Adient plc | Form 10-K | 59
Adient plc
Consolidated Statements of Comprehensive Income (Loss)
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Year Ended
September 30,
|
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|
|
|
(in millions)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Net income (loss)
|
|
(408)
|
|
|
(1,601)
|
|
|
962
|
|
Other comprehensive income (loss), net of tax:
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
(35)
|
|
|
(117)
|
|
|
(133)
|
|
Realized and unrealized gains (losses) on derivatives
|
|
(1)
|
|
|
(10)
|
|
|
17
|
|
Pension and postretirement plans
|
|
(2)
|
|
|
1
|
|
|
—
|
|
Other comprehensive income (loss)
|
|
(38)
|
|
|
(126)
|
|
|
(116)
|
|
Total comprehensive income (loss)
|
|
(446)
|
|
|
(1,727)
|
|
|
846
|
|
Comprehensive income (loss) attributable to noncontrolling interests
|
|
83
|
|
|
92
|
|
|
90
|
|
Comprehensive income (loss) attributable to Adient
|
|
$
|
(529)
|
|
|
$
|
(1,819)
|
|
|
$
|
756
|
|
The accompanying notes are an integral part of the consolidated financial statements.
Adient plc | Form 10-K | 60
Adient plc
Consolidated Statements of Financial Position
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September 30,
|
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|
(in millions, except share and per share data)
|
|
2019
|
|
|
2018
|
|
Assets
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
924
|
|
|
$
|
687
|
|
Accounts receivable, less allowance for doubtful accounts of $14 and $15, respectively
|
|
1,905
|
|
|
2,091
|
|
Inventories
|
|
793
|
|
|
824
|
|
Other current assets
|
|
494
|
|
|
707
|
|
Current assets
|
|
4,116
|
|
|
4,309
|
|
Property, plant and equipment - net
|
|
1,671
|
|
|
1,683
|
|
Goodwill
|
|
2,150
|
|
|
2,182
|
|
Other intangible assets - net
|
|
405
|
|
|
460
|
|
Investments in partially-owned affiliates
|
|
1,399
|
|
|
1,407
|
|
Assets held for sale
|
|
—
|
|
|
37
|
|
Other noncurrent assets
|
|
601
|
|
|
864
|
|
Total assets
|
|
$
|
10,342
|
|
|
$
|
10,942
|
|
Liabilities and Shareholders' Equity
|
|
|
|
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Short-term debt
|
|
$
|
22
|
|
|
$
|
6
|
|
Current portion of long-term debt
|
|
8
|
|
|
2
|
|
Accounts payable
|
|
2,709
|
|
|
3,101
|
|
Accrued compensation and benefits
|
|
364
|
|
|
331
|
|
Restructuring reserve
|
|
123
|
|
|
141
|
|
Other current liabilities
|
|
609
|
|
|
611
|
|
Current liabilities
|
|
3,835
|
|
|
4,192
|
|
Long-term debt
|
|
3,708
|
|
|
3,422
|
|
Pension and postretirement benefits
|
|
151
|
|
|
124
|
|
Other noncurrent liabilities
|
|
408
|
|
|
440
|
|
Long-term liabilities
|
|
4,267
|
|
|
3,986
|
|
Commitments and Contingencies (Note 20)
|
|
|
|
|
Redeemable noncontrolling interests
|
|
51
|
|
|
47
|
|
Preferred shares issued, par value $0.001; 100,000,000 shares authorized
zero shares issued and outstanding at September 30, 2019
|
|
—
|
|
|
—
|
|
Ordinary shares issued, par value $0.001; 500,000,000 shares authorized
93,620,714 shares issued and outstanding at September 30, 2019
|
|
—
|
|
|
—
|
|
Additional paid-in capital
|
|
3,962
|
|
|
3,951
|
|
Retained earnings (accumulated deficit)
|
|
(1,545)
|
|
|
(1,028)
|
|
Accumulated other comprehensive income (loss)
|
|
(569)
|
|
|
(531)
|
|
Shareholders' equity attributable to Adient
|
|
1,848
|
|
|
2,392
|
|
Noncontrolling interests
|
|
341
|
|
|
325
|
|
Total shareholders' equity
|
|
2,189
|
|
|
2,717
|
|
Total liabilities and shareholders' equity
|
|
10,342
|
|
|
$
|
10,942
|
|
The accompanying notes are an integral part of the consolidated financial statements.
Adient plc | Form 10-K | 61
Adient plc
Consolidated Statements of Cash Flows
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Year Ended September 30,
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(in millions)
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|
2019
|
|
|
2018
|
|
|
2017
|
|
Operating Activities
|
|
|
|
|
|
|
Net income (loss) attributable to Adient
|
|
$
|
(491)
|
|
|
$
|
(1,685)
|
|
|
$
|
877
|
|
Income attributable to noncontrolling interests
|
|
83
|
|
|
84
|
|
|
85
|
|
Net income (loss)
|
|
(408)
|
|
|
(1,601)
|
|
|
962
|
|
Adjustments to reconcile net income (loss) to cash provided (used) by operating activities:
|
|
|
|
|
|
|
Depreciation
|
|
278
|
|
|
400
|
|
|
337
|
|
Amortization of intangibles
|
|
40
|
|
|
47
|
|
|
21
|
|
Pension and postretirement benefit expense (benefit)
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|
53
|
|
|
(36)
|
|
|
(41)
|
|
Pension and postretirement contributions, net
|
|
(19)
|
|
|
11
|
|
|
(38)
|
|
Equity in earnings of partially-owned affiliates, net of dividends received (includes purchase accounting amortization of $4, $22 and $22, respectively)
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|
(55)
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|
(55)
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|
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(91)
|
|
Impairment of nonconsolidated partially owned affiliate
|
|
—
|
|
|
358
|
|
|
—
|
|
Gain on previously-held interest
|
|
—
|
|
|
—
|
|
|
(151)
|
|
Deferred income taxes
|
|
288
|
|
|
344
|
|
|
(52)
|
|
Non-cash restructuring and impairment charges
|
|
78
|
|
|
1,134
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity-based compensation
|
|
20
|
|
|
47
|
|
|
45
|
|
Other
|
|
23
|
|
|
11
|
|
|
(6)
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
Receivables
|
|
131
|
|
|
73
|
|
|
30
|
|
Inventories
|
|
8
|
|
|
(106)
|
|
|
(10)
|
|
Other assets
|
|
150
|
|
|
46
|
|
|
13
|
|
Restructuring reserves
|
|
(108)
|
|
|
(135)
|
|
|
(179)
|
|
Accounts payable and accrued liabilities
|
|
(191)
|
|
|
143
|
|
|
(113)
|
|
Accrued income taxes
|
|
20
|
|
|
(2)
|
|
|
19
|
|
Cash provided (used) by operating activities
|
|
308
|
|
|
679
|
|
|
746
|
|
Investing Activities
|
|
|
|
|
|
|
Capital expenditures
|
|
(468)
|
|
|
(536)
|
|
|
(577)
|
|
Sale of property, plant and equipment
|
|
68
|
|
|
53
|
|
|
44
|
|
Settlement of cross-currency interest rate swaps
|
|
10
|
|
|
—
|
|
|
—
|
|
Acquisition of businesses, net of cash acquired
|
|
—
|
|
|
—
|
|
|
(247)
|
|
|
|
|
|
|
|
|
Changes in long-term investments
|
|
3
|
|
|
(4)
|
|
|
(11)
|
|
|
|
|
|
|
|
|
Other
|
|
4
|
|
|
—
|
|
|
(4)
|
|
Cash provided (used) by investing activities
|
|
(383)
|
|
|
(487)
|
|
|
(795)
|
|
Financing Activities
|
|
|
|
|
|
|
Net transfers from (to) Parent prior to separation
|
|
—
|
|
|
—
|
|
|
606
|
|
|
|
|
|
|
|
|
Cash transferred from former Parent post separation
|
|
—
|
|
|
—
|
|
|
315
|
|
Increase (decrease) in short-term debt
|
|
17
|
|
|
(31)
|
|
|
(7)
|
|
Increase (decrease) in long-term debt
|
|
1,600
|
|
|
—
|
|
|
183
|
|
Repayment of long-term debt
|
|
(1,204)
|
|
|
(2)
|
|
|
(302)
|
|
Debt financing costs
|
|
(47)
|
|
|
—
|
|
|
—
|
|
Share repurchases
|
|
—
|
|
|
—
|
|
|
(40)
|
|
|
|
|
|
|
|
|
Cash dividends
|
|
(26)
|
|
|
(103)
|
|
|
(52)
|
|
Dividends paid to noncontrolling interests
|
|
(62)
|
|
|
(74)
|
|
|
(79)
|
|
Formation of consolidated joint venture
|
|
28
|
|
|
—
|
|
|
—
|
|
Other
|
|
(3)
|
|
|
(3)
|
|
|
3
|
|
Cash provided (used) by financing activities
|
|
303
|
|
|
(213)
|
|
|
627
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
9
|
|
|
(1)
|
|
|
26
|
|
Increase (decrease) in cash and cash equivalents
|
|
237
|
|
|
(22)
|
|
|
604
|
|
Cash and cash equivalents at beginning of period
|
|
687
|
|
|
709
|
|
|
105
|
|
Cash and cash equivalents at end of period
|
|
$
|
924
|
|
|
$
|
687
|
|
|
$
|
709
|
|
The accompanying notes are an integral part of the consolidated financial statements.
Adient plc | Form 10-K | 62
Adient plc
Consolidated Statements of Shareholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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, 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 and other
|
|
—
|
|
|
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
|
|
Net income (loss)
|
|
—
|
|
|
—
|
|
|
(491)
|
|
|
—
|
|
|
—
|
|
|
(491)
|
|
|
53
|
|
|
(438)
|
|
Foreign currency translation adjustments
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(35)
|
|
|
(35)
|
|
|
(3)
|
|
|
(38)
|
|
Realized and unrealized gains (losses) on derivatives
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1)
|
|
|
(1)
|
|
|
—
|
|
|
(1)
|
|
Employee retirement plans
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2)
|
|
|
(2)
|
|
|
—
|
|
|
(2)
|
|
Dividends declared ($0.275 per share)
|
|
—
|
|
|
—
|
|
|
(26)
|
|
|
—
|
|
|
—
|
|
|
(26)
|
|
|
—
|
|
|
(26)
|
|
Dividends attributable to noncontrolling interests
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(61)
|
|
|
(61)
|
|
Change in noncontrolling interest share
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
28
|
|
|
28
|
|
Share based compensation and other
|
|
—
|
|
|
11
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
11
|
|
|
(1)
|
|
|
10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2019
|
|
$
|
—
|
|
|
$
|
3,962
|
|
|
$
|
(1,545)
|
|
|
$
|
—
|
|
|
$
|
(569)
|
|
|
$
|
1,848
|
|
|
$
|
341
|
|
|
$
|
2,189
|
|
The accompanying notes are an integral part of the consolidated financial statements.
Adient plc | Form 10-K | 63
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.
The consolidated financial statements of Adient have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"). During the second quarter of fiscal 2019, Adient realigned certain of its organizational structure to manage its business primarily on a geographic basis, resulting in a change to reportable segments. As a result, the prior period presentation of reportable segments has been recast to conform to the current segment reporting structure. Refer to Note 18, "Segment Information" for additional information on Adient's reportable segments.
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 21, " Related Party Transactions," of the notes to the consolidated financial statements for further details.
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, 2019 and 2018, 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.
Adient plc | Form 10-K | 64
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)
|
|
2019
|
|
|
2018
|
|
Current assets
|
|
$
|
236
|
|
|
$
|
270
|
|
Noncurrent assets
|
|
40
|
|
|
43
|
|
Total assets
|
|
$
|
276
|
|
|
$
|
313
|
|
|
|
|
|
|
Current liabilities
|
|
$
|
235
|
|
|
$
|
252
|
|
Total liabilities
|
|
$
|
235
|
|
|
$
|
252
|
|
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The consolidated financial statements reflect management's estimates as of the reporting date. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The fair values of cash and cash equivalents, accounts receivable, short-term debt and accounts payable approximate their carrying values. See Note 10, "Derivative Instruments and Hedging Activities," and Note 11, "Fair Value Measurements," of the notes to consolidated financial statements for fair value of financial instruments, including derivative instruments and hedging activities.
Cash and Cash Equivalents
Adient considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents. Cash is managed by legal entity, with cash pooling agreements in place for all participating entities on a global basis, as applicable. Prior to the October 2016 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. 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.
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.
Adient plc | Form 10-K | 65
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, 2019 and 2018, Adient recorded within the consolidated statements of financial position $303 million and $301 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, 2019, Adient had $117 million and $186 million of reimbursable costs recorded in current and noncurrent assets, respectively. At September 30, 2018, Adient had $132 million and $169 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, 2019 and 2018, approximately $60 million and $54 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, 2019, Adient recorded within the consolidated statements of financial position in other current and noncurrent assets $101 million and $28 million, respectively, of costs for molds, dies and other tools for which customer reimbursement is contractually assured. 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.
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 primarily uses an income approach utilizing discounted cash flow analyses. Adient also uses a market approach utilizing published multiples of earnings of comparable entities with similar operational and economic characteristics to further support the fair value estimates. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value 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
Adient plc | Form 10-K | 66
recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals. Refer to Note 16, "Impairment of Long-Lived Assets," of the notes to consolidated financial statements for information regarding the results of Adient's impairment analysis.
Impairment of Investments in Partially-Owned Affiliates
Adient monitors its investments in partially-owned affiliates for indicators of other-than-temporary declines in value on an ongoing basis. If Adient determines that an other-than-temporary decline in value has occurred, it recognizes an impairment loss, which is measured as the difference between the recorded book value and the fair value of the investment. Fair value is generally determined using an income approach based on discounted cash flows or negotiated transaction values. Refer to Note 19, "Nonconsolidated Partially-Owned Affiliates" for information regarding the results of Adient's impairment analysis.
Revenue Recognition
Adient provides production and service parts to its customers under awarded multi-year programs. The duration of a program is generally consistent with the life cycle of a vehicle, however, an awarded program does not reach the level of a performance obligation until Adient receives either a purchase order and/or a materials release from the customer for a specific number of parts at a specified price, at which point an enforceable contract exists. Sales revenue is recognized at the point in time when parts are shipped and control has transferred to the customer, at which point an enforceable right to payment exists. Contracts may provide for annual price reductions over the production life of the awarded program, and prices are adjusted on an ongoing basis to reflect changes in product content/cost and other commercial factors. The amount of revenue recognized reflects the consideration that Adient expects to be entitled to in exchange for such products based on purchase orders, annual price reductions and ongoing price adjustments. Refer to Note 2, "Revenue Recognition" for information on Adient's revenue recognition.
