What changed in this filing

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Item 7A. Quantitative and Qualitative Disclosures About Market Risk

2024-02-08 compared with 2023-02-09 · 315 added, 309 removed, 1488 unchanged (30% of the section changed)

15 unchanged sentences

Fair value 159 63

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.

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

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

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We do not enter into foreign exchange contracts to mitigate our translational exposure.

Interest Rates

Our variable rate obligations are sensitive to changes in interest rates.

As of December 31, 2023, we had $150 million outstanding under our Term Loan.

Advances under the Term Loan generally bear interest based on the Daily or Term SOFR (as defined in the Term Loan agreement) plus a margin, determined in accordance with a pricing grid, that ranges from 1.00% to 1.525%.

As of December 31, 2023, the interest rate was 6.575%.

A hypothetical 100 basis point increase in the interest rate on our Term Loan would increase annual interest expense and related cash interest payments by approximately $2 million.

ITEM 8 – CONSOLIDATED FINANCIAL STATEMENTS AND

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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 critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective or complex judgments.

The communication of 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.

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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.

Our audit procedures included, among others, inspecting communications between the Company and its customers related to the pricing arrangements, auditing adjustments 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

7 unchanged sentences

In our opinion, Lear Corporation and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2023, 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.

Bauerhin ("IGB"), which is included in the 2023 consolidated financial statements of the Company and constituted less than 2% of total assets as of December 31, 2023 and less than 1% of net sales 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 IGB.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2023 consolidated financial statements of the Company and our report dated February 8, 2024 expressed an unqualified opinion thereon.

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Amortization of intangible assets 62.5 70.8 73.3

Interest expense 98.6 91.8 99.6

Interest expense, net 101.1 98.6 91.8

Other expense, net 54.9 46.4 0.1

27 unchanged sentences

(In millions, except share data)

Redeemable Non-

controlling Interests Common

Stock Additional Paid-in Capital Common

2 unchanged sentences

Comprehensive income (loss):

Net income (loss) ( 3.5 ) — — — 158.5

Net income — — — 373.9

Other comprehensive income (loss) — — — —

Total comprehensive income (loss) — — — 373.9

Adoption of ASU 2016-13 — — — — ( 0.8 )

Stock-based compensation — 60.3 — —

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Dividends declared to noncontrolling interests — — — —

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

Redeemable noncontrolling interest adjustment 1.1 — — — ( 1.1 )

Affiliate transaction — 28.6 — —

Balance as of December 31, 2021 $ 0.6 $ 1,019.4 $ ( 679.2 ) $ 5,072.8

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Dividends declared to noncontrolling interests — — — —

Affiliate transaction — — 28.6 — —

Change in noncontrolling interests — — — —

Balance as of December 31, 2022 $ 0.6 $ 1,023.1 $ ( 753.9 ) $ 5,214.1

10 unchanged sentences

Dividends declared to noncontrolling interests — — — —

Change in noncontrolling interests — — — — —

Balance as of December 31, 2023 $ 0.6 $ 1,050.5 $ ( 1,044.6 ) $ 5,601.1

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Comprehensive income (loss):

Net income (loss) — — — 158.5 78.9 237.4

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

Adoption of ASU 2016-13 — — — ( 0.8 ) — ( 0.8 )

Stock-based compensation — — — 60.3 — 60.3

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Dividends declared to noncontrolling interests — — — — ( 81.0 ) ( 81.0 )

Acquisition of outstanding noncontrolling interests — — — 1.4 — 1.4

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

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

10 unchanged sentences

Dividends declared to noncontrolling interests — — — — ( 87.6 ) ( 87.6 )

Affiliate transaction — — — 28.6 7.6 36.2

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

10 unchanged sentences

Dividends declared to noncontrolling interests — — — — ( 80.4 ) ( 80.4 )

Change in noncontrolling interests — — — — 0.6 0.6

Balance as of December 31, 2023 $ ( 107.3 ) $ 107.9 $ ( 689.4 ) $ 4,918.8 $ 141.8 $ 5,060.6

8 unchanged sentences

Equity in net income of affiliates ( 49.3 ) ( 33.1 ) ( 15.8 )

Loss on extinguishment of debt — 24.6 21.1

Impairment charges 29.3 29.1 20.1

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Changes in other long-term liabilities 17.2 8.2 ( 6.5 )

Loss on extinguishment of debt — — 24.6

Other, net ( 15.7 ) 38.8 23.2

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Additions to property, plant and equipment ( 626.5 ) ( 638.2 ) ( 585.1 )

Acquisition of Kongsberg ICS, net of cash acquired ( 188.3 ) — —

Acquisitions, net of cash acquired ( 174.5 ) ( 188.3 ) —

Other, net 39.5 ( 3.8 ) ( 61.6 )

1 unchanged sentence

Cash Flows from Financing Activities:

Short-term borrowings (repayments), net 8.0 — ( 19.3 )

Repurchase of common stock ( 100.3 ) ( 100.3 ) ( 70.0 )

Short-term borrowings, net 17.7 8.0 —

Term loan borrowings 150.0 — —

Repurchases of common stock ( 296.5 ) ( 100.3 ) ( 100.3 )

Dividends paid to Lear Corporation stockholders ( 181.9 ) ( 185.5 ) ( 106.7 )

Dividends paid to noncontrolling interests ( 78.7 ) ( 84.6 ) ( 81.1 )

Term loan repayments — ( 220.3 ) ( 14.1 )

Term loan facility repayments — — ( 220.3 )

Proceeds from the issuance of senior notes — — 698.7

1 unchanged sentence

Payment of debt issuance and other financing costs ( 1.2 ) — ( 9.9 )

Revolving credit facility borrowings — — 1,000.0

Revolving credit facility repayments — — ( 1,000.0 )

Other, net ( 28.9 ) ( 24.9 ) 27.5

7 unchanged sentences

Inventories ( 117.9 ) ( 29.8 ) ( 213.4 )

Accounts payable 368.6 ( 129.6 ) 214.0

Accounts payable (including $ 15.4 million of cash paid in 2023 in conjunction with the acquisition of IGB to settle pre-existing accounts payable)

162.4 368.6 ( 129.6 )

Accrued liabilities and other 148.6 162.2 ( 168.9 )

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(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.

