LKQ CORP 10-Q

Item 1. Financial Statements LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Income (In millions, except per share data) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Revenue $ 3,584 $ 3,568 $ 10,998 $ 10,365 Cost of goods sold 2,191 2,178 6,712 6,189 Gross margin 1,393 1,390 4,286 4,176 Selling, general and administrative expenses 971 979 2,991 2,848 Restructuring and transaction related expenses 20 27 99 53 Depreciation and amortization 92 76 268 195 Operating income 310 308 928 1,080 Other expense (income): Interest expense 66 62 196 150 Gains on foreign exchange contracts - acquisition related (1) — ( 3 ) — ( 49 ) Interest income and other income, net ( 8 ) ( 14 ) ( 17 ) ( 34 ) Total other expense, net 58 45 179 67 Income from continuing operations before provision for income taxes 252 263 749 1,013 Provision for income taxes 63 60 216 263 Equity in earnings of unconsolidated subsidiaries 3 4 3 9 Income from continuing operations 192 207 536 759 Net income from discontinued operations — 1 — 1 Net income 192 208 536 760 Less: net income attributable to continuing noncontrolling interest 1 — 2 1 Net income attributable to LKQ stockholders $ 191 $ 208 $ 534 $ 759 Basic earnings per share: Income from continuing operations $ 0.73 $ 0.77 $ 2.02 $ 2.84 Net income from discontinued operations — 0.01 — — Net income 0.73 0.78 2.02 2.84 Less: net income attributable to continuing noncontrolling interest — — — — Net income attributable to LKQ stockholders $ 0.73 $ 0.78 $ 2.02 $ 2.84 Diluted earnings per share: Income from continuing operations $ 0.73 $ 0.77 $ 2.02 $ 2.83 Net income from discontinued operations — 0.01 — — Net income 0.73 0.78 2.02 2.83 Less: net income attributable to continuing noncontrolling interest — — 0.01 — Net income attributable to LKQ stockholders $ 0.73 $ 0.78 $ 2.01 $ 2.83 (1) Related to the Uni-Select Inc. ("Uni-Select") acquisition. Refer to Note 2, "Business Combinations" and Note 14, "Derivative Instruments and Hedging Activities" for further information. The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements. 3 LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Comprehensive Income (In millions) Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Net income $ 192 $ 208 $ 536 $ 760 Less: net income attributable to continuing noncontrolling interest 1 — 2 1 Net income attributable to LKQ stockholders 191 208 534 759 Other comprehensive income (loss): Foreign currency translation, net of tax 124 ( 147 ) 46 ( 56 ) Net change in unrealized gains/losses on cash flow hedges, net of tax ( 4 ) 2 1 ( 5 ) Other comprehensive (loss) income from unconsolidated subsidiaries ( 2 ) 8 ( 2 ) 12 Other comprehensive income (loss) 118 ( 137 ) 45 ( 49 ) Comprehensive income 310 71 581 711 Less: comprehensive income attributable to continuing noncontrolling interest 1 — 2 1 Comprehensive income attributable to LKQ stockholders $ 309 $ 71 $ 579 $ 710 The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements. 4 LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidated Balance Sheets (In millions, except per share data) September 30, 2024 December 31, 2023 Assets Current assets: Cash and cash equivalents $ 353 $ 299 Receivables, net of allowance for credit losses 1,341 1,165 Inventories 3,132 3,121 Prepaid expenses and other current assets 319 283 Total current assets 5,145 4,868 Property, plant and equipment, net 1,574 1,516 Operating lease assets, net 1,381 1,336 Goodwill 5,629 5,600 Other intangibles, net 1,228 1,313 Equity method investments 159 159 Other noncurrent assets 350 287 Total assets $ 15,466 $ 15,079 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 1,814 $ 1,648 Accrued expenses: Accrued payroll-related liabilities 218 260 Refund liability 135 132 Other accrued expenses 397 309 Current portion of operating lease liabilities 247 224 Current portion of long-term obligations 44 596 Other current liabilities 135 149 Total current liabilities 2,990 3,318 Long-term operating lease liabilities, excluding current portion 1,188 1,163 Long-term obligations, excluding current portion 4,292 3,655 Deferred income taxes 426 448 Other noncurrent liabilities 320 314 Commitments and contingencies Stockholders' equity: Common stock, $ 0.01 par value, 1,000.0 shares authorized, 323.6 shares issued and 261.2 shares outstanding at September 30, 2024; 323.1 shares issued and 267.2 shares outstanding at December 31, 2023 3 3 Additional paid-in capital 1,548 1,538 Retained earnings 7,584 7,290 Accumulated other comprehensive loss ( 195 ) ( 240 ) Treasury stock, at cost; 62.4 shares at September 30, 2024 and 55.9 shares at December 31, 2023 ( 2,706 ) ( 2,424 ) Total Company stockholders' equity 6,234 6,167 Noncontrolling interest 16 14 Total stockholders' equity 6,250 6,181 Total liabilities and stockholders' equity $ 15,466 $ 15,079 The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements. 5 LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Cash Flows (In millions) Nine Months Ended September 30, 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 536 $ 760 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 300 219 Stock-based compensation expense 22 29 Gains on foreign exchange contracts - acquisition related — ( 49 ) Other 66 22 Changes in operating assets and liabilities, net of effects from acquisitions and dispositions: Receivables ( 173 ) ( 154 ) Inventories ( 48 ) 128 Prepaid income taxes/income taxes payable 2 25 Accounts payable 175 122 Other operating assets and liabilities 6 42 Net cash provided by operating activities 886 1,144 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment ( 225 ) ( 233 ) Acquisitions, net of cash acquired ( 46 ) ( 2,199 ) Proceeds from settlement of foreign exchange contracts - acquisition related — 49 Other investing activities, net ( 29 ) ( 6 ) Net cash used in investing activities ( 300 ) ( 2,389 ) CASH FLOWS FROM FINANCING ACTIVITIES: Debt issuance costs ( 7 ) ( 32 ) Proceeds from issuance of U.S. Notes (2028/33), net of unamortized bond discount — 1,394 Proceeds from issuance of Euro Notes (2031), net of unamortized bond discount 816 — Repayment of Euro Notes (2024) ( 547 ) — Borrowings under revolving credit facilities 1,122 1,978 Repayments under revolving credit facilities ( 1,316 ) ( 2,715 ) Borrowings under term loans — 1,031 Repayments of other debt, net ( 30 ) ( 12 ) Settlement of derivative instruments 9 ( 13 ) Dividends paid to LKQ stockholders ( 240 ) ( 222 ) Purchase of treasury stock ( 280 ) ( 8 ) Other financing activities, net ( 43 ) ( 10 ) Net cash (used in) provided by financing activities ( 516 ) 1,391 Effect of exchange rate changes on cash, cash equivalents and restricted cash 1 — Net increase in cash, cash equivalents and restricted cash 71 146 Cash and cash equivalents of continuing operations, beginning of period 299 278 Add: Cash and cash equivalents of discontinued operations, beginning of period — — Cash and cash equivalents of continuing and discontinued operations, beginning of period 299 278 Cash, cash equivalents and restricted cash of continuing and discontinued operations, end of period 370 424 Less: Cash, cash equivalents and restricted cash of discontinued operations, end of period — 23 Cash, cash equivalents and restricted cash, end of period (1) $ 370 $ 401 Supplemental disclosure of cash paid for: Income taxes, net of refunds $ 219 $ 227 Interest 153 100 (1) Refer to Note 18, "Cash, Cash Equivalents and Restricted Cash" for further information on restricted cash. The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements. 