UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

________________________________________ 

FORM 10-Q

____________________________ 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended September 30, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from              to

Commission File Number: 000-50404

____________________________ 

LKQ CORPORATION

(Exact name of registrant as specified in its charter)

____________________________ 

Delaware	36-4215970
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
500 West Madison Street, Suite 2800
Chicago, Illinois	60661
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (312) 621-1950

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $.01 per share	LKQ	NASDAQ Global Select Market

________________________________________

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☒    No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes ☒   No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer	☒	Accelerated Filer	☐
Non-accelerated Filer	☐	Smaller Reporting Company	☐
Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes ☐   No ☒

At October 27, 2022, the registrant had outstanding an aggregate of 267,174,985 shares of Common Stock.

1

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TABLE OF CONTENTS

Item		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Unaudited Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2022 and 2021	3
	Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2022 and 2021	4
	Unaudited Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2022 and 2021	6
	Unaudited Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2022 and 2021	7
	Notes to Unaudited Condensed Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	27
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	49
Item 4.	Controls and Procedures	51
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	52
Item 1A.	Risk Factors	52
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	52
Item 6.	Exhibits	53
SIGNATURES		54

2

PART I

FINANCIAL INFORMATION

Item 1. Financial Statements

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Income

(In millions, except per share data)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Revenue	$	3,104	$	3,297	$	9,793	$	9,903
Cost of goods sold	1,828		1,953		5,793		5,850
Gross margin	1,276		1,344		4,000		4,053
Selling, general and administrative expenses	861		898		2,683		2,648
Restructuring and transaction related expenses	3		3		10		16
(Gain) on disposal of businesses and impairment of net assets held for sale	(4)		1		(159)		—
Depreciation and amortization	58		64		178		195
Operating income	358		378		1,288		1,194
Other expense (income):
Interest expense, net of interest income	17		16		46		56
Loss on debt extinguishment	—		—		—		24
Other income, net	(6)		(3)		(4)		(15)
Total other expense, net	11		13		42		65
Income from continuing operations before provision for income taxes	347		365		1,246		1,129
Provision for income taxes	88		89		304		290
Equity in earnings of unconsolidated subsidiaries	2		8		8		17
Income from continuing operations	261		284		950		856
Net income from discontinued operations	1		—		5		—
Net income	262		284		955		856
Less: net income attributable to continuing noncontrolling interest	—		—		—		1
Net income attributable to LKQ stockholders	$	262	$	284	$	955	$	855
Basic earnings per share: (1)
Income from continuing operations	$	0.95	$	0.97	$	3.39	$	2.86
Net income from discontinued operations	—		—		0.02		—
Net income	0.96		0.97		3.41		2.86
Less: net income attributable to continuing noncontrolling interest	—		—		—		—
Net income attributable to LKQ stockholders	$	0.96	$	0.97	$	3.41	$	2.86
Diluted earnings per share: (1)
Income from continuing operations	$	0.95	$	0.96	$	3.38	$	2.85
Net income from discontinued operations	—		—		0.02		—
Net income	0.95		0.96		3.40		2.85
Less: net income attributable to continuing noncontrolling interest	—		—		—		—
Net income attributable to LKQ stockholders	$	0.95	$	0.96	$	3.40	$	2.85

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

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

3

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Comprehensive Income

(In millions)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Net income	$	262	$	284	$	955	$	856
Less: net income attributable to continuing noncontrolling interest	—		—		—		1
Net income attributable to LKQ stockholders	262		284		955		855
Other comprehensive loss:
Foreign currency translation, net of tax	(187)		(48)		(391)		(51)
Net change in unrealized gains/losses on cash flow hedges, net of tax	—		—		—		1
Net change in unrealized gains/losses on pension plans, net of tax	1		—		1		1
Other comprehensive income (loss) from unconsolidated subsidiaries	2		—		4		(1)
Other comprehensive loss	(184)		(48)		(386)		(50)
Comprehensive income	78		236		569		806
Less: comprehensive income attributable to continuing noncontrolling interest	—		—		—		1
Comprehensive income attributable to LKQ stockholders	$	78	$	236	$	569	$	805

