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Item 8. Financial Statements and Supplementary Data

2024-02-22 compared with 2023-02-23 · 510 added, 405 removed, 1088 unchanged (46% of the section changed)

26 unchanged sentences

We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill Impairment Assessment - Refer to Note 3 to the financial statements.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current-period audit of the financial statements that were communicated or required to be communicated to the audit committee and that (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Goodwill Impairment Assessment - Refer to Notes 2 and 10 to the financial statements.

Critical Audit Matter Description

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The Company determines the fair value of its reporting units using a discounted cash flow model and the market approach, which require management to make significant estimates and assumptions.

The goodwill balance subject to the impairment assessments was $4.3 billion as of December 31, 2022 and is allocated to four reporting units.

Auditing the estimates and assumptions that impacted the valuation of certain reporting units involved especially subjective judgment;

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• With the assistance of our fair value specialists, we evaluated the market multiples, including testing the underlying source information and mathematical accuracy of the calculations, and comparing the multiples selected by management to its guideline public companies and the multiples used in the preceding impairment assessments.

Business Combinations - Refer to Note 3 to the financial statements.

Critical Audit Matter Description

The Company completed the acquisition of Uni-Select Inc.

for approximately $ 2.1 billion on August 1, 2023.

The Company accounted for this acquisition using the acquisition method of accounting, under which the acquisition purchase price is allocated to the assets acquired, including purchased intangible assets, and liabilities assumed based on their respective fair values.

The purchase price allocation included customer and supplier relationship intangible assets of $ 669 million and trade name intangible assets of $ 17 million.

The Company’s estimation of the value of the customer and supplier relationships and the trade names required management to make significant estimates and assumptions, including future expected cash flows including revenue growth assumptions from product sales and customer contracts, royalty rates, customer attrition rates and discount rates.

We identified the valuation of the customer and supplier relationship and trade name intangible assets for Uni-Select Inc.

as a critical audit matter because of the significant estimates and assumptions management made to determine the fair value of these assets discussed above.

This required a high degree of auditor judgment and an increased extent of effort, including the need to involve our fair value specialists, when performing audit procedures to evaluate management’s valuation methodologies and the reasonableness of management’s assumptions related to future expected cash flows and the selection of royalty rates, customer attrition rates and discount rates.

How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the fair value of the acquired intangible assets discussed above included the following, among others:

• We tested the effectiveness of controls over the purchase price allocation, including management’s controls over the appropriateness of the valuation methodology, forecast of future expected cash flows, and selection of the royalty rates, customer attrition rates and discount rates.

• We assessed the reasonableness of management’s forecast of future expected cash flows by comparing the projections to historical results and certain peer companies.

We also evaluated whether the estimated future expected cash flows were consistent with evidence obtained in other areas of the audit.

• With the assistance of our internal fair value specialists, we evaluated the reasonableness of the valuation methodology, royalty rates, customer attrition rates and discount rates by:

◦ Testing the mathematical accuracy of the calculations.

◦ Testing the source information underlying the determination of the royalty, customer attrition and discount rates.

◦ Developing ranges of independent estimates and comparing those to the rates selected by management.

/s/ DELOITTE & TOUCHE LLP

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We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2023, of the Company and our report dated February 22, 2024, expressed an unqualified opinion on those financial statements.

As described in the Report of Management on Internal Control over Financial Reporting, management excluded from its assessment the internal control over financial reporting at Uni-Select Inc., which was acquired on August 1, 2023, and whose financial statements constitute 16% of total assets (inclusive of goodwill and acquired intangible assets) and 4% of revenue of the consolidated financial statement amounts as of and for the year ended December 31, 2023.

Accordingly, our audit did not include the internal control over financial reporting at Uni-Select Inc.

Basis for Opinion

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Restructuring and transaction related expenses 65 20 20

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

Gain on disposal of businesses (1)

Depreciation and amortization 283 237 260

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Loss on debt extinguishment 1 — 24

Gains on foreign exchange contracts - acquisition related (2)

Interest income and other income, net ( 44 ) ( 15 ) ( 21 )

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Income from continuing operations 944 1,144 1,091

Net income from discontinued operations 6 1 —

Net (loss) income from discontinued operations ( 6 ) 6 1

Net income 938 1,150 1,092

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Income from continuing operations $ 3.53 $ 4.13 $ 3.68

Net income from discontinued operations 0.02 — —

Net (loss) income from discontinued operations ( 0.02 ) 0.02 —

Net income 3.51 4.15 3.68

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Income from continuing operations $ 3.52 $ 4.12 $ 3.67

Net income from discontinued operations 0.02 — —

Net (loss) income from discontinued operations ( 0.02 ) 0.02 —

Net income 3.50 4.14 3.67

1 unchanged sentence

Net income attributable to LKQ stockholders $ 3.49 $ 4.13 $ 3.66

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

Refer to Note 4, "Discontinued Operations and Divestitures" for further information.

(2) Related to the Uni-Select Inc.

("Uni-Select") acquisition.

Refer to Note 3, "Business Combinations" and Note 20, "Derivative Instruments and Hedging Activities" for further information.

(3) The sum of the individual earnings per share amounts may not equal the total due to rounding.

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Net income attributable to LKQ stockholders 936 1,149 1,091

Other comprehensive (loss) income:

Other comprehensive income (loss):

Foreign currency translation, net of tax 90 ( 212 ) ( 64 )

1 unchanged sentence

Net change in unrealized gains/losses on pension plans, net of tax ( 5 ) 35 9

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

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

Other comprehensive income from unconsolidated subsidiaries 9 7 —

Other comprehensive income (loss) 83 ( 170 ) ( 54 )

Comprehensive income 1,021 980 1,038

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Cash and cash equivalents $ 299 $ 278

Receivables, net 998 1,073

Receivables, net of allowance for credit losses 1,165 998

Inventories 3,121 2,752

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Depreciation and amortization 319 264 284

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

Gain on disposal of businesses — ( 159 ) —

Stock-based compensation expense 40 38 34

Loss on debt extinguishment 1 — 24

Gains on foreign exchange contracts - acquisition related ( 49 ) — —

Deferred income taxes 13 6 ( 27 )

1 unchanged sentence

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

Receivables, net ( 16 ) ( 16 ) 94

Receivables 5 ( 16 ) ( 16 )

Inventories 71 ( 342 ) ( 235 )

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Proceeds from disposals of businesses 110 399 7

Proceeds from settlement of foreign exchange contracts - acquisition related 49 — —

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

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

Net cash (used in) provided by investing activities ( 2,442 ) 172 ( 419 )

CASH FLOWS FROM FINANCING ACTIVITIES:

Early-redemption premium — — ( 16 )

Debt issuance costs ( 33 ) — —

Proceeds from issuance of U.S.

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

Repayment of Euro Notes (2026) — — ( 883 )

Repayment of U.S.

Notes (2023) — — ( 600 )

Borrowings under revolving credit facilities 2,186 1,644 5,035

Repayments under revolving credit facilities ( 3,074 ) ( 1,675 ) ( 3,717 )

Borrowings under term loans 1,031 — —

Repayments under term loans — — ( 324 )

Borrowings under receivables securitization facility — — 111

Repayments under receivables securitization facility — — ( 111 )

Repayments of other debt, net ( 32 ) ( 17 ) ( 26 )

Settlement of derivative instruments, net — ( 89 ) —

Settlement of derivative instruments ( 13 ) — ( 89 )

Dividends paid to LKQ stockholders ( 302 ) ( 284 ) ( 73 )

1 unchanged sentence

Other financing activities, net ( 17 ) ( 22 ) ( 15 )

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

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

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

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

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

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

Net cash provided by (used in) financing activities 1,102 ( 1,394 ) ( 985 )

Effect of exchange rate changes on cash and cash equivalents 5 ( 24 ) ( 1 )

Net increase (decrease) in cash and cash equivalents 21 4 ( 38 )

Cash and cash equivalents, beginning of period 278 274 312

Cash and cash equivalents, end of period $ 299 $ 278 $ 274

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

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

LKQ CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In millions)

Year Ended December 31,

2022 2021 2020

Supplemental disclosure of cash paid for:

10 unchanged sentences

Net income — — — — — 1,091 — 1 1,092

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

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

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

1 unchanged sentence

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

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

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

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

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

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

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

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

6 unchanged sentences

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

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

Balance as of December 31, 2022 322.4 $ 3 ( 55.1 ) $ ( 2,389 ) $ 1,506 $ 6,656 $ ( 323 ) $ 14 $ 5,467

Net income — — — — — 936 — 2 938

Other comprehensive loss — — — — — — ( 170 ) — ( 170 )

Other comprehensive income — — — — — — 83 — 83

Purchase of treasury stock — — ( 0.8 ) ( 35 ) — — — — ( 35 )

3 unchanged sentences

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

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

Balance as of December 31, 2023 323.1 $ 3 ( 55.9 ) $ ( 2,424 ) $ 1,538 $ 7,290 $ ( 240 ) $ 14 $ 6,181

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When the terms "LKQ," "the Company," "we," "us," or "our" are used in this document, those terms refer to LKQ Corporation and its consolidated subsidiaries.

