LKQ US Equity☆

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with our audited Consolidated Financial Statements and notes thereto included in Part II, Item 8, "Financial Statements and Supplementary Data," of this Annual Report on Form 10-K. Unless otherwise indicated or the context otherwise requires, as used in this "Management's Discussion and Analysis of Financial Condition and Results of Operations," the terms "we," "us," "the Company," "our," "LKQ" and similar terms refer to LKQ Corporation and its subsidiaries.

Overview

We are a global distributor of vehicle products, including replacement parts, components and systems used in the repair and maintenance of vehicles, and specialty vehicle aftermarket products and accessories to improve the performance, functionality and appearance of vehicles.

Buyers of vehicle replacement products have the option to purchase from primarily five sources: new products produced by OEMs; new products produced by companies other than the OEMs, which are referred to as aftermarket products; recycled products obtained from salvage and total loss vehicles; recycled products that have been refurbished; and recycled products that have been remanufactured. We distribute a variety of products to collision and mechanical repair shops, including aftermarket collision and mechanical products; recycled collision and mechanical products; refurbished collision products such as wheels, bumper covers and lights; and remanufactured engines and transmissions. Collectively, we refer to the four sources that are not new OEM products as alternative parts.

We are a leading provider of alternative vehicle collision replacement products and alternative vehicle mechanical replacement products, with our sales, processing, and distribution facilities reaching most major markets in the United States and Canada. We are also a leading provider of alternative vehicle replacement and maintenance products in Germany, the U.K., the Benelux region (Belgium, Netherlands, and Luxembourg), Italy, Czech Republic, Austria, Slovakia, Poland, and various other European countries. In addition to our wholesale operations, we operate self service retail facilities across the U.S. that sell recycled automotive products from end-of-life-vehicles. We are also a leading distributor of specialty vehicle aftermarket equipment and accessories reaching most major markets in the U.S. and Canada.

We are organized into four operating segments: Wholesale - North America; Europe; Specialty; and Self Service, each of which is presented as a reportable segment. Beginning in 2022, the Wholesale - North America and Self Service operating segment results were separated from the previous reportable segment, North America, and each of Wholesale - North America and Self Service is now a separate reportable segment. Segment results have been adjusted retrospectively to reflect this change.

Our operating results have fluctuated on a quarterly and annual basis in the past and can be expected to continue to fluctuate in the future as a result of a number of factors, some of which are beyond our control. Please refer to the factors referred to in Forward-Looking Statements and Risk Factors above. Due to these factors and others, which may be unknown to us at this time, our operating results in future periods can be expected to fluctuate. Accordingly, our historical results of operations may not be indicative of future performance.

Acquisitions and Investments

Since our inception in 1998, we have pursued a growth strategy through both organic growth and acquisitions. Through 2018, our acquisition strategy was focused on consolidation to build scale in fragmented markets across North America and Europe. We targeted companies that were market leaders, expanded our geographic presence and enhanced our ability to provide a wide array of vehicle products through our distribution network. In the last few years, we have shifted our focus from larger transactions to acquisitions that target high synergies and/or add critical capabilities. Additionally, we have made investments in various businesses to advance our strategic objectives. During the years ended December 31, 2022, 2021, and 2020, we acquired various immaterial businesses across our Wholesale - North America, Europe, and Specialty segments.

Sources of Revenue

We report our revenue in two categories: (i) parts and services and (ii) other. Our 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 used to improve the performance, functionality and appearance of vehicles. Our service revenue is generated primarily from the sale of service-type warranties, fees for admission to our self service yards, and diagnostic and repair services. During the year ended December 31, 2022, parts and services revenue represented approximately

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93% of our consolidated revenue. Revenue from other sources includes scrap and other metals (including precious metals - platinum, palladium and rhodium - contained in recycled parts such as catalytic converters) sales, bulk sales to mechanical manufacturers (including cores) and sales of aluminum ingots and sows from our furnace operations. Other revenue will vary from period to period based on fluctuations in commodity prices and the volume of materials sold. See Note 13, "Revenue Recognition" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information related to our sources of revenue.

Critical Accounting Estimates

The preparation of the Consolidated Financial Statements in accordance with accounting principles generally accepted in the United States of America ("US GAAP") requires management to make use of certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, as well as related disclosure of contingent assets and liabilities in the Consolidated Financial Statements and accompanying notes. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. Historically, we have not made significant changes to the methods for determining these estimates as our actual results have not differed materially from our estimates. We do not believe it is reasonably likely that the estimates and related assumptions will change materially in the foreseeable future; however, actual results could differ from those estimates under different assumptions, judgments or conditions.

Critical accounting estimates are those that are most important to the portrayal of our financial condition and results of operations, and which require us to make our most difficult and subjective judgments, often as a result of the need to make estimates of matters that are inherently uncertain. Based on this definition, we have identified the critical accounting estimates addressed below. For additional information related to significant accounting policies used in the preparation of our Consolidated Financial Statements, see Note 3, "Summary of Significant Accounting Policies" to the accompanying Consolidated Financial Statements.

Goodwill Impairment

Description

Goodwill is obtained through business acquisitions and recorded at the estimated fair value at the date of acquisition. Goodwill is not amortized but instead tested for impairment annually or sooner if events indicate that an impairment may exist. In performing this test, we compare the carrying value of the asset to its fair value. To derive the fair value for our reporting units which carry goodwill, we consider the use of various valuation techniques, with the primary technique being an income approach via a discounted cash flow method and another being a market approach via a guideline public company method. If the carrying value of these assets exceeds the estimated fair value, the asset is considered impaired and an impairment charge is recognized. In performing the test for impairment of goodwill, goodwill is allocated to the reporting units expected to benefit from the business combination.

Judgments and Uncertainties

Determining whether impairment indicators exist and estimating fair values as part of impairment testing require significant judgment. Estimating the fair values of our reporting units which have goodwill requires the use of significant unobservable inputs, or Level 3 inputs, as defined by the fair value hierarchy. As part of applying the discounted cash flow method and guideline public company method, we use significant assumptions which include sales growth, operating margins, discount rates, perpetual growth rates and valuation multiples which consider our budgets, business plans, economic projections and marketplace data.

Sensitivity of Estimate to Change

The balance of our goodwill was $4,319 million and $4,540 million as of December 31, 2022 and December 31, 2021, respectively. We have not made material changes in the accounting methodology used to evaluate impairment of goodwill during the last three years. The assumptions used to assess impairment consider historical trends, macroeconomic conditions, and projections consistent with the Company’s operating strategy. Changes in these estimates can have a significant impact on the assessment of fair value which could result in material impairment losses. During fiscal year 2022, we elected to perform a quantitative impairment test for our goodwill. No impairment charges were recorded as a result of the testing as the fair value of each goodwill reporting unit exceeded the calculated carrying value. A 10% decline in projected cash flows or a 10% increase in the discount rate would not have resulted in an impairment to goodwill.

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Recently Issued Accounting Pronouncements

See "Recent Accounting Pronouncements" in Note 3, "Summary of Significant Accounting Policies" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for information related to new accounting standards.

Financial Information by Geographic Area

See Note 24, "Segment and Geographic Information" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for information related to our revenue and long-lived assets by geographic region.

1 LKQ Europe Program

We have undertaken the 1 LKQ Europe program to create structural centralization and standardization of key functions to facilitate the operation of the Europe segment as a single business. Under this multi-year program, we have recognized and expect to continue to recognize the following:

•Restructuring expenses — Non-recurring costs resulting directly from the implementation of the 1 LKQ Europe program from which the business will derive no ongoing benefit. See Note 14, "Restructuring and Transaction Related Expenses” to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further details.

•Transformation expenses — Period costs incurred to execute the 1 LKQ Europe program that are expected to contribute to ongoing benefits to the business (e.g., non-capitalizable implementation costs related to a common ERP system). These expenses are recorded in Selling, general and administrative expenses.

•Transformation capital expenditures — Capitalizable costs for long-lived assets, such as software and facilities, that directly relate to the execution of the 1 LKQ Europe program.

Costs related to the 1 LKQ Europe program incurred to date are reflected in Selling, general and administrative expenses, Restructuring and transaction related expenses and Purchases of property, plant and equipment in our Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.

We completed the organizational design and implementation projects in June 2021, with the remaining projects scheduled to be completed by the end of 2025. During the year ended December 31, 2022, we incurred $34 million in costs across all three categories noted above. We expect that costs of the program, reflecting all three categories noted above, will range between $50 million to $80 million in 2023 through the projected program completion date in 2025. In the future, we may also identify additional initiatives and projects under the 1 LKQ Europe program that may result in additional expenditures, although we are currently unable to estimate the range of charges for such potential future initiatives and projects. We expect the transformation and restructuring expenses will be entirely funded by trade working capital initiatives across our Europe segment.

Ukraine/Russia Conflict

The Russian invasion of Ukraine and resulting global governmental response have impacted our business in 2022, and are expected to continue to impact our business in 2023. Governmental sanctions imposed on Russia have restricted our ability to sell to and collect from customers based in Russia and Belarus, and Russian military activity in Ukrainian territory has temporarily changed the way in which we operate in Ukraine. Many of our branches in Ukraine have remained open, although operating at less than full capacity, during the conflict, while others have closed temporarily. As military operations shifted to the eastern part of the country, we were able to increase capacity in branches in the central and western territory, including our central warehouse in Kyiv. We expect to continue operating in this manner unless conditions change. We currently do not expect the conflict to have a material impact on our ongoing results of operations or cash flows. Our operations in Ukraine represent approximately less than 1% of both our total annual revenue and total annual operating profit for fiscal year 2022 and comprised approximately $60 million of total assets as of December 31, 2022. In addition, LKQ revenue from customers in Russia and Belarus represented less than 0.3% of our total revenue in 2021. As future developments in the conflict are difficult to predict and outside of our control, it is possible that the estimates underlying our financials may change significantly in future periods.

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COVID-19 Impact on our Operations

COVID-19 impacted our operations beginning in February 2020. For additional information on the effects, refer to the discussion in our segment results of operations in Item 7 of this Annual Report on Form 10-K.

