Other expenses — — 8 (2)

Transaction related expenses

(1) Included external costs such as legal, accounting and advisory fees related to completed and potential transactions.

(2) Primarily resulted from the resolution of a purchase price matter related to the Stahlgruber transaction for an amount above our prior estimate.

Stock-Based Compensation

In order to attract and retain employees, non-employee directors, consultants, and other persons associated with the Company, we grant equity-based awards under the LKQ Corporation 1998 Equity Incentive Plan (the “Equity Incentive Plan”).

The total number of shares approved by stockholders for issuance under the Equity Incentive Plan is 70 million shares, subject to antidilution and other adjustment provisions.

We have granted restricted stock units ("RSUs"), stock options, and restricted stock under the Equity Incentive Plan.

The total number of shares approved by stockholders for issuance under the Equity Incentive Plan is 70 million shares, subject to anti-dilution and other adjustment provisions.

We have granted RSUs, stock options, and restricted stock under the Equity Incentive Plan.

Of the shares approved by stockholders for issuance under the Equity Incentive Plan, 8.2 million shares remained available for issuance as of December 31, 2022.

We expect to issue new or treasury shares of common stock to cover past and future equity grants.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The RSUs we have issued vest over periods of up to five years , subject to a continued service condition.

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The dividend equivalents are subject to the same vesting requirements, restrictions and forfeiture provisions as the original award.

The Compensation Committee of our Board of Directors (the "Compensation Committee") approved the grant of 208,603 , 230,360 , and 270,388 RSUs to our executive officers that included both a performance-based vesting condition and a time-based vesting condition in 2021, 2020, and 2019, respectively.

The Compensation and Human Capital Committee of our Board of Directors approved the grant of 169,605 , 208,603 , and 230,360 RSUs to our executive officers that included both a performance-based vesting condition and a time-based vesting condition in 2022, 2021, and 2020, respectively.

The performance-based vesting conditions for the 2022, 2021, and 2020 grants to our executive officers have been satisfied.

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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 RSUs under the Equity Incentive Plan for the year ended December 31, 2021:

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

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes activity related to our RSUs under the Equity Incentive Plan for the year ended December 31, 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)

Unvested as of January 1, 2022 1.4 $ 34.85

738,014 $ 39.22

Vested ( 0.7 ) $ 37.36

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(2) The weighted average grant date fair value of RSUs granted during the years ended December 31, 2021 and 2020 was $ 39.22 and $ 31.68 , respectively.

Starting in 2019, we granted performance-based three-year RSUs ("PSUs") to certain employees, including executive officers, under our Equity Incentive Plan.

Starting in 2019, we granted PSUs with a three-year performance period to certain employees, including executive officers, under our Equity Incentive Plan.

As these awards are performance-based, the exact number of shares to be paid out may be up to twice the grant amount, depending on our performance and the achievement of certain performance metrics (adjusted earnings per share, average organic parts and services revenue growth, and average return on invested capital) over the applicable three year performance periods.

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The dividend equivalents are subject to the same vesting requirements, restrictions and forfeiture provisions as the original award.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes activity related to our PSUs under the Equity Incentive Plan for the year ended December 31, 2021:

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

The fair value of PSUs that vested during the year ended December 31, 2022 was $ 9 million;

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

The following table summarizes activity related to our PSUs under the Equity Incentive Plan for the year ended December 31, 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)

Unvested as of January 1, 2022 0.5 $ 31.96

125,656 $ 38.31

Performance-based adjustment (3)

52,562 $ 27.72

Forfeited / Canceled ( 11,800 ) $ 31.77

Vested ( 0.2 ) $ 27.74

Unvested as of December 31, 2022 0.5 $ 37.87

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

The weighted average grant date fair value of PSUs granted during the years ended December 31, 2020 and 2019 was $ 31.85 and $ 27.69 , respectively.

The weighted average grant date fair value of PSUs granted during the years ended December 31, 2021 and December 31, 2020 was $ 38.31 and $ 31.85 , respectively.

(3) Represents the net adjustment to the number of shares issuable upon vesting of performance-based PSUs based on the Company's actual financial performance metrics for the three year performance period ended December 31, 2022.

Stock Options

Stock options vested over periods of up to five years , subject to a continued service condition.

Stock options expired either six years or ten years from the date they were granted.

No options were outstanding as of December 31, 2021 or 2020.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Stock-Based Compensation Expense

For the RSUs that contain both a performance-based vesting condition and a time-based vesting condition, we recognize compensation expense under the accelerated attribution method, pursuant to which expense is recognized over the requisite service period for each separate vesting tranche of the award.

During the years ended December 31, 2021, 2020, and 2019, we recognized $ 7 million , $ 11 million, and $ 11 million, respectively, of stock based compensation expense related to the RSUs containing a performance-based vesting condition.

For all other awards, which are subject to only a time-based vesting condition, we recognize compensation expense on a straight-line basis over the requisite service period of the entire award.

The PSU expense is calculated using the projected award value, which is based on an estimate of the achievement of the performance objectives, and is recognized on a straight-line basis over the performance period.

Forfeitures on RSUs and PSUs are recorded as they occur.

Pre-tax stock-based compensation expense for RSUs and PSUs totaled $ 34 million, $ 29 million, and $ 28 million for the years ended December 31, 2021, 2020, and 2019, respectively.

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

Stock-based compensation expense and the resulting tax benefits included in the Consolidated Statements of Income were as follows (in millions):

Year Ended December 31,

2022 2021 2020

Cost of goods sold $ 649 $ 506 $ 477

Selling, general and administrative expenses 33,087 28,572 27,218

Total stock-based compensation expense 33,736 29,078 27,695

Stock-based compensation expense $ 38 $ 34 $ 29

Income tax benefit ( 9 ) ( 8 ) ( 7 )

Total stock-based compensation expense, net of tax

$ 26,257 $ 22,464 $ 21,468

Stock-based compensation expense, net of tax $ 29 $ 26 $ 22

We did not capitalize any stock-based compensation costs during the years ended December 31, 2022, 2021, and 2020.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

As of December 31, 2021, unrecognized compensation expense related to unvested RSUs and PSUs is expected to be recognized as follows (in thousands):

As of December 31, 2022, unrecognized compensation expense related to unvested RSUs and PSUs is expected to be recognized as follows (in millions):

Unrecognized Compensation Expense

2022 $ 21,325

Total unrecognized compensation expense $ 41

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Certain of our RSUs and stock options were excluded from the calculation of diluted earnings per share because they were antidilutive, but these equity instruments could be dilutive in the future.

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

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

Year Ended December 31,

2 unchanged sentences

Denominator for basic earnings per share—Weighted-average shares outstanding 277.1 296.8 304.6

296,836 304,640 310,155

Effect of dilutive securities:

RSUs 0.6 0.7 0.4

Stock options — 1 421

PSUs 0.3 0.2 —

Denominator for diluted earnings per share—Adjusted weighted-average shares outstanding 278.0 297.7 305.0

297,722 305,006 310,969

Basic earnings per share from continuing operations $ 4.13 $ 3.68 $ 2.10

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(1) Diluted earnings per share from continuing operations was computed using the treasury stock method for dilutive securities.

The following table sets forth the number of employee stock-based compensation awards outstanding but not included in the computation of diluted earnings per share because their effect would have been antidilutive for the years ended December 31, 2021, 2020, and 2019 (in thousands):

Year Ended December 31,

2021 2020 2019

Antidilutive securities:

RSUs 29 673 586

Stock options — — 24

The number of antidilutive securities was insignificant for the years ended December 31, 2022 and 2021 and was 0.7 million for the year ended December 31, 2020.

