Washington, D.C. 20549
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. | ¨☐ |
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). | Yes ¨
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No ☑
The aggregate market value of the voting and non-voting stock held by non-affiliates of the Registrant, as of March 31, 2017,2022, the last business day of the Registrant’sRegistrant���s most recently completed second fiscal quarter, was approximately $6.8$3.9 billion. At September 30, 2017, 93,142,2832022, 94,858,156 ordinary shares were outstanding.
Documents Incorporated by Reference
Portions of the Registrant's definitive proxy statement relating to its 20182023 annual general meeting of shareholders to be held on March 12, 20187, 2023 (the "2018"2023 Proxy Statement") are incorporated by reference into Part III of this Annual Report on Form 10-K where indicated. The 20182023 Proxy Statement will be filed with the U.S. Securities and Exchange Commission within 120 days after the end of the fiscal year to which this report relates.
Adient plc | Form 10-K | 2
Adient plc
Form 10-K
For the Fiscal Year Ended September 30, 20172022
TABLE OF CONTENTS
Adient plc | Form 10-K | 3
Forward-Looking Statements
This Annual Report on Form 10-K ("Form 10-K") containcontains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. Forward-looking statements can also be identified by words such as "future," "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "will," "would," "could," "can," "may," or similar terms. Forward-looking statements are not guarantees of future performance and Adient's actual results may differ significantly from the results discussed in the forward-looking statements. Adient cautions that these statements are subject to numerous important risks, uncertainties, assumptions and other factors, some of which are beyond Adient'sAdient’s control, that could cause Adient’s actual results to differ materially from those expressed or implied by such forward-looking statements, including, among others, risks related to: the Ukraine conflict and COVID lockdowns in China and their impact on regional and global economies and additional pressure on supply chains and vehicle production, the effects of local and national economic, credit and capital market conditions on the economy in general, and other risks and uncertainties, the continued financial and operational impacts of and uncertainties relating to the COVID-19 pandemic on Adient and its customers, suppliers, joint venture partners and other parties, work stoppages, including due to supply chain disruptions and similar events, energy and commodity availability and prices, the Company’s ability and timing of customer recoveries for increased input costs, the availability of raw materials and component products (including components required by our customers for the manufacture of vehicles (i.e., semiconductors)), whether deleveraging activities may yield additional value for shareholders at all or on the same or different terms as those described herein, the ability of Adient to execute its turnaround plan, automotive vehicle production levels, mix and schedules, as well as our concentration of exposure to certain automotive manufacturers, the ability of Adient to effectively launch new business at forecast and profitable levels, the ability of Adient to meet debt service requirements, the availability and terms of future financing, the impact of tax reform legislation, uncertainties in U.S. administrative policy regarding trade agreements, tariffs and other international trade relations, general economic and business conditions, the strength of the U.S. or other economies, automotiveshifts in market shares among vehicles, vehicle production levels, mixsegments or away from vehicles on which Adient has significant content, changes in consumer demand, global climate change and schedules, energy and commodity prices, the availability of raw materials and component products, currency exchange rates,related emphasis on ESG matters by various stakeholders, the ability of Adient to effectively integrate the Futuris business,achieve its ESG-related goals, currency exchange rates and cancellation of or changes to commercial arrangements.arrangements, and the ability of Adient to identify, recruit and retain key leadership. Factors that might cause such differences include, but are not limited to, those discussed in Part 1, Item 1A of this Form 10-K under the heading "Risk Factors," which are incorporated herein by reference. All information presented here inherein is based on Adient's fiscal calendar. Unless otherwise stated, references to particular years, quarters, months or periods refer to Adient's fiscal years ended in September and the associated quarters, months and periods of those fiscal years. Adient assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.
Item 1. Business
On October 31, 2016, Adient plc ("Adient") became an independent company as a result of the separation of the automotive seating and interiors businesses (the "separation") of Johnson Controls International plc ("the former Parent"). Adient was incorporated under the laws of Ireland on June 24, 2016 for the purpose of holding these businesses. Adient's ordinary shares began trading "regular-way" under the ticker symbol "ADNT" on the New York Stock Exchange on October 31, 2016. Upon becoming an independent company, the capital structure of Adient consisted of 500 million authorized ordinary shares and 100 million authorized preferred shares (par value of $0.001 per ordinary and preferred share). The number of Adient ordinary shares issued on October 31, 2016 was 93,671,810.
Adient is a global leader in the world's largest automotive seating supplier.* Adient has asupply industry with leading market positionpositions in the Americas, Europe and China and hasmaintains longstanding relationships with the largest global automotive original equipment manufacturers or OEMs, in the automotive space.(OEMs). Adient's proprietary technologies extend into virtually every area of automotive seating solutions, including complete seating systems, frames, mechanisms, foam, head restraints, armrests and trim covers and fabrics.covers. Adient is a global seat supplier with the capability to design, develop, engineer, manufacture, and deliver complete seat systems and components in every major automotive producing region in the world. In September 2017, Adient acquired Futuris Global Holding, LLC ("Futuris"), a global designer and manufacturer of fully integrated automotive seating and interior systems. Adient also participates in the automotive interiors market primarily through its joint venture in China, Yanfeng Global Automotive Interior Systems Co., Ltd., or YFAI.
Adient designs, manufactures and markets a full range of seating systems and components for passenger cars, commercial vehicles and light trucks, including vans, pick-up trucks and sport/crossover utility vehicles. Adient also supplies high performance seating systems to the international motorsports industry through its award winning RECARO brand of products. Adient operates approximately 238more than 200 wholly- and majority-owned manufacturing or assembly facilities, with operations in 3431 countries. Additionally, Adient has partially-owned affiliates in China, Asia, Europe and North America. Through its global footprint and vertical integration, Adient leverages its capabilities to drive growth in the automotive seating industry.
Adient plc | Form 10-K | 4
Adient's business model is focused on developing and maintaining long-term customer relationships, which has allowedallows Adient to successfully grow with leading global OEMs. Adient and its engineers work closely with customers as vehicle platforms are developed, which results in close ties with key decision makers at OEM customers.
Business Organization and Strategy
Global Manufacturing Footprint Adient is committed to being the world's premiera global leader in automotive seating. With 75,000 employees operating in more than 200 manufacturing and assembly plants in 31 countries worldwide, Adient produces and delivers automotive seating supplier through leadership in cost, quality, launch executionfor all vehicle classes and customer satisfaction. Through its global footprint, vertical integration and partnerships in China, Adient has leveraged itsall major OEMs. From complete seating systems to individual components, Adient’s manufacturing capabilities to drive growth inspan every aspect of the automotive seating industry. seat-making process. Integrated, in-house skills allows Adient to take products from research and design all the way to engineering and manufacturing and into more than 20 million vehicles every year.
Operational Efficiencies Adient intends to leverage these capabilitiesmaintain high capacity utilization and increase its efficiency through continued use of standardized manufacturing processes, which represent a core competency. These standardized manufacturing processes allow Adient to further grow its seating businessdeliver high quality levels and potentially enter into additional product markets adjacent to the automotive industry. |
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* | Based on production volumes. Source: IHS Automotive | |
Business Organization
Reportable Segments minimize waste. Adient has two reportable segments: Seating and Interiors. The Seating reportable segment produces automotive seat metal structures and mechanisms, foam, trim, fabric and complete seat systems. The Interiors reportable segment, primarily derived from the YFAI global automotive interiors joint venture completed on July 2, 2015, produces instrument panels, floor consoles, door panels, overhead consoles, cockpit systems, decorative trim and other products. Prior to the completion of the joint venture, the Interiors reportable segment produced instrument panels, floor consoles and door panels. These segments reflect the way Adient evaluates its business performance and manages its operations. Further information regarding Adient's reportable segments may be found in Part II, Item 7 of this Form 10-K under the subheading "Segment Analysis," and in Part II, Item 8 of this Form 10-K in Note 17, "Segment Information," of the notes to consolidated financial statements.
Global Manufacturing Footprint and Functional Expertise Adient operatesachieves scale advantages through a global networkmanufacturing footprint and an integrated supply chain. Adient fosters an environment of approximately 238continuous improvement and identifies best business practices through the analysis of process and cost metrics, which are then shared globally throughout Adient's manufacturing plantsnetwork.
To ensure appropriate service levels, minimal inventory and optimal factory utilization, Adient employs a Sales & Operational Planning, or S&OP, process. A well-executed S&OP process provides two strategic advantages: focused customer service and on-time delivery which result in 34 countries that supplies automotive OEMs with complete seats, modulesboth customer retention and components. In fiscal 2017, Adient delivered more than 25 million seat systems on a "just-in-time or in-sequence" basis globally. Those businesses supplied seating systems on more than 360 nameplates to 40 different OEMs. Adient's industry-leading technologies complement proven expertise in consumer insights and marketing, value product planning, product designthe opportunity for cost, design for manufacturing, system integration, evaluation, validation and manufacturing. Adient's approximately 85,000 highly skilled and engaged employees have earned a reputation for delivering high quality, value-added seating and interiors products that support auto manufacturers' goals of brand differentiation.market share gain.
Longstanding Customer Relationships with Leading Global OEMs Adient works with OEMs to develop complete seating solutions to meet and exceed consumer expectations for performance, safety and comfort. Adient does business with all major global OEM customers, and in many cases, works closely with those customers to develop a seating solution integrated into the overall vehicle appearance and architecture.
Through dedicated customer teams, Adient maintains close relationships with its global OEM customers. These relationships enable Adient to clearly understand its customers' needs so that it is positioned to meet its customers' requirements. Adient's customer teams also lead the new business acquisition process, which ensures alignment with Adient's product, process and manufacturing strategies.
Product Innovation and Process Leadership Adient has a strong record for developing winning product and process technologies over many years, which has created a competitive advantage for Adient and its customers. Management expects to increase investment in innovation.
Adient utilizes a Global Core Product Portfolio, or CPP, strategy for part and design reuse in all of its product applications. Adient intends to continue investing in its CPP to sustain and expand its market success and to leverage its existing modular and scalable systems and interchangeable components. Through the CPP strategy, Adient provides high quality products for its customers with market competitive cost and mass (low weight to improve fuel economy) while meeting their performance requirements. Adient continues to use its CPP to advance Adient's lean manufacturing initiatives by providing standard, flexible processes that reduce complexity, inventory and floor space. This will yield reductions in development time, product cost and investment.
Global Development Network Adient's expertiseAdient participates in innovationinnovating and development represents adeveloping key competitive differentiatordifferentiators in the automotive seating business. In the development process, key downstream elements of the product are locked in, including material costs, plant conversion costs, quality characteristics and certain technical requirements. Adient uses a common product development process globally that ensures that these elements are correct at the outset of the development process, reflects the best practices of Adient's operations worldwide and meets the expectations of Adient's diverse customer base. Its product launch system is customizable and scalable based on customer and product requirements.
Adient's worldwide engineering network includes ten core development centers. These development centers utilize a globally consistent approach to the process for developing seating products. By leveraging a network of subject matter technical experts, Adient is able to efficiently implementimplements best practices and improveimproves product cost and quality. Adient's product development practices also entail leveraging low cost country development centers in India, China, Czech Republic and Slovakia.
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| Development Centers |
| Plymouth (USA) | Trencin (Slovakia) |
| Burscheid (Germany) | Yokohama (Japan) |
| Solingen (Germany) | ShanghaiChongqing (China) |
| Kaiserslautern (Germany) | Changchun (China)Ceska Lipa (Czech Republic) |
| Ansan (South Korea) | Pune (India) |
Platform for Global Growth Adient's current global platform creates multiple opportunities for growth, such as:
Market share expansion in seating and seating components. Adient has extensive relationships with global OEM customers. These relationships, combined with Adient's product offerings, enhance Adient's ability to expand its business with regional customers who are growing and expanding globally and also with new entrants to the automotive market.
Regional growth opportunities. Adient is able to leverage its position as the market leader in Europe, North America and China to grow in other markets, such as Southeast Asia.
Vertical integration. Adient's efficient operations provide opportunities for continued vertical integration in areas that could enhance Adient's capabilities, expand profit margins and grow revenues with customers who employ component sourcing strategies. Adient believes that as a vertically integrated supplier with global scale and strong
design, engineering and lean manufacturing capabilities in both complete seat systems and components, it is well positioned to benefit from these opportunities.
Business expansion. Adient is able to leverage its track record of low cost, high quality, effectively executed product launches and ability to maintain high customer satisfaction to pursue growth into additional product markets adjacent to the automotive industry.
Business Strategy
Adient focuses on growing its business through the following strategies, among others:
Cash Flow Generation Adient expects to generate strong cash flows. The anticipated cash from operating activities generated by Adient should allow it to pay down debt and invest in the business to support organic growth. Excess cash flow could also allow Adient to pursue other alternatives, including new capital investment projects, strategic acquisitions and the return of capital to shareholders through a combination of dividends and/or share repurchases. However, there can be no guarantee that Adient will pay dividends in a timely manner, or at all, or that Adient will repurchase any of its shares or the price at which any such repurchase may occur.
Customer Focus and Commercial Management Through dedicated customer teams, Adient maintains close relationships with its global OEM customers. These relationships enable Adient to clearly understand its customers' needs so that it is positioned to meet its customers' requirements. Adient's customer teams lead the new business acquisition process, which ensures alignment with Adient's product, process and manufacturing strategies. These teams partner with customers in identifying optimal product solutions to meet product demand, and also lead commercial negotiations with Adient's customers. Adient believes that its commercial teams excel at balancing these commercial topics to find "win/win" solutions for the customer and for Adient.
To enhance customer experience and drive loyalty, Adient gathers customer feedback through annual "voice of the customer" surveys. Customer input from these surveys, as well as daily customer interaction, guides Adient's improvement activities in quality, cost and delivery. Input from customers, tracked using a customer relationship management tool to improve account management, enables prompt attention to customer concerns. Adient expects that its commercial management efforts will continue to yield outstanding performance and results.
Product Innovation and Process Leadership Adient has a strong record for developing winning product and process technologies over many years, which has created a competitive advantage for Adient and its customers. Management expects to increase investment in innovation.
Adient utilizes a Global Core Product Portfolio, or CPP, strategy for part and design reuse in all of its product applications. Adient intends to continue investing in its CPP to sustain and expand its market success and to leverage its existing modular and scalable systems and interchangeable components. Through the CPP strategy, Adient provides high quality products for its customers with market competitive cost and mass (low weight to improve fuel economy) while meeting their performance requirements. Adient intends to continue using its CPP to advance Adient's lean manufacturing initiatives by providing standard, flexible processes that reduce complexity, inventory and floor space. This will yield reductions in development time, product cost and investment.
Product templates and knowledge documents are continually updated with lessons learned from previous development programs. Knowledge is transferred from these templates into the next program design, drawings and documents. This development strategy has significantly reduced the average seating program development time. The continued use of this process will add value to customers' products and Adient through higher performing products, development time compression and lower costs.
Adient is also investing in a new Product Lifecycle Management, or PLM, system. This system is an interactive and interdisciplinary collaboration tool that will serve as a management database for program, product and process related data and simplifies the management of automotive seating programs and associated data. It is also expected to aid in the standardization of the development process and in communication with all sites that support global program execution. The PLM system not only will serve as storage for data and documents, but also will support workflow, schedule and change management of ongoing or upcoming programs, thereby enabling effective decision making and program management.
Leadership Position in China Adient has an advantaged position in China established through strategic partnerships it developed as an early market entrant. Adient is the largesta leading supplier of "just-in-time" seating in China.* It operates through 198 joint ventures (nonconsolidated and consolidated) with 7335 manufacturing locations in 3822 cities, which are supported by additional technical centers. Adient's strong position with European and American automakers is complemented by partnerships with all major auto groups in China, which has resulted in Adient's broad market penetration relative to seating competitors and market leadership in the industry's largest and one of the fastest-growing markets.market. Adient leverages its operating expertise and innovation capabilities developed worldwide to further support its growth in China. Refer to Note 3, “Acquisitions and Divestitures,” in Part II, Item 8 of this Form 10-K for more information on recent transactions in China.
Platform for Global Growth Adient's current global platform creates multiple opportunities for growth, such as:
•Market share expansion in seating and seating components. Adient expects revenues in Chinahas relationships with global OEM customers. These relationships, combined with Adient's product offerings, enhance Adient's ability to continueexpand its business with regional customers who are growing and expanding globally and also with new entrants to growthe automotive market.
•Regional growth opportunities. Adient is able to leverage its position as the automotive market continues to expand.
Operational Efficiencies Adient intends to maintain high capacity utilization and increase its efficiency through continued use of standardized manufacturing processes, which represent a core competency. These standardized manufacturing processes allow Adient to deliver exceptional quality levels and minimize waste. Adient achieves scale advantages through a global manufacturing footprint and an integrated supply chain. Adient fosters an environment of continuous improvement and identifies best business practices through the analysis of process and cost metrics, which are then shared globally throughout Adient's manufacturing network.
To ensure superior service levels, minimal inventory and optimal factory utilization, Adient employs a rigorous Sales & Operational Planning, or S&OP, process. A well-executed S&OP process provides two strategic advantages: superior customer service and on-time delivery which result in both customer retention and the opportunity for market share gain.
Adient's focus on global operational efficiencies will also be applied to its corporate cost structure, which Adient expects will produce a lean corporate overhead structure. Adient believes that maintaining a lean and operationally efficient process throughout the organization will enable it to be a market leader in costEurope, North America and China to grow in other markets, such as Southeast Asia.
•Vertical integration. Adient's operations provide opportunities for continued vertical integration in areas that this will result in margin expansion. Adient also intends to continue streamlining the mechanismscould enhance Adient's capabilities, expand profit margins and structures operations, which are capital intensivegrow revenues with long lead times and designs that span multiple vehicle platforms. Adient has made progress integrating product and process technologies across metal structures and mechanisms; however, opportunities still exist to streamline the product and process portfolio.customers who employ component sourcing strategies.
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 fiscal years ended September 30, 2017, 2016 and 2015 were $488 million, $460 million and $599 million, respectively. A portion of these costs associated with these activities is reimbursed by customers and, for the fiscal years ended September 30, 2017, 2016 and 2015 were $350 million, $308 million and $364 million, respectively.
Product/Systems
Adient designs and manufactures a full range of seating systems and components for passenger cars, commercial vehicles and light trucks, including vans, pick-up trucks and sport/crossover utility vehicles. Adient's technologies extend into virtually every area of automotive seating solutions including complete seating systems, frames, mechanisms, foam, head restraints, armrests and trim covers and fabrics. Adient also supplies high performance seating systems to the international motorsports industry through its award winning RECARO brand of products.covers.
Customers
Adient is a supplier to all of the global OEMs and has longstanding relationships with premier automotive manufacturers, including BMW, Daimler AG, Fiat Chrysler Automobiles,Mercedes-Benz Group, Ford Motor Company, General Motors Company, Honda Motor Company, Hyundai Motor Company, Jaguar Land Rover, Kia Motor Company,Corporation, Mazda Motor Company,Corporation, Mitsubishi Motors,Motor Corporation, Nissan Motor Company, PSA Peugeot Citroen,Corporation, Renault Group, Subaru, Stellantis N.V., Suzuki Motor Corporation, Toyota Motor Corporation, Volkswagen AGGroup and Volvo.Volvo Car Group. Adient also supplies most of the growing regional OEMs such as BAIC Motor Co., Ltd., Brilliance Auto Group, Changan Automobile (Group) Co., Ltd., Chery Automobile Co. Ltd., FAW Group Corporation, Great Wall Motors Company Limited, SAIC Motor Corporation Limited,Proton Holdings Berhad, Ashok Leyland, Tata Motors Limited and Zhejiang Geely Holding Group Co., LtdLtd. and newer auto manufacturers such as Tesla Motors, Inc., NIO and Xpeng Motors. Additionally, Adient has more than 208 joint venture partnerships with key OEMs, including SAIC Motor Corporation Limited,Guangzhou Automobile Group Co., Ltd., Beijing Automobile Works Co., Ltd. and FAW Group Corporation. Further details regarding Adient's customers is provided in Part II, Item 8 of this Form 10-K in Note 1, "Basis of Presentation and Summary of Significant Accounting Policies," of the notes to consolidated financial statements.
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* | Based on production volumes. Source: IHS Automotive | |
Industry
The Automotive Seating industry provides OEMs with complete seats on a "just-in-time" or "in-sequence" basis. Seats are assembled to specific order and delivered on a predetermined schedule directly to an automotive assembly line. The components for these complete seat assemblies such as seating foam, metal structures, fabrics, seat covers and seat mechanisms are shipped to Adient or competitor seating assembly plants. Adient is the world's largest*a global leader in complete seat assembly and one of the largest in all major seating components, operating manufacturing plants that produce seating foam, metal structures, fabrics, seat covers and seat mechanisms.
Overall, Adient expects long-term growth of vehicle sales and production in the OEM market. The industry has experienced overall growth during the past few years. In the most recent year, vehicle production increased by 19% in South America, 6% in China, 5% in other Asia, and 3% in Europe, and decreased by 3% in North America.plc | Form 10-K | 6
Demand for automotive parts in the OEM market is generally a function of the number of new vehicles produced, which is primarily driven by macro-economic factors such as credit availability, interest rates, fuel prices, consumer confidence, employment and other trends. Although OEM demand is tied to actual vehicle production, participants in the automotive supplier industry also have the opportunity to grow through increasing product content per vehicle by further penetrating business with existing customers and in existing markets, gaining new customers and increasing their presence in global markets. Adient believes that, as a company with a global presence and advanced technology, engineering, manufacturing and customer support capabilities, it is well positioned to benefit from these opportunities. In addition, Adient expects to leverage these capabilities to pursue future growth in adjacent markets.
Sourcing Patterns by OEMs Most OEMs have adopted global vehicle platforms to increase standardization, reduce per unit cost and increase capital efficiency and profitability. In seating, three sourcing patterns exist:
1. Core seat structures: By developing common front seat frames and mechanisms across multiple vehicle platforms, OEMs are reducing costs.
2. Component sourcing: Several OEMs have emerged overshifted from sourcing a complete seating system to a components approach where the past five years:OEM sources each of the different components of the seat and seating assembly as separate business awards.
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1. | Core seat structures: By developing common front seat frames and mechanisms across multiple vehicle platforms, OEMs are reducing costs.
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2. | Component sourcing: Several OEMs have shifted from sourcing a complete seating system to a components approach where the OEM sources each of the different components of the seat and seating assembly as separate business awards.
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3. | Engineering "in-sourcing"
3. Engineering "in-sourcing": Some OEMs are conducting the design and engineering internally and are selecting suppliers that have the capability to manufacture products on a worldwide basis and adapt to regional variations. |
Adient believes that ashave the capability to manufacture products on a worldwide basis and adapt to regional variations.
As a supplier with global scale and strong design, engineering and lean manufacturing capabilities in both complete seat systems and components itAdient is well-positioned to benefit fromaccommodate each of these three sourcing pattern developments and views these as opportunities.patterns.
Shorter Product Development Cycles As a result of new safety and environmental regulations, as well as a trend of more rapid customer preference changes, OEMs are requiring suppliers to respond faster with new designs and product innovations. Although these trends are more significant in mature markets, emerging markets are moving rapidly towards the regulatory standards and consumer preferences of the more mature markets. Suppliers with strong technologies, robust global engineering and development capabilities will be best positioned to meet OEM demands for rapid innovation.
Electric Vehicles The adoption of electric vehicles (EVs) is accelerating in the global automotive industry driven by numerous product offerings from legacy manufacturers and new entrants, government incentives and overall consumer acceptance. While seating systems are not largely impacted by the shift to EVs, key attributes of seat design are evolving as the market pivots toward EVs. This movement provides Adient with unique opportunities to provide value added solutions through Adient’s Evolution of Seating Systems Sustainability (“ES3”) and to capture market share through new entrants based on Adient’s existing leading market position.
Autonomous Driving As the industry moves towards autonomous driving and alternative usage models such as car sharing and urban mobility, Adient has developed an interiors concept for autonomous driving which addresses major seating and other interior trends that are expected to drive the automotive industry of the future. Adient will continue to partner with OEM'sOEMs and other customers to lead in the development of autonomous driving concepts.
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* | Based on production volumes. Source: IHS Automotive | |
Competition
Adient faces competition from other automotive suppliers and, with respect to certain products, from the automobile OEMs who produce or have the capability to produce certain products the business supplies. The automotive supply industry competes on the basis of technology, quality, reliability of supply and price. Design, engineering and product planning are increasingly important factors. The competitive landscape for seating and components can be categorized into three segments: (1) traditional seating suppliers, (2) component specialists and (3) competitors who are partnered with an OEM through ownership or interlocking business relationships. Independent suppliers that represent the principal competitors of Adient include Lear Corporation, Toyota Boshoku Corporation, Faurecia SA and Magna International Inc. The businesses operated through YFAI primarily compete with Faurecia SA, Grupo Antolin-Irausa SA and International Automotive Components Group SA. Adient's deep vertical integration, global footprint and broad product offering make it well positioned to compete against the traditional global Tier-1'sTier-1 suppliers and component specialists.
Raw Materials
Raw materials used by Adient in connection with its operations includinginclude steel, aluminum, polyurethane chemicals, fabrics, leather, vinyl and polypropylene, were readily available duringpolypropylene. Continuing into fiscal 2017, and 2022, the automotive industry has experienced a period of significant volatility in commodity prices. This price volatility may continue into the future as demand increases and/or supply remains
Adient expects such availability to continue.plc | Form 10-K | 7
constrained. Price volatility has resulted in an overall increase of input costs for Adient that may not be, or may only be partially, offset through customer negotiations. During fiscal 2018,2023, commodity prices and availability could fluctuate throughout the year and significantly affect Adient's results of operations. Refer to Item 1A. Risk Factors section for additional information.
Intellectual Property
Generally, Adient seeks statutory protection for strategic or financially important intellectual property developed in connection with its business. Certain intellectual property, where appropriate, is protected by contracts, licenses, confidentiality or other agreements.
Adient owns numerous U.S. and non-U.S. patents (and their respective counterparts), the more important of which cover those technologies and inventions embodied in current products or which are used in the manufacture of those products. While Adient believes patents are important to its business operations and in the aggregate constitute a valuable asset, no single patent, or group of patents, is critical to the success of the business. Adient, from time to time, grants licenses under its patents and technology and receives licenses under patents and technology of others.
Adient's trademarks certain of which are material to its business, are registered or otherwise legally protected in the United States and many non-U.S. countries where products and services of Adient are sold. Adient, from time to time, becomes involved in trademark licensing transactions.
Most works of authorship produced for Adient, such as computer programs, catalogs and sales literature, carry appropriate notices indicating Adient's claim to copyright protection under U.S. law and appropriate international treaties.
Regulation
Adient operates in a constantly evolving global regulatory environment and is subject to numerous and varying regulatory requirements for its product performance and material content. Adient's practice is to identify potential regulatory and quality risks early in the design and development process and proactively manage them throughout the product lifecycle through the use of routine assessments, protocols, standards, performance measures and audits. New regulations and changes to existing regulations are managed in collaboration with the OEM customers and implemented through Adient's global systems and procedures designed to ensure compliance with existing laws and regulations. Adient demonstrates material content compliance through the International Material Data System, or IMDS, which is the automotive industry material data system. In the IMDS, all materials used for carautomobile manufacturing are archived and maintained, in order to meet the obligations placed on the car manufacturers-andautomobile manufacturers and thus on their suppliers-bysuppliers by national and international standards, laws and regulations.
Adient works collaboratively with a number of stakeholder groups including government agencies (e.g., National Highway Traffic Safety Administration), its customers and its suppliers to proactively engage in federal, state and international public policy processes.
Environmental, Health and Safety
Legal Matters
Adient is involved in various lawsuits, claims and proceedings incident to the operation of its businesses, including those pertaining to product liability, environmental, safety and health, intellectual property, employment, commercial and contractual matters, and various other matters. Although the outcome of such lawsuits, claims and proceedings 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. Further details regarding Adient's commitments and contingencies is provided in Part II, Item 8 of this Form 10-K in Note 19, "Commitments and Contingencies," of the notes to consolidated financial statements.
Employees
Environmental, Social and Governance
At Adient, we recognize robust and responsible environmental, social and governance (ESG) policies and practices are essential to the long-term success of our business and the well-being of our stakeholders, including our investors, employees, suppliers, customers and communities. We are weaving sustainability into our company’s DNA by integrating ESG principles into our product development initiatives, manufacturing processes, procurement practices, corporate governance activities and other key business areas. Our Board of Directors and senior managers ensure we operate our business ethically and in accordance with applicable laws and regulations, and, as appropriate, they oversee and implement our ESG policies and strategies with input from a cross-functional team of subject matter experts across our organization. We regularly communicate our ESG targets and
Adient plc | Form 10-K | 8
related actions to our stakeholders through our SEC filings, media releases, quarterly earnings reports and our annual corporate sustainability report.
Production Processes
Adient remains committed to improving sustainability in its global operations and to utilize standardized processes to reduce energy consumption, conserve water and generate less waste and emissions at our facilities globally. In fiscal year 2021, Adient set a goal of reducing its scope 1 and 2 greenhouse gas emissions 75% by 2030 (with 2019 as our base year), and continues to make progress toward that goal. Some recent examples of how Adient is reducing emissions and improving sustainability in its operations include:
•Investing in more efficient equipment such as variable-speed air compressors and higher-efficiency HVAC units
•Replacing inefficient lighting with LED lighting
•Conducting hunts for sustainability opportunities at the facility level
•Purchasing ultrasonic air leak detectors to find and repair leaks on the production line
•Reconfiguring shipping racks and packaging to optimize transportation logistics and save fuel
In addition, several of Adient’s facilities generate renewable electricity on-site via solar panel installations, and more than 40 of its locations now attribute 100% of their electricity consumption to renewable sources.
Products
Sustainability has been an inherent part of product development and innovation at Adient for more than three decades, and customers’ sustainability targets are closely tracked to ensure its efforts align with the needs and goals of its customers. More recently, vehicle electrification and a general move toward increasingly efficient transportation have emphasized the need for automotive seating products that are lighter, slimmer and contain more environmentally friendly materials than traditional seating products. To help meet this need, Adient has developed products such as the Soft Back Panel, which integrates 70% recycled PET (polyethylene terephthalate) while improving knee clearance and reducing the weight of each seat by as much as 2 kg. Through Adient’s Evolution of Seating Systems Sustainability (ES3) approach to product design, Adient is continuously identifying and integrating materials and manufacturing methods that minimize environmental impact and promote a circular economy.
Adient also recognizes the importance of its supply chain’s environmental risks and impacts and are working with its suppliers to reduce scope 3 (value chain) emissions 35% by 2030 (with 2019 as the base year). In 2022, Adient began mapping its complex supply chain, and in fiscal year 2023, Adient plans to implement a supplier due diligence tool — which, in part, calculates greenhouse gas emissions per commodity based on its supplier spend — to assess ESG risks within the supply chain and fine-tune the roadmap for reaching its scope 3 emissions-reduction goal. As noted in Adient’s recently published Deforestation Policy, the Company is also committed to procuring its forest commodities from more sustainable sources in order to reduce the impact on deforestation and protect natural habitats globally.
People
Adient continues to work to protect the human rights and well-being of its employees, suppliers, customers and communities in which Adient operates globally. To those ends, Adient recently published a Human Rights Policy Statement, which outlines its commitment and defines the policies and procedures the Company has in place for respecting human rights, and a Diversity, Equity and Inclusion (DE&I) Commitment Statement, which illustrates why and how Adient is creating a safe, respectful, diverse and inclusive work culture. Additionally, Adient is proud to support women-, minority- and veteran-owned businesses by spending more than $1 billion with diverse suppliers every year.
Human Capital Resources
Adient's ability to sustain and grow its business requires it to hire, retain and develop a highly skilled and diverse workforce. Adient values character and integrity as much as qualifications and fosters an empowerment culture where employees have ownership in business outcomes. The highest levels of Adient’s management drive these practices with the alignment and support of all levels within the organization. Our Executive Vice President, Chief Legal and Human Resources Officer, and Corporate Secretary, reporting directly to the Chief Executive Officer (CEO), oversees Adient’s global talent processes to attract, develop and retain the most valuable asset - its employees. Adient has approximately 75,000 employees worldwide who represent a wide variety of backgrounds. Adient’s workforce composition (including employees at consolidated joint ventures), as of September 30, 2017, 2022, consists of approximately:
Adient employed approximately 85,000plc | Form 10-K | 9
•44% work in the Americas, 43% work in EMEA and 13% work in our Asia-Pacific region
•40% of the global workforce is female
•43% of employees in the U.S. have identified themselves as ethnically diverse.
Adient ensures its people are engaged and working collaboratively to achieve company goals through positive employee relations activities that focus on supporting employees and their families. Adient also provides and encourages many forms of whom approximately 68,000 were hourlycorporate communication such as town hall meetings, open-door policy and 17,000 were salaried.an ethics Integrity Helpline so that employees can hear directly from Adient leadership and have the opportunity to ask questions, make suggestions and provide input. Because the attraction, development and retention of the employee base is significant to its business strategy, executive management provides frequent updates on these metrics to the board of directors.
Health and Safety
We are committed to protecting the safety and well-being of our colleagues, customers, suppliers and people using our premises by providing and maintaining a safe working environment that protects both physical and mental wellbeing. Adient requires protective equipment, enforces comprehensive safety policies and procedures, and encourages employees and leaders to look regularly for ways to improve workplace safety. Adient has implemented and maintains a health and safety management system that is certified to the ISO 45001 Occupational Health and Safety standard. Globally, 100% of Adient’s facilities are internally audited and compliant, and 60% are also third-party audited and certified. Adient has achieved a year-over-year decrease in our global injury rate over the last several years. We work together across the globe, sharing best practice ideas, procedures, and information regarding accidents and injuries. At Adient, every new machine, operation, building or work-station change requires a safety risk assessment. When our employees come to work, they can know that where they work has undergone an extensive review of associated risks of injury or illness and that those risks are eliminated and/or minimized through robust controls. Adient provides monthly updates on health and safety to its board of directors, which during fiscal 2022, included updates on the return-to-work health and safety protocols in various geographies as a result of COVID-19.
Diversity, Equity and Inclusion
Adient strives to build a culture of diversity and inclusion through its purchasing and human resource practices and policies and works to eliminate discrimination and harassment in all of its forms, including women, minorities and other protected groups. Its CEO signed the "CEO Action for Diversity & Inclusion" pledge promulgated by the CEO Action for Diversity & Inclusion initiative, the largest CEO-driven business commitment to advance diversity and inclusion in the workplace. In addition, Adient is a member of the Center for Automotive Diversity, Inclusion and Advancement (CADIA). In September 2022 Adient published two new documents - a Human Rights Policy Statement and a Diversity, Equity & Inclusion (DE&I) Commitment Statement - each of which emphasizes the Company's commitment to protecting the safety, well-being and human rights of our people while driving a diverse and inclusive work culture. Adient developed and tracks human capital metrics regarding diversity and inclusion, which the Chief Legal and Human Resources Officer reviews semi-annually with the board of directors.
Since success in this area requires listening to diverse voices, Adient established Diversity, Equity and Inclusion (DE&I) Councils in each of its three business regions - the Americas, EMEA (Europe, the Middle East and Africa) and APAC (Asia Pacific). The Councils drive strategic and tactical actions in the areas of talent acquisition and retention, communications and employee feedback, training and education, metrics and key performance indicators, as well as support Adient’s diverse Business Resource Groups. While the three councils primarily work within their regions, they also communicate and collaborate across regions to ensure alignment and progress toward enterprise-wide DE&I goals. Additionally, Adient has an annual global online training to all salaried employees focused on DE&I.
In 2022, Adient launched one Business Resource Group (BRG) in the Americas - the Hispanic Origins Latino Ancestry group (HOLA!) - in addition to growing the existing African Ancestry BRG, True Colors Network, and Women’s Resource Network. We continue to develop and refine our diversity initiatives to achieve our DE&I vision of being a premier employer that champions an inclusive and equitable work culture enriched by our diversity, where all employees are valued and respected.
Succession and Talent Development
At Adient, we believe that attracting, developing, motivating and retaining employees is key to our sustainable and profitable growth. We understand that, like customers, our employees and potential employees have choices of where to work, and we must compete for the best talent. Adient supports employee development in multiple ways. Adient has a global performance management process through which employees provide a self-assessment and managers provide evaluation and feedback on performance. This process informs employee development goals. Adient's Leadership Talent Review (LTR) is its annual
Adient plc | Form 10-K | 10
process for identifying and evaluating talent for the purposes of aligning individual aspirations and development plans with the organization's needs and building a diverse pipeline of leaders to mitigate leadership vacancy risk. LTR is designed to be an inclusive process that promotes visibility of talent, increases the validity of succession plans and ensures development efforts are applied efficiently. Talent potential assessments and succession plans are calibrated with broader groups of leaders to drive consistency, awareness and alignment on decisions and development actions. Adient's executive leadership provides annual updates on succession and talent development to the board of directors.
