LKQ CORP 10-K

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA ***** INDEX TO FINANCIAL STATEMENTS Page LKQ CORPORATION AND SUBSIDIARIES Reports of Independent Registered Public Accounting Firm (PCAOB ID No. 34 ) 47 Consolidated Statements of Income for the years ended December 31, 202 5 , 202 4 and 20 23 50 Consolidated Statements of Comprehensive Income for the years ended December 31, 202 5 , 202 4 and 20 23 51 Consolidated Balance Sheets as of December 31, 202 5 and 20 24 52 Consolidated Statements of Cash Flows for the years ended December 31, 202 5 , 202 4 and 20 23 53 Consolidated Statements of Stockholders' Equity for the years ended December 31, 202 5 , 202 4 and 20 23 54 Notes to Consolidated Financial Statements 55 46 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of LKQ Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of LKQ Corporation and subsidiaries (the "Company") as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2025, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 19, 2026, expressed an unqualified opinion on the Company's internal control over financial reporting. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates. Goodwill - Specialty Reporting Unit - Refer to Notes 2 and 9 to the financial statements. Critical Audit Matter Description The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The Company determines the fair value of its reporting units using a discounted cash flow model and the market approach, which require management to make significant estimates and assumptions. Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both. The goodwill balance was $5,414 million as of December 31, 2025, of which $421 million related to the Specialty reporting unit (“Specialty”). The carrying value of Specialty exceeded its fair value as of December 31, 2025, and, therefore, the Company recognized $52 million of impairment. The Company commenced a process in 2025 to explore the potential sale of their Specialty segment which was contemplated by management in the determination of the fair value of this reporting unit. 47 Auditing the estimates and assumptions that impacted the valuation of the Company's Specialty reporting unit involved especially subjective judgment; specifically, the forecasts of future revenue and profit margins (“forecasts”), the selection of discount rates and the determination of market multiples. How the Critical Audit Matter Was Addressed in the Audit Our audit procedures related to the forecasts, the selection of discount rates, and determination of market multiples included the following, among others: • We tested the effectiveness of controls over the Company's goodwill impairment assessments, including those over the forecasts and the selection of the discount rates and market multiples for the Specialty reporting unit. • We evaluated management’s ability to accurately forecast by comparing actual results to management’s historical forecasts. • We evaluated the reasonableness of management’s forecasts by comparing the forecasts to (1) historical results, (2) internal communications to management and the Board of Directors, (3) analyst and industry reports of the Company and companies in its peer group, (4) forecasts used in the preceding impairment assessments, and (5) marketing material related to the potential sales process. • With the assistance of our fair value specialists, we evaluated the discount rates, including (1) testing the underlying source information and the mathematical accuracy of the calculations, (2) developing a range of independent estimates and comparing those to the discount rates used by management, and (3) comparing the discount rates used by management to those used in the preceding impairment assessments. • With the assistance of our fair value specialists, we evaluated the market multiples, including testing the underlying source information and mathematical accuracy of the calculations, and comparing the multiples selected by management to its guideline public companies, the multiples used in the preceding impairment assessments, and assessment of any contradictory evidence from the potential sales process. /s/ DELOITTE & TOUCHE LLP Chicago, Illinois February 19, 2026 We have served as the Company's auditor since 1998. 48 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Stockholders and the Board of Directors of LKQ Corporation Opinion on Internal Control over Financial Reporting We have audited the internal control over financial reporting of LKQ Corporation and subsidiaries (the “Company”) as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO. We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2025, of the Company and our report dated February 19, 2026, expressed an unqualified opinion on those financial statements. Basis for Opinion The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control over Financial Reporting A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ DELOITTE & TOUCHE LLP Chicago, Illinois February 19, 2026 49 LKQ CORPORATION AND SUBSIDIARIES Consolidated Statements of Income (In millions, except per share data) Year Ended December 31, 2025 2024 2023 Revenue $ 13,651 $ 13,823 $ 13,269 Cost of goods sold 8,386 8,439 7,916 Gross margin 5,265 5,384 5,353 Selling, general and administrative expenses 3,813 3,758 3,697 Restructuring and transaction related expenses 42 135 65 Impairment of goodwill 52 — — Depreciation and amortization 365 346 267 Operating income 993 1,145 1,324 Other expense (income): Interest expense 224 238 191 Gains on foreign exchange contracts - acquisition related (1) — — ( 49 ) Interest income and other income, net ( 31 ) ( 19 ) ( 41 ) Total other expense, net 193 219 101 Income from continuing operations before provision for income taxes 800 926 1,223 Provision for income taxes 204 265 304 Equity in earnings of unconsolidated subsidiaries ( 1 ) ( 8 ) ( 15 ) Income from continuing operations 597 669 934 Net income from discontinued operations 11 24 4 Net income 608 693 938 Less: net income attributable to continuing noncontrolling interest 1 3 2 Net income attributable to LKQ stockholders $ 607 $ 690 $ 936 Basic earnings per share: Income from continuing operations $ 2.32 $ 2.54 $ 3.49 Net income from discontinued operations 0.04 0.09 0.02 Net income 2.36 2.63 3.51 Less: net income attributable to continuing noncontrolling interest — 0.01 0.01 Net income attributable to LKQ stockholders $ 2.36 $ 2.62 $ 3.50 Diluted earnings per share: Income from continuing operations $ 2.31 $ 2.54 $ 3.48 Net income from discontinued operations 0.04 0.09 0.02 Net income 2.35 2.63 3.50 Less: net income attributable to continuing noncontrolling interest — 0.01 0.01 Net income attributable to LKQ stockholders $ 2.35 $ 2.62 $ 3.49 (1) Related to the Uni-Select acquisition. Refer to Note 3, "Business Combinations" and Note 19, "Derivative Instruments and Hedging Activities" for further information. The accompanying notes are an integral part of the Consolidated Financial Statements. 50 LKQ CORPORATION AND SUBSIDIARIES Consolidated Statements of Comprehensive Income (In millions) Year Ended December 31, 2025 2024 2023 Net income $ 608 $ 693 $ 938 Less: net income attributable to continuing noncontrolling interest 1 3 2 Net income attributable to LKQ stockholders 607 690 936 Other comprehensive income (loss): Foreign currency translation, net of tax 347 ( 168 ) 90 Net change in unrealized gains/losses on cash flow hedges, net of tax 2 2 ( 11 ) Net change in unrealized gains/losses on pension plans, net of tax 11 ( 7 ) ( 5 ) Other comprehensive (loss) income from unconsolidated subsidiaries — ( 4 ) 9 Other comprehensive income (loss) 360 ( 177 ) 83 Comprehensive income 968 516 1,021 Less: comprehensive income attributable to continuing noncontrolling interest 1 3 2 Comprehensive income attributable to LKQ stockholders $ 967 $ 513 $ 1,019 The accompanying notes are an integral part of the Consolidated Financial Statements. 51 LKQ CORPORATION AND SUBSIDIARIES Consolidated Balance Sheets (In millions, except per share data) December 31, 2025 2024 Assets Current assets: Cash and cash equivalents $ 319 $ 234 Receivables, net of allowance for credit losses 1,204 1,113 Inventories 3,426 3,183 Prepaid expenses and other current assets 299 328 Current assets of discontinued operations — 48 Total current assets 5,248 4,906 Property, plant and equipment, net 1,452 1,409 Operating lease assets, net 1,332 1,256 Goodwill 5,414 5,174 Other intangibles, net 1,072 1,150 Equity method investments 170 169 Other noncurrent assets 449 376 Noncurrent assets of discontinued operations — 515 Total assets $ 15,137 $ 14,955 Liabilities and Stockholders' Equity Current liabilities: Accounts payable $ 2,108 $ 1,797 Accrued expenses: Accrued payroll-related liabilities 190 207 Refund liability 122 125 Other accrued expenses 344 346 Current portion of operating lease liabilities 253 222 Current portion of long-term obligations 32 38 Other current liabilities 88 92 Current liabilities of discontinued operations — 35 Total current liabilities 3,137 2,862 Long-term operating lease liabilities, excluding current portion 1,145 1,093 Long-term obligations, excluding current portion 3,631 4,124 Deferred income taxes 331 386 Other noncurrent liabilities 332 341 Noncurrent liabilities of discontinued operations — 117 Commitments and contingencies Stockholders' equity: Common stock, $ 0.01 par value, 1,000.0 shares authorized, 324.0 shares issued and 255.0 shares outstanding at December 31, 2025; 323.6 shares issued and 259.1 shares outstanding at December 31, 2024 3 3 Additional paid-in capital 1,581 1,556 Retained earnings 7,958 7,662 Accumulated other comprehensive loss ( 57 ) ( 417 ) Treasury stock, at cost; 69.0 shares at December 31, 2025 and 64.5 shares at December 31, 2024 ( 2,948 ) ( 2,787 ) Total Company stockholders' equity 6,537 6,017 Noncontrolling interest 24 15 Total stockholders' equity 6,561 6,032 Total liabilities and stockholders' equity $ 15,137 $ 14,955 The accompanying notes are an integral part of the Consolidated Financial Statements. 52 LKQ CORPORATION AND SUBSIDIARIES Consolidated Statements of Cash Flows (In millions) Year Ended December 31, 2025 2024 2023 CASH FLOWS FROM OPERATING ACTIVITIES (1) : Net income $ 608 $ 693 $ 938 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 418 406 319 Impairment of goodwill 52 — — Stock-based compensation expense 34 30 40 Gains on foreign exchange contracts - acquisition related — — ( 49 ) Deferred income taxes ( 75 ) ( 34 ) 13 Other 32 83 18 Changes in operating assets and liabilities, net of effects from acquisitions and dispositions: Receivables ( 16 ) ( 2 ) 5 Inventories ( 49 ) ( 253 ) 71 Other assets ( 13 ) ( 59 ) ( 23 ) Prepaid income taxes/income taxes payable ( 8 ) ( 15 ) ( 12 ) Accounts payable 156 251 ( 5 ) Other liabilities ( 75 ) 17 37 Operating lease assets and liabilities ( 1 ) 4 4 Net cash provided by operating activities 1,063 1,121 1,356 CASH FLOWS FROM INVESTING ACTIVITIES (1) : Purchases of property, plant and equipment ( 216 ) ( 311 ) ( 358 ) Acquisitions, net of cash acquired 1 ( 49 ) ( 2,225 ) Proceeds from disposals of businesses, net of divested cash 397 ( 11 ) 110 Proceeds from settlement of foreign exchange contracts - acquisition related — — 49 Other investing activities, net 3 ( 35 ) ( 18 ) Net cash provided by (used in) investing activities 185 ( 406 ) ( 2,442 ) CASH FLOWS FROM FINANCING ACTIVITIES (1) : Borrowings under revolving credit facilities 1,510 1,312 2,186 Repayments under revolving credit facilities ( 2,176 ) ( 1,553 ) ( 3,074 ) Borrowings under term loans 140 — 1,031 Repayments under term loans ( 140 ) — — Repayments of other debt, net ( 42 ) ( 45 ) ( 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 ) — Dividends paid to LKQ stockholders ( 310 ) ( 318 ) ( 302 ) Purchase of treasury stock ( 159 ) ( 360 ) ( 38 ) Other financing activities, net ( 14 ) ( 51 ) ( 63 ) Net cash (used in) provided by financing activities ( 1,191 ) ( 746 ) 1,102 Effect of exchange rate changes on cash, cash equivalents and restricted cash 36 ( 29 ) 5 Net increase (decrease) in cash, cash equivalents and restricted cash 93 ( 60 ) 21 Cash, cash equivalents and restricted cash of continuing operations, beginning of period (2) 239 299 278 Add: Cash and cash equivalents of discontinued operations, beginning of period — — — Cash, cash equivalents and restricted cash of continuing and discontinued operations, beginning of period (2) 239 299 278 Cash, cash equivalents and restricted cash of continuing and discontinued operations, end of period (2) 332 239 299 Less: Cash and cash equivalents of discontinued operations, end of period — — — Cash, cash equivalents and restricted cash, end of period (2) $ 332 $ 239 $ 299 (1) Amounts presented contain results from both continuing and discontinued operations. Refer to Note 4, "Discontinued Operations and Divestitures" for further information regarding cash flows associated with the results of discontinued operations. (2) Refer to Note 2, "Summary of Significant Accounting Policies" and Note 24, "Cash, Cash Equivalents and Restricted Cash" for further information on restricted cash. The accompanying notes are an integral part of the Consolidated Financial Statements. 53 LKQ CORPORATION AND SUBSIDIARIES Consolidated Statements of Stockholders' Equity (In millions, except per share data) Years Ended December 31, 2025, 2024 and 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 December 31, 2022 322.4 $ 3 ( 55.1 ) $ ( 2,389 ) $ 1,506 $ 6,656 $ ( 323 ) $ 14 $ 5,467 Net income — — — — — 936 — 2 938 Other comprehensive income — — — — — — 83 — 83 Purchase of treasury stock — — ( 0.8 ) ( 35 ) — — — — ( 35 ) Vesting of restricted stock units, net of shares withheld for employee tax 0.7 — — — ( 8 ) — — — ( 8 ) Stock-based compensation expense — — — — 40 — — — 40 Dividends declared to LKQ stockholders ($1.125 per share) — — — — — ( 302 ) — — ( 302 ) Capital contributions from, net of dividends declared to, noncontrolling interest shareholder — — — — — — — ( 2 ) ( 2 ) Balance as of December 31, 2023 323.1 $ 3 ( 55.9 ) $ ( 2,424 ) $ 1,538 $ 7,290 $ ( 240 ) $ 14 $ 6,181 Net income — — — — — 690 — 3 693 Other comprehensive loss — — — — — — ( 177 ) — ( 177 ) Purchase of treasury stock — — ( 8.6 ) ( 363 ) — — — — ( 363 ) Vesting of restricted stock units, net of shares withheld for employee tax 0.5 — — — ( 11 ) — — — ( 11 ) Stock-based compensation expense — — — — 30 — — — 30 Dividends declared to LKQ stockholders ($1.20 per share) — — — — — ( 318 ) — — ( 318 ) Capital contributions from, net of dividends declared to, noncontrolling interest shareholder — — — — — — — ( 2 ) ( 2 ) Purchase of noncontrolling interest — — — — ( 1 ) — — — ( 1 ) Balance as of December 31, 2024 323.6 $ 3 ( 64.5 ) $ ( 2,787 ) $ 1,556 $ 7,662 $ ( 417 ) $ 15 $ 6,032 Net income — — — — — 607 — 1 608 Other comprehensive income — — — — — — 360 — 360 Purchase of treasury stock — — ( 4.5 ) ( 161 ) — — — — ( 161 ) Vesting of restricted stock units, net of shares withheld for employee tax 0.4 — — — ( 9 ) — — — ( 9 ) Stock-based compensation expense — — — — 34 — — — 34 Dividends declared to LKQ stockholders ($1.20 per share) — — — — — ( 311 ) — — ( 311 ) Capital contributions from, net of dividends declared to, noncontrolling interest shareholder — — — — — — — ( 2 ) ( 2 ) Acquisition of a subsidiary with noncontrolling interest — — — — — — — 9 9 Foreign currency translation adjustment on noncontrolling interest — — — — — — — 1 1 Balance as of December 31, 2025 324.0 $ 3 ( 69.0 ) $ ( 2,948 ) $ 1,581 $ 7,958 $ ( 57 ) $ 24 $ 6,561 The accompanying notes are an integral part of the Consolidated Financial Statements. 