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

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

Commission file number: 001-11311

LEAR CORPORATION

(Exact name of registrant as specified in its charter)

Delaware		13-3386776
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
21557 Telegraph Road, Southfield, MI		48033
(Address of principal executive offices)		(Zip code)

(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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer þ		Accelerated filer o		Non-accelerated filer o		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No þ

As of November 5, 2009, the number of shares outstanding of the registrant’s common stock was 77,524,222 shares.

 

 

LEAR CORPORATION
(DEBTOR-IN-POSESSION)

FORM 10-Q

FOR THE QUARTER ENDED OCTOBER 3, 2009

INDEX

		Page No.
Part I — Financial Information
Item 1 — Condensed Consolidated Financial Statements
Introduction to the Condensed Consolidated Financial Statements			3
Condensed Consolidated Balance Sheets - October 3, 2009 (Unaudited) and December 31, 2008			4
Condensed Consolidated Statements of Operations (Unaudited)- Three and Nine Months Ended October 3, 2009 and September 27, 2008			5
Condensed Consolidated Statements of Cash Flows (Unaudited)- Nine Months Ended October 3, 2009 and September 27, 2008			6
Notes to the Condensed Consolidated Financial Statements			7
Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations			41
Item 3 — Quantitative and Qualitative Disclosures about Market Risk (included in Item 2)
Item 4 — Controls and Procedures			63
Part II — Other Information
Item 1 — Legal Proceedings			63
Item 1A — Risk Factors			63
Item 6 — Exhibits			64
Signatures			65
EX-10.1
EX-10.2
EX-10.3
EX-10.5
EX-31.1
EX-31.2
EX-32.1
EX-32.2

LEAR CORPORATION
(DEBTOR-IN-POSESSION)

PART I — FINANCIAL INFORMATION

ITEM 1 — CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

INTRODUCTION TO THE CONDENSED 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 (“GAAP”) have been condensed or omitted pursuant to such rules and regulations. We believe that the disclosures are adequate to make the information presented not misleading when read in conjunction with the financial statements and the notes thereto included in our Annual Report on Form 10-K, as filed with the Securities and Exchange Commission, for the year ended December 31, 2008.

The financial information presented reflects all adjustments (consisting of normal recurring adjustments) which are, in our opinion, necessary for a fair presentation of the results of operations, cash flows and financial position for the interim periods presented. These results are not necessarily indicative of a full year’s results of operations.

LEAR CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

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

		October 3,				December 31,
		2009				2008
		(Unaudited)
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	1,771.3			$	1,592.1
Accounts receivable			1,647.8				1,210.7
Inventories			452.3				532.2
Other			299.6				339.2
Total current assets			4,171.0				3,674.2
LONG-TERM ASSETS:
Property, plant and equipment, net			1,075.2				1,213.5
Goodwill, net			1,511.6				1,480.6
Other			472.5				504.6
Total long-term assets			3,059.3				3,198.7
		$	7,230.3			$	6,872.9
LIABILITIES AND EQUITY (DEFICIT)
CURRENT LIABILITIES:
Short-term borrowings		$	31.2			$	42.5
Debtor-in-possession term loan			500.0				—
Pre-petition primary credit facility			—				2,177.0
Accounts payable and drafts			1,636.2				1,453.9
Accrued liabilities			857.6				932.1
Current portion of long-term debt			4.2				4.3
Total current liabilities			3,029.2				4,609.8
LONG-TERM LIABILITIES:
Long-term debt			8.2				1,303.0
Other			641.0				712.4
Total long-term liabilities			649.2				2,015.4
LIABILITIES SUBJECT TO COMPROMISE (See Note 2)			3,611.2				—
EQUITY (DEFICIT):
Common stock, $0.01 par value, 150,000,000 shares authorized; 82,549,501 shares issued as of October 3, 2009 and December 31, 2008			0.8				0.8
Additional paid-in capital			1,372.4				1,371.7
Common stock held in treasury, 5,026,872 shares as of October 3, 2009, and 5,145,642 shares as of December 31, 2008, at cost			(170.1	)			(176.1	)
Retained deficit			(1,232.0	)			(818.2	)
Accumulated other comprehensive loss			(77.5	)			(179.3	)
Lear Corporation stockholders’ equity (deficit)			(106.4	)			198.9
Noncontrolling interests			47.1				48.8
Equity (deficit)			(59.3	)			247.7
		$	7,230.3			$	6,872.9

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

LEAR CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

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

		Three Months Ended								Nine Months Ended
		October 3,				September 27,				October 3,				September 27,
		2009				2008				2009				2008
Net sales		$	2,547.9			$	3,133.5			$	6,997.2			$	10,970.1
Cost of sales			2,314.3				3,004.8				6,804.1				10,284.2
Selling, general and administrative expenses			98.2				127.8				332.0				416.6
Interest expense ($71.1 million and $189.8 million of contractual interest for the three and nine months ended October 3, 2009, respectively (see Note 1))			21.5				46.5				140.2				139.5
Other expense, net			25.9				25.9				44.4				25.5
Reorganization items, net			38.6				—				38.6				—
Consolidated income (loss) before provision for income taxes			49.4				(71.5	)			(362.1	)			104.3
Provision for income taxes			19.1				20.9				38.8				89.7
Consolidated net income (loss)			30.3				(92.4	)			(400.9	)			14.6
Less: Net income attributable to noncontrolling interests			5.7				5.8				12.9				16.3
Net income (loss) attributable to Lear		$	24.6			$	(98.2	)		$	(413.8	)		$	(1.7	)
Basic and diluted net income (loss) per share attributable to Lear		$	0.32			$	(1.27	)		$	(5.34	)		$	(0.02	)

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

LEAR CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

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

		Nine Months Ended
		October 3,				September 27,
		2009				2008
Cash Flows from Operating Activities:
Consolidated net income (loss)		$	(400.9	)		$	14.6
Adjustments to reconcile consolidated net income (loss) to net cash provided by (used in) operating activities:
Depreciation and amortization			199.3				227.5
Reorganization items, net			38.6				—
Net change in recoverable customer engineering and tooling			(3.4	)			(12.4	)
Net change in working capital items			56.1				(145.6	)
Net change in sold accounts receivable			(138.5	)			133.7
Other, net			6.2				33.8
Net cash provided by (used in) operating activities			(242.6	)			251.6
Cash Flows from Investing Activities:
Additions to property, plant and equipment			(62.7	)			(133.8	)
Other, net			22.6				(11.5	)
Net cash used in investing activities			(40.1	)			(145.3	)
Cash Flows from Financing Activities:
Debtor-in-possession term loan borrowings			500.0				—
Primary credit facility repayments, net			—				(3.0	)
Senior note repayments			—				(130.8	)
Other long-term debt repayments, net			(0.2	)			(22.8	)
Short-term debt repayments, net			(10.5	)			(0.2	)
Payment of financing fees			(57.9	)			—
Repurchase of common stock			—				(4.2	)
Dividends paid to noncontrolling interests			(15.4	)			(16.5	)
Increase (decrease) in drafts			0.2				(4.1	)
Net cash provided by (used in) financing activities			416.2				(181.6	)
Effect of foreign currency translation			45.7				(2.8	)
Net Change in Cash and Cash Equivalents			179.2				(78.1	)
Cash and Cash Equivalents as of Beginning of Period			1,592.1				601.3
Cash and Cash Equivalents as of End of Period		$	1,771.3			$	523.2
Changes in Working Capital Items:
Accounts receivable		$	(251.4	)		$	99.8
Inventories			80.8				(74.0	)
Accounts payable			137.2				(78.6	)
Accrued liabilities and other			89.5				(92.8	)
Net change in working capital items		$	56.1			$	(145.6	)
Supplementary Disclosure:
Cash paid for interest		$	54.3			$	120.1
Cash paid for income taxes		$	38.8			$	82.0

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

LEAR CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(1) Basis of Presentation

General

The accompanying condensed 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 complete automotive seat systems and the components thereof, as well as electrical distribution systems and electronic products. The Company’s main customers are automotive original equipment manufacturers. The Company operates facilities worldwide.

Certain amounts in the prior period’s financial statements have been reclassified to conform to the presentation used in the quarter ended October 3, 2009.

Financial Reporting in Reorganization

As described in Note 2, “Reorganization under Chapter 11 and Going Concern,” on July 7, 2009, Lear and certain of its United States and Canadian subsidiaries (the “Canadian Debtors” and collectively, the “Debtors”) filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code (the “Bankruptcy Code”) (“Chapter 11”) in the United States Bankruptcy Court for the Southern District of New York (the “Bankruptcy Court”) (Consolidated Case No. 09-14326) (the “Chapter 11 Cases”). On July 9, 2009, the Canadian Debtors also filed petitions for protection under section 18.6 of the Companies’ Creditors Arrangement Act (the “CCAA”) in the Ontario Superior Court, Commercial List (the “Canadian Court”). The Debtors have operated their business as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of Chapter 11 and orders of the Bankruptcy Court and the Canadian Court and will continue to do so until they emerge from Chapter 11 bankruptcy proceedings, as described herein. The Canadian Court granted the Canadian Debtors a stay of any Canadian proceedings up to and including November 20, 2009, to allow the Debtors to pursue confirmation of a plan of reorganization in the U.S. proceedings. The Company’s remaining subsidiaries, consisting primarily of non-U.S. and non-Canadian subsidiaries, are not subject to the requirements of the Bankruptcy Code.

As a result of the Chapter 11 Cases, the Company adopted the provisions of FASB Accounting Standards Codification^TM (“ASC”) subtopic 852-10, “Reorganizations” (formerly, American Institute of Certified Public Accountants’ Statement of Position (“SOP”) 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code”). ASC 852-10 does not change the application of GAAP with respect to the preparation of the Company’s financial statements. However, ASC 852-10 does require that financial statements, for periods including and subsequent to a Chapter 11 filing, distinguish between transactions and events that are directly associated with the reorganization proceedings and the ongoing operations of the business, as well as additional disclosures. Effective July 7, 2009, expenses, gains and losses directly associated with the reorganization proceedings are reported as reorganization items, net in the accompanying condensed consolidated statements of operations for the three and nine months ended October 3, 2009. In addition, liabilities subject to compromise in the Chapter 11 Cases are distinguished from liabilities not subject to compromise and from post-petition liabilities in the accompanying condensed consolidated balance sheet as of October 3, 2009. Liabilities subject to compromise are reported at amounts expected to be allowed, even if they settle for lesser amounts. For the period from July 7, 2009 through October 3, 2009, contractual interest expense related to liabilities subject to compromise of $49.6 million has not been recorded as it is not expected to be an allowed claim under the Chapter 11 Cases. The Company has also included $61.5 million of accrued interest, which was recorded prior to the Chapter 11 Cases and relates to certain debt obligations subject to compromise, in liabilities subject to compromise as of October 3, 2009. For further information on liabilities subject to compromise, see Note 2, “Reorganization under Chapter 11 and Going Concern.”

In addition, the Company intends to apply fresh-start accounting upon emergence from Chapter 11. The application of fresh-start accounting will result in fair value adjustments to the Company’s assets and liabilities and in a new basis of accounting. Fresh-start accounting is dependent on the provisions of the Plan and the amount and fair value of the Company’s assets and liabilities as of the emergence date.

New Accounting Pronouncement

On January 1, 2009, the Company adopted the provisions of ASC subtopic 810-10-45, “Noncontrolling Interest in a Subsidiary.” ASC 810-10-45 requires the reporting of all noncontrolling interests as a separate component of equity (deficit), the reporting of consolidated net income (loss) as the amount attributable to both Lear and noncontrolling interests and the separate disclosure of net income (loss) attributable to Lear and net income (loss) attributable to noncontrolling interests. In addition, this statement provides accounting and reporting guidance related to changes in noncontrolling ownership interests.

