LEAR CORPLEA
LEAR CORP Income Taxes Disclosure
Income Taxes
A summary of consolidated income before provision for income taxes and equity in net income of affiliates and the components of provision for income taxes is shown below (in millions):
| For the year ended December 31, | 2025 | 2024 | 2023 | ||||||||||||||
| Consolidated income before provision for income taxes and equity in net income of affiliates: | |||||||||||||||||
| Domestic | $ | (105.9) | $ | (31.7) | $ | 59.9 | |||||||||||
| Foreign | 731.0 | 764.6 | 717.3 | ||||||||||||||
| $ | 625.1 | $ | 732.9 | $ | 777.2 | ||||||||||||
| Current income tax expense: | |||||||||||||||||
| U.S. federal | $ | 50.8 | $ | 37.6 | $ | 40.7 | |||||||||||
| U.S. state and local | 8.1 | 2.4 | 2.3 | ||||||||||||||
| Foreign | 208.1 | 208.0 | 196.6 | ||||||||||||||
| Total current income tax expense | $ | 267.0 | $ | 248.0 | $ | 239.6 | |||||||||||
| Deferred income tax expense (benefit): | |||||||||||||||||
| U.S. federal | $ | (97.7) | $ | (66.0) | $ | (26.7) | |||||||||||
| U.S. state and local | (10.7) | (4.6) | (2.7) | ||||||||||||||
| Foreign | (8.6) | 13.7 | (29.4) | ||||||||||||||
| Total deferred income tax benefit: | $ | (117.0) | $ | (56.9) | $ | (58.8) | |||||||||||
| Provision for income taxes | $ | 150.0 | $ | 191.1 | $ | 180.8 | |||||||||||
The U.S. federal current income tax expense includes foreign withholding taxes related to dividends and royalties paid by the Company's foreign subsidiaries. In 2025, 2024 and 2023, the provision for income taxes includes the benefit of prior unrecognized net operating loss carryforwards of $3.3 million, $5.1 million and $8.0 million, respectively.
Effective January 1, 2025, the Company adopted ASU 2023-09, "Improvements to Income Tax Disclosures," on a prospective basis. In accordance with the categories required by the update, the reconciliation between the provision for income taxes calculated at the United States federal statutory income tax rate of 21% and the consolidated provision for income taxes is shown below (in millions and as a percentage of pretax income):
| For the year ended December 31, | 2025 | ||||||||||
| Provision for income taxes at U.S. federal statutory income tax rate | $ | 131.3 | 21.0 | % | |||||||
| Domestic federal tax effects - | |||||||||||
| Effect of cross-border tax laws | |||||||||||
| Global intangible low-taxed income, net of foreign tax credit | 2.1 | 0.3 | |||||||||
| Foreign-derived intangible income | (32.2) | (5.2) | |||||||||
| Impact of foreign branches, net of tax credits | 2.3 | 0.4 | |||||||||
| Foreign tax credits - other | (35.5) | (5.7) | |||||||||
| Other | (0.4) | (0.1) | |||||||||
| Tax credits | |||||||||||
| Research and development tax credits | (12.1) | (1.9) | |||||||||
| Changes in valuation allowances | 1.9 | 0.3 | |||||||||
| Nondeductible compensation | 9.5 | 1.5 | |||||||||
Domestic state and local income tax, net of federal income tax effect (1) | (2.6) | (0.4) | |||||||||
| Other reconciling items | (4.2) | (0.7) | |||||||||
| Foreign tax effects - | |||||||||||
| China | |||||||||||
| Withholding taxes | 32.0 | 5.1 | |||||||||
| Other | (0.6) | (0.1) | |||||||||
| Germany | |||||||||||
| Effect of changes in tax laws or rates enacted in the current period | 9.9 | 1.6 | |||||||||
| Change in valuation allowance | 6.7 | 1.1 | |||||||||
| Other | (4.3) | (0.7) | |||||||||
| Mexico | |||||||||||
| Statutory tax rate difference | 14.0 | 2.2 | |||||||||
| Change in valuation allowance | 7.1 | 1.1 | |||||||||
| Other | (2.8) | (0.4) | |||||||||
| Other jurisdictions | |||||||||||
| Withholding taxes | 34.4 | 5.6 | |||||||||
| Other | (7.7) | (1.2) | |||||||||
| Global changes in unrecognized tax benefits | 1.2 | 0.2 | |||||||||
| Consolidated provision for income taxes | $ | 150.0 | 24.0 | % | |||||||
(1) Michigan and Illinois contribute the majority of this tax effect.
