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 March 31, 2023

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	The 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	☐	Emerging Growth Company	☐
Non-accelerated Filer	☐	Smaller Reporting 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 April 21, 2023, the registrant had outstanding an aggregate of 267,289,697 shares of Common Stock.

1

*****

TABLE OF CONTENTS

Item		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements:
	Unaudited Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2023 and 2022	3
	Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three Months Ended March 31, 2023 and 2022	4
	Unaudited Condensed Consolidated Balance Sheets as of March 31, 2023 and December 31, 2022	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2023 and 2022	6
	Unaudited Condensed Consolidated Statements of Stockholders' Equity for the Three Months Ended March 31, 2023 and 2022	7
	Notes to Unaudited Condensed Consolidated Financial Statements	8
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	24
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	39
Item 4.	Controls and Procedures	41
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	42
Item 1A.	Risk Factors	42
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42
Item 6.	Exhibits	43
SIGNATURES		44

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 March 31,
	2023		2022
Revenue	$	3,349	$	3,348
Cost of goods sold	1,977		1,991
Gross margin	1,372		1,357
Selling, general and administrative expenses	931		924
Restructuring and transaction related expenses	18		3
Depreciation and amortization	58		59
Operating income	365		371
Other expense (income):
Interest expense	36		16
Gains on foreign exchange contracts - acquisition related (1)	(23)		—
Interest income and other income, net	(9)		(1)
Total other expense, net	4		15
Income from continuing operations before provision for income taxes	361		356
Provision for income taxes	94		89
Equity in earnings of unconsolidated subsidiaries	3		2
Income from continuing operations	270		269
Net income from discontinued operations	—		4
Net income	$	270	$	273
Basic earnings per share: (2)
Income from continuing operations	$	1.01	$	0.94
Net income from discontinued operations	—		0.02
Net income	$	1.01	$	0.96
Diluted earnings per share: (2)
Income from continuing operations	$	1.01	$	0.94
Net income from discontinued operations	—		0.02
Net income	$	1.01	$	0.95

(1)     Related to the Uni-Select acquisition. Refer to Note 3, "Uni-Select Acquisition" and Note 17, "Derivative Instruments and Hedging Activities" for further information.

(2)     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 March 31,
	2023		2022
Net income	$	270	$	273
Other comprehensive income (loss):
Foreign currency translation, net of tax	57		(54)
Net change in unrealized gains/losses on cash flow hedges, net of tax	(17)		—
Other comprehensive income from unconsolidated subsidiaries	3		1
Other comprehensive income (loss)	43		(53)
Comprehensive income	$	313	$	220

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

4

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets

(In millions, except per share data)

	March 31, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	342	$	278
Receivables, net of allowance for credit losses	1,257		998
Inventories	2,733		2,752
Prepaid expenses and other current assets	291		230
Total current assets	4,623		4,258
Property, plant and equipment, net	1,265		1,236
Operating lease assets, net	1,249		1,227
Goodwill	4,366		4,319
Other intangibles, net	651		653
Equity method investments	156		141
Other noncurrent assets	198		204
Total assets	$	12,508	$	12,038
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	1,371	$	1,339
Accrued expenses:
Accrued payroll-related liabilities	214		218
Refund liability	119		109
Other accrued expenses	324		294
Current portion of operating lease liabilities	190		188
Current portion of long-term obligations	44		34
Other current liabilities	150		89
Total current liabilities	2,412		2,271
Long-term operating lease liabilities, excluding current portion	1,111		1,091
Long-term obligations, excluding current portion	2,684		2,622
Deferred income taxes	283		280
Other noncurrent liabilities	289		283
Commitments and contingencies
Redeemable noncontrolling interest	24		24
Stockholders' equity:
Common stock, $0.01 par value, 1,000.0 shares authorized, 322.8 shares issued and 267.6 shares outstanding at March 31, 2023; 322.4 shares issued and 267.3 shares outstanding at December 31, 2022	3		3
Additional paid-in capital	1,510		1,506
Retained earnings	6,852		6,656
Accumulated other comprehensive loss	(280)		(323)
Treasury stock, at cost; 55.2 shares at March 31, 2023 and 55.1 shares at December 31, 2022	(2,394)		(2,389)
Total Company stockholders' equity	5,691		5,453
Noncontrolling interest	14		14
Total stockholders' equity	5,705		5,467
Total liabilities and stockholders' equity	$	12,508	$	12,038

