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 March 31, 2025 2024 Revenue $ 3,463 $ 3,703 Cost of goods sold 2,086 2,251 Gross margin 1,377 1,452 Selling, general and administrative expenses 989 1,044 Restructuring and transaction related expenses 11 30 Depreciation and amortization 90 89 Operating income 287 289 Other expense (income): Interest expense 62 64 Interest income and other income, net ( 11 ) ( 6 ) Total other expense, net 51 58 Income before provision for income taxes 236 231 Provision for income taxes 66 71 Equity in losses of unconsolidated subsidiaries 1 2 Net income $ 169 $ 158 Earnings per share: Basic $ 0.65 $ 0.59 Diluted $ 0.65 $ 0.59 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 March 31, 2025 2024 Net income $ 169 $ 158 Other comprehensive income (loss): Foreign currency translation, net of tax 100 ( 57 ) Net change in unrealized gains/losses on cash flow hedges, net of tax — 4 Net change in unrealized gains/losses on pension plans, net of tax 1 — Other comprehensive income (loss) from unconsolidated subsidiaries 3 ( 5 ) Other comprehensive income (loss) 104 ( 58 ) Comprehensive income $ 273 $ 100 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) March 31, 2025 December 31, 2024 Assets Current assets: Cash and cash equivalents $ 227 $ 234 Receivables, net of allowance for credit losses 1,409 1,122 Inventories 3,361 3,220 Prepaid expenses and other current assets 342 330 Total current assets 5,339 4,906 Property, plant and equipment, net 1,531 1,517 Operating lease assets, net 1,389 1,388 Goodwill 5,538 5,448 Other intangibles, net 1,136 1,150 Equity method investments 156 169 Other noncurrent assets 380 377 Total assets $ 15,469 $ 14,955 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 1,853 $ 1,801 Accrued expenses: Accrued payroll-related liabilities 233 214 Refund liability 125 126 Other accrued expenses 375 352 Current portion of operating lease liabilities 245 237 Current portion of long-term obligations 558 38 Other current liabilities 127 94 Total current liabilities 3,516 2,862 Long-term operating lease liabilities, excluding current portion 1,202 1,207 Long-term obligations, excluding current portion 3,840 4,127 Deferred income taxes 399 386 Other noncurrent liabilities 323 341 Commitments and contingencies Stockholders' equity: Common stock, $ 0.01 par value, 1,000.0 shares authorized, 323.8 shares issued and 258.3 shares outstanding at March 31, 2025; 323.6 shares issued and 259.1 shares outstanding at December 31, 2024 3 3 Additional paid-in capital 1,558 1,556 Retained earnings 7,753 7,662 Accumulated other comprehensive loss ( 313 ) ( 417 ) Treasury stock, at cost; 65.5 shares at March 31, 2025 and 64.5 shares at December 31, 2024 ( 2,827 ) ( 2,787 ) Total Company stockholders' equity 6,174 6,017 Noncontrolling interest 15 15 Total stockholders' equity 6,189 6,032 Total liabilities and stockholders' equity $ 15,469 $ 14,955 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) Three Months Ended March 31, 2025 2024 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 169 $ 158 Adjustments to reconcile net income to net cash (used in) provided by operating activities: Depreciation and amortization 100 100 Stock-based compensation expense 8 8 Other 2 33 Changes in operating assets and liabilities, net of effects from acquisitions and dispositions: Receivables ( 256 ) ( 249 ) Inventories ( 86 ) ( 52 ) Other assets ( 12 ) ( 55 ) Prepaid income taxes/income taxes payable 38 47 Accounts payable 8 220 Other liabilities 26 43 Net cash (used in) provided by operating activities ( 3 ) 253 CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property, plant and equipment ( 54 ) ( 66 ) Acquisitions, net of cash acquired — ( 17 ) Other investing activities, net 4 ( 5 ) Net cash used in investing activities ( 50 ) ( 88 ) CASH FLOWS FROM FINANCING ACTIVITIES: Borrowings under revolving credit facilities 392 392 Repayments under revolving credit facilities ( 233 ) ( 659 ) Borrowings of other debt, net 11 33 Proceeds from issuance of Euro Notes (2031), net of unamortized bond discount — 816 Repayment of Euro Notes (2024) — ( 547 ) Dividends paid to LKQ stockholders ( 78 ) ( 81 ) Purchase of treasury stock ( 40 ) ( 30 ) Other financing activities, net ( 12 ) ( 37 ) Net cash provided by (used in) financing activities 40 ( 113 ) Effect of exchange rate changes on cash, cash equivalents and restricted cash 5 ( 7 ) Net (decrease) increase in cash, cash equivalents and restricted cash ( 8 ) 45 Cash, cash equivalents and restricted cash, beginning of period (1) 239 299 Cash, cash equivalents and