UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

_______________________________________

FORM 10-Q

(Mark One)



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

For the quarterly period ended ~~September 30, 2017.~~April 4, 2020.



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

For the transition period from to .

Commission file number: 001-11311

(Exact name of registrant as specified in its charter)

_______________________________________



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

~~21557 Telegraph Road, Southfield, MI~~		~~48033~~
~~(Address of principal executive offices)~~		~~(Zip code)~~

~~(248)~~ 21557 Telegraph Road, Southfield, MI48033

(Address of principal executive offices)

(248) 447-1500

(Registrant’s telephone number, including area code)

~~________________________________________________________________~~_______________________________________



Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common stock, par value $0.01	LEA	New York Stock Exchange

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

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

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



Large accelerated filer	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 is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨☐ No x

As of ~~October 23, 2017,~~May 5, 2020, the number of shares outstanding of the registrant’s common stock was ~~67,560,732~~59,919,614 shares.

Table of Contents

LEAR CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED ~~SEPTEMBER 30, 2017~~APRIL 4, 2020

INDEX



	Page No.
Part I – Financial Information
Item 1 – Condensed Consolidated Financial Statements
Introduction to the Condensed Consolidated Financial Statements	3
Condensed Consolidated Balance Sheets - ~~September 30, 2017~~April 4, 2020 (Unaudited) and December 31, ~~2016~~2019	4
Condensed Consolidated Statements of Comprehensive Income (Loss) (Unaudited) - Three ~~and Nine~~ Months Ended ~~September~~April 4, 2020 and March 30, ~~2017 and October 1, 2016~~2019	5
Condensed Consolidated Statements of Equity (Unaudited) - Three Months Ended April 4, 2020 and March 30, 2019	6
Condensed Consolidated Statements of Cash Flows (Unaudited) - ~~Nine~~Three Months Ended ~~September~~April 4, 2020 and March 30, ~~2017 and October 1, 2016~~2019	610
Notes to the Condensed Consolidated Financial Statements	711
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations	3134
Item 3 – Quantitative and Qualitative Disclosures about Market Risk (included in Item 2)
Item 4 – Controls and Procedures	4648
Part II – Other Information
Item 1 – Legal Proceedings	4648
Item 1A – Risk Factors	4648
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds	47
~~Item 6 – Exhibits~~	47
~~Signatures~~	49
Item 6 – Exhibits	50
Signatures	51

Table of Contents

LEAR CORPORATION AND SUBSIDIARIES

PART I — FINANCIAL INFORMATION

ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

INTRODUCTION TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

We have prepared the unaudited condensed consolidated financial statements of Lear Corporation and subsidiaries pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP") have been condensed or omitted pursuant to such rules and regulations. We believe that the disclosures are adequate to make the information presented not misleading when read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, for the year ended December 31, ~~2016.~~2019.

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

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LEAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In millions, except share data)


	September 30, 2017 ⁽¹⁾			December 31, 2016			April 4, 2020⁽¹⁾			December 31, 2019
ASSETS
CURRENT ASSETS:
Cash and cash equivalents	$	1,253.7		$	1,271.6		$	2,449.1		$	1,487.7
Accounts receivable	3,357.9			2,746.5			2,472.1			2,982.6
Inventories	1,232.9			1,020.6			1,324.3			1,258.2
Other	718.5			610.6			663.0			678.2
Total current assets	6,563.0			5,649.3			6,908.5			6,406.7
LONG-TERM ASSETS:
Property, plant and equipment, net	2,378.1			2,019.3			2,608.4			2,704.2
Goodwill	1,387.1			1,121.3			1,592.2			1,614.3
Other	1,383.8			1,110.7			1,913.2			1,955.5
Total long-term assets	5,149.0			4,251.3			6,113.8			6,274.0
Total assets	$	11,712.0		$	9,900.6		$	13,022.3		$	12,680.7

LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Short-term borrowings	$	1.8		$	8.6		$	9.6		$	19.2
Revolving credit facility borrowings							1,000.0			—
Accounts payable and drafts	3,176.0			2,640.5			2,496.5			2,821.7
Accrued liabilities	1,706.2			1,497.6			1,826.7			1,811.2
Current portion of long-term debt	9.0			35.6			15.7			14.1
Total current liabilities	4,893.0			4,182.3			5,348.5			4,666.2
LONG-TERM LIABILITIES:
Long-term debt	1,953.0			1,898.0			2,306.8			2,293.7
Other	691.0			627.4			1,070.2			1,101.3
Total long-term liabilities	2,644.0			2,525.4			3,377.0			3,395.0

Redeemable noncontrolling interest	147.7			—			113.5			118.4

EQUITY:
Preferred stock, 100,000,000 shares authorized (including 10,896,250 Series A convertible preferred stock authorized); no shares outstanding	—			—			—			—
Common stock, $0.01 par value, 300,000,000 shares authorized; 72,563,291 and 80,563,291 shares issued as of September 30, 2017 and December 31, 2016, respectively	0.7			0.8
Common stock, $0.01 par value, 300,000,000 shares authorized; 64,563,291 shares issued as of April 4, 2020 and December 31, 2019							0.6			0.6
Additional paid-in capital	1,199.3			1,385.3			946.0			969.1
Common stock held in treasury, 5,003,036 and 11,131,648 shares as of September 30, 2017 and December 31, 2016, respectively, at cost	(602.4		)	(1,200.2		)
Common stock held in treasury, 4,645,124 and 4,127,806 shares as of April 4, 2020 and December 31, 2019, respectively, at cost							(615.6		)	(563.1		)
Retained earnings	3,810.3			3,706.9			4,741.8			4,715.8
Accumulated other comprehensive loss	(536.8		)	(835.6		)	(1,049.3		)	(772.7		)
Lear Corporation stockholders’ equity	3,871.1			3,057.2			4,023.5			4,349.7
Noncontrolling interests	156.2			135.7			159.8			151.4
Equity	4,027.3			3,192.9			4,183.3			4,501.1
Total liabilities and equity	$	11,712.0		$	9,900.6		$	13,022.3		$	12,680.7


⁽¹⁾	Unaudited.

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

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LEAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

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


	Three Months Ended						Nine Months Ended						Three Months Ended
	September 30, 2017			October 1, 2016			September 30, 2017			October 1, 2016			April 4, 2020			March 30, 2019
Net sales	$	4,981.5		$	4,526.4		$	15,103.2		$	13,914.1		$	4,457.7		$	5,160.1

Cost of sales	4,425.6			4,012.5			13,387.0			12,324.1			4,123.5			4,686.9
Selling, general and administrative expenses	158.2			153.6			471.1			456.9			143.7			148.3
Amortization of intangible assets	12.5			15.2			34.1			41.7			17.1			12.7
Interest expense	21.7			20.6			63.9			62.0			24.4			20.9
Other (income) expense, net	(21.8		)	14.2			(12.3		)	(0.8		)
Other expense, net													40.5			4.4
Consolidated income before provision for income taxes and equity in net income of affiliates	385.3			310.3			1,159.4			1,030.2			108.5			286.9
Provision for income taxes	77.8			88.2			240.2			287.4			26.5			43.1
Equity in net income of affiliates	(7.5		)	(12.9		)	(41.3		)	(49.2		)	(1.6		)	(2.3		)
Consolidated net income	315.0			235.0			960.5			792.0			83.6			246.1
Less: Net income attributable to noncontrolling interests	19.8			20.6			47.6			46.8			7.2			17.2
Net income attributable to Lear	$	295.2		$	214.4		$	912.9		$	745.2		$	76.4		$	228.9

Basic net income per share available to Lear common stockholders	$	4.00		$	3.01		$	12.92		$	10.19
Basic net income per share available to Lear common stockholders (Note 14)													$	1.26		$	3.75

Diluted net income per share available to Lear common stockholders	$	3.96		$	2.98		$	12.80		$	10.10
Diluted net income per share available to Lear common stockholders (Note 14)													$	1.26		$	3.73

Cash dividends declared per share	$	0.50		$	0.30		$	1.50		$	0.90		$	0.77		$	0.75

Average common shares outstanding	68,061,718			71,259,766			68,874,682			73,102,327			60,509,450			62,818,792

Average diluted shares outstanding	68,834,279			72,052,270			69,536,808			73,809,220			60,678,590			63,123,197


Consolidated comprehensive income (Note 13)	$	392.3		$	245.3		$	1,265.4		$	816.0
Consolidated comprehensive income (loss) (Condensed Consolidated Statements of Equity)													$	(197.8	)	$	248.2
Less: Comprehensive income attributable to noncontrolling interests	22.6			20.6			53.7			44.2			2.4			25.0
Comprehensive income attributable to Lear	$	369.7		$	224.7		$	1,211.7		$	771.8
Comprehensive income (loss) attributable to Lear													$	(200.2	)	$	223.2

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

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LEAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF ~~CASH FLOWS~~EQUITY

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



	Three Months Ended April 4, 2020
	Common Stock		Additional Paid-In Capital			Common Stock Held in Treasury			Retained Earnings			Accumulated Other Comprehensive Loss, Net of Tax			Lear Corporation Stockholders' Equity
Balance at January 1, 2020	$	0.6	$	969.1		$	(563.1	)	$	4,715.8		$	(772.7	)	$	4,349.7
Comprehensive income (loss):
Net income	—		—			—			76.4			—			76.4
Other comprehensive loss	—		—			—			—			(276.6		)	(276.6		)
Total comprehensive income (loss)	—		—			—			76.4			(276.6		)	(200.2		)
Adoption of ASU 2016-13 (Note 18)	—		—			—			(0.8		)	—			(0.8		)
Stock-based compensation	—		3.9			—			—			—			3.9
Net issuance of 123,831 shares held in treasury in settlement of stock-based compensation	—		(27.0		)	17.5			(1.7		)	—			(11.2		)
Repurchase of 641,149 shares of common stock at average price of $109.22 per share	—		—			(70.0		)	—			—			(70.0		)
Dividends declared to Lear Corporation stockholders	—		—			—			(46.8		)	—			(46.8		)
Dividends declared to non-controlling interest holders	—		—			—			—			—			—
Redeemable non-controlling interest adjustment	—		—			—			(1.1		)	—			(1.1		)
Balance at April 4, 2020	$	0.6	$	946.0		$	(615.6	)	$	4,741.8		$	(1,049.3	)	$	4,023.5

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

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

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

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

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LEAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (continued)

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



	Three Months Ended April 4, 2020
	Lear Corporation Stockholders' Equity			Non-controlling Interests			Equity			Redeemable Non-controlling Interests
Balance at January 1, 2020	$	4,349.7		$	151.4		$	4,501.1		$	118.4
Comprehensive income (loss):
Net income	76.4			11.1			87.5			(3.9		)
Other comprehensive loss	(276.6		)	(2.7		)	(279.3		)	(2.1		)
Total comprehensive income (loss)	(200.2		)	8.4			(191.8		)	(6.0		)
Adoption of ASU 2016-13 (Note 18)	(0.8		)	—			(0.8		)	—
Stock-based compensation	3.9			—			3.9			—
Net issuance of 123,831 shares held in treasury in settlement of stock-based compensation	(11.2		)	—			(11.2		)	—
Repurchase of 641,149 shares of common stock at average price of $109.22 per share	(70.0		)	—			(70.0		)	—
Dividends declared to Lear Corporation stockholders	(46.8		)	—			(46.8		)	—
Dividends declared to non-controlling interest holders	—			—			—			—
Redeemable non-controlling interest adjustment	(1.1		)	—			(1.1		)	1.1
Balance at April 4, 2020	$	4,023.5		$	159.8		$	4,183.3		$	113.5

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

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LEAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (continued)

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



	Three Months Ended March 30, 2019
	Common Stock		Additional Paid-In Capital			Common Stock Held in Treasury			Retained Earnings			Accumulated Other Comprehensive Loss, Net of Tax			Lear Corporation Stockholders' Equity
Balance at January 1, 2019	$	0.6	$	1,017.4		$	(225.1	)	$	4,113.6		$	(705.8	)	$	4,200.7
Comprehensive income (loss):
Net income	—		—			—			228.9			—			228.9
Other comprehensive income (loss)	—		—			—			—			(5.7		)	(5.7		)
Total comprehensive income (loss)	—		—			—			228.9			(5.7		)	223.2
Stock-based compensation	—		9.5			—			—			—			9.5
Net issuance of 280,020 shares held in treasury in settlement of stock-based compensation	—		(65.4		)	37.4			(1.2		)	—			(29.2		)
Repurchase of 804,270 shares of common stock at average price of $146.56 per share	—		—			(117.9		)	—			—			(117.9		)
Dividends declared to Lear Corporation stockholders	—		—			—			(47.7		)	—			(47.7		)
Dividends declared to non-controlling interest holders	—		—			—			—			—			—
Redeemable non-controlling interest adjustment	—		—			—			6.7			—			6.7
Balance at March 30, 2019	$	0.6	$	961.5		$	(305.6	)	$	4,300.3		$	(711.5	)	$	4,245.3

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

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LEAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (continued)

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



	Three Months Ended March 30, 2019
	Lear Corporation Stockholders' Equity			Non-controlling Interests			Equity			Redeemable Non-controlling Interests
Balance at January 1, 2019	$	4,200.7		$	159.9		$	4,360.6		$	158.1
Comprehensive income (loss):
Net income	228.9			16.0			244.9			1.2
Other comprehensive income (loss)	(5.7		)	3.8			(1.9		)	4.0
Total comprehensive income (loss)	223.2			19.8			243.0			5.2
Stock-based compensation	9.5			—			9.5			—
Net issuance of 280,020 shares held in treasury in settlement of stock-based compensation	(29.2		)	—			(29.2		)	—
Repurchase of 804,270 shares of common stock at average price of $146.56 per share	(117.9		)	—			(117.9		)	—
Dividends declared to Lear Corporation stockholders	(47.7		)	—			(47.7		)	—
Dividends declared to non-controlling interest holders	—			(31.3		)	(31.3		)	—
Redeemable non-controlling interest adjustment	6.7			—			6.7			(6.7		)
Balance at March 30, 2019	$	4,245.3		$	148.4		$	4,393.7		$	156.6

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

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LEAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited; in millions)



	Three Months Ended
	April 4, 2020			March 30, 2019
Cash Flows from Operating Activities:
Consolidated net income	$	83.6		$	246.1
Adjustments to reconcile consolidated net income to net cash provided by operating activities:
Depreciation and amortization	130.5			123.6
Loss on extinguishment of debt	21.1			—
Net change in recoverable customer engineering, development and tooling	(45.5		)	(15.3		)
Net change in working capital items (see below)	(23.2		)	(287.5		)
Other, net	55.8			(15.3		)
Net cash provided by operating activities	222.3			51.6
Cash Flows from Investing Activities:
Additions to property, plant and equipment	(109.1		)	(122.8		)
Other, net	19.0			6.2
Net cash used in investing activities	(90.1		)	(116.6		)
Cash Flows from Financing Activities:
Revolving credit facility borrowings	1,000.0			—
Term loan repayments	(3.1		)	(1.6		)
Short-term borrowings, net	(9.5		)	4.8
Proceeds from the issuance of senior notes	669.1			—
Redemption of senior notes	(667.1		)	—
Payment of debt issuance and other financing costs	(6.9		)	—
Repurchase of common stock	(70.0		)	(122.2		)
Dividends paid to Lear Corporation stockholders	(47.8		)	(49.5		)
Dividends paid to noncontrolling interests	—			(31.3		)
Other, net	(14.1		)	(34.9		)
Net cash provided by (used in) financing activities	850.6			(234.7		)
Effect of foreign currency translation	(31.3		)	0.8
Net Change in Cash, Cash Equivalents and Restricted Cash	951.5			(298.9		)
Cash, Cash Equivalents and Restricted Cash as of Beginning of Period	1,510.4			1,519.8
Cash, Cash Equivalents and Restricted Cash as of End of Period	$	2,461.9		$	1,220.9

Changes in Working Capital Items:
Accounts receivable	$	415.6		$	(592.7	)
Inventories	(113.8		)	(8.0		)
Accounts payable	(247.6		)	239.6
Accrued liabilities and other	(77.4		)	73.6
Net change in working capital items	$	(23.2	)	$	(287.5	)

Supplementary Disclosure:
Cash paid for interest	$	34.5		$	43.6
Cash paid for income taxes, net of refunds received	$	35.8		$	41.6

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

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LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation

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

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

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

~~Certain amounts in~~In the ~~prior period’s financial statements have been reclassified to conform to the presentation used in the~~second quarter ~~ended September 30, 2017.~~

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

Cost of sales includes material, labor and overhead costs associated with the manufacture and distribution of the Company’s products. Distribution costs include inbound freight costs, purchasing and receiving costs, inspection costs, warehousing costs and other costs of the Company’s distribution network. Selling, general and administrative expenses include selling, engineering and development and administrative costs not directly associated with the manufacture and distribution of the Company’s products.

~~(2) Acquisitions~~

~~Grupo Antolin Seating~~

~~On April 28, 2017,~~2019, the Company completed the acquisition of ~~Grupo Antolin's automotive seating business ("Antolin Seating"~~Xevo Inc. (“Xevo”) ~~for $291.5 million, net~~, a Seattle-based, global leader in connected car software, by acquiring all of ~~cash acquired. Antolin Seating is headquartered in France with operations in five countries in Europe and North Africa.~~Xevo's outstanding shares. The ~~Antolin Seating business is comprised of just-in-time seat assembly, as well as seat structures, mechanisms and seat covers with annual sales of approximately $370 million.~~

The Antolin Seating acquisition was accounted for as a business combination, and accordingly, the assets acquired and liabilities assumed are included in the accompanying condensed consolidated balance sheet as of September 30, 2017. The operating results and cash flows of Antolin Seating are included in the accompanying condensed consolidated financial statements from the date of acquisition and in the Company's seating segment.

The net purchase price of $291.5 million is subject to adjustment and consists of cash paid of $286.8 million, net of cash acquired, and contingent consideration of $4.7 million. In addition, the Company incurred transaction costs of $3.1 million related to advisory services in the nine months ended September 30, 2017, which have been expensed as incurred and are recorded in selling, general and administrative expenses. The purchase price and preliminary allocation are shown below (in millions):

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

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

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~~LEAR CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

Contingent consideration represents the discounted value of estimated amounts due to the seller pending the resolution of certain matters. As of the acquisition date, the value of estimated contingent consideration was $4.7 million.