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

5

LKQ CORPORATION AND SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Cash Flows

(In millions)

	Three Months Ended March 31,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	270	$	273
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	65		65
Stock-based compensation expense	10		13
Gains on foreign exchange contracts - acquisition related	(23)		—
Other	11		(4)
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions:
Receivables, net of allowance for credit losses	(236)		(230)
Inventories	57		(98)
Prepaid income taxes/income taxes payable	52		60
Accounts payable	22		309
Other operating assets and liabilities	(5)		21
Net cash provided by operating activities	223		409
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(70)		(59)
Proceeds from disposals of property, plant and equipment	3		2
Acquisitions, net of cash acquired	(25)		—
Other investing activities, net	(5)		(6)
Net cash used in investing activities	(97)		(63)
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt issuance costs	(19)		—
Borrowings under revolving credit facilities	1,543		289
Repayments under revolving credit facilities	(2,003)		(334)
Borrowings under term loans	500		—
Borrowings (repayments) of other debt, net	1		(8)
Dividends paid to LKQ stockholders	(74)		(71)
Purchase of treasury stock	(8)		(144)
Other financing activities, net	(6)		(10)
Net cash used in financing activities	(66)		(278)
Effect of exchange rate changes on cash and cash equivalents	4		(6)
Net increase in cash and cash equivalents, including cash classified within current assets held for sale	64		62
Less: increase in cash classified within current assets held for sale	—		9
Net increase in cash and cash equivalents	64		53
Cash and cash equivalents, beginning of period	278		274
Cash and cash equivalents, end of period	$	342	$	327
Supplemental disclosure of cash paid for:
Income taxes, net of refunds	$	34	$	28
Interest	24		6

        

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 January 1, 2023	322.4	$	3	(55.1)	$	(2,389)	$	1,506	$	6,656	$	(323)	$	14	$	5,467
Net income	—	—		—	—		—		270		—		—		270
Other comprehensive income	—	—		—	—		—		—		43		—		43
Purchase of treasury stock	—	—		(0.1)	(5)		—		—		—		—		(5)
Vesting of restricted stock units, net of shares withheld for employee tax	0.4	—		—	—		(6)		—		—		—		(6)
Stock-based compensation expense	—	—		—	—		10		—		—		—		10
Dividends declared to LKQ stockholders ($0.275 per share)	—	—		—	—		—		(74)		—		—		(74)
Balance as of March 31, 2023	322.8	$	3	(55.2)	$	(2,394)	$	1,510	$	6,852	$	(280)	$	14	$	5,705

	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	—	—		—	—		—		273		—		—		273
Other comprehensive loss	—	—		—	—		—		—		(53)		—		(53)
Purchase of treasury stock	—	—		(2.7)	(144)		—		—		—		—		(144)
Vesting of restricted stock units, net of shares withheld for employee tax	0.4	—		—	—		(5)		—		—		—		(5)
Stock-based compensation expense	—	—		—	—		13		—		—		—		13
Dividends declared to LKQ stockholders ($0.25 per share)	—	—		—	—		—		(72)		—		—		(72)
Balance as of March 31, 2022	322.0	$	3	(37.3)	$	(1,490)	$	1,482	$	5,995	$	(206)	$	15	$	5,799

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

7

LKQ CORPORATION AND SUBSIDIARIES

Notes to Unaudited Condensed Consolidated Financial Statements

Note 1. Interim Financial Statements

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

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

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, 2022 filed with the SEC on February 23, 2023 ("2022 Form 10-K").

Interest income on the Unaudited Condensed Consolidated Statements of Income was updated to conform with the 2022 Form 10-K presentation.

Recently Adopted Accounting Pronouncements

During the first quarter of 2023, we adopted Accounting Standards Update No. 2022-04, “Liabilities—Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations” ("ASU 2022-04"), which requires the buyer in a supplier finance program to disclose certain information about its program, including key terms, balance sheet presentation of amounts, outstanding amounts at the end of each period, and rollforwards of balances. We adopted the provisions of ASU 2022-04 on a retrospective basis (see Note 15, "Supply Chain Financing"), except for the disclosure of rollforward information, which is effective prospectively for fiscal years beginning after December 15, 2023. The adoption of ASU 2022-04 did not have a material impact on our unaudited condensed consolidated financial statements.