LKQ CORPORATION AND SUBSIDIARIES

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Accumulated Other Comprehensive Income (Loss)

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

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

Translation Unrealized Gain (Loss) on Cash Flow Hedges Unrealized Gain (Loss) on Pension Plans Other Comprehensive Income (Loss) from Unconsolidated Subsidiaries Accumulated

Other Comprehensive Income (Loss)

Other Comprehensive Loss

Balance as of January 1, 2020 $ ( 171 ) $ 5 $ ( 32 ) $ ( 3 ) $ ( 201 )

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Income tax effect — 12 3 — 15

Reclassification of unrealized gain — ( 35,686 ) ( 782 ) — ( 36,468 )

Reclassification of deferred income taxes

— 8,399 145 — 8,544

Disposal of business ( 379 ) — — — ( 379 )

Other comprehensive income from unconsolidated subsidiaries — — — 236 236

Balance as of December 31, 2019 $ ( 170,893 ) $ 5,358 $ ( 31,934 ) $ ( 3,416 ) $ ( 200,885 )

Pretax income (loss) 112,695 ( 48,540 ) ( 9,165 ) — 54,990

Income tax effect — 11,559 3,058 — 14,617

Reclassification of unrealized loss — 40 7 — 47

Reclassification of deferred income taxes — ( 10 ) ( 2 ) — ( 12 )

— ( 9,704 ) ( 1,852 ) — ( 11,556 )

Disposal of businesses 1 — — — 1

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Reclassification of deferred income taxes — 1 ( 1 ) — —

Disposal of businesses 12 — — — 12

Other comprehensive loss from unconsolidated subsidiaries — — — ( 429 ) ( 429 )

Balance as of December 31, 2021 $ ( 121 ) $ — $ ( 24 ) $ ( 8 ) $ ( 153 )

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The amounts of unrealized gains and losses on the Cash Flow Hedges reclassified to the Consolidated Statements of Income are as follows (in thousands):

Pretax (loss) income ( 216 ) — 49 — ( 167 )

Income tax effect — — ( 14 ) — ( 14 )

Disposal of business 4 — — — 4

Other comprehensive income from unconsolidated subsidiaries — — — 7 7

Balance as of December 31, 2022 $ ( 333 ) $ — $ 11 $ ( 1 ) $ ( 323 )

The amounts of unrealized gains and losses on the Cash Flow Hedges reclassified to the Consolidated Statements of Income are as follows (in millions):

Year Ended December 31,

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

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Long-Term Obligations

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

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

December 31, 2022 December 31, 2021

Maturity Date Interest Rate Amount Interest Rate Amount

Senior Secured Credit Agreement:

Term loans payable $ — $ 323,750

Revolving credit facilities 1,886,802 642,958

Euro Notes (2024) 568,500 610,800

Euro Notes (2026/28) 284,250 1,221,600

Notes payable through October 2030 at weighted average interest rates of 2.8% and 3.3%, respectively 23,318 24,526

Finance lease obligations at weighted average interest rates of 3.5% and 3.5%, respectively 51,556 57,336

Other debt at weighted average interest rates of 1.1% and 1.2%, respectively 9,405 15,706

Revolving credit facilities January 2024 4.24 % (1)

$ 1,786 1.10 % (1)

Senior Notes:

Euro Notes (2024) April 2024 3.88 % 535 3.88 % 569

Euro Notes (2028) April 2028 4.13 % 268 4.13 % 284

Notes payable Various through October 2030 3.25 % (1)

16 2.80 % (1)

Finance lease obligations 3.69 % (1)

48 3.50 % (1)

Other debt 2.28 % (1)

Total debt 2,662 2,824

long-term debt issuance costs ( 6 ) ( 12 )

current debt issuance costs ( 315 ) ( 313 )

Total debt, net of debt issuance costs 2,656 2,812

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Long term debt, net of debt issuance costs $ 2,622 $ 2,777

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The scheduled maturities of long-term obligations outstanding at December 31, 2021 are as follows (in thousands):

Long-Term Obligations

2024 2,463,996

(1) Interest rate derived via a weighted average

The scheduled maturities of long-term obligations outstanding at December 31, 2022 are as follows (in millions):

Thereafter 278

Total debt (2)

(1) Maturities of long-term obligations due by December 31, 2022 includes $ 16 million of short-term debt that may be extended beyond the current due date.

(1) Long-term obligations maturing by December 31, 2023 include $ 15 million of short-term debt that may be extended beyond the current year ending December 31, 2023.

(2) The total debt amounts presented above reflect the gross values to be repaid (excluding debt issuance costs of $ 6 million as of December 31, 2022).

Senior Secured Credit Agreement

On June 11, 2020, LKQ Corporation and certain other subsidiaries of LKQ (collectively, the "Borrowers") entered into Amendment No.

4 to the Fourth Amended and Restated Credit Agreement dated January 29, 2016 (the "Credit Agreement"), which modified the maximum permitted net leverage ratio through the quarter ended September 30, 2021.

Beginning with the quarter ended December 31, 2021, the maximum permitted net leverage ratio reverted to the terms in effect prior to the amendment, or 4.00 :1.00.

Amendment No.

4 to the Credit Agreement also made certain other immaterial modifications.

On December 14, 2020, we entered into Amendment No.

5 to the Credit Agreement;

the amendment added as a borrower a subsidiary, LKQ Europe GmbH, a Swiss limited liability company, and made certain other immaterial or clarifying modifications.

On November 23, 2021, we entered into Amendment No.

6 to the Credit Agreement;

the amendment modified certain interest rates to provide that (1) Loans denominated in euros shall bear interest at a rate per annum equal to the Euro Interbank Offered Rate as administered by the European Money Markets Institute (or a comparable or successor administrator approved by the Administrative Agent) plus the Applicable Rate, (2) Swingline Loans denominated in Pounds Sterling shall bear interest at a rate per annum equal to the Sterling Overnight Index Average as administered by the Bank of England (or any successor administrator of the Sterling Overnight Index Average) (“SONIA”) plus the Applicable Rate, (3) Revolving Loans denominated in Pounds Sterling shall bear interest at a rate per annum equal to SONIA plus an adjustment equal to 0.0326 % per annum plus the Applicable Rate, and (4) Loans denominated in Swiss Francs shall bear interest at a rate per annum equal to the Swiss Average Rate Overnight as administered by SIX Swiss Exchange AG (or any successor administrator of the Swiss Average Rate Overnight) plus the Applicable Rate.

On January 5, 2023, we entered into a new credit agreement and terminated the senior secured credit agreement.

See Note 25, "Subsequent Events" for further information related to the senior secured credit agreement and new credit agreement.

On November 23, 2021, LKQ Corporation and certain other subsidiaries of LKQ (collectively, the "Borrowers") entered into Amendment No.

6 to the Fourth Amended and Restated Credit Agreement dated January 29, 2016 (the "Prior Credit Agreement"), which modified certain interest rates to provide that (1) Loans denominated in euros shall bear interest at a rate per annum equal to the Euro Interbank Offered Rate as administered by the European Money Markets Institute (or a comparable or successor administrator approved by the Administrative Agent) plus the Applicable Rate, (2) Swingline Loans denominated in pounds sterling shall bear interest at a rate per annum equal to the Sterling Overnight Index Average as administered by the Bank of England (or any successor administrator of the Sterling Overnight Index Average) (“SONIA”) plus the Applicable Rate, (3) Revolving Loans denominated in pounds sterling shall bear interest at a rate per annum equal to SONIA plus an adjustment equal to 0.0326 % per annum plus the Applicable Rate, and (4) Loans denominated in Swiss francs

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

shall bear interest at a rate per annum equal to the Swiss Average Rate Overnight as administered by SIX Swiss Exchange AG (or any successor administrator of the Swiss Average Rate Overnight) plus the Applicable Rate.

