Lear Corp 10-Q for FY2021 Q3
Lear Corp (LEA)
10-Q
2021-11-02
For: 2021-10-02
View Original
Added on
April 12, 2026
About this 10-Q
Lear Corp filed this 10-Q on November 2, 2021, covering the quarter ended October 2, 2021 (FY2021 Q3).
Headline figures
Quarter ended October 2, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $4.27B
- down 12.9% from $4.9B a year earlier
- Net loss
- $26.5M
- compared with net income of $174.4M a year earlier
- Diluted EPS
- -$0.44
- compared with $2.89 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________
FORM 10-Q
(Mark One)
| QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the quarterly period ended October 2, 2021 .
| TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 | |||||
For the transition period from to .
Commission file number: 001-11311
(Exact name of registrant as specified in its charter)
_______________________________________
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||||||
(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 | ||||||
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 every Interactive Data File required to be submitted 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 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.
| x | Accelerated filer | ☐ | |||||||||||||||
| Non-accelerated filer | ☐ | 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 29, 2021, the number of shares outstanding of the registrant’s common stock was 59,616,561 shares.
LEAR CORPORATION
FORM 10-Q
FOR THE QUARTER ENDED OCTOBER 2, 2021
INDEX
| Page No. | |||||
| Item 3 – Quantitative and Qualitative Disclosures about Market Risk (included in Item 2) | |||||
2
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, 2020.
The financial information presented reflects all adjustments (consisting of normal recurring adjustments) which are, in our opinion, necessary for a fair presentation of the results of operations, cash flows and financial position for the interim periods presented. These results are not necessarily indicative of a full year’s results of operations.
3
LEAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)
October 2, 2021(1) | December 31, 2020 | ||||||||||
| ASSETS | |||||||||||
| CURRENT ASSETS: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Accounts receivable | |||||||||||
| Inventories | |||||||||||
| Other | |||||||||||
| Total current assets | |||||||||||
| LONG-TERM ASSETS: | |||||||||||
| Property, plant and equipment, net | |||||||||||
| Goodwill | |||||||||||
| Other | |||||||||||
| Total long-term assets | |||||||||||
| Total assets | $ | $ | |||||||||
| LIABILITIES AND EQUITY | |||||||||||
| CURRENT LIABILITIES: | |||||||||||
| Accounts payable and drafts | $ | $ | |||||||||
| Accrued liabilities | |||||||||||
| Current portion of long-term debt | |||||||||||
| Total current liabilities | |||||||||||
| LONG-TERM LIABILITIES: | |||||||||||
| Long-term debt | |||||||||||
| Other | |||||||||||
| Total long-term liabilities | |||||||||||
| EQUITY: | |||||||||||
Preferred stock, | |||||||||||
Common stock, $ | |||||||||||
| Additional paid-in capital | |||||||||||
Common stock held in treasury, | ( | ( | |||||||||
| Retained earnings | |||||||||||
| Accumulated other comprehensive loss | ( | ( | |||||||||
| Lear Corporation stockholders’ equity | |||||||||||
| Noncontrolling interests | |||||||||||
| Equity | |||||||||||
| Total liabilities and equity | $ | $ | |||||||||
(1) Unaudited.
The accompanying notes are an integral part of these condensed consolidated balance sheets.
4
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 | ||||||||||||||||||||||
| October 2, 2021 | October 3, 2020 | October 2, 2021 | October 3, 2020 | ||||||||||||||||||||
| Net sales | $ | $ | $ | $ | |||||||||||||||||||
| Cost of sales | |||||||||||||||||||||||
| Selling, general and administrative expenses | |||||||||||||||||||||||
| Amortization of intangible assets | |||||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Other (income) expense, net | ( | ||||||||||||||||||||||
| Consolidated income before provision for income taxes and equity in net (income) loss of affiliates | |||||||||||||||||||||||
| Provision for income taxes | |||||||||||||||||||||||
| Equity in net (income) loss of affiliates | ( | ( | ( | ||||||||||||||||||||
| Consolidated net income (loss) | ( | ||||||||||||||||||||||
| Less: Net income attributable to noncontrolling interests | |||||||||||||||||||||||
| Net income (loss) attributable to Lear | $ | ( | $ | $ | $ | ( | |||||||||||||||||
Basic net income (loss) per share available to Lear common stockholders (Note 14) | $ | ( | $ | $ | $ | ( | |||||||||||||||||
Diluted net income (loss) per share available to Lear common stockholders (Note 14) | $ | ( | $ | $ | $ | ( | |||||||||||||||||
| Cash dividends declared per share | $ | $ | $ | $ | |||||||||||||||||||
| Average common shares outstanding | |||||||||||||||||||||||
| Average diluted shares outstanding | |||||||||||||||||||||||
| Consolidated comprehensive income (loss) (Condensed Consolidated Statements of Equity) | $ | ( | $ | $ | $ | ( | |||||||||||||||||
| Less: Comprehensive income attributable to noncontrolling interests | |||||||||||||||||||||||
| Comprehensive income (loss) attributable to Lear | $ | ( | $ | $ | $ | ( | |||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated statements.
5
LEAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited; in millions, except share and per share data)
| Three Months Ended October 2, 2021 | |||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Common Stock Held in Treasury | Retained Earnings | Accumulated Other Comprehensive Loss, Net of Tax | Lear Corporation Stockholders' Equity | ||||||||||||||||||||||||||||||
| Balance at July 3, 2021 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Comprehensive income (loss): | |||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Total comprehensive income (loss) | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
Net issuance of | — | ( | — | — | ( | ||||||||||||||||||||||||||||||
Repurchase of | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Dividends declared to Lear Corporation stockholders | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Dividends declared to noncontrolling interest holders | — | — | — | ||||||||||||||||||||||||||||||||
| Affiliate transaction | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance at October 2, 2021 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Nine Months Ended October 2, 2021 | |||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Common Stock Held in Treasury | Retained Earnings | Accumulated Other Comprehensive Loss, Net of Tax | Lear Corporation Stockholders' Equity | ||||||||||||||||||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Comprehensive income (loss): | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income (loss) | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Total comprehensive income (loss) | — | — | — | ( | |||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
Net issuance of | — | ( | — | — | ( | ||||||||||||||||||||||||||||||
Repurchase of | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Dividends declared to Lear Corporation stockholders | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Dividends declared to noncontrolling interest holders | — | — | — | ||||||||||||||||||||||||||||||||
| Affiliate transaction | — | — | — | — | |||||||||||||||||||||||||||||||
| Balance at October 2, 2021 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated statements.
6
LEAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (continued)
(Unaudited; in millions, except share and per share data)
| Three Months Ended October 2, 2021 | |||||||||||||||||
| Lear Corporation Stockholders' Equity | Non-controlling Interests | Equity | |||||||||||||||
| Balance at July 3, 2021 | $ | $ | $ | ||||||||||||||
| Comprehensive income (loss): | |||||||||||||||||
| Net income (loss) | ( | ( | |||||||||||||||
| Other comprehensive income (loss) | ( | ( | |||||||||||||||
| Total comprehensive income (loss) | ( | ( | |||||||||||||||
| Stock-based compensation | — | ||||||||||||||||
Net issuance of | ( | — | ( | ||||||||||||||
Repurchase of | ( | — | ( | ||||||||||||||
| Dividends declared to Lear Corporation stockholders | ( | — | ( | ||||||||||||||
| Dividends declared to noncontrolling interest holders | — | ||||||||||||||||
| Affiliate transaction | |||||||||||||||||
| Balance at October 2, 2021 | $ | $ | $ | ||||||||||||||
| Nine Months Ended October 2, 2021 | |||||||||||||||||
| Lear Corporation Stockholders' Equity | Non-controlling Interests | Equity | |||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | ||||||||||||||
| Comprehensive income (loss): | |||||||||||||||||
| Net income | |||||||||||||||||
| Other comprehensive income (loss) | ( | ( | |||||||||||||||
| Total comprehensive income (loss) | |||||||||||||||||
| Stock-based compensation | — | ||||||||||||||||
Net issuance of | ( | — | ( | ||||||||||||||
Repurchase of | ( | — | ( | ||||||||||||||
| Dividends declared to Lear Corporation stockholders | ( | — | ( | ||||||||||||||
| Dividends declared to noncontrolling interest holders | — | ( | ( | ||||||||||||||
| Affiliate transaction | |||||||||||||||||
| Balance at October 2, 2021 | $ | $ | $ | ||||||||||||||
The accompanying notes are an integral part of these condensed consolidated statements.
7
LEAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (continued)
(Unaudited; in millions, except share and per share data)
| Three Months Ended October 3, 2020 | |||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Common Stock Held in Treasury | Retained Earnings | Accumulated Other Comprehensive Loss, Net of Tax | Lear Corporation Stockholders' Equity | ||||||||||||||||||||||||||||||
| Balance at July 4, 2020 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Comprehensive income: | |||||||||||||||||||||||||||||||||||
| Net income | — | — | — | — | |||||||||||||||||||||||||||||||
| Other comprehensive income | — | — | — | — | |||||||||||||||||||||||||||||||
| Total comprehensive income | — | — | — | ||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
Net issuance of | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||
| Dividends declared to noncontrolling interest holders | — | — | — | ||||||||||||||||||||||||||||||||
| Balance at October 3, 2020 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Nine Months Ended October 3, 2020 | |||||||||||||||||||||||||||||||||||
| Common Stock | Additional Paid-In Capital | Common Stock Held in Treasury | Retained Earnings | Accumulated Other Comprehensive Loss, Net of Tax | Lear Corporation Stockholders' Equity | ||||||||||||||||||||||||||||||
| Balance at January 1, 2020 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
| Comprehensive income (loss): | |||||||||||||||||||||||||||||||||||
| Net income (loss) | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Other comprehensive income ( loss) | — | — | — | — | ( | ( | |||||||||||||||||||||||||||||
| Total comprehensive income (loss) | — | — | — | ( | ( | ( | |||||||||||||||||||||||||||||
| — | — | — | ( | — | ( | ||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | — | — | |||||||||||||||||||||||||||||||
Net issuance of | — | ( | ( | — | ( | ||||||||||||||||||||||||||||||
Repurchase of | — | — | ( | — | — | ( | |||||||||||||||||||||||||||||
| Dividends declared to Lear Corporation stockholders | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Dividends declared to noncontrolling interest holders | — | — | — | ||||||||||||||||||||||||||||||||
| Redeemable noncontrolling interest adjustment | — | — | — | ( | — | ( | |||||||||||||||||||||||||||||
| Balance at October 3, 2020 | $ | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated statements.
8
LEAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (continued)
(Unaudited; in millions, except share and per share data)
| Three Months Ended October 3, 2020 | ||||||||||||||||||||||||||
| Lear Corporation Stockholders' Equity | Non-controlling Interests | Equity | Redeemable Non-controlling Interests | |||||||||||||||||||||||
| Balance at July 4, 2020 | $ | $ | $ | $ | ||||||||||||||||||||||
| Comprehensive income: | ||||||||||||||||||||||||||
| Net income | ||||||||||||||||||||||||||
| Other comprehensive income | ||||||||||||||||||||||||||
| Total comprehensive income | ||||||||||||||||||||||||||
| Stock-based compensation | — | — | ||||||||||||||||||||||||
Net issuance of | ( | — | ( | — | ||||||||||||||||||||||
| Dividends declared to noncontrolling interest holders | — | ( | ( | — | ||||||||||||||||||||||
| Balance at October 3, 2020 | $ | $ | $ | $ | ||||||||||||||||||||||
| Nine Months Ended October 3, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||
| Lear Corporation Stockholders' Equity | Non-controlling Interests | Equity | Redeemable Non-controlling Interests | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at January 1, 2020 | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
| Comprehensive income (loss): | |||||||||||||||||||||||||||||||||||||||||||||||
| Net income (loss) | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Other comprehensive income ( loss) | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Total comprehensive income (loss) | ( | ( | ( | ||||||||||||||||||||||||||||||||||||||||||||
| ( | — | ( | — | ||||||||||||||||||||||||||||||||||||||||||||
| Stock-based compensation | — | — | |||||||||||||||||||||||||||||||||||||||||||||
Net issuance of | ( | — | ( | — | |||||||||||||||||||||||||||||||||||||||||||
Repurchase of | ( | — | ( | — | |||||||||||||||||||||||||||||||||||||||||||
| Dividends declared to Lear Corporation stockholders | ( | — | ( | — | |||||||||||||||||||||||||||||||||||||||||||
| Dividends declared to noncontrolling interest holders | — | ( | ( | — | |||||||||||||||||||||||||||||||||||||||||||
| Redeemable noncontrolling interest adjustment | ( | — | ( | ||||||||||||||||||||||||||||||||||||||||||||
| Balance at October 3, 2020 | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these condensed consolidated statements.
9
LEAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)
| Nine Months Ended | |||||||||||
| October 2, 2021 | October 3, 2020 | ||||||||||
| Cash Flows from Operating Activities: | |||||||||||
| Consolidated net income | $ | $ | |||||||||
| Adjustments to reconcile consolidated net income to net cash provided by operating activities: | |||||||||||
| Depreciation and amortization | |||||||||||
| Net change in recoverable customer engineering, development and tooling | ( | ( | |||||||||
| Net change in working capital items (see below) | ( | ( | |||||||||
| Loss on extinguishment of debt | |||||||||||
| Other, net | |||||||||||
| Net cash provided by operating activities | |||||||||||
| Cash Flows from Investing Activities: | |||||||||||
| Additions to property, plant and equipment | ( | ( | |||||||||
| Other, net | ( | ( | |||||||||
| Net cash used in investing activities | ( | ( | |||||||||
| Cash Flows from Financing Activities: | |||||||||||
| Term loan repayments | ( | ( | |||||||||
| Revolving credit facility borrowings | |||||||||||
| Revolving credit facility repayments | ( | ||||||||||
| Proceeds from the issuance of senior notes | |||||||||||
| Redemption of senior notes | ( | ||||||||||
| Short-term repayments, net | ( | ||||||||||
| Payment of debt issuance and other financing costs | ( | ||||||||||
| Repurchase of common stock | ( | ( | |||||||||
| Dividends paid to Lear Corporation stockholders | ( | ( | |||||||||
| Dividends paid to noncontrolling interests | ( | ( | |||||||||
| Other, net | ( | ||||||||||
| Net cash used in financing activities | ( | ( | |||||||||
| Effect of foreign currency translation | ( | ( | |||||||||
| Net Change in Cash, Cash Equivalents and Restricted Cash | ( | ( | |||||||||
| Cash, Cash Equivalents and Restricted Cash as of Beginning of Period | |||||||||||
| Cash, Cash Equivalents and Restricted Cash as of End of Period | $ | $ | |||||||||
| Changes in Working Capital Items: | |||||||||||
| Accounts receivable | $ | $ | ( | ||||||||
| Inventories | ( | ( | |||||||||
| Accounts payable | ( | ||||||||||
| Accrued liabilities and other | ( | ||||||||||
| Net change in working capital items | $ | ( | $ | ( | |||||||
| Supplementary Disclosure: | |||||||||||
| Cash paid for interest | $ | $ | |||||||||
| Cash paid for income taxes, net of refunds received | $ | $ | |||||||||
The accompanying notes are an integral part of these condensed consolidated statements.
10
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.