LEAR CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The reporting and disclosure requirements discussed above are required to be applied retrospectively. As such, all prior periods presented have been restated to conform to the presentation and reporting requirements of ASC 810-10-45. In the accompanying condensed consolidated balance sheet as of December 31, 2008, $48.8 million of noncontrolling interests were reclassified from other long-term liabilities to equity (deficit). In the accompanying condensed consolidated statements of operations for the three and nine months ended September 27, 2008, $5.8 million and $16.3 million, respectively, of net income attributable to noncontrolling interests was reclassified from other expense, net. In the accompanying condensed consolidated statement of cash flows for the nine months ended September 27, 2008, $16.5 million of dividends paid to noncontrolling interests were reclassified from cash flows from operating activities to cash flows from financing activities.

(2) Reorganization under Chapter 11 and Going Concern

Reorganization under Chapter 11 of the Bankruptcy Code

On July 6, 2009, the Company entered into agreements supporting a qualified plan of reorganization (a “Qualified Plan”) with certain of the lenders under its pre-petition primary credit facility and certain holders of its senior notes (see “Plan of Reorganization” below). Upon entering into these agreements, on July 7, 2009, the Debtors filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. On July 9, 2009, the Canadian Debtors also filed petitions for protection under the CCAA. The Canadian Debtors are seeking relief consistent with the relief sought by the Debtors in the Chapter 11 Cases. The Debtors have operated their business as “debtors-in-possession” under the jurisdiction of the Bankruptcy Court and in accordance with the applicable provisions of Chapter 11 and orders of the Bankruptcy Court and the Canadian Court and will continue to do so until they emerge from Chapter 11 bankruptcy proceedings, as described herein.

On July 8, 2009, the Bankruptcy Court approved certain first-day motions in the Chapter 11 Cases, including, without limitation, approval of an interim order authorizing the use by the Debtors of their cash collateral (subject to certain specified terms and conditions), orders authorizing the payment of suppliers, wages, salaries and other benefits to employees and certain operating expenses, orders authorizing continued service to customers and maintenance of customer programs and orders authorizing the continued use of the Company’s existing cash management system and continuation of intercompany funding of the Company’s non-Debtor foreign affiliates. In addition, on July 9, 2009, the Canadian Court entered an order recognizing (i) the Chapter 11 Cases under section 18.6 of the CCAA and (ii) all of the orders approved by the Bankruptcy Court in connection with the Debtors’ first-day motions. On July 31, 2009, the Bankruptcy Court approved on a final basis the Debtors’ first-day motions, relating to these and certain other matters.

On August 14, 2009, the Debtors filed a joint plan of reorganization and related disclosure statement with the Bankruptcy Court. On September 12, 2009, the Debtors filed the first amended joint plan of reorganization (as amended, supplemented or otherwise modified, the “Plan”) and disclosure statement (as amended, supplemented or otherwise modified, the “Disclosure Statement”) with the Bankruptcy Court. On September 18, 2009, the Bankruptcy Court approved the adequacy of information contained in the Disclosure Statement, and the Debtors subsequently commenced solicitation of the votes of its lenders, bondholders and other interest holders entitled to vote on the Plan. The Plan was approved by all voting classes, including 100% of all Class 3A Prepetition Credit Agreement Secured Claims and Class 6A Convenience Claims, and over 96% of all Class 5A Other General Unsecured Claims (as each of those terms is defined under the Plan).

On November 5, 2009, the Bankruptcy Court entered an order confirming the Plan (the “Confirmation Order”), and on November 6, 2009, the Canadian Court entered an order recognizing the Confirmation Order and giving full force and effect to the Confirmation Order and Plan under applicable Canadian law. The Debtors expect to emerge from Chapter 11 bankruptcy proceedings on or about November 9, 2009, subject to the satisfaction of certain conditions by the Debtors.

Although the Bankruptcy Court entered the Confirmation Order confirming the Plan, the consummation of the Plan is subject to the following conditions that the Debtors must satisfy prior to the Plan becoming effective (the date on which the Plan becomes effective hereinafter referred to as the “Effective Date”): (a) contemporaneous effectiveness of an alternative exit financing facility that repays the debtor-in-possession term loan (as described below) in cash in full on the Effective Date; and (b) there shall have been no modification or stay of the Confirmation Order or entry of other court order prohibiting transactions contemplated by the Plan from being consummated. In addition, the Debtors must perform various other administrative actions in conjunction with emergence from

LEAR CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Chapter 11. There can be no assurance that the Debtors will satisfy these conditions, complete such required actions and emerge from Chapter 11 within the Debtors’ anticipated timeframe or at all.

Plan of Reorganization

The Plan and the Confirmation Order provide for a restructuring of the Debtors’ capital structure which, after the Effective Date, would consist of the following:

	•		First Lien Facility — A First Lien Facility of up to $500 million.
	•		Second Lien Facility — A Second Lien Facility of $600 million.
	•		Series A Preferred Stock — $500 million of Series A convertible participating preferred stock, par value $0.01 per share (the “Series A Preferred Stock”) (which would not bear any mandatory dividends). The Series A Preferred Stock is convertible into approximately 24.2% of the Common Stock, on a fully diluted basis (assuming the issuance of $450 million of Series A Preferred Stock after giving effect to the payments described below under “— Excess Cash Paydown”).
	•		Common Stock and Warrants — A single class of common stock, par value $0.01 per share (the “Common Stock”), including sufficient shares to provide for (i) management equity grants, (ii) the conversion of the Series A Preferred Stock into Common Stock and (iii) the issuance to the Lenders and the holders of senior notes and certain other general unsecured claims against the Debtors of warrants to purchase 15% of the Company’s new common stock, on a fully diluted basis (the “Warrants”). On the Effective Date, the Company expects to have outstanding approximately 34.1 million shares of Common Stock, 10.9 million shares of Series A Preferred Stock (which are convertible into shares of Common Stock on a one-for-one basis) and 8.2 million Warrants (which are exercisable for shares of Common Stock on a one-for-one basis). In addition, on the Effective Date, the Company expects to grant approximately 1.3 million restricted stock units under its management equity plan (which are convertible into shares of Common Stock on a one-for-one basis on their future vesting dates). The Warrants are exercisable at a nominal exercise price at any time during the period (a) commencing on the business day immediately following a period of 30 consecutive trading days during which the closing price of the Common Stock for at least 20 of the trading days is equal to or greater than $39.63 (as adjusted from time to time) and (b) ending on the fifth anniversary of the Effective Date.

In addition, under the Plan, existing shares of the Company’s common stock would be extinguished and no distributions would be made to the Company’s existing shareholders.

Excess Cash Paydown

The Plan provides that to the extent that the Company has minimum liquidity on the Effective Date in excess of $1.0 billion, subject to certain accruals and adjustments, the amount of such excess would be utilized to prepay, first, the Series A Preferred Stock in an aggregate stated value of up to $50 million; then, the Second Lien Facility in an aggregate principal amount of up to $50 million; and thereafter, reduce the First Lien Facility. The Company expects to have liquidity, after giving effect to certain accruals and adjustments, of between $1.2 billion and $1.3 billion as of the Effective Date. In the event that the Company has such liquidity, in accordance with the Plan and the Confirmation Order, the Company will apply its cash as of the Effective Date in excess of the $1.0 billion of minimum liquidity as follows: (i) $50 million of cash in aggregate will be paid to the Lenders, thereby reducing the amount of the Series A Preferred Stock to be issued on the Effective Date from $500 million to $450 million; (ii) $50 million of cash will be used to prepay the second lien term loans under the Second Lien Facility, thereby reducing the principal amount of the Second Lien Facility from $600 million to $550 million; and (iii) the remaining amount of such excess cash, estimated to be between $100 million and $200 million, will be used to reduce the principal amount of the First Lien Facility.

DIP Agreement, First Lien Facility and Second Lien Facility

On July 6, 2009, the Debtors entered into a credit and guarantee agreement by and among the Company, as borrower, and the other guarantors named therein, JPMorgan Chase Bank, N.A., as administrative agent, and each of the lenders party thereto (the “DIP Agreement”). The DIP Agreement provided for new money debtor-in-possession financing comprised of a term loan in the aggregate principal amount of $500 million (the “DIP Facility”). On August 4, 2009, the Bankruptcy Court entered an order approving the DIP Agreement. The closing of the DIP Facility occurred on August 5, 2009, and the Debtors subsequently received proceeds of $500 million, net of related fees and expenses of $36.7 million, related to available debtor-in-possession financing.

LEAR CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

On October 23, 2009, the Company entered into a first lien credit agreement (the “First Lien Agreement”) by and among the Company, certain financial institutions party thereto and JPMorgan Chase Bank, N.A., as administrative agent. Pursuant to the terms of the First Lien Agreement, on the Effective Date, the Company will have access to an initial funding in an amount of $200 million (the “Closing Date Draw”) and a delayed draw funding in an amount of up to $200 million (the “Delayed Draw” and together with the Closing Date Draw, the “First Lien Facility”) to be drawn not later than 35 days after the Closing Date Draw. The amount of the Delayed Draw will be determined based on the terms of the Plan and the liquidity needs of the Company. In addition to the foregoing, upon satisfaction of certain conditions, the Company will have the right to raise additional funds to increase the amount available under the First Lien Facility up to an aggregate amount of $600 million, subject to certain conditions. The proceeds of the First Lien Facility will be used to satisfy amounts outstanding under the DIP Agreement and for general corporate purposes.

In addition, pursuant to the terms of the Plan, the Company expects to enter into a second lien credit agreement dated on or about the Effective Date (the “Second Lien Agreement”) with certain financial institutions and JPMorgan Chase Bank, N.A., as administrative agent, providing for the issuance of $550 million of term loans (the “Second Lien Facility”), which debt will be issued in partial satisfaction of amounts outstanding under the pre-petition primary credit facility.

Although the Bankruptcy Court entered the Confirmation Order confirming the Plan, no assurance can be given as to whether or when the Company will meet the requirements to fund the First Lien Facility, enter into and meet the requirements to fund the Second Lien Facility or consummate the Plan. For further information regarding the DIP Agreement, the First Lien Facility and the Second Lien Facility, see Note 7, “Long-Term Debt.”

Other Matters relating to Reorganization under Chapter 11 of the Bankruptcy Code

As described in Note 7, “Long-Term Debt,” the filing of the Chapter 11 Cases constituted a default or otherwise triggered repayment obligations under substantially all of the pre-petition debt obligations of the Debtors. However, under Chapter 11, the filing of a bankruptcy petition automatically stays most actions against a debtor, including most actions to collect pre-petition indebtedness or to exercise control over the property of the debtor’s estate. Absent an order of the Bankruptcy Court, substantially all of the Debtors’ pre-petition liabilities are subject to settlement under the Plan. For further discussion of defaults under the Company’s pre-petition primary credit facility and senior notes, see Note 7, “Long-Term Debt.” For a discussion of defaults under certain foreign exchange and interest rate derivative contracts, see Note 17, “Financial Instruments.”