Key Performance Indicators

We believe that organic revenue growth, Segment EBITDA and free cash flow are key performance indicators for our business. Segment EBITDA is our key measure of segment profit or loss reviewed by our chief operating decision maker. Free cash flow is a financial measure that is not prepared in accordance with U.S. generally accepted accounting principles (“non-GAAP”).

•Organic revenue growth - We define organic revenue growth as total revenue growth from continuing operations excluding the effects of acquisitions and divestitures (i.e., revenue generated from the date of acquisition to the first anniversary of that acquisition, net of reduced revenue due to the disposal of businesses) and foreign currency movements (i.e., impact of translating revenue at different exchange rates). Organic revenue growth includes incremental sales from both existing and new (i.e., opened within the last twelve months) locations and is derived from expanding business with existing customers, securing new customers and offering additional products and services. We believe that organic revenue growth is a key performance indicator as this statistic measures our ability to serve and grow our customer base successfully.

•Segment EBITDA - See Note 24, "Segment and Geographic Information" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for a description of the calculation of Segment EBITDA. We believe that Segment EBITDA provides useful information to evaluate our segment profitability by focusing on the indicators of ongoing operational results.

•Free Cash Flow - We calculate free cash flow as net cash provided by operating activities, less purchases of property, plant and equipment. Free cash flow provides insight into our liquidity and provides useful information to management and investors concerning cash flow available to meet future debt service obligations and working capital requirements, make strategic acquisitions, repurchase stock, and pay dividends.

These three key performance indicators are used as targets in determining incentive compensation at various levels of the organization, including senior management. By using these performance measures, we attempt to motivate a balanced approach to the business that rewards growth, profitability and cash flow generation in a manner that enhances our long-term prospects.

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Results of Operations—Consolidated

The following table sets forth statements of income data as a percentage of total revenue for the periods indicated:

Year Ended December 31,

Selling, general and administrative expenses 27.7 % 27.3 % 28.1 %

Restructuring and transaction related expenses 0.2 % 0.2 % 0.6 %

Depreciation and amortization 1.8 % 2.0 % 2.3 %

Total other expense, net 0.5 % 0.6 % 0.9 %

Provision for income taxes 3.0 % 2.5 % 2.1 %

Equity in earnings of unconsolidated subsidiaries 0.1 % 0.2 % — %

Income from continuing operations 8.9 % 8.3 % 5.5 %

Net income from discontinued operations — % — % — %

Less: net income attributable to continuing noncontrolling interest — % — % — %

Net income attributable to LKQ stockholders 9.0 % 8.3 % 5.5 %

Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Revenue

The following table summarizes the changes in revenue by category (in millions):

Year Ended December 31, Percentage Change in Revenue

2022 2021 Organic Acquisition and Divestiture Foreign Exchange Total Change

The decline in parts and services revenue of 1.7% represented decreases in segment revenue of 5.3% in Europe and 4.1% in Specialty, partially offset by increases of 9.8% in Self Service and 4.2% in Wholesale - North America. This overall decrease was driven by a 5.5% decrease due to fluctuations in foreign exchange rates and a 1.2% net reduction from divestitures. This was partially offset by organic parts and services revenue growth of 5.0%, which included a 0.2% negative effect from one fewer selling day for the year ended December 31, 2022, and overall per day organic growth of 5.2%. The decrease in other revenue of 9.2% was primarily driven by a decrease in organic revenue of $71 million, attributable to a $78 million decrease in our Self Service segment, partially offset by an $8 million increase in our Wholesale - North America segment. Refer to the discussion of our segment results of operations for factors contributing to the changes in revenue by segment for the year ended December 31, 2022 compared to the year ended December 31, 2021.

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Cost of Goods Sold

Cost of goods sold decreased to 59.2% of revenue for the year ended December 31, 2022 from 59.3% of revenue for the year ended December 31, 2021. Cost of goods sold reflects a decrease of 0.2% related to improved gross margin in our Wholesale - North America segment and 0.2% attributable to mix as a greater portion of sales are coming from Wholesale - North America, partially offset by an increase of 0.4% from our Self Service segment. Refer to the discussion of our segment results of operations for factors contributing to the changes in cost of goods sold as a percentage of revenue by segment for the year ended December 31, 2022 compared to the year ended December 31, 2021.

Selling, General and Administrative Expenses

Our selling, general and administrative ("SG&A") expenses as a percentage of revenue increased to 27.7% for the year ended December 31, 2022 from 27.3% for the year ended December 31, 2021. The SG&A expense increase primarily reflects impacts of 0.2% related to each of our Self Service and Specialty segments. Refer to the discussion of our segment results of operations for factors contributing to the changes in SG&A expenses as a percentage of revenue by segment for the year ended December 31, 2022 compared to the year ended December 31, 2021.

Restructuring and Transaction Related Expenses

The following table summarizes restructuring and transaction related expenses for the periods indicated (in millions):

Year Ended December 31,

Restructuring expenses $ 15 (1) $ 17 (2) $ (2)

Transaction related expenses 5 (3) 3 (3) 2

Restructuring and transaction related expenses $ 20 $ 20 $ —

(1)Restructuring expenses for the year ended December 31, 2022 primarily consisted of (i) $11 million related to our global restructuring plans and (ii) $3 million related to our acquisition integration plans.

(2) Restructuring expenses for the year ended December 31, 2021 primarily consisted of (i) $11 million related to our global restructuring plans and (ii) $6 million related to our 1 LKQ Europe plan.

(3) Transaction related expenses for the years ended December 31, 2022 and 2021 primarily related to external costs such as legal, accounting and advisory fees for completed and potential transactions.

See Note 14, "Restructuring and Transaction Related Expenses" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information on our restructuring and acquisition integration plans.

(Gain) on Disposal of Businesses and Impairment of Net Assets Held for Sale

During the year ended December 31, 2022, we recorded a $159 million pretax gain from divestitures including $155 million ($127 million after tax) from the sale of PGW and $4 million from the sale of a business within our Self Service segment. See"Other Divestitures (Not Classified in Discontinued Operations)" in Note 2, "Discontinued Operations and Divestitures" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information on our gain on disposal of businesses.

Depreciation and Amortization

The following table summarizes depreciation and amortization for the periods indicated (in millions):

Year Ended December 31,

Depreciation and amortization $ 237 $ 260 $ (23)

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(1)The decrease in depreciation expense included $7 million from foreign currency translation primarily related to a decrease in the euro and pound sterling rates for the year ended December 31, 2022 compared to the prior year period and $5 million related to divestiture of businesses (primarily PGW) with the remaining decrease due to individually immaterial factors.

(2)The decrease in amortization expense primarily reflected (i) a $8 million decrease from foreign exchange translation, primarily related to a decrease in the euro exchange rate, (ii) a decrease of $4 million primarily related to the customer relationship intangible assets recorded upon our acquisition of Stahlgruber as the accelerated amortization of the customer relationship intangible assets resulted in lower amortization expense for the year ended December 31, 2022 compared to the prior year period, and (iii) other individually insignificant decreases which in the aggregate had a $2 million impact, partially offset by (iv) a $5 million increase related to software amortization.

Total Other Expense, Net

The following table summarizes Total other expense, net for the periods indicated (in millions):

Year Ended December 31,

Interest expense $ 78 $ 72 $ 6 (1)

Loss on debt extinguishment — 24 (24) (2)

Interest income and other income, net (15) (21) 6 (3)

Total other expense, net $ 63 $ 75 $ (12)

(1)Interest expense increased primarily due to (i) a $10 million increase from higher interest rates in the second half of the year (especially the fourth quarter) and higher outstanding debt for the year ended December 31, 2022 compared to the prior year, partially offset by (ii) a $6 million decrease from foreign exchange translation, primarily related to a decrease in the euro exchange rate.

(2)The $24 million decrease in Loss on debt extinguishment is due to the charge recorded in April 2021 related to the redemption of the Euro Notes (2026).

(3)The decrease in Interest income and other income, net is primarily comprised of (i) a decrease related to a $16 million change in our fair value adjustments for equity investments not accounted for under the equity method and (ii) a decrease related to a $4 million change in foreign currency gains and losses, partially offset by (iii) a $5 million increase in interest income and (iv) other individually insignificant increases which in the aggregate had a $9 million favorable impact.

Provision for Income Taxes

Our effective income tax rate for the year ended December 31, 2022 was 25.3%, compared to 23.6% for the year ended December 31, 2021. The base rate for the year ended December 31, 2022 increased when compared to the year ended December 31, 2021 due to shifts in the geographic distribution of pretax income in the current year and an unfavorable impact of 0.6% related to non-deductible expenses. Additionally, the change in valuation allowances was a 0.4% unfavorable effect on the rate compared to a 0.8% benefit in 2021 primarily from the reversal of valuation allowances on certain interest deduction carryforwards in Europe. The discrete effect of the PGW divestiture favorably adjusted the base rate in 2022 by 0.9%. See Note 23, "Income Taxes" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information.

Equity in Earnings of Unconsolidated Subsidiaries

Equity in earnings of unconsolidated subsidiaries for the year ended December 31, 2022 decreased by $12 million primarily related to a decline in year over year results reported by Mekonomen, which is our largest equity method investment, and the negative year over year effect resulting from the divestiture of a Self Service investment in the second quarter of 2022.

Foreign Currency Impact

We translate our statements of income at the average exchange rates in effect for the period. Relative to the rates used for the year ended December 31, 2021, the euro, pound sterling, Czech koruna, and Canadian dollar rates used to translate the 2022 statements of income decreased by 10.9%, 10.1%, 6.9%, and 3.6%, respectively. The negative translation effect of the change in foreign currencies against the U.S. dollar combined with the negative impact of realized and unrealized currency gains and losses for the year ended December 31, 2022 resulted in a $0.14 negative effect on diluted earnings per share relative to the prior year period.

