What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-10 compared with 2020-02-04 · 852 added, 740 removed, 1606 unchanged (50% of the section changed)

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Executive Overview

We are a leading Tier 1 supplier to the global automotive industry.

We supply seating, electrical distribution systems and electronic modules, as well as related sub-systems, components and software, to all of the world's major automotive manufacturers.

We use our product, design and technological expertise, global reach and competitive manufacturing footprint to achieve our financial goals and objectives of continuing to deliver profitable growth (balancing risks and returns), maintaining a strong balance sheet with investment grade credit metrics and consistently returning excess cash to our stockholders.

Our Seating business consists of the design, development, engineering, just-in-time assembly and delivery of complete seat systems, as well as the design, development, engineering and manufacture of all major seat components, including seat covers and surface materials such as leather and fabric, seat structures and mechanisms, seat foam and headrests.

Further, we have capabilities in active sensing and comfort for seats, utilizing electronically controlled sensor and adjustment systems and internally developed algorithms.

Our E-Systems business consists of the design, development, engineering and manufacture of complete electrical distribution systems, as well as sophisticated electronic control modules, electrification products, connectivity products and software solutions for the cloud, vehicles and mobile devices.

Electrical distribution systems route networks and electrical signals and manage electrical power within the vehicle for all types of powertrains - from traditional internal combustion engine ("ICE") architectures to the full range of hybrid, plug-in hybrid and battery electric architectures.

Key components in our electrical distribution portfolio include wire harnesses, terminals and connectors and junction boxes for both ICE and electrification architectures that require management of higher voltage and power.

Electronic control modules facilitate signal, data and power management within the vehicle and include the associated software required to facilitate these functions.

Key components in our electronic control module portfolio include body control modules, wireless receiver and transmitter technology and lighting and audio control modules, as well as products specific to electrification and connectivity trends.

Electrification products include charging systems (onboard charging modules and cord set charging equipment), battery electronics (battery disconnect units, cell monitoring supervisory systems and integrated total battery control modules) and other power management modules, including converter and inverter systems which may be integrated into other modules or sold separately.

We are a leading Tier 1 vertically integrated supplier to the global automotive industry.

We supply seating, electrical distribution and connection systems, electronic systems, and software and connected services, to all of the world's major automotive manufacturers.

Built on a foundation and strong culture of innovation, operational excellence, and engineering and program management capabilities, we use our product, design and technological expertise, global reach and competitive manufacturing footprint to achieve our financial goals and objectives of continuing to deliver profitable growth (balancing risks and returns), investing in innovation to drive business growth and profitability, maintaining a strong balance sheet with investment grade credit metrics and consistently returning excess cash to our stockholders.

Our business is organized under two reporting segments:

Seating and E-Systems.

Each of these segments has a varied product and technology range across a number of component categories.

Our Seating business consists of the design, development, engineering and manufacture of complete seat systems, seat subsystems and key seat components.

Our capabilities in operations and supply chain management enable synchronized (just-in-time) assembly and delivery of high volumes of complex complete seat systems to our customers.

Included in our complete seat system and subsystem solutions are advanced comfort, wellness, safety and sound offerings, as well as configurable seating product technologies, all of which are compatible with traditional internal combustion engine ("ICE") architectures and the full range of hybrid, plug-in hybrid and battery electric architectures.

Our advanced comfort, wellness, safety and sound offerings are facilitated by our system, component and integration capabilities, together with our in-house electronics, sensor, software and algorithm competencies.

As the most vertically integrated global seat supplier, our key seat component product offerings include seat trim covers, surface materials such as leather and fabric, seat mechanisms, seat foam and headrests.

Our E-Systems business consists of the design, development, engineering and manufacture of complete electrical distribution and connection systems, electronic systems, and software and connected services.

The unique combination of these capabilities enables us to provide our customers with customizable solutions with optimized designs at a competitive cost.

Electrical distribution and connection systems utilize low voltage, high voltage, high speed data cables and flat wiring to connect networks and electrical signals and manage electrical power within the vehicle for all types of powertrains – from traditional ICE architectures to the full range of hybrid, plug-in hybrid and battery electric architectures.

Key components in our electrical distribution portfolio include wire harnesses, terminals and connectors, and engineered components for both ICE and electrified vehicle architectures that require management of higher voltage and power.

Electronic systems facilitate signal, data and power management within the vehicle and include the associated software required to facilitate these functions.

Key components in our electronic systems portfolio include body domain control modules and products specific to electrification and connectivity trends.

Electrification products include on-board battery chargers, power conversion modules, high voltage battery management systems and high voltage power distribution systems.

Connectivity products include gateway modules and communication modules to manage both wired and wireless networks and data in vehicles.

In addition to fully functional electronic modules, we offer software that includes cybersecurity, advanced vehicle positioning for automated and autonomous driving applications, roadside modules that communicate real-time traffic information and full capabilities in both dedicated short-range communication and cellular protocols for vehicle connectivity.

Our software solutions also include Xevo Journeyware, a thin-client platform for the cloud, vehicles and mobile devices that enables consumer e-commerce, multi-media applications and enterprise services to improve performance and safety, deliver an artificial intelligence-enhanced driving experience and provide new monetization opportunities for us and the automotive manufacturers, and Xevo Market, an in-vehicle commerce and service platform that connects customers with their favorite brands and services by delivering highly-contextual sales offers through vehicle touch screens and vehicle-branded mobile applications.

In addition to electronic modules, we offer software that includes cybersecurity, advanced vehicle positioning for automated and autonomous driving applications and full capabilities in both dedicated short-range communication and cellular protocols for vehicle connectivity.

Our software and connected services offerings include embedded control software and cloud and mobile device-based software and services.

Our customers traditionally have sourced our electronic hardware together with the software that we embed in it, but such software may also be sourced by our customers independently of the hardware.

Our connected services software solutions include award-winning Xevo Market, an in-vehicle commerce and service platform that connects customers with their favorite brands and services by delivering highly-contextual sales offers through vehicle touch screens and vehicle-branded mobile applications.

We serve all of the world's major automotive manufacturers across both our Seating and E-Systems businesses, and we have automotive content on more than 400 vehicle nameplates worldwide.

It is common to have both seating and electrical content on the same and multiple vehicle platforms with a single customer.

Further, the seat is becoming a more dynamic and integrated system requiring increased levels of electrical and electronic integration and accelerating the convergence of our Seating and E-Systems businesses.

We are the only global automotive supplier with complete capabilities in both of these critical business segments.

Our businesses benefit globally from leveraging common operating standards and disciplines, including world-class product development and manufacturing processes, as well as common customer support and regional infrastructures.

Further, with the seat becoming a more dynamic and integrated system requiring increased levels of electrical and electronic integration, the combined capabilities of our Seating and E-Systems businesses are a competitive advantage.

Our core capabilities are shared across component categories and include high-precision manufacturing and assembly with short lead times, management of complex supply chains, global engineering and program management skills, the agility to establish and/or transfer production between facilities quickly and a unique customer-focused culture.

Our businesses utilize proprietary, industry-specific processes and standards, leverage common low-cost engineering centers and share centralized operating support functions, such as logistics, supply chain management, quality and health and safety, as well as all major administrative functions.

Industry Overview

COVID-19 Pandemic

Our sales are driven by the number of vehicles produced by the automotive manufacturers, which is ultimately dependent on consumer demand for automotive vehicles, and our content per vehicle.

Global automotive industry production volumes in 2019 , as compared to 2018 , are shown below (in millions of units):

Unprecedented industry disruptions related to the COVID-19 pandemic impacted operations in every region of the world.

Global automotive industry production volumes in 2020, as compared to 2019, are shown below (in thousands of units):

North America 13,027.3 16,314.4 (20 %)

Europe and Africa 16,873.9 21,703.8 (22 %)

Asia 39,257.7 44,651.8 (12 %)

South America 2,163.5 3,128.5 (31 %)

Other 1,323.5 1,417.0 (7 %)

Global light vehicle production 72,645.9 87,215.5 (17 %)

Production data based on IHS Automotive.

Production data for 2018 has been updated to reflect actual production levels.

(1) Production data based on IHS Markit.

(2) Production data for 2019 has been updated from our 2019 Annual Report on Form 10-K to reflect actual production levels.

Our operations in China were impacted first, with most plants in the country closed for several weeks during the first quarter.

At the end of the first quarter, all of our facilities in China were operating and capacity utilization was increasing.

Beginning in mid-March, our operations in Europe, North America, South America and Asia (outside of China) were impacted, with virtually all of our plants closed at the end of the first quarter and closures continuing throughout April and, in most cases, a portion of May.

Although manufacturing resumed gradually, most of our plants in our major markets were operating at pre-COVID-19 levels at the end of the second quarter and throughout the second half of 2020.

We experienced significant inefficiencies and incremental costs related to the COVID-19 pandemic in the first half of the year, which diminished toward the end of the second quarter.

In the second half of 2020, we experienced less significant but ongoing costs related to personal protective equipment, employee transportation and higher labor costs reflecting an increase in absenteeism.

Although industry production has returned to pre-COVID-19 levels, partially due to our customers' need to replenish inventory levels, it is likely that, for a period of time, the global automotive industry will experience lower demand for new vehicles as a result of the global economic slowdown caused by the COVID-19 pandemic, as new vehicle sales are typically correlated with positive consumer confidence and low unemployment.

We are also continuing to monitor our supply base, as well as related production constraints imposed by various governments, to minimize the impact on our manufacturing operations.

Further, a resurgence of the virus with corresponding shelter-in-place orders impacting industry production in 2021 could also impact our financial results.

Liquidity actions

In response to the COVID-19 pandemic, we took a number of proactive steps to preserve cash and maximize our financial flexibility, including the reduction of discretionary spending, the implementation of salary reductions and deferrals, the reduction of capital expenditures, the aggressive management of working capital and the suspension of share repurchases and quarterly dividends.

We are also continuing to seek opportunities offered under government incentive programs throughout the world.

In March 2020, we borrowed $1.0 billion under our revolving credit facility, which was repaid in full in September 2020.

With $1.3 billion of cash on hand at the end of the 2020, $1.75 billion of availability under our revolving credit facility and no near-term debt maturities, we believe that we are well positioned to withstand the continuing effects of the COVID-19 pandemic.

Employee protection

Our top priority is to ensure the health and safety of our employees.

We have restricted business travel, established protocols for visitors entering our facilities, enhanced disinfection and cleaning procedures at our facilities and promoted social distancing.

We have created a Safe Work Playbook, which provides a standardized approach for each of our facilities to create a consistent and safe work environment and offers insights into navigating operational challenges related to the COVID-19 pandemic.

The playbook is publicly available and includes health and safety information related to plant operating protocols;

employee education, training and feedback;

facility assessments;

and phased reopening of engineering and administrative centers.

For risks related to the COVID-19 pandemic, see Part I — Item 1A, "Risk Factors — Pandemics or disease outbreaks, such as COVID-19, have disrupted, and may continue to disrupt, our business, which could adversely affect our financial performance."

Industry Overview

Automotive sales and production can be affected by the age of the vehicle fleet and related scrappage rates, labor relations issues, fuel prices, regulatory requirements, government initiatives, trade agreements, the availability and cost of credit, the availability of critical components needed to complete the production of vehicles, restructuring actions of our customers and suppliers, facility closures, changing consumer attitudes toward vehicle ownership and usage and other factors.

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Europe and Africa 37 % 39 %

Asia 21 % 20 %

South America 3 % 4 %

Total 100 % 100 %

Our ability to reduce the risks inherent in certain concentrations of business, and thereby maintain our financial performance in the future, will depend, in part, on our ability to continue to diversify our sales on a customer, product, platform and geographic basis to reflect the market overall.

Key trends that specifically affect our business include automotive manufacturers’ utilization of global vehicle platforms, increasing demand for luxury and performance features, including increasing levels of electrical and electronic content, and China’s emergence as the single largest automotive market in the world, as well as the shift toward crossover and sport utility vehicles, where our content can be significantly higher than our average content per vehicle.

In addition, we believe that demand for efficiency, enhanced communications and safety are driving the technology trends of autonomy, connectivity and electrification.

These trends, along with the trend toward shared mobility, are likely to be at the forefront of our industry for the foreseeable future with each converging long-term toward fully autonomous, connected, electric or hybrid electric vehicles.

Our sales and marketing approach is based on addressing these trends, while our strategy focuses on the major imperatives for success as an automotive supplier:

Key trends affecting our business include electrification, connectivity and autonomy.

In addition, our business is affected by the consolidation of automotive manufacturers, as well as new non-traditional entrants to the automotive industry, the collaboration of automotive manufacturers on commonized vehicle platforms, increasing demand for luxury and performance features, including increasing levels of electrical and electronic content, and China’s emergence as the largest automotive market in the world.

In particular, we believe that we have a significant opportunity for growth in China with both global and domestic automotive manufacturers.

Another key trend benefiting our business is the shift toward crossover and sport utility vehicles, where our content can be significantly higher than our average content per vehicle.

In addition, we believe that demand for energy efficiency and reduced carbon emissions, as well as the demand for enhanced communications and safety, are driving the technology trends of electrification, connectivity and autonomy.

We are focused on those trends which provide us with significant business opportunities where we have competitive differentiation and innovative technology.

While both of our businesses are powertrain agnostic, we are well positioned to capitalize on these technology trends, each of which is likely to be at the forefront of our industry for the foreseeable future in light of the long-term convergence toward electric, connected and autonomous vehicles.

Our sales and marketing approach addresses these trends, while our strategy focuses on the major imperatives for success as an automotive supplier:

quality, service, cost and efficiency, and innovation and technology.

We have expanded key component and software capabilities through organic investment and acquisitions to ensure a full complement of the highest quality solutions for our customers.

We have restructured, and continue to align, our manufacturing and engineering footprint to attain a leading competitive position globally.

We have established or expanded our capabilities in new and growing markets, especially China, in support of our customers’ growth and global platform initiatives.

We have expanded key component and software capabilities through organic investment and acquisitions to ensure a full complement of the best solutions for our customers.

We have restructured, and continue to align, our manufacturing and engineering footprint to attain a leading competitive cost position globally.

We have established or expanded activities in new and growing markets, especially China, in support of our customers’ growth initiatives and in pursuit of opportunities with new customers.

These initiatives have helped us achieve our financial goals overall, as well as a more balanced regional, customer and vehicle segment diversification in our business.

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If these costs increase or availability is restricted, it could have an adverse impact on our operating results in the foreseeable future.

See Part I — Item 1A, "Risk Factors — Increases in the costs and restrictions on the availability of raw materials, energy, commodities and product components could adversely affect our financial performance," and "— Forward-Looking Statements."

Financial Measures

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Asia, and China in particular, continues to present long-term growth opportunities, as we focus on expanding our market share and content per vehicle, as demand for luxury and performance features increases in this region.

In addition to our wholly owned locations, we currently have twelve operating joint ventures with operations in Asia, as well as two additional joint ventures in North America dedicated to serving Asian automotive manufacturers.

In addition to our wholly owned locations, we currently have eleven operating joint ventures with operations in Asia, as well as two additional joint ventures in North America dedicated to serving Asian automotive manufacturers.

We also have aggressively pursued this strategy by selectively increasing our vertical integration capabilities globally, as well as expanding our component manufacturing capacity in Asia, Brazil, Eastern Europe, Mexico and Northern Africa.

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Xevo is a supplier of software solutions for the cloud, vehicles and mobile devices that are deployed in millions of vehicles worldwide.

For further information, see Note 3 , " Acquisitions ," to the consolidated financial statements included in this Annual Report on Form 10-K (this "Report").

In January 2018, we completed the acquisition of Israel-based EXO Technologies ("EXO"), a leading developer of differentiated GPS technology providing high-accuracy positioning solutions for autonomous and connected vehicle applications.

EXO has operations in San Mateo, California and Tel Aviv, Israel and has developed core technology that addresses the need for high-accuracy positioning of a vehicle.

Its proprietary technology works with existing GPS receivers to provide centimeter-level accuracy anywhere on the globe without the need for terrestrial base-station networks.

The integration of this technology with our vehicle and connectivity expertise enables an industry-leading vehicle positioning solution.

For further information, see Note 4, "Acquisition," to the consolidated financial statements included in this Report.

Operational Restructuring

In 2020, we incurred pretax restructuring costs of $145 million and related manufacturing inefficiency charges of $5 million, as compared to pretax restructuring costs of $184 million and related manufacturing inefficiency charges of $6 million in 2019.

The decrease in restructuring costs in 2020, as compared to 2019, is primarily related to reduced customer actions.

N one of the individual restructuring actions initiated during 2020 were material.

Our restructuring actions include plant closures and workforce reductions and are initiated to maintain our competitive footprint or are in response to customer initiatives or changes in global and regional automotive markets.

The increase in restructuring costs in 2019 , as compared to 2018 , is primarily attributable to elevated customer actions and a significant reduction in global vehicle production volumes.

None of the individual restructuring actions initiated during 2019 were material.

Our restructuring actions are designed to maintain or improve our future operating results throughout the automotive industry cycles.

Our restructuring actions are designed to maintain or improve our operating results and profitability throughout the automotive industry cycles.

Restructuring actions are generally funded within twelve months of initiation and are funded by cash flows from operating activities and existing cash balances.

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We expect to incur approximately $18 million of additional restructuring costs related to activities initiated as of December 31, 2020, all of which are expected to be incurred by the end of 2021.

We plan to implement additional restructuring actions in the future, if necessary, in order to align our manufacturing capacity and other costs with prevailing regional automotive production levels and locations.

We plan to implement additional restructuring actions in order to align our manufacturing capacity and other costs with prevailing regional automotive production levels.

Such future restructuring actions are dependent on market conditions, customer actions and other factors.

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Financing Transactions

In May 2019, we issued $375 million in aggregate principal amount at maturity of senior unsecured notes due in 2029 (the "2029 Notes") and $325 million in aggregate principal amount at maturity of senior unsecured notes due in 2049 (the "2049 Notes").

The 2029 Notes have a stated coupon rate of 4.25% and were priced at 99.691% of par, resulting in a yield to maturity of 4.288%.

The 2049 Notes have a stated coupon rate of 5.25% and were priced at 98.32% of par, resulting in a yield to maturity of 5.363%.

In February 2020, we issued $350 million in aggregate principal amount at maturity of 2030 notes (the "2030 Notes") and an additional $300 million in aggregate principal amount at maturity of 2049 notes (the "2049 Notes").

The 2030 Notes have a stated coupon rate of 3.5% and were issued at 99.774% of par, resulting in a yield to maturity of 3.525%.

The 2049 Notes have a stated coupon rate of 5.25% and were issued at 106.626% of par, resulting in a yield to maturity of 4.821%.

The net proceeds from the offering were $669 million after original issue discount.

The proceeds were used to redeem the $650 million in aggregate principal amount of 2025 notes (the "2025 Notes") at a redemption price equal to 102.625% of the principal amount of such 2025 Notes, plus accrued interest.

In connection with these transactions, we recognized a loss of $21 million on the extinguishment of debt and paid related issuance costs of $6 million.

The 2029 Notes have a stated coupon rate of 4.25% and were issued at 99.691% of par, resulting in a yield to maturity of 4.288%.

The 2049 Notes have a stated coupon rate of 5.25% and were issued at 98.32% of par, resulting in a yield to maturity of 5.363%.

The net proceeds from the offering were $693 million after original issue discount.

The proceeds were used to redeem the $325 million in aggregate principal amount of senior unsecured notes due in 2024 (the "2024 Notes") at a redemption price equal to 102.688% of the principal amount of such 2024 Notes, plus accrued interest, as well as to finance the acquisition of Xevo and for general corporate purposes.

In connection with these transactions, we recognized a loss of $11 million on the extinguishment of debt and paid related issuance costs of $7 million.

For further information, see "— Liquidity and Capital Resources — Capitalization — Senior Notes" below and Note 6 " Debt ," to the consolidated financial statements included in this Report.

For further information, see "— Liquidity and Financial Condition — Capitalization — Senior Notes" below and Note 7 "Debt," to the consolidated financial statements included in this Report.

Credit Agreement

Our credit agreement (the "Credit Agreement"), dated August 8, 2017, consists of a $1.75 billion revolving credit facility (the "Revolving Credit Facility") and a $250 million term loan facility (the "Term Loan Facility").

The maturity date of the Revolving Credit Facility is August 8, 2023, and the maturity date of the Term Loan Facility is August 8, 2022.

For further information, see "— Liquidity and Capital Resources — Capitalization — Credit Agreement" below and Note 6 , " Debt ," to the consolidated financial statements included in this Report.

Our unsecured credit agreement (the "Credit Agreement"), dated August 8, 2017, consists of a $1.75 billion revolving credit facility (the "Revolving Credit Facility") and a $250 million term loan facility (the "Term Loan Facility").

In February 2020, we entered into an agreement to extend the maturity date of the Revolving Credit Facility by one year to August 8, 2024, and paid related issuance costs of $1 million.

The maturity date of the Term Loan Facility is August 8, 2022.

In March 2020, as a proactive measure in response to the COVID-19 pandemic, we borrowed $1.0 billion under the Revolving Credit Facility, which was repaid in full in September 2020, resulting in availability of $1.75 billion as of December 31, 2020.

For further information, see "— Liquidity and Financial Condition — Capitalization — Credit Agreement" below and Note 7, "Debt," to the consolidated financial statements included in this Report.

Share Repurchase Program and Quarterly Cash Dividends

Since the first quarter of 2011, our Board of Directors has authorized $6.1 billion in share repurchases under our common stock share repurchase program.

In 2019 , we repurchased $380 million of shares and have a remaining repurchase authorization of $1.2 billion , which will expire on December 31, 2021.

In 2019 , our Board of Directors declared a quarterly cash dividend of $0.75 per share of common stock, reflecting a 7% increase over the quarterly cash dividend declared in 2018 .

For further information related to our common stock share repurchase program and our quarterly dividends, see Item 5, "Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities," "— Liquidity and Financial Condition — Capitalization" and Note 11 , " Capital Stock, Accumulated Other Comprehensive Loss and Equity ," to the consolidated financial statements included in this Report.

In March 2020, as a proactive measure in response to the COVID-19 pandemic, we suspended share repurchases under our share repurchase program.

Prior to the suspension, we repurchased $70 million of shares in 2020 and have a remaining repurchase authorization of $1.4 billion, which will expire on December 31, 2022.

In March 2020, as a proactive measure in response to the COVID-19 pandemic, we suspended our quarterly cash dividend.

Prior to the suspension, our Board of Directors declared a cash dividend of $0.77 per share of common stock in the first quarter of 2020.

The quarterly cash dividend was reinstated in the fourth quarter of 2020 at $0.25 per share of common stock.

For further information related to our common stock share repurchase program and our quarterly dividends, see Item 5, "Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities," "— Liquidity and Financial Condition — Capitalization" below and Note 12, "Capital Stock, Accumulated Other Comprehensive Loss and Equity," to the consolidated financial statements included in this Report.

Other Matters

In 2020, we recognized tax benefits of $34 million related to restructuring charges and various other items and $15 million related to the U.S.

deferred tax effect of our foreign branches, partially offset by tax expense of $29 million related to a net increase in valuation allowances on deferred tax assets.

In 2019, we recognized tax benefits of $29 million related to an increase in our research and development tax credits for the years 2013 through 2018, $18 million related to changes in the tax status of certain affiliates, $14 million related to the U.S.

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In 2018, we recognized tax benefits of $83 million related to the reversal of valuation allowances on the deferred tax assets of certain foreign subsidiaries, share-based compensation, a tax rate change in a foreign subsidiary, an adjustment to the 2017 provisional income tax expense, restructuring charges and various other items, offset by tax expense of $34 million related to an increase in foreign withholding tax on certain undistributed foreign earnings and the establishment of valuation allowances on the deferred tax assets of certain foreign subsidiaries and various other items.

In 2017, we amended the joint venture agreement of Shanghai Lear STEC Automotive Parts Co., Ltd.

("Lear STEC") to eliminate the substantive participating rights of our joint venture partner.

In conjunction with obtaining control of Lear STEC and the valuation of our prior equity investment in Lear STEC at fair value, we recognized a gain of approximately $54 million .

In 2017, we recognized a $15 million litigation charge, of which approximately $13 million is recorded in cost of sales and approximately $2 million is recorded in interest expense, related to an unfavorable ruling issued by a foreign court.

