LEAR CORP 10-K

ITEM 1 – BUSINESS In this Annual Report on Form 10-K (this "Report"), when we use the terms the "Company," "Lear," "we," "us" and "our," unless otherwise indicated or the context otherwise requires, we are referring to Lear Corporation and its consolidated subsidiaries. A substantial portion of the Company's operations are conducted through subsidiaries controlled by Lear Corporation. The Company is also a party to various joint venture arrangements. Certain disclosures included in this Report constitute forward-looking statements that are subject to risks and uncertainties. See Item 1A, "Risk Factors," and Part II — Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements." BUSINESS OF THE COMPANY General Lear Corporation is a global automotive technology leader in Seating and E-Systems, enabling superior in-vehicle experiences for consumers around the world. We supply seating, electrical distribution and connection systems and electronic systems t o all of the world's major automotive manufacturers. At Lear, we are Making every drive better TM by providing technology for safer, smarter and more comfortable journeys, while adhering to our values — Be Inclusive. Be Inventive. Get Results the Right Way . We have 253 manufacturing, engineering and administrative locations in 38 countries. We continue to grow our business in all automotive producing regions of the world, both organically and through complementary acquisitions. We continue to restructure our manufacturing footprint to optimize our cost structure with 61% of our manufacturing facilities and 85% of our employees located in low cost countries. Lear is 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, as well as our global reach and competitive manufacturing footprint, to achieve the following financial goals and objectives: • Continue to deliver profitable growth, balancing risks and returns; • Invest in innovation to drive business growth and profitability; • Maintain a strong balance sheet with investment grade credit metrics; and • Consistently return capital 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. Further, we continuously evaluate our product portfolio, aligning it with industry trends, which allows us to offer value added solutions to our customers. • Seating — Our Seating segment 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 and safety offerings, as well as configurable seating product technologies. All of these products are compatible with traditional internal combustion engine ("ICE") architectures and the full range of hybrid, plug-in hybrid and battery electric architectures (collectively, "electrified powertrains"). Our advanced comfort, wellness and safety 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. • E-Systems — Our E-Systems segment consists of the design, development, engineering and manufacture of complete electrical distribution and connection systems and electronic systems. The 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 wire, high voltage wire, 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 electrified powertrains. Key components in our electrical distribution and connection systems portfolio include wire harnesses, terminals and connectors and engineered components for both ICE architectures and electrified powertrains that require management of higher voltage and power. 3 Table of Contents 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. Electrification products include on-board battery chargers, power conversion modules, high voltage battery management systems and high voltage power distribution systems. Connectivity products include telematics control units ("TCU") and gateway modules to manage both wired and wireless networks and data in vehicles. 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 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. 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 450 vehicle nameplates worldwide. It is common for us to have both seating and electrical and/or electronic content on the same vehicle platform. 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, all of which contribute to our reputation for operational excellence. 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. These functions include logistics, supply chain management, quality, health and safety, and all major administrative functions. We are focused on profitably growing our businesses and have implemented a strategy designed to deliver industry-leading, long-term financial returns. This strategy includes disciplined investment in our business to grow and enhance our product offerings; strategically focusing our portfolio on products and technologies to support emerging trends, such as electrification, connectivity, autonomy and shared mobility; and leveraging an industry-leading cost structure to expand our operating margins. Available Information on our Website Our website address is http://www.lear.com. We make available on our website, free of charge, the periodic reports that we file with or furnish to the Securities and Exchange Commission ("SEC"), as well as all amendments to these reports, as soon as reasonably practicable after such reports are filed with or furnished to the SEC. We also make available on our website or in printed form upon request, free of charge, our Corporate Governance Guidelines, Code of Business Conduct and Ethics (which includes specific provisions for our executive officers), charters for the standing committees of our Board of Directors and other information related to the Company. We are not including the information contained on our website as part of, or incorporating it by reference into, this Report. The SEC maintains an internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information related to issuers that file electronically with the SEC. History Lear was founded in Detroit in 1917 as American Metal Products, a manufacturer of seating assemblies and other components for the automotive and aircraft industries, and was incorporated in Delaware in 1987. Through a management-led buyout in 1988, Lear Corporation established itself as a privately-held seat assembly operation for the North American automobile market with annual sales of approximately $900 million. We completed an initial public offering in 1994 and developed into a global supplier through organic growth and a series of acquisitions. In May 1999, we acquired UT Automotive, Inc. ("UT Automotive") from United Technologies Corporation. UT Automotive was a leading supplier of automotive electrical distribution systems. The acquisition of UT Automotive represented our entry into automotive electrical and electronic systems and was the basis for our current E-Systems segment. We have subsequently augmented our internal growth plans with selective acquisitions and investments to expand our component capabilities and global footprint, as well as expand our technology portfolio: • In May 2012, we acquired Guilford Mills, a leading supplier of automotive seat and interior fabric, for approximately $243 million. • In January 2015, we acquired Everett Smith Group, Ltd., the parent company of Eagle Ottawa, LLC ("Eagle Ottawa"), the world's leading provider of leather for the automotive industry, for approximately $844 million. • In August 2015, we acquired intellectual property and technology from Autonet Mobile, a developer of wireless communication software and devices for automotive applications. 4 Table of Contents • In November 2015, we acquired Arada Systems Inc., an automotive technology company that specializes in vehicle-to-vehicle and vehicle-to-infrastructure (together, "V2X") communications. • In April 2017, we acquired Grupo Antolin's automotive seating business for approximately $292 million. • In January 2018, we acquired Israel-based EXO Technologies, a leading developer of differentiated GPS technology providing high-accuracy positioning solutions for autonomous and connected vehicle applications. • In January 2019, we launched Lear Innovation Ventures ("LIV") to supplement our internal innovation efforts. LIV provides us with a framework to invest in advanced development teams, partnerships and early stage technologies by working with venture capital firms, accelerators and incubators. LIV also makes direct capital investments in start-ups and internal innovation initiatives. • In April 2019, we acquired Xevo Inc. ("Xevo"), a Seattle-based, global leader in connected car software, for approximately $322 million. Xevo is a supplier of software solutions for the cloud, vehicles and mobile devices that are deployed in millions of vehicles worldwide. • In March 2021, we acquired M&N Plastics, an injection molding specialist and manufacturer of engineered plastic components for automotive electrical distribution applications. • In October 2021, we entered into a definitive agreement to acquire substantially all of Kongsberg Automotive's Interior Comfort Systems business unit ("Kongsberg") for approximately €175 million. Kongsberg specializes in comfort seating solutions, including massage, lumbar, seat heat and ventilation. The acquisition, subject to regulatory approvals and customary closing conditions and adjustments, is expected to close in the first quarter of 2022. Environmental, Social and Governance At Lear, we recognize the importance of environmental, social and governance ("ESG") considerations to our investors, as well as employees, customers and other stakeholders. Responsible and sustainable ESG principles and practices are integrated into our corporate strategy and operations. Our ESG strategy and initiatives are developed by a cross-functional team of senior subject matter experts, reviewed and approved by senior management and overseen by the Nominating and Corporate Governance Committee of our Board of Directors. We are continuously working to embed ESG principles into our key business processes, including corporate strategy, enterprise risk management, product and process