Customers
Essentially all of Adient's sales are to the automotive industry. Adient's most significant customers include Fiat Chrysler Automobiles N.V. and Volkswagen Group which comprised 11% and 9% of consolidated net sales, respectively, in fiscal 2019, Fiat Chrysler Automobiles N.V. and Volkswagen Group which comprised 11% and 10% of consolidated net sales, respectively, in fiscal 2018 and Volkswagen Group which comprised 11% of consolidated net sales in fiscal 2017.
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, 2019, 2018 and 2017 were $454 million, $513 million and $488 million, respectively. A portion of these costs associated with these activities are reimbursed by customers and, for the fiscal years ended September 30, 2019, 2018 and 2017 were $291 million, $298 million and $350 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, 2019, 2018 and 2017 were $(12) million, $(4) million and $1 million, respectively.
Derivative Financial Instruments
The fair values of all derivatives are recorded in the consolidated statements of financial position. The change in a derivative's fair value is recorded each period in current earnings or accumulated other comprehensive income (AOCI), depending on whether the derivative is designated as part of a hedge transaction and if so, the type of hedge transaction. Refer to Note 10, "Derivative Instruments and Hedging Activities," and Note 11, "Fair Value Measurements," of the notes to consolidated financial statements for disclosure of Adient's derivative instruments and hedging activities.
Adient plc | Form 10-K | 67
Stock-Based Compensation
Stock-based compensation is initially measured at the fair value of the awards on the grant date and is recognized in the financial statements over the period the employees are required to provide services in exchange for the awards. The fair value of restricted stock awards is based on the number of units granted and the stock price on the grant date. The fair value of performance-based share unit, or PSU, awards is based on the stock price at the grant date and the assessed probability of meeting future performance targets. The fair value of option awards is measured on the grant date using the Black-Scholes option-pricing model. The fair value of each stock appreciation right, or SAR, is estimated using a similar method described for stock options. The fair value of cash settled awards are recalculated at the end of each reporting period and the liability and expense are adjusted based on the new fair value. Refer to Note 12, "Stock-Based Compensation," of the notes to consolidated audited financial statements for Adient's stock based compensation disclosures.
Pension and Postretirement Benefits
Adient utilizes a mark-to-market approach for recognizing pension and postretirement benefit expenses, including measuring the market related value of plan assets at fair value and recognizing actuarial gains and losses in the fourth quarter of each fiscal year or at the date of a remeasurement event. Refer to Note 14, "Retirement Plans," of the notes to consolidated financial statements for disclosure of Adient's pension and postretirement benefit plans.
Income Taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and other loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Adient records a valuation allowance that primarily represents operating and other loss carryforwards for which realization is uncertain. Management judgment is required in determining Adient's provision for income taxes, deferred tax assets and liabilities, and the valuation allowance recorded against Adient's net deferred tax assets.
Adient reviews the realizability of its deferred tax assets on a quarterly basis, or whenever events or changes in circumstances indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or combined group recording the net deferred tax asset are considered, along with any other positive or negative evidence. Since future financial results may differ from previous estimates, periodic adjustments to Adient's valuation allowances may be necessary.
Adient is subject to income taxes in Ireland, the U.S. and other non-U.S. jurisdictions. Judgment is required in determining its worldwide provision for income taxes and recording the related assets and liabilities. In the ordinary course of Adient's business, there are many transactions and calculations where the ultimate tax determination is uncertain. Adient's income tax returns for various fiscal years remain under audit by the respective tax authorities. Although the outcome of tax audits is always uncertain, management believes that it has appropriate support for the positions taken on its tax returns and that its annual tax provisions included amounts sufficient to pay assessments, if any, which may be proposed by the taxing authorities. Nonetheless, the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year.
Adient does not generally provide for additional income taxes which would become payable upon repatriation of undistributed earnings of wholly owned foreign subsidiaries. Adient's intent is for such earnings to be reinvested by the subsidiaries or to be repatriated only when it would be tax efficient.
On December 22, 2017, the Tax Cuts and Jobs Act (the "Act") was signed and enacted into law, and is effective for tax years beginning on or after January 1, 2018, with the exception of certain provisions. The Act includes a provision to tax global intangible low-taxed income ("GILTI") of foreign subsidiaries, which was effective for Adient beginning in fiscal year 2019. Adient has made a policy election to treat taxes due under the GILTI provision as a current period expense in the reporting period in which the tax is incurred.
Refer to Note 17, "Income Taxes," of the notes to consolidated audited financial statements for Adient's income tax disclosures.
Adient plc | Form 10-K | 68
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)
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Numerator:
|
|
|
|
|
|
|
Net income (loss) attributable to Adient
|
|
$
|
(491)
|
|
|
$
|
(1,685)
|
|
|
$
|
877
|
|
|
|
|
|
|
|
|
Denominator:
|
|
|
|
|
|
|
Shares outstanding
|
|
93.6
|
|
|
93.3
|
|
|
93.5
|
|
Effect of dilutive securities
|
|
—
|
|
|
—
|
|
|
0.4
|
|
Diluted shares
|
|
93.6
|
|
|
93.3
|
|
|
93.9
|
|
|
|
|
|
|
|
|
Earnings per share:
|
|
|
|
|
|
|
Basic
|
|
$
|
(5.25)
|
|
|
$
|
(18.06)
|
|
|
$
|
9.38
|
|
Diluted
|
|
$
|
(5.25)
|
|
|
$
|
(18.06)
|
|
|
$
|
9.34
|
|
Potentially dilutive securities whose effect would have been antidilutive are excluded from the computation of diluted earnings per share which for fiscal 2019 and 2018 is a result of being in a loss position.
New Accounting Pronouncements
Standards Adopted During Fiscal 2019
ASU 2014-09, Revenue - Revenue from Contracts with Customers. On October 1, 2018, Adient adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC 606"), and all the related amendments using the modified retrospective method as applied to all customer contracts that were not completed as of October 1, 2018. As a result, financial information for reporting periods beginning on or after October 1, 2018 are presented in accordance with ASC 606. Comparative financial information for reporting periods beginning prior to October 1, 2018 has not been adjusted and continues to be reported in accordance with Adient's revenue recognition policies prior to the adoption of ASC 606. Adient did not record a cumulative adjustment related to the adoption of ASC 606, and the effects of adoption were not significant. Refer to Note 2, "Revenue Recognition," of the notes to the consolidated financial statements for information related to Adient's adoption of ASU 2014-09.
ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. On October 1, 2018, Adient adopted the amendments to ASU 2017-07 that improve the presentation of net periodic pension and postretirement benefit costs and retrospectively adopted the presentation of service cost separate from the other components of net periodic costs. The interest cost, expected return on assets, amortization of prior service costs, net remeasurement, and other costs have been reclassified from cost of sales and selling, general and administrative expenses to other pension expense (income). Adient elected to apply the practical expedient which allows reclassification of amounts previously disclosed in the retirement benefits note as the basis for applying retrospective presentation for comparative periods as it is impracticable to determine the disaggregation of the cost components for amounts capitalized and amortized in those periods. On a prospective basis, the other components of net periodic benefit costs will not be included in amounts capitalized in inventory or property, plant, and equipment.
The effect of the retrospective presentation change related to the net periodic cost of Adient's defined benefit pension and other postretirement employee benefits ("OPEB") plans on the consolidated statements of income (loss) for fiscal 2018 and 2017 resulted in $7 million and $11 million increases to cost of sales, and $7 million and $11 million decreases to gross profit, $36 million and $38 million increases to selling, general and administrative expenses, and $43 million and $49 million decreases to earnings (loss) before interest and income taxes and $(43) million and $(49) million increases to other pension expense (income) line items in the condensed consolidated statements of income, respectively. As a result of presenting certain pension costs as non-operating items, adjusted EBITDA for fiscal 2018 and 2017 decreased in EMEA by $4 million and$4 million, respectively.
Adient plc | Form 10-K | 69
Adient also adopted the following standards during fiscal 2019, none of which had a material impact to the consolidated financial statements or consolidated financial statement disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standard Adopted
|
|
Description
|
|
Date
Effective and Adopted
|
ASU 2016-01 and ASU 2018-03, Recognition and Measurement of Financial Assets and Financial Liabilities
|
|
ASU 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments.
|
|
October 1, 2018
|
|
|
|
|
|
ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments
|
|
ASU 2016-clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows.
|
|
October 1, 2018
|
|
|
|
|
|
ASU 2016-18, Statement of Cash Flows: Restricted Cash
|
|
ASU 2016-18 clarifies the classification and presentation of restricted cash on the statement of cash flows.
|
|
October 1, 2018
|
|
|
|
|
|
ASU 2017-01, Clarifying the Definition of a Business
|
|
ASU 2017-01 clarifies the definition of a business as it relates to the acquisition or sale of assets or businesses.
|
|
October 1, 2018
|
|
|
|
|
|
ASU 2017-05, Gains and Losses from the Derecognition of Nonfinancial Assets
|
|
ASU 2017-05 clarifies the scope of asset derecognition guidance and accounting for partial sales of nonfinancial assets and will follow the same implementation guidelines as ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606).
|
|
October 1, 2018
|
|
|
|
|
|
ASU 2017-09, Stock Compensation - Scope of Modification Accounting
|
|
ASU 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.
|
|
October 1, 2018
|
|
|
|
|
|
ASU 2018-08, Not for Profit Entities: Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made
|
|
ASU 2018-08 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.
|
|
October 1, 2018
|
|
|
|
|
|
ASU 2018-15, Intangibles-Goodwill and Other-Internal Use Software: 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. Adient early adopted ASU No. 2018-15 effective October 1, 2018.
|
|
|
|
|
|
ASU 2018-16, Derivatives and Hedging: Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes
|
|
The amendments in this Update permit use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the UST, the LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate, and the SIFMA Municipal Swap Rate.
|
|
October 1, 2018
|
Adient plc | Form 10-K | 70
Standards Effective After Fiscal 2019
Adient believes that the ASU summarized below, which is effective at the beginning of fiscal 2020, will significantly impact the consolidated financial statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standard Pending Adoption
|
|
Description
|
|
Anticipated Impact
|
|
Date Effective
|
ASU 2016-02, 2018-01, 2018-10, 2018-11 and ASU 2019-01
|
|
The standard requires that a lessee recognize on its balance sheet right-of-use assets and corresponding liabilities resulting from leasing transactions, as well as additional financial statement disclosures. Currently, U.S. GAAP only requires balance sheet recognition for leases classified as capital leases. The provisions of this update apply to substantially all leased assets.
|
|
Adient will adopt the new standard October 1, 2019 using the modified retrospective approach, which permits the comparative periods presented in the financial statements to be in accordance with ASC 840, Leases. The adoption is expected to result in the recognition of right-of-use (ROU) assets and corresponding lease liabilities totaling less than 5% of total assets as of September 30, 2019.
|
|
October 1, 2019
|
Adient has considered the ASUs summarized below, effective after fiscal 2019, none of which are expected to significantly impact the consolidated financial statements:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Standard Pending Adoption
|
|
Description
|
|
Date Effective
|
ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments
|
|
ASU 2016-13 changes the impairment model for financial assets measured at amortized cost, requiring presentation at the net amount expected to be collected. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts. Available-for-sale debt securities with unrealized losses will now be recorded through an allowance for credit losses.
|
|
October 1, 2020
|
|
|
|
|
|
ASU 2018-07, Compensation-Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting
|
|
ASU 2018-07 expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards. ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606.
|
|
October 1, 2019
|
|
|
|
|
|
ASU 2018-13, Fair Value Measurement: Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement
|
|
The amendments in ASU 2018-13 eliminate, add, and modify certain disclosure requirements for fair value measurements. ASU 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.
|
|
October 1, 2019
|
|
|
|
|
|
ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General: Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit Plans
|
|
The amendments in ASU 2018-14 eliminate, add, and modify certain disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The guidance is to be applied on a retrospective basis to all periods presented.
|
|
October 1, 2020
|
|
|
|
|
|
Adient plc | Form 10-K | 71
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adient has considered the ASUs summarized below, effective after fiscal 2019, none of which are expected to significantly impact the consolidated financial statements: (continued)
|
|
|
|
|
Standard Pending Adoption
|
|
Description
|
|
Date Effective
|
ASU 2018-17, Consolidated: Targeted Improvements to Related Party Guidance for Variable Interest Entities
|
|
The amendments in this Update affect reporting entities that are required to determine whether they should consolidate a legal entity under the guidance within the Variable Interest Entities Subsections of Subtopic 810-10, Consolidation-Overall.
|
|
October 1, 2019
|
ASU 2018-18, Collaborative Arrangements: Clarifying the Interaction between Topic 808 and Topic 606
|
|
The amendments in this Update make targeted improvements to generally accepted accounting principles (GAAP) for collaborative arrangements as follows: 1) Clarify that certain transactions between collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all the guidance in Topic 606 should be applied, including recognition, measurement, presentation, and disclosure requirements. 2) Add unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606. 3) Require that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer.
|
|
October 1, 2019
|
2. Revenue Recognition
Adient adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606), and all the related amendments using the modified retrospective method as applied to all customer contracts that were not completed as of October 1, 2018. As a result, financial information for reporting periods beginning on or after October 1, 2018 are presented in accordance with ASC 606. Comparative financial information for reporting periods beginning prior to October 1, 2018 has not been adjusted and continues to be reported in accordance with Adient's revenue recognition policies prior to the adoption of ASC 606. Adient did not record a cumulative adjustment related to the adoption of ASC 606 as the effects of adoption were not significant. The majority of Adient's nonconsolidated partially-owned affiliates will adopt ASC 606 on October 1, 2019.
Adient generates revenue through the sale of automotive seating solutions, including complete seating systems and the components of complete seating systems.
In a typical arrangement with the customer, purchase orders are issued for pre-production activities which consist of engineering, design and development, tooling and prototypes for the manufacture and delivery of component parts. Adient has concluded that these activities are not in the scope of ASC 606 and for that reason, there have been no changes to how Adient accounts for reimbursable pre-production costs.
Adient provides production and service parts to its customers under awarded multi-year programs. The duration of a program is generally consistent with the life cycle of a vehicle, however, the program can be canceled at any time without cause by the customer. Programs awarded to Adient to supply parts to its customers do not contain a firm commitment by the customer for volume or price and do not reach the level of a performance obligation until Adient receives either a purchase order and/or a materials release from the customer for a specific number of parts at a specified price, at which point an enforceable contract exists. Sales revenue is generally recognized at the point in time when parts are shipped and control has transferred to the customer, at which point an enforceable right to payment exists. Contracts may provide for annual price reductions over the production life of the awarded program, and prices are adjusted on an ongoing basis to reflect changes in product content/cost and other commercial factors. The amount of revenue recognized reflects the consideration that Adient expects to be entitled to in exchange for such products based on purchase orders, annual price reductions and ongoing price adjustments (some of which are accounted for as variable consideration and subject to being constrained, but which have not significantly changed under ASC 606), net of the impact, if any, of consideration paid to the customer.
