UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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x☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2017.
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¨☐ | 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: 1-11311
(Exact name of registrant as specified in its charter)
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| Delaware | | 13-3386776 |
(State or other jurisdiction of
incorporation or organization)
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Identification No.)
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21557 Telegraph Road, Southfield, MI | | 48033 |
(Address of principal executive offices) | | (Zip code) |
Registrant’s
21557 Telegraph Road, Southfield, MI 48033
(Address of principal executive offices)
(248) 447-1500
(Registrant's telephone number including area code: (248) 447-1500
Securities registered pursuant to Section 12(b) of the Act:areas code) |
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| 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 per share | | LEA | | New York Stock Exchange |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x☒ No ¨☐
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨☐ No x☒
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Act 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x☐
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.
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| Large accelerated filer | x☒ | | | 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 has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☒
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨☐ No x☒
As of July 1, 2017,3, 2021, the aggregate market value of the registrant’sregistrant's common stock, par value $0.01 per share, held by non-affiliates of the registrant was $9,648,744,720.$10,606,621,033. The closing price of the common stock on July 1, 2017,2, 2021, as reported on the New York Stock Exchange, was $142.08$177.18 per share.
As of February 2, 2018,7, 2022, the number of shares outstanding of the registrant’sregistrant's common stock was 66,920,13059,703,016 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the registrant’sregistrant's Notice of Annual Meeting of Stockholders and Definitive Proxy Statement on Schedule 14A for its Annual Meeting of Stockholders to be held in May 2018,2022, as described in the Cross Reference Sheet and Table of Contents included herewith, are incorporated by reference into Part III of this Report.
LEAR CORPORATION AND SUBSIDIARIES
CROSS REFERENCE SHEET AND TABLE OF CONTENTS
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| ITEM 7A. | Quantitative and qualitative disclosures about market risk (included in Item 7) | |
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(1) | Certain information is incorporated by reference, as indicated below, to the registrant’s Notice of Annual Meeting of Stockholders and Definitive Proxy Statement on Schedule 14A for its Annual Meeting of Stockholders to be held in May 2018 (the "Proxy Statement"). |
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(2) | A portion of the information required is incorporated by reference to the Proxy Statement sections entitled "Election of Directors" and "Directors and Corporate Governance." |
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(3) | Incorporated by reference to the Proxy Statement sections entitled "Directors and Corporate Governance — Director Compensation," "Compensation Discussion and Analysis," "Executive Compensation," "Compensation Committee Interlocks and Insider Participation" and "Compensation Committee Report." |
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(4) | A portion of the information required is incorporated by reference to the Proxy Statement section entitled "Directors and Corporate Governance — Security Ownership of Certain Beneficial Owners, Directors and Management." |
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(5) | Incorporated by reference to the Proxy Statement sections entitled "Certain Relationships and Related Party Transactions" and "Directors and Corporate Governance — Independence of Directors." |
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(6) | Incorporated by reference to the Proxy Statement section entitled "Fees of Independent Accountants." |
(1)Certain information is incorporated by reference, as indicated below, to the registrant's Definitive Proxy Statement on Schedule 14A for its Annual Meeting of Stockholders to be held in May 2022 (the "Proxy Statement").
(2)A portion of the information required is incorporated by reference to the Proxy Statement sections entitled "Election of Directors" and "Directors and Corporate Governance."
(3)Incorporated by reference to the Proxy Statement sections entitled "Directors and Corporate Governance — Director Compensation," "Compensation Discussion and Analysis," "Executive Compensation," "Compensation Committee Interlocks and Insider Participation" and "Compensation Committee Report."
(4)A portion of the information required is incorporated by reference to the Proxy Statement section entitled "Directors and Corporate Governance — Security Ownership of Certain Beneficial Owners, Directors and Management."
(5)Incorporated by reference to the Proxy Statement sections entitled "Certain Relationships and Related Party Transactions" and "Directors and Corporate Governance — Independence of Directors."
(6)Incorporated by reference to the Proxy Statement section entitled "Fees of Independent Accountants."
PART I
ITEM 1 – BUSINESS
In this Annual Report on Form 10-K (this "Report"), when we use the terms the "Company," "Lear," "we," "us" and "our," unless otherwise indicated or the context otherwise requires, we are referring to Lear Corporation and its consolidated subsidiaries. A substantial portion of the Company’sCompany's operations are conducted through subsidiaries controlled by Lear Corporation. The Company is also a party to various joint venture arrangements. Certain disclosures included in this Report constitute forward-looking statements that are subject to risks and uncertainties. See Item 1A, "Risk Factors," and Part II — Item 7, "Management’s"Management's Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements."
BUSINESS OF THE COMPANY
General
Lear Corporation is 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 and software, tosystems to all of the worlds'sworld's major automotive manufacturers. At Lear, we are Making every drive betterTMby providing technology for safer, smarter and more comfortable journeys, while adhering to our values — Be Inclusive. Be Inventive. Get Results the Right Way.
We have 257 253manufacturing, engineering and administrative locations in 39 countries and are continuing38 countries. We continue to grow our business in all automotive producing regions of the world, both organically and through complementary acquisitions. OurWe continue to restructure our manufacturing footprint reflects more than 151to optimize our cost structure with 61% of our manufacturing facilities and 85% of our employees located in 22 low cost countries.
Lear is built on a foundation and strong culture of innovation, operational excellence, and engineering and program management capabilities. We use our product, design and technological expertise, as well as our global reach and competitive manufacturing footprint, to achieve the following financial goals and objectives with the aim to maximize stockholder value:objectives:
•Continue to deliver profitable growth, balancing risks and returns;
•Invest in innovation to drive business growth and profitability;
•Maintain a strong balance sheet with investment grade credit metrics; and
•Consistently return excess cashcapital to our stockholders.
Our business is organized under two reporting segments: Seating and E-Systems. Each of these segments has a varied product and technology range across a number of component categories:categories. Further, we continuously evaluate our product portfolio, aligning it with industry trends, which allows us to offer value added solutions to our customers.
•Seating—Our Seating segment consists of the design, development, engineering just-in-timeand manufacture of complete seat systems, seat subsystems and key seat components. Our capabilities in operations and supply chain management enable synchronized (just-in-time) assembly and delivery of high volumes of complex complete seat systems to our customers.
Included in our complete seat system and subsystem solutions are advanced comfort, wellness and safety offerings, as well as configurable seating product technologies. All of these products are compatible with traditional internal combustion engine ("ICE") architectures and the design, development, engineeringfull range of hybrid, plug-in hybrid and manufacture of all majorbattery electric architectures (collectively, "electrified powertrains"). Our advanced comfort, wellness and safety offerings are facilitated by our system, component and integration capabilities, together with our in-house electronics, sensor, software and algorithm competencies. As the most vertically integrated global seat components, includingsupplier, 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. We also offer seat heating and cooling capabilities through technology partnerships and design-integrated supplier solutions.
•E-Systems—Our E-Systems segment consists of the design, development, engineering and manufacture of complete electrical distribution and connection systems that routeand electronic systems. The combination of these capabilities enables us to provide our customers with customizable solutions with optimized designs at a competitive cost.
Electrical distribution and connection systems utilize low voltage wire, high voltage wire, high speed data cables and flat wiring to connect networks and electrical signals and manage electrical power within the vehicle for all types of powertrains – from traditional vehicleICE architectures as well as high power and hybrid electric systems.to the full range of electrified powertrains. Key components in theour electrical distribution systemand connection systems portfolio include wire harnesses, terminals and connectors and junction boxes, includingengineered components for both ICE architectures and systems for high power battery electric vehicleelectrified powertrains that require management of higher voltage and hybrid electric vehicle power management and distribution systems. We also design, develop, engineer and manufacture sophisticated electronic control modules thatpower.
Electronic systems facilitate signal, data and power management within the vehicle as well asand include the associated software. Wesoftware required to facilitate these functions. Key components in our electronic systems portfolio include body domain control modules and products specific to electrification and connectivity. Electrification products include on-board battery chargers, power conversion modules, high voltage battery management systems and high voltage power distribution systems. Connectivity products include telematics control units ("TCU") and gateway modules to manage both wired and wireless networks and data in vehicles. In addition to electronic modules, we offer software that includes cybersecurity, advanced vehicle positioning for automated and autonomous driving applications and full capabilities in both dedicated short-range communication and cellular protocols for vehicle connectivity. Our software offerings include embedded control software and cloud and mobile device-based software and services. Our customers traditionally have sourced our electronic hardware andtogether with the software capabilitiesthat we embed in wireless communication and cybersecurity that securely process various signals to, from and within the vehicle, as well as capabilities to provide roadside modules that communicate real-time traffic information to vehicles in the area.it.
We serve all of the worldwideworld's major automotive and light truck market inmanufacturers across both our Seating and E-Systems segments. Webusinesses, and we have automotive content on more than 400450 vehicle nameplates worldwide and serve all of the world’s major automotive manufacturers across our businesses and various component categories in both our Seating and E-Systems segments.worldwide. It is common for us to have both seating and electrical and/or electronic content on the same and multiple vehicle platforms with a single customer. In addition, our electrical components are increasingly integrated into our complete seat systems, as the new technologies, functions and features that we are developing in our Seating business are often enabled by electronic sensors, software and controls. We are the only global automotive supplier with significant capabilities in electronics, software and seating. platform.
Our businesses benefit globally from leveraging common operating standards and disciplines, including world-class product development and manufacturing processes, as well as common customer support and regional infrastructures.infrastructures, all of which contribute to our reputation for operational excellence. Our core capabilities are shared across component
categories and includeinclude: high-precision manufacturing and assembly with short lead times,times; management of complex supply chains,chains; global engineering and program management skills,skills; the agility to establish and/or movetransfer production between facilities quicklyquickly; and a unique customer-focused culture. Our businesses utilize proprietary, industry-specific processes and standards, leverage common low-cost engineering centers and share centralized operating support functions. These functions such asinclude logistics, supply chain management, quality, and health and safety, as well asand all major administrative functions.
We are focused on profitably growing our businesses and have implemented a strategy designed to deliver industry-leading, long-term financial returns. This strategy includes disciplined investment in our business to grow and enhance our product offerings; strategically focusing our portfolio on products and technologies to support emerging trends, such as electrification, connectivity, autonomy and shared mobility; and leveraging an industry-leading cost structure to expand our operating margins.
Available Information on our Website
Our website address is http://www.lear.com. We make available on our website, free of charge, the periodic reports that we file with or furnish to the Securities and Exchange Commission ("SEC"), as well as all amendments to these reports, as soon as reasonably practicable after such reports are filed with or furnished to the SEC. We also make available on our website or in printed form upon request, free of charge, our Corporate Governance Guidelines, Code of Business Conduct and Ethics (which includes specific provisions for our executive officers), charters for the standing committees of our Board of Directors and other information related to the Company. We are not including the information contained on our website as a part of, or incorporating it by reference into, this Report.
The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington D.C. 20549. The public may obtain information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information related to issuers that file electronically with the SEC.
History
Lear was founded in Detroit in 1917 as American Metal Products, a manufacturer of seating assemblies and other components for the automotive and aircraft industries, and was incorporated in Delaware in 1987. Through a management-led buyout in 1988, Lear Corporation established itself as a privately-held seat assembly operation for the North American automobile market with annual sales of approximately $900 million. We completed an initial public offering in 1994 and developed into a global supplier through organic growth and a series of acquisitions.
In May 1999, we acquired UT Automotive, Inc. ("UT Automotive") from United Technologies Corporation. UT Automotive was a leading supplier of automotive electrical distribution systems. The acquisition of UT Automotive represented our entry into automotive electrical and electronic systems and was the basis for our current E-Systems segment.
We have subsequently augmented our internal growth plans with selective acquisitions and investments to expand our component capabilities and global footprint, as well as expand our technology portfolio:
•In May 2012, we acquired Guilford Mills, a leading supplier of automotive seat and interior fabric, from Cerberus Capital Management, L.P., for approximately $243 million.
•In January 2015, we acquired Everett Smith Group, Ltd., the parent company of Eagle Ottawa, LLC ("Eagle Ottawa"), the world's leading provider of leather for the automotive industry, for approximately $844 million.
•In August 2015, we acquired intellectual property and technology from Autonet Mobile, a developer of wireless communication software and devices for automotive applications.
•In November 2015, we completed the acquisition ofacquired Arada Systems Inc., an automotive technology company that specializes in vehicle-to-vehicle ("V2V") and vehicle-to-infrastructure ("V2I" and together with V2V,(together, "V2X") communications.
In December 2016, we acquired AccuMED Holdings Corp. ("AccuMED"), a privately-held developer and manufacturer of specialty fabrics, for approximately $149 million. AccuMED provides innovative fabric processing technology that will benefit our automotive fabric operations and adds scale to our existing non-automotive fabric products.
•In April 2017, we acquired Grupo Antolin's automotive seating business ("Antolin Seating") for approximately $292 million. 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, as well as seat structures, mechanisms and seat covers. Antolin Seating has modern facilities and a reputation for lean manufacturing, superior quality and innovation, including high-functionality and light-weight seat designs.
•In January 2018, we acquired Israel-based EXO Technologies, a leading developer of differentiated GPS technology providing high-accuracy positioning solutions for autonomous and connected vehicle applications.
•In January 2019, we launched Lear Innovation Ventures ("LIV") to supplement our internal innovation efforts. LIV provides us with a framework to invest in advanced development teams, partnerships and early stage technologies by working with venture capital firms, accelerators and incubators. LIV also makes direct capital investments in start-ups and internal innovation initiatives.
•In April 2019, we acquired Xevo Inc. ("Xevo"), a Seattle-based, global leader in connected car software, for approximately $322 million. Xevo is a supplier of software solutions for the cloud, vehicles and mobile devices that are deployed in millions of vehicles worldwide.
•In March 2021, we acquired M&N Plastics, an injection molding specialist and manufacturer of engineered plastic components for automotive electrical distribution applications.
•In October 2021, we entered into a definitive agreement to acquire substantially all of Kongsberg Automotive's Interior Comfort Systems business unit ("Kongsberg") for approximately €175 million. Kongsberg specializes in comfort seating solutions, including massage, lumbar, seat heat and ventilation. The acquisition, subject to regulatory approvals and customary closing conditions and adjustments, is expected to close in the first quarter of 2022.
Environmental, Social and Governance
At Lear, we recognize the importance of environmental, social and governance ("ESG") considerations to our investors, as well as employees, customers and other stakeholders. Responsible and sustainable ESG principles and practices are integrated into our corporate strategy and operations. Our ESG strategy and initiatives are developed by a cross-functional team of senior subject matter experts, reviewed and approved by senior management and overseen by the Nominating and Corporate Governance Committee of our Board of Directors. We are continuously working to embed ESG principles into our key business processes, including corporate strategy, enterprise risk management, product and process development and innovation, procurement and sales. We actively communicate our goals and activities to our investors in our public disclosures available on our website and in our SEC filings. Our ESG efforts demonstrate how we live our core value to Get Results the Right Way, and in 2020, we reinforced this commitment by becoming a signatory of the United Nations Global Compact.
Energy Efficiency and Carbon Reduction Efforts at Lear
•How We Are Driving Sustainability in Our Production Processes
We employ standardized production processes globally that are designed to drive the efficient use of energy to reduce greenhouse gas emissions, the prevention of pollution and the utilization of safe and sustainable production processes. During 2020, we published ambitious carbon reduction goals that we intend to achieve by 2030, including 100% usage of renewable energy for our electricity consumption and a 50% reduction in carbon emissions at our manufacturing facilities, as well as an aspiration to be carbon neutral by 2050.
We are implementing a multifaceted approach to achieve these goals that involves the procurement and on-site generation of renewable energy, where practicable, and efforts to reduce energy consumption and use energy more efficiently in our operations. We are in the process of developing a comprehensive global renewable energy strategy for future energy purchases that we anticipate will consist of power purchase agreements to support new renewable energy projects and the purchase of energy attribution certificates from energy providers, whether bundled with existing energy purchases or unbundled where that is the only option for a given region.
In 2021, we released our Energy Efficiency Playbook into our operations to institutionalize best practices regarding energy usage. We have also updated our facilities' specifications for new construction and significant building refurbishments to require more energy efficient systems, such as heating and cooling, wherever practicable. Examples of ongoing energy efficiency projects include:
–Conducting energy audits and energy savings treasure hunts;
–Installing leakage detection devices to detect heat/energy losses from operating equipment;
–Automating plant-wide ventilation systems;
–Replacing legacy light fixtures with LEDs; and
–Recycling previously wasted heated streams of air and water.
While the foregoing efforts will help us drive toward the elimination of carbon emissions in those areas we can control (Scope 1 and 2 emissions), we are also progressing toward our longer-term overall goal of carbon neutrality across our value chain (including Scope 3 emissions). Accordingly, we are working to measure our Scope 3 emissions through the development of product life-cycle assessments for our major product offerings. We anticipate that a significant portion of our Scope 3 emissions will be reduced over time as our customers shift to producing more electric vehicles that do not rely on gasoline-powered engines. In terms of our supply chain, we are commencing efforts to communicate both our own carbon goals and our expectation of our suppliers as to sustainable energy usage going forward.
•How We Are Responding to Increased Calls for Product Sustainability
We continue to believe that light vehicle production will remain the single most important factor impacting our financial success in the foreseeable future. As outlined elsewhere in this Report, there are numerous factors impacting light vehicle production. In particular, the automotive industry is under increased focus to develop more sustainable transportation solutions. Our line of products for the automotive industry remain foundational for almost all types of light vehicles currently under consideration for near- and mid-term production whether reliant upon the internal combustion engine or alternative, more sustainable drivetrain technologies.
Environmental concerns generally, as well as changes to the environment caused by carbon dioxide and other emissions and byproducts specifically, are significantly impacting the transportation industry as governments, non-governmental organizations, investors, product consumers and other stakeholders seek to balance global transportation needs with environmental concerns. Continued focus on climate change and environmental sustainability is increasing the expectations, and in some cases, leading to regulatory requirements, that the automotive industry utilize cleaner, more fuel-efficient solutions. In addition, we believe that for consumers, the advantages of cleaner air, energy efficiency and potentially lower maintenance will make electric vehicles an increasingly popular choice over time. Many of our product offerings are designed to capitalize on these evolving regulatory requirements and consumer preferences, such as on-board battery chargers, battery management systems, and electrical distribution and connection systems designed for high-voltage applications. Additionally, our intelligent and reconfigurable seats and electronic modules enhance connectivity and support the trend of shared mobility.
Our stakeholders' focus on sustainability also means that our continued successful participation in the automotive industry will depend on our ability to continue developing products that are more environmentally sustainable. In this regard, our innovative products range from "green" products, such as SoyFoamTM, a substitute for certain petroleum-based products, to seat coverings made from recycled ocean plastics.
We are also committed to working with our suppliers and customers to source raw materials, including the leather that is used in the seats that we produce, in a sustainable manner. This includes protecting forests by eliminating purchases of cattle or hides produced by unsustainable cattle ranching methods that lead to deforestation and forest degradation. Our No Deforestation Policy aligns with industry standards and requires of our suppliers:
–Supply chain transparency, so that all materials supplied to us are from legal sources;
–Land is not clear-cut or burned for production or development; and
–Compliance with governmental laws, regulations and guidelines regarding deforestation.
With respect to the Amazon rainforest, 100% of our direct Brazilian leather suppliers use georeferencing technology to confirm that the farms from which they directly buy cattle or hides are not involved in deforestation, invasion of indigenous and protected areas, or human rights violations. To monitor our suppliers' compliance with these requirements, we may conduct audits and/or require third-party verification.
Other ESG-Related Initiatives
We are especially proud of our employee efforts to support our global communities, such as our employee volunteer-driven educational campaign, "Focus on the Drive," to increase awareness and decrease the incidence of distracted driving. Through our Operation GIVE campaign at our Southfield, Michigan headquarters, more than $1 million in employee contributions benefited local programs focused on economic well-being, education and the environment in 2021.
Our commitment to human rights is set forth in our Human Rights Policy that clearly defines how we approach, govern and defend the dignity of people throughout our operations, our global supply chain and the communities in which we operate. In addition, our Together We Belong campaign helps fund initiatives that address racial inequality and discrimination through a combination of grants to external organizations, as well as internal investments to educate and engage our employees.
Our governance activities help ensure that our business and operations are conducted in compliance with all applicable laws, as well as Lear's policies and procedures, particularly our Code of Business Conduct and Ethics, which addresses conflicts of
interest, bribery and corruption, political contributions and information technology security, among other things. Our Board of Directors, and its Audit and Nominating and Corporate Governance Committees, oversee our compliance and governance activities. Our expectations related to conducting business in a sustainable and ethical manner extend to our supply base. Suppliers must meet the requirements of our Supplier Sustainability Policy and Supplier Code of Conduct. We monitor and assess their compliance both internally and through the use of a third party.
Human Capital Management
We believe that the best way to deliver the highest quality products and services is to maintain a work environment that prioritizes safety and fosters collaboration, inclusion, tolerance and respect for our 160,100 employees around the world.
As of December 31, 2021 and 2020, our employment levels worldwide were approximately as follows:
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| Region | 2021 | | 2020 |
| United States and Canada | 10,200 | | 10,600 |
| Mexico | 47,500 | | 55,200 |
| Central and South America | 19,700 | | 20,900 |
| Europe and Africa | 55,100 | | 56,500 |
| Asia | 27,600 | | 31,400 |
| Total | 160,100 | | 174,600 |
Our compensation and benefits strategy is designed to be competitive in the countries in which we operate to motivate our employees to perform to the best of their abilities, to achieve our objectives and to align the interests of our employees with the interests of our stakeholders. Our compensation package includes salary and both performance-based and long-term incentive programs, as appropriate for each role. We also provide a multitude of market-competitive benefits, which may include medical, life and disability insurance, contributory retirement savings plan, paid time off, paid parental leave and tuition reimbursement.
A substantial number of our employees are members of industrial trade unions or national trade organizations. We have collective bargaining agreements with several North American unions, including the United Auto Workers, Unifor, International Brotherhood of Electrical Workers and Workers United. In the United States and Canada, each of our unionized facilities has a separate collective bargaining agreement with the union that represents the workers at such facility, with each such agreement having an expiration date that is independent of the other agreements. The majority of our employees in Mexico and Europe are members of industrial trade union organizations or confederations within their respective countries. Many of these organizations and confederations operate under national contracts, which are not specific to any one employer. We have occasionally experienced labor disputes at our plants. We have been able to resolve all such labor disputes and believe that our relations with our employees are generally good.
See Item 1A, "Risk Factors — A significant labor dispute involving us or one or more of our customers or suppliers or that could otherwise affect our operations could adversely affect our financial performance," and Part II — Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements."
Ethics and Compliance
We are committed to conducting our business with integrity and in compliance with all applicable laws of the cities, states and countries in which we operate, and we have established a Code of Business Conduct and Ethics to assist employees in this regard. We encourage employees to report concerns through a variety of channels, including a toll-free compliance and ethics line, an online form and a mobile app, each of which allows for anonymous reporting. Our ethics and compliance team reviews every report and, when appropriate, conducts an investigation. We also maintain an anti-retaliation policy such that any employee who reports a concern in good faith is protected from harassment, retaliation or adverse employment consequences.
Health and Safety
Our health and safety programs are designed around global standards with appropriate variations to address the multiple jurisdictions and unique working environments of our manufacturing operations. Our health and safety management system is compliant with the ISO 45001 standard, and we are currently implementing a more comprehensive program which combines ISO 14002 and 45001 requirements to improve efficiency and performance. Each of our locations performs regular safety audits to ensure that proper safety policies are in place and appropriate safety training is provided. In addition, we engage an independent third-party conformity assessment and certification vendor to audit selected operations for adherence to our global health and safety standards.
In 2020, in response to the COVID-19 pandemic, we created a Safe Work Playbook, which provides a standardized approach for each of our facilities to create a consistent and safe work environment and offers insights into navigating operational challenges related to the COVID-19 pandemic. The playbook is available to the public and includes health and safety information related to plant operating protocols; employee education, training and feedback; facility assessments; and phased reopening of engineering and administrative centers. To date, more than 35,000 copies of the Safe Work Playbook have been downloaded.
Diversity, Equity and Inclusion ("DEI")
We strive to build a culture of diversity and inclusion not only through our human resource policies and practices but also by actively working to eliminate discrimination and harassment in all of its forms. Since 2020, our employees have participated in over 125,000 hours of DEI and anti-harassment training. In addition, our global executives and U.S. managers at our Southfield, Michigan headquarters have completed our Connecting with Others DEI training, which helps our employees identify barriers to inclusion and learn behaviors that both promote inclusion and establish stronger connections. Our Together We Belong campaign continues to help our employees learn to navigate difficult conversations and support diverse colleagues. In 2021, we introduced Together We Grow, a merit-based program designed to help future diverse leaders grow at Lear. We are accomplishing this by investing in meaningful development and proactive career management for this group of high-potential diverse talent and being intentional in advancing and promoting this talent to "next-level" roles and leadership positions. The program provides significant training, an executive sponsor, career mapping and access to the senior leadership team. By focusing on engagement, this program will allow our next generation of leaders to maximize their full potential. We are also proud of our six Employee Resource Groups, representing 15 countries. These employee-led volunteer groups are open to all employees with a goal of fostering a culture where our diverse and global workforce feels engaged, accepted and valued.
Training and Talent Development
We are committed to the continued development of our employees. Since 2019, we have delivered more than 6 million hours of safety, development, leadership, quality, continuous improvement, lean manufacturing, and ISO and IATF certification training. Our Emerging Leaders Development Program is a twelve-month leadership and business course designed to develop high-potential managers and directors. Our CEO Academy is our premier leadership development opportunity. Twice per year, a select group of leaders representing diverse functions and backgrounds are invited to participate in a week-long leadership immersion event, during which each participant presents a bold business idea to help drive Lear's success. In addition, formal talent reviews and succession planning occur annually – globally and across all business areas. Senior leadership provides annual updates on succession and talent development to the Board of Directors.
Employee Engagement and Culture
Launched in 2017, Together We Win is Lear's global employee engagement program focused on driving cultural change in our operations. Plants advance through four segments — leadership, work environment, employee involvement and team empowerment. Together We Win unites hourly employees across the globe in achieving excellence based on key operations and employee engagement metrics, such as quality, absenteeism, health and safety performance, and operational efficiency. To help our plants along the journey, our proprietary playbook provides a roadmap of best practices, and engagement surveys give hourly employees a voice in measuring progress at each plant.
Champions of Lear celebrates our global operations and our hourly and salaried employees who represent the best-of-the-best in our company. Individuals, teams or plants submit an application which is reviewed by a diverse panel of judges including Lear leadership. Award categories honor achievements in culture, customer appreciation, innovation, supply chain, quality, safety, operational excellence, continuous improvement, sustainability, best launch and best plant collaboration, as well as the prestigious CEO Special Appreciation Award. In 2021, an additional award category was added to recognize initiatives that support DEI in the workplace.
Industry and Strategy
We supply all vehicle segments of the automotive light vehicle original equipment market in every major automotive producing region in the world. Our sales are driven by the number of vehicles produced by the automotive manufacturers, which is ultimately dependent on the availability of raw materials and components and consumer demand for automotive vehicles, and our content per vehicle. Global automotiveIn 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 volumes improved 5%increased 3% in 2016 from2021 over 2020, production remains well below recent historic levels and consumer demand. Production in the prior yearsecond half of 2021 decreased 16% relative to the second half of 2020. This was largely due to the continuing impact of the COVID-19 pandemic in 2021, particularly through supply shortages. The most significant supply shortage relates to semiconductor chips, which impacted global vehicle production and another 2%resulted in 2017reductions and cancellations of planned production. In addition, we
experienced increased costs related to labor shortages and inefficiencies and ongoing costs related to personal protective equipment, all of which are likely to continue for a record 93.3 million units.period of time. Increases in certain commodity costs, as well as transportation and logistics costs, are also impacting, and will continue to impact, our operating results for the foreseeable future. Further, a resurgence of the COVID-19 virus or its variants, including corresponding "stay at home" or similar government orders impacting industry production, could impact our financial results.
Details on light vehicle production in certain key regions for 20172021 and 20162020 are provided below. Our actual results are impacted by the specific mix of products within each market, as well as other factors described in Item 1A, "Risk Factors."
| | | | | | | | | | | | | | | | | |
| (In thousands of units) | 2021 (1) | | 2020 (1) (2) | | % Change |
| North America | 13,032.4 | | | 13,024.0 | | | —% |
| Europe and Africa | 16,182.2 | | | 16,855.8 | | | (4%) |
| Asia | 41,370.5 | | | 39,179.8 | | | 6% |
| South America | 2,507.6 | | | 2,163.4 | | | 16% |
| Other | 1,443.0 | | | 1,391.0 | | | 4% |
| Total | 74,535.7 | | | 72,614.0 | | | 3% |
|
| | | | | | | |
| (In thousands of units) | 2017 (1) | | 2016 (1, 2) | | % Change |
| North America | 17,128.4 |
| | 17,836.7 |
| | (4)% |
| Europe and Africa | 22,947.0 |
| | 22,311.5 |
| | 3% |
| Asia | 48,233.3 |
| | 47,054.4 |
| | 3% |
| South America | 3,115.2 |
| | 2,567.8 |
| | 21% |
| Other | 1,913.0 |
| | 1,582.1 |
| | 21% |
| Total | 93,336.9 |
| | 91,352.5 |
| | 2% |
| |
(1) | Production data based on IHS Automotive. |
| |
(2) | Production data for 2016 has been updated to reflect actual production levels. |
(2) Production data for 2020 has been updated from our 2020 Annual Report on Form 10-K to reflect actual production levels.
Details on light vehicle production in certain emerging markets for 20172021 and 20162020 are provided below.below:
| | | | | | | | | | | | | | | | | |
| (In thousands of units) | 2021 (1) | | 2020 (1) (2) | | % Change |
| China | 22,776.2 | | | 21,721.1 | | | 5% |
| India | 4,055.3 | | | 3,234.1 | | | 25% |
| Brazil | 2,070.6 | | | 1,904.7 | | | 9% |
| Russia | 1,437.1 | | | 1,335.0 | | | 8% |
|
| | | | | | | |
| (In thousands of units) | 2017 (1) | | 2016 (1, 2) | | % Change |
| China | 26,289.2 |
| | 25,712.1 |
| | 2% |
| India | 4,419.8 |
| | 4,140.2 |
| | 7% |
| Brazil | 2,635.1 |
| | 2,091.9 |
| | 26% |
| Russia | 1,444.0 |
| | 1,218.8 |
| | 18% |
| |
(1) | Production data based on IHS Automotive. |
| |
(2) | Production data for 2016 has been updated to reflect actual production levels. |
(2) Production data for 2020 has been updated from our 2020 Annual Report on Form 10-K to reflect actual production levels.
Details on our sales in certain key regions for
20172021 and
20162020 are provided
below.below: | | | (In millions) | 2017 | | 2016 | | % Change | (In millions) | 2021 | | 2020 | | % Change |
| North America | $ | 7,788.1 |
| | $ | 7,523.6 |
| | 4% | North America | $ | 7,548.2 | | | $ | 6,630.5 | | | 14% |
| Europe and Africa | 8,136.5 |
| | 7,051.8 |
| | 15% | Europe and Africa | 6,745.3 | | | 6,240.3 | | | 8% |
| Asia | 3,794.9 |
| | 3,444.6 |
| | 10% | Asia | 4,227.9 | | | 3,655.3 | | | 16% |
| South America | 747.5 |
| | 537.6 |
| | 39% | South America | 741.7 | | | 519.4 | | | 43% |
| Total | $ | 20,467.0 |
| | $ | 18,557.6 |
| | 10% | Total | $ | 19,263.1 | | | $ | 17,045.5 | | | 13% |
| | | | | | |
| China (consolidated) | $ | 2,519.3 |
| | $ | 2,277.6 |
| | 11% | China (consolidated) | $ | 3,018.1 | | | $ | 2,592.7 | | | 16% |
| China (non-consolidated) | 1,500.1 |
| | 1,598.6 |
| | (6)% | China (non-consolidated) | 1,307.1 | | | 1,210.2 | | | 8% |
A growing trend toward crossoverThe automotive industry, and sport utility vehicles has benefited our business, as our content on such vehicles cancontinue to be significantly higher than average, particularly in our Seating segment. Crossovershaped by the broad trends of electrification, connectivity, autonomy and sport utility vehicle production has grownshared mobility. We also consider demand and regulatory developments for improved energy efficiency, sustainability, enhanced safety and communications (e.g., government mandates related to approximately 33%fuel economy, carbon emissions and safety equipment) to be significant drivers of total vehicle production in 2017, up from 18% of total vehicle production five years ago. China has been a major driver of this trend, where crossover and sport utility vehicle production now comprises approximately 39% of total vehicle production, up from 12% of total vehicle production five years ago.
Key trends that specifically affect our business include automotive manufacturers’ utilization of global vehicle platforms, increasing demand for luxury and performance features, including increasing levels of electrical and electronic content, and China’s emergence as the single largest major automotive market in the world with above average long-term growth expectations.
Our strategy is built on addressing these trends, and the major imperatives for success as an automotive supplier: quality, cost and efficiency and innovation and technology. We have expanded key component and software capabilities through organic investment and acquisitions to ensure a full complementeach of the best solutions for our customers. We have restructured, and
continue to align, our manufacturing and engineering footprint to attain a leading competitive cost position globally. We have established or expanded activities in new and growing markets, especially China, in support of our customers’ growth and global platform initiatives. 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.
In addition, we believe that the trends of efficiency, connectivity and safety are rapidly evolving and advancing into the following technology trends that arewhich is likely to be at the forefront of our industry for the foreseeable future with each converging long-term toward fully autonomous, connected, electric or hybrid electric vehicles:future.
•Electrification - – Demand for more energy efficient vehicles is increasing, both from customersautomotive manufacturers to meet stricter fuel economy and emissions standardsgovernmental requirements and/or their own internal targets and from a growing segment of end consumers who wish to reduce the environmentalcarbon impact of automobiles. This requires further use of electronically controlled and assisted powertrains and related components to improve fuel efficiency andefficiency; the adoption of alternative energy powertrains, such as 48-volt mild hybrid, full hybrid, plug-in hybrid electric and high powerpure battery electric, that facilitate electrification of the vehicle, as well asvehicle; and the use of lighter weight materials throughout the vehicle.
•Connectivity - – Customer and consumer demands for constantcontinuous communication and information exchange with the vehicle continue to increase.are increasing. What began with consumer demand to extend and integrate mobile connectivity into the vehicle by connecting mobile devices with vehicle infotainment systems is evolving such that the vehicle itself will havehas an
embedded, direct line of wireless communication connecting the vehicleit with various networks (e.g., cellular, infrastructure, satellite, etc.) and other vehicles. We expect these trends to continue, making the vehicle a constantly connected device, receiving and transmitting data through a variety of signals which communicate directly with on-board vehicle systems.
systems and facilitating delivery of content and services for consumers and automotive manufacturers.Autonomy/Advanced Driver Assistance•Autonomy - Customer and consumer demands are evolving from safety features and systems that protect vehicle occupants when a crash occurs to advanced driver assistance systems (ADAS) that help prevent crashes by assisting in the vehicle’svehicle's operation under certain conditions. The development of automated intervention uses many of the same core technologies that will enable vehicles to drive autonomously under an increasing variety of driving conditions.
These trends are becoming widely accepted•Shared Mobility – As vehicle utilization increases and ride-sharing becomes more relevant, customer and consumer demands for more services, enhanced personalization, reconfigurability of the automotive interior and an improved mobility experience are also attracting new,increasing.
The demand for electric vehicles is accelerating, driven by numerous product offerings from both traditional and non-traditional participants inautomotive manufacturers, government incentives and end consumers' desire to reduce the automotive industry thatcarbon impact of automobiles. Key attributes of seat design are leveraging technology, vehicle electrification and consumer relationships to exploit growth opportunities inevolving as the industry. Regulation is also a major influence on these trends, as government mandates (e.g., for vehicles to meet minimum fuel economy and emissions standards or be equipped with certain safety-related components) are driving vehicle design and technology plans.
We are well positioned for growth by capitalizing on these trends as we supply high value systems and components that drive critical functionality and core elements of the vehicle’s electrical architecture and design. The systems and components that we design, develop and manufacture facilitate and support more fuel efficient or fully electrically-powered alternative powertrains, facilitate connectivity of various vehicle systems, and impact a vehicle’s safety, crashworthiness and readiness for autonomous driving systems. Many of our systems and components also directly impact the consumer, providingmarket pivots toward electric vehicles. This movement provides us with thean opportunity to offer value added solutions to our automotive customers technology, solutionsthrough our Seating and designs that will differentiate their vehicles inE-Systems products and to use our leading market position to capture additional market share. These products include seat heating and cooling through INTUTM Thermal Comfort, the consumer marketplace.
We are well positionedlatest addition to directly participate in the connectivity trend as we design, developour Intelligent Seating (INTUTM Seating) offerings, and supply systems, components and software that connect the various electrical and electronic systems within the vehicle into integrated on-board power and data communication networks. We further have the technology and expertise to wirelessly and securely connect these on-board vehicle networks and systems with external networks over various standards and protocols. This expertise allows us to offer our automotive customers electronic modules, such as connected gateway modules, that offer functionality such as over-the-air software updates or cellular communication of vehicle performance data to the automotive manufacturers, their dealers or the vehicle owners. Our expertise in V2X technology allows us to provide in-vehicle and roadside modules and software that facilitate direct, high speed communication between vehicles and road infrastructure. Importantly, we have expertise in cybersecurity, including architectures, designs and techniques that promote highly secure transmission of data to, from and within the vehicle,seat reconfigurabily through Configurable Seating Architecture (ConfigurE+TM), as well as road infrastructure.wire harness assemblies, including connection systems, and integrated power modules.
Furthermore, a seat is an active part of the vehicle safety system. As a result ofThrough our innovative product designproducts, technology and technology capabilities, we are able to provide seats with enhanced safety features, such as the active head restraint and seat structures that withstand collision impact well in excess of what is demanded by regulatory agencies. We have developed products and materials to reduce cost and enhance seat design and packaging flexibility, including our mini recliners and micro adjust tracks. Another way in whichstrategic initiatives, we are well positioned to benefit from this trend-relatedcapture business growth is our belief that the seat system will become increasingly more sophisticated, dynamicopportunities with respect to these trends and connected to both the occupantskey drivers. We see a close link among these trends and the vehicle. The seat is the logical focal point for monitoring the driver and passenger and for facilitating feedback between the vehicle and the occupants. Our capabilities in V2X communications and applications position us to provide high speed communication between vehicles, even
in extreme weather conditions, potentially reducing crashes through real-time advisories alerting drivers to imminent hazards in the roadway ahead, including other vehicles on a potential path for collision.
Continued growth in more fuel efficient, complex and electronically controlled powertrains is helping to drive content growth in the vehicle's electrical distribution system. The emergence and continued development of alternative energy powertrains, including electric, hybrid electric, 48-volt mild hybrid and other technologies, is driving growth in high power electric systems and components. Hybrid and electric vehicles incorporate both high power and low power components. As a result, they offer a significant incremental content opportunity for us of up to $2,000 per vehicle for full electric vehicle architectures. These trends all support continued growth in electrical and electronic content on the vehicle, as well as associated software. This content growth will require far more complex vehicle electrical architectures. Our significant experience designing and manufacturing highly integrated and standardized architectures that optimize size, performance and quality leaves us well positioned to take advantage of the growth in electrical content and the increasingly complex architectures.
We believe thatexpect the convergence of these technology trends and eventual wide-spread adoption of autonomous vehicles willthem to benefit both our Seating and E-Systems segments. Webusinesses. For example, we believe that autonomous vehicles will have seat designs and requirements that are far more flexible and demanding in both autonomous and piloted driving states. Further, more active monitoring of the driver and the driver’sdriver's position and physical state will be required to manage the transitions between autonomous and piloted driving conditions.
A demand for mobility services and on-demand transportation from providers such as Uber, or Lyft and Didi (in China) is helping to drive interest and growth in these technology trends, particularly fully autonomous vehicles. The increasing prevalence of mobility services will potentially create a new segment of autonomous vehicle fleet customers with unique vehicle technology and design needs, including more flexible, durable and connected seating solutions for a wide range of passengers. Not only will autonomous vehicles need to be fully connected and networked to maximize their safety and efficiency, their power consumption will be significantly higher to support the array of sensors and processing power required to operate such vehicles. This will allow us to take further advantage of our ability to design and offer efficient power management solutions. In our Seating business, our INTUTM Seating and ConfigurE+TM offerings, in addition to our light weight and more environmentally friendly products, are well-aligned with the trends toward electrification, connectivity, autonomy and shared mobility. In our E-Systems business, our broad capabilities in electrical distribution and connection systems and electronic systems also support these trends across a full range of electrified powertrains and will allow us to grow as content per vehicle increases with higher circuit counts supporting the movement of data through high speed wires.
Our business is also influenced by vehicle segment trends which continue to experience a shift in consumer preference towards crossover and sport utility vehicles. This trend positively impacts our business as content per vehicle on such vehicles, especially within our Seating business, can be significantly higher. Crossover and sport utility vehicle production has grown to approximately 42% of total vehicle production in 2021, up from 30% five years ago.
Other factors influencing our business include: the consolidation of automotive manufacturers; new non-traditional entrants to the automotive industry; the collaboration of automotive manufacturers on commonized vehicle platforms; increasing demand for luxury and performance features, including increasing levels of electrical and electronic content; and China's position as the largest automotive market in the world.
In addition to key foundational attributes imperative for success as an automotive supplier (quality, service and cost), our strategic initiatives focus on furthering our competitive differentiation through vertical integration, disruptive innovation and advanced manufacturing technology. We have expanded key component capabilities through organic investment and acquisitions to ensure a full complement of the best solutions for our customers. We have restructured, and continue to align, our manufacturing and engineering footprint to attain a leading competitive cost position globally. We have established or expanded activities in new and growing markets, in support of our customers' growth initiatives and in pursuit of opportunities with new customers. These initiatives have helped us achieve our financial goals overall, as well as a more balanced regional, customer and vehicle segment diversification in our business.
Seating Segment
Lear is a recognized global leader in complete automotiveseat systems. Based on independent market studies and management estimates, we believe that we hold the #2 position in complete seat systems globally on the basis of revenue with strong positions in all major markets and a 25% global market share in 2021. We are also a recognized leader in key individual seat components. Thecomponents produced for complete seat systems.
Our Seating segment consists of the design, development, engineering, just-in-time assembly and delivery of complete seat systems, as well as the design, development, engineering and manufacture of all major seat components, including seat covers and surface materials such as leather and fabric, seat structures and mechanisms, seat foam and headrests, as well as seating-related electricalheadrests. Our extensive system-level knowledge and electronics (including software products).component-level capabilities, including internal development of sensor and control algorithms, have provided a solid foundation for innovation and commercialization of advanced comfort, wellness and convenience features. We anticipate that these features will be enhanced by the acquisition of Kongsberg, which is expected to close in the first quarter of 2022. We believe that we have the most complete set of component offerings of any automotive seating supplier and are a market leader in every automotive producing market in the world. Further, we have expertise and are building capabilities in seat comfort technologies, including heating and cooling through technology partnerships and design-integrated supplier solutions. Overall, our global manufacturing and engineering expertise, low-cost footprint, complete component capabilities, quality leadership and strong customer relationships provide us with a solid platform for futureboth organic and inorganic growth opportunities to reach our target global market share of 28% in this segment.complete automotive seat systems.
We produce seat systems that are fully assembled and ready for installation in automobiles and light trucks. Seat systems are generally designed and engineered for specific vehicle models or platforms. We develop seat systems and components for all vehicle segments from compact cars to pick-up trucks and full-size sport utility vehicles. We are the world leader in luxury and performance automotive seating, providing craftsmanship, elegance in design, use of innovative materials and industry-leading technology required by premium brands, including Alfa Romeo, Audi, BMW, Cadillac, Ferrari, Jaguar, Lamborghini, Land Rover, Lamborghini, Lincoln, Maserati, Mercedes-Benz and Porsche.
We have been executing aare continuing to execute our strategy forof selective vertical integration of key seat components to enhance growth, improve quality, increase profitability and support our current market position in just-in-time seat assembly. In this regard, our capabilities in seat structures and mechanisms include complete development and manufacturing capabilities in key locations to supply every major automotive producing region in the world. In addition, wewe have developed standardized seat structures and mechanisms that can be adapted toused across multiple segmentsvehicle programs to minimize investment costs. We believe that our low-cost manufacturing footprint in seat structures and mechanisms and our precision engineered seat mechanism expertise are competitive advantages.
We have also expandedcontinued to grow our seat cover operations in low-cost markets, including precision cutting, assembly, sewing and lamination of seat fabric, in low-cost markets, entered thelamination. We are also continuing to develop our fabric business (largely(originally secured through our acquisition of Guilford Mills)Performance Textiles), and addedour acquisition of Eagle Ottawa has afforded us an industry-leading market share in automotive leather globally. Our capabilities in leather design, development and manufacturing capabilities (throughallow us to deliver the most luxurious, durable and performance-tested leathers to our acquisition of Eagle Ottawa).customers. On a global basis, we can provide a full range of seat cover capabilities, including design and designsurface coating solutions, including the use ofas well as unique leather and fabric applications. We believe that the combination of these capabilities in seating surface materials leadsdifferentiates us and provides us with a competitive advantage facilitating our leadership position in the industry.
We are committed to sustainability and reducing the environmental footprint of our products, operations and supply chain to meet current needs without compromising future generations. With a diverse team, we work to improve the sustainability of our operations through identification and reduction of generated waste, reuse of materials whenever possible and recycling. Our sustainability efforts leverage available technology to substitute certain petroleum-based products with "green" products, such as SoyFoamTM, and to manufacture a range of fabrics that contain recycled, renewable or recyclable yarns that reduce our environmental impact. For example, we manufacture fabric with recycled content, such as recycled polyester derived from post-consumer waste, through grinding and re–extruding processes. Ocean Waste yarns are sourced from plastic ocean garbage that collects in fishing nets. After segregation, polyethylene terephthalate or PET plastic bottles and other plastic waste are recycled into a high-quality polymer, which is used to produce 100% recycled polyester yarn for fabric production.
Advanced Seating Craftsmanship and Design (Crafted by LearTM)Innovation
We believe that our broad portfolio of capabilities, including advanced design and material integration skills, is a differentiating competitive advantage for us. Our team of experts at our Center for Craftsmanship in Southfield, Michigan has developed a portfolio of product technologies that deliver differentiated design, craftsmanship and comfort, as well as sustainable products. Through this dedicated studio, we are leveraging our unique position to be an industry leader in differentiated design and facilitating customer interactions with designers and engineers working collaboratively to create innovative solutions early in the design process. The breadth of our portfolio and depth of our design expertise allow us to have early involvement
in the automotive manufacturer’smanufacturer's design process and the opportunity to better integrate all seating components to provide differentiated design comfort, quality and overall value for the end consumer. We are leveraging our unique position to be an industry leader in differentiated design through our Center for Craftsmanship. This is a dedicated studio for customer interface where designers and engineers work collaboratively to create innovative solutions early in the design process. We have also developed a proprietary craftsmanship process called Harmonic Precision that synthesizes all of our component expertise and technologies with our customers’ design visions to create an objective analysis of the impact that the final design and execution will have in the marketplace. The team of experts at the Center for Craftsmanship has developed a portfolio of product technologies that deliver differentiated design, craftsmanship, comfort and sustainable products, including IMPACT by LearTM, a selection of premium textiles and leathers that include both sustainable materials and processes such as natural fibers, fibers made from certified recycled stock, olive tanned leathers and 100% water-based leather finishing to reduce our impact on the environment. ComforCoreTM, a knit product that provides superior comfort profiles while reducing the use of petroleum-derived foam products, and Contour ConnectTM enable the strong design lines and thinner seating profiles our customers are designing into the automotive interiors of the future. We believe that our unmatched component
capabilities, design know-how, global manufacturing presence and our Crafted by LearTM portfolio of enabling and sustainable technologies uniquely position us to bring innovative designs into production with the highest level of craftsmanship.
Intelligent Seating (INTUTM Seating)
The seat is emerging as an integral device facilitating the direct connection between drivers and passengers and the vehicle. This direct connection will increasingly support the functionality of connected and autonomous vehicles. We believe that we are the only fully integrated seating supplier with both global capabilities in all majorcritical seat components, together with software design, integration and manufacturing expertise. To maintain our competitive advantage, we continue to drive advanced seating innovations through a combination of comprehensive product capabilities aligned with industry mega trends and early customer engagement. The result is a broad portfolio of innovative, sustainable solutions enabling our intelligent seating offerings for today and tomorrow. Examples of our advanced technology offerings can be found in our INTUTM Seating systems and ConfigurE+TM products.
Intelligent Seating (INTUTM Seating)
The seat offers a direct connection between the driver, passengers and vehicle systems. Our development of INTUTM technologies provides the driver and passengers with intelligent, intuitive seat system options that offer enhanced wellness, safety and comfort performance. Our extensive knowledge in consumer ergonomics and comfort, in combination with our electronics' capabilities, facilitated the development of our INTUTM seat features, which are capable of being programmed to identify certain key occupant inputs and automatically adjust the appropriate seat parameters to provide consumers with a better, highly personalized, in-vehicle experience.
Our INTUTM Comfort features were developed to improve comfort throughout long drives. Derived from our research, INTUTM Comfort deploys proprietary technology and in-house developed analytical processes to identify the optimal seat position for the occupant given certain conditions. For example, on extended trips, the lumbar support is continuously adjusted for optimal comfort, and seat bolsters automatically adjust during sharp curves to provide the driver with optimal support. The latest addition to our INTUTM Comfort features is INTUTM Thermal Comfort that heats or cools the occupant faster and more efficiently. We have developed and driven efficiencies into individual seat components and global electronics development (including software), manufacturingfull system integration to outperform existing systems. Continued advancements in our INTUTM Thermal Comfort system are targeted to optimize the overall thermal performance of the vehicle interior, which may reduce vehicle energy consumption of both ICE and integration. We believe thatelectric vehicles.
Configurable Seating Architecture (ConfigurE+TM)
The ability to provide flexible seat positioning while offering consumers advanced seating features and functions is now achievable through our ConfigurE+TM configurable seating architecture. Winner of a PACE Award, ConfigurE+TM with its configurable powered rail system enables selective seat positioning and/or removal for virtually limitless configurations while maintaining the seat will increasingly integrate electronics, not only for motorized control, but for dynamic sensing and response. We have developed active sensing and comfort seat capabilities, utilizing electronically controlled sensor and adjustment systems and internally developed algorithms. These seat designs automatically and constantly adjustfunctionality of the seat's cushioningelectronic features. By providing power without a wire harness, seats can be easily removed for cargo management, and support based onvehicle cabins can be quickly customized for traditional passenger or conference configurations, providing flexibility for personal, autonomous, ride-share and public transportation needs. Further, the occupant’s position and ideal alignmentpotential market for health and wellness. We are also developing technologies that will monitor certain bio-metric readings through seat sensors with a high level of accuracy and reliability. We believe that intelligent and dynamic seating solutions, which we call INTUConfigurE+TMSeating, will provide future benefits as consumers and automotive manufacturers demand seats that can sense key attributes of a driver and passenger and communicate these attributes within the vehicle network, includes commercial trucks, as well as light vehicles.
Other Core Capabilities
With capabilities unmatched by any seat supplier in the industry, we consistently produce world-class seat systems to external networks. Our seats will intuitively anticipate and dynamically adjust toexceed the occupant's needs and preferences related to posture, health and wellness, comfort and safety. We believe that the seat will increasingly become a more dynamic and integrated system that will actively react to both theexpectations of every type of driver and driving conditions, particularly with the advent of autonomous vehicles. Such trends will promote increased levels of electrical and electronic integration into the seat, accelerating the convergence of our Seating and E-Systems businesses.
Adaptive Seating Architecture (Drop & GoTM)
passenger. Our Drop & GoTM adaptive seating solution provides enhanced flexibility and cargo management for crossovers, SUVs and passenger vans, while delivering seat electrification. Drop & GoTM is well-suited for ever-changing consumer lifestyles, including the increasing use of on-demand transportation from providers such as Uber and Lyft. Enabled by advanced interface modules integrated into the seat structure and full-length floor-mounted tracks, Drop & GoTM allows virtually limitless configurations of seats including full removal. Drop & GoTMalso allows optional functionality, such as storage and transport of equipment for sports and other activities, executive seating and special application seating.
Manufacturing
Our seat assembly facilities use lean manufacturing techniques,designs incorporate intelligent features, and our finished products are delivered topatented modular sub-assemblies with embedded technologies transform the automotive manufacturers on a just-in-time basis, matching our customers’ exact build specifications for a particular day, shift and sequence thereby reducing inventories to optimum levels. These facilities are typically located adjacent to or near our customers’ manufacturing and assembly sites. Increasingly, we are utilizing component and sub-assembly designs that allow us to drive higher efficiencies in our seat assembly facilities and further integrate certain assembly activities with our core component manufacturing operations. Our seat components, including recliner mechanisms, seat tracks and seat trim covers, leather and fabric are manufactured in batches, typically utilizing facilities in low-cost regions.
Financial Summary
A summary of revenues from external customers and other financial information for our Seating segment is shown below. For additional information regarding the operating results of our Seating segment, see Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations - Results of Operations." For additional information regarding Lear’s total sales and long-lived assets by geographic area, as well as customer concentrations, see Note 12, "Segment
Reporting," to the consolidated financial statements included in this Report. The top five customers of this segment are: General Motors, Ford, BMW, Fiat Chrysler and Daimler.
|
| | | | | | | | | | | |
| (In millions) | 2017 | | 2016 | | 2015 |
| Revenues from external customers | $ | 15,873.0 |
| | $ | 14,356.7 |
| | $ | 14,098.5 |
|
Segment earnings (1) | 1,250.8 |
| | 1,136.0 |
| | 907.0 |
|
| Depreciation and amortization | 289.5 |
| | 258.1 |
| | 239.3 |
|
| Capital expenditures | 398.3 |
| | 341.6 |
| | 317.2 |
|
| Total assets | 7,303.4 |
| | 6,199.2 |
| | 5,780.7 |
|
| |
(1) | As discussed in Note 2, "Summary of Significant Accounting Policies — Segment Reporting," segment earnings represents pretax income before equity in net income of affiliates, interest expense and other expense. |
Competition
Based on independent market studies and management estimates, we believe that we hold the #2 position in seat systems assembly globally on the basis of revenue with strong positions in all major markets. We estimate the global seat systems market at more than $65 billionin 2017. We are a leading supplier of various components produced for complete seat systems.
Our primary competitor in this segment globally is Adient, plc. Other competitors in this segment include Faurecia S.A., Toyota Boshoku Corporation, TS Tech Co., Ltd. and Magna International Inc., which have varying market presence depending on the region, country or automotive manufacturer. Peugeot S.A., Toyota Motor Corporation and Honda Motor Co. Ltd. hold equity ownership positions in Faurecia S.A., Toyota Boshoku Corporation and TS Tech Co., Ltd., respectively. Other automotive manufacturers maintain a presence in the seat systems market through wholly owned subsidiaries or in-house operations. In seat components, we compete with the seat systems suppliers identified above, as well as certain suppliers that specialize in particular components.
Technologyseating market.
We maintain state-of-the-art testing, instrumentation and data analysis capabilities. We ownpossess in-house, industry-leading seat validation test centers featuring crashworthiness,crash worthiness, durability and full acoustic and sound quality testing capabilities. Together with computer-controlled data acquisition and analysis capabilities, these centers provide precisely controlled laboratory conditions for sophisticated testing of parts, materials and systems. In addition, we incorporate many convenience, comfort and safety features into our designs, including advanced whiplash prevention concepts, integrated restraint seat systems and side impact airbags. We also invest in our computer-aided engineering design and computer-aided manufacturing systems.
We also are investing in seat heating and cooling capabilities and technologies. We have added expertise in this area internally and through a strategic partnership for thermoelectric seat heating and cooling technology. The addition of seat heating and cooling to our existing capabilities and technologies in seat fabric, premium leather and seat cover sewing, as well as seat foam and seat structures, allows us to offer unique seat designs and the most complete range of seat features.
We have developed products and materials to improve comfort and ease of adjustment, promote customization and styling flexibility, increase durability and reliability, enhance safety, expand the usage of environmentally friendly materials and reduce cost and weight. ProActive™ Seating uses proprietary MySeat by Lear™
Our core capabilities extend into key seat components as well, including:
•Leather and Fabric – We deliver the most luxurious, durable and performance-tested leathers to more automotive brands globally than any other automotive leather supplier, while ensuring sustainable and responsible sourcing practices. Our premium leathers are designed for seamless integration with our industry leading secondary operations, exceeding customer expectations for quality and service. Our Eagle Ottawa premium leather group has developed and launched, in both Europe and North America, a new technology powered by our TheraMetric™ analytical process. This process is derived from our research to provide a driverthat allows for the creation of highly customizable
designs with a seating position that promotes better posturenew levels of definition and cumulative wellness benefits. ProActive™ Seating has been endorsed bypillowing, improving the American Chiropractic Association, International Chiropractors Association, World Federation of Chiropractic and Loomis Institute of Enzyme Nutrition. Our Lear Crafted Comfort Connect™ and Advanced Comfort Systems™ are adjustable cushions, seat backs and side bolsters which support correct posture and provide improved comfort and appearance. Our Guilford TeXstyle™ fabrics provide customizable fabric engineered to improvestyle of the vehicle experience and durability, andseat while retaining the air flow necessary for ventilated seats. Additionally, our TeXstyle™ Enhance offerings provide a range of secondary embellishment technologies to enhance standard fabrics, enabling unique design within an array of fabric choices. Our proprietary anti-soiling performance leather finishing technology, Ansolé™TM, improves durability and protects against staining and fading.
Our head restraints provideGuilford Premium Suede is a market-driven unique product positioned to compete with premium non-woven materials by providing a light weight, cost effective solution with improved comfortfunctionality. Guilford Premium Suede is a luxury, premium material which is versatile and suitable for various interior applications, providing increased elongation and improved moldability for manufacturing processes. Our branded TeXstyleTM surface material coatings and treatment technologies enhance cleanability by releasing and repelling stains; prevent the growth of bacteria and mildew through the addition of antimicrobial treatments, including silver ion technologies; protect fabric against water and oil-based stains; minimize soiling of light colors; and are anti-static and anti-dusting.
•Seat Mechanisms – We supply world-class front-row and rear seat systems, recliners, tracks, latches and other products in a scalable modular family. Our seat architectures are a core component of our industry-leading vertical integration capabilities around the world. Smaller, low-weight and low-noise materials deliver high performance, safety with adjustability. and functionality.
Our high speedhigh-speed smart fold technology is a regulated high speed folding adjustment mechanism that delivers premium convenience while maintaining leading safety and comfort benefits. Our mini recliners and micro adjust tracks are seat mechanisms, which provide precision movement and facilitate interior packaging space flexibility. Our Dynamic EnvironmentalECO Structures utilize an innovative hub and spoke concept offering economic solutions for developing markets.
•Foam and Comfort Systems™ – Our highly engineered low-profile foam, low-emission foam and our first-to-market, U.S.-sourced SoyFoamTM are break-through innovations in comfort, safety and sustainability.
Manufacturing Leadership
Our continued focus on expanding our expertise and capabilities in materials, logistics and manufacturing is a key enabler in providing our customers with world-class seat system products. Our unique proprietary processes and employee engagement initiatives will continue to provide us with a competitive advantage.
We pioneered just-in-time ("JIT") seat assembly. Typically located adjacent to or near our customers' manufacturing and assembly sites, our JIT facilities deliver finished products matching our customers' exact build specifications for a particular day, shift and sequence. Our expertise in logistics and lean manufacturing processes enable us to meet our customers' delivery requirements while maintaining inventories at optimum levels.
We believe that we are the world's most vertically integrated manufacturer of complete seat systems. We utilize environmentally friendly materialsthe latest industry innovations and offer weightautomated technologies to facilitate our continuous improvement efforts. Moreover, we have continued to expand our employee engagement initiatives achieving global scalability and successfully driving cultural advances. Our initiatives have resulted in increased first-time quality, decreased absenteeism, material cost reductions and decreased average build times per vehicle.
Customers
The top five customers of 30% - 40%our Seating segment are: General Motors, Daimler, Stellantis, Volkswagen and Ford.
Competition
Our primary competitors in this segment globally are Adient, plc, Faurecia S.A., Magna International Inc., Toyota Boshoku Corporation, TS Tech Co., Ltd. and Yanfeng Automotive Systems Co., Ltd., which have varying market presence depending on the region, country or automotive manufacturer. Toyota Motor Corporation and Honda Motor Co. Ltd. hold equity ownership positions in Toyota Boshoku Corporation and TS Tech Co., Ltd., respectively. Other automotive manufacturers maintain a presence in the seat systems market through wholly owned subsidiaries or in-house operations. In seat components, we compete with the seat systems suppliers identified above, as compared to current foam seat designs. Our SoyFoam™ seats, which are used by multiple global customers, are up to 24% renewable,well as compared to non-renewable, petroleum-based foam seats.certain suppliers that specialize in particular components.
For additional factors that may impact our Seating segment’ssegment's business, financial condition, operating results and/or cash flows, see Item 1A, "Risk Factors."
E-Systems Segment
TheOur E-Systems segment consists of the design, development, engineering and manufacture assembly and supply of complete electrical distribution and connection systems and electronic modules and related components and softwaresystems for light vehicles globally. We are a leader in signal distribution and power management and signal distribution within the vehicle for all types of powertrains – from traditional vehicleICE architectures as well as high power and hybrid electric systems.to the full range of electrified powertrains. We have connectivity hardware and software capabilities, including cybersecurity expertise, that facilitate secure,
wireless communication between the vehicle’svehicle's electrical and electronic architecture and external networks, as well as mobile devices and other vehicles. We also offer software and services for the cloud, vehicles and mobile devices that enable consumer e-commerce, multi-media applications and enterprise services among other new and emerging applications.
As the only automotive supplier with both electrical distribution and electronic capabilities for all vehicle architectures, we have a competitive advantage as we are able to offer our customers customized solutions optimized to provide complete architecture benefits. Our component designs contemplate the complete architecture performance, creating superior value for our customers. Our investments in electrification over the past thirteen years are providing us with a significant growth opportunity with respect to this trend. Further, electrified vehicle architectures represent a significant content per vehicle expansion opportunity for us.
Electrical Distribution and Connection Systems
Electrical distribution and connection systems route networks and electrical signals and manage electrical power within the vehicle for all types of powertrains, including traditional vehicleICE architectures as well as high power and hybrid electric systems.the full range of electrified powertrains, supporting the current industry trend toward electrification. Key components in the electrical distribution and connection system include wire harnesses, terminals and connectors, and junction boxes, includingengineered components for high powerboth ICE and hybrid electric systems.electrified vehicle architectures that require management of higher voltage and power.
Wire harness assemblies, are a collection of wiring and terminals and connectors thatincluding connection systems, link all of the various electrical and electronic devices within the vehicle to each other and/or to a power source. Our wire harnesses provide low voltage (12 volts / 48 volts) and high voltage (60 volts – 800 volts) power distribution. Low voltage wire harnesses are used on all light duty vehicles, and high voltage wire harnesses are used on hybrid, plug-in hybrid and battery electric vehicles. Wire harness assemblies are a collection of individual circuits fabricated from raw and insulated wire, which is automatically cut to length and terminated during the manufacturing process. Individual circuits are assembled together, on a jig or table, inserted into connectors and wrapped or taped to form wire harness assemblies. The assembly process is labor intensive, and as a result, production is generally performed in low-cost labor sites in Mexico, Honduras, Brazil, Eastern Europe, Africa, China and the Philippines and Thailand.Philippines.
TerminalsConnection systems include terminals and connectors include conductive metaland engineered components and connector housings that join wire harness assembliesharnesses together at their respective end points or connect electronic devices to wire harness assemblies. Terminals and connectorsharnesses. Connection systems can vary significantly in size and complexity depending on the amount of power or data being transferred and the number of connections being made at any particular point in the electrical distribution system. TerminalsConnection systems support both low voltage and connectorshigh voltage power distribution. Low voltage connection systems are applicable on all light duty vehicles, and high voltage connection systems are applicable on hybrid, plug-in hybrid and battery electric vehicles. Our connection systems are produced using highly automated processes, including stamping, injection molding and automated assembly processes. In 2021, we entered into multiple partnerships to expand our business opportunities in connection systems, including partnerships with IMS Connector System, a technology company based in Germany to enable advanced high speed data connection systems, and Hu Lane Associate Inc., a world-class manufacturer of automotive connector products to expand our access to a broader catalog of product-enabling solutions for our customers. Our connection systems are currently manufactured in Germany, Eastern Europe, China and the United States. Key material inputs to our connection systems business include metals, such as copper and aluminum, and various resins.
Engineered components consist of molded components included as part of a wire harness assembly that perform specific functions, such as protection, routing, sealing or covering, to ensure that the wire harness assembly properly performs its function. In 2021, we acquired M&N Plastics, a privately owned injection molding specialist and manufacturer of engineered plastic components for automotive electrical distribution applications, significantly expanding our capabilities and footprint in engineered components. Engineered components are applicable on all vehicle architectures and are produced using molding processes. Our engineered components are currently manufactured in Germany, Czech Republic, the United States and China. Key material inputs to our engineered components are various resins.
Electronic Systems
In our E-Systems segment, we also design, develop, engineer and manufacture electronic systems, which control various functions within the vehicle, as well as develop and integrate the associated software for these electronic systems. Our embedded software solutions have traditionally been sourced as a system with our electronic hardware offerings. Our established capabilities in embedded control software will allow us to capitalize on such opportunities. Our electronic modules include body domain control modules, smart and passive junction boxes, and TCUs and gateway modules that are applicable to all vehicle types. As a result of thirteen years of investment in electrification, our electronic systems business also includes electronic modules that are specific to hybrid and electric vehicles, such as on-board battery chargers, power conversion modules, high voltage battery management systems and high voltage power distribution systems. Our engineering and development activities for electronics are in the United States (Southfield, Michigan), Germany, Spain, China and India. We
assemble these modules using specialized, high-speed surface mount placement equipment and assembly processes in Mexico, Europe, Northern Africa and China. Electronic system products and their applications include:
•Body Domain Control Modules – Body domain control modules primarily control vehicle interior functions outside of the vehicle's head unit or infotainment system.
•Zone Control Modules – Zone control modules are vehicle computers that control multiple functional domains (e.g., body, powertrain, chassis) within the vehicle.
•Smart and Passive Junction Boxes – Passive junction boxes are centrally located modules within the vehicle that contain fuses and/or relays for circuit and device protection and serve as a connection point for multiple wire harnesses. Junction boxes are manufactured in Mexico, Europe, Northern Africa, China and the Philippines with a proprietary, capital-intensive assembly process using printed circuit boards, a portion of which are purchased from third-party suppliers. Certain materials, particularly certain specialized electronic components, are available from a limited number of suppliers. Proprietary features have been developed to improve the function of theseSmart junction boxes in harsh environments, including extreme temperatures and humidity.
Advanced Efficiency Systems
Our advanced efficiency systems group is dedicated torepresent the developmentintegration of high power and hybrid electric systems and components, including wiring, terminals and connectors and power electronics. We have products and technologies that enable the varying degrees of powertrain electrification being employed by automotive manufacturers today from 48-volt mild hybrid vehicles to full electric vehicles. Our products include on-board conductive and inductive charging systems, inverters and converters, charge cord sets, high voltage electrical distribution systems and battery monitoring technology. Our global center for Advanced Efficiency Systems and high power applications is in Southfield, Michigan with full development capabilities also located in Valls, Spain. We are supplying, or will supply, high voltage components and systems for hybrid and electric vehicles produced by BMW, Daimler, Fiat Chrysler, General Motors, Jaguar Land Rover, Renault-Nissan, Volkswagen and Volvo. We believe that our expertise in high power electrical distribution systems will provide additional growth opportunities going forward and will be beneficial with the entrance of technology and emergent companies focusing on electric or other alternative powertrain designs.
Electronics
In our E-Systems segment, we also design, develop, engineer and manufacture electronics, which control various functions within the vehicle, as well as develop and integrate the associated software for these electronic modules. Our electronic modules include body control modules, smart junction boxes gateway modules, wireless control modules, lighting control modules and audiowith certain body domain controllers and amplifiers. Our engineering and development activities for electronics are in the United States (Southfield, Michigan and Northern California), Belgium, Germany, Spain, China and India. We assemble these modules using high-speed surface mount placement equipment in Mexico, Europe, Northern Africa, China and the Philippines.
Body control modules primarily control vehicle interior functions outside of the vehicle’s head unit or infotainment system. Depending on the vehicle’s electrical and electronic architecture, these modules can be either highly integrated, consolidating multiple functional controls into a single module, or focus on a specific function, such as seat position and comfort controls or the door zone control module functions, which controls features such as window lift, door lockcan provide higher efficiency solutions for packaging size, mass and power mirrors. As electronic control modules became increasingly centralizedassembly in certain vehicle electrical architectures.
•TCUs and integrated, we developed "smart junction boxes," which are junction boxes
augmented with integrated electronic functionality that otherwise would be contained in other body control modules. The integration of functionality in our smart junction boxes eliminates interconnections, increases overall system reliabilityGateway Modules – Our TCUs and can consolidate the number of electronic modules within the vehicle. This can lead to reduced cost and complexity. We believe that our expertise in consolidating functional controls into integrated modules and integrating these modules into the vehicle’s electrical and electronic architecture is a competitive strength.
We develop and produce gateway modules which facilitate secure access to, and communication with, all of the vehicle systems at a central point and translate various signals to facilitate data exchange across various vehicle domains. This gateway becomes increasingly important
•Integrated Power Modules – Integrated power modules are power electronics products used on hybrid, plug-in hybrid and battery electric vehicles that have at least two, but typically three, functions integrated into a single module to achieve efficiencies, including packaging size, reduced electrical connections and reduced mass. Our offerings are focused on the integration of on-board battery chargers, DC/DC converters and high voltage power distribution units.
•High Voltage Battery Management Systems – High voltage battery management systems are a system of multiple electronic control modules comprised of sensing modules and computing modules that provide sensing and assessment of the high voltage battery's condition, performance and status, as formerly distinct vehiclewell as calculate appropriate control adjustments to battery temperature control, amperage draw and charge rate to ensure proper performance of the system.
•Battery Disconnect Unit – Battery disconnect units are high voltage switching and power control systems increasingly must work in concert with one another. We also offer wireless functionality in both integrated and stand-alone modules, which send and receive signals using radio frequency technology. Our wireless systems include passive entry systems, remote keyless entry and dual range/dual function remote keyless entry systems. We are building on both our core gateway and wireless capabilities as we add and develop higher levels of data and signal connectivitythat manage the power in and out of electric vehicle batteries.
•Software – Our software offerings include embedded software, which is impacted by the vehicle.
Our electronics product offerings also include lighting control modules, which provide the electronic control logic and diagnostics for increasingly advanced and complex vehicle lighting systems, including advanced driver assistance-integrated lighting solutions utilizing advanced LED matrix beam technology. We supply LED lighting control systems for vehicle interiors and exteriors. In addition, we offer audio electronics, including premium audio amplifiers and complete vehicle sound system development capabilities with advanced domain control and audio tuning.
The higher level ofincreased complexity and processing power in these electronic control modulessystems and is driving rapid increases in software requirements associated with these modules. Accordingly, we continuesystems.
Technology
Our complete electrical distribution and connection system design capabilities, coupled with certain market-leading component technologies, allow early access to build on our knowledge and capabilities in software in order to design and develop more complex and integrated electronic control modules capable of more efficiently managing the distribution of power and data signals through the vehicle.
Connectivity
We are building connectivity capabilities that facilitate secure, wireless communication between the vehicle’s systems and external networks, as well as other vehicles. Our connectivity strategy is based on leveraging our expertise in vehicle electrical and electronic architecture design andcustomers' product development electronic module functional integration, gateway module data exchange and core wireless signals. We are building capabilities organically through internal investment and through acquisition and partnership. Recent transactions added technology that directly connects on-board vehicle systems with cloud-based applications using proprietary, secure data exchange capabilities via cellular networks and V2X hardware and software solutions utilizing various wireless communications protocols, as well as vehicle positioning through GNSS satellite communications. This includes the development of differentiated GPS technology,teams, which provides high-accuracy positioning solutions for autonomousan indication of our customers' product needs and connected vehicle applications.
These capabilities, combined with our vehicle electrical and electronic architecture expertise and products, allowenables us to offer our customers embedded modules and software that facilitate direct and secure connectivity between the vehicle and external networks. Products that we can offer will include connected gateway modules with an array of features including over-the-air software update capabilities, embedded cellular communication modules, e-Call modules that automatically contact emergency services in the event of a crash and both on-board and roadside units that facilitate V2X communications. We combine these offerings with cybersecurity expertise and software solutions to permit highly secure communications and defend against cybersecurity attacks.develop system design efficiencies. Our expertise in both core body controls and connectivity allows us to offer "Virtual CarKey" capabilities that securely enable vehicle access via a smartphone.
Financial Summary
A summary of revenues from external customers and other financial information for our E-Systems segment is shown below. For additional information regarding the operating results of our E-Systems segment, see Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations." For additional information regarding Lear’s total sales and long-lived assets by geographic area, as well as customer concentrations, see Note 12, "Segment Reporting," to the consolidated financial statements included in this Report. The top five customers of this segment are: Ford, General Motors, Renault-Nissan, Jaguar Land Rover and BMW.
|
| | | | | | | | | | | |
| (In millions) | 2017 | | 2016 | | 2015 |
| Revenues from external customers | $ | 4,594.0 |
| | $ | 4,200.9 |
| | $ | 4,112.9 |
|
| Segment earnings (1) | 641.6 |
| | 591.3 |
| | 554.4 |
|
| Depreciation and amortization | 123.4 |
| | 107.6 |
| | 99.3 |
|
| Capital expenditures | 176.3 |
| | 162.4 |
| | 134.4 |
|
| Total assets | 2,268.0 |
| | 1,675.9 |
| | 1,572.9 |
|
| |
(1) | As discussed in Note 2, "Summary of Significant Accounting Policies — Segment Reporting," segment earnings represents pretax income before equity in net income of affiliates, interest expense and other expense. |
Competition
We estimate the global target market for our E-Systems business to be over $90 billion. Our major competitors in electrical distribution systems include Aptiv PLC, Leoni AG, Molex Incorporated (a subsidiary of Koch Industries Inc.), Sumitomo Corporation, TE Connectivity and Yazaki Corporation. Our major competitors in electronic modules, including connectivity solutions, include Aptiv PLC, Continental AG, Denso Corporation, Harman International Industries, Incorporated (acquired by Samsung Electronics Co. Ltd. in 2017), Hella AG, Robert Bosch GmbH, Valeo S.A. and Visteon Corporation.
