LKQ 10-K & 10-Q changes, risk factors and insider trading

We have a presence in the Ukraine and are monitoring the situation there carefully. In addition, a number of our suppliers are based in China and Taiwan and so increasing strains and any political repercussions may have implications upon our supply chain.

Although we do not have significant customers or suppliers in the Middle East region, we do have customers and suppliers in regions that may be affected. Further escalation of the IsraelAdditional and/or Hamas conflict and relatedincreased geopolitical tensions, including the crisis in the Red Sea and increased trade barriers or restrictions on global trade, could result in, among other things, supply disruptions, lower consumer demand, and changes to foreign exchange rates and financial markets, any of which may adversely affect our business, financial condition and results of operations.

The cost of our self service retail and, to a lesser extent, our wholesale recycledsalvaged inventory purchases will change as a result of fluctuating scrap metal and other metals prices. In a period of falling metal prices, there can be no assurance that our inventory purchasing cost will decrease the same amount or at the same rate as the scrap metal and other metals prices decline, and there may be a delay between the scrap metal and other metals price reductions and any inventory cost reductions. The prices of steel, aluminum, and plastics are components of the cost to manufacture products for our aftermarket business. If the prices of commodities rise and result in higher costs to us for products we sell, we may not be able to pass these higher costs on to our customers.

Our Wholesale - North AmericaAmerican business is dependent on a relatively small number of suppliers of aftermarket products, a large portion of which are sourced from Taiwan. Our European business acquires products from a wide variety of suppliers, including products from Asian sources. We incur substantial freight costs to import parts from our suppliers, many of which are located in Asia. The cost of freight and shipping containers have historically fluctuated, sometimes significantly, due to market factors. If the cost of freight and shipping containers rise in the future, we might not be able to pass the cost increases on to our customers. Furthermore, although alternative suppliers exist for substantially all aftermarket products distributed by us, the loss of any one supplier could have an adverse effect on us until alternative suppliers are located and have commenced manufacturing and providing the relevant products. In addition, we are subject to disruptions from work stoppages and other labor disputes at port facilities through which we import our inventory. We also face the risk that our suppliers could attempt to circumvent us and sell their product directly to our customers; consolidation of our suppliers could enhance their ability to distribute products through additional sales channels and thus decrease their reliance on wholesale distributors like us.

Most of our wholesale recycled and a portion of our self service inventory is obtained from vehicles offered at salvage auctions that are owned and operated by third party companies. We do not typically have contracts with these auction companies. According to industry analysts, a small number of companies control a large percentage of the salvage auction market. If an auction company prohibited us from participating in its auctions, began competing with us, or significantly raised its fees, our business could be adversely affected through higher costs or the resulting potential inability to service our customers. Moreover, we face competition in the purchase of vehicles from direct competitors, rebuilders, exporters and other bidders. To the extent that the number of bidders increases, it may have the effect of increasing our cost of goods sold for wholesale recycledsalvaged products. Some jurisdictions regulate bidders to help ensure that salvage vehicles are purchased for legal purposes by qualified buyers. Auction companies have been actively seeking to reduce, circumvent or eliminate these regulations, which would further increase the number of bidders.

The global outbreak of the coronavirus ("COVID-19") significantly increased economic, demand and operational uncertainty. Our operations have generally stabilized since the peak of the COVID-19 pandemic, and, in May 2023, the World Health Organization declared an end to COVID-19 as a public health emergency. However, a resurgence or development of new strains of COVID-19 or any otherOther public health emergencies could result in unpredictable responses by authorities around the world which could negatively impact our global operations, customers and suppliers. Any future pandemics or public health emergencies could reduce demand for our products and/or result in disruptions to our operations, including higher rates of employee absenteeism, and supply chain challenges, which could negatively impact our ability to meet customer demand. The extent to which new strains or variants of COVID-19 or other public health emergencies could impact our business, results of operations, financial condition or liquidity is highly uncertain and would depend on future developments, including the spread and duration of any such virus and the variants thereof, potential actions taken by governmental authorities and how quickly economic conditions stabilize and recover.

In addition to acquisitions, we have divested, and will continue to divest, certain businesses, either because they do not meet our performance standards or for other reasons. As a result of a divestment, we may not recover the carrying value of our investment in the divested business; in addition, such divestment transactions require significant management time and attention.

