10-K 1 lea-2014123110xk.htm 10-K LEA-2014.12.31 10-K

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
FORM 10-K
 
 
(Mark One)
x
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2014.
 
¨
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     .
Commission file number: 1-11311
 
 
 
LEAR CORPORATION
(Exact name of registrant as specified in its charter)
 
 
 
Delaware
 
13-3386776
(State or other jurisdiction of
incorporation or organization)
 
(I.R.S. Employer
Identification No.)
 
 
21557 Telegraph Road, Southfield, MI
 
48033
(Address of principal executive offices)
 
(Zip code)
Registrant’s telephone number, including area code: (248) 447-1500
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
 
Name of each exchange on which registered
Common Stock, par value $0.01 per share
 
New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None

 
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
 
x
  
Accelerated filer
 
¨
 
 
 
 
Non-accelerated filer
 
o  (Do not check if a smaller reporting company)
  
Smaller reporting company
 
¨
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x
As of June 28, 2014, the aggregate market value of the registrant’s common stock, par value $0.01 per share, held by non-affiliates of the registrant was $7,070,982,848. The closing price of the common stock on June 28, 2014, as reported on the New York Stock Exchange, was $88.31 per share.
As of February 6, 2015, the number of shares outstanding of the registrant’s common stock was 78,027,411 shares.
DOCUMENTS INCORPORATED BY REFERENCE
Certain sections of the registrant’s Notice of Annual Meeting of Stockholders and Definitive Proxy Statement on Schedule 14A for its Annual Meeting of Stockholders to be held in May 2015, as described in the Cross Reference Sheet and Table of Contents included herewith, are incorporated by reference into Part III of this Report.
 



LEAR CORPORATION AND SUBSIDIARIES
CROSS REFERENCE SHEET AND TABLE OF CONTENTS
 
 
 
Page Number
or Reference
ITEM 1.
ITEM 1A.
ITEM 1B.
ITEM 2.
ITEM 3.
ITEM 4.
SUPPLEMENTARY ITEM.
ITEM 5.
ITEM 6.
ITEM 7.
ITEM 7A.
Quantitative and qualitative disclosures about market risk (included in Item 7)
 
ITEM 8.
ITEM 9.
ITEM 9A.
ITEM 9B.
ITEM 10.
ITEM 11.
ITEM 12.
ITEM 13.
ITEM 14.
ITEM 15.
________________________
(1)
Certain information is incorporated by reference, as indicated below, to the registrant’s Notice of Annual Meeting of Stockholders and Definitive Proxy Statement on Schedule 14A for its Annual Meeting of Stockholders to be held in May 2015 (the "Proxy Statement").
(2)
A portion of the information required is incorporated by reference to the Proxy Statement sections entitled "Election of Directors" and "Directors and Corporate Governance."
(3)
Incorporated by reference to the Proxy Statement sections entitled "Directors and Corporate Governance — Director Compensation," "Compensation Discussion and Analysis," "Executive Compensation," "Compensation Committee Interlocks and Insider Participation" and "Compensation Committee Report."
(4)
A portion of the information required is incorporated by reference to the Proxy Statement section entitled "Directors and Corporate Governance — Security Ownership of Certain Beneficial Owners, Directors and Management."
(5)
Incorporated by reference to the Proxy Statement sections entitled "Certain Relationships and Related Party Transactions" and "Directors and Corporate Governance — Independence of Directors."
(6)
Incorporated by reference to the Proxy Statement section entitled "Fees of Independent Accountants."




PART I
ITEM 1 – BUSINESS
In this Report, when we use the terms the "Company," "Lear," "we," "us" and "our," unless otherwise indicated or the context otherwise requires, we are referring to Lear Corporation and its consolidated subsidiaries. A substantial portion of the Company’s operations are conducted through subsidiaries controlled by Lear Corporation. The Company is also a party to various joint venture arrangements. Certain disclosures included in this Report constitute forward-looking statements that are subject to risks and uncertainties. See Item 1A, "Risk Factors," and Part IIItem 7, "Management’s Discussion and Analysis of Financial Condition and Results of OperationsForward-Looking Statements."
BUSINESS OF THE COMPANY
General
Lear Corporation is a leading Tier 1 supplier to the global automotive industry. Our business spans all major automotive markets, and we supply seating and electrical distribution systems and related components to virtually every major automotive manufacturer in the world. We have manufacturing, engineering and administrative capabilities in 34 countries with 219 locations and are continuing to grow our business in all automotive producing regions of the world.
Lear is a recognized global leader in complete automotive seat systems and key individual seat component parts. Our seating business consists of the design, development, engineering, just-in-time assembly and delivery of complete seat systems, as well as the design, development, engineering and manufacture of all major seat components, including seat structures and mechanisms, seat covers and surface materials such as fabric and leather, seat foam and headrests. We are one of only two independent seat suppliers with global scale and the capability to design, develop, engineer, manufacture and deliver complete seat systems and components in every major automotive producing region in the world.
Our electrical business consists of the design, development, engineering and manufacture of complete electrical distribution systems that route electrical signals and manage electrical power within a vehicle. Key components of our electrical business include wiring harnesses, terminals and connectors, junction boxes, battery chargers, electronic control modules and wireless control devices. We are one of only four suppliers with complete electrical distribution system and component capabilities in every major automotive producing region in the world.
Our seating and electrical businesses serve the major automotive manufacturers globally and share similar operating disciplines, including world-class development and manufacturing processes. Our seating and electrical businesses each benefit from leveraging common core capabilities and operating standards, as well as customer and regional infrastructures. Our core capabilities are shared across component categories in both of our businesses, including high-precision manufacturing and assembly with short lead times, management of complex supply chains, global engineering and program management skills and a unique customer-focused culture. Our seating and electrical businesses both utilize proprietary, industry-specific processes and standards, leverage common low-cost engineering centers and share support from certain operating functions, such as logistics, supply chain management, quality and health and safety, as well as all major administrative functions.
We are focused on profitably growing and improving the competitiveness of both our seating and electrical businesses. We have followed a balanced strategy to position Lear to deliver superior long-term shareholder value. This includes investing in our business to grow and improve our competitive position, while maintaining a strong and flexible balance sheet and returning cash to our shareholders. From 2010 to 2014, we invested approximately $450 million to open 24 new component facilities across both product segments to expand our component manufacturing capabilities in emerging markets and low-cost countries. This expansion has not only allowed us to provide our customers with key component designs and technologies at a competitive cost globally but to also integrate such components into more optimized systems, modules and architectures. We continue to pursue acquisitions that will complement our present product offerings, facilitate further diversification of our sales, increase our component capabilities and provide new innovations for our customers. In seating, we acquired Everett Smith Group Ltd., the parent of Eagle Ottawa, LLC ("Eagle Ottawa") in January 2015. Eagle Ottawa is the world's leading provider of leather for the automotive industry, with a rich 150-year history. Eagle Ottawa has annual sales of approximately $1 billion, a low-cost manufacturing footprint and approximately 6,500 employees. The company has an industry-leading position in North America and Asia and is one of the top suppliers in Europe. The addition of Eagle Ottawa will increase our representation with the Asian automotive manufacturers and will increase our mix of revenue in Asia. Eagle Ottawa has direct sourcing arrangements with most of the major automotive manufacturers globally. With a full range of leather design and

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manufacturing capabilities, Eagle Ottawa further enhances Lear's position as the industry leader in luxury and performance automotive seating. This acquisition, in combination with our acquisition of Guilford Performance Textiles in 2012, complements Lear's existing capabilities in the design and manufacture of seat covers. These acquisitions strengthen our customer relationships by allowing us to offer our customers unique and innovative seat cover designs with superior craftsmanship, quality and comfort. In electrical, our primary focus is providing complete electrical distribution systems and related components. We have significant experience in the design and manufacture of highly integrated and standardized architectures that optimize size, performance and quality. The strategy that we are following has allowed both of our business segments to better leverage their scale and low-cost capabilities to improve overall operating efficiency and align our product offerings with the increasing customer trends toward global vehicle platforms, directed component sourcing and increased electrical content.
Since 2010, our sales have grown at an annual rate of 10% per year, which is more than twice the growth rate of global automotive industry production. In Asia, our consolidated sales have nearly tripled from $1.1 billion in 2008 to $3.1 billion in 2014. Both of our business segments are outpacing the automotive industry production growth rate, reflecting the benefit of our low-cost footprint, our customers’ increasing utilization of global vehicle platforms and our investment in our products. We believe that the initiatives that we have implemented over the last few years will continue to add value for our stakeholders. Specific elements of our business strategy to date have been:
Restructured manufacturing and engineering footprint to improve our competitive position
Expanded component capabilities through organic investment and acquisitions
Pursued new and emerging market growth and supported our customers’ growth and global platform initiatives
Increased diversification of our business with a more balanced regional, customer and vehicle segment mix
Going forward, these core elements of our strategy will remain critical in combination with our strategic initiatives to increase value in both of our business segments which include:
Craftsmanship and differentiation — providing our customers with superior craftsmanship and a high level of product durability and reliability, as well as a product that can be differentiated across all brands and platforms by utilizing our full portfolio of components combined with leading design, development, engineering and manufacturing capabilities
Connectivity — leveraging existing and developing new products and capabilities in both hardware and software that facilitate information and data exchange through various systems within the vehicle and various communication networks and infrastructures outside of the vehicle
We have the product expertise, global reach, competitive footprint and financial flexibility to continue the profitable growth of our business, both organically and through complementary acquisitions. The key financial goals and objectives of our business strategy include:
Continue to deliver profitable growth, balancing risks and returns
Maintain a strong balance sheet with investment grade credit metrics
Consistently return cash to our shareholders

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We believe that it is important to have capabilities that are aligned with our major customers’ global product development strategies and to leverage our expanding design, development, engineering and manufacturing capabilities in low-cost regions. We are uniquely positioned in each of our product segments as one of the few suppliers that is able to provide low-cost components and serve customers with design, development, engineering, integration and production capabilities in all automotive producing regions of the world, including North America, Europe, Asia and South America. This will support future growth, especially given the increasing customer trends toward global vehicle platforms, directed component sourcing and increased electrical content. We currently support our global operations with more than 100 manufacturing and engineering facilities located in the following low-cost countries:
Brazil
 
Malaysia
 
Russia
China
 
Mexico
 
Slovak Republic
Czech Republic
 
Moldova
 
South Africa
Honduras
 
Morocco
 
Thailand
Hungary
 
Philippines
 
Tunisia
India
 
Poland
 
Vietnam
Indonesia
 
Romania
 
 
In addition to expanding our business with existing customers in our more established markets, our expansion plans are particularly focused on emerging markets. Asia and, in particular, China continue to present significant growth opportunities, as major global automotive manufacturers implement production expansion plans and local automotive manufacturers aggressively expand their operations to meet expected growth in long-term demand in this region. Our expansion in Asia has been accomplished through wholly owned subsidiaries, as well as a number of joint ventures. As of December 31, 2014, we had fifteen joint ventures located throughout Asia. In addition to helping us grow our business in new markets, these joint ventures have helped us to expand our product offerings and broaden our customer base.
Key trends affecting our business include:
Forecasted global growth in automotive vehicle demand over the next several years, with recent volatility in certain emerging markets, such as Brazil, Russia and India;
Automotive manufacturers’ increasing utilization of global vehicle platforms and directed component sourcing;
Increasing demand for connectivity and convenience features in vehicles, driving a proliferation of vehicle features and increased vehicle content with more complex, but standardized, architectures and core system designs;
Increasing demand for luxury and performance seating with superior quality and comfort;
Increasing demand for safety features and systems with an increasing prevalence of advanced driver assistance systems and the emergence of self-driving cars, which will require even more sophisticated electrical architectures;
Stricter fuel economy and emission standards, which require more efficient engines with more computer management to achieve better fuel economy, lighter weight materials and alternative energy powertrains, driving growth in lighter-weight components and systems, as well as continued demand for high power and other components enabling hybrid, electric and other powertrain designs that increase fuel economy and reduce vehicle emissions; and
China as the largest and fastest growing major automotive market in the world.
We believe that our broad customer base and strong financial resources will allow us to capitalize on global growth in automotive vehicle production, while our low-cost engineering and global manufacturing capabilities will provide us with the ability to support our customers’ continued move to global vehicle platforms. We expect that our sales backlog will support future sales diversification and market share gains, as further described below under "— Recent Developments." Our low-cost global footprint and engineering and component capabilities in our seating business will allow us to continue to penetrate our customers’ global vehicle platforms and participate in directed component sourcing. Our electrical business has been growing significantly faster than the overall automotive industry as we continue to benefit from content growth and gain market share. In addition, automotive industry trends for increasing electrical content and improved fuel efficiency should support continued growth in this segment.

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History
Lear was founded in Detroit in 1917 as American Metal Products, a manufacturer of seating assemblies and other components for the automotive and aircraft industries, and was incorporated in Delaware in 1987. Through a management-led buyout in 1988, Lear Corporation established itself as a privately-held seat assembly operation for the North American automobile market with annual sales of approximately $900 million. We completed an initial public offering in 1994 and developed into a global supplier through organic growth and a series of acquisitions.
In 2005, we initiated a multi-year operational restructuring strategy. Since 2005, we have closed 58 manufacturing and 13 administrative facilities. Our current footprint reflects approximately 80% of our component facilities and more than 90% of our related employment in 20 low-cost countries. For further information, see Item 1A, "Risk Factors," and Note 4, "Restructuring," to the consolidated financial statements included in this Report.
In July 2009, following a global economic downturn and associated decline in automotive production, Lear and certain of its U.S. and Canadian subsidiaries filed petitions for relief under Chapter 11 with the bankruptcy court, following a comprehensive evaluation of our strategic and financial options. In November 2009, our plan of reorganization became effective, and we emerged from Chapter 11 bankruptcy proceedings.
From 2010 to 2014, we have improved our financial performance, built a strong and flexible financial position and delivered superior returns to our shareholders.
Recent Developments
Global automotive industry production volumes improved 4% in 2013 from the prior year and another 3% in 2014 to a record 85.6 million units. North American industry production increased 5% in 2013 from the prior year and another 5% in 2014 to 17.0 million units. European and African industry production remains below the peak level of 22.3 million units in 2007 but did increase 1% in 2013 from the prior year and another 3% in 2014 to 20.5 million units. Asian industry production increased 5% in 2013 from the prior year and another 4% in 2014 to 43.1 million units. South American industry production increased 7% in 2013 from the prior year but declined 17% in 2014 to 3.6 million units.
Our sales are driven by the number of vehicles produced by the automotive manufacturers, which is ultimately dependent on consumer demand for automotive vehicles, and our content per vehicle. Our sales are well diversified geographically, by customer and by vehicle segment. In 2014, approximately 40% of our sales were generated in Europe and Africa, 38% in North America, 17% in Asia and 5% in South America. In Asia, where we are pursuing a strategy of aggressive expansion of our sales and operations, our consolidated sales have nearly tripled from $1.1 billion in 2008 to $3.1 billion in 2014. Approximately 67% of our consolidated sales in Asia come from China. In addition, we have eight non-consolidated joint ventures in China which generated combined sales of $1.2 billion in 2014, as compared to seven non-consolidated joint ventures in China which generated combined sales of $214 million in 2008.
Ford Motor Company, General Motors Company and BMW AG are our three largest customers globally, representing 54% of our sales in 2014. In addition, Daimler AG, Fiat Chrysler Automobiles, Hyundai Motor Company, Jaguar Land Rover Automotive PLC, Peugeot S.A., Renault-Nissan Alliance and Volkswagen Group each represented 3% or more of our 2014 net sales. We supply and have expertise in all vehicle segments of the automotive market, and it is common for us to have content on multiple platforms with a single customer. Our sales content tends to be higher on those vehicle platforms and segments which offer more features and functionality. The popularity of particular vehicle platforms and segments varies over time and by regional market. We expect to continue to win new business at a greater rate than overall automotive industry production. In both our seating and electrical businesses, our low-cost global footprint provides a competitive advantage as our customers continue to move toward global vehicle platforms. In seating, we are a market leader in every automotive producing market in the world. Further, our global manufacturing and engineering expertise, competitive low-cost footprint, complete component capabilities, quality leadership and strong customer relationships provide us with a solid platform for future growth in this segment. In electrical, increasing demand for improved fuel efficiency, safety, connectivity, comfort and convenience and market share gains will support future sales growth. This content growth, as well as our customers’ continued emphasis on vehicle weight reduction, will require far more complex vehicle electrical architectures. Our significant experience designing and manufacturing highly integrated and standardized architectures that optimize size, performance and quality leaves us well positioned to take advantage of the growth in electrical content and the increasingly complex architectures.
Our customers typically award contracts several years before actual production is scheduled to start. Each year, the automotive manufacturers introduce new vehicles, update existing models and discontinue certain models and, recently, even complete brands. In this process, we may be selected as the supplier on a new model, we may continue as the supplier on an updated model or we may lose a new or updated model to a competitor. Our sales backlog reflects anticipated net sales from formally

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awarded new programs, less lost and discontinued programs. We measure our sales backlog based on contracts to be executed in the next three years. This measure includes the sales backlog at Eagle Ottawa and excludes the sales backlog at our non-consolidated joint ventures. As of January 2015, our 2015 to 2017 sales backlog is $2.0 billion, of which $0.7 billion relates to 2015, and $1.5 billion and $0.5 billion relate to seating and electrical, respectively. Our current sales backlog assumes volumes based on the independent industry projections of IHS Automotive as of December 2014 and a Euro exchange rate of $1.20 / Euro. This sales backlog is generally subject to a number of risks and uncertainties, including vehicle production volumes on new and replacement programs and foreign exchange rates, as well as the timing of production launches and changes in customer development plans. For additional information regarding risks that may affect our sales backlog, see Item 1A, "Risk Factors," and Part II — Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements."
Details on light vehicle production in certain key regions for 2014 and 2013 are provided below. Our actual results are impacted by the specific mix of products within each market, as well as other risks described in Item 1A, "Risk Factors."
(In thousands of units)
2014 (1)

 
2013 (1, 2)

 
% Change
Europe and Africa
20,512.5

 
19,837.3

 
3
North America
16,983.9

 
16,177.0

 
5
Asia
43,115.2

 
41,415.8

 
4
South America
3,586.5

 
4,311.1

 
(17)
Other
1,360.9

 
1,023.6

 
33
Total
85,559.0

 
82,764.8

 
3
 
 
 
 
 
 
China
21,258.7

 
19,419.7

 
9
India
3,569.0

 
3,622.2

 
(1)
Brazil
2,963.4

 
3,456.7

 
(14)
Russia
1,732.4

 
2,064.8

 
(16)
(1)
Production data based on IHS Automotive for vehicle weights up to 3.5 tons.
(2)
Production data for 2013 has been updated to reflect actual production levels.
Available Information on our Website
Our website address is http://www.lear.com. We make available on our website, free of charge, the periodic reports that we file with or furnish to the Securities and Exchange Commission ("SEC"), as well as all amendments to these reports, as soon as reasonably practicable after such reports are filed with or furnished to the SEC. We also make available on our website or in printed form upon request, free of charge, our Corporate Governance Guidelines, Code of Business Conduct and Ethics (which includes specific provisions for our executive officers), charters for the standing committees of our Board of Directors and other information related to the Company. We are not including the information contained on our website as a part of, or incorporating it by reference into, this Report.
The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, N.E., Washington D.C. 20549. The public may obtain information about the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site (http://www.sec.gov) that contains reports, proxy and information statements and other information related to issuers that file electronically with the SEC.
Seating Segment
Lear is a recognized global leader in complete automotive seat systems and key individual seat component parts. The seating segment consists of the design, development, engineering, just-in-time assembly and delivery of complete seat systems, as well as the design, development, engineering and manufacture of all major seat components, including seat structures and mechanisms, seat covers and surface materials such as fabric and leather, seat foam and headrests. We produce seat systems that are fully assembled and ready for installation in automobiles and light trucks. Seat systems are generally designed and engineered for specific vehicle models or platforms. We develop seat systems and components for all vehicle segments from compact cars to full-size sport utility vehicles. We are the world leader in luxury and performance automotive seating, providing craftsmanship, elegance in design, use of innovative materials and industry-leading technology required by the premium automakers, including Alfa Romeo Automobiles S.p.A., Audi AG, Automobili Lamborghini S.p.A., BMW, Cadillac, Ferrari S.p.A., Jaguar Land Rover, Lincoln, Maserati, Mercedes-Benz and Porsche AG.

