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Item 1. Financial Statements

2023-07-27 compared with 2023-04-27 · 288 added, 118 removed, 554 unchanged (42% of the section changed)

3 unchanged sentences

(In millions, except per share data)

Three Months Ended March 31,

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

2023 2022 2023 2022

Revenue $ 3,448 $ 3,341 $ 6,797 $ 6,689

3 unchanged sentences

Restructuring and transaction related expenses 8 4 26 7

Gain on disposal of businesses (1)

— ( 155 ) — ( 155 )

Depreciation and amortization 61 61 119 120

3 unchanged sentences

Gains on foreign exchange contracts - acquisition related (2)

( 23 ) — ( 46 ) —

Interest income and other income, net ( 11 ) — ( 20 ) ( 1 )

6 unchanged sentences

Net income 282 420 552 693

net income attributable to continuing noncontrolling interest 1 — 1 —

Net income attributable to LKQ stockholders $ 281 $ 420 $ 551 $ 693

Basic earnings per share:

2 unchanged sentences

Net income 1.05 1.49 2.06 2.45

net income attributable to continuing noncontrolling interest — — — —

Net income attributable to LKQ stockholders $ 1.05 $ 1.49 $ 2.06 $ 2.44

Diluted earnings per share:

2 unchanged sentences

Net income 1.05 1.49 2.06 2.44

(1) Related to the Uni-Select acquisition.

net income attributable to continuing noncontrolling interest — — — —

Net income attributable to LKQ stockholders $ 1.05 $ 1.49 $ 2.06 $ 2.44

(1) Related to the sale of PGW Auto Glass ("PGW").

Refer to Note 2, "Discontinued Operations and Divestitures" for further information.

(2) Related to the Uni-Select Inc.

("Uni-Select") acquisition.

Refer to Note 3, "Uni-Select Acquisition" and Note 17, "Derivative Instruments and Hedging Activities" for further information.

4 unchanged sentences

(In millions)

Three Months Ended March 31,

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

2023 2022 2023 2022

Net income $ 282 $ 420 $ 552 $ 693

net income attributable to continuing noncontrolling interest 1 — 1 —

Net income attributable to LKQ stockholders 281 420 551 693

Other comprehensive income (loss):

4 unchanged sentences

Comprehensive income 327 271 640 491

comprehensive income attributable to continuing noncontrolling interest 1 — 1 —

Comprehensive income attributable to LKQ stockholders $ 326 $ 271 $ 639 $ 491

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

2 unchanged sentences

(In millions, except per share data)

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Current assets:

29 unchanged sentences

Stockholders' equity:

Common stock, $ 0.01 par value, 1,000.0 shares authorized, 322.8 shares issued and 267.6 shares outstanding at March 31, 2023;

Common stock, $ 0.01 par value, 1,000.0 shares authorized, 322.9 shares issued and 267.7 shares outstanding at June 30, 2023;

322.4 shares issued and 267.3 shares outstanding at December 31, 2022

3 unchanged sentences

Treasury stock, at cost;

55.2 shares at March 31, 2023 and 55.1 shares at December 31, 2022

55.2 shares at June 30, 2023 and 55.1 shares at December 31, 2022

( 2,394 ) ( 2,389 )

7 unchanged sentences

(In millions)

Three Months Ended March 31,

Six Months Ended June 30,

CASH FLOWS FROM OPERATING ACTIVITIES:

2 unchanged sentences

Depreciation and amortization 135 133

Gain on disposal of businesses — ( 155 )

Stock-based compensation expense 20 23

2 unchanged sentences

Changes in operating assets and liabilities, net of effects from acquisitions and dispositions:

Receivables, net of allowance for credit losses ( 236 ) ( 230 )

Receivables ( 223 ) ( 186 )

Inventories 132 ( 259 )

7 unchanged sentences

Acquisitions, net of cash acquired ( 52 ) ( 5 )

Proceeds from disposals of businesses — 372

Other investing activities, net ( 3 ) ( 6 )

Net cash used in investing activities ( 97 ) ( 63 )

Net cash (used in) provided by investing activities ( 185 ) 265

CASH FLOWS FROM FINANCING ACTIVITIES:

Debt issuance costs ( 30 ) —

Proceeds from issuance of U.S.

Notes (2028/33), net of unamortized bond discount 1,394 —

Borrowings under revolving credit facilities 1,693 808

1 unchanged sentence

Borrowings under term loans 500 —

Borrowings (repayments) of other debt, net 1 ( 8 )

(Repayments) borrowings of other debt, net ( 16 ) 8

Settlement of derivative instruments ( 13 ) —

Dividends paid to LKQ stockholders ( 148 ) ( 142 )

1 unchanged sentence

Other financing activities, net ( 6 ) ( 14 )

Net cash used in financing activities ( 66 ) ( 278 )

Net cash provided by (used in) financing activities 1,099 ( 985 )

Effect of exchange rate changes on cash and cash equivalents 9 ( 26 )

Net increase in cash and cash equivalents, including cash classified within current assets held for sale 64 62

increase in cash classified within current assets held for sale — 9

Net increase in cash and cash equivalents 64 53

Net increase (decrease) in cash and cash equivalents 1,626 ( 9 )

Cash and cash equivalents, beginning of period 278 274

11 unchanged sentences

Shares Amount Shares Amount

Balance as of April 1, 2023 322.8 $ 3 ( 55.2 ) $ ( 2,394 ) $ 1,510 $ 6,852 $ ( 280 ) $ 14 $ 5,705

Net income — — — — — 281 — 1 282

Other comprehensive income — — — — — — 45 — 45

Vesting of restricted stock units, net of shares withheld for employee tax 0.1 — — — — — — — —

Stock-based compensation expense — — — — 10 — — — 10

Dividends declared to LKQ stockholders ($0.275 per share) — — — — — ( 74 ) — — ( 74 )

Balance as of June 30, 2023 322.9 $ 3 ( 55.2 ) $ ( 2,394 ) $ 1,520 $ 7,059 $ ( 235 ) $ 15 $ 5,968

