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, 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 October 20, 2023, the registrant had outstanding an aggregate of 267,598,319 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, 2023 and 2022	3
	Unaudited Condensed Consolidated Statements of Comprehensive Income for the Three and Nine Months Ended September 30, 2023 and 2022	4
	Unaudited Condensed Consolidated Balance Sheets as of September 30, 2023 and December 31, 2022	5
	Unaudited Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2023 and 2022	6
	Unaudited Condensed Consolidated Statements of Stockholders' Equity for the Three and Nine Months Ended September 30, 2023 and 2022	7
	Notes to Unaudited Condensed Consolidated Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	56
Item 4.	Controls and Procedures	58
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	59
Item 1A.	Risk Factors	59
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	59
Item 5.	Other Information	59
Item 6.	Exhibits	60
SIGNATURES		61

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,
	2023		2022		2023		2022
Revenue	$	3,568	$	3,104	$	10,365	$	9,793
Cost of goods sold	2,178		1,828		6,189		5,793
Gross margin	1,390		1,276		4,176		4,000
Selling, general and administrative expenses	979		861		2,848		2,683
Restructuring and transaction related expenses	27		3		53		10
Gain on disposal of businesses (1)	—		(4)		—		(159)
Depreciation and amortization	76		58		195		178
Operating income	308		358		1,080		1,288
Other expense (income):
Interest expense	62		19		150		51
Gains on foreign exchange contracts - acquisition related (2)	(3)		—		(49)		—
Interest income and other income, net	(14)		(8)		(34)		(9)
Total other expense, net	45		11		67		42
Income from continuing operations before provision for income taxes	263		347		1,013		1,246
Provision for income taxes	60		88		263		304
Equity in earnings of unconsolidated subsidiaries	4		2		9		8
Income from continuing operations	207		261		759		950
Net income from discontinued operations	1		1		1		5
Net income	208		262		760		955
Less: net income attributable to continuing noncontrolling interest	—		—		1		—
Net income attributable to LKQ stockholders	$	208	$	262	$	759	$	955
Basic earnings per share: (3)
Income from continuing operations	$	0.77	$	0.95	$	2.84	$	3.39
Net income from discontinued operations	0.01		—		—		0.02
Net income	0.78		0.96		2.84		3.41
Less: net income attributable to continuing noncontrolling interest	—		—		—		—
Net income attributable to LKQ stockholders	$	0.78	$	0.96	$	2.84	$	3.41
Diluted earnings per share: (3)
Income from continuing operations	$	0.77	$	0.95	$	2.83	$	3.38
Net income from discontinued operations	0.01		—		—		0.02
Net income	0.78		0.95		2.83		3.40
Less: net income attributable to continuing noncontrolling interest	—		—		—		—
Net income attributable to LKQ stockholders	$	0.78	$	0.95	$	2.83	$	3.40

(1)     Primarily related to the sale of PGW Auto Glass ("PGW"). Refer to Note 3, "Discontinued Operations and Divestitures" for further information.

(2)     Related to the Uni-Select Inc. ("Uni-Select") acquisition. Refer to Note 2, "Business Combinations" and Note 17, "Derivative Instruments and Hedging Activities" for further information.

(3)     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,
	2023		2022		2023		2022
Net income	$	208	$	262	$	760	$	955
Less: net income attributable to continuing noncontrolling interest	—		—		1		—
Net income attributable to LKQ stockholders	208		262		759		955
Other comprehensive income (loss):
Foreign currency translation, net of tax	(147)		(187)		(56)		(391)
Net change in unrealized gains/losses on cash flow hedges, net of tax	2		—		(5)		—
Net change in unrealized gains/losses on pension plans, net of tax	—		1		—		1
Other comprehensive income from unconsolidated subsidiaries	8		2		12		4
Other comprehensive loss	(137)		(184)		(49)		(386)
Comprehensive income	71		78		711		569
Less: comprehensive income attributable to continuing noncontrolling interest	—		—		1		—
Comprehensive income attributable to LKQ stockholders	$	71	$	78	$	710	$	569

