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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark One)
		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2001.

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

For the transition period from      to      .

Commission file number:1-11311

LEAR CORPORATION
(Exact name of registrant as specified in its charter)

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

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to section 12(g) of the Act: None

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  No   

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K _

As of March 1, 2002, the aggregate market value of the registrant’s Common Stock, par value $.01 per share, held by non-affiliates of the registrant was $2,967,092,254. The closing price of the Common Stock on March 1, 2002 as reported on the New York Stock Exchange was $46.29 per share.

As of March 1, 2002, the number of shares outstanding of the registrant’s Common Stock was 64,428,487 shares.

DOCUMENTS INCORPORATED BY REFERENCE

Certain sections of the registrant’s Notice of Annual Meeting of Stockholders and Proxy Statement for its Annual Meeting of Stockholders to be held on May 9, 2002, as described in the Cross-Reference Sheet and a Table of Contents included herewith, are incorporated by reference into Part III of this Report.

CROSS REFERENCE SHEET
AND
TABLE OF CONTENTS

PART I

ITEM 1 —  BUSINESS

In this Report, when we use the terms the “Company,” “Lear,” “we,” “us” and “our,” unless otherwise indicated or the context otherwise requires, we are referring to Lear Corporation and its consolidated subsidiaries. A substantial portion of the Company’s operations are conducted through wholly-owned subsidiaries of Lear Corporation. Certain disclosures included in this Report constitute forward-looking statements that are subject to risk and uncertainty. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements” and “— Risk Factors.”

BUSINESS OF THE COMPANY

General
We are the fifth largest automotive supplier in the world. We have grown substantially over the last five years as a result of both internal growth and acquisitions. Our sales have grown from $6.2 billion in 1996 to $13.6 billion in 2001, a compound annual growth rate of 17%. We supply every major automotive manufacturer in the world, including General Motors, Ford, DaimlerChrysler, BMW, Fiat, Volkswagen, Peugeot, Renault, Toyota and Subaru.

We have established in-house capabilities in all five principal segments of the automotive interior market: seat systems; flooring and acoustic systems; door panels; instrument panels; and headliners. We are also one of the leading global suppliers of automotive electronic and electrical distribution systems. As a result of these capabilities, we can offer our customers fully-integrated modules, as well as design, engineering and project management support for the entire automotive interior, including electronics and electrical distribution systems.

We are focused on delivering high-quality automotive interior systems and components to our customers on a global basis. Due to the opportunity for substantial cost savings and improved product quality and consistency, automotive manufacturers have increasingly required their suppliers to manufacture automotive interior systems and components in multiple geographic markets. In recent years, we have followed our customers and expanded our operations significantly in Europe, South America, South Africa and the Asia/Pacific Rim region. As a result of our efforts to expand our worldwide operations, our sales outside the United States and Canada have grown from $2.2 billion in 1996 to $5.7 billion in 2001. In particular, our sales in Europe have grown from $1.6 billion in 1996 to $4.3 billion in 2001.

Strategy
Our principal objectives are to expand our position as a leading global supplier of automotive interior systems and to continue to capitalize on integration opportunities resulting from our electrical distribution system capabilities. We intend to build on our full-service capabilities, strong customer relationships and worldwide presence to increase our share of the global automotive interior market. To this end, our strategy is to continue to capitalize on four significant trends in the automotive industry:

		•	the increasing emphasis on the automotive interior by automotive manufacturers as they seek to improve customer satisfaction and differentiate their vehicles in the marketplace;
		•	the increasing demand for fully-integrated modular assemblies, such as cockpits, overhead and door panel modules;
		•	the increasing consumer demand for added interior functionality to enhance and enable passenger convenience, on-board communication and safety; and
		•	the consolidation and globalization of the supply base of automotive manufacturers.

The automotive manufacturers’ strategy is rooted in competitive pressures to improve quality and functionality at a lower cost and to reduce time to market, capital needs, labor costs, overhead and inventory. These trends have resulted in automotive manufacturers outsourcing complete modules of the interior as well as complete automotive interiors. Recently, we have received a number of business awards to design, engineer, manufacture, deliver and, in some cases, install complete interior modules as well as complete automotive interiors. We believe that the criteria for selection of automotive interior suppliers is not only cost, quality and responsiveness but increasingly includes worldwide presence and certain full-service capabilities.

Elements of our strategy include:

     • Enhance Strong Relationships with our Customers. We have developed strong relationships with our customers which allow us to identify business opportunities and anticipate customer needs in the early stages of vehicle design. We believe that working closely with our customers in the early stages of designing and engineering vehicle interior systems gives us a competitive advantage in securing new business. We work to maintain an excellent reputation with our customers for timely delivery and customer service and

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for providing world-class quality at competitive prices. In recognition of our efforts, many of our facilities have won awards from the automotive manufacturers.

     • Capitalize on Module and Integration Opportunities. We believe that the same competitive pressures that led automotive manufacturers to outsource the individual interior components to independent suppliers will cause our customers to demand delivery of fully-integrated modules for new vehicle models. As automotive manufacturers continue to seek ways to improve quality and reduce costs, we believe customers will increasingly look to independent suppliers to:

	•	supply fully-integrated modules of the automotive interior; and
	•	act as systems integrators, by managing the design, purchase and supply of the total automotive interior.

     • Leverage Electronic Capabilities. Because electronic and electrical distribution systems and products are an increasingly important part of automotive interior systems, we have a competitive advantage in securing new business and taking advantage of integration opportunities as a result of our capabilities in this area.

     • Continue Global Expansion. Global expansion will continue to be an important element of our growth strategy. In 2001, approximately two-thirds of the global automotive interior production took place outside of North America. Our primary North American customers have made substantial investments in a number of international automakers, including General Motors’ acquisitions of or investments in Fiat, Saab, Daewoo Motor, Suzuki Motor and Isuzu Motor; Ford’s acquisitions of or investments in Jaguar, Volvo, Aston Martin, Land Rover and Mazda; and DaimlerChrysler’s investments in Mitsubishi Motors and Hyundai Motor. Furthermore, in recent years, automotive manufacturers in Europe have outsourced to a greater number of automotive suppliers than automotive manufacturers in North America. As a result, we have excellent opportunities for continued growth through the industry’s global consolidation as automotive manufacturers reduce their supply bases to a leaner group of qualified suppliers with whom they do business. Markets such as South America and the Asia/Pacific Rim region also present long-term growth opportunities as demand for automotive vehicles increases and automotive manufacturers expand production in these markets. As a result of our strong customer relationships, worldwide presence and full-service capabilities, we are well-positioned to continue to grow with our customers as they expand their operations and consolidate their supplier base.

     • Increase Use of “Just-in-Time” Facility Network. We have established facilities that allow our customers to receive automotive interior products on a just-in-time basis. The just-in-time manufacturing process minimizes inventories and fixed costs for both us and our customers and enables us to deliver products on as little as ninety minutes notice. Most of our just-in-time manufacturing facilities are dedicated to individual customers. In many cases, by carefully managing floor space and overall efficiency, we can move the final assembly and sequencing of other automotive interior systems and components from centrally-located facilities to our existing just-in-time facilities. Combining our just-in-time manufacturing techniques with our systems integration capabilities provides us with an important competitive advantage in delivering total automotive interior systems to automotive manufacturers.

     • Maintain Flexible Cost Structure. We have one of the highest variable cost structures in the automotive supplier industry. By maintaining low fixed costs, we are better able to withstand fluctuations in industry demand as well as changing competitive and macroeconomic conditions. Our variable cost component is maintained, in part, through ongoing Six Sigma implementation throughout the organization, initiatives to promote and enhance the sharing of technology, engineering, purchasing and capital investment across customer platforms as well as restructuring initiatives to align our capacity with changing market conditions.

     • Invest in Product Technology and Design Capability. We will continue to make significant investments in technology and design capability to support our products. We maintain five advanced technology centers and several customer-focused product engineering centers where we design and develop new products and conduct extensive product testing. We also have state-of-the-art acoustics testing and instrumentation and data analysis capabilities.

We believe that in order to effectively develop total automotive interior systems, it is necessary to integrate the research, design, development, styling and validation of all of the automotive interior systems. Our advanced technology center provides us the ability to integrate engineering, research, development and validation capabilities for all five automotive interior systems at one location. Our investments in research and development are consumer driven and customer focused. We conduct extensive analysis and testing of consumer responses to automotive interior styling and innovations. Because automotive manufacturers increasingly view the vehicle interior as a major selling point to their customers, the focus of our research and development efforts is to identify new interior features that make vehicles safer, more comfortable and more attractive to consumers.

Products
We conduct our business in three product operating segments: seating; interior; and electronic and electrical. The seating segment includes seat systems and components thereof. The interior segment includes flooring and acoustic systems, door panels, instrument panels, headliners and other interior products. The electronic and electrical segment includes electronic and electrical distribution systems, primarily wire harnesses, interior control systems and wireless systems. Net sales for the year ended December 31, 2001 were comprised of the following: 68% seating; 18% interior and 14% electronic and electrical.

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     • Seating. The seating business consists of the manufacture, assembly and supply of vehicle seating requirements. Seat systems typically represent approximately 30% to 40% of the cost of the total automotive interior. We produce seat systems for automobiles and light trucks that are fully finished and ready for installation. Seat systems are fully-assembled seats, designed to achieve maximum passenger comfort by adding a wide range of manual and power features such as lumbar supports, cushion and back bolsters and leg and thigh supports.