LKQ Stockholders

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

Comprehensive Loss Noncontrolling Interest Total Stockholders' Equity

Shares Amount Shares Amount

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

Net income — — — — — 420 — — 420

Other comprehensive loss — — — — — — ( 149 ) — ( 149 )

Purchase of treasury stock — — ( 8.1 ) ( 404 ) — — — — ( 404 )

Stock-based compensation expense — — — — 10 — — — 10

Dividends declared to LKQ stockholders ($0.25 per share) — — — — — ( 71 ) — — ( 71 )

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

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

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Stockholders' Equity

(In millions, except per share data)

LKQ Stockholders

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

Comprehensive Loss Noncontrolling Interest Total Stockholders' Equity

Shares Amount Shares Amount

Balance as of January 1, 2023 322.4 $ 3 ( 55.1 ) $ ( 2,389 ) $ 1,506 $ 6,656 $ ( 323 ) $ 14 $ 5,467

5 unchanged sentences

Dividends declared to LKQ stockholders ($0.55 per share) — — — — — ( 148 ) — — ( 148 )

Balance as of March 31, 2023 322.8 $ 3 ( 55.2 ) $ ( 2,394 ) $ 1,510 $ 6,852 $ ( 280 ) $ 14 $ 5,705

Balance as of June 30, 2023 322.9 $ 3 ( 55.2 ) $ ( 2,394 ) $ 1,520 $ 7,059 $ ( 235 ) $ 15 $ 5,968

LKQ Stockholders

9 unchanged sentences

Dividends declared to LKQ stockholders ($0.50 per share) — — — — — ( 143 ) — — ( 143 )

Balance as of March 31, 2022 322.0 $ 3 ( 37.3 ) $ ( 1,490 ) $ 1,482 $ 5,995 $ ( 206 ) $ 15 $ 5,799

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

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

19 unchanged sentences

Glass Manufacturing Business

For the three months ended March 31, 2022, we recorded to discontinued operations a $ 4 million benefit primarily related to the reassessment of a previously recorded valuation allowance on a deferred tax asset related to our glass manufacturing business sold in 2017.

For the six months ended June 30, 2022, we recorded to discontinued operations a $ 4 million benefit primarily related to the reassessment of a previously recorded valuation allowance on a deferred tax asset related to our glass manufacturing business sold in 2017.

Other Divestitures (Not Classified in Discontinued Operations)

In April 2022, we completed the sale of PGW Auto Glass ("PGW"), our aftermarket glass business within our Wholesale - North America segment, to a third party for $ 361 million.

In April 2022, we completed the sale of PGW, our 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).

Uni-Select Acquisition

On February 26, 2023, we entered into a definitive agreement to acquire all of Uni-Select Inc.'s (“Uni-Select”) issued and outstanding shares for Canadian dollar (“CAD”) 48.00 per share in cash, representing a total enterprise value of approximately CAD 2.8 billion ($ 2.1 billion at the March 31, 2023 exchange rate) (the "Uni-Select Acquisition").

Uni-Select is a leading distributor of automotive refinish and industrial coatings and related products in North America through its FinishMaster segment, and in the automotive aftermarket parts business in Canada through its Canadian Automotive Group segment and in the United Kingdom (“U.K.”) through its GSF Car Parts segment.

This acquisition will complement our existing North American paint distribution operations and provides a scaled position in the Canadian mechanical parts space, with opportunity for future consolidation and growth.

On April 27, 2023, Uni-Select's shareholders approved the proposed acquisition.

The Uni-Select Acquisition is expected to be completed in the second half of 2023 and is subject to regulatory approvals and other

customary closing conditions.

We intend to divest the GSF Car Parts segment on or shortly after the acquisition closing date and the remaining businesses will be reported within our Wholesale - North America segment.

On February 26, 2023, we entered into an arrangement agreement in order to implement a plan of arrangement (the "Arrangement") under the provisions of the Québec Business Corporations Act pursuant to which we will acquire all of Uni-Select's issued and outstanding shares for Canadian dollar (“CAD”) 48.00 per share in cash, representing a total enterprise value of approximately CAD 2.8 billion ($ 2.1 billion at the June 30, 2023 exchange rate) (the "Uni-Select Acquisition").

Uni-Select is a leading distributor of automotive refinish and industrial coatings and related products in North America through its FinishMaster segment, in the automotive aftermarket parts business in Canada through its Canadian Automotive Group segment and in the United Kingdom (“U.K.”) through its GSF Car Parts segment.

The Uni-Select Acquisition will complement our existing North American paint distribution operations and provides a scaled position in the Canadian mechanical parts space, with opportunity for future consolidation and growth.

During the second quarter of 2023, we received the required approvals

from Uni-Select's shareholders, the Superior Court of Québec and regulators in the United States and Canada with respect to the Arrangement.

On July 21, 2023, the U.K.'s Competition and Markets Authority issued its Phase 1 decision on the Arrangement, and in response we submitted proposed undertakings relating to the divestiture of Uni-Select’s GSF Car Parts business in the U.K.

As a result of the satisfaction or waiver of all the closing conditions relating to required regulatory approvals on July 26, 2023, Uni-Select and LKQ Corporation will proceed with the remaining procedures necessary to give effect to the Arrangement.

Subject to the satisfaction or waiver of the remaining closing conditions pursuant to its terms, the Arrangement is currently anticipated to be completed on or around August 1, 2023, and we plan to divest the GSF Car Parts business soon thereafter.

The remaining businesses will be reported within our Wholesale - North America segment.

See Note 11, "Restructuring and Transaction Related Expenses" for information related to transaction expenses related to the Uni-Select Acquisition.

1 unchanged sentence

These foreign exchange contracts do not qualify for hedge accounting, and therefore the changes in fair value are reported in Gains on foreign exchange contracts - acquisition related in the Unaudited Condensed Consolidated Statements of Income.

As of March 31, 2023, we reported an asset of $ 23 million with a corresponding gain for the first quarter of 2023.

