UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________________

FORM 10-Q

(Mark One)



x☒			QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~September 30, 2017.~~

October 2, 2021.



¨☐			TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to .

Commission file number: 001-11311

(Exact name of registrant as specified in its charter)

~~_______________________________________~~



Delaware		13-3386776
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

~~21557 Telegraph Road, Southfield, MI~~	~~48033~~

21557 Telegraph Road, Southfield, MI 48033

(Address of principal executive offices)~~(Zip code)~~

(248) 447-1500

(Registrant’s telephone number, including area code)

~~________________________________________________________________~~


Securities registered pursuant to Section 12(b) of the Act:
Title of each class	Trading symbol(s)	Name of each exchange on which registered
Common stock, par value $0.01	LEA	New York Stock Exchange

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨☐

Indicate by check mark whether the registrant has submitted electronically ~~and posted on its corporate Web site, if any,~~ every Interactive Data File required to be submitted ~~and posted~~ pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit ~~and post~~ such files). Yes x No ¨☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.

Large accelerated filer

Accelerated filer

¨☐

Non-accelerated filer

¨☐

~~(Do not check if a smaller reporting company)~~

Smaller reporting company

¨☐

Emerging growth company

☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x

As of October ~~23, 2017,~~29, 2021, the number of shares outstanding of the registrant’s common stock was ~~67,560,732~~59,616,561 shares.

Table of Contents

LEAR CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED ~~SEPTEMBER 30, 2017~~OCTOBER 2, 2021

INDEX



			Page No.
Part I – Financial Information
Item 1 – Condensed Consolidated Financial Statements
Introduction to the Condensed Consolidated Financial Statements			3
Condensed Consolidated Balance Sheets - ~~September 30, 2017~~October 2, 2021 (Unaudited) and December 31, ~~2016~~2020			4
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - Three and Nine Months Ended ~~September 30, 2017~~October 2, 2021 and October ~~1, 2016~~3, 2020			5
Condensed Consolidated Statements of Equity (Unaudited) - Three and Nine Months Ended October 2, 2021 and October 3, 2020			6
Condensed Consolidated Statements of Cash Flows (Unaudited) - Nine Months Ended ~~September 30, 2017~~October 2, 2021 and October ~~1, 2016~~3, 2020			610
Notes to the Condensed Consolidated Financial Statements			711
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations			3135
Item 3 – Quantitative and Qualitative Disclosures about Market Risk (included in Item 2)
Item 4 – Controls and Procedures			4650
Part II – Other Information
Item 1 – Legal Proceedings			4650
Item 1A – Risk Factors			4650
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			4751
Item 6 – Exhibits			4752
Signatures			4953

Table of Contents

LEAR CORPORATION AND SUBSIDIARIES

PART I — FINANCIAL INFORMATION

ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

INTRODUCTION TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We have prepared the unaudited condensed consolidated financial statements of Lear Corporation and subsidiaries pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP") have been condensed or omitted pursuant to such rules and regulations. We believe that the disclosures are adequate to make the information presented not misleading when read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, for the year ended December 31, ~~2016.~~2020.

The financial information presented reflects all adjustments (consisting of normal recurring adjustments) which are, in our opinion, necessary for a fair presentation of the results of operations, cash flows and financial position for the interim periods presented. These results are not necessarily indicative of a full year’s results of operations.

Table of Contents

LEAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share data)


	October 2, 2021(1)		December 31, 2020
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,099.1	$	1,306.7
Accounts receivable	2,865.1		3,269.2
Inventories	1,766.0		1,401.1
Other	863.8		799.7
Total current assets	6,594.0		6,776.7
LONG-TERM ASSETS:
Property, plant and equipment, net	2,696.3		2,736.2
Goodwill	1,660.4		1,655.8
Other	2,095.3		2,029.9
Total long-term assets	6,452.0		6,421.9
Total assets	$	13,046.0	$	13,198.6

LIABILITIES AND EQUITY
CURRENT LIABILITIES:

Accounts payable and drafts	$	2,870.0	$	3,141.6
Accrued liabilities	1,875.5		1,920.9
Current portion of long-term debt	206.0		14.2
Total current liabilities	4,951.5		5,076.7
LONG-TERM LIABILITIES:
Long-term debt	2,095.8		2,300.3
Other	1,241.2		1,206.7
Total long-term liabilities	3,337.0		3,507.0



EQUITY:
Preferred stock, 100,000,000 shares authorized (including 10,896,250 Series A convertible preferred stock authorized); no shares outstanding	—		—
Common stock, $0.01 par value, 300,000,000 shares authorized; 64,571,405 shares issued as of October 2, 2021 and December 31, 2020	0.6		0.6
Additional paid-in capital	1,006.9		963.6
Common stock held in treasury, 4,957,867 and 4,519,891 shares as of October 2, 2021 and December 31, 2020, respectively, at cost	(680.6)		(598.6)
Retained earnings	5,098.1		4,806.8
Accumulated other comprehensive loss	(802.6)		(705.1)
Lear Corporation stockholders’ equity	4,622.4		4,467.3
Noncontrolling interests	135.1		147.6
Equity	4,757.5		4,614.9
Total liabilities and equity	$	13,046.0	$	13,198.6

(1) Unaudited.

September 30,
2017 ⁽¹⁾
December 31,
2016
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 1,253.7
$ 1,271.6
Accounts receivable 3,357.9
2,746.5
Inventories 1,232.9
1,020.6
Other 718.5
610.6
Total current assets 6,563.0
5,649.3
LONG-TERM ASSETS:
Property, plant and equipment, net 2,378.1
2,019.3
Goodwill 1,387.1
1,121.3
Other 1,383.8
1,110.7
Total long-term assets 5,149.0
4,251.3
Total assets $ 11,712.0
$ 9,900.6

LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Short-term borrowings $ 1.8
$ 8.6
Accounts payable and drafts 3,176.0
2,640.5
Accrued liabilities 1,706.2
1,497.6
Current portion of long-term debt 9.0
35.6
Total current liabilities 4,893.0
4,182.3
LONG-TERM LIABILITIES:
Long-term debt 1,953.0
1,898.0
Other 691.0
627.4
Total long-term liabilities 2,644.0
2,525.4

Redeemable noncontrolling interest 147.7
—

EQUITY:
Preferred stock, 100,000,000 shares authorized (including 10,896,250 Series A convertible preferred stock authorized); no shares outstanding —
—
Common stock, $0.01 par value, 300,000,000 shares authorized; 72,563,291 and 80,563,291 shares issued as of September 30, 2017 and December 31, 2016, respectively 0.7
0.8
Additional paid-in capital 1,199.3
1,385.3
Common stock held in treasury, 5,003,036 and 11,131,648 shares as of September 30, 2017 and December 31, 2016, respectively, at cost (602.4 ) (1,200.2 )
Retained earnings 3,810.3
3,706.9
Accumulated other comprehensive loss (536.8 ) (835.6 )
Lear Corporation stockholders’ equity 3,871.1
3,057.2
Noncontrolling interests 156.2
135.7
Equity 4,027.3
3,192.9
Total liabilities and equity $ 11,712.0
$ 9,900.6


⁽¹⁾	~~Unaudited.~~

The accompanying notes are an integral part of these condensed consolidated balance sheets.

Table of Contents

LEAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Unaudited; in millions, except share and per share data)


	Three Months Ended						Nine Months Ended							Three Months Ended				Nine Months Ended
	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016				October 2, 2021		October 3, 2020		October 2, 2021		October 3, 2020
Net sales	$	4,981.5		$	4,526.4		$	15,103.2		$	13,914.1		Net sales	$	4,268.2	$	4,900.1	$	14,383.3	$	11,802.3

Cost of sales	4,425.6			4,012.5			13,387.0			12,324.1			Cost of sales	4,041.5		4,457.3		13,262.4		11,152.7
Selling, general and administrative expenses	158.2			153.6			471.1			456.9			Selling, general and administrative expenses	163.3		147.7		503.0		442.3
Amortization of intangible assets	12.5			15.2			34.1			41.7			Amortization of intangible assets	15.8		16.3		57.4		49.4
Interest expense	21.7			20.6			63.9			62.0			Interest expense	22.6		26.5		67.2		78.1
Other (income) expense, net	(21.8		)	14.2			(12.3		)	(0.8		)	Other (income) expense, net	11.1		17.1		(28.7)		54.4
Consolidated income before provision for income taxes and equity in net income of affiliates	385.3			310.3			1,159.4			1,030.2
Consolidated income before provision for income taxes and equity in net (income) loss of affiliates													Consolidated income before provision for income taxes and equity in net (income) loss of affiliates	13.9		235.2		522.0		25.4
Provision for income taxes	77.8			88.2			240.2			287.4			Provision for income taxes	20.9		44.6		119.1		30.1
Equity in net income of affiliates	(7.5		)	(12.9		)	(41.3		)	(49.2		)
Consolidated net income	315.0			235.0			960.5			792.0
Equity in net (income) loss of affiliates													Equity in net (income) loss of affiliates	1.7		(6.5)		(9.1)		(15.9)
Consolidated net income (loss)													Consolidated net income (loss)	(8.7)		197.1		412.0		11.2
Less: Net income attributable to noncontrolling interests	19.8			20.6			47.6			46.8			Less: Net income attributable to noncontrolling interests	17.8		22.7		59.6		54.3
Net income attributable to Lear	$	295.2		$	214.4		$	912.9		$	745.2
Net income (loss) attributable to Lear													Net income (loss) attributable to Lear	$	(26.5)	$	174.4	$	352.4	$	(43.1)

Basic net income per share available to Lear common stockholders	$	4.00		$	3.01		$	12.92		$	10.19
Basic net income (loss) per share available to Lear common stockholders (Note 14)													Basic net income (loss) per share available to Lear common stockholders (Note 14)	$	(0.44)	$	2.90	$	5.86	$	(0.72)

Diluted net income per share available to Lear common stockholders	$	3.96		$	2.98		$	12.80		$	10.10
Diluted net income (loss) per share available to Lear common stockholders (Note 14)													Diluted net income (loss) per share available to Lear common stockholders (Note 14)	$	(0.44)	$	2.89	$	5.83	$	(0.72)

Cash dividends declared per share	$	0.50		$	0.30		$	1.50		$	0.90		Cash dividends declared per share	$	0.50	$	—	$	1.00	$	0.77

Average common shares outstanding	68,061,718			71,259,766			68,874,682			73,102,327			Average common shares outstanding	59,906,531		60,159,356		60,171,402		60,260,886

Average diluted shares outstanding	68,834,279			72,052,270			69,536,808			73,809,220			Average diluted shares outstanding	59,906,531		60,330,941		60,463,401		60,260,886


Consolidated comprehensive income (Note 13)	$	392.3		$	245.3		$	1,265.4		$	816.0
Consolidated comprehensive income (loss) (Condensed Consolidated Statements of Equity)													Consolidated comprehensive income (loss) (Condensed Consolidated Statements of Equity)	$	(83.0)	$	290.7	$	315.8	$	(49.2)
Less: Comprehensive income attributable to noncontrolling interests	22.6			20.6			53.7			44.2			Less: Comprehensive income attributable to noncontrolling interests	18.3		33.0		60.9		60.9
Comprehensive income attributable to Lear	$	369.7		$	224.7		$	1,211.7		$	771.8
Comprehensive income (loss) attributable to Lear													Comprehensive income (loss) attributable to Lear	$	(101.3)	$	257.7	$	254.9	$	(110.1)

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

Table of Contents

LEAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~EQUITY

(Unaudited; in ~~millions)~~millions, except share and per share data)


	Three Months Ended October 2, 2021
	Common Stock		Additional Paid-In Capital		Common Stock Held in Treasury		Retained Earnings		Accumulated Other Comprehensive Loss, Net of Tax		Lear Corporation Stockholders' Equity
Balance at July 3, 2021	$	0.6	$	973.6	$	(618.6)	$	5,155.1	$	(727.8)	$	4,782.9
Comprehensive income (loss):
Net income (loss)	—		—		—		(26.5)		—		(26.5)
Other comprehensive income (loss)	—		—		—		—		(74.8)		(74.8)
Total comprehensive income (loss)	—		—		—		(26.5)		(74.8)		(101.3)
Stock-based compensation	—		15.6		—		—		—		15.6
Net issuance of 55,882 shares held in treasury in settlement of stock-based compensation	—		(10.9)		7.1		—		—		(3.8)
Repurchase of 419,903 shares of common stock at average price of $164.56 per share	—		—		(69.1)		—		—		(69.1)
Dividends declared to Lear Corporation stockholders	—		—		—		(30.5)		—		(30.5)
Dividends declared to noncontrolling interest holders	—		—		—		—		—		—
Affiliate transaction	—		28.6		—		—		—		28.6

Balance at October 2, 2021	$	0.6	$	1,006.9	$	(680.6)	$	5,098.1	$	(802.6)	$	4,622.4

Nine Months Ended
September 30,
2017 October 1,
2016
Cash Flows from Operating Activities:
Consolidated net income $ 960.5
$ 792.0
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Depreciation and amortization 313.2
283.4
Net change in recoverable customer engineering, development and tooling (37.4 ) 2.1
Loss on extinguishment of debt 21.2
—
Net change in working capital items (see below) (31.0 ) 3.0
Other, net (42.2 ) 13.4
Net cash provided by operating activities 1,184.3
1,093.9
Cash Flows from Investing Activities:
Additions to property, plant and equipment (430.2 ) (300.3 )
Acquisition of Antolin Seating (286.8 ) —
Other, net 16.9
51.8
Net cash used in investing activities (700.1 ) (248.5 )
Cash Flows from Financing Activities:
New credit agreement borrowings 250.0
—
Prior credit agreement repayments (468.7 ) (15.6 )
Short-term borrowings, net (7.2 ) 8.9
Proceeds from the issuance of senior notes 744.7
—
Repurchase of senior notes (517.0 ) —
Payment of debt issuance and other financing costs (11.7 ) —
Repurchase of common stock (332.2 ) (557.7 )
Dividends paid to Lear Corporation stockholders (104.4 ) (68.1 )
Dividends paid to noncontrolling interests (42.7 ) (14.8 )
Other, net (56.6 ) (52.1 )
Net cash used in financing activities (545.8 )
(699.4 )
Effect of foreign currency translation 43.7
(1.0 )
Net Change in Cash and Cash Equivalents (17.9 ) 145.0
Cash and Cash Equivalents as of Beginning of Period 1,271.6
1,196.6
Cash and Cash Equivalents as of End of Period $ 1,253.7
$ 1,341.6

Changes in Working Capital Items:
Accounts receivable $ (280.6 ) $ (440.2 )
Inventories (114.7 ) (87.3 )
Accounts payable 245.6
203.6
Accrued liabilities and other 118.7
326.9
Net change in working capital items $ (31.0 ) $ 3.0

Supplementary Disclosure:
Cash paid for interest $ 91.6
$ 85.3
Cash paid for income taxes, net of refunds received $ 224.9
$ 151.6


	Nine Months Ended October 2, 2021
	Common Stock		Additional Paid-In Capital		Common Stock Held in Treasury		Retained Earnings		Accumulated Other Comprehensive Loss, Net of Tax		Lear Corporation Stockholders' Equity
Balance at January 1, 2021	$	0.6	$	963.6	$	(598.6)	$	4,806.8	$	(705.1)	$	4,467.3
Comprehensive income (loss):
Net income	—		—		—		352.4		—		352.4
Other comprehensive income (loss)	—		—		—		—		(97.5)		(97.5)
Total comprehensive income (loss)	—		—		—		352.4		(97.5)		254.9
Stock-based compensation	—		45.5		—		—		—		45.5
Net issuance of 151,741 shares held in treasury in settlement of stock-based compensation	—		(30.8)		18.3		—		—		(12.5)
Repurchase of 589,717 shares of common stock at average price of $170.03 per share	—		—		(100.3)		—		—		(100.3)
Dividends declared to Lear Corporation stockholders	—		—		—		(61.1)		—		(61.1)
Dividends declared to noncontrolling interest holders	—		—		—		—		—		—
Affiliate transaction	—		28.6		—		—		—		28.6

Balance at October 2, 2021	$	0.6	$	1,006.9	$	(680.6)	$	5,098.1	$	(802.6)	$	4,622.4

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

Table of Contents

LEAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (continued)

(Unaudited; in millions, except share and per share data)


	Three Months Ended October 2, 2021
	Lear Corporation Stockholders' Equity		Non-controlling Interests		Equity
Balance at July 3, 2021	$	4,782.9	$	109.2	$	4,892.1
Comprehensive income (loss):
Net income (loss)	(26.5)		17.8		(8.7)
Other comprehensive income (loss)	(74.8)		0.5		(74.3)
Total comprehensive income (loss)	(101.3)		18.3		(83.0)
Stock-based compensation	15.6		—		15.6
Net issuance of 55,882 shares held in treasury in settlement of stock-based compensation	(3.8)		—		(3.8)
Repurchase of 419,903 shares of common stock at average price of $164.56 per share	(69.1)		—		(69.1)
Dividends declared to Lear Corporation stockholders	(30.5)		—		(30.5)
Dividends declared to noncontrolling interest holders	—		—		—
Affiliate transaction	28.6		7.6		36.2

Balance at October 2, 2021	$	4,622.4	$	135.1	$	4,757.5


	Nine Months Ended October 2, 2021
	Lear Corporation Stockholders' Equity		Non-controlling Interests		Equity
Balance at January 1, 2021	$	4,467.3	$	147.6	$	4,614.9
Comprehensive income (loss):
Net income	352.4		59.6		412.0
Other comprehensive income (loss)	(97.5)		1.3		(96.2)
Total comprehensive income (loss)	254.9		60.9		315.8
Stock-based compensation	45.5		—		45.5
Net issuance of 151,741 shares held in treasury in settlement of stock-based compensation	(12.5)		—		(12.5)
Repurchase of 589,717 shares of common stock at average price of $170.03 per share	(100.3)		—		(100.3)
Dividends declared to Lear Corporation stockholders	(61.1)		—		(61.1)
Dividends declared to noncontrolling interest holders	—		(81.0)		(81.0)
Affiliate transaction	28.6		7.6		36.2

Balance at October 2, 2021	$	4,622.4	$	135.1	$	4,757.5

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

Table of Contents

LEAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (continued)

(Unaudited; in millions, except share and per share data)




	Three Months Ended October 3, 2020
	Common Stock		Additional Paid-In Capital		Common Stock Held in Treasury		Retained Earnings		Accumulated Other Comprehensive Loss, Net of Tax		Lear Corporation Stockholders' Equity
Balance at July 4, 2020	$	0.6	$	955.6	$	(612.6)	$	4,447.1	$	(923.0)	$	3,867.7
Comprehensive income:
Net income	—		—		—		174.4		—		174.4
Other comprehensive income	—		—		—		—		83.3		83.3
Total comprehensive income	—		—		—		174.4		83.3		257.7

Stock-based compensation	—		9.1		—		—		—		9.1
Net issuance of 45,531 shares held in treasury in settlement of stock-based compensation	—		(7.2)		6.3		(0.8)		—		(1.7)


Dividends declared to noncontrolling interest holders	—		—		—		—		—		—

Balance at October 3, 2020	$	0.6	$	957.5	$	(606.3)	$	4,620.7	$	(839.7)	$	4,132.8


	Nine Months Ended October 3, 2020
	Common Stock		Additional Paid-In Capital		Common Stock Held in Treasury		Retained Earnings		Accumulated Other Comprehensive Loss, Net of Tax		Lear Corporation Stockholders' Equity
Balance at January 1, 2020	$	0.6	$	969.1	$	(563.1)	$	4,715.8	$	(772.7)	$	4,349.7
Comprehensive income (loss):
Net income (loss)	—		—		—		(43.1)		—		(43.1)
Other comprehensive income ( loss)	—		—		—		—		(67.0)		(67.0)
Total comprehensive income (loss)	—		—		—		(43.1)		(67.0)		(110.1)
Adoption of accounting standard update 2016-13	—		—		—		(0.8)		—		(0.8)
Stock-based compensation	—		25.5		—		—		—		25.5
Net issuance of 190,978 shares held in treasury in settlement of stock-based compensation	—		(37.1)		26.8		(3.3)		—		(13.6)
Repurchase of 641,149 shares of common stock at average price of $109.22 per share	—		—		(70.0)		—		—		(70.0)
Dividends declared to Lear Corporation stockholders	—		—		—		(46.8)		—		(46.8)
Dividends declared to noncontrolling interest holders	—		—		—		—		—		—
Redeemable noncontrolling interest adjustment	—		—		—		(1.1)		—		(1.1)
Balance at October 3, 2020	$	0.6	$	957.5	$	(606.3)	$	4,620.7	$	(839.7)	$	4,132.8

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

Table of Contents

LEAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (continued)

(Unaudited; in millions, except share and per share data)




	Three Months Ended October 3, 2020
	Lear Corporation Stockholders' Equity		Non-controlling Interests		Equity		Redeemable Non-controlling Interests
Balance at July 4, 2020	$	3,867.7	$	115.5	$	3,983.2	$	114.3
Comprehensive income:
Net income	174.4		22.4		196.8		0.3
Other comprehensive income	83.3		5.6		88.9		4.7
Total comprehensive income	257.7		28.0		285.7		5.0

Stock-based compensation	9.1		—		9.1		—
Net issuance of 45,531 shares held in treasury in settlement of stock-based compensation	(1.7)		—		(1.7)		—


Dividends declared to noncontrolling interest holders	—		(0.2)		(0.2)		—

Balance at October 3, 2020	$	4,132.8	$	143.3	$	4,276.1	$	119.3


	Nine Months Ended October 3, 2020
	Lear Corporation Stockholders' Equity		Non-controlling Interests		Equity		Redeemable Non-controlling Interests
Balance at January 1, 2020	$	4,349.7	$	151.4	$	4,501.1	$	118.4
Comprehensive income (loss):
Net income (loss)	(43.1)		57.5		14.4		(3.2)
Other comprehensive income ( loss)	(67.0)		3.6		(63.4)		3.0
Total comprehensive income (loss)	(110.1)		61.1		(49.0)		(0.2)
Adoption of accounting standard update 2016-13	(0.8)		—		(0.8)		—
Stock-based compensation	25.5		—		25.5		—
Net issuance of 190,978 shares held in treasury in settlement of stock-based compensation	(13.6)		—		(13.6)		—
Repurchase of 641,149 shares of common stock at average price of $109.22 per share	(70.0)		—		(70.0)		—
Dividends declared to Lear Corporation stockholders	(46.8)		—		(46.8)		—
Dividends declared to noncontrolling interest holders	—		(69.2)		(69.2)		—
Redeemable noncontrolling interest adjustment	(1.1)		—		(1.1)		1.1
Balance at October 3, 2020	$	4,132.8	$	143.3	$	4,276.1	$	119.3

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

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LEAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in millions)


	Nine Months Ended
	October 2, 2021		October 3, 2020
Cash Flows from Operating Activities:
Consolidated net income	$	412.0	$	11.2
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Depreciation and amortization	431.4		397.1
Net change in recoverable customer engineering, development and tooling	(78.2)		(63.4)
Net change in working capital items (see below)	(329.7)		(138.1)
Loss on extinguishment of debt	—		21.1
Other, net	67.7		34.4
Net cash provided by operating activities	503.2		262.3
Cash Flows from Investing Activities:
Additions to property, plant and equipment	(405.5)		(285.3)
Other, net	(72.3)		(11.8)
Net cash used in investing activities	(477.8)		(297.1)
Cash Flows from Financing Activities:
Term loan repayments	(14.1)		(9.4)
Revolving credit facility borrowings	—		1,000.0
Revolving credit facility repayments	—		(1,000.0)




Proceeds from the issuance of senior notes	—		669.1
Redemption of senior notes	—		(667.1)
Short-term repayments, net	—		(14.9)
Payment of debt issuance and other financing costs	—		(6.9)
Repurchase of common stock	(99.3)		(70.0)
Dividends paid to Lear Corporation stockholders	(60.7)		(52.0)
Dividends paid to noncontrolling interests	(81.1)		(45.8)
Other, net	23.2		(14.8)
Net cash used in financing activities	(232.0)		(211.8)
Effect of foreign currency translation	(5.8)		(5.6)
Net Change in Cash, Cash Equivalents and Restricted Cash	(212.4)		(252.2)
Cash, Cash Equivalents and Restricted Cash as of Beginning of Period	1,314.5		1,510.4
Cash, Cash Equivalents and Restricted Cash as of End of Period	$	1,102.1	$	1,258.2

Changes in Working Capital Items:
Accounts receivable	$	356.3	$	(416.9)
Inventories	(393.2)		(13.6)
Accounts payable	(225.1)		124.0
Accrued liabilities and other	(67.7)		168.4
Net change in working capital items	$	(329.7)	$	(138.1)

Supplementary Disclosure:
Cash paid for interest	$	59.8	$	83.7
Cash paid for income taxes, net of refunds received	$	116.3	$	85.3

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

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LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation

Lear Corporation ("Lear," and together with its consolidated subsidiaries, the "Company") and its affiliates design and manufacture automotive seating and electrical distribution systems and related components. The Company’s main customers are automotive original equipment manufacturers. The Company operates facilities worldwide.

The accompanying condensed consolidated financial statements include the accounts of Lear, a Delaware corporation, and the wholly owned and less than wholly owned subsidiaries controlled by Lear. In addition, Lear consolidates all entities, including variable interest entities, in which it has a controlling financial interest. Investments in affiliates in which Lear does not have control, but does have the ability to exercise significant influence over operating and financial policies, are accounted for under the equity method.

The ~~Company’s~~Company's annual financial results are reported on a calendar year basis, and quarterly interim results are reported using a thirteen week reporting calendar.

~~Certain amounts~~

(2) Current Operating Environment

In 2020, unprecedented industry disruptions related to the COVID-19 pandemic, particularly in the ~~prior period’s financial statements have been reclassified~~first half of the year, impacted the Company's operations in every region of the world. Although industry production has improved in the first nine months of 2021 relative to ~~conform~~2020, production remains below recent historic levels, and third quarter 2021 production decreased as compared to the ~~presentation used in~~third quarter of 2020. This is largely due to the ~~quarter ended September 30, 2017.~~

~~Cost of Sales and Selling, General and Administrative Expenses~~

~~Cost of sales includes material, labor and overhead costs associated with the manufacture and distribution~~continuing impact of the ~~Company’s products. Distribution costs include inbound freight costs, purchasing~~COVID-19 pandemic in 2021, particularly through supply shortages. The most significant supply shortage relates to semiconductor chips, which is impacting global industry production and ~~receiving costs, inspection costs, warehousing costs and other costs~~resulting in cancellations of the Company’s distribution network. Selling, general and administrative expenses include selling, engineering and development and administrative costs not directly associated with the manufacture and distribution of the Company’s products.

~~(2) Acquisitions~~

~~Grupo Antolin Seating~~

~~On April 28, 2017,~~planned production. In addition, the Company ~~completed the acquisition~~is experiencing increased costs related to labor shortages and inefficiencies and ongoing costs related to personal protective equipment, all of ~~Grupo Antolin's automotive seating business ("Antolin Seating")~~which are likely to continue for ~~$291.5 million, net~~a period of ~~cash acquired. Antolin Seating is headquartered~~time. Increases in ~~France with operations in five countries in Europe and North Africa. The Antolin Seating business is comprised of just-in-time seat assembly,~~certain commodity costs, as well as ~~seat structures, mechanisms~~transportation and ~~seat covers with annual sales of approximately $370 million.~~

~~The Antolin Seating acquisition was accounted for as a business combination,~~logistics costs, are also impacting, and ~~accordingly,~~will continue to impact, the ~~assets acquired and liabilities assumed are included in the accompanying condensed consolidated balance sheet as of September 30, 2017. The~~Company's operating results ~~and cash flows~~for the foreseeable future. Further, a resurgence of ~~Antolin Seating are included in~~ the COVID-19 virus or its variants, including corresponding "stay at home" or similar government orders impacting industry production, could impact the Company's financial results.

The accompanying condensed consolidated financial statements ~~from the date~~reflect estimates and assumptions made by management as of ~~acquisition~~October 2, 2021, and ~~in the Company's seating segment.~~

The net purchase price of $291.5 million is subject to adjustment and consists of cash paid of $286.8 million, net of cash acquired, and contingent consideration of $4.7 million. In addition, the Company incurred transaction costs of $3.1 million related to advisory services infor the nine months ~~ended September 30, 2017, which have been expensed as incurred~~then ended. Such estimates and ~~are recorded in selling, general~~assumptions affect, among other things, the Company's goodwill; long-lived asset and ~~administrative expenses. The purchase price~~indefinite-lived intangible asset valuations; inventory valuations; valuations of deferred income taxes and ~~preliminary allocation are shown below (in millions):~~

Purchase price paid, net of cash acquired $ 286.8
Acquisition date contingent consideration 4.7
Net purchase price $ 291.5

Property, plant and equipment $ 81.7
Other assets purchased and liabilities assumed, net (34.2 )
Goodwill 122.6
Intangible assets 121.4
Preliminary purchase price allocation $ 291.5

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~~LEAR CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

~~Contingent consideration represents the discounted value of estimated amounts due~~income tax contingencies; and credit losses related to the ~~seller pending the resolution of certain matters. As of the acquisition date, the value of estimated contingent consideration was $4.7 million.~~

~~Recognized goodwill is attributable to the assembled workforce, expected synergies~~Company's financial instruments. Events and ~~other intangible assets that do not qualify for separate recognition.~~

Intangible assets consist of provisional amounts recognized for the fair value of customer-based assets and were based on an independent appraisal. Customer-based assets include Antolin Seating's established relationships with its customers and the ability of these customers to generate future economic profits for the Company. It is currently estimated that these intangible assets have a weighted average useful life of approximately fifteen years.

~~The purchase price and related allocation are preliminary and will be revised as a result of additional information regarding the assets acquired and liabilities assumed,~~circumstances arising after October 2, 2021, including ~~but not limited to, certain tax attributes, contingent liabilities and revisions of provisional estimates of fair values~~those resulting from the ~~completion of independent appraisals and valuations of property, plant and equipment and intangible assets.~~

~~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."~~

~~AccuMED~~

~~On December 21, 2016, the Company completed the acquisition of 100%~~ of the outstanding equity interests of AccuMED Holdings Corp. ("AccuMED"), a privately-held developer and manufacturer of specialty fabrics, for $148.5 million, net of cash acquired. AccuMED has annual sales of approximately $80 million. The AccuMED acquisition was accounted for as a business combination, and accordingly, the assets acquired and liabilities assumed are included in the accompanying condensed consolidated balance sheets as of September 30, 2017 and December 31, 2016. The operating results and cash flows of AccuMED are included in the accompanying condensed consolidated financial statements from the date of acquisition and in the Company's seating segment. The purchase price and preliminary allocation are shown below (in millions):

Purchase price paid, net of cash acquired $ 148.5

Property, plant and equipment $ 11.2
Other assets purchased and liabilities assumed, net 7.2
Goodwill 77.1
Intangible assets 53.0
Preliminary purchase price allocation $ 148.5

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

Intangible assets consist of amounts recognized for the fair value of customer-based assets and were based on an independent appraisal. Customer-based assets include AccuMED's established relationships with its customers and the ability of these customers to generate future economic profits for the Company. It is estimated that these intangible assets have a weighted average useful life of approximately thirteen years.

