|
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|
|
Item 8.
|
Financial Statements and Supplementary Data
|
|
|
|
|
|
|
|
|
|
Index to Consolidated Financial Statements
|
|
Page
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
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|
|
Adient plc | Form 10-K | 52
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of Adient plc
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial position of Adient plc and its subsidiaries (the “Company”) as of September 30, 2020 and 2019, and the related consolidated statements of income (loss), of comprehensive income (loss), of shareholders' equity and of cash flows for each of the three years in the period ended September 30, 2020, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of September 30, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2020 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2020, based on criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 1 to the consolidated financial statements, the Company changed the manner in which it accounts for leases on October 1, 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based
Adient plc | Form 10-K | 53
on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that
(i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Americas and EMEA Reporting Units Goodwill Impairment Assessments
As described in Notes 1 and 6 to the consolidated financial statements, the goodwill associated with the Americas and EMEA reporting units was $606 million and $368 million, respectively, as of September 30, 2020. Management reviews goodwill for impairment during the fourth fiscal quarter or more frequently if events or changes in circumstances indicate the asset might be impaired. Due to the COVID-19 pandemic and the significant interruption it has caused to the Company’s operations, management tested goodwill for impairment for each of its reporting units for the quarter ended March 31, 2020. Fair value is estimated using an income approach. This method requires management to make assumptions about future cash flows, including estimates of revenue and operating margins, and the discount rates. As disclosed by management, the fair value of the Americas and EMEA reporting units exceeded 20% of its respective carrying value as of September 30, 2020.
The principal considerations for our determination that performing procedures relating to the Americas and EMEA reporting units goodwill impairment assessments is a critical audit matter are the significant judgment by management when developing the fair value measurement of the reporting units, which led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions for estimates of revenue and discount rates for the second quarter impairment assessment and revenue and operating margins, and the discount rates for the annual impairment assessment. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessments, including controls over the valuation of the Company’s reporting units. These procedures also included, among others, (i) testing management’s process for developing the fair value estimates, (ii) evaluating the appropriateness of the income approach, (iii) testing the completeness and accuracy of underlying data used, and (iv) evaluating the reasonableness of significant assumptions used by management related to estimates of revenue and discount rates for the second quarter impairment assessment and revenue and operating margins, and the discount rates for the annual impairment assessment. Evaluating management’s assumptions related to estimates of revenue for the second quarter impairment assessment and revenue and operating margins for the annual impairment assessment involved evaluating whether the assumptions used by management were reasonable considering (i) the current and past performance of the reporting units, (ii) the consistency with relevant industry data, and (iii) whether these assumptions were consistent with evidence obtained in
Adient plc | Form 10-K | 54
other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of the income approach used by the Company and the reasonableness of the discount rates.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
November 30, 2020
We have served as the Company’s auditor since 1957.
Adient plc | Form 10-K | 55
Adient plc
Consolidated Statements of Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions, except per share data)
|
|
2020
|
|
2019
|
|
2018
|
Net sales
|
|
$
|
12,670
|
|
|
$
|
16,526
|
|
|
$
|
17,439
|
|
Cost of sales
|
|
12,078
|
|
|
15,725
|
|
|
16,535
|
|
Gross profit
|
|
592
|
|
|
801
|
|
|
904
|
|
Selling, general and administrative expenses
|
|
558
|
|
|
671
|
|
|
730
|
|
Loss on business divestitures - net
|
|
13
|
|
|
—
|
|
|
—
|
|
Restructuring and impairment costs
|
|
238
|
|
|
176
|
|
|
1,181
|
|
Equity income (loss)
|
|
22
|
|
|
275
|
|
|
(13)
|
|
Earnings (loss) before interest and income taxes
|
|
(195)
|
|
|
229
|
|
|
(1,020)
|
|
Net financing charges
|
|
220
|
|
|
182
|
|
|
144
|
|
Other pension expense (income)
|
|
14
|
|
|
45
|
|
|
(43)
|
|
Income (loss) before income taxes
|
|
(429)
|
|
|
2
|
|
|
(1,121)
|
|
Income tax provision (benefit)
|
|
57
|
|
|
410
|
|
|
480
|
|
Net income (loss)
|
|
(486)
|
|
|
(408)
|
|
|
(1,601)
|
|
Income (loss) attributable to noncontrolling interests
|
|
61
|
|
|
83
|
|
|
84
|
|
Net income (loss) attributable to Adient
|
|
$
|
(547)
|
|
|
$
|
(491)
|
|
|
$
|
(1,685)
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
Basic
|
|
$
|
(5.83)
|
|
|
$
|
(5.25)
|
|
|
$
|
(18.06)
|
|
Diluted
|
|
$
|
(5.83)
|
|
|
$
|
(5.25)
|
|
|
$
|
(18.06)
|
|
|
|
|
|
|
|
|
Shares used in computing earnings per share:
|
|
|
|
|
|
|
Basic
|
|
93.8
|
|
|
93.6
|
|
|
93.3
|
|
Diluted
|
|
93.8
|
|
|
93.6
|
|
|
93.3
|
|
The accompanying notes are an integral part of the consolidated financial statements.
Adient plc | Form 10-K | 56
Adient plc
Consolidated Statements of Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions)
|
|
2020
|
|
2019
|
|
2018
|
Net income (loss)
|
|
$
|
(486)
|
|
|
$
|
(408)
|
|
|
$
|
(1,601)
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
(69)
|
|
|
(35)
|
|
|
(117)
|
|
Realized and unrealized gains (losses) on derivatives
|
|
(20)
|
|
|
(1)
|
|
|
(10)
|
|
Pension and postretirement plans
|
|
—
|
|
|
(2)
|
|
|
1
|
|
Other comprehensive income (loss)
|
|
(89)
|
|
|
(38)
|
|
|
(126)
|
|
Total comprehensive income (loss)
|
|
(575)
|
|
|
(446)
|
|
|
(1,727)
|
|
Comprehensive income (loss) attributable to noncontrolling interests
|
|
68
|
|
|
83
|
|
|
92
|
|
Comprehensive income (loss) attributable to Adient
|
|
$
|
(643)
|
|
|
$
|
(529)
|
|
|
$
|
(1,819)
|
|
The accompanying notes are an integral part of the consolidated financial statements.
Adient plc | Form 10-K | 57
Adient plc
Consolidated Statements of Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
(in millions, except share and per share data)
|
|
2020
|
|
2019
|
Assets
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
1,692
|
|
|
$
|
924
|
|
Accounts receivable, less allowance for doubtful accounts of $10 and $14, respectively
|
|
1,641
|
|
|
1,905
|
|
Inventories
|
|
685
|
|
|
793
|
|
Assets held for sale
|
|
43
|
|
|
—
|
|
Other current assets
|
|
421
|
|
|
494
|
|
Current assets
|
|
4,482
|
|
|
4,116
|
|
Property, plant and equipment - net
|
|
1,581
|
|
|
1,671
|
|
Goodwill
|
|
2,057
|
|
|
2,150
|
|
Other intangible assets - net
|
|
443
|
|
|
405
|
|
Investments in partially-owned affiliates
|
|
707
|
|
|
1,399
|
|
Assets held for sale
|
|
27
|
|
|
—
|
|
Other noncurrent assets
|
|
964
|
|
|
601
|
|
Total assets
|
|
$
|
10,261
|
|
|
$
|
10,342
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
Short-term debt
|
|
$
|
202
|
|
|
$
|
22
|
|
Current portion of long-term debt
|
|
8
|
|
|
8
|
|
Accounts payable
|
|
2,179
|
|
|
2,709
|
|
Accrued compensation and benefits
|
|
374
|
|
|
364
|
|
Liabilities held for sale
|
|
46
|
|
|
—
|
|
Restructuring reserve
|
|
237
|
|
|
123
|
|
Other current liabilities
|
|
773
|
|
|
609
|
|
Current liabilities
|
|
3,819
|
|
|
3,835
|
|
Long-term debt
|
|
4,097
|
|
|
3,708
|
|
|
|
|
|
|
Pension and postretirement benefits
|
|
145
|
|
|
151
|
|
Other noncurrent liabilities
|
|
622
|
|
|
408
|
|
Long-term liabilities
|
|
4,864
|
|
|
4,267
|
|
Commitments and Contingencies (Note 20)
|
|
|
|
|
Redeemable noncontrolling interests
|
|
43
|
|
|
51
|
|
Preferred shares issued, par value $0.001; 100,000,000 shares authorized
zero shares issued and outstanding at September 30, 2020
|
|
—
|
|
|
—
|
|
Ordinary shares issued, par value $0.001; 500,000,000 shares authorized
93,893,569 shares issued and outstanding at September 30, 2020
|
|
—
|
|
|
—
|
|
Additional paid-in capital
|
|
3,974
|
|
|
3,962
|
|
Retained earnings (accumulated deficit)
|
|
(2,096)
|
|
|
(1,545)
|
|
Accumulated other comprehensive income (loss)
|
|
(665)
|
|
|
(569)
|
|
Shareholders' equity attributable to Adient
|
|
1,213
|
|
|
1,848
|
|
Noncontrolling interests
|
|
322
|
|
|
341
|
|
Total shareholders' equity
|
|
1,535
|
|
|
2,189
|
|
Total liabilities and shareholders' equity
|
|
$
|
10,261
|
|
|
$
|
10,342
|
|
The accompanying notes are an integral part of the consolidated financial statements.
Adient plc | Form 10-K | 58
Adient plc
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
(in millions)
|
|
2020
|
|
2019
|
|
2018
|
Operating Activities
|
|
|
|
|
|
|
Net income (loss) attributable to Adient
|
|
$
|
(547)
|
|
|
$
|
(491)
|
|
|
$
|
(1,685)
|
|
Income attributable to noncontrolling interests
|
|
61
|
|
|
83
|
|
|
84
|
|
Net income (loss)
|
|
(486)
|
|
|
(408)
|
|
|
(1,601)
|
|
Adjustments to reconcile net income (loss) to cash provided (used) by operating activities:
|
|
|
|
|
Depreciation
|
|
295
|
|
|
278
|
|
|
400
|
|
Amortization of intangibles
|
|
37
|
|
|
40
|
|
|
47
|
|
Pension and postretirement benefit expense (benefit)
|
|
23
|
|
|
53
|
|
|
(36)
|
|
Pension and postretirement contributions, net
|
|
(19)
|
|
|
(19)
|
|
|
11
|
|
Equity in earnings of partially-owned affiliates, net of dividends received (includes purchase accounting amortization of $3, $4 and $22, respectively)
|
|
24
|
|
|
(55)
|
|
|
(55)
|
|
Impairment of nonconsolidated partially owned affiliate
|
|
231
|
|
|
—
|
|
|
358
|
|
|
|
|
|
|
|
|
Deferred income taxes
|
|
(33)
|
|
|
288
|
|
|
344
|
|
Non-cash restructuring and impairment charges
|
|
53
|
|
|
78
|
|
|
1,134
|
|
Loss (gain) on divestitures - net
|
|
13
|
|
|
—
|
|
|
—
|
|
Equity-based compensation
|
|
15
|
|
|
20
|
|
|
47
|
|
Other
|
|
24
|
|
|
23
|
|
|
11
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
Receivables
|
|
190
|
|
|
131
|
|
|
73
|
|
Inventories
|
|
78
|
|
|
8
|
|
|
(106)
|
|
Other assets
|
|
140
|
|
|
150
|
|
|
46
|
|
Restructuring reserves
|
|
(80)
|
|
|
(108)
|
|
|
(135)
|
|
Accounts payable and accrued liabilities
|
|
(251)
|
|
|
(191)
|
|
|
143
|
|
Accrued income taxes
|
|
(8)
|
|
|
20
|
|
|
(2)
|
|
Cash provided (used) by operating activities
|
|
246
|
|
|
308
|
|
|
679
|
|
Investing Activities
|
|
|
|
|
|
|
Capital expenditures
|
|
(326)
|
|
|
(468)
|
|
|
(536)
|
|
Sale of property, plant and equipment
|
|
15
|
|
|
68
|
|
|
53
|
|
Settlement of cross-currency interest rate swaps
|
|
10
|
|
|
10
|
|
|
—
|
|
|
|
|
|
|
|
|
Business divestitures
|
|
499
|
|
|
—
|
|
|
—
|
|
Changes in long-term investments
|
|
(37)
|
|
|
3
|
|
|
(4)
|
|
|
|
|
|
|
|
|
Other
|
|
5
|
|
|
4
|
|
|
—
|
|
Cash provided (used) by investing activities
|
|
166
|
|
|
(383)
|
|
|
(487)
|
|
Financing Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (decrease) in short-term debt
|
|
(16)
|
|
|
17
|
|
|
(31)
|
|
Increase (decrease) in long-term debt
|
|
600
|
|
|
1,600
|
|
|
—
|
|
Repayment of long-term debt
|
|
(108)
|
|
|
(1,204)
|
|
|
(2)
|
|
Debt financing costs
|
|
(10)
|
|
|
(47)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash dividends
|
|
—
|
|
|
(26)
|
|
|
(103)
|
|
Dividends paid to noncontrolling interests
|
|
(71)
|
|
|
(62)
|
|
|
(74)
|
|
Formation of consolidated joint venture
|
|
—
|
|
|
28
|
|
|
—
|
|
Other
|
|
(2)
|
|
|
(3)
|
|
|
(3)
|
|
Cash provided (used) by financing activities
|
|
393
|
|
|
303
|
|
|
(213)
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
(34)
|
|
|
9
|
|
|
(1)
|
|
Increase (decrease) in cash and cash equivalents, including cash classified within current assets held for sale
|
|
771
|
|
|
237
|
|
|
(22)
|
|
Less: cash classified within current assets held for sale
|
|
(3)
|
|
|
—
|
|
|
—
|
|
Increase (decrease) in cash and cash equivalents
|
|
768
|
|
|
237
|
|
|
(22)
|
|
Cash and cash equivalents at beginning of period
|
|
924
|
|
|
687
|
|
|
709
|
|
Cash and cash equivalents at end of period
|
|
$
|
1,692
|
|
|
$
|
924
|
|
|
$
|
687
|
|
The accompanying notes are an integral part of the consolidated financial statements.
Adient plc | Form 10-K | 59
Adient plc
Consolidated Statements of Shareholders' Equity
|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Ordinary Shares
|
|
Additional Paid-in Capital
|
|
Retained Earnings
(Accumulated Deficit)
|
|
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Shareholders' Equity Attributable
to Adient
|
|
Shareholders' Equity Attributable to Noncontrolling Interests
|
|
Total Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
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|
|
|
|
|
|
|
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|
|
|
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|
|
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|
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|
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|
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|
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|
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|
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|
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|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
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|
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|
|
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|
|
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|
|
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2017
|
|
$
|
—
|
|
|
$
|
3,942
|
|
|
$
|
734
|
|
|
|
|
$
|
(397)
|
|
|
$
|
4,279
|
|
|
$
|
313
|
|
|
$
|
4,592
|
|
Net income (loss)
|
|
—
|
|
|
—
|
|
|
(1,685)
|
|
|
|
|
—
|
|
|
(1,685)
|
|
|
60
|
|
|
(1,625)
|
|
Foreign currency translation adjustments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
(125)
|
|
|
(125)
|
|
|
7
|
|
|
(118)
|
|
Realized and unrealized gains (losses) on derivatives
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
(10)
|
|
|
(10)
|
|
|
—
|
|
|
(10)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared ($0.825 per share)
|
|
—
|
|
|
—
|
|
|
(77)
|
|
|
|
|
—
|
|
|
(77)
|
|
|
—
|
|
|
(77)
|
|
Dividends attributable to noncontrolling interests
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
(56)
|
|
|
(56)
|
|
Change in noncontrolling interest share
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Share based compensation and other
|
|
—
|
|
|
9
|
|
|
—
|
|
|
|
|
1
|
|
|
10
|
|
|
—
|
|
|
10
|
|
Balance at September 30, 2018
|
|
$
|
—
|
|
|
$
|
3,951
|
|
|
$
|
(1,028)
|
|
|
|
|
$
|
(531)
|
|
|
$
|
2,392
|
|
|
$
|
325
|
|
|
$
|
2,717
|
|
Net income (loss)
|
|
—
|
|
|
—
|
|
|
(491)
|
|
|
|
|
—
|
|
|
(491)
|
|
|
53
|
|
|
(438)
|
|
Foreign currency translation adjustments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
(35)
|
|
|
(35)
|
|
|
(3)
|
|
|
(38)
|
|
Realized and unrealized gains (losses) on derivatives
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
(1)
|
|
|
(1)
|
|
|
—
|
|
|
(1)
|
|
Employee retirement plans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
(2)
|
|
|
(2)
|
|
|
—
|
|
|
(2)
|
|
Dividends declared ($0.275 per share)
|
|
—
|
|
|
—
|
|
|
(26)
|
|
|
|
|
—
|
|
|
(26)
|
|
|
—
|
|
|
(26)
|
|
Dividends attributable to noncontrolling interests
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
(61)
|
|
|
(61)
|
|
Change in noncontrolling interest share
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
28
|
|
|
28
|
|
Share based compensation and other
|
|
—
|
|
|
11
|
|
|
—
|
|
|
|
|
—
|
|
|
11
|
|
|
(1)
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2019
|
|
$
|
—
|
|
|
$
|
3,962
|
|
|
$
|
(1,545)
|
|
|
|
|
$
|
(569)
|
|
|
$
|
1,848
|
|
|
$
|
341
|
|
|
$
|
2,189
|
|
Net income (loss)
|
|
—
|
|
|
—
|
|
|
(547)
|
|
|
|
|
—
|
|
|
(547)
|
|
|
42
|
|
|
(505)
|
|
Foreign currency translation adjustments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
(76)
|
|
|
(76)
|
|
|
11
|
|
|
(65)
|
|
Realized and unrealized gains (losses) on derivatives
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
(20)
|
|
|
(20)
|
|
|
—
|
|
|
(20)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends attributable to noncontrolling interests
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
(54)
|
|
|
(54)
|
|
Change in noncontrolling interest share
|
|
—
|
|
|
—
|
|
|
—
|
|
|
|
|
—
|
|
|
—
|
|
|
(18)
|
|
|
(18)
|
|
Share based compensation and other
|
|
—
|
|
|
12
|
|
|
—
|
|
|
|
|
—
|
|
|
12
|
|
|
—
|
|
|
12
|
|
Adjustments from adoption of a new standard
|
|
—
|
|
|
—
|
|
|
(4)
|
|
|
|
|
—
|
|
|
(4)
|
|
|
—
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2020
|
|
$
|
—
|
|
|
$
|
3,974
|
|
|
$
|
(2,096)
|
|
|
|
|
$
|
(665)
|
|
|
$
|
1,213
|
|
|
$
|
322
|
|
|
$
|
1,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of the consolidated financial statements.
Adient plc | Form 10-K | 60
Adient plc
Notes to Consolidated Financial Statements
1. Basis of Presentation and Summary of Significant Accounting Policies
On October 31, 2016, Adient plc ("Adient") became an independent company as a result of the separation of the automotive seating and interiors business (the "separation") from Johnson Controls International plc ("the former Parent"). Adient was incorporated under the laws of Ireland in fiscal 2016 for the purpose of holding these businesses. Adient's ordinary shares began trading "regular-way" under the ticker symbol "ADNT" on the New York Stock Exchange on October 31, 2016. Upon becoming an independent company, the capital structure of Adient consisted of 500 million authorized ordinary shares and 100 million authorized preferred shares (par value of $0.001 per ordinary and preferred share). The number of Adient ordinary shares issued on October 31, 2016 was 93,671,810.
Adient is a global leader in the automotive seating supplier industry. Adient has a leading market position in the Americas, Europe and China, and has longstanding relationships with the largest global original equipment manufacturers, or OEMs, in the automotive space. Adient's proprietary technologies extend into virtually every area of automotive seating solutions, including complete seating systems, frames, mechanisms, foam, head restraints, armrests and trim covers. Adient is an independent seat supplier with global scale and the capability to design, develop, engineer, manufacture, and deliver complete seat systems and components in every major automotive producing region in the world.
