What changed in this filing

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Item 1A. Risk Factors

2025-02-20 compared with 2024-02-22 · 61 added, 58 removed, 397 unchanged (23% of the section changed)

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Changes in economic, political and social conditions in North America, Europe, Taiwan and other countries in which we are located or do business could have a material effect on our company.

Negative effects to our supply chain, costs of doing business, sales and distribution activity may occur due to factors such as war or threats of war, natural disasters, nuclear facility accidents, public health emergencies, major logistics disruptions, sanctions, utility interruptions, terrorism and social unrest.

Negative effects to our supply chain, costs of doing business, sales and distribution activity may occur due to factors such as war or threats of war, restrictive governmental actions (e.g., tariffs), natural disasters, nuclear facility accidents, public health emergencies, major logistics disruptions, sanctions, utility interruptions, terrorism and social unrest.

Our business is also affected by a number of other factors.

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In addition, our sales are impacted by changes to the economic health of vehicle owners.

The economic health of vehicle owners is affected by many factors, including, among others, general business conditions, interest rates, inflation, consumer debt levels, the availability of consumer credit, taxation, fuel prices, new and used vehicle pricing, unemployment trends and other matters that influence consumer confidence and spending.

The economic health of vehicle owners is affected by many factors, including, among others, general business conditions, interest rates, inflation, insurance premiums and deductibles, consumer debt levels, the availability of consumer credit, taxation, fuel prices, new and used vehicle pricing, unemployment trends and other matters that influence consumer confidence and spending.

Many of these factors are outside of our control.

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These unfavorable events affecting our business partners could have an adverse effect on our business, results of operations, financial condition and cash flows.

We have a substantial business presence in Europe, including a significant presence in the U.K.

and the Republic of Ireland ("ROI").

The U.K.’s withdrawal from the European Union (also known as Brexit) became effective on January 31, 2020.

While a Trade and Cooperation Agreement exists between the U.K.

and European Union, we have and continue to observe shipment delays, particularly with respect to the products we supply to our business in the ROI.

The long-term extent and impact of these issues still remains unclear at this point which could have adverse impacts on our business.

We also have a presence in the Ukraine and are monitoring the situation there carefully.

We have a presence in the Ukraine and are monitoring the situation there carefully.

In addition, a number of our suppliers are based in China and Taiwan and so increasing strains and any political repercussions may have implications upon our supply chain.

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Within each of these categories of suppliers, there are local owner-operated companies, larger regional suppliers, national and international providers, and internet-based suppliers and distributors.

Providers of vehicle replacement and accessory products that have traditionally sold only certain categories of such products may decide to expand their product offerings into other categories of vehicle products, which may further increase competition.

which may further increase competition.

Some of our current and potential competitors may have more operational expertise;

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We also may file challenges to OEM trademarks.

To the extent OEMs are successful in defending their patents or trademarks, we could be restricted or prohibited from selling the corresponding

aftermarket products, which could have an adverse effect on our business.

To the extent OEMs are successful in defending their patents or trademarks, we could be restricted or prohibited from selling the corresponding aftermarket products, which could have an adverse effect on our business.

Also, we will likely incur expenses investigating, pursuing and defending intellectual property claims.

Customs and Border Protection has taken the position that certain of our aftermarket parts infringe certain OEM trademarks and seized our aftermarket parts as we attempted to import them into the U.S.

We have incurred costs and expenses convincing Customs and Border Protection to release the seized goods and in litigation where we sought a determination of non-infringement.

We have incurred costs and expenses coordinating with Customs and Border Protection to release the seized goods and in litigation where we sought a determination of non-infringement.

In the event Customs and Border Protection seizes our products again in the future, we may be unsuccessful in obtaining their release, and such goods may be subject to forfeiture and other penalties, and we would incur legal fees in contesting those seizures.

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We incur substantial freight costs to import parts from our suppliers, many of which are located in Asia.