In 2017, we recognized tax expense of $131 million related to a one-time transition tax on accumulated foreign earnings and $43 million to reflect the new U.S.

corporate tax rate and other tax reform changes to our deferred tax accounts, offset by tax benefits of $290 million related to foreign tax credits on repatriated earnings, $30 million related to the reversal of valuation allowances on the deferred tax assets of certain foreign subsidiaries, $17 million related to share-based compensation, $14 million related to an incentive tax credit in a foreign subsidiary, $8 million related to the redemption of our senior notes due 2023 (the "2023 Notes") and $30 million related to restructuring charges and various other items.

As discussed above, our results for the years ended December 31, 2020, 2019 and 2018, reflect the following items (in millions):

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Acquisition and other related costs — 2 1

Acquisition-related inventory fair value adjustment

Pension settlement charge — — 5

Litigation — 1 (17)

Favorable indirect tax ruling in a foreign jurisdiction — (2) (16)

Loss on extinguishment of debt 21 11 —

Gain related to affiliate, net

(Gain) loss related to investments, net 4 (1) (1)

Tax benefits, net (20) (122) (49)

For further information regarding these items, see Note 3 , " Acquisitions ," Note 4 , " Restructuring ," Note 5 , " Investments in Affiliates and Other Related Party Transactions ," Note 6 , " Debt ," Note 8 , " Income Taxes ," and Note 9 , " Pension and Other Postretirement Benefit Plans ," to the consolidated financial statements included in this Report.

For further information regarding these items, see Note 4, "Acquisition," Note 5, "Restructuring," Note 6, "Investments in Affiliates and Other Related Party Transactions," Note 7, "Debt," Note 9, "Income Taxes," and Note 10, "Pension and Other Postretirement Benefit Plans," to the consolidated financial statements included in this Report.

This section includes forward-looking statements that are subject to risks and uncertainties.

For further information regarding these and other factors that have had, or may have in the future, a significant impact on our business, financial condition or results of operations, see Part I — Item 1A, "Risk Factors," and "— Forward-Looking Statements."

Results of Operations

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For the year ended December 31, 2020 2019 2018

Seating $ 12,712.7 74.6 % $ 15,097.2 76.2 % $ 16,021.9 75.8 %

E-Systems 4,332.8 25.4 4,713.1 23.8 5,126.6 24.2

Net sales 17,045.5 100.0 19,810.3 100.0 21,148.5 100.0

Cost of sales 15,936.6 93.5 18,072.8 91.2 18,830.2 89.0

Gross profit 1,108.9 6.5 1,737.5 8.8 2,318.3 11.0

Selling, general and administrative expenses 588.9 3.5 605.0 3.1 612.8 2.9

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Interest expense 99.6 0.6 92.0 0.5 84.1 0.4

Other (income) expense, net

Other expense, net 55.2 0.3 24.6 0.1 31.6 0.2

Provision for income taxes 93.9 0.6 146.1 0.7 311.9 1.5

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Net sales for the year ended December 31, 2020 were $17.0 billion, as compared to $19.8 billion for the year ended December 31, 2019, a decrease of $2.8 billion or 14%.

Lower production volumes on Lear platforms in most regions, including the impact of a prolonged labor strike at our largest customer, and net foreign exchange rate fluctuations negatively impacted net sales by $1.7 billion and $0.7 billion, respectively.

These decreases were partially offset by the impact of new business in all regions, which increased net sales by $1.1 billion.

(in millions)

Cost of Sales

Lower production volumes on Lear platforms globally, largely due to the COVID-19 pandemic, negatively impacted net sales by more than $3.3 billion.

This decrease was partially offset by the impact of new business in all regions, which increased net sales by more than $0.7 billion.

(in millions) Cost of Sales

2019 $ 18,072.8

Material cost

Labor and other

2020 $ 15,936.6

Cost of sales in 2020 was $15.9 billion, as compared to $18.1 billion in 2019.

These decreases were partially offset by the impact of new business in all regions and higher restructuring costs.

Lower production volumes on Lear platforms globally, largely due to the COVID-19 pandemic, reduced cost of sales by nearly $2.6 billion.

This decrease was partially offset by the impact of new business in all regions, which increase cost of sales by nearly $0.7 billion.

Gross profit and gross margin were $1.1 billion and 6.5% of net sales in 2020, as compared to $1.7 billion and 8.8% of net sales in 2019.

Lower production volumes on Lear platforms, including the impact of a prolonged labor strike at our largest customer, and net foreign exchange rate fluctuations, partially offset by the impact of new business, negatively impacted gross profit by $377 million.

The impact of selling price reductions and, to a lesser extent, higher restructuring costs was partially offset by favorable operating performance, including the benefit of operational restructuring actions.

Lower production volumes on Lear platforms globally, largely due to the COVID-19 pandemic, and costs related to the COVID-19 pandemic negatively impacted gross profit by $792 million.

Favorable operating performance, including the benefit of operational restructuring actions, and lower restructuring costs were partially offset by the impact of selling price reductions.

These factors had a corresponding impact on gross margin.

Selling, general and administrative expenses, including engineering and development expenses, were $589 million for the year ended December 31, 2020, as compared to $605 million for the year ended December 31, 2019.

In 2019 , selling, general and administrative expenses benefited from lower compensation-related costs and the impact of net foreign exchange fluctuations, largely offset by the operating expenses of our Xevo acquisition.

As a percentage of net sales, selling, general and administrative expenses were 3.1% in 2019 , as compared to 2.9% in 2018 .

Amortization of intangible assets was $62 million in 2019 , as compared to $51 million in 2018 , reflecting the acquisition of Xevo.

Interest expense was $92 million in 2019 , as compared to $84 million in 2018 , reflecting our 2019 financing transactions related to the acquisition of Xevo.

Other expense, net, which includes non-income related taxes, foreign exchange gains and losses, gains and losses related to certain derivative instruments and hedging activities, losses on the extinguishment of debt, gains and losses on the disposal of fixed assets, gains and losses on the consolidation and deconsolidation of affiliates, the non-service cost components of net periodic benefit cost and other miscellaneous income and expense, was $25 million in 2019 , as compared to $32 million in 2018 .

As a percentage of net sales, selling, general and administrative expenses were 3.5% in 2020, as compared to 3.1% in 2019, reflecting the significant decrease in net sales in 2020.

Amortization of intangible assets was $66 million in 2020, as compared to $62 million in 2019.

Interest expense was $100 million in 2020, as compared to $92 million in 2019.

periodic benefit cost and other miscellaneous income and expense, was $55 million in 2020, as compared to $25 million in 2019.

In 2020, we recognized losses of $21 million related to the extinguishment of debt, $13 million related to a pension settlement and $4 million related to the impairment of an investment.

In 2019, we recognized losses of $11 million related to the extinguishment of debt and $5 million related to the impairment of an investment and a gain of $4 million related to the deconsolidation of an affiliate.

In 2018 , we recognized a gain of $10 million related to obtaining control of an affiliate and a settlement charge of $5 million related to our annuity purchase for certain terminated vested plan participants of our U.S.

defined benefit pension plans.

In 2019 , the provision for income taxes was $146 million , representing an effective tax rate of 15.3% on pretax income before equity in net income of affiliates of $1.0 billion .

In 2018 , the provision for income taxes was $312 million , representing an effective tax rate of 20.3% on pretax income before equity in net income of affiliates of $1.5 billion .

In 2020, the provision for income taxes was $94 million, representing an effective tax rate of 31.4% on pretax income before equity in net income of affiliates of $299 million.

In 2019, the provision for income taxes was $146 million, representing an effective tax rate of 15.3% on pretax income before equity in net income of affiliates of $954 million.

In 2020 and 2019, the provision for income taxes was primarily impacted by the level and mix of earnings among tax jurisdictions.

In 2020, we recognized tax benefits of $34 million related to restructuring charges and various other items and $15 million related to the U.S.

deferred tax effect of our foreign branches and tax expense of $29 million related to a net increase in valuation allowances on deferred tax assets.

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In addition, we recognized a gain of $4 million related to the deconsolidation of an affiliate, for which no tax expense was provided.

In 2018, we recognized tax benefits of $39 million related to the reversal of valuation allowances on the deferred tax assets of certain foreign subsidiaries, $11 million related to share-based compensation, $7 million related to a tax rate change in a foreign subsidiary, $5 million related to an adjustment to the 2017 provisional income tax expense and $21 million related to restructuring charges and various other items, offset by tax expense of $22 million related to an increase in foreign withholding tax on certain undistributed foreign earnings and $12 million to establish valuation allowances on the deferred tax assets of certain foreign subsidiaries and various other items.

In addition, we recognized a gain of $10 million related to obtaining control of an affiliate, for which no tax expense was provided.

Excluding these items, the effective tax rate for 2019 and 2018 approximated the U.S.

federal statutory income tax rate of 21% adjusted for income taxes on foreign earnings, losses and remittances, valuation allowances, tax credits, income tax incentives and other permanent items.

For information related to our valuation allowances, see "Other Matters — Significant Accounting Policies and Critical Accounting Estimates — Income Taxes."

For information related to our valuation allowances, see "Other Matters — Significant Accounting Policies and Critical Accounting Estimates — Income Taxes" below.

Equity in net income of affiliates was $29 million for the year ended December 31, 2020, as compared to $23 million for the year ended December 31, 2019.

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The other category includes unallocated costs related to corporate headquarters, regional headquarters and the elimination of intercompany activities, none of which meets the requirements for being classified as an operating segment.

Corporate and regional headquarters costs include various support functions, such as information technology, advance research and development, corporate finance, legal, executive administration and human resources.

Corporate and regional headquarters costs include various support functions, such as information technology, advanced research and development, corporate finance, legal, executive administration and human resources.

Financial measures regarding each segment’s pretax income before equity in net income of affiliates, interest expense and other expense, net ("segment earnings") and segment earnings divided by net sales ("margin") are not measures of performance under accounting principles generally accepted in the United States ("GAAP").

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For the year ended December 31, 2020 2019

Segment earnings (1)

See definition above.

Seating net sales were $15.1 billion for the year ended December 31, 2019 , as compared to $16.0 billion for the year ended December 31, 2018 , a decrease of $925 million or (6%) .

Lower production volumes on Lear platforms, including the impact of a prolonged labor strike at our largest customer, and net foreign exchange rate fluctuations negatively impacted net sales by $1.3 billion and $0.5 billion, respectively.

These decreases were partially offset by the impact of new business, which increased net sales by $0.9 billion.

Segment earnings, including restructuring costs, and the related margin on net sales were $1.0 billion and 6.4% in 2019 , as compared to $1.3 billion and 7.9% in 2018 .

Favorable operating performance, including the benefit of operational restructuring actions, of $210 million was partially offset by the impact of selling price reductions.

Segment earnings were also negatively impacted by higher restructuring costs.

A summary of financial measures for our E-Systems segment is shown below (dollar amounts in millions):

For the year ended December 31,

Net sales $ 12,712.7 $ 15,097.2

Segment earnings (1)

Margin 4.6 % 6.4 %

(1) See definition above.

E-Systems net sales were $4.7 billion for the year ended December 31, 2019 , as compared to $5.1 billion for the year ended December 31, 2018 , a decrease of $414 million or 8% .

Lower production volumes on Lear platforms and net foreign exchange rate fluctuations negatively impacted net sales by $386 million and $200 million, respectively.

These decreases were partially offset by the impact of new business, which increased net sales by $180 million.

Seating net sales were $12.7 billion for the year ended December 31, 2020, as compared to $15.1 billion for the year ended December 31, 2019, a decrease of $2.4 billion or (16%).

Lower production volumes on Lear platforms globally, largely due to the COVID-19 pandemic, negatively impacted net sales by nearly $2.7 billion.

This decrease was partially offset by the impact of new business, which increased net sales by more than $0.4 billion.

Segment earnings, including restructuring costs, and the related margin on net sales were $591 million and 4.6% in 2020, as compared to $961 million and 6.4% in 2019.

Lower production volumes on Lear platforms and net foreign exchange rate fluctuations, partially offset by the impact of new business, negatively impacted segment earnings by $119 million.

The impact of selling price reductions and, to a lesser extent, higher restructuring costs, were partially offset by improved operating performance.

A summary of financial measures for our other category, which is not an operating segment, is shown below (dollar amounts in millions):

For the year ended December 31,

Segment earnings (1)

See definition above.

Segment earnings related to our other category were $(257) million in 2019, as compared to $(238) million in 2018 , reflecting lower compensation-related costs in 2019 and a favorable litigation settlement in 2018 .

Year Ended December 31, 2018, Compared With Year Ended December 31, 2017

Net sales for the year ended December 31, 2018 were $21.1 billion, as compared to $20.5 billion for the year ended December 31, 2017, an increase of $0.7 billion or 3%.

New business in all regions, net foreign exchange rate fluctuations, sales as a result of obtaining control of affiliates and the acquisition of Grupo Antolin's automotive seating business ("Antolin Seating") positively impacted net sales by $1,062 million, $337 million, $311 million and $215 million, respectively.

These increases were partially offset by lower production volumes on key Lear platforms in all regions except South America, which negatively impacted net sales by $1,261 million.

(in millions)

Cost of Sales

Material cost

Labor and other

Cost of sales in 2018 was $18.8 billion, as compared to $18.2 billion in 2017.

New business in all regions and net foreign exchange rate fluctuations resulted in an increase in cost of sales of $1,208 million.

The impact of lower production volumes on key Lear platforms in all regions except South America was partially offset by cost of sales as a result of obtaining control of affiliates and the acquisition of Antolin Seating.

Gross profit and gross margin were $2.3 billion and 11.0% of net sales in 2018, as compared to $2.3 billion and 11.2% of net sales in 2017.

New business and net foreign exchange rate fluctuations positively impacted gross profit by $191 million.

The impact of selling price reductions and lower production volumes on key Lear platforms was partially offset by favorable operating performance, including the benefit of operational restructuring actions, gross profit as a result of obtaining control of affiliates and the acquisition of Antolin Seating.

These factors had a corresponding impact on gross margin.

Selling, general and administrative expenses, including engineering and development expenses, were $613 million for the year ended December 31, 2018, as compared to $635 million for the year ended December 31, 2017.

In 2018, the benefit of lower compensation expense was partially offset by the impact of net foreign exchange rate fluctuations and higher restructuring costs.

As a percentage of net sales, selling, general and administrative expenses were 2.9% in 2018, as compared to 3.1% in 2017.

Amortization of intangible assets was $51 million in 2018, as compared to $48 million in 2017.

Interest expense was $84 million in 2018, as compared to $86 million in 2017.

Other (income) expense, net, which includes non-income related taxes, foreign exchange gains and losses, gains and losses related to certain derivative instruments and hedging activities, losses on the extinguishment of debt, gains and losses on the disposal of fixed assets, gains and losses on the consolidation and deconsolidation of affiliates, the non-service cost components of net periodic benefit cost and other miscellaneous income and expense, was expense of $32 million in 2018, as compared to income of $4 million in 2017.

In 2018, we recognized a gain of $10 million related to obtaining control of an affiliate and a settlement charge of $5 million related to our annuity purchase for certain terminated vested plan participants of our U.S.

defined benefit pension plans.

In 2017, we recognized a gain of $54 million related to obtaining control of an affiliate and a loss of $21 million related to the extinguishment of debt.

In 2018, the provision for income taxes was $312 million, representing an effective tax rate of 20.3% on pretax income before equity in net income of affiliates of $1.5 billion.

In 2017, the provision for income taxes was $198 million, representing an effective tax rate of 12.9% on pretax income before equity in net income of affiliates of $1.5 billion, for the reasons described below.

In 2018 and 2017, the provision for income taxes was primarily impacted by the level and mix of earnings among tax jurisdictions.

The provision for income taxes in 2018 was also impacted by the reduction in the U.S.

federal corporate income tax rate from 35% to 21%.

deferred tax assets of certain foreign subsidiaries and various other items.

In addition, we recognized a gain of $10 million related to obtaining control of an affiliate, for which no tax expense was provided.

In 2017, we recognized tax expense of $131 million related to a one-time transition tax on accumulated foreign earnings and $43 million to reflect the new U.S.

corporate tax rate and other tax reform changes to our deferred tax accounts.

In addition, we recognized tax benefits of $290 million related to foreign tax credits on repatriated earnings, $30 million related to the reversal of valuation allowances on the deferred tax assets of certain foreign subsidiaries, $17 million related to share-based compensation, $14 million related to an incentive tax credit in a foreign subsidiary, $8 million related to the redemption of the 2023 Notes and $30 million related to restructuring charges and various other items.

In addition, we recognized a gain of $54 million related to obtaining control of an affiliate, for which no tax expense was provided.

Excluding these items, the effective tax rate for 2018 and 2017 approximated the U.S.

federal statutory income tax rate of 21% and 35%, respectively, adjusted for income taxes on foreign earnings, losses and remittances, valuation allowances, tax credits, income tax incentives and other permanent items.

For information related to our valuation allowances, see "Other Matters — Significant Accounting Policies and Critical Accounting Estimates — Income Taxes."

Equity in net income of affiliates was $20 million for the year ended December 31, 2018, as compared to $52 million for the year ended December 31, 2017, as a result of lower customer production affecting certain of our affiliates and obtaining control of other affiliates.

Net income attributable to Lear was $1,150 million, or $17.22 per diluted share, in 2018, as compared to $1,313 million, or $18.59 per diluted share, in 2017.

Net income and diluted net income per share decreased for the reasons described above.

In addition, diluted net income per share was impacted by the decrease in average shares outstanding between the periods.

Reportable Operating Segments

We have two reportable operating segments:

Seating and E-Systems.

For a description of our reportable operating segments, see "Executive Overview" and "Year Ended December 31, 2019, Compared With Year Ended December 31, 2018 — Reportable Operating Segments" above.

A summary of financial measures for our Seating segment is shown below (dollar amounts in millions):

For the year ended December 31,

Segment earnings (1)

See definition above.

Seating net sales were $16.0 billion for the year ended December 31, 2018, as compared to $15.9 billion for the year ended December 31, 2017, an increase of $149 million or 1%.

New business, net foreign exchange rate fluctuations and the acquisition of Antolin Seating positively impact net sales by $576 million, $231 million and $215 million, respectively.

These increases were partially offset by the impact of lower production volumes on key Lear platforms, which decreased net sales by $888 million.

Segment earnings, including restructuring costs, and the related margin on net sales were $1.3 billion and 7.9% in 2018 and 2017.

New business, net foreign exchange rate fluctuations and the acquisition of Antolin Seating positively impact segment earnings by $107 million.

Favorable operating performance, including the benefit of operational restructuring actions, of $234 million was more than offset by the impact of selling price reductions and lower production volumes on key Lear platforms.

Lower production volumes on Lear platforms globally, largely due to the COVID-19 pandemic, and costs related to the COVID-19 pandemic negatively impacted segment earnings by $586 million.

Favorable operating performance, including the benefit of operational restructuring actions, and lower restructuring costs were partially offset by the impact of selling price reductions.

A summary of financial measures for our E-Systems segment is shown below (dollar amounts in millions):

For the year ended December 31, 2020 2019

Net sales $ 4,332.8 $ 4,713.1

Segment earnings (1)

Margin 2.3 % 7.8 %

(1) See definition above.

E-Systems net sales were $5.1 billion for the year ended December 31, 2018, as compared to $4.6 billion for the year ended December 31, 2017, an increase of $533 million or 12%.

New business, sales as a result of obtaining control of affiliates and net foreign exchange rate fluctuations positively impacted net sales by $486 million, $311 million and $106 million, respectively.

These increases were partially offset by lower production volumes on key Lear platforms, which reduced net sales by $373 million.

E-Systems net sales were $4.3 billion for the year ended December 31, 2020, as compared to $4.7 billion for the year ended December 31, 2019, a decrease of $0.4 billion or 8%.

Lower production volumes on Lear platforms globally, largely due to the COVID-19 pandemic, negatively impacted net sales by more than $0.6 billion.

This decrease was partially offset by the impact of new business, which increased net sales by nearly $0.3 billion.

Segment earnings, including restructuring costs, and the related margin on net sales were $98 million and 2.3% in 2020, as compared to $366 million and 7.8% in 2019.

New business, earnings as a result of obtaining control of affiliates and net foreign exchange rate fluctuations positively impacted segment earnings by $118 million.

Improved operating performance of $75 million was more than offset by the impact of lower production volumes on key Lear platforms and selling price reductions.

Lower production volumes on Lear platforms globally, largely due to the COVID-19 pandemic, and costs related to the COVID-19 pandemic negatively impacted segment earnings by $234 million.

Improved operating performance was more than offset by the impact of selling price reductions and, to a lesser extent, higher restructuring costs.

A summary of financial measures for our other category, which is not an operating segment, is shown below (dollar amounts in millions):

For the year ended December 31, 2020 2019

Net sales $ — $ —

Segment earnings (1)

(234.5) (257.3)

Margin N/A N/A

(1) See definition above.

Segment earnings related to our other category were ($238) million in 2018, as compared to ($284) million in 2017, reflecting the benefit of lower compensation expense and a favorable litigation settlement of $13 million in 2018.

Segment earnings related to our other category were ($235) million in 2020, as compared to ($257) million in 2019, primarily reflecting lower compensation-related costs in 2020.

Year Ended December 31, 2019, Compared With Year Ended December 31, 2018

For a discussion of our results of operations for the year ended December 31, 2019, compared with the year ended December 31, 2018, refer to our Annual Report on Form 10-K for the year ended December 31, 2019.

Liquidity and Financial Condition

Our primary liquidity needs are to fund general business requirements, including working capital requirements, capital expenditures, operational restructuring actions and debt service requirements.

In addition, we expect to continue to pay quarterly dividends and repurchase shares of our common stock pursuant to our authorized common stock share repurchase program (see Item 5, "Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities").

Our principal sources of liquidity are cash flows from operating activities, borrowings under available credit facilities and our existing cash balance.

Adequacy of Liquidity Sources

As of December 31, 2020, we had approximately $1.3 billion of cash and cash equivalents on hand and $1.75 billion in available borrowing capacity under our Revolving Credit Facility.

Together with cash provided by operating activities, we believe that this will enable us to meet our liquidity needs for the foreseeable future and to satisfy ordinary course business obligations.

In response to the COVID-19 pandemic, we took a number of proactive steps to preserve cash and maximize our financial flexibility in order to efficiently manage through the COVID-19 pandemic, including:

• Aggressively reducing operating costs, capital expenditures and working capital, including reducing discretionary spending

• Reducing salaried employee costs throughout the organization through salary reductions and deferrals

• Suspending share repurchases and quarterly dividends

• Maximizing opportunities offered under government incentive programs throughout the world

• Reducing the compensation of the Board of Directors

• Reducing hourly factory worker costs through temporary layoffs

• Delaying planned pension funding and deferring other retirement plan contributions

In the second half of the year, we reversed certain of the employee-related austerity measures as industry production recovered and financial performance improved.

Further, we announced the restoration of compensation levels for our Board of Directors and executive officers and reinstated the quarterly cash dividend at $0.25 per share of common stock.

In addition, we expect to continue to pay quarterly cash dividends and resume share repurchases pursuant to our common stock share repurchase program (see Item 5, "Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities").

Our future financial results and our ability to continue to meet our liquidity needs are subject to, and will be affected by, cash flows from operations, including the continuing effects of the COVID-19 pandemic, as well as restructuring activities, automotive industry conditions, the financial condition of our customers and suppliers and other related factors.

Additionally, an economic downturn or reduction in production levels could negatively impact our financial condition.

For further discussion of the risks and uncertainties affecting our cash flows from operations and our overall liquidity, see Part I — Item 1A, "Risk Factors," and "— Executive Overview" above and "— Forward-Looking Statements" below.

Cash Provided by Subsidiaries

A substantial portion of our operating income is generated by our subsidiaries.

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For further information regarding potential dividends from our non-U.S.

subsidiaries, see "— Adequacy of Liquidity Sources," below and Note 8 , " Income Taxes ," to the consolidated financial statements included in this Report.

subsidiaries, see "— Adequacy of Liquidity Sources" above and Note 9, "Income Taxes," to the consolidated financial statements included in this Report.

