LEAR CORP 10-K

ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Market Risk Sensitivity In the normal course of business, we are exposed to market risks associated with fluctuations in foreign exchange rates, interest rates and commodity prices. We manage a portion of these risks through the use of derivative financial instruments in accordance with our policies. We enter into all hedging transactions for periods consistent with the underlying exposures. We do not enter into derivative instruments for trading purposes. Foreign Exchange Operating results may be impacted by our buying, selling and financing in currencies other than the functional currency of our operating companies ("transactional exposure"). We may mitigate a portion of this risk by entering into forward foreign exchange, futures and option contracts. The foreign exchange contracts are executed with banks that we believe are creditworthy. Gains and losses related to foreign exchange contracts are deferred where appropriate and included in the measurement of the foreign currency transaction subject to the hedge. Gains and losses incurred related to foreign exchange contracts are generally offset by the direct effects of currency movements on the underlying transactions. A summary of the notional amount and estimated aggregate fair value of our outstanding foreign exchange contracts is shown below (in millions): December 31, 2022 2021 Notional amount (contract maturities < 24 months) $ 2,306 $ 1,523 Fair value 63 6 Currently, our most significant foreign currency transactional exposures relate to the Mexican peso, various European currencies, the Honduran lempira, the Chinese renminbi, the Japanese yen and the Brazilian real. A sensitivity analysis of our net transactional exposure is shown below (in millions): Potential Earnings Benefit (Adverse Earnings Impact) December 31, Hypothetical Strengthening % (1) 2022 2021 U.S. dollar 10% $ 8 $ 7 Euro 10% 19 (7) (1) Relative to all other currencies to which it is exposed for a twelve-month period. A sensitivity analysis related to the aggregate fair value of our outstanding foreign exchange contracts is shown below (in millions): Estimated Change in Fair Value December 31, Hypothetical Change % (2) 2022 2021 U.S. dollar 10% $ 84 $ 48 Euro 10% 70 49 (2) Relative to all other currencies to which it is exposed. There are certain shortcomings inherent in the sensitivity analyses above. The analyses assume that all currencies would uniformly strengthen or weaken relative to the U.S. dollar or Euro. In reality, some currencies may strengthen while others may weaken, causing the earnings impact to increase or decrease depending on the currency and the direction of the rate movement. In addition to the transactional exposure described above, our operating results are impacted by the translation of our foreign operating income into U.S. dollars ("translational exposure"). In 2022, net sales outside of the United States accounted for 77% of our consolidated net sales, although certain non-U.S. sales are U.S. dollar denominated. We do not enter into foreign exchange contracts to mitigate our translational exposure. 51 ITEM 8 – CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA INDEX TO CONSOLIDATED FINANCIAL STATEMENTS Page Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm (PCAOB ID: 42 ) 53 Consolidated Balance Sheets as of December 31, 2022 and 2021 56 Consolidated Statements of Income for the years ended December 31, 202 2 , 202 1 and 2020 57 Consolidated Statements of Comprehensive Income for the years ended December 31, 2022, 2021 and 2020 58 Consolidated Statements of Equity for the years ended December 31, 2022, 2021 and 2020 59 Consolidated Statements of Cash Flows for the years ended December 31, 2022, 2021 and 2020 61 Notes to Consolidated Financial Statements 62 Schedule II – Valuation and Qualifying Accounts 101 52 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Lear Corporation Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Lear Corporation and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2022, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 9, 2023, expressed an unqualified opinion thereon. Basis for Opinion These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. Critical Audit Matter The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates. Revenue recognition 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. Some of these price adjustments are non-routine in nature. The amount of revenue recognized by the Company reflects the consideration that the Company expects to be entitled to in exchange for its products based on the current purchase orders, annual price reductions and ongoing price adjustments. 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. 53 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. /s/ Ernst & Young LLP We have served as the Company's auditor since 2002. Detroit, Michigan February 9, 2023 54 Report of Independent Registered Public Accounting Firm To the Stockholders and the Board of Directors of Lear Corporation Opinion on Internal Control over Financial Reporting We have audited Lear Corporation and subsidiaries' internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Lear Corporation and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, 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 Kongsberg Automotive's Interior Comfort Systems business unit (“Kongsberg ICS”), which is included in the 2022 consolidated financial statements of the Company and constituted 2.8% of total assets as of December 31, 2022 and 1.2% 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 Kongsberg ICS. We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2022 consolidated financial statements of the Company and our report dated February 9, 2023, expressed an unqualified opinion thereon. Basis for Opinion The Company's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. Definition and Limitations of Internal Control Over Financial Reporting A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. /s/ Ernst & Young LLP Detroit, Michigan February 9, 2023 55 LEAR CORPORATION AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (In millions, except share data) December 31, 2022 2021 Assets Current Assets: Cash and cash equivalents $ 1,114.9 $ 1,318.3 Accounts receivable 3,451.9 3,041.5 Inventories 1,573.6 1,571.9 Other 853.7 833.5 Total current assets 6,994.1 6,765.2 Long-Term Assets: Property, plant and equipment, net 2,854.0 2,720.1 Goodwill 1,660.6 1,657.9 Other 2,254.3 2,209.2 Total long-term assets 6,768.9 6,587.2 Total assets $ 13,763.0 $ 13,352.4 Liabilities and Equity Current Liabilities: Short-term borrowings $ 9.9 $ — Accounts payable and drafts 3,206.1 2,952.4 Accrued liabilities 1,961.5 1,806.7 Current portion of long-term debt 10.8 0.8 Total current liabilities 5,188.3 4,759.9 Long-Term Liabilities: Long-term debt 2,591.2 2,595.2 Other 1,153.2 1,188.9 Total long-term liabilities 3,744.4 3,784.1 Equity: Preferred stock, 100,000,000 shares authorized (including 10,896,250 shares of Series A convertible preferred stock authorized); no shares outstanding — — Common stock, $ 0.01 par value, 300,000,000 shares authorized; 64,571,405 shares issued as of December 31, 2022 and 2021 0.6 0.6 Additional paid-in capital 1,023.1 1,019.4 Common stock held in treasury, 5,493,211 and 4,945,847 shares as of December 31, 2022 and 2021, respectively, at cost ( 753.9 ) ( 679.2 ) Retained earnings 5,214.1 5,072.8 Accumulated other comprehensive loss ( 805.1 ) ( 770.2 ) Lear Corporation stockholders' equity 4,678.8 4,643.4 Noncontrolling interests 151.5 165.0 Equity 4,830.3 4,808.4 Total liabilities and equity $ 13,763.0 $ 13,352.4 The accompanying notes are an integral part of these consolidated balance sheets. 56 LEAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (In millions, except share and per share data) For the year ended December 31, 2022 2021 2020 Net sales $ 20,891.5 $ 19,263.1 $ 17,045.5 Cost of sales 19,481.6 17,871.2 15,936.6 Selling, general and administrative expenses 684.8 643.2 588.9 Amortization of intangible assets 70.8 73.3 65.9 Interest expense 98.6 91.8 99.6 Other expense, net 46.4 0.1 55.2 Consolidated income before provision for income taxes and equity in net income of affiliates 509.3 583.5 299.3 Provision for income taxes 133.7 137.7 93.9 Equity in net income of affiliates ( 33.1 ) ( 15.8 ) ( 28.5 ) Consolidated net income 408.7 461.6 233.9 Less: Net income attributable to noncontrolling interests 81.0 87.7 75.4 Net income attributable to Lear $ 327.7 $ 373.9 $ 158.5 Basic net income per share attributable to Lear $ 5.49 $ 6.22 $ 2.63 Diluted net income per share attributable to Lear $ 5.47 $ 6.19 $ 2.62 Average common shares outstanding 59,674,488 60,082,833 60,254,380 Average diluted shares outstanding 59,920,529 60,420,484 60,429,962 The accompanying notes are an integral part of these consolidated financial statements. 57 LEAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (In millions) For the year ended December 31, 2022 2021 2020 Consolidated net income $ 408.7 $ 461.6 $ 233.9 Other comprehensive income (loss), net of tax: Defined benefit plan adjustments 103.7 77.5 ( 59.3 ) Derivative instruments and hedging activities 52.0 ( 31.2 ) 2.8 Foreign currency translation adjustments ( 198.1 ) ( 108.3 ) 139.7 Total other comprehensive income (loss) ( 42.4 ) ( 62.0 ) 83.2 Consolidated comprehensive income 366.3 399.6 317.1 Less: Comprehensive income attributable to noncontrolling interests 73.5 90.8 91.0 Comprehensive income attributable to Lear $ 292.8 $ 308.8 $ 226.1 The accompanying notes are an integral part of these consolidated financial statements. 58 LEAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (In millions, except share data) Redeemable Non- controlling Interests Common Stock Additional Paid-in Capital Common Stock Held in Treasury Retained Earnings Balance as of December 31, 2019 $ 118.4 $ 0.6 $ 969.1 $ ( 563.1 ) $ 4,715.8 Comprehensive income (loss): — Net income (loss) ( 3.5 ) — — — 158.5 Other comprehensive income (loss) 7.7 — — — — Total comprehensive income (loss) 4.2 — — — 158.5 Adoption of ASU 2016-13 — — — — ( 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 ) — — — — Acquisition of outstanding noncontrolling interests ( 96.9 ) — 1.4 — — Redeemable noncontrolling interest adjustment 1.1 — — — ( 1.1 ) Balance as of December 31, 2020 $ — $ 0.6 $ 963.6 $ ( 598.6 ) $ 4,806.8 Comprehensive income (loss): Net income — — — — 373.9 Other comprehensive income (loss) — — — — — Total comprehensive income (loss) — — — — 373.9 Stock-based compensation — — 60.3 — — Net issuances of 163,761 shares held in treasury in settlement of stock-based compensation — — ( 33.1 ) 19.7 — Repurchases of 589,717 shares of common stock at an average price of $ 170.03 per share — — — ( 100.3 ) — Dividends declared to Lear Corporation stockholders — — — — ( 107.9 ) Dividends declared to noncontrolling interests — — — — — Affiliate transaction — — 28.6 — — Balance as of December 31, 2021 $ — $ 0.6 $ 1,019.4 $ ( 679.2 ) $ 5,072.8 Comprehensive income (loss): Net income — — — — 327.7 Other comprehensive income (loss) — — — — — Total comprehensive income (loss) — — — — 327.7 Stock-based compensation — — 52.0 — — Net issuances of 215,945 shares held in treasury in settlement of stock-based compensation — — ( 48.3 ) 25.6 ( 0.2 ) Repurchases of 763,309 shares of common stock at an average price of $ 131.37 per share — — — ( 100.3 ) — Dividends declared to Lear Corporation stockholders — — — — ( 186.2 ) Dividends declared to noncontrolling interests — — — — — Change in noncontrolling interests — — — — — Balance as of December 31, 2022 $ — $ 0.6 $ 1,023.1 $ ( 753.9 ) $ 5,214.1 The accompanying notes are an integral part of these consolidated financial statements. 59 LEAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF EQUITY (continued) (In millions, except share data) Accumulated Other Comprehensive Loss, net of tax Defined Benefit Plans Derivative Instruments and Hedge Activities Cumulative Translation Adjustments Lear Corporation Stockholders' Equity Non-controlling Interests Equity 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 (loss) — — — 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 — — — ( 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 ) Acquisition of outstanding noncontrolling interests — — — 1.4 — 1.4 Redeemable noncontrolling interest adjustment — — — ( 1.1 ) — ( 1.1 ) Balance as of December 31, 2020 $ ( 276.9 ) $ 12.6 $ ( 440.8 ) $ 4,467.3 $ 147.6 $ 4,614.9 Comprehensive income (loss): Net income — — — 373.9 87.7 461.6 Other comprehensive income (loss) 77.5 ( 31.2 ) ( 111.4 ) ( 65.1 ) 3.1 ( 62.0 ) Total comprehensive income (loss) 77.5 ( 31.2 ) ( 111.4 ) 308.8 90.8 399.6 Stock-based compensation — — — 60.3 — 60.3 Net issuances of 163,761 shares held in treasury in settlement of stock-based compensation — — — ( 13.4 ) — ( 13.4 ) Repurchases of 589,717 shares of common stock at an average price of $ 170.03 per share — — — ( 100.3 ) — ( 100.3 ) Dividends declared to Lear Corporation stockholders — — — ( 107.9 ) — ( 107.9 ) Dividends declared to noncontrolling interests — — — — ( 81.0 ) ( 81.0 ) Affiliate transaction — — — 28.6 7.6 36.2 Balance as of December 31, 2021 $ ( 199.4 ) $ ( 18.6 ) $ ( 552.2 ) $ 4,643.4 $ 165.0 $ 4,808.4 Comprehensive income (loss): Net income — — — 327.7 81.0 408.7 Other comprehensive income (loss) 103.7 52.0 ( 190.6 ) ( 34.9 ) ( 7.5 ) ( 42.4 ) Total comprehensive income (loss) 103.7 52.0 ( 190.6 ) 292.8 73.5 366.3 Stock-based compensation — — — 52.0 — 52.0 Net issuances of 215,945 shares held in treasury in settlement of stock-based compensation — — — ( 22.9 ) — ( 22.9 ) Repurchases of 763,309 shares of common stock at an average price of $ 131.37 per share — — — ( 100.3 ) — ( 100.3 ) Dividends declared to Lear Corporation stockholders — — — ( 186.2 ) — ( 186.2 ) Dividends declared to noncontrolling interests — — — — ( 87.6 ) ( 87.6 ) Change in noncontrolling interests — — — — 0.6 0.6 Balance as of December 31, 2022 $ ( 95.7 ) $ 33.4 $ ( 742.8 ) $ 4,678.8 $ 151.5 $ 4,830.3 The accompanying notes are an integral part of these consolidated financial statements. 60 LEAR CORPORATION AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (In millions) For the year ended December 31, 2022 2021 2020 Cash Flows from Operating Activities: Consolidated net income $ 408.7 $ 461.6 $ 233.9 Adjustments to reconcile consolidated net income to net cash provided by operating activities – Equity in net income of affiliates ( 33.1 ) ( 15.8 ) ( 28.5 ) Loss on extinguishment of debt — 24.6 21.1 Impairment charges 29.1 20.1 31.9 Deferred tax benefit ( 49.4 ) ( 55.5 ) ( 84.7 ) Depreciation and amortization 576.5 573.9 539.9 Stock-based compensation 52.0 60.3 40.0 Net change in recoverable customer engineering, development and tooling ( 1.2 ) ( 29.1 ) ( 47.0 ) Net change in working capital items (see below) ( 17.8 ) ( 351.0 ) ( 66.9 ) Changes in other long-term assets 9.6 ( 35.7 ) ( 26.5 ) Changes in other long-term liabilities 8.2 ( 6.5 ) 8.3 Other, net 38.8 23.2 41.6 Net cash provided by operating activities 1,021.4 670.1 663.1 Cash Flows from Investing Activities: Additions to property, plant and equipment ( 638.2 ) ( 585.1 ) ( 452.3 ) Acquisition of Kongsberg ICS, net of cash acquired ( 188.3 ) — — Other, net ( 3.8 ) ( 61.6 ) ( 16.5 ) Net cash used in investing activities ( 830.3 ) ( 646.7 ) ( 468.8 ) Cash Flows from Financing Activities: Short-term borrowings (repayments), net 8.0 — ( 19.3 ) Repurchase of common stock ( 100.3 ) ( 100.3 ) ( 70.0 ) Dividends paid to Lear Corporation stockholders ( 185.5 ) ( 106.7 ) ( 67.3 ) Dividends paid to noncontrolling interests ( 84.6 ) ( 81.1 ) ( 123.3 ) Term loan repayments — ( 220.3 ) ( 14.1 ) Proceeds from the issuance of senior notes — 698.7 669.1 Redemption of senior notes — ( 221.5 ) ( 667.1 ) Payment of debt issuance and other financing costs — ( 9.9 ) ( 7.0 ) Revolving credit facility borrowings — — 1,000.0 Revolving credit facility repayments — — ( 1,000.0 ) Other, net ( 24.9 ) 27.5 ( 112.7 ) Net cash used in financing activities ( 387.3 ) ( 13.6 ) ( 411.7 ) Effect of foreign currency translation ( 7.7 ) ( 3.0 ) 21.5 Net Change in Cash, Cash Equivalents and Restricted Cash ( 203.9 ) 6.8 ( 195.9 ) Cash, Cash Equivalents and Restricted Cash as of Beginning of Period 1,321.3 1,314.5 1,510.4 Cash, Cash Equivalents and Restricted Cash as of End of Period $ 1,117.4 $ 1,321.3 $ 1,314.5 Changes in Working Capital Items: Accounts receivable $ ( 518.8 ) $ 160.9 $ ( 164.7 ) Inventories ( 29.8 ) ( 213.4 ) ( 107.7 ) Accounts payable 368.6 ( 129.6 ) 214.0 Accrued liabilities and other 162.2 ( 168.9 ) ( 8.5 ) Net change in working capital items $ ( 17.8 ) $ ( 351.0 ) $ ( 66.9 ) Supplementary Disclosure: Cash paid for interest $ 96.5 $ 91.6 $ 117.8 Cash paid for income taxes, net of refunds received of $ 17.1 million in 2022, $ 40.7 million in 2021 and $ 32.5 million in 2020 $ 194.6 $ 148.3 $ 141.5 The accompanying notes are an integral part of these consolidated financial statements. 