The cost of freight and shipping containers rose in 2021 and 2022 relative to historical levels, and if the cost of freight and shipping containers rise again in the future, we might not be able to pass the cost increases on to our customers.

The cost of freight and shipping containers have historically fluctuated, sometimes significantly, due to market factors.

If the cost of freight and shipping containers rise in the future, we might not be able to pass the cost increases on to our customers.

Furthermore, although alternative suppliers exist for substantially all aftermarket products distributed by us, the loss of any one supplier could have an adverse effect on us until alternative suppliers are located and have commenced manufacturing and providing the relevant products.

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consolidation of our suppliers could enhance their ability to distribute products through additional sales channels and thus decrease their reliance on wholesale distributors like us.

Moreover, our operations are subject to the customary risks of doing business abroad, including, among other things, natural disasters, transportation costs and delays, political instability, currency fluctuations and the imposition of tariffs, import and export controls and other non-tariff barriers (including changes in the allocation of quotas).

Moreover, our operations are subject to the customary risks of doing business abroad, including, among other things, natural disasters, the occurrence and severity of certain weather conditions, transportation costs and delays, political instability, currency fluctuations and the imposition of tariffs, import and export controls and other non-tariff barriers (including changes in the allocation of quotas).

See the risk factor entitled “ If significant tariffs or other restrictions are placed on products or materials we import or any related counter-measures are taken by countries to which we export products, our revenue and results of operations may be materially harmed ” for further information.

Because a substantial volume of our sales involves products manufactured from sheet metal, we can be adversely impacted if sheet metal becomes unavailable or is only available at higher prices, which we may not be able to pass on to our customers.

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More complex parts may be difficult to repair and may require expensive or difficult to obtain software updates, limiting our ability to compete with the OEMs.

We rely on third parties to provide products and services that are integral to our operations.

We rely on third parties to provide products, services and data relating to our industry that are integral to our operations.

If we fail to adequately assess, monitor and regulate the performance of our third party vendors and service providers, we could be subject to additional risk caused by the misconduct, performance failures or negligence of these third parties.

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As of December 31, 2024, our total goodwill subject to future impairment testing was $5,448 million.

For further discussion of our annual impairment test, see "Goodwill Impairment" in the Critical Accounting Estimates section of Part II, Item 7 and "Intangible Assets" in Note 2, "Summary of Significant Accounting Policies" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

For further discussion of our annual impairment test, see "Goodwill Impairment" in the Critical Accounting Estimates section of Part II, Item 7 and

"Intangible Assets" in Note 2, "Summary of Significant Accounting Policies" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

Except for indefinite-lived intangibles, we amortize other intangible assets over the assigned useful lives, each of which is based upon the expected period to be benefited.

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• we may incur debt or issue equity securities to pay for any future acquisition, the issuance of which could involve the imposition of restrictive covenants or be dilutive to our existing stockholders.

For example, we have undertaken the 1 LKQ Europe program to create structural centralization and standardization of key functions to facilitate the operation of the Europe segment as a single business;

this program has presented and will continue to present a number of execution challenges.

In addition to acquisitions, we have divested, and will continue to divest, certain businesses, either because they do not meet our performance standards or for other reasons.

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We have a substantial amount of indebtedness, which could have a material adverse effect on our financial condition and our ability to obtain financing in the future and to react to changes in our business.

As of December 31, 2023, we had approxi mately $1,943 million aggregate principal amount of unsecured, variable-rate debt outstanding under our Senior Unsecured Credit Agreement and Senior Unsecured Term Loan Agreement and approximate ly $976 million of availability under the Senior Unsecured Credit Agreement ( $1,086 million of availability reduced by $110 million of amounts outstanding under letters of credit).

In addition, we had approximately $2,228 million aggregate

principal amount of unsecured, fixed rate debt outstanding comprised o f €500 million ( $552 million ) aggregate principal amount of 3.875% senior notes due 2024 (the "Euro Notes (2024)"), €250 million ( $276 million ) of 4.125% senior n otes due 2028 (the "Euro Notes (2028)"), $800 million of 5.75% senior notes due 2028 (the "U.S.