Adient has elected to continue to include shipping and handling fees billed to customers in revenue, while including costs of shipping and handling in cost of sales. Taxes collected from customers are excluded from revenue and credited directly to obligations to the appropriate government agencies. Payment terms with customers are established based on customary industry and regional practices. Adient has evaluated the terms of its arrangements and determined that they do not contain significant financing components.
Adient plc | Form 10-K | 72
Contract assets primarily relate to the right to consideration for work completed, but not billed at the reporting date on contracts with customers. The contract assets are transferred to receivables when the rights become unconditional. Contract liabilities primarily relate to contracts where advance payments or deposits have been received, but performance obligations have not yet been satisfied and revenue has not been recognized. No significant contract assets or liabilities were identified upon adoption of ASC 606 or at September 30, 2019. As described above, the issuance of a purchase order and/or a materials release by the customer represents the point at which an enforceable contract with the customer exists. Therefore, Adient has elected to apply the practical expedient in ASC 606, paragraph 606-10-50-14 and does not disclose information about the remaining performance obligations that have an original expected duration of one year or less. See Note 18, "Segment Information", for disaggregated revenue by geographical market.
3. Acquisitions and Divestitures
Adient's affiliate, Adient Aerospace, LLC ("Adient Aerospace"), became operational on October 11, 2018 after securing regulatory approvals. Adient's ownership position in Adient Aerospace throughout fiscal 2019 was 50.01% but was reduced to 19.99% on October 25, 2019 through an agreement reached with Boeing, resulting in the deconsolidation of Adient Aerospace on that date, including $37 million of cash. 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 are included within the Americas segment. Initial contributions of $28 million were made during the first quarter of fiscal 2019 by each partner.
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 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
Adient plc | Form 10-K | 73
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.
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 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
Adient plc | Form 10-K | 74
within restructuring and impairment costs on the consolidated statement of income (loss) during fiscal 2018, of which $39 million related to Americas assets and $10 million related to corporate assets. The impairment was measured using third party sales pricing to determine fair values of the assets. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value Measurement." During the fourth quarter of fiscal 2018, one airplane was sold for $36 million. During the first quarter of fiscal 2019, both the Detroit, Michigan properties and remaining airplane were sold for approximately $35 million.
4. Inventories
Inventories consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
(in millions)
|
|
2019
|
|
|
2018
|
|
Raw materials and supplies
|
|
$
|
609
|
|
|
$
|
626
|
|
Work-in-process
|
|
32
|
|
|
38
|
|
Finished goods
|
|
152
|
|
|
160
|
|
Inventories
|
|
$
|
793
|
|
|
$
|
824
|
|
5. Property, Plant and Equipment
Property, plant and equipment consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
(in millions)
|
|
2019
|
|
|
2018
|
|
Buildings and improvements
|
|
$
|
1,183
|
|
|
$
|
1,277
|
|
Machinery and equipment
|
|
4,612
|
|
|
4,501
|
|
Construction in progress
|
|
262
|
|
|
298
|
|
Land
|
|
135
|
|
|
139
|
|
Total property, plant and equipment
|
|
6,192
|
|
|
6,215
|
|
Less: accumulated depreciation
|
|
(4,521)
|
|
|
(4,532)
|
|
Property, plant and equipment - net
|
|
$
|
1,671
|
|
|
$
|
1,683
|
|
Refer to Note 16, "Impairment of Long-Lived Assets," of the notes to consolidated financial statements for additional information related to the fixed asset impairment charges related to the seat structure and mechanism operations.
There were no material leased capital assets included in net property, plant and equipment at September 30, 2019 and 2018.
As of September 30, 2019, Adient is the lessor of properties included in gross building and improvements for $34 million and accumulated depreciation of $26 million. 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.
Adient plc | Form 10-K | 75
6. Goodwill and Other Intangible Assets
The changes in the carrying amount of goodwill are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Americas
|
|
EMEA
|
|
Asia
|
|
Total
|
Balance at September 30, 2017
|
|
$
|
731
|
|
|
$
|
708
|
|
|
$
|
1,076
|
|
|
$
|
2,515
|
|
Business acquisitions
|
|
(18)
|
|
|
—
|
|
|
3
|
|
|
(15)
|
|
Impairment
|
|
(71)
|
|
|
(228)
|
|
|
—
|
|
|
(299)
|
|
Currency translation and other
|
|
—
|
|
|
(11)
|
|
|
(8)
|
|
|
(19)
|
|
Balance at September 30, 2018
|
|
$
|
642
|
|
|
$
|
469
|
|
|
$
|
1,071
|
|
|
$
|
2,182
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Currency translation and other
|
|
(4)
|
|
|
(40)
|
|
|
12
|
|
|
(32)
|
|
Balance at September 30, 2019
|
|
$
|
638
|
|
|
$
|
429
|
|
|
$
|
1,083
|
|
|
$
|
2,150
|
|
During the second quarter of fiscal 2019, Adient began reporting three new segments: 1) Americas, which is inclusive of North America and South America; 2) Europe, Middle East, and Africa ("EMEA") and 3) Asia Pacific/China ("Asia"). Accordingly, goodwill previously reported in the former Seating segment has been reallocated to the three new segments on a relative fair value basis. Refer to Note 18, "Segment Information" for more information on Adient's reportable segments.
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 2019, Adient conducted goodwill impairment analyses of the newly allocated goodwill balances under the new reportable segment structure and identified no impairment. Adient also performed its annual goodwill impairment test during the fourth quarter of fiscal 2019 resulting in no goodwill impairment. 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 each of its reporting units using an income approach, which utilized Level 3 unobservable inputs. These calculations contain uncertainties as they require management to make assumptions about market comparables, future cash flows, the appropriate discount rates (based on weighted average cost of capital ranging from 14.5% to 16.0% as of September 30, 2019 and from 14.5% to 17.5% as of March 31, 2019) to reflect the risk inherent in the future cash flows and to derive a reasonable enterprise value and related premium. The estimated future cash flows reflect management's latest assumptions of the financial projections based on current and anticipated competitive landscape, including estimates of revenue based on production volumes over the foreseeable future and long-term growth rates, and operating margins based on historical trends and future cost containment activities. 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.
During fiscal 2018, Adient conducted goodwill impairment analyses of the allocated goodwill balances under the reportable segment structure at that time. Adient performed impairment reviews for its reporting units, which had been determined to be Adient's reportable segments, using a fair value method based on management's judgments and assumptions or third party valuations. The fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. Adient estimated the fair value of its reportable segments using both a multiple of earnings approach and an income approach, both of which utilized Level 3 unobservable inputs. These calculations contained uncertainties as they required management to make assumptions about market comparables, future cash flows, the appropriate discount rate (based on weighted average cost of capital) and growth rate to reflect the risk inherent in the future cash flows. The estimated future cash flows reflected management's latest assumptions of the financial projections based on current and anticipated competitive landscape and product profitability based on historical trends. A change in any of these estimates and assumptions could produce a different fair value, which could have a material impact on Adient's results of operations. As a result of the analyses, Adient determined that goodwill associated with its seat structure and mechanism operations was fully impaired. Consequently, a pre-tax goodwill impairment charge of $299 million was recognized in the second quarter of fiscal 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. Refer to Note 16, "Impairment of Long-Lived Assets" for information on long-lived asset impairment charges.
Adient plc | Form 10-K | 76
Adient's other intangible assets, primarily from business acquisitions valued based on independent appraisals, consisted of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2019
|
|
|
|
|
|
September 30, 2018
|
|
|
|
|
(in millions)
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
|
Gross
Carrying
Amount
|
|
Accumulated
Amortization
|
|
Net
|
Intangible assets
|
|
|
|
|
|
|
|
|
|
|
|
|
Patented technology
|
|
$
|
27
|
|
|
$
|
(17)
|
|
|
$
|
10
|
|
|
$
|
21
|
|
|
$
|
(14)
|
|
|
$
|
7
|
|
Customer relationships
|
|
494
|
|
|
(129)
|
|
|
365
|
|
|
509
|
|
|
(101)
|
|
|
408
|
|
Trademarks
|
|
51
|
|
|
(32)
|
|
|
19
|
|
|
58
|
|
|
(30)
|
|
|
28
|
|
Miscellaneous
|
|
21
|
|
|
(10)
|
|
|
11
|
|
|
29
|
|
|
(12)
|
|
|
17
|
|
Total intangible assets
|
|
$
|
593
|
|
|
$
|
(188)
|
|
|
$
|
405
|
|
|
$
|
617
|
|
|
$
|
(157)
|
|
|
$
|
460
|
|
Adient evaluates its other intangible assets for impairment as facts and circumstances warrant. Of the $66 million long-lived asset impairment charge recognized during the second quarter of fiscal 2019, $4 million was attributable to a customer relationship intangible asset. 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 intangible asset. Refer to Note 16, "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, 2019, 2018 and 2017 was $40 million, $47 million and $21 million, respectively. Adient anticipates amortization for fiscal 2020, 2021, 2022, 2023 and 2024 will be approximately $38 million, $37 million, $36 million, $35 million and $33 million, respectively.
7. Product Warranties
Adient offers warranties to its customers depending upon the specific product and terms of the customer purchase agreement. A typical warranty program requires that Adient replace defective products within a specified time period from the date of sale. Adient records an estimate for future warranty-related costs based on actual historical return rates and other known factors. Based on analysis of return rates and other factors, Adient's warranty provisions are adjusted as necessary. Adient monitors its warranty activity and adjusts its reserve estimates when it is probable that future warranty costs will be different than those estimates. Adient's product warranty liability is recorded in the consolidated statements of financial position in other current liabilities.
The changes in Adient's total product warranty liability are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
(in millions)
|
|
2019
|
|
|
2018
|
|
Balance at beginning of period
|
|
$
|
11
|
|
|
$
|
19
|
|
Accruals for warranties issued during the period
|
|
11
|
|
|
7
|
|
Changes in accruals related to pre-existing warranties (including changes in estimates)
|
|
6
|
|
|
(4)
|
|
|
|
|
|
|
Settlements made (in cash or in kind) during the period
|
|
(6)
|
|
|
(11)
|
|
|
|
|
|
|
Balance at end of period
|
|
$
|
22
|
|
|
$
|
11
|
|
In the second quarter of fiscal 2019, Adient recorded $7 million of warranty expense to correct a prior period error related to incurred but not yet reported warranty expense. Adient has concluded that this adjustment was not material to the consolidated financial statements for any period reported.
8. Leases
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.
Adient plc | Form 10-K | 77
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, 2019, 2018 and 2017 was $154 million, $149 million and $126 million, respectively.
Future minimum operating lease payments at September 30, 2019 are as follows:
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Operating
Leases
|
2020
|
|
|
$
|
119
|
|
2021
|
|
|
91
|
|
2022
|
|
|
64
|
|
2023
|
|
|
51
|
|
2024
|
|
|
40
|
|
After 2024
|
|
94
|
|
Total minimum lease payments
|
|
$
|
459
|
|
9. Debt and Financing Arrangements
Long-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
(in millions)
|
|
2019
|
|
2018
|
Term Loan A - LIBOR plus 1.75% due in 2021
|
|
$
|
—
|
|
|
$
|
1,200
|
|
Term Loan B - LIBOR plus 4.25% due in 2024
|
|
798
|
|
|
—
|
|
4.875% Notes due in 2026
|
|
900
|
|
|
900
|
|
3.50% Notes due in 2024
|
|
1,094
|
|
|
1,162
|
|
7.00% Notes due in 2026
|
|
800
|
|
|
—
|
|
European Investment Bank Loan - EURIBOR plus 0.90% due in 2022
|
|
180
|
|
|
192
|
|
Capital lease obligations
|
|
—
|
|
|
2
|
|
|
|
|
|
|
Less: debt issuance costs
|
|
(56)
|
|
|
(32)
|
|
Gross long-term debt
|
|
3,716
|
|
|
3,424
|
|
Less: current portion
|
|
8
|
|
|
2
|
|
Net long-term debt
|
|
$
|
3,708
|
|
|
$
|
3,422
|
|
Existing debt arrangements
On May 6, 2019 (the “Refinancing Date”), Adient US LLC ("Adient US"), a wholly owned subsidiary of Adient, together with certain of Adient's other subsidiaries, entered into a new asset-based revolving credit facility (the “ABL Credit Facility”), which provides for a revolving line of credit up to $1,250 million, including a North American subfacility of up to $950 million and a European subfacility of up to $300 million, subject to borrowing base capacity. The ABL Credit Facility will mature on May 6, 2024, subject to a springing maturity date 91 days earlier if certain amounts remain outstanding at that time under the Term Loan B Agreement (defined below). Interest is payable on the ABL Credit Facility at a fluctuating rate of interest determined by reference to the Eurodollar rate plus an applicable margin of 1.50% to 2.00%. Adient will pay a commitment fee of 0.25% to 0.375% on the unused portion of the commitments under the asset-based revolving credit facility based on average global availability. Letters of credit are limited to the lesser of (x) $150 million and (y) the aggregate unused amount of commitments under the ABL Credit Facility then in effect. Subject to certain conditions, the ABL Credit Facility may be expanded by up to $250 million in additional commitments. Loans under the ABL Credit Facility may be denominated, at the option of Adient, in U.S. dollars, Euros, Pounds Sterling or Swedish Kroner. The ABL Credit Agreement is secured on a first-priority lien on all accounts receivable, inventory and bank accounts (and funds on deposit therein) and a second-priority lien on all of the tangible and intangible assets of certain Adient subsidiaries. As of September 30, 2019, Adient's availability under this facility was $983 million.
Adient plc | Form 10-K | 78
In addition, Adient US and Adient Global Holdings S.à r.l., a wholly-owned subsidiary of Adient, entered into a new term loan credit agreement (the “Term Loan B Agreement”) on the Refinancing Date providing for a 5-year $800 million senior secured term loan facility that was fully drawn on closing. The Term Loan B Agreement amortizes in equal quarterly installments at a rate of 1.00% per annum of the original principal amount thereof, with the remaining balance due at final maturity on May 6, 2024. Interest on the Term Loan B Agreement accrues at the Eurodollar rate plus an applicable margin equal to 4.25% (with one 0.25% step down based on achievement of a specific secured net leverage level starting with the fiscal quarter ending December 31, 2019). The Term Loan B Agreement also permits Adient to incur incremental term loans in an aggregate amount not to exceed the greater of $750 million and an unlimited amount subject to a pro forma first lien secured net leverage ratio of not greater than 1.75 to 1.00 and certain other conditions.