Note 2. Discontinued Operations and Divestitures

Glass Manufacturing Business

For the three months ended March 31, 2022, we recorded to discontinued operations a $4 million benefit primarily related to the reassessment of a previously recorded valuation allowance on a deferred tax asset related to our glass manufacturing business sold in 2017.

Other Divestitures (Not Classified in Discontinued Operations)

In April 2022, we completed the sale of PGW Auto Glass ("PGW"), our aftermarket glass business within our Wholesale - North America segment, to a third party for $361 million.

Note 3. Uni-Select Acquisition

On February 26, 2023, we entered into a definitive agreement to acquire all of Uni-Select Inc.'s (“Uni-Select”) issued and outstanding shares for Canadian dollar (“CAD”) 48.00 per share in cash, representing a total enterprise value of approximately CAD 2.8 billion ($2.1 billion at the March 31, 2023 exchange rate) (the "Uni-Select Acquisition"). Uni-Select is a leading distributor of automotive refinish and industrial coatings and related products in North America through its FinishMaster segment, and in the automotive aftermarket parts business in Canada through its Canadian Automotive Group segment and in the United Kingdom (“U.K.”) through its GSF Car Parts segment. This acquisition will complement our existing North American paint distribution operations and provides a scaled position in the Canadian mechanical parts space, with opportunity for future consolidation and growth. On April 27, 2023, Uni-Select's shareholders approved the proposed acquisition. The Uni-Select Acquisition is expected to be completed in the second half of 2023 and is subject to regulatory approvals and other

8

customary closing conditions. We intend to divest the GSF Car Parts segment on or shortly after the acquisition closing date and the remaining businesses will be reported within our Wholesale - North America segment. See Note 11, "Restructuring and Transaction Related Expenses" for information related to transaction expenses related to the Uni-Select Acquisition.

In order to reduce the risk related to changes in CAD foreign exchange rates for the CAD purchase price between signing and closing, we entered into foreign exchange contracts. These foreign exchange contracts do not qualify for hedge accounting, and therefore the changes in fair value are reported in Gains on foreign exchange contracts - acquisition related in the Unaudited Condensed Consolidated Statements of Income. As of March 31, 2023, we reported an asset of $23 million with a corresponding gain for the first quarter of 2023. See Note 17, "Derivative Instruments and Hedging Activities" for information related to these foreign exchange contracts.

In connection with the Uni-Select Acquisition, we entered into a commitment letter for a $2.1 billion senior unsecured bridge loan facility ("Bridge Loan") with various banks. The capacity under the Bridge Loan was reduced to $1.6 billion as of March 31, 2023 upon execution of a term loan agreement as discussed below. There were no draws on the facility as of March 31, 2023. We incurred $9 million in upfront fees related to the facility and may incur additional fees and holding costs if the bridge loan facility is not canceled by specified dates. During the three months ended March 31, 2023, we amortized $3 million of these upfront fees (reported in Interest expense) with the remaining balance to be amortized over the expected term of the facility.

For the permanent financing, on March 27, 2023, we entered into a new term loan credit agreement ("CAD Note") which establishes an unsecured term loan facility of up to CAD 700 million scheduled to mature three years from the date of funding. Proceeds from the CAD Note may only be used (i) to finance a portion of the aggregate cash consideration for the Uni-Select Acquisition, (ii) to refinance certain outstanding debt of Uni-Select and (iii) to pay fees, costs and expenses related to the Uni-Select Acquisition. The CAD Note is expected to fund one business day prior to the consummation of the Uni-Select Acquisition transaction and includes a non-usage fee that will be incurred through the date the proceeds are drawn on the facility. There were no borrowings against the CAD Note as of March 31, 2023.

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.

The interest rate applicable to the CAD Note may be (i) a forward-looking term rate based on the Canadian Dollar Offer Rate 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.

We anticipate funding the remainder of the purchase price with cash on hand and the issuance of senior notes. To hedge the movement of market interest rates for senior notes prior to the expected issuance date, we entered into forward-starting interest rate swaps to lock interest rates for the potential five and ten year senior notes. See Note 17, "Derivative Instruments and Hedging Activities" for information related to these interest rate instruments.

Note 4. Inventories

We classify our inventory into the following categories: (i) aftermarket and refurbished products, (ii) salvage and remanufactured products, and (iii) manufactured products.