Notes (2028)"), and $600 million of 6.25% senior notes due 2033 (the "U.S.

Notes (2033)," and together with the Euro Notes (2024), the Euro Notes (2028), and the U.S.

Notes (2028), the "senior notes").

As of December 31, 2024, we had approxi mately $1,651 million aggregate principal amount of unsecured, variable-rate debt outstanding under our Senior Unsecured Credit Agreement (the "credit agreement") and Senior Unsecured Term Loan Agreement (the "CAD Note"), of which $987 million matures during 2026 and $664 million in 2028, and approximate ly $1,222 million of availability under the credit agreement ( $1,336 million of availability reduced by $114 million of amounts outstanding under letters of credit).

In addition, we had approximately $2,436 million aggregate principal amount of unsecured, fixed rate debt outstanding comprised o f €250 million ( $259 million ) of 4.125% senior n otes due 2028 (the "Euro Notes (2028)"), $800 million of 5.75% senior notes due 2028 (the "U.S.

Notes (2028)"), €750 million ( $777 million) of 4.125% senior notes due 2031 (the "Euro Notes (2031)"), and $600 million of 6.25% senior notes due 2033 (the "U.S.

Notes (2033)," and together with the Euro Notes (2028), the U.S.

Notes (2028), and the Euro Notes (2031), the "senior notes").

Our substantial amount of debt and our debt service obligations could limit our ability to satisfy our obligations, limit our ability to operate our business and impair our competitive position.

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In addition, if we or our subsidiaries incur additional debt, the risks associated with our substantial leverage and the ability to service such debt would increase.

Our senior notes do not impose any limitations on our ability to incur additional debt or protect against certain other types of transactions, and we may incur additional indebtedness under our credit agreement.

Although we are subject to our credit agreement for so long as it remains in effect, the indentures governing the senior notes do not restrict the future incurrence of unsecured indebtedness, guarantees or other obligations.

Our senior notes do not impose any limitations on our ability to incur additional debt or protect against certain other types of transactions, and we may incur certain additional indebtedness under our credit agreement.

Although we are subject to our credit agreement and CAD Note for so long as each of those respectively remains in effect, the indentures governing the senior notes do not restrict the future incurrence of unsecured indebtedness, guarantees or other obligations.

The indentures contain certain limitations on our ability to incur liens on assets and engage in sale and leaseback transactions.

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If we or our subsidiaries incur additional debt, the risks associated with our substantial leverage and the need to service such debt would increase.

Our credit agreement imposes operating and financial restrictions on us and our subsidiaries, which may prevent us from capitalizing on business opportunities.

Our credit agreement imposes operating and financial restrictions on us.

Each of our credit agreement and CAD Note imposes operating and financial restrictions on us and our subsidiaries, which may prevent us from capitalizing on business opportunities.

Each of our credit agreement and CAD Note imposes operating and financial restrictions on us.

These restrictions may limit our ability, among other things, to:

• incur, assume or permit to exist additional indebtedness (including guarantees thereof) outside of our credit agreement;

• incur, assume or permit to exist additional indebtedness (including guarantees thereof) outside of our existing indebtedness;

• incur liens on assets;

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In the event we fail to maintain compliance with these covenants in the future, we may be unable to obtain waivers from the lenders and/or amend the covenants.

Failure to comply with any of these covenants would cause a default under the credit agreement.

A default, if not waived, could result in

acceleration of our debt, in which case the debt would become immediately due and payable.

Failure to comply with any of these covenants would cause a default under the credit agreement and the CAD Note.

A default, if not waived, could result in acceleration of our debt, in which case the debt would become immediately due and payable.

If this occurs, we may not be able to repay our debt or borrow sufficient funds to refinance it.

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There are limitations in the indentures that govern the U.S.

Notes (2028) and U.S.