restricted cash, end of period (1) $ 231 $ 344 Supplemental disclosure of cash paid for: Income taxes, net of refunds $ 31 $ 27 Interest 60 43 (1) See Note 12, "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 March 31, 2025 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, 2025 323.6 $ 3 ( 64.5 ) $ ( 2,787 ) $ 1,556 $ 7,662 $ ( 417 ) $ 15 $ 6,032 Net income — — — — — 169 — — 169 Other comprehensive income — — — — — — 104 — 104 Purchase of treasury stock — — ( 1.0 ) ( 40 ) — — — — ( 40 ) Vesting of restricted stock units, net of shares withheld for employee tax 0.2 — — — ( 6 ) — — — ( 6 ) Stock-based compensation expense — — — — 8 — — — 8 Dividends declared to LKQ stockholders ($0.30 per share) — — — — — ( 78 ) — — ( 78 ) Balance as of March 31, 2025 323.8 $ 3 ( 65.5 ) $ ( 2,827 ) $ 1,558 $ 7,753 $ ( 313 ) $ 15 $ 6,189 Three Months Ended March 31, 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 — — — — — 158 — — 158 Other comprehensive loss — — — — — — ( 58 ) — ( 58 ) Purchase of treasury stock — — ( 0.6 ) ( 30 ) — — — — ( 30 ) Vesting of restricted stock units, net of shares withheld for employee tax 0.4 — — — ( 5 ) — — — ( 5 ) Stock-based compensation expense — — — — 8 — — — 8 Dividends declared to LKQ stockholders ($0.30 per share) — — — — — ( 81 ) — — ( 81 ) Balance as of March 31, 2024 323.5 $ 3 ( 56.5 ) $ ( 2,454 ) $ 1,541 $ 7,367 $ ( 298 ) $ 14 $ 6,173 The accompanying notes are an integral part of the Unaudited Condensed Consolidated Financial Statements. 7 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 in the Unaudited Condensed Consolidated Statements of Cash Flows 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, 2024 filed with the SEC on February 20, 2025 ("2024 Form 10-K"). Recent Accounting Pronouncements In December 2023, the Financial Accounting Standards Board ("FASB") 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 is effective for fiscal years beginning after December 15, 2024, and requires prospective application with the option to apply it retrospectively. We are currently evaluating the impact of adopting this ASU on our consolidated financial statements. In November 2024, the FASB issued Accounting Standards Update 2024-03, “Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” The ASU requires disclosure of specific expense categories within relevant income statement captions. The amendments in this ASU are effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. The ASU can be adopted prospectively or retrospectively and early adoption is permitted. We are currently evaluating the impact of adopting this ASU on our consolidated financial statements. Note 2. Allowance for Credit Losses Our allowance for credit losses was $ 52 million and $ 56 million as of March 31, 2025 and December 31, 2024, respectively. The provision for credit losses was $ 5 million and $ 3 million for the three months ended March 31, 2025 and 2024, respectively. Note 3. 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 2024, and determined no impairment existed as all of our reporting units had a fair value estimate which exceeded the carrying value by at least 10 %. 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 three months of 2025 that necessitated an interim test of goodwill impairment or indefinite-lived intangible assets impairment. 8 Note 4. 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 ("RV"); 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. The following table sets forth our revenue disaggregated by category and reportable segment (in millions): Three Months Ended March 31, 2025 2024 Wholesale - North America $ 1,336 $ 1,422 Europe 1,515 1,637 Specialty 393 422 Self Service 51 54 Parts and services 3,295 3,535 Wholesale - North America 76 78 Europe 7 7 Self Service 85 83 Other 168 168 Total revenue $ 3,463 $ 3,703 Variable Consideration Amounts related to variable consideration on our Unaudited Condensed Consolidated Balance Sheets are as follows (in millions): Classification March 31, 2025 December 31, 2024 Return asset Prepaid expenses and other current assets $ 68 $ 67 Refund liability Refund liability 125 126 Variable consideration reserve Receivables, net of allowance for credit losses 97 136 9 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 March 31, 2025 2024 Revenue United States $ 1,681 $ 1,795 Germany 426 425 United Kingdom 417 445 Other countries 939 1,038 Total revenue $ 3,463 $ 3,703 Note 5. 