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

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

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

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

~~For further information related to acquired assets measured at fair value, see Note 16, "Financial Instruments."~~

~~AccuMED~~

~~On December 21, 2016, the Company completed the~~ acquisition of ~~100% of the outstanding equity interests of AccuMED Holdings Corp. ("AccuMED"), a privately-held developer and manufacturer of specialty fabrics, for $148.5 million, net of cash acquired. AccuMED~~Xevo has ~~annual sales of approximately $80 million. The AccuMED acquisition was~~been accounted for as a business combination, and accordingly, the assets acquired and liabilities assumed are included in the accompanying condensed consolidated balance sheets as of ~~September 30, 2017~~April 4, 2020 and December 31, ~~2016.~~2019. The operating results and cash flows of ~~AccuMED~~Xevo are included in the accompanying condensed consolidated financial statements from the date of acquisition and in the Company's ~~seating~~E-Systems segment. ~~The purchase price and preliminary allocation are shown below (in millions):~~

Purchase price paid, net of cash acquired $ 148.5

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

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

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

The purchase price allocation is preliminary and 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,~~the acquisition of Xevo, see Note ~~16, "Financial Instruments."~~3, “Acquisition,” to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

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

(2) Impact of COVID-19 Pandemic

Unprecedented industry disruptions related to the COVID-19 pandemic during the first quarter of 2020 impacted operations in every region of the world. Our operations in China were impacted first, with most plants in the country closed for several weeks during the quarter. At the end of the quarter, all of our facilities in China were operating and capacity utilization is increasing. Beginning in mid-March, our operations in Europe, North America, South America and Asia (excluding China) were impacted, with virtually all plants closed at the end of the quarter and closures continuing throughout April and, in most cases, into May. While manufacturing has resumed at certain locations in Europe and North America, production levels at these facilities are currently well below capacity. Accordingly, the COVID-19 pandemic is expected to have a material impact on the Company's second quarter 2020 sales, operating results and cash flows.

It is also likely that the global automotive industry will experience lower demand for new vehicle sales for a period of time as a result of the global economic slowdown caused by the COVID-19 pandemic, as new vehicle sales are correlated with positive consumer confidence and low unemployment. In addition, the Company's customers may request extended payment terms, as part of their own response to the COVID-19 pandemic. Finally, a resurgence of the virus with corresponding shelter-in-place orders later in the year could further impact the Company's financial results.

The accompanying condensed consolidated financial statements reflect estimates and assumptions made by management as of April 4, 2020, and for the three months 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; assessment of the annual effective tax rate; valuation of deferred income taxes and income tax contingencies; and credit losses related to our financial instruments. Events and circumstances arising after April 4, 2020, including those resulting from the impact of the COVID-19 pandemic, will be reflected in management's estimates and assumptions in future periods.

For information related to goodwill, see Note 7, "Goodwill," herein and Note 2, "Summary of Significant Accounting Policies — Impairment of Goodwill and Intangible Assets," to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019. For more information related to income taxes, see Note 13, "Income Taxes," herein and Note 2, "Summary of Significant Accounting Policies — Income Taxes," to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

(3) Restructuring

Restructuring costs include employee termination benefits, ~~fixed~~ asset impairment charges and contract termination costs, as well as other incremental costs resulting from the restructuring actions. ~~These~~Employee termination benefits are recorded based on existing union and employee contracts, statutory requirements, completed negotiations and Company policy. Other incremental costs principally include equipment and personnel relocation costs. ~~The~~In addition to restructuring costs, the Company ~~also~~ incurs incremental manufacturing inefficiency costs at the operating locations impacted by the restructuring actions during the related restructuring implementation period. Restructuring costs are

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~~LEAR CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

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

In the first ~~nine~~three months of ~~2017,~~2020, the Company recorded charges of ~~$48.6~~$32.6 million in connection with its restructuring actions. These charges consist of ~~$39.5~~$28.2 million recorded as cost of sales ~~$10.2~~and $4.4 million recorded as selling, general and administrative ~~expenses and net credits of $1.1 million recorded as other income.~~expenses. The restructuring charges consist of employee termination costs of ~~$41.0~~$20.0 million, ~~fixed~~ asset impairment charges of ~~$0.4 million, a pension benefit plan settlement loss of $0.8~~$10.4 million and contract termination costs of ~~$1.5~~$0.2 million, as well as other related costs of ~~$4.9~~$2.0 million. Employee termination benefits were recorded based on existing union and employee contracts, statutory requirements, completed negotiations and Company policy. ~~Fixed asset~~Asset impairment charges relate to the disposal of buildings, leasehold improvements and/or machinery and equipment with carrying values of ~~$0.4~~$10.4 million in excess of related estimated fair values.

The Company expects to incur approximately$3646 million of additional restructuring costs related to activities initiated as of ~~September 30, 2017,~~April 4, 2020, and expects that the components of such costs will be consistent with its historical experience. Any future restructuring actions will depend upon market conditions, customer actions and other factors.

A summary of ~~2017~~2020 activity ~~excluding the pension benefit plan settlement loss of $0.8 million (Note 9, "Pension and Other Postretirement Benefit Plans"),~~ is shown below (in millions):



	Accrual as of		2020		Utilization						Accrual as of
	January 1, 2020		Charges		Cash			Non-cash			April 4, 2020
Employee termination benefits	$	152.8	$	20.0	$	(44.5	)	$	—		$	128.3
Asset impairment charges	—		10.4		—			(10.4		)	—
Contract termination costs	4.9		0.2		(0.2		)	—			4.9
Other related costs	—		2.0		(2.0		)	—			—
Total	$	157.7	$	32.6	$	(46.7	)	$	(10.4	)	$	133.2

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

(4) Inventories

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



	April 4, 2020			December 31, 2019
Raw materials	$	973.3		$	906.3
Work-in-process	107.0			107.0
Finished goods	381.2			380.4
Reserves	(137.2		)	(135.5		)
Inventories	$	1,324.3		$	1,258.2

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

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

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

During the first ~~nine~~three months of ~~2017~~2020 and ~~2016,~~2019, the Company capitalized ~~$190.8~~$50.4 millionand ~~$110.5~~$58.8 million, respectively, of pre-production E&D costs for which reimbursement is contractually guaranteed by the customer. During the first ~~nine~~three months of ~~2017~~2020 and ~~2016,~~2019, the Company also capitalized$~~93.5~~54.1 million and ~~$61.5~~$47.0 million, respectively, of pre-production tooling costs

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

related to customer-owned tools for which reimbursement is contractually guaranteed by the customer or for which the Company has a non-cancelable right to use the tooling. These amounts are included in other current and long-term assets in the accompanying condensed consolidated balance sheets.

During the first ~~nine~~three months of ~~2017~~2020 and ~~2016,~~2019, the Company collected ~~$247.7~~$66.8 million and ~~$168.9~~$95.8 million, respectively, of cash related to E&D and tooling costs.

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~~LEAR CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

The classification of recoverable customer E&D and tooling costs related to long-term supply agreements is shown below (in millions):



	April 4, 2020		December 31, 2019
Current	$	185.7	$	157.2
Long-term	118.9		113.8
Recoverable customer E&D and tooling	$	304.6	$	271.0

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

(6) Long-Term Assets

~~Property, Plant and Equipment~~

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

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



	April 4, 2020			December 31, 2019
Land	$	107.4		$	113.1
Buildings and improvements	801.3			831.3
Machinery and equipment	3,812.7			3,844.1
Construction in progress	362.2			382.4
Total property, plant and equipment	5,083.6			5,170.9
Less – accumulated depreciation	(2,475.2		)	(2,466.7		)
Property, plant and equipment, net	$	2,608.4		$	2,704.2

September 30,
2017 December 31, 2016
Land $ 119.1
$ 101.7
Buildings and improvements 772.2
648.1
Machinery and equipment 2,939.2
2,459.6
Construction in progress 348.1
296.4
Total property, plant and equipment 4,178.6
3,505.8
Less – accumulated depreciation (1,800.5 ) (1,486.5 )
Property, plant and equipment, net $ 2,378.1
$ 2,019.3

Depreciation expense was ~~$99.2~~$113.4 million and ~~$83.5~~$110.9 million in the three months ended ~~September~~April 4, 2020 and March 30, ~~2017 and October 1, 2016, respectively, and $279.1 million and $241.7 million in the nine months ended September 30, 2017 and October 1, 2016,~~2019, respectively.

The Company monitors its long-lived assets for impairment indicators on an ongoing basis in accordance with GAAP. If impairment indicators exist, the Company performs the required impairment analysis by comparing the undiscounted cash flows expected to be generated from the long-lived assets to the related net book values. If the net book value exceeds the undiscounted cash flows, an impairment loss is measured and recognized. ~~Except as discussed below,~~In the first quarter of 2020, the Company ~~does~~did not ~~believe that there were~~recognize any ~~indicators that would have resulted in~~ long-lived asset impairment charges, except in conjunction with its restructuring actions as ~~of September 30, 2017.~~discussed below. The Company will, however, continue to assess the impact of any significant industry events on the realization of its long-lived assets.

In the first ~~nine~~three months of ~~2017~~2020 and ~~2016,~~2019, the Company recognized ~~fixed~~ asset impairment charges of ~~$0.4~~$10.4 million and ~~$3.5~~$2.1 million, respectively, in conjunction with its restructuring actions (Note 3, "Restructuring").

~~Investment in Affiliates~~

On September 8, 2017, the Company gained control of Shanghai Lear STEC Automotive Parts Co., Ltd. (“Lear STEC”) by amending the existing joint venture agreement to eliminate the substantive participating rights of its joint venture partner. Prior to the amendment, Lear STEC was accounted for under the equity method. The consolidation of Lear STEC was accounted for as a business combination, and accordingly, the assets acquired and liabilities assumed are included in the accompanying condensed consolidated balance sheet as of September 30, 2017. The operating results and cash flows of Lear STEC are included in the accompanying condensed consolidated financial statements from the date of the amended joint venture agreement and are reflected in the Company’s E-Systems segment.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

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

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

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

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

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

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

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

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

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

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

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~~LEAR CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

(7) Goodwill

A summary of the changes in the carrying amount of goodwill, by operating segment, in the ~~nine~~three months ended ~~September 30, 2017,~~April 4, 2020, is shown below (in millions):



	Seating			E-Systems			Total
Balance at January 1, 2020	$	1,235.4		$	378.9		$	1,614.3
Foreign currency translation and other	(20.0		)	(2.1		)	(22.1		)
Balance at April 4, 2020	$	1,215.4		$	376.8		$	1,592.2

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

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

~~The Company does not believe that there were any indicators that would have resulted in~~During the first quarter of 2020,an interim goodwill impairment ~~charges~~analysis related to one of the Company’s reporting units within its E-Systems operating segment was performed, largely due to industry disruptions resulting from the COVID-19 pandemic. As of April 4, 2020, the results of the quantitative analysis indicated that the fair value of the reporting unit exceeded the related carrying value. The goodwill impairment analysis reflected the Company’s best estimates of the COVID-19 pandemic’s ultimate impact on industry conditions, including consumer demand, as well as economic recovery. The reporting unit is at risk of ~~September 30, 2017. The Company will, however, continue to assess~~failing a future quantitative assessment if the impact of ~~significant events~~the COVID-19 pandemic is more severe or ~~circumstances on its recorded~~if economic recovery is slower or weaker than anticipated. As of April 4, 2020, the goodwill of the reporting unit represents less than 10% of the Company’s total goodwill.

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

(8) Debt

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

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

Long-Term
Debt, Net

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

Long-Term
Debt, Net

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

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



	April 4, 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	$	231.2	$	(0.9	)	$	—		$	230.3		2.12%
3.8% Senior Notes due 2027 (the "2027 Notes")	750.0		(4.5		)	(3.9		)	741.6			3.885%
4.25% Senior Notes due 2029 (the "2029 Notes")	375.0		(2.8		)	(1.1		)	371.1			4.288%
3.5% Senior Notes due 2030 (the "2030 Notes")	350.0		(2.8		)	(0.8		)	346.4			3.525%
5.25% Senior Notes due 2049 (the "2049 Notes")	625.0		(6.4		)	14.5			633.1			5.103%
	$	2,331.2	$	(17.4	)	$	8.7		$	2,322.5
Less — Current portion									(15.7		)
Long-term debt									$	2,306.8

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

⁽²⁾~~Unamortized portion~~

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)



	December 31, 2019
Debt Instrument	Long-Term Debt		Unamortized Debt Issuance Costs			Unamortized Original Issue Discount			Long-Term Debt, Net			Weighted Average Interest Rate
Credit Agreement — Term Loan Facility	$	234.4	$	(1.0	)	$	—		$	233.4		2.88%
5.25% Senior Notes due 2025 (the "2025 Notes")	650.0		(4.2		)	—			645.8			5.25%
2027 Notes	750.0		(4.7		)	(4.1		)	741.2			3.885%
2029 Notes	375.0		(2.9		)	(1.1		)	371.0			4.288%
2049 Notes issued 2019	325.0		(3.3		)	(5.3		)	316.4			5.363%
	$	2,334.4	$	(16.1	)	$	(10.5	)	2,307.8
Less — Current portion									(14.1		)
Long-term debt									$	2,293.7

Senior Notes

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



Note	Issuance ~~Date~~	Date(s)	Maturity Date		Interest ~~Payable~~Payment Dates
~~2024~~2027 Notes	~~March 2014~~August 2017		~~March~~September 15, ~~2024~~	2027	March 15 and September 15
~~2025~~2029 Notes	~~November 2014~~May 2019	May 15, 2029	~~January 15, 2025~~		~~January~~May 15 and ~~July~~November 15
~~2027~~2030 Notes	~~August 2017~~February 2020	May 30, 2030	~~September~~May 30 and November 30
2049 Notes	May 2019 and February 2020	May 15, ~~2027~~2049		~~March~~May 15 and ~~September~~November 15

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

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

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

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

~~Guarantees~~

The Notes are senior unsecured obligations. As discussed further in "— Credit Agreement" below, upon termination of the Company’s prior credit agreement, the subsidiaries that previously guaranteed the 2024 Notes and 2025 Notes were automatically released as guarantors. There are currently no guarantors of the Company’s obligations under the Notes.ended April 4, 2020.

Covenants

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

As of ~~September 30, 2017,~~April 4, 2020, the Company was in compliance with all covenants under the indentures governing the Notes.

Credit Agreement

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

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

As of ~~September 30, 2017,~~April 4, 2020, there were no$1.0 billion of borrowings outstanding under the Revolving Credit Facility, ~~and $250.0 million of borrowings outstanding under~~which is reflected in current liabilities in the ~~Term Loan Facility.~~accompanying condensed consolidated balance sheet. As of December 31, ~~2016,~~2019, there were ~~no borrowings outstanding under the Company's prior revolving credit facility and $468.7 million of borrowings outstanding under the Company's prior term loan facility.~~0

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

borrowings outstanding under the Revolving Credit Facility. As of April 4, 2020 and December 31, 2019, there were $231.2 million and $234.4 million, respectively, of borrowings outstanding under the Term Loan Facility.

In the first three months of 2020, the Company made required principal payments of $3.1 million under the Term Loan Facility.

Advances under the Revolving Credit Facility and the Term Loan Facility generally bear interest based on (i) the Eurocurrency Rate (as defined in the Credit Agreement) or (ii) the Base Rate (as defined in the Credit Agreement) plus a margin, determined in accordance with a pricing grid. The range and the rate as of ~~September 30, 2017,~~April 4, 2020, are ~~as follows~~shown below (in percentages):



	Eurocurrency Rate						Base Rate
					Rate as of						Rate as of
	Minimum		Maximum		April 4, 2020		Minimum		Maximum		April 4, 2020
Revolving Credit Facility	1.00	%	1.60	%	1.10	%	0.00	%	0.60	%	0.10	%
Term Loan Facility	1.125	%	1.90	%	1.25	%	0.125	%	0.90	%	0.25	%

Eurocurrency Rate Base Rate
Minimum Maximum Rate as of
September 30, 2017 Minimum Maximum Rate as of
September 30,
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 %

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

~~Guarantees~~

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

Covenants

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

As of ~~September 30, 2017,~~April 4, 2020, the Company was in compliance with all covenants under the Credit Agreement.

~~Scheduled Maturities~~

~~As of September 30, 2017, scheduled maturities related to the Term Loan Facility for the five succeeding years, as of the date of this Report, are shown below (in millions):~~

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

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

~~Other~~

~~As of September 30, 2017, other long-term debt consists of amounts outstanding under capital leases.~~

For further information related to the ~~2024 Notes, the 2025 Notes and the prior credit agreement,~~Company's debt, see Note 6, "Debt," to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019.

(9) Leases

Right-of-Use Assets and Lease Obligations

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



	April 4, 2020		December 31, 2019
Right-of-use assets under operating leases:
Other long-term assets	$	512.1	$	527.0
Lease obligations under operating leases:
Accrued liabilities	$	112.7	$	113.9
Other long-term liabilities	405.1		422.4
	$	517.8	$	536.3

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

~~(9)~~Maturities of lease obligations as of April 4, 2020, are shown below (in millions):



	April 4, 2020
2020⁽¹⁾	$	99.5
2021	113.1
2022	88.7
2023	68.2
2024	56.9
Thereafter	176.7
Total undiscounted cash flows	603.1
Less: Imputed interest	(85.3		)
Lease obligations under operating leases	$	517.8

⁽¹⁾For the remaining nine months

The Company has entered into 1 lease contract which is expected to commence in the third quarter of 2021 with a lease term of approximately ten years. The aggregate right-of-use asset and related lease obligation are expected to be approximately $50 million.

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



	Three Months Ended
	April 4, 2020		March 30, 2019
Non-cash activity:
Right-of-use assets obtained in exchange for operating lease obligations	$	37.4	$	36.9
Operating cash flows:
Cash paid related to operating lease obligations	$	35.7	$	33.2

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



	Three Months Ended
	April 4, 2020		March 30, 2019
Operating lease expense	$	36.3	$	32.5
Short-term lease expense	4.1		4.4
Variable lease expense	1.9		0.6
Total lease expense	$	42.3	$	37.5

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



	April 4, 2020
Weighted average remaining lease term (in years)	6.9
Weighted average discount rate	3.7	%

For further information related to the Company's leases, see Note 7, "Leases," to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

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LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

(10) Pension and Other Postretirement Benefit Plans

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

Net Periodic Pension and Other Postretirement Benefit (Credit) Cost

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



	Three Months Ended
	April 4, 2020						March 30, 2019
	U.S.			Foreign			U.S.			Foreign
Service cost	$	—		$	1.2		$	—		$	1.6
Interest cost	4.1			3.1			4.6			3.7
Expected return on plan assets	(5.3		)	(5.0		)	(5.0		)	(5.2		)
Amortization of actuarial loss	0.6			1.1			0.5			2.0
Settlement loss	0.3			—			0.1			—
Net periodic benefit (credit) cost	$	(0.3	)	$	0.4		$	0.2		$	2.1

Three Months Ended Nine Months Ended
September 30, 2017 October 1, 2016 September 30, 2017 October 1, 2016
U.S. Foreign U.S. Foreign U.S. Foreign U.S. Foreign
Service cost $ 1.3
$ 1.8
$ 1.4
$ 1.6
$ 3.8
$ 5.3
$ 4.2
$ 4.8
Interest cost 5.5
4.0
7.5
3.8
16.4
11.2
22.4
11.9
Expected return on plan assets (7.3 ) (5.9 ) (9.5 ) (5.9 ) (21.7 ) (17.0 ) (28.6 ) (17.5 )
Amortization of actuarial loss 0.6
1.3
0.6
0.8
1.9
3.8
2.0
2.3
Settlement loss —
—
—
—
0.2
0.8
0.2
—
Net periodic benefit cost $ 0.1
$ 1.2
$ —
$ 0.3
$ 0.6
$ 4.1
$ 0.2
$ 1.5

~~In the nine months ended September 30, 2017, the Company recognized a pension settlement loss of $0.8 million related to its restructuring actions.~~

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



	Three Months Ended
	April 4, 2020					March 30, 2019
	U.S.			Foreign		U.S.			Foreign
Service cost	$	—		$	—	$	—		$	0.1
Interest cost	0.4			0.2		0.5			0.3
Amortization of actuarial gain	(0.4		)	—		(0.6		)	—
Net periodic benefit (credit) cost	$	—		$	0.2	$	(0.1	)	$	0.4

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

Contributions

In the ~~nine~~three months ended ~~September 30, 2017,~~April 4, 2020, employer contributions to the Company’s domestic and foreign defined benefit pension plans were ~~$7.6~~$3.7 million.