As a result of our product technology and product design strengths, we are a leader in incorporating convenience features and safety improvements into seat designs as well as in developing methods to reduce our customers’ costs throughout the automotive interior. For example, our Self-Aligning Head Restraint is an advancement in front seat passive safety. By reducing the space between the occupant’s head and the headrest in a rear impact situation through use of a headrest system that “moves” with the occupant, the difference between the rearward movement of the head and the shoulder area can be shortened, potentially reducing the risk of injury. In addition, we manufacture an integrated restraint seat system that increases occupant comfort and convenience. Exclusive to Lear, this patented seating concept uses an ultra high-strength steel tower and a split-frame design to improve occupant comfort and convenience. Finally, in the event of a crash, our Advanced Protection and Extrication System provides improved head protection as well as enhanced driver safety during the extrication and transport of an injured driver.

     • Interior. We have an extensive and comprehensive portfolio of SonoTec^TM acoustic products, including flooring systems and dash insulators. Carpet flooring systems, used predominantly in passenger cars and trucks, generally consist of tufted carpet with a thermoplastic backcoating which, when heated, allows the carpet to be fitted precisely to the interior of the vehicle. Additional insulation materials are added to provide noise, vibration and harshness resistance. Wire harnesses are also included in the flooring system, allowing electronic modules located under the seats to be wired inexpensively. Vinyl flooring systems, used primarily in commercial and fleet vehicles, offer improved wear and maintenance characteristics. The dash insulator separates the passenger compartment from the engine compartment and is the primary component for preventing engine noise and heat from entering the passenger compartment.

Door panels consist of several component parts which are attached to a substrate by various methods. Specific components include vinyl or cloth-covered appliqués, armrests, radio speaker grilles, map pocket compartments, carpet and sound-reducing insulation. In addition, door panels often incorporate electronic and electrical distribution systems and products, including switches and wire harnesses for the control of power seats, windows, mirrors and door locks. Lear’s Flip Pack^TM switch combines seat and door controls into one assembly located on the door panel.

The instrument panel is a complex system of coverings, foams, plastics and metals designed to house various components and act as a safety device for the vehicle occupants. Specific components of the cockpit include the gauge cluster, the heating, ventilation and air conditioning module, air distribution ducts, air vents, cross car structure, glove compartment assemblies, electronic and electrical components, wiring harness, radio system and driver and passenger safety systems. One trend in the instrument panel segment relates to safety issues in air bag technologies. Through our research and development efforts, we intend to introduce cost-effective, integrated, seamless airbag covers which increase occupant safety. Future trends in the instrument panel segment will continue to focus on safety with the introduction of innovations such as knee restraints and energy-absorbing substructures.

Headliners consist of a substrate as well as a finished interior layer made of a variety of fabrics and materials. While headliners are an important contributor to interior aesthetics, they also provide insulation from road noise and can serve as carriers for a variety of other components, such as visors, overhead consoles, grab handles, coat hooks, electrical wiring, speakers, lighting and other electronic/electrical products. As electronic and electrical content available in vehicles has increased, headliners have emerged as an important carrier of technology since electronic features ranging from garage door openers to lighting systems are often optimally situated in the headliner system.

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Electronic and Electrical. The electronic and electrical products are grouped into three categories:

	• Interior Control Systems. The instrument panel center console control provides a control panel for the entertainment system, accessory switch functions, heating, ventilation and air conditioning. The multifunction turn signal control consolidates various combinations of hazard lights, headlamps, parking lamps, fog lamps, wiper and washer, cruise control, high/low headlamp beams and turn signal functions. The integrated seat adjuster module combines seat adjustment, power lumbar support, memory function and heated seat into one package. Integrated door controls consolidate the controls for window lift, door lock, power mirror and heated seat. The integrated door and seat control flip panel system performs all power door and power seat functions from two stacked panels.
	• Wireless Systems. The dual range/dual function remote keyless entry (RKE) system allows a single RKE transmitter button to perform multiple functions depending upon the operator’s distance from the vehicle. The remote keyless entry and immobilizer module combines the features of a remote keyless entry receiver and the immobilizer key reader into a single

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module. Custom key fobs use decorative molding technology to offer a wide variety of options in fob design patterns and colors including textures, logos, text and translucent and glow-in-the-dark colors. The passive entry system allows the vehicle operator to unlock the door without using a key or physically activating the RKE fob. The passive entry technology is imbedded in the fob so that a separate device is not required.

• Electronic and Electrical Distribution Systems. Wire harness assemblies are a collection of terminals, connectors and wire that connect all the various electronic/electrical devices in the vehicle to each other and/or to a power source. Terminals and connectors are components of wire harnesses and other electronic/electrical devices that serve as a connection method between wire harnesses and electronic/electrical devices. Fuse boxes are centrally located boxes in the vehicle that contain fuses and/or relays for circuit and device protection as well as power distribution. Junction boxes serve as a connection point for multiple wire harnesses. They may also contain fuses and relays for circuit and device protection.

The migration from electrical distribution systems to electronic and electrical distribution systems will facilitate the integration of wiring, electronics and switch / control products within the overall electrical architecture of a vehicle. Intertronics^TM, our unique ability to integrate electronic and electrical products into vehicle interior systems, is already having an impact. Our integrated seat adjuster module has two dozen fewer cut circuits and five fewer connectors, weighs a half of a pound less and costs 20% less than a traditional seat wiring system. Further, this migration can be seen in a number of new and next generation products. For example, our smart junction box combines traditional junction box function with electronic capabilities by incorporating electronic control functions traditionally located elsewhere in the vehicle.

In April 2001, we signed a Memorandum of Understanding with BERU Group of Ludwigsburg, Germany, a leading European sensor manufacturer, to jointly design and develop Tire Pressure Monitoring Systems (TPMS). TPMS will be required on all light vehicles sold in the U.S. by 2007, with phase-in requirements beginning in 2004. We are currently developing TPMS which combines our leading radio frequency electronics capabilities with BERU’s sensor based technologies.

Manufacturing

A description of the manufacturing processes for each of our operating segments is set forth below.

     • Seating. Our seating facilities use just-in-time manufacturing techniques, and products are delivered to the automotive manufacturers on a just-in-time basis. Our seating facilities utilize a variety of methods whereby fabric is affixed to an underlying seat frame. Raw materials, including steel, aluminum and foam chemicals, used in our seat systems are obtained from several producers under various supply arrangements. These materials are readily available. Leather, fabric and certain purchased components are generally purchased from various suppliers under contractual arrangements usually lasting no longer than one year. Some of the purchased components are obtained from our customers.

     • Interior. The combined pressures of cost reduction and fuel economy enhancement have caused automotive manufacturers to concentrate their efforts on developing and employing lower-cost, lighter materials. As a result, plastic content in cars and light trucks has grown significantly. Increasingly, automotive content requires large plastic injection-molded assemblies for both the interior and exterior. Plastics are now commonly used in such nonstructural components as interior and exterior trim, door panels, instrument panels, grills, bumpers, duct systems, taillights and fluid reservoirs. We are continuing to develop recycling methods in an effort to meet current and future environmental conditions and requirements as well as to reduce costs.

Our interior trim systems process capabilities include injection molding, low-pressure injection molding, rotational molding, compression molding, urethane foaming and vacuum forming as well as various trimming and finishing methods. The principal purchased components for interior trim systems are polyethylene and polypropylene resins, which are generally purchased under long-term agreements and are available from multiple suppliers.

In addition, we produce carpet at our plant in Carlisle, Pennsylvania. Smaller facilities are dedicated to specific groups of customers and are strategically located near their production facilities.

     • Electronic and Electrical. Electrical distribution systems are networks of wiring and associated control devices that route electrical power and signals throughout the vehicle. Wire harness assemblies consist of raw, coiled wire which is automatically cut to length and terminated. Individual circuits are assembled together on a jig or table, inserted into connectors and wrapped or taped to form wire harness assemblies. Cell-based manufacturing techniques are applied to manufacture products on a just-in-time basis. Materials are purchased, with the exception of a portion of the connectors that are produced internally. The assembly process is labor intensive, and as a result, production is performed in low labor rate sites in Mexico, the Philippines, Europe and North Africa.

Some of the principal components attached to the wiring harness assemblies that we manufacture include junction boxes, electronic control modules and switches. Junction boxes are manufactured in North America and Europe with a proprietary, capital intensive

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assembly process utilizing printed circuit boards, purchased from selected suppliers. Electronic control modules are assembled using high-speed surface mount placement equipment in North America and Europe. Switches are assembled from electrical, mechanical and decorated plastic parts purchased in the United States, Mexico and Europe using a combination of manual and automated assembly and test methods.

Customers
We serve the worldwide automotive and light truck market, which produces over 55 million vehicles annually. We have automotive interior content on over 300 vehicle nameplates worldwide, and our automotive manufacturer customers currently include:

During the year ended December 31, 2001, General Motors and Ford, the two largest automotive and light truck manufacturers in the world, including their affiliates, accounted for approximately 33% and 27%, respectively, of our net sales. For additional information regarding customers and domestic and foreign sales and operations, see Note 13, “Segment Reporting,” to the consolidated financial statements included in this Report.

We receive blanket purchase orders from our customers that normally cover annual requirements for products to be supplied for a particular vehicle model. Such supply relationships typically extend over the life of the model, with terms up to ten years, and do not require the customer to purchase a minimum number of products. Although purchase orders may be terminated at any time, such terminations are rare and have not had a material impact on our results of operations. Our primary risk is that an automotive manufacturer will produce fewer units of a model than anticipated. In order to reduce our reliance on any one model, we produce automotive interior systems and components for a broad cross-section of both new and more established models. Our sales for the year ended December 31, 2001 were comprised of the following vehicle categories: 45% light truck; 25% mid-size; 12% luxury/sport; 15% compact; and 3% full-size.