In 2020, the automotive industry experienced a significant decline in global production volumes as a result of the COVID-19 pandemic.

Alth ough industry production has recovered modestly and returned to 2019 pre-pandemic production levels in 2023, industry production remains below 2017 peak levels.

Further, the global economy, as well as the automotive industry, have been influenced directly and indirectly by macroeconomic events resulting in unfavorable conditions, including shortages of semiconductor chips and other components, elevated inflation levels on commodities and labor , higher interest rates, and labor and energy shortages in certain markets.

Beginning in the third quarter of 2023 and continuing into the fourth quarter of 2023, the automotive industry was impacted by labor strikes and related disruptions at certain facilities in the United States.

Certain of these factors, among others, continue to impact consumer demand, as well as the ability of automotive manufacturers to produce vehicles to meet demand.

The accompanying consolidated financial statements reflect estimates and assumptions made by management as of December 31, 2023, 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.

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, 2023, 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 unchanged sentences

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

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Fiscal Period Reporting

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The Company's 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.

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

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

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

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Inventories are stated at the lower of cost or net realizable value.

Cost is determined using the first-in, first-out method.

Cost is determined using standard costing, which approximates actual cost on a first-in, first-out method.

Finished goods and work-in-process inventories include material, labor and manufacturing overhead costs.

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During 2023 and 2022, the Company collected $ 417.0 million and $ 435.8 million, respectively, of cash related to E&D and tooling costs.

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):

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All other E&D costs are recorded in selling, general and administrative expenses as incurred and totaled $ 180.8 million, $ 173.6 million and $ 170.7 million for the years ended December 31, 2023, 2022 and 2021, respectively.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Property, Plant and Equipment

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As of December 31, 2023, 2022 and 2021, capital expenditures recorded in accounts payable totaled $ 133.1 million, $ 150.2 million and $ 147.8 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

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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

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 income approach is based on projected debt-free cash flow which is discounted to 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.

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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 Company performed a qualitative assessment for each reporting unit.

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.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

A summary of the changes in the carrying amount of goodwill for each of the periods in the two years ended December 31, 2023, is shown below (in millions):

1 unchanged sentence

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 )

4 unchanged sentences

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").

As of December 31, 2023, intangible assets consist primarily of certain intangible assets recorded in connection with the Company's acquisitions, including substantially all of Kongsberg Automotive's Interior Comfort Systems business unit ("Kongsberg ICS") in 2022 and I.G.

Bauerhin ("IGB") in 2023 (Note 4, "Acquisitions").

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

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Balance as of December 31, 2023 $ 614.2 $ ( 425.1 ) $ 189.1 11

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

A summary of intangible assets as of December 31, 2022, is shown below (in millions):

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Other 0.4 ( 0.1 ) 0.3 5

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, 2022 $ 602.5 $ ( 367.1 ) $ 235.4 11

In 2023 and 2022, intangible assets with a gross carrying value of $ 1.3 million and $ 19.4 million, respectively, became fully amortized and are no longer included in the gross carrying value or accumulated amortization.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Excluding the impact of any future acquisitions, the Company's estimated annual amortization expense for the five succeeding years is shown below (in millions):

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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.

Fair value estimates of long-lived 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, 2023, 2022 and 2021, the Company recognized fixed asset impairment charges of $ 5.1 million, $ 9.9 million and $ 4.2 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").

For the years ended December 31, 2023, 2022 and 2021, the Company recognized additional fixed asset impairment charges of $ 6.3 million, $ 5.7 million and $ 7.7 million, respectively.

For the year ended December 31, 2022, additional asset impairment charges include $ 4.4 million related to the Company's Russian operations.

Asset impairment charges are recorded in cost of sales in the accompanying consolidated statements of income for the years ended December 31, 2023, 2022 and 2021.

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.

In 2023, 2022 and 2021, the Company recognized impairment charges of $ 1.9 million, $ 8.9 million and $ 8.5 million, respectively, related to certain definite-lived and indefinite-lived intangible assets of its E-Systems segment resulting from a change in the intended use of such assets.

The impairment charges are included in amortization of intangible assets in the accompanying consolidated statements of income for the years ended December 31, 2023, 2022 and 2021.

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Fair value is generally determined using an income approach based on discounted cash flows or negotiated transaction values.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

For the years ended December 31, 2023 and 2021, the Company recognized impairment charges of $ 7.0 million and $ 1.0 million, respectively, related to its investments in affiliates.

There were no impairment charges recognized related to the Company's investments in affiliates for the year ended December 31, 2022.

The impairment charges are included in other expense, net in the accompanying consolidated statements of income for the years ended December 31, 2023 and 2021.

Accrued Liabilities

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Current portion of lease obligations 151.9 136.8

Current portion of restructuring accrual 104.7 53.5

Other 1,049.1 1,066.6

Accrued liabilities $ 2,205.2 $ 1,961.5

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

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

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

Revenue Recognition and Sales Commitments

Revenue Recognition

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

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Shipping and handling costs are accounted for as fulfillment costs and are included in cost of sales in the consolidated statements of income.

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.

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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.

Restructuring costs include employee termination benefits, asset impairment charges and contract termination costs, as well as other incremental net 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.

Other incremental net costs principally include equipment and personnel relocation costs and gains and losses on the sales of facilities.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

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.

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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.

Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income for 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.

8 unchanged sentences

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.

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.

11 unchanged sentences

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

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

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.

For the years ended December 31, 2023, 2022 and 2021, other expense, net includes net foreign currency transaction losses of $ 53.0 million, $ 30.4 million and $ 24.8 million, respectively.