development and innovation, procurement and sales. We actively communicate our goals and activities to our investors in our public disclosures available on our website and in our SEC filings. Our ESG efforts demonstrate how we live our core value to Get Results the Right Way , and in 2020, we reinforced this commitment by becoming a signatory of the United Nations Global Compact. Energy Efficiency and Carbon Reduction Efforts at Lear • How We Are Driving Sustainability in Our Production Processes We employ standardized production processes globally that are designed to drive the efficient use of energy to reduce greenhouse gas emissions, the prevention of pollution and the utilization of safe and sustainable production processes. During 2020, we published ambitious carbon reduction goals that we intend to achieve by 2030, including 100% usage of renewable energy for our electricity consumption and a 50% reduction in carbon emissions at our manufacturing facilities, as well as an aspiration to be carbon neutral by 2050. We are implementing a multifaceted approach to achieve these goals that involves the procurement and on-site generation of renewable energy, where practicable, and efforts to reduce energy consumption and use energy more efficiently in our operations. We are in the process of developing a comprehensive global renewable energy strategy for future energy purchases that we anticipate will consist of power purchase agreements to support new renewable energy projects and the purchase of energy attribution certificates from energy providers, whether bundled with existing energy purchases or unbundled where that is the only option for a given region. In 2021, we released our Energy Efficiency Playbook into our operations to institutionalize best practices regarding energy usage. We have also updated our facilities' specifications for new construction and significant building refurbishments to require more energy efficient systems, such as heating and cooling, wherever practicable. Examples of ongoing energy efficiency projects include: – Conducting energy audits and energy savings treasure hunts; – Installing leakage detection devices to detect heat/energy losses from operating equipment; – Automating plant-wide ventilation systems; – Replacing legacy light fixtures with LEDs; and – Recycling previously wasted heated streams of air and water. 5 Table of Contents While the foregoing efforts will help us drive toward the elimination of carbon emissions in those areas we can control (Scope 1 and 2 emissions), we are also progressing toward our longer-term overall goal of carbon neutrality across our value chain (including Scope 3 emissions). Accordingly, we are working to measure our Scope 3 emissions through the development of product life-cycle assessments for our major product offerings. We anticipate that a significant portion of our Scope 3 emissions will be reduced over time as our customers shift to producing more electric vehicles that do not rely on gasoline-powered engines. In terms of our supply chain, we are commencing efforts to communicate both our own carbon goals and our expectation of our suppliers as to sustainable energy usage going forward. • How We Are Responding to Increased Calls for Product Sustainability We continue to believe that light vehicle production will remain the single most important factor impacting our financial success in the foreseeable future. As outlined elsewhere in this Report, there are numerous factors impacting light vehicle production. In particular, the automotive industry is under increased focus to develop more sustainable transportation solutions. Our line of products for the automotive industry remain foundational for almost all types of light vehicles currently under consideration for near- and mid-term production whether reliant upon the internal combustion engine or alternative, more sustainable drivetrain technologies. Environmental concerns generally, as well as changes to the environment caused by carbon dioxide and other emissions and byproducts specifically, are significantly impacting the transportation industry as governments, non-governmental organizations, investors, product consumers and other stakeholders seek to balance global transportation needs with environmental concerns. Continued focus on climate change and environmental sustainability is increasing the expectations, and in some cases, leading to regulatory requirements, that the automotive industry utilize cleaner, more fuel-efficient solutions. In addition, we believe that for consumers, the advantages of cleaner air, energy efficiency and potentially lower maintenance will make electric vehicles an increasingly popular choice over time. Many of our product offerings are designed to capitalize on these evolving regulatory requirements and consumer preferences, such as on-board battery chargers, battery management systems, and electrical distribution and connection systems designed for high-voltage applications. Additionally, our intelligent and reconfigurable seats and electronic modules enhance connectivity and support the trend of shared mobility. Our stakeholders' focus on sustainability also means that our continued successful participation in the automotive industry will depend on our ability to continue developing products that are more environmentally sustainable. In this regard, our innovative products range from "green" products, such as SoyFoam TM , a substitute for certain petroleum-based products, to seat coverings made from recycled ocean plastics. We are also committed to working with our suppliers and customers to source raw materials, including the leather that is used in the seats that we produce, in a sustainable manner. This includes protecting forests by eliminating purchases of cattle or hides produced by unsustainable cattle ranching methods that lead to deforestation and forest degradation. Our No Deforestation Policy aligns with industry standards and requires of our suppliers: – Supply chain transparency, so that all materials supplied to us are from legal sources; – Land is not clear-cut or burned for production or development; and – Compliance with governmental laws, regulations and guidelines regarding deforestation. With respect to the Amazon rainforest, 100% of our direct Brazilian leather suppliers use georeferencing technology to confirm that the farms from which they directly buy cattle or hides are not involved in deforestation, invasion of indigenous and protected areas, or human rights violations. To monitor our suppliers' compliance with these requirements, we may conduct audits and/or require third-party verification. Other ESG-Related Initiatives We are especially proud of our employee efforts to support our global communities, such as our employee volunteer-driven educational campaign, "Focus on the Drive," to increase awareness and decrease the incidence of distracted driving. Through our Operation GIVE campaign at our Southfield, Michigan headquarters, more than $1 million in employee contributions benefited local programs focused on economic well-being, education and the environment in 2021. Our commitment to human rights is set forth in our Human Rights Policy that clearly defines how we approach, govern and defend the dignity of people throughout our operations, our global supply chain and the communities in which we operate. In addition, our Together We Belong campaign helps fund initiatives that address racial inequality and discrimination through a combination of grants to external organizations, as well as internal investments to educate and engage our employees. Our governance activities help ensure that our business and operations are conducted in compliance with all applicable laws, as well as Lear's policies and procedures, particularly our Code of Business Conduct and Ethics, which addresses conflicts of 6 Table of Contents interest, bribery and corruption, political contributions and information technology security, among other things. Our Board of Directors, and its Audit and Nominating and Corporate Governance Committees, oversee our compliance and governance activities. Our expectations related to conducting business in a sustainable and ethical manner extend to our supply base. Suppliers must meet the requirements of our Supplier Sustainability Policy and Supplier Code of Conduct. We monitor and assess their compliance both internally and through the use of a third party. Human Capital Management We believe that the best way to deliver the highest quality products and services is to maintain a work environment that prioritizes safety and fosters collaboration, inclusion, tolerance and respect for our 160,100 employees around the world. As of December 31, 2021 and 2020, our employment levels worldwide were approximately as follows: Region 2021 2020 United States and Canada 10,200 10,600 Mexico 47,500 55,200 Central and South America 19,700 20,900 Europe and Africa 55,100 56,500 Asia 27,600 31,400 Total 160,100 174,600 Our compensation and benefits strategy is designed to be competitive in the countries in which we operate to motivate our employees to perform to the best of their abilities, to achieve our objectives and to align the interests of our employees with the interests of our stakeholders. Our compensation package includes salary and both performance-based and long-term incentive programs, as appropriate for each role. We also provide a multitude of market-competitive benefits, which may include medical, life and disability insurance, contributory retirement savings plan, paid time off, paid parental leave and tuition reimbursement. A substantial number of our employees are members of industrial trade unions or national trade organizations. We have collective bargaining agreements with several North American unions, including the United Auto Workers, Unifor, International Brotherhood of Electrical Workers and Workers United. In the United States and Canada, each of our unionized facilities has a