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Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Revenue

The following table summarizes the changes in revenue by category (in millions):

Year Ended December 31, Percentage Change in Revenue

2021 2020 Organic Acquisition and Divestiture Foreign Exchange Total Change

The growth in parts and services revenue of 10.7% represented increases in segment revenue of 23.8% in Specialty, 10.3% in Europe, 6.6% in Wholesale - North America and 1.7% in Self Service. Organic parts and services revenue growth was 7.9%, which included a 0.4% negative effect from one fewer selling day for the year ended December 31, 2021, resulting in per day organic growth of 8.3%. The increase in other revenue of 42.5% was primarily driven by a $281 million organic increase, largely attributable to our Self Service and Wholesale - North America segments. Refer to the discussion of our segment results of operations for factors contributing to the changes in revenue by segment for the year ended December 31, 2021 compared to the year ended December 31, 2020.

Cost of Goods Sold

Cost of goods sold decreased to 59.3% of revenue for the year ended December 31, 2021 from 60.5% of revenue for the year ended December 31, 2020. The cost of goods sold decrease reflects impacts of 0.7% and 0.6% in our Europe and Wholesale - North America segments, respectively, partially offset by a 0.2% increase in our Self Service segment. Refer to the discussion of our segment results of operations for factors contributing to the changes in cost of goods sold as a percentage of revenue by segment for the year ended December 31, 2021 compared to the year ended December 31, 2020.

Selling, General and Administrative Expenses

Our SG&A expenses as a percentage of revenue decreased to 27.3% for the year ended December 31, 2021 from 28.1% for the year ended December 31, 2020. The SG&A expense decrease reflects impacts of 0.4% in each of our Europe and Self Service segments and 0.2% attributable to mix. The mix impact was a result of the increased revenues in our Specialty segment, as the lower SG&A expense percentage for the Specialty segment made up a larger percentage of the consolidated results, which had a favorable effect on SG&A expense as a percentage of revenue. Refer to the discussion of our segment results of operations for factors contributing to the changes in SG&A expenses as a percentage of revenue by segment for the year ended December 31, 2021 compared to the year endedDecember 31, 2020.

Restructuring and Transaction Related Expenses

The following table summarizes restructuring and transaction related expenses for the periods indicated (in millions):

Year Ended December 31,

Restructuring expenses $ 17 (1) $ 58 (2) $ (41)

Transaction related expenses 3 (3) 8 (4) (5)

Restructuring and transaction related expenses $ 20 $ 66 $ (46)

(1)Restructuring expenses for the year ended December 31, 2021 primarily consisted of (i) $11 million related to our global restructuring plans and (ii) $6 million related to our 1 LKQ Europe plan.

(2) Restructuring expenses for the year ended December 31, 2020 primarily consisted of (i) $49 million related to our global restructuring plans and (ii) $9 million related to our acquisition integration plans.

(3) Transaction related expenses for the year ended December 31, 2021 primarily relate to professional fees related to completed and potential transactions.

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(4) Transaction related expenses for the year ended December 31, 2020 primarily consisted of an $8 million adjustment for the resolution of a purchase price matter related to the Stahlgruber transaction for an amount above our prior estimate.

See Note 14, "Restructuring and Transaction Related Expenses" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information on our restructuring and integration plans.

(Gain) on Disposal of Businesses and Impairment of Net Assets Held for Sale

For the year ended December 31, 2021, we recorded immaterial impairment charges on net assets held for sale, compared to $3 million of net impairment charges on net assets held for sale for the year ended December 31, 2020 primarily attributable to our Europe segment. See "Net Assets Held for Sale" in Note 3, "Summary of Significant Accounting Policies" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information on the net loss on disposals and impairment charges.

Depreciation and Amortization

The following table summarizes depreciation and amortization for the periods indicated (in millions):

Year Ended December 31,

Depreciation and amortization $ 260 $ 272 $ (12)

(1)The increase in depreciation expense primarily reflected (i) $3 million from foreign currency translation primarily related to an increase in the euro and pound sterling exchange rates.

(2)The decrease in amortization expense primarily reflected (i) a decrease of $16 million related to the customer relationship intangible assets recorded upon our acquisition of Stahlgruber as the accelerated amortization of the customer relationship intangible assets resulted in lower amortization expense for the year ended December 31, 2021 compared to the prior year period, partially offset by (ii) a $3 million increase from foreign currency translation, primarily related to an increase in the euro exchange rate for the year ended December 31, 2021 compared to the prior year period.

Total Other Expense, Net

The following table summarizes the components of the change in Total other expense, net (in millions):

Year Ended December 31,

Loss on debt extinguishment 24 13 11 (2)

Interest income and other income, net (21) (16) (5) (3)

Total other expense, net $ 75 $ 101 $ (26)

(1)The lower interest expense is primarily related to (i) a $32 million decrease resulting from lower outstanding debt and lower interest rates for the year ended December 31, 2021 compared to the prior year period, partially offset by (ii) a $2 million increase from foreign currency translation, primarily related to an increase in the euro exchange rate.

(2)The $11 million increase in Loss on debt extinguishment is due to a $24 million charge recorded in April 2021 related to the redemption of the Euro Notes (2026) compared to a $13 million charge related to the redemption of the U.S. Notes (2023) in January 2020. Refer to "Euro Notes (2026/2028)" and "U.S. Notes (2023)" inNote 18, "Long-Term Obligations" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information related to the redemption of the Euro Notes (2026) and U.S. Notes (2023).

(3)The increase in Interest income and other income, net primarily related to (i) $11 million of fair value adjustments in 2021 for appreciation in our equity investments not accounted for under the equity method, (ii) $6 million in pension settlement losses in the prior year related to our primary defined benefit plan in the U.S. (the "U.S. Plan"), (iii) several individually immaterial factors that had a favorable impact of $1 million in the aggregate, partially offset by (iv) an $8 million reduction in proceeds related to insurance settlements compared to the prior year and (v) a $5 million reduction due to a decrease in non-operating income from a North American contract.

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Provision for Income Taxes

Our effective income tax rate for the year ended December 31, 2021 was 23.6%, compared to 28.2% for the comparable prior year period. The 2021 base rate decreased due to higher pretax income in our international operations in the current year. Additionally, the lower annual effective tax rate for 2021 included a 0.8% rate benefit primarily from the reversal of valuation allowances on certain interest deduction carryforwards in Europe because of improved profitability and lower interest expense. The prior year rate was increased by 1.7% due to valuation allowances on the tax benefit of net operating loss and interest deduction carryforwards in certain jurisdictions where realization was uncertain. See Note 23, "Income Taxes" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information.

Equity in Earnings of Unconsolidated Subsidiaries

Equity in earnings of unconsolidated subsidiaries for the year ended December 31, 2021 increased by $18 million related to improved year over year results reported by Mekonomen, which is our largest equity method investment, and a Self Service investment, which generated income in 2021 after posting losses in 2020.

Foreign Currency Impact

We translate our statements of income at the average exchange rates in effect for the period. Relative to the rate used for the year ended December 31, 2020, pound sterling, Canadian dollar, Czech koruna and euro rates used to translate the 2021 statements of income increased by 7.1%, 6.9%, 6.7% and 3.6%, respectively. The positive translation effect of the change in foreign currencies against the U.S. dollar combined with the positive impact of realized and unrealized currency gains and losses for the year ended December 31, 2021 resulted in a $0.03 positive effect on diluted earnings per share relative to the prior year period.

Net Income Attributable to Continuing Noncontrolling Interest.

Net income attributable to continuing noncontrolling interest for the year ended December 31, 2021 decreased $1 million compared to the year ended December 31, 2020.

Results of Operations—Segment Reporting

We have four reportable segments: Wholesale - North America, Europe, Specialty and Self Service.

We have presented the growth of our revenue and profitability in our operations on both an as reported and a constant currency basis. The constant currency presentation, which is a non-GAAP measure, excludes the impact of fluctuations in foreign currency exchange rates. We believe providing constant currency information provides valuable supplemental information regarding our growth and profitability, consistent with how we evaluate our performance, as this statistic removes the translation impact of exchange rate fluctuations, which are outside of our control and do not reflect our operational performance. Constant currency revenue and Segment EBITDA results are calculated by translating prior year revenue and Segment EBITDA in local currency using the current year's currency conversion rate. This non-GAAP financial measure has important limitations as an analytical tool and should not be considered in isolation or as a substitute for an analysis of our results as reported under US GAAP. Our use of this term may vary from the use of similarly-titled measures by other issuers due to potential inconsistencies in the method of calculation and differences due to items subject to interpretation. In addition, not all companies that report revenue or profitability on a constant currency basis calculate such measures in the same manner as we do, and accordingly, our calculations are not necessarily comparable to similarly-named measures of other companies and may not be appropriate measures for performance relative to other companies.

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The following table presents our financial performance, including third party revenue, total revenue and Segment EBITDA, by reportable segment for the periods indicated (in millions):

Year Ended December 31,

Third Party Revenue

Total Revenue

Eliminations (3) (6) (5)

Segment EBITDA

The key measure of segment profit or loss reviewed by our chief operating decision maker, our Chief Executive Officer, is Segment EBITDA. Segment EBITDA includes revenue and expenses that are controllable by the segment. Corporate general and administrative expenses are allocated to the segments based on usage, with shared expenses apportioned based on the segment's percentage of consolidated revenue. We calculate Segment EBITDA as EBITDA excluding restructuring and transaction related expenses (which includes restructuring expenses recorded in Cost of goods sold); change in fair value of contingent consideration liabilities; other gains and losses related to acquisitions, equity method investments, or divestitures; equity in losses and earnings of unconsolidated subsidiaries; equity investment fair value adjustments; impairment charges; and direct impacts of the Ukraine/Russia conflict and related sanctions (including provisions for and subsequent adjustments to reserves for asset recoverability and expenditures to support our employees and their families). EBITDA, which is the basis for Segment EBITDA, is calculated as net income excluding discontinued operations, depreciation, amortization, interest (which includes gains and losses on debt extinguishment) and income tax expense. See Note 24, "Segment and Geographic Information" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for a reconciliation of total Segment EBITDA to net income.