Finally, on the Refinancing Date, Adient US entered into an indenture relating to the issuance of $800 million aggregate principal amount of Senior First Lien Notes (the “Notes”). The Notes mature on May 15, 2026 and bear interest at a rate of 7.00% per annum. Interest on the Notes is payable semi-annually in arrears on November 15 and May 15 of each year, commencing on November 15, 2019.
The proceeds from the transactions described above were used to repay the outstanding indebtedness and terminate commitments under Adient’s former credit agreement, which was scheduled to mature in July 2021. In addition, certain proceeds were used (i) to pay related premiums, fees and expenses in connection with the refinancing and entering into and funding of the new credit facilities and (ii) for working capital and other general corporate purposes.
The ABL Credit Facility, Term Loan B Agreement and the Notes contain covenants that are usual and customary for facilities and transactions of this type and that, among other things, restrict the ability of Adient and its restricted subsidiaries to: create certain liens and enter into sale and lease-back transactions; create, assume, incur or guarantee certain indebtedness; pay dividends or make other distributions on, or repurchase or redeem, Adient’s capital stock or certain other debt; make other restricted payments; and consolidate or merge with, or convey, transfer or lease all or substantially all of Adient’s and its restricted subsidiaries’ assets, to another person. These covenants are subject to a number of other limitations and exceptions set forth in the agreements. The agreements also provide for customary events of default, including, but not limited to, failure to pay principal and interest, failure to comply with covenants, agreements or conditions, and certain events of bankruptcy or insolvency involving Adient and its significant subsidiaries.
On August 19, 2016, AGH issued $0.9 billion aggregate principal amount of 4.875% USD-denominated unsecured notes due 2026 and €1.0 billion aggregate principal amount of 3.50% unsecured notes due 2024, in a private offering exempt from the registration requirements of the Securities Act of 1933, as amended. The proceeds of the notes were used, together with the Term Loan A facility, to pay a distribution to the former Parent, with the remaining proceeds used for working capital and general corporate purposes.
On May 29, 2017, Adient Germany Ltd. & Co. KG, a wholly owned subsidiary of Adient, borrowed €165 million in an unsecured term loan from the European Investment Bank due in 2022. The loan bears interest at the 6-month EURIBOR rate plus 90 basis points. Loan proceeds were used to repay $200 million of the Term Loan A facility.
Former debt arrangements
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 (undrawn at September 30, 2018) and a $1.5 billion Term Loan A facility (the "Original Credit Facilities"). The Original Credit Facilities were to mature in July 2021. Until the Term Loan A facility maturity date, amortization of the funded Term Loan A was required in an amount per quarter equal to 1.25% of the original principal amount prior to July 27, 2019 and 2.5% in each quarter thereafter prior to final maturity. The Original Credit Facilities contained covenants that included, 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. The Term Loan A facility also required mandatory prepayments in connection with certain non-ordinary course asset sales and insurance recovery and condemnation events, among other things, and subject in each case to certain significant exceptions.
Adient plc | Form 10-K | 79
On November 6, 2018, Adient entered into an amendment to the Original Credit Facilities (“First 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 4.5x adjusted EBITDA (previously 3.5x 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 First Amended Credit Facilities would bear interest based on LIBOR plus a margin between 1.25% -2.50% (previously1.25% - 2.25%), based on Adient’s total net leverage ratio. No other terms were impacted by the first amendment. On February 6, 2019, Adient entered into an amendment to the First Amended Credit Facilities (“Second Amended Credit Facilities") whereby the financial maintenance covenant contained in the First Amended Credit Facilities was amended to require Adient to maintain a first lien secured net leverage ratio equal to or less than 2.5x adjusted EBITDA as of the last day of each quarter, with step down provisions starting on September 30, 2020. The amendment also added a new tier to the pricing schedule that will be applicable when the total net leverage ratio exceeds 4.0x adjusted EBITDA and amended certain other definitions, negative covenants and other terms within the credit facility.
The full amount of the Term Loan A facility was drawn in the fourth quarter of fiscal 2016. These funds were transferred to the former Parent at the time of the draw 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 was required to 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 0.45%.
Principal payments required on long-term debt during the next five years are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
|
|
|
|
|
|
|
|
(in millions)
|
|
2020
|
|
2021
|
|
2022
|
|
2023
|
|
2024
|
Principal payments
|
|
$
|
8
|
|
|
$
|
8
|
|
|
$
|
188
|
|
|
$
|
8
|
|
|
$
|
1,860
|
|
Short-term debt consisted of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
|
|
|
|
(in millions)
|
|
2019
|
|
2018
|
|
2017
|
Bank borrowings
|
|
$
|
22
|
|
|
$
|
6
|
|
|
$
|
36
|
|
Weighted average interest rate on short-term debt outstanding (1)
|
|
2.9
|
%
|
|
4.8
|
%
|
|
3.0
|
%
|
(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 in the consolidated statements of income (loss) contained the following components:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
|
|
|
|
(in millions)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Interest expense, net of capitalized interest costs
|
|
$
|
167
|
|
|
$
|
142
|
|
|
$
|
126
|
|
Banking fees and debt issuance cost amortization
|
|
26
|
|
|
7
|
|
|
10
|
|
Interest income
|
|
(11)
|
|
|
(5)
|
|
|
(4)
|
|
Net financing charges
|
|
$
|
182
|
|
|
$
|
144
|
|
|
$
|
132
|
|
Banking fee expense in fiscal 2019 includes $13 million of one-time deferred financing fee charges associated with Adient's former debt arrangements. Total interest paid on both short and long-term debt for the fiscal years ended September 30, 2019, 2018 and 2017 was $137 million, $143 million and $129 million, respectively.
Adient plc | Form 10-K | 80
10. Derivative Instruments and Hedging Activities
Adient selectively uses derivative instruments to reduce Adient's market risk associated with changes in foreign currency. Under Adient's policy, the use of derivatives is restricted to those intended for hedging purposes; the use of any derivative instrument for speculative purposes is strictly prohibited. A description of each type of derivative utilized to manage Adient's risk is included in the following paragraphs. In addition, refer to Note 11, "Fair Value Measurements," of the notes to consolidated financial statements for information related to the fair value measurements and valuation methods utilized by Adient for each derivative type.
Adient has global operations and participates in the foreign exchange markets to minimize its risk of loss from fluctuations in foreign currency exchange rates. Adient primarily uses foreign currency exchange contracts to hedge certain foreign exchange rate exposures. Adient hedges 70% to 90% of the nominal amount of each of its known foreign exchange transactional exposures. Gains and losses on derivative contracts offset gains and losses on underlying foreign currency exposures. These contracts have been designated as cash flow hedges under ASC 815, "Derivatives and Hedging," and the 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, 2019 and 2018, respectively.
Adient selectively uses equity swaps to reduce market risk associated with certain of its stock-based compensation plans, such as its deferred compensation plans. The equity swaps are recorded at fair value. Changes in fair value of the equity swaps are reflected in the consolidated statements of income within selling, general and administrative expenses. As of September 30, 2019, there were no equity swaps outstanding.
As of September 30, 2019, 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, 2019, Adient had one cross-currency interest rate swap outstanding totaling approximately €80 million designated as a net investment hedge in Adient’s net investment in Europe.
Adient entered into a cross-currency interest rate swap during fiscal 2019 to selectively hedge portions of its net investment in Japan. The currency effects of the cross-currency interest rate swap is reflected in the AOCI account within shareholders' equity attributable to Adient, where they offset gains and losses recorded on Adient's net investment in Japan. As of September 30, 2019, Adient had one cross-currency interest rate swap outstanding totaling approximately ¥11 billion designated as a net investment hedge in Adient's net investment in Japan.
Adient purchased interest rate caps during fiscal 2019 to selectively limit the impact of USD LIBOR increases on its interest payments related to Company's Term Loan B Agreement. The interest rate caps are designated as cash flow hedges under ASC 815. As of September 30, 2019, Adient had two interest rate caps outstanding totaling approximately $200 million.
Adient plc | Form 10-K | 81
The following table presents the location and fair values of derivative instruments and other amounts used in hedging activities included in Adient's consolidated statements of financial position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives and Hedging
Activities Designated as
Hedging Instruments
under ASC 815
|
|
|
|
Derivatives and Hedging
Activities Not Designated as
Hedging Instruments
under ASC 815
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
(in millions)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Other current assets
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
$
|
5
|
|
|
$
|
4
|
|
|
$
|
3
|
|
|
$
|
4
|
|
Cross-currency interest rate swaps
|
|
12
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Other noncurrent assets
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
—
|
|
|
—
|
|
|
1
|
|
|
2
|
|
|
|
|
|
|
|
|
|
|
Interest rate cap
|
|
1
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Cross-currency interest rate swaps
|
|
1
|
|
|
13
|
|
|
—
|
|
|
—
|
|
Total assets
|
|
$
|
19
|
|
|
$
|
17
|
|
|
$
|
4
|
|
|
$
|
6
|
|
|
|
|
|
|
|
|
|
|
Other current liabilities
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
$
|
12
|
|
|
$
|
11
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Other noncurrent liabilities
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
3
|
|
|
2
|
|
|
—
|
|
|
—
|
|
Equity swaps
|
|
—
|
|
|
—
|
|
|
—
|
|
|
2
|
|
Long-term debt
|
|
|
|
|
|
|
|
|
Foreign currency denominated debt
|
|
1,094
|
|
|
1,162
|
|
|
—
|
|
|
—
|
|
Total liabilities
|
|
$
|
1,109
|
|
|
$
|
1,175
|
|
|
$
|
—
|
|
|
$
|
2
|
|
Adient enters into International Swaps and Derivatives Associations (ISDA) master netting agreements with counterparties that permit the net settlement of amounts owed under the derivative contracts. The master netting agreements generally provide for net settlement of all outstanding contracts with a counterparty in the case of an event of default or a termination event. Adient has not elected to offset the fair value positions of the derivative contracts recorded in the consolidated statements of financial position. Collateral is generally not required of Adient or the counterparties under the master netting agreements. As of September 30, 2019 and September 30, 2018, no cash collateral was received or pledged under the master netting agreements.
Adient plc | Form 10-K | 82
The gross and net amounts of derivative instruments and other amounts used in hedging activities are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
Liabilities
|
|
|
|
|
September 30,
|
|
|
|
|
|
|
(in millions)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Gross amount recognized
|
|
$
|
23
|
|
|
$
|
23
|
|
|
$
|
1,109
|
|
|
$
|
1,177
|
|
Gross amount eligible for offsetting
|
|
(9)
|
|
|
(5)
|
|
|
(9)
|
|
|
(5)
|
|
Net amount
|
|
$
|
14
|
|
|
$
|
18
|
|
|
$
|
1,100
|
|
|
$
|
1,172
|
|
The following table presents the effective portion of pretax gains (losses) recorded in other comprehensive income related to cash flow hedges:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Year Ended
September 30,
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Foreign currency exchange derivatives
|
|
$
|
(5)
|
|
|
$
|
(9)
|
|
|
$
|
3
|
|
The following table presents the location and amount of the effective portion of pretax gains (losses) on cash flow hedges reclassified from AOCI into Adient's consolidated statements of income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
Year Ended
September 30,
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Foreign currency exchange derivatives
|
|
Cost of sales
|
|
$
|
(4)
|
|
|
$
|
(3)
|
|
|
$
|
(13)
|
|
The following table presents the location and amount of pretax gains (losses) on derivatives not designated as hedging instruments recognized in Adient's consolidated statements of income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
|
|
Year Ended
September 30,
|
|
|
|
|
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Foreign currency exchange derivatives
|
|
Cost of sales
|
|
$
|
(2)
|
|
|
$
|
4
|
|
|
$
|
(20)
|
|
Equity swap
|
|
Selling, general and administrative
|
|
(13)
|
|
|
(25)
|
|
|
3
|
|
Foreign currency exchange derivatives
|
|
Net financing charges
|
|
5
|
|
|
(5)
|
|
|
36
|
|
Total
|
|
|
|
$
|
(10)
|
|
|
$
|
(26)
|
|
|
$
|
19
|
|
The effective portion of pretax gains (losses) recorded in currency translation adjustment (CTA) within other comprehensive income (loss) related to net investment hedges was $74 million, $31 million and $(61) million for the fiscal years ended September 30, 2019, 2018 and 2017, respectively. For the years ended September 30, 2019, 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 | 83
11. Fair Value Measurements
ASC 820, "Fair Value Measurement," defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a three-level fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability as follows:
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs where there is little or no market data, which requires the reporting entity to develop its own assumptions.
ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.
Recurring Fair Value Measurements
The following tables present Adient's fair value hierarchy for those assets and liabilities measured at fair value. Refer to Note 14, "Retirement Plans" for fair value tables of pension assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
|
|
|
|
|
(in millions)
|
|
Total as of
September 30,
2019
|
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
Other current assets
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
8
|
|
|
$
|
—
|
|
Cross-currency interest rate swaps
|
|
12
|
|
|
—
|
|
|
12
|
|
|
—
|
|
Other noncurrent assets
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Cross-currency interest rate swaps
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Interest rate cap
|
|
1
|
|
|
—
|
|
|
1
|
|
|
—
|
|
Total assets
|
|
$
|
23
|
|
|
$
|
—
|
|
|
$
|
23
|
|
|
$
|
—
|
|
Other current liabilities
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
$
|
12
|
|
|
$
|
—
|
|
|
$
|
12
|
|
|
$
|
—
|
|
Other noncurrent liabilities
|
|
|
|
|
|
|
|
|
Foreign currency exchange derivatives
|
|
3
|
|
|
—
|
|
|
3
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
$
|
15
|
|
|
$
|
—
|
|
|
$
|
15
|
|
|
$
|
—
|
|
Adient plc | Form 10-K | 84
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
$
|
—
|
|
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, 2019 and 2018, respectively. The changes in fair value of foreign currency exchange derivatives not designated as hedging instruments under ASC 815 are recorded in the consolidated statements of income.
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. As of September 30, 2019, there were no equity swaps outstanding.
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. During fiscal 2019, Adient entered into one floating to floating cross-currency interest rate swap totaling ¥11 billion designated as a net investment hedge in Adient's net investment in Japan. As of September 30, 2019, Adient had one €80 million cross-currency interest rate swap and one ¥11 billion cross-currency interest rate swap outstanding, respectively.
Interest rate caps Adient selectively uses interest rate caps to limit the impact of floating rate interest payment increases on its Term Loan B Agreement. The interest rate caps are designated as cash flow hedges under ASC 815. As of September 30, 2019, Adient had two interest rate caps outstanding totaling approximately $200 million.