separate collective bargaining agreement with the union that represents the workers at such facility, with each such agreement having an expiration date that is independent of the other agreements. The majority of our employees in Mexico and Europe are members of industrial trade union organizations or confederations within their respective countries. Many of these organizations and confederations operate under national contracts, which are not specific to any one employer. We have occasionally experienced labor disputes at our plants. We have been able to resolve all such labor disputes and believe that our relations with our employees are generally good. See Item 1A, "Risk Factors — A significant labor dispute involving us or one or more of our customers or suppliers or that could otherwise affect our operations could adversely affect our financial performance," and Part II — Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements." Ethics and Compliance We are committed to conducting our business with integrity and in compliance with all applicable laws of the cities, states and countries in which we operate, and we have established a Code of Business Conduct and Ethics to assist employees in this regard. We encourage employees to report concerns through a variety of channels, including a toll-free compliance and ethics line, an online form and a mobile app, each of which allows for anonymous reporting. Our ethics and compliance team reviews every report and, when appropriate, conducts an investigation. We also maintain an anti-retaliation policy such that any employee who reports a concern in good faith is protected from harassment, retaliation or adverse employment consequences. Health and Safety Our health and safety programs are designed around global standards with appropriate variations to address the multiple jurisdictions and unique working environments of our manufacturing operations. Our health and safety management system is compliant with the ISO 45001 standard, and we are currently implementing a more comprehensive program which combines ISO 14002 and 45001 requirements to improve efficiency and performance. Each of our locations performs regular safety audits to ensure that proper safety policies are in place and appropriate safety training is provided. In addition, we engage an independent third-party conformity assessment and certification vendor to audit selected operations for adherence to our global health and safety standards. 7 Table of Contents In 2020, in response to the COVID-19 pandemic, we 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 available to the public 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. To date, more than 35,000 copies of the Safe Work Playbook have been downloaded. Diversity, Equity and Inclusion ("DEI") We strive to build a culture of diversity and inclusion not only through our human resource policies and practices but also by actively working to eliminate discrimination and harassment in all of its forms. Since 2020, our employees have participated in over 125,000 hours of DEI and anti-harassment training. In addition, our global executives and U.S. managers at our Southfield, Michigan headquarters have completed our Connecting with Others DEI training, which helps our employees identify barriers to inclusion and learn behaviors that both promote inclusion and establish stronger connections. Our Together We Belong campaign continues to help our employees learn to navigate difficult conversations and support diverse colleagues. In 2021, we introduced Together We Grow , a merit-based program designed to help future diverse leaders grow at Lear. We are accomplishing this by investing in meaningful development and proactive career management for this group of high-potential diverse talent and being intentional in advancing and promoting this talent to "next-level" roles and leadership positions. The program provides significant training, an executive sponsor, career mapping and access to the senior leadership team. By focusing on engagement, this program will allow our next generation of leaders to maximize their full potential. We are also proud of our six Employee Resource Groups, representing 15 countries. These employee-led volunteer groups are open to all employees with a goal of fostering a culture where our diverse and global workforce feels engaged, accepted and valued. Training and Talent Development We are committed to the continued development of our employees. Since 2019, we have delivered more than 6 million hours of safety, development, leadership, quality, continuous improvement, lean manufacturing, and ISO and IATF certification training. Our Emerging Leaders Development Program is a twelve-month leadership and business course designed to develop high-potential managers and directors. Our CEO Academy is our premier leadership development opportunity. Twice per year, a select group of leaders representing diverse functions and backgrounds are invited to participate in a week-long leadership immersion event, during which each participant presents a bold business idea to help drive Lear's success. In addition, formal talent reviews and succession planning occur annually – globally and across all business areas. Senior leadership provides annual updates on succession and talent development to the Board of Directors. Employee Engagement and Culture Launched in 2017, Together We Win is Lear's global employee engagement program focused on driving cultural change in our operations. Plants advance through four segments — leadership, work environment, employee involvement and team empowerment. Together We Win unites hourly employees across the globe in achieving excellence based on key operations and employee engagement metrics, such as quality, absenteeism, health and safety performance, and operational efficiency. To help our plants along the journey, our proprietary playbook provides a roadmap of best practices, and engagement surveys give hourly employees a voice in measuring progress at each plant. Champions of Lear celebrates our global operations and our hourly and salaried employees who represent the best-of-the-best in our company. Individuals, teams or plants submit an application which is reviewed by a diverse panel of judges including Lear leadership. Award categories honor achievements in culture, customer appreciation, innovation, supply chain, quality, safety, operational excellence, continuous improvement, sustainability, best launch and best plant collaboration, as well as the prestigious CEO Special Appreciation Award. In 2021, an additional award category was added to recognize initiatives that support DEI in the workplace. Industry and Strategy We supply all vehicle segments of the automotive light vehicle original equipment market in every major automotive producing region in the world. Our sales are driven by the number of vehicles produced by the automotive manufacturers, which is ultimately dependent on the availability of raw materials and components and consumer demand for automotive vehicles, and our content per vehicle. In 2020, unprecedented industry disruptions related to the COVID-19 pandemic, particularly in the first half of the year, impacted our operations in every region of the world. Alth ough industry production increased 3% in 2021 over 2020, production remains well below recent historic levels and consumer demand. Production in the second half of 2021 d ecreased 16% relative to the second half of 2020. This was largely due to the continuing impact of the COVID-19 pandemic in 2021, particularly through supply shortages. The most significant supply shortage relates to semiconductor chips, which impacted global vehicle production and resulted in reductions and cancellations of planned production. In addition, we 8 Table of Contents experienced increased costs related to labor shortages and inefficiencies and ongoing costs related to personal protective equipment, all of which are likely to continue for a period of time. Increases in certain commodity costs, as well as transportation and logistics costs, are also impacting, and will continue to impact, our operating results for the foreseeable future. Further, a resurgence of the COVID-19 virus or its variants, including corresponding "stay at home" or similar government orders impacting industry production, could impact our financial results. Details on light vehicle production in certain key regions for 2021 and 2020 are provided below. Our actual results are impacted by the specific mix of products within each market, as well as other factors described in Item 1A, "Risk Factors." (In thousands of units) 2021 (1) 2020 (1) (2) % Change North America 13,032.4 13,024.0 —% Europe and Africa 16,182.2 16,855.8 (4%) Asia 41,370.5 39,179.8 6% South America 2,507.6 2,163.4 16% Other 1,443.0 1,391.0 4% Total 74,535.7 72,614.0 3% (1) Production data based on IHS Markit. (2) Production data for 2020 has been updated from our 2020 Annual Report on Form 10-K to reflect actual production levels. Details on light vehicle production in certain emerging markets for 2021 and 2020 are provided below: (In thousands of units) 2021 (1) 2020 (1) (2) % Change China 22,776.2 21,721.1 5% India 4,055.3 3,234.1 25% Brazil 2,070.6 1,904.7 9% Russia 1,437.1 1,335.0 8% (1) Production data based on IHS Markit. (2) Production data for 2020 has been updated from our 2020 Annual Report on Form 10-K to reflect actual production levels. Details on our sales in certain key regions for 2021 and 2020 are provided below: (In millions) 2021 2020 % Change North America $ 7,548.2 $ 6,630.5 14% Europe and Africa 6,745.3 6,240.3 8% Asia 4,227.9 3,655.3 16% South America 741.7 519.4 43% Total $ 19,263.1 $ 17,045.5 13% China (consolidated) $ 3,018.1 $ 2,592.7 16% China (non-consolidated) 1,307.1 1,210.2 8% The automotive industry, and our business, continue to be shaped by the broad trends of electrification, connectivity, autonomy and shared mobility. We also consider