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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_______________________________________ 
FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended April 4, 2020.
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     .
Commission file number: 001-11311
 https://cdn.kscope.io/c43897d93ebb0dcf5cfb786bfe303bb1-learlogoa19.jpg
(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)
(248) 447-1500
(Registrant’s telephone number, including area code)
_______________________________________  
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Trading Symbol(s)
Name of Each Exchange on Which Registered
Common stock, par value $0.01
LEA
New York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes  x    No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer
x
 
 
Accelerated filer
Non-accelerated filer
 
 
Smaller reporting company
Emerging growth company
 
 
 
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  x
As of May 5, 2020, the number of shares outstanding of the registrant’s common stock was 59,919,614 shares.
 


LEAR CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED APRIL 4, 2020

INDEX

 
Page No.
 
 
Item 3 – Quantitative and Qualitative Disclosures about Market Risk (included in Item 2)
 
 

2

LEAR CORPORATION AND SUBSIDIARIES

PART I — FINANCIAL INFORMATION

ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

INTRODUCTION TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
We have prepared the unaudited condensed consolidated financial statements of Lear Corporation and subsidiaries pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("GAAP") have been condensed or omitted pursuant to such rules and regulations. We believe that the disclosures are adequate to make the information presented not misleading when read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, for the year ended December 31, 2019.
The financial information presented reflects all adjustments (consisting of normal recurring adjustments) which are, in our opinion, necessary for a fair presentation of the results of operations, cash flows and financial position for the interim periods presented. These results are not necessarily indicative of a full year’s results of operations.


3

LEAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share data)

 
April 4, 2020(1)
December 31,
2019
ASSETS
 
 
CURRENT ASSETS:
 
 
Cash and cash equivalents
$
2,449.1

$
1,487.7

Accounts receivable
2,472.1

2,982.6

Inventories
1,324.3

1,258.2

Other
663.0

678.2

Total current assets
6,908.5

6,406.7

LONG-TERM ASSETS:
 
 
Property, plant and equipment, net
2,608.4

2,704.2

Goodwill
1,592.2

1,614.3

Other
1,913.2

1,955.5

Total long-term assets
6,113.8

6,274.0

Total assets
$
13,022.3

$
12,680.7

 
 
 
LIABILITIES AND EQUITY
 
 
CURRENT LIABILITIES:
 
 
Short-term borrowings
$
9.6

$
19.2

Revolving credit facility borrowings
1,000.0


Accounts payable and drafts
2,496.5

2,821.7

Accrued liabilities
1,826.7

1,811.2

Current portion of long-term debt
15.7

14.1

Total current liabilities
5,348.5

4,666.2

LONG-TERM LIABILITIES:
 
 
Long-term debt
2,306.8

2,293.7

Other
1,070.2

1,101.3

Total long-term liabilities
3,377.0

3,395.0

 
 
 
Redeemable noncontrolling interest
113.5

118.4

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


Common stock, $0.01 par value, 300,000,000 shares authorized; 64,563,291 shares issued as of April 4, 2020 and December 31, 2019
0.6

0.6

Additional paid-in capital
946.0

969.1

Common stock held in treasury, 4,645,124 and 4,127,806 shares as of April 4, 2020 and December 31, 2019, respectively, at cost
(615.6
)
(563.1
)
Retained earnings
4,741.8

4,715.8

Accumulated other comprehensive loss
(1,049.3
)
(772.7
)
Lear Corporation stockholders’ equity
4,023.5

4,349.7

Noncontrolling interests
159.8

151.4

Equity
4,183.3

4,501.1

Total liabilities and equity
$
13,022.3

$
12,680.7

 (1)  
Unaudited.
The accompanying notes are an integral part of these condensed consolidated balance sheets.

4

LEAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited; in millions, except share and per share data)

 
Three Months Ended
 
April 4,
2020
March 30,
2019
Net sales
$
4,457.7

$
5,160.1

 
 
 
Cost of sales
4,123.5

4,686.9

Selling, general and administrative expenses
143.7

148.3

Amortization of intangible assets
17.1

12.7

Interest expense
24.4

20.9

Other expense, net
40.5

4.4

Consolidated income before provision for income taxes and equity in net income of affiliates
108.5

286.9

Provision for income taxes
26.5

43.1

Equity in net income of affiliates
(1.6
)
(2.3
)
Consolidated net income
83.6

246.1

Less: Net income attributable to noncontrolling interests
7.2

17.2

Net income attributable to Lear
$
76.4

$
228.9

 
 
 
Basic net income per share available to Lear common stockholders (Note 14)
$
1.26

$
3.75

 
 
 
Diluted net income per share available to Lear common stockholders (Note 14)
$
1.26

$
3.73

 
 