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

4

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

(In millions, except per share data)

	September 30, 2022		December 31, 2021
Assets
Current assets:
Cash and cash equivalents	$	269	$	274
Receivables, net	1,051		1,073
Inventories	2,635		2,611
Prepaid expenses and other current assets	247		296
Total current assets	4,202		4,254
Property, plant and equipment, net	1,169		1,299
Operating lease assets, net	1,193		1,361
Goodwill	4,132		4,540
Other intangibles, net	626		746
Equity method investments	146		181
Other noncurrent assets	198		225
Total assets	$	11,666	$	12,606
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	1,356	$	1,176
Accrued expenses:
Accrued payroll-related liabilities	224		261
Refund liability	108		107
Other accrued expenses	309		271
Current portion of operating lease liabilities	181		203
Current portion of long-term obligations	50		35
Other current liabilities	123		112
Total current liabilities	2,351		2,165
Long-term operating lease liabilities, excluding current portion	1,066		1,209
Long-term obligations, excluding current portion	2,390		2,777
Deferred income taxes	246		279
Other noncurrent liabilities	312		365
Commitments and contingencies
Redeemable noncontrolling interest	24		24
Stockholders' equity:
Common stock, $0.01 par value, 1,000.0 shares authorized, 322.3 shares issued and 270.1 shares outstanding at September 30, 2022; 321.6 shares issued and 287.0 shares outstanding at December 31, 2021	3		3
Additional paid-in capital	1,499		1,474
Retained earnings	6,536		5,794
Accumulated other comprehensive loss	(539)		(153)
Treasury stock, at cost; 52.2 shares at September 30, 2022 and 34.6 shares at December 31, 2021	(2,237)		(1,346)
Total Company stockholders' equity	5,262		5,772
Noncontrolling interest	15		15
Total stockholders' equity	5,277		5,787
Total liabilities and stockholders' equity	$	11,666	$	12,606

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

5

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

(In millions)

	Nine Months Ended September 30,
	2022		2021
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	955	$	856
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	197		212
(Gain) on disposal of businesses and impairment of net assets held for sale	(159)		—
Stock-based compensation expense	31		25
Loss on debt extinguishment	—		24
Other	(22)		(45)
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions:
Receivables, net	(118)		(134)
Inventories	(349)		(53)
Prepaid income taxes/income taxes payable	63		(29)
Accounts payable	378		378
Other operating assets and liabilities	34		128
Net cash provided by operating activities	1,010		1,362
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(148)		(133)
Proceeds from disposals of property, plant and equipment	5		16
Acquisitions, net of cash acquired	(4)		(67)
Proceeds from disposals of businesses	399		6
Other investing activities, net	(8)		(23)
Net cash provided by (used in) investing activities	244		(201)
CASH FLOWS FROM FINANCING ACTIVITIES:
Early-redemption premium	—		(16)
Repayment of Euro Notes (2026)	—		(883)
Borrowings under revolving credit facilities	1,323		4,098
Repayments under revolving credit facilities	(1,451)		(3,242)
Repayments under term loans	—		(324)
Borrowings (repayments) of other debt, net	9		(18)
Settlement of derivative instruments, net	—		(89)
Dividends paid to LKQ stockholders	(210)		—
Purchase of treasury stock	(872)		(575)
Other financing activities, net	(16)		(17)
Net cash used in financing activities	(1,217)		(1,066)
Effect of exchange rate changes on cash and cash equivalents	(42)		(4)
Net (decrease) increase in cash and cash equivalents	(5)		91
Cash and cash equivalents, beginning of period	274		312
Cash and cash equivalents, end of period	$	269	$	403
Supplemental disclosure of cash paid for:
Income taxes, net of refunds	$	250	$	337
Interest	$	38	$	53

        

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

6

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Stockholders' Equity

(In millions, except per share data)