Technology
The E-Systems segment is technology driven and typically requires higher investment as a percentage of sales than our Seating segment. Our complete electrical distribution system design capabilities, coupled with certain market-leading component technologies, allow access to our customers’ development teams, which provides an early indication of our customers’ product needs and enables us to develop system design efficiencies. Our ability to design and integrate electronic modules creates a competitive advantage as we support customers with complete electrical architecture development.business. Our expertise is developed and delivered by approximately 2,4002,500 engineers across seventeensixteen countriesand is led by five fourglobal technology centers of excellence in Belgium, China, Germany, Spain and the United States for each of our major product lines in this segment, which are described below.
In electrical distribution and connection systems, our technology includes expertise in the design and use of alternative conductor materials, such as aluminum, copper-clad steel and other hybrid alloys. Alternative conductor materials can enable the use of ultra small gauge conductors, which reduce the weight and packaging size of electrical distribution and connection systems. We also have developed proprietary manufacturing process technologies, such as our vertical manufacturing system that features three dimensional wire harness assembly boards. Our expertise in terminals and connectorsconnection system technology facilitates our ability to implement these small gauge and alternative alloy conductors. We have developed advanced capabilities in aluminum terminals and aluminum wire termination, ultra small gauge termination and high voltage terminals and connectors. We have developed high packaging density in-line connectors and new small gauge terminals that will enable wire gauge reduction and provide our customers with smaller and lower cost solutions. OurWith our high voltage terminals and connectors are a part of our advanced efficiencyconnection systems, capabilities, and we have established a leading capability in power density (power per packaging size) that is being adopted by multiple automakers. Our advanced efficiency systems and components for high voltage vehicle applications have achieved industry leading efficiency, packaging and reliability. We continue to build on our strong technology position for high voltage applications and have developed an 11kW wireless charging system that enables electric vehicles to safely recharge at the highest power level available without plugging in the vehicle.automotive manufacturers. We have 625approximately 720 patents issued or applied for in the advanced efficiency systems product technology area. These technologies are supported by our proprietary Virtual Proving Grounds,virtual proving grounds, which is an industry-leading suite of in-house developed tools and processes to significantly reduce the design, development and validation testing time and expense.
In electronics,electronic systems, we are a market leader in smart junction box technology and began production of our Automotive News PACE Award winningAward-winning Solid State Smart Junction Box™BoxTM in 2016. We continue to refine our smart junction box technology, including the development of aluminum printed circuit boards. We have developed body control modules with dual core microprocessors that allow body control and gateway functionality in a single module. We are a leader in gateway moduleTCU technology and have capabilities to enable our gatewayTCUs and other electronic control modules to efficiently and securely manage the increasing amount of both wired and wireless
signals running throughout, as well as within and outside of, the vehicle, including beingvehicle. We were first-to-market with an ethernet-enabledethernet gateway module. Wemodule and the 2021 PACEpilot Innovation to Watch Award-winning 5G TCU. Our connectivity technologies also have developed wireless products, such as lower-cost passive entryinclude full in-house software capabilities, encompassing 5G cellular expertise, vehicle-to-vehicle communications and cybersecurity. In high power electronics, we offer high efficiency battery chargers, which charge vehicles faster; high voltage battery management systems, with improved security using ultra wide bandwhich optimize battery performance for longer range and faster charging; highly integrated power modules, which reduce cost, weight and size while reducing time to charge and extending electric vehicle range; and battery disconnect units, which provide all of the high voltage switching for the electric vehicle battery. Our battery disconnect unit was a 2021 PACE Award winner for breakthrough technology in high voltage power and that feature our 2-way remote keyless entry systems that enable the vehicle to provide feedback to the consumer, such as verification that the doors have locked or that the engine has started. In lighting, we have developed advanced technology electronic controls, including a Matrix LED Control System capable of individually dimming and switching on/off up to 100 LEDs. This system enables steerable light beams and other advanced lighting features and can be paired with driver assistance system sensors for functionality, such as automaticthermal management.
high beam management and obstacle highlighting. In audio, we have developed an ethernet audio video bridging amplifier that facilitates faster processing of digital data at a lower cost.
Software remainsis a critical element of our E-Systemselectronic systems business. Software capabilities are becoming more important in the management of complex and highly sophisticated electricalelectronic architectures. Software within the vehicle is rapidly growing as a key element of technological innovation and a cost effective way to provide new features and functions. We currently employ more than 600software engineers globally and are pursuing expansion of specialized capabilities in vehicle networking, encryption, cybersecurity and connectivity protocols. We have expanded our software development capabilities through acquisition, internal investment and strategic hires, building on our architecture and power management capabilities with expertise in wireless communication and vehicle positioning software and cybersecurity. As part of our strategy to provide vehicle cybersecurity solutions to our customers, we have developed a firewall module, including proprietary software, which protects the vehicle from cybersecurity intrusion through one of its most vulnerable points, the on-board diagnostic port. We also have enhanced our V2X product line by adding secure, over-the-air software update capabilities to our V2X modules, allowing these units to receive regular software upgrades, which provide additional applications and functionality.
For additional factors that may impact our E-Systems segment’ssegment's business, financial condition, operating results and/or cash flows, see Item 1A, "Risk Factors."
The top five customers of our E-Systems segment are: Ford, Renault-Nissan, Jaguar Land Rover, Geely and Volkswagen.
Competition
Our major competitors in electrical distribution and connection systems include Aptiv PLC, Leoni AG, Molex Incorporated (a subsidiary of Koch Industries Inc.), Sumitomo Corporation, TE Connectivity and Yazaki Corporation. Our major competitors in electronic modules, including connectivity solutions, include Aptiv PLC, Continental AG, Denso Corporation, Harman International Industries, Incorporated (a subsidiary of Samsung Electronics Co. Ltd.), Hella AG, Robert Bosch GmbH, Valeo S.A. and Visteon Corporation.
Customers
In 2017, Ford and2021, General Motors and Ford, two of the largest automotive and light truck manufacturers in the world, each accounted for 18% and 14% of our net sales.sales, respectively. In addition, Volkswagen, Daimler and Stellantis accounted for 12%, 11% and 11% of our 2021 net sales, respectively. We supply and have expertise in all vehicle segments of the automotive market. Our sales content tends to be higher on those vehicle platforms and segments which offer more features and functionality. The popularity of particular vehicle platforms and segments varies over time and by regional market. We expect to continue to win new business and grow sales at a greater rate than overall automotive industry production. For further information related to our customers and domestic and foreign sales and operations, see Note 12,15, "Segment Reporting," to the consolidated financial statements included in this Report.
Our customers award business to their suppliers in a number of ways, including the award of complete systems, which allows suppliers either to manufacture components internally or to purchase components from other suppliers at their discretion. Certain of our customers also elect to award certain components directly to component suppliers and independent of the award of the complete system. We have been selectively expanding our component capabilities and investing in manufacturing capacity in low-cost regions in order to enhance our cost competitive structure and maximize our participation in such direct component sourcing.sourcing by our customers.
Our customers typically award contracts several years before actual production is scheduled to begin. Each year, the automotive manufacturers introduce new models, update existing models and discontinue certain models and, recently,periodically, even complete brands. In this process, we may be selected as the supplier on a new model, we may continue as the supplier on an updated model or we may lose the business on a new or updated model to a competitor. Our sales backlog reflects our estimated net sales over the next three years from formally awarded new programs, less lost and discontinued programs. This measure excludes the sales backlog at our non-consolidated joint ventures. As of January 2018,2022, our 20182022 to 20202024 sales backlog is $3.2$3.3 billion, an increase of 14%18% as compared to our sales backlog as of January 2017.2021. Our current sales backlog reflects $1.2$1.3 billion related to 20182022 and 60%70% and 40%30% related to our Seating and E-Systems segments, respectively. In addition, our 20182022 to 20202024 sales backlog at our non-consolidated joint ventures is $700approximately $570 million. Our current sales backlog assumes volumes based on the independent industry projections of IHS AutomotiveMarkit as of December 20172021 and internal estimates, a Euro exchange rate of $1.18 / Euro.$1.13/Euro and a Chinese RMB exchange rate of 6.50/$. This sales backlog is generally subject to a number of risks and uncertainties, including vehicle production volumes on new and replacement programs and foreign exchange rates, as well as the timing of production launches and changes in customer development plans. For additional information regarding risks that may affect our sales backlog, see Item 1A, "Risk Factors," and Part II — Item 7, "Management’s"Management's Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements."
We receive purchase orders from our customers that generally provide for the supply of a customer’scustomer's annual requirements for a particular vehicle model and assembly plant, or in some cases, for the supply of a customer’scustomer's requirements for the life of a particular vehicle model, rather than for the purchase of a specified quantity of products. Although most purchase orders may be terminated by our customers at any time, such terminations have been minimalinfrequent and have not had a material impact on our operating results. We are subject to risks that an automotive manufacturer will produce fewer units of a vehicle model than anticipated or that an automotive manufacturer will not award us a replacement program following the life of a vehicle model. To reduce our reliance on any one vehicle model, we produce automotive systems and components for a broad cross-section of both new and established models. However, larger cars and light trucks, as well as vehicle platforms that offer more features and functionality, such as luxury, sport utility and crossover vehicles, typically have more content and, therefore, tend to have a more significant impact on our operating performance. Our net sales for the year ended December 31, 2017,2021, consisted of 43%29% passenger cars, 44% crossovers54% crossover and SUVssport utility vehicles and 13%18% trucks and vans.
Our agreements with our major customers generally provide for an annual productivity price reduction. Historically, cost reductions through product design changes, increased manufacturing productivity and similar programs with our suppliers have generally offset these customer-imposed price reduction requirements. However, raw material, energy and commodity costs can be volatile. Although we have developed and implemented strategies to mitigate the impact of higher raw material, energy and commodity costs, these strategies, together with commercial negotiations with our customers and suppliers, typically offset only a portion of the adverse impact. Certain of these strategies also may limit our opportunities in a declining commodity environment. In addition, we are exposed to increasing market risk associated with fluctuations in foreign exchange as a result of our low-cost footprint and vertical integration strategies. We use derivative financial instruments to reduce our exposure to fluctuations in foreign exchange rates. For additional information regarding our foreign exchange and commodity price risk, see Part II — Item 7, "Management’s"Management's Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Financial Condition — Foreign Exchange" and "— Commodity Prices."
Seasonality
Our principal operations are directly related to the automotive industry. Consequently, we may experience seasonal fluctuations to the extent automotive vehicle production slows, such as in the summer months when many customer plants close for holidays and/or model year changeovers, in December when many customer plants close for the holidays and during periods of high vehicle inventory. See Note 14, "Quarterly Financial Data," to the consolidated financial statements included in this Report.
Raw Materials
The principal raw materials used in our seat systems, electrical distribution and connection systems and electronicselectronic systems are generally available and obtained from multiple suppliers under various types of supply agreements. Components such as fabric, foam, leather, seat structures and mechanisms, terminals and connectorsconnection systems and certain other components are either manufactured by us internally or purchased from multiple suppliers under various types of supply agreements. The majority of the steel used in our products is comprised of fabricated components that are integrated into a seat system, such as seat frames, recliner mechanisms, seat tracks and other mechanical components. Therefore, our exposure to changes in steel prices is primarily indirect, through these purchased components. With the exception of certain terminals and connectors,connection systems, the materials that we use to manufacture wire harness assemblies are substantially purchased from suppliers, including extruded and insulated wire and cable. The majority of our copper purchases are comprised of extruded wire and cable that we integrate into electrical wire harnesses. In general, our copper purchases, as well as a significant portion of our leather purchases, are subject to price index agreements with our customers.customers and suppliers. We utilize a combination of short-term and long-term supply contracts to purchase key components. We generally retain the right to terminate these agreements if our supplier does not remain competitive in terms of cost, quality, delivery, technology or customer support.
Employees
As of December 31, 2017 and 2016, our employment levels worldwide were approximately as follows:
|
| | | |
| Region | 2017 | | 2016 |
| United States and Canada | 9,900 | | 9,900 |
| Mexico | 51,200 | | 48,700 |
| Central and South America | 14,900 | | 11,100 |
| Europe and Africa | 59,200 | | 52,600 |
| Asia | 29,800 | | 26,100 |
| Total | 165,000 | | 148,400 |
A substantial number of our employees are members of unions or national trade organizations. We have collective bargaining agreements with several North American unions, including the United Auto Workers, Unifor, International Brotherhood of Electrical Workers and Workers United. Each of our unionized facilities in the United States and Canada has a separate collective bargaining agreement with the union that represents the workers at such facility, with each such agreement having an expiration date that is independent of the other agreements. The majority of our employees in Mexico and Europe are members of industrial trade union organizations or confederations within their respective countries. Many of these organizations and confederations operate under national contracts, which are not specific to any one employer. We have occasionally experienced labor disputes at our plants. We have been able to resolve all such labor disputes and believe our relations with our employees are generally good.
See Item 1A, "Risk Factors — A significant labor dispute involving us or one or more of our customers or suppliers or that could otherwise affect our operations could adversely affect our financial performance," and Part II — Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements."
Intellectual Property
Worldwide, we have approximately 2,2002,600 patents and patent applications pending. While we believe that our patent portfolio is a valuable asset, no individual patent or group of patents is critical to the success of our business. We also license selected technologies to automotive manufacturers and to other automotive suppliers. We continually strive to identify and implement new technologies for use in the design and development of our products.
Advanced technology development is conducted worldwide at our sixseven advanced technology centers and at our product engineering centers. At these centers, we engineer our products to comply with applicable safety standards, meet quality and durability standards, respond to environmental conditions and conform to customer and consumer requirements. Our global innovation and technology center located in Southfield, Michigan, develops and integrates new concepts and is our central location for consumer research, benchmarking, craftsmanship and industrial design activity.
We have numerous registered trademarks in the United States and in many foreign countries. The most important of these marks include LEAR CORPORATION® (including our stylized version thereof) and LEAR®, which are widely used in
connection with our products and services. Our other principal brands include GUILFORDTM® and EAGLE OTTAWA®. AVENTINO® leather,ConfigurE+TM seating, INTUTM Seating,seating, LEAR CONNEXUSTM signal and data communications, PROACTIVE POSTUREEXOTM seating, high-accuracy positioning, JOURNEYWARE® software, ProTec® active head restraints, SMART JUNCTION BOXTMtechnology, STRUCSURETM systems, AVENTINO® leather and TeXstyleTM fabrics are some of our other trademarks used in connection with certain of our product lines.
We will continue to dedicate resources to engineering
Government Regulations and development. Engineering and development costs incurred in connection with product launch, to the extent not recoverable from our customers, are charged to cost of sales as incurred. All other engineering and development costs are charged to selling, general and administrative expenses when incurred. Engineering and development costs charged to selling, general and administrative expenses totaled $148 million, $144 million and $127 million for the years ended December 31, 2017, 2016 and 2015, respectively. Engineering and development costs for which reimbursement is contractually guaranteed by our customers are capitalized. Engineering and development costs capitalized totaled $257 million, $179 million and $194 million for the years ended December 31, 2017, 2016 and 2015, respectively.
Environmental Matters
We are subject to a variety of federal, state, local and foreign laws and regulations, including those related to health, safety and environmental matters. Costs incurred to comply with these governmental regulations are not material to our capital expenditures, financial performance or competitive position. Additional information about the impact of government regulations on Lear's business is included in Item 1A, "Risk Factors," under the heading "Legal and Regulatory Risks."
We are committed to sustainability in our operations and products. We adhere to local, state, federal and foreign laws, regulations and ordinances, which govern activities or operations that may have adverse environmental effects. These laws, regulations and ordinances may impose liability for clean-up costs resulting from past spills, disposals or other releases of hazardous wastes. For a description of our outstanding environmental matters and other legal proceedings, see Note 11,14, "Commitments and Contingencies," to the consolidated financial statements included in this Report.
In addition, our customers are subject to significant environmentally focused state, federal and foreign laws and regulations that regulate vehicle emissions, fuel economy and other matters related to the environmental impact of vehicles. To the extent that such laws and regulations ultimately increase or decrease automotive vehicle production, such laws and regulations would likely impact our business. See Item 1A, "Risk Factors."
Furthermore, we currently offer products with green technology, such as SoyFoamTM, and are creating technologies that facilitate environmentally friendly features,transportation alternatives, such as hybrid and ourelectric vehicles. Our expertise, capabilities and capabilitiesenvironmental leadership are allowing us to expand our product offerings in this area. We will continue to monitor emerging developments in this area.
Joint Ventures and Noncontrolling Interests
We form joint ventures in order to gain entry into new markets, expand our product offerings and broaden our customer base. In particular, we believe that certain joint ventures have provided us, and will continue to provide us, with the opportunity to expand our business relationships with Asian automotive manufacturers, particularly in emerging markets. We also partner with companies having significant local experience in commerce and customs, as well as capacity, to reduce our financial risk and enhance our potential for achieving expected financial returns. In some cases, these joint ventures may be located in North America or Europe and used to expand our customer relationships.
As of December 31, 2017,2021, we had eighteenfifteen operating joint ventures located in five countries. Of these joint ventures, ninefive are consolidated, and nineten are accounted for using the equity method of accounting. FourteenThirteen of the joint ventures operate in Asia, and fourtwo operate in North America (including one that is(both of which are dedicated to serving Asian automotive manufacturers). Net sales of our consolidated joint ventures accounted for approximately 12%8% of our net sales in 2017.2021. As of December 31, 2017,2021, our investments in non-consolidated joint ventures totaled $147$185 million.
A summary of our non-consolidated operating joint ventures, including ownership percentages, is shown below. For further information related to our joint ventures, see Note 5,6, "Investments in Affiliates and Other Related Party Transactions," to the consolidated financial statements included in this Report.
|
| | | | | | | |
| Country | Name | Ownership
Percentage
|
| China | Beijing BHAP Lear Automotive Systems Co., Ltd. | 50% |
| China | Guangzhou Lear Automotive Components Co., Ltd. | 50 |
| China | Jiangxi Jiangling Lear Interior Systems Co., Ltd. | 50 |
| China | Lear Dongfeng Automotive Seating Co., Ltd. | 50 |
| China | Changchun Lear FAWSN Automotive Electrical and Electronics Co., Ltd. | 49 |
China | Changchun Lear FAWSN Automotive Seat Systems Co., Ltd. | 49 |
| China | Shenyang Jinbei Lear Automotive Seating Co. Ltd. | 49 |
| China | Beijing Lear Dymos Automotive SystemsHyundai Transys Co., Ltd. | 40 |
| Honduras | Honduras Electrical Distribution Systems S. de R.L. de C.V. | 49 |
| India | DymosHyundai Transys Lear Automotive India Private Limited | 35 |
| United States | Kyungshin-Lear Sales and Engineering LLC | 49 |
ITEM 1A – RISK FACTORS
Our business, financial condition, operating results and cash flows may be impacted by a number of factors. In addition to the factors affecting our business identified elsewhere in this Report, the most significantmaterial risk factors affecting our operations include the following:
Risks Related to Our Business
•Our industry is cyclical and a decline in the production levels of our major customers, particularly with respect to models for which we are a significant supplier, or the financial distress of one or more of our major customers could adversely affect our financial performance.
Our sales are driven by the number of vehicles produced by theour automotive manufacturers,manufacturer customers, which is ultimately dependent on consumer demand for automotive vehicles, and our content per vehicle. The automotive industry is cyclical and sensitive to general economic conditions, including the global credit markets, interest rates, consumer credit and consumer spending and preferences. Automotive sales and production can also be affected by the age of the vehicle fleet and related scrappage rates, labor relations issues, fuel prices, regulatory requirements, government initiatives, trade agreements, tariffs and other non-tariff trade barriers, 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 and increased competition, as well as consumer preferences regarding vehicle size, configuration and features, including alternative fuel vehicles, changing consumer attitudes toward vehicle ownership and usage, such as ride sharing and on-demand transportation, and other factors.
OurDue to the overall global economic conditions in 2020, largely as a result of the COVID-19 pandemic, the automotive industry experienced a decline in global customer sales and production volumes. Although industry production increased 3% in 2021 over 2020, production remains well below recent historic levels and consumer demand. This was largely due to the continuing impact of the COVID-19 pandemic in 2021, particularly through supply shortages. In 2021, the automotive industry suffered from supply chain delays and stoppages due to shipping delays resulting in increased freight costs and closed supplier facilities and distribution centers. The industry also faced workforce and staffing shortages, as well as scarcity and increases in prices of raw materials. As a result, we have experienced and may continue to experience reductions in orders from our customers in certain regions. An economic downturn or other adverse industry conditions that result in a decline in the production levels of our major customers, particularly with respect to models for which we are a significant supplier, or the financial distress of one or more of our major customers could reduce our sales or otherwise adversely affect our financial condition, operating results and cash flows. Further, 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. While we are pursuing a strategyWe may not be successful in such diversification.
•Increases in the costs and restrictions on the availability of aggressively expandingraw materials, energy, commodities and product components could adversely affect our salesfinancial performance.
Raw material, energy and operations in Asia, no assurancescommodity costs can be givenvolatile. Although we have developed and implemented strategies to mitigate the impact of higher raw material, energy and commodity costs, these strategies, together with commercial negotiations with our customers and suppliers, typically do not offset all of the adverse impact. Certain of these strategies also may limit our opportunities in a 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, including trade laws and tariffs, natural disasters, global pandemics like COVID-19 and resulting supply chain disruptions, and may impact our ability to meet the production demands of our customers. 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. If the costs of raw materials, energy, commodities and product components increase or the availability thereof is restricted, it could adversely affect our financial condition, operating results and cash flows.
•Pandemics or disease outbreaks, such as COVID-19, have disrupted, and may continue to how successfuldisrupt, our business, which could adversely affect our financial performance.
Pandemics or disease outbreaks, such as COVID-19, have disrupted, and may continue to disrupt, the global economy. The COVID-19 pandemic led to a dramatic reduction in economic activity worldwide. International, federal, state and local public health and governmental authorities have taken and may continue to take extraordinary actions to contain and combat the outbreak and spread of COVID-19 throughout most regions of the world, including travel bans, quarantines, "stay-at-home" orders and similar mandates that have caused many individuals to substantially restrict their daily activities and many businesses to curtail or cease normal operations.
The automotive industry was particularly negatively impacted by the situation with a sudden and sharp decline in consumer demand and automotive manufacturers suspending or severely limiting automobile production globally during portions of 2020. Although industry production increased 3% in 2021 over 2020, production remains well below recent historic levels and consumer demand, and we willexperienced, and we may continue to experience, reductions in orders from our customers globally, which in turn adversely affected, and may continue to affect, our financial performance. This reduction in orders may be in doing so. Asfurther exacerbated by a result, ancontinued global economic downturn resulting from the pandemic, which could decrease consumer demand for vehicles or other adverse industry conditions that result in the financial distress of one or more of our customers or suppliers. As described in more detail under "Our industry is cyclical and a decline in the production levels of our major customers, particularly with respect to models for which we are a significant supplier, could reduceor the financial distress of one or more of our sales and therebymajor customers could adversely affect our financial performance" above and "Adverse developments affecting or the financial distress of one or more of our suppliers could adversely affect our financial performance" below, decreases in consumer demand for automotive vehicles, declines in the production levels of our major customers, financial distress of one or more of our major customers or suppliers or other adverse developments affecting one or more of our suppliers, could adversely affect our financial performance. In addition, if COVID-19 were to affect a significant amount of the workforce employed or operating at our facilities, we could experience delays or the inability to produce and deliver products to our customers on a timely basis.
Unprecedented industry disruptions related to the COVID-19 pandemic impacted operations in every region of the world. As described in more detail under "Our substantial international operations make us vulnerable to risks associated with doing business in foreign countries" below, our substantial international operations make us vulnerable to risks associated with doing business in foreign countries.
While all of our global manufacturing plants have resumed production, we may experience unexpected delays or obstacles, such as higher employee absenteeism, supply chain disruptions or government mandates, that may hamper our ability to operate our facilities. Further, we may not be able to operate at optimal levels of efficiency given new work rules and procedures implemented to protect our employees. The suspension of production at our manufacturing facilities, or difficulties or inefficiencies in production, would likely adversely impact our future results of operations, financial condition and liquidity, and that impact may be material.
During the COVID-19 pandemic, our reliance on internet technology has increased due to the number of employees working remotely. This reliance has resulted in increased data privacy and cybersecurity risks, including the risk that we fail to appropriately maintain the security of the data we hold. See "— A disruption in our information technology systems, or those of our customers or suppliers, including a disruption related to cybersecurity, could adversely affect our financial performance" below.
As described in more detail under "Our existing indebtedness and the inability to access capital markets could restrict our business activities or our ability to execute our strategic objectives or adversely affect our financial performance" below, the volatility created by COVID-19 could adversely affect our access to the debt and capital markets. In addition, our ability to continue implementing important strategic initiatives and capital expenditures may be reduced as we devote time and other resources to responding to the impacts of the COVID-19 pandemic.
COVID-19 continues to spread in most regions of the world and the extent to which our financial performance will be adversely affected will depend on future developments, which are highly uncertain and cannot be predicted, including, but not limited to, the duration and spread of the pandemic, its severity, the effectiveness of actions to vaccinate populations, contain the virus or treat its impact and how quickly and to what extent normal economic and operating resultsconditions can resume. Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts on our business and cash flows.financial performance as a result of its global economic impact, including a recession that has occurred or may occur in the future, which will likely result in lower demand for new vehicles for a period of time, as new vehicle sales are typically correlated with positive consumer confidence and low unemployment.
The COVID-19 pandemic may also exacerbate other risks disclosed herein, including, but not limited to, our competitiveness, demand for our products and shifting consumer preferences.
•The loss of business with respect to, or the lack of commercial success of, a vehicle model for which we are a significant supplier could adversely affect our financial performance.
Although weWe receive purchase orders from our customers, these purchase orderswhich generally provide for the supply of a customer’scustomer's annual requirements for a particular vehicle model and assembly plant or, in some cases, for the supply of a customer’scustomer's requirements for the life of a particular vehicle model, rather than for the purchase of a specific quantity of products. In addition, it is possible that our customers could elect to manufacture our products internally or increase the extent to which they require us to utilize specific suppliers or materials in the manufacture of our products. The loss of business with respect to, the lack of commercial success of or an increase in directed component sourcing for a vehicle model for which
we are a significant supplier could reduce our sales or margins and thereby adversely affect our financial condition, operating results and cash flows.
•Our inability to achieve product cost reductions whichto offset customer-imposed price reductions could adversely affect our financial performance.
Downward pricing pressure by automotive manufacturers is a characteristic of the automotive industry. We regularly negotiateOur customer contracts and sales prices with our customers. These contracts require us to reduce our pricesgenerally provide for annual price reductions over the production life of athe vehicle, model and, at the same time,while requiring us to assume significant responsibility for the design, development and engineering of our products. Prices may also be adjusted on an ongoing basis to reflect changes in product content/costs and other commercial factors. Our financial performance is largely dependent on our ability to achieve 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 the needs of our customers and consumers. We continually evaluate operational and strategic alternatives to align our business with the changing needs of our customers and improve our business structure by investing in vertical integration opportunities.opportunities globally. Our inability to achieve product cost reductions whichthat offset customer-imposed price reductions could adversely affect our financial condition, operating results and cash flows.
Increases in the costs and restrictions on the availability of raw materials, energy, commodities and product components could adversely affect our financial performance.
Raw material, energy and commodity costs can be volatile. Although we have developed and implemented strategies to mitigate the impact of higher raw material, energy and commodity costs, these strategies, together with commercial negotiations with our customers and suppliers, typically offset only a portion of the adverse impact. Certain of these strategies also may limit our opportunities in a declining commodity environment. In addition, the availability of raw materials, commodities and product components fluctuates from time to time due to factors outside of our control. If the costs of raw materials, energy, commodities and product components increase or the availability thereof is restricted, it could adversely affect our financial condition, operating results and cash flows.
•Adverse developments affecting or the financial distress of one or more of our suppliers could adversely affect our financial performance.
We obtain components and other products and services from numerous Tier 2 automotive suppliers and other vendors throughout the world. We are responsible for managing our supply chain, including suppliers that may be the sole sources of products that we require, that our customers direct us to use or that have unique capabilities that would make it difficult and/or expensive to re-source. In certain instances, entire industries may experience short-term capacity constraints. Additionally, our production capacity, and that of our customers and suppliers, may be adversely affected by natural disasters. Any such significant disruption could adversely affect our financial performance. Furthermore, unfavorable economic or industry conditions could result in financial distress within our supply base, thereby increasing the risk of supply disruption. Although market conditions generally have improved in recent years, uncertainty remains and anotherAn economic downturn or other unfavorable industry conditions in one or more of the regions in which we operate could cause a supply disruption and thereby adversely affect our financial condition, operating results and cash flows.
•A significant labor dispute involving us or one or more of our customers or suppliers or that could otherwise affect our operations could adversely affect our financial performance.
A substantial number of our employees and the employees of our largest customers and suppliers are members of industrial trade unions and are employed under the terms of various labor agreements. We have labor agreements covering approximately 77,500 employees globally. In the United States and Canada, each of our unionized facilities has a separate collective bargaining agreement with the union that represents the workers at such facility, with each such agreement having an expiration date that is independent of the other agreements. Labor agreements covering approximately 86% of our global unionized work force, including labor agreements in the United States and Canada covering approximately 3% of our global unionized workforce, are scheduled to expire in 2022. There can be no assurances that future negotiations with the unions will be resolved favorably or that we will not experience a work stoppage or disruption that could adversely affect our financial condition, operating results and cash flows. A labor dispute involving us, any of our customers or suppliers or any other suppliers to our customers or that otherwise affects our operations, or the inability by us, any of our customers or suppliers or any other suppliers to our customers to negotiate, upon the expiration of a labor agreement, an extension of such agreement or a new agreement on satisfactory terms could adversely affect our financial condition, operating results and cash flows. In addition, if any of our significant customers experience a material work stoppage, such as the General Motors labor strike in the fall of 2019, that customer may halt or limit the purchase of our products. This could require us to shut down or significantly reduce production at facilities relating to such products, which could adversely affect our business and harm our profitability.
•Our ability to attract, develop, engage and retain qualified employees could affect our ability to execute our strategy.
Our success depends, in part, on our ability to identify and attract qualified candidates with the requisite education, background and experience, as well as our ability to develop, engage and retain qualified employees. Failure to attract, develop, engage and retain qualified employees, whether as a result of an insufficient number of qualified applicants, difficulty in recruiting new employees or inadequate resources to train, integrate and retain qualified employees, could impair our ability to execute our business strategy and could adversely affect our business. In addition, while we strive to reduce the impact of the departure of employees, our operations and/or our ability to execute our business strategy and meet our business objectives may be affected by the loss of employees, particularly when departures involve larger
numbers of employees, such as with a surge in the number of employees voluntarily terminating their employment similar to that experienced by other employers and industries since 2020. Higher rates of employee separations may adversely affect us through decreased employee morale, the loss of knowledge of departing employees and the devotion of resources to recruiting and onboarding new employees.
•Our substantial international operations make us vulnerable to risks associated with doing business in foreign countries.
As a result of our global presence, a significant portion of our revenues and expenses are denominated in currencies other than the U.S. dollar. We have substantial manufacturing and distribution facilities in many foreign countries, including Mexico and countries in Africa, Asia, Central and South America and Europe. International operations are subject to certain risks inherent in doing business abroad, including:
•exposure to local economic conditions;
•political, economic and civil instability and uncertainty (including acts of terrorism, civil unrest, drug-cartel related and other forms of violence and outbreaks of war);
•labor unrest;
•expropriation and nationalization;
•currency exchange rate fluctuations, currency controls and the ability to economically hedge currencies;
•withholding and other taxes on remittances and other payments by subsidiaries;
•investment restrictions or requirements;
•repatriation restrictions or requirements;
•export and import restrictions and increases in duties and tariffs;
•concerns about human rights, working conditions and other labor rights and conditions and the environmental impact in foreign countries where our products are produced and raw materials and/or components are sourced, as well as changing labor, environmental and other laws in these countries;
•pandemic illness;
•increases in working capital requirements related to long supply chains; and
•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.
Expanding our sales and operations in Asia and our manufacturing operations in lower-cost regions are important elements of our strategy. As a result, our exposure to the risks described above is substantial. The likelihood of such occurrences and their potential effect on us vary from country to country and are unpredictable. However, any such occurrences could adversely affect our financial condition, operating results and cash flows.
•Certain of our operations are conducted through joint ventures which have unique risks.
Certain of our operations, particularly in emerging markets, are conducted through joint ventures. With respect to our joint ventures, we may share ownership and management responsibilities with one or more partners that may not share our goals and objectives. Operating a joint venture requires us to operate the business pursuant to the terms of the agreement that we entered into with our partners, including additional organizational formalities, as well as to share information and decision making. Additional risks associated with joint ventures include one or more partners failing to satisfy contractual obligations, conflicts arising between us and any of our partners, a change in the ownership of any of our partners and less of an ability to control compliance with applicable rules and regulations, including the Foreign Corrupt Practices Act and related rules and regulations. Additionally, our ability to sell our interest in a joint venture may be subject to contractual and other limitations. Accordingly, any such occurrences could adversely affect our financial condition, operating results and cash flows.
We operate in a highly competitive industry and efforts by•Our failure to execute our competitors, as well as new non-traditional entrants to the industry, to gain market sharestrategic objectives could adversely affect our financial performance.
We operateOur financial performance depends, in part, on our ability to successfully execute our strategic objectives. Our objectives are to deliver superior long-term stockholder value by investing in innovation to drive business growth and profitability, while maintaining a highly competitive industry. Westrong balance sheet and most ofreturning excess cash to our competitors are seeking to expand market share with new and existing customers,stockholders. Various factors, including in Asia and other potential high growth regions. Our customers award business based on, among other things, price, quality, service and technology. Our competitors’ efforts, as well as the efforts of new non-traditional entrants to the industry to grow market shareenvironment and the other matters described herein and in Part II — Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," including "— Forward-Looking Statements," could exert downward pressure on our product pricing and margins. In addition, the success of portions of our business requires us to develop and/or incorporate leading technologies. Such technologies are subject to rapid obsolescence. Our inability to maintain access to these technologies (either through development or licensing) may adversely affect our ability to compete. If we are unableexecute our strategic objectives. These risk factors include our failure to differentiateidentify suitable opportunities
for organic investment and/or acquisitions, our productsinability to successfully develop such opportunities or maintain a low-cost footprint, we may lose market sharecomplete such acquisitions or be forcedour inability to reduce prices, thereby loweringsuccessfully utilize or integrate the investments in our margins. Any such occurrencesoperations. Our failure to execute our strategic objectives could adversely affect our financial condition, operating results and cash flows. Moreover, there can be no assurances that, even if implemented, our strategic objectives will be successful.
•Our inability to effectively manage the timing, quality and costs of new program launches could adversely affect our financial performance.
In connection with the award of new business, we obligate ourselves to deliver new products and services that are subject to our customers’customers' timing, performance and quality standards. Additionally, as a Tier 1 supplier, we must effectively coordinate the activities of numerous suppliers in order for the program launches of our products to be successful. Given the complexity of new program launches, we may experience difficulties managing product quality, timeliness and associated costs. In addition, new program launches require a significant ramp up of costs; however, our sales related to these new programs generally are dependent upon the timing and success of our customers’customers' introduction of new vehicles. Our inability to effectively manage the timing, quality and costs of these new program launches could adversely affect our financial condition, operating results and cash flows.
A significant labor dispute involving us or one or more of•We operate in a highly competitive industry and efforts by our customers or suppliers or that could otherwise affect our operationscompetitors, as well as new non-traditional entrants to the industry, to gain market share could adversely affect our financial performance.
A substantial numberWe operate in a highly competitive industry. We and most of our employeescompetitors are seeking to expand market share with new and existing customers, including in Asia and other potential high growth regions. Our customers award business based on, among other things, price, quality, service and technology. Our competitors' efforts to grow market share could exert downward pressure on our product pricing and margins. In addition, the employeesautomotive industry has attracted, and will continue to attract, non-traditional entrants as a result of the evolving nature of the automotive vehicle market, including autonomous vehicles, ride sharing and on-demand transportation. Further, the global automotive industry is experiencing a period of significant technological change, including a focus on environmentally sustainable vehicles and subcomponents. As a result, the success of portions of our largest customersbusiness requires us to develop, acquire and/or incorporate new technologies and suppliersdepends not only on our customers' ability to execute their strategies to exploit these technologies but also on the adoption of such technologies by end consumers. Such technologies are members of industrial trade unions and are employed under the terms of various labor agreements. We have labor agreements covering approximately 76,400 employees globally. In the United States and Canada, each of our unionized facilities has a separate collective bargaining agreement with the union that represents the workers at such facility, with each such agreement having an expiration date that is independent of the other agreements. Labor agreements covering approximately 77% of our global unionized work force, including approximately 2% of our unionized workforce in the United States and Canada, are scheduledsubject to expire during 2018. There can be no assurances that future negotiations with the unions will be resolved favorablyrapid obsolescence. Our inability to maintain access to these technologies (through development, acquisition or that we will not experience a work stoppage or disruption that couldlicensing) may adversely affect our financial condition, operating results and cash flows. A labor dispute involving us, any of our customers or suppliers or any other suppliers to our customers or that otherwise affects our operations, or the inability by us, any of our customers or suppliers or any other suppliers to our customers to negotiate, upon the expiration of a labor agreement, an extension of such agreement or a new agreement on satisfactory terms could adversely affect our financial condition, operating results and cash flows. In addition, if any of our significant customers experience a material work stoppage, the customer may halt or limit the purchase of our products. This could require us to shut down or significantly reduce production at facilities relating to such products, which could adversely affect our business and harm our profitability.
Our existing indebtedness and the inability to access capital markets could restrict our business activities or our ability to executecompete. If we are unable to differentiate our strategic objectivesproducts, maintain a low-cost footprint or adversely affectcompete effectively with technology-focused new market entrants, we may lose market share or be forced to reduce prices, thereby lowering our financial performance.
As of December 31, 2017, we had approximately $2.0 billion of outstanding indebtedness, as well as $1.75 billion available for borrowing under our revolving credit facility. The debt instruments governing our indebtedness contain covenants that may restrict our business activities or our ability to execute our strategic objectives, and our failure to comply with these covenants could result in a default under our indebtedness. We also lease certain buildings and equipment under non-cancelable lease agreements with terms exceeding one year, which are accounted for as operating leases. Additionally, any downgrade in the ratings that rating agencies assign to us and our debt may ultimately impact our access to capital markets. Our inability to generate sufficient cash flow to satisfy our debt and lease obligations, to refinance our debt obligations or to access capital markets on commercially reasonable termsmargins. Any such occurrences could adversely affect our financial condition, operating results and cash flows.
•If we do not respond appropriately, the evolution of the global transportation industry towards electrification, connectivity, autonomy and shared mobility could adversely affect our business.
The global transportation industry is increasingly focused on the development of more fuel-efficient solutions to meet demands from consumers and governments worldwide to address climate change and an increased desire for environmentally sustainable solutions. The impacts of these changes on us are uncertain and could ultimately prove dramatic. If we do not respond appropriately, the evolution towards electrification and other energy sources could adversely affect our business. The increased adoption of electrified and other non-internal combustion-based powertrains, such as fuel cells, may result in lower demand for some of our products. For example, there has been an increase in consumer preferences for car and ride sharing, as opposed to automobile ownership, which may result in a long-term reduction in the number of vehicles per capita. The evolution of the industry towards electrification, connectivity, autonomy and shared mobility has also attracted increased competition from entrants outside of the traditional light vehicle industry, some of whom may seek to provide products which compete with ours. Failure to innovate and to develop or acquire new and compelling products that capitalize upon new technologies in response to these evolving consumer preferences and demands could adversely affect our financial condition, operating results and cash flows.
•An emphasis on global climate change and other ESG matters by various stakeholders could negatively affect our business.
Customer, investor and employee expectations in areas such as the environment, social matters and corporate governance have been rapidly evolving and increasing. The enhanced stakeholder focus on ESG issues requires the continuous monitoring of various and evolving standards and the associated reporting requirements. A failure to adequately meet stakeholder expectations may result in the loss of business, diluted market valuation, an inability to attract customers or an inability to attract and retain top talent.
•Global climate change could negatively affect our business.
The effects of climate change, such as extreme weather conditions, could impact our business. Such effects could disrupt our operations by impacting the availability and cost of materials needed for manufacturing and could increase insurance and other operating costs. These factors may impact our decisions to construct new facilities or maintain existing facilities in areas most prone to physical climate risks. We could also experience indirect financial risks passed through the supply chain and disruptions that could result in increased prices for our products and the resources needed to produce them.
•Impairment charges relating to our goodwill and long-lived assets could adversely affect our financial performance.
We regularly monitor our goodwill and long-lived assets for impairment indicators. In conducting our goodwill impairment testing, we 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 we elect not to perform a qualitative assessment of a reporting unit, we then compare 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. In conducting our impairment analysis of long-lived assets, we compare the undiscounted cash flows expected to be generated from the long-lived assets to the related net book values. Changes in economic or operating conditions impacting our estimates and assumptions could result in the impairment of our goodwill or long-lived assets. In the event that we determine that our goodwill or long-lived assets are impaired, we may be required to record a significant charge to earnings that could adversely affect our financial condition and operating results.
•Significant changes in discount rates, the actual return on pension assets and other factors could adversely affect our financial performance.
Our earnings may be positively or negatively impacted by the amount of income or expense recorded related to our global defined benefit plans. Accounting principles generally accepted in the United States require that income or expense related to the defined benefit plans be calculated at the annual measurement date using actuarial calculations, which reflect certain assumptions. The most significant of these assumptions relate to interest rates, the capital markets and other economic conditions. These assumptions, as well as the actual value of pension assets at the measurement date, will impact the calculation of pension and other postretirement benefit expense for the year. Although pension expense and pension contributions are not directly related, the key economic indicators that affect pension expense also affect the amount of cash that we will contribute to our pension plans. Because interest rates and the values of these pension assets have fluctuated and will continue to fluctuate in response to changing market conditions, pension and other postretirement benefit expense in subsequent periods, the funded status of our pension plans and the future minimum required pension contributions, if any, could adversely affect our financial condition, operating results and cash flows.
Impairment charges relatingRisks Related to our goodwillOur Indebtedness
•Our existing indebtedness and long-lived assetsthe inability to access capital markets could adversely affect our financial performance.
We regularly monitor our goodwill and long-lived assets for impairment indicators. In conducting our goodwill impairment testing, we 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 we elect not to perform a qualitative assessment of a reporting unit, we then compare 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. In conducting our impairment analysis of long-lived assets, we compare the undiscounted cash flows expected to be generated from the long-lived assets to the related net book values. Changes in economic or operating conditions impacting our estimates and assumptions could result in the impairment of our goodwill or long-lived assets. In the event that we determine that our goodwill or long-lived assets are impaired, we may be required to record a significant charge to earnings that could adversely affect our financial condition and operating results.
Our failure to execute our strategic objectives could adversely affect our financial performance.
Our financial performance depends, in part, on our ability to successfully execute our strategic objectives. Our objectives are to deliver superior long-term stockholder value by investing inrestrict our business to grow and improve our competitive position, while maintaining a strong and flexible balance sheet and returning cash to our stockholders. Various factors, including the industry environment and the other matters described herein and in Part II — Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," including "— Forward-Looking Statements," could adversely affectactivities or our ability to execute our strategic objectives. These risk factors includeobjectives or adversely affect our failure to identify suitable opportunitiesfinancial performance.
As of December 31, 2021, we had approximately $2.6 billion of outstanding indebtedness, as well as $2.0 billion available for organic investment and/or acquisitions,borrowing under our inability to successfully develop such opportunities or complete such acquisitionsrevolving credit facility. As of December 31, 2021, there were no amounts outstanding under our revolving credit facility. The debt instruments governing our indebtedness contain covenants that may restrict our business activities or our inability to successfully utilize or integrate the investments in our operations. Our failureability to execute our strategic objectives, and our failure to comply with these covenants could result in a default under our indebtedness. We also lease certain buildings and equipment under non-cancelable lease agreements with terms exceeding one year, which are accounted for as operating leases. Additionally, any downgrade in the ratings that rating agencies assign to us and our debt may ultimately impact our access to capital markets. Our inability to generate sufficient cash flow to satisfy our debt and lease obligations, to refinance our debt obligations or to access capital markets on commercially reasonable terms could adversely affect our financial condition, operating results and cash flows. Moreover, there can be no assurances that, even if implemented, our strategic objectives will be successful.
Legal and Regulatory Risks
•A disruption in our information technology systems, or those of our customers or suppliers, including a disruption related to cybersecurity, could adversely affect our financial performance.
We rely on the accuracy, capacity and security of our information technology systems.networks. Despite the security measures that we have implemented, including those measures related to cybersecurity, our operational systems (including business, financial, accounting, human resources, product development and manufacturing processes), as well as those of our customers, suppliers and other service providers, and certain of our connected vehicle systems and components that may
collect and store sensitive end-user data (which could include personally identifiable information) could be breached or damaged by computer viruses, malware, phishing attacks, denial-of-service attacks, human error, natural or man-made incidents or disasters or unauthorized physical or electronic access. These types of incidents have become more prevalent and pervasive across industries, including our industry, and are expected to continue in the future. The secure operation of our information technology networks, and the processing and maintenance of information by these networks, is critical to our operations and strategy. A breach could result in business disruption, including the vehicle systems and components that we supply to our customers or our plant operations, theft of our intellectual property, trade secrets or customer information or unauthorized access to personnel information.personal information, such as that of our employees or end consumers of vehicles that contain certain of our connected vehicle systems or components. Although cybersecurity and the continued development and enhancement of our controls, processes and practices designed to protect our information technologyoperational systems and products from attack, damage or unauthorized access are a high priority for us, our actions and investments may not be deployed quickly enough or successfully protect our systems against all vulnerabilities, including technologies developed to bypass our security measures. In addition, outside parties may attempt to fraudulently induce employees or customers to disclose access credentials or other sensitive information in order to gain access to our secure systems and networks. There are no assurances that our actions and investments to improve the maturity of our systems, processes and risk management framework or remediate vulnerabilities will be sufficient or deployed quickly enough to prevent or limit the impact of any cyber intrusion.intrusion or security breach. Moreover, because the techniques used to gain access to or sabotage systems often are not recognized until launched against a target, we may be unable to anticipate the methods necessary to defend against these types of attacks, and we cannot predict the extent, frequency or impact these attacks may have on us. To the extent that our business is interrupted, including the vehicle systems and components that we supply to our customers or our plant operations, or data is lost, destroyed or inappropriately used or disclosed, such disruptions could adversely affect our competitive position, relationships with our customers, financial condition, operating results and cash flows.flows and/or subject us to regulatory actions, including those contemplated by data privacy laws and regulations like the European Union General Data Privacy Regulation and California Consumer Privacy Act, or litigation. In addition, we may be required to incur significant costs to protect against the damage caused by these disruptions or security breaches in the future.
We are also dependent on security measures that some of our customers, suppliers and other third-party service providers take to protect their own systems and infrastructures. Any security breach of any of these third-parties' systems could result in unauthorized access to our or our customers' or suppliers' sensitive data or our own information technology systems, cause us to be non-compliant with applicable laws or regulations, subject us to legal claims or proceedings, disrupt our operations, damage our reputation or cause a loss of confidence in our products or services, any of which could adversely affect our financial performance.
•A significant product liability lawsuit, warranty claim or product recall involving us or one of our major customers could adversely affect our financial performance.
In the event that our products fail to perform as expected, regardless of fault, and such failure results in, or is alleged to result in, bodily injury and/or property damage or other losses, we may be subject to product liability lawsuits and other claims or we may be required or requested by our customers to participate in a recall or other corrective action involving such products. We also are a party to agreements with certain of our customers, whereby these customers may pursue claims against us for contribution of all or a portion of the amounts sought in connection with product liability and warranty claims. We carry insurance for certain product liability claims, but such coverage may be limited. We do not maintain insurance for product warranty or recall matters. In addition, we may not be successful in recovering amounts from third parties, including sub-suppliers, in connection with these claims. These types of claims could adversely affect our financial condition, operating results and cash flows.
•We are involved from time to time in various legal and regulatory proceedings and claims, which could adversely affect our financial performance.
We are involved in various legal and regulatory proceedings and claims that, from time to time, are significant. These are typically claims that arise in the normal course of business including, without limitation, commercial or contractual disputes, including disputes with our customers, suppliers or competitors, intellectual property matters, personal injury claims, environmental matters, tax matters, employment matters and antitrust matters. No assurances can be given that such proceedings and claims will not adversely affect our financial condition, operating results and cash flows.
•Increasing focus on environmental laws and regulations globally could cause us to incur significant costs.
Concerns over environmental pollution and climate change have produced significant legislative and regulatory efforts globally, and we believe that this will continue both in scope and in the number of countries participating. In addition, as climate change issues become more prevalent, foreign, federal, state and local governments and our customers have been responding to these issues. The increased focus on environmental sustainability may result in new regulations and customer
requirements, or changes in current regulations and customer requirements, which could adversely affect our business, financial condition and operating results. If we are unable to effectively manage real or perceived issues, including concerns about environmental impacts or similar matters, sentiments toward us or our products could be negatively impacted, and our business, financial condition and operating results could be adversely affected.
Changing government regulations related to greenhouse gas emissions and energy efficiency and growing recognition among consumers of the dangers of climate change may also require changes at the product/production process level. These trends may also prompt automotive manufacturers to make or accelerate commitments to carbon neutrality, which could in turn prompt us to make changes at the product/production process level. This could require additional cost and/or investment to make products/production processes compliant and/or carbon neutral.
•New laws or regulations or changes in existing laws or regulations could adversely affect our financial performance.
We and the automotive industry are subject to a variety of federal, state, local and foreign laws and regulations, including those related to health, safety and environmental matters. Governmental regulations also affect taxes and levies, capital markets, healthcare costs, energy usage, data privacy, international trade and immigration and other labor issues, all of which may have a direct or indirect effect on our business and the businesses of our customers and suppliers. We cannot predict the substance or impact of pending or future legislation or regulations, or the application thereof. The introduction of new
laws or regulations or changes in existing laws or regulations, or the interpretation thereof, could increase the costs of doing business for us or our customers or suppliers or restrict our actions and adversely affect our financial condition, operating results and cash flows.
•We are subject to regulation of our international operations that could adversely affect our financial performance.
We are subject to many laws governing our international operations, includingsuch as those that pertain to data privacy, prohibit improper payments to government officials and restrict where we can do business and what information or products we can supply to or purchase from certain countries or third parties, including but not limited to the Foreign Corrupt Practices Act and the U.S. Export Administration Act. Violations of these laws, which are complex, may conflict with laws of other jurisdictions and often are difficult to interpret and apply, could result in significant fines, criminal penalties or sanctions that could adversely affect our reputation, business, financial condition, operating results and cash flows.
•We are required to comply with environmental laws and regulations that could cause us to incur significant costs.
Our manufacturing facilities are subject to numerous laws and regulations designed to protect the environment, and we expect that additional requirements with respect to environmental matters will be imposed on us and our customers in the future.
Material future expenditures may be necessary if compliance standards change or material unknown conditions that require remediation are discovered. Environmental laws could also restrict our ability to expand our facilities or could require us to acquire costly equipment or to incur other significant expenses in connection with our business. If we fail to comply with present and future environmental laws and regulations, we could be subject to future liabilities, which could adversely affect our financial condition, operating results and cash flows.
•Developments or assertions by or against us relating to intellectual property rights could adversely affect our financial performance.
We own significant intellectual property, including a large number of patents, trademarks, copyrights and trade secrets, and we are involved in numerous licensing arrangements. Our intellectual property plays an important role in maintaining our competitive position in a number of the markets that we serve. Developments or assertions by or against us relating to intellectual property rights could adversely affect our financial condition, operating results and cash flows.
The United States recently passed a comprehensive tax reform bill that•Changes in U.S. administrative policy, including changes to existing trade agreements and any resulting changes in international relations, could adversely affect our financial performance.
On December 22, 2017, President Trump signed into law new legislation that significantly revises the Internal Revenue CodeAs a result of 1986, as amended (the "IRC"). The newly enacted federal income tax law,changes to U.S. administrative policy, among other things, contains significantpossible changes, there may be (i) changes in policies pertaining to the environment; (ii) changes to corporate taxation, includingexisting trade agreements; (iii) greater restrictions on free trade generally; and (iv) significant increases in customs duties and tariffs on goods imported into the reduction ofUnited States. The United States-Mexico-Canada Agreement ("USMCA"), which serves as the corporate income tax rate from 35%successor agreement to 21%, a one-time transition tax on offshore earnings at reduced tax rates regardless of whether the earnings are repatriated, the elimination of U.S. tax on foreign dividends (subject to certain important exceptions), new taxes on certain foreign earnings, a new minimum tax related to payments to foreign subsidiaries and affiliates, immediate deductions for certain new investments and the modification or repeal of many business deductions and credits. Notwithstanding the reduction in the corporate income tax rate, the overall impact of the new federal tax law is uncertain, and our financial performance could be adversely affected. In addition, it is uncertain if, and to what extent, various states will conform to the new tax law and foreign countries will react by adopting tax legislation or taking other actions that could adversely affect our business.
Significant changes in the North American Free Trade Agreement ("NAFTA"), became effective on July 1, 2020. There can be no assurance that the ongoing transition to the higher North American automotive content requirements in the USMCA will not adversely affect our business. The United States still maintains significant tariffs on most imports from China. It remains unclear what specific actions the current U.S. administration may take to resolve trade-related issues with China and other countries. A trade war, other governmental action related to tariffs or international trade agreements, changes in U.S. social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the
territories and countries where we currently manufacture and sell products or any resulting negative sentiments towards the United States could adversely affect our business, financial performance.condition, operating results and cash flows.
The United States, Mexico and Canada are currently re-negotiating NAFTA, from which the U.S. government has advised it will withdraw if an agreement on revised terms is not reached. The U.S. government proposed changes to NAFTA that would require automotive products to contain significantly higher North American content, as well as specific U.S. domestic content, in order to obtain duty-free treatment under NAFTA. Canada offered counter-proposals, and the three countries are continuing discussions to achieve revised rules for automotive products. Reflective of the automotive industry, our vehicle parts manufacturing facilities in the United States, Mexico and Canada are highly dependent on duty-free trade within the NAFTA region. A significant number of our facilities are in Mexico and represent a critical component of our supply chain and that of our customers. We have significant imports into the United States, and the imposition of customs duties on these imports could negatively impact our financial performance. If such customs duties are implemented, Mexico and Canada may take retaliatory actions with respect to U.S. imports or U.S. investments in their countries. Any such potential actions could adversely affect our financial performance.
Changes in the United Kingdom's economic and other relationships with the European Union could adversely affect us.
In June 2016, a majority of voters in the United Kingdom elected to withdraw from the European Union in a national referendum ("Brexit"). In March 2017, the United Kingdom formally notified the European Union of its intention to withdraw, and withdrawal negotiations began in June 2017. European Union rules provide for a two-year negotiation period, beginning on the withdrawal notification date, unless an extension is agreed to by the parties. The negotiations between the parties have yet to produce an overall structure for their ongoing relationship following Brexit. We have significant operations in both the United Kingdom and the European Union. Our supply chain and that of our customers are highly integrated across the United Kingdom and the European Union, and we are highly dependent on the free flow of goods in those regions. The ongoing uncertainty and potential re-imposition of border controls and customs duties on trade between the United Kingdom and European Union nations could negatively impact our competitive position, supplier and customer relationships and financial performance. The ultimate effects of Brexit on us will depend on the specific terms of any agreement the United Kingdom and the European Union reach to provide access to each other’s respective markets.
ITEM 1B – UNRESOLVED STAFF COMMENTS
None.
ITEM 2 – PROPERTIES
As of December 31, 2017,2021, our operations were conducted through 257 facilities, some of which are used for multiple purposes, including 86properties include just-in-time manufacturing facilities, 121 dedicated component manufacturing facilities, 6and sequencing and distribution sites 36in 38 countries. A summary of these properties by operating segment and by region is shown below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| North America | | Europe and Africa | | Asia | | South America | | Total |
| Seating | 59 | | 60 | | 37 | | 10 | | 166 |
| E-Systems | 16 | | 27 | | 19 | | 4 | | 66 |
| 75 | | 87 | | 56 | | 14 | | 232 |
In addition, we have 21 administrative/technical support facilities and 8facilities. Our properties include seven advanced technology centers in 39 countries. Our(one at our corporate headquarters is located in Southfield, Michigan.
Michigan, one additional in North America, two in Europe and three in Asia). Of our 257253 total facilities, which include facilities owned or leased by our consolidated subsidiaries, 107properties, 100 are owned and 150153 are leased with expiration dates ranging from 2017 through 2053. We believe that substantially all of our property and equipment is in good condition and that we have sufficient capacity to meet our current and expected manufacturing and distribution needs. See Part II — Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Financial Condition."leased. |
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Seating |
Argentina | Czech Republic | India (continued) | Mexico (continued) | Slovak Republic | United Kingdom |
Escobar, BA | (continued) | Pune | Panzacola, TL | Presov | (continued) |
Ferreyra, CBA | Kolin | Tijara | Piedras Negras, CO | Voderady | Redditch |
Belgium | Stribro | Indonesia | Ramos Arizpe, CO | South Africa | Sunderland |
Brussels | Dominican Republic | Cikarang | Saltillo, CO | East London | United States |
Brazil | Santo Domingo | Italy | San Felipe, GU | Port Elizabeth | Arlington, TX |
Betim | France | Caivano, NA | San Luis Potosi, SL | Rosslyn | Columbia City, IN |
Caçapava | Cergy | Cassino, FR | Silao, GO | South Korea | Detroit, MI |
Joinville | Feignies | Grugliasco, TO | Toluca, MX | Gyeongju | Duncan, SC |
Pernambuco | Jarney | Melfi, PZ | Villa Ahumada, CH | Spain | Farwell, MI |
Canada | Roche La Moliere | Pozzo d’Adda, MI | Moldova | Barcelona | Flint, MI |
Ajax, ON | Germany | Macedonia | Ungheni | Burgos | Hammond, IN |
Whitby, ON | Besigheim | Tetovo | Morocco | Epila | Hebron, OH |
China | Bremen | Malaysia | Tangier | Martorell | Highland Park, MI |
Beijing | Eisenach | Behrang Stesen | Poland | O Porrino | Kenansville, NC |
Changshu | Ginsheim- | Klang | Bierun | Sant Esteve | Louisville, KY |
Chongqing | Gustavsburg | Mexico | Jaroslaw | Sesrovir | Montgomery, AL |
Guangzhou | Rietberg | Arteaga, CA | Legnica | Valencia | Morristown, TN |
Hangzhou | Wackersdorf | Ascension, CH | Tychy | Vigo | Pine Grove, PA |
Liuzhou | Hungary | Cuautlancingo, PU | Portugal | Vitoria | Portage, IN |
Nanjing | Györ | Fresnillo, ZA | Mangualde | Thailand | Rochester Hills, MI |
Rui’an | Mor | Hermosillo, SO | Valenca | Mueang Nakhon | Roscommon, MI |
Shanghai | Szolnok | Huamantla, TL | Romania | Ratchasima | Selma, AL |
Shenyang | India | Juarez, CH | Iasi | Rayong | Tuscaloosa, AL |
Wuhan | Chennai | Leon, GT | Russia | United Kingdom | Wentzville, MO |
Wuhu | Halol | Mexico City, DF | Kaluga | Alfreton | Vietnam |
Czech Republic | Haridwar | Monclova, CO | Nizhny Novgorod | Coventry | Hai Phong City |
Hranice | Nasik | Nuevo Casas | | | |
| | Grandes, CH | | | |
| | | | | |
E-Systems |
Argentina | Czech Republic | Hungary | Morocco | Russia | Thailand |
Pacheco, BA | Vyskov | Gödöllö | Kenitra | Volokolamsk | Kabin Buri |
San Francisco, | Germany | Gyöngyös | Salé Al-Jadida | Serbia | United States |
CBA | Bersenbrueck | India | Tangier | Novi Sad | Plymouth, IN |
Brazil | Kronach | Pune | Philippines | South Africa | Taylor, MI |
Navegantes | Saarlouis | Mexico | LapuLapu City | Port Elizabeth | Traverse City, MI |
China | Wismar | Apodaca, NL | Poland | Spain | |
Chongqing | Honduras | Chihuahua, CH | Mielec | Almussafes | |
Shanghai | Naco | Juarez, CH | Romania | Valls | |
Wuhan | | Torreon, CA | Campulung | | |
Yangzhou | | | Pitesti | | |
|
ADMINISTRATIVE/TECHNICAL |
Australia | France | India | Japan (continued) | South Korea | United States |
Essendon Fields | Vélizy- | Bengaluru | Nagoya | Seoul | Ann Arbor, MI |
Belgium | Villacoublay | Pune | Tokyo | Spain | Detroit, MI |
Leuven | Germany | Israel | Yokohama | Valls | El Paso, TX |
Brazil | Cologne | Tel Aviv | Mexico | Sweden | Rochester Hills, MI |
São Paulo | Korntal- | Italy | Juarez, CH | Gothenburg | San Mateo, CA |
China | Münchingen | Grugliasco, TO | Netherlands | Thailand | Santa Rosa, CA |
Shanghai | Remscheid | Japan | Hilversum | Bangkok | Southfield, MI |
Czech Republic | Schwaig-Oberding | Akigun | Philippines | United Kingdom | Wilmington, NC |
Brno | Sindelfingen | Hiroshima | LapuLapu City | Coventry | |
Pilsen | Wolfsburg | Kariya | Singapore | | |
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ITEM 3 – LEGAL PROCEEDINGS
Legal and Environmental Matters
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." For a description of our outstanding material legal proceedings, see Note 11,14, "Commitments and Contingencies," to the consolidated financial statements included in this Report.
ITEM 4 – MINE SAFETY DISCLOSURES
None.Not applicable.
SUPPLEMENTARY ITEM – INFORMATION ABOUT OUR EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names, ages and positions of our executive officers. Executive officers are appointed annually by our Board of Directors and serve at the pleasure of our Board.
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| Name | Age | Position |
Shari L. BurgessJason M. Cardew | 5951 | Vice President, Treasurer and Chief Diversity Officer |
Thomas A. DiDonato | 59 | Senior Vice President, Human Resources |
Amy A. Doyle | 50 | Vice President, Chief Accounting Officer |
Jay K. Kunkel | 58 | Senior Vice President and President, Asia-Pacific Operations |
Terrence B. Larkin | 63 | Executive Vice President, Business Development, General Counsel and Corporate Secretary |
Frank C. Orsini | 45 | Senior Vice President and President, E-Systems |
Raymond E. Scott* | 52 | Executive Vice President and President, Seating |
Matthew J. Simoncini* | 57 | President and Chief Executive Officer |
Melvin L. Stephens | 62 | Senior Vice President, Communications and Corporate and Investor Relations |
Jeffrey H. Vanneste | 58 | Senior Vice President and Chief Financial Officer |
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*Alicia J. Davis | Mr. Simoncini has elected to retire as 51 | Senior Vice President and Chief Strategy Officer |
| Thomas A. DiDonato | 63 | Senior Vice President and Chief Administrative Officer |
| Amy A. Doyle | 54 | Vice President and Chief Accounting Officer |
| Carl A. Esposito | 54 | Senior Vice President and President, E-Systems |
| Harry A. Kemp | 46 | Senior Vice President, General Counsel and Corporate Secretary |
| Frank C. Orsini | 49 | Executive Vice President and President, Seating |
| Raymond E. Scott | 56 | President and Chief Executive Officer and as a member of the Board of Directors of the Company, effective February 28, 2018. The Board of Directors has elected Raymond E. Scott to serve as |
| Marianne Vidershain | 42 | Vice President and Chief Executive Officer of the Company, effective February 28, 2018.Treasurer |
Set forth below is a description of the business experience of each of our executive officers.
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Shari L. BurgessJason M. Cardew | Ms. BurgessMr. Cardew is the Company’sCompany's Senior Vice President Treasurer and Chief DiversityFinancial Officer, a position shehe has held since January 2014. Previously, Ms. BurgessNovember 2019. Mr. Cardew most recently served as the Company’sCompany's Vice President, Finance - Seating and E-Systems since September 2018. Prior to that, he served as the Company's Vice President, Finance - Seating since April 2012. Previously, he served as the Company's Vice President and TreasurerInterim Chief Financial Officer since August 2002September 2011, Vice President, Finance - Financial Planning and Analysis since April 2010, Vice President, Finance - Seating since 2008, Vice President - Finance since 2003 and in various financial roles since joining the Company in 1992. |
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| Alicia J. Davis | Ms. Davis is the Company's Senior Vice President and Chief Strategy Officer, a position she has held since May 2021. Ms. Davis most recently served as the Company's Senior Vice President, Corporate Development and Investor Relations since September 2019. Prior to that, she served as the Company's Vice President, Investor Relations since joining the Company in August 2018. Prior to joining the Company, Ms. BurgessDavis was on the faculty at the University of Michigan Law School since June 2004, where she most recently served as an unpaid, tenured professor and the corporate controllerAssociate Dean for Victor International CorporationStrategic Initiatives. Previous to that, she was a lawyer at Kirkland & Ellis since June 2002, a Vice President at Raymond James & Associates since August 1999 and as an audit manager for Ernst & Young LLP.Investment Banking Analyst at Goldman Sachs from August 1993 to June 1995. |
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| Thomas A. DiDonato | Mr. DiDonato is the Company’sCompany's Senior Vice President and Chief Administrative Officer, a position he has held since January 2019. Mr. DiDonato most recently served as the Company's Senior Vice President, Human Resources a position he has held since joining the Company in April 2012. Prior to joining the Company, Mr. DiDonato served as Executive Vice President, Human Resources for American Eagle Outfitters, Inc. since 2005, Chief People Officer for H.J. Heinz sincefrom April 2004 to July 2005 and Senior Vice President, Human Resources for Heinz North America since 2001.from July 2001 to April 2004. Earlier experiences include directing human resources for a $14 billion division of Merck & Co. and heading worldwide staffing for Pepsico. Mr. DiDonato began his career at General Foods Corporation and moved up to manage the personnel at its largest manufacturing facility. |
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| Amy A. Doyle | Ms. Doyle is the Company’sCompany's Vice President and Chief Accounting Officer, a position she has held since May 2017. Ms. Doyle most recently served as the Company’sCompany's Assistant Corporate Controller since September 2006. Previously, she served in positions of increasing responsibility at the Company, including Director, Financial Reporting since 2003 and Manager, Financial Reporting since joining the Company in 1999. Prior to joining the Company, Ms. Doyle served as an audit manager for Arthur Andersen LLP. |
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Jay K. KunkelCarl A. Esposito | Mr. KunkelEsposito is the Company’s Senior Vice President and President, Asia-Pacific Operations, a position he has held since June 2013. Prior to joining the Company, Mr. Kunkel served as President Asia and as a Member of the Automotive Management Board for Continental A.G. since December 2007 and initially joined Continental A.G. in February 2005. Prior to joining Continental A.G., Mr. Kunkel served as a Director for SRP International Group Ltd. and held various positions of increasing responsibility at PricewaterhouseCoopers, Visteon, Mitsubishi and Chrysler. |
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Terrence B. Larkin | Mr. Larkin is the Company’s Executive Vice President, Business Development, General Counsel and Corporate Secretary, a position he has held since November 2011. Mr. Larkin previously served as the Company’s Senior Vice President, General Counsel and Corporate Secretary since January 2008. Prior to joining the Company, Mr. Larkin was a partner since 1986 of Bodman PLC, a Detroit-based law firm. Mr. Larkin served on the executive committee of Bodman PLC and was the chairman of its business law practice group. Mr. Larkin’s practice was focused on general corporate, commercial transactions and mergers and acquisitions. |
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Frank C. Orsini | Mr. Orsini is the Company’sCompany's Senior Vice President and President, E-Systems, a position he has held since joining the Company in September 2012.2019. Prior to joining the Company, Mr. Esposito served at Honeywell Aerospace, a division of Honeywell International Inc., as President of the Electronic Solutions Strategic Business Unit from January 2017 to July 2019 and at Honeywell International Inc. as Vice President of Aerospace Marketing, Product Management and Strategy since December 2010, Vice President of Avionics Systems Marketing and Product Management since December 2009, Vice President of Global Business Aviation Sales and EMEAI Customer Support since January 2007 and in various other roles since 1990. |
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| Harry A. Kemp | Mr. Kemp is the Company's Senior Vice President, General Counsel and Corporate Secretary, a position he has held since August 2019. In this role, Mr. Kemp has responsibility for the Company's Compliance and Environmental, Social and Governance activities. Mr. Kemp most recently served as the Company's Vice President and Corporate Counsel since January 2019. Previously, he served as the Company's Vice President and Divisional Counsel - Seating since September 2016 and Vice President and Divisional Counsel - E-Systems since joining the Company in December 2009. Prior to joining the Company, Mr. Kemp was a partner at Bodman PLC since 2003 and served as an engagement manager at McKinsey and Company, a global management consulting firm, since 2000. |
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| Frank C. Orsini | Mr. Orsini is the Company's Executive Vice President and President, Seating, a position he has held since March 2018. Mr. Orsini most recently served as the Company’sCompany's Senior Vice President and President, E-Systems since September 2012. Prior to that, he served as the Company's Vice President and Interim President, E-Systems since October 2011. Previously, he served as the Company’sCompany's Vice President, Operations, E-Systems since 2009, Vice President, Sales, Program Management & Manufacturing, E-Systems since 2008, Vice President, North America Seating Operations since 2005 and in various other management positions forsince joining the Company sincein 1994. Mr. Orsini currently sits on the board of directors of Focus: HOPE, a non-profit organization. |
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| Raymond E. Scott | Mr. Scott is the Company’s Executive ViceCompany's President and President, Seating,Chief Executive Officer, a position he has held since November 2011.March 2018. Mr. Scott most recently served as the Company’sCompany's Executive Vice President and President, Seating since November 2011. Prior to that, he served as the Company's Senior Vice President and President, E-Systems since February 2008. Previously, he served as the Company’sCompany's Senior Vice President and President, North American Seat Systems Group since August 2006, Senior Vice President and President, North American Customer Group since June 2005, President, European Customer Focused Division since June 2004 and President, General Motors Division since November 2000. Mr. Scott has been elected by |
| |
| Marianne Vidershain | Ms. Vidershain is the Board of Directors to serve asCompany's Vice President and Chief Executive Officer, effective February 28, 2018. |
| |
Matthew J. Simoncini | Mr. Simoncini is the Company’s President and Chief Executive Officer,Treasurer, a position heshe has held since September 2011. Mr. SimonciniFebruary 2021. Ms. Vidershain most recently served as the Company’s Senior Vice President and Chief Financial OfficerCompany's Assistant Treasurer since 2007. Previously, heJanuary 2018. Prior to that, she served as the Company’s Senior Vice President, Finance and Chief Accounting OfficerCompany's Director, Global Financial Planning & Analysis since August 2006, Vice President, Global Finance since February 2006, Vice President of Operational Finance since June 2004, Vice President of Finance — Europe since 2001 and prior to 2001, in various senior financial management positions for the Company and UT Automotive, Inc. Mr. Simoncini has elected to retire as President and Chief Executive Officer and as a member of the Board of Directors of the Company, effective February 28, 2018. Mr. Simoncini will serve as a non-executive employee of the Company until his retirement from the Company on January 4, 2019. |
| |
Melvin L. Stephens | Mr. Stephens is the Company’s Senior Vice President, Communications and Corporate & Investor Relations, a position he has held since April 2012. Mr. Stephens most recently2015. Previously, she served as the Company’s Senior Vice President, Communications, Human ResourcesCompany's Director, Finance – Global Purchasing since February 2014, Director, Capital Markets and Investor RelationsSubsidiary Finance since September 2009. Previously, he served as the Company’s Vice President of Corporate Communications and Investor RelationsApril 2010, Treasury Manager since January 2002. Prior to joining the Company, Mr. Stephens worked for Ford Motor Company for 23 years2007 and heldin various leadershipother treasury positions in finance, business planning, corporate strategy, communications, sales and marketing and investor relations. |
| |
Jeffrey H. Vanneste | Mr. Vanneste is the Company’s Senior Vice President and Chief Financial Officer, a position he has held since March 2012. Prior to joining the Company, Mr. Vanneste served as Executive Vice President and Chief Financial Officer for International Automotive Components Group ("IAC") since January 2011 and as Chief Financial Officer for IAC North America since March 2007. Prior to joining IAC, Mr. Vanneste worked with the Company in positions of increasing responsibility over 15 plus years including: Vice President of Finance, European Operations, Vice President of Corporate Business Planning and Analysis, Vice President of Finance, Seating and Vice President of Finance for the Ford and GM Divisions. Prior to joining the Company in October 1991, he served as the assistant controller for Champagne-Webber, Inc. and as an audit senior for Coopers & Lybrand.2004. |
PART II
ITEM 5 – MARKET FOR THE COMPANY’SCOMPANY'S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is listed on the New York Stock Exchange under the symbol "LEA."
The high and low sales prices per share of our common stock, as reported on the New York Stock Exchange, and the amount of our dividend declarations for 2017 and 2016 are shown below:
|
| | | | | | | | | | | |
| 2017 | Price Range of Common Stock | | Cash Dividend Per Share |
| | High | | Low | |
4th Quarter | $ | 181.46 |
| | $ | 170.27 |
| | $ | 0.50 |
|
3rd Quarter | 174.66 |
| | 140.45 |
| | 0.50 |
|
2nd Quarter | 153.28 |
| | 132.01 |
| | 0.50 |
|
1st Quarter | 149.00 |
| | 132.29 |
| | 0.50 |
|
|
| | | | | | | | | | | |
| 2016 | Price Range of Common Stock | | Cash
Dividend Per Share |
| | High | | Low | |
4th Quarter | $ | 138.80 |
| | $ | 110.77 |
| | $ | 0.30 |
|
3rd Quarter | 121.78 |
| | 98.00 |
| | 0.30 |
|
2nd Quarter | 120.00 |
| | 97.35 |
| | 0.30 |
|
1st Quarter | 122.09 |
| | 93.54 |
| | 0.30 |
|
Dividends
Our Board of Directors declared quarterly cash dividends of $0.50 and $0.30 per share of common stock in 2017 and 2016, respectively.
We currently expect to pay quarterly cash dividends in the future, although such payments are at the discretion of our Board of Directors and will depend upon our financial condition, results of operations, capital requirements, alternative uses of capital and other factors that our Board of Directors may consider at its discretion. See Part II — Item 7, "Management’s"Management's Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements," and Note 6, "Debt,12, "Capital Stock, Accumulated Other Comprehensive Loss and Equity," to the consolidated financial statements included in this Report.
Holders of Common Stock
The Transfer Agent and Registrar for our common stock is Computershare Trust Company, N.A., located in Canton, Massachusetts. On February 2, 2018,7, 2022, there were 50244 registered holders of record of our common stock.
For certain information regarding our equity compensation plans, see Part III — Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters — Equity Compensation Plan Information."
Common Stock Share Repurchase Program
Since the first quarter of 2011, our Board of Directors has authorized $4.1$6.1 billion in share repurchases under our common stock share repurchase program. As of December 31, 2017,2021, we have repurchased, in aggregate, $4.8 billion of our outstanding common stock, at an average price of $90.97 per share, excluding commissions and related fees. As of December 31, 2021, we have a remaining repurchase authorization of $545.6 million,$1.3 billion, which will expireexpires on December 31, 2019.2022.