For the year ended December 31, 2023, net foreign currency transaction losses include $ 30.6 million related to the hyper-inflationary environment and significant currency devaluation in Argentina.

For the year ended December 31, 2022, net foreign currency transaction losses include $ 9.6 million related to foreign exchange rate volatility following Russia's invasion of Ukraine.

Stock-Based Compensation

14 unchanged sentences

Losses from warranty obligations are accrued when it is probable that a liability has been incurred and the related amounts are reasonably estimable.

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.

high-voltage power distribution products, including battery disconnect units ("BDUs");

and low-voltage power distribution products, electronic controllers and other electronic products.

Included in the Company's complete seat systems and components are thermal comfort systems and 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.

2 unchanged sentences

seat mechanisms;

thermal comfort solutions such as seat massage, lumbar, heat and ventilation products;

thermal comfort systems such as seat heating, ventilation, active cooling, pneumatic lumbar and massage 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.

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.

High-voltage battery connection systems include intercell connect boards, bus bars and main battery connection

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

High-voltage power distribution products control the flow and distribution of high-voltage power throughout electrified vehicles and include BDUs which control all electrical energy flowing into and out of high-voltage batteries in electrified vehicles.

Low-voltage power distribution products, electronic controllers and other electronic products facilitate signal, data and/or power management within the vehicle and include the associated software required to facilitate these functions.

Key components of the Company's 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.

2 unchanged sentences

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.

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

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.

1 unchanged sentence

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 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, net 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.

2 unchanged sentences

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.

The Company's derivative financial instruments are subject to master 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.

4 unchanged sentences

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

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.

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

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

2 unchanged sentences

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.

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

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

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.

3 unchanged sentences

During 2023, there were no material changes in the methods or policies used to establish estimates and assumptions.

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.

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, "Acquisitions"), 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") and accruals related to legal, warranty and environmental matters (Note 14, "Legal and Other Contingencies").

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

(4) Acquisition of Kongsberg ICS

(4) Acquisitions

On April 26, 2023, the Company completed the acquisition of IGB, a privately held supplier of automotive seat heating, ventilation and active cooling, steering wheel heating, seat sensors and electronic control modules, headquartered in Grundau-Rothenbergen, Germany.

IGB has more than 4,600 employees at nine manufacturing plants in seven countries with annual sales of approximately $ 290 million.

The acquisition of IGB furthers the Company's comprehensive strategy to develop and integrate a complete portfolio of thermal comfort systems for automotive seating.

The acquisition of IGB 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, 2023.

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

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

2023 Adjustments December 31,

Preliminary purchase price, net of acquired cash $ 174.5 $ — $ 174.5

Property, plant and equipment 49.7 ( 2.2 ) 47.5

Other assets purchased and liabilities assumed, net 37.9 0.2 38.1

Goodwill 69.9 3.6 73.5

Intangible assets 17.0 ( 1.6 ) 15.4

Preliminary purchase price allocation $ 174.5 $ — $ 174.5

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 and customer-based assets which were both based on an independent appraisal.

Developed technology assets have a weighted average useful life of approximately nine years .

Customer-based assets include IGB's established relationships with its customers and the ability of these customers to generate future economic profits for the Company and have a weighted average useful life of approximately thirteen years .

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

For the years ended December 31, 2023 and 2022, the Company incurred transaction costs of $ 0.5 million and $ 1.2 million, respectively, which were expensed as incurred and are recorded in selling, general and administrative expenses in the accompanying consolidated statements of income.

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."

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.

Kongsberg ICS specializes in thermal comfort systems, including seat massage, lumbar, heat and ventilation products, with annual sales of approximately $ 300 million, of which approximately 20 % are intercompany.

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.

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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.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Developed technology assets have a weighted average useful life of approximately seventeen years .

For the year ended December 31, 2022, the Company incurred transaction costs of $ 10.0 million, which were expensed as incurred and are recorded in selling, general and administrative expenses in the accompanying consolidated statement of income.

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

8 unchanged sentences

Contract termination costs 5.7 4.5 0.3

Other related costs 11.4 4.1 2.5

Other related net costs ( 8.2 ) 11.4 4.1

$ 132.7 $ 154.2 $ 100.9

In 2020, contract termination costs include pension benefit plan settlement losses of $ 12.9 million.

See Note 10, "Pension and Other Postretirement Benefit Plans."

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Restructuring charges by income statement account are shown below (in millions):

16 unchanged sentences

Balance as of December 31, $ 121.6 $ 82.9

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(6) Investments in Affiliates and Other Related Party Transactions

17 unchanged sentences

(China) 49 49 49

Shenzen Shinry Lear Electric Control Technology Co., Ltd.

Shenzhen Shinry Lear Electric Control Technology Co., Ltd.

(China) 49 49 —

5 unchanged sentences

Autotech Fund II, L.P.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Summarized group financial information for affiliates accounted for under the equity method as of December 31, 2023 and 2022, and for the years ended December 31, 2023, 2022 and 2021, is shown below (unaudited;

17 unchanged sentences

Payables due to affiliates 0.5 0.7

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):

13 unchanged sentences

As of December 31, 2023 and 2022, the Company had lines of credit from banks totaling $ 337.7 million and $ 298.2 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.

As of December 31, 2023 and 2022, the Company had short-term debt balances outstanding related to draws on its lines of credit of $ 27.5 million and $ 9.9 million, respectively.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Long-Term Debt

3 unchanged sentences

Debt, Net Weighted

Delayed-Draw Term Loan Facility (the "Term Loan") $ 150.0 $ ( 0.5 ) $ — $ 149.5 6.575 %

3.8 % Senior Notes due 2027 (the "2027 Notes")

14 unchanged sentences

Long-term debt $ 2,742.6

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

December 31, 2022

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2052 Notes November 2021 January 15, 2052 January 15 and July 15

(1) Commenced July 15, 2022.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

2027 Notes Issued in 2017

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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 %.