61 Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (1) Basis of Presentation Lear Corporation ("Lear," and together with its consolidated subsidiaries, the "Company") and its affiliates design and manufacture automotive seating and electrical distribution systems and related components. The Company's main customers are automotive original equipment manufacturers. The Company operates facilities worldwide. 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) Current Operating Environment Due to the evolving global economic co nditions since 2020, initially as a result of the COVID-19 pandemic, the automotive industry experienced a decline in global customer sales and production volumes. Alth ough industry production has recovered modestly, production remains well below recent historic levels. Since 2020, industry and economic conditions have been influenced directly and indirectly by macroeconomic events such as the COVID-19 pandemic and, beginning in the first quarter of 2022, the Russia-Ukraine conflict, resulting in unfavorable conditions, including shortages of semiconductor chips and other components, elevated inflation levels, higher interest rates, and labor and energy shortages in certain markets. These factors, among others, are impacting consumer demand as well as the ability of automotive manufacturers to produce vehicles to meet demand. The Company's strategy to mitigate these impacts encompasses a comprehensive cost management process, including value added value engineering (or cost technology optimization), actions to further align the Company's manufacturing capacity to the current industry production environment, investments in Industry 4.0 technologies to enhance operational efficiencies and utilization of existing capital to reduce future expenditures. In March 2022, as the Company's customers began to suspend their Russian operations as a result of Russia's invasion of Ukraine, the Company similarly began to suspend its Russian operations. Since the first quarter of 2022, the Company has suspended all production in Russia (but for certain de minimis operations) and significantly decreased its workforce in the country. In September 2022, the Company identified potential impairment indicators, given the continued uncertainty regarding its Russian operations and the military escalation announced by the Russian government in September 2022, and determined that the values of substantially all of its operating assets in Russia were impaired. As a result, the Company recorded charges of $ 19.4 million in 2022 related to impairments of inventory, property, plant and equipment and right-of-use assets. These charges are reflected in the Company's Seating business and are included in cost of sales in the accompanying consolidated statement of income for the year ended December 31, 2022. Although the Company's net sales and total assets in Russia represented less than 1% of its consolidated net sales and total assets prior to the suspension of operations, the Russia-Ukraine conflict and sanctions imposed on Russia globally have resulted in economic and supply chain disruptions affecting the overall automotive industry, the ultimate financial impact of which cannot be reasonably estimated. Further, although the Company does not have operations in Ukraine, the Ukrainian operations of certain of the Company's suppliers and suppliers of its customers have been and will likely continue to be disrupted by the Russia-Ukraine conflict. The accompanying consolidated financial statements reflect estimates and assumptions made by management as of December 31, 2022, and for the year then ended. Such estimates and assumptions affect, among other things, the Company's goodwill; long-lived asset valuations; inventory valuations; valuations of deferred income taxes and income tax contingencies; and credit losses related to the Company's financial instruments. Events and circumstances arising after December 31, 2022, including those resulting from the impact of the COVID-19 pandemic and the Russia-Ukraine conflict, will be reflected in management's estimates and assumptions in future periods. For more information related to goodwill, long-lived assets, inventory and credit losses, see Note 3, "Summary of Significant Accounting Policies." For more information related to income taxes, see Note 3, "Summary of Significant Accounting Policies — Income Taxes," and Note 9, "Income Taxes." For more information related to leases, see Note 8, "Leases." (3) Summary of Significant Accounting Policies Consolidation Lear consolidates all entities, including variable interest entities, in which it has a controlling financial interest. 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"). 62 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) Fiscal Period Reporting The Company's annual financial results are reported on a calendar year basis, and quarterly interim results are reported using a thirteen week reporting calendar. Cash, Cash Equivalents and Restricted Cash Cash and cash equivalents include all highly liquid investments with original maturities of ninety days or less. Restricted cash includes cash that is legally restricted as to use or withdrawal. Accounts Receivable The Company records accounts receivable as title is transferred to its customers. The Company's customers are the world's major automotive manufacturers. Generally, the Company does not require collateral for its accounts receivable. 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, 2022 and 2021, accounts receivable are reflected net of reserves of $ 35.3 million and $ 35.5 million, respectively. Changes in expected credit losses were not significant during the year ended December 31, 2022. 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. The Company may hold such bank notes until maturity, exchange them with suppliers to settle liabilities or sell them to third-party financial institutions in exchange for cash. Inventories Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method. Finished goods and work-in-process inventories include material, labor and manufacturing overhead costs. The Company records reserves for inventory in excess of production and/or forecasted requirements and for obsolete inventory in production and service inventories. A summary of inventories is shown below (in millions): December 31, 2022 2021 Raw materials $ 1,216.8 $ 1,171.0 Work-in-process 126.6 119.9 Finished goods 391.9 453.4 Reserves ( 161.7 ) ( 172.4 ) Inventories $ 1,573.6 $ 1,571.9 Engineering and Development ("E&D") and Tooling Costs In 2022, the Company incurred E&D costs of $ 568.3 million, including $ 321.9 million (or 2 % of related sales) in its Seating segment, $ 240.4 million (or 5 % of related sales) in its E-Systems segment and $ 6.0 million at its headquarters location. Pre-Production Costs Related to 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. During 2022 and 2021, the Company capitalized $ 249.5 million and $ 298.3 million, respectively, of pre-production E&D costs for which reimbursement is contractually guaranteed by the customer. During 2022 and 2021, the Company also capitalized $ 185.3 million and $ 164.4 million, respectively, of pre-production tooling costs related to customer-owned tools for which reimbursement is contractually guaranteed by the customer or for which the Company has a non-cancelable right to use the tooling. These amounts are included in other current and long-term assets in the accompanying consolidated balance sheets as of December 31, 2022 and 2021. During 2022 and 2021, the Company collected $ 435.8 million and $ 448.0 million, respectively, of cash related to E&D and tooling costs. 63 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) The classification of recoverable customer E&D and tooling costs related to long-term supply agreements is shown below (in millions): December 31, 2022 2021 Current $ 175.7 $ 207.4 Long-term 161.3 143.5 Recoverable customer E&D and tooling $ 337.0 $ 350.9 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 $ 145.2 million, $ 139.5 million and $ 135.0 million for the years ended December 31, 2022, 2021 and 2020, respectively. All other E&D costs are recorded in selling, general and administrative expenses as incurred and totaled $ 173.6 million, $ 170.7 million and $ 192.3 million for the years ended December 31, 2022, 2021 and 2020, respectively. Property, Plant and Equipment Property, plant and equipment is stated at cost. Costs associated with the repair and maintenance of the Company's property, plant and equipment are expensed as incurred. Costs associated with improvements which extend the life, increase the capacity or improve the efficiency or safety of the Company's property, plant and equipment are capitalized and depreciated over the remaining useful life of the related asset. 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 A summary of property, plant and equipment is shown below (in millions): December 31, 2022 2021 Land $ 104.6 $ 108.7 Buildings and improvements 868.6 850.3 Machinery and equipment 4,871.5 4,497.7 Construction in progress 378.0 345.6 Total property, plant and equipment 6,222.7 5,802.3 Less – accumulated depreciation ( 3,368.7 ) ( 3,082.2 ) Net property, plant and equipment $ 2,854.0 $ 2,720.1 For the years ended December 31, 2022, 2021 and 2020, depreciation expense was $ 505.7 million, $ 500.6 million and $ 474.0 million, respectively. As of December 31, 2022, 2021 and 2020, capital expenditures recorded in accounts payable totaled $ 150.2 million, $ 147.8 million and $ 118.4 million, respectively. As of December 31, 2021, property held for sale of $ 2.6 million and $ 17.5 million in the Company's Seating and E-Systems segments, respectively, was recorded in other current assets in the accompanying consolidated balance sheet. Impairment of Goodwill Goodwill is not amortized but is tested for impairment on at least an annual basis. Impairment testing is required more often than annually if an event or circumstance indicates that an impairment is more likely than not to have occurred. In conducting its annual impairment testing, the Company may first perform a qualitative assessment of whether it is more likely than not that a reporting unit's fair value is less than its carrying amount. 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 book value. If the net book value of a reporting unit exceeds its fair value, an impairment loss is measured and recognized. 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. The income approach is based on projected debt-free cash flow which is discounted to 64 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) the present value using discount factors that consider the timing and risk of cash flows. The Company believes that this approach is appropriate because it provides a fair value estimate based upon the reporting unit's expected long-term operating cash flow performance. This approach also mitigates the impact of cyclical trends that occur in the industry. Fair value is estimated using recent automotive industry and specific platform production volume projections, which are based on both third-party and internally developed forecasts, as well as commercial and discount rate assumptions. The discount rate used is the value-weighted average of the Company's estimated cost of equity and of debt ("cost of capital") derived using both known and estimated customary market metrics. The Company's weighted average cost of capital is adjusted by reporting unit to reflect a risk factor, if necessary. Other significant assumptions include terminal value growth rates, terminal value margin rates, future capital expenditures and changes in future working capital requirements. While there are inherent uncertainties related to the assumptions used and to management's application of these assumptions to this analysis, the Company believes that the income approach provides a reasonable estimate of the fair value of its reporting units. The market valuation approach is used to further support the Company's analysis and is based on recent transactions involving comparable companies. The annual goodwill impairment assessment is completed as of the first day of the Company's fourth quarter. The Company performed a qualitative assessment for each reporting unit, except for two reporting units within the E-Systems operating segment where the Company elected to perform quantitative analyses. 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 analyses for the remaining two reporting units indicated that the fair value of each reporting unit exceeded its respective carrying value. As of December 31, 2022, the goodwill of these two reporting units represents approximately 7 % and less than 1 % of the Company's total goodwill. A summary of the changes in the carrying amount of goodwill for each of the periods in the two years ended December 31, 2022, is shown below (in millions): Seating E-Systems Total Balance as of December 31, 2020 $ 1,268.8 $ 387.0 $ 1,655.8 Foreign currency translation and other ( 19.5 ) 21.6 2.1 Balance as of December 31, 2021 1,249.3 408.6 1,657.9 Acquisition 27.9 — 27.9 Foreign currency translation and other ( 16.1 ) ( 9.1 ) ( 25.2 ) Balance as of December 31, 2022 $ 1,261.1 $ 399.5 $ 1,660.6 Intangible Assets As of December 31, 2022, 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 in 2017, Xevo Inc. ("Xevo") in 2019 and substantially all of Kongsberg Automotive's Interior Comfort Systems business unit ("Kongsberg ICS") in 2022 (Note 4, "Acquisition of Kongsberg ICS"). These intangible assets were recorded at their estimated fair value, based on independent appraisals, as of the transaction or acquisition date. The value assigned to technology intangibles is based on the royalty savings method, which applies a hypothetical royalty rate to projected revenues attributable to the identified technologies. Royalty rates were determined based primarily on analysis of market information. The customer-based intangible asset includes the acquired entity's established relationships with its customers and the ability of these customers to generate future economic profits for the Company. The value assigned to customer-based intangibles is based on the present value of future earnings attributable to the asset group after recognition of required returns to other contributory assets. A summary of intangible assets as of December 31, 2022, is shown below (in millions): Gross Carrying Value Accumulated Amortization Net Carrying Value Weighted Average Useful Life (years) Amortized intangible assets: Customer-based $ 514.9 $ ( 313.3 ) $ 201.6 11.7 Licensing agreements 71.0 ( 52.0 ) 19.0 5.0 Technology 16.2 ( 1.7 ) 14.5 13.3 Other 0.4 ( 0.1 ) 0.3 5.0 Balance as of December 31, 2022 $ 602.5 $ ( 367.1 ) $ 235.4 11.0 65 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) A summary of intangible assets as of December 31, 2021, is shown below (in millions): Gross Carrying Value Accumulated Amortization Net Carrying Value Weighted Average Useful Life (years) Amortized intangible assets: Customer-based $ 534.4 $ ( 277.6 ) $ 256.8 11.7 Licensing agreements 70.9 ( 37.8 ) 33.1 5.0 Technology 21.8 ( 18.4 ) 3.4 8.5 Other 0.4 ( 0.1 ) 0.3 5.0 627.5 ( 333.9 ) 293.6 10.8 Unamortized intangible assets: In-process research and development 8.9 — 8.9 Balance as of December 31, 2021 $ 636.4 $ ( 333.9 ) $ 302.5 In 2022 and 2021, intangible assets with a gross carrying value of $ 19.4 million and $ 7.5 million, respectively, became fully amortized and are no longer included in the gross carrying value or accumulated amortization. Excluding the impact of any future acquisitions, the Company's estimated annual amortization expense for the five succeeding years is shown below (in millions): Year Expense 2023 $ 60.6 2024 47.9 2025 21.1 2026 20.7 2027 20.3 Impairment of Long-Lived Assets The Company monitors its long-lived assets for impairment indicators on an ongoing basis in accordance with accounting principles generally accepted in the United States ("GAAP"). If impairment indicators exist, the Company performs the required impairment analysis by comparing the undiscounted cash flows expected to be generated from the long-lived assets to the related net book values. If the net book value exceeds the undiscounted cash flows, an impairment loss is measured and recognized. An impairment loss is measured as the difference between the net book value and the fair value of the long-lived assets. Fair value estimates of property, plant and equipment and right-of-use assets are based on independent appraisals or discounted cash flows, giving consideration to the highest and best use of the assets. Key assumptions used in the appraisals are based on a combination of market and cost approaches, as appropriate. For the years ended December 31, 2022, 2021 and 2020, the Company recognized fixed asset impairment charges of $ 9.9 million, $ 4.2 million and $ 21.3 million, respectively, in conjunction with its restructuring actions (Note 5, "Restructuring"). For the years ended December 31, 2022, 2021 and 2020, the Company recognized additional asset impairment charges of $ 5.7 million, $ 7.7 million and $ 4.6 million, respectively. For the year ended December 31, 2022, additional asset impairment charges include $ 4.4 million related to the Company's Russian operations (Note 2, "Current Operating Environment"). Asset impairment charges are recorded in cost of sales in the accompanying consolidated statements of income for the years ended December 31, 2022, 2021 and 2020. In 2022 and 2021, the Company recognized impairment charges of $ 8.9 million and $ 8.5 million, respectively, related to certain indefinite-lived and definite-lived intangible assets of its E-Systems segment resulting from a change in the intended use of the assets. The impairment charges are included in amortization of intangible assets in the accompanying consolidated statements of income for the years ended December 31, 2022 and 2021. Impairment of Investments in Affiliates The Company monitors its investments in affiliates for indicators of other-than-temporary declines in value on an ongoing basis in accordance with GAAP. If the Company determines that an other-than-temporary decline in value has occurred, it recognizes an impairment loss, which is measured as the difference between the recorded book value and the fair value of the investment. Fair value is generally determined using an income approach based on discounted cash flows or negotiated transaction values. 