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Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Wholesale - North America

Third Party Revenue

The following table summarizes the changes in third party revenue by category in our Wholesale - North America segment (in millions):

Year Ended December 31, Percentage Change in Revenue

(1)Parts and services organic revenue increased 11.4% for the year ended December 31, 2022 compared to the prior year, primarily driven by pricing initiatives which focused on offsetting inflation on input costs. Aftermarket collision parts volumes decreased for the year ended December 31, 2022, due to ocean freight delays and supply chain challenges in the first half of the year. As these issues eased in the second half, aftermarket collision parts volumes showed year over year improvement. Recycled parts volume from our salvage business was roughly flat year over year.

(2)Organic other revenue increased 2.5%, or $8 million, related to (i) a $22 million increase in revenue from other scrap (e.g., aluminum) and cores due to higher prices as well as higher volumes, partially offset by (ii) a $9 million decrease in revenue from precious metals (platinum, palladium, and rhodium) primarily due to lower prices partially offset by higher volumes and (iii) a $5 million decrease in revenue from scrap steel due to lower prices partially offset by higher volumes.

(3)Acquisition and divestiture revenue was a net decrease of $281 million primarily due to the divestiture of PGW in the second quarter of 2022. See "Other Divestitures (Not Classified in Discontinued Operations)" in Note 2, "Discontinued Operations and Divestitures" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information on the divestiture of PGW.

Segment EBITDA

Segment EBITDA increased $83 million, or 10.7%, for the year ended December 31, 2022 compared to the prior year, despite the $18 million negative year over year effect related to the PGW business, which we divested in the second quarter of 2022. The increase is attributable to higher prices on parts and productivity initiatives helping to offset inflationary pressures related to ocean freight, labor, supplies and fuel. The increase was partially offset by decreases attributable to precious metals and scrap steel. We estimate that precious metals and scrap steel pricing had an unfavorable effect of $41 million, or 0.8%, on Segment EBITDA margin relative to the comparable prior year period.

The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Wholesale - North America segment:

Wholesale - North America Percentage of Total Segment Revenue

Segment EBITDA for the year ended December 31, 2021 17.6 %

Increase (decrease) due to:

Change in gross margin 0.6 % (1)

Change in segment operating expenses 0.4 % (2)

Change in other income and expenses, net 0.1 %

Segment EBITDA for the year ended December 31, 2022 18.7 %

(1)The increase in gross margin of 0.6% was driven by (i) a 0.6% mix benefit resulting from the PGW divestiture in the second quarter and (ii) productivity and pricing initiatives which focused on offsetting inflation on product cost and inbound freight, partially offset by (iii) an unfavorable impact of 0.6% from a decrease in commodity prices.

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(2)The decrease in segment operating expenses as a percentage of revenue primarily reflects favorable impacts of (i) 0.3% related to personnel costs due to lower incentive compensation, (ii) 0.2% from lower charitable contributions, and (iii) other individually immaterial factors representing a 0.2% favorable impact in the aggregate, partially offset by (iv) a 0.3% unfavorable impact related to professional fees.

Europe

Third Party Revenue

The following table summarizes the changes in third party revenue by category in our Europe segment (in millions):

Year Ended December 31, Percentage Change in Revenue

(1)Parts and services organic revenue for the year ended December 31, 2022 increased by 5.1% (5.6% on a per day basis), primarily driven by pricing initiatives which focused on offsetting inflation on input costs across all geographies. The organic revenue growth across most of our European operations was partially offset by 0.4% of a negative effect on certain operations and product lines due to the Ukraine/Russia conflict.

(2)Exchange rates decreased our revenue growth by $654 million, or 10.8%, primarily due to the stronger U.S. dollar against the euro, pound sterling and Czech koruna for the year ended December 31, 2022 relative to the prior year.

Segment EBITDA

Segment EBITDA decreased $33 million, or 5.4%, for the year ended December 31, 2022 compared to the prior year. Our Europe Segment EBITDA included a negative year over year impact of $71 million related to the translation of local currency results into U.S. dollars at lower exchange rates than those experienced during the year ended December 31, 2021. On a constant currency basis (i.e., excluding the translation impact), Segment EBITDA increased $38 million, or 6.1%, compared to the prior year. Refer to the Foreign Currency Impact discussion within the Results of Operations–Consolidated section above for further detail regarding foreign currency impact on our results for the year ended December 31, 2022.

The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Europe segment:

Europe Percentage of Total Segment Revenue

Segment EBITDA for the year ended December 31, 2021 10.2 %

Increase (decrease) due to:

Change in gross margin 0.1 % (1)

Change in segment operating expenses (0.1) % (2)

Segment EBITDA for the year ended December 31, 2022 10.2 %

(1)The increase in gross margin was primarily attributable to favorable impacts of pricing initiatives and margin improvement initiatives undertaken to support profitable revenue growth despite inflationary pressures.

(2)The increase in segment operating expenses as a percentage of revenue primarily reflects unfavorable impacts of (i) 0.4% from increased freight, vehicle, and fuel expenses due to inflationary pressures and supply chain constraints and (ii) 0.2% from increased personnel costs primarily due to inflationary pressures, partially offset by (iii) other individually immaterial factors representing a 0.5% favorable impact in the aggregate.

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Specialty

Third Party Revenue

The following table summarizes the changes in third party revenue by category in our Specialty segment (in millions):

Year Ended December 31, Percentage Change in Revenue

Other revenue — — — % — % — % — %

(1)Parts and services organic revenue for the year ended December 31, 2022, decreased by 9.9% due to strong comparative growth for the year ended December 31, 2021, when parts and services organic revenue growth was 20.2%; demand softness from lower new vehicle sales caused by supply chain challenges; and a decrease in drop shipment volumes.

(2)Acquisition related growth for the year ended December 31, 2022 reflected revenue from our acquisitions of three Specialty businesses from the beginning of 2021 through the one-year anniversary of the acquisition dates.

Segment EBITDA

Segment EBITDA decreased $24 million, or 10.9%, for the year ended December 31, 2022 compared to the prior year primarily due to the organic revenue decline and the negative effect of inflation on overhead expenses.

The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Specialty segment:

Specialty Percentage of Total Segment Revenue

Segment EBITDA for the year ended December 31, 2021 12.0 %

Increase (decrease) due to:

Change in gross margin 0.5 % (1)

Change in segment operating expenses (1.4) % (2)

Segment EBITDA for the year ended December 31, 2022 11.1 %

(1)The increase in gross margin primarily was driven by pricing initiatives which focused on offsetting inflation on input costs and lower customer rebate levels due to lower customer attainment of rebate targets, partially offset by a 0.8% unfavorable impact from acquisitions.

(2)The increase in segment operating expenses as a percentage of revenue primarily reflects unfavorable impacts of (i) 0.8% in personnel costs primarily as a result of wage inflation and lower operating leverage due to the organic parts and services revenue decline, (ii) 0.5% in vehicle and fuel expenses primarily due to higher fuel costs, (iii) 0.3% in fixed facility expenses as a result of lower operating leverage due to the organic parts and services revenue decline, and (iv) several individually immaterial factors that had an unfavorable impact of 0.4% in the aggregate, partially offset by (v) a favorable impact of 0.6% from operating expense synergies and leverage generated from the 2021 acquisitions.

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Self Service

Third Party Revenue

The following table summarizes the changes in third party revenue by category in our Self Service segment (in millions):

Year Ended December 31, Percentage Change in Revenue

Total third party revenue $ 715 $ 787 (7.3) % (1.8) % — % (9.1) %

(1)Parts and services organic revenue increased 9.9% for the year ended December 31, 2022 compared to the prior year, primarily driven by pricing initiatives which focused on offsetting inflation on input costs resulting from greater competition for vehicles.

(2)Other organic revenue decreased 13.4%, or $78 million, year over year due to (i) a $58 million decrease in revenue from precious metals (platinum, palladium, and rhodium) due to lower prices and, to a lesser extent, lower volumes, and (ii) a $33 million decrease in revenue from scrap steel due to lower volumes and, to a lesser extent, lower prices, partially offset by (iii) a $13 million increase in revenue from other scrap (including aluminum) and cores primarily related to higher prices.

(3)Acquisition and divestiture revenue was a net decrease of $14 million, or 1.8% primarily due to the divestiture of a business in the third quarter of 2022. See "Other Divestitures (Not Classified in Discontinued Operations)" in Note 2, "Discontinued Operations and Divestitures" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information on the divestiture.

Segment EBITDA

Segment EBITDA decreased $92 million, or 52.3%, for the year ended December 31, 2022 compared to the prior year. The decrease is primarily attributable to unfavorable movements in commodity prices compared to the prior year. Decreases in precious metals prices contributed an estimated $34 million decline in Segment EBITDA relative to the year ended December 31, 2021. In addition, net sequential changes in scrap steel prices in our self service operations had a $15 million unfavorable impact on Segment EBITDA during the year ended December 31, 2022, compared to a $26 million favorable impact during the year ended December 31, 2021. The unfavorable impacts for the year ended December 31, 2022 resulted from the decrease in scrap steel prices between the date we purchased a vehicle, which influences the price we pay for a vehicle, and the date we scrapped a vehicle, which influences the price we receive for scrapping a vehicle. We estimate that precious metals and scrap steel pricing had an unfavorable effect of 8.6% on Segment EBITDA margin relative to the comparable prior year period.

The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Self Service segment:

Self Service Percentage of Total Segment Revenue

Segment EBITDA for the year ended December 31, 2021 22.3 %

Increase (decrease) due to:

Change in gross margin (6.6) % (1)

Change in segment operating expenses (4.1) % (2)

Change in other income and expenses, net 0.1 %

Segment EBITDA for the year ended December 31, 2022 11.7 %

(1)The decrease in gross margin reflects (i) an unfavorable impact of 7.1% resulting from movements in metals prices partially offset by (ii) a net favorable impact due to pricing initiatives for parts and services implemented to mitigate the effects of higher car costs.

(2)The increase in segment operating expenses as a percentage of revenue reflects (i) a negative leverage effect of 2.9% from decreases in metals revenue (ii) an unfavorable impact of 0.4% due to higher advertising expense, and (iii) other individually immaterial factors representing a 0.8% unfavorable impact in the aggregate.