	LKQ Stockholders
	Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
Balance as of July 1, 2022	322.0	$	3	(45.4)	$	(1,894)	$	1,492	$	6,344	$	(355)	$	15	$	5,605
Net income	—	—		—	—		—		262		—		—		262
Other comprehensive loss	—	—		—	—		—		—		(184)		—		(184)
Purchase of treasury stock	—	—		(6.8)	(343)		—		—		—		—		(343)
Vesting of restricted stock units, net of shares withheld for employee tax	0.3	—		—	—		(1)		—		—		—		(1)
Stock-based compensation expense	—	—		—	—		8		—		—		—		8
Dividends declared to LKQ stockholders ($0.25 per share)	—	—		—	—		—		(70)		—		—		(70)
Balance as of September 30, 2022	322.3	$	3	(52.2)	$	(2,237)	$	1,499	$	6,536	$	(539)	$	15	$	5,277

	LKQ Stockholders
	Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
Balance as of July 1, 2021	321.3	$	3	(25.0)	$	(830)	$	1,459	$	5,347	$	(101)	$	17	$	5,895
Net income	—	—		—	—		—		284		—		—		284
Other comprehensive loss	—	—		—	—		—		—		(48)		—		(48)
Purchase of treasury stock	—	—		(4.3)	(219)		—		—		—		—		(219)
Vesting of restricted stock units, net of shares withheld for employee tax	0.3	—		—	—		(2)		—		—		—		(2)
Stock-based compensation expense	—	—		—	—		8		—		—		—		8
Balance as of September 30, 2021	321.6	$	3	(29.3)	$	(1,049)	$	1,465	$	5,631	$	(149)	$	17	$	5,918

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

7

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Stockholders' Equity

(In millions, except per share data)

	LKQ Stockholders
	Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
Balance as of January 1, 2022	321.6	$	3	(34.6)	$	(1,346)	$	1,474	$	5,794	$	(153)	$	15	$	5,787
Net income	—	—		—	—		—		955		—		—		955
Other comprehensive loss	—	—		—	—		—		—		(386)		—		(386)
Purchase of treasury stock	—	—		(17.6)	(891)		—		—		—		—		(891)
Vesting of restricted stock units, net of shares withheld for employee tax	0.7	—		—	—		(6)		—		—		—		(6)
Stock-based compensation expense	—	—		—	—		31		—		—		—		31
Dividends declared to LKQ stockholders ($0.75 per share)	—	—		—	—		—		(213)		—		—		(213)
Balance as of September 30, 2022	322.3	$	3	(52.2)	$	(2,237)	$	1,499	$	6,536	$	(539)	$	15	$	5,277

	LKQ Stockholders
	Common Stock			Treasury Stock			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Loss		Noncontrolling Interest		Total Stockholders' Equity
	Shares	Amount		Shares	Amount
Balance as of January 1, 2021	320.9	$	3	(17.3)	$	(469)	$	1,444	$	4,776	$	(99)	$	16	$	5,671
Net income	—	—		—	—		—		855		—		1		856
Other comprehensive loss	—	—		—	—		—		—		(50)		—		(50)
Purchase of treasury stock	—	—		(12.0)	(580)		—		—		—		—		(580)
Vesting of restricted stock units, net of shares withheld for employee tax	0.7	—		—	—		(4)		—		—		—		(4)
Stock-based compensation expense	—	—		—	—		25		—		—		—		25
Balance as of September 30, 2021	321.6	$	3	(29.3)	$	(1,049)	$	1,465	$	5,631	$	(149)	$	17	$	5,918

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

8

LKQ CORPORATION AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Interim Financial Statements

LKQ Corporation, a Delaware corporation, is a holding company and all operations are conducted by subsidiaries. When the terms "LKQ," "the Company," "we," "us," or "our" are used in this document, those terms refer to LKQ Corporation and its consolidated subsidiaries.

We have prepared the accompanying Unaudited Condensed Consolidated Financial Statements pursuant to the rules and regulations of the U.S. Securities and Exchange Commission ("SEC") applicable to interim financial statements. Accordingly, certain information related to our significant accounting policies and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America ("GAAP") have been condensed or omitted. These Unaudited Condensed Consolidated Financial Statements reflect, in the opinion of management, all material adjustments (which include only normally recurring adjustments) necessary to fairly state, in all material respects, our financial position, results of operations and cash flows for the periods presented.