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We also produce components that comprise the seat assemblies, such as seat structures and mechanisms, seat trim covers and surface materials such as fabric and leather, headrests and seat foam. We have been pursuing a selective vertical integration strategy to enhance growth, improve quality, increase profitability and defend our current market position in just-in-time ("JIT") seat assembly. In this regard, we have expanded our seat cover operations, including precision cutting, assembly, sewing and lamination of seat fabric, in low-cost markets, entered the fabric business (through our acquisitions of New Trend™ and Guilford Performance Textiles), added industry-leading leather design, development and manufacturing capabilities (through our acquisition of Eagle Ottawa), expanded our precision engineered seat mechanism expertise and increased our foam capability through global expansion.
Our product strategy is to develop standardized seat structures and mechanisms that can be adapted to multiple segments to minimize investment costs. By incorporating these key components into our fully assembled seat systems, we are able to provide a higher quality product at a lower total cost.
A seat is an active part of the vehicle safety system. As a result of our innovative product design and technology capabilities, we are able to provide seats with enhanced safety and convenience features. Lear is an industry leader in the design and development of safety features in automotive seating with innovations, such as the active head restraint and seat structures that withstand collision impact well in excess of what is demanded by regulatory agencies.
We have developed products and materials to reduce cost and weight, improve product comfort, customization and styling, enhance safety and increase the usage of environmentally friendly materials. Our mini recliners and micro adjust tracks are lightweight seat mechanisms, which provide precision movement. Our Lear Crafted Comfort Connect™ and Advanced Comfort Systems™ are adjustable cushions, seat backs and side bolsters, which support correct posture and provide improved comfort and appearance. Our AventinoR leather and Guilford TeXstyle™ fabrics provide premium leather perforated for seat ventilation and customizable fabric engineered to improve the vehicle experience and durability. Our head restraints provide improved comfort and safety with adjustability. Our Dynamic Environmental Comfort Systems™ offer weight reductions of 30% — 40%, as compared to current foam seat designs, and utilize environmentally friendly materials, which reduce carbon dioxide emissions. Our SoyFoam™ seats, which are used by multiple global customers, are up to 24% renewable, as compared to non-renewable, petroleum-based foam seats.
Our seating component portfolio, combined with our unique design capabilities, allows us to provide our customers with superior craftsmanship and a high level of product durability and reliability, as well as a product that can be differentiated across all brands and platforms. Superior quality and customer service continue to be areas of competitive advantage for our seating business. We tied for the highest number of seats recognized in the 2014 J.D. Power and Associates Seat Quality and Satisfaction StudySM with four top three awards.
Our seat assembly facilities use lean manufacturing techniques, and our finished products are delivered to the automotive manufacturers on a JIT basis, matching our customers’ exact build specifications for a particular day and shift, thereby reducing inventory levels. These facilities are typically located adjacent to or near our customers’ manufacturing and assembly sites. Increasingly, we are utilizing component and sub-assembly designs that allow us to drive higher efficiencies in our seat assembly facilities and further integrate certain assembly activities with our core component manufacturing operations. Our seat components, including recliner mechanisms, seat tracks and seat trim covers, are manufactured in batches, typically utilizing facilities in low-cost regions. The principal raw materials used in our seat systems, including steel, foam chemicals, leather hides and yarn, are generally available and obtained from multiple suppliers under various types of supply agreements. Fabric, foam, seat structures and mechanisms and certain other components are either manufactured by us internally or purchased from multiple suppliers under various types of supply agreements. The majority of the steel used in our products is comprised of fabricated components that are integrated into a seat system, such as seat frames, recliner mechanisms, seat tracks and other mechanical components. Therefore, our exposure to changes in steel prices is primarily indirect, through these purchased components. We utilize a combination of short-term and long-term supply contracts to purchase key components. We generally retain the right to terminate these agreements if our supplier does not remain competitive in terms of cost, quality, delivery, technology or customer support.

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Financial Summary
A summary of revenues from external customers and other financial information for our seating segment is shown below. For additional information regarding the operating results of our seating segment, see Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations." For additional information regarding Lear’s total sales and long-lived assets by geographic area, as well as customer concentrations, see Note 12, "Segment Reporting," to the consolidated financial statements included in this Report. The top five customers of this segment are: General Motors, Ford, BMW, Volkswagen and Fiat Chrysler.
(In millions)
2014
 
2013
 
2012
Revenues from external customers
$
13,310.6

 
$
12,018.1

 
$
11,029.6

Segment earnings (1)
655.2

 
576.9

 
661.7

Depreciation and amortization
199.8

 
181.3

 
152.6

Capital expenditures
268.9

 
288.5

 
290.7

Total assets
4,855.6

 
4,640.0

 
4,341.9

(1)
As discussed in Note 2, "Summary of Significant Accounting Policies — Segment Reporting," segment earnings represents pretax income before equity in net income of affiliates, interest expense and other expense.
Competition
We are one of only two independent seat suppliers with global scale and the capability to design, develop, manufacture and deliver complete seat systems and components in every major automotive producing market in the world. Based on independent market studies and management estimates, we believe that we hold a #2 position globally on the basis of revenue with strong positions in all major markets. We estimate the global seat systems market at more than $62 billion in 2014. We believe that we are also among the leading suppliers of various components produced for complete seat systems.
Our primary independent competitor in this segment globally is Johnson Controls, Inc. Other competitors in this segment include Faurecia S.A., Toyota Boshoku Corporation, TS Tech Co., Ltd. and Magna International Inc., which have varying market presence depending on the region, country or automotive manufacturer. Peugeot S.A., Toyota Motor Corporation and Honda Motor Co. Ltd. hold equity ownership positions in Faurecia S.A., Toyota Boshoku Corporation and TS Tech Co., Ltd., respectively. Other automotive manufacturers maintain a presence in the seat systems market through wholly owned subsidiaries or in-house operations. In seat components, we compete with the seat systems suppliers identified above, as well as certain suppliers that specialize in particular components.
Technology
We maintain state-of-the-art testing, instrumentation and data analysis capabilities. We own industry-leading seat validation test centers featuring crashworthiness, durability and full acoustic and sound quality testing capabilities. Together with computer-controlled data acquisition and analysis capabilities, these centers provide precisely controlled laboratory conditions for sophisticated testing of parts, materials and systems.
In addition, we incorporate many convenience, comfort and safety features into our designs, including advanced whiplash prevention concepts, integrated restraint seat systems and side impact airbags. We also invest in our computer-aided engineering design and computer-aided manufacturing systems. Recent enhancements to these systems include advanced acoustic analysis capabilities and the enhancement of our research and design website, which is used for global customer telecommunications, technology communications, collaboration and the direct exchange of digital information.
For additional factors that may impact our seating segment’s business, financial condition, operating results and/or cash flows, see Item 1A, "Risk Factors."
Electrical Segment
The electrical segment consists of the design, development, engineering, manufacture, assembly and supply of electrical distribution systems and components for light vehicles globally. The increasing consumer demand for additional features and functionality and the need for improved fuel efficiency are driving an increase in vehicle electrical content and changes in vehicle electrical architectures. Furthermore, connectivity requirements are growing as vehicles increase communications with cellular networks, satellites and other vehicles in the grid. Vehicles are effectively becoming a smart device on wheels as the

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automobile is increasingly becoming a connected platform to various types of communication networks. We expect these trends to continue.
As the number of electrical features and electronically controlled functions on a vehicle increases, the complexity and need to improve the efficiency of the vehicle’s electrical architecture also increase. Electrical content growth is increasing the complexity of every aspect of the vehicle electrical architecture as more and more signals need to be managed. With more circuits required to support the added content, it is becoming more important to reduce weight by working with new materials and developing more efficient architectures. We are able to provide our customers with design and engineering solutions involving manufactured systems, modules and components that optimally integrate a vehicle’s entire electrical distribution system, consisting of wiring, terminals and connectors, junction boxes and electronic modules. This integration can reduce the overall system cost and weight by reducing the number of wires, terminals and connectors and modules normally required to manage electrical power and signal distribution within a vehicle. For example, our Solid State Smart Junction Box™ enables increased functionality, while delivering up to a 70% reduction in packaging size and weight and up to a 35% reduction in wire gauge due to increased circuit protection reliability. To achieve these results, our Solid State Junction Box™ integrates advancements in terminal and connector technology, junction box and electronic control module capability and complete electrical distribution system expertise.
Not only are electrical features and electronically controlled functions increasing on the vehicle, but the number and types of communication signals received and transmitted by the vehicle are also increasing. These wireless signals are increasingly utilized to support multiple vehicle functions and need to be managed and distributed within the vehicle electrical architecture. This includes standard radio frequency, Bluetooth signals and cellular, satellite and traffic infrastructure networks, as well as new emergent protocols, such as dedicated short range communication. Managing the speed and quality of the receipt and transmission of these signals, both within and outside of the vehicle, is an emerging challenge for suppliers of complete electrical distribution systems and architectures.
We have focused and aligned our product offerings to provide the complete electrical distribution system of the vehicle. Our electrical product offering spans four primary product areas: wire harnesses, terminals and connectors, junction boxes and electronic control modules and advanced efficiency systems.
Electrical distribution systems are networks of wiring and associated control devices that route electrical signals and manage electrical power within a vehicle. Electrical distribution systems are comprised primarily of wire harness assemblies and terminals and connectors that connect various control modules, junction boxes and electrically powered features within the vehicle. Wire harness assemblies are a collection of wiring and terminals and connectors that link all of the various electrical and electronic devices within the vehicle to each other and/or to a power source. Junction boxes are centrally located modules within the vehicle that contain fuses and/or relays for circuit and device protection and serve as a connection point for multiple wire harnesses.
Wire harness assemblies are a collection of individual circuits fabricated from raw and insulated wire, which is automatically cut to length and terminated during the manufacturing process. Individual circuits are assembled together on a jig or table, inserted into connectors and wrapped or taped to form wire harness assemblies. The assembly process is labor intensive, and as a result, production is generally performed in low-cost labor sites in Mexico, Honduras, Eastern Europe, Africa, China, the Philippines, Brazil and Thailand. Terminals and connectors are currently manufactured in Germany, China, Eastern Europe and the United States. With the exception of certain terminals and connectors, the materials that we use to manufacture wire harness assemblies are substantially purchased from suppliers, including extruded and insulated wire and cable. The majority of our copper purchases are comprised of extruded wire and cable that we integrate into electrical wire harnesses and are generally subject to price index agreements with our customers.
We also manufacture junction boxes and electronic control modules, which are connected to the wire harness assemblies. Junction boxes are manufactured in Mexico, Northern Africa, Europe, China and the Philippines with a proprietary, capital-intensive assembly process using printed circuit boards, a portion of which are purchased from third-party suppliers. Certain materials, particularly certain specialized electronic components, are available from a limited number of suppliers. Proprietary features have been developed to improve the function of these junction boxes in harsh environments, including high temperatures and humidity. Electronic control modules control various electronic functions within the vehicle. These modules either consolidate multiple functions into a single module or focus on a specific function, such as the door zone control module, which controls features, such as window lift, door lock and power mirrors. We assemble these modules using high-speed surface mount placement equipment in Mexico, China, the Philippines, Morocco, Spain and Germany.
As electronic control modules are increasingly centralized and integrated, we have developed "smart junction boxes," which are junction boxes augmented with integrated electronic functionality that otherwise would be contained in other body control

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modules. The integration of functionality in our smart junction boxes eliminates interconnections, increases overall system reliability and can reduce the number of electronic modules within the vehicle. This can lead to reduced weight, cost and complexity. Similarly, we develop and produce gateway modules, which facilitate secure access to, and communication with, all of the vehicle systems at a central point and translate various signals to facilitate data exchange across vehicle domains. The higher level of complexity and processing power in these electronic control modules is driving rapid increases in software requirements associated with these modules. Accordingly, we continue to build our knowledge and capabilities in software in order to design and develop more complex and integrated electronic control modules capable of more efficiently managing the distribution of power and data signals through the vehicle.
We offer wireless functionality in both integrated and stand-alone modules, which send and receive signals using radio frequency technology. Our wireless systems include passive entry systems, remote keyless entry and dual range/dual function remote keyless entry systems. Passive entry systems allow the vehicle operator to unlock the door without using a key or physically activating a remote keyless module. Dual range/dual function remote keyless entry systems allow a single transmitter to perform multiple functions. We also have 2-way remote keyless entry systems that enable the vehicle to provide information to the user, such as verification that the doors have locked or that the engine has started, as well as other operational information. We believe that our expertise in radio frequencies is a unique capability that is becoming more important as it separates Lear from many other electrical distribution suppliers. We are well suited to pursue connectivity business because of this expertise in wireless connections, which are increasingly being utilized to manage information and driver interaction with the vehicle.
Our product offerings also include lighting control modules, which provide the electronic control logic and diagnostics for increasingly advanced and complex vehicle lighting systems. We supply LED lighting control systems for vehicle interiors and exteriors. The audio segment includes amplifiers and complete vehicle sound system development capability.
The emergence and continued development of alternative energy powertrains, including electric, hybrid electric and other technologies, is driving growth in high-power electrical systems and components. Hybrid and electric vehicles incorporate both high power and low power components. As a result, they offer a significant content opportunity with the potential to more than double the electrical content per vehicle.
Our Advanced Efficiency Systems Global Center of Excellence, in Southfield, Michigan, supports growth opportunities globally in the hybrid and electric vehicle market and is dedicated to the development of high-power and hybrid electrical systems and components, including wiring, terminals and connectors and power electronics. A high power application center with full development capabilities is also located in Valls, Spain. We are supplying, or will supply, high voltage wire harnesses, battery monitoring systems, high voltage terminals and connectors and battery chargers for new models from Daimler, Renault-Nissan, General Motors (including the Chevrolet Volt and Cadillac ELR extended range electric vehicles), BMW, Jaguar Land Rover and Fiat Chrysler. We believe that our expertise in high power electrical distribution systems will provide additional growth opportunities going forward.
Financial Summary
A summary of revenues from external customers and other financial information for our electrical segment is shown below. For additional information regarding the operating results of our electrical segment, see Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Results of Operations." For additional information regarding Lear’s total sales and long-lived assets by geographic area, as well as customer concentrations, see Note 12, "Segment Reporting," to the consolidated financial statements included in this Report. The top five customers of this segment are: Ford, General Motors, Jaguar Land Rover, Renault-Nissan and BMW.
(In millions)
2014
 
2013
 
2012
Revenues from external customers
$
4,416.7

 
$
4,215.9

 
$
3,537.4

Segment earnings (1)
556.6

 
414.3

 
254.9

Depreciation and amortization
103.3

 
96.4

 
78.4

Capital expenditures
138.4

 
163.4

 
158.1

Total assets
1,609.9

 
1,658.3

 
1,432.2

(1)
As discussed in Note 2, "Summary of Significant Accounting Policies — Segment Reporting," segment earnings represents pretax income before equity in net income of affiliates, interest expense and other expense.

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Competition
We estimate the global target market for our electrical business to be approximately $68 billion. We are one of only four suppliers with complete electrical distribution system and component capabilities in every major automotive producing region in the world. Our major competitors in this segment include Delphi Automotive PLC, Sumitomo Corporation and Yazaki Corporation.
Technology
The electrical segment is technology driven and typically requires higher investment as a percentage of sales than our seating segment. Electrical technology spans each of our four product areas: wire harnesses, terminals and connectors, junction boxes and electronic control modules and advanced efficiency systems. We are able to supply complete electrical distribution systems across our entire product offering by leveraging the expertise in each of these four product areas. Our complete electrical distribution system design capabilities, coupled with certain market-leading component technologies, allow access to our customers’ development teams, which provides an early indication of our customers’ product needs and enables us to develop system design efficiencies. Our expertise is developed and delivered by over 1,900 engineers across fourteen countries and is led by four global technology centers of excellence in China, Germany, Spain and the United States for each of our major product lines in this segment, which are described below.
Wire harnesses — In addition to industry leading capability in the delivery of wire harnesses, our technology includes expertise in the design and use of alternative conductor materials, such as aluminum, copper-clad steel and other hybrid alloys. Alternative conductor materials enable the use of ultra small gauge conductors, which reduce the weight and packaging size of electrical distribution systems. We were the first to implement copper-clad steel cabling in series production, and we have developed small gauge aluminum termination capabilities. Reductions in weight and size support our customers’ efforts to reduce the overall weight of the vehicle in order to meet fuel efficiency standards. Our expertise in terminals and connectors technology facilitates our ability to implement these small gauge and alternative alloy conductors.
Terminals and connectors — We provide a broad set of terminals and connectors to the market and are developing advanced capabilities in aluminum terminals and aluminum wire termination, ultra small gauge termination and high voltage terminals and connectors. We have developed high packaging density in-line connectors and new small gauge terminals that will enable wire gauge reduction and provide our customers with lower weight and lower cost solutions. Our high voltage terminals and connectors are a part of our advanced efficiency systems capabilities, and we have established a leading capability in power density (power per packaging size) that is being adopted by multiple automakers.
Our expertise in terminals and connectors has also directly contributed to our smart junction box technology, specifically the development of surface mount connectors that reduce package size and weight through integrated thermal management. 
Junction boxes and electronic control modules — We are a market leader in smart junction box technology and will begin production of our Automotive News PACE Award winning Solid State Smart Junction Box™ in 2016. We continue to refine our smart junction box technology, including the development of aluminum printed circuit boards, to reduce size and weight and to provide the potential for meaningful cost reduction in the electrical system. Importantly, this technology also enables the integration of additional feature content into the smart junction box. We are also a leader in gateway module technology, which serves as a secure portal into all of the various systems in the vehicle. We are further developing capabilities to enable our gateway and other electronic control modules to efficiently and securely manage the increasing amount of both wired and wireless signals running throughout, as well as within and outside of, the vehicle.
Our wireless capability includes expertise in the development of radio frequency systems. We have developed world class, industry leading wireless products, such as lower-cost passive entry systems with improved security and features and our 2-way remote keyless entry systems that enable the vehicle to provide feedback to the consumer, such as verification that the doors have locked or that the engine has started.
Our LED lighting control expertise includes interior and exterior applications. We have developed advanced technology electronic controls in this area, including a Matrix LED Control System capable of individually dimming and switching on/off up to 100 LEDs. This system, which goes into production in 2016, will enable steerable light beams and other advanced lighting features and can be paired with driver assistance system sensors to enable other enhancements, such as automatic high beam management and obstacle highlighting.