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Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

Wholesale - North America

Third Party Revenue

The following table summarizes the changes in third party revenue by category in our Wholesale - North America segment (in millions):

Year Ended December 31, Percentage Change in Revenue

(1)Parts and services organic revenue increased 5.8% (6.7% on a per day basis) for the year ended December 31, 2021 compared to the prior year period, primarily driven by pricing and growth from recycled and remanufactured major mechanical parts and aftermarket automotive glass products. While mobility statistics improved relative to 2020, aftermarket collision parts revenue was roughly flat year-over-year due to the constraints on availability of parts caused by supply chain issues in 2021.

(2)The $84 million year over year organic increase in other revenue is primarily related to (i) a $36 million increase in revenue from other scrap and cores primarily related to higher prices and higher volumes, (ii) a $24 million increase in revenue from scrap steel due to higher prices and to a lesser extent, higher volumes, (iii) a $24 million increase in revenue from precious metals (platinum, palladium, and rhodium) primarily due to higher prices.

Segment EBITDA

Segment EBITDA increased $104 million, or 15.7%, for the year ended December 31, 2021 despite the impact of two fewer selling days compared to the prior year period.This increase is attributable to margin initiatives, rightsizing actions, metals prices and the favorable effect from the revenue recovery compared to the prior year when the COVID-19 impact was more severe. These were partially offset by negative impacts due to aftermarket fill rates and inflationary increases in costs. Increases in precious metals prices contributed an estimated $18 million increase in Segment EBITDA relative to the year ended December 31, 2020. Additionally, net sequential increases in scrap steel prices in our salvage operations had a $16 million favorable impact on Segment EBITDA for the year ended December 31, 2021, compared to a $3 million favorable impact for the year ended December 31, 2020. We estimate that precious metals and scrap steel pricing had a favorable effect of $31 million, or 0.6%, on Segment EBITDA margin relative to the comparable prior year period.

The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Wholesale - North America segment:

Wholesale - North America Percentage of Total Segment Revenue

Segment EBITDA for the year ended December 31, 2020 16.5 %

Increase (decrease) due to:

Change in gross margin 1.8 % (1)

Change in segment operating expenses (0.5) % (2)

Segment EBITDA for the year ended December 31, 2021 17.6 %

(1) The increase in gross margin was favorable primarily due to the positive impact of higher precious metals and scrap steel prices, pricing initiatives and cost reductions from operational efficiencies and rightsizing efforts. Compared to the prior year, input costs have risen, with (i) inflationary pressures impacting product and freight costs in aftermarket and (ii) limited supply combined with heightened competition at auctions contributing to higher salvage costs. We are adjusting prices dynamically to address input cost increases and market conditions such as inventory availability and demand, and, in some cases, we experienced a margin benefit in 2021 as higher prices were enacted ahead of turning the higher cost inventory.

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(2) The increase in segment operating expense as a percentage of revenue primarily reflects (i) an unfavorable impact of 0.6% related to personnel costs due to higher incentive compensation, (ii) an unfavorable impact of 0.2% for increased charitable contributions, partially offset by (iii) a positive leverage effect of 0.2% from facility expenses, which are largely fixed, and (iv) several other immaterial favorable factors totaling 0.1%.

(3) The unfavorable impact in other expense, net and net income attributable to continuing noncontrolling interest of 0.2% was primarily related to higher insurance proceeds received for the year ended December 31, 2020.

Europe

Third Party Revenue

The following table summarizes the changes in third party revenue by category in our Europe segment (in millions):

Year Ended December 31, Percentage Change in Revenue

(1)Parts and services organic revenue for the year ended December 31, 2021 increased by 6.2% as the negative pandemic effect on volume in 2020 was more severe than in 2021. Not all regions were impacted by the pandemic at the same time and to the same degree as in 2020, and the easing of lockdown measures has varied across the continent in 2021. These conditions created a different growth profile for each of our European businesses. While most of our businesses reported year over year growth, Central and Eastern Europe, the U.K. and Benelux reported the largest incremental increases for the year ended December 31, 2021.

(2)Acquisition and divestiture related decline for the year ended December 31, 2021 was primarily as a result of the disposals of a non-core telecommunications operation in Germany in the second quarter of 2020 and five additional smaller disposals in 2021 and 2020.

(3)Compared to the prior year, exchange rates increased our revenue growth by $251 million, or 4.6%, primarily due to the weaker U.S. dollar against the euro, pound sterling and Czech koruna for the year ended December 31, 2021 relative to the prior year period.

Segment EBITDA

Segment EBITDA increased $190 million, or 44.5%, for the year ended December 31, 2021 compared to the prior year. Our Europe Segment EBITDA included a positive year over year impact of $20 million related to the translation of local currency results into U.S. dollars at higher exchange rates than those experienced for the year ended December 31, 2020. On a constant currency basis (i.e., excluding the translation impact), Segment EBITDA increased by $170 million, or 39.8%, compared to the prior year. Refer to the Foreign Currency Impact discussion within the Results of Operations–Consolidated section above for further detail regarding foreign currency impact on our results for the year ended December 31, 2021.

The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Europe segment:

Europe Percentage of Total Segment Revenue

Segment EBITDA for the year ended December 31, 2020 7.8 %

Increase (decrease) due to:

Change in gross margin 1.5 % (1)

Change in segment operating expenses 0.8 % (2)

Segment EBITDA for the year ended December 31, 2021 10.2 %

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(1) The increase in gross margin was primarily attributable to a favorable impact of 1.4% as a result of net price increases implemented in response to inflationary pressures that are impacting product and freight costs and other margin improvement initiatives related to procurement. Additionally, there was a 0.2% benefit from the disposal of non-core operations in 2020.

(2) The decrease in segment operating expenses as a percentage of revenue reflects favorable impacts of (i) 0.4% from bad debt expense due to customers' improved solvency and an increase in reserve in the prior year related to the COVID-19 pandemic, (ii) 0.3% from freight, vehicle and fuel expenses due to higher internet and mail order sales in the prior year, which have higher freight costs, and (iii) several individually immaterial factors that had a favorable impact of 0.3% in the aggregate. These were partially offset by personnel costs that had an unfavorable impact of 0.2% compared to the prior year due to government grants received in the prior year to cover employee costs in countries such as the U.K. and Germany (a lesser amount was received in 2021) and increased incentive compensation that was partially offset by a favorable leverage effect and headcount reductions.

Specialty

Third Party Revenue

The following table summarizes the changes in third party revenue by category in our Specialty segment (in millions):

Year Ended December 31, Percentage Change in Revenue

Other revenue — — — % — % — % — %

(1)Parts and services organic revenue increased 20.2% (21.1% on a per day basis) for the year ended December 31, 2021 compared to the prior year despite two fewer selling days. The organic increase was primarily due to strong demand for our products across all channels of our business. We believe the revenue growth was driven by our competitive advantage with our delivery service teams that enabled us to keep up with the strong demand and have more available inventory than our competitors.

(2)Acquisition related growth for 2021 reflected revenue from our acquisitions of four Specialty businesses since the beginning of 2020 through the one-year anniversary of the acquisition dates.

Segment EBITDA

Segment EBITDA increased $60 million, or 37.2%, for the year ended December 31, 2021 compared to the prior year primarily due to increased revenue as noted above and expanded margin as discussed below.

The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Specialty segment:

Specialty Percentage of Total Segment Revenue

Segment EBITDA for the year ended December 31, 2020 10.8 %

Increase (decrease) due to:

Change in gross margin 0.9 % (1)

Change in segment operating expenses 0.2 % (2)

Segment EBITDA for the year ended December 31, 2021 12.0 %

(1) The increase in gross margin primarily reflects lower discounting to recover increased input costs and, to a lesser extent, favorable product and channel mix.

(2) The decrease in segment operating expenses as a percentage of revenue reflects a favorable impact of (i) 0.3% in personnel costs, partially offset by (ii) an unfavorable impact of 0.2% due to increased incentive compensation.

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Self Service

Third Party Revenue

The following table summarizes the changes in third party revenue by category in our Self Service segment (in millions):

Year Ended December 31, Percentage Change in Revenue

Parts & services revenue $ 207 $ 203 1.7 % (1) — % — % 1.7 %

(1)Parts and services organic revenue increased 1.7% for the year ended December 31, 2021 compared to the prior year period, primarily driven by pricing initiatives.

(2)The 49.0%, or $190 million, year over year decrease in other revenue is related to (i) a $109 million increase in revenue from scrap steel related to higher prices, (ii) a $56 million increase in revenue from precious metals (platinum, palladium, and rhodium) due to higher prices, and (iii) a $25 million increase in revenue from other scrap (including aluminum) and cores primarily related to higher prices.

Segment EBITDA

Segment EBITDA increased $62 million, or 54.4%, in the year ended December 31, 2021 compared to the prior year period. The increase is primarily attributable to favorable movements in commodity prices compared to the prior year. Increases in precious metals prices contributed an estimated $43 million increase in Segment EBITDA relative to the year ended December 31, 2020. In addition, net sequential changes in scrap steel prices in our self service operations had an $26 million favorable impact on Segment EBITDA during the year ended December 31, 2021, compared to a $13 million favorable impact during the year ended December 31, 2020.We estimate that precious metals and scrap steel pricing had a favorable effect of $56 million, or 3.1%, on Segment EBITDA margin relative to the comparable prior year period.

The following table summarizes the changes in Segment EBITDA as a percentage of revenue in our Self Service segment:

Self Service Percentage of Total Segment Revenue

Segment EBITDA for the year ended December 31, 2020 19.1 %

Increase (decrease) due to:

Change in gross margin (3.0) % (1)

Change in segment operating expenses 6.2 % (2)

Segment EBITDA for the year ended December 31, 2021 22.3 %

(1)The decrease in gross margin primarily reflects (i) an unfavorable impact of 3.5% resulting from movements in metals prices.