Our contracts with our major customers generally provide for an annual productivity price reduction and provide for the recovery of increases in material and labor costs in some instances. Historically, cost reductions through product design changes, increased productivity and similar programs with our suppliers have generally offset changes in selling prices, although no assurances can be given that we will be able to achieve such cost reductions in the future. Our cost structure is comprised of a high percentage of variable costs. This structure provides us with additional flexibility during various economic cycles.

Technology
Advanced technology development is conducted at our advanced technology center in Southfield, Michigan, under the group name “VisionWorks,” and at several worldwide product engineering centers. At these centers, we engineer our products to comply with applicable safety standards, meet quality and durability standards, respond to environmental conditions and conform to customer requirements.

We also have state-of-the-art acoustics testing and instrumentation and data analysis capabilities. We own one of the few proprietary-design acoustical testing chambers with an integrated four-wheel dynamometer capable of precision acoustics testing of front, rear and four-wheel drive vehicles. Together with our custom-designed reverberation room, computer-controlled data acquisition and analysis capabilities provide precisely controlled laboratory testing conditions for sophisticated interior and exterior noise, vibration and harshness testing of parts, materials and systems, including powertrain, exhaust and suspension components.

We have developed a number of designs for innovative interior features which we have patented, all focused on increasing value to the customer. Examples include our proprietary “Common Architecture Strategy,” allowing freedom of choice and configuration of interior components at mass production prices, the TransG™ aging baby-boomer vehicle interior, the OASys™ overhead audio system, the Revolution Seating™ system and the One-Step™ door and One-Step™ liftgate modules. In 2000, we introduced Intertronics™, a capability that shows tremendous potential to integrate electronic products with vehicle interior systems. Intertronics products and technologies are grouped into three categories: Interior Control Systems, Wireless Systems and Electronic and Electrical Distribution Systems, which includes smart junction boxes, advanced electronic products and switches and remote keyless entry systems. In May 2000, we opened the Intertronics Innovation Center at our electronic and electrical facility in Dearborn to demonstrate our commitment to growing this business. In addition, we incorporate many convenience, comfort and safety features into our interior designs,

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including advanced whiplash concepts, lifestyle vehicle interior storage systems, overhead integrated modules, seat integrated restraint systems (3-point and 4-point belt systems integrated into seats), side impact air bags, child restraint seats and integrated instrument panel air-bag systems. We continually invest in our computer-aided-engineering-design and computer-aided-manufacturing systems. Recent enhancements to these systems include advanced acoustic modeling and analysis capabilities and the enhancement of our Virtual Technology Division (VTD) web site allowing customer telecommunications and the direct exchange of engineering data and information with other worldwide divisions.

We have created brand identities, which highlight products for our customers. The ProTec™ brand identifies products optimized for interior safety; the SonoTec™ brand identifies products optimized for interior acoustics; and the EnviroTec™ brand identifies environmentally friendly products.

We hold in excess of 2,500 patents worldwide covering our products and have numerous applications for patents currently pending. In addition, we hold several trademarks relating to various manufacturing processes. We also license selected technologies to automotive manufacturers and other seating manufacturers. We continually strive to identify and implement new technologies for use in the design and development of our products.

We have dedicated, and will continue to dedicate, resources to research and development in order to maintain our position as a leading developer of technology in the automotive interior industry. Research and development costs incurred in connection with the development of new products and manufacturing methods, to the extent not recoverable from the customer, are charged to selling, general and administrative expenses as incurred. Such costs amounted to approximately $198.6 million, $208.7 million and $181.2 million for the years ended December 31, 2001, 2000 and 1999, respectively.

Joint Ventures and Minority Interests
We pursue attractive joint ventures in order to assist our entry into new markets, facilitate the exchange of technical information, expand our product offerings and broaden our customer base. We currently have thirty-four joint ventures located in fifteen countries. Fourteen of these joint ventures are consolidated, sixteen are accounted for using the equity method of accounting and four are accounted for using the cost method of accounting. Net sales of our consolidated joint ventures accounted for less than 3% of our net sales for the year ended December 31, 2001. Our investments in unconsolidated joint ventures totaled $53.8 million as of December 31, 2001. See Note 6, “Investments in Affiliates,” to the consolidated financial statements included in this Report for additional information on our joint ventures.

Competition
Within each of our operating segments, we compete with a variety of independent suppliers and automotive manufacturer in-house operations, primarily on the basis of cost, product quality and service. Set forth below is a summary of our primary independent competitors.

     •    Seating. We are one of two primary independent suppliers in the outsourced North American seat systems market. Our primary independent competitor in this market is Johnson Controls. Our major independent competitors in Western Europe are Johnson Controls and Faurecia (headquartered in France).

     •    Interior. We are one of the three primary independent suppliers in the outsourced North American flooring and acoustic systems market as well as one of the largest global suppliers of door panels, instrument panels and headliners. Our primary independent competitors in the flooring and acoustic systems market are Collins & Aikman and Rieter Automotive. Our major independent competitors in the outsourced Western European flooring and acoustic systems market include Faurecia, Intier, Radici, Borgers, Rieter Automotive and Treves. Our major independent competitors in the remaining interior markets include Johnson Controls, Intier, Collins & Aikman, Delphi, Visteon, Faurecia and a large number of smaller operations.

     •    Electronic and Electrical. We are one of the leading independent suppliers of automotive electrical distribution systems in North America and Western Europe. Our major competitors in this market include Delphi, Yazaki and Sumitomo. The automotive electronic/electrical products industry remains highly fragmented. Other participants include Tokai Rika, Kostal, Methode, Cherry, Niles, Omron, Delphi, TRW, Alps, Valeo, Siemens VDO, Bosch, Denso and others.

Seasonality
Our principal operations are directly related to the automotive industry. Consequently, we may experience seasonal fluctuations to the extent automotive vehicle production slows, such as in the summer months when plants close for model year changeovers and vacations. Historically, our sales and operating profit have been the strongest in the second and fourth calendar quarters. See Note 15, “Quarterly Financial Data,” to the consolidated financial statements included in this Report.

Our cost structure is comprised of a high percentage of variable costs. This structure provides us with additional flexibility during various economic cycles.

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Employees
As of December 31, 2001, Lear employed approximately 35,000 people in the United States and Canada, 34,000 in Mexico, 35,000 in Europe and 12,000 in other regions of the world. A substantial number of our employees are members of unions. We have collective bargaining agreements with several unions including: the UAW; the CAW; UNITE; the International Brotherhood of Teamsters, Chauffeurs, Warehousemen and Helpers of America; and the International Association of Machinists and Aerospace Workers. Virtually all of our unionized facilities in the United States and Canada have a separate contract with the union that represents the workers employed there. Each such contract has an expiration date independent of our other labor contracts. The majority of our European and Mexican employees are members of industrial trade union organizations and confederations within their respective countries. Many of these organizations and confederations operate under national contracts, which are not specific to any one employer. We have occasionally experienced labor disputes at our plants, none of which has significantly disrupted production or had a material adverse effect on our operations. We have been able to resolve all such labor disputes and believe our relations with our employees are generally good.

See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Forward-Looking Statements” and “— Risk Factors.”

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ITEM 2 — PROPERTIES

As of December 31, 2001, our operations were conducted through 309 facilities, some of which are used for multiple purposes, including 160 production/manufacturing sites, 53 JIT sites, 39 administrative/technical support sites, 9 assembly sites, 5 advanced technology centers and 5 distribution centers, in 33 countries. The remaining facilities are primarily warehouses. Our world headquarters is located in Southfield, Michigan. Our facilities range in size up to 1,016,000 square feet.

Of the 309 facilities, which include facilities owned by our less than majority-owned affiliates, 159 are owned and 150 are leased with expiration dates ranging from 2001 through 2021. We believe substantially all of our property and equipment is in good condition and that we have sufficient capacity to meet our current and expected manufacturing and distribution needs. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Financial Condition — Cash Flow.”

The following table presents the locations of our facilities:

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ITEM 3 — LEGAL PROCEEDINGS

We are involved in certain legal actions and claims arising in the ordinary course of business. We do not believe that any of the litigation in which we are currently engaged, either individually or in the aggregate, will have a material adverse effect on our business, consolidated financial position or results of future operations.

We are subject to local, state, federal and foreign laws, regulations and ordinances, which govern activities or operations that may have adverse environmental effects and which impose liability for the costs of cleaning up certain damages resulting from past spills, disposal or other releases of hazardous wastes and environmental compliance. Our policy is to comply with all applicable environmental laws and to maintain procedures to ensure compliance. However, we have been, and in the future may become, the subject of formal or informal enforcement actions or procedures. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Environmental Matters.”

We have been named as a potentially responsible party at several third party landfill sites and are engaged in the cleanup of hazardous wastes at certain sites owned, leased or operated by us, including several properties acquired in the UT Automotive acquisition. Certain present and former properties of UT Automotive are subject to environmental liabilities which may be significant. We obtained agreements and indemnities with respect to possible environmental liabilities from United Technologies Corporation in connection with our acquisition of UT Automotive. While we do not believe that the environmental liabilities associated with our properties will have a material adverse effect on our business, consolidated financial position or results of future operations, no assurances can be given in this regard.

ITEM 4 — SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of security holders during the fourth quarter of 2001.

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PART II

ITEM 5 — MARKET FOR THE COMPANY’S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS

Lear’s Common Stock is listed on the New York Stock Exchange under the symbol “LEA.” The Transfer Agent and Registrar for Lear’s Common Stock is The Bank of New York, located in New York, New York. On March 1, 2002, there were 1,087 holders of record of Lear’s Common Stock.

