What changed in this filing

/stocks — the workspaceLOADING

Item 1. Business

2024-02-22 compared with 2023-02-23 · 120 added, 139 removed, 249 unchanged (51% of the section changed)

LKQ Corporation ("LKQ", the "Company" or "we"), a member of the Standard & Poor's 500 Stock In dex ("S&P 500 Index") , is a global distributor 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.

LKQ Corporation ("LKQ," the "Company" or "we"), a member of the Standard & Poor's 500 Stock In dex ("S&P 500 Index") , is a global distributor of vehicle products, including replacement parts, components and systems used in the repair and maintenance of vehicles, and specialty aftermarket products and accessories to improve the performance, functionality and appearance of vehicles.

Buyers of vehicle replacement products have the option to purchase from primarily five sources:

9 unchanged sentences

Collectively, we refer to the four sources that are not new OEM products as alternative parts.

We are a leading provider of alternative vehicle collision replacement products and alternative vehicle mechanical replacement products, with our sales, processing, and distribution facilities reaching most major markets in the United States and Canada.

We are also a leading provider of alternative vehicle replacement and maintenance products in Germany, the United Kingdom ("U.K."), the Benelux region (Belgium, Netherlands, and Luxembourg), Italy, Czech Republic, Austria, Slovakia, Poland, and various other European countries.

In addition to our wholesale operations, we operate self service retail facilities across the U.S.

Our Wholesale - North America segment is a leading provider of alternative vehicle collision replacement products, paint and related products, and alternative vehicle mechanical replacement products, with our sales, processing, and distribution facilities reaching most major markets in the United States and Canada.

Our Europe segment is a leading provider of alternative vehicle replacement and maintenance products in Germany, the United Kingdom ("U.K."), the Benelux region (Belgium, Netherlands, and Luxembourg), Italy, Czech Republic, Austria, Slovakia, Poland, and various other European countries.

Our Specialty segment is a leading distributor of specialty vehicle aftermarket equipment and accessories reaching most major markets in the U.S.

Our Self Service segment operates self service retail facilities across the U.S.

that sell recycled automotive products from end-of-life-vehicles.

We are also a leading distributor of specialty vehicle aftermarket equipment and accessories reaching most major markets in the U.S.

We are organized into four operating segments:

1 unchanged sentence

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.

See Note 25, "Segment and Geographic Information" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for financial information by reportable segment and by geographic region.

5 unchanged sentences

• 2007 acquisition of Keystone Automotive Industries, Inc., which, at the time of acquisition, was the leading domestic distributor of aftermarket products, including collision replacement products, paint products, refurbished steel bumpers, bumper covers and alloy wheels.

• 2011 acquisition of Euro Car Parts Holdings Limited ("ECP"), a vehicle mechanical aftermarket parts distribution company operating in the U.K.

• 2011 acquisition of Euro Car Parts Holdings Limited, a vehicle mechanical aftermarket parts distribution company operating in the U.K.

This acquisition served as our entry into the European automotive aftermarket business, from which we have expanded our European footprint through organic growth and subsequent acquisitions.

• 2013 acquisition of Sator Beheer B.V.

("Sator," now known as Fource), a vehicle mechanical aftermarket parts distribution company based in the Netherlands, with operations in the Netherlands, Belgium and France.

(now known as Fource), a vehicle mechanical aftermarket parts distribution company based in the Netherlands, with operations in the Netherlands, Belgium and France.

This acquisition allowed us to further expand our geographic presence into continental Europe.

• 2014 acquisition of Keystone Automotive Holdings, Inc.

("Keystone Specialty"), which expanded our product offering and increased our addressable market to include specialty vehicle aftermarket equipment and accessories.

• 2016 acquisition of Rhiag-Inter Auto Parts Italia S.r.l.

("Rhiag"), a distributor of aftermarket spare parts for passenger cars and commercial vehicles in Italy, Czech Republic, Slovakia, Switzerland, Hungary, Romania, Ukraine, Bulgaria, Poland and Spain.

• 2014 acquisition of Keystone Automotive Holdings, Inc., which expanded our product offering and increased our addressable market to include specialty vehicle aftermarket equipment and accessories.

• 2016 acquisition of Rhiag-Inter Auto Parts Italia S.r.l., a distributor of aftermarket spare parts for passenger cars and commercial vehicles in Italy, Czech Republic, Slovakia, Switzerland, Hungary, Romania, Ukraine, Bulgaria, Poland and Spain.

This acquisition expanded our geographic presence in continental Europe.

1 unchanged sentence

This acquisition expanded our geographic presence in continental Europe and serves as an additional strategic hub for our European operations.

• 2023 acquisition of Uni-Select Inc.

("Uni-Select"), a leading distributor of automotive refinish and industrial coatings and related products in North America through its FinishMaster business and a leading distributor of automotive parts and accessories serving the Canadian market through its Canadian Automotive Group business.

This acquisition complements 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.

Since 2017, we have divested certain businesses due to the ongoing rationalization of our asset base by divesting certain non-core and/or lower margin businesses, and mandatory divestiture requirements due to certain acquisitions.

Two of these divestitures have been reported as discontinued operations.

Our mission is to be the leading global value-added sustainable distributor of vehicle parts and accessories by offering our customers the most comprehensive, available and cost-effective selection of part solutions while building strong partnerships with our employees and the communities in which we operate.

From 1998 to 2018, the Company focused on consolidating the alternative and specialty vehicle parts markets to develop scale across an extensive network of salvage and aftermarket facilities throughout North America and on building a pan-European aftermarket parts distributor in the large, fragmented European marke t.