66 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) For the years ended December 31, 2021 and 2020, the Company recognized impairment charges of $ 1.0 million and $ 4.0 million, respectively, related to its investments in affiliates. Accrued Liabilities A summary of accrued liabilities as of December 31, 2022 and 2021, is shown below (in millions): December 31, 2022 2021 Compensation and employee benefits $ 404.3 $ 353.8 Income and other taxes payable 300.3 290.7 Current portion of lease obligations 136.8 125.6 Other 1,120.1 1,036.6 Accrued liabilities $ 1,961.5 $ 1,806.7 Leases The Company determines if an arrangement contains a lease at inception. 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. The Company's leases do not contain material residual value guarantees or material restrictive covenants. Operating lease expense is recognized on a straight-line basis over the lease terms. The discount rate used to measure a lease obligation should be the rate implicit in the lease; however, the Company's operating leases generally do not provide an implicit rate. Accordingly, the Company uses its incremental borrowing rate at lease commencement to determine the present value of lease payments. 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. Revenue Recognition and Sales Commitments The Company enters into contracts with its customers to provide production parts generally at the beginning of a vehicle's life cycle. Typically, these contracts do not provide for a specified quantity of products, but once entered into, the Company is often expected to fulfill its customers' purchasing requirements for the production life of the vehicle. Many of these contracts may be terminated by the Company's customers at any time. Historically, terminations of these contracts have been infrequent. The Company receives purchase orders from its customers, which provide the commercial terms for a particular production part, including price (but not quantities). Contracts may also provide for annual price reductions over the production life of the vehicle, and prices may be adjusted on an ongoing basis to reflect changes in product content/cost and other commercial factors. Revenue is recognized at a point in time when control of the product is transferred to the customer under standard commercial terms, as the Company does not have an enforceable right to payment prior to such transfer. The amount of revenue recognized reflects the consideration that the Company expects to be entitled to in exchange for those products based on the current purchase orders, annual price reductions and ongoing price adjustments. Revenue recognized related to prior years represented approximately 1 % of consolidated net sales during the years ended December 31, 2022, 2021 and 2020. 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. The Company records a contract liability for advances received from its customers. As of December 31, 2022 and 2021, there were no significant contract liabilities recorded. Further, there were no significant contract liabilities recognized in revenue during the years ended December 31, 2022, 2021 and 2020. Amounts billed to customers related to shipping and handling costs are included in net sales in the consolidated statements of income. Shipping and handling costs are accounted for as fulfillment costs and are included in cost of sales in the consolidated statements of income. 67 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction that are collected by the Company from a customer are excluded from revenue. Cost of Sales and Selling, General and Administrative Expenses Cost of sales includes material, labor and overhead costs associated with the manufacture and distribution of the Company's products. Distribution costs include inbound freight costs, purchasing and receiving costs, inspection costs, warehousing costs and other costs of the Company's distribution network. Selling, general and administrative expenses include selling, engineering and development and administrative costs not directly associated with the manufacture and distribution of the Company's products. Restructuring Costs Restructuring costs include employee termination benefits, asset impairment charges and contract termination costs, as well as other incremental costs resulting from the restructuring actions. Employee termination benefits are recorded based on existing union and employee contracts, statutory requirements, completed negotiations and Company policy. Other incremental costs principally include equipment and personnel relocation costs. In addition to restructuring costs, the Company also incurs incremental manufacturing inefficiency costs at the operating locations impacted by the restructuring actions during the related restructuring implementation period. Restructuring costs are recognized in the Company's consolidated financial statements in accordance with GAAP. Generally, charges are recorded as restructuring actions are approved, communicated and/or implemented. 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, 2022 2021 2020 Other expense $ 57.2 $ 65.4 $ 72.2 Other income ( 10.8 ) ( 65.3 ) ( 17.0 ) Other expense, net $ 46.4 $ 0.1 $ 55.2 Income Taxes 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. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The Company's current and future provision for income taxes is impacted by the initial recognition of and changes in valuation allowances in certain countries. The Company intends to maintain these allowances until it is more likely than not that the deferred tax assets will be realized. The Company's future provision for income taxes will include no tax benefit with respect to losses incurred and, except for certain jurisdictions, no tax expense with respect to income generated in these countries until the respective valuation allowances are eliminated. Accordingly, income taxes are impacted by changes in valuation allowances and the mix of earnings among jurisdictions. The Company evaluates the realizability of its deferred tax assets on a quarterly basis. In completing this evaluation, the Company considers all available evidence in order to determine whether, based on the weight of the evidence, a valuation allowance for its deferred tax assets is necessary. Such evidence includes historical results, future reversals of existing taxable temporary differences and expectations for future taxable income (exclusive of the reversal of temporary differences and carryforwards), as well as the implementation of feasible and prudent tax planning strategies. 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. 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. 68 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) The Company reclassifies taxes from accumulated other comprehensive loss to earnings as the items to which the tax effects relate are similarly reclassified. The calculation of the Company's gross unrecognized tax benefits and liabilities includes uncertainties in the application of, and changes in, complex tax regulations in a multitude of jurisdictions across its global operations. The Company recognizes tax benefits and liabilities based on its estimates of whether, and the extent to which, additional taxes will be due. The Company adjusts these benefits and liabilities based on changing facts and circumstances; 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. Foreign Currency Assets and liabilities of foreign subsidiaries that use a functional currency other than the U.S. dollar are translated into U.S. dollars at the foreign exchange rates in effect at the end of the period. Revenues and expenses of foreign subsidiaries are translated into U.S. dollars using an average of the foreign exchange rates in effect during the period. 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 year ended December 31, 2022, other expense, net includes net foreign currency transaction losses of $ 30.4 million, including $ 9.6 million related to foreign exchange rate volatility following Russia's invasion of Ukraine. For the years ended December 31, 2021 and 2020, other expense, net includes net foreign currency transaction losses of $ 24.8 million and $ 19.9 million, respectively. Stock-Based Compensation The Company measures stock-based employee compensation expense at fair value in accordance with GAAP and recognizes such expense over the vesting period of the stock-based employee awards. Net Income Per Share Attributable to Lear Basic net income per share attributable to Lear is computed by dividing net income attributable to Lear by the average number of common shares outstanding during the period. Common shares issuable upon the satisfaction of certain conditions pursuant to a contractual agreement are considered common shares outstanding and are included in the computation of basic net income per share attributable to Lear. Diluted net income per share attributable to Lear is computed using the treasury stock method by dividing net income attributable to Lear by the average number of common shares outstanding, including the dilutive effect of common stock equivalents using the average share price during the period. A summary of information used to compute basic and diluted net income per share attributable to Lear is shown below (in millions, except share and per share data): For the year ended December 31, 2022 2021 2020 Net income attributable to Lear $ 327.7 $ 373.9 $ 158.5 Average common shares outstanding 59,674,488 60,082,833 60,254,380 Dilutive effect of common stock equivalents 246,041 337,651 175,582 Average diluted shares outstanding 59,920,529 60,420,484 60,429,962 Basic net income per share attributable to Lear $ 5.49 $ 6.22 $ 2.63 Diluted net income per share attributable to Lear $ 5.47 $ 6.19 $ 2.62 Product Warranty Losses from warranty obligations are accrued when it is probable that a liability has been incurred and the related amounts are reasonably estimable. 69 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) Segment Reporting The Company is organized under two reportable operating segments: Seating, which consists of the design, development, engineering and manufacture of complete seat systems and key seat components, and E-Systems, which consists of the design, development, engineering and manufacture of complete electrical distribution and connection systems, battery disconnect units and other electronic products. Key components of the Company's complete seat systems and components are advanced comfort solutions, including thermal, safety and wellness products, as well as configurable seating product technologies. All of these products are compatible with traditional internal combustion engine ("ICE") architectures and electrified powertrains, including the full range of hybrid, plug-in hybrid and battery electric architectures. Key seat component product offerings include seat trim covers; surface materials such as leather and fabric; seat mechanisms; seat foam; thermal comfort solutions such as seat massage, lumbar, heat and ventilation products; and headrests. Key components of the Company's electrical distribution and connection systems portfolio include wire harnesses, terminals and connectors, high voltage battery connection systems and engineered components for both ICE architectures and electrified powertrains that require management of higher voltage and power. High voltage battery connection systems include intercell connect boards, bus bars and main battery connection systems. Key components of the other electronic products portfolio include zone control modules, body domain control modules and low voltage and high voltage power distribution modules. The Company's software offerings include embedded control, cybersecurity software and software to control hardware devices. The Company's customers traditionally have sourced its electronic hardware together with the software that the Company embeds in it. 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, advanced research and development, corporate finance, legal, executive administration and human resources. Each of the Company's operating segments reports its results from operations and makes its requests for ca pital expenditures directly to the chief operating decision maker. The economic performance of each operating segment is driven primarily by automotive production volumes in the geographic regions in which it operates, as well as by the success of the vehicle platforms for which it supplies products. Also, each operating segment operates in the competitive Tier 1 automotive supplier environment and is continually working with its customers to manage costs and improve quality. The Company's production processes generally make use of hourly labor, dedicated facilities, sequential manufacturing and assembly processes and commodity raw materials. 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, net ("segment earnings") and (iii) cash flows, being defined as segment earnings less capital expenditures plus depreciation and amortization. The accounting policies of the Company's operating segments are the same as those described in this note to the consolidated financial statements. Derivative Instruments and Hedge Activities The Company has used derivative financial instruments, including forwards, futures, options, swaps and other derivative contracts, to reduce the effects of fluctuations in foreign exchange rates and interest rates and the resulting variability of the Company's operating results. The Company is not a party to leveraged derivatives. The Company's derivative financial instruments are subject to master netting arrangements that provide for the net settlement of contracts, by counterparty, in the event of default or termination. On the date that a derivative contract for a hedge instrument is entered into, the Company designates the derivative as either (1) a hedge of the exposure to changes in the fair value of a recognized asset or liability or of an unrecognized firm commitment (a fair value hedge), (2) a hedge of the exposure of a forecasted transaction or of the variability in the cash flows of a recognized asset or liability (a cash flow hedge), (3) a hedge of a net investment in a foreign operation (a net investment hedge) or (4) a contract not designated as a hedge instrument. 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 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 expense, net in the consolidated statements of income. Changes in the fair value of contracts not 70 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) 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. Upon settlement, cash flows attributable to derivatives designated as net investment hedges are classified as investing activities in the consolidated statements of cash flows. Cash flows attributable to forward starting interest rate swaps are classified as financing activities in the consolidated statements of cash flows. 