demand and regulatory developments for improved energy efficiency, sustainability, enhanced safety and communications (e.g., government mandates related to fuel economy, carbon emissions and safety equipment) to be significant drivers of these trends, each of which is likely to be at the forefront of our industry for the foreseeable future. • Electrification – Demand for more energy efficient vehicles is increasing, both from automotive manufacturers to meet governmental requirements and/or their own internal targets and from a growing segment of end consumers who wish to reduce the carbon impact of automobiles. This requires further use of electronically controlled and assisted powertrains and related components to improve fuel efficiency; the adoption of alternative energy powertrains, such as 48-volt mild hybrid, full hybrid, plug-in hybrid and pure battery electric, that facilitate electrification of the vehicle; and the use of lighter weight materials throughout the vehicle. • Connectivity – Customer and consumer demands for continuous communication and information exchange with the vehicle are increasing. What began with consumer demand to extend and integrate mobile connectivity into the vehicle by connecting mobile devices with vehicle infotainment systems is evolving such that the vehicle has an 9 Table of Contents embedded, direct line of wireless communication connecting it with various networks (e.g., cellular, infrastructure, satellite, etc.) and other vehicles. We expect these trends to continue, making the vehicle a constantly connected device, receiving and transmitting data through a variety of signals which communicate directly with on-board vehicle systems and facilitating delivery of content and services for consumers and automotive manufacturers. • Autonomy - Customer and consumer demands are evolving from safety features and systems that protect vehicle occupants when a crash occurs to advanced driver assistance systems that help prevent crashes by assisting in the vehicle's operation under certain conditions. The development of automated intervention uses many of the same core technologies that will enable vehicles to drive autonomously under an increasing variety of driving conditions. • Shared Mobility – As vehicle utilization increases and ride-sharing becomes more relevant, customer and consumer demands for more services, enhanced personalization, reconfigurability of the automotive interior and an improved mobility experience are also increasing. The demand for electric vehicles is accelerating, driven by numerous product offerings from both traditional and non-traditional automotive manufacturers, government incentives and end consumers' desire to reduce the carbon impact of automobiles. Key attributes of seat design are evolving as the market pivots toward electric vehicles. This movement provides us with an opportunity to offer value added solutions to our customers through our Seating and E-Systems products and to use our leading market position to capture additional market share. These products include seat heating and cooling through INTU TM Thermal Comfort, the latest addition to our Intelligent Seating (INTU TM Seating) offerings, and seat reconfigurabily through Configurable Seating Architecture (ConfigurE+ TM ), as well as wire harness assemblies, including connection systems, and integrated power modules. Through our products, technology and strategic initiatives, we are well positioned to capture business growth opportunities with respect to these trends and key drivers. We see a close link among these trends and expect the convergence of them to benefit both our Seating and E-Systems businesses. For example, we believe that autonomous vehicles will have seat designs and requirements that are far more flexible and demanding in both autonomous and piloted driving states. Further, more active monitoring of the driver's position and physical state will be required to manage the transitions between autonomous and piloted driving conditions. A demand for mobility services and on-demand transportation from providers such as Uber, Lyft and Didi (in China) is helping to drive interest and growth in these trends, particularly fully autonomous vehicles. The increasing prevalence of mobility services will potentially create a new segment of autonomous vehicle fleet customers with unique vehicle technology and design needs, including more flexible, durable and connected seating solutions for a wide range of passengers. Not only will autonomous vehicles need to be fully connected and networked to maximize their safety and efficiency, their power consumption will be significantly higher to support the array of sensors and processing power required to operate such vehicles. This will allow us to take further advantage of our ability to design and offer efficient power management solutions. In our Seating business, our INTU TM Seating and ConfigurE+ TM offerings, in addition to our light weight and more environmentally friendly products, are well-aligned with the trends toward electrification, connectivity, autonomy and shared mobility. In our E-Systems business, our broad capabilities in electrical distribution and connection systems and electronic systems also support these trends across a full range of electrified powertrains and will allow us to grow as content per vehicle increases with higher circuit counts supporting the movement of data through high speed wires. Our business is also influenced by vehicle segment trends which continue to experience a shift in consumer preference towards crossover and sport utility vehicles. This trend positively impacts our business as content per vehicle on such vehicles, especially within our Seating business, can be significantly higher. Crossover and sport utility vehicle production has grown to approximately 42% of total vehicle production in 2021, up from 30% five years ago. Other factors influencing our business include: the consolidation of automotive manufacturers; 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 position as the largest automotive market in the world. In addition to key foundational attributes imperative for success as an automotive supplier (quality, service and cost), our strategic initiatives focus on furthering our competitive differentiation through vertical integration, disruptive innovation and advanced manufacturing technology. We have expanded key component 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, 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. 10 Table of Contents Seating Segment Lear is a recognized global leader in complete seat systems. Based on independent market studies and management estimates, we believe that we hold the #2 position in complete seat systems globally on the basis of revenue with strong positions in all major markets and a 25% global market share in 2021. We are also a recognized leader in key individual seat components produced for complete seat systems. Our Seating segment consists of the design, development, engineering, just-in-time assembly and delivery of complete seat systems, as well as all major seat components, including seat covers and surface materials such as leather and fabric, seat mechanisms, seat foam and headrests. Our extensive system-level knowledge and component-level capabilities, including internal development of sensor and control algorithms, have provided a solid foundation for innovation and commercialization of advanced comfort, wellness and convenience features. We anticipate that these features will be enhanced by the acquisition of Kongsberg, which is expected to close in the first quarter of 2022. We believe that we have the most complete set of component offerings of any automotive seating supplier and are a leader in every automotive producing market in the world. Overall, our global manufacturing and engineering expertise, low-cost footprint, complete component capabilities, quality leadership and strong customer relationships provide us with a solid platform for both organic and inorganic growth opportunities to reach our target global market share of 28% in complete automotive seat systems. We produce seat systems that are fully assembled and ready for installation in automobiles and light trucks. Seat systems are generally designed and engineered for specific vehicle models or platforms. We develop seat systems and components for all vehicle segments from compact cars to pick-up trucks and full-size sport utility vehicles. We are the world leader in luxury and performance automotive seating, providing craftsmanship, elegance in design, use of innovative materials and industry-leading technology required by premium brands, including Alfa Romeo, Audi, BMW, Cadillac, Ferrari, Jaguar, Lamborghini, Land Rover, Lincoln, Maserati, Mercedes-Benz and Porsche. We are continuing to execute our strategy of selective vertical integration of key seat components to enhance growth, improve quality, increase profitability and support our current market position in just-in-time seat assembly. In this regard, our capabilities in seat mechanisms include complete development and manufacturing capabilities in key locations to supply every major automotive producing region in the world. In addition, w e have developed standardized seat mechanisms that can be used across multiple vehicle programs to minimize investment costs. We believe that our low-cost manufacturing footprint in seat mechanisms and our precision engineered seat mechanism expertise are competitive advantages. We have continued to grow our seat cover operations in low-cost markets, including precision cutting, assembly, sewing and lamination. We are also continuing to develop our fabric business (originally secured through our acquisition of Guilford Performance Textiles), and our acquisition of Eagle Ottawa has afforded us an industry-leading market share in automotive leather globally. Our capabilities in leather design, development and manufacturing allow