Adient plc | Form 10-K |
58
Adient plc
Consolidated Statements of Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
Operating Activities
|
|
|
|
|
|
|
Net income (loss) attributable to Adient
|
|
$
|
(1,685
|
)
|
|
$
|
877
|
|
|
$
|
(1,546
|
)
|
Income attributable to noncontrolling interests
|
|
84
|
|
|
85
|
|
|
84
|
|
Net income (loss)
|
|
(1,601
|
)
|
|
962
|
|
|
(1,462
|
)
|
Adjustments to reconcile net income (loss) to cash provided (used) by operating activities:
|
|
|
|
|
Depreciation
|
|
400
|
|
|
337
|
|
|
327
|
|
Amortization of intangibles
|
|
47
|
|
|
21
|
|
|
17
|
|
Pension and postretirement benefit expense (benefit)
|
|
(36
|
)
|
|
(41
|
)
|
|
113
|
|
Pension and postretirement contributions, net
|
|
11
|
|
|
(38
|
)
|
|
(35
|
)
|
Equity in earnings of partially-owned affiliates, net of dividends received (includes purchase accounting amortization of $22, $22 and $20, respectively)
|
|
(55
|
)
|
|
(91
|
)
|
|
(145
|
)
|
Impairment of nonconsolidated partially owned affiliate
|
|
358
|
|
|
—
|
|
|
—
|
|
Gain on previously-held interest
|
|
—
|
|
|
(151
|
)
|
|
—
|
|
Deferred income taxes
|
|
344
|
|
|
(52
|
)
|
|
(572
|
)
|
Non-cash restructuring and impairment charges
|
|
1,134
|
|
|
—
|
|
|
87
|
|
Equity-based compensation
|
|
47
|
|
|
45
|
|
|
28
|
|
Other
|
|
11
|
|
|
(6
|
)
|
|
(11
|
)
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
Receivables
|
|
73
|
|
|
30
|
|
|
83
|
|
Inventories
|
|
(106
|
)
|
|
(10
|
)
|
|
49
|
|
Other assets
|
|
46
|
|
|
13
|
|
|
22
|
|
Restructuring reserves
|
|
(135
|
)
|
|
(179
|
)
|
|
73
|
|
Accounts payable and accrued liabilities
|
|
143
|
|
|
(113
|
)
|
|
57
|
|
Accrued income taxes
|
|
(2
|
)
|
|
19
|
|
|
335
|
|
Cash provided (used) by operating activities
|
|
679
|
|
|
746
|
|
|
(1,034
|
)
|
Investing Activities
|
|
|
|
|
|
|
Capital expenditures
|
|
(536
|
)
|
|
(577
|
)
|
|
(437
|
)
|
Sale of property, plant and equipment
|
|
53
|
|
|
44
|
|
|
16
|
|
Acquisition of businesses, net of cash acquired
|
|
—
|
|
|
(247
|
)
|
|
—
|
|
Business divestitures
|
|
—
|
|
|
—
|
|
|
18
|
|
Changes in long-term investments
|
|
(4
|
)
|
|
(11
|
)
|
|
(24
|
)
|
Other
|
|
—
|
|
|
(4
|
)
|
|
2
|
|
Cash provided (used) by investing activities
|
|
(487
|
)
|
|
(795
|
)
|
|
(425
|
)
|
Financing Activities
|
|
|
|
|
|
|
Net transfers from (to) Parent prior to separation
|
|
—
|
|
|
606
|
|
|
117
|
|
Cash transferred from former Parent post separation
|
|
—
|
|
|
315
|
|
|
—
|
|
Increase (decrease) in short-term debt
|
|
(31
|
)
|
|
(7
|
)
|
|
25
|
|
Increase (decrease) in long-term debt
|
|
—
|
|
|
183
|
|
|
1,501
|
|
Repayment of long-term debt
|
|
(2
|
)
|
|
(302
|
)
|
|
(39
|
)
|
Share repurchases
|
|
—
|
|
|
(40
|
)
|
|
—
|
|
Cash dividends
|
|
(103
|
)
|
|
(52
|
)
|
|
—
|
|
Dividends paid to noncontrolling interests
|
|
(74
|
)
|
|
(79
|
)
|
|
(88
|
)
|
Other
|
|
(3
|
)
|
|
3
|
|
|
—
|
|
Cash provided (used) by financing activities
|
|
(213
|
)
|
|
627
|
|
|
1,516
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
(1
|
)
|
|
26
|
|
|
4
|
|
Increase (decrease) in cash and cash equivalents
|
|
(22
|
)
|
|
604
|
|
|
61
|
|
Cash and cash equivalents at beginning of period
|
|
709
|
|
|
105
|
|
|
44
|
|
Cash and cash equivalents at end of period
|
|
$
|
687
|
|
|
$
|
709
|
|
|
$
|
105
|
|
The accompanying notes are an integral part of the consolidated financial statements.
Adient plc | Form 10-K |
59
Adient plc
Consolidated Statements of Shareholders' Equity
|
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|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Ordinary Shares
|
|
Additional Paid-in Capital
|
|
Retained Earnings
(Accumulated Deficit)
|
|
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, 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
|
|
Net income (loss)
|
|
—
|
|
|
—
|
|
|
(1,685
|
)
|
|
—
|
|
|
—
|
|
|
(1,685
|
)
|
|
60
|
|
|
(1,625
|
)
|
Foreign currency translation adjustments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(125
|
)
|
|
(125
|
)
|
|
7
|
|
|
(118
|
)
|
Realized and unrealized gains (losses) on derivatives
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(10
|
)
|
|
(10
|
)
|
|
—
|
|
|
(10
|
)
|
Dividends declared ($0.825 per share)
|
|
—
|
|
|
—
|
|
|
(77
|
)
|
|
—
|
|
|
—
|
|
|
(77
|
)
|
|
—
|
|
|
(77
|
)
|
Dividends attributable to noncontrolling interests
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(56
|
)
|
|
(56
|
)
|
Change in noncontrolling interest share
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
1
|
|
Share based compensation and other
|
|
—
|
|
|
9
|
|
|
—
|
|
|
—
|
|
|
1
|
|
|
10
|
|
|
—
|
|
|
10
|
|
Balance at September 30, 2018
|
|
$
|
—
|
|
|
$
|
3,951
|
|
|
$
|
(1,028
|
)
|
|
$
|
—
|
|
|
$
|
(531
|
)
|
|
$
|
2,392
|
|
|
$
|
325
|
|
|
$
|
2,717
|
|
The accompanying notes are an integral part of the consolidated financial statements.
Adient plc | Form 10-K |
60
Adient plc
Notes to Consolidated Financial Statements
|
|
|
|
|
|
1. Basis of Presentation and Summary of Significant Accounting Policies
|
On October 31, 2016, Adient plc ("Adient") became an independent company as a result of the separation of the automotive seating and interiors business (the "separation") from Johnson Controls International plc ("the former Parent"). Adient was incorporated under the laws of Ireland in fiscal 2016 for the purpose of holding these businesses. Adient's ordinary shares began trading "regular-way" under the ticker symbol "ADNT" on the New York Stock Exchange on October 31, 2016. Upon becoming an independent company, the capital structure of Adient consisted of
500 million
authorized ordinary shares and
100 million
authorized preferred shares (par value of
$0.001
per ordinary and preferred share). The number of Adient ordinary shares issued on October 31, 2016 was
93,671,810
.
Adient is a global leader in the automotive seating supplier industry. Adient has a leading market position in the Americas, Europe and China, and has longstanding relationships with the largest global original equipment manufacturers, or OEMs, in the automotive space. Adient's proprietary technologies extend into virtually every area of automotive seating solutions, including complete seating systems, frames, mechanisms, foam, head restraints, armrests, 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 the period prior to October 31, 2016 was 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.
During fiscal 2018, Adient changed its reportable segments to Seating, Seat Structures and Mechanisms ("SS&M"), and Interiors. Adient also began using an adjusted EBITDA metric to assess the performance of its segments and ceased allocating certain corporate-related costs to its segments. As a result, the prior period presentation of reportable segments has been recast to conform to the current segment reporting structure. For periods prior to October 31, 2016, an allocation methodology was used to derive corporate-related costs not allocated to the segments to be consistent with current period presentation. Refer to
Note 17
, "
Segment Information
" for additional information on Adient's reportable segments.
Adient plc | Form 10-K |
61
Principles of Consolidations
Adient consolidates its wholly-owned subsidiaries and those entities in which it has a controlling interest. Investments in partially-owned affiliates are accounted for by the equity method when Adient's interest exceeds 20% and does not have a controlling interest.
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. Expense 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 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 the 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 files tax returns on its own behalf and its effective tax rate and deferred taxes may differ from those in historical periods.
During the second quarter of fiscal 2018, Adient recorded expense of
$8 million
for an out of period adjustment, primarily impacting cost of goods sold, to correct a prior period error related to an unrecorded obligation. Adient has concluded that this adjustment was not material to previously reported financial statements nor to full year fiscal 2018 results.
Consolidated VIEs
Based upon the criteria set forth in the Financial Accounting Standards Board (the FASB) Accounting Standards Codification (ASC) 810, "Consolidation," Adient has determined that it was the primary beneficiary in
two
variable interest entities (VIEs) for the reporting periods ended
September 30
, 2018 and 2017, respectively, as Adient absorbs significant economics of the entities and has the power to direct the activities that are considered most significant to the entities.
The
two
VIEs manufacture seating products in North America for the automotive industry. Adient funds the entities' short-term liquidity needs through revolving credit facilities and has the power to direct the activities that are considered most significant to the entities through its key customer supply relationships.
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)
|
|
2018
|
|
2017
|
Current assets
|
|
$
|
270
|
|
|
$
|
232
|
|
Noncurrent assets
|
|
43
|
|
|
56
|
|
Total assets
|
|
$
|
313
|
|
|
$
|
288
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
252
|
|
|
$
|
169
|
|
Total liabilities
|
|
$
|
252
|
|
|
$
|
169
|
|
Adient plc | Form 10-K |
62
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.
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, 2018 and 2017, Adient recorded within the consolidated statements of financial position
$301 million
and
$343 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, 2018, Adient had
$132 million
and
$169 million
of reimbursable costs recorded in current and noncurrent assets,
Adient plc | Form 10-K |
63
respectively. At September 30, 2017, Adient had
$175 million
and
$168 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, 2018 and 2017, approximately
$54 million
and
$82 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, 2018, Adient recorded within the consolidated statements of financial position in other current and noncurrent assets
$208 million
and
$17 million
, respectively, of costs for molds, dies and other tools for which customer reimbursement is contractually assured. At September 30, 2017, Adient recorded within the consolidated statements of financial position in other current and noncurrent assets
$257 million
and
$28 million
, respectively, of costs for molds, dies and other tools for which customer reimbursement is contractually assured.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the respective assets using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes. The estimated useful lives range from
3
to
40
years for buildings and improvements and from
3
to
15
years for machinery and equipment.
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.
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 results of Adient's impairment analysis.
Impairment of Investments in Partially-Owned Affiliates
Adient monitors its investments in partially-owned affiliates for indicators of other-than-temporary declines in value on an ongoing basis. If Adient determines that an other-than-temporary decline in value has occurred, it recognizes an impairment loss, which is measured as the difference between the recorded book value and the fair value of the investment. Fair value is generally determined using an income approach based on discounted cash flows or negotiated transaction values. Refer to
Note 18
, "
Nonconsolidated Partially-Owned Affiliates
," for information regarding the results of Adient's impairment analysis.
Adient plc | Form 10-K |
64
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 Fiat Chrysler Automobiles N.V. and Volkswagen Group which comprised
11%
and
10%
of consolidated net sales, respectively, in fiscal 2018, Volkswagen Group which comprised
11%
of consolidated net sales in fiscal 2017 and Fiat Chrysler Automobiles N.V. and Ford Motor Company which comprised
12%
and
11%
of consolidated net sales, respectively, in fiscal 2016.
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, 2018, 2017 and 2016 were
$513 million
,
$488 million
and
$460 million
, respectively. A portion of these costs associated with these activities are reimbursed by customers and, for the fiscal years ended September 30, 2018, 2017 and 2016 were
$298 million
,
$350 million
and
$308 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, 2018, 2017 and 2016 were
$(4) million
,
$1 million
and
$(40) million
, respectively.
Derivative Financial Instruments
The fair values of all derivatives are recorded in the consolidated statements of financial position. The change in a derivative's fair value is recorded each period in current earnings or accumulated other comprehensive income (AOCI), depending on whether the derivative is designated as part of a hedge transaction and if so, the type of hedge transaction. Refer to
Note 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.
Adient plc | Form 10-K |
65
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
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and other loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Adient records a valuation allowance that primarily represents operating and other loss carryforwards for which realization is uncertain. Management judgment is required in determining Adient's provision for income taxes, deferred tax assets and liabilities, and the valuation allowance recorded against Adient's net deferred tax assets.