6 LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Stockholders' Equity (In millions, except per share data) Three Months Ended September 30, 2024 LKQ Stockholders Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Noncontrolling Interest Total Stockholders' Equity Shares Amount Shares Amount Balance as of July 1, 2024 323.6 $ 3 ( 59.4 ) $ ( 2,580 ) $ 1,547 $ 7,472 $ ( 313 ) $ 15 $ 6,144 Net income — — — — — 191 — 1 192 Other comprehensive income — — — — — — 118 — 118 Purchase of treasury stock — — ( 3.0 ) ( 126 ) — — — — ( 126 ) Vesting of restricted stock units, net of shares withheld for employee tax — — — — ( 5 ) — — — ( 5 ) Stock-based compensation expense — — — — 6 — — — 6 Dividends declared to LKQ stockholders ($0.30 per share) — — — — — ( 79 ) — — ( 79 ) Balance as of September 30, 2024 323.6 $ 3 ( 62.4 ) $ ( 2,706 ) $ 1,548 $ 7,584 $ ( 195 ) $ 16 $ 6,250 Three Months Ended September 30, 2023 LKQ Stockholders Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Noncontrolling Interest Total Stockholders' Equity Shares Amount Shares Amount Balance as of July 1, 2023 322.9 $ 3 ( 55.2 ) $ ( 2,394 ) $ 1,520 $ 7,059 $ ( 235 ) $ 15 $ 5,968 Net income — — — — — 208 — — 208 Other comprehensive loss — — — — — — ( 137 ) — ( 137 ) Vesting of restricted stock units, net of shares withheld for employee tax 0.2 — — — ( 2 ) — — — ( 2 ) Stock-based compensation expense — — — — 9 — — — 9 Dividends declared to LKQ stockholders ($0.275 per share) — — — — — ( 73 ) — — ( 73 ) Balance as of September 30, 2023 323.1 $ 3 ( 55.2 ) $ ( 2,394 ) $ 1,527 $ 7,194 $ ( 372 ) $ 15 $ 5,973 The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements. 7 LKQ CORPORATION AND SUBSIDIARIES Unaudited Condensed Consolidated Statements of Stockholders' Equity (In millions, except per share data) Nine Months Ended September 30, 2024 LKQ Stockholders Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Noncontrolling Interest Total Stockholders' Equity Shares Amount Shares Amount Balance as of January 1, 2024 323.1 $ 3 ( 55.9 ) $ ( 2,424 ) $ 1,538 $ 7,290 $ ( 240 ) $ 14 $ 6,181 Net income — — — — — 534 — 2 536 Other comprehensive income — — — — — — 45 — 45 Purchase of treasury stock — — ( 6.5 ) ( 282 ) — — — — ( 282 ) Vesting of restricted stock units, net of shares withheld for employee tax 0.5 — — — ( 11 ) — — — ( 11 ) Stock-based compensation expense — — — — 22 — — — 22 Dividends declared to LKQ stockholders ($0.90 per share) — — — — — ( 240 ) — — ( 240 ) Purchase of noncontrolling interest — — — — ( 1 ) — — — ( 1 ) Balance as of September 30, 2024 323.6 $ 3 ( 62.4 ) $ ( 2,706 ) $ 1,548 $ 7,584 $ ( 195 ) $ 16 $ 6,250 Nine Months Ended September 30, 2023 LKQ Stockholders Common Stock Treasury Stock Additional Paid-In Capital Retained Earnings Accumulated Other Comprehensive Loss Noncontrolling Interest Total Stockholders' Equity Shares Amount Shares Amount Balance as of January 1, 2023 322.4 $ 3 ( 55.1 ) $ ( 2,389 ) $ 1,506 $ 6,656 $ ( 323 ) $ 14 $ 5,467 Net income — — — — — 759 — 1 760 Other comprehensive loss — — — — — — ( 49 ) — ( 49 ) Purchase of treasury stock — — ( 0.1 ) ( 5 ) — — — — ( 5 ) Vesting of restricted stock units, net of shares withheld for employee tax 0.7 — — — ( 8 ) — — — ( 8 ) Stock-based compensation expense — — — — 29 — — — 29 Dividends declared to LKQ stockholders ($0.825 per share) — — — — — ( 221 ) — — ( 221 ) Balance as of September 30, 2023 323.1 $ 3 ( 55.2 ) $ ( 2,394 ) $ 1,527 $ 7,194 $ ( 372 ) $ 15 $ 5,973 The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements. 8 LKQ CORPORATION AND SUBSIDIARIES Notes to Unaudited Condensed Consolidated Financial Statements Note 1. Interim Financial Statements LKQ Corporation, a Delaware corporation, is a holding company and all operations are conducted by subsidiaries. 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 have prepared the accompanying Unaudited Condensed Consolidated Financial Statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC") applicable to interim financial statements. Accordingly, certain information related to our significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted. These Unaudited Condensed Consolidated Financial Statements reflect, in the opinion of management, all material adjustments (which include only normally recurring adjustments) necessary to fairly state, in all material respects, our financial position, results of operations and cash flows for the periods presented. We have reclassified certain prior period amounts to conform to the current period presentation. Results for interim periods are not necessarily indicative of the results that can be expected for any subsequent interim period or for a full year. These interim financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the SEC on February 22, 2024 ("2023 Form 10-K"). Recent Accounting Pronouncements 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 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 12, "Supply Chain Financing"), except for the disclosure of rollforward information, which will be adopted prospectively in our Annual Report on Form 10-K for the year ending December 31, 2024 as required. The adoption of ASU 2022-04 did not have a material impact on our unaudited condensed 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." The ASU expands public entities’ segment disclosures by requiring disclosure of significant segment expenses that are regularly provided to the chief operating decision maker ("CODM") 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 expect the adoption of this standard will not materially impact our results of operations, financial position or cash flows, but will result in additional disclosures. In December 2023, the Financial Accounting Standards Board issued Accounting Standards Update No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures." 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. 