|
|
|
Item 8.
|
Financial Statements and Supplementary Data
|
|
|
|
|
Index to Consolidated Financial Statements
|
|
Page
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adient plc | Form 10-K |
52
Report of Independent Registered Public Accounting Firm
To
the
Board of Directors and Shareholders of Adient plc
In our opinion, the accompanying consolidated statements of financial position and the related consolidated statements of income (loss), comprehensive income (loss), shareholders’ equity and cash flows present fairly, in all material respects, the financial position of Adient plc and its subsidiaries
as of September 30, 2017
and 2016, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 2017 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2017, based on criteria established in
Internal Control - Integrated Framework
(2013)
issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Company's management is responsible for these financial statements and financial statement schedule, 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 these financial statements, on the financial statement schedule and on the Company's internal control over financial reporting based on our audits (which were integrated audits in 2017 and 2016). We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. 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 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.
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.
Adient plc | Form 10-K |
53
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.
As described in Management’s Annual Report on Internal Control over Financial Reporting, management has excluded Futuris Global Holdings LLC and Guangzhou Adient Automotive Seating Co., Ltd. from its assessment of internal control over financial reporting as of September 30, 2017, because they were acquired by the Company in purchase business combinations during 2017. We have also excluded Futuris Global Holdings LLC and Guangzhou Adient Automotive Seating Co., Ltd. from our audit of internal control over financial reporting. Futuris Global Holdings LLC and Guangzhou Adient Automotive Seating Co., Ltd. are subsidiaries whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting collectively represent approximately 3% and less than 1%, respectively, of the related consolidated financial statement amounts as of and for the year ended September 30, 2017.
|
|
/s/ PricewaterhouseCoopers LLP
|
Detroit, Michigan
|
November 22, 2017
|
Adient plc | Form 10-K |
54
Adient plc
Consolidated Statements of Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions, except per share data)
|
|
2017
|
|
2016
|
|
2015
|
Net sales
|
|
$
|
16,213
|
|
|
$
|
16,790
|
|
|
$
|
20,023
|
|
Cost of sales
|
|
14,805
|
|
|
15,181
|
|
|
18,171
|
|
Gross profit
|
|
1,408
|
|
|
1,609
|
|
|
1,852
|
|
Selling, general and administrative expenses
|
|
691
|
|
|
1,222
|
|
|
1,131
|
|
Gain (loss) on business divestitures - net
|
|
—
|
|
|
—
|
|
|
137
|
|
Restructuring and impairment costs
|
|
46
|
|
|
332
|
|
|
182
|
|
Equity income
|
|
522
|
|
|
344
|
|
|
280
|
|
Earnings before interest and income taxes
|
|
1,193
|
|
|
399
|
|
|
956
|
|
Net financing charges
|
|
132
|
|
|
22
|
|
|
12
|
|
Income before income taxes
|
|
1,061
|
|
|
377
|
|
|
944
|
|
Income tax provision
|
|
99
|
|
|
1,839
|
|
|
418
|
|
Net income (loss)
|
|
962
|
|
|
(1,462
|
)
|
|
526
|
|
Income attributable to noncontrolling interests
|
|
85
|
|
|
84
|
|
|
66
|
|
Net income (loss) attributable to Adient
|
|
$
|
877
|
|
|
$
|
(1,546
|
)
|
|
$
|
460
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
Basic
|
|
$
|
9.38
|
|
|
$
|
(16.50
|
)
|
|
$
|
4.91
|
|
Diluted
|
|
$
|
9.34
|
|
|
$
|
(16.50
|
)
|
|
$
|
4.90
|
|
|
|
|
|
|
|
|
Cash dividends declared per share
|
|
$
|
0.825
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
Shares used in computing earnings per share:
|
|
|
|
|
|
|
Basic
|
|
93.5
|
|
|
93.7
|
|
|
93.7
|
|
Diluted
|
|
93.9
|
|
|
93.7
|
|
|
93.8
|
|
The accompanying notes are an integral part of the consolidated financial statements.
Adient plc | Form 10-K |
55
Adient plc
Consolidated Statements of Comprehensive Income (Loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
Net income (loss)
|
|
$
|
962
|
|
|
$
|
(1,462
|
)
|
|
$
|
526
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
(133
|
)
|
|
(36
|
)
|
|
(520
|
)
|
Realized and unrealized gains (losses) on derivatives
|
|
17
|
|
|
3
|
|
|
(11
|
)
|
Pension and postretirement plans
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
Other comprehensive income (loss)
|
|
(116
|
)
|
|
(34
|
)
|
|
(531
|
)
|
Total comprehensive income (loss)
|
|
846
|
|
|
(1,496
|
)
|
|
(5
|
)
|
Comprehensive income (loss) attributable to noncontrolling interests
|
|
90
|
|
|
79
|
|
|
58
|
|
Comprehensive income (loss) attributable to Adient
|
|
$
|
756
|
|
|
$
|
(1,575
|
)
|
|
$
|
(63
|
)
|
The accompanying notes are an integral part of the consolidated financial statements.
Adient plc | Form 10-K |
56
Adient plc
Consolidated Statements of Financial Position
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
(in millions)
|
|
2017
|
|
2016
|
Assets
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
709
|
|
|
$
|
105
|
|
Restricted cash
|
|
—
|
|
|
2,034
|
|
Accounts receivable, less allowance for doubtful accounts of $20 and $21, respectively
|
|
2,224
|
|
|
2,082
|
|
Inventories
|
|
735
|
|
|
660
|
|
Other current assets
|
|
831
|
|
|
810
|
|
Current assets
|
|
4,499
|
|
|
5,691
|
|
Property, plant and equipment - net
|
|
2,502
|
|
|
2,195
|
|
Goodwill
|
|
2,515
|
|
|
2,179
|
|
Other intangible assets - net
|
|
543
|
|
|
113
|
|
Investments in partially-owned affiliates
|
|
1,793
|
|
|
1,714
|
|
Other noncurrent assets
|
|
1,318
|
|
|
1,064
|
|
Total assets
|
|
$
|
13,170
|
|
|
$
|
12,956
|
|
Liabilities and Shareholders' Equity
|
|
|
|
|
Short-term debt
|
|
$
|
36
|
|
|
$
|
41
|
|
Current portion of long-term debt
|
|
2
|
|
|
38
|
|
Accounts payable
|
|
2,958
|
|
|
2,776
|
|
Accrued compensation and benefits
|
|
444
|
|
|
430
|
|
Restructuring reserve
|
|
236
|
|
|
351
|
|
Other current liabilities
|
|
652
|
|
|
624
|
|
Current liabilities
|
|
4,328
|
|
|
4,260
|
|
Long-term debt
|
|
3,440
|
|
|
3,442
|
|
Pension and postretirement benefits
|
|
129
|
|
|
188
|
|
Other noncurrent liabilities
|
|
653
|
|
|
725
|
|
Long-term liabilities
|
|
4,222
|
|
|
4,355
|
|
Commitments and Contingencies (Note 19)
|
|
|
|
|
Redeemable noncontrolling interests
|
|
28
|
|
|
34
|
|
Preferred shares issued, par value $0.001; 100,000,000 shares authorized
Zero shares issued and outstanding at September 30, 2017
|
|
—
|
|
|
—
|
|
Ordinary shares issued, par value $0.001; 500,000,000 shares authorized
93,142,283 shares issued and outstanding at September 30, 2017
|
|
—
|
|
|
—
|
|
Additional paid-in capital
|
|
3,942
|
|
|
—
|
|
Retained earnings
|
|
734
|
|
|
—
|
|
Parent's net investment
|
|
—
|
|
|
4,452
|
|
Accumulated other comprehensive income (loss)
|
|
(397
|
)
|
|
(276
|
)
|
Shareholders' equity attributable to Adient
|
|
4,279
|
|
|
4,176
|
|
Noncontrolling interests
|
|
313
|
|
|
131
|
|
Total shareholders' equity
|
|
4,592
|
|
|
4,307
|
|
Total liabilities and shareholders' equity
|
|
$
|
13,170
|
|
|
$
|
12,956
|
|
The accompanying notes are an integral part of the consolidated financial statements.
Adient plc | Form 10-K |
57
Adient plc
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
Operating Activities
|
|
|
|
|
|
|
Net income (loss) attributable to Adient
|
|
$
|
877
|
|
|
$
|
(1,546
|
)
|
|
$
|
460
|
|
Income attributable to noncontrolling interests
|
|
85
|
|
|
84
|
|
|
66
|
|
Net income (loss)
|
|
962
|
|
|
(1,462
|
)
|
|
526
|
|
Adjustments to reconcile net income (loss) to cash provided (used) by operating activities:
|
|
|
|
|
Depreciation
|
|
337
|
|
|
327
|
|
|
329
|
|
Amortization of intangibles
|
|
21
|
|
|
17
|
|
|
18
|
|
Pension and postretirement benefit expense
|
|
(41
|
)
|
|
113
|
|
|
15
|
|
Pension and postretirement contributions
|
|
(38
|
)
|
|
(35
|
)
|
|
(25
|
)
|
Equity in earnings of partially-owned affiliates, net of dividends received (includes purchase accounting amortization of $22, $20 and $5 respectively)
|
|
(91
|
)
|
|
(145
|
)
|
|
(87
|
)
|
Gain on previously-held interest
|
|
(151
|
)
|
|
—
|
|
|
—
|
|
Deferred income taxes
|
|
(52
|
)
|
|
(572
|
)
|
|
(51
|
)
|
Non-cash restructuring and impairment charges
|
|
—
|
|
|
87
|
|
|
27
|
|
Loss (gain) on divestitures - net
|
|
—
|
|
|
—
|
|
|
(137
|
)
|
Equity-based compensation
|
|
45
|
|
|
28
|
|
|
16
|
|
Other
|
|
(6
|
)
|
|
(11
|
)
|
|
(2
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
Receivables
|
|
30
|
|
|
83
|
|
|
(249
|
)
|
Inventories
|
|
(10
|
)
|
|
49
|
|
|
(63
|
)
|
Other assets
|
|
13
|
|
|
22
|
|
|
(111
|
)
|
Restructuring reserves
|
|
(179
|
)
|
|
73
|
|
|
56
|
|
Accounts payable and accrued liabilities
|
|
(113
|
)
|
|
57
|
|
|
8
|
|
Accrued income taxes
|
|
19
|
|
|
335
|
|
|
127
|
|
Cash provided (used) by operating activities
|
|
746
|
|
|
(1,034
|
)
|
|
397
|
|
Investing Activities
|
|
|
|
|
|
|
Capital expenditures
|
|
(577
|
)
|
|
(437
|
)
|
|
(478
|
)
|
Sale of property, plant and equipment
|
|
44
|
|
|
16
|
|
|
24
|
|
Acquisition of businesses, net of cash acquired
|
|
(247
|
)
|
|
—
|
|
|
(18
|
)
|
Business divestitures
|
|
—
|
|
|
18
|
|
|
—
|
|
Changes in long-term investments
|
|
(11
|
)
|
|
(24
|
)
|
|
(44
|
)
|
Other
|
|
(4
|
)
|
|
2
|
|
|
27
|
|
Cash provided (used) by investing activities
|
|
(795
|
)
|
|
(425
|
)
|
|
(489
|
)
|
Financing Activities
|
|
|
|
|
|
|
Net transfers from (to) Parent prior to separation
|
|
606
|
|
|
117
|
|
|
239
|
|
Cash transferred from former Parent post separation
|
|
315
|
|
|
—
|
|
|
—
|
|
Increase (decrease) in short-term debt
|
|
(7
|
)
|
|
25
|
|
|
(22
|
)
|
Increase in long-term debt
|
|
183
|
|
|
1,501
|
|
|
—
|
|
Repayment of long-term debt
|
|
(302
|
)
|
|
(39
|
)
|
|
(10
|
)
|
Share repurchases
|
|
(40
|
)
|
|
—
|
|
|
—
|
|
Cash paid to acquire a noncontrolling interest
|
|
—
|
|
|
—
|
|
|
(38
|
)
|
Cash dividends
|
|
(52
|
)
|
|
—
|
|
|
—
|
|
Dividends paid to noncontrolling interests
|
|
(79
|
)
|
|
(88
|
)
|
|
(76
|
)
|
Other
|
|
3
|
|
|
—
|
|
|
—
|
|
Cash provided (used) by financing activities
|
|
627
|
|
|
1,516
|
|
|
93
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
26
|
|
|
4
|
|
|
(2
|
)
|
Increase (decrease) in cash and cash equivalents
|
|
604
|
|
|
61
|
|
|
(1
|
)
|
Cash and cash equivalents at beginning of period
|
|
105
|
|
|
44
|
|
|
45
|
|
Cash and cash equivalents at end of period
|
|
$
|
709
|
|
|
$
|
105
|
|
|
$
|
44
|
|
The accompanying notes are an integral part of the consolidated financial statements.
Adient plc | Form 10-K |
58
Adient plc
Consolidated Statements of Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Ordinary Shares
|
|
Additional Paid-in Capital
|
|
Retained Earnings
|
|
Parent's Net Investment
|
|
Accumulated Other Comprehensive Income (Loss)
|
|
Shareholders' Equity Attributable
to Adient
|
|
Shareholders' Equity Attributable to Noncontrolling Interests
|
|
Total Equity
|
Balance at September 30, 2014
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,169
|
|
|
$
|
276
|
|
|
$
|
5,445
|
|
|
$
|
159
|
|
|
$
|
5,604
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
460
|
|
|
—
|
|
|
460
|
|
|
50
|
|
|
510
|
|
Foreign currency translation adjustments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(512
|
)
|
|
(512
|
)
|
|
(5
|
)
|
|
(517
|
)
|
Realized and unrealized gains (losses) on derivatives
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(11
|
)
|
|
(11
|
)
|
|
—
|
|
|
(11
|
)
|
Change in Parent's net investment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
221
|
|
|
—
|
|
|
221
|
|
|
—
|
|
|
221
|
|
Dividends attributable to noncontrolling interests
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(34
|
)
|
|
(34
|
)
|
Other
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(29
|
)
|
|
(29
|
)
|
Balance at September 30, 2015
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
5,850
|
|
|
$
|
(247
|
)
|
|
$
|
5,603
|
|
|
$
|
141
|
|
|
$
|
5,744
|
|
Net income
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1,546
|
)
|
|
—
|
|
|
(1,546
|
)
|
|
59
|
|
|
(1,487
|
)
|
Foreign currency translation adjustments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(31
|
)
|
|
(31
|
)
|
|
(6
|
)
|
|
(37
|
)
|
Realized and unrealized gains (losses) on derivatives
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
3
|
|
|
3
|
|
|
—
|
|
|
3
|
|
Pension and postretirement plans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
|
—
|
|
|
(1
|
)
|
Change in Parent's net investment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
148
|
|
|
—
|
|
|
148
|
|
|
—
|
|
|
148
|
|
Change in noncontrolling interest share
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
|
2
|
|
Dividends attributable to noncontrolling interests
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(65
|
)
|
|
(65
|
)
|
Balance at September 30, 2016
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4,452
|
|
|
$
|
(276
|
)
|
|
$
|
4,176
|
|
|
$
|
131
|
|
|
$
|
4,307
|
|
Net income
|
|
—
|
|
|
—
|
|
|
812
|
|
|
65
|
|
|
—
|
|
|
877
|
|
|
60
|
|
|
937
|
|
Change in Parent's net investment
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(880
|
)
|
|
—
|
|
|
(880
|
)
|
|
—
|
|
|
(880
|
)
|
Transfers from former Parent
|
|
—
|
|
|
333
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
333
|
|
|
—
|
|
|
333
|
|
Reclassification of Parent's net investment and issuance of ordinary shares in connection with separation
|
|
—
|
|
|
3,637
|
|
|
—
|
|
|
(3,637
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Foreign currency translation adjustments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(138
|
)
|
|
(138
|
)
|
|
5
|
|
|
(133
|
)
|
Realized and unrealized gains (losses) on derivatives
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
17
|
|
|
17
|
|
|
—
|
|
|
17
|
|
Dividends declared ($0.825 per share)
|
|
—
|
|
|
—
|
|
|
(78
|
)
|
|
—
|
|
|
—
|
|
|
(78
|
)
|
|
—
|
|
|
(78
|
)
|
Repurchase and retirement of ordinary shares
|
|
—
|
|
|
(40
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(40
|
)
|
|
—
|
|
|
(40
|
)
|
Dividends attributable to noncontrolling interests
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(58
|
)
|
|
(58
|
)
|
Change in noncontrolling interest share
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
175
|
|
|
175
|
|
Share based compensation
|
|
—
|
|
|
12
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
12
|
|
|
—
|
|
|
12
|
|
Balance at September 30, 2017
|
|
$
|
—
|
|
|
$
|
3,942
|
|
|
$
|
734
|
|
|
$
|
—
|
|
|
$
|
(397
|
)
|
|
$
|
4,279
|
|
|
$
|
313
|
|
|
$
|
4,592
|
|
The accompanying notes are an integral part of the consolidated financial statements.