The fair value of cash and cash equivalents, accounts receivable, short-term debt and accounts payable approximate their carrying values. The fair value of long-term debt, which was $3.4 billion and $3.3 billion at September 30, 2019 and 2018, respectively, was determined primarily using market quotes classified as Level 1 inputs within the ASC 820 fair value hierarchy.
Adient plc | Form 10-K | 85
12. Stock-Based Compensation
Adient provides certain key employees equity awards in the form of restricted stock units (RSU) and performance share units (PSUs) under the Adient plc 2016 Omnibus Incentive Plan (the Plan) and provides directors with share awards under the Adient plc 2016 Director Share Plan. These plans were adopted in conjunction with the separation.
Total stock-based compensation cost included in the consolidated statements of income was $20 million, $47 million and $45 million for the fiscal years ended September 30, 2019, 2018 and 2017, respectively. The total income tax benefit recognized in the consolidated statements of income for the share-based compensation arrangements was $0 million, $0 million (due to tax valuation allowances in fiscal 2019 and fiscal 2018) and $21 million for the fiscal years ended September 30, 2019, 2018 and 2017, 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, 2019 along with the composition of outstanding and exercisable awards at September 30, 2019 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 stock awards typically vest over a three year period following the grant date. The Plan allows for different vesting terms on specific grants with approval by Adient's Board of Directors.
A summary of the status of nonvested restricted stock awards at September 30, 2019, 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, 2018
|
|
$
|
48.62
|
|
|
1,442,011
|
|
Granted
|
|
$
|
34.26
|
|
|
440,944
|
|
Vested
|
|
$
|
46.14
|
|
|
(1,045,336)
|
|
Forfeited
|
|
$
|
48.92
|
|
|
(278,687)
|
|
Nonvested, September 30, 2019
|
|
$
|
42.19
|
|
|
558,932
|
|
|
|
|
|
|
Former Parent nonvested, September 30, 2019
|
|
$
|
—
|
|
|
—
|
|
Adient nonvested, September 30, 2019
|
|
$
|
42.19
|
|
|
558,932
|
|
Total nonvested, September 30, 2019
|
|
$
|
42.19
|
|
|
558,932
|
|
At September 30, 2019, Adient had approximately $11 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 1.8 years.
Adient plc | Form 10-K | 86
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, 2019, 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, 2018
|
|
$
|
56.75
|
|
|
266,063
|
|
Granted
|
|
$
|
23.76
|
|
|
526,605
|
|
Vested
|
|
$
|
—
|
|
|
—
|
|
Forfeited
|
|
$
|
35.69
|
|
|
(160,596)
|
|
Nonvested, September 30, 2019
|
|
$
|
34.61
|
|
|
632,072
|
|
At September 30, 2019, Adient had approximately $3 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, 2019, 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, 2018
|
|
$
|
34.51
|
|
|
1,087,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
$
|
25.76
|
|
|
(368,128)
|
|
|
|
|
|
Forfeited or expired
|
|
$
|
41.89
|
|
|
(128,223)
|
|
|
|
|
|
Outstanding, September 30, 2019
|
|
$
|
38.25
|
|
|
591,630
|
|
|
4.0
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
Exercisable, September 30, 2019
|
|
$
|
38.25
|
|
|
591,630
|
|
|
4.0
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
Former Parent outstanding, September 30, 2019
|
|
$
|
38.52
|
|
|
505,849
|
|
|
4.2
|
|
$
|
4
|
|
Adient outstanding, September 30, 2019
|
|
$
|
37.36
|
|
|
85,781
|
|
|
3.3
|
|
$
|
—
|
|
Total outstanding, September 30, 2019
|
|
$
|
38.35
|
|
|
591,630
|
|
|
4.0
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
Former Parent exercisable, September 30, 2019
|
|
$
|
38.52
|
|
|
505,849
|
|
|
4.2
|
|
$
|
4
|
|
Adient exercisable, September 30, 2019
|
|
$
|
37.36
|
|
|
85,781
|
|
|
3.3
|
|
$
|
—
|
|
Total exercisable, September 30, 2019
|
|
$
|
38.35
|
|
|
591,630
|
|
|
4.0
|
|
$
|
4
|
|
Adient plc | Form 10-K | 87
There were no stock options granted in fiscal years 2019, 2018 and 2017 respectively. The total intrinsic value of options exercised by Adient employees during the fiscal years ended September 30, 2019, 2018 and 2017 was approximately $5 million, $7 million and $18 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, 2019, 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, 2018
|
|
$
|
29.12
|
|
|
391,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
$
|
24.08
|
|
|
(80,732)
|
|
|
|
|
|
Forfeited or expired
|
|
$
|
33.19
|
|
|
(19,074)
|
|
|
|
|
|
Outstanding, September 30, 2019
|
|
$
|
30.24
|
|
|
291,464
|
|
|
2.8
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
Exercisable, September 30, 2019
|
|
$
|
30.24
|
|
|
291,464
|
|
|
2.8
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
Former Parent outstanding, September 30, 2019
|
|
$
|
29.96
|
|
|
270,183
|
|
|
2.8
|
|
$
|
4
|
|
Adient outstanding, September 30, 2019
|
|
$
|
33.87
|
|
|
21,281
|
|
|
2.8
|
|
$
|
—
|
|
Total outstanding, September 30, 2019
|
|
$
|
30.24
|
|
|
291,464
|
|
|
2.8
|
|
$
|
4
|
|
|
|
|
|
|
|
|
|
|
Former Parent exercisable, September 30, 2019
|
|
$
|
29.96
|
|
|
270,183
|
|
|
2.8
|
|
$
|
4
|
|
Adient exercisable, September 30, 2019
|
|
$
|
33.87
|
|
|
21,281
|
|
|
2.8
|
|
$
|
—
|
|
Total exercisable, September 30, 2019
|
|
$
|
30.24
|
|
|
291,464
|
|
|
2.8
|
|
$
|
4
|
|
In conjunction with the exercise of SARs, Adient made payments of $1 million, $3 million and $1 million during the fiscal years ended September 30, 2019, 2018 and 2017, respectively.
Adient plc | Form 10-K | 88
13. Equity and Noncontrolling Interests
The following table presents changes in AOCI attributable to Adient:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
(in millions)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
Balance at beginning of period
|
|
$
|
(523)
|
|
|
$
|
(398)
|
|
|
$
|
(260)
|
|
Aggregate adjustment for the period, net of tax
|
|
(35)
|
|
|
(125)
|
|
|
(138)
|
|
Balance at end of period
|
|
(558)
|
|
|
(523)
|
|
|
(398)
|
|
Realized and unrealized gains (losses) on derivatives
|
|
|
|
|
|
|
Balance at beginning of period
|
|
(7)
|
|
|
3
|
|
|
(14)
|
|
Current period changes in fair value, net of tax
|
|
(5)
|
|
|
(13)
|
|
|
6
|
|
Reclassification to income, net of tax
|
|
4
|
|
|
3
|
|
|
11
|
|
Balance at end of period
|
|
(8)
|
|
|
(7)
|
|
|
3
|
|
Pension and postretirement plans
|
|
|
|
|
|
|
Balance at beginning of period
|
|
(1)
|
|
|
(2)
|
|
|
(2)
|
|
Net reclassifications to AOCI
|
|
(2)
|
|
|
1
|
|
|
—
|
|
Balance at end of period
|
|
(3)
|
|
|
(1)
|
|
|
(2)
|
|
Accumulated other comprehensive income (loss), end of period
|
|
$
|
(569)
|
|
|
$
|
(531)
|
|
|
$
|
(397)
|
|
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)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Beginning balance
|
|
$
|
47
|
|
|
$
|
28
|
|
|
$
|
34
|
|
Net income
|
|
30
|
|
|
24
|
|
|
25
|
|
Foreign currency translation adjustments
|
|
3
|
|
|
1
|
|
|
—
|
|
Dividends
|
|
(29)
|
|
|
(7)
|
|
|
(31)
|
|
Change in noncontrolling interest share
|
|
—
|
|
|
1
|
|
|
—
|
|
Ending balance
|
|
$
|
51
|
|
|
$
|
47
|
|
|
$
|
28
|
|
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. Adient suspended its cash dividends following the dividend paid in the first quarter of fiscal 2019.
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 2019 and 2018.
Adient plc | Form 10-K | 89
14. Retirement Plans
Pension Benefits
Adient maintains non-contributory defined benefit pension plans covering primarily non-U.S. employees and a limited number of U.S. employees. The benefits provided are primarily based on years of service and average compensation or a monthly retirement benefit amount. Funding for non-U.S. plans observes the local legal and regulatory limits. Funding for U.S. pension plans equals or exceeds the minimum requirements of the Employee Retirement Income Security Act of 1974.
For pension plans with accumulated benefit obligations (ABO) that exceed plan assets, the projected benefit obligation (PBO), ABO and fair value of plan assets of those plans were $257 million, $230 million and $105 million, respectively, as of September 30, 2019 and $208 million, $188 million and $82 million, respectively, as of September 30, 2018.
In fiscal 2019, Adient paid contributions to the defined benefit pension plans of $19 million. Contributions of at least $17 million in cash to its defined benefit pension plans are expected in fiscal 2020. Projected benefit payments from the plans as of September 30, 2019 are estimated as follows (in millions):
|
|
|
|
|
|
2020
|
$
|
20
|
|
2021
|
20
|
|
2022
|
27
|
|
2023
|
22
|
|
2024
|
24
|
|
2025-2029
|
166
|
|
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 $56 million and $37 million for fiscal years 2019 and 2018, 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.
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:
Adient plc | Form 10-K | 90
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using:
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Total as of
September 30,
2019
|
|
Quoted Prices
in Active
Markets
(Level 1)
|
|
Significant
Other
Observable
Inputs
(Level 2)
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
Net Asset Value (NAV)
|
Pension
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
31
|
|
|
$
|
31
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Equity Securities
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
15
|
|
|
2
|
|
|
7
|
|
|
—
|
|
|
6
|
|
International - Developed
|
|
49
|
|
|
36
|
|
|
10
|
|
|
—
|
|
|
3
|
|
International - Emerging
|
|
5
|
|
|
2
|
|
|
3
|
|
|
—
|
|
|
—
|
|
Fixed Income Securities
|
|
|
|
|
|
|
|
|
|
|
Government
|
|
218
|
|
|
75
|
|
|
117
|
|
|
—
|
|
|
26
|
|
Corporate/Other
|
|
66
|
|
|
55
|
|
|
—
|
|
|
—
|
|
|
11
|
|
Hedge Fund
|
|
65
|
|
|
—
|
|
|
65
|
|
|
—
|
|
|
—
|
|
Real Estate
|
|
21
|
|
|
—
|
|
|
—
|
|
|
6
|
|
|
15
|
|
Total
|
|
$
|
470
|
|
|
$
|
201
|
|
|
$
|
202
|
|
|
$
|
6
|
|
|
$
|
61
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
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.
Adient plc | Form 10-K | 91
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, 2017
|
|
$
|
11
|
|
Redemptions
|
|
(5)
|
|
Asset value as of September 30, 2018
|
|
$
|
6
|
|
Redemptions
|
|
—
|
|
|
|
|
Asset value as of September 30, 2019
|
|
$
|
6
|
|
Adient plc | Form 10-K | 92
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)
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Accumulated Benefit Obligation
|
|
$
|
571
|
|
|
$
|
526
|
|
|
$
|
—
|
|
|
$
|
16
|
|
Change in Projected Benefit Obligation:
|
|
|
|
|
|
|
|
|
Projected benefit obligation at beginning of year
|
|
$
|
547
|
|
|
$
|
600
|
|
|
$
|
—
|
|
|
$
|
16
|
|
Service cost
|
|
7
|
|
|
8
|
|
|
—
|
|
|
—
|
|
Interest cost
|
|
13
|
|
|
14
|
|
|
—
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Actuarial (gain) loss
|
|
96
|
|
|
(33)
|
|
|
—
|
|
|
—
|
|
Benefits and settlements paid
|
|
(40)
|
|
|
(28)
|
|
|
—
|
|
|
(1)
|
|
Settlement (gain)
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15)
|
|
Currency translation adjustment
|
|
(25)
|
|
|
(14)
|
|
|
—
|
|
|
—
|
|
Projected benefit obligation at end of year
|
|
$
|
598
|
|
|
$
|
547
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Change in Plan Assets:
|
|
|
|
|
|
|
|
|
Fair value of plan assets at beginning of year
|
|
$
|
449
|
|
|
$
|
491
|
|
|
$
|
—
|
|
|
$
|
15
|
|
Actual return on plan assets
|
|
63
|
|
|
9
|
|
|
—
|
|
|
1
|
|
Employer contributions/(distributions)
|
|
19
|
|
|
(11)
|
|
|
—
|
|
|
—
|
|
Benefits and settlements paid
|
|
(40)
|
|
|
(28)
|
|
|
—
|
|
|
(1)
|
|
Reallocation of plan assets
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15)
|
|
Currency translation adjustment
|
|
(21)
|
|
|
(12)
|
|
|
—
|
|
|
—
|
|
Fair value of plan assets at end of year
|
|
$
|
470
|
|
|
$
|
449
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Funded status
|
|
$
|
(128)
|
|
|
$
|
(98)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Amounts recognized in the statement of financial position consist of:
|
|
|
|
|
|
|
|
|
Prepaid benefit cost
|
|
$
|
24
|
|
|
$
|
29
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Accrued benefit liability
|
|
(152)
|
|
|
(127)
|
|
|
—
|
|
|
—
|
|
Net amount recognized
|
|
$
|
(128)
|
|
|
$
|
(98)
|
|
|
$
|
—
|
|
|
$
|
—
|
|
(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
|
|
|
|
|
|
|
|
|
U.S. Plans
|
|
|
|
Non-U.S. Plans
|
|
|
|
|
2019
|
|
2018
|
|
2019
|
|
2018
|
Weighted Average Assumptions (1):
|
|
|
|
|
|
|
|
|
Discount rate (2)
|
|
3.22
|
%
|
|
4.29
|
%
|
|
1.85
|
%
|
|
2.63
|
%
|
Rate of compensation increase
|
|
NA
|
|
|
NA
|
|
|
3.54
|
%
|
|
3.53
|
%
|
(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 | 93
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, 2019 and 2018 were $3 million and $1 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)
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
Components of Net Periodic Benefit Cost (Credit):
|
|
|
|
|
|
|
|
|
|
|
|
|
Service cost
|
|
$
|
7
|
|
|
$
|
8
|
|
|
$
|
8
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
Interest cost
|
|
13
|
|
|
14
|
|
|
12
|
|
|
—
|
|
|
—
|
|
|
1
|
|
Expected return on plan assets
|
|
(18)
|
|
|
(18)
|
|
|
(17)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Net actuarial (gain) loss
|
|
49
|
|
|
(24)
|
|
|
(43)
|
|
|
—
|
|
|
—
|
|
|
(2)
|
|
Settlement (gain) loss
|
|
2
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(15)
|
|
|
—
|
|
Net periodic benefit cost (credit)
|
|
$
|
53
|
|
|
$
|
(20)
|
|
|
$
|
(40)
|
|
|
$
|
—
|
|
|
$
|
(15)
|
|
|
$
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pension Benefits
|
|
|
|
|
|
|
|
|
|
|
|
Postretirement Benefits
|
|
|
|
|
|
|
U.S. Plans
|
|
|
|
|
|
Non-U.S. Plans
|
|
|
|
|
|
|
|
|
|
|
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
|
2019
|
|
2018
|
|
2017
|
Expense Assumptions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Discount rate
|
|
4.29
|
%
|
|
3.85
|
%
|
|
3.70
|
%
|
|
2.71
|
%
|
|
2.62
|
%
|
|
2.10
|
%
|
|
NA
|
|
|
NA
|
|
|
3.25
|
%
|
Expected return on plan assets
|
|
5.00
|
%
|
|
5.15
|
%
|
|
5.50
|
%
|
|
4.08
|
%
|
|
4.19
|
%
|
|
3.80
|
%
|
|
NA
|
|
|
NA
|
|
|
3.35
|
%
|
Rate of compensation increase
|
|
N/A
|
|
|
NA
|
|
|
NA
|
|
|
3.46
|
%
|
|
3.53
|
%
|
|
4.00
|
%
|
|
NA
|
|
|
NA
|
|
|
NA
|
Adient plc | Form 10-K | 94
15. 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.