~~The purchase price allocation is preliminary and~~COVID-19 pandemic, will be ~~revised as a result of additional information regarding the assets acquired~~reflected in management's estimates and ~~liabilities assumed, including, but not limited to, certain tax attributes and contingent liabilities.~~assumptions in future periods.

~~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."~~

(3) Restructuring

Restructuring costs include employee termination benefits, ~~fixed~~ asset impairment charges and contract termination costs, as well as other incremental costs resulting from the restructuring actions. ~~These~~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. ~~The~~In addition to restructuring costs, the Company ~~also~~ incurs incremental manufacturing inefficiency costs at the operating locations impacted by the restructuring actions during the related restructuring implementation period. Restructuring costs are

~~Table of Contents~~

~~LEAR CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

recognized in the Company’s condensed consolidated financial statements in accordance with GAAP. Generally, charges are recorded aswhen restructuring actions are approved and/or implemented.

In the first nine months of ~~2017,~~2021, the Company recorded charges of ~~$48.6~~$78.0 million in connection with its restructuring actions. These charges consist of ~~$39.5~~$52.3 million recorded as cost of sales ~~$10.2~~and $25.7 million recorded as selling, general and administrative ~~expenses and net credits of $1.1 million recorded as other income.~~expenses. The restructuring charges consist of employee termination costs of ~~$41.0~~$60.1 million, ~~fixed~~ asset impairment charges of ~~$0.4 million, a pension benefit plan settlement loss of $0.8~~$8.1 million and contract termination costs of ~~$1.5~~$0.1 million, as well as other related costs of ~~$4.9~~$9.7 million. Employee termination benefits were recorded based on existing union and employee contracts, statutory requirements, completed negotiations and Company policy. ~~Fixed asset~~Asset impairment charges relate to the disposal of buildings, leasehold improvements and/or machinery and equipment with carrying values of ~~$0.4~~$1.0 million in excess of related estimated fair ~~values.~~values and the impairment of right-of-use assets of $7.1 million.

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

The Company expects to incur approximately$3637 million of additional restructuring costs related to activities initiated as of ~~September 30, 2017,~~October 2, 2021, and expects that the components of such costs will be consistent with its historical experience. Any future restructuring actions will depend upon market conditions, customer actions and other factors.

A summary of ~~2017~~2021 activity ~~excluding the pension benefit plan settlement loss of $0.8 million (Note 9, "Pension and Other Postretirement Benefit Plans"),~~ is shown below (in millions):


	Accrual at January 1, 2021		2021		Utilization				Accrual at October 2, 2021
			Charges		Cash		Non-cash
Employee termination benefits	$	134.8	$	60.1	$	(65.6)	$	(5.1)	$	124.2
Asset impairment charges	—		8.1		—		(8.1)		—
Contract termination costs	4.2		0.1		(0.8)		—		3.5
Other related costs	—		9.7		(9.7)		—		—
Total	$	139.0	$	78.0	$	(76.1)	$	(13.2)	$	127.7

Accrual as of 2017 Utilization Accrual as of
January 1, 2017 Charges Cash Non-cash September 30, 2017
Employee termination benefits $ 69.4
$ 41.0
$ (27.7 ) $ —
$ 82.7
Asset impairment charges —
0.4
—
(0.4 ) —
Contract termination costs 4.6
1.5
(1.2 ) —
4.9
Other related costs —
4.9
(4.9 ) —
—
Total $ 74.0
$ 47.8
$ (33.8 ) $ (0.4 ) $ 87.6

(4) Inventories

Inventories are stated at the lower of cost or ~~market.~~net realizable value. Cost is determined using the first-in, first-out method. Finished goods and work-in-process inventories include material, labor and manufacturing overhead costs.

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


	October 2, 2021		December 31, 2020
Raw materials	$	1,250.1	$	1,051.6
Work-in-process	124.7		109.8
Finished goods	545.5		396.9
Reserves	(154.3)		(157.2)
Inventories	$	1,766.0	$	1,401.1

September 30,
2017 December 31, 2016
Raw materials $ 909.2
$ 746.3
Work-in-process 124.0
106.4
Finished goods 199.7
167.9
Inventories $ 1,232.9
$ 1,020.6

(5) Pre-Production Costs Related to Long-Term Supply Agreements

The Company incurs pre-production engineering and development ("E&D") and tooling costs related to the products produced for its customers under long-term supply agreements. The Company expenses all pre-production E&D costs for which reimbursement is not contractually guaranteed by the customer. In addition, the Company expenses all pre-production tooling costs related to customer-owned tools for which reimbursement is not contractually guaranteed by the customer or for which the Company does not have a non-cancelable right to use the tooling.

During the first nine months of ~~2017~~2021 and ~~2016,~~2020, the Company capitalized ~~$190.8~~$197.2 million and ~~$110.5~~$111.1 million, respectively, of pre-production E&D costs for which reimbursement is contractually guaranteed by the customer. During the first nine months of ~~2017~~2021 and ~~2016,~~2020, the Company also capitalized$~~93.5~~115.1 million and ~~$61.5~~$130.2 million, respectively, of pre-production tooling costs related to customer-owned tools for which reimbursement is contractually guaranteed by the customer or for which the Company has a non-cancelable right to use the tooling. These amounts are included in other current and long-term assets in the ~~accompanying~~ condensed consolidated balance sheets.

During the first nine months of ~~2017~~2021 and ~~2016,~~2020, the Company collected ~~$247.7~~$253.7 million and ~~$168.9~~$184.5 million, respectively, of cash related to E&D and tooling costs.

~~Table of Contents~~

~~LEAR CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

The classification of recoverable customer E&D and tooling costs related to long-term supply agreements included in the accompanying condensed consolidated balance sheets is shown below (in millions):


	October 2, 2021		December 31, 2020
Current	$	276.2	$	212.0
Long-term	127.6		121.4
Recoverable customer E&D and tooling	$	403.8	$	333.4

September 30,
2017 December 31, 2016
Current $ 232.5
$ 185.9
Long-term 54.0
43.4
Recoverable customer E&D and tooling $ 286.5
$ 229.3

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

(6) ~~Long-Term~~Long-Lived Assets

Impairment of Long-Lived Assets

The Company will continue to assess the impact of significant industry and other events on the realization of its long-lived assets.

Property, Plant and Equipment

Property, plant and equipment is stated at cost. Costs associated with the repair and maintenance of the Company’s property, plant and equipment are expensed as incurred. Costs associated with improvements which extend the life, increase the capacity or improve the efficiency or safety of the Company’s property, plant and equipment are capitalized and depreciated over the remaining useful life of the related asset. Depreciable property is depreciated over the estimated useful lives of the assets, using principally the straight-line method.

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


	September 30, 2017			December 31, 2016				October 2, 2021		December 31, 2020
Land	$	119.1		$	101.7		Land	$	110.1	$	114.1
Buildings and improvements	772.2			648.1			Buildings and improvements	848.7		880.7
Machinery and equipment	2,939.2			2,459.6			Machinery and equipment	4,445.6		4,339.2
Construction in progress	348.1			296.4			Construction in progress	351.1		311.1
Total property, plant and equipment	4,178.6			3,505.8			Total property, plant and equipment	5,755.5		5,645.1
Less – accumulated depreciation	(1,800.5		)	(1,486.5		)	Less – accumulated depreciation	(3,059.2)		(2,908.9)
Property, plant and equipment, net	$	2,378.1		$	2,019.3		Property, plant and equipment, net	$	2,696.3	$	2,736.2

Depreciation expense was ~~$99.2~~$124.6 million and ~~$83.5~~$120.0 million in the three months ended ~~September 30, 2017~~October 2, 2021 and October ~~1, 2016,~~3, 2020, respectively, and ~~$279.1~~$374.0 million and ~~$241.7~~$347.7 million in the nine months ended ~~September 30, 2017~~October 2, 2021 and October ~~1, 2016,~~3, 2020, respectively.

The Company monitors its long-lived assets for impairment indicators on an ongoing basis in accordance with GAAP. If impairment indicators exist, the Company performs the required impairment analysis by comparing the undiscounted cash flows expected to be generated from the long-lived assets to the related net book values. If the net book value exceeds the undiscounted cash flows, an impairment loss is measured and recognized. Except as discussed below, the Company does not believe that there were any indicators that would have resulted in long-lived asset impairment charges as of September 30, 2017. The Company will, however, continue to assess the impact of any significant industry events on the realization of its long-lived assets.

In the first nine months of ~~2017~~2021 and ~~2016,~~2020, the Company recognized fixed asset impairment charges of ~~$0.4~~$1.0 million and ~~$3.5~~$12.5 million, respectively, in conjunction with its restructuring actions (Note 3, "Restructuring"). In the first nine months of 2021 and 2020, the Company recognized additional asset impairment charges of $2.0 million and $3.4 million, respectively.

Intangible Assets

Amortization expense was $15.8 million and $16.3 million in the three months ended October 2, 2021 and October 3, 2020, respectively, and $57.4 million and $49.4 million in the nine months ended October 2, 2021 and October 3, 2020, respectively.

In the first nine months of 2021, the Company recognized an impairment charge of $8.5 million related to certain intangible assets of its E-Systems segment resulting from a change in the intended use of the assets. The impairment charge is included in amortization of intangible assets in the accompanying condensed consolidated statement of comprehensive income (loss) for the nine months ended October 2, 2021.

Investment in Affiliates

On September ~~8, 2017,~~6, 2021, the Company ~~gained control of Shanghai~~acquired a 49% interest in Shenyang Jinbei Lear ~~STEC Automotive~~Auto Parts Co., Ltd. ~~(“Lear STEC”~~("Shenyang Jinbei") ~~by amending the existing joint venture agreement to eliminate the substantive participating rights of its joint venture partner. Prior to the amendment, Lear STEC was~~for $41.3 million. The investment is accounted for under the equity ~~method.~~method as the Company does not control Shenyang Jinbei but does have the ability to exercise significant influence over certain operating and financial policies of Shenyang Jinbei. The ~~consolidation of Lear STEC was accounted for as a business combination, and accordingly, the assets acquired and liabilities assumed are included~~acquisition cost is classified within cash flows used in investing activities in the accompanying condensed consolidated ~~balance sheet as~~statement of ~~September 30, 2017. The operating results and~~ cash flows for the nine months ended October 2, 2021.

In the first nine months of ~~Lear STEC are included in~~2021, the ~~accompanying condensed consolidated financial statements from the date~~Company recognized an impairment charge of ~~the amended joint venture agreement and are reflected in the Company’s E-Systems segment.~~

$1.0 million related to an affiliate.

~~Table of Contents~~

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

~~A preliminary summary of the fair value of the assets acquired and liabilities assumed in conjunction with the consolidation is shown below (in millions):~~

Property, plant and equipment $ 16.2
Other assets and liabilities assumed, net 42.7
Goodwill 94.1
Intangible assets 66.0
$ 219.0

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

Intangible assets consist of amounts recognized for the fair value of customer-based assets and were based on an independent appraisal. Customer-based assets include Lear STEC’s established relationships with its customers and the ability of these customers to generate future economic profits for the Company. It is currently estimated that these intangible assets have a weighted average useful life of approximately 12 years.

The fair values of the assets acquired and liabilities assumed in conjunction with the consolidation contain provisional estimates that may be revised as a result of additional information obtained regarding such assets and liabilities.

As of the date of consolidation, the fair value of the Company’s previously held equity interest in Lear STEC was $94.0 million, and the fair value of the noncontrolling interest in Lear STEC was $125.0 million. As a result of valuing the Company’s prior equity interest in Lear STEC at fair value, the Company recognized a gain of $54.2 million, which is included in other (income) expense, net in the accompanying condensed consolidated statements of comprehensive income for the three and nine months ended September 30, 2017.

In connection with the consolidation, the noncontrolling interest holder obtained the option, which is embedded in the noncontrolling interest, to require the Company to purchase or redeem the 45% noncontrolling interest based on a pre-determined earnings multiple formula. In accordance with GAAP, the Company records redeemable noncontrolling interests at the greater of (1) the initial carrying amount adjusted for the noncontrolling interest holder’s share of total comprehensive income or loss and dividends (“noncontrolling interest carrying value”) or (2) the redemption value as of and based on conditions existing as of the reporting date. Required redemption adjustments are recorded as an increase to redeemable noncontrolling interests, with an offsetting adjustment to retained earnings. The redeemable noncontrolling interest is classified in mezzanine equity in the accompanying condensed consolidated balance sheet as of September 30, 2017.

Redemption value of a noncontrolling interest in excess of carrying value represents a dividend distribution that is different from dividend distributions to other common stockholders. Therefore, periodic redemption adjustments recorded in excess of carrying value are reflected as a reduction to the income available to common stockholders in the computation of earnings per share. Redeemable noncontrolling interest of $147.7 million related to Lear STEC is reflected in the Company's condensed consolidated balance sheet as of September 30, 2017. This amount includes a noncontrolling interest redemption adjustment of $22.7 million, representing the difference between the redemption value and carrying value.

Lear STEC’s annual sales are approximately $280 million. Lear STEC provides wire harnesses to SAIC Motor Corporation Limited and its joint ventures with both North American and European automotive manufacturers. The pro forma effects of this consolidation would not materially impact the Company’s reported results for any period presented.

For further information related to the redemption adjustment, see Note 13, "Comprehensive Income and Equity." For further information related to acquired assets measured at fair value, see Note 16, "Financial Instruments."

~~Table of Contents~~

~~LEAR CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

(7) Goodwill

A summary of the changes in the carrying amount of goodwill, by operating segment, in the nine months ended ~~September 30, 2017,~~October 2, 2021, is shown below (in millions):

Seating E-Systems Total
Balance at January 1, 2017 $ 1,091.2
$ 30.1
$ 1,121.3
Acquisition 122.6
—
122.6
Consolidation of affiliate —
94.1
94.1
Foreign currency translation and other 48.9
0.2
49.1
Balance at September 30, 2017 $ 1,262.7
$ 124.4
$ 1,387.1


	Seating		E-Systems		Total
Balance at January 1, 2021	$	1,268.8	$	387.0	$	1,655.8



Foreign currency translation and other	(15.4)		20.0		4.6
Balance at October 2, 2021	$	1,253.4	$	407.0	$	1,660.4

Goodwill is not amortized but is tested for impairment on at least an annual basis. Impairment testing is required more often than annually if an event or circumstance indicates that an impairment is more likely than not to have occurred. In conducting its annual impairment testing, the Company may first perform a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If not, no further goodwill impairment testing is required. If it is more likely than not that a reporting unit’s fair value is less than its carrying amount, or if the Company elects not to perform a qualitative assessment of a reporting unit, the Company then compares the fair value of the reporting unit to the related net book value. If the net book value of a reporting unit exceeds its fair value, an impairment loss is ~~measured and recognized.~~recognized in an amount equal to that excess, limited to the total amount of goodwill recorded. The Company conducts its annual impairment testing as of the first day of its fourth ~~quarter.~~quarter.

During the first and second quarters of 2021, an interim goodwill impairment analysis related to one of the Company’s reporting units within its Seating operating segment was performed. The results of the quantitative analysis indicated that the fair value of the reporting unit exceeded the related carrying value. The quantitative analysis reflected the Company’s best estimates of the COVID-19 pandemic’s ultimate impact on industry conditions, including consumer demand and economic recovery. As of October 2, 2021, the Company does not believe that ~~there were~~ any ~~indicators that would have resulted~~of its reporting units are at risk for impairment.

There was no impairment of goodwill in ~~goodwill impairment charges as~~the first nine months of ~~September 30, 2017.~~2021 and 2020. The Company will, however, continue to assess the impact of significant industry and other events ~~or circumstances~~ on its recorded goodwill.

~~For further information related to the acquisition, see Note 2, "Acquisitions." For further information related to the consolidation of an affiliate, see Note 6, "Long-Term Assets."~~

(8) Debt

A summary of long-term debt, net of unamortized debt issuance costs and unamortized original issue premium (discount), and the related weighted average interest rates is shown below (in millions):

September 30, 2017 December 31, 2016
Debt Instrument Long-Term Debt
Debt Issuance Costs ⁽²⁾

Long-Term
Debt, Net

Weighted
Average
Interest
Rate
Long-Term Debt
Debt Issuance Costs⁽²⁾

Long-Term
Debt, Net

Weighted
Average
Interest
Rate
Credit Agreement — Term Loan Facility $ 250.0
$ (1.9 ) $ 248.1
2.7% $ 468.7
$ (1.6 ) $ 467.1
2.105%
4.75% Senior Notes due 2023 ("2023 Notes") —
—
—
N/A 500.0
(4.8 ) 495.2
4.75%
5.375% Senior Notes due 2024 ("2024 Notes") 325.0
(2.5 ) 322.5
5.375% 325.0
(2.8 ) 322.2
5.375%
5.25% Senior Notes due 2025 ("2025 Notes") 650.0
(6.0 ) 644.0
5.25% 650.0
(6.6 ) 643.4
5.25%
3.8% Senior Notes due 2027 ("2027 Notes") ⁽¹⁾
744.8
(6.0 ) 738.8
3.885% —
—
—
N/A
Other 8.6
—
8.6
N/A 5.7
—
5.7
N/A
$ 1,978.4
$ (16.4 ) 1,962.0
$ 1,949.4
$ (15.8 ) 1,933.6

Less — Current portion (9.0 ) (35.6 )
Long-term debt $ 1,953.0
$ 1,898.0

⁽¹⁾~~Net of unamortized discount of $5.2 million~~

⁽²⁾~~Unamortized portion~~


	October 2, 2021
Debt Instrument	Long-Term Debt		Unamortized Debt Issuance Costs		Unamortized Original Issue Premium (Discount)		Long-Term Debt, Net		Weighted Average Interest Rate
Credit Agreement — Term Loan Facility	$	206.3	$	(0.4)	$	—	$	205.9	1.330%
3.8% Senior Notes due 2027 (the "2027 Notes")	750.0		(3.6)		(3.1)		743.3		3.885%
4.25% Senior Notes due 2029 (the "2029 Notes")	375.0		(2.4)		(0.9)		371.7		4.288%
3.5% Senior Notes due 2030 (the "2030 Notes")	350.0		(2.4)		(0.7)		346.9		3.525%
5.25% Senior Notes due 2049 (the "2049 Notes")	625.0		(6.1)		13.8		632.7		5.103%
Other	1.3		—		—		1.3		N/A
	$	2,307.6	$	(14.9)	$	9.1	$	2,301.8
Less — Current portion							(206.0)
Long-term debt							$	2,095.8

~~Table of Contents~~

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)


	December 31, 2020
Debt Instrument	Long-Term Debt		Unamortized Debt Issuance Costs		Unamortized Original Issue Premium (Discount)		Long-Term Debt, Net		Weighted Average Interest Rate
Credit Agreement — Term Loan Facility	$	220.3	$	(0.6)	$	—	$	219.7	1.360%
2027 Notes	750.0		(4.1)		(3.5)		742.4		3.885%
2029 Notes	375.0		(2.6)		(1.0)		371.4		4.288%
2030 Notes	350.0		(2.6)		(0.7)		346.7		3.525%
2049 Notes	625.0		(6.3)		14.2		632.9		5.103%
Other	1.4		—		—		1.4		N/A
	$	2,321.7	$	(16.2)	$	9.0	2,314.5
Less — Current portion							(14.2)
Long-term debt							$	2,300.3

Senior Notes

The issuance, ~~date,~~ maturity ~~date~~ and interest ~~payable~~payment dates of the Company's senior unsecured ~~2024~~2027 Notes, ~~2025~~2029 Notes, 2030 Notes and ~~2027~~2049 Notes ~~(together,~~(collectively, the "Notes") are as shown below:

Note

Issuance ~~Date~~Date(s)

Maturity Date

Interest ~~Payable~~Payment Dates

~~2024~~2027 Notes

~~March 2014~~August 2017

September 15, 2027

~~March 15, 2024~~

March 15 and September 15

~~2025~~2029 Notes

~~November 2014~~May 2019

May 15, 2029

~~January 15, 2025~~

~~January~~May 15 and ~~July~~November 15

~~2027~~2030 Notes

~~August 2017~~February 2020

May 30, 2030

~~September~~May 30 and November 30

2049 Notes

May 2019 and February 2020

May 15, ~~2027~~2049

~~March~~May 15 and ~~September~~November 15

In ~~August 2017,~~February 2020, the Company issued ~~$750.0~~$350.0 million in aggregate principal amount at maturity of ~~senior unsecured notes due 2027~~2030 Notes and an additional $300.0 million in aggregate principal amount at maturity of 2049 Notes. The 2030 Notes have a stated coupon rate of ~~3.8%. The 2027 Notes~~3.5% and were ~~priced~~issued at ~~99.294%~~99.774% of par, resulting in a yield to maturity of ~~3.885%~~3.525%. The 2049 Notes have a stated coupon rate of 5.25% and were issued at 106.626% of par, resulting in a yield to maturity of 4.821%.

The net proceeds from the offering ~~of $744.7~~were $669.1 million after original issue ~~discount,~~discount. The proceeds were used to redeem ~~the $500.0~~$650.0 million in aggregate principal amount of ~~the 2023 Notes~~outstanding 5.25% senior notes due 2025 (the "2025 Notes") at a redemption price equal to ~~100%~~102.625% of the ~~aggregate~~ principal amount ~~thereof,~~of such 2025 Notes, plus ~~a "make-whole" premium of $17.0 million, as well as to refinance a portion of the Company's $500.0 million prior term loan facility (see "— Credit Agreement" below).~~ accrued interest.

In connection with these transactions, the Company recognized a loss of ~~$21.2~~$21.1 million on the extinguishment of debt ~~in the three and nine months ended September 30, 2017,~~ and paid related issuance costs of ~~$6.0 million.~~

~~Prior to June 15, 2027 (three~~$5.9 million in the nine months prior to the maturity date), the Company, at its option, may redeem some or all of the 2027 Notes at a redemption price equal to 100% of the principal amount thereof, plus a "make-whole" premium as of, and accrued and unpaid interest to, the redemption date. At any time on or after June 15, 2027, but prior to the maturity date of September 15, 2027, the Company, at its option, may redeem some or all of the 2027 Notes, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to the redemption date.

~~Guarantees~~

The Notes are senior unsecured obligations. As discussed further in "— Credit Agreement" below, upon termination of the Company’s prior credit agreement, the subsidiaries that previously guaranteed the 2024 Notes and 2025 Notes were automatically released as guarantors. There are currently no guarantors of the Company’s obligations under the Notes.ended October 3, 2020.

Covenants

Subject to certain exceptions, the indentures governing the Notes contain certain restrictive covenants that, among other things, limit the ability of the Company to: (i) create or permit certain liens and (ii) consolidate, merge or sell all or substantially all of the Company’s assets. The ~~indenture governing the 2024 Notes limits the ability of the Company to enter into sale and leaseback transactions. The~~ indentures governing the Notes also provide for customary events of default.

As of ~~September 30, 2017,~~October 2, 2021, the Company was in compliance with all covenants under the indentures governing the Notes.

Credit Agreement

~~In August 2017, the Company entered into a new~~The Company's unsecured credit agreement (the "Credit Agreement") ~~consisting~~, dated August 8, 2017, consists of a $1.75 billion revolving credit facility ~~("Revolving~~(the "Revolving Credit Facility") and a $250.0 million term loan facility (the "Term Loan Facility")~~, both~~. In February 2020, the Company entered into an agreement to extend the maturity date of ~~which mature on~~the Revolving Credit Facility by one year to August 8, ~~2022. In connection with this transaction, the Company borrowed $250.0 million under~~2024. The maturity date of the Term Loan Facility ~~and~~is August 8, 2022.

In connection with the extension agreement, the Company paid related issuance costs of ~~$5.7~~$1.0 million. At the same time, the Company terminated its previously existing credit agreement, which consisted of a $1.25 billion revolving credit facility and a $500 million term loan facility, and repaid amounts outstanding under the term loan facility of $453.1 million. Together with the offering of the 2027 Notes, these transactions extended the Company's maturity profile and increased its borrowing capacity.

As of September 30, 2017, there were no borrowings outstanding under the Revolving Credit Facility and $250.0 million of borrowings outstanding under the Term Loan Facility. As of December 31, 2016, there were no borrowings outstanding under the Company's prior revolving credit facility and $468.7 million of borrowings outstanding under the Company's prior term loan facility.

~~Table of Contents~~

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

As of October 2, 2021 and December 31, 2020, there were $206.3 million and $220.3 million, respectively, of borrowings outstanding under the Term Loan Facility.

In March 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 September 2020. As of October 2, 2021 and December 31, 2020, there were no borrowings outstanding under the Revolving Credit Facility.

In the first nine months of 2021, the Company made required principal payments of $14.1 million under the Term Loan Facility.

Advances under the Revolving Credit Facility and the Term Loan Facility generally bear interest based on (i) the Eurocurrency Rate (as defined in the Credit Agreement) or (ii) the Base Rate (as defined in the Credit Agreement) plus a margin, determined in accordance with a pricing grid. The ~~range~~ranges and ~~the rate~~rates as of ~~September 30, 2017,~~October 2, 2021, are ~~as follows~~shown below (in percentages):


														Eurocurrency Rate						Base Rate
	Eurocurrency Rate						Base Rate											Rate as of						Rate as of
	Minimum		Maximum		Rate as of September 30, 2017		Minimum		Maximum		Rate as of September 30, 2017			Minimum		Maximum		October 2, 2021		Minimum		Maximum		October 2, 2021
Revolving Credit Agreement	1.00	%	1.60	%	1.30	%	0.00	%	0.60	%	0.30	%
Revolving Credit Facility													Revolving Credit Facility	1.00	%	1.60	%	1.10	%	0.00	%	0.60	%	0.10	%
Term Loan Facility	1.125	%	1.90	%	1.50	%	0.125	%	0.90	%	0.50	%	Term Loan Facility	1.125	%	1.90	%	1.25	%	0.125	%	0.90	%	0.25	%

A facility fee, which ranges from 0.125% to 0.30% of the total amount committed under the Revolving Credit Facility, is payable quarterly.

~~Guarantees~~

The Credit Agreement eliminated the subsidiary guarantees required under the Company's prior credit agreement. There are currently no guarantors of the Company’s obligations under the Credit Agreement.

Covenants

The Credit Agreement contains various customary representations, warranties and covenants by the Company, including, without limitation, (i) covenants regarding maximum leverage, (ii) limitations on fundamental changes involving the Company or its subsidiaries and (iii) limitations on indebtedness and liens.

As of ~~September 30, 2017,~~October 2, 2021, the Company was in compliance with all covenants under the Credit Agreement.

~~Scheduled Maturities~~Subsequent Event

~~As of September 30, 2017, scheduled maturities related~~On October 28, 2021, the Company entered into an amended and restated unsecured credit agreement which increases available borrowings under the revolving credit facility to $2.0 billion and extends the ~~Term Loan Facility for~~maturity date to October 28, 2026. The amended and restated unsecured credit agreement maintains the ~~five succeeding years, as of the date of this Report, are shown below (in millions):~~

2017 ⁽¹⁾
$ 1.6
2018 6.3
2019 7.8
2020 14.0
2021 14.0
2022 206.3

⁽¹⁾ ~~Scheduled maturities for the fourth quarter of 2017~~Company's $250 million term loan facility maturing on August 8, 2022.

Other

As of ~~September 30, 2017,~~October 2, 2021 and December 31, 2020, other long-term debt consists of amounts outstanding under ~~capital leases.~~a finance lease agreement.

For further information related to the ~~2024 Notes, the 2025 Notes and the prior credit agreement,~~Company's debt, see Note 6,7, "Debt," to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2020.

~~Table of Contents~~

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

(9) Leases

~~(9)~~The Company has operating leases for production, office and warehouse facilities, manufacturing and office equipment and vehicles. Operating lease assets and obligations included in the accompanying condensed consolidated balance sheets are shown below (in millions):


	October 2, 2021		December 31, 2020
Right-of-use assets under operating leases:
Other long-term assets	$	614.3	$	540.3
Lease obligations under operating leases:
Accrued liabilities	$	127.4	$	116.3
Other long-term liabilities	508.4		438.9
	$	635.8	$	555.2

Maturities of lease obligations as of October 2, 2021, are shown below (in millions):


	October 2, 2021
2021 (1)	$	40.7
2022	137.5
2023	109.8
2024	92.7
2025	78.8
Thereafter	253.3
Total undiscounted cash flows	712.8
Less: Imputed interest	(77.0)
Lease obligations under operating leases	$	635.8

(1)For the remaining three months

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


	Nine Months Ended
	October 2, 2021		October 3, 2020
Non-cash activity:
Right-of-use assets obtained in exchange for operating lease obligations	$	200.0	$	116.2
Operating cash flows:
Cash paid related to operating lease obligations	$	121.7	$	106.3

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Lease expense included in the accompanying condensed consolidated statements of comprehensive income (loss) is shown below (in millions):


	Three Months Ended				Nine Months Ended
	October 2, 2021		October 3, 2020		October 2, 2021		October 3, 2020
Operating lease expense	$	40.7	$	38.6	$	119.6	$	110.2
Short-term lease expense	5.0		3.3		13.6		11.3
Variable lease expense	1.7		2.2		6.1		5.9
Total lease expense	$	47.4	$	44.1	$	139.3	$	127.4

In the nine months ended October 2, 2021 and October 3, 2020, the Company recognized impairment charges of $7.1 million and $2.0 million, respectively, related to its right-of-use assets in conjunction with its restructuring actions.

The weighted average lease term and discount rate for operating leases are shown below:


	October 2, 2021
Weighted average remaining lease term	Seven years
Weighted average discount rate	3.2	%

The Company is party to a finance lease agreement, which is not material to the accompanying condensed consolidated financial statements (Note 8, "Debt").

For further information related to the Company's leases, see Note 8, "Leases," to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.

(10) Pension and Other Postretirement Benefit Plans

The Company sponsors defined benefit pension plans covering certain eligible employees in the United States and ~~other~~certain foreign countries. The Company also sponsors postretirement benefit plans (primarily for the continuation of medical benefits) ~~for~~covering certain eligible ~~employees~~retirees in the United States and ~~certain other countries.~~Canada.

Net Periodic Pension and Other Postretirement Benefit (Credit) Cost

The components of the Company’s net periodic pension benefit (credit) cost are shown below (in millions):


	Three Months Ended												Nine Months Ended													Three Months Ended								Nine Months Ended
	September 30, 2017						October 1, 2016						September 30, 2017						October 1, 2016							October 2, 2021				October 3, 2020				October 2, 2021				October 3, 2020
	U.S.			Foreign			U.S.			Foreign			U.S.			Foreign			U.S.			Foreign				U.S.		Foreign		U.S.		Foreign		U.S.		Foreign		U.S.		Foreign
Service cost	$	1.3		$	1.8		$	1.4		$	1.6		$	3.8		$	5.3		$	4.2		$	4.8		Service cost	$	—	$	1.2	$	0.1	$	1.2	$	—	$	3.9	$	0.1	$	3.6
Interest cost	5.5			4.0			7.5			3.8			16.4			11.2			22.4			11.9			Interest cost	3.7		2.6		4.1		3.1		10.9		7.9		12.3		9.2
Expected return on plan assets	(7.3		)	(5.9		)	(9.5		)	(5.9		)	(21.7		)	(17.0		)	(28.6		)	(17.5		)	Expected return on plan assets	(5.9)		(4.9)		(5.4)		(4.9)		(17.7)		(14.7)		(16.0)		(14.8)
Amortization of actuarial loss	0.6			1.3			0.6			0.8			1.9			3.8			2.0			2.3			Amortization of actuarial loss	1.0		1.5		0.6		1.2		2.9		4.6		1.7		3.5

Settlement loss	—			—			—			—			0.2			0.8			0.2			—			Settlement loss	—		—		—		10.2		0.4		—		0.3		10.2
Net periodic benefit cost	$	0.1		$	1.2		$	—		$	0.3		$	0.6		$	4.1		$	0.2		$	1.5
Net periodic benefit (credit) cost																									Net periodic benefit (credit) cost	$	(1.2)	$	0.4	$	(0.6)	$	10.8	$	(3.5)	$	1.7	$	(1.6)	$	11.7

In the three and nine months ended ~~September 30, 2017,~~October 3, 2020, the Company recognized a pension benefit plan settlement loss of ~~$0.8~~$10.2 million related to its restructuring actions.