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

We are 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 designed to improve the performance, functionality and appearance of vehicles.

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

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

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

Segment results have been adjusted retrospectively to reflect this change.

Discontinued Operations and Divestitures

Glass Manufacturing Business

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

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

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

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

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

Czech Republic

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

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

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

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

Other Divestitures (Not Classified in Discontinued Operations)

In April 2022, we completed the sale of our PGW aftermarket glass business within our Wholesale - North America segment, to a third party for $ 361 million resulting in recognition of a $ 155 million pretax gain ($ 127 million after tax).

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

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

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Summary of Significant Accounting Policies

Basis of Presentation

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

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

Securities and Exchange Commission.

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

Principles of Consolidation

2 unchanged sentences

Use of Estimates

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

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

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

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

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

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

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cost of Goods Sold

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Selling, General and Administrative Expenses

Selling, general and administrative expenses include:

personnel costs for employees in selling, general and administrative functions;

Selling, general and administrative ("SG&A") expenses include:

personnel costs for employees in SG&A functions;

costs to operate branch locations, corporate offices and back office support centers;

costs to transport products from facilities to our customers;

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

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

and other expenses, such as professional fees, supplies, and advertising expenses.

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

Stock-Based Compensation

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

Government Assistance

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

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

8 unchanged sentences

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

Cash and Cash Equivalents

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

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Cash and Cash Equivalents

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

Allowance for Credit Losses

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

Receivables are reported net of an allowance for credit losses.

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

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

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

Adjustments to historical loss information are made for differences in current conditions (e.g., management's evaluation of the aging of customer receivable balances and the financial condition of our customers) as well as changes in forecasted macroeconomic conditions, such as changes in the unemployment rate, gross domestic product growth rate or credit default rates.

Concentrations of Credit Risks

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

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

We control our exposure to credit risk associated with these instruments by (i) placing cash and cash equivalents with several major financial institutions;

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

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

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

11 unchanged sentences

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

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Property, Plant and Equipment

2 unchanged sentences

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

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

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

related expenses in the Consolidated Statements of Income.

Depreciation expense resulting from restructuring programs is recorded in Restructuring and transaction related expenses in the Consolidated Statements of Income.

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

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

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

Expenditures for maintenance and repairs are recorded as incurred to SG&A expenses in the Consolidated Statements of Income.

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

24 unchanged sentences

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

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

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

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

The fair values of the net assets were measured on a

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

non-recurring basis as of December 31, 2023.

As of December 31, 2023 and 2022, assets and liabilities held for sale were insignificant.

For the year ended December 31, 2023, we recorded an insignificant amount of impairment on our net assets held for sale.

Impairment of Long-Lived Assets

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We record common stock purchased for treasury stock at cost.

The excise tax on share repurchases initiated on and after January 1, 2023 is included in the cost basis of treasury stock.

See Note 24, "Income Taxes" for additional information related to the excise tax.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements

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

Recently Adopted Accounting Pronouncements

During the first quarter of 2023, we adopted Accounting Standards Update No.

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

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

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

We are currently evaluating the impact ASU 2022-04 will have on our Consolidated Financial Statements and will adopt ASU 2022-04 for all reporting periods in 2023.

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

We adopted the provisions of ASU 2022-04 on a retrospective basis (see Note 18, "Supply Chain Financing"), except for the disclosure of rollforward information, which will be adopted prospectively in 2024 as required.

The adoption of ASU 2022-04 did not have a material impact on our Consolidated Financial Statements.

Recently Issued Accounting Pronouncements

In November 2023, the Financial Accounting Standards Board issued Accounting Standards Update No.

2023-07, "Segment Reporting (Topic 280):

Improvements to Reportable Segment Disclosures" ("ASU 2023-07").

The ASU expands public entities' segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker and included within each reported measure of segment profit or loss, an amount and description of its composition for other segment items, and interim disclosures of a reportable segment’s profit or loss and assets.

The ASU is effective on a retrospective basis for fiscal years beginning after December 15, 2023 and interim periods within fiscal years beginning after December 15, 2024.

Early adoption is permitted.

We are currently evaluating the impact of adopting this ASU on our Consolidated Financial Statements.

In December 2023, the Financial Accounting Standards Board issued Accounting Standards Update No.

2023-09, "Income Taxes (Topic 740):

Improvements to Income Tax Disclosures" ("ASU 2023-09").

The ASU requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures.

The ASU will be effective for fiscal years beginning after December 15, 2024, and requires prospective application with the option to apply it retrospectively.

Early adoption is permitted.

We are currently evaluating the impact of adopting this ASU on our Consolidated Financial Statements.

Business Combinations

On August 1, 2023, we acquired 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) (the "Uni-Select Acquisition"), by way of a plan of arrangement (the "Arrangement") entered into on February 26, 2023, under the provisions of the Business Corporations Act (Québec).

Uni-Select was 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.

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 26, 2023, the U.K.'s Competition and Markets Authority cleared the acquisition, except with respect to the wholesale automotive parts business, GSF Car Parts in the U.K., which was divested in October 2023.

See Note 4, "Discontinued Operations and Divestitures" for information related to the divestment of GSF Car Parts.

In order to reduce the risk related to changes in CAD foreign exchange rates for the CAD purchase price between signing the Arrangement and closing of the Uni-Select Acquisition, we entered into foreign exchange contracts.

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

We reported Gains on foreign exchange contracts - acquisition related of $ 49 million for the year ended December 31, 2023.

These foreign exchange contracts were settled in July 2023 ahead of closing of the Uni-Select Acquisition, resulting in total payments received of $ 49 million.

See Note 20, "Derivative Instruments and Hedging Activities" for information related to these foreign exchange contracts.

In connection with the Uni-Select Acquisition, we entered into a senior unsecured bridge loan facility to obtain committed financing for a portion of 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 fully amortized these upfront fees (reported in Interest expense in the Consolidated Statements of Income) during the year ended December 31, 2023.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the permanent financing, on March 27, 2023, we entered into a new term loan credit agreement ("CAD Note") which established an unsecured term loan facility of up to CAD 700 million maturing in July 2026.

Proceeds from the CAD Note could only be used (i) to finance a portion of the aggregate cash consideration for the Uni-Select Acquisition, (ii) to refinance certain outstanding debt of Uni-Select and (iii) to pay fees, costs and expenses related to the Uni-Select Acquisition.

The CAD Note included a non-usage fee that was incurred through the date the proceeds were drawn on the facility.

In connection with the closing of the Uni-Select Acquisition, we borrowed approximately $ 531 million (CAD 700 million) under the CAD Note on July 31, 2023.

There were no changes in borrowings against the CAD Note between the draw date and December 31, 2023.

See Note 19, "Long-Term Obligations" for additional information related to the CAD Note.

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) were 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.

See Note 19, "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 in the second quarter following the issuance of the U.S.

Notes (2028/33).

See Note 20, "Derivative Instruments and Hedging Activities" for information related to these interest rate instruments.

We funded the remainder of the purchase price with borrowings under our revolving credit facility and cash on hand of approximately $ 150 million and $ 50 million, respectively.

In addition to our acquisition of Uni-Select, we completed acquisitions of three businesses within our Wholesale - North America segment, four businesses within our Europe segment and one business in our Specialty segment, during the year ended December 31, 2023.