As of June 30, 2023, we reported an asset of $ 46 million with corresponding gains of $ 23 million and $ 46 million for the three and six months ended June 30, 2023, respectively.

We intend to settle these foreign exchange contracts upon the closing of the Uni-Select Acquisition.

See Note 17, "Derivative Instruments and Hedging Activities" for information related to these foreign exchange contracts.

In connection with the Uni-Select Acquisition, we entered into a commitment letter for a $ 2.1 billion senior unsecured bridge loan facility ("Bridge Loan") with various banks.

The capacity under the Bridge Loan was reduced to $ 1.6 billion as of March 31, 2023 upon execution of a term loan agreement as discussed below.

There were no draws on the facility as of March 31, 2023.

We incurred $ 9 million in upfront fees related to the facility and may incur additional fees and holding costs if the bridge loan facility is not canceled by specified dates.

During the three months ended March 31, 2023, we amortized $ 3 million of these upfront fees (reported in Interest expense) with the remaining balance to be amortized over the expected term of the facility.

In connection with the Uni-Select Acquisition, we entered into a senior unsecured bridge loan facility to obtain committed financing for the purchase price.

The bridge loan facility was terminated in the second quarter of 2023 after arranging the permanent financing as discussed below.

We incurred $ 9 million in upfront fees related to the bridge loan facility and amortized $ 6 million and $ 9 million of these upfront fees (reported in Interest expense) during the three and six months ended June 30, 2023, respectively.

For the permanent financing, on March 27, 2023, we entered into a new term loan credit agreement ("CAD Note") which establishes an unsecured term loan facility of up to CAD 700 million scheduled to mature three years from the date of funding.

1 unchanged sentence

The CAD Note is expected to fund one business day prior to the consummation of the Uni-Select Acquisition transaction and includes a non-usage fee that will be incurred through the date the proceeds are drawn on the facility.

There were no borrowings against the CAD Note as of March 31, 2023.

There were no borrowings against the CAD Note as of June 30, 2023.

We issued a borrowing request on July 26, 2023 for the full amount in anticipation of closing early August 2023.

The CAD Note contains customary covenants for an unsecured term loan 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 CAD Note, and limits on the Company’s and its subsidiaries’ ability to incur liens and indebtedness.

The interest rate applicable to the CAD Note may be (i) a forward-looking term rate based on the Canadian Dollar Offer Rate for an interest period chosen by the Company of one or three months or (ii) the Canadian Prime Rate (as defined in the CAD Note), plus in each case a spread based on the Company’s debt rating and total leverage ratio.

We anticipate funding the remainder of the purchase price with cash on hand and the issuance of senior notes.

To hedge the movement of market interest rates for senior notes prior to the expected issuance date, we entered into forward-starting interest rate swaps to lock interest rates for the potential five and ten year senior notes.

Additionally, on May 24, 2023, we completed an offering of $ 1,400 million aggregate principal amount of senior unsecured notes, consisting of $ 800 million senior notes due 2028 (the "U.S.

Notes (2028)") and $ 600 million senior notes due 2033 (the "U.S.

Notes (2033)" and together with the U.S.

Notes (2028), the "U.S.

Notes (2028/33)").

The net proceeds from the offering of the U.S.

Notes (2028/33) will be used, together with borrowings under our CAD note, (i) to finance a portion of the consideration payable for the Uni-Select Acquisition, including repaying existing Uni-Select indebtedness, (ii) to pay associated fees and expenses, including fees and expenses incurred in connection with the offering, and (iii) for general corporate purposes.

As of June 30, 2023, we recorded the net proceeds received of $ 1,385 million to Cash and cash equivalents on the Unaudited Condensed Consolidated Balance Sheets as there are no restrictions on usage of the funds.

The proceeds were invested in money market funds, and the interest income partially offsets the carrying cost of the U.S.

Notes (2028/33).

Notes (2028) and U.S.

Notes (2033) bear interest at rates of 5.75 % and 6.25 %, respectively, per year from the date of original issuance or from the most recent payment date on which interest has been paid or provided for.

See Note 16, "Long-Term Obligations" for additional information related to the offering of the Notes.

To hedge the movement of market interest rates for the senior notes prior to the issuance date, we entered into forward-starting interest rate swaps to lock interest rates for the five and ten year senior notes.

These forward-starting interest rate swaps were settled following the issuance of the U.S.

Notes (2028/33).

See Note 17, "Derivative Instruments and Hedging Activities" for information related to these interest rate instruments.

We anticipate funding the remainder of the purchase price with borrowings under our revolving credit facility and/or cash on hand.

We initiated borrowings on our revolving credit facility for approximately $150 million on July 26, 2023 in anticipation of closing early August 2023.

We classify our inventory into the following categories:

1 unchanged sentence

Inventories consist of the following (in millions):

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Aftermarket and refurbished products $ 2,133 $ 2,279

3 unchanged sentences

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

As of March 31, 2023, manufactured products inventory was composed of $ 29 million of raw materials, $ 7 million of work in process, and $ 14 million of finished goods.

As of June 30, 2023, manufactured products inventory was composed of $ 32 million of raw materials, $ 7 million of work in process, and $ 16 million of finished goods.

As of December 31, 2022, manufactured products inventory was composed of $ 26 million of raw materials, $ 5 million of work in process, and $ 15 million of finished goods.

Allowance for Credit Losses

Our allowance for credit losses was $ 58 million and $ 54 million as of March 31, 2023 and December 31, 2022, respectively.

The provision for credit losses was $ 5 million and $ 8 million for the three months ended March 31, 2023 and 2022, respectively.

Our allowance for credit losses was $ 52 million and $ 54 million as of June 30, 2023 and December 31, 2022, respectively.

The provision for credit losses was $ 1 million for both the three months ended June 30, 2023 and 2022 and $ 6 million and $ 9 million for the six months ended June 30, 2023 and 2022, respectively.

Noncontrolling Interest

8 unchanged sentences

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.

We did not identify any indicators of impairment in the first three months of 2023 that necessitated an interim test of goodwill impairment or indefinite-lived intangible assets impairment.