The consolidated financial statements of Adient have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"). During fiscal 2020, Adient faced an unprecedented situation with the COVID-19 pandemic and the related significant interruption it had on Adient's operations. Adient's China facilities (including both consolidated and non-consolidated joint ventures) were effectively shut down during the lunar New Year festival (at the end of January 2020) and did not return to operations until the end of March 2020. All of Adient's plants in China are currently operating and all of its customer plants in China have re-opened. Beginning in late March 2020, Adient experienced the shutdown of effectively all of its facilities in the Americas and European regions coinciding with the shutdown of its customer facilities in those regions. Adient also experienced the shutdown of approximately 50% of its plants in Asia (outside China) during late March and early April. During May and June 2020, production started to resume in the Americas, European and Asia (outside China) regions concurrent with Adient's customers resuming operations and production continued to ramp up throughout Adient’s fiscal fourth quarter in all regions in line with customer production. As of September 30, 2020, virtually all of Adient's plants have resumed production, although production rates are well below pre-pandemic levels.
Principles of Consolidations
Adient consolidates its wholly-owned subsidiaries and those entities in which it has a controlling interest. Investments in partially-owned affiliates are accounted for by the equity method when Adient's interest exceeds 20% and does not have a controlling interest.
During the second quarter of fiscal 2018, Adient recorded expense of $8 million for an out of period adjustment, primarily impacting cost of goods sold, to correct a prior period error related to an unrecorded obligation. Adient has concluded that this adjustment was not material to previously reported financial statements nor to full year fiscal 2018 results.
Consolidated VIEs
Based upon the criteria set forth in the Financial Accounting Standards Board (the FASB) Accounting Standards Codification (ASC) 810, "Consolidation," Adient has determined that it was the primary beneficiary in two variable interest entities (VIEs) for the reporting periods ended September 30, 2020 and 2019, respectively, as Adient absorbs significant economics of the entities and has the power to direct the activities that are considered most significant to the entities.
The two VIEs manufacture seating products in North America for the automotive industry. Adient funds the entities' short-term liquidity needs through revolving credit facilities and has the power to direct the activities that are considered most significant to the entities through its key customer supply relationships.
Adient plc | Form 10-K | 61
The carrying amounts and classification of assets (none of which are restricted) and liabilities included in Adient's consolidated statements of financial position for the consolidated VIEs are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
(in millions)
|
|
2020
|
|
2019
|
Current assets
|
|
$
|
217
|
|
|
$
|
236
|
|
Noncurrent assets
|
|
74
|
|
|
40
|
|
Total assets
|
|
$
|
291
|
|
|
$
|
276
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
204
|
|
|
$
|
235
|
|
Noncurrent liabilities
|
|
10
|
|
|
—
|
|
Total liabilities
|
|
$
|
214
|
|
|
$
|
235
|
|
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The consolidated financial statements reflect management's estimates as of the reporting date. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The fair values of cash and cash equivalents, accounts receivable, short-term debt and accounts payable approximate their carrying values. See Note 10, "Derivative Instruments and Hedging Activities," and Note 11, "Fair Value Measurements," of the notes to consolidated financial statements for fair value of financial instruments, including derivative instruments and hedging activities.
Cash and Cash Equivalents
Adient considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash is managed by legal entity, with cash pooling agreements in place for all participating entities on a global basis, as applicable.
Receivables
Receivables consist of amounts billed and currently due from customers and revenues that have been recognized for accounting purposes but not yet billed to customers. Adient extends credit to customers in the normal course of business and maintains an allowance for doubtful accounts resulting from the inability or unwillingness of customers to make required payments. The allowance for doubtful accounts is based on historical experience, existing economic conditions and any specific customer collection issues Adient has identified. Adient enters into supply chain financing programs in certain foreign jurisdictions to sell accounts receivable without recourse to third-party financial institutions. Sales of accounts receivable are reflected as a reduction of accounts receivable on the consolidated statements of financial position and the proceeds are included in cash flows from operating activities in the consolidated statements of cash flows.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out ("FIFO") method. Finished goods and work-in-process inventories include material, labor and manufacturing overhead costs.
Pre-Production Costs Related to Long-Term Supply Arrangements
Adient's policy for engineering, research and development, and other design and development costs related to products that will be sold under long-term supply arrangements requires such costs to be expensed as incurred or capitalized if reimbursement from the customer is contractually assured. Income related to recovery of these costs is recorded within selling, general and
Adient plc | Form 10-K | 62
administrative expense in the consolidated statements of income. At September 30, 2020 and 2019, Adient recorded within the consolidated statements of financial position $293 million and $303 million, respectively, of engineering and research and development costs for which customer reimbursement is contractually assured. The reimbursable costs are recorded in other current assets if reimbursement will occur in less than one year and in other noncurrent assets if reimbursement will occur beyond one year. At September 30, 2020, Adient had $85 million and $208 million of reimbursable costs recorded in current and noncurrent assets, respectively. At September 30, 2019, Adient had $117 million and $186 million of reimbursable costs recorded in current and noncurrent assets, respectively.
Costs for molds, dies and other tools used to make products that will be sold under long-term supply arrangements are capitalized within property, plant and equipment if Adient has title to the assets or has the non-cancelable right to use the assets during the term of the supply arrangement. Capitalized items, if specifically designed for a supply arrangement, are amortized over the term of the arrangement; otherwise, amounts are amortized over the estimated useful lives of the assets. The carrying values of assets capitalized in accordance with the foregoing policy are periodically reviewed for impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. At September 30, 2020 and 2019, approximately $51 million and $60 million, respectively, of costs for molds, dies and other tools were capitalized within property, plant and equipment which represented assets to which Adient had title. In addition, at September 30, 2020, Adient recorded within the consolidated statements of financial position in other current and noncurrent assets $78 million and $6 million, respectively, of costs for molds, dies and other tools for which customer reimbursement is contractually assured. At September 30, 2019, Adient recorded within the consolidated statements of financial position in other current and noncurrent assets $101 million and $28 million, respectively, of costs for molds, dies and other tools for which customer reimbursement is contractually assured.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the respective assets using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes. The estimated useful lives range from 3 to 40 years for buildings and improvements and from 3 to 15 years for machinery and equipment.
Leases
On October 1, 2019, Adient adopted Accounting Standards Codification Topic 842, "Leases" (ASC 842) using the modified retrospective transition approach and electing the package of practical expedients. This resulted in the recognition of right-of-use (ROU) assets of $380 million and corresponding operating lease liabilities of $384 million. The adoption date ROU asset balance was adjusted by $4 million, reflecting impairment of ROU assets for certain real estate leases (within the North America and Europe asset groups) of which the Company determined the carrying value of the initial operating lease ROU asset exceeded its fair value. The adjustment was recorded as an increase to the opening accumulated deficits. The adoption of ASC 842 did not have any significant impact on the consolidated statement of income or cash flows.
Operating lease ROU assets and liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement dates. ROU assets also include payments made in advance and exclude lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that such options are to be exercised. Adient uses its incremental borrowing rate, which is the rate of interest it would pay to borrow on a collateralized basis over a similar term to the lease in a similar economic environment, for discounting lease consideration as most lease agreements do not provide an implicit rate. Refer to Note 8, “Leases” of the notes to consolidated financial statements for more information regarding Adient’s leases.
Goodwill and Other Intangible Assets
Goodwill reflects the cost of an acquisition in excess of the fair values assigned to identifiable net assets acquired. Adient reviews goodwill for impairment during the fourth fiscal quarter or more frequently if events or changes in circumstances indicate the asset might be impaired. Adient performs impairment reviews for its reporting units, which have been determined to be Adient's reportable segments using a fair value method based on management's judgments and assumptions or third party valuations. The fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. In estimating the fair value, Adient primarily uses an income approach utilizing discounted cash flow analyses. Adient also uses a market approach utilizing published multiples of earnings of comparable entities with similar operational and economic characteristics to further support the fair value estimates. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value
Adient plc | Form 10-K | 63
Measurement." The estimated fair value is then compared with the carrying amount of the reporting unit, including recorded goodwill. An impairment is recorded to the extent the estimated fair value is below the carrying amount of the reporting unit.
Intangible assets with definite lives are amortized over their estimated useful lives and are subject to impairment testing if events or changes in circumstances indicate that the asset might be impaired.
Impairment of Long-Lived Assets
Adient reviews long-lived assets, including property, plant and equipment and other intangible assets with definite lives, for impairment whenever events or changes in circumstances indicate that the asset's carrying amount may not be recoverable. Adient conducts its long-lived asset impairment analyses in accordance with ASC 360-10-15, "Impairment or Disposal of Long-Lived Assets." ASC 360-10-15 requires Adient to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals. Refer to Note 16, "Impairment of Long-Lived Assets," of the notes to consolidated financial statements for information regarding the results of Adient's impairment analysis.
Impairment of Investments in Partially-Owned Affiliates
Adient monitors its investments in partially-owned affiliates for indicators of other-than-temporary declines in value on an ongoing basis. If Adient determines that an other-than-temporary decline in value has occurred, it recognizes an impairment loss, which is measured as the difference between the recorded book value and the fair value of the investment. Fair value is generally determined using an income approach based on discounted cash flows or negotiated transaction values. Refer to Note 19, "Nonconsolidated Partially-Owned Affiliates," of the notes to consolidated financial statements for more information on Adient’s partially-owned affiliates.
Revenue Recognition
Adient provides production and service parts to its customers under awarded multi-year programs. The duration of a program is generally consistent with the life cycle of a vehicle, however, an awarded program does not reach the level of a performance obligation until Adient receives either a purchase order and/or a materials release from the customer for a specific number of parts at a specified price, at which point an enforceable contract exists. Sales revenue is recognized at the point in time when parts are shipped and control has transferred to the customer, at which point an enforceable right to payment exists. Contracts may provide for annual price reductions over the production life of the awarded program, and prices are adjusted on an ongoing basis to reflect changes in product content/cost and other commercial factors. The amount of revenue recognized reflects the consideration that Adient expects to be entitled to in exchange for such products based on purchase orders, annual price reductions and ongoing price adjustments. Refer to Note 2, "Revenue Recognition," of the notes to consolidated financial statements for information on Adient's revenue recognition.
Customers
Essentially all of Adient's sales are to the automotive industry. Adient's most significant customers include Fiat Chrysler Automobiles N.V. and Volkswagen Group which comprised 10% and 10% of consolidated net sales, respectively, in fiscal 2020, Fiat Chrysler Automobiles N.V. and Volkswagen Group which comprised 11% and 9% of consolidated net sales, respectively, in fiscal 2019 and Fiat Chrysler Automobiles N.V. and Volkswagen Group which comprised 11% and 10% of consolidated net sales in fiscal 2018.
Research and Development Costs
Expenditures for research activities relating to product development and improvement (other than those expenditures that are contractually guaranteed for reimbursement from the customer) are charged against income as incurred and included within selling, general and administrative expenses in the consolidated statements of income. Such expenditures for the years ended September 30, 2020, 2019 and 2018 were $370 million, $454 million and $513 million, respectively. A portion of these costs associated with these activities are reimbursed by customers and, for the fiscal years ended September 30, 2020, 2019 and 2018 were $223 million, $291 million and $298 million, respectively.
Foreign Currency Translation
Adient plc | Form 10-K | 64
Substantially all of Adient's international operations use the respective local currency as the functional currency. Assets and liabilities of international entities have been translated at period-end exchange rates, and income and expenses have been translated using average exchange rates for the period. Monetary assets and liabilities denominated in non-functional currencies are adjusted to reflect period-end exchange rates. The resulting translation adjustments are accumulated as a component of accumulated other comprehensive income. The aggregate transaction gains (losses) included in net income for the years ended September 30, 2020, 2019 and 2018 were $(25) million, $(12) million and $(4) million, respectively.
Derivative Financial Instruments
The fair values of all derivatives are recorded in the consolidated statements of financial position. The change in a derivative's fair value is recorded each period in current earnings or accumulated other comprehensive income (AOCI), depending on whether the derivative is designated as part of a hedge transaction and if so, the type of hedge transaction. Refer to Note 10, "Derivative Instruments and Hedging Activities," and Note 11, "Fair Value Measurements," of the notes to consolidated financial statements for disclosure of Adient's derivative instruments and hedging activities.
Stock-Based Compensation
Stock-based compensation is initially measured at the fair value of the awards on the grant date and is recognized in the financial statements over the period the employees are required to provide services in exchange for the awards. The fair value of restricted stock awards is based on the number of units granted and the stock price on the grant date. The fair value of performance-based share unit, or PSU, awards is based on the stock price at the grant date and the assessed probability of meeting future performance targets. The fair value of option awards is measured on the grant date using the Black-Scholes option-pricing model. The fair value of each stock appreciation right, or SAR, is estimated using a similar method described for stock options. The fair value of cash settled awards are recalculated at the end of each reporting period and the liability and expense are adjusted based on the new fair value. Refer to Note 12, "Stock-Based Compensation," of the notes to consolidated financial statements for Adient's stock based compensation disclosures.
Pension and Postretirement Benefits
Adient utilizes a mark-to-market approach for recognizing pension and postretirement benefit expenses, including measuring the market related value of plan assets at fair value and recognizing actuarial gains and losses in the fourth quarter of each fiscal year or at the date of a remeasurement event. Refer to Note 14, "Retirement Plans," of the notes to consolidated financial statements for disclosure of Adient's pension and postretirement benefit plans.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and other loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Adient records a valuation allowance that primarily represents operating and other loss carryforwards for which realization is uncertain. Management judgment is required in determining Adient's provision for income taxes, deferred tax assets and liabilities, and the valuation allowance recorded against Adient's net deferred tax assets.
Adient reviews the realizability of its deferred tax assets on a quarterly basis, or whenever events or changes in circumstances indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or combined group recording the net deferred tax asset are considered, along with any other positive or negative evidence. Since future financial results may differ from previous estimates, periodic adjustments to Adient's valuation allowances may be necessary.
Adient is subject to income taxes in Ireland, the U.S. and other non-U.S. jurisdictions. Judgment is required in determining its worldwide provision for income taxes and recording the related assets and liabilities. In the ordinary course of Adient's business, there are many transactions and calculations where the ultimate tax determination is uncertain. Adient's income tax returns for various fiscal years remain under audit by the respective tax authorities. Although the outcome of tax audits is always uncertain, management believes that it has appropriate support for the positions taken on its tax returns and that its annual tax provisions included amounts sufficient to pay assessments, if any, which may be proposed by the taxing authorities. Nonetheless, the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year.
Adient plc | Form 10-K | 65
Adient does not generally provide for additional income taxes which would become payable upon repatriation of undistributed earnings of wholly owned foreign subsidiaries. Adient's intent is for such earnings to be reinvested by the subsidiaries or to be repatriated only when it would be tax efficient.
On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was signed and enacted into law, and is effective for tax years beginning on or after January 1, 2018, with the exception of certain provisions. The Act includes a provision to tax global intangible low-taxed income ("GILTI") of foreign subsidiaries, which was effective for Adient beginning in fiscal year 2019. Adient has made a policy election to treat taxes due under the GILTI provision as a current period expense in the reporting period in which the tax is incurred.
Refer to Note 17, "Income Taxes," of the notes to consolidated financial statements for Adient's income tax disclosures.
Earnings Per Share
The following table shows the computation of basic and diluted earnings per share:
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|
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|
|
|
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|
|
|
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|
|
|
|
|
|
Year Ended
September 30,
|
(in millions, except per share data)
|
|
2020
|
|
2019
|
|
2018
|
Numerator:
|
|
|
|
|
|
|
Net income (loss) attributable to Adient
|
|
$
|
(547)
|
|
|
$
|
(491)
|
|
|
$
|
(1,685)
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
Shares outstanding
|
|
93.8
|
|
|
93.6
|
|
|
93.3
|
|
Effect of dilutive securities
|
|
—
|
|
|
—
|
|
|
—
|
|
Diluted shares
|
|
93.8
|
|
|
93.6
|
|
|
93.3
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
Basic
|
|
$
|
(5.83)
|
|
|
$
|
(5.25)
|
|
|
$
|
(18.06)
|
|
Diluted
|
|
$
|
(5.83)
|
|
|
$
|
(5.25)
|
|
|
$
|
(18.06)
|
|
Potentially dilutive securities whose effect would have been antidilutive are excluded from the computation of diluted earnings per share which for fiscal 2020, 2019 and 2018 is a result of being in a loss position.
New Accounting Pronouncements
Standards Adopted During Fiscal 2020
On October 1, 2019, Adient adopted Accounting Standards Codification Topic 842, "Leases" ("ASC 842"). The guidance requires lessees to recognize a lease liability and a right-of-use (ROU) asset for all leases with the exception of short-term leases whose terms are twelve months or less. By applying the optional modified retrospective method, Adient recorded an adjustment as of the adoption date without any retrospective adjustments to comparative financial information. Additionally, Adient elected the package of practical expedients permitted under ASC 842, and accordingly, did not reassess whether existing contracts contain leases, lease classifications, or the treatment of initial direct costs capitalized under the previous standard ("ASC 840"). Adient did not apply the "hindsight" practical expedient upon adoption. Adient did elect to apply the practical expedient to not separate nonlease components from associated lease components. Refer to Note 8, "Leases," of the notes to consolidated financial statements for additional information.
Adient plc | Form 10-K | 66
ASU 2018-07, Compensation-Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting, expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards. ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606. The adoption of this guidance on October 1, 2019 did not have a material impact on Adient's consolidated financial statements for the fiscal year ended September 30, 2020.
On March 12, 2020, Adient adopted Accounting Standards Update 2020-04, Topic 848, "Reference Rate Reform - Facilitation of the Effects of Reference Rate Reform on Financial Reporting" upon its issuance. The guidance provides certain expedients and exceptions for applying generally accepted accounting principles to contract modifications and hedging relationships. The adoption did not have a material impact on Adient's consolidated financial statements for the fiscal year ended September 30, 2020.
Standards Effective After Fiscal 2020
Adient has considered the ASUs summarized below, effective after fiscal 2020, none of which are expected to significantly impact the consolidated financial statements:
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|
|
Standard Pending Adoption
|
|
Description
|
|
Date Effective
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|
|
|
|
|
ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments
|
|
ASU 2016-13 changes the impairment model for financial assets measured at amortized cost, requiring presentation at the net amount expected to be collected. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts. Available-for-sale debt securities with unrealized losses will now be recorded through an allowance for credit losses.
|
|
October 1, 2020
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|
|
|
|
|
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement
|
|
ASU 2018-13 eliminates, adds, and modifies certain disclosure requirements for fair value measurements. The amendments with respect to changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty are to be applied prospectively. All other amendments are to be applied retrospectively to all periods presented.
|
|
October 1, 2020
|
|
|
|
|
|
ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General: Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans
|
|
The amendments in ASU 2018-14 eliminate, add, and modify certain disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The guidance is to be applied on a retrospective basis to all periods presented.
|
|
October 1, 2020
|
|
|
|
|
|
ASU 2018-17, Targeted Improvements to Related Party Guidance for Variable Interest Entities
|
|
ASU 2018-17 affects reporting entities that are required to determine whether they should consolidate a legal entity under the guidance within the Variable Interest Entities Subsections of Subtopic 810-10, Consolidation-Overall.
|
|
October 1, 2020
|
|
|
|
|
|
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes
|
|
ASU 2019-12 modifies ASC 740, Income Taxes, by simplifying accounting for income taxes. As part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements, the FASB’s amendments may impact both interim and annual reporting periods.
|
|
October 1, 2021
|
|
|
|
|
|
Adient plc | Form 10-K | 67
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standard Pending Adoption
|
|
Description
|
|
Date Effective
|
ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40)
|
|
ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity by reducing the number of accounting models for convertible debt and convertible preferred stock.
|
|
October 1, 2022
|
2. Revenue Recognition
Adient generates revenue through the sale of automotive seating solutions, including complete seating systems and the components of complete seating systems. Adient provides production and service parts to its customers under awarded multi-year programs. The duration of a program is generally consistent with the life cycle of a vehicle, however, the program can be canceled at any time without cause by the customer. Programs awarded to Adient to supply parts to its customers do not contain a firm commitment by the customer for volume or price and do not reach the level of a performance obligation until Adient receives either a purchase order and/or a materials release from the customer for a specific number of parts at a specified price, at which point an enforceable contract exists. Sales revenue is generally recognized at the point in time when parts are shipped and control has transferred to the customer, at which point an enforceable right to payment exists. Contracts may provide for annual price reductions over the production life of the awarded program, and prices are adjusted on an ongoing basis to reflect changes in product content/cost and other commercial factors. The amount of revenue recognized reflects the consideration that Adient expects to be entitled to in exchange for such products based on purchase orders, annual price reductions and ongoing price adjustments (some of which are accounted for as variable consideration and subject to being constrained), net of the impact, if any, of consideration paid to the customer.