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 continue to move forward with our plan, we have incurred and expect to 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 2024, we divested our operations in Slovenia and Bosnia to third parties and, certain operations in Poland to MEKO AB, an equity method investment of which we own 26.6 %, and received a combination of cash and notes receivable. 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 divestitures 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 $ 130 million and $ 140 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. This plan is scheduled to be substantially complete by the end of 2027 with an estimated total incurred cost of between $ 30 million and $ 40 million. Acquisition Integration Plans After completing 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. There are no material acquisition integrations plans as of March 31, 2025. 10 The following table sets forth the expenses incurred related to our restructuring plans (in millions): Three Months Ended March 31, Plan Expense Type 2025 2024 2024 Global Plan Employee related costs $ 7 $ — Facility exit costs 2 — Inventory related costs (1) — 8 Asset impairments (2) — 17 Other costs 1 2 Total $ 10 $ 27 2022 Global Plan Facility exit costs $ — $ 1 Total $ — $ 1 1 LKQ Europe Plan Employee related costs $ — $ 1 Facility exit costs — 1 Total $ — $ 2 Acquisition Integration Plans Employee related costs $ — $ 1 Facility exit costs 1 4 Other costs — 1 Total $ 1 $ 6 Total restructuring expenses $ 11 $ 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 $ 17 $ 104 $ — $ — $ 121 1 LKQ Europe Plan — 15 — — 15 Transaction Related Expenses During the three months ended March 31, 2025 and 2024, we incurred expenses totaling an insignificant amount and $ 2 million, respectively, for legal, accounting and advisory services related to completed and potential transactions. 11 Note 6. Earnings Per Share The following chart sets forth the computation of earnings per share (in millions, except per share amounts): Three Months Ended March 31, 2025 2024 Net Income $ 169 $ 158 Denominator for basic earnings per share—Weighted-average shares outstanding 259.1 267.1 Effect of dilutive securities: Restricted stock units ("RSUs") 0.5 0.5 Performance-based RSUs ("PSUs") — 0.1 Denominator for diluted earnings per share—Adjusted weighted-average shares outstanding 259.6 267.7 Basic earnings per share $ 0.65 $ 0.59 Diluted earnings per share (1) $ 0.65 $ 0.59 (1) Diluted earnings per share was computed using the treasury stock method for dilutive securities. Note 7. Accumulated Other Comprehensive Income (Loss) The components of Accumulated Other Comprehensive Income (Loss) are as follows (in millions): Three Months Ended March 31, 2025 Foreign Currency Translation Unrealized Gain (Loss) on Cash Flow Hedges Unrealized Gain (Loss) on Pension Plans Other Comprehensive Income (Loss) from Unconsolidated Subsidiaries Accumulated Other Comprehensive Income (Loss) Balance as of January 1, 2025 $ ( 411 ) $ ( 9 ) $ ( 1 ) $ 4 $ ( 417 ) Pretax income 100 — — — 100 Reclassification of deferred income taxes — — 1 — 1 Other comprehensive income from unconsolidated subsidiaries — — — 3 3 Balance as of March 31, 2025 $ ( 311 ) $ ( 9 ) $ — $ 7 $ ( 313 ) Three Months Ended March 31, 2024 Foreign Currency Translation Unrealized Gain (Loss) on Cash Flow Hedges Unrealized Gain (Loss) 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 (loss) income ( 57 ) 6 — — ( 51 ) Income tax effect — ( 1 ) — — ( 1 ) Reclassification of unrealized gain — ( 1 ) — — ( 1 ) Other comprehensive loss from unconsolidated subsidiaries — — — ( 5 ) ( 5 ) Balance as of March 31, 2024 $ ( 300 ) $ ( 7 ) $ 6 $ 3 $ ( 298 ) 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. 12 Note 8. 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. As of March 31, 2025 and December 31, 2024, we had $ 418 million and $ 416 million of Accounts payable outstanding under the arrangements, respectively. Note 9. Long-Term Obligations Long-term obligations consist of the following (in millions): March 31, 2025 December 31, 2024 Maturity Date Interest Rate Amount Interest Rate Amount Senior Unsecured Credit Agreement: Term loan payable January 2026 5.80 % $ 500 5.83 % $ 500 Revolving credit facilities January 2028 5.71 % (1) 824 5.86 % (1) 664 Senior Unsecured Term Loan Agreement: Term loan payable July 2026 4.39 % 487 4.98 % 487 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 (2028) April 2028 4.13 % 270 4.13 % 259 Euro Notes (2031) March 2031 4.13 % 811 4.13 % 777 Notes payable Various through October 2030 2.55 % (1) 8 3.07 % (1) 10 Finance lease obligations 4.91 % (1) 106 5.06 % (1) 100 Other debt 3.66 % (1) 23 4.58 % (1) 1 Total debt 4,429 4,198 Less: long-term debt issuance costs and unamortized bond discounts ( 31 ) ( 33 ) Total debt, net of debt issuance costs and unamortized bond discounts 4,398 4,165 Less: current maturities, net of debt issuance costs ( 558 ) ( 38 ) Long-term debt, net of debt issuance costs and unamortized bond discounts $ 3,840 $ 4,127 (1) Interest rate derived via a weighted average Note 10. 