Results for interim periods are not necessarily indicative of the results that can be expected for any subsequent interim period or for a full year. These interim financial statements should be read in conjunction with our audited consolidated financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC on February 25, 2022 ("2021 Form 10-K").

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

Note 2. Financial Statement Information

Allowance for Credit Losses

Receivables, net are reported net of an allowance for credit losses. Management evaluates the aging of customer receivable balances, the financial condition of our customers, historical trends, and macroeconomic factors to estimate the amount of customer receivables that may not be collected in the future and records a provision it believes is appropriate. Our reserve for expected credit losses was $51 million and $53 million as of September 30, 2022 and December 31, 2021, respectively. The provision for credit losses was insignificant for both the three months ended September 30, 2022 and 2021 and $9 million and $3 million for the nine months ended September 30, 2022 and 2021, respectively.

Inventories

Inventories consist of the following (in millions):

	September 30, 2022		December 31, 2021
Aftermarket and refurbished products	$	2,167	$	2,168
Salvage and remanufactured products	423		406
Manufactured products	45		37
Total inventories	$	2,635	$	2,611

Aftermarket and refurbished products and salvage and remanufactured products are primarily composed of finished goods. As of September 30, 2022, manufactured products inventory was composed of $26 million of raw materials, $6 million of work in process, and $13 million of finished goods. As of December 31, 2021, manufactured products inventory was composed of $27 million of raw materials, $4 million of work in process, and $5 million of finished goods.

Divestitures

In March 2022, we entered into a definitive agreement to sell PGW Auto Glass (“PGW”), our aftermarket glass business within our Wholesale - North America segment, to a third party. The sale was completed in April 2022 for $361 million resulting in recognition of a $155 million pretax gain ($127 million after tax). In September 2022, we completed the sale of a business within our Self Service segment, to a third party, resulting in proceeds of $25 million and the recognition of a $4 million pretax gain ($3 million after tax).

9

Discontinued Operations

For the three months ended September 30, 2022, we recorded a $1 million benefit related to the settlement of a previously recorded use tax liability connected to a disposed business. For the nine months ended September 30, 2022, we recorded a $5 million benefit primarily related to the reassessment of a previously recorded valuation allowance on a deferred tax asset connected to a disposed business.

Intangible Assets

Goodwill and indefinite-lived intangible assets are tested for impairment at least annually. We performed our annual impairment test during the fourth quarter of 2021, and determined no impairment existed as all of our reporting units had a fair value estimate which exceeded the carrying value by at least 70%. The fair value estimates of our reporting units were established using weightings of the results of a discounted cash flow methodology and a comparative market multiples approach. Goodwill impairment testing may also be performed on an interim basis when events or circumstances arise that may lead to impairment. We did not identify any indicators of impairment in the first nine months of 2022 that necessitated an interim test of goodwill impairment or indefinite-lived intangible assets impairment.

Investments in Unconsolidated Subsidiaries

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.

The carrying value of our Investments in unconsolidated subsidiaries were as follows (in millions):

	Ownership as of September 30, 2022	September 30, 2022		December 31, 2021
MEKO AB(1)(2)	26.6%	$	134	$	145
Other(3)		12		36
Total		$	146	$	181

(1)    As of September 30, 2022, the fair value of our investment in MEKO AB ("Mekonomen") was $135 million based on the quoted market price for Mekonomen's common stock using the same foreign exchange rate as the carrying value.

(2)    As of September 30, 2022, our share of the book value of Mekonomen's net assets exceeded the book value of our investment by $8 million; this difference is primarily related to Mekonomen's Accumulated Other Comprehensive Income balance as of our acquisition date in 2016. We record our equity in the net earnings of Mekonomen on a one quarter lag.

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

Warranty Reserve

Some of our salvage mechanical products are sold with a standard six month warranty against defects. Additionally, some of our remanufactured engines are sold with a standard three or four year warranty against defects. We also provide a limited lifetime warranty for certain of our aftermarket products. These assurance-type warranties are not considered a separate performance obligation, and thus no transaction price is allocated to them. We record warranty costs in Cost of goods sold in our Unaudited Condensed Consolidated Statements of Income. 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 Unaudited Condensed Consolidated Balance Sheets based on the expected timing of the related payments.