us to deliver the most luxurious, durable and performance-tested leathers to our customers. On a global basis, we can provide a full range of seat cover capabilities, including design and surface coating solutions, as well as unique leather and fabric applications. We believe that the combination of these capabilities in seating surface materials differentiates us and provides us with a competitive advantage facilitating our leadership position in the industry. We are committed to sustainability and reducing the environmental footprint of our products, operations and supply chain to meet current needs without compromising future generations. With a diverse team, we work to improve the sustainability of our operations through identification and reduction of generated waste, reuse of materials whenever possible and recycling. Our sustainability efforts leverage available technology to substitute certain petroleum-based products with "green" products, such as SoyFoam TM , and to manufacture a range of fabrics that contain recycled, renewable or recyclable yarns that reduce our environmental impact. For example, we manufacture fabric with recycled content, such as recycled polyester derived from post-consumer waste, through grinding and re–extruding processes. Ocean Waste yarns are sourced from plastic ocean garbage that collects in fishing nets. After segregation, polyethylene terephthalate or PET plastic bottles and other plastic waste are recycled into a high-quality polymer, which is used to produce 100% recycled polyester yarn for fabric production. Advanced Seating Craftsmanship and Innovation We believe that our broad portfolio of capabilities, including advanced design and material integration skills, is a differentiating competitive advantage for us. Our team of experts at our Center for Craftsmanship in Southfield, Michigan has developed a portfolio of product technologies that deliver differentiated design, craftsmanship and comfort, as well as sustainable products. Through this dedicated studio, we are leveraging our unique position to be an industry leader in differentiated design and facilitating customer interactions with designers and engineers working collaboratively to create innovative solutions early in the design process. The breadth of our portfolio and depth of our design expertise allow us to have early involvement in the automotive manufacturer's design process and the opportunity to better integrate all seating components to provide differentiated design comfort, quality and overall value for the end consumer. We believe that our unmatched component 11 Table of Contents capabilities, design know-how, global manufacturing presence and our portfolio of enabling and sustainable technologies uniquely position us to bring innovative designs into production with the highest level of craftsmanship. We believe that we are the only fully integrated seating supplier with global capabilities in critical seat components, together with software design, integration and manufacturing expertise. To maintain our competitive advantage, we continue to drive advanced seating innovations through a combination of comprehensive product capabilities aligned with industry mega trends and early customer engagement. The result is a broad portfolio of innovative, sustainable solutions enabling our intelligent seating offerings for today and tomorrow. Examples of our advanced technology offerings can be found in our INTU TM Seating systems and ConfigurE+ TM products. Intelligent Seating (INTU TM Seating) The seat offers a direct connection between the driver, passengers and vehicle systems. Our development of INTU TM technologies provides the driver and passengers with intelligent, intuitive seat system options that offer enhanced wellness, safety and comfort performance. Our extensive knowledge in consumer ergonomics and comfort, in combination with our electronics' capabilities, facilitated the development of our INTU TM seat features, which are capable of being programmed to identify certain key occupant inputs and automatically adjust the appropriate seat parameters to provide consumers with a better, highly personalized, in-vehicle experience. Our INTU TM Comfort features were developed to improve comfort throughout long drives. Derived from our research, INTU TM Comfort deploys proprietary technology and in-house developed analytical processes to identify the optimal seat position for the occupant given certain conditions. For example, on extended trips, the lumbar support is continuously adjusted for optimal comfort, and seat bolsters automatically adjust during sharp curves to provide the driver with optimal support. The latest addition to our INTU TM Comfort features is INTU TM Thermal Comfort that heats or cools the occupant faster and more efficiently. We have developed and driven efficiencies into individual seat components and full system integration to outperform existing systems. Continued advancements in our INTU TM Thermal Comfort system are targeted to optimize the overall thermal performance of the vehicle interior, which may reduce vehicle energy consumption of both ICE and electric vehicles. Configurable Seating Architecture (ConfigurE+ TM ) The ability to provide flexible seat positioning while offering consumers advanced seating features and functions is now achievable through our ConfigurE+ TM configurable seating architecture. Winner of a PACE Award, ConfigurE+ TM with its configurable powered rail system enables selective seat positioning and/or removal for virtually limitless configurations while maintaining the functionality of the seat's electronic features. By providing power without a wire harness, seats can be easily removed for cargo management, and vehicle cabins can be quickly customized for traditional passenger or conference configurations, providing flexibility for personal, autonomous, ride-share and public transportation needs. Further, the potential market for ConfigurE+ TM includes commercial trucks, as well as light vehicles. Other Core Capabilities With capabilities unmatched by any seat supplier in the industry, we consistently produce world-class seat systems to exceed the expectations of every type of driver and passenger. Our designs incorporate intelligent features, and our patented modular sub-assemblies with embedded technologies transform the seating market. We maintain state-of-the-art testing, instrumentation and data analysis capabilities. We possess in-house, industry-leading seat validation test centers featuring crash worthiness, durability and full acoustic and sound quality testing capabilities. Together with computer-controlled data acquisition and analysis capabilities, these centers provide precisely controlled laboratory conditions for sophisticated testing of parts, materials and systems. In addition, we incorporate many convenience, comfort and safety features into our designs, including advanced whiplash prevention concepts, integrated restraint seat systems and side impact airbags. We also invest in our computer-aided engineering design and computer-aided manufacturing systems. We have developed products and materials to improve comfort and ease of adjustment, promote customization and styling flexibility, increase durability and reliability, enhance safety, expand the usage of environmentally friendly materials and reduce cost and weight. Our core capabilities extend into key seat components as well, including: • Leather and Fabric – We deliver the most luxurious, durable and performance-tested leathers to more automotive brands globally than any other automotive leather supplier, while ensuring sustainable and responsible sourcing practices. Our premium leathers are designed for seamless integration with our industry leading secondary operations, exceeding customer expectations for quality and service. Our Eagle Ottawa premium leather group has developed and launched, in both Europe and North America, a new technology that allows for the creation of highly customizable 12 Table of Contents designs with new levels of definition and pillowing, improving the comfort and style of the seat while retaining the air flow necessary for ventilated seats. Additionally, our proprietary anti-soiling performance leather finishing technology, Ansolé TM , improves durability and protects against staining and fading. Our Guilford Premium Suede is a market-driven unique product positioned to compete with premium non-woven materials by providing a light weight, cost effective solution with improved functionality. Guilford Premium Suede is a luxury, premium material which is versatile and suitable for various interior applications, providing increased elongation and improved moldability for manufacturing processes. Our branded TeXstyle TM surface material coatings and treatment technologies enhance cleanability by releasing and repelling stains; prevent the growth of bacteria and mildew through the addition of antimicrobial treatments, including silver ion technologies; protect fabric against water and oil-based stains; minimize soiling of light colors; and are anti-static and anti-dusting. • Seat Mechanisms – We supply world-class front-row and rear seat systems, recliners, tracks, latches and other products in a scalable modular family. Our seat architectures are a core component of our industry-leading vertical integration capabilities around the world. Smaller, low-weight and low-noise materials deliver high performance, safety and functionality. Our high-speed smart fold technology is a regulated folding adjustment mechanism that delivers premium convenience while maintaining leading safety and comfort benefits. Our mini recliners and micro adjust tracks are seat mechanisms, which provide precision movement and facilitate interior packaging space flexibility. Our ECO Structures utilize an innovative hub and spoke concept offering economic solutions for developing markets. • Foam and Comfort – Our highly engineered low-profile foam, low-emission foam and our first-to-market, U.S.