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, 2023		December 31, 2022
Assets
Current assets:
Cash and cash equivalents	$	401	$	278
Receivables, net of allowance for credit losses	1,301		998
Inventories	2,998		2,752
Prepaid expenses and other current assets	275		230
Assets of discontinued operations	311		—
Total current assets	5,286		4,258
Property, plant and equipment, net	1,427		1,236
Operating lease assets, net	1,308		1,227
Goodwill	5,548		4,319
Other intangibles, net	1,176		653
Equity method investments	158		141
Other noncurrent assets	265		204
Total assets	$	15,168	$	12,038
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable	$	1,723	$	1,339
Accrued expenses:
Accrued payroll-related liabilities	244		218
Refund liability	124		109
Other accrued expenses	363		294
Current portion of operating lease liabilities	210		188
Current portion of long-term obligations	574		34
Other current liabilities	148		89
Liabilities of discontinued operations	173		—
Total current liabilities	3,559		2,271
Long-term operating lease liabilities, excluding current portion	1,144		1,091
Long-term obligations, excluding current portion	3,763		2,622
Deferred income taxes	416		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, 323.1 shares issued and 267.9 shares outstanding at September 30, 2023; 322.4 shares issued and 267.3 shares outstanding at December 31, 2022	3		3
Additional paid-in capital	1,527		1,506
Retained earnings	7,194		6,656
Accumulated other comprehensive loss	(372)		(323)
Treasury stock, at cost; 55.2 shares at September 30, 2023 and 55.1 shares at December 31, 2022	(2,394)		(2,389)
Total Company stockholders' equity	5,958		5,453
Noncontrolling interest	15		14
Total stockholders' equity	5,973		5,467
Total liabilities and stockholders' equity	$	15,168	$	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)

	Nine Months Ended September 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$	760	$	955
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	219		197
Gain on disposal of businesses	—		(159)
Stock-based compensation expense	29		31
Gains on foreign exchange contracts - acquisition related	(49)		—
Other	22		(22)
Changes in operating assets and liabilities, net of effects from acquisitions and dispositions:
Receivables	(154)		(118)
Inventories	128		(349)
Prepaid income taxes/income taxes payable	25		63
Accounts payable	122		378
Other operating assets and liabilities	42		34
Net cash provided by operating activities	1,144		1,010
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment	(233)		(148)
Proceeds from disposals of property, plant and equipment	8		5
Acquisitions, net of cash acquired	(2,199)		(4)
Proceeds from disposals of businesses	—		399
Proceeds from settlement of foreign exchange contracts - acquisition related	49		—
Other investing activities, net	(14)		(8)
Net cash (used in) provided by investing activities	(2,389)		244
CASH FLOWS FROM FINANCING ACTIVITIES:
Debt issuance costs	(32)		—
Proceeds from issuance of U.S. Notes (2028/33), net of unamortized bond discount	1,394		—
Borrowings under revolving credit facilities	1,978		1,323
Repayments under revolving credit facilities	(2,715)		(1,451)
Borrowings under term loans	1,031		—
(Repayments) borrowings of other debt, net	(12)		9
Settlement of derivative instruments	(13)		—
Dividends paid to LKQ stockholders	(222)		(210)
Purchase of treasury stock	(8)		(872)
Other financing activities, net	(10)		(16)
Net cash provided by (used in) financing activities	1,391		(1,217)
Effect of exchange rate changes on cash and cash equivalents	—		(42)
Net increase (decrease) in cash and cash equivalents	146		(5)
Cash and cash equivalents of continuing operations, beginning of period	278		274
Add: Cash and cash equivalents of discontinued operations, beginning of period	—		—
Cash and cash equivalents of continuing and discontinued operations, beginning of period	278		274
Cash and cash equivalents of continuing and discontinued operations, end of period	424		269
Less: Cash and cash equivalents of discontinued operations, end of period	23		—
Cash and cash equivalents, end of period	$	401	$	269
Supplemental disclosure of cash paid for:
Income taxes, net of refunds	$	227	$	250
Interest	100		38

        

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, 2023	322.9	$	3	(55.2)	$	(2,394)	$	1,520	$	7,059	$	(235)	$	15	$	5,968
Net income	—	—		—	—		—		208		—		—		208
Other comprehensive loss	—	—		—	—		—		—		(137)		—		(137)
Vesting of restricted stock units, net of shares withheld for employee tax	0.2	—		—	—		(2)		—		—		—		(2)
Stock-based compensation expense	—	—		—	—		9		—		—		—		9
Dividends declared to LKQ stockholders ($0.275 per share)	—	—		—	—		—		(73)		—		—		(73)
Balance as of September 30, 2023	323.1	$	3	(55.2)	$	(2,394)	$	1,527	$	7,194	$	(372)	$	15	$	5,973