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 December 31, 2021, we repurchased approximately $100 million of shares. There were no shares repurchased during the fiscal quarter ended December 31, 2021.
We may implement our 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 willmay repurchase our outstanding common stock and the timing of such repurchases will depend upon our financial condition, results of operations, capital requirements, prevailing market conditions, alternative uses of capital and other factors. See Part II — Item 7, "Management’s"Management's Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements," Note 6, "Debt," and Note 9,12, "Capital Stock, Accumulated Other Comprehensive Loss and Equity," to the consolidated financial statements included in this Report.
As of December 31, 2017, we have paid $3.5 billion in aggregate for repurchases of our outstanding common stock, at an average price of $79.73 per share, excluding commissions and related fees, since the first quarter of 2011. A summary of the shares of our common stock repurchased during the fiscal quarter ended December 31, 2017, 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) | |
| October 1, 2017 through October 28, 2017 | — |
| | $ | — |
| | — |
| | $ | 667.8 |
| |
| October 29, 2017 through November 25, 2017 | 216,626 |
| | 175.32 |
| | 216,626 |
| | 629.9 |
| |
| November 26, 2017 through December 31, 2017 | 477,036 |
| | 176.72 |
| | 477,036 |
| | 545.6 |
| |
| Total | 693,662 |
| | $ | 176.29 |
| | 693,662 |
| | $ | 545.6 |
| (1) |
| |
(1) | Remaining authorization as of December 31, 2017. |
Performance Graph
The following graph compares the cumulative total stockholder return from December 31, 20122016 through December 31, 2017,2021, for our common stock, the S&P 500 Index and a peer group(1)of companies that we have selected for purposes of this comparison. We have assumed that dividends have been reinvested, and the returns of each company in the S&P 500 Index and the peer group have been weighted to reflect relative stock market capitalization. The graph below assumes that $100 was invested on December 31, 2011,2016, in each of our common stock, the stocks comprising the S&P 500 Index and the stocks comprising the peer group.
| | | | | December 31,
2012 | | December 31,
2013 | | December 31,
2014 | | December 31,
2015 | | December 31,
2016 | | December 31,
2017 | | December 31,
2016 | | December 31,
2017 | | December 31,
2018 | | December 31,
2019 | | December 31,
2020 | | December 31,
2021 |
| Lear Corporation | | $ | 100.00 |
| | $ | 174.70 |
| | $ | 213.46 |
| | $ | 269.70 |
| | $ | 293.66 |
| | $ | 397.06 |
| Lear Corporation | | $ | 100.00 | | | $ | 135.21 | | | $ | 95.61 | | | $ | 109.34 | | | $ | 127.82 | | | $ | 148.55 | |
| S&P 500 | | $ | 100.00 |
| | $ | 132.38 |
| | $ | 150.49 |
| | $ | 152.55 |
| | $ | 170.79 |
| | $ | 208.06 |
| S&P 500 | | $ | 100.00 | | | $ | 121.82 | | | $ | 116.47 | | | $ | 153.13 | | | $ | 181.29 | | | $ | 233.28 | |
Current Peer Group (1) | | $ | 100.00 |
| | $ | 159.84 |
| | $ | 190.22 |
| | $ | 174.60 |
| | $ | 175.14 |
| | $ | 236.82 |
| |
Previous Peer Group (1) | | $ | 100.00 |
| | $ | 161.37 |
| | $ | 189.49 |
| | $ | 171.06 |
| | $ | 173.07 |
| | $ | 232.20 |
| |
Peer Group (1) | | Peer Group (1) | | $ | 100.00 | | | $ | 130.45 | | | $ | 79.67 | | | $ | 98.20 | | | $ | 115.28 | | | $ | 125.39 | |
|
| |
(1) | (1)We do not believe that there is a single published industry or line of business index that is appropriate for comparing stockholder returns. As a result, we have selected a peer group comprised of representative independent automotive suppliers whose common stock is publicly traded. |
In 2017, we modified our peer group to exclude Federal-Mogul Holdings Corporation and to add Adient plc. Referencedcomprised of representative independent automotive suppliers whose common stock is publicly traded. Our peer group, referenced in the graph above, our current peer group consists of Adient plc, American Axle & Manufacturing Holdings Inc., Aptiv PLC, Autoliv, Inc., BorgWarner Inc., Continental AG, Cooper-Standard Holdings Inc., Dana HoldingIncorporated, Faurecia, Gentex Corporation, Gentex Corp.,Gentherm Incorporated, Magna International, Inc., Superior Industries International,Tenneco Inc., Tenneco Inc.Valeo and Visteon Corporation. In October 2016, Adient plc was spun off from Johnson Controls International Plc. The performance history of Adient plc has been included in the current peer group calculation beginning January 1, 2017. In January 2017, Federal-Mogul Holdings Corporation ceased to be publicly traded. The performance history of Federal-Mogul Holdings Corporation has been excluded from the current peer group calculation for all periods presented and from the previous peer group calculation beginning January 1, 2017. In December 2017, Delphi Automotive PLC spun off its powertrain business and began operating under the name Aptiv PLC. The performance history of Delphi Automotive PLC has been included in both the current and previous peer group calculations.
We believe that the companies that comprise our current peer group more closely align with our business and industry and provide a better comparison of returns. For comparison purposes, we have included our previous peer group in the stock performance graph above.
ITEM 6 – SELECTED FINANCIAL DATA
The following statement of operations, statement of cash flows and balance sheet data were derived from our consolidated financial statements. Our consolidated financial statements for the years ended December 31, 2017, 2016, 2015, 2014 and 2013, have been audited by Ernst & Young LLP. The selected financial data below should be read in conjunction with Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," and our consolidated financial statements and the notes thereto included in this Report.RESERVED
|
| | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, | 2017 (1) | | 2016 (2) | | 2015 (3) | | 2014 (4) | | 2013 (5) |
Statement of Operations: (in millions) | | | | | | | | | |
| Net sales | $ | 20,467.0 |
| | $ | 18,557.6 |
| | $ | 18,211.4 |
| | $ | 17,727.3 |
| | $ | 16,234.0 |
|
| Gross profit | 2,291.1 |
| | 2,102.1 |
| | 1,819.8 |
| | 1,492.8 |
| | 1,299.7 |
|
| Selling, general and administrative expenses | 635.2 |
| | 621.9 |
| | 580.5 |
| | 529.9 |
| | 528.7 |
|
| Amortization of intangible assets | 47.6 |
| | 53.0 |
| | 52.5 |
| | 33.7 |
| | 34.4 |
|
| Interest expense | 85.7 |
| | 82.5 |
| | 86.7 |
| | 67.5 |
| | 68.4 |
|
Other (income) expense, net (6) | (4.1 | ) | | 6.4 |
| | 68.6 |
| | 74.3 |
| | 58.1 |
|
| Consolidated income before provision for income taxes and equity in net income of affiliates | 1,526.7 |
|
| 1,338.3 |
|
| 1,031.5 |
|
| 787.4 |
|
| 610.1 |
|
| Provision for income taxes | 197.5 |
| | 370.2 |
| | 285.5 |
| | 121.4 |
| | 192.7 |
|
| Equity in net income of affiliates | (51.7 | ) | | (72.4 | ) | | (49.8 | ) | | (36.3 | ) | | (38.4 | ) |
| Consolidated net income | 1,380.9 |
| | 1,040.5 |
| | 795.8 |
| | 702.3 |
| | 455.8 |
|
| Net income attributable to noncontrolling interests | 67.5 |
| | 65.4 |
| | 50.3 |
| | 29.9 |
| | 24.4 |
|
| Net income attributable to Lear | $ | 1,313.4 |
| | $ | 975.1 |
| | $ | 745.5 |
| | $ | 672.4 |
| | $ | 431.4 |
|
|
| | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, | 2017 (1) | | 2016 (2) | | 2015 (3) | | 2014 (4) | | 2013 (5) |
| Statement of Operations Data: | | | | | | | |
| Basic net income per share available to Lear common stockholders | $ | 18.79 |
| | $ | 13.48 |
| | $ | 9.71 |
| | $ | 8.39 |
| | $ | 5.07 |
|
| Diluted net income per share available to Lear common stockholders | $ | 18.59 |
| | $ | 13.33 |
| | $ | 9.59 |
| | $ | 8.23 |
| | $ | 4.99 |
|
| Weighted average shares outstanding – basic | 68,542,363 |
| | 72,345,436 |
| | 76,754,270 |
| | 80,187,516 |
| | 85,094,889 |
|
| Weighted average shares outstanding – diluted | 69,277,981 |
| | 73,124,949 |
| | 77,767,017 |
| | 81,728,479 |
| | 86,415,786 |
|
| Dividends per share | $ | 2.00 |
| | $ | 1.20 |
| | $ | 1.00 |
| | $ | 0.80 |
| | $ | 0.68 |
|
Statement of Cash Flows Data: (in millions) | | | | | | | | | |
| Cash flows from operating activities | $ | 1,783.1 |
| | $ | 1,619.3 |
| | $ | 1,271.1 |
| | $ | 927.8 |
| | $ | 820.1 |
|
| Cash flows from investing activities | (868.6 | ) | | (637.1 | ) | | (965.3 | ) | | (780.6 | ) | | (403.9 | ) |
| Cash flows from financing activities | (742.0 | ) | | (872.9 | ) | | (156.3 | ) | | (160.8 | ) | | (698.5 | ) |
| Capital expenditures | 594.5 |
| | 528.3 |
| | 485.8 |
| | 424.7 |
| | 460.6 |
|
Other Data (unaudited): | | | | | | | | | |
Ratio of earnings to fixed charges (7) | 12.6x |
| | 12.0x |
| | 9.4x |
| | 8.4x |
| | 6.8x |
|
|
| | | | | | | | | | | | | | | | | | | |
| As of or for the year ended December 31, | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
Balance Sheet Data: (in millions) (8) | | | | | | | | | |
| Current assets | $ | 6,613.0 |
| | $ | 5,649.3 |
| | $ | 5,286.6 |
| | $ | 5,165.6 |
| | $ | 4,735.1 |
|
| Total assets | 11,945.9 |
| | 9,900.6 |
| | 9,405.8 |
| | 9,113.1 |
| | 8,303.0 |
|
| Current liabilities | 4,854.3 |
| | 4,182.3 |
| | 3,839.6 |
| | 3,945.1 |
| | 3,556.0 |
|
| Long-term debt | 1,951.5 |
| | 1,898.0 |
| | 1,931.7 |
| | 1,454.0 |
| | 1,042.3 |
|
| Equity | 4,292.6 |
| | 3,192.9 |
| | 3,017.7 |
| | 3,029.3 |
| | 3,149.5 |
|
Other Data (unaudited): | | | | | | | | | |
| Employees at year end | 165,000 |
| | 148,400 |
| | 136,200 |
| | 125,200 |
| | 122,300 |
|
North American content per vehicle (9) | $ | 455 |
| | $ | 422 |
| | $ | 443 |
| | $ | 398 |
| | $ | 377 |
|
North American vehicle production (in millions) (10) | 17.1 |
| | 17.8 |
| | 17.5 |
| | 17.0 |
| | 16.2 |
|
European content per vehicle (11) | $ | 355 |
| | $ | 316 |
| | $ | 314 |
| | $ | 341 |
| | $ | 315 |
|
European vehicle production (in millions) (12) | 22.9 |
| | 22.3 |
| | 21.5 |
| | 20.6 |
| | 19.8 |
|
| |
(1) | 2017 results include $74.5 million of restructuring and related manufacturing inefficiency charges (including $1.3 million of fixed asset impairment charges), $3.8 million of transaction costs, $5.0 million charge due to an acquisition-related inventory fair value adjustment, $15.4 million litigation charge, $21.2 million loss on the extinguishment of debt, $54.2 million gain related to obtaining control of an affiliate and $214.8 million of net tax benefits related to U.S. corporate tax reform and its associated transition tax, foreign tax credits on repatriated earnings, the reversal of valuation allowances on the deferred tax assets of certain foreign subsidiaries, a change in the accounting for share-based compensation, an incentive tax credit in a foreign subsidiary, the redemption of the 2023 Notes, restructuring charges and various other items. |
| |
(2) | 2016 results include $69.6 million of restructuring and related manufacturing inefficiency charges (including $4.7 million of fixed asset impairment charges), $34.2 million non-cash pension settlement charge, $1.3 million of transaction costs, $30.3 million gain related to obtaining control of an affiliate and $23.6 million of net tax benefits related to restructuring charges, a non-cash pension settlement charge and various other items. |
| |
(3) | 2015 results include $97.2 million of restructuring and related manufacturing inefficiency charges (including $3.9 million of fixed asset impairment charges), $10.9 million of transaction and other related costs, $15.8 million charge due to an acquisition-related inventory fair value adjustment, $14.3 million loss on the extinguishment of debt, $1.8 million loss related to an affiliate and $43.1 million of net tax benefits related to restructuring charges, debt redemption costs, acquisition costs and various other items. |
| |
(4) | 2014 results include $115.3 million of restructuring and related manufacturing inefficiency charges (including $0.5 million of fixed asset impairment charges), $5.3 million of transaction costs, $17.9 million loss on the extinguishment of debt, $0.8 million of losses related to affiliates and $149.1 million of net tax benefits related to net reductions in valuation allowances with respect to the deferred tax assets of certain foreign subsidiaries, reductions in tax reserves due to audit settlements, debt redemption costs, restructuring charges and various other items. |
| |
(5) | 2013 results include $83.8 million of restructuring and related manufacturing inefficiency charges (including $9.2 million of fixed asset impairment charges), $3.0 million of costs related to a proxy contest, $7.3 million of losses and incremental costs related to the destruction of assets caused by a fire at one of our European production facilities, $3.6 million loss on the partial extinguishment of debt and $27.8 million of net tax benefits related to restructuring, net changes in valuation allowances with respect to the deferred tax assets of certain foreign subsidiaries, the retroactive reinstatement of the U.S. research and development tax credit by the American Taxpayer Relief Act of 2012, which was signed into law on January 2, 2013, and various other items. |
| |
(6) | Includes non-income related taxes, foreign exchange gains and losses, gains and losses related to certain derivative instruments and hedging activities, gains and losses on the extinguishment of debt, gains and losses on the disposal of fixed assets and other miscellaneous income and expense. |
| |
(7) | "Fixed charges" consist of interest on debt, amortization of deferred financing fees and that portion of rental expenses representative of interest. "Earnings" consist of consolidated income before provision (benefit) for income taxes and equity in the undistributed net income of affiliates and fixed charges. |
| |
(8) | The balance sheet data for 2014 and 2013 has been restated to reflect the presentation of debt issuance costs as a reduction of current portion of long-term debt and long-term debt in conjunction with the 2015 adoption of Accounting Standards Update ("ASU") 2015-03, "Interest — Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs," and ASU 2015-15, "Interest — Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements — Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting." In addition, the balance sheet data for 2014 and 2013 has been restated to reflect the presentation of all deferred tax assets and liabilities, as well as related valuation allowances, as non-current in conjunction with the 2015 adoption of ASU 2015-17, "Balance Sheet Classification of Deferred Taxes." |
| |
(9) | "North American content per vehicle" is our net sales in North America divided by total North American vehicle production. Content per vehicle data excludes business conducted through non-consolidated joint ventures. Content per vehicle data for 2016 has been updated to reflect actual production levels. |
| |
(10) | "North American vehicle production" includes car and light truck production in the United States, Canada and Mexico based on IHS Automotive. Production data for 2016 has been updated to reflect actual production levels. |
| |
(11) | "European content per vehicle" is our net sales in Europe and Africa divided by total European and African vehicle production. Content per vehicle data excludes business conducted through non-consolidated joint ventures. Content per vehicle data for 2016 has been updated to reflect actual production levels. |
| |
(12) | "European vehicle production" includes car and light truck production in Austria, Belarus, Belgium, Bosnia, Bulgaria, Czech Republic, Finland, France, Germany, Hungary, Italy, Morocco, Netherlands, Norway, Poland, Portugal, Romania, Russia, Serbia, Slovakia, Slovenia, South Africa, Spain, Sweden, Turkey, Ukraine and the United Kingdom based on IHS Automotive. Production data for 2016 has been updated to reflect actual production levels. |
ITEM 7 – MANAGEMENT’SMANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 and software,systems 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 ofobjectives. 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 metricsmetrics; and consistently returning excess cashcapital to our stockholders. Further, we have aligned our strategy with the key trends affecting our business — electrification, connectivity, autonomy and shared mobility. 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 just-in-timeand manufacture of complete seat systems, seat subsystems and key seat components. Our capabilities in operations and supply chain management enable synchronized (just-in-time) assembly and delivery of high volumes of complex complete seat systems to our customers. Included in our complete seat system and subsystem solutions are advanced comfort, wellness and safety offerings, as well as configurable seating product technologies. All of these products are compatible with traditional internal combustion engine ("ICE") architectures and the design, development, engineeringfull range of hybrid, plug-in hybrid and manufacturebattery electric architectures (collectively, "electrified powertrains"). Our advanced comfort, wellness and safety offerings are facilitated by our system, component and integration capabilities, together with our in-house electronics, sensor, software and algorithm competencies. We anticipate that our comfort offerings will be enhanced by the acquisition of substantially all majorof Kongsberg Automotive's Interior Comfort Systems business unit ("Kongsberg"), which is expected to close in the first quarter of 2022. As the most vertically integrated global seat components, includingsupplier, 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 routeand electronic systems. The combination of these capabilities enables us to provide our customers with customizable solutions with optimized designs at a competitive cost. Electrical distribution and connection systems utilize low voltage wire, high voltage wire, high speed data cables and flat wiring to connect networks and electrical signals and manage electrical power within the vehicle for all types of powertrains – from traditional vehicleICE architectures as well as high power and hybrid electric systems.to the full range of electrified powertrains. Key components in theour electrical distribution systemand connection systems portfolio include wire harnesses, terminals and connectors and junction boxes, includingengineered components for both ICE architectures and systems for high power battery electric vehicleelectrified powertrains that require management of higher voltage and hybrid electric vehicle power management and distribution systems. We also design, develop, engineer and manufacture sophisticated electronic control modules thatpower. Electronic systems facilitate signal, data and power management within the vehicle as well asand include the associated software. Wesoftware required to facilitate these functions. Key components in our electronic systems portfolio include body domain control modules and products specific to electrification and connectivity. Electrification products include on-board battery chargers, power conversion modules, high voltage battery management systems and high voltage power distribution systems. Connectivity products include telematics control units ("TCU") and gateway modules to manage both wired and wireless networks and data in vehicles. In addition to electronic modules, we offer software that includes cybersecurity, advanced vehicle positioning for automated and autonomous driving applications and full capabilities in both dedicated short-range communication and cellular protocols for vehicle connectivity. Our software offerings include embedded control software and cloud and mobile device-based software and services. Our customers traditionally have sourced our electronic hardware andtogether with the software capabilitiesthat we embed in wireless communication and cybersecurity that securely process various signals to, from and within the vehicle, as well as capabilities to provide roadside modules that communicate real-time traffic information to vehicles in the area.it.
We serve all of the world's major automotive manufacturers across both our Seating and E-Systems businesses, and we have automotive content on more than 400450 vehicle nameplates worldwide. It is common for us to have both seating and electrical and/or electronic content on the same and multiple vehicle platforms with a single customer. platform.
Our businesses benefit globally from leveraging common operating standards and disciplines, including world-class product development and manufacturing processes, as well as common customer support and regional infrastructures.infrastructures, all of which contribute to our reputation for operational excellence. Our core capabilities are shared across component categories and includeinclude: high-precision manufacturing and assembly with short lead times,times; management of complex supply chains,chains; global engineering and program management skills,skills; the agility to establish and/or movetransfer production between facilities quicklyquickly; and, a unique customer-focused culture. Our businesses utilize proprietary, industry-specific processes and standards, leverage
common low-cost engineering centers and share centralized operating support functions. These functions such asinclude logistics, supply chain management, quality, and health and safety, as well asand all major administrative functions.
Industry 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 increased 3% in 2021 over 2020, production remains well below recent historic levels and consumer demand. Production in the second half of 2021 decreased 16% relative to the second half of 2020. This was largely due to the continuing impact of the COVID-19 pandemic in 2021, particularly through supply shortages. The most significant supply shortage relates to semiconductor chips, which impacted global vehicle production and resulted in reductions and cancellations of planned production. In addition, we experienced increased costs related to labor shortages and inefficiencies and ongoing costs related to personal protective equipment, all of which are likely to continue for a period of time. Increases in certain commodity costs, as well as transportation and logistics costs, are also impacting, and will continue to impact, our operating results for the foreseeable future. Further, a resurgence of the COVID-19 virus or its variants, including corresponding "stay at home" or similar government orders impacting industry production, could impact our financial results. For risks related to the COVID-19 pandemic, including supply shortages, see Item 1A, "Risk Factors."
Global automotive industry production volumes in
2017,2021, as compared to
2016,2020, are shown below (in
millionsthousands of units):
| | | | 2017 | | 2016 | | % Change | | 2021 (1) | | 2020 (1) (2) | | % Change |
| North America | 17.1 | | 17.8 | | (4 | )% | North America | 13,032.4 | | | 13,024.0 | | | — | % |
| Europe and Africa | 22.9 | | 22.3 | | 3 | % | Europe and Africa | 16,182.2 | | | 16,855.8 | | | (4 | %) |
| Asia | 48.2 | | 47.1 | | 3 | % | Asia | 41,370.5 | | | 39,179.8 | | | 6 | % |
| South America | 3.1 | | 2.6 | | 21 | % | South America | 2,507.6 | | | 2,163.4 | | | 16 | % |
| Other | 2.0 | | 1.6 | | 21 | % | Other | 1,443.0 | | | 1,391.0 | | | 4 | % |
| Global light vehicle production | 93.3 | | 91.4 | | 2 | % | Global light vehicle production | 74,535.7 | | | 72,614.0 | | | 3 | % |
(1) Production data based on IHS Markit.
(2) Production data for 2020 has been updated from our 2020 Annual Report on Form 10-K to reflect actual production levels.
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 level of vertical integration and 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 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.
Our percentage of consolidated net sales by region in 20172021 and 20162020 is shown below: | | | | 2017 | | 2016 | | 2021 | | 2020 |
| North America | 38 | % | | 40 | % | North America | 39 | % | | 39 | % |
| Europe and Africa | 40 | % | | 38 | % | Europe and Africa | 35 | % | | 37 | % |
| Asia | 19 | % | | 19 | % | Asia | 22 | % | | 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 affectThe automotive industry, and our business, include automotive manufacturers’ utilization of global vehicle platforms, increasing demand for luxury and performance features, including increasing levels of electrical and electronic content, and China’s emergence ascontinue to be shaped by the single largest major automotive market in the world. In addition, three trends have broadly emerged as major drivers of change and growth in the automotive industry: efficiency, connectivity and safety. These trends are rapidly evolving and advancing into the technologybroad trends of electrification, connectivity, autonomy, and autonomy / advanced driver assistance,shared mobility. We also consider demand and regulatory developments for improved energy efficiency, sustainability,
enhanced safety and communications (e.g., government mandates related to fuel economy, carbon emissions and safety equipment) to be significant drivers of these trends, each of which areis likely to be at the forefront of our industry for the foreseeable future with each converging long-term toward fully autonomous, connected, electric or hybrid electric vehicles.future.
Our sales and marketing approach is based on addressing these trends, while our strategy focuses on the major imperativesIn addition to key foundational attributes imperative for success as an automotive supplier: quality,supplier (quality, service cost and efficiency andcost), our strategic initiatives focus on furthering our competitive differentiation through vertical integration, disruptive innovation and advanced manufacturing technology. We have expanded key component and software capabilities through organic investment and acquisitions to ensure a full complement of the highest qualitybest 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 capabilitiesactivities in new and growing markets, especially China, in support of our customers’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 Part 1 — Item 1, "Business — Industry and Strategy."
Our customers typicallytypically 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 achieveoffset 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 64.5%65.4% in 2017,2021, as compared to 64.8%64.3% in 20162020 and 66.6%65.0% in 2015.2019, 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, contractual recovery mechanisms 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 portionall of the adverse impact. Certain of these strategies also may limit our opportunities in a 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 Part I — Item 1A, "Risk Factors — Increases in the costs and restrictions on the availability of raw materials, energy, commodities and product components could adversely affect our financial performance," and "— Forward-Looking Statements."Statements" below.
Financial Measures
In evaluating our financial condition and operating performance, we focus primarily on earnings, operating margins, cash flows and return on invested capital. In addition to maintaining andOur strategy includes expanding our business with ournew and existing customers in our more established markets, our expansion plans are focused primarily on emerging markets.globally through new products, including electrification. Asia and China in particular, continues to present significantlong-term growth opportunities, as major global automotive manufacturers implement production expansion planswe focus on expanding our market share and local automotive manufacturers aggressively expand their operations to meet increasingcontent per vehicle, as demand for luxury and performance features increases in this region. WeIn addition to our wholly owned locations, we currently
have fourteenthirteen operating joint ventures with operations in Asia, as well as antwo additional joint ventureventures in North America dedicated to serving Asian automotive manufacturers. We also have aggressively pursued this strategy by selectively increasingincreased our vertical integration capabilities globally, as well as expandingexpanded our component manufacturing capacity in Asia, Brazil, Eastern Europe, Mexico and Northern Africa. Furthermore, we have expandedAfrica and our low-cost engineering capabilities in IndiaAsia, Eastern Europe and the Philippines.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’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
Antolin SeatingKongsberg
On April 28, 2017,In October 2021, we entered into a definitive agreement to acquire Kongsberg, which 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 acquisition is expected to further advance our seat component capabilities into specialized comfort seating solutions that further differentiate our product offerings and 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.
M&N Plastics
In March 2021, we completed the acquisition of Grupo Antolin'sM&N Plastics, an injection molding specialist and manufacturer of engineered plastic components for automotive seatingelectrical 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 business ("Antolin Seating")to vertically integrate the engineering and production of complex parts for $292electrical 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 consolidated financial statements included in this Report.
Xevo
In April 2019, we completed the acquisition of Xevo Inc. ("Xevo"), a Seattle-based, global leader in connected car software, by acquiring all of Xevo's outstanding shares for $322 million, net of cash acquired. Antolin SeatingXevo is headquartereda supplier of software solutions for the cloud, vehicles and mobile devices that are deployed in France with operations in five countries in Europe and North Africa. The Antolin Seating business is comprisedmillions of just-in-time seat assembly, as well as seat structures, mechanisms and seat covers.vehicles worldwide.
For further information, see Note 3,4, "Acquisitions," to the consolidated financial statements included in this Report.
Subsequent Event
On January 10, 2018, we completed the acquisition of Israel-based EXO Technologies, a leading developer of differentiated GPS technology providing high-accuracy positioning solutions for autonomous and connected vehicle applications.
Operational Restructuring
In 2017,2021, we incurred pretax restructuring costs of approximately $73$101 million and related manufacturing inefficiency charges of approximately $2 million. Any$12 million, as compared to pretax restructuring costs of $145 million and related manufacturing inefficiency charges of approximately $5 million in 2020. None of the individual restructuring actions initiated during 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 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 $44 million of additional restructuring costs related to activities initiated as of December 31, 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 will depend uponare dependent on market conditions, customer actions and other factors.
For further information, see Note 4,5, "Restructuring," and Note 15, "Segment Reporting," to the consolidated financial statements included in this Report.
Financing Transactions
Senior Notes
In August 2017,November 2021, we issued $750$350 million in aggregate principal amount at maturity of senior unsecured2032 notes due 2027 (the "2027"2032 Notes") and $350 million in aggregate principal amount at maturity of 2052 notes (the "2052 Notes"). The 2032 Notes have a stated coupon rate of 3.8%. The 2027 Notes2.6% and were pricedissued at 99.294%99.782% of par, resulting in a yield to maturity of 3.885%2.624%. The 2052 Notes have a stated coupon rate of 3.55% and were issued at 99.845% of par, resulting in a yield to maturity of 3.558%.
Net proceeds from the offering of $745$699 million, after original issue discount, were used, in part, to redeemfund the $500tender of $200 million in aggregate principal amount of our 3.8% senior unsecured notes due 2023in 2027 (the "2023"2027 Notes") at a redemption price equal to 100%and the repayment in full of the aggregate principal amount thereof, plus a "make-whole" premium of $17$206 million as well as to refinance a portion ofoutstanding on our $500 million prior term loan facility (see "— Credit Agreement" below). facility. We expect to use the remaining net proceeds for general corporate purposes,
which may include the purchase price for the Kongsberg acquisition. For further information, see Note 4, "Acquisitions," to the consolidated financial statements included in this Report.
In connection with these transactions, we recognized a loss of $21$24 million on the extinguishment of debt and paid related issuance costs of $6$7 million.
For further information, see "— Liquidity and Financial Condition — Capitalization — Senior Notes" below and Note 6,7 "Debt," to the consolidated financial statements included in this Report.
Credit Agreement
In August 2017, we entered into a newOur unsecured credit agreement (the "Credit Agreement") consistingconsisted of a $1.75 billion revolving credit facility (the "Revolving Credit Facility") and a $250 million term loan facility. In October 2021, we entered into an amended and restated credit agreement that increased the revolving credit facility (the "Term Loan Facility"), both of which matureto $2.0 billion and extended the maturity date to October 28, 2026. In November 2021, we repaid in full $206 million outstanding on August 8, 2022. Inour term loan facility. In connection with this transaction,these transactions, we borrowed $250recognized a loss of $1 million underon the Term Loan Facilityextinguishment of debt and paid related issuance costs of $6$3 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 operational flexibility and borrowing capacity.
For further information, see "— Liquidity and Financial Condition — Capitalization — Credit Agreement" below and Note 6,7, "Debt," to the 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 upon our financial condition, results of operations, capital requirements, prevailing market conditions, alternative uses of capital and other factors (see "— Forward-Looking Statements" below).
Since the first quarter of 2011, our Board of Directors has authorized $4.1$6.1 billion in share repurchases under our common stock share repurchase program. In 2017,March 2020, as a proactive measure in response to the COVID-19 pandemic, we completed $454suspended share repurchases under our common stock share repurchase program. Share repurchases were reinstated in the second quarter of 2021. Since the reinstatement through December 31, 2021, we repurchased approximately $100 million of share repurchases andshares. As of December 31, 2021, we have a remaining repurchase authorization of $546 million,$1.3 billion, which will expireexpires on December 31, 2019.2022.
In 2017,2021, our Board of Directors declared a quarterly cash dividend of $0.25 per share of common stock in the first and second quarters, a quarterly cash dividend of $0.50 per share of common stock in the third quarter and a quarterly cash dividend of $0.77 per share of common stock in the fourth quarter, returning our quarterly cash dividend to its pre-COVID-19 pandemic level.
In 2020, our Board of Directors declared a quarterly cash dividend of $0.77 per share of common stock in the first quarter. In March 2020, as a proactive measure in response to the COVID-19 pandemic, we suspended our quarterly cash dividend. The quarterly cash dividend was reinstated in the fourth quarter at $0.25 per share of common stock.
For further information regardingrelated to our common stock share repurchase program and our quarterly cash dividends, see Item 5, "Market for the Company’sCompany's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities," "— Liquidity and Financial Condition — Capitalization" below and Note 9,12, "Capital Stock, Accumulated Other Comprehensive Loss and Equity," to the consolidated financial statements included in this Report.
Other Matters
In 2017, we amended the joint venture agreement of Shanghai Lear STEC Automotive Parts Co., Ltd. ("Lear STEC") to eliminate the substantive participating rights of our joint venture partner. In conjunction with obtaining control of Lear STEC and the valuation of our prior equity investment in Lear STEC at fair value, we recognized a gain of approximately $54 million.
In 2017, we recognized a $15 million litigation charge, of which approximately $13 million is recorded in cost of sales and approximately $2 million is recorded in interest expense, related to an unfavorable ruling issued by a foreign court.
In 2017,2021, we recognized tax benefits of $39 million related to restructuring charges and various other items, partially offset by tax expense of $131$17 million related to the net increase in valuation allowances on deferred tax assets of foreign subsidiaries and $8 million on a $45 million gain related to a favorable indirect tax ruling in a foreign jurisdiction.
In 2020, we recognized tax benefits of $34 million related to restructuring charges and various other items and $15 million related to the U.S. deferred tax effect of our foreign branches, partially offset by tax expense of $29 million related to a one-time transition taxnet increase in valuation allowances on accumulated foreign earnings and $43 million to reflect the new U.S. corporate tax rate and other tax reform changes to our deferred tax accounts, offset byassets.
In 2019, we recognized tax benefits of $290$29 million related to foreignan increase in our research and development tax credits on repatriated earnings, $30for the years 2013 through 2018, $18 million related to changes in the tax status of certain affiliates, $14 million related to the reversalU.S. tax impact of the foreign tax credit regulations issued in the fourth quarter of 2019, $5 million related to net reductions in tax reserves, $3 million related to share-based compensation, $12 million related to various tax-related items, including the release of valuation allowances, tax rate changes and audit adjustments, and $52 million related to restructuring charges and various other items, offset by tax expense of $11 million related to the establishment of valuation allowances on the deferred tax assets of certain foreign subsidiaries, $17 million related to a change in the accounting for share-based compensation, $14 million related to an incentive tax credit in a foreign subsidiary, $8 million related to the redemptionsubsidiaries.
In 2016, we amended the 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 gaining control 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 2016, we recognized a $34 million non-cash settlement charge, of which approximately $20 million was recorded in cost of sales and approximately $14 million was recorded in selling, general and administrative expenses, in connection with our lump-sum payout to certain terminated vested plan participants of our U.S. defined benefit pension plans.
In 2016, we recognized net tax benefits of $24 million related to restructuring charges, a non-cash pension settlement charge and various other items.
In 2015, we recognized net tax benefits of $43 million related to restructuring charges, debt redemption costs, acquisition costs and various other items.
As discussed above, our results for the years ended December 31, 2017, 20162021, 2020 and 2015,2019, reflect the following items (in millions): |
| | | | | | | | | | | |
| For the year ended December 31, | 2017 | | 2016 | | 2015 |
| Costs related to restructuring actions, including manufacturing inefficiencies of $2 million in 2017, $6 million in 2016 and $8 million in 2015 | $ | 75 |
| | $ | 70 |
| | $ | 97 |
|
| Pension settlement charge | — |
| | 34 |
| | — |
|
| Acquisition and other related costs | 4 |
| | 1 |
| | 11 |
|
| Acquisition-related inventory fair value adjustment | 5 |
| | — |
| | 16 |
|
| Litigation | 15 |
| | — |
| | — |
|
| Losses on extinguishment of debt | 21 |
| | — |
| | 14 |
|
| (Gain) loss related to affiliate | (54 | ) | | (30 | ) | | 2 |
|
| Tax benefits, net | (215 | ) | | (24 | ) | | (43 | ) |
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, | 2021 | | 2020 | | 2019 |
| Costs related to restructuring actions, including manufacturing inefficiencies of $12 million in 2021, $5 million in 2020 and $6 million in 2019 | $ | 113 | | | $ | 150 | | | $ | 190 | |
| Acquisition and other related costs | — | | | — | | | 2 | |
| Litigation | — | | | — | | | 1 | |
| Favorable indirect tax ruling in a foreign jurisdiction | (45) | | | — | | | (2) | |
| Typhoon in the Philippines | 13 | | | — | | | — | |
| Intangible asset impairment | 9 | | | — | | | |
| Loss on extinguishment of debt | 25 | | | 21 | | | 11 | |
| (Gain) loss related to investments, net | 2 | | | 4 | | | (1) | |
| Tax benefits, net | (14) | | | (20) | | | (122) | |
For further information regarding these items, see Note 3, "Acquisitions,"Summary of Significant Accounting Policies," Note 4, "Acquisitions," Note 5, "Restructuring," Note 5,6, "Investments in Affiliates and Other Related Party Transactions," Note 6,7, "Debt," Note 7, "Income Taxes," and Note 8, "Pension and Other
Postretirement Benefit Plans,9, "Income Taxes," to the consolidated financial statements included in this Report. This section includes forward-looking statements that are subject to risks and uncertainties. For further information regarding these and other factors that have had, or may have in the future, a significant impact on our business, financial condition or results of operations, see Part I — Item 1A, "Risk Factors," and "— Forward-Looking Statements."Statements" below.
Results of Operations
A summary of our operating results in millions of dollars and as a percentage of net sales is shown below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, | 2021 | | 2020 | | 2019 |
| Net sales | | | | | | | | | | | |
| Seating | $ | 14,411.4 | | | 74.8 | % | | $ | 12,712.7 | | | 74.6 | % | | $ | 15,097.2 | | | 76.2 | % |
| E-Systems | 4,851.7 | | | 25.2 | | | 4,332.8 | | | 25.4 | | | 4,713.1 | | | 23.8 | |
| Net sales | 19,263.1 | | | 100.0 | | | 17,045.5 | | | 100.0 | | | 19,810.3 | | | 100.0 | |
| Cost of sales | 17,871.2 | | | 92.8 | | | 15,936.6 | | | 93.5 | | | 18,072.8 | | | 91.2 | |
| Gross profit | 1,391.9 | | | 7.2 | | | 1,108.9 | | | 6.5 | | | 1,737.5 | | | 8.8 | |
| Selling, general and administrative expenses | 643.2 | | | 3.3 | | | 588.9 | | | 3.5 | | | 605.0 | | | 3.1 | |
| Amortization of intangible assets | 73.3 | | | 0.4 | | | 65.9 | | | 0.4 | | | 62.3 | | | 0.3 | |
| Interest expense | 91.8 | | | 0.5 | | | 99.6 | | | 0.6 | | | 92.0 | | | 0.5 | |
| Other expense, net | 0.1 | | | — | | | 55.2 | | | 0.3 | | | 24.6 | | | 0.1 | |
| Provision for income taxes | 137.7 | | | 0.7 | | | 93.9 | | | 0.6 | | | 146.1 | | | 0.7 | |
| Equity in net income of affiliates | (15.8) | | | (0.1) | | | (28.5) | | | (0.2) | | | (23.2) | | | (0.1) | |
| Net income attributable to noncontrolling interests | 87.7 | | | 0.5 | | | 75.4 | | | 0.4 | | | 77.1 | | | 0.4 | |
| Net income attributable to Lear | $ | 373.9 | | | 1.9 | % | | $ | 158.5 | | | 0.9 | % | | $ | 753.6 | | | 3.8 | % |
|
| | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, | 2017 | | 2016 | | 2015 |
| Net sales | | | | | | | | | | | |
| Seating | $ | 15,873.0 |
| | 77.6 | % | | $ | 14,356.7 |
| | 77.4 | % | | $ | 14,098.5 |
| | 77.4 | % |
| E-Systems | 4,594.0 |
| | 22.4 |
| | 4,200.9 |
| | 22.6 |
| | 4,112.9 |
| | 22.6 |
|
| Net sales | 20,467.0 |
| | 100.0 |
| | 18,557.6 |
| | 100.0 |
| | 18,211.4 |
| | 100.0 |
|
| Cost of sales | 18,175.9 |
| | 88.8 |
| | 16,455.5 |
| | 88.7 |
| | 16,391.6 |
| | 90.0 |
|
| Gross profit | 2,291.1 |
| | 11.2 |
| | 2,102.1 |
| | 11.3 |
| | 1,819.8 |
| | 10.0 |
|
| Selling, general and administrative expenses | 635.2 |
| | 3.1 |
| | 621.9 |
| | 3.4 |
| | 580.5 |
| | 3.2 |
|
| Amortization of intangible assets | 47.6 |
| | 0.2 |
| | 53.0 |
| | 0.3 |
| | 52.5 |
| | 0.3 |
|
| Interest expense | 85.7 |
| | 0.4 |
| | 82.5 |
| | 0.4 |
| | 86.7 |
| | 0.3 |
|
| Other (income) expense, net | (4.1 | ) | | — |
| | 6.4 |
| | — |
| | 68.6 |
| | 0.4 |
|
| Provision for income taxes | 197.5 |
| | 1.0 |
| | 370.2 |
| | 2.0 |
| | 285.5 |
| | 1.6 |
|
| Equity in net income of affiliates | (51.7 | ) | | (0.2 | ) | | (72.4 | ) | | (0.4 | ) | | (49.8 | ) | | (0.3 | ) |
| Net income attributable to noncontrolling interests | 67.5 |
| | 0.3 |
| | 65.4 |
| | 0.4 |
| | 50.3 |
| | 0.2 |
|
| Net income attributable to Lear | $ | 1,313.4 |
| | 6.4 | % | | $ | 975.1 |
| | 5.3 | % | | $ | 745.5 |
| | 4.3 | % |
Year Ended December 31, 2017,2021, Compared With Year Ended December 31, 20162020
Net sales for the year ended December 31, 20172021 were $20.5$19.3 billion, as compared to $18.6$17.0 billion for the year ended December 31, 2016,2020, an increase of $1.9$2.2 billion or 10%13%. New business primarily in North America, Europe and Africa, and Asia and the acquisitionincreased
net sales by $1.4$0.9 billion. Net sales also benefited by $0.5 billion and $350 million,$0.4 billion as a result of higher production volumes on Lear platforms in North America, South America and Asia and foreign exchange rate fluctuations, respectively.
| | | (in millions) | | Cost of Sales | (in millions) | | Cost of Sales |
| 2016 | | $ | 16,455.5 |
| |
| 2020 | | 2020 | | $ | 15,936.6 | |
| Material cost | | 1,270.2 |
| Material cost | | 1,645.6 | |
| Labor and other | | 400.5 |
| Labor and other | | 263.4 | |
| Depreciation | | 49.7 |
| Depreciation | | 25.6 | |
| 2017 | | $ | 18,175.9 |
| |
| 2021 | | 2021 | | $ | 17,871.2 | |
Cost of sales in 20172021 was $18.2$17.9 billion, as compared to $16.5$15.9 billion in 2016.2020. New business primarily in North America, Europe and Africa, and Asia increased cost of sales. Cost of sales also increased as a result of higher production volumes on Lear platforms in North America, South America and Africa, and Asia and the acquisition of Antolin Seating resulted in an increase in cost of sales of $1.6 billion.foreign exchange rate fluctuations.
Gross profit and gross margin were $2.3$1.4 billion and 11.2%7.2% of net sales in 2017,2021, as compared to $2.1$1.1 billion and 11.3%6.5% of net sales in 2016. New2020. The impact of new business and the acquisition of Antolin Seating positively impactedhigher production volumes on Lear platforms increased gross profit by $194$180 million. The impact of favorableFavorable operating performance, including the benefit of operational restructuring actions, of $257 million was more thanand lower restructuring costs, were partially offset by the impact of selling price reductions.reductions and increased commodity costs. These factors had a corresponding impact on gross margin.
Selling, general and administrative expenses, including engineering and development expenses, were $635$643 million for the year ended December 31, 2017,2021, as compared to $622$589 million for the year ended December 31, 2016. In 2017, we recognized higher2020, primarily reflecting increases in restructuring costs as well as higher engineering and development expensescompensation-related costs related to support future business growth. In 2016, we recognized a $14 million non-cash settlement charge in connection with our lump-sum payout to certain terminated vested plan participants of our U.S. defined benefit pension plans.2020 salary reduction and deferral actions. As a percentage of net sales, selling, general and administrative expenses were 3.1%3.3% in 2017,2021, as compared to 3.4%3.5% in 2016.2020.
Amortization of intangible assets was $48$73 million in 2017,2021, including an impairment charge of $9 million, as compared to $53$66 million in 2016.
2020.
Interest expense was $86$92 million in 2017,2021, as compared to $83$100 million in 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 ($4)$0.1 million in 2017,2021, as compared to $6$55 million in 2016.2020. In 2017,2021, we recognized a gain of $54$45 million related to obtaining controla favorable indirect tax ruling in a foreign jurisdiction and losses of $25 million related to the extinguishment of debt and $2 million related to the impairment and liquidation of an affiliate and a lossinvestment. In 2020, we recognized losses of $21 million related to the extinguishment of debt. In 2016, we recognized a gain of $30debt, $13 million related to obtaining controla pension settlement and $4 million related to the impairment of an affiliate.investment.
In 2017,2021, the provision for income taxes was $198$138 million, representing an effective tax rate of 12.9%23.6% on pretax income before equity in net income of affiliates of $1.5 billion.$584 million. In 2016,2020, the provision for income taxes was $370$94 million, representing an effective tax rate of 27.7%31.4% on pretax income before equity in net income of affiliates of $1.3 billion, for the reasons described below.$299 million.
In 20172021 and 2016,2020, the provision for income taxes was primarily impacted by the level and mix of earnings among tax jurisdictions. In 2017, we recognized tax expense of $131 million related to a one-time transition tax on accumulated foreign earnings and $43 million to reflect the new U.S. corporate tax rate and other tax reform changes to our deferred tax accounts. In addition,2021, we recognized tax benefits of $290 million related to foreign tax credits on repatriated earnings, $30 million related to the reversal of valuation allowances on the deferred tax assets of certain foreign subsidiaries, $17 million related to a change in the accounting for share-based compensation, $14 million related to an incentive tax credit in a foreign subsidiary, $8 million related to the redemption of the 2023 Notes and $30$39 million related to restructuring charges and various other items. In addition, we recognized a gainitems, offset by tax expense of $54$17 million related to obtaining controlthe net increase in valuation allowances on deferred tax assets of an affiliate, for which noforeign subsidiaries and $8 million on a $45 million gain related to a favorable indirect tax expense was provided.ruling in a foreign jurisdiction. In 2016,2020, we recognized net tax benefits of $24$34 million related to restructuring charges a non-cash pension settlement charge and various other items. In addition, we recognized a gain of $30items and $15 million related to obtaining controlthe U.S. deferred tax effect of an affiliate, for which noour foreign branches and tax expense was provided. Excluding these items, the effective tax rateof $29 million related to a net increase in 2017 and 2016 approximated the U.S. federal statutory income tax rate of 35% adjusted for income taxes on foreign earnings, losses and remittances, valuation allowances on deferred tax credits, income tax incentives and other permanent items.assets.
For information related to our valuation allowances, see "Other Matters — Significant Accounting Policies and Critical Accounting Estimates — Income Taxes."Taxes" below.
Equity in net income of affiliates was $52$16 million for the year ended December 31, 2017,2021, as compared to $72$29 million for the year ended December 31, 2016,2020, reflecting the consolidation of twolower sales at certain of our affiliates.affiliates in China.
Net income attributable to Lear was $1,313$374 million, or $18.59$6.19 per diluted share, in 2017,2021, as compared to $975$159 million, or $13.33$2.62 per diluted share, in 2016.2020. Net income and diluted net income per share increaseddecreased for the reasons described above. In addition, diluted net income per share was impacted by the decrease in average shares outstanding between the periods.
Reportable Operating Segments
We have two reportable operating segments: Seating which includes complete seat systems and all major seat components, including seat covers and surface materials such as leather and fabric, seat structures and mechanisms, seat foam and headrests, and E-Systems, which includes complete electrical distribution systems, electronic control modules and associated software and wireless communication modules. Key components in the electrical distribution system include wire harnesses, terminals and connectors and junction boxes, including components and systems for high power battery electric vehicle and hybrid electric vehicle power management and distribution 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’ssegment's pretax income before equity in net income of affiliates, interest expense and other expense, net ("segment earnings") and segment earnings divided by net sales ("margin") are not measures of performance under accounting principles generally accepted in the United States ("GAAP"). 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 attributable to Lear, net cash provided by 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 of affiliates, see Note 12,15, "Segment Reporting," to the consolidated financial statements included in this Report.
Seating –—
A summary of financial measures for our Seating segment is shown below (dollar amounts in millions):
| | | | | | | | | | | |
| For the year ended December 31, | 2021 | | 2020 |
| Net sales | $ | 14,411.4 | | | $ | 12,712.7 | |
Segment earnings (1) | 851.3 | | | 590.5 | |
| Margin | 5.9 | % | | 4.6 | % |
|
| | | | | | | |
| For the year ended December 31, | 2017 | | 2016 |
| Net sales | $ | 15,873.0 |
| | $ | 14,356.7 |
|
Segment earnings (1) | 1,250.8 |
| | 1,136.0 |
|
| Margin | 7.9 | % | | 7.9 | % |
Seating net sales were $15.9 billion for the year ended December 31, 2017, as compared to $14.4 billion for the year ended December 31, 2016,2021, as compared to $12.7 billion for the year ended December 31, 2020, an increase of $1.5$1.7 billion or 11%13%. New business and the acquisition of Antolin Seating positively impactedHigher production volumes on Lear platforms increased net sales by $1.2 billion$679 million. Net sales also benefited by $486 million and $350$295 million as a result of new business and foreign exchange rate fluctuations, respectively.
Segment earnings, including restructuring costs, and the related margin on net sales were $1.3 billion$851 million and 7.9%5.9% in 2017,2021, as compared to $1.1 billion$591 million and 7.9%4.6% in 2016. New business2020. Higher production volumes on Lear platforms and the acquisitionimpact of Antolin Seating positively impactednew business increased segment earnings by $152$176 million. The impact of favorableFavorable operating performance, including the benefit of operational restructuring actions, of $202 million wasand lower restructuring costs were partially offset by the impact of selling price reductions.reductions and increased commodity costs.
E-Systems –—
A summary of financial measures for our E-Systems segment is shown below (dollar amounts in millions):
| | | | | | | | | | | |
| For the year ended December 31, | 2021 | | 2020 |
| Net sales | $ | 4,851.7 | | | $ | 4,332.8 | |
Segment earnings (1) | 121.2 | | | 98.1 | |
| Margin | 2.5 | % | | 2.3 | % |
|
| | | | | | | |
| For the year ended December 31, | 2017 | | 2016 |
| Net sales | $ | 4,594.0 |
| | $ | 4,200.9 |
|
Segment earnings (1) | 641.6 |
| | 591.3 |
|
| Margin | 14.0 | % | | 14.1 | % |
E-Systems net sales were $4.6$4.9 billion for the year ended December 31, 2017,2021, as compared to $4.2$4.3 billion for the year ended December 31, 2016,2020, an increase of $393$519 million or 9%12%. New business, sales as a result of obtaining control of an affiliatecommodity recoveries and higher volumes on key Lear platforms positively impactedforeign exchange rate fluctuations increased net sales by $210$425 million, $116$175 million and $45$112 million, respectively. These increases were partially offset by lower production volumes on Lear platforms which reduced net sales by $198 million.
Segment earnings, including restructuring costs, and the related margin on net sales were $642$121 million and 14.0%2.5% in 2017,2021, as compared to $591$98 million and 14.1%2.3% in 2016. New2020. The impact of new business earnings as a result of obtaining control of an affiliate and higherwas offset by lower production volumes on key Lear platforms positively impacted segment earnings by $56 million. The impact of improvedplatforms. Improved operating performance of $77 million was more thanpartially offset by the impact of selling price reductions.reductions and 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):
| | | | | | | | | | | |
| For the year ended December 31, | 2021 | | 2020 |
| Net sales | $ | — | | | $ | — | |
Segment earnings (1) | (297.1) | | | (234.5) | |
| Margin | N/A | | N/A |
|
| | | | | | | |
| For the year ended December 31, | 2017 | | 2016 |
| Net sales | $ | — |
| | $ | — |
|
Segment earnings (1) | (284.1 | ) | | (300.1 | ) |
| Margin | N/A |
| | N/A |
|
Segment earnings related to our other category were ($284)297) million in 2017,2021, as compared to ($300)235) million in 2016. In 2016, we recognized a $34 million non-cash settlement charge2020, primarily reflecting an increase in connection withcompensation-related costs related to our lump-sum payout to certain terminated vested plan participants of our U.S. defined benefit pension plans.2020 salary reduction and deferral actions, as well as 2020 reductions in discretionary spending.
Year Ended December 31, 2016,2020, Compared With Year Ended December 31, 20152019
Net salesFor a discussion of our results of operations for the year ended December 31, 2016 were $18.6 billion, as2020, compared with the year ended December 31, 2019, refer to $18.2 billionour Annual Report on Form 10-K for the year ended December 31, 2015, an increase of $346 million or 2%. New business in Asia, Europe and South America and higher2020.
production volumes on key Lear platforms in Europe and Asia positively impacted net sales by $845 million and $139 million, respectively. These increases were partially offset by net foreign exchange rate fluctuations related to the strengthening of the U.S. dollar against most major currencies and selling price reductions, which reduced net sales by $602 million.
|
| | | | |
| (in millions) | | Cost of Sales |
| 2015 | | $ | 16,391.6 |
|
| Material cost | | (91.4 | ) |
| Labor and other | | 128 |
|
| Depreciation | | 27.3 |
|
| 2016 | | $ | 16,455.5 |
|
Cost of sales in 2016 was $16.5 billion, as compared to $16.4 billion in 2015. New business in Asia, Europe and South America and higher production volumes on key Lear platforms in Europe and Asia resulted in an increase in cost of sales of $810 million. These increases were partially offset by favorable operating performance and the benefit of operational restructuring actions and net foreign exchange rate fluctuations related to the strengthening of the U.S. dollar against most major currencies, which reduced cost of sales by $703 million.
Gross profit and gross margin were $2.1 billion and 11.3% of net sales in 2016, as compared to $1.8 billion and 10.0% of net sales in 2015. New business and higher production volumes on key Lear platforms positively impacted gross profit by $148 million. The impact of favorable operating performance and the benefit of operational restructuring actions of $412 million more than offset the impact of selling price reductions and net foreign exchange rate fluctuations of $300 million. These factors had a corresponding impact on gross margin.
Selling, general and administrative expenses, including engineering and development expenses, were $622 million for the year ended December 31, 2016, as compared to $581 million for the year ended December 31, 2015, reflecting an increase in engineering and development expenses to support future business growth, as well as a $14 million non-cash settlement charge in connection with our lump-sum payout to certain terminated vested plan participants of our U.S. defined benefit pension plans. As a percentage of net sales, selling, general and administrative expenses were 3.4% in 2016, as compared to 3.2% in 2015.
Amortization of intangible assets was $53 million in 2016 and 2015.
Interest expense was $83 million in 2016, as compared to $87 million in 2015.
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, gains and losses on the extinguishment of debt, gains and losses on the disposal of fixed assets and other miscellaneous income and expense, was $6 million in 2016, as compared to $69 million in 2015. In 2016, we recognized a gain of $30 million related to obtaining control of an affiliate. In 2015, we recognized a loss of $14 million related to the redemption of the remaining outstanding aggregate principal amount of our 8.125% senior unsecured notes due 2020. Net foreign exchange losses decreased to $10 million in 2016, as compared to $23 million in 2015.
In 2016, the provision for income taxes was $370 million, representing an effective tax rate of 27.7% on pretax income before equity in net income of affiliates of $1,338 million. In 2015, the provision for income taxes was $286 million, representing an effective tax rate of 27.7% on pretax income before equity in net income of affiliates of $1,032 million.
In 2016 and 2015, the provision for income taxes was impacted by the level and mix of earnings among tax jurisdictions. The provision was also impacted by a portion of our restructuring charges and other expenses, for which no tax benefit was provided as the charges were incurred in certain countries for which no tax benefit is likely to be realized due to a history of operating losses in those countries. In 2016, we recognized a gain of $30 million related to obtaining control of an affiliate, for which no tax expense was provided. In addition, we recognized net tax benefits of $24 million related to restructuring charges, a non-cash pension settlement charge and various other items. In 2015, we recognized net tax benefits of $43 million related to restructuring charges, debt redemption costs, acquisition costs and various other items. Excluding these items, the effective tax rate in 2016 and 2015 approximated the U.S. federal statutory income tax rate of 35% adjusted for income taxes on foreign earnings, losses and remittances, valuation allowances, tax credits, income tax incentives and other permanent items.
For information related to our valuation allowances, see "Other Matters — Significant Accounting Policies and Critical Accounting Estimates — Income Taxes."
Equity in net income of affiliates was $72 million for the year ended December 31, 2016, as compared to $50 million for the year ended December 31, 2015, reflecting the increase in sales and improved operating performance of our equity affiliates in China.
Net income attributable to Lear was $975 million, or $13.33 per diluted share, in 2016, as compared to $746 million, or $9.59 per diluted share, in 2015. 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 the periods.
Reportable Operating Segments
For a description of our reportable operating segments, see "Year Ended December 31, 2017, Compared with Year Ended December 31, 2016 — Reportable Operating Segments" above.
Seating –
A summary of financial measures for our Seating segment is shown below (dollar amounts in millions):
|
| | | | | | | |
| For the year ended December 31, | 2016 | | 2015 |
| Net sales | $ | 14,356.7 |
| | $ | 14,098.5 |
|
Segment earnings (1) | 1,136.0 |
| | 907.0 |
|
| Margin | 7.9 | % | | 6.4 | % |
Seating net sales were $14.4 billion for the year ended December 31, 2016, as compared to $14.1 billion for the year ended December 31, 2015, an increase of $258 million or 2%. New business positively impacted net sales by $656 million. This increase was partially offset by net foreign exchange rate fluctuations and selling price reductions, which negatively impacted net sales by $427 million.
Segment earnings, including restructuring costs, and the related margin on net sales were $1,136 million and 7.9% in 2016, as compared to $907 million and 6.4% in 2015. New business and lower restructuring costs positively impacted segment earnings by $122 million. The impact of favorable operating performance and the benefit of operational restructuring actions of $261 million more than offset the impact of selling price reductions and net foreign exchange rate fluctuations.
E-Systems –
A summary of financial measures for our E-Systems segment is shown below (dollar amounts in millions):
|
| | | | | | | |
| For the year ended December 31, | 2016 | | 2015 |
| Net sales | $ | 4,200.9 |
| | $ | 4,112.9 |
|
Segment earnings (1) | 591.3 |
| | 554.4 |
|
| Margin | 14.1 | % | | 13.5 | % |
E-Systems net sales were $4.2 billion for the year ended December 31, 2016, as compared to $4.1 billion for the year ended December 31, 2015, an increase of $88 million or 2%. New business and higher production volumes on key Lear platforms positively impacted net sales by $179 million and $71 million, respectively. These increases were partially offset by selling price reductions and net foreign exchange rate fluctuations, which negatively impacted net sales by $175 million.
Segment earnings, including restructuring costs, and the related margin on net sales were $591 million and 14.1% in 2016, as compared to $554 million and 13.5% in 2015. New business and higher production volumes on key Lear platforms positively impacted segment earnings by $52 million. The impact of improved operating performance of $111 million was offset by the impact of selling price reductions and net foreign exchange rate fluctuations.
Other –
A summary of financial measures for our other category, which is not an operating segment, is shown below (dollar amounts in millions):
|
| | | | | | | |
| For the year ended December 31, | 2016 | | 2015 |
| Net sales | $ | — |
| | $ | — |
|
Segment earnings (1) | (300.1 | ) | | (274.6 | ) |
| Margin | N/A |
| | N/A |
|
Segment earnings related to our other category were ($300) million in 2016, as compared to ($275) million in 2015. In 2016, we recognized a $34 million non-cash settlement charge in connection with our lump-sum payout to certain terminated vested plan participants of our U.S. defined benefit pension plans.
Liquidity and Financial ConditionCapital 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 (see Item 5, "Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities"). Our principal sources of liquidity are cash flows from operating activities, borrowings under available credit facilities and our existing cash balance.
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.
As of December 31, 20172021 and 2016,2020, cash and cash equivalents of $952$661 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 regarding potential dividends from our non-U.S. subsidiaries, see "— Adequacy of Liquidity Sources,"Sources" below and Note 7,9, "Income Taxes," to the consolidated financial statements included in this Report.
Adequacy of Liquidity Sources
As of December 31, 2021, we had approximately $1.3 billion of cash and cash equivalents on hand and $2.0 billion in available borrowing capacity under our revolving credit facility. Together with cash provided by operating activities, we believe that this will enable us to meet our liquidity needs for the foreseeable future and to satisfy ordinary course business obligations. In addition, we expect to continue to pay quarterly cash 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 upon 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.
Our future financial results and our ability to continue to meet our liquidity needs are subject to, and will be affected by, cash flows from operations, including the continuing effects of the COVID-19 pandemic, as well as restructuring activities, automotive industry conditions, the financial condition of our customers and suppliers, supply chain disruptions and other related factors. Additionally, an economic downturn or reduction in production levels could negatively impact our financial condition.
For further discussion of the risks and uncertainties affecting our cash flows from operations and our overall liquidity, see Part I — Item 1A, "Risk Factors," and "— Executive Overview" above and "— Forward-Looking Statements" below.
Cash FlowsAdequacy of Liquidity Sources
Year EndedAs of December 31, 2017, Compared2021, we had approximately $1.3 billion of cash and cash equivalents on hand and $2.0 billion in available borrowing capacity under our revolving credit facility. Together with Year Ended December 31, 2016
A summary of net cash provided by operating activities, is shown below (in millions):
|
| | | | | | | | | | | |
| For the year ended December 31, | 2017 | | 2016 | | Incremental Increase (Decrease) in Operating Cash Flow |
| Consolidated net income and depreciation and amortization | $ | 1,809 |
| | $ | 1,419 |
| | $ | 390 |
|
| Net change in working capital items: | | | | | |
| Accounts receivable | (115 | ) | | (176 | ) | | 61 |
|
| Inventory | (76 | ) | | (54 | ) | | (22 | ) |
| Accounts payable | 195 |
| | 158 |
| | 37 |
|
| Accrued liabilities and other | 68 |
| | 160 |
| | (92 | ) |
| Net change in working capital items | 72 |
| | 88 |
| | (16 | ) |
| Other | (98 | ) | | 112 |
| | (210 | ) |
| Net cash provided by operating activities | $ | 1,783 |
| | $ | 1,619 |
| | $ | 164 |
|
In 2017, increases in accounts receivable, inventories and accounts payable primarily reflect higher working capitalwe believe that this will enable us to support the increase inmeet our sales. In 2017, changes in accrued liabilities and other primarily reflect the timing of payment of accrued liabilities. Other includes our deferred tax (benefit) provision, which was ($81) million in 2017, as compared to $104 million in 2016, resulting in a decrease in operating cash flows of $185 million between years.
Net cash used in investing activities was $869 million in 2017, as compared to $637 million in 2016. In 2017, we paid $292 millionliquidity needs for the acquisition of Antolin Seating.foreseeable future and to satisfy ordinary course business obligations. In 2016,addition, we paid $149 million for the acquisition of AccuMED Holdings Corp. ("AccuMED"). Capital spending in 2018 is estimated at $630 million.
Netexpect to continue to pay quarterly cash used in financing activities was $742 million in 2017, as compared to $873 million in 2016. In 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 Notesdividends and repaid a net of $203 million in connection with the refinancing of the Credit Agreement (see "— Credit Agreement" and "— Senior Notes" below). Also in 2017, we paid $451 million for repurchasesrepurchase shares of our common stock $138 million of dividendspursuant to Lear stockholders and $82 million of dividends to noncontrolling interest holders. In 2016, we paid $659 million for repurchasesour authorized common stock share repurchase program, although such actions are at the discretion of our common stock, $89 millionBoard of dividendsDirectors and will depend upon 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.
Our future financial results and our ability to Lear stockholderscontinue to meet our liquidity needs are subject to, and $33 millionwill be affected by, cash flows from operations, including the continuing effects of dividends to noncontrolling interest holders.the COVID-19 pandemic, as well as restructuring activities, automotive industry conditions, the financial condition of our customers and suppliers, supply chain disruptions and other related factors. Additionally, an economic downturn or reduction in production levels could negatively impact our financial condition.
For further information regardingdiscussion of the risks and uncertainties affecting our 2017cash flows from operations and 2016 financing transactions,our overall liquidity, see "— Capitalization" below and Note 6, "Debt,Part I — Item 1A, "Risk Factors," and Note 9, "Capital Stock, Accumulated Other Comprehensive Loss"— Executive Overview" above and Equity," to the consolidated financial statements included in this Report.
Year Ended December 31, 2016, Compared with Year Ended December 31, 2015
A summary of net cash provided by operating activities is shown below (in millions): |
| | | | | | | | | | | |
| For the year ended December 31, | 2016 | | 2015 | | Incremental Increase (Decrease) in Operating Cash Flow |
| Consolidated net income and depreciation and amortization | $ | 1,419 |
| | $ | 1,144 |
| | $ | 275 |
|
| Net change in working capital items: | | | | | |
| Accounts receivable | (176 | ) | | (173 | ) | | (3 | ) |
| Inventory | (54 | ) | | 4 |
| | (58 | ) |
| Accounts payable | 158 |
| | 76 |
| | 82 |
|
| Accrued liabilities and other | 160 |
| | 151 |
| | 9 |
|
| Net change in working capital items | 88 |
| | 58 |
| | 30 |
|
| Other | 112 |
| | 69 |
| | 43 |
|
| Net cash provided by operating activities | $ | 1,619 |
| | $ | 1,271 |
| | $ | 348 |
|
In 2016, increases in accounts receivable, inventories and accounts payable primarily reflect higher working capital to support the increase in our sales. In 2016, changes in accrued liabilities and other primarily reflect the timing of payment of accrued liabilities.
Net cash used in investing activities was $637 million in 2016, as compared to $965 million in 2015. In 2016, we paid $149 million for the acquisition of AccuMED. In 2015, we paid $465 million for the acquisition of Everett Smith Group Ltd., the parent of Eagle Ottawa, LLC ("Eagle Ottawa").
Net cash used in financing activities was $873 million in 2016, as compared to $156 million in 2015. In 2016 and 2015, we paid $659 million and $487 million, respectively, for repurchases of our common stock. In 2015, we borrowed $500 million under our prior term loan facility (see "— Credit Agreement" below) to finance, in part, the acquisition of Eagle Ottawa.
For further information regarding our 2016 and 2015 financing transactions, see "— Capitalization" below and Note 6, "Debt," and Note 9, "Capital Stock, Equity and Accumulated Other Comprehensive Loss," to the consolidated financial statements included in this Report.
Capitalization
From time to time, we utilize committed and 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 December 31, 2017, we had no short-term debt balances outstanding. As of December 31, 2016, our short-term debt balance was $9 million. The availability of uncommitted lines of credit may be affected by our financial performance, credit ratings and other factors.
Forward-Looking Statements" below.
Senior Notes
As of December 31, 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 (the "2027 Notes") | | 750 |
| | 3.8% |
| | | $ | 1,725 |
| | |
The issue, maturity and interest payable dates of the Notes are shown below: |
| | | | | |
Note | Issuance Date | | Maturity Date | | Interest Payable Dates |
2024 Notes | March 2014 | | March 15, 2024 | | March 15 and September 15 |
2025 Notes | November 2014 | | January 15, 2025 | | January 15 and July 15 |
2027 Notes | August 2017 | | September 15, 2027 | | March 15 and September 15 |
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 outstanding $500 million in aggregate principal amount of the 2023 Notes at a redemption price equal to 100% of the aggregate principal amount thereof, plus a "make-whole" premium of $17 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.
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.
The indentures governing the Notes contain certain restrictive covenants and customary events of default. As of December 31, 2017, we were in compliance with all covenants under the indentures governing the Notes.
For further information related to the Notes, including information on early redemption, covenants and events of default, see Note 6, "Debt," to the consolidated financial statements included in this Report and the indentures governing the Notes which have been incorporated by reference as exhibits to this Report.
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 operational flexibility and borrowing capacity.
The Credit Agreement eliminated subsidiary guarantees required under our prior credit agreement. There are currently no guarantors of our obligations under the Credit Agreement.
As of December 31, 2017, we were in compliance with all covenants under the Credit Agreement.
For further information related to the Credit Agreement, including information on pricing, covenants and events of default, see Note 6, "Debt," to the consolidated financial statements included in this Report and the amended and restated credit agreement, which has been incorporated by reference as an exhibit to this Report.
Contractual Obligations
The scheduled maturities of the Notes, obligations under the Credit Agreement and the scheduled interest payments on the Notes as of the date of this Report are shown below (in millions). In addition, our lease commitments under non-cancelable operating leases as of December 31, 2017, are shown below (in millions): |
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | 2018 | | 2019 | | 2020 | | 2021 | | 2022 | | Thereafter | | Total |
| Senior notes | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| | $ | 1,725 |
| | $ | 1,725 |
|
Credit agreement — term loan facility | 6 |
| | 8 |
| | 14 |
| | 14 |
| | 206 |
| | — |
| | 248 |
|
| Scheduled interest payments | 83 |
| | 80 |
| | 80 |
| | 80 |
| | 80 |
| | 254 |
| | 657 |
|
| Lease commitments | 103 |
| | 90 |
| | 77 |
| | 60 |
| | 49 |
| | 170 |
| | 549 |
|
| Total | $ | 192 |
| | $ | 178 |
| | $ | 171 |
| | $ | 154 |
| | $ | 335 |
| | $ | 2,149 |
| | $ | 3,179 |
|
We enter into agreements with our customers to produce products at the beginning of a vehicle’s life cycle. Although such agreements do not provide for a specified quantity of products, once we enter into such agreements, we are generally required to fulfill our customers’ purchasing requirements for the production life of the vehicle. Prior to being formally awarded a program, we typically work closely with our customers in the early stages of the design and engineering of a vehicle’s systems. Failure to complete the design and engineering work related to a vehicle’s systems, or to fulfill a customer’s contract, could have a material adverse impact on our business.
We also enter into agreements with suppliers to assist us in meeting our customers’ production needs. These agreements vary as to duration and quantity commitments. Historically, most have been short-term agreements, which do not provide for minimum purchases, or are requirements-based contracts.
We may be required to make significant cash outlays related to our unrecognized tax benefits, including interest and penalties. However, due to the uncertainty of the timing of future cash flows associated with our unrecognized tax benefits, we are unable to make reasonably reliable estimates of the period of cash settlement, if any, with the respective taxing authorities. Accordingly, unrecognized tax benefits, including interest and penalties, of $43 million as of December 31, 2017, have been excluded from the contractual obligations table above. For further information related to our unrecognized tax benefits, see Note 7, "Income Taxes," to the consolidated financial statements included in this Report.
We also have minimum funding requirements with respect to our pension obligation. We may elect to make contributions in excess of the minimum funding requirements in response to investment performance or changes in interest rates or when we believe that it is financially advantageous to do so and based on our other cash requirements. Our minimum funding requirements after 2018 will depend on several factors, including investment performance and interest rates. Our minimum funding requirements may also be affected by changes in applicable legal requirements. Our minimum required contributions to our domestic and foreign pension plans, including distributions to participants in certain of our non-qualified defined benefit plans, are expected to be approximately $10 million to $15 million in 2018. We also have payments due with respect to our postretirement benefit obligation. We do not fund our postretirement benefit obligation. Rather, payments are made as costs are incurred by covered retirees. We expect payments related to our postretirement benefit obligation to be approximately $6 million in 2018.
For further information related to our pension and other postretirement benefit plans, see "— Other Matters — Pension and Other Postretirement Defined Benefit Plans" and Note 8, "Pension and Other Postretirement Benefit Plans," to the consolidated financial statements included in this Report.
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 December 31, 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
See Item 5, "Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities."
Dividends
See Item 5, "Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities."
AdequacyLegal and Environmental Matters
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 Liquidity Sourcesrisks related to various legal proceedings and claims, see Item 1A, "Risk Factors." For a description of our outstanding material legal proceedings, see Note 14, "Commitments and Contingencies," to the consolidated financial statements included in this Report.
ITEM 4 – MINE SAFETY DISCLOSURES
Not applicable.
SUPPLEMENTARY ITEM – INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions of our executive officers. Executive officers are appointed annually by our Board of Directors and serve at the pleasure of our Board.
| | | | | | | | |
| Name | Age | Position |
| Jason M. Cardew | 51 | Senior Vice President and Chief Financial Officer |
| Alicia J. Davis | 51 | Senior Vice President and Chief Strategy Officer |
| Thomas A. DiDonato | 63 | Senior Vice President and Chief Administrative Officer |
| Amy A. Doyle | 54 | Vice President and Chief Accounting Officer |
| Carl A. Esposito | 54 | Senior Vice President and President, E-Systems |
| Harry A. Kemp | 46 | Senior Vice President, General Counsel and Corporate Secretary |
| Frank C. Orsini | 49 | Executive Vice President and President, Seating |
| Raymond E. Scott | 56 | President and Chief Executive Officer |
| Marianne Vidershain | 42 | Vice President and Treasurer |
Set forth below is a description of the business experience of each of our executive officers.
| | | | | |
| Jason M. Cardew | Mr. Cardew is the Company's Senior Vice President and Chief Financial Officer, a position he has held since November 2019. Mr. Cardew most recently served as the Company's Vice President, Finance - Seating and E-Systems since September 2018. Prior to that, he served as the Company's Vice President, Finance - Seating since April 2012. Previously, he served as the Company's Vice President and Interim Chief Financial Officer since September 2011, Vice President, Finance - Financial Planning and Analysis since April 2010, Vice President, Finance - Seating since 2008, Vice President - Finance since 2003 and in various financial roles since joining the Company in 1992. |
| |
| Alicia J. Davis | Ms. Davis is the Company's Senior Vice President and Chief Strategy Officer, a position she has held since May 2021. Ms. Davis most recently served as the Company's Senior Vice President, Corporate Development and Investor Relations since September 2019. Prior to that, she served as the Company's Vice President, Investor Relations since joining the Company in August 2018. Prior to joining the Company, Ms. Davis was on the faculty at the University of Michigan Law School since June 2004, where she most recently served as an unpaid, tenured professor and the Associate Dean for Strategic Initiatives. Previous to that, she was a lawyer at Kirkland & Ellis since June 2002, a Vice President at Raymond James & Associates since August 1999 and an Investment Banking Analyst at Goldman Sachs from August 1993 to June 1995. |
| |
| Thomas A. DiDonato | Mr. DiDonato is the Company's Senior Vice President and Chief Administrative Officer, a position he has held since January 2019. Mr. DiDonato most recently served as the Company's Senior Vice President, Human Resources since joining the Company in April 2012. Prior to joining the Company, Mr. DiDonato served as Executive Vice President, Human Resources for American Eagle Outfitters, Inc. since 2005, Chief People Officer for H.J. Heinz from April 2004 to July 2005 and Senior Vice President, Human Resources for Heinz North America from July 2001 to April 2004. Earlier experiences include directing human resources for a $14 billion division of Merck & Co. and heading worldwide staffing for Pepsico. Mr. DiDonato began his career at General Foods Corporation and moved up to manage the personnel at its largest manufacturing facility. |
| |
| Amy A. Doyle | Ms. Doyle is the Company's Vice President and Chief Accounting Officer, a position she has held since May 2017. Ms. Doyle most recently served as the Company's Assistant Corporate Controller since September 2006. Previously, she served in positions of increasing responsibility at the Company, including Director, Financial Reporting since 2003 and Manager, Financial Reporting since joining the Company in 1999. Prior to joining the Company, Ms. Doyle served as an audit manager for Arthur Andersen LLP. |
| |
| Carl A. Esposito | Mr. Esposito is the Company's Senior Vice President and President, E-Systems, a position he has held since joining the Company in September 2019. Prior to joining the Company, Mr. Esposito served at Honeywell Aerospace, a division of Honeywell International Inc., as President of the Electronic Solutions Strategic Business Unit from January 2017 to July 2019 and at Honeywell International Inc. as Vice President of Aerospace Marketing, Product Management and Strategy since December 2010, Vice President of Avionics Systems Marketing and Product Management since December 2009, Vice President of Global Business Aviation Sales and EMEAI Customer Support since January 2007 and in various other roles since 1990. |
| | | | | |
| |
| Harry A. Kemp | Mr. Kemp is the Company's Senior Vice President, General Counsel and Corporate Secretary, a position he has held since August 2019. In this role, Mr. Kemp has responsibility for the Company's Compliance and Environmental, Social and Governance activities. Mr. Kemp most recently served as the Company's Vice President and Corporate Counsel since January 2019. Previously, he served as the Company's Vice President and Divisional Counsel - Seating since September 2016 and Vice President and Divisional Counsel - E-Systems since joining the Company in December 2009. Prior to joining the Company, Mr. Kemp was a partner at Bodman PLC since 2003 and served as an engagement manager at McKinsey and Company, a global management consulting firm, since 2000. |
| |
| Frank C. Orsini | Mr. Orsini is the Company's Executive Vice President and President, Seating, a position he has held since March 2018. Mr. Orsini most recently served as the Company's Senior Vice President and President, E-Systems since September 2012. Prior to that, he served as the Company's Vice President and Interim President, E-Systems since October 2011. Previously, he served as the Company's Vice President, Operations, E-Systems since 2009, Vice President, Sales, Program Management & Manufacturing, E-Systems since 2008, Vice President, North America Seating Operations since 2005 and in various other management positions since joining the Company in 1994. |
| |
| Raymond E. Scott | Mr. Scott is the Company's President and Chief Executive Officer, a position he has held since March 2018. Mr. Scott most recently served as the Company's Executive Vice President and President, Seating since November 2011. Prior to that, he served as the Company's Senior Vice President and President, E-Systems since February 2008. Previously, he served as the Company's Senior Vice President and President, North American Seat Systems Group since August 2006, Senior Vice President and President, North American Customer Group since June 2005, President, European Customer Focused Division since June 2004 and President, General Motors Division since November 2000. |
| |
| Marianne Vidershain | Ms. Vidershain is the Company's Vice President and Treasurer, a position she has held since February 2021. Ms. Vidershain most recently served as the Company's Assistant Treasurer since January 2018. Prior to that, she served as the Company's Director, Global Financial Planning & Analysis since January 2015. Previously, she served as the Company's Director, Finance – Global Purchasing since February 2014, Director, Capital Markets and Subsidiary Finance since April 2010, Treasury Manager since January 2007 and in various other treasury positions since joining the Company in 2004. |
PART II
ITEM 5 – MARKET FOR THE COMPANY'S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is listed on the New York Stock Exchange under the symbol "LEA."