We did not identify any indicators of impairment in the first six months of 2023 that necessitated an interim test of goodwill impairment or indefinite-lived intangible assets impairment.

Equity Method Investments

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

Segment Ownership as of March 31, 2023

March 31, 2023 December 31, 2022

Segment Ownership as of June 30, 2023

June 30, 2023 December 31, 2022

MEKO AB (1)(2)

1 unchanged sentence

Total $ 155 $ 141

(1) As of March 31, 2023, the Level 1 fair value of our investment in MEKO AB ("Mekonomen") was $ 178 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 March 31, 2023, our share of the book value of Mekonomen's net assets exceeded the book value of our investment by $ 8 million;

(1) As of June 30, 2023, the Level 1 fair value of our investment in MEKO AB ("Mekonomen") was $ 161 million based on the quoted market price for Mekonomen's common stock using the same foreign exchange rate as the carrying value.

(2) As of June 30, 2023, our share of the book value of Mekonomen's net assets exceeded the book value of our investment by $ 9 million;

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

9 unchanged sentences

Warranty claims ( 41 )

Balance as of March 31, 2023 $ 32

Balance as of June 30, 2023 $ 34

Revenue Recognition

12 unchanged sentences

and oil and automotive fluids.

Additionally, in both our Wholesale - North America and Europe segments, we sell paint and paint related consumables for refinishing vehicles.

For our Specialty operations, we serve seven product segments:

8 unchanged sentences

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

Three Months Ended March 31,

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

2023 2022 2023 2022

Wholesale - North America $ 1,121 $ 1,050 $ 2,269 $ 2,156

4 unchanged sentences

Wholesale - North America 78 94 159 189

Europe 5 7 12 14

Self Service 106 148 215 290

3 unchanged sentences

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

Classification March 31, 2023 December 31, 2022

Classification June 30, 2023 December 31, 2022

Return asset Prepaid expenses and other current assets $ 63 $ 58

4 unchanged sentences

The following table sets forth our revenue by geographic area (in millions):

Three Months Ended March 31,

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

2023 2022 2023 2022

United States $ 1,690 $ 1,747 $ 3,371 $ 3,497

United Kingdom 415 425

Germany 436 390 852 776

United Kingdom 422 393 837 818

Other countries 900 811 1,737 1,598

25 unchanged sentences

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

Three Months Ended March 31,

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

Plan Expense Type 2023 2022 2023 2022

3 unchanged sentences

Total $ 2 $ — $ 7 $ —

2019/2020 Global Plan Facility exit costs $ — $ 1 $ — $ 1

Total $ — $ 1 $ — $ 1

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

Total $ — $ — $ 1 $ —

Acquisition Integration Plans Facility exit costs $ 2 $ —

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

Facility exit costs — — 2 —

Total $ — $ 2 $ 2 $ 2

8 unchanged sentences

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

March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022 March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022 June 30, 2023 December 31, 2022 June 30, 2023 December 31, 2022

Employee related costs (1)

7 unchanged sentences

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

Three Months Ended March 31,

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

2023 2022 2023 2022

Professional fees (1)

$ 6 $ 1 $ 16 $ 4

Transaction related expenses

$ 6 $ 1 $ 16 $ 4

(1) Included external costs such as legal, accounting and advisory fees related to completed and potential transactions (including Uni-Select transaction costs in 2023).

Stock-Based Compensation

The following table summarizes activity related to our restricted stock units ("RSUs") under the LKQ Corporation 1998 Equity Incentive Plan (the "Equity Incentive Plan") for the three months ended March 31, 2023 (in millions, except years and per share amounts):

The following table summarizes activity related to our restricted stock units ("RSUs") under the LKQ Corporation 1998 Equity Incentive Plan (the "Equity Incentive Plan") for the six months ended June 30, 2023 (in millions, except years and per share amounts):

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

1 unchanged sentence

Vested ( 0.4 ) $ 42.07

Unvested as of March 31, 2023 1.5 $ 47.30

Expected to vest after March 31, 2023 1.3 $ 47.87 3.1 $ 73

Unvested as of June 30, 2023 1.4 $ 47.31

Expected to vest after June 30, 2023 1.2 $ 47.75 2.9 $ 71

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

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

(2) The weighted average grant date fair value of RSUs granted during the three months ended March 31, 2022 was $ 48.97 .

The fair value of RSUs that vested during the three months ended March 31, 2023 was $ 16 million;

(2) The weighted average grant date fair value of RSUs granted during the six months ended June 30, 2022 was $ 49.00 .

The fair value of RSUs that vested during the six months ended June 30, 2023 was $ 21 million;

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

The following table summarizes activity related to our performance-based RSUs ("PSUs") under the Equity Incentive Plan for the three months ended March 31, 2023 (in millions, except years and per share amounts):

The following table summarizes activity related to our performance-based RSUs ("PSUs") under the Equity Incentive Plan for the six months ended June 30, 2023 (in millions, except years and per share amounts):

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

1 unchanged sentence

Vested ( 0.2 ) $ 32.28

Unvested as of March 31, 2023 0.4 $ 46.86

Expected to vest after March 31, 2023 0.3 $ 46.22 1.6 $ 18

Unvested as of June 30, 2023 0.4 $ 47.51

Expected to vest after June 30, 2023 0.3 $ 46.85 1.4 $ 18

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

1 unchanged sentence

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

The weighted average grant date fair value of PSUs granted during the three months ended March 31, 2022 was $ 48.92 .

The fair value of PSUs that vested during the three months ended March 31, 2023 was $ 12 million;

The weighted average grant date fair value of PSUs granted during the six months ended June 30, 2022 was $ 48.92 .

The fair value of PSUs that vested during the six months ended June 30, 2023 was $ 12 million;

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

Stock-Based Compensation Expense

Pre-tax stock-based compensation expense for RSUs and PSUs totaled $ 10 million and $ 13 million for the three months ended March 31, 2023 and 2022, respectively.

As of March 31, 2023, unrecognized compensation expense related to unvested RSUs and PSUs was $ 71 million.