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Additionally, we have expertise in premium audio amplifiers and advanced audio tuning and have developed a number of other innovative products and features focused on increasing value to our customers, such as wireless in-vehicle charging for hand-held devices and various interior function controls.
Software is an increasingly critical aspect of our electrical business. Software capabilities are becoming more important in the management of complex and highly sophisticated electrical architectures. Software in the vehicle is rapidly growing as a key element of technological innovation and a cost effective way to provide new features and functions. We currently employ over 500 software engineers globally and are pursuing expansion of specialized capabilities in vehicle networking, encryption, cybersecurity and connectivity protocols.
Advanced efficiency systems — We have products and technologies that enable the varying degrees of powertrain electrification being employed by automakers today from mild hybrids to full electric vehicles. They include on-board charging systems, charge cord sets, high voltage electrical distribution systems and battery monitoring technology. We are also providing advanced high voltage component technologies, such as terminals, connectors and bus bars. Our systems and components have achieved industry leading efficiency, packaging and reliability. We have over 500 patents and patents pending in advanced efficiency systems.
For additional factors that may impact our electrical segment’s business, financial condition, operating results and/or cash flows, see Item 1A, "Risk Factors."
Seasonality
Our principal operations are directly related to the automotive industry. Consequently, we may experience seasonal fluctuations to the extent automotive vehicle production slows, such as in the summer months when many customer plants close for model year changeovers, in December when many customer plants close for the holidays and during periods of high vehicle inventory. See Note 14, "Quarterly Financial Data," to the consolidated financial statements included in this Report.
Customers
We serve the worldwide automotive and light truck market, which produced approximately 85.6 million vehicles in 2014. We have automotive content on over 300 vehicle nameplates worldwide and serve all of the world’s major automotive manufacturers.
In 2014, General Motors and Ford, two of the largest automotive and light truck manufacturers in the world, accounted for 22% and 21% of our net sales, respectively. In addition, BMW accounted for approximately 11% of our net sales. We supply and have expertise in all vehicle segments of the automotive market, and it is common to have content on multiple platforms with a single customer. For further information related to our customers and domestic and foreign sales and operations, see Note 12, "Segment Reporting," to the consolidated financial statements included in this Report.
We receive purchase orders from our customers that generally provide for the supply of a customer’s annual requirements for a particular vehicle model and assembly plant, or in some cases, for the supply of a customer’s requirements for the life of a particular vehicle model, rather than for the purchase of a specified quantity of products. Although most purchase orders may be terminated by our customers at any time, such terminations have been minimal and have not had a material impact on our operating results. We are subject to risks that an automotive manufacturer will produce fewer units of a vehicle model than anticipated or that an automotive manufacturer will not award us a replacement program following the life of a vehicle model. To reduce our reliance on any one vehicle model, we produce automotive systems and components for a broad cross-section of both new and established models. However, larger cars and light trucks, as well as vehicle platforms that offer more features and functionality, such as luxury, sport utility and crossover vehicles, typically have more content and, therefore, tend to have a more significant impact on our operating performance. Our net sales for the year ended December 31, 2014, consisted of 16% compact, 46% mid-size, 22% full-size/luxury and 16% full frame and were comprised of 55% cars and 45% light trucks.
Our customers award business to their suppliers in a number of ways, including the award of complete automotive systems, allowing the suppliers to either manufacture the components themselves or to purchase them from other suppliers at their discretion. Increasingly, certain of our customers are electing to award certain components directly to component suppliers and independent of the complete system award. We have been investing in and expanding our component capacity in low-cost regions in order to maximize our participation in this sourcing trend.
Our agreements with our major customers generally provide for an annual productivity price reduction. Historically, cost reductions through product design changes, increased manufacturing productivity and similar programs with our suppliers have

13


generally offset these customer-imposed price reduction requirements. However, raw material, energy and commodity costs can be volatile. Although we have developed and implemented strategies to mitigate the impact of higher raw material, energy and commodity costs, these strategies, together with commercial negotiations with our customers and suppliers, typically offset only a portion of the adverse impact. Certain of these strategies also may limit our opportunities in a declining commodity environment. In addition, we are exposed to increasing market risk associated with fluctuations in foreign exchange as a result of our low-cost footprint and vertical integration strategies. We use derivative financial instruments to reduce our exposure to fluctuations in foreign exchange rates. For additional information regarding our foreign exchange and commodity price risk, see Part II — Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Financial Condition — Foreign Exchange" and "— Commodity Prices."
Employees
As of December 31, 2014 and 2013, our employment levels worldwide were approximately as follows:
Region
2014
 
2013
United States and Canada
9,800

 
9,200

Mexico
41,000

 
39,700

Central and South America
11,200

 
13,000

Europe and Africa
43,200

 
39,600

Asia
20,000

 
20,800

Total
125,200

 
122,300

A substantial number of our employees are members of unions or national trade organizations. We have collective bargaining agreements with several North American unions, including the United Auto Workers, Unifor, International Brotherhood of Electrical Workers and Workers United. Each of our unionized facilities in the United States and Canada has a separate collective bargaining agreement with the union that represents the workers at such facility, with each such agreement having an expiration date that is independent of the other agreements. The majority of our employees in Mexico and Europe are members of industrial trade union organizations or confederations within their respective countries. Many of these organizations and confederations operate under national contracts, which are not specific to any one employer. We have occasionally experienced labor disputes at our plants. We have been able to resolve all such labor disputes and believe our relations with our employees are generally good.
See Item 1A, "Risk Factors — A significant labor dispute involving us or one or more of our customers or suppliers or that could otherwise affect our operations could adversely affect our financial performance," and Part II — Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements."
Technology
Worldwide, we hold many patents and have many patent applications pending. While we believe that our patent portfolio is a valuable asset, no individual patent or group of patents is critical to the success of our business. We also license selected technologies to automotive manufacturers and to other automotive suppliers. We continually strive to identify and implement new technologies for use in the design and development of our products.
Advanced technology development is conducted worldwide at our six advanced technology centers and at our product engineering centers. At these centers, we engineer our products to comply with applicable safety standards, meet quality and durability standards, respond to environmental conditions and conform to customer and consumer requirements. Our global innovation and technology center located in Southfield, Michigan, develops and integrates new concepts and is our central location for consumer research, benchmarking, craftsmanship and industrial design activity.
We have numerous registered trademarks in the United States and in many foreign countries. The most important of these marks include LEAR CORPORATIONR (including our stylized version thereof) and LEARR, which are widely used in connection with our products and services. Our other principal brands include GUILFORDTM and EAGLE OTTAWAR. AVENTINOR leather, PROACTIVE POSTURETM seating, ProTecR active head restraints, STRUCTURETM systems and TeXstyle fabrics are some of the other trademarks used in connection with certain of our product lines.
We will continue to dedicate resources to engineering and development. Engineering and development costs incurred in connection with the development of new products and manufacturing methods within one year of launch, to the extent not

14


recoverable from our customers, are charged to cost of sales as incurred. Such costs are charged to selling, general and administrative expenses when incurred more than one year prior to launch. Engineering and development costs charged to selling, general and administrative expenses totaled approximately $102 million, $108 million and $104 million for the years ended December 31, 2014, 2013 and 2012, respectively. Engineering and development costs for which reimbursement is contractually guaranteed by our customers are capitalized. Engineering and development costs capitalized totaled approximately $232 million, $202 million and $202 million for the years ended December 31, 2014, 2013 and 2012, respectively.
Environmental Matters
We are subject to local, state, federal and foreign laws, regulations and ordinances which govern activities or operations that may have adverse environmental effects and which impose liability for clean-up costs resulting from past spills, disposals or other releases of hazardous wastes and environmental compliance. For a description of our outstanding environmental matters and other legal proceedings, see Note 11, "Commitments and Contingencies," to the consolidated financial statements included in this Report.
In addition, our customers are subject to significant environmentally focused state, federal and foreign laws and regulations that regulate vehicle emissions, fuel economy and other matters related to the environmental impact of vehicles. To the extent that such laws and regulations ultimately increase or decrease automotive vehicle production, such laws and regulations would likely impact our business. See Item 1A, "Risk Factors."
Furthermore, we currently offer products with environmentally friendly features, and our expertise and capabilities are allowing us to expand our product offerings in this area. We will continue to monitor emerging developments in this area.
Joint Ventures and Noncontrolling Interests
We form joint ventures in order to gain entry into new markets, expand our product offerings and broaden our customer base. In particular, we believe that certain joint ventures have provided us, and will continue to provide us, with the opportunity to expand our business relationships with Asian automotive manufacturers, particularly in emerging markets. We also partner with companies having significant local experience in commerce, customs and capacity to reduce our financial risk and enhance our potential for achieving expected financial returns. In some cases, these joint ventures may be located in North America or Europe and used to expand our customer relationships.
As of December 31, 2014, we had 23 operating joint ventures located in seven countries. Of these joint ventures, seven are consolidated and sixteen are accounted for using the equity method of accounting. Fifteen of the joint ventures operate in Asia, seven operate in North America (including one that is dedicated to serving Asian automotive manufacturers) and one operates in Europe. Net sales of our consolidated joint ventures accounted for approximately 10% of our net sales in 2014. As of December 31, 2014, our investments in non-consolidated joint ventures totaled $172 million.

15


A summary of our non-consolidated operating joint ventures, including ownership percentages, is shown below. For further information related to our joint ventures, see Note 5, "Investments in Affiliates and Other Related Party Transactions," to the consolidated financial statements included in this Report.
Country
Name
Ownership
Percentage
China
Shanghai Lear STEC Automotive Parts Co., Ltd.
55%
China
Beijing BAI Lear Automotive Systems Co., Ltd.
50
China
Beijing Lear Automotive Electronics and Electrical Products Co., Ltd.
50
China
Jiangxi Jiangling Lear Interior Systems Co., Ltd.
50
China
Lear Dongfeng Automotive Seating Co., Ltd.
50
China
Changchun Lear FAWSN Automotive Electrical and Electronics Co., Ltd.
49
China
Changchun Lear FAWSN Automotive Seat Systems Co., Ltd.
49
China
Beijing Lear Dymos Automotive Systems Co., Ltd.
40
Honduras
Honduras Electrical Distribution Systems S. de R.L. de C.V.
49
India
Dymos Lear Automotive India Private Limited
35
Korea
Dong Kwang Lear Yuhan Hoesa
50
Spain
Industrias Cousin Freres, S.L.
50
United States
Kyungshin-Lear Sales and Engineering LLC
49
United States
eLumigen, LLC
30
United States
RevoLaze, LLC
20
United States
HB Polymer Company, LLC
10
ITEM 1A – RISK FACTORS
Our business, financial condition, operating results and cash flows may be impacted by a number of factors. In addition to the factors affecting our business identified elsewhere in this Report, the most significant factors affecting our operations include the following:
Our industry is cyclical and a decline in the production levels of our major customers, particularly with respect to models for which we are a significant supplier, could adversely affect our financial performance.
Our sales are driven by the number of vehicles produced by the automotive manufacturers, which is ultimately dependent on consumer demand for automotive vehicles, and our content per vehicle. The automotive industry is cyclical and sensitive to general economic conditions, including the global credit markets, interest rates, consumer credit and consumer spending and preferences. Automotive sales and production can also be affected by the age of the vehicle fleet and related scrappage rates, labor relations issues, fuel prices, regulatory requirements, government initiatives, trade agreements, 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, increased competition, changing consumer attitudes toward vehicle ownership and usage and other factors.
Our ability to reduce the risks inherent in certain concentrations of business, and thereby maintain our financial performance in the future, will depend, in part, on our ability to continue to diversify our sales on a customer, product, platform and geographic basis to reflect the market overall. While we are pursuing a strategy of aggressively expanding our sales and operations in Asia, no assurances can be given as to how successful we will be in doing so. As a result, an economic downturn or other adverse industry conditions that result in a decline in the production levels of our major customers, particularly with respect to models for which we are a significant supplier, could reduce our sales and thereby adversely affect our financial condition, operating results and cash flows. 
The loss of business with respect to, or the lack of commercial success of, a vehicle model for which we are a significant supplier could adversely affect our financial performance.
Although we receive purchase orders from our customers, these purchase orders generally provide for the supply of a customer’s annual requirements for a particular vehicle model and assembly plant, or in some cases, for the supply of a customer’s requirements for the life of a particular vehicle model, rather than for the purchase of a specific quantity of products. In addition, it is possible that our customers could elect to manufacture our products internally or increase the

16


extent to which they require us to utilize specific suppliers or materials in the manufacture of our products. The loss of business with respect to, the lack of commercial success of or an increase in directed component sourcing for a vehicle model for which we are a significant supplier could reduce our sales or margins and thereby adversely affect our financial condition, operating results and cash flows.
Our inability to achieve product cost reductions which offset customer-imposed price reductions could adversely affect our financial performance.
Downward pricing pressure by automotive manufacturers is a characteristic of the automotive industry. We regularly negotiate contracts and sales prices with our customers. These contracts require us to reduce our prices over the life of a vehicle model and, at the same time, assume significant responsibility for the design, development and engineering of our products. Our financial performance is largely dependent on our ability to achieve product cost reductions through product design enhancement and supply chain management, as well as manufacturing efficiencies and restructuring actions. We also seek to enhance our financial performance by investing in product development, design capabilities and new product initiatives that respond to the needs of our customers and consumers. We continually evaluate operational and strategic alternatives to align our business with the changing needs of our customers and improve our business structure by investing in vertical integration opportunities. Our inability to achieve product cost reductions which offset customer-imposed price reductions could adversely affect our financial condition, operating results and cash flows.
Increases in the costs and restrictions on the availability of raw materials, energy, commodities and product components could adversely affect our financial performance.
Raw material, energy and commodity costs can be volatile. Although we have developed and implemented strategies to mitigate the impact of higher raw material, energy and commodity costs, these strategies, together with commercial negotiations with our customers and suppliers, typically offset only a portion of the adverse impact. Certain of these strategies also may limit our opportunities in a declining commodity environment. In addition, the availability of raw materials, commodities and product components fluctuates from time to time due to factors outside of our control. If the costs of raw materials, energy, commodities and product components increase or the availability thereof is restricted, it could adversely affect our financial condition, operating results and cash flows.
Adverse developments affecting or the financial distress of one or more of our suppliers could adversely affect our financial performance.
We obtain components and other products and services from numerous Tier 2 automotive suppliers and other vendors throughout the world. We are responsible for managing our supply chain, including suppliers that may be the sole sources of products that we require, that our customers direct us to use or that have unique capabilities that would make it difficult and/or expensive to re-source. In certain instances, entire industries may experience short-term capacity constraints. Additionally, our production capacity, and that of our customers and suppliers, may be adversely affected by natural disasters. Any such significant disruption could adversely affect our financial performance. Furthermore, unfavorable economic or industry conditions could result in financial distress within our supply base, thereby increasing the risk of supply disruption. Although market conditions generally have improved in recent years, uncertainty remains and another economic downturn or other unfavorable industry conditions in one or more of the regions in which we operate could cause a supply disruption and thereby adversely affect our financial condition, operating results and cash flows.
Our substantial international operations make us vulnerable to risks associated with doing business in foreign countries.
As a result of our global presence, a significant portion of our revenues and expenses are denominated in currencies other than the U.S. dollar. We have substantial manufacturing and distribution facilities in many foreign countries, including Mexico and countries in Africa, Asia, Central and South America and Europe. International operations are subject to certain risks inherent in doing business abroad, including:
exposure to local economic conditions;
political, economic and civil instability and uncertainty (including acts of terrorism, civil unrest, drug-cartel related and other forms of violence and outbreaks of war);
labor unrest;
expropriation and nationalization;

17


currency exchange rate fluctuations, currency controls and the ability to economically hedge currencies;
withholding and other taxes on remittances and other payments by subsidiaries;
investment restrictions or requirements;
repatriation restrictions or requirements;
export and import restrictions and increases in duties and tariffs;
increases in working capital requirements related to long supply chains; and
global sovereign fiscal matters and creditworthiness, including potential defaults and the related impacts on economic activity, including the possible effects on credit markets, currency values, monetary unions, international treaties and fiscal policies.
Expanding our sales and operations in Asia and our manufacturing operations in lower-cost regions are important elements of our strategy. As a result, our exposure to the risks described above is substantial. The likelihood of such occurrences and their potential effect on us vary from country to country and are unpredictable. However, any such occurrences could adversely affect our financial condition, operating results and cash flows.
Certain of our operations are conducted through joint ventures which have unique risks.
Certain of our operations, particularly in emerging markets, are conducted through joint ventures. With respect to our joint ventures, we may share ownership and management responsibilities with one or more partners that may not share our goals and objectives. Operating a joint venture requires us to operate the business pursuant to the terms of the agreement that we entered into with our partners, including additional organizational formalities, as well as to share information and decision making. Additional risks associated with joint ventures include one or more partners failing to satisfy contractual obligations, conflicts arising between us and any of our partners, a change in the ownership of any of our partners and our limited ability to control compliance with applicable rules and regulations, including the Foreign Corrupt Practices Act and related rules and regulations. Additionally, our ability to sell our interest in a joint venture may be subject to contractual and other limitations. Accordingly, any such occurrences could adversely affect our financial condition, operating results and cash flows.
We operate in a highly competitive industry and efforts by our competitors to gain market share could adversely affect our financial performance.
We operate in a highly competitive industry. We and most of our competitors are seeking to expand market share with new and existing customers, including in Asia and other potential high growth regions. Our customers award business based on, among other things, price, quality, service and technology. Our competitors’ efforts to grow market share could exert downward pressure on our product pricing and margins. In addition, the success of portions of our business requires us to develop and/or incorporate leading technologies. Such technologies are subject to rapid obsolescence. Our inability to maintain access to these technologies (either through development or licensing) may adversely affect our ability to compete. If we are unable to differentiate our products or maintain a low-cost footprint, we may lose market share or be forced to reduce prices, thereby lowering our margins. Any such occurrences could adversely affect our financial condition, operating results and cash flows.
Our inability to effectively manage the timing, quality and costs of new program launches could adversely affect our financial performance.
In connection with the award of new business, we obligate ourselves to deliver new products and services that are subject to our customers’ timing, performance and quality standards. Additionally, as a Tier 1 supplier, we must effectively coordinate the activities of numerous suppliers in order for the program launches of our products to be successful. Given the complexity of new program launches, we may experience difficulties managing product quality, timeliness and associated costs. In addition, new program launches require a significant ramp up of costs; however, our sales related to these new programs generally are dependent upon the timing and success of our customers’ introduction of new vehicles. Our inability to effectively manage the timing, quality and costs of these new program launches could adversely affect our financial condition, operating results and cash flows.

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A significant labor dispute involving us or one or more of our customers or suppliers or that could otherwise affect our operations could adversely affect our financial performance.
A substantial number of our employees and the employees of our largest customers and suppliers are members of industrial trade unions and are employed under the terms of various labor agreements. We have labor agreements covering approximately 57,000 employees globally. In the United States and Canada, each of our unionized facilities has a separate collective bargaining agreement with the union that represents the workers at such facility, with each such agreement having an expiration date that is independent of the other agreements. Labor agreements covering approximately 79% of our unionized work force, including approximately 1% of our unionized workforce in the United States and Canada, are scheduled to expire during 2015. There can be no assurances that future negotiations with the unions will be resolved favorably or that we will not experience a work stoppage or disruption that could adversely affect our financial condition, operating results and cash flows. A labor dispute involving us, any of our customers or suppliers or any other suppliers to our customers or that otherwise affects our operations, or the inability by us, any of our customers or suppliers or any other suppliers to our customers to negotiate, upon the expiration of a labor agreement, an extension of such agreement or a new agreement on satisfactory terms could adversely affect our financial condition, operating results and cash flows. In addition, if any of our significant customers experience a material work stoppage, the customer may halt or limit the purchase of our products. This could require us to shut down or significantly reduce production at facilities relating to such products, which could adversely affect our business and harm our profitability.
Our existing indebtedness and the inability to access capital markets could restrict our business activities or our ability to execute our strategic objectives or adversely affect our financial performance.
As of December 31, 2014, we had approximately $1.7 billion of outstanding indebtedness, as well as $1.25 billion available for borrowing under our revolving credit facility. The debt instruments governing our indebtedness contain covenants that may restrict our business activities or our ability to execute our strategic objectives, and our failure to comply with these covenants could result in a default under our indebtedness. We also lease certain buildings and equipment under non-cancelable lease agreements with terms exceeding one year, which are accounted for as operating leases. Additionally, any downgrade in the ratings that rating agencies assign to us and our debt may ultimately impact our access to capital markets. Our inability to generate sufficient cash flow to satisfy our debt and lease obligations, to refinance our debt obligations or to access capital markets on commercially reasonable terms could adversely affect our financial condition, operating results and cash flows.
Significant changes in discount rates, the actual return on pension assets and other factors could adversely affect our financial performance.
Our earnings may be positively or negatively impacted by the amount of income or expense recorded related to our defined benefit plans. Accounting principles generally accepted in the United States require that income or expense related to the defined benefit plans be calculated at the annual measurement date using actuarial calculations, which reflect certain assumptions. The most significant of these assumptions relate to interest rates, the capital markets and other economic conditions. These assumptions, as well as the actual value of pension assets at the measurement date, will impact the calculation of pension and other postretirement benefit expense for the year. Although pension expense and pension contributions are not directly related, the key economic indicators that affect pension expense also affect the amount of cash that we will contribute to our pension plans. Because interest rates and the values of these pension assets have fluctuated and will continue to fluctuate in response to changing market conditions, pension and other postretirement benefit expense in subsequent periods, the funded status of our pension plans and the future minimum required pension contributions, if any, could adversely affect our financial condition, operating results and cash flows.
Impairment charges relating to our goodwill and long-lived assets could adversely affect our financial performance.
We regularly monitor our goodwill and long-lived assets for impairment indicators. In conducting our goodwill impairment testing, we may first perform a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If not, no further goodwill impairment testing is required. If it is more likely than not that a reporting unit’s fair value is less than its carrying amount, or if we elect not to perform a qualitative assessment of a reporting unit, we then compare the fair value of the reporting unit to the related net book value. If the net book value of a reporting unit exceeds its fair value, an impairment loss is measured and recognized. In conducting our impairment analysis of long-lived assets, we compare the undiscounted cash flows expected to be generated from the long-lived assets to the related net book values. Changes in economic or operating conditions impacting our estimates and assumptions could result in the impairment of our goodwill or long-lived assets. In the event that we determine that our goodwill or long-lived assets are impaired, we may be required to record a significant charge to earnings that could adversely affect our financial condition and operating results.