The Company has elected to defer its contributions to its U.S. defined benefit pension plans to the extent possible under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). The Company expects contributions to its domestic and foreign defined benefit pension plans to be ~~approximately~~ $10 million to ~~$15~~$20 million in 2017. 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.2020.

(11) Revenue Recognition

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

Revenue is recognized at a point in time when control of the product is transferred to the customer under standard commercial terms, as the Company does not have an enforceable right to payment prior to such transfer. The amount of revenue recognized reflects the consideration that the Company expects to be entitled to in exchange for those products based on the annual purchase orders, annual price reductions and ongoing price adjustments. The Company's customers pay for products received in accordance with payment terms that are customary within the industry. The Company's contracts with its customers do not have significant financing components.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

~~(10)~~The Company records a contract liability for advances received from its customers. As of April 4, 2020 and December 31, 2019, there were 0 significant contract liabilities recorded. Further, there were 0 significant contract liabilities recognized in revenue during the first three months of 2020.

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

Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction that are collected by the Company from a customer are excluded from revenue.

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



	Three Months Ended
	April 4, 2020						March 30, 2019
	Seating		E-Systems		Total		Seating		E-Systems		Total
North America	$	1,573.7	$	307.5	$	1,881.2	$	1,591.1	$	285.0	$	1,876.1
Europe and Africa	1,236.0		516.6		1,752.6		1,554.3		617.1		2,171.4
Asia	457.4		218.9		676.3		651.4		304.3		955.7
South America	99.5		48.1		147.6		116.9		40.0		156.9
	$	3,366.6	$	1,091.1	$	4,457.7	$	3,913.7	$	1,246.4	$	5,160.1

(12) Other ~~(Income)~~ Expense, Net

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

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



	Three Months Ended
	April 4, 2020			March 30, 2019
Other expense	$	47.5		$	11.3
Other income	(7.0		)	(6.9		)
Other expense, net	$	40.5		$	4.4

Three Months Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Other expense $ 34.4
$ 15.5
$ 47.2
$ 34.7
Other income (56.2 ) (1.3 ) (59.5 ) (35.5 )
Other (income) expense, net $ (21.8 ) $ 14.2
$ (12.3 ) $ (0.8 )

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

~~In the three and nine months ended October 1, 2016,~~April 4, 2020, other expense includes net foreign currency transaction losses of ~~$3.6~~$17.7 million and ~~$5.4~~a loss of $21.1 million ~~respectively.~~ on the extinguishment of debt (Note 8, "Debt").

In the ~~nine~~three months ended ~~October 1, 2016,~~March 30, 2019, other ~~income~~expense includes a gain of $30.3 million related to the consolidation of an affiliate. For further information related to the 2016 consolidation of an affiliate, see Note 5, "Investments in Affiliates and Other Related Party Transactions," to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2016.net foreign currency transaction losses $5.8 million.

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

A summary of the provision for income taxes and the corresponding effective tax rate for the three ~~and nine~~ months ended ~~September~~April 4, 2020 and March 30, ~~2017 and October 1, 2016,~~2019, is shown below (in millions, except effective tax rates):



	Three Months Ended
	April 4, 2020			March 30, 2019
Provision for income taxes	$	26.5		$	43.1
Pretax income before equity in net income of affiliates	$	108.5		$	286.9
Effective tax rate	24.4		%	15.0		%

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LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Three Months Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Provision for income taxes $ 77.8
$ 88.2
$ 240.2
$ 287.4
Pretax income before equity in net income of affiliates $ 385.3
$ 310.3
$ 1,159.4
$ 1,030.2
Effective tax rate 20.2 % 28.4 % 20.7 % 27.9 %

On January 1, 2017, the Company adopted Accounting Standards Update ("ASU") 2016-09, "Improvements to Employee Share-Based Payment Accounting." The new standard requires that the tax impact related to the difference between share-based compensation for book and tax purposes be recognized as income tax benefit or expense in the Company’s condensed consolidated statement of comprehensive income in the reporting period in which such awards vest. The standard also required a modified retrospective adoption for previously unrecognized excess tax benefits. Accordingly, the Company recognized a deferred tax asset of $54.5 million and a corresponding credit to retained earnings in conjunction with the adoption. The effects of adopting the other provisions of ASU 2016-09 were not significant.

In the first ~~nine~~three months of ~~2017~~2020 and ~~2016,~~2019, the provision for income taxes was primarily impacted by the level and mix of earnings among tax jurisdictions. In the first nine months of 2017, the Company recognized net tax benefits of $68.4 million, of which $28.7 million related to the reversal of valuation allowances on the deferred tax assets of certain foreign subsidiaries, $16.3 million related to the change in the accounting for share-based compensation discussed above, $7.5 million related to the redemption of the 2023 Notes and $15.9 million related to restructuring charges and various other items. In addition, the Company recognized ~~a gain of $54.2 million~~tax benefits (expense) related to the ~~consolidation of an affiliate, for which no tax expense was provided. In~~significant, discrete items shown below (in millions):



	Three Months Ended
	April 4, 2020			March 30, 2019
Restructuring charges and various other items	$	10.0		$	15.6
Valuation allowances on deferred tax assets of a foreign subsidiary	0.8			—
Share-based compensation	(0.2		)	3.2
Change in tax status of certain affiliates	—			18.4
	$	10.6		$	37.2

Excluding the first nine months of 2016, the Company recognized net tax benefits of $14.5 million related to restructuring charges and various other items. In addition, the Company recognized a gain of $30.3 million related to the consolidation of an affiliate, for which no tax expense was provided. Excluding these items above, the effective tax rate for the first ~~nine~~three months of ~~2017~~2020 and ~~2016~~2019 approximated the U.S. federal statutory income tax rate of ~~35%~~21%, adjusted for income taxes on foreign earnings, losses and remittances, valuation allowances, tax credits, income tax incentives and other permanent items.

~~Table~~For the three months ended April 4, 2020, the Company utilized the discrete effective tax rate method, as allowed by Accounting Standards Codification 740, “Income Taxes,” to calculate its interim income tax provision. The discrete method is applied when the application of ~~Contents~~

~~LEAR CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. The discrete method treats the year-to-date period as if it was the annual period and determines the income tax expense or benefit on that basis. The Company believes that, as a result of the current uncertainty due to the COVID-19 pandemic, the application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate as minor changes in annual forecasted pre-tax income or income tax expense or benefit can produce significant changes in the estimated annual effective tax rate. For the three months ended March 30, 2019, the Company calculated its interim income tax provision based on the estimated annual effective rate.

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

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

~~For further information related to the 2017 consolidation of an affiliate, see Note 6, "Long-Term Assets."~~ For further information related to the Company's income taxes, see Note 7,8, "Income Taxes," to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019.

~~(12)~~

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

(14) 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 the redeemable noncontrolling interest, by the average number of common shares outstanding during the period. Common shares issuable upon the satisfaction of certain conditions pursuant to a contractual agreement are considered common shares outstanding and are included in the computation of basic net income 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 the redeemable noncontrolling interest, by the average number of common shares outstanding, including the dilutive effect of common stock equivalents computed using the treasury stock method and the average share price during the period.

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):



	Three Months Ended
	April 4, 2020		March 30, 2019
Net income attributable to Lear	$	76.4	$	228.9
Redeemable noncontrolling interest adjustment	—		6.7
Net income available to Lear common stockholders	$	76.4	$	235.6

Average common shares outstanding	60,509,450		62,818,792
Dilutive effect of common stock equivalents	169,140		304,405
Average diluted shares outstanding	60,678,590		63,123,197

Basic net income per share available to Lear common stockholders	$	1.26	$	3.75

Diluted net income per share available to Lear common stockholders	$	1.26	$	3.73

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

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

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

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

For further information related to the redeemable noncontrolling interest adjustment, see Note ~~6, "Long-Term Assets.~~15, "Comprehensive Income (Loss) and Equity."

1721

Table of Contents

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

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

Comprehensive Income (Loss)

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

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

Accumulated Other Comprehensive Loss

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

Non-
controlling
Interests
Equity
Lear
Corporation
Stockholders'
Equity

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

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

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

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~~LEAR CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

A summary of changes, net of tax, in accumulated other comprehensive loss for the three ~~and nine~~ months ended ~~September 30, 2017,~~April 4, 2020, is shown below (in millions):



	Three Months Ended
	April 4, 2020
Defined benefit plans:
Balance at beginning of period	$	(217.6	)
Reclassification adjustments (net of tax expense of $0.3 million)	1.3
Other comprehensive income recognized during the period (net of tax impact of $— million)	7.6
Balance at end of period	$	(208.7	)
Derivative instruments and hedging:
Balance at beginning of period	$	9.8
Reclassification adjustments (net of tax benefit of $1.4 million)	(5.7		)
Other comprehensive loss recognized during the period (net of tax benefit of $27.9 million)	(115.4		)
Balance at end of period	$	(111.3	)
Foreign currency translation:
Balance at beginning of period	$	(564.9	)
Other comprehensive loss recognized during the period (including tax expense of $4.8 million)	(164.4		)
Balance at end of period	$	(729.3	)

Total accumulated other comprehensive loss	$	(1,049.3	)

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

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

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

In the three ~~and nine~~ months ended ~~September 30, 2017,~~April 4, 2020, foreign currency translation adjustments are primarily related ~~primarily~~ to the ~~strengthening~~weakening of the Brazilian real, the Euro and ~~to a lesser extent,~~ the Chinese renminbi relative to the U.S. ~~dollar. In the three~~dollar and ~~nine months ended September 30, 2017, foreign currency translation adjustments~~ include pretax losses of ~~$0.2~~$1.6 million ~~and pretax gains of $0.6 million, respectively,~~ related to intercompany transactions for which settlement is not planned or anticipated in the foreseeable future.

1922

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

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

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

Non-
controlling
Interests
Equity
Lear
Corporation
Stockholders'
Equity

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

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

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

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~~LEAR CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

A summary of changes, net of tax, in accumulated other comprehensive loss for the three ~~and nine~~ months ended ~~October 1, 2016,~~March 30, 2019, is shown below (in millions):



	Three Months Ended
	March 30, 2019
Defined benefit plans:
Balance at beginning of period	$	(172.8	)
Reclassification adjustments (net of tax expense of $0.4 million)	1.6
Other comprehensive loss recognized during the period (net of tax impact of $— million)	(1.3		)
Balance at end of period	$	(172.5	)
Derivative instruments and hedging:
Balance at beginning of period	$	(9.7	)
Reclassification adjustments (net of tax benefit of $2.1 million)	(7.1		)
Other comprehensive income recognized during the period (net of tax expense of $2.3 million)	7.8
Balance at end of period	$	(9.0	)
Foreign currency translation:
Balance at beginning of period	$	(523.3	)
Other comprehensive loss recognized during the period (net of tax impact of $— million)	(6.7		)
Balance at end of period	$	(530.0	)

Total accumulated other comprehensive loss	$	(711.5	)

Three Months Ended
October 1, 2016 Nine Months Ended
October 1, 2016
Defined benefit plans:
Balance at beginning of period $ (196.3 ) $ (194.6 )
Reclassification adjustments (net of tax expense of $0.3 million and $1.0 million in the three and nine months ended October 1, 2016, respectively) 0.8
2.5
Other comprehensive income (loss) recognized during the period (net of tax impact of $— million in the three and nine months ended October 1, 2016) 0.7
(2.7 )
Balance at end of period $ (194.8 ) $ (194.8 )

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

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

In the three months ended ~~October 1, 2016,~~March 30, 2019, foreign currency translation adjustments are primarily related ~~primarily~~ to ~~the strengthening~~weakening of the Euro, relative to the U.S. dollar. In the nine months ended October 1, 2016, foreign currency translation adjustments are related primarily to the strengthening of the Euro and Brazilian real relative to the U.S. dollar, partially offset by the ~~weakening~~strengthening of the Chinese renminbi, relative to the U.S. dollar and include pretax ~~losses~~gains of ~~$0.5~~$0.1 million related to intercompany transactions for which settlement is not planned or anticipated in the foreseeable future.

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

Lear Corporation Stockholders’ Equity

Common Stock Share Repurchase Program

In ~~February 2017,~~March 2020, as a proactive measure in response to the COVID-19 pandemic, the Company temporarily suspended share repurchases under its share repurchase program. Shares repurchases in the first quarter of 2020 (prior to the suspension) are shown below (in millions except for shares and per share amounts):



Three Months Ended							As of
April 4, 2020							April 4, 2020
Aggregate Repurchases		Cash paid for Repurchases		Number of Shares	Average Price per Share ⁽¹⁾		Remaining Purchase Authorization
$	70.0	$	70.0	641,149	$	109.22	$	1,430.0

⁽¹⁾ Excludes commissions

Since the first quarter of 2011, the Company's Board of Directors has authorized ~~a $658.8 million increase to~~$6.1 billion in share repurchases under the ~~existing~~ common stock share repurchase program to provide for a remaining aggregate repurchase authorization of $1.0 billion and extended the term of the program to December 31, 2019. In the first nine months of 2017, the Company paid, in aggregate, $332.2 million for repurchases of its outstanding common stock (2,320,469 shares at an average purchase price of $143.14 per share, excluding commissions).program. As of the end of the ~~third~~first quarter of ~~2017,~~2020, the Company has ~~a remaining repurchase authorization~~repurchased, in aggregate, $4.7 billion of ~~$667.8 million under~~ its ~~ongoing~~outstanding common stock, at an average price of $90.07 per share, ~~repurchase program.~~ excluding commissions and related fees.

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

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

will repurchase its outstanding common stock and the timing of such repurchases will depend upon its financial condition, prevailing market conditions, alternative uses of capital and other factors.

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~~LEAR CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

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

In addition to shares repurchased under the Company’s common stock share repurchase program described ~~in the preceding paragraphs,~~above, the Company classified shares withheld from the settlement of the Company’s restricted stock unit and performance share awards to cover ~~minimum~~ tax withholding requirements as common stock held in treasury in the accompanying condensed consolidated balance sheets as of ~~September 30, 2017~~April 4, 2020 and December 31, ~~2016.~~2019.

~~As approved by~~Quarterly Dividend

In March 2020, as a proactive measure in response to the ~~Board of Directors, in May 2017,~~COVID-19 pandemic, the Company retired 8.0 million shares of common stock held in treasury. These retired shares are reflected as authorized, but not issued, in the accompanying condensed consolidated balance sheet as of September 30, 2017. The retirement of shares held in treasury resulted in a reduction in the par value of common stock, additional paid-in capital and retained earnings of $0.1 million, $155.9 million and $735.5 million, respectively. These reductions were offset by a corresponding reduction in shares held in treasury of $891.5 million. Accordingly, there was no effect on stockholders’ equity as a result of this transaction.

~~Quarterly Dividend~~

temporarily suspended its quarterly cash dividend. In the first ~~nine~~three months of ~~2017~~2020 (prior to the suspension) and ~~2016,~~2019, the Company’s Board of Directors declared quarterly cash dividends of ~~$0.50~~$0.77 and ~~$0.30~~$0.75 per share of common stock, respectively. ~~In the first nine months of 2017,~~Dividends declared ~~dividends totaled $105.8 million,~~ and ~~dividends~~ paid ~~totaled $104.4 million. In the first nine months of 2016, declared dividends totaled $67.5 million, and dividends paid totaled $68.1 million.~~ are shown below (in millions):



	Three Months Ended
	April 4, 2020		March 30, 2019
Dividends declared	$	46.8	$	47.7
Dividends paid	47.8		49.5

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

Redeemable Noncontrolling ~~Interests~~Interest

In ~~the first nine months of 2017 and 2016,~~accordance with GAAP, the Company ~~gained control~~records redeemable noncontrolling interests at the greater of (1) the initial carrying amount adjusted for the noncontrolling interest holder’s share of total comprehensive income or loss and dividends ("noncontrolling interest carrying value") or (2) the redemption value as of and based on conditions existing as of the reporting date. Required redeemable noncontrolling interest adjustments are recorded as an increase to redeemable noncontrolling interests, with an offsetting adjustment to retained earnings. The redeemable noncontrolling interest is classified in mezzanine equity in the accompanying condensed consolidated ~~affiliates.~~ balance sheets as of April 4, 2020 and December 31, 2019.

For further information related to the ~~2017 consolidation,~~redeemable noncontrolling interest adjustment, see Note ~~6, "Long-Term Assets.~~14, "Net Income Per Share Attributable to Lear," ~~For further information related to the 2016 consolidation, see~~herein, as well as Note 5, ~~"Investment~~"Investments in Affiliates and Other Related Party Transactions," to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019.

~~(14)~~(16) Legal and Other Contingencies

As of ~~September 30, 2017~~April 4, 2020 and December 31, ~~2016,~~2019, the Company had recorded reserves for pending legal disputes, including commercial disputes and other matters, of ~~$8.7~~$14.1 million and ~~$11.0~~$14.0 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.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Product Liability and Warranty Matters

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

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

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~~LEAR CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

In certain instances, allegedly defective products may be supplied by Tier 2 suppliers. The Company may seek recovery from its suppliers of materials or services included within the Company’s products that are associated with product liability and warranty claims. The Company carries insurance for certain legal matters, including product liability claims, but such coverage may be limited. The Company does not maintain insurance for product warranty or recall matters. Future dispositions with respect to the Company’s product liability claims that were subject to compromise under the Chapter 11 bankruptcy proceedings will be satisfied out of a common stock and warrant reserve established for that purpose.

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

A summary of the changes in reserves for product liability and warranty claims for the ~~nine~~three months ended ~~September 30, 2017,~~April 4, 2020, is shown below (in millions):


Balance at January 1, 2017	$	49.1
Balance at January 1, 2020				$	32.0
Expense, net (including changes in estimates)	12.5			5.4
Settlements	(15.5		)	(2.9		)
Foreign currency translation and other	3.0			(0.7		)
Balance at September 30, 2017	$	49.1
Balance at April 4, 2020				$	33.8

Environmental Matters

The Company is subject to local, state, federal and foreign laws, regulations and ordinances which govern activities or operations that may have adverse environmental effects and which impose liability for clean-up costs resulting from past spills, disposals or other releases of hazardous wastes and environmental compliance. The Company’s policy is to comply with all applicable environmental laws and to maintain an environmental management program based on ISO 14001 to ensure compliance with this standard. However, the Company currently is, has been and in the future may become the subject of formal or informal enforcement actions or procedures.