In a typical arrangement with the customer, purchase orders are issued for pre-production activities which consist of engineering, design and development, tooling and prototypes for the manufacture and delivery of component parts. Adient has concluded that these activities are not in the scope of ASC 606 and for that reason, there have been no changes to how Adient accounts for reimbursable pre-production costs.
Adient has elected to continue to include shipping and handling fees billed to customers in revenue, while including costs of shipping and handling in cost of sales. Taxes collected from customers are excluded from revenue and credited directly to obligations to the appropriate government agencies. Payment terms with customers are established based on customary industry and regional practices. Adient has evaluated the terms of its arrangements and determined that they do not contain significant financing components.
Contract assets primarily relate to the right to consideration for work completed, but not billed at the reporting date on contracts with customers. The contracts assets are transferred to receivables when the rights become unconditional. Contract liabilities primarily relate to contracts where advance payments or deposits have been received, but performance obligations have not yet been satisfied and revenue has not been recognized. No significant contract assets or liabilities were identified at September 30, 2020. As described above, the issuance of a purchase order and/or a materials release by the customer represents the point at which an enforceable contract with the customer exists. Therefore, Adient has elected to apply the practical expedient in ASC 606, paragraph 606-10-50-14 and does not disclose information about the remaining performance obligations that have an original expected duration of one year or less. Refer to Note 18, "Segment Information," of the notes to consolidated financial statements for disaggregated revenue by geographical market.
3. Acquisitions and Divestitures
Divestitures
Adient Aerospace, LLC ("Adient Aerospace") became operational on October 11, 2018 with Adient’s initial ownership position in Adient Aerospace being 50.01%. Initial contributions of $28 million were made during the first quarter of fiscal 2019 by each partner. On October 25, 2019, Adient reached an agreement with Boeing in which Adient’s ownership position was reduced to 19.99%, resulting in the deconsolidation of Adient Aerospace on that date, including $37 million of cash. Adient recorded a $4 million loss as a result of the transaction in the Americas segment, including $21 million of allocated goodwill.
Adient plc | Form 10-K | 68
Adient Aerospace develops, manufactures, and sells a portfolio of seating products to airlines and aircraft leasing companies for installation on Boeing and other OEM commercial airplanes, for both production line-fit and retrofit configurations.
On December 31, 2019, Adient sold the RECARO automotive high performance seating systems business to a group of investors for de minimis proceeds. As a result of the sale, Adient recorded a loss of $21 million during the quarter ending December 31, 2019. For fiscal 2019, the RECARO business recorded $148 million of net sales and insignificant pre-tax income.
On January 31, 2020 (as amended on June 24, 2020), Adient, Yanfeng Automotive Trim Systems Company Ltd. (“Yanfeng”), Adient Yanfeng Seating Mechanisms Co., Ltd. (“AYM”), a joint venture owned, directly or indirectly, by Yanfeng (50%) and Adient (50%), Yanfeng Adient Seating Co., Ltd. (“YFAS”), a joint venture owned, directly or indirectly, by Yanfeng (50.01%) and Adient (49.99%) and YFAI, a joint venture owned, directly or indirectly, by Yanfeng (70%) and Adient (30%), entered into a Master Agreement (the “Agreement”, collectively referred to as “Yanfeng transaction”), pursuant to which the parties have agreed, among other things, that:
•Adient would transfer all of the issued and outstanding equity interest in YFAI held, directly or indirectly, by Adient, which represents 30% of YFAI’s total issued and outstanding equity interest, to Yanfeng for $369 million, of which $309 million was paid at the closing of the agreed transactions and the remaining $60 million will be paid on a deferred basis post-closing. With respect to each YFAI fiscal year ending after the closing, starting with the year ending December 31, 2020, Adient will be paid an earnout in an amount equal to 30% percent of YFAI’s distributable earnings for such year until such time as the $60 million deferred purchase price is fully paid;
•Adient and Yanfeng would amend the YFAS Joint Venture Contract, dated as of October 22, 1997, as amended, and the Articles of Association of YFAS, dated as of October 22, 1997, as amended, in each case in order to extend the term of the YFAS joint venture until December 31, 2038;
•Adient would transfer all patents, trademarks and copyrights, know-how, trade secrets and other intellectual property rights owned by Adient (or certain of its subsidiaries) and used exclusively in the conduct of Adient’s mechanism business as of the date of such transfer (the “Transferred IP”) to AYM for $20 million, and in connection with such transfer, (i) AYM will grant back to Adient a sole license with respect to the Transferred IP on a worldwide and royalty-free basis, (ii) Adient will grant AYM a worldwide and royalty-free license with respect to certain intellectual property rights owned by Adient (or certain of its subsidiaries) and used on a non-exclusive basis in the conduct of Adient’s mechanism business, and (iii) Adient and AYM will license to each other certain improvements to the Transferred IP, as well as certain other intellectual property rights developed or acquired by Adient, AYM or certain of their respective subsidiaries and relating to the mechanism business; and
•Adient and Yanfeng would amend the AYM Equity Joint Venture Contract, dated as of September 9, 2013, as amended, and the Articles of Association of AYM, dated as of September 9, 2013, as amended to, among other things, (i) make certain governance changes such that Yanfeng will control and consolidate the results of AYM for financial reporting and accounting purposes, and (ii) expand AYM’s business and customer scope such that it may carry out its seating mechanism business anywhere in and outside of the People’s Republic of China, in each case, on the terms and subject to the conditions set forth in the Agreement and the relevant definitive agreements to be entered into in connection therewith.
The transactions agreed on January 31, 2020, as amended on June 24, 2020, were cross-conditioned on each other and closed in accordance with the terms above on August 21, 2020. Proceeds from the transactions of $329 million were received at closing and will be used by Adient for general corporate purposes or to potentially pay down a portion of Adient’s debt subject to the ongoing impacts of the COVID-19 pandemic. The terms of the Master Agreement as described above are consistent with non-binding terms reached in December 2019.
As a result of the January 31, 2020 agreement, as amended on June 24, 2020, described above, Adient concluded that indicators of other-than-temporary impairment were present related to the investment in YFAI as of December 31, 2019, June 30, 2020, and upon closing. Upon entering into a formal agreement to sell the YFAI investment, Adient determined that other-than-temporary impairment did exist and recorded a $216 million non-cash impairment of Adient's YFAI investment during the quarter ended December 31, 2019. As a result of the June 24, 2020 modifications to the agreement described above, Adient recorded $6 million of additional non-cash impairment of Adient's YFAI investment during the quarter ended June 30, 2020. Upon closing of the transaction, an additional $9 million of impairment was recorded due to receipt of proceeds in U.S. dollars. The impairments were determined based on combining the fair value of consideration received for all transactions contemplated within the Master Agreement, including an estimated fair value of the YFAS joint venture extension, and allocating the total consideration received to the individual transactions based on relative fair values. Adient estimated the fair value of the
Adient plc | Form 10-K | 69
individual transactions using both an income approach and market approach. The inputs utilized in the fair value analyses of the transactions are classified as level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value Measurement" and primarily consisted of expected future operating margins and cash flows of YFAI, estimated production volumes, estimated dividend payments from YFAS over the extension period, estimated terminal values of YFAS, market comparables, weighted-average costs of capital (YFAI - 15.0%, YFAS - 10.5%), and noncontrolling interest discounts. As a result of the pending divestiture of the YFAI investment and the corresponding impairment, Adient ceased recognizing equity income from YFAI subsequent to December 31, 2019 (YFAI equity income was $40 million in fiscal year 2019). In addition, upon the closing of the transaction, an intangible asset of $92 million was recorded associated with the YFAS joint venture extension to be amortized over the 18-year term of the extension.
On September 30, 2020, Adient closed on the sale of its automotive fabrics manufacturing business including the lamination business to Sage Automotive Interiors for net proceeds of approximately $170 million, net of $4 million of cash divested within the business. Proceeds from the transaction are expected to be used by Adient for general corporate purposes or to potentially pay down a portion of Adient’s debt subject to the ongoing impact of the COVID-19 pandemic. A minimal gain was recorded as a result of the transaction after allocating $80 million of goodwill to the disposed business. The sale transaction included 11 facilities globally with the majority located in EMEA and approximately 1,300 employees. For fiscal years 2020 and 2019, the fabrics manufacturing business recorded $99 million and $130 million of third party sales and a nominal amount and $8 million of pre-tax income, respectively.
All of the divestiture transactions described above align with Adient's strategy of focusing on its core, high-volume seating business.
Assets held for sale
During fiscal 2020, Adient committed to a plan to sell certain entities in China and certain properties in the U.S. As a result, these assets were classified as assets held for sale and were required to be adjusted to the lower of fair value less cost to sell or carrying value. This resulted in an impairment charge of $21 million which was recorded within restructuring and impairment costs on the consolidated statement of income (loss) during fiscal 2020, of which $12 million related to America’s assets and $9 million related to China’s assets. The impairment was measured using third party sales pricing to determine fair values of the assets. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value Measurement."
During fiscal 2018, Adient committed to a plan to sell its Detroit, Michigan properties and its airplanes and actively marketed the sale of these assets. As a result, these assets were classified as assets held for sale and were required to be adjusted to the lower of fair value less cost to sell or carrying value. This resulted in an impairment charge of $49 million which was recorded within restructuring and impairment costs on the consolidated statement of income (loss) during fiscal 2018, of which $39 million related to Americas assets and $10 million related to corporate assets. The impairment was measured using third party sales pricing to determine fair values of the assets. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value Measurement." During the fourth quarter of fiscal 2018, one airplane was sold for $36 million. During the first quarter of fiscal 2019, both the Detroit, Michigan properties and remaining airplane were sold for approximately $35 million.
4. Inventories
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
(in millions)
|
|
2020
|
|
2019
|
Raw materials and supplies
|
|
$
|
530
|
|
|
$
|
609
|
|
Work-in-process
|
|
22
|
|
|
32
|
|
Finished goods
|
|
133
|
|
|
152
|
|
Inventories
|
|
$
|
685
|
|
|
$
|
793
|
|
Adient plc | Form 10-K | 70
5. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
(in millions)
|
|
2020
|
|
2019
|
Buildings and improvements
|
|
$
|
1,224
|
|
|
$
|
1,183
|
|
Machinery and equipment
|
|
4,462
|
|
|
4,612
|
|
Construction in progress
|
|
256
|
|
|
262
|
|
Land
|
|
107
|
|
|
135
|
|
Total property, plant and equipment
|
|
6,049
|
|
|
6,192
|
|
Less: accumulated depreciation
|
|
(4,468)
|
|
|
(4,521)
|
|
Property, plant and equipment - net
|
|
$
|
1,581
|
|
|
$
|
1,671
|
|
There were no material leased capital assets included in net property, plant and equipment at September 30, 2020 and 2019.
As of September 30, 2020, Adient is the lessor of properties included in gross building and improvements for $36 million and accumulated depreciation of $28 million. As of September 30, 2019, Adient is the lessor of properties included in gross building and improvements for $34 million and accumulated depreciation of $26 million.
Refer to Note 16, "Impairment of Long-Lived Assets," of the notes to consolidated financial statements for additional information related to the fixed asset impairment charges in fiscal year 2019 related to the seat structure and mechanism operations.
6. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Americas
|
|
EMEA
|
|
Asia
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2018
|
|
$
|
642
|
|
|
$
|
469
|
|
|
$
|
1,071
|
|
|
$
|
2,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation and other
|
|
(4)
|
|
|
(40)
|
|
|
12
|
|
|
(32)
|
|
Balance at September 30, 2019
|
|
$
|
638
|
|
|
$
|
429
|
|
|
$
|
1,083
|
|
|
$
|
2,150
|
|
Business divestitures
|
|
(21)
|
|
|
(80)
|
|
|
—
|
|
|
(101)
|
|
Currency translation and other
|
|
(11)
|
|
|
19
|
|
|
—
|
|
|
8
|
|
Balance at September 30, 2020
|
|
$
|
606
|
|
|
$
|
368
|
|
|
$
|
1,083
|
|
|
$
|
2,057
|
|
Adient evaluates its goodwill for impairment on an annual basis, or as facts and circumstances warrant. Due to the COVID-19 pandemic and the significant interruption it has caused to Adient’s operations, Adient tested goodwill for impairment for each of its reporting units for the quarter ended March 31, 2020 and also performed its annual goodwill test during the fourth quarter of fiscal 2020 using a fair value method based on management's judgments and assumptions regarding future cash flows. The fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. Adient estimated the fair value of each of its reporting units using an income approach, which utilized Level 3 unobservable inputs. These calculations contain uncertainties as they require management to make assumptions about market comparables, future cash flows, and the appropriate discount rates (based on weighted average cost of capital ranging from 15.0% to 17.5% as of March 31, 2020 and 16.0% to 18.5% as of September 30, 2020) to reflect the risk inherent in the future cash flows and to derive a reasonable enterprise value and related premium. The estimated future cash flows reflect management's latest assumptions of the financial projections based on current and anticipated competitive landscape, including estimates of revenue based on production volumes over the foreseeable future and long-term growth rates, and operating margins based on historical trends and future cost containment activities. The financial projections also considered the impact that COVID-19 is having on Adient’s current and future operations as well as the impact to new vehicle sales in future years. As a result of the tests, there was no goodwill impairment recorded during the quarter ended March 31, 2020 or during the fourth quarter of fiscal 2020. A change in any of these estimates and assumptions, especially as it relates to the extent of the COVID-19 pandemic’s impacts on vehicle production volumes within the automotive
Adient plc | Form 10-K | 71
industry as well as the demand for new vehicle sales once the current operational interruptions are over, could produce significantly lower fair values of Adient's reporting units, which could have a material impact on its results of operations.
During fiscal 2019, as a result of the change in reportable segments during the second quarter, Adient conducted goodwill impairment analyses of the newly allocated goodwill balances under the new reportable segment structure and identified no impairment. Adient also performed its annual goodwill impairment test during the fourth quarter of fiscal 2019 resulting in no goodwill impairment. During the second quarter of fiscal 2018, Adient conducted goodwill impairment analyses of the allocated goodwill balances under the reportable segment structure at that time. Adient also performed its annual goodwill impairment test during the fourth quarter of fiscal 2018. Adient performed these impairment reviews for its reporting units, which had been determined to be Adient's reportable segments, using a fair value method based on management's judgments and assumptions or third party valuations. The fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. Adient estimated the fair value of its reportable segments using both a multiple of earnings approach and an income approach, both of which utilized Level 3 unobservable inputs. These calculations contained uncertainties as they required management to make assumptions about market comparables, future cash flows, the appropriate discount rate (based on weighted average cost of capital) and growth rate to reflect the risk inherent in the future cash flows. The estimated future cash flows reflected management's latest assumptions of the financial projections based on current and anticipated competitive landscape and product profitability based on historical trends. A change in any of these estimates and assumptions could produce a different fair value, which could have a material impact on Adient's results of operations. As a result of the second quarter 2018 goodwill analyses, Adient determined that goodwill associated with its seat structure and mechanism operations was fully impaired. Consequently, a pre-tax goodwill impairment charge of $299 million was recognized in the consolidated statements of income (loss) within the restructuring and impairment costs line item. The goodwill impairment charge represented a triggering event for additional impairment considerations of other long-lived assets, including an analysis of the recoverability of long-lived assets as of March 31, 2018. No further goodwill or other long-lived asset impairments were identified during the second quarter of fiscal 2018. No goodwill impairments were identified as of September 30, 2018. Refer to Note 16, "Impairment of Long-Lived Assets," of the notes to the consolidated financial statements for information on long-lived asset impairment charges.
Adient's other intangible assets, primarily from business acquisitions valued based on independent appraisals, consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2020
|
|
September 30, 2019
|
(in millions)
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
Intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Patented technology
|
|
$
|
27
|
|
|
$
|
(19)
|
|
|
$
|
8
|
|
|
$
|
27
|
|
|
$
|
(17)
|
|
|
$
|
10
|
|
Customer relationships
|
|
424
|
|
|
(103)
|
|
|
321
|
|
|
494
|
|
|
(129)
|
|
|
365
|
|
Trademarks
|
|
41
|
|
|
(27)
|
|
|
14
|
|
|
51
|
|
|
(32)
|
|
|
19
|
|
Miscellaneous
|
|
110
|
|
|
(10)
|
|
|
100
|
|
|
21
|
|
|
(10)
|
|
|
11
|
|
Total intangible assets
|
|
$
|
602
|
|
|
$
|
(159)
|
|
|
$
|
443
|
|
|
$
|
593
|
|
|
$
|
(188)
|
|
|
$
|
405
|
|
As part of the Yanfeng transaction, which closed during the fourth quarter of fiscal 2020, an intangible asset of $92 million was recorded associated with the YFAS joint venture extension to 2038 (reflected in the Miscellaneous line in the table above), to be amortized over the 18-year term of the extension.
Adient evaluates its other intangible assets for impairment as facts and circumstances warrant. During the third quarter of fiscal 2020, a pre-tax non-cash impairment of $27 million was recorded in the Asia segment related to customer relationship intangible assets of $24 million and other long-lived assets of $3 million within the Futuris China business due to an overall decline in forecasted operations within that business. During the second quarter of fiscal 2019, of the $66 million long-lived asset impairment charge recognized, $4 million was attributable to a customer relationship intangible asset. The impairments were calculated based on a fair value method using discounted cash flows that involves the use of management judgements and estimates related to forecasted revenue, operating costs and discount rates. During the fourth quarter of fiscal 2018, of the $787 million long-lived asset impairment charge recognized, $19 million was attributable to a customer relationship intangible asset. Refer to Note 18, “Segment Information,” and Note 16, "Impairment of Long-Lived Assets," of the notes to the consolidated financial statements for additional information.
Adient plc | Form 10-K | 72
Amortization of other intangible assets for the fiscal years ended September 30, 2020, 2019 and 2018 was $37 million, $40 million and $47 million, respectively. Adient anticipates amortization for fiscal 2021, 2022, 2023, 2024 and 2025 will be approximately $35 million, $34 million, $33 million, $31 million and $29 million, respectively.
7. Product Warranties
Adient offers warranties to its customers depending upon the specific product and terms of the customer purchase agreement. A typical warranty program requires that Adient replace defective products within a specified time period from the date of sale. Adient records an estimate for future warranty-related costs based on actual historical return rates and other known factors. Based on analysis of return rates and other factors, Adient's warranty provisions are adjusted as necessary. Adient monitors its warranty activity and adjusts its reserve estimates when it is probable that future warranty costs will be different than those estimates. Adient's product warranty liability is recorded in the consolidated statements of financial position in other current liabilities.
The changes in Adient's total product warranty liability are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
(in millions)
|
|
2020
|
|
2019
|
Balance at beginning of period
|
|
$
|
22
|
|
|
$
|
11
|
|
Accruals for warranties issued during the period
|
|
9
|
|
|
11
|
|
Changes in accruals related to pre-existing warranties (including changes in estimates)
|
|
1
|
|
|
6
|
|
Changes in accruals related to business divestitures
|
|
(1)
|
|
|
—
|
|
Settlements made (in cash or in kind) during the period
|
|
(7)
|
|
|
(6)
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
24
|
|
|
$
|
22
|
|
In the second quarter of fiscal 2019, Adient recorded $7 million of warranty expense to correct a prior period error related to incurred but not yet reported warranty expense. Adient has concluded that this adjustment was not material to the consolidated financial statements for any period reported.