To date, we have never paid a cash dividend on our Common Stock. Any payment of dividends in the future is dependent upon our financial condition, capital requirements, earnings and other factors. Also, we are subject to the restrictions on the payment of dividends contained in our primary credit facilities and in certain other contractual obligations. See Note 8, “Long-Term Debt,” to the consolidated financial statements included in this Report.

In February 2002, we issued $640 million aggregate principal amount at maturity of zero-coupon convertible senior notes due 2022 in a private offering, yielding gross proceeds of $250 million. Each $1,000 principal amount of notes at maturity is convertible into 7.5204 shares of our common stock, subject to adjustment, under certain circumstances. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations — Liquidity and Financial Condition” and Note 8, “Long-Term Debt,” to the consolidated financial statements included in this Report.

The following table sets forth the high and low sales prices per share of Common Stock, as reported by the New York Stock Exchange, for the periods indicated:

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ITEM 6 — SELECTED FINANCIAL DATA

     The following income statement and balance sheet data were derived from our consolidated financial statements. Our consolidated financial statements for the years ended December 31, 2001, 2000, 1999, 1998 and 1997, have been audited by Arthur Andersen LLP. The selected financial data below should be read in conjunction with our consolidated financial statements and the notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in this Report.

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(8)		Weighted average shares outstanding is calculated on a diluted basis.
(9)		“EBITDA” is operating income plus depreciation and amortization. We believe that the operating performance of companies in our industry is measured, in part, by their ability to generate EBITDA. In addition, we use EBITDA as an indicator of our operating performance and as a measure of our cash generating capabilities. EBITDA does not represent and should not be considered as an alternative to net income, operating income, net cash provided by operating activities or any other measure for determining operating performance or liquidity that is calculated in accordance with generally accepted accounting principles. Further, EBITDA, as we calculate it, may not be comparable to calculations of similarly-titled measures by other companies. Excluding the $149.2 million, $(4.4) million and $133 million restructuring and other charges (credits) recorded in 2001, 1999 and 1998, respectively, EBITDA would have been $971.8 million, $1,049.8 million and $694.9 million in 2001, 1999 and 1998, respectively.
(10)		“Fixed charges” consist of interest on debt, amortization of deferred financing fees and that portion of rental expenses representative of interest (deemed to be one-third of rental expenses). “Earnings” consist of income before income taxes, fixed charges, undistributed earnings and minority interests.
(11)		Includes facilities operated by our less than majority-owned affiliates and facilities under construction.
(12)		“North American content per vehicle” is our net sales in North America divided by estimated total North American vehicle production.
(13)		“North American vehicle production” includes car and light truck production in the United States, Canada and Mexico estimated from industry sources.
(14)		“Western Europe content per vehicle” is our net sales in Western Europe divided by estimated total Western Europe vehicle production.
(15)		“Western Europe vehicle production” includes car and light truck production in Austria, Belgium, France, Germany, Italy, The Netherlands, Portugal, Spain, Sweden and the United Kingdom estimated from industry sources.
(16)		“South American content per vehicle” is our net sales in South America divided by estimated total South American vehicle production.
(17)		“South American vehicle production” includes car and light truck production in Argentina, Brazil and Venezuela estimated from industry sources.

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ITEM 7 — MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS

Overview
We are the fifth largest automotive supplier in the world. Our sales have grown rapidly from $6.2 billion for the year ended December 31, 1996 to $13.6 billion for the year ended December 31, 2001. The major sources of this growth have been new program awards and the implementation of a strategic acquisition plan to capitalize on supplier consolidation and globalization trends in the automotive industry. Our customers are the major automotive manufacturers, including General Motors, Ford, DaimlerChrysler, BMW, Fiat, Volkswagen, Peugeot, Renault, Toyota and Subaru.

Our operations are directly related to automotive vehicle production. Automotive sales and production are cyclical and can be affected by numerous factors, including general economic conditions, labor relations issues and regulatory factors. Automotive production in North America and Western Europe declined in 2001 and is expected to decline further in 2002. In the fourth quarter of 2001, we began to implement a restructuring plan to consolidate our operations and align our capacity and operations with existing market conditions. As a result of this restructuring plan, we recorded pre-tax charges of $149 million. Please refer to “—Restructurings” for a more detailed description of our restructuring plan.

In addition to overall automotive vehicle production, our operating results are being significantly impacted by the commercial success of the vehicle platforms for which we supply products and the market share of our customers. General Motors and Ford and their respective affiliates accounted for approximately 60% of our net sales in 2001. A loss of significant business from General Motors or Ford, or a decrease in business with respect to a significant automobile model, could significantly and negatively affect our operating results.

Moreover, there is substantial and continuing pressure on suppliers from their automotive manufacturers to reduce costs while at the same time assuming greater responsibility for the design, development, engineering and integration of interior products. Our customers impose annual selling price reductions on most of the products we supply. Our profitability is significantly dependent on our ability to achieve cost reductions which offset or exceed these customer-mandated price reductions.

For a more detailed description of other factors that have or may significantly impact our business, results of operations or financial condition, please refer to “— Forward-Looking Statements” and “— Risk Factors.”

Results of Operations

Year Ended December 31, 2001 Compared With Year Ended December 31, 2000
Net sales for the year ended December 31, 2001 were $13.6 billion as compared to $14.1 billion for the year ended December 31, 2000, a decrease of $448 million or 3.2%. Lower global production volumes on existing programs, foreign exchange rate fluctuations and the effect of our divestitures negatively impacted net sales by approximately $1.0 billion, $.3 billion and $.1 billion, respectively. Selling price reductions also contributed to the decline in net sales. These factors were partially offset by new business.

Gross profit and gross margin were $1.0 billion and 7.6% in 2001 as compared to $1.5 billion and 10.3% in 2000. Excluding the impact of restructuring charges, gross profit and gross margin were $1.2 billion and 8.7% in 2001. The decrease is primarily the result of lower global production volumes and our divestitures, which contributed approximately $234 million and $31 million, respectively, to the decrease in gross profit. Selling price reductions, to the extent not offset by cost reductions, also contributed to the decline in gross profit.

Selling, general and administrative expenses, including research and development, were $514 million for the year ended December 31, 2001 as compared to $525 million for the year ended December 31, 2000. As a percentage of net sales, selling, general and administrative expenses were 3.8% in 2001 as compared to 3.7% in 2000. Excluding the impact of restructuring charges, selling, general and administrative expenses were $506 million and 3.7% as a percentage of net sales in 2001.

Research and development costs incurred in connection with the development of new products and manufacturing methods, to the extent not recoverable from the customer, are charged to selling, general and administrative expenses as incurred. Such costs amounted to approximately $199 million and $209 million for the years ended December 31, 2001 and 2000, respectively.

Included in cost of goods sold and selling, general and administrative expenses are net severance costs of approximately $5 million related to actions in the first six months of 2001 to reduce our cost base. Approximately 4,800 employees in our worldwide workforce were terminated during this period.

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Interest expense was $255 million in 2001 as compared to $316 million in 2000. Our reduced debt balance, lower interest rates and our receivables-backed securitization financing agreements (the “ABS facility”) favorably impacted interest expense by approximately $23 million, $17 million and $15 million, respectively.

Other expense, which includes state and local taxes, foreign currency exchange and other non-operating expenses, was $65 million for the year ended December 31, 2001 as compared to $35 million for the year ended December 31, 2000. During 2001, we recorded a net gain of $1 million related to the sales of our Spanish wire business, a plastics molding facility, an interior acoustics facility and the metal seat frame portion of a facility as well as a loss of $3 million related to the write-down of certain other assets to net realizable value. In addition, during 2001, we recognized a discount of $16 million, of which approximately $3 million was non-recurring, related to the transfer of accounts receivable under the ABS facility. Excluding these non-recurring transactions, other expense was $60 million for the year ended December 31, 2001. During 2000, we recorded a net gain of $17 million related to the sales of our sealants and foam rubber business and four plastic and metal manufacturing facilities as well as non-recurring expenses, including the disposal of idle equipment, of $14 million. Excluding these non-recurring transactions, other expense was $38 million for the year ended December 31, 2000. On an adjusted basis, the increase in other expense was primarily due to a recurring discount of approximately $13 million related to the transfer of accounts receivable under the ABS facility and an increase in foreign currency exchange losses.

The provision for income taxes was $69 million, representing an effective tax rate of 66.8% in 2001, as compared to $197 million, representing an effective tax rate of 41.8% in 2000. Excluding the impact of the restructuring charges, the provision for income taxes was $108 million, representing an effective tax rate of 42.7%, in 2001. Net income for the year ended December 31, 2001 was $26 million or $.40 per share as compared to $275 million or $4.17 per share for the year ended December 31, 2000.

Reportable Operating Segments
Certain of the financial information presented below is for our three reportable operating segments for the periods presented. These segments are: seating, which includes seat systems and the components thereof; interior, which includes flooring and acoustic systems, door panels, instrument panels, headliners and other interior products; and electronic and electrical, which includes electronic and electrical distribution systems, interior control systems and wireless systems. Since January 1, 2001, seat frames and seat tracks, which were previously included in our interior segment, have been included in our seating segment. Accordingly, all amounts have been restated to reflect this change.

Seating —
Seating net sales were $9.3 billion for the year ended December 31, 2001 as compared to $9.1 billion for the year ended December 31, 2000, an increase of $.2 billion, or 1.7%. Lower global production volumes on existing customer programs reduced net sales by $.5 billion. This decrease was more than offset by new business. Operating income before amortization and operating margin before amortization were $454 million and 4.9% for 2001 as compared to $495 million and 5.4% for 2000. These decreases were primarily the result of lower customer requirements and production shutdowns affecting existing programs, which accounted for a $91 million decline in operating income before amortization, and the effect of our divestitures, which contributed an additional $10 million. These decreases were partially offset by new business.