The acquisition of Uni-Select 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.

The primary objectives of our other acquisitions made during the year ended December 31, 2023 were to create economic value for our stockholders by enhancing our position as a leading source for alternative collision and mechanical repair products and to expand into other product lines and businesses that may benefit from our operating strengths.

When we identify potential acquisitions, we attempt to target companies with a leading market presence, experienced management team and workforce, high synergies and/or that add critical capabilities with opportunity for future consolidation and growth.

For certain of our acquisitions, we have identified cost savings and synergies as a result of integrating the company with our existing business that provide additional value to the combined entity.

In many cases, acquiring companies with these characteristics will result in purchase prices that include a significant amount of goodwill.

Our acquisitions are accounted for under the purchase method of accounting and are included in our consolidated financial statements from the dates of acquisition.

The purchase prices were allocated to the net assets acquired based upon estimated fair values at the dates of acquisition.

The purchase price allocations for the acquisitions made during the year ended December 31, 2023 are preliminary as we are in the process of determining the following:

1) valuation amounts for certain receivables, inventories and fixed assets acquired;

2) valuation amounts for certain intangible assets acquired;

3) the acquisition date fair value of certain liabilities assumed;

and 4) the tax basis of the entities acquired.

We have recorded preliminary estimates for certain of the items noted above and will record adjustments, if any, to the preliminary amounts upon finalization of the valuations.

From the date of our preliminary allocation for Uni-Select in the third quarter of 2023 through December 31, 2023, we recorded adjustments based on our valuation procedures, primarily related to intangibles and deferred income taxes that resulted in the allocation of $ 81 million of goodwill to acquired net assets.

The income statement effect of these measurement period adjustments for our Uni-Select acquisition that would have been recorded in previous reporting periods if the adjustments had been recognized as of the acquisition dates was immaterial.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The purchase price allocations for the acquisitions completed during the year ended December 31, 2023 are as follows (in millions):

Year Ended December 31, 2023

Uni-Select (7)

Other Acquisitions (8)

Receivables $ 123 $ 33 $ 156

Inventories (1)

Prepaid expenses and other current assets 30 6 36

Assets of discontinued operations (2)

Property, plant and equipment 102 11 113

Operating lease assets 80 11 91

1,149 72 1,221

Other intangibles (4)

Other noncurrent assets 25 — 25

Current liabilities assumed (5)

( 338 ) ( 47 ) ( 385 )

Liabilities of discontinued operations (2)

( 183 ) — ( 183 )

Long-term operating lease liabilities, excluding current portion ( 55 ) ( 9 ) ( 64 )

Debt assumed ( 1 ) ( 12 ) ( 13 )

Other noncurrent liabilities assumed (6)

( 167 ) ( 4 ) ( 171 )

Other purchase price obligations ( 3 ) ( 22 ) ( 25 )

Cash used in acquisitions, net of cash acquired $ 2,081 $ 144 $ 2,225

(1) Primarily comprised of aftermarket and refurbished products.

(2) In connection with our acquisition of Uni-Select, we acquired one business (GSF Car Parts) which was required to be sold.

Therefore, such business was classified as held for sale and was included within the "Assets of discontinued operations" and "Liabilities of discontinued operations" line items in the above preliminary allocation of purchase price.

See Note 4, "Discontinued Operations and Divestitures" for information related to the GSF Car Parts business.

(3) We expect $ 116 million and $ 15 million of goodwill to be deductible for income tax purposes related to Uni-Select and our other acquisitions, respectively.

(4) The amount recorded for our acquisition of Uni-Select primarily includes $ 17 million of trade names (3 to 5 year useful lives) and $ 669 million of customer and supplier relationships (10 to 17 year useful lives).

(5) The amount recorded for our acquisition of Uni-Select includes $ 64 million of Accounts Payable outstanding under a supply chain financing arrangement.

See Note 18, "Supply Chain Financing" for information related to our supply chain financing programs.

(6) The amount recorded for our acquisition of Uni-Select includes $ 154 million of net deferred income tax liability, the significant components of which are as follows:

deferred tax liabilities related to customer relationships of $ 174 million net with deferred tax assets related to Canadian net operating loss carryforwards of $ 23 million.

(7) In the period between the acquisition date and December 31, 2023, Uni-Select, which is reported in our Wholesale - North America segment, generated revenue of $ 546 million and an operating loss of $ 17 million, including $ 25 million of restructuring and transaction related expenses and $ 34 million of amortization of acquired intangibles.

(8) In the period between the acquisition dates and December 31, 2023, these acquisitions generated revenue of $ 156 million, including $ 69 million within our Specialty segment, $ 67 million within our Europe segment, and the remaining amount within our Wholesale - North America segment, and operating income of $ 11 million, primarily within our Europe segment.

The fair value of our intangible assets is based on a number of inputs, including projections of future cash flows, assumed royalty rates and customer attrition rates, all of which are Level 3 inputs.

The fair value of our property, plant and equipment is determined using inputs such as market comparables and current replacement or reproduction costs of the asset, adjusted for physical, functional and economic factors;

these adjustments to arrive at fair value use unobservable inputs in which little or no market data exists, and therefore, these inputs are considered to be Level 3 inputs.

See Note 21, "Fair Value Measurements" for further information regarding the tiers in the fair value hierarchy.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information presents the effect of the businesses acquired during the year ended December 31, 2023 as though the businesses had been acquired as of January 1, 2022.

The unaudited pro forma financial information is based upon accounting estimates and judgments that we believe are reasonable.

The unaudited pro forma financial information includes the effect of purchase accounting adjustments, such as the adjustment of inventory acquired to fair value, adjustments to depreciation on acquired property, plant and equipment, adjustments to rent expense for above or below market leases, adjustments to amortization on acquired intangible assets, adjustments to interest expense, and the related tax effects.

These pro forma results are not necessarily indicative of what would have occurred if the acquisitions had been in effect for the periods presented or of future results.

The unaudited pro forma financial information is as follows (in millions):

Year Ended December 31,

Revenue $ 14,826 $ 14,437

Income from continuing operations 871 1,096

The pro forma impact of our acquisitions also reflects the elimination of acquisition related expenses (net of tax) of $ 18 million and gains on foreign exchange contracts - acquisition related of $ 49 million for the year ended December 31, 2023.

In addition, the unaudited pro forma financial information excludes the results of GSF Car Parts which was classified as discontinued operations upon the acquisition of Uni-Select.

Refer to Note 14, "Restructuring and Transaction Related Expenses" for further information regarding our acquisition related expenses, Note 20, "Derivative Instruments and Hedging Activities" for further information on our foreign exchange contracts and Note 4, "Discontinued Operations and Divestitures" for further information related to the divestment of GSF Car Parts.

Discontinued Operations and Divestitures

GSF C ar Parts

As part of the Uni-Select transaction, we were required to divest its U.K.

subsidiary, GSF Car Parts, to comply with the U.K.'s Competition and Markets Authority regulatory ruling.

Since the GSF Car Parts business was held separate and never integrated into our business, we classified the business as discontinued operations upon acquisition.

On October 25, 2023, we completed the divestment of GSF Car Parts to a third party for $ 110 million of proceeds, net of cash divested, resulting in an immaterial loss on sale.

The proceeds were used for repayments on our revolving credit facilities.

In order to manage our exposure to variability in the cash flows related to the sale of GSF Car Parts, we entered into a foreign exchange forward contract to fix the amount of USD we received upon completion of the sale.

This foreign exchange contract was settled in October 2023.

Glass Manufacturing Business

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

Other Divestitures (Not Classified in Discontinued Operations)

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).

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

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We classify our inventory into the following categories:

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Machinery and equipment 3 - 20 years 866 776

Computer equipment and software 3 - 10 years 124 115

Computer equipment 3 - 10 years 140 124

Vehicles and trailers 3 - 10 years 144 141

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Total depreciation expense for the years ended December 31, 2023, 2022, and 2021 was $ 193 million, $ 169 million, and $ 180 million, respectively.

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

Year Ended December 31,

2022 2021 2020

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

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Self-Insurance Reserves

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

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

The activity related to our captive insurance subsidiary was not material for the years ended December 31, 2023 and 2022, respectively.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Total self-insurance reserves were $ 136 million and $ 126 million, of which $ 73 million and $ 62 million were classified as current, as of December 31, 2023 and 2022, respectively.