Notes (2033) on our ability to refinance such notes prior to May 15, 2028 and March 15, 2033, respectively.

Notes (2028), Euro Notes (2031) and U.S.

Notes (2033) on our ability to refinance such notes prior to May 15, 2028, December 13, 2030 and March 15, 2033, respectively.

We could refinance the senior notes through open market purchases, subject to a limitation in our credit agreement on the amount of such purchases.

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Our variable rate indebtedness subjects us to interest rate risk, which could cause our indebtedness service obligations to increase significantly.

Borrowings under our credit agreement are at variable rates of interest and expose us to interest rate risk.

Borrowings under our credit agreement and CAD Note are at variable rates of interest and expose us to interest rate risk.

If interest rates increase, our debt service obligations on the variable rate indebtedness would increase even though the amount borrowed remained the same, and our net income and cash flows, including cash available for servicing our indebtedness, would correspondingly decrease.

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Each of our subsidiaries is a distinct legal entity and, under certain circumstances, legal and contractual restrictions may limit our ability to obtain cash from our subsidiaries and, under certain circumstances, distributions from our subsidiaries may be subject to taxes that reduce the amount of such distributions available to us.

While the indentures governing the senior notes limit the ability of our subsidiaries to restrict the payment of dividends or to restrict other intercompany payments to us, these limitations are subject to certain qualifications and

In the event that we do not receive sufficient distributions from our subsidiaries, we may be unable to make required principal and interest payments on our indebtedness, including the senior notes.

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A downgrade could also adversely affect our ability to issue debt securities in the future or incur other indebtedness upon favorable terms.

If we are downgraded to a rating that is below investment grade, we may also become subject to additional covenants under our senior notes.

If we are downgraded to a rating that is below investment grade, the pricing on our debt under the credit agreement and CAD Note may increase and we may also become subject to additional covenants under our senior notes.

The amount and frequency of our share repurchases and dividend payments may fluctuate.

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The rules governing the standards that must be met for management to assess our internal control over financial reporting are complex and require significant documentation, testing, and, in some instances, remediation.

We have acquired entities that had no publicly traded debt or equity and therefore were not previously required to conform to the rules and regulations of the SEC, especially related to their internal control structure.

Integrating acquired entities into our internal control over financial reporting has required and will continue to require significant time and resources from our management and other personnel, which increases our compliance costs.

We must complete the evaluation and integration of internal controls over financial reporting and report our assessment within the required time frame.

In addition, with the increasing frequency of cyber-related frauds perpetrated to obtain inappropriate payments, we need to ensure our internal controls related to authorizing the transfer of funds and changing our vendor master files are adequate.

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We may not be able to accurately predict, prepare for and respond to new kinds of technological innovations with respect to electric vehicles and other technologies that minimize emissions.

Furthermore, we may be adversely affected by certain additional climate-related risks including natural disasters, carbon pricing, shift of vehicles in operation, and product and vehicle regulations.

Compliance with any new or more stringent laws or regulations, or stricter interpretations of existing laws, could require additional expenditures by us or our suppliers.

Our inability to appropriately respond to such changes could adversely impact our business, financial condition, results of operations or cash flows.

Our inability or perceived inability to appropriately respond to such changes could adversely impact our business, financial condition, results of operations or cash flows.

Moreover, the perspectives of our customers, suppliers, stockholders, employees, community partners, regulatory agencies and other stakeholders regarding climate change are evolving.

These stakeholders are increasingly requesting disclosures and actions relating to not only climate change but other environmental and social matters and corporate governance practices.

The increase in costs to comply with such evolving expectations, including any rules or regulations resulting from these evolving expectations, as well as any risk of noncompliance, could adversely impact us.

Our amended and restated bylaws provide that the courts in the State of Delaware are the exclusive forums for substantially all disputes between us and our stockholders, which could limit our stockholders’ ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

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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.

While Pillar Two did not have a material impact on our effective tax rate for 2024, our analysis will continue as the OECD continues to release additional guidance and countries implement legislation.