All other interest rates remain the same.

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

Amounts outstanding under the revolving credit facility are due and payable upon maturity of the Credit Agreement on January 29, 2024.

We also had the option to prepay outstanding amounts under the Credit Agreement without penalty.

We also had the option to prepay outstanding amounts under the Prior Credit Agreement without penalty.

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 December 31, 2021.

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

The Credit Agreement also contains financial and affirmative covenants, including limitations on our net leverage ratio and a minimum interest coverage ratio.

Borrowings under the Credit Agreement bear interest at variable rates, which depend on the currency and duration of the borrowing elected, plus an applicable margin.

The applicable margin is subject to change in increments of 0.25 % depending on the net leverage ratio.

Interest payments are due on the last day of the selected interest period or quarterly in arrears depending on the type of borrowing.

Including the effect of the interest rate swap agreements described in Note 10, "Derivative Instruments and Hedging Activities," the weighted average interest rates on borrowings outstanding under the Credit Agreement at December 31, 2021 and 2020 we re 1.1 % and 1.7 %, respectively.

We also pay a commitment fee based on the

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

average daily unused amount of the revolving credit facilities.

The commitment fee is subject to change in increments of 0.05 % depending on our net leverage ratio.

In addition, we pay a participation commission on outstanding letters of credit at an applicable rate based on our net leverage ratio, and a fronting fee of 0.125 % to the issuing bank, which are due quarterly in arrears.

Of the total borrowings outstanding under the Credit Agreement, there were no current maturities as of December 31, 2021 and $ 18 million classified as current maturities at December 31, 2020.

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

The Prior Credit Agreement also contained financial and negative covenants, including limitations on our net leverage ratio and a minimum interest coverage ratio.

On April 18, 2022, S&P Global Ratings assigned LKQ an issuer credit rating of 'BBB-' with a stable outlook.

This rating upgrade triggered the banks in our credit facility to release all collateral required under the Prior Credit Agreement and suspend all collateral requirements.

Borrowings under the Prior Credit Agreement bore interest at variable rates, which depended on the currency and duration of the borrowing elected, plus an applicable margin.

The applicable margin was subject to change in increments of 0.25 % depending on the net leverage ratio.

Interest payments were due on the last day of the selected interest period or quarterly in arrears depending on the type of borrowing.

We also paid a commitment fee based on the average daily unused amount of the revolving credit facilities.

The commitment fee was subject to change in increments of 0.05 % depending on our net leverage ratio.

In addition, we paid a participation commission on outstanding letters of credit at an applicable rate based on our net leverage ratio, and a fronting fee of 0.125 % to the issuing bank, which were due quarterly in arrears.

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

Amounts outstanding under the revolving credit facility were due and payable upon maturity of the Prior Credit Agreement on January 29, 2024.

Of the total borrowings outstanding under the Credit Agreement, th ere were no current maturities as of December 31, 2022 or December 31, 2021.

As of December 31, 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 December 31, 2021 was $ 1,194 million.

Related to the execution of Amendment No.

4 to the Fourth Amended and Restated Credit Agreement in June 2020, we incurred $ 4 million of fees, the majority of which were capitalized as an offset to Long-Term Obligations and are amortized over the term of the agreement.

The amounts available under the revolving credit facilities were reduced by the amounts outstanding under letters of credit, and thus availability under the revolving credit facilities at December 31, 2022 was $ 1,295 million .

In 2013, we issued $ 600 million aggregate principal amount of 4.75 % senior notes due 2023 (the "U.S.

Notes (2023)").

Notes (2023) were governed by the Indenture dated as of May 9, 2013 (the "U.S.

Notes (2023) Indenture") among LKQ Corporation, certain of our subsidiaries (the "Guarantors"), the trustee, paying agent, transfer agent and registrar.

Notes (2023) were registered under the Securities Act of 1933.

On January 10, 2020, we redeemed the U.S Notes (2023) at a redemption price equal to 101.583 % of the principal amount of the U.S.

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

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

Notes (2023) plus accrued and unpaid interest thereon to, but not including, January 10, 2020.

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The Euro Notes (2024) are governed by the Indenture dated as of April 14, 2016 (the "Euro Notes (2024) Indenture") among LKQ Italia, LKQ Corporation and certain of our subsidiaries (the "Euro Notes (2024) Subsidiaries"), the trustee, and the paying agent, transfer agent, and registrar.

The Euro Notes (2024) bear interest at a rate of 3.875 % per year from the date of original issuance or from the most recent payment date on which interest has been paid or provided for.

Interest on the Euro Notes (2024) is payable in arrears on April 1 and October 1 of each year.

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The Euro Notes (2024) and the related guarantees are, respectively, LKQ Italia's and each Euro Notes (2024) Guarantor's senior unsecured obligations and are subordinated to all of LKQ Italia's and the Euro Notes (2024) Guarantors' existing and future secured debt to the extent of the assets securing that secured debt.

In addition, the Euro Notes (2024) are effectively subordinated to all of the liabilities of our subsidiaries that are not guaranteeing the Euro Notes (2024) to the extent of the assets of those subsidiaries.

In addition, the Euro Notes (2024) are effectively subordinated to all of the liabilities of our subsidiaries that are not guaranteeing the Euro Notes (2024) to the extent of the assets

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of those subsidiaries.

The Euro Notes (2024) have been listed on the ExtraMOT, Professional Segment of the Borsa Italia S.p.A.

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We may be required to make an offer to purchase the Euro Notes (2024) upon the sale of certain assets, subject to certain exceptions, and upon a change of control.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of the principal amount thereof plus accrued but unpaid interest, if any, and such certain additional amounts, if any, to the redemption date.

In addition, in the event of certain developments affecting taxation or under certain other circumstances which, in any case, require the payment of certain additional amounts, we may redeem the Euro Notes (2024) in whole, but not in part, at any time at a redemption price of 100 % of the principal amount thereof plus accrued but unpaid interest, if any, and such certain additional amounts, if any, to the redemption date.

On May 31, 2022, Moody's Investors Services upgraded the rating on LKQ Italia's senior unsecured notes to Baa3 with a stable outlook.

This rating upgrade, combined with the upgrade to BBB- by S&P Global Ratings in April 2022, triggered a Covenant Suspension Event, and LKQ and its subsidiaries will no longer be required to comply with certain restrictive covenants.

Euro Notes (2026/2028)

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In the second quarter of 2021, we recorded a loss on debt extinguishment of $ 24 million related to the redemption due to the early-redemption premium and the write-off of the unamortized debt issuance costs.

The Euro Notes (2028) bear interest at a rate of 4.125 % per year from the date of original issuance or from the most recent payment date on which interest has been paid or provided for.

Interest on the Euro Notes (2028) is payable in arrears on April 1 and October 1 of each year.

7 unchanged sentences

In addition, in the event of certain developments affecting taxation or under certain other circumstances which, in any case, require the payment of certain additional amounts, we may redeem the Euro Notes (2028) in whole, but not in part, at any time at a redemption price of 100 % of the principal amount thereof, plus accrued but unpaid interest, if any, and such certain additional amounts, if any, to the redemption date.