Adient plc | Form 10-K |
59
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 businesses (the "separation") of Johnson Controls International plc ("the former Parent"). Adient was incorporated under the laws of Ireland on June 24, 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 the world's largest automotive seating supplier. 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, trim covers and fabrics. 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. Adient also participates in the automotive interiors market primarily through its global automotive interiors joint venture in China, Yanfeng Global Automotive Interior Systems Co., Ltd., or YFAI.
The separation was completed pursuant to various agreements with the former Parent related to the separation. These agreements govern the relationship between Adient and the former Parent following the separation and provided for the allocation of various assets, liabilities, rights and obligations. These agreements also include arrangements for transition services to be provided on a temporary basis by both parties.
Basis of Presentation
The financial statements for periods prior to October 31, 2016 were prepared on a stand-alone combined basis derived from the consolidated financial statements and accounting records of the former Parent as if Adient had been operating as a stand-alone company for all periods presented. These financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"). The assets and liabilities in the financial statements have been reflected on a historical cost basis, as included in the consolidated statements of financial position of the former Parent. The statements of income include allocations for certain support functions that were provided on a centralized basis by the former Parent and subsequently recorded at the business unit level, such as expenses related to employee benefits, finance, human resources, risk management, information technology, facilities, and legal, among others. These expenses have been allocated to Adient on the basis of direct usage when identifiable, with the remainder allocated on a proportional basis of combined sales, headcount or other measures of Adient or the former Parent. Management believes the assumptions underlying the financial statements, including the assumptions regarding allocating general corporate expenses from the former Parent, are reasonable. Nevertheless, the financial statements for periods prior to the separation may not include all actual expenses that would have been incurred by Adient and may not reflect the results of operations, financial position and cash flows had it been a stand-alone company during the periods presented. Actual costs that would have been incurred if Adient had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.
Principles of Consolidation
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.
The financial statements for periods prior to the separation include certain assets and liabilities that have historically been held at the former Parent but are specifically identifiable or otherwise attributable to Adient. All significant intercompany transactions and accounts within Adient's businesses have been eliminated. All intercompany transactions between Adient and the former Parent prior to the separation have been included in the consolidated financial statements as Parent's net investment. Expenses related to corporate allocations from the former Parent to Adient are considered to be effectively settled for cash in the financial statements at the time the transaction is recorded. In addition, transactions between Adient and the former Parent's other businesses prior to
Adient plc | Form 10-K |
60
the separation have been classified as related party, rather than intercompany, in the financial statements. See
Note 20
, "
Related Party Transactions
," of the notes to consolidated financial statements for further details.
Prior to the separation, transfers of cash to and from the former Parent's cash management system were reflected as a component of Parent's net investment in the consolidated statements of financial position. For periods prior to the separation, the cash and cash equivalents held by the former Parent were not attributed to Adient, as legal ownership remained with the former Parent. Furthermore, the income tax expense and deferred taxes in the financial statements for periods prior to October 31, 2016 were prepared on a separate return basis derived from the consolidated financial statements and accounting records of the former Parent as if Adient had been operating as a stand-alone company for all periods presented. As a standalone entity, Adient will file tax returns on its own behalf and its effective tax rate and deferred taxes may differ from those in historical periods.
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
,
2017
and
2016
, 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.
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)
|
|
2017
|
|
2016
|
Current assets
|
|
$
|
232
|
|
|
$
|
281
|
|
Noncurrent assets
|
|
56
|
|
|
45
|
|
Total assets
|
|
$
|
288
|
|
|
$
|
326
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
169
|
|
|
$
|
219
|
|
Total liabilities
|
|
$
|
169
|
|
|
$
|
219
|
|
Revisions
Adient has revised previously reported results to correctly report equity income from a non-consolidated affiliate in the Seating segment related to engineering costs that were inappropriately capitalized. Adient has also revised previously reported net sales and cost of sales to correctly report certain sales on a net versus gross basis in the Seating segment. Adient assessed the materiality of these misstatements on prior periods’ financial statements in accordance with SEC Staff Accounting Bulletin ("SAB") No. 99, Materiality, codified in ASC 250, Presentation of Financial Statements, and concluded that these misstatements were not material, individually or in the aggregate, to any previously issued financial statements. In accordance with ASC 250 (SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements), the consolidated financial statements and notes to consolidated financial statements as of September 30, 2016 and 2015, and the years then ended, which are presented herein, have been revised. Adient will revise fiscal 2017 interim periods in future quarterly filings. The following tables show the impact of these revisions on all of the impacted line items from Adient's consolidated financial statements illustrating the effect of these corrections:
Adient plc | Form 10-K |
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Income (Loss)
|
|
|
Year Ended September 30, 2016
|
|
Year Ended September 30, 2015
|
(in millions, except per share data)
|
|
As Reported
|
|
Adjustment
|
|
As Revised
|
|
As Reported
|
|
Adjustment
|
|
As Revised
|
Net sales
|
|
$
|
16,837
|
|
|
$
|
(47
|
)
|
|
$
|
16,790
|
|
|
$
|
20,071
|
|
|
$
|
(48
|
)
|
|
$
|
20,023
|
|
Cost of sales
|
|
15,228
|
|
|
(47
|
)
|
|
15,181
|
|
|
18,219
|
|
|
(48
|
)
|
|
18,171
|
|
Gross profit
|
|
1,609
|
|
|
—
|
|
|
1,609
|
|
|
1,852
|
|
|
—
|
|
|
1,852
|
|
Equity income
|
|
357
|
|
|
(13
|
)
|
|
344
|
|
|
295
|
|
|
(15
|
)
|
|
280
|
|
Earnings before interest and income taxes
|
|
412
|
|
|
(13
|
)
|
|
399
|
|
|
971
|
|
|
(15
|
)
|
|
956
|
|
Income before income taxes
|
|
390
|
|
|
(13
|
)
|
|
377
|
|
|
959
|
|
|
(15
|
)
|
|
944
|
|
Net income (loss)
|
|
(1,449
|
)
|
|
(13
|
)
|
|
(1,462
|
)
|
|
541
|
|
|
(15
|
)
|
|
526
|
|
Net income (loss) attributable to Adient
|
|
(1,533
|
)
|
|
(13
|
)
|
|
(1,546
|
)
|
|
475
|
|
|
(15
|
)
|
|
460
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(16.36
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(16.50
|
)
|
|
$
|
5.07
|
|
|
$
|
(0.16
|
)
|
|
$
|
4.91
|
|
Diluted
|
|
$
|
(16.36
|
)
|
|
$
|
(0.14
|
)
|
|
$
|
(16.50
|
)
|
|
$
|
5.06
|
|
|
$
|
(0.16
|
)
|
|
$
|
4.90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Comprehensive Income (Loss)
|
|
|
Year Ended September 30, 2016
|
|
Year Ended September 30, 2015
|
(in millions)
|
|
As Reported
|
|
Adjustment
|
|
As Revised
|
|
As Reported
|
|
Adjustment
|
|
As Revised
|
Total comprehensive income (loss)
|
|
$
|
(1,483
|
)
|
|
$
|
(13
|
)
|
|
$
|
(1,496
|
)
|
|
$
|
10
|
|
|
$
|
(15
|
)
|
|
$
|
(5
|
)
|
Comprehensive income (loss) attributable to Adient
|
|
(1,562
|
)
|
|
(13
|
)
|
|
(1,575
|
)
|
|
(48
|
)
|
|
(15
|
)
|
|
(63
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Financial Position
|
|
|
At September 30, 2016
|
(in millions)
|
|
As Reported
|
|
Adjustment
|
|
As Revised
|
Investments in partially-owned affiliates
|
|
$
|
1,748
|
|
|
$
|
(34
|
)
|
|
$
|
1,714
|
|
Total assets
|
|
12,990
|
|
|
(34
|
)
|
|
12,956
|
|
Parent's net investment
|
|
4,486
|
|
|
(34
|
)
|
|
4,452
|
|
Shareholders' equity attributable to Adient
|
|
4,210
|
|
|
(34
|
)
|
|
4,176
|
|
Total shareholders' equity
|
|
4,341
|
|
|
(34
|
)
|
|
4,307
|
|
Total liabilities and shareholders' equity
|
|
12,990
|
|
|
(34
|
)
|
|
12,956
|
|
Adient plc | Form 10-K |
62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statements of Cash Flows
|
|
|
Year Ended September 30, 2016
|
|
Year Ended September 30, 2015
|
(in millions)
|
|
As Reported
|
|
Adjustment
|
|
As Revised
|
|
As Reported
|
|
Adjustment
|
|
As Revised
|
Operating Activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(1,449
|
)
|
|
$
|
(13
|
)
|
|
$
|
(1,462
|
)
|
|
$
|
541
|
|
|
$
|
(15
|
)
|
|
$
|
526
|
|
Equity in earnings of partially-owned affiliates, net of dividends received
|
|
(158
|
)
|
|
13
|
|
|
(145
|
)
|
|
(102
|
)
|
|
15
|
|
|
(87
|
)
|
Cash provided (used) by operating activities
|
|
(1,034
|
)
|
|
—
|
|
|
(1,034
|
)
|
|
397
|
|
|
—
|
|
|
397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Shareholders' Equity
|
|
|
At September 30, 2015
|
|
At September 30, 2014
|
(in millions)
|
|
As Reported
|
|
Adjustment
|
|
As Revised
|
|
As Reported
|
|
Adjustment
|
|
As Revised
|
Parent's Net Investment
|
|
$
|
5,873
|
|
|
$
|
(23
|
)
|
|
$
|
5,850
|
|
|
$
|
5,177
|
|
|
$
|
(8
|
)
|
|
$
|
5,169
|
|
Shareholder's Equity Attributable to Adient
|
|
5,626
|
|
|
(23
|
)
|
|
5,603
|
|
|
5,453
|
|
|
(8
|
)
|
|
5,445
|
|
Total Equity
|
|
5,767
|
|
|
(23
|
)
|
|
5,744
|
|
|
5,612
|
|
|
(8
|
)
|
|
5,604
|
|
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 9
, "
Derivative Instruments and Hedging Activities
," and
Note 10
, "
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. Prior to the separation, transfers of cash to and from the former Parent's cash management system are reflected as a component of Parent's net investment in the consolidated statements of financial position. Accordingly, the cash and cash equivalents held by the former Parent were not attributed to Adient for any of the years presented, as legal ownership remained with the former Parent.
Restricted Cash
At
September 30, 2016
, Adient recorded
$2 billion
of restricted cash within the consolidated statements of financial position. These funds represent the proceeds from a bond issuance that were placed directly into escrow and released to Adient subsequent to
September 30, 2016
and therefore represent non-cash activity in
fiscal 2016
. The cash was used during
fiscal 2017
in part, to fund a distribution to the former Parent. The
$2 billion
receipt of cash from escrow, along with the distribution to and other settlements with the former Parent during
fiscal 2017
, are reflected in net transfers from (to) parent prior to separation in the consolidated statement of cash flows. Refer to
Note 8
, "
Debt and Financing Arrangements
," of the notes to the consolidated financial statements for further information on the bond issuance.
Adient plc | Form 10-K |
63
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 administrative expense in the consolidated statements of income. At September 30, 2017 and 2016, Adient recorded within the consolidated statements of financial position
$343 million
and
$316 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, 2017, Adient had
$175 million
and
$168 million
of reimbursable costs recorded in current and noncurrent assets, respectively. At September 30, 2016, Adient had
$138 million
and
$178 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, 2017 and 2016, approximately
$82 million
and
$62 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, 2017 and 2016, Adient recorded within the consolidated statements of financial position in other current assets
$285 million
and
$203 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.
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 uses multiples of earnings based on the average of historical, published multiples of earnings of comparable entities with similar operations and economic characteristics. In certain instances, Adient uses discounted cash flow analyses or estimated sales price 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 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 exceeds the carrying amount of the reporting unit.
Adient plc | Form 10-K |
64
Intangible assets with definite lives continue to be 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 15
, "
Impairment of Long-Lived Assets
," of the notes to consolidated financial statements for information regarding the impairment testing performed in fiscal years 2016 and 2015.
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.
Revenue Recognition
Adient records revenue when persuasive evidence of an arrangement exists, delivery occurs or services are rendered, the sales price or fee is fixed or determinable and collectability is reasonably assured. Adient delivers products and records revenue pursuant to commercial agreements with its customers generally in the form of an approved purchase order, including the effects of contractual productivity based pricing. Adient negotiates discrete price changes with its customers, which are generally the result of unique commercial issues between Adient and its customers. Adient records amounts associated with discrete price changes as a reduction to revenue when specific facts and circumstances indicate that a price reduction is probable and the amounts are reasonably estimable. Adient records amounts associated with discrete price changes as an increase to revenue upon execution of a legally enforceable contractual agreement and when collectability is reasonable assured.
Customers
Essentially all of Adient's sales are to the automotive industry. Adient's most significant customers include Volkswagen Group which comprised
11%
of consolidated net sales in fiscal 2017, Fiat Chrysler Automobiles N.V. and Ford Motor Company which comprised
12%
and
11%
of consolidated net sales, respectively, in fiscal 2016 and Fiat Chrysler Automobiles N.V. and Ford Motor Company which comprised
13%
and
11%
of consolidated net sales, respectively, in fiscal 2015.
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, 2017, 2016 and 2015 were
$488 million
,
$460 million
and
$599 million
, respectively. A portion of these costs associated with these activities are reimbursed by customers and, for the fiscal years ended September 30, 2017, 2016 and 2015 were
$350 million
,
$308 million
and
$364 million
, respectively.
Foreign Currency Translation
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, 2017, 2016 and 2015 were
$1 million
, (
$40 million
) and (
$26 million
), respectively.
Adient plc | Form 10-K |
65
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 9
, "
Derivative Instruments and Hedging Activities
," and
Note 10
, "
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 11
, "
Stock-Based Compensation
," of the notes to consolidated audited 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 13
, "
Retirement Plans
," of the notes to consolidated financial statements for disclosure of Adient's pension and postretirement benefit plans.
Income Taxes
Adient accounts for income taxes in accordance with ASC 740, "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 non-U.S. 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 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.
Refer to
Note 16
, "
Income Taxes
," of the notes to consolidated audited financial statements for Adient's income tax disclosures.
Adient plc | Form 10-K |
66
Earnings Per Share
The following table shows the computation of basic and diluted earnings per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions, except per share data)
|
|
2017
|
|
2016
|
|
2015
|
Numerator:
|
|
|
|
|
|
|
Net income (loss) attributable to Adient
|
|
$
|
877
|
|
|
$
|
(1,546
|
)
|
|
$
|
460
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
Shares outstanding
|
|
93.5
|
|
|
93.7
|
|
|
93.7
|
|
Effect of dilutive securities
|
|
0.4
|
|
|
—
|
|
|
0.1
|
|
Diluted shares
|
|
93.9
|
|
|
93.7
|
|
|
93.8
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
Basic
|
|
$
|
9.38
|
|
|
$
|
(16.50
|
)
|
|
$
|
4.91
|
|
Diluted
|
|
$
|
9.34
|
|
|
$
|
(16.50
|
)
|
|
$
|
4.90
|
|
Potentially dilutive securities whose effect would have been antidilutive are excluded from the computation of diluted earnings per share. For periods prior to the separation, basic and diluted earnings per ordinary share are calculated assuming the number of Adient ordinary shares outstanding on October 31, 2016 had been outstanding at the beginning of each period presented.