54 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Business Description of Business 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 are a global distributor of vehicle products, including replacement parts, components, and systems used in the repair and maintenance of vehicles, and specialty aftermarket products and accessories designed to improve the performance, functionality and appearance of vehicles. We operate in the United States ("U.S."), Canada, Germany, the United Kingdom ("U.K."), the Benelux region (Belgium, Netherlands, and Luxembourg), Italy, Czech Republic, Austria, Slovakia, France and various other European countries. We are organized into three operating segments: North America; Europe; and Specialty, each of which is presented as a reportable segment. Note 2. Summary of Significant Accounting Policies Basis of Presentation The Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and the rules and regulations of the U.S. Securities and Exchange Commission. We have reclassified certain prior year amounts in the Consolidated Statements of Income and on the Consolidated Balance Sheets for the presentation of discontinued operations as a result of the sale of our Self Service segment. See Note 4, "Discontinued Operations and Divestitures" for additional information. Principles of Consolidation The accompanying Consolidated Financial Statements include the accounts of LKQ Corporation and its subsidiaries. All intercompany transactions and accounts have been eliminated. Use of Estimates The preparation of the Consolidated Financial Statements in accordance with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses during the reported periods. We base our estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results and outcomes could differ from those estimates. Foreign Currency Translation Our reporting currency is the U.S. dollar. For most of our international operations, the local currency is the functional currency. Assets and liabilities are translated into U.S. dollars at the period-ending exchange rate. Statements of Income amounts are translated to U.S. dollars using monthly average exchange rates during the period. Translation gains and losses are reported as a component of Accumulated other comprehensive income (loss) in stockholders' equity. Revenue Recognition We recognize revenue when a sales arrangement with a customer exists (e.g., contract, purchase orders, others), the transaction price is fixed or determinable and we have satisfied its performance obligations per the sales arrangement. The majority of our revenue originates from contracts with a single performance obligation to deliver parts, whereby the performance obligation is satisfied when control of the parts is transferred to the customer per the arranged shipping terms. Some of our contracts contain a combination of delivering parts and performing services, which are distinct and accounted for as separate performance obligations. Revenue for the service component is recognized as the services are rendered. 55 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Our revenue is measured at the determinable transaction price, net of any variable considerations granted to customers. Variable considerations include the right to return parts, discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, or other similar items. These variable considerations are estimated throughout the year based on various factors, including contract terms, historical experience and performance levels. Sales tax and other tax amounts collected from customers for remittance to governmental authorities are excluded from revenue in the Consolidated Statements of Income and are shown as a current liability on the Consolidated Balance Sheets until remitted. Any incremental costs to obtain a contract (commissions earned by our sales representatives on product sales) are expensed when incurred, as the amortization period of the asset would be one year or less due to the short-term nature of our contracts. Cost of Goods Sold Cost of goods sold includes: the price we pay for inventory, net of vendor discounts, rebates or other incentives; inbound freight and other transportation costs to bring inventory into our facilities; and overhead costs related to purchasing, warehousing and transporting our products from our distribution warehouses to our selling locations. For our salvage, remanufactured, refurbished and manufactured products, cost of goods sold also includes direct and indirect labor, equipment costs, depreciation, and other overhead to transform inventory into finished products suitable for sale. Cost of goods sold also includes expenses for service-type and assurance-type warranty programs. Selling, General and Administrative Expenses Selling, general and administrative ("SG&A") expenses include: personnel costs for employees in SG&A functions; costs to operate branch locations, corporate offices and back office support centers; costs to transport products from facilities to our customers; and other expenses, such as professional fees, supplies, and advertising expenses. The costs included in SG&A expenses do not relate to inventory processing or conversion activities, and, as such, are classified below Gross margin in the Consolidated Statements of Income. Stock-Based Compensation For the restricted stock units ("RSUs") that contain both a performance-based vesting condition and a time-based vesting condition, we recognize compensation expense using the accelerated attribution method, pursuant to which expense is recognized straight-line over the requisite service period for each separate vesting tranche of the award. For all other awards, which are subject to only a time-based vesting condition, we recognize compensation expense on a straight-line basis over the requisite service period of the entire award. For performance-based RSUs ("PSUs"), the expense is calculated using the projected award value, which is based on an estimate of the achievement of the performance objectives, and is recognized on a straight-line basis over the performance period. The impacts of forfeitures on RSUs and PSUs expense are recorded as they occur. Income Taxes Current income taxes are provided on income reported for financial reporting purposes, adjusted for transactions that do not enter into the computation of income taxes payable in the same year. Deferred income taxes are provided for temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before we are able to realize their benefit or that future deductibility is uncertain. Provision is made for taxes on undistributed earnings of foreign subsidiaries and related companies to the extent that such earnings are not deemed to be permanently invested. We recognize the benefits of uncertain tax positions taken or expected to be taken in tax returns in the provision for income taxes only for those positions that are more likely than not to be realized. We follow a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. We consider many factors when evaluating and estimating our tax positions 56 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS and tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes. Our policy is to include any interest and penalties associated with income tax obligations in income tax expense. Cash, Cash Equivalents and Restricted Cash Cash and cash equivalents include cash on hand, operating accounts, and deposits readily convertible to known amounts of cash. Restricted cash includes any cash that is legally or contractually restricted as to withdrawal or usage. Allowance for Credit Losses Receivables are reported net of an allowance for credit losses. The allowance is measured on a pool basis when similar risk characteristics exist, and a loss-rate for each pool is determined using historical credit loss experience as the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current conditions (e.g., management's evaluation of the aging of customer receivable balances and the financial condition of our customers) as well as changes in forecasted macroeconomic conditions, such as changes in the unemployment rate, gross domestic product growth rate or credit default rates. Concentrations of Credit Risks Financial instruments that potentially subject us to significant concentration of credit risk consist primarily of cash and cash equivalents and receivables. We control our exposure to credit risk associated with these instruments by (i) placing cash and cash equivalents with several major financial institutions; (ii) holding high-quality financial instruments; and (iii) maintaining strict policies over credit extension that include credit evaluations, credit limits and monitoring procedures. In addition, our overall credit risk with respect to accounts receivable is limited to some extent because our customer base is composed of a large number of geographically diverse customers. Inventories Our inventory is stated at the lower of cost or net realizable value. Net realizable value can be influenced by current anticipated demand. If actual demand is lower than our estimates, additional reductions to inventory carrying value would be necessary in the period such determination is made. The cost of our inventory is determined differently based on the category of inventory; (i) aftermarket and refurbished products, (ii) salvage and remanufactured products, and (iii) manufactured products. An aftermarket product is a new vehicle product manufactured by a company other than the original equipment manufacturer. For aftermarket products, cost is established based on the average price paid for parts. Inventory cost for aftermarket products includes expenses incurred for freight in and overhead costs; for items purchased from foreign companies, import fees, tariffs and duties and transportation insurance are also included. Refurbished products are parts that require cosmetic repairs, such as wheels, bumper covers and lights; we will apply new parts, products or materials to these parts to produce the finished product. Refurbished inventory cost is based upon the average price we pay for cores, which are recycled automotive parts that are not suitable for sale as a replacement part without further processing. The cost of refurbished inventory also includes expenses incurred for freight in, labor and other overhead costs. A salvage product is a recycled vehicle part suitable for sale as a replacement part. Salvage product cost is established based upon the price we pay for a vehicle, including auction, storage and towing fees, as well as expenditures for buying and dismantling the vehicle. Inventory carrying value is determined using the average cost to sales percentage at each of our facilities and applying that percentage to the facility's inventory at expected selling prices, the assessment of which incorporates the sales probability based on a part's number of days in stock and historical demand. The average cost to sales percentage is derived from each facility's historical profitability for salvage vehicles. Remanufactured products are used parts that have been inspected, rebuilt, or reconditioned to restore functionality and performance, such as remanufactured engines and transmissions. Remanufactured inventory cost is based upon the price paid for cores and expenses incurred for freight in, direct manufacturing costs and other overhead costs. A manufactured product is a new vehicle product. Manufactured product inventory can be a raw material, work-in-process or finished good. Manufactured product cost is established using the first-in first-out method. 57 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Property, Plant and Equipment Property, plant and equipment are recorded at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives or, in the case of leasehold improvements, the term of the related lease and reasonably assured renewal periods, if shorter. Depreciation expense associated with refurbishing, remanufacturing, manufacturing and furnace operations as well as distribution centers are recorded in Cost of goods sold in the Consolidated Statements of Income. Depreciation expense resulting from restructuring programs is recorded in Restructuring and transaction related expenses in the Consolidated Statements of Income. All other depreciation expense is reported in Depreciation and amortization in the Consolidated Statements of Income. Expenditures for major additions and improvements that extend the useful life of the related asset are capitalized. Expenditures for maintenance and repairs are recorded as incurred to SG&A expenses in the Consolidated Statements of Income. As property, plant and equipment are sold or retired, the applicable cost and accumulated depreciation are removed from the accounts and any resulting gain or loss thereon is recognized. Construction in progress consists primarily of building and land improvements at our existing facilities. Intangible Assets Intangible assets consist primarily of goodwill (the cost of purchased businesses in excess of the fair value of the identifiable net assets acquired) and other specifically identifiable intangible assets, such as customer and supplier relationships, trade names, trademarks, software and other technology related assets, and covenants not to compete. Goodwill and indefinite-lived intangible assets are tested for impairment at least annually. We performed annual impairment tests during the fourth quarters of 2025, 2024, and 2023. 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, including significant underperformance relative to historical or forecasted operating results, a significant decrease in the market value of an asset or significant negative industry or economic trends. The fair value estimates of our goodwill reporting units were established using weightings of the results of a discounted cash flow methodology and a comparative market multiples approach. Based on our annual goodwill and indefinite-lived intangible assets impairment test performed in the fourth quarter of 2025, we determined the carrying value of our Specialty reporting unit exceeded the fair value estimate; as a result, we recorded a goodwill impairment charge of $ 52 million for the year ended December 31, 2025. We determined no other impairments existed when we performed our annual impairment test as both the North America and Europe reporting units had fair value estimates which exceeded the carrying value by at least 48 %. See Note 9, "Intangible Assets" for further information on the goodwill impairment charge. Leases We determine if an arrangement is a lease at contract inception with lease right-of-use ("ROU") assets and lease liabilities being recognized based on the present value of the future lease payments over the lease term at the commencement date. In determining the present value of future lease payments, we use the incremental borrowing rate based on the information available at commencement date when the implicit rate is not readily determinable. We determine the incremental borrowing rate based on information available at the commencement date. In assessing the ROU asset, we include any lease prepayments and deduct lease incentives. We account for the lease and non-lease components of a contract as a single lease component and for leases with an initial term of 12 months or less, we have elected to not record an ROU asset and lease liability. In assessing the lease term, we include options to renew only when it is reasonably certain that the option will be exercised. For certain lease agreements, rental payments are adjusted periodically for inflation. Typically, these adjustments are considered variable lease costs. Other variable lease costs consist of certain non-lease components that are disclosed as lease costs due to our election of the practical expedient to combine lease and non-lease components and include items such as variable payments for utilities, property