Seasonal Factors
Adient's principal operations are directly related to the automotive industry. Consequently, Adient may experience seasonal fluctuations to the extent automotive vehicle production slows, such as in the summer months when many customer plants close for model year changeovers and in December when many customer plants close for the holidays.
Available Information
Adient's Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and amendments to reports filed pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), are filed with the Securities and Exchange Commission (the "SEC"). Adient is subject to the informational requirements of the Exchange Act and files or furnishes reports, proxy statements and other information with the SEC. Such reports and other information filed by Adient with the SEC are available free of charge on Adient's website at www.adient.com when such reports are available on the SEC's website. The public may read and copy any materials filed by Adient with the SEC at the SEC's Public Reference Room at 100 F Street, NE Room 1580, Washington, DC 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC at www.sec.gov. The contents of these websites are not incorporated into this filing. Further, Adient's references to website URLs are intended to be inactive textual references only.
Information about our Executive Officers
The following table sets forth certain information with respect to Adient's executive officers all of whom were first elected to their current positions at or prior to the time that Adient became a stand-alone company in 2016:
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| Name | | Age | | Position(s) Held | | Year Appointed to Present Position |
| R. Bruce McDonald | | 57 | | Chairman and Chief Executive Officer | | 2016 |
| Cathleen A. Ebacher | | 55 | | Vice President, General Counsel and Secretary | | 2016 |
| Byron S. Foster | | 49 | | Executive Vice President | | 2016 |
| Neil E. Marchuk | | 60 | | Executive Vice President and Chief Human Resources Officer | | 2016 |
| Eric S. Mitchell | | 46 | | Executive Vice President | | 2016 |
| Mark A. Skonieczny Jr. | | 48 | | Vice President and Corporate Controller | | 2016 |
| Jeffrey M. Stafeil | | 47 | | Executive Vice President and Chief Financial Officer | | 2016 |
R. Bruce McDonald. Mr. McDonald is the Chairman and Chief Executive Officer of Adient. Mr. McDonald was the Executive Vice President, Vice Chairman of Johnson Controls and served in that role from 2014 to 2016. He was Chief Financial Officer of Johnson Controls from 2005 to 2014 and Executive Vice President since 2006. Mr. McDonald serves on the board of Dana Incorporated, where he is the chairas of the Audit Committee and a memberdate of the Compensation Committee.this filing:
Cathleen A. Ebacher. Ms. Ebacher is the Vice President, General Counsel and Secretary of Adient. Ms. Ebacher was the Vice President and Global General Counsel—Centers of Excellence of Johnson Controls and served in that role from 2012 to 2016. She was Vice President and General Counsel—Enterprise Legal Services from 2011 to 2012.
Byron S. Foster. | | | | | | | | | | | | | | | | | | | | |
| Name | | Age | | Position(s) Held | | Year Appointed to Present Position |
| Michel Berthelin | | 52 | | Executive Vice President, EMEA | | 2019 |
| Douglas G. Del Grosso | | 61 | | President and Chief Executive Officer | | 2018 |
| Jerome J. Dorlack | | 42 | | Executive Vice President, Americas | | 2019 |
| James Huang | | 61 | | Executive Vice President, Asia | | 2019 |
| Gregory S. Smith | | 54 | | Senior Vice President and Chief Accounting Officer | | 2019 |
| Jeffrey M. Stafeil | | 52 | | Executive Vice President and Chief Financial Officer | | 2016 |
| Heather M. Tiltmann | | 50 | | Executive Vice President, Chief Legal and Human Resources Officer, and Corporate Secretary | | 2021 |
Michel P. Berthelin. Mr. Foster is an Executive Vice President of Adient. Mr. Foster served as the Group Vice President & General Manager—Complete Seat and Strategy of Johnson Controls' Automotive Experience business from 2015 to 2016, as the Group Vice President & General Manager—Customer Groups & Strategy, of Johnson Controls' Automotive Experience business from
2012 to 2015 and as the Group Vice President & General Manager—Metals, of Johnson Controls' Automotive Experience business from 2011 to 2012.
Neil E. Marchuk. Mr. MarchukBerthelin is the Executive Vice President, EMEA of Adient. Mr. Berthelin was the Vice President, EMEA of Delphi Technologies during 2018. He served as the Global Steering Vice President of ZF Friedrichshafen AG from 2016 to 2018 and the Vice President, North America-Braking of ZF Friedrichshafen AG during 2015. He was also Vice President, Europe-Braking for TRW Automotive Holdings Corp. from 2012 to 2015.
Douglas G. Del Grosso. Mr. Del Grosso is the President and Chief Human ResourcesExecutive Officer and a Director of Adient. Mr. Del Grosso joined Adient in October 2018 from automotive supplier Chassix, where he served as president and CEO. From 2012 to 2015, he served as president and CEO at Henniges Automotive. Mr. Del Grosso held leadership roles at TRW Automotive from 2007 to 2012, where he last served as vice president and general manager for the company’s global braking and suspension operations. Prior to joining Johnson ControlsTRW Automotive, Mr. Del Grosso spent more than 20 years at Lear Corporation in a variety of engineering and operational roles, the last being president and chief operating officer (COO). Mr. Del Grosso holds a Master of Business Administration (MBA) from the Eli Broad College of Business at Michigan State University, as well as a Bachelor of Science degree in mechanical engineering from Lawrence Technological University. He serves as a director and member of the Safety, Health, Environment and Sustainability Committee at Cabot Corp., and as a trustee of The Committee for Economic Development of The Conference Board (CED). His CED activities include co-chairing the CED Trade and Economic Globalization Committee, being a member of the Education Committee and serving as a member of the CED Task Force on Climate, The Environment, and Energy.
Adient plc | Form 10-K | 11
Jerome J. Dorlack. Mr. Dorlack is the Executive Vice President, Americas of Adient. In October 2022, the Company announced that Mr. Dorlack will be appointed as Executive Vice President and Chief Financial Officer effective December 1, 2022. Mr. Dorlack served as Vice President and Chief Purchasing Officer of Adient from 2018 to 2019. He also served as Senior Vice President and President, Electrical Distribution System and President, South America of Aptiv plc from 2017 to 2018, and Vice President, Powertrain Systems and General Manager, Global Powertrain Products of Delphi Automotive plc from 2016 to 2017. Prior to that, Mr. MarchukDorlack served as Executive Vice President Human Resources– Global Procurement of TRW Automotive from 2006 to 2015.
Eric S. Mitchell. Mr. Mitchell is an Executive Vice President of Adient. Mr. Mitchell served as the Vice President & General Manager, North America of Johnson Controls' Building Efficiency businessZF Friedrichshafen from 2015 to 2016, and Vice President, Global Purchasing, Supplier Development and Logistics of ZF Friedrichshafen from 2013 to 2015.
James J. Huang. Mr. Huang is the Executive Vice President, Asia of Adient. Mr. Huang served as Vice President, Complete Seat Asia of Adient from 2016 to 2018, and Vice President Complete Seat Asia of Johnson Controls, Inc. from 2014 to 2016.
Gregory S. Smith. Mr. Smith is the Senior Vice President and General Manager—Aftermarket,Chief Accounting Officer of Johnson Controls' Power Solutions businessAdient. Mr. Smith served as Adient’s Assistant Corporate Controller from 20132016 to 2014, the Group Vice President and General Manager—Components & Sourcing, of Johnson Controls' Power Solutions business from 20122019. Prior to 2013 and the Vice President and General Manager, EMEA, of Johnson Controls' Power Solutions business from 2009 to 2012.
Mark A. Skonieczny Jr. Mr. Skonieczny is the Vice President andthat, he served as Corporate Controller of Adient. Mr. SkoniecznyJason Industries, Inc. in 2015 and was the Vice President of Corporate Development of Johnson Controlswith PricewaterhouseCoopers LLP from 20141995 to 2016, the Vice President of Finance, Global Aftermarket of Johnson Controls' Power Solutions business from 2012 to 2014 and the Vice President of Finance for North America Systems, Latin America and the Middle East for Johnson Controls' Building Efficiency business from 2007 to 2012.2015.
Jeffrey M. Stafeil. Mr. Stafeil is the Executive Vice President and Chief Financial Officer of Adient. In October 2022, the Company announced that Mr. Stafeil will be resigning as Executive Vice President and Chief Financial Officer effective November 30, 2022. Mr. Stafeil was Executive Vice President, Chief Financial Officer of Visteon Corporation from 2012 to 2016. He also servedserves as Chief Executive Officera Director and member of DURA Automotive Systems from 2010 to 2012the Audit and as DURA's Executive Vice President, Chief Financial Officer from 2008 to 2012.Finance Committees at Arconic Corp. Mr. Stafeil previously served on the boardBoard of directors,Directors, and as Audit Committee Chairman, of each of Mentor Graphics Corporation and Metaldyne Performance Group.
Heather M. Tiltmann. Ms. Tiltmann is the Executive Vice President, Chief Legal and Human Resources Officer, and Corporate Secretary of Adient. Ms. Tiltmann served as Senior Vice President, General Counsel and Secretary of Adient from 2020 to 2021. Prior to that, Ms. Tiltmann was the Company’s Vice President and General Counsel, Labor & Employment, Litigation and Compliance, and has served in other legal roles at Adient since 2016. Ms. Tiltmann was an attorney at Johnson Controls, Inc. with increasing levels of responsibility from 2011 to 2016, and an attorney with the law firm of Whyte Hirschboeck Dudek S.C. from 2000 to 2011.
Adient plc | Form 10-K | 12
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Item 1A. |
Item 1A. Risk Factors | | | |
The following discussion of risk factors contains forward-looking statements. These risk factors may be important to understanding other statements in this Form 10-K. The following information should be read in conjunction with Part II, Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the consolidated financial statements and related notes in Part II, Item 8, "Financial Statements and Supplementary Data" of this Form 10-K.
The business, financial condition and operating results of Adient can be affected by a number of factors, whether currently known or unknown, including but not limited to those described below, any one or more of which could, directly or indirectly, cause Adient's actual financial condition and operating results to vary materially from past, or from anticipated future, financial condition and operating results. Any of these factors, in whole or in part, could materially and adversely affect Adient's business, financial condition, operating results and stock price.
Because of the following factors, as well as other factors affecting Adient's financial condition and operating results, past financial performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate results or trends in future periods.
Risks Related to Adient's Global Business
General economic, credit, and capital market and global political conditions could adversely affect Adient's financial performance, Adient's ability to grow or sustain its businesses and Adient's ability to access the capital markets.
Adient competes around the world in various geographic regions and product markets. Global economic conditions, including supply chain disruptions, inflationary concerns and labor availability, affect Adient's business. As discussed in greater detail below, any future financial distress in the industries and/or markets where Adient competes could negatively affect Adient's revenues and financial performance in future periods, result in future restructuring charges, and adversely impact Adient's ability to grow or sustain its businesses.
The global automotive industry has experienced widespread supply chain disruptions, primarily related to semiconductor chip shortages. Although Adient's seating products are not highly dependent directly on semiconductor chips, Adient is directly impacted by the lower production levels at the OEMs as a direct result of these supply chain disruptions. These disruptions have led to unplanned downtime at Adient's production facilities, often with very little warning, which creates operating inefficiencies and limits Adient's ability to adequately mitigate such inefficiencies. The automotive industry has also experienced a period of significant price volatility (generally resulting in an increase in commodities, energy costs, freight costs, labor costs and other input costs), as well as encountering an environment of unfavorable foreign currency exposures and rising interest rates. These input cost increases and other exposures will likely continue into fiscal 2023 and perhaps further into the future. This environment of significant price volatility has resulted in, and may continue to result in, increased costs for Adient that may not be, or may only be partially, offset. Adient also experienced constrained labor availability which has resulted in wage inflationary pressures, both internally and at key vendors. Adient continues to assess any impact labor shortages and wage inflation might have on Adient's ability to perform its obligations. Although Adient has developed and implemented strategies to mitigate the impact of supply chain disruptions along with the impact of higher input and other costs, these strategies, together with commercial negotiations with Adient's customers and suppliers, typically offset only a portion (less than 100%) of the adverse impact. Additionally, Adient's operating model requires long lead times between the design and development of products and the launch of production. This lead time requires Adient to secure vendor supply well in advance to minimize launch and production inefficiencies. During such lead times, price commitments are subject to change and could lead to an inability of Adient to fully recover all such price changes.
The capital and credit markets provide Adient with liquidity to operate and grow its business beyond the liquidity that operating cash flows provide. A worldwide economic downturn and/or disruption of the credit markets couldlikely would reduce Adient's access to capital necessary for its operations and executing its strategic plan. If Adient's access to capital were to become constrained significantly, or if costs of capital increased significantly, due to lowered credit ratings, prevailing industry conditions, the volatility of the capital markets or other factors, Adient's financial condition, results of operations and cash flows couldlikely would be adversely affected.
The U.K.'s June 2016 referendum to leave the European Union, which we refer to as "Brexit," has caused and may continue to cause disruptions to capital and currency markets worldwide. On March 29, 2017, the U.K. invoked Article 50 of the Lisbon Treaty, which provides a two-year time period through March 2019 for the U.K. and the remaining European Union countries to negotiate a withdrawal agreement. The full impact of the Brexit decision, however, remains uncertain. The ongoing process of negotiation will determine the future terms of the U.K.'s relationship with the European Union. During this period of negotiation, Adient's results of operations and access to capital may be negatively affected by interest rate, exchange rate and other market and economic volatility, as well as regulatory and political uncertainty. Brexit may also have a detrimental effect on Adient's customers and suppliers, which would, in turn, adversely affect Adient's revenues and financial condition. In addition, Brexit may result in legal uncertainty and potentially divergent national laws and regulations as new legal relationships between the U.K. and the European Union are established.
A failure of Adient's information technology (IT) and data security infrastructure could adversely impact Adient's business, operations and reputation.
Adient relies upon the capacity, reliability and security of its IT and data security infrastructure, as well as its ability to expand and continually update this infrastructure in response to the changing needs of its business. If Adient experiences a problem with the functioning of an important IT system or a security breach of Adient's IT systems, including during system upgrades and/or new system implementations, the resulting disruptions could have an adverse effect on Adient's business.
Adient and certain of its third-party vendors receive and store personal information in connection with Adient's human resources operations and other aspects of Adient's business. Despite Adient's implementation of security measures, Adient's IT systems, like those of other companies, are vulnerable to damages from computer viruses, natural disasters, unauthorized access, cyber-attack and other similar disruptions. Any system failure, accident or security breach could result in disruptions to Adient's operations. A material network breach in the security of Adient's IT systems could include the theft of Adient's intellectual property, trade secrets, customer information, human resources information or other confidential information. To the extent that any disruptions or security
breach results in a loss or damage to Adient's data, or an inappropriate disclosure of confidential, proprietary or customer information, it could cause significant damage to Adient's reputation, affect Adient's relationships with its customers, lead to claims against Adient and ultimately harm its business. In addition, Adient may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.
Negative or unexpected tax consequences could adversely affect Adient's results of operations.
AdverseUnfavorable changes in the underlying profitability and financial outlook of Adient's operations in several jurisdictions could lead to additional changes in Adient's valuation allowances against deferred tax assets and other tax reserves on Adient's statements of financial position. Additionally, changes in tax laws in Ireland, the U.S. or in other countries where Adient has significant operations could materially affect deferred tax assets and liabilities on Adient's statements of financial position and income tax provision on Adient's statements of income.
Adient is also subject to tax audits by governmental authorities on a worldwide basis. Negative unexpected results from one or more such tax audits could adversely affect Adient's results of operations.
Adient's inability to achieve product cost reductions that offset customer-imposed price reductions could adversely affect Adient's financial performance.
Downward pricing pressure by automotive manufacturers is a characteristiccondition of the global automotive industry. Adient's financial performance is largely dependent on its ability to achieve product cost reductions through product design enhancement and supply chain management, as well as manufacturing efficiencies and restructuring actions. Adient's inability to achieve product cost reductions that offset customer-imposed price reductions could adversely affect Adient's financial condition, operating results and cash flows.
Adient may not be able to successfully negotiate pricing terms with its customers, which may adversely affect its results of operations.
Adient will negotiate sales prices annually with its automotive customers. Any cost-cutting initiatives that its customers adopt generally result in increased downward pressure on pricing. If Adient is unable to generate sufficient production cost savings in the future to offset price reductions, Adient's results of operations may be adversely affected. In particular, large commercial settlements with Adient's customersindustry may adversely affect Adient's results of operations.
Adient's financial performance depends, in part, on conditions in the automotive industry. Automotive production and sales are highly cyclical and depend on general economic conditions and other factors, including consumer spending and preferences. If automakers experience a decline in the number of new vehicle sales, whether as a result of economic decline, the continuing
Adient plc | Form 10-K | 13
effects of the COVID-19 pandemic, ongoing supply chain disruptions, increasing consumer borrowing rates or otherwise, then Adient may experience reductions in orders from these customers, incur write-offs of accounts receivable, incur impairment charges or require additional restructuring actions beyond its current restructuring plans, particularly if any of the automakers cannot adequately fund their operations or experience financial distress. Such adverse changes likely would have a negative impact on Adient's business, financial condition or results of operations. In addition, Adient relies in part on its customers’ forecasting of their expected needs, which forecasts can change rapidly and may not be unableaccurate. Any inaccurate forecast data received by customers could also have an adverse impact on Adient’s results of operations.
Adient's financial condition and results of operations have been, and could continue to completebe, adversely affected by COVID-19.
The global outbreak of COVID-19 has caused, and continues to cause, a material adverse effect on the level of economic activity around the world, including in all markets served by Adient. In response to this outbreak, the governments of many countries, states, cities and other geographic regions have taken preventative or integrate acquisitionsprotective actions, such as imposing restrictions on travel and business operations, and these governments may take additional or further such actions in the future. Adient has implemented numerous measures attempting to manage and mitigate the effects of the virus. While Adient has implemented measures to mitigate the impact of these measures on the results of operations, there can be no assurance that these measures will be successful now or in the event of future outbreaks. Adient cannot predict the degree to, or the time period over, which its sales and operations will be affected by this ongoing outbreak and related preventative measures, and the effects could continue to be material.
The COVID-19 pandemic poses the risk that Adient or its affiliates and joint ventures, effectively,employees, suppliers, customers and others may be restricted or prevented from conducting business activities for indefinite or intermittent periods of time, including as a result of employee health and safety concerns, shutdowns, shelter in place orders, travel restrictions and other actions and restrictions that may be requested or mandated by governmental authorities. For example, the Company experienced a temporary shutdown of its facilities in the second quarter of fiscal 2020 in China as a result of government-mandated actions to control the spread of COVID-19, and again in late March 2020, in the Americas and European regions coinciding with the shutdown of its customer facilities in these regions. Furthermore, during fiscal 2022 the Company continued to see periodic or temporary shutdowns, from time to time, at its facilities in China as a result of the resurgence of COVID-19. In addition, certain government orders related to COVID-19 mitigation efforts may restrict Adient's ability to operate its business and may impact its financial condition and results of operations. Finally, while other of its facilities have been designated by customers as an essential business to its customers’ business in jurisdictions in which facility closures have been mandated, the Company can give no assurance that this will not change in the future or that businesses will continue to be classified as essential in each of the jurisdictions in which Adient operates.
While OSHA’s Emergency Temporary Standard (as announced in early fiscal 2022) has been withdrawn, state and local governments in which our business operates may adversely affect its growth, profitabilityimplement or announce COVID-19 vaccination requirements applicable to certain of our employees. It is currently not possible to predict with certainty the impact these vaccination mandates, if implemented, will have on our business, especially on our workforce. Our implementation of these requirements may result in costs to us in the form of vaccinations or testing of employees. These requirements may also result in attrition in our workforce, including attrition of critically skilled labor, and difficulty securing future labor needs, which could have a material adverse effect on our business, financial condition and results of operations.
Additionally, restrictions on the Company's access to its manufacturing facilities or on support operations or workforce, or similar limitations for its distributors and suppliers, could continue to limit customer demand and/or the Company's capacity to meet customer demands and have a material adverse effect on its business, financial condition and results of operations. In addition, Adient expects acquisitionshas modified its business practices (including limiting employee travel, employee work locations, and physical participation in meetings, events and conferences), and it may take further actions as may be required by government authorities, for the continued health and safety of businessesthe employees, or that the Company otherwise determines are in the best interests of the employees, customers, partners, and assets, as well as joint ventures (or other strategic arrangements)suppliers. Further, the Company has experienced, and may continue to play a roleexperience, disruptions or delays in its supply chain as a result of such actions, which is likely to result in higher supply chain costs to Adient in order to maintain the supply of materials and components for the products, resulting in increased costs and decreased profitability, which may have an adverse impact on Adient’s results of operations.
If the COVID-19 pandemic becomes more pronounced in the markets in which the Company or its automotive industry customers operate, or there is a continued resurgence in the virus in markets currently recovering from the spread of COVID-19, then the Company's operations in areas impacted by such events could experience further materially adverse financial impacts due to market changes and other resulting events and circumstances. The extent to which the COVID-19 outbreak continues to impact the Company's financial condition will depend on future growth. Adientdevelopments that are highly uncertain and cannot be certainpredicted, including new government actions or restrictions, new information that may emerge concerning the
Adient plc | Form 10-K | 14
severity of COVID-19, the longevity of COVID-19 and the impact of COVID-19 on economic activity. To the extent the COVID-19 pandemic materially adversely affects the Company's business and financial results, it will be able to identify attractive acquisition or joint venture targets, obtain financing for acquisitions on satisfactory terms, successfully acquire identified targets or form joint ventures, or managemay also have the timingeffect of acquisitions due tosignificantly heightening many of the other capital obligations across its businesses. Additionally, Adient may not be successful in integrating acquired businesses or joint ventures into its existingrisks associated with the Company's business, operations and achieving projected synergies. Specifically,indebtedness.
The COVID-19 pandemic and other macroeconomic factors, such as supply chain disruptions, could present significant challenges to Adient's liquidity.
Adient's continued access to sources of liquidity depends on September 22, 2017, Adient completedmultiple factors, including global economic conditions, the COVID-19 pandemic's effects on its acquisitioncustomers and their production rates, the condition of automotive seating manufacturing Futuris Global Holdings, LLC. Among other risks, failureglobal financial markets, the availability of sufficient amounts of financing, its operating performance and credit ratings. Adient's ability to successfully integrate Futuris,borrow against the possibility thatABL Credit Facility is limited to its borrowing base, which consists primarily of accounts receivable, inventory and certain cash account balances. Such working capital account balances fluctuate significantly depending on production levels and operating activities. Given the expected synergiescontinued potential impacts of COVID-19, along with on-going supply chain disruptions and value creation from the acquisitionpotential reduction in customer orders or a required shutdown of Futuris will notAdient’s operations, the amount of accounts receivable or inventory may be realized or will notsignificantly reduced, and Adient’s ability to borrow against its ABL Credit Facility could be realized at expected levels or within the expected time period, or the likelihood that consummation of the acquisition of Futuris will make it difficult for Adient to consummate other material and/or strategically advantageous acquisitions or investments in the near termsignificantly decreased, which may have a material adverse impacteffect on Adient's growth, profitability,its financial positioncondition.
As a result of on-going impacts of the COVID-19 pandemic and resultsother macroeconomic factors negatively impacting the global automotive industry, Adient may be required to raise additional capital and its access to and cost of operations. Furthermore, competition for acquisition opportunitiesfinancing will depend on, among other things, global economic conditions, conditions in the various industries in which Adient operates may rise, thereby increasing Adient's costs of making acquisitions or causing Adient to refrain from making further acquisitions. If Adient were to use equity securities to finance a future acquisition, Adient's then-current shareholders would experience dilution. Adient is also subject to applicable antitrust laws and must avoid anticompetitive behavior. These and other factors related to acquisitions and joint ventures may negatively and adversely impact Adient's growth, profitability and results of operations.
Adient may pursue strategic transactions and investments that have risks and uncertainties that could adversely affect its results of operations and financial condition.
Adient has completed an acquisition, made investments and entered into other strategic initiatives and may pursue additional transactions and initiatives. Although management believes that these transactions and initiatives will provide financial, operational and other benefits to Adient and Adient's shareholders, they may not provide such results on the scope or scale management
anticipates, and Adient may not realize any or all of the intended benefits. These transactions and initiatives involve risks and uncertainties and could divert management’s attention from Adient's business or cause a temporary interruption of or loss of momentum in Adient's business and the loss of key personnel. If the intended benefits of these transactions and investments are not realized, Adient's financial condition, results of operations or cash flows could be adversely impacted.
Increases in the costs and restrictions onglobal financing markets, the availability of raw materials, energy, commoditiessufficient amounts of financing, its prospects and product components could adversely affect Adient's financial performance.credit ratings.
Raw material, energy and commodity costs can be volatile. Although Adient has developed and implemented strategies to mitigate the impact of higher raw material, energy and commodity costs, these strategies, together with commercial negotiations with Adient's customers and suppliers, typically offset only a portion of the adverse impact. Certain of these strategies also may limit Adient's opportunities in a declining commodity environment. In addition, the availability of raw materials, commodities and product components fluctuates from time to time due to factors outside of Adient's control. If the costs of raw materials, energy, commodities and product components increase or the availability thereof is restricted, it could adversely affect Adient's financial condition, operating results and cash flows.
Risks associated with joint venture partnerships may adversely affect Adient's business and financial results.
Adient has entered into several joint ventures worldwide and may enter into additional joint ventures in the future. Adient's joint venture partners may at any time have economic, business or legal interests or goals that are inconsistent with Adient's goals or with the goals of the joint venture. In addition,venture which could lead to, among other things, dissolution, liquidation and/or modification of the joint venture terms. Adient may compete against its joint venture partners in certain of its other markets.markets and certain negotiations with its customers may negatively impact its joint venture business with those same customers. Disagreements with Adient's business partners may impede Adient's ability to maximize the benefits of its partnerships.partnerships and/or may consume management time and other resources to negotiate, and which could lead to, among other things, dissolution, liquidation and/or modification of the joint venture terms. Adient's joint venture arrangements may require Adient, among other matters, to pay certain costs or to make certain capital investments or to seek its joint venture partner's consent to take certain actions. Adient does not control the ability to collect cash dividends from its non-consolidated joint ventures. In addition, Adient does not control the financial reporting of its non-consolidated joint ventures, which may impact its ability to complete its financial statements in a timely or accurate manner. Delays in the collection of dividends, even by a few days, could adversely affect Adient's financial position and cash flows. Adient's joint venture partners may be unable or unwilling to meet their economic or other obligations under the operative documents, and Adient may be required to either fulfill those obligations alone to ensure the ongoing success of a joint venture or to dissolve and liquidate a joint venture. Further, joint venture partnerships are subject to renewal or expiration at various times. While Adient maintains good relationships with its partners, at the time of any required renewal Adient may not be ableThe failure to negotiate a renewalrenew or extension ofextend the terms of theAdient’s joint venture partnership on terms favorable to Adient or at all.partnerships could impact other areas of Adient’s business, including its business relationships. The above risks, if realized, could result in a material adverse effect on Adient's business and financial results.
Furthermore, non-consolidated joint ventures present various risks, including the risk that Adient operates in the highly competitive automotive supply industry.
The global automotive component supply industry is highly competitive. Competition is based primarily on price, technology, quality, delivery and overall customer service. There canmay be no assurance that Adient's products will beslower or less able to compete successfully withidentify or react to problems affecting its non-consolidated joint ventures than Adient would for a wholly-owned subsidiary or consolidated joint venture. In addition, these arrangements may cause Adient to be slower to detect compliance related problems and make its design of effective internal controls more challenging. Each of these challenges may be more costly to implement, and the productsrisk of Adient's competitors. Furthermore,failure potentially higher, than would be the rapidly evolvingcase in a more centralized structure. Depending on the nature of the markets in which Adient competes may attract new entrants. Additionally, consolidation inproblems, the automotive industry may leadfailure to decreased product purchases from Adient. As a result, Adient's sales levels and marginsidentify, detect or react could be adversely affected by pricing pressures from OEMs and pricing actions of competitors. These factors may lead to selective resourcing of business to competitors. Adient's competitors may develop, design or duplicate technologies that compete with Adient's owned or licensed intellectual property. Developments or assertions by or against Adient relating to intellectual property rights, or any inability to protect Adient's rights, could have a material adverse impact on its business and competitive position. In addition, any of Adient's competitors may foresee the course of market development more accurately than Adient, develop products that are superior to Adient's products, produce similar products at a lower cost than Adient, or adapt more quickly than Adient to new technologies or evolving customer requirements. As a result, Adient's products may not be able to compete successfully with its competitors' products and Adient may not be able to meet the growing demands of customers. These trends maymaterially adversely affect Adient's sales as well as the profit margins on Adient's products.
Unfavorable changes in the condition of the global automotive industry may adversely affect Adient's results of operations.
Adient's financial performance will depend, in part, on conditions in the automotive industry. If automakers experience a decline in the number of new vehicle sales, Adient may experience reductions in orders from these customers, incur write-offs of accounts receivable, incur impairment charges or require additional restructuring actions beyond its current restructuring plans, particularly if any of the automakers cannot adequately fund their operations or experience financial distress. In addition, such adverse changes could have a negative impact on Adient'sAdient’s business, financial condition or results of operations.
If Adient does not respond appropriately, the evolution of the automotive industry towards autonomous vehicles and mobility on demand services could adversely affect Adient’s business.
The automotive industry is increasingly focused on the development of advanced driver assistance technologies, with the goal of developing and introducing a commercially-viable, fully automated driving experience. There has also been an increase in consumer preferences for mobility on demand services, such as car- and ride-sharing, as opposed to automobile ownership, which may result in a long term reduction in the number of vehicles per capita. These evolving areas have also attracted increased competition from entrants outside the traditional automotive industry. If Adient does not continue to innovate to develop or acquire new and compelling products that capitalize upon new technologies in response to OEM and consumer preferences, this could have a material adverse impact on Adient’s results of operations.
Changes in U.S. administrative policy, including changes to existing trade agreements, may have a material adverse effect on Adient.
As a result of changes to U.S. administrative policy, there may be changes to existing trade agreements, like the North American Free Trade Agreement, greater restrictions on free trade generally, and significant increases in tariffs on goods imported into the U.S. particularly tariffs on products manufactured in Mexico, among other possible changes. Changes in U.S. social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the territories and countries where Adient currently manufactures and sells products, and any resulting negative sentiments towards the U.S. as a result of such changes, could have a material adverse effect on Adient's business, financial condition or results of operations.
The cyclicality of original equipment automobile production rates may adversely affect Adient's results of operations.
The financial performance of Adient's business is directly related to automotive production by its customers. Automotive production and sales are highly cyclical and depend on general economic conditions and other factors, including consumer spending and preferences. An economic decline that results in a reduction in automotive production by Adient's customers could have a material adverse impact on Adient's results of operations.
Adient may incur material losses and costs as a result of warranty claims and product liability actions that may be brought against Adient.
Adient faces an inherent business risk of exposure to warranty claims and product liability in the event that its products fail to perform as expected and, in the case of product liability, such failure of its products results, or is alleged to result, in bodily injury and/or property damage. If any of Adient's products are or are alleged to be defective, Adient may be required to participate in a recall involving such products. As suppliers become more integrally involved in the vehicle design process and assume more of the vehicle assembly functions, auto manufacturers are increasingly looking to their suppliers for contribution when faced with recalls and product liability claims. A recall claim brought against Adient, or a product liability claim brought against Adient in excess of its available insurance, could have a material adverse impact on Adient's results of operations. In addition, a recall claim could require Adient to review its entire product portfolio to assess whether similar issues are present in other product lines, which could result in significant disruption to Adient's business and could have a material adverse impact on Adient's results of operations.
Auto manufacturers are also increasingly requiring their suppliers to guarantee or warrant their products and bear the costs of repair and replacement of such products under new vehicle warranties. Depending on the terms under which Adient supplies products to an auto manufacturer, an auto manufacturer may attempt to hold Adient responsible for some or all of the repair or replacement costs of defective products under new vehicle warranties, when the vehicle manufacturer asserts that the product supplied did not perform as warranted. Although Adient cannot assure that the future costs of warranty claims by its customers will not be material, Adient believes its established reserves are adequate to cover potential warranty settlements. Adient's warranty reserves are based on Adient's best estimates of amounts necessary to settle future and existing claims. Adient regularly evaluates the level of these reserves, and adjusts them when appropriate. However, the final amounts determined to be due related to these matters could differ materially from Adient's recorded estimates.
Any changes in consumer credit availability or cost of borrowing could adversely affect Adient's business.
Declines in the availability of consumer credit and increases in consumer borrowing costs have negatively impacted global automotive sales and resulted in lower production volumes in the past. Substantial declines in automotive sales and production by Adient's customers could have a material adverse effect on Adient's business, results of operations and financial condition.
Risks associated with Adient's non-U.S. operations could adversely affect Adient's business, financial condition and results of operations.
Adient has significant operations in a number of countries outside the United States,U.S., some of which are located in emerging markets. Long-term economic or political uncertainty in some of the regions of the world in which Adient operates, such as Asia, South America and Europe and other emerging markets, could result in the disruption of markets and negatively affect cash flows from Adient's operations to cover its capital needs and debt service requirements.
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In addition, as a result of Adient's global presence, a significant portion of its revenues and expenses is denominated in currencies other than the U.S. dollar. Adient is therefore subject to foreign currency risks and foreign exchange exposure. While Adient employs financial instruments to hedge some of its transactional foreign exchange exposure, these activities do not insulate Adient completely from those exposures. Exchange rates can be volatile and could adversely impact Adient's financial results and the comparability of results from period to period. Our use of financial instruments to limit this risk is guided by strict policies and processes and the success of our hedging programs depends primarily on the performance of the business in comparison with our forecasted sales proceeds and costs. If we incorrectly forecast these and other related factors, the transactions we have entered into may have an adverse impact on our financial results. No assurance can be given that our judgment in this respect will be correct.
There are other risks that are inherent in Adient's non-U.S. operations, including the potential for changes in socio-economicsocioeconomic conditions, laws and regulations, including import, export, direct and indirect taxes, value-added taxes, labor and environmental laws, and monetary and fiscal policies; protectionist measures that may prohibit acquisitions or joint ventures, or impact trade volumes; unsettled political conditions;conditions or instability; government-imposed plant or other operational shutdowns; backlash from foreign labor organizations related to Adient's restructuring actions; corruption; natural and man-made disasters,disasters; global health epidemics (such as COVID-19); hazards and losses; armed conflict, territorial disputes or acts of aggression in Asia, South America, Europe or otherwise; violence, civil and labor unrest; and possible terrorist attacks.
On December 30, 2020, the U.K. completed its withdrawal from the European Union and entered into an agreement regarding their future relationship, the Trade and Cooperation Agreement, which was ratified by the parties and entered into full force on May 1, 2021. However, certain economic uncertainties remain in connection with the future of the U.K. and its relationship with the European Union. These uncertainties have caused and may continue to cause disruptions to capital and currency markets worldwide as well as cause disruptions on Adient’s operations.
Russia’s invasion of Ukraine in February 2022 has resulted in significant uncertainty and instability in global supply chains and availability of certain commodities and raw materials. Although Adient has no operations in Ukraine and its operation in Russia has since been disposed, certain of its suppliers as well as customers depend on commodities and other factorsmaterial supplies that originate in Ukraine or Russia. In response to Russia’s invasion in Ukraine, a number of countries, including the United States, the United Kingdom and members of the European Union, have implemented economic sanctions on Russia and certain Russian enterprises including several large banks. The conflict has also led to increases in the cost of energy and the potential for energy shortages, especially in Europe. If the conflict continues or expands, it may trigger a series of additional economic and other sanctions which in turn could further disrupt the global automotive supply chains by limiting supplies of key components and increasing inflationary pressures. The continued conflict could have broader adverse impacts on Adient's business, cash flows, financial condition and results of operations.
Adient's business in China is subject to aggressive competition and is sensitive to economic and market conditions.
Maintaining a strong position in the Chinese market is a key component of Adient's strategy. Adient's business in China is conducted through both consolidated subsidiaries and nonconsolidated joint ventures. The automotive supply market in China is highly competitive, with competition from many of the largest global manufacturers and numerous smaller domestic manufacturers. As the size of the Chinese market evolves, Adient anticipates that market participants will act aggressively to increase or maintain their market share. Increased competition may result in price reductions, reduced margins and Adient's inability to gain or hold market share. In addition to the risks imposed by U.S. economic trade policy discussed further below, Adient's business in China is sensitive to economic, political and market conditions that drive automotive sales volumes in China. If Adient is unable to maintain its position in the Chinese market, or if vehicle sales in China decrease or do not continue to increase, then Adient's business and financial results may be adversely affected.
Changes in U.S. administrative policy, including changes to existing trade agreements and any resulting changes in international trade relations, may have an adverse effect on Adient.