Year Ended December 31, 2020, Compared with Year Ended December 31, 2019

A summary of net cash provided by operating activities is shown below (in millions):

For the year ended December 31,

Increase (Decrease) in Operating

For the year ended December 31, 2020 2019 Increase (Decrease) in Operating

Consolidated net income and depreciation and amortization $ 774 $ 1,341 $ (567)

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Accounts receivable (165) (116) (49)

Inventory (108) (69) (39)

Other current assets (63) 71 (134)

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Net change in working capital items (67) (26) (41)

Other (44) (31) (13)

Net cash provided by operating activities $ 663 $ 1,284 $ (621)

In 2019 and 2018 , net cash provided by operating activities was $1.3 billion and $1.8 billion , respectively.

The overall decrease in operating cash flows of $496 million was primarily attributable to lower net income.

The increase in accounts receivable in 2019 was largely due to lower sales at the end of 2018, as compared to the end of 2019.

The decrease in accounts receivable in 2018 was largely due to lower sales at the end of 2018, as compared to the end of 2017.

The timing of certain customer payments at the end of 2018 impacted both periods.

The resulting decrease in operating cash flows between periods of $347 million was more than offset by improved operating cash flows related to other current assets, accounts payable and accrued liabilities.

In 2020 and 2019, net cash provided by operating activities was $663 million and $1,284 million, respectively.

The overall decrease in operating cash flows of $621 million was primarily attributable to lower earnings in 2020.

Increases in accounts receivable, inventory and accounts payable primarily reflect higher production volumes at the end of 2020, as compared to the end of 2019.

Net cash used in investing activities was $469 million in 2020, as compared to $922 million in 2019.

In 2019, we paid $322 million for the acquisition of Xevo.

In 2019 , capital spending was $604 million , as compared to $677 million in 2018 .

In 2020, capital spending was $452 million, reflecting a delay in certain program launches and a reduction in discretionary spending in response to the COVID-19 pandemic, as compared to $604 million in 2019.

Capital spending in 2021 is estimated at $600 million.

Net cash used in financing activities was $412 million in 2020, as compared to $362 million in 2019.

In 2019 , we received net proceeds of $693 million related to the issuance of the 2029 and 2049 Notes and paid $7 million of related issuance costs and $334 million related to the redemption of the outstanding 2024 Notes.

As a proactive measure in response to the COVID-19 pandemic, we borrowed $1.0 billion under the Revolving Credit Facility in the first quarter of 2020, which was repaid in full in the third quarter of 2020.

In 2020, we received net proceeds of $669 million related to the issuance of 2030 and 2049 Notes and paid $6 million of related issuance costs and $667 million related to the redemption of the outstanding 2025 Notes.

Also in 2020, we paid $70 million for repurchases of our common stock, $67 million of dividends to Lear stockholders and $123 million of dividends to noncontrolling interest holders.

In 2018, we paid $705 million for repurchases of our common stock, $186 million of dividends to Lear stockholders and $79 million of dividends to noncontrolling interest holders.

For further information regarding our 2019 and 2018 financing transactions, see "— Capitalization" below and Note 6 , " Debt ," and Note 11 , " Capital Stock, Accumulated Other Comprehensive Loss and Equity ," to the consolidated financial statements included in this Report.

Year Ended December 31, 2018 , Compared with Year Ended December 31, 2017

A summary of net cash provided by operating activities is shown below (in millions):

For the year ended December 31,

Increase (Decrease) in Operating

Consolidated net income and depreciation and amortization

Net change in working capital items:

Accounts receivable

Other current assets

Accounts payable

Accrued liabilities

Net change in working capital items

Net cash provided by operating activities

In 2018, decreases in accounts receivable and accounts payable primarily reflect lower production volumes at the end of 2018, as compared to 2017, and changes in other current assets and accrued liabilities primarily reflect the timing of tax payments and tax receipts.

In 2018, other in the table above includes decreases in our net deferred tax assets and our recoverable customer engineering, development and tooling of $87 million and $54 million, respectively.

Net cash used in investing activities was $694 million in 2018, as compared to $869 million in 2017.

In 2017, we paid $292 million for the acquisition of Antolin Seating.

In 2018, capital spending totaled $677 million, as compared to $595 million in 2017.

Net cash used in financing activities was $1,031 million in 2018, as compared to $742 million in 2017.

In 2018, we paid $705 million for repurchases of our common stock, $186 million of dividends to Lear stockholders and $79 million of dividends to noncontrolling interest holders.

In 2017, we received net proceeds of $745 million related to the issuance of our senior notes due 2027 (the "2027 Notes"), paid $517 million related to the redemption of the outstanding 2023 Notes and repaid a net of $203 million in connection with the refinancing of our credit agreement.

In 2019, we received net proceeds of $693 million related to the issuance of 2029 and 2049 Notes and paid $7 million of related issuance costs and $334 million related to the redemption of the outstanding 2024 Notes.

Also in 2019, we paid $385 million for repurchases of our common stock, $186 million of dividends to Lear stockholders and $79 million of dividends to noncontrolling interest holders.

For further information regarding our 2020 and 2019 financing transactions, see "— Capitalization" below and Note 7, "Debt," and Note 12, "Capital Stock, Accumulated Other Comprehensive Loss and Equity," to the consolidated financial statements included in this Report.

Year Ended December 31, 2019, Compared with Year Ended December 31, 2018

For a discussion of our cash flows for the year ended December 31, 2019, compared with the year ended December 31, 2018, refer to our Annual Report on Form 10-K for the year ended December 31, 2019.

Capitalization

From time to time, we utilize uncommitted lines of credit to fund our capital expenditures and working capital requirements at certain of our foreign subsidiaries, in addition to cash provided by operating activities.

As of December 31, 2019 and 2018 , we had short-term debt balances outstanding of $19 million and $10 million , respectively.

As of December 31, 2020, we had no short-term debt balances outstanding.

As of December 31, 2019, we had short-term debt balances outstanding of $19 million.

The availability of uncommitted lines of credit may be affected by our financial performance, credit ratings and other factors.

As of December 31, 2020, our senior notes (collectively, the "Notes") consist of the amounts shown below (in millions, except stated coupon rates):

Aggregate Principal Amount at Maturity

Stated Coupon Rate

Note Aggregate Principal Amount at Maturity Stated Coupon Rate

Senior unsecured notes due 2027 (the "2027 Notes") $ 750 3.80%

Senior unsecured notes due 2029 (the "2029 Notes") 375 4.25%

2030 Notes 350 3.50%

The issue, maturity and interest payment dates of the Notes are shown below:

Issuance Date

Maturity Date

Interest Payment Dates

November 2014

January 15, 2025

January 15 and July 15

September 15, 2027

March 15 and September 15

May 15 and November 15

In 2019, we issued $375 million in aggregate principal amount at maturity of 2029 Notes and $325 million in aggregate principal amount at maturity of 2049 Notes.

The 2029 Notes have a stated coupon rate of 4.25% and were priced at 99.691% of par, resulting in a yield to maturity of 4.288%.

The 2049 Notes have a stated coupon rate of 5.25% and were priced at 98.32% of par, resulting in a yield to maturity of 5.363%.

Note Issuance Date Maturity Date Interest Payment Dates

2027 Notes August 2017 September 15, 2027 March 15 and September 15

2029 Notes May 2019 May 15, 2029 May 15 and November 15

2030 Notes February 2020 May 30, 2030 May 30 and November 30

2049 Notes May 2019 and February 2020 May 15, 2049 May 15 and November 15

In 2020, we issued $350 million in aggregate principal amount at maturity of 2030 Notes and an additional $300 million in aggregate principal amount at maturity of 2049 Notes.

The 2030 Notes have a stated coupon rate of 3.5% and were issued at 99.774% of par, resulting in a yield to maturity of 3.525%.

The 2049 Notes have a stated coupon rate of 5.25% and were issued at 106.626% of par, resulting in a yield to maturity of 4.821%.

The net proceeds from the offering were $669 million after original issue discount.

The proceeds were used to redeem the $325 million in aggregate principal amount of the 2024 Notes at a redemption price equal to 102.688% of the principal amount of such 2024 Notes, plus accrued interest, as well as to finance the acquisition of Xevo and for general corporate purposes.

The proceeds were used to redeem the $650 million in aggregate principal amount of 2025 Notes at a redemption price equal to 102.625% of the principal amount of such 2025 Notes, plus accrued interest.

In connection with these transactions, we recognized a loss of $21 million on the extinguishment of debt and paid related issuance costs of $6 million.

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Our Credit Agreement, dated August 8, 2017, consists of a $1.75 billion Revolving Credit Facility and a $250 million Term Loan Facility.

The maturity date of the Revolving Credit Facility is August 8, 2023, and the maturity date of the Term Loan Facility is August 8, 2022.

In 2020, we entered into an agreement to extend the maturity date of the Revolving Credit Facility by one year to August 8, 2024, and paid related issuance costs of $1 million.

The maturity date of the Term Loan Facility is August 8, 2022.

As of December 31, 2020 and 2019, there were no borrowings outstanding under the Revolving Credit Facility and $220 million and $234 million, respectively, outstanding under the Term Loan Facility.

In March 2020, as a proactive measure in response to the COVID-19 pandemic, we borrowed $1.0 billion under the Revolving Credit Facility, which was repaid in full in September 2020.

The Credit Agreement contains various financial and other covenants that require us to remain below a maximum leverage coverage ratio.

As of December 31, 2020, we were in compliance with all covenants under the Credit Agreement.

Although we expect to maintain compliance with all covenants, the impact of the COVID-19 pandemic may negatively affect our ability to comply with certain of these covenants.

In the event that we are unable to maintain compliance with such covenants, we expect to obtain an amendment or waiver from our lenders, refinance the indebtedness subject to the covenants or take other mitigating actions prior to a potential breach.

For further information related to the Credit Agreement, including information on pricing, covenants and events of default, see Note 7, "Debt," to the consolidated financial statements included in this Report and the amended and restated credit agreement, which has been incorporated by reference as an exhibit to this Report.

Accounts Receivable Factoring

During the second quarter of 2020, we entered into an uncommitted factoring arrangement which provides for aggregate purchases of specified customer accounts in North America.

The factoring arrangement results in true sales of the factored receivables, which are excluded from amounts reported in the consolidated balance sheets when the receivables are factored in accordance with ASC 860, "Transfers and Servicing." There were no receivables factored during 2020.

We cannot provide any assurances that the factoring arrangement will be available or utilized in the future.

Contractual Obligations

The scheduled maturities of the Notes, obligations under the Credit Agreement and scheduled interest payments on the Notes as of December 31, 2020, are shown below (in millions):

Credit agreement —

term loan facility

2021 2022 2023 2024 2025 Thereafter Total

Senior notes $ — $ — $ — $ — $ — $ 2,100 $ 2,100

Credit agreement — term loan facility 14 206 — — — — 220

Scheduled interest payments 90 90 90 90 90 937 1,387

Total $ 104 $ 296 $ 90 $ 90 $ 90 $ 3,037 $ 3,707

We enter into agreements with our customers to produce products at the beginning of a vehicle’s life cycle.

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We expect payments related to our postretirement benefit obligation to be approximately $5 million in 2021.

For further information related to our pension and other postretirement benefit plans, see "— Other Matters — Pension and Other Postretirement Benefit Plans" and Note 9 , " Pension and Other Postretirement Benefit Plans ," to the consolidated financial statements included in this Report.

For further information related to our pension and other postretirement benefit plans, see "— Other Matters — Pension and Other Postretirement Benefit Plans" below and Note 10, "Pension and Other Postretirement Benefit Plans," to the consolidated financial statements included in this Report.

Common Stock Share Repurchase Program

See Item 5, "Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities."

Our Board of Directors declared quarterly cash dividends of $0.75 and $0.70 per share of common stock in 2019 and 2018 , respectively.

In March 2020, as a proactive measure in response to the COVID-19 pandemic, we suspended our quarterly cash dividend.

Prior to the suspension, our Board of Directors declared a cash dividend of $0.77 per share of common stock in the first quarter of 2020.

The quarterly cash dividend was reinstated in the fourth quarter of 2020 at $0.25 per share of common stock.

In 2019 and 2018, our Board of Directors declared quarterly cash dividends of $0.75 and $0.70, respectively, per share of common stock.

We currently expect to pay quarterly cash dividends in the future, although such payments are at the discretion of our Board of Directors and will depend upon our financial condition, results of operations, capital requirements, alternative uses of capital and other factors that our Board of Directors may consider at its discretion.

See Part II - Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations - Forward-Looking Statements," and Note 6 , " Debt ," to the consolidated financial statements included in this Report.

Adequacy of Liquidity Sources

As of December 31, 2019 , we had approximately $1.5 billion of cash and cash equivalents on hand and $1.75 billion in available borrowing capacity under our Revolving Credit Facility.

Together with cash provided by operating activities, we believe that this will enable us to meet our liquidity needs to satisfy ordinary course business obligations.

Our future financial results and our ability to continue to meet our liquidity needs are subject to, and will be affected by, cash flows from operations, including the impact of restructuring activities, automotive industry conditions, the financial condition of our customers and suppliers and other related factors.

Additionally, an economic downturn or reduction in production levels could negatively impact our financial condition.

For further discussion of the risks and uncertainties affecting our cash flows from operations and our overall liquidity, see Part I — Item 1A, "Risk Factors," "— Executive Overview" above and "— Forward-Looking Statements" below.

See "— Forward-Looking Statements" below and Note 7, "Debt," to the consolidated financial statements included in this Report.

Market Risk Sensitivity

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A summary of the notional amount and estimated aggregate fair value of our outstanding foreign exchange contracts is shown below (in millions):

December 31, 2020 2019

Notional amount (contract maturities < 24 months) $ 2,494 $ 2,163

Currently, our most significant foreign currency transactional exposures relate to the Mexican peso, various European currencies, the Thai baht, the Chinese renminbi, the Brazilian real, the Japanese yen and the South African rand.

Fair value 48 50

Currently, our most significant foreign currency transactional exposures relate to the Mexican peso, various European currencies, the Chinese renminbi, the Thai baht, the Japanese yen, the Brazilian real and the Honduran lempira.

A sensitivity analysis of our net transactional exposure is shown below (in millions):

Potential Earnings Benefit (Adverse Earnings Impact)

Hypothetical Strengthening % (1)

December 31, Hypothetical Strengthening % (1)

10% $ 23 $ (16)

Euro 10% (4) 19

(1) Relative to all other currencies to which it is exposed for a twelve-month period.

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Estimated Change in Fair Value

December 31, Hypothetical

dollar 10% $ 80 $ 50

Euro 10% 59 69

(2) Relative to all other currencies to which it is exposed.

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If these costs increase, it could have an adverse impact on our operating results in the foreseeable future.

We have commodity price risk with respect to purchases of certain raw materials, including steel, copper, diesel fuel, chemicals, resins and leather.

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We provide certain pension and other postretirement benefits to our employees and retired employees, including pensions, postretirement health care benefits and other postretirement benefits.

Approximately 6% of our active workforce is covered by defined benefit pension plans, and less than 1% of our active workforce is covered by other postretirement benefit plans.

Approximately 6% of our active workforce is covered by defined benefit pension plans.

Pension plans provide benefits based on plan-specific benefit formulas as defined by the applicable plan documents.

Postretirement benefit plans generally provide for the continuation of medical benefits for all eligible employees.

Postretirement benefit plans generally provide for the continuation of medical benefits for eligible retirees.

We also have contractual arrangements with certain employees which provide for supplemental retirement benefits.

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Key assumptions are shown below:

Other Postretirement

Pension Other Postretirement

Benefit obligations as of December 31, 2020 $ 1,094 $ 89

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Expected return on plan assets -

Domestic plans

Foreign plans

Net periodic benefit cost for the year ended December 31, 2020 (1)

Domestic plans 5.8 % N/A

Foreign plans 5.4 % N/A

Net periodic benefit cost (credit) for the year ending December 31, 2021 (1)

Discount rate -

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Expected return on plan assets -

Domestic plans

Foreign plans

Domestic plans 5.8 % N/A

Foreign plans 5.2 % N/A

(1) Forecasted.

The sensitivity to a 100 basis point ("bp") decrease in the discount rate and expected return on plan assets is shown below (in millions):

Increase in Benefit Obligation

Increase in 2019

Increase in Benefit Obligation Increase in 2021

Net Periodic Benefit Cost

Other Postretirement

Pension Other Postretirement Pension Other Postretirement

100 bp decrease in discount rate $ 176 $ 11 $ — $ —

100 bp decrease in expected return on plan assets

100 bp decrease in expected return on plan assets N/A N/A $ 8 N/A

For further information related to our pension and other postretirement benefit plans, see "— Liquidity and Financial Condition — Capitalization — Contractual Obligations" above and Note 10, "Pension and Other Postretirement Benefit Plans," to the consolidated financial statements included in this Report.

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however, due to the complexity of these uncertainties and the impact of tax audits, the ultimate resolutions may differ significantly from our estimates.

For further information, see "— Forward-Looking Statements," and Note 8 , " Income Taxes ," to the consolidated financial statements included in this Report.

For further information, see "— Forward-Looking Statements" below and Note 9, "Income Taxes," to the consolidated financial statements included in this Report.

Use of Estimates

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• general economic conditions in the markets in which we operate, including changes in interest rates or currency exchange rates;

• the impact of the COVID-19 pandemic on our business and the global economy;

• changes in actual industry vehicle production levels from our current estimates;

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• the impact and timing of program launch costs and our management of new program launches;

limitations imposed by our existing indebtedness and our ability to access capital markets on commercially reasonable terms;

changes affecting the availability of LIBOR;

• changes in discount rates and the actual return on pension assets;

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• our ability to execute our strategic objectives;

• limitations imposed by our existing indebtedness and our ability to access capital markets on commercially reasonable terms;

• changes affecting the availability of LIBOR;

• disruptions to our information technology systems, or those of our customers or suppliers, including those related to cybersecurity;

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Revenue recognition

Description of Matter

As discussed in Note 2, Summary of Significant Accounting Policies, the Company’s sales contracts with its customers may provide for annual price reductions over the production life of the vehicle.

Description of the Matter As discussed in Note 3, Summary of Significant Accounting Policies, the Company’s sales contracts with its customers may provide for annual price reductions over the production life of the vehicle.

Prices may also be adjusted on an ongoing basis to reflect changes in product content, product cost and other commercial factors.

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Auditing the consideration that the Company expects to be entitled to in exchange for certain of its products which are subject to non-routine price adjustments is highly judgmental as it relates to evaluating the sufficiency of evidence available from commercial negotiations to support the ultimate consideration that the Company is entitled to in exchange for those products.

How We Addressed the Matter in Our Audit

We identified and tested controls over the identification and evaluation of product sales with non-routine price adjustments, including management’s review of the evidence to support the Company’s measurement of revenue related to those product sales.

How We Addressed the Matter in Our Audit We identified and tested controls over the identification and evaluation of product sales with non-routine price adjustments, including management’s review of the evidence to support the Company’s measurement of revenue related to those product sales.

Our audit procedures included, among others, inspecting communications between the Company and its customers related to the pricing arrangements, auditing adjustments at period-end related to those product sales, performing retrospective reviews of management’s estimates to identify contrary evidence, if any, and performing inquiries of and obtaining written representations from executives, within the Company, responsible for the respective customer relationships.

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In our opinion, Lear Corporation and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on the COSO criteria.

As indicated in the accompanying Management’s Annual Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Xevo Inc.

(“Xevo”), which is included in the 2019 consolidated financial statements of the Company and constituted 2.9% of total assets as of December 31, 2019 and 0.4% of revenues for the year then ended.

Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Xevo.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2020 consolidated financial statements of the Company and our report dated February 10, 2021, expressed an unqualified opinion thereon.

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(In millions, except share data)

December 31, 2020 2019

Current Assets:

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Accounts receivable 3,269.2 2,982.6

Inventories 1,401.1 1,258.2

Other 799.7 678.2

Total current assets 6,776.7 6,406.7

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Property, plant and equipment, net 2,736.2 2,704.2

Goodwill 1,655.8 1,614.3

Other 2,029.9 1,955.5

Total long-term assets 6,421.9 6,274.0

Total assets $ 13,198.6 $ 12,680.7

Liabilities and Equity

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Long-term debt 2,300.3 2,293.7

Other 1,206.7 1,101.3

Total long-term liabilities 3,507.0 3,395.0

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Common stock, $ 0.01 par value, 300,000,000 shares authorized;

64,563,291 shares issued as of December 31, 2019 and 2018

64,571,405 and 64,563,291 shares issued as of December 31, 2020 and 2019, respectively

Additional paid-in capital 963.6 969.1

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as of December 31, 2020 and 2019, respectively, at cost

( 598.6 ) ( 563.1 )

Retained earnings 4,806.8 4,715.8

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Noncontrolling interests 147.6 151.4

Equity 4,614.9 4,501.1

Total liabilities and equity $ 13,198.6 $ 12,680.7

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For the year ended December 31, 2020 2019 2018

Net sales $ 17,045.5 $ 19,810.3 $ 21,148.5

Cost of sales 15,936.6 18,072.8 18,830.2

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Interest expense 99.6 92.0 84.1

Other (income) expense, net

Other expense, net 55.2 24.6 31.6

Consolidated income before provision for income taxes and equity in net income of affiliates 299.3 953.6 1,538.4

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Redeemable Non-

controlling Interests

Additional Paid-in Capital

Stock Held in Treasury

controlling Interests Common

Stock Additional Paid-in Capital Common

Stock Held in Treasury Retained

Balance as of December 31, 2017 $ 153.4 $ 0.7 $ 1,215.4 $ ( 724.1 ) $ 4,171.9

Comprehensive income:

Other comprehensive income

Total comprehensive income

Comprehensive income (loss):

Net income 12.9 — — — 1,149.8

Other comprehensive income (loss) ( 9.4 ) — — — —

Total comprehensive income (loss) 3.5 — — — 1,149.8

Adoption of ASU 2016-16 (Note 9, "Income Taxes") — — — — 2.3

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Net issuances of 374,267 shares held in treasury in settlement of stock-based compensation

— — ( 81.5 ) 34.0 —

Repurchases of 4,308,418 shares of common stock at an average price of $ 163.69 per share

— — — ( 705.2 ) —

Retirement of 8,000,000 shares held in treasury at average price of $ 146.27 per share

— ( 0.1 ) ( 155.9 ) 1,170.2 ( 1,014.2 )

Dividends declared to Lear Corporation stockholders — — — — ( 185.8 )

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Affiliate transaction — — — — —

Acquisition of outstanding noncontrolling interests — — ( 2.0 ) — —

Noncontrolling interests — other

Redeemable noncontrolling interest adjustment 10.4 — — — ( 10.4 )

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Comprehensive income (loss):

Net income 1.8 — — — 753.6

Other comprehensive income (loss) ( 1.8 ) — — — —

Total comprehensive income (loss) — — — — 753.6

Adoption of ASU 2016-16 (Note 8, "Income Taxes")

Stock-based compensation — — 23.3 — —

Net issuances of 314,953 shares held in treasury in settlement of stock-based compensation

— — ( 71.6 ) 42.4 ( 2.1 )

Repurchases of 2,819,081 shares of common stock at an average price of $ 134.95 per share

Retirement of 8,000,000 shares held in treasury at average price of $146.27 per share

— — — ( 380.4 ) —

Dividends declared to Lear Corporation stockholders — — — — ( 186.3 )

Dividends declared to noncontrolling interests ( 2.7 ) — — — —

Affiliate transaction

Acquisition of outstanding noncontrolling interests

Redeemable noncontrolling interest adjustment

Noncontrolling interests — other

Disposal of noncontrolling interests — — — — —

Redeemable noncontrolling interest adjustment ( 37.0 ) — — — 37.0

Balance as of December 31, 2019 $ 118.4 $ 0.6 $ 969.1 $ ( 563.1 ) $ 4,715.8

Comprehensive income (loss):

Net income ( 3.5 ) — — — 158.5

Other comprehensive income (loss) 7.7 — — — —

Total comprehensive income (loss) 4.2 — — — 158.5

Adoption of ASU 2016-13 (Note 3, "Accounts Receivable") — — — — ( 0.8 )

Stock-based compensation — — 40.0 — —

Net issuances of 249,064 shares held in treasury in settlement of stock-based compensation

— — ( 46.9 ) 34.5 ( 3.5 )

Repurchases of 641,149 shares of common stock at an average price of $ 109.22 per share

— — — ( 70.0 ) —

Dividends declared to Lear Corporation stockholders — — — — ( 62.1 )