This focus created a leading distributor of aftermarket collision, salvage collision, and major mechanical parts in North America, a leading distributor of specialty automotive and RV parts and accessories in North America, and a leading distributor of aftermarket mechanical parts in Europe.

Beginning in 2019, we reduced our focus on growth through corporate development and increased our focus on driving higher levels of free cash flow, profitable organic growth, margin expansion and talent development.

Three of these divestitures have been reported as discontinued operations.

Our mission is to be the leading global value-added and sustainable distributor of vehicle parts and accessories by offering our customers the most comprehensive, available, and cost-effective selection of parts and service solutions while building strong partnerships with our employees and the communities in which we operate.

This focus created a leading distributor of alternative collision and mechanical parts and a provider of vehicle diagnostics services in North America, a leading distributor of specialty vehicle parts and accessories for automotive, marine and recreational vehicles ("RV") in North America, a leading distributor of

aftermarket mechanical parts in Europe, and a leading self service yard operator that offers high quality older and lower cost salvage vehicle parts to a broad set of do-it-yourself and do-it-for-me customers across a network of locations in the U.S.

Beginning in 2019, we expanded our strategy to include a focus on driving higher levels of free cash flow, profitable growth, enhanced margins, and talent development through our operational excellence initiatives.

In our Europe segment, we are implementing a multi-year business transformation by establishing a Pan-European organization and operating model.

The purpose of this multi-year “1 LKQ Europe” program is to create one single operation by integrating the various acquisitions the Company has completed across the European continent since entering the market in 2011.

1 LKQ Europe will leverage the full potential of our leading European scale position as a single entity in areas such as procurement, product strategy, revenue optimization, digitization, and value-added services for our customers.

The purpose of this multi-year "1 LKQ Europe" plan is to create one single operation by integrating the various acquisitions the Company has completed across the European continent since entering the market in 2011.

This plan will leverage the full potential of our leading European scale position as a single entity in areas such as procurement, logistics, product strategy, revenue optimization, digitization, and value-added services for our customers.

We have four primary strategic pillars to build economic value:

6 unchanged sentences

• Leading distribution network .

We have invested significant capital to develop an extensive network of alternative and specialty vehicle parts facilities across the geographies we serve in our operating segments.

Our ability to move inventory throughout our distribution networks increases the availability of our products and allows us to fill a higher percentage of our customers’ requests.

In order to expand our distribution network, we may seek to enter new markets through geographic expansion, organic development, or tuck-in acquisitions.

We believe our Wholesale - North America segment has the largest distribution network of alternative vehicle parts and accessories for the vehicle collision repair market in North America.

We currently have operations in over 20 different European countries, which we believe represents the broadest and largest footprint in the aftermarket industry in Europe.

We have invested significant capital to develop an extensive network of facilities across the geographies we serve in our operating segments.

On a global basis, we operate approximately 1,650 facilities.

Our ability to move inventory throughout our distribution networks increases the availability of our products and allows us to fill a higher percentage of our customers’ requests.

In order to expand our distribution network, we may seek to enter new markets through geographic expansion, organic development, or acquisitions that target high synergies and/or add critical capabilities.

• Broad product and service offerings .

The breadth and depth of our inventory across our operating segments reinforces our ability to provide a "one-stop" solution for our customers’ alternative vehicle replacement, maintenance, diagnostic services, and specialty vehicle product needs.

The breadth and depth of our inventory across our operating segments reinforces our ability to provide a "one-stop" solution for our customers’ alternative parts, specialty vehicle products and vehicle services needs.

• High fulfillment rates.

2 unchanged sentences

• Strong business relationships.

We have developed business relationships with key constituents, including customers, vehicle insurance companies, multiple-location vehicle repair operations, vendor partners and other industry participants in North America, Europe, and Asia.

We have developed business relationships with key constituents, including customers, vehicle insurance companies, multiple-location vehicle collision and mechanical repair operations, vendor partners and other industry participants in North America, Europe, and Asia.

We monitor the start-up and venture capital landscape to develop business relationships and enhance our portfolio of potential offerings.

2 unchanged sentences

We have built data analytics capabilities and data assets and believe that we can more cost effectively leverage our data to make better business decisions than most of our competitors.

Leveraging our data and market position, we utilize artificial intelligence ("AI") to make more accurate purchase decisions for our salvage business, therefore allowing us to better control our inventory.

We continue to look for and invest in opportunities to further leverage AI, machine learning and neural networks for more effective procurement methods.

• Adaptation to evolving technology in the vehicle industry .

1 unchanged sentence

We have a forward-looking strategy and innovation team that helps us monitor megatrends and assess the potential opportunities and risks associated with several areas including, but not limited to, electric vehicles, advanced driver assistance systems, vehicle connectivity, autonomous vehicles, e-commerce and ride-sharing trends.

Leveraging our data and market position, we utilize artificial intelligence ("AI") to make more accurate purchase decisions, therefore allowing us to better control our inventory.

We continue to look for and invest in opportunities to further leverage AI and neural networks for more effective procurement methods.

• Rationalized asset base .

We have a portfolio review process and are continually analyzing and executing initiatives to reduce our operating costs and drive efficiencies, including brand rationalization, rightsizing efforts, and productivity initiatives with the underlying focus to drive higher levels of margins.

• Environmental, Social and Governance ("ESG") .

We are focused on driving our ESG strategy and message to multiple stakeholders, both internally and externally.

Our ESG strategy is focused on employee engagement, diversity, equity and inclusion, carbon footprint and recycling, supply chain and community support.

We have a portfolio review process to continually analyze and execute on initiatives to reduce our operating costs and drive efficiencies, including brand rationalization, rightsizing efforts, and productivity initiatives with the underlying focus to drive higher levels of margins.

• Sustainability .