(2) Current Operating Environment
In 2020, unprecedented industry disruptions related to the COVID-19 pandemic, particularly in the first half of the year, impacted the Company's operations in every region of the world. Although industry production has improved in the first nine months of 2021 relative to 2020, production remains below recent historic levels, and third quarter 2021 production decreased as compared to the third quarter of 2020. This is largely due to the continuing impact of the COVID-19 pandemic in 2021, particularly through supply shortages. The most significant supply shortage relates to semiconductor chips, which is impacting global industry production and resulting in cancellations of planned production. In addition, the Company is experiencing increased costs related to labor shortages and inefficiencies and ongoing costs related to personal protective equipment, all of which are likely to continue for a period of time. Increases in certain commodity costs, as well as transportation and logistics costs, are also impacting, and will continue to impact, the Company's operating results for the foreseeable future. Further, a resurgence of the COVID-19 virus or its variants, including corresponding "stay at home" or similar government orders impacting industry production, could impact the Company's financial results.
The accompanying condensed consolidated financial statements reflect estimates and assumptions made by management as of October 2, 2021, and for the nine 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; valuations of deferred income taxes and income tax contingencies; and credit losses related to the Company's financial instruments. Events and circumstances arising after October 2, 2021, including those resulting from the impact of the COVID-19 pandemic, will be reflected in management's estimates and assumptions in future periods.
(3) Restructuring
In the first nine months of 2021, the Company recorded charges of $78.0 million in connection with its restructuring actions. These charges consist of $52.3 million recorded as cost of sales and $25.7 million recorded as selling, general and administrative expenses. The restructuring charges consist of employee termination costs of $60.1 million, asset impairment charges of $8.1 million and contract termination costs of $0.1 million, as well as other related costs of $9.7 million. Employee termination benefits were recorded based on existing union and employee contracts, statutory requirements, completed negotiations and Company policy. Asset impairment charges relate to the disposal of buildings, leasehold improvements and/or machinery and equipment with carrying values of $1.0 million in excess of related estimated fair values and the impairment of right-of-use assets of $7.1 million.
11
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company expects to incur approximately $37 million of additional restructuring costs related to activities initiated as of October 2, 2021, and expects that the components of such costs will be consistent with its historical experience. Any future restructuring actions will depend upon market conditions, customer actions and other factors.
A summary of 2021 activity is shown below (in millions):
| Accrual at January 1, 2021 | 2021 | Utilization | Accrual at October 2, 2021 | ||||||||||||||||||||||||||
| Charges | Cash | Non-cash | |||||||||||||||||||||||||||
| Employee termination benefits | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||
| Asset impairment charges | ( | ||||||||||||||||||||||||||||
| Contract termination costs | ( | ||||||||||||||||||||||||||||
| Other related costs | ( | ||||||||||||||||||||||||||||
| Total | $ | $ | $ | ( | $ | ( | $ | ||||||||||||||||||||||
(4) Inventories
A summary of inventories is shown below (in millions):
| October 2, 2021 | December 31, 2020 | ||||||||||
| Raw materials | $ | $ | |||||||||
| Work-in-process | |||||||||||
| Finished goods | |||||||||||
| Reserves | ( | ( | |||||||||
| Inventories | $ | $ | |||||||||
(5) Pre-Production Costs Related to Long-Term Supply Agreements
During the first nine months of 2021 and 2020, the Company capitalized $197.2 million and $111.1 million, respectively, of pre-production E&D costs for which reimbursement is contractually guaranteed by the customer. During the first nine months of 2021 and 2020, the Company also capitalized $115.1 million and $130.2 million, respectively, of pre-production tooling costs related to customer-owned tools for which reimbursement is contractually guaranteed by the customer or for which the Company has a non-cancelable right to use the tooling. These amounts are included in other current and long-term assets in the condensed consolidated balance sheets.
During the first nine months of 2021 and 2020, the Company collected $253.7 million and $184.5 million, respectively, of cash related to E&D and tooling costs.
The classification of recoverable customer E&D and tooling costs related to long-term supply agreements included in the accompanying condensed consolidated balance sheets is shown below (in millions):
| October 2, 2021 | December 31, 2020 | ||||||||||
| Current | $ | $ | |||||||||
| Long-term | |||||||||||
| Recoverable customer E&D and tooling | $ | $ | |||||||||
12
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(6) Long-Lived Assets
Impairment of Long-Lived Assets
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.
The Company will continue to assess the impact of significant industry and other events on the realization of its long-lived assets.
Property, Plant and Equipment
A summary of property, plant and equipment is shown below (in millions):
| October 2, 2021 | December 31, 2020 | ||||||||||
| Land | $ | $ | |||||||||
| Buildings and improvements | |||||||||||
| Machinery and equipment | |||||||||||
| Construction in progress | |||||||||||
| Total property, plant and equipment | |||||||||||
| Less – accumulated depreciation | ( | ( | |||||||||
| Property, plant and equipment, net | $ | $ | |||||||||
Depreciation expense was $124.6 million and $120.0 million in the three months ended October 2, 2021 and October 3, 2020, respectively, and $374.0 million and $347.7 million in the nine months ended October 2, 2021 and October 3, 2020, respectively.
In the first nine months of 2021 and 2020, the Company recognized fixed asset impairment charges of $1.0 million and $12.5 million, respectively, in conjunction with its restructuring actions (Note 3, "Restructuring"). In the first nine months of 2021 and 2020, the Company recognized additional asset impairment charges of $2.0 million and $3.4 million, respectively.
Intangible Assets
Amortization expense was $15.8 million and $16.3 million in the three months ended October 2, 2021 and October 3, 2020, respectively, and $57.4 million and $49.4 million in the nine months ended October 2, 2021 and October 3, 2020, respectively.
In the first nine months of 2021, the Company recognized an impairment charge of $8.5 million related to certain intangible assets of its E-Systems segment resulting from a change in the intended use of the assets. The impairment charge is included in amortization of intangible assets in the accompanying condensed consolidated statement of comprehensive income (loss) for the nine months ended October 2, 2021.
Investment in Affiliates
On September 6, 2021, the Company acquired a 49 % interest in Shenyang Jinbei Lear Auto Parts Co., Ltd. ("Shenyang Jinbei") for $41.3 million. The investment is accounted for under the equity method as the Company does not control Shenyang Jinbei but does have the ability to exercise significant influence over certain operating and financial policies of Shenyang Jinbei. The acquisition cost is classified within cash flows used in investing activities in the accompanying condensed consolidated statement of cash flows for the nine months ended October 2, 2021.
In the first nine months of 2021, the Company recognized an impairment charge of $1.0 million related to an affiliate.
13
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(7) Goodwill
A summary of the changes in the carrying amount of goodwill, by operating segment, in the nine months ended October 2, 2021, is shown below (in millions):
| Seating | E-Systems | Total | |||||||||||||||
| Balance at January 1, 2021 | $ | $ | $ | ||||||||||||||
| Foreign currency translation and other | ( | ||||||||||||||||
| Balance at October 2, 2021 | $ | $ | $ | ||||||||||||||
During the first and second quarters of 2021, an interim goodwill impairment analysis related to one of the Company’s reporting units within its Seating operating segment was performed. The results of the quantitative analysis indicated that the fair value of the reporting unit exceeded the related carrying value. The quantitative analysis reflected the Company’s best estimates of the COVID-19 pandemic’s ultimate impact on industry conditions, including consumer demand and economic recovery. As of October 2, 2021, the Company does not believe that any of its reporting units are at risk for impairment.
There was no
(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):
| October 2, 2021 | |||||||||||||||||||||||||||||
| Debt Instrument | Long-Term Debt | Unamortized Debt Issuance Costs | Unamortized Original Issue Premium (Discount) | Long-Term Debt, Net | Weighted Average Interest Rate | ||||||||||||||||||||||||
| Credit Agreement — Term Loan Facility | $ | $ | ( | $ | $ | ||||||||||||||||||||||||
| ( | ( | ||||||||||||||||||||||||||||
| ( | ( | ||||||||||||||||||||||||||||
| ( | ( | ||||||||||||||||||||||||||||
| ( | |||||||||||||||||||||||||||||
| Other | — | — | N/A | ||||||||||||||||||||||||||
| $ | $ | ( | $ | $ | |||||||||||||||||||||||||
| Less — Current portion | ( | ||||||||||||||||||||||||||||
| Long-term debt | $ | ||||||||||||||||||||||||||||
14
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| December 31, 2020 | |||||||||||||||||||||||||||||
| Debt Instrument | Long-Term Debt | Unamortized Debt Issuance Costs | Unamortized Original Issue Premium (Discount) | Long-Term Debt, Net | Weighted Average Interest Rate | ||||||||||||||||||||||||
| Credit Agreement — Term Loan Facility | $ | $ | ( | $ | $ | ||||||||||||||||||||||||
| 2027 Notes | ( | ( | |||||||||||||||||||||||||||
| 2029 Notes | ( | ( | |||||||||||||||||||||||||||
| 2030 Notes | ( | ( | |||||||||||||||||||||||||||
| 2049 Notes | ( | ||||||||||||||||||||||||||||
| Other | — | — | N/A | ||||||||||||||||||||||||||
| $ | $ | ( | $ | ||||||||||||||||||||||||||
| Less — Current portion | ( | ||||||||||||||||||||||||||||
| Long-term debt | $ | ||||||||||||||||||||||||||||
Senior Notes
The issuance, maturity and interest payment dates of the Company's senior unsecured 2027 Notes, 2029 Notes, 2030 Notes and 2049 Notes (collectively, the "Notes") are shown below:
| Note | Issuance Date(s) | 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 February 2020, the Company issued $350.0 million in aggregate principal amount at maturity of 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 3.5 % and were issued at 99.774 % of par, resulting in a yield to maturity of 3.525 %. The 2049 Notes have a stated coupon rate of 5.25 % and were issued at 106.626 % of par, resulting in a yield to maturity of 4.821 %.
The net proceeds from the offering were $669.1 million after original issue discount. The proceeds were used to redeem $650.0 million in aggregate principal amount of outstanding 5.25 % senior notes due 2025 (the "2025 Notes") at a redemption price equal to 102.625 % of the principal amount of such 2025 Notes, plus accrued interest.
In connection with these transactions, the Company recognized a loss of $21.1 million on the extinguishment of debt and paid related issuance costs of $5.9 million in the nine months ended October 3, 2020.
Covenants
Subject to certain exceptions, the indentures governing the Notes contain certain restrictive covenants that, among other things, limit the ability of the Company to: (i) create or permit certain liens and (ii) consolidate, merge or sell all or substantially all of the Company’s assets. The indentures governing the Notes also provide for customary events of default.
As of October 2, 2021, the Company was in compliance with all covenants under the indentures governing the Notes.
Credit Agreement
The Company's 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 $250.0 million term loan facility (the "Term Loan Facility"). In February 2020, the Company entered into an agreement to extend the maturity date of the Revolving Credit Facility by one year to August 8, 2024. The maturity date of the Term Loan Facility is August 8, 2022.
In connection with the extension agreement, the Company paid related issuance costs of $1.0 million.
15
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
As of October 2, 2021 and December 31, 2020, there were $206.3 million and $220.3 million, respectively, of borrowings outstanding under the Term Loan Facility.
In March 2020, as a proactive measure in response to the COVID-19 pandemic, the Company borrowed $1.0 no
In the first nine months of 2021, the Company made required principal payments of $14.1 million under the Term Loan Facility.
Advances under the Revolving Credit Facility and the Term Loan Facility generally bear interest based on (i) the Eurocurrency Rate (as defined in the Credit Agreement) or (ii) the Base Rate (as defined in the Credit Agreement) plus a margin, determined in accordance with a pricing grid. The ranges and rates as of October 2, 2021, are shown below (in percentages):
| Eurocurrency Rate | Base Rate | |||||||||||||||||||||||||||||||||||||
| Rate as of | Rate as of | |||||||||||||||||||||||||||||||||||||
| Minimum | Maximum | October 2, 2021 | Minimum | Maximum | October 2, 2021 | |||||||||||||||||||||||||||||||||
| Revolving Credit Facility | % | % | % | % | % | % | ||||||||||||||||||||||||||||||||
| Term Loan Facility | % | % | % | % | % | % | ||||||||||||||||||||||||||||||||
A facility fee, which ranges from 0.125 % to 0.30 % of the total amount committed under the Revolving Credit Facility, is payable quarterly.
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 October 2, 2021, the Company was in compliance with all covenants under the Credit Agreement.
Subsequent Event
On October 28, 2021, the Company entered into an amended and restated unsecured credit agreement which increases available borrowings under the revolving credit facility to $2.0 billion and extends the maturity date to October 28, 2026. The amended and restated unsecured credit agreement maintains the Company's $250 million term loan facility maturing on August 8, 2022.
Other
As of October 2, 2021 and December 31, 2020, other long-term debt consists of amounts outstanding under a finance lease agreement.
For further information related to the Company's debt, see Note 7, "Debt," to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
16
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(9) Leases
The Company has operating leases for production, office and warehouse facilities, manufacturing and office equipment and vehicles. Operating lease assets and obligations included in the accompanying condensed consolidated balance sheets are shown below (in millions):
| October 2, 2021 | December 31, 2020 | ||||||||||
| Right-of-use assets under operating leases: | |||||||||||
| $ | $ | ||||||||||
| Lease obligations under operating leases: | |||||||||||
| $ | $ | ||||||||||
| $ | $ | ||||||||||
Maturities of lease obligations as of October 2, 2021, are shown below (in millions):
| October 2, 2021 | |||||
2021 (1) | $ | ||||
| 2022 | |||||
| 2023 | |||||
| 2024 | |||||
| 2025 | |||||
| Thereafter | |||||
| Total undiscounted cash flows | |||||
| Less: Imputed interest | ( | ||||
| Lease obligations under operating leases | $ | ||||
(1) For the remaining three months
Cash flow information related to operating leases is shown below (in millions):
| Nine Months Ended | |||||||||||
| October 2, 2021 | October 3, 2020 | ||||||||||
| Non-cash activity: | |||||||||||
| Right-of-use assets obtained in exchange for operating lease obligations | $ | $ | |||||||||
| Operating cash flows: | |||||||||||
| Cash paid related to operating lease obligations | $ | $ | |||||||||
17
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Lease expense included in the accompanying condensed consolidated statements of comprehensive income (loss) is shown below (in millions):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 2, 2021 | October 3, 2020 | October 2, 2021 | October 3, 2020 | ||||||||||||||||||||
| Operating lease expense | $ | $ | $ | $ | |||||||||||||||||||
| Short-term lease expense | |||||||||||||||||||||||
| Variable lease expense | |||||||||||||||||||||||
| Total lease expense | $ | $ | $ | $ | |||||||||||||||||||
In the nine months ended October 2, 2021 and October 3, 2020, the Company recognized impairment charges of $7.1 million and $2.0 million, respectively, related to its right-of-use assets in conjunction with its restructuring actions.
The weighted average lease term and discount rate for operating leases are shown below:
| October 2, 2021 | |||||
| Weighted average remaining lease term | |||||
| Weighted average discount rate | % | ||||
The Company is party to a finance lease agreement, which is not material to the accompanying condensed consolidated financial statements (Note 8, "Debt").
For further information related to the Company's leases, see Note 8, "Leases," to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2020.
(10) Pension and Other Postretirement Benefit Plans
The Company sponsors defined benefit pension plans covering certain eligible employees in the United States and certain foreign countries. The Company also sponsors postretirement benefit plans (primarily for the continuation of medical benefits) covering certain eligible retirees in the United States and Canada.