During fiscal 2019, Adient committed to a restructuring plan ("2019 Plan") of $105 million. Of the restructuring costs recorded, $81 million relates to the EMEA segment, $16 million relates to the Americas segment and $8 million relates to the Asia segment. The restructuring actions relate to cost reduction initiatives and consist primarily of workforce reductions. The restructuring actions are expected to be substantially completed by fiscal 2021. Also recorded in fiscal 2019 is $16 million of prior year underspend, a $9 million increase to a prior year reserve and $6 million of recoveries from a customer related to previous restructuring charges.
The following table summarizes the changes in Adient's 2019 Plan reserve:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Employee Severance and Termination Benefits
|
|
Other
|
|
Currency Translation
|
|
Total
|
Original Reserve
|
|
$
|
101
|
|
|
$
|
4
|
|
|
$
|
—
|
|
|
$
|
105
|
|
Utilized—cash
|
|
(32)
|
|
|
—
|
|
|
—
|
|
|
(32)
|
|
Utilized—noncash
|
|
—
|
|
|
(1)
|
|
|
(2)
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2019
|
|
$
|
69
|
|
|
$
|
3
|
|
|
$
|
(2)
|
|
|
$
|
70
|
|
In fiscal 2018, Adient committed to a restructuring plan ("2018 Plan") of $71 million that was offset by $20 million of underspend in the 2016 Plan and $5 million of underspend related to other plan years. Of the restructuring costs recorded, $52 million relates to the EMEA segment, $10 million relates to the Asia segment and $9 million relates to the Americas segment. In fiscal 2019 there was adjustment to this plan which resulted in additional $9 million of charges. This is the total amount expected to be incurred for this restructuring plan. The restructuring actions relate to cost reduction initiatives and consist primarily of workforce reductions. The restructuring actions are expected to be substantially completed by fiscal 2021.
The following table summarizes the changes in Adient's 2018 Plan reserve:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Employee Severance and Termination Benefits
|
|
|
|
Other
|
|
Currency
Translation
|
|
Total
|
Original Reserve
|
|
$
|
68
|
|
|
|
|
$
|
3
|
|
|
$
|
—
|
|
|
$
|
71
|
|
Utilized—cash
|
|
(19)
|
|
|
|
|
—
|
|
|
—
|
|
|
(19)
|
|
Utilized—noncash
|
|
—
|
|
|
|
|
(2)
|
|
|
(2)
|
|
|
(4)
|
|
Balance at September 30, 2018
|
|
49
|
|
|
|
|
1
|
|
|
(2)
|
|
|
48
|
|
Reserve adjustment
|
|
9
|
|
|
|
|
—
|
|
|
—
|
|
|
9
|
|
Utilized—cash
|
|
(24)
|
|
|
|
|
—
|
|
|
—
|
|
|
(24)
|
|
Utilized—noncash
|
|
—
|
|
|
|
|
(1)
|
|
|
(2)
|
|
|
(3)
|
|
Noncash adjustment—underspend
|
|
(10)
|
|
|
|
|
—
|
|
|
—
|
|
|
(10)
|
|
Balance at September 30, 2019
|
|
$
|
24
|
|
|
|
|
$
|
—
|
|
|
$
|
(4)
|
|
|
$
|
20
|
|
In fiscal 2017, Adient committed to a restructuring plan ("2017 Plan") and recorded $46 million of restructuring and impairment costs in the consolidated statements of income. Of the restructuring costs recorded, $34 million relates to the EMEA segment, $7 million relates to the Americas segment and $5 million relates to the Asia segment. This is the total amount expected to be incurred for this restructuring plan. The restructuring actions relate to cost reduction initiatives and consist primarily of workforce reductions and plant closures. The restructuring actions are expected to be substantially complete in fiscal 2020.
Adient plc | Form 10-K | 95
The following table summarizes the changes in Adient's 2017 Plan reserve:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(in millions)
|
|
Employee Severance and Termination Benefits
|
|
|
|
Other
|
|
|
|
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
|
|
Utilized—cash
|
|
(3)
|
|
|
|
|
—
|
|
|
|
|
(3)
|
|
|
|
|
|
|
|
|
|
|
|
|
Noncash adjustment—underspend
|
|
(4)
|
|
|
|
|
—
|
|
|
|
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2019
|
|
$
|
5
|
|
|
|
|
$
|
—
|
|
|
|
|
$
|
5
|
|
In fiscal 2016, Adient committed to a restructuring plan ("2016 Plan") and recorded $332 million of restructuring and impairment costs in the consolidated statements of income. This is the total amount expected to be incurred for this restructuring plan. The restructuring actions relate to cost reduction initiatives and consist primarily of workforce reductions, plant closures and asset impairments. Of the restructuring and impairment costs recorded, $298 million relates to the EMEA segment, $32 million relates to the Americas segment and $2 million relates to the Asia segment. The asset impairment charge recorded during fiscal 2016 related primarily to information technology assets within the EMEA segment that will not be used going forward by Adient. The restructuring actions are expected to be substantially complete in fiscal 2021.
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.
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
|
|
Utilized—cash
|
|
(55)
|
|
|
—
|
|
|
(9)
|
|
|
—
|
|
|
(64)
|
|
Utilized—noncash
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1)
|
|
|
(1)
|
|
Noncash adjustment—underspend
|
|
(20)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(20)
|
|
Balance at September 30, 2018
|
|
71
|
|
|
—
|
|
|
—
|
|
|
4
|
|
|
75
|
|
Utilized—cash
|
|
(45)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(45)
|
|
Utilized—noncash
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(2)
|
|
|
(2)
|
|
Noncash adjustment—underspend
|
|
(1)
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
(1)
|
|
Balance at September 30, 2019
|
|
$
|
25
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
2
|
|
|
$
|
27
|
|
Adient's fiscal 2019, 2018, 2017 and 2016 restructuring plans included workforce reductions of approximately 8,600. 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, 2019, approximately 5,800 of the employees have been separated from Adient pursuant to the restructuring plans. In addition, the
Adient plc | Form 10-K | 96
restructuring plans included seventeen plant closures. As of September 30, 2019, fifteen of the seventeen 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.
16. Impairment of Long-Lived Assets
Adient reviews long-lived assets, including property, plant and equipment and other intangible assets with definite lives, for impairment whenever events or changes in circumstances indicate that the asset's carrying amount may not be recoverable. Adient conducts its long-lived asset impairment analyses in accordance with ASC 360, "Impairment or Disposal of Long-Lived Assets." ASC 360 requires Adient to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals.
Adient recorded impairment on certain assets during the fourth quarter of fiscal 2019 resulting in an impairment charge of $12 million which was recorded within restructuring and impairment costs on the consolidated statement of income (loss).
In the second quarter of fiscal 2019, Adient concluded it had triggering events requiring assessment of impairment for certain of its long-lived assets in the seat structure and mechanism operations due to declines in actual and forecasted performance that worsened during the second quarter of fiscal 2019 as compared to originally forecasted results. As a result, Adient reviewed the long-lived assets for impairment and recorded a $66 million non-cash pre-tax impairment charge within restructuring and impairment costs on the consolidated statements of income (loss). The impairment charge related to long-lived assets in North America and Europe asset groups as of March 31, 2019 in support of current programs. Of the $66 million impairment charge, $62 million related to fixed assets, and $4 million related to customer relationship intangible assets. The impairment was measured under a market approach utilizing appraisal techniques to determine fair values of the impaired assets. This method is consistent with methods Adient employed in prior periods to value other long-lived assets. The inputs utilized in the analysis are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair value measurement" and primarily consist of estimated salable values and third party appraisal techniques such as market comparables. To the extent that the profitability on current or future programs decline as compared to forecasted profitability or if adverse changes occur to key assumptions or other fair value measurement inputs, further impairment of long-lived assets could occur in the future. During the first quarter of fiscal 2019, impairments of $6 million were recorded related to assets held for sale.
In the fourth quarter of fiscal 2018, Adient concluded it had triggering events requiring assessment of impairment for certain of its long-lived assets in the seat structure and mechanism operations due to the significant performance issues that persisted in fiscal 2018 and the resulting actions to turn around such operations identified during the fiscal 2019 planning process. As a result, Adient reviewed the long-lived assets for impairment and recorded a $787 million non-cash pre-tax impairment charge within restructuring and impairment costs on the consolidated statements of income (loss). The impairment charge related to long-lived assets in North America and Europe asset groups as of September 30, 2018 in support of current programs. Of the $787 million impairment charge, $768 million relates to fixed assets and $19 million relates to customer relationship intangible asset. The impairment was measured, depending on the asset, either under an income approach utilizing forecasted discounted cash flows or a market approach utilizing appraisal techniques to determine fair values of the impaired assets. These methods are consistent with the methods Adient employed in prior periods to value other long-lived assets. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value Measurement" and primarily consist of expected future operating margins and cash flows, estimated production volumes, weighted average cost of capital rates (13.0%), estimated salable values and third-party appraisal techniques such as market comparables. To the extent that profitability on current or future programs decline as compared to forecasted profitability or if adverse changes occur to key assumptions or other fair value measurement inputs, further impairment of long-lived assets could occur in the future. Refer to Note 6, "Goodwill and Other Intangible Assets" and Note 5, "Property, Plant and Equipment" of the notes to the consolidated financial statements for additional information.
Adient plc | Form 10-K | 97
At September 30, 2017, Adient concluded it did not have any triggering events requiring assessment of impairment of its long-lived assets. See Note 19, "Nonconsolidated Partially-Owned Affiliates" for information on the fiscal 2018 impairment of investments in partially owned affiliates.
17. Income Taxes
Consolidated income (loss) before income taxes and noncontrolling interests for the years ended September 30, 2019, 2018, and 2017 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
|
|
|
|
(in millions)
|
|
2019
|
|
2018
|
|
2017
|
Ireland
|
|
$
|
(1)
|
|
|
$
|
4
|
|
|
$
|
(6)
|
|
United States
|
|
(170)
|
|
|
(324)
|
|
|
122
|
|
Other Foreign
|
|
173
|
|
|
(801)
|
|
|
945
|
|
Income before income taxes and noncontrolling interests
|
|
$
|
2
|
|
|
$
|
(1,121)
|
|
|
$
|
1,061
|
|
The components of the provision (benefit) for income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
|
|
|
|
(in millions)
|
|
2019
|
|
2018
|
|
2017
|
Current
|
|
|
|
|
|
|
Ireland
|
|
$
|
—
|
|
|
$
|
1
|
|
|
$
|
—
|
|
US - Federal and State
|
|
4
|
|
|
7
|
|
|
14
|
|
Other Foreign
|
|
118
|
|
|
128
|
|
|
137
|
|
|
|
122
|
|
|
136
|
|
|
151
|
|
Deferred
|
|
|
|
|
|
|
Ireland
|
|
—
|
|
|
—
|
|
|
(2)
|
|
US - Federal and State
|
|
1
|
|
|
417
|
|
|
13
|
|
Other Foreign
|
|
287
|
|
|
(73)
|
|
|
(63)
|
|
|
|
288
|
|
|
344
|
|
|
(52)
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
$
|
410
|
|
|
$
|
480
|
|
|
$
|
99
|
|
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).
Adient plc | Form 10-K | 98
The reconciliation between the Irish statutory income tax rate, and Adient’s effective tax rate is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
|
|
|
|
(in millions)
|
|
2019
|
|
2018
|
|
2017
|
Tax expense at Ireland statutory rate
|
|
$
|
—
|
|
|
$
|
(140)
|
|
|
$
|
133
|
|
State and local income taxes, net of federal benefit
|
|
(41)
|
|
|
(60)
|
|
|
(10)
|
|
Foreign tax rate differential
|
|
(109)
|
|
|
(146)
|
|
|
(67)
|
|
Notional interest deduction
|
|
(63)
|
|
|
(66)
|
|
|
(28)
|
|
Credits and incentives
|
|
(9)
|
|
|
(13)
|
|
|
(13)
|
|
Gain on previously-held interest
|
|
—
|
|
|
—
|
|
|
(19)
|
|
Goodwill impairment
|
|
—
|
|
|
(21)
|
|
|
—
|
|
Repatriation of foreign earnings
|
|
31
|
|
|
36
|
|
|
30
|
|
Foreign exchange
|
|
2
|
|
|
3
|
|
|
(11)
|
|
Impact of enacted tax rate changes
|
|
(5)
|
|
|
23
|
|
|
10
|
|
Impact of U.S. tax reform
|
|
—
|
|
|
210
|
|
|
—
|
|
Change in uncertain tax positions
|
|
107
|
|
|
97
|
|
|
50
|
|
Change in valuation allowance
|
|
503
|
|
|
554
|
|
|
21
|
|
Other
|
|
(6)
|
|
|
3
|
|
|
3
|
|
Income tax provision
|
|
$
|
410
|
|
|
$
|
480
|
|
|
$
|
99
|
|
The income tax expense was higher than the Irish statutory rate of 12.5% for fiscal 2019 primarily due to the recognition of valuation allowances in Luxembourg, Poland, and the United Kingdom, the repatriation of foreign earnings, changes in uncertain tax positions and the impact of recognizing no tax benefit for losses in jurisdictions with valuation allowances. No items included in the other category are individually, or when appropriately aggregated, significant.