There is continued uncertainty about the future relationship between the U.S. and various other countries, most significantly China, with respect to trade policies, treaties, government regulations and tariffs. Under the Biden administration, changes in U.S. administrative policy could lead to changes to existing trade agreements, greater restrictions on free trade generally, and significant increases in tariffs on goods imported into the U.S., particularly tariffs on products manufactured in Mexico and China, among other possible changes. A trade war, other governmental action related to tariffs or international trade agreements, changes in U.S. social, political, regulatory and economic conditions or in laws and policies governing foreign trade, manufacturing, development and investment in the territories and countries where Adient currently manufactures and sells products, and any resulting negative sentiments towards the U.S. as a materialresult of such changes, likely would have an adverse effect on Adient's non-U.S. operations and therefore on Adient's business, andfinancial condition or results of operations.
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The regulation of Adient's international operations, and any failure of Adient to comply with those regulations, could adversely affect its business, results of operations and reputation.
Due to Adient's global operations, Adient is subject to many laws governing international relations and its international operations, including laws that prohibit improper payments to government officials and commercial customers that regulate privacy and data security (including the General Data Protection Regulation in Europe when it becomes effective in May 2018), and that restrict where Adient can do business, what information or products Adient can import and export to and from certain countries and what information Adient can provide to a non-U.S. government. These laws include but are not limited to the U.S. Foreign Corrupt Practices Act (FCPA), the Irish Criminal Justice (Corruption Offences) Act, the U.K. Bribery Act, the U.S. Export Administration Act and U.S. and international economic sanctions and money laundering regulations. Adient has internal policies and procedures relating to compliance with such regulations;laws; however, there is a risk that such policies and procedures will not always protect Adient from the improper acts of employees, agents, business partners, joint venture partners or representatives, particularly in the case of recently acquired operations that may not have significant training in applicable compliance policies and procedures. Violations of these laws, which are complex, may result in criminal penalties, sanctions and/or fines, thatand may also result in costly and time-consuming governmental investigations, any or all of which could have a materialan adverse effect on Adient's business, financial condition and results of operations and reputation. In addition, Adient is subject to antitrust laws in various countries throughout the world. Changes in these laws or their interpretation, administration or enforcement may occur over time. Any such changes may limit Adient's future acquisitions, divestitures or operations. Violations of antitrust laws may result in penalties, sanctions and/or fines, and may also result in costly and time-consuming governmental investigations, any or all of which could have a materialan adverse effect on Adient's business, financial condition and results of operations and reputation.
Risks Related to Adient's Operations
Increases in the costs and restrictions on the availability of raw materials, energy, commodities, freight, labor and product components could adversely affect Adient's financial performance.
Raw material, energy, commodity, freight and labor costs can be volatile. Although Adient has developed and implemented strategies to mitigate the impact of higher raw material, energy, commodity, freight and labor costs, these strategies, together with commercial negotiations with Adient's customers and suppliers, may only offset a portion of the adverse impact. Certain of these strategies also may limit Adient's opportunities in a declining commodity environment. In addition, the availability of raw materials, commodities, transportation and product components fluctuates from time to time due to factors outside of Adient's control. Due to a variety of global factors, the automotive industry has been experiencing, and may continue to experience, supply chain disruptions from an insufficient availability of semiconductor chips, other components and labor. As a result of these disruptions, the automotive industry has seen a decrease in the volume of automobile production, which has resulted in, and may continue to result in, decreased sales, without a corresponding decrease in labor costs, for Adient. In addition, the automotive industry has seen a period of sustained price increases for commodities, primarily related to steel, and to a lesser extent petrochemicals, and more recently energy costs in Europe. Adient has also experienced constrained labor availability which has resulted in wage inflationary pressures, both internally and at key vendors. These increases may continue into the future as demand increases and as supply may remain constrained, which has resulted in, and may continue to result in, increased costs for Adient. If the costs of raw materials, energy, commodities, freight costs, labor costs and product components increase or the availability thereof is restricted, it could adversely affect Adient's financial condition, operating results and cash flows.
Adient operates in the highly competitive automotive supply industry.
The global automotive component supply industry is highly competitive. Competition is based primarily on price, technology, quality, delivery and overall customer service. There can be no assurance that Adient's products will be able to compete successfully with the products of Adient's competitors. Furthermore, the rapidly evolving nature of the markets in which Adient competes, including as a result of the autonomous vehicle market and consumer preferences for mobility on demand services, such as car- and ride-sharing, may attract new entrants. Additionally, consolidation in the automotive industry may lead to decreased product purchases from Adient.
As a result, Adient's sales levels and margins could be adversely affected by pricing pressures from OEMs and pricing actions of competitors. These factors may lead to selective resourcing of business to competitors. Adient's competitors may develop, design or duplicate technologies that compete with Adient's owned or licensed intellectual property. Developments or assertions by or against Adient relating to intellectual property rights, or any inability to protect Adient's rights, could have an adverse impact on its business and competitive position. In addition, any of Adient's competitors may foresee the course of market development more accurately than Adient, develop products that are superior to Adient's products, produce similar products at a
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lower cost than Adient, or adapt more quickly than Adient to new technologies or evolving customer requirements. Adient cannot provide assurances that certain of Adient’s products will not become obsolete or that Adient will be able to achieve the technological advances that may be necessary to remain competitive. As a result, Adient's products may not be able to compete successfully with its competitors' products and Adient may not be able to meet the growing demands of customers. In addition, Adient’s customers may increase levels of production insourcing for a variety of reasons, such as shifts in customers’ business strategies or the emergence of low-cost production opportunities in other countries. These trends may adversely affect Adient's sales as well as the profit margins on Adient's products.
Adient's profitability and results of operations may be adversely affected by a significant failure or inability to comply with the specifications and manufacturing requirements of its OEM customers or by program launch difficulties.
Adient's business faces the production demands and requirements of its OEM customers, as described in China is subjectItem 1, "Business" of this Annual Report on Form 10-K. As a result of safety and environmental regulations, as well as a trend of more rapid customer preference changes, OEMs are requiring suppliers like Adient to aggressive competitionrespond faster with new designs and is sensitiveproduct innovations. A significant failure or inability to economiccomply with customer specifications and market conditions.manufacturing requirements or delays or other problems with existing or new products often results in financial penalties, increased costs, loss of sales, loss of customers or potential breaches of customer contracts, which likely would have an adverse effect on Adient's profitability and results of operations.
Maintaining
In addition, to the extent Adient experiences product launch difficulties (which could be the result of a strong position inwide range of factors, including the Chinese market is a key componentproduction readiness of Adient's strategy. The automotive supply market in China is highly competitive, with competition from many of the largest global manufacturers and numerous smaller domestic manufacturers. As the size of the Chinese market evolves, Adient anticipates that market participants will act aggressivelyits suppliers' manufacturing facilities and manufacturing processes, as well as factors related to increasetooling, equipment, employees, initial product quality and other factors), vehicle production at Adient’s customers could be significantly delayed or maintain their market share. Increased competition mayshut down. Such situations could result in price reductions, reduced marginssignificant financial penalties to Adient, a diversion of personnel and financial resources to improving launches rather than investment in continuous process improvement or other growth initiatives, and could result in Adient’s customers shifting work away from Adient to a competitor, all of which could result in loss of revenue, loss of market share and likely would have an adverse effect on Adient’s profitability and cash flows. Adient's failure to successfully launch material new or takeover business, or Adient's inability to gainaccurately estimate the cost to design, develop and launch new or hold market share.takeover business, likely would have an adverse effect on Adient's businessprofitability and results of operations.
Adient may not be able to successfully negotiate pricing and other terms with its customers or may be unable to achieve product cost reductions that offset customer-imposed price reductions, both of which may adversely affect its results of operations.
Adient negotiates sales price adjustments and other contractual terms periodically with its automotive customers. There is no guarantee that Adient will be able to successfully negotiate pricing or other terms that are favorable or beneficial to Adient. Further, any cost-cutting initiatives that its customers adopt generally result in China is sensitive to economic, political and market conditions that drive automotive sales volumes in China.increased downward pressure on pricing. If Adient is unable to maintain its positiongenerate sufficient production or supply chain cost savings in the Chinesefuture to offset price reductions, Adient's results of operations may be adversely affected. In particular, large commercial settlements with Adient's customers likely would adversely affect Adient's results of operations. In addition, Adient must negotiate contract and other program changes during the life of customer programs to address situations unforeseen at the beginning of the program, including those relating to labor shortages and material cost increases. The inability of Adient to negotiate these contract or program changes in a manner favorable to Adient could also adversely affect Adient’s results of operations.
Work stoppages, including those at Adient’s customers, and similar events could significantly disrupt Adient's business.
Because the automotive industry relies heavily on just-in-time delivery of components during the assembly and manufacture of vehicles, a work stoppage at one or more of Adient's manufacturing and assembly facilities could have adverse effects on the business. Similarly, if one or more of Adient's customers were to experience a work stoppage, such as those resulting from labor strikes, customer stoppages as a result of COVID-19-related governmental shutdowns, ongoing supply chain disruptions, or otherwise, that customer would likely halt or limit purchases of Adient's products, which could result in the shutdown of the related Adient manufacturing facilities and or other cost-reduction initiatives. In addition in certain instances we may be unable to adjust our staffing levels to correspond to a customer’s work stoppage such that we incur increased labor costs along with a decrease in production. A significant disruption in the supply of a key component due to a work stoppage at one of Adient's suppliers or any other supplier could have the same consequences, and accordingly, have an adverse effect on Adient's financial results.
Adient may be unable to realize the expected benefits of its restructuring actions, which could adversely affect its profitability and operations.
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In order to align Adient's resources with its strategies, operate more efficiently and control costs and to realign its businesses, with customer and market needs and operating conditions, Adient has periodically announced, and in the future may continue to announce, restructuring plans, which may include workforce reductions, global plant closures and consolidations, asset impairments and other cost reduction initiatives. In each of the last four fiscal years, Adient announced restructurings related to cost reduction initiatives, which included workforce reductions, plant closures and asset impairments. Adient may undertake additional restructuring actions, including plant closures and workforce reductions in the future. As these plans and actions are complex, unforeseen factors could result in expected savings and benefits to be delayed or if vehicle salesnot realized to the full extent planned (if at all), and Adient's operations and business may be disrupted, which likely would adversely affect Adient's financial condition, operating results and cash flow. Furthermore, to the extent such initiatives involve workforce changes, such changes may temporarily reduce workforce productivity, which could be disruptive to our business and adversely affect our results of operations.
A failure of Adient's information technology (IT) and data security infrastructure could adversely impact Adient's business, operations and reputation.
Adient relies upon the capacity, reliability and security of its IT and data security infrastructure, as well as its ability to expand and continually update this infrastructure in response to the changing needs of its business. If Adient experiences a problem with the functioning of an important IT system or a security breach of Adient's IT systems, including a potential ransomware attack, due to failure to timely upgrade systems or during system upgrades and/or new system implementations, the resulting disruptions could have an adverse effect on Adient's business.
Adient and certain of its third-party vendors receive and store personal information in connection with Adient's human resources operations and other aspects of Adient's business. Despite Adient's implementation of security measures, Adient's IT systems, like those of other companies, are vulnerable to damages from computer viruses, natural disasters, unauthorized access, cyber-attack, ransomware attack, and other similar disruptions. Any system failure, accident or cyber security breach or incident could result in disruptions to Adient's operations. A material network breach in the security of Adient's IT systems could lead to vendor payments being paid to fraudulent bank accounts and the theft of Adient's intellectual property, trade secrets, customer information, human resources information or other confidential information. To the extent that any disruptions or security breach results in a loss or damage to Adient's data, or an inappropriate disclosure of confidential, proprietary or customer information, it could cause significant damage to Adient's reputation, affect Adient's relationships with its customers and vendors, lead to claims against Adient and ultimately harm its business. In addition, Adient may be required to incur significant costs to protect against damage caused by these disruptions or security breaches in the future.
In addition, legislators and/or regulators in countries in which Adient operates are increasingly adopting or revising privacy, information security and data protection laws. In particular, the European Union's General Data Protection Regulation and the China decrease security law both have extra-territorial scope. Violations of such laws and regulations may result in penalties, sanctions and/or dofines, and may also result in costly and time-consuming governmental investigations, any or all of which could have an adverse effect on Adient's business, financial condition and results of operations and reputation.
Negative or unexpected tax consequences could adversely affect Adient's results of operations.
Adverse changes in the underlying profitability and financial outlook of Adient's operations in several jurisdictions could lead to additional changes in Adient's valuation allowances against deferred tax assets and other tax reserves on Adient's statements of financial position. Additionally, changes in tax laws in Ireland, the U.S. or in other countries where Adient has significant operations could materially affect deferred tax assets and liabilities on Adient's statements of financial position and income tax provision on Adient's statements of income.
Adient is also subject to tax audits for both direct and indirect taxes by governmental authorities on a worldwide basis. Governmental authorities have become more aggressive in proposing tax assessments, including interest related to income taxes and transaction taxes such as Value Added Tax (VAT). Negative unexpected results from one or more such tax audits could adversely affect Adient's results of operations.
If Adient does not respond appropriately, the evolution of the automotive industry towards autonomous vehicles and mobility on demand services could adversely affect Adient’s business.
The automotive industry is increasingly focused on the development of advanced driver assistance technologies, with the goal of developing and introducing a commercially-viable, fully automated driving experience. There has also been an increase in consumer preferences for mobility on demand services, such as car- and ride-sharing, as opposed to automobile ownership,
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which may result in a long term reduction in the number of vehicles per capita. These evolving areas have also attracted increased competition from entrants outside the traditional automotive industry. If Adient does not continue to increase, theninnovate to develop or acquire new and compelling products that capitalize upon new technologies in response to OEM and consumer preferences, this could have an adverse impact on Adient’s results of operations.
Adient may incur material losses and costs as a result of warranty claims and product liability actions that may be brought against Adient.
Adient faces an inherent business risk of exposure to warranty claims and product liability in the event that its products fail to perform as expected and, in the case of product liability, such failure of its products results, or is alleged to result, in bodily injury and/or property damage. While Adient will maintain reasonable limits of insurance coverage to appropriately respond to such exposures, large product liability claims, if made, could exceed Adient's insurance coverage limits and insurance may not continue to be available on commercially acceptable terms, if at all Adient may incur significant costs to defend these claims or experience product liability losses in the future. If any of Adient's products are or are alleged to be defective, Adient may be required to participate in a recall involving such products. As suppliers become more integrally involved in the vehicle design process and assume more of the vehicle assembly functions, auto manufacturers are increasingly looking to their suppliers for contribution when faced with recalls and product liability claims. A recall claim brought against Adient that is not insured, or a product liability claim brought against Adient in excess of its available insurance, could have an adverse impact on Adient's results of operations. In addition, a recall claim could require Adient to review its entire product portfolio to assess whether similar issues are present in other product lines, which could result in significant disruption to Adient's business and could have an adverse impact on Adient's results of operations.
Auto manufacturers are also increasingly requiring their suppliers to guarantee or warrant their products and bear the costs of repair and replacement of such products under new vehicle warranties. Depending on the terms under which Adient supplies products to an auto manufacturer, an auto manufacturer may attempt to hold Adient responsible for some or all of the repair or replacement costs of defective products under new vehicle warranties, when the vehicle manufacturer asserts that the product supplied did not perform as warranted.
Although Adient cannot assure that the future costs of warranty claims by its customers and product liability claims will not be material, Adient believes its established reserves are adequate to cover potential settlements. Adient's reserves are based on Adient's best estimates of amounts necessary to settle future and existing claims. Adient regularly evaluates the level of these reserves, and adjusts them when appropriate. However, the final amounts determined to be due related to these matters could differ materially from Adient's recorded estimates.
Any changes in consumer credit availability or cost of borrowing could adversely affect Adient's business.
Declines in the availability of consumer credit and increases in consumer borrowing costs have negatively impacted global automotive sales and resulted in lower production volumes in the past. Substantial declines in automotive sales and production by Adient's customers likely would have an adverse effect on Adient's business, results of operations and financial results may be materially adversely affected.condition.
Global climate change and related emphasis on ESG matters by various stakeholders could negatively affect Adient's business.
Increased public awareness and concern regarding global climate change may result in more regional and/or federal requirements to reduce or mitigate the effects of greenhouse gas emissions. There continues to be a lack of consistent climate legislation, which
creates economic and regulatory uncertainty. Such regulatory uncertainty extends to future incentives for energy efficient vehicles and costs of compliance, which may impact the demand for Adient's products and Adient's results of operations.
There is a growing consensus that greenhouse gas emissions are linked to global
The effects of climate changes. Climate changes,change, such as extreme weather conditions, create financial risk to Adient's business. For example, the demand for Adient's products and services may be affected by unseasonable weather conditions. Climate changes could also disrupt Adient's operations by impacting the availability and cost of materials needed for manufacturing and could increase insurance and other operating costs. These factors may impact Adient's decisions to construct new facilities or maintain existing facilities in areas most prone to physical climate risks. Adient could also face indirect financial risks passed through the supply chain, and process disruptions due to physical climate changes could result in price modifications for Adient's products and the resources needed to produce them.
Furthermore, customer, investor, and employee expectations in areas such as the environment, social matters and corporate governance (ESG) have been rapidly evolving and increasing. Specifically, certain customers are beginning to require that
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Adient provide information on its plans and goals relating to certain climate-related matters such as greenhouse gas emissions and renewable energy. The enhanced stakeholder focus on ESG issues relating to Adient requires the continuous monitoring of various and evolving standards and the associated reporting requirements. A failure to adequately meet stakeholder expectations or achieve its ESG-related goals may result in the loss of business, diluted market valuation, an inability to attract customers or an inability to attract and retain top talent.
As of the date of this filing, Adient has made several public commitments regarding our intended reduction of carbon emissions, including commitments to science-based targets to reduce carbon emissions from its operations and the operations of its customers. Although Adient intends to meet these commitments, it may be required to expend significant resources to do so, which could increase its operational costs. Further, there can be no assurance that any of Adient’s commitments will be achieved, or that any future investments it makes to achieve such targets and goals will meet investor expectations or any binding or non-binding legal standards regarding sustainability performance. Moreover, Adient may determine that it is in the best interest of the Company and its shareholders to prioritize other business, social, governance or sustainable investments over the achievement of our current commitments based on economic, regulatory and social factors, business strategy or pressure from investors, activist groups or other stakeholders. If Adient is unable to meet these commitments, then it could incur adverse publicity and reaction from investors, activist groups and other stakeholders, which could adversely impact the perception of the Company and its products and services by current and potential customers, as well as investors, which could in turn adversely impact its results of operations.
Risks related to Adient's defined benefit retirement plans may adversely impact Adient's results of operations and cash flow.
Significant changes in actual investment return on defined benefit plan assets, discount rates, mortality assumptions and other factors could adversely affect Adient's results of operations and the amounts of contributions Adient must make to its defined benefit plans in future periods. For example, Adient has recorded mark-to-market adjustments on the revaluation of its pension obligations that have significantly impacted its overall results the past two years. Generally accepted accounting principles in the United StatesU.S. require that Adient calculate income or expense for the plans using actuarial valuations. These valuations reflect assumptions about financial markets and interest rates, which may change based on economic conditions. Funding requirements for Adient's defined benefit plans are dependent upon, among other factors, interest rates, underlying asset returns and the impact of legislative or regulatory changes related to defined benefit funding obligations.
Legal proceedings in which Adient is, or may be, a party may adversely affect Adient.
Adient is currently and may in the future become subject to legal proceedings and commercial, contractual or contractualother disputes. These are typically lawsuits, claims and proceedings that arise in the normal course of business including, without limitation, claims pertaining to product liability, product safety, environmental, safety and health, intellectual property, employment, commercial, contractual and various other matters. The outcome of such lawsuits, claims or proceedings cannot be predicted with certainty and some may be disposed of unfavorably to Adient. There exists the possibility that such claims may have an adverse impact on Adient's results of operations that is greater than Adient anticipates, and/or negatively affect Adient's reputation.
Adient is also subject to a risk of product liability or warranty claims if its products actually or allegedly fail to perform as expected or the use of its products results, or is alleged to result, in bodily injury and/or property damage. While Adient will maintain reasonable limits of insurance coverage to appropriately respond to such exposures, large product liability claims, if made, could exceed Adient's insurance coverage limits and insurance may not continue to be available on commercially acceptable terms, if at all. Adient may incur significant costs to defend these claims or experience product liability losses in the future. In addition, if any of Adient's designed products are, or are alleged to be, defective, Adient may be required to participate in recalls and exchanges of such products. The future cost associated with providing product warranties and/or bearing the cost of repair or replacement of Adient's products could have a material adverse effect on Adient's business, financial condition and results of operations.
A downgrade in the ratings of Adient's debt capital could restrict Adient's ability to access the debt capital markets and increase Adient's interest costs.
Unfavorable changes in the ratings that rating agencies assign to Adient's debt may ultimately negatively impact Adient's access to the debt capital markets and increase the costs Adient incurs to borrow funds. Future tightening in the credit markets and a reduced level of liquidity in many financial markets due to turmoil in the financial and banking industries could adversely affect Adient's access to the debt capital markets or the price Adient pays to issue debt. A downgrade in Adient's ratings or volatility in the financial markets causing limitations to the debt capital markets could have an adverse effect on Adient's business or Adient's ability to meet its liquidity needs.
Additionally, an increase in the level of Adient's indebtedness may increase Adient's vulnerability to adverse general economic and industry conditions and may affect Adient's ability There can be no assurance that Adient would be able to obtain additional financing.financing or refinancing and failure to obtain such additional financing or refinancing could have a material adverse impact on our operations. Adient may incur or assume significantly more debt in the future. If Adient incurs more debt in the future and does not retire existing debt, the risks described above could increase.
Adient's level of debt obligations could adversely affect Adient's business, profitability and the ability to meet its obligations.
As of September 30, 2017,2022, Adient's total consolidated indebtedness approximated $3$2.6 billion. This significant amount of debt could potentially have importantadverse consequences to Adient and its debt and equity investors, including:
requiring a substantial portion of Adient's cash flow from operations to make interest payments on this debt following the separation;
•making it more difficult to satisfy debt service and other obligations;
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•increasing the risk of a future credit ratings downgrade of its debt, which could increase future debt costs and limit the future availability of debt financing;
•increasing Adient's vulnerability to general adverse economic and industry conditions;
reducing the cash flow available to fund capital expenditures and other corporate purposes and to grow Adient's business;
limiting Adient's flexibility in planning for, or reacting to, changes in its business and the industry;
•placing Adient at a competitive disadvantage relative to its competitors that may not be as highly leveraged with debt; and
•limiting Adient's ability to borrow additional funds as neededneeded.
Certain jurisdictions have or take advantage of business opportunities as they arise, pay cash dividends or repurchase ordinary shares.
In addition, Adient's term loan and revolving credit facilities require Adient to maintain compliance with a maximum total net leverage ratio tested on a quarterly basis. Events beyond Adient's control, including changes in general business and economic conditions, may affect its ability to meet this requirement. A breach of the restrictive covenants in Adient's credit facilities or Adient's inability to comply with the maximum total net leverage ratio could result in an event of default under Adient's debt agreements. If an event of default occurs and is continuing under such agreements, the lenders thereunder could elect to declare all amounts outstanding, together with accrued interest, to be immediately due and payable, which could result in acceleration of Adient's other debt. If Adient was unable to repay any borrowings under the credit facilities when due, the lenders thereunder could proceed against their collateral.
To the extent that Adient incurs additional indebtedness, the risks described above could increase. In addition, Adient's actual cash requirementsare in the future may be greater than expected. Adient's cash flow from operations may not be sufficient to repay allprocess of the outstanding debt as it becomes due,phasing out LIBOR. The long-term impact of this change remains uncertain at this time, including whether alternative reference rates could increase borrowing costs. Adient has started, and Adient may not be able to borrow money, sell assets or otherwise raise funds on acceptable terms, or at all, to refinance Adient's debt.
The potential insolvency or financial distress of third parties could adversely impact Adient's business and results of operations.
Adient is exposed to the risk that third parties to various arrangements who owe Adient money or goods and services, or who purchase goods and services from Adient, will not be able to perform their obligations or continue, to place orders dueincorporate alternatives to insolvency or financial distress. If third parties fail to perform their obligations under arrangements with Adient, Adient may be forced to replace the underlying commitment at current or above-market prices or on other terms that are less favorable to Adient. In such events, Adient may incur losses, or Adient's results of operations, financial condition or liquidity could otherwise be adversely affected.LIBOR in its debt agreements.
Adient may be unable to realize the expected benefits of its restructuring actions, which could adversely affect its profitability and operations.
In order to align Adient's resources with its growth strategies, operate more efficiently and control costs, Adient may periodically announce restructuring plans, which may include workforce reductions, global plant closures and consolidations, asset impairments and other cost reduction initiatives. Adient may undertake restructuring actions and workforce reductions in the future. As these plans and actions are complex, unforeseen factors could result in expected savings and benefits to be delayed or not realized to the full extent planned (if at all), and Adient's operations and business may be disrupted.
Adient's business success depends on attracting and retaining qualified personnel.personnel and our attempts to fully reopen our offices and operate under a hybrid working environment may not be successful.
Adient's ability to sustain and grow its business requires it to hire, retain and develop a highly skilled and diverse management team and workforce. Failure to ensure that Adient has the leadership capacity with the necessary skill set and experience could impede Adient's ability to deliver its growth objectives and execute its strategic plan. Organizational and reporting changes as a result of any future leadership transition and corporate initiatives, including restructuring actions, could result in increased turnover. Additionally, any unplanned turnover or inability to attract and retain key employees could have a negative effect on Adient's results of operations. Further, certain of the recent austerity measures related to employee compensation, along with the on-going unpredictability of production schedules, could result in employees pursuing other employment opportunities outside of Adient.
The COVID-19 pandemic caused Adient to modify its workforce practices, including having the vast majority of non-plant employees work from home. As Adient reopens its offices, it is operating under a “hybrid” working environment, meaning that the majority of its employees will have the flexibility to work remotely at least some of the time, for the foreseeable future. The hybrid working environment may impair Adient’s ability to maintain its collaborative and innovative culture, and may cause disruptions among employees, including decreases in productivity, challenges in communications between on-site and off-site employees and, potentially, employee dissatisfaction and attrition. If Adient’s attempts to safely reopen offices and operate under a hybrid working environment are not successful, its business could be adversely impacted.
Adverse developments affecting, or the financial distress of, one or more of Adient's suppliers or other third party counterparties could adversely affect Adient's financial performance.
Adient obtains components and other products and services from numerous automotive suppliers and other vendors throughout the world. In addition, Adient is party to various arrangements with third parties who owe Adient money or goods and services, or who purchase goods and services from Adient. Adient is responsible for managing its supply chain, including suppliers that may be the sole sources of products that Adient requires, which Adient's customers direct Adient to use or which have unique capabilities that would make it difficult and/or expensive to re-source. In addition, with fewer sources of supply for certain components, each supplier may perceive that it has greater leverage and, therefore, some ability to seek higher prices from us at a time that we face substantial pressure from OEMs to reduce the prices of our products. This could adversely affect our customer relations and business. In certain instances, as seen with respect to semiconductors, entire industries may experience short-term capacity constraints. Additionally, Adient's production capacity, and that of Adient's customers and suppliers, may be adversely affected by natural disasters. Any such significant disruption could adversely affect Adient's financial performance. Unfavorable economic or industry conditions could also result in financial distress within Adient's supply chain or among other third party counterparties, thereby increasing the risk of supply disruption.disruption or lost orders. Although market conditions generally have improved in recent years, uncertainty remains and another economic downturn or other unfavorable industry conditions in one or more of the regions in which Adient operates could cause a supply disruption or loss of customer orders and thereby adversely affect Adient's financial condition, operating results and cash flows.
The loss of business with respect to, or the lack of commercial success of, a vehicle model for which Adient is a significant supplier could adversely affect Adient's financial performance.
Although Adient receives purchase orders from its customers, these purchase orders often provide for the supply of a customer's annual requirements for a particular vehicle model and assembly plant, or in some cases, for the supply of a customer's requirements for the life of a particular vehicle model, rather than for the purchase of a specific quantity of products. In addition, it is possible that Adient's customers could elect to manufacture its products internally or increase the extent to which they require Adient to utilize specific suppliers or materials in the manufacture of its products. The loss of business with respect to, the lack of commercial success of or an increase in directed component sourcing for a vehicle model for which Adient is a
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significant supplier could reduce Adient's sales or margins and thereby adversely affect Adient's financial condition, operating results and cash flows.
Shifts in market shares among vehicles, vehicle segments or shifts away from vehicles on which Adient has significant content or overall changes in consumer demand could have a materialan adverse effect on Adient's profitability.
While Adient supplies parts for a wide variety of vehicles produced globally, Adient does not supply parts for all vehicles produced, nor is the number or value of parts evenly distributed among the vehicles for which Adient does supply parts. Shifts in market shares among vehicles or vehicle segments, including as a result of the autonomous vehicle market, particularly shifts away from vehicles on which Adient has significant content and shifts away from vehicle segments in which Adient's sales may be more heavily concentrated, could have a materialan adverse effect on Adient's profitability. Similarly, certain vehicles or vehicle segments Adient supplies may be disproportionately impacted by overall industry disruptions (i.e., semiconductor supply chain disruptions) such that Adient’s sales may be adversely effected relative to the industry in general or our competitors, which could have a negative effect on Adient’s business. Increases in energy costs or other factors (e.g.(e.g., climate change concerns) may also shift consumer demand away from motor vehicles that typically have higher interior content that Adient supplies, such as light trucks, crossover vehicles, minivans and sports utility vehicles, to smaller vehicles having less interior content. The loss of business with respect to, or a lack of commercial success of, one or more particular vehicle models for which Adient is a significant supplier could reduce Adient's sales and harm Adient's profitability, thereby adversely affecting Adient's results of operations.
Adient's profitability
Adient may not pay dividends on its ordinary shares, which may impact Adient’s investor base.
Adient currently does not have plans to pay dividends on its ordinary shares. The timing, declaration, amount and resultspayment of operations may be adversely affected by a significant failure or inabilityfuture dividends to comply withshareholders will fall within the specifications and manufacturing requirements of its OEM customers.
Adient's business faces the production demands and requirements of its OEM customers, as described in Item 1, "Business" of this Annual Report on Form 10-K. A significant failure or inability to comply with customer specifications and manufacturing requirements or delays or other problems with existing or new products (including program launch difficulties, as discussed below) could result in financial penalties, increased costs, loss of sales, loss of customers or potential breaches of customer contracts, which could have a material adverse effect on Adient's profitability and results of operations.
Adient's profitability and results of operations may be adversely affected by program launch difficulties.
The launch of new business is a complex process, the success of which depends on a wide range of factors, including the production readinessdiscretion of Adient's and its suppliers' manufacturing facilities and manufacturing processes,board of directors. The board's decisions regarding the payment of dividends will depend on many factors, such as well as factors related to tooling, equipment, employees, initial product qualityAdient's financial condition, earnings, sufficiency of distributable reserves, capital requirements, debt service obligations, legal requirements, regulatory constraints and other factors.factors that the board deems relevant. Adient's failureability to successfully launch material new or takeover business could have an adverse effectpay dividends will depend on Adient's profitability and results of operations.
Work stoppages and similar events could significantly disrupt Adient's business.
Because the automotive industry relies heavily on just-in-time delivery of components during the assembly and manufacture of vehicles, a work stoppage at one or more of Adient's manufacturing and assembly facilities could have material adverse effects on the business. Similarly, if one or more of Adient's customers wereits ongoing ability to experience a work stoppage, that customer would likely
halt or limit purchases of Adient's products, which could result in the shutdown of the related manufacturing facilities. A significant disruption in the supply of a key component due to a work stoppage at one of Adient's suppliers or any other supplier could have the same consequences, and accordingly, have a material adverse effect on Adient's financial results.
Adient's internal controls around accounting and financial reporting may not be adequate to ensure complete and accurate reporting of Adient's financial position, results ofgenerate cash from operations and cash flows.
The Exchange Act requires that Adient file annual, quarterly and current reports with respect to its business and financial condition. Under the Sarbanes Oxley Act, Adient is required to maintain effective disclosure controls and procedures and internal controls over financial reporting. Any failure to achieve and maintain effective internal controls could have a material adverse effect on Adient's business, financial condition, results of operations and cash flow.
Regulations related to conflict minerals could adversely impact Adient's business.
SEC rules aimed at improving the transparency and accountability concerning the supply of certain minerals, known as conflict minerals, originating from the Democratic Republic of Congo (DRC) and adjoining countries, impose annual disclosure requirements on companies that use such minerals in their products. There are costs associated with complying with these disclosure requirements, including for diligence to determine the sources of conflict minerals used in Adient's products and other potential changes to products, processes or sources of supply as a consequence of such verification activities. Adient's compliance with these disclosure rules could adversely affect the sourcing, supply and pricing of materials used in Adient's products. As there may be only a limited number of suppliers offering "conflict free" conflict minerals,access capital markets. Adient cannot be sureguarantee that it will be able to obtain necessary conflict minerals from such supplierspay dividends in sufficient quantities or at competitive prices, or that Adient will be able to satisfy customers who require Adient's products to be conflict free. Also, Adientthe future which may face reputational challenges if Adient determines that certain of its products contain minerals not determined to be conflict free or if Adient is unable to sufficiently verify the origins for all conflict minerals used in its products through the procedures Adient may implement.impact Adient’s investor base.
A variety of other factors could adversely affect Adient's results of operations.
Any of the following could materially and adversely impact Adient's results of operations: the inability of Adient to execute continued turnaround actions to improve profitability; the loss of, or changes in, automobile supply contracts, sourcing strategies or customer claims with Adient's major customers or suppliers; increased freight or shipping costs resulting from extreme weather conditions or supply chain disruptions, lack of commodity availability and unfavorable commodity pricing; start-up expenses associated with new vehicle programs or delays or cancellations of such programs; underutilization of Adient's manufacturing facilities, which are generally located near, and devoted to, a particular customer's facility; inability to recover engineering and tooling costs; market and financial consequences of any recalls that may be required on products that Adient has supplied or sold into the automotive aftermarket; delays or difficulties in new product development and integration; quantity and complexity of new program launches, which are subject to Adient's customers' timing, performance, design and quality standards; interruption of supply of certain single-source components; the potential introduction of similar or superior technologies; changing nature and prevalence of Adient's joint ventures and relationships with its strategic business partners; and global overcapacity and vehicle platform proliferation.
Risks Related to Being a Separate, Stand-Alone Company
Adient's historical information related to the fiscal 2016 and fiscal 2015 years is not necessarily representative of the results that it would have achieved as a separate, publicly traded company and may not be a reliable indicator of its future results.
The historical information about Adient for fiscal 2016 and fiscal 2015 in this Annual Report on Form 10-K relates to Adient's business as operated by and integrated with the former Parent. This historical financial information was derived from the consolidated financial statements and accounting records of the former Parent. Accordingly, the historical financial information included in this Annual Report on Form 10-K does not necessarily reflect the financial condition, results of operations or cash flows that Adient would have achieved as a separate, publicly traded company during those periods.
Prior to the separation, Adient's business was operated by the former Parent as part of its broader corporate organization, rather than as an independent company. The former Parent or one of its affiliates performed various corporate functions for Adient, such as accounting, information technology, and treasury. Adient's historical financial results reflect allocations of corporate expenses from the former Parent for such functions and may not reflect the expenses Adient would have incurred had it operated as a separate publicly traded company. As a result of the separation, Adient is responsible for the additional costs associated with being an independent, publicly traded company, including costs related to corporate governance and external reporting. For additional information about the past financial performance of Adient's business and the basis of presentation of the historical combined financial statements of Adient's business, see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Item 8, "Financial Statements and Supplementary Data."
The former Parent may fail to perform under various transaction agreements that have been executed as part of the separation or Adient may fail to have necessary systems and services in place when certain of the transaction agreements expire.
In connection with the separation, Adient and the former Parent have entered into a separation and distribution agreement and various other agreements, including a transition services agreement, a tax matters agreement, an employee matters agreement and a transitional trademark license agreement. Certain of these agreements provide for the performance of services by each company for the benefit of the other for a period of time after the separation. Adient relies on the former Parent to satisfy performance and payment obligations under these agreements. If the former Parent is unable to satisfy its obligations under these agreements, including its indemnification obligations, Adient could incur operational difficulties or losses.
Potential indemnification liabilities to the former Parent pursuant to the separation agreement could materially adversely affect Adient.
The separation agreement with the former Parent provides for, among other things, the principal corporate transactions required to effect the separation, certain conditions to the separation and provisions governing the relationship between Adient and the former Parent with respect to and resulting from the separation. Among other things, the separation agreement provides for indemnification obligations designed to make Adient financially responsible for substantially all liabilities that may exist relating to its business activities, whether incurred prior to or after the separation, as well as those obligations of the former Parent assumed by Adient pursuant to the separation agreement. Adient may be subject to substantial liabilities under these indemnifications.
Adient may not be able to engage in desirable strategic or capital raising transactions.
