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LEAR CORP - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS(Edgar Glimpses Via Acquire Media NewsEdge) EXECUTIVE OVERVIEW We are a leading Tier 1 supplier to the global automotive industry. We supply seating and electrical distribution systems and related components to virtually every major automotive manufacturer in the world. Our seating business consists of the design, engineering, just-in-time assembly and delivery of complete seat systems, as well as the manufacture of all major seat components, including seat structures and mechanisms, seat covers, seat foam and headrests. Our electrical business consists of the design, engineering and manufacturing of complete electrical distribution systems that route electrical signals and manage electrical power within a vehicle for both traditional powertrain vehicles, as well as high-power for hybrid and electric vehicles. Key components of our electrical business include wiring harnesses, terminals and connectors, junction boxes, electronic control modules and wireless control devices. Our core capabilities are shared across component categories in both of our businesses, including high-precision manufacturing and assembly with short lead times, management of complex supply chains, global engineering and program management skills and a unique customer-focused culture. Our seating and electrical businesses both utilize proprietary, industry-specific processes and standards, leverage common low-cost engineering centers and share support from certain operating functions, such as logistics management, health and safety and purchasing, as well as all major administrative functions. Major automotive manufacturers are the primary customers of both our seating and electrical businesses. As a result, both businesses benefit from synergies in cross-selling their respective products and managing global customer relationships. Our strategy is to achieve profitable growth, balancing risk and returns. Key elements of this strategy include diversification of our sales globally and by customer and vehicle type, the continued expansion of our component capability in emerging and low-cost markets and the pursuit of complementary acquisitions to strengthen and grow both of our business segments, while maintaining a strong balance sheet with investment grade credit metrics and consistently returning cash to shareholders. Industry Overview Our sales are driven by the number of vehicles produced by the automotive manufacturers, which is ultimately dependent on consumer demand for automotive vehicles, and our content per vehicle. Automotive sales and production can be affected by the age of the vehicle fleet and related scrappage rates, labor relations issues, fuel prices, regulatory requirements, government initiatives, trade agreements, the availability and cost of credit, the availability of critical components needed to complete the production of vehicles, restructuring actions of our customers and suppliers, facility closures, increased competition, changing consumer attitudes toward vehicle ownership and usage and other factors. Our operating results are also significantly impacted by the overall commercial success of the vehicle platforms for which we supply particular products, as well as the profitability of the products that we supply for these platforms. In addition, it is possible that our customers could elect to manufacture our products internally. The loss of business with respect to any vehicle model for which we are a significant supplier, or a decrease in the production levels of any such models, could adversely affect our operating results. In addition, larger cars and light trucks, as well as vehicle platforms that offer more features and functionality, such as luxury, sport utility and crossover vehicles, typically have more content and, therefore, tend to have a more significant impact on our operating results. In the first nine months of 2014, global automotive industry production volumes improved significantly, up 4% from a year ago levels to 63.7 million units. North American industry production increased 5% from a year ago levels to 12.8 million units. European and African industry production increased 4% from a year ago levels to 15.4 million units, although industry production in this region remains below historical levels. Asian industry production increased 5% from a year ago levels to 31.9 million units. South American industry production decreased 18% from a year ago levels to 2.7 million units. Sales in Europe and Africa accounted for approximately 40% and sales in North America accounted for approximately 38% of our net sales in the first nine months of 2014. Our ability to reduce the risks inherent in certain concentrations of business, and thereby maintain our financial performance in the future, will depend, in part, on our ability to continue to diversify our sales on a customer, product, platform and geographic basis to reflect the market overall. Our customers typically require us to reduce our prices over the life of a vehicle model and, at the same time, assume significant responsibility for the design, development and engineering of our products. Our financial performance is largely dependent on our ability to achieve product cost reductions through product design enhancement and supply chain management, as well as manufacturing efficiencies and restructuring actions. We also seek to enhance our financial performance by investing in product development, design capabilities and new product initiatives that respond to the needs of our customers and consumers. We continually evaluate operational and strategic alternatives to align our business with the changing needs of our customers and improve our business structure by investing in vertical integration opportunities. 33-------------------------------------------------------------------------------- Table of Contents LEAR CORPORATION Our material cost as a percentage of net sales was 67.7% in the first nine months of 2014, as compared to 67.1% in the first nine months of 2013. Raw material, energy and commodity costs can be volatile. We have developed and implemented strategies to mitigate the impact of higher raw material, energy and commodity costs, such as the selective in-sourcing of components, the continued consolidation of our supply base, longer-term purchase commitments, financial hedges for certain commodities and the selective expansion of low-cost country sourcing and engineering, as well as value engineering and product benchmarking. However, these strategies, together with commercial negotiations with our customers and suppliers, typically offset only a portion of the adverse impact. In addition, the availability of raw materials, commodities and product components fluctuates from time to time due to factors outside of our control. If these costs increase or availability is restricted, it could have an adverse impact on our operating results in the foreseeable future. See "- Forward-Looking Statements" below and Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2013, as supplemented and updated by Part II - Item 1A, "Risk Factors," in our Quarterly Report on Form 10-Q for the quarter ended June 28, 2014. Financial Measures In evaluating our financial condition and operating performance, we focus primarily on earnings, operating margins, cash flows and return on invested capital. In addition to maintaining and expanding our business with our existing customers in our more established markets, our expansion plans are focused primarily on emerging markets. Asia, in particular, continues to present significant growth opportunities, as major global automotive manufacturers implement production expansion plans and local automotive manufacturers aggressively expand their operations to meet increasing demand in this region. As of September 27, 2014, we have fifteen joint ventures with operations in Asia, as well as an additional joint venture in North America dedicated to serving Asian automotive manufacturers. We also have aggressively pursued this strategy by selectively increasing our vertical integration capabilities globally, as