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.

12 unchanged sentences

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.

On or after November 15, 2048, the Company, at its option, may redeem the 2049

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

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.

2032 Notes and 2052 Notes Issued in 2021

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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.

The remaining net proceeds were used to finance the 2022 acquisition of Kongsberg ICS (Note 4, "Acquisitions") 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.

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.

6 unchanged sentences

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 2017, the Company entered into an unsecured credit agreement, which consisted 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 November 2021, the Company repaid in full $ 206.3 million outstanding on the Term Loan Facility.

Inclusive of this amount, the Company made principal payments on the Term Loan Facility of $ 220.3 million in 2021.

In connection with these transactions, the Company recognized a loss of $ 0.7 million on the extinguishment of debt and paid related issuance costs of $ 2.8 million.

In June 2023, the Company amended the Credit Agreement to implement the transition from the London Interbank Offered Rate to the Secured Overnight Financing Rate ("SOFR") in accordance with the existing terms of the Credit Agreement, adopting SOFR as the reference rate for certain U.S.

dollar-denominated borrowings.

In November 2023, the Company entered into an extension agreement (the "Extension Agreement") related to its Credit Agreement to extend the maturity date by one year to October 28, 2027, and replace the Canadian Dollar Offered Rate (CDOR) with term Canadian Overnight Repo Rate Average (CORRA) as the benchmark rate for term rate loans denominated in Canadian dollars.

In connection with the Extension Agreement, the Company paid related issuance costs of $ 1.2 million.

In 2023 and 2021, there were no borrowings or repayments under the Revolving Credit Facility.

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, 2023 and 2022, 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.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Advances under the Credit Agreement generally bear interest based on (i) Term Benchmark, Central Bank Rate and Risk Free Rate ("RFR") (in each case, as defined in the Credit Agreement) or (ii) Alternate Base Rate ("ABR") and Canadian Prime Rate (in each case, as defined in the Credit Agreement).

As of December 31, 2023, the ranges and rates are as follows (in percentages):

Eurocurrency Rate Base Rate

Term Benchmark, Central Bank Rate

and RFR Loans ABR and Canadian Prime Rate Loans

Minimum Maximum Rate as of December 31, 2023

Revolving Credit Facility 0.925 % 1.450 % 1.125 % 0.000 % 0.450 % 0.125 %

Credit Agreement 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.

1 unchanged sentence

As of December 31, 2023, 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 %.

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.

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.

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.

In May 2023, the Company borrowed $ 150.0 million under its unsecured delayed-draw term loan facility (the "Term Loan") to finance, in part, the acquisition of IGB (Note 4, "Acquisitions").

The Term Loan matures on May 1, 2026, three years after the funding date.

Advances under the Term Loan generally bear interest based on the Daily or Term SOFR (as defined in the Term Loan agreement) plus a margin determined in accordance with a pricing grid that ranges from 1.00 % to 1.525 %.

As of December 31, 2023, the interest rate was 6.575 %.

The Term Loan contains the same covenants as the Credit Agreement.

As of December 31, 2023, the Company was in compliance with all covenants under the Term Loan.

As of December 31, 2023, other long-term debt, including the current portion, consisted of amounts outstanding under finance lease agreements.

As of December 31, 2022, other long-term debt, including the current portion, consisted of amounts outstanding under an unsecured working capital loan and a finance lease agreement.

The Company has operating leases for production, office and warehouse facilities, manufacturing and office equipment and vehicles.

7 unchanged sentences

$ 774.9 $ 731.9

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Maturities of lease obligations as of December 31, 2023, are shown below (in millions):

3 unchanged sentences

Lease obligations under operating leases $ 774.9

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.

In addition to the right-of-use assets obtained in exchange for operating lease obligations shown below, the Company acquired $ 14.3 million of right-of-use assets and related lease obligations in conjunction with its acquisition of IGB in 2023 and $ 34.1 million of right-of-use assets and related lease obligations in conjunction with its acquisition of Kongsberg ICS in 2022.

See Note 4, "Acquisitions."

Cash flow information related to operating leases is shown below (in millions):

4 unchanged sentences

Cash paid related to operating lease obligations $ 183.2 $ 164.3 $ 164.2

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):

8 unchanged sentences

For the years ended December 31, 2023, 2022 and 2021, the Company recognized impairment charges of $ 10.9 million, $ 6.5 million and $ 7.2 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").

For 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.

The impairment charges are included in cost of sales in the accompanying consolidated statements of income.

2 unchanged sentences

Weighted average discount rate 4.0 %

For the year ended December 31, 2023, the Company recognized a gain of $ 11.3 million on the sale of a manufacturing facility that was subsequently leased back under a short-term lease.

The gain is included in other expense, net in the accompanying consolidated statement of income.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(9) Income Taxes

5 unchanged sentences

$ 777.2 $ 509.3 $ 583.5

Domestic benefit for income taxes:

Domestic (benefit) provision for income taxes:

Current provision $ 43.0 $ 35.3 $ 38.4

Deferred benefit ( 29.4 ) ( 41.4 ) ( 76.6 )

Total domestic benefit $ ( 6.1 ) $ ( 38.2 ) $ ( 77.2 )

Total domestic (benefit) provision $ 13.6 $ ( 6.1 ) $ ( 38.2 )

Foreign provision for income taxes:

5 unchanged sentences

In 2023, 2022 and 2021, the provision for income taxes includes the benefit of prior unrecognized net operating loss carryforwards of $ 8.0 million, $ 0.8 million and $ 2.9 million, respectively.

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):

11 unchanged sentences

Provision for income taxes $ 180.8 $ 133.7 $ 137.7

(1) Relates primarily to changes in valuation allowances on the deferred tax assets of foreign subsidiaries.

(1) Relates primarily to changes in valuation allowances on the deferred tax assets of foreign subsidiaries in 2022 and 2021.

(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.