8. Leases
Adient adopted Accounting Standards Codification Topic 842, Leases (ASC 842), and all the related amendments using the modified retrospective method, without adjusting the comparative financial information, on October 1, 2019. As a result, financial information for reporting periods beginning on or after October 1, 2019 are presented in accordance with ASC 842. Upon adoption, Adient recognized right-of-use (ROU) assets of $380 million and corresponding lease liabilities of $384 million on October 1, 2019. The adoption date ROU asset balance was adjusted by $4 million, reflecting impairment of ROU assets for certain real estate leases (within the North America and Europe asset groups) of which the Company determined the carrying value of the initial operating lease ROU asset exceeded its fair value. The adjustment was recorded as an increase to the opening accumulated deficits. The adoption of ASC 842 did not have any significant impact on the consolidated statement of income or cash flows.
Adient's lease portfolio consists of operating leases for real estate including production facilities, warehouses and administrative offices, equipment such as forklifts and computer servers and laptops, and fleet vehicles. The Company has elected not to record leases with an initial term of 12 months or less on its consolidated statement of financial position.
A lease liability and corresponding ROU asset are recognized based on the present value of lease payments. To determine the present value of lease payments, the Company uses its incremental borrowing rate as of lease commencement. The incremental borrowing rate (IBR) is defined as the rate Adient would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Adient primarily derives its IBR from its debt portfolio, adjusted for collateralization, lease term and jurisdictional factors. Adient's finance leases are not significant and are not included in the following disclosures.
The components of lease costs for the year ended September 30, 2020 were as follows:
Adient plc | Form 10-K | 73
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
Year Ended September 30, 2020
|
Operating lease cost
|
|
|
|
$
|
125
|
|
Short-term lease cost
|
|
|
|
24
|
|
|
|
|
|
|
Total lease cost
|
|
|
|
$
|
149
|
|
Operating lease right-of-use assets and lease liabilities included in the consolidated statement of financial position were as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
September 30, 2020
|
Operating lease right-of-use assets
|
|
Other noncurrent assets
|
|
$
|
334
|
|
|
|
|
|
|
Operating lease liabilities - current
|
|
Other current liabilities
|
|
$
|
95
|
|
Operating lease liabilities - noncurrent
|
|
Other noncurrent liabilities
|
|
244
|
|
|
|
|
|
$
|
339
|
|
Maturities of operating lease liabilities and minimum payments for operating leases having initial or remaining non-cancelable terms in excess of one year as of September 30, 2020 were as follows:
|
|
|
|
|
|
|
|
|
Fiscal years (in millions)
|
|
Operating
Leases
|
2021
|
|
$
|
112
|
|
2022
|
|
82
|
|
2023
|
|
65
|
|
2024
|
|
47
|
|
2025
|
|
37
|
|
Thereafter
|
|
65
|
|
Total lease payments
|
|
408
|
|
Less: imputed interest
|
|
(69)
|
|
Present value of lease liabilities
|
|
$
|
339
|
|
Future minimum operating lease payments accounted for under ASC 840 at September 30, 2019 were as follows:
|
|
|
|
|
|
|
|
|
Fiscal years (in millions)
|
|
Operating
Leases
|
2020
|
|
$
|
119
|
|
2021
|
|
91
|
|
2022
|
|
64
|
|
2023
|
|
51
|
|
2024
|
|
40
|
|
After 2024
|
|
94
|
|
Total minimum lease payments
|
|
$
|
459
|
|
Supplemental cash flow information related to leases was as follows:
Adient plc | Form 10-K | 74
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
Year Ended September 30, 2020
|
Right-of-use assets obtained in exchange for lease obligations:
|
|
|
|
Operating leases (non-cash activity)
|
|
|
$
|
79
|
|
|
|
|
|
Operating cash flows:
|
|
|
|
Cash paid for amounts included in the measurement of lease liabilities
|
|
|
$
|
125
|
|
|
|
|
|
The weighted average remaining lease term for Adient's operating leases as of September 30, 2020 was 5 years. The weighted average discount rate for Adient's operating leases as of September 30, 2020 was 5.9%.
9. Debt and Financing Arrangements
Long-term and short-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
(in millions)
|
|
2020
|
|
2019
|
Long-term debt:
|
|
|
|
|
|
|
|
|
|
Term Loan B - LIBOR plus 4.00% due in 2024
|
|
$
|
790
|
|
|
$
|
798
|
|
4.875% Notes due in 2026
|
|
797
|
|
|
900
|
|
3.50% Notes due in 2024
|
|
1,173
|
|
|
1,094
|
|
7.00% Notes due in 2026
|
|
800
|
|
|
800
|
|
9.00% Notes due in 2025
|
|
600
|
|
|
—
|
|
European Investment Bank Loan - EURIBOR plus 1.58% due in 2022
|
|
—
|
|
|
180
|
|
|
|
|
|
|
|
|
|
|
|
Less: debt issuance costs
|
|
(55)
|
|
|
(56)
|
|
Gross long-term debt
|
|
4,105
|
|
|
3,716
|
|
Less: current portion
|
|
8
|
|
|
8
|
|
Net long-term debt
|
|
$
|
4,097
|
|
|
$
|
3,708
|
|
|
|
|
|
|
Short-term debt:
|
|
|
|
|
|
|
|
|
|
European Investment Bank Loan - EURIBOR plus 1.58% due in 2022
|
|
$
|
194
|
|
|
$
|
—
|
|
Other bank borrowings (1)
|
|
8
|
|
|
22
|
|
Total short-term debt
|
|
$
|
202
|
|
|
$
|
22
|
|
(1) The weighted average interest rates on short-term debts, based on levels of debt maintained in various jurisdictions, were 1.6% and 2.9% at September 30, 2020 and 2019, respectively.
Adient US LLC ("Adient US"), a wholly owned subsidiary of Adient, together with certain of Adient's other subsidiaries, maintains an asset-based revolving credit facility (the “ABL Credit Facility”), which provides for a revolving line of credit up to $1,250 million, including a North American subfacility of up to $950 million and a European subfacility of up to $300 million, subject to borrowing base capacity. The ABL Credit Facility will mature on May 6, 2024, subject to a springing maturity date 91 days earlier if certain amounts remain outstanding at that time under the Term Loan B Agreement (defined below). Interest is payable on the ABL Credit Facility at a fluctuating rate of interest determined by reference to the Eurodollar rate plus an applicable margin of 1.50% to 2.00%. Adient will pay a commitment fee of 0.25% to 0.375% on the unused portion of the commitments under the asset-based revolving credit facility based on average global availability. Letters of credit are limited to the lesser of (x) $150 million and (y) the aggregate unused amount of commitments under the ABL Credit Facility then in effect. Subject to certain conditions, the ABL Credit Facility may be expanded by up to $250 million in additional commitments. Loans under the ABL Credit Facility may be denominated, at the option of Adient, in U.S. dollars, Euros, Pounds Sterling or Swedish Kroner. The ABL Credit Agreement is secured on a first-priority lien on all accounts receivable, inventory and bank accounts (and funds on deposit therein) and a second-priority lien on all of the tangible and intangible assets
Adient plc | Form 10-K | 75
of certain Adient subsidiaries. As of September 30, 2020, Adient had not drawn down on the ABL Credit Facility and had availability under this facility of $787 million (net of $138 million of letters of credit).
In addition, Adient US and Adient Global Holdings S.à r.l., a wholly-owned subsidiary of Adient, maintain a term loan credit agreement (the “Term Loan B Agreement”) providing for a 5-year $800 million senior secured term loan facility that was fully drawn on closing. The Term Loan B Agreement amortizes in equal quarterly installments at a rate of 1.00% per annum of the original principal amount thereof, with the remaining balance due at final maturity on May 6, 2024. Interest on the Term Loan B Agreement accrues at the Eurodollar rate plus an applicable margin equal to 4.25% (with one 0.25% step down based on achievement of a specific secured net leverage level starting with the fiscal quarter ending December 31, 2019). The Term Loan B Agreement also permits Adient to incur incremental term loans in an aggregate amount not to exceed the greater of $750 million and an unlimited amount subject to a pro forma first lien secured net leverage ratio of not greater than 1.75 to 1.00 and certain other conditions.
Adient US is also a party to an indenture relating to the issuance of $800 million aggregate principal amount of Senior First Lien Notes. The notes mature on May 15, 2026 and bear interest at a rate of 7.00% per annum. Interest on these notes is payable semi-annually in arrears on November 15 and May 15 of each year, commencing on November 15, 2019.
The ABL Credit Facility, Term Loan B Agreement and the Senior First Lien Notes due 2026 contain covenants that are usual and customary for facilities and debt instruments of this type and that, among other things, restrict the ability of Adient and its restricted subsidiaries to: create certain liens and enter into sale and lease-back transactions; create, assume, incur or guarantee certain indebtedness; pay dividends or make other distributions on, or repurchase or redeem, Adient’s capital stock or certain other debt; make other restricted payments; and consolidate or merge with, or convey, transfer or lease all or substantially all of Adient’s and its restricted subsidiaries’ assets, to another person. These covenants are subject to a number of other limitations and exceptions set forth in the agreements. The agreements also provide for customary events of default, including, but not limited to, cross-default clauses with other debt arrangements, failure to pay principal and interest, failure to comply with covenants, agreements or conditions, and certain events of bankruptcy or insolvency involving Adient and its significant subsidiaries.
Adient Global Holdings Ltd. (“AGH”), a wholly-owned subsidiary of Adient, maintains $900 million aggregate principal amount of 4.875% USD-denominated unsecured notes due 2026. During the fourth quarter of fiscal 2020, Adient redeemed $103 million of face value of these notes, resulting in a remaining balance of $797 million as of September 30, 2020. Adient recorded a gain of $3 million associated with this partial redemption. AGH also maintains €1.0 billion aggregate principal amount of 3.50% unsecured notes due 2024.
Adient Germany Ltd. & Co. KG, a wholly owned subsidiary of Adient, maintains €165 million in an unsecured term loan from the European Investment Bank (“EIB”) due in 2022. The loan bears interest at the 6-month EURIBOR rate plus 158 basis points. Adient amended the EIB loan agreement as of June 30, 2020 to increase the net leverage ratio to 6.75x from 5.25x at June 30, 2020. The net leverage ratio requirements of 5.25x at September 30, 2020 and future step downs to 4.50x by the second quarter of fiscal 2021 were not adjusted. Adient is compliant with the net leverage ratio at September 30, 2020. However, due to the rise in COVID-19 infections across Europe and the Americas and the potential disruption to vehicle production that might occur at its customers, there is uncertainty whether compliance with this net leverage ratio over the next 12 months is achievable, which could require Adient to either obtain another amendment or waiver or to pay down the EIB loan. As a result, Adient has classified this debt as short term debt at September 30, 2020.
On April 20, 2020, Adient US offered $600 million (net proceeds of $591 million) aggregate principal amount of 9.00% Senior First Lien Notes due 2025. These notes will mature on April 15, 2025, provided that if Adient Global Holdings Ltd (“AGH”) has not refinanced (or otherwise redeemed) in whole its outstanding 3.50% unsecured notes due 2024 or any refinancing indebtedness thereof that matures earlier than 91 days prior to the maturity date of the Senior First Lien Notes due 2025 on or prior to May 15, 2024, these notes will mature on May 15, 2024. Interest on these notes will be paid on April 15 and October 15 each year, beginning on October 15, 2020. These notes contain covenants that are usual and customary, similar to the covenants on the Senior First Lien Notes due 2026 as described above. Adient incurred $10 million of debt issuance cost associated with this new debt in fiscal 2020.
Adient plc | Form 10-K | 76
Principal payments required on long-term debt during the next five years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions)
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
|
2025
|
Principal payments
|
|
$
|
8
|
|
|
$
|
8
|
|
|
$
|
8
|
|
|
$
|
1,939
|
|
|
$
|
600
|
|
Net Financing Charges
Adient's net financing charges in the consolidated statements of income (loss) contained the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
(in millions)
|
|
2020
|
|
2019
|
|
2018
|
Interest expense, net of capitalized interest costs
|
|
$
|
216
|
|
|
$
|
167
|
|
|
$
|
142
|
|
Banking fees and debt issuance cost amortization
|
|
18
|
|
|
26
|
|
|
7
|
|
Interest income
|
|
(11)
|
|
|
(11)
|
|
|
(5)
|
|
Gain on partial extinguishment of debt
|
|
(3)
|
|
|
—
|
|
|
—
|
|
Net financing charges
|
|
$
|
220
|
|
|
$
|
182
|
|
|
$
|
144
|
|
Banking fee expense in fiscal 2019 includes $13 million of one-time deferred financing fee charges associated with Adient's former debt arrangements. Total interest paid on both short and long-term debt for the fiscal years ended September 30, 2020, 2019 and 2018 was $203 million, $137 million and $143 million, respectively.
10. Derivative Instruments and Hedging Activities
Adient selectively uses derivative instruments to reduce Adient's market risk associated with changes in foreign currency. Under Adient's policy, the use of derivatives is restricted to those intended for hedging purposes; the use of any derivative instrument for speculative purposes is strictly prohibited. A description of each type of derivative utilized to manage Adient's risk is included in the following paragraphs. In addition, refer to Note 11, "Fair Value Measurements," of the notes to consolidated financial statements for information related to the fair value measurements and valuation methods utilized by Adient for each derivative type.
Adient has global operations and participates in the foreign exchange markets to minimize its risk of loss from fluctuations in foreign currency exchange rates. Adient primarily uses foreign currency exchange contracts to hedge certain foreign exchange rate exposures. Adient hedges 70% to 90% of the nominal amount of each of its known foreign exchange transactional exposures. Gains and losses on derivative contracts offset gains and losses on underlying foreign currency exposures. These contracts have been designated as cash flow hedges under ASC 815, "Derivatives and Hedging," and the hedge gains or losses due to changes in fair value are initially recorded as a component of accumulated other comprehensive income (AOCI) and are subsequently reclassified into earnings when the hedged transactions occur and affect earnings. During the second quarter of fiscal 2020, as a result of the COVID-19 impacts and the resulting interruptions to Adient's operations, a loss of $2 million related to ineffective hedges was reclassified to the consolidated statement of income. All contracts were highly effective in hedging the variability in future cash flows attributable to changes in currency exchange rates at September 30, 2020 and 2019, respectively.
As of September 30, 2020, the €1.0 billion aggregate principal amount of 3.50% euro-denominated unsecured notes due 2024 was designated as a net investment hedge to selectively hedge portions of Adient's net investment in Europe. The currency effects of Adient's euro-denominated bonds are reflected in the AOCI account within shareholders' equity attributable to Adient where they offset gains and losses recorded on Adient's net investment in Europe.
During the fourth quarter of fiscal 2020, Adient entered into a foreign exchange forward contract (¥1.6 billion) associated with the sale proceeds of the Yanfeng transaction. This contract expired prior to September 30, 2020.
Adient entered into cross-currency interest rate swaps during fiscal 2018 to selectively hedge portions of its net investment in Europe. The currency effects of the cross-currency interest rate swaps are reflected in the AOCI account within shareholders’
Adient plc | Form 10-K | 77
equity attributable to Adient, where they offset gains and losses recorded on Adient’s net investment in Europe. During the second quarter of fiscal 2020, Adient settled one remaining cross-currency interest rate swap for $10 million in proceeds, resulting in no outstanding Euro denominated cross-currency interest rate swaps as of September 30, 2020.
Adient entered into a cross-currency interest rate swap during fiscal 2019 to selectively hedge portions of its net investment in Japan. The currency effects of the cross-currency interest rate swap is reflected in the AOCI account within shareholders' equity attributable to Adient, where they offset gains and losses recorded on Adient's net investment in Japan. As of September 30, 2020, Adient had one cross-currency interest rate swap outstanding totaling approximately ¥11 billion designated as a net investment hedge in Adient's net investment in Japan.
Adient purchased interest rate caps during fiscal 2019 to selectively limit the impact of USD LIBOR increases on its interest payments related to Adient's Term Loan B Agreement. The interest rate caps are designated as cash flow hedges under ASC 815. As of September 30, 2020, Adient had two outstanding interest rate caps with a total notional amount of approximately $200 million.
Adient entered into a ¥950 million foreign exchange forward contract during the first quarter of fiscal 2020 to selectively hedge portions of its net investment in China. The currency effects of the forward contract are reflected in the AOCI account within shareholders' equity attributable to Adient, where they offset gains and losses recorded on Adient’s net investment in China. The forward contract matured in June 2020.
The following table presents the location and fair values of derivative instruments and other amounts used in hedging activities included in Adient's consolidated statements of financial position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives and Hedging
Activities Designated as
Hedging Instruments
under ASC 815
|
|
Derivatives and Hedging
Activities Not Designated as
Hedging Instruments
under ASC 815
|
|
|
September 30,
|
(in millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Other current assets
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
$
|
5
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
3
|
|
Cross-currency interest rate swaps
|
|
—
|
|
|
12
|
|
|
—
|
|
|
—
|
|
Other noncurrent assets
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
|
|
|
|
|
|
|
|
Interest rate cap
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
Cross-currency interest rate swaps
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
Total assets
|
|
$
|
5
|
|
|
$
|
19
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
$
|
34
|
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Cross-currency interest rate swaps
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other noncurrent liabilities
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
5
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
Foreign currency denominated debt
|
|
1,173
|
|
|
1,094
|
|
|
—
|
|
|
—
|
|
Total liabilities
|
|
$
|
1,213
|
|
|
$
|
1,109
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Adient enters into International Swaps and Derivatives Associations (ISDA) master netting agreements with counterparties that permit the net settlement of amounts owed under the derivative contracts. The master netting agreements generally provide for net settlement of all outstanding contracts with a counterparty in the case of an event of default or a termination event. Adient has not elected to offset the fair value positions of the derivative contracts recorded in the consolidated statements of financial position. Collateral is generally not required of Adient or the counterparties under the master netting agreements. As of September 30, 2020 and 2019, no cash collateral was received or pledged under the master netting agreements.
Adient plc | Form 10-K | 78
The gross and net amounts of derivative instruments and other amounts used in hedging activities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
Liabilities
|
|
|
September 30,
|
(in millions)
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Gross amount recognized
|
|
$
|
5
|
|
|
$
|
23
|
|
|
$
|
1,213
|
|
|
$
|
1,109
|
|
Gross amount eligible for offsetting
|
|
(5)
|
|
|
(9)
|
|
|
(5)
|
|
|
(9)
|
|
Net amount
|
|
$
|
—
|
|
|
$
|
14
|
|
|
$
|
1,208
|
|
|
$
|
1,100
|
|
The following table presents the effective portion of pretax gains (losses) recorded in other comprehensive income related to cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions)
|
|
2020
|
|
2019
|
|
2018
|
Foreign currency exchange derivatives
|
|
$
|
(37)
|
|
|
$
|
(5)
|
|
|
$
|
(9)
|
|
The following table presents the location and amount of the effective portion of pretax gains (losses) on cash flow hedges reclassified from AOCI into Adient's consolidated statements of income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
Year Ended
September 30,
|
|
|
2020
|
|
2019
|
|
2018
|
Foreign currency exchange derivatives
|
|
Cost of sales
|
|
$
|
(16)
|
|
|
$
|
(4)
|
|
|
$
|
(3)
|
|
The following table presents the location and amount of pretax gains (losses) on derivatives not designated as hedging instruments recognized in Adient's consolidated statements of income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
Year Ended
September 30,
|
|
|
2020
|
|
2019
|
|
2018
|
Foreign currency exchange derivatives
|
|
Cost of sales
|
|
$
|
(4)
|
|
|
$
|
(2)
|
|
|
$
|
4
|
|
Equity swap
|
|
Selling, general and administrative
|
|
—
|
|
|
(13)
|
|
|
(25)
|
|
Foreign currency exchange derivatives
|
|
Net financing charges
|
|
1
|
|
|
5
|
|
|
(5)
|
|
Total
|
|
|
|
$
|
(3)
|
|
|
$
|
(10)
|
|
|
$
|
(26)
|
|
The effective portion of pretax gains (losses) recorded in currency translation adjustment (CTA) within other comprehensive income (loss) related to net investment hedges was $(84) million, $74 million and $31 million for the fiscal years ended September 30, 2020, 2019 and 2018, respectively. For the years ended September 30, 2020, 2019 and 2018, respectively, no gains or losses were reclassified from CTA into income for Adient's outstanding net investment hedges. For the year ended September 30, 2020, a loss of $2 million was recognized in the consolidated statement of income (loss) for the ineffective portion of cash flow hedges. For the years ended September 30, 2019 and 2018, no gains or losses were recognized in income for the ineffective portion of cash flow hedges.