Dividends declared to noncontrolling interests ( 26.8 ) — — — —

Noncontrolling interests — other

Disposal of noncontrolling interests

Acquisition of outstanding noncontrolling interests ( 96.9 ) — 1.4 — —

Redeemable noncontrolling interest adjustment 1.1 — — — ( 1.1 )

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Accumulated Other Comprehensive Loss, net of tax

Benefit Plans

Benefit Plans Derivative

Instruments and

Activities Cumulative

Adjustments Lear

Stockholders’

Non-controlling

Equity Non-controlling

Interests Equity

Balance as of December 31, 2017 $ ( 184.0 ) $ ( 22.9 ) $ ( 306.5 ) $ 4,150.5 $ 142.1 $ 4,292.6

Comprehensive income:

Other comprehensive income

Total comprehensive income

Comprehensive income (loss):

Net income — — — 1,149.8 84.0 1,233.8

Other comprehensive income (loss) 11.2 13.2 ( 216.8 ) ( 192.4 ) ( 6.8 ) ( 199.2 )

Total comprehensive income (loss) 11.2 13.2 ( 216.8 ) 957.4 77.2 1,034.6

Adoption of ASU 2016-16 (Note 9, "Income Taxes") — — — 2.3 — 2.3

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Net issuances of 374,267 shares held in treasury in settlement of stock-based compensation

— — — ( 47.5 ) — ( 47.5 )

Repurchases of 4,308,418 shares of common stock at an average price of $ 163.69 per share

— — — ( 705.2 ) — ( 705.2 )

Retirement of 8,000,000 shares held in treasury at average price of $ 146.27 per share

2 unchanged sentences

Affiliate transaction — — — — 14.0 14.0

Acquisition of outstanding noncontrolling interests — — — ( 2.0 ) — ( 2.0 )

Noncontrolling interests — other

— — — — ( 3.4 ) ( 3.4 )

Redeemable noncontrolling interest adjustment — — — ( 10.4 ) — ( 10.4 )

1 unchanged sentence

Comprehensive income (loss):

Net income — — — 753.6 75.3 828.9

Other comprehensive income (loss) ( 44.8 ) 19.5 ( 41.6 ) ( 66.9 ) ( 1.7 ) ( 68.6 )

Total comprehensive income (loss) ( 44.8 ) 19.5 ( 41.6 ) 686.7 73.6 760.3

Adoption of ASU 2016-16 (Note 8, "Income Taxes")

Stock-based compensation — — — 23.3 — 23.3

Net issuances of 314,953 shares held in treasury in settlement of stock-based compensation

— — — ( 31.3 ) — ( 31.3 )

Repurchases of 2,819,081 shares of common stock at an average price of $ 134.95 per share

Retirement of 8,000,000 shares held in treasury at average price of $146.27 per share

— — — ( 380.4 ) — ( 380.4 )

Dividends declared to Lear Corporation stockholders — — — ( 186.3 ) — ( 186.3 )

Dividends declared to noncontrolling interests — — — — ( 76.3 ) ( 76.3 )

Affiliate transaction

Acquisition of outstanding noncontrolling interests

Redeemable noncontrolling interest adjustment

Noncontrolling interests — other

— — — — ( 0.2 ) ( 0.2 )

Disposal of noncontrolling interests — — — — ( 5.6 ) ( 5.6 )

Redeemable noncontrolling interest adjustment — — — 37.0 — 37.0

Balance as of December 31, 2019 $ ( 217.6 ) $ 9.8 $ ( 564.9 ) $ 4,349.7 $ 151.4 $ 4,501.1

Comprehensive income (loss):

Net income — — — 158.5 78.9 237.4

Other comprehensive income (loss) ( 59.3 ) 2.8 124.1 67.6 7.9 75.5

Total comprehensive income (loss) ( 59.3 ) 2.8 124.1 226.1 86.8 312.9

Adoption of ASU 2016-13 (Note 3, "Accounts Receivable") — — — ( 0.8 ) — ( 0.8 )

Stock-based compensation — — — 40.0 — 40.0

Net issuances of 249,064 shares held in treasury in settlement of stock-based compensation

— — — ( 15.9 ) — ( 15.9 )

Repurchases of 641,149 shares of common stock at an average price of $ 109.22 per share

— — — ( 70.0 ) — ( 70.0 )

Dividends declared to Lear Corporation stockholders — — — ( 62.1 ) — ( 62.1 )

Dividends declared to noncontrolling interests — — — — ( 90.6 ) ( 90.6 )

Noncontrolling interests — other

Disposal of noncontrolling interests

Acquisition of outstanding noncontrolling interests — — — 1.4 — 1.4

Redeemable noncontrolling interest adjustment — — — ( 1.1 ) — ( 1.1 )

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Deferred tax (benefit) provision

( 84.7 ) ( 38.2 ) 86.7

Depreciation and amortization 539.9 509.9 484.4

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Changes in other long-term assets ( 26.5 ) ( 10.1 ) ( 16.7 )

Other, net 41.6 19.7 38.9

Net cash provided by operating activities 663.1 1,284.3 1,779.8

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Additions to property, plant and equipment ( 452.3 ) ( 603.9 ) ( 677.0 )

Acquisitions, net of cash acquired

Acquisition of Xevo, net of cash acquired — ( 321.7 ) —

Other, net ( 16.5 ) 3.2 ( 16.5 )

Net cash used in investing activities ( 468.8 ) ( 922.4 ) ( 693.5 )

Cash Flows from Financing Activities:

Revolving credit facility borrowings 1,000.0 — —

Revolving credit facility repayments ( 1,000.0 ) — —

Proceeds from the issuance of senior notes 669.1 693.3 —

Repurchase of senior notes

New credit agreement borrowings

New credit agreement repayments

Prior credit agreement repayments

Redemption of senior notes ( 667.1 ) ( 333.7 ) —

Term loan repayments ( 14.1 ) ( 7.8 ) ( 6.3 )

Short-term borrowings (repayments), net ( 19.3 ) 9.5 7.3

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Dividends paid to noncontrolling interests ( 123.3 ) ( 78.9 ) ( 79.1 )

Other, net ( 112.7 ) ( 66.8 ) ( 61.2 )

Net cash used in financing activities ( 411.7 ) ( 361.9 ) ( 1,030.5 )

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Accounts receivable $ ( 164.7 ) $ ( 116.2 ) $ 230.8

Inventories ( 107.7 ) ( 69.1 ) ( 32.5 )

Accounts payable 214.0 ( 5.5 ) ( 199.3 )

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Cash paid for income taxes, net of refunds received of $ 32.5 million in 2020, $ 69.4 million in 2019 and $ 40.6 million in 2018

$ 141.5 $ 172.1 $ 279.2

The accompanying notes are an integral part of these consolidated financial statements.

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The accompanying consolidated financial statements include the accounts of Lear, a Delaware corporation, and the wholly owned and less than wholly owned subsidiaries controlled by Lear.

(2) Impact of COVID-19 Pandemic

Unprecedented industry disruptions related to the COVID-19 pandemic impacted operations in every region of the world.

The Company's operations in China were impacted first, with most plants in the country closed for several weeks during the first quarter.

At the end of the first quarter, all of the Company's facilities in China were operating and capacity utilization was increasing.

Beginning in mid-March, the Company's operations in Europe, North America, South America and Asia (outside of China) were impacted, with virtually all of its plants closed at the end of the first quarter and closures continuing throughout April and, in most cases, a portion of May.

Although manufacturing resumed gradually, most of the Company's plants in its major markets were operating at pre-COVID-19 levels at the end of the second quarter and throughout the second half of 2020.

The Company experienced significant inefficiencies and incremental costs related to the COVID-19 pandemic in the first half of the year, which diminished toward the end of the second quarter.

In the second half of 2020, the Company experienced less significant but ongoing costs related to personal protective equipment, employee transportation and higher labor costs reflecting an increase in absenteeism.

Various government programs have been enacted to provide financial relief for businesses affected by the COVID-19 pandemic.

In the year ended December 31, 2020, the Company recognized approximately $ 98 million of government assistance primarily related to the reimbursement of certain employee costs.

The Company recognizes such assistance as a reduction of the related costs as such costs are incurred and the Company is reasonably assured to receive payment.

Although industry production has returned to pre-COVID-19 levels, partially due to the customers' need to replenish inventory levels, it is likely that, for a period of time, the global automotive industry will experience lower demand for new vehicles as a result of the global economic slowdown caused by the COVID-19 pandemic, as new vehicle sales are typically correlated with positive consumer confidence and low unemployment.

The Company is also continuing to monitor its supply base, as well as related production constraints imposed by various governments, to minimize the impact on its manufacturing operations.

Further, a resurgence of the virus with corresponding shelter-in-place orders impacting industry production in 2021 could also impact the Company's financial results.

The accompanying consolidated financial statements reflect estimates and assumptions made by management as of December 31, 2020, and for the year then ended.

Such estimates and assumptions affect, among other things, the Company's goodwill, long-lived asset and indefinite-lived intangible asset valuations;

inventory valuations;

valuation of deferred income taxes and income tax contingencies;

and credit losses related to our financial instruments.

Events and circumstances arising after December 31, 2020, including those resulting from the impact of the COVID-19 pandemic, will be reflected in management's estimates and assumptions in future periods.

For more information related to goodwill, see Note 3, "Summary of Significant Accounting Policies — Impairment of Goodwill and Intangible Assets." For more information related to income taxes, see Note 3, "Summary of Significant Accounting Policies — Income Taxes," and Note 9, "Income Taxes."

(3) Summary of Significant Accounting Policies

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Investments in affiliates in which Lear does not have control, but does have the ability to exercise significant influence over operating and financial policies, are accounted for under the equity method (Note 6, "Investments in Affiliates and Other Related Party Transactions").

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Fiscal Period Reporting

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The Company’s customers are the world’s major automotive manufacturers.

The Company records accounts receivable reserves for known collectibility issues, as such issues relate to specific transactions or customer balances.

As of December 31, 2019 and 2018 , accounts receivable are reflected net of reserves of $ 36.0 million and $ 33.2 million , respectively.

The Company writes off accounts receivable when it becomes apparent, based upon age or customer circumstances, that such amounts will not be collected.

Generally, the Company does not require collateral for its accounts receivable.

On January 1, 2020, the Company adopted Accounting Standards Update ("ASU") 2016-13, "Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments," using a modified retrospective approach.

The standard amends several aspects of the measurement of credit losses related to certain financial instruments, including the replacement of the existing incurred credit loss model and other models with the current expected credit losses ("CECL") model.

The cumulative effect of adoption resulted in an increase of $ 0.8 million in the allowance for credit loss and a corresponding decrease in retained earnings as of January 1, 2020.

The Company’s allowance for credit losses on financial assets measured at amortized cost, primarily accounts receivable, reflects management’s estimate of credit losses over the remaining expected life of such assets, measured primarily using historical experience, as well as current conditions and forecasts that affect the collectability of the reported amount.

Expected credit losses for newly recognized financial assets, as well as changes to expected credit losses during the period, are recognized in earnings.

The Company also considers geographic and segment specific risk factors in the development of expected credit losses.

As of December 31, 2020 and 2019, accounts receivable are reflected net of reserves of $ 35.3 million and $ 36.0 million, respectively.

Changes in expected credit losses were not significant during the year ended December 31, 2020.

The Company receives bank notes from its customers, which are classified as other current assets in the consolidated balance sheets, for certain amounts of accounts receivable, primarily in Asia.

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A summary of inventories is shown below (in millions):

December 31, 2020 2019

Raw materials $ 1,051.6 $ 906.3

1 unchanged sentence

Finished goods 396.9 380.4

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Reserves ( 157.2 ) ( 135.5 )

Inventories $ 1,401.1 $ 1,258.2

Engineering and Development ("E&D") and Tooling Costs

In 2020, the Company recorded E&D costs of $ 557.0 million, including $ 280.7 million (or 2 % of related sales) in its Seating business, $ 259.8 million (or 6 % of related sales) in its E-Systems business and $ 16.5 million at its headquarters location.

Pre-Production Costs Related to Long-Term Supply Agreements

The Company incurs pre-production engineering and development ("E&D") and tooling costs related to the products produced for its customers under long-term supply agreements.

The Company incurs pre-production E&D and tooling costs related to the products produced for its customers under long-term supply agreements.

The Company expenses all pre-production E&D costs for which reimbursement is not contractually guaranteed by the customer.

In addition, the Company expenses all pre-production tooling costs related to customer-owned tools for which reimbursement is not contractually guaranteed by the customer or for which the Company does not have a non-cancelable right to use the tooling.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

During 2020 and 2019, the Company capitalized $ 229.7 million and $ 211.2 million, respectively, of pre-production E&D costs for which reimbursement is contractually guaranteed by the customer.

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The classification of recoverable customer E&D and tooling costs related to long-term supply agreements is shown below (in millions):

December 31, 2020 2019

Current $ 212.0 $ 157.2

Long-term 121.4 113.8

Recoverable customer E&D and tooling $ 333.4 $ 271.0

Other E&D Costs

Costs incurred in connection with product launches, to the extent not recoverable from the Company’s customers, are recorded in cost of sales as incurred and totaled $ 135.0 million, $ 138.2 million and $ 140.4 million for the years ended December 31, 2020, 2019 and 2018, respectively.

All other E&D costs are recorded in selling, general and administrative expenses as incurred and totaled $ 192.3 million, $ 178.4 million and $ 156.2 million for the years ended December 31, 2020, 2019 and 2018, respectively.

Property, Plant and Equipment

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Depreciable property is depreciated over the estimated useful lives of the assets, using principally the straight-line method as follows:

Buildings and improvements

10 to 40 years

Machinery and equipment

5 to 10 years

Buildings and improvements 10 to 40 years

Machinery and equipment 5 to 10 years

A summary of property, plant and equipment is shown below (in millions):

December 31, 2020 2019

Land $ 114.1 $ 113.1

Buildings and improvements 880.7 831.3

11 unchanged sentences

If not, no further goodwill impairment testing is required.

If it is more likely than not that a reporting unit’s fair value is less than its carrying amount, or if the Company elects not to perform a qualitative assessment of a reporting unit, the Company then compares the fair value of the reporting unit to the related net

If it is more likely than not that a reporting unit’s fair value is less than its carrying amount, or if the Company elects not to perform a

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

qualitative assessment of a reporting unit, the Company then compares the fair value of the reporting unit to the related net book value.

If the net book value of a reporting unit exceeds its fair value, an impairment loss is measured and recognized.

The Company conducts its annual impairment testing as of the first day of its fourth quarter.

The Company utilizes an income approach to estimate the fair value of each of its reporting units and a market valuation approach to further support this analysis.

9 unchanged sentences

The annual goodwill impairment assessment was completed as of the first day of the Company's fourth quarter.

In 2019 , the Company performed a qualitative assessment for each reporting unit except for one where a quantitative analysis was performed.

The qualitative assessments indicated that it was more likely than not that the fair value of each of the reporting units exceeded its respective carrying value.

The quantitative analysis resulted in the current fair value of the reporting unit exceeding its carrying value.

We do not believe that any of our reporting units are at risk for impairment.

The Company performed a qualitative assessment for each reporting unit except for one within the Seating operating segment where a quantitative analysis was performed.

The qualitative assessments indicated that it was more likely than not that the fair value of each reporting unit exceeded its respective carrying value.

The quantitative analysis indicated that the fair value of the reporting unit exceeded its respective carrying value.

The quantitative analysis reflected the Company’s best estimates of the COVID-19 pandemic’s ultimate impact on industry conditions, including consumer demand, as well as economic recovery.

The reporting unit is at risk of failing a future quantitative assessment if the impact of the COVID-19 pandemic is more severe or if economic recovery is slower or weaker than anticipated.

As of December 31, 2020, the goodwill of the reporting unit represents approximately 1 % of the Company’s total goodwill.

The Company does not believe that any other reporting units is at risk for impairment.

A summary of the changes in the carrying amount of goodwill for each of the periods in the two years ended December 31, 2020, is shown below (in millions):

Seating E-Systems Total

Balance as of December 31, 2018 $ 1,244.3 $ 161.0 $ 1,405.3

Affiliate transaction

Acquisition — 219.0 219.0

Foreign currency translation and other ( 8.9 ) ( 1.1 ) ( 10.0 )

2 unchanged sentences

Balance as of December 31, 2020 $ 1,268.8 $ 387.0 $ 1,655.8

For further information related to acquisitions and affiliate transactions, see Note 3 , " Acquisitions ," and Note 5 , " Investments in Affiliates and Other Related Party Transactions ."

For further information related to the acquisition, see Note 4, "Acquisition."

Intangible Assets

As of December 31, 2020, intangible assets consist primarily of certain intangible assets recorded in connection with the acquisitions of Guilford Mills in 2012, the parent company of Eagle Ottawa, LLC in 2015, AccuMED Holdings Corp.

in 2016, Grupo Antolin's automotive seating business ("Antolin Seating") in 2017 and Xevo Inc.

("Xevo") in 2019 (Note 3 , " Acquisitions ").

in 2016, Grupo Antolin's automotive seating business in 2017 and Xevo Inc.

("Xevo") in 2019 (Note 4, "Acquisition").

These intangible assets were recorded at their estimated fair value, based on independent appraisals, as of the transaction or acquisition date.

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Notes to Consolidated Financial Statements (continued)

A summary of intangible assets as of December 31, 2019 and 2018 , is shown below (in millions):

A summary of intangible assets as of December 31, 2020, is shown below (in millions):

Gross Carrying

Value Accumulated

Amortization Net Carrying

Value Weighted

Average Useful

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Licensing agreements 71.9 ( 24.4 ) 47.5 5.0

Technology 35.1 ( 21.2 ) 13.9 7.2

$ 635.0 $ ( 277.6 ) $ 357.4 10.8

Unamortized intangible assets:

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Balance as of December 31, 2020 $ 645.8 $ ( 277.6 ) $ 368.2

Intangible assets with a gross carrying value of $ 25.6 million became fully amortized in 2020 and are no longer included in the gross carrying value or accumulated amortization as of December 31, 2020.

A summary of intangible assets as of December 31, 2019, is shown below (in millions):

Gross Carrying

Value Accumulated

Amortization Net Carrying

Value Weighted

Average Useful

1 unchanged sentence

Customer-based $ 531.9 $ ( 203.0 ) $ 328.9 11.6

Licensing agreements 75.0 ( 10.2 ) 64.8 5.0

Technology 35.0 ( 15.9 ) 19.1 7.0

Other 1.4 ( 1.3 ) 0.1 2.5

$ 643.3 $ ( 230.4 ) $ 412.9 10.5

Unamortized intangible assets:

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A summary of accrued liabilities as of December 31, 2020 and 2019, is shown below (in millions):

December 31, 2020 2019

Compensation and employee benefits $ 297.7 $ 319.2

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Current portion of lease obligations 116.3 113.9

Other 1,080.2 963.8

Accrued liabilities $ 1,920.9 $ 1,811.2

On January 1, 2019, the Company adopted Accounting Standards Codification ("ASC") 842, "Leases," which requires lessees to record right-of-use assets and related lease obligations on the balance sheet, as well as disclose key information regarding leasing arrangements.

The Company adopted the standard by applying the modified retrospective method without the restatement of comparative periods.

Adoption of the standard resulted in the recognition of right-of-use assets of $ 438.1 million and related lease obligations of $ 445.8 million as of January 1, 2019.

The standard did not have a significant impact on the Company's operating results or cash flows.

The Company elected the package of practical expedients, which permits a lessee to not reassess under the new standard its prior conclusions regarding lease identification, lease classification and initial direct costs.

The Company did not elect the practical expedient which permits the use of hindsight when determining the lease term and assessing right-of-use assets for impairment.

As permitted by the transition guidance, the Company used the remaining lease term as of the date of adoption of the standard to estimate discount rates.

As permitted by the standard, the Company elected, for all asset classes, the short-term lease exemption.

A short-term lease is a lease that, at the commencement date, has a term of twelve months or less and does not include an option to purchase the underlying asset.

Accounting Policy

The Company determines if an arrangement contains a lease at inception.

The Company elected the practical expedient, for all asset classes, to account for each lease component of a contract and its associated non-lease components as a single lease component, rather than allocating a standalone value to each component of a lease.

For all asset classes, the Company utilizes the short-term lease exemption as provided under GAAP.

A short-term lease is a lease that, at the commencement date, has a term of twelve months or less and does not include an option to purchase the underlying asset.

For all asset classes, the Company accounts for each lease component of a contract and its associated non-lease components as a single lease component, rather than allocating a standalone value to each component of a lease.

For purposes of calculating operating lease obligations under the standard, the Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such option.

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The incremental borrowing rate is an entity-specific rate which represents the rate of interest a lessee would pay to borrow on a collateralized basis over a similar term with similar payments.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Revenue Recognition and Sales Commitments

On January 1, 2018, the Company adopted ASC 606, "Revenue from Contracts with Customers," using the modified retrospective method as applied to customer contracts that were not completed as of January 1, 2018.

As a result, financial information for reporting periods beginning on or after January 1, 2018, are presented in accordance with ASC 606.

Comparative financial information for reporting periods beginning prior to January 1, 2018, has not been adjusted and continues to be reported in accordance with the Company's revenue recognition policies prior to the adoption of ASC 606.

The Company did not record a cumulative adjustment related to the adoption of ASC 606, and the effects of adoption were not significant.

The Company enters into contracts with its customers to provide production parts generally at the beginning of a vehicle’s life cycle.

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The amount of revenue recognized reflects the consideration that the Company expects to be entitled to in exchange for those products based on the annual purchase orders, annual price reductions and ongoing price adjustments.

In 2019 , revenue recognized related to prior years represented less than 1 % of consolidated net sales.

In 2020 and 2019, revenue recognized related to prior years represented less than 1 % of consolidated net sales.

The Company's customers pay for products received in accordance with payment terms that are customary within the industry.

The Company's contracts with its customers do not have significant financing components.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

The Company records a contract liability for advances received from its customers.

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Generally, charges are recorded as restructuring actions are approved and/or implemented.

Engineering and Development

Costs incurred in connection with product launches, to the extent not recoverable from the Company’s customers, are charged to cost of sales as incurred.

All other engineering and development costs are charged to selling, general and administrative expenses when incurred.

Engineering and development costs charged to selling, general and administrative expenses totaled $ 151.2 million , $ 153.5 million and $ 147.9 million for the years ended December 31, 2019 , 2018 and 2017 , respectively.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Other (Income) Expense, Net

Other (income) expense, net includes non-income related taxes, foreign exchange gains and losses, gains and losses related to certain derivative instruments and hedging activities, losses on the extinguishment of debt, gains and losses on the disposal of fixed assets, gains and losses on the consolidation and deconsolidation of affiliates, the non-service cost components of net periodic benefit cost and other miscellaneous income and expense.

A summary of other (income) expense, net is shown below (in millions):

Other Expense, Net

Other expense, net includes non-income related taxes, foreign exchange gains and losses, gains and losses related to certain derivative instruments and hedging activities, losses on the extinguishment of debt, gains and losses on the disposal of fixed assets, gains and losses on the consolidation and deconsolidation of affiliates, the non-service cost components of net periodic benefit cost and other miscellaneous income and expense.

A summary of other expense, net is shown below (in millions):

For the year ended December 31, 2020 2019 2018

Other expense $ 72.2 $ 52.2 $ 43.8

Other (income) expense, net

Other income ( 17.0 ) ( 27.6 ) ( 12.2 )

Other expense, net $ 55.2 $ 24.6 $ 31.6

Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax loss and credit carryforwards.

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If, based on the weight of the evidence, it is more likely than not that all or a portion of the Company’s deferred tax assets will not be realized, a valuation allowance is recorded.

If operating results improve or decline on a continual basis in a particular jurisdiction, the Company’s decision regarding the need for a valuation allowance could change, resulting in either the initial recognition or reversal of a valuation allowance in that jurisdiction, which could have a significant impact on income tax expense in the period recognized and subsequent periods.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

recognition or reversal of a valuation allowance in that jurisdiction, which could have a significant impact on income tax expense in the period recognized and subsequent periods.

In determining the provision for income taxes for financial statement purposes, the Company makes certain estimates and judgments, which affect its evaluation of the carrying value of its deferred tax assets, as well as its calculation of certain tax liabilities.

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however, due to the complexity of these uncertainties and the impact of tax audits, the ultimate resolutions may differ significantly from the Company’s estimates.

The Tax Cuts and Jobs Act (the "Act") was enacted on December 22, 2017.