2 unchanged sentences

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 2023 and 2021.

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, 2023, 2022 and 2021, income in foreign jurisdictions with tax holidays was $ 48.4 million, $ 40.5 million and $ 55.6 million, respectively.

Such tax holidays generally expire from 2023 through 2036.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Deferred income taxes represent temporary differences in the recognition of certain items for financial reporting and income tax purposes.

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Net deferred income tax asset $ 694.3 $ 620.5

(1) Included in the long-term asset basis differences for the years ended December 31, 2023 and 2022, are deferred tax assets of $ 157.3 million and $ 145.5 million, respectively, related to lease obligations and deferred tax liabilities of $ 157.3 million and $ 145.5 million, respectively, related to right-of-use assets.

As of December 31, 2023 and 2022, the valuation allowance with respect to the Company's deferred tax assets was $ 429.0 million and $ 417.9 million, respectively, a net increase of $ 11.1 million.

3 unchanged sentences

valuation allowance of $ 30.6 million, primarily related to U.S.

state and local deferred tax assets that, due to their nature, are not likely to be

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

state and local deferred tax assets that, due to their nature, are not likely to be realized.

In addition, the Company continues to maintain a valuation allowance of $ 398.4 million with respect to its deferred tax assets in several international jurisdictions.

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research and development credits of $ 128.1 million that expire between 2025 and 2043 and other tax credits primarily in international jurisdictions of $ 42.9 million that generally expire between 2024 and 2043.

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.

As of December 31, 2023, 2022 and 2021, the Company's gross unrecognized tax benefits were $ 33.1 million, $ 32.7 million and $ 34.9 million (excluding interest and penalties), respectively, which are recorded in other long-term liabilities in the

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

accompanying consolidated balance sheets.

All of the Company’s gross unrecognized tax benefits, if recognized, would affect the Company’s effective tax rate.

A summary of the changes in gross unrecognized tax benefits is shown below (in millions):

2 unchanged sentences

Additions based on tax positions related to current year 5.1 4.8 7.7

Additions (reductions) based on tax positions related to prior years — ( 4.0 ) 3.6

Reductions based on tax positions related to prior years — — ( 4.0 )

Settlements — ( 1.9 ) ( 0.3 )

3 unchanged sentences

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.

As of December 31, 2023, 2022 and 2021, the Company had recorded gross reserves of $ 11.6 million, $ 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.

5 unchanged sentences

state and local jurisdictions for years after 2018.

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.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Further, the Company or its subsidiaries remain subject to income tax examination in Spain for years after 2007, in Mexico for years after 2016, in Italy and Morocco for years after 2017, in Germany for years after 2018, in China and the United Kingdom for years after 2019 and in the United States generally for years after 2021.

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.

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, which are effective for tax years beginning after December 31, 2022.

The tax-related provisions of the IRA did not have a material impact on the Company's consolidated financial statements.

For the year ended December 31, 2023, the Company incurred $ 2.9 million of excise taxes on its share repurchases, which is included in repurchases of shares of common stock in the accompanying consolidated statement of equity.

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.

2 unchanged sentences

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's domestic salaried pension plans provide benefits based on final average earnings formulas.

The Company's domestic 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.

4 unchanged sentences

Rather, payments are made as costs are incurred by covered retirees.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

A reconciliation of the change in benefit obligation for the years ended December 31, 2023 and 2022, is shown below (in millions):

5 unchanged sentences

Interest cost 20.7 16.7 15.5 11.2 1.5 0.9 1.5 0.7

Actuarial gains ( 142.3 ) ( 98.3 ) ( 23.0 ) ( 32.8 ) ( 25.8 ) ( 4.8 ) ( 3.5 ) ( 2.4 )

Actuarial (gains) losses 18.5 26.5 ( 142.3 ) ( 98.3 ) 0.7 ( 1.8 ) ( 25.8 ) ( 4.8 )

Benefits paid ( 21.8 ) ( 21.8 ) ( 21.8 ) ( 22.9 ) ( 2.2 ) ( 1.4 ) ( 2.6 ) ( 1.2 )

2 unchanged sentences

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.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

As of December 31, 2023, the increase in pension and U.S.

other postretirement benefit obligations attributable to actuarial losses primarily relates to a decrease in the discount rate used to determine the benefit obligations.

As of December 31, 2023, the decrease in the foreign other postretirement obligation attributable to actuarial gains relates primarily to demographic and claims cost updates.

As of December 31, 2022, the decrease in the pension and other postretirement benefit obligations attributable to actuarial gains primarily relates to an increase in the discount rate used to determine the benefit obligations (see assumptions below).

Plan Assets and Funded Status

3 unchanged sentences

Change in plan assets:

Fair value of plan assets at

beginning of period $ 444.2 $ 392.5 $ 418.2 $ 383.0 $ — $ — $ — $ —

Fair value of plan assets at beginning of period $ 348.5 $ 307.0 $ 444.2 $ 392.5 $ — $ — $ — $ —

Actual return on plan assets 38.5 31.4 ( 77.1 ) ( 41.0 ) — — — —

4 unchanged sentences

Funded status $ ( 37.1 ) $ ( 42.8 ) $ ( 39.4 ) $ ( 32.5 ) $ ( 29.1 ) $ ( 15.7 ) $ ( 29.1 ) $ ( 17.6 )

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

A summary of amounts recognized in the consolidated balance sheets as of December 31, 2023 and 2022, is shown below (in millions):

14 unchanged sentences

Fair value of plan assets 368.2 348.6

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):

Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Loss ("AOCL")

Pretax amounts recognized in other comprehensive income (loss) ("OCIL") for the years ended December 31, 2023 and 2022, is shown below (in millions):

Pension Other Postretirement

December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022

Unrecognized amounts in AOCL at beginning of period $ ( 58.9 ) $ ( 61.2 ) $ ( 102.6 ) $ ( 114.6 ) $ 39.2 $ 4.2 $ 14.7 $ ( 0.5 )