19


Our failure to execute our strategic objectives could adversely affect our financial performance.
Our financial performance depends, in part, on our ability to successfully execute our strategic objectives. Our strategy is to deliver superior long-term shareholder value by investing in our business to grow and improve our competitive position, while maintaining a strong and flexible balance sheet and returning cash to our shareholders. Specific elements of this strategy have been the restructuring of our manufacturing and engineering footprint to improve our competitive position, the expansion of our component capabilities through organic investment and acquisitions, growth in new and emerging markets and support of our customers' growth and global platform initiatives and the increased diversification of our business with a more balanced regional, customer and vehicle segment mix. Various factors, including the industry environment and the other matters described herein and in Part II — Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," including "— Forward-Looking Statements," could adversely affect our ability to execute our strategic objectives. With respect to investments, these risks include our failure to identify suitable opportunities for organic investment and/or acquisitions, our inability to successfully develop such opportunities or complete such acquisitions or our inability to successfully utilize or integrate the investments in our operations. Our failure to execute our strategic objectives could adversely affect our financial condition, operating results and cash flows. Moreover, there can be no assurances that, even if implemented, our strategic objectives will be successful.
A disruption in our information technology systems, including a disruption related to cybersecurity, could adversely affect our financial performance.
We rely on the accuracy, capacity and security of our information technology systems. Despite the security measures that we have implemented, including those measures related to cybersecurity, our systems could be breached or damaged by computer viruses, natural or man-made incidents or disasters or unauthorized physical or electronic access. A breach could result in business disruption, theft of our intellectual property, trade secrets or customer information and unauthorized access to personnel information. To the extent that our business is interrupted or data is lost, destroyed or inappropriately used or disclosed, such disruptions could adversely affect our competitive position, relationships with our customers, financial condition, operating results and cash flows. In addition, we may be required to incur significant costs to protect against the damage caused by these disruptions or security breaches in the future.
A significant product liability lawsuit, warranty claim or product recall involving us or one of our major customers could adversely affect our financial performance.
In the event that our products fail to perform as expected, whether allegedly due to our fault or that of one of our sub-suppliers, and such failure results in, or is alleged to result in, bodily injury and/or property damage or other losses, we may be subject to product liability lawsuits and other claims or we may be required or requested by our customers to participate in a recall or other corrective action involving such products. We also are a party to agreements with certain of our customers, whereby these customers may pursue claims against us for contribution of all or a portion of the amounts sought in connection with product liability and warranty claims. We carry insurance for certain product liability claims, but such coverage may be limited. We do not maintain insurance for product warranty or recall matters. In addition, we may not be successful in recovering amounts from third parties, including sub-suppliers, in connection with these claims. These types of claims could adversely affect our financial condition, operating results and cash flows.
We are involved from time to time in various legal and regulatory proceedings and claims, which could adversely affect our financial performance.
We are involved in various legal and regulatory proceedings and claims that, from time to time, are significant. These are typically claims that arise in the normal course of business including, without limitation, commercial or contractual disputes, including disputes with our customers, suppliers or competitors, intellectual property matters, personal injury claims, environmental matters, tax matters, employment matters and antitrust matters. No assurances can be given that such proceedings and claims will not adversely affect our financial condition, operating results and cash flows.
 New laws or regulations or changes in existing laws or regulations could adversely affect our financial performance.
We and the automotive industry are subject to a variety of federal, state, local and foreign laws and regulations, including those related to health, safety and environmental matters. Governmental regulations also affect taxes and levies, capital markets, healthcare costs, energy usage, international trade and immigration and other labor issues, all of which may have a direct or indirect effect on our business and the businesses of our customers and suppliers. We cannot predict the substance or impact of pending or future legislation or regulations, or the application thereof. The introduction of new laws or regulations or changes in existing laws or regulations, or the interpretation thereof, could increase the costs of doing business for us or our customers or suppliers or restrict our actions and adversely affect our financial condition, operating results and cash flows.

20


We are subject to regulation of our international operations that could adversely affect our financial performance.
We are subject to many laws governing our international operations, including those that prohibit improper payments to government officials and restrict where we can do business and what information or products we can supply to certain countries, including but not limited to the Foreign Corrupt Practices Act and the U.S. Export Administration Act. Violations of these laws, which are complex and often difficult to interpret and apply, could result in significant criminal penalties or sanctions that could adversely affect our business, financial condition, operating results and cash flows.
We are required to comply with environmental laws and regulations that could cause us to incur significant costs.
Our manufacturing facilities are subject to numerous laws and regulations designed to protect the environment, and we expect that additional requirements with respect to environmental matters will be imposed on us in the future.
Material future expenditures may be necessary if compliance standards change or material unknown conditions that require remediation are discovered. Environmental laws could also restrict our ability to expand our facilities or could require us to acquire costly equipment or to incur other significant expenses in connection with our business. If we fail to comply with present and future environmental laws and regulations, we could be subject to future liabilities, which could adversely affect our financial condition, operating results and cash flows.
Developments or assertions by or against us relating to intellectual property rights could adversely affect our financial performance.
We own significant intellectual property, including a large number of patents, trademarks, copyrights and trade secrets, and we are involved in numerous licensing arrangements. Our intellectual property plays an important role in maintaining our competitive position in a number of the markets that we serve. Developments or assertions by or against us relating to intellectual property rights could adversely affect our financial condition, operating results and cash flows.
Our U.S. net operating loss, capital loss and tax credit carryforwards could be substantially limited if we experience an ownership change as defined in the Internal Revenue Code.
We have significant U.S. net operating loss, capital loss and tax credit carryforwards (collectively, the "Tax Attributes"). Under federal tax laws, we can carry forward and use our Tax Attributes to reduce our future U.S. taxable income and tax liabilities until such Tax Attributes expire in accordance with the Internal Revenue Code of 1986, as amended (the "IRC"). Section 382 and Section 383 of the IRC provide an annual limitation on our ability to utilize our Tax Attributes, as well as certain built-in-losses, against future U.S. taxable income in the event of a change in ownership, as defined under the IRC. We may experience a change in ownership in the future as a result of changes in our stock ownership that are beyond our control, and any such subsequent changes in ownership for purposes of the IRC could further limit our ability to use our Tax Attributes. Accordingly, any such occurrences could adversely affect our financial condition, operating results and cash flows.
ITEM 1B – UNRESOLVED STAFF COMMENTS
None.

21


ITEM 2 – PROPERTIES
As of December 31, 2014, our operations were conducted through 219 facilities, some of which are used for multiple purposes, including 81 just-in-time manufacturing facilities, 104 dedicated component manufacturing facilities, 5 sequencing and distribution sites, 23 administrative/technical support facilities and 6 advanced technology centers, in 34 countries. Our corporate headquarters is located in Southfield, Michigan.
Of our 219 total facilities, which include facilities owned or leased by our consolidated subsidiaries, 92 are owned and 127 are leased with expiration dates ranging from 2015 through 2053. We believe that substantially all of our property and equipment is in good condition and that we have sufficient capacity to meet our current and expected manufacturing and distribution needs. See Part II — Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Financial Condition."
SEATING
Argentina
Czech Republic
Indonesia
Mexico (continued)
South Africa
United States
Escobar, BA
Kolin
Cikarang
San Felipe, GU
East London
Arlington, TX
Ferreyra, CBA
Stribro
Italy
San Luis Potosi, SL
Port Elizabeth
Columbia City, IN
Brazil
France
Caivano, NA
Silao, GO
Rosslyn
Detroit, MI
Betim
Cergy
Cassino, FR
Toluca, MX
South Korea
Duncan, SC
Caçapava
Feignies
Grugliasco, TO
Villa Ahumada, CH
Gyeongju
Farwell, MI
Camaçari
Guipry
Melfi, PZ
Moldova
Spain
Hammond, IN
Gravatai
Troisvilles
Pozzo d’Adda, MI
Ungheni
Barcelona
Hebron, OH
Joinville
Germany
Malaysia
Morocco
Epila
Highland Park, MI
Pernambuco
Besigheim
Behrang Stesen
Tangier
Valdemoro
Louisville, KY
Canada
Bremen
Klang
Poland
Valencia
Kenansville, NC
Ajax, ON
Eisenach
Mexico
Legnica
Thailand
Montgomery, AL
Kitchener, ON
Ginsheim-
Aguascalientes, AG
Jaroslaw
Mueang Nakhon
Morristown, TN
Whitby, ON
Gustavsburg
Cuautlancingo, PU
Tychy
Ratchasima
Pine Grove, PA
China
Rietberg
Hermosillo, SO
Romania
Rayong
Rochester Hills, MI
Changchun
Wackersdorf
Juarez, CH
Iasi
United Kingdom
Roscommon, MI
Changshu
Sindelfingen
Mexico City, DF
Russia
Alfreton
Selma, AL
Chongqing
Hungary
Monclova, CO
Kaluga
Coventry
Tuscaloosa, AL
Liuzhou
Györ
Nuevo Casas
Nizhny Novgorod
Redditch
Wentzville, MO
Nanjing
Mór
Grandes, CH
St. Petersburg
Sunderland
Vietnam
Rui’an
India
Panzacola, TL
Slovak Republic
 
Hai Phong City
Shanghai
Chennai
Piedras Negras, CO
Presov
 
 
Shenyang
Halol
Ramos Arizpe, CO
Senec
 
 
Wuhan
Nasik
Saltillo, CO
 
 
 
Wuhu
Pune
 
 
 
 
 
 
 
 
 
 
ELECTRICAL
Argentina
Czech Republic
Honduras
Morocco
Romania
Thailand
Pacheco, BA
Vyskov
Naco
Kenitra
Campulung
Kabin Buri
Brazil
France
Hungary
Salé Al-Jadida
Pitesti
Tunisia
Navegantes
Hordain
Gödöllö
Tangier
Russia
Bir El Bey
China
Sandouville
Gyöngyös
Philippines
Volokolamsk
United States
Chongqing
Germany
India
LapuLapu City
South Africa
Plymouth, IN
Nanjing
Bersenbrueck
Pune
Poland
Port Elizabeth
Taylor, MI
Wuhan
Kronach
Mexico
Mielec
Spain
Traverse City, MI
Yangzhou
Saarlouis
Apodaca, NL
 
Almussafes
 
 
Wismar
Chihuahua, CH
 
Valls
 
 
 
Juarez, CH
 
 
 
 
ADMINISTRATIVE/TECHNICAL
Australia
France
Germany (continued)
Japan
Philippines
Sweden
Essendon Fields
Vélizy-
Schwaig-Oberding
Hiroshima
LapuLapu City
Gothenburg
Brazil
Villacoublay
Sindelfingen
Kariya
Singapore
United Kingdom
São Paulo
Germany
Wolfsburg
Yokohama
South Korea
Coventry
China
Cologne
India
Mexico
Seoul
United States
Shanghai
Ginsheim-
Pune
Mexico City
Spain
El Paso, TX
Czech Republic
Gustavsburg
Italy
Netherlands
Valls
Southfield, MI
Brno
Remscheid
Grugliasco, TO
Hilversum
 
Wilmington, NC
Pilsen
 
 
 
 
 
 
 
 
 
 
 

22


ITEM 3 – LEGAL PROCEEDINGS
Legal and Environmental Matters
We are involved from time to time in various legal proceedings and claims, including, without limitation, commercial or contractual disputes, product liability claims and environmental and other matters. For a description of risks related to various legal proceedings and claims, see Item 1A, "Risk Factors." For a description of our outstanding material legal proceedings, see Note 11, "Commitments and Contingencies," to the consolidated financial statements included in this Report.
ITEM 4 – MINE SAFETY DISCLOSURES
None.
SUPPLEMENTARY ITEM – EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the names, ages and positions of our executive officers. Executive officers are appointed annually by our Board of Directors and serve at the pleasure of our Board.
Name
Age
Position
Shari L. Burgess
56
Vice President, Treasurer and Chief Diversity Officer
Thomas A. DiDonato
56
Senior Vice President, Human Resources
Wendy L. Foss
57
Vice President, Corporate Controller and Chief Accounting Officer
Jay K. Kunkel
55
Senior Vice President and President, Asia-Pacific Operations
Terrence B. Larkin
60
Executive Vice President, Business Development, General Counsel and Corporate Secretary
Frank C. Orsini
42
Senior Vice President and President, Electrical
Raymond E. Scott
49
Executive Vice President and President, Seating
Matthew J. Simoncini
54
President and Chief Executive Officer
Melvin L. Stephens
59
Senior Vice President, Communications, Facilities and Corporate & Investor Relations
Jeffrey H. Vanneste
55
Senior Vice President and Chief Financial Officer
Set forth below is a description of the business experience of each of our executive officers.
Shari L. Burgess
Ms. Burgess is the Company’s Vice President, Treasurer and Chief Diversity Officer, a position she has held since January 2014. Previously, Ms. Burgess served as the Company’s Vice President and Treasurer since August 2002 and in various financial roles since joining the Company in 1992. Prior to joining the Company, Ms. Burgess served as the corporate controller for Victor International Corporation and as an audit manager for Ernst & Young LLP.
 
 
Thomas A. DiDonato
Mr. DiDonato is the Company’s Senior Vice President, Human Resources, a position he has held since April 2012. Prior to joining the Company, Mr. DiDonato served as Executive Vice President, Human Resources for American Eagle Outfitters, Inc. since 2005, Chief People Officer for H.J. Heinz since 2004 and Senior Vice President, Human Resources for Heinz North America since 2001. Earlier experiences include directing human resources for a $14 billion division of Merck & Co. and heading worldwide staffing for Pepsico. Mr. DiDonato began his career with a General Foods Corporation brand and moved up to manage the personnel at its largest manufacturing facility.
 
 
Wendy L. Foss
Ms. Foss is the Company’s Vice President, Corporate Controller and Chief Accounting Officer, a position she has held since September 2011. Ms. Foss previously served as the Company’s Vice President and Corporate Controller since November 2007, Vice President and Chief Compliance Officer from January 2007 until February 2009, Vice President, Audit Services since September 2007, Vice President, Finance and Administration and Corporate Secretary since May 2007, Vice President, Finance and Administration and Deputy Corporate Secretary since September 2006, Vice President, Accounting since July 2006, Assistant Controller since June 2003 and prior to 2003, in financial management positions for the Company and UT Automotive, Inc. and as an audit manager for Coopers & Lybrand.
 
 

23


Jay K. Kunkel
Mr. Kunkel is the Company’s Senior Vice President and President, Asia-Pacific Operations, a position he has held since June 2013. Prior to joining the Company, Mr. Kunkel served as President Asia and as a Member of the Automotive Management Board for Continental A.G. since December 2007 and initially joined Continental A.G. in February 2005. Prior to joining Continental A.G., Mr. Kunkel served as a Director for SRP International Group Ltd. and held various positions of increasing responsibility at PricewaterhouseCoopers, Visteon, Mitsubishi and Chrysler.
 
 
Terrence B. Larkin
Mr. Larkin is the Company’s Executive Vice President, Business Development, General Counsel and Corporate Secretary, a position he has held since November 2011. Mr. Larkin previously served as the Company’s Senior Vice President, General Counsel and Corporate Secretary since January 2008. Prior to joining the Company, Mr. Larkin was a partner since 1986 of Bodman PLC, a Detroit-based law firm. Mr. Larkin served on the executive committee of Bodman PLC and was the chairman of its business law practice group. Mr. Larkin’s practice was focused on general corporate, commercial transactions and mergers and acquisitions.
 
 
Frank C. Orsini
Mr. Orsini is the Company’s Senior Vice President and President, Electrical, a position he has held since September 2012. Mr. Orsini most recently served as the Company’s Vice President and Interim President, Electrical since October 2011. Previously, he served as the Company’s Vice President, Operations, Electrical since 2009, Vice President, Sales, Program Management & Manufacturing, Electrical since 2008, Vice President, North America Seating Operations since 2005 and in various other management positions for the Company since 1994.
 
 
Raymond E. Scott
Mr. Scott is the Company’s Executive Vice President and President, Seating, a position he has held since November 2011. Mr. Scott most recently served as the Company’s Senior Vice President and President, Electrical since February 2008. Previously, he served as the Company’s Senior Vice President and President, North American Seat Systems Group since August 2006, Senior Vice President and President, North American Customer Group since June 2005, President, European Customer Focused Division since June 2004 and President, General Motors Division since November 2000.
 
 
Matthew J. Simoncini
Mr. Simoncini is the Company’s President and Chief Executive Officer, a position he has held since September 2011. Mr. Simoncini most recently served as the Company’s Senior Vice President and Chief Financial Officer since 2007. Previously, he served as the Company’s Senior Vice President, Finance and Chief Accounting Officer since August 2006, Vice President, Global Finance since February 2006, Vice President of Operational Finance since June 2004, Vice President of Finance — Europe since 2001 and prior to 2001, in various senior financial management positions for the Company and UT Automotive, Inc.
 
 
Melvin L. Stephens
Mr. Stephens is the Company’s Senior Vice President, Communications, Facilities and Corporate & Investor Relations, a position he has held since April 2012. Mr. Stephens most recently served as the Company’s Senior Vice President, Communications, Human Resources and Investor Relations since September 2009. Previously, he served as the Company’s Vice President of Corporate Communications and Investor Relations since January 2002. Prior to joining the Company, Mr. Stephens worked for Ford Motor Company for 23 years and held various leadership positions in finance, business planning, corporate strategy, communications, sales and marketing and investor relations.
 
 
Jeffrey H. Vanneste
Mr. Vanneste is the Company’s Senior Vice President and Chief Financial Officer, a position he has held since March 2012. Prior to joining the Company, Mr. Vanneste served as Executive Vice President and Chief Financial Officer for International Automotive Components Group ("IAC") since January 2011 and as Chief Financial Officer for IAC North America since March 2007. Prior to joining IAC, Mr. Vanneste worked with the Company in positions of increasing responsibility over 15 plus years including: Vice President of Finance, European Operations, Vice President of Corporate Business Planning and Analysis, Vice President of Finance, Seating and Vice President of Finance for the Ford and GM Divisions. Prior to joining the Company in October 1991, he served as the assistant controller for Champagne-Webber, Inc. and as an audit senior for Coopers & Lybrand.

24


PART II
ITEM 5 – MARKET FOR THE COMPANY’S COMMON EQUITY,
RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is listed on the New York Stock Exchange under the symbol "LEA."
The high and low sales prices per share of our common stock, based on the daily closing price as reported on the New York Stock Exchange, and the amount of our dividend declarations for 2014 and 2013 are shown below:
2014
Price Range of
Common Stock
 
Cash
Dividend Per Share
 
High
 
Low
 
4th Quarter
$
99.71

 
$
78.22

 
$
0.20

3rd Quarter
103.28

 
89.32

 
0.20

2nd Quarter
91.51

 
80.46

 
0.20

1st Quarter
84.02

 
71.97

 
0.20

2013
Price Range of
Common Stock
 
Cash
Dividend Per Share
 
High
 
Low
 
4th Quarter
$
83.11

 
$
70.31

 
$
0.17

3rd Quarter
73.00

 
61.19

 
0.17

2nd Quarter
61.03

 
50.98

 
0.17

1st Quarter
56.46

 
47.14

 
0.17

Dividends
Our Board of Directors declared quarterly cash dividends of $0.20 and $0.17 per share of common stock in 2014 and 2013, respectively.
We currently expect to pay quarterly cash dividends in the future, although such payments are at the discretion of our Board of Directors and will depend upon our financial condition, results of operations, capital requirements, alternative uses of capital and other factors that our Board of Directors may consider at its discretion. In addition, our amended and restated credit agreement and the indenture governing our senior unsecured notes due 2020 place certain limitations on the payment of cash dividends. See Part II — Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements," and Note 6, "Debt," to the consolidated financial statements included in this Report.
Holders of Common Stock
The Transfer Agent and Registrar for our common stock is Computershare Trust Company, N.A., located in Canton, Massachusetts. On February 5, 2015, there were 101 registered holders of record of our common stock.
For certain information regarding our equity compensation plans, see Part III — Item 12, "Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters — Equity Compensation Plan Information."
Common Stock Share Repurchase Program
Since the first quarter of 2011, our Board of Directors has authorized $2.25 billion in share repurchases under our common stock share repurchase program. On April 25, 2013, we entered into an accelerated stock repurchase ("ASR") agreement to repurchase $800 million of our common stock. On March 31, 2014, the ASR agreement ended, and on April 14, 2014, we paid approximately $55 million in cash to settle the transaction. Following the settlement of the ASR transaction, we completed an additional $356 million of share repurchases, and as of December 31, 2014, we have a remaining repurchase authorization of $339 million, which will expire in April 2016.


25


We may implement our share repurchases through a variety of methods, including open market purchases, accelerated stock repurchase programs and structured repurchase transactions. The extent to which we will repurchase our outstanding common stock and the timing of such repurchases will depend upon our financial condition, prevailing market conditions, alternative uses of capital and other factors. In addition, our amended and restated credit agreement and the indenture governing our senior unsecured notes due 2020 place certain limitations on the repurchase of common shares. See Part II — Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements," Note 6, "Debt," and Note 9, "Capital Stock and Equity," to the consolidated financial statements included in this Report.

As of the date of this Report, we have paid $1.9 billion in aggregate for repurchases of our outstanding common stock, at an average price of $61.97 per share, excluding commissions and related fees, since the first quarter of 2011. A summary of the shares of our common stock repurchased during the fiscal quarter ended December 31, 2014, 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)
(1)
 
September 28, 2014 through November 1, 2014
213,410

 
$
91.10

 
213,410

 
$
471.2

 
November 2, 2014 through November 29, 2014
921,209

 
93.54

 
921,209

 
385.0

 
November 30, 2014 through December 31, 2014
489,400

 
94.78

 
489,400

 
338.6

 
Total
1,624,019

 
$
93.59

 
1,624,019

 
$
338.6

(2) 
(1)
Reflects the two-year common stock share repurchase authorization of $750 million, which commenced immediately following the completion of the ASR program referred to above.
(2)
Remaining authorization as of December 31, 2014.
Performance Graph
The following graph compares the cumulative total stockholder return from December 31, 2009, through December 31, 2014, for our common stock, the S&P 500 Index and a peer group(1) of companies that we have selected for purposes of this comparison. We have assumed that dividends have been reinvested, and the returns of each company in the S&P 500 Index and the peer group have been weighted to reflect relative stock market capitalization. The graph below assumes that $100 was invested on December 31, 2009, in each of our common stock, the stocks comprising the S&P 500 Index and the stocks comprising the peer group.
 