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 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. Use of Estimates The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. During 2022, there were no material changes in the methods or policies used to establish estimates and assumptions. 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 4, "Acquisition of Kongsberg ICS"); restructuring accruals (Note 5, "Restructuring"); deferred tax asset valuation allowances and income taxes (Note 9, "Income Taxes"); pension and other postretirement benefit plan assumptions (Note 10, "Pension and Other Postretirement Benefit Plans"); accruals related to litigation, warranty and environmental remediation costs (Note 14, "Commitments and Contingencies"); and self-insurance accruals. Actual results may differ significantly from the Company's estimates. (4) Acquisition of Kongsberg ICS On February 28, 2022, the Company completed the acquisition of Kongsberg ICS. Kongsberg ICS specializes in thermal comfort solutions, including seat massage, lumbar, heat and ventilation products, with annual sales of approximately $ 300 million, of which approximately 20 % are intercompany. The acquisition of Kongsberg ICS was 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, 2022. The operating results and cash flows of Kongsberg ICS are included in the accompanying consolidated financial statements from the date of acquisition in the Company's Seating segment. The final purchase price and related allocation are shown below (in millions): December 31, 2022 Purchase price, net of acquired cash $ 188.3 Property, plant and equipment 124.1 Other assets purchased and liabilities assumed, net 25.2 Goodwill 27.9 Intangible assets 11.1 Purchase price allocation $ 188.3 Goodwill recognized is primarily attributable to the assembled workforce and expected synergies related to future growth. Intangible assets consist of amounts recognized for the fair value of developed technology based on an independent appraisal. It is currently estimated that the developed technology will have a weighted average useful life of approximately seventeen years . The Company incurred transaction costs of $ 10.0 million, which have been 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, 2022. 71 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) 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." (5) Restructuring Charges recorded in connection with the Company's restructuring actions are shown below (in millions): For the year ended December 31, 2022 2021 2020 Employee termination benefits $ 121.9 $ 85.1 $ 104.2 Asset impairments - Property, plant and equipment 9.9 4.2 21.3 Right-of-use assets 6.5 7.2 2.0 Contract termination costs 4.5 0.3 14.9 Other related costs 11.4 4.1 2.5 $ 154.2 $ 100.9 $ 144.9 In 2020, contract termination costs include pension benefit plan settlement losses of $ 12.9 million. See Note 10, "Pension and Other Postretirement Benefit Plans." Restructuring charges by income statement account are shown below (in millions): For the year ended December 31, 2022 2021 2020 Cost of sales $ 129.7 $ 75.6 $ 122.3 Selling, general and administrative expenses 24.5 32.0 16.4 Other (income) expense, net — ( 6.7 ) 6.2 $ 154.2 $ 100.9 $ 144.9 Restructuring charges by operating segment are shown below (in millions): For the year ended December 31, 2022 2021 2020 Seating $ 65.3 $ 45.7 $ 73.7 E-Systems 82.8 47.7 56.7 Other 6.1 7.5 14.5 $ 154.2 $ 100.9 $ 144.9 The Company expects to incur approximately $ 16 million and approximately $ 7 million of additional restructuring costs in its Seating and E-Systems segments, respectively, related to activities initiated as of December 31, 2022, and expects that the components of such costs will be consistent with its historical experience. A summary of the changes in the Company's restructuring reserves is shown below (in millions): 2022 2021 Balance as of January 1, $ 129.4 $ 139.0 Provision for employee termination benefits 121.9 85.1 Payments, utilizations and foreign currency ( 168.4 ) ( 94.7 ) Balance as of December 31, $ 82.9 $ 129.4 72 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) (6) Investments in Affiliates and Other Related Party Transactions The Company's beneficial ownership in affiliates accounted for under the equity method is shown below: December 31, 2022 2021 2020 Beijing BHAP Lear Automotive Systems Co., Ltd. (China) 50 % 50 % 50 % Guangzhou Lear Automotive Components 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 Beijing Lear Hyundai Transys Co., Ltd. (China) 50 40 40 Changchun Lear FAWSN Automotive Seat Systems Co., Ltd. (China) 49 49 49 Honduras Electrical Distribution Systems S. de R.L. de C.V. (Honduras) 49 49 49 Kyungshin-Lear Sales and Engineering LLC 49 49 49 Shenyang Jinbei Lear Automotive Seating Co. Ltd. (China) 49 49 — Shenzen Shinry Lear Electric Control Technology Co., Ltd. (China) 49 — — Hyundai Transys Lear Automotive Private Limited (India) 35 35 35 Techstars Corporate Partner 2017 LLC 34 34 34 RevoLaze, LLC 20 20 20 Maniv Mobility II A, L.P. 7 7 9 Trucks Venture Fund 2, L.P. 7 5 3 Autotech Fund II, L.P. 3 4 4 Summarized group financial information for affiliates accounted for under the equity method as of December 31, 2022 and 2021, and for the years ended December 31, 2022, 2021 and 2020, is shown below (unaudited; in millions): December 31, 2022 2021 Balance sheet data: Current assets $ 1,335.9 $ 1,217.5 Non-current assets 235.0 239.5 Current liabilities 1,009.2 921.7 Non-current liabilities 8.4 6.7 For the year ended December 31, 2022 2021 2020 Income statement data: Net sales $ 2,447.6 $ 1,833.6 $ 1,597.5 Gross profit 106.1 50.1 83.0 Income before provision for income taxes 102.8 104.5 73.8 Net income attributable to affiliates 64.4 80.5 44.8 A summary of amounts recorded in the Company's consolidated balance sheets related to its affiliates is shown below (in millions): December 31, 2022 2021 Aggregate investment in affiliates $ 196.7 $ 184.7 Receivables due from affiliates (including notes and advances) 182.5 143.0 Payables due to affiliates 0.7 0.7 73 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) A summary of transactions with affiliates accounted for under the equity method and other related parties is shown below (in millions): For the year ended December 31, 2022 2021 2020 Sales to affiliates $ 783.0 $ 676.6 $ 656.4 Purchases from affiliates 9.0 4.4 1.9 Management and other fees for services provided to affiliates 32.6 38.5 28.3 Dividends received from affiliates 21.1 26.8 24.6 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. 2021 In 2021, the Company acquired a 49 % interest in Shenyang Jinbei Lear Automotive Seating Co. Ltd. ("Shenyang Jinbei") for $ 41.3 million. The investment is accounted for under the equity method as the Company does not control Shenyang Jinbei but does have the ability to exercise significant influence over certain operating and financial policies of Shenyang Jinbei. The acquisition cost is classified within cash flows used in investing activities in the accompanying consolidated statement of cash flows for the year ended December 31, 2021. For further information related to acquired assets measured at fair value, see Note 16, "Financial Instruments." (7) Debt Short-Term Borrowings The Company utilizes uncommitted lines of credit as needed for its short-term working capital fluctuations. As of December 31, 2022 and 2021, the Company had lines of credit from banks totaling $ 298.2 million and $ 96.2 million, respectively. As of December 31, 2022, the Company had short-term debt balances outstanding related to draws on its lines of credit of $ 9.9 million. As of December 31, 2021, the Company had no short-term debt balances outstanding related to draws on its lines of credit. Long-Term Debt 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, 2022 Debt Instrument Long-Term Debt Unamortized Debt Issuance Costs Unamortized Original Issue Premium (Discount) Long-Term Debt, Net Weighted Average Interest Rate 3.8 % Senior Notes due 2027 (the "2027 Notes") $ 550.0 $ ( 2.1 ) $ ( 1.8 ) $ 546.1 3.885 % 4.25 % Senior Notes due 2029 (the "2029 Notes") 375.0 ( 2.0 ) ( 0.7 ) 372.3 4.288 % 3.5 % Senior Notes due 2030 (the "2030 Notes") 350.0 ( 2.0 ) ( 0.6 ) 347.4 3.525 % 2.6 % Senior Notes due 2032 (the "2032 Notes") 350.0 ( 2.8 ) ( 0.7 ) 346.5 2.624 % 5.25 % Senior Notes due 2049 (the "2049 Notes") 625.0 ( 6.0 ) 13.2 632.2 5.103 % 3.55 % Senior Notes due 2052 (the "2052 Notes") 350.0 ( 3.8 ) ( 0.5 ) 345.7 3.558 % Other 11.8 — — 11.8 N/A $ 2,611.8 $ ( 18.7 ) $ 8.9 2,602.0 Less — Current portion ( 10.8 ) Long-term debt $ 2,591.2 74 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) December 31, 2021 Debt Instrument Long-Term Debt Unamortized Debt Issuance Costs Unamortized Original Issue Premium (Discount) Long-Term Debt, Net Weighted Average Interest Rate 2027 Notes 550.0 ( 2.5 ) ( 2.2 ) 545.3 3.885 % 2029 Notes 375.0 ( 2.3 ) ( 0.9 ) 371.8 4.288 % 2030 Notes 350.0 ( 2.3 ) ( 0.7 ) 347.0 3.525 % 2032 Notes 350.0 ( 3.1 ) ( 0.8 ) 346.1 2.624 % 2049 Notes 625.0 ( 6.1 ) 13.7 632.6 5.103 % 2052 Notes 350.0 ( 3.8 ) ( 0.5 ) 345.7 3.558 % Other 7.5 — — 7.5 N/A $ 2,607.5 $ ( 20.1 ) $ 8.6 2,596.0 Less — Current portion ( 0.8 ) Long-term debt $ 2,595.2 Senior Notes The issuance, maturity and interest payment dates of the Company's senior unsecured 2027 Notes, 2029 Notes, 2030 Notes, 2032 Notes, 2049 Notes and 2052 Notes (collectively, the "Notes") are shown below: 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 2032 Notes November 2021 January 15, 2032 January 15 and July 15 (1) 2049 Notes May 2019 and February 2020 May 15, 2049 May 15 and November 15 2052 Notes November 2021 January 15, 2052 January 15 and July 15 (1) (1) Commenced July 15, 2022. 2027 Notes Issued in 2017 In 2017, the Company issued $ 750 million in aggregate principal amount at maturity of 2027 Notes at a stated coupon rate of 3.8 %. 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 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 million prior term loan facility. In November 2021, the Company paid $ 221.5 million for the purchase of $ 200 million in aggregate principal amount of the 2027 Notes, including an early tender premium of $ 21.0 million and related fees of $ 0.5 million. In connection with this transaction, the Company recognized a loss of $ 23.9 million on the extinguishment of debt. Prior to June 15, 2027, the Company, at its option, may redeem the 2027 Notes, in whole or in part, 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. On or after June 15, 2027, but prior to the maturity date of September 15, 2027, the Company, at its option, may redeem the 2027 Notes, in whole or in part, 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 Issued in 2019 In 2019, the Company 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 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 %. 75 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) The net proceeds from the offering of $ 693.3 million, after original issue discount, were used to redeem $ 325 million in aggregate principal amount of 5.375 % senior notes due 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. Prior to February 15, 2029, the Company, at its option, may redeem the 2029 Notes, in whole or in part, at a redemption price equal to 100 % of the principal amount thereof, plus the applicable premium, if any, as of, and accrued and unpaid interest to, but not including, the redemption date. On or after February 15, 2029, the Company, at its option, may redeem the 2029 Notes, at any time, in whole or in part, on not less than 15 nor more than 60 days' prior notice, at a redemption price equal to 100 % of the principal amount thereof, plus accrued and unpaid interest to, but not including, the redemption date. Prior to November 15, 2048, the Company, at its option, may redeem the 2049 Notes, in whole or in part, at a redemption price equal to 100 % of the principal amount thereof, plus the applicable premium, if any, as of, and accrued and unpaid interest to, but not including, the redemption date. On or after November 15, 2048, the Company, at its option, may redeem the 2049 Notes, at any time, in whole or in part, on not less than 15 nor more than 60 days' prior notice, at a redemption price equal to 100 % of the principal amount thereof, plus accrued and unpaid interest to, but not including, the redemption date. 2030 Notes and 2049 Notes Issued in 2020 In 2020, the Company issued $ 350 million in aggregate principal amount at maturity of 2030 Notes and $ 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 $ 669.1 million after original issue discount. The proceeds were used to redeem $ 650 million in aggregate principal amount of 5.25 % senior notes due 2025 (the "2025 Notes") at a redemption price equal to 102.625 % of the principal amount of such 2025 Notes, plus accrued interest. Prior to February 28, 2030, the Company, at its option, may redeem the 2030 Notes, in whole or in part, at a redemption price equal to 100 % of the principal amount thereof, plus the applicable premium, if any, as of, and accrued and unpaid interest to, but not including, the redemption date. On or after February 28, 2030, the Company, at its option, may redeem the 2030 Notes, at any time, in whole or in part, on not less than 15 nor more than 60 days' prior notice, at a redemption price equal to 100 % of the principal amount thereof, plus accrued and unpaid interest to, but not including, the redemption date. Prior to November 15, 2048, the Company, at its option, may redeem the 2049 Notes, in whole or in part, at a redemption price equal to 100 % of the principal amount thereof, plus the applicable premium, if any, as of, and accrued and unpaid interest to, but not including, the redemption date. On or after November 15, 2048, the Company, at its option, may redeem the 2049 Notes, at any time, in whole or in part, on not less than 15 nor more than 60 days' prior notice, at a redemption price equal to 100 % of the principal amount thereof, plus accrued and unpaid interest to, but not including, the redemption date. 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 in 2020. 2032 Notes and 2052 Notes Issued in 2021 In 2021, the Company issued $ 350 million in aggregate principal amount at maturity of 2032 Notes and $ 350 million in aggregate principal amount at maturity of 2052 Notes. The 2032 Notes have a stated coupon rate of 2.6 % and were issued at 99.782 % of par, resulting in a yield to maturity of 2.624 %. The 2052 Notes have a stated coupon rate of 3.55 % and were issued at 99.845 % of par, resulting in a yield to maturity of 3.558 %. The net proceeds from the offering of $ 698.7 million, after original issue discount, were used, in part, to fund the tender of $ 200 million in aggregate principal amount of 2027 Notes (see "— 2027 Notes" above) and the repayment in full of $ 206.3 million outstanding on the Company's $ 250 million term loan facility (see "— Credit Agreement" below). The remaining net proceeds were used to finance the 2022 acquisition of Kongsberg ICS (Note 4, "Acquisition of Kongsberg ICS") and for general corporate purposes. Prior to October 15, 2031, the Company, at its option, may redeem the 2032 Notes, in whole or in part, at a redemption price equal to 100 % of the principal amount thereof, plus the applicable premium, if any, as of, and accrued and unpaid interest to, but not including, the redemption date. On or after October 15, 2031, the Company, at its option, may redeem the 2032 Notes, at any time, in whole or in part, on not less than 15 nor more than 60 days' prior notice, at a redemption price equal to 100 % of the principal amount thereof, plus accrued and unpaid interest to, but not including, the redemption date. 76 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) Prior to July 15, 2051, the Company, at its option, may redeem the 2052 Notes, in whole or in part, at a redemption price equal to 100 % of the principal amount thereof, plus the applicable premium, if any, as of, and accrued and unpaid interest to, but not including, the redemption date. On or after July 15, 2051, the Company, at its option, may redeem the 2052 Notes, at any time, in whole or in part, on not less than 15 nor more than 60 days' prior notice, at a redemption price equal to 100 % of the principal amount thereof, plus accrued and unpaid interest to, but not including, the redemption date. In connection with these transactions, the Company paid related issuance costs of $ 7.1 million in 2021. Covenants Subject to certain exceptions, the indentures governing the Notes contain restrictive covenants that, among other things, limit the ability of the Company to: (i) create or permit certain liens and (ii) consolidate, merge or sell all or substantially all of the Company's assets. The indentures governing the Notes also provide for customary events of default. As of December 31, 2022, the Company was in compliance with all covenants under the indentures governing the Notes. Credit Agreement In 2017, the Company entered into an unsecured credit agreement consisting of a $ 1.75 billion revolving credit facility (the "Revolving Credit Facility") and a $ 250 million term loan facility (the "Term Loan Facility"). In October 2021, the Company entered into an amended and restated credit agreement (the "Credit Agreement") that increased the Revolving Credit Facility to $ 2.0 billion and extended the maturity date to October 28, 2026. In connection with the amendment and restatement, the Company recognized a loss of $ 0.4 million on the extinguishment of debt and paid related issuance costs of $ 2.8 million. In 2022, aggregate borrowings and repayments under the Revolving Credit Facility were $ 65.0 million. In 2021, there were no borrowings or repayments under the Revolving Credit Facility. 