Parent's Net Investment
Parent's net investment includes the former Parent's investment in Adient and the net amounts due to or due from the Parent. The Parent's net investment in Adient is discussed in further detail in
Note 20
, "
Related Party Transactions
," of the notes to consolidated financial statements.
New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
In August 2014, the FASB issued ASU 2014-15, "Presentation of Financial Statement - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern", to provide guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for financial statements issued for fiscal years ending after December 15, 2016, and interim periods thereafter. ASU 2014-15 was adopted by Adient for the quarter ending December 31, 2016. Adient conducted an evaluation as to whether there were conditions and events, considered in the aggregate, which raised substantial doubt as to the entity's ability to continue as a going concern within one year after the date of the issuance, or the date of availability, of the financial statements to be issued, noting that there did not appear to be evidence of substantial doubt of the entity's ability to continue as a going concern.
In February 2015, the FASB issued ASU No. 2015-02, "Consolidation (Topic 810): Amendments to the Consolidation Analysis." ASU No. 2015-02 amends the analysis performed to determine whether a reporting entity should consolidate certain types of legal entities. ASU No. 2015-02 was effective retrospectively for Adient for the quarter ending December 31, 2016. The adoption of this guidance did not have an impact on Adient's consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03, "Interest-Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs." ASU No. 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability. ASU No. 2015-03 was applied retrospectively by Adient during the quarter ended December 31, 2016. As a result, other noncurrent assets and long-term debt decreased by
$43 million
at September 30, 2016 in Adient's consolidated statements of financial position.
Adient plc | Form 10-K |
67
In May 2015, the FASB issued ASU No. 2015-07, "Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)." ASU No. 2015-07 removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. Such investments should be disclosed separate from the fair value hierarchy. ASU No. 2015-07 was effective retrospectively for Adient for the quarter ended December 31, 2016. The adoption of this guidance did not have an impact on Adient's consolidated financial statements but did impact the pension disclosures in the notes to consolidated financial statements for all periods presented. Refer to
Note 13
, "
Retirement Plans
," of the notes to consolidated audited financial statements for Adient's pension disclosures.
In March 2016, the FASB issued ASU No. 2016-09, "Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting." ASU No. 2016-09 changes the accounting for certain aspects of share-based payments to employees, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. In addition, the guidance allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. ASU No. 2016-09 was adopted early by Adient for the quarter ended December 31, 2016 and was applied retrospectively to all periods presented. The adoption of this guidance did not have a material impact on Adient's consolidated financial statements for all periods presented.
In October 2016, the FASB issued ASU No. 2016-16, "Income Taxes (Topic 740): Intra-Entity Transfers of Assets Other Than Inventory." ASU No. 2016-16 removes the prohibition in ASC 740 against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. ASU No. 2016-16 was adopted early by Adient for the quarter ended December 31, 2016 and was applied on a modified retrospective basis to all periods presented. The adoption of this guidance resulted in a cumulative adjustment to equity of
$61 million
.
Recently Issued Accounting Pronouncements
In August 2017, the FASB issued ASU No. 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." ASU No. 2017-12 improves the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. ASU No. 2017-12 will be effective for Adient for the quarter ending December 31, 2019, with early adoption permitted. Adient is currently assessing the impact adoption of this guidance will have on its consolidated financial statements.
In May 2017, the FASB issued ASU No. 2017-09, "Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting." ASU No. 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU No. 2017-09 will be effective for Adient for the quarter ending December 31, 2018, with early adoption permitted. The impact of this guidance for Adient is dependent on any future modifications to Adient's share-based payment awards.
In March 2017, the FASB issued ASU No. 2017-07, "Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." ASU No. 2017-07 amends certain aspects of presentation of pension cost and postretirement benefit cost. ASU No. 2017-07 will be effective for Adient for the quarter ending December 31, 2018, with early adoption permitted. Adient is currently assessing the impact adoption of this guidance will have on its consolidated financial statements.
In February 2017, the FASB issued ASU No. 2017-05, "Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets." ASU No. 2017-05 will follow the same implementation guidelines as ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)." Adient is currently assessing the impact adoption of this guidance will have on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." ASU No. 2017-04 simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. ASU No. 2017-04 will be effective for Adient for the quarter ending December 31, 2020, with early adoption permitted. The adoption of this guidance is not anticipated to have a material impact on Adient's consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business." ASU No. 2017-01 clarifies the definition of a business as it relates to the acquisition or sale of assets or businesses. ASU No. 2017-01 will be effective for Adient for the quarter ending December 31, 2018, with early adoption permitted. Adient is currently assessing the impact adoption of this guidance will have on its consolidated financial statements.
Adient plc | Form 10-K |
68
In November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash." ASU No. 2016-18 clarifies the classification and presentation of restricted cash on the statement of cash flows. ASU No. 2016-18 will be effective for Adient for the quarter ending December 31, 2018, with early adoption permitted. The adoption of this guidance is not anticipated to have a material impact on Adient's consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-17, "Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control." ASU No. 2016-17 changes the evaluation of whether a reporting entity is the primary beneficiary of a Variable Interest Entity (VIE) by changing how a reporting entity that is a single decision maker of a VIE treats indirect interests in the entity held through related parties that are under common control with the reporting entity. ASU No. 2016-17 will be effective for Adient for the quarter ended December 31, 2017, with early adoption permitted. The adoption of this guidance is not anticipated to have a material impact on Adient's consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments." ASU No. 2016-15 clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU No. 2016-15 will be effective for Adient for the quarter ended December 31, 2018, with early adoption permitted. Adient is currently assessing the impact adoption of this guidance will have on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." ASU No. 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. ASU No. 2016-13 will be effective for Adient for the quarter ended December 31, 2020, with early adoption permitted. The adoption of this guidance is not expected to have a significant impact on Adient's consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-07, "Investments-Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting." ASU No. 2016-07 eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retrospectively. ASU No. 2016-07 will be effective prospectively for Adient for increases in the level of ownership interest or degree of influence that result in the adoption of the equity method that occur during or after the quarter ending December 31, 2017, with early adoption permitted. The impact of this guidance for Adient is dependent on any future increases in the level of ownership interest or degree of influence related to equity method investments.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)." ASU No. 2016-02 requires recognition of operating leases as lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. ASU No. 2016-02 will be effective retrospectively for Adient for the quarter ending December 31, 2019, with early adoption permitted. Adient is currently assessing the impact adoption of this guidance will have on its consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities." ASU No. 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU No. 2016-01 will be effective prospectively for Adient for the quarter ending December 31, 2018, with early adoption permitted. Adient is currently assessing the impact adoption of this guidance will have on its consolidated financial statements.
In July 2015, the FASB issued ASU No. 2015-11, "Simplifying the Measurement of Inventory." ASU No. 2015-11 requires inventory that is recorded using the first-in, first-out method to be measured at the lower of cost or net realizable value. ASU No. 2015-11 will be effective retrospectively for Adient for the quarter ending December 31, 2017, with early adoption permitted. The adoption of this guidance is not expected to have a significant impact on Adient's consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)." ASU No. 2014-09 clarifies the principles for recognizing revenue when an entity either enters into a contract with customers to transfer goods or services or enters into a contract for the transfer of non-financial assets. In March 2016 the FASB issued ASU No. 2016-08, "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)," in April 2016 the FASB issued ASU No. 2016-10, "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing," and in May 2016 the FASB issued ASU No. 2016-12, ‘‘Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,’’which provide additional clarification on certain topics addressed in ASU No. 2014-09. ASU No. 2016-08, ASU No. 2016-10 and ASU No. 2016-12 follow the same implementation
Adient plc | Form 10-K |
69
guidelines as ASU No. 2014-09 and ASU No. 2015-14. This guidance will be effective October 1, 2018 for Adient. The accounting changes under the new standard will require new processes and procedures to collect the data required for proper reporting and disclosure. Adient is undergoing its review of the impact of adopting this standard and is developing and executing an implementation plan which will include changes to internal processes and controls. Under current guidance Adient generally recognizes revenue when products are shipped and risk of loss has transferred to the customer. Under the new standard, the customized nature of some of Adient's products combined with contractual provisions that provide an enforceable right to payment, will likely require Adient to recognize revenue prior to the product being shipped to the customer. Adient is also assessing pricing provisions contained in certain customer contracts. It is possible that pricing provisions contained in some of Adient's customer contracts may provide the customer with a material right, potentially resulting in a different allocation of the transaction price than under current guidance. Adient expects to expand disclosures in line with the requirements of the new standard. Adient anticipates applying the modified retrospective method which would require Adient to recognize the cumulative effect of initially applying the standard as an adjustment to opening retained earnings at the date of initial application.
|
|
|
|
|
|
2. Acquisitions and Divestitures
|
On September 22, 2017, Adient completed the acquisition of Futuris Global Holdings LLC (“Futuris”), a manufacturer of full seating systems, seat frames, seat trim, headrests, armrests and seat bolsters. The acquisition is expected to provide substantial synergies through vertical integration, purchasing and logistics improvements. The acquisition also provides for an immediate manufacturing presence on the west coast of the U.S. to service customers such as Tesla as well as strategic locations in China and Southeast Asia.
The net purchase consideration of
$353 million
consisted of net cash consideration of $349 million (net of
$34 million
acquired) and the assumption of
$4 million
of debt (consisting of
$2 million
of short-term debt and
$2 million
of current portion of long-term debt). The acquisition was accounted for using the acquisition method and the operating results and cash flows of Futuris are included in Adient's consolidated financial statements from September 22, 2017.
Adient has recorded a preliminary allocation of the purchase price for assets acquired and liabilities assumed based on their estimated fair values as of the September 22, 2017 acquisition date. The preliminary purchase price allocation is as follows:
|
|
|
|
|
|
(in millions)
|
|
Preliminary Purchase Price Allocation
|
Cash
|
|
$
|
34
|
|
Accounts receivable
|
|
93
|
|
Inventory
|
|
42
|
|
Property, plant and equipment
|
|
49
|
|
Other assets
|
|
17
|
|
Goodwill
|
|
202
|
|
Intangible assets
|
|
165
|
|
Accounts payable
|
|
(85
|
)
|
Other liabilities
|
|
(134
|
)
|
Total purchase consideration
|
|
383
|
|
Less: cash acquired
|
|
34
|
|
Net cash paid
|
|
349
|
|
Plus: acquired debt
|
|
4
|
|
Net purchase consideration
|
|
$
|
353
|
|
The preliminary values allocated to intangible assets of
$165 million
primarily consist of customer relationships which are being amortized on a straight line basis over an estimated useful life of approximately
10
years. The assets were valued using an income approach, specifically the “multi-period excess earnings” method, which identifies an estimated stream of revenue and expenses for a particular group of assets from which deductions of portions of the projected economic benefits, attributable to assets other than the subject asset (contributory assets), are deducted in order to isolate the prospective earnings of the subject asset. This value is considered a level 3 measurement under the U.S. GAAP fair value hierarchy. Key assumptions used in the valuation of customer relationships include: (1) a rate of return of
16.5%
and (2) the life of the relationship of approximately
10
years.
Adient plc | Form 10-K |
70
The preliminary allocation of the purchase price is based on the preliminary valuations performed to determine the fair value of the net assets as of the acquisition date. The amounts allocated to goodwill and intangible assets along with fair value adjustments on property, plant and equipment and inventory are based on preliminary valuations and are subject to final adjustments to reflect the final valuations.
Adient expensed
$3 million
of acquisition-related costs in the year ended September 30, 2017. Pro forma historical results of operations related to the acquisition of Futuris have not been presented as they are not material to Adient’s consolidated statements of operations.
During July 2017, Guangzhou Adient Automotive Seating Co., Ltd. ("GAAS"), one of Adient's non-consolidated partially-owned affiliates in China became a consolidated entity as a result of an amendment to the rights agreement. This transaction was accounted for as a step acquisition and fair value accounting was applied. A fair value of $354 million was determined through a valuation using the income approach. A gain of
$151 million
was recorded on Adient's previously held interest and is included in equity income in the consolidated statements of operations. Adient has recorded a preliminary fair value allocation for the assets and liabilities of the entity based on their estimated fair values, as follows:
|
|
|
|
|
|
(in millions)
|
|
Preliminary Fair Value Allocation
|
Cash and cash equivalents
|
|
$
|
102
|
|
Accounts receivable
|
|
46
|
|
Inventory - net
|
|
2
|
|
Other assets
|
|
3
|
|
Property, plant and equipment
|
|
17
|
|
Goodwill
|
|
82
|
|
Identifiable intangibles
|
|
276
|
|
Accounts payable
|
|
(83
|
)
|
Other liabilities
|
|
(91
|
)
|
Fair value of the entity
|
|
$
|
354
|
|
Noncontrolling interest
|
|
(170
|
)
|
Adient's interest
|
|
$
|
184
|
|
The preliminary values allocated to other intangible assets of
$276 million
primarily consist of customer relationships, which are being amortized on a straight-line basis over the estimated useful life of
20
years. The assets were valued using an income approach, specifically the “multi-period excess earnings” method, which identifies an estimated stream of revenue and expenses for a particular group of assets from which deductions of portions of the projected economic benefits, attributable to assets other than the subject asset (contributory assets), are deducted in order to isolate the prospective earnings of the subject asset. This value is considered a level 3 measurement under the U.S. GAAP fair value hierarchy. Key assumptions used in the valuation of customer relationships include: (1) a rate of return of
14.7%
and (2) the life of the relationship of approximately
20
years.
The purchase price is based on the preliminary valuations performed to determine the fair value of the net assets as of the acquisition date. The amounts allocated to goodwill and intangible assets are based on preliminary valuations and are subject to final adjustments to reflect the final valuations. Pro forma historical results of operations related to this transaction have not been presented as they are not material to Adient’s consolidated statements of operations.
During fiscal 2015, Adient completed three acquisitions, of which
$18 million
of the purchase price was paid as of September 30, 2015. The acquisitions in the aggregate were not material to Adient's consolidated financial statements. In connection with the acquisitions, Adient recorded goodwill of
$9 million
in the Interiors segment.
In the fourth quarter of fiscal 2015, Adient completed its global automotive interiors joint venture with Yanfeng Global Automotive Interior Systems Co., Ltd., or YFAI. In connection with the divestiture of the Interiors business, Adient recorded a
$127 million
gain,
$20 million
net of tax, and reduced goodwill in assets held for sale by
$43 million
.
Also during fiscal 2015, Adient completed a divestiture for a sales price of
$18 million
, which was received in the first quarter of fiscal 2016. The divestiture was not material to Adient's consolidated financial statements. In connection with the divestiture, Adient recorded a gain of
$10 million
and reduced goodwill by
$4 million
in the Seating segment.
Adient plc | Form 10-K |
71
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
(in millions)
|
|
2017
|
|
2016
|
Raw materials and supplies
|
|
$
|
552
|
|
|
$
|
502
|
|
Work-in-process
|
|
37
|
|
|
35
|
|
Finished goods
|
|
146
|
|
|
123
|
|
Inventories
|
|
$
|
735
|
|
|
$
|
660
|
|
|
|
|
|
|
|
4. Property, Plant and Equipment
|
Property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
(in millions)
|
|
2017
|
|
2016
|
Buildings and improvements
|
|
$
|
1,357
|
|
|
$
|
1,311
|
|
Machinery and equipment
|
|
4,827
|
|
|
4,415
|
|
Construction in progress
|
|
521
|
|
|
431
|
|
Land
|
|
149
|
|
|
159
|
|
Total property, plant and equipment
|
|
6,854
|
|
|
6,316
|
|
Less: accumulated depreciation
|
|
(4,352
|
)
|
|
(4,121
|
)
|
Property, plant and equipment - net
|
|
$
|
2,502
|
|
|
$
|
2,195
|
|
There were no material leased capital assets included in net property, plant and equipment at
September 30
,
2017
and
2016
.