Net Periodic Pension and Other Postretirement Benefit (Credit) Cost
The components of the Company’s net periodic pension benefit (credit) cost are shown below (in millions):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| October 2, 2021 | October 3, 2020 | October 2, 2021 | October 3, 2020 | ||||||||||||||||||||||||||||||||||||||||||||
| U.S. | Foreign | U.S. | Foreign | U.S. | Foreign | U.S. | Foreign | ||||||||||||||||||||||||||||||||||||||||
| Service cost | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Interest cost | |||||||||||||||||||||||||||||||||||||||||||||||
| Expected return on plan assets | ( | ( | ( | ( | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||
| Amortization of actuarial loss | |||||||||||||||||||||||||||||||||||||||||||||||
| Settlement loss | |||||||||||||||||||||||||||||||||||||||||||||||
| Net periodic benefit (credit) cost | $ | ( | $ | $ | ( | $ | $ | ( | $ | $ | ( | $ | |||||||||||||||||||||||||||||||||||
In the three and nine months ended October 3, 2020, the Company recognized a pension benefit plan settlement loss of $10.2
18
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The components of the Company’s net periodic other postretirement benefit cost are shown below (in millions):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| October 2, 2021 | October 3, 2020 | October 2, 2021 | October 3, 2020 | ||||||||||||||||||||||||||||||||||||||||||||
| U.S. | Foreign | U.S. | Foreign | U.S. | Foreign | U.S. | Foreign | ||||||||||||||||||||||||||||||||||||||||
| Interest cost | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
| Amortization of actuarial gain | ( | ( | ( | ( | |||||||||||||||||||||||||||||||||||||||||||
| Amortization of prior service credit | ( | ( | |||||||||||||||||||||||||||||||||||||||||||||
| Net periodic benefit cost | $ | $ | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||||
Contributions
(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 infrequent. The Company receives purchase orders from its customers, which provide the commercial terms for a particular production part, including price (but not quantities). Contracts may also provide for annual price reductions over the production life of the vehicle, and prices may be adjusted on an ongoing basis to reflect changes in product content/cost and other commercial factors.
Revenue is recognized at a point in time when control of the product is transferred to the customer under standard commercial terms, as the Company does not have an enforceable right to payment prior to such transfer. The amount of revenue recognized reflects the consideration that the Company expects to be entitled to in exchange for those products based on the annual purchase orders, annual price reductions and ongoing price adjustments. In the first nine months of 2021 and 2020, revenue recognized related to prior years represented approximately 1
The Company records a contract liability for advances received from its customers. As of October 2, 2021 and December 31, 2020, there were no no
Amounts billed to customers related to shipping and handling costs are included in net sales in the condensed consolidated statements of comprehensive income (loss). Shipping and handling costs are accounted for as fulfillment costs and are included in cost of sales in the condensed consolidated statements of comprehensive income (loss).
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction that are collected by the Company from a customer are excluded from revenue.
A summary of the Company’s revenue by reportable operating segment and geography is shown below (in millions):
| Three Months Ended | |||||||||||||||||||||||||||||||||||
| October 2, 2021 | October 3, 2020 | ||||||||||||||||||||||||||||||||||
| Seating | E-Systems | Total | Seating | E-Systems | Total | ||||||||||||||||||||||||||||||
| North America | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Europe and Africa | |||||||||||||||||||||||||||||||||||
| Asia | |||||||||||||||||||||||||||||||||||
| South America | |||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
19
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
| Nine Months Ended | |||||||||||||||||||||||||||||||||||
| October 2, 2021 | October 3, 2020 | ||||||||||||||||||||||||||||||||||
| Seating | E-Systems | Total | Seating | E-Systems | Total | ||||||||||||||||||||||||||||||
| North America | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||
| Europe and Africa | |||||||||||||||||||||||||||||||||||
| Asia | |||||||||||||||||||||||||||||||||||
| South America | |||||||||||||||||||||||||||||||||||
| $ | $ | $ | $ | $ | $ | ||||||||||||||||||||||||||||||
(12) Other (Income) Expense, Net
Other (income) expense, net includes non-income related taxes, foreign exchange gains and losses, gains and losses related to certain derivative instruments and hedging activities, losses on the extinguishment of debt, gains and losses on the disposal of fixed assets, gains and losses on the consolidation and deconsolidation of affiliates, the non-service cost components of net periodic benefit cost and other miscellaneous income and expense.
A summary of other (income) expense, net is shown below (in millions):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 2, 2021 | October 3, 2020 | October 2, 2021 | October 3, 2020 | ||||||||||||||||||||
| Other expense | $ | $ | $ | $ | |||||||||||||||||||
| Other income | ( | ( | ( | ( | |||||||||||||||||||
| Other (income) expense, net | $ | $ | $ | ( | $ | ||||||||||||||||||
In May 2021, the Brazilian Supreme Court ruled on certain matters, including the method of determining the amount of indirect
tax credits that taxpayers are entitled to monetize in future periods. As a result of the ruling, other income includes a gain of $46.0 million in the nine months ended October 2, 2021.
In the three and nine months ended October 2, 2021, other expense includes net foreign currency transaction losses of $6.9 million and $13.6 million, respectively. In the nine months ended October 2, 2021, other expense also includes a loss of $1.0 million related to the impairment of an affiliate (Note 6, "Long-Lived Assets").
(13) Income Taxes
A summary of the provision for income taxes and the corresponding effective tax rate for the three and nine months ended October 2, 2021 and October 3, 2020, is shown below (in millions, except effective tax rates):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 2, 2021 | October 3, 2020 | October 2, 2021 | October 3, 2020 | ||||||||||||||||||||
| Provision for income taxes | $ | $ | $ | $ | |||||||||||||||||||
| Pretax income before equity in net (income) loss of affiliates | $ | $ | $ | $ | |||||||||||||||||||
| Effective tax rate | % | % | % | % | |||||||||||||||||||
The Company’s provision for income taxes is impacted by the level and mix of earnings among tax jurisdictions. Pretax income before equity in net (income) loss of affiliates was $13.9 million in the third quarter of 2021, as compared to $235.2 million in the third quarter 2020. As a result of third quarter 2021 pretax losses in certain jurisdictions largely related to supply shortages,
20
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
an effective tax rate comparison between third quarter 2021 and third quarter 2020 is not meaningful. Pretax income before equity in net (income) loss of affiliates was $522.0 million in the first nine months of 2021, as compared to $25.4 million in the first nine months of 2020. As a result of COVID-related pretax losses in the first nine months of 2020 in certain jurisdictions, an effective tax rate comparison between the first nine months of 2021 and the first nine months of 2020 is not meaningful.
The Company's discrete tax benefit (expense) on significant items is shown below (in millions):
| Nine Months Ended | |||||||||||
| October 2, 2021 | October 3, 2020 | ||||||||||
| Restructuring charges and various other items | $ | $ | |||||||||
| Valuation allowances on deferred tax assets | ( | ( | |||||||||
| Release of tax reserves | |||||||||||
| Favorable indirect tax ruling in a foreign jurisdiction | ( | ||||||||||
| Research and development tax credits | |||||||||||
| $ | $ | ||||||||||
Excluding the items above, the effective tax rate for the first nine months of 2021 and 2020 approximated the U.S. federal statutory income tax rate of 21%, adjusted for income taxes on foreign earnings, losses and remittances, valuation allowances, tax credits, income tax incentives and other permanent items.
(14) Net Income (Loss) Per Share Attributable to Lear
Basic net income (loss) per share available to Lear common stockholders is computed using the two-class method by dividing net income (loss) available to Lear by the average number of common shares outstanding during the period. Common shares issuable upon the satisfaction of certain conditions pursuant to a contractual agreement are considered common shares outstanding and are included in the computation of basic net income (loss) per share available to Lear common stockholders.
Diluted net income per share available to Lear common stockholders is computed using the two-class method by dividing net income available to Lear by the average number of common shares outstanding, including the dilutive effect of common stock equivalents computed using the treasury stock method and the average share price during the period. The computation of diluted net loss per share available to Lear common stockholders excludes the effect of common stock equivalents as such effect would be anti-dilutive.
21
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
A summary of information used to compute basic and diluted net income (loss) per share available to Lear common stockholders is shown below (in millions, except share and per share data):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 2, 2021 | October 3, 2020 | October 2, 2021 | October 3, 2020 | ||||||||||||||||||||
| Net income (loss) available to Lear | $ | ( | $ | $ | $ | ( | |||||||||||||||||
| Average common shares outstanding | |||||||||||||||||||||||
| Dilutive effect of common stock equivalents | |||||||||||||||||||||||
| Average diluted shares outstanding | |||||||||||||||||||||||
| Basic net income (loss) per share available to Lear common stockholders | $ | ( | $ | $ | $ | ( | |||||||||||||||||
| Diluted net income (loss) per share available to Lear common stockholders | $ | ( | $ | $ | $ | ( | |||||||||||||||||
22
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(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 (loss).
Accumulated Other Comprehensive Loss
A summary of changes, net of tax, in accumulated other comprehensive loss for the three and nine months ended October 2, 2021, is shown below (in millions):
| Three Months Ended October 2, 2021 | Nine Months Ended October 2, 2021 | ||||||||||
| Defined benefit plans: | |||||||||||
| Balance at beginning of period | $ | ( | $ | ( | |||||||
Reclassification adjustments (net of tax expense of $ | |||||||||||
Other comprehensive income (loss) recognized during the period (net of tax impact of $ | ( | ||||||||||
| Balance at end of period | $ | ( | $ | ( | |||||||
| Derivative instruments and hedging: | |||||||||||
| Balance at beginning of period | $ | $ | |||||||||
Reclassification adjustments (net of tax benefit of $ | ( | ( | |||||||||
Other comprehensive income (loss) recognized during the period (net of tax benefit (expense) of $ | ( | ||||||||||
| Balance at end of period | $ | ( | $ | ( | |||||||
| Foreign currency translation: | |||||||||||
| Balance at beginning of period | $ | ( | $ | ( | |||||||
Other comprehensive loss recognized during the period (net of tax expense of $ | ( | ( | |||||||||
| Balance at end of period | $ | ( | $ | ( | |||||||
| Total accumulated other comprehensive loss | $ | ( | $ | ( | |||||||
In the three months ended October 2, 2021, foreign currency translation adjustments are primarily related to the weakening of the Euro and the Brazilian real relative to the U.S. dollar. In the nine months ended October 2, 2021, foreign currency translation adjustments are primarily related to the weakening of the Euro, and to a lesser extent, the Brazilian real, partially offset by the strengthening of the Chinese renminbi, relative to the U.S. dollar.
In the three and nine months ended October 2, 2021, foreign currency translation adjustments include pretax gains (losses) of $0.2 million and ($0.4 ) million, respectively, related to intercompany transactions for which settlement is not planned or anticipated in the foreseeable future.
23
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
A summary of changes, net of tax, in accumulated other comprehensive loss for the three and nine months ended October 3, 2020, is shown below (in millions):
| Three Months Ended October 3, 2020 | Nine Months Ended October 3, 2020 | ||||||||||
| Defined benefit plans: | |||||||||||
| Balance at beginning of period | $ | ( | $ | ( | |||||||
Reclassification adjustments (net of tax expense of $ | |||||||||||
Other comprehensive loss recognized during the period (net of tax benefit of $ | ( | ( | |||||||||
| Balance at end of period | $ | ( | $ | ( | |||||||
| Derivative instruments and hedging: | |||||||||||
| Balance at beginning of period | $ | ( | $ | ||||||||
Reclassification adjustments (net of tax expense of $ | |||||||||||
Other comprehensive income (loss) recognized during the period (net of tax benefit (expense) of ($ | ( | ||||||||||
| Balance at end of period | $ | ( | $ | ( | |||||||
| Foreign currency translation: | |||||||||||
| Balance at beginning of period | $ | ( | $ | ( | |||||||
Other comprehensive income (loss) recognized during the period (net of tax benefit of $ | ( | ||||||||||
| Balance at end of period | $ | ( | $ | ( | |||||||
| Total accumulated other comprehensive loss | $ | ( | $ | ( | |||||||
In the three months ended October 3, 2020, foreign currency translation adjustments are primarily related to the strengthening of the Euro and Chinese renminbi, partially offset by the weakening of the Brazilian real, relative to the U.S. dollar. In the nine months ended October 3, 2020, foreign currency translation adjustments are primarily related to the weakening of the Brazilian real, largely offset by the strengthening of the Euro and the Chinese renminbi, relative to the U.S. dollar.
In the three and nine months ended October 3, 2020, foreign currency translation adjustments include pretax gains (losses) of $0.5 million and ($0.5 ) million, respectively, related to intercompany transactions for which settlement is not planned or anticipated in the foreseeable future.
For further information regarding reclassification adjustments related to the Company's defined benefit plans, see Note 10, "Pension and Other Postretirement Benefit Plans." For further information regarding reclassification adjustments related to the Company's derivative and hedging activities, see Note 18, "Financial Instruments."
Lear Corporation Stockholders’ Equity
Common Stock Share Repurchase Program
The Company may implement share repurchases through a variety of methods, including, but not limited to, open market purchases, accelerated stock repurchase programs and structured repurchase transactions. The extent to which the Company may repurchase its outstanding common stock and the timing of such repurchases will depend upon its financial condition, prevailing market conditions, alternative uses of capital and other factors.
24
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
The Company has a common stock share repurchase program (the "Repurchase Program") which permits the discretionary repurchase of its common stock. Since its inception in the first quarter of 2011, the Company's Board of Directors has authorized $6.1 billion in share repurchases under the Repurchase Program. The current authorization expires on December 31, 2022.
In March 2020, as a proactive measure in response to the COVID-19 pandemic, the Company suspended share repurchases under the Repurchase Program. Share repurchases were reinstated in the second quarter of 2021. Share repurchases since the reinstatement through October 2, 2021, are shown below (in millions except for shares and per share amounts):
| Nine Months Ended | As of October 2, 2021 | |||||||||||||||||||||||||
October 2, 2021 (1) | ||||||||||||||||||||||||||
| Aggregate Repurchases | Cash Paid for Repurchases | Number of Shares | Average Price per Share (2) | Remaining Purchase Authorization | ||||||||||||||||||||||
| $ | $ | $ | $ | |||||||||||||||||||||||
(1) From reinstatement through October 2, 2021
(2) Excludes commissions
Since the inception of the Repurchase Program, the Company repurchased, in aggregate, $4.8 billion of its outstanding common stock, at an average price of $90.97 per share, excluding commissions and related fees.
In addition to shares repurchased under the Repurchase Program described above, the Company classifies shares withheld from the settlement of the Company’s restricted stock unit and performance share awards to cover tax withholding requirements as common stock held in treasury in the condensed consolidated balance sheets.
Quarterly Dividend
In March 2020, as a proactive measure in response to the COVID-19 pandemic, the Company suspended its quarterly cash dividend. Prior to the suspension, the Company’s Board of Directors declared a quarterly cash dividend of $0.77 per share of common stock. In the fourth quarter of 2020, the Company reinstated a quarterly cash dividend of $0.25 per share of common stock. The Company’s Board of Directors declared a quarterly cash dividend of $0.25 0.50 per share of common stock in the third quarter of 2021.
Dividends declared and paid are shown below (in millions):
| Nine Months Ended | |||||||||||
| October 2, 2021 | October 3, 2020 (1) | ||||||||||
| Dividends declared | $ | $ | |||||||||
| Dividends paid | |||||||||||
(1) Prior to March 2020 suspension
Dividends payable on common shares to be distributed under the Company’s stock-based compensation program will be paid when such common shares are distributed.