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

The components of the Company’s net periodic other postretirement benefit ~~(credit)~~ cost are shown below (in millions):

Three Months Ended Nine Months Ended
September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016
U.S. Foreign U.S. Foreign U.S. Foreign U.S. Foreign
Service cost $ —
$ 0.1
$ —
$ 0.1
$ 0.1
$ 0.4
$ 0.1
$ 0.4
Interest cost 0.6
0.4
0.9
0.4
1.8
1.2
2.4
1.2
Amortization of actuarial (gain) loss (0.7 ) 0.1
(0.3 ) 0.1
(2.0 ) 0.2
(0.9 ) 0.2
Amortization of prior service credit —
(0.1 ) —
(0.1 ) —
(0.3 ) —
(0.3 )
Special termination benefits —
—
—
—
—
0.1
—
0.3
Net periodic benefit (credit) cost $ (0.1 ) $ 0.5
$ 0.6
$ 0.5
$ (0.1 ) $ 1.6
$ 1.6
$ 1.8


	Three Months Ended								Nine Months Ended
	October 2, 2021				October 3, 2020				October 2, 2021				October 3, 2020
	U.S.		Foreign		U.S.		Foreign		U.S.		Foreign		U.S.		Foreign

Interest cost	$	0.3	$	0.1	$	0.5	$	0.2	$	1.0	$	0.5	$	1.3	$	0.6
Amortization of actuarial gain	(0.2)		—		(0.4)		—		(0.8)		—		(1.2)		—
Amortization of prior service credit	—		—		—		—		(0.1)		—		(0.1)		—


Net periodic benefit cost	$	0.1	$	0.1	$	0.1	$	0.2	$	0.1	$	0.5	$	—	$	0.6

Contributions

In the nine months ended ~~September 30, 2017,~~October 2, 2021, employer contributions to the Company’s domestic and foreign defined benefit pension plans were ~~$7.6~~$6.4 million.

The Company expects contributions to its domestic and foreign defined benefit pension plans to be ~~approximately~~$5 million to $10 million ~~to $15 million~~ in ~~2017.~~ 2021.

(11) Revenue Recognition

The Company enters into contracts with its customers to provide production parts generally at the beginning of a vehicle’s life cycle. Typically, these contracts do not provide for a specified quantity of products, but once entered into, the Company is often expected to fulfill its customers’ purchasing requirements for the production life of the vehicle. Many of these contracts may ~~elect~~be terminated by the Company’s customers at any time. Historically, terminations of these contracts have been infrequent. The Company receives purchase orders from its customers, which provide the commercial terms for a particular production part, including price (but not quantities). Contracts may also provide for annual price reductions over the production life of the vehicle, and prices may be adjusted on an ongoing basis to ~~make contributions in excess of minimum funding requirements in response to investment performance or~~reflect changes in ~~interest rates or~~product content/cost and other commercial factors.

Revenue is recognized at a point in time when control of the product is transferred to the customer under standard commercial terms, as the Company ~~believes~~does not have an enforceable right to payment prior to such transfer. The amount of revenue recognized reflects the consideration that ~~it is financially advantageous~~the Company expects to ~~do so and~~be entitled to in exchange for those products based on the annual purchase orders, annual price reductions and ongoing price adjustments. In the first nine months of 2021 and 2020, revenue recognized related to prior years represented approximately 1% of consolidated net sales. The Company's customers pay for products received in accordance with payment terms that are customary within the industry. The Company's contracts with its ~~other cash requirements.~~customers do not have significant financing components.

The Company records a contract liability for advances received from its customers. As of October 2, 2021 and December 31, 2020, there were no significant contract liabilities recorded. Further, in the first nine months of 2021 and 2020, there were no significant contract liabilities recognized in revenue.

Amounts billed to customers related to shipping and handling costs are included in net sales in the condensed consolidated statements of comprehensive income (loss). Shipping and handling costs are accounted for as fulfillment costs and are included in cost of sales in the condensed consolidated statements of comprehensive income (loss).

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.

A summary of the Company’s revenue by reportable operating segment and geography is shown below (in millions):


	Three Months Ended
	October 2, 2021						October 3, 2020
	Seating		E-Systems		Total		Seating		E-Systems		Total
North America	$	1,457.0	$	332.3	$	1,789.3	$	1,706.2	$	333.5	$	2,039.7
Europe and Africa	945.1		388.3		1,333.4		1,214.0		491.1		1,705.1
Asia	622.0		340.0		962.0		661.1		343.3		1,004.4
South America	142.1		41.4		183.5		110.3		40.6		150.9
	$	3,166.2	$	1,102.0	$	4,268.2	$	3,691.6	$	1,208.5	$	4,900.1

~~Table of Contents~~

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)


	Nine Months Ended
	October 2, 2021						October 3, 2020
	Seating		E-Systems		Total		Seating		E-Systems		Total
North America	$	4,698.3	$	959.2	$	5,657.5	$	3,894.7	$	766.1	$	4,660.8
Europe and Africa	3,645.8		1,491.6		5,137.4		3,000.1		1,281.2		4,281.3
Asia	2,003.4		1,041.3		3,044.7		1,676.4		845.2		2,521.6
South America	422.9		120.8		543.7		241.9		96.7		338.6
	$	10,770.4	$	3,612.9	$	14,383.3	$	8,813.1	$	2,989.2	$	11,802.3

~~(10)~~

(12) Other (Income) Expense, Net

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

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


	Three Months Ended						Nine Months Ended							Three Months Ended				Nine Months Ended
	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016				October 2, 2021		October 3, 2020		October 2, 2021		October 3, 2020
Other expense	$	34.4		$	15.5		$	47.2		$	34.7		Other expense	$	12.5	$	20.3	$	26.5	$	61.2
Other income	(56.2		)	(1.3		)	(59.5		)	(35.5		)	Other income	(1.4)		(3.2)		(55.2)		(6.8)
Other (income) expense, net	$	(21.8	)	$	14.2		$	(12.3	)	$	(0.8	)	Other (income) expense, net	$	11.1	$	17.1	$	(28.7)	$	54.4

In May 2021, the Brazilian Supreme Court ruled on certain matters, including the method of determining the amount of indirect

tax credits that taxpayers are entitled to monetize in future periods. As a result of the ruling, other income includes a gain of $46.0 million in the nine months ended October 2, 2021.

In the three and nine months ended ~~September 30, 2017,~~October 2, 2021, other expense includes ~~a loss of $21.2 million on the extinguishment of debt and~~ net foreign currency transaction losses of ~~$5.3~~$6.9 million and ~~$3.9~~$13.6 million, respectively. In the ~~three and~~ nine months ended ~~September 30, 2017,~~October 2, 2021, other ~~income~~expense also includes a ~~gain~~loss of ~~$54.2~~$1.0 million related to the ~~consolidation~~impairment of an affiliate (Note 6, ~~"Long-Term~~"Long-Lived Assets").

In the three and nine months ended October ~~1, 2016,~~3, 2020, other expense includes net foreign currency transaction losses of ~~$3.6~~$5.5 million and ~~$5.4~~$22.2 million, ~~respectively.~~respectively, and a pension settlement loss of $10.2 million (Note 10, "Pension and Other Postretirement Benefit Plans"). In the nine months ended October ~~1, 2016,~~3, 2020, other ~~income~~expense also includes a ~~gain~~loss of ~~$30.3~~$21.1 million ~~related to~~on the ~~consolidation~~extinguishment of an affiliate. For further information related to the 2016 consolidation of an affiliate, see Note 5, "Investments in Affiliates and Other Related Party Transactions," to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.debt (Note 8, "Debt").

~~(11)~~(13) Income Taxes

A summary of the provision for income taxes and the corresponding effective tax rate for the three and nine months ended ~~September 30, 2017~~October 2, 2021 and October ~~1, 2016,~~3, 2020, is shown below (in millions, except effective tax rates):


	Three Months Ended						Nine Months Ended							Three Months Ended						Nine Months Ended
	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016				October 2, 2021			October 3, 2020			October 2, 2021			October 3, 2020
Provision for income taxes	$	77.8		$	88.2		$	240.2		$	287.4		Provision for income taxes	$	20.9		$	44.6		$	119.1		$	30.1
Pretax income before equity in net income of affiliates	$	385.3		$	310.3		$	1,159.4		$	1,030.2
Pretax income before equity in net (income) loss of affiliates													Pretax income before equity in net (income) loss of affiliates	$	13.9		$	235.2		$	522.0		$	25.4
Effective tax rate	20.2		%	28.4		%	20.7		%	27.9		%	Effective tax rate	150.4		%	19.0		%	22.8		%	118.5		%

~~On January 1, 2017, the Company adopted Accounting Standards Update ("ASU") 2016-09, "Improvements to Employee Share-Based Payment Accounting."~~

The ~~new standard requires that the tax impact related to the difference between share-based compensation for book and tax purposes be recognized as income tax benefit or expense in the~~ Company’s condensed consolidated statement of comprehensive income in the reporting period in which such awards vest. The standard also required a modified retrospective adoption for previously unrecognized excess tax benefits. Accordingly, the Company recognized a deferred tax asset of $54.5 million and a corresponding credit to retained earnings in conjunction with the adoption. The effects of adopting the other provisions of ASU 2016-09 were not significant.

~~In the first nine months of 2017 and 2016, the~~ provision for income taxes ~~was primarily~~is impacted by the level and mix of earnings among tax jurisdictions. InPretax income before equity in net (income) loss of affiliates was $13.9 million in the third quarter of 2021, as compared to $235.2 million in the third quarter 2020. As a result of third quarter 2021 pretax losses in certain jurisdictions largely related to supply shortages,

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

an effective tax rate comparison between third quarter 2021 and third quarter 2020 is not meaningful. Pretax income before equity in net (income) loss of affiliates was $522.0 million in the first nine months of ~~2017, the Company recognized net tax benefits of $68.4~~2021, as compared to $25.4 million ~~of which $28.7 million related to the reversal of valuation allowances on the deferred tax assets of certain foreign subsidiaries, $16.3 million related to the change~~ in the accounting for share-based compensation discussed above, $7.5 million related to the redemption of the 2023 Notes and $15.9 million related to restructuring charges and various other items. In addition, the Company recognized a gain of $54.2 million related to the consolidation of an affiliate, for which no tax expense was provided. In the first nine months of ~~2016,~~2020. As a result of COVID-related pretax losses in the ~~Company recognized net~~first nine months of 2020 in certain jurisdictions, an effective tax ~~benefits~~rate comparison between the first nine months of ~~$14.5 million related to restructuring charges~~2021 and ~~various other items. In addition,~~ the ~~Company recognized a gain~~first nine months of ~~$30.3 million related to~~2020 is not meaningful.

The Company's discrete tax benefit (expense) on significant items is shown below (in millions):


	Nine Months Ended
	October 2, 2021		October 3, 2020
Restructuring charges and various other items	$	25.5	$	20.7
Valuation allowances on deferred tax assets	(13.4)		(12.2)
Release of tax reserves	1.3		—
Favorable indirect tax ruling in a foreign jurisdiction	(9.2)		—


Research and development tax credits	—		5.0
	$	4.2	$	13.5

Excluding the ~~consolidation of an affiliate, for which no tax expense was provided. Excluding these~~ items above, the effective tax rate for the first nine months of ~~2017~~2021 and ~~2016~~2020 approximated the U.S. federal statutory income tax rate of ~~35%~~21%, adjusted for income taxes on foreign earnings, losses and remittances, valuation allowances, tax credits, income tax incentives and other permanent items.

~~Table of Contents~~

~~LEAR CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

The Company’s current and future provision for income taxes is impacted by the initial recognition of and changes in valuation allowances in certain countries. The Company intends to maintain these allowances until it is more likely than not that the deferred tax assets will be realized. The Company’s future provision for income taxes will include no tax benefit with respect to losses incurred and, except for certain jurisdictions, no tax expense with respect to income generated in these countries until the respective valuation allowances are eliminated. Accordingly, income taxes are impacted by changes in valuation allowances and the mix of earnings among jurisdictions. The Company evaluates the realizability of its deferred tax assets on a quarterly basis. In completing this evaluation, the Company considers all available evidence in order to determine whether, based on the weight of the evidence, a valuation allowance for its deferred tax assets is necessary. Such evidence includes historical results, future reversals of existing taxable temporary differences and expectations for future taxable income (exclusive of the reversal of temporary differences and carryforwards), as well as the implementation of feasible and prudent tax planning strategies. If, based on the weight of the evidence, it is more likely than not that all or a portion of the Company’s deferred tax assets will not be realized, a valuation allowance is recorded. If operating results improve or decline on a continual basis in a particular jurisdiction, the Company’s decision regarding the need for a valuation allowance could change, resulting in either the initial recognition or reversal of a valuation allowance in that jurisdiction, which could have a significant impact on income tax expense in the period recognized and subsequent periods.

~~As of September 30, 2017,~~ In determining the provision for income taxes for financial statement purposes, the Company ~~has approximately $300 million~~makes certain estimates and judgments, which affect its evaluation of ~~excess foreign tax credits at certain foreign subsidiaries that cannot be recognized under GAAP until~~ the ~~related foreign earnings are repatriated to the United States through dividends. It is likely that the Company will repatriate these foreign earnings and recognize all or a substantial portion~~carrying value of ~~such foreign tax credits in the fourth quarter of 2017. The recognition of these foreign tax credits would create a~~its deferred tax ~~asset that under current U.S.~~assets, as well as its calculation of certain tax ~~law may reduce U.S. tax on certain foreign source income over the next several years.~~liabilities.

~~For further information related to the 2017 consolidation of an affiliate, see Note 6, "Long-Term Assets."~~ For further information related to the Company's income taxes, see Note 7,9, "Income Taxes," to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2020.

~~(12)~~(14) Net Income (Loss) Per Share Attributable to Lear

Basic net income (loss) per share available to Lear common stockholders is computed using the two-class method by dividing net income ~~attributable~~(loss) available to Lear ~~after deducting the redemption adjustment related to the redeemable noncontrolling interest,~~ by the average number of common shares outstanding during the period. Common shares issuable upon the satisfaction of certain conditions pursuant to a contractual agreement are considered common shares outstanding and are included in the computation of basic net income (loss) per share available to Lear common stockholders.

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

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

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


	Three Months Ended				Nine Months Ended
	October 2, 2021		October 3, 2020		October 2, 2021		October 3, 2020
Net income (loss) available to Lear	$	(26.5)	$	174.4	$	352.4	$	(43.1)

Average common shares outstanding	59,906,531		60,159,356		60,171,402		60,260,886
Dilutive effect of common stock equivalents	—		171,585		291,999		—
Average diluted shares outstanding	59,906,531		60,330,941		60,463,401		60,260,886

Basic net income (loss) per share available to Lear common stockholders	$	(0.44)	$	2.90	$	5.86	$	(0.72)

Diluted net income (loss) per share available to Lear common stockholders	$	(0.44)	$	2.89	$	5.83	$	(0.72)

Three Months Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Net income attributable to Lear $ 295.2
$ 214.4
$ 912.9
$ 745.2
Less: Redeemable noncontrolling interest adjustment (22.7 ) —
(22.7 ) —
Net income available to Lear common stockholders $ 272.5
$ 214.4
$ 890.2
$ 745.2

Average common shares outstanding 68,061,718
71,259,766
68,874,682
73,102,327
Dilutive effect of common stock equivalents 772,561
792,504
662,126
706,893
Average diluted shares outstanding 68,834,279
72,052,270
69,536,808
73,809,220

Basic net income per share available to Lear common stockholders $ 4.00
$ 3.01
$ 12.92
$ 10.19

Diluted net income per share available to Lear common stockholders $ 3.96
$ 2.98
$ 12.80
$ 10.10

~~For further information related to the redeemable noncontrolling interest adjustment, see Note 6, "Long-Term Assets."~~

~~Table of Contents~~

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

~~(13)~~(15) Comprehensive Income (Loss) and Equity

Comprehensive Income (Loss)

Comprehensive income (loss) is defined as all changes in the Company’s net assets except changes resulting from transactions with stockholders. It differs from net income in that certain items recorded in equity are included in comprehensive ~~income.~~income (loss).

A summary of comprehensive income and reconciliations of equity, Lear Corporation stockholders’ equity and noncontrolling interests for the three and nine months ended September 30, 2017, is shown below (in millions):

Accumulated Other Comprehensive Loss

Three Months Ended September 30, 2017 Nine Months Ended September 30, 2017
Equity
Lear
Corporation
Stockholders'
Equity

Non-
controlling
Interests
Equity
Lear
Corporation
Stockholders'
Equity

Non-
controlling
Interests
Beginning equity balance $ 3,756.2
$ 3,621.9
$ 134.3
$ 3,192.9
$ 3,057.2
$ 135.7
Stock-based compensation transactions 14.9
14.9
—
8.4
8.4
—
Repurchase of common stock (77.9 ) (77.9 ) —
(332.2 ) (332.2 ) —
Dividends declared to Lear Corporation stockholders (34.8 ) (34.8 ) —
(105.8 ) (105.8 ) —
Dividends declared to noncontrolling interest holders (0.7 ) —
(0.7 ) (33.2 ) —
(33.2 )
Adoption of ASU 2016-09 (Note 11, "Taxes") —
—
—
54.5
54.5
—
Redeemable non-controlling interest adjustment (22.7 ) (22.7 ) —
(22.7 ) (22.7 ) —
Comprehensive income:

Net income 315.0
295.2
19.8
960.5
912.9
47.6
Other comprehensive income, net of tax:

Defined benefit plan adjustments (1.8 ) (1.8 ) —
(3.0 ) (3.0 ) —
Derivative instruments and hedging activities (10.8 ) (10.8 ) —
57.2
57.2
—
Foreign currency translation adjustments 89.9
87.1
2.8
250.7
244.6
6.1
Other comprehensive income 77.3
74.5
2.8
304.9
298.8
6.1
Comprehensive income 392.3
369.7
22.6
1,265.4
1,211.7
53.7
Ending equity balance $ 4,027.3
$ 3,871.1
$ 156.2
$ 4,027.3
$ 3,871.1
$ 156.2

~~Table of Contents~~

~~LEAR CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

~~A summary of changes, net of tax, in accumulated other comprehensive loss for the three and nine months ended September 30, 2017, is shown below (in millions):~~

Three Months Ended
September 30, 2017 Nine Months Ended
September 30, 2017
Defined benefit plans:
Balance at beginning of period $ (194.0 ) $ (192.8 )
Reclassification adjustments (net of tax expense of $0.3 million and $1.2 million in the three and nine months ended September 30, 2017, respectively) 0.9
3.4
Other comprehensive loss recognized during the period (net of tax impact of $— million in the three and nine months ended September 30, 2017) (2.7 ) (6.4 )
Balance at end of period $ (195.8 ) $ (195.8 )

Derivative instruments and hedging:
Balance at beginning of period $ 22.9
$ (45.1 )
Reclassification adjustments (net of tax benefit of $1.0 million and tax expense of $1.9 million in the three and nine months ended September 30, 2017, respectively) (3.1 ) 5.7
Other comprehensive income (loss) recognized during the period (net of tax benefit of $3.2 million and tax expense of $16.6 million in the three and nine months ended September 30, 2017, respectively) (7.7 ) 51.5
Balance at end of period $ 12.1
$ 12.1

Foreign currency translation:
Balance at beginning of period $ (440.2 ) $ (597.7 )
Other comprehensive income recognized during the period (net of tax impact of $— million in the three and nine months ended September 30, 2017) 87.1
244.6
Balance at end of period $ (353.1 ) $ (353.1 )

In the three and nine months ended September 30, 2017, foreign currency translation adjustments are related primarily to the strengthening of the Euro and, to a lesser extent, the Chinese renminbi relative to the U.S. dollar. In the three and nine months ended September 30, 2017, foreign currency translation adjustments include pretax losses of $0.2 million and pretax gains of $0.6 million, respectively, related to intercompany transactions for which settlement is not planned or anticipated in the foreseeable future.

~~Table of Contents~~

~~LEAR CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

A summary of comprehensive income and reconciliations of equity, Lear Corporation stockholders’ equity and noncontrolling interests for the three and nine months ended October 1, 2016, is shown below (in millions):

Three Months Ended October 1, 2016 Nine Months Ended October 1, 2016
Equity
Lear
Corporation
Stockholders'
Equity

Non-
controlling
Interests
Equity
Lear
Corporation
Stockholders'
Equity

Non-
controlling
Interests
Beginning equity balance $ 3,156.1
$ 3,012.8
$ 143.3
$ 3,017.7
$ 2,927.4
$ 90.3
Stock-based compensation transactions 15.6
15.6
—
6.7
6.7
—
Repurchase of common stock (152.7 ) (152.7 ) —
(557.7 ) (557.7 ) —
Dividends declared to Lear Corporation stockholders (21.9 ) (21.9 ) —
(67.5 ) (67.5 ) —
Dividends declared to noncontrolling interest holders (0.4 ) —
(0.4 ) (13.2 ) —
(13.2 )
Consolidation of affiliate 1.0
—
1.0
41.0
—
41.0
Non-controlling interests — other —
—
—
—
(2.2 ) 2.2
Comprehensive income:

Net income 235.0
214.4
20.6
792.0
745.2
46.8
Other comprehensive income (loss), net of tax:

Defined benefit plan adjustments 1.5
1.5
—
(0.2 ) (0.2 ) —
Derivative instruments and hedging activities 0.8
0.8
—
(10.6 ) (10.6 ) —
Foreign currency translation adjustments 8.0
8.0
—
34.8
37.4
(2.6 )
Other comprehensive income (loss) 10.3
10.3
—
24.0
26.6
(2.6 )
Comprehensive income 245.3
224.7
20.6
816.0
771.8
44.2
Ending equity balance $ 3,243.0
$ 3,078.5
$ 164.5
$ 3,243.0
$ 3,078.5
$ 164.5

~~Table of Contents~~

~~LEAR CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

A summary of changes, net of tax, in accumulated other comprehensive loss for the three and nine months ended October ~~1, 2016,~~2, 2021, is shown below (in millions):


	Three Months Ended October 1, 2016			Nine Months Ended October 1, 2016				Three Months Ended October 2, 2021		Nine Months Ended October 2, 2021
Defined benefit plans:							Defined benefit plans:
Balance at beginning of period	$	(196.3	)	$	(194.6	)	Balance at beginning of period	$	(276.3)	$	(276.9)
Reclassification adjustments (net of tax expense of $0.3 million and $1.0 million in the three and nine months ended October 1, 2016, respectively)	0.8			2.5
Other comprehensive income (loss) recognized during the period (net of tax impact of $— million in the three and nine months ended October 1, 2016)	0.7			(2.7		)
Reclassification adjustments (net of tax expense of $0.3 million and $1.0 million in the three and nine months ended October 2, 2021, respectively)							Reclassification adjustments (net of tax expense of $0.3 million and $1.0 million in the three and nine months ended October 2, 2021, respectively)	2.0		6.0
Other comprehensive income (loss) recognized during the period (net of tax impact of $— million in the three and nine months ended October 2, 2021)							Other comprehensive income (loss) recognized during the period (net of tax impact of $— million in the three and nine months ended October 2, 2021)	2.5		(0.9)
Balance at end of period							Balance at end of period	$	(271.8)	$	(271.8)
Derivative instruments and hedging:							Derivative instruments and hedging:
Balance at beginning of period							Balance at beginning of period	$	20.2	$	12.6
Reclassification adjustments (net of tax benefit of $3.6 million and $6.9 million in the three and nine months ended October 2, 2021, respectively)							Reclassification adjustments (net of tax benefit of $3.6 million and $6.9 million in the three and nine months ended October 2, 2021, respectively)	(13.9)		(27.3)
Other comprehensive income (loss) recognized during the period (net of tax benefit (expense) of $3.5 million and ($1.7) million in the three and nine months ended October 2, 2021, respectively)							Other comprehensive income (loss) recognized during the period (net of tax benefit (expense) of $3.5 million and ($1.7) million in the three and nine months ended October 2, 2021, respectively)	(14.3)		6.7
Balance at end of period							Balance at end of period	$	(8.0)	$	(8.0)
Foreign currency translation:							Foreign currency translation:
Balance at beginning of period							Balance at beginning of period	$	(471.7)	$	(440.8)
Other comprehensive loss recognized during the period (net of tax expense of $1.4 million and $2.9 million in the three and nine months ended October 2, 2021, respectively)							Other comprehensive loss recognized during the period (net of tax expense of $1.4 million and $2.9 million in the three and nine months ended October 2, 2021, respectively)	(51.1)		(82.0)
Balance at end of period	$	(194.8	)	$	(194.8	)	Balance at end of period	$	(522.8)	$	(522.8)

Derivative instruments and hedging:
Balance at beginning of period	$	(50.1	)	$	(38.7	)
Reclassification adjustments (net of tax expense of $6.0 million and $16.7 million in the three and nine months ended October 1, 2016, respectively)	17.1			46.2
Other comprehensive loss recognized during the period (net of tax benefit of $6.0 million and $20.5 million in the three and nine months ended October 1, 2016, respectively)	(16.3		)	(56.8		)
Balance at end of period	$	(49.3	)	$	(49.3	)

Foreign currency translation:
Balance at beginning of period	$	(467.4	)	$	(496.8	)
Other comprehensive income recognized during the period (net of tax impact of $— million in the three and nine months ended October 1, 2016)	8.0			37.4
Balance at end of period	$	(459.4	)	$	(459.4	)
Total accumulated other comprehensive loss							Total accumulated other comprehensive loss	$	(802.6)	$	(802.6)

In the three months ended October ~~1, 2016,~~2, 2021, foreign currency translation adjustments are primarily related ~~primarily~~ to the ~~strengthening~~weakening of the Euro and the Brazilian real relative to the U.S. dollar. In the nine months ended October ~~1, 2016,~~2, 2021, foreign currency translation adjustments are primarily related ~~primarily~~ to the ~~strengthening~~weakening of the Euro, and to a lesser extent, the Brazilian real, ~~relative to the U.S. dollar,~~ partially offset by the ~~weakening~~strengthening of the Chinese renminbi, relative to the U.S. ~~dollar,~~dollar.

In the three and nine months ended October 2, 2021, foreign currency translation adjustments include pretax ~~losses~~gains (losses) of $0.2 million and ($0.4) million, respectively, related to intercompany transactions for which settlement is not planned or anticipated in the foreseeable future.

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

A summary of changes, net of tax, in accumulated other comprehensive loss for the three and nine months ended October 3, 2020, is shown below (in millions):


	Three Months Ended October 3, 2020		Nine Months Ended October 3, 2020
Defined benefit plans:
Balance at beginning of period	$	(211.7)	$	(217.6)
Reclassification adjustments (net of tax expense of $0.6 million and $1.3 million in the three and nine months ended October 3, 2020, respectively)	11.0		13.1
Other comprehensive loss recognized during the period (net of tax benefit of $5.4 million in the three and nine months ended October 3, 2020)	(29.7)		(25.9)
Balance at end of period	$	(230.4)	$	(230.4)
Derivative instruments and hedging:
Balance at beginning of period	$	(50.4)	$	9.8
Reclassification adjustments (net of tax expense of $0.1 million and $1.8 million in the three and nine months ended October 3, 2020, respectively)	3.9		9.2
Other comprehensive income (loss) recognized during the period (net of tax benefit (expense) of ($6.3) million and $9.6 million in the three and nine months ended October 3, 2020, respectively)	14.8		(50.7)
Balance at end of period	$	(31.7)	$	(31.7)
Foreign currency translation:
Balance at beginning of period	$	(660.9)	$	(564.9)
Other comprehensive income (loss) recognized during the period (net of tax benefit of $2.9 million and $0.7 million in the three and nine months ended October 3, 2020, respectively)	83.3		(12.7)
Balance at end of period	$	(577.6)	$	(577.6)

Total accumulated other comprehensive loss	$	(839.7)	$	(839.7)

In the three months ended October 3, 2020, foreign currency translation adjustments are primarily related to the strengthening of the Euro and Chinese renminbi, partially offset by the weakening of the Brazilian real, relative to the U.S. dollar. In the nine months ended October 3, 2020, foreign currency translation adjustments are primarily related to the weakening of the Brazilian real, largely offset by the strengthening of the Euro and the Chinese renminbi, relative to the U.S. dollar.

In the three and nine months ended October 3, 2020, foreign currency translation adjustments include pretax gains (losses) of $0.5 million and ($0.5) million, respectively, related to intercompany transactions for which settlement is not planned or anticipated in the foreseeable future.

For further information regarding reclassification adjustments related to the Company's defined benefit plans, see Note 9,10, "Pension and Other Postretirement Benefit Plans." For further information regarding reclassification adjustments related to the Company's derivative and hedging activities, see Note ~~16,~~18, "Financial Instruments."

Lear Corporation Stockholders’ Equity

Common Stock Share Repurchase Program

In February 2017, the Company's Board of Directors authorized a $658.8 million increase to the existing common stock share repurchase program to provide for a remaining aggregate repurchase authorization of $1.0 billion and extended the term of the program to December 31, 2019. In the first nine months of 2017, the Company paid, in aggregate, $332.2 million for repurchases of its outstanding common stock (2,320,469 shares at an average purchase price of $143.14 per share, excluding commissions). As of the end of the third quarter of 2017, the Company has a remaining repurchase authorization of $667.8 million under its ongoing common stock share repurchase program. The Company may implement ~~these~~ share repurchases through a variety of methods, including, but not limited to, open market purchases, accelerated stock repurchase programs and structured repurchase transactions. The extent to which the Company ~~will~~may repurchase its outstanding common stock and the timing of such repurchases will depend upon its financial condition, prevailing market conditions, alternative uses of capital and other factors.

2124

~~Table of Contents~~

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

The Company has a common stock share repurchase program (the "Repurchase Program") which permits the discretionary repurchase of its common stock. Since its inception in the first quarter of 2011, the Company's Board of Directors has authorized ~~$4.1~~$6.1 billion in share repurchases under ~~its common stock~~the Repurchase Program. The current authorization expires on December 31, 2022.