The former Parent and Adient have engaged in various restructuring transactions in connection with the separation. To preserve the tax-free treatment of certain such restructuring transactions, for the two-year period following the separation, under the tax matters agreement that Adient has entered into with the former Parent, Adient may be prohibited, except in specific circumstances, from (i) entering into any transaction pursuant to which all or a portion of the Adient ordinary shares would be acquired, whether by merger or otherwise, (ii) ceasing to actively conduct certain of its businesses or (iii) taking or failing to take any other action that would prevent certain of such restructuring transactions from qualifying as transactions that are generally tax-free for U.S. federal income tax purposes under Sections 355 and 368(a)(1)(D) of the Internal Revenue Code of 1986, as amended (the "Code"). These restrictions may limit for a period of time Adient's ability to pursue certain strategic transactions or other transactions that Adient may believe to be in the best interests of its shareholders or that might increase the value of its business.
Adient may have received better terms from unaffiliated third parties than the terms it received in its agreements with the former Parent.
The agreements Adient has entered into with the former Parent in connection with the separation, including a transition services agreement, a tax matters agreement, an employee matters agreement and a transitional trademark license agreement, were prepared in the context of the separation while Adient's business was still operated by and part of the former Parent. Accordingly, during the period in which the terms of those agreements were prepared, Adient did not have an independent board of directors or a management team that was independent of the former Parent. As a result, the terms of those agreements may not reflect terms that would have resulted from arm's-length negotiations between unaffiliated third parties. Arm's-length negotiations between the former Parent and an unaffiliated third party in another form of transaction, such as a buyer in a sale of a business transaction, may have resulted in more favorable terms to the unaffiliated third party.
Risks Related to Adient Ordinary SharesAdient’s Jurisdiction of Incorporation
Adient's share price may fluctuate significantly.
Adient cannot predict the prices at which shares of its ordinary shares may trade. The market price of Adient ordinary shares may fluctuate significantly due to a number of factors, some of which may be beyond Adient's control, including:
actual or anticipated fluctuations in Adient's operating results;
changes in earnings estimated by securities analysts or Adient's ability to meet those estimates;
the operating and stock price performance of comparable companies;
changes to the regulatory and legal environment under which Adient operates;
the trading volume and liquidity of Adient ordinary shares; and
domestic and worldwide economic conditions.
In addition, when the market price of a company's shares drops significantly, shareholders often institute securities class action lawsuits against Adient. A lawsuit against Adient could cause it to incur substantial costs and could divert the time and attention of its management and other resources.
Adient cannot guarantee the timing, amount or payment of dividends on its ordinary shares.
Although Adient expects to continue to pay regular cash dividends in the future, the timing, declaration, amount and payment of future dividends to shareholders will fall within the discretion of Adient's board of directors. The board's decisions regarding the payment of dividends will depend on many factors, such as Adient's financial condition, earnings, sufficiency of distributable reserves, capital requirements, debt service obligations, legal requirements, regulatory constraints and other factors that the board deems relevant. Adient's ability to pay dividends will depend on its ongoing ability to generate cash from operations and access capital markets. Adient cannot guarantee that it will continue to pay dividends in the future. For more information, see Item 5, "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities."
Adient shares may be diluted in the future.
In the future, per share ownership percentage in Adient may be diluted because of equity issuances for acquisitions, capital market transactions or otherwise, including equity awards that Adient has granted and may grant in the future to Adient's directors, officers and employees. Adient's employees have options to purchase its ordinary shares as a result of the conversion in the distribution of their the former Parent stock options (in whole or in part) to Adient share options. Adient's compensation committee has granted stock-based awards to employees in Adient ordinary shares, and Adient anticipates its compensation committee will continue to do so. Such awards have a dilutive effect on Adient's earnings per share, which could adversely affect the market price of Adient ordinary shares.
In addition, Adient's articles of association authorize Adient to issue, without the approval of Adient's shareholders, one or more classes or series of preferred shares having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over Adient ordinary shares respecting dividends and distributions, as Adient's board of directors generally may determine. The terms of one or more classes or series of preferred shares could dilute the voting power or reduce the value of Adient ordinary shares. For example, Adient could grant the holders of preferred shares the right to elect some number of Adient's directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences Adient could assign to holders of preferred shares could affect the residual value of the ordinary shares.
Certain provisions in Adient's articles of association, among other things, could prevent or delay an acquisition of Adient, which could decrease the trading price of Adient ordinary shares.
The Adient articles of association include measures that may be found in the charters of U.S. companies and that could have the effect of deterring coercive takeover practices, inadequate takeover bids and unsolicited offers. These provisions include, among others: (i) the power for the board of directors to issue and allot preferred shares or implement a shareholder rights plan without shareholder approval in certain circumstances; (ii) a provision similar to Section 203 of the Delaware General Corporation Law, which provides that, subject to limited exceptions, persons that acquire, or are affiliated with a person that acquires, more than 15 percent of the outstanding ordinary shares of Adient shall not engage in any business combination with Adient, including by merger, consolidation or acquisitions of additional shares, for a three-year period following the date on which that person or its affiliates becomes the holder of more than 15 percent of Adient's outstanding ordinary shares; (iii) rules regarding how shareholders may present proposals or nominate directors for election at shareholder meetings; and (iv) the ability of the Adient board of directors to fill vacancies on the board of directors in certain circumstances.
It could be difficult for Adient to obtain shareholder approval for a merger or negotiated transaction because the shareholder approval requirements for certain types of transactions differ, and in some cases are greater, under Irish law than under U.S. state law.
In addition, several mandatory provisions of Irish law could prevent or delay an acquisition of Adient. For example, Adient will be subject to various provisions of Irish law relating to mandatory bids, voluntary bids, requirements to make a cash offer and minimum price requirements, as well as substantial acquisition rules and rules requiring the disclosure of interests in Adient ordinary shares in certain circumstances. Also, Irish companies, including Adient, may only alter their memorandum of association
and articles of association with the approval of the holders of at least 75% of Adient's shares present and voting in person or by proxy at a general meeting of Adient (and certain provisions of Adient's memorandum of association and articles of association may only be amended with the approval of at least 80% of Adient's shares present and voting in person or by proxy at a general meeting of Adient).
As an Irish public limited company, certain capital structure decisions require shareholder approval, which may limit Adient's flexibility to manage its capital structure.
Irish law provides that a board of directors may allot shares (or rights to subscribe for or convertible into shares) only with the prior authorization of shareholders, such authorization for a maximum period of five years, each as specified in the articles of association or relevant shareholder resolution. This authorization would need to be renewed byshareholders. Most recently, at its 2022 Annual General Meeting, Adient's shareholders upon its expiration (i.e., at least every five years)renewed this authorization until September 2023 (unless previously renewed, varied or revoked). The Adient articles of association authorize the allotment of shares (subject to the limits provided for in the NYSE Listed Company Manual) for a period of five years from the date of their adoption, whichThis authorization will need to be further renewed by ordinary resolution, being a resolution passed by a simple majority of votes cast, upon expiration but mayprior to expiration. We anticipate seeking another authorization at our next Annual General Meeting and annually thereafter. Should this authorization not be sought more frequently for additional five-year terms (or any shorter period).approved, our ability to issue equity could be limited which could adversely affect our securities holders.
Irish law also generally provides shareholders with preemptive rights when new shares are issued for cash; however, it is possible for the Adient articles of association, or shareholders in general meeting,to vote to exclude preemptive rights. Such an exclusion of preemptive rights may be forin a maximum period of up to five years from the date of adoption of the articles of association, if the exclusion is contained in the articles of association, or from the date of the shareholder resolution, if the exclusion is by shareholder resolution; in either case, this exclusion would need to be renewed bygeneral meeting. Most recently, at its 2022 Annual General
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Meeting, Adient's shareholders upon its expiration (i.e., at least every five years)renewed this authorization until September 2023 (unless previously renewed, varied or revoked). The Adient articles of association exclude preemptive rights for a period of five years from the date of adoption of the Adient articles of association, which exclusionThis authorization will need to be renewed by special resolution, being a resolution passed by not less than 75% of votes cast, upon expiration but mayexpiration. We anticipate seeking another authorization at our next Annual General Meeting and annually thereafter. Should this authorization not be sought more frequently for additional five-year terms (or any shorter period).approved, our ability to issue equity could be limited which could adversely affect our securities holders.
Irish law also generally prohibits a public company from repurchasing its own shares without the prior approval of shareholders by ordinary resolution, being a resolution passed by a simple majority of votes cast, and other formalities. Such approval may be for a maximum period of up to five years. Prior to the separation, an ordinary resolution was adopted to permit purchases of Adient ordinary shares. This ordinary resolution will need to be renewed upon expiration (i.e., at least every five years) but may be sought more frequently for additional five-year terms (or any shorter period).
Irish law requires that Adient meet certain additional financial requirements before it declares dividends.
Under Irish law, Adient will be able to declare dividends and make distributions only out of "distributable reserves." Distributable reserves are the accumulated realized profits of Adient that have not previously been utilized in a distribution or capitalization less accumulated realized losses that have not previously been written off in a reduction or reorganization of capital, and include reserves created by way of a reduction of capital, including the share premium account. In addition, no distribution or dividend may be paid or made by Adient unless the net assets of Adient are equal to, or exceed, the aggregate of Adient's called up share capital plus non-distributable reserves and the distribution does not reduce Adient's net assets below such aggregate. Non-distributable reserves include the share premium account, the capital redemption reserve fund and the amount by which Adient's accumulated unrealized profits that have not been previously utilized by any capitalization exceed Adient's accumulated unrealized losses that have not previously been written off in a reduction or reorganization of capital.
The Adient articles of association permit Adient by ordinary resolution of the shareholders to declare dividends, provided that the directors have made a recommendation as to its amount. The dividend may not exceed the amount recommended by the directors. The directors may also decide to continue to pay interim dividends if it appears to them that the profits available for distribution justify the payment. When recommending or declaring the payment of a dividend, the directors will be required under Irish law to comply with their duties, including considering Adient's future financial requirements.
The laws of Ireland differ from the laws in effect in the United StatesU.S. and may afford less protection to holders of Adient securities.
It may not be possible to enforce court judgments obtained in the United StatesU.S. against Adient in Ireland based on the civil liability provisions of the U.S. federal or state securities laws. In addition, there is some uncertainty as to whether the courts of Ireland would recognize or enforce judgments of U.S. courts obtained against Adient or its directors or officers based on the civil liabilities provisions of the U.S. federal or state securities laws or hear actions against Adient or those persons based on those laws. The United StatesU.S. currently does not have a treaty with Ireland providing for the reciprocal recognition and enforcement of judgments in civil and commercial matters in Ireland. Therefore, a final judgment for the payment of money rendered by any U.S. federal or
state court based on civil liability, whether or not based solely on U.S. federal or state securities laws, would not automatically be enforceable in Ireland.
A judgment obtained against Adient will be enforced by the courts of Ireland if the following general requirements are met: (i) U.S. courts must have had jurisdiction in relation to the particular defendant according to Irish conflict of law rules (the submission to jurisdiction by the defendant would satisfy this rule) and (ii) the judgment must be final and conclusive and the decree must be final and unalterable in the court which pronounces it. A judgment can be final and conclusive even if it is subject to appeal or even if an appeal is pending. Where however the effect of lodging an appeal under the applicable law is to stay execution of the judgment, it is possible that in the meantime the judgment may not be actionable in Ireland. It remains to be determined whether final judgment given in default of appearance is final and conclusive. However, Irish courts may refuse to enforce a judgment of the U.S. courts which meets the above requirements for one of the following reasons: (i) if the judgment is not for a definite sum of money; (ii) if the judgment was obtained by fraud; (iii) the enforcement of the judgment in Ireland would be contrary to natural or constitutional justice; (iv) the judgment is contrary to Irish public policy or involves certain U.S. laws which will not be enforced in Ireland; or (v) jurisdiction cannot be obtained by the Irish courts over the judgment debtors in the enforcement proceedings by personal service in Ireland or outside Ireland under Order 11 of the Ireland Superior Courts Rules.
As an Irish company, Adient is governed by the Irish Companies Act 2014, which differs in some material respects from laws generally applicable to U.S. corporations and shareholders, including, among others, differences relating to interested director and officer transactions and shareholder lawsuits. Likewise, the duties of directors and officers of an Irish company generally are owed to Adient only. Shareholders of Irish companies generally do not have a personal right of action against directors or officers of Adient and may exercise such rights of action on behalf of Adient only in limited circumstances. Accordingly, holders of Adient's securities may have more difficulty protecting their interests than would holders of securities of a corporation incorporated in a jurisdiction of the United States.U.S.
In addition, the Adient articles of association provide that the Irish courts have exclusive jurisdiction to determine any and all derivative actions in which a holder of Adient ordinary shares asserts a claim in the name of Adient, actions asserting a claim of breach of a fiduciary duty of any of the directors of Adient and actions asserting a claim arising pursuant to any provision of Irish law or Adient's articles of association. Under Irish law, the proper claimant for wrongs committed against Adient, including by the Adient directors, is considered to be Adient itself. Irish law permits a shareholder to initiate a lawsuit on behalf of a company such as Adient only in limited circumstances, and requires court permission to do so.
The IRS may not agree that Adient is a foreign corporation for U.S. federal tax purposes.
For U.S. federal tax purposes, a corporation is generally considered to be a tax resident of the jurisdiction of its organization or incorporation. Because Adient is a company incorporated under the laws of Ireland, it would be classified as a foreign corporation under these rules. Section 7874 of the Code, or Section 7874, provides an exception to this general rule under which a foreign incorporated entity may, in certain circumstances, be classified as a U.S. corporation for U.S. federal tax purposes. The rules under Section 7874 are relatively new and complex and there is limited guidance regarding their application.
Under Section 7874, a corporation created or organized outside the U.S. (i.e., a foreign corporation) will nevertheless be treated as a U.S. corporation for U.S. federal tax purposes if (i) the foreign corporation directly or indirectly acquires substantially all of the properties held directly or indirectly by a U.S. corporation (including through an acquisition of the outstanding shares of the U.S. corporation), (ii) the former shareholders of the acquired U.S. corporation hold at least 80% (by either vote or value) of the shares of the foreign acquiring corporation after the acquisition by reason of holding shares in the acquired U.S. corporation (including the receipt of the foreign corporation's shares in exchange for the U.S. corporation's shares), or the 80% Ownership Test, and (iii) the foreign corporation's "expanded affiliated group" does not have substantial business activities in the foreign corporation's country of organization or incorporation relative to such expanded affiliated group's worldwide activities. For purposes of Section 7874, acquisitions of multiple U.S. corporations (and/or substantially all of the assets of multiple U.S. corporations) by a foreign corporation, if treated as part of a plan or series of related transactions, may be treated as a single acquisition, in which case all shares of the foreign acquiring corporation received by the shareholders of the U.S. corporations would be aggregated for purposes of the 80% Ownership Test. Where, pursuant to the same transaction, stock of the foreign acquiring corporation is received in exchange for stock of a U.S. corporation as well as other property, the portion of the stock of the foreign acquiring corporation received in exchange for the stock of the U.S. corporation is determined based on the relative value of the stock of the U.S. corporation compared with the aggregate value of such stock and such other property.
As part of the separation, Adient indirectly acquired assets, including stock of U.S. subsidiaries, from the former Parent, which is a U.S. corporation. It is currently not expected that Section 7874 will cause Adient or any of its affiliates to be treated as a U.S. corporation for U.S. tax purposes as a result of such acquisitions because, among other things, based on the rules for determining ownership under Section 7874 and the Treasury Regulations promulgated thereunder and certain factual assumptions, (i) the assets
acquired from the former Parent are not expected to constitute "substantially all" of the properties held directly or indirectly by the former Parent and (ii) the shares received by reason of holding stock in the U.S. subsidiaries of the former Parent transferred in the separation are not expected to represent at least 80% (by either vote or value) of the relevant shares. The law and Treasury Regulations promulgated under Section 7874 are relatively new, complex and somewhat unclear, and there is limited guidance regarding the application of Section 7874 in circumstances similar to the separation. For example, there is currently no guidance that expressly defines what constitutes "substantially all" of the properties of a U.S. corporation for purposes of Section 7874 and it is possible that the Internal Revenue Service (the "IRS") may assert that "substantially all" of the properties of the former Parent (or of a U.S. subsidiary of the former Parent) were acquired in the separation. In addition, there is limited guidance on the application of the 80% Ownership Test in circumstances similar to the separation and the IRS may not agree that the shares held by reason of holding shares in U.S. subsidiaries that (or substantially all of the assets of which) were transferred in the separation represent less than 80% (by either vote or value) of the relevant shares for purposes of Section 7874. Moreover, the percentage represented by such shares will depend on the relative valuation of the various assets (including stock of subsidiaries) that were transferred in connection with the separation. Valuation matters can be subjective, and the IRS may also seek to challenge the valuation of such assets.
In addition, on April 4, 2016, the U.S. Department of Treasury (the "U.S. Treasury") and the IRS issued temporary Treasury Regulations under Section 7874 (the "Temporary 7874 Regulations"), which generally increase the likelihood that the relevant ownership percentages under Section 7874 will be exceeded. Although it is presently not expected that the Temporary 7874 Regulations will adversely affect the U.S. federal tax status of Adient or any of its foreign affiliates as a foreign corporation (and although it is possible that the Temporary 7874 Regulations could cause certain exceptions to the application of Section 7874 to apply to the separation), the Temporary 7874 Regulations are new and complex, and there is limited guidance regarding their application.
Accordingly, there can be no assurance that the IRS will not challenge the status of Adient or any of its foreign affiliates as a foreign corporation under Section 7874 or that such challenge would not be sustained by a court. If the IRS were to successfully challenge such status under Section 7874, Adient and its affiliates could be subject to substantial additional U.S. tax liability. Adient estimates that if it were treated as a U.S. corporation for U.S. federal tax purposes, itsCompany’s effective tax rate could be substantially greater than currently contemplated. In addition,volatile and materially change as a result of changes in tax laws, mix of earnings and other factors.
A change in tax laws is one of many factors that impact the Company’s effective tax rate. The U.S. Congress, the Organization for Economic Co-operation and Development (“OECD”) and other government agencies in jurisdictions where Adient and its affiliates do business have had an extended focus on issues related to the taxation of multinational corporations. One example is in the area of base erosion and profit shifting (“BEPS”), including situations where payments are made between affiliates from a jurisdiction with high tax rates to a jurisdiction with lower tax rates. As a result, the tax laws in the U.S. and other countries in which the Company and its affiliates do business could change on a prospective or retroactive basis, and any such changes could adversely impact Adient and its affiliates, including potential adverse impacts to the Company's effective tax rate.
On August 16, 2022, President Biden signed the Inflation Reduction Act of 2022 (the IRA) into law. The corporate tax provisions include (a) the creation of a 15% corporate minimum tax and (b) a nondeductible 1% excise tax on share buy-backs
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of covered corporations. Neither of these provisions are in effect for fiscal 2022 and Adient continues to monitor the impact, if any, for subsequent years. Following the passing of the IRA and the upcoming election cycle, it is uncertain whether additional U.S. corporate tax reform could be expected. There are a number of corporate income tax topics that were not addressed in the IRA that could be raised in the future, for example: increasing the U.S. corporate tax rate, increasing the rate of tax on certain earnings of its foreign affiliatessubsidiaries (the corporate minimum tax), modifying the base erosion and anti-abuse tax (“BEAT”) rules to target outbound payments to low-taxed jurisdictions, and further limiting interest expense deductibility. If any or all of these (or similar) proposals are expected, regardlessultimately enacted into law, in whole or in part, they could have a negative impact to Adient’s effective tax rate.
In October 2021, the OECD released an outline that describes the conceptual agreement between 137 countries on fundamental reforms to international tax rules. The outline provides for two primary “Pillars”; however, only Pillar Two, which provides for a global minimum corporate tax rate of any application of Section 7874,15%, is expected to be treatedapplicable to Adient (Pillar One is not expected to be applicable as Adient does not currently meet the turnover threshold – EUR 20 billion). Following the agreement in October 2021, progress has been made on implementation of Pillar Two, with the Model Rules for implementation being released in December 2021 and related commentary in March 2022. While the OECD remains committed to its original timeline (initial implementation in 2023), there is no global consensus. The enactment of Pillar Two is contingent upon the independent actions of participating countries to enact law changes. If enacted into law, in whole or in part, this proposed change to international tax residentsrules could have a negative impact to Adient’s effective tax rate.
Currently, the Company incurs losses in certain countries where it does not receive a financial statement benefit, and the Company operates in countries which have different statutory rates. Consequently, changes in the mix and source of earnings between countries other than the U.S. Consequently, if Adient or any such affiliate is treated as a U.S. corporation for U.S. federal tax purposes under Section 7874, Adient or such affiliate could be liable for both U.S. and non-U.S. taxes, which could have a material adverse effectimpact on its financial conditionAdient’s overall effective tax rate.
Legislative and results of operations.other proposals that would deny governmental contracts to U.S. companies that move their corporate location abroad may affect Adient if adopted.
Section 7874 may limit the ability of Adient's
Various U.S. affiliatesfederal and state legislative and other proposals that would deny governmental contracts to use certain tax attributes or otherwise increase such U.S. affiliates' U.S. taxable income.
Following the acquisition of a U.S. corporation by a foreign corporation, Section 7874 of the Code can limit the ability of the acquired U.S. corporation and its U.S. affiliates to use U.S. tax attributes (including net operating losses and certain tax credits) to offset U.S. taxable income resulting from certain transactions. Specifically, Section 7874 can apply in this manner if (i) the foreign corporation acquires, directly or indirectly, substantially all of the properties held directly or indirectly by a U.S. corporation (including through an acquisition of the outstanding shares of the U.S. corporation), (ii) after the acquisition, the former shareholders of the acquired U.S. corporation hold at least 60% (by either vote or value) but less than 80% (by vote and value) of the shares of the foreign acquiring corporation by reason of holding shares in the acquired U.S. corporation (including the receipt of the foreign corporation's shares in exchange for the U.S. corporation's shares), or the 60% Ownership Test, and (iii) the foreign corporation's "expanded affiliated group" does not have substantial business activities in the foreign corporation's country of organization or incorporation relative to such expanded affiliated group's worldwide activities. For purposes of Section 7874, acquisitions of multiple U.S. corporations (and/or substantially all of the assets of multiple U.S. corporations) by a foreign corporation, if treated as part of a plan or series of related transactions, may be treated as a single acquisition, in which case all shares of the foreign acquiring corporation received by the shareholders of the U.S. corporations would be aggregated for purposes of the 60% Ownership Test. Where, pursuant to the same transaction, stock of the foreign acquiring corporation is received in exchange for stock of a U.S. corporation as well as other property, the stock of the foreign acquiring corporation that was received in exchange for the stock of the U.S. corporation is determined based on the relative value of the stock of the U.S. corporation compared with the aggregate value of such stock and such other property.
As part of the separation, Adient indirectly acquired assets, including stockcompanies (and subsidiaries of U.S. subsidiaries, from the former Parent, which is a U.S. corporation, in exchange forcompanies) that move (or have moved) their corporate location abroad may affect Adient ordinary shares.and/or its affiliates if adopted. It is currently not expected that Section 7874 will limit the ability of Adient's U.S. affiliatesdifficult to use certain tax attributes because, among other things, based on the rules for determining ownership under Section 7874 and the Treasury Regulations promulgated thereunder and certain factual assumptions, (i) the assets acquired from the former Parent are not expected to constitute "substantially all" of the properties held directly or indirectly by the former Parent and (ii) the shares received by reason of holding stock in the U.S. subsidiaries transferred in the separation are not expected
to represent at least 60% (by either vote or value) of the relevant shares. However, as discussed above, the Treasury Regulations promulgated under Section 7874 are relatively new, complex and somewhat unclear and there is limited guidance regarding the application of Section 7874 in circumstances similar to the separation. Moreover, the percentage of shares held by reason of holding stock of relevant U.S. subsidiaries of the former Parent will depend on the relative valuation of the assets transferred in connection with the separation and valuation matters can be subjective.
In addition, the Temporary 7874 Regulations generally increasepredict the likelihood that any such proposals might be adopted, the relevant ownership percentages under Section 7874 will be exceeded and limit or eliminate certain tax benefits to so-called inverted corporations and groups, including with respect to access to certain foreign earnings, post-inversion restructuring transactions and the ability to use certain attributes and deductions. Although it is presently not expected that the Temporary 7874 Regulations will materially adversely affect the benefitsnature of the separationregulations that might be promulgated, or the ability ofeffect such adoptions and increased regulatory scrutiny might have on Adient's U.S. affiliates to use certain U.S. tax attributes or deductions (and although it is possible that the Temporary 7874 Regulations could cause certain exceptions to the application of Section 7874 to apply to the separation), the Temporary 7874 Regulations are new and complex, and there is limited guidance regarding their application.business.
Accordingly, there can be no assurance that the IRS would not assert that Section 7874 applies to limit the ability of the U.S. subsidiaries and affiliates of Adient to use certain U.S. tax attributes or that such challenge would not be sustained by a court. If the relevant tests under Section 7874 are satisfied for any reason, or if changes in applicable law adversely affect the application of the above rules to Adient, Adient's U.S. affiliates could be limited in their ability to use their U.S. tax attributes, if any, to offset taxable income resulting from certain transactions, or could otherwise have their U.S. taxable income increased.
Adient's status as a foreign corporation for U.S. federal tax purposes could be affected by a change in law.
Under current law, Adient is expected to be treated as a foreign corporation for U.S. federal tax purposes and Section 7874 is not otherwise expected to apply to Adient or its affiliates as a result of the separation. However, changes to the rules contained in Section 7874 and the Treasury Regulations promulgated thereunder, or other changes in law, could adversely affect Adient's and/or its affiliates' status as foreign corporations for U.S. federal tax purposes, the ability of Adient's U.S. affiliates to use certain attributes or deductions, the Adient group's effective tax rate and/or future tax planning for the Adient group, and any such changes could have prospective or retroactive application to Adient, its shareholders and affiliates, and/or the separation and distribution.
Recent legislative and other proposals have aimed to expand the scope of U.S. corporate tax residence, including inresidence. Under such a way as could causeproposals, Adient and/or its affiliates tocould be treated as U.S. corporations if the management and control of Adient or such affiliates were determined to be located primarily in the U.S. In addition, recent legislative and other proposals have aimed to expand the scope of Section 7874, or otherwise address certain perceived issues arising in connection with so-called inversion transactions. Such proposals, if made retroactively effective to transactions completed during the period in which the separation occurred, could cause Adient and/or its affiliates to be treated as U.S. corporations for U.S federal tax purposes. In such case,If enacted, these proposals could cause the Adient group wouldto be subject to substantially greater U.S. tax liability than currently contemplated.
The IRS may assert that Section 7874 applies
Potential indemnification liabilities to Adient’s former parent company pursuant to the separation as a result of the merger and Adient's ability to use stock in future strategic transactions may be limited.
For purposes of Section 7874, if two or more foreign corporations directly or indirectly acquire, in the aggregate, substantially all of the properties of a U.S. corporation, and such acquisitions are treated as part of a plan or a series of related transactions, then each such foreign corporation may be treated as acquiring substantially all of the properties of such U.S. corporation. However, there is no specific guidance regarding how the percentage ownership of the former shareholders of such U.S. corporation in each such foreign corporation is determined for purposes of Section 7874 in such circumstances. The IRS may assert that, even though the Tyco merger is a separate transaction from the separation, the merger should be integrated with the separation and that Adient and/or its affiliates should therefore be treated as having acquired substantially all of the properties of the former Parent in the separation. In the event the IRS were to prevail with such assertion, the application of Section 7874 to the separation is not entirely clear. It is possible that the determination of whether the 60% Ownership Test or the 80% Ownership Test is met with respect to the separation would be made by reference to the percentage of shares of the former Parent held by the former shareholders of the former Parent after the Tyco merger by reason of holding shares in the former Parent. Under this approach, based on certain factual assumptions and current provisions of U.S. federal income tax law, it is expected that Adient would be respected as a foreign corporation for U.S. federal tax purposes. However, there can be no assurance that the IRS would not assert a different methodology and conclude that either the 60% Ownership Test or the 80% Ownership Test is satisfied. If the IRS were to prevail with such assertion, the ability of Adient's U.S. affiliates to use certain U.S. tax attributes could be limited and/or Adient or its foreign affiliates could be treated as a U.S. corporation for U.S. federal tax purposes. If Adient or its affiliates were to be subject to such limitations or to be so treated, significant adverse tax consequences would result. In addition, if Adient were treated as acquiring substantially all of the assets of a U.S. corporation then the applicable rules would exclude the shares of Adient stock attributable to that acquisition for purposes of the 60% Ownership Test and 80% Ownership Test in a subsequent acquisition, although the validity
of such applicable rules has been challenged and this challenge has been sustained by at least one court. In such case, Adient's ability to use its stock in a future acquisition could be limited. As discussed above, these rules are new and complex, and there is limited guidance regarding their application.
Future changes to U.S. and non-U.S. tax laws could materially adversely affect Adient.
The U.S. Congress, the Organization for Economic Co-operation and Development and other government agencies in jurisdictions where Adient and its affiliates do business have had an extended focus on issues related to the taxation of multinational corporations. One example is in the area of "base erosion and profit shifting," including situations where payments are made between affiliates from a jurisdiction with high tax rates to a jurisdiction with lower tax rates. As a result, the tax laws in the U.S. and other countries in which Adient and its affiliates do business could change on a prospective or retroactive basis, and any such changes could materially adversely affect Adient and its affiliates, including potential material adverse effects to Adient's tax rate. In particular, significant tax reform has been proposed in the U.S., potentially resulting in changes that could affect Adient, including materially adversely. The prospect of passage of such proposals is unclear.
Changes to the U.S. Model Income Tax Treatyagreement could adversely affect Adient.
On February 17, 2016,
Adient separated from Johnson Controls International plc in 2016. The separation arrangements with the U.S. Treasury released a newly revised U.S. model income tax convention (the "model"), which isformer parent company provide for, among other things, the baseline text used byprincipal corporate transactions required to effect the U.S. Treasury to negotiate tax treaties. The new model treaty provisions were preceded by draft versions released by the U.S. Treasury on May 20, 2015 (the "May 2015 draft") for public comment. The revisions madeseparation, certain conditions to the model address certain aspectsseparation and provisions governing the relationship between Adient and the former parent company with respect to and resulting from the separation, including ongoing relationships. Among other things, the separation arrangements provide for indemnification obligations designed to make Adient financially responsible for substantially all liabilities that may exist relating to its business activities, whether incurred prior to or after the separation, as well as those obligations of the model
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former Parent assumed by modifying existing provisionsAdient pursuant to the separation arrangements and introducing entirely new provisions. Specifically, the new provisions target (i) permanent establishments subject to little or no foreign tax, (ii) special tax regimes, (iii) "expatriated entities" subject to Section 7874, (iv) the anti-treaty shopping measuresin respect of the limitation on benefits article and (v) subsequent changes in treaty partners' tax laws.
With respect to the new model provisions pertaining to expatriated entities, because, as described above, Adient does not believe it is an "expatriated entity" as defined in Section 7874, payments of interest, dividends, royalties and certain other items of income by or to Adient's U.S. affiliates to or from non-U.S. persons would not be expected to become subject to full U.S. withholding tax, even if applicable treaties were subsequently amended to adopt the new model provisions. In response to comments that the U.S. Treasury received regarding the May 2015 draft, the new model treaty provisions pertaining to expatriated entities fix the definition of "expatriated entity" to the meaning ascribed to such term under Section 7874(a)(2)(A) asconduct of the date the relevant bilateral treaty is signed. As discussed above, the rules under Section 7874 are relatively new, complex and are the subject of current and future legislative and regulatory changes. Accordingly, there can be no assurance that the IRS will agree with the position that the separation does not result in the creation of an "expatriated entity" (within the meaning of Section 7874) under current law or law as in effect at the time the applicable treaty were amended or that any such challenge by the IRS would not be sustained by a court, or that such position would not be affected by future or regulatory action whichparties post-separation. Adient may apply retroactively to the separation.
Legislative and other proposals that would deny governmental contracts to U.S. companies that move their corporate location abroad may affect Adient if adopted.
Various U.S. federal and state legislative and other proposals that would deny governmental contracts to U.S. companies (and subsidiaries of U.S. companies) that move (or have moved) their corporate location abroad may affect Adient and/or its affiliates if adopted. It is difficult to predict the likelihood that any such proposals might be adopted, the nature of the regulations that might be promulgated, or the effect such adoptions and increased regulatory scrutiny might have on Adient's business.
Ordinary shares of Adient received by means of a gift or inheritance could be subject to Irish capital acquisitions tax.substantial liabilities under these indemnifications.
Irish capital acquisitions tax, or CAT (currently levied at a rate of 33% above certain tax free thresholds), could apply to a gift or inheritance of Adient ordinary shares irrespective of the place of residence, ordinary residence or domicile of the parties. This is because Adient ordinary shares are regarded as property situated in Ireland for CAT purposes. The person who receives the gift or inheritance has primary liability for CAT.
Transfers of Adient ordinary shares, other than by means of the transfer of book-entry interests in the Depository Trust Company, may be subject to Irish stamp duty.
It is expected that, for the majority of transfers of Adient ordinary shares, there will not be any Irish stamp duty. Transfers of Adient ordinary shares effected by means of the transfer of book-entry interests in the Depository Trust Company, which we refer to as DTC, are not subject to Irish stamp duty. But if Adient ordinary shares are held directly rather than beneficially through DTC, any transfer of Adient ordinary shares could be subject to Irish stamp duty (currently at the rate of 1% of the higher of the price paid
or the market value of the shares acquired). A shareholder who directly holds Adient ordinary shares may transfer those shares into his or her own broker account to be held through DTC (or vice versa) without giving rise to Irish stamp duty provided that there is no change in the beneficial ownership of the shares as a result of the transfer and the transfer is not in contemplation of a sale of the shares by a beneficial owner to a third party.
Payment of Irish stamp duty is generally a legal obligation of the transferee. The potential for stamp duty could adversely affect the price of Adient ordinary shares.
In certain circumstances, dividends paid by Adient may be subject to Irish dividend withholding tax.
In certain circumstances, Irish dividend withholding tax ("DWT") (currently at a rateCertain provisions in Adient's articles of 20%) may arise in respect of dividends paid on Adient ordinary shares. A number of exemptions from DWT exist pursuant to which shareholders resident in the United States and shareholders resident in certain countries may be entitled to exemptions from DWT.
Please note the requirement to complete certain relevant Irish Revenue Commissioners DWT forms ("DWT Forms") in order to qualify for many of the exemptions.
Dividends paid in respectassociation, among other things, could prevent or delay an acquisition of Adient, ordinary shares that are owned by a U.S. resident and held through DTC will not be subject to DWT provided the address of the beneficial owner of such shares in the records of the broker holding such shares is recorded as being in the United States (and such broker has further transmitted the relevant information to a qualifying intermediary appointed by Adient). Similarly, dividends paid in respect of Adient ordinary shares that are held outside of DTC and are owned by a resident of the United States will not be subject to DWT if such shareholder satisfies the conditions of one of the exemptions including the requirement to furnish a completed IRS Form 6166 or a valid DWT Form to Adient's transfer agent to confirm U.S. residence and claim an exemption. Adient shareholders resident in other countries may also be eligible for exemption from DWT on dividends paid in respect of their Adient ordinary shares provided they satisfy the conditions of one of the exemptions including the requirement to furnish valid DWT Forms to their brokers (in respect of such shares held through DTC) (and such broker has further transmitted the relevant information to a qualifying intermediary appointed by Adient) or to Adient's transfer agent (in respect of such shares held outside of DTC). Other Adient shareholders may be subject to DWT, which could adversely affectdecrease the trading price of Adient ordinary shares.
Adient’s Articles of Association include measures that may be found in the charters of U.S. companies and that could have the effect of deterring coercive takeover practices, inadequate takeover bids and unsolicited offers. These provisions include, among others: (i) the power for the board of directors to issue and allot preferred shares or implement a shareholder rights plan without shareholder approval in certain circumstances; (ii) a provision similar to Section 203 of the Delaware General Corporation Law, which provides that, subject to limited exceptions, persons that acquire, or are affiliated with a person that acquires, more than 15 percent of the outstanding ordinary shares of Adient shall not engage in any business combination with Adient, including by merger, consolidation or acquisitions of additional shares, for a three-year period following the date on which that person or its affiliates becomes the holder of more than 15 percent of Adient's outstanding ordinary shares; (iii) rules regarding how shareholders may present proposals or nominate directors for election at shareholder meetings; and (iv) the ability of the Adient board of directors to fill vacancies on the board of directors in certain circumstances.
It could be difficult for Adient to obtain shareholder approval for a merger or negotiated transaction because the shareholder approval requirements for certain types of transactions differ, and in some cases are greater, under Irish law than under U.S. state law.