As of December 31, 2024,2025, we had (a) approximately $1,651$1,011 million aggregate principal amount of unsecured, variable-rate debt outstanding under our Senior Unsecured Credit Agreement (the "credit agreement") and Senior Unsecured Term Loan Credit Agreement (the "CAD Note"), of which $987$500 million matures during 20262027, $510 million during 2029, and $664$1 million matures in 2028,2030, and (b) approximately $1,222$1,885 million of availability under the credit agreement ($1,336$1,999 million of availability reduced by $114 million of amounts outstanding under letters of credit). In addition, as of December 31, 2025, we had approximately $2,436$2,575 million aggregate principal amount of unsecured, fixed rate debt outstanding comprised of €250 million ($259$294 million) of 4.125% senior notes due 2028 (the "Euro Notes (2028)"), $800 million of 5.75% senior notes due 2028 (the "U.S. Notes (2028)"), €750 million ($777$881 million) of 4.125% senior notes due 2031 (the "Euro Notes (2031)"), and $600 million of 6.25% senior notes due 2033 (the "U.S. Notes (2033)," and together with the Euro Notes (2028), the U.S. Notes (2028), and the Euro Notes (2031), the "senior notes").

In addition, if we or our subsidiaries incur additional debt, the risks associated with our substantial leverage and the ability to service such debt would increase.

Our senior notes do not impose any limitations on our ability to incur additional debt or protect against certain other types of transactions, and we may incur certain additional indebtedness under our credit agreement.agreement and CAD Note.

Although we are subject to our credit agreement and CAD Note for so long as each of those respectivelyrespective remainsagreements remain in effect, the indentures governing the senior notes do not restrict the future incurrence of unsecured indebtedness, guarantees or other obligations. The indentures contain certain limitations, including limitations on our ability to incur liens on assets andassets, engage in sale and leaseback transactions.transactions, However,and engage in certain change of control transactions or merge or consolidate with or into other companies. Certain additional restrictions in the indenture governing our Euro Notes (2028) (including restrictions on asset dispositions and restricted payments) are not currently applicable, but will become applicable to us if our Euro Notes (2028) are no longer investment grade. Furthermore, these limitations in our debt agreements are subject to important exceptions. In addition, the indentures do not contain many other restrictions, including certain restrictions contained in our credit agreement,agreement and CAD Note, including, without limitation, making investments, prepaying subordinated indebtedness or engaging in transactions with our affiliates.

Our credit agreement will permit, subject to specified conditions and limitations, the incurrence of a significant amount of additional indebtedness under the existingcredit agreement. As of December 31, 2024,2025, we would have been able to incur an additional $1,222$1,885 million of indebtedness under our credit agreement ($1,336$1,999 million of availability reduced by $114 million of amounts outstanding under letters of credit). If we or our subsidiaries incur additional debt, the risks associated with our substantial leverage and the need to service such debt would increase.

As a result of these covenants and restrictions, we may be limited in how we conduct our business and we may be unable to raise additional debt or equity financing to compete effectively or to take advantage of new business opportunities. The terms of any future indebtedness we may incur could include more restrictive covenants. In the event we fail to maintain compliance with these covenants in the future, we may be unable to obtain waivers from the lenders and/or amend the covenants. In addition, our failure to maintain compliance with such covenants may trigger consent requirements under our senior notes, which we may be unable to obtain. Failure to comply with any of these covenants would cause a default under the credit agreement and the CAD Note. A default, if not waived, could result in acceleration of our debt,debt (including our senior notes), in which case the debt would become immediately due and payable. If this occurs, we may not be able to repay our debt or borrow sufficient funds to refinance it. Even if new financing were available, it may be on terms that are less attractive to us than our existing credit facilities or it may be on terms that are not acceptable to us.

We may need to raise additional funds in the future to, among other things, refinance existing debt, fund our existing operations, improve or expand our operations, respond to competitive pressures, or make acquisitions. From time to time, we may raise additional funds through public or private financing, strategic alliances, or other arrangements. Funds may not be available or available on terms acceptable to us as a result of different factors, including but not limited to turmoil in the credit markets that results in the tightening of credit conditions and current or future regulations applicable to the financial institutions from which we seek financing. If adequate funds are not available on acceptable terms, we may be unable to meet our business or strategic objectives or compete effectively. If we raise additional funds by issuing equity securities, stockholders may experience dilution of their ownership interests, and the newly issued securities may have rights superior to those of our common stock. If we raise additional funds by issuing debt, we may be subject to higher borrowing costs and further limitations on our operations. If we refinance or restructure our debt, we may incur charges to write off the unamortized portion of deferred debt issuance costs from a previous financing, or we may incur charges related to hedge ineffectiveness from our interest rate swap obligations. There are limitations in the indentures that govern the U.S. Notes (2028), Euro Notes (2031) and U.S. Notes (2033) on our ability to refinance such notes prior to May 15, 2028, December 13, 2030 and March 15, 2033, respectively. We could refinance the senior notes through open market purchases, subject to a limitation in our credit agreement and CAD Note on the amount of such purchases. If we fail to raise capital when needed, our business may be negatively affected.