Noncontrolling Interest
On September 6, 2021, the Company sold a 49 % equity interest in its wholly owned consolidated subsidiary, Shenyang Lear Automotive Seating and Interior Systems Co., Ltd. ("Shenyang Lear"), for $36.2 million. The Company continues to control Shenyang Lear, and as a result, the operating results and cash flows of Shenyang Lear continue to be included in the Company's condensed consolidated financial statements.
Noncontrolling interest of $7.6 million was recorded in conjunction with the transaction. The difference between the consideration paid and the carrying value of the noncontrolling interest recorded is reflected in additional paid-in capital in the accompanying condensed consolidated balance sheet as of October 2, 2021.
The proceeds from the sale are classified within cash flows used in financing activities in the accompanying condensed consolidated statement of cash flows for the nine months ended October 2, 2021.
25
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
(16) Legal and Other Contingencies
As of October 2, 2021 and December 31, 2020, the Company had recorded reserves for pending legal disputes, including commercial disputes and other matters, of $17.5 million and $17.2 million, respectively. Such reserves reflect amounts recognized in accordance with GAAP and typically exclude the cost of legal representation. Product liability and warranty reserves are recorded separately from legal reserves, as described below.
Commercial Disputes
The Company is involved from time to time in legal proceedings and claims related to commercial or contractual disputes with its customers, suppliers and competitors. These disputes vary in nature and are usually resolved by negotiations between the parties.
Product Liability and Warranty Matters
In the event that use of the Company’s products results in, or is alleged to result in, bodily injury and/or property damage or other losses, the Company may be subject to product liability lawsuits and other claims. Such lawsuits generally seek compensatory damages, punitive damages and attorneys’ fees and costs. In addition, if any of the Company’s products are, or are alleged to be, defective, the Company may be required or requested by its customers to participate in a recall or other corrective action involving such products. Certain of the Company’s customers have asserted claims against the Company for costs related to recalls or other corrective actions involving its products. The Company can provide no assurances that it will not experience material claims in the future or that it will not incur significant costs to defend such claims.
To a lesser extent, the Company is a party to agreements with certain of its customers, whereby these customers may pursue claims against the Company for contribution of all or a portion of the amounts sought in connection with product liability and warranty claims.
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.
The Company records product warranty reserves when liability is probable and related amounts are reasonably estimable.
A summary of the changes in reserves for product liability and warranty claims for the nine months ended October 2, 2021, is shown below (in millions):
| Balance at January 1, 2021 | $ | ||||
| Expense, net (including changes in estimates) | |||||
| Settlements | ( | ||||
| Foreign currency translation and other | ( | ||||
| Balance at October 2, 2021 | $ | ||||
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,
26
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
disposals or other releases of hazardous wastes and environmental compliance. The Company’s policy is to comply with all applicable environmental laws and to maintain an environmental management program based on ISO 14001 to ensure compliance with this standard. However, the Company currently is, has been and in the future may become the subject of formal or informal enforcement actions or procedures.
As of October 2, 2021 and December 31, 2020, the Company had recorded environmental reserves of $8.4 million and $8.9 million, respectively. The Company does not believe that the environmental liabilities associated with its current and former properties will have a material adverse impact on its business, financial condition, results of operations or cash flows; however, no assurances can be given in this regard.
Other Matters
The Company is involved from time to time in various other legal proceedings and claims, including, without limitation, intellectual property matters, tax claims and employment matters. Although the outcome of any legal matter cannot be predicted with certainty, the Company does not believe that any of the other legal proceedings or claims in which the Company is currently involved, either individually or in the aggregate, will have a material adverse impact on its business, financial condition, results of operations or cash flows. However, no assurances can be given in this regard.
(17) Segment Reporting
The Company is organized under two reportable operating segments: Seating, which consists of the design, development, engineering and manufacture of complete seat systems, seat subsystems and key seat components, and E-Systems, which consists of the design, development, engineering and manufacture of complete electrical distribution and connection systems, electronic systems, and software. Key components in the Company's complete seat system and subsystem solutions are advanced comfort, wellness, safety and sound offerings, as well as configurable seating product technologies, all of which are compatible with traditional internal combustion engine ("ICE") architectures and the full range of hybrid, plug-in hybrid and battery electric architectures. Key seat component product offerings include seat trim covers, surface materials such as leather and fabric, seat mechanisms, seat foam and headrests. Key components in the Company's electrical distribution portfolio include wire harnesses, terminals and connectors, and engineered components for both ICE and electrified vehicle architectures that require management of higher voltage and power. Key components in the Company's electronic systems portfolio include body domain control modules and products specific to electrification and connectivity trends. Electrification products include on-board battery chargers, power conversion modules, high voltage battery management systems and high voltage power distribution systems. Connectivity products include gateway modules and communication modules to manage both wired and wireless networks and data in vehicles. In addition to electronic modules, the Company offers software that includes cybersecurity, advanced vehicle positioning for automated and autonomous driving applications and full capabilities in both dedicated short-range communication and cellular protocols for vehicle connectivity. The Company's software offerings include embedded control software and cloud and mobile device-based software and services. The other category includes unallocated costs related to corporate headquarters, regional headquarters and the elimination of intercompany activities, none of which meets the requirements for being classified as an operating segment. Corporate and regional headquarters costs include various support functions, such as information technology, advanced research and development, corporate finance, legal, executive administration and human resources.
Each of the Company’s operating segments reports its results from operations and makes its requests for capital expenditures directly to the chief operating decision maker. The economic performance of each operating segment is driven primarily by automotive production volumes in the geographic regions in which it operates, as well as by the success of the vehicle platforms for which it supplies products. Also, each operating segment operates in the competitive Tier 1 automotive supplier environment and is continually working with its customers to manage costs and improve quality. The Company’s production processes generally make use of hourly labor, dedicated facilities, sequential manufacturing and assembly processes and commodity raw materials.
The Company evaluates the performance of its operating segments based primarily on (i) revenues from external customers, (ii) pretax income (loss) before equity in net income of affiliates, interest expense and other (income) expense, net ("segment earnings") and (iii) cash flows, being defined as segment earnings less capital expenditures plus depreciation and amortization.
27
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 October 2, 2021 | |||||||||||||||||||||||
| Seating | E-Systems | Other | Consolidated | ||||||||||||||||||||
| Revenues from external customers | $ | $ | $ | $ | |||||||||||||||||||
Segment earnings (1) | ( | ( | |||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Capital expenditures | |||||||||||||||||||||||
| Total assets | |||||||||||||||||||||||
| Three Months Ended October 3, 2020 | |||||||||||||||||||||||
| Seating | E-Systems | Other | Consolidated | ||||||||||||||||||||
| Revenues from external customers | $ | $ | $ | $ | |||||||||||||||||||
Segment earnings (1) | ( | ||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Capital expenditures | |||||||||||||||||||||||
| Total assets | |||||||||||||||||||||||
| Nine Months Ended October 2, 2021 | |||||||||||||||||||||||
| Seating | E-Systems | Other | Consolidated | ||||||||||||||||||||
| Revenues from external customers | $ | $ | $ | $ | |||||||||||||||||||
Segment earnings (1) | ( | ||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Capital expenditures | |||||||||||||||||||||||
| Nine Months Ended October 3, 2020 | |||||||||||||||||||||||
| Seating | E-Systems | Other | Consolidated | ||||||||||||||||||||
| Revenues from external customers | $ | $ | $ | $ | |||||||||||||||||||
Segment earnings (1) | ( | ||||||||||||||||||||||
| Depreciation and amortization | |||||||||||||||||||||||
| Capital expenditures | |||||||||||||||||||||||
(1) See definition above
For the three months ended October 2, 2021, segment earnings include restructuring charges of $15.2 million, $28.9 million and $1.3 million in the Seating and E-Systems segments and in the other category, respectively. For the nine months ended October 2, 2021, segment earnings include restructuring charges of $35.2 million, $37.3 million and $5.5 million in the Seating and E-Systems segments and in the other category, respectively. The Company expects to incur approximately $18 million and $19 million of additional restructuring costs in the Seating and E-Systems segments, respectively, related to activities initiated as of October 2, 2021, and expects that the components of such costs will be consistent with its historical experience.
For the three months ended October 3, 2020, segment earnings include restructuring charges of $33.6 million, $5.0 million and $0.3 million in the Seating and E-Systems segments and in the other category, respectively. For the nine months ended October 3, 2020, segment earnings include restructuring charges of $59.3 million, $46.2 million and $0.9 million in the Seating and E-Systems segments and in the other category, respectively.
For further information, see Note 3, "Restructuring."
28
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
A reconciliation of segment earnings to consolidated income before provision for income taxes and equity in net (income) loss of affiliates is shown below (in millions):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 2, 2021 | October 3, 2020 | October 2, 2021 | October 3, 2020 | ||||||||||||||||||||
| Segment earnings | $ | $ | $ | $ | |||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Other (income) expense, net | ( | ||||||||||||||||||||||
| Consolidated income before provision for income taxes and equity in net (income) loss of affiliates | $ | $ | $ | $ | |||||||||||||||||||
(18) Financial Instruments
Debt Instruments
The carrying values of the Notes vary from their fair values. The fair values of the Notes were determined by reference to the quoted market prices of these securities (Level 2 input based on the GAAP fair value hierarchy). The 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):
| October 2, 2021 | December 31, 2020 | ||||||||||
Estimated aggregate fair value (1) | $ | $ | |||||||||
Aggregate carrying value (1) (2) | |||||||||||
(1) Includes Term Loan Facility and Notes (excludes "other" debt)
(2) Excludes the impact of unamortized debt issuance costs and unamortized original issue premium (discount)
Cash, Cash Equivalents and Restricted Cash
The Company has cash on deposit that is legally restricted as to use or withdrawal. A reconciliation of cash, cash equivalents and restricted cash included in the accompanying condensed consolidated balance sheets and the accompanying condensed consolidated statements of cash flows is shown below (in millions):
| October 2, 2021 | October 3, 2020 | ||||||||||
| Balance sheet: | |||||||||||
| Cash and cash equivalents | $ | $ | |||||||||
| Restricted cash included in other current assets | |||||||||||
| Restricted cash included in other long-term assets | |||||||||||
| Statement of cash flows: | |||||||||||
| Cash, cash equivalents and restricted cash | $ | $ | |||||||||
Accounts Receivable
29
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Marketable Equity Securities
Marketable equity securities, which the Company accounts for under the fair value option, are included in the accompanying condensed consolidated balance sheets as shown below (in millions):
| October 2, 2021 | December 31, 2020 | ||||||||||
| Current assets | $ | $ | |||||||||
| Other long-term assets | |||||||||||
| $ | $ | ||||||||||
Equity Securities Without Readily Determinable Fair Values
As of October 2, 2021 and December 31, 2020, investments in equity securities without readily determinable fair values of $15.4 million and $11.2 million, respectively, are included in other long-term assets in the accompanying condensed consolidated balance sheets. Such investments are valued at cost, less cumulative impairments of $10.0 million. During the nine months ended October 2, 2021, the Company recognized an impairment charge of $1.0 million related to an investment in equity securities without a readily determinable fair value.
Derivative Instruments and Hedging Activities
The Company has used derivative financial instruments, including forwards, futures, options, swaps and other derivative contracts to reduce the effects of fluctuations in foreign exchange rates and interest rates and the resulting variability of the Company’s operating results. The Company is not a party to leveraged derivatives. The Company’s derivative financial instruments are subject to master netting arrangements that provide for the net settlement of contracts, by counterparty, in the event of default or termination. On the date that a derivative contract for a hedge instrument is entered into, the Company designates the derivative as either (1) a hedge of the exposure to changes in the fair value of a recognized asset or liability or of an unrecognized firm commitment (a fair value hedge), (2) a hedge of the exposure of a forecasted transaction or of the variability in the cash flows of a recognized asset or liability (a cash flow hedge), (3) a hedge of a net investment in a foreign operation (a net investment hedge) or (4) a contract not designated as a hedge instrument.
For a fair value hedge, the change in the fair value of the derivative is recorded in earnings and reflected in the condensed consolidated 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 change in the fair value of the derivative is recorded in accumulated other comprehensive loss in the condensed consolidated balance sheets. When the underlying hedged transaction is realized, the gain or loss included in accumulated other comprehensive loss is recorded in earnings and reflected in the condensed consolidated 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 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 sheets. When the related currency translation adjustment is required to be reclassified, usually upon the sale or liquidation of the investment, the gain or loss included in accumulated other comprehensive loss is recorded in earnings and reflected in other expense, net in the condensed consolidated statements of comprehensive income (loss). Changes in the fair value of contracts not designated as hedge instruments are recorded in earnings and reflected in other expense, net in the condensed consolidated statements of comprehensive income (loss). Cash flows attributable to derivatives used to manage foreign currency risks are classified on the same line as the hedged item attributable to the hedged risk in the condensed consolidated statements of cash flows. Upon settlement, cash flows attributable to derivatives designated as net investment hedges are classified as investing activities in the condensed consolidated statements of cash flows. Cash flows attributable to forward starting interest rate swaps are classified as financing activities in the condensed consolidated statements of cash flows.
The Company formally documents its hedge relationships, including the identification of the hedge instruments and the related hedged items, as well as its risk management objectives and strategies for undertaking the hedge transaction. Derivatives are recorded at fair value in other current and long-term assets and other current and long-term liabilities in the condensed
30
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Foreign Exchange
Foreign currency derivative contracts not designated as hedging instruments consist principally of hedges of cash transactions, intercompany loans and certain other balance sheet exposures.
Net Investment Hedges
The Company uses cross-currency interest rate swaps, which are designated as net investment hedges of the foreign currency rate exposure of its investment in certain Euro-denominated subsidiaries. In the nine months ended October 2, 2021 and October 3, 2020, contra interest expense on net investment hedges of $4.9
Balance Sheet Classification
The notional amount, estimated aggregate fair value and related balance sheet classification of the Company's foreign currency and net investment hedge contracts are shown below (in millions, except for maturities):
| October 2, 2021 | December 31, 2020 | ||||||||||
| Fair value of foreign currency contracts designated as cash flow hedges: | |||||||||||
| Other current assets | $ | $ | |||||||||
| Other long-term assets | |||||||||||
| Other current liabilities | ( | ( | |||||||||
| Other long-term liabilities | ( | ( | |||||||||
| Notional amount | $ | $ | |||||||||
| Outstanding maturities in months, not to exceed | |||||||||||
| Fair value of derivatives designated as net investment hedges: | |||||||||||
| Other long-term liabilities | $ | ( | $ | ( | |||||||
| Notional amount | $ | $ | |||||||||
| Outstanding maturities in months, not to exceed | |||||||||||
| Fair value of foreign currency contracts not designated as hedging instruments: | |||||||||||
| Other current assets | $ | $ | |||||||||
| Other current liabilities | ( | ( | |||||||||
| ( | |||||||||||
| Notional amount | $ | $ | |||||||||
| Outstanding maturities in months, not to exceed | |||||||||||
| Total fair value | $ | $ | |||||||||
| Total notional amount | $ | $ | |||||||||
31
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Accumulated Other Comprehensive Loss — Derivative Instruments and Hedging
Pretax amounts related to foreign currency and net investment hedge contracts that were recognized in and reclassified from accumulated other comprehensive loss are shown below (in millions):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 2, 2021 | October 3, 2020 | October 2, 2021 | October 3, 2020 | ||||||||||||||||||||
| Gains (losses) recognized in accumulated other comprehensive loss: | |||||||||||||||||||||||
| Foreign currency contracts | $ | ( | $ | $ | $ | ( | |||||||||||||||||
| Net investment hedge contracts | ( | ( | |||||||||||||||||||||
| ( | ( | ||||||||||||||||||||||
| (Gains) losses reclassified from accumulated other comprehensive loss to: | |||||||||||||||||||||||
| Net sales | ( | ( | ( | ( | |||||||||||||||||||
| Cost of sales | ( | ( | |||||||||||||||||||||
| Interest expense | |||||||||||||||||||||||
| Other (income) expense, net | ( | ||||||||||||||||||||||
| ( | ( | ||||||||||||||||||||||
| Comprehensive income (loss) | $ | ( | $ | $ | ( | $ | ( | ||||||||||||||||
As of October 2, 2021 and December 31, 2020, pretax net gains (losses) of ($7.2 ) million and $4.7 million, respectively, related to the Company’s derivative instruments and hedging activities were recorded in accumulated other comprehensive loss.