	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

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, 2023	322.4	$	3	(55.1)	$	(2,389)	$	1,506	$	6,656	$	(323)	$	14	$	5,467
Net income	—	—		—	—		—		759		—		1		760
Other comprehensive loss	—	—		—	—		—		—		(49)		—		(49)
Purchase of treasury stock	—	—		(0.1)	(5)		—		—		—		—		(5)
Vesting of restricted stock units, net of shares withheld for employee tax	0.7	—		—	—		(8)		—		—		—		(8)
Stock-based compensation expense	—	—		—	—		29		—		—		—		29
Dividends declared to LKQ stockholders ($0.825 per share)	—	—		—	—		—		(221)		—		—		(221)
Balance as of September 30, 2023	323.1	$	3	(55.2)	$	(2,394)	$	1,527	$	7,194	$	(372)	$	15	$	5,973

	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

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, 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. Business Combinations

On August 1, 2023, we acquired all of Uni-Select's 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) (the "Uni-Select Acquisition"), by way of a plan of arrangement (the "Arrangement") entered into on February 26, 2023, under the provisions of the Business Corporations Act (Québec). Uni-Select is a leading distributor of automotive refinish and industrial coatings and related products in North America through its FinishMaster segment, 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.

During the second quarter of 2023, we received the required approvals from Uni-Select's shareholders, the Superior Court of Québec and regulators in the United States and Canada with respect to the Arrangement. On July 26, 2023, the U.K.'s Competition and Markets Authority cleared the acquisition, except with respect to the wholesale automotive parts business, GSF Car Parts in the U.K., which was divested in October 2023. See Note 3, "Discontinued Operations and Divestitures" for information related to the divestment of GSF Car Parts.

In order to reduce the risk related to changes in CAD foreign exchange rates for the CAD purchase price between signing the Arrangement and closing of the Uni-Select Acquisition, we entered into foreign exchange contracts. These foreign exchange contracts did 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. We reported Gains on foreign exchange contracts - acquisition related of $3 million and $49 million for the three and nine months ended September 30, 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 17, "Derivative Instruments and Hedging Activities" for information related to these foreign exchange contracts.

9

In connection with the Uni-Select Acquisition, we entered into a senior unsecured bridge loan facility to obtain committed financing for a portion of the purchase price. The bridge loan facility was terminated in the second quarter of 2023 after arranging the permanent financing as discussed below. We incurred $9 million in upfront fees related to the bridge loan facility and fully amortized these upfront fees (reported in Interest expense in the Unaudited Condensed Consolidated Statements of Income) during the nine months ended September 30, 2023.

For the permanent financing, on March 27, 2023, we entered into a new term loan credit agreement ("CAD Note") which established an unsecured term loan facility of up to CAD 700 million maturing in July 2026. Proceeds from the CAD Note could 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 included a non-usage fee that was incurred through the date the proceeds were drawn on the facility. In connection with the closing of the Uni-Select Acquisition, we borrowed approximately $531 million (CAD 700 million) under the CAD Note on July 31, 2023. There were no changes in borrowings against the CAD Note between the draw date and September 30, 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. See Note 16, "Long-Term Obligations" for additional information related to the CAD Note.

Additionally, on May 24, 2023, 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)"). The net proceeds from the offering of the U.S. Notes (2028/33) were used, together with borrowings under our CAD Note, (i) to finance a portion of the consideration payable for the Uni-Select Acquisition, including repaying existing Uni-Select indebtedness, (ii) to pay associated fees and expenses, including fees and expenses incurred in connection with the offering, and (iii) for general corporate purposes.

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. See Note 16, "Long-Term Obligations" for additional information related to the offering of the Notes.

To hedge the movement of market interest rates for the senior notes prior to the issuance date, we entered into forward-starting interest rate swaps to lock interest rates for the five and ten year senior notes. These forward-starting interest rate swaps were settled in the second quarter following the issuance of the U.S. Notes (2028/33). See Note 17, "Derivative Instruments and Hedging Activities" for information related to these interest rate instruments.