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. As of December 31, 2022 and 2021, there were no borrowings outstanding under the Revolving Credit Facility. In 2021, the Company made principal payments under the Term Loan Facility of $ 220.3 million, including full repayment of $ 206.3 million in November 2021. In connection with the full repayment, the Company recognized a loss of $ 0.3 million on the extinguishment of debt. In 2020, the Company made required principal payments under the Term Loan Facility of $ 14.1 million. Advances under the Revolving Credit 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, 2022, the ranges and rates are as follows (in percentages): Eurocurrency Rate Base Rate Minimum Maximum Rate as of December 31, 2022 Minimum Maximum Rate as of December 31, 2022 Revolving Credit Facility 0.925 % 1.450 % 1.125 % 0.000 % 0.450 % 0.125 % The facility fee, which ranges from 0.075 % to 0.20 % of the total amount committed under the Revolving Credit Facility, is payable quarterly. Covenants The C redit Agreement contains various customary representations, warranties and covenants by the Company, including, without limitation, (i) covenants regarding maximum leverage, (ii) limitations on fundamental changes involving the Company or its subsidiaries and (iii) limitations on indebtedness and liens. As of December 31, 2022, the Company was in compliance with all covenants under the Credit Agreement . Delayed-Draw Term Loan Facility In December 2022, the Company entered into an unsecured $ 150 million committed delayed-draw term loan facility (the "Delayed-Draw Facility") that matures 3 years after the funding date. The Delayed-Draw Facility is expected to be used to finance the acquisition of I.G. Bauerhin ("IGB") upon closing of the transaction and for general corporate purposes. Advances under the Delayed-Draw Facility generally bear interest based on the Daily or Term Secured Overnight Financing Rate ("SOFR"), as defined in the Delayed-Draw Facility agreement, plus a margin determined in accordance with a pricing grid that ranges from 1.00 % to 1.525 %. 77 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) As of December 31, 2022, there were no amounts drawn under the Delayed-Draw Facility. Covenants The Delayed-Draw Facility contains the same covenants as the Credit Agreement. As of December 31, 2022, the Company was in compliance with all covenants under the Delayed-Draw Facility. Other As of December 31, 2022 and 2021, other long-term debt, including the current portion, consisted of amounts outstanding under an unsecured working capital loan and a finance lease agreement. (8) Leases The Company has operating leases for production, office and warehouse facilities, manufacturing and office equipment and vehicles. Operating lease assets and obligations included in the accompanying consolidated balance sheet are shown below (in millions): December 31, 2022 2021 Right-of-use assets under operating leases: Other long-term assets $ 701.8 $ 627.9 Lease obligations under operating leases: Accrued liabilities $ 136.8 $ 125.6 Other long-term liabilities 595.1 523.6 $ 731.9 $ 649.2 Maturities of lease obligations as of December 31, 2022, are shown below (in millions): 2023 $ 159.7 2024 140.3 2025 119.5 2026 101.1 2027 83.2 Thereafter 215.9 Total undiscounted cash flows 819.7 Less: Imputed interest ( 87.8 ) Lease obligations under operating leases $ 731.9 In addition to the right-of-use assets obtained in exchange for operating lease obligations shown below, the Company acquired $ 34.1 million of right-of-use assets and related lease obligations in connection with its acquisition of Kongsberg ICS (Note 4, "Acquisition of Kongsberg ICS") in 2022. The Company entered into a lease contract that commences in the first quarter of 2023. The contract has a lease term of approximately ten years and a right-of-use asset and related lease obligation of $ 15.8 million. Cash flow information related to operating leases is shown below (in millions): For the year ended December 31, 2022 2021 2020 Non-cash activity: Right-of-use assets obtained in exchange for operating lease obligations $ 236.1 $ 258.4 $ 135.1 Operating cash flows: Cash paid related to operating lease obligations $ 164.3 $ 164.2 $ 143.8 78 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) Lease expense included in the accompanying consolidated statement of income is shown below (in millions): For the year ended December 31, 2022 2021 2020 Operating lease expense $ 164.5 $ 160.3 $ 148.6 Short-term lease expense 22.1 19.4 15.4 Variable lease expense 8.4 7.9 8.0 Total lease expense $ 195.0 $ 187.6 $ 172.0 The Company's short-term lease expense excludes leases with a duration of one month or less. Variable lease expense includes payments based on performance or usage, as well as changes to index and rate-based lease payments. Additionally, the Company evaluated its supply contracts with its customers and concluded that variable lease expense in these arrangements is not material. For the years ended December 31, 2022, 2021 and 2020, the Company recognized impairment charges of $ 6.5 million, $ 7.2 million and $ 2.0 million, respectively, related to its right-of-use assets in conjunction with its restructuring actions (Note 5, "Restructuring"). In the year ended December 31, 2022, the Company recognized additional right-of-use asset impairment charges of $ 7.0 million related to its Russian operations (Note 2, "Current Operating Environment"). The impairment charges are included in cost of sales in the accompanying consolidated statements of income. The weighted average lease term and discount rate for operating leases as of December 31, 2022, are shown below: Weighted average remaining lease term Seven years Weighted average discount rate 3.5 % (9) Income Taxes A summary of consolidated income before provision for income taxes and equity in net income of affiliates and the components of provision for income taxes is shown below (in millions): For the year ended December 31, 2022 2021 2020 Consolidated income before provision for income taxes and equity in net income of affiliates: Domestic $ 87.6 $ ( 110.9 ) $ ( 145.0 ) Foreign 421.7 694.4 444.3 $ 509.3 $ 583.5 $ 299.3 Domestic benefit for income taxes: Current provision $ 35.3 $ 38.4 $ 29.0 Deferred benefit ( 41.4 ) ( 76.6 ) ( 106.2 ) Total domestic benefit $ ( 6.1 ) $ ( 38.2 ) $ ( 77.2 ) Foreign provision for income taxes: Current provision $ 147.8 $ 154.8 $ 149.6 Deferred (benefit) provision ( 8.0 ) 21.1 21.5 Total foreign provision $ 139.8 $ 175.9 $ 171.1 Provision for income taxes $ 133.7 $ 137.7 $ 93.9 The domestic current provision includes withholding taxes related to dividends and royalties paid by the Company's foreign subsidiaries, as well as state and local taxes. In 2022, 2021 and 2020, the provision for income taxes includes the benefit of prior unrecognized net operating loss carryforwards of $ 0.8 million, $ 2.9 million and $ 5.3 million, respectively. 79 Table of Contents Lear Corporation and Subsidiaries 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% and the consolidated provision for income taxes is shown below (in millions): For the year ended December 31, 2022 2021 2020 Consolidated income before provision for income taxes and equity in net income of affiliates multiplied by the United States federal statutory income tax rate $ 107.0 $ 122.5 $ 62.9 Differences in income taxes on foreign earnings, losses and remittances 24.5 30.4 20.7 Valuation allowance adjustments (1) 45.2 29.0 47.7 Research and development and other tax credits ( 15.0 ) ( 19.0 ) ( 11.8 ) FDII deduction ( 16.9 ) ( 6.0 ) ( 14.6 ) U.S. tax impact of foreign earnings (2) ( 6.3 ) ( 9.8 ) ( 21.1 ) Tax audits and assessments 3.2 3.2 8.9 Other ( 8.0 ) ( 12.6 ) 1.2 Provision for income taxes $ 133.7 $ 137.7 $ 93.9 (1) Relates primarily to changes in valuation allowances on the deferred tax assets of foreign subsidiaries. (2) 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 basket 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 2021 and 2020. 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. For the years ended December 31, 2022, 2021 and 2020, income in foreign jurisdictions with tax holidays was $ 40.5 million, $ 55.6 million and $ 29.4 million, respectively. Such tax holidays generally expire from 2022 through 2035. Deferred income taxes represent temporary differences in the recognition of certain items for financial reporting and income tax purposes. A summary of the components of the net deferred income tax asset is shown below (in millions): December 31, 2022 2021 Deferred income tax assets (liabilities): Tax loss carryforwards $ 397.4 $ 396.9 Tax credit carryforwards 243.9 266.4 Retirement benefit plans 22.6 55.8 Accrued liabilities 208.7 193.9 Self-insurance reserves 5.5 6.7 Current asset basis differences 42.0 41.4 Long-term asset basis differences 3.5 ( 24.2 ) Deferred compensation 25.8 25.4 Capitalized engineering, research and development 169.6 138.3 Undistributed earnings of foreign subsidiaries ( 71.7 ) ( 74.0 ) Derivative instruments and hedging activities ( 10.7 ) 2.0 Other 1.8 ( 12.3 ) Net deferred income tax asset before valuation allowance 1,038.4 1,016.3 Valuation allowance ( 417.9 ) ( 406.9 ) Net deferred income tax asset $ 620.5 $ 609.4 As of December 31, 2022 and 2021, the valuation allowance with respect to the Company's deferred tax assets was $ 417.9 million and $ 406.9 million, respectively, a net increase of $ 11.0 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. When measuring cumulative losses in recent years, the Company uses a rolling three-year period of pretax book income, adjusted for permanent differences between book and taxable income and certain other items. As of December 31, 2022, the Company continues to maintain a U.S. valuation allowance of $ 25.5 million, primarily related to U.S. state and local deferred tax assets that, due to their nature, are not likely to be 80 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) realized. In addition, the Company continues to maintain a valuation allowance of $ 392.4 million with respect to its deferred tax assets in several international jurisdictions. The classification of the net deferred income tax asset is shown below (in millions): December 31, 2022 2021 Long-term deferred income tax assets $ 709.2 $ 701.4 Long-term deferred income tax liabilities ( 88.7 ) ( 92.0 ) Net deferred income tax asset $ 620.5 $ 609.4 As of December 31, 2022, deferred income taxes have not been provided on the undistributed earnings of the Company's foreign subsidiaries since these earnings will not be taxable upon repatriation to the United States. These earnings will be primarily treated as previously taxed income from either the one-time transition tax or GILTI, or they will be offset with a 100 % dividend received deduction. However, the Company continues to provide a deferred tax liability for foreign withholding tax that will be incurred with respect to the undistributed foreign earnings that are not permanently reinvested. As of December 31, 2022, the Company had tax loss carryforwards of $ 1.7 billion. Of the total tax loss carryforwards, $ 1.4 billion have no expiration date, and $ 263.7 million expire between 2023 and 2039. In addition, the Company had tax credit carryforwards of $ 243.9 million, comprised principally of U.S. foreign tax credits of $ 80.7 million that expire between 2027 and 2031, U.S. research and development credits of $ 119.7 million that expire between 2025 and 2042 and other tax credits primarily in international jurisdictions of $ 43.5 million that generally expire between 2023 and 2042. As of December 31, 2022 and 2021, the Company's gross unrecognized tax benefits were $ 32.7 million and $ 34.9 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. A summary of the changes in gross unrecognized tax benefits is shown below (in millions): For the year ended December 31, 2022 2021 2020 Balance at beginning of period $ 34.9 $ 36.4 $ 31.6 Additions based on tax positions related to current year 4.8 7.7 4.9 Additions (reductions) based on tax positions related to prior years — ( 4.0 ) 3.6 Settlements ( 1.9 ) ( 0.3 ) ( 1.2 ) Statute expirations ( 6.3 ) ( 5.2 ) ( 4.7 ) Foreign currency translation 1.2 0.3 2.2 Balance at end of period $ 32.7 $ 34.9 $ 36.4 The Company recognizes interest and penalties with respect to unrecognized tax benefits as income tax expense. As of December 31, 2022 and 2021, the Company had recorded gross reserves of $ 12.3 million and $ 12.7 million, respectively, related to interest and penalties, all of which, if recognized, would affect the Company's effective tax rate. 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 $ 5.1 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 2023, 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, 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 2016. Further, the Company or its subsidiaries remain subject to income tax examination in Spain for years after 2007, in Mexico for years after 2013, in Germany and Italy for years after 2015, in Morocco for years after 2017, in China and the United Kingdom for years after 2018 and in the United States generally for years after 2020. 81 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) On August 16, 2022, the Inflation Reduction Act of 2022 ("IRA") was signed into law. The IRA contains a number of revisions to the Internal Revenue Code, including a 15% corporate minimum tax and a 1% excise tax on share repurchases, both of which are effective for tax years beginning after December 31, 2022, as well as numerous renewable energy credits. The Company is evaluating the impact of the IRA; however, the tax-related provisions of the IRA are not expected to have a material impact on the Company's consolidated financial statements. Other In 2021, the Brazilian Supreme Court ruled on certain matters, including the method of determining the amount of indirect tax credits that taxpayers are entitled to monetize in future periods. As a result of the ruling, other expense, net includes a gain of $ 45.0 million for the year ended December 31, 2021, for which $ 8.0 million of tax expense was recognized. (10) Pension and Other Postretirement Benefit Plans The Company has noncontributory defined benefit pension plans covering certain domestic employees and certain employees in foreign countries, principally Canada. The Company's salaried pension plans provide benefits based on final average earnings formulas. The Company's hourly pension plans provide benefits under flat benefit and cash balance formulas. The Company also has contractual arrangements with certain employees which provide for supplemental retirement benefits. In general, the Company's policy is to fund its pension benefit obligation based on legal requirements, tax and liquidity considerations and local practices. 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 retirees. The Company does not fund its postretirement benefit obligation. Rather, payments are made as costs are incurred by covered retirees. Obligation A reconciliation of the change in benefit obligation for the years ended December 31, 2022 and 2021, is shown below (in millions): Pension Other Postretirement December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021 U.S. Foreign U.S. Foreign U.S. Foreign U.S. Foreign Change in benefit obligation: Benefit obligation at beginning of period $ 536.5 $ 479.9 $ 564.4 $ 529.2 $ 56.0 $ 24.5 $ 61.2 $ 27.4 Service cost — 4.2 — 5.3 — — — — Interest cost 15.5 11.2 14.5 10.5 1.5 0.7 1.4 0.7 Actuarial gains ( 142.3 ) ( 98.3 ) ( 23.0 ) ( 32.8 ) ( 25.8 ) ( 4.8 ) ( 3.5 ) ( 2.4 ) Benefits paid ( 21.8 ) ( 22.9 ) ( 19.4 ) ( 24.3 ) ( 2.6 ) ( 1.2 ) ( 3.1 ) ( 1.4 ) Translation adjustment — ( 34.6 ) — ( 8.0 ) — ( 1.6 ) — 0.2 Benefit obligation at end of period $ 387.9 $ 339.5 $ 536.5 $ 479.9 $ 29.1 $ 17.6 $ 56.0 $ 24.5 Actuarial gains As of December 31, 2022 and 2021, the decrease in pension and other postretirement benefit obligations attributable to actuarial gains relates to an increase in the discount rate used to determine the benefit obligations (see assumptions below). As of December 31, 2022, the decrease in the U.S. other postretirement benefit obligation attributable to actuarial gains also relates to per capita and demographic updates. 