(2)The increase in segment operating expense as a percentage of revenue reflects(i) a positive leverage effect of 7.1% from increases in metals revenue, partially offset by (ii) a 0.7% unfavorable impact on personnel costs primarily related to increased incentive compensation and salaries and wages due to inflationary wage adjustments, and(iii) other individually immaterial factors representing a 0.2% unfavorable impact in the aggregate.

Liquidity and Capital Resources

On January 5, 2023, we entered into a new credit agreement and terminated the senior secured credit agreement ("Prior Credit Agreement"), scheduled to mature on January 29, 2024. The new credit agreement includes a $500 million unsecured term loan, payable in full on January 5, 2026, and an unsecured revolving credit facility of up to a U.S. dollar equivalent of $2.0 billion, which matures on January 5, 2028. See Note 25, "Subsequent Events" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information related to the new credit agreement.

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The following table summarizes liquidity data as of the dates indicated (in millions):

Adjusted(4) December 31,

(1) Debt amounts reflect the gross values to be repaid (excluding debt issuance costs of $6 million and $12 million as of December 31, 2022, and 2021, respectively).

(2) Debt amounts reflect the gross values to be repaid in the next 12 months (excluding immaterial debt issuance costs as of December 31, 2022, and 2021, respectively).

(3) Capacity under credit facilities includes our revolving credit facilities and availability under credit facilities is reduced by our outstanding letters of credit.

(4) Amounts presented represent the termination of the Prior Credit Agreement and inclusion of the new credit agreement as if both were in effect as of December 31, 2022. See Note 25, "Subsequent Events" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information related to the new credit agreement.

(5) Debt amount presented above reflects the gross values to be repaid (excluding debt issuance costs of $13 million as of December 31, 2022).

We assess our liquidity in terms of our ability to fund our operations and provide for expansion through both internal development and acquisitions. Our primary sources of liquidity are cash flows from operations and our credit facilities. We utilize our cash flows from operations to fund working capital and capital expenditures, with the excess amounts going towards funding acquisitions, paying down outstanding debt, paying dividends or repurchasing our common stock. As we have pursued acquisitions as part of our historical growth strategy, our cash flows from operations have not always been sufficient to cover our investing activities. To fund our acquisitions, we have accessed various forms of debt financing, including revolving credit facilities and senior notes. We currently believe we have sufficient access to capital markets to support our future growth objectives.

As of December 31, 2022, we had debt outstanding and additional available sources of financing as follows:

•Senior secured credit facilities composed of $3,150 million in revolving credit ($1,786 million outstanding at December 31, 2022), bearing interest at variable rates, with availability reduced by $69 million of amounts outstanding letters of credit

•Euro Notes (2024) totaling $535 million (€500 million), maturing in April 2024 and bearing interest at a 3.875% fixed rate

•Euro Notes (2028) totaling $268 million (€250 million) maturing in April 2028 and bearing interest at a 4.125% fixed rate

We had approximately $1,295 million available under our credit facilities in place as of December 31, 2022. Combined with $278 millionof cash and cash equivalents at December 31, 2022, we had approximately $1,573 million in available liquidity, an increase of $105 million from our available liquidity as of December 31, 2021.

With our ability to generate free cash flow, we were comfortable with reducing the size of our credit facilities from $3.15 billion to $2.5 billion when we terminated the Prior Credit Agreement and entered into the new credit agreement in January 2023. We believe that our current liquidity and cash expected to be generated by operating activities in future periods will be sufficient to meet our current operating and capital requirements. Our capital allocation strategy includes spending to support growth driven capital projects, complete synergistic acquisitions, and return stockholder value through the payment of dividends and repurchasing shares of our common stock.

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A summary of the dividend activity for our common stock for the year ended December 31, 2022 is as follows:

Dividend Amount Declaration Date Record Date Payment Date

On February 21, 2023, our Board of Directors declared a quarterly cash dividend of $0.275 per share of common stock, payable on March 30, 2023, to stockholders of record at the close of business on March 16, 2023.

We believe that our future cash flow generation will permit us to continue paying dividends in future periods; however, the timing, amount and frequency of such future dividends will be subject to approval by our Board of Directors, and based on considerations of capital availability, and various other factors, many of which are outside of our control.

With $1,573 million of total liquidity as of December 31, 2022 ($923 million on an adjusted basis) and $34 million of current maturities, we have access to funds to meet our near term commitments. We have a surplus of current assets over current liabilities, which further reduces the risk of short-term cash shortfalls.

Our total liquidity includes availability under our Prior Credit Agreement, which included the two financial maintenance covenants presented below. The required debt covenants per the Prior Credit Agreement and our actual ratios with respect to those covenants were calculated in accordance with the Prior Credit Agreement as follows as of December 31, 2022:

Covenant Level Ratio Achieved as of December 31, 2022

Maximum net leverage ratio 4.00 : 1.00 1.4

Minimum interest coverage ratio 3.00 : 1.00 26.5

The terms net leverage ratio and minimum interest coverage ratio used in the Prior Credit Agreement are specifically calculated per the Prior Credit Agreement and differ in specified ways from comparable US GAAP or common usage terms. The new credit agreement contains similar financial covenants but replaces the maximum net leverage ratio with a maximum total leverage ratio (calculated as 1.5x as of December 31, 2022) while maintaining the same 4.00 : 1.00 requirement.

Our Prior Credit Agreement contained customary covenants that imposed limitations and conditions on our ability to enter into certain transactions. During the second quarter of 2022, two ratings agencies, S&P Global Ratings and Moody's Investors Service, upgraded our issuer credit rating to an investment grade rating of 'BBB-' and 'Baa3', respectively, and rated our outlook as stable. With the assignment of an investment grade rating, we were no longer required to comply with certain restrictive covenants under the Prior Credit Agreement, and we were no longer required to provide collateral to secure the borrowings under the Prior Credit Agreement. We were in compliance with all applicable covenants under our Prior Credit Agreement and new credit agreement as of December 31, 2022. The new credit agreement also does not have restrictions on our ability to enter into certain transactions, such as dividend payments, share repurchases and asset sales.

The indentures relating to our Euro Notes do not include financial maintenance covenants, and the indentures will not restrict our ability to draw funds under the credit facility. The indentures do not prohibit amendments to the financial covenants under the credit facility as needed.

While we believe that we have adequate capacity under our existing credit facilities, from time to time we may need to raise additional funds through public or private financing, strategic relationships or modification of our existing credit facilities. There can be no assurance that additional funding, or refinancing of our credit facilities, if needed, will be available on terms attractive to us, or at all. Furthermore, any additional equity financing may be dilutive to stockholders, and debt financing, if available, may involve restrictive covenants or higher interest costs. Our failure to raise capital if and when needed could have a material adverse effect on our business, operating results, and financial condition.

We utilize supply chain financing arrangements, which allow us to improve our operating cash flows by extending payment terms with certain suppliers who participate in the programs. Financial institutions participate in the supply chain financing initiative on an uncommitted basis and can cease purchasing receivables from our suppliers at any time. The initiative is at the sole discretion of both the supplier and the financial institution on terms that are negotiated between them. In the future, if the

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financial institutions do not continue to purchase receivables from our suppliers under the initiative, the participating suppliers may need to renegotiate their payment terms with us, which in turn could cause our borrowings under our revolving credit facility to increase. All outstanding payments owed under the initiative to the participating financial institutions are recorded within Accounts payable in our Consolidated Balance Sheets. As of December 31, 2022, we had approximately $248 million of Accounts payable outstanding under the arrangements.

In the past, we have held interest rate swaps to hedge the variable rates on a portion of our credit agreement borrowings and currency swaps that contain an interest rate swap component and a foreign currency forward contract component. As of December 31, 2022, we did not have any of these contracts outstanding. The weighted average interest rate on borrowings outstanding under our Prior Credit Agreement was 4.2% at December 31, 2022. Including our senior notes, our overall weighted average interest rate on borrowings was 4.2% at December 31, 2022. Prior to entering into the new credit agreement on January 5, 2023, our borrowings in U.S. dollars accrued interest at London Inter-Bank Offered Rate (i.e. LIBOR). Under the new credit agreement, our borrowings will bear interest at 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. We do not expect the change in benchmark rates will have a material impact on our results of operations, financial position or liquidity. However, we project that the increase in benchmark interest rates in the United States and Europe in 2022 and potential for further increases in 2023 to combat rising inflation will drive higher interest expense of $45 million to $55 million in 2023 relative to 2022. See Note 18, "Long-Term Obligations" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for information related to our borrowings and related interest.

We had outstanding Prior Credit Agreement borrowings of $1,786 million and $1,887 million at December 31, 2022 and 2021, respectively. Of these amounts, there were no current maturities at December 31, 2022 or 2021. The new credit agreement has no scheduled principal payments in 2023.

The scheduled maturities of long-term obligations outstanding at December 31, 2022 are as follows (in millions):

Adjusted(4)

(1)Long-term obligations maturing by December 31, 2023 include $15 million of short-term debt that may be extended beyond the current year ending December 31, 2023.

(2)The total debt amounts presented above reflect the gross values to be repaid (excluding debt issuance costs of $6 million as of December 31, 2022).

(3)The total debt amounts presented above reflect the gross values to be repaid (excluding debt issuance costs of $13 million as of December 31, 2022).

(4)Amounts presented represent the termination of the Prior Credit Agreement and inclusion of the new credit agreement as if both were in effect as of December 31, 2022. See Note 25, "Subsequent Events" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information related to the new credit agreement.

As of December 31, 2022, the Company had cash and cash equivalents of $278 million, of which $227 million was held by foreign subsidiaries. In general, it is our practice and intention to permanently reinvest the undistributed earnings of our foreign subsidiaries. We believe that we have sufficient cash flow and liquidity to meet our financial obligations in the U.S. without repatriating our foreign earnings. We may, from time to time, choose to selectively repatriate foreign earnings if doing so supports our financing or liquidity objectives. Distributions of dividends from our foreign subsidiaries, if any, would be generally exempt from further U.S. taxation, either as a result of the 100% participation exemption under the Tax Cuts and Jobs Act enacted in 2017, or due to the previous taxation of foreign earnings under the transition tax and the Global Intangible Low-Taxed Income regime ("GILTI").