well as expanding our component manufacturing capacity in Asia, Brazil, Eastern Europe, Mexico and Northern Africa. Furthermore, we have expanded our low-cost engineering capabilities in India and the Philippines. Our success in generating cash flow will depend, in part, on our ability to manage working capital effectively. Working capital can be significantly impacted by the timing of cash flows from sales and purchases. Historically, we generally have been successful in aligning our vendor payment terms with our customer payment terms. However, our ability to continue to do so may be impacted by adverse automotive industry conditions, changes to our customers' payment terms and the financial results of our suppliers, as well as our financial results. In addition, our cash flow is impacted by our ability to manage our inventory and capital spending effectively. We utilize return on invested capital as a measure of the efficiency with which our assets generate earnings. Improvements in our return on invested capital will depend on our ability to maintain an appropriate asset base for our business and to increase productivity and operating efficiency. Acquisition On August 27, 2014, we signed a definitive agreement to acquire Everett Smith Group Ltd., the parent of Eagle Ottawa, LLC ("Eagle Ottawa"), the world's leading supplier of automotive leather with annual sales of approximately $1 billion. Eagle Ottawa is a privately-held company based in Auburn Hills, Michigan and has a reputation for superior quality, product innovation and craftsmanship. This acquisition will further strengthen our global seating business, enhance our position as the industry leader in luxury and performance automotive seating and complement our existing capabilities in the design and manufacturing of seat covers. The transaction has a value of approximately $850 million on a cash and debt free basis. We expect to fund the acquisition through a combination of cash on hand and debt. The closing of the transaction is expected to occur in the first quarter of 2015 and is subject to customary conditions, including regulatory approval. Operational Restructuring In the first nine months of 2014, we incurred pretax restructuring costs of approximately $87 million and related manufacturing inefficiency charges of approximately $4 million. Any future restructuring actions will depend upon market conditions, customer actions and other factors. For further information, see Note 3, "Restructuring," to the condensed consolidated financial statements included in this Report. Financing Transactions - Senior Notes In the first quarter of 2014, we refinanced certain of our outstanding indebtedness to lower our borrowing costs and extend our debt maturity profile. In March 2014, we issued $325 million in aggregate principal amount of 5.375% senior unsecured notes due 2024 (the "2024 Notes") and paid $327 million to redeem the remaining aggregate principal amount of our 7.875% senior unsecured notes due 2018 (the "2018 Notes") and 10% of the original aggregate principal amount of our 8.125% senior 34-------------------------------------------------------------------------------- Table of Contents LEAR CORPORATIONunsecured notes due 2020 (the "2020 Notes"). In connection with these redemptions, we recognized losses of approximately $18 million on the extinguishment of debt in the first quarter of 2014. In January 2013, we issued $500 million in aggregate principal amount of 4.75% senior unsecured notes due 2023 (the "2023 Notes"). In March 2013, we paid $72 million to redeem 10% of the original aggregate principal amount of the 2018 Notes and 2020 Notes. In connection with this redemption, we recognized a loss of approximately $4 million on the partial extinguishment of debt in the first quarter of 2013. For further information, see "- Liquidity and Capital Resources - Capitalization - Senior Notes" and Note 8, "Debt," to the condensed consolidated financial statements included in this Report. Share Repurchase Program and Quarterly Cash Dividend Since the first quarter of 2011, our Board of Directors has authorized $2.25 billion in share repurchases under our common stock share repurchase program. On April 25, 2013, we entered into an accelerated stock repurchase ("ASR") agreement to repurchase $800 million of our common stock. On March 31, 2014, the ASR agreement ended, and on April 14, 2014, we paid approximately $55 million to settle the transaction. Following the settlement of the ASR transaction, we completed $204 million of share repurchases and have a remaining repurchase authorization of $491 million as of the date of this Report, which will expire in April 2016. In the first, second and third quarters of 2014, our Board of Directors declared a quarterly cash dividend of $0.20 per share of common stock. For further information regarding our common stock share repurchase program, the ASR program and our quarterly dividends, see "- Liquidity and Capital Resources - Capitalization" and Note 13, "Comprehensive Income and Equity," to the condensed consolidated financial statements included in this Report. Other Matters In the three and nine months ended September 27, 2014, we recognized tax benefits of $5 million and $27 million, respectively, related to debt redemption costs, restructuring charges and various other items and tax benefits of $2 million and $13 million, respectively, primarily related to reductions in tax reserves due to tax audit settlements and the release of valuation allowances with respect to the deferred tax assets of certain foreign subsidiaries. In the nine months ended September 28, 2013, we incurred costs of $3 million related to a proxy contest. We incurred losses and incremental costs related to the destruction of assets caused by a fire at one of our European production facilities in the third quarter of 2011. During 2012, we reached a settlement for the recovery of such costs under applicable insurance policies. In the nine months ended September 28, 2013, we recognized losses and incremental costs of $7 million. In the three and nine months ended September 28, 2013, we recognized net tax benefits of $2 million and $22 million, respectively, related to restructuring charges, the retroactive reinstatement of the U.S. research and development tax credit and various other items and net tax benefits of $6 million and $22 million, respectively, primarily related to net changes in valuation allowances with respect to the deferred tax assets of certain foreign subsidiaries. 35-------------------------------------------------------------------------------- Table of Contents LEAR CORPORATIONAs discussed above, our results for the three and nine months ended September 27, 2014 and September 28, 2013, reflect the following items (in millions): Three Months Ended Nine Months Ended September 27, September 28, September 27, September 28, 2014 2013 2014 2013 Costs related to restructuring actions, including manufacturing inefficiencies of $1 million and $4 million in the three and nine months ended September 27, 2014, respectively, and $1 million and $4 million in the three and nine months ended September 28, 2013, respectively $ 22 $ 13 $ 91 $ 47 Costs related to proxy contest - - - 3 Acquisition and other related costs 3 - 5 - Losses and incremental costs related to the destruction of assets - - - 7 Labor-related litigation claims - - - 5 Losses on extinguishment of debt - - 18 4 Gain related to affiliate, net (5 ) - (4 ) - Tax benefits, net (7 ) (8 ) (40 ) (44 ) For further information regarding these items, see Note 2, "Acquisition," Note 3, "Restructuring," Note 8, "Debt," Note 10, "Other Expense, Net," Note 11, "Income Taxes," Note 13, "Comprehensive Income and Equity," and Note 14, "Legal and Other Contingencies - Insurance Recoveries," to the condensed consolidated financial statements included in this Report. This Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations," includes forward-looking statements that are subject to risks and uncertainties. For further information regarding other factors that have had, or may have in the future, a significant impact on our business, financial condition or results of operations, see "- Forward-Looking Statements" below and Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2013, as supplemented and updated by Part II - Item 1A, "Risk Factors," in our Quarterly Report on Form 10-Q for the quarter ended June 28, 2014. 