Restricted Payments

Our senior secured credit agreement and our senior notes indentures contain limitations on payment of cash dividends or other distributions of assets.

Delaware law also imposes restrictions on dividend payments.

Based on limitations in effect under the senior secured credit agreement, senior notes indentures and Delaware law, the maximum amount of dividends we could have paid as of December 31, 2021 was approximately $ 2,850 million .

The limit on the payment of dividends is calculated using historical financial information and will change from period to period.

These restrictions did not impact the payment of the dividend declared in October 2021 and paid in December 2021 and are not expected to impact future dividend payments.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

On May 31, 2022, Moody's Investors Services upgraded the rating on LKQ Euro Holdings' senior unsecured notes to Baa3 with a stable outlook.

Receivables Securitization Facility

On December 20, 2018, we amended the terms of our receivables securitization facility with Mitsubishi UFJ Financial Group, Inc.("MUFG") to:

On December 20, 2018, we amended the terms of our receivables securitization facility with Mitsubishi UFJ Financial Group, Inc.

(i) extend the term of the facility to November 8, 2021;

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Effective July 30, 2021, we terminated the receivables securitization facility.

There was no outstanding balance under the receivables securitization facility as of December 31, 2020.

Net receivables totaling $ 121 million were collateral for the investments under the receivables facility as of December 31, 2020.

Derivative Instruments and Hedging Activities

We are exposed to market risks, including the effect of changes in interest rates, foreign currency exchange rates and commodity prices.

Under current policies, we may use derivatives to manage our exposure to variable interest rates on our senior secured debt and changing foreign exchange rates for certain foreign currency denominated transactions.

We do not hold or issue derivatives for trading purposes.

Cash Flow Hedges

Through June 30, 2021, we held interest rate swap agreements to hedge a portion of the variable interest rate risk on the variable rate borrowings under our Credit Agreement, with the objective of minimizing the impact of interest rate fluctuations and stabilizing cash flows.

Under the terms of the interest rate swap agreements, we paid the fixed interest rate and received payment at a variable rate of interest based on LIBOR for the respective currency of each interest rate swap agreement’s notional amount.

Changes in the fair value of the interest rate swap agreements were recorded in Accumulated other comprehensive income (loss) and were reclassified to Interest expense when the underlying interest payment impacted earnings.

At December 31, 2020, we held cross currency swaps, which contained an interest rate swap component and a foreign currency forward contract component that, combined with related intercompany financing arrangements, effectively converted variable rate U.S.

Through June 30, 2021, we held interest rate swap agreements to hedge a portion of the variable interest rate risk on our variable rate borrowings under our Credit Agreement and cross currency swaps, which contained an interest rate swap component and a foreign currency forward contract component that, combined with related intercompany financing arrangements, effectively converted variable rate U.S.

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

The swaps were intended to minimize the impact of fluctuating exchange rates and interest rates on the cash flows resulting from the related intercompany financing arrangements.

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

Changes in the fair value of the derivative instruments were recorded in Accumulated other comprehensive income (loss) and were reclassified to Interest expense and Interest income and Other (income) expense, net when the underlying transactions had an impact on earnings.

From time to time, we may hold foreign currency forward contracts related to certain foreign currency denominated intercompany transactions, with the objective of minimizing the impact of fluctuating exchange rates on these future cash flows.

Under the terms of the foreign currency forward contracts, we will sell the foreign currency in exchange for U.S.

dollars at a fixed rate on the maturity dates of the contracts.

Changes in the fair value of the foreign currency forward contracts where hedge accounting is applied are recorded in Accumulated other comprehensive income (loss) and reclassified to Other (income) expense, net when the underlying transaction has an impact on earnings.

As of December 31, 2021, we held no cash flow hedges, and as of December 31, 2020, we held cash flow hedges with the following notional amounts (in thousands):

December 31, 2020

Interest rate swap agreements

USD denominated $ 480,000

Cross currency swap agreements

Euro denominated € 340,000

Foreign currency forward contracts

SEK denominated kr 227,000

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables summarize the fair values of the designated cash flow hedges as of December 31, 2020 (in thousands):

Fair Value at December 31, 2020

Other Accrued Expenses

Interest rate swap agreements $ 899

Cross currency swap agreements 56,328

Foreign currency forward contracts 1,350

Total cash flow hedges $ 58,577

While certain derivative instruments executed with the same counterparty were subject to master netting arrangements, we present our cash flow hedge derivative instruments on a gross basis on the Consolidated Balance Sheets.

The impact of netting the fair values of these contracts would have no effect on the Consolidated Balance Sheet at December 31, 2020.

The activity related to the cash flow hedges is included in Note 8, "Accumulated Other Comprehensive Income (Loss)."

The activity related to the cash flow hedges is presented in either operating activities or financing activities in our Consolidated Statements of Cash Flows.

The activity related to our previously matured cash flow hedges is included in Note 17, "Accumulated Other Comprehensive Income (Loss)" and presented in either operating activities or financing activities in our Consolidated Statements of Cash Flows.

Other Derivative Instruments Not Designated as Hedges

To manage foreign currency exposure on non-functional currency denominated borrowings, we entered into short term foreign currency forward contracts.

As of December 31, 2021, we held no foreign currency forward contracts related to non-functional currency denominated borrowings.

At December 31, 2020, the notional amounts of foreign currency forward contracts related to non-functional currency denominated borrowings were € 142 million and £ 75 million.

We elected not to apply hedge accounting for these transactions, and therefore the contracts were adjusted to fair value through the results of operations as of each balance sheet date.

The fair values of these short-term derivative instruments were recorded in either Prepaid expenses and other current assets or Other accrued expenses on the Consolidated Balance Sheets.

The fair values of these contracts at December 31, 2020, along with the effect on the results of operations during the years ended December 31, 2021 and 2020, were immaterial.

We hold other short-term derivative instruments, including foreign currency forward contracts, to manage our exposure to variability in the cash flows related to inventory purchases denominated in a non-functional currency.

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

The notional amount and fair value of these contracts as of December 31, 2021 and 2020, along with the effect on the results of operations, were immaterial.

The notional amount and fair value of these contracts at December 31, 2022 and 2021, along with the effect on our results of operations during the years ended December 31, 2022, 2021, and 2020, were not material.

Fair Value Measurements

7 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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 December 31, 2021 and December 31, 2020 (in thousands):

Balance as of December 31, 2022 Fair Value Measurements as of December 31, 2022

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Contingent consideration liabilities $ 18 $ — $ — $ 18

Interest rate swaps 899 — 899 —

Deferred compensation liabilities 89 — 89 —

Cross currency swap agreements 56,328 — 56,328 —

Foreign currency forward contracts 5,190 — 5,190 —

Total Liabilities $ 107 $ — $ 89 $ 18

Plan investments in corporate-owned life insurance, which are intended to fund the deferred compensation liabilities, are recorded at their cash surrender value, not fair value, and therefore are not included above.

The cash surrender value of life insurance assets was $ 90 million and $ 72 million as of December 31, 2021 and 2020, respectively.

The current portion of contingent consideration liabilities is included in Other current liabilities on the Consolidated Balance Sheets;

the noncurrent portion of deferred compensation liabilities and contingent consideration liabilities is included in Other noncurrent liabilities on the Consolidated Balance Sheets based on the expected timing of the related payments.