Adient reviews the realizability of its deferred tax assets on a quarterly basis, or whenever events or changes in circumstances indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or combined group recording the net deferred tax asset are considered, along with any other positive or negative evidence. Since future financial results may differ from previous estimates, periodic adjustments to Adient's valuation allowances may be necessary.
Adient is subject to income taxes in Ireland, the U.S. and other non-U.S. jurisdictions. Judgment is required in determining its worldwide provision for income taxes and recording the related assets and liabilities. In the ordinary course of Adient's business, there are many transactions and calculations where the ultimate tax determination is uncertain. Adient's income tax returns for various fiscal years remain under audit by the respective tax authorities. Although the outcome of tax audits is always uncertain, management believes that it has appropriate support for the positions taken on its tax returns and that its annual tax provisions included amounts sufficient to pay assessments, if any, which may be proposed by the taxing authorities. Nonetheless, the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year.
Adient does not generally provide for additional income taxes which would become payable upon repatriation of undistributed earnings of wholly owned foreign subsidiaries. Adient's intent is for such earnings to be reinvested by the subsidiaries or to be repatriated only when it would be tax efficient.
On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was signed and enacted into law, and is effective for tax years beginning on or after January 1, 2018, with the exception of certain provisions. The Act includes a provision to tax global intangible low-taxed income ("GILTI") of foreign subsidiaries, which will be effective for Adient beginning in fiscal year 2019. Adient has made a policy election to treat taxes due under the GILTI provision as a current period expense in the reporting period in which the tax is incurred.
Refer to
Note 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)
|
|
2018
|
|
2017
|
|
2016
|
Numerator:
|
|
|
|
|
|
|
Net income (loss) attributable to Adient
|
|
$
|
(1,685
|
)
|
|
$
|
877
|
|
|
$
|
(1,546
|
)
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
Shares outstanding
|
|
93.3
|
|
|
93.5
|
|
|
93.7
|
|
Effect of dilutive securities
|
|
—
|
|
|
0.4
|
|
|
—
|
|
Diluted shares
|
|
93.3
|
|
|
93.9
|
|
|
93.7
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
Basic
|
|
$
|
(18.06
|
)
|
|
$
|
9.38
|
|
|
$
|
(16.50
|
)
|
Diluted
|
|
$
|
(18.06
|
)
|
|
$
|
9.34
|
|
|
$
|
(16.50
|
)
|
Potentially dilutive securities whose effect would have been antidilutive are excluded from the computation of diluted earnings per share. The impact of excluding antidilutive securities was insignificant for all periods presented.
New Accounting Pronouncements
Recently Adopted Accounting Pronouncements
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 was effective retrospectively for Adient for the first quarter of fiscal 2018. The adoption of this guidance did not have an 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 was 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 beginning in the first quarter of fiscal 2018. The adoption of this guidance did not impact 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 was effective for Adient for the first quarter of fiscal 2018. The adoption of this guidance did not have an impact on Adient's 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. Under ASU No. 2017-04, goodwill impairment testing is done by comparing the fair value of the reporting unit to its carrying value. If the carrying amount exceeds the fair value, Adient would recognize an impairment charge for the amount that the reporting unit's carrying value exceeds the fair value, not to exceed the total amount of goodwill allocated to that reporting unit. ASU No. 2017-04 eliminates the requirement to determine the fair value of individual assets and liabilities of a reporting unit to measure goodwill impairment. Adient early adopted ASU 2017-04 during the second quarter of fiscal 2018. Refer to
Note 5
, "
Goodwill and Other Intangible Assets
” for information on the interim goodwill impairment test performed in conjunction with the change in segment reporting.
Adient plc | Form 10-K |
67
In August 2017, the FASB issued ASU No. 2017-12, Derivatives And Hedging (Topic 815): Targeted Improvements to Accounting for Hedge Activities. The new standard amends the hedge accounting recognition and presentation requirements in ASC 815. ASU No. 2017-12 amends and simplifies existing guidance in order to allow companies to more accurately present the economic effects of risk management activities in the financial statements. As permitted by ASU 2017-12, Adient early adopted this standard in the second quarter of fiscal 2018 on a prospective basis. The adoption of this guidance did not have an impact on Adient's consolidated financial statements. Refer to
Note 9
, "
Derivative Instruments and Hedging Activities
," of the notes to the consolidated financial statements for Adient's derivative and hedging disclosures.
In February 2018, the FASB issued ASU No. 2018-02, "Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." ASU No. 2018-02 gives entities the option to reclassify the stranded tax effects of the Tax Cuts and Jobs Act (the "Act") on items within accumulated other comprehensive income to retained earnings. The standard was early adopted by Adient in the second quarter of fiscal 2018 retrospectively. The adoption of this guidance did not have a material impact on Adient's consolidated financial statements.
In March 2018, the FASB issued ASU No. 2018-05, "Income Taxes (Topic 740): Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act ("SAB 118")." ASU 2018-05 expands income tax accounting and disclosure guidance to include SAB 118 issued by the SEC in December 2017. SAB 118 provides guidance on accounting for the income tax effects of the Act and allows for a measurement period not to exceed one year for companies to finalize the provisional amounts recorded as of December 31, 2017. This standard was adopted in the second quarter of fiscal 2018. Refer to
Note 16
, "
Income Taxes
" of the notes to the consolidated financial statements for Adient's income tax disclosures.
Recently Issued Accounting Pronouncements
In August 2018, the FASB issued ASU 2018-15, "Intangibles-Goodwill and Other-Internal Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract." The amendments in ASU 2018-15 require implementation costs incurred by customers in cloud computing arrangements to be deferred and recognized over the term of the arrangement, if those costs would be capitalized by the customer in a software licensing arrangement under the internal-use software guidance. The amendments also require an entity to disclose the nature of its hosting arrangements and adhere to certain presentation requirements in its balance sheet, income statement and statement of cash flows. ASU No. 2018-15 is effective for Adient for the quarter ending December 31, 2019, with early adoption permitted. The guidance can be applied either prospectively to all implementation costs incurred after the date of adoption. Adient is currently assessing the potential impact of adopting this guidance on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-14, "Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20): Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans." The amendments in ASU 2018-14 eliminate, add, and modify certain disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. ASU No. 2018-14 will be effective for Adient for the quarter ending December 31, 2020, with early adoption permitted. The guidance is to be applied on a retrospective basis to all periods presented. Adient is currently assessing the potential impact of adopting this guidance on its consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, "Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement." The amendments in ASU No. 2018-13 eliminate, add, and modify certain disclosure requirements for fair value measurements. ASU No 2018-13 will be effective for Adient for the quarter ending December 31, 2019, with early adoption permitted for either the entire ASU or only the provisions that eliminate or modify requirements. The amendments with respect to changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty are to be applied prospectively. All other amendments are to be applied retrospectively to all periods presented. Adient is currently assessing the potential impact of adopting this guidance on its consolidated financial statements.
In June 2018, the FASB issued ASU No. 2018-08, "Not-For-Profit Entities (Topic 958): Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made", which is intended to clarify and improve the scope and the accounting guidance for contributions received and contributions made. The amendments in ASU No. 2018-08 should assist entities in (1) evaluating whether transactions should be accounted for as contributions (nonreciprocal transaction) within the scope of Topic 958, Not-for-Profit Entities, or as exchange (reciprocal) transactions subject to other guidance and (2) determining whether a contribution is conditional. This amendment applies to all entities that make or receive grants or contributions. ASU No. 2018-08 will be effective for Adient for the quarter ending December 31, 2018, with early adoption permitted. The adoption of this guidance for the quarter ending December 31, 2018 is not expected to have a significant impact on Adient's consolidated financial statements.
Adient plc | Form 10-K |
68
In June 2018, the FASB issued ASU No. 2018-07, “Compensation — Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting”, which expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees. ASU No. 2018-07 specifies that Topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards. ASU No. 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606. ASU No. 2018-07 will be effective for Adient for the quarter ending December 31, 2019, with early adoption permitted, but no earlier than Adient's adoption of ASC 606. Adient is currently assessing the potential impact of adopting this guidance 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 ending December 31, 2018, with early adoption permitted. The update will result in the retrospective reclassification of the non-service cost components of net benefit cost from cost of sales and selling, general and administrative expenses to other (income) expense, net. There will be no impact on consolidated net income.
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. 2017-01, "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. The adoption of this guidance for the quarter ending December 31, 2018 is not expected to have a significant impact on Adient's consolidated financial statements.
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 for the quarter ending December 31, 2018 is not expected to have a significant 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. The adoption of this guidance for the quarter ending December 31, 2018 is not expected to have a significant impact on Adient's 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 February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)." ASU No. 2016-02 requires recognition of operating leases as right of use assets and lease obligations on the balance sheet and disclosure of key information about leasing arrangements. In July 2018, the FASB issued ASU No. 2018-10, “Codification Improvements to Topic 842, Leases” and ASU No. 2018-11, “Targeted Improvements,” providing clarifications as well as optional transition relief for applying certain aspects of the new leases standard. The standard will be effective for Adient for the quarter ending December 31, 2019, with early adoption permitted. Adient is currently assessing the impact this standard will have on its balance sheet and statement of income (loss).
Adient plc | Form 10-K |
69
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. The adoption of this guidance for the quarter ending December 31, 2018 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,’’ each of 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 guidelines as ASU No. 2014-09 and ASU No. 2015-14. Adient intends to adopt this guidance effective October 1, 2018 using the modified retrospective method, recognizing the cumulative effect of the adoption as an adjustment to opening retained earnings. While Adient is continuing to assess the potential impacts of adopting the standard, our current analysis indicates any adjustment to the adoption date financial statements would not be significant. Under current guidance, Adient generally recognizes revenue when products are shipped and risk of loss has transferred to the customer. The amount of revenue recognized reflects customer purchase orders as well as ongoing price adjustments and commitments, some of which is estimated. Under the new standard, revenue is to be recognized when control of the product is transferred to the customer and Adient obtains an enforceable right to payment. The amount of revenue recognized should reflect consideration that Adient expects to be entitled in exchange for those products. The new guidance also requires additional disclosures related to the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. Adient is currently assessing the enhanced disclosure requirements of the new guidance.
|
|
|
|
|
|
2. Acquisitions and Divestitures
|
During the first quarter of fiscal 2018, Adient announced its joint venture with The Boeing Company ("Boeing") called Adient Aerospace, LLC ("Adient Aerospace") and formally became operational on October 11, 2018 after securing regulatory approvals. Adient's ownership position in Adient Aerospace is
50.01%
. Adient Aerospace will develop, manufacture, and sell a portfolio of seating products to airlines and aircraft leasing companies for installation on Boeing and other OEM commercial airplanes, for both production line-fit and retrofit configurations. Adient Aerospace's results will be included within the Seating segment.
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 provides substantial synergies through vertical integration, purchasing and logistics improvements. The acquisition also provided 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. During fiscal 2018, Adient recorded certain measurement period adjustments related to Futuris which resulted in a net decrease to goodwill of
$18 million
.
Adient plc | Form 10-K |
70
Adient recorded a purchase price allocation for the assets acquired and liabilities assumed based on their estimated fair values as of the September 22, 2017 acquisition date. The final purchase price adjustments and allocation is as follow:
|
|
|
|
|
|
(in millions)
|
|
Fair Value Allocation
|
Cash
|
|
$
|
34
|
|
Accounts receivable
|
|
93
|
|
Inventory
|
|
41
|
|
Property, plant and equipment
|
|
53
|
|
Other assets
|
|
22
|
|
Goodwill
|
|
184
|
|
Intangible assets
|
|
160
|
|
Accounts payable
|
|
(86
|
)
|
Other liabilities
|
|
(118
|
)
|
Total purchase consideration
|
|
383
|
|
Less: cash acquired
|
|
34
|
|
Net cash paid
|
|
349
|
|
Plus: acquired debt
|
|
4
|
|
Net purchase consideration
|
|
$
|
353
|
|
The values allocated to intangible assets of
$160 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.
The allocation of the purchase price is based on the 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 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.
Adient plc | Form 10-K |
71
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. During fiscal 2018, Adient recorded certain measurement period adjustments related to GAAS which resulted in an increase to goodwill of
$3 million
. Adient has recorded the fair value allocation for the assets and liabilities of the entity based on the final fair values, as follows:
|
|
|
|
|
|
(in millions)
|
|
Fair Value Allocation
|
Cash and cash equivalents
|
|
$
|
102
|
|
Accounts receivable
|
|
46
|
|
Inventory - net
|
|
2
|
|
Other assets
|
|
3
|
|
Property, plant and equipment
|
|
17
|
|
Goodwill
|
|
79
|
|
Identifiable intangibles
|
|
276
|
|
Accounts payable
|
|
(83
|
)
|
Other liabilities
|
|
(88
|
)
|
Fair value of the entity
|
|
$
|
354
|
|
Noncontrolling interest
|
|
(170
|
)
|
Adient's interest
|
|
$
|
184
|
|
The 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 was based on the valuations performed to determine the fair value of the net assets as of the acquisition date. The amounts allocated to goodwill and intangible assets 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.