The tax rates applicable in the jurisdictions within which we operate vary.

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has imposed tariffs on certain materials imported into the U.S.

from China and announced additional tariffs on other goods from China and other countries.

Moreover, counter-measures have been taken by other countries in retaliation for the U.S.-imposed tariffs.

The tariffs cover products and materials that we import, and the counter-measures may affect products we export.

from China, announced additional tariffs on other goods from China and other countries, and threatened to impose additional tariffs on goods from other countries.

Moreover, counter-measures have been taken by countries in retaliation for the U.S.-imposed tariffs and countries may take additional countermeasures and/or impose other restrictions on the importation of products in response to the threatened tariffs.

The tariffs cover products and materials that we import, and the countermeasures may affect products we export.

The effects currently are not material;

however, depending on the breadth of products and materials ultimately affected by, and the duration of, the tariffs and countermeasures, our financial results may be materially harmed.

In addition, countries may impose other restrictions on the importation of products.

Governmental agencies may refuse to grant or renew our operating licenses and permits.

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and international laws and regulations.

Many foreign countries and governmental bodies, including the European Union, Canada, U.K., Switzerland and other jurisdictions where we conduct business, have laws and regulations concerning the collection and use of PII and other data obtained from their residents or by businesses operating within their jurisdictions that are more restrictive than those in the U.S.

Many foreign countries and governmental bodies, including the European Union, Canada, U.K., Switzerland and other

jurisdictions where we conduct business, have laws and regulations concerning the collection and use of PII and other data obtained from their residents or by businesses operating within their jurisdictions that are more restrictive than those in the U.S.

In addition, the European Union adopted the General Data Protection Regulation ("GDPR") that imposes more stringent data protection requirements for processors and controllers of personal data, including expanded disclosures about how PII is to be used, limitations on retention of PII, mandatory data breach notification requirements, possible restrictions on cross border transfers of PII and higher standards for data controllers to demonstrate that they have obtained valid consent for certain data processing activities.

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and in other countries, and more jurisdictions are likely to follow this trend.

Most recently, the SEC has announced strict disclosure rules for material, cybersecurity incidents.

The SEC has implemented strict disclosure rules for material cybersecurity incidents.

Any inability, or perceived inability, to adequately address privacy and data protection issues, even if unfounded, or comply with applicable laws, regulations, policies, industry standards, contractual obligations or other legal obligations (including at newly-acquired companies) could result in additional cost and liability to us, result in governmental investigations and enforcement actions, give rise to civil litigation, result in damage to our reputation (including the loss of trust by our customers and employees), inhibit sales, and otherwise adversely affect our business.

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If we were found not to be in compliance with such laws, we could be subject to fines, penalties and liabilities to our employees or government agencies.

In addition, efforts to better protect local markets from foreign workers and decisions of countries to withdraw from treaties and joint economic areas may lead to increased restrictions on the free movement of people and labor and may limit our ability to place key personnel where they could best serve our needs.

We rely on information technology and communication systems in critical areas of our operations and a disruption relating to such technology could harm our business.

In addition, efforts to better protect local markets from

foreign workers and decisions of countries to withdraw from treaties and joint economic areas may lead to increased restrictions on the free movement of people and labor and may limit our ability to place key personnel where they could best serve our needs.

We rely on information technology and communication systems in critical areas of our operations and a disruption relating to such technology and systems, including cybersecurity threats, could harm our business.

In the ordinary course of business, we rely upon IT networks and systems, some of which are provided by or leased from third parties, to process, transmit and store electronic information and to manage and support a variety of business processes and activities.

The secure operation of these IT networks and the processing and maintenance of this information is critical to our business operations and strategy.

Despite security measures and business continuity plans, these IT networks and infrastructure may be vulnerable to damage, disruptions or shutdowns due to attacks by cyber criminals, breaches due to employee error or malfeasance, disruptions during the process of upgrading or replacing computer software or hardware, terminations of business relationships by third party service providers, power outages, computer viruses, telecommunication or utility failures, terrorist acts, natural disasters or other catastrophic events.

