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. Discussion of 2023 items and the year-over-year comparison of changes in our financial condition and the results of operations as of and for the years ended December 31, 2024 and December 31, 2023 for our Consolidated Results of Operations can be found in Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," of our Annual Report on Form 10-K for the year ended December 31, 2024 filed with the SEC on February 20, 2025. 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 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 four sources: new products produced by OEMs; new products produced by companies other than the OEMs, which are referred to as aftermarket products; salvaged products taken from total loss vehicles; and reconditioned products that have been refurbished or remanufactured. Collectively, we refer to the three sources that are not new OEM products as alternative parts.
We are organized into three operating segments: North America; Europe; and Specialty, each of which is presented as a reportable segment. We have made certain reclassifications to the prior period financial information to reflect discontinued operations presentation as a result of the sale of our Self Service segment. See Note 4, "Discontinued Operations and Divestitures" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information.
We sell a variety of alternative replacement and maintenance parts including collision parts, which are typically exterior components used in the collision repair process to restore a vehicle's appearance and safety, such as bumper covers, fenders, paint and related body repair products, and lights; hard parts, which are typically internal components that are either mechanical in nature, such as alternators, starters, and clutches, or functional components that are replaced as part of routine maintenance, such as brake pads, discs and sensors, filters and batteries; and major mechanical parts, such as engines and transmissions. We also sell specialty products and accessories, which are vehicle products that improve the performance, functionality and appearance of vehicles.
Our North America segment is a leading provider of alternative vehicle collision replacement products, paint and related body repair products, and alternative vehicle mechanical replacement and maintenance products, with our sales, processing, and distribution facilities reaching most major markets in the U.S. and Canada. Our Europe segment is a leading provider of alternative vehicle replacement and maintenance products in Germany, the U.K., the Benelux region, Italy, Czech Republic, Austria, Slovakia, France and various other European countries. Our Specialty segment is a leading distributor of specialty vehicle aftermarket products and accessories reaching most major markets in the U.S. and Canada.
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 the Special Note on 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.
Portfolio Management
We continuously manage and assess the businesses and investments we own and the markets in which we operate. Our acquisition strategy is to target highly accretive tuck-in acquisitions with significant synergies or critical capabilities.See Note 3, "Business Combinations" and Note 10, "Equity Method Investments" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information related to our acquisitions and investments. Additionally, from time to time, we have sold or divested businesses that do not align with our strategic vision, financial objectives or have limited long-term value potential. In 2025, aligning with our ongoing strategy to simplify our portfolio and concentrate on our
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core segments, we commenced a process to explore the potential sale of our Specialty segment. See Note 4, "Discontinued Operations and Divestitures" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information related to our divestitures.
In addition to the above, on January 26, 2026 our Board announced it has initiated a comprehensive review of strategic alternatives to enhance shareholder value. As part of the review, the Board is working with its advisors to evaluate our strategic alternatives, including a potential sale of the Company.
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 alternative parts and vehicle products including collision parts, which are typically exterior components used in the collision repair process to restore a vehicle's appearance and safety; hard parts, which are typically internal components that are either mechanical in nature or functional components that are replaced as part of routine maintenance; major mechanical parts; and specialty products and accessories, which are vehicle products that improve the performance, functionality and appearance of vehicles. Services revenue includes additional services that are generally billed concurrently with the related product sales, such as the sale of service-type warranties, and diagnostic and repair services. During the year ended December 31, 2025, parts and services revenue represented 97.5% of our consolidated revenue. Other revenue includes sales of scrap and other metals (including precious metals - platinum, palladium and rhodium - contained in recycled parts such as catalytic converters), bulk sales to mechanical manufacturers (including cores) and sales of aluminum ingots and sows from our furnace operations; all of which are typically acquired as byproducts of our salvage operations. Other revenue will vary from period to period based on fluctuations in commodity prices and the volume of materials sold. See Note 12, "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 ("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 2, "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. Each of our segments is considered a separate reporting unit for purposes of testing goodwill. In performing this test, we compare the carrying value of the assets of our reporting units to its fair value. To estimate the fair value for our reporting units that carry goodwill, we use a weighted-average approach that is reviewed annually for changes in facts and circumstances. The weighting generally incorporates a 75% income approach via a discounted cash flow analysis and a 25% 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.
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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 market multiples which consider our budgets, business plans, economic projections and marketplace data.
Sensitivity of Estimate to Change
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. We have not made material changes in the accounting methodology used to evaluate impairment of goodwill during the last three years. During fiscal year 2025, we elected to perform a quantitative impairment test for our goodwill with a testing date as of October 31, 2025.
For the Europe and North America segments, no impairment charges were recorded as a result of the testing as the fair value of these goodwill reporting units exceeded the calculated carrying value by at least 48%. The balance of goodwill in our North America and Europe segments together was$4,993 millionand $4,701 million as of December 31, 2025 and December 31, 2024, respectively. Given the significant amount of headroom in these segments, it would take in excess of a 45% decrease in projected cash flows, or a greater than 740 basis point increase in the discount rate to result in an impairment to goodwill at either segment.
For the Specialty segment, we recorded a goodwill impairment charge of $52 million for the year ended December 31, 2025 as the carrying value was higher than its estimated fair value based on the results of our October 31, 2025 test. The impairment was driven by a combination of factors, including lower observed market multiples in the guideline public company method, lower long term revenue growth than previous forecasts, and higher margin product groups having a longer anticipated market recovery. As of December 31, 2025, the remaining Specialty goodwill balance was $421 million. A 1% decrease in projected cash flows or long term growth rate would result in approximately an additional $10 million of impairment, a 25 basis point increase in the discount rate would result in approximately an additional $30 million of impairment, or a 1.0 decrease in the market multiples assumption would result in approximately an additional $30 million of impairment. Given the sensitivity of the calculation to these assumptions, events that cause declines to Specialty's future cash flows such as underperformance relative to our forecasts, since actual results may differ from our estimates of future performance, or events that have a negative impact on the market value of the business, such as a deterioration in macroeconomic conditions, could result in additional future impairment to the goodwill in our Specialty segment.
Strategic Transformation Initiatives
See "Strategic Restructuring and Transformation Initiatives" in Note 13, "Restructuring and Transaction Related Expenses" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for information related to our strategic transformation initiatives.
Recently Issued Accounting Pronouncements
See "Recent Accounting Pronouncements" in Note 2, "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 12, "Revenue Recognition" and Note 26, "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.
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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 ("CODM"). Free cash flow is a financial measure that is not prepared in accordance with U.S. generally accepted accounting principles.
•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 26, "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.
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,
Cost of goods sold 61.4 % 61.1 %
Selling, general and administrative expenses 27.9 % 27.2 %
Restructuring and transaction related expenses 0.3 % 1.0 %
Impairment of goodwill 0.4 % — %
Depreciation and amortization 2.7 % 2.5 %
Operating income 7.3 % 8.3 %
Total other expense, net 1.4 % 1.6 %
Income from continuing operations before provision for income taxes 5.9 % 6.7 %
Provision for income taxes 1.5 % 1.9 %
Equity in earnings of unconsolidated subsidiaries — % (0.1) %
Income from continuing operations 4.4 % 4.8 %
Net income from discontinued operations 0.1 % 0.2 %
Net income 4.4 % 5.0 %
Less: net income attributable to continuing noncontrolling interest — % — %
Net income attributable to LKQ stockholders 4.4 % 5.0 %
Note: In the table above, the sum of the individual percentages may not equal the total due to rounding.
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Year Ended December 31, 2025 Compared to Year Ended December 31, 2024
Revenue
The following table summarizes the changes in revenue by category (in millions):
Year Ended December 31,
The decrease in parts and services revenue of $199 million, or 1.5%, represented decreases in segment revenue of $136 million, or 2.5%, in North America and $99 million, or 1.5%, in Europe, partially offset by an increase of $36 million, or 2.1%, in Specialty. This overall decrease was driven by an organic parts and services revenue decrease of $362 million, or 2.7% (2.3% decrease on a per day basis) and a $69 million, or 0.5%, decrease due to the net impact of acquisitions and divestitures, partially offset by an increase of $231 million, or1.7%, due to fluctuations in foreign exchange rates. 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, 2025 compared to the year ended December 31, 2024.
Cost of Goods Sold
Cost of goods sold decreased by $53 million, or 0.6%, to $8,386 million for the year ended December 31, 2025. Cost of goods sold primarily reflects decreases of $69 million from Europe and $20 million from North America, partially offset by an increase of $36 million from Specialty. Cost of goods sold as a percentage of revenue increased to 61.4% for the year ended December 31, 2025 from 61.1% for the year ended December 31, 2024. Cost of goods sold as a percentage of revenue primarily reflects an increase of 0.3% from North America. Refer to the discussion of our segment results of operations for factors contributing to the changes in cost of goods sold by segment for the year ended December 31, 2025 compared to the year ended December 31, 2024.