36-------------------------------------------------------------------------------- Table of Contents LEAR CORPORATION RESULTS OF OPERATIONS A summary of our operating results in millions of dollars and as a percentage of net sales is shown below: Three Months Ended Nine Months Ended September 27, 2014 September 28, 2013 September 27, 2014 September 28, 2013 Net sales Seating $ 3,188.4 75.3 % $ 2,891.7 73.8 % $ 9,857.9 74.8 % $ 8,872.6 74.1 % Electrical 1,044.3 24.7 1,026.0 26.2 3,319.7 25.2 3,105.3 25.9 Net sales 4,232.7 100.0 3,917.7 100.0 13,177.6 100.0 11,977.9 100.0 Cost of sales 3,871.5 91.5 3,587.5 91.6 12,076.8 91.6 10,997.6 91.8 Gross profit 361.2 8.5 330.2 8.4 1,100.8 8.4 980.3 8.2 Selling, general and administrative expenses 128.1 3.0 128.6 3.3 402.8 3.1 386.1 3.2 Amortization of intangible assets 8.6 0.2 8.6 0.2 25.4 0.2 25.8 0.2 Interest expense 15.7 0.4 17.5 0.4 47.1 0.4 51.6 0.4 Other expense, net 11.1 0.3 16.8 0.4 57.1 0.4 37.8 0.3 Provision for income taxes 57.6 1.3 51.2 1.3 163.1 1.2 130.2 1.1 Equity in net income of affiliates (7.8 ) (0.2 ) (9.2 ) (0.2 ) (29.0 ) (0.2 ) (27.1 ) (0.2 ) Net income attributable to noncontrolling interests 7.8 0.2 3.9 0.1 23.7 0.2 17.3 0.2 Net income attributable to Lear $ 140.1 3.3 % $ 112.8 2.9 % $ 410.6 3.1 % $ 358.6 3.0 % Three Months Ended September 27, 2014 vs. Three Months Ended September 28, 2013 Net sales in the third quarter of 2014 were $4.2 billion, as compared to $3.9 billion in the third quarter of 2013, an increase of $315 million or 8%. New business and improved production volumes on key Lear platforms positively impacted net sales by $221 million and $125 million, respectively. Cost of sales in the third quarter of 2014 were $3.9 billion, as compared to $3.6 billion in the third quarter of 2013. The increase is primarily due to the impact of new business and improved production volumes on key Lear platforms. Gross profit and gross margin were $361 million and 8.5% of net sales in the third quarter of 2014, as compared to $330 million and 8.4% in the third quarter of 2013. Favorable operating performance and the benefit of operational restructuring actions positively impacted gross profit by $69 million. Gross profit also benefited by $31 million from the impact of new business and improved production volumes on key Lear platforms. These increases were partially offset by the impact of selling price reductions. These factors had a corresponding impact on gross margin. Selling, general and administrative expenses, including engineering and development expenses, were $128 million in the third quarter of 2014, as compared to $129 million in the third quarter of 2013. As a percentage of net sales, selling, general and administrative expenses were 3.0% in the third quarter of 2014, as compared to 3.3% in the third quarter of 2013. Amortization of intangible assets was $9 million in the third quarters of 2014 and 2013. Interest expense was $16 million in the third quarter of 2014, as compared to $18 million in the third quarter of 2013. Other expense, net, which includes non-income related taxes, foreign exchange gains and losses, gains and losses related to certain derivative instruments and hedging activities, gains and losses on the extinguishment of debt, gains and losses on the disposal of fixed assets and other miscellaneous income and expense, was $11 million in the third quarter of 2014, as compared to $17 million in the third quarter of 2013. In the third quarter of 2014, we recognized a gain of $5 million related to a transaction with an affiliate. In the third quarter of 2014, the provision for income taxes was $58 million, representing an effective tax rate of 29.1% on pretax income before equity in net income of affiliates of $198 million. In the third quarter of 2013, the provision for income 37-------------------------------------------------------------------------------- Table of Contents LEAR CORPORATIONtaxes was $51 million, representing an effective tax rate of 32.3% on pretax income before equity in net income of affiliates of $159 million, for the reasons described below. In the third quarters of 2014 and 2013, the provision for income taxes was primarily impacted by the level and mix of earnings among tax jurisdictions. The provision was also impacted by a portion of our restructuring charges and other expenses, for which no tax benefit was provided as the charges were incurred in certain countries for which no tax benefit is likely to be realized due to a history of operating losses in those countries. In the third quarter of 2014, we recognized tax benefits of $5 million related to restructuring charges and various other items and tax benefits of $2 million primarily related to the release of valuation allowances with respect to the deferred tax assets of certain foreign subsidiaries. In the third quarter of 2013, we recognized net tax benefits of $2 million related to restructuring charges and various other items and net tax benefits of $6 million related to net changes in valuation allowances with respect to the deferred tax assets of certain foreign subsidiaries. Excluding these items, the effective tax rate in the third quarters of 2014 and 2013 approximated the U.S. federal statutory income tax rate of 35% adjusted for income taxes on foreign earnings, losses and remittances, valuation allowances, tax credits, income tax incentives and other permanent items. Our current and future provision for income taxes is impacted by the initial recognition of and changes in valuation allowances in certain countries. We intend to maintain these allowances until it is more likely than not that the deferred tax assets will be realized. Our future provision for income taxes will include no tax benefit with respect to losses incurred and, except for certain jurisdictions, no tax expense with respect to income generated in these countries until the respective valuation allowances are eliminated. Accordingly, income taxes are impacted by changes in valuation allowances and the mix of earnings among jurisdictions. We evaluate the realizability of our deferred tax assets on a quarterly basis. In completing this evaluation, we consider all available evidence in order to determine whether, based on the weight of the evidence, a valuation allowance for our deferred tax assets is necessary. Such evidence includes historical results, future reversals of existing taxable temporary differences and expectations for future taxable income (exclusive of the reversal of temporary differences and carryforwards), as well as the implementation of feasible and prudent tax planning strategies. If, based on the weight of the evidence, it is more likely than not that all or a portion of our deferred tax assets will not be realized, a valuation allowance is recorded. If operating results improve or decline on a continual basis in a particular jurisdiction, our decision regarding the need for a valuation allowance could change, resulting in either the initial recognition or reversal of a valuation allowance in that jurisdiction, which could have a significant impact on income tax expense in the period recognized and subsequent periods. In determining the provision for income taxes for financial statement purposes, we make certain estimates and judgments, which affect our evaluation of the carrying value of our deferred tax assets, as well as our calculation of certain tax liabilities. As of December 31, 2013, we had a valuation allowance related to tax loss and credit carryforwards and other deferred tax assets of approximately $100 million in certain international jurisdictions. If we continue to experience sustained levels of profitability in these international jurisdictions, our assessment of the need for a full valuation allowance with respect to the deferred tax assets in those jurisdictions could change. It is possible that the valuation allowance could be reversed as early as the fourth quarter of 2014. A