Inventories consist of the following (in millions):

	March 31, 2023		December 31, 2022
Aftermarket and refurbished products	$	2,219	$	2,279
Salvage and remanufactured products	464		427
Manufactured products	50		46
Total inventories	$	2,733	$	2,752

Aftermarket and refurbished products and salvage and remanufactured products are primarily composed of finished goods. As of March 31, 2023, manufactured products inventory was composed of $29 million of raw materials, $7 million of work in process, and $14 million of finished goods. As of December 31, 2022, manufactured products inventory was composed of $26 million of raw materials, $5 million of work in process, and $15 million of finished goods.

9

Note 5. Allowance for Credit Losses

Our allowance for credit losses was $58 million and $54 million as of March 31, 2023 and December 31, 2022, respectively. The provision for credit losses was $5 million and $8 million for the three months ended March 31, 2023 and 2022, respectively.

Note 6. 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.

Note 7. 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 2022, and determined no impairment existed as all of our reporting units had a fair value estimate which exceeded the carrying value by at least 40%. The fair value estimates of our reporting units were established using weightings of the results of a discounted cash flow methodology and a comparative market multiples approach. Goodwill and indefinite-lived intangible assets impairment testing may also be performed on an interim basis when events or circumstances arise that may lead to impairment. We did not identify any indicators of impairment in the first three months of 2023 that necessitated an interim test of goodwill impairment or indefinite-lived intangible assets impairment.

Note 8. Equity Method Investments

The carrying value of our Equity method investments were as follows (in millions):

	Segment	Ownership as of March 31, 2023	March 31, 2023		December 31, 2022
MEKO AB(1)(2)	Europe	26.6%	$	143	$	129
Other			13		12
Total			$	156	$	141

(1)    As of March 31, 2023, the Level 1 fair value of our investment in MEKO AB ("Mekonomen") was $178 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 March 31, 2023, 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.

Note 9. 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.

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

	Warranty Reserve
Balance as of December 31, 2022	$	32
Warranty expense	19
Warranty claims	(19)
Balance as of March 31, 2023	$	32

10

Note 10. Revenue Recognition

Disaggregated Revenue

We report revenue in two categories: (i) parts and services and (ii) other.

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

For Wholesale - North America and Self Service, vehicle replacement products include sheet metal collision parts such as doors, hoods, and fenders; bumper covers; head and tail lamps; mirrors; grilles; wheels; and large mechanical items such as engines and transmissions. For Europe, 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.

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

The following table sets forth our revenue disaggregated by category and reportable segment (in millions):

	Three Months Ended March 31,
	2023		2022
Wholesale - North America	$	1,148	$	1,106
Europe	1,548		1,481
Specialty	396		460
Self Service	60		57
Parts and services	3,152		3,104
Wholesale - North America	81		95
Europe	7		7
Self Service	109		142
Other	197		244
Total revenue	$	3,349	$	3,348

Variable Consideration

Amounts related to variable consideration on our Unaudited Condensed Consolidated Balance Sheets are as follows (in millions):

	Classification	March 31, 2023		December 31, 2022
Return asset	Prepaid expenses and other current assets	$	62	$	58
Refund liability	Refund liability	119		109
Variable consideration reserve	Receivables, net of allowance for credit losses	99		136

11

Revenue by Geographic Area

Our net sales are attributed to geographic area based on the location of the selling operation. The following table sets forth our revenue by geographic area (in millions):

	Three Months Ended March 31,
	2023		2022
Revenue
United States	$	1,681	$	1,750
United Kingdom	415		425
Germany	416		386
Other countries	837		787
Total revenue	$	3,349	$	3,348

Note 11. Restructuring and Transaction Related Expenses

From time to time, we initiate restructuring plans to integrate acquired businesses, to align our workforce with strategic business activities, or to improve efficiencies in our operations. Below is a summary of our current restructuring plans:

2022 Global Restructuring Plan

In the fourth quarter of 2022, we began a restructuring initiative covering all of our reportable segments designed to reduce costs, streamline operations, consolidate facilities and implement other strategic changes to the overall organization. We have incurred and expect to incur costs primarily for employee severance, inventory or other asset write-downs, and exiting facilities. This plan is scheduled to be substantially complete by the end of 2024 with an estimated total incurred cost of between $30 million and $40 million.