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

We had outstanding letters of credit of $ 110 million and $ 69 million, of which $ 74 million and $ 69 million were to guarantee self-insurance claims payments at December 31, 2023 and 2022, respectively.

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

Allowance for Credit Losses

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

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

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

Our allowance for expected credit losses was $ 61 million and $ 54 million as of December 31, 2023 and December 31, 2022, respectively.

The provision for credit losses was an expense of $ 12 million and $ 9 million, and a benefit of $ 5 million for the years ended December 31, 2023, 2022, and 2021, respectively.

A rollforward of our allowance for credit losses is as follows (in millions):

Balance as of January 1, $ 54 $ 53

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

Provision for credit losses 12 9

Write-offs ( 7 ) ( 2 )

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Noncontrolling Interest

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

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

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

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

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

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

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Prior to December 2023, we have presented redeemable shares issued to a minority shareholder in conjunction with a previous acquisition as redeemable noncontrolling interest outside of permanent equity on our Consolidated Balance Sheets.

In December 2023, the minority shareholder exercised the put option on these shares at the fixed price of $ 24 million (€ 21 million) payable in January 2024.

As a result of this exercise, the redeemable noncontrolling interest has been reclassified to Other current liabilities on the Consolidated Balance Sheets at December 31, 2023.

Intangible Assets

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

North America Europe Specialty Self Service Total

Wholesale - North America Europe Specialty Self Service Total

Balance as of January 1, 2022, gross $ 1,496 $ 2,339 $ 456 $ 282 $ 4,573

2 unchanged sentences

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

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

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

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

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

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

Business acquisitions 1,171 35 15 — 1,221

Exchange rate effects ( 12 ) 72 — — 60

Balance as of December 31, 2023 $ 2,556 $ 2,298 $ 471 $ 275 $ 5,600

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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Estimated amortization expense for each of the five years in the period ending December 31, 2028 is $ 178 million, $ 167 million, $ 150 million, $ 131 million and $ 107 million, respectively.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Equity Method Investments

2 unchanged sentences

December 31, 2023 December 31, 2022

MEKO AB (1)(2)(3)

Europe 26.6 % $ 145 $ 129

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(1) As of December 31, 2023, the Level 1 fair value of our investment in MEKO AB ("Mekonomen") was $ 151 million based on the quoted market price for Mekonomen's common stock using the same foreign exchange rate as the carrying value.

(2) As of December 31, 2022, our share of the book value of Mekonomen's net assets exceeded the book value of our investment by $ 8 million;

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.

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

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

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

Government Assistance

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

Year Ended December 31,

2022 2021 2020

Cost of goods sold $ — $ 1 $ 1

Selling, general and administrative expenses — 15 51

Total government assistance $ — $ 16 $ 52

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

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

During the year ended December 31, 2023, we received $ 5 million in dividend payments from Mekonomen.

Warranty Reserve

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

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Warranty Reserve

Balance as of January 1, $ 32 $ 30

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Balance as of December 31, $ 35 $ 32

Warranty expense 77

Warranty claims ( 75 )

Balance as of December 31, 2022 $ 32

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue Recognition

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and large mechanical items such as engines and transmissions.

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

For Europe, and to a lesser extent for Wholesale - North America, vehicle replacement products include a wide variety of small mechanical products such as brake pads, discs and sensors;

electrical products such as spark plugs and batteries;

1 unchanged sentence

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:

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Self Service 365 488 580

Other revenue 861 948 665

Other 692 861 948

Total revenue $ 13,866 $ 12,794 $ 13,089

Contract Liabilities

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

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

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

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

Deferred service-type warranties

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Revenue by Geographic Area

See Note 24, "Segment and Geographic Information" for information related to our revenue by geographic region.

Variable Consideration

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Refund liability Refund liability 132 109

Variable consideration reserve Receivables, net 136 144

Variable consideration reserve Receivables, net of allowance for credit losses 155 136

Revenue by Geographic Area

Our net sales are attributed to geographic area based on the location of the selling operation.

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

Year Ended December 31,

2023 2022 2021

United States $ 6,826 $ 6,632 $ 6,626

Germany 1,672 1,523 1,622

United Kingdom 1,679 1,550 1,648

Other countries 3,689 3,089 3,193

Total revenue $ 13,866 $ 12,794 $ 13,089

Restructuring and Transaction Related Expenses

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

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

1 LKQ Europe Plan

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

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

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

This plan is scheduled to be substantially complete by the end of 2024 with an estimated total incurred cost of between $ 25 million and $ 35 million.

2019/2020 Global Restructuring Plan

1 unchanged sentence

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

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

We have incurred costs for inventory write-downs;

employee severance and other expenditures related to employee terminations;

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

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

This plan was completed in 2023 with a total incurred cost of $ 107 million.

1 LKQ Europe Plan

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

We completed the organizational design and implementation projects in

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

June 2021, with the remaining projects scheduled to be completed by the end of 2027 with a total incurred cost of between $ 30 million and $ 40 million.

Acquisition Integration Plans

1 unchanged sentence

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

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

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

We expect to incur additional expenses of between $ 10 million and $ 20 million primarily in 2024 to complete the integration plan related to the Uni-Select Acquisition in our Wholesale - North America segment.

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

3 unchanged sentences

Facility exit costs 7 1 —

Inventory related costs (1)

Other costs 2 3 —

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Facility exit costs 1 1 7

Inventory related costs (1)

Other costs — — 7

Total $ 1 $ 1 $ 11

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

Inventory related costs (1)

Total $ 3 $ 1 $ 6

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1 LKQ Europe Plan — 10 — — 10

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

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

December 31, December 31, December 31,

2022 2021 2022 2021 2022 2021

Employee related costs (1)

$ 3 $ — $ 1 $ 2 $ 1 $ 4

Facility exit costs (2)

Other costs — — 2 3 — —

Total $ 4 $ — $ 9 $ 14 $ 1 $ 4

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

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

The liabilities recorded related to our restructuring plans were not material as of December 31, 2023 and 2022.

LKQ CORPORATION AND SUBSIDIARIES

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Professional fees (1)

Other expenses — — 8 (2)

Transaction related expenses

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

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

(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

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

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

The Compensation and Human Capital Committee of our Board approved the grant of 169,511 , 169,605 , and 208,603 RSUs to our executives that included both a performance-based vesting condition and a time-based vesting condition in 2023, 2022, and 2021 respectively.

The performance-based vesting conditions for the 2023, 2022, and 2021 grants to our executive officers have been satisfied.

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(2) The weighted average grant date fair value of RSUs granted during the years ended December 31, 2022 and 2021 was $ 49.21 and $ 39.22 , respectively.

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

We grant PSUs with a three-year performance period to certain employees, including executive officers, under our Equity Incentive Plan.

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

1 unchanged sentence

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

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

The fair value of PSUs that vested during the years ended December 31, 2023 and 2022 was $ 13 million and $ 9 million, respectively;

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

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

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

The weighted average grant date fair value of PSUs granted during the years ended December 31, 2022 and 2021 was $ 48.95 and $ 38.31 , respectively.

(3) Represents the net adjustment to the number of shares issuable upon vesting of performance-based PSUs based on the Company's actual financial performance metrics for the three year performance period ended December 31, 2023.

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

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

The number of antidilutive securities was insignificant for the years ended December 31, 2023, 2022, and 2021.

LKQ CORPORATION AND SUBSIDIARIES

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

Other Comprehensive Loss

Other Comprehensive Income (Loss)

Balance as of January 1, 2021 $ ( 57 ) $ ( 1 ) $ ( 33 ) $ ( 8 ) $ ( 99 )

Pretax income (loss) 113 ( 48 ) ( 9 ) — 56

Income tax effect — 12 3 — 15

Reclassification of unrealized loss — 40 7 — 47

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

Disposal of businesses 1 — — — 1

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

Balance as of December 31, 2020 $ ( 57 ) $ ( 1 ) $ ( 33 ) $ ( 8 ) $ ( 99 )

Pretax (loss) income ( 64 ) 3 11 — ( 50 )

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

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

Year Ended December 31,

Classification 2022 2021 2020

Unrealized (losses) gains on interest rate swaps Interest expense $ — $ ( 1 ) $ ( 3 )

Unrealized gains on cross currency swaps Interest expense — 1 10

Unrealized gains (losses) on cross currency swaps (1)

Interest income and other income, net — 2 ( 38 )

Unrealized gains (losses) on foreign currency forward contracts (1)

Interest income and other income, net — — ( 9 )

Total $ — $ 2 $ ( 40 )

(1) The amounts reclassified to Interest income and other income, net in the Consolidated Statements of Income offset the impact of the remeasurement of the underlying transactions.