In March 2020, as a proactive measure in response to the COVID-19 pandemic, the Company suspended share ~~repurchase program. As~~repurchases under the Repurchase Program. Share repurchases were reinstated in the second quarter of 2021. Share repurchases since the reinstatement through October 2, 2021, are shown below (in millions except for shares and per share amounts):


Nine Months Ended							As of October 2, 2021
October 2, 2021 (1)
Aggregate Repurchases		Cash Paid for Repurchases		Number of Shares	Average Price per Share (2)		Remaining Purchase Authorization
$	100.3	$	99.3	589,717	$	170.03	$	1,329.7

(1) From reinstatement through October 2, 2021

(2) Excludes commissions

Since the inception of the ~~end of the third quarter of 2017,~~Repurchase Program, the Company ~~has paid,~~repurchased, in aggregate, ~~$3.4~~$4.8 billion ~~for repurchases~~ of its outstanding common stock, at an average price of ~~$78.18~~$90.97 per share, excluding commissions and related fees.

In addition to shares repurchased under the ~~Company’s common stock share repurchase program~~Repurchase Program described ~~in the preceding paragraphs,~~above, the Company ~~classified~~classifies shares withheld from the settlement of the Company’s restricted stock unit and performance share awards to cover ~~minimum~~ tax withholding requirements as common stock held in treasury in the ~~accompanying~~ condensed consolidated balance ~~sheets~~sheets.

Quarterly Dividend

In March 2020, as ~~of September 30, 2017 and December 31, 2016.~~

~~As approved by~~a proactive measure in response to the ~~Board of Directors, in May 2017,~~COVID-19 pandemic, the Company ~~retired 8.0 million shares of common stock held in treasury. These retired shares are reflected as authorized, but not issued, in~~suspended its quarterly cash dividend. Prior to the accompanying condensed consolidated balance sheet as of September 30, 2017. The retirement of shares held in treasury resulted in a reduction in the par value of common stock, additional paid-in capital and retained earnings of $0.1 million, $155.9 million and $735.5 million, respectively. These reductions were offset by a corresponding reduction in shares held in treasury of $891.5 million. Accordingly, there was no effect on stockholders’ equity as a result of this transaction.

~~Quarterly Dividend~~

~~In the first nine months of 2017 and 2016,~~suspension, the Company’s Board of Directors declared a quarterly cash ~~dividends~~dividend of ~~$0.50 and $0.30~~$0.77 per share of common stock. In the fourth quarter of 2020, the Company reinstated a quarterly cash dividend of $0.25 per share of common stock. The Company’s Board of Directors declared a quarterly cash dividend of $0.25 per share of common stock ~~respectively. In~~in the first ~~nine months~~and second quarters of ~~2017,~~2021 and a quarterly cash dividend of $0.50 per share of common stock in the third quarter of 2021.

Dividends declared ~~dividends totaled $105.8 million,~~ and ~~dividends~~ paid ~~totaled $104.4 million. In the first nine months of 2016, declared dividends totaled $67.5 million, and dividends paid totaled $68.1 million.~~ are shown below (in millions):


	Nine Months Ended
	October 2, 2021		October 3, 2020 (1)
Dividends declared	$	61.1	$	46.8
Dividends paid	60.7		52.0

(1) Prior to March 2020 suspension

Dividends payable on common shares to be distributed under the Company’s stock-based compensation program ~~and common shares contemplated as part of the Company’s emergence from Chapter 11 bankruptcy proceedings~~ will be paid when such common shares are distributed.

Noncontrolling ~~Interests~~Interest

~~In the first nine months of 2017 and 2016,~~On September 6, 2021, the Company ~~gained~~sold a 49% equity interest in its wholly owned consolidated subsidiary, Shenyang Lear Automotive Seating and Interior Systems Co., Ltd. ("Shenyang Lear"), for $36.2 million. The Company continues to control Shenyang Lear, and as a result, the operating results and cash flows of ~~and consolidated affiliates. For further information related~~Shenyang Lear continue to the 2017 consolidation, see Note 6, "Long-Term Assets." For further information related to the 2016 consolidation, see Note 5, "Investment in Affiliates and Other Related Party Transactions," to the consolidated financial statementsbe included in the ~~Company’s Annual Report on Form 10-K~~Company's condensed consolidated financial statements.

Noncontrolling interest of $7.6 million was recorded in conjunction with the transaction. The difference between the consideration paid and the carrying value of the noncontrolling interest recorded is reflected in additional paid-in capital in the accompanying condensed consolidated balance sheet as of October 2, 2021.

The proceeds from the sale are classified within cash flows used in financing activities in the accompanying condensed consolidated statement of cash flows for the ~~year~~nine months ended ~~December 31, 2016.~~October 2, 2021.

LEAR CORPORATION AND SUBSIDIARIES

~~(14)~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Redeemable Noncontrolling Interest

As of October 3, 2020, the accompanying condensed consolidated statements of equity include the Company's redeemable noncontrolling interest in Shanghai Lear STEC Automotive Parts Co., Ltd. ("STEC"). 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. In 2020, the noncontrolling interest holder in STEC exercised its option requiring the Company to purchase its redeemable noncontrolling interest. The transaction was completed in the fourth quarter of 2020.

(16) Legal and Other Contingencies

As of ~~September 30, 2017~~October 2, 2021 and December 31, ~~2016,~~2020, the Company had recorded reserves for pending legal disputes, including commercial disputes and other matters, of ~~$8.7~~$17.5 million and ~~$11.0~~$17.2 million, respectively. Such reserves reflect amounts recognized in accordance with GAAP and typically exclude the cost of legal representation. Product liability and warranty reserves are recorded separately from legal reserves, as described below.

Commercial Disputes

The Company is involved from time to time in legal proceedings and claims ~~including, without limitation,~~related to commercial or contractual disputes with its customers, suppliers and competitors. These disputes vary in nature and are usually resolved by negotiations between the parties.

Product Liability and Warranty Matters

In the event that use of the Company’s products results in, or is alleged to result in, bodily injury and/or property damage or other losses, the Company may be subject to product liability lawsuits and other claims. Such lawsuits generally seek compensatory damages, punitive damages and attorneys’ fees and costs. In addition, if any of the Company’s products are, or are alleged to be, defective, the Company may be required or requested by its customers to participate in a recall or other corrective action involving such products. Certain of the Company’s customers have asserted claims against the Company for costs related to recalls or other corrective actions involving its products. The Company can provide no assurances that it will not experience material claims in the future or that it will not incur significant costs to defend such claims.

To a lesser extent, the Company is a party to agreements with certain of its customers, whereby these customers may pursue claims against the Company for contribution of all or a portion of the amounts sought in connection with product liability and warranty claims.

~~Table of Contents~~

~~LEAR CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

In certain instances, allegedly defective products may be supplied by Tier 2 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 and warranty claims. 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. Future dispositions with respect to the Company’s product liability claims that were subject to compromise under the Chapter 11 bankruptcy proceedings will be satisfied out of a common stock and warrant reserve established for that purpose.

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

A summary of the changes in reserves for product liability and warranty claims for the nine months ended ~~September 30, 2017,~~October 2, 2021, is shown below (in millions):

Balance at January 1, 2017 $ 49.1
Expense, net (including changes in estimates) 12.5
Settlements (15.5 )
Foreign currency translation and other 3.0
Balance at September 30, 2017 $ 49.1


Balance at January 1, 2021	$	48.7
Expense, net (including changes in estimates)	6.3
Settlements	(10.3)
Foreign currency translation and other	(1.1)
Balance at October 2, 2021	$	43.6

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,

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

disposals or other releases of hazardous wastes and environmental compliance. The Company’s policy is to comply with all applicable environmental laws and to maintain an environmental management program based on ISO 14001 to ensure compliance with this standard. However, the Company currently is, has been and in the future may become the subject of formal or informal enforcement actions or procedures.

As of ~~September 30, 2017~~October 2, 2021 and December 31, ~~2016,~~2020, the Company had recorded environmental reserves of ~~$9.0 million.~~$8.4 million and $8.9 million, respectively. The Company does not believe that the environmental liabilities associated with its current and former properties will have a material adverse impact on its business, financial condition, results of operations or cash flows; however, no assurances can be given in this regard.

Other Matters

The Company is involved from time to time in various other legal proceedings and claims, including, without limitation, intellectual property matters, tax claims and employment matters. Although the outcome of any legal matter cannot be predicted 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 liability and warranty claims 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.

~~(15)~~(17) Segment Reporting

The Company ~~has two~~is organized under 2 reportable operating segments: ~~seating,~~Seating, which ~~includes~~consists of the design, development, engineering and manufacture of complete seat systems, seat subsystems and ~~all major~~key seat components, ~~including~~and E-Systems, which consists of the design, development, engineering and manufacture of complete electrical distribution and connection systems, electronic systems, and software. Key components in the Company's complete seat system and subsystem solutions are advanced comfort, wellness, safety and sound offerings, as well as configurable seating product technologies, all of which are compatible with traditional internal combustion engine ("ICE") architectures and the full range of hybrid, plug-in hybrid and battery electric architectures. Key seat component product offerings include seat trim covers, ~~and~~ surface materials such as leather and fabric, seat ~~structures and~~ mechanisms, seat foam and ~~headrests, and E-Systems, which includes complete electrical distribution systems, electronic control modules and associated software and wireless communication modules.~~headrests. Key components in the Company's electrical distribution ~~system~~portfolio include ~~wiring~~wire harnesses, terminals and connectors, and ~~junction boxes, including~~engineered components for both ICE and electrified vehicle architectures that require management of higher voltage and power. Key components in the Company's electronic systems portfolio include body domain control modules and products specific to electrification and connectivity trends. Electrification products include on-board battery chargers, power conversion modules, high voltage battery management systems and high voltage power distribution systems. Connectivity products include gateway modules and ~~hybrid electric systems.~~communication modules to manage both wired and wireless networks and data in vehicles. In addition to electronic modules, the Company offers software that includes cybersecurity, advanced vehicle positioning for automated and autonomous driving applications and full capabilities in both dedicated short-range communication and cellular protocols for vehicle connectivity. The Company's software offerings include embedded control software and cloud and mobile device-based software and services. The other category includes unallocated costs related to corporate headquarters, regional headquarters and the elimination of intercompany activities, none of which meets the requirements for being classified as an operating segment. Corporate and regional headquarters costs include various support functions, such as information technology, advanced research and development, corporate finance, legal, executive administration and human resources.

Each of the Company’s operating segments reports its results from operations and makes its requests for 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. Also, each operating segment operates in the competitive Tier 1 automotive supplier environment and is continually working with its customers to manage costs and improve quality. The Company’s production processes generally make use of hourly labor, dedicated facilities, sequential manufacturing and assembly processes and commodity raw materials.

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

2327

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LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

A summary of revenues from external customers and other financial information by reportable operating segment is shown below (in millions):


	Three Months Ended September 30, 2017										Three Months Ended October 2, 2021
	Seating		E-Systems		Other			Consolidated			Seating		E-Systems		Other		Consolidated
Revenues from external customers	$	3,868.9	$	1,112.6	$	—		$	4,981.5	Revenues from external customers	$	3,166.2	$	1,102.0	$	—	$	4,268.2
Segment earnings ⁽¹⁾	298.8		155.5		(69.1		)	385.2		Segment earnings (1)	126.7		(7.5)		(71.6)		47.6
Depreciation and amortization	76.7		31.3		3.7			111.7		Depreciation and amortization	90.3		46.2		3.9		140.4
Capital expenditures	109.7		42.7		3.8			156.2		Capital expenditures	85.2		58.9		8.5		152.6
Total assets	7,413.5		2,262.7		2,035.8			11,712.0		Total assets	7,405.4		3,597.3		2,043.3		13,046.0


	Three Months Ended October 3, 2020
	Seating		E-Systems		Other		Consolidated
Revenues from external customers	$	3,691.6	$	1,208.5	$	—	$	4,900.1
Segment earnings (1)	250.7		86.0		(57.9)		278.8
Depreciation and amortization	87.8		44.8		3.7		136.3
Capital expenditures	48.8		40.2		1.1		90.1
Total assets	7,574.2		3,232.4		2,088.1		12,894.7


	Three Months Ended October 1, 2016										Nine Months Ended October 2, 2021
	Seating		E-Systems		Other			Consolidated			Seating		E-Systems		Other		Consolidated
Revenues from external customers	$	3,513.3	$	1,013.1	$	—		$	4,526.4	Revenues from external customers	$	10,770.4	$	3,612.9	$	—	$	14,383.3
Segment earnings ⁽¹⁾	269.5		140.3		(64.7		)	345.1		Segment earnings (1)	670.9		108.4		(218.8)		560.5
Depreciation and amortization	67.9		27.5		3.3			98.7		Depreciation and amortization	270.8		149.1		11.5		431.4
Capital expenditures	80.3		34.9		3.4			118.6		Capital expenditures	231.7		153.9		19.9		405.5
Total assets	6,348.8		1,746.6		2,182.0			10,277.4


	Nine Months Ended October 3, 2020
	Seating		E-Systems		Other		Consolidated
Revenues from external customers	$	8,813.1	$	2,989.2	$	—	$	11,802.3
Segment earnings (1)	320.4		5.0		(167.5)		157.9
Depreciation and amortization	255.1		130.5		11.5		397.1
Capital expenditures	162.0		119.0		4.3		285.3

Nine Months Ended September 30, 2017
Seating E-Systems Other Consolidated
Revenues from external customers $ 11,762.0
$ 3,341.2
$ —
$ 15,103.2
Segment earnings ⁽¹⁾
941.8
476.7
(207.5 ) 1,211.0
Depreciation and amortization 213.2
89.0
11.0
313.2
Capital expenditures 287.1
126.2
16.9
430.2
Total assets 7,413.5
2,262.7
2,035.8
11,712.0

Nine Months Ended October 1, 2016
Seating E-Systems Other Consolidated
Revenues from external customers $ 10,755.7
$ 3,158.4
$ —
$ 13,914.1
Segment earnings ⁽¹⁾
848.8
441.5
(198.9 ) 1,091.4
Depreciation and amortization 193.8
80.5
9.1
283.4
Capital expenditures 204.6
79.5
16.2
300.3
Total assets 6,348.8
1,746.6
2,182.0
10,277.4

⁽¹⁾See definition above

For the three months ended ~~September 30, 2017,~~October 2, 2021, segment earnings include restructuring charges of$~~13.3~~15.2 million, ~~$2.7~~$28.9 million and ~~$1.0~~$1.3 million in the seating and E-Systems segments and in the other category, respectively. For the nine months ended September 30, 2017, segment earnings include restructuring charges of $29.6 million, $6.3 million and $12.7 million in the seating and E-Systems segments and in the other category, respectively (Note 3, "Restructuring").

~~For the three months ended October 1, 2016, segment earnings include restructuring charges of $7.8 million, $6.9 million and $0.2 million in the seating~~Seating and E-Systems segments and in the other category, respectively. For the nine months ended October ~~1, 2016,~~2, 2021, segment earnings include restructuring charges of ~~$30.8~~$35.2 million, ~~$17.5~~$37.3 million and ~~$2.9~~$5.5 million in the ~~seating~~Seating and E-Systems segments and in the other category, respectively. The Company expects to incur approximately $18 million and $19 million of additional restructuring costs in the Seating and E-Systems segments, respectively, ~~(Note~~related to activities initiated as of October 2, 2021, and expects that the components of such costs will be consistent with its historical experience.

For the three months ended October 3, ~~"Restructuring").~~2020, segment earnings include restructuring charges of $33.6 million, $5.0 million and $0.3 million in the Seating and E-Systems segments and in the other category, respectively. For the nine months ended October 3, 2020, segment earnings include restructuring charges of $59.3 million, $46.2 million and $0.9 million in the Seating and E-Systems segments and in the other category, respectively.

For further information, see Note 3, "Restructuring."

~~Table of Contents~~

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

A reconciliation of segment earnings to consolidated income before provision for income taxes and equity in net ~~income~~(income) loss of affiliates is shown below (in millions):


	Three Months Ended				Nine Months Ended
	October 2, 2021		October 3, 2020		October 2, 2021		October 3, 2020
Segment earnings	$	47.6	$	278.8	$	560.5	$	157.9
Interest expense	22.6		26.5		67.2		78.1
Other (income) expense, net	11.1		17.1		(28.7)		54.4
Consolidated income before provision for income taxes and equity in net (income) loss of affiliates	$	13.9	$	235.2	$	522.0	$	25.4

Three Months Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Segment earnings $ 385.2
$ 345.1
$ 1,211.0
$ 1,091.4
Interest expense 21.7
20.6
63.9
62.0
Other (income) expense, net (21.8 ) 14.2
(12.3 ) (0.8 )
Consolidated income before provision for income taxes and equity in net income of affiliates $ 385.3
$ 310.3
$ 1,159.4
$ 1,030.2

~~(16)~~(18) Financial Instruments

Debt Instruments

The carrying values of the ~~Company’s debt instruments~~Notes vary from their fair values. The fair values of the Notes were determined by reference to the quoted market prices of these securities (Level 2 input based on the GAAP fair value hierarchy). The carrying value of the Company’s Term Loan Facility 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):

September 30,
2017 December 31, 2016
Estimated aggregate fair value $ 2,037.8
$ 2,004.8
Aggregate carrying value ⁽¹⁾
1,975.0
1,943.7


	October 2, 2021		December 31, 2020
Estimated aggregate fair value (1)	$	2,612.0	$	2,633.3
Aggregate carrying value (1) (2)	2,306.3		2,320.3

⁽¹⁾ ~~Credit agreement~~ Includes Term Loan Facility and ~~senior notes, excluding~~Notes (excludes "other" debt)

(2) Excludes the impact of unamortized ~~original issue discount and~~ debt issuance costs and unamortized original issue premium (discount)

Cash, Cash Equivalents and Restricted Cash

The Company has cash on deposit that is legally restricted as to use or withdrawal. A reconciliation of cash, cash equivalents and restricted cash included in the accompanying condensed consolidated balance sheets and the accompanying condensed consolidated statements of cash flows is shown below (in millions):


	October 2, 2021		October 3, 2020
Balance sheet:
Cash and cash equivalents	$	1,099.1	$	1,250.4
Restricted cash included in other current assets	1.4		5.1
Restricted cash included in other long-term assets	1.6		2.7
Statement of cash flows:
Cash, cash equivalents and restricted cash	$	1,102.1	$	1,258.2

Accounts Receivable ~~Factoring~~

~~One~~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 ~~Company's European subsidiaries has an uncommitted factoring agreement, which provides~~reported amount. Expected credit losses for ~~aggregate purchases~~newly recognized financial assets, as well as changes to expected credit losses during the period, are recognized in earnings. The Company also considers geographic and segment specific risk factors in the development of ~~specified customer accounts of up to €200 million.~~expected credit losses. As of ~~September 30, 2017, there~~October 2, 2021 and December 31, 2020, accounts receivable are reflected net of reserves of $33.3 million and $35.3 million, respectively. Changes in expected credit losses were ~~no factored receivables outstanding. The Company cannot provide any assurances that this factoring facility will be available or utilized~~not significant in the ~~future.~~first nine months of 2021.

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Marketable Equity Securities

Included in other current assets in the accompanying condensed consolidated balance sheets as of September 30, 2017 and December 31, 2016, are $40.7 million and $30.2 million, respectively, of marketableMarketable equity securities, which the Company accounts for under the fair value ~~option. Accordingly, unrealized~~option, are included in the accompanying condensed consolidated balance sheets as shown below (in millions):


	October 2, 2021		December 31, 2020
Current assets	$	2.7	$	9.3
Other long-term assets	55.1		49.4
	$	57.8	$	58.7

Unrealized gains and losses arising from changes in the fair value of the marketable equity securities are recognized in other (income) expense, net in the ~~accompanying~~ condensed consolidated ~~statement~~statements of comprehensive income ~~as a component of other expense, net.~~(loss). The fair value of the marketable equity securities is determined by reference to quoted market prices in active markets (Level 1 input based on the GAAP fair value hierarchy).

Equity Securities Without Readily Determinable Fair Values

As of October 2, 2021 and December 31, 2020, investments in equity securities without readily determinable fair values of $15.4 million and $11.2 million, respectively, are included in other long-term assets in the accompanying condensed consolidated balance sheets. Such investments are valued at cost, less cumulative impairments of $10.0 million. During the nine months ended October 2, 2021, the Company recognized an impairment charge of $1.0 million related to an investment in equity securities without a readily determinable fair value.

Derivative Instruments and Hedging Activities

The Company has used derivative financial instruments, including forwards, futures, options, swaps and other derivative contracts to reduce the effects of fluctuations in foreign exchange rates and interest rates and the resulting variability of the Company’s operating results. The Company is not a party to leveraged derivatives. The Company’s derivative financial instruments are subject to master netting arrangements that provide for the net settlement of contracts, by counterparty, in the event of default or termination. On the date that a derivative contract for a ~~hedging~~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 ~~hedging~~hedge instrument.

For a fair value hedge, ~~both the effective and ineffective portions of~~ the change in the fair value of the derivative ~~are~~is recorded in earnings and reflected in the condensed consolidated ~~statement~~statements of comprehensive income (loss) on the same line as the gain or loss on the hedged item attributable to the hedged risk. For a cash flow hedge, the ~~effective portion of the~~ change in the fair value of the derivative is recorded in accumulated other comprehensive loss in the condensed consolidated balance ~~sheet.~~sheets. When the underlying hedged

~~Table of Contents~~

~~LEAR CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

transaction is realized, the gain or loss included in accumulated other comprehensive loss is recorded in earnings and reflected in the condensed consolidated ~~statement~~statements of comprehensive income (loss) on the same line as the gain or loss on the hedged item attributable to the hedged risk. For a net investment hedge, ~~the effective portion of~~ the change in the fair value of the derivative is recorded in cumulative translation adjustment, which is a component of accumulated other comprehensive loss in the condensed consolidated balance ~~sheet. In addition, changes~~sheets. When the related currency translation adjustment is required to be reclassified, usually upon the sale or liquidation of the investment, the gain or loss included in accumulated other comprehensive loss is recorded in earnings and reflected in other expense, net in the condensed consolidated statements of comprehensive income (loss). Changes in the fair value of contracts not designated as ~~hedging~~hedge instruments ~~and the ineffective portion of both cash flow and net investment hedges~~ are recorded in earnings and reflected in other expense, net in the condensed consolidated ~~statement~~statements of comprehensive income (loss). 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 condensed consolidated statements of cash flows. Upon settlement, cash flows attributable to derivatives designated as net investment hedges are classified as investing activities in the condensed consolidated statements of cash flows. Cash flows attributable to forward starting interest rate swaps are classified as financing activities in the condensed consolidated statements of cash flows.

The Company formally documents its hedge relationships, including the identification of the hedge instruments and the related hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. Derivatives are recorded at fair value in other ~~expense, net.~~current and long-term assets and other current and long-term liabilities in the condensed

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

consolidated balance sheets. The Company also formally assesses whether a derivative used in a hedge transaction is highly effective in offsetting changes in either the fair value or the cash flows of the hedged item. When it is determined that a hedged transaction is no longer probable to occur, the Company discontinues hedge accounting.

Foreign Exchange

The Company uses forwards, swaps and other derivative contracts to reduce the effects of fluctuations in foreign exchange rates on known foreign currency exposures. Gains and losses on the derivative instruments are intended to offset gains and losses on the hedged transaction in an effort to reduce exposure to fluctuations in foreign exchange rates. The principal currencies hedged by the Company include the Mexican peso, various European currencies, the ~~Thai baht,~~Chinese renminbi, the Japanese yen, the ~~Canadian dollar~~Philippine peso and the ~~Philippine peso.~~

~~The notional amount, estimated fair value and related balance sheet classification of the Company's foreign currency derivative contracts are shown below (in millions, except for maturities):~~

September 30,
2017 December 31,
2016
Fair value of foreign currency contracts designated as cash flow hedges:
Other current assets $ 29.2
$ 11.2
Other long-term assets 7.5
0.5
Other current liabilities (14.7 ) (58.3 )
Other long-term liabilities (2.5 ) (9.9 )
19.5
(56.5 )
Notional amount $ 1,287.8
$ 1,275.0
Outstanding maturities in months, not to exceed 24
24

Fair value of foreign currency contracts not designated as hedging instruments:
Other current assets $ 6.1
$ 5.9
Other current liabilities (4.2 ) (3.8 )
1.9
2.1

Notional amount $ 1,020.3
$ 681.2
Outstanding maturities in months, not to exceed 12
12

Total fair value $ 21.4
$ (54.4 )
Total notional amount $ 2,308.1
$ 1,956.2
Thai baht.

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

Net Investment Hedges

The Company uses cross-currency interest rate swaps, which are designated as net investment hedges of the foreign currency rate exposure of its investment in certain Euro-denominated subsidiaries. In the nine months ended October 2, 2021 and October 3, 2020, contra interest expense on net investment hedges of $4.9 million is included in interest expense in the accompanying condensed consolidated statements of comprehensive income (loss).

Balance Sheet Classification

The notional amount, estimated aggregate fair value and related balance sheet classification of the Company's foreign currency and net investment hedge contracts are shown below (in millions, except for maturities):


	October 2, 2021		December 31, 2020
Fair value of foreign currency contracts designated as cash flow hedges:
Other current assets	$	30.7	$	49.7
Other long-term assets	0.7		13.0
Other current liabilities	(7.7)		(14.1)
Other long-term liabilities	(3.6)		(0.8)
	20.1		47.8
Notional amount	$	1,173.4	$	1,353.3
Outstanding maturities in months, not to exceed	24		24
Fair value of derivatives designated as net investment hedges:



Other long-term liabilities	$	(8.7)	$	(22.6)

Notional amount	$	300.0	$	300.0
Outstanding maturities in months, not to exceed	36		45
Fair value of foreign currency contracts not designated as hedging instruments:
Other current assets	$	5.5	$	5.8
Other current liabilities	(5.4)		(6.1)
	0.1		(0.3)
Notional amount	$	1,288.3	$	1,140.8
Outstanding maturities in months, not to exceed	12		12
Total fair value	$	11.5	$	24.9
Total notional amount	$	2,761.7	$	2,794.1

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LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Accumulated Other Comprehensive Loss -— Derivative Instruments and Hedging

Pretax amounts related to foreign currency ~~derivative~~and net investment hedge contracts ~~designated as cash flow hedges~~ that were recognized in and reclassified from accumulated other comprehensive loss are shown below (in millions):


	Three Months Ended						Nine Months Ended						Three Months Ended				Nine Months Ended
	September 30, 2017			October 1, 2016			September 30, 2017		October 1, 2016				October 2, 2021		October 3, 2020		October 2, 2021		October 3, 2020
Gains (losses) recognized in accumulated other comprehensive loss:	$	(5.5	)	$	(22.3	)	$	68.1	$	(77.2	)	Gains (losses) recognized in accumulated other comprehensive loss:
Foreign currency contracts												Foreign currency contracts	$	(17.8)	$	21.1	$	8.4	$	(60.3)
Net investment hedge contracts												Net investment hedge contracts	6.6		(13.9)		13.9		(3.5)
													(11.2)		7.2		22.3		(63.8)
(Gains) losses reclassified from accumulated other comprehensive loss to:												(Gains) losses reclassified from accumulated other comprehensive loss to:
Net sales	0.8			2.2			1.4		3.6			Net sales	(1.9)		(0.2)		(2.5)		(0.7)
Cost of sales	(4.6		)	20.9			6.5		59.3			Cost of sales	(16.2)		3.5		(33.5)		10.0
Interest expense												Interest expense	0.6		0.6		1.8		1.8
Other (income) expense, net												Other (income) expense, net	—		0.1		—		(0.1)
	(3.8		)	23.1			7.9		62.9				(17.5)		4.0		(34.2)		11.0
Comprehensive income (loss)	$	(9.3	)	$	0.8		$	76.0	$	(14.3	)	Comprehensive income (loss)	$	(28.7)	$	11.2	$	(11.9)	$	(52.8)

As of ~~September 30, 2017~~October 2, 2021 and December 31, ~~2016,~~2020, pretax net gains (losses) of ~~approximately $19.5~~($7.2) million and ~~($56.5)~~$4.7 million, respectively, related to the Company’s derivative instruments and hedging activities were recorded in accumulated other comprehensive loss.

During the next twelve month period, ~~the Company expects~~net gains (losses) expected to ~~reclassify~~be reclassified into earnings ~~net~~are shown below (in millions):


Foreign currency contracts	$	23.0
Interest rate swap contracts	(2.4)

Total	$	20.6

Such gains ~~of approximately $14.6 million recorded in accumulated other comprehensive loss as of September 30, 2017. Such gains~~and losses will be reclassified at the time that the underlying hedged transactions are realized.

During the three and nine months ended September 30, 2017 and October 1, 2016, amounts recognized in the accompanying condensed consolidated statements of comprehensive income related to changes in the fair value of cash flow and fair value hedges excluded from the Company’s effectiveness assessments and the ineffective portion of changes in the fair value of cash flow and fair value hedges were not material.

Fair Value Measurements

GAAP provides that fair value is an exit price, defined as a market-based measurement that represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value measurements are based on one or more of the following three valuation techniques:



Market:						This approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.

Income:						This approach uses valuation techniques to convert future amounts to a single present value amount based on current market expectations.

Cost:						This approach is based on the amount that would be required to replace the service capacity of an asset (replacement cost).

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Further, GAAP prioritizes the inputs and assumptions used in the valuation techniques described above into a three-tier fair value hierarchy as follows:



Level 1:						Observable inputs, such as quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date.

Level 2:						Inputs, other than quoted market prices included in Level 1, that are observable either directly or indirectly for the asset or liability.

Level 3:						Unobservable inputs that reflect the entity’s own assumptions about the exit price of the asset or liability. Unobservable inputs may be used if there is little or no market data for the asset or liability at the measurement date.

The Company discloses fair value measurements and the related valuation techniques and fair value hierarchy level for its assets and liabilities that are measured or disclosed at fair value.

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~~LEAR CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

Items Measured at Fair Value on a Recurring Basis

Fair value measurements and the related valuation techniques and fair value hierarchy level for the Company’s assets and liabilities measured at fair value on a recurring basis as of ~~September 30, 2017~~October 2, 2021 and December 31, ~~2016,~~2020, are shown below (in millions):


	September 30, 2017											October 2, 2021
	Frequency	Asset (Liability)		Valuation Technique	Level 1		Level 2		Level 3			Frequency	Asset (Liability)		Valuation Technique	Level 1		Level 2		Level 3
Foreign currency contracts, net	Recurring	$	21.4	Market/ Income	$	—	$	21.4	$	—	Foreign currency contracts, net	Recurring	$	20.2	Market/ Income	$	—	$	20.2	$	—
Net investment hedges											Net investment hedges	Recurring	(8.7)		Market/ Income	—		(8.7)		—
Marketable equity securities	Recurring	$	40.7	Market	$	40.7	$	—	$	—	Marketable equity securities	Recurring	57.8		Market	57.8		—		—


	December 31, 2016													December 31, 2020
	Frequency	Asset (Liability)			Valuation Technique	Level 1		Level 2			Level 3			Frequency	Asset (Liability)		Valuation Technique	Level 1		Level 2		Level 3
Foreign currency contracts, net	Recurring	$	(54.4	)	Market/ Income	$	—	$	(54.4	)	$	—	Foreign currency contracts, net	Recurring	$	47.5	Market/ Income	$	—	$	47.5	$	—
Net investment hedges													Net investment hedges	Recurring	(22.6)		Market/ Income	—		(22.6)		—
Marketable equity securities	Recurring	$	30.2		Market	$	30.2	$	—		$	—	Marketable equity securities	Recurring	58.7		Market	58.7		—		—

The Company determines the fair value of its derivative contracts using quoted market prices to calculate the forward values and then discounts such forward values to the present value. The discount rates used are based on quoted bank deposit or swap interest rates. If a derivative contract is in a net liability position, the Company adjusts these discount rates, if required, by an estimate of the credit spread that would be applied by market participants purchasing these contracts from the Company’s counterparties. If an estimate of the credit spread is required, the Company uses significant assumptions and factors other than quoted market rates, which would result in the classification of its derivative liabilities within Level 3 of the fair value hierarchy. As of ~~September 30, 2017~~October 2, 2021 and December 31, ~~2016,~~2020, there were no derivative contracts that were classified within Level 3 of the fair value hierarchy. In addition, there were no transfers in or out of Level 3 of the fair value hierarchy in ~~2017.~~the first nine months of 2021.