The 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, 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 2019 is primarily driven by losses earned in jurisdictions where the statutory rate is greater than 12.5% and by the pretax book income of nonconsolidated partially-owned affiliates whose corresponding income tax expense is netted against equity income on the consolidated statements of income. The foreign tax rate differential benefit for fiscal 2018 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.
Adient plc | Form 10-K | 99
Deferred taxes are classified in the consolidated statements of financial position as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
(in millions)
|
|
2019
|
|
2018
|
Other noncurrent assets
|
|
$
|
199
|
|
|
$
|
506
|
|
Other noncurrent liabilities
|
|
(206)
|
|
|
(217)
|
|
Net deferred tax asset/(liability)
|
|
$
|
(7)
|
|
|
$
|
289
|
|
Temporary differences and carryforwards which gave rise to deferred tax assets and liabilities included:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
(in millions)
|
|
2019
|
|
2018
|
Deferred tax assets:
|
|
|
|
|
Accrued expenses and reserves
|
|
$
|
73
|
|
|
$
|
64
|
|
Employee and retiree benefits
|
|
43
|
|
|
35
|
|
Net operating loss and other credit carryforwards
|
|
751
|
|
|
527
|
|
Property, plant and equipment
|
|
161
|
|
|
163
|
|
Intangible assets
|
|
308
|
|
|
361
|
|
Research and development
|
|
16
|
|
|
16
|
|
|
|
|
|
|
Other
|
|
7
|
|
|
27
|
|
|
|
1,359
|
|
|
1,193
|
|
Valuation allowances
|
|
(1,304)
|
|
|
(846)
|
|
|
|
55
|
|
|
347
|
|
Deferred tax liabilities:
|
|
|
|
|
Unremitted earnings of foreign subsidiaries
|
|
62
|
|
|
58
|
|
|
|
|
|
|
|
|
62
|
|
|
58
|
|
Net deferred tax asset/(liability)
|
|
$
|
(7)
|
|
|
$
|
289
|
|
At September 30, 2019, Adient had available net operating loss carryforwards of approximately $3.5 billion which are available to reduce future tax liabilities. Net operating loss carryforwards of $1.8 billion will expire at various dates between 2020 and 2039, with the remainder having an indefinite carryforward period. Net operating loss carryforwards of $2.3 billion are offset by a valuation allowance.
Adient reviews the realizability of its deferred tax assets on a quarterly basis, or whenever events or changes in circumstances indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or combined group recording the net deferred tax asset are considered, along with any other positive or negative evidence. All of the factors that Adient considers in evaluating whether and when to establish or release all or a portion of the deferred tax asset valuation allowance involve significant judgment. Since future financial results may differ from previous estimates, periodic adjustments to Adient's valuation allowances may be necessary.
As a result of Adient's fiscal 2019 analysis of the realizability of its worldwide deferred tax assets, and after considering tax planning initiatives and other positive and negative evidence (including the external debt refinancing, the related incremental net financing costs, and the restructuring of the internal financing which occurred in the third quarter of fiscal 2019 and including the long-lived asset impairment recorded in the second quarter of fiscal 2019), Adient determined it was more likely than not that deferred tax assets in Luxembourg (Q3), the United Kingdom (Q3) and certain Poland entities (Q2) would not be realized and recorded income tax expense of $229 million, $25 million and $43 million, respectively, to establish valuation allowances. Adient continues to record valuation allowances on certain deferred tax assets in Germany, Hungary, Luxembourg, Mexico, Poland, Spain, the United Kingdom, the U.S. and other jurisdictions as it remains more likely than not that they will not be realized.
As a result of Adient's fiscal 2018 analysis of the realizability of its worldwide deferred tax assets, and after considering tax planning initiatives and other positive and negative evidence (including the seat structure and mechanism operations long-lived asset impairment recorded in the fourth quarter of fiscal 2018), Adient determined that it was more likely than not that deferred
Adient plc | Form 10-K | 100
tax assets within the following jurisdictions would not be realized and recorded net valuation allowances as income tax expense in the fourth quarter of fiscal 2018: Belgium ($12 million), Canada ($6 million), Germany ($175 million), Hungary ($14 million), Mexico ($117 million), Poland ($8 million), Romania ($9 million), and the U.S. ($281 million). Germany, Hungary, Mexico, Poland, Romania, and the U.S. cumulative loss positions were all adversely impacted by the seat structure and mechanism operations performance issues and resulting long-lived asset impairment. In addition, as a result of Adient's fiscal 2018 analysis, Adient determined that it was more likely than not that deferred tax assets within Brazil would be realized. Therefore, Adient released $76 million of valuation allowance as an income tax benefit in the fourth quarter of fiscal 2018.
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 is subject to income taxes in Ireland, the U.S. and other foreign jurisdictions. The following table provides the earliest open tax year by major jurisdiction for which Adient could be subject to income tax examination by the tax authorities:
|
|
|
|
|
|
|
|
|
Tax Jurisdiction
|
|
Earliest Year Open
|
Brazil
|
|
2014
|
China
|
|
2011
|
Czech Republic
|
|
2011
|
France
|
|
2016
|
Germany
|
|
2013
|
Hong Kong
|
|
2013
|
Japan
|
|
2014
|
Luxembourg
|
|
2014
|
Mexico
|
|
2014
|
Poland
|
|
2009
|
Spain
|
|
2012
|
United Kingdom
|
|
2013
|
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, 2019, Adient believes that it is more likely than not that the tax positions it has taken will be sustained upon the resolution of its audits resulting in no material impact on its consolidated financial statements. However, the final determination with respect to tax audits and any related litigation could be materially different from Adient’s estimates.
For the years ended September 30, 2019, 2018 and 2017, Adient had gross tax effected unrecognized tax benefits of $414 million, $288 million, and $193 million, respectively. If recognized, $119 million of Adient's unrecognized tax benefits would impact the effective tax rate. Total net accrued interest for the years ended September 30, 2019, 2018 and 2017, was approximately $10 million, $5 million and $3 million, respectively (net of tax benefit). Adient recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
(in millions)
|
|
2019
|
|
2018
|
|
2017
|
Beginning balance
|
|
$
|
288
|
|
|
$
|
193
|
|
|
$
|
596
|
|
Additions for tax positions related to the current year
|
|
108
|
|
|
110
|
|
|
76
|
|
Additions for tax positions of prior years
|
|
45
|
|
|
12
|
|
|
5
|
|
Reductions for tax positions of prior years
|
|
(22)
|
|
|
(21)
|
|
|
(471)
|
|
Settlements with taxing authorities
|
|
—
|
|
|
—
|
|
|
(7)
|
|
Statute closings
|
|
(5)
|
|
|
(6)
|
|
|
(6)
|
|
Ending balance
|
|
$
|
414
|
|
|
$
|
288
|
|
|
$
|
193
|
|
Adient plc | Form 10-K | 101
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 $15.5 billion of undistributed foreign earnings of which $451 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, 2019 were $102 million. 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.
Impacts of Tax Legislation and Change in Statutory Tax Rates
During the fourth quarter of 2019, certain deferred tax liabilities were remeasured to reflect a reduction in withholding tax rate on the earnings of our nonconsolidated partially owned affiliates resulting in a benefit of $9 million.
During the third quarter of fiscal 2019, Luxembourg enacted legislation reducing the nominal corporate tax rate to 17% from 18%. For Adient, this reduced its aggregate income tax rate to 24.9% from 26.0% and applies retroactively to the fiscal 2019 tax year. As a result of the law change, Adient recorded income tax expense of $10 million related to the write down of deferred tax assets.
During the first quarter of fiscal 2019, GAAS was approved for High and New Tech Enterprise status for the three-year period of 2018 to 2020, thereby reducing their tax rate from 25% to 15%. As a result, a $7 million income tax benefit was recorded on the reduction of deferred tax liabilities and a reduction of 2018 calendar year income taxes.
On December 22, 2017, the Act was signed and enacted into law, and is effective for tax years beginning on or after January 1, 2018, with the exception of certain provisions. As a fiscal year taxpayer, Adient was not subject to the majority of the provisions until fiscal year 2019, however the statutory tax rate reduction was effective January 1, 2018. The Act reduced the U.S. corporate tax rate from 35% to 21%. Adient’s fiscal 2018 income tax expense reflects the benefit from the reduced rate of 24.5% resulting from the application of Internal Revenue Code, Section 15 which provides for a proration of the newly enacted rate during that fiscal year. This benefit was offset by a non-cash tax expense of $106 million related to the remeasurement of Adient’s net deferred tax assets at the lower statutory rate, a non-cash estimated tax expense of $100 million related to recording a valuation allowance to reflect the reduced benefit Adient expects to realize as a result of being subject to the Base Erosion and Anti-avoidance Tax ("BEAT"), and tax expense of $4 million related to the transition tax imposed on previously untaxed earnings and profits. During the first quarter of fiscal 2019, Adient completed its accounting for the Act BEAT valuation allowance resulting in no change to the $100 million income tax impact estimated in fiscal 2018.
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.
During fiscal years 2019, 2018, and 2017, other tax legislation was adopted in various jurisdictions. These law changes did not have a material impact on the consolidated financial statements.
Tax Impact of One-Time Items
During July 2017, one of Adient's non-consolidated partially-owned affiliates, GAAS, became a consolidated entity. Refer to Note 3, "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 3, "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 2019, Adient committed to a significant restructuring plan (2019 Plan) and recorded a net $92 million of restructuring and impairment costs in the consolidated statements of income. Refer to Note 15, "Restructuring and Impairment Costs," of the
Adient plc | Form 10-K | 102
notes to the consolidated financial statements for additional information. The restructuring costs generated a $5 million tax benefit, which was negatively impacted by geographic mix and Adient’s current tax position in these jurisdictions.
In fiscal 2018, Adient committed to a significant restructuring plan (2018 Plan) and recorded a net $46 million of restructuring and impairment costs in the consolidated statements of income. Refer to Note 15, "Restructuring and Impairment Costs," of the notes to the consolidated financial statements for additional information. The restructuring costs generated a $6 million tax benefit, which was negatively impacted by geographic mix and Adient’s current tax position in these jurisdictions. The disclosed tax benefit is prior to valuation allowances recorded during the fourth quarter of fiscal 2018.
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 15, "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.
During the second quarter of fiscal 2019, Adient recognized a pre-tax impairment charge on long-lived assets of $66 million. Refer to Note 16, "Impairment of Long-Lived Assets," of the notes to the consolidated financial statements for additional information. The tax benefit associated with the impairment charge was $2 million, which was negatively impacted by geographic mix and Adient’s current tax position in these jurisdictions.
During the fourth quarter of fiscal 2018, Adient recognized a pre-tax impairment charge on long-lived assets of $787 million within the seat structure and mechanism operations. Refer to Note 16, "Impairment of Long-Lived Assets," of the notes to the consolidated financial statements for additional information. The tax benefit associated with the impairment charge was $185 million, which was negatively impacted by geographic mix and Adient’s current tax position in these jurisdictions. The disclosed tax benefit is prior to valuation allowances recorded during the fourth quarter of fiscal 2018.
In addition during the fourth quarter of fiscal 2018, Adient recognized a pre-tax non-cash impairment charge of $358 million in equity income related to Adient’s YFAI investment balance within the Interiors segment. Refer to Note 19, "Nonconsolidated Partially-Owned Affiliates," of the notes to the consolidated financial statements for additional information. The tax benefit associated with the impairment charge was $36 million.
During the third and fourth quarters of fiscal 2018, Adient recognized a net pre-tax impairment charge of $49 million related to assets classified as held for sale. Refer to Note 3, "Acquisitions and Divestitures," of the notes to the consolidated financial statements for additional information. The tax benefit associated with the impairment charge was $14 million. The disclosed tax benefit is prior to valuation allowances recorded during the fourth quarter of fiscal 2018.
During the second quarter of fiscal 2018, Adient recognized a pre-tax goodwill impairment charge of $299 million related to the seat structure and mechanism operations. Refer to Note 6, "Goodwill and Other Intangible Assets," of the notes to the consolidated financial statements for additional information. The tax benefit associated with the goodwill impairment charge was $20 million.
18. Segment Information
During the second quarter of fiscal 2019, Adient realigned its organizational structure to manage its business primarily on a geographic basis, resulting in a change to reportable segments. Segment information for all periods presented are aligned to this change in organizational structure and an updated definition of corporate-related costs. Pursuant to this change, Adient operates in the following three reportable segments for financial reporting purposes: 1) Americas, which is inclusive of North America and South America; 2) Europe, Middle East, and Africa ("EMEA") and 3) Asia Pacific/China ("Asia").
Adient evaluates the performance of its reportable segments using an adjusted EBITDA metric defined as income before income taxes and noncontrolling interests, excluding net financing charges, restructuring and impairment costs, restructuring related-costs, 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. Adient has three reportable segments for financial reporting purposes:
Adient plc | Form 10-K | 103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
|
|
|
|
(in millions)
|
|
2019
|
|
2018
|
|
2017
|
Net Sales
|
|
|
|
|
|
|
Americas
|
|
$
|
7,785
|
|
|
$
|
7,664
|
|
|
$
|
7,290
|
|
EMEA
|
|
6,675
|
|
|
7,436
|
|
|
7,044
|
|
Asia
|
|
2,337
|
|
|
2,659
|
|
|
2,129
|
|
Eliminations
|
|
(271)
|
|
|
(320)
|
|
|
(250)
|
|
Total net sales
|
|
$
|
16,526
|
|
|
$
|
17,439
|
|
|
$
|
16,213
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
|
|
|
|
(in millions)
|
|
2019
|
|
2018 (1)
|
|
2017 (1)
|
Adjusted EBITDA
|
|
|
|
|
|
|
Americas
|
|
$
|
210
|
|
|
$
|
302
|
|
|
$
|
758
|
|
EMEA
|
|
161
|
|
|
364
|
|
|
424
|
|
Asia
|
|
513
|
|
|
625
|
|
|
554
|
|
Corporate-related costs (2)
|
|
(97)
|
|
|
(95)
|
|
|
(135)
|
|
Becoming Adient costs (3)
|
|
—
|
|
|
(62)
|
|
|
(95)
|
|
Separation costs (4)
|
|
—
|
|
|
—
|
|
|
(10)
|
|
Restructuring and impairment costs (5)
|
|
(176)
|
|
|
(1,181)
|
|
|
(46)
|
|
Purchase accounting amortization (6)
|
|
(44)
|
|
|
(69)
|
|
|
(43)
|
|
Restructuring related charges (7)
|
|
(31)
|
|
|
(61)
|
|
|
(37)
|
|
Impairment of nonconsolidated partially owned affiliate (8)
|
|
—
|
|
|
(358)
|
|
|
—
|
|
Gain on previously-held interest (9)
|
|
—
|
|
|
—
|
|
|
151
|
|
Depreciation (10)
|
|
(278)
|
|
|
(393)
|
|
|
(332)
|
|
Stock based compensation (11)
|
|
(20)
|
|
|
(37)
|
|
|
(29)
|
|
Other items (12)
|
|
(9)
|
|
|
(55)
|
|
|
(16)
|
|
Earnings (loss) before interest and income taxes
|
|
229
|
|
|
(1,020)
|
|
|
1,144
|
|
Net financing charges
|
|
(182)
|
|
|
(144)
|
|
|
(132)
|
|
Other pension income (expense)
|
|
(45)
|
|
|
43
|
|
|
49
|
|
Income (loss) before income taxes
|
|
$
|
2
|
|
|
$
|
(1,121)
|
|
|
$
|
1,061
|
|
Notes:
(1) The presentation of certain amounts has been revised from what was previously reported to retrospectively adopt Accounting Standard Update ("ASU") 2017-07, "Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement cost" as of October 1, 2018. See Note 1, "Basis of Presentation and Summary of Significant Accounting Policies," for more information.