Actuarial gains (losses) recognized:

Reclassification adjustments 1.0 1.9 2.0 4.1 ( 3.3 ) ( 0.2 ) ( 1.2 ) —

Actuarial gain arising during the period 41.3 42.2 42.5 40.1 25.8 4.8 3.5 2.4

Actuarial gains (losses) arising during the period ( 0.3 ) ( 11.0 ) 41.3 42.2 ( 0.7 ) 1.8 25.8 4.8

Effect of settlements ( 0.1 ) ( 0.4 ) 0.4 ( 0.2 ) — — — —

2 unchanged sentences

Translation adjustment — ( 1.4 ) — 7.3 — 0.1 — ( 0.1 )

Amounts recognized in OCIL during the period

0.6 ( 10.9 ) 43.7 53.4 ( 4.1 ) 1.7 24.5 4.7

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):

Unrecognized amounts in AOCL at end of period $ ( 58.3 ) $ ( 72.1 ) $ ( 58.9 ) $ ( 61.2 ) $ 35.1 $ 5.9 $ 39.2 $ 4.2

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Pretax amounts recorded in accumulated other comprehensive loss not yet recognized in net periodic benefit cost (credit) as of December 31, 2023 and 2022, are shown below (in millions):

Pension Other Postretirement

December 31, 2023 December 31, 2022 December 31, 2023 December 31, 2022

Net unrecognized actuarial gain (loss) $ ( 58.9 ) $ ( 60.7 ) $ ( 102.6 ) $ ( 114.0 ) $ 38.2 $ 4.1 $ 13.6 $ ( 0.6 )

Net unrecognized actuarial gains (losses) $ ( 58.3 ) $ ( 71.6 ) $ ( 58.9 ) $ ( 60.7 ) $ 34.2 $ 5.8 $ 38.2 $ 4.1

Prior service credit (cost) — ( 0.5 ) — ( 0.5 ) 0.9 0.1 1.0 0.1

$ ( 58.9 ) $ ( 61.2 ) $ ( 102.6 ) $ ( 114.6 ) $ 39.2 $ 4.2 $ 14.7 $ ( 0.5 )

Unrecognized amounts in AOCL at end of period $ ( 58.3 ) $ ( 72.1 ) $ ( 58.9 ) $ ( 61.2 ) $ 35.1 $ 5.9 $ 39.2 $ 4.2

In addition, the Company recognized tax benefit (expense) in other comprehensive income (loss) related to its defined benefit plans of $ 2.2 million, ($ 24.9 ) million and ($ 22.7 ) million for the years ended December 31, 2023, 2022 and 2021, respectively.

The Company uses the corridor approach when amortizing actuarial gains and losses.

13 unchanged sentences

Net periodic benefit cost (credit) $ 1.3 $ 5.4 $ ( 6.0 ) $ 2.1 $ ( 4.7 ) $ 2.3

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):

3 unchanged sentences

Interest cost $ 1.5 $ 0.9 $ 1.5 $ 0.7 $ 1.4 $ 0.7

Amortization of actuarial gain ( 1.2 ) — ( 1.1 ) — ( 1.6 ) —

Amortization of actuarial gains ( 3.3 ) ( 0.2 ) ( 1.2 ) — ( 1.1 ) —

Amortization of prior service credit ( 0.1 ) — ( 0.1 ) — ( 0.1 ) —

Net periodic benefit cost (credit) $ ( 1.9 ) $ 0.7 $ 0.2 $ 0.7 $ 0.2 $ 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").

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

The weighted average actuarial assumptions used in determining the benefit obligations are shown below:

24 unchanged sentences

pension plans was a minimum of 4.7 %.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Healthcare Trend Rate

4 unchanged sentences

Year ultimate healthcare cost trend rate achieved 2030 2040

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Fair value measurements and the related valuation techniques and fair value hierarchy level for the Company's pension plan assets measured at fair value on a recurring basis as of December 31, 2023 and 2022, are shown below (in millions):

8 unchanged sentences

Government obligations 18.6 — 18.6 — Market

Preferred stock 0.2 0.2 — — Market

Cash and short-term investments 8.3 6.8 1.5 — Market

49 unchanged sentences

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 %.

For the domestic portfolio, the Company targets a return seeking asset (e.g., equity securities, equity mutual funds, exchange traded funds ("ETFs") and alternative investments) allocation of 40 % — 60 % and a risk mitigating asset (e.g., fixed income securities, fixed income mutual funds and ETFs) allocation of 40 % — 60 %.

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.

36 unchanged sentences

Employer Identification Number ("EIN") December 31,

Certification December 31,

Certification FIP/RP (1)

Certification

Surcharge Year Ended December 31, 2023 Year Ended December 31, 2022 Year Ended December 31, 2021

53 unchanged sentences

As of December 31, 2023, the Company has a remaining repurchase authorization of $ 0.9 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):

6 unchanged sentences

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.

In 2023 and 2022, the Board declared a quarterly cash dividend of $ 0.77 per share of common stock in all quarters.

In 2021, the Board declared a quarterly cash dividend 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.