The Act reduced the U.S.

federal corporate income tax rate from 35% to 21% beginning in 2018, required companies to pay a one-time transition tax on all offshore earnings that were previously tax deferred and created new taxes on certain foreign sourced earnings.

Effective January 1, 2019, Accounting Standards Update ("ASU") 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," allows for the reclassification of "stranded" tax effects as a result of the Act from accumulated other comprehensive income to retained earnings.

The Tax Cuts and Jobs Act (the "Act") enacted on December 22, 2017, created the global intangible low-tax income ("GILTI") provision that imposes U.S.

tax on certain earnings of foreign subsidiaries that are subject to foreign tax below a certain threshold.

GILTI taxes are recorded in current income tax expense as incurred.

Effective January 1, 2019, ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income," allows for the reclassification of "stranded" tax effects as a result of the Act from accumulated other comprehensive income to retained earnings.

The Company elected not to reclassify such amounts.

The Company reclassifies taxes from accumulated other comprehensive loss to earnings as the items to which the tax effects relate are similarly reclassified.

In December 2019, the Financial Accounting Standards Board ("FASB") issued ASU 2019-12, "Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes." The standard simplifies the accounting for income taxes by eliminating certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application.

The standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted.

The Company did not early adopt this standard.

The adoption of this standard is not expected to have a significant impact on the Company’s financial statements.

Foreign Currency

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dollars using an average of the foreign exchange rates in effect during the period.

Translation adjustments

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

that arise from translating a foreign subsidiary’s financial statements from the functional currency to the U.S.

Translation adjustments that arise from translating a foreign subsidiary’s financial statements from the functional currency to the U.S.

dollar are reflected in accumulated other comprehensive loss in the consolidated balance sheets.

Transaction gains and losses that arise from foreign exchange rate fluctuations on transactions denominated in a currency other than the functional currency, except certain long-term intercompany transactions, are included in the consolidated statements of income as incurred.

For the years ended December 31, 2019 , 2018 and 2017 , other (income) expense, net includes net foreign currency transaction losses of $ 20.6 million , $ 14.4 million and $ 5.1 million , respectively.

For the years ended December 31, 2020, 2019 and 2018, other expense, net includes net foreign currency transaction losses of $ 19.9 million, $ 20.6 million and $ 14.4 million, respectively.

Stock-Based Compensation

4 unchanged sentences

Diluted net income per share available to Lear common stockholders is computed using the two-class method by dividing net income attributable to Lear, after deducting the redemption adjustment related to redeemable noncontrolling interest, by the average number of common shares outstanding, including the dilutive effect of common stock equivalents computed using the treasury stock method and the average share price during the period.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

A summary of information used to compute basic and diluted net income per share available to Lear common stockholders is shown below (in millions, except share and per share data):

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The Company has two reportable operating segments:

Seating, which includes complete seat systems and all major seat components, including seat covers and surface materials such as leather and fabric, seat structures and mechanisms, seat foam and headrests, and E-Systems, which includes complete electrical distribution systems, as well as sophisticated electronic control modules, electrification products and connectivity products.

Key components in the Company's electrical distribution portfolio include wire harnesses, terminals and connectors and junction boxes for both internal combustion engine and electrification architectures that require management of higher voltage and power.

Key components in the Company's electronic control module portfolio include body control modules, wireless receiver and transmitter technology and lighting and audio

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

control modules, as well as products specific to electrification and connectivity trends.

Seating, which consists of the design, development, engineering and manufacture of complete seat systems, seat subsystems and key seat components, and E-Systems, which consists of the design, development, engineering and manufacture of complete electrical distribution and connection systems, electronic systems, and software and connected services.

Key components in the Company's complete seat system and subsystem solutions are advanced comfort, wellness, safety and sound offerings, as well as configurable seating product technologies, all of which are compatible with traditional internal combustion engine ("ICE") architectures and the full range of hybrid, plug-in hybrid and battery electric architectures.

Key components in the Company's electrical distribution portfolio include wire harnesses, terminals and connectors, and engineered components for both ICE and electrified vehicle architectures that require management of higher voltage and power.

Key components in the Company's electronic systems portfolio include body domain control modules and products specific to electrification and connectivity trends.

Electrification products include on-board battery chargers, power conversion modules, high voltage battery management systems and high voltage power distribution systems.

Connectivity products include gateway modules and communication modules to manage both wired and wireless networks and data in vehicles.

In addition to electronic modules, the Company offers software that includes cybersecurity, advanced vehicle positioning for automated and autonomous driving applications and full capabilities in both dedicated short-range communication and cellular protocols for vehicle connectivity.

The Company's software and connected services offerings include embedded control software and cloud and mobile device-based software and services.

Each of the Company’s operating segments reports its results from operations and makes its requests for capital expenditures directly to the chief operating decision maker.

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The Company evaluates the performance of its operating segments based primarily on (i) revenues from external customers, (ii) pretax income before equity in net income of affiliates, interest expense and other expense ("segment earnings") and (iii) cash flows, being defined as segment earnings less capital expenditures plus depreciation and amortization.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

The accounting policies of the Company’s operating segments are the same as those described in this note to the consolidated financial statements.

5 unchanged sentences

For a fair value hedge, the change in the fair value of the derivative is recorded in earnings and reflected in the consolidated statements of income on the same line as the gain or loss on the hedged item attributable to the hedged risk.

For a cash flow hedge, the change in the fair value of the derivative is recorded in accumulated other comprehensive loss in the consolidated balance sheet.

For a cash flow hedge, the change in the fair value of the derivative is recorded in accumulated other comprehensive loss in the consolidated balance sheets.

When the underlying hedged transaction is realized, the gain or loss included in accumulated other comprehensive loss is recorded in earnings and reflected in the consolidated statements of income on the same line as the gain or loss on the hedged item attributable to the hedged risk.

For a net investment hedge, the change in the fair value of the derivative is recorded in cumulative translation adjustment, which is a component of accumulated other comprehensive loss in the consolidated balance sheets.

When the related currency translation adjustment is required to be reclassified, usually upon the sale or liquidation of the investment, the gain or loss included in accumulated other comprehensive loss is recorded in earnings and reflected in other (income) expense, net in the consolidated statements of income.

Changes in the fair value of contracts not designated as hedge instruments are recorded in earnings and reflected in other (income) expense, net in the consolidated statements of income.

When the related currency translation adjustment is required to be reclassified, usually upon the sale or liquidation of the investment, the gain or loss included in accumulated other comprehensive loss is recorded in earnings and reflected in other expense, net in the consolidated statements of income.

Changes in the fair value of contracts not designated as hedge instruments are recorded in earnings and reflected in other expense, net in the consolidated statements of income.

Cash flows attributable to derivatives used to manage foreign currency risks are classified on the same line as the hedged item attributable to the hedged risk in the consolidated statements of cash flows.

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The Company formally documents its hedge relationships, including the identification of the hedge instruments and the related hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction.

Derivatives are recorded at fair value in other current and long-term assets and other current and long-term liabilities in the consolidated balance sheet.

Derivatives are recorded at fair value in other current and long-term assets and other current and long-term liabilities in the consolidated balance sheets.

The Company also formally assesses whether a derivative used in a hedge transaction is highly effective in offsetting changes in either the fair value or the cash flows of the hedged item.

When it is determined that a hedged transaction is no longer probable to occur, the Company discontinues hedge accounting.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

On January 1, 2018, the Company early adopted ASU 2017-12, "Targeted Improvements to Accounting for Hedging Activities." The new standard eliminates the requirement to separately measure and report hedge ineffectiveness, due to a difference between the economic terms of the hedge instrument and the underlying transaction, and generally requires, for qualifying hedges, the entire change in the fair value of a hedge instrument to be presented in the same line as the hedged item in the consolidated statement of income.

The standard also modifies the accounting for components excluded from the assessment of hedge effectiveness and simplifies the application of hedge accounting in certain situations.

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Other matters subject to estimation and judgment include amounts related to accounts receivable realization, inventory obsolescence, asset impairments, useful lives of fixed and intangible assets and unsettled pricing negotiations with customers and suppliers (Note 3, "Summary of Significant Accounting Policies");

acquisitions (Note 3 , " Acquisitions ");

acquisitions (Note 4, "Acquisition");

restructuring accruals (Note 5, "Restructuring");

4 unchanged sentences

Actual results may differ significantly from the Company’s estimates.

Reclassifications

Certain amounts in prior years’ financial statements have been reclassified to conform to the presentation used in the year ended December 31, 2019 .

( 3 ) Acquisitions

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(4) Acquisition

On April 17, 2019, the Company completed the acquisition of Xevo, a Seattle-based, global leader in connected car software, by acquiring all of Xevo's outstanding shares for $ 321.7 million, net of cash acquired.

Xevo is a supplier of software solutions for the cloud, vehicles and mobile devices that are deployed in millions of vehicles worldwide.

The acquisition of Xevo has been accounted for as a business combination, and accordingly, the assets acquired and liabilities assumed are included in the accompanying consolidated balance sheet as of December 31, 2019 .

The operating results and cash flows of Xevo are included in the accompanying consolidated financial statements from the date of acquisition and in the Company's E-Systems segment.

The Company incurred transaction costs of $ 1.6 million, which were expensed as incurred and are recorded in selling, general and administrative expenses in the accompanying consolidated statement of income for the year ended December 31, 2019.

The purchase price and preliminary allocation are shown below (in millions):

The purchase price and allocation are shown below (in millions):

2019 Adjustments December 31,

Net purchase price $ 321.7 $ — $ 321.7

Other assets purchased and liabilities assumed, net $ 9.5 $ 2.6 $ 12.1

Goodwill 219.0 0.5 219.5

Intangible assets 93.2 ( 3.1 ) 90.1

Preliminary purchase price allocation

Purchase price allocation $ 321.7 $ — $ 321.7

Goodwill recognized in this transaction is primarily attributable to expected synergies related to future growth and commercialization opportunities and is not deductible for tax purposes.

Intangible assets consist primarily of provisional amounts recognized for the fair value of licensing agreements and developed technology and are based on independent appraisals.

Intangible assets consist primarily of amounts recognized for the fair value of licensing agreements and developed technology and are based on independent appraisals.

Licensing agreements represent the fair values of the underlying licensing agreements with Xevo customers with estimated useful lives of approximately five years .

Developed technology represents the fair value of Xevo's technology with an estimated useful life of approximately five years .

Adjustments to the preliminary purchase price allocation primarily reflect changes in certain assumptions in the third quarter of 2019 related to the valuation of developed technology.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

The purchase price and related allocation are preliminary and may be revised as a result of additional information regarding the assets acquired and liabilities assumed, including, but not limited to, certain tax attributes and contingent liabilities.

The pro-forma effects of this acquisition do not materially impact the Company's reported results for any period presented.

For further information related to acquired assets measured at fair value, see Note 16, "Financial Instruments."

Antolin Seating

On April 28, 2017, the Company completed the acquisition of Antolin Seating for $ 292.4 million , net of cash acquired.

The Antolin Seating business is comprised of just-in-time seat assembly, as well as seat structures, mechanisms and seat covers, with operations in five countries in Europe and North Africa.

The Company incurred transaction costs of $ 3.0 million related to advisory services, which were expensed as incurred and are recorded in selling, general and administrative expenses in the accompanying consolidated statement of income for the year ended December 31, 2017.

The Antolin Seating acquisition was accounted for as a business combination, and accordingly, the assets acquired and liabilities assumed are included in the accompanying consolidated balance sheets as of December 31, 2019 and 2018.

The operating results and cash flows of Antolin Seating are included in the accompanying consolidated financial statements from the date of acquisition and in the Company's Seating segment.

The purchase price and allocation are shown below (in millions):

Net purchase price

Property, plant and equipment

Other assets purchased and liabilities assumed, net

Intangible assets

Purchase price allocation

Recognized goodwill is attributable to the assembled workforce, expected synergies and other intangible assets that do not qualify for separate recognition.

Intangible assets consist of amounts recognized for the fair value of customer-based assets and were based on an independent appraisal.

Customer-based assets include Antolin Seating's established relationships with its customers and the ability of these customers to generate future economic profits for the Company.

It is estimated that these intangible assets have a weighted average useful life of approximately fifteen years .

The pro-forma effects of this acquisition do not materially impact the Company's reported results for any period presented.

For further information related to acquired assets measured at fair value, see Note 15 , " Financial Instruments ."

(5) Restructuring

In 2020, the Company recorded charges of $ 144.9 million in connection with its restructuring actions.

These charges consist of $ 173.8 million recorded as cost of sales, $ 16.4 million recorded as selling, general and administrative expenses and $ 6.6 million recorded as other income.

The restructuring charges consist of employee termination benefits of $ 167.8 million , asset impairment charges of $ 9.5 million , contract termination costs of $ 3.0 million and an other postretirement curtailment gain of $ 10.6 million , as well as other related costs of $ 13.9 million .

Asset impairment charges relate to the disposal of buildings, leasehold improvements and machinery and equipment with carrying values of $ 8.7 million in excess of related estimated fair values and the impairment of right-of-use-assets of $ 0.8 million .

These charges consist of $ 122.3 million recorded as cost of sales, $ 16.4 million recorded as selling, general and administrative expenses and $ 6.2 million recorded as other expense.

The restructuring charges consist of employee termination costs of $ 104.2 million, asset impairment charges of $ 23.3 million, contract termination costs of $ 2.0 million and pension benefit plan settlement losses of $ 12.9 million, as well as other related costs of $ 2.5 million.

Asset impairment charges relate to the disposal of buildings, leasehold improvements and/or machinery and equipment with carrying values of $ 21.3 million in excess of related estimated fair values and the impairment of right-of-use-assets of $ 2.0 million.

The Company expects to incur approximately $ 18 million of additional restructuring costs related to activities initiated as of December 31, 2020, and expects that the components of such costs will be consistent with its historical experience.

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Notes to Consolidated Financial Statements (continued)

A summary of 2019 activity, excluding the other postretirement curtailment gain of $ 10.6 million , is shown below (in millions):

Accrual as of

January 1, 2019

December 31, 2019

A summary of 2020 activity, excluding the pension benefit plan settlement losses of $ 12.9 million, is shown below (in millions):

Accrual as of 2020 Utilization Accrual as of

January 1, 2020 Charges Cash Non-cash December 31, 2020

Employee termination benefits $ 152.8 $ 104.2 $ ( 122.2 ) $ — $ 134.8

2 unchanged sentences

Other related costs — 2.5 ( 2.5 ) — —

Total $ 157.7 $ 132.0 $ ( 127.4 ) $ ( 23.3 ) $ 139.0

In 2019, the Company recorded charges of $ 183.6 million in connection with its restructuring actions.

These charges consist of $ 63.7 million recorded as cost of sales, $ 24.0 million recorded as selling, general and administrative expenses and $ 0.3 million recorded as other expense.

The restructuring charges consist of employee termination benefits of $ 74.5 million , asset impairment charges of $ 4.7 million and contract termination costs of $ 1.5 million , as well as other related costs of $ 7.3 million .

Asset impairment charges relate to the disposal of buildings, leasehold improvements and machinery and equipment with carrying values of $ 4.7 million in excess of related estimated fair values.

A summary of 2018 activity is shown below (in millions):

Accrual as of

January 1, 2018

December 31, 2018

These charges consist of $ 173.8 million recorded as cost of sales, $ 16.4 million recorded as selling, general and administrative expenses and $ 6.6 million recorded as other income..

The restructuring charges consist of employee termination costs of $ 167.8 million, asset impairment charges of $ 9.5 million, contract termination costs of $ 3.0 million and an other postretirement curtailment gain of $ 10.6 million, as well as other related costs of $ 13.9 million.

Asset impairment charges relate to the disposal of buildings, leasehold improvements and/or machinery and equipment with carrying values of $ 8.7 million in excess of related estimated fair values and the impairment of right-of-use assets of $ 0.8 million.

A summary of 2019 activity, excluding the other postretirement curtailment gain of $ 10.6 million, is shown below (in millions):

Accrual as of 2019 Utilization Accrual as of

January 1, 2019 Charges Cash Non-cash December 31, 2019

Employee termination benefits $ 103.3 $ 167.8 $ ( 118.3 ) $ — $ 152.8

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Other related costs — 13.9 ( 13.9 ) — —

Total $ 108.7 $ 194.2 $ ( 135.7 ) $ ( 9.5 ) $ 157.7

In 2018, the Company recorded charges of $ 88.0 million in connection with its restructuring actions.

These charges consist of $ 59.2 million recorded as cost of sales, $ 14.3 million recorded as selling, general and administrative expenses and $ 0.9 million recorded as other income.

The restructuring charges consist of employee termination benefits of $ 62.9 million , asset impairment charges of $ 1.3 million , pension benefit plan curtailment and settlement losses of $ 1.7 million and other contract termination costs of $ 1.7 million , as well as other related costs of $ 5.0 million .

Asset impairment charges relate to the disposal of buildings, leasehold improvements and machinery and equipment with carrying values of $ 1.3 million in excess of related estimated fair values.

A summary of 2017 activity, excluding the pension benefit plan curtailment and settlement losses of $ 1.7 million , is shown below (in millions):

Accrual as of

January 1, 2017

December 31, 2017

These charges consist of $ 63.7 million recorded as cost of sales, $ 24.0 million recorded as selling, general and administrative expenses and $ 0.3 million recorded as other expense.

The restructuring charges consist of employee termination costs of $ 74.5 million, asset impairment charges of $ 4.7 million and contract termination costs of $ 1.5 million, as well as other related costs of $ 7.3 million.

Asset impairment charges relate to the disposal of buildings, leasehold improvements and/or machinery and equipment with carrying values of $ 4.7 million in excess of related estimated fair values.

A summary of 2018 activity is shown below (in millions):

Accrual as of 2018 Utilization Accrual as of

January 1, 2018 Charges Cash Non-cash December 31, 2018

Employee termination benefits $ 93.0 $ 74.5 $ ( 64.2 ) $ — $ 103.3

2 unchanged sentences

Other related costs — 7.3 ( 7.3 ) — —

Total $ 98.0 $ 88.0 $ ( 72.6 ) $ ( 4.7 ) $ 108.7

Lear Corporation and Subsidiaries

2 unchanged sentences

The Company’s beneficial ownership in affiliates accounted for under the equity method is shown below:

December 31, 2020 2019 2018

Beijing BHAP Lear Automotive Systems Co., Ltd.

(China) 50 % 50 % 50 %

Jiangxi Jiangling Lear Interior Systems Co., Ltd.

(China) 50 50 50

Lear Dongfeng Automotive Seating Co., Ltd.

(China) 50 50 50

Guangzhou Lear Automotive Components Co., Ltd.

(China) 50 50 —

Changchun Lear FAWSN Automotive Seat Systems Co., Ltd.

(China) 49 49 49

Honduras Electrical Distribution Systems S.

(Honduras) 49 49 49

Kyungshin-Lear Sales and Engineering LLC 49 49 49

Beijing Lear Dymos Automotive Systems Co., Ltd.

Techstars Corporate Partner 2017 LLC

Beijing Lear Hyundai Transys Co., Ltd.

Hyundai Transys Lear Automotive Private Limited (India) 35 35 35

Techstars Corporate Partner 2017 LLC 34 38 —

RevoLaze, LLC 20 20 20

Trucks Venture Fund 2, L.P.

Maniv Mobility II A, L.P.

Autotech Fund II, L.P.

Trucks Venture Fund 2, L.P.

Dong Kwang Lear Yuhan Hoesa (Korea) — — 50

Industrias Cousin Freres, S.L.

Changchun Lear FAWSN Automotive Electrical and Electronics Co., Ltd.

eLumigen, LLC

HB Polymer Company, LLC

Summarized group financial information for affiliates accounted for under the equity method as of December 31, 2020 and 2019, and for the years ended December 31, 2020, 2019 and 2018, is shown below (unaudited;

in millions):

December 31, 2020 2019

Balance sheet data:

5 unchanged sentences

Income statement data:

Net sales $ 1,597.5 $ 1,670.0 $ 1,520.2

Gross profit 83.0 89.2 75.9

Income before provision for income taxes 73.8 85.7 60.0

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A summary of amounts recorded in the Company's consolidated balance sheets related to its affiliates is shown below (in millions):

December 31, 2020 2019

Aggregate investment in affiliates $ 142.9 $ 119.5

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The Company has certain investments with beneficial ownership interests of less than 20% that are accounted for under the equity method as the Company’s beneficial ownership interests in these entities are similar to partnership interests.

In July 2019, the Company deconsolidated Guangzhou Automobile Group Component Co., Ltd.

In 2019, the Company deconsolidated Guangzhou Automobile Group Component Co., Ltd.

("GACC") as it no longer controls this entity.

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In addition, the Company recorded a gain of $ 4.0 million related to the excess of the estimated fair value over the carrying value of its interest in GACC immediately prior to deconsolidation.

The gain is included in other (income) expense, net in the accompanying consolidated statement of income for the year ended December 31, 2019 .

In January 2018, the Company gained control of Changchun Lear FAWSN Automotive Electrical and Electronics Co., Ltd.

The gain is included in other expense, net in the accompanying consolidated statement of income for the year ended December 31, 2019.

In 2018, the Company gained control of Changchun Lear FAWSN Automotive Electrical and Electronics Co., Ltd.

("Lear FAWSN") by acquiring an additional 20 % interest from a joint venture partner and by amending the joint venture agreement to eliminate the substantive participating rights of the remaining joint venture partner.

5 unchanged sentences

Other assets and liabilities assumed, net 5.7

Goodwill 22.4

Intangible assets 7.5

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As of the effective date of the transaction, the fair value of the Company’s previously held equity interest in Lear FAWSN was $ 23.0 million, and the fair value of the noncontrolling interest in Lear FAWSN was $ 14.0 million.

As a result of valuing the Company’s previously held equity interest in Lear FAWSN at fair value, the Company recognized a gain of $ 10.0 million , which is included in other (income) expense, net in the accompanying consolidated statement of income for the year ended December 31, 2018.

The pro forma effects of this consolidation would not materially impact the Company’s reported results for any period presented.

For further information related to acquired assets measured at fair value, see Note 15 , " Financial Instruments ."

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

In September 2017, the Company gained control of Shanghai Lear STEC Automotive Parts Co., Ltd.

("Lear STEC") by amending the joint venture agreement to eliminate the substantive participating rights of its joint venture partner.

Prior to the amendment, Lear STEC was accounted for under the equity method.

This transaction was accounted for as a business combination, and accordingly, the assets acquired and liabilities assumed are included in the accompanying consolidated balance sheets as of December 31, 2019 and 2018 .

The operating results and cash flows of Lear STEC are included in the accompanying consolidated financial statements from the date of the amended joint venture agreement and are reflected in the Company’s E-Systems segment.

A summary of the fair value of the assets acquired and liabilities assumed in conjunction with the transaction is shown below (in millions):

Property, plant and equipment

Other assets and liabilities assumed, net

Intangible assets

Recognized goodwill is attributable to the assembled workforce, expected synergies and other intangible assets that do not qualify for separate recognition.

Intangible assets consist of amounts recognized for the fair value of customer-based assets and were based on an independent appraisal.

Customer-based assets include Lear STEC’s established relationships with its customers and the ability of these customers to generate future economic profits for the Company.

It is currently estimated that these intangible assets have a weighted average useful life of approximately twelve years .

As of the date of the transaction, the fair value of the Company’s previously held equity interest in Lear STEC was $ 94.0 million , and the fair value of the noncontrolling interest in Lear STEC was $ 125.0 million .

As a result of valuing the Company’s previously held equity interest in Lear STEC at fair value, the Company recognized a gain of $ 54.2 million which is included in other (income) expense, net in the accompanying consolidated statements of income for the year ended December 31, 2017.

In connection with the transaction, the noncontrolling interest holder obtained the option, which is embedded in the noncontrolling interest, to require the Company to purchase or redeem the 45 % noncontrolling interest based on a pre-determined earnings multiple formula.

In accordance with GAAP, the Company records redeemable noncontrolling interests at the greater of (1) the initial carrying amount adjusted for the noncontrolling interest holder’s share of total comprehensive income or loss and dividends ("noncontrolling interest carrying value") or (2) the redemption value as of and based on conditions existing as of the reporting date.

Required redemption adjustments are recorded as an increase to redeemable noncontrolling interests, with an offsetting adjustment to retained earnings.

The redeemable noncontrolling interest is classified in mezzanine equity in the accompanying consolidated balance sheets as of December 31, 2019 and 2018 .