During the next twelve month period, net gains (losses) expected to be reclassified into earnings are shown below (in millions):
| Foreign currency contracts | $ | ||||
| Interest rate swap contracts | ( | ||||
| Total | $ | ||||
Such gains and losses will be reclassified at the time that the underlying hedged transactions are realized.
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). | |||||||
32
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Further, GAAP prioritizes the inputs and assumptions used in the valuation techniques described above into a three-tier fair value hierarchy as follows:
| Level 1: | Observable inputs, such as quoted market prices in active markets for identical assets or liabilities that are accessible at the measurement date. | |||||||
| Level 2: | Inputs, other than quoted market prices included in Level 1, that are observable either directly or indirectly for the asset or liability. | |||||||
| Level 3: | Unobservable inputs that reflect the entity’s own assumptions about the exit price of the asset or liability. Unobservable inputs may be used if there is little or no market data for the asset or liability at the measurement date. | |||||||
The Company discloses fair value measurements and the related valuation techniques and fair value hierarchy level for its assets and liabilities that are measured or disclosed at fair value.
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 October 2, 2021 and December 31, 2020, are shown below (in millions):
| October 2, 2021 | |||||||||||||||||||||||||||||||||||
| Frequency | Asset (Liability) | Valuation Technique | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||||
| Foreign currency contracts, net | Recurring | $ | Market/ Income | $ | $ | $ | |||||||||||||||||||||||||||||
| Net investment hedges | Recurring | ( | Market/ Income | ( | |||||||||||||||||||||||||||||||
| Marketable equity securities | Recurring | Market | |||||||||||||||||||||||||||||||||
| December 31, 2020 | |||||||||||||||||||||||||||||||||||
| Frequency | Asset (Liability) | Valuation Technique | Level 1 | Level 2 | Level 3 | ||||||||||||||||||||||||||||||
| Foreign currency contracts, net | Recurring | $ | Market/ Income | $ | $ | $ | |||||||||||||||||||||||||||||
| Net investment hedges | Recurring | ( | Market/ Income | ( | |||||||||||||||||||||||||||||||
| Marketable equity securities | Recurring | Market | |||||||||||||||||||||||||||||||||
Items Measured at Fair Value on a Non-Recurring Basis
The Company measures certain assets and liabilities at fair value on a non-recurring basis, which are not included in the table above. As these non-recurring fair value measurements are generally determined using unobservable inputs, these fair value measurements are classified within Level 3 of the fair value hierarchy.
In the first and second quarters of 2021, the Company completed a quantitative goodwill impairment assessment for one
In the second quarter of 2021, the Company completed an impairment assessment related to certain of its intangible assets. The fair value estimate of the related asset group was based on management's estimates using a discounted cash flow method.
33
LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)
Fair value estimates of property, plant and equipment and right-of-use assets are based on independent appraisals, giving consideration to the highest and best use of the assets. Key assumptions used in the appraisals were based on a combination of market and cost approaches, as appropriate.
As of October 2, 2021, there were no additional significant assets or liabilities measured at fair value on a non-recurring basis.
(19) Accounting Pronouncements
The Company considers the applicability and impact of all Accounting Standards Updates ("ASU") issued by the Financial Accounting Standards Board ("FASB") as summarized below.
Simplifying the Accounting for Income Taxes
In December 2019, the FASB issued ASU 2019-12, "Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes." The standard simplifies the accounting for income taxes by eliminating certain exceptions to the general principles in Topic 740 and amends existing guidance to improve consistent application. The standard was effective January 1, 2021, and the adoption did not have a significant impact on the Company's financial statements.
Reference Rate Reform
The FASB issued ASU 2020-04 and ASU 2021-01, "Reference Rate Reform (Topic 848)." The guidance provides temporary optional expedients and exceptions to the current guidance on contract modifications and hedge accounting to ease the financial reporting burdens related to the expected market transition from the London Interbank Offered Rate ("LIBOR") and other interbank offered rates to alternative reference rates. The guidance was effective upon issuance and generally can be applied to applicable contract modifications and hedge relationships prospectively through December 31, 2022. The adoption of this guidance is not expected to have a significant impact on the Company's financial statements.
(20) Subsequent Events
Acquisition
On October 28, 2021, the Company entered into a definitive agreement to acquire substantially all of Kongsberg Automotive's Interior Comfort Systems business unit ("Kongsberg"). Kongsberg specializes in comfort seating solutions, including massage, lumber, seat heat and ventilation. The transaction is valued at approximately €175 million, on a cash and debt free basis. The acquisition, subject to regulatory approvals and customary closing conditions and adjustments, is expected to close in the first quarter of 2022.
Credit Agreement
See Note 8, "Debt — Credit Agreement — Subsequent Event."
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ITEM 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
EXECUTIVE OVERVIEW
We are a global automotive technology leader in Seating and E-Systems, enabling superior in-vehicle experiences for consumers around the world. We supply seating, electrical distribution and connection systems, electronic systems, and software to all of the world's major automotive manufacturers.
Lear is built on a foundation and strong culture of innovation, operational excellence, and engineering and program management capabilities. We use our product, design and technological expertise, as well as our global reach and competitive manufacturing footprint, to achieve our financial goals and objectives. These include continuing to deliver profitable growth (balancing risks and returns); investing in innovation to drive business growth and profitability; maintaining a strong balance sheet with investment grade credit metrics; and consistently returning excess cash to our stockholders. Further, we have aligned our strategy with the key trends affecting our business — electrification, connectivity and autonomy. At Lear, we are Making every drive betterTM by providing technology for safer, smarter and more comfortable journeys, while adhering to our values — Be Inclusive. Be Inventive. Get Results the Right Way.
Our business is organized under two reporting segments: Seating and E-Systems. Each of these segments has a varied product and technology range across a number of component categories.
Our Seating business consists of the design, development, engineering and manufacture of complete seat systems, seat subsystems and key seat components. Our capabilities in operations and supply chain management enable synchronized (just-in-time) assembly and delivery of high volumes of complex complete seat systems to our customers. Included in our complete seat system and subsystem solutions are advanced comfort, wellness, safety and sound offerings, as well as configurable seating product technologies, all of which are compatible with traditional internal combustion engine ("ICE") architectures and the full range of hybrid, plug-in hybrid and battery electric architectures. Our advanced comfort, wellness, safety and sound offerings are facilitated by our system, component and integration capabilities, together with our in-house electronics, sensor, software and algorithm competencies. As the most vertically integrated global seat supplier, our key seat component product offerings include seat trim covers, surface materials such as leather and fabric, seat mechanisms, seat foam and headrests.
Our E-Systems business consists of the design, development, engineering and manufacture of complete electrical distribution and connection systems, electronic systems, and software. The unique combination of these capabilities enables us to provide our customers with customizable solutions with optimized designs at a competitive cost. Electrical distribution and connection systems utilize low voltage, high voltage, high speed data cables and flat wiring to connect networks and electrical signals and manage electrical power within the vehicle for all types of powertrains – from traditional ICE architectures to the full range of hybrid, plug-in hybrid and battery electric architectures. Key components in our electrical distribution portfolio include wire harnesses, terminals and connectors, and engineered components for both ICE and electrified vehicle architectures that require management of higher voltage and power. Electronic systems facilitate signal, data and power management within the vehicle and include the associated software required to facilitate these functions. Key components in our electronic systems portfolio include body domain control modules and products specific to electrification and connectivity trends. Electrification products include on-board battery chargers, power conversion modules, high voltage battery management systems and high voltage power distribution systems. Connectivity products include gateway modules and communication modules to manage both wired and wireless networks and data in vehicles. In addition to electronic modules, we offer software that includes cybersecurity, advanced vehicle positioning for automated and autonomous driving applications and full capabilities in both dedicated short-range communication and cellular protocols for vehicle connectivity. Our software offerings include embedded control software and cloud and mobile device-based software and services. Our customers traditionally have sourced our electronic hardware together with the software that we embed in it, but such software may also be sourced by our customers independently of the hardware.
We serve all of the world's major automotive manufacturers across both our Seating and E-Systems businesses, and we have automotive content on more than 400 vehicle nameplates worldwide. It is common to have both seating and electrical content on the same and multiple vehicle platforms with a single customer. Further, with the seat becoming a more dynamic and integrated system requiring increased levels of electrical and electronic integration, the combined capabilities of our Seating and E-Systems businesses are a competitive advantage. Our businesses benefit globally from leveraging common operating standards and disciplines, including world-class product development and manufacturing processes, as well as common customer support and regional infrastructures, all of which contribute to our reputation for operational excellence. Our core capabilities are shared across component categories and include high-precision manufacturing and assembly with short lead times, management of complex supply chains, global engineering and program management skills, the agility to establish and/or transfer production between facilities quickly and a unique customer-focused culture. Our businesses utilize proprietary, industry-specific processes and standards, leverage common low-cost engineering centers and share centralized operating
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support functions, such as logistics, supply chain management, quality and health and safety, as well as all major administrative functions.
Industry overview
Our sales are driven by the number of vehicles produced by the automotive manufacturers, which is ultimately dependent on the availability of raw materials and components and consumer demand for automotive vehicles, and our content per vehicle. In 2020, unprecedented industry disruptions related to the COVID-19 pandemic, particularly in the first half of the year, impacted our operations in every region of the world. Although industry production has improved in the first nine months of 2021 relative to 2020, production remains below recent historic levels, and third quarter 2021 production decreased 19% as compared to the third quarter of 2020. This is largely due to the continuing impact of the COVID-19 pandemic in 2021, particularly through supply shortages. The most significant supply shortage relates to semiconductor chips, which is impacting global industry production and resulting in cancellations of planned production. During the first nine months of 2021, production disruptions negatively impacted our net sales by approximately 16%. In addition, we are experiencing increased costs related to labor shortages and inefficiencies and ongoing costs related to personal protective equipment, all of which are likely to continue for a period of time. Increases in certain commodity costs, as well as transportation and logistics costs, are also impacting, and will continue to impact, our operating results for the foreseeable future. Further, a resurgence of the COVID-19 virus or its variants, including corresponding "stay at home" or similar government orders impacting industry production, could impact our financial results. For risks related to the COVID-19 pandemic, including supply shortages, see Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2020, as supplemented and updated by Part II — Item 1A, "Risk Factors," in our Quarterly Report on Form 10-Q for the quarter ended April 3, 2021.
Global automotive industry production volumes in the first nine months of 2021, as compared to the first nine months of 2020, are shown below (in millions of units):
| First Nine Months | |||||||||||||||||
2021 (1) | 2020 (1) (2) | % Change | |||||||||||||||
| North America | 9.8 | 9.2 | 7 | % | |||||||||||||
| Europe and Africa | 12.3 | 11.5 | 7 | % | |||||||||||||
| Asia | 29.6 | 26.6 | 11 | % | |||||||||||||
| South America | 1.8 | 1.4 | 28 | % | |||||||||||||
| Other | 1.1 | 1.1 | 3 | % | |||||||||||||
| Global light vehicle production | 54.6 | 49.8 | 10 | % | |||||||||||||
(1) Production data based on IHS Automotive
(2) Production data for 2020 has been updated to reflect actual production levels
Automotive sales and production can be affected by the age of the vehicle fleet and related scrappage rates, labor relations issues, fuel prices, regulatory requirements, government initiatives, trade agreements, the availability and cost of credit, the availability of critical components needed to complete the production of vehicles, restructuring actions of our customers and suppliers, facility closures, changing consumer attitudes toward vehicle ownership and usage and other factors. Our operating results are also significantly impacted by the overall commercial success of the vehicle platforms for which we supply particular products, as well as the profitability of the products that we supply for these platforms. The loss of business with respect to any vehicle model for which we are a significant supplier, or a decrease in the production levels of any such models, could adversely affect our operating results. In addition, larger cars and light trucks, as well as vehicle platforms that offer more features and functionality, such as luxury, sport utility and crossover vehicles, typically have more content and, therefore, tend to have a more significant impact on our operating results.
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Our percentage of consolidated net sales by region in the first nine months of 2021 and 2020 is shown below:
| Nine Months Ended | |||||||||||
| October 2, 2021 | October 3, 2020 | ||||||||||
| North America | 39 | % | 40 | % | |||||||
| Europe and Africa | 36 | % | 36 | % | |||||||
| Asia | 21 | % | 21 | % | |||||||
| South America | 4 | % | 3 | % | |||||||
| Total | 100 | % | 100 | % | |||||||
Our ability to reduce the risks inherent in certain concentrations of business, and thereby maintain our financial performance in the future, will depend, in part, on our ability to continue to diversify our sales on a customer, product, platform and geographic basis to reflect the market overall.
Key trends affecting our business include electrification, connectivity and autonomy. In addition, our business is affected by the consolidation of automotive manufacturers, as well as new non-traditional entrants to the automotive industry, the collaboration of automotive manufacturers on commonized vehicle platforms, increasing demand for luxury and performance features, including increasing levels of electrical and electronic content, and China’s emergence as the largest automotive market in the world. In particular, we believe that we have a significant opportunity for growth in China with both global and domestic automotive manufacturers. Another key trend benefiting our business is the shift toward crossover and sport utility vehicles, where our content can be significantly higher than our average content per vehicle.
In addition, we believe that regulatory developments and demand for energy efficiency and reduced carbon emissions, as well as the demand for enhanced communications and safety, are driving the technology trends of electrification, connectivity and autonomy. We are focused on those trends which provide us with significant business opportunities where we have competitive differentiation and innovative technology. While both of our businesses are powertrain agnostic, we are well positioned to capitalize on these technology trends, each of which is likely to be at the forefront of our industry for the foreseeable future in light of the long-term convergence toward electric, connected and autonomous vehicles.
Our sales and marketing approach addresses these trends, while our strategy focuses on the major imperatives for success as an automotive supplier: quality, service, cost and efficiency, and innovation and technology. We have expanded key component and software capabilities through organic investment and acquisitions to ensure a full complement of solutions for our customers. We have restructured, and continue to align, our manufacturing and engineering footprint to attain a leading competitive cost position globally. We have established or expanded activities in new and growing regional and product markets, including electrification, in support of our customers’ growth initiatives and in pursuit of opportunities with new customers. These initiatives have helped us achieve our financial goals overall, as well as a more balanced regional, customer and vehicle segment diversification in our business.
For further information related to these trends and our strategy, see Item 1, "Business — Industry and Strategy," in our Annual Report on Form 10-K for the year ended December 31, 2020.