Under Chapter 11, the Debtors have the right to assume or reject executory contracts (i.e., contracts that have material performance obligations on the part of both parties yet to be performed) and unexpired leases, subject to approval of the Bankruptcy Court and other limitations. In this context, “assuming” an executory contract or unexpired lease means that the Debtors will agree to perform their obligations and cure certain existing defaults under the contract or lease and “rejecting” an executory contract means that the Debtors will be relieved of their obligations to perform further under the contract or lease, which will give rise to a pre-petition claim for damages for the breach thereof. Any description of an executory contract or unexpired lease in this Report must be read in conjunction with, and is qualified by, any overriding rejection rights the Debtors have under Chapter 11.

The Company anticipates that substantially all of the Debtors’ pre-petition liabilities will be resolved under, and treated in accordance with, the Plan. Although the Bankruptcy Court has confirmed the Plan and the Debtors expect to emerge from Chapter 11 bankruptcy proceedings on or about November 9, 2009, there can be no assurance as to whether or when the Plan will be consummated. Furthermore, there can be no assurance that the Debtors will be successful in achieving their reorganization goals or that any measures that are achievable will result in sufficient improvement to the Debtors’ financial position.

Listing of the Company’s Common Stock on the NYSE

The Company’s shares of common stock were listed on the New York Stock Exchange (the “NYSE”) under the symbol “LEA.” On July 2, 2009, the NYSE suspended the trading of the Company’s shares, and the NYSE subsequently delisted the Company’s common stock.

In connection with its emergence from Chapter 11, the Company has submitted a listing application to relist its shares of common stock under the ticker symbol “LEA” on the NYSE upon emergence from Chapter 11. Subject to the NYSE’s approval of the

LEAR CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Company’s listing application, the Company expects its common stock to commence trading on the NYSE on a “when issued” basis (LEA WI) on or about the Effective Date and “regular way” trading of its common stock under the symbol “LEA” to commence as soon as possible thereafter. There can be no assurance, however, as to whether or when the Company will consummate the Plan and effectuate such relisting by the NYSE.

Bankruptcy Reporting Requirements

Additional information on the Chapter 11 Cases, including access to documents filed with the Bankruptcy Court and other general information about the Chapter 11 Cases, is available at http://www.kccllc.net/lear. The Company has submitted monthly operating reports to the Bankruptcy Court during the Chapter 11 Cases. These monthly reports have been prepared according to the requirements of federal bankruptcy law. While the Company believes that these reports provide then-current information required under federal bankruptcy law, they are nonetheless unconsolidated, unaudited, prepared in a format different from that used in the Company’s consolidated financial statements filed under the securities laws and are only prepared for the combined Debtor entities. Accordingly, the Company believes that the substance and format of the materials does not allow meaningful comparison with its regular publicly disclosed consolidated financial statements. Moreover, the materials filed with the Bankruptcy Court have not been prepared for the purpose of providing a basis for an investment decision relating to the Company’s securities or for comparison with other financial information filed with the Securities and Exchange Commission.

Going Concern

The accompanying condensed consolidated financial statements have been prepared assuming that the Company will continue as a going concern and contemplate the realization of assets and the satisfaction of liabilities in the normal course of business. The Company’s ability to continue as a going concern is contingent upon its ability to comply with the financial and other covenants contained in the DIP Agreement and the Company’s ability the consummate the Plan, among other things. As a result of the Chapter 11 Cases, the realization of assets and the satisfaction of liabilities are subject to uncertainty. While operating as debtors-in-possession under Chapter 11, the Debtors may sell or otherwise dispose of or liquidate assets or settle liabilities, subject to the approval of the Bankruptcy Court or as otherwise permitted in the ordinary course of business (and subject to restrictions contained in the DIP Agreement), for amounts other than those reflected in the accompanying condensed consolidated financial statements. Further, the Plan could materially change the amounts and classifications of assets and liabilities reported in the historical consolidated financial statements. The accompanying condensed consolidated financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities or any other adjustments that might be necessary should the Company be unable to continue as a going concern or as a consequence of the Chapter 11 Cases.

For further information, see Note 7, “Long-Term Debt,” and Note 1, “Basis of Presentation,” and Note 9, “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, 2008.

Liabilities Subject to Compromise

As described above, certain claims against the Debtors in existence prior to the Chapter 11 Cases (“pre-petition liabilities”) may be subject to compromise or other treatment under the Plan (see “Other Matters relating to Reorganization under Chapter 11 of the Bankruptcy Code”) and are reflected as liabilities subject to compromise in the accompanying condensed consolidated balance sheet. A summary of liabilities subject to compromise as of October 3, 2009, is shown below (in millions):

Short-term borrowings		$	2.1
Accounts payable and drafts			0.3
Accrued liabilities			81.3
Debt subject to compromise
Pre-petition primary credit facility			2,215.5
8.50% Senior Notes, due 2013			298.0
8.75% Senior Notes, due 2016			589.3
5.75% Senior Notes, due 2014			399.5
Zero-coupon Convertible Senior Notes, due 2022			0.8
Accrued interest			61.5
Unamortized debt issuance costs			(37.1	)
Liabilities subject to compromise		$	3,611.2

This summary is consistent with the treatment provided for in the Plan.

LEAR CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

Reorganization Items, Net

Reorganization items, net include expenses, gains and losses directly related to the Debtors’ reorganization proceedings. A summary of reorganization items, net for the three and nine months ended October 3, 2009, is shown below (in millions):

Professional fees		$	20.8
Interest income			(0.1	)
Incentive compensation expenses			18.8
Other			(0.9	)
Reorganization items, net		$	38.6

Condensed Combined Debtor-in-Possession Financial Information

The financial statements shown below represent the condensed combined financial statements of the Debtors only and are prepared on the same basis as the accompanying condensed consolidated financial statements. Non-Debtor subsidiaries are reflected as non-consolidated subsidiaries in these financial statements. Accordingly, the net assets of non-Debtor subsidiaries are reflected as “Investments in non-Debtor subsidiaries and other” in the balance sheet shown below, and the net loss of non-Debtor subsidiaries is reflected as “Equity in net loss of non-Debtor subsidiaries” in the statement of operations shown below. Intercompany transactions between the Debtors have been eliminated. Intercompany transactions between the Debtors and the non-Debtor subsidiaries have not been eliminated and are reflected as “Amounts due from
non-Debtor subsidiaries, net” in the balance sheet shown below.

CONDENSED COMBINED DEBTOR-IN-POSSESSION
BALANCE SHEET
(Non-filed entities, principally non-U.S. and non-Canadian subsidiaries,
excluded from Debtor group; unaudited; in millions)

		October 3, 2009
ASSETS
CURRENT ASSETS:
Cash and cash equivalents		$	793.0
Accounts receivable			106.4
Inventories			176.4
Amounts due from non-Debtor subsidiaries, net			1,630.8
Other			62.1
Total current assets			2,768.7
LONG-TERM ASSETS:
Property, plant and equipment, net			338.0
Investments in non-Debtor subsidiaries and other			1,915.8
Total long-term assets			2,253.8
		$	5,022.5
LIABILITIES AND DEFICIT
CURRENT LIABILITIES:
Debtor-in-possession term loan		$	500.0
Accounts payable and drafts			430.9
Accrued liabilities			224.5
Total current liabilities			1,155.4
LONG-TERM LIABILITIES:
Other long-term liabilities			362.3
LIABILITIES SUBJECT TO COMPROMISE			3,611.2
DEFICIT ATTRIBUTABLE TO DEBTORS			(106.4	)
		$	5,022.5

LEAR CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

CONDENSED COMBINED DEBTOR-IN-POSSESSION
STATEMENTS OF OPERATIONS
(Non-filed entities, principally non-U.S. and non-Canadian subsidiaries,
excluded from Debtor group; unaudited; in millions)

		Three months ended				Nine months ended
		October 3, 2009				October 3, 2009
Net sales		$	811.1			$	2,050.2
Cost of sales			677.0				2,027.1
Selling, general and administrative expenses			41.5				152.5
Interest income from non-Debtor subsidiaries			(12.4	)			(39.6	)
Interest expense (excludes contractual interest of $49.6 million, see Note 2)			21.4				139.5
Other income, net			(19.8	)			(39.6	)
Equity in net loss of non-Debtor subsidiaries			43.1				190.3
Reorganization items, net			33.5				33.5
Income (loss) before provision for income taxes			26.8				(413.5	)
Provision for income taxes			2.2				0.3
Net income (loss) attributable to Debtors		$	24.6			$	(413.8	)

CONDENSED COMBINED DEBTOR-IN-POSSESSION
STATEMENT OF CASH FLOWS
(Non-filed entities, principally non-U.S. and non-Canadian subsidiaries,
excluded from Debtor group; unaudited; in millions)

		Nine Months Ended
		October 3, 2009
Cash Flows from Operating Activities:
Net cash used in operating activities		$	(186.7	)
Cash Flows from Investing Activities:
Additions to property, plant and equipment			(12.7	)
Other, net			13.2
Net cash provided by investing activities			0.5
Cash Flows from Financing Activities:
Debtor-in-possession term loan borrowings			500.0
Other long-term debt repayments, net			(0.2	)
Payment of financing fees			(57.9	)
Decrease in drafts			(0.2	)
Transactions with non-Debtor subsidiaries			(827.0	)
Net cash used in financing activities			(385.3	)
Effect of foreign currency translation			37.1
Net Change in Cash and Cash Equivalents			(534.4	)
Cash and Cash Equivalents as of Beginning of Period			1,327.4
Cash and Cash Equivalents as of End of Period		$	793.0

(3) Restructuring Activities

In 2005, the Company initiated a three-year restructuring strategy to (i) eliminate excess capacity and lower the operating costs of the Company, (ii) streamline the Company’s organizational structure and reposition its business for improved long-term profitability and

LEAR CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(iii) better align the Company’s manufacturing capacity with the changing needs of its customers. In light of industry conditions and customer announcements, the Company expanded this strategy in 2008. Through the end of 2008, the Company incurred pretax restructuring costs of $528.3 million. The Company has continued to restructure its global operations and to aggressively reduce its costs in 2009 and expects continued accelerated restructuring actions and related investments for at least the next several years.

Restructuring costs include employee termination benefits, fixed asset impairment charges and contract termination costs, as well as other incremental costs resulting from the restructuring actions. These incremental costs principally include equipment and personnel relocation costs. The Company also incurs incremental manufacturing inefficiency costs at the operating locations impacted by the restructuring actions during the related restructuring implementation period. Restructuring costs are recognized in the Company’s consolidated financial statements in accordance with GAAP. Generally, charges are recorded as elements of the restructuring strategy are finalized.

In the first nine months of 2009, the Company recorded charges of $86.0 million in connection with its restructuring actions. These charges consist of $80.6 million recorded as cost of sales, $11.0 million recorded as selling, general and administrative expenses, income of ($1.8) million recorded as other expense, net and income of ($3.8) recorded as reorganization items, net. The 2009 charges consist of employee termination benefits of $70.6 million, asset impairment charges of $5.7 million and contract termination costs of $6.7 million, as well as other related costs of $3.0 million. Employee termination benefits were recorded based on existing union and employee contracts, statutory requirements and completed negotiations. Asset impairment charges relate to fixed assets with carrying values of $5.7 million in excess of related estimated fair values. Contract termination costs include net pension and other postretirement benefit plan charges of $9.4 million and various net credits of ($2.7) million, the majority of which relate to the rejection of certain lease agreements in connection with the Chapter 11 Cases.