1 LKQ Europe Plan

In 2019, we announced a multi-year plan called "1 LKQ Europe" which is intended to create structural centralization and standardization of key functions to facilitate the operation of the Europe segment as a single business. Under the 1 LKQ Europe plan, we are reorganizing our non-customer-facing teams and support systems through various projects including the implementation of a common 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 with a total incurred cost of between $30 million and $40 million.

2019/2020 Global Restructuring Plan

In 2019, we commenced a cost reduction initiative, covering all of our reportable segments, designed to eliminate underperforming assets and cost inefficiencies. This plan 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. This plan is expected to be completed in 2023 with a total incurred cost of between $108 million to $115 million.

Acquisition Integration Plans

As we complete the acquisition of a business, we may incur costs related to integrating the acquired business into our current business structure and systems. These costs are typically incurred within a year from the acquisition date and vary in magnitude depending on the size and complexity of the related integration activities. We expect to incur an insignificant amount of future expenses to complete any open integration plans.

12

The following table sets forth the expenses incurred related to our restructuring plans (in millions):

		Three Months Ended March 31,
Plan	Expense Type	2023		2022
2022 Global Plan	Employee related costs	$	2	$	—
	Facility exit costs	2		—
	Other costs	1		—
	Total	$	5	$	—
1 LKQ Europe Plan	Employee related costs	$	1	$	—
	Total	$	1	$	—
Acquisition Integration Plans	Facility exit costs	$	2	$	—
	Total	$	2	$	—
Total restructuring expenses		$	8	$	—

The following table sets forth the cumulative plan costs by segment related to our restructuring plans (in millions):

	Cumulative Program Costs
	Wholesale - North America		Europe		Specialty		Self Service		Total
2022 Global Plan	$	1	$	11	$	2	$	1	$	15
2019/2020 Global Plan	43		59		2		2		106
1 LKQ Europe Plan	—		8		—		—		8

The following table sets forth the liabilities recorded related to our restructuring plans (in millions):

	2022 Global Plan				2019/20 Global Plan				1 LKQ Europe Plan
	March 31, 2023		December 31, 2022		March 31, 2023		December 31, 2022		March 31, 2023		December 31, 2022
Employee related costs (1)	$	1	$	3	$	—	$	1	$	1	$	1
Facility exit costs (2)	4		1		3		6		—		—
Other costs	—		—		2		2		—		—
Total	$	5	$	4	$	5	$	9	$	1	$	1

(1)     Reported in Accrued payroll-related liabilities on our Unaudited Condensed Consolidated Balance Sheets.

(2)     Reported in Current portion of operating lease liabilities and Long-term operating lease liabilities, excluding current portion on our Unaudited Condensed Consolidated Balance Sheets.

Transaction Related Expenses

The following table sets forth the transaction related expenses incurred (in millions):

	Three Months Ended March 31,
	2023		2022
Professional fees (1)	$	10	$	3
Transaction related expenses	$	10	$	3

(1)    Included external costs such as legal, accounting and advisory fees related to completed and potential transactions (including Uni-Select transaction costs in 2023).

13

Note 12. 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 three months ended March 31, 2023 (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, 2023	1.3	$	41.02
Granted (2)	0.5	$	56.99
Vested	(0.3)	$	39.37
Unvested as of March 31, 2023	1.5	$	47.30
Expected to vest after March 31, 2023	1.3	$	47.87	3.1	$	73

(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 three months ended March 31, 2022 was $48.97.

The fair value of RSUs that vested during the three months ended March 31, 2023 was $16 million; the fair value of RSUs vested is based on the market price of LKQ stock on the date vested.

PSUs

The following table summarizes activity related to our performance-based RSUs ("PSUs") under the Equity Incentive Plan for the three months ended March 31, 2023 (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, 2023	0.5	$	37.87
Granted (2)	0.1	$	56.99
Vested	(0.2)	$	32.53
Unvested as of March 31, 2023	0.4	$	46.86
Expected to vest after March 31, 2023	0.3	$	46.22	1.6	$	18

(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 three months ended March 31, 2022 was $48.92.

The fair value of PSUs that vested during the three months ended March 31, 2023 was $12 million; the fair value of PSUs vested is based on the market price of LKQ stock on the date vested.

Stock-Based Compensation Expense

Pre-tax stock-based compensation expense for RSUs and PSUs totaled $10 million and $13 million for the three months ended March 31, 2023 and 2022, respectively. As of March 31, 2023, unrecognized compensation expense related to unvested RSUs and PSUs was $71 million. 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.