A downgrade in our credit rating would impact our cost of capital.us.

Some jurisdictions have enacted laws prohibiting or severely restricting the sale of certain recycledsalvage products that we provide, such as airbags. In addition, laws relating to the regulation of parts affecting vehicle emissions, such as California’s Proposition 65, may impact the ability of our Specialty segment to sell certain accessory products. These and other jurisdictions could enact similar laws or could prohibit or severely restrict the sale of additional recycledsalvage products. The passage of legislation with prohibitions or restrictions that are more severe than current laws could have a material adverse effect on our business. In addition, Congress could enact federal legislation restricting the use of aftermarket or recycled automotive products used in the course of vehicle repairs.

Our amended and restated bylaws provide that the Court of Chancery of the State of Delaware (or if the Court of Chancery does not have jurisdiction, another court of the State of Delaware, or if no court of the State of Delaware has jurisdiction, the federal district court for the District of Delaware) shall be the exclusive forum for the following types of actions or proceedings:; any derivative action or proceeding brought on our behalf; any action asserting a breach of fiduciary duty; any action asserting a claim against us arising under the Delaware General Corporation Law, our certificate of incorporation, or our bylaws; any action asserting a claim governed by the internal-affairs doctrine; and any action to interpret, apply, enforce or determine the validity of our certificate of incorporation or our bylaws.

On August 16, 2022, the U.S. enacted legislation commonly referred to as the Inflation Reduction Act (the "IRA"). The IRA contained a number of new provisions the most significant of which are a new Corporate Alternative Minimum Tax and a new Stock Repurchase Excise Tax. In addition, the Organization for Economic Co-operation and Development (the “OECD”) released a framework, referred to as Pillar Two, to implement a global minimum corporate tax rate of 15% on certain multinational enterprises. Certain countries have enacted legislation to adopt the Pillar Two framework while several countries are considering or still announcing changes to their tax laws to implement the minimum tax directive. While Pillar Two did not have a material impact on our effective tax rate for 2024,2025, our analysis will continue as the OECD continues to release additional guidance and countries implement legislation.

The U.S. historically has imposed tariffs on certain materials imported into the U.S. from China, announced additional tariffs on other goods from China and other countries, and threatened to impose additional tariffs on goods from other countries. Moreover, counter-measures have been taken by countries in retaliation for the U.S.-imposed tariffs and countries may take additional countermeasurescounter-measures and/or impose other restrictions on the importation of products in response to the threatened tariffs. The tariffs cover products and materials that we import, and the countermeasures may affect products we export. TheIn effectsMarch currently2025, arethe notU.S. material;government however,imposed dependingadditional tariffs on a significant number of countries and threatened to further increase the scope and amount of tariffs in the event of retaliatory countermeasures, causing the future of existing tariffs and the possibility for new tariffs to be uncertain. Depending on the breadth of products and materials ultimately affected by, and the duration of, the tariffs and countermeasures, our financial results may be materially harmed.

Our operating subsidiaries in our salvage, self service,salvage and refurbishing operations must obtain licenses and permits from state and local governments to conduct their operations. When we develop or acquire a new facility, we must seek the approval of state and local units of government. Governmental agencies may resist the establishment of a vehicle recycling or refurbishing facility in their communities. There can be no assurance that future approvals or transfers will be granted. In addition, there can be no assurance that we will be able to maintain and renew the licenses and permits our operating subsidiaries currently hold.

The IT networks and systems upon which we rely face increasing cybersecurity threats, including unauthorized access to sensitive data and service disruptions. These threats come from various actors such as foreign governments, criminals, competitors, hackers, cyber terrorists and politically motivated groups. These IT networks and infrastructure may also be vulnerable to damage, disruptions, shutdowns, or data theft due to future attacks by cyber criminals, employee error or malfeasance, disruptions during the process of upgrading or replacing computer software or hardware, terminations of business relationships by third party service providers, power outages, computer viruses, telecommunication or utility failures, terrorist acts, natural disasters or other catastrophic events. Additionally, political instability in certain geographic regions in which or our business partners operate exposes us to an increased risk of state-sponsored threats.

TheWhile occurrencethese ofincidents anywere adverse cybersecurity events in the future involving us or third parties with which we do business could compromise our or the third parties' networks, and the information stored in those networks could be accessed, publicly disclosed, compromised, destroyed, lost or stolen. We experienced an incident in November 2024 involving a third party obtaining unauthorized access to IT systems of one of our Canadian business units, which we do not believe to have been material to our financial condition or results of operations as a result of our efforts to contain and mitigate the threat; however,contained, failure on our part to successfully prevent or mitigate cybersecurity threats in the future could result in data loss, legal liability and damage to our reputation. We may face legal and financial exposure from such threats, including higher transaction fees and regulatory fines, which could materially affect our business. While our insurance policies cover certain liabilities and lost profits, a significant security incident could result in damages exceeding our coverage. We cannot guarantee that insurance will remain available on reasonable terms or that insurers will not deny future claims. Large claims exceeding our coverage or changes in insurance policies, such as premium increases or higher deductibles, could materially affect our financial condition and cash flows.