The impact of the Futuris acquisition on consolidated results include
$497 million
of incremental net sales and an immaterial impact on net income during fiscal 2018, respectively. The impact of the Guangzhou Adient Automotive Seating Co., Ltd. ("GAAS") consolidation in July 2017 on consolidated results include
$341 million
of incremental net sales and an immaterial impact on net income during fiscal 2018, respectively.
Assets held for sale
During fiscal 2018, Adient committed to a plan to sell its Detroit, Michigan properties and its airplanes and actively marketed the sale of these assets. As a result, these assets were classified as assets held for sale and were required to be adjusted to the lower of fair value less cost to sell or carrying value. This resulted in an impairment charge of
$49 million
which was recorded within restructuring and impairment costs on the consolidated statement of income (loss) during fiscal 2018, of which
$39 million
related to Seating assets and
$10 million
related to corporate assets. The impairment was measured using third party sales pricing to determine fair values of the assets. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value Measurement." During the fourth quarter of fiscal 2018, one airplane was sold for
$36 million
. During the first quarter of fiscal 2019, both the Detroit, Michigan properties and remaining airplane were sold for approximately
$35 million
.
Adient plc | Form 10-K |
72
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
(in millions)
|
|
2018
|
|
2017
|
Raw materials and supplies
|
|
$
|
626
|
|
|
$
|
552
|
|
Work-in-process
|
|
38
|
|
|
37
|
|
Finished goods
|
|
160
|
|
|
146
|
|
Inventories
|
|
$
|
824
|
|
|
$
|
735
|
|
|
|
|
|
|
|
4. Property, Plant and Equipment
|
Property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
(in millions)
|
|
2018
|
|
2017
|
Buildings and improvements
|
|
$
|
1,277
|
|
|
$
|
1,357
|
|
Machinery and equipment
|
|
4,501
|
|
|
4,827
|
|
Construction in progress
|
|
298
|
|
|
521
|
|
Land
|
|
139
|
|
|
149
|
|
Total property, plant and equipment
|
|
6,215
|
|
|
6,854
|
|
Less: accumulated depreciation
|
|
(4,532
|
)
|
|
(4,352
|
)
|
Property, plant and equipment - net
|
|
$
|
1,683
|
|
|
$
|
2,502
|
|
Refer to
Note 15
, "
Impairment of Long-Lived Assets
," of the notes to consolidated financial statements for additional information related to the SS&M fixed asset impairment charge.
There were no material leased capital assets included in net property, plant and equipment at September 30,
2018
and
2017
.
As of
September 30, 2018
, Adient is the lessor of properties included in land for
$5 million
, gross building and improvements for
$110 million
and accumulated depreciation of
$80 million
. 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
.
Adient plc | Form 10-K |
73
|
|
|
|
|
|
5. Goodwill and Other Intangible Assets
|
The changes in the carrying amount of goodwill are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Seating
|
|
SS&M
|
|
Total
|
Balance at September 30, 2016
|
|
$
|
2,179
|
|
|
$
|
—
|
|
|
$
|
2,179
|
|
Business acquisitions
|
|
284
|
|
|
—
|
|
|
284
|
|
Currency translation and other
|
|
52
|
|
|
—
|
|
|
52
|
|
Balance at September 30, 2017
|
|
$
|
2,515
|
|
|
$
|
—
|
|
|
$
|
2,515
|
|
Business acquisitions
|
|
(15
|
)
|
|
—
|
|
|
(15
|
)
|
Realignment of goodwill
|
|
(299
|
)
|
|
299
|
|
|
—
|
|
Impairment
|
|
—
|
|
|
(299
|
)
|
|
(299
|
)
|
Currency translation and other
|
|
(19
|
)
|
|
—
|
|
|
(19
|
)
|
Balance at September 30, 2018
|
|
$
|
2,182
|
|
|
$
|
—
|
|
|
$
|
2,182
|
|
During the second quarter of fiscal 2018, Adient began reporting
three
segments: Seating, SS&M and Interiors. Accordingly, goodwill previously reported in the Seating segment was reallocated to the SS&M segment using a relative fair value approach and subsequently determined to be fully impaired. Refer to
Note 17
, "
Segment Information
" for more information on Adient's reportable segments. The Interiors segment maintained
no
goodwill as of September 30, 2018, 2017 and 2016, respectively.
Adient evaluates its goodwill for impairment on an annual basis, or as facts and circumstances warrant. As a result of the change in reportable segments during the second quarter of fiscal 2018, Adient conducted goodwill impairment analyses of the newly allocated goodwill balances under the new reportable segment structure. 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. Adient estimated the fair value of its reportable segments using both a multiple of earnings approach for the Seating segment and a discounted cash flow analysis approach for SS&M, both of which utilized Level 3 unobservable inputs. These calculations contain uncertainties as they require management to make assumptions about market comparables, future cash flows, the appropriate discount rate (based on weighted average cost of capital) and growth rate to reflect the risk inherent in the future cash flows. The estimated future cash flows reflect management's latest assumptions of the financial projections based on current and anticipated competitive landscape and product profitability based on historical trends. A change in any of these estimates and assumptions could produce a different fair value, which could have a material impact on Adient's results of operations. As a result of the analyses, Adient determined that goodwill associated with the SS&M reportable segment was fully impaired. Consequently, a pre-tax goodwill impairment charge of
$299 million
was recognized in the three months ended March 31, 2018 in the consolidated statements of income (loss) within the restructuring and impairment costs line item. The goodwill impairment charge represented a triggering event for additional impairment considerations of other long-lived assets, including an analysis of the recoverability of long-lived assets as of March 31, 2018.
No
further goodwill or other long-lived asset impairments were identified during the second quarter of fiscal 2018.
No
goodwill impairments were identified as of September 30, 2018.
Adient's other intangible assets, primarily from business acquisitions valued based on independent appraisals, consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2018
|
|
September 30, 2017
|
(in millions)
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
Intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Patented technology
|
|
$
|
21
|
|
|
$
|
(14
|
)
|
|
$
|
7
|
|
|
$
|
30
|
|
|
$
|
(15
|
)
|
|
$
|
15
|
|
Customer relationships
|
|
509
|
|
|
(101
|
)
|
|
408
|
|
|
545
|
|
|
(64
|
)
|
|
481
|
|
Trademarks
|
|
58
|
|
|
(30
|
)
|
|
28
|
|
|
59
|
|
|
(26
|
)
|
|
33
|
|
Miscellaneous
|
|
29
|
|
|
(12
|
)
|
|
17
|
|
|
22
|
|
|
(8
|
)
|
|
14
|
|
Total intangible assets
|
|
$
|
617
|
|
|
$
|
(157
|
)
|
|
$
|
460
|
|
|
$
|
656
|
|
|
$
|
(113
|
)
|
|
$
|
543
|
|
Adient plc | Form 10-K |
74
Adient evaluates its other intangible assets for impairment on an annual basis, or as facts and circumstances warrant. Of the
$787 million
long lived asset impairment charge recognized during the fourth quarter of fiscal 2018,
$19 million
was attributable to a customer relationship impairment charge related to SS&M, representing the excess of the net book value over the fair value of the assets. Refer to
Note 15
, "
Impairment of Long-Lived Assets
" of the notes to the consolidated financial statements for additional information.
Amortization of other intangible assets for the fiscal years ended September 30, 2018, 2017 and 2016 was
$47 million
,
$21 million
and
$17 million
, respectively. Adient anticipates amortization for fiscal 2019, 2020, 2021, 2022 and 2023 will be approximately
$41 million
,
$39 million
,
$39 million
,
$37 million
and
$37 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)
|
|
2018
|
|
2017
|
Balance at beginning of period
|
|
$
|
19
|
|
|
$
|
13
|
|
Accruals for warranties issued during the period
|
|
7
|
|
|
3
|
|
Changes in accruals related to pre-existing warranties (including changes in estimates)
|
|
(4
|
)
|
|
13
|
|
Settlements made (in cash or in kind) during the period
|
|
(11
|
)
|
|
(10
|
)
|
Balance at end of period
|
|
$
|
11
|
|
|
$
|
19
|
|
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
,
2018
,
2017
and
2016
was
$149 million
,
$126 million
and
$120 million
, respectively.
Future minimum operating lease payments at
September 30, 2018
are as follows:
|
|
|
|
|
|
(in millions)
|
|
Operating
Leases
|
2019
|
|
$
|
123
|
|
2020
|
|
87
|
|
2021
|
|
67
|
|
2022
|
|
53
|
|
2023
|
|
45
|
|
After 2023
|
|
62
|
|
Total minimum lease payments
|
|
$
|
437
|
|
Adient plc | Form 10-K |
75
|
|
|
|
|
|
8. Debt and Financing Arrangements
|
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
(in millions)
|
|
2018
|
|
2017
|
Term Loan A - LIBOR plus 1.75% due in 2021
|
|
$
|
1,200
|
|
|
$
|
1,200
|
|
4.875% Notes due in 2026
|
|
900
|
|
|
900
|
|
3.50% Notes due in 2024
|
|
1,162
|
|
|
1,180
|
|
European Investment Bank Loan - EURIBOR plus 0.90% due in 2022
|
|
192
|
|
|
195
|
|
Capital lease obligations
|
|
2
|
|
|
4
|
|
Other
|
|
—
|
|
|
1
|
|
Less: debt issuance costs
|
|
(32
|
)
|
|
(38
|
)
|
Gross long-term debt
|
|
3,424
|
|
|
3,442
|
|
Less: current portion
|
|
2
|
|
|
2
|
|
Net long-term debt
|
|
$
|
3,422
|
|
|
$
|
3,440
|
|
On July 27, 2016, Adient Global Holdings Ltd ("AGH"), a wholly owned subsidiary of Adient, entered into a credit agreement providing for commitments with respect to a
$1.5 billion
revolving credit facility and a
$1.5 billion
Term Loan A facility ("Original Credit Facilities"). The Original 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 Original Credit Facilities contained 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 Original 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. During the first quarter of fiscal 2019, Adient entered into an amendment to the Original Credit Facilities (“Amended Credit Facilities") whereby the financial maintenance covenant was amended to require Adient to maintain a total net leverage ratio equal to or less than
4.5
x adjusted EBITDA, with step down provisions starting in the quarter ending December 31, 2020. The amendment also expanded the upper range of interest rate margins such that the drawn portion of the Amended Credit Facilities will bear interest based on LIBOR plus a margin between
1.25%
-
2.50%
(previously
1.25%
-
2.25%
), based on Adient’s total net leverage ratio. No other terms were impacted by the amendment.
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. 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
0.40%
. No amounts were outstanding under the revolving credit facility at September 30, 2018 and 2017, respectively.
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.
Adient plc | Form 10-K |
76
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:
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|
Year Ended
September 30,
|
(in millions)
|
|
2019
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
Principal payments
|
|
$
|
—
|
|
|
$
|
56
|
|
|
$
|
1,144
|
|
|
$
|
192
|
|
|
$
|
—
|
|
Short-term debt consisted of the following:
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Year Ended
September 30,
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
Bank borrowings
|
|
$
|
6
|
|
|
$
|
36
|
|
|
$
|
41
|
|
Weighted average interest rate on short-term debt outstanding
(1)
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|
4.8
|
%
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|
3.0
|
%
|
|
5.9
|
%
|
(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:
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Year Ended
September 30,
|
(in millions)
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|
2018
|
|
2017
|
|
2016
|
Interest expense, net of capitalized interest costs
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|
$
|
142
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|
$
|
126
|
|
|
$
|
20
|
|
Banking fees and debt issuance cost amortization
|
|
7
|
|
|
10
|
|
|
4
|
|
Interest income
|
|
(5
|
)
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|
(4
|
)
|
|
(2
|
)
|
Net financing charges
|
|
$
|
144
|
|
|
$
|
132
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|
|
$
|
22
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|
Total interest paid on both short and long-term debt for the fiscal years ended September 30, 2018, 2017 and 2016 was
$143 million
,
$129 million
and
$5 million
, respectively.
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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, 2018 and 2017, respectively.
Adient plc | Form 10-K |
77
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.
As of September 30, 2018, the
€1.0 billion
aggregate principal amount of
3.50%
euro-denominated unsecured notes due 2024 was designated as a net investment hedge to selectively hedge portions of Adient's net investment in Europe. The currency effects of Adient's euro-denominated bonds are reflected in AOCI account within shareholders' equity attributable to Adient where they offset gains and losses recorded on Adient's net investment in Europe.