Items Measured at Fair Value on a Non-Recurring Basis

The Company measures certain assets and liabilities at fair value on a non-recurring basis, which are not included in the table above. As these non-recurring fair value measurements are generally determined using unobservable inputs, these fair value measurements are classified within Level 3 of the fair value hierarchy.

AsIn the first and second quarters of 2021, the Company completed a ~~result~~quantitative goodwill impairment assessment for 1 of the 2017 consolidation of Lear STEC, Level 3 fair value estimates of $16.2 million related to property, plant and equipment, $66.0 million related to customer-based intangible assets and $125.0 million related to redeemable noncontrolling interest are recorded in the accompanying condensed consolidated balance sheet as of September 30, 2017. In addition, the consolidation of Lear STEC required a Level 3its reporting units. The fair value estimate of ~~$94.0 million~~the reporting unit was based on management's estimates using a discounted cash flow method.

In the second quarter of 2021, the Company completed an impairment assessment related to ~~the Company's previously held equity interest.~~

~~As a result~~certain of its intangible assets. The fair value estimate of the ~~2017 acquisition of Antolin Seating, Level 3 fair value~~related asset group was based on management's estimates of $81.7 million related to property, plant and equipment and $121.4 million related to intangible assets are recorded in the accompanying condensed consolidated balance sheet as of September 30, 2017.using a discounted cash flow method.

As a result of the 2016 acquisition of AccuMED, Level 3 fair value estimates of $11.2 million and $13.9 million related to property, plant and equipment are recorded in the accompanying condensed consolidated balance sheets as of September 30, 2017 and December 31, 2016, respectively. Level 3 fair value estimates of $53.0 million related to intangible assets are recorded in the accompanying condensed consolidated balance sheets as of September 30, 2017 and December 31, 2016.

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Fair value estimates of property, plant and equipment ~~were~~and right-of-use assets are 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 customer-based intangible assets were based on the present value of future earnings attributable to the asset group after recognition of required returns to other contributory assets. Fair value estimates of redeemable noncontrolling and equity interests were based on the present value of future cash flows and a value to earnings multiple approach and reflect discounts for the lack of control and the lack of marketability associated with noncontrolling and equity interests. Further, the fair value estimate of the redeemable noncontrolling interest includes an estimate of the fair value

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~~LEAR CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

associated with the noncontrolling interest holder's embedded redemption option. The fair value of this redemption option was determined using the Monte Carlo valuation model and includes various assumptions including the expected volatility, risk free rate and dividend yield.

~~For further information related to assets and liabilities measured at fair value on a non-recurring basis, see Note 2, “Acquisitions,” and Note 6, "Long-Term Assets."~~

As of ~~September 30, 2017,~~October 2, 2021, there were no additional significant assets or liabilities measured at fair value on a non-recurring basis.

~~(17)~~(19) Accounting Pronouncements

The Company ~~has considered~~considers the ~~ASUs~~applicability and impact of all Accounting Standards Updates ("ASU") issued by the Financial Accounting Standards Board ("FASB") as summarized ~~below, which could significantly~~below.

Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." The standard simplifies the accounting for income taxes by eliminating certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. The standard was effective January 1, 2021, and the adoption did not have a significant impact ~~its~~on the Company's financial ~~statements:~~statements.

Reference Rate Reform

The FASB issued ASU 2020-04 and ASU 2021-01, "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, 2022. The adoption of this guidance is not expected to have a significant impact on the Company's financial statements.

(20) Subsequent Events

Acquisition

On October 28, 2021, the Company entered into a definitive agreement to acquire substantially all of Kongsberg Automotive's Interior Comfort Systems business unit ("Kongsberg"). Kongsberg specializes in comfort seating solutions, including massage, lumber, seat heat and ventilation. The transaction is valued at approximately €175 million, on a cash and debt free basis. The acquisition, subject to regulatory approvals and customary closing conditions and adjustments, is expected to close in the first quarter of 2022.

Credit Agreement

See Note 8, "Debt — Credit Agreement — Subsequent Event."



~~Standards Pending Adoption~~	~~Description~~	~~Effective Date~~	~~Anticipated Impact~~
~~ASU 2014-09, Revenue from Contracts with Customers~~ ⁽¹⁾	The standard replaces existing revenue recognition guidance and requires additional financial statement disclosures. The provisions of these updates may be applied through either a full retrospective or a modified retrospective approach.	~~January 1, 2018~~	The Company is finalizing its review of the impact of adopting this standard and is developing and executing a comprehensive implementation plan. Reviews of a significant portion of commercial contracts have been completed and changes to processes and internal controls are being identified to meet the standard’s reporting and disclosure requirements. At this time, the Company does not believe that this standard will have a material effect on its revenues, results of operations or financial position. The Company expects to make additional disclosures related to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers as required by the new standard. The Company currently plans to adopt the new standard using the modified retrospective approach; however, a final decision regarding the adoption method has not been made at this time.
~~ASU 2016-02, Leases~~	The standard requires that a lessee recognize on its balance sheet right-of-use assets and corresponding liabilities resulting from leasing transactions, as well as additional financial statement disclosures. Currently, GAAP only requires balance sheet recognition for leases classified as capital leases. The provisions of this update apply to substantially all leased assets, with certain permitted exceptions, and must be adopted using a modified retrospective approach.	~~January 1, 2019~~	The Company is currently evaluating the impact of this update. For additional information on the Company’s operating lease commitments, see Note 11, "Commitments and Contingencies," to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2016.
~~ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost~~	The standard was issued to address the net presentation of the components of net benefit cost. It requires the classification of service cost in the same line item as other current employee compensation costs. It also requires the presentation of the remaining components of net benefit cost in a separate line item outside any subtotal for income from operations.	~~January 1, 2018~~	The update will result in the retrospective reclassification of the non-service cost components of net benefit cost from cost of sales and selling, general and administrative expenses to other expense, net. There will be no impact on consolidated net income.

⁽¹⁾ ~~Along with four subsequent ASUs amending and clarifying ASU 2014-09:~~

~~ASU 2015-14, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date"~~

~~ASU 2016-08, "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)"~~

~~ASU 2016-10, "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing"~~

~~ASU 2016-12, "Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients"~~

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~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

In addition to the adoption of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting," discussed in Note 11, "Income Taxes," the Company adopted the ASUs summarized below in 2017. The effects of adopting the ASUs listed below did not significantly impact the Company's financial statements:



~~Standard~~	~~Description~~	~~Effective Date~~
~~ASU 2015-11, Simplifying the Measurement of Inventory~~	~~The standard requires the measurement of inventory at the lower of cost or net realizable value rather than at the lower of cost or market.~~	~~January 1, 2017~~
~~ASU 2016-05, Effects of Derivative Contract Novations on Existing Hedge Accounting Relationships and ASU 2016-06, Contingent Put and Call Options in Debt Instruments.~~	The standards provide clarification when there is a change in a counterparty to a derivative hedging instrument and the steps required when assessing the economic characteristics of embedded put or call options.	~~January 1, 2017~~
~~ASU 2016-07, Simplifying the Transition to Equity Method of Accounting~~	~~The standard eliminates the requirement to retroactively apply the equity method of accounting as a result of an increase in the level of ownership or degree of influence.~~	~~January 1, 2017~~
~~ASU 2016-17, Interests Held through Related Parties that Are under Common Control~~	~~The standard changes the evaluation of whether a reporting entity is the primary beneficiary of a variable interest entity in certain instances involving entities under common control.~~	~~January 1, 2017~~

~~The Company has considered the recent ASUs summarized below, none of which are expected to significantly impact its financial statements:~~



~~Standard~~	~~Description~~	~~Effective Date~~
~~ASU 2016-01, Recognition and Measurement of Financial Assets and Financial Liabilities~~	The standard requires equity investments and other ownership interests in unconsolidated entities (other than those accounted for using the equity method of accounting) to be measured at fair value through earnings. A practicability exception exists for equity investments without readily determinable fair values.	~~January 1, 2018~~
~~ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments~~	The standard addresses the classification of cash flows related to various transactions, including debt prepayment and extinguishment costs, contingent consideration and proceeds from insurance claims.	~~January 1, 2018~~
~~ASU 2016-16, Income Taxes - Intra-Entity Transfers of Assets Other than Inventory~~	~~The standard requires the recognition of the income tax effects of intercompany sales and transfers (other than inventory) when the sales and transfers occur.~~	~~January 1, 2018~~
~~ASU 2016-18, Restricted Cash~~	~~The standard provides guidance on the presentation of restricted cash on the statement of cash flows.~~	~~January 1, 2018~~
~~ASU 2017-01, Clarifying the Definition of a Business~~	~~The standard provides a new framework to use when determining if a set of assets and activities is a business.~~	~~January 1, 2018~~
~~ASU 2017-05, Gains and Losses from the Derecognition of Nonfinancial Assets~~	~~The standard provides guidance for recognizing gains and losses on nonfinancial assets (including land, buildings and intangible assets) to noncustomers. Adoption must coincide with ASU 2014-09.~~	~~January 1, 2018~~
~~ASU 2017-09, Stock Compensation - Scope of Modification Accounting~~	~~The standard provides guidance intended to reduce diversity in practice when accounting for a modification to the terms and conditions of a share-based payment award.~~	~~January 1, 2018~~
~~ASU 2017-12, Targeted Improvements to Accounting for Hedging Activities~~	~~The standard contains changes intended to better portray the economic results of hedging activities, as well as targeted improvements to simplify hedge accounting.~~	~~January 1, 2019~~
~~ASU 2016-13, Measurement of Credit Losses on Financial Instruments~~	~~The standard changes the impairment model for most financial instruments to an "expected loss" model. The new model will generally result in earlier recognition of credit losses.~~	~~January 1, 2020~~
~~ASU 2017-04, Simplifying the Test for Goodwill Impairment~~	The standard simplifies the accounting for goodwill impairments and allows a goodwill impairment charge to be based on the amount of a reporting unit's carrying value in excess of its fair value. This eliminates the requirement to calculate the implied fair value of goodwill or what is known as "Step 2" under the current guidance.	~~January 1, 2020~~

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ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND

RESULTS OF OPERATIONS

~~Executive Overview~~EXECUTIVE OVERVIEW

We are a ~~leading Tier 1 supplier to the~~ global automotive ~~industry.~~technology leader in Seating and E-Systems, enabling superior in-vehicle experiences for consumers around the world. We supply seating, electrical distribution and connection systems, ~~and~~ electronic ~~modules, as well as related sub-systems, components~~systems, and software to all of the world's major automotive manufacturers.

Lear is built on a foundation and strong culture of innovation, operational excellence, and engineering and program management capabilities. We use our product, design and technological expertise, as well as our global reach and competitive manufacturing footprint, to achieve our financial goals and ~~objectives of~~objectives. These include continuing to deliver profitable growth (balancing risks and returns),; investing in innovation to drive business growth and profitability; maintaining a strong balance sheet with investment grade credit ~~metrics~~metrics; and consistently returning excess cash to our stockholders. Further, we have aligned our strategy with the key trends affecting our business — electrification, connectivity and autonomy. At Lear, we are Making every drive betterTM by providing technology for safer, smarter and more comfortable journeys, while adhering to our values — Be Inclusive. Be Inventive. Get Results the Right Way.

Our ~~seating~~business is organized under two reporting segments: Seating and E-Systems. Each of these segments has a varied product and technology range across a number of component categories.

Our Seating business consists of the design, development, engineering ~~just-in-time~~and manufacture of complete seat systems, seat subsystems and key seat components. Our capabilities in operations and supply chain management enable synchronized (just-in-time) assembly and delivery of high volumes of complex complete seat systems to our customers. Included in our complete seat system and subsystem solutions are advanced comfort, wellness, safety and sound offerings, as well as configurable seating product technologies, all of which are compatible with traditional internal combustion engine ("ICE") architectures and the ~~design, development, engineering~~full range of hybrid, plug-in hybrid and ~~manufacture of all major~~battery electric architectures. Our advanced comfort, wellness, safety and sound offerings are facilitated by our system, component and integration capabilities, together with our in-house electronics, sensor, software and algorithm competencies. As the most vertically integrated global seat ~~components, including~~supplier, our key seat component product offerings include seat trim covers, ~~and~~ surface materials such as leather and fabric, seat ~~structures and~~ mechanisms, seat foam and headrests. ~~Further, we have capabilities in active sensing and comfort for seats, utilizing electronically controlled sensor and adjustment systems and internally developed algorithms.~~

Our E-Systems business consists of the design, development, engineering and manufacture of complete electrical distribution and connection systems, ~~that route~~electronic systems, and software. The unique combination of these capabilities enables us to provide our customers with customizable solutions with optimized designs at a competitive cost. Electrical distribution and connection systems utilize low voltage, high voltage, high speed data cables and flat wiring to connect networks and electrical signals and manage electrical power within the vehicle for all types of powertrains – from traditional ~~vehicle~~ICE architectures ~~as well as high power~~to the full range of hybrid, plug-in hybrid and ~~hybrid~~battery electric ~~systems.~~architectures. Key components in ~~the~~our electrical distribution ~~system~~portfolio include ~~wiring~~wire harnesses, terminals and connectors, and ~~junction boxes, including~~engineered components for ~~high power~~both ICE and ~~hybrid electric systems. We also design, develop, engineer~~electrified vehicle architectures that require management of higher voltage and ~~manufacture sophisticated electronic control modules that~~power. Electronic systems facilitate signal, data and power management within the vehicle ~~as well as~~and include the associated ~~software. We have added~~software required to facilitate these functions. Key components in our electronic systems portfolio include body domain control modules and products specific to electrification and connectivity trends. Electrification products include on-board battery chargers, power conversion modules, high voltage battery management systems and high voltage power distribution systems. Connectivity products include gateway modules and communication modules to manage both wired and wireless networks and data in vehicles. In addition to electronic modules, we offer software that includes cybersecurity, advanced vehicle positioning for automated and autonomous driving applications and full capabilities in ~~wireless~~both dedicated short-range communication ~~modules~~ and ~~cybersecurity~~cellular protocols for vehicle connectivity. Our software offerings include embedded control software and cloud and mobile device-based software and services. Our customers traditionally have sourced our electronic hardware together with the software that ~~securely process various signals to, from and within~~we embed in it, but such software may also be sourced by our customers independently of the ~~vehicle, as well as capabilities to provide roadside modules that communicate real-time traffic information to vehicles in the area.~~hardware.

We serve all of the world's major automotive manufacturers across both our ~~seating~~Seating and E-Systems ~~businesses.~~businesses, and we have automotive content on more than 400 vehicle nameplates worldwide. It is common to have both seating and electrical content on the same and multiple vehicle platforms with a single customer. Further, with the seat becoming a more dynamic and integrated system requiring increased levels of electrical and electronic integration, the combined capabilities of our Seating and E-Systems businesses are a competitive advantage. Our businesses benefit globally from leveraging common operating standards and disciplines, including world-class product development and manufacturing processes, as well as common customer support and regional ~~infrastructures.~~infrastructures, all of which contribute to our reputation for operational excellence. Our core capabilities are shared across component categories ~~including~~and include high-precision manufacturing and assembly with short lead times, management of complex supply chains, global engineering and program management skills, the agility to establish and/or transfer production between facilities quickly and a unique customer-focused culture. Our businesses utilize proprietary, industry-specific processes and standards, leverage common low-cost engineering centers and share centralized operating

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support functions, such as logistics, supply chain management, quality and health and safety, as well as all major administrative functions.

Industry ~~Overview~~overview

Our sales are driven by the number of vehicles produced by the automotive manufacturers, which is ultimately dependent on the availability of raw materials and components and consumer demand for automotive vehicles, and our content per vehicle. In 2020, unprecedented industry disruptions related to the COVID-19 pandemic, particularly in the first half of the year, impacted our operations in every region of the world. Although industry production has improved in the first nine months of 2021 relative to 2020, production remains below recent historic levels, and third quarter 2021 production decreased 19% as compared to the third quarter of 2020. This is largely due to the continuing impact of the COVID-19 pandemic in 2021, particularly through supply shortages. The most significant supply shortage relates to semiconductor chips, which is impacting global industry production and resulting in cancellations of planned production. During the first nine months of 2021, production disruptions negatively impacted our net sales by approximately 16%. In addition, we are experiencing increased costs related to labor shortages and inefficiencies and ongoing costs related to personal protective equipment, all of which are likely to continue for a period of time. Increases in certain commodity costs, as well as transportation and logistics costs, are also impacting, and will continue to impact, our operating results for the foreseeable future. Further, a resurgence of the COVID-19 virus or its variants, including corresponding "stay at home" or similar government orders impacting industry production, could impact our financial results. For risks related to the COVID-19 pandemic, including supply shortages, see Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2020, as supplemented and updated by Part II — Item 1A, "Risk Factors," in our Quarterly Report on Form 10-Q for the quarter ended April 3, 2021.

Global automotive industry production volumes in the first nine months of ~~2017,~~2021, as compared to the first nine months of ~~2016,~~2020, are shown below (in millions of units):


	Nine Months Ended					First Nine Months
	September 30, 2017	October 1, 2016	% Change			2021 (1)	2020 (1) (2)	% Change
North America	13.0	13.5	(4	)%	North America	9.8	9.2	7	%
Europe and Africa	17.1	16.7	2	%	Europe and Africa	12.3	11.5	7	%
Asia	34.9	33.3	5	%	Asia	29.6	26.6	11	%
South America	2.3	1.9	21	%	South America	1.8	1.4	28	%
Other	1.2	1.1	9	%	Other	1.1	1.1	3	%
Global light vehicle production	68.5	66.5	3	%	Global light vehicle production	54.6	49.8	10	%

(1) Production data based on IHS Automotive

(2) Production data for 2020 has been updated to reflect actual production levels

Automotive sales and production can be affected by the age of the vehicle fleet and related scrappage rates, labor relations issues, fuel prices, regulatory requirements, government initiatives, trade agreements, the availability and cost of credit, the availability of critical components needed to complete the production of vehicles, restructuring actions of our customers and suppliers, facility closures, changing consumer attitudes toward vehicle ownership and usage and other factors. Our operating results are also significantly impacted by the overall commercial success of the vehicle platforms for which we supply particular products, as well as the profitability of the products that we supply for these platforms. The loss of business with respect to any vehicle model for which we are a significant supplier, or a decrease in the production levels of any such models, could adversely affect our operating results. In addition, larger cars and light trucks, as well as vehicle platforms that offer more

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features and functionality, such as luxury, sport utility and crossover vehicles, typically have more content and, therefore, tend to have a more significant impact on our operating results.

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Our percentage of consolidated net sales by region in the first nine months of ~~2017~~2021 and ~~2016, our percentage of net sales by region~~2020 is shown below:


						Nine Months Ended
	2017		2016			October 2, 2021		October 3, 2020
North America	39	%	41	%	North America	39	%	40	%
Europe and Africa	40	%	39	%	Europe and Africa	36	%	36	%
Asia	18	%	17	%	Asia	21	%	21	%
South America	3	%	3	%	South America	4	%	3	%
Total	100	%	100	%	Total	100	%	100	%

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

Key trends ~~that specifically affect~~affecting our business include electrification, connectivity and autonomy. In addition, our business is affected by the consolidation of automotive ~~manufacturers’ utilization~~manufacturers, as well as new non-traditional entrants to the automotive industry, the collaboration of ~~global~~automotive manufacturers on commonized vehicle platforms, increasing demand for luxury and performance features, including increasing levels of electrical and electronic content, and China’s emergence as the ~~single~~ largest ~~major~~ automotive market in the world. In ~~addition, three major mega-trends~~particular, we believe that we have ~~broadly emerged as major drivers of change and~~a significant opportunity for growth in China with both global and domestic automotive manufacturers. Another key trend benefiting our business is the ~~automotive industry:~~shift toward crossover and sport utility vehicles, where our content can be significantly higher than our average content per vehicle.

In addition, we believe that regulatory developments and demand for energy efficiency and reduced carbon emissions, as well as the demand for enhanced communications and safety, are driving the technology trends of electrification, connectivity ~~safety~~ and ~~efficiency. These~~autonomy. We are focused on those trends ~~support shared mobility~~which provide us with significant business opportunities where we have competitive differentiation and innovative technology. While both of our businesses are powertrain agnostic, we are well positioned to capitalize on these technology trends, each of which is likely to be at the forefront of our industry for the foreseeable future in light of the long-term convergence ~~to fully~~toward electric, connected ~~fully~~and autonomous ~~and fully electric / highly efficient~~ vehicles.

Our sales and marketing approach ~~is based on addressing~~addresses these trends, while our strategy focuses on the major imperatives for success as an automotive supplier: quality, service, cost and efficiency, and innovation and technology. We have expanded key component and software capabilities through organic investment and acquisitions to ensure a full complement of ~~the highest quality~~ solutions for our customers. We have restructured, and continue to align, our manufacturing and engineering footprint to attain a leading competitive cost position globally. We have established or expanded ~~our capabilities~~activities in new and growing regional and product markets, ~~especially China,~~including electrification, in support of our customers’ growth initiatives and ~~global platform initiatives.~~in pursuit of opportunities with new customers. These initiatives have helped us achieve our financial goals overall, as well as a more balanced regional, customer and vehicle segment diversification in our business.

For further information related to these trends and our strategy, see Item 1, "Business — Industry and Strategy," in our Annual Report on Form 10-K for the year ended December 31, 2020.

Our customers typically require us to reduce our prices over the life of a vehicle model and, at the same time, assume significant responsibility for the design, development and engineering of our products. Our financial performance is largely dependent on our ability to ~~achieve~~offset these price reductions with product cost reductions through product design enhancement, ~~and~~ supply chain management, ~~as well as~~ manufacturing efficiencies and restructuring actions. We also seek to enhance our financial performance by investing in product development, design capabilities and new product initiatives that respond to and anticipate the needs of our customers and consumers. We continually evaluate operational and strategic alternatives to improve our business structure and align our business with the changing needs of our customers and major industry trends affecting our business.

Our material cost as a percentage of net sales was 65.0% in the first nine months of ~~2017,~~2021, as compared to ~~65.1%~~64.1% in the first nine months of ~~2016.~~2020, reflecting increases in certain commodity costs. Raw material, energy and commodity costs can be ~~volatile.~~volatile, reflecting changes in supply and demand and global trade and tariff policies. Our primary commodity cost exposures relate to steel, copper and leather. We have developed and implemented strategies to mitigate the impact of higher raw material, energy and commodity costs, such as the selective in-sourcing of components, the continued consolidation of our supply base, longer-term purchase commitments and the selective expansion of low-cost country sourcing and engineering, as well as value engineering and product benchmarking. Further, our exposure to changes in steel prices is primarily indirect, through purchased components, and a significant portion of our copper, leather and direct steel purchases are subject to price index agreements with our customers and suppliers. However, these strategies, together with commercial negotiations with our customers and suppliers, typically do not offset ~~only a portion~~all of the adverse impact. Certain of these strategies also may limit our opportunities in a

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declining commodity price environment. In addition, the availability of raw materials, commodities and product components fluctuates from time to time due to factors outside of our control. If these costs increase or availability is restricted, it could have an adverse impact on our operating results in the foreseeable future. See "— Forward-Looking Statements" below and Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2020, as supplemented and updated by Part II — Item 1A, "Risk Factors," in this Report.

~~Financial Measures~~RESULTS OF OPERATIONS

~~In evaluating~~

EXECUTIVE OVERVIEW

We are a global automotive technology leader in Seating and E-Systems, enabling superior in-vehicle experiences for consumers around the world. We supply seating, electrical distribution and connection systems, electronic systems, and software to all of the world's major automotive manufacturers.

Lear is built on a foundation and strong culture of innovation, operational excellence, and engineering and program management capabilities. We use our product, design and technological expertise, as well as our global reach and competitive manufacturing footprint, to achieve our financial ~~condition~~goals and ~~operating performance,~~objectives. These include continuing to deliver profitable growth (balancing risks and returns); investing in innovation to drive business growth and profitability; maintaining a strong balance sheet with investment grade credit metrics; and consistently returning excess cash to our stockholders. Further, we ~~focus primarily on earnings, operating margins, cash flows~~have aligned our strategy with the key trends affecting our business — electrification, connectivity and ~~return on invested capital.~~autonomy. At Lear, we are Making every drive betterTM by providing technology for safer, smarter and more comfortable journeys, while adhering to our values — Be Inclusive. Be Inventive. Get Results the Right Way.

Our business is organized under two reporting segments: Seating and E-Systems. Each of these segments has a varied product and technology range across a number of component categories.

Our Seating business consists of the design, development, engineering and manufacture of complete seat systems, seat subsystems and key seat components. Our capabilities in operations and supply chain management enable synchronized (just-in-time) assembly and delivery of high volumes of complex complete seat systems to our customers. Included in our complete seat system and subsystem solutions are advanced comfort, wellness, safety and sound offerings, as well as configurable seating product technologies, all of which are compatible with traditional internal combustion engine ("ICE") architectures and the full range of hybrid, plug-in hybrid and battery electric architectures. Our advanced comfort, wellness, safety and sound offerings are facilitated by our system, component and integration capabilities, together with our in-house electronics, sensor, software and algorithm competencies. As the most vertically integrated global seat supplier, our key seat component product offerings include seat trim covers, surface materials such as leather and fabric, seat mechanisms, seat foam and headrests.

Our E-Systems business consists of the design, development, engineering and manufacture of complete electrical distribution and connection systems, electronic systems, and software. The unique combination of these capabilities enables us to provide our customers with customizable solutions with optimized designs at a competitive cost. Electrical distribution and connection systems utilize low voltage, high voltage, high speed data cables and flat wiring to connect networks and electrical signals and manage electrical power within the vehicle for all types of powertrains – from traditional ICE architectures to the full range of hybrid, plug-in hybrid and battery electric architectures. Key components in our electrical distribution portfolio include wire harnesses, terminals and connectors, and engineered components for both ICE and electrified vehicle architectures that require management of higher voltage and power. Electronic systems facilitate signal, data and power management within the vehicle and include the associated software required to facilitate these functions. Key components in our electronic systems portfolio include body domain control modules and products specific to electrification and connectivity trends. Electrification products include on-board battery chargers, power conversion modules, high voltage battery management systems and high voltage power distribution systems. Connectivity products include gateway modules and communication modules to manage both wired and wireless networks and data in vehicles. In addition to ~~maintaining~~electronic modules, we offer software that includes cybersecurity, advanced vehicle positioning for automated and ~~expanding~~autonomous driving applications and full capabilities in both dedicated short-range communication and cellular protocols for vehicle connectivity. Our software offerings include embedded control software and cloud and mobile device-based software and services. Our customers traditionally have sourced our ~~business~~electronic hardware together with the software that we embed in it, but such software may also be sourced by our ~~existing~~ customers ~~in our more established markets, our expansion plans are focused primarily on emerging markets. Asia, in particular, continues to present significant growth opportunities, as~~independently of the hardware.

We serve all of the world's major ~~global~~ automotive manufacturers ~~implement production expansion plans~~across both our Seating and ~~local~~E-Systems businesses, and we have automotive ~~manufacturers aggressively expand their operations~~content on more than 400 vehicle nameplates worldwide. It is common to ~~meet increasing demand in this region. We currently~~ have ~~fifteen joint ventures~~both seating and electrical content on the same and multiple vehicle platforms with ~~operations in Asia,~~a single customer. Further, with the seat becoming a more dynamic and integrated system requiring increased levels of electrical and electronic integration, the combined capabilities of our Seating and E-Systems businesses are a competitive advantage. Our businesses benefit globally from leveraging common operating standards and disciplines, including world-class product development and manufacturing processes, as well as ~~an additional joint venture in North America dedicated~~common customer support and regional infrastructures, all of which contribute to ~~serving Asian automotive manufacturers. We also have aggressively pursued this strategy by selectively increasing~~ our ~~vertical integration~~

reputation for operational excellence. Our core capabilities are shared across component categories and include high-precision manufacturing and assembly with short lead times, management of complex supply chains, global engineering and program management skills, the agility to establish and/or transfer production between facilities quickly and a unique customer-focused culture. Our businesses utilize proprietary, industry-specific processes and standards, leverage common low-cost engineering centers and share centralized operating

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~~capabilities globally,~~support functions, such as logistics, supply chain management, quality and health and safety, as well as expanding our component manufacturing capacity in Asia, Brazil, Eastern Europe, Mexico and Northern Africa. Furthermore, we have expanded our low-cost engineering capabilities in India and the Philippines.all major administrative functions.

Industry overview

Global automotive industry production volumes in the first nine months of 2021, as compared to the first nine months of 2020, are shown below (in millions of units):


	First Nine Months
	2021 (1)	2020 (1) (2)	% Change
North America	9.8	9.2	7	%
Europe and Africa	12.3	11.5	7	%
Asia	29.6	26.6	11	%
South America	1.8	1.4	28	%
Other	1.1	1.1	3	%
Global light vehicle production	54.6	49.8	10	%

(1) Production data based on IHS Automotive

(2) Production data for 2020 has been updated to reflect actual production levels

Automotive sales and production can be affected by the age of the vehicle fleet and related scrappage rates, labor relations issues, fuel prices, regulatory requirements, government initiatives, trade agreements, the availability and cost of credit, the availability of critical components needed to complete the production of vehicles, restructuring actions of our customers and suppliers, facility closures, changing consumer attitudes toward vehicle ownership and usage and other factors. Our operating results are also significantly impacted by the overall commercial success of the vehicle platforms for which we supply particular products, as well as the profitability of the products that we supply for these platforms. The loss of business with respect to any vehicle model for which we are a significant supplier, or a decrease in ~~generating cash flow~~the production levels of any such models, could adversely affect our operating results. In addition, larger cars and light trucks, as well as vehicle platforms that offer more features and functionality, such as luxury, sport utility and crossover vehicles, typically have more content and, therefore, tend to have a more significant impact on our operating results.

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Our percentage of consolidated net sales by region in the first nine months of 2021 and 2020 is shown below:


	Nine Months Ended
	October 2, 2021		October 3, 2020
North America	39	%	40	%
Europe and Africa	36	%	36	%
Asia	21	%	21	%
South America	4	%	3	%
Total	100	%	100	%

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

Key trends affecting our business include electrification, connectivity and autonomy. In addition, our business is affected by the consolidation of automotive manufacturers, as well as new non-traditional entrants to the automotive industry, the collaboration of automotive manufacturers on commonized vehicle platforms, increasing demand for luxury and performance features, including increasing levels of electrical and electronic content, and China’s emergence as the largest automotive market in the world. In particular, we believe that we have a significant opportunity for growth in China with both global and domestic automotive manufacturers. Another key trend benefiting our business is the shift toward crossover and sport utility vehicles, where our content can be significantly ~~impacted by the timing of cash flows from sales~~higher than our average content per vehicle.