December 31,
2009
 
December 31,
2010
 
December 31,
2011
 
December 31,
2012
 
December 31,
2013
 
December 31,
2014
Lear Corporation
$
100.00

 
$
145.93

 
$
118.93

 
$
141.90

 
$
247.89

 
$
302.90

S&P 500
$
100.00

 
$
115.06

 
$
117.48

 
$
136.26

 
$
180.38

 
$
205.05

Peer Group (1)
$
100.00

 
$
169.66

 
$
131.73

 
$
159.01

 
$
257.61

 
$
289.51

(1)
We do not believe that there is a single published industry or line of business index that is appropriate for comparing stockholder returns. As a result, we have selected a peer group comprised of representative independent automotive

26


suppliers whose common stock is publicly traded. Our peer group, referenced in the graph above, consists of American Axle & Manufacturing Holdings Inc., BorgWarner Inc., Dana Holding Corporation, Delphi Automotive PLC, Federal-Mogul Corporation, Gentex Corp., Johnson Controls, Inc., Magna International, Inc., Superior Industries International, Inc., Tenneco Inc., TRW Automotive Holdings Corp. and Visteon Corporation. Delphi Automotive PLC completed an initial public offering in 2011 and has been included in the peer group calculation beginning January 1, 2012. Visteon Corporation emerged from bankruptcy proceedings in 2010 and has been included in the peer group calculation beginning January 1, 2011.
ITEM 6 – SELECTED FINANCIAL DATA
The following statement of operations, statement of cash flows and balance sheet data were derived from our consolidated financial statements. Our consolidated financial statements for the years ended December 31, 2014, 2013, 2012, 2011 and 2010, have been audited by Ernst & Young LLP. The selected financial data below should be read in conjunction with Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations," and our consolidated financial statements and the notes thereto included in this Report.
For the year ended December 31,
2014 (1)
 
2013 (2)
 
2012 (3)
 
2011 (4)
 
2010 (5)
Statement of Operations: (in millions)
 
 
 
 
 
 
 
 
 
Net sales
$
17,727.3

 
$
16,234.0

 
$
14,567.0

 
$
14,156.5

 
$
11,954.6

Gross profit
1,492.8

 
1,299.7

 
1,217.5

 
1,193.2

 
1,018.3

Selling, general and administrative expenses
529.9

 
528.7

 
479.3

 
485.6

 
452.7

Amortization of intangible assets
33.7

 
34.4

 
33.0

 
28.0

 
27.2

Interest expense
67.5

 
68.4

 
49.9

 
39.7

 
55.4

Other expense, net (6)
74.3

 
58.1

 
6.4

 
24.2

 
34.2

Consolidated income before provision (benefit) for income taxes and equity in net income of affiliates
787.4


610.1


648.9


615.7


448.8

Provision (benefit) for income taxes
121.4

 
192.7

 
(638.0
)
 
68.8

 
24.6

Equity in net income of affiliates
(36.3
)
 
(38.4
)
 
(30.3
)
 
(23.5
)
 
(37.2
)
Consolidated net income
702.3

 
455.8

 
1,317.2

 
570.4

 
461.4

Net income attributable to noncontrolling interests
29.9

 
24.4

 
34.4

 
29.7

 
23.1

Net income attributable to Lear
$
672.4

 
$
431.4

 
$
1,282.8

 
$
540.7

 
$
438.3

For the year ended December 31,
2014 (1)
 
2013 (2)
 
2012 (3)
 
2011 (4)
 
2010 (5)
Statement of Operations Data:
 
 
 
 
 
 
 
Basic net income per share attributable to Lear
$
8.39

 
$
5.07

 
$
13.04

 
$
5.21

 
$
4.30

Diluted net income per share attributable to Lear
$
8.23

 
$
4.99

 
$
12.85

 
$
5.08

 
$
4.05

Weighted average shares outstanding – basic
80,187,516

 
85,094,889

 
98,388,228

 
103,750,223

 
94,814,044

Weighted average shares outstanding – diluted
81,728,479

 
86,415,786

 
99,825,686

 
106,344,367

 
108,122,150

Dividends per share
$
0.80

 
$
0.68

 
$
0.56

 
$
0.50

 
$

Statement of Cash Flows Data: (in millions)
 
 
 
 
 
 
 
 
 
Cash flows from operating activities
$
927.8

 
$
820.1

 
$
729.8

 
$
790.3

 
$
621.9

Cash flows from investing activities
(780.6
)
 
(403.9
)
 
(687.9
)
 
(303.2
)
 
(192.1
)
Cash flows from financing activities
(160.8
)
 
(698.5
)
 
(396.1
)
 
(372.3
)
 
(320.7
)
Capital expenditures
424.7

 
460.6

 
458.3

 
329.5

 
193.3

Other Data (unaudited):
 
 
 
 
 
 
 
 
 
Ratio of earnings to fixed charges (7)
8.4x

 
6.8x

 
8.7x

 
10.1x

 
6.6x


27


As of or for the year ended December 31,
2014
 
2013
 
2012
 
2011
 
2010
Balance Sheet Data: (in millions)
 
 
 
 
 
 
 
 
 
Current assets
$
5,379.6

 
$
4,922.5

 
$
4,873.5

 
$
4,761.5

 
$
4,385.5

Total assets
9,150.2

 
8,330.9

 
8,194.1

 
7,010.9

 
6,621.1

Current liabilities
3,957.8

 
3,579.1

 
3,216.9

 
3,063.5

 
2,818.5

Long-term debt
1,475.0

 
1,057.1

 
626.3

 
695.4

 
694.9

Equity
3,029.3

 
3,149.5

 
3,612.2

 
2,561.1

 
2,568.8

Other Data (unaudited):
 
 
 
 
 
 
 
 
 
Employees at year end
125,200

 
122,300

 
113,400

 
97,830

 
83,393

North American content per vehicle (8)
$
399

 
$
377

 
$
370

 
$
381

 
$
339

North American vehicle production (in millions) (9)
17.0

 
16.2

 
15.4

 
13.1

 
11.9

European content per vehicle (10)
$
341

 
$
315

 
$
283

 
$
317

 
$
284

European vehicle production (in millions) (11)
20.5

 
19.8

 
19.6

 
20.4

 
19.3

(1)
Results include $115.3 million of restructuring and related manufacturing inefficiency charges (including $0.5 million of fixed asset impairment charges), $5.3 million of transaction costs, $17.9 million loss on the extinguishment of debt, $0.8 million of losses related to affiliates and $149.1 million of net tax benefits primarily related to reductions in valuation allowances with respect to the deferred tax assets of certain foreign subsidiaries, reductions in tax reserves due to audit settlements, debt redemption costs, restructuring charges and various other items.
(2)
Results include $83.8 million of restructuring and related manufacturing inefficiency charges (including $9.2 million of fixed asset impairment charges), $3.0 million of costs related to a proxy contest, $7.3 million of losses and incremental costs related to the destruction of assets caused by a fire at one of our European production facilities, $3.6 million loss on the partial extinguishment of debt and $27.8 million of net tax benefits primarily related to restructuring, net changes in valuation allowances with respect to the deferred tax assets of certain foreign subsidiaries, the retroactive reinstatement of the U.S. research and development tax credit by the American Taxpayer Relief Act of 2012, which was signed into law on January 2, 2013, and various other items.
(3)
Results include $55.6 million of restructuring and related manufacturing inefficiency charges (including $6.0 million of fixed asset impairment charges), $6.2 million of transaction costs, primarily related to advisory services for the acquisition of Guilford Mills, $10.1 million of fees and expenses related to our capital restructuring and other related matters, ($41.1) million of insurance recoveries, net of losses and incremental costs, related to the destruction of assets caused by a fire at one of our European production facilities, $5.1 million of gains related to affiliates, a $3.7 million loss on the partial extinguishment of debt and $764.4 million of net tax benefits primarily related to the reversal of a valuation allowance on our deferred tax assets in the United States, as well as changes in valuation allowances in certain foreign countries, reductions in tax reserves due to audit settlements and various other items.
(4)
Results include $70.9 million of restructuring and related manufacturing inefficiency charges (including $1.0 million of fixed asset impairment charges), $19.3 million of fees and expenses related to our capital restructuring and other related matters, $10.6 million of losses and incremental costs, net of insurance recoveries, related to the destruction of assets caused by a fire at one of our European production facilities, $5.8 million of gains related to affiliate transactions and $70.4 million of tax benefits primarily related to the reversal of full valuation allowances on the deferred tax assets of three foreign subsidiaries, as well as restructuring and various other items.
(5)
Results include $69.0 million of restructuring and related manufacturing inefficiency charges (including $3.6 million of fixed asset impairment charges), $21.7 million of fees and expenses related to our capital restructuring and other related matters, an $11.8 million loss on the extinguishment of debt resulting from the write-off of unamortized debt issuance costs and $51.6 million of tax benefits related to reductions in recorded tax reserves and various other items.
(6)
Includes non-income related taxes, foreign exchange gains and losses, gains and losses related to certain derivative instruments and hedging activities, gains and losses on the extinguishment of debt, gains and losses on the disposal of fixed assets and other miscellaneous income and expense.

28


(7)
"Fixed charges" consist of interest on debt, amortization of deferred financing fees and that portion of rental expenses representative of interest. "Earnings" consist of consolidated income before provision (benefit) for income taxes and equity in the undistributed net income of affiliates and fixed charges.
(8)
"North American content per vehicle" is our net sales in North America divided by estimated total North American vehicle production. Content per vehicle data excludes business conducted through non-consolidated joint ventures. Content per vehicle data for 2013 has been updated to reflect actual production levels.
(9)
"North American vehicle production" includes car and light truck production for vehicle weights up to 3.5 tons in the United States, Canada and Mexico as provided by IHS Automotive for 2014, 2013 and 2012 and Ward’s Automotive for 2011 and 2010. Production data for 2013 has been updated to reflect actual production levels.
(10)
"European content per vehicle" is our net sales in Europe and Africa divided by estimated total European and African vehicle production. Content per vehicle data excludes business conducted through non-consolidated joint ventures. Content per vehicle data for 2013 has been updated to reflect actual production levels.
(11)
"European vehicle production" includes car and light truck production for vehicle weights up to 3.5 tons in Austria, Belarus, Belgium, Bosnia, Bulgaria, Czech Republic, Finland, France, Germany, Hungary, Italy, Morocco, Netherlands, Norway, Poland, Portugal, Romania, Russia, Serbia, Slovakia, Slovenia, South Africa, Spain, Sweden, Turkey, Ukraine and the United Kingdom as provided by IHS Automotive. Production data for 2013 has been updated to reflect actual production levels.

29


ITEM 7 – MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Executive Overview
We are a leading Tier 1 supplier to the global automotive industry. Our business spans all major automotive markets, and we supply seating and electrical distribution systems and related components to virtually every major automotive manufacturer in the world.
Our seating business consists of the design, development, engineering, just-in-time assembly and delivery of complete seat systems, as well as the design, development, engineering and manufacture of all major seat components, including seat structures and mechanisms, seat covers and surface materials such as fabric and leather, seat foam and headrests. Our electrical business consists of the design, development, engineering and manufacture of complete electrical distribution systems that route electrical signals and manage electrical power within a vehicle. Key components of our electrical business include wiring harnesses, terminals and connectors, junction boxes, battery chargers, electronic control modules and wireless control devices.
Our core capabilities are shared across component categories in both of our businesses, including high-precision manufacturing and assembly with short lead times, management of complex supply chains, global engineering and program management skills and a unique customer-focused culture. Our seating and electrical businesses both utilize proprietary, industry-specific processes and standards, leverage common low-cost engineering centers and share support from certain operating functions, such as logistics, supply chain management, quality and health and safety, as well as all major administrative functions. Major automotive manufacturers are the primary customers of both our seating and electrical businesses. As a result, both businesses benefit from synergies in cross-selling their respective products and managing global customer relationships.
We are focused on profitably growing and improving the competitiveness of both our seating and electrical businesses. Our strategy is to deliver superior long-term shareholder value by investing in our business to grow and improve our competitive position, while maintaining a strong and flexible balance sheet and returning cash to our shareholders. Specific elements of this strategy have been the restructuring of our manufacturing and engineering footprint to improve our competitive position, the expansion of our component capabilities through organic investment and acquisitions, growth in new and emerging markets and support of our customers' growth and global platform initiatives and the increased diversification of our business with a more balanced regional, customer and vehicle segment mix. These core elements will remain critical in combination with our strategic initiatives to increase value in both of our business segments.
Industry Overview
Our sales are driven by the number of vehicles produced by the automotive manufacturers, which is ultimately dependent on consumer demand for automotive vehicles, and our content per vehicle. 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, increased competition, 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.
Key trends affecting our business include forecasted global growth in automotive vehicle demand over the next several years, automotive manufacturers' increasing utilization of global vehicle platforms and directed component sourcing, increasing demand for connectivity and comfort and convenience features in vehicles, increasing demand for safety features and systems and stricter fuel economy and emission standards. We believe that our broad customer base and strong financial resources will allow us to capitalize on global growth in automotive vehicle production, while our low-cost engineering and global manufacturing capabilities will provide us with the ability to support our customers’ continued move to global vehicle platforms. 
Global automotive industry production volumes improved 4% in 2013 from the prior year and another 3% in 2014 to a record 85.6 million units. North American industry production increased 5% in 2013 from the prior year and another 5% in 2014 to 17.0 million units. European and African industry production remains below the peak level of 22.3 million units in 2007 but did increase 1% in 2013 from the prior year and another 3% in 2014 to 20.5 million units. Asian industry production increased 5%

30


in 2013 from the prior year and another 4% in 2014 to 43.1 million units. South American industry production increased 7% in 2013 from the prior year but declined 17% in 2014 to 3.6 million units.
Sales in Europe and Africa accounted for approximately 40%, and sales in North America accounted for approximately 38%, of our net sales in 2014. 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.
Our customers typically require us to reduce our prices over the life of a vehicle model and, at the same time, assume significant responsibility for the design, development and engineering of our products. Our financial performance is largely dependent on our ability to achieve product cost reductions through product design enhancement and supply chain management, as well as manufacturing efficiencies and restructuring actions. We also seek to enhance our financial performance by investing in product development, design capabilities and new product initiatives that respond to the needs of our customers and consumers. We continually evaluate operational and strategic alternatives to align our business with the changing needs of our customers and improve our business structure by investing in vertical integration opportunities.
Our material cost as a percentage of net sales was 67.8% in 2014, as compared to 67.2% in 2013 and 67.8% in 2012. Raw material, energy and commodity costs can be volatile. We have developed and implemented strategies to mitigate the impact of higher raw material, energy and commodity costs, such as the selective in-sourcing of components, the continued consolidation of our supply base, longer-term purchase commitments, financial hedges for certain commodities and the selective expansion of low-cost country sourcing and engineering, as well as value engineering and product benchmarking. However, these strategies, together with commercial negotiations with our customers and suppliers, typically offset only a portion of the adverse impact. Certain of these strategies also may limit our opportunities in a declining commodity environment. In addition, the availability of raw materials, commodities and product components fluctuates from time to time due to factors outside of our control. If these costs increase or availability is restricted, it could have an adverse impact on our operating results in the foreseeable future. See Part I — Item 1A, "Risk Factors — Increases in the costs and restrictions on the availability of raw materials, energy, commodities and product components could adversely affect our financial performance," and "— Forward-Looking Statements."
Financial Measures
In evaluating our financial condition and operating performance, we focus primarily on earnings, operating margins, cash flows and return on invested capital. In addition to maintaining and expanding our business with our existing customers in our more established markets, our expansion plans are focused primarily on emerging markets. Asia, in particular, continues to present significant growth opportunities, as major global automotive manufacturers implement production expansion plans and local automotive manufacturers aggressively expand their operations to meet increasing demand in this region. We currently have fifteen joint ventures with operations in Asia, as well as an additional joint venture in North America dedicated to serving Asian automotive manufacturers. We also have aggressively pursued this strategy by selectively increasing our vertical integration capabilities globally, as well as expanding our component manufacturing capacity in Asia, Brazil, Eastern Europe, Mexico and Northern Africa. Furthermore, we have expanded our low-cost engineering capabilities in India and the Philippines.
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 results of our suppliers, as well as our financial results. In addition, our cash flow is impacted by our ability to manage our inventory and capital spending effectively. We utilize return on invested capital as a measure of the efficiency with which our assets generate earnings. Improvements in our return on invested capital will depend on our ability to maintain an appropriate asset base for our business and to increase productivity and operating efficiency.
Acquisition
On January 5, 2015, we completed the acquisition of Everett Smith Group Ltd., the parent of Eagle Ottawa, LLC ("Eagle Ottawa"), the world's leading provider of leather for the automotive industry, with annual sales of approximately $1 billion. Eagle Ottawa was a privately-held company based in Auburn Hills, Michigan and has a reputation for superior quality, product innovation and craftsmanship. This acquisition will further strengthen our global seating business, enhance our position as the industry leader in luxury and performance automotive seating and complement our existing capabilities in the design and manufacturing of seat covers. The transaction has a value of approximately $850 million on a cash and debt free basis.

31


Operational Restructuring
In 2014, we incurred pretax restructuring costs of approximately $107 million and related manufacturing inefficiency charges of approximately $8 million. Any future restructuring actions will depend upon market conditions, customer actions and other factors.
For further information, see Note 4, "Restructuring," to the consolidated financial statements included in this Report.
Financing Transactions
Senior Notes
In November 2014, we issued $650 million in aggregate principal amount of 5.25% senior unsecured notes due 2025 (the "2025 Notes"). In January 2015, we used $350 million of the net proceeds from the offering, along with $500 million in borrowings under the term loan facility (see "— Credit Agreement" below), to finance the acquisition of Eagle Ottawa. The remaining proceeds will be used to redeem the remaining outstanding aggregate principal amount of our 8.125% senior unsecured notes due 2020 (the "2020 Notes") and for general corporate purposes, including the payment of fees and expenses associated with the acquisition of Eagle Ottawa and related financing transactions.
In March 2014, we refinanced certain of our outstanding indebtedness to lower our borrowing costs and extend our debt maturity profile. In March 2014, we issued $325 million in aggregate principal amount of 5.375% senior unsecured notes due 2024 (the "2024 Notes") and paid $327 million to redeem the remaining outstanding aggregate principal amount of our 7.875% senior unsecured notes due 2018 (the "2018 Notes") and 10% of the original aggregate principal amount of the 2020 Notes. In connection with these transactions, we recognized losses of approximately $18 million on the extinguishment of debt.
In January 2013, we issued $500 million in aggregate principal amount of 4.75% senior unsecured notes due 2023 (the "2023 Notes").
In both 2013 and 2012, we paid $72 million to redeem 10% of the original aggregate principal amount of the 2018 Notes and 2020 Notes and recognized a loss of approximately $4 million on the partial extinguishment of debt.
For further information, see "— Liquidity and Financial Condition — Capitalization — Senior Notes" and Note 6, "Debt," to the consolidated financial statements included in this Report.
Credit Agreement
In November 2014, we amended and restated our senior secured credit agreement (the "credit agreement") to, among other things, increase the borrowing capacity of our revolving credit facility from $1.0 billion to $1.25 billion, extend the maturity of the facility from January 30, 2018 to November 14, 2019, and establish a $500 million delayed-draw term loan facility (the "term loan facility"). In January 2015, we borrowed $500 million under the term loan facility in connection with the financing of the Eagle Ottawa acquisition. For further information, see "— Liquidity and Financial Condition — Capitalization — Credit Agreement" and Note 6, "Debt," to the consolidated financial statements included in this Report.
Share Repurchase Program and Quarterly Cash Dividend
Since the first quarter of 2011, our Board of Directors has authorized $2.25 billion in share repurchases under our common stock share repurchase program. On April 25, 2013, we entered into an accelerated stock repurchase ("ASR") agreement to repurchase $800 million of our common stock. On March 31, 2014, the ASR agreement ended, and on April 14, 2014, we paid approximately $55 million in cash to settle the transaction. Following the settlement of the ASR transaction, we completed an additional $356 million of share repurchases, and as of December 31, 2014, we have a remaining repurchase authorization of $339 million, which will expire in April 2016.
Our Board of Directors declared a quarterly cash dividend of $0.20 per share of common stock in 2014.
For further information regarding our common stock share repurchase program, the ASR program and our quarterly dividends, see Item 5, "Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities," "— Liquidity and Financial Condition — Capitalization" and Note 9, "Capital Stock and Equity," to the consolidated financial statements included in this Report.