Selling, General and Administrative Expenses
Our SG&A expenses increased by $55 million, or 1.5%, to $3,813 million for the year ended December 31, 2025. The year over year increase in SG&A expense primarily reflects increases of $34 million fromNorth America, $17 million from Europe, and $4 million from Specialty. SG&A expenses as a percentage of revenue increased to 27.9% for the year ended December 31, 2025 from 27.2% for the year ended December 31, 2024. SG&A expenses as a percentage of revenue primarily reflects increases of 0.5% from North America and 0.3% from Europe. Refer to the discussion of our segment results of operations for factors contributing to the changes in SG&A expenses by segment for the year ended December 31, 2025 compared to the year ended December 31, 2024.
Restructuring and Transaction Related Expenses
Restructuring and transaction related expenses decreased by $93 million, primarily due to a $70 million decrease in restructuring expenses related to our 2024 Global Restructuring plan and a $20 million decrease in restructuring expenses related to our Acquisition Integration plans.
Impairment of Goodwill
Impairment of goodwill increased by $52 million due to the impairment charge related to our Specialty reporting unit. See "Intangible Assets" in Note 2, "Summary of Significant Accounting Policies" and Note 9, "Intangible Assets" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for further information.
Provision for Income Taxes
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.
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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, 2024, the Czech koruna, euro, and pound sterling rates used to translate the 2025 statements of income increased by 6.3%, 4.5%, and 3.2%, respectively, while the Canadian dollar rate decreased by 1.9%. Realized and unrealized currency gains and losses combined with the translation effect of the change in foreign currencies against the U.S. dollar had a net positive effect of $0.05 on diluted earnings per share from continuing operations relative to the prior year.
Results of Operations—Segment Reporting
We have three reportable segments: North America; Europe; and Specialty.
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 (4) (4) (4)
Segment EBITDA
The key measure of segment profit or loss reviewed by our CODM, our Chief Executive Officer, is Segment EBITDA. The CODM uses Segment EBITDA to compare profitability among the segments and evaluate business strategies. Segment EBITDA includes revenue and expenses that are controllable by the segment. Corporate general and administrative expenses are allocated to the segments based on usage, with shared expenses apportioned based on the segment's percentage of consolidated revenue. We calculate Segment EBITDA as Net Income excluding net income and loss attributable to noncontrolling interest; income and loss from discontinued operations; depreciation; amortization; interest; gains and losses on debt extinguishment; income tax expense; restructuring and transaction related expenses; change in fair value of contingent consideration liabilities; other gains and losses related to acquisitions, equity method investments, or divestitures; equity in losses and earnings of unconsolidated subsidiaries; equity investment fair value adjustments; impairment charges; and direct impacts of the Ukraine/Russia conflict. See Note 26, "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, 2025 Compared to Year Ended December 31, 2024
North America
The following table provides a reconciliation of Revenue to Segment EBITDA in our North America segment (in millions):
Year Ended December 31,
Intersegment revenue 1 1 —
Less: Other segment items(5) (17) (17) —
(1)Parts and services revenue decreased by $136 million, or 2.5%, to $5,329 million for the year ended December 31, 2025. This decrease was primarily due to an organic revenue decrease of $126 million, or 2.3% (1.9% on a per day basis), driven primarily by lower volumes in our PBE business from lower repairable claims and increased competition, and having one fewer selling days in the current year, partially offset by pricing initiatives to recoup tariff costs and targeted actions to increase market penetration. Additionally, revenue decreased due to a negative exchange rate effect of $18 million, or 0.3%, primarily due to the stronger U.S. dollar against the Canadian dollar.
(2)Gross margin decreased by $92 million, or 3.7%, to $2,419 million for the year ended December 31, 2025. This decrease was driven by lower revenue as described above as well as a decrease in gross margin percentage due to unfavorable customer mix, the dilutive effect of increasing prices to recoup tariff costs and higher other input costs not fully offset by price increases due to market competition.
(3)SG&A expenses increased by $34 million, or 2.1%, to $1,622 million for the year ended December 31, 2025. The increase in SG&A expense is primarily due to (i) a nonrecurring $35 million credit related to the favorable settlement of a legal claim in 2024, and (ii) $18 million from increased vehicle costs, partially offset by (iii) $14 million from decreased personnel costs due to cost savings initiatives which were partially offset by inflationary pressures, and (iv) other individually immaterial factors representing a $5 million favorable impact in the aggregate.
(4)Amounts include certain shared overhead costs that were historically allocated to the Self Service segment. See Note 4, "Discontinued Operations and Divestitures" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information.
(5)Amounts primarily represent other non operating income and expenses, as well as reconciling items to remove depreciation - cost of goods sold and restructuring - cost of goods sold, which are excluded from the calculation of Segment EBITDA. See Note 13, "Restructuring and Transaction Related Expenses" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information on restructuring charges.
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Europe
The following table provides a reconciliation of Revenue to Segment EBITDA in our Europe segment (in millions):
Year Ended December 31,
Europe 2025 % of Total Segment Revenue 2024 % of Total Segment Revenue $ Change
Less: Other segment items(4) (29) (35) 6
(1)Parts and services revenue decreased by $99 million, or 1.5%, to $6,287 million for the year ended December 31, 2025. This decrease was primarily due to (i) an organic revenue decrease of $274 million, or 4.3% (3.9% on a per day basis), driven by decreased volumes due to heightened competition in certain markets and difficult economic conditions, (ii) divestitures, net of acquisitions, of $77 million, or 1.2%, primarily related to the divestiture of certain operations in Poland, Slovenia and Bosnia in 2024, partially offset by (iii) the effect of an exchange rate increase of $252 million, or 4.0%, primarily due to the strengthening of the pound sterling and euro, and to a lesser extent, the Czech koruna against the U.S. dollar.
(2)Gross margin decreased by $27 million, or 1.1%, to $2,427 million for the year ended December 31, 2025. This decrease was primarily attributable to decreased revenue, partially offset by a $13 million reduction in cost of goods sold related to restructuring expenses incurred as part of the 2024 Global Restructuring Plan in the prior year. These restructuring expenses are excluded from the calculation of Segment EBITDA. See Note 13, "Restructuring and Transaction Related Expenses" and Note 26, "Segment and Geographic Information" for further information.
(3)SG&A expenses increased by $17 million, or 0.9%, to $1,872 million for the year ended December 31, 2025. The increase in SG&A expense includes a $74 million unfavorable foreign exchange impact from a weakening U.S. dollar. The remaining increase primarily relates to (i) a $9 million unfavorable impact in professional fees related to several strategic central and regional information technology initiatives,partially offset by (ii) a $23 million favorable impact from the divestiture of certain operations in Poland, Slovenia and Bosnia in 2024, (iii) $20 million from decreased personnel costs primarily due to lower incentive compensation in the current year, (iv) $10 million from lower freight, vehicle and fuel costs and (v) other individually immaterial factors representing an $13 million favorable impact in the aggregate.
(4)Amounts primarily represent other non operating income and expenses, as well as reconciling items to remove depreciation - cost of goods sold and restructuring - cost of goods sold, which are excluded from the calculation of Segment EBITDA. See Note 13, "Restructuring and Transaction Related Expenses" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information on restructuring charges.
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Specialty
The following table provides a reconciliation of Revenue to Segment EBITDA in our Specialty segment (in millions):
Year Ended December 31,
Intersegment revenue 3 3 —
Selling, general and administrative expenses 319 18.8 % 315 19.0 % 4
Less: Other segment items(2) (11) (9) (2)
(1)Parts and services revenue increased by $36 million, or 2.1%, to $1,690 million for the year ended December 31, 2025. This was primarily due to an organic revenue increase of $38 million, or 2.3% (2.7% on a per day basis), driven by volume growth in our marine and automotive product lines.
(2)Amounts primarily represent other non operating income and expenses, as well as a reconciling item to remove depreciation - cost of goods sold, which is excluded from the calculation of Segment EBITDA.
Liquidity and Capital Resources
We assess our liquidity and capital resources 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 revolving credit facilities. We utilize our cash flows from operations to fund working capital and capital expenditures, with the excess amounts going towards paying dividends, repurchasing our common stock, paying down outstanding debt, or funding acquisitions. 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, term loans, and senior notes. We currently believe we have sufficient access to capital markets to support our future growth objectives.
The following table summarizes liquidity data as of the dates indicated (in millions):
Capacity under revolving credit facilities $ 2,000 $ 2,000
Less: Revolving credit facilities borrowings 1 664
Availability under credit revolving facilities 1,885 1,222
Add: Cash and cash equivalents 319 234
(1)As of December 31, 2025, we had outstanding letters of credit of $134 million, of which $20 million does not reduce availability under our revolving credit facilities.