We are focused on driving our Sustainability strategy and message to multiple stakeholders, both internally and externally.

Our Sustainability strategy is focused on creating an inclusive culture, engaging with our employees and suppliers, tracking and reducing our carbon footprint, and supporting the communities in which we operate.

• Employees and communities.

We focus on employees and communities through continuous improvement in our ESG initiatives.

We focus on employees and communities through continuous improvement in our social initiatives.

Our top priority is the health and safety of our employees, customers and communities in which we operate.

We will measure our progress toward achieving our strategic goals based on our performance with respect to the following key priorities:

profitable growth, cash flow generation, European integration, and talent acquisition.

We measure our progress toward achieving our strategic goals based on our performance with respect to the following key priorities:

free cash flow, profitable growth, enhanced margins, and talent development.

We have implemented various improvement plans to enhance our operational efficiencies and actively monitor these and other important operating metrics.

3 unchanged sentences

In recent years, we have begun to offer on-site mobile and remote diagnostics services through our brand known as Elitek Vehicle Services.

Additionally, we began offering proprietary hybrid battery reconditioning and installation services which create a more reliable hybrid battery while also extending the battery's useful life.

Additiona lly, we began offering proprietary hybrid battery reconditioning and installation services which create a more reliable hybrid battery while also extending the battery's useful life.

We expect these areas, as well as our overall product and service offerings, to grow in the coming years as the number of technological comp onents in vehicles increases.

Our principal aftermarket product types consist of those most frequently damaged in collisions, including bumper covers, automotive body panels, lights and, prior to the divestiture of PGW Auto Glass ("PGW"), automotive glass products such as windshields.

Most recently, we acquired Uni-Select, including Canadian Automotive Group, a leading distributor of automotive parts and accessories serving the Canadian market, providing an entry to the Canadian mechanical parts space;

and FinishMaster, a leading distributor of paint and related products and supplies, which expands our existing North American paint business.

Our aftermarket products encompass items commonly prone to damage in a collision, including bumper covers, automotive body panels, and lights.

Additionally, through the acquisition of Canadian Automotive Group, we have broadened our product offerings to include a range of mechanical automotive parts and accessories.

Platinum Plus is our exclusive product line offered under the Keystone brand of aftermarket products.

We also developed a product line called "Value Line" for more value conscious, often self-pay, consumers.

Certain of our products are certified by an independent organization, the Certified Automotive Parts Association ("CAPA").

CAPA is an association that evaluates the quality of aftermarket collision replacement products compared to OEM collision replacement products.

We also offer a product line called "Value Line" for more value conscious, often self-pay, consumers.

We receive certifications on certain of our products from Certified Automotive Parts Association, an independent organization that evaluates the quality of our parts compared to OEM collision replacement products.

Our salvage products include both mechanical and collision parts, including engines;

4 unchanged sentences

The aftermarket products we distribute are purchased from independent manufacturers and distributors located primarily in North America and Asia, principally Taiwan.

In 2022, approximately 46% of our aftermarket purchases were made from our top six vendors, with our largest vendor providing approximately 14% of our annual inventory purchases for the Wholesale - North America segment.

In 2023, approximately 51% of our aftermarket purchases were made from our top seven vendors, with our largest vendor providing approximately 12% of our annual inventory purchases for the Wholesale - North America segment.

We believe we are one of the largest customers of each of these suppliers.

Through the acquisition of FinishMaster, we obtained a strategic relationship with a supplier for paint and related products.

This partnership will play a key role in the expansion of our offerings for paint and related products.

Outside of this group, no other supplier provided more than 4% of our supply of aftermarket products in 2023.

We purchased approximately 56% of our aftermarket products in 2023 from vendors located in the U.S.;

however, we believe the majority of these products were manufactured in Taiwan, Mexico or other foreign countries.

Approximately 48% of our aftermarket products were purchased directly from manufacturers in Taiwan and other Asian countries.

however, we believe the majority of these products were manufactured in Taiwan, Mexico or other foreign countries, with the remaining aftermarket products being purchased directly from manufacturers in Taiwan and other Asian countries.

Within our wholesale operations, we focus our procurement on products that are in the most demand, based on a number of factors such as historical sales records of vehicles by model and year, customer requests, and projections of future supply and demand trends.

Because lead times may be 40 days or more on imported aftermarket products, sales volumes and in-stock inventory are important factors in the procurement process.

We procure recycled products for our wholesale operations by acquiring total loss vehicles, typically sold at regional salvage auctions, and then dismantling and inventorying the parts.

We procure recycled products for our wholesale operations by dismantling total loss vehicles, typically acquired at regional salvage auctions, and inventorying the parts.

The availability and pricing of the salvage vehicles we procure for our wholesale recycled products operations may be impacted by a variety of factors, including the production level of new vehicles and the percentage of damaged vehicles declared total losses.

Our bidding specialists are equipped with a proprietary software application that allows them to compare the vehicles at salvage auctions against our current inventory levels, historical demand, and recent average selling prices to arrive at an estimated maximum bid.

Additionally, we have embedded AI technology into our salvage procurement software to assist in the procurement decision making process, reducing the amount of labor and human error in the process.

Additionally, we have embedded AI technology into

our salvage procurement software to assist in the procurement decision making process, reducing the amount of labor and human error in the process.

Scrap and Other Materials

2 unchanged sentences

In other cases, we will hire mobile crushing equipment to crush the vehicles before they are transported to shredders and scrap metal processors.

Damaged and unusable wheel cores are melted in our aluminum furnace

and sold to consumers of aluminum ingot and sow for the production of various automotive products, including wheels.

Damaged and unusable wheel cores are melted in our aluminum furnace and sold to consumers of aluminum ingots and sows for the production of various automotive products, including wheels.