taxes, common area maintenance, sales taxes, and insurance. Net Assets Held for Sale We record net assets held for sale at the lower of fair value less cost to sell or carrying value. Fair values are based on estimated selling prices, which utilize projected market multiples and any reasonable offers. Due to uncertainties in the estimation process, it is possible that actual results could differ from the estimates used in management's analysis. The inputs utilized in the fair value estimates are classified as Level 3 within the fair value hierarchy. The fair values of the net assets were measured on a 58 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS non-recurring basis as of December 31, 2025. As of December 31, 2025 and 2024, assets and liabilities held for sale were insignificant. For the years ended December 31, 2025 and 2023, we recorded an insignificant amount of impairment on our net assets held for sale. In 2024, we divested certain operations in Slovenia, Poland and Bosnia. Our decision to exit these businesses, as well as other factors, constituted a triggering event to evaluate our net assets held for sale for impairment, and as a result, we incurred impairment charges related to these divestitures during the year ended December 31, 2024. See Note 13, "Restructuring and Transaction Related Expenses" for further information related to these impairment charges. Discontinued Operations We classify operations as discontinued when they meet all the criteria to be classified as held for sale and when the sale represents a strategic shift that will have a major impact on our financial condition and results of operations. In determining if a disposal constitutes a strategic shift, we evaluate various qualitative and quantitative factors, an example of which is the impact to segment reporting. We generally consider the disposal of an entire reportable segment to constitute a strategic shift. When operations are identified for discontinued operations reporting, results of operations for all periods presented are reclassified as discontinued operations in the Consolidated Statements of Income, assets and liabilities of the operations are reported as assets and liabilities of discontinued operations on the Consolidated Balance Sheets, and information is recast throughout the notes to the consolidated financial statements to exclude the results of the discontinued operations. Furthermore, FASB Accounting Standards Codification 205-20, "Presentation of Financial Statements - Discontinued Operations" defines what activities may be classified as discontinued operations with general corporate overhead generally not being allocable to discontinued operations. See Note 4, "Discontinued Operations and Divestitures" for further information related to discontinued operations. Impairment of Long-Lived Assets Long-lived assets are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. If such review indicates that the carrying amount of long-lived assets is not recoverable, the carrying amount of such assets is reduced to fair value. As a result of the divestitures described in the "Net Assets Held for Sale" section above, we incurred impairment charges to the carrying value of long-lived assets during the year ended December 31, 2024. See Note 13, "Restructuring and Transaction Related Expenses" for further information related to these impairment charges. For our continuing operations, there were no significant impairments to the carrying value of long-lived assets during the years ended December 31, 2025 or 2023. Equity Method Investments We account for our investments in unconsolidated subsidiaries using the equity method of accounting, as our investments give us the ability to exercise significant influence, but not control, over the investee. Under the equity method of accounting, the initial investment is recorded at cost and the investment is subsequently adjusted for our proportionate share of earnings or losses and dividends, including consideration of basis differences resulting from the difference between the initial carrying amount of the investment and the underlying equity in net assets, as applicable. Equity method investments are tested for impairment at least annually, and may also be performed on an interim basis when events or circumstances arise that may lead to impairment. We performed annual impairment testing for the years ended December 31, 2025, 2024, and 2023, and based on our testing, we determined no other-than-temporary impairment existed. See Note 10, "Equity Method Investments" for further information related to equity method investments. Financial Assets and Liabilities Measured at Fair Value We have certain financial assets and liabilities that are measured at fair value within our consolidated financial statements including investments in equity and debt securities as well as our defined benefit plan assets. 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. See Note 20, "Fair Value Measurements" and Note 22, "Employee Benefit Plans for further information related our fair value measurements and pension plans. 59 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Warranty Reserve Assurance-type warranties are not considered a separate performance obligation, and thus no transaction price is allocated to them. Our warranty reserve is calculated using historical claim information to project future warranty claims activity and is recorded within Other accrued expenses and Other noncurrent liabilities on our Consolidated Balance Sheets based on the expected timing to settle the warranty claims. We record warranty costs in Cost of goods sold in our Consolidated Statements of Income. Self-Insurance Reserves We self-insure a portion of our employee medical benefits under the terms of our employee health insurance program. We purchase certain stop-loss insurance to limit our liability exposure. We also self-insure a portion of our property and casualty risk, which includes automobile liability, general liability, directors and officers liability, workers' compensation, and property coverage, under deductible insurance programs. The insurance premium costs are expensed over the contract periods. A reserve for liabilities associated with these losses is established for claims filed and claims incurred but not yet reported based upon our estimate of the ultimate cost, which is calculated using an analysis of historical data. We monitor new claim and claim developments as well as trends related to the claims incurred but not reported in order to assess the adequacy of our insurance reserves. The current portion of total self-insurance reserves is recorded in Other accrued expenses on the Consolidated Balance Sheets with the noncurrent portion is recorded in Other noncurrent liabilities on the Consolidated Balance Sheets, which reflects management's estimates of when claims will be paid. Litigation and Related Contingencies We have certain contingencies resulting from litigation, claims and other commitments and are subject to a variety of environmental and pollution control laws and regulations incident to the ordinary course of business. We currently expect that the resolution of such contingencies will not materially affect our financial position, results of operations or cash flows. Treasury Stock We record common stock purchased for treasury stock at cost. The excise tax on share repurchases initiated on and after January 1, 2023 is included in the cost basis of treasury stock. Recent Accounting Pronouncements Recently Adopted Accounting Pronouncements In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 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. We adopted the ASU on a prospective basis beginning in this Annual Report on Form 10-K for the year ended December 31, 2025. The adoption of ASU 2023-09 did not have a material impact on our results of operations, financial position or cash flows but did result in additional disclosures. See Note 23, "Income Taxes for further information related to these disclosures. Recently Issued Accounting Pronouncements In November 2024, the FASB issued ASU 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. In September 2025, the FASB issued ASU 2025-06, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software”. This ASU removes references to software development project stages to better align with current software development methods. Under the ASU, an entity will begin capitalizing software costs when management authorizes and commits to funding the software project, and it is probable that the project will be completed and the software will be used for its intended purpose. This update is effective for annual periods 60 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS beginning after December 15, 2027, including interim periods within those fiscal years, though early adoption is permitted. This ASU can be adopted either prospectively, retrospectively, or utilizing a modified transition approach. We are currently evaluating the impact of adopting this ASU on our consolidated financial statements. In November 2025, the FASB issued ASU 2025-09, “Derivatives and Hedging (Topic 815): Hedge Accounting Improvements”, which amends certain aspects of hedge accounting to more closely align with the economics of an entity’s risk management activities. The amendments include changes to the risk assessment for cash flow hedges, hedging forecasted interest payments on choose-your-rate debt instruments, cash flow hedges of nonfinancial forecasted transactions, net written options as hedging instruments and dual hedges of foreign currency denominated debt instruments. This update is effective for annual periods beginning after December 15, 2026, including interim periods within those fiscal years, though early adoption is permitted. This ASU is required to be adopted prospectively for all hedging relationships, with the option to adopt the amendments for hedging relationships that exist as of the adoption date. We are currently evaluating the impact of adopting this ASU on our consolidated financial statements. Note 3. Business Combinations During the year ended December 31, 2025, we completed acquisitions of two businesses within our Europe segment and during the year ended December 31, 2024, we completed acquisitions of eight businesses within our 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 years ended December 31, 2025 and 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 Consolidated Statements of Cash Flows. On August 1, 2023, we completed the acquisition of all of Uni-Select's issued and outstanding shares 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 Consolidated Statements of Income. We reported Gains on foreign exchange contracts - acquisition related of $ 49 million for the year ended December 31, 2023. These foreign exchange contracts were settled in July 2023 ahead of closing of the Uni-Select Acquisition, resulting in total payments received of $ 49 million. See Note 19, "Derivative Instruments and Hedging Activities" for information related to these foreign exchange contracts. This acquisition complemented our existing North American paint distribution operations and provided a scaled position in the Canadian replacement and maintenance parts market, with opportunity for future consolidation and growth. In addition to our acquisition of Uni-Select, we completed acquisitions of three businesses within our North America segment, four businesses within our Europe segment and one business in our Specialty segment, during the year ended December 31, 2023. Our acquisitions are accounted for under the purchase method of accounting and are included in our consolidated financial statements from the dates of acquisition. The purchase prices were allocated to the net assets based upon estimated fair values at the dates of acquisition. During the years ended December 31, 2025 and 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 For businesses acquired during the year ended December 31, 2025, the effect of pro forma revenue and income from continuing operations is not material for the years ended December 31, 2025 and 2024, respectively. Note 4. Discontinued Operations and Divestitures On August 25, 2025, we entered into a definitive agreement to sell our Self Service segment to an affiliate of Pacific Avenue Capital Partners, LLC for an enterprise value of $ 410 million, subject to customary purchase price adjustments. The sale of the Self Service segment reflects our continued efforts to simplify our portfolio of businesses by exiting an asset-intensive business heavily affected by changes in commodity prices. The sale was completed on September 30, 2025. On October 1, 2025, we received the pretax net proceeds from the sale and used these proceeds to repay approximately $ 390 million of revolving credit facility borrowings. Accordingly, interest expense attributable to the repaid borrowings has been included in discontinued 61 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS operations for all periods presented. Additionally, general corporate overhead costs that were historically allocated to the Self Service segment remain within continuing operations for all periods presented. In connection with the transaction, we also entered into a transition services agreement to provide certain post-close support services. These support services, most of which last for up to nine months from the closing date of the sale, are in the areas of human resources, tax, finance, information technology, and operations, among others. The following table summarizes the comparative financial results of discontinued operations which are presented in Net income from discontinued operations in the Consolidated Statements of Income (in millions): Year Ended December 31, 2025 2024 2023 Revenue $ 395 $ 532 $ 597 Cost of goods sold 213 305 375 Gross margin 182 227 222 Impairment on assets held for sale (1) 15 — — Selling, general and administrative expenses 124 158 173 Depreciation and amortization 9 15 16 Operating income 34 54 33 Other expense (income): Interest expense 15 24 23 Interest income and other income, net ( 1 ) ( 2 ) ( 2 ) Total other expense, net 14 22 21 Income from discontinued operations before provision for income taxes 20 32 12 Provision for income taxes 9 8 2 Net income from discontinued operations $ 11 $ 24 $ 10 (1) During the year ended December 31, 2025, we recorded an impairment to write down the carrying value of Self Service to its fair value less costs to sell. This includes an estimate of working capital adjustments recorded in the fourth quarter of 2025. 