Dividends
We currently expect to pay quarterly cash dividends in the future, although such payments are at the discretion of our Board of Directors and will depend upon our financial condition, results of operations, capital requirements, alternative uses of capital and other factors that our Board of Directors may consider at its discretion. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements," and Note 12, "Capital Stock, Accumulated Other Comprehensive Loss and Equity," to the consolidated financial statements included in this Report.
Holders of Common Stock
The Transfer Agent and Registrar for our common stock is Computershare Trust Company, N.A., located in Canton, Massachusetts. On February 7, 2022, there were 244 registered holders of record of our common stock.
For certain information regarding our equity compensation plans, see Part III — Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters — Equity Compensation Plan Information."
Common Stock Share Repurchase Program
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. As of December 31, 2017,2021, we had approximately $1.5have repurchased, in aggregate, $4.8 billion of cashour outstanding common stock, at an average price of $90.97 per share, excluding commissions and cash equivalentsrelated fees. As of December 31, 2021, we have a remaining repurchase authorization of $1.3 billion, which expires on hand and $1.75 billionDecember 31, 2022.
In March 2020, as a proactive measure in available borrowing capacityresponse to the COVID-19 pandemic, we suspended share repurchases under our Revolving Credit Facility. Together with cash provided by operating activities,common stock share repurchase program. Share repurchases were reinstated in the second quarter of 2021. Since the reinstatement through December 31, 2021, we believerepurchased approximately $100 million of shares. There were no shares repurchased during the fiscal quarter ended December 31, 2021.
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 upon our financial condition, results of operations, capital requirements, prevailing market conditions, alternative uses of capital and other factors. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements," and Note 12, "Capital Stock, Accumulated Other Comprehensive Loss and Equity," to the consolidated financial statements included in this Report.
Performance Graph
The following graph compares the cumulative total stockholder return from December 31, 2016 through December 31, 2021, for our common stock, the S&P 500 Index and a peer group(1)of companies that we have selected for purposes of this will enable uscomparison. We have assumed that dividends have been reinvested, and the returns of each company in the S&P 500 Index and the peer group have been weighted to meet our liquidity needs to satisfy ordinary course business obligations. In addition, we expect to continue to pay quarterly dividends and repurchase sharesreflect relative stock market capitalization. The graph below assumes that $100 was invested on December 31, 2016, in each of our common stock, pursuantthe stocks comprising the S&P 500 Index and the stocks comprising the peer group.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31,
2016 | | December 31,
2017 | | December 31,
2018 | | December 31,
2019 | | December 31,
2020 | | December 31,
2021 |
| Lear Corporation | | $ | 100.00 | | | $ | 135.21 | | | $ | 95.61 | | | $ | 109.34 | | | $ | 127.82 | | | $ | 148.55 | |
| S&P 500 | | $ | 100.00 | | | $ | 121.82 | | | $ | 116.47 | | | $ | 153.13 | | | $ | 181.29 | | | $ | 233.28 | |
Peer Group (1) | | $ | 100.00 | | | $ | 130.45 | | | $ | 79.67 | | | $ | 98.20 | | | $ | 115.28 | | | $ | 125.39 | |
| | | | | | | | | | | | |
(1) We do not believe that there is a single published industry or line of business index that is appropriate for comparing stockholder returns. As a result, we have selected a peer group comprised of representative independent automotive suppliers whose common stock is publicly traded. Our peer group, referenced in the graph above, consists of Adient plc, American Axle & Manufacturing Holdings Inc., Aptiv PLC, Autoliv, Inc., BorgWarner Inc., Continental AG, Cooper-Standard Holdings Inc., Dana Incorporated, Faurecia, Gentex Corporation, Gentherm Incorporated, Magna International, Inc., Tenneco Inc., Valeo and Visteon Corporation.
ITEM 6 – RESERVED
ITEM 7 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 and electronic systems 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. 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 capital to our authorizedstockholders. Further, we have aligned our strategy with the key trends affecting our business — electrification, connectivity, autonomy and shared mobility. 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 and safety offerings, as well as configurable seating product technologies. All of these products are compatible with traditional internal combustion engine ("ICE") architectures and the full range of hybrid, plug-in hybrid and battery electric architectures (collectively, "electrified powertrains"). Our advanced comfort, wellness and safety offerings are facilitated by our system, component and integration capabilities, together with our in-house electronics, sensor, software and algorithm competencies. We anticipate that our comfort offerings will be enhanced by the acquisition of substantially all of Kongsberg Automotive's Interior Comfort Systems business unit ("Kongsberg"), which is expected to close in the first quarter of 2022. 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 and electronic systems. The combination of these capabilities enables us to provide our customers with customizable solutions with optimized designs at a competitive cost. Electrical distribution and connection systems utilize low voltage wire, high voltage wire, high speed data cables and flat wiring to connect networks and electrical signals and manage electrical power within the vehicle for all types of powertrains – from traditional ICE architectures to the full range of electrified powertrains. Key components in our electrical distribution and connection systems portfolio include wire harnesses, terminals and connectors and engineered components for both ICE architectures and electrified powertrains that require management of higher voltage and power. Electronic systems facilitate signal, data and power management within the vehicle and include the associated software required to facilitate these functions. Key components in our electronic systems portfolio include body domain control modules and products specific to electrification and connectivity. Electrification products include on-board battery chargers, power conversion modules, high voltage battery management systems and high voltage power distribution systems. Connectivity products include telematics control units ("TCU") and gateway modules to manage both wired and wireless networks and data in vehicles. In addition to electronic modules, we offer software that includes cybersecurity, advanced vehicle positioning for automated and autonomous driving applications and full capabilities in both dedicated short-range communication and cellular protocols for vehicle connectivity. Our software offerings include embedded control software and cloud and mobile device-based software and services. Our customers traditionally have sourced our electronic hardware together with the software that we embed in it.
We serve all of the world's major automotive manufacturers across both our Seating and E-Systems businesses, and we have automotive content on more than 450 vehicle nameplates worldwide. It is common stockfor us to have both seating and electrical and/or electronic content on the same vehicle platform.
Our businesses benefit globally from leveraging common operating standards and disciplines, including world-class product development and manufacturing processes, as well as common customer support and regional infrastructures, all of which contribute to our reputation for operational excellence. Our core capabilities are shared across component categories and include: high-precision manufacturing and assembly with short lead times; management of complex supply chains; global engineering and program management skills; the agility to establish and/or transfer production between facilities quickly; and, a unique customer-focused culture. Our businesses utilize proprietary, industry-specific processes and standards, leverage
common low-cost engineering centers and share repurchase program (see Item 5, "Marketcentralized operating support functions. These functions include logistics, supply chain management, quality, health and safety, and all major administrative functions.
Industry 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 increased 3% in 2021 over 2020, production remains well below recent historic levels and consumer demand. Production in the second half of 2021 decreased 16% relative to the second half of 2020. This was largely due to the continuing impact of the COVID-19 pandemic in 2021, particularly through supply shortages. The most significant supply shortage relates to semiconductor chips, which impacted global vehicle production and resulted in reductions and cancellations of planned production. In addition, we experienced increased costs related to labor shortages and inefficiencies and ongoing costs related to personal protective equipment, all of which are likely to continue for a period of time. Increases in certain commodity costs, as well as transportation and logistics costs, are also impacting, and will continue to impact, our operating results for the Company’s Common Equity, Related Stockholder Mattersforeseeable 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."
Global automotive industry production volumes in 2021, as compared to 2020, are shown below (in thousands of units):
| | | | | | | | | | | | | | | | | |
| 2021 (1) | | 2020 (1) (2) | | % Change |
| North America | 13,032.4 | | | 13,024.0 | | | — | % |
| Europe and Africa | 16,182.2 | | | 16,855.8 | | | (4 | %) |
| Asia | 41,370.5 | | | 39,179.8 | | | 6 | % |
| South America | 2,507.6 | | | 2,163.4 | | | 16 | % |
| Other | 1,443.0 | | | 1,391.0 | | | 4 | % |
| Global light vehicle production | 74,535.7 | | | 72,614.0 | | | 3 | % |
(1) Production data based on IHS Markit.
(2) Production data for 2020 has been updated from our 2020 Annual Report on Form 10-K to reflect actual production levels.
Automotive sales and Issuer Purchasesproduction can be affected by the age of Equity Securities").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 level of vertical integration and 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 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.
Our percentage of consolidated net sales by region in 2021 and 2020 is shown below:
| | | | | | | | | | | |
| 2021 | | 2020 |
| North America | 39 | % | | 39 | % |
| Europe and Africa | 35 | % | | 37 | % |
| Asia | 22 | % | | 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, financial results andwill depend, in part, on our ability to continue to meetdiversify our liquidity needs are subjectsales on a customer, product, platform and geographic basis to reflect the market overall.
The automotive industry, and our business, continue to be shaped by the broad trends of electrification, connectivity, autonomy, and shared mobility. We also consider demand and regulatory developments for improved energy efficiency, sustainability,
enhanced safety and communications (e.g., government mandates related to fuel economy, carbon emissions and safety equipment) to be significant drivers of these trends, each of which is likely to be at the forefront of our industry for the foreseeable future.
In addition to key foundational attributes imperative for success as an automotive supplier (quality, service and cost), our strategic initiatives focus on furthering our competitive differentiation through vertical integration, disruptive innovation and advanced manufacturing technology. We have expanded key component capabilities through organic investment and acquisitions to ensure a full complement of the best solutions for our customers. We have restructured, and continue to align, our manufacturing and engineering footprint to attain a leading competitive cost position globally. We have established or expanded activities in new and growing markets, in support of our customers' growth initiatives and in pursuit of opportunities with new customers. These initiatives have helped us achieve our financial goals overall, as well as a more balanced regional, customer and vehicle segment diversification in our business.
For further information related to these trends and our strategy, see Part 1 — Item 1, "Business — Industry and Strategy."
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 will be affected by, cash flows from operations, includinganticipate the impact of restructuring activities, automotive industry conditions, the financial conditionneeds of our customers and suppliersconsumers. We continually evaluate operational and other related factors. Additionally, an economic downturn or reduction in production levels could negatively impactstrategic alternatives to improve our financial condition. For further discussionbusiness structure and align our business with the changing needs of the risksour customers and uncertaintiesmajor industry trends affecting our cash flows from operations and our overall liquidity, see Part I — Item 1A, "Risk Factors," "— Executive Overview" above and "— Forward-Looking Statements" below.business.
Market Risk Sensitivity
In the normal courseOur material cost as a percentage of business, we are exposed to market risks associated with fluctuations in foreign exchange rates, interest rates and commodity prices. We manage a portion of these risks through the use of derivative financial instruments in accordance with our policies. We enter into all hedging transactions for periods consistent with the underlying exposures. We do not enter into derivative instruments for trading purposes.
Foreign Exchange
Operating results may be impacted by our buying, selling and financing in currencies other than the functional currency of our operating companies ("transactional exposure"). We may mitigate a portion of this risk by entering into forward foreign exchange, futures and option contracts. The foreign exchange contracts are executed with banks that we believe are creditworthy. Gains and losses related to foreign exchange contracts are deferred where appropriate and included in the measurement of the foreign currency transaction subject to the hedge. Gains and losses incurred related to foreign exchange contracts are generally offset by the direct effects of currency movements on the underlying transactions.
A summary of the notional amount and estimated aggregate fair value of our outstanding foreign exchange contracts is shown below (in millions):
|
| | | | | | | |
| December 31 | 2017 | | 2016 |
| Notional amount (contract maturities < 24 months) | $ | 2,220 |
| | $ | 1,956 |
|
| Fair value | (23 | ) | | (54 | ) |
Currently, our most significant foreign currency transactional exposures relate to the Mexican peso, various European currencies, the Thai baht, the Chinese renminbi, the Brazilian real, the Japanese yen and the Canadian dollar. We have performed a sensitivity analysis of our net transactional exposure, as shown below (in millions):
|
| | | | | | | | | |
| | | | Potential Earnings Benefit (Adverse Earnings Impact) |
| December 31 | Hypothetical Strengthening % (1) | | 2017 | | 2016 |
U.S. dollar | 10% | | $ | (19 | ) | | $ | (19 | ) |
| Euro | 10% | | 25 |
| | 16 |
|
| |
(1) | Relative to all other currencies to which it is exposed for a twelve-month period |
We have performed a sensitivity analysis related to the aggregate fair value of our outstanding foreign exchange contracts, as shown below (in millions):
|
| | | | | | | | | |
| | | | Estimated Change in Fair Value |
| December 31 | Hypothetical Change % (2) | | 2017 | | 2016 |
| U.S. dollar | 10% | | $ | 23 |
| | $ | 50 |
|
| Euro | 10% | | 76 |
| | 35 |
|
| |
(2)
| Relative to all other currencies to which it is exposed |
There are certain shortcomings inherent in the sensitivity analyses above. The analyses assume that all currencies would uniformly strengthen or weaken relative to the U.S. dollar or Euro. In reality, some currencies may strengthen while others may weaken, causing the earnings impact to increase or decrease depending on the currency and the direction of the rate movement.
In addition to the transactional exposure described above, our operating results are impacted by the translation of our foreign operating income into U.S. dollars ("translational exposure"). In 2017, net sales outside of the United States accounted for 81% of our consolidated net sales, althoughwas 65.4% in 2021, as compared to 64.3% in 2020 and 65.0% in 2019, reflecting increases in 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
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, contractual recovery mechanisms 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 portionall of the adverse impact. Certain of these strategies also may limit our opportunities in a declining commodity costprice 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 Part I — Item 1A, "Risk Factors — Increases in the costs and restrictions on the availability of raw materials, energy, commodities and product components could adversely affect our financial performance," and "— Forward-Looking Statements."Statements" below.
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 commodity price riskselectively 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 respectour customer payment terms. However, our ability to purchasescontinue to do so may be impacted by adverse automotive industry conditions, changes to our customers' payment terms and the financial condition of certain raw materials, including steel, copper, diesel fuel, chemicals, resinsour suppliers, as well as our financial condition. In addition, our cash flow is impacted by our ability to manage our inventory and leather. Our main cost exposures relate to steel, copper and leather. The majoritycapital spending effectively. We utilize return on invested capital as a measure of the steel usedefficiency with which our assets generate earnings. Improvements in our productsreturn 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
Kongsberg
In October 2021, we entered into a definitive agreement to acquire Kongsberg, which 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 acquisition is comprisedexpected to further advance our seat component capabilities into specialized comfort seating solutions that further differentiate our product offerings and 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 fabricated2022.
M&N Plastics
In March 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 business 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 consolidated financial statements included in this Report.
Xevo
In April 2019, we completed the acquisition of Xevo Inc. ("Xevo"), a Seattle-based, global leader in connected car software, by acquiring all of Xevo's outstanding shares for $322 million, net of cash acquired. Xevo is a supplier of software solutions for the cloud, vehicles and mobile devices that are integrated into a seat system, such as seat frames, recliner mechanisms, seat tracks and other mechanical components. Therefore, our exposure to changesdeployed in steel prices is primarily indirect, through these purchased components. Approximately 89%millions of our copper purchases and a significant portion of our leather purchases are subject to price index agreements with our customers.vehicles worldwide.
For further information, related to the financial instruments described above, see Note 13, "Financial Instruments,4, "Acquisitions," to the consolidated financial statements included in this Report.
Operational Restructuring
In 2021, we incurred pretax restructuring costs of $101 million and related manufacturing inefficiency charges of approximately $12 million, as compared to pretax restructuring costs of $145 million and related manufacturing inefficiency charges of approximately $5 million in 2020. None of the individual restructuring actions initiated during 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 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 $44 million of additional restructuring costs related to activities initiated as of December 31, 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 5, "Restructuring," and Note 15, "Segment Reporting," to the consolidated financial statements included in this Report.
Financing Transactions
Senior Notes
In November 2021, we issued $350 million in aggregate principal amount at maturity of 2032 notes (the "2032 Notes") and $350 million in aggregate principal amount at maturity of 2052 notes (the "2052 Notes"). The 2032 Notes have a stated coupon rate of 2.6% and were issued at 99.782% of par, resulting in a yield to maturity of 2.624%. The 2052 Notes have a stated coupon rate of 3.55% and were issued at 99.845% of par, resulting in a yield to maturity of 3.558%.
Net proceeds from the offering of $699 million, after original issue discount, were used, in part, to fund the tender of $200 million in aggregate principal amount of our 3.8% senior notes due in 2027 (the "2027 Notes") and the repayment in full of $206 million outstanding on our term loan facility. We expect to use the remaining net proceeds for general corporate purposes,
which may include the purchase price for the Kongsberg acquisition. For further information, see Note 4, "Acquisitions," to the consolidated financial statements included in this Report.
In connection with these transactions, we recognized a loss of $24 million on the extinguishment of debt and paid related issuance costs of $7 million.
For further information, see "— Liquidity and Financial Condition — Capitalization — Senior Notes" below and Note 7 "Debt," to the consolidated financial statements included in this Report.
Credit Agreement
Our unsecured credit agreement consisted of a $1.75 billion revolving credit facility and a $250 million term loan facility. In October 2021, we entered into an amended and restated credit agreement that increased the revolving credit facility to $2.0 billion and extended the maturity date to October 28, 2026. In November 2021, we repaid in full $206 million outstanding on our term loan facility. In connection with these transactions, we recognized a loss of $1 million on the extinguishment of debt and paid related issuance costs of $3 million.
For further information, see "— Liquidity and Financial Condition — Capitalization — Credit Agreement" below and Note 7, "Debt," to the consolidated financial statements included in this Report.
Share Repurchase Program and Quarterly Cash Dividends
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 upon our financial condition, results of operations, capital requirements, prevailing market conditions, alternative uses of capital and other factors (see "— Forward-Looking Statements" below).
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 December 31, 2021, we repurchased approximately $100 million of shares. As of December 31, 2021, we have a remaining repurchase authorization of $1.3 billion, which expires on December 31, 2022.
In 2021, our Board of Directors declared a quarterly cash dividend of $0.25 per share of common stock in the first and second quarters, a quarterly cash dividend of $0.50 per share of common stock in the third quarter and a quarterly cash dividend of $0.77 per share of common stock in the fourth quarter, returning our quarterly cash dividend to its pre-COVID-19 pandemic level.
In 2020, our Board of Directors declared a quarterly cash dividend of $0.77 per share of common stock in the first quarter. In March 2020, as a proactive measure in response to the COVID-19 pandemic, we suspended our quarterly cash dividend. The quarterly cash dividend was reinstated in the fourth quarter at $0.25 per share of common stock.
For further information related to our common stock share repurchase program and our quarterly cash dividends, see Item 5, "Market for the Company's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities," "— Liquidity and Financial Condition — Capitalization" below and Note 12, "Capital Stock, Accumulated Other Comprehensive Loss and Equity," to the consolidated financial statements included in this Report.
Other Matters
In 2021, we recognized tax benefits of $39 million related to restructuring charges and various other items, partially offset by tax expense of $17 million related to the net increase in valuation allowances on deferred tax assets of foreign subsidiaries and $8 million on a $45 million gain related to a favorable indirect tax ruling in a foreign jurisdiction.
In 2020, we recognized tax benefits of $34 million related to restructuring charges and various other items and $15 million related to the U.S. deferred tax effect of our foreign branches, partially offset by tax expense of $29 million related to a net increase in valuation allowances on deferred tax assets.
In 2019, we recognized tax benefits of $29 million related to an increase in our research and development tax credits for the years 2013 through 2018, $18 million related to changes in the tax status of certain affiliates, $14 million related to the U.S. tax impact of the foreign tax credit regulations issued in the fourth quarter of 2019, $5 million related to net reductions in tax reserves, $3 million related to share-based compensation, $12 million related to various tax-related items, including the release of valuation allowances, tax rate changes and audit adjustments, and $52 million related to restructuring charges and various other items, offset by tax expense of $11 million related to the establishment of valuation allowances on the deferred tax assets of foreign subsidiaries.
As discussed above, our results for the years ended December 31, 2021, 2020 and 2019, reflect the following items (in millions):
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, | 2021 | | 2020 | | 2019 |
| Costs related to restructuring actions, including manufacturing inefficiencies of $12 million in 2021, $5 million in 2020 and $6 million in 2019 | $ | 113 | | | $ | 150 | | | $ | 190 | |
| Acquisition and other related costs | — | | | — | | | 2 | |
| Litigation | — | | | — | | | 1 | |
| Favorable indirect tax ruling in a foreign jurisdiction | (45) | | | — | | | (2) | |
| Typhoon in the Philippines | 13 | | | — | | | — | |
| Intangible asset impairment | 9 | | | — | | | |
| Loss on extinguishment of debt | 25 | | | 21 | | | 11 | |
| (Gain) loss related to investments, net | 2 | | | 4 | | | (1) | |
| Tax benefits, net | (14) | | | (20) | | | (122) | |
For further information regarding these items, see Note 3, "Summary of Significant Accounting Policies," Note 4, "Acquisitions," Note 5, "Restructuring," Note 6, "Investments in Affiliates and Other Related Party Transactions," Note 7, "Debt," and Note 9, "Income Taxes," to the consolidated financial statements included in this Report. This section includes forward-looking statements that are subject to risks and uncertainties. For further information regarding these and other factors that have had, or may have in the future, a significant impact on our business, financial condition or results of operations, see Part I — Item 1A, "Risk Factors," and "— Forward-Looking Statements" below.
Results of Operations
A summary of our operating results in millions of dollars and as a percentage of net sales is shown below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, | 2021 | | 2020 | | 2019 |
| Net sales | | | | | | | | | | | |
| Seating | $ | 14,411.4 | | | 74.8 | % | | $ | 12,712.7 | | | 74.6 | % | | $ | 15,097.2 | | | 76.2 | % |
| E-Systems | 4,851.7 | | | 25.2 | | | 4,332.8 | | | 25.4 | | | 4,713.1 | | | 23.8 | |
| Net sales | 19,263.1 | | | 100.0 | | | 17,045.5 | | | 100.0 | | | 19,810.3 | | | 100.0 | |
| Cost of sales | 17,871.2 | | | 92.8 | | | 15,936.6 | | | 93.5 | | | 18,072.8 | | | 91.2 | |
| Gross profit | 1,391.9 | | | 7.2 | | | 1,108.9 | | | 6.5 | | | 1,737.5 | | | 8.8 | |
| Selling, general and administrative expenses | 643.2 | | | 3.3 | | | 588.9 | | | 3.5 | | | 605.0 | | | 3.1 | |
| Amortization of intangible assets | 73.3 | | | 0.4 | | | 65.9 | | | 0.4 | | | 62.3 | | | 0.3 | |
| Interest expense | 91.8 | | | 0.5 | | | 99.6 | | | 0.6 | | | 92.0 | | | 0.5 | |
| Other expense, net | 0.1 | | | — | | | 55.2 | | | 0.3 | | | 24.6 | | | 0.1 | |
| Provision for income taxes | 137.7 | | | 0.7 | | | 93.9 | | | 0.6 | | | 146.1 | | | 0.7 | |
| Equity in net income of affiliates | (15.8) | | | (0.1) | | | (28.5) | | | (0.2) | | | (23.2) | | | (0.1) | |
| Net income attributable to noncontrolling interests | 87.7 | | | 0.5 | | | 75.4 | | | 0.4 | | | 77.1 | | | 0.4 | |
| Net income attributable to Lear | $ | 373.9 | | | 1.9 | % | | $ | 158.5 | | | 0.9 | % | | $ | 753.6 | | | 3.8 | % |
Year Ended December 31, 2021, Compared With Year Ended December 31, 2020
Net sales for the year ended December 31, 2021 were $19.3 billion, as compared to $17.0 billion for the year ended December 31, 2020, an increase of $2.2 billion or 13%. New business in North America, Europe and Africa, and Asia increased
net sales by $0.9 billion. Net sales also benefited by $0.5 billion and $0.4 billion as a result of higher production volumes on Lear platforms in North America, South America and Asia and foreign exchange rate fluctuations, respectively.
| | | | | | | | |
| (in millions) | | Cost of Sales |
| 2020 | | $ | 15,936.6 | |
| Material cost | | 1,645.6 | |
| Labor and other | | 263.4 | |
| Depreciation | | 25.6 | |
| 2021 | | $ | 17,871.2 | |
Cost of sales in 2021 was $17.9 billion, as compared to $15.9 billion in 2020. New business in North America, Europe and Africa, and Asia increased cost of sales. Cost of sales also increased as a result of higher production volumes on Lear platforms in North America, South America and Africa, and Asia and foreign exchange rate fluctuations.
Gross profit and gross margin were $1.4 billion and 7.2% of net sales in 2021, as compared to $1.1 billion and 6.5% of net sales in 2020. The impact of new business and higher production volumes on Lear platforms increased gross profit by $180 million. Favorable operating performance, including the benefit of operational restructuring actions, and lower restructuring costs, were partially offset by the impact of selling price reductions and increased commodity costs. These factors had a corresponding impact on gross margin.
Selling, general and administrative expenses, including engineering and development expenses, were $643 million for the year ended December 31, 2021, as compared to $589 million for the year ended December 31, 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 3.3% in 2021, as compared to 3.5% in 2020.
Amortization of intangible assets was $73 million in 2021, including an impairment charge of $9 million, as compared to $66 million in 2020.
Interest expense was $92 million in 2021, as compared to $100 million in 2020.
Other expense, net, which includes non-income related taxes, foreign exchange gains and losses, gains and losses related to certain derivative instruments and hedging activities, losses on the extinguishment of debt, gains and losses on the disposal of fixed assets, gains and losses on the consolidation and deconsolidation of affiliates, the non-service cost components of net periodic benefit cost and other miscellaneous income and expense, was $0.1 million in 2021, as compared to $55 million in 2020. In 2021, we recognized a gain of $45 million related to a favorable indirect tax ruling in a foreign jurisdiction and losses of $25 million related to the extinguishment of debt and $2 million related to the impairment and liquidation of an investment. In 2020, we recognized losses of $21 million related to the extinguishment of debt, $13 million related to a pension settlement and $4 million related to the impairment of an investment.
In 2021, the provision for income taxes was $138 million, representing an effective tax rate of 23.6% on pretax income before equity in net income of affiliates of $584 million. In 2020, the provision for income taxes was $94 million, representing an effective tax rate of 31.4% on pretax income before equity in net income of affiliates of $299 million.
In 2021 and 2020, the provision for income taxes was primarily impacted by the level and mix of earnings among tax jurisdictions. In 2021, we recognized tax benefits of $39 million related to restructuring charges and various other items, offset by tax expense of $17 million related to the net increase in valuation allowances on deferred tax assets of foreign subsidiaries and $8 million on a $45 million gain related to a favorable indirect tax ruling in a foreign jurisdiction. In 2020, we recognized tax benefits of $34 million related to restructuring charges and various other items and $15 million related to the U.S. deferred tax effect of our foreign branches and tax expense of $29 million related to a net increase in valuation allowances on deferred tax assets.
For information related to our valuation allowances, see "Other Matters — Significant Accounting Policies and Critical Accounting Estimates — Income Taxes" below.
Equity in net income of affiliates was $16 million for the year ended December 31, 2021, as compared to $29 million for the year ended December 31, 2020, reflecting lower sales at certain of our affiliates in China.
Net income attributable to Lear was $374 million, or $6.19 per diluted share, in 2021, as compared to $159 million, or $2.62 per diluted share, in 2020. Net income and diluted net income per share decreased for the reasons described above.
Reportable Operating Segments
We have two reportable operating segments: Seating and 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 of affiliates, interest expense and other expense, net ("segment earnings") and segment earnings divided by net sales ("margin") are not measures of performance under accounting principles generally accepted in the United States ("GAAP"). 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 attributable to Lear, net cash provided by 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 of affiliates, see Note 15, "Segment Reporting," to the consolidated financial statements included in this Report.
Seating —
A summary of financial measures for our Seating segment is shown below (dollar amounts in millions):
| | | | | | | | | | | |
| For the year ended December 31, | 2021 | | 2020 |
| Net sales | $ | 14,411.4 | | | $ | 12,712.7 | |
Segment earnings (1) | 851.3 | | | 590.5 | |
| Margin | 5.9 | % | | 4.6 | % |
(1) See definition above.
Seating net sales were $14.4 billion for the year ended December 31, 2021, as compared to $12.7 billion for the year ended December 31, 2020, an increase of $1.7 billion or 13%. Higher production volumes on Lear platforms increased net sales by $679 million. Net sales also benefited by $486 million and $295 million as a result of new business and foreign exchange rate fluctuations, respectively.
Segment earnings, including restructuring costs, and the related margin on net sales were $851 million and 5.9% in 2021, as compared to $591 million and 4.6% in 2020. Higher production volumes on Lear platforms and the impact of new business increased segment earnings by $176 million. Favorable operating performance, including the benefit of operational restructuring actions, and lower restructuring costs were partially offset by the impact of selling price reductions and increased commodity costs.
E-Systems —
A summary of financial measures for our E-Systems segment is shown below (dollar amounts in millions):
| | | | | | | | | | | |
| For the year ended December 31, | 2021 | | 2020 |
| Net sales | $ | 4,851.7 | | | $ | 4,332.8 | |
Segment earnings (1) | 121.2 | | | 98.1 | |
| Margin | 2.5 | % | | 2.3 | % |
(1) See definition above.
E-Systems net sales were $4.9 billion for the year ended December 31, 2021, as compared to $4.3 billion for the year ended December 31, 2020, an increase of $519 million or 12%. New business, commodity recoveries and foreign exchange rate fluctuations increased net sales by $425 million, $175 million and $112 million, respectively. These increases were partially offset by lower production volumes on Lear platforms which reduced net sales by $198 million.
Segment earnings, including restructuring costs, and the related margin on net sales were $121 million and 2.5% in 2021, as compared to $98 million and 2.3% in 2020. The impact of new business was offset by lower production volumes on Lear platforms. Improved operating performance was partially offset by the impact of selling price reductions and 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):
| | | | | | | | | | | |
| For the year ended December 31, | 2021 | | 2020 |
| Net sales | $ | — | | | $ | — | |
Segment earnings (1) | (297.1) | | | (234.5) | |
| Margin | N/A | | N/A |
(1) See definition above.
Segment earnings related to our other category were ($297) million in 2021, as compared to ($235) million in 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.
Year Ended December 31, 2020, Compared With Year Ended December 31, 2019
For a discussion of our results of operations for the year ended December 31, 2020, compared with the year ended December 31, 2019, refer to our Annual Report on Form 10-K for the year ended December 31, 2020.
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. 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.
As of December 31, 2021 and 2020, cash and cash equivalents of $661 million and $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 regarding potential dividends from our non-U.S. subsidiaries, see "— Adequacy of Liquidity Sources" below and Note 9, "Income Taxes," to the consolidated financial statements included in this Report.
Legal and Environmental Matters
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." For a description of our outstanding material legal proceedings, see Note 14, "Commitments and Contingencies," to the consolidated financial statements included in this Report.
ITEM 4 – MINE SAFETY DISCLOSURES
Not applicable.
SUPPLEMENTARY ITEM – INFORMATION ABOUT OUR EXECUTIVE OFFICERS
The following table sets forth the names, ages and positions of our executive officers. Executive officers are appointed annually by our Board of Directors and serve at the pleasure of our Board.
| | | | | | | | |
| Name | Age | Position |
| Jason M. Cardew | 51 | Senior Vice President and Chief Financial Officer |
| Alicia J. Davis | 51 | Senior Vice President and Chief Strategy Officer |
| Thomas A. DiDonato | 63 | Senior Vice President and Chief Administrative Officer |
| Amy A. Doyle | 54 | Vice President and Chief Accounting Officer |
| Carl A. Esposito | 54 | Senior Vice President and President, E-Systems |
| Harry A. Kemp | 46 | Senior Vice President, General Counsel and Corporate Secretary |
| Frank C. Orsini | 49 | Executive Vice President and President, Seating |
| Raymond E. Scott | 56 | President and Chief Executive Officer |
| Marianne Vidershain | 42 | Vice President and Treasurer |
Set forth below is a description of the business experience of each of our executive officers.
| | | | | |
| Jason M. Cardew | Mr. Cardew is the Company's Senior Vice President and Chief Financial Officer, a position he has held since November 2019. Mr. Cardew most recently served as the Company's Vice President, Finance - Seating and E-Systems since September 2018. Prior to that, he served as the Company's Vice President, Finance - Seating since April 2012. Previously, he served as the Company's Vice President and Interim Chief Financial Officer since September 2011, Vice President, Finance - Financial Planning and Analysis since April 2010, Vice President, Finance - Seating since 2008, Vice President - Finance since 2003 and in various financial roles since joining the Company in 1992. |
| |
| Alicia J. Davis | Ms. Davis is the Company's Senior Vice President and Chief Strategy Officer, a position she has held since May 2021. Ms. Davis most recently served as the Company's Senior Vice President, Corporate Development and Investor Relations since September 2019. Prior to that, she served as the Company's Vice President, Investor Relations since joining the Company in August 2018. Prior to joining the Company, Ms. Davis was on the faculty at the University of Michigan Law School since June 2004, where she most recently served as an unpaid, tenured professor and the Associate Dean for Strategic Initiatives. Previous to that, she was a lawyer at Kirkland & Ellis since June 2002, a Vice President at Raymond James & Associates since August 1999 and an Investment Banking Analyst at Goldman Sachs from August 1993 to June 1995. |
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| Thomas A. DiDonato | Mr. DiDonato is the Company's Senior Vice President and Chief Administrative Officer, a position he has held since January 2019. Mr. DiDonato most recently served as the Company's Senior Vice President, Human Resources since joining the Company in April 2012. Prior to joining the Company, Mr. DiDonato served as Executive Vice President, Human Resources for American Eagle Outfitters, Inc. since 2005, Chief People Officer for H.J. Heinz from April 2004 to July 2005 and Senior Vice President, Human Resources for Heinz North America from July 2001 to April 2004. Earlier experiences include directing human resources for a $14 billion division of Merck & Co. and heading worldwide staffing for Pepsico. Mr. DiDonato began his career at General Foods Corporation and moved up to manage the personnel at its largest manufacturing facility. |
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| Amy A. Doyle | Ms. Doyle is the Company's Vice President and Chief Accounting Officer, a position she has held since May 2017. Ms. Doyle most recently served as the Company's Assistant Corporate Controller since September 2006. Previously, she served in positions of increasing responsibility at the Company, including Director, Financial Reporting since 2003 and Manager, Financial Reporting since joining the Company in 1999. Prior to joining the Company, Ms. Doyle served as an audit manager for Arthur Andersen LLP. |
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| Carl A. Esposito | Mr. Esposito is the Company's Senior Vice President and President, E-Systems, a position he has held since joining the Company in September 2019. Prior to joining the Company, Mr. Esposito served at Honeywell Aerospace, a division of Honeywell International Inc., as President of the Electronic Solutions Strategic Business Unit from January 2017 to July 2019 and at Honeywell International Inc. as Vice President of Aerospace Marketing, Product Management and Strategy since December 2010, Vice President of Avionics Systems Marketing and Product Management since December 2009, Vice President of Global Business Aviation Sales and EMEAI Customer Support since January 2007 and in various other roles since 1990. |
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| Harry A. Kemp | Mr. Kemp is the Company's Senior Vice President, General Counsel and Corporate Secretary, a position he has held since August 2019. In this role, Mr. Kemp has responsibility for the Company's Compliance and Environmental, Social and Governance activities. Mr. Kemp most recently served as the Company's Vice President and Corporate Counsel since January 2019. Previously, he served as the Company's Vice President and Divisional Counsel - Seating since September 2016 and Vice President and Divisional Counsel - E-Systems since joining the Company in December 2009. Prior to joining the Company, Mr. Kemp was a partner at Bodman PLC since 2003 and served as an engagement manager at McKinsey and Company, a global management consulting firm, since 2000. |
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| Frank C. Orsini | Mr. Orsini is the Company's Executive Vice President and President, Seating, a position he has held since March 2018. Mr. Orsini most recently served as the Company's Senior Vice President and President, E-Systems since September 2012. Prior to that, he served as the Company's Vice President and Interim President, E-Systems since October 2011. Previously, he served as the Company's Vice President, Operations, E-Systems since 2009, Vice President, Sales, Program Management & Manufacturing, E-Systems since 2008, Vice President, North America Seating Operations since 2005 and in various other management positions since joining the Company in 1994. |
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| Raymond E. Scott | Mr. Scott is the Company's President and Chief Executive Officer, a position he has held since March 2018. Mr. Scott most recently served as the Company's Executive Vice President and President, Seating since November 2011. Prior to that, he served as the Company's Senior Vice President and President, E-Systems since February 2008. Previously, he served as the Company's Senior Vice President and President, North American Seat Systems Group since August 2006, Senior Vice President and President, North American Customer Group since June 2005, President, European Customer Focused Division since June 2004 and President, General Motors Division since November 2000. |
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| Marianne Vidershain | Ms. Vidershain is the Company's Vice President and Treasurer, a position she has held since February 2021. Ms. Vidershain most recently served as the Company's Assistant Treasurer since January 2018. Prior to that, she served as the Company's Director, Global Financial Planning & Analysis since January 2015. Previously, she served as the Company's Director, Finance – Global Purchasing since February 2014, Director, Capital Markets and Subsidiary Finance since April 2010, Treasury Manager since January 2007 and in various other treasury positions since joining the Company in 2004. |
PART II
ITEM 5 – MARKET FOR THE COMPANY'S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is listed on the New York Stock Exchange under the symbol "LEA."
Dividends
We currently expect to pay quarterly cash dividends in the future, although such payments are at the discretion of our Board of Directors and will depend upon our financial condition, results of operations, capital requirements, alternative uses of capital and other factors that our Board of Directors may consider at its discretion. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements," and Note 12, "Capital Stock, Accumulated Other Comprehensive Loss and Equity," to the consolidated financial statements included in this Report.
Holders of Common Stock
The Transfer Agent and Registrar for our common stock is Computershare Trust Company, N.A., located in Canton, Massachusetts. On February 7, 2022, there were 244 registered holders of record of our common stock.
For certain information regarding our equity compensation plans, see Part III — Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters — Equity Compensation Plan Information."
Common Stock Share Repurchase Program
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. As of December 31, 2021, we have repurchased, in aggregate, $4.8 billion of our outstanding common stock, at an average price of $90.97 per share, excluding commissions and related fees. As of December 31, 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 share repurchases under our common stock share repurchase program. Share repurchases were reinstated in the second quarter of 2021. Since the reinstatement through December 31, 2021, we repurchased approximately $100 million of shares. There were no shares repurchased during the fiscal quarter ended December 31, 2021.
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 upon our financial condition, results of operations, capital requirements, prevailing market conditions, alternative uses of capital and other factors. See Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements," and Note 12, "Capital Stock, Accumulated Other Comprehensive Loss and Equity," to the consolidated financial statements included in this Report.
Performance Graph
The following graph compares the cumulative total stockholder return from December 31, 2016 through December 31, 2021, for our common stock, the S&P 500 Index and a peer group(1)of companies that we have selected for purposes of this comparison. We have assumed that dividends have been reinvested, and the returns of each company in the S&P 500 Index and the peer group have been weighted to reflect relative stock market capitalization. The graph below assumes that $100 was invested on December 31, 2016, in each of our common stock, the stocks comprising the S&P 500 Index and the stocks comprising the peer group.
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | December 31,
2016 | | December 31,
2017 | | December 31,
2018 | | December 31,
2019 | | December 31,
2020 | | December 31,
2021 |
| Lear Corporation | | $ | 100.00 | | | $ | 135.21 | | | $ | 95.61 | | | $ | 109.34 | | | $ | 127.82 | | | $ | 148.55 | |
| S&P 500 | | $ | 100.00 | | | $ | 121.82 | | | $ | 116.47 | | | $ | 153.13 | | | $ | 181.29 | | | $ | 233.28 | |
Peer Group (1) | | $ | 100.00 | | | $ | 130.45 | | | $ | 79.67 | | | $ | 98.20 | | | $ | 115.28 | | | $ | 125.39 | |
| | | | | | | | | | | | |
(1) We do not believe that there is a single published industry or line of business index that is appropriate for comparing stockholder returns. As a result, we have selected a peer group comprised of representative independent automotive suppliers whose common stock is publicly traded. Our peer group, referenced in the graph above, consists of Adient plc, American Axle & Manufacturing Holdings Inc., Aptiv PLC, Autoliv, Inc., BorgWarner Inc., Continental AG, Cooper-Standard Holdings Inc., Dana Incorporated, Faurecia, Gentex Corporation, Gentherm Incorporated, Magna International, Inc., Tenneco Inc., Valeo and Visteon Corporation.
ITEM 6 – RESERVED
ITEM 7 – MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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 and electronic systems 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. 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 capital to our stockholders. Further, we have aligned our strategy with the key trends affecting our business — electrification, connectivity, autonomy and shared mobility. 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 and safety offerings, as well as configurable seating product technologies. All of these products are compatible with traditional internal combustion engine ("ICE") architectures and the full range of hybrid, plug-in hybrid and battery electric architectures (collectively, "electrified powertrains"). Our advanced comfort, wellness and safety offerings are facilitated by our system, component and integration capabilities, together with our in-house electronics, sensor, software and algorithm competencies. We anticipate that our comfort offerings will be enhanced by the acquisition of substantially all of Kongsberg Automotive's Interior Comfort Systems business unit ("Kongsberg"), which is expected to close in the first quarter of 2022. 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 and electronic systems. The combination of these capabilities enables us to provide our customers with customizable solutions with optimized designs at a competitive cost. Electrical distribution and connection systems utilize low voltage wire, high voltage wire, high speed data cables and flat wiring to connect networks and electrical signals and manage electrical power within the vehicle for all types of powertrains – from traditional ICE architectures to the full range of electrified powertrains. Key components in our electrical distribution and connection systems portfolio include wire harnesses, terminals and connectors and engineered components for both ICE architectures and electrified powertrains that require management of higher voltage and power. Electronic systems facilitate signal, data and power management within the vehicle and include the associated software required to facilitate these functions. Key components in our electronic systems portfolio include body domain control modules and products specific to electrification and connectivity. Electrification products include on-board battery chargers, power conversion modules, high voltage battery management systems and high voltage power distribution systems. Connectivity products include telematics control units ("TCU") and gateway modules to manage both wired and wireless networks and data in vehicles. In addition to electronic modules, we offer software that includes cybersecurity, advanced vehicle positioning for automated and autonomous driving applications and full capabilities in both dedicated short-range communication and cellular protocols for vehicle connectivity. Our software offerings include embedded control software and cloud and mobile device-based software and services. Our customers traditionally have sourced our electronic hardware together with the software that we embed in it.
We serve all of the world's major automotive manufacturers across both our Seating and E-Systems businesses, and we have automotive content on more than 450 vehicle nameplates worldwide. It is common for us to have both seating and electrical and/or electronic content on the same vehicle platform.
Our businesses benefit globally from leveraging common operating standards and disciplines, including world-class product development and manufacturing processes, as well as common customer support and regional infrastructures, all of which contribute to our reputation for operational excellence. Our core capabilities are shared across component categories and include: high-precision manufacturing and assembly with short lead times; management of complex supply chains; global engineering and program management skills; the agility to establish and/or transfer production between facilities quickly; and, a unique customer-focused culture. Our businesses utilize proprietary, industry-specific processes and standards, leverage
common low-cost engineering centers and share centralized operating support functions. These functions include logistics, supply chain management, quality, health and safety, and all major administrative functions.
Industry 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 increased 3% in 2021 over 2020, production remains well below recent historic levels and consumer demand. Production in the second half of 2021 decreased 16% relative to the second half of 2020. This was largely due to the continuing impact of the COVID-19 pandemic in 2021, particularly through supply shortages. The most significant supply shortage relates to semiconductor chips, which impacted global vehicle production and resulted in reductions and cancellations of planned production. In addition, we experienced increased costs related to labor shortages and inefficiencies and ongoing costs related to personal protective equipment, all of which are likely to continue for a period of time. Increases in certain commodity costs, as well as transportation and logistics costs, are also impacting, and will continue to impact, our operating results for the foreseeable future. Further, a resurgence of the COVID-19 virus or its variants, including corresponding "stay at home" or similar government orders impacting industry production, could impact our financial results. For risks related to the COVID-19 pandemic, including supply shortages, see Item 1A, "Risk Factors."
Global automotive industry production volumes in 2021, as compared to 2020, are shown below (in thousands of units):
| | | | | | | | | | | | | | | | | |
| 2021 (1) | | 2020 (1) (2) | | % Change |
| North America | 13,032.4 | | | 13,024.0 | | | — | % |
| Europe and Africa | 16,182.2 | | | 16,855.8 | | | (4 | %) |
| Asia | 41,370.5 | | | 39,179.8 | | | 6 | % |
| South America | 2,507.6 | | | 2,163.4 | | | 16 | % |
| Other | 1,443.0 | | | 1,391.0 | | | 4 | % |
| Global light vehicle production | 74,535.7 | | | 72,614.0 | | | 3 | % |
(1) Production data based on IHS Markit.
(2) Production data for 2020 has been updated from our 2020 Annual Report on Form 10-K to reflect actual production levels.
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 level of vertical integration and 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 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.
Our percentage of consolidated net sales by region in 2021 and 2020 is shown below:
| | | | | | | | | | | |
| 2021 | | 2020 |
| North America | 39 | % | | 39 | % |
| Europe and Africa | 35 | % | | 37 | % |
| Asia | 22 | % | | 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 continue to diversify our sales on a customer, product, platform and geographic basis to reflect the market overall.
The automotive industry, and our business, continue to be shaped by the broad trends of electrification, connectivity, autonomy, and shared mobility. We also consider demand and regulatory developments for improved energy efficiency, sustainability,
enhanced safety and communications (e.g., government mandates related to fuel economy, carbon emissions and safety equipment) to be significant drivers of these trends, each of which is likely to be at the forefront of our industry for the foreseeable future.
In addition to key foundational attributes imperative for success as an automotive supplier (quality, service and cost), our strategic initiatives focus on furthering our competitive differentiation through vertical integration, disruptive innovation and advanced manufacturing technology. We have expanded key component capabilities through organic investment and acquisitions to ensure a full complement of the best solutions for our customers. We have restructured, and continue to align, our manufacturing and engineering footprint to attain a leading competitive cost position globally. We have established or expanded activities in new and growing markets, in support of our customers' growth initiatives and in pursuit of opportunities with new customers. These initiatives have helped us achieve our financial goals overall, as well as a more balanced regional, customer and vehicle segment diversification in our business.
For further information related to these trends and our strategy, see Part 1 — Item 1, "Business — Industry and Strategy."
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 65.4% in 2021, as compared to 64.3% in 2020 and 65.0% in 2019, 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, contractual recovery mechanisms 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 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 Part I — Item 1A, "Risk Factors — Increases in the costs and restrictions on the availability of raw materials, energy, commodities and product components could adversely affect our financial performance," and "— Forward-Looking Statements" below.
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
Kongsberg
In October 2021, we entered into a definitive agreement to acquire Kongsberg, which 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 acquisition is expected to further advance our seat component capabilities into specialized comfort seating solutions that further differentiate our product offerings and 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.
M&N Plastics
In March 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 business 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 consolidated financial statements included in this Report.
Xevo
In April 2019, we completed the acquisition of Xevo Inc. ("Xevo"), a Seattle-based, global leader in connected car software, by acquiring all of Xevo's outstanding shares for $322 million, net of cash acquired. Xevo is a supplier of software solutions for the cloud, vehicles and mobile devices that are deployed in millions of vehicles worldwide.
For further information, see Note 4, "Acquisitions," to the consolidated financial statements included in this Report.
Operational Restructuring
In 2021, we incurred pretax restructuring costs of $101 million and related manufacturing inefficiency charges of approximately $12 million, as compared to pretax restructuring costs of $145 million and related manufacturing inefficiency charges of approximately $5 million in 2020. None of the individual restructuring actions initiated during 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 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 $44 million of additional restructuring costs related to activities initiated as of December 31, 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 5, "Restructuring," and Note 15, "Segment Reporting," to the consolidated financial statements included in this Report.
Financing Transactions
Senior Notes
In November 2021, we issued $350 million in aggregate principal amount at maturity of 2032 notes (the "2032 Notes") and $350 million in aggregate principal amount at maturity of 2052 notes (the "2052 Notes"). The 2032 Notes have a stated coupon rate of 2.6% and were issued at 99.782% of par, resulting in a yield to maturity of 2.624%. The 2052 Notes have a stated coupon rate of 3.55% and were issued at 99.845% of par, resulting in a yield to maturity of 3.558%.
Net proceeds from the offering of $699 million, after original issue discount, were used, in part, to fund the tender of $200 million in aggregate principal amount of our 3.8% senior notes due in 2027 (the "2027 Notes") and the repayment in full of $206 million outstanding on our term loan facility. We expect to use the remaining net proceeds for general corporate purposes,
which may include the purchase price for the Kongsberg acquisition. For further information, see Note 4, "Acquisitions," to the consolidated financial statements included in this Report.
In connection with these transactions, we recognized a loss of $24 million on the extinguishment of debt and paid related issuance costs of $7 million.
For further information, see "— Liquidity and Financial Condition — Capitalization — Senior Notes" below and Note 7 "Debt," to the consolidated financial statements included in this Report.
Credit Agreement
Our unsecured credit agreement consisted of a $1.75 billion revolving credit facility and a $250 million term loan facility. In October 2021, we entered into an amended and restated credit agreement that increased the revolving credit facility to $2.0 billion and extended the maturity date to October 28, 2026. In November 2021, we repaid in full $206 million outstanding on our term loan facility. In connection with these transactions, we recognized a loss of $1 million on the extinguishment of debt and paid related issuance costs of $3 million.
For further information, see "— Liquidity and Financial Condition — Capitalization — Credit Agreement" below and Note 7, "Debt," to the consolidated financial statements included in this Report.
Share Repurchase Program and Quarterly Cash Dividends
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 upon our financial condition, results of operations, capital requirements, prevailing market conditions, alternative uses of capital and other factors (see "— Forward-Looking Statements" below).
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 December 31, 2021, we repurchased approximately $100 million of shares. As of December 31, 2021, we have a remaining repurchase authorization of $1.3 billion, which expires on December 31, 2022.
In 2021, our Board of Directors declared a quarterly cash dividend of $0.25 per share of common stock in the first and second quarters, a quarterly cash dividend of $0.50 per share of common stock in the third quarter and a quarterly cash dividend of $0.77 per share of common stock in the fourth quarter, returning our quarterly cash dividend to its pre-COVID-19 pandemic level.
In 2020, our Board of Directors declared a quarterly cash dividend of $0.77 per share of common stock in the first quarter. In March 2020, as a proactive measure in response to the COVID-19 pandemic, we suspended our quarterly cash dividend. The quarterly cash dividend was reinstated in the fourth quarter at $0.25 per share of common stock.
For further information related to our common stock share repurchase program and our quarterly cash dividends, see Item 5, "Market for the Company's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities," "— Liquidity and Financial Condition — Capitalization" below and Note 12, "Capital Stock, Accumulated Other Comprehensive Loss and Equity," to the consolidated financial statements included in this Report.
Other Matters
In 2021, we recognized tax benefits of $39 million related to restructuring charges and various other items, partially offset by tax expense of $17 million related to the net increase in valuation allowances on deferred tax assets of foreign subsidiaries and $8 million on a $45 million gain related to a favorable indirect tax ruling in a foreign jurisdiction.
In 2020, we recognized tax benefits of $34 million related to restructuring charges and various other items and $15 million related to the U.S. deferred tax effect of our foreign branches, partially offset by tax expense of $29 million related to a net increase in valuation allowances on deferred tax assets.
In 2019, we recognized tax benefits of $29 million related to an increase in our research and development tax credits for the years 2013 through 2018, $18 million related to changes in the tax status of certain affiliates, $14 million related to the U.S. tax impact of the foreign tax credit regulations issued in the fourth quarter of 2019, $5 million related to net reductions in tax reserves, $3 million related to share-based compensation, $12 million related to various tax-related items, including the release of valuation allowances, tax rate changes and audit adjustments, and $52 million related to restructuring charges and various other items, offset by tax expense of $11 million related to the establishment of valuation allowances on the deferred tax assets of foreign subsidiaries.
As discussed above, our results for the years ended December 31, 2021, 2020 and 2019, reflect the following items (in millions):
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, | 2021 | | 2020 | | 2019 |
| Costs related to restructuring actions, including manufacturing inefficiencies of $12 million in 2021, $5 million in 2020 and $6 million in 2019 | $ | 113 | | | $ | 150 | | | $ | 190 | |
| Acquisition and other related costs | — | | | — | | | 2 | |
| Litigation | — | | | — | | | 1 | |
| Favorable indirect tax ruling in a foreign jurisdiction | (45) | | | — | | | (2) | |
| Typhoon in the Philippines | 13 | | | — | | | — | |
| Intangible asset impairment | 9 | | | — | | | |
| Loss on extinguishment of debt | 25 | | | 21 | | | 11 | |
| (Gain) loss related to investments, net | 2 | | | 4 | | | (1) | |
| Tax benefits, net | (14) | | | (20) | | | (122) | |
For further information regarding these items, see Note 3, "Summary of Significant Accounting Policies," Note 4, "Acquisitions," Note 5, "Restructuring," Note 6, "Investments in Affiliates and Other Related Party Transactions," Note 7, "Debt," and Note 9, "Income Taxes," to the consolidated financial statements included in this Report. This section includes forward-looking statements that are subject to risks and uncertainties. For further information regarding these and other factors that have had, or may have in the future, a significant impact on our business, financial condition or results of operations, see Part I — Item 1A, "Risk Factors," and "— Forward-Looking Statements" below.
Results of Operations
A summary of our operating results in millions of dollars and as a percentage of net sales is shown below:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, | 2021 | | 2020 | | 2019 |
| Net sales | | | | | | | | | | | |
| Seating | $ | 14,411.4 | | | 74.8 | % | | $ | 12,712.7 | | | 74.6 | % | | $ | 15,097.2 | | | 76.2 | % |
| E-Systems | 4,851.7 | | | 25.2 | | | 4,332.8 | | | 25.4 | | | 4,713.1 | | | 23.8 | |
| Net sales | 19,263.1 | | | 100.0 | | | 17,045.5 | | | 100.0 | | | 19,810.3 | | | 100.0 | |
| Cost of sales | 17,871.2 | | | 92.8 | | | 15,936.6 | | | 93.5 | | | 18,072.8 | | | 91.2 | |
| Gross profit | 1,391.9 | | | 7.2 | | | 1,108.9 | | | 6.5 | | | 1,737.5 | | | 8.8 | |
| Selling, general and administrative expenses | 643.2 | | | 3.3 | | | 588.9 | | | 3.5 | | | 605.0 | | | 3.1 | |
| Amortization of intangible assets | 73.3 | | | 0.4 | | | 65.9 | | | 0.4 | | | 62.3 | | | 0.3 | |
| Interest expense | 91.8 | | | 0.5 | | | 99.6 | | | 0.6 | | | 92.0 | | | 0.5 | |
| Other expense, net | 0.1 | | | — | | | 55.2 | | | 0.3 | | | 24.6 | | | 0.1 | |
| Provision for income taxes | 137.7 | | | 0.7 | | | 93.9 | | | 0.6 | | | 146.1 | | | 0.7 | |
| Equity in net income of affiliates | (15.8) | | | (0.1) | | | (28.5) | | | (0.2) | | | (23.2) | | | (0.1) | |
| Net income attributable to noncontrolling interests | 87.7 | | | 0.5 | | | 75.4 | | | 0.4 | | | 77.1 | | | 0.4 | |
| Net income attributable to Lear | $ | 373.9 | | | 1.9 | % | | $ | 158.5 | | | 0.9 | % | | $ | 753.6 | | | 3.8 | % |
Year Ended December 31, 2021, Compared With Year Ended December 31, 2020
Net sales for the year ended December 31, 2021 were $19.3 billion, as compared to $17.0 billion for the year ended December 31, 2020, an increase of $2.2 billion or 13%. New business in North America, Europe and Africa, and Asia increased
net sales by $0.9 billion. Net sales also benefited by $0.5 billion and $0.4 billion as a result of higher production volumes on Lear platforms in North America, South America and Asia and foreign exchange rate fluctuations, respectively.
| | | | | | | | |
| (in millions) | | Cost of Sales |
| 2020 | | $ | 15,936.6 | |
| Material cost | | 1,645.6 | |
| Labor and other | | 263.4 | |
| Depreciation | | 25.6 | |
| 2021 | | $ | 17,871.2 | |
Cost of sales in 2021 was $17.9 billion, as compared to $15.9 billion in 2020. New business in North America, Europe and Africa, and Asia increased cost of sales. Cost of sales also increased as a result of higher production volumes on Lear platforms in North America, South America and Africa, and Asia and foreign exchange rate fluctuations.
Gross profit and gross margin were $1.4 billion and 7.2% of net sales in 2021, as compared to $1.1 billion and 6.5% of net sales in 2020. The impact of new business and higher production volumes on Lear platforms increased gross profit by $180 million. Favorable operating performance, including the benefit of operational restructuring actions, and lower restructuring costs, were partially offset by the impact of selling price reductions and increased commodity costs. These factors had a corresponding impact on gross margin.
Selling, general and administrative expenses, including engineering and development expenses, were $643 million for the year ended December 31, 2021, as compared to $589 million for the year ended December 31, 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 3.3% in 2021, as compared to 3.5% in 2020.
Amortization of intangible assets was $73 million in 2021, including an impairment charge of $9 million, as compared to $66 million in 2020.
Interest expense was $92 million in 2021, as compared to $100 million in 2020.
Other expense, net, which includes non-income related taxes, foreign exchange gains and losses, gains and losses related to certain derivative instruments and hedging activities, losses on the extinguishment of debt, gains and losses on the disposal of fixed assets, gains and losses on the consolidation and deconsolidation of affiliates, the non-service cost components of net periodic benefit cost and other miscellaneous income and expense, was $0.1 million in 2021, as compared to $55 million in 2020. In 2021, we recognized a gain of $45 million related to a favorable indirect tax ruling in a foreign jurisdiction and losses of $25 million related to the extinguishment of debt and $2 million related to the impairment and liquidation of an investment. In 2020, we recognized losses of $21 million related to the extinguishment of debt, $13 million related to a pension settlement and $4 million related to the impairment of an investment.
In 2021, the provision for income taxes was $138 million, representing an effective tax rate of 23.6% on pretax income before equity in net income of affiliates of $584 million. In 2020, the provision for income taxes was $94 million, representing an effective tax rate of 31.4% on pretax income before equity in net income of affiliates of $299 million.
In 2021 and 2020, the provision for income taxes was primarily impacted by the level and mix of earnings among tax jurisdictions. In 2021, we recognized tax benefits of $39 million related to restructuring charges and various other items, offset by tax expense of $17 million related to the net increase in valuation allowances on deferred tax assets of foreign subsidiaries and $8 million on a $45 million gain related to a favorable indirect tax ruling in a foreign jurisdiction. In 2020, we recognized tax benefits of $34 million related to restructuring charges and various other items and $15 million related to the U.S. deferred tax effect of our foreign branches and tax expense of $29 million related to a net increase in valuation allowances on deferred tax assets.
For information related to our valuation allowances, see "Other Matters — Significant Accounting Policies and Critical Accounting Estimates — Income Taxes" below.
Equity in net income of affiliates was $16 million for the year ended December 31, 2021, as compared to $29 million for the year ended December 31, 2020, reflecting lower sales at certain of our affiliates in China.
Net income attributable to Lear was $374 million, or $6.19 per diluted share, in 2021, as compared to $159 million, or $2.62 per diluted share, in 2020. Net income and diluted net income per share decreased for the reasons described above.
Reportable Operating Segments
We have two reportable operating segments: Seating and 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 of affiliates, interest expense and other expense, net ("segment earnings") and segment earnings divided by net sales ("margin") are not measures of performance under accounting principles generally accepted in the United States ("GAAP"). 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 attributable to Lear, net cash provided by 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 of affiliates, see Note 15, "Segment Reporting," to the consolidated financial statements included in this Report.
Seating —
A summary of financial measures for our Seating segment is shown below (dollar amounts in millions):
| | | | | | | | | | | |
| For the year ended December 31, | 2021 | | 2020 |
| Net sales | $ | 14,411.4 | | | $ | 12,712.7 | |
Segment earnings (1) | 851.3 | | | 590.5 | |
| Margin | 5.9 | % | | 4.6 | % |
(1) See definition above.
Seating net sales were $14.4 billion for the year ended December 31, 2021, as compared to $12.7 billion for the year ended December 31, 2020, an increase of $1.7 billion or 13%. Higher production volumes on Lear platforms increased net sales by $679 million. Net sales also benefited by $486 million and $295 million as a result of new business and foreign exchange rate fluctuations, respectively.
Segment earnings, including restructuring costs, and the related margin on net sales were $851 million and 5.9% in 2021, as compared to $591 million and 4.6% in 2020. Higher production volumes on Lear platforms and the impact of new business increased segment earnings by $176 million. Favorable operating performance, including the benefit of operational restructuring actions, and lower restructuring costs were partially offset by the impact of selling price reductions and increased commodity costs.
E-Systems —
A summary of financial measures for our E-Systems segment is shown below (dollar amounts in millions):
| | | | | | | | | | | |
| For the year ended December 31, | 2021 | | 2020 |
| Net sales | $ | 4,851.7 | | | $ | 4,332.8 | |
Segment earnings (1) | 121.2 | | | 98.1 | |
| Margin | 2.5 | % | | 2.3 | % |
(1) See definition above.
E-Systems net sales were $4.9 billion for the year ended December 31, 2021, as compared to $4.3 billion for the year ended December 31, 2020, an increase of $519 million or 12%. New business, commodity recoveries and foreign exchange rate fluctuations increased net sales by $425 million, $175 million and $112 million, respectively. These increases were partially offset by lower production volumes on Lear platforms which reduced net sales by $198 million.
Segment earnings, including restructuring costs, and the related margin on net sales were $121 million and 2.5% in 2021, as compared to $98 million and 2.3% in 2020. The impact of new business was offset by lower production volumes on Lear platforms. Improved operating performance was partially offset by the impact of selling price reductions and 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):
| | | | | | | | | | | |
| For the year ended December 31, | 2021 | | 2020 |
| Net sales | $ | — | | | $ | — | |
Segment earnings (1) | (297.1) | | | (234.5) | |
| Margin | N/A | | N/A |
(1) See definition above.
Segment earnings related to our other category were ($297) million in 2021, as compared to ($235) million in 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.
Year Ended December 31, 2020, Compared With Year Ended December 31, 2019
For a discussion of our results of operations for the year ended December 31, 2020, compared with the year ended December 31, 2019, refer to our Annual Report on Form 10-K for the year ended December 31, 2020.
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. 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.
As of December 31, 2021 and 2020, cash and cash equivalents of $661 million and $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 regarding potential dividends from our non-U.S. subsidiaries, see "— Adequacy of Liquidity Sources" below and Note 9, "Income Taxes," to the consolidated financial statements included in this Report.
Adequacy of Liquidity Sources
As of December 31, 2021, we had approximately $1.3 billion of cash and cash equivalents on hand and $2.0 billion in available borrowing capacity under our revolving credit facility. Together with cash provided by operating activities, we believe that this will enable us to meet our liquidity needs for the foreseeable future and to satisfy ordinary course business obligations. In addition, we expect to continue to pay quarterly cash 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 upon 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.
Our future financial results and our ability to continue to meet our liquidity needs are subject to, and will be affected by, cash flows from operations, including the continuing effects of the COVID-19 pandemic, as well as restructuring activities, automotive industry conditions, the financial condition of our customers and suppliers, supply chain disruptions and other related factors. Additionally, an economic downturn or reduction in production levels could negatively impact our financial condition.
For further discussion of the risks and uncertainties affecting our cash flows from operations and our overall liquidity, see Part I — Item 1A, "Risk Factors," and "— Executive Overview" above and "— Forward-Looking Statements" below.
Cash Flows
Year Ended December 31, 2021, Compared with Year Ended December 31, 2020
A summary of net cash provided by operating activities is shown below (in millions):
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, | 2021 | | 2020 | | Increase (Decrease) in Operating
Cash Flow |
| Consolidated net income and depreciation and amortization | $ | 1,036 | | | $ | 774 | | | $ | 262 | |
| Net change in working capital items: | | | | | |
| Accounts receivable | 161 | | | (165) | | | 326 | |
| Inventory | (213) | | | (108) | | | (105) | |
| Other current assets | (83) | | | (63) | | | (20) | |
| Accounts payable | (130) | | | 214 | | | (344) | |
| Accrued liabilities | (86) | | | 55 | | | (141) | |
| Net change in working capital items | (351) | | | (67) | | | (284) | |
| Other | (15) | | | (44) | | | 29 | |
| Net cash provided by operating activities | $ | 670 | | | $ | 663 | | | $ | 7 | |
In 2021 and 2020, net cash provided by operating activities was $670 million and $663 million, respectively. Higher earnings in 2021 were offset by an incremental increase in working capital in 2021, as compared to 2020, reflecting increased inventory levels due to unpredictable production schedules as a result of industry-wide supply shortages.
Net cash used in investing activities was $647 million in 2021, as compared to $469 million in 2020. In 2021, capital spending was $585 million, as compared to $452 million in 2020. Capital spending is estimated to be $650 million to $700 million in 2022.
Net cash used in financing activities was $14 million in 2021, as compared to $412 million in 2020. In 2021, we received net proceeds of $699 million related to the issuance of 2032 and 2052 Notes and paid $7 million of related issuance costs. Also in 2021, we repurchased $200 million of our outstanding 2027 Notes for $222 million, including an early tender premium and fees, and made principal payments under our term loan facility of $220 million. In 2020, we received net proceeds of $669 million related to the issuance of our senior notes due 2030 and 2049 and paid $6 million of related issuance costs. Also in 2020, we paid $667 million related to the redemption of our outstanding senior notes due 2025. In 2020, as a proactive measure in response to the COVID-19 pandemic, we borrowed $1.0 billion under our Revolving Credit Facility in the first quarter of 2020, which was repaid in full in the third quarter of 2020. In 2021, we paid $100 million for repurchases of our common stock, $107 million of dividends to Lear stockholders and $81 million of dividends to noncontrolling interest holders. In 2020, we paid $70 million for repurchases of our common stock, $67 million of dividends to Lear stockholders and $123 million of dividends to noncontrolling interest holders.
For further information regarding our 2021 and 2020 financing transactions, see "— Capitalization" below and Note 7, "Debt," and Note 12, "Capital Stock, Accumulated Other Comprehensive Loss and Equity," to the consolidated financial statements included in this Report.
Year Ended December 31, 2020, Compared with Year Ended December 31, 2019
For a discussion of our cash flows for the year ended December 31, 2020, compared with the year ended December 31, 2019, refer to our Annual Report on Form 10-K for the year ended December 31, 2020.
Capitalization
From time to time, we utilize uncommitted lines of credit to fund our capital expenditures and working capital requirements at certain of our foreign subsidiaries, in addition to cash provided by operating activities. As of December 31, 2021 and 2020, we had no short-term debt balances outstanding. The availability of uncommitted lines of credit may be affected by our financial performance, credit ratings and other factors.
Senior Notes
As of December 31, 2021, 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 |
| 2027 Notes | | $ | 550 | | | 3.80% |
| Senior unsecured notes due 2029 (the "2029 Notes") | | 375 | | | 4.25% |
| Senior unsecured notes due 2030 (the "2030 Notes") | | 350 | | | 3.50% |
| 2032 Notes | | 350 | | | 2.60% |
| Senior unsecured notes due 2049 (the "2049 Notes") | | 625 | | | 5.25% |
| 2052 Notes | | 350 | | | 3.55% |
| | $ | 2,600 | | | |
The issue, maturity and interest payment dates of the Notes are shown below:
| | | | | | | | | | | | | | | | | | | | |
| Note | | Issuance Date | | Maturity Date | | Interest Payment Dates |
| 2027 Notes | | August 2017 | | September 15, 2027 | | March 15 and September 15 |
| 2029 Notes | | May 2019 | | May 15, 2029 | | May 15 and November 15 |
| 2030 Notes | | February 2020 | | May 30, 2030 | | May 30 and November 30 |
| 2032 Notes | | November 2021 | | January 15, 2032 | | January 15 and July 15 (1) |
| 2049 Notes | | May 2019 and February 2020 | | May 15, 2049 | | May 15 and November 15 |
| 2052 Notes | | November 2021 | | January 15, 2052 | | January 15 and July 15 (1) |
(1) Commencing July 15, 2022.
In 2021, we issued $350 million in aggregate principal amount at maturity of 2032 Notes and $350 million in aggregate principal amount at maturity of 2052 Notes. The 2032 Notes have a stated coupon rate of 2.6% and were issued at 99.782% of par, resulting in a yield to maturity of 2.624%. The 2052 Notes have a stated coupon rate of 3.55% and were issued at 99.845% of par, resulting in a yield to maturity of 3.558%.
The net proceeds from the offering of $699 million, after original issue discount, were used, in part, to fund the tender of $200 million in aggregate principal amount of 2027 Notes and the repayment in full of $206 million outstanding on our term loan facility. We expect to use the remaining net proceeds for general corporate purposes, which may include the purchase price for the Kongsberg acquisition (Note 4, "Acquisitions").
In connection with these transactions, we recognized a loss of $24 million on the extinguishment of debt and paid related issuance costs of $7 million.
In 2020, we issued $350 million in aggregate principal amount at maturity of 2030 Notes and an additional $300 million in aggregate principal amount at maturity of 2049 Notes. The 2030 Notes have a stated coupon rate of 3.5% and were issued at 99.774% of par, resulting in a yield to maturity of 3.525%. The 2049 Notes have a stated coupon rate of 5.25% and were issued at 106.626% of par, resulting in a yield to maturity of 4.821%.
The net proceeds from the offering of $669 million, after original issue discount, were used to redeem $650 million in aggregate principal amount of 2025 Notes at a redemption price equal to 102.625% of the principal amount of such 2025 Notes, plus accrued interest.
In connection with these transactions, we recognized a loss of $21 million on the extinguishment of debt and paid related issuance costs of $6 million.
In 2019, we issued $375 million in aggregate principal amount at maturity of 2029 Notes and $325 million in aggregate principal amount at maturity of 2049 Notes. The 2029 Notes have a stated coupon rate of 4.25% and were issued at 99.691% of par, resulting in a yield to maturity of 4.288%. The 2049 Notes have a stated coupon rate of 5.25% and were issued at 98.32% of par, resulting in a yield to maturity of 5.363%.
The net proceeds from the offering of $693 million, after original issue discount, were used to redeem $325 million in aggregate principal amount of senior unsecured notes due in 2024 (the "2024 Notes") at a redemption price equal to 102.688% of the
principal amount of such 2024 Notes, plus accrued interest, as well as to finance the Xevo acquisition and for general corporate purposes.
In connection with these transactions, we recognized a loss of $11 million on the extinguishment of debt and paid related issuance costs of $7 million.
The indentures governing the Notes contain certain restrictive covenants and customary events of default. As of December 31, 2021, we were in compliance with all covenants under the indentures governing the Notes.
For further information related to the Notes, including information on early redemption, covenants and events of default, see Note 7, "Debt," to the consolidated financial statements included in this Report and the indentures governing the Notes, which have been incorporated by reference as exhibits to this Report.
Credit Agreement
Our unsecured credit agreement, dated August 8, 2017, consisted of a $1.75 billion revolving credit facility (the "Revolving Credit Facility") and a $250 million term loan facility (the "Term Loan Facility"). In October 2021, we entered into an amended and restated credit agreement (the "Credit Agreement") that increased the Revolving Credit Facility to $2.0 billion and extended the maturity date to October 28, 2026. In November 2021, we repaid in full $206 million outstanding on the Term Loan facility. In connection with these transactions, we recognized a loss of approximately $1 million on the extinguishment of debt and paid related issuance costs of approximately $3 million.
In March 2020, as a proactive measure in response to the COVID-19 pandemic, we borrowed $1.0 billion under the Revolving Credit Facility, which was repaid in full in September 2020.
The Credit Agreement contains various financial and other covenants that require us to remain below a maximum leverage coverage ratio. As of December 31, 2021, we were in compliance with all covenants under the Credit Agreement.
For further information related to the Credit Agreement, including information on pricing, covenants and events of default, see Note 7, "Debt," to the consolidated financial statements included in this Report and the Credit Agreement, which has been incorporated by reference as an exhibit to this Report.
Common Stock Share Repurchase Program
See Item 5, "Market for the Company's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities."