 
Cash dividends declared per share
$
0.77

$
0.75

 
 
 
Average common shares outstanding
60,509,450

62,818,792

 
 
 
Average diluted shares outstanding
60,678,590

63,123,197

 
 
 
 
 
 
Consolidated comprehensive income (loss) (Condensed Consolidated Statements of Equity)
$
(197.8
)
$
248.2

Less: Comprehensive income attributable to noncontrolling interests
2.4

25.0

Comprehensive income (loss) attributable to Lear
$
(200.2
)
$
223.2

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

5

LEAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY
(Unaudited; in millions, except share and per share data)

 
Three Months Ended April 4, 2020
 
Common Stock
Additional Paid-In Capital
Common Stock Held in Treasury
Retained Earnings
Accumulated Other Comprehensive Loss, Net of Tax
Lear Corporation Stockholders' Equity
Balance at January 1, 2020
$
0.6

$
969.1

$
(563.1
)
$
4,715.8

$
(772.7
)
$
4,349.7

Comprehensive income (loss):
 
 
 
 
 
 
Net income



76.4


76.4

Other comprehensive loss




(276.6
)
(276.6
)
Total comprehensive income (loss)



76.4

(276.6
)
(200.2
)
Adoption of ASU 2016-13 (Note 18)



(0.8
)

(0.8
)
Stock-based compensation

3.9




3.9

Net issuance of 123,831 shares held in treasury in settlement of stock-based compensation

(27.0
)
17.5

(1.7
)

(11.2
)
Repurchase of 641,149 shares of common stock at average price of $109.22 per share


(70.0
)


(70.0
)
Dividends declared to Lear Corporation stockholders



(46.8
)

(46.8
)
Dividends declared to non-controlling interest holders






Redeemable non-controlling interest adjustment



(1.1
)

(1.1
)
Balance at April 4, 2020
$
0.6

$
946.0

$
(615.6
)
$
4,741.8

$
(1,049.3
)
$
4,023.5

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

6

LEAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (continued)
(Unaudited; in millions, except share and per share data)

 
Three Months Ended April 4, 2020
 
Lear Corporation Stockholders' Equity
Non-controlling Interests
Equity
 
 
Redeemable Non-controlling Interests
Balance at January 1, 2020
$
4,349.7

$
151.4

$
4,501.1

 
 
$
118.4

Comprehensive income (loss):
 
 
 
 
 
 
Net income
76.4

11.1

87.5

 
 
(3.9
)
Other comprehensive loss
(276.6
)
(2.7
)
(279.3
)
 
 
(2.1
)
Total comprehensive income (loss)
(200.2
)
8.4

(191.8
)
 
 
(6.0
)
Adoption of ASU 2016-13 (Note 18)
(0.8
)

(0.8
)
 
 

Stock-based compensation
3.9


3.9

 
 

Net issuance of 123,831 shares held in treasury in settlement of stock-based compensation
(11.2
)

(11.2
)
 
 

Repurchase of 641,149 shares of common stock at average price of $109.22 per share
(70.0
)

(70.0
)
 
 

Dividends declared to Lear Corporation stockholders
(46.8
)

(46.8
)
 
 

Dividends declared to non-controlling interest holders



 
 

Redeemable non-controlling interest adjustment
(1.1
)

(1.1
)
 
 
1.1

Balance at April 4, 2020
$
4,023.5

$
159.8

$
4,183.3

 
 
$
113.5

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

7

LEAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (continued)
(Unaudited; in millions, except share and per share data)

 
Three Months Ended March 30, 2019
 
Common Stock
Additional Paid-In Capital
Common Stock Held in Treasury
Retained Earnings
Accumulated Other Comprehensive Loss, Net of Tax
Lear Corporation Stockholders' Equity
Balance at January 1, 2019
$
0.6

$
1,017.4

$
(225.1
)
$
4,113.6

$
(705.8
)
$
4,200.7

Comprehensive income (loss):
 
 
 
 
 
 
Net income



228.9


228.9

Other comprehensive income (loss)




(5.7
)
(5.7
)
Total comprehensive income (loss)



228.9

(5.7
)
223.2

Stock-based compensation

9.5




9.5

Net issuance of 280,020 shares held in treasury in settlement of stock-based compensation

(65.4
)
37.4

(1.2
)

(29.2
)
Repurchase of 804,270 shares of common stock at average price of $146.56 per share


(117.9
)


(117.9
)
Dividends declared to Lear Corporation stockholders



(47.7
)

(47.7
)
Dividends declared to non-controlling interest holders






Redeemable non-controlling interest adjustment



6.7


6.7

Balance at March 30, 2019
$
0.6

$
961.5

$
(305.6
)
$
4,300.3

$
(711.5
)
$
4,245.3

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




8

LEAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY (continued)
(Unaudited; in millions, except share and per share data)

 
Three Months Ended March 30, 2019
 
Lear Corporation Stockholders' Equity
Non-controlling Interests
Equity
 
 
Redeemable Non-controlling Interests
Balance at January 1, 2019
$
4,200.7

$
159.9

$
4,360.6

 
 
$
158.1

Comprehensive income (loss):
 
 
 
 
 
 
Net income
228.9

16.0

244.9

 
 
1.2

Other comprehensive income (loss)
(5.7
)
3.8

(1.9
)
 
 
4.0

Total comprehensive income (loss)
223.2

19.8

243.0

 
 
5.2

Stock-based compensation
9.5


9.5

 
 

Net issuance of 280,020 shares held in treasury in settlement of stock-based compensation
(29.2
)

(29.2
)
 
 

Repurchase of 804,270 shares of common stock at average price of $146.56 per share
(117.9
)

(117.9
)
 
 

Dividends declared to Lear Corporation stockholders
(47.7
)

(47.7
)
 
 

Dividends declared to non-controlling interest holders

(31.3
)
(31.3
)
 
 

Redeemable non-controlling interest adjustment
6.7


6.7

 
 
(6.7
)
Balance at March 30, 2019
$
4,245.3

$
148.4

$
4,393.7

 
 
$
156.6

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


9

LEAR CORPORATION AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited; in millions)

 
Three Months Ended
 
April 4,
2020
March 30,
2019
Cash Flows from Operating Activities:
 
 
Consolidated net income
$
83.6

$
246.1

Adjustments to reconcile consolidated net income to net cash provided by operating activities:
 
 
Depreciation and amortization
130.5

123.6

Loss on extinguishment of debt
21.1


Net change in recoverable customer engineering, development and tooling
(45.5
)
(15.3
)
Net change in working capital items (see below)
(23.2
)
(287.5
)
Other, net
55.8

(15.3
)
Net cash provided by operating activities
222.3

51.6

Cash Flows from Investing Activities:
 
 
Additions to property, plant and equipment
(109.1
)
(122.8
)
Other, net
19.0

6.2

Net cash used in investing activities
(90.1
)
(116.6
)
Cash Flows from Financing Activities:
 
 
Revolving credit facility borrowings
1,000.0


Term loan repayments
(3.1
)
(1.6
)
Short-term borrowings, net
(9.5
)
4.8

Proceeds from the issuance of senior notes
669.1


Redemption of senior notes
(667.1
)

Payment of debt issuance and other financing costs
(6.9
)

Repurchase of common stock
(70.0
)
(122.2
)
Dividends paid to Lear Corporation stockholders
(47.8
)
(49.5
)
Dividends paid to noncontrolling interests

(31.3
)
Other, net
(14.1
)
(34.9
)
Net cash provided by (used in) financing activities
850.6

(234.7
)
Effect of foreign currency translation
(31.3
)
0.8

Net Change in Cash, Cash Equivalents and Restricted Cash
951.5

(298.9
)
Cash, Cash Equivalents and Restricted Cash as of Beginning of Period
1,510.4

1,519.8

Cash, Cash Equivalents and Restricted Cash as of End of Period
$
2,461.9

$
1,220.9

 
 
 
Changes in Working Capital Items:
 
 
Accounts receivable
$
415.6

$
(592.7
)
Inventories
(113.8
)
(8.0
)
Accounts payable
(247.6
)
239.6

Accrued liabilities and other
(77.4
)
73.6

Net change in working capital items
$
(23.2
)
$
(287.5
)
 
 
 
Supplementary Disclosure:
 
 
Cash paid for interest
$
34.5

$
43.6

Cash paid for income taxes, net of refunds received
$
35.8

$
41.6

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

10

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


(1) Basis of Presentation
Lear Corporation ("Lear," and together with its consolidated subsidiaries, the "Company") and its affiliates design and manufacture automotive seating and electrical distribution systems and related components. The Company’s main customers are automotive original equipment manufacturers. The Company operates facilities worldwide.
The accompanying condensed consolidated financial statements include the accounts of Lear, a Delaware corporation, and the wholly owned and less than wholly owned subsidiaries controlled by Lear. In addition, Lear consolidates all entities, including variable interest entities, in which it has a controlling financial interest. Investments in affiliates in which Lear does not have control, but does have the ability to exercise significant influence over operating and financial policies, are accounted for under the equity method.
In the second quarter of 2019, the Company completed the acquisition of Xevo Inc. (“Xevo”), a Seattle-based, global leader in connected car software, by acquiring all of Xevo's outstanding shares. The acquisition of Xevo has been accounted for as a business combination, and accordingly, the assets acquired and liabilities assumed are included in the accompanying condensed consolidated balance sheets as of April 4, 2020 and December 31, 2019. The operating results and cash flows of Xevo are included in the accompanying condensed consolidated financial statements from the date of acquisition and in the Company's E-Systems segment. For further information related to the acquisition of Xevo, see Note 3, “Acquisition,” to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.
The Company’s annual financial results are reported on a calendar year basis, and quarterly interim results are reported using a thirteen week reporting calendar.

(2) Impact of COVID-19 Pandemic
Unprecedented industry disruptions related to the COVID-19 pandemic during the first quarter of 2020 impacted operations in every region of the world. Our operations in China were impacted first, with most plants in the country closed for several weeks during the quarter. At the end of the quarter, all of our facilities in China were operating and capacity utilization is increasing. Beginning in mid-March, our operations in Europe, North America, South America and Asia (excluding China) were impacted, with virtually all plants closed at the end of the quarter and closures continuing throughout April and, in most cases, into May. While manufacturing has resumed at certain locations in Europe and North America, production levels at these facilities are currently well below capacity. Accordingly, the COVID-19 pandemic is expected to have a material impact on the Company's second quarter 2020 sales, operating results and cash flows.
It is also likely that the global automotive industry will experience lower demand for new vehicle sales for a period of time as a result of the global economic slowdown caused by the COVID-19 pandemic, as new vehicle sales are correlated with positive consumer confidence and low unemployment. In addition, the Company's customers may request extended payment terms, as part of their own response to the COVID-19 pandemic. Finally, a resurgence of the virus with corresponding shelter-in-place orders later in the year could further impact the Company's financial results.
The accompanying condensed consolidated financial statements reflect estimates and assumptions made by management as of April 4, 2020, and for the three months then ended. Such estimates and assumptions affect, among other things, the Company's goodwill, long-lived asset and indefinite-lived intangible asset valuations; inventory valuations; assessment of the annual effective tax rate; valuation of deferred income taxes and income tax contingencies; and credit losses related to our financial instruments. Events and circumstances arising after April 4, 2020, including those resulting from the impact of the COVID-19 pandemic, will be reflected in management's estimates and assumptions in future periods.
For information related to goodwill, see Note 7, "Goodwill," herein and Note 2, "Summary of Significant Accounting Policies — Impairment of Goodwill and Intangible Assets," to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019. For more information related to income taxes, see Note 13, "Income Taxes," herein and Note 2, "Summary of Significant Accounting Policies — Income Taxes," to the consolidated financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2019.


11

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(3) Restructuring
Restructuring costs include employee termination benefits, asset impairment charges and contract termination costs, as well as other incremental costs resulting from the restructuring actions. Employee termination benefits are recorded based on existing union and employee contracts, statutory requirements, completed negotiations and Company policy. Other incremental costs principally include equipment and personnel relocation costs. In addition to restructuring costs, the Company incurs incremental manufacturing inefficiency costs at the operating locations impacted by the restructuring actions during the related restructuring implementation period. Restructuring costs are recognized in the Company’s condensed consolidated financial statements in accordance with GAAP. Generally, charges are recorded as restructuring actions are approved and/or implemented.
In the first three months of 2020, the Company recorded charges of $32.6 million in connection with its restructuring actions. These charges consist of $28.2 million recorded as cost of sales and $4.4 million recorded as selling, general and administrative expenses. The restructuring charges consist of employee termination costs of $20.0 million, asset impairment charges of $10.4 million and contract termination costs of $0.2 million, as well as other related costs of $2.0 million. Employee termination benefits were recorded based on existing union and employee contracts, statutory requirements, completed negotiations and Company policy. Asset impairment charges relate to the disposal of buildings, leasehold improvements and/or machinery and equipment with carrying values of $10.4 million in excess of related estimated fair values.
The Company expects to incur approximately $46 million of additional restructuring costs related to activities initiated as of April 4, 2020, and expects that the components of such costs will be consistent with its historical experience. Any future restructuring actions will depend upon market conditions, customer actions and other factors.
A summary of 2020 activity is shown below (in millions):
 
Accrual as of
 
2020
 
Utilization
 
Accrual as of
 
January 1, 2020
 
Charges
 
Cash
 
Non-cash
 
April 4, 2020
Employee termination benefits
$
152.8

 
$
20.0

 
$
(44.5
)
 
$

 
$
128.3

Asset impairment charges

 
10.4

 

 
(10.4
)
 

Contract termination costs
4.9

 
0.2

 
(0.2
)
 

 
4.9

Other related costs

 
2.0

 
(2.0
)
 

 

Total
$
157.7

 
$
32.6

 
$
(46.7
)
 
$
(10.4
)
 
$
133.2



(4) Inventories
Inventories are stated at the lower of cost or net realizable value. Cost is determined using the first-in, first-out method. Finished goods and work-in-process inventories include material, labor and manufacturing overhead costs. A summary of inventories is shown below (in millions):
 
April 4,
2020
 
December 31,
2019
Raw materials
$
973.3

 
$
906.3

Work-in-process
107.0

 
107.0

Finished goods
381.2

 
380.4

Reserves
(137.2
)
 
(135.5
)
Inventories
$
1,324.3

 
$
1,258.2



(5) Pre-Production Costs Related to Long-Term Supply Agreements
The Company incurs pre-production engineering and development ("E&D") and tooling costs related to the products produced for its customers under long-term supply agreements. The Company expenses all pre-production E&D costs for which reimbursement is not contractually guaranteed by the customer. In addition, the Company expenses all pre-production tooling costs related to customer-owned tools for which reimbursement is not contractually guaranteed by the customer or for which the Company does not have a non-cancelable right to use the tooling.
During the first three months of 2020 and 2019, the Company capitalized $50.4 million and $58.8 million, respectively, of pre-production E&D costs for which reimbursement is contractually guaranteed by the customer. During the first three months of 2020 and 2019, the Company also capitalized $54.1 million and $47.0 million, respectively, of pre-production tooling costs

12

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

related to customer-owned tools for which reimbursement is contractually guaranteed by the customer or for which the Company has a non-cancelable right to use the tooling. These amounts are included in other current and long-term assets in the accompanying condensed consolidated balance sheets.
During the first three months of 2020 and 2019, the Company collected $66.8 million and $95.8 million, respectively, of cash related to E&D and tooling costs.
The classification of recoverable customer E&D and tooling costs related to long-term supply agreements is shown below (in millions):
 
April 4,
2020
 
December 31,
2019
Current
$
185.7

 
$
157.2

Long-term
118.9

 
113.8

Recoverable customer E&D and tooling
$
304.6

 
$
271.0



(6) Long-Term Assets
Property, plant and equipment is stated at cost. Costs associated with the repair and maintenance of the Company’s property, plant and equipment are expensed as incurred. Costs associated with improvements which extend the life, increase the capacity or improve the efficiency or safety of the Company’s property, plant and equipment are capitalized and depreciated over the remaining useful life of the related asset. Depreciable property is depreciated over the estimated useful lives of the assets, using principally the straight-line method.
A summary of property, plant and equipment is shown below (in millions):
 
April 4,
2020
 
December 31,
2019
Land
$
107.4

 
$
113.1

Buildings and improvements
801.3

 
831.3

Machinery and equipment
3,812.7

 
3,844.1

Construction in progress
362.2

 
382.4

Total property, plant and equipment
5,083.6

 
5,170.9

Less – accumulated depreciation
(2,475.2
)
 
(2,466.7
)
Property, plant and equipment, net
$
2,608.4

 
$
2,704.2


Depreciation expense was $113.4 million and $110.9 million in the three months ended April 4, 2020 and March 30, 2019, respectively.
The Company monitors its long-lived assets for impairment indicators on an ongoing basis in accordance with GAAP. If impairment indicators exist, the Company performs the required impairment analysis by comparing the undiscounted cash flows expected to be generated from the long-lived assets to the related net book values. If the net book value exceeds the undiscounted cash flows, an impairment loss is measured and recognized. In the first quarter of 2020, the Company did not recognize any long-lived asset impairment charges, except in conjunction with its restructuring actions as discussed below. The Company will, however, continue to assess the impact of any significant industry events on the realization of its long-lived assets.
In the first three months of 2020 and 2019, the Company recognized asset impairment charges of $10.4 million and $2.1 million, respectively, in conjunction with its restructuring actions (Note 3, "Restructuring").


13

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(7) Goodwill
A summary of the changes in the carrying amount of goodwill, by operating segment, in the three months ended April 4, 2020, is shown below (in millions):
 
Seating
 
E-Systems
 
Total
Balance at January 1, 2020
$
1,235.4

 
$
378.9

 
$
1,614.3

Foreign currency translation and other
(20.0
)
 
(2.1
)
 
(22.1
)
Balance at April 4, 2020
$
1,215.4

 
$
376.8

 
$
1,592.2


Goodwill is not amortized but is tested for impairment on at least an annual basis. Impairment testing is required more often than annually if an event or circumstance indicates that an impairment is more likely than not to have occurred. In conducting its annual impairment testing, the Company may first perform a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying amount. If not, no further goodwill impairment testing is required. If it is more likely than not that a reporting unit’s fair value is less than its carrying amount, or if the Company elects not to perform a qualitative assessment of a reporting unit, the Company then compares the fair value of the reporting unit to the related net book value. If the net book value of a reporting unit exceeds its fair value, an impairment loss is recognized in an amount equal to that excess, limited to the total amount of goodwill recorded. The Company conducts its annual impairment testing as of the first day of its fourth quarter.
During the first quarter of 2020, an interim goodwill impairment analysis related to one of the Company’s reporting units within its E-Systems operating segment was performed, largely due to industry disruptions resulting from the COVID-19 pandemic. As of April 4, 2020, the results of the quantitative analysis indicated that the fair value of the reporting unit exceeded the related carrying value. The goodwill impairment analysis reflected the Company’s best estimates of the COVID-19 pandemic’s ultimate impact on industry conditions, including consumer demand, as well as economic recovery. The reporting unit is at risk of failing a future quantitative assessment if the impact of the COVID-19 pandemic is more severe or if economic recovery is slower or weaker than anticipated. As of April 4, 2020, the goodwill of the reporting unit represents less than 10% of the Company’s total goodwill.

(8) Debt
A summary of long-term debt, net of unamortized debt issuance costs and unamortized original issue premium (discount), and the related weighted average interest rates is shown below (in millions):
 
April 4, 2020
Debt Instrument
Long-Term Debt
 
Unamortized Debt Issuance Costs
 
Unamortized Original Issue Premium (Discount)
 
Long-Term
Debt, Net
 
Weighted
Average
Interest
Rate
Credit Agreement — Term Loan Facility
$
231.2

 
$
(0.9
)
 
$

 
$
230.3

 
2.12%
3.8% Senior Notes due 2027 (the "2027 Notes")
750.0

 
(4.5
)
 
(3.9
)
 
741.6

 
3.885%
4.25% Senior Notes due 2029 (the "2029 Notes")
375.0

 
(2.8
)
 
(1.1
)
 
371.1

 
4.288%
3.5% Senior Notes due 2030 (the "2030 Notes")
350.0

 
(2.8
)
 
(0.8
)
 
346.4

 
3.525%
5.25% Senior Notes due 2049 (the "2049 Notes")
625.0

 
(6.4
)
 
14.5

 
633.1

 
5.103%
 
$
2,331.2

 
$
(17.4
)
 
$
8.7

 
$
2,322.5

 
 
Less — Current portion
 
 
 
 
 
 
(15.7
)
 
 
Long-term debt
 
 
 
 
 
 
$
2,306.8

 
 

14

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

 
December 31, 2019
Debt Instrument
Long-Term Debt
 
Unamortized Debt Issuance Costs
 
Unamortized Original Issue Discount
 
Long-Term
Debt, Net
 
Weighted
Average
Interest
Rate
Credit Agreement — Term Loan Facility
$
234.4

 
$
(1.0
)
 
$

 
$
233.4

 
2.88%
5.25% Senior Notes due 2025 (the "2025 Notes")
650.0

 
(4.2
)
 

 
645.8

 
5.25%
2027 Notes
750.0

 
(4.7
)
 
(4.1
)
 
741.2

 
3.885%
2029 Notes
375.0

 
(2.9
)
 
(1.1
)
 
371.0

 
4.288%
2049 Notes issued 2019
325.0

 
(3.3
)
 
(5.3
)
 
316.4

 
5.363%
 
$
2,334.4

 
$
(16.1
)
 
$
(10.5
)
 
2,307.8

 
 
Less — Current portion
 
 
 
 
 
 
(14.1
)
 
 
Long-term debt
 
 
 
 
 
 
$
2,293.7

 
 

Senior Notes
The issuance, maturity and interest payment dates of the Company's senior unsecured 2027 Notes, 2029 Notes, 2030 Notes and 2049 Notes (together, the "Notes") are shown below:
Note
Issuance Date(s)
Maturity Date
Interest Payment Dates
2027 Notes
August 2017
September 15, 2027
March 15 and September 15
2029 Notes
May 2019
May 15, 2029
May 15 and November 15
2030 Notes
February 2020
May 30, 2030
May 30 and November 30
2049 Notes
May 2019 and February 2020
May 15, 2049
May 15 and November 15