Pre-tax stock-based compensation expense for RSUs and PSUs totaled $ 10 million and $ 20 million for the three and six months ended June 30, 2023, respectively, and $ 10 million and $ 23 million for the three and six months ended June 30, 2022, respectively.

As of June 30, 2023, unrecognized compensation expense related to unvested RSUs and PSUs was $ 62 million.

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

1 unchanged sentence

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

Three Months Ended March 31,

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

2023 2022 2023 2022

Income from continuing operations $ 282 $ 420 $ 552 $ 689

1 unchanged sentence

Effect of dilutive securities:

RSUs 0.4 0.5 0.6 0.7

PSUs 0.2 0.4 0.2 0.3

Denominator for diluted earnings per share—Adjusted weighted-average shares outstanding 268.2 282.3 268.3 284.5

6 unchanged sentences

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

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

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

Balance as of January 1, 2023

Balance as of April 1, 2023

$ ( 276 ) $ ( 17 ) $ 11 $ 2 $ ( 280 )

Pretax income 34 14 — — 48

Income tax effect — ( 3 ) — — ( 3 )

Reclassification of unrealized gain — ( 1 ) — — ( 1 )

Other comprehensive income from unconsolidated subsidiaries — — — 1 1

Balance as of June 30, 2023

$ ( 242 ) $ ( 7 ) $ 11 $ 3 $ ( 235 )

Three Months Ended June 30, 2022

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

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

Pretax loss ( 154 ) — — ( 154 )

Disposal of business 4 — — 4

Other comprehensive income from unconsolidated subsidiaries — — 1 1

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

Six Months Ended June 30, 2023

Balance as of January 1, 2023 $ ( 333 ) $ — $ 11 $ ( 1 ) $ ( 323 )

Pretax income (loss) 91 ( 8 ) — — 83

Income tax effect — 2 — — 2

Reclassification of unrealized gain — ( 1 ) — — ( 1 )

Other comprehensive income from unconsolidated subsidiaries — — — 4 4

Balance as of March 31, 2023

Balance as of June 30, 2023

$ ( 242 ) $ ( 7 ) $ 11 $ 3 $ ( 235 )

Three Months Ended March 31, 2022

Six Months Ended June 30, 2022

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

1 unchanged sentence

Pretax loss ( 208 ) — — ( 208 )

Disposal of business 4 — — 4

Other comprehensive income from unconsolidated subsidiaries — — 2 2

Balance as of March 31, 2022 $ ( 175 ) $ ( 24 ) $ ( 7 ) $ ( 206 )

During the three months ended March 31, 2023, we reclassified an immaterial amount of gains on our interest rate swaps to Interest expense in the Unaudited Condensed Consolidated Statements of Income.

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

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

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All outstanding payments owed under the supply chain finance programs with the participating financial institutions are recorded within Accounts payable in our Unaudited Condensed Consolidated Balance Sheets.

As of March 31, 2023 and December 31, 2022, we had $ 240 million and $ 248 million of Accounts payable outstanding under the arrangements, respectively.

As of June 30, 2023 and December 31, 2022, we had $ 264 million and $ 248 million of Accounts payable outstanding under the arrangements, respectively.

Long-Term Obligations

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

March 31, 2023

June 30, 2023

December 31, 2022

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Senior Notes:

Notes (2028) June 2028 5.75 % 800 — % —

Notes (2033) June 2033 6.25 % 600 — % —

Euro Notes (2024) April 2024 3.88 % 545 3.88 % 535

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Other debt 2.14 % (1)

17 2.28 % (1)

Total debt 4,030 2,662

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

Total debt, net of debt issuance costs 2,728 2,656

long-term debt issuance costs and unamortized bond discount ( 30 ) ( 6 )

Total debt, net of debt issuance costs and unamortized bond discount 4,000 2,656

current maturities, net of debt issuance costs ( 579 ) ( 34 )

Long term debt, net of debt issuance costs $ 2,684 $ 2,622

Long term debt, net of debt issuance costs and unamortized bond discount $ 3,421 $ 2,622

(1) Interest rate derived via a weighted average

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Unsecured Senior Notes

Interest on the Euro Notes (2024) and Euro Notes (2028) are payable in arrears on April 1 and October 1 of each year.

On May 24, 2023, as part of the financing for the Uni-Select Acquisition, we completed an offering of $ 1,400 million aggregate principal amount of senior unsecured notes, consisting of $ 800 million senior notes due 2028 and $ 600 million senior notes due 2033 in a private placement conducted pursuant to Rule 144A and Regulation S under the United States Securities Act of 1933.

See Note 3, "Uni-Select Acquisition" for additional information on the acquisition and the U.S.

Notes (2028/33).

Notes (2028/33) are governed by the Indenture, dated as of May 24, 2023 (the "Indenture"), among the Company, certain of the Company's subsidiaries (the "Guarantors") and U.S.

Bank Trust Company, National Association, as trustee.

Notes (2028/33) will be initially fully and unconditionally guaranteed on a senior unsecured basis by each of our wholly owned domestic subsidiaries that are guarantors under our Senior Unsecured Credit Agreement, dated as of January 5, 2023, or the CAD Note and each of our domestic subsidiaries that in the future agrees to guarantee obligations under the Senior Unsecured Credit Agreement, the CAD Note, any other Credit Facility Debt or any Capital Markets Debt (as such terms are defined in the Indenture).

Each subsidiary guarantee will rank equally in right of payment with all existing and future liabilities of the applicable subsidiary guarantor that are not subordinated.

Each subsidiary guarantee will effectively rank junior to any secured indebtedness of its respective subsidiary guarantor to the extent of the lesser of the amount of such secured indebtedness and the value of the assets securing such indebtedness.

Under the terms of any subsidiary guarantee, holders of the U.S.

Notes (2028/33) will not be required to exercise their remedies against us before they proceed directly against the subsidiary guarantors.

Prior to May 15, 2028 in the case of the U.S.

Notes (2028) or March 15, 2033 in the case of the U.S.

Notes (2033) (each such date a "Par Call Date"), we may redeem the U.S.