A summary of the differences between the provision for income taxes calculated at the United States federal statutory income tax rate of 21% and the consolidated provision for income taxes is shown below (in millions):
| For the year ended December 31, | 2024 | 2023 | |||||||||
| Consolidated income before provision for income taxes and equity in net income of affiliates multiplied by the United States federal statutory income tax rate | $ | 153.9 | $ | 163.2 | |||||||
| Differences in income taxes on foreign earnings, losses and remittances | 54.3 | 43.2 | |||||||||
Valuation allowance adjustments (1) | (4.7) | (3.3) | |||||||||
Research and development and other tax credits (2) | 4.7 | (15.9) | |||||||||
| FDII deduction | (17.8) | (20.1) | |||||||||
U.S. tax impact of foreign earnings (3) | (12.4) | 3.4 | |||||||||
| Tax audits and assessments | 1.1 | 1.5 | |||||||||
| Other | 12.0 | 8.8 | |||||||||
| Provision for income taxes | $ | 191.1 | $ | 180.8 | |||||||
(1) Primarily reflects changes in valuation allowances on the deferred tax assets of foreign subsidiaries.
(2) 2024 includes $22.1 million of tax expense related to the write-off of a deferred tax asset in a foreign subsidiary that was fully offset by a valuation allowance.
(3) Reflects the impact on the domestic provision for income taxes related to foreign source income, including foreign branch earnings net of the applicable foreign tax credits in the general, foreign branch, GILTI and passive separate limitation categories. This amount includes the U.S. tax impact of apportioning U.S. expenses against the GILTI basket in calculating the foreign tax credit limitation resulting in no tax benefit for these expenses due to the Company's excess foreign tax credit position in the GILTI basket for 2024 and 2023.
For the years ended December 31, 2025, 2024 and 2023, income in foreign jurisdictions with tax holidays was $53.3 million, $64.5 million and $48.4 million, respectively. Such tax holidays generally expire from 2025 through 2036.
Deferred income taxes represent temporary differences in the recognition of certain items for financial reporting and income tax purposes. A summary of the components of the net deferred income tax asset is shown below (in millions):
| December 31, | 2025 | 2024 | |||||||||
| Deferred income tax assets (liabilities): | |||||||||||
| Tax loss carryforwards | $ | 424.2 | $ | 385.2 | |||||||
| Tax credit carryforwards | 156.2 | 225.8 | |||||||||
| Retirement benefit plans | 22.6 | 20.9 | |||||||||
| Accrued liabilities | 299.2 | 257.1 | |||||||||
| Current asset basis differences | 59.7 | 57.2 | |||||||||
Long-term asset basis differences (1) | 43.3 | 23.8 | |||||||||
| Deferred compensation | 30.8 | 29.3 | |||||||||
| Capitalized engineering, research and development | 402.1 | 251.7 | |||||||||
| Undistributed earnings of foreign subsidiaries | (95.5) | (92.8) | |||||||||
| Derivative instruments and hedging activities | (39.2) | 29.9 | |||||||||
| Other | 2.3 | — | |||||||||
| Net deferred income tax asset before valuation allowance | 1,305.7 | 1,188.1 | |||||||||
| Valuation allowance | (451.7) | (399.4) | |||||||||
| Net deferred income tax asset | $ | 854.0 | $ | 788.7 | |||||||
(1) Included in the long-term asset basis differences for the years ended December 31, 2025 and 2024, are deferred tax assets of $133.0 million and $132.0 million, respectively, related to lease obligations and deferred tax liabilities of $133.0 million and $132.0 million, respectively, related to right-of-use assets.
As of December 31, 2025 and 2024, the valuation allowance with respect to the Company's deferred tax assets was $451.7 million and $399.4 million, respectively, a net increase of $52.3 million.
Valuation allowances are determined separately for each tax-paying component (i.e., individual entity or group of entities that are consolidated for tax purposes) in each tax jurisdiction. A valuation allowance is established to reduce a deferred tax asset to the amount expected to be realized when management considers it more likely than not that all, or a portion of, a deferred tax asset will not be realized. The determination as to whether a deferred tax asset will be realized is based on an evaluation of
positive and negative evidence, such as cumulative losses in recent years. When measuring cumulative losses in recent years, the Company uses a rolling three-year period of pretax book income, adjusted for permanent differences between book and taxable income and certain other items. As of December 31, 2025, the Company continues to maintain a U.S. valuation allowance of $38.0 million, primarily related to U.S. state and local deferred tax assets that, due to their nature, are not likely to be realized. In addition, the Company continues to maintain a valuation allowance of $413.7 million with respect to its deferred tax assets in several international jurisdictions.
The classification of the net deferred income tax asset is shown below (in millions):
| December 31, | 2025 | 2024 | |||||||||
| Long-term deferred income tax assets | $ | 964.7 | $ | 896.4 | |||||||
| Long-term deferred income tax liabilities | (110.7) | (107.7) | |||||||||
| Net deferred income tax asset | $ | 854.0 | $ | 788.7 | |||||||
As of December 31, 2025, deferred income taxes have not been provided on the undistributed earnings of the Company's foreign subsidiaries since these earnings will not be taxable upon repatriation to the United States. These earnings will be primarily treated as previously taxed income from either the one-time transition tax or GILTI, or they will be offset with a 100% dividend received deduction. However, the Company continues to provide a deferred tax liability for foreign withholding tax that will be incurred with respect to the undistributed foreign earnings that are not permanently reinvested.