Pretax income (loss) 90 ( 12 ) ( 4 ) — 74

Income tax effect — 3 1 — 4

Reclassification of unrealized gain — ( 3 ) ( 2 ) — ( 5 )

Reclassification of deferred income taxes — 1 — — 1

Other comprehensive income from unconsolidated subsidiaries — — — 9 9

Balance as of December 31, 2023 $ ( 243 ) $ ( 11 ) $ 6 $ 8 $ ( 240 )

Net unrealized losses and gains related to our pension plans were reclassified to Interest income and other income, net in the Consolidated Statements of Income during each of the years ended December 31, 2023, 2022, and 2021.

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

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 Consolidated Statements of Income.

Supply Chain Financing

We utilize voluntary supply chain finance programs to support our efforts in negotiating payment term extensions with suppliers as part of our effort to improve our operating cash flows.

These programs provide participating suppliers the opportunity to sell their LKQ receivables to financial institutions at the sole discretion of both the suppliers and the financial institutions.

We are not a party to the agreement between the suppliers and financial institutions.

The financial institutions participate in the supply chain financing initiative on an uncommitted basis and can cease purchasing receivables from our suppliers at any time.

Our obligation to our suppliers, including amount due and payment date, are not impacted by the supplier’s decision to sell amounts under these agreements.

Our payment terms to the financial institutions, including the timing and amount of payments, are unchanged from the original supplier invoice.

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

As of December 31, 2023 and 2022, we had $ 411 million, including $ 70 million under the Uni-Select program, and $ 248 million of Accounts payable outstanding under the arrangements, respectively.

LKQ CORPORATION AND SUBSIDIARIES

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Maturity Date Interest Rate Amount Interest Rate Amount

Senior Unsecured Credit Agreement:

Term loan payable January 2026 6.83 % $ 500 — % $ —

Revolving credit facilities January 2028 6.25 % (1)

Senior Secured Credit Agreement:

Revolving credit facilities January 2024 — % — 4.24 % (1)

$ 1,786 1.10 % (1)

Senior Notes:

Senior Unsecured Term Loan Agreement:

Term loan payable July 2026 6.82 % 529 — % —

Unsecured Senior Notes:

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

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

Euro Notes (2024) April 2024 3.88 % 552 3.88 % 535

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Other debt 2.16 % (1)

11 2.28 % (1)

Total debt 4,281 2,662

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

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

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

Total debt, net of debt issuance costs and unamortized bond discount 4,251 2,656

current maturities, net of debt issuance costs ( 596 ) ( 34 )

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

Long term debt, net of debt issuance costs and unamortized bond discount $ 3,655 $ 2,622

(1) Interest rate derived via a weighted average

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(1) Long-term obligations maturing by December 31, 2024 include $ 16 million of short-term debt that may be extended beyond the current year ending December 31, 2024.

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

Senior Secured Credit Agreement

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

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

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

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

(2) The total debt amounts presented above reflect the gross values to be repaid (excluding debt issuance costs and unamortized bond discount of $ 30 million as of December 31, 2023).

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

All other interest rates remain the same.

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

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

During the second quarter of 2021, we exercised our option to prepay the outstanding amount on the term loan, and thus did not have any term loan borrowings as of December 31, 2021.

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

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

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

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

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

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

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

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

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

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

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

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

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

As of December 31, 2022, there were letters of credit outstanding in the aggregate amount of $ 69 million .

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

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

Senior Unsecured Credit Agreement

On January 5, 2023, we and certain other subsidiaries of ours entered into a new credit agreement (the "Senior Unsecured Credit Agreement") which establishes:

(i) an unsecured revolving credit facility of up to a U.S.

Dollar equivalent of $ 2.0 billion, which includes a $ 150 million sublimit for the issuance of letters of credit and a $ 150 million sublimit for swing line loans and (ii) an unsecured term loan facility of up to $ 500 million.

Borrowings under the agreement bear interest at the Secured Overnight Financing Rate (i.e.

"SOFR") plus the applicable spread or other risk-free interest rates that are applicable for the specified currency plus a spread.

The maturity date of the term loan is January 5, 2026 and may be extended by one additional year.

The term loan has no required amortization payments prior to its maturity date.

The maturity date for the revolving credit facility is January 5, 2028, and may be extended by up to two additional years in one year increments.

The Senior Unsecured Credit Agreement contains customary covenants for an unsecured credit facility for a company that has debt ratings that are investment grade, such as, requirements to comply with a total leverage ratio and interest coverage ratio, each calculated in accordance with the terms of the Senior Unsecured Credit Agreement, and limits on the Company’s and its subsidiaries’ ability to incur liens and indebtedness.

Proceeds from the Senior Unsecured Credit Agreement were used to repay the outstanding principal amount under our prior Senior Secured Credit Agreement (the "Prior Credit Agreement"), to pay fees and expenses related to the Senior Unsecured Credit Agreement, and for other general corporate purposes.

Senior Secured Credit Agreement

In connection with entering into the Senior Unsecured Credit Agreement noted above, Wells Fargo Bank, National Association and the various lending parties terminated the Prior Credit Agreement and each amendment thereto resulting in an immaterial loss on extinguishment of debt.

Senior Unsecured Term Loan Credit Agreement

For the permanent financing related to the Uni-Select Acquisition, on March 27, 2023, we entered into the CAD Note which established an unsecured term loan facility of up to CAD 700 million maturing in July 2026.

The CAD Note was funded on July 31, 2023, which was one business day prior to the consummation of the Uni-Select Acquisition.

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.

Notes (2028/2033)

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

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

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

The total redemption payment was $ 614 million, including an early-redemption premium of $ 9 million and accrued and unpaid interest of $ 4 million.

In the first quarter of 2020, we recorded a loss on debt extinguishment of $ 13 million on the Consolidated Statement of Income related to the redemption due to the early-redemption premium and the write-off of the unamortized debt issuance costs.

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.

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).

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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.

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.

Pursuant to the terms of the Registration Rights Agreement, on September 1, 2023, the Company and the Guarantors filed a Registration Statement on Form S-4 ("Form S-4") with respect to a registered offer to exchange (the "Exchange Offer") 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 has terms substantially identical in all material respects to the applicable series of U.S.

Notes (2028/33) (except that the Exchange Notes do not contain terms with respect to transfer restrictions and Additional Interest).

The SEC declared the Form S-4 effective on September 14, 2023.

The Exchange Offer closed in the fourth quarter of 2023.

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.

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.

Euro Notes (2024)

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

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

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

of those subsidiaries.

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

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

securities exchange and the Global Exchange Market of Euronext Dublin.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The Euro Notes (2024) are redeemable, in whole or in part, at any time at a redemption price of 100 % of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date plus a "make whole" premium.

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

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

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

Euro Notes (2026/2028)

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

Derivative Instruments and Hedging Activities

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

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

We do not hold or issue derivatives for trading purposes.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Receivables Securitization Facility

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

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

(ii) increase the maximum amount available to $ 110 million;

and (iii) make other clarifying and updating changes.

Under the facility, LKQ sold an ownership interest in certain receivables, related collections and security interests to MUFG for the benefit of conduit investors and/or financial institutions for cash proceeds.

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

Derivative Instruments and Hedging Activities

Cash Flow Hedges

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

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

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

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

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

Other Derivative Instruments Not Designated as Hedges

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 December 31, 2022 and 2021, along with the effect on our results of operations during the years ended December 31, 2022, 2021, and 2020, were not material.

Derivative Instruments Designated as Cash Flow Hedges

In February 2023, we entered into interest rate swap agreements to mitigate the risk of changing interest rates on our variable interest rate payments related to borrowings under our Senior Unsecured Credit Agreement.