The balance sheet classification of the interest rate swaps, cross currency swap agreements, and foreign currency forward contracts is presented in Note 10, "Derivative Instruments and Hedging Activities."

deferred compensation liabilities and the noncurrent portion of contingent consideration liabilities are included in Other noncurrent liabilities on the Consolidated Balance Sheets based on the expected timing of the related payments.

Our Level 2 liabilities are valued using inputs from third parties and market observable data.

We obtain valuation data for the deferred compensation liabilities from third party sources, which use quoted market prices, investment allocations and reportable trades.

We value other derivative instruments using a third party valuation model that performs a discounted cash flow analysis based on the terms of the contracts and market observable inputs such as current and forward interest rates and current and forward foreign exchange rates.

Our contingent consideration liabilities are related to our business acquisitions.

5 unchanged sentences

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

Based on market conditions as of both December 31, 2021 and 2020, the fair value of the credit agreement borrowings reasonably approximated the carrying values of $ 1,887 million and $ 967 million, respectively.

Based on market conditions as of both December 31, 2022 and 2021, the fair value of the Prior Credit Agreement borrowings reasonably approximated the carrying values of $ 1,786 million and $ 1,887 million, respectively.

As of December 31, 2022 and 2021, the fair values of the Euro Notes (2024) were approximately $ 535 million and $ 605 million, respectively, compared to carrying values of $ 535 million and $ 569 million, respectively.

As of December 31, 2020, the fair value of the Euro Notes (2026) was $ 939 million compared to a carrying value of $ 916 million.

The Euro Notes (2026) were paid off in 2021 and therefore were no longer outstanding as of December 31, 2021.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

December 31, 2021 and 2020, the fair values of the Euro Notes (2028) were $ 301 million and $ 332 million, respectively, compared to carrying values of $ 284 million and $ 305 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.

As of December 31, 2022 and 2021, the fair values of the Euro Notes (2028) were $ 254 million and $ 301 million, respectively, compared to carrying values of $ 268 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 December 31, 2022 and 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.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We lease certain warehouses, distribution centers, retail stores, office space, land, vehicles and equipment.

We determine the incremental borrowing rate by analyzing yield curves with consideration of lease term, country and Company specific factors.

In assessing the ROU asset, we include any lease prepayments and exclude lease incentives.

In assessing the lease term, we include options to renew only when it is reasonably certain that the option will be exercised.

For certain lease agreements, rental payments are adjusted periodically for inflation.

Typically, these adjustments are considered variable lease costs.

We guarantee the residual values for the majority of our leased vehicles.

2 unchanged sentences

Similarly, if the lessor realizes more than the residual value when a vehicle is sold, we would be paid the amount realized over the residual value.

The amounts recorded on the Consolidated Balance Sheets as of December 31, 2021 and 2020 related to our lease agreements are as follows (in thousands):

The amounts recorded on the Consolidated Balance Sheets as of December 31, 2022 and 2021 related to our lease agreements are as follows (in millions):

Leases Classification 2022 2021

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Operating Long-term operating lease liabilities, excluding current portion

1,209,218 1,197,963

Finance Long-term obligations, excluding current portion 31 37

Total lease liabilities $ 1,327 $ 1,464

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The components of lease expense are as follows (in thousands):

The components of lease expense are as follows (in millions):

Year Ended December 31,

8 unchanged sentences

Net lease cost $ 403 $ 429 $ 423

The future minimum lease commitments under our leases at December 31, 2021 are as follows (in thousands):

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The future minimum lease commitments under our leases at December 31, 2022 are as follows (in millions):

Years Ending December 31, Operating leases Finance leases (1)

9 unchanged sentences

(1) Amounts are included in the scheduled maturities of long-term obligations in Note 18, "Long-Term Obligations".

As of December 31, 2021, we had additional minimum operating lease payments for leases that have not yet commence d of $ 79 million .

These operating leases will commence in the nex t 18 months with lease terms of 1 to 15 years.

As of December 31, 2022, minimum operating lease payments for leases that have not yet commence d totaled $ 73 million .

These operating leases will commence in the n ext 18 months with lease te rms of 3 to 15 years .

Most of these leases have not commenced because the assets are in the process of being constructed.

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Year Ended December 31,

Supplemental cash flows information (in thousands) 2021 2020 2019

Supplemental cash flows information (in millions) 2022 2021 2020

Cash paid for amounts included in the measurement of lease liabilities

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Leased assets obtained in exchange for operating lease liabilities 159 248 244

248,480 244,073 231,454

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) The amounts disclosed for Leased assets obtained in exchange for operating lease liabilities for the years ended December 31, 2020 and 2019 in the supplemental disclosure of cash flows information includes immaterial corrections of $116 million and $87 million, respectively, to address an omission of the impact of lease modifications and terminations.

Employee Benefit Plans

Defined Benefit Plans

We have funded and unfunded defined benefit plans covering certain employee groups in the U.S.

and various European countries.

We have funded and unfunded defined benefit plans covering certain employee groups in various European countries.

Local statutory requirements govern many of our European plans.

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

On June 28, 2019, we approved an amendment to terminate our U.S.

Plan and to freeze all related benefit accruals, effective June 30, 2019.

Plan participants were able to receive their full accrued benefits from plan assets by electing either lump sum distributions or annuity contracts with a qualifying third-party annuity provider.

The resulting settlement effect of the U.S.

Plan termination was determined based on prevailing market conditions, the lump sum offer participation rate of eligible participants, the actual lump sum distributions, and annuity purchase rates at the date of distribution.

As a result of these elections, subsequent payments and annuity purchase cost to settle the plan obligations, we reclassified $ 6 million of unrealized loss from Accumulated other comprehensive loss to Interest income and other income, net in our Consolidated Statements of Income during the year ended December 31, 2020 to reflect the final settlement of the plan obligations.

LKQ CORPORATION AND SUBSIDIARIES

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Funded Status

The table below summarizes the funded status of the defined benefit plans (in thousands):

The table below summarizes the funded status of the defined benefit plans (in millions):

Change in projected benefit obligation:

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Benefits paid (1)

( 4,815 ) ( 6,841 )

Settlement ( 1 ) ( 2 )

( 1,815 ) ( 40,565 )

Transfers — 6

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Settlement ( 1 ) ( 2 )

( 1,815 ) ( 40,565 )

Transfers — 6

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(1) Includes amounts paid from plan assets as well as amounts paid from Company assets.

(2) The 2020 amount reflects the settlement of the plan obligations for the U.S.

The net amounts recognized for defined benefit plans in the Consolidated Balance Sheets were as follows (in thousands):

The net amounts recognized for defined benefit plans in the Consolidated Balance Sheets were as follows (in millions):

Noncurrent assets $ 3 $ —

Current liabilities ( 5 ) ( 5 )

Non-current liabilities ( 126,492 ) ( 148,974 )

Noncurrent liabilities ( 70 ) ( 126 )

$ ( 72 ) $ ( 131 )

The following table summarizes the accumulated benefit obligation and aggregate fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets (in thousands):

Accumulated benefit obligation $ 94 $ 191

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the projected benefit obligation and aggregate fair value of plan assets for pension plans with projected benefit obligations in excess of plan assets (in thousands):

The following table summarizes the projected benefit obligation and aggregate fair value of plan assets for pension plans with projected benefit obligations in excess of plan assets (in millions):

Projected benefit obligation $ 96 $ 194

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Net Periodic Benefit Cost

The table below summarizes the components of net periodic benefit cost for the defined benefit plans (in thousands):

The table below summarizes the components of net periodic benefit cost for the defined benefit plans (in millions):

Year Ended December 31,

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( 2 ) ( 2 ) ( 3 )

Amortization of actuarial loss (gain) (2)

1,703 1,272 ( 404 )

Settlement (gain) loss ( 54 ) 5,654 ( 378 )

Amortization of actuarial loss (2)

Settlement loss (3)

Net periodic benefit cost $ 5 $ 6 $ 11

(1) We use the fair value of our plan assets to calculate the expected return on plan assets.