82 Table of Contents 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, 2022 and 2021, and the funded status as of December 31, 2022 and 2021, is shown below (in millions): Pension Other Postretirement December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021 U.S. Foreign U.S. Foreign U.S. Foreign U.S. Foreign Change in plan assets: Fair value of plan assets at beginning of period $ 444.2 $ 392.5 $ 418.2 $ 383.0 $ — $ — $ — $ — Actual return on plan assets ( 77.1 ) ( 41.0 ) 43.0 26.9 — — — — Employer contributions 3.2 6.1 2.4 5.6 2.6 1.2 3.1 1.4 Benefits paid ( 21.8 ) ( 22.9 ) ( 19.4 ) ( 24.3 ) ( 2.6 ) ( 1.2 ) ( 3.1 ) ( 1.4 ) Translation adjustment — ( 27.7 ) — 1.3 — — — — Fair value of plan assets at end of period 348.5 307.0 444.2 392.5 — — — — Funded status $ ( 39.4 ) $ ( 32.5 ) $ ( 92.3 ) $ ( 87.4 ) $ ( 29.1 ) $ ( 17.6 ) $ ( 56.0 ) $ ( 24.5 ) A summary of amounts recognized in the consolidated balance sheets as of December 31, 2022 and 2021, is shown below (in millions): Pension Other Postretirement December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021 U.S. Foreign U.S. Foreign U.S. Foreign U.S. Foreign Amounts recognized in the consolidated balance sheet: Other long-term assets $ — $ 62.3 $ — $ 41.7 $ — $ — $ — $ — Accrued liabilities ( 2.9 ) ( 3.4 ) ( 3.3 ) ( 3.8 ) ( 2.6 ) ( 1.4 ) ( 4.0 ) ( 1.5 ) Other long-term liabilities ( 36.5 ) ( 91.4 ) ( 89.0 ) ( 125.3 ) ( 26.5 ) ( 16.2 ) ( 52.0 ) ( 23.0 ) Funded status $ ( 39.4 ) $ ( 32.5 ) $ ( 92.3 ) $ ( 87.4 ) $ ( 29.1 ) $ ( 17.6 ) $ ( 56.0 ) $ ( 24.5 ) Accumulated Benefit Obligation As of December 31, 2022 and 2021, the accumulated benefit obligation for all of the Company's pension plans was $ 720.5 million and $ 1,012.4 million, respectively. As of December 31, 2022 and 2021, the majority of the Company's pension plans had accumulated benefit obligations in excess of plan assets. Information related to pension plans with accumulated benefit obligations in excess of plan assets is shown below (in millions): December 31, 2022 2021 Projected benefit obligation $ 482.7 $ 761.2 Accumulated benefit obligation 476.0 757.2 Fair value of plan assets 348.6 539.8 83 Table of Contents 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, 2022 and 2021, are shown below (in millions): Pension Other Postretirement December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021 U.S. Foreign U.S. Foreign U.S. Foreign U.S. Foreign Actuarial gains (losses) recognized: Reclassification adjustments $ 2.0 $ 4.1 $ 3.9 $ 6.0 $ ( 1.2 ) $ — $ ( 1.1 ) $ — Actuarial gain arising during the period 41.3 42.2 42.5 40.1 25.8 4.8 3.5 2.4 Effect of settlements 0.4 ( 0.2 ) 0.4 0.1 — — — — Prior service credit recognized: Reclassification adjustments — — — — ( 0.1 ) — ( 0.1 ) — Translation adjustment — 7.3 — 1.4 — ( 0.1 ) — — $ 43.7 $ 53.4 $ 46.8 $ 47.6 $ 24.5 $ 4.7 $ 2.3 $ 2.4 In addition, the Company recognized tax benefit (expense) in other comprehensive income (loss) related to its defined benefit plans of ($ 24.9 ) million, ($ 22.7 ) million and $ 18.5 million for the years ended December 31, 2022, 2021 and 2020, respectively. Pretax amounts recorded in accumulated other comprehensive loss not yet recognized in net periodic benefit cost as of December 31, 2022 and 2021, are shown below (in millions): Pension Other Postretirement December 31, 2022 December 31, 2021 December 31, 2022 December 31, 2021 U.S. Foreign U.S. Foreign U.S. Foreign U.S. Foreign Net unrecognized actuarial gain (loss) $ ( 58.9 ) $ ( 60.7 ) $ ( 102.6 ) $ ( 114.0 ) $ 38.2 $ 4.1 $ 13.6 $ ( 0.6 ) Prior service credit (cost) — ( 0.5 ) — ( 0.6 ) 1.0 0.1 1.1 0.1 $ ( 58.9 ) $ ( 61.2 ) $ ( 102.6 ) $ ( 114.6 ) $ 39.2 $ 4.2 $ 14.7 $ ( 0.5 ) The Company uses the corridor approach when amortizing actuarial gains and losses. Under the corridor approach, net unrecognized actuarial gains and losses in excess of 10% of the greater of i) the projected benefit obligation or ii) the fair value of plan assets are amortized over future periods. For plans with little to no active participants, the amortization period is the remaining average life expectancy of the participants. For plans with active participants, the amortization period is the remaining average service period of the active participants. The amortization periods range from 3 to 32 years for the Company's defined benefit pension plans and from 7 to 16 years for the Company's other postretirement benefit plans. Net Periodic Pension and Other Postretirement Benefit Cost (Credit) The components of the Company's net periodic pension benefit cost (credit) are shown below (in millions): Year Ended December 31, 2022 2021 2020 Pension U.S. Foreign U.S. Foreign U.S. Foreign Service cost $ — $ 4.2 $ — $ 5.3 $ 0.1 $ 5.0 Interest cost 15.5 11.2 14.5 10.5 16.4 12.2 Expected return on plan assets ( 23.9 ) ( 17.2 ) ( 23.5 ) ( 19.6 ) ( 21.4 ) ( 19.6 ) Amortization of actuarial loss 2.0 4.1 3.9 6.1 2.3 5.2 Settlement (gains) losses 0.4 ( 0.2 ) 0.4 — 0.3 13.0 Net periodic benefit cost (credit) $ ( 6.0 ) $ 2.1 $ ( 4.7 ) $ 2.3 $ ( 2.3 ) $ 15.8 84 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) The components of the Company's net periodic other postretirement benefit cost (credit) are shown below (in millions): Year Ended December 31, 2022 2021 2020 Other Postretirement U.S. Foreign U.S. Foreign U.S. Foreign Interest cost $ 1.5 $ 0.7 $ 1.4 $ 0.7 $ 1.7 $ 0.7 Amortization of actuarial gain ( 1.2 ) — ( 1.1 ) — ( 1.6 ) — Amortization of prior service credit ( 0.1 ) — ( 0.1 ) — ( 0.2 ) — Net periodic benefit cost (credit) $ 0.2 $ 0.7 $ 0.2 $ 0.7 $ ( 0.1 ) $ 0.7 For the year ended December 31, 2020, the Company recognized pension settlement losses of $ 12.9 million related to its restructuring actions (Note 5, "Restructuring"). Assumptions The weighted average actuarial assumptions used in determining the benefit obligations are shown below: Pension Other Postretirement December 31, 2022 2021 2022 2021 Discount rate: Domestic plans 5.5 % 3.0 % 5.5 % 2.8 % Foreign plans 5.0 % 2.5 % 5.3 % 3.1 % Rate of compensation increase: Foreign plans 2.5 % 3.5 % N/A N/A The weighted average actuarial assumptions used in determining the net periodic benefit cost (credit) are shown below: For the year ended December 31, 2022 2021 2020 Pension Discount rate: Domestic plans 3.0 % 2.6 % 3.4 % Foreign plans 2.5 % 2.0 % 2.6 % Expected return on plan assets: Domestic plans 5.5 % 5.8 % 5.8 % Foreign plans 4.6 % 5.2 % 5.4 % Rate of compensation increase: Foreign plans 3.5 % 3.3 % 3.7 % Other postretirement Discount rate: Domestic plans 2.8 % 2.4 % 3.2 % Foreign plans 3.1 % 2.5 % 3.1 % The expected return on plan assets is determined based on several factors, including adjusted historical returns, historical risk premiums for various asset classes and target asset allocations within the portfolio. 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, 2022 and 2021, the weighted-average interest crediting rate used by one of the Company's U.S. pension plans was a minimum of 4.0 %. 85 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) Healthcare Trend Rate The assumed healthcare cost trend rates used to measure the postretirement benefit obligation as of December 31, 2022, are shown below: U.S. Plans Foreign Plans Initial healthcare cost trend rate 6.5 % 4.5 % Ultimate healthcare cost trend rate 4.5 % 4.0 % Year ultimate healthcare cost trend rate achieved 2030 2040 Plan Assets 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, 2022 and 2021, are shown below (in millions): December 31, 2022 Total Level 1 Level 2 Level 3 Valuation Technique U.S. Plans: Equity securities - Equity funds $ 65.2 $ 52.1 $ 13.1 $ — Market Common stock 54.9 39.8 15.1 — Market Fixed income - Fixed income funds 79.1 79.1 — — Market Corporate bonds 63.4 — 63.4 — Market Government obligations 9.7 — 9.7 — Market Preferred stock 0.2 0.2 — — Market Cash and short-term investments 13.4 2.8 10.6 — Market Assets at fair value 285.9 $ 174.0 $ 111.9 $ — Investments measured at net asset value - Alternative investments 62.6 Assets at fair value $ 348.5 Foreign Plans: Equity securities - Equity funds $ 55.2 $ — $ 55.2 $ — Market Common stock 32.9 32.9 — — Market Fixed income - Fixed income funds 43.4 — 43.4 — Market Corporate bonds 15.9 — 15.9 — Market Government obligations 113.2 — 113.2 — Market Cash and short-term investments 13.3 3.2 10.1 — Market Assets at fair value 273.9 $ 36.1 $ 237.8 $ — Investments measured at net asset value - Alternative investments 33.1 Assets at fair value $ 307.0 86 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) December 31, 2021 Total Level 1 Level 2 Level 3 Valuation Technique U.S. Plans: Equity securities - Equity funds $ 100.9 $ 80.0 $ 20.9 $ — Market Common stock 87.1 56.3 30.8 — Market Fixed income - Fixed income funds 95.1 95.1 — — Market Corporate bonds 83.8 — 83.8 — Market Government obligations 5.2 — 5.2 — Market Preferred stock 1.2 0.4 0.8 — Market Cash and short-term investments 8.5 2.1 6.4 — Market Assets at fair value 381.8 $ 233.9 $ 147.9 $ — Investments measured at net asset value - Alternative investments 62.4 Assets at fair value $ 444.2 Foreign Plans: Equity securities - Equity funds $ 147.2 $ — $ 147.2 $ — Market Common stock 59.5 59.5 — — Market Fixed income - Fixed income funds 63.3 — 63.3 — Market Corporate bonds 28.8 — 28.8 — Market Government obligations 51.8 — 51.8 — Market Cash and short-term investments 13.0 7.9 5.1 — Market Assets at fair value 363.6 $ 67.4 $ 296.2 $ — Investments measured at net asset value - Alternative investments 28.9 Assets at fair value $ 392.5 For further information on the GAAP fair value hierarchy, see Note 16, "Financial Instruments." Pension plan assets for the foreign plans relate to the Company's pension plans primarily in Canada and the United Kingdom. The Company's investment policies incorporate an asset allocation strategy that emphasizes the long-term growth of capital. The Company believes that this strategy is consistent with the long-term nature of plan liabilities and ultimate cash needs of the plans. For the domestic portfolio, the Company targets a return seeking asset (e.g., equity securities, equity mutual funds and exchange traded funds ("ETFs") and alternative investments) allocation of 45 % — 65 % and a risk mitigating asset (e.g., fixed income securities and fixed income mutual funds and ETFs) allocation of 35 % — 55 %. As the funding ratio for the defined benefit pension plans covering certain domestic employees changes, the proportion of return seeking assets will be adjusted accordingly. For the foreign portfolio, the Company targets an equity allocation of 20 % — 60 % of plan assets, a fixed income allocation of 30 % — 70 %, an alternative investment allocation of 0 % — 25 % and a cash allocation of 0 % — 15 %. Differences in the target allocations of the domestic and foreign portfolios are reflective of differences in the underlying plan liabilities. Diversification within the investment portfolios is pursued by asset class and investment management style. The investment portfolios are reviewed on a quarterly basis to maintain the desired asset allocations, given the market performance of the asset classes and investment management styles. Alternative investments are redeemable in the near term, generally with 90 days' notice. The Company utilizes investment management firms to manage these assets in accordance with the Company's investment policies. Excluding alternative investments, mutual funds and ETFs, retained investment managers are provided investment guidelines, which restrict the use of certain assets, including commodities contracts, futures contracts, options, venture capital, real estate, interest-only or principal-only strips and investments in the Company's own debt or equity. Derivative instruments 87 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) are also prohibited without the specific approval of the Company. Investment managers are limited in the maximum size of individual security holdings and the maximum exposure to any one industry relative to the total portfolio. Fixed income managers are provided further investment guidelines that indicate minimum credit ratings for debt securities and limitations on weighted average maturity and portfolio duration. The Company evaluates investment manager performance against market indices which the Company believes are appropriate to the investment management style for which the investment manager has been retained. The Company's investment policies incorporate an investment goal of aggregate portfolio returns which exceed the returns of the appropriate market indices by a reasonable spread over the relevant investment horizon. Contributions In 2023, the Company's minimum required contributions to its domestic and foreign pension plans are expected to be approximately $ 1 million. The Company may elect to make contributions in excess of minimum funding requirements in response to investment performance or changes in interest rates or when the Company believes that it is financially advantageous to do so and based on its other cash requirements. After 2023, the Company's minimum funding requirements will depend on several factors, including investment performance and interest rates. The Company's minimum funding requirements may also be affected by changes in applicable legal requirements. Benefit Payments As of December 31, 2022, 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): Pension Other Postretirement Year U.S. Foreign U.S. Foreign 2023 $ 22.8 $ 21.6 $ 2.6 $ 1.5 2024 23.0 21.9 2.7 1.5 2025 24.0 22.7 2.6 1.5 2026 25.1 24.6 2.6 1.5 2027 25.1 24.6 2.5 1.5 Five years thereafter 134.7 134.3 11.3 6.7 Multi-Employer Pension Plans The Company currently participates in two multi-employer pension plans, the U.A.W. 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, which expire between July 21, 2024 and June 30, 2027. Detailed information related to these plans is shown below (amounts in millions): Pension Protection Act Zone Status Contributions to Multiemployer Pension Plans Employer Identification Number ("EIN") December 31, 2021 Certification December 31, 2020 Certification FIP/RP (1) Pending or Implemented Surcharge Year Ended December 31, 2022 Year Ended December 31, 2021 Year Ended December 31, 2020 51-6099782-001 Green Green Yes No $ 0.8 $ 0.7 $ 0.6 13-6130178-001 Red Red Yes No 0.4 0.4 0.5 (1) Funding improvement plan or rehabilitation plan as defined by Employment Retirement Security Act of 1974. For its plan years 2022 and 2021, the Company's contributions to the U.A.W. Labor-Management Group Pension Plan represented more than 5 % of the plan's total contributions. Defined Contribution Plan The Company also sponsors defined contribution plans and participates in government-sponsored programs in certain foreign countries. Contributions are determined as a percentage of each covered employee's salary. For the years ended December 31, 2022, 2021 and 2020, the aggregate cost of the defined contribution plans was $ 18.2 million, $ 16.4 million and $ 17.1 million, respectively. 88 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) The Company also has a defined contribution retirement program for its salaried employees. Contributions to this program are determined as a percentage of each covered employee's eligible compensation. For the years ended December 31, 2022, 2021 and 2020, the Company recorded expense of $ 23.5 million, $ 20.4 million and $ 18.3 million, respectively, related to this program. (11) Revenue Recognition A summary of the Company's revenue by reportable operating segment and geography is shown below (in millions): For the year ended December 31, 2022 Seating E-Systems Total North America $ 7,416.3 $ 1,494.4 $ 8,910.7 Europe and Africa 4,944.0 2,002.0 6,946.0 Asia 2,731.9 1,451.3 4,183.2 South America 619.0 232.6 851.6 $ 15,711.2 $ 5,180.3 $ 20,891.5 For the year ended December 31, 2021 Seating E-Systems Total North America $ 6,277.2 $ 1,271.0 $ 7,548.2 Europe and Africa 4,805.5 1,939.8 6,745.3 Asia 2,759.9 1,468.0 4,227.9 South America 568.8 172.9 741.7 $ 14,411.4 $ 4,851.7 $ 19,263.1 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 (12) Capital Stock, Accumulated Other Comprehensive Loss and Equity Common Stock The Company is authorized to issue up to 300,000,000 shares of Common Stock. The Company's Common Stock is listed on the New York Stock Exchange under the symbol "LEA" and has the following rights and privileges: • Voting Rights – All shares of the Company's common stock have identical rights and privileges. With limited exceptions, holders of common stock are entitled to one vote for each outstanding share of common stock held of record by each stockholder on all matters properly submitted for the vote of the Company's stockholders. • Dividend Rights – Subject to applicable law, any contractual restrictions and the rights of the holders of outstanding preferred stock, if any, holders of common stock are entitled to receive ratably such dividends and other distributions that the Company's Board of Directors (the "Board"), in its discretion, declares from time to time. • 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. 