Our customers typically require us to reduce our prices over the life of a vehicle model and, at the same time, assume significant responsibility for the design, development and engineering of our products. Our financial performance is largely dependent on our ability to offset these price reductions with product cost reductions through product design enhancement, supply chain management, manufacturing efficiencies and restructuring actions. We also seek to enhance our financial performance by investing in product development, design capabilities and new product initiatives that respond to and anticipate the needs of our customers and consumers. We continually evaluate operational and strategic alternatives to improve our business structure and align our business with the changing needs of our customers and major industry trends affecting our business.
Our material cost as a percentage of net sales was 65.0% in the first nine months of 2021, as compared to 64.1% in the first nine months of 2020, reflecting increases in certain commodity costs. Raw material, energy and commodity costs can be volatile, reflecting changes in supply and demand and global trade and tariff policies. Our primary commodity cost exposures relate to steel, copper and leather. We have developed and implemented strategies to mitigate the impact of higher raw material, energy and commodity costs, such as the selective in-sourcing of components, the continued consolidation of our supply base, longer-term purchase commitments and the selective expansion of low-cost country sourcing and engineering, as well as value engineering and product benchmarking. Further, our exposure to changes in steel prices is primarily indirect, through purchased components, and a significant portion of our copper, leather and direct steel purchases are subject to price index agreements with our customers and suppliers. However, these strategies, together with commercial negotiations with our customers and suppliers, typically do not offset all of the adverse impact. Certain of these strategies also may limit our opportunities in a
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declining commodity price environment. In addition, the availability of raw materials, commodities and product components fluctuates from time to time due to factors outside of our control. If these costs increase or availability is restricted, it could have an adverse impact on our operating results in the foreseeable future. See "— Forward-Looking Statements" below and Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2020, as supplemented and updated by Part II — Item 1A, "Risk Factors," in this Report.
Financial Measures
In evaluating our financial condition and operating performance, we focus primarily on earnings, operating margins, cash flows and return on invested capital. Our strategy includes expanding our business with new and existing customers globally through new products, including electrification. Asia continues to present long-term growth opportunities, as we focus on expanding our market share and content per vehicle, as demand for luxury and performance features increases in this region. In addition to our wholly owned locations, we currently have thirteen operating joint ventures with operations in Asia, as well as two additional joint ventures in North America dedicated to serving Asian automotive manufacturers. We also have selectively increased our vertical integration capabilities globally, as well as expanded our component manufacturing capacity in Asia, Eastern Europe, Mexico and Northern Africa and our low-cost engineering capabilities in Asia, Eastern Europe and Northern Africa.
Our success in generating cash flow will depend, in part, on our ability to manage working capital effectively. Working capital can be significantly impacted by the timing of cash flows from sales and purchases. Historically, we generally have been successful in aligning our vendor payment terms with our customer payment terms. However, our ability to continue to do so may be impacted by adverse automotive industry conditions, changes to our customers’ payment terms and the financial condition of our suppliers, as well as our financial condition. In addition, our cash flow is impacted by our ability to manage our inventory and capital spending effectively. We utilize return on invested capital as a measure of the efficiency with which our assets generate earnings. Improvements in our return on invested capital will depend on our ability to maintain an appropriate asset base for our business and to increase productivity and operating efficiency.
Acquisitions
On October 28, 2021, we entered into a definitive agreement to acquire substantially all of Kongsberg Automotive's Interior Comfort Systems business unit ("Kongsberg"). Kongsberg specializes in comfort seating solutions, including massage, lumbar, seat heat and ventilation. With almost 50 years of experience, Kongsberg has cutting-edge technology, a well-balanced customer portfolio built on longstanding relationships with leading premium automotive manufacturers and an experienced and dedicated team. The Kongsberg acquisition is expected to further advance our vertical integration and expand our product offerings into specialized comfort seating solutions that improve vehicle performance and packaging - important features across various vehicle segments. The transaction is valued at approximately €175 million, on a cash and debt free basis. The acquisition, subject to regulatory approvals and customary closing conditions and adjustments, is expected to close in the first quarter of 2022.
On March 25, 2021, we completed the acquisition of M&N Plastics, an injection molding specialist and manufacturer of engineered plastic components for automotive electrical distribution applications. When combined with our continuing organic investments in connection systems, the addition of M&N Plastics enhances the ability of our E-Systems segment to vertically integrate the engineering and production of complex parts for electrical distribution, including high-voltage wire harnesses and power electronics, creating a strong platform for future revenue growth and margin expansion in our overall E-Systems business. The acquisition is not material to the condensed consolidated financial statements included in this Report.
Financing Transaction
On October 28, 2021, we entered into an amended and restated unsecured credit agreement which increases available borrowings under our revolving credit facility from $1.75 billion to $2.0 billion and extends the maturity date from August 8, 2024 to October 28, 2026. The amended and restated unsecured credit agreement maintains our $250 million term loan facility maturing on August 8, 2022.
Operational Restructuring
In the first nine months of 2021, we incurred pretax restructuring costs of $78 million and related manufacturing inefficiency charges of approximately $10 million, as compared to pretax restructuring costs of $119 million and related manufacturing inefficiency charges of approximately $4 million in the first nine months of 2020. None of the individual restructuring actions initiated during the first nine months of 2021 were material. Further, there have been no changes in previously initiated restructuring actions that have resulted (or will result) in a material change to our restructuring costs.
Our restructuring actions include plant closures and workforce reductions and are initiated to maintain our competitive footprint or are in response to customer initiatives or changes in global and regional automotive markets. Our restructuring actions are
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designed to maintain or improve our operating results and profitability throughout the automotive industry cycles. Restructuring actions are generally funded within twelve months of initiation and are funded by cash flows from operating activities and existing cash balances. We expect to incur approximately $37 million of additional restructuring costs related to activities initiated as of October 2, 2021, all of which are expected to be incurred in the next twelve months. We plan to implement additional restructuring actions in order to align our manufacturing capacity and other costs with prevailing regional automotive production levels. Such future restructuring actions are dependent on market conditions, customer actions and other factors.
For further information, see Note 3, "Restructuring," and Note 17, "Segment Reporting," to the condensed consolidated financial statements included in this Report.
Share Repurchase Program and Quarterly Cash Dividends
We may implement share repurchases through a variety of methods, including, but not limited to, open market purchases, accelerated stock repurchase programs and structured repurchase transactions. The extent to which we may repurchase our outstanding common stock and the timing of such repurchases will depend on our financial condition, results of operations, capital requirements, prevailing market conditions, alternative uses of capital and other factors (see "— Forward-Looking Statements").
Since the first quarter of 2011, our Board of Directors has authorized $6.1 billion in share repurchases under our common stock share repurchase program. In March 2020, as a proactive measure in response to the COVID-19 pandemic, we suspended share repurchases under our common stock share repurchase program. Share repurchases were reinstated in the second quarter of 2021. Since the reinstatement through October 2, 2021, we have repurchased $100 million of shares. At the end of the third quarter of 2021, we have a remaining repurchase authorization of $1.3 billion, which expires on December 31, 2022.
In March 2020, as a proactive measure in response to the COVID-19 pandemic, we suspended our quarterly cash dividend. In the fourth quarter of 2020, we reinstated a quarterly cash dividend of $0.25 per share of common stock. Our Board of Directors declared a quarterly cash dividend of $0.25 per share of common stock in the first and second quarters of 2021 and a quarterly cash dividend of $0.50 per share of common stock in the third quarter of 2021.
For further information related to our common stock share repurchase program and our quarterly cash dividends, see "— Liquidity and Capital Resources — Capitalization" below and Note 15, "Comprehensive Income (Loss) and Equity," to the condensed consolidated financial statements included in this Report.
Other Matters
In the three months ended October 2, 2021, we recognized tax expense of $20 million related to the establishment of valuation allowances on deferred tax assets of foreign subsidiaries, net tax benefits of $7 million related to a favorable indirect tax ruling and net tax benefits of $7 million related to restructuring charges and various other items. In the nine months ended October 2, 2021, we recognized tax expense of $13 million related to the net increase in valuation allowances on deferred tax assets of foreign subsidiaries, tax expense of $9 million on a $46 million gain related to a favorable indirect tax ruling in a foreign jurisdiction and net tax benefits of $26 million related to the net release of tax reserves at several foreign subsidiaries, restructuring charges and various other items.
In the three months ended October 3, 2020, we recognized tax benefits of $10 million related to the release of a valuation allowance on deferred tax assets, tax benefits of $5 million related to an increase in our research and development tax credits resulting from the completion of a research and development tax credit study and net tax expense of $10 million related to restructuring charges and various other items. In the nine months ended October 3, 2020, we recognized tax benefits of $21 million related to a loss on the extinguishment of debt, restructuring charges and various other items, tax benefits of $5 million related to an increase in our research and development tax credits resulting from the completion of a research and development tax credit study and net tax expense of $12 million related to a net increase in valuation allowances on deferred tax assets.
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As discussed above, our results for the three and nine months ended October 2, 2021 and October 3, 2020, reflect the following items (in millions):
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||
| October 2, 2021 | October 3, 2020 | October 2, 2021 | October 3, 2020 | ||||||||||||||||||||
Costs related to restructuring actions, including manufacturing inefficiencies of $3 million and $10 million, respectively, in the three and nine months ended October 2, 2021, and $1 million and $4 million, respectively, in the three and nine months ended October 3, 2020 | $ | 49 | $ | 50 | $ | 88 | $ | 123 | |||||||||||||||
| Intangible asset impairment | — | — | 9 | — | |||||||||||||||||||
| Favorable indirect tax ruling in a foreign jurisdiction | 1 | — | (46) | — | |||||||||||||||||||
| Loss related to affiliate | — | — | 1 | — | |||||||||||||||||||
| Loss on extinguishment of debt | — | — | — | 21 | |||||||||||||||||||
| Tax (benefit) expense, net | 6 | (5) | (4) | (14) | |||||||||||||||||||
For further information regarding these items, see Note 3, "Restructuring," Note 6, "Long-Lived Assets," Note 8, "Debt," and Note 13, "Income Taxes," to the condensed consolidated financial statements included in this Report.
This Item 2, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," includes forward-looking statements that are subject to risks and uncertainties. For further information regarding other factors that have had, or may have in the future, a significant impact on our business, financial condition or results of operations, see "— Forward-Looking Statements" below and Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2020, as supplemented and updated by Part II — Item 1A, "Risk Factors," in this Report.
RESULTS OF OPERATIONS
A summary of our operating results in millions of dollars and as a percentage of net sales is shown below:
| Three Months Ended | Nine Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||
| October 2, 2021 | October 3, 2020 | October 2, 2021 | October 3, 2020 | ||||||||||||||||||||||||||||||||||||||||||||
| Net sales | |||||||||||||||||||||||||||||||||||||||||||||||
| Seating | $ | 3,166.2 | 74.2 | % | $ | 3,691.6 | 75.3 | % | $ | 10,770.4 | 74.9 | % | $ | 8,813.1 | 74.7 | % | |||||||||||||||||||||||||||||||
| E-Systems | 1,102.0 | 25.8 | 1,208.5 | 24.7 | 3,612.9 | 25.1 | 2,989.2 | 25.3 | |||||||||||||||||||||||||||||||||||||||
| Net sales | 4,268.2 | 100.0 | 4,900.1 | 100.0 | 14,383.3 | 100.0 | 11,802.3 | 100.0 | |||||||||||||||||||||||||||||||||||||||
| Cost of sales | 4,041.5 | 94.7 | 4,457.3 | 91.0 | 13,262.4 | 92.2 | 11,152.7 | 94.5 | |||||||||||||||||||||||||||||||||||||||
| Gross profit | 226.7 | 5.3 | 442.8 | 9.0 | 1,120.9 | 7.8 | 649.6 | 5.5 | |||||||||||||||||||||||||||||||||||||||
| Selling, general and administrative expenses | 163.3 | 3.8 | 147.7 | 3.0 | 503.0 | 3.5 | 442.3 | 3.7 | |||||||||||||||||||||||||||||||||||||||
| Amortization of intangible assets | 15.8 | 0.4 | 16.3 | 0.3 | 57.4 | 0.4 | 49.4 | 0.4 | |||||||||||||||||||||||||||||||||||||||
| Interest expense | 22.6 | 0.5 | 26.5 | 0.5 | 67.2 | 0.5 | 78.1 | 0.7 | |||||||||||||||||||||||||||||||||||||||
| Other (income) expense, net | 11.1 | 0.3 | 17.1 | 0.3 | (28.7) | (0.2) | 54.4 | 0.5 | |||||||||||||||||||||||||||||||||||||||
| Provision for income taxes | 20.9 | 0.5 | 44.6 | 0.9 | 119.1 | 0.8 | 30.1 | 0.2 | |||||||||||||||||||||||||||||||||||||||
| Equity in net (income) loss of affiliates | 1.7 | — | (6.5) | (0.1) | (9.1) | (0.1) | (15.9) | (0.1) | |||||||||||||||||||||||||||||||||||||||
| Net income attributable to noncontrolling interests | 17.8 | 0.4 | 22.7 | 0.5 | 59.6 | 0.4 | 54.3 | 0.5 | |||||||||||||||||||||||||||||||||||||||
| Net income (loss) attributable to Lear | $ | (26.5) | (0.6) | % | $ | 174.4 | 3.6 | % | $ | 352.4 | 2.5 | % | $ | (43.1) | (0.4) | % | |||||||||||||||||||||||||||||||
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Three Months Ended October 2, 2021 vs. Three Months Ended October 3, 2020
Net sales in the third quarter of 2021 were $4.3 billion, as compared to $4.9 billion in the third quarter of 2020, a decrease of $632 million or 13%. Lower production volumes on Lear platforms in Europe and Africa, North America and Asia reduced net sales by $974 million, largely due to production downtime as a result of industry-wide supply shortages in the third quarter of 2021. Net sales benefited by $251 million as a result of new business in North America, Asia, and Europe and Africa and foreign exchange rate fluctuations.
| (in millions) | Cost of Sales | |||||||
| Third quarter 2020 | $ | 4,457.3 | ||||||
| Material cost | (343.8) | |||||||
| Labor and other | (76.5) | |||||||
| Depreciation | 4.5 | |||||||
| Third quarter 2021 | $ | 4,041.5 | ||||||
Cost of sales in the third quarter of 2021 was $4.0 billion, as compared to $4.5 billion in the third quarter of 2020. Lower production volumes on Lear platforms in Europe and Africa, North America and Asia reduced cost of sales, largely due to production downtime as a result of industry-wide supply shortages in the third quarter of 2021. Cost of sales increased as a result of new business in North America, Asia, and Europe and Africa and foreign exchange rate fluctuations.
Gross profit and gross margin were $227 million and 5.3% of net sales, respectively, in the third quarter of 2021, as compared to $443 million and 9.0% of net sales, respectively, in the third quarter of 2020. Lower production volumes on Lear platforms, largely due to production downtime as a result of industry-wide supply shortages in the third quarter of 2021, reduced gross profit by $210 million. The impact of selling price reductions and increased commodity costs was partially offset by favorable operating performance, including the benefit of operational restructuring actions. These factors had a corresponding impact on gross margin.
Selling, general and administrative expenses, including engineering and development expenses, were $163 million in the third quarter of 2021, as compared to $148 million in the third quarter of 2020, primarily reflecting increases in restructuring costs and compensation-related costs related to our 2020 salary reduction and deferral actions. As a percentage of net sales, selling, general and administrative expenses were 3.8% in the third quarter of 2021, as compared to 3.0% in the third quarter of 2020.