(2) Corporate-related costs not allocated to the segments include executive office, communications, corporate development, legal and finance.
(3) Reflects incremental expenses associated with becoming an independent company.
(4) Reflects expenses associated with and incurred prior to the separation from the former Parent.
Adient plc | Form 10-K | 104
(5) Reflects restructuring charges for costs that are directly attributable to restructuring activities and meet the definition of restructuring under ASC 420 and non-recurring impairment charges. Included along with restructuring charges in fiscal 2019 is a $66 million non-cash pre-tax impairment charge related to long-lived assets ($11 million in the Americas and $55 million in EMEA) and an $18 million non-cash impairment charge related to assets held for sale ($6 million in the Americas and $12 million in Asia). Included along with restructuring charges in fiscal 2018 is a non-cash pre-tax impairment charge of $1,086 million in the seat structure and mechanism operations ($787 million related to long-lived assets and $299 million related to goodwill), and a $49 million non-cash impairment charge related to assets held for sale. Refer to Note 5, "Property, Plant and Equipment," Note 6, "Goodwill and Other Intangible Assets," Note 15, "Restructuring and Impairment Costs," and Note 16, "Impairment of Long-Lived Assets," of the notes to the consolidated financial statements for more information. Amounts in fiscal 2017 relate primarily to restructuring charges.
(6) Reflects amortization of intangible assets including those related to partially owned affiliates recorded within equity income.
(7) Reflects restructuring related charges for costs that are directly attributable to restructuring activities, but do not meet the definition of restructuring under ASC 420 along with restructuring costs at partially owned affiliates recorded within equity income.
(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.
(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, 2019 primarily includes $4 million of integration costs associated with the acquisition of Futuris, $3 million of transaction costs and $2 million of tax adjustments at YFAI. The twelve months ended September 30, 2018 primarily includes $22 million of integration costs associated with the acquisition of Futuris, $11 million of non-recurring consulting fees related to the seat structure and mechanism operations, an $8 million charge related to the impact of the U.S. tax reform at YFAI and $8 million of prior period adjustments. 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.
Additional Segment Information
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2019
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
|
|
Reconciling Items(1)
|
|
Consolidated
|
(in millions)
|
|
Americas
|
|
EMEA
|
|
Asia
|
|
|
|
|
Net Sales
|
|
$
|
7,785
|
|
|
$
|
6,675
|
|
|
$
|
2,337
|
|
|
$
|
(271)
|
|
|
$
|
16,526
|
|
Equity Income
|
|
3
|
|
|
13
|
|
|
270
|
|
|
(11)
|
|
|
275
|
|
Total Assets
|
|
3,237
|
|
|
2,716
|
|
|
3,416
|
|
|
973
|
|
|
10,342
|
|
Depreciation
|
|
109
|
|
|
126
|
|
|
43
|
|
|
—
|
|
|
278
|
|
Amortization
|
|
14
|
|
|
5
|
|
|
18
|
|
|
3
|
|
|
40
|
|
Capital Expenditures
|
|
190
|
|
|
237
|
|
|
41
|
|
|
—
|
|
|
468
|
|
(1) Reconciling items include the elimination of intercompany transactions, corporate-related assets, depreciation and amortization, and amounts to reconcile to consolidated totals. Specific reconciling items included in equity income are $4 million of purchase accounting amortization related to the YFAI joint venture, $5 million of restructuring related charges and $2 million of tax adjustments at YFAI. Corporate-related assets primarily include cash and deferred income tax assets.
Adient plc | Form 10-K | 105
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
|
|
Reconciling Items(1)
|
|
Consolidated
|
(in millions)
|
|
Americas
|
|
EMEA
|
|
Asia
|
|
|
|
|
Net Sales
|
|
$
|
7,664
|
|
|
7,436
|
|
|
$
|
2,659
|
|
|
$
|
(320)
|
|
|
$
|
17,439
|
|
Equity Income
|
|
10
|
|
|
12
|
|
|
363
|
|
|
(398)
|
|
|
(13)
|
|
Total Assets
|
|
3,248
|
|
|
3,066
|
|
|
3,598
|
|
|
1,030
|
|
|
10,942
|
|
Depreciation
|
|
141
|
|
|
204
|
|
|
45
|
|
|
10
|
|
|
400
|
|
Amortization
|
|
12
|
|
|
12
|
|
|
20
|
|
|
3
|
|
|
47
|
|
Capital Expenditures
|
|
233
|
|
|
267
|
|
|
36
|
|
|
—
|
|
|
536
|
|
(1) Reconciling items include the elimination of intercompany transactions, corporate-related assets, depreciation and amortization, and amounts to reconcile to consolidated totals. Specific reconciling items included in equity income are a $358 million non-cash impairment charge related to Adient's YFAI investment balance, $22 million of purchase accounting amortization related to the YFAI joint venture, $10 million of restructuring related charges and a $8 million charge related to the impact of the U.S. tax reform at YFAI. Corporate-related assets primarily include cash, deferred income tax assets, and Adient's aviation assets.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended September 30, 2017
|
|
|
|
|
|
|
|
|
|
|
Reportable Segments
|
|
|
|
|
|
Reconciling Items(1)
|
|
Consolidated
|
(in millions)
|
|
Americas
|
|
EMEA
|
|
Asia
|
|
|
|
|
Net Sales
|
|
$
|
7,290
|
|
|
$
|
7,044
|
|
|
$
|
2,129
|
|
|
$
|
(250)
|
|
|
$
|
16,213
|
|
Equity Income
|
|
10
|
|
|
11
|
|
|
373
|
|
|
128
|
|
|
522
|
|
Depreciation
|
|
118
|
|
|
174
|
|
|
36
|
|
|
9
|
|
|
337
|
|
Amortization
|
|
1
|
|
|
11
|
|
|
5
|
|
|
4
|
|
|
21
|
|
Capital Expenditures
|
|
227
|
|
|
267
|
|
|
56
|
|
|
27
|
|
|
577
|
|
(1) Reconciling items include the elimination of intercompany transactions, 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.
Adient plc | Form 10-K | 106
Geographic Information
Financial information relating to Adient's operations by geographic area is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Sales
|
|
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
|
|
(in millions)
|
|
2019
|
|
2018
|
|
2017
|
Americas
|
|
|
|
|
|
|
United States
|
|
$
|
6,435
|
|
|
$
|
6,376
|
|
|
$
|
6,221
|
|
Mexico
|
|
2,709
|
|
|
2,668
|
|
|
2,595
|
|
Other Americas
|
|
435
|
|
|
537
|
|
|
602
|
|
Regional Elimination
|
|
(1,794)
|
|
|
(1,917)
|
|
|
(2,128)
|
|
|
|
7,785
|
|
|
7,664
|
|
|
7,290
|
|
EMEA
|
|
|
|
|
|
|
Germany
|
|
1,463
|
|
|
1,761
|
|
|
1,930
|
|
Czech Republic
|
|
1,431
|
|
|
1,663
|
|
|
1,398
|
|
Other EMEA
|
|
5,616
|
|
|
5,892
|
|
|
5,476
|
|
Regional Elimination
|
|
(1,835)
|
|
|
(1,880)
|
|
|
(1,760)
|
|
|
|
6,675
|
|
|
7,436
|
|
|
7,044
|
|
Asia
|
|
|
|
|
|
|
Thailand
|
|
614
|
|
|
615
|
|
|
409
|
|
China
|
|
529
|
|
|
716
|
|
|
264
|
|
Japan
|
|
529
|
|
|
562
|
|
|
597
|
|
Other Asia
|
|
668
|
|
|
768
|
|
|
859
|
|
Regional Elimination
|
|
(3)
|
|
|
(2)
|
|
|
—
|
|
|
|
2,337
|
|
|
2,659
|
|
|
2,129
|
|
|
|
|
|
|
|
|
Inter-segment elimination
|
|
(271)
|
|
|
(320)
|
|
|
(250)
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
16,526
|
|
|
$
|
17,439
|
|
|
$
|
16,213
|
|
Adient plc | Form 10-K | 107
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-Lived Assets (consisting of net property, plant and equipment)
|
|
|
|
|
|
|
Year Ended September 30,
|
|
|
(in millions)
|
|
2019
|
|
2018
|
Americas
|
|
|
|
|
United States
|
|
$
|
504
|
|
|
$
|
474
|
|
Mexico
|
|
177
|
|
|
161
|
|
Other Americas
|
|
32
|
|
|
31
|
|
|
|
713
|
|
|
666
|
|
EMEA
|
|
|
|
|
Germany
|
|
195
|
|
|
197
|
|
Other EMEA
|
|
538
|
|
|
565
|
|
|
|
733
|
|
|
762
|
|
Asia
|
|
|
|
|
All countries
|
|
225
|
|
|
255
|
|
|
|
|
|
|
Total
|
|
$
|
1,671
|
|
|
$
|
1,683
|
|
In the third quarter of fiscal 2019, Adient's Indonesia operations recorded an $8 million adjustment to increase cost of sales and to decrease primarily current assets to correct prior period misstatements. Adient has concluded that these adjustments were not material to the consolidated financial statements for any period reported.
19. Nonconsolidated Partially-Owned Affiliates
Investments in the net assets of nonconsolidated partially-owned affiliates are reported in the "Investments in partially-owned affiliates" line in the consolidated statements of financial position. Equity in the net income of nonconsolidated partially-owned affiliates are reported in the "Equity income" line in the consolidated statements of income (loss). Adient maintains total investments in partially-owned affiliates of $1.4 billion and $1.4 billion at September 30, 2019 and 2018, respectively. Operating information for nonconsolidated partially-owned affiliates is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
% ownership
|
|
|
Name of key partially-owned affiliate
|
|
2019
|
|
2018
|
Adient Yanfeng Seating Mechanism Co., Ltd. (AYM)
|
|
50.0%
|
|
|
50.0%
|
|
Changchun FAWAY Adient Automotive Systems Co. Ltd. (CFAA)
|
|
49.0%
|
|
|
49.0%
|
|
Yanfeng Adient Seating Co., Ltd. (YFAS)
|
|
49.9%
|
|
|
49.9%
|
|
Yanfeng Global Automotive Interiors Systems Co., Ltd. (YFAI)
|
|
30.0%
|
|
|
30.0%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
|
|
|
|
(in millions)
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Income statement data:
|
|
|
|
|
|
|
Net sales
|
|
$
|
15,555
|
|
|
$
|
18,258
|
|
|
$
|
17,262
|
|
Gross profit
|
|
$
|
1,721
|
|
|
$
|
2,214
|
|
|
$
|
1,994
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
667
|
|
|
$
|
823
|
|
|
$
|
1,039
|
|
Net income attributable to the entity
|
|
$
|
629
|
|
|
$
|
773
|
|
|
$
|
974
|
|
Adient plc | Form 10-K | 108
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
(in millions)
|
|
2019
|
|
|
2018
|
|
Balance sheet data:
|
|
|
|
|
Current assets
|
|
$
|
7,122
|
|
|
$
|
7,716
|
|
Noncurrent assets
|
|
$
|
3,335
|
|
|
$
|
3,455
|
|
Current liabilities
|
|
$
|
7,058
|
|
|
$
|
7,579
|
|
Noncurrent liabilities
|
|
$
|
433
|
|
|
$
|
433
|
|
Noncontrolling interests
|
|
$
|
125
|
|
|
$
|
120
|
|
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.
20. Commitments and Contingencies
Adient is involved in various lawsuits, claims and proceedings incident to the operation of its businesses, including those pertaining to product liability, casualty environmental, safety and health, intellectual property, employment, commercial and contractual matters, and various other matters. Although the outcome of any such lawsuit, claim or proceeding cannot be predicted with certainty and some may be disposed of unfavorably to Adient, it is management's opinion that none of these will have a material adverse effect on Adient's financial position, results of operations or cash flows. Costs related to such matters were not material to the periods presented.
Adient accrues for potential environmental liabilities when it is probable a liability has been incurred and the amount of the liability is reasonably estimable. Reserves for environmental liabilities totaled $12 million and $8 million at September 30, 2019 and 2018, 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.
21. Related Party Transactions
In the ordinary course of business, Adient enters into transactions with related parties, such as equity affiliates. Such transactions consist of the sale or purchase of goods and other arrangements. Subsequent to the separation, transactions with the former Parent and its businesses represent third-party transactions.
The following table sets forth the location and amounts of net sales to and purchases from related parties included in Adient's
Adient plc | Form 10-K | 109
consolidated statements of income (loss):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
September 30,
|
|
|
|
|
(in millions)
|
|
|
|
2019
|
|
|
2018
|
|
|
2017
|
|
Net sales to related parties
|
|
Net sales
|
|
$
|
386
|
|
|
$
|
389
|
|
|
$
|
409
|
|
Purchases from related parties
|
|
Cost of sales
|
|
704
|
|
|
614
|
|
|
511
|
|
The following table sets forth the location and amount of accounts receivable due from and payable to related parties in Adient's consolidated statements of financial position:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30,
|
|
|
(in millions)
|
|
|
|
2019
|
|
|
2018
|
|
Accounts receivable due from related parties
|
|
Accounts receivable
|
|
$
|
73
|
|
|
$
|
91
|
|
Accounts payable due to related parties
|
|
Accounts payable
|
|
137
|
|
|
102
|
|
|
|
|
|
|
|
|
Average receivable and payable balances with related parties remained consistent with the period end balances shown above.
Allocations from Former Parent
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 | 110