A summary of 2009 activity, excluding net pension and other postretirement benefit plan charges of $9.4 million, is shown below (in millions):

		Accrual as of				2009				Utilization								Accrual as of
		January 1, 2009				Charges				Cash				Non-cash				October 3, 2009
Initial Restructuring Strategy:
Employee termination benefits		$	27.0			$	0.5			$	(11.3	)		$	—			$	16.2
Contract termination costs			5.9				(3.3	)			(0.5	)			—				2.1
			32.9				(2.8	)			(11.8	)			—				18.3
2008 and 2009 Restructuring Initiatives:
Employee termination benefits			46.1				70.1				(91.5	)			—				24.7
Asset impairments			—				5.7				—				(5.7	)			—
Contract termination costs			1.6				0.6				(0.9	)			—				1.3
Other related costs			—				3.0				(8.4	)			5.4				—
			47.7				79.4				(100.8	)			(0.3	)			26.0
Total		$	80.6			$	76.6			$	(112.6	)		$	(0.3	)		$	44.3

(4) 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):

		October 3,				December 31,
		2009				2008
Raw materials		$	397.7			$	417.4
Work-in-process			29.3				29.8
Finished goods			25.3				85.0
Inventories		$	452.3			$	532.2

LEAR CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(5) Long-Term Assets

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):

		October 3,				December 31,
		2009				2008
Land		$	137.0			$	143.0
Buildings and improvements			581.7				594.9
Machinery and equipment			1,961.8				2,002.1
Construction in progress			2.5				5.0
Total property, plant and equipment			2,683.0				2,745.0
Less — accumulated depreciation			(1,607.8	)			(1,531.5	)
Net property, plant and equipment		$	1,075.2			$	1,213.5

Depreciation expense was $63.5 million and $74.3 million in the three months ended October 3, 2009 and September 27, 2008, respectively, and $195.7 million and $223.4 million in the nine months ended October 3, 2009 and September 27, 2008, respectively.

Costs associated with the repair and maintenance of the Company’s property, plant and equipment are expensed as incurred. Costs associated with improvements which extend the life, increase the capacity or improve the efficiency or safety of the Company’s property, plant and equipment are capitalized and depreciated over the remaining life of the related asset.

The Company monitors its long-lived assets for impairment indicators on an ongoing basis in accordance with GAAP. If impairment indicators exist, the Company performs the required impairment analysis by comparing the undiscounted cash flows expected to be generated from the long-lived assets to the related net book values. If the net book value exceeds the undiscounted cash flows, an impairment loss is measured and recognized. The Company considered the impact of current market and economic conditions on the recoverability of its long-lived assets and does not believe that these conditions would have resulted in additional impairment charges as of October 3, 2009. The Company will, however, continue to assess the impact of any significant industry events and long-term automotive production estimates on the recoverability of its long-lived assets. A prolonged decline in automotive production levels or other significant industry events could result in long-lived asset impairment charges.

Investments in Affiliates

The Company monitors its investments in affiliates for indicators of other-than-temporary declines in value on an ongoing basis in accordance with GAAP. If the Company determines that an other-than-temporary decline in value has occurred, it recognizes an impairment loss, which is measured as the difference between the recorded book value and the fair value of the investment. Fair value is generally determined using an income approach based on discounted cash flows or negotiated transaction values.

In the three and nine months ended October 3, 2009, the Company recognized impairment charges of $15.4 million and $42.0 million, respectively, related to its investments in affiliates accounted for under the equity method.

(6) Goodwill

A summary of the changes in the carrying amount of goodwill, by reportable operating segment, for the nine months ended October 3, 2009, is shown below (in millions):

						Electrical and
		Seating				Electronic				Total
Balance as of January 1, 2009		$	1,076.9			$	403.7			$	1,480.6
Foreign currency translation and other			23.1				7.9				31.0
Balance as of October 3, 2009		$	1,100.0			$	411.6			$	1,511.6

Goodwill is not amortized but is tested for impairment on at least an annual basis. Impairment testing is required more often than annually if an event or circumstance indicates that an impairment is more likely than not to have occurred. In conducting its

LEAR CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

impairment testing, the Company compares the fair value of each of its reporting units to the related net book value. If the net book value of a reporting unit exceeds its fair value, an impairment loss is measured and recognized. The Company conducts its annual impairment testing as of the first day of the fourth quarter each year.

The Company considered the impact of current market and economic conditions on the fair value of each of its reporting units and, as of October 3, 2009, does not believe that an impairment is more likely than not to have occurred. The Company will, however, continue to assess the impact of any significant industry events and long-term automotive production estimates on its recorded goodwill. A prolonged decline in automotive production levels or other significant industry events could result in goodwill impairment charges.

(7) 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 17, “Financial Instruments,” is shown below (in millions):

		October 3, 2009								December 31, 2008
						Weighted								Weighted
		Long-Term				Average				Long-Term				Average
		Debt				Interest Rate				Debt				Interest Rate
Debtor-in-possession term loan		$	500.0				13.5	%		$	—				N/A
Pre-petition Primary Credit Facility — Revolver (1)			—				N/A				1,192.0				4.09%
Pre-petition Primary Credit Facility — Term Loan (1)			—				N/A				985.0				5.46%
8.50% Senior Notes, due 2013 (1)			—				N/A				298.0				8.50%
8.75% Senior Notes, due 2016 (1)			—				N/A				589.3				8.75%
5.75% Senior Notes, due 2014 (1)			—				N/A				399.5				5.635%
Zero-coupon Convertible Senior Notes, due 2022 (1)			—				N/A				0.8				4.75%
Other (1)			12.4				2.04	%			19.7				4.27%
			512.4								3,484.3
Less — Current portion			(504.2	)							(4.3	)
Pre-petition primary credit facility			N/A								(2,177.0	)
Long-term debt		$	8.2							$	1,303.0

Pre-Petition Primary Credit Facility

The Company’s pre-petition primary credit facility consists of an amended and restated credit and guarantee agreement, as further amended, which provides for maximum revolving borrowing commitments of $1.3 billion and a term loan facility of $1.0 billion. The pre-petition primary credit facility contains certain affirmative and negative covenants and customary events of default, including an event of default triggered by a change of control of the Company. The Company’s obligations under the pre-petition primary credit facility are secured by a pledge of all or a portion of the capital stock of certain of its subsidiaries, including substantially all of its first-tier subsidiaries, and are partially secured by a security interest in the Company’s assets and the assets of certain of its domestic subsidiaries. In addition, the Company’s obligations under the pre-petition primary credit facility 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 (see Note 19, “Supplemental Guarantor Condensed Consolidating Financial Statements”).

During the fourth quarter of 2008, the Company elected to borrow $1.2 billion under its pre-petition primary credit facility to protect against possible disruptions in the capital markets and uncertain industry conditions, as well as to further bolster its liquidity position. The Company elected not to repay the amounts borrowed at year end in light of continued market and industry uncertainty. As a result, as of December 31, 2008, the Company was no longer in compliance with the leverage ratio covenant contained in its pre-petition primary credit facility. On March 17, 2009 and May 13, 2009, the Company entered into amendments and waivers with the lenders under its pre-petition primary credit facility which provided, through June 30, 2009, for: (i) a waiver of the existing defaults under the pre-petition primary credit facility and (ii) an amendment of the financial covenants and certain other provisions contained in the pre-petition primary credit facility. During this period and thereafter, the Company engaged in ongoing discussions with the

LEAR CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

lenders under its pre-petition primary credit facility and others, including holders of its senior notes, regarding alternatives for restructuring its capital structure.

Pursuant to these discussions, on July 1, 2009, the Company announced that it had reached an agreement in principle regarding a consensual debt restructuring with a majority of the members of a steering committee of the Company’s secured lenders and a steering committee of holders of senior notes acting on behalf of an ad hoc group of holders of senior notes and that if requisite support were obtained, the Company expected to commence shortly such proposed restructuring under court supervision pursuant to a voluntary bankruptcy filing under Chapter 11 by Lear and certain of its United States and Canadian subsidiaries.

On July 6, 2009, the Company entered into agreements supporting a Qualified Plan with certain of the lenders under its pre-petition primary credit facility and certain holders of its senior notes. Pursuant to these agreements, such lenders and holders of senior notes agreed, subject to certain conditions, to support any Plan proposed by the Debtors to the extent that such Plan is consistent in all material respects with the Qualified Plan. Upon entering into these agreements, on July 7, 2009, the Debtors filed the Chapter 11 Cases with the Bankruptcy Court and on July 9, 2009, the Canadian Debtors filed petitions for protection under the CCAA. For further discussion of the Chapter 11 Cases and the Plan, see Note 2, “Reorganization under Chapter 11 and Going Concern.”

The filing of the Chapter 11 Cases on July 7, 2009, constituted a default or otherwise triggered repayment obligations under substantially all pre-petition debt obligations of the Debtors, including the pre-petition primary credit facility. In addition, on June 30, 2009, the Company did not make required payments in an aggregate amount of $7.2 million due and payable under the pre-petition primary credit facility. Further, as of July 1, 2009, the Company was not in compliance with the leverage ratio and interest coverage ratio covenants contained in the pre-petition primary credit facility, as well as certain other provisions of the pre-petition primary credit facility. As a result, the Company’s obligations under the pre-petition primary credit facility have been accelerated. Under Chapter 11, however, the filing of a bankruptcy petition automatically stays most actions against a debtor, including most actions to collect pre-petition indebtedness or to exercise control over the property of the debtor’s estate. Absent an order of the Bankruptcy Court, substantially all of the Debtors’ pre-petition liabilities are subject to settlement under the Plan. The Company has classified its obligations outstanding under the pre-petition primary credit facility as liabilities subject to compromise in the accompanying condensed consolidated balance sheet as of October 3, 2009, and as current liabilities in the accompanying condensed consolidated balance sheet as of December 31, 2008. Furthermore, the defaults under the pre-petition primary credit facility described above have resulted in a cross-default and the acceleration of the Company’s payment obligations under certain foreign exchange and interest rate hedging transactions. See Note 17, “Financial Instruments.”

Senior Notes

The Company’s obligations under the senior notes are guaranteed by the same subsidiaries that guarantee its obligations under the pre-petition primary credit facility. In the event that any such subsidiary ceases to be a guarantor under the pre-petition primary credit facility, such subsidiary will be released as a guarantor of the senior notes (see Note 19, “Supplemental Guarantor Condensed Consolidating Financial Statements”). The Company’s obligations under the senior notes are not secured by the pledge of the assets or capital stock of any of its subsidiaries.

With the exception of the Company’s zero-coupon convertible senior notes, the Company’s senior notes contain covenants restricting the ability of the Company and its subsidiaries to incur liens and to enter into sale and leaseback transactions.

The filing of the Chapter 11 Cases on July 7, 2009, constituted a default or otherwise triggered repayment obligations under substantially all pre-petition debt obligations of the Debtors, including the senior notes. In addition, the Company did not make regularly scheduled interest payments in an aggregate amount of $38.4 million on its senior notes due 2013 or senior notes due 2016 that were due and payable on June 1, 2009. As the Company did not make the interest payment on either such series of senior notes by the expiration of the 30-day cure period following the interest payment due date, the Company is in default under each such series of senior notes, and the holders of at least
twenty-five percent (25%) in aggregate principal amount of each such series of senior notes have the right to accelerate their respective obligations thereunder. Under Chapter 11, however, the filing of a bankruptcy petition automatically stays most actions against a debtor, including most actions to collect pre-petition indebtedness or to exercise control over the property of the debtor’s estate. Absent an order of the Bankruptcy Court, substantially all of the Debtors’ pre-petition liabilities are subject to settlement under the Plan. The Company has classified its obligations outstanding under the senior notes as liabilities subject to compromise in the accompanying condensed consolidated balance sheet as of October 3, 2009.