Interior —
Interior net sales were $2.4 billion for the year ended December 31, 2001 as compared to $2.8 billion for the year ended December 31, 2000, a decrease of 12.4%. This decrease was primarily due to lower global production volumes on existing customer programs, which negatively impacted net sales by $.2 billion, and the effect of our divestitures, which negatively impacted net sales by $.1 billion. Operating income before amortization and operating margin before amortization were $202 million and 8.3% in 2001 and $308 million and 11.1% in 2000. These decreases were primarily the result of lower customer requirements and production shutdowns affecting existing programs, which accounted for a $71 million decline in operating income before amortization, and the effect of our divestitures, which contributed an additional $15 million.

Electronic and Electrical —
Electronic and electrical net sales were $1.9 billion for the year ended December 31, 2001 as compared to $2.2 billion for the year ended December 31, 2000, a decrease $.3 billion or 11.7%. This decrease was primarily attributable to lower global production volumes on existing customer programs, which reduced net sales by $.3 billion. Operating income before amortization and operating margin before amortization were $174 million and 9.2% for 2001 as compared to $266 million and 12.4% for 2000. These decreases were primarily the result of lower customer requirements and production shutdowns affecting existing programs, which accounted for a $72 million decline in operating income before amortization, and the effect of our divestitures, which contributed an additional $6 million.

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Year Ended December 31, 2000 Compared With Year Ended December 31, 1999
Net sales of $14.1 billion for the year ended December 31, 2000 exceeded net sales for the year ended December 31, 1999 by $1.6 billion or 13.2%. The increase was primarily due to new programs and increased global production volumes, which accounted for $1.2 billion of the increase, and to our acquisitions, which collectively accounted for $1.1 billion of the increase. The increase was partially offset by the negative impact of foreign currency exchange, $.6 billion, and of our divestitures, $.1 billion.

Gross profit and gross margin improved to $1.5 billion and 10.3% for the year ended December 31, 2000 as compared to $1.3 billion and 10.2% for the year ended December 31, 1999. Gross profit benefited from new programs and increased global production volumes, which accounted for $157 million of the increase, as well as from our acquisitions, which accounted for $111 million of the increase. Partially offsetting the increase were higher engineering costs, European start-up expenses and unfavorable foreign exchange.

Selling, general and administrative expenses, including research and development, as a percentage of net sales decreased to 3.7% for the year ended December 31, 2000 as compared to 3.9% for the year ended December 31, 1999. The decrease was primarily the result of the integration of UT Automotive in 2000 as well as additional expenses resulting from our acquisitions in 1999.

During 2000, the Company recorded a credit of $5 million comprised of unutilized restructuring reserves from the 1998 restructuring charge. This credit was offset by a $5 million charge to streamline certain corporate and division administrative office functions. The 2000 costs were comprised entirely of severance and were substantially utilized by December 31, 2000.

For the year ended December 31, 2000, interest expense increased to $316 million as compared to $235 million for the year ended December 31, 1999 as the result of debt incurred to finance acquisitions and increased interest rates under our primary credit facilities.

Other expense, which includes state and local taxes, foreign currency exchange and other non-operating expenses, was $35 million for the year ended December 31, 2000 as compared to $35 million for the year ended December 31, 1999. In 2000, we recorded a net gain of $17 million related to the sale of certain businesses. In addition, we recorded non-recurring expenses of $14 million, which included the disposal of idle equipment. Excluding non-recurring transactions, other expense was $38 million for the year ended December 31, 2000.

The provision for income taxes in 2000 was $197 million, an effective tax rate of 41.8%, as compared to $174 million, an effective tax rate of 40.4% in 1999. Net income for the year ended December 31, 2000 was $275 million or $4.17 per share as compared to $257 million or $3.80 per share for the year ended December 31, 1999. Basic and diluted net income per share benefited from 1.7 million and 1.9 million, respectively, fewer shares outstanding in 2000 as compared to 1999.

Seating—
Seating net sales were $9.1 billion for the year ended December 31, 2000 as compared to $8.4 billion for the year ended December 31, 1999, an increase of $.7 billion or 8.7%. This increase was primarily due to new programs and increased production on existing customer programs, which accounted for an increase of $.9 billion. This increase was partially offset by the negative impact of foreign currency exchange. Seating operating income before amortization and operating margin before amortization were $495 million and 5.4% for 2000 as compared to $539 million and 6.4% for 1999, primarily due to higher engineering costs, European start-up expenses and the negative impact of foreign currency exchange. These decreases were partially offset by new programs and increased production on existing customer programs, which accounted for a $120 million increase in seating operating income before amortization.

Interior—
Interior net sales were $2.8 billion for the year ended December 31, 2000 as compared to $2.5 billion for the year ended December 31, 1999, an increase of 9.2%. This increase was primarily the result of new programs and increased production on existing customer programs, which contributed an increase of $.3 billion, as well as the impact of our acquisitions, principally UT Automotive, which collectively contributed an increase of $.3 billion. These increases were partially offset by the effect of our divestitures, which reduced interior net sales by $.1 billion, and the negative impact of foreign currency exchange. Interior operating income before amortization and operating margin before amortization were $308 million and 11.1% for 2000 as compared to $208 million and 8.2% for 1999. Interior operating income before amortization benefited from new programs and increased production on existing customer programs, which accounted for $29 million of the increase, as well as from the impact of our acquisitions, principally UT Automotive, which collectively accounted for $24 million of the increase. Interior operating income before amortization and operating margin before amortization also benefited from synergy savings, resulting from the UT Automotive acquisition.

Electronic and Electrical—
Electronic and electrical net sales were $2.2 billion for the year ended December 31, 2000 as compared to $1.5 billion for the year ended December 31, 1999, an increase of $.7 billion or 46.2%. This increase was primarily due to the full year impact of our

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acquisition of UT Automotive, which was acquired on May 4, 1999 and accounted for an increase of $.8 billion. This increase was partially offset by the negative impact of foreign currency exchange. Electronic and electrical operating income before amortization and operating margin before amortization were $266 million and 12.4% for 2000 as compared to $141 million and 9.6% for 1999. The increase in electronic and electrical operating income before amortization was primarily the result of the full year impact of our acquisition of UT Automotive, which contributed $87 million to the increase, as well as new programs and increased production on existing customer programs, which contributed $8 million to the increase. Electronic and electrical operating income before amortization and operating margin before amortization also benefited from synergy savings, resulting from the UT Automotive acquisition.

Restructurings

2001
In order to better align our operations and capacity in response to reductions in global automotive production volumes, in the fourth quarter of 2001, we began to implement a restructuring plan. This restructuring plan will consolidate our operations, provide operational efficiencies and improve our long-term competitive position. Several of these actions involve the relocation of businesses to improve factory utilization. We expect the net personnel reduction to be approximately 6,500 employees. As a result of this restructuring plan, we recorded pre-tax charges of $149 million, including $141 million recorded as cost of goods sold and $8 million recorded as selling, general and administrative expenses. Significant activities included in the restructuring plan are as follows:

•		Consolidation of North and South American Operations. We have implemented a plan to consolidate certain manufacturing and administrative functions in North and South America. As a result, ten manufacturing and three warehouse facilities in North America and three manufacturing facilities in South America will be closed. The charges consist of severance costs of $32 million for 3,491 employees notified prior to December 31, 2001, asset impairment charges of $24 million, lease cancellation costs of $6 million and other facility closure costs of $3 million. As of December 31, 2001, two of the manufacturing facilities were closed and 514 of the employees had been terminated.
		We also implemented a plan to consolidate certain administrative functions and to reduce the U.S. salaried workforce. We recorded a charge of $6 million for severance costs for 229 employees notified prior to December 31, 2001. As of December 31, 2001, 159 of the employees had been terminated.
•		Consolidation of European and Rest of World Operations. We have implemented a plan to consolidate certain manufacturing and administrative functions in Europe and Rest of World. As a result, five manufacturing facilities will be closed. The charges consist of severance costs of $26 million for 4,290 employees notified prior to December 31, 2001, asset impairment charges of $27 million and other facility closure costs of $7 million. As of December 31, 2001, one of the facilities was closed and 2,391 of the employees had been terminated.
		In addition, we recorded a charge of $15 million for severance costs for 1,506 employees in one country under Statement of Financial Accounting Standards (“SFAS”) No. 112, “Employers’ Accounting for Postemployment Benefits,” as we anticipate this to be the minimum aggregate severance payments that will be made in accordance with statutory requirements. These employees are expected to be terminated in 2002.
		We also implemented a plan to consolidate certain administrative functions and to reduce the European salaried workforce. We recorded a charge of $3 million for severance costs for 70 employees notified prior to December 31, 2001. As of December 31, 2001, two of the employees had been terminated.

In 2002, we expect cash expenditures related to the restructuring plan to be approximately $70 million. We also expect to incur between $10 and $15 million of restructuring-related capital expenditures during this time. In 2002, the savings realized as a result of the restructuring plan are expected to approximate and, as such, offset the restructuring-related costs. Beginning in 2003, we expect to realize between $40 and $50 million per year in savings as a result of the restructuring plan.

For more information relating to the restructuring charges described above, see Note 5, “Restructuring and Other Charges,” to the consolidated financial statements included in this Report.

2000
In the fourth quarter of 2000, we implemented a plan to streamline corporate and division administrative office functions. As a result of these actions, we recorded pre-tax charges of $5 million, consisting entirely of severance to employees notified of their termination prior to December 31, 2000. As of December 31, 2001, all of the provision had been utilized.