Dividends
In 2021, our Board of Directors declared a quarterly cash dividend of $0.25 per share of common stock in the first and second quarters, a quarterly cash dividend of $0.50 per share of common stock in the third quarter and a quarterly cash dividend of $0.77 per share of common stock in the fourth quarter, returning our quarterly cash dividend to its pre-COVID-19 pandemic level.
In 2020, our Board of Directors declared a quarterly cash dividend of $0.77 per share of common stock in the first quarter. In March 2020, as a proactive measure in response to the COVID-19 pandemic, we suspended our quarterly cash dividend. The quarterly cash dividend was reinstated in the fourth quarter at $0.25 per share of common stock.
In 2019, our Board of Directors declared quarterly cash dividends of $0.75 per share of common stock.
We expect to continue 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, prevailing market conditions, alternative uses of capital and other factors that our Board of Directors may consider at its discretion. See "— Forward-Looking Statements" below and Note 7, "Debt," to the consolidated financial statements included in this Report.
Contractual Obligations and Cash Requirements
Our material cash requirements include the following contractual and other obligations:
Debt obligations and interest expense associated with debt obligations
As of December 31, 2021, we had $2.6 billion of outstanding senior unsecured notes maturing in 2027 through 2052, as well as $2.0 billion available for borrowing under our Revolving Credit Facility. Interest on the Notes is due biannually at varying dates. Scheduled interest payments are shown below (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Thereafter | | Total |
| Scheduled interest payments | $ | 97 | | | $ | 103 | | | $ | 103 | | | $ | 103 | | | $ | 103 | | | $ | 1,210 | | | $ | 1,719 | |
For further information related to our debt, see "Capitalization — Senior Notes" and "— Credit Agreement" above and Note 7, "Debt," to the consolidated financial statements included in this Report.
Purchase obligations
We enter into agreements with our customers to produce products at the beginning of a vehicle's life cycle. Although these agreements do not provide for a specified quantity of products, once entered into, we are generally required to fulfill our customers' purchasing requirements for the production life of the vehicle. Prior to being formally awarded a program, we typically work closely with our customers in the early stages of the design and engineering of a vehicle's systems. Failure to complete the design and engineering work related to a vehicle's systems, or to fulfill a customer agreement, could have a material adverse impact on our business.
We also enter into agreements with suppliers to assist us in meeting our customers' production needs. These agreements vary as to duration and quantity commitments. Historically, most have been short-term agreements, which do not provide for minimum purchases, or are requirements-based agreements.
Leases
The Company has operating leases for production, office and warehouse facilities, manufacturing and office equipment, and vehicles with future lease obligations ranging from 2022 through 2047. Maturities of operating leases obligations are shown below (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| 2022 | | 2023 | | 2024 | | 2025 | | 2026 | | Thereafter | | Total |
| Operating lease obligations | $ | 143 | | | $ | 116 | | | $ | 98 | | | $ | 83 | | | $ | 73 | | | $ | 209 | | | $ | 722 | |
For further information related to our lease obligations, see Note 8, "Leases," to the consolidated financial statements included in this Report.
Taxes
We may be required to make significant cash outlays related to our unrecognized tax benefits, including interest and penalties. As of December 31, 2021, we had unrecognized tax benefits, including interest and penalties, of $48 million. However, due to the uncertainty of the timing of future cash flows associated with our unrecognized tax benefits, we are unable to make reasonably reliable estimates of the period of cash settlement, if any, with the respective taxing authorities.
For further information related to our unrecognized tax benefits, see Note 9, "Income Taxes," to the consolidated financial statements included in this Report.
Pension and postretirement obligations
We have minimum funding requirements with respect to certain of our pension benefit obligations. We may elect to make contributions in excess of the minimum funding requirements in response to investment performance or changes in interest rates or when we believe that it is financially advantageous to do so and based on our other cash requirements. Our minimum funding requirements after 2022 will depend on several factors, including investment performance and interest rates. Our minimum funding requirements may also be affected by changes in applicable legal requirements. Contributions to our defined benefit pension plans are expected to be approximately $2 million in 2022.
We do not fund our postretirement benefit obligations and certain of our pension benefit obligations. Rather, benefit payments are made to eligible participants as incurred. We expect benefit payments related to our unfunded pension and postretirement benefit obligations to be approximately $7 million and $6 million, respectively, in 2022.
For further information related to our pension and other postretirement benefit plans, see "— Other Matters — Pension and Other Postretirement Benefit Plans" below and Note 10, "Pension and Other Postretirement Benefit Plans," to the consolidated financial statements included in this Report.
Acquisitions
Our acquisition of Kongsberg will be funded primarily by cash flows from operating activities and existing cash on hand, which may include proceeds from the issuance of our 2032 Notes and 2052 Notes.
For further information, see Note 4, "Acquisitions," and Note 7, "Debt," to the consolidated financial statements included in this Report.
Market Risk Sensitivity
In the normal course of business, we are exposed to market risks associated with fluctuations in foreign exchange rates, interest rates and commodity prices. We manage a portion of these risks through the use of derivative financial instruments in accordance with our policies. We enter into all hedging transactions for periods consistent with the underlying exposures. We do not enter into derivative instruments for trading purposes.
Foreign Exchange
Operating results may be impacted by our buying, selling and financing in currencies other than the functional currency of our operating companies ("transactional exposure"). We may mitigate a portion of this risk by entering into forward foreign exchange, futures and option contracts. The foreign exchange contracts are executed with banks that we believe are creditworthy. Gains and losses related to foreign exchange contracts are deferred where appropriate and included in the measurement of the foreign currency transaction subject to the hedge. Gains and losses incurred related to foreign exchange contracts are generally offset by the direct effects of currency movements on the underlying transactions.
A summary of the notional amount and estimated aggregate fair value of our outstanding foreign exchange contracts is shown below (in millions):
| | | | | | | | | | | |
| December 31, | 2021 | | 2020 |
| Notional amount (contract maturities < 24 months) | $ | 1,523 | | | $ | 2,494 | |
| Fair value | 6 | | | 48 | |
Currently, our most significant foreign currency transactional exposures relate to the Mexican peso, various European currencies, the Chinese renminbi, the Brazilian real, the Thai baht, the Japanese yen and the Honduran lempira. A sensitivity analysis of our net transactional exposure is shown below (in millions):
| | | | | | | | | | | | | | | | | |
| | | Potential Earnings Benefit (Adverse Earnings Impact) |
| December 31, | Hypothetical Strengthening % (1) | | 2021 | | 2020 |
U.S. dollar | 10% | | $ | 7 | | | $ | 23 | |
| Euro | 10% | | (7) | | | (4) | |
(1) Relative to all other currencies to which it is exposed for a twelve-month period.
A sensitivity analysis related to the aggregate fair value of our outstanding foreign exchange contracts is shown below (in millions):
| | | | | | | | | | | | | | | | | |
| | | Estimated Change in Fair Value |
| December 31, | Hypothetical Change % (2) | | 2021 | | 2020 |
| U.S. dollar | 10% | | $ | 48 | | | $ | 80 | |
| Euro | 10% | | 49 | | | 59 | |
(2) Relative to all other currencies to which it is exposed.
There are certain shortcomings inherent in the sensitivity analyses above. The analyses assume that all currencies would uniformly strengthen or weaken relative to the U.S. dollar or Euro. In reality, some currencies may strengthen while others may
weaken, causing the earnings impact to increase or decrease depending on the currency and the direction of the rate movement.
In addition to the transactional exposure described above, our operating results are impacted by the translation of our foreign operating income into U.S. dollars ("translational exposure"). In 2021, net sales outside of the United States accounted for 77% of our consolidated net sales, although certain non-U.S. sales are U.S. dollar denominated. We do not enter into foreign exchange contracts to mitigate our translational exposure.
Commodity Prices
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, contractual recovery mechanisms 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 declining commodity price environment. If these costs increase, it could have an adverse impact on our operating results in the foreseeable future. See Part I — Item 1A, "Risk Factors — Increases in the costs and restrictions on the availability of raw materials, energy, commodities and product components could adversely affect our financial performance," and "— Forward-Looking Statements" below.
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 92% of our copper purchases and a significant portion of our leather purchases are subject to price index agreements with our customers and suppliers.
For further information related to the financial instruments described above, see Note 16, "Financial Instruments," to the 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 December 31, 2017,2021, we had recorded reserves for pending legal disputes, including commercial disputes and other matters, of $26$20 million. In addition, as of December 31, 2017,2021, we had recorded reserves for product liability and warranty claims and environmental matters of $47$46 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 Part I — Item 1A, "Risk Factors." For a more complete description of our outstanding material legal proceedings, see Note 11,14, "Commitments and Contingencies," to the consolidated financial statements included in this Report.
Significant Accounting Policies and Critical Accounting Estimates
Our significant accounting policies are more fully described in Note 2, "Summary of Significant Accounting Policies," to the consolidated financial statements included in this Report. 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,Accordingly, actual results in these areas may differ significantly from our estimates.
We consider an accounting estimate to be critical if it requires us to make assumptions about matters that were uncertain at the time the estimate was made and changes in the estimate would have had a significant impact on our consolidated financial position or results of operations.
Pre-Production Costs Related to Long-Term Supply AgreementsRevenue Recognition and Sales Commitments
We incur pre-production engineeringenter into contracts with our 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, we are often expected to fulfill our customers' purchasing requirements for the production life of the vehicle. Many of these contracts may be terminated by our customers at any time. Historically, terminations of these contracts have been infrequent. We receive purchase orders from our 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 development ("E&D")prices may be adjusted on an ongoing basis to reflect changes in product content/cost and tooling costs relatedother commercial factors.
Revenue is recognized at the point in time when control of the product is transferred to the products produced for our customerscustomer under long-term supply agreements. We expense all pre-production E&D costs for which reimbursement is not contractually guaranteed by the customer. In addition, we expense all pre-production tooling costs related to customer-owned tools for which reimbursement is not contractually guaranteed by the customer or for whichstandard commercial terms, as we do not have a non-cancelablean enforceable right to usepayment prior to such transfer. The amount of revenue recognized reflects the tooling.
A change in the commercial arrangements affecting any of our significant programs that would require us to expense E&D or tooling costsconsideration that we currently capitalize could have a material adverse impact on our operating results.
Impairment of Goodwill
As of December 31, 2017 and 2016, we had recorded goodwill of $1,401 million and $1,121 million, respectively. Goodwill is not amortized but is testedexpect to be entitled to in exchange 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 our annual impairment testing, we 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 performed. If it is more likely than not that a reporting unit’s fair value is less than its carrying amount, or if we elect not to perform a qualitative assessment of a reporting unit, we then compare 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. We conduct our annual impairment testing as of the first day of our fourth quarter.
We utilize an income approach to estimate the fair value of each of our reporting units and a market valuation approach to further support this analysis. The income approach isthose products based on projected debt-free cash flow which is discounted to the present value using discount factors that consider the timingannual purchase orders, annual price reductions and risk of cash flows. We believe that this approach is appropriate because it provides a fair value estimate based upon the reporting unit’s expected long-term operating cash flow performance. This approach also mitigates the impact of cyclical trends that occur in the industry. Fair value is estimated using recent automotive industry and specific platform production volume projections, which are based on both third-party and internally developed forecasts, as well as commercial and discount rate assumptions. The discount rate used is the value-weighted average of our estimated cost of equity and of debt ("cost of capital") derived using both known and estimated customary market metrics.ongoing price adjustments. Our weighted average cost of capital is adjusted by reporting unit to reflect a risk factor, if necessary. Other significant assumptions include terminal value growth rates, terminal value margin rates, future capital expenditures and changes in future working capital requirements. While there are inherent uncertainties related to the assumptions used and to management’s application of these assumptions to this analysis, we believe that the income approach provides a reasonable estimate of the fair value of our reporting units. The market valuation approach is used to further support our analysis and is based on recent transactions involving comparable companies.
In 2017, we performed a qualitative assessment of our reporting units. The assessment was completed as of the first day of our fourth quarter. The assessment indicated that it was more likely than not that the fair value of each of the reporting units exceeded its respective carrying value. We do not believe that any of our reporting units is at riskcustomers pay for impairment.
Impairment of Long-Lived Assets
We monitor our long-lived assets for impairment indicators on an ongoing basisproducts received in accordance with GAAP. If impairment indicators exist, we performpayment terms that are customary within the required impairment analysis by comparing the undiscounted cash flows expectedindustry. Our contracts with our customers do not have significant financing components. We record a contract liability for advances received from our customers.
Amounts billed to be generated from the long-lived assets to the related net book values. If the net book value exceeds the undiscounted cash flows, an impairment loss is measured and recognized. An impairment loss is measured as the difference between the net book value and the fair value of the long-lived assets. Fair value is estimated based upon either discounted cash flow analyses or estimated salvage values. Cash flows are estimated using internal budgets based on recent sales data, independent automotive production volume estimates and customer commitments, as well as assumptionscustomers related to discount rates. Changesshipping and handling costs are included in economic or operating conditions impacting these estimates and assumptions could resultnet sales in the impairmentconsolidated statements of our long-lived assets.
For the years ended December 31, 2017, 2016income. Shipping and 2015, we recognized fixed asset impairment chargeshandling costs are accounted for as fulfillment costs and are included in cost of $1 million, $5 million and $4 million, respectively,sales in conjunction with our restructuring actions, as well as additional fixed asset impairment charges of $2 million, $1 million and $2 million, respectively. See Note 4, "Restructuring," to the consolidated financial statements included in this Report.of income.
Impairment of Investments in Affiliates
As of December 31, 2017Taxes assessed by a governmental authority that are both imposed on and 2016,concurrent with a specific revenue-producing transaction that we had aggregate investments in affiliates of $147 million and $154 million, respectively. We monitor our investments in affiliates for indicators of other-than-temporary declines in value on an ongoing basis in accordance with GAAP. If we determine that an other-than-temporary decline in value has occurred, we recognize an
impairment loss, which is measured as the difference between the recorded book value and the fair value of the investment. Fair value is generally determined using an income approach based on discounted cash flows or negotiated transaction values. A deterioration in industry conditions and decline in the operating results of our non-consolidated affiliates could result in the impairment of our investments.
Restructuring
Accruals have been recorded in conjunction with our restructuring actions. These accruals include estimates primarily related to facility consolidations and closures, employment reductions and contract termination costs. Actual costs may varycollect from these estimates. Restructuring-related accrualsa customer are reviewed on a quarterly basis, and changes to restructuring actions are appropriately recognized when identified.
Legal and Other Contingencies
We are involvedexcluded from time to time in various legal proceedings and claims, including commercial or contractual disputes, product liability claims and environmental and other matters, that arise in the normal course of business. We routinely assess the likelihood of any adverse judgments or outcomes related to these matters, as well as ranges of probable losses, by consulting with internal personnel principally involved with such matters and with our outside legal counsel handling such matters. We have accrued for estimated losses in accordance with GAAP for those matters where we believe that the likelihood that a loss has occurred is probable and the amount of the loss is reasonably estimable. The determination of the amount of such reserves is based on knowledge and experience with regard to past and current matters and consultation with internal personnel principally involved with such matters and with our outside legal counsel handling such matters. The amount of such reserves may change in the future due to new developments or changes in circumstances. The inherent uncertainty related to the outcome of these matters can result in amounts materially different from any provisions made with respect to their resolution. See Note 11, "Commitments and Contingencies," to the consolidated financial statements included in this Report.revenue.
Pension and Other Postretirement Defined Benefit Plans
We provide certain pension and other postretirement benefits to our employees and retired employees, including pensions, postretirement health care benefits and other postretirement benefits.
Approximately7%6% of our active workforce is covered by defined benefit pension plans, and less than 1% of our active workforce is covered by other postretirement benefit plans. Pension plans provide benefits based on plan-specific benefit formulas as defined by the applicable plan documents. Postretirement benefit plans generally provide for the continuation of medical benefits for all eligible employees.retirees. We also have contractual arrangements with certain employees which provide for supplemental retirement benefits. In general, our policy is to fund our pension benefit obligation based on legal requirements, tax and liquidity considerations and local practices. We do not fund our postretirement benefit obligation.
Plan assets and obligations are measured using various actuarial assumptions, such as discount rates, rate of compensation increase, mortality rates, turnover rates and health care cost trend rates, which are determined as of the current year measurement date. The measurement of net periodic benefit cost is based on various actuarial assumptions, including discount rates, expected return on plan assets and rate of compensation increase, which are determined as of the prior year measurement date. We review our actuarial assumptions on an annual basis and modify these assumptions when appropriate. As required by GAAP, the effects of the modifications are recorded currently or are amortized over future periods.
The determination of the discount rate is generally based on an index created from a hypothetical bond portfolio consisting of high-quality fixed income securities with durations that match the timing of expected benefit payments. Changes in the selected discount rate could have a material impact on the projected benefit obligations, unfunded status and related net periodic benefit cost of our pension and other postretirement benefit plans.
The expected return on plan assets is determined based on several factors, including adjusted historical returns, historical risk premiums for various asset classes and target asset allocations within the portfolio. Adjustments made to the historical returns are based on recent return experience in the equity and fixed income markets and the belief that deviations from historical returns are likely over the relevant investment horizon.
Key assumptions are shown below:
| | | | | | | | | | | |
| Pension | | Other Postretirement |
| Benefit obligations as of December 31, 2021 | $ | 1,016 | | | $ | 81 | |
| Discount rate - | | | |
| Domestic plans | 3.0 | % | | 2.8 | % |
| Foreign plans | 2.5 | % | | 3.1 | % |
| Net periodic benefit (credit) cost for the year ended December 31, 2021 | $ | (2) | | | $ | 1 | |
| Discount rate - | | | |
| Domestic plans | 2.6 | % | | 2.4 | % |
| Foreign plans | 2.0 | % | | 2.5 | % |
| Expected return on plan assets - | | | |
| Domestic plans | 5.8 | % | | N/A |
| Foreign plans | 5.2 | % | | N/A |
Net periodic benefit (credit) cost for the year ending December 31, 2022 (1) | $ | (3) | | | $ | 1 | |
| Discount rate - | | | |
| Domestic plans | 3.0 | % | | 2.8 | % |
| Foreign plans | 2.5 | % | | 3.1 | % |
| Expected return on plan assets - | | | |
| Domestic plans | 5.5 | % | | N/A |
| Foreign plans | 4.6 | % | | N/A |
|
| | | | | | | |
| | Pension | | Other Postretirement |
| Benefit obligations as of December 31, 2017 | $ | 1,049 |
| | $ | 98 |
|
| Discount rate - | | | |
| Domestic plans | 3.6 | % | | 3.5 | % |
| Foreign plans | 3.1 | % | | 3.5 | % |
| Net periodic benefit cost for the year ended December 31, 2017 | $ | 7 |
| | $ | 2 |
|
| Discount rate - | | | |
| Domestic plans | 4.1 | % | | 3.9 | % |
| Foreign plans | 3.3 | % | | 3.9 | % |
| Expected return on plan assets - | | | |
| Domestic plans | 7.3 | % | | N/A |
|
| Foreign plans | 6.3 | % | | N/A |
|
Net periodic benefit cost for the year ended December 31, 2018 (1) | $ | (1 | ) | | $ | 1 |
|
| Discount rate - | | | |
| Domestic plans | 3.6 | % | | 3.5 | % |
| Foreign plans | 3.1 | % | | 3.5 | % |
| Expected return on plan assets - | | | |
| Domestic plans | 6.5 | % | | N/A |
|
| Foreign plans | 5.9 | % | | N/A |
|
(1) Forecasted
The sensitivity to a 100 basis point ("bp") decrease in the discount rate and expected return on plan assets is shown below (in millions): | | | | Increase in Benefit Obligation | | Increase in 2018 Net Periodic Benefit Cost | | Increase in Benefit Obligation | | Increase (Decrease) in 2022 Net Periodic Benefit Cost |
| | Pension | | Other Postretirement | | Pension | | Other Postretirement | | Pension | | Other Postretirement | | Pension | | Other Postretirement |
| 100 bp decrease in discount rate | $ | 162 |
| | $ | 13 |
| | $ | 4 |
| | $ | 1 |
| 100 bp decrease in discount rate | $ | 152 | | | $ | 9 | | | $ | (1) | | | $ | — | |
| 100 bp decrease in expected return on plan assets | N/A |
| | N/A |
| | $ | 8 |
| | N/A |
| 100 bp decrease in expected return on plan assets | N/A | | N/A | | 8 | | | N/A |
For further information related to our pension and other postretirement benefit plans, see "— Liquidity and Financial Condition — Capitalization — Contractual Obligations" above and Note 8,10, "Pension and Other Postretirement Benefit Plans," to the consolidated financial statements included in this Report.
Revenue Recognition and Sales Commitments
We enter into agreements with our customers to produce products at the beginning of a vehicle’s life cycle. Although such agreements do not provide for a specified quantity of products, once we enter into such agreements, we are generally required to fulfill our customers’ purchasing requirements for the production life of the vehicle. These agreements generally may be terminated by our customers at any time. Historically, terminations of these agreements have been minimal. Sales are generally recorded upon shipment of product to customers and transfer of title under standard commercial terms. In certain instances, we may be committed under existing agreements to supply products to our customers at selling prices which are not sufficient to cover the direct cost to produce such products. In such situations, we recognize losses as they are incurred.
We receive purchase orders from our customers on an annual basis. Generally, each purchase order provides the annual terms, including pricing, related to a particular vehicle model. Purchase orders do not specify quantities. We recognize revenue based on the pricing terms included in our annual purchase orders. We are asked to provide our customers with annual productivity price reductions as part of certain agreements. We accrue for such amounts as a reduction of revenue as our products are shipped to our customers. In addition, we have ongoing adjustments to our pricing arrangements with our customers based on the related content, the cost of our products and other commercial factors. Such pricing accruals are adjusted as they are settled with our customers.
Income Taxes
We account for income taxes in accordance with GAAP. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Our current and future provision for income taxes is impacted by the initial recognition of and changes in valuation allowances in certain countries. We intend to maintain these allowances until it is more likely than not that the deferred tax assets will be realized. Our 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. We evaluate the realizability of our deferred tax assets on a quarterly basis. In completing this evaluation, we consider all available evidence in order to determine whether, based on the weight of the evidence, a valuation allowance for our 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 our deferred tax assets will not be realized, a valuation allowance is recorded.
As of December 31, 2017,2021, we had a valuation allowance related to tax loss and credit carryforwards and other deferred tax assets of $21$25 million in the United States and $381$382 million in several international jurisdictions. If operating results improve or decline on a continual basis in a particular jurisdiction, our decision regarding the need for a valuation allowance could change, resulting in either the initial recognition or reversal of a valuation allowance in that jurisdiction, which could have a significant impact on income tax expense in the period recognized and subsequent periods. In determining the provision for income taxes for financial statement purposes, we make certain estimates and judgments, which affect our evaluation of the carrying value of our deferred tax assets, as well as our calculation of certain tax liabilities.
The calculation of our gross unrecognized tax benefits and liabilities includes uncertainties in the application of, and changes in, complex tax regulations in a multitude of jurisdictions across our global operations. We recognize tax benefits and liabilities based on our estimate of whether, and the extent to which, additional taxes will be due. We adjust these benefits and liabilities based on changing facts and circumstances; however, due to the complexity of these uncertainties and the impact of tax audits, the ultimate resolutions may differ significantly from our estimates.
The Tax Cuts and Jobs Act (the "Act") was enacted on December 22, 2017. The Act reduces the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on all offshore earnings that were previously tax deferred and creates new taxes on certain foreign sourced earnings. As of December 31, 2017, we have not completed our accounting for the tax effects of the Act; however, in certain cases, as described below, we have made a reasonable estimate of the effects on our existing deferred tax balances and the one-time transition tax. In the year ended December 31, 2017, the provision for income taxes includes provisional income tax expense of $174 million related to items for which we were able to determine a reasonable estimate. In all cases, we will continue to make and refine our calculations as additional analysis is completed. In addition, our estimates may be affected as additional regulatory guidance is issued with respect to the Act. Any adjustments to the provisional amounts will be recognized as a component of the provision for income taxes in the period in which such adjustments are determined, but in any event, no later than the fourth quarter of 2018.
Provisional Amounts
Deferred tax assets and liabilities: We remeasured our U.S. deferred tax assets and liabilities at 21%. However, we are still analyzing certain aspects of the Act and refining our calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. In the year ended December 31, 2017, the provision for income taxes includes provisional income tax expense of $43 million related to the remeasurement of deferred tax balances.
Transition Tax on Deferred Foreign Earnings: The one-time transition tax is based on our post-1986 earnings and profits ("E&P") that were previously deferred from U.S. income taxes. In the year ended December 31, 2017, the provision for income taxes includes provisional income tax expense of $131 million related to the one-time transition tax liability of our foreign subsidiaries. We have not completed our calculation of the total post-1986 E&P for these foreign subsidiaries. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when we finalize the calculation of post-1986 E&P previously deferred from U.S. income taxes and the amounts held in cash or other specified assets. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax. However, we continue to recognize a deferred tax liability related to foreign withholding tax that will be incurred for undistributed foreign earnings that are not permanently reinvested.
For further information, see "— Forward-Looking Statements,"Statements" below and Note 7,9, "Income Taxes," to the consolidated financial statements included in this Report.
Fair Value Measurements
We measure certain assets and liabilities at fair value on a non-recurring basis using unobservable inputs (Level 3 input based on the GAAP fair value hierarchy). For further information on these fair value measurements, see "— Impairment of Goodwill," "— Impairment of Long-Lived Assets," "— Restructuring" and "— Impairment of Investments in Affiliates" above.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. During 2017,2021, there were no material changes in the methods or policies used to establish estimates and assumptions. Other matters subject to estimation and judgment include amounts related to accounts receivable realization, inventory obsolescence, asset impairments, useful lives of fixed and intangible assets, unsettled pricing discussions with customers and suppliers, restructuring accruals, deferred tax asset valuation allowances and income taxes, pension and other postretirement benefit plan assumptions, accruals related to litigation, warranty and environmental remediation costs and self-insurance accruals. Actual results may differ significantly from our estimates.
Recently Issued Accounting Pronouncements
For information on the impact of recently issued accounting pronouncements, see Note 15,17, "Accounting Pronouncements," to the consolidated financial statements included in this Report.
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 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;
•disruptions in relationships with our suppliers;
•the outcomefinancial condition of legal or regulatory proceedings to which we are or may become a party;and adverse developments affecting our customers and suppliers;
•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 ourthe 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;
•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;
•our ability to attract, develop, engage and retain qualified employees;
•our ability to respond to the evolution of the global transportation industry;
•the outcome of an increased emphasis on global climate change and other ESG matters by stakeholders;
•the impact of global climate change;
•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;
•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;
•increases in the costs and restrictions on the availability of raw materials, energy, commodities and product components;
•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; and
the anticipated changes in economic and other relationships between the United Kingdom and the European Union; and
•other risks, described in Part I — Item 1A, "Risk Factors," as well as the risks and information provided from time to time in our filings with the Securities and Exchange Commission.
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 8 – CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Lear Corporation
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Lear Corporation and subsidiaries (the Company) as of December 31, 20172021 and 2016, and2020, the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2017,2021, and the related notes and financial statement schedule listed in the Index at Item 15(a) (collectively referred to as the "financial statements")consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company at December 31, 20172021 and 2016,2020, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 2017,2021, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 31, 2017,2021, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) and our report dated February 6, 2018,10, 2022, expressed an unqualified opinion thereon.
Basis for Opinion
These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company’sCompany's financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective or complex judgments. The communication of the critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the account or disclosure to which it relates.
| | | | | |
| Revenue recognition |
| Description of the Matter | As discussed in Note 3, Summary of Significant Accounting Policies, the Company's sales contracts with its customers may provide for annual price reductions over the production life of the vehicle. Prices may also be adjusted on an ongoing basis to reflect changes in product content, product cost and other commercial factors. Some of these price adjustments are non-routine in nature. The amount of revenue recognized by the Company reflects the consideration that the Company expects to be entitled to in exchange for its products based on annual purchase orders, annual price reductions and ongoing price adjustments.
Auditing the consideration that the Company expects to be entitled to in exchange for certain of its products which are subject to non-routine price adjustments is highly judgmental as it relates to evaluating the sufficiency of evidence available from commercial negotiations to support the ultimate consideration that the Company is entitled to in exchange for those products. |
| | | | | |
| How We Addressed the Matter in Our Audit | We identified and tested controls over the identification and evaluation of product sales with non-routine price adjustments, including management's review of the evidence to support the Company's measurement of revenue related to those product sales.
Our audit procedures included, among others, inspecting communications between the Company and its customers related to the pricing arrangements, auditing adjustments at period-end related to those product sales, performing retrospective reviews of management's estimates to identify contrary evidence, if any, and performing inquiries of and obtaining written representations from executives, within the Company, responsible for the respective customer relationships. |
/s/ Ernst & Young LLP
We have served as the Company’sCompany's auditor since 2002.
Detroit, Michigan
February 6, 201810, 2022
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Lear Corporation
Opinion on Internal Control over Financial Reporting
We have audited Lear Corporation and subsidiaries’subsidiaries' internal control over financial reporting as of December 31, 2017,2021, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). In our opinion, Lear Corporation and subsidiaries (the Company) maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2021, based on the COSO criteria.
As indicated in the accompanying Management’s Annual Report on Internal Control over Financial Reporting, management’s assessment of and conclusion on the effectiveness of internal control over financial reporting did not include the internal controls of Grupo Antolin's automotive seating business ("Antolin Seating"), which is included in the 2017 consolidated financial statements of the Company and constituted 4% of total assets as of December 31, 2017, and 2% of net sales for the year then ended. Our audit of internal control over financial reporting of the Company also did not include an evaluation of the internal control over financial reporting of Antolin Seating.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the 2021 consolidated balance sheets of Lear Corporation and subsidiaries as of December 31, 2017 and 2016, and the related consolidatedfinancial statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2017, and the related notes and financial statement schedule,Company and our report dated February 6, 2018,10, 2022, expressed an unqualified opinion thereon.
Basis for Opinion
The Company’sCompany's management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’sManagement's Annual Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’sCompany's internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects.
Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company’scompany's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’scompany's internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’scompany's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ Ernst & Young LLP
Detroit, Michigan
February 6, 201810, 2022
LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
| | | December 31, | 2017 | | 2016 | December 31, | 2021 | | 2020 |
| Assets | | | | Assets | |
| Current Assets: | | | | Current Assets: | |
| Cash and cash equivalents | $ | 1,500.4 |
| | $ | 1,271.6 |
| Cash and cash equivalents | $ | 1,318.3 | | | $ | 1,306.7 | |
| Accounts receivable | 3,230.8 |
| | 2,746.5 |
| Accounts receivable | 3,041.5 | | | 3,269.2 | |
| Inventories | 1,205.7 |
| | 1,020.6 |
| Inventories | 1,571.9 | | | 1,401.1 | |
| Other | 676.1 |
| | 610.6 |
| Other | 833.5 | | | 799.7 | |
| Total current assets | 6,613.0 |
| | 5,649.3 |
| Total current assets | 6,765.2 | | | 6,776.7 | |
| Long-Term Assets: | | | | Long-Term Assets: | |
| Property, plant and equipment, net | 2,459.4 |
| | 2,019.3 |
| Property, plant and equipment, net | 2,720.1 | | | 2,736.2 | |
| Goodwill | 1,401.3 |
| | 1,121.3 |
| Goodwill | 1,657.9 | | | 1,655.8 | |
| Other | 1,472.2 |
| | 1,110.7 |
| Other | 2,209.2 | | | 2,029.9 | |
| Total long-term assets | 5,332.9 |
| | 4,251.3 |
| Total long-term assets | 6,587.2 | | | 6,421.9 | |
| Total assets | $ | 11,945.9 |
| | $ | 9,900.6 |
| Total assets | $ | 13,352.4 | | | $ | 13,198.6 | |
| Liabilities and Equity | | | | Liabilities and Equity | |
| Current Liabilities: | | | | Current Liabilities: | |
| Short-term borrowings | $ | — |
| | $ | 8.6 |
| |
| | Accounts payable and drafts | 3,167.2 |
| | 2,640.5 |
| Accounts payable and drafts | $ | 2,952.4 | | | $ | 3,141.6 | |
| Accrued liabilities | 1,678.1 |
| | 1,497.6 |
| Accrued liabilities | 1,806.7 | | | 1,920.9 | |
| Current portion of long-term debt | 9.0 |
| | 35.6 |
| Current portion of long-term debt | 0.8 | | | 14.2 | |
| Total current liabilities | 4,854.3 |
| | 4,182.3 |
| Total current liabilities | 4,759.9 | | | 5,076.7 | |
| Long-Term Liabilities: | | | | Long-Term Liabilities: | |
| Long-term debt | 1,951.5 |
| | 1,898.0 |
| Long-term debt | 2,595.2 | | | 2,300.3 | |
| Other | 694.1 |
| | 627.4 |
| Other | 1,188.9 | | | 1,206.7 | |
| Total long-term liabilities | 2,645.6 |
| | 2,525.4 |
| Total long-term liabilities | 3,784.1 | | | 3,507.0 | |
| | | | | |
| Redeemable noncontrolling interest | 153.4 |
| | — |
| |
| | | | | |
| Equity: | | | | Equity: | |
Preferred stock, 100,000,000 shares authorized (including 10,896,250 shares
of Series A convertible preferred stock authorized); no shares outstanding | — |
| | — |
| Preferred stock, 100,000,000 shares authorized (including 10,896,250 shares of Series A convertible preferred stock authorized); no shares outstanding | — | | | — | |
| Common stock, $0.01 par value, 300,000,000 shares authorized; 72,563,291 and 80,563,291 shares issued as of December 31, 2017 and 2016, respectively | 0.7 |
| | 0.8 |
| |
| Common stock, $0.01 par value, 300,000,000 shares authorized; 64,571,405 shares issued as of December 31, 2021 and 2020 | | Common stock, $0.01 par value, 300,000,000 shares authorized; 64,571,405 shares issued as of December 31, 2021 and 2020 | 0.6 | | | 0.6 | |
| Additional paid-in capital | 1,215.4 |
| | 1,385.3 |
| Additional paid-in capital | 1,019.4 | | | 963.6 | |
Common stock held in treasury, 5,689,527 and 11,131,648 shares
as of December 31, 2017 and 2016, respectively, at cost | (724.1 | ) | | (1,200.2 | ) | |
Common stock held in treasury, 4,945,847 and 4,519,891 shares as of December 31, 2021 and 2020, respectively, at cost | | Common stock held in treasury, 4,945,847 and 4,519,891 shares as of December 31, 2021 and 2020, respectively, at cost | (679.2) | | | (598.6) | |
| Retained earnings | 4,171.9 |
| | 3,706.9 |
| Retained earnings | 5,072.8 | | | 4,806.8 | |
| Accumulated other comprehensive loss | (513.4 | ) | | (835.6 | ) | Accumulated other comprehensive loss | (770.2) | | | (705.1) | |
| Lear Corporation stockholders’ equity | 4,150.5 |
| | 3,057.2 |
| |
| Lear Corporation stockholders' equity | | Lear Corporation stockholders' equity | 4,643.4 | | | 4,467.3 | |
| Noncontrolling interests | 142.1 |
| | 135.7 |
| Noncontrolling interests | 165.0 | | | 147.6 | |
| Equity | 4,292.6 |
| | 3,192.9 |
| Equity | 4,808.4 | | | 4,614.9 | |
| Total liabilities and equity | $ | 11,945.9 |
| | $ | 9,900.6 |
| Total liabilities and equity | $ | 13,352.4 | | | $ | 13,198.6 | |
The accompanying notes are an integral part of these consolidated balance sheets.
LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except share and per share data)
| | | For the year ended December 31, | 2017 | | 2016 | | 2015 | For the year ended December 31, | 2021 | | 2020 | | 2019 |
| Net sales | $ | 20,467.0 |
| | $ | 18,557.6 |
| | $ | 18,211.4 |
| Net sales | $ | 19,263.1 | | | $ | 17,045.5 | | | $ | 19,810.3 | |
| Cost of sales | 18,175.9 |
| | 16,455.5 |
| | 16,391.6 |
| Cost of sales | 17,871.2 | | | 15,936.6 | | | 18,072.8 | |
| Selling, general and administrative expenses | 635.2 |
| | 621.9 |
| | 580.5 |
| Selling, general and administrative expenses | 643.2 | | | 588.9 | | | 605.0 | |
| Amortization of intangible assets | 47.6 |
| | 53.0 |
| | 52.5 |
| Amortization of intangible assets | 73.3 | | | 65.9 | | | 62.3 | |
| Interest expense | 85.7 |
| | 82.5 |
| | 86.7 |
| Interest expense | 91.8 | | | 99.6 | | | 92.0 | |
| Other (income) expense, net | (4.1 | ) | | 6.4 |
| | 68.6 |
| |
| Other expense, net | | Other expense, net | 0.1 | | | 55.2 | | | 24.6 | |
| Consolidated income before provision for income taxes and equity in net income of affiliates | 1,526.7 |
| | 1,338.3 |
| | 1,031.5 |
| Consolidated income before provision for income taxes and equity in net income of affiliates | 583.5 | | | 299.3 | | | 953.6 | |
| Provision for income taxes | 197.5 |
| | 370.2 |
| | 285.5 |
| Provision for income taxes | 137.7 | | | 93.9 | | | 146.1 | |
| Equity in net income of affiliates | (51.7 | ) | | (72.4 | ) | | (49.8 | ) | Equity in net income of affiliates | (15.8) | | | (28.5) | | | (23.2) | |
| Consolidated net income | 1,380.9 |
| | 1,040.5 |
| | 795.8 |
| Consolidated net income | 461.6 | | | 233.9 | | | 830.7 | |
| Less: Net income attributable to noncontrolling interests | 67.5 |
| | 65.4 |
| | 50.3 |
| Less: Net income attributable to noncontrolling interests | 87.7 | | | 75.4 | | | 77.1 | |
| Net income attributable to Lear | $ | 1,313.4 |
| | $ | 975.1 |
| | $ | 745.5 |
| Net income attributable to Lear | $ | 373.9 | | | $ | 158.5 | | | $ | 753.6 | |
| | | | | | | |
| Basic net income per share available to Lear common stockholders | $ | 18.79 |
| | $ | 13.48 |
| | $ | 9.71 |
| Basic net income per share available to Lear common stockholders | $ | 6.22 | | | $ | 2.63 | | | $ | 12.80 | |
| | | | | | | |
| Diluted net income per share available to Lear common stockholders | $ | 18.59 |
| | $ | 13.33 |
| | $ | 9.59 |
| Diluted net income per share available to Lear common stockholders | $ | 6.19 | | | $ | 2.62 | | | $ | 12.75 | |
| | | | | | | |
| Average common shares outstanding | 68,542,363 |
| | 72,345,436 |
| | 76,754,270 |
| Average common shares outstanding | 60,082,833 | | | 60,254,380 | | | 61,697,192 | |
| | | | | | | |
| Average diluted shares outstanding | 69,277,981 |
| | 73,124,949 |
| | 77,767,017 |
| Average diluted shares outstanding | 60,420,484 | | | 60,429,962 | | | 61,923,528 | |
The accompanying notes are an integral part of these consolidated financial statements.
LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(In millions)
| | | For the year ended December 31, | 2017 | | 2016 | | 2015 | For the year ended December 31, | 2021 | | 2020 | | 2019 |
| Consolidated net income | $ | 1,380.9 |
| | $ | 1,040.5 |
| | $ | 795.8 |
| Consolidated net income | $ | 461.6 | | | $ | 233.9 | | | $ | 830.7 | |
| Other comprehensive income (loss), net of tax: | | | | | | Other comprehensive income (loss), net of tax: | |
| Defined benefit plan adjustments | 8.8 |
| | 1.8 |
| | 24.6 |
| Defined benefit plan adjustments | 77.5 | | | (59.3) | | | (44.8) | |
| Derivative instruments and hedging activities | 22.2 |
| | (6.4 | ) | | (5.5 | ) | Derivative instruments and hedging activities | (31.2) | | | 2.8 | | | 19.5 | |
| Foreign currency translation adjustments | 305.0 |
| | (109.5 | ) | | (251.1 | ) | Foreign currency translation adjustments | (108.3) | | | 139.7 | | | (45.1) | |
| Total other comprehensive income (loss) | 336.0 |
| | (114.1 | ) | | (232.0 | ) | Total other comprehensive income (loss) | (62.0) | | | 83.2 | | | (70.4) | |
| Consolidated comprehensive income | 1,716.9 |
| | 926.4 |
| | 563.8 |
| Consolidated comprehensive income | 399.6 | | | 317.1 | | | 760.3 | |
| Less: Comprehensive income attributable to noncontrolling interests | 81.3 |
| | 56.8 |
| | 46.4 |
| Less: Comprehensive income attributable to noncontrolling interests | 90.8 | | | 91.0 | | | 73.6 | |
| Comprehensive income attributable to Lear | $ | 1,635.6 |
| | $ | 869.6 |
| | $ | 517.4 |
| Comprehensive income attributable to Lear | $ | 308.8 | | | $ | 226.1 | | | $ | 686.7 | |
The accompanying notes are an integral part of these consolidated financial statements.
LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY
(In millions, except share data) | | | | | | | | | | | | | | | | | Redeemable Non-
controlling Interests | | | Common
Stock | | Additional Paid-in Capital | | Common
Stock Held in Treasury | | Retained
Earnings |
| | Redeemable Non- controlling Interests | | | Preferred Stock | | Common Stock | | Additional Paid-in Capital | | Common Stock Held in Treasury | | Retained Earnings | |
| Balance as of December 31, 2014 | $ | — |
| | | $ | — |
| | $ | 0.8 |
| | $ | 1,475.2 |
| | $ | (176.9 | ) | | $ | 2,161.7 |
| |
| Balance as of December 31, 2018 | | Balance as of December 31, 2018 | $ | 158.1 | | | | $ | 0.6 | | | $ | 1,017.4 | | | $ | (225.1) | | | $ | 4,113.6 | |
| Comprehensive income (loss): | — |
| | | | | | | | | | | | Comprehensive income (loss): | — | | | | |
| Net income | — |
| | | — |
| | — |
| | — |
| | — |
| | 745.5 |
| Net income | 1.8 | | | | — | | | — | | | — | | | 753.6 | |
| Other comprehensive income (loss) | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| Other comprehensive income (loss) | (1.8) | | | | — | | | — | | | — | | | — | |
| Total comprehensive income (loss) | — |
| | | — |
| | — |
| | — |
| | — |
| | 745.5 |
| Total comprehensive income (loss) | — | | | | — | | | — | | | — | | | 753.6 | |
| Stock-based compensation | — |
| | | — |
| | — |
| | 65.7 |
| | — |
| | — |
| Stock-based compensation | — | | | | — | | | 23.3 | | | — | | | — | |
| Excess tax benefits related to stock-based compensation | — |
| | | — |
| | — |
| | 2.5 |
| | — |
| | — |
| |
| Net issuances of 807,015 shares held in treasury in settlement of stock-based compensation | — |
| | | — |
| | — |
| | (91.5 | ) | | 41.3 |
| | — |
| |
| Repurchases of 4,366,365 shares of common stock at an average price of $111.62 per share | — |
| | | — |
| | — |
| | — |
| | (487.4 | ) | | — |
| |
| Net issuances of 314,953 shares held in treasury in settlement of stock-based compensation | | Net issuances of 314,953 shares held in treasury in settlement of stock-based compensation | — | | | | — | | | (71.6) | | | 42.4 | | | (2.1) | |
| Repurchases of 2,819,081 shares of common stock at an average price of $134.95 per share | | Repurchases of 2,819,081 shares of common stock at an average price of $134.95 per share | — | | | | — | | | — | | | (380.4) | | | — | |
| Dividends declared to Lear Corporation stockholders | — |
| | | — |
| | — |
| | — |
| | — |
| | (79.4 | ) | Dividends declared to Lear Corporation stockholders | — | | | | — | | | — | | | — | | | (186.3) | |
| Dividends paid to noncontrolling interests | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| |
| Additions to noncontrolling interests | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| |
| Balance as of December 31, 2015 | $ | — |
| | | $ | — |
| | $ | 0.8 |
| | $ | 1,451.9 |
| | $ | (623.0 | ) | | $ | 2,827.8 |
| |
| Dividends declared to noncontrolling interests | | Dividends declared to noncontrolling interests | (2.7) | | | | — | | | — | | | — | | | — | |
Noncontrolling interests — other | | Noncontrolling interests — other | — | | | | — | | | — | | | — | | | — | |
| Disposal of noncontrolling interests | | Disposal of noncontrolling interests | — | | | | — | | | — | | | — | | | — | |
| Redeemable noncontrolling interest adjustment | | Redeemable noncontrolling interest adjustment | (37.0) | | | | — | | | — | | | — | | | 37.0 | |
| Balance as of December 31, 2019 | | Balance as of December 31, 2019 | $ | 118.4 | | | | $ | 0.6 | | | $ | 969.1 | | | $ | (563.1) | | | $ | 4,715.8 | |
| Comprehensive income (loss): | | Comprehensive income (loss): | | | |
| Net income (loss) | | Net income (loss) | (3.5) | | | | — | | | — | | | — | | | 158.5 | |
| Other comprehensive income (loss) | | Other comprehensive income (loss) | 7.7 | | | | — | | | — | | | — | | | — | |
| Total comprehensive income (loss) | | Total comprehensive income (loss) | 4.2 | | | | — | | | — | | | — | | | 158.5 | |
| Adoption of ASU 2016-13 | | Adoption of ASU 2016-13 | — | | | | — | | | — | | | — | | | (0.8) | |
| Stock-based compensation | | Stock-based compensation | — | | | | — | | | 40.0 | | | — | | | — | |
| Net issuances of 249,064 shares held in treasury in settlement of stock-based compensation | | Net issuances of 249,064 shares held in treasury in settlement of stock-based compensation | — | | | | — | | | (46.9) | | | 34.5 | | | (3.5) | |
| Repurchases of 641,149 shares of common stock at an average price of $109.22 per share | | Repurchases of 641,149 shares of common stock at an average price of $109.22 per share | — | | | | — | | | — | | | (70.0) | | | — | |
| Dividends declared to Lear Corporation stockholders | | Dividends declared to Lear Corporation stockholders | — | | | | — | | | — | | | — | | | (62.1) | |
| Dividends declared to noncontrolling interests | | Dividends declared to noncontrolling interests | (26.8) | | | | — | | | — | | | — | | | — | |
| Acquisition of outstanding noncontrolling interests | | Acquisition of outstanding noncontrolling interests | (96.9) | | | | — | | | 1.4 | | | — | | | — | |
| Redeemable noncontrolling interest adjustment | | Redeemable noncontrolling interest adjustment | 1.1 | | | | — | | | — | | | — | | | (1.1) | |
| Balance as of December 31, 2020 | | Balance as of December 31, 2020 | $ | — | | | | $ | 0.6 | | | $ | 963.6 | | | $ | (598.6) | | | $ | 4,806.8 | |
| Comprehensive income (loss): | | | | | | | | | | | | | Comprehensive income (loss): | | | |
| Net income | — |
| | | — |
| | — |
| | — |
| | — |
| | 975.1 |
| Net income | — | | | | — | | | — | | | — | | | 373.9 | |
| Other comprehensive income (loss) | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| Other comprehensive income (loss) | — | | | | — | | | — | | | — | | | — | |
| Total comprehensive income (loss) | — |
| | | — |
| | — |
| | — |
| | — |
| | 975.1 |
| Total comprehensive income (loss) | — | | | | — | | | — | | | — | | | 373.9 | |
| Stock-based compensation | — |
| | | — |
| | — |
| | 68.2 |
| | — |
| | — |
| Stock-based compensation | — | | | | — | | | 60.3 | | | — | | | — | |
| Excess tax benefits related to stock-based compensation | — |
| | | — |
| | — |
| | 8.8 |
| | — |
| | — |
| |
| Net issuances of 783,793 shares held in treasury in settlement of stock-based compensation | — |
| | | — |
| | — |
| | (124.2 | ) | | 81.6 |
| | (4.7 | ) | |
| Repurchases of 5,816,363 shares of common stock at an average price of $113.26 per share | — |
| | | — |
| | — |
| | — |
| | (658.8 | ) | | — |
| |
| Dividends declared to Lear Corporation stockholders | — |
| | | — |
| | — |
| | — |
| | — |
| | (89.1 | ) | |
| Dividends paid to noncontrolling interests | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| |
| Affiliate transaction | — |
| | | — |
| | — |
| | — |
| | — |
| | — |
| |
| Acquisition of outstanding noncontrolling interests | — |
| | | — |
| | — |
| | (19.4 | ) | | — |
| | — |
| |
| Noncontrolling interests — other | — |
| | | — |
| | — |
| | — |
| | — |
| | (2.2 | ) | |
| Balance as of December 31, 2016 | $ | — |
| | | $ | — |
| | $ | 0.8 |
| | $ | 1,385.3 |
| | $ | (1,200.2 | ) | | $ | 3,706.9 |
| |
| Comprehensive income: | | | | | | | | | | | | | |
| Net income | 3.2 |
| | | — |
| | — |
| | — |
| | — |
| | 1,313.4 |
| |
| Other comprehensive income | 4.6 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| |
| Total comprehensive income | 7.8 |
| | | — |
| | — |
|
| — |
|
| — |
|
| 1,313.4 |
| |
| Adoption of ASU 2016-09 (Note 7, "Taxes") | — |
| | | — |
| | — |
| | — |
| | — |
| | 52.9 |
| |
| Stock-based compensation | — |
| | | — |
| | — |
| | 70.2 |
| | — |
| | — |
| |
| Net issuances of 456,252 shares held in treasury in settlement of stock-based compensation | — |
| | | — |
| | — |
| | (84.2 | ) | | 39.0 |
| |
|
| |
| Repurchases of 3,014,131 shares of common stock at an average price of $150.77 per share | — |
| | | — |
| | — |
| | — |
| | (454.4 | ) | | — |
| |
| Retirement of 8,000,000 shares held in treasury at average price of $111.43 per share | — |
| | | — |
| | (0.1 | ) | | (155.9 | ) | | 891.5 |
| | (735.5 | ) | |
| Net issuances of 163,761 shares held in treasury in settlement of stock-based compensation | | Net issuances of 163,761 shares held in treasury in settlement of stock-based compensation | — | | | | — | | | (33.1) | | | 19.7 | | | — | |
| Repurchases of 589,717 shares of common stock at an average price of $170.03 per share | | Repurchases of 589,717 shares of common stock at an average price of $170.03 per share | — | | | | — | | | — | | | (100.3) | | | — | |
| Dividends declared to Lear Corporation stockholders | — |
| | | — |
| | — |
| | — |
| | — |
| | (140.3 | ) | Dividends declared to Lear Corporation stockholders | — | | | | — | | | — | | | — | | | (107.9) | |
| Dividends declared to noncontrolling interests | (4.9 | ) | | | — |
| | — |
| | — |
| | — |
| | — |
| Dividends declared to noncontrolling interests | — | | | | — | | | — | | | — | | | — | |
| Affiliate transaction | 125.0 |
| | | — |
| | — |
| | — |
| | — |
| | — |
| Affiliate transaction | — | | | | — | | | 28.6 | | | — | | | — | |
| Redeemable noncontrolling interest adjustment | 25.5 |
| | | — |
| | — |
| | — |
| | — |
| | (25.5 | ) | |
| Balance as of December 31, 2017 | $ | 153.4 |
| | | $ | — |
| | $ | 0.7 |
| | $ | 1,215.4 |
| | $ | (724.1 | ) | | $ | 4,171.9 |
| |
| Balance as of December 31, 2021 | | Balance as of December 31, 2021 | $ | — | | | | $ | 0.6 | | | $ | 1,019.4 | | | $ | (679.2) | | | $ | 5,072.8 | |
The accompanying notes are an integral part of these consolidated financial statements.
LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EQUITY (continued)
(In millions, except share data) | | | | | | | | | | | | | | | | Accumulated Other Comprehensive Loss, net of tax | | | |
| | Accumulated Other Comprehensive Loss, net of tax | | | | Defined
Benefit Plans | | Derivative
Instruments and
Hedge
Activities | | Cumulative
Translation
Adjustments | | Lear
Corporation
Stockholders'
Equity | | Non-controlling
Interests | | Equity | |
| | Defined Benefit Plans | | Derivative Instruments and Hedging Activities | | Cumulative Translation Adjustments | | Lear Corporation Stockholders’ Equity | | Non-controlling Interests | | Equity | |
| Balance as of December 31, 2014 | $ | (219.2 | ) | | $ | (33.2 | ) | | $ | (249.6 | ) | | $ | 2,958.8 |
| | $ | 70.5 |
| | $ | 3,029.3 |
| |
| Balance as of December 31, 2018 | | Balance as of December 31, 2018 | $ | (172.8) | | | $ | (9.7) | | | $ | (523.3) | | | $ | 4,200.7 | | | $ | 159.9 | | | $ | 4,360.6 | | |
| Comprehensive income (loss): | | | | | | | | | | | | Comprehensive income (loss): | | |
| Net income | — |
| | — |
| | — |
| | 745.5 |
| | 50.3 |
| | 795.8 |
| Net income | — | | | — | | | — | | | 753.6 | | | 75.3 | | | 828.9 | | |
| Other comprehensive income (loss) | 24.6 |
| | (5.5 | ) | | (247.2 | ) | | (228.1 | ) | | (3.9 | ) | | (232.0 | ) | Other comprehensive income (loss) | (44.8) | | | 19.5 | | | (41.6) | | | (66.9) | | | (1.7) | | | (68.6) | | |
| Total comprehensive income (loss) | 24.6 |
| | (5.5 | ) | | (247.2 | ) | | 517.4 |
| | 46.4 |
| | 563.8 |
| Total comprehensive income (loss) | (44.8) | | | 19.5 | | | (41.6) | | | 686.7 | | | 73.6 | | | 760.3 | | |
| Stock-based compensation | — |
| | — |
| | — |
| | 65.7 |
| | — |
| | 65.7 |
| Stock-based compensation | — | | | — | | | — | | | 23.3 | | | — | | | 23.3 | | |
| Excess tax benefits related to stock-based compensation | — |
| | — |
| | — |
| | 2.5 |
| | — |
| | 2.5 |
| |
| Net issuances of 807,015 shares held in treasury in settlement of stock-based compensation | — |
| | — |
| | — |
| | (50.2 | ) | | — |
| | (50.2 | ) | |
| Repurchases of 4,366,365 shares of common stock at an average price of $111.62 per share | — |
| | — |
| | — |
| | (487.4 | ) | | — |
| | (487.4 | ) | |
| Net issuances of 314,953 shares held in treasury in settlement of stock-based compensation | | Net issuances of 314,953 shares held in treasury in settlement of stock-based compensation | — | | | — | | | — | | | (31.3) | | | — | | | (31.3) | | |
| Repurchases of 2,819,081 shares of common stock at an average price of $134.95 per share | | Repurchases of 2,819,081 shares of common stock at an average price of $134.95 per share | — | | | — | | | — | | | (380.4) | | | — | | | (380.4) | | |
| Dividends declared to Lear Corporation stockholders | — |
| | — |
| | — |
| | (79.4 | ) | | — |
| | (79.4 | ) | Dividends declared to Lear Corporation stockholders | — | | | — | | | — | | | (186.3) | | | — | | | (186.3) | | |
| Dividends paid to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | (29.3 | ) | | (29.3 | ) | |
| Additions to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | 2.7 |
| | 2.7 |
| |
| Balance as of December 31, 2015 | $ | (194.6 | ) | | $ | (38.7 | ) | | $ | (496.8 | ) | | $ | 2,927.4 |
| | $ | 90.3 |
| | $ | 3,017.7 |
| |
| Dividends declared to noncontrolling interests | | Dividends declared to noncontrolling interests | — | | | — | | | — | | | — | | | (76.3) | | | (76.3) | | |
Noncontrolling interests — other | | Noncontrolling interests — other | — | | | — | | | — | | | — | | | (0.2) | | | (0.2) | | |
| Disposal of noncontrolling interests | | Disposal of noncontrolling interests | — | | | — | | | — | | | — | | | (5.6) | | | (5.6) | | |
| Redeemable noncontrolling interest adjustment | | Redeemable noncontrolling interest adjustment | — | | | — | | | — | | | 37.0 | | | — | | | 37.0 | | |
| Balance as of December 31, 2019 | | Balance as of December 31, 2019 | $ | (217.6) | | | $ | 9.8 | | | $ | (564.9) | | | $ | 4,349.7 | | | $ | 151.4 | | | $ | 4,501.1 | | |
| Comprehensive income (loss): | | Comprehensive income (loss): | | |
| Net income (loss) | | Net income (loss) | — | | | — | | | — | | | 158.5 | | | 78.9 | | | 237.4 | | |
| Other comprehensive income (loss) | | Other comprehensive income (loss) | (59.3) | | | 2.8 | | | 124.1 | | | 67.6 | | | 7.9 | | | 75.5 | | |
| Total comprehensive income (loss) | | Total comprehensive income (loss) | (59.3) | | | 2.8 | | | 124.1 | | | 226.1 | | | 86.8 | | | 312.9 | | |
| Adoption of ASU 2016-13 | | Adoption of ASU 2016-13 | — | | | — | | | — | | | (0.8) | | | — | | | (0.8) | | |
| Stock-based compensation | | Stock-based compensation | — | | | — | | | — | | | 40.0 | | | — | | | 40.0 | | |
| Net issuances of 249,064 shares held in treasury in settlement of stock-based compensation | | Net issuances of 249,064 shares held in treasury in settlement of stock-based compensation | — | | | — | | | — | | | (15.9) | | | — | | | (15.9) | | |
| Repurchases of 641,149 shares of common stock at an average price of $109.22 per share | | Repurchases of 641,149 shares of common stock at an average price of $109.22 per share | — | | | — | | | — | | | (70.0) | | | — | | | (70.0) | | |
| Dividends declared to Lear Corporation stockholders | | Dividends declared to Lear Corporation stockholders | — | | | — | | | — | | | (62.1) | | | — | | | (62.1) | | |
| Dividends declared to noncontrolling interests | | Dividends declared to noncontrolling interests | — | | | — | | | — | | | — | | | (90.6) | | | (90.6) | | |
| Acquisition of outstanding noncontrolling interests | | Acquisition of outstanding noncontrolling interests | — | | | — | | | — | | | 1.4 | | | — | | | 1.4 | | |
| Redeemable noncontrolling interest adjustment | | Redeemable noncontrolling interest adjustment | — | | | — | | | — | | | (1.1) | | | — | | | (1.1) | | |
| Balance as of December 31, 2020 | | Balance as of December 31, 2020 | $ | (276.9) | | | $ | 12.6 | | | $ | (440.8) | | | $ | 4,467.3 | | | $ | 147.6 | | | $ | 4,614.9 | | |
| Comprehensive income (loss): | | | | | | | | | | | | Comprehensive income (loss): | | |
| Net income | — |
| | — |
| | — |
| | 975.1 |
| | 65.4 |
| | 1,040.5 |
| Net income | — | | | — | | | — | | | 373.9 | | | 87.7 | | | 461.6 | | |
| Other comprehensive income (loss) | 1.8 |
| | (6.4 | ) | | (100.9 | ) | | (105.5 | ) | | (8.6 | ) | | (114.1 | ) | Other comprehensive income (loss) | 77.5 | | | (31.2) | | | (111.4) | | | (65.1) | | | 3.1 | | | (62.0) | | |
| Total comprehensive income (loss) | 1.8 |
| | (6.4 | ) | | (100.9 | ) | | 869.6 |
| | 56.8 |
| | 926.4 |
| Total comprehensive income (loss) | 77.5 | | | (31.2) | | | (111.4) | | | 308.8 | | | 90.8 | | | 399.6 | | |
| Stock-based compensation | — |
| | — |
| | — |
| | 68.2 |
| | — |
| | 68.2 |
| Stock-based compensation | — | | | — | | | — | | | 60.3 | | | — | | | 60.3 | | |
| Excess tax benefits related to stock-based compensation | — |
| | — |
| | — |
| | 8.8 |
| | — |
| | 8.8 |
| |
| Net issuances of 783,793 shares held in treasury in settlement of stock-based compensation | — |
| | — |
| | — |
| | (47.3 | ) | | — |
| | (47.3 | ) | |
| Repurchases of 5,816,363 shares of common stock at an average price of $113.26 per share | — |
| | — |
| | — |
| | (658.8 | ) | | — |
| | (658.8 | ) | |
| Dividends declared to Lear Corporation stockholders | — |
| | — |
| | — |
| | (89.1 | ) | | — |
| | (89.1 | ) | |
| Dividends paid to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | (41.2 | ) | | (41.2 | ) | |
| Affiliate transaction | — |
| | — |
| | — |
| | — |
| | 41.0 |
| | 41.0 |
| |
| Acquisition of outstanding noncontrolling interests | | | | | | | (19.4 | ) | | (13.4 | ) | | (32.8 | ) | |
| Noncontrolling interests — other | — |
| | — |
| | — |
| | (2.2 | ) | | 2.2 |
| | — |
| |
| Balance as of December 31, 2016 | $ | (192.8 | ) | | $ | (45.1 | ) | | $ | (597.7 | ) | | $ | 3,057.2 |
| | $ | 135.7 |
| | $ | 3,192.9 |
| |
| Comprehensive income: | | | | | | | | | | | | |
| Net income | — |
| | — |
| | — |
| | 1,313.4 |
| | 64.3 |
| | 1,377.7 |
| |
| Other comprehensive income | 8.8 |
| | 22.2 |
| | 291.2 |
| | 322.2 |
| | 9.2 |
| | 331.4 |
| |
| Total comprehensive income | 8.8 |
| | 22.2 |
| | 291.2 |
| | 1,635.6 |
| | 73.5 |
| | 1,709.1 |
| |
| Adoption of ASU 2016-09 (Note 7, "Taxes") | — |
| | — |
| | — |
| | 52.9 |
| | — |
| | 52.9 |
| |
| Stock-based compensation | — |
| | — |
| | — |
| | 70.2 |
| | — |
| | 70.2 |
| |
| Net issuances of 456,252 shares held in treasury in settlement of stock-based compensation | — |
| | — |
| | — |
| | (45.2 | ) | | — |
| | (45.2 | ) | |
| Repurchases of 3,014,131 shares of common stock at an average price of $150.77 per share | — |
| | — |
| | — |
| | (454.4 | ) | | — |
| | (454.4 | ) | |
| Retirement of 8,000,000 shares held in treasury at average price of $111.43 per share | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| |
| Net issuances of 163,761 shares held in treasury in settlement of stock-based compensation | | Net issuances of 163,761 shares held in treasury in settlement of stock-based compensation | — | | | — | | | — | | | (13.4) | | | — | | | (13.4) | | |
| Repurchases of 589,717 shares of common stock at an average price of $170.03 per share | | Repurchases of 589,717 shares of common stock at an average price of $170.03 per share | — | | | — | | | — | | | (100.3) | | | — | | | (100.3) | | |
| Dividends declared to Lear Corporation stockholders | — |
| | — |
| | — |
| | (140.3 | ) | | — |
| | (140.3 | ) | Dividends declared to Lear Corporation stockholders | — | | | — | | | — | | | (107.9) | | | — | | | (107.9) | | |
| Dividends declared to noncontrolling interests | — |
| | — |
| | — |
| | — |
| | (67.1 | ) | | (67.1 | ) | Dividends declared to noncontrolling interests | — | | | — | | | — | | | — | | | (81.0) | | | (81.0) | | |
| Affiliate transaction | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| Affiliate transaction | — | | | — | | | — | | | 28.6 | | | 7.6 | | | 36.2 | | |
| Redeemable noncontrolling interest adjustment | — |
| | — |
| | — |
| | (25.5 | ) | | | | (25.5 | ) | |
| Balance as of December 31, 2017 | $ | (184.0 | ) | | $ | (22.9 | ) | | $ | (306.5 | ) | | $ | 4,150.5 |
| | $ | 142.1 |
| | $ | 4,292.6 |
| |
| Balance as of December 31, 2021 | | Balance as of December 31, 2021 | $ | (199.4) | | | $ | (18.6) | | | $ | (552.2) | | | $ | 4,643.4 | | | $ | 165.0 | | | $ | 4,808.4 | | |
The accompanying notes are an integral part of these consolidated financial statements.
LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
| | | For the year ended December 31, | 2017 | | 2016 | | 2015 | For the year ended December 31, | 2021 | | 2020 | | 2019 |
| Cash Flows from Operating Activities: | | | | | | Cash Flows from Operating Activities: | |
| Consolidated net income | $ | 1,380.9 |
| | $ | 1,040.5 |
| | $ | 795.8 |
| Consolidated net income | $ | 461.6 | | | $ | 233.9 | | | $ | 830.7 | |
| Adjustments to reconcile consolidated net income to net cash provided by operating activities – | | | | | | Adjustments to reconcile consolidated net income to net cash provided by operating activities – | |
| Equity in net income of affiliates | (51.7 | ) | | (72.4 | ) | | (49.8 | ) | Equity in net income of affiliates | (15.8) | | | (28.5) | | | (23.2) | |
| Loss on extinguishment of debt | 21.2 |
| | — |
| | 14.3 |
| Loss on extinguishment of debt | 24.6 | | | 21.1 | | | 10.6 | |
| Fixed asset impairment charges | 3.4 |
| | 5.4 |
| | 5.7 |
| |
| Deferred tax (benefit) provision | (81.3 | ) | | 103.6 |
| | 48.6 |
| |
| Impairment charges | | Impairment charges | 20.1 | | | 31.9 | | | 14.5 | |
| Deferred tax benefit | | Deferred tax benefit | (55.5) | | | (84.7) | | | (38.2) | |
| Depreciation and amortization | 427.7 |
| | 378.2 |
| | 347.8 |
| Depreciation and amortization | 573.9 | | | 539.9 | | | 509.9 | |
| Stock-based compensation | 70.2 |
| | 68.2 |
| | 65.7 |
| Stock-based compensation | 60.3 | | | 40.0 | | | 23.3 | |
| Net change in recoverable customer engineering, development and tooling | (54.1 | ) | | (16.9 | ) | | (57.8 | ) | Net change in recoverable customer engineering, development and tooling | (29.1) | | | (47.0) | | | (32.4) | |
| Net change in working capital items (see below) | 72.5 |
| | 88.1 |
| | 58.0 |
| Net change in working capital items (see below) | (351.0) | | | (66.9) | | | (25.5) | |
| Changes in other long-term assets | | Changes in other long-term assets | (35.7) | | | (26.5) | | | (10.1) | |
| Changes in other long-term liabilities | 6.6 |
| | (12.9 | ) | | (20.2 | ) | Changes in other long-term liabilities | (6.5) | | | 8.3 | | | 5.0 | |
| Changes in other long-term assets | 2.1 |
| | 38.3 |
| | 44.3 |
| |
| Other, net | (14.4 | ) | | (0.8 | ) | | 18.7 |
| Other, net | 23.2 | | | 41.6 | | | 19.7 | |
| Net cash provided by operating activities | 1,783.1 |
| | 1,619.3 |
| | 1,271.1 |
| Net cash provided by operating activities | 670.1 | | | 663.1 | | | 1,284.3 | |
| Cash Flows from Investing Activities: | | | | | | Cash Flows from Investing Activities: | |
| Additions to property, plant and equipment | (594.5 | ) | | (528.3 | ) | | (485.8 | ) | Additions to property, plant and equipment | (585.1) | | | (452.3) | | | (603.9) | |
| Acquisitions, net of cash acquired and use of $350 million restricted cash in 2015 (see non-cash investing activities below) (Note 3) | (292.4 | ) | | (155.9 | ) | | (499.2 | ) | |
| Acquisition of Xevo, net of cash acquired | | Acquisition of Xevo, net of cash acquired | — | | | — | | | (321.7) | |
| Other, net | 18.3 |
| | 47.1 |
| | 19.7 |
| Other, net | (61.6) | | | (16.5) | | | 3.2 | |
| Net cash used in investing activities | (868.6 | ) | | (637.1 | ) | | (965.3 | ) | Net cash used in investing activities | (646.7) | | | (468.8) | | | (922.4) | |
| Cash Flows from Financing Activities: | | | | | | Cash Flows from Financing Activities: | |
| New credit agreement borrowings | 250.0 |
| | — |
| | — |
| |
| New credit agreement repayments | (1.6 | ) | | — |
| | — |
| |
| Prior credit agreement borrowings | — |
| | — |
| | 500.0 |
| |
| Prior credit agreement repayments | (468.7 | ) | | (21.9 | ) | | (9.4 | ) | |
| Proceeds from the issuance of senior notes | | Proceeds from the issuance of senior notes | 698.7 | | | 669.1 | | | 693.3 | |
| Redemption of senior notes | | Redemption of senior notes | (221.5) | | | (667.1) | | | (333.7) | |
| Revolving credit facility borrowings | | Revolving credit facility borrowings | — | | | 1,000.0 | | | — | |
| Revolving credit facility repayments | | Revolving credit facility repayments | — | | | (1,000.0) | | | — | |
| Term loan repayments | | Term loan repayments | (220.3) | | | (14.1) | | | (7.8) | |
| Short-term borrowings (repayments), net | (8.9 | ) | | 9.1 |
| | — |
| Short-term borrowings (repayments), net | — | | | (19.3) | | | 9.5 | |
| Proceeds from the issuance of senior notes | 744.7 |
| | — |
| | — |
| |
| Repurchase of senior notes, net of use of $250 million restricted cash in 2015 (see non-cash financing activities below) (Note 6) | (517.0 | ) | | — |
| | (5.0 | ) | |
| Payment of debt issuance and other financing costs | (11.9 | ) | | — |
| | — |
| Payment of debt issuance and other financing costs | (9.9) | | | (7.0) | | | (6.5) | |
| Repurchase of common stock | (450.5 | ) | | (658.8 | ) | | (487.4 | ) | Repurchase of common stock | (100.3) | | | (70.0) | | | (384.7) | |
| Dividends paid to Lear Corporation stockholders | (137.7 | ) | | (88.8 | ) | | (78.5 | ) | Dividends paid to Lear Corporation stockholders | (106.7) | | | (67.3) | | | (186.3) | |
| Dividends paid to noncontrolling interests | (81.6 | ) | | (33.3 | ) | | (27.8 | ) | Dividends paid to noncontrolling interests | (81.1) | | | (123.3) | | | (78.9) | |
| Other, net | (58.8 | ) | | (79.2 | ) | | (48.2 | ) | Other, net | 27.5 | | | (112.7) | | | (66.8) | |
| Net cash used in financing activities | (742.0 | ) | | (872.9 | ) | | (156.3 | ) | Net cash used in financing activities | (13.6) | | | (411.7) | | | (361.9) | |
| Effect of foreign currency translation | 56.3 |
| | (34.3 | ) | | (47.0 | ) | Effect of foreign currency translation | (3.0) | | | 21.5 | | | (9.4) | |
| Net Change in Cash and Cash Equivalents | 228.8 |
| | 75.0 |
| | 102.5 |
| |
| Cash and Cash Equivalents as of Beginning of Period | 1,271.6 |
| | 1,196.6 |
| | 1,094.1 |
| |
| Cash and Cash Equivalents as of End of Period | $ | 1,500.4 |
| | $ | 1,271.6 |
| | $ | 1,196.6 |
| |
| Net Change in Cash, Cash Equivalents and Restricted Cash | | Net Change in Cash, Cash Equivalents and Restricted Cash | 6.8 | | | (195.9) | | | (9.4) | |
| Cash, Cash Equivalents and Restricted Cash as of Beginning of Period | | Cash, Cash Equivalents and Restricted Cash as of Beginning of Period | 1,314.5 | | | 1,510.4 | | | 1,519.8 | |
| Cash, Cash Equivalents and Restricted Cash as of End of Period | | Cash, Cash Equivalents and Restricted Cash as of End of Period | $ | 1,321.3 | | | $ | 1,314.5 | | | $ | 1,510.4 | |
| Changes in Working Capital Items: | | | | | | Changes in Working Capital Items: | |
| Accounts receivable | $ | (115.2 | ) | | $ | (176.3 | ) | | $ | (173.4 | ) | Accounts receivable | $ | 160.9 | | | $ | (164.7) | | | $ | (116.2) | |
| Inventories | (76.0 | ) | | (53.5 | ) | | 4.1 |
| Inventories | (213.4) | | | (107.7) | | | (69.1) | |
| Accounts payable (including $45.7 million of cash paid in 2015 in conjunction with the acquisition of Eagle Ottawa to settle pre-existing accounts payable) | 195.3 |
| | 157.6 |
| | 76.2 |
| |
| Accounts payable | | Accounts payable | (129.6) | | | 214.0 | | | (5.5) | |
| Accrued liabilities and other | 68.4 |
| | 160.3 |
| | 151.1 |
| Accrued liabilities and other | (168.9) | | | (8.5) | | | 165.3 | |
| Net change in working capital items | $ | 72.5 |
| | $ | 88.1 |
| | $ | 58.0 |
| Net change in working capital items | $ | (351.0) | | | $ | (66.9) | | | $ | (25.5) | |
| Supplementary Disclosure: | | | | | | Supplementary Disclosure: | |
| Cash paid for interest | $ | 94.0 |
| | $ | 88.8 |
| | $ | 85.6 |
| Cash paid for interest | $ | 91.6 | | | $ | 117.8 | | | $ | 104.4 | |
| Cash paid for income taxes, net of refunds received of $35.5 million in 2017, $16.4 million in 2016 and $11.9 million in 2015 | $ | 284.0 |
| | $ | 237.6 |
| | $ | 218.7 |
| |
| Non-cash Investing Activities: | | | | | | |
| Cash restricted for use - acquisition of Eagle Ottawa | $ | — |
| | $ | — |
| | $ | (350.0 | ) | |
| Non-cash Financing Activities: | | | | | | |
| Cash restricted for use - repurchase of senior notes | $ | — |
| | $ | — |
| | $ | (250.0 | ) | |
| Cash paid for income taxes, net of refunds received of $40.7 million in 2021, $32.5 million in 2020 and $69.4 million in 2019 | | Cash paid for income taxes, net of refunds received of $40.7 million in 2021, $32.5 million in 2020 and $69.4 million in 2019 | $ | 148.3 | | | $ | 141.5 | | | $ | 172.1 | |
The accompanying notes are an integral part of these consolidated financial statements.
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(1) Basis of Presentation
Lear Corporation ("Lear," and together with its consolidated subsidiaries, the "Company") and its affiliates design and manufacture automotive seating and electrical distribution systems and related components. The Company’sCompany's main customers are automotive original equipment manufacturers. The Company operates facilities worldwide.
The accompanying consolidated financial statements include the accounts of Lear, a Delaware corporation, and the wholly owned and less than wholly owned subsidiaries controlled by Lear.
(2) Current Operating Environment
In 2020, unprecedented industry disruptions related to the COVID-19 pandemic impacted the Company's operations in every region of the world. Production disruptions continued in 2021 largely due to the continuing impact of the COVID-19 pandemic, particularly through supply shortages. The most significant supply shortage relates to semiconductor chips, which impacted global vehicle production and resulted in reductions and cancellations of planned production. In addition, the Company experienced increased costs related to labor shortages and inefficiencies and ongoing costs related to personal protective equipment, all of which are likely to continue for a period of time. Increases in certain commodity costs, as well as transportation and logistics costs, are also impacting, and will continue to impact, the Company's 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 the Company's financial results.