LEAR CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

DIP Agreement, First Lien Facility and Second Lien Facility

On July 6, 2009, the Debtors entered into the DIP Agreement, as further described in Note 2, “Reorganization under Chapter 11 and Going Concern.” On August 4, 2009, the Bankruptcy Court entered an order approving the DIP Agreement. The closing of the DIP Facility occurred on August 5, 2009, and the Debtors subsequently received proceeds of $500 million, net of related fees and expenses of $36.7 million, related to available debtor-in-possession financing.

The DIP Facility is comprised of a term loan in the aggregate principal amount of $500 million. The proceeds of the term loan have been used for working capital and other general corporate needs of the Debtors and their subsidiaries and the payment of fees and expenses in accordance with the order of the Bankruptcy Court authorizing such borrowing and subject to the satisfaction of certain other customary conditions. Obligations under the DIP Agreement are secured by a lien on the assets of the Debtors (which lien has first priority priming status with respect to many of the Debtors’ assets) and by a superpriority administrative expense claim in each of the Chapter 11 Cases. In addition, obligations under the DIP Agreement are guaranteed, on a joint and several basis, by certain of the Company’s domestic subsidiaries, which are directly or indirectly 100% owned by the Company.

Advances under the DIP Agreement incur interest at a fixed rate per annum equal to LIBOR (with a LIBOR floor of 3.5%), as adjusted for certain statutory reserves, plus 10%.

The DIP Agreement contains various representations, warranties and covenants by the Debtors that are customary for transactions of this nature. These covenants include, without limitation, (i) achievement of a minimum amount of consolidated EBITDA (as defined in the DIP Agreement); (ii) maintenance of a minimum amount of liquidity; (iii) limitations on the amount of capital expenditures; (iv) limitations on fundamental changes involving the Company or its subsidiaries; and (v) limitations on indebtedness and liens.

Obligations under the DIP Agreement may be accelerated following certain events of default, including, without limitation, any breach by the Debtors of any of the representations, warranties or covenants made in the DIP Agreement or the conversion of any of the Chapter 11 Cases to a case under Chapter 7 of the Bankruptcy Code or the appointment of a trustee pursuant to Chapter 11.

The DIP Facility matures on the first anniversary of the closing date thereof, August 5, 2009 (the “DIP Closing Date”), and may be extended, at the Company’s option, to the date that is fifteen (15) months after the DIP Closing Date. The DIP Facility is convertible, at the Company’s option, into an exit facility of up to $500 million (the “DIP Exit Facility”), comprised of a term loan in an aggregate principal amount equal to the principal amount of the term loans outstanding under the DIP Facility at the time of conversion. The DIP Agreement also provides the Company with the flexibility to obtain alternative post-effective date financing in lieu of the DIP Exit Facility. The Debtors have obtained such alternative financing and will not enter into the DIP Exit Facility. Instead, the Debtors expect to fund the First Lien Facility and enter into and fund the Second Lien Facility, each as described below, on or about the Effective Date.

On October 23, 2009, the Company entered into the First Lien Agreement by and among the Company, certain financial institutions party thereto and JPMorgan Chase Bank, N.A., as administrative agent. Pursuant to the terms of the First Lien Agreement, on the Effective Date, the Company will have access to the Closing Date Draw of $200 million and the Delayed Draw of up to $200 million to be drawn not later than 35 days after the Closing Date Draw. The amount of the Delayed Draw will be determined based on the terms of the Plan and the liquidity needs of the Company. In addition to the foregoing, upon satisfaction of certain conditions, the Company will have the right to raise additional funds to increase the amount available under the First Lien Facility up to an aggregate amount of $600 million, subject to certain conditions.

The First Lien Facility is comprised of the term loans described in the preceding paragraph. The proceeds of such term loans will be used to repay amounts outstanding under the DIP Agreement and for other general corporate needs of the Company and its subsidiaries. Obligations under the First Lien Agreement are secured by a lien on substantially all of the assets of the Company. In addition, obligations under the First Lien Agreement are guaranteed, on a joint and several basis, by certain of the Company’s domestic subsidiaries, which are directly or indirectly 100% owned by the Company, and secured by a lien on substantially all of their assets.

Advances under the First Lien Agreement bear interest at a fixed rate per annum equal to (i) LIBOR (with a LIBOR floor of 2%), as adjusted for certain statutory reserves, plus 5.50% or (ii) the Adjusted Base Rate (as defined in the First Lien Agreement) plus 4.50%. In addition, the First Lien Agreement obligates the Debtors to pay certain fees to the lenders.

LEAR CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The First Lien Agreement contains various representations, warranties and covenants by the Company that are customary for transactions of this nature. These covenants include, without limitation, (i) covenants regarding maximum leverage and minimum interest coverage; (ii) limitations on the amount of capital expenditures; (iii) limitations on fundamental changes involving the Company or its subsidiaries; and (iv) limitations on indebtedness and liens.

Obligations under the First Lien Agreement may be accelerated following certain events of default, including, without limitation, any breach by the Company of any of the representations, warranties or covenants made in the First Lien Agreement or the entry into bankruptcy of the Company or certain of its subsidiaries.

The First Lien Facility matures on the fifth anniversary of the Closing Date Draw, provided that if the Second Lien Agreement is not refinanced prior to three months before its maturity, which is the third anniversary of the Closing Date Draw, the maturity of the First Lien Facility will be adjusted automatically to three months before the maturity of the Second Lien Facility.

In addition, pursuant to the terms of the Plan, the Company expects to enter into the Second Lien Agreement with certain financial institutions, and JPMorgan Chase Bank, N.A., as administrative agent, providing for the issuance of $550 million of term loans, which debt will be issued in partial satisfaction of amounts outstanding under the pre-petition primary credit facility.

Advances under the Second Lien Agreement will bear interest at a fixed rate per annum equal to (i) LIBOR (with a LIBOR floor of 3.5%), as adjusted for certain statutory reserves, plus 5.50% (with certain increases over the life of the Second Lien Facility) or (ii) the Adjusted Base Rate (as defined in the Second Lien Agreement) plus 4.50% (with certain increases over the life of the Second Lien Facility). In addition, the Second Lien Agreement obligates the Debtors to pay certain fees to the lenders.

The Second Lien Agreement will contain various customary representations, warranties and covenants by the Company, including, without limitation, (i) covenants regarding maximum leverage and minimum interest coverage; (ii) limitations on the amount of capital expenditures; (iii) limitations on fundamental changes involving the Company or its subsidiaries; and (iv) limitations on indebtedness and liens. The Second Lien Agreement’s scheduled maturity is the third anniversary of the Closing Date Draw.

Each of the foregoing descriptions of the First Lien Facility and the Second Lien Facility is subject to the Excess Cash Paydown contemplated by the Plan and further described in Note 2, “Reorganization under Chapter 11 and Going Concern.”

Although the Bankruptcy Court entered the Confirmation Order confirming the Plan, no assurance can be given as to whether or when the Company will meet the requirements to fund the First Lien Facility, enter into and meet the requirements to fund the Second Lien Facility or consummate the Plan.

For further information, see Note 2, “Reorganization under Chapter 11 and Going Concern.”

LEAR CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(8) 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
		October 3,				September 27,				October 3,				September 27,
		2009				2008				2009				2008
Service cost		$	2.3			$	4.1			$	0.6			$	1.8
Interest cost			11.7				12.9				2.8				4.0
Expected return on plan assets			(10.5	)			(14.8	)			—				—
Amortization of actuarial loss			1.4				0.1				—				0.8
Amortization of transition obligation			—				—				0.1				0.2
Amortization of prior service (credit) cost			1.3				1.8				(1.7	)			(0.9	)
Special termination benefits			(19.9	)			—				0.1				0.2
Settlement loss			3.0				—				—				—
Curtailment (gain) loss, net and related credits			(30.3	)			1.6				(0.5	)			—
Net periodic benefit cost		$	(41.0	)		$	5.7			$	1.4			$	6.1

		Pension								Other Postretirement
		Nine Months Ended								Nine Months Ended
		October 3,				September 27,				October 3,				September 27,
		2009				2008				2009				2008
Service cost		$	6.9			$	12.8			$	1.9			$	5.8
Interest cost			34.2				37.4				8.4				11.7
Expected return on plan assets			(29.8	)			(42.6	)			—				—
Amortization of actuarial loss			4.4				0.3				0.2				2.6
Amortization of transition (asset) obligation			—				(0.1	)			0.4				0.6
Amortization of prior service (credit) cost			4.0				5.3				(5.3	)			(2.7	)
Special termination benefits			0.4				2.8				0.2				0.4
Settlement loss			3.5				1.0				—				—
Curtailment (gain) loss, net and related charges			8.3				2.6				(1.0	)			—
Net periodic benefit cost		$	31.9			$	19.5			$	4.8			$	18.4

During the third quarter of 2009, the Company modified its restructuring plan with respect to one action to reflect mutually negotiated changes in certain employee benefit plans. As a result, the Company recognized a credit of $52.1 million related to the reversal of pension special termination benefits and other related charges recorded in the first quarter of 2009. In the first nine months of 2009, the Company recorded net pension and other postretirement benefit plan charges of $9.4 million resulting from employee terminations associated with the Company’s restructuring activities.

Contributions

Employer contributions to the Company’s domestic and foreign pension plans for the nine months ended October 3, 2009, were approximately $43.7 million, in aggregate. The Company expects additional contributions to its domestic and foreign pension plans in 2009 of less than $10 million, in aggregate.

In addition, contributions to the Company’s defined contribution retirement program for its salaried employees, determined as a percentage of each covered employee’s eligible compensation, are expected to be approximately $9 million in 2009.

(9) Cost of Sales and Selling, General and Administrative Expenses

Cost of sales includes material, labor and overhead costs associated with the manufacture and distribution of the Company’s products. Distribution costs include inbound freight costs, purchasing and receiving costs, inspection costs, warehousing costs and other costs of

LEAR CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

the Company’s distribution network. Selling, general and administrative expenses include selling, engineering and development and administrative costs not directly associated with the manufacture and distribution of the Company’s products.

(10) Other Expense, Net

Other expense, net includes non-income related taxes, foreign exchange gains and losses, discounts and expenses associated with the Company’s factoring facilities, gains and losses related to derivative instruments and hedging activities, equity in net income (loss) of affiliates, gains and losses on the sales of assets and other miscellaneous income and expense. A summary of other expense, net is shown below (in millions):

		Three Months Ended								Nine Months Ended
		October 3,				September 27,				October 3,				September 27,
		2009				2008				2009				2008
Other expense		$	32.4			$	26.4			$	91.8			$	38.2
Other income			(6.5	)			(0.5	)			(47.4	)			(12.7	)
Other expense, net		$	25.9			$	25.9			$	44.4			$	25.5

For the three and nine months ended October 3, 2009, other expense includes equity in net loss of affiliates of $14.5 million and $65.0 million, respectively. Equity in net loss of affiliates for the three and nine months ended October 3, 2009, includes impairment charges of $15.4 million and $42.0 million, respectively (Note 5, “Long-Term Assets”). In addition, other expense for the three and nine months ended October 3, 2009, includes a loss of $9.9 million related to a transaction with an affiliate. For the three and nine months ended October 3, 2009, other income includes foreign exchange gains of $2.2 million and $38.6 million, respectively. For the three and nine months ended September 27, 2008, other expense includes foreign exchange losses of $4.3 million and $12.4 million, respectively, and a loss on the extinguishment of debt of $1.7 million in each period. For the nine months ended September 27, 2008, other income includes equity in net income of affiliates of $6.8 million.