11. Fair Value Measurements
ASC 820, "Fair Value Measurement," defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a three-level fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability as follows:
Adient plc | Form 10-K | 79
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs where there is little or no market data, which requires the reporting entity to develop its own assumptions.
ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.
Recurring Fair Value Measurements
The following tables present Adient's fair value hierarchy for those assets and liabilities measured at fair value. Refer to Note 14, "Retirement Plans," of the notes to consolidated financial statements for fair value tables of pension assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
(in millions)
|
|
Total as of
September 30,
2020
|
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Other current assets
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
Other noncurrent assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate cap
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total assets
|
|
$
|
5
|
|
|
$
|
—
|
|
|
$
|
5
|
|
|
$
|
—
|
|
Other current liabilities
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
$
|
34
|
|
|
$
|
—
|
|
|
$
|
34
|
|
|
$
|
—
|
|
Cross currency interest rate swaps
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Other noncurrent liabilities
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
5
|
|
|
—
|
|
|
5
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
40
|
|
|
$
|
—
|
|
|
$
|
40
|
|
|
$
|
—
|
|
Adient plc | Form 10-K | 80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
(in millions)
|
|
Total as of
September 30,
2019
|
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Other current assets
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
8
|
|
|
$
|
—
|
|
Cross-currency interest rate swaps
|
|
12
|
|
|
—
|
|
|
12
|
|
|
—
|
|
Other noncurrent assets
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Cross-currency interest rate swaps
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Interest rate cap
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Total assets
|
|
$
|
23
|
|
|
$
|
—
|
|
|
$
|
23
|
|
|
$
|
—
|
|
Other current liabilities
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
12
|
|
|
$
|
—
|
|
Other noncurrent liabilities
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
3
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
—
|
|
Valuation Methods
Foreign currency exchange derivatives Adient selectively hedges anticipated transactions and net investments that are subject to foreign exchange rate risk primarily using foreign currency exchange hedge contracts. The foreign currency exchange derivatives are valued under a market approach using publicized spot and forward prices. Changes in fair value on foreign exchange derivatives accounted for as hedging instruments under ASC 815 are initially recorded as a component of AOCI and are subsequently reclassified into earnings when the hedged transactions occur and affect earnings. These contracts were highly effective in hedging the variability in future cash flows attributable to changes in currency exchange rates at September 30, 2020 and 2019, respectively. The changes in fair value of foreign currency exchange derivatives not designated as hedging instruments under ASC 815 are recorded in the consolidated statements of income.
Cross-currency interest rate swaps Adient selectively uses cross-currency interest rate swaps to hedge portions of its net investments. During fiscal 2018, Adient entered into two floating to floating cross-currency interest rate swaps totaling approximately €160 million designated as net investment hedges in Adient's net investment in Europe. One of the cross-currency interest rate swaps was settled during fiscal 2019 while the other was settled during fiscal 2020. During fiscal 2019, Adient entered into one floating to floating cross-currency interest rate swap totaling ¥11 billion designated as a net investment hedge in Adient's net investment in Japan. As of September 30, 2020, Adient had one ¥11 billion cross-currency interest rate swap outstanding.
Interest rate caps Adient selectively uses interest rate caps to limit the impact of floating rate interest payment increases on its Term Loan B Agreement. The interest rate caps are designated as cash flow hedges under ASC 815. As of September 30, 2020, Adient had two interest rate caps outstanding totaling approximately $200 million.
The fair value of cash and cash equivalents, accounts receivable, short-term debt and accounts payable approximate their carrying values. The fair value of long-term debt, which was $4.1 billion and $3.4 billion at September 30, 2020 and 2019, respectively, was determined primarily using market quotes classified as Level 1 inputs within the ASC 820 fair value hierarchy.
Adient plc | Form 10-K | 81
12. Stock-Based Compensation
Adient provides certain key employees equity awards in the form of restricted stock units (RSU) and performance share units (PSUs) under the Adient plc 2016 Omnibus Incentive Plan (the Plan) and provides directors with share awards under the Adient plc 2016 Director Share Plan. These plans were adopted in conjunction with the separation.
Total stock-based compensation cost included in the consolidated statements of income was $15 million, $20 million and $47 million for the fiscal years ended September 30, 2020, 2019 and 2018, respectively. No income tax benefits were recognized in the consolidated statements of income for the share-based compensation arrangements in any of these years due to tax valuation allowances in those years.
In conjunction with the separation, previously outstanding stock-based compensation awards granted under the former Parent's equity compensation programs prior to the separation and held by certain executives and employees of Adient were adjusted and converted into new Adient equity awards using a formula designated to preserve the intrinsic value of the awards. Upon the separation on October 31, 2016, holders of former Parent stock options, RSUs, and SARs generally received one ordinary share of Adient for every ten ordinary shares of the former parent held at the close of business on October 19, 2016, the record date of the distribution, and cash in lieu of fractional shares (if any) of Adient. Accordingly, certain executives and employees of Adient hold converted awards in both the former Parent and Adient shares subsequent to the separation. Converted awards retained the vesting schedule and expiration date of the original awards. Outstanding stock awards related to the former Parent stock are not included in Adient's dilutive share calculation.
The following tables present activity related to the conversion and granting of awards during the year ended September 30, 2020 along with the composition of outstanding and exercisable awards at September 30, 2020 for remaining former Parent and new Adient awards.
Restricted Stock
The Plan provides for the award of restricted stock or restricted stock units to certain employees. These awards are typically share settled except for certain non-U.S. employees or those who elected to defer past awards settlement until retirement at which point the award would be settled in cash. Cash settled awards are recorded in Adient's consolidated statements of financial position as a liability and adjusted each reporting period for changes in share value until the settlement of the award. Restricted stock awards typically vest over a three year period following the grant date. The Plan allows for different vesting terms on specific grants with approval by Adient's board of directors.
A summary of the status of nonvested restricted stock awards at September 30, 2020, and changes for the fiscal year then ended, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average
Price
|
|
Shares/Units
Subject to
Restriction
|
Nonvested, September 30, 2019
|
|
$
|
42.19
|
|
|
558,932
|
|
Granted
|
|
$
|
18.84
|
|
|
1,189,567
|
|
Vested
|
|
$
|
43.95
|
|
|
(287,300)
|
|
Forfeited
|
|
$
|
28.21
|
|
|
(126,360)
|
|
Nonvested, September 30, 2020
|
|
$
|
22.27
|
|
|
1,334,839
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
At September 30, 2020, Adient had approximately $18 million of total unrecognized compensation cost related to nonvested restricted stock arrangements granted. That cost is expected to be recognized over a weighted-average period of 1.6 years.
Performance Share Awards
The Plan permits the grant of PSU awards. The number of PSUs granted is equal to the PSU award value divided by the closing price of a Adient ordinary share at the grant date. The PSUs are generally contingent on the achievement of predetermined performance goals over a three-year performance period as well as on the award holder's continuous employment until the vesting date. Each PSU that is earned will be settled with an ordinary share of Adient following the completion of the
Adient plc | Form 10-K | 82
performance period except for certain non-U.S. employees or those who elected to defer a portion or all of past awards until retirement, which would then be settled in cash. Cash settled awards are recorded in Adient's consolidated statements of financial position as a liability and adjusted each reporting period for changes in share value until the settlement of the award.
A summary of the status of Adient's nonvested PSUs at September 30, 2020, and changes for the fiscal year then ended is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average
Price
|
|
Shares/Units
Subject to
PSU
|
Nonvested, September 30, 2019
|
|
$
|
34.61
|
|
|
632,072
|
|
Granted
|
|
$
|
20.69
|
|
|
497,335
|
|
Vested
|
|
$
|
44.60
|
|
|
(153,020)
|
|
Forfeited
|
|
$
|
24.52
|
|
|
(72,986)
|
|
Nonvested, September 30, 2020
|
|
$
|
26.07
|
|
|
903,401
|
|
At September 30, 2020, Adient had approximately $6 million of total unrecognized compensation cost related to nonvested performance share units granted. That cost is expected to be recognized over a weighted-average period of 1.7 years.
Stock Options
No new stock options have been granted under the Plan. Stock options were previously granted to eligible employees prior to the separation from the former Parent. Stock option awards typically vest between two and three years after the grant date and expire ten years from the grant date. The fair value of each option was estimated on the date of grant using a Black-Scholes option valuation model.
A summary of stock option activity at September 30, 2020, and changes for the year then ended, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average
Option Price
|
|
Shares
Subject to
Option
|
|
Weighted
Average
Remaining
Contractual
Life (years)
|
|
Aggregate
Intrinsic
Value
(in millions)
|
Outstanding, September 30, 2019
|
|
$
|
38.25
|
|
|
591,630
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
$
|
27.53
|
|
|
(50,900)
|
|
|
|
|
|
Forfeited or expired
|
|
$
|
26.79
|
|
|
(29,231)
|
|
|
|
|
|
Outstanding, September 30, 2020
|
|
$
|
40.09
|
|
|
511,499
|
|
|
3.4
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
Exercisable, September 30, 2020
|
|
$
|
40.09
|
|
|
511,499
|
|
|
3.4
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
Former Parent outstanding and exercisable, September 30, 2020
|
|
$
|
40.29
|
|
|
437,562
|
|
|
3.5
|
|
$
|
2
|
|
Adient outstanding and exercisable, September 30, 2020
|
|
$
|
38.93
|
|
|
73,937
|
|
|
2.7
|
|
$
|
—
|
|
Total outstanding and exercisable, September 30, 2020
|
|
$
|
40.09
|
|
|
511,499
|
|
|
3.4
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
There were no stock options granted in fiscal years 2020, 2019 and 2018 respectively. The total intrinsic value of options exercised by Adient employees during the fiscal years ended September 30, 2020, 2019 and 2018 was approximately $1 million, $5 million and $7 million, respectively, primarily consisting of former Parent awards.
Stock Appreciation Rights
No new SARs have been granted under the Plan. SARs vest under the same terms and conditions as stock option awards; however, they are settled in cash for the difference between the market price on the date of exercise and the exercise price. As a result, SARs are recorded in Adient's consolidated statements of financial position as a liability until the date of exercise.
The fair value of each SAR award is estimated using a similar method described for stock options. The fair value of each SAR award is recalculated at the end of each reporting period and the liability and expense are adjusted based on the new fair value.
Adient plc | Form 10-K | 83
A summary of SAR activity at September 30, 2020, and changes for the year then ended, is presented below:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average
SAR Price
|
|
Shares
Subject to
SAR
|
|
Weighted
Average
Remaining
Contractual
Life (years)
|
|
Aggregate
Intrinsic
Value
(in millions)
|
Outstanding, September 30, 2019
|
|
$
|
30.24
|
|
|
291,464
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
$
|
26.85
|
|
|
(105,377)
|
|
|
|
|
|
Forfeited or expired
|
|
$
|
25.12
|
|
|
(14,987)
|
|
|
|
|
|
Outstanding, September 30, 2020
|
|
$
|
32.78
|
|
|
171,100
|
|
|
2.4
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
Exercisable, September 30, 2020
|
|
$
|
32.78
|
|
|
171,100
|
|
|
2.4
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
Former Parent outstanding and exercisable, September 30, 2020
|
|
$
|
32.48
|
|
|
154,857
|
|
|
2.4
|
|
$
|
2
|
|
Adient outstanding and exercisable, September 30, 2020
|
|
$
|
35.72
|
|
|
16,243
|
|
|
2.4
|
|
$
|
—
|
|
Total outstanding and exercisable, September 30, 2020
|
|
$
|
32.78
|
|
|
171,100
|
|
|
2.4
|
|
$
|
2
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In conjunction with the exercise of SARs, Adient made payments of $1 million, $1 million and $3 million during the fiscal years ended September 30, 2020, 2019 and 2018, respectively.
13. Equity and Noncontrolling Interests
The following table presents changes in AOCI attributable to Adient:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
(in millions)
|
|
2020
|
|
2019
|
|
2018
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(558)
|
|
|
$
|
(523)
|
|
|
$
|
(398)
|
|
Aggregate adjustment for the period, net of tax
|
|
(76)
|
|
|
(35)
|
|
|
(125)
|
|
Balance at end of period
|
|
(634)
|
|
|
(558)
|
|
|
(523)
|
|
Realized and unrealized gains (losses) on derivatives
|
|
|
|
|
|
|
Balance at beginning of period
|
|
(8)
|
|
|
(7)
|
|
|
3
|
|
Current period changes in fair value, net of tax
|
|
(34)
|
|
|
(5)
|
|
|
(13)
|
|
Reclassification to income, net of tax
|
|
14
|
|
|
4
|
|
|
3
|
|
Balance at end of period
|
|
(28)
|
|
|
(8)
|
|
|
(7)
|
|
Pension plans
|
|
|
|
|
|
|
Balance at beginning of period
|
|
(3)
|
|
|
(1)
|
|
|
(2)
|
|
Net reclassifications to AOCI
|
|
—
|
|
|
(2)
|
|
|
1
|
|
Balance at end of period
|
|
(3)
|
|
|
(3)
|
|
|
(1)
|
|
Accumulated other comprehensive income (loss), end of period
|
|
$
|
(665)
|
|
|
$
|
(569)
|
|
|
$
|
(531)
|
|
Adient consolidates certain subsidiaries in which the noncontrolling interest party has within their control the right to require Adient to redeem all or a portion of its interest in the subsidiary. These redeemable noncontrolling interests are reported at their estimated redemption value. Any adjustment to the redemption value impacts retained earnings but does not impact net income. Redeemable noncontrolling interests which are redeemable only upon future events, the occurrence of which is not currently probable, are recorded at carrying value. The following table presents changes in the redeemable noncontrolling interests:
Adient plc | Form 10-K | 84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
(in millions)
|
|
2020
|
|
2019
|
|
2018
|
Beginning balance
|
|
$
|
51
|
|
|
$
|
47
|
|
|
$
|
28
|
|
Net income
|
|
19
|
|
|
30
|
|
|
24
|
|
Foreign currency translation adjustments
|
|
(4)
|
|
|
3
|
|
|
1
|
|
Dividends
|
|
(23)
|
|
|
(29)
|
|
|
(7)
|
|
Change in noncontrolling interest share
|
|
—
|
|
|
—
|
|
|
1
|
|
Ending balance
|
|
$
|
43
|
|
|
$
|
51
|
|
|
$
|
47
|
|
During March 2017, Adient declared a dividend of $0.275 per ordinary share, which was paid in April 2017. In July 2017, Adient declared a dividend of $0.275 per ordinary share, which was paid in August 2017. In September 2017, Adient declared a dividend of $0.275 per ordinary share, which was paid in November 2017. In November 2017, Adient declared a dividend of $0.275 per ordinary share, which was paid in February 2018. In March 2018, Adient declared a dividend of $0.275 per ordinary share, which was paid in May 2018. In June 2018, Adient declared a dividend of $0.275 per ordinary share, which was paid in August 2018. In October 2018, Adient declared a dividend of $0.275 per ordinary share, which was paid in November 2018. Adient suspended its cash dividends following the dividend paid in the first quarter of fiscal 2019.
14. Retirement Plans
Pension Benefits
Adient maintains non-contributory defined benefit pension plans covering primarily non-U.S. employees and a limited number of U.S. employees. The benefits provided are primarily based on years of service and average compensation or a monthly retirement benefit amount. Funding for non-U.S. plans observes the local legal and regulatory limits. Funding for U.S. pension plans equals or exceeds the minimum requirements of the Employee Retirement Income Security Act of 1974.
For pension plans with accumulated benefit obligations (ABO) that exceed plan assets, the projected benefit obligation (PBO), ABO and fair value of plan assets of those plans were $225 million, $201 million and $79 million, respectively, as of September 30, 2020 and $257 million, $230 million and $105 million, respectively, as of September 30, 2019.
In fiscal 2020, Adient paid contributions to the defined benefit pension plans of $19 million. Contributions of at least $17 million in cash to its defined benefit pension plans are expected in fiscal 2021. Projected benefit payments from the plans as of September 30, 2020 are estimated as follows (in millions):
|
|
|
|
|
|
2021
|
$
|
21
|
|
2022
|
24
|
|
2023
|
22
|
|
2024
|
24
|
|
2025
|
26
|
|
2026-2030
|
168
|
|
|
|
Savings and Investment Plans
Adient sponsors various defined contribution savings plans that allow employees to contribute a portion of their pre-tax and/or after-tax income in accordance with plan specified guidelines. Under specified conditions, Adient will contribute to certain savings plans based on the employees' eligible pay and/or will match a percentage of the employee contributions up to certain limits. Matching contributions expense in connection with these plans amounted to $36 million and $56 million for fiscal years 2020 and 2019, respectively.
Plan Assets
Adient's investment policies employ an approach whereby a mix of equities, fixed income and alternative investments are used to maximize the long-term return of plan assets for a prudent level of risk. The investment portfolio primarily contains a
Adient plc | Form 10-K | 85
diversified blend of equity and fixed income investments. Equity investments are diversified across domestic and non-domestic stocks, as well as growth, value and small to large capitalizations. Fixed income investments include corporate and government issues, with short-, mid- and long-term maturities, with a focus on investment grade when purchased and a target duration close to that of the plan liability. Investment and market risks are measured and monitored on an ongoing basis through regular investment portfolio reviews, annual liability measurements and periodic asset/liability studies. The majority of the real estate component of the portfolio is invested in a diversified portfolio of high-quality, operating properties with cash yields greater than the targeted appreciation. Investments in other alternative asset classes, including hedge funds and commodities, diversify the expected investment returns relative to the equity and fixed income investments. As a result of Adient's diversification strategies, there are no significant concentrations of risk within the portfolio of investments.
Adient's actual asset allocations are in line with target allocations. Adient rebalances asset allocations as appropriate, in order to stay within a range of allocation for each asset category.
The expected return on plan assets is based on Adient's expectation of the long-term average rate of return of the capital markets in which the plans invest. The average market returns are adjusted, where appropriate, for active asset management returns. The expected return reflects the investment policy target asset mix and considers the historical returns earned for each asset category. Adient's plan assets by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
|
(in millions)
|
|
Total as of
September 30,
2020
|
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Net Asset Value (NAV)
|
Pension
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
37
|
|
|
$
|
37
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity Securities
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
15
|
|
|
1
|
|
|
7
|
|
|
—
|
|
|
7
|
|
International - Developed
|
|
51
|
|
|
29
|
|
|
11
|
|
|
—
|
|
|
11
|
|
International - Emerging
|
|
3
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
—
|
|
Fixed Income Securities
|
|
|
|
|
|
|
|
|
|
|
Government
|
|
219
|
|
|
63
|
|
|
128
|
|
|
—
|
|
|
28
|
|
Corporate/Other
|
|
64
|
|
|
42
|
|
|
11
|
|
|
—
|
|
|
11
|
|
Hedge Fund
|
|
75
|
|
|
—
|
|
|
75
|
|
|
—
|
|
|
—
|
|
Real Estate
|
|
22
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
16
|
|
Total
|
|
$
|
486
|
|
|
$
|
172
|
|
|
$
|
235
|
|
|
$
|
6
|
|
|
$
|
73
|
|
Adient plc | Form 10-K | 86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
|
(in millions)
|
|
Total as of
September 30,
2019
|
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Net Asset Value (NAV)
|
Pension
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
31
|
|
|
$
|
31
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity Securities
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
15
|
|
|
2
|
|
|
7
|
|
|
—
|
|
|
6
|
|
International - Developed
|
|
49
|
|
|
36
|
|
|
10
|
|
|
—
|
|
|
3
|
|
International - Emerging
|
|
5
|
|
|
2
|
|
|
3
|
|
|
—
|
|
|
—
|
|
Fixed Income Securities
|
|
|
|
|
|
|
|
|
|
|
Government
|
|
218
|
|
|
75
|
|
|
117
|
|
|
—
|
|
|
26
|
|
Corporate/Other
|
|
66
|
|
|
55
|
|
|
—
|
|
|
—
|
|
|
11
|
|
Hedge Fund
|
|
65
|
|
|
—
|
|
|
65
|
|
|
—
|
|
|
—
|
|
Real Estate
|
|
21
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
15
|
|
Total
|
|
$
|
470
|
|
|
$
|
201
|
|
|
$
|
202
|
|
|
$
|
6
|
|
|
$
|
61
|
|
The following is a description of the valuation methodologies used for assets measured at fair value.