The accompanying consolidated financial statements reflect estimates and assumptions made by management as of December 31, 2021, and for the year then ended. Such estimates and assumptions affect, among other things, the Company's goodwill; long-lived asset and indefinite-lived intangible asset valuations; inventory valuations; valuations of deferred income taxes and income tax contingencies; and credit losses related to the Company's financial instruments. Events and circumstances arising after December 31, 2021, including those resulting from the impact of the COVID-19 pandemic, will be reflected in management's estimates and assumptions in future periods.
For more information related to goodwill, indefinite-lived intangible assets, inventory and credit losses, see Note 3, "Summary of Significant Accounting Policies." For more information related to income taxes, see Note 3, "Summary of Significant Accounting Policies — Income Taxes," and Note 9, "Income Taxes."
(3) Summary of Significant Accounting Policies
Consolidation
Lear consolidates all entities, including variable interest entities, in which it has a controlling financial interest. Investments in affiliates in which Lear does not have control, but does have the ability to exercise significant influence over operating and financial policies, are accounted for under the equity method (Note 5,6, "Investments in Affiliates and Other Related Party Transactions").
Fiscal Period Reporting
The Company’sCompany's annual financial results are reported on a calendar year basis, and quarterly interim results are reported using a thirteen week reporting calendar.
Cash, and Cash Equivalents and Restricted Cash
Cash and cash equivalents include all highly liquid investments with original maturities of ninety days or less. Restricted cash includes cash that is legally restricted as to use or withdrawal.
Accounts Receivable
The Company records accounts receivable as title is transferred to its customers. The Company’sCompany's customers are the world’sworld's major automotive manufacturers. The Company records accounts receivable reserves for known collectibility issues, as such issues relate to specific transactions or customer balances. As of December 31, 2017 and 2016, accounts receivable are reflected net of reserves of $41.8 million and $32.8 million, respectively. The Company writes off accounts receivable when it becomes apparent, based upon age or customer circumstances, that such amounts will not be collected. Generally, the Company does not require collateral for its accounts receivable.
On January 1, 2020, the Company adopted Accounting Standards Update ("ASU") 2016-13, "Financial Instruments — Credit Losses (Topic 326), Measurement of Credit Losses on Financial Instruments," using a modified retrospective approach. The standard amends several aspects of the measurement of credit losses related to certain financial instruments, including the
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
replacement of the existing incurred credit loss model and other models with the current expected credit losses model. The cumulative effect of adoption resulted in an increase of $0.8 million in the allowance for credit loss and a corresponding decrease in retained earnings as of January 1, 2020.
The Company's allowance for credit losses on financial assets measured at amortized cost, primarily accounts receivable, reflects management's estimate of credit losses over the remaining expected life of such assets, measured primarily using historical experience, as well as current conditions and forecasts that affect the collectability of the reported amount. Expected credit losses for newly recognized financial assets, as well as changes to expected credit losses during the period, are recognized in earnings. The Company also considers geographic and segment specific risk factors in the development of expected credit losses. As of December 31, 2021 and 2020, accounts receivable are reflected net of reserves of $35.5 million and $35.3 million, respectively. Changes in expected credit losses were not significant during the year ended December 31, 2021.
The Company receives bank notes from its customers, which are classified as other current assets in the consolidated balance sheets, for certain amounts of accounts receivable, primarily in Asia. The Company may hold such bank notes until maturity, exchange them with suppliers to settle liabilities or sell them to third-party financial institutions in exchange for cash.
Inventories
Inventories are stated at the lower of cost or 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. The Company records reserves for inventory in excess of production and/or forecasted requirements and for obsolete inventory in production and service inventories. A summary of inventories is shown below (in millions):
| | | | | | | | | | | |
| December 31, | 2021 | | 2020 |
| Raw materials | $ | 1,171.0 | | | $ | 1,051.6 | |
| Work-in-process | 119.9 | | | 109.8 | |
| Finished goods | 453.4 | | | 396.9 | |
| Reserves | (172.4) | | | (157.2) | |
| Inventories | $ | 1,571.9 | | | $ | 1,401.1 | |
|
| | | | | | | |
| December 31, | 2017 | | 2016 |
| Raw materials | $ | 869.3 |
| | $ | 746.3 |
|
| Work-in-process | 120.8 |
| | 106.4 |
|
| Finished goods | 324.8 |
| | 262.3 |
|
| Reserves | (109.2 | ) | | (94.4 | ) |
| Inventories | $ | 1,205.7 |
| | $ | 1,020.6 |
|
In 2021, the Company incurred E&D costs of $608.5 million, including $327.3 million (or 2% of related sales) in its Seating segment, $267.7 million (or 6% of related sales) in its E-Systems segment and $13.5 million at its headquarters location.
Pre-Production Costs Related to Long-Term Supply Agreements
The Company incurs pre-production engineering and development ("E&D")&D and tooling costs related to the products produced for its customers under long-term supply agreements. The Company expenses all pre-production E&D costs for which reimbursement is not contractually guaranteed by the customer. In addition, the Company expenses all pre-production tooling costs related to customer-owned tools for which reimbursement is not contractually guaranteed by the customer or for which the Company does not have a non-cancelable right to use the tooling.
Lear CorporationDuring 2021 and Subsidiaries
Notes to Consolidated Financial Statements (continued)
During 2017 and 2016,2020, the Company capitalized $257.4$298.3 million and $179.3$229.7 million, respectively, of pre-production E&D costs for which reimbursement is contractually guaranteed by the customer. During 20172021 and 2016,2020, the Company also capitalized $115.4$164.4 million and $96.0$174.0 million, respectively, of pre-production tooling costs related to customer-owned tools for which reimbursement is contractually guaranteed by the customer or for which the Company has a non-cancelable right to use the tooling. These amounts are included in other current and long-term assets in the accompanying consolidated balance sheets as of December 31, 20162021 and 2015.2020. During 20172021 and 2016,2020, the Company collected $311.1$448.0 million and $264.6$354.6 million, respectively, of cash related to E&D and tooling costs.
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The classification of recoverable customer E&D and tooling costs related to long-term supply agreements is shown below (in millions):
| | | December 31, | 2017 | | 2016 | December 31, | 2021 | | 2020 |
| Current | $ | 248.1 |
| | $ | 185.9 |
| Current | $ | 207.4 | | | $ | 212.0 | |
| Long-term | 59.3 |
| | 43.4 |
| Long-term | 143.5 | | | 121.4 | |
| Recoverable customer E&D and tooling | $ | 307.4 |
| | $ | 229.3 |
| Recoverable customer E&D and tooling | $ | 350.9 | | | $ | 333.4 | |
Other E&D Costs
Costs incurred in connection with product launches, to the extent not recoverable from the Company's customers, are recorded in cost of sales as incurred and totaled $139.5 million, $135.0 million and $138.2 million for the years ended December 31, 2021, 2020 and 2019, respectively.
All other E&D costs are recorded in selling, general and administrative expenses as incurred and totaled $170.7 million, $192.3 million and $178.4 million for the years ended December 31, 2021, 2020 and 2019, respectively.
Property, Plant and Equipment
Property, plant and equipment is stated at cost. Costs associated with the repair and maintenance of the Company’sCompany'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’sCompany's property, plant and equipment are capitalized and depreciated over the remaining useful life of the related asset. Depreciable property is depreciated over the estimated useful lives of the assets, using principally the straight-line method as follows:
|
| | | | |
| Buildings and improvements | 10 to 40 years |
| Machinery and equipment | 5 to 10 years |
A summary of property, plant and equipment is shown below (in millions): | | | December 31, | 2017 | | 2016 | December 31, | 2021 | | 2020 |
| Land | $ | 118.8 |
| | $ | 101.7 |
| Land | $ | 108.7 | | | $ | 114.1 | |
| Buildings and improvements | 797.7 |
| | 648.1 |
| Buildings and improvements | 850.3 | | | 880.7 | |
| Machinery and equipment | 3,077.4 |
| | 2,459.6 |
| Machinery and equipment | 4,497.7 | | | 4,339.2 | |
| Construction in progress | 355.6 |
| | 296.4 |
| Construction in progress | 345.6 | | | 311.1 | |
| Total property, plant and equipment | 4,349.5 |
| | 3,505.8 |
| Total property, plant and equipment | 5,802.3 | | | 5,645.1 | |
| Less – accumulated depreciation | (1,890.1 | ) | | (1,486.5 | ) | Less – accumulated depreciation | (3,082.2) | | | (2,908.9) | |
| Net property, plant and equipment | $ | 2,459.4 |
| | $ | 2,019.3 |
| Net property, plant and equipment | $ | 2,720.1 | | | $ | 2,736.2 | |
For the years ended December 31, 2017, 20162021, 2020 and 2015,2019, depreciation expense was $380.1$500.6 million, $325.2$474.0 million and $295.3$447.6 million, respectively. As of December 31, 2017, 20162021, 2020 and 2015,2019, capital expenditures recorded in accounts payable totaled $119.7$147.8 million, $117.8$118.4 million and $91.6$131.6 million, respectively.
As of December 31, 2021, property held for sale of $2.6 million and $17.5 million in the Company's Seating and E-Systems segments, respectively, was recorded in other current assets in the accompanying consolidated balance sheet. The property is expected to be disposed of by sale within the next twelve months.
Impairment of Goodwill
Goodwill is not amortized but is tested for impairment on at least an annual basis. Impairment testing is required more often than annually if an event or circumstance indicates that an impairment is more likely than not to have occurred. In conducting its annual impairment testing, the Company may first perform a qualitative assessment of whether it is more likely than not that a reporting unit’sunit'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’sunit's fair value is less than its carrying amount, or if the Company elects not to perform a qualitative assessment of a reporting unit, the Company then compares the fair value of the reporting unit to the related net book value. If the net book value of a reporting unit exceeds its fair value, an impairment loss is measured and recognized. The Company conducts its annual impairment testing as of the first day of its fourth quarter.
The Company utilizes an income approach to estimate the fair value of each of its reporting units and a market valuation approach to further support this analysis. The income approach is based on projected debt-free cash flow which is discounted to
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
the present value using discount factors that consider the timing and risk of cash flows. The Company believes that this approach is appropriate because it provides a fair value estimate based upon the reporting unit’sunit's expected long-term operating cash flow performance. This approach also mitigates the impact of cyclical trends that occur in the industry. Fair value is
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
estimated using recent automotive industry and specific platform production volume projections, which are based on both third-party and internally developed forecasts, as well as commercial and discount rate assumptions. The discount rate used is the value-weighted average of the Company’sCompany's estimated cost of equity and of debt ("cost of capital") derived using both known and estimated customary market metrics. The Company’sCompany's weighted average cost of capital is adjusted by reporting unit to reflect a risk factor, if necessary. Other significant assumptions include terminal value growth rates, terminal value margin rates, future capital expenditures and changes in future working capital requirements. While there are inherent uncertainties related to the assumptions used and to management’smanagement's application of these assumptions to this analysis, the Company believes that the income approach provides a reasonable estimate of the fair value of its reporting units. The market valuation approach is used to further support the Company’sCompany's analysis and is based on recent transactions involving comparable companies.
In 2017, the Company performed a qualitativeThe annual goodwill impairment assessment of its reporting units. The assessment wasis completed as of the first day of ourthe Company's fourth quarter. The Company performed a qualitative assessment for each reporting unit. The qualitative assessments indicated that it was more likely than not that the fair value of each of the reporting unitsunit exceeded its respective carrying value. The Company does not believe that any of our reporting units is at risk for impairment.
A summary of the changes in the carrying amount of goodwill for each of the periods in the two years ended December 31, 2017,2021, is shown below (in millions):
|
| | | | | | | | | | | |
| | Seating | | E-Systems | | Total |
| Balance as of December 31, 2015 | $ | 1,026.8 |
| | $ | 27.0 |
| | $ | 1,053.8 |
|
| Acquisitions | 72.0 |
| | 2.6 |
| | 74.6 |
|
| Affiliate transaction | 8.9 |
| | — |
| | 8.9 |
|
| Foreign currency translation and other | (16.5 | ) | | 0.5 |
| | (16.0 | ) |
| Balance as of December 31, 2016 | 1,091.2 |
| | 30.1 |
| | 1,121.3 |
|
| Acquisition | 123.3 |
| | — |
| | 123.3 |
|
| Affiliate transaction | — |
| | 94.4 |
| | 94.4 |
|
| Foreign currency translation and other | 59.9 |
| | 2.4 |
| | 62.3 |
|
| Balance as of December 31, 2017 | $ | 1,274.4 |
| | $ | 126.9 |
| | $ | 1,401.3 |
|
For further information related to acquisitions and affiliate transactions, see Note 3, "Acquisitions," and Note 5, "Investments in Affiliates and Other Related Party Transactions." | | | | | | | | | | | | | | | | | |
| Seating | | E-Systems | | Total |
| Balance as of December 31, 2019 | $ | 1,235.4 | | | $ | 378.9 | | | $ | 1,614.3 | |
| | | | | |
| Foreign currency translation and other | 33.4 | | | 8.1 | | | 41.5 | |
| Balance as of December 31, 2020 | 1,268.8 | | | 387.0 | | | 1,655.8 | |
| Foreign currency translation and other | (19.5) | | | 21.6 | | | 2.1 | |
| Balance as of December 31, 2021 | $ | 1,249.3 | | | $ | 408.6 | | | $ | 1,657.9 | |
Intangible Assets
As of December 31, 2017,2021, intangible assets consist primarily of certain intangible assets recorded in connection with the acquisitions of Guilford Mills in 2012, the parent company of Eagle Ottawa, LLC in 2015, AccuMED Holdings Corp. in 2016, and Antolin SeatingGrupo Antolin's automotive seating business in 2017 and Xevo Inc. ("Xevo") in 2019 (Note 3,4, "Acquisitions"). These intangible assets were recorded at their estimated fair value, based on independent appraisals, as of the transaction or acquisition date. The value assigned to technology intangibles is based on the royalty savings method, which applies a hypothetical royalty rate to projected revenues attributable to the identified technologies. Royalty rates were determined based primarily on analysis of market information. The customer-based intangible asset includes the acquired entity's established relationships with its customers and the ability of these customers to generate future economic profits for the Company. The value assigned to customer-based intangibles is based on the present value of future earnings attributable to the asset group after recognition of required returns to other contributory assets.
A summary of intangible assets as of December 31, 2017 and 2016,2021, is shown below (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| Gross Carrying
Value | | Accumulated
Amortization | | Net Carrying
Value | | Weighted
Average Useful
Life (years) |
| Amortized intangible assets: | | | | | | | |
| Customer-based | $ | 534.4 | | | $ | (277.6) | | | $ | 256.8 | | | 11.7 |
| Licensing agreements | 70.9 | | | (37.8) | | | 33.1 | | | 5.0 |
| Technology | 21.8 | | | (18.4) | | | 3.4 | | | 8.5 |
| Other | 0.4 | | | (0.1) | | | 0.3 | | | 5.0 |
| 627.5 | | | (333.9) | | | 293.6 | | | 10.8 |
| Unamortized intangible assets: | | | | | | | |
| In-process research and development | 8.9 | | | — | | | 8.9 | | | |
| Balance as of December 31, 2021 | $ | 636.4 | | | $ | (333.9) | | | $ | 302.5 | | | |
|
| | | | | | | | | | | | | |
| | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value | | Weighted Average Useful Life (years) |
| Technology | $ | 22.2 |
| | $ | (9.3 | ) | | $ | 12.9 |
| | 8.6 |
| Customer-based | 544.6 |
| | (113.9 | ) | | 430.7 |
| | 11.6 |
| Other | 1.4 |
| | (0.9 | ) | | 0.5 |
| | 5.2 |
| Balance as of December 31, 2017 | $ | 568.2 |
| | $ | (124.1 | ) | | $ | 444.1 |
| | 11.5 |
IntangibleThe Company recognized an impairment charge of $8.5 million related to certain intangible assets withof its E-Systems segment resulting from a gross carrying valuechange in the intended use of $17.0 million became fully amortized in 2017 and are no longerthe assets. The impairment charge is included in amortization of intangible assets in the intangible asset gross carrying value or accumulated amortization asaccompanying statement of income for the year ended December 31, 2017.
2021.
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Intangible assets with a gross carrying value of $7.5 million became fully amortized in 2021 and are no longer included in the gross carrying value or accumulated amortization as of December 31, 2021.
A summary of intangible assets as of December 31, 2020, is shown below (in millions): | | | | | | | | | | | Gross Carrying
Value | | Accumulated
Amortization | | Net Carrying
Value | | Weighted
Average Useful
Life (years) |
| Amortized intangible assets: | | Amortized intangible assets: | |
| Customer-based | | Customer-based | $ | 528.0 | | | $ | (232.0) | | | $ | 296.0 | | | 11.8 |
| Licensing agreements | | Licensing agreements | 71.9 | | | (24.4) | | | 47.5 | | | 5.0 |
| Technology | | Technology | 35.1 | | | (21.2) | | | 13.9 | | | 7.2 |
| | Gross Carrying Value | | Accumulated Amortization | | Net Carrying Value | | Weighted Average Useful Life (years) | | 635.0 | | | (277.6) | | | 357.4 | | | 10.8 |
| Technology | $ | 24.6 |
| | $ | (16.4 | ) | | $ | 8.2 |
| | 8.6 | |
| Customer-based | 338.2 |
| | (68.3 | ) | | 269.9 |
| | 7.4 | |
| Other | 10.7 |
| | (1.7 | ) | | 9.0 |
| | 5.8 | |
| Balance as of December 31, 2016 | $ | 373.5 |
| | $ | (86.4 | ) | | $ | 287.1 |
| | 7.5 | |
| Unamortized intangible assets: | | Unamortized intangible assets: | |
| In-process research and development | | In-process research and development | 10.8 | | | — | | | 10.8 | | |
| Balance as of December 31, 2020 | | Balance as of December 31, 2020 | $ | 645.8 | | | $ | (277.6) | | | $ | 368.2 | | |
Intangible assets with a gross carrying value of $25.6 million became fully amortized in 2020 and are no longer included in the gross carrying value or accumulated amortization as of December 31, 2020.
Excluding the impact of any future acquisitions, the Company’sCompany's estimated annual amortization expense for the five succeeding years is shown below (in millions):
|
| | | |
| Year | Expense |
| 2018 | $ | 51.4 |
|
| 2019 | 50.8 |
|
| 2020 | 49.1 |
|
| 2021 | 47.3 |
|
| 2022 | 46.3 |
|
| | | | | |
| Year | Expense |
| 2022 | $ | 62.4 | |
| 2023 | 60.9 | |
| 2024 | 48.0 | |
| 2025 | 20.7 | |
| 2026 | 20.4 | |
Impairment of Long-Lived Assets
The Company monitors its long-lived assets for impairment indicators on an ongoing basis in accordance with accounting principles generally accepted in the United States ("GAAP"). If impairment indicators exist, the Company performs the required impairment analysis by comparing the undiscounted cash flows expected to be generated from the long-lived assets to the related net book values. If the net book value exceeds the undiscounted cash flows, an impairment loss is measured and recognized. An impairment loss is measured as the difference between the net book value and the fair value of the long-lived assets. Fair value is estimated based upon either discounted cash flow analyses or estimated salvage values. Cash flowsestimates of property, plant and equipment and right-of-use assets are estimated using internal budgets based on recent sales data, independent automotive production volume estimatesappraisals, giving consideration to the highest and customer commitments,best use of the assets. Key assumptions used in the appraisals are based on a combination of market and cost approaches, as well as assumptions related to discount rates.appropriate.
For the years ended December 31, 2017, 20162021, 2020 and 2015,2019, the Company recognized fixed asset impairment charges of $1.3$4.2 million, $4.7$21.3 million and $3.9$8.7 million, respectively, in conjunction with its restructuring actions (Note 4,5, "Restructuring"), as well as. For the years ended December 31, 2021 and 2020, the Company recognized additional fixed asset impairment charges of $2.1 million, $0.7$7.7 million and $1.8$4.6 million, respectively. Fixed assetAsset impairment charges are recorded in cost of sales in the accompanying consolidated statements of income for the years ended December 31, 2017, 20162021, 2020 and 2015.2019.
Impairment of Investments in Affiliates
The Company monitors its investments in affiliates for indicators of other-than-temporary declines in value on an ongoing basis in accordance with GAAP. If the Company determines that an other-than-temporary decline in value has occurred, it recognizes an impairment loss, which is measured as the difference between the recorded book value and the fair value of the investment. Fair value is generally determined using an income approach based on discounted cash flows or negotiated transaction values.
Revenue Recognition For the years ended December 31, 2021, 2020 and Sales Commitments
The Company enters into agreements with its customers to produce products at the beginning of a vehicle’s life cycle. Although such agreements do not provide for a specified quantity of products, once2019, the Company enters into such agreements, the Company is generally required to fulfill its customers’ purchasing requirements for the production liferecognized impairment charges of the vehicle. These agreements generally may be terminated by the Company’s customers at any time. Historically, terminations of these agreements have been minimal. Sales are generally recorded upon shipment of product to customers$1.0 million, $4.0 million and transfer of title under standard commercial terms. In certain instances, the Company may be committed under existing agreements to supply products$5.0 million, respectively, related to its customers at selling prices which are not sufficient to cover the direct cost to produce such products. In such situations, the Company recognizes losses as they are incurred.
The Company receives purchase orders from its customers on an annual basis. Generally, each purchase order provides the annual terms, including pricing, related to a particular vehicle model. Purchase orders do not specify quantities. The Company recognizes revenue based on the pricing terms includedinvestments in its annual purchase orders. The Company is asked to provide its customers with annual price reductions as part of certain agreements. The Company accrues for such amounts as a reduction of revenue as its products are shipped to its customers. In addition, the Company has ongoing adjustments to its pricing
affiliates.
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Accrued Liabilities
arrangementsA summary of accrued liabilities as of December 31, 2021 and 2020, is shown below (in millions):
| | | | | | | | | | | |
| December 31, | 2021 | | 2020 |
| Compensation and employee benefits | $ | 353.8 | | | $ | 297.7 | |
| Income and other taxes payable | 290.7 | | | 287.7 | |
| Restructuring | 129.4 | | | 139.0 | |
| Current portion of lease obligations | 125.6 | | | 116.3 | |
| Other | 907.2 | | | 1,080.2 | |
| Accrued liabilities | $ | 1,806.7 | | | $ | 1,920.9 | |
Leases
Accounting Policy
The Company determines if an arrangement contains a lease at inception. For all asset classes, the Company utilizes the short-term lease exemption as provided under GAAP. A short-term lease is a lease that, at the commencement date, has a term of twelve months or less and does not include an option to purchase the underlying asset. For all asset classes, the Company accounts for each lease component of a contract and its associated non-lease components as a single lease component, rather than allocating a standalone value to each component of a lease.
For purposes of calculating operating lease obligations under the standard, the Company's lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise such option. The Company's leases do not contain material residual value guarantees or material restrictive covenants.
Operating lease expense is recognized on a straight-line basis over the lease terms.
Discount Rate
The discount rate used to measure a lease obligation should be the rate implicit in the lease; however, the Company's operating leases generally do not provide an implicit rate. Accordingly, the Company uses its incremental borrowing rate at lease commencement to determine the present value of lease payments. The incremental borrowing rate is an entity-specific rate which represents the rate of interest a lessee would pay to borrow on a collateralized basis over a similar term with similar payments.
Revenue Recognition and Sales Commitments
The Company enters into contracts with its customers basedto provide production parts generally at the beginning of a vehicle's life cycle. Typically, these contracts do not provide for a specified quantity of products, but once entered into, the Company is often expected to fulfill its customers' purchasing requirements for the production life of the vehicle. Many of these contracts may be terminated by the Company's customers at any time. Historically, terminations of these contracts have been infrequent. The Company receives purchase orders from its customers, which provide the commercial terms for a particular production part, including price (but not quantities). Contracts may also provide for annual price reductions over the production life of the vehicle, and prices may be adjusted on the related content, the an ongoing basis to reflect changes in product content/cost of its products and other commercial factors. Such pricing accruals
Revenue is recognized at the point in time when control of the product is transferred to the customer under standard commercial terms, as the Company does not have an enforceable right to payment prior to such transfer. The amount of revenue recognized reflects the consideration that the Company expects to be entitled to in exchange for those products based on the annual purchase orders, annual price reductions and ongoing price adjustments. Revenue recognized related to prior years represented approximately 1% of consolidated net sales during the years ended December 31, 2021, 2020 and 2019. The Company's customers pay for products received in accordance with payment terms that are adjusted as they are settledcustomary within the industry. The Company's contracts with its customers do not have significant financing components.
The Company records a contract liability for advances received from its customers. As of December 31, 2021 and 2020, there were no significant contract liabilities recorded. Further, there were no significant contract liabilities recognized in revenue during the Company’s customers.years ended December 31, 2021, 2020 and 2019.
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Amounts billed to customers related to shipping and handling costs are included in net sales in the consolidated statements of income. Shipping and handling costs are accounted for as fulfillment costs and are included in cost of sales in the consolidated statements of income.
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction that are collected by the Company from a customer are excluded from revenue.
Cost of Sales and Selling, General and Administrative Expenses
Cost of sales includes material, labor and overhead costs associated with the manufacture and distribution of the Company’sCompany's products. Distribution costs include inbound freight costs, purchasing and receiving costs, inspection costs, warehousing costs and other costs of the Company’sCompany'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’sCompany's products.
Restructuring Costs
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. TheseEmployee termination benefits are recorded based on existing union and employee contracts, statutory requirements, completed negotiations and Company policy. Other incremental costs principally include equipment and personnel relocation costs. In addition to restructuring costs, the Company also incurs incremental manufacturing inefficiency costs at the operating locations impacted by the restructuring actions during the related restructuring implementation period. Restructuring costs are recognized in the Company’sCompany's consolidated financial statements in accordance with GAAP. Generally, charges are recorded as restructuring actions are approved and/or implemented.
Engineering and Development
Costs incurred in connection with product launches, to the extent not recoverable from the Company’s customers, are charged to cost of sales as incurred. All other engineering and development costs are charged to selling, general and administrative expenses when incurred. Engineering and development costs charged to selling, general and administrative expenses totaled $147.9 million, $143.7 million and $126.8 million for the years ended December 31, 2017, 2016 and 2015, respectively.
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, gains and losses on the extinguishment of debt, (Note 6, "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):
| | | For the year ended December 31, | 2017 | | 2016 | | 2015 | For the year ended December 31, | 2021 | | 2020 | | 2019 |
| Other expense | $ | 57.2 |
| | $ | 42.2 |
| | $ | 71.4 |
| Other expense | $ | 65.4 | | | $ | 72.2 | | | $ | 52.2 | |
| Other income | (61.3 | ) | | (35.8 | ) | | (2.8 | ) | Other income | (65.3) | | | (17.0) | | | (27.6) | |
| Other (income) expense, net | $ | (4.1 | ) | | $ | 6.4 |
| | $ | 68.6 |
| |
| Other expense, net | | Other expense, net | $ | 0.1 | | | $ | 55.2 | | | $ | 24.6 | |
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The Company’sCompany'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’sCompany'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’sCompany's deferred tax assets will not
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
be realized, a valuation allowance is recorded. If operating results improve or decline on a continual basis in a particular jurisdiction, the Company’sCompany's decision regarding the need for a valuation allowance could change, resulting in either the initial recognition or reversal of a valuation allowance in that jurisdiction, which could have a significant impact on income tax expense in the period recognized and subsequent periods. In determining the provision for income taxes for financial statement
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
purposes, the Company makes certain estimates and judgments, which affect its evaluation of the carrying value of its deferred tax assets, as well as its calculation of certain tax liabilities.
The Company reclassifies taxes from accumulated other comprehensive loss to earnings as the items to which the tax effects relate are similarly reclassified.
The calculation of the Company’sCompany's gross unrecognized tax benefits and liabilities includes uncertainties in the application of, and changes in, complex tax regulations in a multitude of jurisdictions across its global operations. The Company recognizes tax benefits and liabilities based on its estimates of whether, and the extent to which, additional taxes will be due. The Company adjusts these benefits and liabilities based on changing facts and circumstances; however, due to the complexity of these uncertainties and the impact of tax audits, the ultimate resolutions may differ significantly from the Company’sCompany's estimates.
The Tax Cuts and Jobs Act (the "Act") was enacted on December 22, 2017. The Act reducesEffective January 1, 2021, ASU 2019-12, "Income Taxes (Topic 740): Simplifying the U.S. federal corporate tax rate from 35% to 21%, requires companies to pay a one-time transition tax on all offshore earnings that were previously tax deferred and creates new taxes on certain foreign sourced earnings. As of December 31, 2017,Accounting for Income Taxes," simplified the Company has not completed its accounting for the tax effects of the Act; however, in certain cases, as described below, the Company has made a reasonable estimate of the effects on its existing deferred tax balances and the one-time transition tax. In the year ended December 31, 2017, the provision for income taxes includes provisional income tax expense of $173.5 million related to items for which the Company was able to determine a reasonable estimate. In all cases, the Company will continue to make and refine its calculations as additional analysis is completed. In addition, the Company's estimates may be affected as additional regulatory guidance is issued with respectby eliminating certain exceptions to the Act. Any adjustmentsgeneral principles in Topic 740 and amending prior guidance to the provisional amounts will be recognized asimprove consistent application. The adoption of this standard did not have a component of the provision for income taxes in the period in which such adjustments are determined, but in any event, no later than the fourth quarter of 2018.
Provisional Amounts
Deferred tax assets and liabilities: The Company remeasured its U.S. deferred tax assets and liabilities at 21%. However, the Company is still analyzing certain aspects of the Act and refining its calculations, which could potentially affect the measurement of these balances or potentially give rise to new deferred tax amounts. In the year ended December 31, 2017, the provision for income taxes includes provisional income tax expense of $42.5 million related to the remeasurement of deferred tax balances.
Transition Tax on Deferred Foreign Earnings: The one-time transition tax is basedsignificant impact on the Company's post-1986 earnings and profits ("E&P") that were previously deferred from U.S. income taxes. In the year ended December 31, 2017, the provision for income taxes includes provisional income tax expense of $131.0 million related to the one-time transition tax liability of the Company's foreign subsidiaries. The Company has not completed its calculation of the total post-1986 E&P for these foreign subsidiaries. Further, the transition tax is based in part on the amount of those earnings held in cash and other specified assets. This amount may change when the Company finalizes the calculation of post-1986 E&P previously deferred from U.S. income taxes and the amounts held in cash or other specified assets. No additional income taxes have been provided for any remaining undistributed foreign earnings not subject to the transition tax. However, the Company continues to recognize a deferred tax liability related to foreign withholding tax that will be incurred for undistributed foreign earnings that are not permanently reinvested.financial statements.
Foreign Currency
Assets and liabilities of foreign subsidiaries that use a functional currency other than the U.S. dollar are translated into U.S. dollars at the foreign exchange rates in effect at the end of the period. Revenues and expenses of foreign subsidiaries are translated into U.S. dollars using an average of the foreign exchange rates in effect during the period. Translation adjustments that arise from translating a foreign subsidiary’ssubsidiary's financial statements from the functional currency to the U.S. dollar are reflected in accumulated other comprehensive loss in the consolidated balance sheets.
Transaction gains and losses that arise from foreign exchange rate fluctuations on transactions denominated in a currency other than the functional currency, except certain long-term intercompany transactions, are included in the consolidated statements of income as incurred. For the years ended December 31, 2017, 20162021, 2020 and 2015,2019, other (income) expense, net includes net foreign currency transaction losses of $5.1$24.8 million, $7.6$19.9 million and $28.5$20.6 million, respectively.
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Stock-Based Compensation
The Company measures stock-based employee compensation expense at fair value in accordance with GAAP and recognizes such expense over the vesting period of the stock-based employee awards.
Net Income Per Share Attributable to Lear
Basic net income per share available to Lear common stockholders is computed using the two-class method by dividing net income attributable to Lear, after deducting the redemption adjustment related to redeemable noncontrolling interest, by the average number of common shares outstanding during the period. Common shares issuable upon the satisfaction of certain conditions pursuant to a contractual agreement are considered common shares outstanding and are included in the computation of basic net income per share 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 to Lear, after deducting the redemption adjustment related to redeemable noncontrolling interest, by the average number of common shares outstanding, including the dilutive effect of common stock equivalents computed using the treasury stock method and the average share price during the period.
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
A summary of information used to compute basic and diluted net income per share available to Lear common stockholders is shown below (in millions, except share and per share data):
| | | For the year ended December 31, | 2017 | | 2016 | | 2015 | For the year ended December 31, | 2021 | | 2020 | | 2019 |
| Net income attributable to Lear | $ | 1,313.4 |
| | $ | 975.1 |
| | $ | 745.5 |
| Net income attributable to Lear | $ | 373.9 | | | $ | 158.5 | | | $ | 753.6 | |
| Less: Redeemable noncontrolling interest adjustment | (25.5 | ) | | — |
| | — |
| |
| Redeemable noncontrolling interest adjustment | | Redeemable noncontrolling interest adjustment | — | | | — | | | 35.9 | |
| Net income available to Lear common stockholders | $ | 1,287.9 |
| | $ | 975.1 |
| | $ | 745.5 |
| Net income available to Lear common stockholders | $ | 373.9 | | | $ | 158.5 | | | $ | 789.5 | |
| | | | | | | |
| Average common shares outstanding | 68,542,363 |
| | 72,345,436 |
| | 76,754,270 |
| Average common shares outstanding | 60,082,833 | | 60,254,380 | | 61,697,192 |
| Dilutive effect of common stock equivalents | 735,618 |
| | 779,513 |
| | 1,012,747 |
| Dilutive effect of common stock equivalents | 337,651 | | 175,582 | | 226,336 |
| Average diluted shares outstanding | 69,277,981 |
| | 73,124,949 |
| | 77,767,017 |
| Average diluted shares outstanding | 60,420,484 | | 60,429,962 | | 61,923,528 |
| | | | | | | |
| Basic net income per share available to Lear common stockholders | $ | 18.79 |
| | $ | 13.48 |
| | $ | 9.71 |
| Basic net income per share available to Lear common stockholders | $ | 6.22 | | | $ | 2.63 | | | $ | 12.80 | |
| | | | | | | |
| Diluted net income per share available to Lear common stockholders | $ | 18.59 |
| | $ | 13.33 |
| | $ | 9.59 |
| Diluted net income per share available to Lear common stockholders | $ | 6.19 | | | $ | 2.62 | | | $ | 12.75 | |
For further information related to the redeemable noncontrolling interest adjustment, see Note 5, "Investments in Affiliates12, "Capital Stock, Accumulated Other Comprehensive Loss and Other Related Party Transactions.Equity."
Product Warranty
ProductLosses from warranty reservesobligations are recordedaccrued when liabilityit is probable that a liability has been incurred and the related amounts are reasonably estimable.
Segment Reporting
The Company has twois organized under 2 reportable operating segments:
Seating, which includesconsists of the design, development, engineering and manufacture of complete seat systems, seat subsystems and all majorkey seat components, includingand E-Systems, which consists of the design, development, engineering and manufacture of complete electrical distribution and connection systems and electronic systems. Key components in the Company's complete seat system and subsystem solutions are advanced comfort, wellness and safety offerings, as well as configurable seating product technologies. All of these products are compatible with traditional internal combustion engine ("ICE") architectures and the full range of hybrid, plug-in hybrid and battery electric architectures (collectively, "electrified powertrains"). 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 systemand connection systems portfolio include wire harnesses, terminals and connectors, and junction boxes, includingengineered components for both ICE architectures and electrified powertrains that require management of higher voltage and power. Key components in the Company's electronic systems forportfolio include body domain control modules and products specific to electrification and connectivity. Electrification products include on-board battery chargers, power conversion modules, high powervoltage battery electric vehiclemanagement systems and hybrid electric vehiclehigh voltage power management and distribution systems. Connectivity products include telematics control units ("TCU") and gateway modules to manage both wired and wireless networks and data in vehicles. In addition to electronic modules, 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’sCompany'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’sCompany's production processes generally make use of hourly labor, dedicated facilities, sequential manufacturing and assembly processes and commodity raw materials.
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The Company evaluates the performance of its operating segments based primarily on (i) revenues from external customers, (ii) pretax income before equity in net income of affiliates, interest expense and other expense ("segment earnings") and (iii) cash flows, being defined as segment earnings less capital expenditures plus depreciation and amortization.
The accounting policies of the Company’sCompany's operating segments are the same as those described in this note to the consolidated financial statements.
Derivative Instruments and HedgingHedge 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’sCompany's operating results. The Company is not a party to leveraged derivatives. The Company’sCompany'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 hedginghedge 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) or, (3) a hedge of a net investment in a foreign operation (a net investment hedge). or (4) a contract not designated as a hedge instrument.
For a fair value hedge, both the effective and ineffective portions of the change in the fair value of the derivative areis recorded in earnings and reflected in the consolidated statementstatements of income on the same line as the gain or loss on the hedged item attributable to the hedged risk. For a cash flow hedge, the effective portion of the change in the fair value of the derivative is recorded in accumulated other comprehensive loss in the consolidated balance sheet.sheets. When the underlying hedged transaction is realized, the gain or loss included in accumulated other comprehensive loss is recorded in earnings and reflected in the consolidated statementstatements of income on the same line as the gain or loss on the hedged item attributable to the hedged risk. For a net investment hedge, the 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 consolidated balance sheet. In addition, for both cash flowsheets. 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 investment hedges, changesin the consolidated statements of income. Changes in the fair value of the derivative that are excluded from the Company’s effectiveness assessments and the ineffective portion of changes in the fair value of the derivativecontracts not designated as hedge instruments are recorded in earnings and reflected in other expense, net in the consolidated statementstatements of incomeincome. Cash flows attributable to derivatives used to manage foreign currency risks are classified on the same line as other expense, net.the hedged item attributable to the hedged risk in the consolidated statements of cash flows. Upon settlement, cash flows attributable to derivatives designated as net investment hedges are classified as investing activities in the consolidated statements of cash flows. Cash flows attributable to forward starting interest rate swaps are classified as financing activities in the consolidated statements of cash flows.
The Company formally documents its hedge relationships, including the identification of the hedginghedge instruments and the related hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. Derivatives are recorded at fair value in other current and long-term assets and other current and long-term liabilities in the consolidated balance sheet.sheets. The Company also formally assesses both at inception and at least quarterly thereafter, whether a derivative used in a hedginghedge 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 derivative ceaseshedged transaction is no longer probable to be highly effective,occur, the Company discontinues hedge accounting.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. During 2017,2021, there were no material changes in the methods or policies used to establish estimates and assumptions. Other matters subject to estimation and judgment include amounts related to accounts receivable realization, inventory obsolescence, asset impairments, useful lives of fixed and intangible assets and unsettled pricing discussionsnegotiations with customers and suppliers (Note 2,3, "Summary of Significant Accounting Policies"); acquisitions (Note 3,4, "Acquisitions"); restructuring accruals (Note 4,5, "Restructuring"); deferred tax asset valuation allowances and income taxes (Note 7,9, "Income Taxes"); pension and other postretirement benefit plan assumptions (Note 8,10, "Pension and Other Postretirement Benefit Plans"); accruals related to litigation, warranty and environmental remediation costs (Note 11,14, "Commitments and Contingencies"); and self-insurance accruals. Actual results may differ significantly from the Company’sCompany's estimates.
Certain amounts in prior years’ financial statements have been reclassified to conform to the presentation used in the year ended December 31, 2017.
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(3)(4) Acquisitions
Grupo AntolinKongsberg
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 ($199 million as of December 31, 2021), 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.
The acquisition of Kongsberg will be accounted for as a business combination, and accordingly, the assets acquired and liabilities assumed will be recognized at fair value as of the acquisition date. The operating results and cash flows of Kongsberg will be included in the consolidated financial statements from the date of acquisition in the Company's Seating segment.
Xevo
On April 28, 2017,17, 2019, the Company completed the acquisition of Grupo Antolin's automotive seating business ("Antolin Seating")Xevo, a Seattle-based, global leader in connected car software, by acquiring all of Xevo's outstanding shares for $292.4$321.7 million, net of cash acquired. Antolin SeatingXevo is headquartereda supplier of software solutions for the cloud, vehicles and mobile devices that are deployed in France with operationsmillions of vehicles worldwide.
The acquisition of Xevo was accounted for as a business combination, and accordingly, the assets acquired and liabilities assumed are included in five countriesthe accompanying consolidated balance sheets as of December 31, 2021 and 2020. The operating results and cash flows of Xevo are included in Europethe accompanying consolidated financial statements from the date of acquisition and North Africa.in the Company's E-Systems segment. The Antolin Seating business is comprisedpro-forma effects of just-in-time seat assembly, as well as seat structures, mechanisms and seat covers, with annual sales of approximately $485 million. In addition,this acquisition do not materially impact the Company's reported results for any period presented.
The Company incurred transaction costs of $3.0$1.6 million, related to advisory services, which were expensed as incurred and are recorded in selling, general and administrative expenses in the accompanying consolidated statement of income for the year ended December 31, 2017.2019.
The Antolin Seating acquisition was accounted for as a business combination, and accordingly, the assets acquired and liabilities assumed are included in the accompanying consolidated balance sheet as of December 31, 2017. The operating results and cash flows of Antolin Seating are included in the accompanying consolidated financial statements from the date of acquisition and in the Company's Seating segment. The purchase price and preliminary allocation are shown below (in millions): |
| | | | |
| Net purchase price | | $ | 292.4 |
|
| | | |
| Property, plant and equipment | | $ | 79.2 |
|
| Other assets purchased and liabilities assumed, net | | (31.5 | ) |
| Goodwill | | 123.3 |
|
| Intangible assets | | 121.4 |
|
| Preliminary purchase price allocation | | $ | 292.4 |
|
| | | | | | | |
| | | December 31,
2020 |
| Net purchase price | | | $ | 321.7 | |
| | | |
| Other assets purchased and liabilities assumed, net | | | $ | 12.1 | |
| Goodwill | | | 219.5 | |
| Intangible assets | | | 90.1 | |
| Purchase price allocation | | | $ | 321.7 | |
Recognized goodwillGoodwill recognized in this transaction is primarily attributable to the assembled workforce, expected synergies related to future growth and other intangible assets that docommercialization opportunities and is not qualifydeductible for separate recognition.tax purposes.
Intangible assets consist primarily of provisional amounts recognized for the fair value of customer-based assetslicensing agreements and weredeveloped technology and are based on independent appraisals. Licensing agreements represent the fair values of the underlying licensing agreements with Xevo customers with estimated useful lives of approximately five years. Developed technology represents the fair value of Xevo's technology with an 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 fifteenfive years.
The purchase price allocation is preliminary and will be revised as a result of additional information regarding the assets acquired and liabilities assumed, including, but not limited to, certain tax attributes and contingent liabilities.
The pro-forma effects of this acquisition do not materially impact the Company's reported results for any period presented.
For further information related to acquired assets measured at fair value, see Note 13,16, "Financial Instruments."
AccuMED
On December 21, 2016,(5) Restructuring
2021
In 2021, the Company completed the acquisitionrecorded charges of 100%$100.9 million in connection with its restructuring actions. These charges consist of the outstanding equity interests$75.6 million recorded as cost of AccuMED Holdings Corp. ("AccuMED"), a privately-held developersales, $32.0 million recorded as selling, general and manufactureradministrative expenses and $6.7 million recorded as other income. The restructuring charges consist of specialty fabrics, for $148.5employee termination costs of $85.1 million, netasset impairment charges of cash acquired. AccuMED has annual sales$11.4 million and contract termination costs of approximately $80$0.3 million, as well as other related costs of $4.1 million.
The AccuMED acquisition was accounted for as a business combination, and accordingly, the assets acquired and liabilities assumed are included in the accompanying consolidated balance sheets as of December 31, 2017 and 2016. The operating results and cash flows of AccuMED are included in the accompanying consolidated financial statements from the date of acquisition and in the Company's Seating segment. The purchase price and allocation are shown below (in millions): Asset
|
| | | | |
| Purchase price paid, net of cash acquired | | $ | 148.5 |
|
| | | |
| Property, plant and equipment | | $ | 10.5 |
|
| Other assets purchased and liabilities assumed, net | | 6.5 |
|
| Goodwill | | 78.5 |
|
| Intangible assets | | 53.0 |
|
| Purchase price allocation | | $ | 148.5 |
|
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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 pro-forma effects of this acquisition would not materially impact the Company's reported results for any period presented.
For further information on acquired assets measured at fair value, see Note 13, "Financial Instruments."
Eagle Ottawa
On January 5, 2015, the Company completed the acquisition of 100% of the outstanding equity interests of Everett Smith Group, Ltd., the parent company of Eagle Ottawa, LLC ("Eagle Ottawa") for a purchase price of $843.9 million, net of cash acquired. Eagle Ottawa is a leading provider of leather for the automotive industry. The Eagle Ottawa acquisition was accounted for as a business combination.
Subsequent Event
On January 10, 2018, the Company completed the acquisition of Israel-based EXO Technologies ("EXO"), a leading developer of differentiated GPS technology providing high-accuracy positioning solutions for autonomous and connected vehicle applications. EXO has operations in San Mateo, California and Tel Aviv, Israel. EXO Technologies has developed core technology that addresses the need for high-accuracy positioning of a vehicle. Its proprietary technology works with existing GPS receivers to provide centimeter-level accuracy anywhere on the globe without the need for terrestrial base-station networks. The integration of EXO's technology with the Company's vehicle and connectivity expertise enables an industry-leading vehicle positioning solution.
The EXO acquisition will be accounted for as a business combination, and the assets acquired and liabilities assumed will be recognized and measured at fair value as of the acquisition date. The operating results and cash flows of EXO will be included in the consolidated financial statements from the acquisition date. The Company is preparing the preliminary estimates of the fair values of the assets acquired and liabilities assumed, which will be included in the Company's Quarterly Report on Form 10-Q for the period ending March 31, 2018. The EXO acquisition is not a material business combination.
(4) Restructuring
2017
In 2017, the Company recorded charges of $72.6 million in connection with its restructuring actions. These charges consist of $59.2 million recorded as cost of sales, $14.3 million recorded as selling, general and administrative expenses and $0.9 million recorded as other income. The restructuring charges consist of employee termination benefits of $62.9 million, asset impairment charges of $1.3 million, pension benefit plan curtailment and settlement losses of $1.7 million and other contract termination costs of $1.7 million, as well as other related costs of $5.0 million. Employee termination benefits were recorded based on existing union and employee contracts, statutory requirements, completed negotiations and Company policy. Asset impairment charges relate to the disposal of buildings, leasehold improvements andand/or machinery and equipment with carrying values $1.3of $4.2 million in excess of related estimated fair values. values and the impairment of right-of-use-assets of $7.2 million.
The Company expects to incur approximately $21$44 million of additional restructuring costs related to activities initiated as of December 31, 2017,2021, 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 20172021 activity is shown below (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Accrual as of | | 2021 | | Utilization | | Accrual as of |
| January 1, 2021 | | Charges | | Cash | | Non-cash | | December 31, 2021 |
| Employee termination benefits | $ | 134.8 | | | $ | 85.1 | | | $ | (87.5) | | | $ | (6.3) | | | $ | 126.1 | |
| Asset impairments | — | | | 11.4 | | | — | | | (11.4) | | | — | |
| Contract termination costs | 4.2 | | | 0.3 | | | (1.2) | | | — | | | 3.3 | |
| Other related costs | — | | | 4.1 | | | (4.1) | | | — | | | — | |
| Total | $ | 139.0 | | | $ | 100.9 | | | $ | (92.8) | | | $ | (17.7) | | | $ | 129.4 | |
2020
In 2020, the Company recorded charges of $144.9 million in connection with its restructuring actions. These charges consist of $122.3 million recorded as cost of sales, $16.4 million recorded as selling, general and administrative expenses and $6.2 million recorded as other expense. The restructuring charges consist of employee termination costs of $104.2 million, asset impairment charges of $23.3 million, contract termination costs of $2.0 million, and pension benefit plan settlement losses of $12.9 million, as well as other related costs of $2.5 million. Asset impairment charges relate to the disposal of buildings, leasehold improvements and/or machinery and equipment with carrying values of $21.3 million in excess of related estimated fair values and the impairment of right-of-use assets of $2.0 million.
A summary of 2020 activity, excluding the pension benefit plan
curtailment and settlement losses of
$1.7$12.9 million, is shown below (in millions):
| | | | Accrual as of | | 2017 | | Utilization | | Accrual as of | | Accrual as of | | 2020 | | Utilization | | Accrual as of |
| | January 1, 2017 | | Charges | | Cash | | Non-cash | | December 31, 2017 | | January 1, 2020 | | Charges | | Cash | | Non-cash | | December 31, 2020 |
| Employee termination benefits | $ | 69.4 |
| | $ | 62.9 |
| | $ | (39.3 | ) | | $ | — |
| | $ | 93.0 |
| Employee termination benefits | $ | 152.8 | | | $ | 104.2 | | | $ | (122.2) | | | $ | — | | | $ | 134.8 | |
| Asset impairments | — |
| | 1.3 |
| | — |
| | (1.3 | ) | | — |
| Asset impairments | — | | | 23.3 | | | — | | | (23.3) | | | — | |
| Contract termination costs | 4.6 |
| | 1.7 |
| | (1.3 | ) | | — |
| | 5.0 |
| Contract termination costs | 4.9 | | | 2.0 | | | (2.7) | | | — | | | 4.2 | |
| Other related costs | — |
| | 5.0 |
| | (5.0 | ) | | — |
| | — |
| Other related costs | — | | | 2.5 | | | (2.5) | | | — | | | — | |
| Total | $ | 74.0 |
| | $ | 70.9 |
| | $ | (45.6 | ) | | $ | (1.3 | ) | | $ | 98.0 |
| Total | $ | 157.7 | | | $ | 132.0 | | | $ | (127.4) | | | $ | (23.3) | | | $ | 139.0 | |
2019
In 2019, the Company recorded charges of $183.6 million in connection with its restructuring actions. These charges consist of $173.8 million recorded as cost of sales, $16.4 million recorded as selling, general and administrative expenses and $6.6 million recorded as other income. The restructuring charges consist of employee termination costs of $167.8 million, asset impairment charges of $9.5 million, contract termination costs of $3.0 million and an other postretirement curtailment gain of $10.6 million, as well as other related costs of $13.9 million. Asset impairment charges relate to the disposal of buildings, leasehold improvements and/or machinery and equipment with carrying values of $8.7 million in excess of related estimated fair values and the impairment of right-of-use assets of $0.8 million.
A summary of 2019 activity, excluding the other postretirement curtailment gain of $10.6 million, is shown below (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Accrual as of | | 2019 | | Utilization | | Accrual as of |
| January 1, 2019 | | Charges | | Cash | | Non-cash | | December 31, 2019 |
| Employee termination benefits | $ | 103.3 | | | $ | 167.8 | | | $ | (118.3) | | | $ | — | | | $ | 152.8 | |
| Asset impairments | — | | | 9.5 | | | — | | | (9.5) | | | — | |
| Contract termination costs | 5.4 | | | 3.0 | | | (3.5) | | | — | | | 4.9 | |
| Other related costs | — | | | 13.9 | | | (13.9) | | | — | | | — | |
| Total | $ | 108.7 | | | $ | 194.2 | | | $ | (135.7) | | | $ | (9.5) | | | $ | 157.7 | |
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
2016
In 2016, the Company recorded charges of $63.6 million in connection with its restructuring actions. These charges consist of $55.4 million recorded as cost of sales, $8.5 million recorded as selling, general and administrative expenses and $0.3 million recorded as other income. The restructuring charges consist of employee termination benefits of $54.1 million, asset impairment charges of $4.7 million and contract termination costs of $0.1 million, as well as other related costs of $4.7 million. Employee termination benefits were recorded based on existing union and employee contracts, statutory requirements, completed negotiations and Company policy. Asset impairment charges relate to the disposal of buildings, leasehold improvements and machinery and equipment with carrying values $4.7 million in excess of related estimated fair values.
A summary of 2016 activity is shown below (in millions): |
| | | | | | | | | | | | | | | | | | | |
| | Accrual as of | | 2016 | | Utilization | | Accrual as of |
| | January 1, 2016 | | Charges | | Cash | | Non-cash | | December 31, 2016 |
| Employee termination benefits | $ | 66.5 |
| | $ | 54.1 |
| | $ | (51.2 | ) | | $ | — |
| | $ | 69.4 |
|
| Asset impairments | — |
| | 4.7 |
| | — |
| | (4.7 | ) | | — |
|
| Contract termination costs | 5.3 |
| | 0.1 |
| | (0.8 | ) | | — |
| | 4.6 |
|
| Other related costs | — |
| | 4.7 |
| | (4.7 | ) | | — |
| | — |
|
| Total | $ | 71.8 |
| | $ | 63.6 |
| | $ | (56.7 | ) | | $ | (4.7 | ) | | $ | 74.0 |
|
2015
In 2015, the Company recorded charges of $88.8 million in connection with its restructuring actions. These charges consist of $68.4 million recorded as cost of sales, $18.4 million recorded as selling, general and administrative expenses and $2.0 million recorded as other expense. The restructuring charges consist of employee termination benefits of $70.0 million, asset impairment charges of $3.9 million, a pension benefit plan curtailment loss of $7.7 million and other contract termination costs $1.7 million, as well as other related costs of $5.5 million. Employee termination benefits were recorded based on existing union and employee contracts, statutory requirements, completed negotiations and Company policy. Asset impairment charges relate to the disposal of buildings, leasehold improvements and machinery and equipment with carrying values of $3.9 million in excess of related estimated fair values.
A summary of 2015 activity, excluding the pension benefit plan curtailment loss of $7.7 million, is shown below (in millions): |
| | | | | | | | | | | | | | | | | | | |
| | Accrual as of | | 2015 | | Utilization | | Accrual as of |
| | January 1, 2015 | | Charges | | Cash | | Non-cash | | December 31, 2015 |
| Employee termination benefits | $ | 45.1 |
| | $ | 70.0 |
| | $ | (48.6 | ) | | $ | — |
| | $ | 66.5 |
|
| Asset impairments | — |
| | 3.9 |
| | — |
| | (3.9 | ) | | — |
|
| Contract termination costs | 5.1 |
| | 1.7 |
| | (1.5 | ) | | — |
| | 5.3 |
|
| Other related costs | — |
| | 5.5 |
| | (3.5 | ) | | (2.0 | ) | | — |
|
| Total | $ | 50.2 |
| | $ | 81.1 |
| | $ | (53.6 | ) | | $ | (5.9 | ) | | $ | 71.8 |
|
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(5)(6) Investments in Affiliates and Other Related Party Transactions
The Company’sCompany's beneficial ownership in affiliates accounted for under the equity method is shown below:
|
| | | | | |
| December 31, | 2017 | | 2016 | | 2015 |
| Beijing BHAP Lear Automotive Systems Co., Ltd. (China) | 50% | | 50% | | 50% |
| Dong Kwang Lear Yuhan Hoesa (Korea) | 50 | | 50 | | 50 |
| Industrias Cousin Freres, S.L. (Spain) | 50 | | 50 | | 50 |
| Jiangxi Jiangling Lear Interior Systems Co., Ltd. (China) | 50 | | 50 | | 50 |
| Lear Dongfeng Automotive Seating Co., Ltd. (China) | 50 | | 50 | | 50 |
| Changchun Lear FAWSN Automotive Electrical and Electronics Co., Ltd. (China) | 49 | | 49 | | 49 |
| Changchun Lear FAWSN Automotive Seat Systems Co., Ltd. (China) | 49 | | 49 | | 49 |
| Honduras Electrical Distribution Systems S. de R.L. de C.V. (Honduras) | 49 | | 49 | | 49 |
| Kyungshin-Lear Sales and Engineering LLC | 49 | | 49 | | 49 |
| eLumigen, LLC | 46 | | 46 | | 30 |
| Beijing Lear Dymos Automotive Systems Co., Ltd. (China) | 40 | | 40 | | 40 |
| Dymos Lear Automotive India Private Limited (India) | 35 | | 35 | | 35 |
| RevoLaze, LLC | 20 | | 20 | | 20 |
| HB Polymer Company, LLC | 10 | | 10 | | 10 |
| Shanghai Lear STEC Automotive Parts Co., Ltd. (China) | — | | 55 | | 55 |
| Beijing BAI Lear Automotive Systems Co., Ltd. (China) | — | | — | | 50 |
| | | | | | | | | | | | | | | | | |
| December 31, | 2021 | | 2020 | | 2019 |
| Beijing BHAP Lear Automotive Systems Co., Ltd. (China) | 50% | | 50% | | 50% |
| Guangzhou Lear Automotive Components Co., Ltd. (China) | 50 | | 50 | | 50 |
| Jiangxi Jiangling Lear Interior Systems Co., Ltd. (China) | 50 | | 50 | | 50 |
| Lear Dongfeng Automotive Seating Co., Ltd. (China) | 50 | | 50 | | 50 |
| Changchun Lear FAWSN Automotive Seat Systems Co., Ltd. (China) | 49 | | 49 | | 49 |
| Honduras Electrical Distribution Systems S. de R.L. de C.V. (Honduras) | 49 | | 49 | | 49 |
| Kyungshin-Lear Sales and Engineering LLC | 49 | | 49 | | 49 |
| Shenyang Jinbei Lear Automotive Seating Co. Ltd. (China) | 49 | | — | | — |
| Beijing Lear Hyundai Transys Co., Ltd. (China) | 40 | | 40 | | 40 |
| Hyundai Transys Lear Automotive Private Limited (India) | 35 | | 35 | | 35 |
| Techstars Corporate Partner 2017 LLC | 34 | | 34 | | 38 |
| RevoLaze, LLC | 20 | | 20 | | 20 |
| Maniv Mobility II A, L.P. | 7 | | 9 | | 8 |
| Autotech Fund II, L.P. | 4 | | 4 | | 6 |
| Trucks Venture Fund 2, L.P. | 5 | | 3 | | 4 |
| | | | | |
| | | | | |
| | | | | |
| | | | | |
Summarized group financial information for affiliates accounted for under the equity method as of December 31, 20172021 and 2016,2020, and for the years ended December 31, 2017, 20162021, 2020 and 2015,2019, is shown below (unaudited; in millions):
| | | | | | | | | | | |
| December 31, | 2021 | | 2020 |
| Balance sheet data: | | | |
| Current assets | $ | 1,217.5 | | | $ | 1,136.3 | |
| Non-current assets | 239.5 | | | 194.4 | |
| Current liabilities | 921.7 | | | 901.7 | |
| Non-current liabilities | 6.7 | | | 6.2 | |
|
| | | | | | | |
| December 31, | 2017 | | 2016 |
| Balance sheet data: | | | |
| Current assets | $ | 961.4 |
| | $ | 1,011.0 |
|
| Non-current assets | 203.0 |
| | 197.3 |
|
| Current liabilities | 813.0 |
| | 850.5 |
|
| Non-current liabilities | 26.1 |
| | 26.6 |
|
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, | 2021 | | 2020 | | 2019 |
| Income statement data: | | | | | |
| Net sales | $ | 1,833.6 | | | $ | 1,597.5 | | | $ | 1,670.0 | |
| Gross profit | 50.1 | | | 83.0 | | | 89.2 | |
| Income before provision for income taxes | 104.5 | | | 73.8 | | | 85.7 | |
| Net income attributable to affiliates | 80.5 | | | 44.8 | | | 53.5 | |
|
| | | | | | | | | | | |
| For the year ended December 31, | 2017 | | 2016 | | 2015 |
| Income statement data: | | | | | |
| Net sales | $ | 2,000.4 |
| | $ | 2,186.4 |
| | $ | 2,087.8 |
|
| Gross profit | 172.8 |
| | 200.6 |
| | 155.5 |
|
| Income before provision for income taxes | 169.6 |
| | 195.3 |
| | 127.4 |
|
| Net income attributable to affiliates | 117.8 |
| | 155.4 |
| | 96.0 |
|
A summary of amounts recorded in the Company's consolidated balance sheets related to its affiliates is shown below (in millions): | | | December 31, | 2017 | | 2016 | December 31, | 2021 | | 2020 |
| Aggregate investment in affiliates | $ | 146.5 |
| | $ | 153.5 |
| Aggregate investment in affiliates | $ | 184.7 | | | $ | 142.9 | |
| Receivables due from affiliates (including notes and advances) | 140.7 |
| | 121.8 |
| Receivables due from affiliates (including notes and advances) | 143.0 | | | 142.0 | |
| Payables due to affiliates | 0.2 |
| | 4.3 |
| Payables due to affiliates | 0.7 | | | 1.6 | |
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
A summary of transactions with affiliates accounted for under the equity method and other related parties is shown below (in millions): | | | For the year ended December 31, | 2017 | | 2016 | | 2015 | For the year ended December 31, | 2021 | | 2020 | | 2019 |
| Sales to affiliates | $ | 499.9 |
| | $ | 147.0 |
| | $ | 198.5 |
| Sales to affiliates | $ | 676.6 | | | $ | 656.4 | | | $ | 647.2 | |
| Purchases from affiliates | 9.5 |
| | 17.8 |
| | 26.3 |
| Purchases from affiliates | 4.4 | | | 1.9 | | | 1.6 | |
| Management and other fees for services provided to affiliates | 26.6 |
| | 25.3 |
| | 36.8 |
| Management and other fees for services provided to affiliates | 38.5 | | | 28.3 | | | 35.5 | |
| Dividends received from affiliates | 33.0 |
| | 35.6 |
| | 54.1 |
| Dividends received from affiliates | 26.8 | | | 24.6 | | | 23.3 | |
The Company’sCompany has certain investments with beneficial ownership interests of less than 20% that are accounted for under the equity method as the Company's beneficial ownership interests in these entities are similar to partnership interests.
2021
In 2021, the Company acquired a 49% interest in Shenyang Jinbei Lear Automotive Seating Co. Ltd. ("Shenyang Jinbei") for $41.3 million. The investment in HB Polymer Company, LLC is accounted for under the equity method as the Company’s interestCompany does not control Shenyang Jinbei but does have the ability to exercise significant influence over certain operating and financial policies of Shenyang Jinbei. The acquisition cost is classified within cash flows used in this entity is similar to a partnership interest.investing activities in the accompanying consolidated statement of cash flows for the year ended December 31, 2021.
20172019
On September 8, 2017,In 2019, the Company gained control of Shanghai Lear STEC Automotive Partsdeconsolidated Guangzhou Automobile Group Component Co., Ltd. ("Lear STEC"GACC") by amendingas it no longer controls this entity. As a result, the joint venture agreement to eliminate the substantive participating rightscarrying values of its joint venture partner. Prior to the amendment, Lear STEC was accounted for under the equity method. This transaction was accounted for as a business combination, and accordingly, the assets acquired and liabilities assumedof GACC are includednot reflected in the accompanying consolidated balance sheet as of December 31, 2017. The operating results and cash flows of Lear STEC are included in the accompanying consolidated financial statements from the date of the amended joint venture agreement and are reflected in the Company’s E-Systems segment.
A preliminary summary of the fair value of the assets acquired and liabilities assumed in conjunction with the transaction is shown below (in millions): |
| | | |
| Property, plant and equipment | $ | 16.2 |
|
| Other assets and liabilities assumed, net | 42.4 |
|
| Goodwill | 94.4 |
|
| 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 twelve years.
The fair values of the assets acquired and liabilities assumed in conjunction with the transaction contain preliminary estimates that may be revised as a result of additional information regarding such assets and liabilities.
As of the date of the transaction, the fair value of the Company’s previously held equity interest in Lear STEC was $94.0 million, and the fair value of the noncontrolling interest in Lear STEC was $125.0 million. As a result of valuing the Company’s previously held equity interest in Lear STEC at fair value,2019 In addition, the Company recognizedrecorded a gain of $54.2$4.0 million whichrelated to the excess of the estimated fair value over the carrying value of its interest in GACC immediately prior to deconsolidation. The gain is included in other (income) expense, net in the accompanying consolidated statements of income for the year ended December 31, 2017.
In connection with the transaction, the noncontrolling interest holder obtained the option, which is embedded in the noncontrolling interest, to require the Company to purchase or redeem the 45% noncontrolling interest based on a pre-determined earnings multiple formula. In accordance with GAAP, the Company records redeemable noncontrolling interests at the greater of (1) the initial carrying amount adjusted for the noncontrolling interest holder’s share of total comprehensive income or loss and dividends ("noncontrolling interest carrying value") or (2) the redemption value as of and based on conditions existing as of the reporting date. Required redemption adjustments are recorded as an increase to redeemable noncontrolling interests, with an offsetting adjustment to retained earnings. The redeemable noncontrolling interest is classified in mezzanine equity in the accompanying consolidated balance sheet as of December 31, 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
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
share. Redeemable noncontrolling interest of $153.4 million related to Lear STEC is reflected in the Company's consolidated balance sheet as of December 31, 2017. This amount includes a noncontrolling interest redemption adjustment of $25.5 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 9, "Capital Stock, Accumulated Other Comprehensive Loss and Equity." For further information related to acquired assets measured at fair value, see Note 13, "Financial Instruments."
2016
On June 21, 2016, the Company gained control of Beijing BAI Lear Automotive Systems Co., Ltd. ("Beijing BAI") by amending the joint venture agreement to eliminate the substantive participating rights of its joint venture partner. Prior to the amendment, Beijing BAI was accounted for under the equity method. This transaction was accounted for as a business combination, and accordingly, the assets acquired and liabilities assumed are included in the accompanying consolidated balance sheets as of December 31, 2017 and 2016. The operating results and cash flows of Beijing BAI are included in the accompanying consolidated financial statements from the date of the amended joint venture agreement and are reflected in the Company's Seating segment.
A summary of the fair value of the assets acquired and liabilities assumed in conjunction with the transaction is shown below (in millions): |
| | | |
| Property, plant and equipment | $ | 20.7 |
|
| Other assets and liabilities assumed, net | 42.1 |
|
| Goodwill | 7.2 |
|
| Intangible assets | 34.0 |
|
| | $ | 104.0 |
|
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 Beijing BAI’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 eight years.
As of the date of the transaction, the fair value of the Company’s previously held equity interest in Beijing BAI was $63.0 million, and the fair value of the noncontrolling interest in Beijing BAI was $41.0 million. As a result of valuing the Company’s previously held equity interest in Beijing BAI at fair value, the Company recognized a gain of $30.3 million, which is included in other (income) expense, net in the accompanying consolidated statement of income for the year ended December 31, 2016.2019.
For further information related to acquired assets measured at fair value, see Note 13,16, "Financial Instruments."
Also in 2016, the Company acquired an additional ownership interest in eLumigen LLC, thereby increasing its ownership interest to 46% from 30%.
Subsequent Event(7) Debt
In January 2018, the Company gained control of Changchun Lear FAWSN Automotive Electrical and Electronics Co., Ltd. ("Lear FAWSN") by acquiring an additional 20% interest from a joint venture partner and by amending the joint venture agreement to eliminate the substantive participating rights of the remaining joint venture partner. Prior to the amendment, Lear FAWSN was accounted for under the equity method.
This transaction will be accounted for as a business combination, and the assets acquired and liabilities assumed will be recognized and measured at fair value as of the transaction date. The operating results and cash flows of Lear FAWSN will be included in the consolidated financial statements from the transaction date. The Company is preparing the preliminary estimates of the fair values of the assets acquired and liabilities assumed, which will be included in the Company's Quarterly Report on Form 10-Q for the period ending March 31, 2018. The gain, if any, on the Company's previously held equity interest in Lear FAWSN is not expected to be material.
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(6) Debt
Short-Term Borrowings
The Company utilizes committed and uncommitted lines of credit as needed for its short-term working capital fluctuations. As of December 31, 20172021 and 2016,2020, the Company had lines of credit from banks totaling $47.5$96.2 million and $21.4$94.3 million, respectively. As of December 31, 2017,2021 and 2020, the Company had no short-term debt balances outstanding related to draws on the lines of credit. As of December 31, 2016, the Company's short-term debt balance was $8.6 million related to draws on the lines of credit.
Long-Term Debt
A summary of long-term debt, net of unamortized debt issuance costs and unamortized original issue premium (discount) and the related weighted average interest rates is shown below (in millions):
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, | 2017 | | 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 | $ | 248.4 |
| | $ | (1.8 | ) | | $ | 246.6 |
| | 3.000% | | $ | 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 |
| | (2.4 | ) | | 322.6 |
| | 5.375% | | 325.0 |
| | (2.8 | ) | | 322.2 |
| | 5.375% |
| 5.25% Senior Notes due 2025 ("2025 Notes") | 650.0 |
| | (5.8 | ) | | 644.2 |
| | 5.25% | | 650.0 |
| | (6.6 | ) | | 643.4 |
| | 5.25% |
3.8% Senior Notes due 2027 ("2027 Notes") (1) | 744.9 |
| | (5.9 | ) | | 739.0 |
| | 3.885% | | — |
| | — |
| | — |
| | N/A |
| Other | 8.1 |
| | — |
| | 8.1 |
| | N/A | | 5.7 |
| | — |
| | 5.7 |
| | N/A |
| | $ | 1,976.4 |
| | $ | (15.9 | ) | | 1,960.5 |
| | | | $ | 1,949.4 |
| | $ | (15.8 | ) | | 1,933.6 |
| | |
| Less — Current portion | | | | | (9.0 | ) | | | | | | | | (35.6 | ) | | |
| Long-term debt | | | | | $ | 1,951.5 |
| | | | | | | | $ | 1,898.0 |
| | |
| |
(1) | Net of unamortized discount of $5.1 million
|
Senior Notes
The issuance, maturity and interest payable dates of the Company's senior unsecured 2024 Notes, 2025 Notes and 2027 Notes (collectively, the "Notes") are as shown below: | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, | 2021 |
| Debt Instrument | Long-Term Debt | | Unamortized Debt Issuance Costs | | Unamortized Original Issue Premium (Discount) | | Long-Term
Debt, Net | | Weighted
Average
Interest
Rate |
| 3.8% Senior Notes due 2027 (the "2027 Notes") | $ | 550.0 | | | $ | (2.5) | | | $ | (2.2) | | | $ | 545.3 | | | 3.885% |
| 4.25% Senior Notes due 2029 (the "2029 Notes") | 375.0 | | | (2.3) | | | (0.9) | | | 371.8 | | | 4.288% |
| 3.5% Senior Notes due 2030 (the "2030 Notes") | 350.0 | | | (2.3) | | | (0.7) | | | 347.0 | | | 3.525% |
| 2.6% Senior Notes due 2032 (the "2032 Notes") | 350.0 | | | (3.1) | | | (0.8) | | | 346.1 | | | 2.624% |
| 5.25% Senior Notes due 2049 (the "2049 Notes") | 625.0 | | | (6.1) | | | 13.7 | | | 632.6 | | | 5.103% |
| 3.55% Senior Notes due 2052 (the "2052 Notes") | 350.0 | | | (3.8) | | | (0.5) | | | 345.7 | | | 3.558% |
| Other | 7.5 | | | — | | | — | | | 7.5 | | | N/A |
| $ | 2,607.5 | | | $ | (20.1) | | | $ | 8.6 | | | 2,596.0 | | | |
| Less — Current portion | | | | | | | (0.8) | | | |
| Long-term debt | | | | | | | $ | 2,595.2 | | | |
|
| | | | | |
Note | Issuance Date | | Maturity Date | | Interest Payable Dates |
2024 Notes | March 2014 | | March 15, 2024 | | March 15 and September 15 |
2025 Notes | November 2014 | | January 15, 2025 | | January 15 and July 15 |
2027 Notes | August 2017 | | September 15, 2027 | | March 15 and September 15 |
2024 Notes
The proceeds from the 2024 Notes offering of $325 million, net of related issuance costs of $3.9 million, together with existing cash on hand, were used to redeem the remaining outstanding aggregate principal amount of the Company's senior notes due 2018 ($280 million) and to redeem 10% of the original aggregate principal amount at maturity of the Company's senior notes due 2020 ("2020 Notes") ($35 million) at stated redemption prices, plus accrued and unpaid interest to the respective redemption dates.
Lear Corporation and Subsidiaries
Notes to 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 Company may redeem the 2024 Notes, in whole or in part, on or after March 15, 2019, at the redemption prices set forth below, plus accruedissuance, maturity and unpaid interest to the redemption date.
|
| |
| Twelve-Month Period Commencing March 15, | 2024 Notes |
| 2019 | 102.688% |
| 2020 | 101.792% |
| 2021 | 100.896% |
| 2022 and thereafter | 100.000% |
Prior to March 15, 2019, the Company may redeem the 2024 Notes, in whole or in part, at a redemption price equal to 100%payment dates of the aggregate principal amount thereof, plus a "make-whole" premium as of,Company's senior unsecured 2027 Notes, 2029 Notes, 2030 Notes, 2032 Notes, 2049 Notes and accrued and unpaid interest to,2052 Notes (collectively, the redemption date."Notes") are shown below:
2025 | | | | | | | | | | | | | | | | | | | | |
| Note | | Issuance Date | | Maturity Date | | Interest Payment Dates |
| 2027 Notes | | August 2017 | | September 15, 2027 | | March 15 and September 15 |
| 2029 Notes | | May 2019 | | May 15, 2029 | | May 15 and November 15 |
| 2030 Notes | | February 2020 | | May 30, 2030 | | May 30 and November 30 |
| 2032 Notes | | November 2021 | | January 15, 2032 | | January 15 and July 15 (1) |
| 2049 Notes | | May 2019 and February 2020 | | May 15, 2049 | | May 15 and November 15 |
| 2052 Notes | | November 2021 | | January 15, 2052 | | January 15 and July 15 (1) |
Of the $650 million of proceeds from the 2025 Notes offering, net of related issuance costs of $8.4 million, $250 million was restricted for the redemption of the remaining outstanding aggregate principal amount of the 2020 Notes ($245 million) and $350 million was restricted to finance, in part, the acquisition of Eagle Ottawa (Note 3, "Acquisitions"). In January 2015, the Company used $350 million of restricted cash proceeds from the offering, along with $500 million in borrowings under the prior term loan facility (see "— Credit Agreement" below), to finance the acquisition of Eagle Ottawa. In March 2015, the Company redeemed the 2020 Notes at a price equal to 104.063% of the principal amount thereof, plus accrued and unpaid interest to the redemption date. In connection with this transaction, the Company paid $255.0 million, including $250 million of restricted cash proceeds from the offering, and recognized a loss of $14.3 million on the extinguishment of debt in the year ended December 31, 2015. The use of restricted cash for the acquisition of Eagle Ottawa and the redemption of the 2020 Notes is reflected as non-cash investing and financing activities, respectively, in the accompanying consolidated statement of cash flows for the year ended December 31, 2015. The remaining proceeds from the offering were used for general corporate purposes, including the payment of fees and expenses associated with the acquisition of Eagle Ottawa and related financing transactions.
The Company may redeem the 2025 Notes, in whole or in part, on or after January(1) Commencing July 15, 2020, at the redemption prices set forth below, plus accrued and unpaid interest to the redemption date.
|
| |
| Twelve-Month Period Commencing January 15, | 2025 Notes |
| 2020 | 102.625% |
| 2021 | 101.750% |
| 2022 | 100.875% |
| 2023 and thereafter | 100.000% |
Prior to January 15, 2020, the Company may redeem the 2025 Notes, in whole or in part, at a redemption price equal to 100% of the aggregate principal amount thereof, plus a "make-whole" premium as of, and accrued and unpaid interest to, the redemption date.2022.