We funded the remainder of the purchase price with borrowings under our revolving credit facility and cash on hand of approximately $150 million and $50 million, respectively.

We recorded $1,230 million of goodwill related to our acquisition of Uni-Select, of which we expect $116 million to be deductible for income tax purposes. In the period between the acquisition date and September 30, 2023, Uni-Select, which is reported in our Wholesale - North America segment, generated revenue of $239 million and an operating loss of $13 million, including $20 million of restructuring expenses and $12 million of amortization of acquired intangibles.

In addition to our acquisition of Uni-Select, we completed acquisitions of one business within our Wholesale - North America segment, four businesses within our Europe segment and one business in our Specialty segment, during the nine months ended September 30, 2023. Total acquisition date fair value of the consideration for these acquisitions was $135 million, composed of $118 million of cash paid (net of cash acquired), $5 million of notes payable, $6 million of other purchase price obligations (non-interest bearing) and $6 million of pre-existing equity method investment balances. During the nine months ended September 30, 2023, we recorded $61 million of goodwill related to these acquisitions, of which we expect $11 million to be deductible for income tax purposes. In the period between the acquisition dates and September 30, 2023, these acquisitions generated revenue of $90 million, including $42 million within our Europe segment and $35 million within our Specialty segment, and operating income of $9 million, primarily within our Europe segment.

10

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 acquired based upon estimated fair values at the dates of acquisition. The purchase price allocations for the acquisitions made during the nine months ended September 30, 2023 are preliminary as we are in the process of determining the following: 1) valuation amounts for certain receivables, inventories and fixed assets acquired; 2) valuation amounts for certain intangible assets acquired; 3) the acquisition date fair value of certain liabilities assumed; and 4) the tax basis of the entities acquired. We have recorded preliminary estimates for certain of the items noted above and will record adjustments, if any, to the preliminary amounts upon finalization of the valuations. During the first nine months of 2023, the measurement period adjustments recorded for acquisitions completed in prior periods were not material.

The purchase price allocations for the acquisitions completed during the nine months ended September 30, 2023 are as follows (in millions):

	Nine Months Ended September 30, 2023
	Uni-Select (1)		Other Acquisitions		Total
Receivables	$	123	$	31	$	154
Inventories	332		59		391
Prepaid expenses and other current assets	30		5		35
Assets of discontinued operations(1)	299		—		299
Property, plant and equipment	104		10		114
Operating lease assets	80		8		88
Goodwill	1,230		61		1,291
Other intangibles(2)	567		25		592
Other noncurrent assets	22		—		22
Current liabilities assumed(3)	(330)		(44)		(374)
Liabilities of discontinued operations(1)	(183)		—		(183)
Long-term operating lease liabilities, excluding current portion	(54)		(8)		(62)
Debt assumed	(1)		(12)		(13)
Other noncurrent liabilities assumed(4)	(135)		—		(135)
Other purchase price obligations	(3)		(17)		(20)
Cash used in acquisitions, net of cash acquired	$	2,081	$	118	$	2,199

(1)    In connection with our acquisition of Uni-Select, we acquired one business (GSF Car Parts) which was required to be sold. Therefore, such business was classified as held for sale and was included within the "Assets of discontinued operations" and "Liabilities of discontinued operations" line items in the above preliminary allocation of purchase price. See Note 3, "Discontinued Operations and Divestitures" for information related to the GSF Car Parts business.

(2)    The amount recorded for our acquisition of Uni-Select primarily includes $17 million of trade names (3 to 5 year useful lives) and $543 million of customer and supplier relationships (10 to 17 year useful lives).

(3)    The amount recorded for our acquisition of Uni-Select includes $64 million of Accounts Payable outstanding under the supply chain financing arrangement. See Note 15, "Supply Chain Financing" for information related to our supply chain financing programs.

(4)    The amount recorded for our acquisition of Uni-Select includes $126 million of net deferred income tax liability, the significant components of which are as follows: deferred tax liabilities related to customer relationships of $140 million net with deferred tax assets related to Canadian net operating loss carryforwards of $23 million.