Adient entered into cross-currency interest rate swaps during fiscal 2018 to selectively hedge portions of its net investment in Europe. The currency effects of the cross-currency interest rate swaps are reflected in the AOCI account within shareholders’ equity attributable to Adient, where they offset gains and losses recorded on Adient’s net investment in Europe. As of September 30, 2018, Adient had
two
cross-currency interest rate swaps outstanding totaling approximately
€160 million
designated as net investment hedges in 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:
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Derivatives and Hedging
Activities Designated as
Hedging Instruments
under ASC 815
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|
Derivatives and Hedging
Activities Not Designated as
Hedging Instruments
under ASC 815
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|
|
September 30,
|
(in millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Other current assets
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
4
|
|
|
$
|
—
|
|
Other noncurrent assets
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
—
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|
|
1
|
|
|
2
|
|
|
—
|
|
Equity swaps
|
|
—
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|
|
—
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|
|
—
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|
|
3
|
|
Cross-currency interest rate swaps
|
|
13
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total assets
|
|
$
|
17
|
|
|
$
|
5
|
|
|
$
|
6
|
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities
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|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
$
|
11
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|
|
$
|
6
|
|
|
$
|
—
|
|
|
$
|
2
|
|
Other noncurrent liabilities
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
2
|
|
|
3
|
|
|
—
|
|
|
—
|
|
Equity swaps
|
|
—
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|
|
—
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|
|
2
|
|
|
—
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|
Long-term debt
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|
Foreign currency denominated debt
|
|
1,162
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|
|
1,180
|
|
|
—
|
|
|
—
|
|
Total liabilities
|
|
$
|
1,175
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|
|
$
|
1,189
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|
|
$
|
2
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|
|
$
|
2
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|
Adient enters into International Swaps and Derivatives Associations (ISDA) master netting agreements with counterparties that permit the net settlement of amounts owed under the derivative contracts. The master netting agreements generally provide for net settlement of all outstanding contracts with a counterparty in the case of an event of default or a termination event. Adient has not elected to offset the fair value positions of the derivative contracts recorded in the consolidated statements of financial position. Collateral is generally not required of Adient or the counterparties under the master netting agreements. As of both September 30, 2018 and September 30, 2017,
no
cash collateral was received or pledged under the master netting agreements.
Adient plc | Form 10-K |
78
The gross and net amounts of derivative instruments and other amounts used in hedging activities are as follows:
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Assets
|
|
Liabilities
|
|
|
September 30,
|
(in millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Gross amount recognized
|
|
$
|
23
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|
|
$
|
8
|
|
|
$
|
1,177
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|
|
$
|
1,191
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|
Gross amount eligible for offsetting
|
|
(5
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)
|
|
(2
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)
|
|
(5
|
)
|
|
(2
|
)
|
Net amount
|
|
$
|
18
|
|
|
$
|
6
|
|
|
$
|
1,172
|
|
|
$
|
1,189
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|
The following table presents the effective portion of pretax gains (losses) recorded in other comprehensive income related to cash flow hedges:
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|
|
|
|
|
|
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|
(in millions)
|
|
Year Ended
September 30,
|
|
2018
|
|
2017
|
|
2016
|
Foreign currency exchange derivatives
|
|
$
|
(9
|
)
|
|
$
|
3
|
|
|
$
|
34
|
|
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:
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(in millions)
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|
|
Year Ended
September 30,
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|
|
2018
|
|
2017
|
|
2016
|
Foreign currency exchange derivatives
|
|
Cost of sales
|
|
$
|
(3
|
)
|
|
$
|
(13
|
)
|
|
$
|
31
|
|
The following table presents the location and amount of pretax gains (losses) on derivatives not designated as hedging instruments recognized in Adient's consolidated statements of income (loss):
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|
|
|
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|
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|
|
|
|
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(in millions)
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|
|
|
Year Ended
September 30,
|
|
|
2018
|
|
2017
|
|
2016
|
Foreign currency exchange derivatives
|
|
Cost of sales
|
|
$
|
4
|
|
|
$
|
(20
|
)
|
|
$
|
10
|
|
Equity swap
|
|
Selling, general and administrative
|
|
(25
|
)
|
|
3
|
|
|
—
|
|
Foreign currency exchange derivatives
|
|
Net financing charges
|
|
(5
|
)
|
|
36
|
|
|
(3
|
)
|
Total
|
|
|
|
$
|
(26
|
)
|
|
$
|
19
|
|
|
$
|
7
|
|
The effective portion of pretax gains (losses) recorded in currency translation adjustment (CTA) within other comprehensive income (loss) related to net investment hedges was
$31 million
,
$(61) million
and
$(24) million
for the fiscal years ended September 30, 2018, 2017 and 2016, respectively. For the years ended September 30, 2018 and 2017, respectively,
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.
Adient plc | Form 10-K |
79
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|
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;
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:
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|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
(in millions)
|
|
Total as of
September 30,
2018
|
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Other current assets
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
8
|
|
|
$
|
—
|
|
Other noncurrent assets
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
2
|
|
|
—
|
|
|
2
|
|
|
—
|
|
Cross-currency interest rate swaps
|
|
13
|
|
|
—
|
|
|
13
|
|
|
—
|
|
Total assets
|
|
$
|
23
|
|
|
$
|
—
|
|
|
$
|
23
|
|
|
$
|
—
|
|
Other current liabilities
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
11
|
|
|
$
|
—
|
|
Other noncurrent liabilities
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
2
|
|
|
—
|
|
|
2
|
|
|
—
|
|
Equity swaps
|
|
2
|
|
|
—
|
|
|
2
|
|
|
—
|
|
Total liabilities
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
—
|
|
Adient plc | Form 10-K |
80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
—
|
|
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 were highly effective in hedging the variability in future cash flows attributable to changes in currency exchange rates at September 30, 2018 and 2017, respetively. 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.
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.
Cross-currency interest rate swaps
Adient selectively uses cross-currency interest rate swaps to hedge portions of its net investment in Europe. During fiscal 2018, Adient entered into
two
floating to floating cross-currency interest rate swaps totaling approximately
€160 million
designated as net investment hedges in Adient's net investment in Europe.
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
$3.3
billion and
$3.5 billion
at September 30, 2018 and 2017, respectively, was determined primarily using market quotes classified as Level 1 inputs within the ASC 820 fair value hierarchy.
Adient plc | Form 10-K |
81
|
|
|
|
|
|
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
$47 million
,
$45 million
and
$28 million
for the fiscal years ended September 30, 2018, 2017 and 2016, respectively. The total income tax benefit recognized in the consolidated statements of income for the share-based compensation arrangements was
$0 million
(due to tax valuation allowances),
$21 million
and
$11 million
for the fiscal years ended September 30, 2018, 2017 and 2016, 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, 2018 along with the composition of outstanding and exercisable awards at September 30, 2018 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.
A summary of the status of nonvested restricted stock awards at September 30, 2018, 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, 2017
|
|
$
|
45.49
|
|
|
2,252,438
|
|
Granted
|
|
$
|
76.91
|
|
|
287,590
|
|
Vested
|
|
$
|
47.25
|
|
|
(883,048
|
)
|
Forfeited
|
|
$
|
59.31
|
|
|
(214,969
|
)
|
Nonvested, September 30, 2018
|
|
$
|
48.62
|
|
|
1,442,011
|
|
|
|
|
|
|
Former Parent nonvested, September 30, 2018
|
|
$
|
44.12
|
|
|
545,463
|
|
Adient nonvested, September 30, 2018
|
|
$
|
51.81
|
|
|
896,548
|
|
Total nonvested, September 30, 2018
|
|
$
|
48.62
|
|
|
1,442,011
|
|
At September 30, 2018, Adient had approximately
$22 million
of total unrecognized compensation cost related to nonvested restricted stock arrangements granted. That cost is expected to be recognized over a weighted-average period of
1.7
years.
Adient plc | Form 10-K |
82
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, 2018, 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, 2017
|
|
$
|
44.60
|
|
|
236,034
|
|
Granted
|
|
$
|
84.97
|
|
|
176,100
|
|
Vested
|
|
$
|
—
|
|
|
—
|
|
Forfeited
|
|
$
|
71.14
|
|
|
(146,071
|
)
|
Nonvested, September 30, 2018
|
|
$
|
56.75
|
|
|
266,063
|
|
At September 30, 2018, Adient had approximately
$5 million
of total unrecognized compensation cost related to nonvested performance share units granted. That cost is expected to be recognized over a weighted-average period of
1.6
years.
Stock Options
No
new stock options have been granted under the Plan. Stock options were previously granted to eligible employees prior to the separation from the former Parent. Stock option awards typically vest between
two
and
three
years after the grant date and expire
ten
years from the grant date. The fair value of each option was estimated on the date of grant using a Black-Scholes option valuation model.
A summary of stock option activity at September 30, 2018, 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, 2017
|
|
$
|
32.04
|
|
|
1,422,133
|
|
|
|
|
|
Exercised
|
|
$
|
27.10
|
|
|
(305,492
|
)
|
|
|
|
|
Forfeited, expired or converted
|
|
$
|
30.71
|
|
|
(28,660
|
)
|
|
|
|
|
Outstanding, September 30, 2018
|
|
$
|
34.51
|
|
|
1,087,981
|
|
|
4.2
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
Exercisable, September 30, 2018
|
|
$
|
33.91
|
|
|
1,022,716
|
|
|
4.0
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
Former Parent outstanding, September 30, 2018
|
|
$
|
34.27
|
|
|
983,406
|
|
|
4.2
|
|
$
|
5
|
|
Adient outstanding, September 30, 2018
|
|
$
|
36.81
|
|
|
104,575
|
|
|
4.2
|
|
$
|
1
|
|
Total outstanding, September 30, 2018
|
|
$
|
34.51
|
|
|
1,087,981
|
|
|
4.2
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
Former Parent exercisable, September 30, 2018
|
|
$
|
33.60
|
|
|
919,440
|
|
|
4.0
|
|
$
|
5
|
|
Adient exercisable, September 30, 2018
|
|
$
|
36.70
|
|
|
103,276
|
|
|
4.2
|
|
$
|
1
|
|
Total exercisable, September 30, 2018
|
|
$
|
33.91
|
|
|
1,022,716
|
|
|
4.0
|
|
$
|
6
|
|
Adient plc | Form 10-K |
83
There were
no
stock options granted in fiscal years 2018 and 2017, respectively. The weighted-average grant-date fair value of options granted to Adient employees during the fiscal year ended September 30, 2016 was
$13.15
per share. The total intrinsic value of options exercised by Adient employees during the fiscal years ended September 30, 2018, 2017 and 2016 was approximately
$7 million
,
$18 million
and
$4 million
, respectively, primarily consisting of former Parent awards.
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.
A summary of SAR activity at September 30, 2018, 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, 2017
|
|
$
|
28.12
|
|
|
549,158
|
|
|
|
|
|
Converted
|
|
$
|
26.09
|
|
|
10,467
|
|
|
|
|
|
Exercised
|
|
$
|
26.59
|
|
|
(164,604
|
)
|
|
|
|
|
Forfeited or expired
|
|
$
|
25.92
|
|
|
(3,751
|
)
|
|
|
|
|
Outstanding, September 30, 2018
|
|
$
|
29.12
|
|
|
391,270
|
|
|
3.5
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
Exercisable, September 30, 2018
|
|
$
|
28.53
|
|
|
376,583
|
|
|
3.4
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
Former Parent outstanding, September 30, 2018
|
|
$
|
28.81
|
|
|
363,361
|
|
|
3.5
|
|
$
|
3
|
|
Adient outstanding, September 30, 2018
|
|
$
|
33.10
|
|
|
27,909
|
|
|
3.5
|
|
$
|
—
|
|
Total outstanding, September 30, 2018
|
|
$
|
29.12
|
|
|
391,270
|
|
|
3.5
|
|
$
|
3
|
|
|
|
|
|
|
|
|
|
|
Former Parent exercisable, September 30, 2018
|
|
$
|
28.24
|
|
|
350,010
|
|
|
3.4
|
|
$
|
3
|
|
Adient exercisable, September 30, 2018
|
|
$
|
32.47
|
|
|
26,573
|
|
|
3.4
|
|
$
|
—
|
|
Total exercisable, September 30, 2018
|
|
$
|
28.53
|
|
|
376,583
|
|
|
3.4
|
|
$
|
3
|
|
In conjunction with the exercise of SARs, Adient made payments of
$3 million
,
$1 million
and
$4 million
during the fiscal years ended September 30, 2018, 2017 and 2016, respectively.