(11) Income Taxes

The provision for income taxes was $19.1 million and $20.9 million in the three months ended October 3, 2009 and September 27, 2008, respectively, and $38.8 million and $89.7 million in the nine months ended October 3, 2009 and September 27, 2008, respectively. The effective tax rate was 38.7% and negative 29.2% for the three months ended October 3, 2009 and September 27, 2008, respectively, and negative 10.7% and 86.0% for the nine months ended October 3, 2009 and September 27, 2008 respectively.

The provision for income taxes in the first nine months of 2009 primarily relates to profitable foreign operations, as well as withholding taxes on royalties and dividends paid by the Company’s foreign subsidiaries. In addition, the Company incurred losses in several countries that provided no tax benefits due to valuation allowances on its deferred tax assets in those countries. The provision was also impacted by a portion of the Company’s restructuring charges and reorganization items, 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. Additionally, the provision was impacted by tax benefits of $14.2 million, including interest, related to reductions in recorded tax reserves and tax expense of $6.8 million related to changes in valuation allowances in certain foreign subsidiaries. The provision for income taxes in the first nine months of 2008 was impacted by a portion of the Company’s restructuring charges, 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. The provision in the first nine months of 2008 was also impacted by a tax benefit of $8.7 million, including interest, related to a reduction in recorded tax reserves, a tax benefit of $17.5 million related to the reversal of a valuation allowance in a European subsidiary and tax expense of $22.2 million related to the establishment of a valuation allowance in another European subsidiary. Excluding these items, the effective tax rate in the first nine months of 2009 and 2008 approximated the U.S. federal statutory income tax rate of 35% adjusted for income taxes on foreign earnings, losses and remittances, foreign and U.S. valuation allowances, tax credits, income tax incentives and other permanent items.

Further, the Company’s current and future provision for income taxes is significantly impacted by the initial recognition of and changes in valuation allowances in certain countries, particularly the United States. The Company intends to maintain these allowances until it is more likely than not that the deferred tax assets will be realized. The Company’s future income taxes will include no tax benefit with respect to losses incurred and no tax expense with respect to income generated in these countries until the respective valuation allowances are eliminated. Accordingly, income taxes are impacted by the U.S. and foreign valuation allowances and the mix of earnings among jurisdictions.

LEAR CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

The Company operates in multiple jurisdictions throughout the world, and its tax returns are periodically audited or subject to review by both domestic and foreign tax authorities. There was no change in the amount of gross unrecognized tax benefits in the three months ended October 3, 2009. As a result of the conclusion of current examinations and the expiration of the statute of limitations, in the nine months ended October 3, 2009, the Company decreased the amount of its gross unrecognized tax benefits, excluding interest, by $14.7 million, all of which impacted the effective tax rate. During the next twelve months, it is reasonably possible that, as a result of audit settlements, the conclusion of current examinations and the expiration of the statute of limitations in several jurisdictions, the Company may decrease the amount of its gross unrecognized tax benefits by $6.7 million, of which $1.3 million, if recognized, would impact the effective tax rate. The gross unrecognized tax benefits subject to potential decrease involve issues related to transfer pricing, tax credits and various other tax items in several jurisdictions. However, as a result of ongoing examinations, tax proceedings in certain countries, additions to the gross unrecognized tax benefits for positions taken and interest and penalties, if any, arising in 2009, it is not possible to estimate the potential net increase or decrease to the Company’s gross unrecognized tax benefits during the next twelve months.

As of December 31, 2008, the Company had aggregate net operating loss, capital loss and tax credit carryforwards (collectively, the “Tax Attributes”) in the United States of approximately $585 million, $50 million and $175 million, respectively. In connection with the Company’s emergence from Chapter 11, it is likely that the Tax Attributes will be significantly reduced due to the recognition of cancellation of indebtedness income, with any remaining Tax Attributes subject to limitation under Internal Revenue Code sections 382 and 383. A full valuation allowance has been recorded against the deferred tax asset related to these Tax Attributes in the accompanying condensed consolidated balance sheets.

(12) Net Income (Loss) Per Share Attributable to Lear

Basic net income (loss) per share attributable to Lear is computed using the weighted average common shares outstanding during the period. Diluted net income (loss) per share attributable to Lear includes the dilutive effect of common stock equivalents using the average share price during the period, as well as the dilutive effect of shares issuable upon conversion of the Company’s outstanding zero-coupon convertible senior notes. A summary of shares outstanding is shown below:

		Three Months Ended								Nine Months Ended
		October 3				September 27,				October 3				September 27,
		2009				2008				2009				2008
Weighted average common shares outstanding			77,521,662				77,158,605				77,496,767				77,230,170
Dilutive effect of common stock equivalents			14,860				—				—				—
Diluted shares outstanding			77,536,522				77,158,605				77,496,767				77,230,170

The shares issuable upon conversion of the Company’s outstanding zero-coupon convertible notes and the effect of certain common stock equivalents, including options, restricted stock units, performance units and stock appreciation rights, were excluded from the computation of diluted shares outstanding for the three and nine months ended October 3, 2009 and September 27, 2008, as inclusion would have resulted in antidilution. A summary of these options and their exercise prices, as well as these restricted stock units, performance units and stock appreciation rights, is shown below:

		Three Months Ended								Nine Months Ended
		October 3,				September 27,				October 3,				September 27,
		2009				2008				2009				2008
Options
Antidilutive options			997,900				1,302,730				997,900				1,302,730
Exercise price		$	22.12 – $55.33			$	22.12 – $55.33			$	22.12 – $55.33			$	22.12 – $55.33
Restricted stock units			879,543				1,455,475				883,250				1,455,475
Performance units			84,709				193,952				84,709				193,952
Stock appreciation rights			1,957,360				1,969,280				1,957,360				1,969,280

(13) Comprehensive Income (Loss) and Equity (Deficit)

Comprehensive income (loss) is defined as all changes in the Company’s net assets except changes resulting from transactions with stockholders. It differs from net income (loss) in that certain items recorded in equity (deficit) are included in comprehensive income (loss).

LEAR CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

A summary of comprehensive income (loss) and a reconciliation of equity (deficit), Lear Corporation stockholders’ equity (deficit) and noncontrolling interests for the three and nine months ended October 3, 2009, is shown below (in millions):

		Three Months Ended October 3, 2009												Nine Months Ended October 3, 2009
						Attributable												Attributable
						to Lear				Non-								to Lear				Non-
						Corporation				controlling				Equity				Corporation				controlling
		Deficit				Stockholders				Interests				(Deficit)				Stockholders				Interests
Beginning equity (deficit) balance		$	(169.9	)		$	(211.2	)		$	41.3			$	247.7			$	198.9			$	48.8
Stock-based compensation transactions			2.2				2.2				—				6.7				6.7				—
Dividends paid to noncontrolling interests			—				—				—				(15.4	)			—				(15.4	)
Comprehensive income (loss):
Net income (loss)			30.3				24.6				5.7				(400.9	)			(413.8	)			12.9
Other comprehensive income, net of tax:
Defined benefit plan adjustments			9.4				9.4				—				19.7				19.7				—
Derivative instruments and hedging activities			16.0				16.0				—				40.5				40.5				—
Foreign currency translation adjustment			52.7				52.6				0.1				42.4				41.6				0.8
Other comprehensive income			78.1				78.0				0.1				102.6				101.8				0.8
Comprehensive income (loss)			108.4				102.6				5.8				(298.3	)			(312.0	)			13.7
Equity (deficit) balance as of October 3, 2009		$	(59.3	)		$	(106.4	)		$	47.1			$	(59.3	)		$	(106.4	)		$	47.1

A summary of comprehensive income for the three and nine months ended September 27, 2008, is shown below (in millions):

		Three Months				Nine Months
		Ended				Ended
		September 27, 2008				September 27, 2008
Consolidated net income (loss)		$	(92.4	)		$	14.6
Other consolidated comprehensive income (loss):
Defined benefit plan adjustments			3.5				9.5
Derivative instruments and hedging activities			(13.6	)			1.6
Foreign currency translation adjustment			(62.6	)			29.8
Other consolidated comprehensive income (loss)			(72.7	)			40.9
Consolidated comprehensive income (loss)			(165.1	)			55.5
Less comprehensive income attributable to noncontrolling interests:
Net income attributable to noncontrolling interests			5.8				16.3
Other comprehensive income attributable to noncontrolling interests (foreign currency translation adjustment)			0.2				0.9
Comprehensive income attributable to noncontrolling interests			6.0				17.2
Comprehensive income (loss) attributable to Lear		$	(171.1	)		$	38.3

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

The Company incurs pre-production engineering and development (“E&D”) and tooling costs related to the products produced for its customers under long-term supply agreements. The Company expenses all pre-production E&D costs for which reimbursement is not contractually guaranteed by the customer. In addition, the Company expenses all pre-production tooling costs related to customer-owned tools for which reimbursement is not contractually guaranteed by the customer or for which the customer has not provided a non-cancelable right to use the tooling. During the first nine months of 2009 and 2008, the Company capitalized $85.9 million and $101.9 million, respectively, of pre-production E&D costs for which reimbursement is contractually guaranteed by the customer. In addition, during the first nine months of 2009 and 2008, the Company capitalized $77.7 million and $107.9 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 other current and long-term assets in the accompanying condensed consolidated balance sheets. During the nine months ended October 3, 2009 and

LEAR CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

September 27, 2008, the Company collected $159.0 million and $212.6 million, respectively, of cash related to E&D and tooling costs.

During the first nine months of 2009 and 2008, the Company did not capitalize any Company-owned tooling. Amounts capitalized as Company-owned tooling are included in property, plant and equipment, net in the accompanying condensed consolidated balance sheets.

The classification of recoverable customer engineering and tooling is shown below (in millions):

		October 3,				December 31,
		2009				2008
Current		$	34.9			$	51.9
Long-term			87.5				66.8
Recoverable customer engineering and tooling		$	122.4			$	118.7

Gains and losses related to E&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.

(15) Legal and Other Contingencies

As of October 3, 2009 and December 31, 2008, the Company had recorded reserves for pending legal disputes, including commercial disputes and other matters, of $59.1 million and $31.4 million, respectively. Such reserves reflect amounts recognized in accordance with accounting principles generally accepted in the United States and typically exclude the cost of legal representation. Product warranty liabilities are recorded separately from legal liabilities, as described below. Such reserves do not reflect any adjustment to the Company’s liabilities resulting from the filing of the Chapter 11 Cases.

Chapter 11 Cases

As described in Note 2, “Reorganization under Chapter 11 and Going Concern,” on July 7, 2009, the Debtors filed voluntary petitions for relief under Chapter 11, and on July 9, 2009, the Canadian Debtors commenced parallel cases under the CCAA. Under Chapter 11, the filing of a bankruptcy petition automatically stays most actions against the Debtors, including, except as otherwise noted, the matters described below and most other actions to collect pre-petition indebtedness or to exercise control over the property of the Debtors’ bankruptcy estates. Substantially all of the Debtors’ pre-petition liabilities are expected to be resolved under the Plan, if not otherwise satisfied pursuant to orders of the Bankruptcy Court and/or the Canadian Court. The Company’s material pre-petition legal proceedings are described below.

Commercial Disputes

The Company is involved from time to time in legal proceedings and claims, including, without limitation, commercial or contractual disputes with its suppliers, competitors and customers. These disputes vary in nature and are usually resolved by negotiations between the parties.