-sourced SoyFoam TM are break-through innovations in comfort, safety and sustainability. Manufacturing Leadership Our continued focus on expanding our expertise and capabilities in materials, logistics and manufacturing is a key enabler in providing our customers with world-class seat system products. Our unique proprietary processes and employee engagement initiatives will continue to provide us with a competitive advantage. We pioneered just-in-time ("JIT") seat assembly. Typically located adjacent to or near our customers' manufacturing and assembly sites, our JIT facilities deliver finished products matching our customers' exact build specifications for a particular day, shift and sequence. Our expertise in logistics and lean manufacturing processes enable us to meet our customers' delivery requirements while maintaining inventories at optimum levels. We believe that we are the world's most vertically integrated manufacturer of complete seat systems. We utilize the latest industry innovations and automated technologies to facilitate our continuous improvement efforts. Moreover, we have continued to expand our employee engagement initiatives achieving global scalability and successfully driving cultural advances. Our initiatives have resulted in increased first-time quality, decreased absenteeism, material cost reductions and decreased average build times per vehicle. Customers The top five customers of our Seating segment are: General Motors, Daimler, Stellantis, Volkswagen and Ford. Competition Our primary competitors in this segment globally are Adient, plc, Faurecia S.A., Magna International Inc., Toyota Boshoku Corporation, TS Tech Co., Ltd. and Yanfeng Automotive Systems Co., Ltd., which have varying market presence depending on the region, country or automotive manufacturer. Toyota Motor Corporation and Honda Motor Co. Ltd. hold equity ownership positions in Toyota Boshoku Corporation and TS Tech Co., Ltd., respectively. Other automotive manufacturers maintain a presence in the seat systems market through wholly owned subsidiaries or in-house operations. In seat components, we compete with the seat systems suppliers identified above, as well as certain suppliers that specialize in particular components. For additional factors that may impact our Seating segment's business, financial condition, operating results and/or cash flows, see Item 1A, "Risk Factors." E-Systems Segment Our E-Systems segment consists of the design, development, engineering and manufacture of complete electrical distribution and connection systems and electronic systems for light vehicles globally. We are a leader in signal distribution and power management within the vehicle for all types of powertrains – from traditional ICE architectures to the full range of electrified powertrains. We have connectivity hardware and software capabilities, including cybersecurity expertise, that facilitate secure, 13 Table of Contents wireless communication between the vehicle's electrical and electronic architecture and external networks, as well as mobile devices and other vehicles. We also offer software and services for the cloud, vehicles and mobile devices that enable consumer e-commerce, multi-media applications and enterprise services among other new and emerging applications. As the only automotive supplier with both electrical distribution and electronic capabilities for all vehicle architectures, we have a competitive advantage as we are able to offer our customers customized solutions optimized to provide complete architecture benefits. Our component designs contemplate the complete architecture performance, creating superior value for our customers. Our investments in electrification over the past thirteen years are providing us with a significant growth opportunity with respect to this trend. Further, electrified vehicle architectures represent a significant content per vehicle expansion opportunity for us. Electrical Distribution and Connection Systems Electrical distribution and connection systems route networks and electrical signals and manage electrical power within the vehicle for all types of powertrains, including traditional ICE architectures and the full range of electrified powertrains, supporting the current industry trend toward electrification. Key components in the electrical distribution and connection system include wire harnesses, terminals and connectors, and engineered components for both ICE and electrified vehicle architectures that require management of higher voltage and power. Wire harness assemblies, including connection systems, link all of the various electrical and electronic devices within the vehicle to each other and/or to a power source. Our wire harnesses provide low voltage (12 volts / 48 volts) and high voltage (60 volts – 800 volts) power distribution. Low voltage wire harnesses are used on all light duty vehicles, and high voltage wire harnesses are used on hybrid, plug-in hybrid and battery electric vehicles. Wire harness assemblies are a collection of individual circuits fabricated from raw and insulated wire, which is automatically cut to length and terminated during the manufacturing process. Individual circuits are assembled together, inserted into connectors and wrapped or taped to form wire harness assemblies. The assembly process is labor intensive, and as a result, production is generally performed in low-cost labor sites in Mexico, Honduras, Brazil, Eastern Europe, Africa, China and the Philippines. Connection systems include terminals and connectors and engineered components that join wire harnesses together at their respective end points or connect electronic devices to wire harnesses. Connection systems can vary significantly in size and complexity depending on the amount of power or data being transferred and the number of connections being made at any particular point in the electrical distribution system. Connection systems support both low voltage and high voltage power distribution. Low voltage connection systems are applicable on all light duty vehicles, and high voltage connection systems are applicable on hybrid, plug-in hybrid and battery electric vehicles. Our connection systems are produced using highly automated processes, including stamping, injection molding and automated assembly processes. In 2021, we entered into multiple partnerships to expand our business opportunities in connection systems, including partnerships with IMS Connector System, a technology company based in Germany to enable advanced high speed data connection systems, and Hu Lane Associate Inc., a world-class manufacturer of automotive connector products to expand our access to a broader catalog of product-enabling solutions for our customers. Our connection systems are currently manufactured in Germany, Eastern Europe, China and the United States. Key material inputs to our connection systems business include metals, such as copper and aluminum, and various resins. Engineered components consist of molded components included as part of a wire harness assembly that perform specific functions, such as protection, routing, sealing or covering, to ensure that the wire harness assembly properly performs its function. In 2021, we acquired M&N Plastics, a privately owned injection molding specialist and manufacturer of engineered plastic components for automotive electrical distribution applications, significantly expanding our capabilities and footprint in engineered components. Engineered components are applicable on all vehicle architectures and are produced using molding processes. Our engineered components are currently manufactured in Germany, Czech Republic, the United States and China. Key material inputs to our engineered components are various resins. Electronic Systems In our E-Systems segment, we also design, develop, engineer and manufacture electronic systems, which control various functions within the vehicle, as well as develop and integrate the associated software for these electronic systems. Our embedded software solutions have traditionally been sourced as a system with our electronic hardware offerings. Our established capabilities in embedded control software will allow us to capitalize on such opportunities. Our electronic modules include body domain control modules, smart and passive junction boxes, and TCUs and gateway modules that are applicable to all vehicle types. As a result of thirteen years of investment in electrification, our electronic systems business also includes electronic modules that are specific to hybrid and electric vehicles, such as on-board battery chargers, power conversion modules, high voltage battery management systems and high voltage power distribution systems. Our engineering and development activities for electronics are in the United States (Southfield, Michigan), Germany, Spain, China and India. We 14 Table of Contents assemble these modules using specialized, high-speed surface mount placement equipment and assembly processes in Mexico, Europe, Northern Africa and China. Electronic system products and their applications include: • Body Domain Control Modules – Body domain control modules primarily control vehicle interior functions outside of the vehicle's head unit or infotainment system. • Zone Control Modules – Zone control modules are vehicle computers that control multiple functional domains (e.g., body, powertrain, chassis) within the vehicle. • Smart and Passive Junction Boxes – Passive junction boxes are centrally located modules within the vehicle that contain fuses and/or relays for circuit and device protection and serve as a connection point for multiple wire harnesses. Smart junction boxes represent the integration of junction boxes with certain body domain control module functions, which can provide higher efficiency solutions for packaging size, mass and assembly in certain vehicle electrical architectures. • TCUs and Gateway Modules – Our TCUs and gateway modules