We also sell the precious metals contained in certain of our recycled parts such as catalytic converters.

We sell our products to wholesale customers that include collision and mechanical repair shops and new and used car dealerships, as well as to retail customers.

The majority of these customers tend to be individually-owned small businesses, although the number of independent and dealer-operated collision repair facilities has declined over the last decade, as regional or national multiple shop operators have increased their geographic presence through consolidation.

The majority of these customers tend to be individually-owned small businesses, although the number of independent and dealer-operated repair facilities has declined over the last decade as a result of consolidation.

While the majority of our distribution is done through a two-step model, our Canadian Automotive Group business utilizes a mix of both a two-step (i.e., direct sales to repair shop customers) and three-step model (i.e., sales to distributors who in turn sell to repair shop customers).

Automobile insurance companies affect the demand for our collision products;

1 unchanged sentence

As a result, insurance companies often influence the types of products used in a repair.

The use of our alternative products instead of new OEM products provides a direct benefit to insurance companies by lowering the cost of repairs, by often decreasing the time required to return the repaired vehicle to the customer, and by providing a replacement product that is of high quality and comparable performance to the part replaced.

Our sales personnel are encouraged to promote LKQ to customers as a "one-stop shop" by offering comparable options from our other product lines if the desired part is not in stock.

To support these efforts, our sales staff has access to both recycled and aftermarket sales systems to encourage cross selling.

The use of our alternative parts instead of new OEM products provides a direct benefit to insurance companies by lowering the cost of repairs, by decreasing the repair time and thus the time the vehicle's owner is without a vehicle, and by providing a replacement product that is of similar quality and comparable performance to the part being replaced.

Since we have comparable options from both our aftermarket and recycled parts stock, our sales staff can access both sales systems and fill requests by cross selling if the desired part is not in stock.

To better serve our customers, we take a consolidated approach to the electronic sale of wholesale products in our Wholesale - North America segment.

A full suite of e-commerce services is available to approved partners that helps us improve order accuracy, reduce return rate and better fit our customer workflow.

A full suite of e-commerce services is available to approved partners that helps us improve order accuracy, reduce return rates and better fit our customer workflow.

Using these services in coordination with our partners, products can be searched, priced and ordered without leaving the customers' own operating systems.

We believe our Wholesale - North America segment has the largest distribution network of alternative vehicle parts and accessories for the vehicle collision and mechanical repair market in North America.

We have a distribution network of warehouses and cross dock facilities, which allows us to develop and maintain our service levels with local repair shops while providing industry leading fulfillment rates that are made possible by our nationwide presence.

Our delivery fleet utilizes a third party software provider to optimize delivery routes and to track the progress of delivery vehicles throughout their runs.

This third party software connects into each of our wholesale systems to allow a single interface for our management team to have a single delivery to our customer, regardless of the product line or operating system.

Our local presence allows us to provide daily deliveries as required by our customers, using drivers who routinely deliver to the same customers.

Our sales force and local delivery drivers develop and maintain critical personal relationships with the local repair shops that benefit from access to our wide selection of products, which we are able to offer as a result of our regional inventory network.

We operate a delivery fleet of medium-sized trucks and smaller trucks and vans, which deliver multiple product types on the same delivery routes to help minimize distribution costs, improve customer service and reduce environmental impacts.

This third party software connects into each of our wholesale systems to allow a single interface for our management team to facilitate a single delivery to our customer, regardless of the product line or operating system.

Our local presence allows us to provide a responsive and predictable experience, delivering daily if required and using consistent drivers each delivery.

Our sales force and local delivery drivers develop and maintain critical personal relationships with the local repair shops, which benefit from access to our wide selection of products that we are able to offer as a result of our regional inventory network.

We operate a delivery fleet of trucks and vans, which deliver multiple product types on the same delivery routes to minimize distribution costs, improve customer service and reduce environmental impacts.

We consider all suppliers of vehicle collision and mechanical products to be competitors, including aftermarket suppliers, recycling businesses, refurbishing operations, parts remanufacturers, OEMs and internet-based suppliers.

1 unchanged sentence

we compete with OEMs primarily on the basis of price and, to a lesser extent, on service and product quality.

We do not consider retail chains that focus on the do-it-yourself market to be our direct competitors since many of our wholesale product sales are influenced by insurance companies, who ultimately pay for the repair costs of insured vehicles in excess of any deductible amount, rather than the end user, and there is limited overlap in the products that we sell.

In the U.S., we do not consider retail chains that focus on the do-it-yourself market to be our direct competitors because many of our wholesale product sales are influenced by

insurance companies, who ultimately pay for the repair costs of insured vehicles in excess of any deductible amount, rather than the end user, and there is limited overlap in the products that we sell.

Information Technology Systems

In our aftermarket operations, we use a third party enterprise management system and other third party software packages for an electronic data interchange tool, and e-commerce tools to enhance our online business-to-business initiatives - OrderKeystone.com and Keyless.

In our aftermarket operations, we use a third party enterprise management system along with other third party software packages to enhance our online business-to-business platforms - OrderKeystone.com and Keyless.

The recently acquired FinishMaster business will integrate onto our aftermarket systems, while Canadian Automotive Group will remain on its existing, separate, enterprise management system.

Our wholesale recycled product locations in North America operate an internally-developed, proprietary enterprise management system called LKQX.

3 unchanged sentences

The system also supports an electronic exchange process for identifying and locating parts at other select recyclers and facilitates brokered sales to fill customer orders for items not in stock.

We also use other third party software packages for both businesses to leverage the centralized data and information that a single system provides, such as a data warehouse to conduct enhanced analytics and reporting, and an integrated budgeting system.