As of
September 30, 2017
, Adient is the lessor of properties included in land for
$7 million
, gross building and improvements for
$162 million
and accumulated depreciation of
$123 million
. As of
September 30, 2016
, Adient is the lessor of properties included in land for
$20 million
, gross building and improvements for
$187 million
and accumulated depreciation of
$126 million
.
|
|
|
|
|
|
5. Goodwill and Other Intangible Assets
|
The changes in the carrying amount of goodwill in each of Adient's reporting segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
September 30,
2016
|
|
Business
Acquisitions
|
|
Business
Divestitures
|
|
Currency Translation
and Other
|
|
September 30,
2017
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
Seating
|
|
$
|
2,179
|
|
|
$
|
284
|
|
|
$
|
—
|
|
|
$
|
52
|
|
|
$
|
2,515
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
September 30, 2015
|
|
Business
Acquisitions
|
|
Business
Divestitures
|
|
Currency Translation
and Other
|
|
September 30, 2016
|
Goodwill
|
|
|
|
|
|
|
|
|
|
|
Seating
|
|
$
|
2,160
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
19
|
|
|
$
|
2,179
|
|
Adient plc | Form 10-K |
72
Adient's other intangible assets, primarily from business acquisitions valued based on independent appraisals, consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
|
September 30, 2016
|
(in millions)
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
Intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Patented technology
|
|
$
|
30
|
|
|
$
|
(15
|
)
|
|
$
|
15
|
|
|
$
|
28
|
|
|
$
|
(13
|
)
|
|
$
|
15
|
|
Customer relationships
|
|
545
|
|
|
(64
|
)
|
|
481
|
|
|
100
|
|
|
(48
|
)
|
|
52
|
|
Trademarks
|
|
59
|
|
|
(26
|
)
|
|
33
|
|
|
56
|
|
|
(19
|
)
|
|
37
|
|
Miscellaneous
|
|
22
|
|
|
(8
|
)
|
|
14
|
|
|
15
|
|
|
(6
|
)
|
|
9
|
|
Total intangible assets
|
|
$
|
656
|
|
|
$
|
(113
|
)
|
|
$
|
543
|
|
|
$
|
199
|
|
|
$
|
(86
|
)
|
|
$
|
113
|
|
Amortization of other intangible assets for the fiscal years ended
September 30
,
2017
,
2016
and
2015
was
$21 million
,
$17 million
and
$18 million
, respectively. Excluding the impact of any future acquisitions, Adient anticipates amortization for fiscal
2018
,
2019
,
2020
,
2021
and
2022
will be approximately
$49 million
,
$49 million
,
$47 million
,
$46 million
and
$41 million
, respectively.
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)
|
|
2017
|
|
2016
|
Balance at beginning of period
|
|
$
|
13
|
|
|
$
|
12
|
|
Accruals for warranties issued during the period
|
|
3
|
|
|
9
|
|
Changes in accruals related to pre-existing warranties (including changes in estimates)
|
|
4
|
|
|
(5
|
)
|
Accruals from acquisitions
|
|
9
|
|
|
—
|
|
Settlements made (in cash or in kind) during the period
|
|
(10
|
)
|
|
(4
|
)
|
Currency translation
|
|
—
|
|
|
1
|
|
Balance at end of period
|
|
$
|
19
|
|
|
$
|
13
|
|
Certain administrative and production facilities and equipment are leased under long-term agreements. Most leases contain renewal options for varying periods, and certain leases include options to purchase the leased property during or at the end of the lease term. Leases generally require Adient to pay for insurance, taxes and maintenance of the property.
Certain facilities and equipment are leased under arrangements that are accounted for as operating leases. Total rental expense for the fiscal years ended
September 30
,
2017
,
2016
and
2015
was
$126 million
,
$120 million
and
$171 million
, respectively.
Adient plc | Form 10-K |
73
Future minimum capital and operating lease payments and the related present value of capital lease payments at
September 30, 2017
are as follows:
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Capital
Leases
|
|
Operating
Leases
|
2018
|
|
$
|
3
|
|
|
$
|
114
|
|
2019
|
|
2
|
|
|
81
|
|
2020
|
|
—
|
|
|
62
|
|
2021
|
|
—
|
|
|
50
|
|
2022
|
|
—
|
|
|
36
|
|
After 2022
|
|
—
|
|
|
52
|
|
Total minimum lease payments
|
|
5
|
|
|
$
|
395
|
|
Interest
|
|
(1
|
)
|
|
|
Present value of net minimum lease payments
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
8. Debt and Financing Arrangements
|
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
(in millions)
|
|
2017
|
|
2016
|
Term Loan A - LIBOR plus 1.75% due in 2021
|
|
$
|
1,200
|
|
|
$
|
1,500
|
|
4.875% Notes due in 2026
|
|
900
|
|
|
900
|
|
3.50% Notes due in 2024
|
|
1,180
|
|
|
1,119
|
|
European Investment Bank Loan - EURIBOR plus 0.90% due in 2022
|
|
195
|
|
|
—
|
|
Capital lease obligations
|
|
4
|
|
|
2
|
|
Other
|
|
1
|
|
|
2
|
|
Less: debt issuance costs
|
|
(38
|
)
|
|
(43
|
)
|
Gross long-term debt
|
|
3,442
|
|
|
3,480
|
|
Less: current portion
|
|
2
|
|
|
38
|
|
Net long-term debt
|
|
$
|
3,440
|
|
|
$
|
3,442
|
|
On July 27, 2016, Adient Global Holdings Ltd ("AGH"), a wholly owned subsidiary of Adient, entered into credit facilities providing for commitments with respect to a
$1.5 billion
revolving credit facility and a
$1.5 billion
Term Loan A facility ("Credit Facilities"). The Credit Facilities mature on July 2021. Commencing March 31, 2017 until the Term Loan A maturity date, amortization of the funded Term Loan A is required in an amount per quarter equal to
0.625%
of the original principal amount in the first year following the closing date of the credit facilities on July 27, 2016 ("Closing Date"),
1.25%
in each quarter of the second and third years following the Closing Date, and
2.5%
in each quarter thereafter prior to final maturity. The Credit Facilities contain covenants that include, among other things and subject to certain significant exceptions, restrictions on Adient's ability to declare or pay dividends, make certain payments in respect of the notes, create liens, incur additional indebtedness, make investments, engage in transactions with affiliates, enter into agreements restricting Adient's subsidiaries' ability to pay dividends, dispose of assets and merge or consolidate with any other person. In addition, the Credit Facilities contain a financial maintenance covenant requiring Adient to maintain a total net leverage ratio equal to or less than
3.5x adjusted EBITDA
, calculated on a quarterly basis. The Term Loan A facility also requires mandatory prepayments in connection with certain non-ordinary course asset sales and insurance recovery and condemnation events, among other things, and subject in each case to certain significant exceptions.
Adient plc | Form 10-K |
74
The full amount of the Term Loan A facility was drawn down in the fourth quarter of fiscal 2016. These funds were transferred to the former Parent at the time of the draw down and were reflected within net transfers to the former Parent in the consolidated statement of cash flow during the fourth quarter of fiscal 2016. The drawn portion of the Credit Facilities bear interest based on LIBOR plus a margin between
1.25%
-
2.25%
, based on Adient's total net leverage ratio. In February 2017, Adient repaid
$100 million
of the Term Loan A facility. In May 2017, Adient repaid another
$200 million
of the Term Loan A facility. The total amount repaid was treated as a prepayment of the quarterly mandatory principle amortization for the period between March 2017 and June 2020 resulting in no required principal payment until June 2020.
AGH will pay a commitment fee on the unused portion of the commitments under the revolving credit facility based on the total net leverage ratio of Adient, ranging from
0.15%
to
0.35%
. No amounts were outstanding under the revolving credit facility at September 30, 2017 and 2016.
On August 19, 2016, AGH issued $0.9 billion aggregate principal amount of
4.875%
USD-denominated unsecured notes due 2026 and
€1.0 billion
aggregate principal amount of
3.50%
unsecured notes due 2024, in a private offering exempt from the registration requirements of the Securities Act of 1933, as amended. The proceeds of the notes were used, together with the Term Loan A facility, to pay a distribution to the former Parent, with the remaining proceeds used for working capital and general corporate purposes.
On May 29, 2017, Adient Germany Ltd. & Co. KG, a wholly owned subsidiary of Adient, borrowed
€165 million
in an unsecured term loan from the European Investment Bank due in 2022. The loan bears interest at the 6-month EURIBOR rate plus
90
basis points. Loan proceeds were used to repay
$200 million
of the Term Loan A.
Principal payments required on long-term debt during the next five years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions)
|
|
2018
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
Principal payments
|
|
$
|
2
|
|
|
$
|
2
|
|
|
$
|
56
|
|
|
$
|
1,144
|
|
|
$
|
195
|
|
Short-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
Bank borrowings
|
|
$
|
36
|
|
|
$
|
41
|
|
|
$
|
17
|
|
Weighted average interest rate on short-term debt outstanding
(1)
|
|
3.0
|
%
|
|
5.9
|
%
|
|
13.7
|
%
|
(1)
The weighted average interest rates on short-term debt varies based on levels of debt maintained in various jurisdictions.
Net Financing Charges
Adient's net financing charges line item in the consolidated statements of income contained the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
Interest expense, net of capitalized interest costs
|
|
$
|
126
|
|
|
$
|
20
|
|
|
$
|
11
|
|
Banking fees and debt issuance cost amortization
|
|
10
|
|
|
4
|
|
|
2
|
|
Interest income
|
|
(4
|
)
|
|
(2
|
)
|
|
(1
|
)
|
Net financing charges
|
|
$
|
132
|
|
|
$
|
22
|
|
|
$
|
12
|
|
Total interest paid on both short and long-term debt for the fiscal years ended September 30, 2017, 2016 and 2015 was
$129 million
,
$5 million
and
$10 million
, respectively.
Adient plc | Form 10-K |
75
|
|
|
|
|
|
9. 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 10
, "
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 effective portion of 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. Any ineffective portion of the hedge is reflected in the consolidated statements of income. These contracts were highly effective in hedging the variability in future cash flows attributable to changes in currency exchange rates at September 30, 2017 and 2016, respectively.
Adient selectively uses equity swaps to reduce market risk associated with certain of its stock-based compensation plans, such as its deferred compensation plans. The equity swaps are recorded at fair value. Changes in fair value of the equity swaps are reflected in the consolidated statements of income within selling, general and administrative expenses.
At September 30, 2017, the
€1.0 billion
aggregate principal amount of
3.50%
euro-denominated unsecured notes due 2024 were designated as a net investment hedge to selectively hedge portions of Adient's net investment in Europe. In conjunction with the separation, the currency effects of Adient's euro-denominated bonds are reflected in AOCI account within shareholders' equity attributable to Adient where they offset gains and losses recorded on Adient's net investment in Europe.
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
|
(in millions)
|
|
September 30,
2017
|
|
September 30,
2016
|
|
September 30,
2017
|
|
September 30,
2016
|
Other current assets
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
$
|
4
|
|
|
$
|
9
|
|
|
$
|
—
|
|
|
$
|
40
|
|
Other noncurrent assets
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Equity swaps
|
|
—
|
|
|
—
|
|
|
3
|
|
|
—
|
|
Total assets
|
|
$
|
5
|
|
|
$
|
9
|
|
|
$
|
3
|
|
|
$
|
40
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
$
|
6
|
|
|
$
|
31
|
|
|
$
|
2
|
|
|
$
|
8
|
|
Other noncurrent liabilities
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
Foreign currency denominated debt
|
|
1,180
|
|
|
1,119
|
|
|
—
|
|
|
—
|
|
Total liabilities
|
|
$
|
1,189
|
|
|
$
|
1,150
|
|
|
$
|
2
|
|
|
$
|
8
|
|
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.
Adient plc | Form 10-K |
76
Collateral is generally not required of Adient or the counterparties under the master netting agreements. As of September 30, 2017 and
September 30, 2016
, no cash collateral was received or pledged under the master netting agreements.
The gross and net amounts of derivative instruments and other amounts used in hedging activities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
Liabilities
|
(in millions)
|
|
September 30,
2017
|
|
September 30,
2016
|
|
September 30,
2017
|
|
September 30,
2016
|
Gross amount recognized
|
|
$
|
8
|
|
|
$
|
49
|
|
|
$
|
1,191
|
|
|
$
|
1,158
|
|
Gross amount eligible for offsetting
|
|
(2
|
)
|
|
(1
|
)
|
|
(2
|
)
|
|
(1
|
)
|
Net amount
|
|
$
|
6
|
|
|
$
|
48
|
|
|
$
|
1,189
|
|
|
$
|
1,157
|
|
The following table presents the effective portion of pretax gains (losses) recorded in other comprehensive income related to cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Year Ended
September 30,
|
|
2017
|
|
2016
|
|
2015
|
Foreign currency exchange derivatives
|
|
$
|
3
|
|
|
$
|
34
|
|
|
$
|
8
|
|
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,
|
|
|
2017
|
|
2016
|
|
2015
|
Foreign currency exchange derivatives
|
|
Cost of sales
|
|
$
|
(13
|
)
|
|
$
|
31
|
|
|
$
|
22
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
Year Ended
September 30,
|
|
|
2017
|
|
2016
|
|
2015
|
Foreign currency exchange derivatives
|
|
Cost of sales
|
|
$
|
(20
|
)
|
|
$
|
10
|
|
|
$
|
1
|
|
Foreign currency exchange derivatives
|
|
Net financing charges
|
|
36
|
|
|
(3
|
)
|
|
14
|
|
Equity swap
|
|
Selling, general and administrative
|
|
3
|
|
|
—
|
|
|
—
|
|
Total
|
|
|
|
$
|
19
|
|
|
$
|
7
|
|
|
$
|
15
|
|
The effective portion of pretax gains (losses) recorded in currency translation adjustment (CTA) within other comprehensive income (loss) related to net investment hedges was
$(61) million
,
$(24) million
and
$16 million
for the fiscal years ended September 30, 2017, 2016 and 2015, respectively. For the years ended September 30, 2017 and 2016,
no
gains or losses were reclassified from CTA into income for Adient's outstanding net investment hedges, and
no
gains or losses were recognized in income for the ineffective portion of cash flow hedges.
|
|
|
|
|
|
10. 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:
Level 1:
Observable inputs such as quoted prices in active markets;
Adient plc | Form 10-K |
77
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
(in millions)
|
|
Total as of
September 30,
2017
|
|
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
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
—
|
|
Other noncurrent assets
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Equity swaps
|
|
3
|
|
|
—
|
|
|
3
|
|
|
—
|
|
Total assets
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
8
|
|
|
$
|
—
|
|
Other current liabilities
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
8
|
|
|
$
|
—
|
|
Other noncurrent liabilities
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
3
|
|
|
—
|
|
|
3
|
|
|
—
|
|
Total liabilities
|
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
11
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
(in millions)
|
|
Total as of
September 30, 2016
|
|
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
|
|
$
|
49
|
|
|
$
|
—
|
|
|
$
|
49
|
|
|
$
|
—
|
|
Total assets
|
|
$
|
49
|
|
|
$
|
—
|
|
|
$
|
49
|
|
|
$
|
—
|
|
Other current liabilities
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
$
|
39
|
|
|
$
|
—
|
|
|
$
|
39
|
|
|
$
|
—
|
|
Total liabilities
|
|
$
|
39
|
|
|
$
|
—
|
|
|
$
|
39
|
|
|
$
|
—
|
|
Valuation Methods
Foreign currency exchange derivatives
Adient selectively hedges anticipated transactions 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 are highly effective in hedging the variability in future cash flows attributable to changes in currency exchange rates at September 30, 2017 and 2016. 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.
Adient plc | Form 10-K |
78
Equity swaps
Adient selectively uses equity swaps to reduce market risk associated with certain of its stock-based compensation plans, such as its deferred compensation plans. The equity swaps are recorded at fair value. Changes in fair value of the equity swaps are reflected in the consolidated statements of income within selling, general and administrative expenses.