32


Other Matters
In 2014, we recognized net tax benefits of $111 million primarily related to net reductions in valuation allowances with respect to the deferred tax assets of certain foreign subsidiaries and reductions in tax reserves due to audit settlements and net tax benefits of $38 million related to debt redemption costs, restructuring charges and various other items.
In 2013, we incurred costs of $3 million related to a proxy contest.
We incurred losses and incremental costs related to the destruction of assets caused by a fire at one of our European production facilities in the third quarter of 2011. During 2012, we reached a settlement for the recovery of such costs under applicable insurance policies. We recognized losses and incremental costs totaling $7 million and $35 million in 2013 and 2012, respectively. In addition, we recognized loss recoveries and insurance gains totaling $76 million in 2012.
In 2013, we recognized tax benefits of $30 million primarily related to reductions in valuation allowances with respect to the deferred tax assets of certain foreign subsidiaries and tax expense of $31 million primarily related to increases in valuation allowances in certain other jurisdictions. We also recognized net tax benefits of $26 million related to restructuring charges and various other items and $3 million related to the retroactive reinstatement of the U.S. research and development tax credit.
In 2012, we completed the acquisition of Guilford Mills ("Guilford"), which manufactures fabrics for the automotive and specialty markets, for approximately $244 million, net of cash acquired. We incurred transaction costs of approximately $6 million, primarily related to advisory services.
In 2012, we recognized income of $17 million related to an affiliate’s reversal of a valuation allowance with respect to its deferred tax assets and losses of $12 million related to an affiliate’s impairment and restructuring charges.
In 2012, we recognized net tax benefits of $764 million, primarily related to the reversal of a valuation allowance on our deferred tax assets in the United States, as well as changes in valuation allowances in certain foreign countries, reductions in tax reserves due to audit settlements and various other items.
For further information, see Note 2, "Summary of Significant Accounting Policies — Impairment of Investments in Affiliates," Note 3, "Acquisitions," Note 7, "Income Taxes," and Note 11, "Commitments and Contingencies," to the consolidated financial statements included in this Report.
As discussed above, our results for the years ended December 31, 2014, 2013 and 2012, reflect the following items (in millions):
For the year ended December 31,
2014
 
2013
 
2012
Costs related to restructuring actions, including manufacturing inefficiencies of $8 million in 2014, $6 million in 2013 and $1 million in 2012
$
115

 
$
84

 
$
56

Costs related to proxy contest

 
3

 

Acquisition and other related costs
5

 

 
6

Fees and expenses related to capital restructuring and other related matters

 

 
10

Losses and incremental costs (insurance recoveries), net related to the destruction of assets

 
7

 
(41
)
Labor-related litigation claims

 
7

 

Losses on extinguishment of debt
18

 
4

 
4

(Gain) loss related to affiliates
1

 

 
(5
)
Tax benefits, net
(149
)
 
(28
)
 
(764
)
For further information regarding these items, see Note 2, "Summary of Significant Accounting Policies — Impairment of Investments in Affiliates," Note 3, "Acquisitions," Note 4, "Restructuring," Note 6, "Debt," Note 7, "Income Taxes," and Note 11, "Commitments and Contingencies," to the consolidated financial statements included in this Report. This section includes forward-looking statements that are subject to risks and uncertainties. For further information regarding these and other factors that have had, or may have in the future, a significant impact on our business, financial condition or results of operations, see Part I — Item 1A, "Risk Factors," and "— Forward-Looking Statements."

33


Results of Operations
A summary of our operating results in millions of dollars and as a percentage of net sales is shown below:
For the year ended December 31,
2014
 
2013
 
2012
Net sales
 
 
 
 
 
 
 
 
 
 
 
Seating
$
13,310.6

 
75.1
 %
 
$
12,018.1

 
74.0
 %
 
$
11,029.6

 
75.7
 %
Electrical
4,416.7

 
24.9

 
4,215.9

 
26.0

 
3,537.4

 
24.3

Net sales
17,727.3

 
100.0

 
16,234.0

 
100.0

 
14,567.0

 
100.0

Cost of sales
16,234.5

 
91.6

 
14,934.3

 
92.0

 
13,349.5

 
91.6

Gross profit
1,492.8

 
8.4

 
1,299.7

 
8.0

 
1,217.5

 
8.4

Selling, general and administrative expenses
529.9

 
3.0

 
528.7

 
3.3

 
479.3

 
3.3

Amortization of intangible assets
33.7

 
0.2

 
34.4

 
0.2

 
33.0

 
0.2

Interest expense
67.5

 
0.3

 
68.4

 
0.4

 
49.9

 
0.4

Other expense, net
74.3

 
0.4

 
58.1

 
0.3

 
6.4

 
0.1

Provision (benefit) for income taxes
121.4

 
0.7

 
192.7

 
1.2

 
(638.0
)
 
(4.4
)
Equity in net income of affiliates
(36.3
)
 
(0.2
)
 
(38.4
)
 
(0.2
)
 
(30.3
)
 
(0.2
)
Net income attributable to noncontrolling interests
29.9

 
0.2

 
24.4

 
0.1

 
34.4

 
0.2

Net income attributable to Lear
$
672.4

 
3.8
 %
 
$
431.4

 
2.7
 %
 
$
1,282.8

 
8.8
 %
Year Ended December 31, 2014, Compared With Year Ended December 31, 2013
Net sales for the year ended December 31, 2014 were $17.7 billion, as compared to $16.2 billion for the year ended December 31, 2013, an increase of $1.5 billion or 9%. New business and improved production volumes on key Lear platforms positively impacted net sales by $990 million and $747 million, respectively. These increases were partially offset by net foreign exchange rate fluctuations of $158 million.
Cost of sales in 2014 was $16.2 billion, as compared to $14.9 billion in 2013. The increase is primarily due to the impact of new business and improved production volumes on key Lear platforms, partially offset by the impact of net foreign exchange rate fluctuations.
Gross profit and gross margin were $1.5 billion and 8.4% of net sales in 2014, as compared to $1.3 billion and 8.0% of net sales in 2013. Favorable operating performance and the benefit of operational restructuring actions positively impacted gross profit by $300 million. Gross profit also benefited by $206 million from the impact of new business and improved production volumes on key Lear platforms. Selling price reductions and the changeover of key Lear platforms in our seating business negatively impacted gross profit by $287 million. These factors had a corresponding impact on gross margin.
Selling, general and administrative expenses, including engineering and development expenses, were $530 million for the year ended December 31, 2014, as compared to $529 million for the year ended December 31, 2013. As a percentage of net sales, selling, general and administrative expenses were 3.0% in 2014, as compared to 3.3% in 2013, reflecting the increase in sales.
Engineering and development costs incurred in connection with the development of new products and manufacturing methods more than one year prior to launch, to the extent not recoverable from the customer, are charged to selling, general and administrative expenses as incurred. Such costs totaled $102 million in 2014, as compared to $108 million in 2013. In certain situations, the reimbursement of pre-production engineering and design costs is contractually guaranteed by, and fully recoverable from, our customers and, therefore, is capitalized. We capitalized $232 million of such costs in 2014, as compared to $202 million in 2013.
Amortization of intangible assets was $34 million in 2014 and 2013.
Interest expense was $68 million in 2014 and 2013.
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, gains and losses on the extinguishment of debt, gains and losses on the

34


disposal of fixed assets and other miscellaneous income and expense, was $74 million in 2014, as compared to $58 million in 2013. In 2014, we recognized a gain of $5 million related to a transaction with an affiliate and losses of $18 million related to the redemption of the remaining aggregate principal amount of our 2018 Notes and 10% of the original aggregate principal amount of our 2020 Notes. In 2014, other expense was negatively impacted by increases in non-income related taxes and foreign exchange losses of $5 million and $4 million, respectively. In 2013, we recognized losses of $4 million related to the redemption of 10% of the original aggregate principal amount of our 2018 Notes and 2020 Notes.
In 2014, the provision for income taxes was $121 million, representing an effective tax rate of 15.4% on pretax income before equity in net income of affiliates of $787 million. In 2013, the provision for income taxes was $193 million, representing an effective tax rate of 31.6% on pretax income before equity in net income of affiliates of $610 million.
In 2014 and 2013, the provision for income taxes was impacted by the level and mix of earnings among tax jurisdictions. The provision was also impacted by a portion of our restructuring charges and other expenses, for which no tax benefit was provided as the charges were incurred in certain countries for which no tax benefit is likely to be realized due to a history of operating losses in those countries. In 2014, we recognized net tax benefits of $111 million primarily related to net reductions in valuation allowances with respect to the deferred tax assets of certain foreign subsidiaries and reductions in tax reserves due to audit settlements and net tax benefits of $38 million related to debt redemption costs, restructuring charges and various other items. In 2013, we recognized tax benefits of $30 million primarily related to reductions in valuation allowances with respect to the deferred tax assets of certain foreign subsidiaries and tax expense of $31 million primarily related to increases in valuation allowances in certain other jurisdictions. We also recognized net tax benefits of $26 million related to restructuring charges and various other items and $3 million related to the retroactive reinstatement of the U.S. research and development tax credit. Excluding these items, the effective tax rate in 2014 and 2013 approximated the U.S. federal statutory income tax rate of 35% adjusted for income taxes on foreign earnings, losses and remittances, valuation allowances, tax credits, income tax incentives and other permanent items.
For information related to our valuation allowances, see "Other Matters — Significant Accounting Policies and Critical Accounting Estimates — Income Taxes."
Equity in net income of affiliates was $36 million for the year ended December 31, 2014, as compared to $38 million for the year ended December 31, 2013.
Net income attributable to Lear was $672 million, or $8.23 per diluted share, in 2014, as compared to $431 million, or $4.99 per diluted share, in 2013. Net income and diluted net income per share increased for the reasons described above. In addition, diluted net income per share was impacted by the decrease in average shares outstanding during 2014.
Reportable Operating Segments
We have two reportable operating segments: seating, which includes seats and related components, such as seat structures and mechanisms, seat covers and surface materials such as fabric and leather, seat foam and headrests, and electrical, which includes electrical distribution systems for both traditional powertrain vehicles, as well as high-power for hybrid and electric vehicles. Key components of our electrical business include wiring harnesses, terminals and connectors, junction boxes, battery chargers, electronic control modules and wireless control devices. 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, corporate finance, legal, executive administration and human resources. Financial measures regarding each segment’s pretax income before equity in net income of affiliates, interest expense and other expense ("segment earnings") and segment earnings divided by net sales ("margin") are not measures of performance under accounting principles generally accepted in the United States ("GAAP"). Segment earnings and the related margin are used by management to evaluate the performance of our reportable operating segments. Segment earnings should not be considered in isolation or as a substitute for net income attributable to Lear, net cash provided by operating activities or other income statement or cash flow statement data prepared in accordance with GAAP or as measures of profitability or liquidity. In addition, segment earnings, as we determine it, may not be comparable to related or similarly titled measures reported by other companies. For a reconciliation of consolidated segment earnings to consolidated income before provision for income taxes and equity in net income of affiliates, see Note 12, "Segment Reporting," to the consolidated financial statements included in this Report.

35


Seating –
A summary of financial measures for our seating segment is shown below (dollar amounts in millions):
For the year ended December 31,
2014
 
2013
Net sales
$
13,310.6

 
$
12,018.1

Segment earnings (1)
655.2

 
576.9

Margin
4.9
%
 
4.8
%
(1)
See definition above.
Seating net sales were $13.3 billion for the year ended December 31, 2014, as compared to $12.0 billion for the year ended December 31, 2013, an increase of $1,293 million or 11%. Improved production volumes on key Lear platforms and new business positively impacted net sales by $721 million and $671 million, respectively. These increases were partially offset by the impact of net foreign exchange rate fluctuations of $102 million. Segment earnings, including restructuring costs, and the related margin on net sales were $655 million and 4.9% in 2014, as compared to $577 million and 4.8% in 2013. Segment earnings were favorably impacted by $288 million primarily as a result of favorable operating performance and the benefit of operational restructuring actions, improved production volumes of key Lear platforms and new business. These items were partially offset by $187 million related to selling price reductions and the changeover of key Lear platforms and $32 million related to higher restructuring costs.
Electrical –
A summary of financial measures for our electrical segment is shown below (dollar amounts in millions):
For the year ended December 31,
2014
 
2013
Net sales
$
4,416.7

 
$
4,215.9

Segment earnings (1)
556.6

 
414.3

Margin
12.6
%
 
9.8
%
(1)
See definition above.
Electrical net sales were $4.4 billion for the year ended December 31, 2014, as compared to $4.2 billion for the year ended December 31, 2013, an increase of $201 million or 5%. New business positively impacted net sales by $319 million. This increase was partially offset by the impact of selling price reductions and net foreign exchange rate fluctuations of $156 million. Segment earnings, including restructuring costs, and the related margin on net sales were $557 million and 12.6% in 2014, as compared to $414 million and 9.8% in 2013. Segment earnings were favorably impacted by $168 million as a result of improved operating performance. Selling price reductions were partially offset by the impact of new business.
Other –
A summary of financial measures for our other category, which is not an operating segment, is shown below (dollar amounts in millions):
For the year ended December 31,
2014
 
2013
Net sales
$

 
$

Segment earnings (1)
(282.6
)
 
(254.6
)
Margin
N/A

 
N/A

(1)
See definition above.
Segment earnings related to our other category were ($283) million in 2014, as compared ($255) million in 2013, reflecting higher incentive compensation expenses related to performance as compared to targets, as well as infrastructure costs to support the growth of our business in emerging markets.

36


Year Ended December 31, 2013, Compared With Year Ended December 31, 2012
Net sales for the year ended December 31, 2013 were $16.2 billion, as compared to $14.6 billion for the year ended December 31, 2012, an increase of $1.7 billion or 11%. New business, improved production volumes on key Lear platforms and the full year impact of the Guilford acquisition positively impacted net sales by $930 million, $541 million and $142 million, respectively.
Cost of sales in 2013 was $14.9 billion, as compared to $13.3 billion in 2012. The increase is primarily due to the impact of new business, improved production volumes on key Lear platforms and the full year impact of the Guilford acquisition.

Gross profit and gross margin were $1.3 billion and 8.0% of net sales in 2013, as compared to $1.2 billion and 8.4% of net sales in 2012. Gross profit was positively impacted by $185 million as a result of new business and improved production volumes on key Lear platforms. Gross profit also benefited from favorable operating performance and the benefit of operational restructuring actions of $152 million. Selling price reductions and the changeover of key Lear platforms in our seating business negatively impacted gross profit by $241 million. These factors had a corresponding impact on gross margin.

Selling, general and administrative expenses, including engineering and development expenses, were $529 million for the year ended December 31, 2013, as compared to $479 million for the year ended December 31, 2012. Selling, general and administrative expenses increased $25 million due to higher restructuring costs and the full year impact of the Guilford acquisition. Higher compensation related costs, together with infrastructure costs to support the growth of our business in emerging markets, also contributed to the increase between years. As a percentage of net sales, selling, general and administrative expenses were 3.3% in both 2013 and 2012.

Engineering and development costs incurred in connection with the development of new products and manufacturing methods more than one year prior to launch, to the extent not recoverable from the customer, are charged to selling, general and administrative expenses as incurred. Such costs totaled $108 million in 2013, as compared to $104 million in 2012. In certain situations, the reimbursement of pre-production engineering and design costs is contractually guaranteed by, and fully recoverable from, our customers and, therefore, is capitalized. We capitalized $202 million of such costs in both 2013 and 2012.

Amortization of intangible assets was $34 million in 2013, as compared to $33 million in 2012, reflecting the amortization of intangible assets related to the Guilford acquisition.

Interest expense was $68 million in 2013, as compared to $50 million in 2012, primarily reflecting incremental interest of $23 million related to our senior notes due 2023 issued in January 2013, offset by $8 million related to the partial redemption of our senior notes due 2018 and 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, gains and losses on the extinguishment of debt, gains and losses on the disposal of fixed assets and other miscellaneous income and expense, was $58 million in 2013, as compared to $6 million in 2012. In 2013, other expense, net was negatively impacted by increases in foreign exchange losses and non-income related taxes of $15 million and $6 million, respectively. In 2012, we recognized gains of $27 million related to insurance recoveries.
In 2013, the provision for income taxes was $193 million, representing an effective tax rate of 31.6% on pretax income before equity in net income of affiliates of $610 million. In 2012, the benefit for income taxes was $638 million, representing an effective tax rate of negative 98.3% on pretax income before equity in net income of affiliates of $649 million.
In 2013 and 2012, the provision (benefit) for income taxes was impacted by the level and mix of earnings among tax jurisdictions. The provision (benefit) was also impacted by a portion of our restructuring charges and other expenses, for which no tax benefit was provided as the charges were incurred in certain countries for which no tax benefit is likely to be realized due to a history of operating losses in those countries. In 2013, we recognized tax benefits of $30 million primarily related to reductions in valuation allowances with respect to the deferred tax assets of certain foreign subsidiaries and tax expense of $31 million primarily related to increases in valuation allowances in certain other jurisdictions. We also recognized net tax benefits of $26 million related to restructuring charges and various other items and $3 million related to the retroactive reinstatement of the U.S. research and development tax credit. In 2012, we recognized net tax benefits of $764 million, primarily related to the reversal of a valuation allowance on our deferred tax assets in the United States, as well as changes in valuation allowances in certain foreign countries, reductions in tax reserves due to audit settlements and various other items. As a result of the reversal of the valuation allowance on our deferred tax assets in the United States in 2012, the provision for income taxes in 2013 includes U.S. federal income tax expense at a rate of 35% with respect to our earnings in the United States. The benefit for

37


income taxes in 2012 includes no U.S. federal income tax expense with respect to our earnings in the United States. Excluding these items, the effective tax rate in 2013 and 2012 approximated the U.S. federal statutory income tax rate of 35% adjusted for income taxes on foreign earnings, losses and remittances, valuation allowances, tax credits, income tax incentives and other permanent items.
For information related to our valuation allowances, see "Other Matters — Significant Accounting Policies and Critical Accounting Estimates — Income Taxes."
Equity in net income of affiliates was $38 million for the year ended December 31, 2013, as compared to $30 million for the year ended December 31, 2012. The increase in equity in net income of affiliates in 2013 reflects the improved performance of our equity affiliates. In 2012, we recognized income of $17 million related to our portion of an affiliate’s reversal of a valuation allowance with respect to its deferred tax assets and losses of $10 million and $2 million related to our portion of an affiliate’s impairment and restructuring charges and the impairment of our investment in an affiliate, respectively.
Net income attributable to Lear was $431 million, or $4.99 per diluted share, in 2013, as compared to $1.3 billion, or $12.85 per diluted share, in 2012. Net income and diluted net income per share decreased primarily due to the reversal of a valuation allowance on our deferred tax assets in the United States in 2012 and for the other reasons described above. In addition, diluted net income per share was impacted by the decrease in average shares outstanding during 2013.
Reportable Operating Segments
For a description of our reportable operating segments, see "Year Ended December 31, 2014, Compared with Year Ended December 31, 2013 — Reportable Operating Segments" above.
Seating –
A summary of financial measures for our seating segment is shown below (dollar amounts in millions):
For the year ended December 31,
2013
 
2012
Net sales
$
12,018.1

 
$
11,029.6

Segment earnings (1)
576.9

 
661.7

Margin
4.8
%
 
6.0
%
(1)
See definition above.
Seating net sales were $12.0 billion for the year ended December 31, 2013, as compared to $11.0 billion for the year ended December 31, 2012, an increase of $989 million or 9%. New business, improved production volumes on key Lear platforms and the full year impact of the Guilford acquisition positively impacted net sales by $421 million, $331 million and $142 million, respectively. Segment earnings, including restructuring costs, and the related margin on net sales were $577 million and 4.8% in 2013, as compared to $662 million and 6.0% in 2012. Segment earnings were negatively impacted by $170 million due to selling price reductions and the changeover of key Lear platforms and $12 million due to higher restructuring costs. These items were partially offset by favorable operating performance and the benefit of operational restructuring actions, improved production volumes on key Lear platforms and the impact of new business of $115 million. In addition, we recognized $7 million of incremental costs in 2013, as compared to $15 million of insurance recoveries, net of related losses and incremental costs, in 2012, related to a fire at a European production facility.
Electrical –
A summary of financial measures for our electrical segment is shown below (dollar amounts in millions):
For the year ended December 31,
2013
 
2012
Net sales
$
4,215.9

 
$
3,537.4

Segment earnings (1)
414.3

 
254.9

Margin
9.8
%
 
7.2
%
(1)
See definition above.
Electrical net sales were $4.2 billion for the year ended December 31, 2013, as compared to $3.5 billion for the year ended December 31, 2012, an increase of $679 million or 19%. New business and improved production volumes on key Lear