We also use other third party software packages, such as a data warehouse and integrated budgeting system, to leverage centralized data and information to conduct enhanced analytics and reporting.

EUROPE SEGMENT

Our Europe segment operates in over 20 countries and was built on four key acquisitions:

ECP (2011), Sator (2013), Rhiag (2016) and Stahlgruber (2018).

Additionally, in 2014 we expanded our European segment to include wholesale recycling operations through our acquisition of a business with salvage and vehicle repair facilities in Sweden and Norway, and in 2016, we acquired an equity investment in MEKO AB ("Mekonomen"), the leading independent car parts distributor in the Nordic region of Europe.

Mekonomen is independent of our existing European operations, but we have identified areas where the companies can work together in a mutually beneficial manner, primarily related to procurement and category management.

Our European strategy, facilitated through our 1 LKQ Europe program, is to leverage the strengths of acquired businesses, reduce procurement costs by consolidating and streamlining our product offerings, and combine into an integrated organization driving for functional excellence with the necessary technology linking our business processes with our customers and suppliers.

As part of our 1 LKQ Europe program, we are integrating our European operations as we optimize purchasing, warehousing, systems, logistics and back-office functions, and align our private label products across the segment.

We are reorganizing our non-customer-facing teams and support systems through various projects including the implementation of a common Enterprise Resource Planning ("ERP") platform, rationalization of our product portfolio, and creation of a Europe headquarters office and central back office.

Our Europe segment operates in over 20 countries and was built up through a series of acquisitions.

Our businesses consist primarily of aftermarket operations, but we have begun expanding into wholesale recycling operations through the acquisition of businesses with salvage and vehicle repair facilities in Sweden and Norway in 2014, remanufacturing in Tunisia in 2018, and salvage in the Netherlands and Poland in 2023.

Our European strategy, facilitated through our 1 LKQ Europe plan, is to leverage the strengths of acquired businesses, reduce procurement costs by consolidating and streamlining our product offerings, and combine into an integrated organization driving for functional excellence with the necessary technology linking our business processes with our customers and suppliers.

As part of our 1 LKQ Europe plan, we are integrating our European operations in order to optimize purchasing, warehousing, systems, logistics and back-office functions, and aligning our private label products across the segment.

This integration includes product line rationalization, and w e have phased out or replaced more t han 150 product lines in recent years.

We are reorganizing our non-customer-facing teams and support systems through various projects including the implementation of a common Enterprise Resource Planning ("ERP") platform, changes to ways of working, further rationalization of our product portfolio, and creation of European headquarters and central back offices.

We completed the organizational design and implementation projects in June 2021, with the remaining projects scheduled to be completed by the end of 2027.

2 unchanged sentences

We currently have over 900,000 uniq ue part numbers.

Our goal is to reduce the complexit y of our product portfolio, reduce the number of parts offered and reduce the number of suppliers.

We have phased out or replaced more t han 150 brands in recent years.

We believe that more than 70% of our product portfolio existing at the start of the program in 2019 could be reviewed for possible reduction.

Our continuing goal is to reduce the complexity of our product portfolio, reduce the number of parts offered and reduce the number of suppliers.

In addition to the rationalization actions already taken, up to 80% of our current product portfolio is being reviewed for possible reduction.

In 2023, our top supplier represented 9% of our aftermarket inventory purchases for our Europe segment.

Only one other supplier comprised more than 5% of our purchases.

No other suppliers comprised more than 5% of our purchases.

Further, we purchased 94% of our products from companies in Europe, and 70% and 20% of our total inventory purchases were made in euros and pounds sterling, respectively, in 2023.

As part of our 1 LKQ Europe initiatives, we are expanding the distribution of our private label products.

Our key strategic private label products are Optimal, ERA and MPM Oils.

In our Nordic operations, we purchase severely damaged or total loss vehicles from insurance companies, which are transferred to our dismantling facilities or sold to other third party dismantlers.

Our key strategic private labels are Optimal, ERA and MPM Oils.

In our salvage operations, we purchase severely damaged or total loss vehicles from insurance companies and auctions, which are transferred to our dismantling facilities or sold to other third party dismantlers.

We primarily operate a two-step (i.e., direct sales to repair shop customers) distribution model in Europe, although certain businesses located in Italy, the Netherlands, Germany, Switzerland, and Hungary operate partially a three-step (i.e., sales to distributors who in turn sell to repair shop customers) distribution model.

1 unchanged sentence

In our three-step operations, we sell products to wholesale distributors or jobbers.

In addition to our sales to repair shops and wholesale distributors, we generate a portion of our revenue through sales to retail customers from e-commerce platforms and from point of sale transactions at the branch locations.

We currently have operations in over 20 different European countries, which we believe represents the broadest and largest footprint in the aftermarket industry in Europe with a distribution network larger than those of any of our principal competitors.

Our European operations employ a distribution model in which inventory is stored at national or international distribution centers or regional hubs, with fast moving product stored at branch locations.

The large distribution centers regularly restock the smaller branches and hubs and hold slower moving items, helping us to improve fulfillment rates.

Product is moved through the distribution network on our trucks, vans or via common carrier.

We have built a new central distribution center in the Netherlands, similar to our central distribution centers in Tamworth, England and Sulzbach-Rosenberg, Germany, that will allow us to consolidate multiple regional distribution centers.

We believe that our distribution network is larger than those of any of our principal competitors in Europe.

Product is moved through the distribution network on our trucks, vans or via common carriers.

In 2021, we finished building a new central distribution center in Berkel en Rodenrijs, the Netherlands, similar to our central distribution centers in Tamworth, England and Sulzbach-Rosenberg, Germany, that is allowing us to consolidate multiple regional distribution centers.