In addition, we believe that regulatory developments and purchases. Historically, we generally have been successful in aligning our vendor payment terms with our customer payment terms. However, our ability to continue to do so may be impacted by adverse automotive industry conditions, changes to our customers’ payment termsdemand for energy efficiency and ~~the financial condition of our suppliers,~~reduced carbon emissions, as well as the demand for enhanced communications and safety, are driving the technology trends of electrification, connectivity and autonomy. We are focused on those trends which provide us with significant business opportunities where we have competitive differentiation and innovative technology. While both of our businesses are powertrain agnostic, we are well positioned to capitalize on these technology trends, each of which is likely to be at the forefront of our industry for the foreseeable future in light of the long-term convergence toward electric, connected and autonomous vehicles.

Our sales and marketing approach addresses these trends, while our strategy focuses on the major imperatives for success as an automotive supplier: quality, service, cost and efficiency, and innovation and technology. We have expanded key component and software capabilities through organic investment and acquisitions to ensure a full complement of solutions for our customers. We have restructured, and continue to align, our manufacturing and engineering footprint to attain a leading competitive cost position globally. We have established or expanded activities in new and growing regional and product markets, including electrification, in support of our customers’ growth initiatives and in pursuit of opportunities with new customers. These initiatives have helped us achieve our financial condition. In addition, our cash flow is impacted by our ability to manage our inventory and capital spending effectively. We utilize return on invested capital as a measure of the efficiency with which our assets generate earnings. Improvements in our return on invested capital will depend on our ability to maintain an appropriate asset base for our business and to increase productivity and operating efficiency.

~~Acquisition~~

On April 28, 2017, we completed the acquisition of Grupo Antolin's automotive seating business ("Antolin Seating") for $292 million, net of cash acquired. Antolin Seating is headquartered in France with operations in five countries in Europe and North Africa. The Antolin Seating business is comprised of just-in-time seat assembly,goals overall, as well as ~~seat structures, mechanisms~~a more balanced regional, customer and ~~seat covers.~~

~~For further information, see Note 2, "Acquisitions," to the condensed consolidated financial statements included~~vehicle segment diversification in ~~this Report.~~

~~Operational Restructuring~~

In the first nine months of 2017, we incurred pretax restructuring costs of approximately $49 million. Any future restructuring actions will depend upon market conditions, customer actions and other factors.

~~For further information, see Note 3, "Restructuring," to the condensed consolidated financial statements included in this Report.~~

~~Financing Transactions~~

~~Senior Notes~~

In August 2017, we issued $750 million in aggregate principal amount at maturity of senior unsecured notes due 2027 (the "2027 Notes”) at a stated coupon rate of 3.8%. The 2027 Notes were priced at 99.294% of par, resulting in a yield to maturity of 3.885%. The proceeds from the offering of $745 million, after original issue discount, were used to redeem the $500 million in aggregate principal amount of senior unsecured notes due 2023 (the "2023 Notes") at a redemption price equal to 100% of the aggregate principal amount thereof, plus a "make-whole" premium of $17 million, as well as to refinance a portion of our $500 million prior term loan facility (see "— Credit Agreement" below). In connection with these transactions, we recognized a loss of $21 million on the extinguishment of debt and paid related issuance costs of $6 million.

~~For further information, see "— Liquidity and Capital Resources — Capitalization — Senior Notes" and Note 8, "Debt," to the condensed consolidated financial statements included in this Report.~~

~~Credit Agreement~~

In August 2017, we entered into a new unsecured credit agreement (the "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"), both of which mature on August 8, 2022. In connection with this transaction, we borrowed $250 million under the Term Loan Facility and paid related issuance costs of $6 million. At the same time, we terminated our previously existing credit agreement, which consisted of a $1.25 billion revolving credit facility and a $500 million term loan facility, and repaid amounts outstanding under the term loan facility of $453 million. Together with the offering of the 2027 Notes, these transactions extended our maturity profile and increased our borrowing capacity.

For further information, see "— Liquidity and Capital Resources — Capitalization — Credit Agreement" and Note 8, "Debt," to the condensed consolidated financial statements included in this Report.

~~Share Repurchase Program and Quarterly Cash Dividends~~

Since the first quarter of 2011, our Board of Directors has authorized $4.1 billion in share repurchases under our common stock share repurchase program. In the first nine months of 2017, we repurchased $332 million of shares and have a remaining repurchase authorization of $668 million, which will expire on December 31, 2019.

In each of the first three quarters of 2017, our Board of Directors declared a quarterly cash dividend of $0.50 per share of common stock, reflecting a 67% increase over the quarterly cash dividend declared in 2016.

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business.

For further information related to ~~our common stock share repurchase program~~these trends and our ~~quarterly dividends,~~strategy, see ~~"— Liquidity~~Item 1, "Business — Industry and ~~Capital Resources — Capitalization"~~Strategy," in our Annual Report on Form 10-K for the year ended December 31, 2020.

Our customers typically require us to reduce our prices over the life of a vehicle model and, ~~Note 13, "Comprehensive Income~~at the same time, assume significant responsibility for the design, development and ~~Equity," to the condensed consolidated financial statements included in this Report.~~

~~Other Matters~~

~~In September 2017, we amended the existing joint venture agreement of Shanghai Lear STEC Automotive Parts Co., Ltd. (“Lear STEC”) to eliminate the substantive participating rights~~engineering of our ~~joint venture partner. In conjunction~~products. Our financial performance is largely dependent on our ability to offset these price reductions with product cost reductions through product design enhancement, supply chain management, manufacturing efficiencies and restructuring actions. We also seek to enhance our financial performance by investing in product development, design capabilities and new product initiatives that respond to and anticipate the needs of our customers and consumers. We continually evaluate operational and strategic alternatives to improve our business structure and align our business with the changing needs of our customers and major industry trends affecting our business.

Our material cost as a percentage of net sales was 65.0% in the first nine months of 2021, as compared to 64.1% in the first nine months of 2020, reflecting increases in certain commodity costs. Raw material, energy and commodity costs can be volatile, reflecting changes in supply and demand and global trade and tariff policies. Our primary commodity cost exposures relate to steel, copper and leather. We have developed and implemented strategies to mitigate the impact of higher raw material, energy and commodity costs, such as the selective in-sourcing of components, the continued consolidation of ~~Lear STEC~~our supply base, longer-term purchase commitments and the ~~valuation~~selective expansion of low-cost country sourcing and engineering, as well as value engineering and product benchmarking. Further, our exposure to changes in steel prices is primarily indirect, through purchased components, and a significant portion of our ~~prior equity investment in Lear STEC at fair value, we recognized a gain of approximately $54 million in the three~~copper, leather and ~~nine months ended September 30, 2017.~~

In the three months ended September 30, 2017, we recognized net tax benefits of $14 million related to the redemption of the 2023 Notes, restructuring charges and various other items. In the nine months ended September 30, 2017, we recognized net tax benefits of $68 million related to the reversal of valuation allowances on the deferred tax assets of certain foreign subsidiaries, a change in the accounting for share-based compensation, the redemption of the 2023 Notes, restructuring charges and various other items.

In June 2016, we amended the existing joint venture agreement of Beijing BAI Lear Automotive Systems Co., Ltd. (“Beijing BAI”) to eliminate the substantive participating rights of our joint venture partner. In conjunction with the consolidation of Beijing BAI and the valuation of our prior equity investment in Beijing BAI at fair value, we recognized a gain of approximately $30 million in the nine months ended October 1, 2016.

~~In the three and nine months ended October 1, 2016, we recognized net tax benefits of $2 million and $15 million, respectively, related to restructuring charges and various other items.~~

~~As discussed above, our results for the three and nine months ended September 30, 2017 and October 1, 2016, reflect the following items (in millions):~~

Three Months Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Costs related to restructuring actions, including manufacturing inefficiencies of $1 million in the nine months ended September 30, 2017, and $2 million and $5 million in the three and nine months ended October 1, 2016, respectively $ 17
$ 17
$ 50
$ 56
Acquisition and other related costs 1
—
4
—
Acquisition-related inventory fair value adjustment 1
—
5
—
Loss on extinguishment of debt 21
—
21
—
Gains related to affiliates (54 ) —
(54 ) (30 )
Tax benefit, net (14 ) (2 ) (68 ) (15 )

For further information regarding these items, see Note 2, "Acquisitions," Note 3, "Restructuring," Note 6, "Long-Term Assets,", Note 8, "Debt," and Note 11, "Income Taxes," to the condensed consolidated financial statements included in this Report.

~~This Item 2, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," includes forward-looking statements that~~direct steel purchases are subject to ~~risks~~price index agreements with our customers and ~~uncertainties. For further information regarding other~~suppliers. However, these strategies, together with commercial negotiations with our customers and suppliers, typically do not offset all of the adverse impact. Certain of these strategies also may limit our opportunities in a

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declining commodity price environment. In addition, the availability of raw materials, commodities and product components fluctuates from time to time due to factors ~~that~~outside of our control. If these costs increase or availability is restricted, it could have ~~had, or may have in the future, a significant~~an adverse impact on our ~~business, financial condition or~~operating results ~~of operations, see~~in the foreseeable future. See "— Forward-Looking Statements" below and Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2020, as supplemented and updated by Part II — Item 1A, "Risk Factors," in this Report.

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RESULTS OF OPERATIONS

EXECUTIVE OVERVIEW

Lear is built on a foundation and strong culture of innovation, operational excellence, and engineering and program management capabilities. We use our product, design and technological expertise, as well as our global reach and competitive manufacturing footprint, to achieve our financial goals and objectives. These include continuing to deliver profitable growth (balancing risks and returns); investing in innovation to drive business growth and profitability; maintaining a strong balance sheet with investment grade credit metrics; and consistently returning excess cash to our stockholders. Further, we have aligned our strategy with the key trends affecting our business — electrification, connectivity and autonomy. At Lear, we are Making every drive betterTM by providing technology for safer, smarter and more comfortable journeys, while adhering to our values — Be Inclusive. Be Inventive. Get Results the Right Way.

Our business is organized under two reporting segments: Seating and E-Systems. Each of these segments has a varied product and technology range across a number of component categories.

Our E-Systems business consists of the design, development, engineering and manufacture of complete electrical distribution and connection systems, electronic systems, and software. The unique combination of these capabilities enables us to provide our customers with customizable solutions with optimized designs at a competitive cost. Electrical distribution and connection systems utilize low voltage, high voltage, high speed data cables and flat wiring to connect networks and electrical signals and manage electrical power within the vehicle for all types of powertrains – from traditional ICE architectures to the full range of hybrid, plug-in hybrid and battery electric architectures. Key components in our electrical distribution portfolio include wire harnesses, terminals and connectors, and engineered components for both ICE and electrified vehicle architectures that require management of higher voltage and power. Electronic systems facilitate signal, data and power management within the vehicle and include the associated software required to facilitate these functions. Key components in our electronic systems portfolio include body domain control modules and products specific to electrification and connectivity trends. Electrification products include on-board battery chargers, power conversion modules, high voltage battery management systems and high voltage power distribution systems. Connectivity products include gateway modules and communication modules to manage both wired and wireless networks and data in vehicles. In addition to electronic modules, we offer software that includes cybersecurity, advanced vehicle positioning for automated and autonomous driving applications and full capabilities in both dedicated short-range communication and cellular protocols for vehicle connectivity. Our software offerings include embedded control software and cloud and mobile device-based software and services. Our customers traditionally have sourced our electronic hardware together with the software that we embed in it, but such software may also be sourced by our customers independently of the hardware.

We serve all of the world's major automotive manufacturers across both our Seating and E-Systems businesses, and we have automotive content on more than 400 vehicle nameplates worldwide. It is common to have both seating and electrical content on the same and multiple vehicle platforms with a single customer. Further, with the seat becoming a more dynamic and integrated system requiring increased levels of electrical and electronic integration, the combined capabilities of our Seating and E-Systems businesses are a competitive advantage. Our businesses benefit globally from leveraging common operating standards and disciplines, including world-class product development and manufacturing processes, as well as common customer support and regional infrastructures, all of which contribute to our reputation for operational excellence. Our core capabilities are shared across component categories and include high-precision manufacturing and assembly with short lead times, management of complex supply chains, global engineering and program management skills, the agility to establish and/or transfer production between facilities quickly and a unique customer-focused culture. Our businesses utilize proprietary, industry-specific processes and standards, leverage common low-cost engineering centers and share centralized operating

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support functions, such as logistics, supply chain management, quality and health and safety, as well as all major administrative functions.

Industry overview

Global automotive industry production volumes in the first nine months of 2021, as compared to the first nine months of 2020, are shown below (in millions of units):


	First Nine Months
	2021 (1)	2020 (1) (2)	% Change
North America	9.8	9.2	7	%
Europe and Africa	12.3	11.5	7	%
Asia	29.6	26.6	11	%
South America	1.8	1.4	28	%
Other	1.1	1.1	3	%
Global light vehicle production	54.6	49.8	10	%

(1) Production data based on IHS Automotive

(2) Production data for 2020 has been updated to reflect actual production levels

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Our percentage of consolidated net sales by region in the first nine months of 2021 and 2020 is shown below:


	Nine Months Ended
	October 2, 2021		October 3, 2020
North America	39	%	40	%
Europe and Africa	36	%	36	%
Asia	21	%	21	%
South America	4	%	3	%
Total	100	%	100	%

In addition, we believe that regulatory developments and demand for energy efficiency and reduced carbon emissions, as well as the demand for enhanced communications and safety, are driving the technology trends of electrification, connectivity and autonomy. We are focused on those trends which provide us with significant business opportunities where we have competitive differentiation and innovative technology. While both of our businesses are powertrain agnostic, we are well positioned to capitalize on these technology trends, each of which is likely to be at the forefront of our industry for the foreseeable future in light of the long-term convergence toward electric, connected and autonomous vehicles.

Our sales and marketing approach addresses these trends, while our strategy focuses on the major imperatives for success as an automotive supplier: quality, service, cost and efficiency, and innovation and technology. We have expanded key component and software capabilities through organic investment and acquisitions to ensure a full complement of solutions for our customers. We have restructured, and continue to align, our manufacturing and engineering footprint to attain a leading competitive cost position globally. We have established or expanded activities in new and growing regional and product markets, including electrification, in support of our customers’ growth initiatives and in pursuit of opportunities with new customers. These initiatives have helped us achieve our financial goals overall, as well as a more balanced regional, customer and vehicle segment diversification in our business.

For further information related to these trends and our strategy, see Item 1, "Business — Industry and Strategy," in our Annual Report on Form 10-K for the year ended December 31, 2020.

Our customers typically require us to reduce our prices over the life of a vehicle model and, at the same time, assume significant responsibility for the design, development and engineering of our products. Our financial performance is largely dependent on our ability to offset these price reductions with product cost reductions through product design enhancement, supply chain management, manufacturing efficiencies and restructuring actions. We also seek to enhance our financial performance by investing in product development, design capabilities and new product initiatives that respond to and anticipate the needs of our customers and consumers. We continually evaluate operational and strategic alternatives to improve our business structure and align our business with the changing needs of our customers and major industry trends affecting our business.

Our material cost as a percentage of net sales was 65.0% in the first nine months of 2021, as compared to 64.1% in the first nine months of 2020, reflecting increases in certain commodity costs. Raw material, energy and commodity costs can be volatile, reflecting changes in supply and demand and global trade and tariff policies. Our primary commodity cost exposures relate to steel, copper and leather. We have developed and implemented strategies to mitigate the impact of higher raw material, energy and commodity costs, such as the selective in-sourcing of components, the continued consolidation of our supply base, longer-term purchase commitments and the selective expansion of low-cost country sourcing and engineering, as well as value engineering and product benchmarking. Further, our exposure to changes in steel prices is primarily indirect, through purchased components, and a significant portion of our copper, leather and direct steel purchases are subject to price index agreements with our customers and suppliers. However, these strategies, together with commercial negotiations with our customers and suppliers, typically do not offset all of the adverse impact. Certain of these strategies also may limit our opportunities in a

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declining commodity price environment. In addition, the availability of raw materials, commodities and product components fluctuates from time to time due to factors outside of our control. If these costs increase or availability is restricted, it could have an adverse impact on our operating results in the foreseeable future. See "— Forward-Looking Statements" below and Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2020, as supplemented and updated by Part II — Item 1A, "Risk Factors," in this Report.

Financial Measures

In evaluating our financial condition and operating performance, we focus primarily on earnings, operating margins, cash flows and return on invested capital. Our strategy includes expanding our business with new and existing customers globally through new products, including electrification. Asia continues to present long-term growth opportunities, as we focus on expanding our market share and content per vehicle, as demand for luxury and performance features increases in this region. In addition to our wholly owned locations, we currently have thirteen operating joint ventures with operations in Asia, as well as two additional joint ventures in North America dedicated to serving Asian automotive manufacturers. We also have selectively increased our vertical integration capabilities globally, as well as expanded our component manufacturing capacity in Asia, Eastern Europe, Mexico and Northern Africa and our low-cost engineering capabilities in Asia, Eastern Europe and Northern Africa.

Our success in generating cash flow will depend, in part, on our ability to manage working capital effectively. Working capital can be significantly impacted by the timing of cash flows from sales and purchases. Historically, we generally have been successful in aligning our vendor payment terms with our customer payment terms. However, our ability to continue to do so may be impacted by adverse automotive industry conditions, changes to our customers’ payment terms and the financial condition of our suppliers, as well as our financial condition. In addition, our cash flow is impacted by our ability to manage our inventory and capital spending effectively. We utilize return on invested capital as a measure of the efficiency with which our assets generate earnings. Improvements in our return on invested capital will depend on our ability to maintain an appropriate asset base for our business and to increase productivity and operating efficiency.

Acquisitions

On October 28, 2021, we entered into a definitive agreement to acquire substantially all of Kongsberg Automotive's Interior Comfort Systems business unit ("Kongsberg"). Kongsberg specializes in comfort seating solutions, including massage, lumbar, seat heat and ventilation. With almost 50 years of experience, Kongsberg has cutting-edge technology, a well-balanced customer portfolio built on longstanding relationships with leading premium automotive manufacturers and an experienced and dedicated team. The Kongsberg acquisition is expected to further advance our vertical integration and expand our product offerings into specialized comfort seating solutions that improve vehicle performance and packaging - important features across various vehicle segments. The transaction is valued at approximately €175 million, on a cash and debt free basis. The acquisition, subject to regulatory approvals and customary closing conditions and adjustments, is expected to close in the first quarter of 2022.

On March 25, 2021, we completed the acquisition of M&N Plastics, an injection molding specialist and manufacturer of engineered plastic components for automotive electrical distribution applications. When combined with our continuing organic investments in connection systems, the addition of M&N Plastics enhances the ability of our E-Systems segment to vertically integrate the engineering and production of complex parts for electrical distribution, including high-voltage wire harnesses and power electronics, creating a strong platform for future revenue growth and margin expansion in our overall E-Systems business. The acquisition is not material to the condensed consolidated financial statements included in this Report.

Financing Transaction

On October 28, 2021, we entered into an amended and restated unsecured credit agreement which increases available borrowings under our revolving credit facility from $1.75 billion to $2.0 billion and extends the maturity date from August 8, 2024 to October 28, 2026. The amended and restated unsecured credit agreement maintains our $250 million term loan facility maturing on August 8, 2022.

Operational Restructuring

In the first nine months of 2021, we incurred pretax restructuring costs of $78 million and related manufacturing inefficiency charges of approximately $10 million, as compared to pretax restructuring costs of $119 million and related manufacturing inefficiency charges of approximately $4 million in the first nine months of 2020. None of the individual restructuring actions initiated during the first nine months of 2021 were material. Further, there have been no changes in previously initiated restructuring actions that have resulted (or will result) in a material change to our restructuring costs.

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

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designed to maintain or improve our operating results and profitability throughout the automotive industry cycles. Restructuring actions are generally funded within twelve months of initiation and are funded by cash flows from operating activities and existing cash balances. We expect to incur approximately $37 million of additional restructuring costs related to activities initiated as of October 2, 2021, all of which are expected to be incurred in the next twelve months. We plan to implement additional restructuring actions in order to align our manufacturing capacity and other costs with prevailing regional automotive production levels. Such future restructuring actions are dependent on market conditions, customer actions and other factors.

For further information, see Note 3, "Restructuring," and Note 17, "Segment Reporting," to the condensed consolidated financial statements included in this Report.

Share Repurchase Program and Quarterly Cash Dividends

We may implement share repurchases through a variety of methods, including, but not limited to, open market purchases, accelerated stock repurchase programs and structured repurchase transactions. The extent to which we may repurchase our outstanding common stock and the timing of such repurchases will depend on our financial condition, results of operations, capital requirements, prevailing market conditions, alternative uses of capital and other factors (see "— Forward-Looking Statements").

Since the first quarter of 2011, our Board of Directors has authorized $6.1 billion in share repurchases under our common stock share repurchase program. In March 2020, as a proactive measure in response to the COVID-19 pandemic, we suspended share repurchases under our common stock share repurchase program. Share repurchases were reinstated in the second quarter of 2021. Since the reinstatement through October 2, 2021, we have repurchased $100 million of shares. At the end of the third quarter of 2021, we have a remaining repurchase authorization of $1.3 billion, which expires on December 31, 2022.

In March 2020, as a proactive measure in response to the COVID-19 pandemic, we suspended our quarterly cash dividend. In the fourth quarter of 2020, we reinstated a quarterly cash dividend of $0.25 per share of common stock. Our Board of Directors declared a quarterly cash dividend of $0.25 per share of common stock in the first and second quarters of 2021 and a quarterly cash dividend of $0.50 per share of common stock in the third quarter of 2021.

For further information related to our common stock share repurchase program and our quarterly cash dividends, see "— Liquidity and Capital Resources — Capitalization" below and Note 15, "Comprehensive Income (Loss) and Equity," to the condensed consolidated financial statements included in this Report.

Other Matters

In the three months ended October 2, 2021, we recognized tax expense of $20 million related to the establishment of valuation allowances on deferred tax assets of foreign subsidiaries, net tax benefits of $7 million related to a favorable indirect tax ruling and net tax benefits of $7 million related to restructuring charges and various other items. In the nine months ended October 2, 2021, we recognized tax expense of $13 million related to the net increase in valuation allowances on deferred tax assets of foreign subsidiaries, tax expense of $9 million on a $46 million gain related to a favorable indirect tax ruling in a foreign jurisdiction and net tax benefits of $26 million related to the net release of tax reserves at several foreign subsidiaries, restructuring charges and various other items.

In the three months ended October 3, 2020, we recognized tax benefits of $10 million related to the release of a valuation allowance on deferred tax assets, tax benefits of $5 million related to an increase in our research and development tax credits resulting from the completion of a research and development tax credit study and net tax expense of $10 million related to restructuring charges and various other items. In the nine months ended October 3, 2020, we recognized tax benefits of $21 million related to a loss on the extinguishment of debt, restructuring charges and various other items, tax benefits of $5 million related to an increase in our research and development tax credits resulting from the completion of a research and development tax credit study and net tax expense of $12 million related to a net increase in valuation allowances on deferred tax assets.

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As discussed above, our results for the three and nine months ended October 2, 2021 and October 3, 2020, reflect the following items (in millions):


	Three Months Ended				Nine Months Ended
	October 2, 2021		October 3, 2020		October 2, 2021		October 3, 2020
Costs related to restructuring actions, including manufacturing inefficiencies of $3 million and $10 million, respectively, in the three and nine months ended October 2, 2021, and $1 million and $4 million, respectively, in the three and nine months ended October 3, 2020	$	49	$	50	$	88	$	123
Intangible asset impairment	—		—		9		—
Favorable indirect tax ruling in a foreign jurisdiction	1		—		(46)		—
Loss related to affiliate	—		—		1		—
Loss on extinguishment of debt	—		—		—		21
Tax (benefit) expense, net	6		(5)		(4)		(14)

For further information regarding these items, see Note 3, "Restructuring," Note 6, "Long-Lived Assets," Note 8, "Debt," and Note 13, "Income Taxes," to the condensed consolidated financial statements included in this Report.

This Item 2, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," includes forward-looking statements that are subject to risks and uncertainties. For further information regarding other factors that have had, or may have in the future, a significant impact on our business, financial condition or results of operations, see "— Forward-Looking Statements" below and Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2020, as supplemented and updated by Part II — Item 1A, "Risk Factors," in this Report.

RESULTS OF OPERATIONS

A summary of our operating results in millions of dollars and as a percentage of net sales is shown below:


	Three Months Ended								Nine Months Ended
	October 2, 2021				October 3, 2020				October 2, 2021				October 3, 2020
Net sales
Seating	$	3,166.2	74.2	%	$	3,691.6	75.3	%	$	10,770.4	74.9	%	$	8,813.1	74.7	%
E-Systems	1,102.0		25.8		1,208.5		24.7		3,612.9		25.1		2,989.2		25.3
Net sales	4,268.2		100.0		4,900.1		100.0		14,383.3		100.0		11,802.3		100.0
Cost of sales	4,041.5		94.7		4,457.3		91.0		13,262.4		92.2		11,152.7		94.5
Gross profit	226.7		5.3		442.8		9.0		1,120.9		7.8		649.6		5.5
Selling, general and administrative expenses	163.3		3.8		147.7		3.0		503.0		3.5		442.3		3.7
Amortization of intangible assets	15.8		0.4		16.3		0.3		57.4		0.4		49.4		0.4
Interest expense	22.6		0.5		26.5		0.5		67.2		0.5		78.1		0.7
Other (income) expense, net	11.1		0.3		17.1		0.3		(28.7)		(0.2)		54.4		0.5
Provision for income taxes	20.9		0.5		44.6		0.9		119.1		0.8		30.1		0.2
Equity in net (income) loss of affiliates	1.7		—		(6.5)		(0.1)		(9.1)		(0.1)		(15.9)		(0.1)
Net income attributable to noncontrolling interests	17.8		0.4		22.7		0.5		59.6		0.4		54.3		0.5
Net income (loss) attributable to Lear	$	(26.5)	(0.6)	%	$	174.4	3.6	%	$	352.4	2.5	%	$	(43.1)	(0.4)	%

Three Months Ended Nine Months Ended
September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016
Net sales
Seating $ 3,868.9
77.7 % $ 3,513.3
77.6 % $ 11,762.0
77.9 % $ 10,755.7
77.3 %
E-Systems 1,112.6
22.3
1,013.1
22.4
3,341.2
22.1
3,158.4
22.7
Net sales 4,981.5
100.0
4,526.4
100.0
15,103.2
100.0
13,914.1
100.0
Cost of sales 4,425.6
88.8
4,012.5
88.6
13,387.0
88.6
12,324.1
88.6
Gross profit 555.9
11.2
513.9
11.4
1,716.2
11.4
1,590.0
11.4
Selling, general and administrative expenses 158.2
3.2
153.6
3.4
471.1
3.1
456.9
3.3
Amortization of intangible assets 12.5
0.3
15.2
0.3
34.1
0.3
41.7
0.3
Interest expense 21.7
0.4
20.6
0.5
63.9
0.4
62.0
0.4
Other (income) expense, net (21.8 ) (0.4 ) 14.2
0.3
(12.3 ) (0.1 ) (0.8 ) —
Provision for income taxes 77.8
1.6
88.2
2.0
240.2
1.6
287.4
2.1
Equity in net income of affiliates (7.5 ) (0.2 ) (12.9 ) (0.3 ) (41.3 ) (0.3 ) (49.2 ) (0.4 )
Net income attributable to noncontrolling interests 19.8
0.4
20.6
0.5
47.6
0.4
46.8
0.3
Net income attributable to Lear $ 295.2
5.9 % $ 214.4
4.7 % $ 912.9
6.0 % $ 745.2
5.4 %

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Three Months Ended ~~September 30, 2017~~October 2, 2021 vs. Three Months Ended October ~~1, 2016~~3, 2020

Net sales in the third quarter of ~~2017~~2021 were ~~$5.0~~$4.3 billion, as compared to $4.9 billion in the third quarter of 2020, a decrease of $632 million or 13%. Lower production volumes on Lear platforms in Europe and Africa, North America and Asia reduced net sales by $974 million, largely due to production downtime as a result of industry-wide supply shortages in the third quarter of 2021. Net sales benefited by $251 million as a result of new business in North America, Asia, and Europe and Africa and foreign exchange rate fluctuations.


(in millions)	Cost of Sales
Third quarter 2020	$	4,457.3
Material cost	(343.8)
Labor and other	(76.5)
Depreciation	4.5
Third quarter 2021	$	4,041.5

Cost of sales in the third quarter of 2021 was $4.0 billion, as compared to $4.5 billion in the third quarter of ~~2016, an increase of $455 million or 10%. New business, primarily~~2020. Lower production volumes on Lear platforms in Europe and Africa, North America and ~~Europe, the acquisition~~Asia reduced cost of ~~Antolin Seating and net foreign exchange rate fluctuations, positively impacted net~~ sales, ~~by $376 million, $118 million and $92 million, respectively. These increases were partially offset by lower~~largely due to production ~~volumes on key Lear platforms, primarily in North America, which reduced net sales by $164 million.~~

(in millions) Cost of Sales
Third quarter 2016 $ 4,013
Material cost 304
Labor and other 95
Depreciation 14
Third quarter 2017 $ 4,426

~~Cost~~downtime as a result of ~~sales~~industry-wide supply shortages in the third quarter of ~~2017 was $4.4 billion,~~2021. Cost of sales increased as ~~compared to $4.0 billion in the third quarter~~a result of ~~2016. New~~new business ~~primarily~~ in North America, Asia, and Europe ~~the acquisition of Antolin Seating~~ and ~~net~~Africa and foreign exchange rate fluctuations resulted in an increase in cost of sales of $530 million. These increases were partially offset by lower production volumes on key Lear platforms, primarily in North America, which reduced cost of sales by $142 million.fluctuations.

Gross profit and gross margin were ~~$556~~$227 million and ~~11.2%~~5.3% of net sales, respectively, in the third quarter of ~~2017,~~2021, as compared to ~~$514~~$443 million and ~~11.4%~~9.0% of net sales, respectively, in the third quarter of ~~2016. New business,~~2020. Lower production volumes on Lear platforms, largely due to production downtime as a result of industry-wide supply shortages in the ~~acquisition~~third quarter of ~~Antolin Seating and net foreign exchange rate fluctuations positively impacted~~2021, reduced gross profit by ~~$56~~$210 million. The impact of selling price reductions and increased commodity costs was partially offset by favorable operating performance, including the benefit of operational restructuring ~~actions, of $74 million was more than offset by the impact of selling price reductions and lower production volumes on key Lear platforms.~~actions. These factors had a corresponding impact on gross margin.

Selling, general and administrative expenses, including engineering and development expenses, were ~~$158~~$163 million in the third quarter of ~~2017,~~2021, as compared to ~~$154~~$148 million in the third quarter of ~~2016.~~2020, primarily reflecting increases in restructuring costs and compensation-related costs related to our 2020 salary reduction and deferral actions. As a percentage of net sales, selling, general and administrative expenses were ~~3.2%~~3.8% in the third quarter of ~~2017,~~2021, as compared to ~~3.4%~~3.0% in the third quarter of ~~2016.~~2020.