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 $3.5 billion and $3.4 billion at September 30, 2017 and 2016, respectively, was determined primarily using market quotes classified as Level 1 inputs within the ASC 820 fair value hierarchy.
|
|
|
|
|
|
11. Stock-Based Compensation
|
Adient provides certain key employees equity awards in the form of performance share units (PSUs) and restricted stock units (RSUs) 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
$45 million
,
$28 million
and
$16 million
for the fiscal years ended September 30, 2017, 2016 and 2015, respectively. The total income tax benefit recognized in the consolidated statements of income for the share-based compensation arrangements was
$21 million
,
$11 million
and
$6 million
for the fiscal years ended September 30, 2017, 2016 and 2015, respectively. Stock-based compensation expense prior to the separation was allocated to Adient based on the portion of Adient's equity compensation programs in which Adient employees participated.
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 twelve months ended September 30, 2017 along with the composition of outstanding and exercisable awards at September 30, 2017 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 elect to defer 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 awards typically vest after three years from the grant date. The Plan allows for different vesting terms on specific grants with approval by Adient's Board of Directors.
Adient plc | Form 10-K |
79
A summary of the status of nonvested restricted stock awards at September 30, 2017, and changes for the fiscal year then ended, for Adient employees is presented below:
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average
Price
|
|
Shares/Units
Subject to
Restriction
|
Nonvested, September 30, 2016
|
|
$
|
46.42
|
|
|
1,320,448
|
|
Converted
|
|
48.06
|
|
|
135,026
|
|
Converted and nonvested on October 31, 2016
|
|
46.57
|
|
|
1,455,474
|
|
Granted
|
|
45.19
|
|
|
1,162,213
|
|
Vested
|
|
50.29
|
|
|
(281,539
|
)
|
Forfeited
|
|
44.08
|
|
|
(83,710
|
)
|
Nonvested, September 30, 2017
|
|
$
|
45.49
|
|
|
2,252,438
|
|
|
|
|
|
|
Former Parent nonvested, September 30, 2017
|
|
$
|
45.57
|
|
|
1,010,967
|
|
Adient nonvested, September 30, 2017
|
|
45.42
|
|
|
1,241,471
|
|
Total nonvested, September 30, 2017
|
|
$
|
45.49
|
|
|
2,252,438
|
|
At September 30, 2017, Adient had approximately
$60 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
2.0
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 performance period, unless the award holder elected to defer a portion or all of the award 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, 2017, and changes for the fiscal year then ended, for Adient employees is presented below:
|
|
|
|
|
|
|
|
|
|
|
Weighted
Average
Price
|
|
Shares/Units
Subject to
PSU
|
Nonvested, September 30, 2016
|
|
$
|
—
|
|
|
—
|
|
Converted and nonvested on October 31, 2016
|
|
—
|
|
|
—
|
|
Granted
|
|
44.60
|
|
|
236,034
|
|
Vested
|
|
—
|
|
|
—
|
|
Forfeited
|
|
—
|
|
|
—
|
|
Nonvested, September 30, 2017
|
|
$
|
44.60
|
|
|
236,034
|
|
At September 30, 2017, Adient had approximately
$18 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
2.1
years.
Stock Options
No new stock options have been granted under the Adient plc 2016 Omnibus Incentive 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.
Adient plc | Form 10-K |
80
A summary of stock option activity at September 30, 2017, 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, 2016
|
|
$
|
32.42
|
|
|
2,336,028
|
|
|
|
|
|
Exercised
|
|
27.22
|
|
|
(6,280
|
)
|
|
|
|
|
Forfeited or expired
|
|
31.71
|
|
|
(3,330
|
)
|
|
|
|
|
Converted
|
|
33.28
|
|
|
169,125
|
|
|
|
|
|
Converted and outstanding on October 31, 2016
|
|
32.49
|
|
|
2,495,543
|
|
|
|
|
|
Granted
|
|
—
|
|
|
—
|
|
|
|
|
|
Exercised
|
|
27.58
|
|
|
(1,070,284
|
)
|
|
|
|
|
Forfeited or expired
|
|
26.32
|
|
|
(3,126
|
)
|
|
|
|
|
Outstanding, September 30, 2017
|
|
$
|
32.04
|
|
|
1,422,133
|
|
|
4.7
|
|
$
|
22
|
|
Exercisable, September 30, 2017
|
|
$
|
29.58
|
|
|
1,151,192
|
|
|
4.0
|
|
$
|
21
|
|
|
|
|
|
|
|
|
|
|
Former Parent outstanding, September 30, 2017
|
|
$
|
31.83
|
|
|
1,221,817
|
|
|
4.8
|
|
$
|
12
|
|
Adient outstanding, September 30, 2017
|
|
33.32
|
|
|
200,316
|
|
|
4.1
|
|
10
|
|
Total outstanding, September 30, 2017
|
|
$
|
32.04
|
|
|
1,422,133
|
|
|
4.7
|
|
$
|
22
|
|
|
|
|
|
|
|
|
|
|
Former Parent exercisable, September 30, 2017
|
|
$
|
29.26
|
|
|
975,505
|
|
|
4.1
|
|
$
|
12
|
|
Adient exercisable, September 30, 2017
|
|
31.34
|
|
|
175,687
|
|
|
3.6
|
|
9
|
|
Total exercisable, September 30, 2017
|
|
$
|
29.58
|
|
|
1,151,192
|
|
|
4.0
|
|
$
|
21
|
|
There were no stock options granted in fiscal 2017. The weighted-average grant-date fair value of options granted to Adient employees during the fiscal years ended September 30, 2016 and 2015 was
$13.15
and
$15.53
, respectively. The total intrinsic value of options exercised by Adient employees during the fiscal years ended September 30, 2017, 2016 and 2015 was approximately
$18 million
,
$4 million
and
$30 million
, respectively, primarily consisting of former Parent awards. At September 30, 2017, Adient had approximately
$0.2 million
of total unrecognized compensation cost related to nonvested stock options granted. That cost is expected to be recognized during fiscal 2018.
Stock Appreciation Rights
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 |
81
A summary of SAR activity at September 30, 2017, 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, 2016
|
|
$
|
31.26
|
|
|
654,694
|
|
|
|
|
|
Exercised
|
|
29.68
|
|
|
(9,470
|
)
|
|
|
|
|
Converted
|
|
33.16
|
|
|
41,713
|
|
|
|
|
|
Converted and outstanding on October 31, 2016
|
|
31.40
|
|
|
686,937
|
|
|
|
|
|
Granted
|
|
—
|
|
|
—
|
|
|
|
|
|
Exercised
|
|
32.35
|
|
|
(131,470
|
)
|
|
|
|
|
Forfeited or expired
|
|
45.95
|
|
|
(6,309
|
)
|
|
|
|
|
Outstanding, September 30, 2017
|
|
$
|
28.12
|
|
|
549,158
|
|
|
3.8
|
|
$
|
9
|
|
Exercisable, September 30, 2017
|
|
$
|
27.10
|
|
|
511,854
|
|
|
3.6
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
Former Parent outstanding, September 30, 2017
|
|
$
|
27.79
|
|
|
495,754
|
|
|
3.8
|
|
$
|
6
|
|
Adient outstanding, September 30, 2017
|
|
31.19
|
|
|
53,404
|
|
|
3.8
|
|
3
|
|
Total outstanding, September 30, 2017
|
|
$
|
28.12
|
|
|
549,158
|
|
|
3.8
|
|
$
|
9
|
|
|
|
|
|
|
|
|
|
|
Former Parent exercisable, September 30, 2017
|
|
$
|
26.78
|
|
|
461,841
|
|
|
3.6
|
|
$
|
6
|
|
Adient exercisable, September 30, 2017
|
|
30.12
|
|
|
50,013
|
|
|
3.5
|
|
3
|
|
Total exercisable, September 30, 2017
|
|
$
|
27.10
|
|
|
511,854
|
|
|
3.6
|
|
$
|
9
|
|
In conjunction with the exercise of SARs, Adient made payments of
$1 million
,
$4 million
and
$7 million
during the fiscal years ended September 30, 2017, 2016 and 2015, respectively.
Adient plc | Form 10-K |
82
|
|
|
|
|
|
12. Equity and Noncontrolling Interests
|
The following table presents changes in AOCI attributable to Adient:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions, net of tax)
|
|
2017
|
|
2016
|
|
2015
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(260
|
)
|
|
$
|
(229
|
)
|
|
$
|
283
|
|
Aggregate adjustment for the period (net of tax effect of $0, $(28) and $9)
|
|
(138
|
)
|
|
(31
|
)
|
|
(512
|
)
|
Balance at end of period
|
|
(398
|
)
|
|
(260
|
)
|
|
(229
|
)
|
Realized and unrealized gains (losses) on derivatives
|
|
|
|
|
|
|
Balance at beginning of period
|
|
(14
|
)
|
|
(17
|
)
|
|
(6
|
)
|
Current period changes in fair value (net of tax effect of $1, $10 and $1)
|
|
6
|
|
|
26
|
|
|
5
|
|
Reclassification to income (net of tax effect of $2, $(8) and $(6))*
|
|
11
|
|
|
(23
|
)
|
|
(16
|
)
|
Balance at end of period
|
|
3
|
|
|
(14
|
)
|
|
(17
|
)
|
Pension and postretirement plans
|
|
|
|
|
|
|
Balance at beginning of period
|
|
(2
|
)
|
|
(1
|
)
|
|
(1
|
)
|
Reclassifications to income (net of tax effect of $0)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
Balance at end of period
|
|
(2
|
)
|
|
(2
|
)
|
|
(1
|
)
|
Accumulated other comprehensive income (loss), end of period
|
|
$
|
(397
|
)
|
|
$
|
(276
|
)
|
|
$
|
(247
|
)
|
* Refer to
Note 9
, "
Derivative Instruments and Hedging Activities
," of the notes to consolidated financial statements for disclosure of the line items on the consolidated statements of income affected by reclassifications from AOCI into income related to derivatives.
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
Beginning balance
|
|
$
|
34
|
|
|
$
|
31
|
|
|
$
|
27
|
|
Net income
|
|
25
|
|
|
25
|
|
|
16
|
|
Foreign currency translation adjustments
|
|
—
|
|
|
1
|
|
|
(3
|
)
|
Dividends
|
|
(31
|
)
|
|
(23
|
)
|
|
(9
|
)
|
Ending balance
|
|
$
|
28
|
|
|
$
|
34
|
|
|
$
|
31
|
|
The change in Parent's net investment includes all intercompany activity with the former Parent prior to separation, including a
$1.5 billion
non-cash settlement during fiscal 2017.
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 is payable in November 2017. In November 2017, Adient declared a dividend of
$0.275
per ordinary share, which is payable in February 2018.
During fiscal 2017, Adient repurchased
573,437
ordinary shares for
$40 million
. Repurchased shares were retired immediately upon repurchase.
Adient plc | Form 10-K |
83
Participation in Parent Pension and Other Postemployment Benefit Plans
Adient provides defined benefit pension, postretirement health care and defined contribution benefits to its eligible employees and retirees. Effective October 31, 2016, in connection with the separation of Adient from the former Parent, Adient recorded the net benefit plan obligations transferred from the former Parent. Adient's consolidated statements of earnings included expense allocations for these benefits. These expenses were funded through intercompany transactions with the former Parent which are reflected within net parent company investment in Adient.
Total former Parent benefit plan net expense allocated to Adient amounted to
$21 million
and
$32 million
for fiscal years 2016 and 2015, respectively. These costs are reflected in cost of sales and selling, general and administrative expenses and were funded through intercompany transactions with the former Parent which are now reflected within the net parent investment equity balance. There was
no
benefit plan net expense allocated to Adient for fiscal year 2017.
Pension Benefits
Adient has 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
$472 million
,
$450 million
and
$342 million
, respectively, as of September 30, 2017 and
$519 million
,
$495 million
and
$331 million
, respectively, as of
September 30, 2016
.
In fiscal 2017, total Adient contributions to the defined benefit pension plans were
$37 million
, of which
$2 million
were voluntary contributions. Contributions of at least
$13 million
in cash to its defined benefit pension plans are expected in fiscal 2018. Projected benefit payments from the plans as of September 30, 2017 are estimated as follows (in millions):
|
|
|
|
|
2018
|
$
|
26
|
|
2019
|
27
|
|
2020
|
28
|
|
2021
|
27
|
|
2022
|
33
|
|
2023-2027
|
176
|
|
Postretirement Benefits
Adient provides certain health care and life insurance benefits for eligible retirees and their dependents primarily in the U.S. and Canada. Most non-U.S. employees are covered by government sponsored programs, and the cost to Adient is not significant.
Eligibility for coverage is based on meeting certain years of service and retirement age qualifications. These benefits may be subject to deductibles, co-payment provisions and other limitations, and Adient has reserved the right to modify these benefits.
The health care cost trend assumption does not have a significant effect on the amounts reported.
Adient plc | Form 10-K |
84
In fiscal 2017, total employer and employee contributions to the postretirement plans were
$2 million
. Adient does not expect to make any significant contributions to its postretirement plans in fiscal year 2018. Projected benefit payments from the plans as of
September 30, 2017
are estimated as follows (in millions):
|
|
|
|
|
2018
|
$
|
1
|
|
2019
|
1
|
|
2020
|
1
|
|
2021
|
1
|
|
2022
|
1
|
|
2023-2027
|
7
|
|
In December 2003, the U.S. Congress enacted the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (Act) for employers sponsoring postretirement care plans that provide prescription drug benefits. The Act introduces a prescription drug benefit under Medicare as well as a federal subsidy to sponsors of retiree health care benefit plans providing a benefit that is at least actuarially equivalent to Medicare Part D.1. Under the Act, the Medicare subsidy amount is received directly by the plan sponsor and not the related plan. Further, the plan sponsor is not required to use the subsidy amount to fund postretirement benefits and may use the subsidy for any valid business purpose. Projected subsidy receipts for each of the next ten years are not expected to be significant.
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
$58 million
for fiscal year 2017.
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 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.
During fiscal 2017, Adient retrospectively adopted ASU No. 2015-07 "Fair Value Measurement (Topic 820): Disclosures for Investments in Certain Entities that Calculate Net Asset Value per Share (or Its Equivalent)," which removed the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value (NAV) per share as a practical expedient.
Adient plc | Form 10-K |
85
Adient's plan assets by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
(in millions)
|
|
Total as of
September 30,
2017
|
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Net Asset Value (NAV)
|
Pension
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
10
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity Securities
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
23
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
19
|
|
International - Developed
|
|
74
|
|
|
52
|
|
|
—
|
|
|
—
|
|
|
22
|
|
International - Emerging
|
|
10
|
|
|
6
|
|
|
—
|
|
|
—
|
|
|
4
|
|
Fixed Income Securities
|
|
|
|
|
|
|
|
|
|
|
Government
|
|
195
|
|
|
76
|
|
|
87
|
|
|
—
|
|
|
32
|
|
Corporate/Other
|
|
80
|
|
|
52
|
|
|
13
|
|
|
—
|
|
|
15
|
|
Hedge Fund
|
|
73
|
|
|
—
|
|
|
73
|
|
|
—
|
|
|
—
|
|
Real Estate
|
|
26
|
|
|
—
|
|
|
—
|
|
|
11
|
|
|
15
|
|
Total
|
|
$
|
491
|
|
|
$
|
200
|
|
|
$
|
173
|
|
|
$
|
11
|
|
|
$
|
107
|
|
Postretirement:
|
|
|
|
|
|
|
|
|
|
|
Equity Securities
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
International - Developed
|
|
5
|
|
|
5
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Fixed Income Securities
|
|
|
|
|
|
|
|
|
|
|
Government
|
|
3
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Corporate/Other
|
|
3
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
15
|
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Adient plc | Form 10-K |
86
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
(in millions)
|
|
Total as of
September 30,
2016
|
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Net Asset Value (NAV)
|
Pension
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
13
|
|
|
$
|
13
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity Securities
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
39
|
|
|
20
|
|
|
—
|
|
|
—
|
|
|
19
|
|
International - Developed
|
|
45
|
|
|
26
|
|
|
—
|
|
|
—
|
|
|
19
|
|
International - Emerging
|
|
7
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
4
|
|
Fixed Income Securities
|
|
|
|
|
|
|
|
|
|
|
Government
|
|
172
|
|
|
98
|
|
|
51
|
|
|
—
|
|
|
23
|
|
Corporate/Other
|
|
90
|
|
|
70
|
|
|
5
|
|
|
—
|
|
|
15
|
|
Hedge Fund
|
|
65
|
|
|
—
|
|
|
65
|
|
|
—
|
|
|
—
|
|
Real Estate
|
|
26
|
|
|
—
|
|
|
—
|
|
|
9
|
|
|
17
|
|
Total
|
|
$
|
457
|
|
|
$
|
230
|
|
|
$
|
121
|
|
|
$
|
9
|
|
|
$
|
97
|
|
Postretirement:
|
|
|
|
|
|
|
|
|
|
|
Equity Securities
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
3
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
International - Developed
|
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
International - Emerging
|
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Fixed Income Securities
|
|
|
|
|
|
|
|
|
|
|
Government
|
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Corporate/Other
|
|
4
|
|
|
4
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Commodities
|
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Real Estate
|
|
1
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total
|
|
$
|
12
|
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
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.