(2) Actuarial gains and losses are amortized using a corridor approach.

(2) Actuarial gains and losses are amortized using a corridor approach for our pension plans.

Gains and losses are amortized if, as of the beginning of the year, the cumulative net gain or loss exceeds 10 percent of the greater of the projected benefit obligation or the fair value of the plan assets.

Gains and losses in excess of the corridor are amortized over the average remaining service period of active members expected to receive benefits under the plan or, in the case of closed plans, the expected future lifetime of the employees participating in the plan.

(3) In June 2019, we approved an amendment to terminate our U.S.

As a result of the final settlement of this plan, we reclassified $ 6 million of unrealized loss from Accumulated other comprehensive loss to Interest income and other income, net in our Consolidated Statements of Income during the year ended December 31, 2020.

The service cost component of net periodic benefit cost was classified in Selling, general and administrative expenses, while the other components of net periodic benefit cost were classified in Interest income and other income, net in the Consolidated Statements of Income.

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(1) Our expected long-term return on plan assets is determined based on the asset allocation and estimate of future long-term returns by asset class.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Assumed mortality is also a key assumption in determining benefit obligations and net periodic benefit cost.

In some of the European plans, a price inflation index is also an assumption in determining benefit obligations and net periodic benefit cost.

As of December 31, 2021, the pre-tax amounts recognized in Accumulated other comprehensive loss consisted of $ 33 million of net actuarial losses for our defined benefit plans that have not yet been recognized in net periodic benefit cost.

As of December 31, 2022, the pretax amounts recognized in Accumulated other comprehensive loss consisted of $ 16 million of net actuarial gains for our defined benefit plans that have not yet been recognized in net periodic benefit cost.

Of this amount, we expect $ 1 million to be recognized as a component of net periodic benefit cost during the year ending December 31, 2023.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Fair Value of Plan Assets

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Investments in insurance contracts represent the cash surrender value of the insurance policy.

These are actuarially determined amounts based on projections of future benefit payments, discount rates, and expected long-term rate of return on assets.

These amounts are determined by an actuary based on projections of future benefit payments, discount rates, and expected long-term rate of return on assets.

The remaining pension assets are valued at net asset value based on the underlying assets owned by the fund administrator, minus liabilities, divided by the number of units outstanding and are included in the table below to reconcile the total investment fair value of our plan assets.

For the unfunded pension plans, we pay the defined benefit plan obligations when they become due.

The table below summarizes the fair value of our defined benefit plan assets by asset category within the fair value hierarchy for the funded defined benefit pension plans (in thousands):

The table below summarizes the fair value of our defined benefit plan assets by asset category within the fair value hierarchy for the funded defined benefit pension plans (in millions):

Level 1 Level 2 Level 3 NAV Total Level 1 Level 2 Level 3 NAV Total

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(1) The underlying assets of the mutual fund valued at NAV consist of international bonds, equity, real estate and other investments.

The following table summarizes the changes in fair value measurements of Level 3 investments for the defined benefit plans (in thousands):

The following table summarizes the changes in fair value measurements of Level 3 investments for the defined benefit plans (in millions):

Balance at beginning of year $ 42 $ 45

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the insurance company then funds the pension payments to the plan participants upon retirement.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Employer Contributions and Estimated Future Benefit Payments

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We estimate that contributions to our pension plans during 2023 will be $ 6 million.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes estimated future benefit payments as of December 31, 2021 (in thousands):

The following table summarizes estimated future benefit payments as of December 31, 2022 (in millions):

Years Ending December 31, Amount

2028 - 2032 35

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

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

Year Ended December 31,

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Provision for income taxes $ 385 $ 331 $ 250

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

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

Year Ended December 31,

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Income from continuing operations before provision for income taxes $ 1,518 $ 1,399 $ 885

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

federal statutory rate is reconciled to the effective tax rate as follows:

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Effective tax rate 25.3 % 23.6 % 28.2 %

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Beginning in 2018, the Tax Act imposed a new regime of taxation on foreign subsidiary earnings, GILTI.

Beginning in 2018, the Tax Cuts and Jobs Act ("Tax Act") imposed a new regime of taxation on foreign subsidiary earnings referred to as GILTI.

We have elected to account for GILTI in the year the tax is incurred.

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international taxation from a worldwide tax system to a modified 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.

Our transition tax liability was $ 42 million payable in 8 installments from 2018 through 2025.

Our transition tax liability was $ 42 million payable in eight installments from 2018 through 2025.

The next required installment of $ 6 million is recorded in Other current liabilities and the remaining $ 19 million is recorded in Other noncurrent liabilities on the Consolidated Balance Sheets.

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federal tax in the hands of the U.S.

corporate shareholders, either as a result of the participation exemption, or due to the previous taxation of such earnings under the transition tax and GILTI regime, companies must still apply the guidance of ASC 740:

corporate shareholders, either as a result of the participation exemption, or due to the previous taxation of such earnings under the transition tax and GILTI regimes, companies must still apply the guidance of ASC 740:

Income Taxes to account for the tax consequences of outside basis differences and other tax impacts of their investments in non-U.S.

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income taxes or potential foreign withholding taxes have been recorded.

Due to the complexity of the new U.S.

Due to the complexity of the U.S.

tax regime, it remains impractical to estimate the amount of deferred taxes potentially payable were such earnings to be repatriated.

The significant components of the deferred tax assets and liabilities are as follows (in thousands):

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

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.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The significant components of the deferred tax assets and liabilities are as follows (in millions):

Deferred Tax Assets:

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Net operating loss carryforwards 19 25

Other 25,220 24,961

Total deferred tax assets, gross 496 563

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Operating lease assets, net 291 323

Other 19,086 11,364

Total deferred tax liabilities $ 707 $ 765

Net deferred tax liability $ ( 255 ) $ ( 247 )

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Noncurrent deferred tax assets $ 25 $ 32

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As of December 31, 2022 and 2021, we had interest deduction carryforwards in Italy and Germany, the tax benefits of which totaled $ 28 million and $ 32 million, respectively.

As of December 31, 2021 and 2020, we had a U.S.

capital loss carryforward, the tax benefit of which totaled $ 4 million and $ 5 million, respectively.

As of December 31, 2021 and 2020, valuation allowances of $ 45 million and $ 60 million, respectively, were recorded for deferred tax assets related to the foreign interest deduction carryforwards, the U.S.

capital loss carryforward, and for certain foreign and U.S.

net operating loss carryforwards.

The $ 15 million net decrease in valuation allowances was primarily attributable to a $ 12 million valuation allowance release with regard to Germany interest deduction carryforwards.

The net operating losses generally carry forward for an indefinite period.

As of December 31, 2022 and 2021, we had capital loss carryforwards, the tax benefit of which totaled an insignificant amount and $ 4 million, respectively.