9 Note 2. Business Combinations During the nine months ended September 30, 2024, we completed acquisitions of six businesses within our Wholesale - North America segment and two businesses within our Europe segment. These acquisitions were not material to our financial position or results of operations as of and for the three and nine months ended September 30, 2024. Additionally, in January 2024, we paid $ 23 million (€ 21 million) to a minority shareholder to settle a put option exercised on redeemable shares issued in conjunction with a previous acquisition. This payment was presented within Other financing activities, net in financing activities in our Unaudited Condensed Consolidated Statements of Cash Flows. In February 2023, we entered into a plan of arrangement to acquire all of Uni-Select's issued and outstanding shares. On August 1, 2023, we completed the acquisition of Uni-Select for an aggregate consideration paid of approximately Canadian dollar (“CAD”) 2.8 billion ($ 2.1 billion) (the "Uni-Select Acquisition"). In order to reduce the risk related to changes in CAD foreign exchange rates for the CAD purchase price, we entered into foreign exchange contracts. These foreign exchange contracts did not qualify for hedge accounting, and therefore the changes in fair value were reported in Gains on foreign exchange contracts - acquisition related in the Unaudited Condensed Consolidated Statements of Income. We reported Gains on foreign exchange contracts - acquisition related of $ 3 million and $ 49 million for the three and nine months ended September 30, 2023, respectively. 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 14, "Derivative Instruments and Hedging Activities" for information related to these foreign exchange contracts. 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. During the nine months ended September 30, 2024, there have been no significant adjustments to the preliminary purchase price allocations from those disclosed in our December 31, 2023 Consolidated Financial Statements. Unaudited Pro Forma Financial Information The following unaudited pro forma financial information presents the effect of the businesses acquired during the nine months ended September 30, 2024 as though the businesses had been acquired as of January 1, 2023, and the businesses acquired during the year ended December 31, 2023 as though they 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): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Revenue $ 3,585 $ 3,714 $ 11,022 $ 11,382 Income from continuing operations 192 201 537 685 The pro forma impact of our acquisitions also reflects the elimination of acquisition related expenses (net of tax) of $ 3 million and $ 17 million for the three and nine months ended September 30, 2023, respectively, and gains on foreign exchange contracts - acquisition related of $ 3 million and $ 49 million for the three and nine months ended September 30, 2023, respectively. Refer to Note 9, "Restructuring and Transaction Related Expenses" for further information regarding our acquisition related expenses. 10 Note 3. Discontinued Operations As part of the Uni-Select transaction, we were required to divest its United Kingdom ("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. In October 2023, we completed the divestment of GSF Car Parts resulting in an immaterial loss on sale. In order to manage our exposure to variability in the cash flows related 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. Note 4. Inventories We classify our inventory into the following categories: (i) aftermarket and refurbished products, (ii) salvage and remanufactured products, and (iii) manufactured products. Inventories consist of the following (in millions): September 30, 2024 December 31, 2023 Aftermarket and refurbished products $ 2,576 $ 2,556 Salvage and remanufactured products 503 510 Manufactured products 53 55 Total inventories $ 3,132 $ 3,121 Aftermarket and refurbished products and salvage and remanufactured products are primarily composed of finished goods. As of September 30, 2024, manufactured products inventory was composed of $ 26 million of raw materials, $ 7 million of work in process, and $ 20 million of finished goods. As of December 31, 2023, manufactured products inventory was composed of $ 26 million of raw materials, $ 7 million of work in process, and $ 22 million of finished goods. Note 5. Allowance for Credit Losses Our allowance for credit losses was $ 61 million as of both September 30, 2024 and December 31, 2023. The provision for credit losses was $ 7 million and $ 1 million for the three months ended September 30, 2024 and 2023 and $ 11 million and $ 7 million for the nine months ended September 30, 2024 and 2023, respectively. Note 6. Intangible Assets Goodwill and indefinite-lived intangible assets are tested for impairment at least annually. We performed our annual impairment test during the fourth quarter of 2023, and determined no impairment existed as all of our reporting units had a fair value estimate which exceeded the carrying value by at least 20 %. The fair value estimates of our reporting units were established using weightings of the results of a discounted cash flow methodology and a comparative market multiples approach. Goodwill and indefinite-lived intangible assets impairment testing may also be performed on an interim basis when events or circumstances arise that may lead to impairment. We did not identify any indicators of impairment in the first nine months of 2024 that necessitated an interim test of goodwill impairment or indefinite-lived intangible assets impairment. 11 Note 7. Equity Method Investments The carrying value of our Equity method investments were as follows (in millions): Segment Ownership as of September 30, 2024 September 30, 2024 December 31, 2023 MEKO AB (1) Europe 26.6 % $ 147 $ 145 Other 12 14 Total $ 159 $ 159 (1) As of September 30, 2024, the Level 1 fair value of our investment in MEKO AB ("Mekonomen") was $ 202 million based on the quoted market price for Mekonomen's common stock using the same foreign exchange rate as the carrying value. Our share of the book value of Mekonomen's net assets exceeded the book value of our investment by $ 10 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. Note 8. Revenue Recognition Disaggregated Revenue We report revenue in two categories: (i) parts and services and (ii) other. Parts revenue is generated from the sale of vehicle products including replacement parts, components and systems used in the repair and maintenance of vehicles and specialty products and accessories to improve the performance, functionality and appearance of vehicles. Services revenue includes (i) additional services that are generally billed concurrently with the related product sales, such as the sale of service-type warranties, (ii) fees for admission to our self service yards, and (iii) diagnostic and repair services. For Wholesale - North America and Self Service, vehicle replacement products include sheet metal collision parts such as doors, hoods, and fenders; bumper covers; head and tail lamps; mirrors; grilles; wheels; and large mechanical items such as engines and transmissions. 