Redemption value of a noncontrolling interest in excess of carrying value represents a dividend distribution that is different from dividend distributions to other common stockholders.

Therefore, periodic redemption adjustments recorded in excess of carrying value are reflected as a reduction to the income available to common stockholders in the computation of earnings per share.

Redeemable noncontrolling interest of $ 118.4 million and $ 158.1 million related to Lear STEC is reflected in the Company's consolidated balance sheets as of December 31, 2019 and 2018 , respectively.

These amounts include noncontrolling interest redemption adjustments of ($ 37.0 ) million and $ 10.4 million , representing the difference between the redemption value and carrying value, for the years ended December 31, 2019 and 2018 , respectively.

Lear STEC provides wire harnesses to SAIC Motor Corporation Limited and its joint ventures with both North American and European automotive manufacturers.

As a result of valuing the Company’s previously held equity interest in Lear FAWSN at fair value, the Company recognized a gain of $ 10.0 million, which is included in other expense, net in the accompanying consolidated statement of income for the year ended December 31, 2018.

The pro forma effects of this consolidation would not materially impact the Company’s reported results for any period presented.

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As of December 31, 2020 and 2019, the Company had lines of credit from banks totaling $ 94.3 million and $ 94.6 million, respectively.

As of December 31, 2019 and 2018 , the Company had short-term debt balances outstanding related to draws on the lines of credit of $ 19.2 million and $ 9.9 million , respectively.

Long-Term Debt

A summary of long-term debt, net of unamortized debt issuance costs and unamortized original issue discount, and the related weighted average interest rates is shown below (in millions):

Debt Instrument

As of December 31, 2020, the Company had no short-term debt balances outstanding related to draws on the lines of credit.

As of December 31, 2019, the Company had short-term debt balances outstanding related to draws on the lines of credit of $ 19.2 million.

Long-Term Debt

Unamortized Debt Issuance Costs

Unamortized Original Issue Discount

A summary of long-term debt, net of unamortized debt issuance costs and unamortized original issue premium (discount) and the related weighted average interest rates is shown below (in millions):

December 31, 2020

Debt Instrument Long-Term Debt Unamortized Debt Issuance Costs Unamortized Original Issue Premium (Discount) Long-Term

Debt, Net Weighted

Credit Agreement — Term Loan Facility $ 220.3 $ ( 0.6 ) $ — $ 219.7 1.36 %

3.8 % Senior Notes due 2027 (the "2027 Notes")

750.0 ( 4.1 ) ( 3.5 ) 742.4 3.885 %

4.25 % Senior Notes due 2029 (the "2029 Notes")

375.0 ( 2.6 ) ( 1.0 ) 371.4 4.288 %

3.5 % Senior Notes due 2030 (the "2030 Notes")

350.0 ( 2.6 ) ( 0.7 ) 346.7 3.525 %

5.25 % Senior Notes due 2049 (the "2049 Notes")

625.0 ( 6.3 ) 14.2 632.9 5.103 %

Other 1.4 — — 1.4 N/A

$ 2,321.7 $ ( 16.2 ) $ 9.0 2,314.5

Less — Current portion ( 14.2 )

Long-term debt $ 2,300.3

Debt Instrument

Long-Term Debt

Unamortized Debt Issuance Costs

Unamortized Original Issue Discount

December 31, 2019

Debt Instrument Long-Term Debt Unamortized Debt Issuance Costs Unamortized Original Issue Discount Long-Term

Debt, Net Weighted

Credit Agreement — Term Loan Facility $ 234.4 $ ( 1.0 ) $ — $ 233.4 2.880 %

5.25 % Senior Notes due 2025 (the "2025 Notes")

650.0 ( 4.2 ) — 645.8 5.250 %

2027 Notes 750.0 ( 4.7 ) ( 4.1 ) 741.2 3.885 %

2029 Notes 375.0 ( 2.9 ) ( 1.1 ) 371.0 4.288 %

2049 Notes 325.0 ( 3.3 ) ( 5.3 ) 316.4 5.363 %

$ 2,334.4 $ ( 16.1 ) $ ( 10.5 ) 2,307.8

Less — Current portion ( 14.1 )

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The issuance, maturity and interest payment dates of the Company's senior unsecured 2027 Notes, 2029 Notes, 2030 Notes and 2049 Notes (collectively, the "Notes") are as shown below:

Issuance Date

Maturity Date

Interest Payment Dates

November 2014

January 15, 2025

January 15 and July 15

September 15, 2027

March 15 and September 15

May 15 and November 15

Note Issuance Date Maturity Date Interest Payment Dates

2027 Notes August 2017 September 15, 2027 March 15 and September 15

2029 Notes May 2019 May 15, 2029 May 15 and November 15

2030 Notes February 2020 May 30, 2030 May 30 and November 30

2049 Notes May 2019 and February 2020 May 15, 2049 May 15 and November 15

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

The Company may redeem the 2025 Notes, in whole or in part, on or after January 15, 2020, at the redemption prices set forth below, plus accrued and unpaid interest to the redemption date.

Twelve-Month Period Commencing January 15,

2023 and thereafter

In 2017, the Company issued $ 750.0 million in aggregate principal amount at maturity of 2027 Notes at a stated coupon rate of 3.8 %.

The 2027 Notes were priced at 99.294 % of par, resulting in a yield to maturity of 3.885 % .

The proceeds from the offering of $ 744.7 million , after original issue discount, were used to redeem the outstanding $ 500.0 million in aggregate principal amount of the 2023 Notes at a redemption price equal to 100 % of the aggregate principal amount thereof, plus a "make-whole" premium of $ 17.0 million , as well as to refinance a portion of the Company's $ 500.0 million prior term loan facility (see "— Credit Agreement" below).

In connection with these transactions, the Company recognized a loss of $ 21.2 million on the extinguishment of debt and paid related issuance costs of $ 6.0 million .

The 2027 Notes were issued at 99.294 % of par, resulting in a yield to maturity of 3.885 %.

The net proceeds from the offering of $ 744.7 million, after original issue discount, were used to redeem the outstanding $ 500.0 million in aggregate principal amount of the senior unsecured notes due 2023 at a redemption price equal to 100 % of the principal amount thereof, plus a "make-whole" premium of $ 17.0 million, as well as to refinance a portion of the Company's $ 500.0 million prior term loan facility (see "— Credit Agreement" below).

Prior to June 15, 2027, the Company, at its option, may redeem some or all of the 2027 Notes at a redemption price equal to 100 % of the principal amount thereof, plus a "make-whole" premium as of, and accrued and unpaid interest to, the redemption date.

At any time on or after June 15, 2027, but prior to the maturity date of September 15, 2027, the Company, at its option, may redeem some or all of the 2027 Notes at a redemption price equal to 100 % of the principal amount thereof, plus accrued and unpaid interest to the redemption date.

2029 and 2049 Notes

2029 and 2049 Notes Issued in 2019

In 2019, the Company issued $ 375.0 million in aggregate principal amount at maturity of 2029 Notes and $ 325.0 million in aggregate principal amount at maturity of 2049 Notes.

The 2029 Notes have a stated coupon rate of 4.25 % and were priced at 99.691 % of par, resulting in a yield to maturity of 4.288 % .

The 2049 Notes have a stated coupon rate of 5.25 % and were priced at 98.32 % of par, resulting in a yield to maturity of 5.363 % .

The 2029 Notes have a stated coupon rate of 4.25 % and were issued at 99.691 % of par, resulting in a yield to maturity of 4.288 %.

The 2049 Notes have a stated coupon rate of 5.25 % and were issued at 98.32 % of par, resulting in a yield to maturity of 5.363 %.

The net proceeds from the offering were $ 693.3 million after original issue discount.

The proceeds were used to redeem the $ 325.0 million in aggregate principal amount of the 2024 Notes at a redemption price equal to 102.688 % of the principal amount of such 2024 Notes, plus accrued interest, as well as to finance the acquisition of Xevo (Note 3 , " Acquisitions ") and for general corporate purposes.

The proceeds were used to redeem the $ 325.0 million in aggregate principal amount of the 2024 Notes at a redemption price equal to 102.688 % of the principal amount of such 2024 Notes, plus accrued interest, as well as to finance the acquisition of Xevo (Note 4, "Acquisition") and for general corporate purposes.

In connection with these transactions, the Company recognized a loss of $ 10.6 million on the extinguishment of debt and paid related issuance costs of $ 6.5 million.

2030 Notes and 2049 Notes Issued in 2020

In 2020, the Company issued $ 350.0 million in aggregate principal amount at maturity of 2030 Notes and $ 300.0 million in aggregate principal amount at maturity of 2049 Notes.

The 2030 Notes have a stated coupon rate of 3.5 % and were issued at 99.774 % of par, resulting in a yield to maturity of 3.525 %.

The 2049 Notes have a stated coupon rate of 5.25 % and were issued at 106.626 % of par, resulting in a yield to maturity of 4.821 %.

The net proceeds from the offering were $ 669.1 million after original issue discount.

The proceeds were used to redeem the $ 650.0 million in aggregate principal amount of 2025 Notes at a redemption price equal to 102.625 % of the principal amount of such 2025 Notes, plus accrued interest.

In connection with these transactions, the Company recognized a loss of $ 21.1 million on the extinguishment of debt and paid related issuance costs of $ 6.0 million.

Subject to certain exceptions, the indentures governing the Notes contain restrictive covenants that, among other things, limit the ability of the Company to:

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In 2017, the Company entered into an unsecured credit agreement (the "Credit Agreement") consisting of a $ 1.75 billion revolving credit facility (the "Revolving Credit Facility") and a $ 250.0 million term loan facility (the "Term Loan Facility").

The maturity date of the Revolving Credit Facility is August 8, 2023, and the maturity date of the Term Loan Facility is August 8, 2022.

In connection with this transaction, the Company borrowed $ 250.0 million under the Term Loan Facility and paid related issuance costs of $ 5.7 million .

At the same time, the Company terminated its previously existing credit agreement, which consisted of a $ 1.25 billion revolving credit facility and a $ 500 million term loan facility, and repaid amounts outstanding under the term loan facility of $ 453.1 million .

In 2020, the Company entered into an agreement to extend the maturity date of the Revolving Credit Facility by one year to August 8, 2024, and paid related issuance costs of $ 1.0 million.

The maturity date of the Term Loan Facility is August 8, 2022.

In the first quarter of 2020, as a proactive measure in response to the COVID-19 pandemic, the Company borrowed $ 1.0 billion under the Revolving Credit Facility, which was repaid in full in the third quarter of 2020.

In 2019, aggregate borrowings and repayments under the Revolving Credit Facility were $ 30.0 million.

In 2018, there were no borrowings or repayments under the

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

In 2019 , aggregate borrowings and repayments under the Revolving Credit Facility were $ 30.0 million .

In 2018, there were no borrowings or repayments under the Revolving Credit Facility.

In 2017, aggregate borrowings and repayments under the Revolving Credit Facility and prior revolving credit facility were $ 109.5 million .

Revolving Credit Facility.

As of December 31, 2020 and 2019, there were no borrowings outstanding under the Revolving Credit Facility.

In 2020, 2019 and 2018, the Company made required principal payments under the Term Loan Facility of $ 14.1 million, $ 7.8 million and $ 6.3 million, respectively.

In addition, in 2017, the Company made required principal payments under the prior term loan facility of $ 15.6 million , as well as a payment of $ 453.1 million in connection with the Credit Agreement described above.

Advances under the Revolving Credit Facility and the Term Loan Facility generally bear interest based on (i) the Eurocurrency Rate (as defined in the Credit Agreement) or (ii) the Base Rate (as defined in the Credit Agreement) plus a margin, determined in accordance with a pricing grid.

As of December 31, 2020, the ranges and rates are as follows (in percentages):

Eurocurrency Rate

December 31, 2019

Eurocurrency Rate Base Rate

Minimum Maximum Rate as of

December 31, 2020 Minimum Maximum Rate as of

Revolving Credit Facility 1.00 % 1.60 % 1.10 % 0.00 % 0.60 % 0.10 %

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As of December 31, 2020, the Company was in compliance with all covenants under the Credit Agreement.

As of December 31, 2018, other long-term debt consisted of amounts outstanding under capital leases.

As of December 31, 2020, other long-term debt, including the current portion, consisted of amounts outstanding under finance leases.

Scheduled Maturities

As of December 31, 2019 , scheduled maturities related to the Credit Agreement — Term Loan Facility for the five succeeding years, as of the date of this Report, are shown below (in millions):

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

As of December 31, 2020, scheduled maturities related to the Credit Agreement — Term Loan Facility for the five succeeding years are shown below (in millions):

Right-of-Use Assets and Lease Obligations

1 unchanged sentence

Operating lease assets and obligations included in the accompanying consolidated balance sheet are shown below (in millions):

For the year ended December 31,

December 31, 2020 2019

Right-of-use assets under operating leases:

3 unchanged sentences

Other long-term liabilities 438.9 422.4

$ 555.2 $ 536.3

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Maturities of lease obligations as of December 31, 2020, are shown below (in millions):

Thereafter 169.7

Total undiscounted cash flows 638.3

1 unchanged sentence

Lease obligations under operating leases $ 555.2

The Company has entered into two lease contracts, of which one is expected to commence in the first quarter of 2020 with a lease term of approximately seven years , and the other is expected to commence in the third quarter of 2021 with a lease term of approximately ten years .

The aggregate right-of-use asset and related lease obligation are expected to be $ 62.0 million .

In 2019 , the Company recognized an impairment charge of $ 0.8 million related to its right-of-use assets in conjunction with its restructuring actions (Note 4 , " Restructuring ").

The Company entered into two lease contracts, one of which is expected to commence in the first quarter of 2021 with a lease term of five years , and the other of which is expected to commence in the third quarter 2021 with a lease term of ten years .

The aggregate right-of-use assets and related lease obligations are expected to be approximately $ 52.0 million.

Cash flow information related to operating leases is shown below (in millions):

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Additionally, the Company evaluated its supply contracts with its customers and concluded that variable lease (income) expense in these arrangements is not material.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

For the years ended December 31, 2018 and 2017 , the Company recorded rent expense of $ 163.8 million and $ 144.7 million , respectively.

For the year ended December 31, 2018, the Company recorded rent expense of $ 163.8 million.

For the years ended December 31, 2020 and 2019, the Company recognized impairment charges of $ 2.0 million and $ 0.8 million, respectively, related to its right-of-use assets in conjunction with its restructuring actions (Note 5, "Restructuring").

The weighted average lease term and discount rate for operating leases as of December 31, 2020, are shown below:

Weighted average remaining lease term (in years)

Weighted average remaining lease term Seven years

Weighted average discount rate 3.4 %

The Company has entered into certain finance lease agreements which are not material to the consolidated financial statements (Note 7, "Debt").

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(9) Income Taxes

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Consolidated income before provision for income taxes and equity in net income of affiliates:

Domestic $ ( 145.0 ) $ 317.4 $ 726.2

Foreign 444.3 636.2 812.2

$ 299.3 $ 953.6 $ 1,538.4

Domestic (benefit) provision for income taxes:

7 unchanged sentences

Provision for income taxes $ 93.9 $ 146.1 $ 311.9

The Tax Cuts and Jobs Act (the "Act") was enacted on December 22, 2017.

The Act was enacted on December 22, 2017.

The Act reduced the U.S.

In March 2018, the Financial Accounting Standards Board ("FASB") issued ASU 2018-05, "Income Taxes - Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

In March 2018, the FASB issued ASU 2018-05, "Income Taxes — Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No.

118." The guidance provided for a provisional one-year measurement period for entities to finalize their accounting for certain tax effects related to the Act.

Accordingly, for the year ended December 31, 2018, the Company recognized a favorable adjustment to the 2017 income tax expense of $ 5.3 million related to the remeasurement of the December 31, 2017 deferred tax balances, the one-time transition tax and numerous other items included in the Act.

The Company also analyzed the impact of several new provisions of the Act that became effective as of January 1, 2018, such as global intangible low-tax income ("GILTI") provision, foreign-derived intangible income ("FDII") deduction, a new minimum tax related to payments to foreign subsidiaries and affiliates known as base erosion anti-abuse tax ("BEAT"), interest expense limitations under Internal Revenue Code ("IRC") section 163(j), executive compensation limitations under IRC section 162(m) and various other provisions.

The Company also analyzed the impact of several new provisions of the Act that became effective as of January 1, 2018, such as the GILTI provision, foreign-derived intangible income ("FDII") deduction, a new minimum tax related to payments to foreign subsidiaries and affiliates known as base erosion anti-abuse tax, interest expense limitations under Internal Revenue Code ("IRC") section 163(j), executive compensation limitations under IRC section 162(m) and various other provisions.

The domestic (benefit) provision includes withholding taxes related to dividends and royalties paid by the Company’s foreign subsidiaries, as well as state and local taxes.

2 unchanged sentences

Notes to Consolidated Financial Statements (continued)

A summary of the differences between the provision for income taxes calculated at the United States federal statutory income tax rate of 21% in 2019 and 2018 and 35% in 2017 and the consolidated provision for income taxes is shown below (in millions):

A summary of the differences between the provision for income taxes calculated at the United States federal statutory income tax rate of 21% and the consolidated provision for income taxes is shown below (in millions):

For the year ended December 31, 2020 2019 2018

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Research and development and other tax credits ( 11.8 ) ( 40.8 ) ( 9.9 )

Foreign-derived intangible income ("FDII") deduction

expenses apportioned to GILTI and foreign branches (1)

FDII deduction ( 14.6 ) ( 29.3 ) ( 27.6 )

tax impact of foreign earnings (1)

( 21.1 ) 9.7 7.2

Tax audits and assessments 8.9 0.4 6.9

2 unchanged sentences

tax rate change and other tax reform items — — 9.8

Repatriation of certain foreign earnings

Other 1.2 8.7 2.9

Provision for income taxes $ 93.9 $ 146.1 $ 311.9

Reflects the U.S.

(1) Reflects the impact on the domestic provision for income taxes related to foreign source income including foreign branch earnings net of the applicable foreign tax credits in the general, foreign branch, GILTI and passive separate limitation categories.

This amount includes the U.S.

tax impact of apportioning U.S.

expenses against the GILTI and foreign branch baskets in calculating the foreign tax credit limitation resulting in no tax benefit for these expenses due to the Company’s excess foreign tax credit position in the GILTI basket for 2020, 2019 and 2018 and foreign branch basket for 2018.

In 2020, as a result of the change in the foreign branch basket limitation, the Company recognized tax benefits of $ 15.5 million related to the U.S.

deferred tax effect of the foreign branches.

In 2019, the Company completed a U.S.

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A summary of the components of the net deferred income tax asset is shown below (in millions):

December 31, 2020 2019

Deferred income tax assets (liabilities):

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Derivative instruments and hedging activities ( 5.2 ) ( 5.2 )

Other ( 8.9 ) ( 5.8 )

Net deferred income tax asset before valuation allowance 983.1 822.0

Valuation allowance ( 397.7 ) ( 344.8 )

2 unchanged sentences

Notes to Consolidated Financial Statements (continued)

As of December 31, 2019 and 2018 , the valuation allowance with respect to the Company’s deferred tax assets was $ 344.8 million and $ 350.4 million , respectively, a net decrease of $ 5.6 million .

As of December 31, 2020 and 2019, the valuation allowance with respect to the Company’s deferred tax assets was $ 397.7 million and $ 344.8 million, respectively, a net increase of $ 52.9 million.

Concluding that a valuation allowance is not required is difficult when there is significant negative evidence, such as cumulative losses in recent years, which is objective and verifiable.

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The classification of the net deferred income tax asset is shown below (in millions):

December 31, 2020 2019

Long-term deferred income tax assets $ 670.2 $ 563.8

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The effects of adopting the other provisions of ASU 2016-16 were not significant.

On January 1, 2017, the Company adopted ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting." The new standard requires that the tax impact related to the difference between share-based compensation for book and tax purposes be recognized as income tax benefit or expense in the Company’s consolidated statement of income in the reporting period in which such awards vest.

The standard also required a modified retrospective adoption for previously unrecognized excess tax benefits.

Accordingly, the Company recognized a deferred tax asset of $ 52.9 million and a corresponding credit to retained earnings in conjunction with the adoption.

The effects of adopting the other provisions of ASU 2016-09 were not significant.

As of December 31, 2019 , the Company’s gross unrecognized tax benefits were $ 31.6 million (excluding interest and penalties), of which $ 0.7 million is recorded in other current liabilities and $ 30.9 million is recorded in other long-term liabilities in the accompanying consolidated balance sheet.

As of December 31, 2018, the Company’s gross unrecognized tax benefits were $ 36.7 million (excluding interest and penalties), all of which is recorded in other long-term liabilities in the accompanying consolidated balance sheet.

As of December 31, 2020 and 2019, the Company’s gross unrecognized tax benefits were $ 36.4 million and $ 31.6 million (excluding interest and penalties), respectively, which is recorded in other long-term liabilities in the accompanying consolidated balance sheets.

If recognized, all of the Company’s gross unrecognized tax benefits would affect the Company’s effective tax rate.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

A summary of the changes in gross unrecognized tax benefits is shown below (in millions):

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Additions (reductions) based on tax positions related to current year 4.9 ( 0.3 ) 7.9

Additions (reductions) based on tax positions related to prior years

Additions based on tax positions related to prior years 3.6 2.0 0.1

Settlements ( 1.2 ) ( 3.7 ) —

Statute expirations ( 4.7 ) ( 2.8 ) ( 2.7 )

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The Company operates in multiple jurisdictions throughout the world, and its tax returns are periodically audited or subject to review by both domestic and foreign tax authorities.

During the next twelve months, it is reasonably possible that, as a result of audit settlements, the conclusion of current examinations and the expiration of the statute of limitations in multiple jurisdictions, the Company may decrease the amount of its gross unrecognized tax benefits by $ 5.8 million , all of which, if recognized, would affect the Company’s effective tax rate.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

the Company may decrease the amount of its gross unrecognized tax benefits by $ 8.4 million, all of which, if recognized, would affect the Company’s effective tax rate.

The gross unrecognized tax benefits subject to potential decrease involve issues related to transfer pricing and various other tax items in multiple jurisdictions.

However, as a result of ongoing examinations, tax proceedings in certain countries, additions to the gross unrecognized tax benefits for positions taken and interest and penalties, if any, arising in 2021, it is not possible to estimate the potential net increase or decrease to the Company’s gross unrecognized tax benefits during the next twelve months.

The Company considers its significant tax jurisdictions to include China, Germany, Italy, Mexico, Morocco, Poland, Spain, the United Kingdom and the United States.

The Company considers its significant tax jurisdictions to include China, Germany, Italy, Mexico, Morocco, Spain, the United Kingdom and the United States.

The Company or its subsidiaries generally remain subject to income tax examination in certain U.S.

state and local jurisdictions for years after 2015.

Further, the Company or its subsidiaries remain subject to income tax examination in Spain for years after 2005, in Mexico for years after 2006, in Morocco for years after 2014, in Italy and Poland for years after 2013, in China and the United Kingdom for years after 2015 and in the United States generally for years after 2017.

Further, the Company or its subsidiaries remain subject to income tax examination in Spain for years after 2005, in Mexico for years after 2013, in Morocco for years after 2014, in Germany, Italy and the United Kingdom for years after 2015, in China for years after 2016 and in the United States generally for years after 2019.

(10) Pension and Other Postretirement Benefit Plans

5 unchanged sentences

The Company has postretirement benefit plans covering certain domestic and Canadian retirees.

The Company’s postretirement benefit plans generally provide for the continuation of medical benefits for eligible participants who completed a specified number of years of service and retired from the Company at age 55 or older.

The Company’s postretirement benefit plans generally provide for the continuation of medical benefits for eligible retirees.

The Company does not fund its postretirement benefit obligation.