Notes (2028) or U.S.

Notes (2033), as applicable, at our option, in whole or in part, at any time and from time to time, at a redemption price equal to the greater of (i) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date (assuming, in each case, that such U.S.

Notes (2028/33) matured on their applicable Par Call Date) on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 40 basis points in the case of the U.S.

Notes (2028) or 45 basis points in the case of the U.S.

Notes (2033), less interest accrued to the date of redemption;

and (ii) 100 % of the principal amount of the U.S.

Notes (2028/33) to be redeemed;

plus in either case, accrued and unpaid interest thereon to, but excluding the redemption date.

On or after the applicable Par Call Date we may redeem the U.S.

Notes (2028/33) of the applicable series, in whole or in part, at any time and from time to time, at a redemption price equal to 100 % of the principal amount of the U.S.

Notes (2028/33) being redeemed plus accrued and unpaid interest thereon to, but excluding, the redemption date.

If the Uni-Select Acquisition is not consummated or the Arrangement is terminated, in each case, on or prior to November 27, 2023 (subject to extension to February 26, 2024 if certain regulatory approvals are not received by November 27, 2023, or such later date to which the “Outside Date” (as defined in the Arrangement as in effect on May 24, 2023) may be extended in accordance with the terms of the Arrangement), then we will be required to redeem the U.S.

Notes (2033), in whole and not in part, at a redemption price of 101 % of their principal amount, plus accrued and unpaid interest to, but excluding, the date of redemption.

In connection with the sale of the U.S.

Notes (2028/33), we entered into a Registration Rights Agreement, dated as of May 24, 2023 (the "Registration Rights Agreement"), with the Guarantors and BofA Securities, Inc.

and Wells Fargo Securities, LLC, as representatives of the initial purchasers of the U.S.

Notes (2028/33) identified therein.

Under the Registration Rights Agreement the Company and the Guarantors have agreed to (i) file a registration statement on an appropriate registration form with respect to a registered offer to exchange each series of U.S.

Notes (2028/33) and related guarantees for new notes of such series (the “Exchange Notes”) and new related guarantees, which will have terms substantially identical in all material respects to the applicable series of U.S.

Notes (2028/33) (except that the Exchange Notes will not contain terms with respect to transfer restrictions and Additional Interest (as defined below)) and (ii) cause such exchange offer registration statement to be declared effective under the Securities Act within 330 days after the issue date of the U.S.

Notes (2028/33).

A "Registration Default" will be deemed to occur if (x) we have not exchanged Exchange Notes for all U.S.

Notes (2028/33) validly tendered in accordance with the terms of an exchange offer within 365 days after the issue date of the U.S.

Notes (2028/33);

(y) if required, we have not had a shelf registration statement declared effective under the Securities Act within 270 days after the date, if any, on which we became obligated to file the shelf registration statement pursuant to the registration rights agreement;

or (z) if applicable, a shelf registration statement covering resales of the notes has been declared effective and such shelf registration statement ceases

to be effective or the prospectus contained therein ceases to be usable at any time during the effectiveness period and such failure to remain effective or usable exists for more than 90 days (whether or not consecutive) in any 12-month period (subject to certain exceptions);

additional interest ("Additional Interest") will accrue on the principal amount of the applicable U.S.

Notes (2028/33) which have not been registered and/or exchanged at a rate of 0.25 % per annum during the 90-day period beginning on the day immediately following the occurrence of any Registration Default, which rate will, after such 90-day period, increase to a maximum of 0.50 % per annum thereafter commencing on the day immediately following such Registration Default.

Interest on the U.S.

Notes (2028/33) is payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2023.

Interest on our 3.88 % senior notes due April 2024 (the "Euro Notes (2024)") and our 4.13 % senior notes due April 2028 (the "Euro Notes (2028)") are payable in arrears on April 1 and October 1 of each year.

Derivative Instruments and Hedging Activities

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Changes in the fair value of the interest rate swaps are recorded in Accumulated other comprehensive loss and reclassified to Interest expense when the hedged interest payments affect earnings.

The activity related to the interest rate swaps is classified in operating activities in our Unaudited Condensed Consolidated Statements of Cash Flows.

The activity related to the interest rate swaps is classified in operating activities in our Unaudited Condensed Consolidated Statements of Cash Flows as the activity relates to normal recurring settlements to match interest payments.

In March 2023, we entered into forward starting interest rate swaps to hedge the risk of changes in interest rates related to forecasted debt issuance to finance a portion of the Uni-Select Acquisition.

Under the agreements, we will receive a variable interest rate based on SOFR and pay a fixed rate for the notional amount and term of the forecasted debt issuance.

We are required to terminate the swaps at September 30, 2023, and we intend to terminate the agreements upon issuance of the debt if earlier.

The forward starting interest rate swaps include a total $ 600 million notional amount covering interest payments from September 2023 through September 2028 at a rate of 3.20 %, and a total $ 600 million notional amount covering interest payments from September 2023 through September 2033 at a rate of 3.34 %.

Changes in the fair value of the interest rate swaps are recorded in Accumulated other comprehensive loss and the fair value at the termination date will be reclassified to Interest expense over the term of the debt.

The activity related to the forward starting interest swaps will be classified in operating activities in our Unaudited Condensed Consolidated Statements of Cash Flows.

These swaps were settled in May 2023 after issuance of the U.S.

Notes (2028/33), resulting in total payments of $ 13 million.

See Note 16, "Long-Term Obligations" for additional information related to the offering of the U.S.

Notes (2028/33).

Changes in the fair value of the interest rate swaps were recorded in Accumulated other comprehensive loss and the fair value at the termination date will be reclassified to Interest expense over the term of the debt.

Payments made to settle the forward starting interest swaps were classified in financing activities in our Unaudited Condensed Consolidated Statements of Cash Flows as these payments were related to the forecasted debt issuance.

All of our interest rate swap contracts have been executed with counterparties that we believe are creditworthy, and we closely monitor the credit ratings of these counterparties.