We view all suppliers of replacement repair products as our competitors, including other alternative parts suppliers and OEMs and their dealer networks.

We face significant competition in many markets where even smaller competitors can compete on price and service, and the OEMs compete via ties to brand loyalty of the consumer while also remaining competitive on price, service and availability.

We believe we have been able to distinguish ourselves from other alternative parts suppliers primarily through our distribution network, efficient stock management systems and proprietary technology, which allows us to deliver our products quickly, as well as through our product lines and inventory availability, pricing, and service reliability.

We believe we have been able to distinguish ourselves from other alternative parts suppliers primarily through our distribution network, efficient inventory management systems and proprietary technology, which allows us to deliver our products quickly, reliably, and at competitive prices.

Information Technology Systems

Our aftermarket operations in Europe use various information technology ("IT") systems.

Our systems are complex and designed to perform a variety of tasks (depending on the market), including but not limited to customer orders, inventory management, warehouse and logistics, and financial reporting.

Our systems are complex and designed to perform a variety of tasks (depending on the market), including but not limited to customer orders, inventory management, budgeting, analytics, warehouse and logistics, data warehousing, and financial reporting.

Certain of our IT systems can interface with the respective IT systems of our repair shop customers, which enables our customers to identify and order the part required for the repair.

As part of our 1 LKQ Europe strategy, we initiated a multi-year program to develop and implement a European wide ERP system, which has reduced and will continue to reduce the number of IT systems we operate.

As part of our 1 LKQ Europe strategy, we initiated a multi-year plan to develop and implement a European wide ERP system, which has reduced and will continue to reduce the number of IT systems we operate through its projected completion date in 2027.

SPECIALTY SEGMENT

Our Specialty segment was formed in 2014 with our acquisition of Keystone Specialty, a leading distributor and marketer of specialty vehicle aftermarket products and accessories in North America.

We have subsequently expanded through acquisitions within the core business and adjacent markets, including high performance vehicle equipment and electrical marine products.

Our Specialty operations reach most major markets in the U.S.

4 unchanged sentences

and miscellaneous accessories.

In 2017, we acquired Warn Industries, Inc.

("Warn"), a leading designer, manufacturer and marketer of high performance vehicle equipment and accessories.

The acquisition of Warn expanded our presence in the specialty market and created viable points of entry into related markets.

In October 2021, we acquired SeaWide Marine Distribution, Inc.

("SeaWide"), a leading nationwide wholesale distributor supplying electrical and electronic products for the marine market.

The acquisition of SeaWide enhanced our emerging position in the marine market.

The specialty vehicle aftermarket equipment and accessories we distribute and raw materials for products we manufacture are purchased from suppliers located primarily in the U.S., Canada, and China.

Our top selling products are RV appliances and air conditioners, towing hitches, truck bed covers, vehicle protection products, marine electronics, cargo management products, and wheels, tires, and suspension products.

Our 2017 acquisition of Warn Industries, Inc.

("Warn") gave us internal capabilities to manufacture and source aftermarket winches, hoists, and bumpers.

Specialty aftermarket suppliers are typically small to medium-sized, independent businesses that focus on a narrow product or market niche.

Due to the highly fragmented supplier base for specialty vehicle aftermarket products, we have limited supplier concentration.

In 2022, approximately 17% of our specialty vehicle aftermarket purchases were made from our top three suppliers to this segment, with our largest supplier providing approximately 8% of our annual inventory purchases.

In 2023, approximately 19% of our specialty vehicle aftermarket purchases were made from our top three suppliers to this segment, with our largest supplier

providing approximately 9% of our annual inventory purchases.

No other suppliers comprised more than 4% of our purchases during 2023.

With our 2017 acquisition of Warn, we have internal capabilities to manufacture and source aftermarket winches, hoists, and bumpers.

Overall, the specialty vehicle aftermarket parts and accessories market serves a fragmented customer base composed of RV, marine, and specialty automotive dealers, installers, jobbers, builders, parts chains, and mail-order businesses.

8 unchanged sentences

These sites provide customers (i) the ability to match products with the make and model of vehicle thus allowing the customer to order the correct part, (ii) product information (e.g., pictures, attributes) available for review and (iii) the convenience of searching inventory availability and ordering the product on the site.

Additionally, the site can provide sales opportunities by suggesting other parts to purchase based on an inquiry submitted by the customer.

Additionally, these sites can provide sales opportunities by suggesting other parts to purchase based on an inquiry submitted by the customer.

Our Specialty segment operations employ a hub-and-spoke distribution model that enables us to transport products from our primary distribution centers to our non-inventory stocking cross docks, some of which are co-located with our Wholesale - North America operations and provide distribution points to key regional markets and synergies with our existing infrastructure.

13 unchanged sentences

Our Self Service segment consists of retail operations, most of which operate under the name “LKQ Pick Your Part,” and allows consumers to come directly to the yard to pick parts off of salvage vehicles.

In addition to revenue from the sale of parts, core, scrap steel and other metals, we charge a nominal admission fee to access the property.

We acquire inventory for our self service retail product operations from a variety of sources, including but not limited to towing companies, vehicle auctions, the general public, municipality sales, insurance carriers, and charitable organizations.

We procure salvage vehicles for our self service retail product operations that are generally older and priced lower than the salvage vehicles we purchase for our wholesale recycled product operations.

We also sell scrap metal and other materials to recyclers from cars that are no longer available for customers in the yard.

In addition to revenue from the sale of parts, cores, scrap steel and other metals, we charge a nominal admission fee to access the property.

We acquire salvage vehicles for our self service retail product operations from a variety of sources, including but not limited to towing companies, vehicle auctions, the general public, municipality sales, insurance carriers, and charitable organizations.