89 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) Common Stock Share Repurchase Program The Company may implement share repurchases through a variety of methods, including, but not limited to, open market purchases, accelerated stock repurchase programs and structured repurchase transactions. The extent to which the Company may repurchase its outstanding common stock and the timing of such repurchases will depend upon its financial condition, results of operations, capital requirements, prevailing market conditions, alternative uses of capital and other factors. The Company has a common stock share repurchase program (the "Repurchase Program") which permits the discretionary repurchase of its common stock. Since its inception in the first quarter of 2011, the Board has authorized $ 6.1 billion in share repurchases under the Repurchase Program. As of December 31, 2022, the Company has repurchased, in aggregate, $ 4.9 billion of its outstanding common stock, at an average price of $ 91.55 per share, excluding commissions and related fees. As of December 31, 2022, the Company has a remaining repurchase authorization of $ 1.2 billion under its Repurchase Program, which expires on December 31, 2024. In March 2020, as a proactive measure in response to the COVID-19 pandemic, the Company suspended share repurchases under its Repurchase Program. Share repurchases were reinstated in the second quarter of 2021. Share repurchases are shown below (in millions, except for shares and per share amounts): For the year ended December 31, Aggregate Repurchases Cash paid for Repurchases Number of Shares Average Price per Share (1) 2022 $ 100.3 $ 100.3 763,309 $ 131.37 2021 $ 100.3 $ 100.3 589,717 $ 170.03 2020 $ 70.0 $ 70.0 641,149 $ 109.22 (1) Excludes commissions. In addition to shares repurchased under the Repurchase Program described above, the Company classifies shares withheld from the settlement of the Company's restricted stock unit and performance share awards to cover tax withholding requirements as common stock held in treasury in the consolidated balance sheet. Quarterly Dividend In 2022, the Board declared quarterly cash dividends of $ 0.77 per share of common stock in all quarters. In 2021, the Board declared quarterly cash dividends of $ 0.25 per share of common stock in the first and second quarters, a quarterly cash dividend of $ 0.50 per share of common stock in the third quarter and a quarterly cash dividend of $ 0.77 per share of common stock in the fourth quarter. In 2020, the Board declared a quarterly cash dividend of $ 0.77 per share of common stock in the first quarter. In March 2020, as a proactive measure in response to the COVID-19 pandemic, the Company suspended its quarterly cash dividend. The quarterly cash dividend was reinstated in the fourth quarter of 2020 at $ 0.25 per share of common stock. Dividends declared and paid are shown below (in millions): For the year ended December 31, 2022 2021 2020 Dividends declared $ 186.2 $ 107.9 $ 62.1 Dividends paid $ 185.5 $ 106.7 $ 67.3 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. Comprehensive Income Comprehensive income is defined as all changes in the Company's net assets except changes resulting from transactions with stockholders. It differs from net income in that certain items recorded in equity are included in comprehensive income. 90 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) Accumulated Other Comprehensive Loss A summary of changes in accumulated other comprehensive income (loss), net of tax, is shown below (in millions): For the year ended December 31, 2022 2021 2020 Defined benefit plans: Balance at beginning of year $ ( 199.4 ) $ ( 276.9 ) $ ( 217.6 ) Reclassification adjustments (net of tax expense of $ 1.0 million in 2022, $ 2.1 million in 2021 and $ 4.7 million in 2020) 4.0 7.1 14.3 Other comprehensive income (loss) recognized during the period (net of tax benefit (expense) of ($ 23.9 ) million in 2022, ($ 20.6 ) million in 2021 and $ 23.2 million in 2020) 99.7 70.4 ( 73.6 ) Balance at end of year $ ( 95.7 ) $ ( 199.4 ) $ ( 276.9 ) Derivative instruments and hedge activities: Balance at beginning of year $ ( 18.6 ) $ 12.6 $ 9.8 Reclassification adjustments (net of tax benefit (expense) of $ 8.5 million in 2022, $ 8.7 million in 2021 and ($ 1.8 ) million in 2020) ( 35.3 ) ( 36.0 ) 7.5 Other comprehensive income (loss) recognized during the period (net of tax benefit (expense) of ($ 19.1 ) million in 2022, ($ 1.2 ) million in 2021 and $ 1.0 million in 2020) 87.3 4.8 ( 4.7 ) Balance at end of year $ 33.4 $ ( 18.6 ) $ 12.6 Currency translation adjustments: Balance at beginning of year $ ( 552.2 ) $ ( 440.8 ) $ ( 564.9 ) Other comprehensive income (loss) recognized during the period (net of tax benefit (expense) of ($ 4.7 ) million in 2022, ($ 4.1 ) million in 2021 and $ 3.8 million in 2020) ( 190.6 ) ( 111.4 ) 124.1 Balance at end of year $ ( 742.8 ) $ ( 552.2 ) $ ( 440.8 ) For the years ended December 31, 2022, 2021 and 2020, 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 $ 2.6 million, $ 0.4 million and $ 0.6 million, respectively. For the years ended December 31, 2022, 2021 and 2020, other comprehensive income (loss) related to currency translation adjustments also includes net investment hedge gains (losses) of $ 25.3 million, $ 17.9 million and ($ 18.3 ) million, respectively. Redeemable Noncontrolling Interest 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 redeemable noncontrolling interest adjustments are recorded as an increase to redeemable noncontrolling interests, with an offsetting adjustment to retained earnings. Redeemable noncontrolling interest is classified in mezzanine equity. 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. Noncontrolling Interests In 2021, the Company sold a 49 % equity interest in its wholly owned consolidated subsidiary, Shenyang Lear Jinbei Automotive Systems Co., Ltd. ("Shenyang Lear"), for $ 36.2 million. The Company continues to control Shenyang Lear, and as a result, the operating results and cash flows of Shenyang Lear continue to be included in the Company's consolidated financial statements. Noncontrolling interest of $ 7.6 million was recorded in conjunction with the transaction. The difference between the consideration paid and the carrying value of the noncontrolling interest recorded is reflected in additional paid-in capital in the accompanying consolidated balance sheets. The proceeds from the sale are classified within cash flows used in financing activities in the accompanying consolidated statement of cash flows for the year ended December 31, 2021. 91 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) (13) Stock-Based Compensation As of November 9, 2009, the Company adopted the Lear Corporation 2009 Long-Term Stock Incentive Plan (as amended, the "2009 LTSIP"). The 2009 LTSIP reserved 11,815,748 shares of common stock for issuance under stock option, restricted stock, restricted stock unit, restricted unit, performance share, performance unit and stock appreciation right awards. As of May 16, 2019, the Company adopted the Lear Corporation 2019 Long-Term Stock Incentive Plan (the "2019 LTSIP"), after which no awards will be issued under the 2009 LTSIP. The 2019 LTSIP reserves 2,526,858 shares of common stock plus shares of common stock awarded under the 2009 LTSIP that are cancelled subsequent to May 16, 2019, for issuance under stock option, restricted stock, restricted stock unit, restricted unit, performance share, performance unit and stock appreciation right awards. In addition, the Company adopted the Lear Corporation 2019 Inducement Grant Plan ("Inducement Plan") as of April 17, 2019, in conjunction with the Xevo acquisition. The Inducement Plan reserved 146,516 shares of common stock for issuance under restricted stock and restricted stock unit awards, of which 145,202 awards were granted on April 17, 2019. 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, performance shares and stock options to certain of its employees, all of which generally vest in one to three years following the grant date. For the years ended December 31, 2022, 2021 and 2020, the Company recognized compensation expense related to these awards of $ 50.3 million, $ 58.7 million and $ 39.0 million, respectively. Unrecognized compensation expense related to these awards of $ 58.7 million will be recognized over th e next 1.6 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, 2022 and 2021. A summary of restricted stock units, performance shares and stock options for the year ended December 31, 2022, is shown below: Restricted Stock Units Weighted Average Grant Date Fair Value Performance Shares Weighted Average Grant Date Fair Value Stock Options Weighted Average Grant Date Fair Value Outstanding as of December 31, 2021 567,891 $ 129.58 780,544 $ 156.56 202,702 $ 32.65 Granted 189,213 $ 164.57 244,717 $ 196.83 — Distributed (vested) ( 242,307 ) ( 104,551 ) — Cancelled ( 20,336 ) ( 194,225 ) — Outstanding as of December 31, 2022 (1) 494,461 $ 145.64 726,485 $ 201.83 202,702 $ 32.65 Vested or expected to vest as of December 31, 2022 494,461 435,217 202,702 (1) Outstanding performance shares are reflected at the maximum possible payout that may be earned during the relevant performance periods. 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 2021 and 2020 was $ 165.28 and $ 129.40 , respectively. The grant date fair value of performance shares is based on the share price on the grant date or a Monte Carlo simulation. The weighted average grant date fair value of performance shares granted in 2021 and 2020 was $ 188.11 and $ 147.53 , respectively. The grant date fair value of stock options is based on a Black-Scholes model. The grant date fair value of options granted in 2021 and 2020 was $ 35.33 and $ 30.32 , respectively. (14) Commitments and Contingencies Legal and Other Contingencies As of December 31, 2022 and 2021, the Company had recorded reserves for pending legal disputes, including commercial disputes, product liability claims and other legal matters, of $ 15.9 million and $ 19.5 million, respectively. Such reserves reflect amounts recognized in accordance with GAAP and typically exclude the cost of legal representation. Product warranty and recall reserves are recorded separately from legal reserves, as described below. 92 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) Commercial Disputes The Company is involved from time to time in legal proceedings and claims, including, without limitation, commercial or contractual disputes with its customers, suppliers and competitors. These disputes vary in nature and are usually resolved by negotiations between the parties. Product Warranty and Recall Matters In the event that use of the Company's products results in, or is alleged to result in, bodily injury and/or property damage or other losses, the Company may be subject to product liability lawsuits and other claims. Such lawsuits generally seek compensatory damages, punitive damages and attorneys' fees and costs. In addition, if any of the Company's products are, or are alleged to be, defective, the Company may be required or requested by its customers to participate in a recall or other corrective action involving such products. Certain of the Company's customers have asserted claims against the Company for costs related to recalls or other corrective actions involving its products. The Company can provide no assurances that it will not experience material claims in the future or that it will not incur significant costs to defend such claims. To a lesser extent, the Company is a party to agreements with certain of its customers, whereby these customers may pursue claims against the Company for contribution of all or a portion of the amounts sought in connection with product warranty and recall matters. In certain instances, allegedly defective products may be supplied by the Company's suppliers. The Company may seek recovery from its suppliers of materials or services included within the Company's products that are associated with product liability claims and product warranty and recall matters. The Company carries insurance for certain legal matters, including product liability claims, but such coverage may be limited. The Company does not maintain insurance for product warranty or recall matters. The Company records product warranty and recall reserves when liability is probable and related amounts are reasonably estimable. A summary of the changes in reserves for product warranty and recall matters for each of the periods in the two years ended December 31, 2022, is shown below (in millions): Balance as of January 1, 2021 $ 48.7 Expense, net (including changes in estimates) 12.7 Settlements ( 13.7 ) Foreign currency translation and other ( 1.7 ) Balance as of January 1, 2022 46.0 Expense, net (including changes in estimates) 6.6 Settlements ( 19.6 ) Foreign currency translation and other ( 2.6 ) Balance as of December 31, 2022 $ 30.4 Environmental Matters The Company is subject to local, state, federal and foreign laws, regulations and ordinances, which govern activities or operations that may have adverse environmental effects and which impose liability for clean-up costs resulting from past spills, disposals or other releases of hazardous wastes and environmental compliance. The Company's policy is to comply with all applicable environmental laws and to maintain an environmental management program based on ISO 14001 to ensure compliance with this standard. However, the Company currently is, has been and in the future may become the subject of formal or informal enforcement actions or procedures. As of December 31, 2022 and 2021, the Company had recorded environmental reserves of $ 7.9 million and $ 8.0 million, respectively. The Company does not believe that the environmental liabilities associated with its current and former properties 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. Other Matters 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 93 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) 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. However, no assurances can be given in this regard. Although the Company records reserves for legal disputes, product warranty and recall matters and environmental and other matters in accordance with GAAP, the ultimate outcomes of these matters are inherently uncertain. Actual results may differ significantly from current estimates. Insurance Recoveries The Company incurred losses and incremental costs related to the destruction of assets caused by a typhoon in the Philippines in December 2021. In 2022, the Company reached an installment settlement for the recovery of such costs under applicable insurance policies. Anticipated proceeds from insurance recoveries related to losses and incremental costs that have been incurred ("loss recoveries") are recognized when receipt is probable. Anticipated proceeds from insurance recoveries in excess of the net book value of destroyed property, plant and equipment ("insurance gain contingencies") are recognized when all contingencies related to the claim have been resolved. Loss recoveries related to the destruction of inventory and incremental costs are included in costs of sales and loss recoveries and insurance gain contingencies related to the destruction of property, plant and equipment are included in other expense, net. Cash proceeds related to the destruction of inventory and incremental costs are included in cash flows from operating activities and cash proceeds related to the destruction of property, plant and equipment are included in cash flows from investing activities. The Company incurred cumulative losses and incremental costs of $ 26.5 million related to the typhoon, of which $ 13.3 million was incurred in 2022. In 2022, the Company recognized insurance recoveries of $ 14.7 million, of which $ 13.3 million is recognized in cost of sales and $ 1.4 million is recognized in other expense, net. In 2022, the Company received cumulative cash proceeds of $ 13.3 million, of which $ 12.8 million is reflected in cash flows from operating activities and $ 0.5 million is reflected in cash flows from investing activities in the accompanying statement of cash flows. Employees Approximately 48 % of the Company's employees are members of industrial trade unions and are employed under the terms of various labor agreements. Labor agreements covering approximately 74 % of the Company's