2027 Notes
In 2017, the Company issued $750.0 million in aggregate principal amount at maturity of 2027 Notes at a stated coupon rate of 3.8%. The 2027 Notes were pricedissued at 99.294% of par, resulting in a yield to maturity of 3.885%. The net proceeds from the offering of $744.7 million, after original issue discount, were used to redeem the outstanding $500.0 million in aggregate principal amount of the senior unsecured notes due 2023 Notes at a redemption price equal to 100% of the aggregate principal amount thereof, plus a "make-whole" premium of $17.0 million, as well as to refinance a portion of the Company's $500.0 million prior term loan facility (see "— Credit Agreement" below).
In November 2021, the Company paid $221.5 million for the purchase of $200.0 million in aggregate principal amount of the 2027 Notes, including an early tender premium of $21.0 million and related fees of $0.5 million. In connection with these transactions,this transaction, the Company recognized a loss of $21.2$23.9 million on the extinguishment of debt and paid related issuance costs of $6.0 million.debt.
Prior to June 15, 2027, the Company, at its option, may redeem some or all of the 2027 Notes, in whole or in part, at a redemption price equal to 100% of the principal amount thereof, plus a "make-whole" premium as of, and accrued and unpaid interest to, the redemption date. At any time onOn 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, in whole or in part, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to the redemption date.
2029 and 2049 Notes Issued in 2019
In 2019, the Company issued $375.0 million in aggregate principal amount at maturity of 2029 Notes and $325.0 million in aggregate principal amount at maturity of 2049 Notes. The 2029 Notes have a stated coupon rate of 4.25% and were issued at 99.691% of par, resulting in a yield to maturity of 4.288%. The 2049 Notes have a stated coupon rate of 5.25% and were issued at 98.32% of par, resulting in a yield to maturity of 5.363%.
The net proceeds from the offering of $693.3 million, after original issue discount, were used to redeem $325.0 million in aggregate principal amount of the 2024 Notes at a redemption price equal to 102.688% of the principal amount of such 2024
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Notes, plus accrued interest, as well as to finance the Xevo acquisition (Note 4, "Acquisitions") and for general corporate purposes.
GuaranteesPrior to February 15, 2029, the Company, at its option, may redeem the 2029 Notes, in whole or in part, at a redemption price equal to 100% of the principal amount thereof, plus the applicable premium, if any, as of, and accrued and unpaid interest to, but not including, the redemption date. On or after February 15, 2029, the Company, at its option, may redeem the 2029 Notes, at any time, in whole or in part, on not less than 15 nor more than 60 days' prior notice, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but not including, the redemption date.
Prior to November 15, 2048, the Company, at its option, may redeem the 2049 Notes, in whole or in part, at a redemption price equal to 100% of the principal amount thereof, plus the applicable premium, if any, as of, and accrued and unpaid interest to, but not including, the redemption date. On or after November 15, 2048, the Company, at its option, may redeem the 2049 Notes, at any time, in whole or in part, on not less than 15 nor more than 60 days' prior notice, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but not including, the redemption date.
In connection with these transactions, the Company recognized a loss of $10.6 million on the extinguishment of debt and paid related issuance costs of $6.5 million.
2030 Notes and 2049 Notes Issued in 2020
In 2020, the Company issued $350.0 million in aggregate principal amount at maturity of 2030 Notes and $300.0 million in aggregate principal amount at maturity of 2049 Notes. The 2030 Notes have a stated coupon rate of 3.5% and were issued at 99.774% of par, resulting in a yield to maturity of 3.525%. The 2049 Notes have a stated coupon rate of 5.25% and were issued at 106.626% of par, resulting in a yield to maturity of 4.821%.
The net proceeds from the offering were $669.1 million after original issue discount. The proceeds were used to redeem $650.0 million in aggregate principal amount of 2025 Notes are senior unsecured obligations. As discussed further in "— Credit Agreement" below, upon terminationat a redemption price equal to 102.625% of the Company’sprincipal amount of such 2025 Notes, plus accrued interest.
Prior to February 28, 2030, the Company, at its option, may redeem the 2030 Notes, in whole or in part, at a redemption price equal to 100% of the principal amount thereof, plus the applicable premium, if any, as of, and accrued and unpaid interest to, but not including, the redemption date. On or after February 28, 2030, the Company, at its option, may redeem the 2030 Notes, at any time, in whole or in part, on not less than 15 nor more than 60 days' prior credit agreement,notice, at a redemption price equal to 100% of the subsidiaries that previously guaranteedprincipal amount thereof, plus accrued and unpaid interest to, but not including, the 2024redemption date.
Prior to November 15, 2048, the Company, at its option, may redeem the 2049 Notes, in whole or in part, at a redemption price equal to 100% of the principal amount thereof, plus the applicable premium, if any, as of, and accrued and unpaid interest to, but not including, the redemption date. On or after November 15, 2048, the Company, at its option, may redeem the 2049 Notes, at any time, in whole or in part, on not less than 15 nor more than 60 days' prior notice, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but not including, the redemption date.
In connection with these transactions, the Company recognized a loss of $21.1 million on the extinguishment of debt and paid related issuance costs of $6.0 million.
2032 Notes and 20252052 Notes
In 2021, the Company issued $350.0 million in aggregate principal amount at maturity of 2032 Notes and $350.0 million in aggregate principal amount at maturity of 2052 Notes. The 2032 Notes have a stated coupon rate of 2.6% and were automatically released as guarantors. There are currently no guarantorsissued at 99.782% of par, resulting in a yield to maturity of 2.624%. The 2052 Notes have a stated coupon rate of 3.55% and were issued at 99.845% of par, resulting in a yield to maturity of 3.558%.
The net proceeds from the offering of $698.7 million, after original issue discount, were used to fund the tender of $200.0 million in aggregate principal amount of 2027 Notes (see "— 2027 Notes" above) and the repayment in full of $206.3 million outstanding on the term loan facility. The Company expects to use the remaining net proceeds for general corporate purposes, which may include the purchase price for the Kongsberg acquisition (Note 4, "Acquisitions").
Prior to October 15, 2031, the Company, at its option, may redeem the 2032 Notes, in whole or in part, at a redemption price equal to 100% of the Company’s obligations underprincipal amount thereof, plus the Notes.applicable premium, if any, as of, and accrued and unpaid interest to, but not including, the redemption date. On or after October 15, 2031, the Company, at its option, may redeem the 2032 Notes, at any time, in whole or in part, on not less than 15 nor more than 60 days' prior notice, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but not including, the redemption date.
Prior to July 15, 2051, the Company, at its option, may redeem the 2052 Notes, in whole or in part, at a redemption price equal to 100% of the principal amount thereof, plus the applicable premium, if any, as of, and accrued and unpaid interest to, but not
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
including, the redemption date. On or after July 15, 2051, the Company, at its option, may redeem the 2052 Notes, at any time, in whole or in part, on not less than 15 nor more than 60 days' prior notice, at a redemption price equal to 100% of the principal amount thereof, plus accrued and unpaid interest to, but not including, the redemption date.
In connection with these transactions, the Company paid related issuance costs of $7.1 million.
Covenants
Subject to certain exceptions, the indentures governing the Notes contain restrictive covenants that, among other things, limit the ability of the Company to: (i) create or permit certain liens and (ii) consolidate, merge or sell all or substantially all of the Company’sCompany'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 December 31, 2017,2021, the Company was in compliance with all covenants under the indentures governing the Notes.
Credit Agreement
In August 2017, the Company entered into a newan unsecured credit agreement (the "Credit Agreement") consisting of a $1.75 billion revolving credit facility ("Revolving(the "Revolving Credit Facility") and a $250.0$250 million term loan facility (the "Term Loan Facility"), both of which mature on August 8, 2022.. In October 2021, the Company entered into an amended and restated credit agreement (the "Credit Agreement") that increased the Revolving Credit Facility to $2.0 billion and extended the maturity date to October 28, 2026. In connection with this transaction,the amendment and restatement, the Company borrowed $250.0recognized a loss of $0.4 million underon the Term Loan Facilityextinguishment of debt and paid related issuance costs of $5.7$2.8 million. At the same time,
In 2021, 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 outstandingmade principal payments under the term loan facilityTerm Loan Facility of $453.1 million. Together$220.3 million, including full repayment of $206.3 million in November 2021. In connection with the offeringfull repayment, the Company recognized a loss of $0.3 million on the 2027 Notes, these transactions extendedextinguishment of debt. In 2020 and 2019, the Company's maturity profileCompany made required principal payments under the Term Loan Facility of $14.1 million and increased its operational flexibility and borrowing capacity.$7.8 million, respectively.
In 2017,2021, there were no borrowings or repayments under the Revolving Credit Facility. In the first quarter of 2020, as a proactive measure in response to the COVID-19 pandemic, the Company borrowed $1.0 billion under the Revolving Credit Facility, which was repaid in full in the third quarter of 2020. In 2019, aggregate borrowings and repayments under the Revolving Credit Facility and prior revolving credit facility were $109.5 million. In 2016, there were no borrowings or repayments under the prior revolving credit facility. In 2015, aggregate borrowings and repayments under the prior revolving credit facility were $48.0$30.0 million. As of December 31, 20172021 and 2016,2020, there were no borrowings outstanding under the Revolving Credit Facility and prior revolving credit facility, respectively.Facility.
In 2017, the Company made required principal payments of $1.6 million under the Term Loan Facility. In addition, the Company made principal payments of $468.7 million under the prior term loan facility, which include payments of $453.1 million made in connection with Credit Agreement described above. In 2016, the Company made required principal payments of $21.9 million under the prior term loan facility.
Advances under the Revolving Credit Facility and borrowings under the Term Loan Facility(1) 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)Agreement) plus a margin, determined in accordance with a pricing grid. As of December 31, 2017,2021, the ranges and rates are as follows (in percentages):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Eurocurrency Rate | | Base Rate |
| | Minimum | | Maximum | | Rate as of December 31, 2021 | | Minimum | | Maximum | | Rate as of December 31, 2021 |
| Revolving Credit Facility | | 0.925 | % | | 1.450 | % | | 1.125 | % | | 0.000 | % | | 0.450 | % | | 0.125 | % |
Term Loan Facility1 | | 1.125 | % | | 1.900 | % | | N/A | | 0.125 | % | | 0.900 | % | | N/A |
|
| | | | | | | | | | | | | | | | | | |
| | | Eurocurrency Rate | | Base Rate |
| | | Minimum | | Maximum | | Rate as of
December 31, 2017 | | Minimum | | Maximum | | Rate as of
December 31,
2017 |
| Revolving Credit Agreement | | 1.00 | % | | 1.60 | % | | 1.30 | % | | 0.00 | % | | 0.60 | % | | 0.30 | % |
| Term Loan Facility | | 1.125 | % | | 1.90 | % | | 1.50 | % | | 0.125 | % | | 0.90 | % | | 0.50 | % |
AThe facility fee, which ranges from 0.125%0.075% to 0.30%0.20% 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 CreditCredit Agreement contains various customary representations, warranties and covenants by the Company, including, without limitation, (i) covenants regarding maximum leverage, (ii) limitations on fundamental changes involving the Company or its subsidiaries and (iii) limitations on indebtedness and liens. As of December 31, 2017,2021, the Company was in compliance with all covenants under the Credit Agreement.Agreement.
Other
As of December 31, 2021, other long-term debt, including the current portion, consisted of amounts outstanding under an unsecured working capital loan and a finance lease agreement. As of December 31, 2020, other long-term debt, including the current portion, consisted of amounts outstanding under a finance lease agreement.
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(8) Leases
OtherRight-of-Use Assets and Lease Obligations
As of December 31, 2017, other long-term debt consists of amounts outstanding under capital leases.
Scheduled Maturities
As of December 31, 2017, scheduled maturities related toThe Company has operating leases for production, office and warehouse facilities, manufacturing and office equipment and vehicles. Operating lease assets and obligations included in the Credit Agreement — Term Loan Facility for the five succeeding years, as of the date of this Report,accompanying consolidated balance sheet are shown below (in millions):
| | | | | | | | | | | |
| December 31, | 2021 | | 2020 |
| Right-of-use assets under operating leases: | | | |
| Other long-term assets | $ | 627.9 | | | $ | 540.3 | |
| Lease obligations under operating leases: | | | |
| Accrued liabilities | $ | 125.6 | | | $ | 116.3 | |
| Other long-term liabilities | 523.6 | | | 438.9 | |
| $ | 649.2 | | | $ | 555.2 | |
Maturities of lease obligations as of December 31, 2021, are shown below (in millions):
| | | | | |
| 2022 | $ | 143.4 | |
| 2023 | 115.8 | |
| 2024 | 98.3 | |
| 2025 | 83.4 | |
| 2026 | 73.3 | |
| Thereafter | 207.4 | |
| Total undiscounted cash flows | 721.6 | |
| Less: Imputed interest | (72.4) | |
| Lease obligations under operating leases | $ | 649.2 | |
The Company entered into a lease contract which commences in the first quarter of 2022. The contract has a lease term of seven years and a right-of-use asset and related lease obligation of approximately $24.0 million.
Cash flow information related to operating leases is shown below (in millions):
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, | 2021 | | 2020 | | 2019 |
| Non-cash activity: | | | | | |
| Right-of-use assets obtained in exchange for operating lease obligations | $ | 258.4 | | | $ | 135.1 | | | $ | 214.3 | |
| Operating cash flows: | | | | | |
| Cash paid related to operating lease obligations | $ | 164.2 | | | $ | 143.8 | | | $ | 141.8 | |
Lease expense included in the accompanying consolidated statement of income is shown below (in millions):
| | | | | | | | | | | | | | | | | | |
| For the year ended December 31, | 2021 | | 2020 | | 2019 | |
| Operating lease expense | $ | 160.3 | | | $ | 148.6 | | | $ | 140.6 | | |
| Short-term lease expense | 19.4 | | | 15.4 | | | 17.0 | | |
| Variable lease expense | 7.9 | | | 8.0 | | | 6.5 | | |
| Total lease expense | $ | 187.6 | | | $ | 172.0 | | | $ | 164.1 | | |
The Company's short-term lease expense excludes leases with a duration of one month or less, as permitted by the standard.
Variable lease expense includes payments based on performance or usage, as well as changes to index and rate-based lease payments. Additionally, the Company evaluated its supply contracts with its customers and concluded that variable lease (income) expense in these arrangements is not material.
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
|
| | | |
| 2018 | $ | 6.3 |
|
| 2019 | 7.8 |
|
| 2020 | 14.0 |
|
| 2021 | 14.0 |
|
| 2022 | 206.3 |
|
The weighted average lease term and discount rate for operating leases as of December 31, 2021, are shown below: (7) | | | | | |
| Weighted average remaining lease term | Seven years |
| Weighted average discount rate | 3.0 | % |
The Company has entered into certain finance lease agreements which are not material to the consolidated financial statements (Note 7, "Debt").
(9) Income Taxes
A summary of consolidated income before provision for income taxes and equity in net income of affiliates and the components of provision for income taxes is shown below (in millions):
| | | For the year ended December 31, | 2017 | | 2016 | | 2015 | For the year ended December 31, | 2021 | | 2020 | | 2019 |
| Consolidated income before provision for income taxes and equity in net income of affiliates: | | | | | | Consolidated income before provision for income taxes and equity in net income of affiliates: | |
| Domestic | $ | 449.5 |
| | $ | 457.3 |
| | $ | 344.7 |
| Domestic | $ | (110.9) | | | $ | (145.0) | | | $ | 317.4 | |
| Foreign | 1,077.2 |
| | 881.0 |
| | 686.8 |
| Foreign | 694.4 | | | 444.3 | | | 636.2 | |
| | $ | 1,526.7 |
| | $ | 1,338.3 |
| | $ | 1,031.5 |
| | $ | 583.5 | | | $ | 299.3 | | | $ | 953.6 | |
| Domestic (benefit) provision for income taxes: | | | | | | |
| Domestic benefit for income taxes: | | Domestic benefit for income taxes: | |
| Current provision | $ | 25.8 |
| | $ | 46.6 |
| | $ | 45.4 |
| Current provision | $ | 38.4 | | | $ | 29.0 | | | $ | 24.2 | |
| Deferred (benefit) provision | (46.1 | ) | | 99.2 |
| | 55.0 |
| |
| Total domestic (benefit) provision | (20.3 | ) | | 145.8 |
| | 100.4 |
| |
| Deferred benefit | | Deferred benefit | (76.6) | | | (106.2) | | | (52.6) | |
| Total domestic benefit | | Total domestic benefit | $ | (38.2) | | | $ | (77.2) | | | $ | (28.4) | |
| Foreign provision for income taxes: | | | | | | Foreign provision for income taxes: | |
| Current provision | 253.0 |
| | 220.0 |
| | 191.5 |
| Current provision | $ | 154.8 | | | $ | 149.6 | | | $ | 160.1 | |
| Deferred (benefit) provision | (35.2 | ) | | 4.4 |
| | (6.4 | ) | |
| Deferred provision | | Deferred provision | 21.1 | | | 21.5 | | | 14.4 | |
| Total foreign provision | 217.8 |
| | 224.4 |
| | 185.1 |
| Total foreign provision | $ | 175.9 | | | $ | 171.1 | | | $ | 174.5 | |
| Provision for income taxes | $ | 197.5 |
| | $ | 370.2 |
| | $ | 285.5 |
| Provision for income taxes | $ | 137.7 | | | $ | 93.9 | | | $ | 146.1 | |
The domestic (benefit)current provision includes withholding taxes related to dividends and royalties paid by the Company’sCompany's foreign subsidiaries, as well as state and local taxes. In 2017, 20162021, 2020 and 2015,2019, the foreign deferred (benefit) provision for income taxes includes the benefit of prior unrecognized net operating loss carryforwards of $11.5$2.9 million, $5.4$5.3 million and $1.7$1.8 million, respectively.
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
A summary of the differences between the provision for income taxes calculated at the United States federal statutory income tax rate of 35%21% and the consolidated provision for income taxes is shown below (in millions):
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, | 2021 | | 2020 | | 2019 |
| Consolidated income before provision for income taxes and equity in net income of affiliates multiplied by the United States federal statutory income tax rate | $ | 122.5 | | | $ | 62.9 | | | $ | 200.2 | |
| Differences in income taxes on foreign earnings, losses and remittances | 30.4 | | | 20.7 | | | 14.1 | |
| Valuation allowance adjustments | 29.0 | | | 47.7 | | | 1.2 | |
| Research and development and other tax credits | (19.0) | | | (11.8) | | | (40.8) | |
| FDII deduction | (6.0) | | | (14.6) | | | (29.3) | |
U.S. tax impact of foreign earnings (1) | (9.8) | | | (21.1) | | | 9.7 | |
| Tax audits and assessments | 3.2 | | | 8.9 | | | 0.4 | |
| Change in the tax status of certain affiliates | — | | | — | | | (18.1) | |
| | | | | |
| Other | (12.6) | | | 1.2 | | | 8.7 | |
| Provision for income taxes | $ | 137.7 | | | $ | 93.9 | | | $ | 146.1 | |
|
| | | | | | | | | | | |
| For the year ended December 31, | 2017 | | 2016 | | 2015 |
| Consolidated income before provision for income taxes and equity in net income of affiliates multiplied by the United States federal statutory income tax rate | $ | 534.4 |
| | $ | 468.4 |
| | $ | 361.0 |
|
| Differences in income taxes on foreign earnings, losses and remittances | (128.9 | ) | | (43.9 | ) | | (79.2 | ) |
| Valuation allowance adjustments | (56.8 | ) | | (44.2 | ) | | 24.6 |
|
| Tax credits | (26.8 | ) | | (2.7 | ) | | (5.7 | ) |
| Repatriation of certain foreign earnings | (289.7 | ) | | — |
| | — |
|
| Transition tax on accumulated foreign earnings | 131.0 |
| | — |
| | — |
|
| U.S. tax rate change and other tax reform items | 42.5 |
| | — |
| | — |
|
| Tax audits and assessments | (1.4 | ) | | (1.8 | ) | | 0.7 |
|
| Other | (6.8 | ) | | (5.6 | ) | | (15.9 | ) |
| Provision for income taxes | $ | 197.5 |
| | $ | 370.2 |
| | $ | 285.5 |
|
In 2019, the Company completed a U.S. research and development ("R&D") tax credit study for the years 2013 to 2018, the results of which were accepted by the Internal Revenue Service and pursuant to which the Company recognized a tax benefit of $28.6 million. The tax benefit is reflected in the table above in research and development and other tax credits.
For the years ended December 31, 2017, 20162021, 2020 and 2015,2019, income in foreign jurisdictions with tax holidays was $124.1$55.6 million, $89.7$29.4 million and $72.2$89.4 million, respectively. Such tax holidays generally expire from 20182021 through 2027.2036.
Deferred income taxes represent temporary differences in the recognition of certain items for financial reporting and income tax purposes. A summary of the components of the net deferred income tax asset is shown below (in millions):
| | | December 31, | 2017 | | 2016 | December 31, | 2021 | | 2020 |
| Deferred income tax assets: | | | | |
| Deferred income tax assets (liabilities): | | Deferred income tax assets (liabilities): | |
| Tax loss carryforwards | $ | 452.9 |
| | $ | 485.1 |
| Tax loss carryforwards | $ | 396.9 | | | $ | 423.9 | |
| Tax credit carryforwards | 341.0 |
| | 187.9 |
| Tax credit carryforwards | 266.4 | | | 280.6 | |
| Retirement benefit plans | 58.2 |
| | 89.4 |
| Retirement benefit plans | 55.8 | | | 82.9 | |
| Accrued liabilities | 144.1 |
| | 158.2 |
| Accrued liabilities | 193.9 | | | 177.9 | |
| Self-insurance reserves | 5.9 |
| | 8.4 |
| Self-insurance reserves | 6.7 | | | 7.1 | |
| Current asset basis differences | 37.4 |
| | 44.6 |
| Current asset basis differences | 41.4 | | | 43.3 | |
| Long-term asset basis differences | (88.1 | ) | | (77.3 | ) | Long-term asset basis differences | (24.2) | | | (36.5) | |
| Deferred compensation | 41.4 |
| | 57.3 |
| Deferred compensation | 25.4 | | | 22.6 | |
| Recoverable customer engineering, development and tooling | 3.6 |
| | (6.9 | ) | |
| Capitalized engineering, research and development | | Capitalized engineering, research and development | 138.3 | | | 67.1 | |
| Undistributed earnings of foreign subsidiaries | (41.7 | ) | | (62.4 | ) | Undistributed earnings of foreign subsidiaries | (74.0) | | | (71.7) | |
| Derivative instruments and hedging activities | 3.3 |
| | 20.1 |
| Derivative instruments and hedging activities | 2.0 | | | (5.2) | |
| Other | (0.4 | ) | | 0.6 |
| Other | (12.3) | | | (8.9) | |
| | 957.6 |
| | 905.0 |
| |
| Net deferred income tax asset before valuation allowance | | Net deferred income tax asset before valuation allowance | 1,016.3 | | | 983.1 | |
| Valuation allowance | (402.2 | ) | | (445.6 | ) | Valuation allowance | (406.9) | | | (397.7) | |
| Net deferred income tax asset | $ | 555.4 |
| | $ | 459.4 |
| Net deferred income tax asset | $ | 609.4 | | | $ | 585.4 | |
As of December 31, 20172021 and 2016,2020, the valuation allowance with respect to the Company’sCompany's deferred tax assets was $402.2$406.9 million and $445.6$397.7 million, respectively, a net decreaseincrease of $43.4$9.2 million.
Concluding that a valuation allowance is not required is difficult when there is significant negative evidence, such as cumulative losses in recent years, which is objective and verifiable. When measuring cumulative losses in recent years, the
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Company uses a rolling three-year period of pretax book income, adjusted for permanent differences between book and taxable income and certain other items. As of December 31, 2017,2021, the Company continues to maintain a U.S. valuation allowance of $20.9$24.5 million, with respectprimarily related to certain U.S. state and local deferred tax assets that, due to their nature, are not likely to be realized. In addition, the Company continues to maintain a valuation allowance of $381.3$382.4 million with respect to its deferred tax assets in several international jurisdictions.
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The classification of the net deferred income tax asset is shown below (in millions):
| | | December 31, | 2017 | | 2016 | December 31, | 2021 | | 2020 |
| Long-term deferred income tax assets | $ | 646.8 |
| | $ | 504.4 |
| Long-term deferred income tax assets | $ | 701.4 | | | $ | 670.2 | |
| Long-term deferred income tax liabilities | (91.4 | ) | | (45.0 | ) | Long-term deferred income tax liabilities | (92.0) | | | (84.8) | |
| Net deferred income tax asset | $ | 555.4 |
| | $ | 459.4 |
| Net deferred income tax asset | $ | 609.4 | | | $ | 585.4 | |
As of December 31, 2017,2021, deferred income taxes have not been provided on the undistributed earnings of the Company’sCompany's foreign subsidiaries since all of these earnings are subject to the one-time transition tax and arewill not be taxable upon repatriation to the United States. These earnings will be primarily treated as previously taxed income from either the one-time transition tax or GILTI, or they will be offset with a 100% dividend received deduction. However, the Company continues to provide a deferred tax liability for foreign withholding tax that will be incurred with respect to the undistributed foreign earnings that are not permanently reinvested.
As of December 31, 2017,2021, the Company had tax loss carryforwards of $1.9$1.7 billion. Of the total tax loss carryforwards, $1.5$1.4 billion have no expiration date, and $342.0$253.0 million expire between 20182022 and 2037.2038. In addition, the Company had tax credit carryforwards of $341.0$266.4 million, comprised principally of U.S. foreign tax credits of $103.7 million that expire between 2027 and 2031, U.S. research and development credits of $119.3 million that expire between 2025 and investment2041 and other tax credits primarily in international jurisdictions of $43.4 million that generally expire between 20182022 and 2037.
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 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 $52.9 million and a corresponding credit to retained earnings in conjunction with the adoption. The effects of adopting the other provisions of ASU 2016-09 were not significant.2041.
As of December 31, 20172021 and 2016,2020, the Company’sCompany's gross unrecognized tax benefits were $33.2$34.9 million and $29.5$36.4 million (excluding interest and penalties), respectively, which is recorded in other long-term liabilities in the accompanying consolidated balance sheets. If recognized, all of which, if recognized, would affect the Company’s effective tax rate. TheCompany's gross unrecognized tax benefits are recorded in other long-term liabilities.would affect the Company's effective tax rate.
A summary of the changes in gross unrecognized tax benefits is shown below (in millions):
| | | For the year ended December 31, | 2017 | | 2016 | | 2015 | For the year ended December 31, | 2021 | | 2020 | | 2019 |
| Balance at beginning of period | $ | 29.5 |
| | $ | 30.4 |
| | $ | 39.7 |
| Balance at beginning of period | $ | 36.4 | | | $ | 31.6 | | | $ | 36.7 | |
| Additions based on tax positions related to current year | 5.4 |
| | 4.0 |
| | 5.0 |
| |
| Reductions based on tax positions related to prior years | (0.3 | ) | | (0.9 | ) | | (0.2 | ) | |
| Additions (reductions) based on tax positions related to current year | | Additions (reductions) based on tax positions related to current year | 7.7 | | | 4.9 | | | (0.3) | |
| Additions (reductions) based on tax positions related to prior years | | Additions (reductions) based on tax positions related to prior years | (4.0) | | | 3.6 | | | 2.0 | |
| Settlements | (0.8 | ) | | — |
| | (12.3 | ) | Settlements | (0.3) | | | (1.2) | | | (3.7) | |
| Statute expirations | (2.2 | ) | | (2.9 | ) | | (0.6 | ) | Statute expirations | (5.2) | | | (4.7) | | | (2.8) | |
| Foreign currency translation | 1.6 |
| | (1.1 | ) | | (1.2 | ) | Foreign currency translation | 0.3 | | | 2.2 | | | (0.3) | |
| Balance at end of period | $ | 33.2 |
| | $ | 29.5 |
| | $ | 30.4 |
| Balance at end of period | $ | 34.9 | | | $ | 36.4 | | | $ | 31.6 | |
The Company recognizes interest and penalties with respect to unrecognized tax benefits as income tax expense. As of December 31, 20172021 and 2016,2020, the Company had recorded gross reserves of $9.9$12.7 million and $7.8$12.2 million, respectively, related to interest and penalties, all of which, if recognized, would affect the Company’sCompany's effective tax rate.
The Company operates in multiple jurisdictions throughout the world, and its tax returns are periodically audited or subject to review by both domestic and foreign tax authorities. During the next twelve months, it is reasonably possible that, as a result of audit settlements, the conclusion of current examinations and the expiration of the statute of limitations in multiple jurisdictions, the Company may decrease the amount of its gross unrecognized tax benefits by $2.2$3.9 million, all of which, if recognized, would affect the Company’sCompany's effective tax rate. The gross unrecognized tax benefits subject to potential decrease involve issues related to transfer pricing and various other tax items in multiple jurisdictions. However, as a result of ongoing examinations, tax proceedings in certain countries, additions to the gross unrecognized tax benefits for positions taken and interest and penalties, if any, arising in 2018,2022, it is not possible to estimate the potential net increase or decrease to the Company’sCompany's gross unrecognized tax benefits during the next twelve months.
The Company considers its significant tax jurisdictions to include China, Germany, Hungary, Italy, Mexico, Poland,Morocco, Spain, the United Kingdom and the United States. The Company or its subsidiaries generally remain subject to income tax examination in certain U.S. state and local jurisdictions for years after 2012.2016. Further, the Company or its subsidiaries remain subject to income tax examination in Spain for years after 2005,2007, in Mexico for years after 2006,2013, in HungaryGermany and PolandItaly for years after 2011,2015, in
China
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Italy generallyand Morocco for years after 2012,2017, in China and the United Kingdom for years after 20132018 and in the United States generally for years after 2016.2019.
(8)In 2021, the Brazilian Supreme Court ruled on certain matters, including the method of determining the amount of indirect tax credits that taxpayers are entitled to monetize in future periods. As a result of the ruling, other expense, net includes a gain of $45.0 million for the year ended December 31, 2021, for which $8.0 million of tax expense was recognized.
(10) Pension and Other Postretirement Benefit Plans
The Company has noncontributory defined benefit pension plans covering certain domestic employees and certain employees in foreign countries, principally Canada. The Company’sCompany's salaried pension plans provide benefits based on final average earnings formulas. The Company’sCompany's hourly pension plans provide benefits under flat benefit and cash balance formulas. The Company also has contractual arrangements with certain employees which provide for supplemental retirement benefits. In general, the Company’sCompany's policy is to fund its pension benefit obligation based on legal requirements, tax and liquidity considerations and local practices.
The Company has postretirement benefit plans covering certain domestic and Canadian employees.retirees. The Company’sCompany's postretirement benefit plans generally provide for the continuation of medical benefits for all eligible employees who complete a specified number of years of service and retire from the Company at age 55 or older.retirees. The Company does not fund its postretirement benefit obligation. Rather, payments are made as costs are incurred by covered retirees.
Obligations and Funded StatusObligation
A reconciliation of the change in benefit obligation and the change in plan assets for the years ended December 31, 20172021 and 2016,2020, is shown below (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension | | | Other Postretirement |
| | December 31, 2021 | | December 31, 2020 | | | December 31, 2021 | | December 31, 2020 |
| | U.S. | | Foreign | | U.S. | | Foreign | | | U.S. | | Foreign | | U.S. | | Foreign |
| Change in benefit obligation: | | | | | | | | | | | | | | | | |
| Benefit obligation at beginning of period | $ | 564.4 | | | $ | 529.2 | | | $ | 500.8 | | | $ | 504.3 | | | | $ | 61.2 | | | $ | 27.4 | | | $ | 55.4 | | | $ | 25.6 | |
| Service cost | — | | | 5.3 | | | 0.1 | | | 5.0 | | | | — | | | — | | | — | | | — | |
| Interest cost | 14.5 | | | 10.5 | | | 16.4 | | | 12.2 | | | | 1.4 | | | 0.7 | | | 1.7 | | | 0.7 | |
| Amendment | — | | | — | | | — | | | — | | | | — | | | — | | | 0.4 | | | — | |
| Actuarial (gain) loss | (23.0) | | | (32.8) | | | 66.4 | | | 39.9 | | | | (3.5) | | | (2.4) | | | 6.9 | | | 2.1 | |
| Benefits paid | (19.4) | | | (24.3) | | | (19.3) | | | (20.0) | | | | (3.1) | | | (1.4) | | | (3.2) | | | (1.5) | |
| Benefits paid — settlements | — | | | — | | | — | | | (29.2) | | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Translation adjustment | — | | | (8.0) | | | — | | | 17.0 | | | | — | | | 0.2 | | | — | | | 0.5 | |
| Benefit obligation at end of period | $ | 536.5 | | | $ | 479.9 | | | $ | 564.4 | | | $ | 529.2 | | | | $ | 56.0 | | | $ | 24.5 | | | $ | 61.2 | | | $ | 27.4 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension | | | Other Postretirement |
| | December 31, 2017 | | December 31, 2016 | | | December 31, 2017 | | December 31, 2016 |
| | U.S. | | Foreign | | U.S. | | Foreign | | | U.S. | | Foreign | | U.S. | | Foreign |
| Change in benefit obligation: | | | | | | | | | | | | | | | | |
| Benefit obligation at beginning of period | $ | 548.2 |
| | $ | 442.5 |
| | $ | 686.6 |
| | $ | 427.4 |
| | | $ | 64.7 |
| | $ | 38.8 |
| | $ | 78.9 |
| | $ | 36.5 |
|
| Service cost | 5.0 |
| | 7.3 |
| | 5.6 |
| | 6.5 |
| | | 0.1 |
| | 0.5 |
| | 0.2 |
| | 0.5 |
|
| Interest cost | 21.8 |
| | 15.0 |
| | 29.8 |
| | 15.8 |
| | | 2.4 |
| | 1.5 |
| | 3.2 |
| | 1.6 |
|
| Actuarial (gain) loss | 8.6 |
| | 11.7 |
| | 3.5 |
| | 27.4 |
| | | (4.5 | ) | | (0.7 | ) | | (12.8 | ) | | 0.8 |
|
| Benefits paid | (25.6 | ) | | (23.6 | ) | | (22.4 | ) | | (29.1 | ) | | | (4.0 | ) | | (1.6 | ) | | (4.8 | ) | | (1.9 | ) |
Lump sum payout (1) | — |
| | — |
| | (154.9 | ) | | — |
| | | — |
| | — |
| | — |
| | — |
|
| Curtailment | — |
| | 0.8 |
| | — |
| | — |
| | | (2.1 | ) | | (0.2 | ) | | — |
| | — |
|
| Special termination benefits | — |
| | — |
| | — |
| | — |
| | | — |
| | 0.1 |
| | — |
| | 0.3 |
|
| Translation adjustment | — |
| | 36.9 |
| | — |
| | (5.5 | ) | | | — |
| | 2.8 |
| | — |
| | 1.0 |
|
| Benefit obligation at end of period | $ | 558.0 |
| | $ | 490.6 |
| | $ | 548.2 |
| | $ | 442.5 |
| | | $ | 56.6 |
| | $ | 41.2 |
| | $ | 64.7 |
| | $ | 38.8 |
|
As of December 31, 2021, the decrease in pension and other postretirement benefit obligations attributable to actuarial gains primarily relates to an increase in the discount rate used to determine the benefit obligations (see assumptions below).
As of December 31, 2020, the increase in pension and other postretirement benefit obligations attributable to actuarial losses primarily relates to a decrease in the discount rate used to determine the benefit obligations (see assumptions below) and, to a lesser extent, changes in mortality assumptions for the Company's U.S. plans. With respect to the other postretirement benefit obligation, actuarial losses were offset by gains related to claims cost updates for the Company's foreign plans.
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Plan Assets and Funded Status
A reconciliation of the change in plan assets for the years ended December 31, 2021 and 2020, and the funded status as of December 31, 2021 and 2020, is shown below (in millions): | | | | Pension | | | Other Postretirement | | Pension | | | Other Postretirement |
| | December 31, 2017 | | December 31, 2016 | | | December 31, 2017 | | December 31, 2016 | | December 31, 2021 | | December 31, 2020 | | | December 31, 2021 | | December 31, 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 |
| Change in plan assets: | | | | | | | | | | | | | | | | | Change in plan assets: | | | |
Fair value of plan assets at
beginning of period | $ | 412.6 |
| | $ | 367.1 |
| | $ | 522.1 |
| | $ | 368.2 |
| | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| Fair value of plan assets at
beginning of period | $ | 418.2 | | | $ | 383.0 | | | $ | 376.6 | | | $ | 396.8 | | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Actual return on plan assets | 49.1 |
| | 28.2 |
| | 30.2 |
| | 21.1 |
| | | — |
| | — |
| | — |
| | — |
| Actual return on plan assets | 43.0 | | | 26.9 | | | 41.7 | | | 19.8 | | | | — | | | — | | | — | | | — | |
| Employer contributions | 2.1 |
| | 7.5 |
| | 37.6 |
| | 8.5 |
| | | 4.0 |
| | 1.6 |
| | 4.8 |
| | 1.9 |
| Employer contributions | 2.4 | | | 5.6 | | | 19.2 | | | 7.7 | | | | 3.1 | | | 1.4 | | | 3.2 | | | 1.5 | |
| Benefits paid | (25.6 | ) | | (23.6 | ) | | (22.4 | ) | | (29.1 | ) | | | (4.0 | ) | | (1.6 | ) | | (4.8 | ) | | (1.9 | ) | Benefits paid | (19.4) | | | (24.3) | | | (19.3) | | | (20.0) | | | | (3.1) | | | (1.4) | | | (3.2) | | | (1.5) | |
Lump sum payout (1) | — |
| | — |
| | (154.9 | ) | | — |
| | | — |
| | — |
| | — |
| | — |
| |
| Benefits paid — settlements | | Benefits paid — settlements | — | | | — | | | — | | | (29.2) | | | | — | | | — | | | — | | | — | |
| Translation adjustment | — |
| | 27.2 |
| | — |
| | (1.6 | ) | | | — |
| | — |
| | — |
| | — |
| Translation adjustment | — | | | 1.3 | | | — | | | 7.9 | | | | — | | | — | | | — | | | — | |
| Fair value of plan assets at end of period | $ | 438.2 |
| | $ | 406.4 |
| | $ | 412.6 |
| | $ | 367.1 |
| | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| Fair value of plan assets at end of period | 444.2 | | | 392.5 | | | 418.2 | | | 383.0 | | | | — | | | — | | | — | | | — | |
| | | | | | | | | | | | | | | | | | | | |
| Funded status | $ | (119.8 | ) | | $ | (84.2 | ) | | $ | (135.6 | ) | | $ | (75.4 | ) | | | $ | (56.6 | ) | | $ | (41.2 | ) | | $ | (64.7 | ) | | $ | (38.8 | ) | Funded status | $ | (92.3) | | | $ | (87.4) | | | $ | (146.2) | | | $ | (146.2) | | | | $ | (56.0) | | | $ | (24.5) | | | $ | (61.2) | | | $ | (27.4) | |
A summary of amounts recognized in the consolidated balance sheets as of December 31, 2021 and 2020, is shown below (in millions): | | | | Pension | | | Other Postretirement | | Pension | | | Other Postretirement |
| | December 31, 2017 | | December 31, 2016 | | | December 31, 2017 | | December 31, 2016 | | December 31, 2021 | | December 31, 2020 | | | December 31, 2021 | | December 31, 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 |
| Amounts recognized in the consolidated balance sheet: | Amounts recognized in the consolidated balance sheet: | | | | | | | | | | Amounts recognized in the consolidated balance sheet: | | | |
| Other long-term assets | $ | 0.1 |
| | $ | 38.1 |
| | $ | — |
| | $ | 40.3 |
| | | $ | — |
| | $ | — |
| | $ | — |
| | $ | — |
| Other long-term assets | $ | — | | | $ | 41.7 | | | $ | — | | | $ | 9.1 | | | | $ | — | | | $ | — | | | $ | — | | | $ | — | |
| Accrued liabilities | (2.1 | ) | | (2.9 | ) | | (2.2 | ) | | (2.7 | ) | | | (4.2 | ) | | (1.5 | ) | | (4.2 | ) | | (1.5 | ) | Accrued liabilities | (3.3) | | | (3.8) | | | (2.5) | | | (3.2) | | | | (4.0) | | | (1.5) | | | (4.0) | | | (1.5) | |
| Other long-term liabilities | (117.8 | ) | | (119.4 | ) | | (133.4 | ) | | (113.0 | ) | | | (52.4 | ) | | (39.7 | ) | | (60.5 | ) | | (37.3 | ) | Other long-term liabilities | (89.0) | | | (125.3) | | | (143.7) | | | (152.1) | | | | (52.0) | | | (23.0) | | | (57.2) | | | (25.9) | |
| | Funded status | | Funded status | $ | (92.3) | | | $ | (87.4) | | | $ | (146.2) | | | $ | (146.2) | | | | $ | (56.0) | | | $ | (24.5) | | | $ | (61.2) | | | $ | (27.4) | |
| |
(1) | See Lump-Sum Payout below for further discussion |
Accumulated Benefit Obligation
As of December 31, 20172021 and 2016,2020, the accumulated benefit obligation for all of the Company’sCompany's pension plans was $1,034.7$1,012.4 million and $973.7$1,079.6 million, respectively.
As of December 31, 20172021 and 2016,2020, the majority of the Company's pension plans had accumulated benefit obligations in excess of plan assets. Information related to pension plans with accumulated benefit obligations in excess of plan assets is shown below (in millions): |
| | | | | | | |
| December 31, | 2017 | | 2016 |
| Projected benefit obligation | $ | 768.1 |
| | $ | 747.3 |
|
| Accumulated benefit obligation | 754.1 |
| | 730.4 |
|
| Fair value of plan assets | 525.7 |
| | 496.0 |
|
Lump-Sum Payout
In 2016, the Company initiated a limited lump-sum payout offer ("Lump-Sum Payout") to certain terminated vested plan participants of its U.S. defined benefit pension plans. The offer provided participants with the flexibility to receive their pension benefits early and reduces the Company's future administrative costs and risks related to its U.S. defined benefit pension plans. Under this offer, eligible plan participants were able to voluntarily elect an early payout of their pension benefits, primarily in the form of a lump-sum payment equal to the present value of the participant’s pension benefits. In connection with the Lump-Sum Payout, payments of $154.9 million were distributed from existing defined benefit pension plan assets, and the Company recognized a $34.2 million non-cash settlement charge. Payments under the Lump-Sum Payout are reflected as benefits paid in the reconciliations of the change in benefit obligation and the change in plan assets for the year ended December 31, 2016.
| | | | | | | | | | | |
| December 31, | 2021 | | 2020 |
| Projected benefit obligation | $ | 761.2 | | | $ | 813.7 | |
| Accumulated benefit obligation | 757.2 | | | 799.6 | |
| Fair value of plan assets | 539.8 | | | 512.2 | |
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Other Comprehensive Income (Loss) and Accumulated Other Comprehensive Loss
Pretax amounts recognized in other comprehensive income (loss) for the years ended December 31, 20172021 and 2016,2020, are shown below (in millions): | | | | Pension | | | Other Postretirement | | Pension | | | Other Postretirement |
| | December 31, 2017 | | December 31, 2016 | | | December 31, 2017 | | December 31, 2016 | | December 31, 2021 | | December 31, 2020 | | | December 31, 2021 | | December 31, 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 |
| Actuarial gains (losses) recognized: | | | | | | | | | | | | | | | | | Actuarial gains (losses) recognized: | | | |
| Reclassification adjustments | $ | 2.6 |
| | $ | 5.1 |
| | $ | 2.7 |
| | $ | 3.1 |
| | | $ | (2.6 | ) | | $ | 0.3 |
| | $ | (1.3 | ) | | $ | 0.2 |
| Reclassification adjustments | $ | 3.9 | | | $ | 6.0 | | | $ | 2.3 | | | $ | 5.2 | | | | $ | (1.1) | | | $ | — | | | $ | (1.6) | | | $ | — | |
| Actuarial gain (loss) arising during the period | 11.4 |
| | (6.0 | ) | | (10.1 | ) | | (30.0 | ) | | | 4.5 |
| | 0.7 |
| | 12.8 |
| | (0.8 | ) | Actuarial gain (loss) arising during the period | 42.5 | | | 40.1 | | | (46.1) | | | (39.7) | | | | 3.5 | | | 2.4 | | | (6.9) | | | (2.1) | |
| Effect of curtailment | — |
| | — |
| | — |
| | — |
| | | 2.1 |
| | 0.2 |
| | — |
| | — |
| |
| Effect of settlement | 0.2 |
| | 0.8 |
| | 33.2 |
| | 0.4 |
| | | — |
| | — |
| | — |
| | — |
| |
| | Effect of settlements | | Effect of settlements | 0.4 | | | 0.1 | | | 0.3 | | | 13.0 | | | | — | | | — | | | — | | | — | |
| Prior service credit recognized: | | | | | | | | | | | | | | | | | Prior service credit recognized: | | | |
| Reclassification adjustments | — |
| | — |
| | — |
| | — |
| | | — |
| | (0.4 | ) | | — |
| | (0.3 | ) | Reclassification adjustments | — | | | — | | | — | | | — | | | | (0.1) | | | — | | | (0.2) | | | — | |
| Prior service cost arising during the period | | Prior service cost arising during the period | — | | | — | | | — | | | — | | | | — | | | — | | | (0.4) | | | — | |
| Translation adjustment | — |
| | (8.2 | ) | | — |
| | (1.0 | ) | | | — |
| | (0.4 | ) | | — |
| | (0.1 | ) | Translation adjustment | — | | | 1.4 | | | — | | | (3.6) | | | | — | | | — | | | — | | | — | |
| | $ | 14.2 |
| | $ | (8.3 | ) | | $ | 25.8 |
| | $ | (27.5 | ) | | | $ | 4.0 |
| | $ | 0.4 |
| | $ | 11.5 |
| | $ | (1.0 | ) | | $ | 46.8 | | | $ | 47.6 | | | $ | (43.5) | | | $ | (25.1) | | | | $ | 2.3 | | | $ | 2.4 | | | $ | (9.1) | | | $ | (2.1) | |
In addition, the Company recognized tax expensebenefit (expense) in other comprehensive income (loss) related to its defined benefit plans of $1.5($22.7) million, $7.1$18.5 million and $8.3$13.7 million for the years ended December 31, 2017, 20162021, 2020 and 2015,2019, respectively.
Pretax amounts recorded in accumulated other comprehensive loss not yet recognized in net periodic benefit cost (credit) as of December 31, 20172021 and 2016, are shown below (in millions): |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension | | | Other Postretirement |
| | December 31, 2017 | | December 31, 2016 | | | December 31, 2017 | | December 31, 2016 |
| | U.S. | | Foreign | | U.S. | | Foreign | | | U.S. | | Foreign | | U.S. | | Foreign |
| Net unrecognized actuarial gain (loss) | $ | (95.9 | ) | | $ | (109.2 | ) | | $ | (110.1 | ) | | $ | (100.9 | ) | | | $ | 27.0 |
| | $ | (5.4 | ) | | $ | 25.1 |
| | $ | (6.1 | ) |
| Prior service credit | — |
| | — |
| | — |
| | — |
| | | 2.1 |
| | 0.6 |
| | — |
| | 0.9 |
|
| | $ | (95.9 | ) | | $ | (109.2 | ) | | $ | (110.1 | ) | | $ | (100.9 | ) | | | $ | 29.1 |
| | $ | (4.8 | ) | | $ | 25.1 |
| | $ | (5.2 | ) |
Pretax amounts recorded in accumulated other comprehensive loss as of December 31, 2017, that are expected to be recognized as components of net periodic benefit cost (credit) in the year ending December 31, 2018,2020, are shown below (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension | | | Other Postretirement |
| | December 31, 2021 | | December 31, 2020 | | | December 31, 2021 | | December 31, 2020 |
| | U.S. | | Foreign | | U.S. | | Foreign | | | U.S. | | Foreign | | U.S. | | Foreign |
| Net unrecognized actuarial gain (loss) | $ | (102.6) | | | $ | (114.0) | | | $ | (149.4) | | | $ | (160.7) | | | | $ | 13.6 | | | $ | (0.6) | | | $ | 11.2 | | | $ | (3.0) | |
| Prior service credit (cost) | — | | | (0.6) | | | — | | | (1.5) | | | | 1.1 | | | 0.1 | | | 1.2 | | | 0.1 | |
| $ | (102.6) | | | $ | (114.6) | | | $ | (149.4) | | | $ | (162.2) | | | | $ | 14.7 | | | $ | (0.5) | | | $ | 12.4 | | | $ | (2.9) | |
|
| | | | | | | | | | | | | | | | |
| | Pension | | | Other Postretirement |
| | U.S. | | Foreign | | | U.S. | | Foreign |
| Net unrecognized actuarial gain (loss) | $ | (2.1 | ) | | $ | (6.0 | ) | | | $ | 2.2 |
| | $ | (0.1 | ) |
| Prior service credit | — |
| | — |
| | | 0.2 |
| | 0.3 |
|
| | $ | (2.1 | ) | | $ | (6.0 | ) | | | $ | 2.4 |
| | $ | 0.2 |
|
The Company uses the corridor approach when amortizing actuarial gains and losses. Under the corridor approach, net unrecognized actuarial gains and losses in excess of 10% of the greater of i) the projected benefit obligation or ii) the fair value of plan assets are amortized over future periods. For plans with little to no active participants, the amortization period is the remaining average life expectancy of the participants. For plans with active participants, the amortization period is the remaining average service period of the active participants. The amortization periods range from 54 to 3132 years for the Company's defined benefit pension plans and from 31 to 17 yearsfor the Company's other postretirement benefit plans.
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Net Periodic Pension and Other Postretirement Benefit Cost (Credit)
The components of the Company’sCompany's net periodic pension benefit cost (credit) are shown below (in millions): | | | | Year Ended December 31, | | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2021 | | 2020 | | 2019 |
| Pension | U.S. | | Foreign | | U.S. | | Foreign | | U.S. | | Foreign | Pension | U.S. | | Foreign | | U.S. | | Foreign | | U.S. | | Foreign |
| Service cost | $ | 5.0 |
| | $ | 7.3 |
| | $ | 5.6 |
| | $ | 6.5 |
| | $ | 4.7 |
| | $ | 8.4 |
| Service cost | $ | — | | | $ | 5.3 | | | $ | 0.1 | | | $ | 5.0 | | | $ | 0.1 | | | $ | 6.3 | |
| Interest cost | 21.8 |
| | 15.0 |
| | 29.8 |
| | 15.8 |
| | 28.7 |
| | 16.2 |
| Interest cost | 14.5 | | | 10.5 | | | 16.4 | | | 12.2 | | | 18.6 | | | 14.7 | |
| Expected return on plan assets | (28.9 | ) | | (22.9 | ) | | (38.1 | ) | | (23.2 | ) | | (39.4 | ) | | (25.7 | ) | Expected return on plan assets | (23.5) | | | (19.6) | | | (21.4) | | | (19.6) | | | (20.2) | | | (20.9) | |
| Amortization of actuarial loss | 2.6 |
| | 5.1 |
| | 2.7 |
| | 3.1 |
| | 2.6 |
| | 4.1 |
| Amortization of actuarial loss | 3.9 | | | 6.1 | | | 2.3 | | | 5.2 | | | 1.8 | | | 7.8 | |
| Curtailment loss | — |
| | 0.9 |
| | — |
| | — |
| | — |
| | 7.7 |
| |
| Settlement loss | 0.2 |
| | 0.8 |
| | 34.4 |
| | 0.4 |
| | 0.2 |
| | — |
| |
| | Curtailment gain | | Curtailment gain | — | | | — | | | — | | | — | | | — | | | (2.3) | |
| Settlement losses | | Settlement losses | 0.4 | | | — | | | 0.3 | | | 13.0 | | | 0.1 | | | — | |
| Net periodic benefit cost (credit) | $ | 0.7 |
| | $ | 6.2 |
| | $ | 34.4 |
| | $ | 2.6 |
| | $ | (3.2 | ) | | $ | 10.7 |
| Net periodic benefit cost (credit) | $ | (4.7) | | | $ | 2.3 | | | $ | (2.3) | | | $ | 15.8 | | | $ | 0.4 | | | $ | 5.6 | |
The components of the Company’sCompany's net periodic other postretirement benefit cost (credit) are shown below (in millions): | | | | Year Ended December 31, | | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2021 | | 2020 | | 2019 |
| Other Postretirement | U.S. | | Foreign | | U.S. | | Foreign | | U.S. | | Foreign | Other Postretirement | U.S. | | Foreign | | U.S. | | Foreign | | U.S. | | Foreign |
| Service cost | $ | 0.1 |
| | $ | 0.5 |
| | $ | 0.2 |
| | $ | 0.5 |
| | $ | 0.2 |
| | $ | 0.7 |
| Service cost | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 0.3 | |
| Interest cost | 2.4 |
| | 1.5 |
| | 3.2 |
| | 1.6 |
| | 3.1 |
| | 1.7 |
| Interest cost | 1.4 | | | 0.7 | | | 1.7 | | | 0.7 | | | 2.1 | | | 1.3 | |
| Amortization of actuarial (gain) loss | (2.6 | ) | | 0.3 |
| | (1.3 | ) | | 0.2 |
| | (1.2 | ) | | 0.5 |
| |
| Amortization of actuarial gain | | Amortization of actuarial gain | (1.1) | | | — | | | (1.6) | | | — | | | (2.3) | | | — | |
| Amortization of prior service credit | — |
| | (0.4 | ) | | — |
| | (0.3 | ) | | — |
| | (0.4 | ) | Amortization of prior service credit | (0.1) | | | — | | | (0.2) | | | — | | | (0.2) | | | (0.2) | |
| Special termination benefits | — |
| | 0.1 |
| | — |
| | 0.3 |
| | — |
| | 0.8 |
| |
| Curtailment gain | | Curtailment gain | — | | | — | | | — | | | — | | | — | | | (10.6) | |
| | Net periodic benefit cost (credit) | $ | (0.1 | ) | | $ | 2.0 |
| | $ | 2.1 |
| | $ | 2.3 |
| | $ | 2.1 |
| | $ | 3.3 |
| Net periodic benefit cost (credit) | $ | 0.2 | | | $ | 0.7 | | | $ | (0.1) | | | $ | 0.7 | | | $ | (0.4) | | | $ | (9.2) | |
For the year ended December 31, 2017,2020, the Company recognized pension curtailment and settlement losses of $1.7$12.9 million related to its restructuring actions (Note 4,5, "Restructuring").
For the year ended December 31, 2016,2019, the Company recognized a pension settlement lossan other postretirement curtailment gain of $34.2 million related to its Lump-Sum Payout described above.
For the year ended December 31, 2015, the Company recognized a pension curtailment loss of $7.7$10.6 million related to its restructuring actions (Note 4,5, "Restructuring").
Assumptions
The weighted average actuarial assumptions used in determining the benefit obligations are shown below: | | | | Pension | | Other Postretirement | | Pension | | Other Postretirement |
| December 31, | 2017 | | 2016 | | 2017 | | 2016 | December 31, | 2021 | | 2020 | | 2021 | | 2020 |
| Discount rate: | | Discount rate: | |
| Domestic plans | 3.6% | | 4.1% | | 3.5% | | 3.9% | Domestic plans | 3.0% | | 2.6% | | 2.8% | | 2.4% |
| Foreign plans | 3.1% | | 3.3% | | 3.5% | | 3.9% | Foreign plans | 2.5% | | 2.0% | | 3.1% | | 2.5% |
| Rate of compensation increase: | | Rate of compensation increase: | |
| Foreign plans | 3.3% | | 3.3% | | N/A | | N/A | Foreign plans | 3.5% | | 3.3% | | N/A | | N/A |
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The weighted average actuarial assumptions used in determining the net periodic benefit cost (credit) are shown below:
| | | For the year ended December 31, | 2017 | | 2016 | | 2015 | For the year ended December 31, | 2021 | | 2020 | | 2019 |
| Pension | | | | | | Pension | |
| Discount rate: | | | | | | Discount rate: | |
| Domestic plans | 4.1 | % | | 4.4 | % | | 4.1 | % | Domestic plans | 2.6 | % | | 3.4 | % | | 4.3 | % |
| Foreign plans | 3.3 | % | | 3.8 | % | | 3.6 | % | Foreign plans | 2.0 | % | | 2.6 | % | | 3.4 | % |
| Expected return on plan assets: | | | | | | Expected return on plan assets: | |
| Domestic plans | 7.3 | % | | 7.5 | % | | 7.8 | % | Domestic plans | 5.8 | % | | 5.8 | % | | 6.3 | % |
| Foreign plans | 6.3 | % | | 6.3 | % | | 6.5 | % | Foreign plans | 5.2 | % | | 5.4 | % | | 5.9 | % |
| Rate of compensation increase: | | | | | | Rate of compensation increase: | |
| Foreign plans | 3.3 | % | | 3.3 | % | | 3.1 | % | Foreign plans | 3.3 | % | | 3.7 | % | | 3.4 | % |
| Other postretirement | | | | | | Other postretirement | |
| Discount rate: | | | | | | Discount rate: | |
| Domestic plans | 3.9 | % | | 4.2 | % | | 3.9 | % | Domestic plans | 2.4 | % | | 3.2 | % | | 4.2 | % |
| Foreign plans | 3.9 | % | | 4.2 | % | | 4.0 | % | Foreign plans | 2.5 | % | | 3.1 | % | | 3.8 | % |
The expected return on plan assets is determined based on several factors, including adjusted historical returns, historical risk premiums for various asset classes and target asset allocations within the portfolio. Adjustments made to the historical returns are based on recent return experience in the equity and fixed income markets and the belief that deviations from historical returns are likely over the relevant investment horizon.
As of December 31, 2021 and 2020, the weighted-average interest crediting rate used by one of the Company's U.S. pension plans was a minimum of 4.0%.
Healthcare Trend Rate
Assumed healthcare cost trend rates have a significant effect on the amounts reported for the postretirement benefit plans. The sensitivity to a 100 basis point ("bp") change in the assumed healthcare cost trend rates is shown below (in millions): |
| | | | | | | |
| | Postretirement Benefit Obligation | | Net Periodic Postretirement Cost |
| 100 bp increase in healthcare cost trend rates | $ | 13.9 |
| | $ | 0.8 |
|
| 100 bp decrease in healthcare cost trend rates | $ | (11.3 | ) | | $ | (0.6 | ) |
The assumed healthcare cost trend rates used to measure the postretirement benefit obligation as of December 31, 2017,2021, are shown below: | | | | U.S. Plans | | Foreign Plans | | U.S. Plans | | Foreign Plans |
| Initial healthcare cost trend rate | 6.5% | | 5.4% | Initial healthcare cost trend rate | 6.3% | | 4.6% |
| Ultimate healthcare cost trend rate | 4.5% | | 4.5% | Ultimate healthcare cost trend rate | 4.5% | | 4.0% |
| Year ultimate healthcare cost trend rate achieved | 2021 | | 2031 | Year ultimate healthcare cost trend rate achieved | 2028 | | 2040 |
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Plan Assets
Fair value measurements and the related valuation techniques and fair value hierarchy level for the Company’sCompany's pension plan assets measured at fair value on a recurring basis as of December 31, 20172021 and 2016,2020, are shown below (in millions): | | | | December 31, 2017 | | December 31, 2021 |
| | Total | | Level 1 | | Level 2 | | Level 3 | | Valuation Technique | | Total | | Level 1 | | Level 2 | | Level 3 | | Valuation Technique |
| U.S. Plans: | | | | | | | | | U.S. Plans: | |
| Equity securities - |
| | | | | | | | Equity securities - | |
| Mutual funds | $ | 149.6 |
| | $ | 149.6 |
| | $ | — |
| | $ | — |
| | Market | |
| Equity funds | | Equity funds | $ | 100.9 | | | $ | 80.0 | | | $ | 20.9 | | | $ | — | | | Market |
| Common stock | 80.5 |
| | 54.9 |
| | 25.6 |
| | — |
| | Market | Common stock | 87.1 | | | 56.3 | | | 30.8 | | | — | | | Market |
| Fixed income - | | | | | | | | | Fixed income - | |
| Mutual funds | 101.6 |
| | 101.6 |
| | — |
| | — |
| | Market | |
| Fixed income funds | | Fixed income funds | 95.1 | | | 95.1 | | | — | | | — | | | Market |
| Corporate bonds | 24.8 |
| | — |
| | 24.8 |
| | — |
| | Market | Corporate bonds | 83.8 | | | — | | | 83.8 | | | — | | | Market |
| Government obligations | 23.5 |
| | — |
| | 23.5 |
| | — |
| | Market | Government obligations | 5.2 | | | — | | | 5.2 | | | — | | | Market |
| Preferred stock | 1.5 |
| | 1.0 |
| | 0.5 |
| | — |
| | Market | Preferred stock | 1.2 | | | 0.4 | | | 0.8 | | | — | | | Market |
| Cash and short-term investments | 6.4 |
| | 1.6 |
| | 4.8 |
| | — |
| | Market | Cash and short-term investments | 8.5 | | | 2.1 | | | 6.4 | | | — | | | Market |
| Assets at fair value | 387.9 |
| | $ | 308.7 |
| | $ | 79.2 |
| | $ | — |
| | Assets at fair value | 381.8 | | | $ | 233.9 | | | $ | 147.9 | | | $ | — | | |
| Investments measured at net asset value - | | | | | | | | | Investments measured at net asset value - | | | |
| Alternative investments | 50.3 |
| | | | | | | | Alternative investments | 62.4 | | |
| Assets at fair value | $ | 438.2 |
| | | | | | | | Assets at fair value | $ | 444.2 | | |
| Foreign Plans: | | | | | | | | | Foreign Plans: | |
| Equity securities - |
| | | | | | | | Equity securities - | |
| Equity funds | $ | 163.3 |
| | $ | — |
| | $ | 163.3 |
| | $ | — |
| | Market | Equity funds | $ | 147.2 | | | $ | — | | | $ | 147.2 | | | $ | — | | | Market |
| Common stock | 71.6 |
| | 71.6 |
| | — |
| | — |
| | Market | Common stock | 59.5 | | | 59.5 | | | — | | | — | | | Market |
| Fixed income - | | | | | | | | | Fixed income - | |
| Fixed income funds | 30.9 |
| | — |
| | 30.9 |
| | — |
| | Market | Fixed income funds | 63.3 | | | — | | | 63.3 | | | — | | | Market |
| Corporate bonds | 37.0 |
| | — |
| | 37.0 |
| | — |
| | Market | Corporate bonds | 28.8 | | | — | | | 28.8 | | | — | | | Market |
| Government obligations | 58.8 |
| | — |
| | 58.8 |
| | — |
| | Market | Government obligations | 51.8 | | | — | | | 51.8 | | | — | | | Market |
| | Cash and short-term investments | 9.0 |
| | 3.4 |
| | 5.6 |
| | — |
| | Market | Cash and short-term investments | 13.0 | | | 7.9 | | | 5.1 | | | — | | | Market |
| Assets at fair value | 370.6 |
| | $ | 75.0 |
| | $ | 295.6 |
| | $ | — |
| | Assets at fair value | 363.6 | | | $ | 67.4 | | | $ | 296.2 | | | $ | — | | |
| Investments measured at net asset value - | | | | | | | | | Investments measured at net asset value - | | | |
| Alternative investments | 35.8 |
| | | | | | | | Alternative investments | 28.9 | | |
| Assets at fair value | $ | 406.4 |
| | | | | | | | Assets at fair value | $ | 392.5 | | |
|
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
| | | | December 31, 2016 | | December 31, 2020 |
| | Total | | Level 1 | | Level 2 | | Level 3 | | Valuation Technique | | Total | | Level 1 | | Level 2 | | Level 3 | | Valuation Technique |
| U.S. Plans: | | | | | | | | | U.S. Plans: | |
| Equity securities - | | | | | | | | | Equity securities - | |
| Mutual funds | $ | 137.7 |
| | $ | 137.7 |
| | $ | — |
| | $ | — |
| | Market | |
| Equity funds | | Equity funds | $ | 104.3 | | | $ | 85.9 | | | $ | 18.4 | | | $ | — | | | Market |
| Common stock | 77.5 |
| | 51.1 |
| | 26.4 |
| | — |
| | Market | Common stock | 85.2 | | | 53.9 | | | 31.3 | | | — | | | Market |
| Fixed income - | | | | | | | | | Fixed income - | |
| Mutual funds | 86.5 |
| | 86.5 |
| | — |
| | — |
| | Market | |
| Fixed income funds | | Fixed income funds | 84.2 | | | 84.2 | | | — | | | — | | | Market |
| Corporate bonds | 18.1 |
| | — |
| | 18.1 |
| | — |
| | Market | Corporate bonds | 66.7 | | | — | | | 66.7 | | | — | | | Market |
| Government obligations | 29.9 |
| | — |
| | 29.9 |
| | — |
| | Market | Government obligations | 6.2 | | | — | | | 6.2 | | | — | | | Market |
| Preferred stock | 1.4 |
| | 0.9 |
| | 0.5 |
| | — |
| | Market | Preferred stock | 1.4 | | | 0.9 | | | 0.5 | | | — | | | Market |
| Cash and short-term investments | 8.4 |
| | 0.9 |
| | 7.5 |
| | — |
| | Market | Cash and short-term investments | 11.9 | | | 2.8 | | | 9.1 | | | — | | | Market |
| Assets at fair value | 359.5 |
| | $ | 277.1 |
| | $ | 82.4 |
| | $ | — |
| | Assets at fair value | 359.9 | | | $ | 227.7 | | | $ | 132.2 | | | $ | — | | |
| Investments measured at net asset value - | | | | | | | | | Investments measured at net asset value - | | | |
| Alternative investments | 53.1 |
| | | | | | | | Alternative investments | 58.3 | | |
| Assets at fair value | $ | 412.6 |
| | | | | | | | Assets at fair value | $ | 418.2 | | |
| Foreign Plans: |
| | | | | | | | Foreign Plans: | |
| Equity securities - | | | | | | | | | Equity securities - | |
| Equity funds | $ | 132.6 |
| | $ | — |
| | $ | 132.6 |
| | $ | — |
| | Market | Equity funds | $ | 138.0 | | | $ | — | | | $ | 138.0 | | | $ | — | | | Market |
| Common stock | 73.2 |
| | 73.2 |
| | — |
| | — |
| | Market | Common stock | 60.9 | | | 60.9 | | | — | | | — | | | Market |
| Fixed income - | | | | | | | | | Fixed income - | |
| Fixed income funds | 31.2 |
| | — |
| | 31.2 |
| | — |
| | Market | Fixed income funds | 58.4 | | | — | | | 58.4 | | | — | | | Market |
| Corporate bonds | 37.1 |
| | — |
| | 37.1 |
| | — |
| | Market | Corporate bonds | 30.8 | | | — | | | 30.8 | | | — | | | Market |
| Government obligations | 53.8 |
| | — |
| | 53.8 |
| | — |
| | Market | Government obligations | 49.5 | | | — | | | 49.5 | | | — | | | Market |
| Cash | 6.0 |
| | 3.2 |
| | 2.8 |
| | — |
| | Market | |
| | Cash and short-term investments | | Cash and short-term investments | 15.1 | | | 7.0 | | | 8.1 | | | — | | | Market |
| Assets at fair value | 333.9 |
| | $ | 76.4 |
| | $ | 257.5 |
| | $ | — |
| | Assets at fair value | 352.7 | | | $ | 67.9 | | | $ | 284.8 | | | $ | — | | |
| Investments measured at net asset value - | | | | | | | | | Investments measured at net asset value - | | | |
| Alternative investments | 33.2 |
| | | | | | | | Alternative investments | 30.3 | | |
| Assets at fair value | $ | 367.1 |
| | | | | | | | Assets at fair value | $ | 383.0 | | |
|
For further information on the GAAP fair value hierarchy, see Note 13,16, "Financial Instruments." Pension plan assets for the foreign plans relate to the Company’sCompany's pension plans primarily in Canada and the United Kingdom.
In 2015, the Financial Accounting Standards Board ("FASB") issued ASU 2015-07, "Disclosures for Investments in Certain Entities that Calculate Net Asset Value Per Share (or its Equivalent)." ASU 2015-07 removes the requirement to categorize, within the fair value hierarchy, investments for which fair values are estimated using the net asset value ("NAV") as a practical expedient as provided by Accounting Standards Codification 820, "Fair Value Measurement." In 2016, the Company early adopted the provisions of this update with respect to its defined benefit pension plan assets and retroactively applied the new presentation requirements to all periods presented. Accordingly, the alternative investments of the U.S. defined benefit pension plans, for which fair values are estimated using the NAV as a practical expedient, are no longer categorized and presented within the fair value hierarchy. These assets are shown below the fair value hierarchy in order to present total pension plan assets at fair value.
The Company’sCompany's investment policies incorporate an asset allocation strategy that emphasizes the long-term growth of capital. The Company believes that this strategy is consistent with the long-term nature of plan liabilities and ultimate cash needs of the plans. For the domestic portfolio, the Company targets ana return seeking asset (e.g., equity securities, equity mutual funds and exchange traded funds ("ETFs") and alternative investments) allocation of 50%45% — 75% of plan assets,65% and a risk mitigating asset (e.g., fixed income securities and fixed income mutual funds and ETFs) allocation of 15%35% — 40%, an alternative investment allocation55%. As the funding ratio for the defined benefit pension plans covering certain domestic employees changes, the proportion of 0% — 30% and a cash allocation of 0% — 10%.return seeking assets will be adjusted accordingly. For the foreign portfolio, the Company targets an equity allocation of 45%20% — 65%60% of plan assets, a fixed income allocation of 25%30% — 45%70%, an alternative investment allocation of 0% — 25% and a cash allocation of 0% — 15%. Differences in the target allocations of the domestic and foreign portfolios are reflective of differences in the underlying plan liabilities. Diversification within the investment portfolios is pursued by asset class and investment management style. The investment portfolios are
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
reviewed on a quarterly basis to maintain the desired asset allocations, given the market performance of the asset classes and investment management styles. Alternative investments are redeemable in the near term, generally with 6090 days notice.
The Company utilizes investment management firms to manage these assets in accordance with the Company’sCompany's investment policies. Excluding alternative investments, mutual funds and ETFs, retained investment managers are provided investment guidelines, which restrict the use of certain assets, including commodities contracts, futures contracts, options, venture capital, real estate, interest-only or principal-only strips and investments in the Company’sCompany's own debt or equity. Derivative instruments
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
are also prohibited without the specific approval of the Company. Investment managers are limited in the maximum size of individual security holdings and the maximum exposure to any one industry relative to the total portfolio. Fixed income managers are provided further investment guidelines that indicate minimum credit ratings for debt securities and limitations on weighted average maturity and portfolio duration.
The Company evaluates investment manager performance against market indices which the Company believes are appropriate to the investment management style for which the investment manager has been retained. The Company’sCompany's investment policies incorporate an investment goal of aggregate portfolio returns which exceed the returns of the appropriate market indices by a reasonable spread over the relevant investment horizon.
Contributions
TheIn 2022, the Company's minimum required contributions to its domestic and foreign pension plans are expected to be approximately$10.0approximately $2 millionto $15.0 million in 2018.. The Company may elect to make contributions in excess of minimum funding requirements in response to investment performance or changes in interest rates or when the Company believes that it is financially advantageous to do so and based on its other cash requirements. The Company’sAfter 2022, the Company's minimum funding requirements after 2018 will depend on several factors, including investment performance and interest rates. The Company’sCompany's minimum funding requirements may also be affected by changes in applicable legal requirements.
Benefit Payments
As of December 31, 2017,2021, the Company’sCompany's estimate of expected benefit payments in each of the five succeeding years and in the aggregate for the five years thereafter are shown below (in millions):
|
| | | | | | | | | | | | | | | | |
| | Pension | | | Other Postretirement |
| Year | U.S. | | Foreign | | | U.S. | | Foreign |
| 2018 | $ | 23.9 |
| | $ | 18.9 |
| | | $ | 4.3 |
| | $ | 1.5 |
|
| 2019 | 25.4 |
| | 18.7 |
| | | 4.3 |
| | 1.5 |
|
| 2020 | 26.2 |
| | 19.5 |
| | | 4.2 |
| | 1.6 |
|
| 2021 | 26.9 |
| | 19.9 |
| | | 4.2 |
| | 1.7 |
|
| 2022 | 28.3 |
| | 21.7 |
| | | 4.0 |
| | 1.7 |
|
| Five years thereafter | 146.0 |
| | 116.9 |
| | | 18.5 |
| | 9.8 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension | | | Other Postretirement |
| Year | U.S. | | Foreign | | | U.S. | | Foreign |
| 2022 | $ | 22.4 | | | $ | 22.6 | | | | $ | 4.0 | | | $ | 1.6 | |
| 2023 | 23.2 | | | 22.0 | | | | 4.0 | | | 1.6 | |
| 2024 | 23.3 | | | 22.7 | | | | 4.0 | | | 1.5 | |
| 2025 | 24.4 | | | 23.6 | | | | 3.9 | | | 1.5 | |
| 2026 | 25.5 | | | 26.0 | | | | 3.8 | | | 1.5 | |
| Five years thereafter | 133.0 | | | 141.1 | | | | 17.1 | | | 7.1 | |
Multi-Employer Pension Plans
The Company currently participates in two2 multi-employer pension plans, the U.A.W. Labor-Management Group Pension Plan (EIN 51-6099782-001) and UNITE Here National Retirement Fund (EIN 13-6130178-001), for certain of its employees. Contributions to these plans are based on three4 collective bargaining agreements. One of the agreements, expires onwhich expire between June 30, 2022 and April 24, 2020, and two of the agreements expire on July 3, 2020. 25, 2025.
Detailed information related to these plans is shown below (amounts in millions):
|
| | | | | | | | | | | | | | | | | | | |
| | Pension Protection Act Zone Status | | | | | | Contributions to Multiemployer Pension Plans |
| Employer Identification Number | December 31, 2017 Certification | | December 31, 2016 Certification | | FIP/RP Pending or Implemented | | Surcharge | | Year Ended December 31, 2017 | | Year Ended December 31, 2016 | | Year Ended December 31, 2015 |
| 516099782-001 | Green | | Red | | Yes | | No | | $ | 0.6 |
| | $ | 0.6 |
| | $ | 0.5 |
|
| 13-6130178 | Red | | Red | | Yes | | No | | 0.4 |
| | 0.4 |
| | 0.3 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Protection Act
Zone Status | | | | | | Contributions to Multiemployer Pension Plans |
| Employer Identification Number ("EIN") | December 31,
2021
Certification | | December 31,
2020
Certification | | FIP/RP (1) Pending or Implemented | | Surcharge | | Year Ended December 31, 2021 | | Year Ended December 31, 2020 | | Year Ended December 31, 2019 |
| 51-6099782-001 | Green | | Green | | Yes | | No | | $ | 0.7 | | | $ | 0.6 | | | $ | 0.5 | |
| 13-6130178-001 | Red | | Red | | Yes | | No | | 0.4 | | | 0.5 | | | 0.4 | |
(1) Funding improvement plan or rehabilitation plan as defined by Employment Retirement Security Act of 1974.