The salvage vehicles we procure are generally older and priced lower than the salvage vehicles we purchase for our wholesale recycled product operations.

Vehicles are delivered to our locations by the seller, or we arrange for transportation.

3 unchanged sentences

In our self service business, availability of a specific part will depend on which vehicles are currently at the site and to what extent parts may have been previously sold.

We usually keep a vehicle at our facility for 30 to 120 days, depending on the capacity of the yard and size of the market, before it is crushed and sold to scrap metal processors.

We usually keep a vehicle at our facility for 30 to 120 days, depending on the capacity of the yard and the number of customers serviced, before it is crushed and sold to scrap metal processors.

Scrap and Other Materials

1 unchanged sentence

Vehicles that we no longer make available to the public and "crush only" vehicles acquired from other companies, including OEMs, are typically crushed using equipment on site.

Damaged and unusable wheel cores are melted in our aluminum furnace and sold to consumers of aluminum ingot and sow for the production of various automotive products, including wheels.

Damaged and unusable wheel cores are melted in our aluminum furnace and sold to consumers of aluminum ingots and sows for the production of various automotive products.

We also extract and sell the precious metals contained in certain of our recycled parts such as catalytic converters.

3 unchanged sentences

In some markets, there are numerous competitors, often operating in close proximity to our operations.

We try to differentiate our business by the quality of the inventory and the size and cleanliness of the property.

We also differentiate our business from our competitors through our mobile app, which allows customers to receive daily push notifications when vehicles in which they have identified an interest are placed into their favorite yards.

In addition to allowing customers to see our available inventory, the mobile app also allows customers to input search parameters, including for specific parts, and the year, make, and model of the vehicle, to identify the population of vehicles that might be available from which to pull compatible parts.

We try to differentiate our business by the quality of the inventory, the size and cleanliness of the property, and digital marketing initiatives, including our mobile app.

The mobile app allows customers to receive daily push notifications when vehicles they have identified an interest in are placed into their favorite yards and also allows them to input search parameters, including specific parts and the year, make, and model of their vehicle, to show which compatible parts are available in a specific yard.

We do not consider retail chains that focus on the do-it-yourself market to be our direct competitors, as there is limited overlap in the products that we sell.

3 unchanged sentences

The Carbuy system is used for the purchasing and inventorying of vehicles.

We also use a module within the Carbuy system to record all scrap and nonferrous sales transactions.

We also use a module within the Carbuy system to record all sales transactions of scrap and other materials.

INTELLECTUAL PROPERTY

We own and have the right to use various intellectual property, including intellectual property acquired as a result of past acquisitions, such as intellectual property related to winches acquired in our acquisition of Warn.

In addition to trade names, trademarks and patents, we also have technology-based intellectual property that has been both internally developed and obtained through license agreements and acquisitions.

12 unchanged sentences

We consider our employee relations to be good.

We ask our employees to participate in an annual engagement

survey to better understand their needs to remain engaged.

We ask our employees to participate in an annual engagement survey to better understand their needs to remain engaged.

This helps us determine how we prioritize our human capital programs.

2 unchanged sentences

As a key focus, we have implemented various programs and practices to prevent accidents and foster a safety culture.

In response to the COVID-19 pandemic, we implemented new protocols to further support the health and safety of our employees and customers.

Those protocols have remained in place to maintain a safe work environment.

We also provide several avenues for employees to speak up, including anonymously, if they see something inconsistent with good safety practices.

18 unchanged sentences

We offer benefits that support our employees’ physical, financial, and emotional well-being.

We provide eligible employees medical, dental, and vision coverage, health savings and flexible spending accounts, paid time off, an employee assistance program, an employee assistance fund, voluntary short-term disability insurance, company-paid long-term disability insurance, company-paid term life insurance, a tuition reimbursement program, a scholarship program for the children of employees, a program to match charitable donations, paid parental leave, and retirement plan contributions.

We are committed to providing a nurturing environment that helps our employees thrive.

Our global initiative focuses on overall wellness in every aspect of life.

We provide eligible employees medical, dental, and vision coverage, health savings and flexible spending accounts, paid time off, an employee assistance program and fund, voluntary short-term disability insurance, company-paid long-term disability insurance, company-paid term life insurance, a tuition reimbursement program, a scholarship program for the children of employees, a program to match charitable donations, paid

parental leave, and retirement plan contributions.

Our benefits vary by location and are designed to meet or exceed local laws and to be competitive in the marketplace.

6 unchanged sentences

We are also committed to safeguarding personal information by employing advanced security software tools along with regular cybersecurity training sessions.

As of December 31, 2022, our operations included approximately 1,450 facilities, most of which are leased.

Of our total facilities, approximately 425 facilities were located in the U.S.

and approximately 1,025 facilities were located in over 25 other countries.

Many of our locations stock multiple product types or serve more than one function.

Our global headquarters are located at 500 West Madison Street, Suite 2800, Chicago, Illinois 60661.

Our North American headquarters, located in Antioch, Tennessee, performs certain centralized functions for our Wholesale - North America and Self Service operations, including accounting, procurement, and information systems support.

Our European headquarters are located in Zug, Switzerland.

Our European operations are distributed throughout Europe with main offices in Tamworth, England;

Schiedam, the Netherlands;

Milan, Italy;

Prague, Czech Republic;

and Poing, Germany.