Amortization of intangible assets was $16 million in the third quarters of 2021 and 2020.
Interest expense was $23 million in the third quarter of 2021, as compared to $27 million in the third quarter of 2020.
Other expense, net, which includes non-income related taxes, foreign exchange gains and losses, gains and losses related to certain derivative instruments and hedging activities, losses on the extinguishment of debt, gains and losses on the disposal of fixed assets, gains and losses on the consolidation and deconsolidation of affiliates, the non-service cost components of net periodic benefit cost and other miscellaneous income and expense, was $11 million in the third quarter of 2021, as compared to $17 million in the third quarter of 2020. In the third quarter of 2020, we recognized a pension settlement loss of $10 million.
In the third quarter of 2021, the provision for income taxes was $21 million, representing an effective tax rate of 150% on pretax income before equity in net loss of affiliates of $14 million. In the third quarter of 2020, the provision for income taxes was $45 million, representing an effective tax rate of 19% on pretax income before equity in net income of affiliates of $235 million, for the reasons described below. For further information, see Note 13 "Income Taxes," to the condensed consolidated financial statements included in this Report.
In the third quarters of 2021 and 2020, the provision for income taxes was primarily impacted by the level and mix of earnings among tax jurisdictions. In the third quarter of 2021, we recognized tax expense of $20 million related to the establishment of valuation allowances on deferred tax assets of foreign subsidiaries, net tax benefits of $7 million related to a favorable indirect tax ruling and net tax benefits of $7 million related to restructuring charges and various other items. In the third quarter of 2020, we recognized tax benefits of $10 million related to the release of a valuation allowance on deferred tax assets, tax benefits of $5 million related to an increase in our research and development tax credits resulting from the completion of a research and development tax credit study and net tax expense of $10 million related to restructuring charges and various other items. Excluding these items, the effective tax rate for the third quarters of 2021 and 2020 approximated the U.S. federal statutory income tax rate of 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) loss of affiliates was $2 million in the third quarter of 2021, as compared to ($7) million in the third quarter of 2020, reflecting lower sales at certain of our affiliates in China.
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Net income (loss) attributable to Lear was ($27) million, or ($0.44) per diluted share, in the third quarter of 2021, as compared to $174 million, or $2.89 per diluted share, in the third quarter of 2020. Net income and diluted net income per share decreased for the reasons described above.
Reportable Operating Segments
We have two reportable operating segments: Seating and E-Systems. For a description of our reportable operating segments, see "Executive Overview" above.
The financial information presented below is for our two reportable operating segments and our other category for the periods presented. The other category includes unallocated costs related to corporate headquarters, regional headquarters and the elimination of intercompany activities, none of which meets the requirements for being classified as an operating segment. Corporate and regional headquarters costs include various support functions, such as information technology, advanced research and development, corporate finance, legal, executive administration and human resources. Financial measures regarding each segment’s pretax income before equity in net (income) loss of affiliates, interest expense and other (income) expense, net ("segment earnings") and segment earnings divided by net sales ("margin") are not measures of performance under accounting principles generally accepted in the United States ("GAAP"). Segment earnings and the related margin are used by management to evaluate the performance of our reportable operating segments. Segment earnings should not be considered in isolation or as a substitute for net income (loss) attributable to Lear, net cash provided by (used in) operating activities or other income statement or cash flow statement data prepared in accordance with GAAP or as measures of profitability or liquidity. In addition, segment earnings, as we determine it, may not be comparable to related or similarly titled measures reported by other companies.
For a reconciliation of consolidated segment earnings to consolidated income before provision for income taxes and equity in net (income) loss of affiliates, see Note 17, "Segment Reporting," to the condensed consolidated financial statements included in this Report.
Seating
A summary of the financial measures for our Seating segment is shown below (dollar amounts in millions):
| Three Months Ended | |||||||||||
| October 2, 2021 | October 3, 2020 | ||||||||||
| Net sales | $ | 3,166.2 | $ | 3,691.6 | |||||||
Segment earnings (1) | 126.7 | 250.7 | |||||||||
| Margin | 4.0 | % | 6.8 | % | |||||||
(1) See definition above
Seating net sales were $3.2 billion in the third quarter of 2021, as compared to $3.7 billion in the third quarter of 2020, reflecting a decrease of $525 million or 14%. Lower production volumes on Lear platforms reduced net sales by $744 million, largely due to production downtime as a result of industry-wide supply shortages in the third quarter of 2021. Net sales benefited by $166 million as a result of new business and foreign exchange rate fluctuations.
Segment earnings, including restructuring costs, and the related margin on net sales were $127 million and 4.0% in the third quarter of 2021, as compared to $251 million and 6.8% in the third quarter of 2020. Lower production volumes on Lear platforms reduced segment earnings by $145 million, largely due to production downtime as a result of industry-wide supply shortages in the third quarter of 2021. Favorable operating performance, including the benefit of operational restructuring actions, and lower restructuring costs were offset by the impact of selling price reductions and increased commodity costs.
E-Systems
A summary of financial measures for our E-Systems segment is shown below (dollar amounts in millions):
| Three Months Ended | |||||||||||
| October 2, 2021 | October 3, 2020 | ||||||||||
| Net sales | $ | 1,102.0 | $ | 1,208.5 | |||||||
Segment earnings(1) | (7.5) | 86.0 | |||||||||
| Margin | (0.7) | % | 7.1 | % | |||||||
(1) See definition above
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E-Systems net sales were $1.1 billion in the third quarter of 2021, as compared to $1.2 billion in the third quarter of 2020, reflecting a decrease of $107 million or 9%. Lower production volumes on Lear platforms reduced net sales by $225 million, largely due to production downtime as a result of industry-wide supply shortages in the third quarter of 2021. Net sales benefited by $85 million as a result of new business and foreign exchange rate fluctuations.
Segment earnings, including restructuring costs, and the related margin on net sales were ($8) million and (0.7)% in the third quarter of 2021, as compared to $86 million and 7.1% in the third quarter of 2020. Lower production volumes on Lear platforms reduced segment earnings by $65 million, largely due to production downtime as a result of industry-wide supply shortages in the third quarter of 2021. The impact of selling price reductions, higher restructuring costs and increased commodity costs was partially offset by improved operating performance.
Other
A summary of financial measures for our other category, which is not an operating segment, is shown below (dollar amounts in millions):
| Three Months Ended | |||||||||||
| October 2, 2021 | October 3, 2020 | ||||||||||
| Net sales | $ | — | $ | — | |||||||
Segment earnings (1) | (71.6) | (57.9) | |||||||||
| Margin | N/A | N/A | |||||||||
(1) See definition above
Segment earnings related to our other category were ($72) million in the third quarter of 2021, as compared to ($58) million in the third quarter of 2020, primarily reflecting an increase in compensation-related costs related to our 2020 salary reduction and deferral actions, as well as 2020 reductions in discretionary spending.
Nine Months Ended October 2, 2021 vs. Nine Months Ended October 3, 2020
Net sales for the nine months ended October 2, 2021 were $14.4 billion, as compared to $11.8 billion for the nine months ended October 3, 2020, an increase of $2.6 billion or 22%. Higher production volumes on Lear platforms globally increased net sales by $1.3 billion, largely due to the COVID-19-related production shutdowns in 2020. Net sales also benefited by $1.0 billion as a result of new business in North America, Europe and Africa, and Asia and foreign exchange rate fluctuations.
| (in millions) | Cost of Sales | |||||||
First nine months of 2020 | $ | 11,152.7 | ||||||
| Material cost | 1,785.3 | |||||||
| Labor and other | 299.5 | |||||||
| Depreciation | 24.9 | |||||||
First nine months of 2021 | $ | 13,262.4 | ||||||
Cost of sales in the first nine months of 2021 was $13.3 billion, as compared to $11.2 billion in the first nine months of 2020. Higher production volumes on Lear platforms globally increased cost of sales, largely due to the COVID-19-related production shutdowns in 2020. Cost of sales also increased as a result of new business in North America, Europe and Africa, and Asia and foreign exchange rate fluctuations.
Gross profit and gross margin were $1,121 million and 7.8% of net sales, respectively, for the nine months ended October 2, 2021, as compared to $650 million and 5.5% of net sales, respectively, for the nine months ended October 3, 2020. Higher production volumes on Lear platforms, largely due to the COVID-19-related production shutdowns in 2020, and the impact of new business increased gross profit by $330 million. Favorable operating performance, including the benefit of operational restructuring actions, was partially offset by the impact of selling price reductions and increased commodity costs. These factors had a corresponding impact on gross margin.
Selling, general and administrative expenses, including engineering and development expenses, were $503 million in the first nine months of 2021, as compared to $442 million in the first nine months of 2020, primarily reflecting increases in compensation-related costs related to our 2020 salary reduction and deferral actions. As a percentage of net sales, selling, general and administrative expenses were 3.5% in the first nine months of 2021, as compared to 3.7% in the first nine months of 2020.
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Amortization of intangible assets was $57 million in the first nine months of 2021, including an impairment charge of $9 million, as compared to $49 million in the first nine months of 2020.
Interest expense was $67 million in the first nine months of 2021, as compared to $78 million in the first nine months of 2020.
Other (income) expense, net, which includes non-income related taxes, foreign exchange gains and losses, gains and losses related to certain derivative instruments and hedging activities, losses on the extinguishment of debt, gains and losses on the disposal of fixed assets, gains and losses on the consolidation and deconsolidation of affiliates, the non-service cost components of net periodic benefit cost and other miscellaneous income and expense, was ($29) million in the nine months ended October 2, 2021, as compared to $54 million in the nine months ended October 3, 2020. In the first nine months of 2021, we recognized a gain of $46 million related to a favorable indirect tax ruling in a foreign jurisdiction and a loss of $1 million related to the impairment of an affiliate. In the first nine months of 2020, we recognized a loss of $21 million on extinguishment of debt and a pension settlement loss of $10 million.
For the nine months ended October 2, 2021, the provision for income taxes was $119 million, representing an effective tax rate of 23% on pretax income before equity in net income of affiliates of $522 million. For the nine months ended October 3, 2020, the provision for income taxes was $30 million, representing an effective tax rate of 119% on pretax income before equity in net income of affiliates of $25 million, for reasons described below. For further information, see Note 13 "Income Taxes," to the condensed consolidated financial statements included in this Report.
In the first nine months of 2021 and 2020, the provision and benefit for income taxes was primarily impacted by the level and mix of earnings among tax jurisdictions. In the first nine months of 2021, we recognized tax expense of $13 million related to the net increase in valuation allowances on deferred tax assets of foreign subsidiaries, tax expense of $9 million on a $46 million gain related to a favorable indirect tax ruling in a foreign jurisdiction and net tax benefits of $26 million related to the net release of tax reserves at several foreign subsidiaries, restructuring charges and various other items. In the first nine months of 2020, we recognized tax benefits of $21 million related to a loss on the extinguishment of debt, restructuring charges and various other items, tax benefits of $5 million related to an increase in our research and development tax credits resulting from the completion of a research and development tax credit study and net tax expense of $12 million related to a net increase in valuation allowances on deferred tax assets. Excluding these items, the effective tax rate for the first nine months of 2021 and 2020 approximated the U.S. federal statutory income tax rate of 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 $9 million in the first nine months of 2021, as compared to $16 million in the first nine months of 2020.
Net income (loss) attributable to Lear was $352 million, or $5.83 per diluted share, for the nine months ended October 2, 2021, as compared to ($43) million, or ($0.72) per diluted share, for the nine months ended October 3, 2020. Net income and diluted net income per share increased for the reasons described above.
Reportable Operating Segments
We have two reportable operating segments: Seating and E-Systems. For a description of our reportable operating segments, see "Executive Overview" and "Three Months Ended October 2, 2021 vs. Three Months Ended October 3, 2020 — Reportable Operating Segments" above.
Seating
A summary of the financial measures for our Seating segment is shown below (dollar amounts in millions):
| Nine Months Ended | |||||||||||
| October 2, 2021 | October 3, 2020 | ||||||||||
| Net sales | $ | 10,770.4 | $ | 8,813.1 | |||||||
Segment earnings (1) | 670.9 | 320.4 | |||||||||
| Margin | 6.2 | % | 3.6 | % | |||||||
(1) See definition above
Seating net sales were $10.8 billion for the nine months ended October 2, 2021, as compared to $8.8 billion for the nine months ended October 3, 2020, an increase of $2.0 billion or 22%. Higher production volumes on Lear platforms increased net sales by $1.3 billion, largely due to the COVID-19-related production shutdowns in 2020. Net sales also benefited by $0.6 billion as a result of new business and foreign exchange rate fluctuations.
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Segment earnings, including restructuring costs, and the related margin on net sales were $671 million and 6.2% for the nine months ended October 2, 2021, as compared to $320 million and 3.6% for the nine months ended October 3, 2020. Higher production volumes on Lear platforms, largely due to the COVID-19-related production shutdowns in 2020, and the impact of new business, increased segment earnings by $274 million. Favorable operating performance, including the benefit of operational restructuring actions, and lower restructuring costs were partially offset by the impact of selling price reductions and increased commodity costs.
E-Systems
A summary of financial measures for our E-Systems segment is shown below (dollar amounts in millions):
| Nine Months Ended | |||||||||||
| October 2, 2021 | October 3, 2020 | ||||||||||
| Net sales | $ | 3,612.9 | $ | 2,989.2 | |||||||
Segment earnings (1) | 108.4 | 5.0 | |||||||||
| Margin | 3.0 | % | 0.2 | % | |||||||
(1) See definition above
E-Systems net sales were $3.6 billion for the nine months ended October 2, 2021, as compared to $3.0 billion for the nine months ended October 3, 2020, an increase of $624 million or 21%. The impact of new business increased net sales by $306 million. Net sales also benefited by $202 million as a result of higher production volumes on Lear platforms, largely due to the COVID-19-related production shutdowns in 2020, and foreign exchange rate fluctuations.
Segment earnings, including restructuring costs, and the related margin on net sales were $108 million and 3.0% for the nine months ended October 2, 2021, as compared to $5 million and 0.2% for the nine months ended October 3, 2020. The impact of new business and higher production volumes on Lear platforms, largely due to the COVID-19-related production shutdowns in 2020, increased segment earnings by $56 million. Improved operating performance and lower restructuring costs were partially offset by the impact of selling price reductions and increased commodity costs.
Other
A summary of financial measures for our other category, which is not an operating segment, is shown below (dollar amounts in millions):
| Nine Months Ended | |||||||||||
| October 2, 2021 | October 3, 2020 | ||||||||||
| Net sales | $ | — | $ | — | |||||||
Segment earnings(1) | (218.8) | (167.5) | |||||||||
| Margin | N/A | N/A | |||||||||
(1) See definition above
Segment earnings related to our other category were ($219) million in the first nine months of 2021, as compared to ($168) million in the first nine months of 2020, primarily reflecting an increase in compensation-related costs related to our 2020 salary reduction and deferral actions, as well as 2020 reductions in discretionary spending.
LIQUIDITY AND CAPITAL RESOURCES
Our primary liquidity needs are to fund general business requirements, including working capital requirements, capital expenditures, operational restructuring actions and debt service requirements. Our principal sources of liquidity are cash flows from operating activities, borrowings under available credit facilities and our existing cash balance.