As of December 31, 2025, the Company had tax loss carryforwards of $1.8 billion. Of the total tax loss carryforwards, $1.6 billion have no expiration date, and $213.6 million expire between 2026 and 2042. In addition, the Company had tax credit carryforwards of $156.2 million, comprised principally of U.S. research and development credits of $143.2 million that expire between 2029 and 2045 and other tax credits primarily in international jurisdictions of $13.0 million that generally expire between 2026 and 2043.
As of December 31, 2025, 2024 and 2023, the Company's gross unrecognized tax benefits were $36.9 million, $34.0 million and $33.1 million (excluding interest and penalties), respectively, which are recorded in other long-term liabilities in the accompanying consolidated balance sheets. All of the Company's gross unrecognized tax benefits, if recognized, would affect the Company's effective tax rate.
A summary of the changes in gross unrecognized tax benefits is shown below (in millions):
| For the year ended December 31, | 2025 | 2024 | 2023 | ||||||||||||||
| Balance at beginning of period | $ | 34.0 | $ | 33.1 | $ | 32.7 | |||||||||||
| Additions based on tax positions related to current year | 6.3 | 6.6 | 5.1 | ||||||||||||||
| Statute expirations | (4.7) | (4.9) | (5.1) | ||||||||||||||
| Foreign currency translation | 1.3 | (0.8) | 0.4 | ||||||||||||||
| Balance at end of period | $ | 36.9 | $ | 34.0 | $ | 33.1 | |||||||||||
The Company recognizes interest and penalties with respect to unrecognized tax benefits as income tax expense. As of December 31, 2025, 2024 and 2023, the Company had recorded gross reserves of $11.9 million, $10.9 million and $11.6 million, respectively, related to interest and penalties, all of which, if recognized, would affect the Company's effective tax rate.
The Company considers its significant tax jurisdictions to include China, Germany, Mexico, Morocco, Spain, the United Kingdom and the United States. The Company or its subsidiaries generally remain subject to income tax examination in certain U.S. state and local jurisdictions for years after 2020. Further, the Company or its subsidiaries remain subject to income tax examinations in Spain for years after 2007, in Mexico for years after 2017, in Germany for years after 2018, in China and Morocco for years after 2019, in the United Kingdom for years after 2021, and in the United States generally for years after 2023.
A summary of income taxes paid, net of refunds, is shown below (in millions):
| For the year ended December 31, | 2025 | ||||
| Federal | $ | (0.3) | |||
| State | 4.5 | ||||
| Foreign | |||||
| Canada | 17.6 | ||||
| China | 113.4 | ||||
| Czech Republic | 15.1 | ||||
| India | 14.5 | ||||
| Mexico | 45.3 | ||||
| All other foreign | 66.7 | ||||
| $ | 276.8 | ||||
2025 Budget Reconciliation Bill
In July 2025, the 2025 Budget Reconciliation Act or H.R. 1 (the "Act") was signed into law. The Act includes a broad range of tax reform provisions, including extending and modifying various provisions of the Tax Cuts and Jobs Act and expanding certain incentives in the Inflation Reduction Act while accelerating the phase-out of other incentives. The legislation has multiple effective dates, with certain provisions effective in 2025 and other provisions effective in 2026 and subsequent years. The Act did not have a significant impact on the Company's 2025 consolidated financial statements. Further, the Act is not expected to have a significant impact on the Company's 2026 consolidated financial statements, based on the guidance issued to date.
Excise Taxes
For the year ended December 31, 2025, 2024 and 2023, the Company incurred $3.1 million, $3.8 million and $2.9 million, respectively, of excise taxes on its share repurchases, which is included in repurchases of shares of common stock in the accompanying consolidated statements of equity.
About Income Taxes Disclosures
The income tax disclosure reveals how much a company actually pays in taxes versus what the statutory rate would predict. Analysts focus on the effective tax rate (ETR) reconciliation, which breaks down every item driving the gap between the 21% federal rate and the company's reported ETR — including R&D credits, foreign rate differentials, and state taxes. Deferred tax assets (DTAs) and their valuation allowances signal management's confidence in future profitability: a rising allowance suggests the company doubts it can use accumulated tax benefits. Uncertain tax benefit (UTB) reserves quantify exposure to IRS challenges on aggressive positions.
Key signals to watch: sudden ETR drops without clear operational reasons, large increases in valuation allowances, growing UTB balances, and significant unremitted foreign earnings. Post-TCJA, pay attention to GILTI and BEAT provisions that affect multinational tax structures. Compare the cash taxes paid (from the cash flow statement) against the income tax provision to gauge earnings quality.