Commodities:
The fair value of the commodities is determined by quoted market prices of the underlying holdings on regulated financial exchanges.
Hedge Funds:
The fair value of hedge funds is accounted for 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 Real Estate Investment Trusts (REITs) is recorded as Level 1 for securities that are traded on an open exchange. 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
Adient plc | Form 10-K |
87
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. In accordance with ASU 2015-07, 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.
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, 2015
|
|
$
|
8
|
|
Unrealized gain
|
|
1
|
|
Asset value as of September 30, 2016
|
|
$
|
9
|
|
Redemptions
|
|
(1
|
)
|
Unrealized gain
|
|
3
|
|
Asset value as of September 30, 2017
|
|
$
|
11
|
|
Adient plc | Form 10-K |
88
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
|
|
Postretirement Benefits
|
(in millions)
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Accumulated Benefit Obligation
|
|
$
|
577
|
|
|
$
|
613
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Change in Projected Benefit Obligation:
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year
|
|
$
|
637
|
|
|
$
|
527
|
|
|
$
|
16
|
|
|
$
|
15
|
|
Service cost
|
|
8
|
|
|
8
|
|
|
—
|
|
|
—
|
|
Interest cost
|
|
12
|
|
|
16
|
|
|
1
|
|
|
—
|
|
Plan participant contributions
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
Actuarial (gain) loss
|
|
(51
|
)
|
|
132
|
|
|
—
|
|
|
2
|
|
Benefits and settlements paid
|
|
(29
|
)
|
|
(30
|
)
|
|
(1
|
)
|
|
(2
|
)
|
Other
|
|
—
|
|
|
14
|
|
|
(1
|
)
|
|
—
|
|
Currency translation adjustment
|
|
23
|
|
|
(30
|
)
|
|
—
|
|
|
—
|
|
Projected benefit obligation at end of year
|
|
$
|
600
|
|
|
$
|
637
|
|
|
$
|
16
|
|
|
$
|
16
|
|
Change in Plan Assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
457
|
|
|
$
|
421
|
|
|
$
|
12
|
|
|
$
|
13
|
|
Actual return on plan assets
|
|
9
|
|
|
44
|
|
|
2
|
|
|
1
|
|
Employer and employee contributions
|
|
37
|
|
|
35
|
|
|
2
|
|
|
1
|
|
Benefits and settlements paid
|
|
(29
|
)
|
|
(30
|
)
|
|
(1
|
)
|
|
(2
|
)
|
Other
|
|
—
|
|
|
16
|
|
|
—
|
|
|
(1
|
)
|
Currency translation adjustment
|
|
17
|
|
|
(29
|
)
|
|
—
|
|
|
—
|
|
Fair value of plan assets at end of year
|
|
$
|
491
|
|
|
$
|
457
|
|
|
$
|
15
|
|
|
$
|
12
|
|
Funded status
|
|
$
|
(109
|
)
|
|
$
|
(180
|
)
|
|
$
|
(1
|
)
|
|
$
|
(4
|
)
|
Amounts recognized in the statement of financial position consist of:
|
|
|
|
|
|
|
|
|
Prepaid benefit cost
|
|
$
|
22
|
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Accrued benefit liability
|
|
(131
|
)
|
|
(188
|
)
|
|
(1
|
)
|
|
(4
|
)
|
Net amount recognized
|
|
$
|
(109
|
)
|
|
$
|
(180
|
)
|
|
$
|
(1
|
)
|
|
$
|
(4
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement
Benefits
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
Weighted Average Assumptions
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
(2)
|
|
3.85
|
%
|
|
3.70
|
%
|
|
2.60
|
%
|
|
2.10
|
%
|
|
3.50
|
%
|
|
3.25
|
%
|
Rate of compensation increase
|
|
NA
|
|
|
NA
|
|
|
3.55
|
%
|
|
4.00
|
%
|
|
NA
|
|
|
NA
|
|
(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 and postretirement plans, 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 and postretirement plans, Adient consistently uses the relevant country specific benchmark indices for determining the various discount rates.
Adient plc | Form 10-K |
89
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, 2017 and 2016
were
$2 million
and
$2 million
, respectively, related to pension benefits and are not significant related to postretirement 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
Components of Net Periodic Benefit Cost (Credit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
8
|
|
|
$
|
8
|
|
|
$
|
10
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
1
|
|
Interest cost
|
|
12
|
|
|
16
|
|
|
19
|
|
|
1
|
|
|
—
|
|
|
1
|
|
Expected return on plan assets
|
|
(17
|
)
|
|
(22
|
)
|
|
(21
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
Net actuarial (gain) loss
|
|
(43
|
)
|
|
109
|
|
|
6
|
|
|
(2
|
)
|
|
1
|
|
|
—
|
|
Settlement loss
|
|
—
|
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net periodic benefit cost (credit)
|
|
$
|
(40
|
)
|
|
$
|
112
|
|
|
$
|
14
|
|
|
$
|
(1
|
)
|
|
$
|
1
|
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
|
2017
|
|
2016
|
|
2015
|
Expense Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
3.70
|
%
|
|
4.40
|
%
|
|
4.35
|
%
|
|
2.10
|
%
|
|
3.40
|
%
|
|
3.50
|
%
|
|
3.25
|
%
|
|
3.80
|
%
|
|
4.35
|
%
|
Expected return on plan assets
|
|
5.50
|
%
|
|
7.50
|
%
|
|
7.50
|
%
|
|
3.80
|
%
|
|
4.45
|
%
|
|
5.40
|
%
|
|
3.35
|
%
|
|
3.80
|
%
|
|
4.00
|
%
|
Rate of compensation increase
|
|
NA
|
|
|
NA
|
|
|
NA
|
|
|
4.00
|
%
|
|
3.00
|
%
|
|
3.00
|
%
|
|
NA
|
|
|
NA
|
|
|
NA
|
|
|
|
|
|
|
|
14. Significant Restructuring and Impairment Costs
|
To better align its resources with its growth 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.
In fiscal 2017, Adient committed to a significant restructuring plan (2017 Plan) within the Seating segment and recorded
$46 million
of restructuring and impairment costs in the consolidated statements of income. This is the total amount incurred to date and the total amount expected to be incurred for this restructuring plan. The restructuring actions relate to cost reduction initiatives. The costs consist primarily of workforce reductions and plant closures. The restructuring actions are expected to be substantially complete in fiscal 2018.
The following table summarizes the changes in Adient's 2017 Plan reserve:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Employee Severance and Termination Benefits
|
|
Long-Lived Asset Impairments
|
|
Other
|
|
Currency
Translation
|
|
Total
|
Original Reserve
|
|
$
|
42
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
46
|
|
Utilized—cash
|
|
(4
|
)
|
|
—
|
|
|
(4
|
)
|
|
—
|
|
|
(8
|
)
|
Utilized—noncash
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Balance at September 30, 2017
|
|
$
|
38
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
38
|
|
Adient plc | Form 10-K |
90
In fiscal 2016, Adient committed to a significant restructuring plan (2016 Plan) and recorded
$332 million
of restructuring and impairment costs in the consolidated statements of income. This is the total amount incurred to date and the total amount expected to be incurred for this restructuring plan. The restructuring actions relate to cost reduction initiatives. The costs consist primarily of workforce reductions, plant closures, asset impairments, and changes in estimates to prior year plans. Of the restructuring and impairment costs recorded,
$315 million
relates to the Seating segment and
$17 million
relates to the Interiors segment. The asset impairment charge recorded during fiscal 2016 relates primarily to information technology assets within the Seating segment that will not be used going forward by Adient. The other charges recorded in fiscal 2016 of
$22 million
relate primarily to restructuring costs at one of Adient's joint ventures which Adient has indemnified. The restructuring actions are expected to be substantially complete in fiscal 2018.
The following table summarizes the changes in Adient's 2016 Plan reserve:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Employee Severance and Termination Benefits
|
|
Long-Lived Asset Impairments
|
|
Other
|
|
Currency
Translation
|
|
Total
|
Original Reserve
|
|
$
|
223
|
|
|
$
|
87
|
|
|
$
|
22
|
|
|
$
|
—
|
|
|
$
|
332
|
|
Utilized—cash
|
|
(29
|
)
|
|
—
|
|
|
(1
|
)
|
|
—
|
|
|
(30
|
)
|
Utilized—noncash
|
|
—
|
|
|
(87
|
)
|
|
—
|
|
|
(2
|
)
|
|
(89
|
)
|
Balance at September 30, 2016
|
|
194
|
|
|
—
|
|
|
21
|
|
|
(2
|
)
|
|
213
|
|
Utilized—cash
|
|
(48
|
)
|
|
—
|
|
|
(12
|
)
|
|
—
|
|
|
(60
|
)
|
Utilized—noncash
|
|
—
|
|
|
—
|
|
|
—
|
|
|
7
|
|
|
7
|
|
Balance at September 30, 2017
|
|
$
|
146
|
|
|
$
|
—
|
|
|
$
|
9
|
|
|
$
|
5
|
|
|
$
|
160
|
|
In fiscal 2015, Adient committed to a significant restructuring plan (2015 Plan) and recorded
$182 million
of restructuring and impairment costs in the consolidated statements of income. This is the total amount incurred to date and the total amount expected to be incurred for this restructuring plan. The restructuring actions relate to cost reduction initiatives. The costs consist primarily of workforce reductions, plant closures and asset impairments. The restructuring and impairment costs related to the Seating segment. The restructuring actions were substantially completed in fiscal 2017.
The following table summarizes the changes in Adient's 2015 Plan reserve:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Employee Severance and Termination Benefits
|
|
Long-Lived Asset Impairments
|
|
Currency
Translation
|
|
Total
|
Original Reserve
|
|
$
|
155
|
|
|
$
|
27
|
|
|
$
|
—
|
|
|
$
|
182
|
|
Utilized—cash
|
|
(1
|
)
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
Utilized—noncash
|
|
—
|
|
|
(27
|
)
|
|
—
|
|
|
(27
|
)
|
Balance at September 30, 2015
|
|
154
|
|
|
—
|
|
|
—
|
|
|
154
|
|
Utilized—cash
|
|
(41
|
)
|
|
—
|
|
|
—
|
|
|
(41
|
)
|
Utilized—noncash
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
Balance at September 30, 2016
|
|
113
|
|
|
—
|
|
|
(1
|
)
|
|
112
|
|
Utilized—cash
|
|
(94
|
)
|
|
—
|
|
|
—
|
|
|
(94
|
)
|
Utilized—noncash
|
|
—
|
|
|
—
|
|
|
(2
|
)
|
|
(2
|
)
|
Balance at September 30, 2017
|
|
$
|
19
|
|
|
$
|
—
|
|
|
$
|
(3
|
)
|
|
$
|
16
|
|
Adient's fiscal 2017, 2016 and 2015 restructuring plans included workforce reductions of approximately
6,200
. 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, 2017
, approximately
3,200
of the employees have been separated from Adient pursuant to the restructuring plans. In addition, the restructuring plans included
fifteen
plant closures. As of
September 30, 2017
,
nine
of the fifteen plants have been closed.
Adient plc | Form 10-K |
91
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 could impact Adient's liquidity position, lead to impairment charges and/or require additional restructuring of its operations.
|
|
|
|
|
|
15. 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.
In fiscal 2016, Adient concluded it had triggering events requiring assessment of impairment for certain of its long-lived assets in conjunction with its announced restructuring actions. As a result, Adient reviewed the long-lived assets for impairment and recorded a
$87 million
impairment charge within restructuring and impairment costs on the consolidated statements of income, of which
$9 million
was recorded in the second quarter,
$32 million
was recorded in the third quarter and
$46 million
was recorded in the fourth quarter. Of the total impairment charges,
$86 million
related to the Seating segment and
$1 million
related to the Interiors segment. Refer to
Note 14
, "
Significant Restructuring and Impairment Costs
," of the notes to consolidated financial statements for additional information. The impairment was measured, depending on the asset, either under an income approach utilizing forecasted discounted cash flows or a market approach utilizing an appraisal 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 cash flows, estimated production volumes, discount rates, estimated salvage values and third-party appraisals.
In fiscal 2015, Adient concluded it had triggering events requiring assessment of impairment for certain of its long-lived assets in conjunction with its announced restructuring actions. As a result, Adient reviewed the long-lived assets for impairment and recorded a
$27 million
impairment charge during the fourth quarter within restructuring and impairment costs on the consolidated statements of income. The total impairment charge related to the Seating segment. Refer to
Note 14
, "
Significant Restructuring and Impairment Costs
," of the notes to consolidated financial statements for additional information. The impairment was measured, depending on the asset, either under an income approach utilizing forecasted discounted cash flows or a market approach utilizing an appraisal 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 cash flows, estimated production volumes, discount rates, estimated salvage values and third-party appraisals.
At
September 30, 2017, 2016 and 2015
, Adient concluded it did not have any other triggering events requiring assessment of impairment of its long-lived assets.
For fiscal 2017, the income tax provision (benefit) reflects Adient as an independent company incorporated under the laws of Ireland.
For fiscal 2016 and 2015, prior to the separation, the income tax provision (benefit) was calculated as if Adient filed separate income tax returns and was operating as a stand-alone business. Therefore, cash tax payments and items of current and deferred taxes may not be reflective of the actual tax balances of Adient subsequent to the separation. Adient's operations have historically been included in the former Parent’s U.S. federal and state tax returns and non-U.S. tax returns.
Adient plc | Form 10-K |
92
Consolidated income (loss) before income taxes and noncontrolling interests for the years ended September 30, 2017, 2016 and 2015 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
Ireland
|
|
$
|
(6
|
)
|
|
$
|
—
|
|
|
$
|
—
|
|
United States
|
|
122
|
|
|
330
|
|
|
493
|
|
Other Foreign
|
|
945
|
|
|
47
|
|
|
451
|
|
Income before income taxes and noncontrolling interests
|
|
$
|
1,061
|
|
|
$
|
377
|
|
|
$
|
944
|
|
The components of the provision (benefit) for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
Current
|
|
|
|
|
|
|
Ireland
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
US - Federal and State
|
|
14
|
|
|
1,548
|
|
|
268
|
|
Other Foreign
|
|
137
|
|
|
863
|
|
|
201
|
|
|
|
151
|
|
|
2,411
|
|
|
469
|
|
Deferred
|
|
|
|
|
|
|
Ireland
|
|
(2
|
)
|
|
—
|
|
|
—
|
|
US - Federal and State
|
|
13
|
|
|
(295
|
)
|
|
(89
|
)
|
Other Foreign
|
|
(63
|
)
|
|
(277
|
)
|
|
38
|
|
|
|
(52
|
)
|
|
(572
|
)
|
|
(51
|
)
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
99
|
|
|
$
|
1,839
|
|
|
$
|
418
|
|
Adient plc | Form 10-K |
93
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.