reduction in our valuation allowance could have a significant impact on tax expense and net income in the period in which the reduction occurs. Equity in net income of affiliates was $8 million for the third quarter of 2014, as compared to $9 million for the third quarter of 2013. Net income attributable to Lear in the third quarter of 2014 was $140 million, or $1.72 per diluted share, as compared to $113 million, or $1.38 per diluted share, in the third quarter of 2013. Net income and diluted net income per share increased for the reasons described above. Reportable Operating Segments We have two reportable operating segments: seating, which includes seats and related components, such as seat structures and mechanisms, seat covers, seat foam and headrests, and electrical, which includes electrical distribution systems for both traditional powertrain vehicles, as well as high-power for hybrid and electric vehicles. Key components of our electrical business include wiring harnesses, terminals and connectors, junction boxes, electronic control modules and wireless control devices. The financial information presented below is for our two reportable operating segments and our other category for the periods presented. The other category includes unallocated costs related to corporate headquarters, regional headquarters and the elimination of intercompany activities, none of which meets the requirements for being classified as an operating segment. Corporate and regional headquarters costs include various support functions, such as information technology, corporate finance, legal, executive administration and human resources. Financial measures regarding each segment's pretax income before equity in net income of affiliates, interest expense and other expense ("segment earnings") and segment earnings divided by net sales ("margin") are not measures of performance under accounting principles generally accepted in the United States ("GAAP"). Segment earnings and the related margin are used by management to evaluate the performance of our reportable operating 38-------------------------------------------------------------------------------- Table of Contents LEAR CORPORATION segments. Segment earnings should not be considered in isolation or as a substitute for net income attributable to Lear, net cash provided by operating activities or other income statement or cash flow statement data prepared in accordance with GAAP or as measures of profitability or liquidity. In addition, segment earnings, as we determine it, may not be comparable to related or similarly titled measures reported by other companies. For a reconciliation of consolidated segment earnings to consolidated income before provision for income taxes and equity in net income of affiliates, see Note 15, "Segment Reporting," to the condensed consolidated financial statements included in this Report. Seating A summary of the financial measures for our seating segment is shown below (dollar amounts in millions): Three months ended September 27, 2014 September 28, 2013 Net sales $ 3,188.4 $ 2,891.7 Segment earnings (1) 154.9 142.8 Margin 4.9 % 4.9 % (1) See definition above. Seating net sales were $3.2 billion for the third quarter of 2014, as compared to $2.9 billion for the third quarter of 2013, an increase of $297 million or 10%. New business and improved production volumes on key Lear platforms positively impacted net sales by $303 million. Segment earnings, including restructuring costs, and the related margin on net sales were $155 million and 4.9% in the third quarter of 2014, as compared to $143 million and 4.9% in the third quarter of 2013. Segment earnings were positively impacted by $56 million related to favorable operating performance and the benefit of operational restructuring actions, improved production volumes on key Lear platforms and new business. These items were partially offset by the impact of selling price reductions, as well as higher restructuring costs. Electrical A summary of financial measures for our electrical segment is shown below (dollar amounts in millions): Three months ended September 27, 2014 September 28, 2013 Net sales $ 1,044.3 $ 1,026.0 Segment earnings (1) 136.7 111.6 Margin 13.1 % 10.9 % (1) See definition above. Electrical net sales were $1.0 billion for the third quarters of 2014 and 2013, an increase of $18 million or 2%. New business positively impacted net sales by $57 million. This increase was partially offset by the impact of selling price reductions. Segment earnings, including restructuring costs, and the related margin on net sales were $137 million and 13.1% in the third quarter of 2014, as compared to $112 million and 10.9% in the third quarter of 2013. Segment earnings were favorably impacted by $45 million as a result of improved operating performance. This increase was partially offset by the impact of selling price reductions. Other A summary of financial measures for our other category, which is not an operating segment, is shown below (dollar amounts in millions): Three months ended September 27, 2014 September 28, 2013 Net sales $ - $ - Segment earnings (1) (67.1 ) (61.4 ) Margin N/A N/A (1) See definition above. 39-------------------------------------------------------------------------------- Table of Contents LEAR CORPORATION Segment earnings related to our other category were ($67) million in the third quarter of 2014, as compared to ($61) million in the third quarter of 2013, reflecting higher incentive compensation expenses related to performance as compared to our targets and $3 million of costs related to the acquisition of Eagle Ottawa. Nine Months Ended September 27, 2014 vs. Nine Months Ended September 28, 2013 Net sales in the first nine months of 2014 were $13.2 billion, as compared to $12.0 billion in the first nine months of 2013, an increase of $1.2 billion or 10%. New business and improved production volumes on key Lear platforms positively impacted net sales by $787 million and $411 million, respectively. Cost of sales in the first nine months of 2014 were $12.1 billion, as compared to $11.0 billion in the first nine months of 2013. The increase is primarily due to the impact of new business and improved production volumes on key Lear platforms. Gross profit and gross margin were $1.1 billion and 8.4% of net sales in the first nine months of 2014, as compared to $980 million and 8.2% in the first nine months of 2013. Favorable operating performance and the benefit of operational restructuring actions positively impacted gross profit by $224 million. Gross profit also benefited by $148 million from the impact of new business and improved production volumes on key Lear platforms. Selling price reductions and the changeover of key Lear platforms in our seating business negatively impacted gross profit by $232 million. These factors had a corresponding impact on gross margin. Selling, general and administrative expenses, including engineering and development expenses, were $403 million in the nine months ended September 27, 2014, as compared to $386 million in the nine months ended September 28, 2013. As a percentage of net sales, selling, general and administrative expenses were 3.1% in the first nine months of 2014, as compared to 3.2% in the first nine months of 2013. Amortization of intangible assets was $25 million in the first nine months of 2014, as compared to $26 million in the first nine months of 2013. Interest expense was $47 million in the first nine months of 2014, as compared to $52 million in the first nine months of 2013. Other expense, net, which includes non-income related taxes, foreign exchange gains and losses, gains and losses related to certain derivative instruments and hedging activities, gains and losses on the extinguishment of debt, gains and losses on the disposal of fixed assets and other miscellaneous income and expense, was $57 million in the first nine months of 2014, as compared to $38 million in the first nine months of 2013. In the first nine months of 2014, we recognized a gain of $5 million related to a transaction with an affiliate and losses of $18 million related to the redemption of the remaining aggregate principal amount of our 2018 Notes