As of ~~September 30, 2017~~April 4, 2020 and December 31, ~~2016,~~2019, the Company had recorded environmental reserves of ~~$9.0 million.~~$9.2 million and $9.3 million, respectively. The Company does not believe that the environmental liabilities associated with its current and former properties will have a material adverse impact on its business, financial condition, results of operations or cash flows; however, no assurances can be given in this regard.

Other Matters

The Company is involved from time to time in various other legal proceedings and claims, including, without limitation, intellectual property matters, tax claims and employment matters. Although the outcome of any legal matter cannot be predicted with certainty, the Company does not believe that any of the other legal proceedings or claims in which the Company is currently involved, either individually or in the aggregate, will have a material adverse impact on its business, financial condition, results of operations or cash flows. However, no assurances can be given in this regard.

Although the Company records reserves for legal disputes, product liability and warranty claims and environmental and other matters in accordance with GAAP, the ultimate outcomes of these matters are inherently uncertain. Actual results may differ significantly from current estimates.

~~(15)~~

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

(17) Segment Reporting

The Company has ~~two~~2 reportable operating segments: ~~seating,~~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, as well as sophisticated electronic control modules, electrification products and ~~associated software and wireless communication modules.~~connectivity products. Key components in the Company's electrical distribution ~~system~~portfolio include ~~wiring~~wire harnesses, terminals and connectors and junction boxes for both internal combustion engine and electrification architectures that require management of higher voltage and power. Key components in the Company's electronic control module portfolio include body control modules, wireless receiver and transmitter technology and lighting and audio control modules, as well as products specific to electrification and connectivity trends. Electrification products include charging systems (onboard charging modules and cord set charging equipment), battery electronics (battery disconnect units, cell monitoring supervisory systems and integrated total battery control modules) and other power management modules, including ~~components for high power~~converter and ~~hybrid electric~~inverter systems. Connectivity products include gateway modules and communication modules to manage both wired and wireless networks and data in vehicles. 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, advance research and development, corporate finance, legal, executive administration and human resources, as well as advanced engineering expenses.

Each of the Company’s operating segments reports its results from operations and makes its requests for capital expenditures directly to the chief operating decision maker. The economic performance of each operating segment is driven primarily by automotive production volumes in the geographic regions in which it operates, as well as by the success of the vehicle platforms for which it supplies products. Also, each operating segment operates in the competitive Tier 1 automotive supplier environment and is continually working with its customers to manage costs and improve quality. The Company’s production processes generally make use of hourly labor, dedicated facilities, sequential manufacturing and assembly processes and commodity raw materials.

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

~~Table of Contents~~

~~LEAR CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

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


	Three Months Ended September 30, 2017									Three Months Ended April 4, 2020
	Seating		E-Systems		Other			Consolidated		Seating		E-Systems		Other			Consolidated
Revenues from external customers	$	3,868.9	$	1,112.6	$	—		$	4,981.5	$	3,366.6	$	1,091.1	$	—		$	4,457.7
Segment earnings ⁽¹⁾	298.8		155.5		(69.1		)	385.2		186.1		32.4		(45.1		)	173.4
Depreciation and amortization	76.7		31.3		3.7			111.7		83.5		43.1		3.9			130.5
Capital expenditures	109.7		42.7		3.8			156.2		66.2		41.7		1.2			109.1
Total assets	7,413.5		2,262.7		2,035.8			11,712.0		6,861.8		2,920.3		3,240.2			13,022.3



	Three Months Ended March 30, 2019
	Seating		E-Systems		Other			Consolidated
Revenues from external customers	$	3,913.7	$	1,246.4	$	—		$	5,160.1
Segment earnings ⁽¹⁾	252.3		128.3		(68.4		)	312.2
Depreciation and amortization	82.9		36.8		3.9			123.6
Capital expenditures	80.2		39.1		3.5			122.8
Total assets	7,702.2		2,703.2		1,956.6			12,362.0

Three Months Ended October 1, 2016
Seating E-Systems Other Consolidated
Revenues from external customers $ 3,513.3
$ 1,013.1
$ —
$ 4,526.4
Segment earnings ⁽¹⁾
269.5
140.3
(64.7 ) 345.1
Depreciation and amortization 67.9
27.5
3.3
98.7
Capital expenditures 80.3
34.9
3.4
118.6
Total assets 6,348.8
1,746.6
2,182.0
10,277.4

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

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

⁽¹⁾See definition above

For the three months ended ~~September 30, 2017,~~April 4, 2020, segment earnings include restructuring charges of$~~13.3 million, $2.7~~12.3 million and ~~$1.0~~$20.3 million in the ~~seating~~Seating and E-Systems segments, respectively. The Company expects to incur approximately $19 million and approximately $27 million of additional restructuring costs in the ~~other category, respectively. For the nine months ended September 30, 2017, segment earnings include restructuring charges of $29.6 million, $6.3 million and $12.7 million in the seating~~Seating and E-Systems segments, ~~and in the other category,~~ respectively, ~~(Note 3, "Restructuring").~~related to

For the three months ended October 1, 2016, segment earnings include restructuring charges of $7.8 million, $6.9 million and $0.2 million in the seating and E-Systems segments and in the other category, respectively. For the nine months ended October 1, 2016, segment earnings include restructuring charges of $30.8 million, $17.5 million and $2.9 million in the seating and E-Systems segments and in the other category, respectively (Note 3, "Restructuring").

2426

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

activities initiated as of April 4, 2020, and expects that the components of such costs will be consistent with its historical experience.

For the three months ended March 30, 2019, segment earnings include restructuring charges of $45.2 million, $8.9 million and $0.2 million in the Seating and E-Systems segments and in the other category, respectively.

For further information, see Note 3, "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):



	Three Months Ended
	April 4, 2020		March 30, 2019
Segment earnings	$	173.4	$	312.2
Interest expense	24.4		20.9
Other expense, net	40.5		4.4
Consolidated income before provision for income taxes and equity in net income of affiliates	$	108.5	$	286.9

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

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

Debt Instruments

The carrying values of the ~~Company’s debt instruments~~Notes vary from their fair values. The fair values of the Notes were determined by reference to the quoted market prices of these securities (Level 2 input based on the GAAP fair value hierarchy). The carrying value of the Company’s Term Loan Facility approximates its fair value (Level 3 input based on the GAAP fair value hierarchy). The estimated fair value, as well as the carrying value, of the Company's debt instruments are shown below (in millions):



	April 4, 2020		December 31, 2019
Estimated aggregate fair value ⁽¹⁾	$	2,062.3	$	2,384.6
Aggregate carrying value ⁽¹⁾⁽²⁾	2,331.2		2,334.4

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

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

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

Cash, Cash Equivalents and Restricted Cash

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



	April 4, 2020		March 30, 2019
Balance sheet - cash and cash equivalents	$	2,449.1	$	1,199.4
Restricted cash included in other current assets	11.2		13.9
Restricted cash included in other long-term assets	1.6		7.6
Statement of cash flows - cash, cash equivalents and restricted cash	$	2,461.9	$	1,220.9

Accounts Receivable ~~Factoring~~

~~One~~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 ~~Company's European subsidiaries has~~measurement of credit losses related to certain financial instruments, including the replacement of the existing incurred credit loss model and other models with the current expected credit losses ("CECL") model. The cumulative effect of adoption resulted in an ~~uncommitted factoring agreement, which provides~~increase of $0.8 million in the allowance for ~~aggregate purchases~~credit loss and a corresponding decrease in retained earnings as of ~~specified customer~~January 1, 2020.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

The Company’s allowance for credit losses on financial assets measured at amortized cost, primarily accounts receivable, reflects management’s estimate of upcredit 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 ~~€200 million.~~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 ~~September 30, 2017, there~~April 4, 2020 and December 31, 2019, accounts receivable are reflected net of reserves of $36.7 million and $36.0 million, respectively. Changes in expected credit losses were ~~no factored receivables outstanding. The Company cannot provide any assurances that this factoring facility will be available or utilized~~not significant in the ~~future.~~first three months of 2020.

Marketable Equity Securities

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



	April 4, 2020		December 31, 2019
Current assets	$	7.7	$	17.1
Other long-term assets	33.2		42.1
	$	40.9	$	59.2

Unrealized gains and losses arising from changes in the fair value of the marketable equity securities are recognized in the ~~accompanying~~ condensed consolidated ~~statement~~statements of comprehensive income (loss) as a component of other expense, net. 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 April 4, 2020 and December 31, 2019, investments in equity securities without readily determinable fair values of $15.2 million are included in other long-term assets in the accompanying condensed consolidated balance sheets. Such investments are valued at cost, less any impairment, and adjusted for changes resulting from observable, orderly transactions for identical or similar securities.

Derivative Instruments and Hedging Activities

The Company has used derivative financial instruments, including forwards, futures, options, swaps and other derivative contracts to reduce the effects of fluctuations in foreign exchange rates and interest rates and the resulting variability of the Company’s operating results. The Company is not a party to leveraged derivatives. The Company’s derivative financial instruments are subject to master netting arrangements that provide for the net settlement of contracts, by counterparty, in the event of default or termination. On the date that a derivative contract for a hedging instrument is entered into, the Company designates the derivative as either (1) a hedge of the exposure to changes in the fair value of a recognized asset or liability or of an unrecognized firm commitment (a fair value hedge), (2) a hedge of the exposure of a forecasted transaction or of the variability in the cash flows of a recognized asset or liability (a cash flow hedge), (3) a hedge of a net investment in a foreign operation (a net investment hedge) or (4) a contract not designated as a hedging instrument.

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

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~~LEAR CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

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

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

in the consolidated statements of cash flows. Cash flows attributable to forward starting interest rate swaps are classified as financing activities in the condensed consolidated statements of cash flows.

The Company formally documents its hedge relationships, including the identification of the hedge instruments and the related hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. Derivatives are recorded at fair value in other current and long-term assets and other current and long-term liabilities in the consolidated balance sheet. The Company also formally assesses whether a derivative used in a hedge transaction is highly effective in offsetting changes in either the fair value or the cash flows of the hedged item. When it is determined that a hedged transaction is no longer probable to occur, the Company discontinues hedge accounting.

Foreign Exchange

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

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

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

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

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

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

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

Net Investment Hedges

The Company uses cross-currency interest rate swaps, which are designated as net investment hedges of the foreign currency rate exposure of its investment in certain Euro-denominated subsidiaries. In the first quarter of 2020, interest expense in the accompanying consolidated statement of comprehensive income (loss) was offset by $1.6 million related to contra interest expense on these net investment hedges.

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Balance Sheet Classification

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



	April 4, 2020			December 31, 2019
Fair value of foreign currency contracts designated as cash flow hedges:
Other current assets	$	22.4		$	44.0
Other long-term assets	1.0			7.3
Other current liabilities	(94.1		)	(4.5		)
Other long-term liabilities	(33.6		)	(0.2		)
	(104.3		)	46.6
Notional amount	$	1,275.9		$	1,465.8
Outstanding maturities in months, not to exceed	24			24
Fair value of derivatives designated as net investment hedges:
Other long-term assets	$	18.6		$	—
Other long-term liabilities	—			(4.4		)
	18.6			(4.4		)
Notional amount	$	300.0		$	300.0
Outstanding maturities in months, not to exceed	54			57
Fair value of foreign currency contracts not designated as hedging instruments:
Other current assets	$	9.5		$	6.9
Other current liabilities	(44.2		)	(3.2		)
	(34.7		)	3.7
Notional amount	$	1,086.3		$	697.0
Outstanding maturities in months, not to exceed	9			12
Total fair value	$	(120.4	)	$	45.9
Total notional amount	$	2,662.2		$	2,462.8

Accumulated Other Comprehensive Loss - Derivative Instruments and Hedging

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



	Three Months Ended
	April 4, 2020			March 30, 2019
Gains (losses) recognized in accumulated other comprehensive loss:
Foreign currency contracts	$	(143.3	)	$	24.8
Net investment hedge contracts	23.0			—
Interest rate swap contracts	—			(14.7		)
	(120.3		)	10.1
(Gains) losses reclassified from accumulated other comprehensive loss to:
Net sales	(0.1		)	0.5
Cost of sales	(7.6		)	(9.7		)
Interest expense	0.6			—
	(7.1		)	(9.2		)
Comprehensive income (loss)	$	(127.4	)	$	0.9

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

Three Months Ended Nine Months Ended
September 30,
2017 October 1,
2016 September 30,
2017 October 1,
2016
Gains (losses) recognized in accumulated other comprehensive loss: $ (5.5 ) $ (22.3 ) $ 68.1
$ (77.2 )

(Gains) losses reclassified from accumulated other comprehensive loss to:
Net sales 0.8
2.2
1.4
3.6
Cost of sales (4.6 ) 20.9
6.5
59.3

(3.8 ) 23.1
7.9
62.9
Comprehensive income (loss) $ (9.3 ) $ 0.8
$ 76.0
$ (14.3 )

As of ~~September 30, 2017~~April 4, 2020 and December 31, ~~2016,~~2019, pretax net gains (losses) of ~~approximately $19.5~~($108.0) million and ~~($56.5)~~$19.4 million, respectively, related to the Company’s derivative instruments and hedging activities were recorded in accumulated other comprehensive loss.

During the next twelve month period, ~~the Company expects~~net losses expected to ~~reclassify~~be reclassified into earnings ~~net gains of approximately $14.6 million recorded in accumulated other comprehensive loss as of September 30, 2017.~~ are shown below (in millions):



Net losses related to foreign currency contracts	$	71.8
Net losses related to interest rate swap contracts	2.4
Total	$	74.2

Such ~~gains~~losses will be reclassified at the time that the underlying hedged transactions are realized.

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

Fair Value Measurements

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



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

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

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

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



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

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

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

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

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~~LEAR CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

Items Measured at Fair Value on a Recurring Basis

Fair value measurements and the related valuation techniques and fair value hierarchy level for the Company’s assets and liabilities measured at fair value on a recurring basis as of ~~September 30, 2017~~April 4, 2020 and December 31, ~~2016,~~2019, are shown below (in millions):


	September 30, 2017										April 4, 2020
	Frequency	Asset (Liability)		Valuation Technique	Level 1		Level 2		Level 3		Frequency	Asset (Liability)			Valuation Technique	Level 1		Level 2			Level 3
Foreign currency contracts, net	Recurring	$	21.4	Market/ Income	$	—	$	21.4	$	—	Recurring	$	(139.0	)	Market/ Income	$	—	$	(139.0	)	$	—
Net investment hedges											Recurring	$	18.6		Market/ Income	$	—	$	18.6		$	—
Marketable equity securities	Recurring	$	40.7	Market	$	40.7	$	—	$	—	Recurring	$	40.9		Market	$	40.9	$	—		$	—

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

December 31, 2016
Frequency
Asset
(Liability)

Valuation
Technique
Level 1 Level 2 Level 3

Foreign currency contracts, net
Recurring $ (54.4 ) Market/ Income $ —
$ (54.4 ) $ —
Marketable equity securities Recurring $ 30.2
Market $ 30.2
$ —
$ —



	December 31, 2019
	Frequency	Asset (Liability)			Valuation Technique	Level 1	Level 2		Level 3
Foreign currency contracts, net	Recurring	$	50.3		Market/ Income	—	50.3		—
Net investment hedges	Recurring	$	(4.4	)	Market/ Income	—	(4.4	)	—
Marketable equity securities	Recurring	$	59.2		Market	59.2	—		—

The Company determines the fair value of its derivative contracts using quoted market prices to calculate the forward values and then discounts such forward values to the present value. The discount rates used are based on quoted bank deposit or swap interest rates. If a derivative contract is in a net liability position, the Company adjusts these discount rates, if required, by an estimate of the credit spread that would be applied by market participants purchasing these contracts from the Company’s counterparties. If an estimate of the credit spread is required, the Company uses significant assumptions and factors other than quoted market rates, which would result in the classification of its derivative liabilities within Level 3 of the fair value hierarchy. As of ~~September 30, 2017~~April 4, 2020 and December 31, ~~2016,~~2019, there were no0 derivative contracts that were classified within Level 3 of the fair value hierarchy. In addition, there were no0 transfers in or out of Level 3 of the fair value hierarchy in ~~2017.~~the first quarter of 2020.

Items Measured at Fair Value on a Non-Recurring Basis

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

AsIn the first quarter of 2020, the Company completed a ~~result~~quantitative goodwill impairment assessment for one of the 2017 consolidation of Lear STEC, Level 3 fair value estimates of $16.2 million related to property, plant and equipment, $66.0 million related to customer-based intangible assets and $125.0 million related to redeemable noncontrolling interest are recorded in the accompanying condensed consolidated balance sheet as of September 30, 2017. In addition, the consolidation of Lear STEC required a Level 3 fair value estimate of $94.0 million related to the Company's previously held equity interest.

As a result of the 2017 acquisition of Antolin Seating, Level 3 fair value estimates of $81.7 million related to property, plant and equipment and $121.4 million related to intangible assets are recorded in the accompanying condensed consolidated balance sheet as of September 30, 2017.

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

Fair value estimates of property, plant and equipment were based on independent appraisals, giving consideration to the highest and best use of the assets. Key assumptions used in the appraisals were based on a combination of market and cost approaches, as appropriate. Fair value estimates of customer-based intangible assets were based on the present value of future earnings attributable to the asset group after recognition of required returns to other contributory assets. Fair value estimates of redeemable noncontrolling and equity interests were based on the present value of future cash flows and a value to earnings multiple approach and reflect discounts for the lack of control and the lack of marketability associated with noncontrolling and equity interests. Further, theits reporting units. The fair value estimate of the ~~redeemable noncontrolling interest includes an estimate~~reporting unit was based on a third-party valuation and management's estimates, using a combination of the ~~fair value~~

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~~LEAR CORPORATION AND SUBSIDIARIES~~

~~NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Continued)~~

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

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

As of ~~September 30, 2017,~~April 4, 2020, there were no additional significant assets or liabilities measured at fair value on a non-recurring basis.

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

The Company ~~has considered~~considers the applicability and impact of all ASUs issued by the Financial Accounting Standards Board ("FASB").

The Company considered the ASUs summarized below, ~~which could significantly~~effective for 2020:

Measurement of Credit Losses on Financial Instruments

See Note 18, "Financial Instruments — Accounts Receivable."

Simplifying the Test for Goodwill Impairment

Effective January 1, 2020, 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 (i.e., "Step 2" under current guidance).

Reference Rate Reform

In March 2020, the FASB issued guidance related to reference rate reform. The guidance provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and generally can be applied to applicable contract modifications and hedge relationships through December 31, 2022. The adoption of this guidance is not expected to have a significant impact ~~its~~on the Company's financial ~~statements:~~

statements.