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

	Warranty Reserve
Balance as of December 31, 2021	$	30
Warranty expense	56
Warranty claims	(55)
Balance as of September 30, 2022	$	31

10

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.

Stockholders' Equity

Treasury Stock

Our Board of Directors has authorized a stock repurchase program under which we are able to purchase our common stock from time to time. Repurchases under the program may be made in the open market or in privately negotiated transactions, with the amount and timing of repurchases depending on market conditions and corporate needs. The repurchase program does not obligate us to acquire any specific number of shares and may be suspended or discontinued at any time. Repurchased shares are accounted for as treasury stock using the cost method. On May 10, 2022, our Board of Directors authorized a $500 million increase to our existing stock repurchase program to $2,500 million. On October 25, 2022, our Board of Directors authorized an additional $1,000 million increase to our existing stock repurchase program, raising the aggregate program authorization to $3,500 million, and extended the duration through October 25, 2025.

During the three and nine months ended September 30, 2022, we repurchased 6.8 million and 17.6 million shares of common stock, respectively, for an aggregate price of $343 million and $891 million, respectively. During the three and nine months ended September 30, 2021, we repurchased 4.3 million and 12.0 million shares of common stock, respectively, for an aggregate price of $219 million and $580 million, respectively. As of September 30, 2022, there was $263 million of remaining capacity under our repurchase program.

Noncontrolling Interest

We present redeemable noncontrolling interest on our balance sheet related to redeemable shares issued to a minority shareholder in conjunction with a previous acquisition. The redeemable shares contain (i) a put option for all noncontrolling interest shares at a fixed price of $24 million (€21 million) for the minority shareholder exercisable in the fourth quarter of 2023, (ii) a call option for all noncontrolling interest shares at a fixed price of $26 million (€23 million) for us exercisable beginning in the first quarter of 2026 through the end of the fourth quarter of 2027, and (iii) a guaranteed dividend to be paid quarterly to the minority shareholder through the fourth quarter of 2023. The redeemable shares do not provide the minority shareholder with rights to participate in the profits and losses of the subsidiary prior to the exercise date of the put option. As the put option is outside our control, we recorded a $24 million Redeemable noncontrolling interest at the put option's redemption value outside of permanent equity on our Unaudited Condensed Consolidated Balance Sheets.

Recent Accounting Pronouncements

Recently Issued Accounting Pronouncements

In September 2022, the Financial Accounting Standards Board issued Accounting Standards Update No. 2022-04, “Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations” ("ASU 2022-04"), which requires the buyer in a supplier finance program to disclose certain information about their program, including key terms, balance sheet presentation of amounts, outstanding amounts at the end of each period, and rollforwards of balances. ASU 2022-04 is effective for fiscal years beginning after December 15, 2022 on a retrospective basis, including interim periods within those fiscal years, except for the disclosure of rollforward information, which is effective prospectively for fiscal years beginning after December 15, 2023. We are currently evaluating the impact ASU 2022-04 will have on our Consolidated Financial Statements.

Note 3. Revenue Recognition

The majority of our revenue is derived from the sale of vehicle parts. We recognize revenue for the sale of products at the point in time when the performance obligation has been satisfied and control has transferred to the customer, which generally occurs upon shipment or delivery to a customer based on terms of the sale.

11

Sources of Revenue

We report our revenue in two categories: (i) parts and services and (ii) other. The following table sets forth our revenue by category, disaggregated by reportable segment (in millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2022		2021		2022		2021
Wholesale - North America	$	1,026	$	1,025	$	3,182	$	3,018
Europe	1,376		1,520		4,327		4,545
Specialty	452		465		1,424		1,454
Self Service	55		51		172		154
Parts and services	2,909		3,061		9,105		9,171
Wholesale - North America	82		87		271		263
Europe	4		5		18		20
Self Service	109		144		399		449
Other	195		236		688		732
Total revenue	$	3,104	$	3,297	$	9,793	$	9,903

Parts and Services

Parts revenue is generated from the sale of vehicle products including replacement parts, components and systems used in the repair and maintenance of vehicles and specialty products and accessories to improve the performance, functionality and appearance of vehicles. Services revenue includes (i) additional services that are generally billed concurrently with the related product sales, such as the sale of service-type warranties, (ii) fees for admission to our self service yards, and (iii) diagnostic and repair services.