Cash: The fair value of cash is valued at cost.
Equity Securities: The fair value of equity securities is determined by direct quoted market prices. The underlying holdings are direct quoted market prices on regulated financial exchanges.
Fixed Income Securities: The fair value of fixed income securities is determined by direct or indirect quoted market prices. If indirect quoted market prices are utilized, the value of assets held in separate accounts is not published, but the investment managers report daily the underlying holdings. The underlying holdings are direct quoted market prices on regulated financial exchanges.
Hedge Funds: The fair value of hedge funds is determined by the custodian. The custodian obtains valuations from underlying managers based on market quotes for the most liquid assets and alternative methods for assets that do not have sufficient trading activity to derive prices. Adient and custodian review the methods used by the underlying managers to value the assets. Adient believes this is an appropriate methodology to obtain the fair value of these assets.
Real Estate: The fair value of certain investments in real estate is deemed Level 3 since these investments do not have a readily determinable fair value and requires the fund managers independently to arrive at fair value by calculating NAV per share. In order to calculate NAV per share, the fund managers value the real estate investments using any one, or a combination of, the following methods: independent third party appraisals, discounted cash flow analysis of net cash flows projected to be generated by the investment and recent sales of comparable investments. Assumptions used to revalue the properties are updated every quarter. Adient believes this is an appropriate methodology to obtain the fair value of these assets.
Investments at NAV: For mutual or collective funds where a NAV is not publicly quoted, the NAV per share is used as a practical expedient and is based on the quoted market prices of the underlying net assets of the fund as reported daily by the fund managers. Funds valued based on NAV per share as a practical expedient are not categorized within the fair value hierarchy.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while Adient believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
Adient plc | Form 10-K | 87
The following sets forth a summary of changes in the fair value of pension assets measured using significant unobservable inputs (Level 3):
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Real Estate
|
Pension
|
|
|
Asset value as of September 30, 2018
|
|
$
|
6
|
|
Redemptions
|
|
—
|
|
Asset value as of September 30, 2019
|
|
$
|
6
|
|
Redemptions
|
|
—
|
|
|
|
|
Asset value as of September 30, 2020
|
|
$
|
6
|
|
Funded Status
The table that follows contains the ABO and reconciliations of the changes in the PBO, the changes in plan assets and the funded status:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
(in millions)
|
|
2020
|
|
2019
|
|
|
|
|
Accumulated Benefit Obligation
|
|
$
|
582
|
|
|
$
|
571
|
|
|
|
|
|
Change in Projected Benefit Obligation:
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year
|
|
$
|
598
|
|
|
$
|
547
|
|
|
|
|
|
Service cost
|
|
7
|
|
|
7
|
|
|
|
|
|
Interest cost
|
|
10
|
|
|
13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Actuarial (gain) loss
|
|
16
|
|
|
96
|
|
|
|
|
|
Benefits paid
|
|
(22)
|
|
|
(40)
|
|
|
|
|
|
Settlements and curtailments
|
|
(11)
|
|
|
—
|
|
|
|
|
|
Divestitures
|
|
(12)
|
|
|
—
|
|
|
|
|
|
Currency translation adjustment
|
|
20
|
|
|
(25)
|
|
|
|
|
|
Projected benefit obligation at end of year
|
|
$
|
606
|
|
|
$
|
598
|
|
|
|
|
|
Change in Plan Assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
470
|
|
|
$
|
449
|
|
|
|
|
|
Actual return on plan assets
|
|
12
|
|
|
63
|
|
|
|
|
|
Employer contributions/(distributions)
|
|
19
|
|
|
19
|
|
|
|
|
|
Benefits paid
|
|
(22)
|
|
|
(40)
|
|
|
|
|
|
Settlements and curtailments
|
|
(10)
|
|
|
—
|
|
|
|
|
|
Divestitures
|
|
(1)
|
|
|
—
|
|
|
|
|
|
Currency translation adjustment
|
|
18
|
|
|
(21)
|
|
|
|
|
|
Fair value of plan assets at end of year
|
|
$
|
486
|
|
|
$
|
470
|
|
|
|
|
|
Funded status
|
|
$
|
(120)
|
|
|
$
|
(128)
|
|
|
|
|
|
Amounts recognized in the statement of financial position consist of:
|
|
|
|
|
|
|
|
|
Prepaid benefit cost
|
|
$
|
26
|
|
|
$
|
24
|
|
|
|
|
|
Accrued benefit liability
|
|
(146)
|
|
|
(152)
|
|
|
|
|
|
Net amount recognized
|
|
$
|
(120)
|
|
|
$
|
(128)
|
|
|
|
|
|
Adient plc | Form 10-K | 88
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
|
2020
|
|
2019
|
|
2020
|
|
2019
|
Weighted Average Assumptions (1):
|
|
|
|
|
|
|
|
|
Discount rate (2)
|
|
2.91
|
%
|
|
3.22
|
%
|
|
1.87
|
%
|
|
1.85
|
%
|
Rate of compensation increase
|
|
NA
|
|
NA
|
|
3.64
|
%
|
|
3.54
|
%
|
(1) Plan assets and obligations are determined based on a September 30 measurement date.
(2) Adient considers the expected benefit payments on a plan-by-plan basis when setting assumed discount rates. As a result, Adient uses different discount rates for each plan depending on the plan jurisdiction, the demographics of participants and the expected timing of benefit payments. For the U.S. pension plan, Adient uses a discount rate provided by an independent third party calculated based on an appropriate mix of high quality bonds. For the non-U.S. pension plans, Adient consistently uses the relevant country specific benchmark indices for determining the various discount rates.
Accumulated Other Comprehensive Income
The amounts in AOCI on the consolidated statements of financial position, exclusive of tax impacts, that have not yet been recognized as components of net periodic benefit cost at September 30, 2020 and 2019 were $3 million and $3 million, respectively, related to pension benefits.
The amounts in AOCI expected to be recognized as components of net periodic benefit cost over the next fiscal year for pension and postretirement benefits are not significant.
Net Periodic Benefit Cost
The tables that follow contain the components and key assumptions of net periodic benefit cost related to Adient’s pension plans:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
(in millions)
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Components of Net Periodic Benefit Cost (Credit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
7
|
|
|
$
|
7
|
|
|
$
|
8
|
|
|
|
|
|
|
|
Interest cost
|
|
10
|
|
|
13
|
|
|
14
|
|
|
|
|
|
|
|
Expected return on plan assets
|
|
(19)
|
|
|
(18)
|
|
|
(18)
|
|
|
|
|
|
|
|
Net actuarial (gain) loss
|
|
22
|
|
|
49
|
|
|
(24)
|
|
|
|
|
|
|
|
Settlement (gain) loss
|
|
1
|
|
|
2
|
|
|
—
|
|
|
|
|
|
|
|
Net periodic benefit cost (credit)
|
|
$
|
21
|
|
|
$
|
53
|
|
|
$
|
(20)
|
|
|
|
|
|
|
|
A $15 million settlement gain was recorded in fiscal 2018 related to the termination of a postretirement plan.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
|
|
|
|
|
|
|
2020
|
|
2019
|
|
2018
|
|
2020
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Expense Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
3.34
|
%
|
|
4.29
|
%
|
|
3.85
|
%
|
|
1.85
|
%
|
|
2.71
|
%
|
|
2.62
|
%
|
|
|
|
|
|
|
Expected return on plan assets
|
|
5.00
|
%
|
|
5.00
|
%
|
|
5.15
|
%
|
|
4.01
|
%
|
|
4.08
|
%
|
|
4.19
|
%
|
|
|
|
|
|
|
Rate of compensation increase
|
|
N/A
|
|
NA
|
|
NA
|
|
3.66
|
%
|
|
3.46
|
%
|
|
3.53
|
%
|
|
|
|
|
|
|
15. Restructuring and Impairment Costs
Adient plc | Form 10-K | 89
To better align its resources with its overall strategies and reduce the cost structure of its global operations to address the softness in certain underlying markets, Adient commits to restructuring plans as necessary.
During fiscal 2020, Adient committed to a restructuring plan ("2020 Plan") of $205 million. Of the restructuring costs recorded, $20 million relates to the Americas segment, $175 million relates to the EMEA segment and $10 million relates to the Asia segment. The restructuring actions relate to cost reduction initiatives and consist primarily of workforce reductions. The restructuring actions are expected to be substantially completed by fiscal 2024. Also recorded in fiscal 2020 is $20 million of prior year underspend.
The following table summarizes the changes in Adient's 2020 Plan reserve:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Employee Severance and Termination Benefits
|
|
|
|
Other
|
|
Currency
Translation
|
|
Total
|
Original Reserve
|
|
$
|
203
|
|
|
|
|
$
|
2
|
|
|
$
|
—
|
|
|
$
|
205
|
|
Utilized—cash
|
|
(35)
|
|
|
|
|
—
|
|
|
—
|
|
|
(35)
|
|
Noncash adjustment—other
|
|
—
|
|
|
|
|
(2)
|
|
|
1
|
|
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2020
|
|
$
|
168
|
|
|
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
169
|
|
During fiscal 2019, Adient committed to a restructuring plan ("2019 Plan") of $105 million. Of the restructuring costs recorded, $81 million relates to the EMEA segment, $16 million relates to the Americas segment and $8 million relates to the Asia segment. The restructuring actions relate to cost reduction initiatives and consist primarily of workforce reductions. The restructuring actions are expected to be substantially completed by fiscal 2021. Also recorded in fiscal 2019 is $16 million of prior year underspend, a $9 million increase to a prior year reserve and $6 million of recoveries from a customer related to previous restructuring charges.
The following table summarizes the changes in Adient's 2019 Plan reserve:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Employee Severance and Termination Benefits
|
|
Other
|
|
Currency Translation
|
|
Total
|
Original Reserve
|
|
$
|
101
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
105
|
|
Utilized—cash
|
|
(32)
|
|
|
—
|
|
|
—
|
|
|
(32)
|
|
Utilized—noncash
|
|
—
|
|
|
(1)
|
|
|
(2)
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2019
|
|
$
|
69
|
|
|
$
|
3
|
|
|
$
|
(2)
|
|
|
$
|
70
|
|
|
|
|
|
|
|
|
|
|
Utilized—cash
|
|
(30)
|
|
|
—
|
|
|
—
|
|
|
(30)
|
|
Utilized—noncash
|
|
—
|
|
|
—
|
|
|
2
|
|
|
2
|
|
Noncash adjustment—underspend
|
|
(7)
|
|
|
—
|
|
|
—
|
|
|
(7)
|
|
Balance at September 30, 2020
|
|
$
|
32
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
35
|
|
In fiscal 2018, Adient committed to a restructuring plan ("2018 Plan") of $71 million that was offset by $20 million of underspend in the 2016 Plan and $5 million of underspend related to other plan years. Of the restructuring costs recorded, $52 million relates to the EMEA segment, $10 million relates to the Asia segment and $9 million relates to the Americas segment. In fiscal 2019 there was adjustment to this plan which resulted in additional $9 million of charges. This is the total amount expected to be incurred for this restructuring plan. The restructuring actions relate to cost reduction initiatives and consist primarily of workforce reductions. The restructuring actions are expected to be substantially completed by fiscal 2021.
Adient plc | Form 10-K | 90
The following table summarizes the changes in Adient's 2018 Plan reserve:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Employee Severance and Termination Benefits
|
|
|
|
Other
|
|
Currency
Translation
|
|
Total
|
Original Reserve
|
|
$
|
68
|
|
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
71
|
|
Utilized—cash
|
|
(19)
|
|
|
|
|
—
|
|
|
—
|
|
|
(19)
|
|
Utilized—noncash
|
|
—
|
|
|
|
|
(2)
|
|
|
(2)
|
|
|
(4)
|
|
Balance at September 30, 2018
|
|
49
|
|
|
|
|
1
|
|
|
(2)
|
|
|
48
|
|
Reserve adjustment
|
|
9
|
|
|
|
|
—
|
|
|
—
|
|
|
9
|
|
Utilized—cash
|
|
(24)
|
|
|
|
|
—
|
|
|
—
|
|
|
(24)
|
|
Utilized—noncash
|
|
—
|
|
|
|
|
(1)
|
|
|
(2)
|
|
|
(3)
|
|
Noncash adjustment—underspend
|
|
(10)
|
|
|
|
|
—
|
|
|
—
|
|
|
(10)
|
|
Balance at September 30, 2019
|
|
$
|
24
|
|
|
|
|
$
|
—
|
|
|
$
|
(4)
|
|
|
$
|
20
|
|
Utilized—cash
|
|
(9)
|
|
|
|
|
—
|
|
|
—
|
|
|
(9)
|
|
Utilized—noncash
|
|
—
|
|
|
|
|
—
|
|
|
1
|
|
|
1
|
|
Noncash adjustment—underspend
|
|
(7)
|
|
|
|
|
—
|
|
|
—
|
|
|
(7)
|
|
Balance at September 30, 2020
|
|
$
|
8
|
|
|
|
|
$
|
—
|
|
|
$
|
(3)
|
|
|
$
|
5
|
|
In fiscal 2017, Adient committed to a restructuring plan ("2017 Plan") and recorded $46 million of restructuring and impairment costs in the consolidated statements of income. Of the restructuring costs recorded, $34 million relates to the EMEA segment, $7 million relates to the Americas segment and $5 million relates to the Asia segment. This is the total amount expected to be incurred for this restructuring plan. The restructuring actions relate to cost reduction initiatives and consist primarily of workforce reductions and plant closures. The restructuring actions were substantially completed in fiscal 2020. There were no material changes during fiscal 2020 to the 2017 Plan reserve balance at September 30, 2020 of $3 million.
In fiscal 2016, Adient committed to a restructuring plan ("2016 Plan") and recorded $332 million of restructuring and impairment costs in the consolidated statements of income. This is the total amount expected to be incurred for this restructuring plan. The restructuring actions relate to cost reduction initiatives and consist primarily of workforce reductions, plant closures and asset impairments. Of the restructuring and impairment costs recorded, $298 million relates to the EMEA segment, $32 million relates to the Americas segment and $2 million relates to the Asia segment. The asset impairment charge recorded during fiscal 2016 related primarily to information technology assets within the EMEA segment that will not be used going forward by Adient. The restructuring actions are expected to be substantially complete in fiscal 2021. There were no material changes during fiscal 2020 to the 2016 Plan reserve balance at September 30, 2020 of $25 million. Since the announcement of the 2016 Plan in fiscal 2016, Adient has experienced lower employee severance and termination benefit cash payouts than previously calculated of approximately $20 million, due to changes in cost reduction actions. The planned workforce reductions disclosed for the 2016 Plan have been updated for Adient's revised actions.
Adient's restructuring plans have included workforce reductions of approximately 17,000. Restructuring charges associated with employee severance and termination benefits are paid over the severance period granted to each employee or on a lump sum basis in accordance with individual severance agreements. As of September 30, 2020, approximately 12,000 of the employees have been separated from Adient pursuant to the restructuring plans. In addition, the restructuring plans included twenty-three plant closures. As of September 30, 2020, seventeen of the twenty-three plants have been closed.
Adient's management closely monitors its overall cost structure and continually analyzes each of its businesses for opportunities to consolidate current operations, improve operating efficiencies and locate facilities in low cost countries in close proximity to customers. This ongoing analysis includes a review of its manufacturing, engineering, purchasing and administrative functions, as well as the overall global footprint for all its businesses. Because of the importance of new vehicle sales by major automotive manufacturers to operations, Adient is affected by the general business conditions in the automotive industry. Future adverse developments in the automotive industry, particularly related to the COVID-19 pandemic, could impact Adient's liquidity position, lead to impairment charges and/or require additional restructuring of its operations.
Adient plc | Form 10-K | 91
16. Impairment of Long-Lived Assets
Adient reviews long-lived assets, including property, plant and equipment and other intangible assets with definite lives, for impairment whenever events or changes in circumstances indicate that the asset's carrying amount may not be recoverable. Adient conducts its long-lived asset impairment analyses in accordance with ASC 360, "Impairment or Disposal of Long-Lived Assets." ASC 360 requires Adient to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals.
During the fourth quarter of fiscal 2020, a pre-tax non-cash impairment of $21 million was recorded on certain assets held for sale (of which $12 million related to America’s assets and $9 million related to China’s assets), and $5 million was recorded in the Asia segment related to long-lived assets within a separate China entity due to an overall decline in the forecasted operations within that business. During the third quarter of fiscal 2020, a pre-tax non-cash impairment of $27 million was recorded in the Asia segment related to customer relationship intangible assets of $24 million and other long-lived assets of $3 million within the Futuris China business due to an overall decline in forecasted operations within that business. All of the fiscal 2020 impairment charges are recorded within restructuring and impairment costs on the consolidated statement of income (loss). Refer to Note 3, “Acquisitions and Divestitures” of the notes to the consolidated financial statements for additional information on assets held for sale. Refer to Note 6, "Goodwill and Other Intangible Assets," of the notes to the consolidated financial statements for additional information on impairment of customer relationship intangible assets.
During the fourth quarter of fiscal 2019, Adient recorded impairment on certain assets held for sale resulting in an impairment charge of $12 million which was recorded within restructuring and impairment costs on the consolidated statement of income (loss). In the second quarter of fiscal 2019, Adient concluded it had triggering events requiring assessment of impairment for certain of its long-lived assets in the seat structure and mechanism operations due to declines in actual and forecasted performance that worsened during the second quarter of fiscal 2019 as compared to originally forecasted results. As a result, Adient reviewed the long-lived assets for impairment and recorded a $66 million non-cash pre-tax impairment charge within restructuring and impairment costs on the consolidated statements of income (loss). The impairment charge related to long-lived assets in North America and Europe asset groups as of March 31, 2019 in support of current programs. Of the $66 million impairment charge, $62 million related to fixed assets, and $4 million related to customer relationship intangible assets. The impairment was measured under a market approach utilizing appraisal techniques to determine fair values of the impaired assets. This method is consistent with methods Adient employed in prior periods to value other long-lived assets. The inputs utilized in the analysis are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair value measurement" and primarily consist of estimated salable values and third party appraisal techniques such as market comparables. To the extent that the profitability on current or future programs decline as compared to forecasted profitability or if adverse changes occur to key assumptions or other fair value measurement inputs, further impairment of long-lived assets could occur in the future. During the first quarter of fiscal 2019, impairments of $6 million were recorded related to assets held for sale.
In the fourth quarter of fiscal 2018, Adient concluded it had triggering events requiring assessment of impairment for certain of its long-lived assets in the seat structure and mechanism operations due to the significant performance issues that persisted in fiscal 2018 and the resulting actions to turn around such operations identified during the fiscal 2019 planning process. As a result, Adient reviewed the long-lived assets for impairment and recorded a $787 million non-cash pre-tax impairment charge within restructuring and impairment costs on the consolidated statements of income (loss). The impairment charge related to long-lived assets in North America and Europe asset groups as of September 30, 2018 in support of current programs. Of the $787 million impairment charge, $768 million relates to fixed assets and $19 million relates to customer relationship intangible asset. The impairment was measured, depending on the asset, either under an income approach utilizing forecasted discounted cash flows or a market approach utilizing appraisal techniques to determine fair values of the impaired assets. These methods are consistent with the methods Adient employed in prior periods to value other long-lived assets. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value Measurement" and primarily consist of expected future operating margins and cash flows, estimated production volumes, weighted average cost of capital rates (13.0%), estimated salable values and third-party appraisal techniques such as market comparables. To the extent that profitability on current or future programs decline as compared to forecasted profitability or if adverse changes occur to key assumptions or other fair value measurement inputs, further impairment of long-lived assets could occur in the future. Refer to Note 6, "Goodwill and Other Intangible Assets," and Note 5, "Property, Plant and Equipment," of the notes to the consolidated financial statements for additional information.