Under the terms of the interest rate swap agreements, we pay the fixed interest rate and receive a variable interest rate based on term SOFR that matches a contractually specified rate under the Senior Unsecured Credit Agreement.

The agreements include a total $ 400 million notional amount maturing in February 2025 with a weighted average fixed interest rate of 4.63 % and a total $ 300 million notional amount maturing in February 2026 with a weighted average fixed interest rate of 4.23 %.

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 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.

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

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

See Note 19, "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 rate swaps were classified in financing activities in our 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 December 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):

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

Interest rate swap agreements $ 700 Other noncurrent liabilities ( 2 )

The activity related to our cash flow hedges is included in Note 17, "Accumulated Other Comprehensive Income (Loss)." As of December 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 Consolidated Statements of Income within the next 12 months.

Derivative Instruments Not Designated as Hedges

To manage the foreign currency exposure related to the Uni-Select Acquisition purchase price (denominated in CAD), we entered into foreign exchange contracts in March 2023 to purchase CAD 1.6 billion for approximately $ 1.2 billion.

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

We reported Gains on foreign exchange contracts - acquisition related on the Consolidated Statements of Income of $ 49 million for the year ended December 31, 2023.

These contracts were settled in July 2023 resulting in total payments received of $ 49 million.

To manage our foreign currency exposure on other non-functional currency denominated intercompany loans, we entered into short-term foreign currency forward contracts in 2023.

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

The fair values of these short-term derivative instruments that remained outstanding as of year-end were recorded in either Prepaid expenses and other current assets or Other accrued expenses on our Consolidated Balance Sheets and were not material at December 31, 2023 and 2022.

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 not elected to apply hedge accounting for these transactions.

The notional amount and fair value of these contracts at December 31, 2023 and December 31, 2022, along with the effect on our results of operations during the years ended December 31, 2023,

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

2022, and 2021, were not material.

The fair values of these contracts were recorded in either Prepaid expenses and other current assets or Other accrued expenses on our Consolidated Balance Sheets.

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 on our Consolidated Balance Sheets.

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 Consolidated Balance Sheets at December 31, 2023 and 2022.

Fair Value Measurements

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

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following tables present information about our financial liabilities measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation inputs we utilized to determine such fair value as of December 31, 2022 and 2021 (in millions):

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

Level 1 Level 2 Level 3

Contingent consideration liabilities $ 7 $ — $ — $ 7

Deferred compensation liabilities 73 — 73 —

Total Liabilities $ 80 $ — $ 73 $ 7

Balance as of December 31, 2021 Fair Value Measurements as of December 31, 2021

Level 1 Level 2 Level 3

The following table presents information about our financial liabilities measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation inputs we utilized to determine such fair value as of December 31, 2023 and 2022 (in millions):

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

Investments - debt securities $ 22 $ — $ — $ 22 $ — $ — $ — $ —

Investments - equity securities 3 — — 3 — — — —

Total Assets $ 25 $ — $ — $ 25 $ — $ — $ — $ —

Interest rate swaps $ — $ 2 $ — $ 2 $ — $ — $ — $ —

Contingent consideration liabilities — — 2 2 — — 7 7

Deferred compensation liabilities 89 — 89 —

Total Liabilities $ — $ 2 $ 2 $ 4 $ — $ — $ 7 $ 7

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

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

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

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

Investments in debt and equity securities relate to our captive insurance subsidiary and are included in Other noncurrent assets on the Consolidated Balance Sheets.

The balance sheet classification of the interest rate swap agreements is presented in Note 20, "Derivative Instruments and Hedging Activities." For contingent consideration liabilities, the current portion is included in Other current liabilities and the noncurrent portion is included in Other noncurrent liabilities on the Consolidated Balance Sheets based on the expected timing of the related payments.

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

Our contingent consideration liabilities are related to our business acquisitions.

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The liabilities for these payments are classified as Level 3 liabilities because the related fair value measurement, which is determined using an income approach, includes significant inputs not observable in the market.

We also have equity investments recorded in Other noncurrent assets that are reported at fair value.

We have used net asset value as a practical expedient to value these equity investments and thus they are excluded from the fair value hierarchy disclosure.

We have deferred compensation liabilities which are recorded in Other noncurrent liabilities on the Consolidated Balance Sheets.

These liabilities are determined based on the values of investments in participants' phantom accounts, which is not a fair value measurement, and thus the liabilities are not included in the fair value hierarchy disclosure.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Assets and Liabilities Not Measured at Fair Value

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

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

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

As of December 31, 2022 and 2021, the fair values of the Euro Notes (2028) were $ 254 million and $ 301 million, respectively, compared to carrying values of $ 268 million and $ 284 million, respectively.

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

We estimated the fair value by calculating the upfront cash payment a market participant would require at December 31, 2023 and 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.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

The residual values decline over the lease term to a defined percentage of original cost.

In the event the lessor does not realize the residual value when a vehicle is sold, we would be responsible for a portion of the shortfall.

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

The 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.

Based on market conditions as of December 31, 2023, the fair value of the borrowings under the Senior Unsecured Credit Agreement and CAD Note reasonably approximated their carrying values of $ 1,414 million and $ 529 million, respectively.

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

The following table provides the carrying and fair value for our other financial instruments as of December 31, 2023 and December 31, 2022 (in millions):

As of December 31, 2023

As of December 31, 2022

Carrying Value Fair Value Carrying Value Fair Value

Notes (2028) $ 800 $ 820 $ — $ —

Notes (2033) 600 628 — —

Euro Notes (2024) 552 552 535 535

Euro Notes (2028) 276 276 268 254

We have leases primarily for facilities, vehicles, and equipment.

The amounts recorded on the Consolidated Balance Sheets as of December 31, 2023 and 2022 related to our lease agreements are as follows (in millions):

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Total lease liabilities $ 1,470 $ 1,327

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

9 unchanged sentences

Net lease cost $ 455 $ 403 $ 429

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The future minimum lease commitments under our leases at December 31, 2023 are as follows (in millions):

28 unchanged sentences

Leased assets obtained in exchange for operating lease liabilities (1)

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Includes leased assets obtained in exchange for operating lease liabilities as a result of the Uni-Select acquisition.

Refer to Note 3, "Business Combinations" for more information.

Employee Benefit Plans

Defined Benefit Plans

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

Local statutory requirements govern many of our European plans.

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

Local statutory requirements govern many of our European and Canadian plans.

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

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Funded Status

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Settlement ( 3 ) ( 1 )

Transfers — 6

Currency impact 4 ( 12 )

2 unchanged sentences

Fair value - beginning of year $ 61 $ 63

Actual return on plan assets — 2

Acquisitions and divestitures (1)

Employer contributions 5 5

2 unchanged sentences

Settlement ( 3 ) ( 1 )

Transfers — 6

Currency impact 3 ( 3 )

2 unchanged sentences

Accumulated benefit obligation $ 196 $ 131

(1) 2023 activity relates to the Uni-Select acquisition.

Refer to Note 3, "Business Combinations" for more information.

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

The net amounts recognized for defined benefit plans in the Consolidated Balance Sheets were as follows (in millions):

The net amounts recognized for defined benefit plans on the Consolidated Balance Sheets were as follows (in millions):

Noncurrent assets $ 4 $ 3

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Noncurrent liabilities ( 83 ) ( 70 )

$ ( 72 ) $ ( 131 )

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the accumulated benefit obligation and aggregate fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets (in millions):

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Aggregate fair value of plan assets 67 21

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the projected benefit obligation and aggregate fair value of plan assets for pension plans with projected benefit obligations in excess of plan assets (in millions):

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( 3 ) ( 2 ) ( 2 )

Amortization of actuarial loss (2)

Settlement loss (3)

Amortization of actuarial (gain) loss (2)

Net periodic benefit cost $ 5 $ 5 $ 6

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Gains and losses in excess of the corridor are amortized over the average remaining service period of active members expected to receive benefits under the plan or, in the case of closed plans, the expected future lifetime of the employees participating in the plan.

(3) In June 2019, we approved an amendment to terminate our U.S.

As a result of the final settlement of this plan, we reclassified $ 6 million of unrealized loss from Accumulated other comprehensive loss to Interest income and other income, net in our Consolidated Statements of Income during the year ended December 31, 2020.