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 March 2025, we entered into an interest rate swap agreement 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 agreement, we pay the fixed interest rate and receive a variable interest rate based on term Secured Overnight Financing Rate ("SOFR") that matches a contractually specified rate under the Senior Unsecured Credit Agreement. The March 2025 agreement replaced the agreements that matured in February 2025 and include a total $ 400 million notional amount maturing in November 2025 with a fixed interest rate of 4.11 %. Changes in the fair value of the interest rate swaps are recorded in Accumulated other comprehensive loss and reclassified to Interest expense when the hedged interest payments affect earnings. The activity related to the interest rate swaps is classified in operating activities in our Unaudited Condensed Consolidated 13 Statements of Cash Flows as the activity relates to normal recurring settlements to match interest payments. All of our interest rate swap contracts have been executed with counterparties that we believe are creditworthy, and we closely monitor the credit ratings of these counterparties. As of March 31, 2025 and December 31, 2024, the notional amounts, balance sheet classification and fair values of our derivative instruments designated as cash flow hedges were as follows (in millions): March 31, 2025 Notional Amount Balance Sheet Caption Fair Value - Asset / (Liability) Interest rate swap agreement $ 400 Other accrued expenses $ — Interest rate swap agreements 300 Other accrued expenses ( 1 ) December 31, 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 ( 1 ) The activity related to our cash flow hedges is included in Note 7, "Accumulated Other Comprehensive Income (Loss)." As of March 31, 2025, 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. Note 11. Fair Value Measurements Financial Assets and Liabilities Measured at Fair Value We use the market and income approaches to estimate the fair value of our financial assets and liabilities, and during the three months ended March 31, 2025, 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 March 31, 2025 and December 31, 2024 (in millions): March 31, 2025 December 31, 2024 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets: Investments - debt securities $ 53 $ — $ — $ 53 $ 53 $ — $ — $ 53 Investments - equity securities 15 — — 15 14 — — 14 Total Assets $ 68 $ — $ — $ 68 $ 67 $ — $ — $ 67 Liabilities: Interest rate swaps $ — $ 1 $ — $ 1 $ — $ 1 $ — $ 1 Contingent consideration liabilities — — 3 3 — — 3 3 Total Liabilities $ — $ 1 $ 3 $ 4 $ — $ 1 $ 3 $ 4 14 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 10, "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 March 31, 2025 and December 31, 2024 to assume these obligations. The fair values of the 5.75% senior notes due June 2028 (the "U.S. Notes (2028)"), the 6.25% senior notes due June 2033 (the "U.S. Notes (2033)" and together with the U.S. Notes (2028), the "U.S. Notes (2028/2033)"), the 4.13% senior notes due April 2028 (the "Euro Notes (2028)") and the 4.13% senior notes due March 2031 (the "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 March 31, 2025 and December 31, 2024, the fair value of the borrowings under the Senior Unsecured Credit Agreement reasonably approximated the carrying values of $ 1,324 million and $ 1,164 million, respectively. As of both March 31, 2025 and December 31, 2024, the fair value of the borrowings under the Senior Unsecured Term Loan Credit Agreement ("CAD Note") reasonably approximated the carrying value of $ 487 million. The following table provides the carrying and fair value for our other financial instruments as of March 31, 2025 and December 31, 2024 (in millions): As of March 31, 2025 As of December 31, 2024 Carrying Value Fair Value Carrying Value Fair Value U.S. Notes (2028) $ 800 $ 819 $ 800 $ 814 U.S. Notes (2033) 600 624 600 620 Euro Notes (2028) 270 272 259 261 Euro Notes (2031) 811 820 777 796 Note 12. Cash, Cash Equivalents and Restricted Cash 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): March 31, 2025 December 31, 2024 Cash and cash equivalents $ 227 $ 234 Restricted cash included in Other noncurrent assets (1) 4 5 Cash, cash equivalents and restricted cash $ 231 $ 239 (1) Represents cash held with our captive insurance subsidiary for payments on self-insured claims. 