62 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The major classes of Assets of discontinued operations and Liabilities of discontinued operations for Self Service as of December 31, 2024 stated on the Consolidated Balance Sheets are as follows (in millions): December 31, 2024 Assets Current assets: Receivables, net of allowance for credit losses $ 9 Inventories 37 Prepaid expenses and other current assets 2 Total current assets of discontinued operations 48 Property, plant and equipment, net 108 Operating lease assets, net 132 Goodwill 274 Other noncurrent assets 1 Total noncurrent assets of discontinued operations 515 Total assets of discontinued operations $ 563 Liabilities Current liabilities: Accounts payable $ 4 Accrued expenses: Accrued payroll-related liabilities 7 Refund liability 1 Other accrued expenses 6 Current portion of operating lease liabilities 15 Other current liabilities 2 Total current liabilities of discontinued operations 35 Long-term operating lease liabilities, excluding current portion 114 Long-term obligations, excluding current portion 3 Total noncurrent liabilities of discontinued operations 117 Total liabilities of discontinued operations $ 152 The following table summarizes the significant non-cash operating activities and capital expenditures of the Company’s discontinued operations related to the Self Service segment (in millions): Year Ended December 31, 2025 2024 2023 Depreciation and amortization $ 9 $ 15 $ 16 Impairment on assets held for sale 15 — — Purchases of property, plant and equipment 5 13 36 GSF Car Parts As part of the Uni-Select transaction, we were required to divest its U.K. subsidiary, GSF Car Parts, to comply with the U.K.'s Competition and Markets Authority regulatory ruling. Since the GSF Car Parts business was held separate and never integrated into our business, we classified the business as discontinued operations upon acquisition. On October 25, 2023, we divested GSF Car Parts to a third party for $ 110 million of proceeds, net of cash divested, resulting in an immaterial loss on sale. The proceeds were used for repayments on our revolving credit facilities. In order to manage our exposure to variability in the cash flows related to the sale of GSF Car Parts, we entered into a foreign exchange forward contract to fix the amount of USD we received upon completion of the sale. This foreign exchange contract was settled in October 2023. For the year ended December 31, 2023, we recorded a $ 6 million loss to discontinued operations related to GSF Car Parts. 63 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Other Divestitures (Not Classified in Discontinued Operations) In 2024, we divested certain operations in Slovenia, Poland and Bosnia. See Note 13, "Restructuring and Transaction Related Expenses" for further information related to these divestitures. Note 5. Inventories We classify our inventory into the following categories: (i) aftermarket and refurbished products, (ii) salvage and remanufactured products, and (iii) manufactured products. Aftermarket and refurbished products, and salvage and remanufactured products are primarily composed of finished goods. Manufactured products are primarily composed of raw materials and finished goods. Inventories consist of the following (in millions): December 31, 2025 2024 Aftermarket and refurbished products $ 2,849 $ 2,659 Salvage and remanufactured products 526 470 Manufactured products 51 54 Total inventories $ 3,426 $ 3,183 Note 6. Property, Plant and Equipment Property, plant and equipment consists of the following (in millions): December 31, Useful Life 2025 2024 Land and improvements 10 - 20 years (1) $ 234 $ 222 Buildings and improvements 20 - 40 years 520 483 Machinery and equipment 3 - 20 years 937 831 Computer equipment 3 - 10 years 175 156 Vehicles and trailers 3 - 10 years 126 128 Furniture and fixtures 5 - 7 years 93 73 Leasehold improvements 1 - 20 years 486 427 Finance lease assets 194 161 2,765 2,481 Less: Accumulated depreciation ( 1,352 ) ( 1,132 ) Construction in progress 39 60 Total property, plant and equipment, net $ 1,452 $ 1,409 (1) Only applies to land improvements as land is not depreciated. Total depreciation expense for the years ended December 31, 2025, 2024, and 2023 was $ 226 million, $ 210 million, and $ 177 million, respectively. Note 7. Self-Insurance Reserves To provide for the potential liabilities for certain risks, we use a combination of insurance and self-insurance mechanisms, including a consolidated, wholly-owned captive insurance subsidiary which provides insurance coverage for workers' compensation and automotive liability claim payments that are below our deductibles under our third-party policies. The activity related to our captive insurance subsidiary was not material for the years ended December 31, 2025, 2024, and 2023. Total self-insurance reserves were $ 139 million and $ 144 million, of which $ 76 million and $ 79 million were classified as current, as of December 31, 2025 and 2024, respectively. We had outstanding letters of credit of $ 134 million and $ 114 million, of which $ 97 million and $ 79 million were to guarantee self-insurance claims payments at December 31, 2025 and 2024, respectively. While we do not expect the amounts ultimately paid to differ significantly from the estimates, the insurance 64 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS reserves and corresponding expenses could be affected if future claims experience differs significantly from historical trends and assumptions. Note 8. Allowance for Credit Losses Our allowance for expected credit losses was $ 53 million and $ 56 million as of December 31, 2025 and December 31, 2024, respectively. The provision for credit losses was $ 14 million, $ 17 million, and $ 12 million for the years ended December 31, 2025, 2024, and 2023, respectively. A rollforward of our allowance for credit losses is as follows (in millions): 2025 2024 Balance as of January 1, $ 56 $ 61 Provision for credit losses 14 17 Write-offs ( 22 ) ( 19 ) Impact of foreign currency 5 ( 3 ) Balance as of December 31, $ 53 $ 56 Note 9. Intangible Assets The changes in the carrying amount of goodwill by reportable segment is as follows (in millions): North America Europe Specialty Total Balance as of January 1, 2024, gross $ 2,589 $ 2,298 $ 471 $ 5,358 Accumulated impairment losses as of January 1, 2024 ( 33 ) — — ( 33 ) Balance as of January 1, 2024 2,556 2,298 471 5,325 Business acquisitions and adjustments to previously recorded goodwill 4 9 2 15 Disposal of businesses — ( 5 ) — ( 5 ) Exchange rate effects ( 32 ) ( 129 ) — ( 161 ) Balance as of December 31, 2024 $ 2,528 $ 2,173 $ 473 $ 5,174 Business acquisitions and adjustments to previously recorded goodwill ( 1 ) 2 — 1 Impairment of goodwill — — ( 52 ) ( 52 ) Exchange rate effects 11 280 — 291 Balance as of December 31, 2025 $ 2,538 $ 2,455 $ 421 $ 5,414 Accumulated impairment losses as of December 31, 2025 $ ( 33 ) $ — $ ( 52 ) $ ( 85 ) For the Specialty segment, we recorded a goodwill impairment charge of $ 52 million for the year ended December 31, 2025 as the carrying value was higher than its estimated fair value based on the results of our October 31, 2025 test. The impairment was driven by a combination of factors, including lower observed market multiples in the guideline public company method, lower long term revenue growth than previous forecasts, and higher margin product groups having a longer anticipated market recovery. As of December 31, 2025, the remaining Specialty goodwill balance was $ 421 million. A 1 % decrease in projected cash flows or long term growth rate would result in approximately an additional $ 10 million of impairment, a 25 basis point increase in the discount rate would result in approximately an additional $ 30 million of impairment, or a 1.0 decrease in the market multiples assumption would result in approximately an additional $ 30 million of impairment. Given the sensitivity of the calculation to these assumptions, events that cause declines to Specialty's future cash flows such as underperformance relative to our forecasts, since actual results may differ from our estimates of future performance, or events that have a negative impact on the market value of the business, such as a deterioration in macroeconomic conditions, could result in additional future impairment to the goodwill in our Specialty segment. We will continuously monitor each of our reporting units for any risk of future impairments. We reported the impairment charge in Impairment of goodwill on the Consolidated Statements of Income for the year ended December 31, 2025. We determined no other impairments existed when we performed our annual impairment test. See "Intangible Assets" in Note 2, "Summary of Significant Accounting Policies" for further information. 65 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The components of other intangibles, net are as follows (in millions): December 31, 2025 December 31, 2024 Gross Carrying Amount Accumulated Amortization Net Gross Carrying Amount Accumulated Amortization Net Customer and supplier relationships $ 1,194 $ ( 636 ) $ 558 $ 1,150 $ ( 505 ) $ 645 Trade names and trademarks 561 ( 302 ) 259 513 ( 248 ) 265 Software and other technology related assets 482 ( 308 ) 174 425 ( 266 ) 159 Total finite-lived intangible assets 2,237 ( 1,246 ) 991 2,088 ( 1,019 ) 1,069 Indefinite-lived trademarks 81 — 81 81 — 81 Total other intangible assets $ 2,318 $ ( 1,246 ) $ 1,072 $ 2,169 $ ( 1,019 ) $ 1,150 Estimated useful lives for the finite-lived intangible assets are as follows: Method of Amortization Useful Life Customer and supplier relationships Accelerated 3-20 years Trade names and trademarks Straight-line 3-30 years Software and other technology related assets Straight-line 3-15 years Amortization expense for intangibles was $ 183 million, $ 182 million, and $ 126 million during the years ended December 31, 2025, 2024, and 2023, respectively. Estimated amortization expense for each of the five years in the period ending December 31, 2030 is $ 170 million, $ 152 million, $ 121 million, $ 105 million and $ 97 million, respectively. Note 10. Equity Method Investments The carrying value of our Equity method investments were as follows (in millions): Segment Ownership as of December 31, 2025 December 31, 2025 December 31, 2024 MEKO AB (1) Europe 26.6 % $ 157 $ 157 Other 13 12 Total $ 170 $ 169 (1) As of December 31, 2025, the Level 1 fair value of our investment in MEKO AB ("Mekonomen") was $ 115 million based on the quoted market price for Mekonomen's common stock using the same foreign exchange rate as the carrying value. We evaluated our investment in Mekonomen for other-than-temporary impairment and concluded the decline in fair value was not other-than-temporary; however, a prolonged, material impairment may cause us to account for the decline as an other-than-temporary impairment in a future period, resulting in a charge in our Consolidated Statements of Income. Our share of the book value of Mekonomen's net assets exceeded the book value of our investment by $ 13 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. We received $ 7 million in dividend payments from Mekonomen during the year ended December 31, 2025 and $ 5 million for each of the years ended December 31, 2024 and 2023. Note 11. Warranty Reserve We provide warranties against defects and product failures on certain of our products, including remanufactured engines and transmissions (warranty periods ranging from 12 to 48 months) and certain salvage mechanical products (warranty period of 6 months or 6,000 miles). We also offer limited lifetime warranties on certain collision sheet metal products. 66 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The changes in the warranty reserve are as follows (in millions): 2025 2024 Balance as of January 1, $ 39 $ 35 Warranty expense 76 89 Warranty claims ( 74 ) ( 85 ) Balance as of December 31, $ 41 $ 39 Note 12. 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 alternative parts and vehicle products including collision parts, which are typically exterior components used in the collision repair process to restore a vehicle's appearance and safety; hard parts, which are typically internal components that are either mechanical in nature or functional components that are replaced as part of routine maintenance; major mechanical parts; and specialty products and accessories, which are vehicle products that improve the performance, functionality and appearance of vehicles. Services revenue includes additional services that are generally billed concurrently with the related product sales, such as the sale of service-type warranties, and diagnostic and repair services. 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; all of which are typically acquired as byproducts of our salvage operations. Revenue from the sale of hulks in our North America segment 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): Year Ended December 31, 2025 2024 2023 North America $ 5,329 $ 5,465 $ 4,974 Europe 6,287 6,386 6,303 Specialty 1,690 1,654 1,665 Parts and services 13,306 13,505 12,942 North America 321 297 307 Europe 24 21 20 Other 345 318 327 Total revenue $ 13,651 $ 13,823 $ 13,269 Variable Consideration Amounts related to variable consideration on our Consolidated Balance Sheets are as follows (in millions): December 31, Classification 2025 2024 Return asset Prepaid expenses and other current assets $ 66 $ 66 Refund liability Refund liability 122 125 Variable consideration reserve Receivables, net of allowance for credit losses 148 136 67 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Revenue by Geographic Area Our net sales are attributed to geographic area based on the location of the selling operation. The following table sets forth our revenue by geographic area (in millions): Year Ended December 31, 2025 2024 2023 Revenue United States $ 6,221 $ 6,305 $ 6,229 Germany 1,830 1,732 1,672 United Kingdom 1,656 1,692 1,679 Other countries 3,944 4,094 3,689 Total revenue $ 13,651 $ 13,823 $ 13,269 Note 13. Restructuring and Transaction Related Expenses Strategic Restructuring and Transformation Initiative As part of executing our strategy to deliver profitable growth, drive a lean operating model and maximize returns on invested capital, we will, from time to time, engage in restructuring and business transformation initiatives. These initiatives can range in scope from broad changes such as centralizing and standardizing non-customer facing teams and divesting non-strategic assets, to targeted changes such as consolidating underutilized facilities and closing underperforming locations. Executing on these initiatives can take a few months to several years to fully implement depending on the scope and complexity of the initiative. Additionally, initiatives can change or expand based on the information obtained while executing on the initiative and when additional actions are identified. In connection with changes to key leadership positions in Europe and North America, as well as changes within the business environments in which we operate, we are executing on new initiatives to transform our operational structures, processes and technologies across all segments to implement target operating models and refine our go to market strategies. Additionally, as a result of the above changes, the remaining actions related to the initiatives previously included in the 1 LKQ Europe Plan, such as implementing a common Enterprise Resource Planning ("ERP") platform, rationalizing product portfolios and creating a centralized back office function, will be incorporated into this broader enterprise-wide transformation and the related future spend will be incorporated under this plan. As such, the 1 LKQ Europe Plan was closed at the end of 2025 with the total incurred cost of $ 17 million after successfully establishing a European headquarters office, migrating certain functions to a central back office and integrating four regional businesses onto a common ERP platform. We anticipate we will incur approximately $ 65 million of cost in the next 12 months executing on the approved actions in connection with this initiative. 2024 Global Restructuring Plan In the first quarter of 2024, we began a global restructuring initiative focused on enhancing profitability. This initiative included exiting businesses and markets that did not align with our strategic objectives and executing on opportunities to reduce costs, streamline operations and consolidate facilities. As we moved forward with our plan, we incurred 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. The largest portion of the activity came from the Europe segment. In 2024, we divested our operations in Slovenia and Bosnia to third parties and, certain operations in Poland to Mekonomen, 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 was substantially completed in 2025 with a total incurred cost of $ 139 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 Integration Plans as of December 31, 2025. 