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

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

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

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

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

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

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Continued)

~~In addition to the adoption of ASU 2016-09, "Improvements to Employee Share-Based Payment Accounting," discussed in Note 11, "Income Taxes," the~~The Company ~~adopted~~considered the ASUs summarized below, effective after 2020:

Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." The standard simplifies the accounting for income taxes by eliminating certain exceptions to the general principles in ~~2017.~~Topic 740 and amends existing guidance to improve consistent application. The ~~effects~~standard is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020, with early adoption permitted. The adoption of ~~adopting the ASUs listed below did~~this standard is not ~~significantly~~expected to have a significant impact on the Company's financial ~~statements:~~statements.



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

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



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

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

RESULTS OF OPERATIONS

~~Executive Overview~~EXECUTIVE OVERVIEW

We are a leading Tier 1 supplier to the global automotive industry. We supply seating, electrical distribution systems and electronic modules, as well as related sub-systems, components and software, to all of the world's major automotive manufacturers.

We use our product, design and technological expertise, global reach and competitive manufacturing footprint to achieve our financial goals and objectives of continuing to deliver profitable growth (balancing risks and returns), maintaining a strong balance sheet with investment grade credit metrics and consistently returning excess cash to our stockholders.

Our ~~seating~~Seating business 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. 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 systems, ~~that~~as well as sophisticated electronic control modules, electrification products, connectivity products and software solutions for the cloud, vehicles and mobile devices. Electrical distribution systems route networks and electrical signals and manage electrical power within the vehicle for all types of powertrains - from traditional ~~vehicle~~internal combustion engine ("ICE") architectures ~~as well as high power~~to the full range of hybrid, plug-in hybrid and ~~hybrid~~battery electric ~~systems.~~architectures. Key components in ~~the~~our electrical distribution ~~system~~portfolio include ~~wiring~~wire harnesses, terminals and connectors and junction boxes ~~including components~~ for ~~high power~~both ICE and ~~hybrid electric systems. We also design, develop, engineer~~electrification architectures that require management of higher voltage and ~~manufacture sophisticated electronic~~power. Electronic control modules ~~that~~ facilitate signal, data and power management within the vehicle and include the associated software required to facilitate these functions. Key components in our electronic control module portfolio include body control modules, wireless receiver and transmitter technology and lighting and audio control modules, as well as ~~associated software. We have added capabilities in wireless~~products specific to electrification and connectivity trends. Electrification products include charging systems (onboard charging modules and cord set charging equipment), battery electronics (battery disconnect units, cell monitoring supervisory systems and integrated total battery control modules) and other power management modules, including converter and inverter systems which may be integrated into other modules or sold separately. Connectivity products include gateway modules and communication modules to manage both wired and wireless networks and data in vehicles. In addition to fully functional electronic modules, we offer software that includes cybersecurity, ~~that securely process various signals to, from~~advanced vehicle positioning for automated and ~~within the vehicle, as well as capabilities to provide~~autonomous driving applications, roadside modules that communicate real-time traffic information and full capabilities in both dedicated short-range communication and cellular protocols for vehicle connectivity. Our software solutions also include Xevo Journeyware, a thin-client platform for the cloud, vehicles and mobile devices that enables consumer e-commerce, multi-media applications and enterprise services to ~~vehicles in~~improve performance and safety, deliver an artificial intelligence-enhanced driving experience and provide new monetization opportunities for us and the ~~area.~~automotive manufacturers, and Xevo Market, an in-vehicle commerce and service platform that connects customers with their favorite brands and services by delivering highly-contextual sales offers through vehicle touch screens and vehicle-branded mobile applications.

We serve all of the world's major automotive manufacturers across both our ~~seating~~Seating and E-Systems ~~businesses.~~businesses, and we have automotive content on more than 400vehicle nameplates worldwide. It is common to have both seating and electrical content on the same and multiple vehicle platforms with a single customer. Further, the seat is becoming a more dynamic and integrated system requiring increased levels of electrical and electronic integration and accelerating the convergence of our Seating and E-Systems businesses. We are the only global automotive supplier with complete capabilities in both of these critical business segments. 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. Our core capabilities are shared across component categories ~~including~~and include high-precision manufacturing and assembly with short lead times, management of complex supply chains, global engineering and program management skills, the agility to establish and/or transfer production between facilities quickly and a unique customer-focused culture. Our businesses utilize proprietary, industry-specific processes and standards, leverage common low-cost engineering centers and share centralized operating support functions, such as logistics, supply chain management, quality and health and safety, as well as 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 consumer demand for automotive vehicles~~For further information related to industry trends and our ~~content per vehicle. Global automotive industry production volumes in the first nine months~~strategy, see Part 1 — Item 1, "Business — Industry and Strategy," of ~~2017, as compared to the first nine months of 2016, are shown below (in millions of units):~~

Nine Months Ended
September 30, 2017 October 1, 2016 % Change
North America 13.0 13.5 (4 )%
Europe and Africa 17.1 16.7 2 %
Asia 34.9 33.3 5 %
South America 2.3 1.9 21 %
Other 1.2 1.1 9 %
Global light vehicle production 68.5 66.5 3 %

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

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

~~In the first nine months of 2017 and 2016, our percentage of net sales by region is shown below:~~

2017 2016
North America 39 % 41 %
Europe and Africa 40 % 39 %
Asia 18 % 17 %
South America 3 % 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.

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. In addition, three major mega-trends have broadly emerged as major drivers of change and growth in the automotive industry: connectivity, safety and efficiency. These trends support shared mobility and long-term convergence to fully connected, fully autonomous and fully electric / highly efficient vehicles.

Our sales and marketing approach is based on addressing these trends, while our strategy focuses on the major imperatives for success as an automotive supplier: quality, service, cost and efficiency and innovation and technology. We have expanded key component and software capabilities through organic investment and acquisitions to ensure a full complement of the highest quality solutions for our customers. We have restructured, and continue to align, our manufacturing and engineering footprint to attain a leading competitive position globally. We have established or expanded our capabilities 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.

Our customers typically require us to reduce our prices over the life of a vehicle model and, at the same time, assume significant responsibility for the design, development and engineering of our products. Our financial performance is largely dependent on our ability to achieve 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 improve our business structure and align our business with the changing needs of our customers and major industry trends affecting our business.

Our material cost as a percentage of net sales was 65.0% in the first nine months of 2017, as compared to 65.1% in the first nine months of 2016. Raw material, energy and commodity costs can be volatile. We have developed and implemented strategies to mitigate the impact of higher raw material, energy and commodity costs, such as the selective in-sourcing of components, the continued consolidation of our supply base, longer-term purchase commitments and the selective expansion of low-cost country sourcing and engineering, as well as value engineering and product benchmarking. However, these strategies, together with commercial negotiations with our customers and suppliers, typically offset only a portion of the adverse impact. Certain of these strategies also may limit our opportunities in a declining commodity environment. In addition, the availability of raw materials, commodities and product components fluctuates from time to time due to factors outside of our control. If these costs increase or availability is restricted, it could have an adverse impact on our operating results in the foreseeable future. See "— Forward-Looking Statements" below and Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019.

~~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 and expanding our business with our existing customers in our more established markets, our expansion plans are focused primarily on emerging markets. Asia, in particular, continues to present significant growth opportunities, as major global automotive manufacturers implement production expansion plans and local automotive manufacturers aggressively expand their operations to meet increasing demand in this region. We currently have fifteen joint ventures with operations in Asia, as well as an additional joint venture in North America dedicated to serving Asian automotive manufacturers. We also have aggressively pursued this strategy by selectively increasing our vertical integration

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~~capabilities globally,~~COVID-19 Pandemic

Industry overview

Unprecedented industry disruptions related to the COVID-19 pandemic during the first quarter of 2020 impacted operations in every region of the world. Global automotive industry production volumes in the first three months of 2020, as ~~well as expanding our component manufacturing capacity in Asia, Brazil, Eastern Europe, Mexico and Northern Africa. Furthermore, we have expanded our low-cost engineering capabilities in India and~~compared to the ~~Philippines.~~first three months of 2019, are shown below (in millions of units):



	Three Months Ended
	April 4, 2020 ⁽¹⁾	March 30, 2019 ^{(1) (2)}	% Change
North America	3.8	4.2	(10	)%
Europe and Africa	4.7	5.8	(19	)%
Asia	7.9	11.3	(30	)%
South America	0.6	0.8	(16	)%
Other	0.3	0.4	(16	)%
Global light vehicle production	17.3	22.5	(23	)%

⁽¹⁾Production data based on IHS Automotive

⁽²⁾Production data for 2019 has been updated to reflect actual production levels

Our ~~success~~operations in ~~generating cash flow will depend,~~China were impacted first, with most plants in ~~part, on our ability to manage working capital effectively. Working capital can be significantly impacted by~~ the ~~timing~~country closed for several weeks during the quarter. At the end 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~~quarter, all of our ~~suppliers, as well as~~facilities in China were operating and capacity utilization is increasing. Beginning in mid-March, our ~~financial condition. In addition, our cash flow is~~operations in Europe, North America, South America and Asia (excluding China) were impacted, ~~by our ability to manage our inventory and capital spending effectively. We utilize return on invested capital as a measure~~with virtually all plants closed at the end of the ~~efficiency with which our assets generate earnings. Improvements~~quarter and closures continuing throughout April and, in ~~our return on invested capital will depend on our ability to maintain an appropriate asset base for our business and to increase productivity and operating efficiency.~~

~~Acquisition~~

On April 28, 2017, we completed the acquisition of Grupo Antolin's automotive seating business ("Antolin Seating") for $292 million, net of cash acquired. Antolin Seating is headquartered in France with operations in five countriesmost cases, into May. While manufacturing has resumed at certain locations in Europe and North ~~Africa.~~America, production levels at these facilities are currently well below capacity. Accordingly, the COVID-19 pandemic is expected to have a material impact on our second quarter 2020 sales, operating results and cash flows.

It is also likely that the global automotive industry will experience lower demand for new vehicle sales for a period of time as a result of the global economic slowdown caused by the COVID-19 pandemic, as new vehicle sales are correlated with positive consumer confidence and low unemployment. In addition, our customers may request extended payment terms, as part of their own response to the COVID-19 pandemic. Finally, a resurgence of the virus with corresponding shelter-in-place orders later in the year could further impact our financial results.

Our percentage of consolidated net sales by region in the first three months of 2020 and 2019 is shown below:



	Three Months Ended
	April 4, 2020		March 30, 2019
North America	42	%	36	%
Europe and Africa	40	%	42	%
Asia	15	%	19	%
South America	3	%	3	%
Total	100	%	100	%

We are working closely with our global customers and supply chain as the industry prepares to restart manufacturing facilities. We are completing a comprehensive evaluation of our supply base to identify and address areas that could impact the ability to restart production. Further, we are advising and supporting government agencies and industry trade groups regarding best practices related to resuming production safely and efficiently.

Liquidity actions

In response to the COVID-19 pandemic, we have taken a number of proactive steps to preserve cash and maximize our financial flexibility, including the elimination of discretionary spending, the implementation of salary reductions and deferrals, the reduction of capital expenditures, the aggressive management of working capital, the temporary suspension of share repurchases and quarterly dividends and borrowed $1.0 billion under our revolving credit facility. With $2.45 billion of cash on hand at the end of the first quarter, $750 million of remaining availability on our revolving credit facility and no near-term debt maturities, we are well positioned to withstand the continuing effects of the COVID-19 pandemic.

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Employee protection

Our top priority is to ensure the health and safety of our employees. We have restricted business travel, prevented visitors from entering our facilities, enhanced disinfection and cleaning procedures at our facilities, promoted social distancing and required employees to work from home wherever possible. Further, we are actively planning for the safe return to work of all of our employees. We have created a Safe Work Playbook, which provides practical guidelines for creating a safe work environment and offers insights into navigating operational challenges related to the COVID-19 pandemic. The ~~Antolin Seating business is comprised~~playbook includes health and safety information related to plant operating protocols; employee education, training and feedback; facility assessments; and phased reopening of ~~just-in-time seat assembly, as well as seat structures, mechanisms~~engineering and ~~seat covers.~~administrative centers.

For risks related to the COVID-19 pandemic, see Part II — Item 1A, "Risk Factors," included in this Report.

Financing Transactions

Senior Notes

In February 2020, we issued $350 million in aggregate principal amount at maturity of 2030 notes (the "2030 Notes") and an additional $300 million in aggregate principal amount at maturity of 2049 notes (the "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 million after original issue discount. The proceeds were used to redeem the $650 million in aggregate principal amount of 2025 notes (the "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.

For further information, see "— Liquidity and Capital Resources — Capitalization — Senior Notes" below and Note ~~2, "Acquisitions,~~8 "Debt," to the condensed consolidated financial statements included in this Report.

Credit Agreement

Our unsecured credit agreement (the "Credit Agreement"), dated August 8, 2017, consists of a $1.75 billion revolving credit facility (the "Revolving Credit Facility") and a $250 million term loan facility (the "Term Loan Facility"). In February 2020, we entered into an agreement to extend the maturity date of the Revolving Credit Facility by one year to August 8, 2024, and paid related issuance costs of $1 million. The maturity date of the Term Loan Facility remains August 8, 2022.

On March 26, 2020, as a proactive measure in response to the COVID-19 pandemic, we announced the borrowing of $1.0 billion under the Revolving Credit Facility, resulting in remaining availability of $750 million.

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

~~Operational Restructuring~~RESULTS OF OPERATIONS

EXECUTIVE OVERVIEW

We are a leading Tier 1 supplier to the ~~first nine months~~global automotive industry. We supply seating, electrical distribution systems and electronic modules, as well as related sub-systems, components and software, to all of ~~2017,~~the world's major automotive manufacturers.

Our Seating business 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. Further, we ~~incurred pretax restructuring costs~~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 ~~approximately $49 million. Any future restructuring actions will depend upon market conditions, customer actions~~the design, development, engineering and manufacture of complete electrical distribution systems, as well as sophisticated electronic control modules, electrification products, connectivity products and software solutions for the cloud, vehicles and mobile devices. Electrical distribution systems route networks and electrical signals and manage electrical power within the vehicle for all types of powertrains - from traditional internal combustion engine ("ICE") architectures to the full range of hybrid, plug-in hybrid and battery electric architectures. Key components in our electrical distribution portfolio include wire harnesses, terminals and connectors and junction boxes for both ICE and electrification architectures that require management of higher voltage and power. Electronic control modules facilitate signal, data and power management within the vehicle and include the associated software required to facilitate these functions. Key components in our electronic control module portfolio include body control modules, wireless receiver and transmitter technology and lighting and audio control modules, as well as products specific to electrification and connectivity trends. Electrification products include charging systems (onboard charging modules and cord set charging equipment), battery electronics (battery disconnect units, cell monitoring supervisory systems and integrated total battery control modules) and other ~~factors.~~power management modules, including converter and inverter systems which may be integrated into other modules or sold separately. Connectivity products include gateway modules and communication modules to manage both wired and wireless networks and data in vehicles. In addition to fully functional electronic modules, we offer software that includes cybersecurity, advanced vehicle positioning for automated and autonomous driving applications, roadside modules that communicate real-time traffic information and full capabilities in both dedicated short-range communication and cellular protocols for vehicle connectivity. Our software solutions also include Xevo Journeyware, a thin-client platform for the cloud, vehicles and mobile devices that enables consumer e-commerce, multi-media applications and enterprise services to improve performance and safety, deliver an artificial intelligence-enhanced driving experience and provide new monetization opportunities for us and the automotive manufacturers, and Xevo Market, an in-vehicle commerce and service platform that connects customers with their favorite brands and services by delivering highly-contextual sales offers through vehicle touch screens and vehicle-branded mobile applications.

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 400vehicle nameplates worldwide. It is common to have both seating and electrical content on the same and multiple vehicle platforms with a single customer. Further, the seat is becoming a more dynamic and integrated system requiring increased levels of electrical and electronic integration and accelerating the convergence of our Seating and E-Systems businesses. We are the only global automotive supplier with complete capabilities in both of these critical business segments. 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. 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, such as logistics, supply chain management, quality and health and safety, as well as all major administrative functions.

For further information related to industry trends and our strategy, see ~~Note 3, "Restructuring,~~Part 1 — Item 1, "Business — Industry and Strategy," of our Annual Report on Form 10-K for the year ended December 31, 2019.

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COVID-19 Pandemic

Industry overview

Unprecedented industry disruptions related to the ~~condensed~~COVID-19 pandemic during the first quarter of 2020 impacted operations in every region of the world. Global automotive industry production volumes in the first three months of 2020, as compared to the first three months of 2019, are shown below (in millions of units):



	Three Months Ended
	April 4, 2020 ⁽¹⁾	March 30, 2019 ^{(1) (2)}	% Change
North America	3.8	4.2	(10	)%
Europe and Africa	4.7	5.8	(19	)%
Asia	7.9	11.3	(30	)%
South America	0.6	0.8	(16	)%
Other	0.3	0.4	(16	)%
Global light vehicle production	17.3	22.5	(23	)%

⁽¹⁾Production data based on IHS Automotive

⁽²⁾Production data for 2019 has been updated to reflect actual production levels

Our operations in China were impacted first, with most plants in the country closed for several weeks during the quarter. At the end of the quarter, all of our facilities in China were operating and capacity utilization is increasing. Beginning in mid-March, our operations in Europe, North America, South America and Asia (excluding China) were impacted, with virtually all plants closed at the end of the quarter and closures continuing throughout April and, in most cases, into May. While manufacturing has resumed at certain locations in Europe and North America, production levels at these facilities are currently well below capacity. Accordingly, the COVID-19 pandemic is expected to have a material impact on our second quarter 2020 sales, operating results and cash flows.

It is also likely that the global automotive industry will experience lower demand for new vehicle sales for a period of time as a result of the global economic slowdown caused by the COVID-19 pandemic, as new vehicle sales are correlated with positive consumer confidence and low unemployment. In addition, our customers may request extended payment terms, as part of their own response to the COVID-19 pandemic. Finally, a resurgence of the virus with corresponding shelter-in-place orders later in the year could further impact our financial results.

Our percentage of consolidated net sales by region in the first three months of 2020 and 2019 is shown below:



	Three Months Ended
	April 4, 2020		March 30, 2019
North America	42	%	36	%
Europe and Africa	40	%	42	%
Asia	15	%	19	%
South America	3	%	3	%
Total	100	%	100	%

Liquidity actions

In response to the COVID-19 pandemic, we have taken a number of proactive steps to preserve cash and maximize our financial ~~statements~~flexibility, including the elimination of discretionary spending, the implementation of salary reductions and deferrals, the reduction of capital expenditures, the aggressive management of working capital, the temporary suspension of share repurchases and quarterly dividends and borrowed $1.0 billion under our revolving credit facility. With $2.45 billion of cash on hand at the end of the first quarter, $750 million of remaining availability on our revolving credit facility and no near-term debt maturities, we are well positioned to withstand the continuing effects of the COVID-19 pandemic.

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Employee protection

Our top priority is to ensure the health and safety of our employees. We have restricted business travel, prevented visitors from entering our facilities, enhanced disinfection and cleaning procedures at our facilities, promoted social distancing and required employees to work from home wherever possible. Further, we are actively planning for the safe return to work of all of our employees. We have created a Safe Work Playbook, which provides practical guidelines for creating a safe work environment and offers insights into navigating operational challenges related to the COVID-19 pandemic. The playbook 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.