The occurrence of any of these events involving us or involving the third parties with whom we do business could compromise our or the third parties' networks, and the information stored there could be accessed, publicly disclosed, lost or stolen.

Any such access, disclosure or loss of information could result in legal claims or proceedings, disruption to our operations and damage to our reputation, any of which could adversely affect our business.

addition, as security threats continue to evolve, we will likely need to invest additional resources to protect the security of our systems.

The IT networks and systems upon which we rely face increasing cybersecurity threats, including unauthorized access to sensitive data and service disruptions.

These threats come from various actors such as foreign governments, criminals, competitors, hackers, cyber terrorists and politically motivated groups.

These IT networks and infrastructure may also be vulnerable to damage, disruptions, shutdowns, or data theft due to future attacks by cyber criminals, employee error or malfeasance, disruptions during the process of upgrading or replacing computer software or hardware, terminations of business relationships by third party service providers, power outages, computer viruses, telecommunication or utility failures, terrorist acts, natural disasters or other catastrophic events.

Additionally, political instability in certain geographic regions in which or our business partners operate exposes us to an increased risk of state-sponsored threats.

The occurrence of any adverse cybersecurity events in the future involving us or third parties with which we do business could compromise our or the third parties' networks, and the information stored in those networks could be accessed, publicly disclosed, compromised, destroyed, lost or stolen.

We experienced an incident in November 2024 involving a third party obtaining unauthorized access to IT systems of one of our Canadian business units, which we do not believe to have been material to our financial condition or results of operations as a result of our efforts to contain and mitigate the threat;

however, failure on our part to successfully prevent or mitigate cybersecurity threats in the future could result in data loss, legal liability and damage to our reputation.

We may face legal and financial exposure from such threats, including higher transaction fees and regulatory fines, which could materially affect our business.

While our insurance policies cover certain liabilities and lost profits, a significant security incident could result in damages exceeding our coverage.

We cannot guarantee that insurance will remain available on reasonable terms or that insurers will not deny future claims.

Large claims exceeding our coverage or changes in insurance policies, such as premium increases or higher deductibles, could materially affect our financial condition and cash flows.

We also may incur significant costs to protect against or remediate incidents and may need to invest more resources in prevention and mitigation activities as threats evolve.

Regardless of any protective measures that we are taking or may take in the future, our preventative efforts could fail due to a variety of factors, including technical malfunctions and human error.

Despite the implementation of any protective measures, we cannot guarantee total success in preventing or detecting all security threats.

In the event that we decide to switch providers or to implement upgrades or replacements to our own systems, we may be unsuccessful in the development of our own systems or we may underestimate the costs and expenses of switching providers or developing and implementing our own systems.

Also, our revenue may be hampered during the period of implementing an alternative system, which period could extend longer than we anticipated.

Our revenue further may be hampered during the period of implementing an alternative system, which period could extend longer than we anticipated.

We are in the midst of a systems conversion project for our European businesses, which will be subject to all of these risks.

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We have in the past received, and we may in the future be subject to, proposals by activist investors urging us to take certain corporate actions.

Activist investor activities could cause our business to be adversely affected because responding to proxy contests and other demands by activist investors can be costly and time-consuming, disrupt our operations, and divert the attention of management and our employees.

Depending on the circumstances, we may reach agreements with such investors, such as the cooperation agreement that we entered into with Ancora Catalyst Institutional, LP, Engine Capital, LP and certain of their affiliates in February 2025.

In some instances though, activist investor activities could cause our business to be adversely affected because responding to proxy contests and other demands by activist investors can be costly and time-consuming, disrupt our operations, and divert the attention of management and our employees.

For example, we have retained, and may in the future be required to retain, the services of various professionals to advise us on activist investor matters, including legal, financial and communications advisors, the costs of which may negatively impact our future financial results.

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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 1A. Risk Factors