Dividends declared and paid are shown below (in millions):

9 unchanged sentences

Accumulated Other Comprehensive Loss

A summary of changes in accumulated other comprehensive income (loss), net of tax, is shown below (in millions):

A summary of changes in accumulated other comprehensive loss, net of tax, is shown below (in millions):

For the year ended December 31, 2023 2022 2021

1 unchanged sentence

Balance at beginning of year $ ( 95.7 ) $ ( 199.4 ) $ ( 276.9 )

Reclassification adjustments (net of tax expense of $ 1.0 million in 2022, $ 2.1 million in 2021 and $ 4.7 million in 2020)

Reclassification adjustments (net of tax benefit (expense) of $ 0.2 million in 2023, ($ 1.0 ) million in 2022 and ($ 2.1 ) million in 2021)

( 1.0 ) 4.0 7.1

Other comprehensive income (loss) recognized during the period (net of tax benefit (expense) of $ 2.0 million in 2023, ($ 23.9 ) million in 2022 and ($ 20.6 ) million in 2021)

3 unchanged sentences

Balance at beginning of year $ 33.4 $ ( 18.6 ) $ 12.6

Reclassification adjustments (net of tax benefit (expense) of $ 8.5 million in 2022, $ 8.7 million in 2021 and ($ 1.8 ) million in 2020)

Reclassification adjustments (net of tax benefit of $ 35.1 million in 2023, $ 8.5 million in 2022 and $ 8.7 million in 2021)

( 141.3 ) ( 35.3 ) ( 36.0 )

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)

Other comprehensive income recognized during the period (net of tax expense of $ 51.0 million in 2023, $ 19.1 million in 2022 and $ 1.2 million in 2021)

215.8 87.3 4.8

7 unchanged sentences

For the years ended December 31, 2023, 2022 and 2021, other comprehensive income (loss) related to currency translation adjustments also includes net investment hedge gains (losses) of ($ 5.9 ) million, $ 25.3 million and $ 17.9 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

5 unchanged sentences

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.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(13) Stock-Based Compensation

1 unchanged sentence

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.

As of May 16, 2019, the Company adopted the Lear Corporation 2019 Long-Term Stock Incentive Plan (the "2019 LTSIP," and together with the 2009 LTSIP, the "Plans"), after which no awards will be issued under the 2009 LTSIP.

The 2019 LTSIP reserves 4,226,858 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.

Under the Plans, 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, 2023, 2022 and 2021, the Company recognized compensation expense related to these awards of $ 65.8 million, $ 50.3 million and

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

$ 58.7 million, respectively.

Unrecognized compensation expense related to these awards of $ 67.8 million will be recognized over th e next 1.6 years on a weighted average basis.

18 unchanged sentences

The weighted average grant date fair value of restricted stock units granted in 2022 and 2021 was $ 164.57 and $ 165.28 , 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 grant date fair value of performance shares is based on the share price on the grant date or a Monte Carlo simulation, as applicable.

The weighted average grant date fair value of performance shares granted in 2022 and 2021 was $ 196.83 and $ 188.11 , 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

The grant date fair value of options granted in 2021 was $ 35.33 .

There were no stock options granted in 2022.

(14) Legal and Other Contingencies

Legal and Other Contingencies

As of December 31, 2023 and 2022, the Company had recorded reserves for pending legal disputes, including commercial disputes, product liability claims and other legal matters, of $ 13.5 million and $ 15.9 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.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Reserves for warranty and recall matters are recorded separately from legal reserves, as described below.

Commercial Disputes

1 unchanged sentence

These disputes vary in nature and are usually resolved by negotiations between the parties.

Product Warranty and Recall Matters

Product Liability, 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.

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 support warranty costs or 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.

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 warranty and recall matters.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

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 may seek recovery from its suppliers of materials or services included within the Company's products that are associated with product liability claims and/or 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

The Company does not maintain insurance for warranty and recall matters.

The Company records reserves for warranty and recall matters when liability is probable and related amounts are reasonably estimable.

A summary of the changes in reserves for warranty and recall matters for each of the periods in the two years ended December 31, 2023, is shown below (in millions):

Balance as of December 31, 2021 $ 46.0

Expense, net (including changes in estimates) 6.6

1 unchanged sentence

Foreign currency translation and other ( 2.6 )

Balance as of January 1, 2022 46.0

Balance as of December 31, 2022 30.4

Expense, net (including changes in estimates) 9.5

3 unchanged sentences

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 is subject to local, state, federal and foreign laws, regulations and ordinances which govern activities or operations that may have or have had adverse environmental effects.

These regulations 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.

5 unchanged sentences

The Company is involved from time to time in various other legal proceedings and claims, including, without limitation, intellectual property matters, tax claims and employment matters.

Although the outcome of any legal matter cannot be predicted

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.

Although the outcome of any legal matter cannot be predicted with certainty, the Company does not believe that any of the other legal proceedings or claims in which the Company is currently involved, either individually or in the aggregate, will have a material adverse impact on its business, financial condition, results of operations or cash flows.

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.

Although the Company records reserves for legal disputes, 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.

1 unchanged sentence

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.

In 2022 and 2023, the Company reached an installment settlement and a final settlement, respectively, 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.

2 unchanged sentences

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.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

As of December 31, 2023, the Company had incurred cumulative losses and incremental costs related to the typhoon of $ 27.1 million, of which $ 0.6 million was incurred in 2023.

As of December 31, 2023, the Company received cumulative cash proceeds of $ 22.6 million, of which $ 9.3 million was received in 2023.

The classification of insurance recoveries included in the accompanying consolidated financial statements is shown below (in millions):

For the year ended December 31, 2023 2022

Consolidated statements of income

Cost of sales $ 3.9 $ 13.3

Other expense, net

Consolidated statements of cash flows

Cash flows from operating activities

Cash flows from investing activities

Approximately 47 % of the Company's employees are members of industrial trade unions and are employed under the terms of various labor agreements.

19 unchanged sentences

Total assets 7,897.4 3,684.7 2,180.9 13,763.0

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

Year Ended December 31, 2021

6 unchanged sentences

(1) For a definition of segment earnings, see Note 3 , "Summary of Significant Accounting Policies — Segment Reporting."

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

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):

3 unchanged sentences

Consolidated income before interest, other expense, provision for income taxes and equity in net income of affiliates 933.2 654.3 675.4

Interest expense 98.6 91.8 99.6

Interest expense, net

101.1 98.6 91.8

Other expense, net 54.9 46.4 0.1

18 unchanged sentences

(1) Tangible long-lived assets include property, plant and equipment and right-of-use assets.