Amortization of intangible assets was ~~$13~~$16 million in the third quarters of 2021 and 2020.

Interest expense was $23 million in the third quarter of ~~2017,~~2021, as compared to ~~$15~~$27 million in the third quarter of ~~2016.~~

~~Interest expense was $22 million in the third quarter of 2017, as compared to $21 million in the third quarter of 2016.~~

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2020.

Other ~~(income)~~ expense, net, which includes non-income related taxes, foreign exchange gains and losses, gains and losses related to certain derivative instruments and hedging activities, losses on the extinguishment of debt, gains and losses on the disposal of fixed assets, gains and losses on the consolidation and deconsolidation of affiliates, the non-service cost components of net periodic benefit cost and other miscellaneous income and expense, was ~~($22)~~$11 million in the third quarter of ~~2017,~~2021, as compared to ~~$14~~$17 million in the third quarter of ~~2016.~~2020. In the third quarter of ~~2017,~~2020, we recognized a ~~gain of approximately $54 million related to the consolidation of an affiliate and a~~pension settlement loss of ~~$21 million on the extinguishment of debt.~~$10 million.

In the third quarter of ~~2017,~~2021, the provision for income taxes was ~~$78~~$21 million, representing an effective tax rate of ~~20.2%~~150% on pretax income before equity in net loss of affiliates of $14 million. In the third quarter of 2020, the provision for income taxes was $45 million, representing an effective tax rate of 19% on pretax income before equity in net income of affiliates of ~~$385 million.~~ $235 million, for the reasons described below. For further information, see Note 13 "Income Taxes," to the condensed consolidated financial statements included in this Report.

In the third ~~quarter~~quarters of ~~2016,~~2021 and 2020, the provision for income taxes was ~~$88 million, representing an effective tax rate of 28.4% on pretax income before equity in net income of affiliates of $310 million, for the reasons described below.~~

~~In the third quarters of 2017 and 2016, the provision for income taxes was~~primarily impacted by the level and mix of earnings among tax jurisdictions. In the third quarter of ~~2017,~~2021, we recognized tax expense of $20 million related to the establishment of valuation allowances on deferred tax assets of foreign subsidiaries, net tax benefits of ~~$14 million, of which $8~~$7 million related to ~~the redemption~~a favorable indirect tax ruling and net tax benefits of ~~the 2023 Notes and $6~~$7 million related to restructuring charges and various other items. In ~~addition,~~the third quarter of 2020, we recognized ~~a gain~~tax benefits of ~~approximately $54~~$10 million related to the ~~consolidation~~release of ~~an affiliate, for which no~~a valuation allowance on deferred tax ~~expense was provided. In the third quarter of 2016, we recognized net~~assets, tax benefits of $2$5 million related to an increase in our research and development tax credits resulting from the completion of a research and development tax credit study and net tax expense of $10 million related to restructuring charges and various other items. Excluding these items, the effective tax rate for the third quarters of ~~2017~~2021 and ~~2016~~2020 approximated the U.S. federal statutory income tax rate of ~~35%~~21%, adjusted for income taxes on foreign earnings, losses and remittances, valuation allowances, tax credits, income tax incentives and other permanent items.

Equity in net ~~income~~(income) loss of affiliates was $8$2 million in the third quarter of ~~2017,~~2021, as compared to ~~$13~~($7) million in the third quarter of ~~2016.~~2020, reflecting lower sales at certain of our affiliates in China.

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Net income (loss) attributable to Lear was ~~$295~~($27) million, or ~~$3.96~~($0.44) per diluted share, in the third quarter of ~~2017,~~2021, as compared to ~~$214~~$174 million, or ~~$2.98~~$2.89 per diluted share, in the third quarter of ~~2016.~~2020. Net income and diluted net income per share ~~increased~~decreased for the reasons described above. ~~In addition, diluted net income per share was impacted by the decrease in average shares outstanding between periods.~~

Reportable Operating Segments

We have two reportable operating segments: ~~seating, which includes complete seat systems~~Seating and all major seat components, including seat covers and surface materials such as leather and fabric, seat structures and mechanisms, seat foam and headrests and E-Systems, which includes complete electrical distribution systems, electronic control modules and associated software and wireless communication modules. Key components in the electrical distribution system include wiring harnesses, terminals and connectors and junction boxes, including components for high power and hybrid electric systems.E-Systems. For a description of our reportable operating segments, see "Executive Overview" above.

The financial information presented below is for our two reportable operating segments and our other category for the periods presented. The other category includes unallocated costs related to corporate headquarters, regional headquarters and the elimination of intercompany activities, none of which meets the requirements for being classified as an operating segment. Corporate and regional headquarters costs include various support functions, such as information technology, advanced research and development, corporate finance, legal, executive administration and human resources. Financial measures regarding each segment’s pretax income before equity in net ~~income~~(income) loss of affiliates, interest expense and other (income) expense, net ("segment earnings") and segment earnings divided by net sales ("margin") are not measures of performance under accounting principles generally accepted in the United States ("GAAP"). Segment earnings and the related margin are used by management to evaluate the performance of our reportable operating segments. Segment earnings should not be considered in isolation or as a substitute for net income (loss) attributable to Lear, net cash provided by (used in) operating activities or other income statement or cash flow statement data prepared in accordance with GAAP or as measures of profitability or liquidity. In addition, segment earnings, as we determine it, may not be comparable to related or similarly titled measures reported by other companies.

For a reconciliation of consolidated segment earnings to consolidated income before provision for income taxes and equity in net ~~income~~(income) loss of affiliates, see Note ~~15,~~17, "Segment Reporting," to the condensed consolidated financial statements included in this Report.

Seating

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


	Three Months Ended
	October 2, 2021			October 3, 2020
Net sales	$	3,166.2		$	3,691.6
Segment earnings (1)	126.7			250.7
Margin	4.0		%	6.8		%

Three Months Ended
September 30, 2017 October 1, 2016
Net sales $ 3,868.9
$ 3,513.3
Segment earnings ⁽¹⁾
298.8
269.5
Margin 7.7 % 7.7 %

⁽¹⁾See definition above

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Seating net sales were ~~$3.9~~$3.2 billion in the third quarter of ~~2017,~~2021, as compared to ~~$3.5~~$3.7 billion in the third quarter of ~~2016, an increase~~2020, reflecting a decrease of ~~$356~~$525 million or ~~10%~~14%. ~~New~~Lower production volumes on Lear platforms reduced net sales by $744 million, largely due to production downtime as a result of industry-wide supply shortages in the third quarter of 2021. Net sales benefited by $166 million as a result of new business ~~the acquisition of Antolin Seating~~ and foreign exchange rate fluctuations positively impacted net sales by $314 million, $118 million and $67 million, respectively. These increases were partially offset by the lower production volumes on key Lear platforms, which reduced net sales by $156 million. fluctuations.

Segment earnings, including restructuring costs, and the related margin on net sales were ~~$299~~$127 million and ~~7.7%~~4.0% in the third quarter of ~~2017,~~2021, as compared to ~~$270~~$251 million and ~~7.7%~~6.8% in the third quarter of ~~2016. New business positively impacted~~2020. Lower production volumes on Lear platforms reduced segment earnings by ~~$34 million. The impact~~$145 million, largely due to production downtime as a result of ~~favorable~~industry-wide supply shortages in the third quarter of 2021. Favorable operating performance, including the benefit of operational restructuring actions, ~~of $63 million was~~and lower restructuring costs were offset by the impact of selling price reductions and ~~lower production volumes on key Lear platforms.~~increased commodity costs.

E-Systems

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


	Three Months Ended
	October 2, 2021			October 3, 2020
Net sales	$	1,102.0		$	1,208.5
Segment earnings(1)	(7.5)			86.0
Margin	(0.7)		%	7.1		%

Three Months Ended
September 30, 2017 October 1, 2016
Net sales $ 1,112.6
$ 1,013.1
Segment earnings ⁽¹⁾
155.5
140.3
Margin 14.0 % 13.8 %

⁽¹⁾See definition above

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E-Systems net sales were $1.1 billion in the third quarter of ~~2017,~~2021, as compared to ~~$1.0~~$1.2 billion in the third quarter of ~~2016, an increase~~2020, reflecting a decrease of ~~$100~~$107 million or ~~10%~~9%. ~~New~~Lower production volumes on Lear platforms reduced net sales by $225 million, largely due to production downtime as a result of industry-wide supply shortages in the third quarter of 2021. Net sales benefited by $85 million as a result of new business and ~~net~~ foreign exchange rate ~~fluctuations positively impacted net sales by $62 million and $25 million, respectively.~~ fluctuations.

Segment earnings, including restructuring costs, and the related margin on net sales were ~~$156~~($8) million and ~~14.0%~~(0.7)% in the third quarter of ~~2017,~~2021, as compared to ~~$140~~$86 million and ~~13.8%~~7.1% in the third quarter of ~~2016. New business and lower restructuring costs positively impacted~~2020. Lower production volumes on Lear platforms reduced segment earnings by ~~$15 million.~~$65 million, largely due to production downtime as a result of industry-wide supply shortages in the third quarter of 2021. The ~~impact of improved operating performance of $17 million was offset by the~~ impact of selling price ~~reductions.~~reductions, higher restructuring costs and increased commodity costs was partially offset by improved operating performance.

Other

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


	Three Months Ended
	October 2, 2021		October 3, 2020
Net sales	$	—	$	—
Segment earnings (1)	(71.6)		(57.9)
Margin	N/A		N/A

Three Months Ended
September 30, 2017 October 1, 2016
Net sales $ —
$ —
Segment earnings ⁽¹⁾
(69.1 ) (64.7 )
Margin N/A
N/A

⁽¹⁾See definition above

Segment earnings related to our other category were ($~~69)~~72) million in the third quarter of ~~2017,~~2021, as compared to ($~~65)~~58) million in the third quarter of ~~2016,~~2020, primarily reflecting ~~higher restructuring~~an increase in compensation-related costs related to our 2020 salary reduction and ~~acquisition costs.~~deferral actions, as well as 2020 reductions in discretionary spending.

Nine Months Ended ~~September 30, 2017~~October 2, 2021 vs. Nine Months Ended October ~~1, 2016~~3, 2020

Net sales for the nine months ended ~~September 30, 2017,~~October 2, 2021 were ~~$15.1~~$14.4 billion, as compared to ~~$13.9~~$11.8 billion for the nine months ended October ~~1, 2016,~~3, 2020, an increase of ~~$1,189 million~~$2.6 billion or 9%22%. ~~New~~Higher production volumes on Lear platforms globally increased net sales by $1.3 billion, largely due to the COVID-19-related production shutdowns in 2020. Net sales also benefited by $1.0 billion as a result of new business ~~primarily~~ in ~~Europe,~~ North America, Europe and Africa, and Asia and ~~the acquisition of Antolin Seating positively impacted net sales by $962 million and $211 million, respectively.~~foreign exchange rate fluctuations.

(in millions) Cost of Sales
First nine months of 2016 $ 12,324
Material cost 760
Labor and other 269
Depreciation 34
First nine months of 2017 $ 13,387

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(in millions)	Cost of Sales
First nine months of 2020	$	11,152.7
Material cost	1,785.3
Labor and other	299.5
Depreciation	24.9
First nine months of 2021	$	13,262.4

Cost of sales in the first nine months of ~~2017 were $13.4~~2021 was $13.3 billion, as compared to ~~$12.3~~$11.2 billion in the first nine months of ~~2016. New~~2020. Higher production volumes on Lear platforms globally increased cost of sales, largely due to the COVID-19-related production shutdowns in 2020. Cost of sales also increased as a result of new business ~~primarily~~ in ~~Europe,~~ North America, Europe and Africa, and Asia and ~~the acquisition of Antolin Seating resulted in an increase in cost of sales of $1.0 billion.~~foreign exchange rate fluctuations.

Gross profit and gross margin were ~~$1.7 billion~~$1,121 million and ~~11.4%~~7.8% of net sales, ~~for the nine months ended September 30, 2017, as compared to $1.6 billion and 11.4% of net sales~~respectively, for the nine months ended October ~~1, 2016. New business~~2, 2021, as compared to $650 million and 5.5% of net sales, respectively, for the nine months ended October 3, 2020. Higher production volumes on Lear platforms, largely due to the COVID-19-related production shutdowns in 2020, and the ~~acquisition~~impact of ~~Antolin Seating positively impacted~~new business increased gross profit by ~~$136~~$330 million. ~~The impact of favorable~~Favorable operating performance, including the benefit of operational restructuring actions, ~~of $182 million~~ was ~~more than~~partially offset by the impact of selling price reductions and ~~net foreign exchange rate fluctuations.~~increased commodity costs. These factors had a corresponding impact on gross margin.

Selling, general and administrative expenses, including engineering and development expenses, were ~~$471~~$503 million in the first nine months of ~~2017,~~2021, as compared to ~~$457~~$442 million in the first nine months of ~~2016,~~2020, primarily reflecting ~~higher program development~~increases in compensation-related costs related to our 2020 salary reduction and ~~restructuring costs.~~deferral actions. As a percentage of net sales, selling, general and administrative expenses were ~~3.1%~~3.5% in the first nine months of ~~2017,~~2021, as compared to ~~3.3%~~3.7% in the first nine months of ~~2016.~~2020.

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Amortization of intangible assets was ~~$34~~$57 million in the first nine months of ~~2017,~~2021, including an impairment charge of $9 million, as compared to ~~$42~~$49 million in the first nine months of ~~2016.~~2020.

Interest expense was ~~$64~~$67 million in the first nine months of ~~2017,~~2021, as compared to ~~$62~~$78 million in the first nine months of ~~2016.~~2020.

Other (income) expense, net, which includes non-income related taxes, foreign exchange gains and losses, gains and losses related to certain derivative instruments and hedging activities, losses on the extinguishment of debt, gains and losses on the disposal of fixed assets, gains and losses on the consolidation and deconsolidation of affiliates, the non-service cost components of net periodic benefit cost and other miscellaneous income and expense, was ($~~12)~~29) million ~~for the nine months ended September 30, 2017, as compared to ($1) million for~~in the nine months ended October ~~1, 2016.~~2, 2021, as compared to $54 million in the nine months ended October 3, 2020. In the first nine months of ~~2017,~~2021, we recognized a gain of ~~approximately $54~~$46 million related to a favorable indirect tax ruling in a foreign jurisdiction and a loss of $1 million related to the ~~consolidation~~impairment of an ~~affiliate and~~affiliate. In the first nine months of 2020, we recognized a loss of $21 million ~~related to the~~on extinguishment of ~~debt. In the nine months ended October 1, 2016, we recognized~~debt and a ~~gain~~pension settlement loss of approximately $30 million related to the consolidation of an affiliate. Net foreign exchange losses were $5 million in the first nine months of 2017, as compared to $9 million in the first nine months of 2016.$10 million.

For the nine months ended ~~September 30, 2017,~~October 2, 2021, the provision for income taxes was ~~$240~~$119 million, representing an effective tax rate of ~~20.7%~~23% on pretax income before equity in net income of affiliates of ~~$1.2 billion.~~$522 million. For the nine months ended October ~~1, 2016,~~3, 2020, the provision for income taxes was ~~$287~~$30 million, representing an effective tax rate of ~~27.9%~~119% on pretax income before equity in net income of affiliates of ~~$1.0 billion,~~$25 million, for ~~the~~ reasons described below. For further information, see Note 13 "Income Taxes," to the condensed consolidated financial statements included in this Report.

In the first nine months of ~~2017~~2021 and ~~2016,~~2020, the provision and benefit for income taxes was primarily impacted by the level and mix of earnings among tax jurisdictions. In the first nine months of ~~2017,~~2021, we recognized tax expense of $13 million related to the net increase in valuation allowances on deferred tax assets of foreign subsidiaries, tax expense of $9 million on a $46 million gain related to a favorable indirect tax ruling in a foreign jurisdiction and net tax benefits of ~~$68 million, of which $29~~$26 million related to the ~~reversal~~net release of ~~valuation allowances on the deferred~~ tax ~~assets of certain~~reserves at several foreign subsidiaries, ~~$16 million related to a change in the accounting for share-based compensation, $8 million related to the redemption of the 2023 Notes and $15 million related to~~ restructuring charges and various other items. In ~~addition, we recognized a gain of approximately $54 million related to the consolidation of an affiliate, for which no tax expense was provided. In~~ the first nine months of ~~2016,~~2020, we recognized ~~net~~ tax benefits of ~~$15~~$21 million related to a loss on the extinguishment of debt, restructuring charges and various other ~~items. In addition, we recognized a gain~~items, tax benefits of ~~approximately $30~~$5 million related to an increase in our research and development tax credits resulting from the ~~consolidation~~completion of ~~an affiliate, for which no~~a research and development tax credit study and net tax expense ~~was provided.~~of $12 million related to a net increase in valuation allowances on deferred tax assets. Excluding these items, the effective tax rate for the first nine months of ~~2017~~2021 and ~~2016~~2020 approximated the U.S. federal statutory income tax rate of ~~35%~~21%, adjusted for income taxes on foreign earnings, losses and remittances, valuation allowances, tax credits, income tax incentives and other permanent items.

Equity in net income of affiliates was ~~$41~~$9 million in the first nine months of ~~2017,~~2021, as compared to ~~$49~~$16 million in the first nine months of ~~2016.~~2020.

Net income (loss) attributable to Lear was ~~$913~~$352 million, or ~~$12.80 per diluted share, for the nine months ended September 30, 2017, as compared to $745 million, or $10.10~~$5.83 per diluted share, for the nine months ended October ~~1, 2016.~~2, 2021, as compared to ($43) million, or ($0.72) per diluted share, for the nine months ended October 3, 2020. Net income and diluted net income per share increased for the reasons described above. ~~In addition, diluted net income per share was impacted by the decrease in average shares outstanding between periods.~~

Reportable Operating Segments

~~Table~~We have two reportable operating segments: Seating and E-Systems. For a description of ~~Contents~~

~~LEAR CORPORATION~~

our reportable operating segments, see "Executive Overview" and "Three Months Ended October 2, 2021 vs. Three Months Ended October 3, 2020 — Reportable Operating Segments" above.

Seating

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


	Nine Months Ended							Nine Months Ended
	September 30, 2017			October 1, 2016				October 2, 2021			October 3, 2020
Net sales	$	11,762.0		$	10,755.7		Net sales	$	10,770.4		$	8,813.1
Segment earnings ⁽¹⁾	941.8			848.8			Segment earnings (1)	670.9			320.4
Margin	8.0		%	7.9		%	Margin	6.2		%	3.6		%

⁽¹⁾See definition above

Seating net sales were ~~$11.8 billion for the nine months ended September 30, 2017, as compared to~~ $10.8 billion for the nine months ended October ~~1, 2016,~~2, 2021, as compared to $8.8 billion for the nine months ended October 3, 2020, an increase of ~~$1.0~~$2.0 billion or 9%22%. ~~New business and the acquisition of Antolin Seating positively impacted~~Higher production volumes on Lear platforms increased net sales by ~~$829 million~~$1.3 billion, largely due to the COVID-19-related production shutdowns in 2020. Net sales also benefited by $0.6 billion as a result of new business and ~~$211 million, respectively.~~ foreign exchange rate fluctuations.

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Segment earnings, including restructuring costs, and the related margin on net sales were ~~$942~~$671 million and ~~8.0% for the nine months ended September 30, 2017, as compared to $849 million and 7.9%~~6.2% for the nine months ended October ~~1, 2016. New business~~2, 2021, as compared to $320 million and 3.6% for the nine months ended October 3, 2020. Higher production volumes on Lear platforms, largely due to the COVID-19-related production shutdowns in 2020, and the ~~acquisition~~impact of ~~Antolin Seating positively impacted~~new business, increased segment earnings by ~~$109~~$274 million. ~~The impact of favorable~~Favorable operating performance, including the benefit of operational restructuring actions, ~~of $133 million was more than~~and lower restructuring costs were partially offset by the impact of selling price reductions and ~~net foreign exchange rate fluctuations.~~increased commodity costs.

E-Systems

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


	Nine Months Ended							Nine Months Ended
	September 30, 2017			October 1, 2016				October 2, 2021			October 3, 2020
Net sales	$	3,341.2		$	3,158.4		Net sales	$	3,612.9		$	2,989.2
Segment earnings ⁽¹⁾	476.7			441.5			Segment earnings (1)	108.4			5.0
Margin	14.3		%	14.0		%	Margin	3.0		%	0.2		%

⁽¹⁾See definition above

E-Systems net sales were ~~$3.3 billion for the nine months ended September 30, 2017, as compared to $3.2~~$3.6 billion for the nine months ended October ~~1, 2016,~~2, 2021, as compared to $3.0 billion for the nine months ended October 3, 2020, an increase of ~~$183~~$624 million or 6%21%. ~~New~~The impact of new business ~~and~~increased net sales by $306 million. Net sales also benefited by $202 million as a result of higher production volumes on ~~key~~ Lear platforms, ~~positively impacted net sales by $133 million~~largely due to the COVID-19-related production shutdowns in 2020, and ~~$46 million, respectively.~~ foreign exchange rate fluctuations.

Segment earnings, including restructuring costs, and the related margin on net sales were ~~$477~~$108 million and ~~14.3% for the nine months ended September 30, 2017, as compared to $442 million and 14.0%~~3.0% for the nine months ended October ~~1, 2016. New~~2, 2021, as compared to $5 million and 0.2% for the nine months ended October 3, 2020. The impact of new business and higher production volumes on ~~key~~ Lear platforms, ~~positively impacted~~largely due to the COVID-19-related production shutdowns in 2020, increased segment earnings by ~~$33~~$56 million. ~~The impact of improved~~Improved operating performance ~~of $59 million was more than~~and lower restructuring costs were partially offset by the impact of selling price reductions and ~~net foreign exchange rate fluctuations.~~increased commodity costs.

Other

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


	Nine Months Ended
	October 2, 2021		October 3, 2020
Net sales	$	—	$	—
Segment earnings(1)	(218.8)		(167.5)
Margin	N/A		N/A

Nine Months Ended
September 30, 2017 October 1, 2016
Net sales $ —
$ —
Segment earnings ⁽¹⁾
(207.5 ) (198.9 )
Margin N/A
N/A

⁽¹⁾See definition above

Segment earnings related to our other category were ($~~208)~~219) million in the first nine months of ~~2017,~~2021, as compared to ($~~199)~~168) million in the first nine months of ~~2016.~~2020, primarily reflecting an increase in compensation-related costs related to our 2020 salary reduction and deferral actions, as well as 2020 reductions in discretionary spending.

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LIQUIDITY AND CAPITAL RESOURCES

Our primary liquidity needs are to fund general business requirements, including working capital requirements, capital expenditures, operational restructuring actions and debt service requirements. ~~In addition, we expect to continue to pay quarterly dividends and repurchase shares of our common stock pursuant to our authorized common stock share repurchase program.~~ Our principal sources of liquidity are cash flows from operating activities, borrowings under available credit facilities and our existing cash balance.

Cash Provided by Subsidiaries

A substantial portion of our operating income is generated by our subsidiaries. As a result, we are dependent on the earnings and cash flows of and the combination of dividends, royalties, intercompany loan repayments and other distributions and advances from our subsidiaries to provide the funds necessary to meet our obligations.

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As of ~~September 30, 2017~~October 2, 2021 and December 31, ~~2016,~~2020, cash and cash equivalents of ~~$917~~$567 million and ~~$767~~$780 million, respectively, were held in foreign subsidiaries and can be repatriated, primarily through the repayment of intercompany loans and the payment of dividends, without creating additional income tax expense. There are no significant restrictions on the ability of our subsidiaries to pay dividends or make other distributions to Lear.

For further information related to potential dividends from our non-U.S. subsidiaries, see ~~"— Adequacy of Liquidity Sources," below and~~ Note 7,9, "Income Taxes," to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

~~Cash Flows~~

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

Nine Months Ended
September 30, 2017 October 1, 2016
Incremental Increase (Decrease) in Operating
Cash Flow
Consolidated net income and depreciation and amortization $ 1,274
$ 1,075
$ 199
Net change in working capital items:
Accounts receivable (281 ) (440 ) 159
Inventory (115 ) (87 ) (28 )
Accounts payable 246
204
42
Accrued liabilities and other 119
327
(208 )
Net change in working capital items (31 ) 3
(34 )
Other (58 ) 16
(74 )
Net cash provided by operating activities $ 1,184
$ 1,094
$ 90

In the first nine months of 2017, increases in accounts receivable, inventories and accounts payable primarily reflect higher working capital to support the increase in our sales. In the first nine months of 2017, changes in accrued liabilities and other primarily reflect the timing of payment of accrued liabilities.

Net cash used in investing activities was $700 million in the first nine months of 2017, as compared to $249 million in the first nine months of 2016. This increase is primarily due to cash paid of $287 million related to the acquisition of Antolin Seating. In addition, capital spending was $430 million in the first nine months of 2017, as compared to $300 million in the first nine months of 2016. Capital spending in 2017 is estimated at~~$585 million.~~

Net cash used in financing activities was $546 million in the first nine months of 2017, as compared to $699 million in the first nine months of 2016. In the first nine months of 2017, we received net proceeds of $745 million related to the issuance of the 2027 Notes, paid $517 million related to the redemption of the outstanding 2023 Notes and paid a net of $203 million related to the refinancing of the Credit Agreement (see "— Credit Agreement" and "— Senior Notes" below). Also in 2017, we paid $332 million for repurchases of our common stock, $104 million of dividends to Lear stockholders and $43 million of dividends to noncontrolling interest holders. In 2016, we paid $558 million for repurchases of our common stock, $68 million of dividends to Lear stockholders and $15 million of dividends to noncontrolling interest holders.

~~Capitalization~~

From time to time, we utilize uncommitted credit facilities to fund our capital expenditures and working capital requirements at certain of our foreign subsidiaries, in addition to cash provided by operating activities. As of September 30, 2017 and December 31, 2016, our outstanding short-term debt balance was $2 million and $9 million, respectively. The availability of uncommitted lines of credit may be affected by our financial performance, credit ratings and other factors.

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~~Senior Notes~~

~~As of September 30, 2017, our senior notes (collectively, the "Notes") consist of the amounts shown below (in millions, except stated coupon rates):~~

Note Aggregate Principal Amount at Maturity Stated Coupon Rate
Senior unsecured notes due 2024 (the "2024 Notes") $ 325
5.375 %
Senior unsecured notes due 2025 (the "2025 Notes") 650
5.25 %
Senior unsecured notes due 2027 750
3.8 %
$ 1,725

In August 2017, we issued the 2027 Notes, resulting in proceeds of $745 million, after original issue discount. The proceeds from the offering were used to redeem the outstanding 2023 Notes at a redemption price of $517 million, as well as to refinance a portion of the $500 million prior term loan facility (see "— Credit Agreement," below). In connection with the redemption transaction, we recognized a loss of $21 million on the extinguishment of debt.

The Notes are senior unsecured obligations. As discussed further in "— Credit Agreement" below, upon termination of our prior credit agreement, the subsidiaries that previously guaranteed the 2024 Notes and 2025 Notes were automatically released as guarantors. There are currently no guarantors of our obligations under the Notes.

For further information related to the Notes, including information on early redemption, covenants and events of default, see Note 8, "Debt," to the condensed consolidated financial statements included in this Report and Note 6, "Debt," to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2016.

~~Credit Agreement~~

~~In August 2017, we entered into a new Credit Agreement consisting of a $1.75 billion Revolving Credit Facility and a $250 Term Loan Facility, both of which mature on August 8, 2022.~~ In connection with this transaction, we borrowed $250 million under the Term Loan Facility. At the same time, we terminated our previously existing credit agreement, which consisted of a $1.25 billion revolving credit facility and a $500 million term loan facility, and repaid amounts outstanding under the term loan facility of $453 million. Together with the offering of the 2027 Notes, these transactions extended our maturity profile and increased our borrowing capacity.

~~The Credit Agreement eliminated subsidiary guarantees previously required under the prior credit agreement. There are currently no guarantors of our obligations under the Credit Agreement.~~

For further information related to the Credit Agreement, including information on pricing, covenants and events of default, see Note 8, "Debt," to the condensed consolidated financial statements included in this Report.

~~Scheduled Interest Payment and Covenants~~

~~There are no scheduled cash interest payments for the remaining three months of 2017.~~

~~As of September 30, 2017, we were in compliance with all covenants under the Credit Agreement and the indentures governing the Notes.~~

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~~Contractual Obligations~~

As a result of the financing transactions discussed in "Credit Agreement" and "Senior Notes" above, our scheduled maturities of long-term debt, including capital lease obligations, and scheduled interest payments on the Notes as of September 30, 2017, are shown below (in millions):

2017⁽¹⁾
2018 2019 2020 2021 Thereafter Total
Senior notes $ —
$ —
$ —
$ —
$ —
$ 1,725
$ 1,725
Credit agreement —
term loan facility
2
6
8
14
14
206
250
Scheduled interest payments —
80
80
80
80
335
655
Total $ 2
$ 86
$ 88
$ 94
$ 94
$ 2,266
$ 2,630

⁽¹⁾~~Scheduled maturities for the fourth quarter of 2017~~

~~Accounts Receivable Factoring~~

One of our European subsidiaries has an uncommitted factoring agreement, which provides for aggregate purchases of specified customer accounts of up to €200 million. As of September 30, 2017, there were no factored receivables outstanding. We cannot provide any assurances that this factoring facility will be available or utilized in the future.

~~Common Stock Share Repurchase Program~~

In February 2017, our Board of Directors authorized a $659 million increase to our existing common stock share repurchase program to provide for a remaining aggregate repurchase authorization of $1 billion and extended the term of the program to December 31, 2019. In the first nine months of 2017, we paid, in aggregate, $332 million for repurchases of our outstanding common stock (2,320,469 shares at an average purchase price of $143.14 per share, excluding commissions). As of the end of the third quarter of 2017, we have a remaining repurchase authorization of $668 million.

We may implement these share repurchases through a variety of methods, including, but not limited to, open market purchases, accelerated stock repurchase programs and structured repurchase transactions. The extent to which we will repurchase our outstanding common stock and the timing of such repurchases will depend upon our financial condition, prevailing market conditions, alternative uses of capital and other factors (see "—Forward-Looking Statements").

Since the first quarter of 2011, our Board of Directors has authorized $4.1 billion in share repurchases under our common stock share repurchase program. As of the end of the third quarter of 2017, we have paid, in aggregate, $3.4 billion for repurchases of our outstanding common stock, at an average price of $78.18 per share, excluding commissions and related fees.

For further information related to our common stock share repurchase program, see Note 13, "Comprehensive Income and Equity," to the condensed consolidated financial statements included in this Report.

~~Dividends~~

The quarterly cash dividend declared in each of the first three quarters of 2017 reflects a 67% increase over the quarterly cash dividend declared in each of the first three quarters of 2016. A summary of 2017 dividends is shown below:

Payment Date Dividend Per Share Declaration Date Record Date
March 23, 2017 $ 0.50
February 10, 2017 March 3, 2017
June 28, 2017 $ 0.50
May 18, 2017 June 9, 2017
September 19, 2017 $ 0.50
August 9, 2017 August 31, 2017

We currently expect to pay quarterly cash dividends in the future, although such payments are at the discretion of our Board of Directors and will depend upon our financial condition, results of operations, capital requirements, alternative uses of capital and other factors that our Board of Directors may consider at its discretion.2020.