68 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table sets forth the expenses incurred related to our restructuring plans (in millions): Year Ended December 31, Plan Expense Type 2025 2024 2023 2024 Global Plan Employee related costs $ 15 $ 35 $ — Facility exit costs 11 7 — Inventory related costs (1) — 13 — Asset impairments (2) — 49 — Other costs, net 2 7 — Total $ 28 $ 111 $ — 2022 Global Plan Employee related costs $ — $ 2 $ 4 Facility exit costs — 3 7 Inventory related costs (1) — — 2 Other costs — — 2 Total $ — $ 5 $ 15 2019/2020 Global Plan Facility exit costs $ — $ — $ 1 Total $ — $ — $ 1 1 LKQ Europe Plan Employee related costs $ 2 $ 2 $ 1 Facility exit costs — 1 — Inventory related costs (1) — 2 2 Total $ 2 $ 5 $ 3 Acquisition Integration Plans Employee related costs $ — $ 4 $ 23 Facility exit costs 4 16 5 Other costs 1 5 1 Total $ 5 $ 25 $ 29 Total restructuring expenses $ 35 $ 146 $ 48 (1) Recorded to Cost of goods sold in the 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 Consolidated Balance Sheets. The following table sets forth the cumulative plan costs by segment related to our restructuring plans (in millions): Cumulative Program Costs North America Europe Specialty Total 2024 Global Plan $ 30 $ 109 $ — $ 139 1 LKQ Europe Plan — 17 — 17 Transaction Related Expenses During the years ended December 31, 2025, 2024 and 2023, we incurred expenses totaling $ 7 million, $ 4 million and $ 21 million, respectively, for legal, accounting and advisory services related to completed and potential transactions. 69 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 14. Stock-Based Compensation In order to attract and retain employees, non-employee directors, consultants, and other persons associated with the Company, we grant equity-based awards under the LKQ Corporation 1998 Equity Incentive Plan (the “Equity Incentive Plan”). The total number of shares approved by stockholders for issuance under the Equity Incentive Plan is 70 million shares, subject to anti-dilution and other adjustment provisions. We have granted RSUs, stock options, and restricted stock under the Equity Incentive Plan. Of the shares approved by stockholders for issuance under the Equity Incentive Plan, 6.2 million shares remained available for issuance as of December 31, 2025. We expect to issue new or treasury shares of common stock to cover past and future equity grants. RSUs The RSUs we have issued vest over periods of up to five years , subject to a continued service condition. Currently outstanding RSUs (other than PSUs, which are described below) contain either a time-based vesting condition or a combination of a performance-based vesting condition and a time-based vesting condition, in which case both conditions must be met before any RSUs vest. For all of the RSUs containing a performance-based vesting condition, we must report positive diluted earnings per share, subject to certain adjustments, during any fiscal year period within five years following the grant date. Each RSU converts into one share of LKQ common stock on the applicable vesting date. The grant date fair value of RSUs is based on the market price of LKQ stock on the grant date. Participants who are eligible for retirement (defined as a voluntary separation of service from the Company after the participant has attained at least 60 years of age and completed at least five years of service) will continue to vest in their awards following retirement; if retirement occurs during the first year of the vesting period (for RSUs subject to a time-based vesting condition) or the first year of the performance period (for RSUs with a performance-based vesting condition), the participant vests in a prorated amount of the RSU grant based on the portion of the year employed. Outstanding unvested RSUs earn dividend equivalents at the same rate as dividends on LKQ’s common stock. The dividend equivalents are subject to the same vesting requirements, restrictions and forfeiture provisions as the original award. The Compensation and Human Capital Committee of our Board approved the grant of 223,778 ; 228,570 ; and 169,511 RSUs to our executives that included both a performance-based vesting condition and a time-based vesting condition in 2025, 2024, and 2023, respectively. The performance-based vesting conditions for the 2025, 2024, and 2023 grants to our executive officers have been satisfied. The fair value of RSUs that vested during the years ended December 31, 2025, 2024, and 2023 was $ 25 million, $ 31 million, and $ 38 million, respectively; the fair value of RSUs vested is based on the market price of LKQ stock on the date vested. The following table summarizes activity related to our RSUs under the Equity Incentive Plan for the year ended December 31, 2025 (in millions, except years and per share amounts): Number Outstanding Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (1) Unvested as of January 1, 2025 1.2 $ 50.85 Granted (2) 1.0 $ 41.02 Vested ( 0.7 ) $ 47.20 Forfeited / Canceled ( 0.1 ) $ 45.94 Unvested as of December 31, 2025 1.4 $ 46.02 Expected to vest after December 31, 2025 1.3 $ 45.99 2.7 $ 38 (1) The aggregate intrinsic value of expected to vest RSUs represents the total pretax intrinsic value (the fair value of LKQ's stock on the last day of the period multiplied by the number of units) that would have been received by the holders had all the expected to vest RSUs vested. This amount changes based on the market price of LKQ’s common stock. (2) The weighted average grant date fair value of RSUs granted during the years ended December 31, 2024 and 2023 was $ 51.61 and $ 56.57 , respectively. 70 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS PSUs We grant PSUs with a three-year performance period to certain employees, including executive officers, under our Equity Incentive Plan. As these awards are performance-based, the exact number of shares to be paid out may be up to twice the grant amount, depending on our performance and the achievement of certain performance metrics (adjusted earnings per share, average organic parts and services revenue growth, and average return on invested capital) over the applicable three year performance periods. Outstanding unvested PSUs earn dividend equivalents at the same rate as dividends on LKQ's common stock. The dividend equivalents are subject to the same vesting requirements, restrictions and forfeiture provisions as the original award. The fair value of PSUs that vested during the years ended December 31, 2025, 2024 and 2023 was $ 1 million, $ 11 million, and $ 13 million respectively; the fair value of PSUs vested is based on the market price of LKQ stock on the date vested. The following table summarizes activity related to our PSUs under the Equity Incentive Plan for the year ended December 31, 2025 (in millions, except years and per share amounts): Number Outstanding Weighted Average Grant Date Fair Value Weighted Average Remaining Contractual Term (in years) Aggregate Intrinsic Value (1) Unvested as of January 1, 2025 0.3 $ 53.60 Granted (2) 0.2 $ 41.27 Performance-based adjustment (3) ( 0.1 ) $ 56.84 Unvested as of December 31, 2025 0.4 $ 45.20 Expected to vest after December 31, 2025 0.4 $ 45.27 1.6 $ 11 (1) The aggregate intrinsic value of expected to vest PSUs represents the total pretax intrinsic value (the fair value of LKQ's stock on the last day of each period multiplied by the number of units) that would have been received by the holders had all the expected to vest PSUs vested. This amount changes based on the market price of LKQ’s common stock and the achievement of the performance metrics relative to the established targets. (2) Represents the number of PSUs at target payout. The weighted average grant date fair value of PSUs granted during the years ended December 31, 2024 and 2023 was $ 52.08 and $ 56.83 , respectively. (3) Represents the net adjustment to the number of shares issuable upon vesting of performance-based PSUs based on the Company's actual financial performance metrics for the three year performance period ended December 31, 2025. Stock-Based Compensation Expense Stock-based compensation expense and the resulting tax benefits included in the Consolidated Statements of Income were as follows (in millions): Year Ended December 31, 2025 2024 2023 Stock-based compensation expense (1) $ 34 $ 30 $ 40 Income tax benefit ( 7 ) ( 7 ) ( 9 ) Stock-based compensation expense, net of tax $ 27 $ 23 $ 31 (1) For the years ended December 31, 2025, 2024, and 2023, stock-based compensation included approximately $ 3 million, $ 1 million, and $ 1 million, respectively, for Self Service employees. We did not capitalize any stock-based compensation costs during the years ended December 31, 2025, 2024, and 2023. 71 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2025, unrecognized compensation expense related to unvested RSUs and PSUs is expected to be recognized as follows (in millions): Unrecognized Compensation Expense 2026 $ 22 2027 14 2028 8 2029 4 Total unrecognized compensation expense $ 48 Stock-based compensation expense related to these awards will be different to the extent that forfeitures are realized and performance under the PSUs differs from current achievement estimates. Note 15. Earnings Per Share Basic earnings per share are computed using the weighted average number of common shares outstanding during the period. Diluted earnings per share incorporate the incremental shares issuable upon the assumed exercise of stock options and the assumed vesting of RSUs. Certain of our RSUs and stock options were excluded from the calculation of diluted earnings per share because they were antidilutive, but these equity instruments could be dilutive in the future. The following chart sets forth the computation of earnings per share (in millions, except per share amounts): Year Ended December 31, 2025 2024 2023 Income from continuing operations $ 597 $ 669 $ 934 Denominator for basic earnings per share—Weighted-average shares outstanding 257.5 263.6 267.6 Effect of dilutive securities: RSUs 0.3 0.2 0.5 PSUs — 0.1 0.2 Denominator for diluted earnings per share—Adjusted weighted-average shares outstanding 257.8 263.9 268.3 Basic earnings per share from continuing operations $ 2.32 $ 2.54 $ 3.49 Diluted earnings per share from continuing operations (1) $ 2.31 $ 2.54 $ 3.48 (1) Diluted earnings per share from continuing operations was computed using the treasury stock method for dilutive securities. 72 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 16. Accumulated Other Comprehensive Income (Loss) The components of Accumulated Other Comprehensive Income (Loss) are as follows (in millions): 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, 2023 $ ( 333 ) $ — $ 11 $ ( 1 ) $ ( 323 ) Pretax income (loss) 90 ( 12 ) ( 4 ) — 74 Income tax effect — 3 1 — 4 Reclassification of unrealized gain — ( 3 ) ( 2 ) — ( 5 ) Reclassification of deferred income taxes — 1 — — 1 Other comprehensive income from unconsolidated subsidiaries — — — 9 9 Balance as of December 31, 2023 $ ( 243 ) $ ( 11 ) $ 6 $ 8 $ ( 240 ) Pretax (loss) income ( 170 ) 7 ( 8 ) — ( 171 ) Income tax effect — ( 2 ) 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 — — — ( 4 ) ( 4 ) Balance as of December 31, 2024 $ ( 411 ) $ ( 9 ) $ ( 1 ) $ 4 $ ( 417 ) Pretax income 347 1 14 — 362 Income tax effect — — ( 2 ) — ( 2 ) Reclassification of unrealized loss (gain) — 1 ( 1 ) — — Balance as of December 31, 2025 $ ( 64 ) $ ( 7 ) $ 10 $ 4 $ ( 57 ) Net unrealized losses and gains related to our pension plans were reclassified to Interest income and other income, net in the Consolidated Statements of Income during each of the years ended December 31, 2025, 2024, and 2023. Our policy is to reclassify the income tax effect from Accumulated other comprehensive income (loss) to the Provision for income taxes when the related gains and losses are released to the Consolidated Statements of Income. Note 17. 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 goal to improve our operating cash flows. These programs provide participating suppliers the opportunity to sell their LKQ receivables to financial institutions at the sole discretion of both the suppliers and the financial institutions. We are not a party to the agreement between the suppliers and financial institutions. The financial institutions participate in the supply chain financing initiative on an uncommitted basis and can cease purchasing receivables from our suppliers at any time. Our obligation to our suppliers, including amount due and payment date, are not impacted by the supplier’s decision to sell amounts under these agreements. Our payment terms to the financial institutions, including the timing and amount of payments, are unchanged from the original supplier invoice. All outstanding payments owed under the supply chain finance programs with the participating financial institutions are recorded within Accounts payable on our Consolidated Balance Sheets. As of December 31, 2025 and 2024, we had $ 481 million and $ 416 million of Accounts payable outstanding under the arrangements, respectively. 73 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS A rollforward of obligations confirmed and paid during the year is as follows (in millions): 2025 2024 Balance as of January 1, $ 416 $ 411 Invoices confirmed during the year 891 871 Confirmed invoices paid during the year ( 876 ) ( 840 ) Impact of foreign currency 50 ( 26 ) Balance as of December 31, $ 481 $ 416 Note 18. Long-Term Obligations Long-term obligations consist of the following (in millions): December 31, 2025 December 31, 2024 Maturity Date Interest Rate Amount Interest Rate Amount Senior Unsecured Credit Agreement: Term loan payable January 2027 5.19 % $ 500 5.83 % $ 500 Revolving credit facilities December 2030 3.13 % (1) 1 5.86 % (1) 664 Senior Unsecured Term Loan Agreement: Term loan payable March 2029 3.81 % 510 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 % 294 4.13 % 259 Euro Notes (2031) March 2031 4.13 % 881 4.13 % 777 Finance lease obligations 4.81 % (1) 106 4.96 % (1) 97 Other debt Various through December 2030 3.21 % (1) 3 3.30 % (1) 11 Total debt 3,695 4,195 Less: long-term debt issuance costs and unamortized bond discounts ( 32 ) ( 33 ) Total debt, net of debt issuance costs and unamortized bond discounts 3,663 4,162 Less: current maturities, net of debt issuance costs ( 32 ) ( 38 ) Long-term debt, net of debt issuance costs and unamortized bond discounts $ 3,631 $ 4,124 (1) Interest rate derived via a weighted average. Cash paid for interest was $ 230 million, $ 230 million and $ 197 million for the years ended December 31, 2025, 2024 and 2023, respectively. 