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1998
In the fourth quarter of 1998, we began to implement a restructuring plan designed to reduce our cost structure and improve our long-term competitive position. During 2000 and 1999, we made adjustments to the original restructuring provision, resulting in net restructuring credits of $5 million and $10 million, respectively. The adjustments were attributable to several factors, including severance benefits in excess of amounts originally accrued, reduced severance benefits due to employee reductions attained through attrition, sub-lessor arrangements and decisions to delay or cancel certain actions. Additionally, during 1999, we expensed as incurred $6 million of employee and equipment relocation costs incurred in connection with the implementation of the restructuring plan. The restructuring is complete, and the remaining accrual of $7 million as of December 31, 2001 consists of long-term lease payments related to closed European facilities.

UT Automotive
During the second quarter of 1999, we began to implement restructuring plans designed to integrate the operations of the recently acquired UT Automotive, which were finalized during the first and second quarters of 2000. As a result of these restructuring plans, we recorded an adjustment to the original purchase price allocation of $32 million. The plans called for the termination of 899 employees, all of whom were terminated as of December 31, 2001, and the closure of or exit from five facilities, of which four were closed or vacated as of December 31, 2001. During the second quarter of 2001, the closure of a European facility was cancelled due to a new program award in the region. We had previously completed all restructuring actions related to this facility with the exception of the disposition of the building, which had been idle since July 2000. Production on the new program began in January 2002. As a result, we reduced the restructuring accrual related to severance and goodwill by $3 million.

Liquidity and Financial Condition
Our primary liquidity needs are to fund capital expenditures, service indebtedness and support working capital requirements. Our principal sources of liquidity are cash flow from operating activities and borrowing availability under our primary credit facilities. A substantial portion of our operating income is generated by our wholly-owned subsidiaries. As a result, we are dependent on the earnings and cash flows of and dividends and distributions or advances from these subsidiaries to provide the funds necessary to meet our obligations. There are no material restrictions on the ability of our subsidiaries to pay dividends or make other distributions to Lear.

Cash Flow
Cash flows from operating activities generated $569 million, excluding the proceeds from sales of receivables under the ABS facility, in 2001 as compared to $753 million in 2000. Proceeds from the sales of receivables under the ABS facility were $261 million in 2001. Net income decreased to $26 million for the year ended December 31, 2001 as compared to $275 million for the year ended December 31, 2000. Partially offsetting this decrease, recoverable customer engineering and tooling was a source of $110 million in 2001 and $24 million in 2000, as recovery of previously capitalized amounts outpaced amounts incurred and capitalized in both years.

Net cash used in investing activities decreased from $225 million in 2000 to $201 million in 2001. A decrease in capital expenditures from $322 million in 2000 to $267 million in 2001 was partially offset by a decrease in the proceeds from the disposition of businesses and other assets. We currently anticipate capital expenditures for 2002 of approximately $275 million.

Capitalization
We utilize uncommitted lines of credit to satisfy a portion of our short-term working capital requirements. For the years ended December 31, 2001 and 2000, our average outstanding unsecured short-term debt balances were $40 million and $77 million, respectively. Weighted average interest rates on the outstanding borrowings were 6.3% and 6.7% for the respective periods.

We utilize a combination of committed credit facilities and longer term notes to fund our capital expenditure and base working capital requirements. For the years ended December 31, 2001 and 2000, our average outstanding long-term debt balances were $2.6 billion and $3.3 billion, respectively. Weighted average long-term interest rates (including rates under our committed credit facilities) were 7.2% and 7.3% for the respective periods.

On March 26, 2001, we replaced our $2.1 billion revolving credit facility in order to extend its maturity and reduce commitments. As a result, interest rates and fees thereunder were adjusted to market rates. In addition, we amended our other primary credit facilities at the same time. Our primary credit facilities currently consist of a $1.7 billion amended and restated credit facility, which matures on March 26, 2006, a $500 million revolving credit facility, which matures on May 4, 2004, and a $500 million term loan, having scheduled amortization which began on October 31, 2000 and a final maturity on May 4, 2004. As of December 31, 2001, $350 million was outstanding under the term loan. Our primary credit facilities provide for multicurrency borrowings in a maximum aggregate amount of up to $665 million, the commitment for which is part of the aggregate primary credit facilities commitment. The write-off of deferred financing fees related to the $2.1 billion revolving credit facility totaled approximately $1.0 million ($.6 million after tax), which is reflected as an extraordinary loss, net of tax in the consolidated statement of income for the year ended December

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31, 2001. As of December 31, 2001, we had $.7 billion outstanding under our primary credit facilities and $53 million committed under outstanding letters of credit, resulting in unused availability under our primary credit facilities of more than $1.0 billion. The weighted average interest rates across all currencies as of December 31, 2001 and 2000 were 7.1% and 7.6%, respectively.

Our primary credit facilities provide for scheduled term loan repayments of $125 million in 2002, $150 million in 2003 and $75 million in 2004. In addition, scheduled cash interest payments on our outstanding senior notes are $131 million in each of 2002, 2003 and 2004. Borrowings under our primary credit facilities bear interest at variable rates. Therefore, an increase in interest rates would reduce our profitability. See “— Market Risk Sensitivity.”

In addition to indebtedness under our primary credit facilities, we had approximately $1.8 billion of debt, including short-term borrowings, outstanding as of December 31, 2001, consisting primarily of $1.4 billion of senior notes due between 2005 and 2009 and Euro 250 million (approximately $223 million based on the exchange rate in effect as of December 31, 2001) of senior notes due 2008.

On February 14, 2002, we issued $640 million aggregate principal amount at maturity of zero-coupon convertible senior notes due 2022, yielding gross proceeds of $250 million. The notes are unsecured and rank equally with our other unsecured senior indebtedness, including our other senior notes. Each note of $1,000 principal amount at maturity was issued at a price of $391.06, representing a yield to maturity of 4.75%. Holders of the notes may convert their notes at any time on or before the maturity date at a conversion rate, subject to adjustment, of 7.5204 shares of our common stock per note, provided that the average per share price of our common stock for the 20 trading days immediately prior to the conversion date is at least a specified percentage, beginning at 120% and declining 1/2% each year thereafter to 110% at maturity, of the accreted value of the note, divided by the conversion rate. The notes are also convertible (1) if the long-term credit rating assigned to the notes by either Moody’s Investors Service, Inc. or Standard & Poor’s Ratings Group is reduced below Ba3 or BB-, respectively, or either ratings agency withdraws its long-term credit rating assigned to the notes, (2) if we call the notes for redemption or (3) upon the occurrence of specified other events.

We have an option to redeem all or a portion of the convertible notes for cash at their accreted value at any time on or after February 20, 2007. Holders may require us to purchase their notes on each of February 20, 2007, 2012 and 2017, as well as upon the occurrence of a fundamental change, at their accreted value on such dates. We may choose to pay the purchase price in cash or, subject to the satisfaction of certain conditions, shares of our common stock or a combination of cash and shares of our common stock. We used the proceeds from the convertible debt offering to repay indebtedness under the revolving portion of our primary credit facilities. The notes and the common stock issuable upon conversion have not been registered under the Securities Act of 1933, as amended, or applicable state securities laws, and may not be offered or sold in the United States absent registration or an applicable exemption from registration. Under the terms of a registration rights agreement entered into in connection with the issuance of the convertible notes, we are required to file a registration statement covering the resale of the notes and the common stock issuable thereunder. We would be required to pay additional interest on the notes in the event the registration statement is not filed or declared effective by specified dates and under certain other circumstances.

Our primary credit facilities contain operating and financial covenants that, among other things, could limit our ability to obtain additional sources of capital. The primary credit facilities are guaranteed by certain of our significant subsidiaries and secured by the pledge of all or a portion of the capital stock of certain of our significant subsidiaries. Our senior notes are guaranteed by the same subsidiaries that guarantee our primary credit facilities. For more information concerning our long-term debt, please refer to Note 8, “Long-Term Debt,” to the consolidated financial statements included in this Report and to the agreements governing our material indebtedness, which have been filed as exhibits to this Report.

On August 9, 2001, we redeemed our 9.50% subordinated notes due 2006. The redemption was made at 104.75% of the aggregate principal amount of the notes. On May 1, 2001, we redeemed our 8.25% subordinated notes due 2002. The redemption was made at par. The redemptions were financed through borrowings under our primary credit facilities. The redemption premium and the write-off of deferred financing fees related to the redemption of the 9.50% subordinated notes due 2006 and the 8.25% subordinated notes due 2002 totaled approximately $12.0 million ($7.3 million after tax), which is reflected as an extraordinary loss, net of tax in the consolidated statements of income for the year ended December 31, 2001.

Our scheduled maturities of long-term debt as well as our lease commitments under noncancellable operating leases as of December 31, 2001 are as follows (in millions):

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In addition, we typically enter into agreements with our customers at the beginning of a given vehicle’s life for the fulfillment of our customers’ purchasing requirements for the entire production life of the vehicle, with terms of up to 10 years. Prior to being formally awarded a program, we work closely with our customers in the early stages of designing and engineering a vehicle’s interior systems. The failure to complete the design and engineering work related to a vehicle’s interior systems, or to fulfill a customer’s contract, could adversely affect our business.