On January 26, 2004, the Company filed a patent infringement lawsuit against Johnson Controls Inc. and Johnson Controls Interiors LLC (together, “JCI”) in the U.S. District Court for the Eastern District of Michigan alleging that JCI’s garage door opener products infringed certain of the Company’s radio frequency transmitter patents (which complaint was dismissed and subsequently re-filed by the Company in September 2004). The Company is seeking a declaration that JCI infringes its patents, to enjoin JCI from further infringing those patents by making, selling or offering to sell its garage door opener products and an award of compensatory damages, attorney fees and costs. JCI counterclaimed seeking a declaratory judgment that the subject patents are invalid and unenforceable and that JCI is not infringing these patents and an award of attorney fees and costs. JCI also has filed motions for summary judgment asserting that its garage door opener products do not infringe the Company’s patents and that one of the Company’s patents is invalid and unenforceable. The Company is pursuing its claims against JCI. A trial date has not yet been scheduled. This matter has not been stayed as a result of the Chapter 11 Cases.

On June 13, 2005, The Chamberlain Group (“Chamberlain”) filed a lawsuit against the Company and Ford Motor Company (“Ford”) in the U.S. District Court for the Northern District of Illinois alleging patent infringement (from which Ford was subsequently dismissed). Two counts were asserted against the Company based upon two Chamberlain rolling-code garage door opener system patents. The Chamberlain lawsuit

LEAR CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

was filed in connection with the marketing of the Company’s universal garage door opener system, which competes with a product offered by JCI. JCI obtained technology from Chamberlain to operate its product. In October 2005, Chamberlain filed an amended complaint and joined JCI as a plaintiff. The Company answered and filed a counterclaim seeking a declaration that the patents were not infringed and were invalid, as well as attorney fees and costs. Chamberlain and JCI seek a declaration that the Company infringes Chamberlain’s patents and an order enjoining the Company from making, selling or attempting to sell products which, they allege, infringe Chamberlain’s patents, as well as compensatory and treble damages and attorney fees and costs. On August 12, 2008, a new patent was issued to Chamberlain relating to the same technology as the patents disputed in this lawsuit. On August 19, 2008, Chamberlain and JCI filed a second amended complaint against the Company alleging patent infringement with respect to the new patent and seeking the same types of relief. The Company filed an answer and counterclaim seeking a declaration that its products are non-infringing and that the new patent is invalid and unenforceable due to inequitable conduct, as well as attorney fees and costs. On April 16, 2009, the court denied the Company’s motion for summary judgment and ordered the Company to produce additional discovery related to infringement. On June 19, 2009, the Company moved for a protective order from further discovery requested by Chamberlain and JCI. Chamberlain and JCI responded to this motion, and the court agreed to limit discovery. On June 26, 2009, JCI moved for summary judgment with respect to two of the patents, and on July 9, 2009, the court denied these motions without prejudice. This matter has been stayed as a result of the Chapter 11 Cases until November 5, 2009. After November 5, 2009, this matter may proceed to determine liability and if liability is found, the total amount of the compensable damages relating to the pre-petition period, the period from the date of filing of the Chapter 11 Cases until the Effective Date, and the period subsequent to the Effective Date, if any. Pursuant to the Plan and a stipulation filed with the Bankruptcy Court among the Company, Chamberlain and JCI, the Company has agreed to reserve common stock and unsecured claim warrants issued under the Plan, sufficient to provide recoveries for a claim up to $50 million for pre-petition damages. This reserve is not a loss contingency reserve determined under GAAP and does not reflect a determination by the Company or the Bankruptcy Court that JCI or Chamberlain is entitled to any recovery.

On September 12, 2008, a consultant that the Company retained filed an arbitration action against the Company seeking royalties under the parties’ Joint Development Agreement (“JDA”) for the Company’s sales of its garage door opener products. The Company denies that it owes the consultant any royalty payments under the JDA. There have been no material developments in this matter in 2009.

On August 6, 2009, Lear Automotive France (“Lear France”), a wholly owned subsidiary of the Company, was served with a writ by Proma France before the Orléans Commercial Court. Proma France is a sub-contractor of Lear France in connection with its manufacture of seating parts. Proma France claims that Lear France must indemnify it for damages allegedly arising from Lear France obtaining advantageous pricing without providing Proma France with a written guarantee of purchase volumes. Proma France seeks damages of € 9.6 million ($14.0 million based on exchange rates in effect as of October 3, 2009). Lear France intends to assert defenses against the claims in this matter, including that the issue is covered by a settlement agreement previously entered into by Lear France and Proma France on March 6, 2007. The Company believes that the action by Proma France is without merit and intends to vigorously defend this matter. On September 23, 2009, Proma France filed an insolvency proceeding with the Commercial Court of Orléans. As Lear France is not a Debtor entity, this matter has not been stayed as a result of the Chapter 11 Cases, and the Plan does not affect this matter.

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. Such lawsuits generally seek compensatory damages, punitive damages and attorney fees and costs. In addition, the Company is a party to warranty-sharing and other agreements with certain of 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 assurance 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 or other corrective actions involving its 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 product warranty or recall matters. All pre-petition product liability claims of the Debtors are classified as other general unsecured claims under the Plan and will receive pro rata recoveries of new common stock and unsecured claim warrants issued under the Plan. All liabilities related to product liability matters of the Debtors that arose prior to the Chapter 11 Cases are liabilities subject to compromise under the Plan.

LEAR CORPORATION AND SUBSIDIARIES
(DEBTOR-IN-POSSESSION)

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

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 nine months ended October 3, 2009, is shown below (in millions):

Balance as of January 1, 2009		$	21.6
Expense, net			7.5
Settlements			(6.3	)
Foreign currency translation and other			0.9
Balance as of October 3, 2009		$	23.7

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 conformance with this standard. However, the Company currently is, has been and in the future may become the subject of formal or informal enforcement actions or procedures.

The Company has been named as a potentially responsible party at several third-party landfill sites and is also engaged in the remediation at certain sites owned, leased or operated by the Company, including several properties acquired in its 1999 acquisition of UT Automotive. Certain present and former properties of UT Automotive are subject to environmental liabilities which may be considered to be significant. The Company obtained agreements and indemnities with respect to certain environmental liabilities from 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 October 3, 2009 and December 31, 2008, the Company had recorded reserves for environmental matters of $2.8 million and $2.9 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, results of operations or cash flows, no assurance can be given in this regard. All liabilities related to environmental matters are unaffected by the Plan.

Other Matters

In April 2006, a former employee of the Company filed a purported class action lawsuit in the U.S. District Court for the Eastern District of Michigan against the Company, members of its Board of Directors, members of its Employee Benefits Committee (the “EBC”) and certain members of its human resources personnel alleging violations of the Employment Retirement Income Security Act (“ERISA”) with respect to the Company’s retirement savings plans for salaried and hourly employees. In the second quarter of 2006, the Company was served with three additional purported class action ERISA lawsuits, each of which contained similar allegations against the Company, members of its Board of Directors, members of its EBC and certain members of its senior management and its human resources personnel. At the end of the second quarter of 2006, the court entered an order consolidating these four lawsuits as In re: Lear Corp. ERISA Litigation. During the third quarter of 2006, plaintiffs filed their consolidated complaint, which alleges breaches of fiduciary duties substantially similar to those alleged in the four individually filed lawsuits. The consolidated complaint continues to name certain current and former members of the Board of Directors and the EBC and certain members of senior management and adds certain other current and former members of the EBC. The consolidated complaint generally alleges that the defendants breached their fiduciary duties to plan participants in connection with the administration of the Company’s retirement savings plans for salaried and hourly employees. The fiduciary duty claims are largely based on allegations of breaches of the fiduciary duties of prudence and loyalty and of over-concentration of plan assets in the Company’s common stock. The plaintiffs purport to bring these claims on behalf of the plans and all persons who were participants in or beneficiaries of the plans from October 21, 2004, to the present. The consolidated complaint seeks a declaration that defendants breached their fiduciary duties and an order compelling defendants to restore to the plans all losses resulting from defendants’ alleged breach of those duties, as well as actual damages, attorney fees and costs. The consolidated complaint does not specify the amount of damages sought. On March 6,

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

2009, the parties executed a class action settlement agreement. The settlement agreement provides, among other things, for the payment of $5.3 million into a settlement fund in exchange for a release of all defendants from any and all of plaintiffs’ claims, whether known or unknown, based upon investment in the Company’s common stock or the Lear Corporation Stock Fund by or through the plans from October 21, 2004 through March 6, 2009. The court entered its final order certifying the class and approving the settlement agreement on June 22, 2009, and this matter has now been resolved other than routine administration of the settlement. The settlement of this matter is unaffected by the Plan.

On March 19, 2009, The Royal Bank of Scotland plc (“RBS”) filed a lawsuit against the Company in the U.S. District Court for the Southern District of New York alleging breach of contract. In the complaint, RBS requests that the court award RBS damages of approximately $35.2 million plus costs, attorneys’ fees and interest. This lawsuit relates to an interest rate “collar” transaction, several copper swap transactions and several foreign exchange transactions between the Company and RBS, which the Company entered into in order to hedge its exposure to market movements in interest rates, commodity prices and currency rates, respectively. In this matter, RBS alleges that the Company’s failure to satisfy the leverage ratio covenant contained in its pre-petition primary credit facility with respect to the quarter ended December 31, 2008, entitled RBS to terminate all of these transactions. The Company denies many of the allegations made in the RBS complaint and also asserts various affirmative defenses and counterclaims against RBS, as previously disclosed. On May 15, 2009, RBS filed an answer to the Company’s counterclaims in which RBS disputes the Company’s defenses and counterclaims. This matter has been stayed as a result of the Chapter 11 Cases. For further information, see Note 17, “Financial Instruments.” Because this litigation is related to derivatives contracts secured under the pre-petition primary credit facility, it is treated as a Class 3A Prepetition Credit Agreement Secured Claim (as that term is defined in the Plan) and is subject to compromise by the Plan.

Although the Company records reserves for legal disputes, product liability and warranty claims and environmental and other matters in accordance with GAAP, the ultimate outcomes of these matters are inherently uncertain. Actual results may differ significantly from current estimates.

The Company is involved from time to time in various other legal proceedings and claims, including, without limitation, commercial and contractual 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 claims in which the Company is currently involved, either individually or in the aggregate, will have a material adverse effect on its business, consolidated financial position, results of operations or cash flows.