For Wholesale - North America and Self Service, vehicle replacement products include sheet metal collision parts such as doors, hoods, and fenders; bumper covers; head and tail lamps; mirrors; grilles; wheels; and large mechanical items such as engines and transmissions. For Europe, vehicle replacement products include a wide variety of small mechanical products such as brake pads, discs and sensors; clutches; electrical products such as spark plugs and batteries; steering and suspension products; filters; and oil and automotive fluids. For our Specialty operations, we serve seven product segments: truck and off-road; speed and performance; recreational vehicles; towing; wheels, tires and performance handling; marine; and miscellaneous accessories.

Our service-type warranties typically have service periods ranging from 6 months to 36 months. Proceeds from these service-type warranties are deferred at contract inception and amortized on a straight-line basis to revenue over the contract period. The changes in deferred service-type warranty revenue are as follows (in millions):

	Service-Type Warranties
Balance as of January 1, 2022	$	32
Additional warranty revenue deferred	44
Warranty revenue recognized	(43)
Balance as of September 30, 2022	$	33

Other Revenue

Revenue from other sources include sales of scrap and precious metals (platinum, palladium, and rhodium), bulk sales to mechanical manufacturers (including cores) and sales of aluminum ingots and sows from furnace operations. We derive scrap metal and other precious metals from several sources in both our Wholesale - North America and Self Service segments, including vehicles that have been used in our recycling operations and vehicles from original equipment manufacturers ("OEMs") and other entities that contract with us for secure disposal of "crush only" vehicles. Revenue from the sale of hulks in our Wholesale - North America and Self Service segments is recognized based on a price per ton of delivered material when the customer (processor) collects the scrap.

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Revenue by Geographic Area

See Note 13, "Segment and Geographic Information" for information related to our revenue by geographic region.

Variable Consideration

The amount of revenue ultimately received from the customer can vary due to variable consideration including returns, discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, or other similar items. We utilize the “expected value method” or the “most likely amount” method in order to estimate variable consideration, depending on the type of variable consideration, with contemplation of any expected reversals in revenue. We recorded a refund liability and return asset for expected returns of $108 million and $58 million, respectively, as of September 30, 2022, and $107 million and $58 million, respectively, as of December 31, 2021. The refund liability is presented separately on the Unaudited Condensed Consolidated Balance Sheets within current liabilities while the return asset is presented within Prepaid expenses and other current assets. Other types of variable consideration consist primarily of discounts, volume rebates, and other customer sales incentives that are recorded in Receivables, net on the Unaudited Condensed Consolidated Balance Sheets. We recorded a reserve for our variable consideration of $120 million and $144 million as of September 30, 2022 and December 31, 2021, respectively.

Note 4. Restructuring and Transaction Related Expenses

Global Restructuring Programs

In 2019, we commenced a cost reduction initiative, covering all of our reportable segments, designed to eliminate underperforming assets and cost inefficiencies. This program was expanded in 2020 as we identified additional opportunities to eliminate inefficiencies, including actions in response to impacts to the business from COVID-19. We have incurred and expect to incur costs for inventory write-downs; employee severance and other expenditures related to employee terminations; lease exit costs, such as lease termination fees, accelerated amortization of operating lease assets and impairment of operating lease assets; other costs related to facility exits, such as moving expenses to relocate inventory and equipment; and accelerated depreciation of fixed assets to be disposed of earlier than the end of the previously estimated useful lives.