In addition, several mandatory provisions of Irish law could prevent or delay an acquisition of Adient. For example, Adient will be subject to various provisions of Irish law relating to mandatory bids, voluntary bids, requirements to make a cash offer and minimum price requirements, as well as substantial acquisition rules and rules requiring the disclosure of interests in Adient ordinary shares in certain circumstances. Also, Irish companies, including Adient, may only alter their memorandum of association and articles of association with the approval of the holders of at least 75% of Adient's shares present and voting in person or by proxy at a general meeting of Adient (and certain provisions of Adient's memorandum of association and articles of association may only be amended with the approval of the holders of at least 80% in nominal value of Adient's issued ordinary shares.
Irish law requires that Adient meet certain additional financial requirements before it declares dividends.
Under Irish law, Adient will be able to declare dividends and make distributions only out of "distributable reserves." Distributable reserves are the accumulated realized profits of Adient that have not previously been utilized in a distribution or capitalization less accumulated realized losses that have not previously been written off in a reduction or reorganization of capital, and include reserves created by way of a reduction of capital, including the share premium account. In addition, no distribution or dividend may be paid or made by Adient unless the net assets of Adient are equal to, or exceed, the aggregate of Adient's called up share capital plus non-distributable reserves and the distribution does not reduce Adient's net assets below such aggregate. Non-distributable reserves include the share premium account, the capital redemption reserve fund and the amount by which Adient's accumulated unrealized profits that have not been previously utilized by any capitalization exceed Adient's accumulated unrealized losses that have not previously been written off in a reduction or reorganization of capital.
Item 1B. Unresolved Staff Comments
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Item 1B. | Unresolved Staff Comments | | | |
None.
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Item 2. | Item 2. Properties | | | |
The following table sets forth Adient's principal owned and leased facilities as of September 30, 2017.2022.
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| | | | | | | | | | | | | | | | | |
| | Number of Locations | | Square Footage (in millions) |
| | Manufacturing | | Administrative | | Total | | Owned | | Leased | | Total |
| United States | 38 |
| | 8 |
| | 46 |
| | 3.4 |
| | 1.8 |
| | 5.2 |
|
| Germany | 31 |
| | 7 |
| | 38 |
| | 4.6 |
| | 2.1 |
| | 6.7 |
|
| Mexico | 20 |
| | — |
| | 20 |
| | 1.7 |
| | 1.6 |
| | 3.3 |
|
| Other European countries | 81 |
| | 2 |
| | 83 |
| | 6.2 |
| | 4.1 |
| | 10.3 |
|
| Asia/Pacific | 50 |
| | 6 |
| | 56 |
| | 1.9 |
| | 3.7 |
| | 5.6 |
|
| South America | 8 |
| | — |
| | 8 |
| | 0.4 |
| | 0.2 |
| | 0.6 |
|
| Other foreign | 10 |
| | — |
| | 10 |
| | 0.3 |
| | 0.8 |
| | 1.1 |
|
| | 238 |
| | 23 |
| | 261 |
| | 18.5 |
| | 14.3 |
| | 32.8 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Number of Locations |
| Operations | | Administrative |
| Owned | | Leased | | Total | | Owned | | Leased | | Total |
| United States | 22 | | | 10 | | | 32 | | | 2 | | | 2 | | | 4 | |
| Mexico | 10 | | | 9 | | | 19 | | | — | | | 2 | | | 2 | |
| Germany | 5 | | | 8 | | | 13 | | | 2 | | | 7 | | | 9 | |
| Thailand | 3 | | | 13 | | | 16 | | | — | | | — | | | — | |
| China | 4 | | | 12 | | | 16 | | | — | | | 3 | | | 3 | |
| Czech Republic | 3 | | | 6 | | | 9 | | | — | | | 1 | | | 1 | |
| Japan | 5 | | | 2 | | | 7 | | | 1 | | | 4 | | | 5 | |
| Other EMEA | 27 | | | 29 | | | 56 | | | — | | | 10 | | | 10 | |
| Other Asia | 6 | | | 21 | | | 27 | | | — | | | 5 | | | 5 | |
| Other Americas | 8 | | | 2 | | | 10 | | | 1 | | | — | | | 1 | |
| | | | | | | | | | | |
| 93 | | | 112 | | | 205 | | | 6 | | | 34 | | | 40 | |
Adient considers its facilities suitable and adequate for the purposes for which they are used and do not anticipate difficulty in renewing existing leases as they expire or in finding alternative facilities. The Seating segment operates the significant majority of the locations. See Part II, Item 8 of this Annual Report on Form 10-K in Note 7,8, "Leases," of the notes to consolidated financial statements for information regarding lease commitments.
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Item 3. | Item 3. Legal Proceedings | | | |
Adient is involved in various lawsuits, claims and proceedings incident to the operation of its businesses, including those pertaining to product liability, product safety, environmental, safety and health, intellectual property, employment, commercial, contractual 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. Adient accrues for potential liabilities in a manner consistent with accounting principles generally accepted in the United States, that is, when it is probable a liability has been incurred and the amount of the liability is reasonably estimable.
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Item 4. | Item 4. Mine Safety Disclosures | | | |
Not applicable.
Adient plc | Form 10-K | 27
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PART II - OTHER INFORMATION |
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Item 5. | PART II - OTHER INFORMATION Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |
Principal Market
Adient's ordinary shares are traded on the New York Stock Exchange ("NYSE") under the symbol "ADNT." A "when-issued" trading market for Adient's ordinary shares began on the NYSE on October 17, 2016, and "regular way" trading of Adient's ordinary shares began on October 31, 2106.2016. Prior to October 31, 2016, there was no public market for Adient's ordinary shares. |
| | | | | | | | | | | | | | | | |
| | | Fiscal 2017 |
| | | 1st Quarter | | 2nd Quarter | | 3rd Quarter | | 4th Quarter |
| High | | $ | 58.60 |
| | $ | 75.69 |
| | $ | 74.49 |
| | $ | 85.71 |
|
| Low | | $ | 44.20 |
| | $ | 55.88 |
| | $ | 61.73 |
| | $ | 63.99 |
|
Holders
As of September 30, 2017,2022, there were approximately 30,00023,872 shareholders of record.
Dividends
Adient's Board of Directors declared quarterlyAdient suspended its cash dividends of $0.275 per share for each offollowing the second, third and fourth quartersdividend paid in the first quarter of fiscal 2017. On November 7, 2017, Adient's Board of Directors declared a cash dividend of $0.275 per share, payable in February 2018. Adient currently expects to pay cash2019. Any future dividends in the future, although such payments are subject to the declaration of andwill be at the discretion of the Boardboard of Directorsdirectors and will depend upon Adient's financial condition, results of operations, capital requirements, alternative uses of capital and other factors the Boardboard of Directorsdirectors may consider at its discretion. In addition, under Irish law, dividends and distributions (including the payment of cash dividends or share repurchases) may be made only from "distributable reserves" on Adient's unconsolidated balance sheet prepared in accordance with the Irish Companies Act 2014. In addition, no distribution or dividend may be paid or made by Adient unless the net assets of Adient are equal to, or exceed, the aggregate of Adient's share capital that has been paid up or that is payable in the future plus non-distributable reserves, and the distribution does not reduce Adient's net assets below such aggregate.
Adient did not pay any dividends during fiscal 2016 because it was not a separate company.
Recent Sales of Unregistered Equity Securities
None.
Repurchases of Equity Securities
ShareThere was no share repurchase activity during the three months ended September 30, 2017 was as follows: |
| | | | | | | | | | | | | | | |
| Periods | | Total Number of Shares (or Units) Purchased | | Average Price Paid per Share (or Unit) | | Total Number of Shares (or Units)Purchased as Part of Publicly Announced Plans or Programs | | Approximate Dollar Value of Shares (or Units)that may yet be Purchased Under the Plans or Programs (1) |
| July 1, 2017 to July 31, 2017 | | — |
| | $ | — |
| | $ | — |
| | $ | 210,000,580 |
|
| August 1, 2017 to August 31, 2017 | | — |
| | — |
| | — |
| | 210,000,580 |
|
| September 1, 2017 to September 30, 2017 | | — |
| | — |
| | — |
| | 210,000,580 |
|
| | | — |
| | $ | — |
| | $ | — |
| | $ | 210,000,580 |
|
(1) On March 13, 2017,2022. In November 2022, Adient’s Boardboard of Directorsdirectors authorized Adient tothe repurchase itsof the Company’s ordinary shares up to an aggregate purchase price of $250$600 million until December 31, 2019.with no expiration date. Under the share repurchase authorization, Adient’s ordinary shares may be purchased either through any one or more of a Rule 10b5-1 trading plan and discretionary purchases on the open market, by block trades or privately negotiated transactions. The number of ordinary shares repurchased, if any, and the timing of repurchases will
depend on a number of factors, including share price, trading volume and general market conditions, as well as on working capital requirements, general business conditions and other factors. Repurchased shares were retired immediately upon repurchase.
Stock Performance Graph
The following information in this Item 5 is not deemed to be “soliciting material” or to be “filed” with the SEC or subject to Regulation 14A or 14C under the Securities Exchange Act of 1934 or to the liabilities of Section 18 of the Securities Exchange Act of 1934, and will not be deemed to be incorporated by reference into any filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent Adient specifically incorporates it by reference into such a filing.
The following graph shows a comparison of cumulative total shareholder return, calculated on a dividend reinvested basis, for Adient’s ordinary shares, the Standard & Poor’s 500 Index, and a peer groupfor the period October 31, 2016 (the first day ordinary shares were traded following the separation)September 30, 2017 through September 30, 2017.2022. The graph assumes the value of the investment in Adient's ordinary shares and each index was $100 on October 31, 2016September 30, 2017, and that all dividends were reinvested. Historic stock price performance is not necessarily indicative of future stock price performance. Adient selected a peer group comprised of representative independent automotive suppliers whose common stock is publicly traded. The peer group referenced in the graph below consists of Autoliv, Inc., BorgWarner, Inc., Cooper-Standard Holding, Inc., Delphi Automotive,Group Forvia, Goodyear Tire & Rubber, Huayu Automotive Systems Co. Ltd., Lear Corp, Magna International Inc., Tenneco Inc., Faurecia SA, and Toyota Boshoku Corp. and HUAYU Automotive Systems Co.
Adient plc | Form 10-K | 28
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| | | | | | | | | | | | | | | | | | | | |
| | | 10/31/2016 | | 12/31/2016 | | 3/31/2017 | | 6/30/2017 | | 9/30/2017 |
| Adient plc | | $ | 100 |
| | $ | 129 |
| | $ | 160 |
| | $ | 144 |
| | $ | 186 |
|
| S&P 500 | | $ | 100 |
| | $ | 106 |
| | $ | 112 |
| | $ | 116 |
| | $ | 121 |
|
| Peer Group | | $ | 100 |
| | $ | 106 |
| | $ | 115 |
| | $ | 124 |
| | $ | 140 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Sep/2017 | | Sep/2018 | | Sep/2019 | | Sep/2020 | | Sep/2021 | | Sep/2022 |
| Adient plc | | $ | 100 | | | $ | 48 | | | $ | 28 | | | $ | 21 | | | $ | 51 | | | $ | 34 | |
| S&P 500 | | $ | 100 | | | $ | 118 | | | $ | 123 | | | $ | 142 | | | $ | 184 | | | $ | 156 | |
| Dow Jones US Auto Parts | | $ | 100 | | | $ | 91 | | | $ | 83 | | | $ | 84 | | | $ | 116 | | | $ | 82 | |
| Peer Group | | $ | 100 | | | $ | 109 | | | $ | 122 | | | $ | 134 | | | $ | 178 | | | $ | 162 | |
Item 6. Reserved
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Item 6. | Selected Financial Data | | | |
The following selected historical consolidated financial data below should be read in conjunction with Part II,
Item 7, "Management's7. Management's Discussion and Analysis of Financial Condition and Results of Operations"Operations
Presentation of Information
Unless the context requires otherwise, references to "Adient plc" or "Adient" refer to Adient plc and its consolidated subsidiaries for periods subsequent to its separation from Johnson Controls International plc ("the historical consolidated financial statements and related notes thereto includedformer Parent") on October 31, 2016. References in Part II, Item 8 of this Annual Report on Form 10-K to fully understand factors that may affect the comparability"separation" refer to the legal separation and transfer of the former Parent's automotive seating and interiors business to Adient on October 31, 2016. The information presented below. The selected consolidated financial data in this sectionherein are not intended to replace the consolidated financial statements and are qualified in their entirety by the consolidated financial statements and related notes included in this Annual Reportbased on Form 10-K.management’s perspective of Adient’s results of operations.
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| | | | | | | | | | | | | | | | | | | | |
| Statement of Operations (dollars in millions) | | 2017 | | 2016 (1) | | 2015 (1) | | 2014 (1) | | 2013(1) |
Net sales (2) | | $ | 16,213 |
| | $ | 16,790 |
| | $ | 20,023 |
| | $ | 21,991 |
| | $ | 20,423 |
|
| Gross profit | | 1,408 |
| | 1,609 |
| | 1,852 |
| | 1,953 |
| | 1,575 |
|
Net income (loss) attributable to Adient (3) | | 877 |
| | (1,546 | ) | | 460 |
| | 299 |
| | 187 |
|
| | | | | | | | | | | |
Earnings per share (4) | | | | | | | | | | |
| Basic | | $ | 9.38 |
| | $ | (16.50 | ) | | $ | 4.91 |
| | $ | 3.19 |
| | $ | 2.00 |
|
| Diluted | | $ | 9.34 |
| | $ | (16.50 | ) | | $ | 4.90 |
| | $ | 3.19 |
| | $ | 2.00 |
|
| | | | | | | | | | | |
| Balance Sheet Data (dollars in millions) | | | | | | | | | | |
| Total assets | | $ | 13,170 |
| | $ | 12,956 |
| | $ | 10,414 |
| | $ | 11,198 |
| | $ | 11,387 |
|
| Total debt | | 3,478 |
| | 3,521 |
| | 59 |
| | 156 |
| | 138 |
|
| Shareholders' equity attributable to Adient | | 4,279 |
| | 4,176 |
| | 5,603 |
| | 5,445 |
| | 5,582 |
|
Total debt to capitalization (5) | | 45 | % | | 46 | % | | 1 | % | | 3 | % | | 2 | % |
(1) Amounts have been revised to correct for misstatements, as described in Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" in the accompanying notes to the consolidated financial statements. Fiscal years 2014 and 2013 have been revised for consistency with current period presentation and as a result of this revision net sales decreased $50 million and net income (loss) attributable to Adient, total assets and shareholders' equity attributable to Adient decreased $8 million in fiscal 2014 and net sales decreased $47 million in fiscal 2013.(2) On July 2, 2015, Adient completed the YFAI global automotive interiors joint venture and deconsolidated the contributed interiors business since that date resulting in lower consolidated net sales in subsequent periods.
(3) Net income attributable to Adient includes the following significant items. Refer to Note 17, "Segment Information," of the notes to consolidated financial statements for more information on the individual items below.
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| | | | | | | | | | | | | | | | | | | | |
| (in millions) | | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| Pension mark-to-market | | $ | 45 |
| | $ | (110 | ) | | $ | (6 | ) | | $ | (50 | ) | | $ | (13 | ) |
Gain (loss) on business transactions - net (6) | | 151 |
| | — |
| | 137 |
| | (86 | ) | | 135 |
|
| Costs related to Becoming Adient | | (95 | ) | | — |
| | — |
| | — |
| | — |
|
| Costs related to the separation of Adient | | (10 | ) | | (369 | ) | | — |
| | — |
| | — |
|
| Restructuring and impairment costs | | (46 | ) | | (332 | ) | | (182 | ) | | (158 | ) | | (280 | ) |
| Tax benefit (expense) of items above | | 22 |
| | 66 |
| | (65 | ) | | (23 | ) | | (1 | ) |
| | | 67 |
| | (745 | ) | | (116 | ) | | (317 | ) | | (159 | ) |
| One-time tax benefit (expense) items | | 12 |
| | (1,891 | ) | | (293 | ) | | — |
| | — |
|
| Impact of significant items | | $ | 79 |
| | $ | (2,636 | ) | | $ | (409 | ) | | $ | (317 | ) | | $ | (159 | ) |
(4) Adient earnings per share for 2016, 2015, 2014 and 2013 were calculated using the number of shares that were distributed to the former Parent shareholders upon the separation (93,671,810 shares).
(5) Total debt to capitalization represents total debt divided by the sum of total debt and equity attributable to Adient.
(6) Net (gain) loss on business transactions includes a $151 million net gain in fiscal 2017 and a $106 million net gain in fiscal 2013 that are recorded in equity income.
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Item 7. | Management's Discussion and Analysis of Financial Condition and Results of Operations |
Forward-Looking Statements
This
Adient has made statements in this section and other parts of this Annual Report on Form 10-K ("Form 10-K") containthat are management’s perspective of forward-looking information and, therefore, are subject to risks and uncertainties. All statements in this Form 10-K other than statements of historical fact are statements that are, or could be, deemed "forward-looking
Adient plc | Form 10-K | 29
statements", within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks1995. In this Form 10-K, statements regarding Adient's future financial position, sales, costs, earnings, cash flows, other measures of results of operations, capital expenditures or debt levels and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historicalplans, objectives, outlook, targets, guidance or current fact. Forward-looking statements can also be identified by wordsgoals are forward-looking statements. Words such as "future," "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts,"may," "will," "would," "could," "can," "may,"expect," "intend," "estimate," "anticipate," "believe," "should," "forecast," "predict," "project" or "plan" or terms of similar terms. Forward-looking statementsmeaning are not guarantees of future performance and Adient's actual results may differ significantly from the results discussed in thealso generally intended to identify forward-looking statements. Adient cautions that these statements are subject to numerous important risks, uncertainties, assumptions and other factors, some of which are beyond Adient'sAdient’s control, that could cause Adient’s actual results to differ materially from those expressed or implied by such forward-looking statements, including, among others, risks related to: the Ukraine conflict and COVID lockdowns in China and their impact on regional and global economies and additional pressure on supply chains and vehicle production, the effects of local and national economic, credit and capital market conditions on the economy in general, and other risks and uncertainties, the continued financial and operational impacts of and uncertainties relating to the COVID-19 pandemic on Adient and its customers, suppliers, joint venture partners and other parties, work stoppages, including due to supply chain disruptions and similar events, energy and commodity availability and prices, the Company’s ability and timing of customer recoveries for increased input costs, the availability of raw materials and component products (including components required by our customers for the manufacture of vehicles (i.e., semiconductors)), whether deleveraging activities may yield additional value for shareholders at all or on the same or different terms as those described herein, the ability of Adient to execute its turnaround plan, automotive vehicle production levels, mix and schedules, as well as our concentration of exposure to certain automotive manufacturers, the ability of Adient to effectively launch new business at forecast and profitable levels, the ability of Adient to meet debt service requirements, the availability and terms of future financing, the impact of tax reform legislation, uncertainties in U.S. administrative policy regarding trade agreements, tariffs and other international trade relations, general economic and business conditions, the strength of the U.S. or other economies, automotiveshifts in market shares among vehicles, vehicle production levels, mixsegments or away from vehicles on which Adient has significant content, changes in consumer demand, global climate change and schedules, energy and commodity prices, the availability of raw materials and component products, currency exchange rates,related emphasis on ESG matters by various stakeholders, the ability of Adient to effectively integrate the Futuris business,achieve its ESG-related goals, currency exchange rates and cancellation of or changes to commercial arrangements.arrangements, and the ability of Adient to identify, recruit, and retain key leadership. Potential investors and others should consider these factors in evaluating the forward-looking statements and should not place undue reliance on such statements. Additional information regarding these and other risks related to Adient’s business that could cause actual results to differ materially from what is contained in the forward-looking statements is included in the section entitled "Risk Factors," contained in Item Part I, Item 1A of the which are incorporated herein by reference. The following discussion should be read in conjunction with the consolidated financial statements and notes thereto included in Part II, Item 8 of thethis Form 10-K. All information presented herein is based on the Adient's fiscal calendar. Unless otherwise stated, references to particular years, quarters, months or periods refer to Adient's fiscal years ended in September and the associated quarters, months and periods of those fiscal years. The forward-looking statements included in this Form 10-K are made only as of the date of this report, unless otherwise specified, and, except as required by law, Adient assumes no obligation, and disclaims any obligation, to reviseupdate such statements to reflect events or update any forward-looking statements for any reason, except as required by law.circumstances occurring after the date of this Form 10-K.
Separation from the former Parent
On October 31, 2016, Adient plc ("Adient") became an independent company as a result of the separation of the automotive seating and interiors business from Johnson Controls (the "separation").Controls. 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's fiscal 2016 and 2015 consolidated financial statements were prepared on a stand-alone basis derived from the former Parent's consolidated financial statements and accounting records. Therefore, the financial statements reflect, in conformity with accounting principles generally accepted in the United States, Adient's financial position, results of operations, comprehensive income (loss) and cash flows as the business would have been historically operated as part of the former Parent prior to the separation. The financial statements may not be indicative of Adient's future performance and do not necessarily reflect what the consolidated results of operations, financial condition and cash flows would have been had Adient operated as a separate, publicly traded company during the periods presented, particularly because many changes occurred in Adient's operations and capitalization as a result of the separation from the former Parent.
Adient's fiscal 2016 and 2015 consolidated statement of operations includes its direct expenses for cost of goods sold, research and development, sales and marketing, distribution, and administration as well as allocations of expenses arising from shared services and infrastructure provided by the former Parent to Adient, such as information technology, accounting, legal, real estate and facilities, corporate advertising, risk and insurance services, treasury, shareholder services and other corporate and infrastructure services. These operating expenses were allocated to Adient that used estimates that were considered to be a reasonable reflection of the utilization of services provided or benefits received by Adient.
Overview
Adient is a global leader in the world's largest automotive seating supplier*supply industry with relationships with the largest global auto manufacturers. Adient's technologies extend into virtually every area of automotive seating solutions, including complete seating systems, frames, mechanisms, foam, head restraints, armrests and trim covers and fabrics.covers. Adient is an independent seat supplier with global scale and the capability to design, develop, engineer, manufacture and deliver complete seat systems and components in every major automotive producing region in the world. Adient also participates in the automotive interiors market primarily through its 30% equity interest in our global automotive interiors joint venture in China, Yanfeng Global Automotive Interior Systems Co., Ltd. (YFAI).
Adient designs, manufactures and markets a full range of seating systems and components for passenger cars, commercial vehicles and light trucks, including vans, pick-up trucks and sport/crossover utility vehicles. Adient also supplies high performance seating systems to the commercial trucking and international motorsports industry through its award winning RECARO brand of products. Adient operates approximately 238more than 200 wholly- and majority-owned manufacturing or assembly facilities, with operations in 3431 countries. Additionally, Adient has partially-owned affiliates in China, Asia, Europe and North America. Through its global footprint and vertical integration, Adient leverages its capabilities to drive growth in the automotive seating industry.
Adient plc | Form 10-K | 30
Adient manages its business on a geographic basis and operates in twothe 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 follows:income before income taxes and noncontrolling interests, excluding net financing charges, restructuring and impairment costs, restructuring related-costs, net mark-to-market adjustments on pension and postretirement plans, transaction gains/losses, purchase accounting amortization, depreciation, stock-based compensation and other non-recurring items ("Adjusted EBITDA"). Also, certain corporate-related costs are not allocated to the segments. The reportable segments are consistent with how management views the markets served by Adient and reflect the financial information that is reviewed by its chief operating decision maker. Refer to Note 17, "Segment Information," of the notes to the consolidated financial statements for additional information on Adient's reportable segments.
Seating
Factors Affecting Adient’s Operating Environment
The Seating segment produces automotive seat metal structures and mechanisms, foam, trim, fabric and complete seat systems.
Interiors
The Interiors segment, derived from its global automotive interiors joint ventures, produces instrument panels, floor consoles, door panels, overhead consoles, cockpit systems, decorative trimindustry has continued to experience unprecedented supply chain and other products.disruptions over the past year related to semiconductor chip shortages, hostilities in Ukraine and localized COVID-19 lockdowns in China. These disruptions have led to unplanned downtime at Adient’s production facilities, often with very little warning, which results in operating inefficiencies and limits Adient’s ability to adequately mitigate such inefficiencies. The automotive industry has also experienced a period of rising input costs and potential shortages related to energy (particularly in EMEA as a result of the conflict in Ukraine), freight and commodities as well as facing an environment of unfavorable foreign currency exchange and rising interest rates. In addition, Adient, along with the automotive industry, has experienced and continues to face wage inflationary pressures as a result of constrained labor availability, particularly in certain jurisdictions in EMEA. COVID-19 and related variants and sub-variants, also continues to be present throughout the world, including in all global and regional markets served by Adient. The elevated COVID-19 rates in China led to lockdowns at various times during fiscal 2022, negatively impacting the automotive production levels in that region, along with creating further supply chain disruptions. As a result of these disruptions, new vehicle sales continue to be significantly lower than historical and previously projected pre-pandemic sales levels. Adient believes that its current financial resources will be sufficient to fund the Company's liquidity requirements for at least the next twelve months. Refer to the consolidated results of operations and segment analysis discussion below for additional information on the impacts of these items on Adient's results.
Global Automotive Industry
Adient conducts its business globally in the automotive industry, which is highly competitive and sensitive to economic, conditions. During the fiscal years ended September 30, 2017, 2016 and 2015 the global automotive industry experienced modest global growth. In fiscal 2017, South America and other Asian regions experienced growth while production in North America saw decreases due to varying economic, political and social factors.factors in the various regions. During fiscal 2021, automotive production across the globe declined due to the economic slow down resulting from the COVID-19 pandemic and the widespread supply chain disruptions primarily due to semiconductor chip shortages. During fiscal 2022, global light vehicle production increased 2.4% year-over-year despite on-going supply chain disruptions and despite the impact of the Russia/Ukraine conflict on production volumes in Europe in 2022. Unplanned production stoppages by customers continue to negatively impact Adient’s results through operating inefficiencies and other surcharges. These and other challenges will continue to exist in Adient’s operating environment in fiscal 2023.
Light vehicle production levels by geographic region are provided below:
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| | | | | | | | | | |
| | | Light Vehicle Production |
| (units in millions) | | 2017 | | Change | | 2016 | | Change | | 2015 |
| Global | | 93.3 | | 4% | | 90.0 | | 3% | | 87.8 |
| North America | | 17.3 | | -3% | | 17.8 | | 2% | | 17.4 |
| South America | | 3.2 | | 19% | | 2.7 | | -21% | | 3.4 |
| Europe | | 22.8 | | 3% | | 22.2 | | -3% | | 22.8 |
| China | | 27.9 | | 6% | | 26.2 | | 13% | | 23.1 |
| Asia, excluding China, and Other | | 22.1 | | 5% | | 21.1 | | —% | | 21.1 |
| | | | | | | | | | | |
| Source: IHS Automotive, October 2017 | | | | | | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Light Vehicle Production |
| (units in millions) | | 2022 | | Change | | 2021 | | Change | | 2020 |
| Global | | 81.4 | | | 2.4 | % | | 79.5 | | | 7.6 | % | | 73.9 | |
| North America | | 14.1 | | | 3.7 | % | | 13.6 | | | 4.6 | % | | 13.0 | |
| South America | | 2.8 | | | 3.7 | % | | 2.7 | | | 17.4 | % | | 2.3 | |
| Europe | | 15.5 | | | -10.4 | % | | 17.3 | | | 4.2 | % | | 16.6 | |
| China | | 26.7 | | | 7.2 | % | | 24.9 | | | 7.8 | % | | 23.1 | |
| Asia, excluding China, and Other | | 22.3 | | | 6.2 | % | | 21.0 | | | 11.1 | % | | 18.9 | |
| | | | | | | | | | |
| Source: IHS Automotive, October 2022 | | | | | | | | | | |
Adient plc | Form 10-K | 31
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* | Based on production volumes. Source: IHS Automotive | |
Financial Results Summary
Significant aspects of Adient's financial results for fiscal 20172022 are summarized below. Adient's financial results for fiscal 2021 include the following:strategic transactions in China which had a significant impact on the fiscal 2021 financial results. Refer to Note 3, “Acquisitions and Divestitures,” in Part II, Item 8 of this Form 10-K for more information on these transactions.
•Adient recorded net sales of $16,213$14,121 million for fiscal 2017,2022, representing a decreasean increase of $577$441 million when compared to fiscal 2016. Foreign currency had an2021. The increase in net sales is attributable to higher overall production volumes in the Americas, operational footprint changes primarily related to the consolidation of CQADNT in China and favorable material economics recoveries, partially offset by the unfavorable impact of $97 million, withforeign currencies, unplanned operational interruptions and production stoppages primarily resulting from on-going supply chain disruptions, the remaining decrease resulting primarily from lowerimpact of the Russia/Ukraine conflict particularly on European volumes, and the impact of localized COVID-19 lockdowns in North America.China.
•Gross profit was $1,408$807 million, or 9%5.7% of net sales for fiscal 20172022 compared to $1,609$826 million, or 10%6.0% of net sales infor fiscal 2016.2021. Profitability, along withincluding gross profit as a percentage of net sales, was lower due to the impact of foreign currencies, higher input costs, and inefficiencies caused by unplanned production stoppages, partially offset by operational footprint changes primarily fromrelated to the effectconsolidation of lower sales volumes and higher commodity costs.CQADNT in China.
•Equity income was $522$75 million for fiscal 2017,2022, which compares to equity income of $1,484 million for fiscal 2021. The decrease is $178 million higher when comparedprimarily attributable to fiscal 2016. Excludingone-time gains resulting from the business transaction gainprior year divestitures of Adient's interests in fiscal 2017 ($151 million)certain China joint ventures (YFAS, SJA and others) as well as the unfavorableacquisition of controlling interest in CQADNT, the impact of foreign currency, equity income increased by 12% due primarily to growthKEIPER supply agreement modifications, and current year non-cash impairment charges recorded on certain of Adient's investments in China at our Seating affiliates.non-consolidated affiliates in South Africa and China.
•Net incomeloss attributable to Adient was $877$120 million for fiscal 2017, which is $2,423 million higher when2022, compared to an income of $1,108 million for fiscal 2016,2021. The net loss in fiscal 2022 is primarily attributable to operational inefficiencies resulting from supply chain disruptions including higher freight cost, overall higher input costs, lower overall production volumes in EMEA, and lower equity income resulting from prior year one-time tax chargesdivestitures of certain affiliates in China, partially offset by the favorable impact of operational footprint changes primarily related to the separation.consolidation of CQADNT in China, favorable material economics recoveries, lower net financing charges and lower income tax expense.
Adient plc | Form 10-K | 32
Consolidated Results of Operations
|
| | | | | | | | | | | | | | | | |
| | | Year Ended
September 30, |
| (in millions) | | 2017 | | Change | | 2016 (1) | | Change | | 2015 (1) |
| Net sales | | $ | 16,213 |
| | -3% | | $ | 16,790 |
| | -16% | | $ | 20,023 |
|
| Cost of sales | | 14,805 |
| | -2% | | 15,181 |
| | -16% | | 18,171 |
|
| Gross profit | | 1,408 |
| | -12% | | 1,609 |
| | -13% | | 1,852 |
|
| Selling, general and administrative expenses | | 691 |
| | -43% | | 1,222 |
| | 8% | | 1,131 |
|
| Gain (loss) on business divestitures - net | | — |
| | * | | — |
| | * | | 137 |
|
| Restructuring and impairment costs | | 46 |
| | -86% | | 332 |
| | 82% | | 182 |
|
| Equity income | | 522 |
| | 52% | | 344 |
| | 23% | | 280 |
|
| Earnings before interest and income taxes | | 1,193 |
| | * | | 399 |
| | -58% | | 956 |
|
| Net financing charges | | 132 |
| | * | | 22 |
| | 83% | | 12 |
|
| Income before income taxes | | 1,061 |
| | * | | 377 |
| | -60% | | 944 |
|
| Income tax provision | | 99 |
| | -95% | | 1,839 |
| | * | | 418 |
|
| Net income (loss) | | 962 |
| | * | | (1,462 | ) | | * | | 526 |
|
| Income attributable to noncontrolling interests | | 85 |
| | 1% | | 84 |
| | 27% | | 66 |
|
| Net income (loss) attributable to Adient | | $ | 877 |
| | * | | $ | (1,546 | ) | | * | | $ | 460 |
|
(1) Prior year amounts have been revised to correct for misstatements as described in Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" in the accompanying notes to the consolidated financial statements. | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
September 30, |
| (in millions) | | 2022 | | Change | | 2021 | | Change | | 2020 |
| Net sales | | $ | 14,121 | | | 3% | | $ | 13,680 | | | 8% | | $ | 12,670 | |
| Cost of sales | | 13,314 | | | 4% | | 12,854 | | | 6% | | 12,078 | |
| Gross profit | | 807 | | | (2)% | | 826 | | | 40% | | 592 | |
| Selling, general and administrative expenses | | 598 | | | 11% | | 537 | | | (4)% | | 558 | |
| Loss on business divestitures - net | | — | | | n/a | | 26 | | | 100% | | 13 | |
| Restructuring and impairment costs | | 25 | | | 19% | | 21 | | | (91)% | | 238 | |
| Equity income (loss) | | 75 | | | (95)% | | 1,484 | | | >100% | | 22 | |
| Earnings (loss) before interest and income taxes | | 259 | | | (85)% | | 1,726 | | | >100% | | (195) | |
| Net financing charges | | 215 | | | (31)% | | 311 | | | 41% | | 220 | |
| Other pension expense (income) | | (10) | | | 58% | | (24) | | | >(100%) | | 14 | |
| Income (loss) before income taxes | | 54 | | | (96)% | | 1,439 | | | >100% | | (429) | |
| Income tax provision (benefit) | | 94 | | | (62)% | | 249 | | | >100% | | 57 | |
| Net income (loss) | | (40) | | | >(100%) | | 1,190 | | | >100% | | (486) | |
| Income (loss) attributable to noncontrolling interests | | 80 | | | (2)% | | 82 | | | 34% | | 61 | |
| Net income (loss) attributable to Adient | | $ | (120) | | | >(100%) | | $ | 1,108 | | | >100% | | $ | (547) | |
* Measure not meaningful
Net Sales | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
September 30, |
| (in millions) | | 2022 | | Change | | 2021 | | Change | | 2020 |
| Net sales | | $ | 14,121 | | | 3% | | $ | 13,680 | | | 8% | | $ | 12,670 | |
|
| | | | | | | | | | | | | | | | |
| | | Year Ended
September 30, |
| (in millions) | | 2017 | | Change | | 2016 | | Change | | 2015 |
| Net sales | | $ | 16,213 |
| | -3% | | $ | 16,790 |
| | -16% | | $ | 20,023 |
|
Net sales decreasedincreased by $577$441 million, or 3%, in fiscal 20172022 primarily due to operational footprint changes primarily related to lowerthe consolidation of CQADNT in China ($620 million), favorable material economics recoveries ($312 million), and higher overall production volumes in North Americadespite certain unplanned production stoppages resulting from overall economic factors, capital restraints prior to 2016semiconductor chip shortages and other supply chain disruptions, and despite the wind downimpact of certain plantsthe Russia/Ukraine conflict on EMEA production volumes and related expiring programs,localized COVID-19 lockdowns in China ($90 million), partially offset by higher volumesthe unfavorable impact of foreign currencies ($568 million) and lower levels of commercial settlements ($13 million).
Net sales increased by $1,010 million, or 8%, in Europe and other Asian countries corresponding to overall economic growth in those regions. Also
contributingfiscal 2021 primarily due to the overall decrease was unfavorablesignificant operational interruptions related to COVID-19 which resulted in lower sales volumes across all regions in fiscal 2020 and despite certain unplanned temporary production stoppages primarily resulting from semiconductor and petrochemical shortages ($786 million), favorable foreign currency translation of $97 million,impact ($273 million), favorable material economics recoveries ($83 million), and favorable commercial settlements and net pricing adjustments, partially offset by the impact of the consolidation of one of our China affiliates, which added $64 million in net sales in fiscal 2017. 2020 divestitures primarily related to RECARO and fabrics businesses ($156 million).
Refer to the segment analysis below for a discussion of segment net sales.
Cost of Sales / Gross Profit
Adient plc | Form 10-K | 33
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
September 30, |
| (in millions) | | 2022 | | Change | | 2021 | | Change | | 2020 |
| Cost of sales | | $ | 13,314 | | 4% | | $ | 12,854 | | 6% | | $ | 12,078 |
| Gross profit | | 807 | | (2)% | | 826 | | 40% | | 592 |
| % of sales | | 5.7 | % | | | | 6.0 | % | | | | 4.7 | % |
| | | | | | | | | | |
Cost of sales forincreased by $460 million, or 4%, and gross profit decreased by $19 million in fiscal 2022 as compared to fiscal 2021. The year-over-year increase in cost of sales was due primarily to operational footprint changes related to the Seating segment.