Rather, payments are made as costs are incurred by covered retirees.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Obligation and Funded Status

A reconciliation of the change in benefit obligation and the change in plan assets for the years ended December 31, 2019 and 2018 , is shown below (in millions):

Other Postretirement

December 31, 2019

December 31, 2018

December 31, 2019

December 31, 2018

A reconciliation of the change in benefit obligation for the years ended December 31, 2020 and 2019, is shown below (in millions):

Pension Other Postretirement

December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019

Change in benefit obligation:

Benefit obligation at beginning of period $ 500.8 $ 504.3 $ 438.0 $ 437.1 $ 55.4 $ 25.6 $ 52.4 $ 34.3

Service cost 0.1 5.0 0.1 6.3 — — — 0.3

Interest cost 16.4 12.2 18.6 14.7 1.7 0.7 2.1 1.3

Amendments and settlements

Actuarial (gain) loss

Amendment — — — — 0.4 — — —

Actuarial loss 66.4 39.9 63.0 55.8 6.9 2.1 4.5 0.4

Benefits paid ( 19.3 ) ( 20.0 ) ( 18.9 ) ( 21.5 ) ( 3.2 ) ( 1.5 ) ( 3.6 ) ( 1.3 )

Annuity purchase (1)

Benefits paid — settlements — ( 29.2 ) — — — — — —

Curtailment — — — ( 2.4 ) — — — ( 10.9 )

Translation adjustment — 17.0 — 14.3 — 0.5 — 1.5

Benefit obligation at end of period $ 564.4 $ 529.2 $ 500.8 $ 504.3 $ 61.2 $ 27.4 $ 55.4 $ 25.6

Other Postretirement

December 31, 2019

December 31, 2018

December 31, 2019

December 31, 2018

Actuarial losses

As of December 31, 2020, the increase in pension and other postretirement benefit obligations attributable to actuarial losses primarily relates to a decrease in the discount rate used to determine the benefit obligations (see assumptions below) and, to a lesser extent, changes in mortality assumptions for the Company's U.S.

With respect to the other postretirement benefit obligation, actuarial losses were offset by gains related to claims cost updates for the Company's foreign plans.

As of December 31, 2019, the increase in pension and other postretirement benefit obligations attributable to actuarial losses primarily relates to a decrease in the discount rate used to determine the benefit obligations (see assumptions below).

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Plan Assets and Funded Status

A reconciliation of the change in plan assets for the years ended December 31, 2020 and 2019, and the funded status as of December 31, 2020 and 2019, is shown below (in millions):

Pension Other Postretirement

December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019

Change in plan assets:

4 unchanged sentences

Benefits paid ( 19.3 ) ( 20.0 ) ( 18.9 ) ( 21.5 ) ( 3.2 ) ( 1.5 ) ( 3.6 ) ( 1.3 )

Annuity purchase (1)

Benefits paid — settlements — ( 29.2 ) — — — — — —

Translation adjustment — 7.9 — 17.6 — — — —

2 unchanged sentences

Funded status $ ( 146.2 ) $ ( 146.2 ) $ ( 124.2 ) $ ( 107.5 ) $ ( 61.2 ) $ ( 27.4 ) $ ( 55.4 ) $ ( 25.6 )

Other Postretirement

December 31, 2019

December 31, 2018

December 31, 2019

December 31, 2018

A summary of amounts recognized in the consolidated balance sheets as of December 31, 2020 and 2019, is shown below (in millions):

Pension Other Postretirement

December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019

Amounts recognized in the consolidated balance sheet:

2 unchanged sentences

Other long-term liabilities ( 143.7 ) ( 152.1 ) ( 121.7 ) ( 128.0 ) ( 57.2 ) ( 25.9 ) ( 51.5 ) ( 24.2 )

See Annuity Purchase below for further discussion .

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Accumulated Benefit Obligation

2 unchanged sentences

Information related to pension plans with accumulated benefit obligations in excess of plan assets is shown below (in millions):

December 31, 2020 2019

Projected benefit obligation $ 813.7 $ 726.3

1 unchanged sentence

Fair value of plan assets 512.2 470.8

Annuity Purchase

In 2018, the Company entered into a purchase agreement for group annuity contracts ("Annuity Purchase") for certain terminated vested plan participants of its U.S.

defined benefit pension plans.

The transaction reduces the Company's future administrative costs and risks related to its U.S.

defined benefit pension plans and irrevocably relieves the Company of responsibility for the pension benefit obligation for those plan participants.

In connection with the Annuity Purchase, payments of $ 73.2 million were distributed from existing defined benefit pension plan assets, and the Company recognized pension settlement losses of $ 5.4 million .

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Loss

Pretax amounts recognized in other comprehensive income (loss) for the years ended December 31, 2020 and 2019, are shown below (in millions):

Other Postretirement

December 31, 2019

December 31, 2018

December 31, 2019

December 31, 2018

Pension Other Postretirement

December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019

Actuarial gains (losses) recognized:

Reclassification adjustments $ 2.3 $ 5.2 $ 1.8 $ 7.8 $ ( 1.6 ) $ — $ ( 2.3 ) $ —

Actuarial gain (loss) arising during the period

Actuarial loss arising during the period ( 46.1 ) ( 39.7 ) ( 21.7 ) ( 33.8 ) ( 6.9 ) ( 2.1 ) ( 4.5 ) —

Effect of curtailment — — — 0.1 — — — —

4 unchanged sentences

Translation adjustment — ( 3.6 ) — ( 3.8 ) — — — —

$ ( 43.5 ) $ ( 25.1 ) $ ( 19.8 ) $ ( 29.7 ) $ ( 9.1 ) $ ( 2.1 ) $ ( 7.0 ) $ ( 0.2 )

In addition, the Company recognized tax benefit (expense) in other comprehensive income (loss) related to its defined benefit plans of $ 18.5 million, $ 13.7 million and ($ 3.0 ) million for the years ended December 31, 2020, 2019 and 2018, respectively.

Pretax amounts recorded in accumulated other comprehensive loss not yet recognized in net periodic benefit cost as of December 31, 2020 and 2019, are shown below (in millions):

Other Postretirement

December 31, 2019

December 31, 2018

December 31, 2019

December 31, 2018

Pension Other Postretirement

December 31, 2020 December 31, 2019 December 31, 2020 December 31, 2019

Net unrecognized actuarial gain (loss) $ ( 149.4 ) $ ( 160.7 ) $ ( 105.9 ) $ ( 135.9 ) $ 11.2 $ ( 3.0 ) $ 19.6 $ ( 0.9 )

Prior service (cost) credit — ( 1.5 ) — ( 1.2 ) 1.2 0.1 1.9 0.1

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Pretax amounts recorded in accumulated other comprehensive loss as of December 31, 2019 , that are expected to be recognized as components of net periodic benefit cost in the year ending December 31 , 2020 , are shown below (in millions):

Other Postretirement

Net unrecognized actuarial gain (loss)

Prior service credit

$ ( 149.4 ) $ ( 162.2 ) $ ( 105.9 ) $ ( 137.1 ) $ 12.4 $ ( 2.9 ) $ 21.5 $ ( 0.8 )

The Company uses the corridor approach when amortizing actuarial gains and losses.

3 unchanged sentences

The amortization periods range from 4 to 34 years for the Company's defined benefit pension plans and from 1 to 17 years for the Company's other postretirement benefit plans.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Net Periodic Pension and Other Postretirement Benefit Cost (Credit)

The components of the Company’s net periodic pension benefit cost are shown below (in millions):

The components of the Company’s net periodic pension benefit cost (credit) are shown below (in millions):

Year Ended December 31,

2020 2019 2018

Service cost $ 0.1 $ 5.0 $ 0.1 $ 6.3 $ 0.1 $ 6.9

Interest cost 16.4 12.2 18.6 14.7 19.8 14.7

3 unchanged sentences

Settlement losses 0.3 13.0 0.1 — 5.7 —

Net periodic benefit cost

Net periodic benefit cost (credit) $ ( 2.3 ) $ 15.8 $ 0.4 $ 5.6 $ 0.3 $ 5.2

The components of the Company’s net periodic other postretirement benefit cost (credit) are shown below (in millions):

Year Ended December 31,

Other Postretirement

2020 2019 2018

Other Postretirement

Pension Other Postretirement

December 31, 2020 2019 2020 2019

Discount rate:

2 unchanged sentences

Rate of compensation increase:

Foreign plans

Foreign plans 3.3 % 3.7 % N/A N/A

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

The weighted average actuarial assumptions used in determining the net periodic benefit cost (credit) are shown below:

14 unchanged sentences

Adjustments made to the historical returns are based on recent return experience in the equity and fixed income markets and the belief that deviations from historical returns are likely over the relevant investment horizon.

As of December 31, 2020 and 2019, the weighted-average interest crediting rate used by one of the Company's U.S.

pension plans was a minimum of 4.0 %.

Healthcare Trend Rate

Assumed healthcare cost trend rates have a significant effect on the amounts reported for the postretirement benefit plans.

As of December 31, 2019 , the sensitivity to a 100 basis point ("bp") change in the assumed healthcare cost trend rates is shown below (in millions):

Postretirement Benefit Obligation

Net Periodic Postretirement Cost

100 bp increase in healthcare cost trend rates

100 bp decrease in healthcare cost trend rates

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

The assumed healthcare cost trend rates used to measure the postretirement benefit obligation as of December 31, 2020, are shown below:

Foreign Plans

Plans Foreign Plans

Initial healthcare cost trend rate 6.5 % 4.7 %

1 unchanged sentence

Year ultimate healthcare cost trend rate achieved 2028 2040

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Fair value measurements and the related valuation techniques and fair value hierarchy level for the Company’s pension plan assets measured at fair value on a recurring basis as of December 31, 2020 and 2019, are shown below (in millions):

December 31, 2020

Valuation Technique

Total Level 1 Level 2 Level 3 Valuation Technique

Equity securities -

Equity funds $ 104.3 $ 85.9 $ 18.4 $ — Market

Common stock 85.2 53.9 31.3 — Market

Fixed income -

Fixed income funds

Corporate bonds

Government obligations

Preferred stock

Cash and short-term investments

Fixed income funds 84.2 84.2 — — Market

Corporate bonds 66.7 — 66.7 — Market

Government obligations 6.2 — 6.2 — Market

Preferred stock 1.4 0.9 0.5 — Market

Cash and short-term investments 11.9 2.8 9.1 — Market

Assets at fair value 359.9 $ 227.7 $ 132.2 $ —

4 unchanged sentences

Equity securities -

Equity funds $ 138.0 $ — $ 138.0 $ — Market

Common stock 60.9 60.9 — — Market

Fixed income -

Fixed income funds

Corporate bonds

Government obligations

Cash and short-term investments

Fixed income funds 58.4 — 58.4 — Market

Corporate bonds 30.8 — 30.8 — Market

Government obligations 49.5 — 49.5 — Market

Cash and short-term investments 15.1 7.0 8.1 — Market

Assets at fair value 352.7 $ 67.9 $ 284.8 $ —

5 unchanged sentences

December 31, 2019

Valuation Technique

Total Level 1 Level 2 Level 3 Valuation Technique

Equity securities -

Equity funds $ 103.6 $ 81.5 $ 22.1 $ — Market

Common stock 77.4 45.5 31.9 — Market

Fixed income -

Fixed income funds

Corporate bonds

Government obligations

Preferred stock

Cash and short-term investments

Fixed income funds 76.0 76.0 — — Market

Corporate bonds 53.9 — 53.9 — Market

Government obligations 7.3 — 7.3 — Market

Preferred stock 1.2 0.6 0.6 — Market

Cash and short-term investments 14.0 8.4 5.6 — Market

Assets at fair value 333.4 $ 212.0 $ 121.4 $ —

4 unchanged sentences

Equity securities -

Equity funds $ 148.4 $ — $ 148.4 $ — Market

Common stock 66.7 66.7 — — Market

Fixed income -

Fixed income funds

Corporate bonds

Government obligations

Cash and short-term investments

Fixed income funds 45.6 — 45.6 — Market

Corporate bonds 31.5 — 31.5 — Market

Government obligations 55.8 — 55.8 — Market

Cash and short-term investments 10.9 7.7 3.2 — Market

Assets at fair value 358.9 $ 74.4 $ 284.5 $ —

29 unchanged sentences

As of December 31, 2020, the Company’s estimate of expected benefit payments in each of the five succeeding years and in the aggregate for the five years thereafter are shown below (in millions):

Other Postretirement

Pension Other Postretirement

2021 $ 20.9 $ 19.3 $ 4.0 $ 1.4

2022 22.8 20.5 4.0 1.5

2023 23.5 20.2 4.0 1.5

2024 23.5 21.0 4.0 1.5

2025 24.5 22.0 3.9 1.4

Five years thereafter 130.8 127.9 17.7 6.8

2 unchanged sentences

Labor-Management Group Pension Plan (EIN 51-6099782-001) and UNITE Here National Retirement Fund (EIN 13-6130178-001), for certain of its employees.

Contributions to these plans are based on four collective bargaining agreements.

One of the agreements expires on April 24, 2020, two expire on July 3, 2020, and one expires on June 30, 2022.

Contributions to these plans are based on four collective bargaining agreements, which expire between January 31, 2021 and April 25, 2025.

Detailed information related to these plans is shown below (amounts in millions):

Pension Protection Act

Contributions to Multiemployer Pension Plans

Employer Identification Number ("EIN")

Certification

Year Ended December 31, 2019

Year Ended December 31, 2018

Year Ended December 31, 2017

51-6099782-001

13-6130178-001

Zone Status Contributions to Multiemployer Pension Plans

Employer Identification Number ("EIN") December 31,

Certification December 31,

Certification FIP/RP

Implemented Surcharge Year Ended December 31, 2020 Year Ended December 31, 2019 Year Ended December 31, 2018

51-6099782-001 Green Green Yes No $ 0.6 $ 0.5 $ 0.6

13-6130178-001 Red Red Yes No 0.5 0.4 0.4

For its plan years 2020 and 2019, the Company's contributions to the U.A.W.

12 unchanged sentences

For the year ended December 31, 2020

Seating E-Systems Total

North America $ 5,545.7 $ 1,084.8 $ 6,630.5

Europe and Africa 4,371.4 1,868.9 6,240.3

Asia 2,418.7 1,236.6 3,655.3

South America 376.9 142.5 519.4

$ 12,712.7 $ 4,332.8 $ 17,045.5

For the year ended December 31, 2019

Seating E-Systems Total

North America $ 6,265.2 $ 1,100.3 $ 7,365.5

Europe and Africa 5,620.2 2,165.3 7,785.5

Asia 2,710.7 1,257.6 3,968.3

South America 501.1 189.9 691.0

$ 15,097.2 $ 4,713.1 $ 19,810.3

For the year ended December 31, 2018

Seating E-Systems Total

North America $ 6,549.7 $ 1,110.9 $ 7,660.6

Europe and Africa 6,299.0 2,427.9 8,726.9

Asia 2,624.6 1,415.4 4,040.0

South America 548.6 172.4 721.0

$ 16,021.9 $ 5,126.6 $ 21,148.5

(12) Capital Stock, Accumulated Other Comprehensive Loss and Equity

5 unchanged sentences

• Liquidation Rights – Upon the dissolution, liquidation or winding up of the Company, subject to the rights of the holders of outstanding preferred stock, if any, holders of common stock are entitled to receive ratably the assets of the Company available for distribution to the Company’s stockholders in proportion to the number of shares of common stock held by each stockholder.

• Conversion, Redemption and Preemptive Rights – Holders of common stock have no conversion, redemption, sinking fund, preemptive, subscription or similar rights.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Conversion, Redemption and Preemptive Rights – Holders of common stock have no conversion, redemption, sinking fund, preemptive, subscription or similar rights.

Common Stock Share Repurchase Program

1 unchanged sentence

As of December 31, 2020, the Company has paid $ 4.7 billion in aggregate for repurchases of its common stock, at an average price of $ 90.07 per share, excluding commissions and related fees.

In March 2020, as a proactive measure in response to the COVID-19 pandemic, the Company suspended share repurchases under its share repurchase program.

Share repurchases are shown below (in millions except for shares and per share amounts):

For the year ended December 31,

Aggregate Repurchases (1)

Cash paid for Repurchases

Number of Shares

Average Price per Share (2)

2018 and 2019 include purchases prior to the increased authorization.

For the year ended December 31, Aggregate Repurchases Cash paid for Repurchases Number of Shares Average Price per Share (2)

$ 70.0 $ 70.0 641,149 $ 109.22

2019 $ 380.4 $ 384.7 2,819,081 $ 134.95

2018 $ 705.2 $ 704.9 4,308,418 $ 163.69

(1) Prior to suspension.

(2) Excludes commissions .

8 unchanged sentences

Accordingly, there was no effect on stockholders' equity as a result of this transaction.

In 2017, the Company’s Board of Directors approved the retirement of 8 million shares of common stock held in treasury.

These retired shares are reflected as authorized, but not issued, in the accompanying consolidated balance sheets as of December 31, 2019 and 2018 .

The retirement of shares held in treasury resulted in a reduction in the par value of common stock, additional paid-in capital and retained earnings of $ 0.1 million , $ 155.9 million and $ 735.5 million , respectively.

These reductions were offset by a corresponding reduction in shares held in treasury of $ 891.5 million .

Accordingly, there was no effect on stockholders' equity as a result of this transaction.

Quarterly Dividend

In March 2020, as a proactive measure in response to the COVID-19 pandemic, the Company suspended its quarterly cash dividend.

Prior to the suspension, the Company’s Board of Directors declared a cash dividend of $ 0.77 per share of common stock in the first quarter of 2020.

The quarterly cash dividend was reinstated in the fourth quarter of 2020 at $ 0.25 per share of common stock.

In 2019 and 2018, the Company’s Board of Directors declared quarterly cash dividends of $ 0.75 and $ 0.70 , respectively, per share of common stock.

3 unchanged sentences

Dividends paid $ 67.3 $ 186.3 $ 186.3

Dividends payable on common shares to be distributed under the Company’s stock-based compensation program and common shares contemplated as part of the Company’s emergence from Chapter 11 bankruptcy proceedings will be paid when such common shares are distributed.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Dividends payable on common shares to be distributed under the Company’s stock-based compensation program will be paid when such common shares are distributed.

Accumulated Other Comprehensive Loss

1 unchanged sentence

It differs from net income in that certain items recorded in equity are included in comprehensive income.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

A summary of changes in accumulated other comprehensive loss, net of tax is shown below (in millions):

4 unchanged sentences

Other comprehensive income (loss) recognized during the period (net of tax benefit (expense) of $ 23.2 million in 2020, $ 15.7 million in 2019 and ($ 0.6 ) million in 2018)

( 73.6 ) ( 49.8 ) 2.2

Balance at end of year $ ( 276.9 ) $ ( 217.6 ) $ ( 172.8 )

2 unchanged sentences

Reclassification adjustments (net of tax benefit (expense) of ($ 1.8 ) million in 2020, $ 10.2 million in 2019 and $ 4.1 million in 2018)

Other comprehensive income recognized during the period (net of tax expense of $15.7 million in 2019, $7.4 million in 2018 and $12.8 million in 2017)

7.5 ( 38.0 ) ( 15.2 )

Other comprehensive income (loss) recognized during the period (net of tax benefit (expense) of $ 1.0 million in 2020, ($ 15.7 ) million in 2019 and ($ 7.4 ) million in 2018)

( 4.7 ) 57.5 28.4

Balance at end of year $ 12.6 $ 9.8 $ ( 9.7 )

2 unchanged sentences

Other comprehensive income (loss) recognized during the period (net of tax benefit of $ 3.8 million in 2020, $ 0.9 million in 2019 and $ 2.3 million in 2018)

124.1 ( 41.6 ) ( 216.8 )

Balance at end of year $ ( 440.8 ) $ ( 564.9 ) $ ( 523.3 )

For the years ended December 31, 2019 , 2018 and 2017 , other comprehensive income (loss) related to currency translation adjustments includes pretax gains (losses) related to intercompany transactions for which settlement is not planned or anticipated in the foreseeable future of ($ 0.5 ) million , ($ 1.2 ) million and $ 0.9 million , respectively.

For the year ended December 31, 2019 , other comprehensive loss related to currency translation adjustments also includes net investment hedge losses of $ 4.4 million .

For the years ended December 31, 2020, 2019 and 2018, other comprehensive income (loss) related to currency translation adjustments includes pretax losses related to intercompany transactions for which settlement is not planned or anticipated in the foreseeable future of $ 0.6 million, $ 0.5 million and $ 1.2 million, respectively.

For the years ended December 31, 2020 and 2019, other comprehensive income (loss) related to currency translation adjustments also includes net investment hedge losses of $ 18.3 million and $ 4.4 million, respectively.

Redeemable Noncontrolling Interest

Required redemption adjustments are recorded as an increase to redeemable noncontrolling interests, with an offsetting adjustment to retained earnings.

The redeemable noncontrolling interest is classified in mezzanine equity in the accompanying consolidated balance sheets as of December 31, 2019 and 2018 .

Required redeemable noncontrolling interest adjustments are recorded as an increase to redeemable noncontrolling interests, with an offsetting adjustment to retained earnings.

The redeemable noncontrolling interest is classified in mezzanine equity in the accompanying consolidated balance sheet as of December 31, 2019.

In 2020, the noncontrolling interest holder in Shanghai Lear STEC Automotive Parts Co., Ltd.

exercised its option requiring the Company to purchase its 45 % redeemable noncontrolling interest.

The transaction was completed in the fourth quarter of 2020 for $ 95.5 million plus undistributed retained earnings of $ 26.8 million.

These amounts are reflected in cash flows from financing activities in the accompanying statement of cash flows for the year ended December, 31, 2020.

For further information related to the redeemable noncontrolling interest adjustment, see Note 3, "Summary of Significant Accounting Policies — Net Income Per Share Attributable to Lear."

Noncontrolling Interests

In 2019, the Company deconsolidated GACC as it no longer controls the entity.

In 2018 and 2017, the Company gained control of Lear FAWSN and Lear STEC, respectively.

In 2018, the Company gained control of Lear FAWSN.

For further information related to these transactions, see Note 6, "Investments in Affiliates and Other Related Party Transactions."

9 unchanged sentences

The remaining shares under the Inducement Plan will not be awarded.

Under the 2009 LTSIP, the 2019 LTSIP and the Inducement Plan, the Company has granted restricted stock units and performance shares to certain of its employees.

The restricted stock units and performance shares generally vest in three years following the grant date.

For the years ended December 31, 2019 , 2018 and 2017 , the Company recognized compensation expense related to the restricted stock unit and performance share awards of $ 22.3 million , $ 40.1 million and $ 68.7 million , respectively.

Unrecognized compensation expense related to the restricted stock unit and performance share awards of $ 48.3 million will be recognized over the next 1.8 years on a weighted average basis.

In accordance with the provisions of the restricted stock unit and performance share awards, the Company withholds shares from the settlement of such awards to cover minimum statutory tax withholding requirements.

Under the 2009 LTSIP, the 2019 LTSIP and the Inducement Plan, the Company has granted restricted stock units, performance shares and stock options to certain of its employees, all of which generally vest in three years following the grant date.

For the years ended December 31, 2020, 2019 and 2018, the Company recognized compensation expense related to these awards of $ 39.0 million, $ 22.3 million and $ 40.1 million, respectively.

Unrecognized compensation expense related to these awards of $ 65.5 million will be recognized over th e next 1.9 years on a weighted average basis.

In accordance with the provisions of the awards, the Company withholds shares from the settlement of such awards to cover minimum statutory tax withholding requirements.

The withheld shares are classified as common stock held in treasury in the accompanying consolidated balance sheets as of December 31, 2020 and 2019.

A summary of restricted stock unit and performance share transactions for the year ended December 31, 2019 , is shown below:

Weighted Average Grant Date

A summary of restricted stock units, performance shares and stock options for the year ended December 31, 2020, is shown below:

Stock Units Weighted Average Grant Date

Fair Value Performance

Shares Weighted Average Grant Date

Fair Value Stock Options Weighted Average Grant Date

Outstanding as of December 31, 2019 705,136 $ 128.71 849,544 $ 140.83 —

Granted 168,811 $ 129.40 346,317 $ 147.53 108,446 $ 30.32

Distributed (vested) ( 220,122 ) ( 129,920 ) —

Cancelled ( 37,241 ) ( 256,470 ) —

Outstanding as of December 31, 2020 (1)

616,584 $ 124.83 809,471 $ 143.48 108,446 $ 30.32

Vested or expected to vest as of December 31, 2020 616,584 299,390 108,446

(1) Outstanding performance shares are reflected at the maximum possible payout that may be earned during the relevant performance periods.

The grant date fair values of restricted stock units are based on the share price on the grant date.

The grant date fair values of performance shares were based on a Monte Carlo simulation in 2019 and on the share price on the grant date in 2018 and 2017.

The grant date fair value of restricted stock units is based on the share price on the grant date.