The fair value of our intangible assets is based on a number of inputs, including projections of future cash flows, assumed royalty rates and customer attrition rates, all of which are Level 3 inputs. The fair value of our property, plant and equipment is determined using inputs such as market comparables and current replacement or reproduction costs of the asset, adjusted for physical, functional and economic factors; these adjustments to arrive at fair value use unobservable inputs in which little or no market data exists, and therefore, these inputs are considered to be Level 3 inputs. See Note 18, "Fair Value Measurements" for further information regarding the tiers in the fair value hierarchy.

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The acquisition of Uni-Select complements 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. The primary objectives of our other acquisitions made during the nine months ended September 30, 2023 were to create economic value for our stockholders by enhancing our position as a leading source for alternative collision and mechanical repair products and to expand into other product lines and businesses that may benefit from our operating strengths.

When we identify potential acquisitions, we attempt to target companies with a leading market presence, experienced management team and workforce, high synergies and/or that add critical capabilities with opportunity for future consolidation and growth. For certain of our acquisitions, we have identified cost savings and synergies as a result of integrating the company with our existing business that provide additional value to the combined entity. In many cases, acquiring companies with these characteristics will result in purchase prices that include a significant amount of goodwill.

Unaudited Pro Forma Financial Information

The following unaudited pro forma financial information presents the effect of the businesses acquired during the nine months ended September 30, 2023 as though the businesses had been acquired as of January 1, 2022. The unaudited pro forma financial information is based upon accounting estimates and judgments that we believe are reasonable. The unaudited pro forma financial information includes the effect of purchase accounting adjustments, such as the adjustment of inventory acquired to fair value, adjustments to depreciation on acquired property, plant and equipment, adjustments to rent expense for above or below market leases, adjustments to amortization on acquired intangible assets, adjustments to interest expense, and the related tax effects. These pro forma results are not necessarily indicative of what would have occurred if the acquisitions had been in effect for the periods presented or of future results. The unaudited pro forma financial information is as follows (in millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenue	$	3,685	$	3,521	$	11,295	$	11,002
Income from continuing operations	202		248		692		908

The pro forma impact of our acquisitions also reflects the elimination of acquisition related expenses (net of tax) of $3 million and $17 million and gains on foreign exchange contracts - acquisition related of $3 million and $49 million for the three and nine months ended September 30, 2023, respectively. In addition, the unaudited pro forma financial information excludes the results of GSF Car Parts which was classified as discontinued operations upon the acquisition of Uni-Select. Refer to Note 11, "Restructuring and Transaction Related Expenses" for further information regarding our acquisition related expenses, Note 17, "Derivative Instruments and Hedging Activities" for further information on our foreign exchange contracts and Note 3, "Discontinued Operations and Divestitures" for further information related to the divestment of GSF Car Parts.

Note 3. Discontinued Operations and Divestitures

GSF Car Parts

We acquired GSF Car Parts as part of the Uni-Select transaction and we were required to divest GSF Car Parts in order 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. As of September 30, 2023, the assets held for sale and liabilities held for sale are recorded within Assets of discontinued operations and Liabilities of discontinued operations, respectively, on the Unaudited Condensed Consolidated Balance Sheets.

On October 25, 2023, we completed the divestment of GSF Car Parts. In order to manage our exposure to variability in the cash flows related the sale of GSF Car Parts, we entered into a foreign exchange forward contract to fix the amount of USD we would receive upon completion of the sale. We do not expect to recognize a significant gain or loss upon disposal.

Glass Manufacturing Business

For the nine months ended September 30, 2022, we recorded to discontinued operations a $5 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.

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Other Divestitures (Not Classified in Discontinued Operations)

In April 2022, we completed the sale of PGW, our aftermarket glass business within our Wholesale - North America segment, to a third party for $361 million resulting in recognition of a $155 million pretax gain ($127 million after tax). Additionally, 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).

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):

	September 30, 2023		December 31, 2022
Aftermarket and refurbished products	$	2,460	$	2,279
Salvage and remanufactured products	484		427
Manufactured products	54		46
Total inventories	$	2,998	$	2,752

Aftermarket and refurbished products and salvage and remanufactured products are primarily composed of finished goods. As of September 30, 2023, manufactured products inventory was composed of $29 million of raw materials, $7 million of work in process, and $18 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. Our 2023 acquisitions contributed approximately $380 million to our aftermarket and refurbished products inventory (including $332 million from Uni-Select).