Adient plc | Form 10-K |
84
|
|
|
|
|
|
12. Equity and Noncontrolling Interests
|
The following table presents changes in AOCI attributable to Adient:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(398
|
)
|
|
$
|
(260
|
)
|
|
$
|
(229
|
)
|
Aggregate adjustment for the period, net of tax
|
|
(125
|
)
|
|
(138
|
)
|
|
(31
|
)
|
Balance at end of period
|
|
(523
|
)
|
|
(398
|
)
|
|
(260
|
)
|
Realized and unrealized gains (losses) on derivatives
|
|
|
|
|
|
|
Balance at beginning of period
|
|
3
|
|
|
(14
|
)
|
|
(17
|
)
|
Current period changes in fair value, net of tax
|
|
(13
|
)
|
|
6
|
|
|
26
|
|
Reclassification to income, net of tax
|
|
3
|
|
|
11
|
|
|
(23
|
)
|
Balance at end of period
|
|
(7
|
)
|
|
3
|
|
|
(14
|
)
|
Pension and postretirement plans
|
|
|
|
|
|
|
Balance at beginning of period
|
|
(2
|
)
|
|
(2
|
)
|
|
(1
|
)
|
Net reclassifications to AOCI
|
|
1
|
|
|
—
|
|
|
(1
|
)
|
Balance at end of period
|
|
(1
|
)
|
|
(2
|
)
|
|
(2
|
)
|
Accumulated other comprehensive income (loss), end of period
|
|
$
|
(531
|
)
|
|
$
|
(397
|
)
|
|
$
|
(276
|
)
|
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)
|
|
2018
|
|
2017
|
|
2016
|
Beginning balance
|
|
$
|
28
|
|
|
$
|
34
|
|
|
$
|
31
|
|
Net income
|
|
24
|
|
|
25
|
|
|
25
|
|
Foreign currency translation adjustments
|
|
1
|
|
|
—
|
|
|
1
|
|
Dividends
|
|
(7
|
)
|
|
(31
|
)
|
|
(23
|
)
|
Change in noncontrolling interest share
|
|
1
|
|
|
—
|
|
|
—
|
|
Ending balance
|
|
$
|
47
|
|
|
$
|
28
|
|
|
$
|
34
|
|
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 was paid in November 2017. In November 2017, Adient declared a dividend of
$0.275
per ordinary share, which was paid in February 2018. In March 2018, Adient declared a dividend of
$0.275
per ordinary share, which was paid in May 2018. In June 2018, Adient declared a dividend of
$0.275
per ordinary share, which was paid in August 2018. In October 2018, Adient declared a dividend of
$0.275
per ordinary share, which was paid in November 2018.
During fiscal 2017, Adient repurchased
573,437
ordinary shares for
$40 million
. Repurchased shares were retired immediately upon repurchase.
No
shares were repurchased during fiscal 2018.
Adient plc | Form 10-K |
85
Pension Benefits
Adient maintains non-contributory defined benefit pension plans covering primarily non-U.S. employees and a limited number of U.S. employees. The benefits provided are primarily based on years of service and average compensation or a monthly retirement benefit amount. Funding for non-U.S. plans observes the local legal and regulatory limits. Funding for U.S. pension plans equals or exceeds the minimum requirements of the Employee Retirement Income Security Act of 1974.
For pension plans with accumulated benefit obligations (ABO) that exceed plan assets, the projected benefit obligation (PBO), ABO and fair value of plan assets of those plans were
$208 million
,
$188 million
and
$82 million
, respectively, as of September 30, 2018 and
$472 million
,
$450 million
and
$342 million
, respectively, as of September 30, 2017.
Total former Parent benefit plan net expense allocated to Adient amounted to
$21 million
for fiscal year 2016. 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.
In fiscal 2018, Adient paid contributions to the defined benefit pension plans of
$4 million
and also received reimbursements of
$15 million
from the plans for benefits paid directly to plan participants for prior periods. Contributions of at least
$9 million
in cash to its defined benefit pension plans are expected in fiscal 2019. Projected benefit payments from the plans as of September 30, 2018 are estimated as follows (in millions):
|
|
|
|
|
2019
|
$
|
22
|
|
2020
|
21
|
|
2021
|
21
|
|
2022
|
27
|
|
2023
|
23
|
|
2024-2028
|
155
|
|
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
$37 million
and
$58 million
for fiscal years 2018 and 2017, respectively.
Plan Assets
Adient's investment policies employ an approach whereby a mix of equities, fixed income and alternative investments are used to maximize the long-term return of plan assets for a prudent level of risk. The investment portfolio primarily contains a 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.
Adient plc | Form 10-K |
86
The expected return on plan assets is based on Adient's expectation of the long-term average rate of return of the capital markets in which the plans invest. The average market returns are adjusted, where appropriate, for active asset management returns. The expected return reflects the investment policy target asset mix and considers the historical returns earned for each asset category. Adient's plan assets by asset category, are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
(in millions)
|
|
Total as of
September 30,
2018
|
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Net Asset Value (NAV)
|
Pension
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
31
|
|
|
$
|
31
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity Securities
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
17
|
|
|
3
|
|
|
—
|
|
|
—
|
|
|
14
|
|
International - Developed
|
|
51
|
|
|
36
|
|
|
—
|
|
|
—
|
|
|
15
|
|
International - Emerging
|
|
5
|
|
|
2
|
|
|
—
|
|
|
—
|
|
|
3
|
|
Fixed Income Securities
|
|
|
|
|
|
|
|
|
|
|
Government
|
|
185
|
|
|
83
|
|
|
67
|
|
|
—
|
|
|
35
|
|
Corporate/Other
|
|
61
|
|
|
49
|
|
|
2
|
|
|
—
|
|
|
10
|
|
Hedge Fund
|
|
77
|
|
|
—
|
|
|
77
|
|
|
—
|
|
|
—
|
|
Real Estate
|
|
22
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
16
|
|
Total
|
|
$
|
449
|
|
|
$
|
204
|
|
|
$
|
146
|
|
|
$
|
6
|
|
|
$
|
93
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 |
87
The following is a description of the valuation methodologies used for assets measured at fair value.
Cash:
The fair value of cash is valued at cost.
Equity Securities:
The fair value of equity securities is determined by direct quoted market prices. The underlying holdings are direct quoted market prices on regulated financial exchanges.
Fixed Income Securities:
The fair value of fixed income securities is determined by direct or indirect quoted market prices. If indirect quoted market prices are utilized, the value of assets held in separate accounts is not published, but the investment managers report daily the underlying holdings. The underlying holdings are direct quoted market prices on regulated financial exchanges.
Hedge Funds:
The fair value of hedge funds is determined 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 certain investments in real estate is deemed Level 3 since these investments do not have a readily determinable fair value and requires the fund managers independently to arrive at fair value by calculating NAV per share. In order to calculate NAV per share, the fund managers value the real estate investments using any one, or a combination of, the following methods: independent third party appraisals, discounted cash flow analysis of net cash flows projected to be generated by the investment and recent sales of comparable investments. Assumptions used to revalue the properties are updated every quarter. Adient believes this is an appropriate methodology to obtain the fair value of these assets.
Investments at NAV
: For mutual or collective funds where a NAV is not publicly quoted, the NAV per share is used as a practical expedient and is based on the quoted market prices of the underlying net assets of the fund as reported daily by the fund managers. Funds valued based on NAV per share as a practical expedient are not categorized within the fair value hierarchy.
The methods described above may produce a fair value calculation that may not be indicative of net realizable value or reflective of future fair values. Furthermore, while Adient believes its valuation methods are appropriate and consistent with other market participants, the use of different methodologies or assumptions to determine the fair value of certain financial instruments could result in a different fair value measurement at the reporting date.
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, 2016
|
|
$
|
9
|
|
Redemptions
|
|
(1
|
)
|
Unrealized gain
|
|
3
|
|
Asset value as of September 30, 2017
|
|
$
|
11
|
|
Redemptions
|
|
(5
|
)
|
Asset value as of September 30, 2018
|
|
$
|
6
|
|
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
(1)
|
(in millions)
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Accumulated Benefit Obligation
|
|
$
|
526
|
|
|
$
|
577
|
|
|
$
|
16
|
|
|
$
|
—
|
|
Change in Projected Benefit Obligation:
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year
|
|
$
|
600
|
|
|
$
|
637
|
|
|
$
|
16
|
|
|
$
|
16
|
|
Service cost
|
|
8
|
|
|
8
|
|
|
—
|
|
|
—
|
|
Interest cost
|
|
14
|
|
|
12
|
|
|
—
|
|
|
1
|
|
Plan participant contributions
|
|
—
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Actuarial (gain) loss
|
|
(33
|
)
|
|
(51
|
)
|
|
—
|
|
|
—
|
|
Benefits and settlements paid
|
|
(28
|
)
|
|
(29
|
)
|
|
(1
|
)
|
|
(1
|
)
|
Settlement (gain)
|
|
—
|
|
|
—
|
|
|
(15
|
)
|
|
—
|
|
Currency translation adjustment
|
|
(14
|
)
|
|
23
|
|
|
—
|
|
|
(1
|
)
|
Projected benefit obligation at end of year
|
|
$
|
547
|
|
|
$
|
600
|
|
|
$
|
—
|
|
|
$
|
16
|
|
Change in Plan Assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
491
|
|
|
$
|
457
|
|
|
$
|
15
|
|
|
$
|
12
|
|
Actual return on plan assets
|
|
9
|
|
|
9
|
|
|
1
|
|
|
2
|
|
Employer contributions/(distributions)
|
|
(11
|
)
|
|
37
|
|
|
—
|
|
|
2
|
|
Benefits and settlements paid
|
|
(28
|
)
|
|
(29
|
)
|
|
(1
|
)
|
|
(1
|
)
|
Reallocation of plan assets
|
|
—
|
|
|
—
|
|
|
(15
|
)
|
|
—
|
|
Currency translation adjustment
|
|
(12
|
)
|
|
17
|
|
|
—
|
|
|
—
|
|
Fair value of plan assets at end of year
|
|
$
|
449
|
|
|
$
|
491
|
|
|
$
|
—
|
|
|
$
|
15
|
|
Funded status
|
|
$
|
(98
|
)
|
|
$
|
(109
|
)
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
Amounts recognized in the statement of financial position consist of:
|
|
|
|
|
|
|
|
|
Prepaid benefit cost
|
|
$
|
29
|
|
|
$
|
22
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Accrued benefit liability
|
|
(127
|
)
|
|
(131
|
)
|
|
—
|
|
|
(1
|
)
|
Net amount recognized
|
|
$
|
(98
|
)
|
|
$
|
(109
|
)
|
|
$
|
—
|
|
|
$
|
(1
|
)
|
(1)
The postretirement benefit plan was terminated during fiscal 2018. As a result, a
$15 million
settlement gain was recorded, reflecting immediate recognition of prior service credits.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement
Benefits
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
|
2018
|
|
2017
|
Weighted Average Assumptions
(1)
:
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
(2)
|
|
4.29
|
%
|
|
3.85
|
%
|
|
2.63
|
%
|
|
2.60
|
%
|
|
NA
|
|
3.50
|
%
|
Rate of compensation increase
|
|
NA
|
|
|
NA
|
|
|
3.53
|
%
|
|
3.55
|
%
|
|
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, 2018 and 2017 were
$1 million
and
$2 million
, respectively, related to pension benefits.
The amounts in AOCI expected to be recognized as components of net periodic benefit cost over the next fiscal year for pension and postretirement benefits are not significant.
Net Periodic Benefit Cost
The tables that follow contain the components and key assumptions of net periodic benefit cost:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
|
2018
|
|
2017
|
|
2016
|
Components of Net Periodic Benefit Cost (Credit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
8
|
|
|
$
|
8
|
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
|
14
|
|
|
12
|
|
|
16
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Expected return on plan assets
|
|
(18
|
)
|
|
(17
|
)
|
|
(22
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
Net actuarial (gain) loss
|
|
(24
|
)
|
|
(43
|
)
|
|
109
|
|
|
—
|
|
|
(2
|
)
|
|
1
|
|
Settlement (gain) loss
|
|
—
|
|
|
—
|
|
|
1
|
|
|
(15
|
)
|
|
—
|
|
|
—
|
|
Net periodic benefit cost (credit)
|
|
$
|
(20
|
)
|
|
$
|
(40
|
)
|
|
$
|
112
|
|
|
$
|
(15
|
)
|
|
$
|
(1
|
)
|
|
$
|
1
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
Postretirement Benefits
|
|
|
U.S. Plans
|
|
Non-U.S. Plans
|
|
|
|
|
|
|
|
|
2018
|
|
2017
|
|
2016
|
|
2018
|
|
2017
|
|
2016
|
|
2018
|
|
2017
|
|
2016
|
Expense Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
3.85
|
%
|
|
3.70
|
%
|
|
4.40
|
%
|
|
2.62
|
%
|
|
2.10
|
%
|
|
3.40
|
%
|
|
NA
|
|
3.25
|
%
|
|
3.80
|
%
|
Expected return on plan assets
|
|
5.15
|
%
|
|
5.50
|
%
|
|
7.50
|
%
|
|
4.19
|
%
|
|
3.80
|
%
|
|
4.45
|
%
|
|
NA
|
|
3.35
|
%
|
|
3.80
|
%
|
Rate of compensation increase
|
|
NA
|
|
|
NA
|
|
|
NA
|
|
|
3.53
|
%
|
|
4.00
|
%
|
|
3.00
|
%
|
|
NA
|
|
NA
|
|
|
NA
|
|
Adient plc | Form 10-K |
90
|
|
|
|
|
|
14. Restructuring and Impairment Costs
|
To better align its resources with its overall strategies and reduce the cost structure of its global operations to address the softness in certain underlying markets, Adient commits to restructuring plans as necessary.