As of December 31, 2022 and 2021, valuation allowances of $ 44 million and $ 45 million, respectively, were recorded for deferred tax assets related to the foreign interest deduction carryforwards, certain foreign and U.S.

net operating loss carryforwards and capital loss carryforwards.

The $ 1 million net decrease in valuation allowances was primarily attributable to utilization of net operating loss carryforwards and U.S.

capital loss carryforward valuation allowance activity.

The net operating losses generally carry forward for a period of five years to indefinitely.

The interest deduction carryforwards in Italy and Germany do not expire.

capital loss expires in 2022.

Realization of these deferred tax assets is dependent on the generation of sufficient taxable income prior to the expiration dates, where applicable, or in the case of interest deduction carryforward, subject to legislative thin capitalization constraints, typically based on profitability.

Based on historical and projected operating results, we believe that it is more likely than not that earnings will be sufficient to realize the deferred tax assets for which valuation allowances have not been provided.

Based on historical and projected operating results, we believe

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

that it is more likely than not that earnings will be sufficient to realize the deferred tax assets for which valuation allowances have not been provided.

While we expect to realize the deferred tax assets, net of valuation allowances, changes in tax laws or in estimates of future taxable income may alter this expectation.

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in thousands):

A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in millions):

2022 2021 2020

Balance at January 1 $ 5 $ 2 $ 2

Additions for acquired tax positions — — 1,376

Additions based on tax positions related to the current year — — 1

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Reductions for tax positions of prior year — ( 2 ) —

Lapse of statutes of limitations ( 332 ) ( 297 ) ( 297 )

Settlements with taxing authorities ( 2 ) — ( 1 )

Cumulative translation adjustment ( 222 ) 99 ( 49 )

Balance at December 31 $ 5 $ 5 $ 2

Included in the balance of unrecognized tax benefits above as of December 31, 2022, 2021 and 2020, are approximately $ 5 million, $ 4 million and $ 2 million, respectively, of tax benefits that, if recognized, would affect the effective tax rate.

The balance of unrecognized tax benefits at December 31, 2021, 2020 and 2019, includes approximately $ 1 million of tax benefits that, if recognized, would result in adjustments to deferred taxes.

The balance of unrecognized tax benefits at December 31, 2022, 2021 and 2020, includes an insignificant amount of tax benefits that, if recognized, would result in adjustments to deferred taxes.

We recognize interest and penalties accrued related to unrecognized tax benefits as income tax expense.

Attributable to the unrecognized tax benefits noted above, we had accumulated interest and penalties of $ 1 million at December 31, 2021 and less than $ 1 million at December 31, 2020 and 2019, respectively.

During the year ended December 31, 2021 and each of the years ended December 31, 2020 and 2019, $ 1 million and an immaterial amount, respectively, of interest and penalties were recorded through the income tax provision, prior to any reversals for lapses in the statutes of limitations.

During the twelve months beginning January 1, 2022, it is reasonably possible that we will reduce unrecognized tax benefits by $ 1 million, an immaterial amount of which would impact our effective tax rate.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Attributable to the unrecognized tax benefits noted above, we had accumulated interest and penalties of $ 1 million, $ 1 million, and less than $ 1 million at December 31, 2022, 2021 and 2020, respectively.

During the years ended December 31, 2022, 2021 and 2020, we recorded $ 1 million or less of interest and penalties through the income tax provision, prior to any reversals for lapses in the statutes of limitations.

During the twelve months beginning January 1, 2023, it is reasonably possible that we will reduce unrecognized tax benefits by $ 1 million, most of which would impact our effective tax rate.

The Company and/or its subsidiaries file income tax returns in the U.S.

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We have four operating segments:

Wholesale – North America, Europe, Specialty and Self Service.

The Wholesale – North America and Self Service operating segments are aggregated into one reportable segment, North America, because they possess similar economic characteristics and have common products and services, customers, and methods of distribution.

The reportable segments are organized based on a combination of geographic areas served and type of product lines offered.

The reportable segments are managed separately as each business serves different customers (i.e., geographic in the case of North America and Europe and product type in the case of Specialty) and is affected by different economic conditions.

Therefore, we present three reportable segments:

North America, Europe and Specialty.

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

North America Europe Specialty Eliminations Consolidated

Wholesale - North America, Europe, Specialty and Self Service, each of which is presented as a reportable segment.

Segment results have been adjusted retrospectively to reflect this change.

The segments are organized based on a combination of geographic areas served and type of product lines offered.

The segments are managed separately as the businesses serve different customers and are affected by different economic conditions.

Wholesale - North America and Self Service have similar economic characteristics and have common products and services, customers and methods of distribution.

We are reporting these operating segments separately to provide greater transparency to investors.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Wholesale - North America Europe Specialty Self Service Eliminations Consolidated

Year Ended December 31, 2022

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Segment EBITDA $ 852 $ 585 $ 199 $ 83 $ — $ 1,719

Depreciation and amortization (1)

Total depreciation and amortization (1)

75 145 30 14 — 264

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Segment EBITDA $ 769 $ 618 $ 223 $ 175 $ — $ 1,785

Depreciation and amortization (1)

Total depreciation and amortization (1)

80 157 30 17 — 284

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Segment EBITDA $ 665 $ 428 $ 163 $ 113 $ — $ 1,369

Depreciation and amortization (1)

Total depreciation and amortization (1)

83 173 29 14 — 299

(1) Amounts presented include depreciation and amortization expense recorded within Cost of goods sold and Restructuring and acquisition related expenses.

(1) Amounts presented include depreciation and amortization expense recorded within Cost of goods sold, Selling, general & administrative expenses and Restructuring and transaction related expenses.

The key measure of segment profit or loss reviewed by our chief operating decision maker, our Chief Executive Officer, is Segment EBITDA.

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Corporate general and administrative expenses are allocated to the segments based on usage, with shared expenses apportioned based on the segment's percentage of consolidated revenue.

We calculate Segment EBITDA as EBITDA excluding restructuring and acquisition related expenses (which includes restructuring expenses recorded in Cost of goods sold);

We calculate Segment EBITDA as EBITDA excluding restructuring and transaction related expenses (which includes restructuring expenses recorded in Cost of goods sold);

change in fair value of contingent consideration liabilities;

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equity investment fair value adjustments;

and impairment charges.

EBITDA, which is the basis for Segment EBITDA, is calculated as net income attributable to LKQ stockholders excluding discontinued operations and discontinued noncontrolling interest, depreciation, amortization, interest (which includes gains and losses on debt extinguishment) and income tax expense.

impairment charges;

and direct impacts of the Ukraine/Russia conflict and related sanctions (including provisions for and subsequent adjustments to reserves for asset recoverability and expenditures to support our employees and their families).