Cash Provided by Subsidiaries
A substantial portion of our operating income is generated by our subsidiaries. As a result, we are dependent on the earnings and cash flows of and the combination of dividends, royalties, intercompany loan repayments and other distributions and advances from our subsidiaries to provide the funds necessary to meet our obligations.
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As of October 2, 2021 and December 31, 2020, cash and cash equivalents of $567 million and $780 million, respectively, were held in foreign subsidiaries and can be repatriated, primarily through the repayment of intercompany loans and the payment of dividends, without creating additional income tax expense. There are no significant restrictions on the ability of our subsidiaries to pay dividends or make other distributions to Lear.
For further information related to potential dividends from our non-U.S. subsidiaries, see Note 9, "Income Taxes," to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.
Adequacy of Liquidity Sources
As of October 2, 2021, we had $1.1 billion of cash and cash equivalents on hand and $1.75 billion in available borrowing capacity under our revolving credit facility. On October 28, 2021, we entered into an amended and restated unsecured credit agreement which increases available borrowings under our revolving credit facility to $2.0 billion and extends the maturity date to October 28, 2026. Together with cash provided by operating activities, we believe that this will enable us to meet our liquidity needs for the foreseeable future and to satisfy ordinary course business obligations. In addition, we expect to continue to pay quarterly dividends and repurchase shares of our common stock pursuant to our authorized common stock share repurchase program, although such actions are at the discretion of our Board of Directors and will depend on our financial condition, results of operations, capital requirements, prevailing market conditions, alternative uses of capital and other factors that our Board of Directors may consider at its discretion.
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. 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, 2020, as supplemented and updated by Part II — Item 1A, "Risk Factors," in our Quarterly Report on Form 10-Q for the quarter ended April 3, 2021.
Cash Flows
A summary of net cash provided by operating activities is shown below (in millions):
| Nine Months Ended | |||||||||||||||||
| October 2, 2021 | October 3, 2020 | Increase (Decrease) in Operating Cash Flow | |||||||||||||||
| Consolidated net income and depreciation and amortization | $ | 843 | $ | 408 | $ | 435 | |||||||||||
| Net change in working capital items: | |||||||||||||||||
| Accounts receivable | 356 | (417) | 773 | ||||||||||||||
| Inventory | (393) | (14) | (379) | ||||||||||||||
| Accounts payable | (225) | 124 | (349) | ||||||||||||||
| Accrued liabilities and other | (68) | 169 | (237) | ||||||||||||||
| Net change in working capital items | (330) | (138) | (192) | ||||||||||||||
| Other | (10) | (8) | (2) | ||||||||||||||
| Net cash provided by operating activities | $ | 503 | $ | 262 | $ | 241 | |||||||||||
In the first nine months of 2021 and 2020, net cash provided by operating activities was $503 million and $262 million, respectively. The overall increase in operating cash flows of $241 million is primarily due to higher earnings in 2021, offset by an incremental increase in working capital during the first nine months of 2021, as compared to the first nine months of 2020, reflecting increased inventory levels due to unpredictable production schedules as a result of industry-wide supply shortages in 2021.
Net cash used in investing activities was $478 million in the first nine months of 2021, as compared to $297 million in the first nine months of 2020. Capital spending was $406 million in the first nine months of 2021, as compared to $285 million in the first nine months of 2020. Capital spending is estimated to be approximately $600 million in 2021.
Net cash used in financing activities was $232 million in the first nine months of 2021, as compared to $212 million in the first nine months of 2020. In the first nine months of 2021, we paid $99 million for repurchases of our common stock, $61 million of
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dividends to Lear stockholders and $81 million of dividends to noncontrolling interest holders. In the first nine months of 2020, we received net proceeds of $669 million related to the issuance of 3.5% senior notes due 2030 and additional 5.25% senior notes due 2049 and paid $6 million of related issuance costs and $667 million related to the redemption of our outstanding 5.25% senior notes due 2025. Also in the first nine months of 2020, we paid $70 million for repurchases of our common stock, $52 million of dividends to Lear stockholders and $46 million of dividends to noncontrolling interest holders.
Capitalization
For information related to our senior notes and credit agreement, see Note 8, "Debt," to the condensed consolidated financial statements included in this Report and Note 7, "Debt," to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.
For information related to our common stock share repurchase program and dividends, see "— Executive Overview — Share Repurchase Program and Quarterly Cash Dividends" above, Note 15, "Comprehensive Income (Loss) and Equity," to the condensed consolidated financial statements included in this Report and Note 12, "Capital Stock, Accumulated Other Comprehensive Loss and Equity," to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020.
Market Risk Sensitivity
In the normal course of business, we are exposed to market risks associated with fluctuations in foreign exchange rates, interest rates and commodity prices. We manage a portion of these risks through the use of derivative financial instruments in accordance with our policies. We enter into all hedging transactions for periods consistent with the underlying exposures. We do not enter into derivative instruments for trading purposes.
Foreign Exchange
Operating results may be impacted by our buying, selling and financing in currencies other than the functional currency of our operating companies ("transactional exposure"). We may mitigate a portion of this risk by entering into forward foreign exchange, futures and option contracts. The foreign exchange contracts are executed with banks that we believe are creditworthy. Gains and losses related to foreign exchange contracts are deferred where appropriate and included in the measurement of the foreign currency transaction subject to the hedge. Gains and losses incurred related to foreign exchange contracts are generally offset by the direct effects of currency movements on the underlying transactions.
A summary of the notional amount and estimated aggregate fair value of our outstanding foreign exchange contracts is shown below (in millions):
| October 2, 2021 | December 31, 2020 | ||||||||||
| Notional amount (contract maturities < 24 months) | $ | 2,462 | $ | 2,494 | |||||||
| Fair value | 20 | 48 | |||||||||
Currently, our most significant foreign currency transactional exposures relate to the Mexican peso, various European currencies, the Chinese renminbi, the Thai baht, the Japanese yen, the Brazilian real and the Honduran lempira.
A sensitivity analysis of our net transactional exposure is shown below (in millions):
| Potential Earnings Benefit (Adverse Earnings Impact) | |||||||||||||||||
Hypothetical Strengthening % (1) | October 2, 2021 | December 31, 2020 | |||||||||||||||
U.S. dollar | 10% | $ | 7 | $ | 23 | ||||||||||||
| Euro | 10% | (6) | (4) | ||||||||||||||
(1) Relative to all other currencies to which it is exposed for a twelve-month period
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A sensitivity analysis related to the aggregate fair value of our outstanding foreign exchange contracts is shown below (in millions):
| Estimated Change in Fair Value | |||||||||||||||||
Hypothetical Change % (2) | October 2, 2021 | December 31, 2020 | |||||||||||||||
| U.S. dollar | 10% | $ | 56 | $ | 80 | ||||||||||||
| Euro | 10% | 49 | 59 | ||||||||||||||
(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.
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 2020, net sales outside of the United States accounted for 79% of our consolidated net sales, although certain non-U.S. sales are U.S. dollar denominated. We do not enter into foreign exchange contracts to mitigate our translational exposure.
Commodity Prices and Availability
Raw material, energy and commodity costs can be volatile, reflecting changes in supply and demand and global trade and tariff policies. We have developed and implemented strategies to mitigate the impact of higher raw material, energy and commodity costs, such as the selective in-sourcing of components, the continued consolidation of our supply base, longer-term purchase commitments and the selective expansion of low-cost country sourcing and engineering, as well as value engineering and product benchmarking. However, these strategies, together with commercial negotiations with our customers and suppliers, typically offset only a portion of the adverse impact. Certain of these strategies also may limit our opportunities in a declining commodity cost environment. In addition, the availability of raw materials, commodities and product components fluctuates from time to time due to factors outside of our control, including trade laws and tariffs, natural disasters, global pandemics like COVID-19 and resulting supply chain disruptions. Currently, due to a variety of global factors, the insufficient availability of semiconductor chips is adversely affecting, and may continue to adversely affect, a number of industries, including the automotive industry, resulting in reduced levels of automotive production. If the costs of raw materials, commodities and product components increases or the availability thereof is restricted, it could have an adverse impact on our operating results in the foreseeable future. See "— Forward-Looking Statements" below and Item 1A, "Risk Factors — Increases in the costs and restrictions on the availability of raw materials, energy, commodities and product components could adversely affect our financial performance," in our Annual Report on Form 10-K for the year ended December 31, 2020, as supplemented and updated by Part II — Item 1A, "Risk Factors," in this Report.
We have commodity price risk with respect to purchases of certain raw materials, including steel, copper, diesel fuel, chemicals, resins and leather. Our main cost exposures relate to steel, copper and leather. The majority of the steel used in our products is comprised of fabricated components that are integrated into a seat system, such as seat frames, recliner mechanisms, seat tracks and other mechanical components. Therefore, our exposure to changes in steel prices is primarily indirect, through these purchased components. Approximately 92% of our copper purchases and a significant portion of our leather purchases are subject to price index agreements with our customers and suppliers.
For further information related to the financial instruments described above, see Note 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 October 2, 2021, we have recorded reserves for pending legal disputes, including commercial disputes and other matters, of $18 million. In addition, as of October 2, 2021, we have recorded reserves for product liability claims and environmental matters of $44 million and $8 million, respectively. Although these reserves were determined in accordance with GAAP, the ultimate outcomes of these matters are inherently uncertain, and actual results may differ significantly from current estimates. For a description of risks related to various legal proceedings and claims, see Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2020. For a more complete description of our outstanding material legal proceedings, see Note 16, "Legal and Other Contingencies," to the condensed consolidated financial statements included in this Report.
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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, 2020. There have been no significant changes in our significant accounting policies or critical accounting estimates during the first nine months of 2021.
Recently Issued Accounting Pronouncements
For information on the impact of recently issued accounting pronouncements, see Note 19, "Accounting Pronouncements," to the condensed consolidated financial statements included in this Report.
Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf. The words "will," "may," "designed to," "outlook," "believes," "should," "anticipates," "plans," "expects," "intends," "estimates," "forecasts" and similar expressions identify certain of these forward-looking statements. We also may provide forward-looking statements in oral statements or other written materials released to the public. All such forward-looking statements contained or incorporated in this Report or in any other public statements which address operating performance, events or developments that we expect or anticipate may occur in the future, including, without limitation, statements related to business opportunities, awarded sales contracts, sales backlog and ongoing commercial arrangements, or statements expressing views about future operating results, are forward-looking statements. Actual results may differ materially from any or all forward-looking statements made by us. Important factors, risks and uncertainties that may cause actual results to differ materially from anticipated results include, but are not limited to:
•general economic conditions in the markets in which we operate, including changes in interest rates or currency exchange rates;
•the impact of the ongoing COVID-19 pandemic on our business and the 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 or insufficient availability;
•disruptions in 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 operational and financial success of our joint ventures;
•the impact and timing of program launch costs and our management of new program launches;
•changes in discount rates and the actual return on pension assets;
•impairment charges initiated by adverse industry or market developments;
•our ability to execute our strategic objectives;
•limitations imposed by our existing indebtedness and our ability to access capital markets on commercially reasonable terms;
•changes affecting the availability of LIBOR;
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•disruptions to our information technology systems, or those of our customers or suppliers, including those related to cybersecurity;
•increases in our warranty, product liability or recall costs;
•the outcome of legal or regulatory proceedings to which we are or may become a party;
•the impact of pending legislation and regulations or changes in existing federal, state, local or foreign laws or regulations;
•the impact of regulations on our foreign operations;
•costs associated with compliance with environmental laws and regulations;
•developments or assertions by or against us relating to intellectual property rights;
•the impact of potential changes in tax and trade policies in the United States and related actions by countries in which we do business;
•the anticipated changes in economic and other relationships between the United Kingdom and the European Union; and
•other risks described in Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2020, as supplemented and updated by Part II — Item 1A, "Risk Factors," in this Report, and our other Securities and Exchange Commission 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 October 2, 2021, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control 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, 2020. For a description of our outstanding material legal proceedings, see Note 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, 2020, and our Quarterly Report on Form 10-Q for the quarter ended April 3, 2021.
50
LEAR CORPORATION
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 — Executive Overview — Share Repurchase Program and Quarterly Cash Dividends," and Note 15, "Comprehensive Income (Loss) and Equity," to the condensed consolidated financial statements included in this Report, in March 2020, as a proactive measure in response to the COVID-19 pandemic, we suspended our share repurchases. Share repurchases were reinstated in the second quarter of 2021.
A summary of the shares of our common stock repurchased during the quarter ended October 2, 2021, is shown below:
| Period | Total Number of Shares Purchased | Average Price Paid per Share | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | Approximate Dollar Value of Shares that May Yet be Purchased Under the Program (in millions) | |||||||||||||||||||||||||
| July 4, 2021 through July 31, 2021 | 236,287 | $169.28 | 236,287 | $ | 1,358.8 | ||||||||||||||||||||||||
| August 1, 2021 through August 28, 2021 | 105,185 | $159.86 | 105,185 | 1,342.0 | |||||||||||||||||||||||||
| August 29, 2021 through October 2, 2021 | 78,431 | $156.63 | 78,431 | 1,329.7 | |||||||||||||||||||||||||
| Total | 419,903 | $164.56 | 419,903 | $ | 1,329.7 | ||||||||||||||||||||||||
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LEAR CORPORATION
ITEM 6 — EXHIBITS
Exhibit Index
| Exhibit Number | Exhibit Name | ||||||||||
| * | 31.1 | ||||||||||
| * | 31.2 | ||||||||||
| * | 32.1 | ||||||||||
| * | 32.2 | ||||||||||
| ** | 101.INS | XBRL Instance 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. | ||||||||||
52
LEAR CORPORATION
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: | November 2, 2021 | By: | /s/ Raymond E. Scott | ||||||||
| Raymond E. Scott | |||||||||||
| President and Chief Executive Officer | |||||||||||
| By: | /s/ Jason M. Cardew | ||||||||||
| Jason M. Cardew | |||||||||||
| Senior Vice President and Chief Financial Officer | |||||||||||
53
Exhibit 31.1
CERTIFICATION
I, Raymond E. Scott, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Lear Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: | November 2, 2021 | By: | /s/ Raymond E. Scott | ||||||||
| Raymond E. Scott | |||||||||||
| President and Chief Executive Officer | |||||||||||
Exhibit 31.2
CERTIFICATION
I, Jason M. Cardew, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Lear Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
| Date: | November 2, 2021 | By: | /s/ Jason M. Cardew | ||||||||
| Jason M. Cardew | |||||||||||
| Senior Vice President and Chief Financial Officer | |||||||||||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Lear Corporation (the "Company") on Form 10-Q for the period ended October 2, 2021, as filed with the Securities and Exchange Commission (the "Report"), the undersigned, as the Chief Executive Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: | November 2, 2021 | Signed: | /s/ Raymond E. Scott | ||||||||
| Raymond E. Scott | |||||||||||
| Chief Executive Officer | |||||||||||
This written statement accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Lear Corporation (the "Company") on Form 10-Q for the period ended October 2, 2021, as filed with the Securities and Exchange Commission (the "Report"), the undersigned, as the Chief Financial Officer of the Company, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
1. The Report fully complies with the requirements of Section 13(a) or Section 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
| Date: | November 2, 2021 | Signed: | /s/ Jason M. Cardew | ||||||||
| Jason M. Cardew | |||||||||||
| Chief Financial Officer | |||||||||||
This written statement accompanies the Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the Sarbanes-Oxley Act of 2002, be deemed filed by the Company for purposes of Section 18 of the Securities Exchange Act of 1934.
A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.