global unionized workforce of approximately 81,300 employees, including labor agreements in the United States and Canada covering approximately 2 % of the Company's global unionized workforce, are scheduled to expire in 2023. Management does not anticipate any significant difficulties with respect to the renewal of these agreements. (15) Segment Reporting A summary of revenues from external customers and other financial information by reportable operating segment is shown below (in millions): Year Ended December 31, 2022 Seating E-Systems Other Consolidated Revenues from external customers $ 15,711.2 $ 5,180.3 $ — $ 20,891.5 Segment earnings (1) 893.0 74.4 ( 313.1 ) 654.3 Depreciation and amortization 369.5 188.2 18.8 576.5 Capital expenditures 369.4 241.3 27.5 638.2 Total assets 7,897.4 3,684.7 2,180.9 13,763.0 Year Ended December 31, 2021 Seating E-Systems Other Consolidated Revenues from external customers $ 14,411.4 $ 4,851.7 $ — $ 19,263.1 Segment earnings (1) 851.3 121.2 ( 297.1 ) 675.4 Depreciation and amortization 362.6 195.7 15.6 573.9 Capital expenditures 340.7 217.2 27.2 585.1 Total assets 7,414.0 3,584.8 2,353.6 13,352.4 94 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) 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 (1) For a definition of segment earnings, see Note 3 , "Summary of Significant Accounting Policies — Segment Reporting." A reconciliation of segment earnings to consolidated income before provision for income taxes and equity in net income of affiliates is shown below (in millions): For the year ended December 31, 2022 2021 2020 Segment earnings $ 967.4 $ 972.5 $ 688.6 Corporate and regional headquarters and elimination of intercompany activity ("Other") ( 313.1 ) ( 297.1 ) ( 234.5 ) Consolidated income before interest, other expense, provision for income taxes and equity in net income of affiliates 654.3 675.4 454.1 Interest expense 98.6 91.8 99.6 Other expense, net 46.4 0.1 55.2 Consolidated income before provision for income taxes and equity in net income of affiliates $ 509.3 $ 583.5 $ 299.3 Revenues from external customers and tangible long-lived assets for each of the geographic areas in which the Company operates is shown below (in millions): For the year ended December 31, 2022 2021 2020 Revenues from external customers United States $ 4,751.6 $ 4,410.7 $ 3,599.1 Mexico 3,182.7 2,465.8 2,528.4 China 2,976.1 3,018.1 2,592.7 Germany 1,211.0 1,309.9 1,288.3 Other countries 8,770.1 8,058.6 7,037.0 Total $ 20,891.5 $ 19,263.1 $ 17,045.5 December 31, 2022 2021 Tangible long-lived assets (1) United States $ 688.3 $ 593.0 Mexico 735.5 691.6 China 463.8 460.8 Germany 186.8 189.2 Other countries 1,481.4 1,413.4 Total $ 3,555.8 $ 3,348.0 (1) Tangible long-lived assets include property, plant and equipment and right-of-use assets. 95 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) The following is a summary of the percentage of revenues from major customers: For the year ended December 31, 2022 2021 2020 General Motors 20.2 % 18.2 % 18.7 % Ford 13.5 % 13.5 % 13.5 % Mercedes-Benz 11.3 % 11.2 % 11.9 % Volkswagen 10.8 % 11.8 % 11.7 % Stellantis 10.3 % 10.9 % 11.2 % (16) Financial Instruments Debt Instruments The carrying values of the Notes vary from their fair values. The fair values of the Notes were determined by reference to the quoted market prices of these securities (Level 2 input based on the GAAP fair value hierarchy). The estimated fair value, as well as the carrying value, of the Company's debt instruments are shown below (in millions): December 31, 2022 2021 Estimated aggregate fair value (1) $ 2,142.3 $ 2,868.6 Aggregate carrying value (1) (2) 2,600.0 2,600.0 (1) 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 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, 2022 2021 2020 Balance sheet — cash and cash equivalents $ 1,114.9 $ 1,318.3 $ 1,306.7 Restricted cash included in other current assets 0.3 1.4 5.1 Restricted cash included in other long-term assets 2.2 1.6 2.7 Statement of cash flows — cash, cash equivalents and restricted cash $ 1,117.4 $ 1,321.3 $ 1,314.5 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, 2022 2021 Other current assets $ 3.6 $ 3.5 Other long-term assets 53.6 58.8 $ 57.2 $ 62.3 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). Equity Securities Without Readily Determinable Fair Values As of December 31, 2022 and 2021, investments in equity securities without readily determinable fair values of $ 18.2 million and $ 15.4 million, respectively, are included in other long-term assets in the accompanying consolidated balance sheets. Such investments are valued at cost, less cumulative impairments and adjusted for changes resulting from observable, orderly transactions for identical or similar securities. For the years ended December 31, 2021 and 2020, the Company recognized 96 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) impairment charges of $ 1.0 million and $ 4.0 million, respectively, and investments in equity securities without readily determinable fair values have been reduced for cumulative impairments of $ 10.0 million as of December 31, 2022 and 2021. Derivative Instruments and Hedging Activities Foreign Exchange The Company uses forwards, swaps and other derivative contracts to reduce the effects of fluctuations in foreign exchange rates on known foreign currency exposures. 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 Chinese renminbi, the Philippine peso and the Japanese yen. Foreign currency derivative contracts not designated as hedging instruments consist principally of hedges of cash transactions, intercompany loans and certain other balance sheet exposures. Net Investment Hedges 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. Contra interest expense on net investment hedges was $ 4.6 million, $ 6.5 million and $ 6.5 million for the years ended December 31, 2022, 2021 and 2020, respectively, and 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, 2022 2021 Fair value of foreign currency contracts designated as cash flow hedges: Other current assets $ 63.4 $ 19.4 Other long-term assets 10.3 0.1 Other current liabilities ( 6.7 ) ( 10.1 ) Other long-term liabilities ( 0.2 ) ( 2.8 ) 66.8 6.6 Notional amount $ 1,546.9 $ 1,077.6 Outstanding maturities in months, not to exceed 24 23 Fair value of derivatives designated as net investment hedges: Other long-term assets $ 4.8 $ — Other current liabilities — ( 3.2 ) Other long-term liabilities — ( 1.6 ) 4.8 ( 4.8 ) Notional amount $ 150.0 $ 300.0 Outstanding maturities in months, not to exceed 39 33 Fair value of foreign currency contracts not designated as hedge instruments: Other current assets $ 9.5 $ 2.2 Other current liabilities ( 13.4 ) ( 3.3 ) ( 3.9 ) ( 1.1 ) Notional amount $ 758.6 $ 445.5 Outstanding maturities in months, not to exceed 7 12 Total fair value $ 67.7 $ 0.7 Total notional amount $ 2,455.5 $ 1,823.1 97 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) Accumulated Other Comprehensive Loss — Derivative Instruments and Hedge Activities Pretax amounts related to foreign currency contracts and net investment hedges that were recognized in and reclassified from accumulated other comprehensive loss are shown below (in millions): For the year ended December 31, 2022 2021 2020 Gains (losses) recognized in accumulated other comprehensive loss: Foreign currency contracts $ 106.4 $ 6.0 $ ( 5.7 ) Net investment hedges 25.3 17.9 ( 18.3 ) 131.7 23.9 ( 24.0 ) (Gains) losses reclassified from accumulated other comprehensive loss to: Net sales ( 12.4 ) ( 4.4 ) ( 0.6 ) Cost of sales ( 33.8 ) ( 42.7 ) 7.6 Interest expense 2.4 2.4 2.4 Other expense, net — — ( 0.1 ) ( 43.8 ) ( 44.7 ) 9.3 Comprehensive income (loss) $ 87.9 $ ( 20.8 ) $ ( 14.7 ) As of December 31, 2022 and 2021, pretax net gains (losses) of $ 71.8 million and ($ 16.1 ) 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): Foreign currency contracts $ 56.7 Interest rate swap contracts ( 2.4 ) Total $ 54.3 Such gains and losses will be reclassified at the time that the underlying hedged transactions are realized. For the years ended December 31, 2022, 2021 and 2020, the Company recognized tax benefit (expense) of ($ 10.6 ) million, $ 7.5 million and ($ 0.8 ) million, respectively, in other comprehensive income related to its derivative instruments and hedge activities. Fair Value Measurements GAAP provides that fair value is an exit price, defined as a market-based measurement that represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value measurements are based on one or more of the following three valuation techniques: Market: This approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. Income: This approach uses valuation techniques to convert future amounts to a single present value amount based on current market expectations. Cost: This approach is based on the amount that would be required to replace the service capacity of an asset (replacement cost). Further, GAAP prioritizes the inputs and assumptions used in the valuation techniques described above into a three-tier fair value hierarchy as follows: Level 1: Observable inputs, such as quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date. Level 2: Inputs, other than quoted market prices included in Level 1, that are observable either directly or indirectly for the asset or liability. Level 3: Unobservable inputs that reflect the entity's own assumptions about the exit price of the asset or liability. Unobservable inputs may be used if there is little or no market data for the asset or liability at the measurement date. 98 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) The Company discloses fair value measurements and the related valuation techniques and fair value hierarchy level for its assets and liabilities that are measured or disclosed at fair value. Items Measured at Fair Value on a Recurring Basis Fair value measurements and the related valuation techniques and fair value hierarchy level for the Company's assets and liabilities measured at fair value on a recurring basis as of December 31, 2022 and 2021, are shown below (in millions): December 31, 2022 Frequency Asset (Liability) Valuation Technique Level 1 Level 2 Level 3 Foreign currency contracts, net Recurring $ 62.9 Market / Income $ — $ 62.9 $ — Net investment hedges Recurring 4.8 Market / Income — 4.8 — Marketable equity securities Recurring 57.2 Market 57.2 — — December 31, 2021 Frequency Asset (Liability) Valuation Technique Level 1 Level 2 Level 3 Foreign currency contracts, net Recurring $ 5.5 Market / Income $ — $ 5.5 $ — Net investment hedges Recurring ( 4.8 ) Market / Income — ( 4.8 ) — Marketable equity securities Recurring 62.3 Market 62.3 — — 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. The discount rates used are based on quoted bank deposit or swap interest rates. If a derivative contract is in a net liability position, the Company adjusts these discount rates, if required, by an estimate of the credit spread that would be applied by market participants purchasing these contracts from the Company's counterparties. If an estimate of the credit spread is required, the Company uses significant assumptions and factors other than quoted market rates, which would result in the classification of its derivative liabilities within Level 3 of the fair value hierarchy. As of December 31, 2022 and 2021, there were no derivative contracts that were classified within Level 3 of the fair value hierarchy. In addition, there were no transfers in or out of Level 3 of the fair value hierarchy during 2022 and 2021. For further information on fair value measurements and the Company's defined benefit pension plan assets, see Note 10, "Pension and Other Postretirement Benefit Plans." Items Measured at Fair Value on a Non-Recurring Basis The Company measures certain assets and liabilities at fair value on a non-recurring basis, which are not included in the table above. 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 2022 and 2020, 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/or guideline public company method. In 2022, as a result of the acquisition of Kongsberg ICS (Note 4, "Acquisition of Kongsberg ICS"), Level 3 fair value estimates related to property, plant and equipment of $ 124.1 million, right-of-use assets of $ 34.1 million and developed technology intangible assets of $ 11.1 million are recorded in the accompanying consolidated balance sheet as of December 31, 2022. Fair value estimates of property, plant and equipment were based on independent appraisals, giving consideration to the highest and best use of the assets. Key assumptions used in the appraisals were based on a combination of market and cost approaches, as appropriate. Fair value estimates of right-of-use assets were based on a market approach. Fair value estimates of developed technology intangible asset were based on a relief from royalty approach. In 2022 and 2021, the Company completed impairment assessments related to certain of its intangible assets resulting from changes in the intended uses of such assets and recorded impairment charges of $ 8.9 million and $ 8.5 million, respectively. The fair value estimate of the related asset group was based on management's estimates using a discounted cash flow method (Note 3, "Summary of Significant Accounting Policies — Impairment of Long-Lived Assets"). In 2022, the Company completed impairment assessments related to substantially all of its operating assets in Russia and recorded charges of $ 19.4 million related to impairments of inventory, property, plant and equipment and right-of-use assets. 99 Table of Contents Lear Corporation and Subsidiaries Notes to Consolidated Financial Statements (continued) The fair value estimates of the related assets were based on management's estimates using a discounted cash flow method (Note 2, "Current Operating Environment"). As of December 31, 2022 and 2021, there were no additional significant assets or liabilities measured at fair value on a non-recurring basis. ( 17) Accounting Pronouncements The Company considers the applicability and impact of all Accounting Standards Updates ("ASU") issued by the Financial Accounting Standards Board ("FASB"), as summarized below. Pronouncements adopted in 2022: Reference Rate Reform The FASB issued ASU 2022-06, 2021-01 and 2020-04, "Reference Rate Reform (Topic 848)." 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, 2024. The adoption of this guidance did not have a significant impact on the Company's financial statements. Government Assistance The FASB issued ASU 2021-10, "Disclosures by Business Entities about Government Assistance." The guidance, effective January 1, 2022, requires disclosures about certain government assistance transactions. The adoption of this guidance did not have a significant impact on the Company's financial statements. Pronouncements effective after 2022: Supplier Finance Programs The FASB issued ASU 2022-04, "Liabilities - Supplier Finance Programs." The guidance requires disclosure of key terms of supplier finance programs, including payment terms and assets pledged, amounts outstanding at end of period and applicable balance sheet line item(s), and a rollforward of obligations. The guidance does not affect the existing recognition, measurement or financial statement presentation of supplier finance program obligations. The guidance is effective January 1, 2023, with the exception of rollforward information which is effective January 1, 2024. Early adoption is permitted. The adoption of this guidance is not expected to have a significant impact on the Company's financial statements. 100 Table of Contents LEAR CORPORATION AND SUBSIDIARIES SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS Balance as of Beginning of Period Additions Retirements Other Changes Balance as of End of Period For the year ended December 31, 2022 Valuation of accounts deducted from related assets: Allowance for doubtful accounts $ 35.5 $ 12.0 $ ( 10.3 ) $ ( 1.9 ) $ 35.3 Allowance for deferred tax assets 406.9 41.4 ( 5.3 ) ( 25.1 ) 417.9 Total $ 442.4 $ 53.4 $ ( 15.6 ) $ ( 27.0 ) $ 453.2 Balance as of Beginning of Period Additions Retirements Other Changes Balance as of End of Period For the year ended December 31, 2021 Valuation of accounts deducted from related assets: Allowance for doubtful accounts $ 35.3 $ 8.2 $ ( 8.3 ) $ 0.3 $ 35.5 Allowance for deferred tax assets 397.7 44.7 ( 17.7 ) ( 17.8 ) 406.9 Total $ 433.0 $ 52.9 $ ( 26.0 ) $ ( 17.5 ) $ 442.4 Balance as of Beginning of Period Additions Retirements Other Changes Balance as of End of Period For the year ended December 31, 2020 Valuation of accounts deducted from related assets: Allowance for doubtful accounts $ 36.0 $ 7.0 $ ( 9.8 ) $ 2.1 $ 35.3 Allowance for deferred tax assets 344.8 81.4 ( 43.5 ) 15.0 397.7 Total $ 380.8 $ 88.4 $ ( 53.3 ) $ 17.1 $ 433.0 101 Table of Contents ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None.