Adequacy of Liquidity Sources

As of ~~September 30, 2017,~~October 2, 2021, we had ~~approximately $1.3~~$1.1 billion of cash and cash equivalents on hand and $1.75 billion in available borrowing capacity under our ~~Revolving Credit Facility.~~revolving credit facility. On October 28, 2021, we entered into an amended and restated unsecured credit agreement which increases available borrowings under our revolving credit facility to $2.0 billion and extends the maturity date to October 28, 2026. Together with cash provided by operating activities, we believe that this will enable us to meet our liquidity needs for the foreseeable future and to satisfy ordinary course business ~~obligations, as well as~~obligations. In addition, we expect to continue to pay quarterly dividends and repurchase shares of our common stock pursuant to our authorized common stock share repurchase program, although such actions are at the discretion of our Board of Directors and will depend on our financial condition, results of operations, capital requirements, prevailing market conditions, alternative uses of capital and other factors that our Board of Directors may consider at its discretion.

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~~LEAR CORPORATION~~

~~program (see "— Common Stock Share Repurchase Program," above).~~ Our future financial results and our ability to continue to meet our liquidity needs are subject to, and will be affected by, cash flows from operations, including the ~~impact~~continuing effects of the COVID-19 pandemic, as well as restructuring activities, automotive industry conditions, the financial condition of our customers and suppliers and other related factors. Additionally, an economic downturn or reduction in production levels could negatively impact our financial condition.

For further discussion of the risks and uncertainties affecting our cash flows from operations and our overall liquidity, see "— Executive Overview" above, "— Forward-Looking Statements" below and Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2020, as supplemented and updated by Part II — Item 1A, "Risk Factors," in our Quarterly Report on Form 10-Q for the quarter ended April 3, 2021.

Cash Flows

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


	Nine Months Ended
	October 2, 2021		October 3, 2020		Increase (Decrease) in Operating Cash Flow
Consolidated net income and depreciation and amortization	$	843	$	408	$	435
Net change in working capital items:
Accounts receivable	356		(417)		773
Inventory	(393)		(14)		(379)
Accounts payable	(225)		124		(349)
Accrued liabilities and other	(68)		169		(237)
Net change in working capital items	(330)		(138)		(192)
Other	(10)		(8)		(2)
Net cash provided by operating activities	$	503	$	262	$	241

In the first nine months of 2021 and 2020, net cash provided by operating activities was $503 million and $262 million, respectively. The overall increase in operating cash flows of $241 million is primarily due to higher earnings in 2021, offset by an incremental increase in working capital during the first nine months of 2021, as compared to the first nine months of 2020, reflecting increased inventory levels due to unpredictable production schedules as a result of industry-wide supply shortages in 2021.

Net cash used in investing activities was $478 million in the first nine months of 2021, as compared to $297 million in the first nine months of 2020. Capital spending was $406 million in the first nine months of 2021, as compared to $285 million in the first nine months of 2020. Capital spending is estimated to be approximately $600 million in 2021.

Net cash used in financing activities was $232 million in the first nine months of 2021, as compared to $212 million in the first nine months of 2020. In the first nine months of 2021, we paid $99 million for repurchases of our common stock, $61 million of

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dividends to Lear stockholders and $81 million of dividends to noncontrolling interest holders. In the first nine months of 2020, we received net proceeds of $669 million related to the issuance of 3.5% senior notes due 2030 and additional 5.25% senior notes due 2049 and paid $6 million of related issuance costs and $667 million related to the redemption of our outstanding 5.25% senior notes due 2025. Also in the first nine months of 2020, we paid $70 million for repurchases of our common stock, $52 million of dividends to Lear stockholders and $46 million of dividends to noncontrolling interest holders.

Capitalization

For information related to our senior notes and credit agreement, see Note 8, "Debt," to the condensed consolidated financial statements included in this Report and Note 7, "Debt," to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.

For information related to our common stock share repurchase program and dividends, see "— Executive Overview — Share Repurchase Program and Quarterly Cash Dividends" above, Note 15, "Comprehensive Income (Loss) and Equity," to the condensed consolidated financial statements included in this Report and Note 12, "Capital Stock, Accumulated Other Comprehensive Loss and Equity," to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.

Market Risk Sensitivity

In the normal course of business, we are exposed to market risks associated with fluctuations in foreign exchange rates, interest rates and commodity prices. We manage a portion of these risks through the use of derivative financial instruments in accordance with our policies. We enter into all hedging transactions for periods consistent with the underlying exposures. We do not enter into derivative instruments for trading purposes.

Foreign Exchange

Operating results may be impacted by our buying, selling and financing in currencies other than the functional currency of our operating companies ("transactional exposure"). We may mitigate a portion of this risk by entering into forward foreign exchange, futures and option contracts. The foreign exchange contracts are executed with banks that we believe are creditworthy. Gains and losses related to foreign exchange contracts are deferred where appropriate and included in the measurement of the foreign currency transaction subject to the hedge. Gains and losses incurred related to foreign exchange contracts are generally offset by the direct effects of currency movements on the underlying transactions.

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


	September 30, 2017		December 31, 2016				October 2, 2021		December 31, 2020
Notional amount (contract maturities < 24 months)	$	2,308	$	1,956		Notional amount (contract maturities < 24 months)	$	2,462	$	2,494
Fair value	21		(54		)	Fair value	20		48

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

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


		Potential Earnings Benefit (Adverse Earnings Impact)
	Hypothetical Strengthening % (1)	October 2, 2021		December 31, 2020
U.S. dollar	10%	$	7	$	23
Euro	10%	(6)		(4)

Potential Earnings Benefit (Adverse Earnings Impact)

Hypothetical Strengthening % ⁽¹⁾
September 30, 2017 December 31, 2016
U.S. dollar
10% $ (19 ) $ (19 )
Euro 10% 22
16

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

~~We have performed a~~

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A sensitivity analysis related to the aggregate fair value of our outstanding foreign exchange contracts asis shown below (in millions):


		Estimated Change in Fair Value
	Hypothetical Change % (2)	October 2, 2021		December 31, 2020
U.S. dollar	10%	$	56	$	80
Euro	10%	49		59

Estimated Change in Fair Value

Hypothetical Change % ⁽²⁾
September 30, 2017 December 31, 2016
U.S. dollar 10% $ 34
$ 50
Euro 10% 69
35

⁽²⁾Relative to all other currencies to which it is exposed for a twelve-month period

There are certain shortcomings inherent in the sensitivity analyses above. The analyses assume that all currencies would uniformly strengthen or weaken relative to the U.S. dollar or Euro. In reality, some currencies may strengthen while others may weaken, causing the earnings impact to increase or decrease depending on the currency and the direction of the rate movement.

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In addition to the transactional exposure described above, our operating results are impacted by the translation of our foreign operating income into U.S. dollars ("translational exposure"). In ~~2016,~~2020, net sales outside of the United States accounted for ~~77%~~79% of our consolidated net sales, although certain non-U.S. sales are U.S. dollar denominated. We do not enter into foreign exchange contracts to mitigate our translational exposure.

Commodity Prices and Availability

Raw material, energy and commodity costs can be ~~volatile.~~volatile, reflecting changes in supply and demand and global trade and tariff policies. We have developed and implemented strategies to mitigate the impact of higher raw material, energy and commodity costs, such as the selective in-sourcing of components, the continued consolidation of our supply base, longer-term purchase commitments and the selective expansion of low-cost country sourcing and engineering, as well as value engineering and product benchmarking. However, these strategies, together with commercial negotiations with our customers and suppliers, typically offset only a portion of the adverse impact. Certain of these strategies also may limit our opportunities in a declining commodity cost environment. In addition, the availability of raw materials, commodities and product components fluctuates from time to time due to factors outside of our control, including trade laws and tariffs, natural disasters, global pandemics like COVID-19 and resulting supply chain disruptions. Currently, due to a variety of global factors, the insufficient availability of semiconductor chips is adversely affecting, and may continue to adversely affect, a number of industries, including the automotive industry, resulting in reduced levels of automotive production. If ~~these~~the costs ~~increase,~~of raw materials, commodities and product components increases or the availability thereof is restricted, it could have an adverse impact on our operating results in the foreseeable future. See "— Forward-Looking Statements" below and Item 1A, "Risk Factors — Increases in the costs and restrictions on the availability of raw materials, energy, commodities and product components could adversely affect our financial performance," in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2020, as supplemented and updated by Part II — Item 1A, "Risk Factors," in this Report.

We have commodity price risk with respect to purchases of certain raw materials, including steel, copper, diesel fuel, chemicals, resins and leather. Our main cost exposures relate to steel, copper and leather. The majority of the steel used in our products is comprised of fabricated components that are integrated into a seat system, such as seat frames, recliner mechanisms, seat tracks and other mechanical components. Therefore, our exposure to changes in steel prices is primarily indirect, through these purchased components. Approximately ~~89%~~92% of our copper purchases and a significant portion of our leather purchases are subject to price index agreements with our ~~customers.~~customers and suppliers.

For further information related to the financial instruments described above, see Note ~~16,~~18, "Financial Instruments," to the condensed consolidated financial statements included in this Report.

OTHER MATTERS

Legal and Environmental Matters

We are involved from time to time in various legal proceedings and claims, including, without limitation, commercial and contractual disputes, product liability claims and environmental and other matters. As of ~~September 30, 2017,~~October 2, 2021, we ~~had~~have recorded reserves for pending legal disputes, including commercial disputes and other matters, of $9$18 million. In addition, as of ~~September 30, 2017,~~October 2, 2021, we ~~had~~have recorded reserves for product liability claims and environmental matters of ~~$49~~$44 million and $9$8 million, respectively. Although these reserves were determined in accordance with GAAP, the ultimate outcomes of these matters are inherently uncertain, and actual results may differ significantly from current estimates. For a description of risks related to various legal proceedings and claims, see Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2020. For a more complete description of our outstanding material legal proceedings, see Note ~~14,~~16, "Legal and Other Contingencies," to the condensed consolidated financial statements included in this Report.

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LEAR CORPORATION

Significant Accounting Policies and Critical Accounting Estimates

Certain of our accounting policies require management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are based on our historical experience, the terms of existing contracts, our evaluation of trends in the industry, information provided by our customers and suppliers and information available from other outside sources, as appropriate. However, these estimates and assumptions are subject to an inherent degree of uncertainty. As a result, actual results in these areas may differ significantly from our estimates. For a discussion of our significant accounting policies and critical accounting estimates, see Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Significant Accounting Policies and Critical Accounting Estimates," and Note 2, "Summary of Significant Accounting Policies," to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2020. There have been no significant changes in our significant accounting policies or critical accounting estimates during the ~~third quarter~~first nine months of ~~2017.~~2021.

Recently Issued Accounting Pronouncements

For information on the impact of recently issued accounting pronouncements, see Note ~~17,~~19, "Accounting Pronouncements," to the condensed consolidated financial statements included in this Report.

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~~LEAR CORPORATION~~

Forward-Looking Statements

The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf. The words "will," "may," "designed to," "outlook," "believes," "should," "anticipates," "plans," "expects," "intends," "estimates," "forecasts" and similar expressions identify certain of these forward-looking statements. We also may provide forward-looking statements in oral statements or other written materials released to the public. All such forward-looking statements contained or incorporated in this Report or in any other public statements which address operating performance, events or developments that we expect or anticipate may occur in the future, including, without limitation, statements related to business opportunities, awarded sales contracts, sales backlog and ongoing commercial arrangements, or statements expressing views about future operating results, are forward-looking statements. Actual results may differ materially from any or all forward-looking statements made by us. Important factors, risks and uncertainties that may cause actual results to differ materially from anticipated results include, but are not limited to:

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

~~currency controls~~•the impact of the ongoing COVID-19 pandemic on our business and the ~~ability to economically hedge currencies;~~global economy;

~~the financial condition and restructuring actions of our customers and suppliers;~~

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

•fluctuations in the production of vehicles or the loss of business with respect to, or the lack of commercial success of, a vehicle model for which we are a significant supplier;

~~disruptions in the relationships with our suppliers;~~

~~labor disputes involving us or our significant customers or suppliers or that otherwise affect us;~~

•the outcome of customer negotiations and the impact of customer-imposed price reductions;

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

~~the costs, timing and success of restructuring actions;~~

~~increases in our warranty, product liability or recall costs;~~

~~risks associated with conducting business in foreign countries;~~

~~the impact of regulations on our foreign operations;~~

~~the operational and financial success of our joint ventures;~~

~~competitive conditions impacting us and our key customers and suppliers;~~

~~disruptions to our information technology systems, including those related to cybersecurity;~~

•the cost and availability of raw materials, energy, commodities and product components and our ability to mitigate such ~~costs;~~costs or insufficient availability;

•disruptions in relationships with our suppliers;

•the ~~outcome~~financial condition of ~~legal or regulatory proceedings to which we are or may become a party;~~and adverse developments affecting our customers and suppliers;

~~the impact of pending legislation~~•risks associated with conducting business in foreign countries;

•currency controls and ~~regulations or changes in existing federal, state, local or foreign laws or regulations;~~

~~unanticipated changes in cash flow, including our~~the ability to ~~align our vendor payment terms with those of our customers;~~economically hedge currencies;

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

~~impairment charges initiated by adverse industry or market developments;~~

~~our ability to execute our strategic objectives;~~

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

~~costs associated with compliance with environmental laws and regulations;~~

~~developments or assertions by or against us relating to intellectual property rights;~~

~~our ability to utilize our net operating loss, capital loss and tax credit carryforwards;~~

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~~LEAR CORPORATION~~

•global sovereign fiscal matters and creditworthiness, including potential defaults and the related impacts on economic activity, including the possible effects on credit markets, currency values, monetary unions, international treaties and fiscal policies;

•competitive conditions impacting us and our key customers and suppliers;

•labor disputes involving us or our significant customers or suppliers or that otherwise affect us;

•the operational and financial success of our joint ventures;

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

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

•impairment charges initiated by adverse industry or market developments;

•our ability to execute our strategic objectives;

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

•changes affecting the availability of LIBOR;

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LEAR CORPORATION

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

•increases in our warranty, product liability or recall costs;

•the outcome of legal or regulatory proceedings to which we are or may become a party;

•the impact of pending legislation and regulations or changes in existing federal, state, local or foreign laws or regulations;

•the impact of regulations on our foreign operations;

•costs associated with compliance with environmental laws and regulations;

•developments or assertions by or against us relating to intellectual property rights;

•the impact of potential changes in tax and trade policies in the United States and related actions by countries in which we do business;

•the anticipated changes in economic and other relationships between the United Kingdom and the European Union; and

•other risks described in Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2020, as supplemented and updated by Part II — Item 1A, "Risk Factors," in this Report, and our other Securities and Exchange Commission ~~("SEC")~~ filings.

The forward-looking statements in this Report are made as of the date hereof, and we do not assume any obligation to update, amend or clarify them to reflect events, new information or circumstances occurring after the date hereof.

ITEM 4 — CONTROLS AND PROCEDURES

(a)Disclosure Controls and Procedures


~~(a)~~	~~Disclosure Controls and Procedures~~

The Company has evaluated, under the supervision and with the participation of the Company’s management, including the Company’s President and Chief Executive Officer along with the Company’s Senior Vice President and Chief Financial Officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this Report. The Company’s disclosure controls and procedures are designed to provide reasonable assurance of achieving their objectives. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Based on the evaluation described above, the Company’s President and Chief Executive Officer along with the Company’s Senior Vice President and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective to provide reasonable assurance that the desired control objectives were achieved as of the end of the period covered by this Report.


~~(b)~~	~~Changes in Internal Control over Financial Reporting~~

(b)Changes in Internal Control over Financial Reporting

There was no change in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended ~~September 30, 2017,~~October 2, 2021, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. In April 2017, the Company completed the acquisition of Grupo Antolin's automotive seating business ("Antolin Seating") and is currently integrating Antolin Seating into its operations, compliance programs and internal control processes. As permitted by SEC rules and regulations, the Company has excluded Antolin Seating from management's evaluation of internal controls over financial reporting as of September 30, 2017. Antolin Seating constituted approximately 4% of the Company's total assets as of September 30, 2017, and approximately 2% of the Company's net sales in the three months ended September 30, 2017.

PART II — OTHER INFORMATION

ITEM 1 — LEGAL PROCEEDINGS

We are involved from time to time in various legal proceedings and claims, including, without limitation, commercial or contractual disputes, product liability claims and environmental and other matters. For a description of risks related to various legal proceedings and claims, see Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2020. For a description of our outstanding material legal proceedings, see Note ~~14,~~16, "Legal and Other Contingencies," to the condensed consolidated financial statements included in this Report.

ITEM 1A — RISK FACTORS

There have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~

2020, and our Quarterly Report on Form 10-Q for the quarter ended April 3, 2021.

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ITEM 2 — UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

As discussed in Part I — Item 2, "Management’s Discussion and Analysis of Financial Condition and Results of Operations — ~~Liquidity and Capital Resources~~Executive Overview — ~~Capitalization — Common Stock~~ Share Repurchase Program and Quarterly Cash Dividends," and Note ~~13,~~15, "Comprehensive Income (Loss) and Equity," to the condensed consolidated financial statements included in this Report, in March 2020, as a proactive measure in response to the COVID-19 pandemic, we ~~have a remaining repurchase authorization~~suspended our share repurchases. Share repurchases were reinstated in the second quarter of ~~$667.8 million under our ongoing common stock share repurchase program.~~ 2021.

A summary of the shares of our common stock repurchased during the quarter ended ~~September 30, 2017,~~October 2, 2021, is shown below:


Period	Total Number of Shares Purchased	Average Price Paid per Share	Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs	Approximate Dollar Value of Shares that May Yet be Purchased Under the Program (in millions)
July 4, 2021 through July 31, 2021	236,287	$169.28	236,287	$	1,358.8
August 1, 2021 through August 28, 2021	105,185	$159.86	105,185	1,342.0
August 29, 2021 through October 2, 2021	78,431	$156.63	78,431	1,329.7
Total	419,903	$164.56	419,903	$	1,329.7

Period
Total Number
of Shares
Purchased

Average
Price Paid
per Share

Total Number of
Shares Purchased
as Part of
Publicly Announced
Plans or Programs

Approximate Dollar
Value of Shares that
May Yet be
Purchased Under
the Program
(in millions)
July 2, 2017 through July 29, 2017 —
$— —
$ 745.7
July 30, 2017 through August 26, 2017 276,345
$144.85 276,345
705.7
August 27, 2017 through September 30, 2017 251,057
$150.52 251,057
667.8
Total 527,402
$147.55 527,402
$ 667.8

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ITEM 6 — EXHIBITS

~~The exhibits listed on the "Index to Exhibits" on the following page are filed with this Form 10-Q or incorporated by reference as set forth below.~~

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~~LEAR CORPORATION~~

Exhibit Index ~~to Exhibits~~



		Exhibit Number	Exhibit Name
*		~~1.1~~31.1	Underwriting Agreement, dated August 14, 2017, among Lear Corporation and Barclays Capital Inc., Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representatives of the several underwriters named therein (incorporated by reference to Exhibit 1.1 to the Company Current Report on Form 8-K dated August 17, 2017).
	~~4.1~~	Indenture, dated August 17, 2017, between Lear Corporation and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.1 to the Company Current Report on Form 8-K dated August 17, 2017).
	~~4.2~~	First Supplemental Indenture, dated August 17, 2017, between Lear Corporation and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.2 to the Company Current Report on Form 8-K dated August 17, 2017).
	~~10.1~~	Credit Agreement, dated August 8, 2017, among Lear Corporation, the foreign subsidiary borrowers from time to time party thereto, the lenders from time to time party thereto, HSBC Securities (USA) Inc., as syndication agent, Barclays Bank PLC, Citibank N.A. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as co-documentation agents, and JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the Company Current Report on Form 8-K dated August 8, 2017).
*	~~10.2~~	~~Statement on Confidential Information, effective as of August 9, 2017.~~
*	~~10.3~~	~~First Amendment to the Lear Corporation Outside Directors Compensation Plan, dated September 13, 2017.~~
*	~~10.4~~	~~Form of Cash Retainer Deferral Election under Outside Directors Compensation Plan, effective as of September 13, 2017.~~
*	~~10.5~~	~~Form of Stock Grant Deferral under Outside Directors Compensation Plan, effective as of September 13, 2017.~~
*	~~10.6~~	~~Anti-Hedging and Anti-Pledging Policy, amended and restated as of September 13, 2017.~~
*	~~31.1~~	Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.
*		31.2	Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.
*		32.1	Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*		32.2	Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
**		101.INS	XBRL Instance ~~Document.~~Document
***		101.SCH	XBRL Taxonomy Extension Schema Document.
***		101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
***		101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
***		101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.
***		101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.

**	104	Cover Page Interactive Data File

*	~~Filed herewith.~~
*	Filed herewith.
**	The XBRL Instance Document and Cover Page Interactive Data File do not appear in the Interactive Data File because their XBRL tags are embedded within the Inline XBRL document.
***	Submitted electronically with the Report.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.


LEAR CORPORATION

~~LEAR CORPORATION~~Dated:	November 2, 2021	By:	/s/ Raymond E. Scott
			Raymond E. Scott
~~Dated:~~	~~October 25, 2017~~	~~By:~~	~~/s/ Matthew J. Simoncini~~
	~~Matthew J. Simoncini~~
	President and Chief Executive Officer

		By:	/s/ ~~Jeffrey H. Vanneste~~Jason M. Cardew
			~~Jeffrey H. Vanneste~~Jason M. Cardew
			Senior Vice President and Chief Financial Officer



	September 30, 2017 ⁽¹⁾			December 31, 2016
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,253.7		$	1,271.6
Accounts receivable	3,357.9			2,746.5
Inventories	1,232.9			1,020.6
Other	718.5			610.6
Total current assets	6,563.0			5,649.3
LONG-TERM ASSETS:
Property, plant and equipment, net	2,378.1			2,019.3
Goodwill	1,387.1			1,121.3
Other	1,383.8			1,110.7
Total long-term assets	5,149.0			4,251.3
Total assets	$	11,712.0		$	9,900.6

LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Short-term borrowings	$	1.8		$	8.6
Accounts payable and drafts	3,176.0			2,640.5
Accrued liabilities	1,706.2			1,497.6
Current portion of long-term debt	9.0			35.6
Total current liabilities	4,893.0			4,182.3
LONG-TERM LIABILITIES:
Long-term debt	1,953.0			1,898.0
Other	691.0			627.4
Total long-term liabilities	2,644.0			2,525.4

Redeemable noncontrolling interest	147.7			—

EQUITY:
Preferred stock, 100,000,000 shares authorized (including 10,896,250 Series A convertible preferred stock authorized); no shares outstanding	—			—
Common stock, $0.01 par value, 300,000,000 shares authorized; 72,563,291 and 80,563,291 shares issued as of September 30, 2017 and December 31, 2016, respectively	0.7			0.8
Additional paid-in capital	1,199.3			1,385.3
Common stock held in treasury, 5,003,036 and 11,131,648 shares as of September 30, 2017 and December 31, 2016, respectively, at cost	(602.4		)	(1,200.2		)
Retained earnings	3,810.3			3,706.9
Accumulated other comprehensive loss	(536.8		)	(835.6		)
Lear Corporation stockholders’ equity	3,871.1			3,057.2
Noncontrolling interests	156.2			135.7
Equity	4,027.3			3,192.9
Total liabilities and equity	$	11,712.0		$	9,900.6



Purchase price paid, net of cash acquired	$	286.8
Acquisition date contingent consideration	4.7
Net purchase price	$	291.5

Property, plant and equipment	$	81.7
Other assets purchased and liabilities assumed, net	(34.2		)
Goodwill	122.6
Intangible assets	121.4
Preliminary purchase price allocation	$	291.5



Purchase price paid, net of cash acquired	$	148.5

Property, plant and equipment	$	11.2
Other assets purchased and liabilities assumed, net	7.2
Goodwill	77.1
Intangible assets	53.0
Preliminary purchase price allocation	$	148.5



	Accrual as of		2017		Utilization						Accrual as of
	January 1, 2017		Charges		Cash			Non-cash			September 30, 2017
Employee termination benefits	$	69.4	$	41.0	$	(27.7	)	$	—		$	82.7
Asset impairment charges	—		0.4		—			(0.4		)	—
Contract termination costs	4.6		1.5		(1.2		)	—			4.9
Other related costs	—		4.9		(4.9		)	—			—
Total	$	74.0	$	47.8	$	(33.8	)	$	(0.4	)	$	87.6



Property, plant and equipment	$	16.2
Other assets and liabilities assumed, net	42.7
Goodwill	94.1
Intangible assets	66.0
	$	219.0



	Three Months Ended September 30, 2017									Nine Months Ended September 30, 2017
	Equity			Lear Corporation Stockholders' Equity			Non- controlling Interests			Equity			Lear Corporation Stockholders' Equity			Non- controlling Interests
Beginning equity balance	$	3,756.2		$	3,621.9		$	134.3		$	3,192.9		$	3,057.2		$	135.7
Stock-based compensation transactions	14.9			14.9			—			8.4			8.4			—
Repurchase of common stock	(77.9		)	(77.9		)	—			(332.2		)	(332.2		)	—
Dividends declared to Lear Corporation stockholders	(34.8		)	(34.8		)	—			(105.8		)	(105.8		)	—
Dividends declared to noncontrolling interest holders	(0.7		)	—			(0.7		)	(33.2		)	—			(33.2		)
Adoption of ASU 2016-09 (Note 11, "Taxes")	—			—			—			54.5			54.5			—
Redeemable non-controlling interest adjustment	(22.7		)	(22.7		)	—			(22.7		)	(22.7		)	—
Comprehensive income:
Net income	315.0			295.2			19.8			960.5			912.9			47.6
Other comprehensive income, net of tax:
Defined benefit plan adjustments	(1.8		)	(1.8		)	—			(3.0		)	(3.0		)	—
Derivative instruments and hedging activities	(10.8		)	(10.8		)	—			57.2			57.2			—
Foreign currency translation adjustments	89.9			87.1			2.8			250.7			244.6			6.1
Other comprehensive income	77.3			74.5			2.8			304.9			298.8			6.1
Comprehensive income	392.3			369.7			22.6			1,265.4			1,211.7			53.7
Ending equity balance	$	4,027.3		$	3,871.1		$	156.2		$	4,027.3		$	3,871.1		$	156.2



	Three Months Ended September 30, 2017			Nine Months Ended September 30, 2017
Defined benefit plans:
Balance at beginning of period	$	(194.0	)	$	(192.8	)
Reclassification adjustments (net of tax expense of $0.3 million and $1.2 million in the three and nine months ended September 30, 2017, respectively)	0.9			3.4
Other comprehensive loss recognized during the period (net of tax impact of $— million in the three and nine months ended September 30, 2017)	(2.7		)	(6.4		)
Balance at end of period	$	(195.8	)	$	(195.8	)

Derivative instruments and hedging:
Balance at beginning of period	$	22.9		$	(45.1	)
Reclassification adjustments (net of tax benefit of $1.0 million and tax expense of $1.9 million in the three and nine months ended September 30, 2017, respectively)	(3.1		)	5.7
Other comprehensive income (loss) recognized during the period (net of tax benefit of $3.2 million and tax expense of $16.6 million in the three and nine months ended September 30, 2017, respectively)	(7.7		)	51.5
Balance at end of period	$	12.1		$	12.1

Foreign currency translation:
Balance at beginning of period	$	(440.2	)	$	(597.7	)
Other comprehensive income recognized during the period (net of tax impact of $— million in the three and nine months ended September 30, 2017)	87.1			244.6
Balance at end of period	$	(353.1	)	$	(353.1	)



	Three Months Ended October 1, 2016									Nine Months Ended October 1, 2016
	Equity			Lear Corporation Stockholders' Equity			Non- controlling Interests			Equity			Lear Corporation Stockholders' Equity			Non- controlling Interests
Beginning equity balance	$	3,156.1		$	3,012.8		$	143.3		$	3,017.7		$	2,927.4		$	90.3
Stock-based compensation transactions	15.6			15.6			—			6.7			6.7			—
Repurchase of common stock	(152.7		)	(152.7		)	—			(557.7		)	(557.7		)	—
Dividends declared to Lear Corporation stockholders	(21.9		)	(21.9		)	—			(67.5		)	(67.5		)	—
Dividends declared to noncontrolling interest holders	(0.4		)	—			(0.4		)	(13.2		)	—			(13.2		)
Consolidation of affiliate	1.0			—			1.0			41.0			—			41.0
Non-controlling interests — other	—			—			—			—			(2.2		)	2.2
Comprehensive income:
Net income	235.0			214.4			20.6			792.0			745.2			46.8
Other comprehensive income (loss), net of tax:
Defined benefit plan adjustments	1.5			1.5			—			(0.2		)	(0.2		)	—
Derivative instruments and hedging activities	0.8			0.8			—			(10.6		)	(10.6		)	—
Foreign currency translation adjustments	8.0			8.0			—			34.8			37.4			(2.6		)
Other comprehensive income (loss)	10.3			10.3			—			24.0			26.6			(2.6		)
Comprehensive income	245.3			224.7			20.6			816.0			771.8			44.2
Ending equity balance	$	3,243.0		$	3,078.5		$	164.5		$	3,243.0		$	3,078.5		$	164.5



Balance at January 1, 2017	$	49.1
Expense, net (including changes in estimates)	12.5
Settlements	(15.5		)
Foreign currency translation and other	3.0
Balance at September 30, 2017	$	49.1



	September 30, 2017		December 31, 2016
Estimated aggregate fair value	$	2,037.8	$	2,004.8
Aggregate carrying value ⁽¹⁾	1,975.0		1,943.7



(in millions)	Cost of Sales
Third quarter 2016	$	4,013
Material cost	304
Labor and other	95
Depreciation	14
Third quarter 2017	$	4,426



(in millions)	Cost of Sales
First nine months of 2016	$	12,324
Material cost	760
Labor and other	269
Depreciation	34
First nine months of 2017	$	13,387



Note	Aggregate Principal Amount at Maturity		Stated Coupon Rate
Senior unsecured notes due 2024 (the "2024 Notes")	$	325	5.375	%
Senior unsecured notes due 2025 (the "2025 Notes")	650		5.25	%
Senior unsecured notes due 2027	750		3.8	%
	$	1,725



	2017⁽¹⁾		2018		2019		2020		2021		Thereafter		Total
Senior notes	$	—	$	—	$	—	$	—	$	—	$	1,725	$	1,725
Credit agreement — term loan facility	2		6		8		14		14		206		250
Scheduled interest payments	—		80		80		80		80		335		655
Total	$	2	$	86	$	88	$	94	$	94	$	2,266	$	2,630



Payment Date	Dividend Per Share		Declaration Date	Record Date
March 23, 2017	$	0.50	February 10, 2017	March 3, 2017
June 28, 2017	$	0.50	May 18, 2017	June 9, 2017
September 19, 2017	$	0.50	August 9, 2017	August 31, 2017



		Potential Earnings Benefit (Adverse Earnings Impact)
	Hypothetical Strengthening % ⁽¹⁾	September 30, 2017			December 31, 2016
U.S. dollar	10%	$	(19	)	$	(19	)
Euro	10%	22			16



		Estimated Change in Fair Value
	Hypothetical Change % ⁽²⁾	September 30, 2017		December 31, 2016
U.S. dollar	10%	$	34	$	50
Euro	10%	69		35