In fiscal 2018, Adient committed to a restructuring plan ("2018 Plan") of
$71 million
that was offset by
$20 million
of underspend in the 2016 Plan and
$7 million
of underspend related to other plan years. Of the restructuring costs recorded,
$23 million
relates to the SS&M segment and
$48 million
relates to the Seating segment. This is the total amount expected to be incurred for this restructuring plan. The restructuring actions relate to cost reduction initiatives and consist primarily of workforce reductions. The restructuring actions are expected to be substantially completed by fiscal 2019.
The following table summarizes the changes in Adient's 2018 Plan reserve:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Employee Severance and Termination Benefits
|
|
Other
|
|
Currency
Translation
|
|
Total
|
Original Reserve
|
|
$
|
68
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
71
|
|
Utilized—cash
|
|
(19
|
)
|
|
—
|
|
|
—
|
|
|
(19
|
)
|
Utilized—noncash
|
|
—
|
|
|
(2
|
)
|
|
(2
|
)
|
|
(4
|
)
|
Balance at September 30, 2018
|
|
$
|
49
|
|
|
$
|
1
|
|
|
$
|
(2
|
)
|
|
$
|
48
|
|
In fiscal 2017, Adient committed to a 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 expected to be incurred for this restructuring plan. The restructuring actions relate to cost reduction initiatives and consist primarily of workforce reductions and plant closures. The restructuring actions are expected to be substantially complete in fiscal 2019.
Adient maintained
$11 million
of Futuris restructuring reserves as of September 30, 2017, all of which was paid during fiscal 2018.
The following table summarizes the changes in Adient's 2017 Plan reserve:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Employee Severance and Termination Benefits
|
|
Other
|
|
Currency
Translation
|
|
Total
|
Original Reserve
|
|
$
|
42
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
46
|
|
Utilized—cash
|
|
(4
|
)
|
|
(4
|
)
|
|
—
|
|
|
(8
|
)
|
Balance at September 30, 2017
|
|
38
|
|
|
—
|
|
|
—
|
|
|
38
|
|
Utilized—cash
|
|
(26
|
)
|
|
—
|
|
|
—
|
|
|
(26
|
)
|
Balance at September 30, 2018
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
12
|
|
In fiscal 2016, Adient committed to a restructuring plan ("2016 Plan") and recorded
$332 million
of restructuring and impairment costs in the consolidated statements of income. This is the total amount expected to be incurred for this restructuring plan. The restructuring actions relate to cost reduction initiatives and consist primarily of workforce reductions, plant closures and asset impairments. Of the restructuring and impairment costs recorded,
$217 million
relates to the Seating segment,
$98 million
relates to the SS&M segment and
$17 million
relates to the Interiors segment. The asset impairment charge recorded during fiscal 2016 related primarily to information technology assets within the Seating segment that will not be used going forward by Adient. The restructuring actions are expected to be substantially complete in fiscal 2021.
Since the announcement of the 2016 Plan in fiscal 2016, Adient has experienced lower employee severance and termination benefit cash payouts than previously calculated of approximately
$20 million
, due to changes in cost reduction actions. The planned workforce reductions disclosed for the 2016 Plan have been updated for Adient's revised actions.
Adient plc | Form 10-K |
91
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
|
|
Noncash adjustment—underspend
|
|
(20
|
)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20
|
)
|
Utilized—cash
|
|
(55
|
)
|
|
—
|
|
|
(9
|
)
|
|
—
|
|
|
(64
|
)
|
Utilized—noncash
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1
|
)
|
|
(1
|
)
|
Balance at September 30, 2018
|
|
$
|
71
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
4
|
|
|
$
|
75
|
|
Adient's fiscal 2018, 2017 and 2016 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, 2018, approximately
3,700
of the employees have been separated from Adient pursuant to the restructuring plans. In addition, the restructuring plans included
twelve
plant closures. As of September 30, 2018,
nine
of the
twelve
plants have been closed.
Adient's management closely monitors its overall cost structure and continually analyzes each of its businesses for opportunities to consolidate current operations, improve operating efficiencies and locate facilities in low cost countries in close proximity to customers. This ongoing analysis includes a review of its manufacturing, engineering, purchasing and administrative functions, as well as the overall global footprint for all its businesses. Because of the importance of new vehicle sales by major automotive manufacturers to operations, Adient is affected by the general business conditions in the automotive industry. Future adverse developments in the automotive industry 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 the fourth quarter of fiscal 2018, Adient concluded it had a triggering event requiring assessment of impairment for certain of its long-lived assets within SS&M due to the significant performance issues that persisted in fiscal 2018 and the resulting actions to turn around the SS&M business identified during the fiscal 2019 planning process. As a result, Adient reviewed the long-lived assets for impairment and recorded a
$787 million
non-cash pre-tax impairment charge within restructuring and impairment costs on the consolidated statements of income (loss). The impairment charge related to long-lived assets that were in use in North America and Europe asset groups as of September 30, 2018 in support of current programs. Of the
$787 million
impairment charge,
$768 million
relates to fixed assets and
$19 million
relates to customer relationships. The impairment was measured, depending on the asset, either under an income approach utilizing forecasted discounted cash flows or a market approach utilizing appraisal techniques to determine fair values of the impaired assets. These methods are consistent with the methods Adient employed in prior periods to value other long-lived assets. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value Measurement" and primarily consist of expected future operating margins and cash flows, estimated production volumes, weighted average cost of capital rates (
13.0%
), estimated salable values and third-party
Adient plc | Form 10-K |
92
appraisal techniques such as market comparables. To the extent that profitability on current or future programs decline as compared to forecasted profitability or if adverse changes occur to key assumptions or other fair value measurement inputs, further impairment of long-lived assets could occur in the future. Refer to
Note 5
, "
Goodwill and Other Intangible Assets
" and
Note 4
, "
Property, Plant and Equipment
" of the notes to the consolidated financial statements for additional information.
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 (loss), 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
, "
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, weighted average cost of capital rates, estimated salable values and third-party appraisal techniques.
At September 30, 2017, Adient concluded it did not have any triggering events requiring assessment of impairment of its long-lived assets. See
Note 18
, "
Nonconsolidated Partially-Owned Affiliates
" for information on the fiscal 2018 impairment of investments in partially owned affiliates.
For fiscal 2018 and 2017, the income tax provision (benefit) reflects Adient as an independent company incorporated under the laws of Ireland. For fiscal 2016, 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.
Consolidated income (loss) before income taxes and noncontrolling interests for the years ended September 30, 2018, 2017 and 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
Ireland
|
|
$
|
4
|
|
|
$
|
(6
|
)
|
|
$
|
—
|
|
United States
|
|
(324
|
)
|
|
122
|
|
|
330
|
|
Other Foreign
|
|
(801
|
)
|
|
945
|
|
|
47
|
|
Income before income taxes and noncontrolling interests
|
|
$
|
(1,121
|
)
|
|
$
|
1,061
|
|
|
$
|
377
|
|
Adient plc | Form 10-K |
93
The components of the provision (benefit) for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
Current
|
|
|
|
|
|
|
Ireland
|
|
$
|
1
|
|
|
$
|
—
|
|
|
$
|
—
|
|
US - Federal and State
|
|
7
|
|
|
14
|
|
|
1,548
|
|
Other Foreign
|
|
128
|
|
|
137
|
|
|
863
|
|
|
|
136
|
|
|
151
|
|
|
2,411
|
|
Deferred
|
|
|
|
|
|
|
Ireland
|
|
—
|
|
|
(2
|
)
|
|
—
|
|
US - Federal and State
|
|
417
|
|
|
13
|
|
|
(295
|
)
|
Other Foreign
|
|
(73
|
)
|
|
(63
|
)
|
|
(277
|
)
|
|
|
344
|
|
|
(52
|
)
|
|
(572
|
)
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
480
|
|
|
$
|
99
|
|
|
$
|
1,839
|
|
The significant components of Adient's income tax provision are summarized in the following tables. These amounts do not include the impact of income tax expense related to our nonconsolidated partially-owned affiliates, which is netted against equity income on the consolidated statements of income (loss)
The reconciliation between the Irish statutory income tax rate, and Adient’s effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions)
|
|
2018
|
|
2017
|
Tax expense at Ireland statutory rate
|
|
$
|
(140
|
)
|
|
$
|
133
|
|
State and local income taxes, net of federal benefit
|
|
(60
|
)
|
|
(10
|
)
|
Foreign tax rate differential
|
|
(146
|
)
|
|
(67
|
)
|
Notional interest deduction
|
|
(66
|
)
|
|
(28
|
)
|
Credits and incentives
|
|
(13
|
)
|
|
(13
|
)
|
Gain on previously-held interest
|
|
—
|
|
|
(19
|
)
|
Impairment
|
|
(21
|
)
|
|
—
|
|
Repatriation of foreign earnings
|
|
36
|
|
|
30
|
|
Foreign exchange
|
|
3
|
|
|
(11
|
)
|
Impact of enacted tax rate changes
|
|
23
|
|
|
10
|
|
Impact of U.S. tax reform
|
|
210
|
|
|
—
|
|
Change in uncertain tax positions
|
|
97
|
|
|
50
|
|
Change in valuation allowance
|
|
554
|
|
|
21
|
|
Other
|
|
3
|
|
|
3
|
|
Income tax provision
|
|
$
|
480
|
|
|
$
|
99
|
|
Adient plc | Form 10-K |
94
The income tax expense was higher than the Irish statutory rate of
12.5%
for fiscal 2018 primarily due to the charge to recognize the impact of U.S. tax reform legislation, repatriation of foreign earnings, and changes in uncertain tax positions and valuation allowances, partially offset by benefits from global tax planning, losses in jurisdictions subject to state and local taxation, notional interest deductions, foreign tax rate differentials, and impairment deductions. No items included in the other category are individually, or when appropriately aggregated, significant.
The effective rate was lower than the Irish statutory rate of
12.5%
for fiscal 2017 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 for fiscal 2018 is primarily driven by losses earned in jurisdictions where the statutory rate is greater than
12.5%
. The foreign tax rate differential benefit for fiscal 2017 was 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 had a
$21 million
favorable impact on the effective tax rate as a result of losses earned in jurisdictions where the statutory rate was greater than
12.5%
.
The reconciliation between the U.S. federal income tax rate, and Adient’s effective tax rate was as follows:
|
|
|
|
|
|
(in millions)
|
|
Year Ended
September 30, 2016
|
Tax expense at the U.S. federal statutory rate
|
|
$
|
136
|
|
State income taxes, net of federal benefit
|
|
—
|
|
Foreign income tax expense at different rates and foreign losses without tax benefits
|
|
(92
|
)
|
U.S. tax on foreign income
|
|
(207
|
)
|
U.S. credits and incentives
|
|
(7
|
)
|
Impacts of transactions and business divestitures
|
|
1,988
|
|
Reserve and valuation allowance adjustments
|
|
14
|
|
Other
|
|
7
|
|
Income tax provision
|
|
$
|
1,839
|
|
The effective rate was 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.
Deferred taxes are classified in the consolidated statements of financial position as follows:
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
(in millions)
|
|
2018
|
|
2017
|
Other noncurrent assets
|
|
$
|
506
|
|
|
$
|
1,025
|
|
Other noncurrent liabilities
|
|
(217
|
)
|
|
(389
|
)
|
Net deferred tax asset
|
|
$
|
289
|
|
|
$
|
636
|
|
Adient plc | Form 10-K |
95
Temporary differences and carryforwards which gave rise to deferred tax assets and liabilities included:
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
(in millions)
|
|
2018
|
|
2017
|
Deferred tax assets:
|
|
|
|
|
Accrued expenses and reserves
|
|
$
|
64
|
|
|
$
|
83
|
|
Employee and retiree benefits
|
|
35
|
|
|
58
|
|
Net operating loss and other credit carryforwards
|
|
527
|
|
|
340
|
|
Property, plant and equipment
|
|
163
|
|
|
3
|
|
Intangible assets
|
|
361
|
|
|
463
|
|
Research and development
|
|
16
|
|
|
9
|
|
Joint ventures and partnerships
|
|
4
|
|
|
—
|
|
Other
|
|
23
|
|
|
13
|
|
|
|
1,193
|
|
|
969
|
|
Valuation allowances
|
|
(846
|
)
|
|
(223
|
)
|
|
|
347
|
|
|
746
|
|
Deferred tax liabilities:
|
|
|
|
|
Unremitted earnings of foreign subsidiaries
|
|
58
|
|
|
95
|
|
Joint ventures and partnerships
|
|
—
|
|
|
15
|
|
|
|
58
|
|
|
110
|
|
Net deferred tax asset
|
|
$
|
289
|
|
|
$
|
636
|
|
At September 30, 2018, Adient had available net operating loss carryforwards of approximately
$2,265 million
which are available to reduce future tax liabilities. Net operating loss carryforwards of
$1,174 million
will expire at various dates between 2019 and 2038, with the remainder having an indefinite carryforward period, and
$947 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. If Adient's operating performance continues to be negatively impacted and actual results differ significantly from current or prior estimates, Adient may conclude that it is more likely than not that a material portion of our deferred tax assets will not be realized. As such, it is possible that a change to valuation allowances in certain jurisdictions may result in a material increase to income tax expense during the next twelve months. In addition, the effective tax rate in subsequent periods would also increase.