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The procurement of inventory is the largest operating use of our funds. We normally pay for aftermarket product purchases on standard payment terms or at the time of shipment, depending on the manufacturer and the negotiated payment terms. We normally pay for salvage vehicles acquired at salvage auctions and under direct procurement arrangements at the time that we take possession of the vehicles.

The following table sets forth a summary of our aftermarket and manufactured inventory procurement for the years ended December 31, 2022, and 2021 (in millions):

Year Ended December 31,

(1)Inventory purchases across the Wholesale - North America segment increased for the year ended December 31, 2022 compared to the prior year primarily due to required restocking to keep up with the demand for our products.

(2)The decrease in inventory purchases in our Europe segment included a decrease of $415 million attributable to the decrease in the value of the euro, and to a lesser extent, the pound sterling for the year ended December 31, 2022 compared to the prior year. On a constant currency basis, inventory purchases increased compared to the prior year, due to required restocking to keep up with the demand for our products as well as purchases to improve availability for customers in certain regions.

(3)The decrease in inventory purchases in the Specialty segment compared to the prior year was primarily due to matching inventory levels with demand. This was partially offset by inventory purchases made by companies acquired in the second half of 2021.

The following table sets forth a summary of our global wholesale salvage and self service procurement for the years ended December 31, 2022, and 2021 (in thousands):

Year Ended December 31,

Wholesale - North America salvage vehicles 246 239 2.9 %

Europe wholesale salvage vehicles 29 26 11.5 %

Self Service salvage vehicles 517 542 (4.6) %

Wholesale - North America salvage purchases in 2022 increased relative to the prior year due to limitations in the prior year on vehicles at auctions. Self Service salvage vehicle purchases in 2022 decreased due to increased market competition and decreased availability of vehicles.

The following table summarizes the components of the change in cash provided by operating activities (in millions):

Operating Cash

Increase (decrease) due to:

Working capital accounts: (1)

Receivables, net —

Inventories (107)

Accounts payable (14)

Other operating activities 4 (2)

(1) Cash flows related to our primary working capital accounts can be volatile as the sales and purchases, payments and collections can be timed differently from period to period.

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•Receivables, net had a similar impact on cash provided by operating activities year over year. This was driven by a $26 million outflow for our Wholesale - North America segment primarily due to an increase in organic revenue in 2022 compared to 2021, which translated to higher receivables balances in 2022. This was partially offset by a $14 million inflow for our Europe segment and a $12 million inflow for our Specialty segment, both due to lesser overall cash outflows in 2022 as a result of collections and timing of sales.

•Inventories represented $107 million in incremental cash outflows for the year ended December 31, 2022 compared to the same period of 2021 as a result of inventory increases in the (i) Wholesale - North America segment of $151 million primarily attributable to increased cash paid for inventory in the current year as a result of higher input costs and volume increases due to strong demand and (ii) Europe segment of $101 million, primarily attributable to increased cash paid for inventory in the current year as a result of higher input costs, volume increases due to strong demand and strategic inventory purchases to curb the impacts of supply chain constraints, which was partially offset by inventory decreases in the (iii) Specialty segment of $127 million primarily related to decreasing inventory purchasing levels to align with softening demand and (iv) Self Service segment of $18 million primarily related to lower vehicle purchases in 2022 due to increased market competition and decreased availability of vehicles.

•Accounts payable was a $14 million detriment to cash provided by operating activities year over year. This change was primarily attributable a lower cash inflow in our Europe segment of $187 million and a cash outflow of $38 million from our Specialty segment partially offset by our Wholesale - North America segment which contributed a $211 million cash inflow driven by higher accounts payable balances and timing of payments.

(2) Primarily related to offsetting effects from (i) non-cash items in net income, including gain on disposal of businesses, refer to "Other Divestitures (Not Classified in Discontinued Operations)" in Note 2, "Discontinued Operations and Divestitures," for further information, (ii) cash paid for taxes, and (iii) a number of individually insignificant fluctuations in cash paid for other operating activities.

Net cash provided by investing activities totaled $172 million and net cash used in investing activities totaled $419 million for the years ended December 31, 2022 and 2021, respectively. Proceeds from the disposal of businesses (primarily PGW) were $399 million for the year ended December 31, 2022 compared to $7 million for the year ended December 31, 2021. Property, plant and equipment purchases were $222 million for the year ended December 31, 2022 compared to $293 million in the prior year. We invested $124 million of cash, net of cash acquired, in business acquisitions for the year ended December 31, 2021 compared to $4 million in 2022.

The following table reconciles Net Cash Provided by Operating Activities to Free Cash Flow (in millions):

Year Ended December 31,

Net cash provided by operating activities $ 1,250 $ 1,367

Less: purchases of property, plant and equipment 222 293

Net cash used in financing activities increased by $409 million for the year ended December 31, 2022 compared to 2021 due primarily to higher payment of dividends in 2022 of $211 million, increases in repurchases of common stock of $163 million and higher net repayments of debt of $133 million, partially offset by a decrease in settlement of our cross currency swap and other foreign exchange forward contracts in 2021 of $89 million (no similar transaction in 2022).

We intend to continue to evaluate markets for potential growth through the internal development of distribution centers, processing and sales facilities, and warehouses, through further integration of our facilities, and through selected business acquisitions. Our future liquidity and capital requirements will depend upon numerous factors, including the costs and timing of our internal development efforts and the success of those efforts.

We have various contractual obligations and commitments arising in the normal course of business. The following represent our anticipated material cash requirements from known contractual and other obligations as of December 31, 2022.

•Long-term debt of $2,662 million and related interest totaling $178 million, of which $34 million and $110 million, respectively is expected to be paid within twelve months. See Note 18, "Long-Term Obligations" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for more information related to debt amounts outstanding at December 31, 2022.

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•Operating lease payments of $1,673 million, of which $269 million is expected to be paid within twelve months. See Note 21, "Leases" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for more information related to lease amounts outstanding at December 31, 2022.

•Purchase obligations of $611 million for open purchase orders for aftermarket inventory all expected to be paid within twelve months.

•Net pension obligations of $133 million, of which $5 million is expected to be paid within twelve months. Benefit payments for our funded plans will be made from plan assets, whereas benefit payments for our unfunded plans are made from cash flows from operating activities. See Note 22, "Employee Benefit Plans" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for more information related to net pension obligations at December 31, 2022.

•Self-insurance reserves of $126 million, of which $62 million is expected to be paid within twelve months. See Note 6, "Self-Insurance Reserves" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for more information relates to self-insurance reserves at December 31, 2022.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risks arising from adverse changes in:

•foreign exchange rates;

•interest rates;

•commodity prices; and

•inflation.

Foreign Exchange Rates

Foreign currency fluctuations may impact the financial results we report for the portions of our business that operate in functional currencies other than the U.S. dollar. Our operations outside of the U.S. represented 48.2% and 49.4% of our revenue during years ended December 31, 2022 and 2021, respectively. An increase or decrease in the strength of the U.S. dollar against these currencies by 10% would result in a 4.8% change in our consolidated revenue and a 3.0% change in our operating income for the year ended December 31, 2022. See our Results of Operations discussion in Part II, Item 7 of this Annual Report on Form 10-K for additional information regarding the impact of fluctuations in exchange rates on our year over year results.

Additionally, we are exposed to foreign currency fluctuations with respect to the purchase of aftermarket products from foreign countries, primarily in Europe and Asia. To the extent that our inventory purchases are not denominated in the functional currency of the purchasing location, we are exposed to exchange rate fluctuations. In several of our operations, we purchase inventory from manufacturers in Taiwan in U.S. dollars, which exposes us to fluctuations in the relationship between the local functional currency and the U.S. dollar, as well as fluctuations between the U.S. dollar and the Taiwan dollar. We hedge our exposure to foreign currency fluctuations related to a portion of inventory purchases in our Europe operations, but the notional amount and fair value of these foreign currency forward contracts at December 31, 2022 were immaterial. We do not currently attempt to hedge foreign currency exposure related to our foreign currency denominated inventory purchases in our Wholesale - North America operations, and we may not be able to pass on any resulting price increases to our customers.

To the extent that we are exposed to foreign currency fluctuations related to non-functional currency denominated financing transactions, we may hedge the exposure through the use of foreign currency forward contracts. As of December 31, 2022, we did not hold foreign currency forward contracts related to non-functional currency denominated debt.

Other than with respect to a portion of our foreign currency denominated inventory purchases and, from time to time, certain financing transactions, we do not hold derivative contracts to hedge foreign currency risk. Our net investment in foreign operations is partially hedged by the foreign currency denominated borrowings we use to fund foreign acquisitions; however, our ability to use foreign currency denominated borrowings to finance our foreign operations may be limited based on local tax laws. We have elected not to hedge the foreign currency risk related to the interest payments on foreign third party borrowings as we generate cash flows in the local currencies that can be used to fund debt payments. As of December 31, 2022, we had outstanding borrowings of €500 million under our Euro Notes (2024) and €250 million under our Euro Notes (2028), and €748 million and Swedish Krona ("SEK") 75 million under our revolving credit facilities. As of December 31, 2021, we had outstanding borrowings of €500 million under our Euro Notes (2024) and €250 million under our Euro Notes (2028), and €940 million and SEK 145 million under our revolving credit facilities.

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Interest Rates

Our results of operations are exposed to changes in interest rates primarily with respect to borrowings under our credit facilities, where interest rates are tied to the prime rate, LIBOR, SOFR, Canadian Dollar Offered Rate, Euro Interbank Offered Rate, SONIA, or Swiss Average Rate Overnight. Therefore, we implemented a policy to manage our exposure to variable interest rates on a portion of our outstanding variable rate debt instruments through the use of interest rate swap contracts. These contracts converted a portion of our variable rate debt to fixed rate debt, matching the currency, effective dates and maturity dates to specific debt instruments. We designated our interest rate swap contracts as cash flow hedges, and net interest payments or receipts from interest rate swap contracts are included as adjustments to interest expense.