Net sales for fiscal 2016 wereconsolidation of CQADNT in China ($527 million), higher input costs including higher energy cost in EMEA as a result of the Russia/Ukraine conflict ($327 million), higher overall production volumes ($136 million), operational inefficiencies resulting from unplanned production stoppages including higher freight ($74 million), net impact of gains associated with retrospective recoveries of Brazil indirect tax credits ($5 million), and higher depreciation and amortization expense ($6 million), partially offset by the favorable impact of foreign currencies ($542 million), and favorable supplier pricing including the impact of a modified pricing agreement with KEIPER ($71 million). Gross profit was unfavorably impacted by foreign currency translationcurrencies, higher input costs, and inefficiencies caused by unplanned production stoppages, partially offset by operational footprint changes primarily related to the consolidation of CQADNT in China.
Cost of sales increased by $776 million, or 6%, and gross profit increased by $234 million, or 40%, in fiscal 2021 as compared to fiscal 2020. The cost of sales year-over-year increase is primarily attributable to higher sales volumes in all regions ($411507 million) and the completion of the YFAI global automotive interiors joint venture on July 2, 2015 ($2,954 million). Excluding, the unfavorable impact of foreign currency translationcurrencies ($258 million), higher commodity costs ($150 million), temporary operational inefficiencies including premium freight and unplanned production stoppages resulting from semiconductor and petrochemical shortages and to a lesser extent COVID-19 related costs ($165 million) and non-recurring favorable benefits related to actions taken in fiscal 2020 to reduce the impact of COVID-19 ($36 million), partially offset by the completionimpact of divestitures in fiscal 2020 primarily consisting of the YFAI global automotive interiors joint venture, consolidated net sales increased by $132 million, or 1% RECARO and fabrics businesses ($120 million), primarilyoverall operational performance improvements ($106 million), favorable material margins ($76 million), and a one-time gain associated with retrospective recoveries of Brazil indirect tax credits ($38 million). The increase in gross profit was due to higher overall volumes, attributable to growththe favorable impact of foreign currencies, operational performance improvements, the favorable commercial settlements and net pricing adjustments, including material economics, and the one-time gain in Asia and Europe,Brazil, partially offset by softness in the Americas due to changes in automotive production levels and expiring programs. Refer to the segment analysis below for a discussion of net sales for the Seating segment.
Cost of Sales / Gross Profit |
| | | | | | | | | | | | | | | | |
| | | Year Ended
September 30, |
| (in millions) | | 2017 | | Change | | 2016 | | Change | | 2015 |
| Cost of sales | | $ | 14,805 |
| | -2% | | $ | 15,181 |
| | -16% | | $ | 18,171 |
|
| Gross profit | | 1,408 |
| | -12% | | 1,609 |
| | -13% | | 1,852 |
|
| % of sales | | 8.7 | % | | | | 9.6 | % | | | | 9.2 | % |
Cost of sales decreased by $376 million, or 2% primarily as a result of the lower levels of net sales. Gross profit decreased by $201 million, or 90 basis points as a percentage of net sales primarily due to higher commodity costs, (e.g. rising steel prices) and the effect of the lower levels of net sales. Other items impacting cost of sales include favorable foreign currency translation of $103 million, a favorable impact from pension mark-to-market of $20 million ($4 million benefit in fiscal 2017 comparedinefficiencies caused by unplanned production stoppages and certain incentive compensation costs that were not expected to $16 million charge in fiscal 2016) resulting from higher discount rates for certain non-US pension plans and Becoming Adient costs of $55 million. recur.
Refer to the segment analysis below for a discussion of segment profitability.
Cost
Selling, General and Administrative Expenses
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
September 30, |
| (in millions) | | 2022 | | Change | | 2021 | | Change | | 2020 |
| Selling, general and administrative expenses | | $ | 598 | | | 11% | | $ | 537 | | | (4)% | | $ | 558 | |
| % of sales | | 4.2 | % | | | | 3.9 | % | | | | 4.4 | % |
| | | | | | | | | | |
Selling, general and administrative expenses (SG&A) in fiscal 2022 increased by $61 million as compared to fiscal 2021. The year-over-year increase in SG&A is attributable to higher overall engineering and other administrative spending in the current year ($36 million), the impact of sales forthe prior year acquisitions and consolidations of CQADNT and LFADNT ($35 million), the impact of a non-recurring contract related settlement with a customer ($14 million), higher depreciation expense ($7 million), and higher amortization expense attributable to the acquired intangible assets ($7 million). These were offset by lower compensation expense including stock-based and performance-based incentive compensation costs ($12 million), the favorable impact of foreign currencies ($17 million), and lower transaction costs ($11 million).
Selling, general and administrative expenses (SG&A) decreased by $21 million, or 4% in fiscal 20162021 as compared to fiscal 2020. SG&A was favorably impacted by the YFAI global automotive interiors joint venturelower overall engineering and other administrative spending ($2,70541 million), and foreign currency translationRECARO and fabrics administrative costs in fiscal 2020 ($36930 million). Excluding the above items,, partially offset by higher stock-based compensation costs of sales increased by $84 million. These items favorably impacted current period gross profit as a percentage of net sales by 20 basis points. The increase($21 million), non-recurring favorable benefits in gross profit as a percentage of net sales was primarily duefiscal 2020 related to the benefits ofactions taken to reduce the impact of COVID-19 ($4 million), the YFAI global automotive interiors joint venture and cost reduction initiatives. Mark-to-market adjustments on pension and postretirement plans had a net unfavorable impact on cost of sales of $13 millionforeign currencies ($16 million charge in fiscal 2016 compared to a $3 million charge in fiscal 2015) primarily due to decreases in discount rates for certain non-U.S. pension plans. 21 million), and higher transaction costs ($4 million).
Adient plc | Form 10-K | 34
Refer to the segment analysis below for a discussion of segment profitability.
Selling, General
Restructuring and Administrative ExpensesImpairment Costs | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
September 30, |
| (in millions) | | 2022 | | Change | | 2021 | | Change | | 2020 |
| Restructuring and impairment costs | | $ | 25 | | | 19% | | $ | 21 | | | (91)% | | $ | 238 | |
|
| | | | | | | | | | | | | | | | |
| | | Year Ended
September 30, |
| (in millions) | | 2017 | | Change | | 2016 | | Change | | 2015 |
| Selling, general and administrative expenses | | $ | 691 |
| | -43% | | $ | 1,222 |
| | 8% | | $ | 1,131 |
|
| % of sales | | 4.3 | % | | | | 7.3 | % | | | | 5.6 | % |
Selling, generalRestructuring and administrative expenses (SG&A) decreasedimpairment charges increased by $531$4 million or 43% for fiscal 2017 when compared with fiscal 2016. SG&A for fiscal 2017 was favorably impacted by lower separation costs ($359 million), a favorable impact from pension mark-to-market of $135 million (a $41 million benefit in fiscal 20172022 as compared to a $94fiscal 2021 due primarily to one-time non-cash impairment charges related to the withdrawal from and sale of Adient’s operations in Russia and other assets held for sale in EMEA.
Restructuring and impairment costs were lower by $217 million charge in fiscal 2016)2021 as compared to fiscal 2020 due primarily to higher levels of restructuring actions taken in fiscal 2020 after the industry experienced significant volume decreases resulting from higher discount ratesthe COVID-19 impact, and $53 million of one-time non-cash impairment charges of long-lived assets in China and other assets held for certain non-US pension plans and foreign currency translation ($4 million), partially offset by Becoming Adient costs ($40 million), a prior year pension credit associated with pension plans retained by the former Parent ($24 million), prior year favorable settlements from previous business divestitures ($22 million), a prior year favorable legal settlement ($20 million), a prior year favorable commercial settlement ($13 million), the initial funding of the Adient foundation ($12 million) and Futuris transaction costs ($3 million). Excluding the impact of these items, SG&A decreased by approximately 14% primarily as a result of overall lower stand-alone costs compared to allocated costs from the former Parent and to cost reduction initiatives. Refer to the segment analysis below for a discussion of segment profitability.
SG&A for fiscal 2016 was unfavorably impacted by separation costs ($369 million) and an unfavorable impact from pension mark-to-market of $91 million (a $94 million chargesale in fiscal 2016 compared to a $3 million charge in fiscal 2015) primarily due to decreases in discount rates for certain non-U.S. pension plans, partially offset by the impact of the YFAI global automotive2020.
interiors joint venture ($154 million), favorable foreign currency translation ($25 million), a pension credit associated with pension plans retained by the former Parent ($24 million), favorable settlements from previous business divestitures ($22 million), a favorable legal settlement ($20 million) and a favorable commercial settlement ($13 million). Excluding the above items, SG&A decreased by approximately 10% primarily due to lower corporate allocations from the former Parent ($46 million), prior year transaction and integration costs ($38 million) and lower costs resulting from cost reduction initiatives. Refer to the segment analysis below for a discussion of segment profitability.
Gain (Loss) on Business Divestitures - Net |
| | | | | | | | | | | | | | | | |
| | | Year Ended
September 30, |
| (in millions) | | 2017 | | Change | | 2016 | | Change | | 2015 |
| Gain (loss) on business divestitures - net | | $ | — |
| | * | | $ | — |
| | * | | $ | 137 |
|
* Measure not meaningfulThere were no business divestitures in fiscal 2017 and 2016. The gain in fiscal 2015 relates primarily to the YFAI global automotive interiors joint venture transaction. Refer to Note 2,3, "Acquisitions and Divestitures," of the notes to the consolidated financial statements for further information on the gain (loss) on business divestitures-net.
Restructuring and Impairment Costs |
| | | | | | | | | | | | | | | | |
| | | Year Ended
September 30, |
| (in millions) | | 2017 | | Change | | 2016 | | Change | | 2015 |
| Restructuring and impairment costs | | $ | 46 |
| | -86% | | $ | 332 |
| | 82% | | $ | 182 |
|
Refer to Note 14, "Significant Restructuring and Impairment Costs," of the notes to consolidated financial statements and to the "Restructuring and Impairment Costs" section of Item 7 on Management's Discussion and Analysis of Financial Condition and Results of Operations for information related to Adient's restructuring plans.Adient’s withdrawal from and sale of operations in Russia and assets held for sale.
Net Financing Charges |
| | | | | | | | | | | | | | | | |
| | | Year Ended
September 30, |
| (in millions) | | 2017 | | Change | | 2016 | | Change | | 2015 |
| Net financing charges | | $ | 132 |
| | * | | $ | 22 |
| | 83% | | $ | 12 |
|
* Measure not meaningful
Net financing charges increased in fiscal 2017 compared to fiscal 2016 due to the debt incurred and maintained in connection with the separation from the former Parent. Net financing charges increased in fiscal 2016 compared to fiscal 2015 due to the issuance of debt during the fourth quarter of fiscal 2016 in conjunction with the separation from the former Parent.
Equity Income | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
September 30, |
| (in millions) | | 2022 | | Change | | 2021 | | Change | | 2020 |
| Equity income (loss) | | $ | 75 | | | (95)% | | $ | 1,484 | | | >100% | | $ | 22 | |
|
| | | | | | | | | | | | | | | | |
| | | Year Ended
September 30, |
| (in millions) | | 2017 | | Change | | 2016 | | Change | | 2015 |
| Equity income | | $ | 522 |
| | 52% | | $ | 344 |
| | 23% | | $ | 280 |
|
Equity income increasedwas $75 million in fiscal 20172022 compared to $1,484 million in fiscal 2021. The decrease is primarily dueattributable to a gainthe significant prior year gains on a previously-helddivestitures of Adient's interests in certain China joint ventures (YFAS, SJA and others) as well as the prior year acquisition of controlling interest in a China affiliate ($151 million) that Adient started consolidatingCQADNT and resulting lower equity in the fourth quartercurrent year ($1,376 million), current year non-cash impairment charges recorded on certain of fiscal 2017 as a resultAdient's investments in non-consolidated affiliates in South Africa and China ($10 million), the impact of an amendment to the related rights agreement. Excluding this gain andKEIPER supply agreement modifications ($17 million), the unfavorable impact of foreign currency translationcurrencies ($133 million), equity income increased by 12% due to overall higher incomerestructuring charges primarily at certain SeatingAdient's affiliates in China ($5 million), and current year operational interruptions and production stoppages resulting from higher automotive production levelssupply chain disruptions and overall higher income at YFAI. The increase in equity income for fiscal 2016 was primarily due to income related to the YFAI global
automotive interiors joint venture and higher income at certain partially-owned Seating affiliateslocalized COVID-19 lockdowns in China resulting from higher automotive production levels.($1 million), partially offset by lower purchase accounting amortization ($3 million). Refer to Note 3, "Acquisitions and Divestitures," and Note 18, "Nonconsolidated Partially-Owned Affiliates," of the notes to the consolidated financial statements for further disclosuremore information.
Equity income was $1,484 million for fiscal 2021, compared to $22 million for fiscal 2020. The significantly higher equity income in fiscal 2021 was due primarily to the one-time gain associated with the 2021 Yanfeng Transaction and the sale of Adient's interest in SJA, a fiscal 2020 non-cash impairment charge related to Adient's nonconsolidated partially-owned affiliates.YFAI investment divestiture ($231 million), favorable impact of foreign currencies ($19 million), and lower production volumes within Adient's China affiliates due to the impact of COVID-19 lockdowns during fiscal 2020 ($27 million). Refer to Note 3, "Acquisitions and Divestitures," of the notes to the consolidated financial statements for more information.
Adient plc | Form 10-K | 35
Net Financing Charges | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
September 30, |
| (in millions) | | 2022 | | Change | | 2021 | | Change | | 2020 |
| Net financing charges | | $ | 215 | | | (31)% | | $ | 311 | | | 41% | | $ | 220 | |
Net financing charges decreased in fiscal 2022 as compared to fiscal 2021 as a result of lower levels of outstanding debt, higher amounts of premiums paid to tender outstanding debt and higher levels of accelerated expense of deferred financing costs in the prior year associated with the pay-down of debt.
Net financing charges increased in fiscal 2021 as compared to fiscal 2020 primarily as a result of premiums paid on the repurchase of debt ($50 million), an accelerated expense of the associated deferred financing costs ($20 million), a derivative loss associated with the 2021 Yanfeng Transaction ($30 million), and higher levels of outstanding debt and higher average interest rates during fiscal 2021. Refer to Note 9, "Debt and Financing Arrangements," of the notes to the consolidated financial statements for information related to the components of Adient's net financing charges.
Other Pension Expense (Income) | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
September 30, |
| (in millions) | | 2022 | | Change | | 2021 | | Change | | 2020 |
| Other pension expense (income) | | $ | (10) | | | 58% | | $ | (24) | | | >(100%) | | $ | 14 | |
Other pension expense (income) consists of mark-to-market adjustments of Adient's retirement plans and non-service components of Adient's net periodic pension costs. The lower fiscal 2022 (income) is due primarily to a lower pension mark-to-market gain ($8 million) and a lower expected return on plan assets ($4 million). The decrease in pension expense in fiscal 2021 as compared to fiscal 2020 was due to the favorable impact of pension mark-to-market (a $15 million gain in fiscal 2021 compared to a $22 million charge in fiscal 2020). Refer to Note 14, "Retirement Plans," of the notes to the consolidated financial statements for information related to the components of Adient's net periodic pension costs.
Income Tax Provision
|
| | | | | | | | | | | | | | | | |
| | | Year Ended
September 30, |
| (in millions) | | 2017 | | Change | | 2016 | | Change | | 2015 |
| Income tax provision | | $ | 99 |
| | -95% | | $ | 1,839 |
| | * | | $ | 418 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
September 30, |
| (in millions) | | 2022 | | Change | | 2021 | | Change | | 2020 |
| Income tax provision (benefit) | | $ | 94 | | | (62)% | | $ | 249 | | | >100% | | $ | 57 | |
* Measure not meaningful
The fiscal 2017 effective2022 income tax rateexpense of 9% is below$94 million was higher than the Irish statutory rate of 12.5% primarily due to benefits from globalthe inability to recognize a tax planning, notional interest deductions,benefit for losses in jurisdictions with valuation allowances, the establishment of valuation allowances in certain jurisdictions, and the repatriation of foreign tax rate differentials, and foreign exchange,earnings, partially offset by tax benefits related to the release of valuation allowances in certain jurisdictions.
Adient reviews the realizability of its deferred tax assets on a first quarterquarterly 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 20172022 analysis of the realizability of its worldwide deferred tax law changeassets, and after considering tax planning initiatives and other positive and negative evidence, Adient determined it was more likely than not that certain deferred tax assets in Canada, Japan, and other jurisdictions would not be realized and recorded income tax expense of $12 million, $3 million and $3 million, respectively, to establish valuation allowances. Additionally, Adient determined it was more likely than not that deferred tax assets in the Czech Republic and other jurisdictions would be realizable and recorded income tax benefit of $11 million and $2 million, respectively, to release valuation allowances. Adient continues to record valuation
Adient plc | Form 10-K | 36
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.
The fiscal 2021 income tax expense of $249 million was higher than the Irish statutory rate of 12.5% primarily due to the inability to recognize a tax benefit for losses in jurisdictions with valuation allowances, the establishment of valuation allowances in certain jurisdictions, and the repatriation of foreign earnings, partially offset by tax benefits from audit settlements, the write-off of deferred tax liabilities related to withholding taxes, and withholding taxes on the 2021 Yanfeng Transaction at a rate lower than the Irish statutory rate of 12.5%.
As a result of Adient's fiscal 2021 analysis of the realizability of its worldwide deferred tax assets, and after considering tax planning initiatives and other positive and negative evidence, Adient determined it was more likely than not that certain deferred tax assets in the Czech Republic, Korea, Mexico, and other jurisdictions would not be realized and recorded income tax expense of $5 million, $5 million, $8 million, and $4 million, respectively, to establish valuation allowances.
The fiscal 2020 income tax expense of $57 million was higher than the Irish statutory rate of 12.5% primarily due to the inability to recognize a tax benefit for losses in jurisdictions with valuation allowances, the repatriation of foreign earnings, and changes in uncertain tax positions, and valuation allowances.
The fiscal 2016 effective tax rate of 488% is above the U.S. statutory rate primarily due to the tax consequences surrounding the separation ($1,891 million) and the jurisdictional mix of restructuring and impairment costs, partially offset by the tax benefits related to the impairment and sale of continuing globalAdient’s YFAI investment, sale of Adient’s automotive fabrics manufacturing business, and impairment charges recorded in the Asia segment.
As a result of Adient's fiscal 2020 analysis of the realizability of its worldwide deferred tax assets, and after considering tax planning initiatives and foreignother positive and negative evidence, Adient determined it was more likely than not that deferred tax rate differentials.assets in certain jurisdictions would not be realized. These valuation allowances did not have a material impact on the consolidated financial statements.
The fiscal 2015 effective tax rate of 44%
Adient is abovesubject to income taxes in Ireland, the U.S. statutory rate primarily due toand 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 consequences of business divestitures ($356 million) partially offset by the benefits of U.S. tax on foreign income ($252 million), income in certain non-U.S. jurisdictions with a tax rate lower than the U.S. statutory rate and global tax planning initiatives.
The global tax planning initiatives in fiscal years 2016 and 2015 relate primarily to Adient's portion of the former Parent's foreign tax credit planning, global financing structures and alignments of its global business functions in a tax efficient manner. Refer to Note 16, "Income Taxes," of the notes to consolidated financial statements for further disclosure related todetermination is uncertain. Adient's income tax provision.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.
Income Attributable to Noncontrolling Interests
| | | | | Year Ended
September 30, | | Year Ended
September 30, |
| (in millions) | | 2017 | | Change | | 2016 | | Change | | 2015 | (in millions) | | 2022 | | Change | | 2021 | | Change | | 2020 |
| Income attributable to noncontrolling interests | | $ | 85 |
| | 1% | | $ | 84 |
| | 27% | | $ | 66 |
| Income attributable to noncontrolling interests | | $ | 80 | | | (2)% | | $ | 82 | | | 34% | | $ | 61 | |
The $2 million decrease in income attributable to noncontrolling interests for fiscal 2022 is attributable to lower income due to operational inefficiencies resulting from unplanned production stoppages including higher freight at certain Seating joint ventures in varying jurisdictions during the current year. The increase in income attributable to noncontrolling interests for fiscal 2017 was primarily2021 is attributable to the consolidation of a partially-owned Seating affiliate in China. The increase in income attributable to noncontrolling interests for fiscal 2016 was primarily due to higher income resulting from higher volumes in fiscal 2021, attributable primarily to the impact of the COVID-19 pandemic at partially-ownedcertain Seating affiliates in North America driven by higher volumes.varying jurisdictions during fiscal 2020.
Net Income (Loss) Attributable to Adient
|
| | | | | | | | | | | | | | | | |
| | | Year Ended
September 30, |
| (in millions) | | 2017 | | Change | | 2016 | | Change | | 2015 |
| Net income (loss) attributable to Adient | | $ | 877 |
| | * | | $ | (1,546 | ) | | * | | $ | 460 |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
September 30, |
| (in millions) | | 2022 | | Change | | 2021 | | Change | | 2020 |
| Net income (loss) attributable to Adient | | $ | (120) | | | >(100%) | | $ | 1,108 | | | >100% | | $ | (547) | |
* Measure not meaningful
Adient plc | Form 10-K | 37
Net loss attributable to Adient was $120 million for fiscal 2022, compared to net income attributable to Adient of $1,108 million for fiscal 2021. The current year net loss attributable to Adient is primarily due to lower equity income attributable to prior year one-time gains on divestitures of Adient's interests in certain China joint ventures as described above, current year operational inefficiencies resulting from unplanned production stoppages including higher freight and other supply chain disruptions, the impact of the Russia/Ukraine conflict on EMEA production volumes and higher energy costs, the impact of localized COVID-19 lockdowns in China, and higher overall engineering and other administrative spending, partially offset by the favorable impact of operational footprint changes primarily related to the consolidation of CQADNT in China, favorable material economics recoveries, lower net financing charges, and lower income tax expense.
Net income attributable to Adient was $877$1,108 million for fiscal 2017, which2021, compared to a loss of $547 million for fiscal 2020. The increased net income attributable Adient is $2,423due to $1,214 million of one-time gains from sales of certain of Adient’s equity interests in China, higher than thecurrent year volumes primarily resulting from prior year despite lower profitsoperational interruptions due to COVID-19, fiscal 2021 operational improvements, lower sales volumesrestructuring charges, a one-time gain associated with retrospective recoveries of Brazil indirect tax credits, and higher financing costsa $231 million non-cash impairment of the YFAI investment in fiscal 2017. The overall increase was primarily due to prior year one-time income tax charges as a result of the separation, lower separation costs, lower restructuring and impairment costs, the favorable impact of pension mark-to-market adjustment, and a gain on a previously-held interest in a China affiliate,2020, partially offset by Becoming Adient costs, favorable settlements in the prior yearoperational inefficiencies and other one-time costs in fiscal 2017.
Net loss attributable to Adient was $1,546 million for fiscal 2016, which is $2,006 million lower than the prior year. The decrease was primarily due to one-timepremium freight caused by unplanned production stoppages resulting from semiconductor and petrochemical shortages, higher net financing charges, and higher income tax charges as a result ofexpense primarily resulting from the separation, separation costs, higher restructuring and impairment costs, a prior year gain on business transactions andwithholding taxes paid in association with the unfavorable impact of pension mark-to-market adjustment, partially offset by a prior year non-cash tax charge associated with business divestitures and favorable settlements in the current year.2021 Yanfeng Transaction.
Comprehensive Income Attributable to Adient
| | | | | Year Ended
September 30, | | Year Ended
September 30, |
| (in millions) | | 2017 | | Change | | 2016 | | Change | | 2015 | (in millions) | | 2022 | | Change | | 2021 | | Change | | 2020 |
| Comprehensive income (loss) attributable to Adient | | $ | 756 |
| | * | | $ | (1,575 | ) | | * | | $ | (63 | ) | Comprehensive income (loss) attributable to Adient | | $ | (338) | | | >(100%) | | $ | 1,146 | | | >100% | | $ | (643) | |
* Measure not meaningful
The increase inComprehensive loss attributable to Adient was $338 million for fiscal 2022 compared to comprehensive income attributable to Adient for fiscal 20172021 of $1,146 million. The comprehensive loss in fiscal 2022 is attributable to lower net income ($1,230 million), the unfavorable impact in foreign currency translation adjustments resulting from overall strengthening of U.S. dollar against virtually all other currencies ($266 million), less favorable impact in realized and unrealized losses on derivatives ($20 million), partially offset by the decrease in comprehensive income attributable to noncontrolling interests ($32 million).
Comprehensive income attributable to Adient was $1,146 million for fiscal 2021 compared to a comprehensive loss attributable to Adient of $643 million for fiscal 2020. The increased level of comprehensive income attributable to Adient in fiscal 2021 is primarily due to higher net income attributable to Adient ($2,4231,676 million), the favorable change in foreign currency translation adjustments ($85 million) and favorable change in realized and unrealized gains (losses) on derivatives ($40 million), partially offset by unfavorable foreign currency translation adjustments ($107 million). These year-over-year unfavorable foreign currency translation adjustments were primarily driven by the strengthening of the British pound, Canadian dollar, and Euro against the U.S. dollar.
The increase in comprehensive loss attributable to Adient for fiscal 2016 was primarily due to lower net income attributable to Adientnoncontrolling interests ($2,00613 million), partially offset by favorable foreign currency translation adjustments ($481 million). These year-over-year favorable foreign currency translation adjustments were primarily driven by the weakening of the Brazilian real, Czech Republic koruna and Japanese yen against the U.S. dollar in the prior year.
Segment Analysis
During fiscal 2017,
Adient began evaluatingmanages its business on a geographic basis and operates in the following three reportable segments for financial reporting purposes: 1) Americas, which is inclusive of North America and South America; 2) Europe, Middle East, and Africa ("EMEA") and 3) Asia Pacific/China ("Asia").
Adient evaluates the performance of its reportable segments using an adjusted EBITEBITDA metric defined as income before income taxes and noncontrolling interests, excluding net financing charges, qualified restructuring and impairment costs, restructuring related-costs, incremental "Becoming Adient" costs, separation costs, net mark-to-market adjustments on pension and postretirement plans, transaction gains/losses, purchase accounting amortization, depreciation, stock-based compensation and other non-recurring items ("Adjusted EBIT"EBITDA"). Prior period information has been recastAlso,
Adient plc | Form 10-K | 38
certain corporate-related costs are not allocated to the new performance metric and for the reclassifications of certain Becoming Adient costs.segments. The reportable segments are consistent with how management views the markets served by Adient and reflect the financial information that is reviewed by its chief operating decision maker.
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended
September 30, |
| (in millions) | | 2022 | | 2021 | | 2020 |
| Net Sales | | | | | | |
| Americas | | $ | 6,557 | | | $ | 6,164 | | | $ | 5,889 | |
| EMEA | | 4,764 | | | 5,564 | | | 5,148 | |
| Asia | | 2,926 | | | 2,123 | | | 1,822 | |
| Eliminations | | (126) | | | (171) | | | (189) | |
| Total net sales | | $ | 14,121 | | | $ | 13,680 | | | $ | 12,670 | |
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended
September 30, |
| (in millions) | | 2022 | | 2021 | | 2020 |
| Adjusted EBITDA | | | | | | |
| Americas | | $ | 242 | | | $ | 232 | | | $ | 228 | |
| EMEA | | 138 | | | 277 | | | 101 | |
| Asia | | 383 | | | 486 | | | 424 | |
Corporate-related costs (1) | | (88) | | | (78) | | | (80) | |
Restructuring and impairment costs (2) | | (25) | | | (21) | | | (238) | |
Purchase accounting amortization (3) | | (54) | | | (50) | | | (40) | |
Restructuring related charges (4) | | (6) | | | (9) | | | (20) | |
Loss on business divestitures - net (5) | | — | | | (26) | | | (13) | |
Gain on sale / (impairment) of nonconsolidated partially-owned affiliates (6) | | (10) | | | 1,214 | | | (231) | |
| Depreciation | | (298) | | | (285) | | | (295) | |
| Stock based compensation | | (29) | | | (36) | | | (15) | |
Other items (7) | | 6 | | | 22 | | | (16) | |
| Earnings (loss) before interest and income taxes | | 259 | | | 1,726 | | | (195) | |
| Net financing charges | | (215) | | | (311) | | | (220) | |
| Other pension income (expense) | | 10 | | | 24 | | | (14) | |
| Income (loss) before income taxes | | $ | 54 | | | $ | 1,439 | | | $ | (429) | |
Notes:
(1) Corporate-related costs not allocated to the segments include executive office, communications, corporate development, legal and corporate finance.
(2) 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. During fiscal 2022, an impairment charge of $4 million related to the withdrawal from and sale of its operations in Russia, and a held-for-sale impairment charge of $6 million were recorded in EMEA. Included in restructuring charges in fiscal 2021 is $10 million of held for sale and other non-cash impairment charges in EMEA. Included in restructuring charges in fiscal 2020 is a non-cash pre-tax impairment related to intangible assets of $24 million, held for sale asset impairments of $21 million, $8 million of other long-lived asset impairments, all within Asia, and $175 million of charges in EMEA which primarily related to workforce reductions. Refer to Note 15, "Restructuring and Impairment Costs," of the notes to the consolidated financial statements for more information.
(3) Reflects amortization of intangible assets including those related to partially owned affiliates recorded within equity income.
(4) 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.
Adient has two reportable segments for financial reporting purposes: Seating and Interiors.plc | Form 10-K | 39
|
| |
• | The Seating segment produces automotive seat metal structures and mechanisms, foam, trim, fabric and complete seat systems. |
| |
• | The Interiors segment, derived from its global automotive interiors joint ventures, produces instrument panels, floor consoles, door panels, overhead consoles, cockpit systems, decorative trim and other products. |
(5) Fiscal 2021 includes a $21 million loss associated with certain aspects of the 2021 Yanfeng Transaction and a $5 million loss on sale of non-core assets in Asia. Fiscal 2020 includes a $21 million loss of sale of RECARO and $4 million loss on deconsolidation of Aerospace, partially offset by a $12 million gain on completion of the 2020 Yanfeng Transaction.
Financial information relating(6) Fiscal 2022 includes $3 million and $7 million of non-cash impairments of certain of Adient's investments in nonconsolidated partially-owned affiliates in Asia and EMEA, respectively. Fiscal 2021 includes a gain associated with the 2021 Yanfeng Transaction of $1,181 million and a gain of $33 million on the sale of Adient's interest in SJA. Fiscal 2020 includes non-cash impairment charges related to Adient's reportable segmentsYFAI investment balance recorded in conjunction with the 2020 Yanfeng Transaction. All of these impacts have been recorded within the equity income line in the consolidated statements of income.
(7) Fiscal 2022 reflects $8 million of transaction costs, a one-time gain of $32 million associated with the retrospective recovery of indirect tax credits in Brazil, a $14 million charge related to a non-recurring contract related settlement, $1 million of allowance for doubtful accounts resulting from the withdrawal from and sale of operations in Russia, and $2 million of loss on finalization of asset sale in Turkey. Fiscal 2021 reflects a one-time gain of $38 million associated with the retrospective recovery of indirect tax credits in Brazil (of which $36 million relates to recoveries covering the past 20 years and is as follows:adjusted out of Americas' segment results), a $5 million gain on previously held interest at YFAS in an affiliate, and $19 million of transaction costs. Fiscal 2020 includes $15 million of transaction costs and $1 million of tax adjustments at YFAI.
|
| | | | | | | | | | | | | | | | |
| | | Year Ended September 30, |
| (in millions) | | 2017 | | Change | | 2016 | | Change | | 2015 |
| Adjusted EBIT | | | | | | | | | | |
| Seating | | $ | 1,151 |
| | 5% | | $ | 1,091 |
| | 20% | | $ | 909 |
|
| Interiors | | 93 |
| | 2% | | 91 |
| | -23% | | 118 |
|
Becoming Adient costs (1) | | (95 | ) | | | | — |
| | | | — |
|
Separation costs (2) | | (10 | ) | | | | (369 | ) | | | | — |
|
| Restructuring and impairment costs | | (46 | ) | | | | (332 | ) | | | | (182 | ) |
Purchase accounting amortization (3) | | (43 | ) | | | | (37 | ) | | | | (23 | ) |
Restructuring related charges (4) | | (37 | ) | | | | (14 | ) | | | | (16 | ) |
| Gain on business divestiture | | — |
| | | | — |
| | | | 137 |
|
Pension mark-to-market (5) | | 45 |
| | | | (110 | ) | | | | (6 | ) |
Gain on previously-held interest (6) | | 151 |
| | | | — |
| | | | — |
|
Other items (7) | | (16 | ) | | | | 79 |
| | | | 19 |
|
| Earnings before interest and income taxes | | 1,193 |
| | | | 399 |
| | | | 956 |
|
| Net financing charges | | (132 | ) | | | | (22 | ) | | | | (12 | ) |
| Income before income taxes | | $ | 1,061 |
| | | | $ | 377 |
| | | | $ | 944 |
|
|
| | |
(1) | | Reflects incremental expenses associated with becoming an independent company, including non-cash costs of $30 million for the year ended September 30, 2017 |
(2) | | Reflects expenses associated with and incurred prior to the separation from the former Parent. |
(3) | | Reflects amortization of intangible assets including those related to the YFAI joint venture recorded within equity income. |
(4) | | Reflects restructuring related charges for costs that are directly attributable to restructuring activities, but do not meet the definition of restructuring under ASC 420. |
(5) | | Reflects net mark-to-market adjustments on pension and postretirement plans. |
(6) | | 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. |
(7) | | Reflects primarily the $12 million of initial funding of the Adient foundation and $3 million of transaction costs associated with the acquisition of Futuris for the year ended September 30, 2017. Reflects a $24 million multi-employer pension credit associated with the removal of costs for pension plans that remained with the former Parent, $22 million of favorable settlements from prior year business divestitures, a $20 million favorable legal settlement and a $13 million favorable commercial settlement during the year ended September 30, 2016. Reflects a $19 million multi-employer pension credit associated with the removal of costs for pension plans that remained with the former Parent for the year ended September 30, 2015. |
SeatingAmericas | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
September 30, |
| (in millions) | | 2022 | | Change | | 2021 | | Change | | 2020 |
| Net sales | | $ | 6,557 | | | 6% | | $ | 6,164 | | | 5% | | $ | 5,889 | |
| Adjusted EBITDA | | $ | 242 | | | 4% | | $ | 232 | | | 2% | | $ | 228 | |
|
| | | | | | | | | | | | | | | | |
| | | Year Ended September 30, |
| (in millions) | | 2017 | | Change | | 2016 | | Change | | 2015 |
| Net sales | | $ | 16,213 |
| | -3% | | $ | 16,790 |
| | -2% | | $ | 17,069 |
|
| Adjusted EBIT | | 1,151 |
| | 5% | | 1,091 |
| | 20% | | 909 |
|
Net sales decreased forincreased in fiscal 2017 due to lower2022 by $393 million as a result of higher production volumes despite certain unplanned production stoppages primarily resulting from semiconductor chip shortages and other supply chain disruptions ($544278 million), the favorable impact of material economics recoveries ($179 million), and the unfavorablefavorable impact of foreign currency translationcurrencies ($972 million), partially offset by the consolidationimpact of a China affiliateunfavorable commercial settlements and net pricing adjustments ($6445 million) and the impact of operational footprint changes ($21 million). The decrease
Adjusted EBITDA increased in volumes is primarily attributable to North Americafiscal 2022 by $10 million due to overall economic factors, capital constraints prior to 2016operational performance improvements ($62 million), lower administrative and engineering expense ($20 million), the wind downfavorable impact of certain plants and related
expiring programs, partially offset by increasedKEIPER supply agreement modifications ($14 million), higher current year production volumes in Europe and Asia corresponding to overall economic growth in those regions.
Net sales decreased for fiscal 2016 due to($12 million), the unfavorablefavorable impact of foreign currency translationcurrencies ($411 million) and net unfavorable pricing and commercial settlements ($1388 million), partially offset by increased volumes ($251 million) and incremental sales related to a prior year business acquisition ($19 million). The higher volumes were attributable to growth in Asia and Europe, partially offset by softness in the Americas due to changes in automotive production levels and expiring programs in North America.
Adjusted EBIT increased for fiscal 2017 by $60 million due to lower administrative expenses ($161 million), net operating and commercial margin improvements ($51 million ), higher equity income ($38 million) and lower engineering expenses ($143 million), partially offset by higher commodityfreight costs ($110 million) and lower volumes ($94 million).
Adjusted EBIT increased for fiscal 2016 by $182 million due to net operating and commercial margin improvements ($85 million), higher volumes ($55 million), lower engineering expenseslevels of commercial settlements and net pricing adjustments ($3234 million), higher equity incomeunfavorable material economics, net of recoveries ($2515 million), lower administrative expensesand the impact of operational footprint changes ($45 million).
Net sales increased during fiscal 2021 by $275 million as a result of operational interruptions in fiscal 2020 due to COVID-19 and incremental operating income related to a business acquisitiondespite certain unplanned temporary production stoppages primarily resulting from semiconductor and petrochemical shortages in fiscal 2021 ($2262 million), favorable commercial settlements and net pricing adjustments ($33 million), and the favorable impact of material economics recoveries ($24 million), partially offset by the unfavorable impact of foreign currencycurrencies ($1634 million), and the impact of the divestiture of RECARO ($10 million) in fiscal 2020.