As a result of Adient's fiscal 2018 analysis of the realizability of its worldwide deferred tax assets, and after considering tax planning initiatives and other positive and negative evidence (including the SS&M long-lived asset impairment recorded in the fourth quarter of fiscal 2018), Adient determined that it was more likely than not that deferred tax assets within the following jurisdictions would not be realized and recorded net valuation allowances as income tax expense in the fourth quarter of fiscal 2018: Belgium (
$12 million
), Canada (
$6 million
), Germany (
$175 million
), Hungary (
$14 million
), Mexico (
$117 million
), Poland (
$8 million
), Romania (
$9 million
), and the U.S. (
$281 million
). Germany, Hungary, Mexico, Poland, Romania, and the U.S. cumulative loss positions were all adversely impacted by the SS&M performance issues and resulting long-lived asset impairment.
In addition, as a result of Adient's fiscal 2018 analysis, Adient determined that it was more likely than not that deferred tax assets within Brazil would be realized. Therefore, Adient released
$76 million
of valuation allowance as an income tax benefit in the fourth quarter of fiscal 2018. Adient continues to record valuation allowances on certain deferred tax assets in Australia, Czech Republic, Mexico, Poland, Spain and other jurisdictions as it remains more likely than not that they will not be realized.
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 plc | Form 10-K |
96
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.
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
|
|
2013
|
China
|
|
2011
|
Czech Republic
|
|
2011
|
France
|
|
2015
|
Germany
|
|
2013
|
Hong Kong
|
|
2012
|
Japan
|
|
2013
|
Luxembourg
|
|
2013
|
Mexico
|
|
2013
|
Poland
|
|
2008
|
Spain
|
|
2012
|
United Kingdom
|
|
2012
|
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, 2018, 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, 2018, 2017 and 2016, Adient had gross tax effected unrecognized tax benefits of
$288 million
,
$193 million
, and
$596 million
, respectively. If recognized,
$133 million
of Adient's unrecognized tax benefits would impact the effective tax rate. Total net accrued interest for the years ended September 30, 2018, 2017 and 2016, was approximately
$5 million
,
$3 million
and
$11 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 |
97
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
Beginning balance
|
|
$
|
193
|
|
|
$
|
596
|
|
|
$
|
390
|
|
Additions for tax positions related to the current year
|
|
110
|
|
|
76
|
|
|
288
|
|
Additions for tax positions of prior years
|
|
12
|
|
|
5
|
|
|
—
|
|
Reductions for tax positions of prior years
|
|
(21
|
)
|
|
(471
|
)
|
|
(65
|
)
|
Settlements with taxing authorities
|
|
—
|
|
|
(7
|
)
|
|
(15
|
)
|
Statute closings
|
|
(6
|
)
|
|
(6
|
)
|
|
(2
|
)
|
Ending balance
|
|
$
|
288
|
|
|
$
|
193
|
|
|
$
|
596
|
|
During the next twelve months, it is reasonably possible that tax audit resolutions or applicable statute of limitation lapses could reduce the unrecognized tax benefits and income tax expense. Adient does not anticipate that this will result in a material impact to its consolidated financial statements.
Adient has
$13.5 billion
of undistributed foreign earnings of which
$685 million
is deemed permanently reinvested and no deferred taxes have been provided on such earnings. It is not practicable to determine the unrecognized deferred tax liability on these earnings because the actual tax liability, if any, is dependent on circumstances existing when remittance occurs.
Income taxes paid for the fiscal year ended September 30, 2018 were
$139 million
. 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 year ended September 30, 2016, 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.
Impacts of Tax Legislation and Change in Statutory Tax Rates
On December 22, 2017, the Act was signed and enacted into law, and is effective for tax years beginning on or after January 1, 2018, with the exception of certain provisions. As a fiscal year taxpayer, Adient will not be subject to the majority of the provisions until fiscal year 2019, however the statutory tax rate reduction is effective January 1, 2018.
The Act reduces the U.S. corporate tax rate from 35% to 21%. Adient’s fiscal 2018 income tax expense reflects the benefit from the reduced rate of
24.5%
resulting from the application of Internal Revenue Code, Section 15 which provides for a proration of the newly enacted rate during this fiscal year. This benefit is offset by a non-cash tax expense of
$106 million
related to the remeasurement of Adient’s net deferred tax assets at the lower statutory rate, a non-cash estimated tax expense of
$100 million
related to recording a valuation allowance to reflect the reduced benefit Adient expects to realize as a result of being subject to the Base Erosion and Anti-avoidance Tax ("BEAT"), and tax expense of
$4 million
related to the transition tax imposed on previously untaxed earnings and profits. Adient is projecting that it will be subject to BEAT, a parallel tax system, for the foreseeable future.
During the fourth quarter of fiscal 2018, Adient refined its estimate of the impact of the income tax effects of the Act from the previously disclosed
$258 million
to
$210 million
as discussed above, based on new information, including the full year fiscal 2018 results. Adient has completed its accounting for the deferred remeasurement and transition tax aspects of the Act. In accordance with Staff Accounting Bulletin No. 118, Adient is disclosing the estimated income tax impact for the BEAT valuation allowance. Although the
$100 million
tax expense represents what Adient believes is a reasonable estimate of the impact of the income tax effects of the Act on its consolidated financial statements as of September 30, 2018, it is a provisional amount and will be impacted by the forthcoming BEAT regulatory guidance and Adient’s on-going analysis of the legislation. Adient will continue to assess the provisions of the Act and the anticipated impact to income tax expense and will disclose the impact on its consolidated financial statements in future financial filings. Any adjustment to the provisional amount will be offset by the U.S. valuation allowance resulting in no net impact to income tax expense (benefit) in the first quarter of fiscal 2019.
Adient plc | Form 10-K |
98
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.
During fiscal years 2018, 2017, and 2016, other tax legislation was adopted in various jurisdictions. These law changes did not have a material impact on Adient's consolidated financial statements.
Other Tax Matters
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 final allocation of the purchase price for assets acquired and liabilities assumed based on their fair values as of the acquisition date, which included a
$160 million
intangible asset for customer relationships that has an estimated useful life of
10
years. Accordingly, Adient recorded a deferred tax liability of
$57 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 2018, Adient committed to a significant restructuring plan (2018 Plan) and recorded a net
$46 million
of restructuring and impairment costs in the consolidated statements of income. Refer to Note 14, "Restructuring and Impairment Costs," of the notes to the consolidated financial statements for additional information. The restructuring costs generated a
$6 million
tax benefit, which was negatively impacted by geographic mix and Adient’s current tax position in these jurisdictions. The disclosed tax benefit is prior to valuation allowances recorded during the fourth quarter of fiscal 2018.
During the fourth quarter of fiscal 2018, Adient recognized a pre-tax impairment charge on long-lived assets of
$787 million
within the SS&M reportable segment. Refer to Note 15, "Impairment of Long-Lived Assets," of the notes to the consolidated financial statements for additional information. The tax benefit associated with the impairment charge was
$185 million
, which was negatively impacted by geographic mix and Adient’s current tax position in these jurisdictions. The disclosed tax benefit is prior to valuation allowances recorded during the fourth quarter of fiscal 2018.
In addition during the fourth quarter of fiscal 2018, Adient recognized a pre-tax non-cash impairment charge of
$358 million
in equity income related to Adient’s YFAI investment balance within the Interiors segment. Refer to Note 18, "Nonconsolidated Partially-Owned Affiliates," of the notes to the consolidated financial statements for additional information. The tax benefit associated with the impairment charge was
$36 million
.
During the third and fourth quarters of fiscal 2018, Adient recognized a net pre-tax impairment charge of
$49 million
related to assets classified as held for sale. Refer to Note 2, "Acquisitions and Divestitures," of the notes to the consolidated financial statements for additional information. The tax benefit associated with the impairment charge was
$14 million
. The disclosed tax benefit is prior to valuation allowances recorded during the fourth quarter of fiscal 2018.
During the second quarter of fiscal 2018, Adient recognized a pre-tax goodwill impairment charge of
$299 million
related to the SS&M reportable segment. Refer to Note 4, "Goodwill and Other Intangible Assets," of the notes to the consolidated financial statements for additional information. The tax benefit associated with the goodwill impairment charge was
$20 million
.
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, "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
Adient plc | Form 10-K |
99
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
.
During the second quarter of fiscal 2018, Adient restructured certain of its management organization in response to the challenges faced in the seat structures and mechanisms business, resulting in a realignment of its reportable segments. Adient also began using an adjusted EBITDA metric to assess the performance of its segments and ceased allocating certain corporate-related costs to its segments. Prior period segment information has been recast to align with this change in organizational structure, the use of a new performance metric and to reflect unallocated corporate-related costs. Pursuant to this change, Adient operates in the following three reportable segments for financial reporting purposes:
|
|
|
•
|
Seating: This segment produces complete seat systems for automotive and other mobility applications, as well as certain components of complete seat systems, such as foam, trim and fabric.
|
|
|
•
|
Seat Structures & Mechanisms (SS&M): This segment produces seat structures and mechanisms for inclusion in complete seat systems that are produced by Adient or others.
|
|
|
•
|
Interiors: This segment, derived from Adient's global automotive interiors joint ventures, produces instrument panels, floor consoles, door panels, overhead consoles, cockpit systems, decorative trim and other products.
|
Adient evaluates the performance of its reportable segments using an adjusted EBITDA metric defined as income before income taxes and noncontrolling interests, excluding net financing charges, 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, depreciation, stock-based compensation and other non-recurring items ("Adjusted EBITDA"). Also, certain corporate-related costs are not allocated to the segments. The reportable segments are consistent with how management views the markets served by Adient and reflect the financial information that is reviewed by its chief operating decision maker.
Financial information relating to Adient's reportable segments is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
Net Sales
|
|
|
|
|
|
|
Seating
|
|
$
|
15,704
|
|
|
$
|
14,742
|
|
|
$
|
15,325
|
|
SS&M
|
|
3,003
|
|
|
2,810
|
|
|
2,992
|
|
Eliminations
|
|
(1,268
|
)
|
|
(1,339
|
)
|
|
(1,527
|
)
|
Total net sales
|
|
$
|
17,439
|
|
|
$
|
16,213
|
|
|
$
|
16,790
|
|
Adient plc | Form 10-K |
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
Adjusted EBITDA
|
|
|
|
|
|
|
Seating
|
|
$
|
1,411
|
|
|
$
|
1,578
|
|
|
$
|
1,484
|
|
SS&M
|
|
(168
|
)
|
|
82
|
|
|
124
|
|
Interiors
|
|
62
|
|
|
93
|
|
|
91
|
|
Corporate-related costs
(1)
|
|
(105
|
)
|
|
(148
|
)
|
|
(162
|
)
|
Becoming Adient costs
(2)
|
|
(62
|
)
|
|
(95
|
)
|
|
—
|
|
Separation costs
(3)
|
|
—
|
|
|
(10
|
)
|
|
(369
|
)
|
Restructuring and impairment costs
(4)
|
|
(1,181
|
)
|
|
(46
|
)
|
|
(332
|
)
|
Purchase accounting amortization
(5)
|
|
(69
|
)
|
|
(43
|
)
|
|
(37
|
)
|
Restructuring related charges
(6)
|
|
(61
|
)
|
|
(37
|
)
|
|
(14
|
)
|
Pension mark-to-market
(7)
|
|
24
|
|
|
45
|
|
|
(110
|
)
|
Impairment of nonconsolidated partially owned affiliate
(8)
|
|
(358
|
)
|
|
—
|
|
|
—
|
|
Gain on previously-held interest
(9)
|
|
—
|
|
|
151
|
|
|
—
|
|
Depreciation
(10)
|
|
(393
|
)
|
|
(332
|
)
|
|
(327
|
)
|
Stock based compensation
(11)
|
|
(37
|
)
|
|
(29
|
)
|
|
(28
|
)
|
Other items
(12)
|
|
(40
|
)
|
|
(16
|
)
|
|
79
|
|
Earnings (loss) before interest and income taxes
|
|
(977
|
)
|
|
1,193
|
|
|
399
|
|
Net financing charges
|
|
(144
|
)
|
|
(132
|
)
|
|
(22
|
)
|
Income (loss) before income taxes
|
|
$
|
(1,121
|
)
|
|
$
|
1,061
|
|
|
$
|
377
|
|
Adient plc | Form 10-K |
101
Notes:
|
|
|
|
(1)
|
|
Corporate-related costs not allocated to the segments include executive office, communications, corporate development, legal, finance and marketing.