74 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The scheduled maturities of long-term obligations outstanding at December 31, 2025 are as follows (in millions): Amount 2026 $ 32 2027 525 2028 1,112 2029 522 2030 9 Thereafter 1,495 Total debt (1) $ 3,695 (1) The total debt amounts presented above reflect the gross values to be repaid (excluding debt issuance costs and unamortized bond discounts of $ 32 million as of December 31, 2025). Senior Unsecured Credit Agreement On January 5, 2023, we and certain other subsidiaries of ours entered into a new credit agreement (the "Senior Unsecured Credit Agreement") which 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. The term loan has no required amortization payments prior to its maturity date. On May 2, 2025 and June 20, 2025, we entered into Amendments No. 2 and No. 3 to the Senior Unsecured Credit Agreement, respectively. These amendments extended the maturity date of the Senior Unsecured Credit Agreement term loan facility from January 5, 2026 to January 5, 2027 as well as provided certain other immaterial modifications. On November 26, 2025 and December 17, 2025, we entered into Amendments No. 4 and 5 to the Senior Unsecured Credit Agreement, respectively, which extended the maturity date of the revolving credit facility from January 5, 2028 to December 17, 2030, as well as certain other immaterial modifications and administrative changes. The Senior Unsecured Credit Agreement contains customary covenants for an unsecured credit facility for a company that has debt ratings that are investment grade, such as, requirements to comply with a total leverage ratio and interest coverage ratio, each calculated in accordance with the terms of the Senior Unsecured Credit Agreement, and limits on the Company’s and its subsidiaries’ ability to incur liens and indebtedness. Proceeds from the Senior Unsecured Credit Agreement were used to repay the outstanding principal amount under our prior Senior Secured Credit Agreement, to pay fees and expenses related to the Senior Unsecured Credit Agreement, and for other general corporate purposes. Senior Unsecured Term Loan Credit Agreement For the financing related to the Uni-Select Acquisition, on March 27, 2023, we entered into the Senior Unsecured Term Loan Agreement ("CAD Note") which established an unsecured term loan facility of up to CAD 700 million. The CAD Note was funded on July 31, 2023, which was one business day prior to the consummation of the Uni-Select Acquisition. The CAD Note contains customary covenants for an unsecured term loan for a company that has debt ratings that are investment grade, such as requirements to comply with a total leverage ratio and interest coverage ratio, each calculated in accordance with the terms of the CAD Note, and limits on the Company’s and its subsidiaries’ ability to incur liens and indebtedness. 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. On June 20, 2025 we entered into Amendment No. 2 to the 75 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS CAD Note which included certain immaterial modifications. On November 26, 2025 and December 17, 2025, we entered into Amendments No. 3 and 4, respectively, to the CAD Note which extended the maturity date from July 27, 2026 to March 17, 2029, along with certain other immaterial modifications and administrative changes. U.S. Notes (2028/2033) On May 24, 2023, as part of the financing for the Uni-Select Acquisition, we completed an offering of $ 1,400 million aggregate principal amount of senior unsecured notes, consisting of $ 800 million senior notes due 2028 (the "U.S. Notes (2028)") and $ 600 million senior notes due 2033 (the "U.S. Notes (2033)" and together with the U.S. Notes (2028), the "U.S. Notes (2028/33)") in a private placement conducted pursuant to Rule 144A and Regulation S under the United States Securities Act of 1933. The U.S. Notes (2028/33) are governed by the Indenture, dated as of May 24, 2023 (the "Indenture"), among the Company, certain of the Company's subsidiaries (the "Guarantors") and U.S. Bank Trust Company, National Association, as trustee. The U.S. Notes (2028/33) will be initially fully and unconditionally guaranteed on a senior unsecured basis by each of our wholly owned domestic subsidiaries that are guarantors under our Senior Unsecured Credit Agreement, dated as of January 5, 2023, or the CAD Note and each of our domestic subsidiaries that in the future agrees to guarantee obligations under the Senior Unsecured Credit Agreement, the CAD Note, any other Credit Facility Debt or any Capital Markets Debt (as such terms are defined in the Indenture). Each subsidiary guarantee will rank equally in right of payment with all existing and future liabilities of the applicable subsidiary guarantor that are not subordinated. Each subsidiary guarantee will effectively rank junior to any secured indebtedness of its respective subsidiary guarantor to the extent of the lesser of the amount of such secured indebtedness and the value of the assets securing such indebtedness. Under the terms of any subsidiary guarantee, holders of the U.S. Notes (2028/33) will not be required to exercise their remedies against us before they proceed directly against the subsidiary guarantors. Prior to May 15, 2028 in the case of the U.S. Notes (2028) or March 15, 2033 in the case of the U.S. Notes (2033) (each such date a "Par Call Date"), we may redeem the U.S. Notes (2028) or U.S. Notes (2033), as applicable, at our option, in whole or in part, at any time and from time to time, at a redemption price equal to the greater of (i) the sum of the present values of the remaining scheduled payments of principal and interest thereon discounted to the redemption date (assuming, in each case, that such U.S. Notes (2028/33) matured on their applicable Par Call Date) on a semi-annual basis (assuming a 360-day year consisting of twelve 30-day months) at the Treasury Rate plus 40 basis points in the case of the U.S. Notes (2028) or 45 basis points in the case of the U.S. Notes (2033), less interest accrued to the date of redemption; and (ii) 100 % of the principal amount of the U.S. Notes (2028/33) to be redeemed; plus in either case, accrued and unpaid interest thereon to, but excluding the redemption date. On or after the applicable Par Call Date we may redeem the U.S. Notes (2028/33) of the applicable series, in whole or in part, at any time and from time to time, at a redemption price equal to 100 % of the principal amount of the U.S. Notes (2028/33) being redeemed plus accrued and unpaid interest thereon to, but excluding, the redemption date. In connection with the sale of the U.S. Notes (2028/33), we entered into a Registration Rights Agreement, dated as of May 24, 2023 (the "Registration Rights Agreement"), with the Guarantors and BofA Securities, Inc. and Wells Fargo Securities, LLC, as representatives of the initial purchasers of the U.S. Notes (2028/33) identified therein. Pursuant to the terms of the Registration Rights Agreement, on September 1, 2023, the Company and the Guarantors filed a Registration Statement on Form S-4 ("Form S-4") with respect to a registered offer to exchange (the "Exchange Offer") each series of U.S. Notes (2028/33) and related guarantees for new notes of such series (the "Exchange Notes") and new related guarantees, which has terms substantially identical in all material respects to the applicable series of U.S. Notes (2028/33) (except that the Exchange Notes do not contain terms with respect to transfer restrictions and Additional Interest). The Securities and Exchange Commission ("SEC") declared the Form S-4 effective on September 14, 2023. The Exchange Offer closed in the fourth quarter of 2023. The U.S. Notes (2028) and U.S. Notes (2033) bear interest at rates of 5.75 % and 6.25 %, respectively, per year from the date of original issuance or from the most recent payment date on which interest has been paid or provided for. Interest on the U.S. Notes (2028/33) is payable semi-annually in arrears on June 15 and December 15 of each year, beginning on December 15, 2023. 76 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Euro Notes (2031) 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)”). We used the net proceeds from this offering to (i) pay outstanding indebtedness, including all of the outstanding € 500 million aggregate principal amount of senior notes due April 1, 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. (formerly known as 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. 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). Euro Notes (2028) On April 9, 2018, LKQ European Holdings B.V. ("LKQ Euro Holdings"), a wholly-owned subsidiary of LKQ Corporation, completed an offering of € 1,000 million aggregate principal amount of senior notes. The offering consisted of € 750 million senior notes due 2026 (the "Euro Notes (2026)") and € 250 million senior notes due 2028 (the "Euro Notes (2028)" and, together with the Euro Notes (2026), the "Euro Notes (2026/28)") in a private placement conducted pursuant to Regulation S and Rule 144A under the Securities Act of 1933. The proceeds from the offering, together with borrowings under our senior secured credit facility, were used (i) to finance a portion of the consideration paid for the Stahlgruber acquisition, (ii) for general corporate purposes and (iii) to pay related fees and expenses, including the refinancing of net financial debt. The Euro Notes (2026/28) are governed by the Indenture dated as of April 9, 2018 (the “Euro Notes (2026/28) Indenture”) among LKQ Euro Holdings, LKQ Corporation and certain of our subsidiaries (the “Euro Notes (2026/28) Subsidiaries”), the trustee, paying agent, transfer agent, and registrar. On April 1, 2021, we redeemed the Euro Notes (2026). Interest on the Euro Notes (2028) is payable in arrears on April 1 and October 1 of each year. The Euro Notes (2028) are fully and unconditionally guaranteed by LKQ Corporation and the Euro Notes (2028) Subsidiaries (the "Euro Notes (2028) Guarantors"). The Euro Notes (2028) and the related guarantees are, respectively, LKQ Euro Holdings' and each Euro Notes (2028) Guarantor's senior unsecured obligations and will be subordinated to all of LKQ Euro Holdings' and the Euro Notes (2028) Guarantors' existing and future secured debt to the extent of the assets securing that secured debt. In addition, the Euro Notes (2028) are effectively subordinated to all of the liabilities of our subsidiaries that are not guaranteeing the Euro Notes (2028) to 77 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS the extent of the assets of those subsidiaries. The Euro Notes (2028) have been listed on the Global Exchange Market of Euronext Dublin. The Euro Notes (2028) are redeemable, in whole or in part, at any time at a redemption price of 100 % of the principal amount thereof, plus accrued and unpaid interest, if any, to the redemption date plus a "make whole" premium. On or after April 1, 2023, we may redeem some or all of the Euro Notes (2028) at the applicable redemption prices set forth in the Euro Notes (2026/28) Indenture. We may be required to make an offer to purchase the Euro Notes (2028) upon the sale of certain assets, subject to certain exceptions, and upon a change of control. In addition, in the event of certain developments affecting taxation or under certain other circumstances which, in any case, require the payment of certain additional amounts, we may redeem the Euro Notes (2028) in whole, but not in part, at any time at a redemption price of 100 % of the principal amount thereof, plus accrued but unpaid interest, if any, and such certain additional amounts, if any, to the redemption date. Note 19. 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 that matured in February 2025 and a total $ 300 million notional amount maturing in February 2026 with a weighted average fixed interest rate of 4.23 %. In March 2025, we entered into an interest rate swap agreement to replace the agreements that matured in February 2025 that included a total $ 400 million notional amount with a fixed interest rate of 4.11 %. This agreement matured in November 2025. Changes in the fair value of the interest rate swaps are recorded in Accumulated other comprehensive loss and reclassified to Interest expense when the hedged interest payments affect earnings. The activity related to the interest rate swaps is classified in operating activities in our Consolidated Statements of Cash Flows as the activity relates to normal recurring settlements to match interest payments. All of our interest rate swap contracts have been executed with counterparties that we believe are creditworthy, and we closely monitor the credit ratings of these counterparties. As of December 31, 2025 and 2024, the notional amounts, balance sheet classification and fair values of our derivative instruments designated as cash flow hedges were as follows (in millions): December 31, 2025 Notional Amount Balance Sheet Caption Fair Value - Asset / (Liability) Interest rate swap agreements $ 300 Other accrued expenses $ — 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 16, "Accumulated Other Comprehensive Income (Loss)." As of December 31, 2025, we estimate that $ 1 million of derivative losses (net of tax) included in Accumulated other comprehensive loss will be reclassified into our Consolidated Statements of Income within the next 12 months. 78 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Derivative Instruments Not Designated as Hedges To manage the foreign currency exposure related to the Uni-Select Acquisition purchase price (denominated in CAD), we entered into foreign exchange contracts in March 2023 to purchase CAD 1.6 billion for approximately $ 1.2 billion. These contracts did not qualify for hedge accounting, and therefore, the contracts were adjusted to fair value through the results of operations as of each balance sheet date. We reported Gains on foreign exchange contracts - acquisition related on the Consolidated Statements of Income of $ 49 million for the year ended December 31, 2023. These contracts were settled in July 2023 resulting in total payments received of $ 49 million. To manage our foreign currency exposure on other non-functional currency denominated intercompany loans, we 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 years ended December 31, 2025, 2024, and 2023, were not material. The fair values of these short-term derivative instruments that remained outstanding as of year-end were recorded in either Prepaid expenses and other current assets or Other accrued expenses on our Consolidated Balance Sheets and were not material at December 31, 2025 and 2024. Additionally, we hold other short-term derivative instruments, including foreign currency forward contracts, to manage our exposure to variability in the cash flows related to inventory purchases denominated in a non-functional currency. We have not elected to apply hedge accounting for these transactions. The notional amount and fair value of these contracts at December 31, 2025 and 2024, along with the effect on our results of operations during the years ended December 31, 2025, 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 Consolidated Balance Sheets. 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 Consolidated Balance Sheets. The impact of netting the fair values of these contracts would result in an immaterial decrease to Prepaid expenses and other current assets and Other accrued expenses on our Consolidated Balance Sheets at December 31, 2025 and 2024. Note 20. 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 year ended December 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 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 December 31, 2025 and 2024 (in millions): December 31, 2025 2024 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Assets: Investments - debt securities $ 70 $ — $ — $ 70 $ 53 $ — $ — $ 53 Investments - equity securities 19 — — 19 14 — — 14 Total Assets $ 89 $ — $ — $ 89 $ 67 $ — $ — $ 67 Liabilities: Interest rate swaps $ — $ — $ — $ — $ — $ 1 $ — $ 1 Contingent consideration liabilities — — 3 3 — — 3 3 Total Liabilities $ — $ — $ 3 $ 3 $ — $ 1 $ 3 $ 4 79 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Investments in debt and equity securities relate to our captive insurance subsidiary and are included in Other noncurrent assets on the Consolidated Balance Sheets. The balance sheet classification of the interest rate swap agreements is presented in Note 19, "Derivative Instruments and Hedging Activities." For contingent consideration liabilities, the entire portion is current at December 31, 2025 and is included in Other current liabilities, while at December 31, 2024, the current portion was included in Other current liabilities and the noncurrent portion was included in Other noncurrent liabilities on the Consolidated Balance Sheets based on the expected timing of the related payments. We value derivative instruments using a third party valuation model that performs discounted cash flow analysis based on the terms of the contracts and market observable inputs such as current and forward interest rates and current and forward foreign exchange rates. Our contingent consideration liabilities are related to our business acquisitions. 