Adjusted EBITDA increased during fiscal 2021 by $4 million due primarily to higher volumes and product mix ($120 million), operational performance improvements ($3 million), the favorable impact of foreign currencies ($8 million), and favorable commercial settlements and net pricing adjustments ($70 million), partially offset by operational inefficiencies including premium freight and unplanned temporary production stoppages in fiscal 2020 resulting from semiconductor and petrochemical shortages and to a pension settlement losslesser extent COVID-19 related costs ($5104 million), higher administrative expense primarily related to certain fiscal 2020 benefits related costs that were not expected to recur, net of efficiency improvements ($44 million), the unfavorable material economics, net of recoveries ($46 million), and lower equity income ($3 million).
Interiors |
| | | | | | | | | | | | | | | | |
| | | Year Ended September 30, |
| (in millions) | | 2017 | | Change | | 2016 | | Change | | 2015 |
| Net sales | | $ | — |
| | * | | $ | — |
| | * | | $ | 2,954 |
|
| Adjusted EBIT | | 93 |
| | 2% | | 91 |
| | -23% | | 118 |
|
* Measure not meaningfulAdient plc | Form 10-K | 40
EMEA | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
September 30, |
| (in millions) | | 2022 | | Change | | 2021 | | Change | | 2020 |
| Net sales | | $ | 4,764 | | | (14)% | | $ | 5,564 | | | 8% | | $ | 5,148 | |
| Adjusted EBITDA | | $ | 138 | | | (50)% | | $ | 277 | | | >100% | | $ | 101 | |
Net sales decreased forin fiscal 20162022 by $800 million primarily as a result of operational interruptions due to certain unplanned production stoppages resulting from semiconductor chip shortages and other supply chain disruptions along with the completionnegative impact of the YFAI global automotive interiors joint ventureRussia/Ukraine conflict on July 2, 2015EMEA production volumes ($2,954362 million).
Adjusted EBIT increased for fiscal 2017 by $2 million, including, the unfavorable impact of foreign currency ($3466 million), primarily attributable to favorable product mix,the impact of operational footprint changes ($129 million), partially offset by higherthe favorable impact of material economics recoveries ($115 million), and favorable impact of commercial settlements and net pricing adjustments ($42 million).
Adjusted EBITDA decreased in fiscal 2022 by $139 million due primarily to lower current year production volumes as explained above ($88 million), increased utilities, labor and freight costs along with other operating inefficiencies associated with various growth investments atlower volumes ($71 million), the YFAI joint venture to enable YFAI to operate independently from its former parent companies.
Adjusted EBIT decreased for fiscal 2016 by $27 million, includingimpact of operational footprint changes ($27 million), the unfavorable impact of foreign currencycurrencies ($20 million), and higher administrative and engineering expense ($1 million), partially offset by favorable commercial settlements and net pricing adjustments ($66 million), and favorable material economics, net of recoveries ($2 million).
Net sales increased during fiscal 2021 by $416 million as a result of operational interruptions in fiscal 2020 due to COVID-19 and despite certain unplanned temporary production stoppages in fiscal 2021 primarily resulting from semiconductor and petrochemical shortages ($254 million), the favorable impact of foreign currency ($234 million), the favorable impact of commercial settlements and net pricing adjustments ($22 million), and the favorable impact of material economics recoveries ($50 million), partially offset by the impact of the fiscal 2020 divestitures primarily consisting of the RECARO and fabrics businesses ($144 million).
Adjusted EBITDA increased during fiscal 2021 by $176 million due primarily to higher volumes as explained above ($110 million), operational performance improvements ($61 million), lower administrative and engineering expense related to efficiencies and the impact of certain launch delays ($50 million), favorable commercial settlements and net pricing adjustments ($51 million) and higher equity income ($1 million), partially offset by operational inefficiencies as a result of unplanned temporary production stoppages in fiscal 2021 stemming from semiconductor shortages and to a lesser extent COVID-19 related costs ($55 million), unfavorable net commodity pricing adjustments ($11 million), unfavorable impact of foreign currencies ($9 million), higher administrative and engineering expense due to certain fiscal 2020 benefits that were not expected to recur ($18 million), and the impact of the fiscal 2020 divestitures primarily consisting of the RECARO and fabrics businesses ($4 million).
Asia
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Year Ended
September 30, |
| (in millions) | | 2022 | | Change | | 2021 | | Change | | 2020 |
| Net sales | | $ | 2,926 | | | 38% | | $ | 2,123 | | | 17% | | $ | 1,822 | |
| Adjusted EBITDA | | $ | 383 | | | (21)% | | $ | 486 | | | 15% | | $ | 424 | |
Net sales increased in fiscal 2022 by $803 million due to the impact of operational footprint changes in China primarily related to the consolidation of CQADNT ($770 million), favorable volume and mix ($153 million), and the favorable impact of material economics recoveries ($18 million), partially offset by the unfavorable impact of foreign currencies ($128 million), and unfavorable impact of commercial settlements and net pricing adjustments ($10 million).
Adjusted EBITDA decreased in fiscal 2022 by $103 million due primarily to operational footprint changes including the impact of the 2021 Yanfeng Transaction ($75 million), operating inefficiencies including freight and labor economics, and launch timing ($27 million), lower equity income due to the impact of KEIPER supply agreement modifications ($17 million), the unfavorable impact of foreign currencies ($15 million), higher administrative and engineering expense ($6 million), lower equity income due to lower volumes primarily at Adient's affiliates in China attributable to the lower profitabilityCOVID-19 lockdowns ($4
Adient plc | Form 10-K | 41
million), and the unfavorable impact of material economics, net of recoveries ($2 million), partially offset by favorable volume and mix despite the YFAI joint venture primarilyimpact of localized COVID-19 lockdowns in China during the second quarter of fiscal 2022 ($30 million), and favorable commercial settlements and net pricing adjustments which includes $9 million of a non-recurring settlement in China ($13 million).
Net sales increased during fiscal 2021 by $301 million due to higher production volumes across the region, which was primarily a result of operational interruptions due to COVID-19 in fiscal 2020 and despite certain unplanned temporary production stoppages in fiscal 2021 primarily resulting from semiconductor shortages ($263 million), the favorable held for sale depreciationimpact of foreign currencies ($74 million), and the favorable impact of material economics recoveries ($9 million), partially offset by the impact of unfavorable commercial settlements and net pricing adjustments ($31 million), and the impact of the contributed interiors businessfiscal 2020 divestiture of RECARO ($14 million).
Adjusted EBITDA increased during fiscal 2021 by $62 million due primarily to higher volumes as explained above ($50 million), higher equity income as a result of the operational interruptions at Adient's China affiliates due to COVID-19 in fiscal 2015.2020 ($34 million), operational performance improvements ($33 million), lower administrative and engineering expense ($3 million), and the favorable impact of foreign currencies ($29 million), partially offset by the unfavorable impact of material economics, net of recoveries ($9 million), unfavorable commercial settlements and net pricing adjustments ($21 million), the impact of the divestiture of SJA ($9 million), the impact of fiscal 2020 divestitures of YFAI ($18 million) and RECARO ($5 million), tax benefits at various affiliates in fiscal 2020 that were not expected to recur ($10 million), higher administrative expense due in part to fiscal 2020 benefits that were not expected to recur ($9 million), and operational inefficiencies including premium freight and unplanned temporary production stoppages resulting from semiconductor shortages and to a lesser extent COVID-19 related costs ($6 million).
Liquidity and Capital Resources
Adient's primary liquidity needs are to fund general business requirements, including working capital, capital expenditures, restructuring costs share repurchases, dividends and debt service requirements. Adient's principal sources of liquidity are cash flows from operating activities, the revolving credit facility and other debt issuances, and existing cash balances. Funding also came from the former Parent through October 31, 2016 and as part of the separation agreement. Adient actively manages its working capital and associated cash requirements and continually seeks more effective uses of cash. Adient also recently announced a share repurchase authorization (up to $600 million) with no expiration date, wherein Adient expects to take a measured approach as to the timing and amount of share repurchases as part of its assessment of the most effective use of cash. Working capital is highly influenced by the timing of cash flows associated with sales and purchases, and therefore can be difficult to manage at times. See below and refer to Note 8,9, "Debt and Financing Arrangements," of the notes to consolidated financial statements for discussion of financing arrangements. Refer to Note 3, "Acquisitions and Divestitures," for more information on strategic transactions that have provided significant liquidity that allowed for additional voluntary debt pay down in fiscal 2022 and 2021. Following the first quarter of fiscal 2019 dividend payout, Adient suspended future dividends.
Indebtedness
On July 27, 2016,
Adient Global Holdings LtdUS LLC ("AGH"Adient US"), a wholly owned subsidiary of Adient, entered into credit facilities providing for commitmentstogether with respect to a $1.5 billioncertain of Adient's other subsidiaries, maintains an asset-based revolving credit facility (the “ABL Credit Facility”), which provides for a revolving line of credit up to $1,250 million, including a North American subfacility of up to $950 million and a $1.5 billion Term Loan A facility ("European subfacility of up to $300 million, subject to borrowing base capacity and certain other restrictions, including a minimum fixed charge coverage ratio. The ABL Credit Facilities"). The Credit FacilitiesFacility was set to mature on July 2021. Commencing March 31, 2017 untilMay 6, 2024, subject to a springing maturity date 91 days earlier if certain amounts remain outstanding at that time under the Term Loan A maturity date, amortization of the funded Term Loan A is required in an amount per quarter equal to 0.625% of the original principal amount in the first year following the closing date of the credit facilities on July 27, 2016 ("Closing Date"), 1.25% in each quarter of the second and third years following the Closing Date, and 2.5% in each quarter thereafter prior to final maturity. The Credit Facilities contain covenants that include, among other things and subject to certain significant exceptions, restrictions on Adient's ability to declare or pay dividends, make certain payments in respect of the notes, create liens, incur additional indebtedness, make investments, engage in transactions with affiliates, enter into agreements restricting Adient's subsidiaries' ability to pay dividends, dispose of assets and merge or consolidate with any other person. In addition, the Credit Facilities contain a financial maintenance covenant requiringB Agreement (defined below). Adient to maintain a total net leverage ratio equal to or less than 3.5x adjusted EBITDA, calculated on a quarterly basis. The Term Loan A facility also requires mandatory prepayments in connection with certain non-ordinary course asset sales and insurance recovery and condemnation events, among other things, and subject in each case to certain significant exceptions. Adient was in compliance with its financial maintenance covenant at September 30, 2017.
The full amount of the Term Loan A facility was drawn down in the fourth quarter of fiscal 2016. These funds were transferred to the former Parent at the time of the draw down and were reflected within net transfers to the former Parent in the consolidated statement of cash flow during the fourth quarter of fiscal 2016. The drawn portion of the Credit Facilities bear interest based on LIBOR plus a margin between 1.25% - 2.25%, based on Adient's total net leverage ratio. In February 2017, Adient repaid $100 million of the Term Loan A facility. In May 2017, Adient repaid another $200 million of the Term Loan A facility. The total amount repaid was treated as a prepayment of the quarterly mandatory principle amortization for the period between March 2017 and June 2020 resulting in no required principal payment until June 2020.
AGH will pay a commitment fee 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 totallesser 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. On November 24, 2021, Adient entered into an amendment to its ABL Credit Facility (the “2021 ABL Amendment”) to amend certain terms and provisions, including to (i) change the interest rate benchmark rates applicable under the ABL Credit Facility for borrowings denominated in euro, Swedish krona and pounds sterling to EURIBOR, STIBOR, and SONIA, in each case subject to certain adjustments, and (ii) update the provisions in our ABL Credit Facility by which U.S. dollar LIBOR will eventually be replaced with SOFR or another interest rate benchmark, in each case, to reflect the most recent standards and practices used in the industry. Interest is payable on the ABL Credit Facility at a fluctuating rate of interest determined by reference to LIBOR, in the case of amounts outstanding in
Adient plc | Form 10-K | 42
dollars, EURIBOR, in the case of amounts outstanding in euros, STIBOR, in the case of amounts outstanding in Swedish krona and SONIA, in the case of amounts outstanding in pounds sterling, in each case, plus an applicable margin of 1.50% to 2.00%. On November 2, 2022, Adient entered into an amendment to its ABL Credit Facility (the “2022 ABL Amendment”) to amend certain terms and provisions, including to (i) extend its maturity date to November 2, 2027 (subject to certain springing maturity provisions), (ii) replace LIBOR with Term SOFR as the benchmark rate of interest for U.S. dollar borrowings thereunder and (iii) provide flexibility for future amendments to the ABL Credit Facility to incorporate certain sustainability-based pricing provisions. Other key terms and conditions of the facility remain unchanged. As of September 30, 2022, Adient had not drawn down on the ABL Credit Facility and had availability under this facility of $899 million (net of $13 million of letters of credit).
In addition, Adient US and Adient Global Holdings S.à r.l., a wholly-owned subsidiary of Adient, maintain a term loan credit agreement, as amended in fiscal 2021, (the “Term Loan B Agreement”) that provides for a $1.0 billion senior secured term loan facility. 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 April 8, 2028. Interest on the Term Loan B Agreement accrues at the Eurodollar rate plus an applicable margin equal to 3.25%. The Term Loan B Agreement also permits Adient to incur incremental term loans in an aggregate amount not to exceed the greater of $750 million and an unlimited amount subject to a pro forma first lien secured net leverage ratio of not greater than 1.75 to 1.00 and certain other conditions. Adient ranging from 0.15%paid $7 million related to 0.35%. No amountsthe fiscal 2021 amendment along with expensing $8 million of previously deferred financing costs to net financing charges.
Adient US was also a party to an indenture relating to the issuance of $800 million aggregate principal amount of Senior First Lien Notes. The notes were set to mature on May 15, 2026 and bore interest at a rate of 7.00% per annum. Interest on these notes was payable semi-annually in arrears on November 15 and May 15 of each year. During fiscal 2021, Adient repurchased the full amount of the outstanding underbalance of the revolving credit facilitySenior First Lien Notes at September 30, 2017a premium of $50 million plus $21 million of accrued and 2016.unpaid interest. As a result, $12 million of previously deferred financing costs were expensed to net financing charges.
On August 19, 2016, AGH issued $0.9 billion
The ABL Credit Facility and Term Loan B Agreement contain covenants that are usual and customary for facilities and debt instruments of this type and that, among other things, restrict the ability of Adient and its restricted subsidiaries to: create certain liens and enter into sale and lease-back transactions; create, assume, incur or guarantee certain indebtedness; pay dividends or make other distributions on, or repurchase or redeem, Adient’s capital stock or certain other debt; make other restricted payments; and consolidate or merge with, or convey, transfer or lease all or substantially all of Adient’s and its restricted subsidiaries’ assets, to another person. These covenants are subject to a number of other limitations and exceptions set forth in the agreements. The agreements also provide for customary events of default, including, but not limited to, cross-default clauses with other debt arrangements, failure to pay principal and interest, failure to comply with covenants, agreements or conditions, and certain events of bankruptcy or insolvency involving Adient and its significant subsidiaries.
Adient Global Holdings Ltd. (“AGH”), a wholly-owned subsidiary of Adient, previously maintained $900 million aggregate principal amount of 4.875% USD-denominated unsecured notes due 20262026. During the fourth quarter of fiscal 2020, Adient redeemed $103 million of face value of these notes, resulting in a remaining balance of $797 million as of September 30, 2020. Adient further redeemed $2 million of the notes during fiscal 2021, resulting in a remaining balance of $795 million as of September 30, 2022 and 2021. AGH also previously maintained €1.0 billion aggregate principal amount of 3.50% unsecured notes due 2024, in a private offering exempt from the registration requirements2024. In fiscal 2022, Adient repurchased €177 million ($198 million) of the Securities Act3.50% unsecured notes due 2024 at a premium of 1933, as amended. The proceeds€3 million ($4 million) plus €3 million ($3 million) of the notes were used, together with the Term Loan A facility,accrued and unpaid interest, and expensed €1 million ($1 million) of previously deferred financing costs to pay a distribution to the former Parent, withnet financing charges. As of September 30, 2022, the remaining proceeds used for working capital and general corporate purposes.balance of this debt was €823 million ($809 million).
On May 29, 2017,
Adient Germany Ltd. & Co. KG, a wholly owned subsidiary of Adient, borrowed €165previously maintained €135 million ($156 million) in an unsecured term loan from the European Investment Bank (“EIB”) due in 2022. The loan bearsbore interest at the 6-month EURIBOR rate plus 90158 basis points. Loan proceeds were used to repay $200During fiscal 2021, Adient repaid $36 million of the Term Loan A.EIB loan, triggered in part by the redemption of debt and the sale of the fabrics business in the prior year. Adient fully repaid the remaining balance of the EIB loan in May 2022 upon its maturity.
On April 20, 2020, Adient US issued $600 million (net proceeds of $591 million) aggregate principal amount of 9.00% Senior First Lien Notes due 2025. These notes were set to mature on April 15, 2025, provided that if AGH has not refinanced (or otherwise redeemed) in whole its outstanding 3.50% unsecured notes due 2024 or any refinancing indebtedness thereof that matures earlier than 91 days prior to the maturity date of the Senior First Lien Notes due 2025 on or prior to May 15, 2024, these notes will mature on May 15, 2024. Interest on these notes was due on April 15 and October 15 each year, beginning on October 15, 2020. These notes contained covenants that were usual and customary, similar to the covenants as described above. Adient incurred $10 million of debt issuance cost associated with this new debt in fiscal 2020. In fiscal 2022, Adient
Adient plc | Form 10-K | 43
repurchased the full $600 million of 9.00% Senior First Lien Notes due 2025 at a premium of $34 million plus $19 million of accrued and unpaid interest, and expensed $7 million of previously deferred financing costs to net financing charges.
Sources of Cash Flows
| | | | | | | | | | | | | | | | | | | | |
| | | Year Ended
September 30, |
| (in millions) | | 2022 | | 2021 | | 2020 |
| Cash provided (used) by operating activities | | $ | 274 | | | $ | 260 | | | $ | 246 | |
| Cash provided (used) by investing activities | | 484 | | | 347 | | | 166 | |
| Cash provided (used) by financing activities | | (1,273) | | | (770) | | | 393 | |
| Capital expenditures | | (227) | | | (260) | | | (326) | |
|
| | | | | | | | | | | | |
| | | Year Ended September 30, |
| (in millions) | | 2017 | | 2016 | | 2015 |
| Cash provided (used) by operating activities | | $ | 746 |
| | $ | (1,034 | ) | | $ | 397 |
|
| Cash provided (used) by investing activities | | (795 | ) | | (425 | ) | | (489 | ) |
| Cash provided (used) by financing activities | | 627 |
| | 1,516 |
| | 93 |
|
| Capital expenditures | | (577 | ) | | (437 | ) | | (478 | ) |
Cash flows from operating activities
Fiscal 20172022 compared to Fiscal 2016: 2021: The increase in operating cash from operating activities wasflows is primarily due to higher profitability resulting from the significant non-recurring tax charges ($1,891 million) in fiscal 2016. Excluding the non-recurring tax charge, cash from operating activities decreased due to unfavorablefavorable changes inof trade working capital, primarily attributable to cash outlays associated with establishedspecifically lower levels of inventory and restructuring plansspending, and timinghigher levels of accounts payable, outflows, partially offset by higher levels of accounts receivable (net of $137 million of favorable impact from accounts receivable factoring programs). Operating cash flows were also positively impacted by lower interest payments, but were negatively impacted by lapsed non-income related tax deferral programs and lower levels of dividends from non-consolidated partially ownednonconsolidated partially-owned affiliates. See the working capital section below for further information on changes in working capital.
Fiscal 20162021 compared to Fiscal 2015: 2020: The increase in cash used by operating activities was driven by the significant net loss attributable to Adient which resulted primarilyflows from significant non-recurring tax charges ($1,891 million) in fiscal 2016. These charges will be settled by the former Parent and have been reflected in the net transfers from (to) Parent prior to separation line in the financing section of the consolidated statement of cash flows. Excluding the non-recurring tax charges, cash provided by operating activities would be $857 million, or $460 million higher than cash provided by operating activities of $397 million for the same period in fiscal 2015. The $460 million increase in cash provided by operating activities is primarily due to improvedhigher levels of operating performance (after adjustment for non-cash and parent-settled tax items items) and favorableprofits, partially offset by unfavorable changes into working capital accounts, primarily accounts receivable.year-over-year driven by higher levels of inventory, higher levels of restructuring amounts paid and higher levels of interest paid in the current year.
Cash flows from investing activities
Fiscal 20172022 compared to Fiscal 2016: 2021:The increase in cash usedprovided by investing activities wasis primarily dueattributable to the $247$652 million net of cash acquired,proceeds received related to the acquisition2021 Yanfeng Transaction, the $46 million in proceeds received from the sale of Futuristhe assets in Turkey, and the consolidationcollection of our China affiliate along with higher$41 million of deferred proceeds from the sale of Adient's interest in YFAI as part of the 2020 Yanfeng Transaction and lower capital expenditures, during fiscal 2017, partially offset by $18the $30 million settlement of the derivative contracts related to the cash proceeds from a business divestiture completed in fiscal 2015of the 2021 Yanfeng Transaction. Refer to Note 3, “Acquisitions and Divestitures,” and Note 10, “Derivative Instruments and Hedging Activities,” of the notes to the consolidated financial statements for which proceeds were received in fiscal 2016. See below for further discussion of capital expenditures.additional information.
Fiscal 20162021 compared to Fiscal 2015: 2020:The decreaseincrease in cash usedprovided by investing activities was primarilyis due to higher levels of proceeds received from business divestitures (primarily $715 million from the 2021 Yanfeng Transaction and $53 million from the sale of SJA) and lower levels of capital expenditures, cash received from a prior period divestiture, and prior yearpartially offset by business acquisitions and investments.in the current year.
Cash flows from financing activities
Fiscal 20172022 compared to Fiscal 2016: 2021:The decreaseincrease in cash fromused by financing activities wasis attributable to the repayment of long-term debt, including premiums paid, of $987 million, amounts paid to acquire the noncontrolling interest of CQADNT ($153 million), along with higher dividend payments to noncontrolling interests primarily in connection with the acquisition of CQANDT. Refer to Note 9, “Debt and Financing Arrangements,” and Note 3, “Acquisitions and Divestitures,” of the notes to the consolidated financial statements for additional information.
Fiscal 2021 compared to Fiscal 2020: The significant increase in cash used by financing activities is primarily due to the repayment of long-term debt, including premium paid, of $895 million, the prior year draw down of the ABL revolver of $179 million, and the $600 million of proceeds from the issuance of $1.5 billion Term Loan A, repayment of $300 million of Term Loan A during fiscal 2017, $52 million used to pay dividends and $40 million used to repurchase ordinary shares,9.00% Senior Notes in April 2020, partially offset by the new European term loan and amounts funded by$214 million incremental borrowing in the former Parent duringthird quarter of fiscal 2017 to fund working capital, capital2021 under the amended Term Loan B Agreement.
Capital expenditures and establish opening cash balances for Adient at October 31, 2016.
Fiscal 20162022 compared to Fiscal 2015: The increase in cash from financing activities is the result2021: Capital expenditures decreased year-over-year based on timing of the significant non-recurring tax charges in fiscal 2016program spend on product launches and continued tightening of $1,891 million which have been reflected as a net transfer from the Parent due to the former Parent's responsibility to settle such tax liabilities. Also reflected as a financing activity in fiscal 2016 is the issuance of Adient's $1.5 billion Term Loan A, which was subsequently transferred to the former Parent and thus resulted in no net financing cash flows in fiscal 2016.overall spending.
Capital expendituresAdient plc | Form 10-K | 44
Fiscal 20172021 compared to Fiscal 2016: The increase in capital2020: Capital expenditures was primarily related to capital investments associated with becoming an independent company and to increaseddecreased year-over-year based on timing of program spendingspend on product launches.launches including certain launch delays in EMEA and tightening controls around overall spending.
Fiscal 2016 compared to Fiscal 2015: The decrease in capital expenditures in the current year is primarily related to a reduction in program spending for new customer launches and the impact of the completion of the YFAI global automotive interiors joint venture on July 2, 2015.
Working capital
| | | | | | | | | | | | | | |
| (in millions) | | September 30, 2022 | | September 30, 2021 |
| Current assets | | $ | 4,163 | | | $ | 5,086 | |
| Current liabilities | | 3,501 | | | 3,511 | |
| Working capital | | $ | 662 | | | $ | 1,575 | |
| | | | |
|
| | | | | | | | |
| | | September 30, |
| (in millions) | | 2017 | | 2016 |
| Current assets | | $ | 4,499 |
| | $ | 5,691 |
|
| Current liabilities | | 4,328 |
| | 4,260 |
|
| Working capital | | $ | 171 |
| | $ | 1,431 |
|
The decrease in working capital of $1.3 billion$913 million is primarily attributable to lower cash and cash equivalents as a result of the repayment of long-term debt during the current year, and lower other current assets balances due to the releasesettlement of the restricted cash balance ($2 billion) during the first quarter of fiscal 2017. This restricted cash was raised through a bond offering in August 2016 for purposes of paying a distributionall outstanding balances related to the former Parent upon separation. After adjusting for this payment, working capital increased by $774 million for the year ended September 30, 2017. The majority of this increase related to cash payments from the former Parent according to the terms of the separation agreement. In particular, Adient and the former Parent agreed that Adient's opening cash balance would be approximately $550 million adjusted for various items in accordance with the terms of the separation agreement. Adient's cash balance at September 30, 2016 was $105 million. The former Parent paid $606 million before the separation and another $315 million after the separation pursuant to its obligations under the separation agreement. While earnings contributed an additional positive impact to cash during fiscal 2017, this was more than offset by changes in working capital, debt paydown, business acquisitions and higher year over year capital investment.2021 Yanfeng Transaction.
Restructuring and Impairment Costs
Adient committed to a significant restructuring plan in fiscal 2017 in order to drive cost efficiencies and to balance our global production against demand and recorded $46 million of restructuring and impairment costs in the consolidated statement of income. The restructuring actions related to cost reduction initiatives in the Seating segment. The costs consist primarily of workforce reductions and plant closures. Adient currently estimates that upon completion of the restructuring actions, the fiscal 2017 restructuring plan will reduce annual operating costs by approximately $20 million, which is primarily the result of lower cost of sales and selling, general and administrative expenses due to reduced employee-related costs, of which approximately 60%-65% will result in net savings. Adient expects that savings, net of execution costs, will partially be achieved in fiscal years 2018-2019 and the full annual benefit of these actions is expected in fiscal 2020. The restructuring actions are expected to be substantially complete in fiscal 2020. The restructuring plan reserve balance of $38 million at September 30, 2017 is expected to be paid in cash.
Adient committed to a significant restructuring plan in fiscal 2016 in order to drive cost efficiencies and to balance our global production against demand and recorded $332 million of restructuring and impairment costs in the consolidated statement of income. The restructuring actions related to cost reduction initiatives primarily in the Seating segment. The costs consist primarily of workforce reductions, plant closures and asset impairments. Adient currently estimates that upon completion of the restructuring actions, the fiscal 2016 restructuring plan will reduce annual operating costs by approximately $150 million, which is primarily the result of lower cost of sales and selling, general and administrative expenses due to reduced employee-related costs and depreciation expense, of which approximately 70%-75% will result in net savings. For fiscal 2017, the savings, net of execution costs, were approximately 30% of the expected annual operating cost reduction. Adient expects that savings, net of execution costs, will partially be achieved in fiscal years 2017-2018 and the full annual benefit of these actions is expected in fiscal 2019. The restructuring actions are expected to be substantially complete in fiscal 2018. The restructuring plan reserve balance of $160 million at September 30, 2017 is expected to be paid in cash.
Adient committed to a significant restructuring plan in fiscal 2015 in order to drive cost efficiencies and to balance our global production against demand and recorded $182 million of restructuring and impairment costs in the consolidated statement of income. The costs consist primarily of workforce reductions, plant closures and asset impairments. Adient currently estimates that upon completion of the restructuring actions, the fiscal 2015 restructuring plan will reduce annual operating costs by approximately $130 million, which is primarily the result of lower cost of sales and selling, general and administrative expenses due to reduced employee-related costs and depreciation expense of which approximately 25%-30% will result in net savings. For fiscal 2017, the savings, net of execution costs, were approximately 25% of the expected annual operating cost reduction. The restructuring actions were substantially complete in fiscal 2017. The restructuring plan reserve balance of $16 million at September 30, 2017 is expected to be paid in cash.
Off-Balance Sheet Arrangements and Contractual Obligations
Adient enters into supply chain financing programs in domestic and certain foreign jurisdictions to either sell or discount accounts receivable without recourse to third-party financial institutions. Sales or discounts 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. Adient's overall liquidity is not materially impacted byAs of September 30, 2022 and 2021, $269 million and $132 million have been funded under these programs.programs, respectively.
Contractual Obligations
A summary of Adient's significant contractual obligations as of September 30, 2017:2022:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Total | | 2023 | | 2024-2025 | | 2026-2027 | | Beyond 2028 |
| Long-term debt | | $ | 2,593 | | | $ | 11 | | | $ | 829 | | | $ | 815 | | | $ | 938 | |
| Interest on long-term debt | | 562 | | | 130 | | | 231 | | | 164 | | | 37 | |
| Operating leases | | 310 | | | 90 | | | 113 | | | 52 | | | 55 | |
Purchase obligations (1) | | 369 | | | 198 | | | 8 | | | 52 | | | 111 | |
| Pension contributions | | 118 | | | 14 | | | 19 | | | 22 | | | 63 | |
| Total contractual cash obligations | | $ | 3,952 | | | $ | 443 | | | $ | 1,200 | | | $ | 1,105 | | | $ | 1,204 | |
(1) Primarily consists of commitments for production materials and other supply items, as well as $92 million of committed capital expenditures.
|
| | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Total | | 2018 | | 2019-2020 | | 2021-2022 | | Beyond 2022 |
| Long-term debt (including capital lease obligations) | | $ | 3,480 |
| | $ | 2 |
| | $ | 58 |
| | $ | 1,339 |
| | $ | 2,081 |
|
| Interest on long-term debt (including capital lease obligations) | | 827 |
| | 123 |
| | 246 |
| | 200 |
| | 258 |
|
| Operating leases | | 395 |
| | 114 |
| | 143 |
| | 86 |
| | 52 |
|
| Purchase obligations | | 375 |
| | 375 |
| | — |
| | — |
| | — |
|
| Pension and postretirement contributions | | 137 |
| | 13 |
| | 22 |
| | 22 |
| | 80 |
|
| Total contractual cash obligations | | $ | 5,214 |
| | $ | 627 |
| | $ | 469 |
| | $ | 1,647 |
| | $ | 2,471 |
|
Quarterly Financial Information (unaudited)
The following tables present Adient's unaudited quarterly results of operations for each of the eight fiscal quarters in the period ended September 30, 2017. The following tables should be read in conjunction with Adient's audited consolidated financial statements and related notes appearing elsewhere in this Annual Report on Form 10-K. Adient has prepared the information below on a basis consistent with its audited consolidated financial statements and has included all adjustments, consisting of normal recurring adjustments, which, in the opinion of Adient's management, are necessary to fairly state its operating results for the quarters presented. Adient's historical unaudited quarterly results of operations are not necessarily indicative of results for any future quarter or for a full year.
|
| | | | | | | | | | | | | | | | |
| | | Fiscal 2017 |
| Statement of Operations (dollars in millions) | | First Quarter (1) | | Second Quarter (1) | | Third Quarter (1) | | Fourth Quarter |
| Net sales | | $ | 4,026 |
| | $ | 4,201 |
| | $ | 4,007 |
| | $ | 3,979 |
|
| Cost of sales | | 3,676 |
| | 3,822 |
| | 3,636 |
| | 3,671 |
|
| Net income (loss) | | 164 |
| | 214 |
| | 223 |
| | 361 |
|
| Income attributable to noncontrolling interests | | 22 |
| | 24 |
| | 22 |
| | 17 |
|
| Net income (loss) attributable to Adient | | 142 |
| | 190 |
| | 201 |
| | 344 |
|
| | | | | | | | | |
Earnings per share (2) | | | | | | | | |
| Basic | | $ | 1.52 |
| | $ | 2.03 |
| | $ | 2.15 |
| | $ | 3.69 |
|
| Diluted | | $ | 1.51 |
| | $ | 2.02 |
| | $ | 2.14 |
| | $ | 3.67 |
|
| | | | | | | | | |
| | | Fiscal 2016 |
| Statement of Operations (dollars in millions) | | First Quarter (1) | | Second Quarter (1) | | Third Quarter (1) | | Fourth Quarter (1) |
| Net sales | | $ | 4,220 |
| | $ | 4,290 |
| | $ | 4,348 |
| | $ | 3,932 |
|
| Cost of sales | | 3,852 |
| | 3,860 |
| | 3,902 |
| | 3,567 |
|
| Net income (loss) | | 150 |
| | (758 | ) | | 4 |
| | (858 | ) |
| Income attributable to noncontrolling interests | | 17 |
| | 23 |
| | 21 |
| | 23 |
|
| Net income (loss) attributable to Adient | | 133 |
| | (781 | ) | | (17 | ) | | (881 | ) |
| | | | | | | | | |
Earnings per share (2) (3) | | | | | | | | |
| Basic | | $ | 1.42 |
| | $ | (8.34 | ) | | $ | (0.18 | ) | | $ | (9.40 | ) |
| Diluted | | $ | 1.42 |
| | $ | (8.34 | ) | | $ | (0.18 | ) | | $ | (9.40 | ) |
| | | | | | | | | |
(1) Amounts presented have been revised from what was previously reported to correctly report net sales, cost of sales and equity income as discussed in Note 1, "Basis of Presentation and Summary of Significant Accounting Policies" in the notes to the consolidated financial statements. As a result of these revisions, net sales and cost of sales as previously presented for the three months ended December 31, 2015, March 31, 2016, June 30, 2016, September 30, 2016, December 31, 2016, March 31, 2017 and June 30, 2017 decreased $13 million, $8 million, $14 million, $12 million, $12 million, $11 million and $10 million, respectively. As a result of this revision, net income (loss) and net income (loss) attributable to Adient as previously presented for the three months ended December 31, 2015, March 31, 2016, June 30, 2016, September 30, 2016, December 31, 2016, March 31, 2017 and June 30, 2017 decreased $4 million, $2 million, $3 million, $4 million, $7 million, $2 million and $3 million, respectively. Adient plans to reflect the revised amounts in its quarterly Condensed Consolidated Financial Statements for fiscal 2017 in future filings containing such information. (2) Basic and diluted earnings per share are computed independently for each of the quarters presented. Therefore, the sum of quarterly basic and diluted per share information may not equal annual basic and diluted earnings per share. As a result of this revision, basic EPS as previously presented for the three months ended December 31, 2015, March 31, 2016, June 30, 2016, September 30, 2016, December 31, 2016, March 31, 2017 and June 30, 2017 decreased $0.04, $0.03, $0.03, $0.04, $0.07, $0.02 and $0.03, respectively. As a result of this revision, diluted EPS as previously presented for the three months ended December 31, 2015, March 31, 2016, June 30, 2016, September 30, 2016, December 31, 2016, March 31, 2017 and June 30, 2017 decreased $0.04, $0.03, $0.03, $0.04, $0.08, $0.02 and $0.03, respectively.
(3) Adient earnings per share for 2016 were calculated using the number of shares that were distributed to the former Parent shareholders upon the separation (93,671,810 shares). |
Effects of Inflation and Changing Prices
The effects of inflation have historically not been significant to Adient's results of operations in recent years.operations. Generally, Adient has been able to implement operating efficiencies to sufficiently offset cost increases, which over time have been moderate. The automotive industry has recently experienced a period of significant volatility in commodity and other input costs, including steel, petrochemical, freight energy and labor costs. This price volatility may continue into the future as demand increases and/or supply remains constrained. Price volatility has resulted in an overall increase of input costs for Adient that may not be, or may only be partially, offset through customer negotiations. During fiscal 2023, commodity prices and availability could fluctuate throughout the year and significantly affect Adient's results of operations.
Critical Accounting Estimates and Policies
Adient prepares its consolidated financial statements in conformity with accounting principles generally accepted in the United States of America (U.S. GAAP). This requires management to make estimates and assumptions that affect reported amounts
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and related disclosures. Actual results could differ from those estimates. The following policies are considered by management to be the most critical in understanding the judgments that are involved in the preparation of Adient's consolidated financial statements and the uncertainties that could impact results of operations, financial position and cash flows.