We had none of our variable rate debt under our credit facilities at fixed rates at December 31, 2022 or December 31, 2021. In February 2023, we entered into two sets of interest rate swap agreements. See Note 18, "Long-Term Obligations", Note 19, "Derivative Instruments and Hedging Activities" and Note 25, "Subsequent Events" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information.

At December 31, 2022, we had approximately $1,786 million of variable rate debt that was not hedged. Using sensitivity analysis, a 100 basis point movement in interest rates would change interest expense by $18 million over the next twelve months.

Commodity Prices

We are exposed to market risk related to price fluctuations in scrap metal and other metals (including precious metals, such as platinum, palladium, and rhodium, contained in some recycled parts, such as catalytic converters). Market prices of these metals affect the amount that we pay for our inventory and the revenue that we generate from sales of these metals. As both our revenue and costs are affected by the price fluctuations, we have a natural hedge against the changes. However, there is typically a lag between the effect on our revenue from metal price fluctuations and inventory cost changes, and there is no guarantee that the vehicle costs will decrease or increase at the same rate as the metals prices. Therefore, we can experience positive or negative gross margin effects in periods of rising or falling metals prices, particularly when such prices move rapidly. Additionally, if market prices were to change at a higher or lower rate than our vehicle acquisition costs, we could experience a positive or negative effect on our operating margin. The average of scrap metal prices for the year ended December 31, 2022 decreasedby 3% over the average for 2021, noting that prices rose sequentially in 2021 and in the first half of 2022 before declining 31% in the second half of the year. The average prices of rhodium, palladium, and platinum decreased by 22%, 11% and 11%, respectively, for the year ended December 31, 2022 over the average prices for the year ended December 31, 2021.

Inflation

We are exposed to market risks related to inflation in product, labor, shipping, freight and general overhead costs. In 2022, inflation has increased to rates beyond recent history, and we have experienced rising costs. We have adjusted our prices and are driving productivity initiatives to mitigate the inflationary effects. If these pressures continue or increase in severity, we may not be able to fully offset such higher costs through price increases and productivity initiatives. Inflationary pressures in the future may have an adverse effect on our ability to maintain current levels of gross margin and selling, general and administrative expenses as a percentage of net revenue if the selling prices of our products do not increase with these increased costs, we cannot identify cost efficiencies, or the higher prices impact demand.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

*****

INDEX TO FINANCIAL STATEMENTS

Page

LKQ CORPORATION AND SUBSIDIARIES

Reports of Independent Registered Public Accounting Firm (PCAOB ID No. 34) 60

Consolidated Balance Sheets as of December 31, 2022 and 2021 65

Notes to Consolidated Financial Statements 69

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of LKQ Corporation

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of LKQ Corporation and subsidiaries (the "Company") as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2022, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 23, 2023, expressed an unqualified opinion on the Company's internal control over financial reporting.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Goodwill Impairment Assessment - Refer to Note 3 to the financial statements.

Critical Audit Matter Description

The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The Company determines the fair value of its reporting units using a discounted cash flow model and the market approach, which require management to make significant estimates and assumptions. The goodwill balance subject to the impairment assessments was $4.3 billion as of December 31, 2022 and is allocated to four reporting units.

Auditing the estimates and assumptions that impacted the valuation of certain reporting units involved especially subjective judgment; specifically, the forecasts of future revenue and profit margins (“forecasts”), the selection of discount rates, and the determination of market multiples.

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How the Critical Audit Matter Was Addressed in the Audit

Our audit procedures related to the forecasts, the selection of discount rates, and determination of market multiples included the following, among others:

•We tested the effectiveness of controls over the goodwill impairment assessments, including those over the forecasts and the selection of the discount rates and market multiples.

•We evaluated management’s ability to accurately forecast by comparing actual results to management’s historical forecasts.

•We evaluated the reasonableness of management’s forecasts by comparing the forecasts to (1) historical results, (2) internal communications to management and the Board of Directors, (3) analyst and industry reports of the Company and companies in its peer group, and (4) forecasts used in the preceding impairment assessments.

•With the assistance of our fair value specialists, we evaluated the discount rates, including (1) testing the underlying source information and the mathematical accuracy of the calculations, (2) developing a range of independent estimates and comparing those to the discount rates used by management, and (3) comparing the discount rates used by management to those used in the preceding impairment assessments.

•With the assistance of our fair value specialists, we evaluated the market multiples, including testing the underlying source information and mathematical accuracy of the calculations, and comparing the multiples selected by management to its guideline public companies and the multiples used in the preceding impairment assessments.

/s/ DELOITTE & TOUCHE LLP

Chicago, Illinois

February 23, 2023

We have served as the Company's auditor since 1998.

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of LKQ Corporation

Opinion on Internal Control over Financial Reporting

We have audited the internal control over financial reporting of LKQ Corporation and subsidiaries (the “Company”) as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2022, of the Company and our report dated February 23, 2023, expressed an unqualified opinion on those financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ DELOITTE & TOUCHE LLP

Chicago, Illinois

February 23, 2023

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LKQ CORPORATION AND SUBSIDIARIES

Consolidated Statements of Income

(In millions, except per share data)

Year Ended December 31,

Selling, general and administrative expenses 3,544 3,568 3,266

Restructuring and transaction related expenses 20 20 66

Other expense (income):

Loss on debt extinguishment — 24 13

Interest income and other income, net (15) (21) (16)

Equity in earnings of unconsolidated subsidiaries 11 23 5

Net income from discontinued operations 6 1 —

Less: net income attributable to continuing noncontrolling interest 1 1 2

Net income attributable to LKQ stockholders $ 1,149 $ 1,091 $ 638

Basic earnings per share: (1)

Income from continuing operations $ 4.13 $ 3.68 $ 2.10

Net income from discontinued operations 0.02 — —

Less: net income attributable to continuing noncontrolling interest 0.01 — 0.01

Net income attributable to LKQ stockholders $ 4.15 $ 3.68 $ 2.10

Diluted earnings per share: (1)

Income from continuing operations $ 4.12 $ 3.67 $ 2.10

Net income from discontinued operations 0.02 — —

Less: net income attributable to continuing noncontrolling interest 0.01 — 0.01

Net income attributable to LKQ stockholders $ 4.13 $ 3.66 $ 2.09

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

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

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LKQ CORPORATION AND SUBSIDIARIES

Consolidated Statements of Comprehensive Income

(In millions)

Year Ended December 31,

Less: net income attributable to continuing noncontrolling interest 1 1 2

Net income attributable to LKQ stockholders 1,149 1,091 638

Other comprehensive (loss) income:

Foreign currency translation, net of tax (212) (64) 114

Net change in unrealized gains/losses on cash flow hedges, net of tax — 1 (6)

Net change in unrealized gains/losses on pension plans, net of tax 35 9 (1)

Other comprehensive income (loss) from unconsolidated subsidiaries 7 — (5)

Other comprehensive (loss) income (170) (54) 102

Comprehensive income attributable to LKQ stockholders $ 979 $ 1,037 $ 740

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

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LKQ CORPORATION AND SUBSIDIARIES

Consolidated Balance Sheets

(In millions, except per share data)

December 31,

Assets

Current assets:

Cash and cash equivalents $ 278 $ 274

Prepaid expenses and other current assets 230 296

Property, plant and equipment, net 1,236 1,299

Equity method investments 141 181

Other noncurrent assets 204 225

Liabilities and Stockholders' Equity

Current liabilities:

Accrued expenses:

Accrued payroll-related liabilities 218 261

Current portion of operating lease liabilities 188 203

Current portion of long-term obligations 34 35

Other current liabilities 89 112

Long-term operating lease liabilities, excluding current portion 1,091 1,209

Long-term obligations, excluding current portion 2,622 2,777

Other noncurrent liabilities 283 365

Commitments and contingencies

Redeemable noncontrolling interest 24 24

Stockholders' equity:

Accumulated other comprehensive loss (323) (153)

Total Company stockholders' equity 5,453 5,772

Noncontrolling interest 14 15

Total liabilities and stockholders' equity $ 12,038 $ 12,606

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

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LKQ CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In millions)

Year Ended December 31,

CASH FLOWS FROM OPERATING ACTIVITIES:

Stock-based compensation expense 38 34 29

Loss on debt extinguishment — 24 13

Deferred income taxes 6 (27) (34)

Prepaid income taxes/income taxes payable 33 (65) 35

Other operating assets and liabilities 21 30 —

CASH FLOWS FROM INVESTING ACTIVITIES:

Purchases of property, plant and equipment (222) (293) (173)

Proceeds from disposals of property, plant and equipment 9 20 17

Acquisitions, net of cash acquired (4) (124) (7)

Proceeds from disposals of businesses 399 7 5

Other investing activities, net (10) (29) (8)

Net cash provided by (used in) investing activities 172 (419) (166)

CASH FLOWS FROM FINANCING ACTIVITIES:

Early-redemption premium — (16) (9)

Repayment of Euro Notes (2026) — (883) —

Repayment of U.S. Notes (2023) — — (600)

Borrowings under revolving credit facilities 1,644 5,035 841

Repayments under revolving credit facilities (1,675) (3,717) (1,473)

Repayments under term loans — (324) (18)

Borrowings under receivables securitization facility — — 111

Repayments under receivables securitization facility — — (111)

Repayments of other debt, net (17) (26) (116)

Settlement of derivative instruments, net — (89) —

Dividends paid to LKQ stockholders (284) (73) —

Other financing activities, net (22) (15) (21)

Net cash used in financing activities (1,394) (985) (1,513)

Cash and cash equivalents, end of period $ 278 $ 274 $ 312

(1) The balance as of January 1, 2020 included restricted cash of $5 million.

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

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LKQ CORPORATION AND SUBSIDIARIES

Consolidated Statements of Cash Flows

(In millions)

Year Ended December 31,

Supplemental disclosure of cash paid for:

Income taxes, net of refunds $ 346 $ 423 $ 248

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

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LKQ CORPORATION AND SUBSIDIARIES

Consolidated Statements of Stockholders' Equity

(In millions, except per share data)

LKQ Stockholders

Shares Amount Shares Amount

Other comprehensive income — — — — — — 102 — 102