As of March 31, 2023, the notional amounts, balance sheet classification and fair values of our derivative instruments designated as cash flow hedges were as follows (in millions) (there were no such hedges as of December 31, 2022):

As of June 30, 2023, the notional amounts, balance sheet classification and fair values of our derivative instruments designated as cash flow hedges were as follows (in millions) (there were no such hedges as of December 31, 2022):

Notional Amount Balance Sheet Caption Fair Value - Asset / (Liability)

Interest rate swap agreements $ 700 Other noncurrent liabilities $ ( 9 )

Forward starting interest rate swaps $ 1,200 Other accrued expenses $ ( 13 )

The activity related to our cash flow hedges is included in Note 14, "Accumulated Other Comprehensive Loss." As of March 31, 2023, we estimate that an insignificant amount of derivative gains (net of tax) included in Accumulated other comprehensive loss will be reclassified into our Unaudited Condensed Consolidated Statements of Income within the next 12 months.

Interest rate swap agreements $ 700 Other noncurrent assets $ 4

The activity related to our cash flow hedges is included in Note 14, "Accumulated Other Comprehensive Loss." As of June 30, 2023, we estimate that $ 3 million of derivative gains (net of tax) included in Accumulated other comprehensive loss will be reclassified into our Unaudited Condensed Consolidated Statements of Income within the next 12 months.

Derivative Instruments Not Designated as Hedges

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These contracts are set to expire on September 29, 2023.

These contract do not qualify for hedge accounting, and therefore, the contracts are adjusted to fair value through the results of operations as of each balance sheet date.

The fair values of these foreign exchange contracts are recorded within Prepaid expenses and other current assets on the Unaudited Condensed Consolidated Balance Sheet as of March 31, 2023, with a corresponding amount recorded to Gains on foreign exchange contracts - acquisition related on the Unaudited Condensed Consolidated Statements of Income for $ 23 million.

These contracts do not qualify for hedge accounting, and therefore, the contracts are adjusted to fair value through the results of operations as of each balance sheet date.

As of June 30, 2023, the fair value of these foreign exchange contracts was $ 46 million and is recorded within Prepaid expenses and other current assets on the Unaudited Condensed Consolidated Balance Sheets, with corresponding amounts recorded to Gains on foreign exchange contracts - acquisition related on the Unaudited Condensed Consolidated Statements of Income of $ 23 million and $ 46 million for the three and six months ended June 30, 2023, respectively.

Additionally, 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 at March 31, 2023 and December 31, 2022, along with the effect on our results of operations during the three months ended March 31, 2023 and 2022, were not material.

The notional amount and fair value of these contracts at June 30, 2023 and December 31, 2022, along with the effect on our results of operations during the three and six months ended June 30, 2023 and 2022, were not material.

Net Presentation for Derivative Instruments

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

The impact of netting the fair values of these contracts would result in a decrease to Prepaid expenses and other current assets and Other accrued expenses on our Unaudited Condensed Consolidated Balance Sheets of $ 6 million at March 31, 2023.

The impact of netting the fair values of these contracts would result in an immaterial decrease to Prepaid expenses and other current assets and Other accrued expenses on our Unaudited Condensed Consolidated Balance Sheets at June 30, 2023.

Fair Value Measurements

Financial Assets and Liabilities Measured at Fair Value

We use the market and income approaches to estimate the fair value of our financial assets and liabilities, and during the three months ended March 31, 2023, there were no significant changes in valuation techniques or inputs related to the financial assets or liabilities that we have historically recorded at fair value.

We use the market and income approaches to estimate the fair value of our financial assets and liabilities, and during the three and six months ended June 30, 2023, there were no significant changes in valuation techniques or inputs related to the financial assets or liabilities that we have historically recorded at fair value.

The tiers in the fair value hierarchy include:

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Foreign currency forward contracts (Level 2) $ 46 $ —

Interest rate swaps (Level 2) 4 —

Total Assets $ 50 $ —

Contingent consideration liabilities (Level 3) $ 8 $ 7

Interest rate swaps (Level 2) 22 —

Total Liabilities $ 8 $ 7

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

Based on market conditions as of March 31, 2023, the fair value of the Senior Unsecured Credit Agreement borrowings reasonably approximated the carrying value of $ 1,835 million.

Based on market conditions as of June 30, 2023, the fair value of the Senior Unsecured Credit Agreement borrowings reasonably approximated the carrying value of $ 1,726 million.

As of December 31, 2022, the fair value of the Prior Credit Agreement borrowings reasonably approximated the carrying value of $ 1,786 million.

As of March 31, 2023 and December 31, 2022, the fair values of the Euro Notes (2024) were approximately $ 540 million and $ 535 million, respectively, compared to carrying values of $ 542 million and $ 535 million, respectively.

As of March 31, 2023 and December 31, 2022, the fair values of the Euro Notes (2028) were $ 263 million and $ 254 million, respectively, compared to carrying values of $ 271 million and $ 268 million, respectively.

As of June 30, 2023, the fair values of the U.S.

Notes (2028) and U.S.

Notes (2033) were approximately $ 795 million and $ 600 million, respectively, compared to carrying values of $ 800 million and $ 600 million, respectively.

As of June 30, 2023 and December 31, 2022, the fair values of the Euro Notes (2024) were approximately $ 544 million and $ 535 million, respectively, compared to carrying values of $ 545 million and $ 535 million, respectively.

As of June 30, 2023 and December 31, 2022, the fair values of the Euro Notes (2028) were $ 267 million and $ 254 million, respectively, compared to carrying values of $ 273 million and $ 268 million, respectively.

The fair value measurements of the borrowings under the credit agreements 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 March 31, 2023 and December 31, 2022 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.

We estimated the fair value by calculating the upfront cash payment a market participant would require at June 30, 2023 and December 31, 2022 to assume these obligations.

The fair values of the U.S.

Notes (2028), U.S.

Notes (2033), 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.

We have immaterial equity investments recorded in Other noncurrent assets in which we have elected to use net asset value as a practical expedient to value and thus they are excluded from the fair value hierarchy disclosure.