For its plan years 20172021 and 2016,2020, the Company's contributions to the U.A.W. Labor-Management Group Pension Plan represented more than 5% of the plan's total contributions.
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Defined Contribution Plan
The Company also sponsors defined contribution plans and participates in government-sponsored programs in certain foreign countries. Contributions are determined as a percentage of each covered employee’semployee's salary. For the years ended December 31, 2017, 20162021, 2020 and 2015,2019, the aggregate cost of the defined contribution plans was $15.0$16.4 million, $14.4$17.1 million and $13.3$14.0 million, respectively.
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The Company also has a defined contribution retirement program for its salaried employees. Contributions to this program are determined as a percentage of each covered employee’semployee's eligible compensation. For the years ended December 31, 2017, 20162021, 2020 and 2015,2019, the Company recorded expense of $21.3$20.4 million, $21.2$18.3 million and $19.4$17.6 million, respectively, related to this program.
(9)(11) Revenue Recognition
A summary of the Company's revenue by reportable operating segment and geography is shown below (in millions):
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, | 2021 |
| Seating | | E-Systems | | Total |
| North America | $ | 6,277.2 | | | $ | 1,271.0 | | | $ | 7,548.2 | |
| Europe and Africa | 4,805.5 | | | 1,939.8 | | | 6,745.3 | |
| Asia | 2,759.9 | | | 1,468.0 | | | 4,227.9 | |
| South America | 568.8 | | | 172.9 | | | 741.7 | |
| $ | 14,411.4 | | | $ | 4,851.7 | | | $ | 19,263.1 | |
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, | 2020 |
| Seating | | E-Systems | | Total |
| North America | $ | 5,545.7 | | | $ | 1,084.8 | | | $ | 6,630.5 | |
| Europe and Africa | 4,371.4 | | | 1,868.9 | | | 6,240.3 | |
| Asia | 2,418.7 | | | 1,236.6 | | | 3,655.3 | |
| South America | 376.9 | | | 142.5 | | | 519.4 | |
| $ | 12,712.7 | | | $ | 4,332.8 | | | $ | 17,045.5 | |
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, | 2019 |
| Seating | | E-Systems | | Total |
| North America | $ | 6,265.2 | | | $ | 1,100.3 | | | $ | 7,365.5 | |
| Europe and Africa | 5,620.2 | | | 2,165.3 | | | 7,785.5 | |
| Asia | 2,710.7 | | | 1,257.6 | | | 3,968.3 | |
| South America | 501.1 | | | 189.9 | | | 691.0 | |
| $ | 15,097.2 | | | $ | 4,713.1 | | | $ | 19,810.3 | |
(12) Capital Stock, Accumulated Other Comprehensive Loss and Equity
Common Stock
The Company is authorized to issue up to 300,000,000 shares of Common Stock. The Company’sCompany's Common Stock is listed on the New York Stock Exchange under the symbol "LEA" and has the following rights and privileges:
•Voting Rights – All shares of the Company’sCompany's common stock have identical rights and privileges. With limited exceptions, holders of common stock are entitled to one1 vote for each outstanding share of common stock held of record by each stockholder on all matters properly submitted for the vote of the Company’sCompany's stockholders.
•Dividend Rights – Subject to applicable law, any contractual restrictions and the rights of the holders of outstanding preferred stock, if any, holders of common stock are entitled to receive ratably such dividends and other distributions that the Company’sCompany's Board of Directors, in its discretion, declares from time to time.
•Liquidation Rights – Upon the dissolution, liquidation or winding up of the Company, subject to the rights of the holders of outstanding preferred stock, if any, holders of common stock are entitled to receive ratably the assets of the Company available for distribution to the Company’sCompany's stockholders in proportion to the number of shares of common stock held by each stockholder.
•Conversion, Redemption and Preemptive Rights – Holders of common stock have no conversion, redemption, sinking fund, preemptive, subscription or similar rights.
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Common Stock Share Repurchase Program
Since the first quarter of 2011, the Company's Board of Directors has authorized $4.1 billion in share repurchases under its common stock share repurchase program. As of December 31, 2017, the Company has paid $3.5 billion in aggregate for repurchases of its common stock, at an average price of $79.73 per share, excluding commissions and related fees.
In 2017, the Company repurchased $454.4 million in aggregate of its common stock (3,014,131 shares repurchased at an average purchase price of $150.77 per share, excluding commissions), of which $450.5 was paid in cash with the remaining amount to be paid in the first quarter of 2018. In 2016, the Company paid $658.8 million in aggregate for repurchases of its common stock, (5,816,363 shares repurchased at an average purchase price of $113.26 per share, excluding commissions). In 2015, the Company paid $487.4 million in aggregate for repurchases of its common stock, (4,366,365 shares repurchased at an average purchase price of $111.62 per share, excluding commissions).
As of December 31, 2017, the Company has a remaining repurchase authorization of $545.6 million under its current common stock share repurchase program, which will expire on December 31, 2019. 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 willmay repurchase its outstanding common stock and the timing of such repurchases will depend upon its financial condition, results of operations, capital requirements, prevailing market conditions, alternative uses of capital and other factors.
The Company has a common stock share repurchase program (the "Repurchase Program") which permits the discretionary repurchase of its common stock. Since its inception in the first quarter of 2011, the Company's Board of Directors has authorized $6.1 billion in share repurchases under the Repurchase Program. As of December 31, 2021, the Company has repurchased, in aggregate, $4.8 billion of its outstanding common stock, at an average price of $90.97 per share, excluding commissions and related fees. As of December 31, 2021, the Company has a remaining repurchase authorization of $1.3 billion under its Repurchase Program, which expires on December 31, 2022.
In March 2020, as a proactive measure in response to the COVID-19 pandemic, the Company suspended share repurchases under its Repurchase Program. Share repurchases were reinstated in the second quarter of 2021. Share repurchases are shown below (in millions except for shares and per share amounts):
| | | | | | | | | | | | | | | | | | | | | | | |
| For the year ended December 31, | Aggregate Repurchases | | Cash paid for Repurchases | | Number of Shares | | Average Price per Share (1) |
| 2021 | $ | 100.3 | | | $ | 100.3 | | | 589,717 | | $ | 170.03 | |
| 2020 | $ | 70.0 | | | $ | 70.0 | | | 641,149 | | | $ | 109.22 | |
| 2019 | $ | 380.4 | | | $ | 384.7 | | | 2,819,081 | | | $ | 134.95 | |
(1) Excludes commissions.
In addition to shares repurchased under the Company’s common stock share repurchase programRepurchase Program described above, the Company classifiedclassifies shares withheld from the settlement of the Company’sCompany's restricted stock unit and performance share awards to cover tax withholding requirements as common stock held in treasury in the accompanying consolidated balance sheets as of December 31, 2017 and 2016.sheet.
In 2017, the Company’s Board of Directors approved the retirement of 8 million shares of common stock held in treasury. These retired shares are reflected as authorized, but not issued, in the accompanying consolidated balance sheet as of December 31, 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
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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 2017, 20162021, the Company's Board of Directors declared a quarterly cash dividend of $0.25 per share of common stock in the first and 2015,second quarters, a quarterly cash dividend of $0.50 per share of common stock in the Company’sthird quarter and a quarterly cash dividend of $0.77 per share of common stock in the fourth quarter, returning the quarterly cash dividend to its pre-COVID-19 pandemic level.
In 2020, the Company's Board of Directors declared a quarterly cash dividend of $0.77 per share of common stock in the first quarter. In March 2020, as a proactive measure in response to the COVID-19 pandemic, the Company suspended its quarterly cash dividend. The quarterly cash dividend was reinstated in the fourth quarter at $0.25 per share of common stock.
In 2019, the Company's Board of Directors declared quarterly cash dividends of $0.50, $0.30 and $0.25, respectively,$0.75 per share of common stock. In 2017,
Dividends declared dividends totaled $140.3 million, and dividends paid totaled $137.7 million. In 2016, declared dividends totaled $89.1 million, and dividends paid totaled $88.8 million. In 2015, declared dividends totaled $79.4 million, and dividends paid totaled $78.5 million. are shown below (in millions):
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, | 2021 | | 2020 | | 2019 |
| Dividends declared | $ | 107.9 | | | $ | 62.1 | | | $ | 186.3 | |
| Dividends paid | $ | 106.7 | | | $ | 67.3 | | | $ | 186.3 | |
Dividends payable on common shares to be distributed under the Company’sCompany'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.
Accumulated Other Comprehensive Loss
Comprehensive income is defined as all changes in the Company’sCompany'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.
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
A summary of changes in accumulated other comprehensive loss, net of tax, is shown below (in millions):
| | | For the year ended December 31, | 2017 | | 2016 | | 2015 | For the year ended December 31, | 2021 | | 2020 | | 2019 |
| Defined benefit plans: | | | | | | Defined benefit plans: | |
| Balance at beginning of year | $ | (192.8 | ) | | $ | (194.6 | ) | | $ | (219.2 | ) | Balance at beginning of year | $ | (276.9) | | | $ | (217.6) | | | $ | (172.8) | |
| Reclassification adjustments (net of tax expense of $1.1 million in 2017, $12.1 million in 2016 and $1.4 million in 2015) | 4.9 |
| | 25.9 |
| | 4.2 |
| |
| Other comprehensive income (loss) recognized during the period (net of tax benefit (expense) of ($0.4) million in 2017, $5.0 million in 2016 and ($6.9) million in 2015) | 3.9 |
| | (24.1 | ) | | 20.4 |
| |
| Reclassification adjustments (net of tax expense of $2.1 million in 2021, $4.7 million in 2020 and $2.0 million in 2019) | | Reclassification adjustments (net of tax expense of $2.1 million in 2021, $4.7 million in 2020 and $2.0 million in 2019) | 7.1 | | | 14.3 | | | 5.0 | |
| Other comprehensive income (loss) recognized during the period (net of tax benefit (expense) of ($20.6) million in 2021, $23.2 million in 2020 and $15.7 million in 2019) | | Other comprehensive income (loss) recognized during the period (net of tax benefit (expense) of ($20.6) million in 2021, $23.2 million in 2020 and $15.7 million in 2019) | 70.4 | | | (73.6) | | | (49.8) | |
| Balance at end of year | $ | (184.0 | ) | | $ | (192.8 | ) | | $ | (194.6 | ) | Balance at end of year | $ | (199.4) | | | $ | (276.9) | | | $ | (217.6) | |
| Derivative instruments and hedging activities: | | | | | | |
| Derivative instruments and hedge activities: | | Derivative instruments and hedge activities: | |
| Balance at beginning of year | $ | (45.1 | ) | | $ | (38.7 | ) | | $ | (33.2 | ) | Balance at beginning of year | $ | 12.6 | | | $ | 9.8 | | | $ | (9.7) | |
| Reclassification adjustments (net of tax expense of $3.1 million in 2017, $28.8 million in 2016 and $14.9 million in 2015) | 6.4 |
| | 57.9 |
| | 23.7 |
| |
| Other comprehensive income (loss) recognized during the period (net of tax benefit (expense) of ($12.8) million in 2017, $32.7 million in 2016 and $18.4 million in 2015) | 15.8 |
| | (64.3 | ) | | (29.2 | ) | |
| Reclassification adjustments (net of tax benefit (expense) of $8.7 million in 2021, ($1.8) million in 2020 and $10.2 million in 2019) | | Reclassification adjustments (net of tax benefit (expense) of $8.7 million in 2021, ($1.8) million in 2020 and $10.2 million in 2019) | (36.0) | | | 7.5 | | | (38.0) | |
| Other comprehensive income (loss) recognized during the period (net of tax benefit (expense) of ($1.2) million in 2021, $1.0 million in 2020 and ($15.7) million in 2019) | | Other comprehensive income (loss) recognized during the period (net of tax benefit (expense) of ($1.2) million in 2021, $1.0 million in 2020 and ($15.7) million in 2019) | 4.8 | | | (4.7) | | | 57.5 | |
| Balance at end of year | $ | (22.9 | ) | | $ | (45.1 | ) | | $ | (38.7 | ) | Balance at end of year | $ | (18.6) | | | $ | 12.6 | | | $ | 9.8 | |
| Cumulative translation adjustments: | | | | | | |
| Currency translation adjustments: | | Currency translation adjustments: | |
| Balance at beginning of year | $ | (597.7 | ) | | $ | (496.8 | ) | | $ | (249.6 | ) | Balance at beginning of year | $ | (440.8) | | | $ | (564.9) | | | $ | (523.3) | |
| Other comprehensive income (loss) recognized during the period (net of tax benefit of $— million in 2017, $1.1 million in 2016 and $6.0 million in 2015) | 291.2 |
| | (100.9 | ) | | (247.2 | ) | |
| Other comprehensive income (loss) recognized during the period (net of tax benefit (expense) of ($4.1) million in 2021, $3.8 million in 2020 and $0.9 million in 2019) | | Other comprehensive income (loss) recognized during the period (net of tax benefit (expense) of ($4.1) million in 2021, $3.8 million in 2020 and $0.9 million in 2019) | (111.4) | | | 124.1 | | | (41.6) | |
| Balance at end of year | $ | (306.5 | ) | | $ | (597.7 | ) | | $ | (496.8 | ) | Balance at end of year | $ | (552.2) | | | $ | (440.8) | | | $ | (564.9) | |
For the years ended December 31, 2017, 20162021, 2020 and 2015,2019, other comprehensive lossincome (loss) related to cumulativecurrency translation adjustments includes pretax gains (losses)losses related to intercompany transactions for which settlement is not planned or anticipated in the foreseeable future of $0.9$0.4 million, ($0.2)$0.6 million and ($10.7)$0.5 million, respectively.
For the years ended December 31, 2021, 2020 and 2019, other comprehensive income (loss) related to currency translation adjustments also includes net investment hedge gains (losses) of $17.9 million, ($18.3) million and ($4.4) million, respectively.
Redeemable Noncontrolling InterestsInterest
In 2017 and 2016,accordance with GAAP, the Company gained controlrecords 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 affiliate. increase to redeemable noncontrolling interests, with an offsetting adjustment to retained earnings. The redeemable noncontrolling interest is classified in mezzanine equity in the accompanying consolidated balance sheet as of December 31, 2019.
In 2020, the noncontrolling interest holder in Shanghai Lear STEC Automotive Parts Co., Ltd. exercised its option requiring the Company to purchase its 45% redeemable noncontrolling interest. The transaction was completed in the fourth quarter of 2020 for $95.5 million plus undistributed retained earnings of $26.8 million. These amounts are reflected in cash flows from financing activities in the accompanying statement of cash flows for the year ended December 31, 2020.
For further information related to these transactions,the redeemable noncontrolling interest adjustment, see Note 5, "Investments in Affiliates and Other Related Party Transactions.3, "Summary of Significant Accounting Policies — Net Income Per Share Attributable to Lear." Also in 2016,
Noncontrolling Interests
In 2021, the Company acquired the outstanding noncontrolling interestssold a 49% equity interest in aits wholly owned consolidated subsidiary, Shenyang Lear Jinbei Automotive Seating and Interior Systems Co., Ltd. ("Shenyang Lear"), for $32.6$36.2 million. The Company continues to control Shenyang Lear, and as a result, the operating results and cash flows of Shenyang Lear continue to be included in the Company's consolidated financial statements. Noncontrolling interest of $7.6 million was recorded in conjunction with the transaction. The difference between the consideration paid and now owns 100%the carrying value of the subsidiary.
In 2015, a noncontrolling interest was establishedrecorded is reflected in a new less than wholly ownedadditional paid-in capital in the accompanying consolidated subsidiary.
balance sheet as of December 31, 2021. The proceeds from the sale are classified within cash flows
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
used in financing activities in the accompanying consolidated statement of cash flows for the year ended December 31, 2021.
(10)In 2019, the Company deconsolidated GACC as it no longer controls the entity.
For further information related to these transactions, see Note 6, "Investments in Affiliates and Other Related Party Transactions."
(13) Stock-Based Compensation
TheAs of November 9, 2009, the Company adopted the Lear Corporation 2009 Long-Term Stock Incentive Plan as of November 9, 2009 (as amended, the "2009 LTSIP"). The 2009 LTSIP reservesreserved 11,815,748 shares of common stock for issuance under stock option, restricted stock, restricted stock unit, restricted unit, performance share, performance unit and stock appreciation right awards. As of May 16, 2019, the Company adopted the Lear Corporation 2019 Long-Term Stock Incentive Plan (the "2019 LTSIP"), after which no awards will be issued under the 2009 LTSIP. The 2019 LTSIP reserves 2,526,858 shares of common stock plus shares of common stock awarded under the 2009 LTSIP that are cancelled subsequent to May 16, 2019, for issuance under stock option, restricted stock, restricted stock unit, restricted unit, performance share, performance unit and stock appreciation right awards. In addition, the Company adopted the Lear Corporation 2019 Inducement Grant Plan ("Inducement Plan") as of April 17, 2019, in conjunction with the Xevo acquisition. The Inducement Plan reserved 146,516 shares of common stock for issuance under restricted stock and restricted stock unit awards, of which 145,202 awards were granted on April 17, 2019. The remaining shares under the Inducement Plan will not be awarded.
Under the 2009 LTSIP, the 2019 LTSIP and the Inducement Plan, the Company has granted restricted stock units, and performance shares and stock options to certain of its employees. The restricted stock units and performance sharesemployees, all of which generally vest inone to three years following the grant date. For the years ended December 31, 2017, 20162021, 2020 and 2015,2019, the Company recognized compensation expense related to the restricted stock unit and performance sharethese awards of $68.7$58.7 million, $66.7$39.0 million and $64.5$22.3 million, respectively. Unrecognized compensation expense related to the restricted stock unit and performance sharethese awards of $60.6$56.5 million will be recognized over thethe next 1.51.7 years on a weighted average basis. In accordance with the provisions of the restricted stock unit and performance share awards, the Company withholds shares from the settlement of such awards to cover minimum statutory tax withholding requirements. The withheld shares are classified as common stock held in treasury in the accompanying consolidated balance sheets as of December 31, 20172021 and 2016. 2020.
A summary of restricted stock unitunits, performance shares and performance share transactionsstock options for the year ended December 31, 2017,2021, is shown below:
| | | | | | | | | Restricted
Stock Units | Weighted Average Grant Date
Fair Value | Performance
Shares | Weighted Average Grant Date
Fair Value | Stock Options | Weighted Average Grant Date
Fair Value |
| | Restricted Stock Units | Weighted Average Grant Date Fair Value | Performance Shares | Weighted Average Grant Date Fair Value | |
| Outstanding as of December 31, 2016 | 623,142 |
| $92.54 | 1,455,054 |
| $94.19 | |
| Outstanding as of December 31, 2020 | | Outstanding as of December 31, 2020 | 616,584 | | $124.83 | 809,471 | | $143.48 | 108,446 | | $30.32 |
| Granted | 153,675 |
| $142.14 | 389,384 |
| $132.94 | Granted | 168,763 | | $165.28 | 175,546 | | $188.11 | 94,256 | | $35.33 |
| Distributed (vested) | (194,373 | ) | | (571,254 | ) | | Distributed (vested) | (202,737) | | | (21,119) | | | — | | |
| Cancelled | (10,231 | ) | | (73,614 | ) | | Cancelled | (14,719) | | | (183,354) | | | — | | |
Outstanding as of December 31, 2017 (1) | 572,213 |
| $109.31 | 1,199,570 |
| $115.33 | |
Outstanding as of December 31, 2021 (1) | | Outstanding as of December 31, 2021 (1) | 567,891 | | $129.58 | 780,544 | | $156.56 | 202,702 | | $32.65 |
| | | | | | | | | | |
| Vested or expected to vest as of December 31, 2017 | 572,213 |
| | 1,150,611 |
| | |
| Vested or expected to vest as of December 31, 2021 | | Vested or expected to vest as of December 31, 2021 | 567,891 | | | 397,755 | | | 202,702 | | |
(1) Outstanding performance shares are reflected at the maximum possible payout that may be earned during the relevant performance periods.
| |
(1) | Outstanding performance shares are reflected at the maximum possible payout that may be earned during the relevant performance periods. |
The grant date fair valuesvalue of restricted stock units and performance shares areis based on the share price on the grant date. The weighted average grant date fair value of restricted stock units granted in 20162020 and 20152019 was $120.42$129.40 and $104.46,$134.65, respectively. The grant date fair value of performance shares is based on a Monte Carlo simulation. The weighted average grant date fair value of performance shares granted in 20162020 and 20152019 was $119.99$147.53 and $97.92,$124.48, respectively. The grant date fair value of stock options is based on a Black-Scholes model. The grant date fair value of options granted in 2020 was $30.32. There were no stock options granted in 2019.
(11)
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(14) Commitments and Contingencies
Legal and Other Contingencies
As of December 31, 20172021 and 2016,2020, the Company had recorded reserves for pending legal disputes, including commercial disputes and other matters, of $25.8$19.5 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, 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’sCompany'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’attorneys' fees and costs. In addition, if any of the Company’sCompany'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’sCompany'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.
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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.
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’sCompany'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 each of the periods in the two years ended December 31, 2017,2021, is shown below (in millions):
|
| | | |
| Balance as of January 1, 2016 | $ | 33.0 |
|
| Expense, net, including changes in estimates | 27.3 |
|
| Settlements | (10.4 | ) |
| Foreign currency translation and other | (0.8 | ) |
| Balance as of December 31, 2016 | 49.1 |
|
| Expense, net, including changes in estimates | 13.3 |
|
| Settlements | (19.6 | ) |
| Foreign currency translation and other | 3.7 |
|
| Balance as of December 31, 2017 | $ | 46.5 |
|
| | | | | |
| Balance as of January 1, 2020 | $ | 32.0 | |
| Expense, net (including changes in estimates) | 26.1 | |
| Settlements | (10.3) | |
| Foreign currency translation and other | 0.9 | |
| Balance as of January 1, 2021 | 48.7 | |
| Expense, net (including changes in estimates) | 12.7 | |
| Settlements | (13.7) | |
| Foreign currency translation and other | (1.7) | |
| Balance as of December 31, 2021 | $ | 46.0 | |
Environmental Matters
The Company is subject to local, state, federal and foreign laws, regulations and ordinances, which govern activities or operations that may have adverse environmental effects and which impose liability for clean-up costs resulting from past spills, disposals or other releases of hazardous wastes and environmental compliance. The Company’sCompany's policy is to comply with all applicable environmental laws and to maintain an environmental management program based on ISO 14001 to ensure compliance with this standard. However, the Company currently is, has been and in the future may become the subject of formal or informal enforcement actions or procedures.
As of December 31, 20172021 and 2016,2020, the Company had recorded environmental reserves of $9.0 million.$8.0 million and $8.9 million, respectively. The Company does not believe that the environmental liabilities associated with its current and former properties
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
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.
Employees
Approximately 46%48% of the Company’sCompany's employees are members of industrial trade unions and are employed under the terms of various labor agreements. Labor agreements covering approximately 77%86% of the Company’sCompany's global unionized workforce of approximately 76,40077,500 employees, including labor agreements in the United States and Canada covering approximately 2%3% of the Company’sCompany's global unionized workforce, are scheduled to expire in 2018.2022. Management does not anticipate any significant difficulties with respect to the renewal of these agreements.
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Lease Commitments
A summary of lease commitments as of December 31, 2017, under non-cancelable operating leases with terms exceeding one year is shown below (in millions):
|
| | | |
| 2018 | $ | 103.1 |
|
| 2019 | 90.4 |
|
| 2020 | 77.0 |
|
| 2021 | 59.7 |
|
| 2022 | 48.9 |
|
| Thereafter | 169.7 |
|
| Total | $ | 548.8 |
|
The Company’s operating leases cover principally buildings and transportation equipment. For the years ended December 31, 2017, 2016 and 2015, rent expense was $144.7 million, $126.4 million and $126.2 million, respectively.
(12)(15) Segment Reporting
A summary of revenues from external customers and other financial information by reportable operating segment is shown below (in millions):
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2021 |
| | Seating | | E-Systems | | Other | | Consolidated |
| Revenues from external customers | $ | 14,411.4 | | | $ | 4,851.7 | | | $ | — | | | $ | 19,263.1 | |
Segment earnings (1) | 851.3 | | | 121.2 | | | (297.1) | | | 675.4 | |
| Depreciation and amortization | 362.6 | | | 195.7 | | | 15.6 | | | 573.9 | |
| Capital expenditures | 340.7 | | | 217.2 | | | 27.2 | | | 585.1 | |
| Total assets | 7,414.0 | | | 3,584.8 | | | 2,353.6 | | | 13,352.4 | |
| | | | Year Ended December 31, 2017 | | Year Ended December 31, 2020 |
| | Seating | | E-Systems | | Other | | Consolidated | | Seating | | E-Systems | | Other | | Consolidated |
| Revenues from external customers | $ | 15,873.0 |
| | $ | 4,594.0 |
| | $ | — |
| | $ | 20,467.0 |
| Revenues from external customers | $ | 12,712.7 | | | $ | 4,332.8 | | | $ | — | | | $ | 17,045.5 | |
Segment earnings (1) | 1,250.8 |
| | 641.6 |
| | (284.1 | ) | | 1,608.3 |
| Segment earnings (1) | 590.5 | | | 98.1 | | | (234.5) | | | 454.1 | |
| Depreciation and amortization | 289.5 |
| | 123.4 |
| | 14.8 |
| | 427.7 |
| Depreciation and amortization | 348.1 | | | 176.6 | | | 15.2 | | | 539.9 | |
| Capital expenditures | 398.3 |
| | 176.3 |
| | 19.9 |
| | 594.5 |
| Capital expenditures | 257.2 | | | 179.3 | | | 15.8 | | | 452.3 | |
| Total assets | 7,303.4 |
| | 2,268.0 |
| | 2,374.5 |
| | 11,945.9 |
| Total assets | 7,596.1 | | | 3,403.3 | | | 2,199.2 | | | 13,198.6 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, 2019 |
| | Seating | | E-Systems | | Other | | Consolidated |
| Revenues from external customers | $ | 15,097.2 | | | $ | 4,713.1 | | | $ | — | | | $ | 19,810.3 | |
Segment earnings (1) | 961.2 | | | 366.3 | | | (257.3) | | | 1,070.2 | |
| Depreciation and amortization | 331.0 | | | 163.0 | | | 15.9 | | | 509.9 | |
| Capital expenditures | 370.4 | | | 213.9 | | | 19.6 | | | 603.9 | |
| | | | | | | |
|
| | | | | | | | | | | | | | | |
| | Year Ended December 31, 2016 |
| | Seating | | E-Systems | | Other | | Consolidated |
| Revenues from external customers | $ | 14,356.7 |
| | $ | 4,200.9 |
| | $ | — |
| | $ | 18,557.6 |
|
Segment earnings (1) | 1,136.0 |
| | 591.3 |
| | (300.1 | ) | | 1,427.2 |
|
| Depreciation and amortization | 258.1 |
| | 107.6 |
| | 12.5 |
| | 378.2 |
|
| Capital expenditures | 341.6 |
| | 162.4 |
| | 24.3 |
| | 528.3 |
|
| Total assets | 6,199.2 |
| | 1,675.9 |
| | 2,025.5 |
| | 9,900.6 |
|
|
| | | | | | | | | | | | | | | |
| | Year Ended December 31, 2015 |
| | Seating | | E-Systems | | Other | | Consolidated |
| Revenues from external customers | $ | 14,098.5 |
| | $ | 4,112.9 |
| | $ | — |
| | $ | 18,211.4 |
|
Segment earnings (1) | 907.0 |
| | 554.4 |
| | (274.6 | ) | | 1,186.8 |
|
| Depreciation and amortization | 239.3 |
| | 99.3 |
| | 9.2 |
| | 347.8 |
|
| Capital expenditures | 317.2 |
| | 134.4 |
| | 34.2 |
| | 485.8 |
|
| |
(1) | For a definition of segment earnings, see Note 2, "Summary of Significant Accounting Policies — Segment Reporting." |
For the year ended December 31, 2017,2021, segment earnings include restructuring charges of $45.7$52.4 million, $19.9$47.7 million and $7.9$7.5 million in the Seating and E-Systems segments and in the other category, respectively. The Company expects to incur approximately $25 million and approximately $19 million of additional restructuring costs in the Seating and E-Systems
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
segments, respectively, (Note 4, "Restructuring").related to activities initiated as of December 31, 2021, and expects that the components of such costs will be consistent with its historical experience.
For the year ended December 31, 2016,2020, segment earnings include restructuring charges of $40.6$83.1 million, $20.1$54.5 million and $2.9$1.1 million in the Seating and E-Systems segments and in the other category, respectively (Note 4, "Restructuring").respectively.
For the year ended December 31, 2015,2019, segment earnings include restructuring charges of $60.8$150.1 million, $13.9$38.0 million and $12.1$2.1 million in the Seating and E-Systems segments and in the other category, respectively (Note 4, "Restructuring").respectively.
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
For further information, see Note 5, "Restructuring."
A reconciliation of segment earnings to consolidated income before provision for income taxes and equity in net income of affiliates is shown below (in millions):
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, | 2021 | | 2020 | | 2019 |
| Segment earnings | $ | 972.5 | | | $ | 688.6 | | | $ | 1,327.5 | |
| Corporate and regional headquarters and elimination of intercompany activity ("Other") | (297.1) | | | (234.5) | | | (257.3) | |
| Consolidated income before interest, other expense, provision for income taxes and equity in net income of affiliates | 675.4 | | | 454.1 | | | 1,070.2 | |
| Interest expense | 91.8 | | | 99.6 | | | 92.0 | |
| Other expense, net | 0.1 | | | 55.2 | | | 24.6 | |
| Consolidated income before provision for income taxes and equity in net income of affiliates | $ | 583.5 | | | $ | 299.3 | | | $ | 953.6 | |
|
| | | | | | | | | | | |
| For the year ended December 31, | 2017 | | 2016 | | 2015 |
| Segment earnings | $ | 1,892.4 |
| | $ | 1,727.3 |
| | $ | 1,461.4 |
|
| Corporate and regional headquarters and elimination of intercompany activity ("Other") | (284.1 | ) | | (300.1 | ) | | (274.6 | ) |
| Consolidated income before interest, other expense, provision for income taxes and equity in net income of affiliates | 1,608.3 |
| | 1,427.2 |
| | 1,186.8 |
|
| Interest expense | 85.7 |
| | 82.5 |
| | 86.7 |
|
| Other (income) expense, net | (4.1 | ) | | 6.4 |
| | 68.6 |
|
| Consolidated income before provision for income taxes and equity in net income of affiliates | $ | 1,526.7 |
| | $ | 1,338.3 |
| | $ | 1,031.5 |
|
Revenues from external customers and tangible long-lived assets for each of the geographic areas in which the Company operates is shown below (in millions): | | | For the year ended December 31, | 2017 | | 2016 | | 2015 | For the year ended December 31, | 2021 | | 2020 | | 2019 |
| Revenues from external customers | | | | | | Revenues from external customers | |
| United States | $ | 3,955.1 |
| | $ | 4,186.0 |
| | $ | 4,252.3 |
| United States | $ | 4,410.7 | | | $ | 3,599.1 | | | $ | 3,658.5 | |
| Mexico | 3,170.9 |
| | 2,684.4 |
| | 2,777.3 |
| Mexico | 2,465.8 | | | 2,528.4 | | | 3,058.6 | |
| China | 2,519.3 |
| | 2,277.6 |
| | 2,141.9 |
| China | 3,018.1 | | | 2,592.7 | | | 2,579.7 | |
| Germany | 2,139.4 |
| | 2,076.0 |
| | 1,987.3 |
| Germany | 1,309.9 | | | 1,288.3 | | | 1,698.7 | |
| Other countries | 8,682.3 |
| | 7,333.6 |
| | 7,052.6 |
| Other countries | 8,058.6 | | | 7,037.0 | | | 8,814.8 | |
| Total | $ | 20,467.0 |
| | $ | 18,557.6 |
| | $ | 18,211.4 |
| Total | $ | 19,263.1 | | | $ | 17,045.5 | | | $ | 19,810.3 | |
| | | | | | | | | | | |
| December 31, | 2021 | | 2020 |
Tangible long-lived assets (1) | | | |
| United States | $ | 593.0 | | | $ | 534.0 | |
| Mexico | 691.6 | | | 689.9 | |
| China | 460.8 | | | 458.2 | |
| Germany | 189.2 | | | 205.8 | |
| Other countries | 1,413.4 | | | 1,388.6 | |
| Total | $ | 3,348.0 | | | $ | 3,276.5 | |
|
| | | | | | | |
| December 31, | 2017 | | 2016 |
| Tangible long-lived assets: | | | |
| United States | $ | 385.4 |
| | $ | 361.2 |
|
| Mexico | 549.0 |
| | 466.5 |
|
| China | 307.3 |
| | 253.5 |
|
| Germany | 182.4 |
| | 147.5 |
|
| Other countries | 1,035.3 |
| | 790.6 |
|
| Total | $ | 2,459.4 |
| | $ | 2,019.3 |
|
The following is a summary of the percentage of revenues from major customers:
| | | | | | | | | | | | | | | | | |
| For the year ended December 31, | 2021 | | 2020 | | 2019 |
| General Motors | 18.2% | | 18.7% | | 18.2% |
| Ford | 13.5% | | 13.5% | | 13.8% |
| Volkswagen | 11.8% | | 11.7% | | 10.9% |
| Daimler | 11.2% | | 11.9% | | 11.1% |
| Stellantis | 10.9% | | 11.2% | | 12.5% |
|
| | | | | |
| For the year ended December 31, | 2017 | | 2016 | | 2015 |
| Ford | 18.3% | | 21.0% | | 22.5% |
| General Motors | 18.0% | | 20.9% | | 20.0% |
| BMW | 8.1% | | 10.1% | | 10.5% |
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(13)(16) Financial Instruments
Debt Instruments
The carrying values of the Company’s debt instrumentsNotes 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):
| | | | | | | | | | | |
| December 31, | 2021 | | 2020 |
Estimated aggregate fair value (1) | $ | 2,868.6 | | | $ | 2,633.3 | |
Aggregate carrying value (1) (2) | 2,600.0 | | | 2,320.3 | |
|
| | | | | | | |
| December 31 | 2017 | | 2016 |
Estimated aggregate fair value (1) | $ | 2,033.5 |
| | $ | 2,004.8 |
|
Aggregate carrying value (1) (2) | 1,973.4 |
| | 1,943.7 |
|
| |
(1) | Credit agreement and senior notes (excludes "other" debt) |
| |
(2) | Carrying value excludes the impact of unamortized original issue discount and debt issuance costs |
Accounts Receivable Factoring(1) Excludes "other" debt.
One(2) Excludes the impact of the Company's European subsidiaries has an uncommitted factoring agreement, which provides for aggregate purchases of specified customer accounts of up to €200 million. As of December 31, 2017unamortized debt issuance costs and 2016, there were no factored receivables outstanding. unamortized original issue premium (discount).
Cash, Cash Equivalents and Restricted Cash
The Company cannot provide any assuranceshas cash on deposit that this factoring facility will be availableis legally restricted as to use or utilized inwithdrawal. A reconciliation of cash and cash equivalents reported on the future.accompanying consolidated balance sheets to cash, cash equivalents and restricted cash reported on the consolidated statements of cash flows is shown below (in millions):
| | | | | | | | | | | | | | | | | |
| December 31, | 2021 | | 2020 | | 2019 |
| Balance sheet — cash and cash equivalents | $ | 1,318.3 | | | $ | 1,306.7 | | | $ | 1,487.7 | |
| Restricted cash included in other current assets | 1.4 | | | 5.1 | | | 15.9 | |
| Restricted cash included in other long-term assets | 1.6 | | | 2.7 | | | 6.8 | |
| Statement of cash flows — cash, cash equivalents and restricted cash | $ | 1,321.3 | | | $ | 1,314.5 | | | $ | 1,510.4 | |
Marketable Equity Securities
As of December 31, 2017 and 2016, marketableMarketable equity securities, of $43.8 million and $30.2 million, respectively, for which the Company accounts for under the fair value option, are included in the accompanyaccompanying consolidated balance sheets. Accordingly, unrealizedsheets as shown below (in millions):
| | | | | | | | | | | |
| December 31, | 2021 | | 2020 |
| Other current assets | $ | 3.5 | | | $ | 9.3 | |
| Other long-term assets | 58.8 | | | 49.4 | |
| $ | 62.3 | | | $ | 58.7 | |
Unrealized gains and losses arising from changes in the fair value of the marketable equity securities are recognized in the consolidated statement of income as a component of other expense, net.net in the accompanying consolidated statements of income. The fair value of the marketable equity securities is determined by reference to quoted market prices in active markets (Level 1 input based on the GAAP fair value hierarchy).
Equity Securities Without Readily Determinable Fair Values
As of December 31, 2021 and 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 consolidated balance sheets. Such investments are valued at cost, less cumulative impairments and adjusted for changes resulting from observable, orderly transactions for identical or similar securities. For the years ended December 31, 2021, 2020 and 2019, the Company recognized impairment charges of $1.0 million, $4.0 million and $5.0 million, respectively, and investments in equity securities without readily determinable fair values have been reduced for cumulative impairments of $10.0 million and $9.0 million as of December 31, 2021 and 2020, respectively.
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Derivative Instruments and Hedging Activities
Foreign Exchange
The Company uses forwards, swaps and other derivative contracts to reduce the effects of fluctuations in foreign exchange rates on known foreign currency exposures. Gains and losses on the derivative instruments are intended to offset gains and losses on the hedged transaction in an effort to reduce exposure to fluctuations in foreign exchange rates. The principal currencies hedged by the Company include the Mexican peso, various European currencies, the Thai baht,Chinese renminbi, the Japanese yen, the Chinese renminbiPhilippine peso and the Philippine peso.
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The notional amount, estimated fair value and related classification in the accompanying consolidated balance sheets of the Company's foreign currency derivative contracts are shown below (in millions, except for maturities):
|
| | | | | | | |
| December 31, | 2017 | | 2016 |
| Fair value of foreign currency contracts designated as cash flow hedges: | | | |
| Other current assets | $ | 16.9 |
| | $ | 11.2 |
|
| Other long-term assets | 1.3 |
| | 0.5 |
|
| Other current liabilities | (28.4 | ) | | (58.3 | ) |
| Other long-term liabilities | (8.0 | ) | | (9.9 | ) |
| | (18.2 | ) | | (56.5 | ) |
| | | | |
| Notional amount | $ | 1,538.5 |
| | $ | 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 | 1.8 |
| | 5.9 |
|
| Other current liabilities | (6.4 | ) | | (3.8 | ) |
| | (4.6 | ) | | 2.1 |
|
| | | | |
| Notional amount | $ | 681.1 |
| | $ | 681.2 |
|
| Outstanding maturities in months, not to exceed | 12 |
| | 12 |
|
| | | | |
| Total fair value | $ | (22.8 | ) | | $ | (54.4 | ) |
| Total notional amount | $ | 2,219.6 |
| | $ | 1,956.2 |
|
Foreign currency derivative contracts not designated as hedging instruments consist principally of hedges of cash transactions, intercompany loans and certain other balance sheet exposures.
Net Investment Hedges
The Company uses cross-currency interest rate swaps which are designated as net investment hedges of the foreign currency rate exposure of its investment in certain Euro-denominated subsidiaries. Contra interest expense on net investment hedges was $6.5 million, $6.5 million and $1.8 million for the years ended December 31, 2021, 2020 and 2019, respectively, and is included in interest expense in the accompanying consolidated statements of income.
Balance Sheet Classification
The notional amount, estimated aggregate fair value and related balance sheet classification of the Company's foreign currency and net investment hedge contracts are shown below (in millions, except for maturities):
| | | | | | | | | | | |
| December 31, | 2021 | | 2020 |
| Fair value of foreign currency contracts designated as cash flow hedges: | | | |
| Other current assets | $ | 19.4 | | | $ | 49.7 | |
| Other long-term assets | 0.1 | | | 13.0 | |
| Other current liabilities | (10.1) | | | (14.1) | |
| Other long-term liabilities | (2.8) | | | (0.8) | |
| 6.6 | | | 47.8 | |
| Notional amount | $ | 1,077.6 | | | $ | 1,353.3 | |
| Outstanding maturities in months, not to exceed | 23 | | 24 |
| Fair value of derivatives designated as net investment hedges: | | | |
| Other current liabilities | $ | (3.2) | | | $ | — | |
| Other long-term liabilities | (1.6) | | | (22.6) | |
| (4.8) | | | (22.6) | |
| Notional amount | $ | 300.0 | | | $ | 300.0 | |
| Outstanding maturities in months, not to exceed | 33 | | 45 |
| Fair value of foreign currency contracts not designated as hedge instruments: | | | |
| Other current assets | $ | 2.2 | | | $ | 5.8 | |
| Other current liabilities | (3.3) | | | (6.1) | |
| (1.1) | | | (0.3) | |
| Notional amount | $ | 445.5 | | | $ | 1,140.8 | |
| Outstanding maturities in months, not to exceed | 12 | | 12 |
| Total fair value | $ | 0.7 | | | $ | 24.9 | |
| Total notional amount | $ | 1,823.1 | | | $ | 2,794.1 | |
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Accumulated Other Comprehensive Loss -— Derivative Instruments and HedgingHedge Activities
Pretax amounts related to foreign currency, derivativeinterest rate swap 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): | | | For the year ended December 31, | 2017 | | 2016 | | 2015 | For the year ended December 31, | 2021 | | 2020 | | 2019 |
| Gains (losses) recognized in accumulated other comprehensive loss: | $ | 28.8 |
| | $ | (96.8 | ) | | $ | (47.3 | ) | Gains (losses) recognized in accumulated other comprehensive loss: | |
| Foreign currency contracts | | Foreign currency contracts | $ | 6.0 | | | $ | (5.7) | | | $ | 82.4 | |
| Interest rate swap contracts | | Interest rate swap contracts | — | | | — | | | (9.2) | |
| Net investment hedges | | Net investment hedges | 17.9 | | | (18.3) | | | (4.4) | |
| | | | | | | | 23.9 | | | (24.0) | | | 68.8 | |
| (Gains) losses reclassified from accumulated other comprehensive loss to: | | | | | | (Gains) losses reclassified from accumulated other comprehensive loss to: | |
| Net sales | 2.1 |
| | 4.8 |
| | (3.7 | ) | Net sales | (4.4) | | | (0.6) | | | 3.8 | |
| Cost of sales | 7.4 |
| | 81.9 |
| | 42.3 |
| Cost of sales | (42.7) | | | 7.6 | | | (52.6) | |
| Interest expense | | Interest expense | 2.4 | | | 2.4 | | | 1.1 | |
| Other expense, net | | Other expense, net | — | | | (0.1) | | | — | |
| | 9.5 |
| | 86.7 |
| | 38.6 |
| | (44.7) | | | 9.3 | | | (47.7) | |
| Comprehensive income (loss) | $ | 38.3 |
| | $ | (10.1 | ) | | $ | (8.7 | ) | Comprehensive income (loss) | $ | (20.8) | | | $ | (14.7) | | | $ | 21.1 | |
As of December 31, 20172021 and 2016,2020, pretax net lossesgains (losses) of $18.2($16.1) million and $56.5$4.7 million, respectively, related to the Company’sCompany's derivative instruments and hedginghedge activities were recorded in accumulated other comprehensive loss.
During the next twelve month period, the Company expectsnet gains (losses) expected to reclassifybe reclassified into earnings net losses of $11.5 million recorded in accumulated other comprehensive loss as of December 31, 2017. are shown below (in millions):
| | | | | |
| Foreign currency contracts | $ | 9.3 | |
| Interest rate swap contracts | (2.4) | |
| |
| Total | $ | 6.9 | |
Such gains and losses will be reclassified at the time that the underlying hedged transactions are realized.
For the years ended December 31, 2017, 20162021, 2020 and 2015, amounts recognized in the accompanying consolidated statements of 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. In addition,2019, the Company recognized tax benefitsbenefit (expense) of ($15.9)$7.5 million, $3.9($0.8) million and $3.5($5.5) million, respectively, in other comprehensive income (loss) related to its derivative instruments and hedging activities for the years ended December 31, 2017, 2016 and 2015, respectively.hedge activities.
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Fair Value Measurements
GAAP provides that fair value is an exit price, defined as a market-based measurement that represents the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. Fair value measurements are based on one or more of the following three valuation techniques:
|
| | | | | | | |
| Market: | | This approach uses prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities. |
| |
| Income: | | This approach uses valuation techniques to convert future amounts to a single present value amount based on current market expectations. |
| |
| Cost: | | This approach is based on the amount that would be required to replace the service capacity of an asset (replacement cost). |
Further, GAAP prioritizes the inputs and assumptions used in the valuation techniques described above into a three-tier fair value hierarchy as follows:
|
| | | | | | | |
| Level 1: | | Observable inputs, such as quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date. |
| |
| Level 2: | | Inputs, other than quoted market prices included in Level 1, that are observable either directly or indirectly for the asset or liability. |
| |
| Level 3: | | Unobservable inputs that reflect the entity’sentity'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. |
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The Company discloses fair value measurements and the related valuation techniques and fair value hierarchy level for its assets and liabilities that are measured or disclosed at fair value.
Items Measured at Fair Value on a Recurring Basis
Fair value measurements and the related valuation techniques and fair value hierarchy level for the Company’sCompany's assets and liabilities measured at fair value on a recurring basis as of December 31, 20172021 and 2016,2020, are shown below (in millions):
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| December 31, 2021 |
| Frequency | | Asset
(Liability) | | Valuation
Technique | | Level 1 | | Level 2 | | Level 3 |
| Foreign currency contracts, net | Recurring | | $ | 5.5 | | | Market / Income | | $ | — | | | $ | 5.5 | | | $ | — | |
| Net investment hedges | Recurring | | (4.8) | | | Market / Income | | — | | | (4.8) | | | — | |
| Marketable equity securities | Recurring | | 62.3 | | | Market | | 62.3 | | | — | | | — | |
|
| | | | | | | | | | | | | | | | | | | |
| | December 31, 2017 |
| | Frequency | | Asset (Liability) | | Valuation Technique | | Level 1 | | Level 2 | | Level 3 |
| Foreign currency derivative contracts, net | Recurring | | $ | (22.8 | ) | | Market / Income | | $ | — |
| | $ | (22.8 | ) | | $ | — |
|
| Marketable equity securities | Recurring | | 43.8 |
| | Market | | 43.8 |
| | — |
| | — |
|
| | | | | | | | | | | | | | | December 31, 2020 |
| | December 31, 2016 | | Frequency | | Asset
(Liability) | | Valuation
Technique | | Level 1 | | Level 2 | | Level 3 |
| | Frequency | | Asset
(Liability) | | Valuation Technique | | Level 1 | | Level 2 | | Level 3 | |
| Foreign currency derivative contracts, net | Recurring | | $ | (54.4 | ) | | Market / Income | | $ | — |
| | $ | (54.4 | ) | | $ | — |
| |
| Foreign currency contracts, net | | 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’sCompany'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
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
hierarchy. As of December 31, 20172021 and 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 during 20172021 and 2016.2020.
For further information on fair value measurements and the Company’sCompany's defined benefit pension plan assets, see Note 8,10, "Pension and Other Postretirement Benefit Plans."
Items Measured at Fair Value on a Non-Recurring Basis
The Company measures certain assets and liabilities at fair value on a non-recurring basis, which are not included in the table above. As these non-recurring fair value measurements are generally determined using unobservable inputs, these fair value measurements are classified within Level 3 of the fair value hierarchy.
In 2017,2020 and 2019, the Company completed quantitative goodwill impairment analyses for selected reporting units (Note 3, "Summary of Significant Accounting Policies — Impairment of Goodwill"). The Level 3 fair value estimate of the reporting units was based on a third-party valuation and/or management's estimates, using a combination of the discounted cash flow method and guideline public company method.
In 2019, as a result of the Xevo acquisition of Antolin Seating and the Lear STEC transaction,(Note 4, "Acquisitions"), Level 3 fair value estimates of $90.1 million related to property, plant and equipment of $95.4 million, intangible assets of $187.4 million and noncontrolling interests of $125.0 million are recorded in the accompanying consolidated balance sheet as of December 31, 2017. 2020. The estimated fair values of these assets were based on third-party valuations and management's estimates, generally utilizing the income and cost approaches.
In addition,2019, as a result of the Lear STEC transaction required adeconsolidation of GACC (Note 6, "Investments in Affiliates and Other Related Party Transactions"), the Company is accounting for its investment in GACC under the equity method. The Level 3 fair value estimate related to the Company's previously held equity interest was based on the present value of $94.0 million. These Level 3 fair value estimates were determined asfuture cash flows and reflects a discount for the lack of the applicable transaction date.
In 2016, as a result of the acquisition of AccuMEDcontrol and the Beijing BAI transaction, Level 3 fair value estimates related to property, plant and equipmentlack of $31.2 million, intangible assets of $87.0 million and noncontrolling interests of $41.0 million are recorded in the accompanying consolidated balance sheet as of December 31, 2016. In addition, the Beijing BAI transaction required a Level 3 fair value estimate related to the Company's previously heldmarketability associated with equity interest of $63.0 million. These Level 3 fair value estimates were determined as of the applicable transaction date.interests.
Fair value estimates of property, plant and equipment and right-of-use assets were based on independent appraisals, giving consideration to the highest and best use of the assets. Key assumptions used in the appraisals were based on a combination of market and cost approaches, as appropriate.
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
Fair value estimates of customer-based and licensing 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 developed technology intangible assets were based on management's estimates using a discounted cash flow method.
Fair value estimates of 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
As of redeemable noncontrolling interest includes an estimate of the fair value associated with the noncontrolling interest holder's embedded redemption option. The fair value of this redemption option was determined using the Monte Carlo valuation modelDecember 31, 2021 and includes various assumptions, including the expected volatility, risk free rate and dividend yield.
For further information on2020, there were no additional significant assets andor liabilities measured at fair value on a non-recurring basis, seebasis.
(17) Accounting Pronouncements
The Company considers the applicability and impact of all ASUs issued by the Financial Accounting Standards Board ("FASB").
Pronouncements adopted in 2021:
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." See Note 2,3, "Summary of Significant Accounting Policies" Note 3, "Acquisitions," Note 4, "Restructuring," and Note 5, "Investments in Affiliates and Other Related Party Transactions. — Income Taxes."
Pronouncements not yet adopted: (14) Quarterly Financial Data (unaudited)Reference Rate Reform
(In millions, except per share data)
|
| | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended |
| | April 1,
2017 | | July 1,
2017 | | September 30,
2017 | | December 31,
2017 |
| Net sales | $ | 4,998.5 |
| | $ | 5,123.2 |
| | $ | 4,981.5 |
| | $ | 5,363.8 |
|
| Gross profit | 582.5 |
| | 577.8 |
| | 555.9 |
| | 574.9 |
|
| Consolidated net income | 318.5 |
| | 327.0 |
| | 315.0 |
| | 420.4 |
|
| Net income attributable to Lear | 305.8 |
| | 311.9 |
| | 295.2 |
| | 400.5 |
|
| Basic net income per share attributable to Lear | 4.39 |
| | 4.53 |
| | 4.00 |
| | 5.89 |
|
| Diluted net income per share attributable to Lear | 4.35 |
| | 4.49 |
| | 3.96 |
| | 5.80 |
|
InThe FASB issued ASU 2020-04 and ASU 2021-01, "Reference Rate Reform (Topic 848)." The guidance provides temporary optional expedients and exceptions to the third quarter of 2017,current guidance on contract modifications and hedge accounting to ease the Company recognized a gain of $54.2 million related to obtaining control of an affiliate and a loss of $21.2 millionfinancial reporting burdens related to the extinguishmentexpected 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 debt. Inthis guidance is not expected to have a significant impact on the first, second and third quartersCompany's financial statements.
Government Assistance
The FASB issued ASU 2021-10, "Disclosures by Business Entities about Government Assistance." The guidance, effective January 1, 2022, requires disclosures about certain government assistance transactions. The adoption of 2017,this guidance is not expected to have a significant impact on the Company recognized net tax benefits of $19.1 million, $35.3 million and $14.0 million, respectively, related to a change in accounting for share-based compensation, the reversal of valuation allowances, the redemption of the 2023 notes, restructuring charges and various other items. In the fourth quarter of 2017, the Company recognized net tax benefits of $146.4 million, comprised of $289.7 million of foreign tax credits on repatriated earnings and $30.2 million of other discrete tax benefits, offset by a $131.0
Company's financial statements.
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
million one-time transition tax on accumulated foreign earnings and $42.5 million of tax expense to reflect the new U.S. corporate tax rate and other tax reform changes to the Company's deferred tax accounts.
For further information, see Note 5, "Investments in Affiliates and Other Related Party Transactions," Note 6, "Debt," and Note 7, "Income Taxes."
|
| | | | | | | | | | | | | | | |
| | Thirteen Weeks Ended |
| | April 2,
2016 | | July 2,
2016 | | October 1,
2016 | | December 31,
2016 |
| Net sales | $ | 4,662.9 |
| | $ | 4,724.8 |
| | $ | 4,526.4 |
| | $ | 4,643.5 |
|
| Gross profit | 535.7 |
| | 540.4 |
| | 513.9 |
| | 512.1 |
|
| Consolidated net income | 262.5 |
| | 294.5 |
| | 235.0 |
| | 248.5 |
|
| Net income attributable to Lear | 248.4 |
| | 282.4 |
| | 214.4 |
| | 229.9 |
|
| Basic net income per share attributable to Lear | 3.33 |
| | 3.85 |
| | 3.01 |
| | 3.28 |
|
| Diluted net income per share attributable to Lear | 3.29 |
| | 3.82 |
| | 2.98 |
| | 3.24 |
|
In the second quarter of 2016, the Company recognized a gain of $30.3 million related to obtaining control of an affiliate. In the fourth quarter of 2016, the Company recognized a $34.2 million non-cash settlement charge in connection with its lump-sum payout to certain terminated vested plan participants of its U.S. defined benefit pension plans. In the first, second, third and fourth quarters of 2016, the Company recognized $5.0 million, $7.1 million, $2.4 million and $9.1 million, respectively, of net tax benefits related to restructuring charges and various other items.
For further information see, Note 5, "Investments in Affiliates and Other Related Party Transactions," Note 7, "Income Taxes," and Note 8, "Pension and Other Postretirement Benefit Plans."
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
(15) Accounting Pronouncements
The Company has considered the recent ASUs issued by the FASB summarized below, which could significantly impact its financial statements: |
| | | | | | |
Standards Pending Adoption | | Description | | Effective Date | | Anticipated Impact |
ASU 2014-09, Revenue from Contracts with Customers | | 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 has drafted its accounting policy with respect to the standard based on a detailed review of its business and contracts. While the Company continues to assess all potential impacts of the standard, it does not currently expect that the adoption will have a material impact on its revenues, results of operations or financial position. As required by the standard, 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. The Company plans to adopt the standard effective January 1, 2018, using the modified retrospective method. The Company continues to evaluate the effect of the standard on its ongoing financial reporting. |
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." |
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. The standard requires that service cost be presented in the same line item as other current employee compensation costs and that the remaining components of net benefit cost be presented in a separate line item outside of 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 (income) expense, net. There will be no impact on consolidated net income. |
In addition to the adoption of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting," discussed in Note 7, "Income Taxes," the Company adopted the ASUs summarized below in 2017. The effects of the adoption of the ASUs listed below did not significantly impact the Company's financial statements:
|
| | | | |
Standards Adopted | | 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 |
Lear Corporation and Subsidiaries
Notes to Consolidated Financial Statements (continued)
The Company has considered the recently issued 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. The Company has elected to early adopt the standard effective January 1, 2018. | | 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 |
LEAR CORPORATION AND SUBSIDIARIES
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS
(In millions)
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance
as of Beginning
of Period | | Additions | | Retirements | | Other
Changes | | Balance
as of End
of Period |
| For the year ended December 31, 2021 | | | | | | | | | |
| Valuation of accounts deducted from related assets: | | | | | | | | | |
| Allowance for doubtful accounts | $ | 35.3 | | | $ | 8.2 | | | $ | (8.3) | | | $ | 0.3 | | | $ | 35.5 | |
| Allowance for deferred tax assets | 397.7 | | | 44.7 | | | (17.7) | | | (17.8) | | | 406.9 | |
| Total | $ | 433.0 | | | $ | 52.9 | | | $ | (26.0) | | | $ | (17.5) | | | $ | 442.4 | |
| | | | | | | | | | | | | | Balance
as of Beginning
of Period | | Additions | | Retirements | | Other
Changes | | Balance
as of End
of Period |
| | Balance as of Beginning of Period | | Additions | | Retirements | | Other Changes | | Balance as of End of Period | |
| For the year ended December 31, 2017 | | | | | | | | | | |
| For the year ended December 31, 2020 | | For the year ended December 31, 2020 | |
| Valuation of accounts deducted from related assets: | | | | | | | | | | Valuation of accounts deducted from related assets: | |
| Allowance for doubtful accounts | $ | 32.8 |
| | $ | 16.4 |
| | $ | (3.7 | ) | | $ | (3.7 | ) | | $ | 41.8 |
| Allowance for doubtful accounts | $ | 36.0 | | | $ | 7.0 | | | $ | (9.8) | | | $ | 2.1 | | | $ | 35.3 | |
| Allowance for deferred tax assets | 445.6 |
| | 25.0 |
| | (91.9 | ) | | 23.5 |
| | 402.2 |
| Allowance for deferred tax assets | 344.8 | | | 81.4 | | | (43.5) | | | 15.0 | | | 397.7 | |
| Total | $ | 478.4 |
| | $ | 41.4 |
| | $ | (95.6 | ) | | $ | 19.8 |
| | $ | 444.0 |
| Total | $ | 380.8 | | | $ | 88.4 | | | $ | (53.3) | | | $ | 17.1 | | | $ | 433.0 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance
as of Beginning
of Period | | Additions | | Retirements | | Other
Changes | | Balance
as of End
of Period |
| For the year ended December 31, 2019 | | | | | | | | | |
| Valuation of accounts deducted from related assets: | | | | | | | | | |
| Allowance for doubtful accounts | $ | 33.2 | | | $ | 14.3 | | | $ | (10.9) | | | $ | (0.6) | | | $ | 36.0 | |
| Allowance for deferred tax assets | 350.4 | | | 31.3 | | | (30.7) | | | (6.2) | | | 344.8 | |
| Total | $ | 383.6 | | | $ | 45.6 | | | $ | (41.6) | | | $ | (6.8) | | | $ | 380.8 | |
|
| | | | | | | | | | | | | | | | | | | |
| | Balance as of Beginning of Period | | Additions | | Retirements | | Other Changes | | Balance as of End of Period |
| For the year ended December 31, 2016 | | | | | | | | | |
| Valuation of accounts deducted from related assets: | | | | | | | | | |
| Allowance for doubtful accounts | $ | 34.4 |
| | $ | 12.0 |
| | $ | (12.7 | ) | | $ | (0.9 | ) | | $ | 32.8 |
|
| Allowance for deferred tax assets | 495.7 |
| | 8.6 |
| | (53.6 | ) | | (5.1 | ) | | 445.6 |
|
| Total | $ | 530.1 |
| | $ | 20.6 |
| | $ | (66.3 | ) | | $ | (6.0 | ) | | $ | 478.4 |
|
|
| | | | | | | | | | | | | | | | | | | |
| | Balance as of Beginning of Period | | Additions | | Retirements | | Other Changes | | Balance as of End of Period |
| For the year ended December 31, 2015 | | | | | | | | | |
| Valuation of accounts deducted from related assets: | | | | | | | | | |
| Allowance for doubtful accounts | $ | 27.5 |
| | $ | 14.1 |
| | $ | (4.5 | ) | | $ | (2.7 | ) | | $ | 34.4 |
|
| Allowance for deferred tax assets | 508.5 |
| | 51.9 |
| | (25.9 | ) | | (38.8 | ) | | 495.7 |
|
| Total | $ | 536.0 |
| | $ | 66.0 |
| | $ | (30.4 | ) | | $ | (41.5 | ) | | $ | 530.1 |
|
ITEM 9 – CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A – 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’sCompany's management, including the Company’sCompany's President and Chief Executive Officer along with the Company’sCompany's Senior Vice President and Chief Financial Officer, the effectiveness of the Company’sCompany'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’sCompany'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’sCompany's President and Chief Executive Officer along with the Company’sCompany's Senior Vice President and Chief Financial Officer have concluded that the Company’sCompany'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) | Management’s Annual Report on Internal Control over Financial Reporting |
(b)Management's Annual Report on Internal Control over Financial Reporting
The Company’sCompany's management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of the Company’sCompany's management, including the Company’sCompany's President and Chief Executive Officer along with the Company’sCompany's Senior Vice President and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of internal control over financial reporting based on the Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). 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 Securities and Exchange Commission ("SEC") rules and regulations, the Company has excluded Antolin Seating from management's evaluation of internal control over financial reporting as of December 31, 2017. Antolin Seating constituted approximately 4% of the Company's total assets as of December 31, 2017, and approximately 2% of the Company's net sales for the year then ended. Based on this evaluation, management concluded that the Company’sCompany's internal control over financial reporting was effective as of December 31, 2017.2021.
| |
(c) | Attestation Report of the Registered Public Accounting Firm |
(c)Attestation Report of the Registered Public Accounting Firm
The attestation report of the Company’sCompany's independent registered public accounting firm regarding internal control over financial reporting is set forth in Item 8, "Consolidated Financial Statements and Supplementary Data," under the caption "Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting" and incorporated herein by reference.
| |
(d) | Changes in Internal Control over Financial Reporting |
(d)Changes in Internal Control over Financial Reporting
There was no change in the Company’sCompany's internal control over financial reporting that occurred during the fiscal quarter ended December 31, 2017,2021, that has materially affected, or is reasonably likely to materially affect, the Company’sCompany's internal control over financial reporting. In April 2017, the Company completed the acquisition of 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 control over financial reporting as of December 31, 2017.
ITEM 9B – OTHER INFORMATION
None.
ITEM 9C – DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS
Not applicable.
PART III
ITEM 10 – DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 regarding our directors and corporate governance matters is incorporated by reference herein to the Proxy Statement sections entitled "Election of Directors" and "Directors and Corporate Governance." The information required by Item 10 regarding our executive officers appears as a supplementary item following Item 4 under Part I of this Report. The information required by Item 10 regarding compliance with section 16(a) of the Securities Exchange Act of 1934, as amended, is incorporated by reference herein to the Proxy Statement section entitled "Directors and Corporate Governance — Section 16(a) Beneficial Ownership Reporting Compliance."
Code of Ethics
We have adopted a code of ethics that applies to our executive officers, including our Principal Executive Officer, our Principal Financial Officer and our Principal Accounting Officer. This code of ethics is entitled "Specific Provisions for Executive Officers" within our Code of Business Conduct and Ethics, which can be found on our website at http://www.lear.com. We will post any amendment to or waiver from the provisions of the Code of Business Conduct and Ethics that applies to the executive officers above on the same website and will provide it to stockholders free of charge upon written request by contacting Lear Corporation at 21557 Telegraph Road, Southfield, Michigan 48033, Attention: Investor Relations.
ITEM 11 – EXECUTIVE COMPENSATION
The information required by Item 11 is incorporated by reference herein to the Proxy Statement sections entitled "Directors and Corporate Governance — Director Compensation," "Compensation Discussion and Analysis," "Executive Compensation," "Compensation Committee Interlocks and Insider Participation" and "Compensation Committee Report." Notwithstanding anything indicating the contrary set forth in this Report, the "Compensation Committee Report" section of the Proxy Statement shall be deemed to be "furnished" not "filed" for purposes of the Securities Exchange Act of 1934, as amended.
ITEM 12 – SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Except as set forth herein, the information required by Item 12 is incorporated by reference herein to the Proxy Statement section entitled "Directors and Corporate Governance — Security Ownership of Certain Beneficial Owners, Directors and Management."
Equity Compensation Plan Information
| | | | | | | | | | | | | | | | | |
| As of December 31, 2021 | Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a) | | Weighted average
exercise price of
outstanding options,
warrants and rights
(b) | | Number of securities
available for future
issuance under equity
compensation plans
(excluding securities
reflected in column (a))
(c) |
| Equity compensation plans approved by security holders | 1,551,137 | | (1) | $ | 19.36 | | (2) | 1,367,384 | |
| Equity compensation plans not approved by security holders | — | | | — | | | — | |
| Total | 1,551,137 | | | $ | 19.36 | | | 1,367,384 | |
|
| | | | | | | | | |
| As of December 31, 2017 | Number of securities to be issued upon exercise of outstanding options, warrants and rights (a) | | Weighted average exercise price of outstanding options, warrants and rights (b) | | Number of securities available for future issuance under equity compensation plans (excluding securities reflected in column (a)) (c) |
| Equity compensation plans approved by security holders | 1,771,783 |
| (1) | $ | — |
| (2) | 2,781,604 |
|
| Equity compensation plans not approved by security holders | — |
| | — |
| | — |
|
| Total | 1,771,783 |
| | $ | — |
| | 2,781,604 |
|
| |
(1) | Includes 572,213 of outstanding restricted stock units and 1,199,570 of outstanding performance shares. Outstanding performance shares are reflected at the maximum possible payout that may be earned during the relevant performance periods. |
| |
(2) | Reflects outstanding restricted stock units and performance shares at a weighted average price of zero. |
(2) Reflects outstanding restricted stock units and performance shares at a weighted average price of zero. Reflects outstanding stock options at a weighted average exercise price of $148.16.
ITEM 13 – CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by Item Item��13 is incorporated by reference herein to the Proxy Statement sections entitled "Certain Relationships and Related Party Transactions" and "Directors and Corporate Governance — Independence of Directors."
ITEM 14 – PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by Item 14 is incorporated by reference herein to the Proxy Statement section entitled "Fees of Independent Accountants."
PART IV
ITEM 15 – EXHIBITS AND FINANCIAL STATEMENT SCHEDULE
The following documents are filed as part of this Form 10-K.
| |
(a) | 1. Consolidated Financial Statements: |
(a) 1. Consolidated Financial Statements:
Reports of Ernst & Young LLP, Independent Registered Public Accounting Firm (PCAOB ID: 42)
Consolidated Balance Sheets as of December 31, 20172021 and 20162020
Consolidated Statements of Income for the years ended December 31, 2017, 20162021, 2020 and 20152019
Consolidated Statements of Comprehensive Income for the years ended December 31, 2017, 20162021, 2020 and 20152019
Consolidated Statements of Equity for the years ended December 31, 2017, 20162021, 2020 and 20152019
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 20162021, 2020 and 20152019
Notes to Consolidated Financial Statements
2. Financial Statement Schedule:
Schedule II — Valuation and Qualifying Accounts
All other financial statement schedules are omitted because such schedules are not required or the information required has been presented in the aforementioned financial statements.
| |
3. | The exhibits listed on the "Index to Exhibits" on pages 106 through 108 are filed with this Form 10-K or incorporated by reference as set forth below. |
| |
(b) | The exhibits listed on the "Index to Exhibits" on pages 106 through 108 are filed with this Form 10-K or incorporated by reference as set forth below. |
| |
(c) | Additional Financial Statement Schedules |
3. The exhibits listed on the "Index to Exhibits" are filed with this Form 10-K or incorporated by reference as set forth below.
(b)The exhibits listed on the "Index to Exhibits" are filed with this Form 10-K or incorporated by reference as set forth below.
(c)Additional Financial Statement Schedules
None.
ITEM 16 – FORM 10-K Summary
None.
Index to Exhibits
|
| | | | | | | | | | | | | |
Exhibit
Number
|
| | | ExhibitIndex to Exhibits |
| Exhibit
Number | | | Exhibit Name |
3.1 |
3.1 | | | |
| 3.2 | |
3.2 |
| | | |
| 4.1 | |
4.1 |
| | | |
| | |
4.2 |
| | | |
| | | |
4.3 |
| | | |
| | | |
4.4 |
| | | |
| | |
4.5 |
| | | |
| | | |
4.6 |
| | | |
| 4.2 | | |
4.7 |
| | | |
| 4.3 | | |
10.1 |
| | | Amended and Restated Credit Agreement,Second Supplemental Indenture, dated as of November 14, 2014,May 1, 2019, among the Company the lenders party thereto and JPMorgan ChaseU.S. Bank N.A.,National Association, as Administrative AgentTrustee (incorporated by reference to Exhibit 10.14.1 to the Company’s Current Report on Form 8-K dated November 14, 2014)filed on May 1, 2019). |
| 4.4 | | | |
10.2 |
4.5 | * | | |
| 4.6 | | | |
| 4.7 | | | |
| 4.8 | | | |
| 10.1 | * | | |
| 10.2 | |
10.3* |
| * | | |
| 10.3 | |
10.4* |
| * | | |
| 10.4 | |
10.5* |
| * | | |
| 10.5 | |
10.6* |
| * | | |
| 10.6 | * | |
10.7 |
| * | | |
| | |
|
| 10.7 | * | | | |
10.8 |
| * | | |
| 10.8 | * | | |
**10.9 |
10.9 | * | | |
| | | | | | | | | | | | | | |
| Index to Exhibits |
| Exhibit
Number | | | Exhibit Name |
| 10.10 | * | | |
| 10.11 | |
**10.10 |
| * | | |
| | | |
10.11 |
| * | | |
| 10.12 | |
10.12* |
| * | | |
| | | |
**10.13 |
| * | | |
| ** | 10.13 | ��* | | |
10.14 |
10.14 | * | | |
| 10.15 | |
**10.15 |
| * | | |
| 10.16 | * | | |
**10.16 |
10.17 | * | | |
| 10.18 | * | | |
| 10.19 | * | | |
| 10.20 | * | | |
| ** | 10.21 | * | | |
| 10.22 | * | | |
| 10.23 | |
10.17* |
| * | | |
| 10.24 | |
10.18* |
| * | | |
| 10.25 | |
10.19* |
| * | | |
| 10.26 | |
10.20* |
| * | | |
| 10.27 | * | | |
| 10.28 | |
10.21* |
| * | | |
| | | | | | | | | | | | | | |
| Index to Exhibits |
| Exhibit
Number | | | Exhibit Name |
| 10.29 | * | | |
| 10.30 | |
10.22* |
| | | |
| 10.31 | * | | |
10.23
|
10.32 | * | | |
| 10.33 | * | | |
| 10.34 | |
10.24
* |
| * | | |
| 10.35 | |
10.25 |
| | | First Amendment, dated August 20, 2015, to the Amended and Restated Credit Agreement, dated as of November 14, 2014, among the Company, the lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent (incorporated by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form 10-Q for the quarter ended September 26, 2015). |
| | | |
|
| | | | |
10.26 |
| | | Credit Agreement, dated as of August 8, 2017,October 28, 2021, among the Company, 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, Bank of America, N.A., Citibank N.A. and Merrill Lynch, Pierce, Fenner & Smith Incorporated,HSBC Bank USA, National Association, as co-documentationsyndication agents, and JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K dated August 8, 2017)filed on October 28, 2021). |
| 10.36 | * | |
10.27 |
| * | | |
| 10.37 | * | | |
10.28 |
10.38 | * | | |
| 10.39 | * | |
10.29 |
| * | | |
| 10.40 | * | |
10.30 |
| * | | |
| 10.41 | * | |
10.31 |
| * | | |
| 10.42 | * | |
**12.1 |
| | | |
| ** | 21.1 | | |
**21.1 |
| | | |
| ** | 23.1 | | |
**23.1 |
| | | |
| ** | 31.1 | |
**31.1 |
| | | |
| ** | 31.2 | |
**31.2 |
| | | |
| ** | 32.1 | | |
**32.1 |
| | | |
| ** | 32.2 | |
**32.2 |
| | | |
| | | | | | | | | | | | | | |
| | Index to Exhibits |
99.1 |
Exhibit
Number | | | Exhibit Name |
| 99.1 | | | |
| | |
***101.INS |
101.INS | | | XBRL Instance Document. |
| | |
***101.SCH* |
101.SCH | | | XBRL Taxonomy Extension Schema Document. |
| | |
***101.CAL* |
101.CAL | | | XBRL Taxonomy Extension Calculation Linkbase Document. |
| | |
***101.LAB* |
101.LAB | | | XBRL Taxonomy Extension Label Linkbase Document. |
| | |
***101.PRE* |
101.PRE | | | XBRL Taxonomy Extension Presentation Linkbase Document. |
| | |
***101.DEF* |
101.DEF | | | XBRL Taxonomy Extension Definition Linkbase Document. |
| *** | 104 | | | Cover Page Interactive Data File |
______________________
* Compensatory plan or arrangement.
** 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.
Signatures
Pursuant to the requirements of Section 13 or 15(d) 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 on February 6, 2018.
|
| | | | | | | |
| Lear Corporation |
| |
| By: | | /s/ Matthew J. SimonciniRaymond E. Scott |
| | Matthew J. SimonciniRaymond E. Scott |
| | President and Chief Executive Officer and a Director (Principal Executive Officer) |
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this Report has been signed below by the following persons on behalf of Lear Corporation and in the capacities indicated on February 6, 2018.
|
| | | | | | | |
/s/ Matthew J. SimonciniRaymond E. Scott | | /s/ Mary Lou Jepsen |
Matthew J. SimonciniRaymond E. Scott | | Mary Lou Jepsen |
| President and Chief Executive Officer and a Director | | a Director |
| (Principal Executive Officer) | | |
| | /s/ Roger A. Krone |
/s/ Jeffrey H. VannesteJason M. Cardew | | /s/ KathleenRoger A. LigockiKrone |
Jeffrey H. VannesteJason M. Cardew | | Kathleen A. Ligockia Director |
| Senior Vice President and Chief Financial Officer | | a Director |
| (Principal Financial Officer) | | /s/ Patricia L. Lewis |
| | Patricia L. Lewis |
| /s/ Amy A. Doyle | | a Director |
| Amy A. Doyle | | |
| Vice President and Chief Accounting Officer | | /s/ Kathleen A. Ligocki |
| (Principal Accounting Officer) | | Kathleen A. Ligocki |
| | a Director |
| /s/ Mei-Wei Cheng | | |
| Mei-Wei Cheng | | /s/ Conrad L. Mallett, Jr. |
Amy A. Doylea Director | | Conrad L. Mallett, Jr. |
Vice President, Chief Accounting Officer | | a Director |
(Principal Accounting Officer)/s/ Jonathan F. Foster | | |
| Jonathan F. Foster | |
/s/ Richard H. Bott | | /s/ Donald L. Runkle |
Richard H. Bott | | Donald L. Runkle |
a Director | | a Director |
| |
/s/ Thomas P. Capo | | /s/ Gregory C. Smith |
Thomas P. Capoa Director | | Gregory C. Smith |
a Director | | a Director |
| |
/s/ Jonathan F. Foster | | /s/ Henry D.G. Wallace |
Jonathan F. Foster | | Henry D.G. Wallace |
a Director | | Non-Executive Chairman of the Board of Directors and |
| /s/ Bradley M. Halverson | | a Director |
| Bradley M. Halverson | | |
| a Director | | |
| | |
| | |