38


platforms positively impacted net sales by $509 million and $210 million, respectively. Segment earnings, including restructuring costs, and the related margin on net sales were $414 million and 9.8% in 2013, as compared to $255 million and 7.2% in 2012. Segment earnings were favorably impacted by $111 million as a result of new business and improved production volumes on key Lear platforms. Favorable operating performance of $123 million was partially offset by selling price reductions and higher restructuring costs of $80 million.
Other –
A summary of financial measures for our other category, which is not an operating segment, is shown below (dollar amounts in millions):
For the year ended December 31,
2013
 
2012
Net sales
$

 
$

Segment earnings (1)
(254.6
)
 
(211.4
)
Margin
N/A

 
N/A

(1)
See definition above.
Segment earnings related to our other category were ($255) million in 2013, as compared to ($211) million in 2012, reflecting higher compensation related costs and infrastructure costs to support the growth of our business in emerging markets.
Liquidity and Financial Condition
Our primary liquidity needs are to fund general business requirements, including working capital requirements, capital expenditures, operational restructuring actions and debt service requirements. In addition, we expect to continue to pay quarterly dividends and repurchase shares of our common stock pursuant to our authorized common stock share repurchase program (see Item 5, "Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities"). Our principal sources of liquidity are cash flows from operating activities, borrowings under available credit facilities and our existing cash balance. A substantial portion of our operating income is generated by our subsidiaries. As a result, we are dependent on the earnings and cash flows of and the combination of dividends, royalties, intercompany loan repayments and other distributions and advances from our subsidiaries to provide the funds necessary to meet our obligations. As of December 31, 2014 and 2013, cash and cash equivalents of $715 million and $792 million, respectively, were held in foreign subsidiaries and can be repatriated, primarily through the repayment of intercompany loans, without creating additional income tax expense. There are no significant restrictions on the ability of our subsidiaries to pay dividends or make other distributions to Lear. For further information regarding potential dividends from our non-U.S. subsidiaries, see "— Adequacy of Liquidity Sources," below and Note 7, "Income Taxes," to the consolidated financial statements included in this Report.
Cash Flows
Year Ended December 31, 2014, Compared with Year Ended December 31, 2013
Net cash provided by operating activities was $928 million in 2014, as compared to $820 million in 2013. The increase reflects higher earnings between periods. Net changes in working capital items was a use of cash of $140 million and $8 million in 2014 and 2013, respectively, resulting in an incremental decrease in operating cash flow of $132 million between periods, reflecting the impact of our sales growth and the timing of payments of accrued liabilities. This decrease was partially offset by the changes in other long-term assets and liabilities, which resulted in an incremental increase in operating cash flow of $60 million between periods.
In 2014, increases in accounts receivable, inventories and accounts payable resulted in a use of cash of $359 million, a use of cash of $91 million and a source of cash of $231 million, respectively, primarily reflecting the impact of our sales growth. Changes in accrued liabilities and other resulted in a source of cash of $78 million, primarily reflecting the timing of payments of accrued liabilities.
Net cash used in investing activities was $781 million in 2014, as compared to $404 million in 2013. In 2014, the partial restriction of cash proceeds from the issuance of the 2025 Notes for the 2015 financing of the Eagle Ottawa acquisition resulted in a use of cash of $350 million. In 2013, we sold our ownership interest in an equity affiliate for $50 million. Capital spending decreased $36 million between periods. Capital spending in 2015 is estimated at $500 million.
Net cash used in financing activities was $161 million in 2014, as compared to $699 million in 2013. In 2014, we issued $975 million in aggregate principal amount of 2024 Notes and 2025 Notes and paid $327 million to redeem the remaining

39


outstanding 2018 Notes and a portion of the outstanding 2020 Notes. In addition, we paid $411 million in aggregate to repurchase our common stock, including $356 million of open market repurchases and $55 million to settle the ASR program. In 2014, the partial restriction of cash proceeds from the issuance of the 2025 Notes for the 2015 redemption of the remaining outstanding 2020 Notes resulted in a use of cash of $250 million. In 2013, we issued $500 million in aggregate principal amount of 2023 Notes and paid $72 million to redeem a portion of the outstanding 2018 Notes and 2020 Notes. In addition, we paid $1.0 billion in aggregate to repurchase our common stock, including $200 million of open market repurchases and $800 million of repurchases through the ASR program.
For further information regarding our 2014 and 2013 financing transactions, including the partial restriction of cash proceeds from the issuance of the 2025 Notes, see "— Capitalization," below and Note 6, "Debt," and Note 9, "Capital Stock and Equity," to the consolidated financial statements included in this Report.
Year Ended December 31, 2013, Compared with Year Ended December 31, 2012
Net cash provided by operating activities was $820 million in 2013, as compared to $730 million in 2012. Consolidated net income, deferred tax provision (benefit) and depreciation and amortization were a source of cash of $787 million and $863 million in 2013 and 2012, respectively, which resulted in an incremental decrease in operating cash flow of $76 million between periods. This decrease was largely offset by the changes in other long-term assets and liabilities and other, net, which resulted in an incremental increase in operating cash flow of $70 million between periods. The net change in recoverable customer engineering, development and tooling was a source of cash of $3 million and a use of cash of $37 million in 2013 and 2012, respectively, resulting in an incremental increase in operating cash flow of $40 million between periods, primarily due to cash received related to previously capitalized amounts. Net changes in working capital items was a use of cash of $8 million and $49 million in 2013 and 2012, respectively, resulting in an incremental increase in operating cash flow of $41 million between periods, reflecting the impact of our sales growth and the timing of payments of accrued liabilities.

In 2013, increases in accounts receivable, inventories and accounts payable resulted in a use of cash of $240 million, a use of cash of $102 million and a source of cash of $190 million, respectively, primarily reflecting the impact of our sales growth. Changes in accrued liabilities and other resulted in a source of cash of $144 million, primarily reflecting the timing of payments of accrued liabilities.

Net cash used in investing activities was $404 million in 2013, as compared to $688 million in 2012. In 2013, we sold our ownership interest in an equity affiliate for $50 million. In 2012, we acquired Guilford for $244 million, net of cash acquired.

Net cash used in financing activities was $699 million in 2013, as compared to $396 million in 2012. In 2013, we issued $500 million in aggregate principal amount of 2023 Notes and paid $72 million to redeem a portion of the outstanding 2018 Notes and 2020 Notes. In addition, in 2013, we paid $1 billion in aggregate to repurchase our common stock, including $200 million of open market repurchases and $800 million of repurchases through the ASR program. In 2012, we paid $223 million in aggregate to repurchase our common stock and paid $72 million to redeem a portion of the outstanding 2018 Notes and 2020 Notes. For further information regarding our 2013 and 2012 financing transactions, see "— Capitalization," below and Note 9, "Capital Stock and Equity," to the consolidated financial statements included in this Report.
Capitalization
From time to time, we utilize uncommitted credit facilities to fund our capital expenditures and working capital requirements at certain of our foreign subsidiaries, in addition to cash provided by operating activities. As of December 31, 2014 and 2013, there were no short-term debt balances outstanding. The availability of uncommitted lines of credit may be affected by our financial performance, credit ratings and other factors.
Senior Notes
As of December 31, 2014, our senior notes consist of $245 million in aggregate principal amount at maturity of the 2020 Notes, $500 million in aggregate principal amount of the 2023 Notes, $325 million in aggregate principal amount of the 2024 Notes and $650 million in aggregate principal amount of the 2025 Notes (together with the 2020 Notes, the 2023 Notes and the 2024 Notes, the "Notes").
In November 2014, our Board of Directors authorized the redemption of the remaining outstanding aggregate principal amount of the 2020 Notes on or after March 15, 2015, the first available optional redemption date under the indenture governing the 2020 Notes. In January 2015, we issued a notice for the redemption of the 2020 Notes, which will occur on March 15, 2015.


40


In November 2014, we issued the 2025 Notes, resulting in net proceeds of $642 million. In January 2015, we used $350 million of the net proceeds from the offering, along with $500 million in borrowings under the term loan facility (see " — Credit Agreement" below), to finance the acquisition of Eagle Ottawa. The remaining proceeds will be used to redeem the remaining outstanding aggregate principal amount of the 2020 Notes discussed above and for general corporate purposes, including the payment of fees and expenses associated with the acquisition of Eagle Ottawa and related financing transactions.
The 2024 Notes were issued in March 2014. The net proceeds from the offering of $321 million, together with existing cash on hand, were used to redeem the remaining outstanding aggregate principal amount of the 2018 Notes ($280 million) and 10% of the original aggregate principal amount of the 2020 Notes ($35 million). In connection with these transactions, we paid $327 million and recognized losses of approximately $18 million on the extinguishment of debt.
The 2023 Notes were issued in January 2013. The net proceeds from the offering of $493 million, together with our existing sources of liquidity, were used for general corporate purposes, including, without limitation, the redemption of $70 million in aggregate principal amount of the 2018 Notes and 2020 Notes (see below), investments in additional component capabilities and emerging markets and share repurchases under our common stock share repurchase program (see below).
In both 2013 and 2012, we redeemed 10% of the original aggregate principal amount of each of the 2018 Notes and 2020 Notes ($70 million in aggregate in both 2013 and 2012) at a redemption price equal to 103% of the principal amount redeemed, plus accrued and unpaid interest to the redemption date. In connection with these transactions, we paid $72 million and recognized a loss of approximately $4 million on the partial extinguishment of debt in both 2013 and 2012.
Interest is payable on March 15 and September 15 of each year, in the case of the 2020 Notes and 2024 Notes, and January 15 and July 15 of each year, in the case of the 2023 Notes and 2025 Notes. The 2023 Notes mature on January 15, 2023, the 2024 Notes mature on March 15, 2024, and the 2025 Notes mature on January 15, 2025. As of December 31, 2014 and 2013, we had $1.7 billion and $1.1 billion, respectively, of Notes outstanding. The indentures governing the Notes contain certain restrictive covenants and customary events of default. As of December 31, 2014, we were in compliance with all covenants under the indentures governing the Notes.
The Notes are senior unsecured obligations. Our obligations under the Notes are fully and unconditionally guaranteed, jointly and severally, on a senior unsecured basis by certain domestic subsidiaries, which are directly or indirectly 100% owned by Lear.
For further information related to the Notes, including information on early redemption, covenants and events of default, see Note 6, "Debt," to the consolidated financial statements included in this Report.
Credit Agreement
In November 2014, we amended and restated our credit agreement to, among other things, increase the borrowing capacity of the revolving credit facility from $1.0 billion to $1.25 billion, extend the maturity of the facility from January 30, 2018 to November 14, 2019, and establish a $500 million delayed-draw term loan facility. As of December 31, 2014, there were no borrowings outstanding under the revolving credit facility or term loan facility, and we were in compliance with all covenants under the credit agreement. In January 2015, we borrowed $500 million under the term loan facility to finance the acquisition of Eagle Ottawa.
For further information related to the credit agreement, including information on pricing, covenants and events of default, see Note 6, "Debt," to the consolidated financial statements included in this Report and the amended and restated credit agreement, which has been incorporated by reference as an exhibit to this Report.

41


Contractual Obligations
The scheduled maturities of the Notes, obligations under the Credit Agreement and the scheduled interest payments on the Notes as of the date of this Report are shown below (in millions). In addition, our lease commitments under non-cancelable operating leases as of December 31, 2014, are shown below (in millions):
 
2015
 
2016
 
2017
 
2018
 
2019
 
Thereafter
 
Total
Senior notes (1)
$
245.0

 
$

 
$

 
$

 
$

 
$
1,475.0

 
$
1,720.0

Credit agreement (2)
9.4

 
21.8

 
34.4

 
46.9

 
37.5

 
350.0

 
500.0

Scheduled interest payments
63.4

 
75.3

 
75.3

 
75.3

 
75.3

 
349.4

 
714.0

Lease commitments
100.5

 
80.1

 
71.4

 
66.1

 
59.7

 
68.5

 
446.3

Total
$
418.3

 
$
177.2

 
$
181.1

 
$
188.3

 
$
172.5

 
$
2,242.9

 
$
3,380.3

(1)
Represents aggregate principal amounts at maturity, with the exception of the 2020 Notes. As described in "— Senior Notes" above, our Board of Directors authorized the redemption of the remaining outstanding aggregate principal amount of the 2020 Notes on or after March 15, 2015, and in January 2015, we issued a notice for the redemption of the 2020 Notes, which will occur on March 15, 2015.
(2)
As described in "— Credit Agreement" above, in January 2015, we borrowed $500 million under the term loan facility to finance the acquisition of Eagle Ottawa.
We enter into agreements with our customers to produce products at the beginning of a vehicle’s life cycle. Although such agreements do not provide for a specified quantity of products, once we enter into such agreements, we are generally required to fulfill our customers’ purchasing requirements for the production life of the vehicle. Prior to being formally awarded a program, we typically work closely with our customers in the early stages of the design and engineering of a vehicle’s systems. Failure to complete the design and engineering work related to a vehicle’s systems, or to fulfill a customer’s contract, could have a material adverse impact on our business.
We also enter into agreements with suppliers to assist us in meeting our customers’ production needs. These agreements vary as to duration and quantity commitments. Historically, most have been short-term agreements, which do not provide for minimum purchases, or are requirements-based contracts.
We may be required to make significant cash outlays related to our unrecognized tax benefits, including interest and penalties. However, due to the uncertainty of the timing of future cash flows associated with our unrecognized tax benefits, we are unable to make reasonably reliable estimates of the period of cash settlement, if any, with the respective taxing authorities. Accordingly, unrecognized tax benefits, including interest and penalties, of $46 million as of December 31, 2014, have been excluded from the contractual obligations table above. For further information related to our unrecognized tax benefits, see Note 7, "Income Taxes," to the consolidated financial statements included in this Report.
We also have minimum funding requirements with respect to our pension obligation. We may elect to make contributions in excess of the minimum funding requirements in response to investment performance or changes in interest rates or when we believe that it is financially advantageous to do so and based on our other cash requirements. Our minimum funding requirements after 2015 will depend on several factors, including investment performance and interest rates. Our minimum funding requirements may also be affected by changes in applicable legal requirements. Our minimum required contributions to our domestic and foreign pension plans, including distributions to participants in certain of our non-qualified defined benefit plans, are expected to be approximately $25 to $30 million in 2015. We also have payments due with respect to our postretirement benefit obligation. We do not fund our postretirement benefit obligation. Rather, payments are made as costs are incurred by covered retirees. We expect payments related to our postretirement benefit obligation to be approximately $7 million in 2015.
We also have a defined contribution retirement program for our salaried employees. Contributions to this program are determined as a percentage of each covered employee’s eligible compensation and are expected to be approximately $18 million in 2015.
For further information related to our pension and other postretirement benefit plans, see "— Other Matters — Pension and Other Postretirement Defined Benefit Plans" and Note 8, "Pension and Other Postretirement Benefit Plans," to the consolidated financial statements included in this Report.

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Accounts Receivable Factoring
In the fourth quarter of 2014, one of our European subsidiaries entered into an uncommitted factoring agreement, which provides for aggregate purchases of specified customer accounts of up to €200 million. As of December 31, 2014, there were no factored receivables outstanding. We cannot provide any assurances that this factoring facility will be available or utilized in the future.
Common Stock Share Repurchase Program
See Item 5, "Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities."
Dividends
See Item 5, "Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities."
Adequacy of Liquidity Sources
As of December 31, 2014, we had approximately $1.1 billion of cash and cash equivalents on hand and $1.25 billion in available borrowing capacity under our revolving credit facility. Together with cash provided by operating activities, we believe that this will enable us to meet our liquidity needs to satisfy ordinary course business obligations. In addition, we expect to continue to pay quarterly dividends and repurchase shares of our common stock pursuant to our authorized common stock share repurchase program (see Item 5, "Market for the Company’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities"). Our future financial results and our ability to continue to meet our liquidity needs are subject to, and will be affected by, cash flows from operations, including the impact of restructuring activities, automotive industry conditions, the financial condition of our customers and suppliers and other related factors. Additionally, an economic downturn or reduction in production levels could negatively impact our financial condition. For further discussion of the risks and uncertainties affecting our cash flows from operations and our overall liquidity, see Part I — Item 1A, "Risk Factors," "— Executive Overview" above and "— Forward-Looking Statements" below.
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.
Currently, our most significant foreign currency transactional exposures relate to the Mexican peso, various European currencies, the Thai baht, the Chinese renminbi, the Brazilian real and the Canadian dollar. We have performed a quantitative analysis of our overall currency rate exposure as of December 31, 2014 and 2013. As of December 31, 2014, the potential adverse earnings impact related to net transactional exposures from a hypothetical 10% strengthening of the U.S. dollar relative to all other currencies to which it is exposed for a twelve-month period is approximately $16 million. The potential adverse earnings impact related to net transactional exposures from a similar strengthening of the Euro relative to all other currencies to which it is exposed for a twelve-month period is approximately $1 million. As of December 31, 2013, the potential adverse earnings impact related to net transactional exposures from a hypothetical 10% strengthening of the U.S. dollar relative to all other currencies to which it is exposed for a twelve-month period is approximately $27 million. The potential earnings benefit related to net transactional exposures from a similar strengthening of the Euro relative to all other currencies to which it is exposed for a twelve-month period is approximately $4 million.
As of December 31, 2014, foreign exchange contracts representing $1.3 billion of notional amount were outstanding with maturities of less than twenty-four months. As of December 31, 2014, the fair value of these contracts was approximately ($37) million. A 10% change in the value of the U.S. dollar relative to all other currencies to which it is exposed would result in a $51

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million change in the aggregate fair value of these contracts. A 10% change in the value of the Euro relative to all other currencies to which it is exposed would result in a $34 million change in the aggregate fair value of these contracts. As of December 31, 2013, foreign exchange contracts representing $1.1 billion of notional amount were outstanding with maturities of less than eighteen months. As of December 31, 2013, the fair value of these contracts was approximately $6 million. A 10% change in the value of the U.S. dollar relative to all other currencies to which it is exposed would result in a $27 million change in the aggregate fair value of these contracts. A 10% change in the value of the Euro relative to all other currencies to which it is exposed would result in a $37 million change in the aggregate fair value of these contracts.
There are certain shortcomings inherent in the sensitivity analysis presented. The analysis assumes 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 2014, 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.
Interest Rates
Historically, we used interest rate swap and other derivative contracts to manage our exposure to fluctuations in interest rates. As of December 31, 2014 and 2013, there were no interest rate contracts outstanding. We will continue to evaluate, and may use, derivative financial instruments, including forwards, futures, options, swaps and other derivative contracts, to manage our exposures to fluctuations in interest rates in the future.
Commodity Prices
Raw material, energy and commodity costs can be volatile. We have developed and implemented strategies to mitigate the impact of higher raw material, energy and commodity costs, such as the selective in-sourcing of components, the continued consolidation of our supply base, longer-term purchase commitments, financial hedges for certain commodities and the selective expansion of low-cost country sourcing and engineering, as well as value engineering and product benchmarking. However, these strategies, together with commercial negotiations with our customers and suppliers, typically offset only a portion of the adverse impact. Certain of these strategies also may limit our opportunities in a declining commodity environment. If these costs increase, it could have an adverse impact on our operating results in the foreseeable future. See Part I — Item 1A, "Risk Factors — Increases in the costs and restrictions on the availability of raw materials, energy, commodities and product components could adversely affect our financial performance," and "— Forward-Looking Statements."
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 and copper. The majority of the steel used in our products is comprised of components that are integrated into a seat system, such as seat structures and mechanisms and mechanical components. Therefore, our exposure to steel prices is primarily indirect, through these purchased components. Approximately 86% of our copper purchases are subject to price index agreements with our customers.
Historically, we used commodity swap and other derivative contracts to reduce our exposure to fluctuations in copper prices. As of December 31, 2014 and 2013, there were no commodity swap contracts outstanding.
For further information related to the financial instruments described above, see Note 13, "Financial Instruments," to the consolidated financial statements included in this Report.
Other Matters
Legal and Environmental Matters
We are involved from time to time in various legal proceedings and claims, including, without limitation, commercial and contractual disputes, product liability claims and environmental and other matters. As of December 31, 2014, we had recorded reserves for pending legal disputes, including commercial disputes and other matters, of $12 million. In addition, as of December 31, 2014, we had recorded reserves for product liability claims and environmental matters of $29 million and $5 million, respectively. Although these reserves were determined in accordance with GAAP, the ultimate outcomes of these matters are inherently uncertain, and actual results may differ significantly from current estimates. For a description of risks related to various legal proceedings and claims, see Part I — Item 1A, "Risk Factors." For a more complete description of our outstanding material legal proceedings, see Note 11, "Commitments and Contingencies," to the consolidated financial statements included in this Report.