In November 2000, we entered into the ABS facility which provides for maximum purchases of adjusted accounts receivable of $300 million, of which $261 million were purchased as of December 31, 2001. In November 2001, the ABS facility was amended to extend the termination date to November 2002 and to accommodate reductions in the credit ratings of our three largest customers, whose receivable are transferred to the ABS facility, as well as recent declines in automotive production volumes. As a result, our utilization of the ABS facility in the future may be lower than in prior periods. In addition, should our customers experience further reductions in their credit ratings, we may be unable to utilize the ABS facility in the future. Should this occur, we would seek to utilize other available credit facilities to replace the funding currently provided by the ABS facility. During 2001, our utilization of the ABS facility versus other available credit facilities resulted in a savings of approximately $2 million.

In addition, several of our European subsidiaries factor their accounts receivable with financial institutions subject to limited recourse provisions. The amount of such factored receivables, which is not included in accounts receivable, was $184 million and $212 million as of December 31, 2001 and 2000, respectively.

In March 2000, our Board of Directors approved a share repurchase program, authorizing the repurchase of up to an additional 6.7 million shares of our outstanding common stock over a 24-month period. In 2000, we repurchased 3,352,100 shares of our outstanding common stock at an average purchase price of $23.24. In 1999, we repurchased 500,000 shares of our outstanding common stock at an average purchase price of $30.47. We did not repurchase any shares of our outstanding common stock in 2001.

We believe that cash flows from operations and available credit facilities will be sufficient to meet our anticipated debt service obligations, projected capital expenditures and working capital requirements. However, our operating cash flows and borrowing availability are subject to the risks and uncertainties identified under “— Overview,” “— Forward-Looking Statements” and “— Risk Factors.”

Market Risk Sensitivity
In the normal course of business, we are exposed to market risk associated with fluctuations in foreign exchange rates and interest rates. We manage these risks through the use of derivative financial instruments in accordance with management’s guidelines. We enter into all hedging transactions for periods consistent with the underlying exposures. We do not enter into derivative instruments for trading purposes.

Foreign Exchange. Operating results may be impacted by our buying, selling and financing in currencies other than the functional currency of our operating companies (“transactional exposure”). We mitigate this risk by entering into foreign currency forward, swap and option contracts. The foreign currency contracts are executed with banks that we believe are creditworthy. The gains and losses relating to the foreign currency contracts are deferred and included in the measurement of the foreign currency transaction subject to the hedge. Any gain or loss incurred related to a foreign currency contract is generally offset by the direct effects of currency movements on the underlying transactions.

Our most significant foreign currency transactional exposures relate to Mexico, Canada and the European Monetary Union. We have performed a quantitative analysis of our overall currency rate exposure as of December 31, 2001. The potential adverse earnings impact from a hypothetical 10% weakening of the U.S. dollar relative to all other currencies for calendar year 2002 is approximately $4 million.

As of December 31, 2001, contracts representing $1.0 billion of notional amount were outstanding with maturities of less than one year. The fair value of these foreign exchange contracts as of December 31, 2001 was approximately a positive $15 million. A 10% change in exchange rates would result in a $35 million change in market value.

There are certain shortcomings inherent to the sensitivity analysis presented. The analysis assumes that all currencies would uniformly strengthen or weaken relative to the U.S. dollar. In reality, some currencies may weaken while others may strengthen causing the earnings impact to increase or decrease depending on the currency and the direction of the rate movement.

In addition to the above transactional exposure, our operating results are impacted by the translation of our foreign operating income into U.S. dollars (“translation exposure”). We do not enter into foreign currency contracts to mitigate this exposure.

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Interest Rates. We use a combination of fixed and variable rate debt and interest rate swap contracts to manage our exposure to interest rate movements. Our exposure to variable interest rates on outstanding floating rate debt instruments indexed to U.S. or European Monetary Union short-term money market rates is partially managed by the use of interest rate swap agreements to convert variable rate debt to fixed rate debt, matching effective and maturity dates to specific debt instruments. These interest rate derivative contracts are executed with banks that we believe are creditworthy and are denominated in currencies that match the underlying debt instrument. Net interest payments or receipts from interest rate swaps are recorded as adjustments to interest expense in our consolidated statements of income on an accrual basis.

We have performed a quantitative analysis of our overall interest rate exposure as of December 31, 2001. This analysis assumes an instantaneous 100 basis point parallel shift in interest rates at all points of the yield curve. The potential adverse earnings impact from this hypothetical increase for calendar year 2002 is approximately $6 million.

As of December 31, 2001, contracts representing $1.0 billion of notional amount were outstanding with maturity dates of March 2002 through May 2005. The fair value of these interest rate swap agreements is subject to changes in value due to changes in interest rates. The fair value of outstanding interest rate swap agreements as of December 31, 2001 was approximately a negative $31 million. A 100 basis point parallel increase in interest rates would increase the market value of these instruments by approximately $5 million. A decrease in interest rates of the same magnitude would result in a $5 million decline in market value.

Additional information relating to our outstanding financial instruments is included in Note 8, “Long-Term Debt,” and Note 14, “Financial Instruments,” to the consolidated financial statements included in this Report.

Other Matters

Environmental Matters
We are subject to local, state, federal and foreign laws, regulations and ordinances, which govern activities or operations that may have adverse environmental effects and which impose liability for the costs of cleaning up certain damages resulting from past spills, disposal or other releases of hazardous wastes and environmental compliance. Our policy is to comply with all applicable environmental laws and to maintain procedures to ensure compliance. However, we have been, and in the future may become, the subject of formal or informal enforcement actions or procedures.

We have been named as a potentially responsible party at several third party landfill sites and are engaged in the cleanup of hazardous wastes at certain sites owned, leased or operated by us, including several properties acquired in the UT Automotive acquisition. Certain present and former properties of UT Automotive are subject to environmental liabilities which may be significant. We obtained agreements and indemnities with respect to possible environmental liabilities from United Technologies Corporation in connection with our acquisition of UT Automotive. While we do not believe that the environmental liabilities associated with our properties will have a material adverse effect on our business, consolidated financial position or results of future operations, no assurances can be given in this regard.

Significant Accounting Policies
Our significant accounting policies are more fully described in Note 2, “Summary of Significant Accounting Policies,” to the consolidated financial statements included in this Report and include:

Pre-Production Costs Related to Long-Term Supply Arrangements. We incur pre-production engineering, research and development (“ER&D”) and tooling costs related to the products produced for our customers under long-term supply agreements. Prior to January 1, 2000, we capitalized these costs when reimbursable from the customer and amortized them over the term of the related supply agreement. On January 1, 2000, we prospectively adopted the provisions of Emerging Issues Task Force (“EITF”) Issue No. 99-5, “Accounting for Pre-Production Costs Related to Long-Term Supply Agreements.” As a result, beginning January 1, 2000, we expensed all pre-production ER&D costs for products to be supplied under long-term supply agreements for which reimbursement was not contractually guaranteed by our customer. In addition, we expensed all pre-production tooling costs for products to be supplied under long-term supply agreements related to customer-owned tools for which reimbursement was not contractually guaranteed by our customer or for which the customer had not provided a noncancellable right to use the tooling. During 2001 and 2000, we capitalized $130 million and $170 million, respectively, of pre-production ER&D costs for products to be supplied under long-term supply agreements for which reimbursement is contractually guaranteed by our customer. In addition, during 2001 and 2000, we capitalized $174 million and $410 million, respectively, of pre-production tooling costs for products to be supplied under long-term supply agreements related to Company-owned tools as well as customer-owned tools for which reimbursement is contractually guaranteed by our customer or for which our customer had provided a noncancellable right to use. A change in the commercial arrangements

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affecting any of our significant programs that would require us to expense ER&D or tooling costs that we currently capitalize under EITF Issue No. 99-5 could have a material adverse impact on our reported results of operations.

Revenue Recognition and Sales Commitments. We recognize revenues as our products are shipped to our customers. We enter into agreements with our customers at the beginning of a given vehicle’s life. Once we enter into such agreements, fulfillment of our customers’ purchasing requirements is our obligation for the entire production life of the vehicle, with terms of up to 10 years. These agreements generally may be terminated by our customer (but not by us) at any time, but in general are not. In certain instances, we may be committed under existing agreements to supply product to our customers at selling prices which are not sufficient to cover the direct cost to produce such product. In such situations, we record a liability for the estimated future amount of such losses. Such losses are recognized at the time that the loss is probable and reasonably estimable and are recorded at the minimum amount necessary to fulfill our obligations to our customers. Losses are determined on a separate agreement basis and are estimated based upon information available at the time of the estimate, including future production volume estimates, the length of the program and selling price and production cost information. On a quarterly basis, we evaluate the adequacy of the loss contract accruals recorded and make adjustments as necessary.

During 2000, we recorded loss contract accruals in purchase accounting in conjunction with the Lear-Donnelly acquisition, the UT Automotive acquisition and the Peregrine acquisition. In addition, we had previously recorded a loss contract accrual in purchase accounting in conjunction with the Delphi acquisition. These loss contract accruals were not recorded in the historical operating results of Lear-Donnelly, UT Automotive, Peregrine or Delphi. The losses included in the accrual have not been, and will not be, included in our operating results since the respective acquisition dates. Further, our future operating results will benefit from accruing these contract losses in the related purchase price allocations. The following table summarizes the loss contract accrual activity related to these acquisitions (in millions):

We utilized $23.5 million, $31.2 million and $16.1 million of the loss contract accruals to offset losses in 2001, 2000 and 1999, respectively. The estimated utilization of the aggregate loss contract accrual is $20.3 million, $7.4 million and $1.6 million for 2002, 2003 and 2004, respectively.

Use of Estimates. The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Generally, assets and liabilities subject to estimation and judgment include amounts related to unsettled pricing discussions with customers and suppliers, loss contract accruals, warranty accruals, pension and other postretirement costs, plant consolidation and reorganization reserves, self-insurance accruals, asset valuation reserves and accruals related to litigation and environmental remediation costs. Management does not believe that the ultimate settlement of any such assets or liabilities will materially affect our financial position or results of future operations.