The service cost component of net periodic benefit cost was classified in Selling, general and administrative expenses, while the other components of net periodic benefit cost were classified in Interest income and other income, net in the Consolidated Statements of Income.

The service cost component of net periodic benefit cost was classified in SG&A expenses, while the other components of net periodic benefit cost were classified in Interest income and other income, net in the Consolidated Statements of Income.

The table below summarizes the weighted-average assumptions used to calculate the net periodic benefit cost in the table above:

Year Ended December 31,

2023 2022 2021

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3.1 % 2.8 % 3.2 %

(1) Our expected long-term return on plan assets is determined based on the asset allocation and estimate of future long-term returns by asset class.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(1) Our expected long-term return on plan assets is determined based on the asset allocation and estimate of future long-term returns by asset class.

Assumed mortality is also a key assumption in determining benefit obligations and net periodic benefit cost.

In some of the European plans, a price inflation index is also an assumption in determining benefit obligations and net periodic benefit cost.

In some of the European and Canadian plans, a price inflation index is also an assumption in determining benefit obligations and net periodic benefit cost.

As of December 31, 2023, the pretax amounts recognized in Accumulated other comprehensive loss consisted of $ 9 million of net actuarial gains for our defined benefit plans that have not yet been recognized in net periodic benefit cost.

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

Investments that are valued using net asset value ("NAV") (or its equivalent) as a practical expedient are excluded from the fair value hierarchy disclosure.

The following is a description of the valuation methodologies used for assets reported at fair value.

The methodologies used at December 31, 2022 and 2021 are the same.

Level 3 investments:

Investments in insurance contracts represent the cash surrender value of the insurance policy.

These amounts are determined by an actuary based on projections of future benefit payments, discount rates, and expected long-term rate of return on assets.

The remaining pension assets are valued at net asset value based on the underlying assets owned by the fund administrator, minus liabilities, divided by the number of units outstanding and are included in the table below to reconcile the total investment fair value of our plan assets.

Investments that are valued using net asset value (or its equivalent) as a practical expedient are excluded from the fair value hierarchy disclosure.

For the unfunded pension plans, we pay the defined benefit plan obligations when they become due.

The table below summarizes the fair value of our defined benefit plan assets by asset category within the fair value hierarchy for the funded defined benefit pension plans (in millions):

Level 1 Level 2 Level 3 NAV Total Level 1 Level 2 Level 3 NAV Total

Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total

Insurance contracts (1)

Mutual fund (1)

$ — $ — $ 66 $ 66 $ — $ — $ 40 $ 40

Total investments at fair value

4 — — 4 — — — —

(1) The underlying assets of the mutual fund valued at NAV consist of international bonds, equity, real estate and other investments.

Assets measured by fair value hierarchy $ 4 $ — $ 66 $ 70 $ — $ — $ 40 $ 40

Assets measured at net asset value (3)

Total pension plan assets at fair value $ 119 $ 61

(1) Investments in insurance contracts represents the cash surrender value of the insurance policy.

These amounts are determined by an actuary based on projections of future benefit payments, discount rates, and expected long-term rate of return on assets.

(2) Represents balances in a refundable tax account held with the Canada Revenue Agency.

(3) Consists of international bonds, equity, real estate and other investments.

The following table summarizes the changes in fair value measurements of Level 3 investments for the defined benefit plans (in millions):

Balance at beginning of year $ 40 $ 42

Acquisitions and divestitures 26 —

Actual return on plan assets:

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Balance at end of year $ 66 $ 40

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Assets for the defined benefit pension plans in Europe are invested primarily in insurance policies.

For the defined benefit pension plans in Canada, a portion of the assets representing a subset of inactive plan participants are invested in insurance policies.

Under these contracts, we pay premiums to the insurance company, which are based on an internal actuarial analysis performed by the insurance company;

the insurance company then funds the pension payments to the plan participants upon retirement.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Employer Contributions and Estimated Future Benefit Payments

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Non-deductible expenses 1.2 % 1.0 % 0.4 %

Excess tax benefits from stock-based compensation ( 0.2 ) % ( 0.1 ) % — %

Gains on foreign exchange contracts - acquisition related ( 0.8 ) % — % — %

Other, net ( 1.5 ) % ( 1.2 ) % ( 0.9 ) %

Effective tax rate 24.8 % 25.3 % 23.6 %

Beginning in 2018, the Tax Cuts and Jobs Act ("Tax Act") imposed a new regime of taxation on foreign subsidiary earnings referred to as GILTI.

We have elected to account for GILTI in the year the tax is incurred.

As part of the transition of U.S.

international taxation from a worldwide tax system to a modified territorial tax system, the Tax Act imposed a one-time transition tax on the deemed repatriation of historical earnings of foreign subsidiaries as of December 31, 2017.

Our transition tax liability was $ 42 million payable in eight installments from 2018 through 2025.

The next required installment of $ 6 million is recorded in Other current liabilities and the remaining $ 19 million is recorded in Other noncurrent liabilities on the Consolidated Balance Sheets.

Undistributed earnings of our foreign subsidiaries amounted to approximately $ 1,818 million at December 31, 2023.

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

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

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

The corporate minimum tax provisions of the IRA did not have a material impact on our financial results.

The impact of the excise tax provisions will be dependent upon the volume of any future stock repurchases, and there was no excise tax due on our 2023 share repurchases.

The OECD released a framework, referred to as Pillar Two, to implement a global minimum corporate tax rate of 15% on certain multinational enterprises.

Certain countries have enacted legislation to adopt the Pillar Two framework while several countries are considering or still announcing changes to their tax laws to implement the minimum tax directive.

While we do not currently expect Pillar Two to have a material impact on our effective tax rate, our analysis will continue as the OECD continues to release additional guidance and countries implement legislation.

LKQ CORPORATION AND SUBSIDIARIES

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Property, plant and equipment 102 86

Trade name 82 91

Trade names 88 82

Operating lease assets, net 319 291

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We have net operating loss carryforwards, primarily for certain international tax jurisdictions, the tax benefits of which totaled approximately $ 53 million and $ 19 million at December 31, 2023 and 2022, respectively.

The $ 34 million increase in net operating loss carryforwards is primarily related to the inclusion of historical loss carryforwards from the acquisition of Uni-Select.

At December 31, 2023 and 2022, we had tax credit carryforwards for certain U.S.

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As of December 31, 2023 and 2022, we had interest deduction carryforwards in Italy and Germany, the tax benefits of which totaled $ 32 million and $ 28 million, respectively.

As of December 31, 2022 and 2021, we had capital loss carryforwards, the tax benefit of which totaled an insignificant amount and $ 4 million, respectively.

As of December 31, 2023 and 2022, we had capital loss carryforwards, the tax benefit of which totaled an insignificant amount at both periods.

As of December 31, 2023 and 2022, valuation allowances of $ 64 million and $ 44 million, respectively, were recorded for deferred tax assets related to the foreign interest deduction carryforwards, certain foreign and U.S.

net operating loss carryforwards and capital loss carryforwards.

The $ 1 million net decrease in valuation allowances was primarily attributable to utilization of net operating loss carryforwards and U.S.

capital loss carryforward valuation allowance activity.

The net operating losses generally carry forward for a period of five years to indefinitely.

The interest deduction carryforwards in Italy and Germany do not expire.

Realization of these deferred tax assets is dependent on the generation of sufficient taxable income prior to the expiration dates, where applicable, or in the case of interest deduction carryforward, subject to legislative thin capitalization constraints, typically based on profitability.

Based on historical and projected operating results, we believe

The $ 20 million net increase in valuation allowances was primarily attributable to net operating loss carryforwards and U.S.

capital loss carryforward activity.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

that it is more likely than not that earnings will be sufficient to realize the deferred tax assets for which valuation allowances have not been provided.

The majority of the net operating losses will generally carry forward until 2034 to 2043.

The interest deduction carryforwards in Italy and Germany do not expire.

capital losses can be carried back three years and forward for five years.

Based on historical and projected operating results, we believe that it is more likely than not that earnings will be sufficient to realize the deferred tax assets for which valuation allowances have not been provided.

While we expect to realize the deferred tax assets, net of valuation allowances, changes in tax laws or in estimates of future taxable income may alter this expectation.