We had $1,885 million available under our revolving credit facilities as of December 31, 2025. Combined with $319 millionof cash and cash equivalents at December 31, 2025, we had $2,204 million in available liquidity, an increase of $748 million from our available liquidity as of December 31, 2024, primarily as a result of reducing our revolving credit facilities borrowings by $663 million.
In the second quarter of 2025, we entered into Amendment No. 2 and No. 3 to the Senior Unsecured Credit Agreement and Amendment No. 2 to the CAD Note. These amendments extended the maturity date of the Senior Unsecured Credit Agreement term loan facility from January 5, 2026 to January 5, 2027 as well as provided certain other immaterial modifications.
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In the fourth quarter of 2025, we entered into Amendments No. 4 and 5 to the Senior Unsecured Credit Agreement, which extended the maturity date of the revolving credit facility from January 2028 to December 2030, and included certain other immaterial modifications and administrative changes. Further, in the fourth quarter of 2025, we entered into Amendments No. 3 and 4 to the CAD Note which extended the maturity date from July 2026 to March 2029, and included certain other immaterial modifications and administrative changes. 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 regarding total debt outstanding.
We believe that our current liquidity, cash expected to be generated by operating activities in future periods and access to capital markets will be sufficient to meet our current operating and capital requirements. Our capital allocation strategy includes spending to support growth driven capital projects, return stockholder value through the payment of dividends and repurchasing shares of our common stock, completing highly synergistic tuck-in acquisitions and debt repayment.
See Part II, Item 5 of this Annual Report on Form 10-K for further information regarding the dividend activity for our common stock for the year ended December 31, 2025.
On February 17, 2026, our Board declared a quarterly cash dividend of $0.30 per share of common stock, payable on March 26, 2026, to stockholders of record at the close of business on March 12, 2026.
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, and based on considerations of capital availability, and various other factors, many of which are outside of our control.
With $2,204 million of total liquidity as of December 31, 2025 and $32 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 Senior Unsecured Credit Agreement and our CAD Note both include two financial maintenance covenants: a maximum total leverage ratio and minimum interest coverage ratio. The terms maximum total leverage ratio and minimum interest coverage ratio are specifically calculated per both the Senior Unsecured Credit Agreement and CAD Note, and differ in specified ways from comparable GAAP or common usage terms. We were in compliance with all applicable covenants under both our Senior Unsecured Credit Agreement and CAD Note as of December 31, 2025. The required debt covenants per both the Senior Unsecured Credit Agreement and CAD Note and our actual ratios with respect to those covenants are as follows as of December 31, 2025:
Covenant Level Ratio Achieved as of December 31, 2025
Maximum total leverage ratio 4.00 : 1.00 2.4
Minimum interest coverage ratio 3.00 : 1.00 7.5
The indentures relating to our U.S. Notes and Euro Notes do not include financial maintenance covenants, and the indentures will not restrict our ability to draw funds under the Senior Unsecured Credit Agreement. The indentures do not prohibit amendments to the financial covenants under the Senior Unsecured Credit Agreement and CAD Note as needed.
While we believe that we have adequate capacity under our existing revolving credit facilities to finance our current operations, from time to time we may need to raise additional funds through public or private financing, strategic relationships or modification of our existing Senior Unsecured Credit Agreement to finance additional investments or to refinance existing debt obligations. There can be no assurance that additional funding, or refinancing of our Senior Unsecured Credit Agreement, 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 impact on our business, operating results, and financial condition.
We hold interest rate swaps to hedge the variable rates on a portion of our credit agreement borrowings. After giving effect to these contracts outstanding, the weighted average interest rate on borrowings outstanding under our Senior Unsecured Credit Agreement was 5.4% at December 31, 2025. Including our senior notes and CAD Note, our overall weighted average interest rate on borrowings was 5.0% at December 31, 2025. Under the Senior Unsecured Credit Agreement, our borrowings bear interest at the Secured Overnight Financing Rate (i.e., SOFR) plus the applicable spread or other risk-free interest rates that are applicable for the specified currency plus a spread. Under the CAD Note, the interest rate may be (i) a forward-looking term rate based on the Canadian Overnight Repo Rate Average ("CORRA") for an interest period chosen by the Company of one or three months or (ii) the Canadian Prime Rate (as defined in the CAD Note), plus in each case a spread. 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
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information related to our borrowings and related interest. The interest rate swaps are described in Note 19, "Derivative Instruments and Hedging Activities" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K.
We had outstanding borrowings under our revolving credit facilities and term loans payable of $1,011 million and $1,651 million at December 31, 2025 and 2024, respectively. Of these amounts, there were no current maturities at December 31, 2025 or 2024.
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 regarding the scheduled maturities of long-term obligations outstanding.
As of December 31, 2025, the Company had cash and cash equivalents of $319 million, of which $292 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").
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.
As part of our effort to improve our operating cash flows, we may negotiate payment term extensions with suppliers. These efforts are supported by our supply chain finance programs. See Note 17, "Supply Chain Financing" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for information related to our supply chain financing arrangements.
For the year ended December 31, 2025, net cash provided by operating activities totaled $1,063 million compared to $1,121 million for the same period of 2024. Cash flows related to our primary working capital accounts can be volatile as the purchases, payments and collections can be timed differently from period to period. Receivables represented $14 million in higher cash outflows for the year ended December 31, 2025 compared to the same period of 2024. Inventories represented $204 million in lower cash outflows for the year ended December 31, 2025 compared to the same period of 2024. Accounts payable produced $95 million in lower cash inflows for the year ended December 31, 2025 compared to the same period of 2024. Other operating activities primarily reflect the aggregate effect of lower cash earnings and movements in various accruals during the year ended December 31, 2025 compared to the same period of 2024.
For the year ended December 31, 2025, net cash provided by investing activities totaled $185 million compared to net cash used in investing activities of $406 million for the same period of 2024. Proceeds from the disposal of businesses, net of divested cash were an inflow of $397 million for the year ended December 31, 2025, compared to an outflow of $11 million for the year ended December 31, 2024. We invested $49 million of cash in business acquisitions during the year ended December 31, 2024. There were no significant business acquisitions during the year ended December 31, 2025. Property, plant and equipment purchases were $216 million for the year ended December 31, 2025 compared to $311 million in the prior year.
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 $ 1,063 $ 1,121
Less: purchases of property, plant and equipment 216 311
(1)For the years ended December 31, 2025 and 2024, Self Service contributed approximately $50 million and $40 million, respectively, of free cash flow.
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For the year ended December 31, 2025, net cash used in financing activities totaled $1,191 million compared to $746 million for the same period of 2024. Cash outflows for share repurchases were $159 million and dividends paid were $310 million for the year ended December 31, 2025 compared to $360 million for share repurchases and $318 million for dividends paid for the same period of 2024. Net debt payments were $708 million for the year ended December 31, 2025 compared to net debt payments (net of unamortized bond discounts) of $17 million for the same period of 2024.
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, 2025.
•Long-term debt of $3,695 million and related interest totaling $717 million, of which $32 million and $182 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, 2025.
•Operating lease payments of $1,730 million, of which $335 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, 2025.
•Purchase obligations of $739 million for open purchase orders for aftermarket inventory all expected to be paid within twelve months.
•Net pension obligations of $80 million, of which $9 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, 2025.
•Self-insurance reserves of $139 million, of which$76 million is expected to be paid within twelve months. See Note 7, "Self-Insurance Reserves" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for more information related to self-insurance reserves at December 31, 2025.
Summarized Guarantor Financial Information
Our U.S. Notes (2028/2033) and Euro Notes (2031) are guaranteed on a senior, unsecured basis by certain of our subsidiaries (each, a “subsidiary guarantor” and, together with LKQ, the “Obligor Group”), which are listed in Exhibit 22.1 in Part IV, Item 15 of this Annual Report on Form 10-K. The guarantees are full and unconditional, joint and several, and subject to certain conditions for release. See Note 18, "Long-Term Obligations" in Part II, Item 8 of this Annual Report on Form 10-K for information related to the Euro Notes (2031) and U.S. Notes (2028/2033).
Holders of the notes have a direct claim only against the Obligor Group. The following summarized financial information is presented for the Obligor Group on a combined basis after elimination of intercompany transactions and balances within the Obligor Group and equity in the earnings from and investments in any non-guarantor subsidiary.
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Summarized Statements of Income (in millions)
Fiscal Year Ended December 31,
Income from continuing operations 265 404
(1)Guarantor subsidiaries recorded $51 million and $53 million of net sales to and $259 million and $286 million of purchases from non-guarantor subsidiaries for the fiscal years ended December 31, 2025 and December 31, 2024, respectively.
(2)Information reflects the current Obligor Group listed in Exhibit 22.1 in Part IV, Item 15 of this Annual Report on Form 10-K.
Summarized Balance Sheets (in millions)
December 31,
(1)Noncurrent assets for guarantor subsidiaries included $510 million and $487 million of long-term notes receivable from non-guarantor subsidiaries as of December 31, 2025 and 2024, respectively.
(2)Current liabilities for guarantor subsidiaries included $621 million and $219 million of short term notes payable to non-guarantor subsidiaries as of December 31, 2025 and 2024, respectively.
(3)Information reflects the current Obligor Group listed in Exhibit 22.1 in Part IV, Item 15 of this Annual Report on Form 10-K.
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 54.4% of our revenue during both years ended December 31, 2025 and 2024. An increase or decrease in the strength of the U.S. dollar against these currencies by 10% would result in a 5.4% change in our consolidated revenue and a 4.5% change in our operating income for the year ended December 31, 2025. 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, 2025 were immaterial. We do not currently attempt to hedge foreign currency exposure related to our foreign currency denominated inventory purchases in our North America operations, and we may not be able to pass on any resulting price increases to our customers.
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To the extent that we are exposed to foreign currency fluctuations related to non-functional currency denominated transactions, we may hedge the exposure through the use of foreign currency forward contracts.
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, 2025, we had outstanding borrowings of €250 million under our Euro Notes (2028), €750 million under our Euro Notes (2031), Canadian dollar ("CAD") 700 million under our CAD Note, and Swedish Krona ("SEK") 10 million under our revolving credit facilities. As of December 31, 2024, we had outstanding borrowings of €250 million under our Euro Notes (2028), €750 million under our Euro Notes (2031), CAD 700 million under our CAD Note, and SEK25 million under our revolving credit facilities.
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 SOFR, prime rate, CORRA, 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 effectively converted a portion of our variable rate debt to fixed rate debt. 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.
As of December 31, 2025 we had interest rate swap agreements outstanding to hedge the variable rates on a portion of our credit agreement borrowings. See Note 18, "Long-Term Obligations" and Note 19, "Derivative Instruments and Hedging Activities" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information.
At December 31, 2025, we had approximately $711 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 $7 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, 2025 decreased by 9% over the average for 2024, noting prices decreased over both years. The average prices of rhodium, platinum, and palladium increased by 40%, 38% and 20%, respectively, for the year ended December 31, 2025 compared to the average prices for the year ended December 31, 2024.
Inflation
We are exposed to market risks related to inflation in product, labor, shipping, freight and general overhead costs. In 2023, inflation increased to rates beyond recent history, which resulted in rising costs, but started to ease in 2024 and continued to ease in 2025. We adjusted our prices and drove productivity initiatives to partially 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 SG&A 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) 47
Consolidated Balance Sheets as of December 31, 2025 and 2024 52
Notes to Consolidated Financial Statements 55
46
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of LKQ Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of LKQ Corporation and subsidiaries (the "Company") as of December 31, 2025 and 2024, the related consolidated statements of income, comprehensive income, stockholders' equity, and cash flows, for each of the three years in the period ended December 31, 2025, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2025 and 2024, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2025, in conformity with accounting principles generally accepted in the United States of America.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 19, 2026, expressed an unqualified opinion on the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current-period audit of the financial statements that was communicated or required to be communicated to the audit committee and that (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill - Specialty Reporting Unit - Refer to Notes 2 and 9 to the financial statements.
Critical Audit Matter Description
The Company’s evaluation of goodwill for impairment involves the comparison of the fair value of each reporting unit to its carrying value. The Company determines the fair value of its reporting units using a discounted cash flow model and the market approach, which require management to make significant estimates and assumptions. Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both. The goodwill balance was $5,414 million as of December 31, 2025, of which $421 million related to the Specialty reporting unit (“Specialty”). The carrying value of Specialty exceeded its fair value as of December 31, 2025, and, therefore, the Company recognized $52 million of impairment. The Company commenced a process in 2025 to explore the potential sale of their Specialty segment which was contemplated by management in the determination of the fair value of this reporting unit.
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Auditing the estimates and assumptions that impacted the valuation of the Company's Specialty reporting unit involved especially subjective judgment; specifically, the forecasts of future revenue and profit margins (“forecasts”), the selection of discount rates and the determination of market multiples.
How the Critical Audit Matter Was Addressed in the Audit
Our audit procedures related to the forecasts, the selection of discount rates, and determination of market multiples included the following, among others:
•We tested the effectiveness of controls over the Company's goodwill impairment assessments, including those over the forecasts and the selection of the discount rates and market multiples for the Specialty reporting unit.
•We evaluated management’s ability to accurately forecast by comparing actual results to management’s historical forecasts.
•We evaluated the reasonableness of management’s forecasts by comparing the forecasts to (1) historical results, (2) internal communications to management and the Board of Directors, (3) analyst and industry reports of the Company and companies in its peer group, (4) forecasts used in the preceding impairment assessments, and (5) marketing material related to the potential sales process.
•With the assistance of our fair value specialists, we evaluated the discount rates, including (1) testing the underlying source information and the mathematical accuracy of the calculations, (2) developing a range of independent estimates and comparing those to the discount rates used by management, and (3) comparing the discount rates used by management to those used in the preceding impairment assessments.
•With the assistance of our fair value specialists, we evaluated the market multiples, including testing the underlying source information and mathematical accuracy of the calculations, and comparing the multiples selected by management to its guideline public companies, the multiples used in the preceding impairment assessments, and assessment of any contradictory evidence from the potential sales process.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
February 19, 2026
We have served as the Company's auditor since 1998.
48
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and the Board of Directors of LKQ Corporation
Opinion on Internal Control over Financial Reporting
We have audited the internal control over financial reporting of LKQ Corporation and subsidiaries (the “Company”) as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2025, based on criteria established in Internal Control — Integrated Framework (2013) issued by COSO.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated financial statements as of and for the year ended December 31, 2025, of the Company and our report dated February 19, 2026, expressed an unqualified opinion on those financial statements.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Report of Management on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ DELOITTE & TOUCHE LLP
Chicago, Illinois
February 19, 2026
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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 3,813 3,758 3,697
Restructuring and transaction related expenses 42 135 65
Impairment of goodwill 52 — —
Other expense (income):
Gains on foreign exchange contracts - acquisition related (1) — — (49)
Interest income and other income, net (31) (19) (41)
Equity in earnings of unconsolidated subsidiaries (1) (8) (15)
Net income from discontinued operations 11 24 4
Less: net income attributable to continuing noncontrolling interest 1 3 2
Net income attributable to LKQ stockholders $ 607 $ 690 $ 936
Basic earnings per share:
Income from continuing operations $ 2.32 $ 2.54 $ 3.49
Net income from discontinued operations 0.04 0.09 0.02
Less: net income attributable to continuing noncontrolling interest — 0.01 0.01
Net income attributable to LKQ stockholders $ 2.36 $ 2.62 $ 3.50
Diluted earnings per share:
Income from continuing operations $ 2.31 $ 2.54 $ 3.48
Net income from discontinued operations 0.04 0.09 0.02
Less: net income attributable to continuing noncontrolling interest — 0.01 0.01
Net income attributable to LKQ stockholders $ 2.35 $ 2.62 $ 3.49
(1) Related to the Uni-Select acquisition. Refer to Note 3, "Business Combinations" and Note 19, "Derivative Instruments and Hedging Activities" for further information.
The accompanying notes are an integral part of the Consolidated Financial Statements.
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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 3 2
Net income attributable to LKQ stockholders 607 690 936
Other comprehensive income (loss):
Foreign currency translation, net of tax 347 (168) 90
Net change in unrealized gains/losses on cash flow hedges, net of tax 2 2 (11)
Net change in unrealized gains/losses on pension plans, net of tax 11 (7) (5)
Other comprehensive (loss) income from unconsolidated subsidiaries — (4) 9
Other comprehensive income (loss) 360 (177) 83
Comprehensive income attributable to LKQ stockholders $ 967 $ 513 $ 1,019
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 $ 319 $ 234
Receivables, net of allowance for credit losses 1,204 1,113
Prepaid expenses and other current assets 299 328
Current assets of discontinued operations — 48
Property, plant and equipment, net 1,452 1,409
Equity method investments 170 169
Other noncurrent assets 449 376
Noncurrent assets of discontinued operations — 515
Liabilities and Stockholders' Equity
Current liabilities:
Accrued expenses:
Accrued payroll-related liabilities 190 207
Current portion of operating lease liabilities 253 222
Current portion of long-term obligations 32 38
Other current liabilities 88 92
Current liabilities of discontinued operations — 35
Long-term operating lease liabilities, excluding current portion 1,145 1,093
Long-term obligations, excluding current portion 3,631 4,124
Other noncurrent liabilities 332 341
Noncurrent liabilities of discontinued operations — 117
Commitments and contingencies
Stockholders' equity:
Accumulated other comprehensive loss (57) (417)
Total Company stockholders' equity 6,537 6,017
Noncontrolling interest 24 15
Total liabilities and stockholders' equity $ 15,137 $ 14,955
The accompanying notes are an integral part of the Consolidated Financial Statements.
52
LKQ CORPORATION AND SUBSIDIARIES
Consolidated Statements of Cash Flows
(In millions)
Year Ended December 31,
CASH FLOWS FROM OPERATING ACTIVITIES (1):
Impairment of goodwill 52 — —
Stock-based compensation expense 34 30 40
Gains on foreign exchange contracts - acquisition related — — (49)
Deferred income taxes (75) (34) 13
Receivables (16) (2) 5
Prepaid income taxes/income taxes payable (8) (15) (12)
Operating lease assets and liabilities (1) 4 4
CASH FLOWS FROM INVESTING ACTIVITIES (1):
Purchases of property, plant and equipment (216) (311) (358)
Acquisitions, net of cash acquired 1 (49) (2,225)
Proceeds from disposals of businesses, net of divested cash 397 (11) 110
Other investing activities, net 3 (35) (18)
Net cash provided by (used in) investing activities 185 (406) (2,442)
CASH FLOWS FROM FINANCING ACTIVITIES (1):
Borrowings under revolving credit facilities 1,510 1,312 2,186
Repayments under revolving credit facilities (2,176) (1,553) (3,074)
Borrowings under term loans 140 — 1,031
Repayments under term loans (140) — —
Repayments of other debt, net (42) (45) (32)
Repayment of Euro Notes (2024) — (547) —
Dividends paid to LKQ stockholders (310) (318) (302)
Purchase of treasury stock (159) (360) (38)
Other financing activities, net (14) (51) (63)
Net cash (used in) provided by financing activities (1,191) (746) 1,102
Net increase (decrease) in cash, cash equivalents and restricted cash 93 (60) 21
Less: Cash and cash equivalents of discontinued operations, end of period — — —
Cash, cash equivalents and restricted cash, end of period (2) $ 332 $ 239 $ 299
(1) Amounts presented contain results from both continuing and discontinued operations. Refer to Note 4, "Discontinued Operations and Divestitures" for further information regarding cash flows associated with the results of discontinued operations.
(2) Refer to Note 2, "Summary of Significant Accounting Policies" and Note 24, "Cash, Cash Equivalents and Restricted Cash" for further information on restricted cash.
The accompanying notes are an integral part of the Consolidated Financial Statements.
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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 — — — — — — 83 — 83
Purchase of treasury stock — — (0.8) (35) — — — — (35)
Stock-based compensation expense — — — — 40 — — — 40
Other comprehensive loss — — — — — — (177) — (177)
Purchase of treasury stock — — (8.6) (363) — — — — (363)
Stock-based compensation expense — — — — 30 — — — 30
Purchase of noncontrolling interest — — — — (1) — — — (1)
Other comprehensive income — — — — — — 360 — 360
Purchase of treasury stock — — (4.5) (161) — — — — (161)
Stock-based compensation expense — — — — 34 — — — 34
Acquisition of a subsidiary with noncontrolling interest — — — — — — — 9 9
The accompanying notes are an integral part of the Consolidated Financial Statements.
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LKQ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Business
Description of Business
LKQ Corporation, a Delaware corporation, is a holding company and all operations are conducted by subsidiaries. When the terms "LKQ," "the Company," "we," "us," or "our" are used in this document, those terms refer to LKQ Corporation and its consolidated subsidiaries.
We are a global distributor of vehicle products, including replacement parts, components, and systems used in the repair and maintenance of vehicles, and specialty aftermarket products and accessories designed to improve the performance, functionality and appearance of vehicles. We operate in the United States ("U.S."), Canada, Germany, the United Kingdom ("U.K."), the Benelux region (Belgium, Netherlands, and Luxembourg), Italy, Czech Republic, Austria, Slovakia, France and various other European countries.
We are organized into three operating segments: North America; Europe; and Specialty, each of which is presented as a reportable segment.
Note 2. Summary of Significant Accounting Policies
Basis of Presentation
The Consolidated Financial Statements have been prepared in conformity with accounting principles generally accepted in the United States of America ("GAAP") and the rules and regulations of the U.S. Securities and Exchange Commission. We have reclassified certain prior year amounts in the Consolidated Statements of Income and on the Consolidated Balance Sheets for the presentation of discontinued operations as a result of the sale of our Self Service segment. See Note 4, "Discontinued Operations and Divestitures" for additional information.
Principles of Consolidation
The accompanying Consolidated Financial Statements include the accounts of LKQ Corporation and its subsidiaries. All intercompany transactions and accounts have been eliminated.
Use of Estimates
The preparation of the Consolidated Financial Statements in accordance with GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the Consolidated Financial Statements and the reported amounts of revenue and expenses during the reported periods. We base our estimates on historical experience and on various other assumptions that management believes are reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results and outcomes could differ from those estimates.
Foreign Currency Translation
Our reporting currency is the U.S. dollar. For most of our international operations, the local currency is the functional currency. Assets and liabilities are translated into U.S. dollars at the period-ending exchange rate. Statements of Income amounts are translated to U.S. dollars using monthly average exchange rates during the period. Translation gains and losses are reported as a component of Accumulated other comprehensive income (loss) in stockholders' equity.
Revenue Recognition
We recognize revenue when a sales arrangement with a customer exists (e.g., contract, purchase orders, others), the transaction price is fixed or determinable and we have satisfied its performance obligations per the sales arrangement. The majority of our revenue originates from contracts with a single performance obligation to deliver parts, whereby the performance obligation is satisfied when control of the parts is transferred to the customer per the arranged shipping terms. Some of our contracts contain a combination of delivering parts and performing services, which are distinct and accounted for as separate performance obligations. Revenue for the service component is recognized as the services are rendered.
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Our revenue is measured at the determinable transaction price, net of any variable considerations granted to customers. Variable considerations include the right to return parts, discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, or other similar items. These variable considerations are estimated throughout the year based on various factors, including contract terms, historical experience and performance levels.
Sales tax and other tax amounts collected from customers for remittance to governmental authorities are excluded from revenue in the Consolidated Statements of Income and are shown as a current liability on the Consolidated Balance Sheets until remitted.
Any incremental costs to obtain a contract (commissions earned by our sales representatives on product sales) are expensed when incurred, as the amortization period of the asset would be one year or less due to the short-term nature of our contracts.
Cost of Goods Sold
Cost of goods sold includes: the price we pay for inventory, net of vendor discounts, rebates or other incentives; inbound freight and other transportation costs to bring inventory into our facilities; and overhead costs related to purchasing, warehousing and transporting our products from our distribution warehouses to our selling locations. For our salvage, remanufactured, refurbished and manufactured products, cost of goods sold also includes direct and indirect labor, equipment costs, depreciation, and other overhead to transform inventory into finished products suitable for sale. Cost of goods sold also includes expenses for service-type and assurance-type warranty programs.
Selling, General and Administrative Expenses
Selling, general and administrative ("SG&A") expenses include: personnel costs for employees in SG&A functions; costs to operate branch locations, corporate offices and back office support centers; costs to transport products from facilities to our customers; and other expenses, such as professional fees, supplies, and advertising expenses. The costs included in SG&A expenses do not relate to inventory processing or conversion activities, and, as such, are classified below Gross margin in the Consolidated Statements of Income.
Stock-Based Compensation
For the restricted stock units ("RSUs") that contain both a performance-based vesting condition and a time-based vesting condition, we recognize compensation expense using the accelerated attribution method, pursuant to which expense is recognized straight-line over the requisite service period for each separate vesting tranche of the award. For all other awards, which are subject to only a time-based vesting condition, we recognize compensation expense on a straight-line basis over the requisite service period of the entire award.
For performance-based RSUs ("PSUs"), the expense is calculated using the projected award value, which is based on an estimate of the achievement of the performance objectives, and is recognized on a straight-line basis over the performance period.
The impacts of forfeitures on RSUs and PSUs expense are recorded as they occur.
Income Taxes
Current income taxes are provided on income reported for financial reporting purposes, adjusted for transactions that do not enter into the computation of income taxes payable in the same year. Deferred income taxes are provided for temporary differences between the tax bases of assets and liabilities and their reported amounts in the financial statements. A valuation allowance is provided for deferred tax assets if it is more likely than not that these items will either expire before we are able to realize their benefit or that future deductibility is uncertain. Provision is made for taxes on undistributed earnings of foreign subsidiaries and related companies to the extent that such earnings are not deemed to be permanently invested.
We recognize the benefits of uncertain tax positions taken or expected to be taken in tax returns in the provision for income taxes only for those positions that are more likely than not to be realized. We follow a two-step approach to recognizing and measuring uncertain tax positions. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon ultimate settlement. We consider many factors when evaluating and estimating our tax positions
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and tax benefits, which may require periodic adjustments and which may not accurately forecast actual outcomes. Our policy is to include any interest and penalties associated with income tax obligations in income tax expense.
Cash, Cash Equivalents and Restricted Cash
Cash and cash equivalents include cash on hand, operating accounts, and deposits readily convertible to known amounts of cash. Restricted cash includes any cash that is legally or contractually restricted as to withdrawal or usage.
Allowance for Credit Losses
Receivables are reported net of an allowance for credit losses. The allowance is measured on a pool basis when similar risk characteristics exist, and a loss-rate for each pool is determined using historical credit loss experience as the basis for the estimation of expected credit losses. Adjustments to historical loss information are made for differences in current conditions (e.g., management's evaluation of the aging of customer receivable balances and the financial condition of our customers) as well as changes in forecasted macroeconomic conditions, such as changes in the unemployment rate, gross domestic product growth rate or credit default rates.
Concentrations of Credit Risks
Financial instruments that potentially subject us to significant concentration of credit risk consist primarily of cash and cash equivalents and receivables. We control our exposure to credit risk associated with these instruments by (i) placing cash and cash equivalents with several major financial institutions; (ii) holding high-quality financial instruments; and (iii) maintaining strict policies over credit extension that include credit evaluations, credit limits and monitoring procedures. In addition, our overall credit risk with respect to accounts receivable is limited to some extent because our customer base is composed of a large number of geographically diverse customers.
Inventories
Our inventory is stated at the lower of cost or net realizable value. Net realizable value can be influenced by current anticipated demand. If actual demand is lower than our estimates, additional reductions to inventory carrying value would be necessary in the period such determination is made.
The cost of our inventory is determined differently based on the category of inventory; (i) aftermarket and refurbished products, (ii) salvage and remanufactured products, and (iii) manufactured products.
An aftermarket product is a new vehicle product manufactured by a company other than the original equipment manufacturer. For aftermarket products, cost is established based on the average price paid for parts. Inventory cost for aftermarket products includes expenses incurred for freight in and overhead costs; for items purchased from foreign companies, import fees, tariffs and duties and transportation insurance are also included. Refurbished products are parts that require cosmetic repairs, such as wheels, bumper covers and lights; we will apply new parts, products or materials to these parts to produce the finished product. Refurbished inventory cost is based upon the average price we pay for cores, which are recycled automotive parts that are not suitable for sale as a replacement part without further processing. The cost of refurbished inventory also includes expenses incurred for freight in, labor and other overhead costs.
A salvage product is a recycled vehicle part suitable for sale as a replacement part. Salvage product cost is established based upon the price we pay for a vehicle, including auction, storage and towing fees, as well as expenditures for buying and dismantling the vehicle. Inventory carrying value is determined using the average cost to sales percentage at each of our facilities and applying that percentage to the facility's inventory at expected selling prices, the assessment of which incorporates the sales probability based on a part's number of days in stock and historical demand. The average cost to sales percentage is derived from each facility's historical profitability for salvage vehicles. Remanufactured products are used parts that have been inspected, rebuilt, or reconditioned to restore functionality and performance, such as remanufactured engines and transmissions. Remanufactured inventory cost is based upon the price paid for cores and expenses incurred for freight in, direct manufacturing costs and other overhead costs.
A manufactured product is a new vehicle product. Manufactured product inventory can be a raw material, work-in-process or finished good. Manufactured product cost is established using the first-in first-out method.
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Property, Plant and Equipment
Property, plant and equipment are recorded at cost less accumulated depreciation. Depreciation is calculated using the straight-line method over the estimated useful lives or, in the case of leasehold improvements, the term of the related lease and reasonably assured renewal periods, if shorter. Depreciation expense associated with refurbishing, remanufacturing, manufacturing and furnace operations as well as distribution centers are recorded in Cost of goods sold in the Consolidated Statements of Income. Depreciation expense resulting from restructuring programs is recorded in Restructuring and transaction related expenses in the Consolidated Statements of Income. All other depreciation expense is reported in Depreciation and amortization in the Consolidated Statements of Income.
Expenditures for major additions and improvements that extend the useful life of the related asset are capitalized. Expenditures for maintenance and repairs are recorded as incurred to SG&A expenses in the Consolidated Statements of Income. As property, plant and equipment are sold or retired, the applicable cost and accumulated depreciation are removed from the accounts and any resulting gain or loss thereon is recognized. Construction in progress consists primarily of building and land improvements at our existing facilities.
Intangible Assets
Intangible assets consist primarily of goodwill (the cost of purchased businesses in excess of the fair value of the identifiable net assets acquired) and other specifically identifiable intangible assets, such as customer and supplier relationships, trade names, trademarks, software and other technology related assets, and covenants not to compete.
Goodwill and indefinite-lived intangible assets are tested for impairment at least annually. We performed annual impairment tests during the fourth quarters of 2025, 2024, and 2023. Goodwill and indefinite-lived intangible assets impairment testing may also be performed on an interim basis when events or circumstances arise that may lead to impairment, including significant underperformance relative to historical or forecasted operating results, a significant decrease in the market value of an asset or significant negative industry or economic trends. The fair value estimates of our goodwill reporting units were established using weightings of the results of a discounted cash flow methodology and a comparative market multiples approach.
Based on our annual goodwill and indefinite-lived intangible assets impairment test performed in the fourth quarter of 2025, we determined the carrying value of our Specialty reporting unit exceeded the fair value estimate; as a result, we recorded a goodwill impairment charge of $52 million for the year ended December 31, 2025. We determined no other impairments existed when we performed our annual impairment test as both the North America and Europe reporting units had fair value estimates which exceeded the carrying value by at least 48%. See Note 9, "Intangible Assets" for further information on the goodwill impairment charge.
Leases
We determine if an arrangement is a lease at contract inception with lease right-of-use ("ROU") assets and lease liabilities being recognized based on the present value of the future lease payments over the lease term at the commencement date. In determining the present value of future lease payments, we use the incremental borrowing rate based on the information available at commencement date when the implicit rate is not readily determinable. We determine the incremental borrowing rate based on information available at the commencement date. In assessing the ROU asset, we include any lease prepayments and deduct lease incentives. We account for the lease and non-lease components of a contract as a single lease component and for leases with an initial term of 12 months or less, we have elected to not record an ROU asset and lease liability. In assessing the lease term, we include options to renew only when it is reasonably certain that the option will be exercised.
For certain lease agreements, rental payments are adjusted periodically for inflation. Typically, these adjustments are considered variable lease costs. Other variable lease costs consist of certain non-lease components that are disclosed as lease costs due to our election of the practical expedient to combine lease and non-lease components and include items such as variable payments for utilities, property taxes, common area maintenance, sales taxes, and insurance.
Net Assets Held for Sale
We record net assets held for sale at the lower of fair value less cost to sell or carrying value. Fair values are based on estimated selling prices, which utilize projected market multiples and any reasonable offers. Due to uncertainties in the estimation process, it is possible that actual results could differ from the estimates used in management's analysis. The inputs utilized in the fair value estimates are classified as Level 3 within the fair value hierarchy. The fair values of the net assets were measured on a
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non-recurring basis as of December 31, 2025. As of December 31, 2025 and 2024, assets and liabilities held for sale were insignificant. For the years ended December 31, 2025 and 2023, we recorded an insignificant amount of impairment on our net assets held for sale. In 2024, we divested certain operations in Slovenia, Poland and Bosnia. Our decision to exit these businesses, as well as other factors, constituted a triggering event to evaluate our net assets held for sale for impairment, and as a result, we incurred impairment charges related to these divestitures during the year ended December 31, 2024. See Note 13, "Restructuring and Transaction Related Expenses" for further information related to these impairment charges.
Discontinued Operations
We classify operations as discontinued when they meet all the criteria to be classified as held for sale and when the sale represents a strategic shift that will have a major impact on our financial condition and results of operations. In determining if a disposal constitutes a strategic shift, we evaluate various qualitative and quantitative factors, an example of which is the impact to segment reporting. We generally consider the disposal of an entire reportable segment to constitute a strategic shift. When operations are identified for discontinued operations reporting, results of operations for all periods presented are reclassified as discontinued operations in the Consolidated Statements of Income, assets and liabilities of the operations are reported as assets and liabilities of discontinued operations on the Consolidated Balance Sheets, and information is recast throughout the notes to the consolidated financial statements to exclude the results of the discontinued operations. Furthermore, FASB Accounting Standards Codification 205-20, "Presentation of Financial Statements - Discontinued Operations" defines what activities may be classified as discontinued operations with general corporate overhead generally not being allocable to discontinued operations. See Note 4, "Discontinued Operations and Divestitures" for further information related to discontinued operations.
Impairment of Long-Lived Assets
Long-lived assets are reviewed for possible impairment whenever events or circumstances indicate that the carrying amount of such assets may not be recoverable. If such review indicates that the carrying amount of long-lived assets is not recoverable, the carrying amount of such assets is reduced to fair value. As a result of the divestitures described in the "Net Assets Held for Sale" section above, we incurred impairment charges to the carrying value of long-lived assets during the year ended December 31, 2024. See Note 13, "Restructuring and Transaction Related Expenses" for further information related to these impairment charges. For our continuing operations, there were no significant impairments to the carrying value of long-lived assets during the years ended December 31, 2025 or 2023.
Equity Method Investments
We account for our investments in unconsolidated subsidiaries using the equity method of accounting, as our investments give us the ability to exercise significant influence, but not control, over the investee. Under the equity method of accounting, the initial investment is recorded at cost and the investment is subsequently adjusted for our proportionate share of earnings or losses and dividends, including consideration of basis differences resulting from the difference between the initial carrying amount of the investment and the underlying equity in net assets, as applicable. Equity method investments are tested for impairment at least annually, and may also be performed on an interim basis when events or circumstances arise that may lead to impairment. We performed annual impairment testing for the years ended December 31, 2025, 2024, and 2023, and based on our testing, we determined no other-than-temporary impairment existed. See Note 10, "Equity Method Investments" for further information related to equity method investments.
Financial Assets and Liabilities Measured at Fair Value
We have certain financial assets and liabilities that are measured at fair value within our consolidated financial statements including investments in equity and debt securities as well as our defined benefit plan assets. The tiers in the fair value hierarchy include: Level 1, defined as observable inputs such as quoted market prices in active markets; Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable; and Level 3, defined as significant unobservable inputs for which little or no market data exists, therefore requiring an entity to develop its own assumptions. See Note 20, "Fair Value Measurements" and Note 22, "Employee Benefit Plans for further information related our fair value measurements and pension plans.
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Warranty Reserve
Assurance-type warranties are not considered a separate performance obligation, and thus no transaction price is allocated to them. Our warranty reserve is calculated using historical claim information to project future warranty claims activity and is recorded within Other accrued expenses and Other noncurrent liabilities on our Consolidated Balance Sheets based on the expected timing to settle the warranty claims. We record warranty costs in Cost of goods sold in our Consolidated Statements of Income.
Self-Insurance Reserves
We self-insure a portion of our employee medical benefits under the terms of our employee health insurance program. We purchase certain stop-loss insurance to limit our liability exposure. We also self-insure a portion of our property and casualty risk, which includes automobile liability, general liability, directors and officers liability, workers' compensation, and property coverage, under deductible insurance programs. The insurance premium costs are expensed over the contract periods. A reserve for liabilities associated with these losses is established for claims filed and claims incurred but not yet reported based upon our estimate of the ultimate cost, which is calculated using an analysis of historical data. We monitor new claim and claim developments as well as trends related to the claims incurred but not reported in order to assess the adequacy of our insurance reserves. The current portion of total self-insurance reserves is recorded in Other accrued expenses on the Consolidated Balance Sheets with the noncurrent portion is recorded in Other noncurrent liabilities on the Consolidated Balance Sheets, which reflects management's estimates of when claims will be paid.
Litigation and Related Contingencies
We have certain contingencies resulting from litigation, claims and other commitments and are subject to a variety of environmental and pollution control laws and regulations incident to the ordinary course of business. We currently expect that the resolution of such contingencies will not materially affect our financial position, results of operations or cash flows.
Treasury Stock
We record common stock purchased for treasury stock at cost. The excise tax on share repurchases initiated on and after January 1, 2023 is included in the cost basis of treasury stock.
Recent Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In December 2023, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2023-09, "Income Taxes (Topic 740): Improvements to Income Tax Disclosures." The ASU requires disclosure of disaggregated income taxes paid, prescribes standard categories for the components of the effective tax rate reconciliation, and modifies other income tax-related disclosures. We adopted the ASU on a prospective basis beginning in this Annual Report on Form 10-K for the year ended December 31, 2025. The adoption of ASU 2023-09 did not have a material impact on our results of operations, financial position or cash flows but did result in additional disclosures. See Note 23, "Income Taxes for further information related to these disclosures.
Recently Issued Accounting Pronouncements
In November 2024, the FASB issued ASU 2024-03, “Income Statement-Reporting Comprehensive Income-Expense Disaggregation Disclosures (Subtopic 220-40): Disaggregation of Income Statement Expenses.” The ASU requires disclosure of specific expense categories within relevant income statement captions. The amendments in this ASU are effective for fiscal years beginning after December 15, 2026, and interim periods within fiscal years beginning after December 15, 2027. The ASU can be adopted prospectively or retrospectively and early adoption is permitted. We are currently evaluating the impact of adopting this ASU on our consolidated financial statements.
In September 2025, the FASB issued ASU 2025-06, “Intangibles—Goodwill and Other—Internal-Use Software (Subtopic 350-40): Targeted Improvements to the Accounting for Internal-Use Software”. This ASU removes references to software development project stages to better align with current software development methods. Under the ASU, an entity will begin capitalizing software costs when management authorizes and commits to funding the software project, and it is probable that the project will be completed and the software will be used for its intended purpose. This update is effective for annual periods
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beginning after December 15, 2027, including interim periods within those fiscal years, though early adoption is permitted. This ASU can be adopted either prospectively, retrospectively, or utilizing a modified transition approach. We are currently evaluating the impact of adopting this ASU on our consolidated financial statements.
In November 2025, the FASB issued ASU 2025-09, “Derivatives and Hedging (Topic 815): Hedge Accounting Improvements”, which amends certain aspects of hedge accounting to more closely align with the economics of an entity’s risk management activities. The amendments include changes to the risk assessment for cash flow hedges, hedging forecasted interest payments on choose-your-rate debt instruments, cash flow hedges of nonfinancial forecasted transactions, net written options as hedging instruments and dual hedges of foreign currency denominated debt instruments. This update is effective for annual periods beginning after December 15, 2026, including interim periods within those fiscal years, though early adoption is permitted. This ASU is required to be adopted prospectively for all hedging relationships, with the option to adopt the amendments for hedging relationships that exist as of the adoption date. We are currently evaluating the impact of adopting this ASU on our consolidated financial statements.
Note 3. Business Combinations
During the year ended December 31, 2025, we completed acquisitions of two businesses within our Europe segment and during the year ended December 31, 2024, we completed acquisitions of eight businesses within our North America segment and two businesses within our Europe segment. These acquisitions were not material to our financial position or results of operations as of and for the years ended December 31, 2025 and 2024. Additionally, in January 2024, we paid $23 million (€21 million) to a minority shareholder to settle a put option exercised on redeemable shares issued in conjunction with a previous acquisition. This payment was presented within Other financing activities, net in financing activities in our Consolidated Statements of Cash Flows.
On August 1, 2023, we completed the acquisition of all of Uni-Select's issued and outstanding shares for an aggregate consideration paid of approximately Canadian dollar (“CAD”) 2.8 billion ($2.1 billion) (the "Uni-Select Acquisition"). In order to reduce the risk related to changes in CAD foreign exchange rates for the CAD purchase price, we entered into foreign exchange contracts. These foreign exchange contracts did not qualify for hedge accounting, and therefore the changes in fair value were reported in Gains on foreign exchange contracts - acquisition related in the Consolidated Statements of Income. We reported Gains on foreign exchange contracts - acquisition related of $49 million for the year ended December 31, 2023. These foreign exchange contracts were settled in July 2023 ahead of closing of the Uni-Select Acquisition, resulting in total payments received of $49 million. See Note 19, "Derivative Instruments and Hedging Activities" for information related to these foreign exchange contracts. This acquisition complemented our existing North American paint distribution operations and provided a scaled position in the Canadian replacement and maintenance parts market, with opportunity for future consolidation and growth.
In addition to our acquisition of Uni-Select, we completed acquisitions of three businesses within our North America segment, four businesses within our Europe segment and one business in our Specialty segment, during the year ended December 31, 2023.
Our acquisitions are accounted for under the purchase method of accounting and are included in our consolidated financial statements from the dates of acquisition. The purchase prices were allocated to the net assets based upon estimated fair values at the dates of acquisition. During the years ended December 31, 2025 and 2024, there have been no significant adjustments to the preliminary purchase price allocations from those disclosed in our December 31, 2023 Consolidated Financial Statements.
Unaudited Pro Forma Financial Information
For businesses acquired during the year ended December 31, 2025, the effect of pro forma revenue and income from continuing operations is not material for the years ended December 31, 2025 and 2024, respectively.
Note 4. Discontinued Operations and Divestitures
On August 25, 2025, we entered into a definitive agreement to sell our Self Service segment to an affiliate of Pacific Avenue Capital Partners, LLC for an enterprise value of $410 million, subject to customary purchase price adjustments. The sale of the Self Service segment reflects our continued efforts to simplify our portfolio of businesses by exiting an asset-intensive business heavily affected by changes in commodity prices. The sale was completed on September 30, 2025. On October 1, 2025, we received the pretax net proceeds from the sale and used these proceeds to repay approximately $390 million of revolving credit facility borrowings. Accordingly, interest expense attributable to the repaid borrowings has been included in discontinued
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operations for all periods presented. Additionally, general corporate overhead costs that were historically allocated to the Self Service segment remain within continuing operations for all periods presented.
In connection with the transaction, we also entered into a transition services agreement to provide certain post-close support services. These support services, most of which last for up to nine months from the closing date of the sale, are in the areas of human resources, tax, finance, information technology, and operations, among others.
The following table summarizes the comparative financial results of discontinued operations which are presented in Net income from discontinued operations in the Consolidated Statements of Income (in millions):
Year Ended December 31,
Impairment on assets held for sale (1) 15 — —
Selling, general and administrative expenses 124 158 173
Depreciation and amortization 9 15 16
Other expense (income):
Interest income and other income, net (1) (2) (2)
Total other expense, net 14 22 21
Income from discontinued operations before provision for income taxes 20 32 12
Provision for income taxes 9 8 2
Net income from discontinued operations $ 11 $ 24 $ 10
(1) During the year ended December 31, 2025, we recorded an impairment to write down the carrying value of Self Service to its fair value less costs to sell. This includes an estimate of working capital adjustments recorded in the fourth quarter of 2025.
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The major classes of Assets of discontinued operations and Liabilities of discontinued operations for Self Service as of December 31, 2024 stated on the Consolidated Balance Sheets are as follows (in millions):
Assets
Current assets:
Receivables, net of allowance for credit losses $ 9
Inventories 37
Prepaid expenses and other current assets 2
Total current assets of discontinued operations 48
Property, plant and equipment, net 108
Operating lease assets, net 132
Other noncurrent assets 1
Total noncurrent assets of discontinued operations 515
Total assets of discontinued operations $ 563
Liabilities
Current liabilities:
Accounts payable $ 4
Accrued expenses:
Accrued payroll-related liabilities 7
Refund liability 1
Other accrued expenses 6
Current portion of operating lease liabilities 15
Other current liabilities 2
Total current liabilities of discontinued operations 35
Long-term operating lease liabilities, excluding current portion 114
Long-term obligations, excluding current portion 3
Total noncurrent liabilities of discontinued operations 117
Total liabilities of discontinued operations $ 152
The following table summarizes the significant non-cash operating activities and capital expenditures of the Company’s discontinued operations related to the Self Service segment (in millions):
Year Ended December 31,
Depreciation and amortization $ 9 $ 15 $ 16
Impairment on assets held for sale 15 — —
Purchases of property, plant and equipment 5 13 36
GSF Car Parts
As part of the Uni-Select transaction, we were required to divest its U.K. subsidiary, GSF Car Parts, to comply with the U.K.'s Competition and Markets Authority regulatory ruling. Since the GSF Car Parts business was held separate and never integrated into our business, we classified the business as discontinued operations upon acquisition.
On October 25, 2023, we divested GSF Car Parts to a third party for $110 million of proceeds, net of cash divested, resulting in an immaterial loss on sale. The proceeds were used for repayments on our revolving credit facilities. In order to manage our exposure to variability in the cash flows related to the sale of GSF Car Parts, we entered into a foreign exchange forward contract to fix the amount of USD we received upon completion of the sale. This foreign exchange contract was settled in October 2023. For the year ended December 31, 2023, we recorded a $6 million loss to discontinued operations related to GSF Car Parts.
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Other Divestitures (Not Classified in Discontinued Operations)
In 2024, we divested certain operations in Slovenia, Poland and Bosnia. See Note 13, "Restructuring and Transaction Related Expenses" for further information related to these divestitures.
Note 5. Inventories
We classify our inventory into the following categories: (i) aftermarket and refurbished products, (ii) salvage and remanufactured products, and (iii) manufactured products. Aftermarket and refurbished products, and salvage and remanufactured products are primarily composed of finished goods. Manufactured products are primarily composed of raw materials and finished goods.
Inventories consist of the following (in millions):
December 31,
Aftermarket and refurbished products $ 2,849 $ 2,659
Salvage and remanufactured products 526 470
Manufactured products 51 54
Note 6. Property, Plant and Equipment
Property, plant and equipment consists of the following (in millions):
December 31,
Furniture and fixtures 5 - 7 years 93 73
Less: Accumulated depreciation (1,352) (1,132)
Construction in progress 39 60
Total property, plant and equipment, net $ 1,452 $ 1,409
(1) Only applies to land improvements as land is not depreciated.
Total depreciation expense for the years ended December 31, 2025, 2024, and 2023 was $226 million, $210 million, and $177 million, respectively.
Note 7. Self-Insurance Reserves
To provide for the potential liabilities for certain risks, we use a combination of insurance and self-insurance mechanisms, including a consolidated, wholly-owned captive insurance subsidiary which provides insurance coverage for workers' compensation and automotive liability claim payments that are below our deductibles under our third-party policies. The activity related to our captive insurance subsidiary was not material for the years ended December 31, 2025, 2024, and 2023.
Total self-insurance reserves were $139 million and $144 million, of which $76 million and $79 million were classified as current, as of December 31, 2025 and 2024, respectively. We had outstanding letters of credit of $134 million and $114 million, of which $97 million and $79 million were to guarantee self-insurance claims payments at December 31, 2025 and 2024, respectively. While we do not expect the amounts ultimately paid to differ significantly from the estimates, the insurance
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reserves and corresponding expenses could be affected if future claims experience differs significantly from historical trends and assumptions.
Note 8. Allowance for Credit Losses
Our allowance for expected credit losses was $53 million and $56 million as of December 31, 2025 and December 31, 2024, respectively. The provision for credit losses was $14 million, $17 million, and $12 million for the years ended December 31, 2025, 2024, and 2023, respectively.
A rollforward of our allowance for credit losses is as follows (in millions):
Balance as of January 1, $ 56 $ 61
Provision for credit losses 14 17
Impact of foreign currency 5 (3)
Balance as of December 31, $ 53 $ 56
Note 9. Intangible Assets
The changes in the carrying amount of goodwill by reportable segment is as follows (in millions):
North America Europe Specialty Total
Accumulated impairment losses as of January 1, 2024 (33) — — (33)
Business acquisitions and adjustments to previously recorded goodwill 4 9 2 15
Disposal of businesses — (5) — (5)
Business acquisitions and adjustments to previously recorded goodwill (1) 2 — 1
Impairment of goodwill — — (52) (52)
Accumulated impairment losses as of December 31, 2025 $ (33) $ — $ (52) $ (85)
For the Specialty segment, we recorded a goodwill impairment charge of $52 million for the year ended December 31, 2025 as the carrying value was higher than its estimated fair value based on the results of our October 31, 2025 test. The impairment was driven by a combination of factors, including lower observed market multiples in the guideline public company method, lower long term revenue growth than previous forecasts, and higher margin product groups having a longer anticipated market recovery. As of December 31, 2025, the remaining Specialty goodwill balance was $421 million. A 1% decrease in projected cash flows or long term growth rate would result in approximately an additional $10 million of impairment, a 25 basis point increase in the discount rate would result in approximately an additional $30 million of impairment, or a 1.0 decrease in the market multiples assumption would result in approximately an additional $30 million of impairment. Given the sensitivity of the calculation to these assumptions, events that cause declines to Specialty's future cash flows such as underperformance relative to our forecasts, since actual results may differ from our estimates of future performance, or events that have a negative impact on the market value of the business, such as a deterioration in macroeconomic conditions, could result in additional future impairment to the goodwill in our Specialty segment. We will continuously monitor each of our reporting units for any risk of future impairments. We reported the impairment charge in Impairment of goodwill on the Consolidated Statements of Income for the year ended December 31, 2025. We determined no other impairments existed when we performed our annual impairment test. See "Intangible Assets" in Note 2, "Summary of Significant Accounting Policies" for further information.
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LKQ CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The components of other intangibles, net are as follows (in millions):
Indefinite-lived trademarks 81 — 81 81 — 81
Estimated useful lives for the finite-lived intangible assets are as follows:
Method of Amortization Useful Life
Customer and supplier relationships Accelerated 3-20 years
Trade names and trademarks Straight-line 3-30 years