facilitate secure access to, and communication with, all of the vehicle systems at a central point and translate various signals to facilitate data exchange across various vehicle domains. • Integrated Power Modules – Integrated power modules are power electronics products used on hybrid, plug-in hybrid and battery electric vehicles that have at least two, but typically three, functions integrated into a single module to achieve efficiencies, including packaging size, reduced electrical connections and reduced mass. Our offerings are focused on the integration of on-board battery chargers, DC/DC converters and high voltage power distribution units. • High Voltage Battery Management Systems – High voltage battery management systems are a system of multiple electronic control modules comprised of sensing modules and computing modules that provide sensing and assessment of the high voltage battery's condition, performance and status, as well as calculate appropriate control adjustments to battery temperature control, amperage draw and charge rate to ensure proper performance of the system. • Battery Disconnect Unit – Battery disconnect units are high voltage switching and power control systems that manage the power in and out of electric vehicle batteries. • Software – Our software offerings include embedded software, which is impacted by the increased complexity and processing power in electronic systems and is driving rapid increases in software requirements associated with these systems. Technology Our complete electrical distribution and connection system design capabilities, coupled with certain market-leading component technologies, allow early access to our customers' product development teams, which provides an indication of our customers' product needs and enables us to develop system design efficiencies. Our E-Systems business is technology driven and typically requires higher investment as a percentage of sales than our Seating business. Our expertise is developed and delivered by approximately 2,500 engineers across sixteen countries and is led by four global technology centers of excellence in China, Germany, Spain and the United States for each of our major product lines in this segment, which are described below. In electrical distribution and connection systems, our technology includes expertise in the design and use of alternative conductor materials, such as aluminum, copper-clad steel and other hybrid alloys. Alternative conductor materials can enable the use of ultra small gauge conductors, which reduce the weight and packaging size of electrical distribution and connection systems. We also have developed proprietary manufacturing process technologies, such as our vertical manufacturing system that features three dimensional wire harness assembly boards. Our expertise in connection system technology facilitates our ability to implement these small gauge and alternative alloy conductors. We have developed advanced capabilities in aluminum terminals and aluminum wire termination, ultra small gauge termination and high voltage terminals and connectors. We have developed high packaging density in-line connectors and new small gauge terminals that will enable wire gauge reduction and provide our customers with smaller and lower cost solutions. With our high voltage connection systems, we have established a leading capability in power density (power per packaging size) that is being adopted by multiple automotive manufacturers. We have approximately 720 patents issued or applied for in the advanced efficiency systems product technology area. These technologies are supported by our proprietary virtual proving grounds, which is an industry-leading suite of in-house developed tools and processes to significantly reduce design, development and validation testing time and expense. In electronic systems, we are a market leader in smart junction box technology and began production of our PACE Award-winning Solid State Smart Junction Box TM in 2016. We are a leader in TCU technology and have capabilities to enable our TCUs and other electronic control modules to efficiently and securely manage the increasing amount of both wired and wireless 15 Table of Contents signals running throughout, as well as outside of, the vehicle. We were first-to-market with an ethernet gateway module and the 2021 PACEpilot Innovation to Watch Award-winning 5G TCU. Our connectivity technologies also include full in-house software capabilities, encompassing 5G cellular expertise, vehicle-to-vehicle communications and cybersecurity. In high power electronics, we offer high efficiency battery chargers, which charge vehicles faster; high voltage battery management systems, which optimize battery performance for longer range and faster charging; highly integrated power modules, which reduce cost, weight and size while reducing time to charge and extending electric vehicle range; and battery disconnect units, which provide all of the high voltage switching for the electric vehicle battery. Our battery disconnect unit was a 2021 PACE Award winner for breakthrough technology in high voltage power and thermal management. Software is a critical element of our electronic systems business. Software capabilities are becoming more important in the management of complex and highly sophisticated electronic architectures. Software within the vehicle is rapidly growing as a key element of technological innovation and a cost effective way to provide new features and functions. For additional factors that may impact our E-Systems segment's business, financial condition, operating results and/or cash flows, see Item 1A, "Risk Factors." Customers The top five customers of our E-Systems segment are: Ford, Renault-Nissan, Jaguar Land Rover, Geely and Volkswagen. Competition Our major competitors in electrical distribution and connection systems include Aptiv PLC, Leoni AG, Molex Incorporated (a subsidiary of Koch Industries Inc.), Sumitomo Corporation, TE Connectivity and Yazaki Corporation. Our major competitors in electronic modules, including connectivity solutions, include Aptiv PLC, Continental AG, Denso Corporation, Harman International Industries, Incorporated (a subsidiary of Samsung Electronics Co. Ltd.), Hella AG, Robert Bosch GmbH, Valeo S.A. and Visteon Corporation. Customers In 2021, General Motors and Ford, two of the largest automotive and light truck manufacturers in the world, accounted for 18% and 14% of our net sales, respectively. In addition, Volkswagen, Daimler and Stellantis accounted for 12%, 11% and 11% of our 2021 net sales, respectively. We supply and have expertise in all vehicle segments of the automotive market. Our sales content tends to be higher on those vehicle platforms and segments which offer more features and functionality. The popularity of particular vehicle platforms and segments varies over time and by regional market. We expect to continue to win new business and grow sales at a greater rate than overall automotive industry production. For further information related to our customers and domestic and foreign sales and operations, see Note 15, "Segment Reporting," to the consolidated financial statements included in this Report. Our customers award business to their suppliers in a number of ways, including the award of complete systems, which allows suppliers either to manufacture components internally or to purchase components from other suppliers at their discretion. Certain of our customers also elect to award certain components directly to component suppliers and independent of the award of the complete system. We have been selectively expanding our component capabilities and investing in manufacturing capacity in low-cost regions in order to enhance our cost competitive structure and maximize our participation in such direct component sourcing by our customers. Our customers typically award contracts several years before actual production is scheduled to begin. Each year, the automotive manufacturers introduce new models, update existing models and discontinue certain models and, periodically, even complete brands. In this process, we may be selected as the supplier on a new model, we may continue as the supplier on an updated model or we may lose the business on a new or updated model to a competitor. Our sales backlog reflects our estimated net sales over the next three years from formally awarded new programs, less lost and discontinued programs. This measure excludes the sales backlog at our non-consolidated joint ventures. As of January 2022, our 2022 to 2024 sales backlog is $3.3 billion, an increase of 18% as compared to our sales backlog as of January 2021. Our current sales backlog reflects $1.3 billion related to 2022 and 70% and 30% related to our Seating and E-Systems segments, respectively. In addition, our 2022 to 2024 sales backlog at our non-consolidated joint ventures is approximately $570 million. Our current sales backlog assumes volumes based on the independent industry projections of IHS Markit as of December 2021 and internal estimates, a Euro exchange rate of $1.13/Euro and a Chinese RMB exchange rate of 6.50/$. This sales backlog is generally subject to a number of risks and uncertainties, including vehicle production volumes on new and replacement programs and foreign exchange rates, as well as the timing of production launches and changes in customer development plans. For additional information regarding risks that may affect our sales backlog, see Item 1A, "Risk Factors," and Part II — Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements." 