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; clutches; electrical products such as spark plugs and batteries; steering and suspension products; filters; 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: truck and off-road; speed and performance; recreational vehicles; towing; wheels, tires and performance handling; marine; and miscellaneous accessories. Other revenue includes sales of scrap and precious metals (platinum, palladium, and rhodium), bulk sales to mechanical manufacturers (including cores) and sales of aluminum ingots and sows from furnace operations. We derive scrap metal and other precious metals from several sources in both our Wholesale - North America and Self Service segments, including vehicles that have been used in our recycling operations and vehicles from original equipment manufacturers ("OEMs") and other entities that contract with us for secure disposal of "crush only" vehicles. Revenue from the sale of hulks in our Wholesale - North America and Self Service segments is recognized based on a price per ton of delivered material when the customer (processor) collects the scrap. 12 The following table sets forth our revenue disaggregated by category and reportable segment (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Wholesale - North America $ 1,349 $ 1,312 $ 4,169 $ 3,581 Europe 1,609 1,581 4,879 4,762 Specialty 417 456 1,305 1,294 Self Service 52 58 161 181 Parts and services 3,427 3,407 10,514 9,818 Wholesale - North America 74 75 227 234 Europe 4 3 17 15 Self Service 79 83 240 298 Other 157 161 484 547 Total revenue $ 3,584 $ 3,568 $ 10,998 $ 10,365 Variable Consideration Amounts related to variable consideration on our Unaudited Condensed Consolidated Balance Sheets are as follows (in millions): Classification September 30, 2024 December 31, 2023 Return asset Prepaid expenses and other current assets $ 71 $ 68 Refund liability Refund liability 135 132 Variable consideration reserve Receivables, net of allowance for credit losses 157 155 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): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Revenue United States $ 1,679 $ 1,759 $ 5,243 $ 5,130 Germany 444 418 1,314 1,270 United Kingdom 430 438 1,298 1,275 Other countries 1,031 953 3,143 2,690 Total revenue $ 3,584 $ 3,568 $ 10,998 $ 10,365 13 Note 9. Restructuring and Transaction Related Expenses From time to time, we initiate restructuring plans to integrate acquired businesses, to align our workforce with strategic business activities, or to improve efficiencies in our operations. Below is a summary of our current restructuring plans: 2024 Global Restructuring Plan In the first quarter of 2024, we began a global restructuring initiative focused on enhancing profitability. This initiative includes exiting businesses and markets that do not align with our strategic objectives and executing on opportunities to reduce costs, streamline operations and consolidate facilities. As we move forward with our plan, we will incur impairments and other charges related to the disposal of long-lived assets, inventory, and other assets; costs for employee severance; lease termination charges and facility closure costs; and other contract termination charges. We expect that the largest portion of the activity will come from the Europe segment. In the second quarter of 2024, we divested our operations in Slovenia. In the third quarter of 2024, we divested our operations in Poland to Mekonomen, an equity method investment of which we own 26.6 %, which closed in July 2024 and we divested our operations in Bosnia, which closed in September 2024. Our decision to exit these markets constituted a triggering event to evaluate certain long-lived assets for impairment, and as a result, we incurred impairment charges with the divestiture of Slovenia, Poland, and Bosnia. This plan is scheduled to be substantially complete by the end of 2025 with an estimated total incurred cost of between $ 100 million and $ 120 million. In the future, we may identify additional initiatives under the plan that may result in additional expenditures, although we are currently unable to estimate the range of charges for such potential future initiatives. 2022 Global Restructuring Plan In the fourth quarter of 2022, we began a restructuring initiative covering all of our reportable segments designed to reduce costs, streamline operations, consolidate facilities and implement other strategic changes to the overall organization. We have incurred and expect to incur costs primarily for employee severance, inventory or other asset write-downs, and exiting facilities. This plan is scheduled to be substantially complete by the end of 2024 with an estimated total incurred cost of approximately $ 30 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 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 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 As we complete the acquisition of a business, we may incur costs related to integrating the acquired business into our current business structure and systems. These costs are typically incurred within a year from the acquisition date and vary in magnitude depending on the size and complexity of the related integration activities. We expect to incur additional expenses of approximately $ 2 million by the end of 2024 to substantially complete the integration plan related to the Uni-Select Acquisition in our Wholesale - North America segment. 14 The following table sets forth the expenses incurred related to our restructuring plans (in millions): Three Months Ended September 30, Nine Months Ended September 30, Plan Expense Type 2024 2023 2024 2023 2024 Global Plan Employee related costs $ 10 $ — $ 13 $ — Facility exit costs 4 — 4 — Inventory related costs (1) — — 14 — Asset impairments (2) — — 46 — Other costs — — 7 — Total $ 14 $ — $ 84 $ — 2022 Global Plan Employee related costs $ — $ 1 $ 1 $ 3 Facility exit costs 1 2 2 5 Inventory related costs (1) — 2 — 2 Other costs — 1 — 3 Total $ 1 $ 6 $ 3 $ 13 1 LKQ Europe Plan Employee related costs $ — $ — $ 2 $ 1 Facility exit costs — — 1 — Inventory related costs (1) 1 — 1 — Total $ 1 $ — $ 4 $ 1 Acquisition Integration Plans Employee related costs $ — $ 20 $ 4 $ 20 Facility exit costs 4 — 13 2 Other costs — — 3 — Total $ 4 $ 20 $ 20 $ 22 Total restructuring expenses $ 20 $ 26 $ 111 $ 36 (1) Recorded to Cost of goods sold in the Unaudited Condensed Consolidated Statements of Income. (2) Related to impairment of assets in Property, plant and equipment, net and Prepaid expenses and other current assets on the Unaudited Condensed Consolidated Balance Sheets. The following table sets forth the cumulative plan costs by segment related to our restructuring plans (in millions): Cumulative Program Costs Wholesale - North America Europe Specialty Self Service Total 2024 Global Plan $ 12 $ 72 $ — $ — $ 84 2022 Global Plan 2 19 4 3 28 1 LKQ Europe Plan — 14 — — 14 Transaction Related Expenses During the three months ended September 30, 2024 and 2023, we incurred expenses totaling $ 1 million and $ 3 million, respectively, and during the nine months ended September 30, 2024 and 2023, we incurred expenses totaling $ 3 million and $ 19 million, respectively, for legal, accounting and advisory services related to completed and potential transactions. 15 Note 10. Earnings Per Share The following chart sets forth the computation of earnings per share (in millions, except per share amounts): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Income from continuing operations $ 192 $ 207 $ 536 $ 759 Denominator for basic earnings per share—Weighted-average shares outstanding 262.3 267.8 264.9 267.6 Effect of dilutive securities: Restricted stock units ("RSUs") 0.2 0.4 0.3 0.5 Performance-based RSUs ("PSUs") 0.1 0.2 0.1 0.2 Denominator for diluted earnings per share—Adjusted weighted-average shares outstanding 262.6 268.4 265.3 268.3 Basic earnings per share from continuing operations $ 0.73 $ 0.77 $ 2.02 $ 2.84 Diluted earnings per share from continuing operations (1) $ 0.73 $ 0.77 $ 2.02 $ 2.83 (1) Diluted earnings per share from continuing operations was computed using the treasury stock method for dilutive securities. Note 11. Accumulated Other Comprehensive Income (Loss) The components of Accumulated Other Comprehensive Income (Loss) are as follows (in millions): Three Months Ended September 30, 2024 Foreign Currency Translation Unrealized Gain (Loss) on Cash Flow Hedges Unrealized Gain on Pension Plans Other Comprehensive Income (Loss) from Unconsolidated Subsidiaries Accumulated Other Comprehensive Income (Loss) Balance as of July 1, 2024 $ ( 321 ) $ ( 6 ) $ 6 $ 8 $ ( 313 ) Pretax income (loss) 122 ( 4 ) — — 118 Income tax effect — 1 — — 1 Reclassification of unrealized gain — ( 1 ) — — ( 1 ) Disposal of business 2 — — — 2 Other comprehensive loss from unconsolidated subsidiaries — — — ( 2 ) ( 2 ) Balance as of September 30, 2024 $ ( 197 ) $ ( 10 ) $ 6 $ 6 $ ( 195 ) Three Months Ended September 30, 2023 Foreign Currency Translation Unrealized Gain (Loss) on Cash Flow Hedges Unrealized Gain on Pension Plans Other Comprehensive Income (Loss) from Unconsolidated Subsidiaries Accumulated Other Comprehensive Income (Loss) Balance as of July 1, 2023 $ ( 242 ) $ ( 7 ) $ 11 $ 3 $ ( 235 ) Pretax (loss) income ( 147 ) 4 — — ( 143 ) Income tax effect — ( 1 ) — — ( 1 ) Reclassification of unrealized gain — ( 1 ) — — ( 1 ) Other comprehensive income from unconsolidated subsidiaries — — — 8 8 Balance as of September 30, 2023 $ ( 389 ) $ ( 5 ) $ 11 $ 11 $ ( 372 ) 16 Nine Months Ended September 30, 2024 Foreign Currency Translation Unrealized Gain (Loss) on Cash Flow Hedges Unrealized Gain on Pension Plans Other Comprehensive Income (Loss) from Unconsolidated Subsidiaries Accumulated Other Comprehensive Income (Loss) Balance as of January 1, 2024 $ ( 243 ) $ ( 11 ) $ 6 $ 8 $ ( 240 ) Pretax income 44 5 — — 49 Income tax effect — ( 1 ) — — ( 1 ) Reclassification of unrealized gain — ( 4 ) — — ( 4 ) Reclassification of deferred income taxes — 1 — — 1 Disposal of business 2 — — — 2 Other comprehensive loss from unconsolidated subsidiaries — — — ( 2 ) ( 2 ) Balance as of September 30, 2024 $ ( 197 ) $ ( 10 ) $ 6 $ 6 $ ( 195 ) Nine Months Ended September 30, 2023 Foreign Currency Translation Unrealized Gain (Loss) on Cash Flow Hedges Unrealized Gain on Pension Plans Other Comprehensive Income (Loss) from Unconsolidated Subsidiaries Accumulated Other Comprehensive Income (Loss) Balance as of January 1, 2023 $ ( 333 ) $ — $ 11 $ ( 1 ) $ ( 323 ) Pretax loss ( 56 ) ( 4 ) — — ( 60 ) Income tax effect — 1 — — 1 Reclassification of unrealized gain — ( 2 ) — — ( 2 ) Other comprehensive income from unconsolidated subsidiaries — — — 12 12 Balance as of September 30, 2023 $ ( 389 ) $ ( 5 ) $ 11 $ 11 $ ( 372 ) Our policy is to reclassify the income tax effect from Accumulated other comprehensive income (loss) to the Provision for income taxes when the related gains and losses are released to the Unaudited Condensed Consolidated Statements of Income. Note 12. 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 Unaudited Condensed Consolidated Balance Sheets. As of September 30, 2024 and December 31, 2023, we had $ 451 million and $ 411 million of Accounts payable outstanding under the arrangements, respectively. 17 Note 13. Long-Term Obligations Long-term obligations consist of the following (in millions): September 30, 2024 December 31, 2023 Maturity Date Interest Rate Amount Interest Rate Amount Senior Unsecured Credit Agreement: Term loan payable January 2026 6.32 % $ 500 6.83 % $ 500 Revolving credit facilities January 2028 6.33 % (1) 713 6.25 % (1) 914 Senior Unsecured Term Loan Agreement: Term loan payable July 2026 5.92 % 518 6.82 % 529 Unsecured Senior Notes: U.S. Notes (2028) June 2028 5.75 % 800 5.75 % 800 U.S. Notes (2033) June 2033 6.25 % 600 6.25 % 600 Euro Notes (2024) April 2024 — % — 3.88 % 552 Euro Notes (2028) April 2028 4.13 % 278 4.13 % 276 Euro Notes (2031) March 2031 4.13 % 835 — % — Notes payable Various through October 2030 3.34 % (1) 19 3.85 % (1) 16 Finance lease obligations 5.09 % (1) 106 4.83 % (1) 83 Other debt 6.38 % (1) 2 2.16 % (1) 11 Total debt 4,371 4,281 Less: long-term debt issuance costs and unamortized bond discounts ( 35 ) ( 30 ) Total debt, net of debt issuance costs and unamortized bond discounts 4,336 4,251 Less: current maturities, net of debt issuance costs ( 44 ) ( 596 ) Long-term debt, net of debt issuance costs and unamortized bond discounts $ 4,292 $ 3,655 (1) Interest rate derived via a weighted average Senior Unsecured Credit Agreement Our Senior Unsecured Credit Agreement consists of (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 ("SOFR") plus the applicable spread or other risk-free interest rates that are applicable for the specified currency plus a spread based on the Company's debt rating and total leverage ratio. On June 5, 2024, we entered into Amendment No. 1 to the Senior Unsecured Credit Agreement which replaced the Canadian Dollar Offer Rate ("CDOR") with the Canadian Overnight Repo Rate Average ("CORRA") for CAD denominated borrowings. Senior Unsecured Term Loan Credit Agreement The Senior Unsecured Term Loan Credit Agreement ("CAD Note") established an unsecured term loan facility of up to CAD 700 million maturing in July 2026. On June 12, 2024, we entered into Amendment No. 1 to the CAD Note which replaced CDOR with CORRA. The variable interest rate applicable to the CAD Note may be (i) a forward-looking term rate based on CORRA 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. 18 Unsecured Senior Notes On March 13, 2024, LKQ, together with its indirect, wholly-owned subsidiary, LKQ Dutch Bond B.V., a private company with limited liability, completed an offering and sale of € 750 million aggregate principal amount of its 4.125 % Notes due March 13, 2031 (“Euro Notes (2031)”). The Euro Notes (2031) bear interest at a rate of 4.125 % per year. Interest on the Euro Notes (2031) is payable annually on each March 13, commencing on March 13, 2025. The Euro Notes (2031) will be initially fully and unconditionally guaranteed on a senior unsecured basis (the “Guarantees”) by the Company and each of its wholly owned U.S. subsidiaries that are guarantors under our Senior Unsecured Credit Agreement and our CAD Note. The Euro Notes (2031) will also be guaranteed by each of the Company’s U.S. subsidiaries that in the future agrees to guarantee the Company’s obligations under the Senior Unsecured Credit Agreement, the CAD Note, any other Credit Facility Debt or any Capital Markets Debt (both as defined in the Company’s preliminary prospectus supplement filed with the SEC on February 28, 2024). Prior to December 13, 2030 (the "Par Call Date"), the Euro Notes (2031) are redeemable, in whole or in part, at any time and from time to time, at a redemption price (expressed as a percentage of principal amount and rounded to three decimal places) equal to the greater of: (1)(a) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date (assuming that the Euro Notes (2031) matured on the Par Call Date) on an annual (ACTUAL/ACTUAL (ICMA)) basis at a rate equal to the Comparable Government Bond Rate (as defined in the Indenture, dated March 13, 2024 (the "Euro Notes (2031) Indenture")) plus 30 basis points, less (b) interest accrued to the date of redemption; and (2) 100 % of the principal amount of the Euro Notes (2031) to be redeemed; plus, in either case, accrued and unpaid interest thereon to, but excluding, the redemption date. On or after the Par Call Date, we may redeem the Euro Notes (2031), 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 Euro Notes (2031) being redeemed plus accrued and unpaid interest thereon to, but excluding, the redemption date. The Euro Notes (2031) and the Guarantees have been registered under the United States Securities Act of 1933 under the Registration Statement on Form S-3 (File No. 333-277267) filed by the Company with the SEC on February 22, 2024, as supplemented by the prospectus supplement filed by the Company with the SEC on March 1, 2024. In April 2024, the Euro Notes (2031) were approved for listing and registration on the Nasdaq. Related to the offering and sale of the Euro Notes (2031) in March 2024, we incurred $ 7 million of fees, which were capitalized as an offset to Long-Term Obligations and are amortized over the term of the Euro Notes (2031). We used the net proceeds from this offering to (i) pay outstanding indebtedness, including all of the outstanding € 500 million aggregate principal amount of the 3.875 % senior notes due 2024 (the “Euro Notes (2024)”) issued by the Company’s indirect wholly-owned subsidiary, LKQ Italia Bondco di LKQ Italia Bondco GP S.r.l e C.S.A.P.A. (f/k/a LKQ Italia Bondco S.p.A.), and (ii) pay accrued interest and related fees, premiums and expenses. The Euro Notes (2031) are governed by the Euro Notes (2031) Indenture, dated as of March 13, 2024. Interest on the U.S. Notes (2028/33) is payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2023. Interest on our 4.13 % senior notes due April 2028 (the "Euro Notes (2028)") is payable in arrears on April 1 and October 1 of each year. Note 14. 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. 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 19 interest payments affect earnings. The activity related to the interest rate swaps is classified in operating activities in our Unaudited Condensed Consolidated Statements of Cash Flows 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. 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 is being reclassified to Interest expense over the term of the debt. 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 September 30, 2024 and 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): September 30, 2024 Notional Amount Balance Sheet Caption Fair Value - Asset / (Liability) Interest rate swap agreements $ 400 Other accrued expenses $ — Interest rate swap agreements 300 Other noncurrent liabilities ( 3 ) December 31, 2023 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 11, "Accumulated Other Comprehensive Income (Loss)." As of September 30, 2024, we estimate that $ 2 million of derivative losses (net of tax) included in Accumulated other comprehensive loss will be reclassified into our Unaudited Condensed Consolidated Statements of Income within the next 12 months. Derivative Instruments Not Designated as Hedges 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 of $ 3 million and $ 49 million for the three and nine months ended September 30, 2023, respectively. 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 enter into short-term foreign currency forward contracts from time to time. 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 effect on our results of operations for these contracts during the three and nine months ended September 30, 2024 and 2023, were not material. The fair values of these short-term derivative instruments that remained outstanding as of September 30, 2024 were recorded in either Prepaid expenses and other current assets or Other accrued expenses on our Unaudited Condensed Consolidated Balance Sheets and were not material at September 30, 2024 and December 31, 2023. 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 September 30, 2024 and December 31, 2023, along with the effect on our results of operations during the three and nine months ended September 30, 2024 and 2023, 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 Unaudited Condensed Consolidated Balance Sheets. 20 Gross vs. 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 Unaudited Condensed 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 Unaudited Condensed Consolidated Balance Sheets at September 30, 2024 and December 31, 2023. Note 15. Fair Value Measurements Financial Assets and Liabilities Measured at Fair Value We use the market and income approaches to estimate the fair value of our financial assets and liabilities, and during the three and nine months ended September 30, 2024, there were no significant changes in valuation techniques or inputs related to the financial assets or liabilities that we have historically recorded at fair value. The tiers in the fair value hierarchy include: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; 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. The following table presents information about our financial assets and liabilities measured at fair value on a recurring basis and indicate the fair value hierarchy of the valuation inputs we utilized to determine such fair value as of September 30, 2024 and December 31, 2023 (in millions): September 30, 2024 December 31, 2023 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets: Investments - debt securities $ 37 $ — $ — $ 37 $ 22 $ — $ — $ 22 Investments - equity securities 9 — — 9 3 — — 3 Total Assets $ 46 $ — $ — $ 46 $ 25 $ — $ — $ 25 Liabilities: Interest rate swaps $ — $ 3 $ — $ 3 $ — $ 2 $ — $ 2 Contingent consideration liabilities — — 3 3 — — 2 2 Total Liabilities $ — $ 3 $ 3 $ 6 $ — $ 2 $ 2 $ 4 Investments in debt and equity securities relate to our captive insurance subsidiary and are included in Other noncurrent assets on the Unaudited Condensed Consolidated Balance Sheets. The balance sheet classification of the interest rate swap agreements is presented in Note 14, "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 Unaudited Condensed 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. Under the terms of the contingent consideration agreements, payments may be made at specified future dates depending on the performance of the acquired business subsequent to the acquisition. 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. Financial Assets and Liabilities Not Measured at Fair Value Our debt is reflected on the Unaudited Condensed Consolidated Balance Sheets at cost. 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 September 30, 2024 and December 31, 2023 to assume these obligations. The fair values of the U.S. Notes (2028), U.S. Notes 21 (2033), Euro Notes (2024), Euro Notes (2028) and Euro Notes (2031) 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 September 30, 2024 and December 31, 2023, the fair value of the borrowings under the Senior Unsecured Credit Agreement reasonably approximated the carrying values of $ 1,213 million and $ 1,414 million, respectively. As of September 30, 2024 and December 31, 2023, the fair value of the borrowings under the CAD Note reasonably approximated the carrying values of $ 518 million and $ 529 million, respectively. The following table provides the carrying and fair value for our other financial instruments as of September 30, 2024 and December 31, 2023 (in millions): As of September 30, 2024 As of December 31, 2023 Carrying Value Fair Value Carrying Value Fair Value U.S. Notes (2028) $ 800 $ 831 $ 800 $ 820 U.S. Notes (2033) 600 636 600 628 Euro Notes (2024) — — 552 552 Euro Notes (2028) 278 279 276 276 Euro Notes (2031) 835 848 — — Note 16. Employee Benefit 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. As of September 30, 2024 and December 31, 2023, the aggregate funded status of the defined benefit plans was a net liability of $ 84 million and $ 83 million, respectively, and is reported in Other noncurrent assets, Other noncurrent liabilities and Accrued payroll-related liabilities on our Unaudited Condensed Consolidated Balance Sheets. Net periodic benefit cost for our defined benefit plans were not material for each of the three and nine months ended September 30, 2024 and 2023. The service cost component is recorded in Selling, general and administrative ("SG&A") expenses, while the other components are recorded to Interest income and other income, net on the Unaudited Condensed Consolidated Statements of Income. Note 17. Income Taxes At the end of each interim period, we estimate our annual effective tax rate and apply that rate to our interim earnings. We also record the tax impact of certain unusual or infrequently occurring items, including changes in judgment about valuation allowances and the effects of changes in tax laws or rates, in the interim period in which they occur. The computation of the annual estimated effective tax rate at each interim period requires certain estimates and significant judgment including, but not limited to, the expected operating income for the year, projections of the proportion of income earned and taxed in state and foreign jurisdictions, permanent and temporary differences between book and taxable income, and the likelihood of recovering deferred tax assets generated in the current year. The accounting estimates used to compute the provision for income taxes may change as new events occur, additional information is obtained or as the tax environment changes. Our effective income tax rate for the nine months ended September 30, 2024 was 28.8 %, compared to 25.9 % for the nine months ended September 30, 2023. The increase in the effective tax rate for the nine months ended September 30, 2024 compared to the nine months ended September 30, 2023 is primarily attributable to a 2.9 % year over year unfavorable impact of discrete items, mostly related to the unfavorable tax effects of the 2024 Global Restructuring Plan impairments in the current year and the favorable tax effects from the Uni-Select Acquisition foreign exchange forward contract gain in the prior year. Refer to Note 9, "Restructuring and Transaction Related Expenses" for further information on the impairments and Note 14, "Derivative Instruments and Hedging Activities" for further information on the foreign exchange forward contracts. 