We have in the past received, and we may in the future be subject to, proposals by activist investors urging us to take certain corporate actions. Depending on the circumstances, we may reach agreements with such investors, such as the cooperation agreement that we entered into with Ancora Catalyst Institutional, LP, Engine Capital, LP and certain of their affiliates in February 2025.2025 (amended May 2025). In some instances though, activist investor activities could cause our business to be adversely affected because responding to proxy contests and other demands by activist investors can be costly and time-consuming, disrupt our operations, and divert the attention of management and our employees. For example, we have retained, and may in the future be required to retain, the services of various professionals to advise us on activist investor matters, including legal, financial and communications advisors, the costs of which may negatively impact our future financial results. Campaigns by activist investors to effect changes at publicly traded companies are sometimes led by investors seeking to increase short term investor value through actions such as financial restructuring, increased debt, special dividends, stock repurchases, or sales of assets or the entire company. Perceived uncertainties as to our future direction, strategy or leadership that arise as a consequence of activist investor initiatives may result in the loss of potential business opportunities, harm our ability to attract new investors, employees and business partners, and cause our stock price to experience periods of volatility or stagnation.

We are a global distributor of vehicle products, including replacement parts, componentscomponents, 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 fivefour sources: new products produced by OEMs; new products produced by companies other than the OEMs, which are referred to as aftermarket products; recycledsalvaged products obtainedtaken from salvage and total loss vehicles; recycledand reconditioned products that have been refurbished; and recycled products that have beenor remanufactured. We distribute a variety of products to collision and mechanical repair shops, including aftermarket collision and mechanical products; recycled collision and mechanical products; refurbished collision products such as wheels, bumper covers and lights; and remanufactured engines and transmissions. Collectively, we refer to the fourthree sources that are not new OEM products as alternative parts.

Our Wholesale - North America segment is a leading provider of alternative vehicle collision replacement products, paint and related body repair related products, and alternative vehicle mechanical replacement and maintenance products, with our sales, processing, and distribution facilities reaching most major markets in the United StatesU.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 equipmentproducts and accessories reaching most major markets in the U.S. and Canada. Our Self Service segment operates self service retail facilities across the U.S. that sell recycled automotive products from end-of-life-vehicles.

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.

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,products including replacementcollision parts, which are typically exterior components and systems used in the collision repair process to restore a vehicle's appearance and maintenancesafety; hard parts, which are typically internal components that are either mechanical in nature or functional components that are replaced as part of vehicles,routine maintenance; major mechanical parts; and specialty products and accessoriesaccessories, usedwhich toare vehicle products that improve the performance, functionality and appearance of vehicles. Our serviceServices revenue isincludes generatedadditional primarilyservices fromthat are generally billed concurrently with the related product sales, such as the sale of service-type warranties, fees for admission to our self service yards, and diagnostic and repair services. During the year ended December 31, 2024,2025, parts and services revenue represented 95.6%97.5% of our consolidated revenue. RevenueOther from other sourcesrevenue 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.

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 assetassets of our reporting units to its fair value. To deriveestimate the fair value for our reporting units whichthat carry goodwill, we consider the use ofa variousweighted-average valuationapproach techniques,that withis thereviewed primaryannually techniquefor beingchanges anin facts and circumstances. The weighting generally incorporates a 75% income approach via a discounted cash flow methodanalysis and anothera being a25% 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.

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 valuationmarket multiples which consider our budgets, business plans, economic projections and marketplace data.

The balance of our goodwill was $5,448 million and $5,600 million as of December 31, 2024 and December 31, 2023, respectively. We have not made material changes in the accounting methodology used to evaluate impairment of goodwill during the last three years. The assumptions used to assess impairment consider historical trends, macroeconomic conditions, and projections consistent with the Company’s operating strategy. Changes in these estimates can have a significant impact on the assessment of fair value which could result in material impairment losses. We have not made material changes in the accounting methodology used to evaluate impairment of goodwill during the last three years. During fiscal year 2024,2025, we elected to perform a quantitative impairment test for our goodwill.goodwill Nowith impairmenta chargestesting were recordeddate as a result of theOctober testing31, as the fair value of each goodwill reporting unit exceeded the calculated carrying value. A 10% decline in projected cash flows or a 10% increase in the discount rate would not have resulted in an impairment to goodwill.2025.

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 (“non-GAAP”).principles.