For risks related to the COVID-19 pandemic, see Part II — Item 1A, "Risk Factors," included in this Report.

Financing Transactions

Senior Notes

In ~~August 2017,~~February 2020, we issued ~~$750~~$350 million in aggregate principal amount at maturity of ~~senior unsecured~~2030 notes ~~due 2027~~ (the ~~"2027 Notes”~~"2030 Notes") and an additional $300 million in aggregate principal amount at maturity of 2049 notes (the "2049 Notes"). The 2030 Notes have a stated coupon rate of ~~3.8%. The 2027 Notes~~3.5% and were ~~priced~~issued at ~~99.294%~~99.774% of par, resulting in a yield to maturity of ~~3.885%~~3.525%. The 2049 Notes have a stated coupon rate of 5.25% and were issued at 106.626% of par, resulting in a yield to maturity of 4.821%.

The net proceeds from the offering ~~of $745~~were $669 million after original issue ~~discount,~~discount. The proceeds were used to redeem the ~~$500~~$650 million in aggregate principal amount of ~~senior unsecured~~2025 notes ~~due 2023~~ (the ~~"2023~~"2025 Notes") at a redemption price equal to ~~100%~~102.625% of the ~~aggregate~~ principal amount ~~thereof,~~of such 2025 Notes, plus ~~a "make-whole" premium of $17 million, as well as to refinance a portion of our $500 million prior term loan facility (see "— Credit Agreement" below).~~ 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.

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

Credit Agreement

~~In August 2017, we entered into a new~~Our unsecured credit agreement (the "Credit Agreement") ~~consisting~~, dated August 8, 2017, consists of a $1.75 billion revolving credit facility (the "Revolving Credit Facility") and a $250 million term loan facility (the "Term Loan Facility")~~, both~~. In February 2020, we entered into an agreement to extend the maturity date of ~~which mature on~~the Revolving Credit Facility by one year to August 8, ~~2022.~~ I~~n connection with this transaction, we borrowed $250 million under the Term Loan Facility~~2024, and paid related issuance costs of $6$1 million. AtThe maturity date of the ~~same time,~~Term Loan Facility remains August 8, 2022.

On March 26, 2020, as a proactive measure in response to the COVID-19 pandemic, we ~~terminated our previously existing credit agreement, which consisted~~announced the borrowing of ~~a $1.25~~$1.0 billion ~~revolving credit facility and a $500 million term loan facility, and repaid amounts outstanding~~ under the ~~term loan facility~~Revolving Credit Facility, resulting in remaining availability of ~~$453~~$750 million. ~~Together with the offering of the 2027 Notes, these transactions extended our maturity profile and increased our borrowing capacity.~~

~~Share Repurchase Program and Quarterly Cash Dividends~~

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

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

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

~~Other Matters~~

In September 2017, we amended the existing joint venture agreement of Shanghai Lear STEC Automotive Parts Co., Ltd. (“Lear STEC”) to eliminate the substantive participating rights of our joint venture partner. In conjunction with the consolidation 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 the three and nine months ended September 30, 2017.

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

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

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

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

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

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

This Item 2, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," includes forward-looking statements that are subject to risks and uncertainties. For further information regarding other factors that have had, or may have in the future, a significant impact on our business, financial condition or results of operations, see "— Forward-Looking Statements" below and Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2016.

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RESULTS OF OPERATIONS

EXECUTIVE OVERVIEW

Our Seating business 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. 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 systems, as well as sophisticated electronic control modules, electrification products, connectivity products and software solutions for the cloud, vehicles and mobile devices. Electrical distribution systems route networks and electrical signals and manage electrical power within the vehicle for all types of powertrains - from traditional internal combustion engine ("ICE") architectures to the full range of hybrid, plug-in hybrid and battery electric architectures. Key components in our electrical distribution portfolio include wire harnesses, terminals and connectors and junction boxes for both ICE and electrification architectures that require management of higher voltage and power. Electronic control modules facilitate signal, data and power management within the vehicle and include the associated software required to facilitate these functions. Key components in our electronic control module portfolio include body control modules, wireless receiver and transmitter technology and lighting and audio control modules, as well as products specific to electrification and connectivity trends. Electrification products include charging systems (onboard charging modules and cord set charging equipment), battery electronics (battery disconnect units, cell monitoring supervisory systems and integrated total battery control modules) and other power management modules, including converter and inverter systems which may be integrated into other modules or sold separately. Connectivity products include gateway modules and communication modules to manage both wired and wireless networks and data in vehicles. In addition to fully functional electronic modules, we offer software that includes cybersecurity, advanced vehicle positioning for automated and autonomous driving applications, roadside modules that communicate real-time traffic information and full capabilities in both dedicated short-range communication and cellular protocols for vehicle connectivity. Our software solutions also include Xevo Journeyware, a thin-client platform for the cloud, vehicles and mobile devices that enables consumer e-commerce, multi-media applications and enterprise services to improve performance and safety, deliver an artificial intelligence-enhanced driving experience and provide new monetization opportunities for us and the automotive manufacturers, and Xevo Market, an in-vehicle commerce and service platform that connects customers with their favorite brands and services by delivering highly-contextual sales offers through vehicle touch screens and vehicle-branded mobile applications.

For further information related to industry trends and our strategy, see Part 1 — Item 1, "Business — Industry and Strategy," of our Annual Report on Form 10-K for the year ended December 31, 2019.

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COVID-19 Pandemic

Industry overview



	Three Months Ended
	April 4, 2020 ⁽¹⁾	March 30, 2019 ^{(1) (2)}	% Change
North America	3.8	4.2	(10	)%
Europe and Africa	4.7	5.8	(19	)%
Asia	7.9	11.3	(30	)%
South America	0.6	0.8	(16	)%
Other	0.3	0.4	(16	)%
Global light vehicle production	17.3	22.5	(23	)%

⁽¹⁾Production data based on IHS Automotive

⁽²⁾Production data for 2019 has been updated to reflect actual production levels

It is also likely that the global automotive industry will experience lower demand for new vehicle sales for a period of time as a result of the global economic slowdown caused by the COVID-19 pandemic, as new vehicle sales are correlated with positive consumer confidence and low unemployment. In addition, our customers may request extended payment terms, as part of their own response to the COVID-19 pandemic. Finally, a resurgence of the virus with corresponding shelter-in-place orders later in the year could further impact our financial results.

Our percentage of consolidated net sales by region in the first three months of 2020 and 2019 is shown below:



	Three Months Ended
	April 4, 2020		March 30, 2019
North America	42	%	36	%
Europe and Africa	40	%	42	%
Asia	15	%	19	%
South America	3	%	3	%
Total	100	%	100	%

Liquidity actions

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Employee protection

Our top priority is to ensure the health and safety of our employees. We have restricted business travel, prevented visitors from entering our facilities, enhanced disinfection and cleaning procedures at our facilities, promoted social distancing and required employees to work from home wherever possible. Further, we are actively planning for the safe return to work of all of our employees. We have created a Safe Work Playbook, which provides practical guidelines for creating a safe work environment and offers insights into navigating operational challenges related to the COVID-19 pandemic. The playbook 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.

For risks related to the COVID-19 pandemic, see Part II — Item 1A, "Risk Factors," included in this Report.

Financing Transactions

Senior Notes

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.

Credit Agreement

Operational Restructuring

In the first quarter of 2020, we incurred pretax restructuring costs of $33 million and related manufacturing inefficiency charges of approximately $1 million, as compared to pretax restructuring costs of $54 million and related manufacturing inefficiency charges of approximately $2 million in the first quarter of 2019. None of the individual restructuring actions initiated during the first quarter of 2020 were material. 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. The decrease in restructuring costs in 2020, as compared to 2019, is primarily attributable to an elevated level of customer actions in 2019. Our restructuring actions are designed to maintain or improve our future operating results and to ensure profitability throughout the cyclical nature of the automotive industry. Restructuring actions are generally funded within twelve months of initiation and are funded by cash flows from operating activities and existing cash balances. There have been no changes in previously initiated restructuring actions that have resulted (or will result) in a material change to our restructuring costs. We expect to incur approximately $46 million of additional restructuring costs related to activities initiated as of April 4, 2020, all of which are expected to be incurred by the end of 2020. We plan to implement additional restructuring actions in response to the COVID-19 pandemic in order to align our manufacturing capacity and other costs with prevailing regional automotive production levels and locations. Such future restructuring actions are dependent on market conditions, customer actions and other factors.

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

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Share Repurchase Program and Quarterly Cash Dividends

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 temporarily suspended share repurchases under our share repurchase program. In the first quarter of 2020, we repurchased $70 million of shares (prior to the suspension) and have a remaining repurchase authorization of $1.4 billion, which will expire on December 31, 2022.

In March 2020, as a proactive measure in response to the COVID-19 pandemic, we temporarily suspended our quarterly cash dividend. In the first quarter of 2020 (prior to the suspension), our Board of Directors declared a quarterly cash dividend of $0.77 per share of common stock, reflecting a 3% increase over the quarterly cash dividend declared in 2019.

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

Other Matters

In the first quarter of 2020, we recognized net tax benefits of $11 million related to a loss on the extinguishment of debt, restructuring charges and various other items.

In the first quarter of 2019, we recognized net tax benefits of $18 million related to changes in the tax status of certain affiliates, $3 million related to share-based compensation and $16 million related to restructuring and various other items.

As discussed above, our results for the three months ended April 4, 2020 and March 30, 2019, reflect the following items (in millions):



	Three Months Ended
	April 4, 2020		March 30, 2019
Costs related to restructuring actions, including manufacturing inefficiencies of $1 million and $2 million in the three months ended April 4, 2020 and March 30, 2019	$	34	$	56
Loss on extinguishment of debt	21		—
Tax benefit, net	11		37

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

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RESULTS OF OPERATIONS

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


	Three Months Ended										Nine Months Ended										Three Months Ended
	September 30, 2017					October 1, 2016					September 30, 2017					October 1, 2016					April 4, 2020					March 30, 2019
Net sales
Seating	$	3,868.9		77.7	%	$	3,513.3		77.6	%	$	11,762.0		77.9	%	$	10,755.7		77.3	%	$	3,366.6		75.5	%	$	3,913.7		75.8	%
E-Systems	1,112.6			22.3		1,013.1			22.4		3,341.2			22.1		3,158.4			22.7		1,091.1			24.5		1,246.4			24.2
Net sales	4,981.5			100.0		4,526.4			100.0		15,103.2			100.0		13,914.1			100.0		4,457.7			100.0		5,160.1			100.0
Cost of sales	4,425.6			88.8		4,012.5			88.6		13,387.0			88.6		12,324.1			88.6		4,123.5			92.5		4,686.9			90.8
Gross profit	555.9			11.2		513.9			11.4		1,716.2			11.4		1,590.0			11.4		334.2			7.5		473.2			9.2
Selling, general and administrative expenses	158.2			3.2		153.6			3.4		471.1			3.1		456.9			3.3		143.7			3.2		148.3			2.9
Amortization of intangible assets	12.5			0.3		15.2			0.3		34.1			0.3		41.7			0.3		17.1			0.4		12.7			0.3
Interest expense	21.7			0.4		20.6			0.5		63.9			0.4		62.0			0.4		24.4			0.5		20.9			0.4
Other (income) expense, net	(21.8		)	(0.4	)	14.2			0.3		(12.3		)	(0.1	)	(0.8		)	—
Other expense, net																					40.5			0.9		4.4			0.1
Provision for income taxes	77.8			1.6		88.2			2.0		240.2			1.6		287.4			2.1		26.5			0.6		43.1			0.8
Equity in net income of affiliates	(7.5		)	(0.2	)	(12.9		)	(0.3	)	(41.3		)	(0.3	)	(49.2		)	(0.4	)	(1.6		)	—		(2.3		)	—
Net income attributable to noncontrolling interests	19.8			0.4		20.6			0.5		47.6			0.4		46.8			0.3		7.2			0.2		17.2			0.3
Net income attributable to Lear	$	295.2		5.9	%	$	214.4		4.7	%	$	912.9		6.0	%	$	745.2		5.4	%	$	76.4		1.7	%	$	228.9		4.4	%

Three Months Ended ~~September 30, 2017~~April 4, 2020 vs. Three Months Ended ~~October 1, 2016~~March 30, 2019

Net sales in the ~~third~~first quarter of ~~2017~~2020 were ~~$5.0~~$4.5 billion, as compared to ~~$4.5~~$5.2 billion in the ~~third~~first quarter of ~~2016, an increase~~2019, a decrease of ~~$455~~$702 million or ~~10%~~14%. ~~New business, primarily in North America and Europe,~~Lower production volumes on Lear platforms globally, largely due to the ~~acquisition of Antolin Seating~~COVID-19 pandemic, and net foreign exchange rate fluctuations ~~positively~~negatively impacted net sales by ~~$376 million, $118~~$675 million and ~~$92~~$108 million, respectively. These ~~increases~~decreases were partially offset by ~~lower production volumes on key Lear platforms,~~the impact of new business, primarily in North America, which ~~reduced~~increased net sales by ~~$164~~$130 million.


(in millions)	Cost of Sales		Cost of Sales
Third quarter 2016	$	4,013
First quarter 2019			$	4,687
Material cost	304		(482		)
Labor and other	95		(83		)
Depreciation	14		2
Third quarter 2017	$	4,426
First quarter 2020			$	4,124

Cost of sales in the ~~third~~first quarter of ~~2017~~2020 was ~~$4.4~~$4.1 billion, as compared to ~~$4.0~~$4.7 billion in the ~~third~~first quarter of ~~2016. New business, primarily in North America and Europe,~~2019. Lower production volumes on Lear platforms globally, largely due to the ~~acquisition of Antolin Seating~~COVID-19 pandemic, and net foreign exchange rate fluctuations ~~resulted in an increase in cost of sales of $530 million. These increases were partially offset by lower production volumes on key Lear platforms, primarily in North America, which~~ reduced cost of sales by ~~$142~~$597 million. These decreases were partially offset by the impact of new business, primarily in North America.

Gross profit and gross margin were ~~$556~~$334 million and ~~11.2%~~7.5% of net sales, respectively, in the ~~third~~first quarter of ~~2017,~~2020, as compared to ~~$514~~$473 million and ~~11.4%~~9.2% of net sales, respectively, in the ~~third~~first quarter of ~~2016. New business,~~2019. Lower production volumes on Lear platforms globally, largely due to the ~~acquisition of Antolin Seating~~COVID-19 pandemic, and net foreign exchange rate fluctuations, ~~positively~~partially offset by the impact of new business, negatively impacted gross profit by ~~$56~~$173 million. The impact of selling price reductions was more than offset by favorable operating performance, including the benefit of operational restructuring actions, and the acquisition of ~~$74 million was more than offset by the impact of selling price reductions and lower production volumes on key Lear platforms.~~Xevo Inc. ("Xevo"). These factors had a corresponding impact on gross margin.

Selling, general and administrative expenses, including engineering and development expenses, were ~~$158~~$144 million in the ~~third~~first quarter of ~~2017,~~2020, as compared to ~~$154~~$148 million in the ~~third~~first quarter of ~~2016.~~2019. As a percentage of net sales, selling, general and administrative expenses were 3.2% in the ~~third~~first quarter of ~~2017,~~2020, as compared to ~~3.4%~~2.9% in the ~~third~~first quarter of ~~2016.~~2019. In 2020, selling, general and administrative expenses benefited from lower compensation-related costs, largely offset by the operating expenses of our Xevo acquisition.

Amortization of intangible assets was $17 million in the first quarter of 2020, as compared to $13 million in the ~~third~~first quarter of ~~2017, as compared to $15 million in~~2019, reflecting the ~~third quarter~~acquisition of ~~2016.~~Xevo.

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Interest expense was ~~$22~~$24 million in the ~~third~~first quarter of ~~2017,~~2020, as compared to $21 million in the ~~third~~first quarter of ~~2016.~~

~~Table~~2019, reflecting our 2019 financing transactions related to the acquisition of ~~Contents~~

~~LEAR CORPORATION~~

Xevo.

Other ~~(income)~~ expense, net, which includes non-income related taxes, foreign exchange gains and losses, gains and losses related to certain derivative instruments and hedging activities, losses on the extinguishment of debt, gains and losses on the disposal of fixed assets, gains and losses on the consolidation and deconsolidation of affiliates, the non-service cost components of net periodic benefit cost and other miscellaneous income and expense, was ~~($22)~~$41 million in the ~~third~~first quarter of ~~2017,~~2020, as compared to ~~$14~~$4 million in the ~~third~~first quarter of ~~2016.~~2019. In the ~~third~~first quarter of ~~2017,~~2020, we recognized ~~a gain of approximately $54 million related to the consolidation of an affiliate and~~ a loss of $21 million onrelated to the extinguishment of debt. In the first quarters of 2020 and 2019, we recognized foreign exchange losses of $18 million and $6 million, respectively.

In the ~~third~~first quarter of ~~2017,~~2020, the provision for income taxes was ~~$78~~$27 million, representing an effective tax rate of ~~20.2%~~24.4% on pretax income before equity in net income of affiliates of ~~$385~~$109 million. In the ~~third~~first quarter of ~~2016,~~2019, the provision for income taxes was ~~$88~~$43 million, representing an effective tax rate of ~~28.4%~~15.0% on pretax income before equity in net income of affiliates of ~~$310~~$287 million, for the reasons described below. In the first quarter of 2020, we measured our tax expense based on the discrete effective tax rate method, as allowed by Accounting Standards Codification 740, “Income Taxes.” In the first quarter of 2019, we measured our tax expense based on the estimated annual effective rate. For further information, see Note 13 “Income Taxes," to the condensed consolidated financial statements included in this Report.

In the ~~third~~first quarters of ~~2017~~2020 and ~~2016,~~2019, the provision for income taxes was primarily impacted by the level and mix of earnings among tax jurisdictions. In the ~~third~~first quarter of ~~2017,~~2020, we recognized net tax benefits of ~~$14 million, of which $8~~$11 million related to a loss on the ~~redemption~~extinguishment of ~~the 2023 Notes and $6 million related to~~debt, restructuring charges and various other items. In ~~addition, we recognized a gain of approximately $54 million related to~~ the ~~consolidation of an affiliate, for which no tax expense was provided. In the third~~first quarter of ~~2016,~~2019, we recognized net tax benefits of $2$18 million related to changes in the tax status of certain affiliates, $3 million related to share-based compensation and $16 million related to restructuring charges and various other items. Excluding these items, the effective tax rate for the ~~third~~first quarters of ~~2017~~2020 and ~~2016~~2019 approximated the U.S. federal statutory income tax rate of ~~35%~~21%, adjusted for income taxes on foreign earnings, losses and remittances, valuation allowances, tax credits, income tax incentives and other permanent items.

Equity in net income of affiliates was $8$2 million in the ~~third quarter~~first quarters of ~~2017, as compared to $13 million in the third quarter of 2016.~~2020 and 2019.