22 The Organisation for Economic Co-operation and Development ("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 estimate 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. Note 18. Cash, Cash Equivalents and Restricted Cash Our policy is to reclassify from Cash and cash equivalents any cash that is legally or contractually restricted as to withdrawal or usage. The following table provides a reconciliation of Cash and cash equivalents as reported in the unaudited condensed consolidated balance sheets to Cash, cash equivalents and restricted cash shown in the unaudited condensed consolidated statements of cash flows (in millions): September 30, 2024 December 31, 2023 Cash and cash equivalents $ 353 $ 299 Restricted cash included in Other noncurrent assets (1) 17 — Cash, cash equivalents and restricted cash $ 370 $ 299 (1) Represents cash held with our captive insurance subsidiary for payments on self-insured claims. Note 19. Segment and Geographic Information We have four operating segments: Wholesale - North America; Europe; Specialty; 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. The segments are managed separately as the businesses serve different customers and are affected by different economic conditions. Wholesale - North America and Self Service have similar economic characteristics and have common products and services, customers and methods of distribution. We are reporting these operating segments separately to provide greater transparency to investors. The following tables present our financial performance by reportable segment for the periods indicated (in millions): Wholesale - North America Europe Specialty Self Service Eliminations Consolidated Three Months Ended September 30, 2024 Revenue: Third Party $ 1,423 $ 1,613 $ 417 $ 131 $ — $ 3,584 Intersegment — — 2 — ( 2 ) — Total segment revenue $ 1,423 $ 1,613 $ 419 $ 131 $ ( 2 ) $ 3,584 Segment EBITDA $ 228 $ 165 $ 31 $ 10 $ — $ 434 Total depreciation and amortization (1) 49 39 8 4 — 100 Three Months Ended September 30, 2023 Revenue: Third Party $ 1,387 $ 1,584 $ 456 $ 141 $ — $ 3,568 Intersegment — — 1 — ( 1 ) — Total segment revenue $ 1,387 $ 1,584 $ 457 $ 141 $ ( 1 ) $ 3,568 Segment EBITDA $ 236 $ 147 $ 40 $ ( 1 ) $ — $ 422 Total depreciation and amortization (1) 34 37 8 5 — 84 23 Wholesale - North America Europe Specialty Self Service Eliminations Consolidated Nine Months Ended September 30, 2024 Revenue: Third Party $ 4,396 $ 4,896 $ 1,305 $ 401 $ — $ 10,998 Intersegment 1 — 3 — ( 4 ) — Total segment revenue $ 4,397 $ 4,896 $ 1,308 $ 401 $ ( 4 ) $ 10,998 Segment EBITDA $ 728 $ 482 $ 99 $ 39 $ — $ 1,348 Total depreciation and amortization (1) 146 118 25 11 — 300 Nine Months Ended September 30, 2023 Revenue: Third Party $ 3,815 $ 4,777 $ 1,294 $ 479 $ — $ 10,365 Intersegment — — 3 — ( 3 ) — Total segment revenue $ 3,815 $ 4,777 $ 1,297 $ 479 $ ( 3 ) $ 10,365 Segment EBITDA $ 736 $ 486 $ 113 $ 28 $ — $ 1,363 Total depreciation and amortization (1) 73 110 24 12 — 219 (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 CODM, our Chief Executive Officer, is Segment EBITDA. We use Segment EBITDA to compare profitability among the segments and evaluate business strategies. Segment EBITDA includes revenue and expenses that are controllable by the segment. Corporate general and administrative expenses are allocated to the segments based on usage, with shared expenses apportioned based on the segment's percentage of consolidated revenue. We calculate Segment EBITDA as Net Income excluding net income and loss attributable to noncontrolling interest; income and loss from discontinued operations; depreciation; amortization; interest; gains and losses on debt extinguishment; income tax expense; restructuring and transaction related expenses; change in fair value of contingent consideration liabilities; other gains and losses related to acquisitions, equity method investments, or divestitures; equity in losses and earnings of unconsolidated subsidiaries; equity investment fair value adjustments; impairment charges; and direct impacts of the Ukraine/Russia conflict. 24 The table below provides a reconciliation of Net Income to Segment EBITDA (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Net income $ 192 $ 208 $ 536 $ 760 Less: net income attributable to continuing noncontrolling interest 1 — 2 1 Net income attributable to LKQ stockholders 191 208 534 759 Less: net income from discontinued operations — 1 — 1 Net income from continuing operations attributable to LKQ stockholders 191 207 534 758 Adjustments: Depreciation and amortization 100 84 300 219 Interest expense, net of interest income 62 53 185 128 Loss on debt extinguishment — — — 1 Provision for income taxes 63 60 216 263 Equity in earnings of unconsolidated subsidiaries (1) ( 3 ) ( 4 ) ( 3 ) ( 9 ) Gains on foreign exchange contracts - acquisition related (2) — ( 3 ) — ( 49 ) Equity investment fair value adjustments — — 2 1 Restructuring and transaction related expenses (3) 20 27 99 53 Restructuring expenses - cost of goods sold (3) 1 2 15 2 Gains on previously held equity interests — ( 4 ) — ( 4 ) Segment EBITDA $ 434 $ 422 $ 1,348 $ 1,363 (1) Refer to Note 7, "Equity Method Investments" for further information. (2) Refer to Note 2, "Business Combinations" and Note 14, "Derivative Instruments and Hedging Activities" for further information. (3) Refer to Note 9, "Restructuring and Transaction Related Expenses" for further information. The following table presents capital expenditures by reportable segment (in millions): Three Months Ended September 30, Nine Months Ended September 30, 2024 2023 2024 2023 Capital Expenditures Wholesale - North America $ 47 $ 39 $ 120 $ 75 Europe 24 47 82 103 Specialty 7 5 16 23 Self Service 1 6 7 32 Total capital expenditures $ 79 $ 97 $ 225 $ 233 25 The following table presents assets by reportable segment (in millions): September 30, 2024 December 31, 2023 Receivables, net of allowance for credit losses Wholesale - North America $ 499 $ 470 Europe 696 580 Specialty 136 107 Self Service 10 8 Total receivables, net of allowance for credit losses 1,341 1,165 Inventories Wholesale - North America 1,280 1,217 Europe 1,368 1,390 Specialty 449 475 Self Service 35 39 Total inventories 3,132 3,121 Property, plant and equipment, net Wholesale - North America 707 644 Europe 643 642 Specialty 117 118 Self Service 107 112 Total property, plant and equipment, net 1,574 1,516 Operating lease assets, net Wholesale - North America 625 615 Europe 497 494 Specialty 126 84 Self Service 133 143 Total operating lease assets, net 1,381 1,336 Other unallocated assets 8,038 7,941 Total assets $ 15,466 $ 15,079 We report net receivables; inventories; net property, plant and equipment; and net operating lease assets by segment as that information is used by the CODM in assessing segment performance. These assets provide a measure for the operating capital employed in each segment. Unallocated assets include cash and cash equivalents, prepaid 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 Germany and the U.K. Additional European operations are located in the Netherlands, Italy, Czech Republic, Belgium, Austria, Slovakia, and other European countries. 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. The following table sets forth our tangible long-lived assets by geographic area (in millions): September 30, 2024 December 31, 2023 Long-lived assets United States $ 1,603 $ 1,496 Germany 333 324 United Kingdom 316 295 Other countries 703 737 Total long-lived assets $ 2,955 $ 2,852 26