(16) Segment Reporting

The Company has two reportable operating segments: seating and electrical and electronic. The seating segment includes seat systems and the components thereof. The electrical and electronic segment includes electrical distribution systems and electronic products, primarily wire harnesses, junction boxes, terminals and connectors, various electronic control modules, as well as audio sound systems and in-vehicle television and video entertainment systems. The Other category includes unallocated costs related to 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 (i) revenues from external customers, (ii) pretax income (loss) before interest, other expense and reorganization items (“segment earnings”) and (iii) cash flows, being defined as segment earnings 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 October 3, 2009
						Electrical and
		Seating				Electronic				Other				Consolidated
Revenues from external customers		$	2,039.2			$	508.7			$	—			$	2,547.9
Segment earnings			198.8				(20.7	)			(42.7	)			135.4
Depreciation and amortization			36.7				24.3				3.8				64.8
Capital expenditures			13.1				7.2				0.3				20.6
Total assets			3,579.3				1,408.1				2,242.9				7,230.3

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

		Three Months Ended September 27, 2008
						Electrical and
		Seating				Electronic				Other				Consolidated
Revenues from external customers		$	2,478.1			$	655.4			$	—			$	3,133.5
Segment earnings			40.9				4.9				(44.9	)			0.9
Depreciation and amortization			44.8				27.3				3.5				75.6
Capital expenditures			23.1				14.1				1.1				38.3
Total assets			4,222.7				2,266.5				1,166.2				7,655.4

		Nine Months Ended October 3, 2009
						Electrical and
		Seating				Electronic				Other				Consolidated
Revenues from external customers		$	5,639.2			$	1,358.0			$	—			$	6,997.2
Segment earnings			132.6				(134.0	)			(137.5	)			(138.9	)
Depreciation and amortization			117.1				71.3				10.9				199.3
Capital expenditures			38.3				23.8				0.6				62.7
Total assets			3,579.3				1,408.1				2,242.9				7,230.3

		Nine Months Ended September 27, 2008
						Electrical and
		Seating				Electronic				Other				Consolidated
Revenues from external customers		$	8,655.4			$	2,314.7			$	—			$	10,970.1
Segment earnings			354.2				71.4				(156.3	)			269.3
Depreciation and amortization			133.5				83.2				10.8				227.5
Capital expenditures			84.3				48.2				1.3				133.8
Total assets			4,222.7				2,266.5				1,166.2				7,655.4

For the three months ended October 3, 2009, segment earnings include restructuring charges (credits) of ($59.2) million, $22.8 million and $2.8 million in the seating and electrical and electronic segments and in the other category, respectively. For the nine months ended October 3, 2009, segment earnings include restructuring charges of $39.9 million, $47.9 million and $3.8 million in the seating and electrical and electronic segments and in the other category, respectively. For the three months ended September 27, 2008, segment earnings include restructuring charges of $32.9 million, $5.1 million and $3.5 million in the seating and electrical and electronic segments and in the other category, respectively. For the nine months ended September 27, 2008, segment earnings include restructuring charges of $85.6 million, $18.1 million and $9.7 million in the seating and electrical and electronic segments and in the other category, respectively (Note 3, “Restructuring Activities”).

A reconciliation of consolidated segment earnings to consolidated income (loss) before provision for income taxes is shown below (in millions):

		Three Months Ended								Nine Months Ended
		October 3,				September 27,				October 3,				September 27,
		2009				2008				2009				2008
Segment earnings		$	135.4			$	0.9			$	(138.9	)		$	269.3
Interest expense			21.5				46.5				140.2				139.5
Other expense, net			25.9				25.9				44.4				25.5
Reorganization items, net			38.6				—				38.6				—
Consolidated income (loss) before provision for income taxes		$	49.4			$	(71.5	)		$	(362.1	)		$	104.3

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

(17) Financial Instruments

The carrying values of the Company’s pre-petition primary credit facility and senior notes vary from their fair values. The fair values were determined by reference to the quoted market prices of these securities. As of October 3, 2009, the aggregate carrying value of the Company’s pre-petition primary credit facility and senior notes was $3.5 billion, as compared to an estimated aggregate fair value of $2.8 billion. As of December 31, 2008, the aggregate carrying value of the Company’s pre-petition primary credit facility and senior notes was $3.5 billion, as compared to an estimated aggregate fair value of $1.3 billion. As of October 3, 2009, obligations outstanding under the Company’s pre-petition primary credit facility and senior notes are classified as liabilities subject to compromise in the accompanying condensed consolidated balance sheet (see Note 2, “Reorganization under Chapter 11 and Going Concern”) and will be resolved under, and treated in accordance with, the Plan.

Certain of the Company’s 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 accompanying condensed consolidated balance sheets. In 2008, certain of the Company’s European subsidiaries entered into extended factoring agreements, which provided for aggregate purchases of specified customer accounts receivable of up to €315 million. In January 2009, Standard & Poor’s Ratings Services downgraded the Company’s corporate credit rating to CCC+ from B-, and as a result, in February 2009, the use of these facilities was suspended. In July 2009, these facilities were terminated in connection with the Company’s voluntary filing under Chapter 11. The Company cannot provide any assurance that any other factoring facilities will be available or utilized in the future. As of October 3, 2009, there were no factored receivables. As of December 31, 2008, the amount of factored receivables was $143.8 million.

In April 2009, the Company elected to participate in the Auto Supplier Support Program established by the U.S. Department of the Treasury (“UST”) for the benefit of eligible General Motors’ and Chrysler’s automotive suppliers. The program was designed to provide eligible suppliers with access to government-backed protection for and/or the accelerated payment of amounts owed to them by General Motors and Chrysler. Under this program, eligible General Motors and Chrysler receivables were purchased from the Company, without recourse and at a discount, by certain special purpose entities affiliated with General Motors and Chrysler, and the payment of such receivables was guaranteed by the U.S. government. In the second quarter of 2009, the Company sold $45.8 million of receivables under this program and recognized a discount on the sale of receivables of $0.9 million. In the second quarter of 2009, Chrysler discontinued its participation in the Auto Supplier Support Program. In July 2009, the Company elected to discontinue its participation in General Motors’ Auto Supplier Support Program. The Company also participated in a similar program in Canada, under which the Canadian government guaranteed the payment of certain General Motors receivables. In connection with this program, the Company recognized related fees and expenses of $0.2 million in the second quarter of 2009.

Asset-Backed Securitization Facility

Prior to April 30, 2008, the Company and several of its U.S. subsidiaries sold 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 transferred undivided interests in up to $150 million of the receivables to bank-sponsored commercial paper conduits. The ABS facility expired on April 30, 2008, and the Company did not elect to renew the existing facility.

Derivative Instruments and Hedging Activities

On January 1, 2009, the Company adopted the provisions of ASC subtopic 815-10-50, “Derivatives and Hedging — Disclosure.” ASC 815-10-50 requires enhanced disclosures regarding (a) how and why an entity uses derivative instruments, (b) how derivative instruments and related hedged items are accounted for under existing GAAP and (c) how derivative instruments and related hedged items affect an entity’s financial position, performance and cash flows. The provisions of ASC 815-10-50 were effective for the fiscal year and interim periods beginning after November 15, 2008, and the required disclosures are incorporated herein.

The Company uses derivative financial instruments, including forwards, futures, options, swaps and other derivative contracts to manage its exposures to fluctuations in foreign exchange, interest rates and commodity prices. The Company applies hedge accounting if the derivative used in a hedging transaction is highly effective in offsetting changes in cash flows of the hedged item. When it is determined that a derivative has ceased to be a highly effective hedge, the Company discontinues hedge accounting. In February 2009, RBS terminated certain foreign exchange, interest rate and commodity swap contracts due to the Company’s default under its pre-petition primary credit facility, and the Company de-designated such contracts for hedge accounting purposes (Note 15, “Legal and Other Contingencies”). On June 30, 2009, the Company did not make payments of $4.5 million, in aggregate, required in connection with derivative transactions with certain other counterparties. Further, the defaults under the pre-petition primary credit facility (Note 7, “Long-Term Debt”) and the Chapter 11 Cases (Note 2, “Reorganization under Chapter 11 and Going Concern”) have resulted in events of default

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

and/or termination events under certain outstanding foreign exchange and interest rate derivative contracts, and most of the counterparties thereto provided the Company with notice of termination. In addition, on September 11, 2009, the Company elected to reject outstanding foreign exchange contracts with a counterparty that had not previously terminated such contracts. Based on the foregoing, the Company de-designated all of the remaining foreign exchange and interest rate contracts, previously accounted for as cash flow hedges, in the second quarter of 2009. The forecasted transactions related to the de-designated contracts remain probable, and related amounts currently recorded in accumulated other comprehensive loss will be reclassified to earnings as the forecasted transactions occur. The de-designated contracts are reflected in the accompanying condensed consolidated balance sheet as of October 3, 2009, as liabilities subject to compromise at the estimated amount expected to be allowed by the Bankruptcy Court. As of October 3, 2009, the contract value of the de-designated contracts was negative $36.1 million, in aggregate.

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 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 and various European currencies. Forward foreign exchange, futures and option contracts are accounted for as cash flow hedges when the hedged item is a forecasted transaction or relates to the variability of cash flows to be received or paid. As of October 3, 2009, there were no foreign exchange contracts outstanding. As described above, all outstanding foreign exchange contracts were de-designated and/or terminated in the second quarter of 2009. As of December 31, 2008, contracts designated as cash flow hedges with $483.6 million of notional amount were outstanding with maturities of less than nine months. As of December 31, 2008, the fair value of these contracts was approximately negative $53.5 million. As of December 31, 2008, other foreign currency derivative contracts that did not qualify for hedge accounting with $49.6 million of notional amount were outstanding. These foreign currency derivative contracts consisted principally of cash transactions between three and thirty days, hedges of intercompany loans and hedges of certain other balance sheet exposures. As of December 31, 2008, the fair value of these contracts was approximately $0.1 million.

The fair value of outstanding foreign currency derivative contracts and the related classification in the accompanying condensed consolidated balance sheet as of December 31, 2008, are shown below (in millions):

Contracts qualifying for hedge accounting:
Other current assets		$	4.4
Other current liabilities			(57.9	)
			(53.5	)
Contracts not qualifying for hedge accounting:
Other current assets			2.7
Other current liabilities			(2.6	)
			0.1
		$	(53.4	)

Pretax amounts related to foreign currency derivative contracts that were recognized in and reclassified from accumulated other comprehensive loss are shown below (in millions):

		Three Months Ended								Nine Months Ended
		October 3,				September 27,				October 3,				September 27,
		2009				2008				2009				2008
Contracts qualifying for hedge accounting:
Gains (losses) recognized in accumulated other comprehensive loss		$	(1.7	)		$	(2.1	)		$	(13.9	)		$	22.2
(Gains) losses reclassified from accumulated other comprehensive loss			15.9				(12.9	)			51.4				(25.9	)
Comprehensive income (loss)		$	14.2			$	(15.0	)		$	37.5			$	(3.7	)

Interest rate swap and other derivative contracts — The Company uses interest rate swap and other derivative contracts to manage its exposure to fluctuations in interest rates. Interest rate swap and other derivative 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 value of certain fixed rate debt instruments are accounted for as fair value hedges. As of October 3, 2009, there were no interest rate contracts outstanding. As described above, all outstanding

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NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Continued)

interest rate contracts were de-designated and/or terminated in the second quarter of 2009. In addition, in February 2009, the Company elected to settle certain of its outstanding interest rate contracts representing $435.0 million of notional amount with a payment of $20.7 million. As of December 31, 2008, contracts with $750.0 million of notional amount were outstanding with maturities through September 2011. All of these contracts modified the variable rate characteristics of the Company’s variable rate debt instruments, which were generally set at either one-month or three-month LIBOR rates, such that the interest rates did not exceed a weighted average of 4.64%. As of December 31, 2008, the fair value of these contracts was approximately negative $23.2 million.

The fair value of outstanding interest rate contracts and the related classification in the accompanying condensed consolidated balance sheet as of December 31, 2008, are shown below (in millions):

Contracts qualifying for hedge accounting:
Other current liabilities		$	(11.3	)
Other long-term liabilities			(11.9	)
		$	(23.2	)

Pretax amounts related to interest rate contracts that were recognized in and reclassified from accumulated other comprehensive loss are shown below (in millions):

		Three Months Ended								Nine Months Ended
		October 3,				September 27,				October 3,				September 27,
		2009				2008				2009				2008
Contracts qualifying for hedge accounting:
Gains (losses) recognized in accumulated other comprehensive loss		$	—			$	1.4			$	(14.2	)		$	(1.1	)
(Gains) losses reclassified from accumulated other comprehensive loss			—				3.6				11.9				6.7
Comprehensive income (loss)		$	—			$	5.0			$	(2.3	)		$	5.6