14

Note 13. Earnings Per Share

The following chart sets forth the computation of earnings per share (in millions, except per share amounts):

	Three Months Ended March 31,
	2023		2022
Income from continuing operations	$	270	$	269
Denominator for basic earnings per share—Weighted-average shares outstanding	267.4		285.7
Effect of dilutive securities:
RSUs	0.7		0.8
PSUs	0.2		0.3
Denominator for diluted earnings per share—Adjusted weighted-average shares outstanding	268.3		286.8
Basic earnings per share from continuing operations	$	1.01	$	0.94
Diluted earnings per share from continuing operations (1)	$	1.01	$	0.94

(1)    Diluted earnings per share from continuing operations was computed using the treasury stock method for dilutive securities.

The number of antidilutive securities was insignificant for all periods presented.

Note 14. Accumulated Other Comprehensive Loss

The components of Accumulated Other Comprehensive Loss are as follows (in millions):

	Three Months Ended March 31, 2023
	Foreign Currency Translation		Unrealized Gain (Loss) on Cash Flow Hedges		Unrealized Gain on Pension Plans		Other Comprehensive Income (Loss) from Unconsolidated Subsidiaries		Accumulated Other Comprehensive Income (Loss)
Balance as of January 1, 2023	$	(333)	$	—	$	11	$	(1)	$	(323)
Pretax income (loss)	57		(22)		—		—		35
Income tax effect	—		5		—		—		5
Other comprehensive income from unconsolidated subsidiaries	—		—		—		3		3
Balance as of March 31, 2023	$	(276)	$	(17)	$	11	$	2	$	(280)

	Three Months Ended March 31, 2022
	Foreign Currency Translation		Unrealized Loss on Pension Plans		Other Comprehensive Income (Loss) from Unconsolidated Subsidiaries		Accumulated Other Comprehensive Income (Loss)
Balance as of January 1, 2022	$	(121)	$	(24)	$	(8)	$	(153)
Pretax loss	(54)		—		—		(54)
Other comprehensive income from unconsolidated subsidiaries	—		—		1		1
Balance as of March 31, 2022	$	(175)	$	(24)	$	(7)	$	(206)

During the three months ended March 31, 2023, we reclassified an immaterial amount of gains on our interest rate swaps to Interest expense in the Unaudited Condensed Consolidated Statements of Income.

Our policy is to reclassify the income tax effect from Accumulated other comprehensive income (loss) to the Provision for income taxes when the related gains and losses are released to the Unaudited Condensed Consolidated Statements of Income.

15

Note 15. Supply Chain Financing

We utilize voluntary supply chain finance programs to support our efforts in negotiating payment term extensions with suppliers as part of our effort to improve our operating cash flows. These programs provide participating suppliers the opportunity to sell their LKQ receivables to financial institutions at the sole discretion of both the suppliers and the financial institutions. We are not a party to the agreement between the suppliers and financial institutions. The financial institutions participate in the supply chain financing initiative on an uncommitted basis and can cease purchasing receivables from our suppliers at any time. Our obligation to our suppliers, including amount due and payment date, are not impacted by the supplier’s decision to sell amounts under these agreements. Our payment terms to the financial institutions, including the timing and amount of payments, are unchanged from the original supplier invoice. All outstanding payments owed under the supply chain finance programs with the participating financial institutions are recorded within Accounts payable in our Unaudited Condensed Consolidated Balance Sheets. As of March 31, 2023 and December 31, 2022, we had $240 million and $248 million of Accounts payable outstanding under the arrangements, respectively.

Note 16. Long-Term Obligations

Long-term obligations consist of the following (in millions):

		March 31, 2023					December 31, 2022
	Maturity Date	Interest Rate			Amount		Interest Rate			Amount
Senior Unsecured Credit Agreement:
Term loans payable	January 2026	6.16	%		$	500	—	%		$	—
Revolving credit facilities	January 2028	4.79	%	(1)	1,335		—	%		—
Senior Secured Credit Agreement:
Revolving credit facilities	January 2024	—	%		—		4.24	%	(1)	1,786
Senior Notes:
Euro Notes (2024)	April 2024	3.88	%		542		3.88	%		535
Euro Notes (2028)	April 2028	4.13	%		271		4.13	%		268
Notes payable	Various through October 2030	3.43	%	(1)	14		3.25	%	(1)	16
Finance lease obligations		4.32	%	(1)	61		3.69	%	(1)	48
Other debt		3.03	%	(1)	17		2.28	%	(1)	9
Total debt					2,740					2,662
Less: long-term debt issuance costs					(12)					(6)
Total debt, net of debt issuance costs					2,728					2,656
Less: current maturities, net of debt issuance costs					(44)					(34)
Long term debt, net of debt issuance costs					$	2,684				$	2,622