The weighted average grant date fair value of restricted stock units granted in 2019 and 2018 was $ 134.65 and $ 168.86 , respectively.

The grant date fair value of performance shares was based on a Monte Carlo simulation in 2020 and 2019 and on the share price on the grant date in 2018.

The weighted average grant date fair value of performance shares granted in 2019 and 2018 was $ 124.48 and $ 179.40 , respectively.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

The grant date fair value of stock options is based on a Black-Scholes model.

(14) Commitments and Contingencies

3 unchanged sentences

Product liability and warranty reserves are recorded separately from legal reserves, as described below.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Commercial Disputes

12 unchanged sentences

The Company does not maintain insurance for product warranty or recall matters.

Future dispositions with respect to the Company’s product liability claims that were subject to compromise under the Chapter 11 bankruptcy proceedings will be satisfied out of a common stock and warrant reserve established for that purpose.

The Company records product warranty reserves when liability is probable and related amounts are reasonably estimable.

2 unchanged sentences

Expense, net, including changes in estimates 17.9

Settlements ( 15.2 )

Foreign currency translation and other 0.8

1 unchanged sentence

Expense, net, including changes in estimates 26.1

Settlements ( 10.3 )

Foreign currency translation and other 0.9

4 unchanged sentences

However, the Company currently is, has been and in the future may become the subject of formal or informal enforcement actions or procedures.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

As of December 31, 2020 and 2019, the Company had recorded environmental reserves of $ 8.9 million and $ 9.3 million, respectively.

3 unchanged sentences

The Company is involved from time to time in various other legal proceedings and claims, including, without limitation, intellectual property matters, tax claims and employment matters.

Although the outcome of any legal matter cannot be predicted with certainty, the Company does not believe that any of the other legal proceedings or claims in which the Company is currently involved, either individually or in the aggregate, will have a material adverse impact on its business, financial condition, results of operations or cash flows.

Although the outcome of any legal matter cannot be predicted with certainty, the Company does not believe that any of the other legal proceedings or claims in which the Company is

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

currently involved, either individually or in the aggregate, will have a material adverse impact on its business, financial condition, results of operations or cash flows.

However, no assurances can be given in this regard.

7 unchanged sentences

Year Ended December 31, 2020

Seating E-Systems Other Consolidated

Revenues from external customers $ 12,712.7 $ 4,332.8 $ — $ 17,045.5

Segment earnings (1)

590.5 98.1 ( 234.5 ) 454.1

Depreciation and amortization 348.1 176.6 15.2 539.9

Capital expenditures 257.2 179.3 15.8 452.3

Total assets 7,596.1 3,403.3 2,199.2 13,198.6

Year Ended December 31, 2019

Seating E-Systems Other Consolidated

Revenues from external customers $ 15,097.2 $ 4,713.1 $ — $ 19,810.3

Segment earnings (1)

961.2 366.3 ( 257.3 ) 1,070.2

Depreciation and amortization 331.0 163.0 15.9 509.9

Capital expenditures 370.4 213.9 19.6 603.9

Total assets 7,277.6 3,068.1 2,335.0 12,680.7

Year Ended December 31, 2018

Seating E-Systems Other Consolidated

Revenues from external customers $ 16,021.9 $ 5,126.6 $ — $ 21,148.5

Segment earnings (1)

1,263.6 628.5 ( 238.0 ) 1,654.1

Depreciation and amortization 323.5 146.2 14.7 484.4

1 unchanged sentence

(1) For a definition of segment earnings, see Note 3 , "Summary of Significant Accounting Policies — Segment Reporting."

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

For the year ended December 31, 2020, segment earnings include restructuring charges of $ 83.1 million, $ 54.5 million and $ 1.1 million in the Seating and E-Systems segments and in the other category, respectively.

1 unchanged sentence

For the year ended December 31, 2019, segment earnings include restructuring charges of $ 150.1 million, $ 38.0 million and $ 2.1 million in the Seating and E-Systems segments and in the other category, respectively.

For the year ended December 31, 2017 , segment earnings include restructuring charges of $ 45.7 million , $ 19.9 million and $ 7.9 million in the Seating and E-Systems segments and in the other category.

For the year ended December 31, 2018, segment earnings include restructuring charges of $ 62.3 million, $ 20.9 million and $ 4.8 million in the Seating and E-Systems segments and in the other category, respectively.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

For further information, see Note 5, "Restructuring."

5 unchanged sentences

Interest expense 99.6 92.0 84.1

Other (income) expense, net

Other expense, net 55.2 24.6 31.6

Consolidated income before provision for income taxes and equity in net income of affiliates $ 299.3 $ 953.6 $ 1,538.4

3 unchanged sentences

United States $ 3,599.1 $ 3,658.5 $ 3,717.7

Mexico 2,528.4 3,058.6 3,236.9

China 2,592.7 2,579.7 2,781.5

Germany 1,288.3 1,698.7 2,187.2

Other countries 7,037.0 8,814.8 9,225.2

Total $ 17,045.5 $ 19,810.3 $ 21,148.5

December 31, 2020 2019

Tangible long-lived assets (1)

United States $ 534.0 $ 549.8

Mexico 689.9 700.1

China 458.2 450.2

Germany 205.8 204.9

Other countries 1,388.6 1,326.2

Total $ 3,276.5 $ 3,231.2

(1) Tangible long-lived assets include property, plant and equipment and right-of-use assets.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

The following is a summary of the percentage of revenues from major customers:

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General Motors 18.7 % 18.2 % 18.1 %

Ford 13.5 % 13.8 % 15.6 %

Daimler 11.9 % 11.1 % 9.9 %

Volkswagen 11.7 % 10.9 % 9.6 %

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(16) Financial Instruments

4 unchanged sentences

The estimated fair value, as well as the carrying value, of the Company's debt instruments are shown below (in millions):

December 31, 2020 2019

Estimated aggregate fair value (1)

$ 2,633.3 $ 2,384.6

Aggregate carrying value (1) (2)

Term Loan Facility and Notes (excludes "other" debt).

Excludes the impact of unamortized debt issuance costs and original issue discount .

2,320.3 2,334.4

(1) Includes Term Loan Facility and Notes (excludes "other" debt).

(2) Excludes the impact of unamortized debt issuance costs and unamortized original issue premium (discount).

Cash, Cash Equivalents and Restricted Cash

The Company has cash that is legally restricted as to use or withdrawal.

The Company has cash on deposit that is legally restricted as to use or withdrawal.

A reconciliation of cash and cash equivalents reported on the accompanying consolidated balance sheets to cash, cash equivalents and restricted cash reported on the consolidated statements of cash flows is shown below (in millions):

December 31, 2020 2019 2018

Balance sheet — cash and cash equivalents $ 1,306.7 $ 1,487.7 $ 1,493.2

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Statement of cash flows — cash, cash equivalents and restricted cash $ 1,314.5 $ 1,510.4 $ 1,519.8

Accounts Receivable Factoring

During the second quarter of 2020, the Company entered into an uncommitted factoring arrangement which provides for aggregate purchases of specified customer accounts in North America.

The Company cannot provide any assurances that the factoring arrangement will be available or utilized in the future.

Marketable Equity Securities

Marketable equity securities, which the Company accounts for under the fair value option, are included in the accompanying consolidated balance sheets as shown below (in millions):

December 31, 2020 2019

Other current assets $ 9.3 $ 17.1

Other long-term assets 49.4 42.1

Unrealized gains and losses arising from changes in the fair value of the marketable equity securities are recognized in other (income) expense, net in the accompanying consolidated statements of income.

$ 58.7 $ 59.2

Unrealized gains and losses arising from changes in the fair value of the marketable equity securities are recognized in other expense, net in the accompanying consolidated statements of income.

The fair value of the marketable equity securities is determined by reference to quoted market prices in active markets (Level 1 input based on the GAAP fair value hierarchy).

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As of December 31, 2020 and 2019, investments in equity securities without readily determinable fair values of $ 11.2 million and $ 15.2 million, respectively, are included in other long-term assets in the accompanying consolidated balance sheets.

Such investments are valued at cost, less any impairment, and adjusted for changes resulting from observable, orderly transactions

Such investments are valued at cost, less any impairment, and adjusted for changes resulting from observable, orderly transactions for identical or similar securities.

For the years ended December 31, 2020 and 2019, the Company recognized impairment charges

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

for identical or similar securities.

For the year ended December 31, 2019, the Company recognized an impairment charge of $ 5.0 million related to one of its equity securities without a readily determinable fair value.

of $ 4.0 million and $ 5.0 million, respectively, related to investments in equity securities without readily determinable fair values.

Derivative Instruments and Hedging Activities

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Gains and losses on the derivative instruments are intended to offset gains and losses on the hedged transaction in an effort to reduce exposure to fluctuations in foreign exchange rates.

The principal currencies hedged by the Company include the Mexican peso, various European currencies, the Thai baht, the Japanese yen, the Philippine peso and the Chinese renminbi.

The principal currencies hedged by the Company include the Mexican peso, various European currencies, the Japanese yen, the Philippine peso, the Chinese renminbi, the Thai baht and the Brazilian real.

Foreign currency derivative contracts not designated as hedging instruments consist principally of hedges of cash transactions, intercompany loans and certain other balance sheet exposures.

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The Company uses cross-currency interest rate swaps which are designated as net investment hedges of the foreign currency rate exposure of its investment in certain Euro-denominated subsidiaries.

For the year ended December 31, 2019 , contra interest expense on net investment hedges was $ 1.8 million and is included in interest expense in the accompanying consolidated statement of income.

Interest Rate Swaps

As of December 31, 2018, the estimated fair value of forward starting interest rate swap contracts with a notional amount of $ 500.0 million was $ 14.7 million and is included in other current liabilities in the accompanying consolidated balance sheet.

For the years ended December 31, 2020 and 2019, contra interest expense on net investment hedges of $ 6.5 million and $ 1.8 million, respectively, is included in interest expense in the accompanying consolidated statements of income.

Balance Sheet Classification

The notional amount, estimated aggregate fair value and related balance sheet classification of the Company's foreign currency and net investment hedge contracts are shown below (in millions, except for maturities):

December 31, 2020 2019

Fair value of foreign currency contracts designated as cash flow hedges:

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Net investment hedges ( 18.3 ) ( 4.4 ) —

( 24.0 ) 68.8 35.8

(Gains) losses reclassified from accumulated other comprehensive loss to:

Net sales ( 0.6 ) 3.8 2.3

Cost of sales 7.6 ( 52.6 ) ( 21.6 )

Interest expense 2.4 1.1 —

Comprehensive income

As of December 31, 2019 and 2018 , pretax net gains (losses) of $ 19.4 million and ($ 1.7 ) million , respectively, related to the Company’s derivative instruments and hedge activities were recorded in accumulated other comprehensive loss.

Other expense, net ( 0.1 ) — —

9.3 ( 47.7 ) ( 19.3 )

Comprehensive income (loss) $ ( 14.7 ) $ 21.1 $ 16.5

As of December 31, 2020 and 2019, pretax net gains $ 4.7 million and $ 19.4 million, respectively, related to the Company’s derivative instruments and hedge activities were recorded in accumulated other comprehensive loss.

During the next twelve month period, net gains (losses) expected to be reclassified into earnings are shown below (in millions):

Net gains related to foreign currency contracts

Net losses related to interest rate swap contracts

Net losses related to net investment hedges

Foreign currency contracts $ 35.6

Interest rate swap contracts ( 2.4 )

Such gains and losses will be reclassified at the time that the underlying hedged transactions are realized.

17 unchanged sentences

December 31, 2020

Foreign currency contracts, net

Market / Income

Net investment hedges

Market / Income

Marketable equity securities

Frequency Asset

(Liability) Valuation

Technique Level 1 Level 2 Level 3

Foreign currency contracts, net Recurring $ 47.5 Market / Income $ — $ 47.5 $ —

Net investment hedges Recurring ( 22.6 ) Market / Income — ( 22.6 ) —

Marketable equity securities Recurring 58.7 Market 58.7 — —

December 31, 2019

Foreign currency contracts, net

Market / Income

Interest rate swap contract

Market / Income

Marketable equity securities

Frequency Asset

(Liability) Valuation

Technique Level 1 Level 2 Level 3

Foreign currency contracts, net Recurring $ 50.3 Market / Income $ — $ 50.3 $ —

Net investment hedges Recurring ( 4.4 ) Market / Income — ( 4.4 ) —

Marketable equity securities Recurring 59.2 Market 59.2 — —

The Company determines the fair value of its derivative contracts using quoted market prices to calculate the forward values and then discounts such forward values to the present value.

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As these non-recurring fair value measurements are generally determined using unobservable inputs, these fair value measurements are classified within Level 3 of the fair value hierarchy.

In 2019, as a result of the acquisition of Xevo (Note 3 , " Acquisitions "), Level 3 fair value estimates of $ 93.2 million related to intangible assets are recorded in the accompanying consolidated balance sheet as of December 31, 2019 .

In 2020 and 2019, the Company completed quantitative goodwill impairment analyses for selected reporting units (Note 3, "Summary of Significant Accounting Policies — Impairment of Goodwill").

The Level 3 fair value estimate of the reporting units was based on a third-party valuation and/or management's estimates, using a combination of the discounted cash flow method and guideline public company method.

In 2019, as a result of the acquisition of Xevo (Note 4, "Acquisition"), Level 3 fair value estimates of $ 90.1 million related to intangible assets are recorded in the accompanying consolidated balance sheets as of December 31, 2020 and 2019.

The estimated fair values of these assets were based on third-party valuations and management's estimates, generally utilizing the income and cost approaches.

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The Level 3 fair value estimate related to the Company's equity interest was based on the present value of future cash flows and reflects a discount for the lack of control and the lack of marketability associated with equity interests.

In 2019, the Company completed a quantitative goodwill impairment assessment for one of its reporting units.

The Level 3 fair value estimate of the reporting unit was based on a third-party valuation and management's estimates, using a combination of the discounted cash flow method and guideline public company method.

In 2018, as a result of the Lear FAWSN transaction (Note 6, "Investments in Affiliates and Other Related Party Transactions"), Level 3 fair value estimates related to property, plant and equipment of $ 11.0 million, intangible assets of $ 7.5 million and noncontrolling interests of $ 14.0 million are recorded in the accompanying consolidated balance sheets as of December 31, 2020 and 2019.

In addition, the Lear FAWSN transaction required a Level 3 fair value estimate related to the Company's

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

In 2018, as a result of the Lear FAWSN transaction (Note 5 , " Investments in Affiliates and Other Related Party Transactions "), Level 3 fair value estimates related to property, plant and equipment of $ 11.0 million , intangible assets of $ 7.5 million and noncontrolling interests of $ 14.0 million are recorded in the accompanying consolidated balance sheets as of December 31, 2019 and 2018 .

In addition, the Lear FAWSN transaction required a Level 3 fair value estimate related to the Company's previously held equity interest of $ 23.0 million .

previously held equity interest of $ 23.0 million.

These Level 3 fair value estimates were determined as of the effective date of the transaction.

4 unchanged sentences

As of December 31, 2020 and 2019, there were no additional significant assets or liabilities measured at fair value on a non-recurring basis.

For further information on assets and liabilities measured at fair value on a non-recurring basis, see Note 2 , " Summary of Significant Accounting Policies ," Note 3 , " Acquisitions ," and Note 5 , " Investments in Affiliates and Other Related Party Transactions ."

(17) Quarterly Financial Data (unaudited)

1 unchanged sentence

Thirteen Weeks Ended

2020 October 3,

2020 December 31,

Net sales $ 4,457.7 $ 2,444.5 $ 4,900.1 $ 5,243.2

Gross profit 334.2 ( 127.4 ) 442.8 459.3

Consolidated net income (loss) 83.6 ( 269.5 ) 197.1 222.7

Net income (loss) attributable to Lear 76.4 ( 293.9 ) 174.4 201.6

Basic net income (loss) per share attributable to Lear 1.26 ( 4.89 ) 2.90 3.35

Diluted net income (loss) per share attributable to Lear 1.26 ( 4.89 ) 2.89 3.33

In the first quarter of 2020, the Company recognized tax benefits of $ 10.6 million related to a loss on the extinguishment of debt, restructuring charges and various other items.

The Company also recognized a loss of $ 21.1 million related to the extinguishment of debt.

In the second quarter of 2020, the Company recognized tax expense of $ 22.8 million related to the establishment of a valuation allowance on deferred tax assets of a foreign subsidiary and net tax benefits of $ 21.1 million related to restructuring charges and various other items.

In the third quarter of 2020, the Company recognized tax benefits of $ 9.8 million related to the release of a valuation allowance on deferred tax assets and $ 5.0 million related to an increase in our research and development tax credits resulting from the completion of a research and development tax credit study and net tax expense of $ 10.2 million related to restructuring charges and various other items.

The Company also recognized a pension benefit plan settlement loss of $ 10.2 million related to its restructuring actions.

In the fourth quarter of 2020, the Company recognized tax benefits of $ 8.1 million related to restructuring charges and various other items and $ 15.5 million related to the U.S.

deferred tax effect of our foreign branches and tax expense of $ 16.7 million related to a net increase in valuation allowances on deferred tax assets.

The Company also recognized pension benefit plan settlement losses of $ 2.7 million related to its restructuring actions and an impairment charge of $ 4.0 million related to an investment.

For further information, see Note 6, "Investments in Affiliates and Other Related Party Transactions," Note 7, "Debt," Note 9, "Income Taxes," and Note 10, "Pension and Other Postretirement Benefit Plans."

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Thirteen Weeks Ended

2019 June 29,

2019 September 28,

2019 December 31,

Net sales $ 5,160.1 $ 5,007.6 $ 4,825.0 $ 4,817.6

Gross profit 473.2 478.2 459.3 326.8

Consolidated net income 246.1 202.0 238.6 144.0

3 unchanged sentences

In the first quarter of 2019, the Company recognized tax benefits of $ 18.4 million related to changes in the tax status of certain affiliates, $ 3.2 million related to share-based compensation and $ 15.6 million related to restructuring charges and various other items.

In the second quarter of 2019, the Company recognized tax benefits of $ 11.0 million related to restructuring charges and various other items, offset by tax expense of $ 10.4 million related to the establishment of a valuation allowance on the deferred tax assets of a foreign subsidiary.

In the second quarter of 2019, the Company recognized tax benefits of $ 11.0 million related to restructuring charges and various other items and tax expense of $ 10.4 million related to the establishment of a valuation allowance on the deferred tax assets of a foreign subsidiary.

The Company also recognized a loss of $ 10.6 million related to the extinguishment of debt.

5 unchanged sentences

For further information see, Note 6, "Investments in Affiliates and Other Related Party Transactions," Note 7, "Debt," Note 9, "Income Taxes," and Note 10, "Pension and Other Postretirement Benefit Plans ."

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Thirteen Weeks Ended

September 29,

Consolidated net income

Net income attributable to Lear

Basic net income per share attributable to Lear

Diluted net income per share attributable to Lear

In the first quarter of 2018, the Company recognized a gain of $ 10.0 million related to obtaining control of an affiliate, tax benefits of $ 35.1 million related to the reversal of valuation allowances on the deferred tax assets of a certain foreign subsidiary, $ 10.1 million related to share-based compensation and $ 4.1 million related to restructuring charges and various other items and tax expense of $ 22.0 million related to an increase in foreign withholding tax on certain undistributed foreign earnings.

In the second quarter of 2018, the Company recognized $ 17.4 million related to favorable litigation settlements.

In the third quarter of 2018, the Company recognized tax benefits of $ 6.9 million related to an adjustment to the 2017 provisional U.S.

income tax expense, $ 7.2 million related to a tax rate change in a foreign subsidiary and $ 7.5 million related to restructuring charges and various other items.

In the fourth quarter of 2018, the Company recognized $ 15.8 million related to a favorable indirect tax ruling in a foreign jurisdiction, a $ 5.4 million pension settlement charge related to the Company's Annuity Purchase, a tax benefit of $ 8.6 million related to restructuring charges and various other items and tax expense of $ 11.1 million to establish valuation allowances on the deferred tax assets of certain foreign subsidiaries and various other items.

For further information see, Note 5 , " Investments in Affiliates and Other Related Party Transactions ," Note 8 , " Income Taxes ," and Note 9 , " Pension and Other Postretirement Benefit Plans ."

( 18) Accounting Pronouncements

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The Company considered the ASUs summarized below, effective for 2020:

In February 2016, the Financial Accounting Standards Board issued ASU 2016-02, "Leases," which requires lessees to record right-of-use assets and related lease obligations on the balance sheet, as well as disclose key information regarding leasing arrangements.

On January 1, 2019, the Company adopted the standard by applying the modified retrospective method without the restatement of comparative financial information, as permitted by the transition guidance (Note 7 , " Leases ").

Tax Effects from Accumulated Other Comprehensive Income

Effective January 1, 2019, ASU 2018-02, "Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income" allows for the reclassification of "stranded" tax effects as a result of the Tax Cuts and Jobs Act from accumulated other comprehensive income to retained earnings.

The Company elected not to reclassify such amounts.

The Company reclassifies taxes from accumulated other comprehensive loss to earnings as the items to which the tax effects relate are similarly reclassified.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

The Company considered the ASUs summarized below, effective after 2019:

Measurement of Credit Losses on Financial Instruments

Effective January 1, 2020, the standard changes the impairment model for most financial instruments to a current expected credit loss model.

The guidance applies to all financial assets such as loans, accounts receivable (including long-term receivables), contract assets, net investments in sales-type and direct financing leases, held-to-maturity securities and certain financial guarantees.

The new model will generally result in earlier recognition of credit losses.

The Company has drafted its accounting policy with respect to the standard and continues to assess all potential impacts of the guidance;

however, the Company does not expect the adoption to have a significant impact on its consolidated financial position, results of operations or cash flows.

As required by the standard, the Company expects to make additional disclosures related to the nature of the change in accounting principle, the method of applying the change, the cumulative effect of adoption and the amount of its credit losses.

The Company plans to adopt the standard effective January 1, 2020.

The Company will continue to evaluate the effect of the standard on its ongoing financial reporting.

See Note 3, "Summary of Significant Accounting Policies — Accounts Receivable."

Simplifying the Test for Goodwill Impairment

1 unchanged sentence

This eliminates the requirement to calculate the implied fair value of goodwill (i.e., "Step 2" under current guidance).

Reference Rate Reform

In March 2020, the FASB issued ASU 2020-04, "Reference Rate Reform (Topic 848):

Facilitation of the Effects of Reference Rate Reform on Financial Reporting." The guidance provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates.

The guidance was effective upon issuance and generally can be applied to applicable contract modifications and hedge relationships prospectively through December 31, 2022.

The adoption of this guidance is not expected to have a significant impact on the Company's financial statements.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Disclosure Requirements for Defined Benefit Plans

In December 2020, the Company adopted ASU 2018-14, "Compensation — Retirement Benefits — Defined Benefit Plans — General (Subtopic 715-20):

Disclosure Framework — Changes to the Disclosure Requirements for Defined Benefit Plans," which provides minor changes to the disclosure requirements for employers that sponsor defined benefit pension and/or other postretirement benefit plans.

The adoption of this standard did not have a significant impact on the Company's financial statements.

The Company considered the ASUs summarized below, effective after 2020:

Simplifying the Accounting for Income Taxes

See Note 3 "Summary of Significant Accounting Policies — Income Taxes."

LEAR CORPORATION AND SUBSIDIARIES

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS

1 unchanged sentence

as of Beginning

of Period Additions Retirements Other

Changes Balance

For the year ended December 31, 2020

2 unchanged sentences

Allowance for deferred tax assets 344.8 81.4 ( 43.5 ) 15.0 397.7

Total $ 380.8 $ 88.4 $ ( 53.3 ) $ 17.1 $ 433.0

as of Beginning

of Period Additions Retirements Other

Changes Balance

For the year ended December 31, 2019

2 unchanged sentences

Allowance for deferred tax assets 350.4 31.3 ( 30.7 ) ( 6.2 ) 344.8

Total $ 383.6 $ 45.6 $ ( 41.6 ) $ ( 6.8 ) $ 380.8

as of Beginning

of Period Additions Retirements Other

Changes Balance

For the year ended December 31, 2018

2 unchanged sentences

Allowance for deferred tax assets 402.2 24.5 ( 56.7 ) ( 19.6 ) 350.4

Total $ 444.0 $ 35.9 $ ( 74.2 ) $ ( 22.1 ) $ 383.6

ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis