UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended July 2, 2005.

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                      to                     .

LEAR CORPORATION

(Exact name of registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		13-3386776 (I.R.S. Employer Identification No.)
21557 Telegraph Road, Southfield, MI (Address of principal executive offices)		48034 (Zip code)

(248) 447-1500
(Registrant’s telephone number, including area code)

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 þ No o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). Yes þ No o

As of July 29, 2005, the number of shares outstanding of the registrant’s Common Stock, par value $0.01 per share, was 67,117,446.

 

 

LEAR CORPORATION

FORM 10-Q

FOR THE QUARTER ENDED JULY 2, 2005

INDEX

		Page No.
Part I – Financial Information
Item 1 – Consolidated Financial Statements
Introduction to the Consolidated Financial Statements			3
Consolidated Balance Sheets - July 2, 2005 (Unaudited) and December 31, 2004			4
Consolidated Statements of Operations (Unaudited) - Three and Six Months Ended July 2, 2005 and July 3, 2004			5
Consolidated Statements of Cash Flows (Unaudited) - Six Months Ended July 2, 2005 and July 3, 2004			6
Notes to the Consolidated Financial Statements			7
Item 2 – Management’s Discussion and Analysis of Financial Condition and Results of Operations			27
Item 3 – Quantitative and Qualitative Disclosures about Market Risk (included in Item 2)
Item 4 – Controls and Procedures			43
Part II – Other Information
Item 1 – Legal Proceedings			44
Item 2 – Unregistered Sales of Equity Securities and Use of Proceeds			46
Item 4 – Submission of Matters to a Vote of Security Holders			47
Item 5 – Other Information			47
Item 6 – Exhibits			48
Signatures			49
First Amendment dated August 3, 2005
Form of Indemnity Agreement between Lear Corporation and each of its directors
Rule 13a-14(a)/15d-14(a) Certification of Principal Executive Officer
Rule 13a-14(a)/15d-14(a) Certification of Principal Financial Officer
Certification by Chief Executive Officer
Certification by Chief Financial Officer

LEAR CORPORATION

PART I — FINANCIAL INFORMATION

ITEM 1 — CONSOLIDATED FINANCIAL STATEMENTS

INTRODUCTION TO THE CONSOLIDATED FINANCIAL STATEMENTS

     We have prepared the condensed consolidated financial statements of Lear Corporation and subsidiaries, without audit, 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 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 consolidated 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, 2004.

     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 and cash flows and statements of financial position for the interim periods presented. These results are not necessarily indicative of a full year’s results of operations.

LEAR CORPORATION AND SUBSIDIARIES

		July 2,				December 31,
		2005				2004
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	132.9			$	584.9
Accounts receivable			2,251.8				2,584.9
Inventories			580.3				621.2
Recoverable customer engineering and tooling			281.1				205.8
Other			363.3				375.2
Total current assets			3,609.4				4,372.0
LONG-TERM ASSETS:
Property, plant and equipment, net			2,012.8				2,019.8
Goodwill, net			2,988.9				3,039.4
Other			478.8				513.2
Total long-term assets			5,480.5				5,572.4
		$	9,089.9			$	9,944.4
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term borrowings		$	49.0			$	35.4
Accounts payable and drafts			2,869.0				2,777.6
Accrued liabilities			1,098.3				1,202.1
Current portion of long-term debt			5.9				632.8
Total current liabilities			4,022.2				4,647.9
LONG-TERM LIABILITIES:
Long-term debt			1,838.1				1,866.9
Other			709.0				699.5
Total long-term liabilities			2,547.1				2,566.4
STOCKHOLDERS’ EQUITY:
Common stock, $0.01 par value, 150,000,000 shares authorized; 73,234,028 shares issued as of July 2, 2005 and 73,147,178 shares issued as of December 31, 2004			0.7				0.7
Additional paid-in capital			1,093.5				1,064.4
Common stock held in treasury, 6,123,932 shares as of July 2, 2005 and 5,730,476 shares as of December 31, 2004, at cost			(226.7	)			(204.1	)
Retained earnings			1,748.1				1,810.5
Accumulated other comprehensive income (loss)			(95.0	)			58.6
Total stockholders’ equity			2,520.6				2,730.1
		$	9,089.9			$	9,944.4

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

LEAR CORPORATION AND SUBSIDIARIES

		Three Months Ended								Six Months Ended
		July 2,				July 3,				July 2,				July 3,
		2005				2004				2005				2004
Net sales		$	4,419.3			$	4,284.0			$	8,705.3			$	8,776.1
Cost of sales			4,198.5				3,912.4				8,284.6				8,057.6
Selling, general and administrative expenses			190.8				158.7				341.9				326.4
Interest expense			48.2				39.2				93.0				78.3
Other expense, net			32.2				14.8				39.1				28.9
Income (loss) before provision (benefit) for income taxes			(50.4	)			158.9				(53.3	)			284.9
Provision (benefit) for income taxes			(6.0	)			42.8				(24.5	)			77.4
Net income (loss)		$	(44.4	)		$	116.1			$	(28.8	)		$	207.5
Basic net income (loss) per share		$	(0.66	)		$	1.69			$	(0.43	)		$	3.03
Diluted net income (loss) per share		$	(0.66	)		$	1.58			$	(0.43	)		$	2.82

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

LEAR CORPORATION AND SUBSIDIARIES

		Six Months Ended
		July 2,				July 3,
		2005				2004
Cash Flows from Operating Activities:
Net income (loss)		$	(28.8	)		$	207.5
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization			191.3				170.1
Net change in recoverable customer engineering and tooling			(87.8	)			(5.4	)
Net change in working capital items			142.7				(23.3	)
Other, net			41.4				33.6
Net cash provided by operating activities before net change in sold accounts receivable			258.8				382.5
Net change in sold accounts receivable			267.3				(70.4	)
Net cash provided by operating activities			526.1				312.1
Cash Flows from Investing Activities:
Additions to property, plant and equipment			(279.1	)			(192.6	)
Deposit on acquisition			—				(73.9	)
Other, net			3.1				1.6
Net cash used in investing activities			(276.0	)			(264.9	)
Cash Flows from Financing Activities:
Long-term debt repayments, net			(622.2	)			(12.2	)
Short-term debt borrowings (repayments), net			5.3				(10.0	)
Dividends paid			(33.6	)			(41.1	)
Proceeds from exercise of stock options			3.0				16.6
Repurchase of common stock			(25.4	)			(23.5	)
Increase (decrease) in drafts			10.5				(0.3	)
Other, net			0.6				—
Net cash used in financing activities			(661.8	)			(70.5	)
Effect of foreign currency translation			(40.3	)			2.8
Net Change in Cash and Cash Equivalents			(452.0	)			(20.5	)
Cash and Cash Equivalents as of Beginning of Period			584.9				169.3
Cash and Cash Equivalents as of End of Period		$	132.9			$	148.8
Changes in Working Capital:
Accounts receivable		$	(84.8	)		$	(279.4	)
Inventories			18.5				(14.1	)
Accounts payable			233.3				177.1
Accrued liabilities and other			(24.3	)			93.1
Net change in working capital items		$	142.7			$	(23.3	)
Supplementary Disclosure:
Cash paid for interest		$	96.9			$	76.0
Cash paid for income taxes		$	93.2			$	88.2

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

LEAR CORPORATION AND SUBSIDIARIES

(1) Basis of Presentation

     The consolidated financial statements include the accounts of Lear Corporation (“Lear” or the “Parent”), a Delaware corporation and the wholly owned and less than wholly owned subsidiaries controlled by Lear (collectively, the “Company”). In addition, Lear consolidates variable interest entities in which it bears a majority of the risk of the entities’ potential losses or stands to gain from a majority of the entities’ expected returns. Investments in affiliates in which Lear does not have control, but does have the ability to exercise significant influence over operating and financial policies, are accounted for under the equity method.

     The Company and its affiliates design and manufacture interior systems and components for automobiles and light trucks. The Company’s main customers are automotive original equipment manufacturers. The Company operates facilities worldwide.

     Certain amounts in the prior period’s financial statement disclosures have been reclassified to conform to the presentation used in the quarter ended July 2, 2005.

(2) Restructuring

2005

     In order to address unfavorable industry conditions, the Company began to implement consolidation and census actions in the second quarter of 2005. These actions are the initial phase of a comprehensive restructuring strategy intended to (i) better align the Company’s manufacturing capacity with the changing needs of its customers, (ii) eliminate excess capacity and lower the operating costs of the Company and (iii) streamline the Company’s organizational structure and reposition its business for improved long-term profitability. The restructuring actions will consist primarily of facility consolidations and closures, including the movement of certain manufacturing operations to lower-cost countries, and census reductions.

     In connection with the restructuring actions, the Company expects to incur pre-tax costs of up to $250 million, although the overall restructuring plan has not been finalized. Such costs will include employee termination benefits, asset impairment charges and contract termination costs, as well as other incremental costs resulting from the restructuring actions. These incremental costs will principally include equipment and personnel relocation costs. The Company also expects to incur incremental manufacturing inefficiency costs at the operating locations impacted by the restructuring actions during the related restructuring implementation period. Restructuring costs will be recognized in the Company’s consolidated financial statements in accordance with accounting principles generally accepted in the United States. Generally, charges will be recorded as elements of the restructuring plan are finalized. Actual costs recorded in the Company’s consolidated financial statements may vary from current estimates.

     In connection with the initial phase of the restructuring actions, the Company recorded charges of $26.7 million in the second quarter of 2005, including $21.1 million recorded as cost of sales and $4.7 million recorded as selling, general and administrative expenses. The charges consist of employee termination benefits of $15.7 million for 182 salaried and 1,237 hourly employees, asset impairment charges of $4.6 million and contract termination costs of $5.4 million, as well as other costs of $1.0 million. Employee termination benefits were recorded based on existing union and employee contracts, statutory requirements and completed negotiations. Asset impairment charges relate to the disposal of leasehold improvements and machinery and equipment with carrying values of $4.6 million in excess of related estimated fair values. Contract termination costs include lease cancellation costs of $3.4 million, which are expected to be paid through 2006, pension and other postretirement benefit plan curtailments of $1.1 million and the repayment of an income tax grant of $0.9 million.

     A summary of the second quarter 2005 restructuring charges, excluding the $1.1 million pension and other postretirement benefit plan curtailments, is shown below (in millions):

						Utilization								Accrual as of
		Charges				Cash				Non-cash				July 2, 2005
Employee termination benefits		$	15.7			$	(1.9	)		$	—			$	13.8
Asset impairments			4.6				—				(4.6	)			—
Contract termination costs			4.3								—				4.3
Other related costs			1.0				(1.0	)			—				—
Total		$	25.6			$	(2.9	)		$	(4.6	)		$	18.1

LEAR CORPORATION AND SUBSIDIARIES

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

2004

     In December 2003, the Company initiated actions affecting two of its U.S. seating facilities. As a result of these actions, the Company recorded charges of $25.5 million for employee termination benefits and asset impairments in 2003. These actions were completed in the second quarter of 2004. Of the total costs associated with these facility actions, approximately $33.3 million related to employee termination benefits and asset impairment charges.

(3) Stock-Based Compensation

     On January 1, 2003, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” under which compensation cost for grants of stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units (collectively, “Incentive Units”) and stock options is determined on the basis of the fair value of the Incentive Units and stock options as of the grant date. SFAS No. 123 has been applied prospectively to all employee awards granted after January 1, 2003, as permitted under the provisions of SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” The pro forma effect on net income (loss) and net income (loss) per share, as if the fair value recognition provisions had been applied to all outstanding and unvested awards granted prior to January 1, 2003, is shown below (in millions, except per share data):

		Three Months Ended								Six Months Ended
		July 2,				July 3,				July 2,				July 3,
		2005				2004				2005				2004
Net income (loss), as reported		$	(44.4	)		$	116.1			$	(28.8	)		$	207.5
Add: Stock-based employee compensation expense included in reported net income (loss), net of tax			4.2				2.3				8.5				4.9
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of tax			(5.5	)			(5.2	)			(11.9	)			(11.4	)
Net income (loss), pro forma		$	(45.7	)		$	113.2			$	(32.2	)		$	201.0
Net income (loss) per share:
Basic — as reported		$	(0.66	)		$	1.69			$	(0.43	)		$	3.03
Basic — pro forma		$	(0.68	)		$	1.65			$	(0.48	)		$	2.93
Diluted — as reported		$	(0.66	)		$	1.58			$	(0.43	)		$	2.82
Diluted — pro forma		$	(0.68	)		$	1.54			$	(0.48	)		$	2.73

(4) Acquisition

     On July 5, 2004, the Company completed its acquisition of the parent of GHW Grote & Hartmann GmbH (“Grote & Hartmann”) for consideration of $160.2 million, including assumed debt of $86.3 million, subject to adjustment. This amount excludes the cost of integration, as well as other internal costs related to the transaction which were expensed as incurred. Grote & Hartmann is based in Wuppertal, Germany, and manufactures terminals and connectors, as well as junction boxes and machinery to produce wire harnesses, primarily for the automotive industry.

     At the time of the acquisition, the Company began to formulate plans for the restructuring of certain acquired operations. These plans, including plant closings and employee terminations and relocations, were finalized by the Company and are substantially complete as of July 2, 2005. In addition, the Company has made indemnity claims against the sellers for breaches of certain representations and warranties, which are pending as of the date of this Report.

     The Grote & Hartmann acquisition was accounted for as a purchase, and accordingly, the assets purchased and liabilities assumed are included in the consolidated balance sheets as of July 2, 2005 and December 31, 2004. The operating results of Grote & Hartmann are included in the consolidated financial statements since the date of acquisition. In the second quarter of 2005, the allocation of the purchase price was finalized, resulting in a decrease in goodwill of approximately $3.4 million. This decrease was primarily due to the finalization of the restructuring plans, additional information regarding liabilities assumed, including contingent liabilities, revisions of estimates of fair value made at the date of purchase and certain tax attributes. The purchase price and related allocation are shown below (in millions):

Consideration paid to former owner		$	73.9
Debt assumed			86.3
Fees and expenses			3.2
Cost of acquisition		$	163.4
Property, plant and equipment		$	100.5
Net working capital			39.7
Restructuring accrual			(12.6	)
Other assets purchased and liabilities assumed, net			(22.7	)
Goodwill			22.6
Intangible assets			35.9
Total cost allocation		$	163.4

     Intangible assets include amounts recognized for the fair value of customer contracts, customer relationships and technology acquired. These intangible assets have a weighted average useful life of approximately fifteen years.

     The pro forma effects of this acquisition would not materially impact the Company’s reported results for any period presented.

(5) Inventories

     Inventories are stated at the lower of cost or market. 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):

		July 2,				December 31,
		2005				2004
Raw materials		$	444.0			$	487.8
Work-in-process			41.8				43.8
Finished goods			94.5				89.6
Inventories		$	580.3			$	621.2

(6) Property, Plant and Equipment

     Property, plant and equipment is stated at cost. Depreciable property is depreciated over the estimated useful lives of the assets, principally using the straight-line method. A summary of property, plant and equipment is shown below (in millions):

		July 2,				December 31,
		2005				2004
Land		$	140.1			$	138.6
Buildings and improvements			718.9				759.2
Machinery and equipment			2,830.8				2,844.7
Construction in progress			54.7				52.8
Total property, plant and equipment			3,744.5				3,795.3
Less — accumulated depreciation			(1,731.7	)			(1,775.5	)
Net property, plant and equipment		$	2,012.8			$	2,019.8

     Depreciation expense was $94.6 million and $87.0 million in the three months ended July 2, 2005 and July 3, 2004, respectively, and $189.1 million and $170.1 million in the six months ended July 2, 2005 and July 3, 2004, respectively.

(7) Goodwill

     A summary of the changes in the carrying amount of goodwill, by reportable operating segment, for the six months ended July 2, 2005, is shown below (in millions):

										Electronic and
		Seating				Interior				Electrical				Total
Balance as of December 31, 2004		$	1,075.7			$	1,017.8			$	945.9			$	3,039.4
Foreign currency translation and other			(44.5	)			1.9				(7.9	)			(50.5	)
Balance as of July 2, 2005		$	1,031.2			$	1,019.7			$	938.0			$	2,988.9

(8) Investments in Affiliates

     In the second quarter of 2005, the Company committed to the divestiture of a minority interest in a business accounted for under the equity method and recorded a related impairment charge of $16.9 million. This charge is included in other expense, net in the consolidated statements of operations for the three and six months ended July 2, 2005. This investment was divested in the third quarter of 2005.

(9) Long-Term Debt

     A summary of long-term debt and the related weighted average interest rates, including the effect of hedging activities described in Note 18, “Financial Instruments,” and the amortization of debt discount, is shown below (in millions):

		July 2, 2005								December 31, 2004
						Weighted								Weighted
		Long-Term				Average				Long-Term				Average
Debt Instrument		Debt				Interest Rate				Debt				Interest Rate
5.75% Senior Notes, due August 2014		$	399.2				5.635	%		$	399.2				5.635	%
Zero-coupon Convertible Senior Notes, due February 2022			293.2				4.75	%			286.3				4.75	%
8.125% Euro-denominated Senior Notes, due April 2008			301.4				8.125	%			338.5				8.125	%
8.11% Senior Notes, due May 2009			800.0				8.05	%			800.0				7.74	%
7.96% Senior Notes, due May 2005			—				—				600.0				6.95	%
Other			50.2				5.06	%			75.7				4.22	%
			1,844.0								2,499.7
Current portion			(5.9	)							(632.8	)
Long-term debt		$	1,838.1							$	1,866.9

     On March 23, 2005, the Company entered into a $1.7 billion credit and guarantee agreement (the “Primary Credit Facility”), which matures on March 23, 2010. The Primary Credit Facility replaced the Company’s existing $1.7 billion amended and restated credit facility, which was due to mature on March 26, 2006, and which was terminated on March 23, 2005. As of July 2, 2005, the Company had no borrowings outstanding under the Primary Credit Facility.

     On August 3, 2005, the Primary Credit Facility was amended to (i) revise the leverage ratio covenant for the third quarter of 2005 through the first quarter of 2006, (ii) obtain the consent of the lenders to permit the Company to enter into a new 18-month term loan facility (the “Proposed Term Loan Facility”) with a principal amount of up to $400 million and (iii) provide for the pledge of the capital stock of certain of the Company’s material subsidiaries to secure its obligations under the Primary Credit Facility and the Proposed Term Loan Facility. Proceeds from the Proposed Term Loan Facility would be used to create additional excess liquidity in light of the payoff at maturity of the Company’s $600 million 7.96% senior notes in May 2005, its reduced operating cash flows and cash charges associated with its restructuring actions. Two of the Company’s lead lenders under the Primary Credit Facility have committed to provide an aggregate of $300 million under the Proposed Term Loan Facility, subject to various conditions. Other lenders under the Primary Credit Facility are expected to participate in the Proposed Term Loan Facility, which may be in an aggregate principal amount of up to $400 million. The Proposed Term Loan Facility is scheduled to be consummated in the third quarter of 2005, but no assurance may be given that the facility will be consummated on the terms contemplated or at all. The Company’s obligations under the Primary Credit Facility are guaranteed by certain of its subsidiaries that also guarantee the obligations under its outstanding senior notes. These subsidiaries would also guarantee the Company’s obligations under the Proposed Term Loan Facility. The Primary Credit Facility provides for maximum revolving borrowing commitments of $1.7 billion, which may be increased to $2.5 billion by the Company under certain circumstances. The Primary Credit Facility provides for multicurrency revolving borrowings in a

maximum aggregate amount of $750 million, Canadian revolving borrowings in a maximum aggregate amount of $200 million and swing-line revolving borrowings in a maximum aggregate amount of $300 million, the commitments for which are part of the aggregate revolving credit facility commitment.

     The Primary Credit Facility contains operating and financial covenants that, among other things, could limit the Company’s ability to obtain additional sources of capital. As amended, the principal financial covenants require that the Company maintain a leverage ratio of not more than 3.25 to 1 as of July 2, 2005, 3.75 to 1 as of October 1, 2005 and December 31, 2005, 3.50 to 1 as of April 1, 2006 and 3.25 to 1 as of the end of each quarter thereafter and an interest coverage ratio of not less than 3.5 to 1 as of the end of each quarter (as such ratios are defined in the Primary Credit Facility). As of July 2, 2005, the Company was in compliance with all covenants and other requirements set forth in its Primary Credit Facility. The Company’s leverage and interest coverage ratios were 1.9 to 1 and 5.4 to 1, respectively. These ratios are calculated on a trailing four quarter basis. As a result, any decline in the Company’s future operating results will negatively impact its coverage ratios.

     Revolving borrowings under the Primary Credit Facility, as amended, bear interest, payable no less frequently than quarterly, at (a) (1) applicable interbank rates, on Eurodollar and Eurocurrency loans, (2) the greater of the U.S. prime rate and the federal funds rate plus 0.50%, on base rate loans, (3) the greater of the rate publicly announced by the Canadian administrative agent and the federal funds rate plus 0.50%, on U.S. dollar denominated Canadian loans, (4) the greater of prime rate announced by the Canadian administrative agent and the average Canadian interbank bid rate (CDOR) plus 1.0%, on Canadian dollar denominated Canadian loans, and (5) various published or quoted rates, on swing line and other loans, plus (b) a percentage spread ranging from 0% to a maximum of 1.0%, depending on the type of loan and/or currency and the Company’s credit rating or leverage ratio. Under the Primary Credit Facility, the Company agrees to pay a facility fee, payable quarterly, at rates ranging from 0.10% to a maximum of 0.35%, depending on its credit rating or leverage ratio, and when applicable, a utilization fee.

     All of the Company’s senior notes contain covenants restricting the Company’s ability to incur liens and to enter into sale and leaseback transactions and restricting the Company’s ability to consolidate with, to merge with or into or to sell or otherwise dispose of all or substantially all of its assets to any person. As of July 2, 2005, the Company was in compliance with all covenants and other requirements set forth in its senior notes.

     On May 15, 2005, the Company repaid the $600 million senior notes due in May 2005 at maturity.

     The Company’s obligations under the Primary Credit Facility and its senior notes are guaranteed, on a joint and several basis, by certain of its subsidiaries, which are primarily domestic subsidiaries and all of which are directly or indirectly 100% owned by the Company (Note 20, “Supplemental Guarantor Condensed Consolidating Financial Statements”). In addition, the stock of certain of the Company’s significant subsidiaries is pledged to secure its Primary Credit Facility.

(10) Pension and Other Postretirement Benefit Plans

Net Periodic Benefit Cost

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

		Pension								Other Postretirement
		Three Months Ended								Three Months Ended
		July 2,				July 3,				July 2,				July 3,
		2005				2004				2005				2004
Service cost		$	10.3			$	10.5			$	3.1			$	3.6
Interest cost			9.4				9.3				3.5				3.1
Expected return on plan assets			(7.6	)			(7.0	)			—				—
Amortization of actuarial loss			0.7				0.8				0.9				1.0
Amortization of transition (asset) obligation			(0.1	)			(0.1	)			0.7				0.3
Amortization of prior service cost			1.3				1.4				(1.1	)			(0.7	)
Special termination benefits			—				—				0.1				0.1
Settlement loss			1.0				—				—				0.1
Curtailment loss (gain)			0.4				—				0.7				(7.7	)
Net periodic benefit cost		$	15.4			$	14.9			$	7.9			$	(0.3	)

		Pension								Other Postretirement
		Six Months Ended								Six Months Ended
		July 2,				July 3,				July 2,				July 3,
		2005				2004				2005				2004
Service cost		$	20.3			$	21.3			$	6.1			$	7.2
Interest cost			18.3				18.9				6.8				6.2
Expected return on plan assets			(14.7	)			(14.2	)			—				—
Amortization of actuarial loss			1.4				1.6				1.8				2.0
Amortization of transition (asset) obligation			(0.1	)			(0.2	)			1.3				0.6
Amortization of prior service cost			2.5				2.7				(2.2	)			(1.4	)
Special termination benefits			—				0.1				0.2				0.2
Settlement loss			1.0				—				—				—
Curtailment loss (gain)			0.4				—				0.7				(7.7	)
Net periodic benefit cost		$	29.1			$	30.2			$	14.7			$	7.1

Contributions

     Employer contributions to the Company’s domestic and foreign pension plans for the three and six months ended July 2, 2005, were approximately $17.4 million and $25.9 million in aggregate, respectively. The Company expects to contribute an additional $24 million to $28 million, in aggregate, to its domestic and foreign pension portfolios in 2005.

(11) Other Expense, Net

     Other expense includes state and local non-income taxes, foreign exchange gains and losses, minority interests in consolidated subsidiaries, equity in net income of affiliates, impairments of equity investments in affiliates, gains and losses on the sales of fixed assets and other miscellaneous income and expense. A summary of other expense, net is shown below (in millions):

		Three Months Ended								Six Months Ended
		July 2,				July 3,				July 2,				July 3,
		2005				2004				2005				2004
Other expense		$	32.7			$	18.1			$	39.1			$	35.2
Other income			(0.5	)			(3.3	)			—				(6.3	)
Other expense, net		$	32.2			$	14.8			$	39.1			$	28.9

(12) Provision (Benefit) for Income Taxes

     The benefit for income taxes was $6.0 million, representing an effective tax rate of 11.9%, and $24.5 million, representing an effective tax rate of 46.0%, for the three and six months ended July 2, 2005, respectively. For the six months ended July 2, 2005, the benefit for income taxes includes a one-time benefit of $17.8 million resulting from a tax law change in Poland. The tax law change in Poland, effective on March 9, 2005, related to investment tax credits for companies operating in certain special economic zones within the country. The investment tax credits replace the tax holiday that was previously in effect for the Company. For the six months ended July 2, 2005, this one-time benefit is partially offset by the impact of a portion of the restructuring and litigation-related charges that were incurred in countries for which no tax benefit was provided due to a history of operating losses in those countries. In addition, no tax benefit was provided on the impairment of an equity investment because this item will result in a capital loss for which no tax benefit is likely to be realized. Excluding these items, the effective tax rate for the three and six months ended July 2, 2005, was 24.1% and 24.0%, respectively, as compared to an effective tax rate of 26.9% and 27.2%, respectively, for the three and six months ended July 3, 2004. Excluding these items, the effective tax rates approximated the U.S. federal statutory income tax rate of 35% adjusted for income taxes on foreign earnings, losses and remittances, valuation adjustments, research and development credits and other items. During 2005, the Company has recognized a tax benefit for operating losses generated in the United States as the Company believes it is more likely than not that such benefit will be realized.

American Jobs Creation Act of 2004

     In October 2004, the American Jobs Creation Act of 2004 (“the Act”) was signed into law. The Act creates a temporary incentive for U.S. corporations to repatriate earnings from foreign subsidiaries by providing an 85% dividends received deduction for certain dividends from controlled foreign corporations to the extent the dividends exceed a base amount and are invested in the United States pursuant to a domestic reinvestment plan. The temporary incentive is available to the Company in 2005. The amount of the Company’s dividends potentially eligible for the deduction is limited to $500 million.

     The U.S. Treasury Department has provided clarifying guidance with respect to certain elements of the repatriation provision, and it is expected that additional clarifying guidance will be issued. In addition, Congress recently reintroduced legislation that provides for certain technical corrections to the Act. The Company has not completed its evaluation of the repatriation provision due to numerous tax, legal, treasury and business considerations. The Company expects to complete its evaluation of the potential dividends it may pursue, if any, and the related tax ramifications during the fourth quarter of 2005.

(13) Net Income (Loss) Per Share

     Basic net income (loss) per share is computed using the weighted average common shares outstanding during the period. Diluted net income per share is computed using the average share price during the period when calculating the dilutive effect of common stock equivalents. On December 15, 2004, the Company adopted the provisions of Emerging Issues Task Force (“EITF”) 04-08, “The Effect of Contingently Convertible Debt on Diluted Earnings per Share,” which states that the impact of contingently convertible instruments that are convertible into common stock upon the achievement of a specified market price of the issuer’s shares, such as the Company’s outstanding zero-coupon convertible senior notes, should be included in net income per share computations regardless of whether the market price trigger has been met, if the impact is dilutive. The effect of EITF 04-08 on the computation of diluted net income per share is to adjust net income by adding back after-tax interest expense on convertible debt and to increase total shares outstanding by the number of shares that would be issuable upon conversion. There are 4,813,056 shares issuable upon conversion of the Company’s outstanding zero-coupon convertible senior notes. The Company has restated diluted net income per share for 2004 to include the dilutive impact of the outstanding zero-coupon convertible senior notes. A summary of net income (loss), for diluted net income (loss) per share (in millions), and shares outstanding is shown below:

		Three Months Ended								Six Months Ended
		July 2,				July 3,				July 2,				July 3,
		2005				2004				2005				2004
Net income (loss), as reported		$	(44.4	)		$	116.1			$	(28.8	)		$	207.5
Add: After-tax interest expense on convertible debt			—				2.3				—				4.7
Net income (loss), for diluted net income (loss) per share		$	(44.4	)		$	118.4			$	(28.8	)		$	212.2
Weighted average common shares outstanding			67,097,792				68,749,259				67,173,054				68,594,681
Dilutive effect of common stock equivalents			—				1,535,066				—				1,834,945
Shares issuable upon conversion of convertible debt			—				4,813,056				—				4,813,056
Diluted shares outstanding			67,097,792				75,097,381				67,173,054				75,242,682
Diluted net income (loss) per share		$	(0.66	)		$	1.58			$	(0.43	)		$	2.82

     The shares issuable upon conversion of the Company’s outstanding zero-coupon convertible debt and the effect of common stock equivalents, including options and restricted stock units, were excluded from the computation of diluted net loss per share for the three months and six months ended July 2, 2005, as inclusion would have resulted in antidilution. A summary of these options, their exercise prices and these restricted stock units is shown below:

		Three Months Ended								Six Months Ended
		July 2,				July 3,				July 2,				July 3,
		2005				2004				2005				2004
Options
Antidilutive options outstanding			3,093,680				—				3,093,680				—
Exercise price		$	22.12 - $55.33				—			$	22.12 - $55.33				—
Restricted stock units			1,151,141				—				1,151,141				—

     For further information related to the zero-coupon convertible senior notes, see Note 7, “Long-Term Debt,” to the consolidated financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2004.

(14) Comprehensive Income (Loss)

     Comprehensive income (loss) is defined as all changes in a Company’s net assets except changes resulting from transactions with stockholders. It differs from net income (loss) in that certain items currently recorded in equity are included in comprehensive income (loss). A summary of comprehensive income (loss) is shown below (in millions):

		Three Months Ended								Six Months Ended
		July 2,				July 3,				July 2,				July 3,
		2005				2004				2005				2004
Net income (loss)		$	(44.4	)		$	116.1			$	(28.8	)		$	207.5
Other comprehensive income (loss):
Derivative instruments and hedging activities			5.4				9.1				3.8				9.7
Foreign currency translation adjustment			(83.0	)			0.1				(157.4	)			(18.3	)
Other comprehensive income (loss)			(77.6	)			9.2				(153.6	)			(8.6	)
Comprehensive income (loss)		$	(122.0	)		$	125.3			$	(182.4	)		$	198.9

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

     The Company incurs pre-production engineering, research and development (“ER&D”) and tooling costs related to the products produced for its customers under long-term supply agreements. The Company expenses all pre-production ER&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 customer has not provided a non-cancelable right to use the tooling. During the first six months of 2005 and 2004, the Company capitalized $137.9 million and $105.5 million, respectively, of pre-production ER&D costs for which reimbursement is contractually guaranteed by the customer. In addition, during the first six months of 2005 and 2004, the Company capitalized $268.7 million and $210.8 million, respectively, of pre-production tooling costs related to customer-owned tools for which reimbursement is contractually guaranteed by the customer or for which the customer has provided a non-cancelable right to use the tooling. These amounts are included in recoverable customer engineering and tooling and other long-term assets in the consolidated balance sheets. During the six months ended July 2, 2005 and July 3, 2004, the Company collected $319.2 million and $302.0 million, respectively, of cash related to ER&D and tooling costs.

     During the first six months of 2005 and 2004, the Company capitalized $15.4 million and $21.5 million, respectively, of Company-owned tooling. These amounts are included in property, plant and equipment, net in the consolidated balance sheets.

     The classification of capitalized pre-production ER&D and tooling costs related to long-term supply agreements is shown below (in millions):

		July 2,				December 31,
		2005				2004
Current		$	281.1			$	205.8
Long-term			235.3				245.1
Recoverable customer engineering and tooling		$	516.4			$	450.9

     Gains and losses related to ER&D and tooling projects are reviewed on an aggregated program basis. Net gains on projects are deferred and recognized over the life of the long-term supply agreement. Net losses on projects are recognized as costs are incurred.

(16) Legal and Other Contingencies

     As of July 2, 2005 and December 31, 2004, the Company had recorded reserves for pending legal disputes, including commercial litigation and other matters, of $58.7 million and $25.2 million, respectively. Such reserves reflect amounts recognized in accordance with accounting principles generally accepted in the United States and exclude the cost of legal representation. Product warranty liabilities are recorded separately from legal liabilities, as described below.

Commercial Disputes

     The Company is involved from time to time in legal proceedings and claims relating to commercial or contractual disputes, including disputes with its suppliers. Largely as a result of generally unfavorable industry conditions and financial distress within the Company’s supply base, the Company has experienced an increase in commercial and contractual disputes in 2005, particularly with suppliers. These disputes vary in nature and are usually resolved by negotiations between the parties. In a recent matter, however, a

European seat trim supplier obtained a preliminary judgment (with no notice provided to the Company or its foreign subsidiary) awarding the supplier approximately $11.4 million in interest and penalties for allegedly late payments. The Company’s foreign subsidiary is challenging the applicability of the statute under which the preliminary judgment was awarded, as well as related attachment proceedings.

     On January 29, 2002, Seton Company (“Seton”), one of the Company’s leather suppliers, filed a suit alleging that the Company had breached a purported agreement to purchase leather from Seton for seats for the life of the General Motors GMT 800 program. Seton filed the lawsuit in the U.S. District Court for the Eastern District of Michigan seeking compensatory and exemplary damages totaling $96.5 million plus interest on breach of contract and promissory estoppel claims. In May 2005, this case proceeded to trial, and the jury returned a $30 million verdict against the Company, which has been accrued in the consolidated balance sheet as of July 2, 2005. The Court is considering motions regarding the amount of pre-judgment interest that will be awarded in addition to the verdict. The Company has filed post-trial motions challenging the verdict, and if these motions are unsuccessful, the Company intends to appeal the final judgment.

Product Liability Matters

     In the event that use of the Company’s products results in, or is alleged to result in, bodily injury and/or property damage or other losses, the Company may be subject to product liability lawsuits and other claims. In addition, the Company is a party to warranty-sharing and other agreements with its customers relating to its products. These customers may pursue claims against the Company for contribution of all or a portion of the amounts sought in connection with product liability and warranty claims. The Company can provide no assurances that it will not experience material claims in the future or that it will not incur significant costs to defend such claims. In addition, if any of the Company’s products are, or are alleged to be, defective, the Company may be required or requested by its customers to participate in a recall or other corrective action involving such products. Certain of the Company’s customers have asserted claims against the Company for costs related to recalls involving the Company’s products. In certain instances, the allegedly defective products were supplied by tier II suppliers against whom the Company has sought or will seek contribution. The Company carries insurance for certain legal matters, including product liability claims, but such coverage may be limited. The Company does not maintain insurance for recall matters.

     The Company records product warranty liabilities based on its individual customer agreements. Product warranty liabilities are recorded for known warranty issues when amounts related to such issues are probable and reasonably estimable. In certain product liability and warranty matters, the Company may seek recovery from its suppliers that supply materials or services included within the Company’s products that are associated with the related claims.

     A summary of the changes in product warranty liabilities for the six months ended July 2, 2005, is shown below (in millions):

Balance as of December 31, 2004		$	43.4
Expense, net			13.2
Settlements			(17.9	)
Foreign exchange and other			(1.6	)
Balance as of July 2, 2005		$	37.1

Environmental Matters

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

     The Company has been named as a potentially responsible party at several third-party landfill sites and is engaged in the cleanup of hazardous waste at certain sites owned, leased or operated by the Company, including several properties acquired in the 1999 acquisition of UT Automotive, Inc. (“UT Automotive”). Certain present and former properties of UT Automotive are subject to environmental liabilities which may be significant. The Company obtained agreements and indemnities with respect to certain environmental liabilities from United Technologies Corporation (“UTC”) in connection with its acquisition of UT Automotive. UTC manages and directly funds these environmental liabilities pursuant to its agreements and indemnities with the Company.

     As of July 2, 2005 and December 31, 2004, the Company had recorded reserves for environmental matters of $5.7 million and $5.9 million, respectively. While the Company does not believe that the environmental liabilities associated with its current and former properties will have a material adverse effect on its business, consolidated financial position or results of operations, no assurances can be given in this regard.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

     One of the Company’s subsidiaries and certain predecessor companies were named as defendants in an action filed by three plaintiffs in August 2001 in the Circuit Court of Lowndes County, Mississippi, asserting claims stemming from alleged environmental contamination caused by an automobile parts manufacturing plant located in Columbus, Mississippi. The plant was acquired by the Company as part of the UT Automotive acquisition in May 1999 and sold almost immediately thereafter, in June 1999, to Johnson Electric Holdings Limited (“Johnson Electric”). In December 2002, 61 additional cases were filed by approximately 1,000 plaintiffs in the same court against the Company and other defendants relating to similar claims. In September 2003, the Company was dismissed as a party to these cases. In the first half of 2004, the Company was named again as a defendant in these same 61 additional cases and was also named in five new actions filed by approximately 150 individual plaintiffs related to alleged environmental contamination from the same facility. The plaintiffs in these actions are persons who allegedly were either residents and/or owned property near the facility or worked at the facility. In November 2004, two additional lawsuits were filed by 28 plaintiffs (individuals and organizations), alleging property damage as a result of the alleged contamination. Each of these complaints seeks compensatory and punitive damages.

     Most of the original plaintiffs have filed motions to dismiss their claims for health effects and personal injury damages; therefore, approximately three-fourths of the plaintiffs should be voluntarily dismissed from these lawsuits. Upon the completion of these dismissals, the Company anticipates that there will be approximately 300 plaintiffs remaining in the lawsuits to proceed with property damage claims only. There is the potential that the dismissed plaintiffs could seek separate counsel to re-file their personal injury claims. In March 2005, the venue for these lawsuits was transferred from Lowndes County, Mississippi, to Lafayette County, Mississippi. In April 2005, certain plaintiffs filed an amended complaint alleging negligence, nuisance, intentional tort and conspiracy claims and seeking compensatory and punitive damages. In late April 2005, the court scheduled the first trial date for the initial plaintiffs to commence in March 2006. Discovery continued during the second quarter of 2005.

     UTC, the former owner of UT Automotive, and Johnson Electric have each sought indemnification for losses associated with the Mississippi claims from the Company under the respective acquisition agreements, and the Company has claimed indemnification from them under the same agreements. To date, no company admits to, or has been found to have, an obligation to fully defend and indemnify any other. The Company intends to vigorously defend against these claims and believes that it will eventually be indemnified by either UTC or Johnson Electric for resulting losses, if any. However, the ultimate outcome of these matters is unknown.

Other Matters

     In January 2004, the Securities and Exchange Commission (“SEC”) commenced an informal inquiry into the Company’s September 2002 amendment of its 2001 Form 10-K. The amendment was filed to report the Company’s employment of relatives of certain of its directors and officers and certain related party transactions. The SEC’s inquiry does not relate to the Company’s consolidated financial statements. In February 2005, the staff of the SEC informed the Company that it proposed to recommend to the SEC that it issue an administrative “cease and desist” order as a result of the Company’s failure to disclose the related party transactions in question prior to the amendment of its 2001 Form 10-K. The Company expects to consent to the entry of the order as part of a settlement of this matter.

     Prior to the Company’s acquisition of UT Automotive from UTC in May 1999, a subsidiary of the Company purchased the stock of a UT Automotive subsidiary. In connection with the acquisition, the Company agreed to indemnify UTC for certain tax consequences if the Internal Revenue Service (the “IRS”) overturned UTC’s tax treatment of the transaction. The IRS has proposed an adjustment to UTC’s tax treatment of the transaction seeking an increase in tax of $87.5 million, excluding interest. A protest objecting to the proposed adjustment has been filed with the IRS. The case has now been referred to the Appeals Office of the IRS for an independent review. An indemnity payment by the Company to UTC for the ultimate amount due to the IRS would constitute an adjustment to the purchase price and resulting goodwill of the UT Automotive acquisition, if and when made, and would not be expected to have a material effect on the Company’s reported earnings. The Company believes that valid support exists for UTC’s tax positions and intends to vigorously contest the IRS’s proposed adjustment. However, the ultimate outcome of this matter is not certain.

     On June 13, 2005, The Chamberlain Group (“Chamberlain”) filed a lawsuit against the Company and Ford Motor Company (“Ford”) in the Northern District of Illinois alleging patent infringement. Two counts are asserted against the Company and Ford based upon Chamberlain’s rolling code security system patent and a related product which operates transmitters to actuate garage door

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

openers. Two additional counts are asserted against Ford only (not the Company) based upon different Chamberlain patents. The Chamberlain lawsuit was filed in connection with the Company’s marketing of its universal garage door opener system, which competes with a product offered by Johnson Controls Inc. (“JCI”). JCI obtained technology from Chamberlain to operate its product. On January 26, 2004, the Company filed a patent infringement lawsuit against JCI in the U.S. District Court for Eastern District of Michigan asserting that JCI’s garage door opener product infringed certain of the Company’s radio frequency transmitter patents. After the Company filed its patent infringement action against JCI, JCI sued one of the Company’s vendors in Ottawa Circuit Court, Michigan, on July 7, 2004, alleging misappropriation of trade secrets. In this action, JCI attempted to prevent the engineering firm from working with the Company. The Company intends to vigorously defend the Chamberlain action and pursue its patent infringement claims against JCI. While the Company does not believe that any of these lawsuits will have a material adverse impact on the Company’s business, consolidated financial position or results of operations, no assurances can be given in this regard.

     The Company is involved in certain other legal actions and claims arising in the ordinary course of business, including, without limitation, supplier disputes, intellectual property matters, personal injury claims, tax claims and employment matters. Although the outcome of any legal matter cannot be predicted with certainty, the Company does not believe that any of these other legal proceedings or matters in which it is currently involved, either individually or in the aggregate, will have a material adverse effect on its business, consolidated financial position or results of operations.

(17) Segment Reporting

     The Company has three reportable operating segments: seating, interior and electronic and electrical. The seating segment includes seat systems and components thereof. The interior segment includes instrument panels and cockpit systems, overhead systems, door panels, flooring and acoustic systems and other interior products. The electronic and electrical segment includes electronic products and electrical distribution systems, primarily wire harnesses and junction boxes, interior control and entertainment systems and wireless systems. The Other category includes the corporate headquarters, geographic headquarters and the elimination of intercompany activities, none of which meets the requirements of being classified as an operating segment.

     The Company evaluates the performance of its operating segments based primarily on revenues from external customers, income before interest, other expense and income taxes and cash flows, being defined as income before interest, other expense and income taxes less capital expenditures plus depreciation and amortization. A summary of revenues from external customers and other financial information by reportable operating segment is shown below (in millions):

		Three Months Ended July 2, 2005
										Electronic and
		Seating				Interior				Electrical				Other				Consolidated
Revenues from external customers		$	2,879.9			$	767.0			$	772.4			$	—			$	4,419.3
Income (loss) before interest, other expense and income taxes			48.6				(17.8	)			52.0				(52.8	)			30.0
Depreciation and amortization			36.6				27.5				26.4				5.2				95.7
Capital expenditures			71.1				40.3				30.7				7.6				149.7
Total assets			4,371.6				2,527.2				2,473.9				(282.8	)			9,089.9

		Three Months Ended July 3, 2004
										Electronic and
		Seating				Interior				Electrical				Other				Consolidated
Revenues from external customers		$	2,888.0			$	739.1			$	656.9			$	—			$	4,284.0
Income before interest, other expense and income taxes			187.8				20.0				59.2				(54.1	)			212.9
Depreciation and amortization			34.7				26.9				19.7				5.7				87.0
Capital expenditures			63.0				25.2				24.2				2.9				115.3
Total assets			4,307.6				2,398.3				2,242.4				(17.3	)			8,931.0

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

		Six Months Ended July 2, 2005
										Electronic and
		Seating				Interior				Electrical				Other				Consolidated
Revenues from external customers		$	5,628.6			$	1,529.8			$	1,546.9			$	—			$	8,705.3
Income (loss) before interest, other expense and income taxes			98.7				(26.2	)			110.3				(104.0	)			78.8
Depreciation and amortization			71.7				57.5				51.7				10.4				191.3
Capital expenditures			130.2				77.8				51.1				20.0				279.1
Total assets			4,371.6				2,527.2				2,473.9				(282.8	)			9,089.9

		Six Months Ended July 3, 2004
										Electronic and
		Seating				Interior				Electrical				Other				Consolidated
Revenues from external customers		$	5,895.8			$	1,556.4			$	1,323.9			$	—			$	8,776.1
Income before interest, other expense and income taxes			335.4				48.7				118.5				(110.5	)			392.1
Depreciation and amortization			67.0				54.0				37.7				11.4				170.1
Capital expenditures			99.5				46.5				46.1				0.5				192.6
Total assets			4,307.6				2,398.3				2,242.4				(17.3	)			8,931.0

     Income (loss) before interest, other expense and income taxes for the three and six months ended July 2, 2005, includes restructuring charges of $12.9 million, $3.2 million, $8.9 million and $0.8 million in the seating, interior, electronic and electrical operating segments and in the other category, respectively. Income before interest, other expense and income taxes for the three and six months ended July 3, 2004, includes restructuring charges of $5.4 million and $7.8 million, respectively, in the seating operating segment.

     A reconciliation of consolidated income before interest, other expense and income taxes to consolidated income (loss) before provision (benefit) for income taxes is shown below (in millions):

		Three Months Ended								Six Months Ended
		July 2,				July 3,				July 2,				July 3,
		2005				2004				2005				2004
Income before interest, other expense and income taxes		$	30.0			$	212.9			$	78.8			$	392.1
Interest expense			48.2				39.2				93.0				78.3
Other expense, net			32.2				14.8				39.1				28.9
Income (loss) before provision (benefit) for income taxes		$	(50.4	)		$	158.9			$	(53.3	)		$	284.9

(18) Financial Instruments

     Certain of the Company’s European and Asian subsidiaries periodically factor their accounts receivable with financial institutions. Such receivables are factored without recourse to the Company and are excluded from accounts receivable in the consolidated balance sheets. As of July 2, 2005, the amount of factored receivables was $137.5 million. As of December 31, 2004, there were no factored accounts receivable.

Asset-backed Securitization Agreement

     The Company and several of its U.S. subsidiaries sell certain accounts receivable to a wholly-owned, consolidated, bankruptcy-remote special purpose corporation (Lear ASC Corporation) under an asset-backed securitization facility (the “ABS facility”). In turn, Lear ASC Corporation transfers undivided interests in up to $150 million of the receivables to bank-sponsored commercial-paper conduits. As of July 2, 2005, accounts receivable totaling $657.1 million had been transferred to Lear ASC Corporation, including $527.2 million of retained interests, which is included in accounts receivable in the consolidated balance sheet as of July 2, 2005, and serves as credit enhancement for the facility, and $129.9 million of undivided interests, which was transferred to the conduits and is excluded from accounts receivable in the consolidated balance sheet as of July 2, 2005. As of December 31, 2004, accounts receivable totaling $654.4 million had been transferred to Lear ASC Corporation, but no undivided interests in the receivables were

transferred to the conduits. As such, this retained interest is included in accounts receivable in the consolidated balance sheet as of December 31, 2004. A discount on the sale of receivables of $0.9 million and $0.5 million was recognized in the three months ended July 2, 2005 and July 3, 2004, respectively, and $1.7 million and $0.9 million was recognized in the six months ended July 2, 2005 and July 3, 2004, respectively. This discount is included in other expense, net in the consolidated statements of operations.

     The Company retains a subordinated ownership interest in the pool of receivables sold to Lear ASC Corporation. This retained interest is recorded at fair value, which is generally based on a discounted cash flow analysis. The Company continues to service the transferred receivables for an annual servicing fee. The conduit investors and Lear ASC Corporation have no recourse to the Company or its subsidiaries.

     A summary of certain cash flows received from and paid to Lear ASC Corporation is shown below (in millions):

		Three Months Ended								Six Months Ended
		July 2,				July 3,				July 2,				July 3,
		2005				2004				2005				2004
Proceeds from securitizations		$	129.9			$	—			$	129.9			$	—
Proceeds from collections reinvested in securitizations			1,059.4				1,406.9				2,152.7				2,586.5
Servicing fees received			1.3				1.4				2.6				2.8

Derivative Instruments and Hedging Activities

     Forward foreign exchange, futures and option contracts — The Company uses forward foreign exchange, futures and option contracts to reduce the effect of fluctuations in foreign exchange rates on short-term, foreign currency denominated intercompany transactions and other known foreign currency exposures. Gains and losses on the derivative instruments are intended to offset gains and losses on the hedged transaction in an effort to reduce the earnings volatility resulting from fluctuations in foreign exchange rates. The principal currencies hedged by the Company include the Mexican peso, Canadian dollar and the Euro. Forward foreign exchange and futures contracts are accounted for as fair value hedges when the hedged item is a recognized asset or liability or an unrecognized firm commitment. As of July 2, 2005, contracts designated as fair value hedges with $932.4 million of notional amount were outstanding with maturities of less than two months. As of July 2, 2005, the fair market value of these contracts was approximately negative $4.0 million. Forward foreign exchange, futures and option contracts are accounted for as cash flow hedges when the hedged item is a forecasted transaction or the variability of cash flows to be paid or received relates to a recognized asset or liability. As of July 2, 2005, contracts designated as cash flow hedges with $490.9 million of notional amount were outstanding with maturities of less than six months. As of July 2, 2005, the fair market value of these contracts was approximately $18.1 million.

     Interest rate swap contracts — The Company uses interest rate swap contracts to manage its exposure to fluctuations in interest rates. Interest rate swap contracts which fix the interest payments of certain variable rate debt instruments or fix the market rate component of anticipated fixed rate debt instruments are accounted for as cash flow hedges. Interest rate swap contracts which hedge the change in fair market value of certain fixed rate debt instruments are accounted for as fair value hedges. As of July 2, 2005, contracts representing $300.0 million of notional amount were outstanding with maturity dates through May 2009. All of these contracts are designated as fair value hedges and modify the fixed rate characteristics of the Company’s outstanding 8.11% senior notes due May 2009. These contracts convert these fixed rate obligations into variable rate obligations with coupons which reset semi-annually based on LIBOR plus a spread of 4.58%. However, the effective cost of these contracts, including the impact of swap contract restructuring, is LIBOR plus 3.85%. The fair market value of all outstanding interest rate swap contracts is subject to changes in value due to changes in interest rates. As of July 2, 2005, the fair market value of these contracts was approximately negative $9.2 million.

     As of July 2, 2005 and December 31, 2004, net gains of approximately $23.1 million and $17.4 million, respectively, related to derivative instruments and hedging activities were recorded in accumulated other comprehensive income (loss). Net gains (losses) of $8.8 and $(1.8) million in the three months ended July 2, 2005 and July 3, 2004, respectively, and $14.3 million and $(3.3) million in the six months ended July 2, 2005 and July 3, 2004, respectively, related to the Company’s hedging activities were reclassified from accumulated other comprehensive income (loss) into earnings. As of July 2, 2005, all cash flow hedges were scheduled to mature within six months, all fair value hedges of the Company’s foreign exchange exposure were scheduled to mature within two months, and all fair value hedges of the Company’s fixed rate debt instruments were scheduled to mature within four years. During the twelve month period ended July 1, 2006, the Company expects to reclassify into earnings net gains of approximately $19.0 million recorded in accumulated other comprehensive income (loss). Such gains will be reclassified at the time the underlying hedged transactions are realized. During the three and six months ended July 2, 2005 and July 3, 2004, amounts included in the consolidated statements of

LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

operations related to changes in the fair value of cash flow and fair value hedges excluded from the effectiveness assessments and the ineffective portion of changes in the fair value of cash flow and fair value hedges were not material.

     Non-U.S. dollar financing transactions — The Company has designated its 8.125% Euro-denominated senior notes (Note 9, “Long-Term Debt”) as a net investment hedge of long-term investments in its Euro-functional subsidiaries. As of July 2, 2005, the amount recorded in cumulative translation adjustment related to the effective portion of the net investment hedge of foreign operations was approximately negative $77.5 million.

(19) Accounting Pronouncements

Inventory Costs

     The Financial Accounting Standards Board (“FASB”) issued SFAS No. 151, “Inventory Costs – an amendment of ARB No. 43, Chapter 4.” This statement clarifies the requirement that abnormal inventory-related costs be recognized as current-period charges and requires that the allocation of fixed production overheads to inventory conversion costs be based on the normal capacity of the production facilities. The provisions of this statement are to be applied prospectively to inventory costs incurred during fiscal years beginning after June 15, 2005. The Company does not expect the effects of adoption to be significant.

Nonmonetary Assets

     The FASB issued SFAS No. 153, “Exchanges of Nonmonetary Assets – an amendment of APB Opinion No. 29.” APB Opinion No. 29, in general, requires the use of fair value as the measurement basis for exchanges of nonmonetary assets. This statement eliminates the exception to the fair value measurement principle for nonmonetary exchanges of similar productive assets and replaces it with a general exception for nonmonetary asset exchanges that lack commercial substance. The provisions of this statement are to be applied prospectively to nonmonetary asset exchanges occurring in fiscal periods beginning after June 15, 2005. The Company does not expect the effects of adoption to be significant.

Accounting Changes

     The FASB issued SFAS No. 154, “Accounting Changes and Error Corrections: a replacement of APB Opinion No. 20 and FASB Statement No. 3.” This statement requires retrospective application for voluntary changes in accounting principles and changes required by an accounting pronouncement that does not include specific transition provisions, unless it is impracticable to do so. Retrospective application results in the restatement of prior periods’ financial statements to reflect the change in accounting principle. APB Opinion No. 20 previously required that the impact of most voluntary changes in accounting principles be recognized in the period of change as a cumulative effect of a change in accounting principle. The provisions of this statement are to be applied prospectively to accounting changes made in fiscal years beginning after December 15, 2005.

Stock-Based Compensation

     The FASB issued a revised SFAS No. 123, “Share-Based Payment.” This statement requires that all share-based payments to employees be recognized in the financial statements based on their grant-date fair value. Under previous guidance, companies had the option of recognizing the fair value of stock-based compensation in the financial statements or disclosing the proforma impact of stock-based compensation on the statement of operations in the notes to the financial statements. As described in Note 3, “Stock-Based Compensation,” the Company adopted the fair value recognition provisions of SFAS No. 123 for all employee awards issued after January 1, 2003. The revised statement is effective at the beginning of the first annual period beginning after December 15, 2005, and provides two methods of adoption, the modified-prospective method and the modified-retrospective method. The Company anticipates adopting the revised statement using the modified-prospective method. The Company is currently evaluating the provisions of the revised statement but does not expect the impact of adoption to be significant.

LEAR CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(20) Supplemental Guarantor Condensed Consolidating Financial Statements

		July 2, 2005
										Non-
		Parent				Guarantors				guarantors				Eliminations				Consolidated
		(Unaudited; in millions)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	5.0			$	4.2			$	123.7			$	—			$	132.9
Accounts receivable			80.9				367.5				1,803.4				—				2,251.8
Inventories			16.1				182.4				381.8				—				580.3
Recoverable customer engineering and tooling			13.3				175.1				92.7				—				281.1
Other			109.5				46.8				207.0				—				363.3
Total current assets			224.8				776.0				2,608.6				—				3,609.4
LONG-TERM ASSETS:
Property, plant and equipment, net			188.7				793.1				1,031.0				—				2,012.8
Goodwill, net			105.0				1,922.4				961.5				—				2,988.9
Investments in subsidiaries			4,431.7				2,641.1				—				(7,072.8	)			—
Other			105.6				102.9				270.3				—				478.8
Total long-term assets			4,831.0				5,459.5				2,262.8				(7,072.8	)			5,480.5
		$	5,055.8			$	6,235.5			$	4,871.4			$	(7,072.8	)		$	9,089.9
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term borrowings		$	—			$	—			$	49.0			$	—			$	49.0
Accounts payable and drafts			285.2				889.9				1,693.9				—				2,869.0
Accrued liabilities			128.5				272.0				697.8				—				1,098.3
Current portion of long-term debt			—				2.3				3.6				—				5.9
Total current liabilities			413.7				1,164.2				2,444.3				—				4,022.2
LONG-TERM LIABILITIES:
Long-term debt			1,798.8				9.5				29.8				—				1,838.1
Intercompany accounts, net			13.2				1,050.6				(1,063.8	)			—				—
Other			309.5				197.7				201.8				—				709.0
Total long-term liabilities			2,121.5				1,257.8				(832.2	)			—				2,547.1
STOCKHOLDERS’ EQUITY			2,520.6				3,813.5				3,259.3				(7,072.8	)			2,520.6
		$	5,055.8			$	6,235.5			$	4,871.4			$	(7,072.8	)		$	9,089.9

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(20) Supplemental Guarantor Condensed Consolidating Financial Statements — (continued)

		December 31, 2004
										Non-
		Parent				Guarantors				guarantors				Eliminations				Consolidated
		(In millions)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	123.5			$	3.8			$	457.6			$	—			$	584.9
Accounts receivable			54.6				443.2				2,087.1				—				2,584.9
Inventories			17.5				193.2				410.5				—				621.2
Recoverable customer engineering and tooling			9.8				110.5				85.5				—				205.8
Other			116.7				64.8				193.7				—				375.2
Total current assets			322.1				815.5				3,234.4				—				4,372.0
LONG-TERM ASSETS:
Property, plant and equipment, net			156.3				759.2				1,104.3				—				2,019.8
Goodwill, net			105.0				1,920.5				1,013.9				—				3,039.4
Investments in subsidiaries			4,556.1				2,543.8				—				(7,099.9	)			—
Other			119.3				90.8				303.1				—				513.2
Total long-term assets			4,936.7				5,314.3				2,421.3				(7,099.9	)			5,572.4
		$	5,258.8			$	6,129.8			$	5,655.7			$	(7,099.9	)		$	9,944.4
LIABILITIES AND STOCKHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short-term borrowings		$	—			$	—			$	35.4			$	—			$	35.4
Accounts payable and drafts			229.5				810.8				1,737.3				—				2,777.6
Accrued liabilities			190.6				295.7				715.8				—				1,202.1
Current portion of long-term debt			626.5				2.4				3.9				—				632.8
Total current liabilities			1,046.6				1,108.9				2,492.4				—				4,647.9
LONG-TERM LIABILITIES:
Long-term debt			1,826.1				12.0				28.8				—				1,866.9
Intercompany accounts, net			(549.6	)			1,222.7				(673.1	)			—				—
Other			205.6				190.0				303.9				—				699.5
Total long-term liabilities			1,482.1				1,424.7				(340.4	)			—				2,566.4
STOCKHOLDERS’ EQUITY			2,730.1				3,596.2				3,503.7				(7,099.9	)			2,730.1
		$	5,258.8			$	6,129.8			$	5,655.7			$	(7,099.9	)		$	9,944.4