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 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 December 31, 2025 and 2024 to assume these obligations. The fair values of the U.S. Notes (2028), U.S. Notes (2033), 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 December 31, 2025 and 2024, the fair value of the borrowings under the Senior Unsecured Credit Agreement reasonably approximated the carrying values of $ 501 million and $ 1,164 million, respectively. As of December 31, 2025 and 2024, the fair value of the borrowings under the CAD Note reasonably approximated the carrying values of $ 510 million and $ 487 million, respectively. The following table provides the carrying and fair value for our other financial instruments as of December 31, 2025 and December 31, 2024 (in millions): As of December 31, 2025 As of December 31, 2024 Carrying Value Fair Value Carrying Value Fair Value U.S. Notes (2028) $ 800 $ 827 $ 800 $ 814 U.S. Notes (2033) 600 642 600 620 Euro Notes (2028) 294 295 259 261 Euro Notes (2031) 881 902 777 796 80 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 21. Leases We have leases primarily for facilities, vehicles, and equipment. The amounts recorded on the Consolidated Balance Sheets as of December 31, 2025 and 2024 related to our lease agreements are as follows (in millions): December 31, Leases Classification 2025 2024 Assets Operating lease ROU assets, net Operating lease assets, net $ 1,332 $ 1,256 Finance lease assets, net Property, plant and equipment, net 103 94 Total leased assets $ 1,435 $ 1,350 Liabilities Current Operating Current portion of operating lease liabilities $ 253 $ 222 Finance Current portion of long-term obligations 31 28 Noncurrent Operating Long-term operating lease liabilities, excluding current portion 1,145 1,093 Finance Long-term obligations, excluding current portion 75 69 Total lease liabilities $ 1,504 $ 1,412 The components of lease expense are as follows (in millions): Year Ended December 31, Lease Cost 2025 2024 2023 Operating lease cost $ 344 $ 325 $ 280 Short-term lease cost 19 19 20 Variable lease cost 131 131 111 Finance lease cost Amortization of leased assets 31 25 18 Interest on lease liabilities 6 5 3 Sublease income ( 5 ) ( 5 ) ( 5 ) Net lease cost $ 526 $ 500 $ 427 The future lease commitments under our leases at December 31, 2025 are as follows (in millions): Years Ending December 31, Operating leases Finance leases (1) Total 2026 $ 335 $ 36 $ 371 2027 298 28 326 2028 250 20 270 2029 204 13 217 2030 160 9 169 Thereafter 483 18 501 Future lease payments 1,730 124 1,854 Less: Interest 332 18 350 Present value of lease liabilities $ 1,398 $ 106 $ 1,504 (1) Amounts are included in the scheduled maturities of long-term obligations in Note 18, "Long-Term Obligations." 81 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2025, operating lease payments for leases that have not yet commence d totaled $ 70 million, which includes the synthetic lease arrangements discussed below . These operating leases will commence in the n ext 7 months with lease te rms of 2 to 12 years . Most of these leases have not commenced because the assets are in the process of being constructed. Synthetic Lease Arrangements In the fourth quarter of 2024, we entered into two synthetic leases to finance the construction of salvage yard facilities, with an aggregate estimated cost of approximately $ 100 million. These leases have an aggregate future lease commitment of approximately $ 35 million as of December 31, 2025. The leases will commence upon completion of construction of the facilities which are expected to be in 2026. Each lease term is five years after commencement. At the end of the leases' terms, we will be required to purchase the facilities or, in the event that option is not elected, to request to extend the leases, or vacate the property and relocate. Upon each lease commencement, the lease classification, right-of-use asset, and lease liability will be determined and recorded. Each lease arrangement contains a residual value guarantee of 100 % of the total construction cost. The synthetic leases contain covenants that are consistent with our Senior Unsecured Credit Agreement. See Note 18, "Long-Term Obligations" for further information on our Senior Unsecured Credit Agreement. Other information related to leases is as follows: December 31, Lease Term and Discount Rate 2025 2024 Weighted-average remaining lease term (years) Operating leases 7.0 7.3 Finance leases 6.1 6.4 Weighted-average discount rate Operating leases 5.75 % 5.80 % Finance leases 4.81 % 4.96 % Year Ended December 31, Supplemental cash flows information (in millions) (1) 2025 2024 2023 Cash paid for amounts included in the measurement of lease liabilities Operating cash outflows from operating leases $ 347 $ 328 $ 299 Financing cash outflows from finance leases 30 28 19 Leased assets obtained in exchange for finance lease liabilities 31 49 49 Leased assets obtained in exchange for operating lease liabilities 306 384 310 (1) Amounts presented contain results from both continuing and discontinued operations. Note 22. Employee Benefit Plans Defined 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. 82 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Funded Status The table below summarizes the funded status of the defined benefit plans (in millions): December 31, 2025 2024 Change in projected benefit obligation: Projected benefit obligation - beginning of year $ 200 $ 202 Service cost 6 5 Interest cost 7 7 Participant contributions 2 2 Actuarial (gain) / loss ( 8 ) 12 Benefits paid (1) ( 6 ) ( 11 ) Settlement ( 5 ) ( 2 ) Currency impact 21 ( 15 ) Projected benefit obligation - end of year $ 217 $ 200 Change in fair value of plan assets: Fair value - beginning of year $ 116 $ 119 Actual return on plan assets 10 10 Employer contributions 8 7 Participant contributions 2 2 Benefits paid ( 6 ) ( 11 ) Settlement ( 5 ) ( 2 ) Currency impact 12 ( 9 ) Fair value - end of year $ 137 $ 116 Funded status at end of year (liability) $ ( 80 ) $ ( 84 ) Accumulated benefit obligation $ 212 $ 194 (1) Includes amounts paid from plan assets as well as amounts paid from Company assets. The net amounts recognized for defined benefit plans on the Consolidated Balance Sheets were as follows (in millions): December 31, 2025 2024 Noncurrent assets $ 6 $ 2 Current liabilities 4 4 Noncurrent liabilities 82 82 The following table summarizes the accumulated benefit obligation and aggregate fair value of plan assets for pension plans with accumulated benefit obligations in excess of plan assets (in millions): December 31, 2025 2024 Accumulated benefit obligation $ 164 $ 184 Aggregate fair value of plan assets 83 105 83 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes the projected benefit obligation and aggregate fair value of plan assets for pension plans with projected benefit obligations in excess of plan assets (in millions): December 31, 2025 2024 Projected benefit obligation $ 170 $ 191 Aggregate fair value of plan assets 84 105 The table below summarizes the weighted-average assumptions used to calculate the year-end benefit obligations: December 31, 2025 2024 Discount rate used to determine benefit obligation 3.6 % 3.2 % Rate of future compensation increase 2.3 % 2.5 % Net Periodic Benefit Cost The table below summarizes the components of net periodic benefit cost for the defined benefit plans (in millions): Year Ended December 31, 2025 2024 2023 Service cost $ 6 $ 5 $ 4 Interest cost 7 7 6 Expected return on plan assets (1) ( 5 ) ( 5 ) ( 3 ) Amortization of actuarial (gain) loss (2) ( 1 ) — ( 2 ) Net periodic benefit cost $ 7 $ 7 $ 5 (1) We use the fair value of our plan assets to calculate the expected return on plan assets. (2) Actuarial gains and losses are amortized using a corridor approach for our pension plans. Gains and losses are amortized if, as of the beginning of the year, the cumulative net gain or loss exceeds 10 percent of the greater of the projected benefit obligation or the fair value of the plan assets. Gains and losses in excess of the corridor are amortized over the average remaining service period of active members expected to receive benefits under the plan or, in the case of closed plans, the expected future lifetime of the employees participating in the plan. The service cost component of net periodic benefit cost was classified in SG&A expenses, while the other components of net periodic benefit cost were classified in Interest income and other income, net in the Consolidated Statements of Income. The table below summarizes the weighted-average assumptions used to calculate the net periodic benefit cost in the table above: Year Ended December 31, 2025 2024 2023 Discount rate used to determine service cost 3.2 % 3.7 % 3.4 % Discount rate used to determine interest cost 3.2 % 3.7 % 3.4 % Rate of future compensation increase 2.5 % 2.6 % 1.9 % Expected long-term return on plan assets (1) 4.2 % 4.3 % 3.1 % (1) Our expected long-term return on plan assets is determined based on the asset allocation and estimate of future long-term returns by asset class. Assumed mortality is also a key assumption in determining benefit obligations and net periodic benefit cost. In some of the European and Canadian plans, a price inflation index is also an assumption in determining benefit obligations and net periodic benefit cost. 84 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As of December 31, 2025, the pretax amounts recognized in Accumulated other comprehensive loss consisted of $ 15 million of net actuarial gains for our defined benefit plans that have not yet been recognized in net periodic benefit cost. Of this amount, we expect $ 2 million to be recognized as a component of net periodic benefit cost during the year ending December 31, 2026. Fair Value of Plan Assets Fair value is defined as the amount that would be received for selling an asset or paid to transfer a liability in an orderly transaction between market participants. Investments that are valued using net asset value (or its equivalent) as a practical expedient are excluded from the fair value hierarchy disclosure. For the unfunded pension plans, we pay the defined benefit plan obligations when they become due. The table below summarizes the fair value of our defined benefit plan assets by asset category within the fair value hierarchy for the funded defined benefit pension plans (in millions): December 31, 2025 2024 Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total Insurance contracts (1) $ — $ — $ 67 $ 67 $ — $ — $ 62 $ 62 Other (2) 4 — — 4 4 — — 4 Assets measured by fair value hierarchy $ 4 $ — $ 67 $ 71 $ 4 $ — $ 62 $ 66 Assets measured at net asset value (3) 66 50 Total pension plan assets at fair value $ 137 $ 116 (1) Investments in insurance contracts represents the cash surrender value of the insurance policy. These amounts are determined by an actuary based on projections of future benefit payments, discount rates, and expected long-term rate of return on assets. (2) Represents balances in a refundable tax account held with the Canada Revenue Agency. (3) Consists of international bonds, equity, real estate and other investments. The following table summarizes the changes in fair value measurements of Level 3 investments for the defined benefit plans (in millions): December 31, 2025 2024 Balance at beginning of year $ 62 $ 66 Actual return on plan assets: Relating to assets held at the reporting date 3 1 Purchases, sales and settlements ( 3 ) ( 3 ) Currency impact 5 ( 2 ) Balance at end of year $ 67 $ 62 Assets for the defined benefit pension plans in Europe are invested primarily in insurance policies. For the defined benefit pension plans in Canada, a portion of the assets representing a subset of inactive plan participants are invested in insurance policies. Under these contracts, we pay premiums to the insurance company, which are based on an internal actuarial analysis performed by the insurance company; the insurance company then funds the pension payments to the plan participants upon retirement. Employer Contributions and Estimated Future Benefit Payments During the year ended December 31, 2025, we contributed $ 8 million to our pension plans. We estimate that contributions to our pension plans during 2026 will be $ 8 million. 85 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table summarizes estimated future benefit payments as of December 31, 2025 (in millions): Years Ending December 31, Amount 2026 $ 9 2027 10 2028 10 2029 11 2030 11 2031 - 2035 62 Note 23. Income Taxes The provision for income taxes consists of the following components (in millions): Year Ended December 31, 2025 2024 2023 Current: Federal $ 135 $ 123 $ 139 State 35 38 40 Foreign 109 140 117 Total current provision for income taxes $ 279 $ 301 $ 296 Deferred: Federal $ ( 58 ) $ ( 24 ) $ 6 State ( 10 ) ( 3 ) 2 Foreign ( 7 ) ( 9 ) — Total deferred (benefit) provision for income taxes $ ( 75 ) $ ( 36 ) $ 8 Total: Federal $ 77 $ 99 $ 145 State 25 35 42 Foreign 102 131 117 Provision for income taxes $ 204 $ 265 $ 304 Income taxes have been based on the following components of income from continuing operations before provision for income taxes (in millions): Year Ended December 31, 2025 2024 2023 Domestic $ 371 $ 545 $ 783 Foreign 429 381 440 Income from continuing operations before provision for income taxes $ 800 $ 926 $ 1,223 86 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS As previously disclosed for the years ended December 31, 2024 and 2023, prior to the adoption of ASU 2023-09, the effective income tax rate differs from the statutory federal income tax rate as follows: Year Ended December 31, 2024 2023 U.S. federal statutory rate 21.0 % 21.0 % State income taxes, net of state credits and federal tax impact 2.6 % 2.8 % Impact of rates on international operations 2.3 % 1.2 % Change in valuation allowances 1.2 % 0.9 % Non-deductible expenses 0.6 % 1.2 % Gains on foreign exchange contracts - acquisition related — % ( 0.8 ) % Other, net 1.0 % ( 1.5 ) % Effective tax rate 28.7 % 24.8 % The effective income tax rate for the tax year ended December 31, 2025 differs from the statutory federal income tax rate as follows (in millions): Year Ended December 31, 2025 U.S. federal statutory rate $ 168 21.0 % State income taxes, net of state credits and federal tax impact (1) 16 2.1 % Foreign tax effects Switzerland Deductible impairment ( 9 ) ( 1.2 ) % Other 1 0.1 % Germany Subnational income taxes - trade taxes 19 2.4 % Enacted changes in tax laws or rates ( 11 ) ( 1.4 ) % Other ( 11 ) ( 1.4 ) % Other foreign jurisdictions 21 2.8 % Effect of cross-border tax laws ( 2 ) ( 0.2 ) % Tax credits ( 2 ) ( 0.3 ) % Changes in valuation allowances 2 0.2 % Non-taxable or non-deductible expenses Non-deductible impairment 10 1.3 % Other 2 0.2 % Changes in unrecognized tax benefits 1 0.1 % Other adjustments ( 1 ) ( 0.2 ) % Effective tax rate $ 204 25.5 % (1) State taxes in California, Illinois, Florida, Texas, Pennsylvania, New York, and Michigan made up the majority (greater than 50 percent) of the tax effect in this category. Undistributed earnings of our foreign subsidiaries amounted to approximately $ 2,399 million at December 31, 2025. Beginning in 2018, the Tax Cuts and Jobs Act generally provided a 100 % participation exemption from further U.S. taxation of dividends received from 10-percent or more owned foreign corporations held by U.S. corporate shareholders. Although foreign dividend income is generally exempt from U.S. federal tax in the hands of the U.S. corporate shareholders, either as a result of the participation exemption, or due to the previous taxation of such earnings under the transition tax and Global Intangible Low-Taxed Income regime ("GILTI") regimes, companies must still apply the guidance of ASC 740: Income Taxes to account for the tax consequences of outside basis differences and other tax impacts of their investments in non-U.S. subsidiaries. Further, the 2017 transition tax reduced a majority of the previous outside basis differences in our foreign subsidiaries, and most of any new differences arising have extensive interaction with the GILTI regime. 