|
(2)
|
|
Reflects incremental expenses associated with becoming an independent company.
|
(3)
|
|
Reflects expenses associated with and incurred prior to the separation from the former Parent.
|
(4)
|
|
Reflects qualified restructuring charges for costs that are directly attributable to restructuring activities and meet the definition of restructuring under ASC 420 and non-recurring impairment charges. Fiscal 2018 restructuring and impairment costs includes a non-cash pre-tax impairment charge of $1,086 in the SS&M business ($787 million related to long-lived assets $299 million related to goodwill), a $49 million non-cash impairment charge related to assets held for sale and a $46 million qualified restructuring charge. Refer to Note 4, "Property, Plant and Equipment," Note 5, "Goodwill and Other Intangible Assets," Note 14, "Restructuring and Impairment Costs," and Note 15, "Impairment of Long-Lived Assets," of the notes to the consolidated financial statements for more information. Amounts in prior fiscal years relate primarily to qualified restructuring.
|
(5)
|
|
Reflects amortization of intangible assets including those related to partially owned affiliates recorded within equity income.
|
(6)
|
|
Reflects restructuring related charges for costs that are directly attributable to restructuring activities, but do not meet the definition of restructuring under ASC 420.
|
(7)
|
|
Reflects net mark-to-market adjustments on pension and postretirement plans.
|
(8)
|
|
Reflects a non-cash impairment charge related to Adient's YFAI investment balance, which has been recorded within the equity income line in the consolidated statements of income. See Note 18, "Nonconsolidated Partially-Owned Affiliates," for more information.
|
(9)
|
|
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.
|
(10)
|
|
For the twelve months ended September 30, 2018, depreciation excludes $7 million, which is included in restructuring related charges discussed above. For the twelve months ended September 30, 2017, depreciation excludes $5 million which is included in Becoming Adient costs discussed above.
|
(11)
|
|
For the twelve months ended September 30, 2018 and 2017, stock based compensation excludes $10 million and $16 million, respectively. These amounts are included in Becoming Adient costs discussed above.
|
(12)
|
|
The twelve months ended September 30, 2018 primarily includes $22 million integration costs associated with the acquisition of Futuris, $11 million of non-recurring consulting fees related to SS&M, and a $8 million charge related to the impact of the U.S. tax reform on YFAI. The twelve months ended September 30, 2017 primarily includes $3 million of transaction costs associated with the acquisition of Futuris and $12 million of initial funding of the Adient foundation. The twelve months ended September 30, 2016 includes 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.
|
Adient plc | Form 10-K |
102
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2018
|
|
|
Reportable Segments
|
|
Reconciling Items
(1)
|
|
Consolidated
|
(in millions)
|
|
Seating
|
|
SS&M
|
|
Interiors
|
|
|
Net Sales
|
|
$
|
15,704
|
|
|
$
|
3,003
|
|
|
$
|
—
|
|
|
$
|
(1,268
|
)
|
|
$
|
17,439
|
|
Equity Income
|
|
279
|
|
|
44
|
|
|
62
|
|
|
(398
|
)
|
|
(13
|
)
|
Total Assets
|
|
7,631
|
|
|
1,380
|
|
|
672
|
|
|
1,259
|
|
|
10,942
|
|
Depreciation
|
|
211
|
|
|
179
|
|
|
—
|
|
|
10
|
|
|
400
|
|
Amortization
|
|
36
|
|
|
8
|
|
|
—
|
|
|
3
|
|
|
47
|
|
Capital Expenditures
|
|
281
|
|
|
255
|
|
|
—
|
|
|
—
|
|
|
536
|
|
|
|
|
|
(1)
|
|
Reconciling items include the elimination of intercompany transactions, corporate-related assets, depreciation and amortization and amounts to reconcile to consolidated totals. Specific reconciling items included in equity income are a $358 million non-cash impairment charge related to Adient's YFAI investment balance, $22 million of purchase accounting amortization related to the YFAI joint venture, $10 million of restructuring related charges and a $8 million charge related to the impact of the U.S. tax reform on YFAI. Corporate-related assets primarily include cash, deferred income tax assets, and Adient's aviation assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2017
|
|
|
Reportable Segments
|
|
Reconciling Items
(1)
|
|
Consolidated
|
(in millions)
|
|
Seating
|
|
SS&M
|
|
Interiors
|
|
|
Net Sales
|
|
$
|
14,742
|
|
|
$
|
2,810
|
|
|
$
|
—
|
|
|
$
|
(1,339
|
)
|
|
$
|
16,213
|
|
Equity Income
|
|
264
|
|
|
37
|
|
|
93
|
|
|
128
|
|
|
522
|
|
Total Assets
|
|
8,096
|
|
|
2,115
|
|
|
1,109
|
|
|
1,850
|
|
|
13,170
|
|
Depreciation
|
|
183
|
|
|
145
|
|
|
—
|
|
|
9
|
|
|
337
|
|
Amortization
|
|
10
|
|
|
7
|
|
|
—
|
|
|
4
|
|
|
21
|
|
Capital Expenditures
|
|
291
|
|
|
259
|
|
|
—
|
|
|
27
|
|
|
577
|
|
|
|
|
|
(1)
|
|
Reconciling items include the elimination of intercompany transactions, corporate-related assets, depreciation and amortization and amounts to reconcile to consolidated totals. 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, offset by $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. Corporate-related assets primarily include cash, deferred income tax assets, and Adient's aviation assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2016
|
|
|
Reportable Segments
|
|
Reconciling Items
(1)
|
|
Consolidated
|
(in millions)
|
|
Seating
|
|
SS&M
|
|
Interiors
|
|
|
Net Sales
|
|
$
|
15,325
|
|
|
$
|
2,992
|
|
|
$
|
—
|
|
|
$
|
(1,527
|
)
|
|
$
|
16,790
|
|
Equity Income
|
|
243
|
|
|
30
|
|
|
91
|
|
|
(20
|
)
|
|
344
|
|
Total Assets
|
|
7,062
|
|
|
1,757
|
|
|
1,039
|
|
|
3,098
|
|
|
12,956
|
|
Depreciation
|
|
175
|
|
|
144
|
|
|
—
|
|
|
8
|
|
|
327
|
|
Amortization
|
|
4
|
|
|
2
|
|
|
—
|
|
|
11
|
|
|
17
|
|
Capital Expenditures
|
|
225
|
|
|
202
|
|
|
—
|
|
|
10
|
|
|
437
|
|
|
|
|
|
(1)
|
|
Reconciling items include the elimination of intercompany transactions, corporate-related assets, depreciation and amortization and amounts to reconcile to consolidated totals. Included in equity income is $20 million of purchase accounting amortization related to the YFAI joint venture. Corporate-related assets primarily include cash, deferred income tax assets, and Adient's aviation assets.
|
Adient plc | Form 10-K |
103
Geographic Information
Financial information relating to Adient's operations by geographic area is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
United States
|
|
$
|
6,118
|
|
|
$
|
5,798
|
|
|
$
|
6,581
|
|
Germany
|
|
1,464
|
|
|
1,584
|
|
|
1,901
|
|
Mexico
|
|
1,177
|
|
|
1,079
|
|
|
998
|
|
Other European countries
|
|
5,519
|
|
|
5,012
|
|
|
4,752
|
|
Other foreign
|
|
3,161
|
|
|
2,740
|
|
|
2,558
|
|
Total
|
|
$
|
17,439
|
|
|
$
|
16,213
|
|
|
$
|
16,790
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Lived Assets
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
United States
|
|
$
|
474
|
|
|
$
|
685
|
|
|
$
|
580
|
|
Germany
|
|
197
|
|
|
380
|
|
|
360
|
|
Mexico
|
|
161
|
|
|
277
|
|
|
250
|
|
Other European countries
|
|
556
|
|
|
873
|
|
|
732
|
|
Other foreign
|
|
295
|
|
|
287
|
|
|
273
|
|
Total
|
|
$
|
1,683
|
|
|
$
|
2,502
|
|
|
$
|
2,195
|
|
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 reported in the "Investments in partially-owned affiliates" line in the consolidated statements of financial position as of September 30, 2018 and 2017. Equity in the net income of nonconsolidated partially-owned affiliates are reported in the "Equity income" line in the consolidated statements of income (loss) for the years ended September 30, 2018, 2017 and 2016. Adient maintains total investments in partially-owned affiliates of
$1.4 billion
and
$1.8 billion
at
September 30, 2018
and 2017, respectively. Operating information for nonconsolidated partially-owned affiliates is as follows:
|
|
|
|
|
|
|
|
% ownership
|
Name of key partially-owned affiliate
|
|
2018
|
|
2017
|
Seating
|
|
|
|
|
Changchun FAWAY Adient Automotive Systems Co. Ltd. (CFAA)
|
|
49.0%
|
|
49.0%
|
Yanfeng Adient Seating Co., Ltd. (YFAS)
|
|
49.9%
|
|
49.9%
|
SS&M
|
|
|
|
|
Adient Yanfeng Seating Mechanism Co., Ltd. (AYM)
|
|
50.0%
|
|
50.0%
|
Interiors
|
|
|
|
|
Yanfeng Global Automotive Interiors Systems Co., Ltd. (YFAI)
|
|
30.0%
|
|
30.0%
|
Adient plc | Form 10-K |
104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
(in millions)
|
|
2018
|
|
2017
|
|
2016
|
Income statement data:
|
|
|
|
|
|
|
Net sales
|
|
$
|
18,258
|
|
|
$
|
17,262
|
|
|
$
|
16,126
|
|
Gross profit
|
|
$
|
2,214
|
|
|
$
|
1,994
|
|
|
$
|
1,796
|
|
Net income
|
|
$
|
823
|
|
|
$
|
1,039
|
|
|
$
|
973
|
|
Net income attributable to the entity
|
|
$
|
773
|
|
|
$
|
974
|
|
|
$
|
918
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
(in millions)
|
|
2018
|
|
2017
|
Balance sheet data:
|
|
|
|
|
Current assets
|
|
$
|
7,716
|
|
|
$
|
7,720
|
|
Noncurrent assets
|
|
$
|
3,455
|
|
|
$
|
3,157
|
|
Current liabilities
|
|
$
|
7,579
|
|
|
$
|
7,362
|
|
Noncurrent liabilities
|
|
$
|
433
|
|
|
$
|
380
|
|
Noncontrolling interests
|
|
$
|
120
|
|
|
$
|
139
|
|
During the fourth quarter of fiscal 2018, Adient concluded that indicators of potential impairment were present related to the investment in YFAI based on the declines in operating performance during fiscal 2018 along with declines in projections of the YFAI business for the foreseeable future. Accordingly, Adient deemed such issues to represent an other-than-temporary decline and undertook an impairment analysis to determine the fair value of the investment in YFAI, which was completed under an income approach utilizing discounted cash flows to derive a fair value of the investment in YFAI. Based on the fair value, the carrying value of the investment in YFAI exceeded fair value by
$358 million
, and as such Adient recorded a non-cash impairment charge within equity income in the consolidated statements of income (loss) for that amount in the fourth quarter of 2018. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value Measurement" and primarily consist of expected future operating margins and cash flows of YFAI, estimated production volumes, weighted average cost of capital (
12.5%
) and noncontrolling interest discounts. To the extent that profitability continues to decline as compared to forecasted profitability or if adverse changes occur to key assumptions or other fair value measurement inputs, further impairment of Adient's YFAI investment could occur in the future.
|
|
|
|
|
|
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
$8 million
and
$9 million
at September 30, 2018 and 2017, 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 |
105
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20. Related Party Transactions
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In the ordinary course of business, Adient enters into transactions with related parties, such as equity affiliates. Such transactions consist of the sale or purchase of goods and other arrangements. Subsequent to the separation, transactions with the former Parent and its businesses represent third-party transactions.
The following table sets forth the net sales to and purchases from related parties included in the consolidated statements of income:
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Year Ended
September 30,
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(in millions)
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2018
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2017
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2016
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Net sales to related parties
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Net sales
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$
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389
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$
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409
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$
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438
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Purchases from related parties
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Cost of sales
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614
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511
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443
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The following table sets forth the amount of accounts receivable due from and payable to related parties in the consolidated statements of financial position:
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September 30,
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(in millions)
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2018
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2017
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Accounts receivable due from related parties
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Accounts receivable
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$
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91
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$
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129
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Accounts payable due to related parties
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Accounts payable
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102
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104
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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 year ended September 30, 2016 was
$294 million
of corporate expenses incurred by the former Parent. In addition to these allocations, approximately
$458 million
of costs related to the separation of Adient were incurred by the former Parent for the year ended September 30, 2016. 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. 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, 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 |
106
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Item 9.
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Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
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None.
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