(1) Interest rate derived via a weighted average

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 establishes: (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 (i.e. "SOFR") plus the applicable spread or other risk-free interest rates that are applicable for the specified currency plus a spread. The maturity date of the term loan is January 5, 2026 and may be extended by one additional year. The term loan has no required amortization payments prior to its maturity date. The maturity date for the revolving credit facility is January 5, 2028, and may be extended by up to two additional years in one year increments.

16

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 (the "Prior Credit Agreement"), to pay fees and expenses related to the Senior Unsecured Credit Agreement, and for other general corporate purposes.

Senior Secured Credit Agreement

In connection with entering into the Senior Unsecured Credit Agreement noted above, Wells Fargo Bank, National Association and the various lending parties terminated the Prior Credit Agreement and each amendment thereto resulting in an immaterial loss on extinguishment of debt.

Unsecured Senior Notes

Interest on the Euro Notes (2024) and Euro Notes (2028) are payable in arrears on April 1 and October 1 of each year.

Note 17. Derivative Instruments and Hedging Activities

We are exposed to market risks, including the effect of changes in interest rates, foreign currency exchange rates and commodity prices. Under current policies, we may use derivatives to manage our exposure to variable interest rates on our debt and changing foreign exchange rates for certain foreign currency denominated transactions. We do not hold or issue derivatives for trading purposes.

Derivative Instruments Designated as Cash Flow Hedges

In February 2023, we entered into interest rate swap agreements to mitigate the risk of changing interest rates on our variable interest rate payments related to borrowings under our Senior Unsecured Credit Agreement. Under the terms of the interest rate swap agreements, we pay the fixed interest rate and receive a variable interest rate based on term SOFR that matches a contractually specified rate under the Senior Unsecured Credit Agreement. The agreements include a total $400 million notional amount maturing in February 2025 with a weighted average fixed interest rate of 4.63% and a total $300 million notional amount maturing in February 2026 with a weighted average fixed interest rate of 4.23%. Changes in the fair value of the interest rate swaps are recorded in Accumulated other comprehensive loss and reclassified to Interest expense when the hedged interest payments affect earnings. The activity related to the interest rate swaps is classified in operating activities in our Unaudited Condensed Consolidated Statements of Cash Flows.

In March 2023, we entered into forward starting interest rate swaps to hedge the risk of changes in interest rates related to forecasted debt issuance to finance a portion of the Uni-Select Acquisition. Under the agreements, we will receive a variable interest rate based on SOFR and pay a fixed rate for the notional amount and term of the forecasted debt issuance. We are required to terminate the swaps at September 30, 2023, and we intend to terminate the agreements upon issuance of the debt if earlier. The forward starting interest rate swaps include a total $600 million notional amount covering interest payments from September 2023 through September 2028 at a rate of 3.20%, and a total $600 million notional amount covering interest payments from September 2023 through September 2033 at a rate of 3.34%. Changes in the fair value of the interest rate swaps are recorded in Accumulated other comprehensive loss and the fair value at the termination date will be reclassified to Interest expense over the term of the debt. The activity related to the forward starting interest swaps will be classified in operating activities in our Unaudited Condensed Consolidated Statements of Cash Flows.

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.

17

As of March 31, 2023, the notional amounts, balance sheet classification and fair values of our derivative instruments designated as cash flow hedges were as follows (in millions) (there were no such hedges as of December 31, 2022):

	Notional Amount		Balance Sheet Caption	Fair Value - Asset / (Liability)
Interest rate swap agreements	$	700	Other noncurrent liabilities	$	(9)
Forward starting interest rate swaps	$	1,200	Other accrued expenses	$	(13)

The activity related to our cash flow hedges is included in Note 14, "Accumulated Other Comprehensive Loss." As of March 31, 2023, we estimate that an insignificant amount of derivative gains (net of tax) included in Accumulated other comprehensive loss will be