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Significant Accounting Policies and Critical Accounting Estimates
Our significant accounting policies are more fully described in Note 2, "Summary of Significant Accounting Policies," to the consolidated financial statements included in this Report. Certain of our accounting policies require management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are based on our historical experience, the terms of existing contracts, our evaluation of trends in the industry, information provided by our customers and suppliers and information available from other outside sources, as appropriate. However, these estimates and assumptions are subject to an inherent degree of uncertainty. As a result, actual results in these areas may differ significantly from our estimates.
We consider an accounting estimate to be critical if it requires us to make assumptions about matters that were uncertain at the time the estimate was made and changes in the estimate would have had a significant impact on our consolidated financial position or results of operations.
Pre-Production Costs Related to Long-Term Supply Agreements
We incur pre-production engineering and development ("E&D") and tooling costs related to the products produced for our customers under long-term supply agreements. We expense all pre-production E&D costs for which reimbursement is not contractually guaranteed by the customer. In addition, we expense all pre-production tooling costs related to customer-owned tools for which reimbursement is not contractually guaranteed by the customer or for which we do not have a non-cancelable right to use the tooling.
A change in the commercial arrangements affecting any of our significant programs that would require us to expense E&D or tooling costs that we currently capitalize could have a material adverse impact on our operating results.
Impairment of Goodwill
As of December 31, 2014 and 2013, we had recorded goodwill of $726 million and $757 million, respectively. Goodwill is not amortized but is tested for impairment on at least an annual basis. Impairment testing is required more often than annually if an event or circumstance indicates that an impairment is more likely than not to have occurred. In conducting our annual impairment testing, we may first perform a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If not, no further goodwill impairment testing is performed. If it is more likely than not that a reporting unit’s fair value is less than its carrying amount, or if we elect not to perform a qualitative assessment of a reporting unit, we then compare the fair value of the reporting unit to the related net book value. If the net book value of a reporting unit exceeds its fair value, an impairment loss is measured and recognized. We conduct our annual impairment testing as of the first day of our fourth quarter.
We utilize an income approach to estimate the fair value of each of our reporting units and a market valuation approach to further support this analysis. The income approach is based on projected debt-free cash flow which is discounted to the present value using discount factors that consider the timing and risk of cash flows. We believe that this approach is appropriate because it provides a fair value estimate based upon the reporting unit’s expected long-term operating cash flow performance. This approach also mitigates the impact of cyclical trends that occur in the industry. Fair value is estimated using recent automotive industry and specific platform production volume projections, which are based on both third-party and internally developed forecasts, as well as commercial, wage and benefit, inflation and discount rate assumptions. The discount rate used is the value-weighted average of our estimated cost of equity and of debt ("cost of capital") derived using both known and estimated customary market metrics. Our weighted average cost of capital is adjusted by reporting unit to reflect a risk factor, if necessary. Other significant assumptions include terminal value growth rates, terminal value margin rates, future capital expenditures and changes in future working capital requirements. While there are inherent uncertainties related to the assumptions used and to management’s application of these assumptions to this analysis, we believe that the income approach provides a reasonable estimate of the fair value of our reporting units. The market valuation approach is used to further support our analysis and is based on recent transactions involving comparable companies.
In 2014, we performed a combination of qualitative and quantitative assessments of our reporting units. All assessments were completed as of the first day of our fourth quarter. The assessments indicated that the fair value of each of the reporting units exceeded its respective carrying value. We do not believe that any of our reporting units is at risk for impairment.

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Impairment of Long-Lived Assets
We monitor our long-lived assets for impairment indicators on an ongoing basis in accordance with GAAP. If impairment indicators exist, we perform the required impairment analysis by comparing the undiscounted cash flows expected to be generated from the long-lived assets to the related net book values. If the net book value exceeds the undiscounted cash flows, an impairment loss is measured and recognized. An impairment loss is measured as the difference between the net book value and the fair value of the long-lived assets. Fair value is estimated based upon either discounted cash flow analyses or estimated salvage values. Cash flows are estimated using internal budgets based on recent sales data, independent automotive production volume estimates and customer commitments, as well as assumptions related to discount rates. Changes in economic or operating conditions impacting these estimates and assumptions could result in the impairment of our long-lived assets.
For the years ended December 31, 2014, 2013 and 2012, we recognized fixed asset impairment charges of $1 million, $9 million and $6 million, respectively, in conjunction with our restructuring actions, as well as additional fixed asset impairment charges of $2 million, $2 million and $1 million, respectively. See Note 4, "Restructuring," to the consolidated financial statements included in this Report.
Impairment of Investments in Affiliates
As of December 31, 2014 and 2013, we had aggregate investments in affiliates of $172 million. We monitor our investments in affiliates for indicators of other-than-temporary declines in value on an ongoing basis in accordance with GAAP. If we determine that an other-than-temporary decline in value has occurred, we recognize an impairment loss, which is measured as the difference between the recorded book value and the fair value of the investment. Fair value is generally determined using an income approach based on discounted cash flows or negotiated transaction values. A deterioration in industry conditions and decline in the operating results of our non-consolidated affiliates could result in the impairment of our investments.
Restructuring
Accruals have been recorded in conjunction with our restructuring actions. These accruals include estimates primarily related to facility consolidations and closures, employment reductions and contract termination costs. Actual costs may vary from these estimates. Restructuring-related accruals are reviewed on a quarterly basis, and changes to restructuring actions are appropriately recognized when identified.
Legal and Other Contingencies
We are involved from time to time in various legal proceedings and claims, including commercial or contractual disputes, product liability claims and environmental and other matters, that arise in the normal course of business. We routinely assess the likelihood of any adverse judgments or outcomes related to these matters, as well as ranges of probable losses, by consulting with internal personnel principally involved with such matters and with our outside legal counsel handling such matters. We have accrued for estimated losses in accordance with GAAP for those matters where we believe that the likelihood that a loss has occurred is probable and the amount of the loss is reasonably estimable. The determination of the amount of such reserves is based on knowledge and experience with regard to past and current matters and consultation with internal personnel principally involved with such matters and with our outside legal counsel handling such matters. The amount of such reserves may change in the future due to new developments or changes in circumstances. The inherent uncertainty related to the outcome of these matters can result in amounts materially different from any provisions made with respect to their resolution. See Note 11, "Commitments and Contingencies," to the consolidated financial statements included in this Report.
Pension and Other Postretirement Defined Benefit Plans
We provide certain pension and other postretirement benefits to our employees and retired employees, including pensions, postretirement health care benefits and other postretirement benefits.
Plan assets and obligations are measured using various actuarial assumptions, such as discount rates, rate of compensation increase, mortality rates, turnover rates and health care cost trend rates, which are determined as of the current year measurement date. The measurement of net periodic benefit cost is based on various actuarial assumptions, including discount rates, expected return on plan assets and rate of compensation increase, which are determined as of the prior year measurement date. We review our actuarial assumptions on an annual basis and modify these assumptions when appropriate. As required by GAAP, the effects of the modifications are recorded currently or are amortized over future periods. In 2014, we adopted a new mortality base table and projection scale based on guidance published by the Society of Actuaries, which increased the projected benefit obligation for our U.S. pension and other postretirement benefit obligations by approximately 5% and 6%, respectively.  

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Approximately 8% of our active workforce is covered by defined benefit pension plans. Approximately 1% of our active workforce is covered by other postretirement benefit plans. Pension plans provide benefits based on plan-specific benefit formulas as defined by the applicable plan documents. Postretirement benefit plans generally provide for the continuation of medical benefits for all eligible employees. We also have contractual arrangements with certain employees which provide for supplemental retirement benefits. In general, our policy is to fund our pension benefit obligation based on legal requirements, tax and liquidity considerations and local practices. We do not fund our postretirement benefit obligation.
As of December 31, 2014, our projected benefit obligations related to our pension and other postretirement benefit plans were $1.2 billion and $130 million, respectively, and our unfunded pension and other postretirement benefit obligations were $277 million and $130 million, respectively. These benefit obligations were valued using a weighted average discount rate of 4.1% and 3.9% for domestic pension and other postretirement benefit plans, respectively, and 3.6% and 4.0% for foreign pension and other postretirement benefit plans, respectively. The determination of the discount rate is generally based on an index created from a hypothetical bond portfolio consisting of high-quality fixed income securities with durations that match the timing of expected benefit payments. Changes in the selected discount rate could have a material impact on our projected benefit obligations and the unfunded status of our pension and other postretirement benefit plans. Decreasing the discount rate by 100 basis points would have increased the projected benefit obligations and unfunded status of our pension and other postretirement benefit plans by approximately $208 million and $22 million, respectively.
For the year ended December 31, 2014, net periodic pension benefit credit was $3 million, and net periodic other postretirement benefit cost was $7 million. In 2014, net periodic pension benefit credit was calculated using a variety of assumptions, including a weighted average discount rate of 5.0% for domestic and 4.7% for foreign plans and an expected return on plan assets of 7.8% for domestic and 6.7% for foreign plans. The expected return on plan assets is determined based on several factors, including adjusted historical returns, historical risk premiums for various asset classes and target asset allocations within the portfolio. Adjustments made to the historical returns are based on recent return experience in the equity and fixed income markets and the belief that deviations from historical returns are likely over the relevant investment horizon. In 2014, net periodic other postretirement benefit cost was calculated using a discount rate of 4.5% for domestic and 5.0% for foreign plans.
Aggregate net periodic pension and other postretirement benefit cost is forecasted to be approximately $8 million in 2015. This estimate is based on a weighted average discount rate of 4.1% and 3.6% for domestic and foreign pension plans, respectively, and 3.9% and 4.0% for domestic and foreign other postretirement benefit plans, respectively. Actual cost is also dependent on various other factors related to the employees covered by these plans. Adjustments to our actuarial assumptions could have a material adverse impact on our operating results. Decreasing the discount rate by 100 basis points would increase net periodic pension and other postretirement benefit cost by approximately $6 million and $1 million, respectively, for the year ended December 31, 2015. Decreasing the expected return on plan assets by 100 basis points would increase net periodic pension benefit cost by approximately $9 million for the year ended December 31, 2015.
For further information related to our pension and other postretirement benefit plans, see "— Liquidity and Financial Condition — Capitalization — Contractual Obligations" above and Note 8, "Pension and Other Postretirement Benefit Plans," to the consolidated financial statements included in this Report.
Revenue Recognition and Sales Commitments
We enter into agreements with our customers to produce products at the beginning of a vehicle’s life cycle. Although such agreements do not provide for a specified quantity of products, once we enter into such agreements, we are generally required to fulfill our customers’ purchasing requirements for the production life of the vehicle. These agreements generally may be terminated by our customers at any time. Historically, terminations of these agreements have been minimal. Sales are generally recorded upon shipment of product to customers and transfer of title under standard commercial terms. In certain instances, we may be committed under existing agreements to supply products to our customers at selling prices which are not sufficient to cover the direct cost to produce such products. In such situations, we recognize losses as they are incurred.
We receive purchase orders from our customers on an annual basis. Generally, each purchase order provides the annual terms, including pricing, related to a particular vehicle model. Purchase orders do not specify quantities. We recognize revenue based on the pricing terms included in our annual purchase orders. We are asked to provide our customers with annual productivity price reductions as part of certain agreements. We accrue for such amounts as a reduction of revenue as our products are shipped to our customers. In addition, we have ongoing adjustments to our pricing arrangements with our customers based on the related content, the cost of our products and other commercial factors. Such pricing accruals are adjusted as they are settled with our customers.

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Income Taxes
We account for income taxes in accordance with GAAP. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax loss and credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
Our current and future provision for income taxes is impacted by the initial recognition of and changes in valuation allowances in certain countries. We intend to maintain these allowances until it is more likely than not that the deferred tax assets will be realized. Our future provision for income taxes will include no tax benefit with respect to losses incurred and, except for certain jurisdictions, no tax expense with respect to income generated in these countries until the respective valuation allowances are eliminated. Accordingly, income taxes are impacted by changes in valuation allowances and the mix of earnings among jurisdictions. We evaluate the realizability of our deferred tax assets on a quarterly basis. In completing this evaluation, we consider all available evidence in order to determine whether, based on the weight of the evidence, a valuation allowance for our deferred tax assets is necessary. Such evidence includes historical results, future reversals of existing taxable temporary differences and expectations for future taxable income (exclusive of the reversal of temporary differences and carryforwards), as well as the implementation of feasible and prudent tax planning strategies. If, based on the weight of the evidence, it is more likely than not that all or a portion of our deferred tax assets will not be realized, a valuation allowance is recorded. As of December 31, 2014, we had a valuation allowance related to tax loss and credit carryforwards and other deferred tax assets of $35 million in the United States and $473 million in several international jurisdictions. If operating results improve or decline on a continual basis in a particular jurisdiction, our decision regarding the need for a valuation allowance could change, resulting in either the initial recognition or reversal of a valuation allowance in that jurisdiction, which could have a significant impact on income tax expense in the period recognized and subsequent periods. In determining the provision for income taxes for financial statement purposes, we make certain estimates and judgments, which affect our evaluation of the carrying value of our deferred tax assets, as well as our calculation of certain tax liabilities.
The calculation of our gross unrecognized tax benefits and liabilities includes uncertainties in the application of, and changes in, complex tax regulations in a multitude of jurisdictions across our global operations. We recognize tax benefits and liabilities based on our estimate of whether, and the extent to which, additional taxes will be due. We adjust these benefits and liabilities based on changing facts and circumstances; however, due to the complexity of these uncertainties and the impact of tax audits, the ultimate resolutions may differ significantly from our estimates.
For further information, see "— Forward-Looking Statements," and Note 7, "Income Taxes," to the consolidated financial statements included in this Report.
Fair Value Measurements
We measure certain assets and liabilities at fair value on a non-recurring basis using unobservable inputs (Level 3 input based on the GAAP fair value hierarchy). For further information on these fair value measurements, see "— Impairment of Goodwill," "— Impairment of Long-Lived Assets," "— Restructuring" and "— Impairment of Investments in Affiliates" above.
Use of Estimates
The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. During 2014, there were no material changes in the methods or policies used to establish estimates and assumptions. Other matters subject to estimation and judgment include amounts related to accounts receivable realization, inventory obsolescence, asset impairments, useful lives of fixed and intangible assets, unsettled pricing discussions with customers and suppliers, restructuring accruals, deferred tax asset valuation allowances and income taxes, pension and other postretirement benefit plan assumptions, accruals related to litigation, warranty and environmental remediation costs and self-insurance accruals. Actual results may differ significantly from our estimates.
Recently Issued Accounting Pronouncements
For information on the impact of recently issued accounting pronouncements, see Note 15, "Accounting Pronouncements," to the consolidated financial statements included in this Report.


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Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf. The words "will," "may," "designed to," "outlook," "believes," "should," "anticipates," "plans," "expects," "intends," "estimates," "forecasts" and similar expressions identify certain of these forward-looking statements. We also may provide forward-looking statements in oral statements or other written materials released to the public. All such forward-looking statements contained or incorporated in this Report or in any other public statements which address operating performance, events or developments that we expect or anticipate may occur in the future, including, without limitation, statements related to business opportunities, awarded sales contracts, sales backlog and ongoing commercial arrangements, or statements expressing views about future operating results, are forward-looking statements. Actual results may differ materially from any or all forward-looking statements made by us. Important factors, risks and uncertainties that may cause actual results to differ materially from anticipated results include, but are not limited to:
general economic conditions in the markets in which we operate, including changes in interest rates or currency exchange rates;
currency controls and the ability to economically hedge currencies;
the financial condition and restructuring actions of our customers and suppliers;
changes in actual industry vehicle production levels from our current estimates;
fluctuations in the production of vehicles or the loss of business with respect to, or the lack of commercial success of, a vehicle model for which we are a significant supplier;
disruptions in the relationships with our suppliers;
labor disputes involving us or our significant customers or suppliers or that otherwise affect us;
the outcome of customer negotiations and the impact of customer-imposed price reductions;
the impact and timing of program launch costs and our management of new program launches;
the costs, timing and success of restructuring actions;
increases in our warranty, product liability or recall costs;
risks associated with conducting business in foreign countries;
the impact of regulations on our foreign operations;
the operational and financial success of our joint ventures;
competitive conditions impacting us and our key customers and suppliers;
disruptions to our information technology systems, including those related to cybersecurity;
the cost and availability of raw materials, energy, commodities and product components and our ability to mitigate such costs;
the outcome of legal or regulatory proceedings to which we are or may become a party;
the impact of pending legislation and regulations or changes in existing federal, state, local or foreign laws or regulations;
unanticipated changes in cash flow, including our ability to align our vendor payment terms with those of our customers;
limitations imposed by our existing indebtedness and our ability to access capital markets on commercially reasonable terms;

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impairment charges initiated by adverse industry or market developments;
our ability to execute our strategic objectives;
changes in discount rates and the actual return on pension assets;
costs associated with compliance with environmental laws and regulations;
the impact of new regulations related to conflict minerals;
developments or assertions by or against us relating to intellectual property rights;
our ability to utilize our net operating loss, capital loss and tax credit carryforwards;
global sovereign fiscal matters and creditworthiness, including potential defaults and the related impacts on economic activity, including the possible effects on credit markets, currency values, monetary unions, international treaties and fiscal policies; and
other risks, described in Part I — Item 1A, "Risk Factors," as well as the risks and information provided from time to time in our filings with the Securities and Exchange Commission.
The forward-looking statements in this Report are made as of the date hereof, and we do not assume any obligation to update, amend or clarify them to reflect events, new information or circumstances occurring after the date hereof.


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ITEM 8 – CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 

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Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of Lear Corporation
We have audited the accompanying consolidated balance sheets of Lear Corporation and subsidiaries as of December 31, 2014 and 2013, and the related consolidated statements of income, comprehensive income, equity and cash flows for each of the three years in the period ended December 31, 2014. Our audits also included the financial statement schedule listed in the Index at Item 15(a). These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Lear Corporation and subsidiaries at December 31, 2014 and 2013, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 2014, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Lear Corporation’s internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our report dated February 10, 2015, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Detroit, Michigan
February 10, 2015

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Report of Independent Registered Public Accounting Firm on
Internal Control over Financial Reporting
The Board of Directors and Shareholders of Lear Corporation
We have audited Lear Corporation and subsidiaries’ internal control over financial reporting as of December 31, 2014, based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO criteria). Lear Corporation and subsidiaries’ management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Annual Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design and operating effectiveness of internal control based on the assessed risk and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, Lear Corporation and subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31, 2014, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the 2014 consolidated financial statements of Lear Corporation and subsidiaries, and our report dated February 10, 2015, expressed an unqualified opinion thereon.
/s/ Ernst & Young LLP
Detroit, Michigan
February 10, 2015


53


LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In millions, except share data) 
December 31,
2014
 
2013
Assets
 
 
 
Current Assets:
 
 
 
Cash and cash equivalents
$
1,094.1

 
$
1,137.7

Accounts receivable
2,471.7

 
2,278.3

Inventories
853.7

 
818.7

Other
960.1

 
687.8

Total current assets
5,379.6

 
4,922.5

Long-Term Assets:
 
 
 
Property, plant and equipment, net
1,624.7

 
1,587.2

Goodwill
726.2

 
757.2

Other
1,419.7

 
1,064.0

Total long-term assets
3,770.6

 
3,408.4

Total assets
$
9,150.2

 
$
8,330.9

Liabilities and Equity
 
 
 
Current Liabilities:
 
 
 
Accounts payable and drafts
$
2,525.3

 
$
2,438.7

Accrued liabilities
1,188.8

 
1,140.4

Current portion of long-term debt
243.7

 

Total current liabilities
3,957.8

 
3,579.1

Long-Term Liabilities:
 
 
 
Long-term debt
1,475.0

 
1,057.1

Other
688.1

 
545.2

Total long-term liabilities
2,163.1

 
1,602.3

Equity:
 
 
 
Preferred stock, 100,000,000 shares authorized (including 10,896,250 shares of Series A convertible preferred stock authorized); no shares outstanding

 

Common stock, $0.01 par value, 300,000,000 shares authorized; 80,563,291 and 88,062,341 shares issued as of December 31, 2014 and 2013, respectively
0.8

 
0.9

Additional paid-in capital, including warrants to purchase common stock
1,475.2

 
1,652.9

Common stock held in treasury, 2,541,306 and 7,311,037 shares as of December 31, 2014 and 2013, respectively, at cost
(176.9
)
 
(362.1
)
Retained earnings
2,161.7

 
1,920.3

Accumulated other comprehensive loss
(502.0
)
 
(166.1
)
Lear Corporation stockholders’ equity
2,958.8

 
3,045.9

Noncontrolling interests
70.5

 
103.6

Equity
3,029.3

 
3,149.5

Total liabilities and equity
$
9,150.2

 
$
8,330.9

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

54


LEAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In millions, except per share data)
For the year ended December 31,
2014
 
2013
 
2012
Net sales
$
17,727.3

 
$
16,234.0

 
$
14,567.0

Cost of sale