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

As of both March 31, 2023 and December 31, 2022, the aggregate funded status of the defined benefit plans was a liability of $ 72 million, and is reported in Other noncurrent liabilities and Accrued payroll-related liabilities on our Unaudited Condensed Consolidated Balance Sheets.

Net periodic benefit cost for our defined benefit plans were insignificant for each of the three-month periods ended March 31, 2023 and 2022.

As of June 30, 2023 and December 31, 2022, the aggregate funded status of the defined benefit plans was a liability of $ 73 million and $72 million, respectively, and is reported in Other noncurrent liabilities and Accrued payroll-related liabilities on our Unaudited Condensed Consolidated Balance Sheets.

Net periodic benefit cost for our defined benefit plans were insignificant for each of the three and six-month periods ended June 30, 2023 and 2022.

The service cost component is recorded in Selling, general and administrative ("SG&A") expenses, while the other components are recorded to Interest income and other income, net on the Unaudited Condensed Consolidated Statements of Income.

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

Our effective income tax rate for the three months ended March 31, 2023 was 26.1 %, compared to 25.0 % for the three months ended March 31, 2022.

The increase in the effective tax rate for the three months ended March 31, 2023 compared to the three months ended March 31, 2022 is primarily attributable to the geographic distribution of income and 0.2 % resulting from higher non-deductible transaction costs in 2023, mostly related to the Uni-Select Acquisition.

For the three months ended March 31, 2023, the effective tax rate was decreased by 0.4 % compared to the three months ended March 31, 2022, related primarily to net favorable discrete items including excess tax benefits from stock-based payments.

Our effective income tax rate for the six months ended June 30, 2023 was 27.1 %, compared to 24.1 % for the six months ended June 30, 2022.

The increase in the effective tax rate for the six months ended June 30, 2023 compared to the six months ended June 30, 2022 is primarily attributable to:

(i) net favorable discrete items representing a 1.2 % rate benefit in the prior year, primarily related to the sale of PGW in the second quarter of 2022, (ii) unfavorable rate effects, including non-deductible transaction costs and negative impacts on foreign tax credit availability, of 0.5 % caused by Uni-Select related transaction activity, and (iii) geographic distribution of income favoring higher rate jurisdictions in 2023.

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

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Wholesale - North America Europe Specialty Self Service Eliminations Consolidated

Three Months Ended March 31, 2023

Three Months Ended June 30, 2023

Third Party $ 1,199 $ 1,638 $ 442 $ 169 $ — $ 3,448

4 unchanged sentences

20 39 8 3 — 70

Three Months Ended March 31, 2022

Three Months Ended June 30, 2022

Third Party $ 1,144 $ 1,477 $ 512 $ 208 $ — $ 3,341

4 unchanged sentences

18 39 7 4 — 68

Wholesale - North America Europe Specialty Self Service Eliminations Consolidated

Six Months Ended June 30, 2023

Third Party $ 2,428 $ 3,193 $ 838 $ 338 $ — $ 6,797

Intersegment — — 2 — ( 2 ) —

Total segment revenue $ 2,428 $ 3,193 $ 840 $ 338 $ ( 2 ) $ 6,797

Segment EBITDA $ 500 $ 339 $ 73 $ 29 $ — $ 941

Total depreciation and amortization (1)

39 73 16 7 — 135

Six Months Ended June 30, 2022

Third Party $ 2,345 $ 2,965 $ 972 $ 407 $ — $ 6,689

Intersegment — — 2 — ( 2 ) —

Total segment revenue $ 2,345 $ 2,965 $ 974 $ 407 $ ( 2 ) $ 6,689

Segment EBITDA $ 432 $ 291 $ 127 $ 72 $ — $ 922

Total depreciation and amortization (1)

37 73 15 8 — 133

(1) Amounts presented include depreciation and amortization expense recorded within Cost of goods sold, SG&A expenses and Restructuring and transaction related expenses.

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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 Net Income excluding discontinued operations;

We calculate Segment EBITDA as Net Income attributable to LKQ stockholders excluding discontinued operations;

depreciation, amortization;

interest (which includes gains and losses on debt extinguishment);

gains and losses on debt extinguishment;

income tax expense;

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

Three Months Ended March 31,

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

2023 2022 2023 2022

Net income $ 282 $ 420 $ 552 $ 693

net income attributable to continuing noncontrolling interest 1 — 1 —

Net income attributable to LKQ stockholders 281 420 551 693

net income from discontinued operations — — — 4

Net income from continuing operations 270 269

Depreciation and amortization - SG&A 58 59

Depreciation and amortization - cost of goods sold 7 6

Net income from continuing operations attributable to LKQ stockholders 281 420 551 689

Adjustments - continuing operations attributable to LKQ stockholders:

Depreciation and amortization 70 68 135 133

Interest expense, net of interest income 42 14 75 29

1 unchanged sentence

Provision for income taxes 109 127 203 216

EBITDA 463 438

Equity in earnings of unconsolidated subsidiaries (1)

( 2 ) ( 4 ) ( 5 ) ( 6 )

Gains on foreign exchange contracts - acquisition related (2)

( 23 ) — ( 46 ) —

Equity investment fair value adjustments — 2 1 3

Restructuring and transaction related expenses (3)

Gain on disposal of businesses (4)

— ( 155 ) — ( 155 )

Losses on previously held equity interests — — — 1

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(3) Refer to Note 11, "Restructuring and Transaction Related Expenses" for further information.

(4) Refer to "Other Divestitures (Not Classified in Discontinued Operations)" in Note 2, "Discontinued Operations and Divestitures" for further information.

(5) 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):

Three Months Ended March 31,

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

2023 2022 2023 2022

Capital Expenditures

Wholesale - North America

$ 16 $ 16 $ 36 $ 45

Europe 23 19 56 42

Specialty 5 4 18 8

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Receivables, net of allowance for credit losses

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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.

Our largest countries of operation are the U.S., followed by Germany and the U.K.

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

1 unchanged sentence

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

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Long-lived assets

5 unchanged sentences

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

What changed 10-Q

Item 1. Financial Statements