87 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Based on a review of our global financing and capital expenditure requirements as of December 31, 2025, we continue to plan to permanently reinvest the undistributed earnings of our international subsidiaries. Thus, no deferred U.S. income taxes or potential foreign withholding taxes have been recorded. Due to the complexity of the U.S. tax regime, it remains impractical to estimate the amount of deferred taxes potentially payable were such earnings to be repatriated. The Organization 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. On January 5, 2026 the OECD released guidance providing for a Side-by-Side package available for U.S. parented groups beginning for fiscal years beginning on or after January 1, 2026. We have evaluated the developments and do not anticipate any material impact on our financial position, results of operations, or cash flows. We will continue to monitor as additional guidance becomes available. On July 4, 2025, new U.S. tax legislation was signed into law, commonly referred to as the One Big Beautiful Bill Act ("OBBBA"), which includes significant provisions, such as the permanent extension of certain expiring provisions of the Tax Cuts and Jobs Act of 2017, modifications to the international tax framework and the restoration of favorable tax treatment for certain business provisions. The OBBBA includes the acceleration of fixed asset depreciation, modifications to the capitalization of domestic research and development expenses, modifications to the limitations to the deductibility of interest expense, and modifications to certain international provisions. These new provisions take effect starting in 2025 through 2027. The Company has evaluated the OBBBA enacted during the year and estimated its impact on the consolidated financial statements to be immaterial. We will continue to evaluate the full impact of these legislative changes as additional guidance becomes available. The significant components of the deferred tax assets and liabilities are as follows (in millions): December 31, 2025 2024 Deferred Tax Assets: Accrued expenses and reserves $ 42 $ 57 Qualified and nonqualified retirement plans 19 20 Inventory 30 10 Accounts receivable 18 22 Interest deduction carryforwards 31 30 Stock-based compensation 8 9 Operating lease liabilities 335 346 Net operating loss carryforwards 29 38 Other 32 44 Total deferred tax assets, gross 544 576 Less: valuation allowance ( 52 ) ( 51 ) Total deferred tax assets $ 492 $ 525 Deferred Tax Liabilities: Goodwill and other intangible assets $ 304 $ 373 Property, plant and equipment 90 96 Trade names 74 79 Operating lease assets, net 323 336 Other 16 10 Total deferred tax liabilities $ 807 $ 894 Net deferred tax liability $ ( 315 ) $ ( 369 ) 88 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Deferred tax assets and liabilities are reflected on the Consolidated Balance Sheets as follows (in millions): December 31, 2025 2024 Noncurrent deferred tax assets $ 16 $ 17 Noncurrent deferred tax liabilities 331 386 Noncurrent deferred tax assets and noncurrent deferred tax liabilities are included in Other noncurrent assets and Deferred income taxes, respectively, on the Consolidated Balance Sheets. We have net operating loss carryforwards, primarily for certain international tax jurisdictions, the tax benefits of which totaled approximately $ 29 million and $ 38 million at December 31, 2025 and 2024, respectively. At December 31, 2025 and 2024, we had tax credit carryforwards for U.S. and certain U.S. state jurisdictions, the tax benefits of which totaled approximately $ 4 million and $ 3 million, respectively. As of December 31, 2025 and 2024, we had interest deduction carryforwards in Italy the tax benefits of which totaled $ 31 million and $ 30 million, respectively. As of December 31, 2025 and 2024, valuation allowances of $ 52 million and $ 51 million, respectively, were recorded for deferred tax assets related to the foreign interest deduction carryforwards, certain foreign and U.S. net operating loss carryforwards, tax credit, and capital loss carryforwards. The majority of the net operating losses will generally carry forward until 2035 to 2044. The interest deduction carryforwards in Italy do not expire. Realization of these deferred tax assets is dependent on the generation of sufficient taxable income prior to the expiration dates, where applicable, or in the case of interest deduction carryforward, subject to legislative thin capitalization constraints, typically based on profitability. Based on historical and projected operating results, we believe that it is more likely than not that earnings will be sufficient to realize the deferred tax assets for which valuation allowances have not been provided. While we expect to realize the deferred tax assets, net of valuation allowances, changes in tax laws or in estimates of future taxable income may alter this expectation. A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (in millions): 2025 2024 2023 Balance at January 1, $ 28 $ 8 $ 5 Additions for acquired tax positions — — 6 Additions based on tax positions related to the current year 2 10 — Additions based on tax positions related to prior years 3 15 3 Reductions for tax positions of prior year ( 18 ) — ( 1 ) Lapse of statutes of limitations — ( 3 ) ( 5 ) Settlements with taxing authorities ( 1 ) ( 2 ) — Cumulative translation adjustment 1 — — Balance at December 31, $ 15 $ 28 $ 8 Included in the balance of unrecognized tax benefits above as of December 31, 2025, 2024 and 2023, are approximately $ 15 million, $ 10 million and $ 8 million, respectively that, if recognized, would affect the effective tax rate. The balance of unrecognized tax benefits at December 31, 2025, 2024 and 2023 includes an insignificant amount, $ 18 million, and an insignificant amount of tax benefits that, if recognized, would result in adjustments to deferred taxes. We recognize interest and penalties accrued related to unrecognized tax benefits as income tax expense. As of the years ended December 31, 2025, 2024 and 2023, we had accumulated interest and penalties of $ 1 million, attributable to the unrecognized tax benefits noted above. During each of the years ended December 31, 2025, 2024 and 2023, we recorded $ 1 million or less of interest and penalties through the income tax provision, prior to any reversals for lapses in the statutes of limitations and settlements. The Company and/or its subsidiaries file income tax returns in the U.S. federal jurisdiction, and various U.S. state and international jurisdictions. With few exceptions, we are no longer subject to U.S. federal, state and local, or international income tax examinations by tax authorities for years before 2019. Adjustments from examinations, if any, are not expected to have a material effect on our Consolidated Financial Statements. 89 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The amounts of income taxes paid (net of refunds) are as follows (in millions): Year Ended December 31, 2025 Federal $ 150 State 32 Foreign Germany 27 United Kingdom 25 Canada 18 Other 48 Total foreign 118 Total net income taxes paid $ 300 Net income taxes paid were $ 322 million and $ 305 million for years ended December 31, 2024 and 2023, respectively. Note 24. Cash, Cash Equivalents and Restricted Cash The following table provides a reconciliation of Cash and cash equivalents as reported on the Consolidated Balance Sheets to Cash, cash equivalents and restricted cash shown in the Consolidated Statements of Cash Flows (in millions): December 31, 2025 December 31, 2024 Cash and cash equivalents $ 319 $ 234 Restricted cash included in Other noncurrent assets (1) 13 5 Cash, cash equivalents and restricted cash $ 332 $ 239 (1) Represents cash held with our captive insurance subsidiary for payments on self-insured claims. Note 25. Investment in Loan Receivable In 2025, in connection with extending additional credit, we modified the terms of a loan with a supplier to give us the option to acquire the net assets of the supplier for the amount of the loan in the event of default. The net outstanding balance of the loans, including accrued interest and credit loss reserve, was $ 69 million and $ 51 million at December 31, 2025 and December 31, 2024, respectively. The loans are recognized at amortized cost and presented as loan receivables, with $ 49 million and $ 20 million reported in Receivables, net of allowance for credit losses as of December 31, 2025 and 2024, respectively, and the remaining balance presented in Other noncurrent assets on the Consolidated Balance Sheets. Variable Interest Entity Due to the significant amount of subordinated financial support that the loans represent to the supplier, we determined that the supplier is a variable interest entity (“VIE”). We are also a significant customer of the supplier domestically, with purchases under our exclusive distribution agreements historically representing a meaningful portion of the supplier's revenue. However, we do not represent the primary beneficiary of the VIE, as we do not hold the power to direct the activities that most significantly impact the supplier's economic performance. Specifically, the kick-out rights provided by our option to acquire the supplier only become effective upon loan default and control will occur upon acquisition completion. Therefore, the conditions necessary for us to hold such power have not been met and, as such, we do not consolidate the entity. The maximum exposure to loss that we could experience with respect to the supplier is limited to the net amount of our receivables on our Consolidated Balance Sheet, which was $ 69 million at December 31, 2025. Note 26. Segment and Geographic Information We have three operating segments: North America; Europe; and Specialty, each of which is presented as a reportable segment. The segments are organized based on a combination of geographic regions served and the types of product lines offered. They are managed separately, as each business serves distinct customer bases and is impacted by different economic conditions. 90 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following tables present our financial performance by reportable segment for the periods indicated (in millions): North America Europe Specialty Eliminations Consolidated Year Ended December 31, 2025 Revenue: Third Party $ 5,650 $ 6,311 $ 1,690 $ — $ 13,651 Intersegment 1 — 3 ( 4 ) — Total segment revenue $ 5,651 $ 6,311 $ 1,693 $ ( 4 ) $ 13,651 Less: (1) Cost of goods sold 3,232 3,884 1,274 Selling, general and administrative expenses 1,622 1,872 319 Other segment items (2) ( 17 ) ( 29 ) ( 11 ) Segment EBITDA $ 814 $ 584 $ 111 $ — $ 1,509 Total depreciation and amortization (3) $ 197 $ 180 $ 32 $ — $ 409 Year Ended December 31, 2024 Revenue: Third Party $ 5,762 $ 6,407 $ 1,654 $ — $ 13,823 Intersegment 1 — 3 ( 4 ) — Total segment revenue $ 5,763 $ 6,407 $ 1,657 $ ( 4 ) $ 13,823 Less: (1) Cost of goods sold 3,252 3,953 1,238 Selling, general and administrative expenses 1,588 1,855 315 Other segment items (2) ( 17 ) ( 35 ) ( 9 ) Segment EBITDA $ 940 $ 634 $ 113 $ — $ 1,687 Total depreciation and amortization (3) $ 198 $ 160 $ 34 $ — $ 392 Year Ended December 31, 2023 Revenue: Third Party $ 5,281 $ 6,323 $ 1,665 $ — $ 13,269 Intersegment 1 — 3 ( 4 ) — Total segment revenue $ 5,282 $ 6,323 $ 1,668 $ ( 4 ) $ 13,269 Less: (1) Cost of goods sold 2,796 3,886 1,238 Selling, general and administrative expenses 1,550 1,842 305 Other segment items (2) ( 23 ) ( 19 ) ( 9 ) Segment EBITDA $ 959 $ 614 $ 134 $ — $ 1,707 Total depreciation and amortization (3) $ 121 $ 150 $ 32 $ — $ 303 (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 13, "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 and Restructuring and transaction related expenses. 91 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 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): Year Ended December 31, 2025 2024 2023 Net income $ 608 $ 693 $ 938 Less: net income attributable to continuing noncontrolling interest 1 3 2 Net income attributable to LKQ stockholders 607 690 936 Less: net income from discontinued operations 11 24 4 Net income from continuing operations attributable to LKQ stockholders 596 666 932 Adjustments: Depreciation and amortization 409 392 303 Interest expense, net of interest income 207 220 162 Loss on debt extinguishment — — 1 Provision for income taxes 204 265 304 Equity in earnings of unconsolidated subsidiaries (1) ( 1 ) ( 8 ) ( 15 ) Gains on foreign exchange contracts - acquisition related (2) — — ( 49 ) Equity investment fair value adjustments ( 1 ) 2 2 Restructuring and transaction related expenses (3) 42 135 65 Restructuring expenses - cost of goods sold (3) — 15 4 Gains on previously held equity interests — — ( 3 ) Direct impacts of Ukraine/Russia conflict (4) 1 — — Impairment of net assets held for sale — — 1 Impairment of goodwill (5) 52 — — Segment EBITDA $ 1,509 $ 1,687 $ 1,707 (1) Refer to Note 10, "Equity Method Investments" for further information. (2) Refer to Note 3, "Business Combinations" and Note 19, "Derivative Instruments and Hedging Activities" for further information. (3) Refer to Note 13, "Restructuring and Transaction Related Expenses" for further information. (4) Adjustments include provisions for and subsequent adjustments to reserves for asset recoverability (primarily receivables and inventory). (5) Refer to Note 9, "Intangible Assets" for further information. 92 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table presents capital expenditures by reportable segment (in millions): Year Ended December 31, 2025 2024 2023 Capital Expenditures North America $ 76 $ 143 $ 118 Europe 122 134 163 Specialty 13 21 41 Total capital expenditures $ 211 $ 298 $ 322 The following table presents assets by reportable segment (in millions): December 31, 2025 December 31, 2024 Receivables, net of allowance for credit losses North America $ 495 $ 483 Europe 552 528 Specialty 157 102 Total receivables, net of allowance for credit losses 1,204 1,113 Inventories North America 1,479 1,411 Europe 1,496 1,323 Specialty 451 449 Total inventories 3,426 3,183 Property, plant and equipment, net North America 651 675 Europe 695 619 Specialty 106 115 Total property, plant and equipment, net 1,452 1,409 Operating lease assets, net North America 641 668 Europe 544 467 Specialty 147 121 Total operating lease assets, net 1,332 1,256 Other unallocated assets 7,723 7,994 Total assets $ 15,137 $ 14,955 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, 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. 93 LKQ CORPORATION AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS The following table sets forth our tangible long-lived assets by geographic area (in millions): December 31, 2025 December 31, 2024 Long-lived assets United States $ 1,313 $ 1,350 Germany 369 312 United Kingdom 321 296 Other countries 781 707 Total long-lived assets $ 2,784 $ 2,665 ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.