15 Note 13. 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 March 31, 2025 Revenue: Third Party $ 1,412 $ 1,522 $ 393 $ 136 $ — $ 3,463 Intersegment — — 1 — ( 1 ) — Total segment revenue $ 1,412 $ 1,522 $ 394 $ 136 $ ( 1 ) $ 3,463 Less: (1) Cost of goods sold 785 931 299 72 Selling, general and administrative expenses 410 459 76 44 Other segment items (2) ( 5 ) ( 9 ) ( 2 ) — Segment EBITDA $ 222 $ 141 $ 21 $ 20 $ — $ 404 Total depreciation and amortization (3) $ 49 $ 39 $ 8 $ 4 $ — $ 100 Three Months Ended March 31, 2024 Revenue: Third Party $ 1,500 $ 1,644 $ 422 $ 137 $ — $ 3,703 Intersegment — — 1 — ( 1 ) — Total segment revenue $ 1,500 $ 1,644 $ 423 $ 137 $ ( 1 ) $ 3,703 Less: (1) Cost of goods sold 837 1,021 317 77 Selling, general and administrative expenses 426 493 81 44 Other segment items (2) ( 7 ) ( 13 ) ( 2 ) — Segment EBITDA $ 244 $ 143 $ 27 $ 16 $ — $ 430 Total depreciation and amortization (3) $ 49 $ 39 $ 8 $ 4 $ — $ 100 (1) The significant expense categories and amounts align with the segment-level information that is regularly provided to the chief operating decision maker ("CODM"). Intersegment expenses are included within the amounts shown. (2) Amounts primarily represent other non operating income and expenses within each segment, as well as reconciling items to remove depreciation - cost of goods sold and restructuring - cost of goods sold, which are excluded from the calculation of Segment EBITDA. See Note 5, "Restructuring and Transaction Related Expenses" for additional information on the restructuring charges. (3) Amounts presented include depreciation and amortization expense recorded within Cost of goods sold, SG&A expenses and Restructuring and transaction related expenses. 16 The key measure of segment profit or loss reviewed by our CODM, our Chief Executive Officer, is Segment EBITDA. The CODM uses 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. The table below provides a reconciliation of Net Income to Segment EBITDA (in millions): Three Months Ended March 31, 2025 2024 Net income $ 169 $ 158 Adjustments: Depreciation and amortization 100 100 Interest expense, net of interest income 57 61 Provision for income taxes 66 71 Equity in losses of unconsolidated subsidiaries 1 2 Equity investment fair value adjustments ( 1 ) — Restructuring and transaction related expenses (1) 11 30 Restructuring expenses - cost of goods sold (1) — 8 Direct impacts of Ukraine/Russia conflict (2) 1 — Segment EBITDA $ 404 $ 430 (1) See Note 5, "Restructuring and Transaction Related Expenses" for further information. (2) Adjustments include provisions for and subsequent adjustments to reserves for asset recoverability (primarily receivables and inventory). The following table presents capital expenditures by reportable segment (in millions): Three Months Ended March 31, 2025 2024 Capital Expenditures Wholesale - North America $ 22 $ 21 Europe 27 38 Specialty 3 4 Self Service 2 3 Total capital expenditures $ 54 $ 66 17 The following table presents assets by reportable segment (in millions): March 31, 2025 December 31, 2024 Receivables, net of allowance for credit losses Wholesale - North America $ 504 $ 483 Europe 717 528 Specialty 176 102 Self Service 12 9 Total receivables, net of allowance for credit losses 1,409 1,122 Inventories Wholesale - North America 1,505 1,411 Europe 1,356 1,323 Specialty 463 449 Self Service 37 37 Total inventories 3,361 3,220 Property, plant and equipment, net Wholesale - North America 673 675 Europe 641 619 Specialty 113 115 Self Service 104 108 Total property, plant and equipment, net 1,531 1,517 Operating lease assets, net Wholesale - North America 673 668 Europe 487 467 Specialty 117 121 Self Service 112 132 Total operating lease assets, net 1,389 1,388 Other unallocated assets 7,779 7,708 Total assets $ 15,469 $ 14,955 We re port 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, France and other European countries. Our operations in other countries include wholesale operations in Canada, remanufacturing operations in Mexico, an aftermarket parts freight consolidation warehouse in Taiwan, and administrative support functions in India. The following table sets forth our tangible long-lived assets by geographic area (in millions): March 31, 2025 December 31, 2024 Long-lived assets United States $ 1,559 $ 1,590 Germany 333 312 United Kingdom 302 296 Other countries 726 707 Total long-lived assets $ 2,920 $ 2,905 18