Adient plc | Form 10-K | 92
See Note 19, "Nonconsolidated Partially-Owned Affiliates," for information on the fiscal 2020 and 2018 impairment of investments in partially owned affiliates.
17. Income Taxes
Consolidated income (loss) before income taxes and noncontrolling interests for the years ended September 30, 2020, 2019, and 2018 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions)
|
|
2020
|
|
2019
|
|
2018
|
Ireland
|
|
$
|
(3)
|
|
|
$
|
(1)
|
|
|
$
|
4
|
|
United States
|
|
(111)
|
|
|
(170)
|
|
|
(324)
|
|
Other Foreign
|
|
(315)
|
|
|
173
|
|
|
(801)
|
|
Income before income taxes and noncontrolling interests
|
|
$
|
(429)
|
|
|
$
|
2
|
|
|
$
|
(1,121)
|
|
The components of the provision (benefit) for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions)
|
|
2020
|
|
2019
|
|
2018
|
Current
|
|
|
|
|
|
|
Ireland
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
US - Federal and State
|
|
(1)
|
|
|
4
|
|
|
7
|
|
Other Foreign
|
|
91
|
|
|
118
|
|
|
128
|
|
|
|
90
|
|
|
122
|
|
|
136
|
|
Deferred
|
|
|
|
|
|
|
Ireland
|
|
—
|
|
|
—
|
|
|
—
|
|
US - Federal and State
|
|
—
|
|
|
1
|
|
|
417
|
|
Other Foreign
|
|
(33)
|
|
|
287
|
|
|
(73)
|
|
|
|
(33)
|
|
|
288
|
|
|
344
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
57
|
|
|
$
|
410
|
|
|
$
|
480
|
|
The significant components of Adient's income tax provision are summarized in the following tables. These amounts do not include the impact of income tax expense related to our nonconsolidated partially-owned affiliates, which is netted against equity income on the consolidated statements of income (loss).
The reconciliation between the Irish statutory income tax rate, and Adient’s effective tax rate is as follows:
Adient plc | Form 10-K | 93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions)
|
|
2020
|
|
2019
|
|
2018
|
Tax expense at Ireland statutory rate
|
|
$
|
(54)
|
|
|
$
|
—
|
|
|
$
|
(140)
|
|
State and local income taxes, net of federal benefit
|
|
(30)
|
|
|
(41)
|
|
|
(60)
|
|
Foreign tax rate differential
|
|
(127)
|
|
|
(109)
|
|
|
(146)
|
|
Notional interest deduction
|
|
(44)
|
|
|
(63)
|
|
|
(66)
|
|
Credits and incentives
|
|
(7)
|
|
|
(9)
|
|
|
(13)
|
|
|
|
|
|
|
|
|
Goodwill impairment
|
|
9
|
|
|
—
|
|
|
(21)
|
|
Repatriation of foreign earnings
|
|
18
|
|
|
31
|
|
|
36
|
|
Foreign exchange
|
|
(1)
|
|
|
2
|
|
|
3
|
|
Impact of enacted tax rate changes
|
|
(3)
|
|
|
(5)
|
|
|
23
|
|
Impact of U.S. tax reform
|
|
—
|
|
|
—
|
|
|
210
|
|
Change in uncertain tax positions
|
|
56
|
|
|
107
|
|
|
97
|
|
Change in valuation allowance
|
|
332
|
|
|
503
|
|
|
554
|
|
Impairment of subsidiaries
|
|
(24)
|
|
|
(3)
|
|
|
—
|
|
Tax impact of corporate equity transactions
|
|
(77)
|
|
|
—
|
|
|
—
|
|
Other
|
|
9
|
|
|
(3)
|
|
|
3
|
|
Income tax provision
|
|
$
|
57
|
|
|
$
|
410
|
|
|
$
|
480
|
|
The income tax expense was higher than the Irish statutory rate of 12.5% for fiscal 2020 primarily due to the inability to recognize a tax benefit for losses in jurisdictions with valuation allowances, the repatriation of foreign earnings, and changes in uncertain tax positions, partially offset by the tax benefits related to the impairment and sale of Adient’s YFAI investment, sale of Adient’s automotive fabrics manufacturing business, and impairment charges recorded in the Asia segment. No items included in the other category are individually, or when appropriately aggregated, significant.
The income tax expense was higher than the Irish statutory rate of 12.5% for fiscal 2019 primarily due to the recognition of valuation allowances in Luxembourg, Poland, and the United Kingdom, the repatriation of foreign earnings, changes in uncertain tax positions and the impact of recognizing no tax benefit for losses in jurisdictions with valuation allowances. No items included in the other category are individually, or when appropriately aggregated, significant.
The effective rate was lower than the Irish statutory rate of 12.5% for fiscal 2018 primarily due to the charge to recognize the impact of U.S. tax reform legislation, repatriation of foreign earnings, and changes in uncertain tax positions and valuation allowances, partially offset by benefits from global tax planning, notional interest deductions, foreign tax rate differentials, and impairment deductions. No items included in the other category are individually, or when appropriately aggregated, significant.
The foreign tax rate differential benefit for fiscal 2020 is primarily driven by losses earned in jurisdictions where the statutory rate is greater than 12.5% and by the pretax book income of nonconsolidated partially-owned affiliates whose corresponding income tax expense is netted against equity income on the consolidated statements of income. The foreign tax rate differential benefit for fiscal 2019 is primarily driven by losses earned in jurisdictions where the statutory rate is greater than 12.5% and by the pretax book income of nonconsolidated partially-owned affiliates whose corresponding income tax expense is netted against equity income on the consolidated statements of income. The foreign tax rate differential benefit for fiscal 2018 was primarily driven by losses earned in jurisdictions where the statutory rate is greater than 12.5%.
Deferred taxes are classified in the consolidated statements of financial position as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
(in millions)
|
|
2020
|
|
2019
|
Other noncurrent assets
|
|
$
|
178
|
|
|
$
|
199
|
|
Other noncurrent liabilities
|
|
(175)
|
|
|
(206)
|
|
Net deferred tax asset/(liability)
|
|
$
|
3
|
|
|
$
|
(7)
|
|
Adient plc | Form 10-K | 94
Temporary differences and carryforwards which gave rise to deferred tax assets and liabilities included:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
(in millions)
|
|
2020
|
|
2019
|
Deferred tax assets:
|
|
|
|
|
Accrued expenses and reserves
|
|
$
|
115
|
|
|
$
|
73
|
|
Employee and retiree benefits
|
|
53
|
|
|
43
|
|
Net operating loss and other credit carryforwards
|
|
1,072
|
|
|
751
|
|
Property, plant and equipment
|
|
163
|
|
|
161
|
|
Intangible assets
|
|
257
|
|
|
308
|
|
Operating lease liabilities
|
|
80
|
|
|
—
|
|
Foreign currency adjustments
|
|
17
|
|
|
2
|
|
Research and development
|
|
20
|
|
|
16
|
|
|
|
|
|
|
Other
|
|
3
|
|
|
5
|
|
|
|
1,780
|
|
|
1,359
|
|
Valuation allowances
|
|
(1,656)
|
|
|
(1,304)
|
|
|
|
124
|
|
|
55
|
|
Deferred tax liabilities:
|
|
|
|
|
Unremitted earnings of foreign subsidiaries
|
|
41
|
|
|
62
|
|
Operating lease right-of-use assets
|
|
80
|
|
|
—
|
|
|
|
121
|
|
|
62
|
|
Net deferred tax asset/(liability)
|
|
$
|
3
|
|
|
$
|
(7)
|
|
At September 30, 2020, Adient had available net operating loss carryforwards of approximately $4.0 billion which are available to reduce future tax liabilities. Net operating loss carryforwards of $2.6 billion will expire at various dates between 2021 and 2040, with the remainder having an indefinite carryforward period. Net operating loss carryforwards of $2.7 billion are offset by a valuation allowance.
Adient reviews the realizability of its deferred tax assets on a quarterly basis, or whenever events or changes in circumstances indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or combined group recording the net deferred tax asset are considered, along with any other positive or negative evidence. All of the factors that Adient considers in evaluating whether and when to establish or release all or a portion of the deferred tax asset valuation allowance involve significant judgment. Since future financial results may differ from previous estimates, periodic adjustments to Adient's valuation allowances may be necessary.
As a result of Adient's fiscal 2020 analysis of the realizability of its worldwide deferred tax assets, and after considering tax planning initiatives and other positive and negative evidence, Adient determined it was more likely than not that deferred tax assets in certain jurisdictions would not be realized. These valuation allowances did not have a material impact on the consolidated financial statements. Adient continues to record valuation allowances on certain deferred tax assets in Germany, Hungary, Luxembourg, Mexico, Poland, Spain, the United Kingdom, the U.S. and other jurisdictions as it remains more likely than not that they will not be realized.
As a result of Adient's fiscal 2019 analysis of the realizability of its worldwide deferred tax assets, and after considering tax planning initiatives and other positive and negative evidence (including the external debt refinancing, the related incremental net financing costs, and the restructuring of the internal financing which occurred in the third quarter of fiscal 2019 and including the long-lived asset impairment recorded in the second quarter of fiscal 2019), Adient determined it was more likely than not that deferred tax assets in Luxembourg (Q3), the United Kingdom (Q3) and certain Poland entities (Q2) would not be realized and recorded income tax expense of $229 million, $25 million and $43 million, respectively, to establish valuation allowances.
Adient plc | Form 10-K | 95
As a result of Adient's fiscal 2018 analysis of the realizability of its worldwide deferred tax assets, and after considering tax planning initiatives and other positive and negative evidence (including the seat structure and mechanism operations long-lived asset impairment recorded in the fourth quarter of fiscal 2018), Adient determined that it was more likely than not that deferred tax assets within the following jurisdictions would not be realized and recorded net valuation allowances as income tax expense in the fourth quarter of fiscal 2018: Belgium ($12 million), Canada ($6 million), Germany ($175 million), Hungary ($14 million), Mexico ($117 million), Poland ($8 million), Romania ($9 million), and the U.S. ($281 million). Germany, Hungary, Mexico, Poland, Romania, and the U.S. cumulative loss positions were all adversely impacted by the seat structure and mechanism operations performance issues and resulting long-lived asset impairment. In addition, as a result of Adient's fiscal 2018 analysis, Adient determined that it was more likely than not that deferred tax assets within Brazil would be realized. Therefore, Adient released $76 million of valuation allowance as an income tax benefit in the fourth quarter of fiscal 2018.
Adient is subject to income taxes in Ireland, the U.S. and other foreign jurisdictions. The following table provides the earliest open tax year by major jurisdiction for which Adient could be subject to income tax examination by the tax authorities:
|
|
|
|
|
|
|
|
|
Tax Jurisdiction
|
|
Earliest Year Open
|
Brazil
|
|
2014
|
China
|
|
2011
|
Czech Republic
|
|
2012
|
France
|
|
2017
|
Germany
|
|
2016
|
Hong Kong
|
|
2014
|
Japan
|
|
2015
|
Luxembourg
|
|
2014
|
Mexico
|
|
2015
|
Poland
|
|
2010
|
Spain
|
|
2013
|
United Kingdom
|
|
2014
|
United States
|
|
2017
|
Adient regularly assesses the likelihood of an adverse outcome resulting from examinations to determine the adequacy of its tax reserves. For the year ended September 30, 2020, Adient believes that it is more likely than not that the tax positions it has taken will be sustained upon the resolution of its audits resulting in no material impact on its consolidated financial statements. However, the final determination with respect to tax audits and any related litigation could be materially different from Adient’s estimates.
For the years ended September 30, 2020, 2019 and 2018, Adient had gross tax effected unrecognized tax benefits of $483 million, $414 million, and $288 million, respectively. If recognized, $133 million of Adient's unrecognized tax benefits would impact the effective tax rate. Total net accrued interest for the years ended September 30, 2020, 2019 and 2018, was approximately $15 million, $10 million and $5 million, respectively (net of tax benefit). Adient recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense.
Adient plc | Form 10-K | 96
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
(in millions)
|
|
2020
|
|
2019
|
|
2018
|
Beginning balance
|
|
$
|
414
|
|
|
$
|
288
|
|
|
$
|
193
|
|
Additions for tax positions related to the current year
|
|
96
|
|
|
108
|
|
|
110
|
|
Additions for tax positions of prior years
|
|
17
|
|
|
45
|
|
|
12
|
|
Reductions for tax positions of prior years
|
|
(38)
|
|
|
(22)
|
|
|
(21)
|
|
Settlements with taxing authorities
|
|
(4)
|
|
|
—
|
|
|
—
|
|
Statute closings
|
|
(2)
|
|
|
(5)
|
|
|
(6)
|
|
Ending balance
|
|
$
|
483
|
|
|
$
|
414
|
|
|
$
|
288
|
|
During the next twelve months, it is reasonably possible that tax audit resolutions or applicable statute of limitation lapses could reduce the unrecognized tax benefits and income tax expense. Adient does not anticipate that this will result in a material impact to its consolidated financial statements.
Adient has $16.8 billion of undistributed foreign earnings of which $409 million is deemed permanently reinvested and no deferred taxes have been provided on such earnings. It is not practicable to determine the unrecognized deferred tax liability on these earnings because the actual tax liability, if any, is dependent on circumstances existing when remittance occurs.
Income taxes paid for the fiscal year ended September 30, 2020 were $98 million. Income taxes paid for the fiscal year ended September 30, 2019 were $102 million. Income taxes paid for the fiscal year ended September 30, 2018 were $139 million.
Impacts of Tax Legislation and Change in Statutory Tax Rates
On March 27, 2020, the House passed the Coronavirus Aid, Relief, and Economic Security Act (The CARES Act), also known as the Third COVID-19 Supplemental Relief bill, and the president signed the legislation into law. Adient does not expect the provisions of the legislation to have a significant impact on the effective tax rate or the income tax payable and deferred income tax positions of the Company.
During the fourth quarter of 2019, certain deferred tax liabilities were remeasured to reflect a reduction in withholding tax rate on the earnings of our nonconsolidated partially owned affiliates resulting in a benefit of $9 million.
During the third quarter of fiscal 2019, Luxembourg enacted legislation reducing the nominal corporate tax rate to 17% from 18%. For Adient, this reduced its aggregate income tax rate to 24.9% from 26.0% and applies retroactively to the fiscal 2019 tax year. As a result of the law change, Adient recorded income tax expense of $10 million related to the write down of deferred tax assets.
During the first quarter of fiscal 2019, GAAS (a subsidiary of Adient in China) was approved for High and New Tech Enterprise status for the three-year period of 2018 to 2020, thereby reducing their tax rate from 25% to 15%. As a result, a $7 million income tax benefit was recorded on the reduction of deferred tax liabilities and a reduction of 2018 calendar year income taxes.
On December 22, 2017, the Act was signed and enacted into law, and is effective for tax years beginning on or after January 1, 2018, with the exception of certain provisions. As a fiscal year taxpayer, Adient was not subject to the majority of the provisions until fiscal year 2019, however the statutory tax rate reduction was effective January 1, 2018. The Act reduced the U.S. corporate tax rate from 35% to 21%. Adient’s fiscal 2018 income tax expense reflects the benefit from the reduced rate of 24.5% resulting from the application of Internal Revenue Code, Section 15 which provides for a proration of the newly enacted rate during that fiscal year. This benefit was offset by a non-cash tax expense of $106 million related to the remeasurement of Adient’s net deferred tax assets at the lower statutory rate, a non-cash estimated tax expense of $100 million related to recording a valuation allowance to reflect the reduced benefit Adient expects to realize as a result of being subject to the Base Erosion and Anti-avoidance Tax ("BEAT"), and tax expense of $4 million related to the transition tax imposed on previously untaxed earnings and profits. During the first quarter of fiscal 2019, Adient completed its accounting for the Act BEAT valuation allowance resulting in no change to the $100 million income tax impact estimated in fiscal 2018.
Adient plc | Form 10-K | 97
During fiscal years 2020, 2019, and 2018, other tax legislation was adopted in various jurisdictions. These law changes did not have a material impact on the consolidated financial statements.
Tax Impact of One-Time Items
In fiscal 2020, Adient committed to a restructuring plan (“2020 Plan”) of $205 million. Refer to Note 15, "Restructuring and Impairment Costs," of the notes to the consolidated financial statements for additional information. The restructuring costs generated a $6 million tax benefit, which was negatively impacted by geographic mix and Adient’s current tax position in these jurisdictions.
During the fourth quarter of fiscal 2020, Adient sold its investment in YFAI and its automotive fabrics manufacturing business. Refer to Note 3, “Acquisitions and Divestitures,” of the notes to the consolidated financial statements for additional information. The tax benefits associated with the sales of the YFAI investment and automotive fabrics manufacturing business were $12 million and $3 million, respectively.
During the third quarter of fiscal 2020, an impairment charge of $27 million was recorded in the Asia segment related to customer relationship intangible assets. Refer to Note 6, “Goodwill and Other Intangible Assets,” of the notes to the consolidated financial statements for additional information. The tax benefit associated with the impairment charge was $5 million.
During the first quarter of fiscal 2020, Adient recognized a pre-tax non-cash impairment of $216 million in equity income related to Adient's YFAI investment. Refer to Note 3, “Acquisitions and Divestitures,” of the notes to the consolidated financial statements for additional information. The tax benefit associated with the impairment charge was $4 million. An additional impairment of $6 million was recorded in the third quarter of fiscal 2020 related to this investment, with no additional tax benefit being recorded.
In fiscal 2019, Adient committed to a significant restructuring plan (“2019 Plan”) and recorded a net $92 million of restructuring and impairment costs in the consolidated statements of income. Refer to Note 15, "Restructuring and Impairment Costs," of the notes to the consolidated financial statements for additional information. The restructuring costs generated a $5 million tax benefit, which was negatively impacted by geographic mix and Adient’s current tax position in these jurisdictions.
During the second quarter of fiscal 2019, Adient recognized a pre-tax impairment charge on long-lived assets of $66 million. Refer to Note 16, "Impairment of Long-Lived Assets," of the notes to the consolidated financial statements for additional information. The tax benefit associated with the impairment charge was $2 million, which was negatively impacted by geographic mix and Adient’s current tax position in these jurisdictions.
In fiscal 2018, Adient committed to a significant restructuring plan (“2018 Plan”) and recorded a net $46 million of restructuring and impairment costs in the consolidated statements of income. Refer to Note 15, "Restructuring and Impairment Costs," of the notes to the consolidated financial statements for additional information. The restructuring costs generated a $6 million tax benefit, which was negatively impacted by geographic mix and Adient’s current tax position in these jurisdictions. The disclosed tax benefit is prior to valuation allowances recorded during the fourth quarter of fiscal 2018.
During the fourth quarter of fiscal 2018, Adient recognized a pre-tax impairment charge on long-lived assets of $787 million within the seat structure and mechanism operations. Refer to Note 16, "Impairment of Long-Lived Assets," of the notes to the consolidated financial statements for additional information. The tax benefit associated with the impairment charge was $185 million, which was negatively impacted by geographic mix and Adient’s current tax position in these jurisdictions. The disclosed tax benefit is prior to valuation allowances recorded during the fourth quarter of fiscal 2018.
In addition during the fourth quarter of fiscal 2018, Adient recognized a pre-tax non-cash impairment charge of $358 million in equity income related to Adient’s YFAI investment balance within the Interiors segment. Refer to Note 19, "Nonconsolidated Partially-Owned Affiliates," of the notes to the consolidated financial statements for additional information. The tax benefit associated with the impairment charge was $36 million.
During the third and fourth quarters of fiscal 2018, Adient recognized a net pre-tax impairment charge of $49 million related to assets classified as held for sale. Refer to Note 3, "Acquisitions and Divestitures," of the notes to the consolidated financial statements for additional information. The tax benefit associated with the impairment charge was $14 million. The disclosed tax
Adient plc | Form 10-K | 98
benefit is prior to valuation allowances recorded during the fourth quarter of fiscal 2018.
During the second quarter of fiscal 2018, Adient recognized a pre-tax goodwill impairment charge of $299 million related to the seat structure and mechanism operations. Refer to Note 6, "Goodwill and Other Intangible Assets," of the notes to the consolidated financial statements for additional information. The tax benefit associated with the goodwill impairment charge was $20 million.