The reconciliation between the Irish statutory income tax rate, and Adient’s effective tax rate is as follows:
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions)
|
|
2017
|
Tax expense at Ireland statutory rate
|
|
$
|
133
|
|
State income taxes, net of federal benefit
|
|
(10
|
)
|
Foreign tax rate differential
|
|
(67
|
)
|
Notional interest deduction
|
|
(28
|
)
|
Credits and incentives
|
|
(13
|
)
|
Gain on previously-held interest
|
|
(19
|
)
|
Repatriation of foreign earnings
|
|
30
|
|
Foreign exchange
|
|
(11
|
)
|
Impact of enacted tax rate changes
|
|
10
|
|
Change in uncertain tax positions
|
|
50
|
|
Change in valuation allowance
|
|
21
|
|
Other
|
|
3
|
|
Income tax provision
|
|
$
|
99
|
|
The effective rate is lower than the statutory rate of
12.5%
primarily due to benefits from global tax planning, notional interest deductions, foreign tax rate differentials, and foreign exchange, partially offset with a first quarter fiscal 2017 tax law change in Hungary, repatriation of foreign earnings, and changes in uncertain tax positions and valuation allowances. No items included in the other category are individually, or when appropriately aggregated, significant.
The foreign tax rate differential benefit is primarily driven 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. Excluding nonconsolidated partially-owned affiliates, foreign tax rate differentials have a
$21 million
favorable impact on the effective tax rate as a result of losses earned in jurisdictions where the statutory rate is greater than
12.5%
.
The reconciliation between the U.S. federal income tax rate, and Adient’s effective tax rate was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions)
|
|
2016
|
|
2015
|
Tax expense at the U.S. federal statutory rate
|
|
$
|
136
|
|
|
$
|
336
|
|
State income taxes, net of federal benefit
|
|
—
|
|
|
15
|
|
Foreign income tax expense at different rates and foreign losses without tax benefits
|
|
(92
|
)
|
|
(13
|
)
|
U.S. tax on foreign income
|
|
(207
|
)
|
|
(252
|
)
|
U.S. credits and incentives
|
|
(7
|
)
|
|
(6
|
)
|
Impacts of transactions and business divestitures
|
|
1,988
|
|
|
356
|
|
Reserve and valuation allowance adjustments
|
|
14
|
|
|
(13
|
)
|
Other
|
|
7
|
|
|
(5
|
)
|
Income tax provision
|
|
$
|
1,839
|
|
|
$
|
418
|
|
Adient plc | Form 10-K |
94
The effective rate is above the U.S. statutory rate for fiscal 2016 primarily due to the tax consequences surrounding the separation, the jurisdictional mix of restructuring and impairment costs, partially offset by the benefits of continuing global tax planning initiatives and foreign tax rate differentials. The effective rate is above the U.S. statutory rate for fiscal 2015 primarily due to the tax consequences of business divestitures partially offset by the benefits of U.S. tax on foreign income, foreign tax rate differentials and continuing global tax planning initiatives.
Deferred taxes are classified in the consolidated statements of financial position as follows:
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
(in millions)
|
|
2017
|
|
2016
|
Other noncurrent assets
|
|
$
|
1,025
|
|
|
$
|
613
|
|
Other noncurrent liabilities
|
|
(389
|
)
|
|
(22
|
)
|
Net deferred tax asset
|
|
$
|
636
|
|
|
$
|
591
|
|
Temporary differences and carryforwards which gave rise to deferred tax assets and liabilities included:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
(in millions)
|
|
|
2017
|
|
2016
|
Deferred tax assets
|
|
|
|
|
|
Accrued expenses and reserves
|
|
|
$
|
83
|
|
|
$
|
431
|
|
Employee and retiree benefits
|
|
|
58
|
|
|
95
|
|
Net operating loss and other credit carryforwards
|
|
|
340
|
|
|
288
|
|
Property, plant and equipment
|
|
|
3
|
|
|
—
|
|
Intangible assets
|
|
|
463
|
|
|
—
|
|
Research and development
|
|
|
9
|
|
|
9
|
|
Joint ventures and partnerships
|
|
|
—
|
|
|
265
|
|
Other
|
|
|
13
|
|
|
11
|
|
|
|
|
969
|
|
|
1,099
|
|
Valuation allowances
|
|
|
(223
|
)
|
|
(267
|
)
|
|
|
|
746
|
|
|
832
|
|
Deferred tax liabilities
|
|
|
|
|
|
Property, plant and equipment
|
|
|
—
|
|
|
23
|
|
Unremitted earnings of foreign subsidiaries
|
|
|
95
|
|
|
108
|
|
Intangible assets
|
|
|
—
|
|
|
110
|
|
Joint ventures and partnerships
|
|
|
15
|
|
|
—
|
|
|
|
|
110
|
|
|
241
|
|
Net deferred tax asset
|
|
|
$
|
636
|
|
|
$
|
591
|
|
|
|
|
|
|
|
The fiscal 2016 accrued expenses and reserves line item has been revised to correctly present the deferred tax liability related to unremitted earnings of foreign subsidiaries in the table above.
|
At September 30, 2017, Adient had available net operating loss carryforwards of approximately
$1,407 million
which are available to reduce future tax liabilities. Net operating loss carryforwards of
$809 million
will expire at various dates between 2018 and 2037, with the remainder having an indefinite carryforward period, and
$468 million
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. Since future financial results may differ from previous estimates, periodic adjustments to Adient's valuation allowances may be necessary.
Adient plc | Form 10-K |
95
As a result of Adient's fiscal 2017 analysis of the realizability of its worldwide deferred tax assets, and after considering tax planning initiatives and other positive and negative evidence, Adient determined that no material changes to valuation allowances were required. Adient continues to record valuation allowances on certain deferred tax assets in Brazil, Czech Republic, Mexico, Poland, Spain and other jurisdictions as it remains more likely than not that they will not be utilized.
As a result of Adient's fiscal 2016 analysis of the realizability of its worldwide deferred tax assets, and after considering tax planning initiatives and other positive and negative evidence, Adient determined that it was more likely than not that deferred tax assets within Germany and Slovakia would be realized. Therefore, Adient released
$83 million
and
$5 million
, respectively, of net valuation allowances as income tax benefit in the fourth quarter of fiscal 2016. In addition as a result of Adient's fiscal 2016 analysis, Adient determined that it was more likely than not that deferred tax assets within the United Kingdom would not be realized and recorded
$12 million
of net valuation allowances as income tax expense in the fourth quarter of fiscal 2016.
As a result of Adient's fiscal 2015 analysis of the realizability of its worldwide deferred tax assets, and after considering tax planning initiatives and other positive and negative evidence, Adient determined that it was more likely than not that deferred tax assets within South Africa would be realized. Therefore, Adient released
$13 million
of net valuation allowances as income tax benefit in the fiscal year ended September 30, 2015.
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
|
|
2012
|
China
|
|
2011
|
Czech Republic
|
|
2008
|
France
|
|
2013
|
Germany
|
|
2013
|
Hong Kong
|
|
2011
|
Japan
|
|
2012
|
Luxembourg
|
|
2012
|
Mexico
|
|
2012
|
Poland
|
|
2008
|
United Kingdom
|
|
2011
|
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, 2017, 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.
Prior to separation, Adient and the former Parent entered into a tax matters agreement that governs the parties' respective rights and obligations with respect to certain tax attributes, including uncertain tax positions. As a result of the final tax matters agreement, Adient's unrecognized tax benefits decreased approximately
$471 million
from September 30, 2016.
For the years ended September 30, 2017, 2016 and 2015, Adient had gross tax effected unrecognized tax benefits of
$193 million
,
$596 million
, and
$390 million
, respectively. Substantially all of Adient’s unrecognized tax benefits, if recognized, would impact the effective tax rate. Total net accrued interest for the years ended September 30, 2017, 2016 and 2015, was approximately
$3 million
,
$11 million
and
$10 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)
|
|
2017
|
|
2016
|
|
2015
|
Beginning balance
|
|
$
|
596
|
|
|
$
|
390
|
|
|
$
|
284
|
|
Additions for tax positions related to the current year
|
|
76
|
|
|
288
|
|
|
138
|
|
Additions for tax positions of prior years
|
|
5
|
|
|
—
|
|
|
—
|
|
Reductions for tax positions of prior years
|
|
(471
|
)
|
|
(65
|
)
|
|
(32
|
)
|
Settlements with taxing authorities
|
|
(7
|
)
|
|
(15
|
)
|
|
—
|
|
Statute closings
|
|
(6
|
)
|
|
(2
|
)
|
|
—
|
|
Ending balance
|
|
$
|
193
|
|
|
$
|
596
|
|
|
$
|
390
|
|
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.
During July 2017, one of Adient's non-consolidated partially-owned affiliates, GAAS, became a consolidated entity. Refer to Note 2, "Acquisitions and Divestitures," of the notes to consolidated financial statements for additional information. Adient recorded a preliminary fair value allocation for the assets and liabilities of the entity based on their fair values, which included a
$276 million
intangible asset for customer relationships that has an estimate useful life of
20
years. Accordingly, Adient recorded a deferred tax liability of
$69 million
related to the intangible asset.
On September 22, 2017, Adient completed the acquisition of Futuris. Refer to Note 2, "Acquisitions and Divestitures," of the notes to consolidated financial statements for additional information. Adient recorded a preliminary allocation of the purchase price for assets acquired and liabilities assumed based on their fair values as of the acquisition date, which included a
$165 million
intangible asset for customer relationships that has an estimated useful life of
10
years. Accordingly, Adient recorded a deferred tax liability of
$64 million
related to the intangible asset. Adient also recognized
$3 million
of acquisition-related costs. The tax benefit associated with the acquisition-related costs was not material.
In fiscal 2017, Adient committed to a significant restructuring plan (2017 Plan) and recorded
$46 million
of restructuring and impairment costs in the consolidated statements of income. Refer to Note 14, "Significant Restructuring and Impairment Costs," of the notes to the consolidated financial statements for additional information. The restructuring costs generated a
$7 million
tax benefit, which was negatively impacted by geographic mix and Adient’s current tax position in these jurisdictions.
In fiscal 2016, Adient incurred total tax charges of
$1,891 million
for substantial business reorganizations related to the separation. Included in this amount is the tax charge of
$85 million
for changes in entity tax status and the charge of
$778 million
for Adient's change in assertion over permanently reinvested earnings. In addition, the former Parent completed its merger with Tyco, and as a result of the change in control, Adient incurred incremental tax expense of
$89 million
.
In fiscal 2015, Adient completed the YFAI global automotive interiors joint venture. Refer to Note 2, "Acquisitions and Divestitures," of the notes to consolidated financial statements for additional information. In connection with the divestiture of the business, Adient recorded a pretax gain on divestiture of
$127 million
,
$20 million
net of tax. The tax impact of the gain is due to the jurisdictional mix of gains and losses on the divestiture, which resulted in non-benefited expenses in certain countries and taxable gains in other countries. In addition, Adient provided income tax expense for repatriation of cash and other tax reserves associated with the YFAI global automotive interiors joint venture transaction, which resulted in a tax charge of
$75 million
and
$218 million
, respectively.
Adient has
$14.1 billion
of undistributed foreign earnings of which
$1.1 billion
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, 2017 were
$148 million
, of which
$16 million
were paid prior to the separation by the former Parent. For the fiscal years ended September 30, 2016 and 2015, because portions of Adient's operations were included in the former Parent's tax returns, payments to certain tax authorities were made by the former Parent, and not by Adient. These settlements were reflected as changes in the Parent’s net investment.
Adient plc | Form 10-K |
97
In fiscal 2017, Hungary passed the 2017 tax bill which reduced the corporate income tax rate to a flat
9%
rate. As a result of the law change, Adient recorded income tax expense of
$5 million
related to the write down of deferred tax assets.
In fiscal 2017, the US Treasury and the IRS released final and temporary Section 385 regulations. These regulations address whether certain instruments between related parties are treated as debt or equity. Adient does not expect that the regulations will have a material impact on the consolidated financial statements.
In fiscal 2015, the "look-through rule," under subpart F of the U.S. Internal Revenue Code, expired for Adient. The "look-through rule" had provided an exception to the U.S. taxation of certain income generated by foreign subsidiaries. The rule was extended in December 2015 retroactive to the beginning of Adient’s 2016 fiscal year. The retroactive extension was signed into legislation and was made permanent through Adient's 2020 fiscal year.
During fiscal years 2017, 2016, and 2015, other tax legislation was adopted in various jurisdictions. These law changes did not have a material impact on Adient's consolidated financial statements.
During fiscal 2017, Adient began evaluating the performance of its reportable segments using an adjusted EBIT metric defined as income before income taxes and noncontrolling interests, excluding net financing charges, qualified restructuring and impairment costs, restructuring related-costs, incremental "Becoming Adient" costs, separation costs, net mark-to-market adjustments on pension and postretirement plans, transaction gains/losses, purchase accounting amortization and other non-recurring items ("Adjusted EBIT"). Prior period information has been recast to the new performance metric and for the reclassifications of certain Becoming Adient costs. 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.
Adient has two reportable segments for financial reporting purposes: Seating and Interiors.
|
|
|
•
|
The Seating segment produces automotive seat metal structures and mechanisms, foam, trim, fabric and complete seat systems.
|
|
|
•
|
The Interiors segment, derived from its global automotive interiors joint ventures, produces instrument panels, floor consoles, door panels, overhead consoles, cockpit systems, decorative trim and other products.
|
Financial information relating to Adient's reportable segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions)
|
|
2017
|
|
2016
(1)
|
|
2015
(1)
|
Adjusted EBIT
|
|
|
|
|
|
|
Seating
|
|
$
|
1,151
|
|
|
$
|
1,091
|
|
|
$
|
909
|
|
Interiors
|
|
93
|
|
|
91
|
|
|
118
|
|
Becoming Adient costs
(2)
|
|
(95
|
)
|
|
—
|
|
|
—
|
|
Separation costs
(3)
|
|
(10
|
)
|
|
(369
|
)
|
|
—
|
|
Restructuring and impairment costs
|
|
(46
|
)
|
|
(332
|
)
|
|
(182
|
)
|
Purchase accounting amortization
(4)
|
|
(43
|
)
|
|
(37
|
)
|
|
(23
|
)
|
Restructuring related charges
(5)
|
|
(37
|
)
|
|
(14
|
)
|
|
(16
|
)
|
Pension mark-to-market
(6)
|
|
45
|
|
|
(110
|
)
|
|
(6
|
)
|
Gain on previously-held interest
(7)
|
|
151
|
|
|
—
|
|
|
—
|
|
Gain on business divestiture
|
|
—
|
|
|
—
|
|
|
137
|
|
Other items
(8)
|
|
(16
|
)
|
|
79
|
|
|
19
|
|
Earnings before interest and income taxes
|
|
1,193
|
|
|
399
|
|
|
956
|
|
Net financing charges
|
|
(132
|
)
|
|
(22
|
)
|
|
(12
|
)
|
Income before income taxes
|
|
$
|
1,061
|
|
|
$
|
377
|
|
|
$
|
944
|
|
Adient plc | Form 10-K |
98
|
|
|
|
(1)
|
|
Amounts presented have been revised from what was previously reported to correctly report net sales, equity income and total assets as discussed in Note 1, "Basis of Presentation and Summary of Significant Accounting Policies".
|
(2)
|
|
Reflects incremental expenses associated with becoming an independent company, including non-cash costs of $30 million for the year ended September 30, 2017
|
(3)
|
|
Reflects expenses associated with and incurred prior to the separation from the former Parent.
|
(4)
|
|
Reflects amortization of intangible assets including those related to the YFAI joint venture 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.
|
(6)
|
|
Reflects net mark-to-market adjustments on pension and postretirement plans.
|
(7)
|
|
An amendment to the rights agreement of a seating affiliate in China was finalized in the fourth quarter of fiscal 2017 giving Adient control of the previously non-consolidated affiliate. Adient began consolidating the entity in July 2017 and was required to apply purchase accounting, including recognizing a gain on our previously held interest, which has been recorded in equity income.