16 Table of Contents We receive purchase orders from our customers that generally provide for the supply of a customer's annual requirements for a particular vehicle model and assembly plant, or in some cases, for the supply of a customer's requirements for the life of a particular vehicle model, rather than for the purchase of a specified quantity of products. Although most purchase orders may be terminated by our customers at any time, such terminations have been infrequent and have not had a material impact on our operating results. We are subject to risks that an automotive manufacturer will produce fewer units of a vehicle model than anticipated or that an automotive manufacturer will not award us a replacement program following the life of a vehicle model. To reduce our reliance on any one vehicle model, we produce automotive systems and components for a broad cross-section of both new and established models. However, larger cars and light trucks, as well as vehicle platforms that offer more features and functionality, such as luxury, sport utility and crossover vehicles, typically have more content and, therefore, tend to have a more significant impact on our operating performance. Our net sales for the year ended December 31, 2021, consisted of 29% passenger cars, 54% crossover and sport utility vehicles and 18% trucks and vans. Our agreements with our major customers generally provide for an annual productivity price reduction. Historically, cost reductions through product design changes, increased manufacturing productivity and similar programs with our suppliers have generally offset these customer-imposed price reduction requirements. However, raw material, energy and commodity costs can be volatile. Although we have developed and implemented strategies to mitigate the impact of higher raw material, energy and commodity costs, these strategies, together with commercial negotiations with our customers and suppliers, typically offset only a portion of the adverse impact. Certain of these strategies also may limit our opportunities in a declining commodity environment. In addition, we are exposed to increasing market risk associated with fluctuations in foreign exchange as a result of our low-cost footprint and vertical integration strategies. We use derivative financial instruments to reduce our exposure to fluctuations in foreign exchange rates. For additional information regarding our foreign exchange and commodity price risk, see Part II — Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Financial Condition — Foreign Exchange" and "— Commodity Prices." Seasonality Our principal operations are directly related to the automotive industry. Consequently, we may experience seasonal fluctuations to the extent automotive vehicle production slows, such as in the summer months when many customer plants close for holidays and/or model year changeovers, in December when many customer plants close for the holidays and during periods of high vehicle inventory. Raw Materials The principal raw materials used in our seat systems, electrical distribution and connection systems and electronic systems are generally available and obtained from multiple suppliers under various types of supply agreements. Components such as fabric, foam, leather, seat mechanisms, connection systems and certain other components are either manufactured by us internally or purchased from multiple suppliers under various types of supply agreements. The majority of the steel used in our products is comprised of fabricated components that are integrated into a seat system, such as seat frames, recliner mechanisms, seat tracks and other mechanical components. Therefore, our exposure to changes in steel prices is primarily indirect, through these purchased components. With the exception of certain connection systems, the materials that we use to manufacture wire harness assemblies are substantially purchased from suppliers, including extruded and insulated wire and cable. The majority of our copper purchases are comprised of extruded wire and cable that we integrate into electrical wire harnesses. In general, our copper purchases, as well as a significant portion of our leather purchases, are subject to price index agreements with our customers and suppliers. We utilize a combination of short-term and long-term supply contracts to purchase key components. We generally retain the right to terminate these agreements if our supplier does not remain competitive in terms of cost, quality, delivery, technology or customer support. Intellectual Property Worldwide, we have approximately 2,600 patents and patent applications pending. While we believe that our patent portfolio is a valuable asset, no individual patent or group of patents is critical to the success of our business. We also license selected technologies to automotive manufacturers and to other automotive suppliers. We continually strive to identify and implement new technologies for use in the design and development of our products. Advanced technology development is conducted worldwide at our seven advanced technology centers and at our product engineering centers. At these centers, we engineer our products to comply with applicable safety standards, meet quality and durability standards, respond to environmental conditions and conform to customer and consumer requirements. Our global innovation and technology center located in Southfield, Michigan, develops and integrates new concepts and is our central location for consumer research, benchmarking, craftsmanship and industrial design activity. We have numerous registered trademarks in the United States and in many foreign countries. The most important of these marks include LEAR CORPORATION ® (including our stylized version thereof) and LEAR ® , which are widely used in 17 Table of Contents connection with our products and services. Our other principal brands include GUILFORD ® and EAGLE OTTAWA ® . ConfigurE+ TM seating, INTU TM seating, LEAR CONNEXUS TM signal and data communications, EXO TM high-accuracy positioning, JOURNEYWARE ® software, ProTec ® active head restraints, SMART JUNCTION BOX TM technology, STRUCSURE TM systems, AVENTINO ® leather and TeXstyle TM fabrics are some of our other trademarks used in connection with certain of our product lines. Government Regulations and Environmental Matters We are subject to a variety of federal, state, local and foreign laws and regulations, including those related to health, safety and environmental matters. Costs incurred to comply with these governmental regulations are not material to our capital expenditures, financial performance or competitive position. Additional information about the impact of government regulations on Lear's business is included in Item 1A, "Risk Factors," under the heading "Legal and Regulatory Risks." We are committed to sustainability in our operations and products. We adhere to local, state, federal and foreign laws, regulations and ordinances, which govern activities or operations that may have adverse environmental effects. These laws, regulations and ordinances may impose liability for clean-up costs resulting from past spills, disposals or other releases of hazardous wastes. For a description of our outstanding environmental matters and other legal proceedings, see Note 14, "Commitments and Contingencies," to the consolidated financial statements included in this Report. In addition, our customers are subject to significant environmentally focused state, federal and foreign laws and regulations that regulate vehicle emissions, fuel economy and other matters related to the environmental impact of vehicles. To the extent that such laws and regulations ultimately increase or decrease automotive vehicle production, such laws and regulations would likely impact our business. See Item 1A, "Risk Factors." Furthermore, we currently offer products with green technology, such as SoyFoam TM , and are creating technologies that facilitate environmentally friendly transportation alternatives, such as hybrid and electric vehicles. Our expertise, capabilities and environmental leadership are allowing us to expand our product offerings in this area. Joint Ventures and Noncontrolling Interests We form joint ventures in order to gain entry into new markets, expand our product offerings and broaden our customer base. In particular, we believe that certain joint ventures have provided us, and will continue to provide us, with the opportunity to expand our business relationships with Asian automotive manufacturers, particularly in emerging markets. We also partner with companies having significant local experience in commerce and customs, as well as capacity, to reduce our financial risk and enhance our potential for achieving expected financial returns. In some cases, these joint ventures may be located in North America or Europe and used to expand our customer relationships. As of December 31, 2021, we had fifteen operating joint ventures located in five countries. Of these joint ventures, five are consolidated, and ten are accounted for using the equity method of accounting. Thirteen of the joint ventures operate in Asia, and two operate in North America (both of which are dedicated to serving Asian automotive manufacturers). Net sales of our consolidated joint ventures accounted for approximately 8% of our net sales in 2021. As of December 31, 2021, our investments in non-consolidated joint ventures totaled $185 million. A summary of our non-consolidated operating joint ventures, including ownership percentages, is shown below. For further information related to our joint ventures, see Note 6, "Investments in Affiliates and Other Related Party Transactions," to the consolidated financial statements included in this Report. Country Name Ownership Percentage China Beijing BHAP Lear Automotive Systems Co., Ltd. 50% China Guangzhou Lear Automotive Components Co., Ltd. 50 China Jiangxi Jiangling Lear Interior Systems Co., Ltd. 50 China Lear Dongfeng Automotive Seating Co., Ltd. 50 China Changchun Lear FAWSN Automotive Seat Systems Co., Ltd. 49 China Shenyang Jinbei Lear Automotive Seating Co. Ltd. 49 China Beijing Lear Hyundai Transys Co., Ltd. 40 Honduras Honduras Electrical Distribution Systems S. de R.L. de C.V. 49 India Hyundai Transys Lear Automotive Private Limited 35 United States Kyungshin-Lear Sales and Engineering LLC 49 18 Table of Contents