The increasedecrease in parts and services revenue of $544$199 million, or 4.1%,1.5%, represented increasesdecreases in segment revenue of 9.9%$136 million, or 2.5%, in Wholesale - North America and 1.3%$99 million, or 1.5%, in Europe, partially offset by decreasesan increase of 8.4%$36 inmillion, Selfor Service and 0.7%2.1%, in Specialty. This overall increasedecrease was driven by an organic parts and services revenue decrease of $362 million, or 2.7% (2.3% decrease on a 6.3%per increaseday basis) and a $69 million, or 0.5%, decrease due to the net impact of acquisitions and divestitures, partially offset by an organic parts and services revenue declineincrease of 2.2%. The decrease in other revenue of 7.8% was primarily driven by a decrease in organic revenue of $56$231 million, or 8.1%,1.7%, due to lower commodities prices and volumes compared to the prior year, which resultedfluctuations in aforeign $46exchange million organic revenue decrease in our Self Service segment and a $12 million organic revenue decrease in our Wholesale - North America segment.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, 20242025 compared to the year ended December 31, 2023.2024.

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 60.9%61.4% for the year ended December 31, 20242025 from 59.8%61.1% for the year ended December 31, 2023.2024. Cost of goods sold as a percentage of revenue primarily reflects an increase of 1.0%0.3% from our Wholesale - North America segment.America. Refer to the discussion of our segment results of operations for factors contributing to the changes in cost of goods sold as a percentage of revenue by segment for the year ended December 31, 20242025 compared to the year ended December 31, 2023.2024.

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 from North America, $17 million from Europe, and $4 million from Specialty. SG&A expenses as a percentage of revenue decreasedincreased to 27.3% for the year ended December 31, 2024 from 27.9% for the year ended December 31, 2023.2025 Thefrom 27.2% for the year overended yearDecember decrease31, in2024. SG&A expenseexpenses as a percentage of revenue primarily reflects an impactincreases of 0.7%0.5% related to our Wholesale -from North America segment.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 as a percentage of revenue by segment for the year ended December 31, 20242025 compared to the year ended December 31, 2023.2024.

Restructuring and transaction related expenses increaseddecreased by $70$93 million, primarily due to (i) a $98$70 million increasedecrease in restructuring expenses related to our 2024 Global Restructuring plan,plan partially offset by (ii)and a $17 million decrease related to transaction related expenses and (iii) an $8$20 million decrease in restructuring expenses related to our 2022Acquisition GlobalIntegration Restructuring Plan.plans.

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, 2023,2024, the Czech korunakoruna, euro, and Canadianpound dollarsterling rates used to translate the 20242025 statements of income decreasedincreased by 4.4%6.3%, 4.5%, and 1.5%,3.2%, respectively, while the poundCanadian sterlingdollar rate increaseddecreased by 2.7% and the euro was flat.1.9%. Realized and unrealized currency gains and losses (including the effects of hedge instruments) combined with the translation effect of the change in foreign currencies against the U.S. dollar had a net negativepositive effect of $0.20$0.05 on diluted earnings per share from continuing operations relative to the prior year primarily related to the $49 million pretax gain on the foreign exchange forward contracts related to the Uni-Select Acquisition in 2023.year.

We have fourthree reportable segments: Wholesale - North America; Europe; Specialty; and Self Service.Specialty.

The following table provides a reconciliation of Revenue to Segment EBITDA in our Wholesale - North America segment (in millions):

(4)Amounts primarilyinclude representcertain othershared nonoverhead operatingcosts incomethat andwere expenses,historically as well as reconciling itemsallocated to remove depreciation - cost of goods sold and restructuring - cost of goods sold, which are excluded from the calculationSelf ofService Segment EBITDA.segment. See Note 13,4, "RestructuringDiscontinued Operations and Transaction Related ExpensesDivestitures" to the Consolidated Financial Statements in Part II, Item 8 of this Annual Report on Form 10-K for additional information on restructuring charges.information.

(1)Parts and services revenue increaseddecreased by $83$99 million, or 1.3%,1.5%, to $6,386$6,287 million for the year ended December 31, 2024.2025. This increasedecrease was primarily due to a(i) parts and servicesan organic revenue increasedecrease of $76$274 million, or 1.2%4.3% (0.7%3.9% on a per day basis), driven by pricingdecreased initiativesvolumes 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 increasedby costs(iii) resultingthe fromeffect inflationaryof pressuresan and,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, increasedthe volumes.Czech koruna against the U.S. dollar.

(2)Gross margin increaseddecreased by $17$27 million, or 0.7%,1.1%, to $2,454$2,427 million for the year ended December 31, 2024.2025. This increasedecrease was primarily attributable to increaseddecreased revenue through pricing initiatives,revenue, partially offset by unfavorable customer mix, inflationary pressures and a $16$13 million reduction primarilyin cost of goods sold related to restructuring expenses incurred as part of the 2024 Global Restructuring Plan.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 25,26, "Segment and Geographic Information" for further information.

(3)Selling, general and administrativeSG&A expenses increased by $13$17 million, or 0.7%,0.9%, to $1,855$1,872 million for the year ended December 31, 2024.2025. The increase in selling, general and administrativeSG&A expense primarilyincludes reflectsa $74 million unfavorable impactsforeign ofexchange impact from a weakening U.S. dollar. The remaining increase primarily relates to (i) $15a $9 million fromunfavorable impact in professional fees related to several strategic central and regional ITinformation technology initiatives, partially offset by (ii) $14a $23 million favorable impact from the divestiture of certain operations in Poland, Slovenia and Bosnia in 2024, (iii) $20 million from increaseddecreased outboundpersonnel freightcosts andprimarily logisticsdue costs,to lower incentive compensation in the current year, (iiiiv) $7$10 million from increasedlower personnelfreight, vehicle and fuel costs mainly due to wage inflation, and (ivv) other individually immaterial factors representing aan $1$13 million unfavorablefavorable impact in the aggregate, partially offset by favorable impacts of (v) $13 million due to lower energy and utilities costs compared to the prior year across all geographies, and (vi) $11 million of non-recurring expense in the prior year related to the settlement of a value-added tax issue in Italy.aggregate.

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. 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 core segments, we completed the sale of our Self Service segment, and commenced a process to explore the potential sale of our Specialty segment. See Note 2, "Business Combinations", Note 3, "Discontinued Operations" and Note 6, "Equity Method Investments" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for additional information related to our divestitures.acquisitions, divestitures and investments.

In addition to the above, onin December 2025, the Company announced that it had commenced a process to explore a potential sale of its Specialty segment. In January 26,2026, 2026the ourCompany announced that its Board of Directors (the "Board") announced it hashad initiated a comprehensive review of strategic alternatives to enhance shareholder value. Our Specialty segment is currently being evaluated as part of the broader strategic review process. As part of the review, the Board is working with its advisors to evaluate our strategic alternatives, including a potential sale of the Company.

The discussion and analysis of our financial condition and results of operations are based upon our Unaudited Condensed Consolidated Financial Statements, which have been prepared in accordance with GAAP. The preparation of these financial statements requires management to make use of certain estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Our 2025 Form 10-K includes a summary of the critical accounting estimates we believe are the most important to aid in understanding our financial results. There have been no changes to those critical accounting estimates that have had a material impact on our reported amounts of assets, liabilities, revenues or expenses during the threesix months ended MarchJune 31,30, 2026.

AsWe we make progress on our previously announced plancontinue to exploremonitor a potential sale of our Specialty segment,for certain triggering events may occur which would require us to perform an interim goodwill impairment test. Depending on the facts and circumstances at the time we perform this interim impairment test, we may be required to recognize additionalan impairment to the goodwill in one of our Specialtysegments. segment.For Furthermore,the three months ended June 30, 2026, we did not identify any triggering events thator causeother declines to Specialty's future cash flows such as underperformance relative to our forecasts, since actual results may differ from our estimatesindicators of future performance, or eventsimpairment that havenecessitated aan negativeinterim impact on the market valuetest of the business, such as a deterioration in macroeconomic conditions, could also result in future impairment to the goodwill in our Specialty segment.impairment. See Note 4,5, "Intangible Assets" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information related the interim impairment test performed for the Specialty segment as of March 31, 2026.

See "Strategic Restructuring and Transformation Initiatives" in Note 7,8, "Restructuring and Transaction Related Expenses" to the Unaudited Condensed Consolidated Financial Statements in Part I, Item 1 of this Quarterly Report on Form 10-Q for information related to our strategic transformation initiatives. In April 2026, in conjunction with our previously announced plan, we continued our phased rollout of a common Enterprise Resource Planning ("ERP") system across Europe by completing the implementation in oneGermany. See Part I, Item 4 of ourthis majorQuarterly EuropeanReport markets.on Form 10-Q for information related to the ERP system implementation in Germany.

Three Months Ended MarchJune 31,30, 2026 Compared to Three Months Ended MarchJune 31,30, 2025

The increasedecrease in parts and services revenue of $118$122 million, or 3.6%, represented increasesa decrease in segment revenue of $98$154 million, or 6.5%,9.6%, in Europe, $15partially offset by increases of $23 million, or 3.8%,5.0%, in Specialty and $5$9 million, or 0.4%,0.5%, in North America. This overall increasedecrease was driven by aan $164organic parts and services revenue decrease of $174 million, or 5.1%, partially offset by a $34 million, or 1.0%, increase due to fluctuations in foreign exchange rates, and a $6$17 million, or 0.2%,0.5%, increase due to the net impact of acquisitions and divestitures, partially offset by an organic parts and services revenue decrease of $53 million, or 1.6%.divestitures. Refer to the discussion of our segment results of operations for factors contributing to the changes in revenue by segment for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025.

Cost of goods sold increaseddecreased by $124$70 million, or 6.2%,3.3%, to $2,138$2,087 million for the three months ended MarchJune 31,30, 2026. Cost of goods sold includes a $107$22 million unfavorable impact from a weakening U.S. dollar. Cost of goods sold reflects increasesa decrease of $70$107 million from Europe, $43partially offset by increases of $21 million from North America and $11$16 million from Specialty. Cost of goods sold as a percentage of revenue increaseddecreased to 61.6%61.2% for the three months ended MarchJune 31,30, 2026 from 60.5%61.4% for the three months ended MarchJune 31,30, 2025. Cost of goods sold as a percentage of revenue primarily reflects increasesa decrease of 0.8%0.4% from Europe, partially offset by an increase of 0.2% from North America and 0.3% from Europe.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 three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025.

Our Selling, general and administrative ("SG&A") expenses increased by $45$32 million, or 4.8%,3.3%, to $994$990 million for the three months ended MarchJune 31,30, 2026. SG&A expenses includes a $49$10 million unfavorable impact from a weakening U.S. dollar. The year over year increase in SG&A expense primarily reflects increases of $41 million from Europe and $8 million from Specialty, partially offset by a decrease of $4$18 million from North America.America, $12 million from Specialty and $2 million from Europe. SG&A expenses as a percentage of revenue increased slightly to 28.7%29.0% for the three months ended MarchJune 31,30, 2026 from 28.5%27.3% for the three months ended MarchJune 31,30, 2025. SG&A expenses as a percentage of revenue primarily reflects an increaseincreases of 1.3% from Europe, 0.4% from EuropeNorth America, and 0.2% from SpecialtySpecialty, and mix,partially offset by a decrease of 0.4%0.2% fromattributable Northto America.mix. Refer to the discussion of our segment results of operations for factors contributing to the changes in SG&A expenses by segment for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025.

Restructuring and transaction related expenses increased by $22$6 million, primarily due to a $20$3 million increase in restructuring expenses related to our Strategic Restructuring and Transformation Initiatives.Initiatives and a $3 million increase in transaction related expenses. See Note 7,8, "Restructuring and Transaction Related Expenses" for further information on the restructuring charges.

Our effective income tax rate for the three months ended MarchJune 31,30, 2026 was 26.4%,26.8%, compared to 27.8%26.4% for the three months ended MarchJune 31,30, 2025. The decreaseincrease in the effective tax rate for the three months ended MarchJune 31,30, 2026 compared to the three months ended MarchJune 31,30, 2025 is primarily attributable to thean 1.2% year over year favorableunfavorable impact of 1.2% for discrete items, mostly related to a returnnonrecurring tobenefit provisionfrom adjustment.the reversal of a tax assessment in the prior year, partially offset by a favorable impact from changes in the Company's geographic distribution of income.

We translate our statements of income at the average exchange rates in effect for the period. Relative to the rates used during the three months ended MarchJune 31,30, 2025, the Czech koruna, euro,euro and pound sterling and Canadian dollar rates used to translate the three months ended MarchJune 31,30, 2026 statements of income increased by 14.5%,5.1%, 11.2%, 7.0%,2.5%, and 4.6%,0.5%, respectively. 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 positiveneutral effect of $0.01 on diluted earnings per share from continuing operations relative to the prior year period.

Discontinued operations for the threesix months ended MarchJune 31,30, 2026 and 2025 reflected the Self Service segment which was sold in September 2025. See Note 2,3, "Discontinued Operations" for further information.

Three Months Ended MarchJune 31,30, 2026 Compared to Three Months Ended MarchJune 31,30, 2025

(21)OtherParts and services revenue increased by $23$9 million, or 30.0%,0.5%, to $99$1,371 million for the three months ended MarchJune 31,30, 2026. This increase was due to (i) an $11organic millionrevenue increase of $7 million, or 0.5%, driven primarily by pricing initiatives to recoup tariff costs and offset inflationary pressures, partially offset by lower volumes in revenueour paint, body and equipment ("PBE") business from preciousincreased metals (platinum, palladium,competition and rhodium)lower primarilyrepairable dueclaims toand higherlower prices, (ii) an $8 million increasevolumes in revenueour fromsalvage other scrap (e.g., aluminum) and cores due to higher volumes and prices, and (iii) a $4 million increase in revenue from scrap steel primarily due to higher volumes and, to a lesser extent, higher prices.operations.

(3)Gross margin decreasedincreased by $15$3 million, or 2.4%,0.7%, to $612$622 million for the three months ended MarchJune 31,30, 2026. The decreaseincrease in gross margin dollars was driven primarily by pricing and higher other revenue as described above, partially offset by cost increases from tariffs and inflationary pressures, unfavorable customer mix, and lower vendor rebates from lower volumes, partially offset by pricing initiatives and higher other revenue.volumes. Gross margin percentage decreased by 2.0%0.4% which was driven by the dilutive effect of increasing prices to recoup tariff costs, lower vendor rebates and unfavorable customer mix.

(4)SG&A expenses decreasedincreased by $4$18 million, or 1.0%,4.6%, to $410$420 million for the three months ended MarchJune 31,30, 2026. The decreaseincrease in SG&A expense is primarily due to (i) $6a $7 million fromincrease decreasedin professional fees, (ii) a $7 million increase due to higher self insurance reserves, (iii) a $4 million fromincrease decreasedin facilityfreight expenses,costs and (iiiiv) other individually immaterial factors representing a $6$2 million favorableunfavorable impact in the aggregate, partially offset by (ivv) $12a $2 million fromdecrease increasedin personnel costs primarilydriven dueby toproductivity and other cost savings initiatives, partially offset by increased health and other insurance costs.costs and incentive compensation compared to the prior year.

(1)Parts and services revenue increaseddecreased by $98$154 million, or 6.5%,9.6%, to $1,613$1,447 million for the three months ended MarchJune 31,30, 2026. This increasedecrease was due to an organic revenue decrease of $201 million, or 12.6%, primarily driven by lower volumes due to temporary operational challenges resulting from an ERP implementation in Germany, and to a lesser extent, heightened competition in certain markets and difficult economic conditions. This decrease was partially offset by the effect of an exchange rate increase of $152$34 million, or 10.1%,2.1%, primarily due to the strengthening of the euro, and to a lesser extent, the Czech koruna and pound sterling and Czech koruna against the U.S. dollar, partially offset byand an organicincrease in acquisition and divestiture revenue decrease of $61$14 million, or 4.0%,0.9%, primarily driven by decreased volumes due to heightenedour competitionacquisition inof certainsix marketswholesale andbusinesses difficultfrom economicthe conditions.beginning of the second quarter of 2025 through the one-year anniversary of their respective acquisition dates.

(2)Gross margin increaseddecreased by $29$45 million, or 5.0%,7.4%, to $620$574 million for the three months ended MarchJune 31,30, 2026. The increasedecrease in gross margin dollars was driven by lower organic revenue, partially offset by an exchange rate increase of $59$12 million, partially offset by lower organic revenue and lower vendor rebates.million. Gross margin percentage decreasedincreased by 0.5%0.9% which was driven by lowerthe vendorfavorable rebatesimpacts of pricing initiatives, and lower margins fromto a competitivelesser pricingextent, environmentproduct in certain markets.mix.

(3)SG&A expenses increased by $41$2 million, or 9.3%,0.1%, to $500$476 million for the three months ended MarchJune 31,30, 2026. The increase in SG&A expense includes a $46$10 million unfavorable foreign exchange impact from a weakening U.S. dollar.dollar, Theand remaininga $5$4 million unfavorable impact primarily related to increased freight, vehicle and fuel costs. This was partially offset by a $12 million favorable impact primarily relatesrelated to decreased personnel costs driven by productivityproductivity, initiativesrestructuring and restructuringother activitiescost savings initiatives which more than offset inflationary pressures.pressures, and lower incentive compensation compared to the prior year.

(1)Parts and services revenue increased by $15$23 million, or 3.8%,5.0%, to $408$487 million for the three months ended MarchJune 31,30, 2026. This was primarily due to an organic revenue increase of $13$21 million, or 3.4%4.5%, primarily driven by volume growth in our marine andmarine, recreational vehicle product("RV"), lines, partially offset by decreases in ourand automotive product lines.

(2)Gross margin increased by $4$7 million, or 3.9%,5.7%, to $99$125 million for the three months ended MarchJune 31,30, 2026. This increase was primarily driven by a favorable impact related to tariff refunds and an increase in parts and services revenue as described above.above, partially offset by an unfavorable impact in sales mix due to higher volumes on lower margin product lines.

(3)SG&A expenses increased by $8$12 million, or 9.7%,15.2%, to $84$94 million for the three months ended MarchJune 31,30, 2026. This increase was primarily driven by (i) a $6$8 million increase in credit losslosses reserves.and (ii) a $4 million increase in freight, vehicle and fuel costs.