|
(8)
|
|
Reflects primarily the $12 million of initial funding of the Adient foundation and $3 million of transaction costs associated with the acquisition of Futuris for the year ended September 30, 2017. Reflects a $24 million multi-employer pension credit associated with the removal of costs for pension plans that remained with the former Parent, $22 million of favorable settlements from prior year business divestitures, a $20 million favorable legal settlement and a $13 million favorable commercial settlement during the year ended September 30, 2016. Reflects a $19 million multi-employer pension credit associated with the removal of costs for pension plans that remained with the former Parent for the year ended September 30, 2015.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2017
|
|
|
Reportable Segments
|
|
Reconciling Items
(1)
|
|
Consolidated
|
(in millions)
|
|
Seating
|
|
Interiors
|
|
|
Net Sales
|
|
$
|
16,213
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,213
|
|
Equity Income
|
|
301
|
|
|
93
|
|
|
128
|
|
|
522
|
|
Total Assets
|
|
12,061
|
|
|
1,109
|
|
|
—
|
|
|
13,170
|
|
Depreciation
|
|
332
|
|
|
—
|
|
|
5
|
|
|
337
|
|
Amortization
|
|
—
|
|
|
—
|
|
|
21
|
|
|
21
|
|
Capital Expenditures
|
|
577
|
|
|
—
|
|
|
—
|
|
|
577
|
|
|
|
|
|
(1)
|
|
Included in equity income is a $151 million gain on a previously held interest in a China Seating affiliate that Adient began consolidating in the fourth quarter of fiscal 2017 as a result of an amendment to the related rights agreement, $22 million of purchase accounting amortization related to the YFAI joint venture and $1 million of restructuring related costs related to the YFAI joint venture. Included in depreciation expense is $5 million of accelerated depreciation which is part of the incremental expenses associated with becoming an independent company (Becoming Adient). Included in amortization expense is $21 million of purchase accounting amortization related to consolidated Seating entities.
|
Adient plc | Form 10-K |
99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2016
|
|
|
Reportable Segments
|
|
Reconciling Items
(2)
|
|
Consolidated
(1)
|
(in millions)
|
|
Seating
(1)
|
|
Interiors
|
|
|
Net Sales
|
|
$
|
16,790
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
16,790
|
|
Equity Income
|
|
273
|
|
|
91
|
|
|
(20
|
)
|
|
344
|
|
Total Assets
|
|
11,917
|
|
|
1,039
|
|
|
—
|
|
|
12,956
|
|
Depreciation
|
|
327
|
|
|
—
|
|
|
—
|
|
|
327
|
|
Amortization
|
|
—
|
|
|
—
|
|
|
17
|
|
|
17
|
|
Capital Expenditures
|
|
437
|
|
|
—
|
|
|
—
|
|
|
437
|
|
|
|
|
|
(1)
|
|
Amounts presented have been revised from what was previously reported to correctly report net sales, equity income and total assets as discussed in Note 1, "Basis of Presentation and Summary of Significant Accounting Policies".
|
(2)
|
|
Included in equity income is $20 million of purchase accounting amortization related to the YFAI joint venture. Included in amortization expense is $17 million of purchase accounting amortization related to consolidated Seating entities.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2015
|
|
|
Reportable Segments
|
|
Reconciling Items
(2)
|
|
Consolidated
(1)
|
(in millions)
|
|
Seating
(1)
|
|
Interiors
|
|
|
Net Sales
|
|
$
|
17,069
|
|
|
$
|
2,954
|
|
|
$
|
—
|
|
|
$
|
20,023
|
|
Equity Income
|
|
248
|
|
|
37
|
|
|
(5
|
)
|
|
280
|
|
Total Assets
|
|
9,353
|
|
|
1,006
|
|
|
55
|
|
|
10,414
|
|
Depreciation
|
|
329
|
|
|
—
|
|
|
—
|
|
|
329
|
|
Amortization
|
|
—
|
|
|
—
|
|
|
18
|
|
|
18
|
|
Capital Expenditures
|
|
478
|
|
|
—
|
|
|
—
|
|
|
478
|
|
|
|
|
|
(1)
|
|
Amounts presented have been revised from what was previously reported to correctly report net sales, equity income and total assets as discussed in Note 1, "Basis of Presentation and Summary of Significant Accounting Policies".
|
(2)
|
|
Included in equity income is $5 million of purchase accounting amortization related to the YFAI joint venture. Included in total assets is $55 million of assets classified as held for sale. Included in amortization expense is $18 million of purchase accounting amortization related to consolidated Seating entities.
|
Geographic Information
Financial information relating to Adient's operations by geographic area is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
(in millions)
|
|
2017
|
|
2016
(1)
|
|
2015
(1)
|
United States
|
|
$
|
5,798
|
|
|
$
|
6,581
|
|
|
$
|
7,850
|
|
Germany
|
|
1,584
|
|
|
1,901
|
|
|
2,464
|
|
Mexico
|
|
1,079
|
|
|
998
|
|
|
1,299
|
|
Other European countries
|
|
5,012
|
|
|
4,752
|
|
|
5,050
|
|
Other foreign
|
|
2,740
|
|
|
2,558
|
|
|
3,360
|
|
Total
|
|
$
|
16,213
|
|
|
$
|
16,790
|
|
|
$
|
20,023
|
|
|
|
|
|
(1)
|
|
Amounts presented have been revised from what was previously reported in "other foreign" to correctly report net sales as discussed in Note 1, "Basis of Presentation and Summary of Significant Accounting Policies".
|
Adient plc | Form 10-K |
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Lived Assets
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
United States
|
|
$
|
685
|
|
|
$
|
580
|
|
|
$
|
583
|
|
Germany
|
|
380
|
|
|
360
|
|
|
375
|
|
Mexico
|
|
277
|
|
|
250
|
|
|
225
|
|
Other European countries
|
|
873
|
|
|
732
|
|
|
722
|
|
Other foreign
|
|
287
|
|
|
273
|
|
|
234
|
|
Total
|
|
$
|
2,502
|
|
|
$
|
2,195
|
|
|
$
|
2,139
|
|
Net sales attributed to geographic locations are based on the location of the assets producing the sales. Long-lived assets by geographic location consist of net property, plant and equipment.
|
|
|
|
|
|
18. Nonconsolidated Partially-Owned Affiliates
|
Investments in the net assets of nonconsolidated partially-owned affiliates are stated in the "Investments in partially-owned affiliates" line in the consolidated statements of financial position as of
September 30, 2017 and 2016
. Equity in the net income of nonconsolidated partially-owned affiliates is stated in the "Equity income" line in the consolidated statements of income for the years ended
September 30, 2017, 2016 and 2015
.
Adient maintains total investments in partially-owned affiliates of
$1.8 billion
and
$1.7 billion
at
September 30, 2017
and
2016
, respectively. Financial information for significant nonconsolidated partially-owned affiliates is as follows:
|
|
|
|
|
|
|
|
% ownership
|
Name of partially-owned affiliate
|
|
2017
|
|
2016
|
Seating
|
|
|
|
|
Changchun FAWAY Adient Automotive Systems Co. Ltd.
(1)
|
|
49.0%
|
|
50.0%
|
Adient Yanfeng Seating Mechanism Co., Ltd.
(2)
|
|
50.0%
|
|
50.0%
|
Yanfeng Adient Seating Co., Ltd. (YFAS)
(3)
|
|
49.9%
|
|
49.9%
|
Interiors
|
|
|
|
|
Yanfeng Global Automotive Interiors Systems Co., Ltd. (YFAI)
|
|
30.0%
|
|
29.7%
|
|
|
|
|
(1)
|
|
Changchun FAWAY - Johnson Controls Automotive Systems Co., Ltd. joint venture was renamed to Changchun FAWAY Adient Automotive Systems Co. Ltd.
|
(2)
|
|
Shanghai Johnson Controls Yanfeng Seating Mechanism Co., Ltd. joint venture was renamed to Adient Yanfeng Seating Mechanism Co., Ltd.
|
(3)
|
|
Shanghai Yanfeng Johnson Controls Seating Co., Ltd. (YFJC) joint venture was renamed to Yanfeng Adient Seating Co., Ltd. (YFAS).
|
Adient plc | Form 10-K |
101
Summarized balance sheet data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2017
|
(in millions)
|
|
YFAS
|
|
All Other
|
|
Total
|
Current assets
|
|
$
|
3,059
|
|
|
$
|
4,661
|
|
|
$
|
7,720
|
|
Noncurrent assets
|
|
678
|
|
|
2,479
|
|
|
3,157
|
|
Total assets
|
|
$
|
3,737
|
|
|
$
|
7,140
|
|
|
$
|
10,877
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
2,793
|
|
|
$
|
4,569
|
|
|
$
|
7,362
|
|
Noncurrent liabilities
|
|
49
|
|
|
331
|
|
|
380
|
|
Noncontrolling interests
|
|
108
|
|
|
31
|
|
|
139
|
|
Shareholders' equity
|
|
787
|
|
|
2,209
|
|
|
2,996
|
|
Total liabilities and shareholders' equity
|
|
$
|
3,737
|
|
|
$
|
7,140
|
|
|
$
|
10,877
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
(in millions)
|
|
YFAS
(1)
|
|
All Other
|
|
Total
(1)
|
Current assets
|
|
$
|
2,306
|
|
|
$
|
3,829
|
|
|
$
|
6,135
|
|
Noncurrent assets
|
|
539
|
|
|
2,120
|
|
|
2,659
|
|
Total assets
|
|
$
|
2,845
|
|
|
$
|
5,949
|
|
|
$
|
8,794
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
2,004
|
|
|
$
|
3,851
|
|
|
$
|
5,855
|
|
Noncurrent liabilities
|
|
44
|
|
|
151
|
|
|
195
|
|
Noncontrolling interests
|
|
113
|
|
|
27
|
|
|
140
|
|
Shareholders' equity
|
|
684
|
|
|
1,920
|
|
|
2,604
|
|
Total liabilities and shareholders' equity
|
|
$
|
2,845
|
|
|
$
|
5,949
|
|
|
$
|
8,794
|
|
|
|
|
|
(1)
|
|
Amounts presented have been revised from what was previously reported, as discussed in Note 1, "Basis of Presentation and Summary of Significant Accounting Policies". The engineering recovery revisions decreased noncurrent assets, total assets, shareholders' equity and total liabilities and shareholders' equity at YFAS by $70 million as of September 30, 2016.
|
Summarized income statement data with reconciliation to Adient's equity in net income from nonconsolidated partially-owned affiliates:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2017
|
(in millions)
|
|
YFAS
|
|
All Other
|
|
Total
|
Net sales
|
|
$
|
4,617
|
|
|
$
|
12,645
|
|
|
$
|
17,262
|
|
Gross profit
|
|
603
|
|
|
1,391
|
|
|
1,994
|
|
Operating income
|
|
432
|
|
|
728
|
|
|
1,160
|
|
Net income
|
|
351
|
|
|
688
|
|
|
1,039
|
|
Income attributable to noncontrolling interests
|
|
47
|
|
|
18
|
|
|
65
|
|
Net income attributable to the entity
|
|
304
|
|
|
670
|
|
|
974
|
|
|
|
|
|
|
|
|
Equity in net income, before basis adjustments
|
|
152
|
|
|
395
|
|
|
547
|
|
Basis adjustments
|
|
(2
|
)
|
|
(23
|
)
|
|
(25
|
)
|
Equity in net income
|
|
150
|
|
|
372
|
|
|
522
|
|
Adient plc | Form 10-K |
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016
|
(in millions)
|
|
YFAS
(1)
|
|
All Other
|
|
Total
(1)
|
Net sales
|
|
$
|
4,198
|
|
|
$
|
11,928
|
|
|
$
|
16,126
|
|
Gross profit
|
|
583
|
|
|
1,213
|
|
|
1,796
|
|
Operating income
|
|
426
|
|
|
663
|
|
|
1,089
|
|
Net income
|
|
348
|
|
|
625
|
|
|
973
|
|
Income attributable to noncontrolling interests
|
|
48
|
|
|
7
|
|
|
55
|
|
Net income attributable to the entity
|
|
300
|
|
|
618
|
|
|
918
|
|
|
|
|
|
|
|
|
Equity in net income, before basis adjustments
|
|
150
|
|
|
218
|
|
|
368
|
|
Basis adjustments
|
|
(3
|
)
|
|
(21
|
)
|
|
(24
|
)
|
Equity in net income
|
|
147
|
|
|
197
|
|
|
344
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015
|
(in millions)
|
|
YFAS
(1)
|
|
All Other
|
|
Total
(1)
|
Net sales
|
|
$
|
3,855
|
|
|
$
|
5,594
|
|
|
$
|
9,449
|
|
Gross profit
|
|
538
|
|
|
662
|
|
|
1,200
|
|
Operating income
|
|
405
|
|
|
397
|
|
|
802
|
|
Net income
|
|
332
|
|
|
376
|
|
|
708
|
|
Income attributable to noncontrolling interests
|
|
46
|
|
|
6
|
|
|
52
|
|
Net income attributable to the entity
|
|
286
|
|
|
370
|
|
|
656
|
|
|
|
|
|
|
|
|
Equity in net income, before basis adjustments
|
|
142
|
|
|
149
|
|
|
291
|
|
Basis adjustments
|
|
(3
|
)
|
|
(8
|
)
|
|
(11
|
)
|
Equity in net income
|
|
139
|
|
|
141
|
|
|
280
|
|
|
|
|
|
(1)
|
|
Amounts presented have been revised from what was previously reported, as discussed in Note 1, "Basis of Presentation and Summary of Significant Accounting Policies". The engineering recovery revisions decreased operating income, net income and net income attributable to YFAS by $26 million and $28 million for the years ended September 30, 2016 and 2015, respectively.
|
|
|
|
|
|
|
19. Commitments and Contingencies
|
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
$9 million
and
$6 million
at
September 30, 2017
and 2016, 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 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 plc | Form 10-K |
103
|
|
|
|
|
|
20. Related Party Transactions
|
In the ordinary course of business, Adient enters into transactions with related parties, such as equity affiliates. Such transactions consist of facility management services, 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 net sales to and purchases from related parties included in the consolidated statements of income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions)
|
|
2017
|
|
2016
|
|
2015
|
Net sales to related parties
|
|
$
|
409
|
|
|
$
|
438
|
|
|
$
|
392
|
|
Purchases from related parties
|
|
511
|
|
|
443
|
|
|
393
|
|
The following table sets forth the amount of accounts receivable due from and payable to related parties in the consolidated statements of financial position:
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
(in millions)
|
|
2017
|
|
2016
|
Receivable from related parties
|
|
$
|
129
|
|
|
$
|
172
|
|
Payable to related parties
|
|
104
|
|
|
96
|
|
Average receivable and payable balances with related parties remained consistent with the period end balances shown above.
Allocations from Former Parent
Prior to the separation, the consolidated statements of income included allocations for certain support functions that were provided on a centralized basis by the former Parent and subsequently recorded at the business unit level, such as expenses related to employee benefits, finance, human resources, risk management, information technology, facilities, and legal, among others. Included in cost of sales and selling, general and administrative expense during the years ended September 30, 2016 and 2015 were
$294 million
and
$361 million
, respectively, of corporate expenses incurred by the former Parent. In addition to these allocations, approximately
$458 million
and
$16 million
, respectively, of costs related to the separation of Adient were incurred by the former Parent for the years ended September 30, 2016 and 2015, respectively. Of these amounts,
$369 million
was deemed to directly benefit Adient as a stand-alone company, for the year ended September 30, 2016. Accordingly, these costs were allocated to Adient and are reflected within selling, general and administrative expenses in the consolidated statements of income. None of the separation costs for the year ended September 30, 2015 were deemed to directly benefit Adient as a stand-alone company. Additionally, certain intercompany transactions prior to the separation between Adient and the former Parent have not been recorded as related party transactions. These transactions were considered to be effectively settled for cash at the time the transaction was recorded. The total net effect of the settlement of these intercompany transactions was reflected in the consolidated statements of cash flows as a financing activity and in the consolidated statements of financial position as Parent's net investment.
During fiscal 2017, the allocations from the former Parent were insignificant. During fiscal 2017, Adient and the former Parent finalized the reconciliation of working capital and other accounts and the net amount due from the former Parent of
$87 million
was settled in accordance with the separation agreement. The impact of the settlement is reflected within additional paid-in capital.
Adient plc | Form 10-K |
104
|
|
|
Item 9.
|
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
|
|
|
None.
|
|