and 10% of the original aggregate principal amount of our 2020 Notes. In the first nine months of 2013, we recognized a loss of $4 million related to the redemption of 10% of the original aggregate principal amount of our 2018 Notes and our 2020 Notes. Other expense, net was negatively impacted by a year over year increase in foreign exchange losses of $7 million. In the first nine months of 2014, the provision for income taxes was $163 million, representing an effective tax rate of 28.7% on pretax income before equity in net income of affiliates of $568 million. In the first nine months of 2013, the provision for income taxes was $130 million, representing an effective tax rate of 27.2% on pretax income before equity in net income of affiliates of $479 million, for the reasons described below. In the first nine months of 2014 and 2013, the provision for income taxes was primarily impacted by the level and mix of earnings among tax jurisdictions. The provision was also impacted by a portion of our restructuring charges and other expenses, for which no tax benefit was provided as the charges were incurred in certain countries for which no tax benefit is likely to be realized due to a history of operating losses in those countries. In the first nine months of 2014, we recognized tax benefits of $27 million related to debt redemption costs, restructuring charges and various other items and tax benefits of $13 million primarily related to reductions in tax reserves due to tax audit settlements and the release of valuation allowances with respect to the deferred tax assets of certain foreign subsidiaries. In the first nine months of 2013, we recognized net tax benefits of $22 million related to restructuring charges, the retroactive reinstatement of the U.S. research and development tax credit and various other items and net tax benefits of $22 million primarily related to net changes in valuation allowances with respect to the deferred tax assets of certain foreign subsidiaries. Excluding these items, the effective tax rate in the first nine months of 2014 and 2013 approximated the U.S. federal statutory income tax rate of 35% adjusted for income taxes on foreign earnings, losses and remittances, valuation allowances, tax credits, income tax incentives and other permanent items. 40-------------------------------------------------------------------------------- Table of Contents LEAR CORPORATIONFor a description of our valuation allowances, see "Three Months Ended September 27, 2014 vs. Three Months Ended September 28, 2013," above. Equity in net income of affiliates was $29 million for the first nine months of 2014, as compared to $27 million for first nine months of 2013. Net income attributable to Lear in the first nine months of 2014 was $411 million, or $5.01 per diluted share, as compared to $359 million, or $4.09 per diluted share, in the first nine months of 2013. Net income and diluted net income per share increased for the reasons described above. In addition, diluted net income per share was impacted by the decrease in average shares outstanding during the first nine months of 2014. Reportable Operating Segments For a description of our reportable operating segments, see "Three Months Ended September 27, 2014 vs. Three Months Ended September 28, 2013 - Reportable Operating Segments," above. Seating A summary of the financial measures for our seating segment is shown below (dollar amounts in millions): Nine Months Ended September 27, 2014 September 28, 2013 Net sales $ 9,857.9 $ 8,872.6 Segment earnings (1) 471.3 450.7 Margin 4.8 % 5.1 % (1) See definition above. Seating net sales were $9.9 billion for the first nine months of 2014, as compared to $8.9 billion for the first nine months of 2013, an increase of $985 million or 11%. New business and improved production volumes on key Lear platforms positively impacted net sales by $913 million. Segment earnings, including restructuring costs, and the related margin on net sales were $471 million and 4.8% in the first nine months of 2014, as compared to $451 million and 5.1% in the first nine months of 2013. Segment earnings were favorably impacted by $209 million primarily as a result of favorable operating performance and the benefit of operational restructuring actions, improved production volumes on key Lear platforms and new business. These items were offset by $156 million related to the changeover of key Lear platforms and selling price reductions and $39 million related to higher restructuring costs. Electrical A summary of financial measures for our electrical segment is shown below (dollar amounts in millions): Nine Months Ended September 27, 2014 September 28, 2013 Net sales $ 3,319.7 $ 3,105.3 Segment earnings (1) 413.3 295.5 Margin 12.4 % 9.5 % (1) See definition above. Electrical net sales were $3.3 billion for the first nine months of 2014, as compared to $3.1 billion for the first nine months of 2013, an increase of $214 million or 7%. New business positively impacted net sales by $277 million. Segment earnings, including restructuring costs, and the related margin on net sales were $413 million and 12.4% in the first nine months of 2014, as compared to $296 million and 9.5% in the first nine months of 2013. Segment earnings were favorably impacted by $131 million as a result of improved operating performance. Selling price reductions of $76 million were partially offset by new business of $46 million. Other A summary of financial measures for our other category, which is not an operating segment, is shown below (dollar amounts in millions): 41-------------------------------------------------------------------------------- Table of Contents LEAR CORPORATION Nine Months Ended September 27, 2014 September 28, 2013 Net sales $ - $ - Segment earnings (1) (212.0 ) (177.8 ) Margin N/A N/A (1) See definition above. Segment earnings related to our other category were ($212) million in the first nine months of 2014, as compared to ($178) million in the first nine months of 2013, reflecting higher incentive compensation expenses related to performance as compared to our targets, as well as infrastructure costs to support the growth of our business in emerging markets. LIQUIDITY AND CAPITAL RESOURCES Our primary liquidity needs are to fund general business requirements, including working capital requirements, capital expenditures, operational restructuring actions and debt service requirements. In addition, we expect to continue to pay quarterly dividends and repurchase shares of our common stock pursuant to our authorized common stock share repurchase program. Our principal sources of liquidity are cash flows from operating activities, borrowings under available credit facilities and our existing cash balance. A substantial portion of our operating income is generated by our subsidiaries. As a result, we are dependent on the earnings and cash flows of and the combination of dividends, royalties, intercompany loan repayments and other distributions and advances from our subsidiaries to provide the funds necessary to meet our obligations. As of September 27, 2014 and December 31, 2013, cash and cash equivalents of $580 million and $792 million, respectively, were held in foreign subsidiaries and can be repatriated, primarily through the repayment of intercompany loans, without creating additional income tax expense. There are no significant restrictions on the ability of our subsidiaries to pay dividends or make other distributions to Lear. For further information regarding potential dividends from our non-U.S. subsidiaries, see "- Adequacy of Liquidity Sources," below and Note 7, "Income Taxes," to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2013. Cash Flows Net cash provided by operating activities was $412 million in the first nine months of 2014, as compared to $430 million in the first nine months of 2013. Consolidated net income and depreciation and amortization were a source of cash of $667 million and $584 million in the first nine months of 2014 and 2013, respectively, resulting in an incremental increase in operating cash flow of $83 million between periods. The net change in working capital items was a use of cash of $322 million and $158 million in the first nine months of 2014 and 2013, respectively, resulting in an incremental decrease in operating cash flow of $164 million between periods. This decrease primarily reflects the timing of our fiscal quarter-end for the third quarter of 2014, as compared to the third quarter of 2013, which impacted the collection of accounts receivable, and increased working capital to support our sales growth. In the first nine months of 2014, increases in accounts receivable, inventories and accounts payable resulted in a use of cash of $653 million, a use of cash of $112 million and a source of cash of $259 million, respectively, primarily reflecting the timing of our fiscal quarter-end for the third quarter of 2014, as well as increased working capital to support our sales growth. In the first nine months of 2014, changes in accrued liabilities and other resulted in a source of cash of $184 million, primarily reflecting the timing of payment of accrued liabilities. Net cash used in investing activities was $290 million in the first nine months of 2014, as compared to $281 million in the first nine months of 2013. In the first nine months of 2013, we sold our ownership interest in an equity affiliate for $50 million. In addition, capital spending decreased by $48 million between periods. Capital spending in 2014 is estimated at $450 million. Net cash used in financing activities was $372 million in the first nine months of 2014, as compared to $674 million in the first nine months of 2013. In the first nine months of 2014, we issued $325 million in aggregate principal amount of the 2024 Notes and paid $327 million to redeem all of our outstanding 2018 Notes and a portion of our outstanding 2020 Notes. In addition, we paid $259 million in aggregate for repurchases of our common stock, including $204 million of open market repurchases and $55 million to settle an ASR program. In the first nine months of 2013, we issued $500 million in aggregate principal amount of the 2023 Notes and paid $72 million to redeem a portion of our outstanding 2018 Notes and 2020 Notes. In addition, we paid $1.0 billion in aggregate for repurchases of our common stock, including $200 million of open market repurchases and $800 million of repurchases through an ASR program. 42-------------------------------------------------------------------------------- Table of Contents LEAR CORPORATIONCapitalization From time to time, we utilize uncommitted credit facilities to fund our capital expenditures and working capital requirements at certain of our foreign subsidiaries, in addition to cash provided by operating activities. As of September 27, 2014 and December 31, 2013, there were no short-term debt balances outstanding. The availability of uncommitted lines of credit may be affected by our financial performance, credit ratings and other factors. Senior Notes As of September 27, 2014, our long-term debt consists of $245 million in aggregate principal amount of 2020 Notes at a stated coupon rate of 8.125%, $500 million in aggregate principal amount of 2023 Notes at a stated coupon rate of 4.75% and $325 million in aggregate principal amount of 2024 Notes at a stated coupon rate of 5.375% (collectively, the "Notes"). The 2024 Notes were issued on March 11, 2014. The net proceeds from the offering of $321 million, together with our existing sources of liquidity, were used to redeem the remaining aggregate principal amount of our 2018 Notes ($280 million) and to redeem 10% of the original aggregate principal amount of our 2020 Notes ($35 million) at stated redemption prices, plus accrued and unpaid interest to the respective redemption dates. In connection with these transactions, we paid $327 million and recognized losses of $18 million on the extinguishment of debt in the first quarter of 2014. For further information related to the Notes, including information on early redemption, covenants and events of default, see Note 8, "Debt," to the condensed consolidated financial statements included in this Report and Note 6, "Debt," to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2013. Revolving Credit Facility Our $1.0 billion revolving credit facility permits borrowings for general corporate and working capital purposes and the issuance of letters of credit. As of September 27, 2014, there were no borrowings outstanding under the revolving credit facility, and we were in compliance with all covenants under the agreement governing the revolving credit facility. For further information related to the revolving credit facility, including information on pricing, covenants and events of default, see Note 8, "Debt," to the condensed consolidated financial statements included in this Report and Note 6, "Debt," to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2013. Contractual Obligations Our scheduled maturities of long-term debt and our scheduled interest payments on the Notes, described above in "- Senior Notes," as of September 27, 2014, are shown below (in millions): 2014 (2) 2015 2016 2017 2018 Thereafter Total Long-term debt maturities (1) $ - $ - $ - $ - $ - $ 1,070.0 $ 1,070.0 Scheduled interest payments - 61.1 61.1 61.1 61.1 232.8 477.2 Total $ - $ 61.1 $ 61.1 $ 61.1 $ 61.1 $ 1,302.8 $ 1,547.2 (1) Represents aggregate principal amounts at maturity. (2) Represents interest payments for the fourth quarter of 2014. Common Stock Share Repurchase Program On April 25, 2013, we entered into an ASR agreement to repurchase our common stock. In the second quarter of 2013, we paid $800 million to a financial institution, using cash on-hand, and received an initial delivery of 11,862,836 shares. This initial share delivery represented 80% of the ASR transaction's value at the then-current price of $53.95 per share. The ultimate number of shares repurchased and the final price paid per share under the ASR transaction was determined based on the daily volume weighted average price of our common stock during the term of the ASR agreement, less an agreed upon discount. On March 31, 2014, the ASR agreement ended, and the initial delivery of shares under the ASR transaction exceeded the ultimate number of shares repurchased by 658,903 shares. Under the terms of the ASR agreement, we had the contractual right to deliver either shares or cash equal to the value of those shares to the financial institution. We elected to settle the ASR transaction in cash and as a result, paid approximately $55 million in the second quarter of 2014. Inclusive of the settlement, 11,862,836 shares were repurchased under the ASR transaction for approximately $855 million, or an average price of $72.11 per share. In the first nine months of 2014, we paid $259 million in aggregate for repurchases of our common stock, including $204 million of open market repurchases (2,181,095 shares at an average purchase price of $93.47 per share, excluding commissions) and $55 million to settle the ASR transaction. We have a remaining repurchase authorization of $491 million 43-------------------------------------------------------------------------------- Table of Contents LEAR CORPORATION under our ongoing common stock share repurchase program, which will expire in April 2016. We may implement these share repurchases through a variety of methods, including open market purchases, accelerated stock repurchase programs and structured repurchase transactions. The extent to which we will repurchase our outstanding common stock and the timing of such repurchases will depend upon our financial condition, prevailing market conditions, alternative uses of capital and other factors. In addition, our amended and restated credit facility and the indenture governing our 2020 Notes place certain limitations on our ability to repurchase our common shares. See "-Forward-Looking Statements." As of the date of this Report, we have paid $1.8 billion in aggregate for repurchases of our outstanding common stock, excluding commissions and related fees, since the first quarter of 2011. For further information regarding our common stock share repurchase program and the ASR program, see Note 13, "Comprehensive Income and Equity," to the condensed consolidated financial statements included in this