During the three and nine months ended September 30, 2022, we incurred restructuring expenses totaling $1 million and $2 million, respectively, primarily related to employee-related costs and facility exit costs under these programs. During the three and nine months ended September 30, 2021, we recognized net restructuring expenses totaling $2 million and $9 million, respectively, which included employee-related costs, facility exit costs, and a $3 million gain in the first quarter from the sale of a building to be closed. Of the cumulative program costs incurred to date, $59 million, $43 million, $2 million and $2 million related to our Europe, Wholesale - North America, Specialty and Self Service segments, respectively. The actions under the 2019 Global Restructuring Program are substantially complete and the 2020 Global Restructuring Program is expected to be completed in 2023. We estimate total costs under the programs through their expected completion dates will be between $108 million and $115 million, of which approximately $63 million, $44 million, $2 million and $2 million will be incurred by our Europe, Wholesale - North America, Specialty and Self Service segments, respectively; these segment amounts represent the approximate midpoints of the expected ranges of costs to be incurred by each segment.

As of September 30, 2022 and December 31, 2021, restructuring liabilities incurred related to these programs totaled $10 million and $14 million, respectively, including $6 million and $9 million, respectively, related to leases we have exited or expect to exit prior to the end of the lease term (reported in Current portion of operating lease liabilities and Long-term operating lease liabilities, excluding current portion on our Unaudited Condensed Consolidated Balance Sheets). Our lease-related restructuring liabilities are estimated based on remaining rent payments after our actual exit date for facilities closed as of September 30, 2022 and after our planned exit date for facilities we expect to close in future periods; these liabilities do not reflect any estimated proceeds we may be able to achieve through subleasing the facilities.

Acquisition Integration Plans

We incurred $2 million of restructuring expenses for the nine months ended September 30, 2022, primarily related to the integration of acquisitions completed in our Europe segment. We did not incur a significant amount of expenses for the three months ended September 30, 2022. We expect to incur future expenses of up to $5 million to complete an integration plan related to 2021 acquisitions completed in our Specialty segment.

During the three and nine months ended September 30, 2021, we did not incur a significant amount of restructuring expenses for our acquisition integration plans.

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1 LKQ Europe Program

In 2019, we announced a multi-year program called "1 LKQ Europe" which is intended to create structural centralization and standardization of key functions to facilitate the operation of the Europe segment as a single business. Under the 1 LKQ Europe program, we are reorganizing our non-customer-facing teams and support systems through various projects including the implementation of a common ERP platform, rationalization of our product portfolio, and creation of a Europe headquarters office and central back office. We completed the organizational design and implementation projects in June 2021, with the remaining projects scheduled to be completed by the end of 2025.

During the three and nine months ended September 30, 2022, we incurred $1 million of employee-related charges under our 1 LKQ Europe program. During the nine months ended September 30, 2021, we incurred $6 million of employee-related restructuring charges. We did not incur a significant amount of expenses for the three months ended September 30, 2021. We estimate that we will incur between $40 million and $50 million in total personnel and inventory-related restructuring charges through 2025 under the program. We may identify additional initiatives and projects under the 1 LKQ Europe program in future periods that may result in additional restructuring expense, although we are currently unable to estimate the range of charges for such potential future initiatives and projects. As of September 30, 2022, the restructuring liabilities related to this program were insignificant.

Transaction Related Expenses

During the three and nine months ended September 30, 2022, we incurred $1 million and $5 million of transaction related expenses, respectively. During the three and nine months ended September 30, 2021, we incurred $1 million of transaction related expenses. These expenses included external costs such as legal, accounting and advisory fees related to completed and potential transactions.

Note 5. Stock-Based Compensation

RSUs

The following table summarizes activity related to our restricted stock units ("RSUs") under the LKQ Corporation 1998 Equity Incentive Plan (the "Equity Incentive Plan") for the nine months ended September 30, 2022 (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, 2022	1.4	$	34.85
Granted (2)	0.7	$	49.04
Vested	(0.7)	$	37.03
Forfeited / Canceled	(0.1)	$	42.99
Unvested as of September 30, 2022	1.3	$	40.89
Expected to vest after September 30, 2022	1.1	$	41.23	2.8	$	52

(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 nine months ended September 30, 2021 was $39.12.

The fair value of RSUs that vested during the nine months ended September 30, 2022 was $