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Balance at January 1, $ 5 $ 5 $ 2

Additions based on tax positions related to the current year — — 1

Additions for acquired tax positions 6 — —

Additions based on tax positions related to prior years 3 2 5

Reductions for tax positions of prior year ( 1 ) — ( 2 )

Lapse of statutes of limitations ( 5 ) — —

Settlements with taxing authorities — ( 2 ) —

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We recognize interest and penalties accrued related to unrecognized tax benefits as income tax expense.

Attributable to the unrecognized tax benefits noted above, we had accumulated interest and penalties of $ 1 million, $ 1 million, and less than $ 1 million at December 31, 2022, 2021 and 2020, respectively.

During the years ended December 31, 2023, 2022 and 2021, we had accumulated interest and penalties of $ 1 million, attributable to the unrecognized tax benefits noted above.

During the years ended December 31, 2023, 2022 and 2021, we recorded $ 1 million or less of interest and penalties through the income tax provision, prior to any reversals for lapses in the statutes of limitations.

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We have four operating segments:

Wholesale - North America, Europe, Specialty and Self Service, each of which is presented as a reportable segment.

Segment results have been adjusted retrospectively to reflect this change.

Wholesale - North America;

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

The segments are organized based on a combination of geographic areas served and type of product lines offered.

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80 157 30 17 — 284

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

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

The key measure of segment profit or loss reviewed by our chief operating decision maker, our Chief Executive Officer, is Segment EBITDA.

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Corporate general and administrative expenses are allocated to the segments based on usage, with shared expenses apportioned based on the segment's percentage of consolidated revenue.

We calculate Segment EBITDA as EBITDA excluding restructuring and transaction related expenses (which includes restructuring expenses recorded in Cost of goods sold);

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

depreciation, amortization;

gains and losses on debt extinguishment;

income tax expense;

restructuring and transaction related expenses (which includes restructuring expenses recorded in Cost of goods sold);

change in fair value of contingent consideration liabilities;

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and direct impacts of the Ukraine/Russia conflict and related sanctions (including provisions for and subsequent adjustments to reserves for asset recoverability and expenditures to support our employees and their families).

EBITDA, which is the basis for Segment EBITDA, is calculated as net income excluding discontinued operations, depreciation, amortization, interest (which includes gains and losses on debt extinguishment) and income tax expense.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

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

Year Ended December 31,

3 unchanged sentences

Net income attributable to LKQ stockholders 936 1,149 1,091

Net income from discontinued operations 6 1 —

net (loss) income from discontinued operations ( 6 ) 6 1

Net income from continuing operations attributable to LKQ stockholders 942 1,143 1,090

Depreciation and amortization - SG&A 237 260 272

Depreciation and amortization - cost of goods sold 27 23 22

Depreciation and amortization - restructuring expenses (1)

Adjustments - continuing operations attributable to LKQ stockholders:

Depreciation and amortization 319 264 284

Interest expense, net of interest income 186 70 70

1 unchanged sentence

Provision for income taxes 306 385 331

EBITDA 1,862 1,799 1,302

Equity in earnings of unconsolidated subsidiaries (1)

( 15 ) ( 11 ) ( 23 )

Gains on foreign exchange contracts - acquisition related (2)

Equity investment fair value adjustments 2 5 ( 11 )

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Restructuring expenses - cost of goods sold (3)

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

Gain on disposal of businesses (4)

Change in fair value of contingent consideration liabilities — — 1

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Direct impacts of Ukraine/Russia conflict (5)

Impairment of net assets held for sale 1 — —

Segment EBITDA $ 1,759 $ 1,719 $ 1,785

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

Refer to Note 14, "Restructuring and Transaction Related Expenses," for further information.

(1) Refer to Note 11, "Equity Method Investments," for further information.

(2) Refer to Note 3, "Business Combinations" and Note 20, "Derivative Instruments and Hedging Activities" for further information.

(3) Refer to Note 14, "Restructuring and Transaction Related Expenses" for further information.

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

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December 31, 2023 December 31, 2022

Receivables, net

Receivables, net of allowance for credit losses

Wholesale - North America (1)

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Self Service 8 8

Total receivables, net 998 1,073

Total receivables, net of allowance for credit losses 1,165 998

Wholesale - North America (1)

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Total assets $ 15,079 $ 12,038

(1) The increase in assets for the Wholesale - North America segment is primarily attributable to the Uni-Select Acquisition.

We report net receivables;

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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.

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

Our net sales are attributed to geographic area based on the location of the selling operation.

As a result of the Uni-Select Acquisition, we further expanded our wholesale operations in Canada.

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

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

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

Year Ended December 31,

2022 2021 2020

United States $ 6,632 $ 6,626 $ 5,755

United Kingdom 1,550 1,648 1,461

Germany 1,523 1,622 1,523

Other countries 3,089 3,193 2,890

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

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

6 unchanged sentences

Total long-lived assets $ 2,852 $ 2,463

Subsequent Events

New Credit Agreement

On January 5, 2023, we and certain other subsidiaries of ours (collectively, the "Borrowers") entered into a new Credit Agreement (the “New Credit Agreement”) with several lenders;

Wells Fargo Bank, National Association (“Wells Fargo Bank”), as administrative agent;

Bank of America, N.A.

(“Bank of America”), as syndication agent;

PNC Bank, National Association, Truist Bank and MUFG Bank, Ltd.

(“MUFG”), as Documentation Agents;

Wells Fargo Bank and Bank of America, as Sustainability Structuring Agents;

Wells Fargo Securities, LLC, BofA Securities, Inc., PNC Capital Markets LLC, Truist Securities, Inc.

and MUFG, as joint bookrunners and joint lead arrangers.

The New Credit Agreement replaced our Prior Credit Agreement (as described in Note 18, "Long-Term Obligations").

The New Credit Agreement establishes;

(i) an unsecured revolving credit facility of up to a U.S.

Dollar equivalent of $ 2.0 billion, which includes a $ 150 million sublimit for the issuance of letters of credit and a $ 150 million sublimit for swing line loans (the “Revolving Loans”) and;

(ii) an unsecured term loan facility of up to $ 500 million (the “Term Loan” and collectively with the Revolving Loans, the “Loans”).

The Revolving Loans have a maturity date of January 5, 2028 and the Term Loan has a maturity date of January 5, 2026, each of which may be extended by one additional year.

The Term Loan has no required amortization payments prior to its maturity date.

Proceeds from the Loans may be used (i) to refinance certain existing indebtedness of LKQ and its subsidiaries and (ii) for general corporate purposes of LKQ and its subsidiaries in the ordinary course of business, including acquisitions and capital expenditures.

Under the New Credit Agreement, our borrowings will bear interest at the Secured Overnight Financing Rate (i.e.

"SOFR") plus the applicable spread or other risk-free interest rates that are applicable for the specified currency plus a spread.

The New Credit Agreement contains customary covenants for an unsecured credit facility for a company that has debt ratings that are investment grade, such as, requirements to comply with a total leverage ratio and interest coverage ratio, each calculated in accordance with the terms of the New Credit Agreement, and limits on the Company’s and its subsidiaries’ ability to incur liens and indebtedness.

Under the terms of the New Credit Agreement, the Borrowers withdrew initial borrowings totaling a U.S.

Dollar equivalent $ 1.8 billion at closing.

Amounts borrowed under the New Credit Agreement were used by the Borrowers to repay the outstanding principal amount and related fees and expenses under the Prior Credit Agreement and for other corporate purposes.

LKQ CORPORATION AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Termination of Prior Credit Agreement

In connection with entering into the New Credit Agreement noted above, Wells Fargo and the various lending parties terminated the existing Senior Secured Credit Agreement and each amendment thereto resulting in an immaterial loss on extinguishment of debt.

Interest Rate Swaps

In February 2023, we entered into two sets of interest rate swap agreements to hedge the risk from our variable interest rate borrowings on our New Credit Agreement.

The first set of agreements mature in February 2025 and include a notional amount of $ 400 million at a fixed average rate of 4.63 %.

The second set of agreements mature in February 2026 and include a notional amount of $ 300 million at a fixed average rate of 4.23 %.

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

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

What changed 10-K

Item 8. Financial Statements and Supplementary Data