EBITDA, which is the basis for Segment EBITDA, is calculated as net income excluding discontinued operations, depreciation, amortization, interest (which includes gains and losses on debt extinguishment) and income tax expense.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Year Ended December 31,

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net income attributable to continuing noncontrolling interest 1 1 2

net income attributable to discontinued noncontrolling interest — 103 974

Net income attributable to LKQ stockholders 1,149 1,091 638

Net income (loss) from discontinued operations 648 ( 95 ) 1,619

Net income attributable to discontinued noncontrolling interest — ( 103 ) ( 974 )

Net income from discontinued operations 6 1 —

Net income from continuing operations attributable to LKQ stockholders 1,143 1,090 638

Depreciation and amortization 259,992 272,292 290,770

Depreciation and amortization - SG&A 237 260 272

Depreciation and amortization - cost of goods sold 27 23 22

Depreciation and amortization - restructuring expenses (1)

912 5,533 2,324

Interest expense, net of interest income 70 70 102

Loss (gain) on debt extinguishment 23,564 12,751 ( 128 )

Loss on debt extinguishment — 24 13

Provision for income taxes 385 331 250

EBITDA 1,862 1,799 1,302

Equity in earnings (losses) of unconsolidated subsidiaries (2)

22,937 5,012 ( 32,277 )

Equity in earnings of unconsolidated subsidiaries (2)

Equity investment fair value adjustments ( 5 ) 11 —

Gain due to resolution of acquisition related matter — — 12,063

Gains on bargain purchases and previously held equity interests — — 1,157

Restructuring and acquisition related expenses (1)

19,399 60,630 34,658

Restructuring and transaction related expenses (1)

Restructuring expenses - cost of goods sold — — 7

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

28 3,174 47,102

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

Change in fair value of contingent consideration liabilities — 1 1

Gains on previously held equity interests ( 1 ) — —

Direct impacts of Ukraine/Russia conflict (4)

Segment EBITDA $ 1,719 $ 1,785 $ 1,369

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

Refer to Note 5, "Restructuring and Acquisition Related Expenses," for further information.

(2) Refer to "Investments in Unconsolidated Subsidiaries" in Note 3, "Summary of Significant Accounting Policies," for further information.

(3) Refer to "Net Assets Held for Sale" in Note 3, "Summary of Significant Accounting Policies," for further information.

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

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

Refer to Note 14, "Restructuring and Transaction Related Expenses," for further information.

(2) Refer to Note 10, "Equity Method Investments," for further information.

(3) Refer to "Other Divestitures (Not Classified in Discontinued Operations)" in Note 2, "Discontinued Operations and Divestitures," for further information.

(4) Adjustments include provisions for and subsequent adjustments to reserves for asset recoverability (receivables and inventory) and expenditures to support our employees and their families in Ukraine.

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

Year Ended December 31,

1 unchanged sentence

Capital Expenditures

North America $ 129,174 $ 76,300 $ 131,643

Wholesale - North America

$ 84 $ 113 $ 58

Europe 105 141 85

Specialty 19 23 11

Self Service 14 16 19

Total capital expenditures $ 222 $ 293 $ 173

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

2021 2020 2019

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

December 31, 2022 December 31, 2021

Receivables, net

North America $ 384,283 $ 386,289 $ 419,452

Wholesale - North America

Europe 547 586

Specialty 92 102

Self Service 8 18

Total receivables, net 998 1,073

North America 825,806 810,798 991,062

Wholesale - North America

Europe 1,418 1,327

Specialty 469 458

Self Service 43 50

Total inventories 2,752 2,611

Property, plant and equipment, net

North America 628,472 583,985 610,573

Wholesale - North America

Europe 547 577

Specialty 94 93

Self Service 90 103

Total property, plant and equipment, net 1,236 1,299

Operating lease assets, net

North America 762,773 755,430 768,164

Wholesale - North America

Europe 466 515

Specialty 85 83

Self Service 135 152

Total operating lease assets, net 1,227 1,361

Equity method investments

North America 24,515 18,676 17,624

Europe 156,190 136,548 121,619

Total equity method investments 180,705 155,224 139,243

Other unallocated assets 5,825 6,262

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net property, plant and equipment;

net operating lease assets;

and equity method investments by segment as that information is used by the chief operating decision maker in assessing segment performance.

and net operating lease assets by segment as that information is used by the chief operating decision maker in assessing segment performance.

These assets provide a measure for the operating capital employed in each segment.

Unallocated assets include cash and cash equivalents, prepaid and other current and noncurrent assets, goodwill and other intangibles.

Unallocated assets include cash and cash equivalents, prepaid expenses and other current and noncurrent assets, goodwill, other intangibles and equity method investments.

Our largest countries of operation are the U.S., followed by the U.K.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table sets forth our revenue by geographic area (in thousands):

The following table sets forth our revenue by geographic area (in millions):

Year Ended December 31,

5 unchanged sentences

Total revenue $ 12,794 $ 13,089 $ 11,629

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

2021 2020 2019

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

December 31, 2022 December 31, 2021

Long-lived assets

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Total long-lived assets $ 2,463 $ 2,660

Subsequent Events

New Credit Agreement

On January 5, 2023, we and certain other subsidiaries of ours (collectively, the "Borrowers") entered into a new Credit Agreement (the “New Credit Agreement”) with several lenders;

Wells Fargo Bank, National Association (“Wells Fargo Bank”), as administrative agent;

Bank of America, N.A.

(“Bank of America”), as syndication agent;

PNC Bank, National Association, Truist Bank and MUFG Bank, Ltd.

(“MUFG”), as Documentation Agents;

Wells Fargo Bank and Bank of America, as Sustainability Structuring Agents;

Wells Fargo Securities, LLC, BofA Securities, Inc., PNC Capital Markets LLC, Truist Securities, Inc.

and MUFG, as joint bookrunners and joint lead arrangers.

The New Credit Agreement replaced our Prior Credit Agreement (as described in Note 18, "Long-Term Obligations").

The New Credit Agreement establishes;

(i) an unsecured revolving credit facility of up to a U.S.

Dollar equivalent of $ 2.0 billion, which includes a $ 150 million sublimit for the issuance of letters of credit and a $ 150 million sublimit for swing line loans (the “Revolving Loans”) and;

(ii) an unsecured term loan facility of up to $ 500 million (the “Term Loan” and collectively with the Revolving Loans, the “Loans”).

The Revolving Loans have a maturity date of January 5, 2028 and the Term Loan has a maturity date of January 5, 2026, each of which may be extended by one additional year.

The Term Loan has no required amortization payments prior to its maturity date.

Proceeds from the Loans may be used (i) to refinance certain existing indebtedness of LKQ and its subsidiaries and (ii) for general corporate purposes of LKQ and its subsidiaries in the ordinary course of business, including acquisitions and capital expenditures.

Under the New Credit Agreement, our borrowings will bear interest at the Secured Overnight Financing Rate (i.e.

"SOFR") plus the applicable spread or other risk-free interest rates that are applicable for the specified currency plus a spread.

The New Credit Agreement contains customary covenants for an unsecured credit facility for a company that has debt ratings that are investment grade, such as, requirements to comply with a total leverage ratio and interest coverage ratio, each calculated in accordance with the terms of the New Credit Agreement, and limits on the Company’s and its subsidiaries’ ability to incur liens and indebtedness.

Under the terms of the New Credit Agreement, the Borrowers withdrew initial borrowings totaling a U.S.

Dollar equivalent $ 1.8 billion at closing.

Amounts borrowed under the New Credit Agreement were used by the Borrowers to repay the outstanding principal amount and related fees and expenses under the Prior Credit Agreement and for other corporate purposes.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Termination of Prior Credit Agreement

In connection with entering into the New Credit Agreement noted above, Wells Fargo and the various lending parties terminated the existing Senior Secured Credit Agreement and each amendment thereto resulting in an immaterial loss on extinguishment of debt.

Interest Rate Swaps

In February 2023, we entered into two sets of interest rate swap agreements to hedge the risk from our variable interest rate borrowings on our New Credit Agreement.

The first set of agreements mature in February 2025 and include a notional amount of $ 400 million at a fixed average rate of 4.63 %.

The second set of agreements mature in February 2026 and include a notional amount of $ 300 million at a fixed average rate of 4.23 %.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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 8. Financial Statements and Supplementary Data