18. Segment Information
Adient manages its business on a geographic basis and operates in the following three reportable segments for financial reporting purposes: 1) Americas, which is inclusive of North America and South America; 2) Europe, Middle East, and Africa ("EMEA") and 3) Asia Pacific/China ("Asia").
Adient evaluates the performance of its reportable segments using an adjusted EBITDA metric defined as income before income taxes and noncontrolling interests, excluding net financing charges, restructuring and impairment costs, restructuring related-costs, net mark-to-market adjustments on pension and postretirement plans, transaction gains/losses, purchase accounting amortization, depreciation, stock-based compensation and other non-recurring items ("Adjusted EBITDA"). Also, certain corporate-related costs are not allocated to the segments. The reportable segments are consistent with how management views the markets served by Adient and reflect the financial information that is reviewed by its chief operating decision maker.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions)
|
|
2020
|
|
2019
|
|
2018
|
Net Sales
|
|
|
|
|
|
|
Americas
|
|
$
|
5,889
|
|
|
$
|
7,785
|
|
|
$
|
7,664
|
|
EMEA
|
|
5,148
|
|
|
6,675
|
|
|
7,436
|
|
Asia
|
|
1,822
|
|
|
2,337
|
|
|
2,659
|
|
Eliminations
|
|
(189)
|
|
|
(271)
|
|
|
(320)
|
|
Total net sales
|
|
$
|
12,670
|
|
|
$
|
16,526
|
|
|
$
|
17,439
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adient plc | Form 10-K | 99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions)
|
|
2020
|
|
2019
|
|
2018
|
Adjusted EBITDA
|
|
|
|
|
|
|
Americas
|
|
$
|
228
|
|
|
$
|
210
|
|
|
$
|
302
|
|
EMEA
|
|
101
|
|
|
161
|
|
|
364
|
|
Asia
|
|
424
|
|
|
513
|
|
|
625
|
|
Corporate-related costs (1)
|
|
(80)
|
|
|
(97)
|
|
|
(95)
|
|
Becoming Adient costs (2)
|
|
—
|
|
|
—
|
|
|
(62)
|
|
Restructuring and impairment costs (3)
|
|
(238)
|
|
|
(176)
|
|
|
(1,181)
|
|
Purchase accounting amortization (4)
|
|
(40)
|
|
|
(44)
|
|
|
(69)
|
|
Restructuring related charges (5)
|
|
(20)
|
|
|
(31)
|
|
|
(61)
|
|
Loss on business divestitures - net (6)
|
|
(13)
|
|
|
—
|
|
|
—
|
|
Impairment of nonconsolidated partially owned affiliate (7)
|
|
(231)
|
|
|
—
|
|
|
(358)
|
|
Depreciation (8)
|
|
(295)
|
|
|
(278)
|
|
|
(393)
|
|
Stock based compensation (9)
|
|
(15)
|
|
|
(20)
|
|
|
(37)
|
|
Other items (10)
|
|
(16)
|
|
|
(9)
|
|
|
(55)
|
|
Earnings (loss) before interest and income taxes
|
|
(195)
|
|
|
229
|
|
|
(1,020)
|
|
Net financing charges
|
|
(220)
|
|
|
(182)
|
|
|
(144)
|
|
Other pension income (expense)
|
|
(14)
|
|
|
(45)
|
|
|
43
|
|
Income (loss) before income taxes
|
|
$
|
(429)
|
|
|
$
|
2
|
|
|
$
|
(1,121)
|
|
Notes:
(1) Corporate-related costs not allocated to the segments include executive office, communications, corporate development, legal and corporate finance.
(2) Reflects incremental expenses associated with becoming an independent company.
(3) Reflects restructuring charges for costs that are directly attributable to restructuring activities and meet the definition of restructuring under ASC 420 and non-recurring impairment charges. Included in restructuring charges in fiscal 2020 is a non-cash pre-tax impairment related to China intangible assets of $24 million, held for sale asset impairments of $21 million, and $8 million of other long-lived asset impairments. Included in restructuring charges in fiscal 2019 is a $66 million non-cash pre-tax impairment charge related to long-lived assets ($11 million in the Americas and $55 million in EMEA) and an $18 million non-cash impairment charge related to assets held for sale ($6 million in the Americas and $12 million in Asia). Included in restructuring charges in fiscal 2018 is a non-cash pre-tax impairment charge of $1,086 million in the seat structure and mechanism operations ($787 million related to long-lived assets and $299 million related to goodwill), and a $49 million non-cash impairment charge related to assets held for sale. Refer to Note 5, "Property, Plant and Equipment," Note 6, "Goodwill and Other Intangible Assets," Note 15, "Restructuring and Impairment Costs," and Note 16, "Impairment of Long-Lived Assets," of the notes to the consolidated financial statements for more information.
(4) Reflects amortization of intangible assets including those related to partially owned affiliates recorded within equity income.
(5) Reflects restructuring related charges for costs that are directly attributable to restructuring activities, but do not meet the definition of restructuring under ASC 420 along with restructuring costs at partially owned affiliates recorded within equity income.
(6) Reflects $21 million loss of sale of RECARO and $4 million loss on deconsolidation of Aerospace, partially offset by a $12 million gain on completion of the Yanfeng transaction.
(7) Reflects non-cash impairment charges related to Adient's YFAI investment balance, which has been recorded within the equity income line in the consolidated statements of income. The fiscal 2020 impairment was recorded in conjunction with the Yanfeng transaction.
(8) For the year ended September 30, 2018, depreciation excludes $7 million, which is included in restructuring related charges discussed above.
Adient plc | Form 10-K | 100
(9) For the year ended September 30, 2018, stock based compensation excludes $10 million which is included in Becoming Adient costs discussed above.
(10) The year ended September 30, 2020 primarily includes $15 million of transaction costs and $1 million of tax adjustments at YFAI. The year ended September 30, 2019 primarily includes $4 million of integration costs associated with the acquisition of Futuris, $3 million of transaction costs and $2 million of tax adjustments at YFAI. The year ended September 30, 2018 primarily includes $22 million of integration costs associated with the acquisition of Futuris, $11 million of non-recurring consulting fees related to the seat structure and mechanism operations, an $8 million charge related to the impact of the U.S. tax reform at YFAI and $8 million of prior period adjustments.
Additional Segment Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2020
|
|
|
Reportable Segments
|
|
Reconciling Items(1)
|
|
Consolidated
|
(in millions)
|
|
Americas
|
|
EMEA
|
|
Asia
|
|
|
Net Sales
|
|
$
|
5,889
|
|
|
$
|
5,148
|
|
|
$
|
1,822
|
|
|
$
|
(189)
|
|
|
$
|
12,670
|
|
Equity Income
|
|
1
|
|
|
8
|
|
|
256
|
|
|
(243)
|
|
|
22
|
|
Total Assets
|
|
3,019
|
|
|
2,658
|
|
|
2,868
|
|
|
1,716
|
|
|
10,261
|
|
Depreciation
|
|
128
|
|
|
129
|
|
|
38
|
|
|
—
|
|
|
295
|
|
Amortization
|
|
13
|
|
|
8
|
|
|
16
|
|
|
—
|
|
|
37
|
|
Capital Expenditures
|
|
138
|
|
|
164
|
|
|
24
|
|
|
—
|
|
|
326
|
|
(1) Reconciling items include the elimination of intercompany transactions, corporate-related assets and amounts to reconcile to consolidated totals. Specific reconciling items for equity income represents a $231 million non-cash impairment of Adient's YFAI investment, $8 million of restructuring related charges, $3 million of purchase accounting amortization and a $1 million charge for tax adjustments associated with YFAI. Corporate-related assets primarily include cash and deferred income tax assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2019
|
|
|
Reportable Segments
|
|
Reconciling Items(1)
|
|
Consolidated
|
(in millions)
|
|
Americas
|
|
EMEA
|
|
Asia
|
|
|
Net Sales
|
|
$
|
7,785
|
|
|
$
|
6,675
|
|
|
$
|
2,337
|
|
|
$
|
(271)
|
|
|
$
|
16,526
|
|
Equity Income
|
|
3
|
|
|
13
|
|
|
270
|
|
|
(11)
|
|
|
275
|
|
Total Assets
|
|
3,237
|
|
|
2,716
|
|
|
3,416
|
|
|
973
|
|
|
10,342
|
|
Depreciation
|
|
109
|
|
|
126
|
|
|
43
|
|
|
—
|
|
|
278
|
|
Amortization
|
|
14
|
|
|
5
|
|
|
18
|
|
|
3
|
|
|
40
|
|
Capital Expenditures
|
|
190
|
|
|
237
|
|
|
41
|
|
|
—
|
|
|
468
|
|
(1) Reconciling items include the elimination of intercompany transactions, corporate-related assets, depreciation and amortization, and amounts to reconcile to consolidated totals. Specific reconciling items included in equity income are $4 million of purchase accounting amortization related to the YFAI joint venture, $5 million of restructuring related charges and $2 million of tax adjustments at YFAI. Corporate-related assets primarily include cash and deferred income tax assets.
Adient plc | Form 10-K | 101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2018
|
|
|
Reportable Segments
|
|
Reconciling Items(1)
|
|
Consolidated
|
(in millions)
|
|
Americas
|
|
EMEA
|
|
Asia
|
|
|
Net Sales
|
|
$
|
7,664
|
|
|
7,436
|
|
|
$
|
2,659
|
|
|
$
|
(320)
|
|
|
$
|
17,439
|
|
Equity Income
|
|
10
|
|
|
12
|
|
|
363
|
|
|
(398)
|
|
|
(13)
|
|
Total Assets
|
|
3,248
|
|
|
3,066
|
|
|
3,598
|
|
|
1,030
|
|
|
10,942
|
|
Depreciation
|
|
141
|
|
|
204
|
|
|
45
|
|
|
10
|
|
|
400
|
|
Amortization
|
|
12
|
|
|
12
|
|
|
20
|
|
|
3
|
|
|
47
|
|
Capital Expenditures
|
|
233
|
|
|
267
|
|
|
36
|
|
|
—
|
|
|
536
|
|
(1) Reconciling items include the elimination of intercompany transactions, corporate-related assets, depreciation and amortization, and amounts to reconcile to consolidated totals. Specific reconciling items included in equity income are a $358 million non-cash impairment charge related to Adient's YFAI investment balance, $22 million of purchase accounting amortization related to the YFAI joint venture, $10 million of restructuring related charges and a $8 million charge related to the impact of the U.S. tax reform at YFAI. Corporate-related assets primarily include cash, deferred income tax assets, and Adient's aviation assets.
Geographic Information
Financial information relating to Adient's operations by geographic area is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
(in millions)
|
|
2020
|
|
2019
|
|
2018
|
Americas
|
|
|
|
|
|
|
United States
|
|
$
|
4,983
|
|
|
$
|
6,435
|
|
|
$
|
6,376
|
|
Mexico
|
|
2,004
|
|
|
2,709
|
|
|
2,668
|
|
Other Americas
|
|
318
|
|
|
435
|
|
|
537
|
|
Regional Elimination
|
|
(1,416)
|
|
|
(1,794)
|
|
|
(1,917)
|
|
|
|
5,889
|
|
|
7,785
|
|
|
7,664
|
|
EMEA
|
|
|
|
|
|
|
Germany
|
|
1,061
|
|
|
1,463
|
|
|
1,761
|
|
Czech Republic
|
|
1,118
|
|
|
1,431
|
|
|
1,663
|
|
Other EMEA
|
|
4,392
|
|
|
5,616
|
|
|
5,892
|
|
Regional Elimination
|
|
(1,423)
|
|
|
(1,835)
|
|
|
(1,880)
|
|
|
|
5,148
|
|
|
6,675
|
|
|
7,436
|
|
Asia
|
|
|
|
|
|
|
China
|
|
517
|
|
|
529
|
|
|
716
|
|
Thailand
|
|
400
|
|
|
614
|
|
|
615
|
|
|
|
|
|
|
|
|
Japan
|
|
332
|
|
|
529
|
|
|
562
|
|
Other Asia
|
|
600
|
|
|
668
|
|
|
768
|
|
Regional Elimination
|
|
(27)
|
|
|
(3)
|
|
|
(2)
|
|
|
|
1,822
|
|
|
2,337
|
|
|
2,659
|
|
|
|
|
|
|
|
|
Inter-segment elimination
|
|
(189)
|
|
|
(271)
|
|
|
(320)
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
12,670
|
|
|
$
|
16,526
|
|
|
$
|
17,439
|
|
Adient plc | Form 10-K | 102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Lived Assets (consisting of net property, plant and equipment)
|
|
|
|
|
Year Ended September 30,
|
(in millions)
|
|
2020
|
|
2019
|
Americas
|
|
|
|
|
United States
|
|
$
|
472
|
|
|
$
|
504
|
|
Mexico
|
|
171
|
|
|
177
|
|
Other Americas
|
|
20
|
|
|
32
|
|
|
|
663
|
|
|
713
|
|
EMEA
|
|
|
|
|
Germany
|
|
203
|
|
|
195
|
|
Other EMEA
|
|
523
|
|
|
538
|
|
|
|
726
|
|
|
733
|
|
Asia
|
|
|
|
|
All countries
|
|
192
|
|
|
225
|
|
|
|
|
|
|
Total
|
|
$
|
1,581
|
|
|
$
|
1,671
|
|
In the third quarter of fiscal 2019, Adient's Indonesia operations recorded an $8 million adjustment to increase cost of sales and to decrease primarily current assets to correct prior period misstatements. Adient has concluded that these adjustments were not material to the consolidated financial statements for any period reported.
19. Nonconsolidated Partially-Owned Affiliates
Investments in the net assets of nonconsolidated partially-owned affiliates are reported in the "Investments in partially-owned affiliates" line in the consolidated statements of financial position. Equity in the net income of nonconsolidated partially-owned affiliates are reported in the "Equity income" line in the consolidated statements of income (loss). Adient maintains total investments in partially-owned affiliates of $0.7 billion and $1.4 billion at September 30, 2020 and 2019, respectively. Operating information for nonconsolidated partially-owned affiliates is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% ownership
|
Name of key partially-owned affiliate
|
|
2020
|
|
2019
|
Adient Yanfeng Seating Mechanism Co., Ltd. (AYM)
|
|
50.0%
|
|
50.0%
|
Changchun FAWAY Adient Automotive Systems Co. Ltd. (CFAA)
|
|
49.0%
|
|
49.0%
|
Yanfeng Adient Seating Co., Ltd. (YFAS)
|
|
49.9%
|
|
49.9%
|
Yanfeng Global Automotive Interiors Systems Co., Ltd. (YFAI)
|
|
—%
|
|
30.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
(in millions)
|
|
2020
|
|
2019
|
|
2018
|
Income statement data:
|
|
|
|
|
|
|
Net sales
|
|
$
|
9,538
|
|
|
$
|
15,555
|
|
|
$
|
18,258
|
|
Gross profit
|
|
$
|
1,111
|
|
|
$
|
1,721
|
|
|
$
|
2,214
|
|
Net income
|
|
$
|
591
|
|
|
$
|
667
|
|
|
$
|
823
|
|
Net income attributable to the entity
|
|
$
|
563
|
|
|
$
|
629
|
|
|
$
|
773
|
|
Adient plc | Form 10-K | 103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
(in millions)
|
|
2020
|
|
2019
|
Balance sheet data:
|
|
|
|
|
Current assets
|
|
$
|
4,222
|
|
|
$
|
7,122
|
|
Noncurrent assets
|
|
$
|
1,579
|
|
|
$
|
3,335
|
|
Current liabilities
|
|
$
|
4,213
|
|
|
$
|
7,058
|
|
Noncurrent liabilities
|
|
$
|
87
|
|
|
$
|
433
|
|
Noncontrolling interests
|
|
$
|
105
|
|
|
$
|
125
|
|
During fiscal 2020, Adient entered into an agreement to transfer all of the issued and outstanding equity interest in YFAI held, directly or indirectly, by Adient, which represents 30% of YFAI’s total issued and outstanding equity interest, to Yanfeng Automotive Trim Systems Company Ltd. for $369 million as part of the Yanfeng transaction. As a result, Adient concluded that indicators of other-than-temporary impairment were present related to the investment in YFAI and recorded a $231 million non-cash impairment of Adient’s YFAI investment, during fiscal 2020. The impairment was determined based on combining the fair value of consideration received for all transactions contemplated as part of the Yanfeng transaction and has been recorded within equity income in the consolidated statements of income (loss). Refer to Note 3, “Acquisitions and Divestitures,” of the notes to the consolidated financial statements for additional information.
During the fourth quarter of fiscal 2018, Adient concluded that indicators of potential impairment were present related to the investment in YFAI based on the declines in operating performance during fiscal 2018 along with declines in projections of the YFAI business for the foreseeable future. Accordingly, Adient deemed such issues to represent an other-than-temporary decline and undertook an impairment analysis to determine the fair value of the investment in YFAI, which was completed under an income approach utilizing discounted cash flows to derive a fair value of the investment in YFAI. Based on the fair value, the carrying value of the investment in YFAI exceeded fair value by $358 million, and as such Adient recorded a non-cash impairment charge within equity income in the consolidated statements of income (loss) for that amount in the fourth quarter of 2018. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value Measurement" and primarily consist of expected future operating margins and cash flows of YFAI, estimated production volumes, weighted average cost of capital (12.5%) and noncontrolling interest discounts.
20. Commitments and Contingencies
Adient is involved in various lawsuits, claims and proceedings incident to the operation of its businesses, including those pertaining to product liability, casualty environmental, safety and health, intellectual property, employment, commercial and contractual matters, and various other matters. Although the outcome of any such lawsuit, claim or proceeding cannot be predicted with certainty and some may be disposed of unfavorably to Adient, it is management's opinion that none of these will have a material adverse effect on Adient's financial position, results of operations or cash flows. Costs related to such matters were not material to the periods presented.
Adient accrues for potential environmental liabilities when it is probable a liability has been incurred and the amount of the liability is reasonably estimable. Reserves for environmental liabilities totaled $10 million and $12 million at September 30, 2020 and 2019, respectively. Adient reviews the status of its environmental sites on a quarterly basis and adjusts its reserves accordingly. Such potential liabilities accrued by Adient do not take into consideration possible recoveries of future insurance proceeds. They do, however, take into account the likely share other parties will bear at remediation sites. It is difficult to estimate Adient's ultimate level of liability at many remediation sites due to the large number of other parties that may be involved, the complexity of determining the relative liability among those parties, the uncertainty as to the nature and scope of the investigations and remediation to be conducted, the uncertainty in the application of law and risk assessment, the various choices and costs associated with diverse technologies that may be used in corrective actions at the sites, and the often quite lengthy periods over which eventual remediation may occur. Nevertheless, Adient does not currently believe that any claims, penalties or costs in connection with known environmental matters will have a material adverse effect on Adient's financial position, results of operations or cash flows.
Adient plc | Form 10-K | 104
21. Related Party Transactions
In the ordinary course of business, Adient enters into transactions with related parties, such as equity affiliates. Such transactions consist of the sale or purchase of goods and other arrangements. Subsequent to the separation, transactions with the former Parent and its businesses represent third-party transactions.
The following table sets forth the location and amounts of net sales to and purchases from related parties included in Adient's consolidated statements of income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
(in millions)
|
|
|
|
2020
|
|
2019
|
|
2018
|
Net sales to related parties
|
|
Net sales
|
|
$
|
347
|
|
|
$
|
386
|
|
|
$
|
389
|
|
Purchases from related parties
|
|
Cost of sales
|
|
566
|
|
|
704
|
|
|
614
|
|
The following table sets forth the location and amount of accounts receivable due from and payable to related parties in Adient's consolidated statements of financial position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
(in millions)
|
|
|
|
2020
|
|
2019
|
Accounts receivable due from related parties
|
|
Accounts receivable
|
|
$
|
49
|
|
|
$
|
73
|
|
Accounts payable due to related parties
|
|
Accounts payable
|
|
105
|
|
|
137
|
|
|
|
|
|
|
|
|
Average receivable and payable balances with related parties remained consistent with the period end balances shown above.
Adient plc | Form 10-K | 105