In addition to these offices, we have two national distribution centers in Tamworth, England, totaling 1,275,000 square feet, which house inventory to supply the hubs and branches of our U.K.

and Republic of Ireland ("ROI") operations, one distribution center totaling 900,000 square feet in Sulzbach-Rosenberg, Germany which supplies our operations in Germany, Austria, Italy, the Czech Republic and Switzerland, two distribution centers in Prague, Czech Republic, totaling 527,000 square feet which support our operations in the Czech Republic and Eastern Europe, and our operations in Italy are supplied via 409,000 square feet of distribution capacity near Siziano, Italy.

The shared service center in Katowice, Poland began operations in the second half of 2021, and the central distribution center in the Netherlands began operations in 2022.

Our Specialty operations maintain primary procurement, accounting and finance functions in Exeter, Pennsylvania.

Certain back-office support functions for our segments are performed in Bengaluru, India.

Additionally, we operate an aftermarket parts warehouse in Taiwan to aggregate inventory for shipment to our locations in North America and manage supplier relationships and purchase orders.

Our operations and properties are subject to laws and regulations relating to the protection of the environment in the U.S.

6 unchanged sentences

Our business processes and operations are subject to laws and regulations relating to privacy and data protection.

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

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

” in Part I, Item 1A of this Annual Report on Form 10-K for further information about privacy and data protection risks.

7 unchanged sentences

Our operating results are subject to quarterly variations based on a variety of factors, including, but not limited to, seasonal weather patterns.

For our Wholesale - North America segment, we tend to see higher demand for collision related parts during periods of cold inclement weather as there are more weather related repairs.

For our Specialty segment, we tend to see higher demand during periods of warmer weather due to an increase in leisure travel.

Additionally, seasonality may affect our product mix.

For example, collision related parts tend to have higher demand during periods of cold, inclement weather due to higher frequency of collisions and diagnostic services generally sees higher demand during periods of cold, inclement weather because that weather can affect the performance of parts such as batteries.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE MATTERS

For our Wholesale - North America segment, we tend to see higher demand for our collision related products during periods of cold inclement weather, which creates a higher likelihood of increased collision frequency.

For our Europe segment, many of our aftermarket service-related products are impacted by weather patterns.

For example, during periods of extreme cold, our Europe segment historically witnesses an increase in battery demand.

Our Specialty segment sells parts for RV and marine products, and as a result, we tend to see higher demand for our products during periods of warmer weather due to an increased level of outdoor leisure activity.

SUSTAINABILITY MATTERS

Environmental

LKQ's business operations help protect our planet through our vehicle recycling and reuse programs helping to contribute to a circular economy.

LKQ's business operations help reduce the use of raw materials through our vehicle recycling and reuse programs helping to contribute to a circular economy.

Our North American and European recycling operations harvest vehicle components for reuse in the repair of vehicles.

3 unchanged sentences

This stewardship has been embedded in our culture since our inception in 1998.

Our recycling efforts preserve natural resources, reduce the demand for scarce landfill space, and help decrease air and water pollution, the latter attributed due to the avoidance of new manufacturing that otherwise would be required for these items.

We believe diverse thinking and an inclusive work environment encourages human ingenuity and a culture of integrity where everyone feels they belong.

3 unchanged sentences

LKQ continually seeks to grow effective, strategic partnerships and to create awareness of these initiatives with our employees.

Our employees are encouraged to volunteer in local community activities, and we have established a charitable foundation to distribute funds to local and international causes.

Our employees are encouraged to volunteer in local community activities, and we have established a charitable foundation (the "LKQ Community Foundation") to distribute funds to local and international causes.

We continue to make substantial progress in the area of corporate governance.

Our Board of Directors refreshment process has resulted in over half of our current Board being added since August 2018, and currently, 36% of our Board is comprised of persons from underrepresented groups.

Additionally, over 80% of our directors are independent.

We believe that the skill sets of our newly constituted Board effectively address the areas of focus that are important for our short and long-term strategic objectives, including the continued focus on the integration of our European operations.

Our Board of Directors ("the Board") refreshment process has resulted in over half of our current Board being added since August 2018, and currently, 44% of our Board is comprised of persons from underrepresented groups.

Additionally, seven of our nine directors are independent.

We believe that the skill sets of our Board effectively address the areas of focus that are important for our short and long-term strategic objectives.

We have adopted “proxy access,” which permits an eligible stockholder to nominate and include in our proxy materials director nominees (subject to the terms set forth in our Bylaws).

We also have majority voting for the election of our directors, requiring a director who fails to receive a majority vote to tender his or her resignation to the Board.

Our Board of Directors adopted a revised Code of Ethics in 2019 to help ensure that everyone at LKQ is clear on our mission, values and guiding ethical principles.

The Code of Ethics covers a variety of topics, including the use of company assets, bribery and corruption, conflicts of interest, discrimination, harassment, health and safety, privacy and data protection, protecting confidential information, and reporting Code of Ethics violations.

It is now available in over 20 languages through our website at www.lkqcorp.com .

We also now operate one single anonymous global Speak Up line, available in every language in which we routinely conduct business.

More information on our Environmental, Social and Governance initiatives can be found in our 2021 Sustainability Report on our website at www.lkqcorp.com .

Our Board adopted a revised Code of Ethics in 2019 to help ensure that everyone at LKQ is clear on our mission, values and guiding ethical principles.

Our Code of Ethics covers a variety of topics, including the use of company assets, bribery and corruption, conflicts of interest, discrimination, harassment, health and safety, privacy and data protection, protecting confidential information, and reporting Code of Ethics violations.

It is now available in 19 languages through our website at www.lkqcorp.com .

We also operate an anonymous global Speak Up line, available in every language in which we routinely conduct business.

More information on our Sustainability initiatives can be found in our 2022 Sustainability Report on our website at www.lkqcorp.com .

The Sustainability Report is not incorporated by reference and should not be considered part of this Annual Report on Form 10-K.

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 1. Business