In February 2020, the Company issued $350.0 million in aggregate principal amount at maturity of 2030 Notes and an additional $300.0 million in aggregate principal amount at maturity of 2049 Notes. The 2030 Notes have a stated coupon rate of 3.5% and were issued at 99.774% of par, resulting in a yield to maturity of 3.525%. The 2049 Notes have a stated coupon rate of 5.25% and were issued at 106.626% of par, resulting in a yield to maturity of 4.821%.
The net proceeds from the offering were $669.1 million after original issue discount. The proceeds were used to redeem the $650.0 million in aggregate principal amount of 2025 Notes at a redemption price equal to 102.625% of the principal amount of such 2025 Notes, plus accrued interest.
In connection with these transactions, the Company recognized a loss of $21.1 million on the extinguishment of debt and paid related issuance costs of $5.9 million in the three months ended April 4, 2020.
Covenants
Subject to certain exceptions, the indentures governing the Notes contain certain investment-grade style restrictive covenants that, among other things, limit the ability of the Company to: (i) create or permit certain liens and (ii) consolidate, merge or sell all or substantially all of the Company’s assets. The indentures governing the Notes also provide for customary events of default.
As of April 4, 2020, the Company was in compliance with all covenants under the indentures governing the Notes.
Credit Agreement
The Company's unsecured credit agreement (the "Credit Agreement"), dated August 8, 2017, consists of a $1.75 billion revolving credit facility (the "Revolving Credit Facility") and a $250.0 million term loan facility (the "Term Loan Facility"). In February 2020, the Company entered into an agreement to extend the maturity date of the Revolving Credit Facility by one year to August 8, 2024. The maturity date of the Term Loan Facility remains August 8, 2022.
In connection with the extension agreement, the Company paid related issuance costs of $1.0 million.
As of April 4, 2020, there were $1.0 billion of borrowings outstanding under the Revolving Credit Facility, which is reflected in current liabilities in the accompanying condensed consolidated balance sheet. As of December 31, 2019, there were no

15

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

borrowings outstanding under the Revolving Credit Facility. As of April 4, 2020 and December 31, 2019, there were $231.2 million and $234.4 million, respectively, of borrowings outstanding under the Term Loan Facility.
In the first three months of 2020, the Company made required principal payments of $3.1 million under the Term Loan Facility.
Advances under the Revolving Credit Facility and the Term Loan Facility generally bear interest based on (i) the Eurocurrency Rate (as defined in the Credit Agreement) or (ii) the Base Rate (as defined in the Credit Agreement) plus a margin, determined in accordance with a pricing grid. The range and the rate as of April 4, 2020, are shown below (in percentages):
 
 
Eurocurrency Rate
 
Base Rate
 
 
 
 
 
 
Rate as of
 
 
 
 
 
Rate as of
 
 
Minimum
 
Maximum
 
April 4, 2020
 
Minimum
 
Maximum
 
April 4, 2020
Revolving Credit Facility
 
1.00
%
 
1.60
%
 
1.10
%
 
0.00
%
 
0.60
%
 
0.10
%
Term Loan Facility
 
1.125
%
 
1.90
%
 
1.25
%
 
0.125
%
 
0.90
%
 
0.25
%

A facility fee, which ranges from 0.125% to 0.30% of the total amount committed under the Revolving Credit Facility, is payable quarterly.
Covenants
The Credit Agreement contains various customary representations, warranties and covenants by the Company, including, without limitation, (i) covenants regarding maximum leverage, (ii) limitations on fundamental changes involving the Company or its subsidiaries and (iii) limitations on indebtedness and liens.
As of April 4, 2020, the Company was in compliance with all covenants under the Credit Agreement.
For further information related to the Company's debt, see Note 6, "Debt," to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019.

(9) Leases
Right-of-Use Assets and Lease Obligations
The Company has operating leases for production, office and warehouse facilities, manufacturing and office equipment and vehicles. Operating lease assets and obligations included in the accompanying condensed consolidated balance sheet are shown below (in millions):
 
April 4, 2020
 
December 31, 2019
Right-of-use assets under operating leases:
 
 
 
Other long-term assets
$
512.1

 
$
527.0

Lease obligations under operating leases:
 
 
 
Accrued liabilities
$
112.7

 
$
113.9

Other long-term liabilities
405.1

 
422.4


$
517.8

 
$
536.3



16

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Maturities of lease obligations as of April 4, 2020, are shown below (in millions):
 
April 4, 2020
2020 (1)
$
99.5

2021
113.1

2022
88.7

2023
68.2

2024
56.9

Thereafter
176.7

Total undiscounted cash flows
603.1

Less: Imputed interest
(85.3
)
Lease obligations under operating leases
$
517.8

(1) For the remaining nine months
The Company has entered into one lease contract which is expected to commence in the third quarter of 2021 with a lease term of approximately ten years. The aggregate right-of-use asset and related lease obligation are expected to be approximately $50 million.
Cash flow information related to operating leases is shown below (in millions):
 
Three Months Ended
 
April 4,
2020
 
March 30, 2019
Non-cash activity:
 
 
 
Right-of-use assets obtained in exchange for operating lease obligations
$
37.4

 
$
36.9

Operating cash flows:
 
 
 
Cash paid related to operating lease obligations
$
35.7

 
$
33.2


Lease expense included in the accompanying condensed consolidated statements of comprehensive income (loss) is shown below (in millions):
 