Recently Issued Accounting Pronouncements
Business Combinations. The Financial Accounting Standards Board (“FASB”) has issued SFAS No. 141, “Business Combinations;” the provisions of which apply to all business combinations initiated after June 30, 2001. This statement requires that all business combinations be accounted for under the purchase method. In addition, this statement requires the separate recognition of certain intangible assets.

Goodwill and Other Intangible Assets. The FASB has issued SFAS No. 142, “Goodwill and Other Intangible Assets,” which is effective for fiscal years beginning after December 15, 2001. Under this statement, goodwill will no longer be amortized but will be subject to impairment analysis. Goodwill amortization for the year ended December 31, 2001 was $90 million. We are currently assessing the potential impact of SFAS No. 142 related to the impairment analysis of goodwill.

Asset Retirement Obligations. The FASB has issued SFAS No. 143, “Accounting for Asset Retirement Obligations,” which is effective for fiscal years beginning after June 15, 2002. This statement requires that the fair value of a liability for an asset retirement

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obligation be recognized in the period in which it is incurred if a reasonable estimate of fair value can be made. We do not expect the effects of adoption to be significant.

Impairment or Disposal of Long-Lived Assets. The FASB has issued SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which is effective for fiscal years beginning after December 15, 2001. This statement addresses the financial accounting and reporting for the impairment of or disposal of long-lived assets. We do not expect the effects of adoption to be significant.

Forward-Looking Statements
The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements made by us or on our behalf. The words “will,” “may,” “designed to,” “outlook,” “believes,” “should,” “anticipates,” “plans,” “expects,” “intends,” and “estimates,” and similar expressions identify these forward-looking statements. All statements contained or incorporated in the Report which address operating performance, events or developments that we expect or anticipate may occur in the future, including statements related to volume growth, awarded sales contracts and earning per share growth or statements expressing general optimism about future operating results, are forward-looking statements. Principal important factors, risks and uncertainties that may cause actual results to differ from those expressed in our forward-looking statements are, including but not limited to:

•		general economic conditions in the market in which we operate,
•		fluctuation in worldwide or regional automotive and light truck production,
•		financial or market declines of our customers,
•		labor disputes involving us or our significant customers,
•		changes in practices and/or policies of our significant customers toward outsourcing automotive components and systems,
•		our success in achieving cost reductions that offset or exceed customer-mandated selling price reductions,
•		liabilities arising from legal proceedings to which we are or may become a party or claims against us or our products,
•		increases in our warranty costs,
•		fluctuations in currency exchange rates,
•		changes in technology and technological risks,
•		adverse changes in economic conditions or political instability in the jurisdictions in which we operate,
•		raw materials shortages and
•		other risks, described below in “— Risk Factors” below and from time to time in our other Securities and Exchange Commission filings.

We do not assume any obligation to update any of these forward-looking statements.

Risk Factors

•		A decline in automotive sales would reduce our sales and could harm our profitability and thereby make it more difficult to make payments under our indebtedness and lead to a decline in the value of our common stock.
		Our operations are directly related to automotive vehicle production. Automotive sales and production are cyclical and can be affected by the strength of a country’s general economy. In addition, automotive sales and production can be affected by labor relations issues, regulatory requirements, trade agreements and other factors. Automotive production in North America and Western Europe has declined from 33.2 million in 1999 to 32.0 in 2001 and is expected to decline between 2% and 6% in 2002. This decline in automotive sales and production resulted in a decline in our business and profitability in 2001. Our recent restructuring actions are intended to align our capacity with lower production levels. Significant deterioration beyond the expected production levels, however, could have a negative impact on our sales, net income and other results of operations.
•		The loss in business from a major customer or the discontinuation of a particular automobile model could reduce our sales and harm our profitability, which could make it more difficult for us to make payments under our indebtedness and lead to a decline in the value of our common stock.
		General Motors and Ford and their respective affiliates, the two largest automotive manufacturers in the world, together accounted for approximately 60% of our net sales in 2001. A loss of significant business from General Motors or Ford could be harmful to our business and our profitability, thereby making it more difficult for us to make payments under our indebtedness and leading to a decline in the value of our common stock. Although we have purchase orders from many of our customers, these purchase orders generally provide for the supply of a customer’s annual requirements for a particular model and assembly plant, renewable on a year-to-year basis, rather than for the purchase of a specific quantity of products. The loss of business with respect to a significant automobile model could have a material adverse effect on our business and profitability. In this regard, we have been notified by a significant customer that it intends to discontinue and relocate production of a particular vehicle model from Europe to North America. The discontinuation of this vehicle’s production in Europe could require us to write-off non-recoverable program costs and lead to a decline in our profitability. We have, however, entered into commercial negotiations with the customer regarding these issues.

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		There is substantial and continuing pressure from automotive manufacturers to reduce costs, including costs associated with outside suppliers such as us. No assurances can be given with respect to our ability to improve or maintain our profitability in light of these substantial and continuing pressures.
•		Our substantial international operations make us vulnerable to risks associated with doing business in foreign countries.
		As a result of our business strategy, which includes plans for continued global expansion of operations, a significant portion of our revenues and expenses are denominated in currencies other than U.S. dollars. In addition, we have manufacturing and distribution facilities in many foreign countries. International operations are subject to certain risks inherent in doing business abroad, including:

	•		exposure to local economic conditions;
	•		expropriation and nationalization;
	•		currency exchange rate fluctuations and currency controls;
	•		withholding and other taxes on remittances and other payments by subsidiaries;
	•		investment restrictions or requirements; and
	•		export and import restrictions.

		The likelihood of such occurrences and their potential effect on us vary from country to country and are unpredictable but may have a material adverse effect on our business and our profitability, which would make it more difficult for us to make payments under our indebtedness and lead to a decline in the value of our common stock.
•		A significant labor dispute involving us or one or more of our major customers could materially reduce our sales and harm our profitability, thereby making it more difficult for us to make payments under our indebtedness and lead to a decline in the value of our common stock.
		Approximately 75% of our employees, and a substantial number of employees of most of our customers, are members of industrial trade unions and are employed under the terms of collective bargaining agreements. Virtually all of our unionized facilities in the United States and Canada have a separate agreement with the union that represents the workers at such facilities, with each such agreement having an expiration date that is independent of other collective bargaining agreements. Collective bargaining agreements covering approximately one-quarter of our unionized workforce of approximately 87,000 employees are scheduled to expire in 2002. A labor dispute involving us or any of our major customers, or the inability by us or any of our major customers to negotiate an extension of a collective bargaining agreement covering a large number of employees upon its expiration, could materially reduce our sales and harm our profitability, thereby making it more difficult for us to make payments under our indebtedness and lead to a decline in the value of our common stock. Significant increases in labor costs as a result of the renegotiation of collective bargaining agreements could also adversely impact our business and profitability.
•		We have a substantial amount of debt, which may harm our financial condition and require us to use a significant portion of our cash flow to satisfy our debt obligations.
		We have debt that is greater than our stockholders’ equity and a significant portion of our cash flow from operations will be used to satisfy our debt obligations. In addition, we may incur additional debt in the future. For the year ended December 31, 2001, our consolidated interest expense was $255 million. Our primary credit facilities provide for scheduled term loan repayments of $125 million in 2002, $150 million in 2003 and $75 million in 2004. Therefore, a downturn in our business could limit our ability to make payments under our indebtedness. Our indebtedness could also:

	•		increase our vulnerability to general adverse economic and industry conditions;
	•		limit our ability to use operating cash flow in other areas of our business because we must dedicate a substantial portion of these funds to payments of our indebtedness;
	•		limit our ability to obtain other financing to fund future working capital, acquisitions, capital expenditures, research and development costs and other general corporate requirements;
	•		limit our ability to take advantage of business opportunities as a result of various restrictive covenants in our indebtedness; and
	•		place us at a competitive disadvantage compared to our main competitors that have less debt.

•		Because a significant portion of our borrowings bear interest at variable rates, an increase in interest rates would reduce our profitability and make it more difficult for us to make payments under our indebtedness.
		Since a significant portion of our borrowings bear interest at variable rates, we will be vulnerable to increases in interest rates, which would reduce our profitability and make it more difficult for us to make payments under our indebtedness. In addition, we may be able to incur additional variable-rate indebtedness in the future.
•		We will depend upon cash from our subsidiaries and therefore, if we do not receive dividends or other distributions from our subsidiaries, it will be more difficult for us to make payments under our indebtedness.
		A substantial portion of our revenue and operating income is generated by our wholly-owned subsidiaries. Accordingly, we will be dependent on the earnings and cash flow of, and dividends and distributions or advances from, our subsidiaries to provide the funds necessary to meet our debt service obligations. Our obligations under our primary credit facilities and senior notes are currently guaranteed by certain of our subsidiaries, but such guarantees may be released under certain circumstances.

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ITEM 8 — CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

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Report of Independent Public Accountants

To Lear Corporation:

     We have audited the accompanying consolidated balance sheets of LEAR CORPORATION AND SUBSIDIARIES (“the Company”) as of December 31, 2001 and 2000, and the related consolidated statements of income, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

     We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

     In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2001 and 2000, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 2001 in conformity with accounting principles generally accepted in the United States.

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CONSOLIDATED BALANCE SHEETS
LEAR CORPORATION AND SUBSIDIARIES
(In millions, except share data)

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

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CONSOLIDATED STATEMENTS OF INCOME
LEAR CORPORATION AND SUBSIDIARIES
(In millions, except per share data)