Net income attributable to Lear was ~~$295~~$76 million, or ~~$3.96~~$1.26 per diluted share, in the ~~third~~first quarter of ~~2017,~~2020, as compared to ~~$214~~$229 million, or ~~$2.98~~$3.73 per diluted share, in the ~~third~~first quarter of ~~2016.~~2019. Net income and diluted net income per share ~~increased~~decreased for the reasons described above. In addition, diluted net income per share was impacted by the decrease in average shares outstanding between periods.

Reportable Operating Segments

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

The financial information presented below is for our two reportable operating segments and our other category for the periods presented. The other category includes unallocated costs related to corporate headquarters, regional headquarters and the elimination of intercompany activities, none of which meets the requirements for being classified as an operating segment. Corporate and regional headquarters costs include various support functions, such as information technology, advance 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,~~17, "Segment Reporting," to the condensed consolidated financial statements included in this Report.

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Seating

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


	Three Months Ended						Three Months Ended
	September 30, 2017			October 1, 2016			April 4, 2020			March 30, 2019
Net sales	$	3,868.9		$	3,513.3		$	3,366.6		$	3,913.7
Segment earnings ⁽¹⁾	298.8			269.5			186.1			252.3
Margin	7.7		%	7.7		%	5.5		%	6.4		%

⁽¹⁾See definition above

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Seating net sales were $3.4 billion in the first quarter of 2020 as compared to $3.9 billion in the ~~third~~first quarter of ~~2017, as compared to $3.5 billion in the third quarter~~2019, a decrease of ~~2016, an increase of $356~~$547 million or ~~10%~~14%. ~~New business,~~Lower production volumes on Lear platforms globally, largely due to the ~~acquisition of Antolin Seating~~COVID-19 pandemic, and net foreign exchange rate fluctuations ~~positively~~negatively impacted net sales by ~~$314 million, $118~~$518 million and ~~$67~~$73 million, respectively. These ~~increases~~decreases were partially offset by the ~~lower production volumes on key Lear platforms,~~impact of new business, which ~~reduced~~increased net sales by ~~$156~~$83 million.

Segment earnings, including restructuring costs, and the related margin on net sales were ~~$299~~$186 million and ~~7.7%~~5.5% in the ~~third~~first quarter of ~~2017,~~2020, as compared to ~~$270~~$252 million and ~~7.7%~~6.4% in the ~~third~~first quarter of ~~2016. New~~2019. Lower production volumes on Lear platforms globally, largely due to the COVID-19 pandemic, and net foreign exchange rate fluctuations, partially offset by the impact of new business, ~~positively~~negatively impacted segment earnings by ~~$34~~$113 million. ~~The impact of favorable~~Favorable operating performance, including the benefit of operational restructuring actions, ~~of $63 million~~ was partially offset by the impact of selling price ~~reductions and~~reductions. Segment earnings were also favorably impacted by lower ~~production volumes on key Lear platforms.~~restructuring costs.

E-Systems

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


	Three Months Ended						Three Months Ended
	September 30, 2017			October 1, 2016			April 4, 2020			March 30, 2019
Net sales	$	1,112.6		$	1,013.1		$	1,091.1		$	1,246.4
Segment earnings ⁽¹⁾	155.5			140.3			32.4			128.3
Margin	14.0		%	13.8		%	3.0		%	10.3		%

⁽¹⁾See definition above

E-Systems net sales were $1.1 billion in the ~~third~~first quarter of ~~2017,~~2020, as compared to ~~$1.0~~$1.2 billion in the ~~third~~first quarter of ~~2016, an increase~~2019, reflecting a decrease of ~~$100~~$155 million or ~~10%~~12%. ~~New business~~Lower production volumes on Lear platforms globally, largely due to the COVID-19 pandemic, and net foreign exchange rate fluctuations ~~positively~~negatively impacted net sales by ~~$62~~$157 million and ~~$25~~$35 million, respectively. These decreases were partially offset by the impact of new business, which increased net sales by $47 million.

Segment earnings, including restructuring costs, and the related margin on net sales were ~~$156~~$32 million and ~~14.0%~~3.0% in the ~~third~~first quarter of ~~2017,~~2020, as compared to ~~$140~~$128 million and ~~13.8%~~10.3% in the ~~third~~first quarter of ~~2016. New business~~2019. Lower production volumes on Lear platforms globally, largely due to the COVID-19 pandemic, and ~~lower restructuring costs positively impacted segment earnings by $15 million. The impact of improved operating performance of $17 million was~~net foreign exchange rate fluctuations, partially offset by the impact of new business, negatively impacted segment earnings by $59 million. The impact of selling price ~~reductions.~~reductions and, to a lesser extent, higher restructuring costs, were partially offset by improved operating performance.

Other

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


	Three Months Ended						Three Months Ended
	September 30, 2017			October 1, 2016			April 4, 2020			March 30, 2019
Net sales	$	—		$	—		$	—		$	—
Segment earnings ⁽¹⁾	(69.1		)	(64.7		)	(45.1		)	(68.4		)
Margin	N/A			N/A			N/A			N/A

⁽¹⁾See definition above

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Segment earnings related to our other category were ($~~69) million in the third quarter of 2017, as compared to ($65) million in the third quarter of 2016, reflecting higher restructuring and acquisition costs.~~

~~Nine Months Ended September 30, 2017 vs. Nine Months Ended October 1, 2016~~

Net sales for the nine months ended September 30, 2017, were $15.1 billion, as compared to $13.9 billion for the nine months ended October 1, 2016, an increase of $1,189 million or 9%. New business, primarily in Europe, North America and Asia, and the acquisition of Antolin Seating positively impacted net sales by $962 million and $211 million, respectively.

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

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Cost of sales in the first nine months of 2017 were $13.4 billion, as compared to $12.3 billion in the first nine months of 2016. New business, primarily in Europe, North America and Asia, and the acquisition of Antolin Seating resulted in an increase in cost of sales of $1.0 billion.

Gross profit and gross margin were $1.7 billion and 11.4% of net sales for the nine months ended September 30, 2017, as compared to $1.6 billion and 11.4% of net sales for the nine months ended October 1, 2016. New business and the acquisition of Antolin Seating positively impacted gross profit by $136 million. The impact of favorable operating performance, including the benefit of operational restructuring actions, of $182 million was more than offset by the impact of selling price reductions and net foreign exchange rate fluctuations. These factors had a corresponding impact on gross margin.

~~Selling, general and administrative expenses, including engineering and development expenses, were $471~~45) million in the first ~~nine months~~quarter of ~~2017,~~2020, as compared to ~~$457~~($68) million in the first ~~nine months~~quarter of ~~2016,~~2019, primarily reflecting ~~higher program development and restructuring costs. As a percentage of net sales, selling, general and administrative expenses were 3.1%~~lower compensation-related costs in ~~the first nine months of 2017, as compared to 3.3% in the first nine months of 2016.~~2020.

~~Amortization of intangible assets was $34 million in the first nine months of 2017, as compared to $42 million in the first nine months of 2016.~~

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

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 and other miscellaneous income and expense, was ($12) million for the nine months ended September 30, 2017, as compared to ($1) million for the nine months ended October 1, 2016. In the first nine months of 2017, we recognized a gain of approximately $54 million related to the consolidation of an affiliate and a loss of $21 million related to the extinguishment of debt. In the nine months ended October 1, 2016, we recognized a gain of approximately $30 million related to the consolidation of an affiliate. Net foreign exchange losses were $5 million in the first nine months of 2017, as compared to $9 million in the first nine months of 2016.

For the nine months ended September 30, 2017, the provision for income taxes was $240 million, representing an effective tax rate of 20.7% on pretax income before equity in net income of affiliates of $1.2 billion. For the nine months ended October 1, 2016, the provision for income taxes was $287 million, representing an effective tax rate of 27.9% on pretax income before equity in net income of affiliates of $1.0 billion, for the reasons described below.

In the first nine months of 2017 and 2016, the provision for income taxes was impacted by the level and mix of earnings among tax jurisdictions. In the first nine months of 2017, we recognized net tax benefits of $68 million, of which $29 million related to the reversal of valuation allowances on the deferred tax assets of certain foreign subsidiaries, $16 million related to a change in the accounting for share-based compensation, $8 million related to the redemption of the 2023 Notes and $15 million related to restructuring charges and various other items. In addition, we recognized a gain of approximately $54 million related to the consolidation of an affiliate, for which no tax expense was provided. In the first nine months of 2016, we recognized net tax benefits of $15 million related to restructuring charges and various other items. In addition, we recognized a gain of approximately $30 million related to the consolidation of an affiliate, for which no tax expense was provided. Excluding these items, the effective tax rate for the first nine months of 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, tax credits, income tax incentives and other permanent items.

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

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

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~~Seating~~

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

Nine Months Ended
September 30, 2017 October 1, 2016
Net sales $ 11,762.0
$ 10,755.7
Segment earnings ⁽¹⁾
941.8
848.8
Margin 8.0 % 7.9 %

⁽¹⁾~~See definition above~~

Seating net sales were $11.8 billion for the nine months ended September 30, 2017, as compared to $10.8 billion for the nine months ended October 1, 2016, an increase of $1.0 billion or 9%. New business and the acquisition of Antolin Seating positively impacted net sales by $829 million and $211 million, respectively. Segment earnings, including restructuring costs, and the related margin on net sales were $942 million and 8.0% for the nine months ended September 30, 2017, as compared to $849 million and 7.9% for the nine months ended October 1, 2016. New business and the acquisition of Antolin Seating positively impacted segment earnings by $109 million. The impact of favorable operating performance, including the benefit of operational restructuring actions, of $133 million was more than offset by 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):~~

Nine Months Ended
September 30, 2017 October 1, 2016
Net sales $ 3,341.2
$ 3,158.4
Segment earnings ⁽¹⁾
476.7
441.5
Margin 14.3 % 14.0 %

⁽¹⁾~~See definition above~~

E-Systems net sales were $3.3 billion for the nine months ended September 30, 2017, as compared to $3.2 billion for the nine months ended October 1, 2016, an increase of $183 million or 6%. New business and higher production volumes on key Lear platforms positively impacted net sales by $133 million and $46 million, respectively. Segment earnings, including restructuring costs, and the related margin on net sales were $477 million and 14.3% for the nine months ended September 30, 2017, as compared to $442 million and 14.0% for the nine months ended October 1, 2016. New business and higher production volumes on key Lear platforms positively impacted segment earnings by $33 million. The impact of improved operating performance of $59 million was more than 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):~~

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

⁽¹⁾~~See definition above~~

~~Segment earnings related to our other category were ($208) million in the first nine months of 2017, as compared to ($199) million in the first nine months of 2016.~~

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LIQUIDITY AND CAPITAL RESOURCES

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

Adequacy of Liquidity Sources

As of April 4, 2020, we had $2.45 billion of cash and cash equivalents on hand and $750 million 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 response to the COVID-19 pandemic, we have taken a number of proactive steps to preserve cash and maximize our financial flexibility in order to efficiently manage through the COVID-19 pandemic. In addition to borrowing $1.0 billion under our $1.75 billion Revolving Credit Facility (reflected in cash and cash equivalents above), other actions include:

Aggressively reducing operating costs, capital expenditures and working capital, including eliminating discretionary spending and adjusting production activity

Reducing salaried employee costs throughout the organization via salary reductions and deferrals

Temporarily suspending share repurchases and quarterly dividends

Maximizing opportunities offered under government incentive programs throughout the world

Reducing the compensation of the Board of Directors

Reducing hourly factory worker costs via temporary layoffs

Delaying planned pension funding and deferring other retirement plan contributions

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 and other related factors.

For further discussion of the risks and uncertainties affecting our cash flows from operations and our overall liquidity, see "— Executive Overview" above, "— Forward-Looking Statements" below, Part II — Item 1A, "Risk Factors," included in this Report and Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2019.

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 ~~September 30, 2017~~April 4, 2020 and December 31, ~~2016,~~2019, cash and cash equivalents of ~~$917~~$856 million and ~~$767~~$895 million, respectively, were held in foreign subsidiaries and can be repatriated, primarily through the repayment of intercompany loans and the payment of dividends, without creating additional income tax expense. There are no significant restrictions on the ability of our subsidiaries to pay dividends or make other distributions to Lear.

For further information related to potential dividends from our non-U.S. subsidiaries, see ~~"— Adequacy of Liquidity Sources," below and~~ Note 7,8, "Income Taxes," to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019.

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Cash Flows

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


	Nine Months Ended									Three Months Ended
	September 30, 2017			October 1, 2016			Incremental Increase (Decrease) in Operating Cash Flow			April 4, 2020			March 30, 2019			Increase (Decrease) in Operating Cash Flow
Consolidated net income and depreciation and amortization	$	1,274		$	1,075		$	199		$	214		$	370		$	(156	)
Net change in working capital items:
Accounts receivable	(281		)	(440		)	159			416			(593		)	1,009
Inventory	(115		)	(87		)	(28		)	(114		)	(8		)	(106		)
Accounts payable	246			204			42			(248		)	240			(488		)
Accrued liabilities and other	119			327			(208		)	(77		)	73			(150		)
Net change in working capital items	(31		)	3			(34		)	(23		)	(288		)	265
Other	(58		)	16			(74		)	31			(30		)	61
Net cash provided by operating activities	$	1,184		$	1,094		$	90		$	222		$	52		$	170

In the first ~~nine~~three months of ~~2017, increases~~2020 and 2019, net cash provided by operating activities was $222 million and $52 million, respectively. The overall increase in operating cash flows of $170 million was primarily due to a decrease in accounts receivable ~~inventories~~in the first quarter of 2020, reflecting lower quarter end sales in 2020 and the timing of our 2020 quarter end, as compared to an increase in accounts receivable in the first quarter of 2019, reflecting lower year end sales in 2018. The increase in accounts receivable operating cash flows between periods was partially offset by incremental decreases in accounts payable ~~primarily reflect higher working capital to support the increase in our sales. In the first nine months of 2017, changes in~~and certain accrued liabilities and ~~other primarily reflect~~an increase in inventories in the ~~timing~~first quarter of ~~payment~~2020, as compared to the first quarter of ~~accrued liabilities.~~2019.

Net cash used in investing activities was ~~$700~~$90 million in the first ~~nine~~three months of ~~2017,~~2020, as compared to ~~$249~~$117 million in the first ~~nine~~three months of ~~2016. This increase is primarily due to cash paid of $287 million related to the acquisition of Antolin Seating. In addition, capital~~2019. Capital spending was ~~$430~~$109 million in the first ~~nine months~~quarter of ~~2017,~~2020, as compared to ~~$300~~$123 million in the first ~~nine months~~quarter of ~~2016.~~2019. Capital spending ~~in 2017~~ is estimated atto be$~~585 million.~~450 million to $500 million in 2020, which reflects a reduction in discretionary spending in response to the COVID-19 pandemic.

Net cash ~~used in~~provided by financing activities was ~~$546~~$851 million in the first ~~nine~~three months of ~~2017,~~2020, as compared to ~~$699~~a use of $235 million in the first ~~nine~~three months of ~~2016.~~2019. In 2020, we borrowed $1.0 billion under the ~~first nine months of 2017,~~Revolving Credit Facility as a proactive measure in response to the COVID-19 pandemic. In 2020, we received net proceeds of ~~$745~~$669 million related to the issuance of the ~~2027~~2030 and 2049 Notes and paid ~~$517~~$6 million of related issuance costs and $667 million related to the redemption of the outstanding ~~2023 Notes and paid a net of $203 million related to the refinancing of the Credit Agreement (see "— Credit Agreement" and "— Senior Notes" below).~~2025 Notes. Also in ~~2017,~~2020, we paid ~~$332~~$70 million for repurchases of our common stock ~~$104~~and $48 million of dividends to Lear stockholders. In 2019, we paid $122 million for repurchases of our common stock, $50 million of dividends to Lear stockholders and ~~$43 million of dividends to noncontrolling interest holders. In 2016, we paid $558 million for repurchases of our common stock, $68 million of dividends to Lear stockholders and $15~~$31 million of dividends to noncontrolling interest holders.

Capitalization

From time to time, we utilize uncommitted credit facilities to fund our capital expenditures and working capital requirements at certain of our foreign subsidiaries, in addition to cash provided by operating activities. ~~As of September 30, 2017 and December 31, 2016, our outstanding short-term debt balance was $2 million and $9 million, respectively.~~ The availability of uncommitted lines of credit may be affected by our financial performance, credit ratings and other factors. As of April 4, 2020 and December 31, 2019, our short-term borrowings outstanding were $10 million and $19 million, respectively.

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Senior Notes

As of ~~September 30, 2017,~~April 4, 2020, our senior notes (collectively, the "Notes") ~~consist~~consisted of the amounts shown below (in millions, except stated coupon rates):

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



Note	Aggregate Principal Amount at Maturity		Stated Coupon Rate
Senior unsecured notes due 2027 (the "2027 Notes")	750		3.80	%
Senior unsecured notes due 2029 (the "2029 Notes")	375		4.25	%
2030 Notes	350		3.50	%
2049 Notes	625		5.25	%
	$	2,100

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
2049 Notes	May 2019 and February 2020	May 15, 2049	May 15 and November 15

In ~~August 2017,~~February 2020, we issued ~~the 2027~~$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 ~~of $745~~from the offering were $669 million after original issue discount. The proceeds ~~from the offering~~ were used to redeem the ~~outstanding 2023~~$650 million in aggregate principal amount of 2025 Notes at a redemption price ~~of $517 million, as well as~~equal to ~~refinance a portion~~102.625% of the ~~$500 million prior term loan facility (see "— Credit Agreement," below).~~ principal amount of such 2025 Notes, plus accrued interest.

In connection with ~~the redemption transaction,~~these transactions, we recognized a loss of $21 million on the extinguishment of ~~debt.~~debt and paid related issuance costs of $6 million.

The indentures governing the Notes ~~are senior unsecured obligations.~~contain certain investment-grade style restrictive covenants and customary events of default. As ~~discussed further~~of April 4, 2020, we were in ~~"— Credit Agreement" below, upon termination of our prior credit agreement,~~compliance with all covenants under 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~~indentures governing the Notes.

For further information related to the Notes, including information on early redemption, covenants and events of default, see Note 8, "Debt," to the condensed consolidated financial statements included in this Report and Note 6, "Debt," to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019.

Credit Agreement

~~In August 2017, we entered into a new~~Our Credit Agreement, ~~consisting~~dated August 8, 2017, consists of a $1.75 billion Revolving Credit Facility and a $250 million Term Loan Facility. In February 2020, we entered into an agreement to extend the maturity date of the Revolving Credit Facility by one year to August 8, 2024, and paid related issuance costs of $1 million. The maturity date of the Term Loan Facility ~~both of which mature on~~remains August 8, 2022.I~~n connection with this transaction,~~

On March 26, 2020, as a proactive measure in response to the COVID-19 pandemic, we ~~borrowed $250~~announced the borrowing of $1.0 billion under the Revolving Credit Facility, resulting in remaining availability of $750 million.

As of April 4, 2020, there were $1.0 billion and $231 million of borrowings outstanding under the Revolving Credit Facility and the Term Loan Facility, respectively. As of December 31, 2019, there were no borrowings outstanding under the Revolving Credit Facility and $234 million of borrowings outstanding under the Term Loan Facility.