Three Months Ended
 
April 4,
2020
 
March 30, 2019
Operating lease expense
$
36.3

 
$
32.5

Short-term lease expense
4.1

 
4.4

Variable lease expense
1.9

 
0.6

Total lease expense
$
42.3

 
$
37.5


The weighted average lease term and discount rate for operating leases are shown below:
 
April 4,
2020
Weighted average remaining lease term (in years)
6.9

Weighted average discount rate
3.7
%

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


17

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(10) Pension and Other Postretirement Benefit Plans
The Company sponsors defined benefit pension plans and other postretirement benefit plans (primarily for the continuation of medical benefits) for eligible employees in the United States and certain other countries.
Net Periodic Pension and Other Postretirement Benefit (Credit) Cost
The components of the Company’s net periodic pension benefit (credit) cost are shown below (in millions):
 
Three Months Ended
 
April 4, 2020
 
March 30, 2019
 
U.S.
 
Foreign
 
U.S.
 
Foreign
Service cost
$

 
$
1.2

 
$

 
$
1.6

Interest cost
4.1

 
3.1

 
4.6

 
3.7

Expected return on plan assets
(5.3
)
 
(5.0
)
 
(5.0
)
 
(5.2
)
Amortization of actuarial loss
0.6

 
1.1

 
0.5

 
2.0

Settlement loss
0.3

 

 
0.1

 

Net periodic benefit (credit) cost
$
(0.3
)
 
$
0.4

 
$
0.2

 
$
2.1


The components of the Company’s net periodic other postretirement benefit (credit) cost are shown below (in millions):
 
Three Months Ended
 
April 4, 2020
 
March 30, 2019
 
U.S.
 
Foreign
 
U.S.
 
Foreign
Service cost
$

 
$

 
$

 
$
0.1

Interest cost
0.4

 
0.2

 
0.5

 
0.3

Amortization of actuarial gain
(0.4
)
 

 
(0.6
)
 

Net periodic benefit (credit) cost
$

 
$
0.2

 
$
(0.1
)
 
$
0.4


Contributions
In the three months ended April 4, 2020, employer contributions to the Company’s domestic and foreign defined benefit pension plans were $3.7 million.
The Company has elected to defer its contributions to its U.S. defined benefit pension plans to the extent possible under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). The Company expects contributions to its domestic and foreign defined benefit pension plans to be $10 million to $20 million in 2020.

(11) Revenue Recognition
The Company enters into contracts with its customers to provide production parts generally at the beginning of a vehicle’s life cycle. Typically, these contracts do not provide for a specified quantity of products, but once entered into, the Company is often expected to fulfill its customers’ purchasing requirements for the production life of the vehicle. Many of these contracts may be terminated by the Company’s customers at any time. Historically, terminations of these contracts have been minimal. The Company receives purchase orders from its customers, which provide the commercial terms for a particular production part, including price (but not quantities). Contracts may also provide for annual price reductions over the production life of the vehicle, and prices may be adjusted on an ongoing basis to reflect changes in product content/cost and other commercial factors.
Revenue is recognized at a point in time when control of the product is transferred to the customer under standard commercial terms, as the Company does not have an enforceable right to payment prior to such transfer. The amount of revenue recognized reflects the consideration that the Company expects to be entitled to in exchange for those products based on the annual purchase orders, annual price reductions and ongoing price adjustments. The Company's customers pay for products received in accordance with payment terms that are customary within the industry. The Company's contracts with its customers do not have significant financing components.

18

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The Company records a contract liability for advances received from its customers. As of April 4, 2020 and December 31, 2019, there were no significant contract liabilities recorded. Further, there were no significant contract liabilities recognized in revenue during the first three months of 2020.
Amounts billed to customers related to shipping and handling costs are included in net sales in the condensed consolidated statements of comprehensive income (loss). Shipping and handling costs are accounted for as fulfillment costs and are included in cost of sales in the condensed consolidated statements of comprehensive income (loss).
Taxes assessed by a governmental authority that are both imposed on and concurrent with a specific revenue-producing transaction that are collected by the Company from a customer are excluded from revenue.
A summary of the Company’s revenue by reportable operating segment and geography is shown below (in millions):
 
Three Months Ended
 
April 4, 2020
 
March 30, 2019
 
Seating
 
E-Systems
 
Total
 
Seating
 
E-Systems
 
Total
North America
$
1,573.7

 
$
307.5

 
$
1,881.2

 
$
1,591.1

 
$
285.0

 
$
1,876.1

Europe and Africa
1,236.0

 
516.6

 
1,752.6

 
1,554.3

 
617.1

 
2,171.4

Asia
457.4

 
218.9

 
676.3

 
651.4

 
304.3

 
955.7

South America
99.5

 
48.1

 
147.6

 
116.9

 
40.0

 
156.9

 
$
3,366.6