Report. Dividends A summary of 2014 dividend declarations is shown below: Dividend Amount Declaration Date Record Date Payment Date $0.20 February 7, 2014 February 28, 2014 March 20, 2014 $0.20 May 15, 2014 June 6, 2014 June 25, 2014 $0.20 August 14, 2014 September 5, 2014 September 24, 2014 We currently expect to pay quarterly cash dividends in the future, although such payments are at the discretion of our Board of Directors and will depend upon our financial condition, results of operations, capital requirements, alternative uses of capital and other factors that our Board of Directors may consider at its discretion. In addition, our amended and restated credit facility and the indenture governing our 2020 Notes place certain limitations on the payment of cash dividends. Adequacy of Liquidity Sources As of September 27, 2014, we had approximately $873 million of cash and cash equivalents on hand and $1.0 billion in available borrowing capacity under our revolving credit facility. Together with cash provided by operating activities, we believe that this will enable us to meet our liquidity needs to satisfy ordinary course business obligations. In addition, we expect to continue to pay quarterly dividends and repurchase shares of our common stock, pursuant to our authorized common stock share repurchase program (see "- Common Stock Share Repurchase Program," above). Our future financial results and our ability to continue to meet our liquidity needs are subject to, and will be affected by, cash flows from operations, including the impact of restructuring activities, automotive industry conditions, the financial condition of our customers and suppliers and other related factors. Additionally, an economic downturn or reduction in production levels could negatively impact our financial condition. For further discussion of the risks and uncertainties affecting our cash flows from operations and our overall liquidity, see "- Executive Overview" above, "- Forward-Looking Statements" below and Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2013, as supplemented and updated by Part II - Item 1A, "Risk Factors," in this Report. Market Risk Sensitivity In the normal course of business, we are exposed to market risks associated with fluctuations in foreign exchange rates, interest rates and commodity prices. We manage a portion of these risks through the use of derivative financial instruments in accordance with our policies. We enter into all hedging transactions for periods consistent with the underlying exposures. We do not enter into derivative instruments for trading purposes. Foreign Exchange Operating results may be impacted by our buying, selling and financing in currencies other than the functional currency of our operating companies ("transactional exposure"). We may mitigate a portion of this risk by entering into forwards, swaps and other derivative contracts. The foreign exchange contracts are executed with banks that we believe are creditworthy. Gains and losses related to foreign exchange contracts are deferred where appropriate and included in the measurement of the foreign currency transaction subject to the hedge. Gains and losses incurred related to foreign exchange contracts are generally offset by the direct effects of currency movements on the underlying transactions. Currently, our most significant foreign currency transactional exposures relate to the Mexican peso, various European currencies, the Chinese renminbi, the Thai baht, the Brazilian real and the Canadian dollar. We have performed a quantitative analysis of our overall currency rate exposure as of September 27, 2014 and December 31, 2013. As of September 27, 2014, the potential adverse earnings impact related to net transactional exposures from a hypothetical 10% strengthening of the U.S. 44-------------------------------------------------------------------------------- Table of Contents LEAR CORPORATION dollar relative to all other currencies to which it is exposed for a twelve-month period is approximately $31 million. The potential earnings benefit related to net transactional exposures from a similar strengthening of the Euro relative to all other currencies to which it is exposed for a twelve-month period is approximately $16 million. As of December 31, 2013, the potential adverse earnings impact related to net transactional exposures from a hypothetical 10% strengthening of the U.S. dollar relative to all other currencies to which it is exposed for a twelve-month period is approximately $27 million. The potential earnings benefit related to net transactional exposures from a similar strengthening of the Euro relative to all other currencies to which it is exposed for a twelve-month period is approximately $4 million. As of September 27, 2014, foreign exchange contracts representing $874 million of notional amount were outstanding with maturities of less than eighteen months. As of September 27, 2014, the fair value of these contracts was approximately $4 million. A 10% change in the value of the U.S. dollar relative to all other currencies to which it is exposed would result in a $31 million change in the aggregate fair value of these contracts. A 10% change in the value of the Euro relative to all other currencies to which it is exposed would result in a $26 million change in the aggregate fair value of these contracts. As of December 31, 2013, foreign exchange contracts representing $1.1 billion of notional amount were outstanding with maturities of less than eighteen months. As of December 31, 2013, the fair value of these contracts was approximately $6 million. A 10% change in the value of the U.S. dollar relative to all other currencies to which it is exposed would result in a $27 million change in the aggregate fair value of these contracts. A 10% change in the value of the Euro relative to all other currencies to which it is exposed would result in a $37 million change in the aggregate fair value of these contracts. There are certain shortcomings inherent in the sensitivity analysis presented. The analysis assumes that all currencies would uniformly strengthen or weaken relative to the U.S. dollar or Euro. In reality, some currencies may strengthen while others may weaken, causing the earnings impact to increase or decrease depending on the currency and the direction of the rate movement. In addition to the transactional exposure described above, our operating results are impacted by the translation of our foreign operating income into U.S. dollars ("translational exposure"). In 2013, net sales outside of the United States accounted for 81% of our consolidated net sales, although certain non-U.S. sales are U.S. dollar denominated. We do not enter into foreign exchange contracts to mitigate our translational exposure. Interest Rates Historically, we used interest rate swap and other derivative contracts to manage our exposure to fluctuations in interest rates. As of September 27, 2014 and December 31, 2013, there were no interest rate contracts outstanding. We will continue to evaluate, and may use, derivative financial instruments, including forwards, futures, options, swaps and other derivative contracts to manage our exposures to fluctuations in interest rates in the future. Commodity Prices Raw material, energy and commodity costs can be volatile. We have developed and implemented strategies to mitigate the impact of higher raw material, energy and commodity costs, such as the selective in-sourcing of components, the continued consolidation of our supply base, longer-term purchase commitments, financial hedges for certain commodities and the selective expansion of low-cost country sourcing and engineering, as well as value engineering and product benchmarking. However, these strategies, together with commercial negotiations with our customers and suppliers, typically offset only a portion of the adverse impact. If these costs increase, it could have an adverse impact on our operating results in the foreseeable future. See "- Forward-Looking Statements" below and Item 1A, "Risk Factors - Increases in the costs and restrictions on the availability of raw materials, energy, commodities and product components could adversely affect our financial performance," in our Annual Report on Form 10-K for the year ended December 31, 2013. We have commodity price risk with respect to purchases of certain raw materials, including steel, copper, diesel fuel, chemicals, resins and leather. Our main cost exposures relate to steel and copper. The majority of the steel used in our products is comprised of components that are integrated into a seat system, such as seat structures and mechanisms and mechanical components. Therefore, our exposure to steel prices is primarily indirect, through these purchased components. Approximately 86% of our copper purchases are subject to price index agreements with our customers. Historically, we used commodity swap and other derivative contracts to reduce our exposure to fluctuations in copper prices. As of September 27, 2014 and December 31, 2013, there were no commodity swap contracts outstanding. For further information related to the financial instruments described above, see Note 16, "Financial Instruments," to the condensed consolidated financial statements included in this Report. 