During the first three months of 2020, we made required principal payments of $3 million under the Term Loan Facility. At the same time, we terminated our previously existing credit agreement, which consisted of a $1.25 billion revolving credit facility and a $500 million term loan facility, and repaid amounts outstanding under the term loan facility of $453 million. Together with the offering of the 2027 Notes, these transactions extended our maturity profile and increased our borrowing capacity.

The Credit Agreement ~~eliminated subsidiary guarantees previously required under the prior credit agreement. There are currently no guarantors~~contains various financial and other covenants that require us to maintain a minimum leverage coverage ratio. As of ~~our obligations~~April 4, 2020, we were in compliance with all covenants under the Credit Agreement. Although we expect to maintain compliance with all covenants, the impact of the COVID-19 pandemic may negatively affect our ability to comply with certain of these covenants. In the event that we are unable to maintain compliance with such covenants, we expect to

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obtain an amendment or waiver from our lenders, refinance the indebtedness subject to the covenants or take other mitigating actions prior to a potential breach.

For further information related to the Credit Agreement, including information on pricing, covenants and events of default, see Note 8, "Debt," to the condensed consolidated financial statements included in this ~~Report.~~Report and Note 6, "Debt," to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019.

Scheduled Interest ~~Payment and Covenants~~Payments

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

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

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~~Contractual Obligations~~

~~As a result of the financing transactions discussed in "Credit Agreement" and "Senior Notes" above, our scheduled maturities of long-term debt, including capital lease obligations, and scheduled~~Scheduled interest payments on the Notes as ~~of September 30, 2017,~~April 4, 2020, are shown below (in millions):

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



	2020⁽¹⁾		2021		2022		2023		2024		Thereafter		Total
Scheduled interest payments	$	72	$	90	$	90	$	90	$	90	$	1,027	$	1,459

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

~~Accounts Receivable Factoring~~

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

Common Stock Share Repurchase Program

In ~~February 2017,~~March 2020, as a proactive measure in response to the COVID-19 pandemic, we temporarily suspended share repurchases under our share repurchase program. Share repurchases in the first quarter of 2020 (prior to the suspension) are shown below (in millions except for shares and per share amounts):



Three Months Ended							As of
April 4, 2020							April 4, 2020
Aggregate Repurchases		Cash paid for Repurchases		Number of Shares	Average Price per Share ⁽¹⁾		Remaining Purchase Authorization
$	70	$	70	641,149	$	109.22	$	1,430

⁽¹⁾ Excludes commissions

Since the first quarter of 2011, our Board of Directors has authorized ~~a $659 million increase to~~$6.1 billion in share repurchases under our ~~existing~~ common stock share repurchase program to provide for a remaining aggregate repurchase authorization of $1 billion and extended the term of the program to December 31, 2019. In the first nine months of 2017, we paid, in aggregate, $332 million for repurchases of our outstanding common stock (2,320,469 shares at an average purchase price of $143.14 per share, excluding commissions).program. As of the end of the ~~third~~first quarter of ~~2017,~~2020, we have ~~a remaining repurchase authorization~~repurchased, in aggregate, $4.7 billion of ~~$668 million.~~our outstanding common stock, at an average price of $90.07 per share, excluding commissions and related fees.

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

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

For further information related to our common stock share repurchase program, see Note ~~13,~~15, "Comprehensive Income (Loss) and Equity," to the condensed consolidated financial statements included in this Report.

Dividends

In March 2020, as a proactive measure in response to the COVID-19 pandemic, we temporarily suspended our quarterly cash dividend. The quarterly cash dividend declared in ~~each of~~ the first ~~three quarters~~quarter of ~~2017~~2020 (prior to the suspension) reflects a ~~67%~~3% increase over the quarterly cash dividend declared in ~~each~~first quarter of ~~the first three quarters of 2016.~~2019. A summary of ~~2017 dividends~~the 2020 dividend is shown below:

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



Payment Date	Dividend Per Share		Declaration Date	Record Date
March 18, 2020	$	0.77	February 6, 2020	February 28, 2020

~~We currently~~Although we do expect to pay quarterly cash dividends at some point 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 atin its discretion.

~~Adequacy of Liquidity Sources~~

As of September 30, 2017, we had approximately $1.3 billion of cash and cash equivalents on hand and $1.75 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 to satisfy ordinary course business obligations, as well as pay quarterly dividends and repurchase shares of our common stock, pursuant to our authorized common stock share repurchase

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program (see "— Common Stock Share Repurchase Program," above). Our future financial results and our ability to continue to meet our liquidity needs are subject to, and will be affected by, cash flows from operations, including the impact of restructuring activities, automotive industry conditions, the financial condition of our customers and suppliers and other related factors. Additionally, an economic downturn or reduction in production levels could negatively impact our financial condition. For further discussion of the risks and uncertainties affecting our cash flows from operations and our overall liquidity, see "— Executive Overview" above, "— Forward-Looking Statements" below and Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2016.

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.

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Foreign Exchange

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

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


	September 30, 2017		December 31, 2016			April 4, 2020			December 31, 2019
Notional amount (contract maturities < 24 months)	$	2,308	$	1,956		$	2,362		$	2,163
Fair value	21		(54		)	(139		)	50

Currently, our most significant foreign currency transactional exposures relate to the Mexican peso, various European currencies, the Thai baht, the Chinese renminbi, the Japanese yen, the Brazilian real ~~the Japanese yen~~ and the ~~Canadian dollar. We have performed a~~Honduran lempira. A sensitivity analysis of our net transactional exposure asis shown below (in millions):


		Potential Earnings Benefit (Adverse Earnings Impact)							Potential Earnings Benefit (Adverse Earnings Impact)
	Hypothetical Strengthening % ⁽¹⁾	September 30, 2017			December 31, 2016			Hypothetical Strengthening % ⁽¹⁾	April 4, 2020			December 31, 2019
U.S. dollar	10%	$	(19	)	$	(19	)	10%	$	4		$	(16	)
Euro	10%	22			16			10%	(4		)	19

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

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


		Estimated Change in Fair Value					Estimated Change in Fair Value
	Hypothetical Change % ⁽²⁾	September 30, 2017		December 31, 2016		Hypothetical Change % ⁽²⁾	April 4, 2020		December 31, 2019
U.S. dollar	10%	$	34	$	50	10%	$	33	$	50
Euro	10%	69		35		10%	61		69

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

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

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In addition to the transactional exposure described above, our operating results are impacted by the translation of our foreign operating income into U.S. dollars ("translational exposure"). In ~~2016,~~2019, net sales outside of the United States accounted for ~~77%~~82% 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.

Interest Rates

Our variable rate debt obligations under our Credit Agreement are sensitive to changes in interest rates. As of April 4, 2020, we had $1.0 billion outstanding under the Revolving Credit Facility and $231 million outstanding under the Term Loan Facility.

A hypothetical 100 basis point increase in interest rates on our variable rate debt obligations would increase annual interest expense and related cash interest payments by approximately $7 million.

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Commodity Prices

Raw material, energy and commodity costs can be ~~volatile.~~volatile, reflecting changes in supply and demand and global trade and tariff policies. We have developed and implemented strategies to mitigate the impact of higher raw material, energy and commodity costs, such as the selective in-sourcing of components, the continued consolidation of our supply base, longer-term purchase commitments and the selective expansion of low-cost country sourcing and engineering, as well as value engineering and product benchmarking. However, these strategies, together with commercial negotiations with our customers and suppliers, typically offset only a portion of the adverse impact. Certain of these strategies also may limit our opportunities in a declining commodity cost environment. If these costs increase, it could have an adverse impact on our operating results in the foreseeable future. See "— Forward-Looking Statements" below and Item 1A, "Risk Factors — Increases in the costs and restrictions on the availability of raw materials, energy, commodities and product components could adversely affect our financial performance," in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019.

We have commodity price risk with respect to purchases of certain raw materials, including steel, copper, diesel fuel, chemicals, resins and leather. Our main cost exposures relate to steel, copper and leather. The majority of the steel used in our products is comprised of fabricated components that are integrated into a seat system, such as seat frames, recliner mechanisms, seat tracks and other mechanical components. Therefore, our exposure to changes in steel prices is primarily indirect, through these purchased components. Approximately ~~89%~~ 90%of our copper purchases and a significant portion of our leather purchases are subject to price index agreements with our ~~customers.~~customers and suppliers.

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

OTHER MATTERS

Legal and Environmental Matters

We are involved from time to time in various legal proceedings and claims, including, without limitation, commercial and contractual disputes, product liability claims and environmental and other matters. As of ~~September 30, 2017,~~April 4, 2020, we had recorded reserves for pending legal disputes, including commercial disputes and other matters, of $9$14 million. In addition, as of ~~September 30, 2017,~~April 4, 2020, we had recorded reserves for product liability claims and environmental matters of ~~$49~~$34 million and $9 million, respectively. Although these reserves were determined in accordance with GAAP, the ultimate outcomes of these matters are inherently uncertain, and actual results may differ significantly from current estimates. For a description of risks related to various legal proceedings and claims, see Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019. For a more complete description of our outstanding material legal proceedings, see Note ~~14,~~16, "Legal and Other Contingencies," to the condensed consolidated financial statements included in this Report.

Significant Accounting Policies and Critical Accounting Estimates

Certain of our accounting policies require management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are based on our historical experience, the terms of existing contracts, our evaluation of trends in the industry, information provided by our customers and suppliers and information available from other outside sources, as appropriate. However, these estimates and assumptions are subject to an inherent degree of uncertainty. As a result, actual results in these areas may differ significantly from our estimates. For a discussion of our significant accounting policies and critical accounting estimates, see Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Significant Accounting Policies and Critical Accounting Estimates," and Note 2, "Summary of Significant Accounting Policies," to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019. There have been no significant changes in our significant accounting policies or critical accounting estimates during the ~~third~~first quarter of ~~2017.~~2020, with the exception of credit losses. See Note 18, "Financial Instruments — Accounts Receivable," to the condensed consolidated financial statements included in this Report.

Recently Issued Accounting Pronouncements

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

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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

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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;~~

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

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;

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

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

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

the financial condition of and adverse developments affecting our customers and suppliers;

risks associated with conducting business in foreign countries;

currency controls and the ability to economically hedge currencies;

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 ~~outcome~~operational and financial success of ~~customer negotiations and the impact of customer-imposed price reductions;~~our joint ventures;

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

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

changes affecting the ~~costs, timing~~availability of LIBOR;

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

impairment charges initiated by adverse industry or market developments;

our ability to execute our strategic objectives;

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

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;

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

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

~~unanticipated changes in cash flow, including~~the impact of regulations on our ~~ability to align our vendor payment terms with those of our customers;~~

~~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;~~foreign operations;

costs associated with compliance with environmental laws and regulations;

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

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

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

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

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other risks described in Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, ~~2016,~~2019, as supplemented and updated by Part II — Item 1A, "Risk Factors," in this Report, and our other Securities and Exchange Commission ("SEC") filings.

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

ITEM 4 — CONTROLS AND PROCEDURES


(a)	Disclosure Controls and Procedures

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


(b)	Changes in Internal Control over Financial Reporting

There was no change in the Company’s internal control over financial reporting that occurred during the fiscal quarter ended ~~September 30, 2017,~~April 4, 2020, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

In April ~~2017,~~2019, the Company completed the acquisition of ~~Grupo Antolin's automotive seating business ("Antolin Seating"~~Xevo Inc. (“Xevo”) and is currently integrating ~~Antolin Seating~~Xevo into its operations, compliance programs and internal control processes. As permitted by SEC rules and regulations, the Company has excluded Antolin Seating from management's evaluation of internal controls over financial reporting as of September 30, 2017. Antolin SeatingXevo constituted ~~approximately 4%~~2.7% of the Company's total assets as of ~~September 30, 2017,~~April 4, 2020, including goodwill and ~~approximately 2%~~intangible assets recorded as part of the purchase price allocation, and 0.5% of the Company's net sales in the three months ended ~~September 30, 2017.~~April 4, 2020. SEC guidance allows companies to exclude acquisitions from their assessment of the internal control over financial reporting during the first year following an acquisition while integrating the acquired company. The Company has excluded the acquired operations of Xevo from its assessment of the Company's internal controls over financial reporting.

PART II — OTHER INFORMATION

ITEM 1 — LEGAL PROCEEDINGS

We are involved from time to time in various legal proceedings and claims, including, without limitation, commercial or contractual disputes, product liability claims and environmental and other matters. For a description of risks related to various legal proceedings and claims, see Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019. For a description of our outstanding material legal proceedings, see Note ~~14,~~16, "Legal and Other Contingencies," to the condensed consolidated financial statements included in this Report.

ITEM 1A — RISK FACTORS

There have been no material changes from the risk factors as previously disclosed in our Annual Report on Form 10-K for the year ended December 31, ~~2016.~~2019, except for the addition of the risk factor set forth below:

Pandemics or disease outbreaks, such as COVID-19, have disrupted, and may continue to disrupt, our business, which could adversely affect our financial performance.

Pandemics or disease outbreaks, such as COVID-19, have disrupted, and may continue to disrupt, automotive industry customer sales and production volumes. Vehicle production has already decreased significantly in China, which was first affected by COVID-19, and resulted in the shutdown of manufacturing operations in China beginning in January 2020. Subsequent shutdowns have been announced in the United States and Europe as COVID-19 continues to spread globally. As a result, we have experienced, and may continue to experience, reductions in orders from our customers globally. This reduction in orders may be further exacerbated by the global economic downturn resulting from the pandemic which could decrease consumer demand for vehicles or result in the financial distress of one or more of our customers or suppliers. In addition, if COVID-19

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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. The extent to which the COVID-19 pandemic adversely affects our financial performance 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 contain the virus or treat its impact and how quickly and to what extent normal economic and operating conditions can resume. Even after the COVID-19 pandemic has subsided, we may continue to experience adverse impacts on our business and financial performance as a result of its global economic impact, including a recession that has occurred or may occur in the future.

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

As discussed in Part I — Item 2, "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Capital Resources — Capitalization — Common Stock Share Repurchase Program," and Note ~~13,~~15, "Comprehensive Income (Loss) and Equity," to the condensed consolidated financial statements included in this Report, we have a remaining repurchase authorization of ~~$667.8~~$1,430.0 million under our ~~ongoing~~ common stock share repurchase program.

A summary of the shares of our common stock repurchased during the quarter ended ~~September 30, 2017,~~April 4, 2020, is shown below:

Period
Total Number
of Shares
Purchased

Average
Price Paid
per Share

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

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



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)
January 1, 2020 through February 1, 2020	—	$—	—	$	1,202.6
February 2, 2020 through February 29, 2020	276,181	$117.37	276,181	1,467.6		(1)
March 1, 2020 through April 4, 2020	364,968	$103.05	364,968	1,430.0		(2)
Total	641,149	$109.22	641,149	$	1,430.0

⁽¹⁾In February 2020, our Board of Directors authorized an increase to our existing common stock share repurchase program authorization to $1.5 billion.

⁽²⁾In March 2020, we temporarily suspended share repurchases under our share repurchase program.

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ITEM 6 — EXHIBITS

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

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Exhibit Index ~~to Exhibits~~



	Exhibit Number	Exhibit
	~~1.1~~	Underwriting Agreement, dated August 14, 2017, among Lear Corporation and Barclays Capital Inc., Citigroup Global Markets Inc. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as representatives of the several underwriters named therein (incorporated by reference to Exhibit 1.1 to the Company Current Report on Form 8-K dated August 17, 2017). Name
	4.1	Fourth Supplemental Indenture, dated ~~August 17, 2017,~~February 24, 2020, between ~~Lear Corporation~~the Company and ~~U.S. Bank National Association, as~~the Trustee (incorporated by reference to Exhibit 4.1 to the ~~Company~~Company’s Current Report on Form 8-K ~~dated August 17, 2017).~~
	~~4.2~~	~~First Supplemental Indenture, dated August 17, 2017, between Lear Corporation and U.S. Bank National Association, as Trustee (incorporated by reference to Exhibit 4.2 to the Company Current Report~~filed on ~~Form 8-K dated August 17, 2017)~~February 24, 2020).
	10.1	Extension Agreement and Amendment No. 2, dated February 20, 2020, related to the Credit Agreement, dated as of August 8, 2017 (as amended by that certain Extension Agreement dated as of March 27, 2019), among Lear Corporation, the foreign subsidiary borrowers from time to time party thereto, the lenders from time to time party thereto, HSBC Securities (USA) Inc., as syndication agent, Barclays Bank PLC, Citibank N.A. and Merrill Lynch, Pierce, Fenner & Smith Incorporated, as co-documentation agents, and JPMorgan Chase Bank, N.A., as administrative agent (incorporated by reference to Exhibit 10.1 to the ~~Company~~Company’s Current Report on Form 8-K ~~dated August 8, 2017).~~
*	~~10.2~~	~~Statement~~filed on ~~Confidential Information, effective as of August 9, 2017.~~
*	~~10.3~~	~~First Amendment to the Lear Corporation Outside Directors Compensation Plan, dated September 13, 2017.~~
*	~~10.4~~	~~Form of Cash Retainer Deferral Election under Outside Directors Compensation Plan, effective as of September 13, 2017.~~
*	~~10.5~~	~~Form of Stock Grant Deferral under Outside Directors Compensation Plan, effective as of September 13, 2017.~~
*	~~10.6~~	~~Anti-Hedging and Anti-Pledging Policy, amended and restated as of September 13, 2017.~~February 24, 2020).
*	31.1	Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer.
*	31.2	Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer.
*	32.1	Certification by Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*	32.2	Certification by Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
**	101.INS	XBRL Instance ~~Document.~~Document
***	101.SCH	XBRL Taxonomy Extension Schema Document.
***	101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document.
***	101.LAB	XBRL Taxonomy Extension Label Linkbase Document.
***	101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document.
***	101.DEF	XBRL Taxonomy Extension Definition Linkbase Document.

**	104	Cover Page Interactive Data File

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

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SIGNATURES

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



LEAR CORPORATION

Dated:	~~October 25, 2017~~May 8, 2020	By:	/s/ ~~Matthew J. Simoncini~~Raymond E. Scott
			~~Matthew J. Simoncini~~Raymond E. Scott
			President and Chief Executive Officer

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

4951



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

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



Purchase price paid, net of cash acquired	$	148.5

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



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



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



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



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

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

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



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



	Three Months Ended October 1, 2016			Nine Months Ended October 1, 2016
Defined benefit plans:
Balance at beginning of period	$	(196.3	)	$	(194.6	)
Reclassification adjustments (net of tax expense of $0.3 million and $1.0 million in the three and nine months ended October 1, 2016, respectively)	0.8			2.5
Other comprehensive income (loss) recognized during the period (net of tax impact of $— million in the three and nine months ended October 1, 2016)	0.7			(2.7		)
Balance at end of period	$	(194.8	)	$	(194.8	)

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

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



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



	2017		2016
North America	39	%	41	%
Europe and Africa	40	%	39	%
Asia	18	%	17	%
South America	3	%	3	%
Total	100	%	100	%



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



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