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

The following is a summary of the percentage of revenues from major customers:

A summary of revenues from major customers is shown below:

For the year ended December 31, 2023 2022 2021

1 unchanged sentence

Ford 11.4 % 13.5 % 13.5 %

Mercedes-Benz 11.3 % 11.2 % 11.9 %

Volkswagen 11.0 % 10.8 % 11.8 %

Mercedes-Benz 10.4 % 11.3 % 11.2 %

Stellantis 10.2 % 10.3 % 10.9 %

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

(16) Financial Instruments

2 unchanged sentences

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 carrying value of the Term Loan approximates its fair value (Level 3 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):

8 unchanged sentences

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):

A reconciliation of cash and cash equivalents reported on the accompanying consolidated balance sheets to cash, cash equivalents and restricted cash reported on the accompanying consolidated statements of cash flows is shown below (in millions):

December 31, 2023 2022 2021

14 unchanged sentences

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

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.

For the years ended December 31, 2023 and 2021, the Company recognized impairment charges of $ 7.0 million and $ 1.0 million, respectively, related to certain investments.

Investments in equity securities without readily determinable fair values have been reduced for cumulative impairments of $ 17.0 million and $ 10.0 million as of December 31, 2023 and 2022, respectively.

Derivative Instruments and Hedging Activities

1 unchanged sentence

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.

Gains and losses on the derivative instruments are intended to offset gains and losses on

Lear Corporation and Subsidiaries

Notes to Consolidated Financial Statements (continued)

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, the Japanese yen and the Canadian dollar.

Foreign currency derivative contracts not designated as hedging instruments consist principally of hedges of cash transactions, intercompany loans and certain other balance sheet exposures.

1 unchanged sentence

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.

Contra interest expense on net investment hedges was $ 2.3 million, $ 4.6 million and $ 6.5 million for the years ended December 31, 2023, 2022 and 2021, respectively, and is included in interest expense, net in the accompanying consolidated statements of income.

Balance Sheet Classification

10 unchanged sentences

Other long-term assets $ — $ 4.8

Other current liabilities — ( 3.2 )

Other long-term liabilities ( 1.1 ) —

4 unchanged sentences

Other current liabilities ( 1.2 ) ( 13.4 )

( 3.9 ) ( 1.1 )

Notional amount $ 569.9 $ 758.6

14 unchanged sentences

Cost of sales ( 177.3 ) ( 33.8 ) ( 42.7 )

Interest expense 2.4 2.4 2.4

Interest expense, net 2.4 2.4 2.4

Other expense, net 0.4 — —

1 unchanged sentence

Comprehensive income (loss) $ 84.5 $ 87.9 $ ( 20.8 )

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.

As of December 31, 2023 and 2022, pretax net gains of $ 156.3 million and $ 71.8 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):

1 unchanged sentence

Interest rate swap contracts ( 2.4 )

Total $ 132.9

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.

For the years ended December 31, 2023, 2022 and 2021, the Company recognized tax benefit (expense) of ($ 15.9 ) million, ($ 10.6 ) million and $ 7.5 million, respectively, in other comprehensive income (loss) related to its derivative instruments and hedge activities.

Fair Value Measurements

38 unchanged sentences

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.

In 2023, as a result of the acquisition of IGB (Note 4, "Acquisitions"), Level 3 fair value estimates related to property, plant and equipment of $ 47.5 million, developed technology and customer-based intangible assets of $ 15.4 million and right-of-use assets of $ 14.3 million are recorded in the accompanying consolidated balance sheet as of December 31, 2023.

In 2022, as a result of the acquisition of Kongsberg ICS (Note 4, "Acquisitions"), 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 sheets as of December 31, 2023 and 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 developed technology intangible assets were based on a relief from royalty approach.

Fair value estimates of customer-based intangible assets were based on the multi-period excess earnings method.

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.

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").

In 2023, 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 $ 1.9 million, $ 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 2023, 2022 and 2021, the Company completed impairment assessments related to certain right-of-use assets in conjunction with its restructuring actions (Note 4, "Restructuring") and recorded impairment charges of $ 10.9 million, $ 6.5 million and $ 7.2 million, respectively.

The fair value estimates of the related assets were based on management's estimates, using a discounted cash flow method.

In 2022, 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 estimates of the reporting units were based on management's estimates, using the discounted cash flow method.

As of December 31, 2023 and 2022, 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.

Accounting Standards Updates ("ASU") Issued But Not Yet Adopted:

ASU 2023-07 (issued November 2023), "Segment Reporting - Improving Reportable Segment Disclosures." The ASU requires disclosure of significant segment expenses impacting profit and loss that are regularly provided to the chief operating decision maker.

It also requires public entities to provide in interim periods all disclosures about a reportable segment’s profit or loss and assets that are currently required annually.

The update is required to be applied retrospectively to prior periods presented, based on the significant segment expense categories identified and disclosed in the period of adoption.

The update is effective for fiscal years beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024, with early adoption permitted.

The Company is currently evaluating the impact of the standard on its financial disclosures.

ASU 2023-09 (issued December 2023), "Improvements to Income Tax Disclosures." The ASU requires disclosure of specific categories in the effective tax rate reconciliation, as well as additional information for reconciling items that meet a quantitative threshold.

It also requires disclosure of income taxes paid, net of refunds, disaggregated by federal, state and foreign taxes, and further disaggregated by jurisdiction based on a quantitative threshold, for annual periods.

The update is effective for fiscal years beginning after December 15, 2024, with early adoption permitted.

The standard is to be adopted prospectively;

however, retrospective application is permitted.

The Company is currently evaluating the impact of the standard on its financial disclosures.

The Company considers the applicability and impact of all ASUs issued by the Financial Accounting Standards Board.

Other recently issued accounting pronouncements are not expected to have a material impact or are not relevant to the Company's consolidated financial statements.

LEAR CORPORATION AND SUBSIDIARIES

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What changed 10-K

Item 7A. Quantitative and Qualitative Disclosures About Market Risk