45-------------------------------------------------------------------------------- Table of Contents LEAR CORPORATION OTHER MATTERS Legal and Environmental Matters We are involved from time to time in various legal proceedings and claims, including, without limitation, commercial and contractual disputes, product liability claims and environmental and other matters. As of September 27, 2014, we had recorded reserves for pending legal disputes, including commercial disputes and other matters, of $10 million. In addition, as of September 27, 2014, we had recorded reserves for product liability claims and environmental matters of $26 million and $5 million, respectively. Although these reserves were determined in accordance with GAAP, the ultimate outcomes of these matters are inherently uncertain, and actual results may differ significantly from current estimates. For a description of risks related to various legal proceedings and claims, see Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2013, as supplemented and updated by Part II - Item 1A, "Risk Factors," in our Quarterly Report on Form 10-Q for the quarter ended June 28, 2014. For a more complete description of our outstanding material legal proceedings, see Note 14, "Legal and Other Contingencies," to the condensed consolidated financial statements included in this Report. Significant Accounting Policies and Critical Accounting Estimates Certain of our accounting policies require management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are based on our historical experience, the terms of existing contracts, our evaluation of trends in the industry, information provided by our customers and suppliers and information available from other outside sources, as appropriate. However, these estimates and assumptions are subject to an inherent degree of uncertainty. As a result, actual results in these areas may differ significantly from our estimates. For a discussion of our significant accounting policies and critical accounting estimates, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations - Significant Accounting Policies and Critical Accounting Estimates," and Note 2, "Summary of Significant Accounting Policies," to the consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2013. There have been no significant changes in our significant accounting policies or critical accounting estimates during the first nine months of 2014. Recently Issued Accounting Pronouncements For information on the impact of recently issued accounting pronouncements, see Note 17, "Accounting Pronouncements," to the condensed consolidated financial statements included in this Report. Forward-Looking Statements The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf. The words "will," "may," "designed to," "outlook," "believes," "should," "anticipates," "plans," "expects," "intends," "estimates," "forecasts" and similar expressions identify certain of these forward-looking statements. We also may provide forward-looking statements in oral statements or other written materials released to the public. All such forward-looking statements contained or incorporated in this Report or in any other public statements which address operating performance, events or developments that we expect or anticipate may occur in the future, including, without limitation, statements related to business opportunities, awarded sales contracts, sales backlog and ongoing commercial arrangements, or statements expressing views about future operating results, are forward-looking statements. Actual results may differ materially from any or all forward-looking statements made by us. Important factors, risks and uncertainties that may cause actual results to differ materially from anticipated results include, but are not limited to: • general economic conditions in the markets in which we operate, including changes in interest rates or currency exchange rates; • the financial condition and restructuring actions of our customers and suppliers; • changes in actual industry vehicle production levels from our current estimates; • fluctuations in the production of vehicles or the loss of business with respect to, or the lack of commercial success of, a vehicle model for which we are a significant supplier; • disruptions in the relationships with our suppliers; • labor disputes involving us or our significant customers or suppliers or that otherwise affect us; • the outcome of customer negotiations and the impact of customer-imposed price reductions; • the impact and timing of program launch costs and our management of new program launches; • the costs, timing and success of restructuring actions; • increases in our warranty, product liability or recall costs; • risks associated with conducting business in foreign countries; • the impact of regulations on our foreign operations; • the operational and financial success of our joint ventures; • competitive conditions impacting us and our key customers and suppliers; • disruptions to our information technology systems, including those related to cybersecurity; 46-------------------------------------------------------------------------------- Table of Contents LEAR CORPORATION• the cost and availability of raw materials, energy, commodities and product components and our ability to mitigate such costs; • the outcome of legal or regulatory proceedings to which we are or may become a party; • the impact of pending legislation and regulations or changes in existing federal, state, local or foreign laws or regulations; • unanticipated changes in cash flow, including our ability to align our vendor payment terms with those of our customers; • limitations imposed by our existing indebtedness and our ability to access capital markets on commercially reasonable terms; • impairment charges initiated by adverse industry or market developments; • our ability to execute our strategic objectives; • changes in discount rates and the actual return on pension assets; • costs associated with compliance with environmental laws and regulations; • the impact of new regulations related to conflict minerals; • developments or assertions by or against us relating to intellectual property rights; • our ability to utilize our net operating loss, capital loss and tax credit carryforwards; • global sovereign fiscal matters and creditworthiness, including potential defaults and the related impacts on economic activity, including the possible effects on credit markets, currency values, monetary unions, international treaties and fiscal policies; and • other risks described in Item 1A, "Risk Factors," in our Annual Report on Form 10-K for the year ended December 31, 2013, as supplemented and updated by Part II - Item 1A, "Risk Factors," in our Quarterly Report on Form 10-Q for the quarter ended June 28, 2014, and our other Securities and Exchange Commission filings. The forward-looking statements in this Report are made as of the date hereof, and we do not assume any obligation to update, amend or clarify them to reflect events, new information or circumstances occurring after the date hereof. |