Note 5. Allowance for Credit Losses

Our allowance for credit losses was $57 million and $54 million as of September 30, 2023 and December 31, 2022, respectively. The provision for credit losses was $1 million for both the three months ended September 30, 2023 and 2022, and $7 million and $9 million for the nine months ended September 30, 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 nine months of 2023 that necessitated an interim test of goodwill impairment or indefinite-lived intangible assets impairment.

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Note 8. Equity Method Investments

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

	Segment	Ownership as of September 30, 2023	September 30, 2023		December 31, 2022
MEKO AB(1)(2)	Europe	26.6%	$	148	$	129
Other(3)			10		12
Total			$	158	$	141

(1)    As of September 30, 2023, the Level 1 fair value of our equity investment in MEKO AB ("Mekonomen") was $133 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 Unaudited Condensed Consolidated Statements of Income.

(2)    As of September 30, 2023, our share of the book value of Mekonomen's net assets exceeded the book value of our investment by $9 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 July 2023, we acquired the remaining equity interest in an investment in our Europe segment resulting in a decrease to the carrying value of $3 million.

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	65
Warranty claims	(61)
Balance as of September 30, 2023	$	36

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 Wholesale - North America and 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. Additionally, in both our Wholesale - North America and Europe segments, we sell paint and paint related consumables for refinishing vehicles. For our Specialty operations, we serve seven product segments: truck and off-road; speed and performance; recreational vehicles; towing; wheels, tires and performance handling; marine; and miscellaneous accessories.

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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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Wholesale - North America	$	1,312	$	1,026	$	3,581	$	3,182
Europe	1,581		1,376		4,762		4,327
Specialty	456		452		1,294		1,424
Self Service	58		55		181		172
Parts and services	3,407		2,909		9,818		9,105
Wholesale - North America	75		82		234		271
Europe	3		4		15		18
Self Service	83		109		298		399
Other	161		195		547		688
Total revenue	$	3,568	$	3,104	$	10,365	$	9,793

Variable Consideration

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

	Classification	September 30, 2023		December 31, 2022
Return asset	Prepaid expenses and other current assets	$	65	$	58
Refund liability	Refund liability	124		109
Variable consideration reserve	Receivables, net of allowance for credit losses	162		136

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 September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Revenue
United States	$	1,759	$	1,612	$	5,130	$	5,109
Germany	418		369		1,270		1,145
United Kingdom	438		375		1,275		1,193
Other countries	953		748		2,690		2,346
Total revenue	$	3,568	$	3,104	$	10,365	$	9,793

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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 $25 million and $35 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 2027 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 $106 million to $110 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 additional expenses of between $15 million and $25 million to complete the integration plan related to the Uni-Select Acquisition in our Wholesale - North America segment.

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

		Three Months Ended September 30,				Nine Months Ended September 30,
Plan	Expense Type	2023		2022		2023		2022
2022 Global Plan	Employee related costs	$	1	$	—	$	3	$	—
	Facility exit costs	2		—		5		—
	Inventory related costs (1)	2		—		2		—
	Other costs	1		—		3		—
	Total	$	6	$	—	$	13	$	—
2019/2020 Global Plan	Facility exit costs	$	—	$	1	$	—	$	2
	Total	$	—	$	1	$	—	$	2
1 LKQ Europe Plan	Employee related costs	$	—	$	1	$	1	$	1
	Total	$	—	$	1	$	1	$	1
Acquisition Integration Plans	Employee related costs	$	20	$	—	$	20	$	2
	Facility exit costs	—		—		2		—
	Total	$	20	$	—	$	22	$	2
Total restructuring expenses		$	26	$	2	$	36	$	5

(1)    Recorded to Cost of goods sold in the Consolidated Statements of Income

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	$	16	$	3	$	3	$	23
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
	September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022		September 30, 2023		December 31, 2022
Employee related costs (1)	$	—	$	3	$	—	$	1	$	1	$	1
Facility exit costs (2)	3		1		2		6		—		—
Other costs	—		—		2		2		—		—
Total	$	3	$	4	$	4	$	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.

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Transaction Related Expenses

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

	Three Months Ended September 30,				Nine Months Ended September 30,
	2023		2022		2023		2022
Professional fees (1)	$	3	$	1	$	19	$	5
Transaction related expenses	$	3	$	1	$	19	$	5