Revenue Recognition
Adient records revenue when persuasive evidence of an arrangement exists, delivery occurs or services are rendered, the sales price or fee is fixed or determinable and collectability is reasonably assured. Adient delivers products and records revenue pursuant to commercial agreements with its customers generally in the form of an approved purchase order, including the effects of contractual customer price productivity. Adient does negotiate discrete price changes with its customers, which are generally the result of unique commercial issues between Adient and its customers. Adient records amounts associated with discrete price changes as a reduction to revenue when specific facts and circumstances indicate that a price reduction is probable and the amounts are reasonably estimable. Adient records amounts associated with discrete price changes as an increase to revenue upon execution of a legally enforceable contractual agreement and when collectability is reasonablereasonably assured. Refer to Note 1, "Basis of Presentation and Summary of Significant Accounting Policies," and Note 2, "Revenue Recognition," of the notes to the consolidated financial statements for more information.
Impairment of Goodwill, and Other Long-lived Assets and Investments in Partially Owned Affiliates
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 partythird-party valuations. The fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. In estimating the fair value, Adient uses multiplesthe income approach in which discounted cash flow analyses are used to derive estimates of fair value of each reporting unit. Multiples of earnings based on the average of historical, published multiples of earnings of comparable entities with similar operations and economic characteristics. In certain instances, Adient uses discounted cash flow analyses orcharacteristics are also used in developing estimated sales price to further support the fair value estimates.values. 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." These calculations contain uncertainties as they require management to make assumptions about market comparables, future cash flows and appropriate discount rates (based on weighted average cost of capital ranging from 17.5% – 21.0% at September 30, 2022) to reflect the risk inherent in the future cash flows and to derive a reasonable enterprise value and related premium. The estimated future cash flows reflect management's latest assumptions of the financial projections based on current and anticipated competitive landscape, including estimates of revenue based on production volumes over the foreseeable future and long-term growth rates, and operating margins based on historical trends and future cost containment activities. The financial projections also considered the impact that the COVID-19 pandemic, supply-chain disruptions, higher commodity, shipping and energy costs, and the Russia/Ukraine conflict are having on Adient’s current and future operations as well as the impact to new vehicle sales in future years. A change in any of these estimates and assumptions could produce a different fair value, which could have a material impact on the results of the goodwill impairment test and on Adient's results of operations. The estimated fair value is then compared with the carrying amount of the reporting unit, including recorded goodwill. Adient is subject to financial statement risk to the extent that the carrying amount exceeds the estimated fair value. As a result of the tests, there was no goodwill impairment recorded during the fourth quarter of fiscal 2022. Refer to Note 6, "Goodwill and Other Intangible Assets," of the notes to the consolidated financial statements for additional information.
Adient reviews long-lived assets, including property, plant and equipment and other intangible assets with definite lives, for impairment whenever events or changes in circumstances indicate that the asset's carrying amount may not be recoverable. Adient conducts its long-lived asset impairment analyses in accordance with ASC 360-10-15, "Impairment or Disposal of Long-Lived Assets." ASC 360-10-15 requires Adient to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals.
In Intangible assets with definite lives continue to be amortized over their estimated useful lives and are subject to impairment testing as part of their asset group if events or changes in circumstances indicate that the asset might be impaired. A considerable amount of management judgment and assumptions are required in performing the impairment tests. No triggering events were identified during fiscal 2017,2022 and 2021. During the fourth quarter of fiscal 2020, Adient concluded it had noa triggering event requiring assessment of an impairment within a separate China entity and as a result recorded a $5 million pre-tax non-cash impairment in the Asia segment related to long-lived assets due to an overall decline in the forecasted operations within that business. During the third quarter of fiscal 2020, Adient concluded it had a triggering event requiring assessment of impairment for certainwithin the Futuris China business and as a result
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recorded a pre-tax non-cash impairment of its long-lived assets.
In fiscal 2016, Adient concluded it had triggering events requiring assessment$27 million in the Asia segment, which consisted of impairment for certaincustomer relationship intangible assets of its long-lived assets. As a result, Adient reviewed the$24 million and other long-lived assets for impairment and recorded a $87of $3 million, impairment chargedue to an overall decline in forecasted operations within restructuring and impairment costs on the consolidated statements of income. Of the total impairment charge, $86 million related to the Seating segment and $1 million related to the Interiors segment. Refer to Note 14, "Significant Restructuring and Impairment Costs," of the notes to consolidated financial statements for additional information. The impairment wasthat business. These impairments were measured, depending on the asset, either under an income approach utilizing forecasted discounted cash flows or a market approach utilizing an 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, discountweighted average cost of capital rates (13.0%), estimated salvagesalable values and third-party appraisals.
In fiscal 2015, Adient concluded it had triggering events requiring assessmentappraisal 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 impairment for certain of its long-lived assets could occur in conjunction withthe future.
Adient monitors its announced restructuring actions.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. During the second quarter of fiscal 2022, Adient entered into agreements, whereby Adient would sell its interests in two joint ventures in China held directly by Adient, each of which represented 25% of their total issued and outstanding equity interests, for $3 million. As a result, Adient reviewedconcluded that indicators of other-than-temporary impairment were present related to the long-lived assets for impairmentinvestments in these joint ventures, and recorded a $27 millionnon-cash impairment charge within restructuringof $3 million. Also during the second quarter of fiscal 2022, Adient concluded that indicators of other-than-temporary impairment were present related to a partially-owned affiliate in South Africa as the Company pursued a sale of a portion of its interest in the joint venture and impairment costs on the consolidated statements of income. The totalrecorded a non-cash impairment charge of $6 million. During fiscal 2020, Adient entered into an agreement to, among other things, transfer all of the issued and outstanding equity interest in YFAI held, directly or indirectly, by Adient, which represented 30% of YFAI’s total issued and outstanding equity interest, to Yanfeng Automotive Trim Systems Company Ltd. for $369 million, of which $309 million was paid at closing and $60 million was subsequently paid in fiscal 2021 and 2022. This transaction closed during the fourth quarter of fiscal 2020. Adient concluded that indicators of other-than-temporary impairment were present in certain quarters during fiscal 2020 related to the Seating segment. Refer to Note 14, "Significant Restructuringinvestment in YFAI and Impairment Costs,"recorded a total of $231 million non-cash impairment of Adient’s YFAI investment within equity income. The impairments were determined based on combining the fair value of consideration received for all transactions contemplated within the Master Agreement, including an estimated fair value of the notesYFAS joint venture extension, and allocating the total consideration received to consolidated financial statements for additional information. The impairment was measured, dependingthe individual transactions based on relative fair values. Adient estimated the asset, either underfair value of the individual transactions using both an income approach utilizing forecasted discounted cash flows or aand market approach utilizing an appraisal to determine fair values of the impaired assets. These methods are consistent with the methods Adient employed in prior periods to value other long-lived assets.approach. The inputs utilized in the fair value analyses of the transactions are classified as Levellevel 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value Measurement" and primarily consistconsisted of expected future operating margins and cash flows of YFAI, estimated production volumes, discount rates, estimated salvage values and third-party appraisals.
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. A considerable amount of management judgment and assumptions are required in performing the impairment tests.
Stock-based Compensation
Adient provides certain key employees equity awards in the form of performance share units (PSUs) and restricted stock units (RSUs) under the Adient plc 2016 Omnibus Incentive Plan and provides directors with share awards under the Adient plc 2016 Director Share Plan. These plans were adopted 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, 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.
Stock-based compensation is initially measured at the fair value of the awards on the grant date and is recognized in the financial statementsdividend payments from YFAS over the extension period, the employees are required to provide services in exchange for the awards. The fair valueestimated terminal values of restricted stock awards is based on the numberYFAS, market comparables, weighted-average costs of units grantedcapital (YFAI - 15.0%, YFAS - 10.5%), 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.
noncontrolling interest discounts. Refer to Note 11, "Stock-Based Compensation,3, “Acquisitions and Divestitures,” and Note 18, "Nonconsolidated Partially-Owned Affiliates," of the notes to the consolidated audited financial statements for Adient's stock based compensation disclosures.additional information.
Employee Benefit Plans
Adient provides a range of pension benefits to its employees and retired employees, including pensions and postretirement benefits.employees. These benefits are Adient's direct obligation and have been recorded within Adient's historical consolidated financial statements. Plan assets and obligations are measured annually, or more frequently if there is a remeasurement event, based on Adient's measurement date utilizing various actuarial assumptions such as discount rates, assumed rates of return, compensation increases, turnover rates and health care cost trend rates as of that date. Adient reviews its actuarial assumptions on an annual basis and makes modifications to the assumptions based on current rates and trends when appropriate.
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.
U.S. GAAP requires that companies recognize in the statement of financial position a liability for defined benefit pension and postretirement plans that are underfunded or unfunded, or an asset for defined benefit pension and postretirement plans that are overfunded. U.S. GAAP also requires that companies measure the benefit obligations and fair value of plan assets that determine a benefit plan's funded status as of the date of the employer's fiscal year end.
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
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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's discount rate on U.S. pension plans was 3.85%5.51% and 3.70%3.06% at September 30, 20172022 and 2016, respectively. Adient's discount rate on U.S. postretirement plans was 3.50% and 3.25% at September 30, 2017 and 2016,2021, respectively. Adient's weighted average discount rate on non-U.S. plans was 2.60%4.98% and 2.10%1.71% at September 30, 20172022 and 2016,2021, respectively.
In estimating the expected return on plan assets, Adient considers the historical returns on plan assets, adjusted for forward-looking considerations, inflation assumptions and the impact of the active management of the plans' invested assets. The long-term rates of return for prior periods were determined based on former Parent assumptions. Reflecting the relatively long-term nature of the plans' obligations, approximately 57%60% of the plans' assets are invested in fixed income securities and 23%15% in equity securities, with the remainder primarily invested in alternative investments. For fiscal years 20172022 and 2016,2021, Adient's expected long-term return on U.S. pension plan assets used to determine net periodic benefit cost was 5.50%5.75% and 7.50% ,5.75% respectively. The actual rate of return on U.S. pension plans was above 5.50%below 5.75% in fiscal 20172022 and above 7.50%was below 5.75% in fiscal 2016.2021. For fiscal years 20172022 and 2016,2021, Adient's weighted average expected long-term return on non-U.S. pension plan assets was 3.80%3.20% and 4.45%3.68%, respectively. The actual rate of return on non-U.S. pension plans was below 3.80%3.20% in fiscal 20172022 and was above 4.45%3.68% in fiscal 2016. 2021.
For fiscal years 2017 and 2016, Adient's weighted average expected long-term return on postretirement plan assets was 3.35% and 3.80%, respectively. The actual rate of return on postretirement plan assets was above 3.35% in fiscal 2017 and was above 3.80% in fiscal 2016.
Beginning in fiscal 2018,2023, Adient estimates the long-term rate of return will approximate 5.15%, 4.20%6.75% and 3.75%4.53% for U.S. pension and non-U.S. pension and postretirement plans, respectively. Any differences between actual investment results and the expected long-term asset returns will be reflected in net periodic benefit costs in the fourth quarter of each fiscal year. If Adient's actual returns on plan assets are less than Adient's expectations, additional contributions may be required.
In fiscal 2017,2022, total Adient contributions to the defined benefit pension plans were $37 million, of which $2 million were voluntary contributions made by Adient.$16 million. Adient expects to contribute at least $13$14 million in cash to its defined benefit pension plans in fiscal 2018. In fiscal 2017, total Adient contributions to the postretirement plans were $2 million. Adient does not expect to make significant contributions to its postretirement plans in fiscal 2018.2023.
Based on information provided by its independent actuaries and other relevant sources, Adient believes that the assumptions used are reasonable; however, changes in these assumptions could impact Adient's financial position, results of operations or cash flows.
The following table illustrates estimated increases (decreases) in projected benefit obligation (PBO) and net periodic benefit cost excluding changes in mark-to-market adjustments (NPBC) as of September 30, 2022 and for fiscal 2022 assuming a decrease of 100 basis points in the discount rate and expected return on plan assets.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Pension Benefits |
| | U.S. Plans | | Non-U.S. Plans |
| (in millions) | | Change in PBO | | Change in NPBC | | Change in PBO | | Change in NPBC |
| 100 basis point decrease in discount rate | | $ | 1 | | | $ | — | | | $ | 46 | | | $ | (4) | |
| 100 basis point decrease in expected return on plan assets | | N/A | | — | | | N/A | | 4 |
Refer to Note 13,14, "Retirement Plans," of the notes to consolidated audited financial statements for more information on 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 non-U.S. operating and other loss carryforwards for which realization is uncertain. Management judgment is required in determining Adient's provision for income taxes, deferred tax assets and liabilities, and the valuation allowance recorded against Adient's net deferred tax assets.
Adient reviews the realizability of its deferred tax assets on a quarterly basis, or whenever events or changes in circumstances indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or combined group recording the net deferred tax asset are considered, along with any other positive or negative evidence. Since future financial results may differ from previous estimates, periodic adjustments to Adient's valuation allowances may be necessary.
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Adient is subject to income taxes in Ireland, the U.S. and other non-U.S. jurisdictions. Judgment is required in determining its worldwide provision for income taxes and recording the related assets and liabilities. In the ordinary course of Adient's business, there are many transactions and calculations where the ultimate tax determination is uncertain. Adient's income tax returns for various fiscal years remain under audit by the respective tax authorities. Although the outcome of tax audits is always uncertain, management believes that it has appropriate support for the positions taken on its tax returns and that its annual tax provisions included amounts sufficient to pay assessments, if any, which may be proposed by the taxing authorities. Nonetheless, the amounts
ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year.
Adient does not generally provide for additional income taxes which would become payable upon repatriation of undistributed earnings of wholly owned foreign subsidiaries. Adient's intent is for such earnings to be reinvested by the subsidiaries or to be repatriated only when it would be tax efficient.
Refer to Note 16, "Income Taxes," of the notes to consolidated audited financial statements for Adient's income tax disclosures.
Adient accrues costs in connection with its restructuring actions. These accruals include estimates primarily related to employee headcount, local statutory benefits, and other employee termination costs. Actual costs may vary from these estimates. These accruals are reviewed on a quarterly basis and changes to restructuring actions are appropriately recognized when identified. Refer to Note 15, “Restructuring and Impairment Costs,” of the notes to consolidated financial statements for more information.
During fiscal 2022, Adient committed to a restructuring plan ("2022 Plan") of $25 million that was offset by $10 million of prior year underspend. The restructuring actions relate to cost reduction initiatives and consist primarily of workforce reductions in EMEA and Americas. Adient currently estimates that upon completion of the restructuring actions, the fiscal 2022 restructuring plan will reduce annual operating costs by approximately $20 million, which is primarily the result of lower costs of sales and selling, general and administrative expenses due to reduced employee-related costs, of which approximately 20% will result in net savings. The restructuring actions are expected to be substantially completed by fiscal 2024.
During fiscal 2021, Adient committed to a restructuring plan ("2021 Plan") of $27 million that was offset by $16 million of prior year underspend. Of the restructuring costs recorded, $23 million related to the EMEA segment, $3 million related to the Americas segment, and $1 million related to the Asia segment. The restructuring actions relate to cost reduction initiatives and consist primarily of workforce reductions and lease contract terminations. Adient currently estimates that upon completion of the restructuring actions, the fiscal 2021 restructuring plan will reduce annual operating costs by approximately $23 million, which is primarily the result of lower costs of sales and selling, general and administrative expenses due to reduced employee-related costs, of which approximately 20%-30% will result in net savings. The restructuring actions are expected to be substantially completed in fiscal 2023.
During fiscal 2020, Adient committed to a restructuring plan ("2020 Plan") of $205 million. Of the restructuring costs recorded, $20 million relates to the Americas segment, $175 million relates to the EMEA segment and $10 million relates to the Asia segment. The restructuring actions relate to cost reduction initiatives and consist primarily of workforce reductions. Also recorded in fiscal 2020 is $20 million of underspend related to prior year plan reserves. Adient currently estimates that upon completion of the restructuring actions, the fiscal 2020 restructuring plan will reduce annual operating costs by approximately $180 million, which is primarily the result of lower costs of sales and selling, general and administrative expenses due to reduced employee-related costs, of which approximately 35%-40% will result in net savings. The restructuring actions are expected to be substantially completed by fiscal 2024.
New Accounting Pronouncements
See Note 1, "Basis"Basis of Presentation and Summary of Significant Accounting Policies,," of the notes to consolidated financial statements for a discussion of new accounting pronouncements.
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Item 7A. | Quantitative and Qualitative Disclosures About Market Risk |
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Interest Rate and Foreign Currency Risk Management
Adient regularly reviews its underlying foreign exchange and interest rate exposures, both on a stand-alone basis and in conjunction with applicable derivative hedge positions. Given the effective horizons of Adient's risk management activities and the anticipatory nature of the exposures, there is no assurance the "derivative hedge" positions will offset more than a portion of the financial impact resulting from movements in Adient's underlying foreign exchange or interest rate exposures. Further, the recognition of the gains and losses related to these instruments may not coincide with the timing of gains and losses related to the underlying economic exposures and, therefore, may adversely affect Adient's financial condition and operating results.
Adient selectively useduses derivative instruments to reduce market risk associated with changes in foreign currency. All hedging transactions were authorized and executed pursuant to clearly defined policies and procedures, which strictly prohibit the use of financial instruments for speculative purposes. At the inception of the hedge, Adient assessed the effectiveness of the hedge instrument and designates the hedge instrument as either (1) a hedge of a recognized asset or liability or of a recognized firm commitment (a fair value hedge), (2) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to an unrecognized asset or liability (a cash flow hedge) or (3) a hedge of a net investment in a non-U.S. operation (a net investment hedge). Adient performed hedge effectiveness testing on an ongoing basis depending on the type of hedging instrument used. All other derivatives not designated as hedging instruments under ASC 815, "Derivatives and Hedging," are revalued in the consolidated statements of income.
For all foreign currency derivative instruments designated as cash flow hedges, retrospectiveAdient tests their effectiveness is testedat the cash flow hedge’s inception and on a monthly basis using a cumulative dollar offset test.an on-going basis. The fair value of the hedged exposures and the fair value of the hedge instruments are revalued, and the ratio of the cumulative sum of the periodic changes in the value of the hedge instruments to the cumulative sum of the periodic changes in the value of the hedge is calculated. The hedge is deemed as highly effective if the ratio is between 80% and 125%.
For theall designated net investment hedge,hedges, Adient assessed its net investment position in non-U.S. operations and compared it with the outstanding net investment hedge principal on a quarterly basis. The hedge wasAll hedges were deemed highly effective if the aggregate outstanding principal of the hedge instrument designated as the net investment hedge in a non-U.S. operation did not exceedis between 80% and 125% of its net investment position in respective non-U.S. operations.
Further details are provided in Part II, Item 8 of this Annual Report in the notes to consolidated financial statements. A discussion of Adient's accounting policies for derivative financial instruments is included in Note 1, "Basis"Basis of Presentation and Summary of Significant Accounting Policies,," of the notes to consolidated financial statements, and further disclosure relating to derivatives and hedging activities is included in Note 9, "Derivative10, "Derivative Instruments and Hedging Activities,," and Note 10, "Fair11, "Fair Value Measurements,." of the notes to consolidated financial statements.
Interest Rate Risk
Adient's exposure to changes in global interest rates relates primarily to Adient's investment portfolio and outstanding debt. While Adient is exposed to global interest rate fluctuations, Adient's interest income and expense are most sensitive to fluctuations in U.S. interest rates. Changes in U.S.global interest rates affect the interest earned on Adient's cash, cash equivalents and marketable securities and the fair value of those securities, as well as costs associated with hedging and interest paid on Adient's debt.
Adient purchased interest rate caps during fiscal 2019 to selectively limit the impact of USD LIBOR increases on its interest payments related to Adient's Term Loan B Agreement. The interest rate caps were designated as cash flow hedges under ASC 815. During fiscal 2021, in conjunction with the Term Loan B Amendment as discussed in Note 9, "Debt and Financing Arrangements," Adient de-designated these contracts, the impact of which was not material. These contracts matured in fiscal 2022. As of September 30, 2022, Adient had no outstanding interest rate caps.
Adient's investment policy and strategy are focused on preservation of capital and supporting Adient's liquidity requirements. Adient uses a combination of internal and external management to execute its investment strategy and achieve its investment objectives. Adient typically invests in highly-rated securities, and its investment policy generally limits the amount of credit exposure to any one issuer. The policy requires investments generally to be investment grade, with the primary objective of minimizing the potential risk of principal loss.
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Further details regarding Adient's debt and financing arrangements are provided in Note 8, "Debt9, "Debt and Financing Arrangements,," of the notes to consolidated financial statements.
Foreign Currency Risk
Adient has manufacturing, sales and distribution facilities around the world and thus makes investments and enters into transactions denominated in various foreign currencies. In order to maintain strict control and achieve the benefits of Adient's global diversification, foreign exchange exposures for each currency are netted internally so that only its net foreign exchange exposures are, as appropriate, hedged with financial instruments.
On an annual basis, Adient hedges 70% to 90% of the nominal amount of each of its known foreign exchange transactional exposures. Adient primarily enterenters into foreign currency exchange contracts to reduce the earnings and cash flow impact of the variation of non-functional currency denominated receivables and payables. Gains and losses resulting from hedging instruments offset the foreign exchange gains or losses on the underlying assets and liabilities being hedged. The maturities of the forward exchange contracts generally coincided with the settlement dates of the related transactions. Realized and unrealized gains and losses on these contracts are recognized in the same period as gains and losses on the hedged items. During fiscal 2017,2022, Adient had hedge contracts outstanding with the aim of hedging balance sheet items, or with the aim of hedging forecasted commitments. Foreign exchange contracts hedging balance sheet items are marked-to-market through the income statement, while foreign exchange contracts to hedge forecasted commitments are designated in a hedge relationship as a cash flow hedge. These are marked-to-market through other comprehensive income when effective.
Adient's euro-denominated bondsbond and certain cross-currency interest rate swaps have been designated to selectively hedge portions of Adient's net investmentinvestments in Europe.Europe and Japan. The currency effects of its euro-denominated bondsbond and cross-currency interest rate swaps are reflected in the accumulated other comprehensive income account within shareholders' equity attributable to Adient where they offset gains and losses recorded on Adient's net investmentinvestments in Europe.Europe and Japan. The cross-currency interest rate swap in Japan matured during fiscal 2021.
At September 30, 20172022 and 2016,2021, Adient estimates that an unfavorable 10% change in theall applicable exchange rates versus the U.S. Dollar would have decreased net unrealized gains or increased net unrealized losses by approximately $34$61 million and $48$43 million, respectively.
Commodity Risk
Adient's exposures to market risk from changes in the price of production material are managed primarily through indexing arrangements and negotiations with suppliers and customers, although not all customer commodity exposures are covered by indexing arrangements and there can be no assurance that Adient will otherwise be able to recover all such costs. Adient’s current indexing arrangements with its customers typically provide for partial recovery of commodity price changes on a lag of 3 months to, in some cases, more than 12 months between cost incurrence and partial recovery. Adient continues to evaluate its arrangements with its customers and to pursue negotiated commercial settlements related to commodity pricing matters. Adient evaluates from time to time derivatives available in the marketplace and may decide to utilize derivatives in the future to manage select commodity risks if acceptable hedging instruments and counterparties are identified for its exposure level at that time, as well as the effectiveness of the financial hedge among other factors.
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Report of Independent Registered Public Accounting Firm
TotheBoard of Directors and Shareholders of Adient plc
In our opinion,Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated statements of financial position of Adient plc and its subsidiaries (the “Company”) as of September 30, 2022 and 2021, and the related consolidated statements of income (loss), of comprehensive income (loss), shareholders’of shareholders' equity and cash flows present fairly, in all material respects, the financial position of Adient plc and its subsidiariesas of September 30, 2017and 2016, and the results of their operations and their cash flows for each of the three years in the period ended September 30, 20172022, including the related notes and financial statement schedule listed in the accompanying index (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of September 30, 2022, based on criteria established in Internal Control - Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of September 30, 2022 and 2021, and the results of its operations and its cash flows for each of the three years in the period ended September 30, 2022 in conformity with accounting principles generally accepted in the United States of America. In addition, in our opinion, the financial statement schedule listed in the accompanying indexpresents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of September 30, 2017,2022, based on criteria established in Internal Control - Integrated Framework(2013)issued by the Committee of Sponsoring Organizations ofCOSO.
Change in Accounting Principle
As discussed in Note 1 to the Treadway Commission (COSO). consolidated financial statements, the Company changed the manner in which it accounts for leases on October 1, 2019.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, and financial statement schedule, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management'sManagement’s Annual Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on thesethe Company’s consolidated financial statements on the financial statement schedule and on the Company's internal control over financial reporting based on our audits (which were integrated auditsaudits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in 2017accordance with the U.S. federal securities laws and 2016). the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States).PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence supportingregarding the amounts and disclosures in the consolidated financial statements, assessingstatements. Our audits also included evaluating the accounting principles used and significant estimates made by management, andas well as evaluating the overall presentation of the consolidated financial statement presentation.statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
Adient plc | Form 10-K | 53
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Annual Goodwill Impairment Assessment
As described in Management’s Annual Report on Internal Control over Financial Reporting, management has excluded Futuris Global Holdings LLCNotes 1 and Guangzhou Adient Automotive Seating Co., Ltd. from its assessment of internal control over6 to the consolidated financial reportingstatements, the Company’s goodwill balance was $2,057 million as of September 30, 2017, because they2022. Management reviews goodwill for impairment during the fourth fiscal quarter or more frequently if events or changes in circumstances indicate the asset might be impaired. Fair value is estimated using an income approach utilizing discounted cash flow analyses. This method requires management to make assumptions about estimates of the revenue and the operating margins, as well as the discount rates.
The principal considerations for our determination that performing procedures relating to the annual goodwill impairment assessment is a critical audit matter are the significant judgment by management when developing the fair value of the reporting units, which led to a high degree of auditor judgment, subjectivity, and effort in performing procedures and evaluating management’s significant assumptions related to estimates of the revenue and the operating margins, as well as the discount rates. In addition, the audit effort involved the use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill impairment assessment, including controls over the valuation of the Company’s reporting units. These procedures also included, among others, (i) testing management’s process for developing the fair value estimates; (ii) evaluating the appropriateness of the income approach; (iii) testing the completeness and accuracy of underlying data used in the income approach; and (iv) evaluating the reasonableness of significant assumptions used by management related to estimates of the revenue and the operating margins, as well as the discount rates. Evaluating management’s assumptions related to estimates of the revenue and the operating margins involved evaluating whether the assumptions used by management were acquiredreasonable considering (i) the current and past performance of the reporting units; (ii) the consistency with relevant industry data; and (iii) whether these assumptions were consistent with evidence obtained in other areas of the audit. Professionals with specialized skill and knowledge were used to assist in evaluating the appropriateness of the income approach used by the Company in purchase business combinations during 2017. and the reasonableness of the discount rates.
/s/ PricewaterhouseCoopers LLP
Detroit, Michigan
November 22, 2022
We have also excluded Futuris Global Holdings LLC and Guangzhou Adient Automotive Seating Co., Ltd. from our audit of internal control over financial reporting. Futuris Global Holdings LLC and Guangzhou Adient Automotive Seating Co., Ltd. are subsidiaries whose total assets and total revenues excluded from management’s assessment and our audit of internal control over financial reporting collectively represent approximately 3% and less than 1%, respectively, ofserved as the related consolidated financial statement amounts as of and for the year ended September 30, 2017.Company’s auditor since 1957.
Adient plc | Form 10-K | 54
|
|
/s/ PricewaterhouseCoopers LLP |
Detroit, Michigan |
November 22, 2017 |
Adient plc
Consolidated Statements of Income (Loss)
|
| | | | | | | | | | | | |
| | | Year Ended September 30, |
| (in millions, except per share data) | | 2017 | | 2016 | | 2015 |
| Net sales | | $ | 16,213 |
| | $ | 16,790 |
| | $ | 20,023 |
|
| Cost of sales | | 14,805 |
| | 15,181 |
| | 18,171 |
|
| Gross profit | | 1,408 |
| | 1,609 |
| | 1,852 |
|
| Selling, general and administrative expenses | | 691 |
| | 1,222 |
| | 1,131 |
|
| Gain (loss) on business divestitures - net | | — |
| | — |
| | 137 |
|
| Restructuring and impairment costs | | 46 |
| | 332 |
| | 182 |
|
| Equity income | | 522 |
| | 344 |
| | 280 |
|
| Earnings before interest and income taxes | | 1,193 |
| | 399 |
| | 956 |
|
| Net financing charges | | 132 |
| | 22 |
| | 12 |
|
| Income before income taxes | | 1,061 |
| | 377 |
| | 944 |
|
| Income tax provision | | 99 |
| | 1,839 |
| | 418 |
|
| Net income (loss) | | 962 |
| | (1,462 | ) | | 526 |
|
| Income attributable to noncontrolling interests | | 85 |
| | 84 |
| | 66 |
|
| Net income (loss) attributable to Adient | | $ | 877 |
| | $ | (1,546 | ) | | $ | 460 |
|
| | | | | | | |
| Earnings per share: | | | | | | |
| Basic | | $ | 9.38 |
| | $ | (16.50 | ) | | $ | 4.91 |
|
| Diluted | | $ | 9.34 |
| | $ | (16.50 | ) | | $ | 4.90 |
|
| | | | | | | |
| Cash dividends declared per share | | $ | 0.825 |
| | $ | — |
| | $ | — |
|
| | | | | | | |
| Shares used in computing earnings per share: | | | | | | |
| Basic | | 93.5 |
| | 93.7 |
| | 93.7 |
|
| Diluted | | 93.9 |
| | 93.7 |
| | 93.8 |
|
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended
September 30, |
| (in millions, except per share data) | | 2022 | | 2021 | | 2020 |
| Net sales | | $ | 14,121 | | | $ | 13,680 | | | $ | 12,670 | |
| Cost of sales | | 13,314 | | | 12,854 | | | 12,078 | |
| Gross profit | | 807 | | | 826 | | | 592 | |
| Selling, general and administrative expenses | | 598 | | | 537 | | | 558 | |
| Loss on business divestitures - net | | — | | | 26 | | | 13 | |
| Restructuring and impairment costs | | 25 | | | 21 | | | 238 | |
| Equity income (loss) | | 75 | | | 1,484 | | | 22 | |
| Earnings (loss) before interest and income taxes | | 259 | | | 1,726 | | | (195) | |
| Net financing charges | | 215 | | | 311 | | | 220 | |
| Other pension expense (income) | | (10) | | | (24) | | | 14 | |
| Income (loss) before income taxes | | 54 | | | 1,439 | | | (429) | |
| Income tax provision (benefit) | | 94 | | | 249 | | | 57 | |
| Net income (loss) | | (40) | | | 1,190 | | | (486) | |
| Income (loss) attributable to noncontrolling interests | | 80 | | | 82 | | | 61 | |
| Net income (loss) attributable to Adient | | $ | (120) | | | $ | 1,108 | | | $ | (547) | |
| | | | | | |
| Earnings per share: | | | | | | |
| Basic | | $ | (1.27) | | | $ | 11.76 | | | $ | (5.83) | |
| Diluted | | $ | (1.27) | | | $ | 11.58 | | | $ | (5.83) | |
| | | | | | |
| Shares used in computing earnings per share: | | | | | | |
| Basic | | 94.8 | | | 94.2 | | | 93.8 | |
| Diluted | | 94.8 | | | 95.7 | | | 93.8 | |
The accompanying notes are an integral part of the consolidated financial statements.
Adient plc | Form 10-K | 55
Adient plc
Consolidated Statements of Comprehensive Income (Loss)
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended
September 30, |
| (in millions) | | 2022 | | 2021 | | 2020 |
| Net income (loss) | | $ | (40) | | | $ | 1,190 | | | $ | (486) | |
| Other comprehensive income (loss), net of tax: | | | | | | |
| Foreign currency translation adjustments | | (250) | | | 16 | | | (69) | |
| Realized and unrealized gains (losses) on derivatives | | — | | | 20 | | | (20) | |
| Pension and postretirement plans | | 1 | | | 1 | | | — | |
| Other comprehensive income (loss) | | (249) | | | 37 | | | (89) | |
| Total comprehensive income (loss) | | (289) | | | 1,227 | | | (575) | |
| Comprehensive income (loss) attributable to noncontrolling interests | | 49 | | | 81 | | | 68 | |
| Comprehensive income (loss) attributable to Adient | | $ | (338) | | | $ | 1,146 | | | $ | (643) | |
|
| | | | | | | | | | | | |
| | | Year Ended September 30, |
| (in millions) | | 2017 | | 2016 | | 2015 |
| Net income (loss) | | $ | 962 |
| | $ | (1,462 | ) | | $ | 526 |
|
| Other comprehensive income (loss), net of tax: | | | | | | |
| Foreign currency translation adjustments | | (133 | ) | | (36 | ) | | (520 | ) |
| Realized and unrealized gains (losses) on derivatives | | 17 |
| | 3 |
| | (11 | ) |
| Pension and postretirement plans | | — |
| | (1 | ) | | — |
|
| Other comprehensive income (loss) | | (116 | ) | | (34 | ) | | (531 | ) |
| Total comprehensive income (loss) | | 846 |
| | (1,496 | ) | | (5 | ) |
| Comprehensive income (loss) attributable to noncontrolling interests | | 90 |
| | 79 |
| | 58 |
|
| Comprehensive income (loss) attributable to Adient | | $ | 756 |
| | $ | (1,575 | ) | | $ | (63 | ) |
The accompanying notes are an integral part of the consolidated financial statements.
Adient plc | Form 10-K | 56
Adient plc
Consolidated Statements of Financial Position
| | | | | | | | | | | | | | |
| | September 30, |
| (in millions, except share and per share data) | | 2022 | | 2021 |
| Assets | | | | |
| Cash and cash equivalents | | $ | 947 | | | $ | 1,521 | |
| Accounts receivable, less allowance for doubtful accounts of $21 and $29, respectively | | 1,852 | | | 1,426 | |
| Inventories | | 953 | | | 976 | |
| Assets held for sale | | — | | | 49 | |
| Other current assets | | 411 | | | 1,114 | |
| Current assets | | 4,163 | | | 5,086 | |
| Property, plant and equipment - net | | 1,377 | | | 1,607 | |
| Goodwill | | 2,057 | | | 2,212 | |
| Other intangible assets - net | | 467 | | | 555 | |
| Investments in partially-owned affiliates | | 286 | | | 335 | |
| Assets held for sale | | 11 | | | 25 | |
| Other noncurrent assets | | 797 | | | 958 | |
| Total assets | | $ | 9,158 | | | $ | 10,778 | |
| Liabilities and Shareholders' Equity | | | | |
| Short-term debt | | $ | 3 | | | $ | 17 | |
| Current portion of long-term debt | | 11 | | | 167 | |
| Accounts payable | | 2,478 | | | 2,130 | |
| Accrued compensation and benefits | | 340 | | | 389 | |
| Liabilities held for sale | | — | | | 16 | |
| Restructuring reserve | | 60 | | | 115 | |
| Other current liabilities | | 609 | | | 677 | |
| Current liabilities | | 3,501 | | | 3,511 | |
| Long-term debt | | 2,564 | | | 3,512 | |
| | | | |
| Pension and postretirement benefits | | 88 | | | 128 | |
| Other noncurrent liabilities | | 585 | | | 669 | |
| Long-term liabilities | | 3,237 | | | 4,309 | |
| Commitments and Contingencies (Note 19) | | | | |
| Redeemable noncontrolling interests | | 45 | | | 240 | |
Preferred shares issued, par value $0.001; 100,000,000 shares authorized zero shares issued and outstanding at September 30, 2022 | | — | | | — | |
Ordinary shares issued, par value $0.001; 500,000,000 shares authorized 94,858,156 shares issued and outstanding at September 30, 2022 | | — | | | — | |
| Additional paid-in capital | | 4,026 | | | 3,991 | |
| Retained earnings (accumulated deficit) | | (1,108) | | | (988) | |
| Accumulated other comprehensive income (loss) | | (845) | | | (627) | |
| Shareholders' equity attributable to Adient | | 2,073 | | | 2,376 | |
| Noncontrolling interests | | 302 | | | 342 | |
| Total shareholders' equity | | 2,375 | | | 2,718 | |
| Total liabilities and shareholders' equity | | $ | 9,158 | | | $ | 10,778 | |
|
| | | | | | | | |
| | | September 30, |
| (in millions) | | 2017 | | 2016 |
| Assets | | | | |
| Cash and cash equivalents | | $ | 709 |
| | $ | 105 |
|
| Restricted cash | | — |
| | 2,034 |
|
| Accounts receivable, less allowance for doubtful accounts of $20 and $21, respectively | | 2,224 |
| | 2,082 |
|
| Inventories | | 735 |
| | 660 |
|
| Other current assets | | 831 |
| | 810 |
|
| Current assets | | 4,499 |
| | 5,691 |
|
| Property, plant and equipment - net | | 2,502 |
| | 2,195 |
|
| Goodwill | | 2,515 |
| | 2,179 |
|
| Other intangible assets - net | | 543 |
| | 113 |
|
| Investments in partially-owned affiliates | | 1,793 |
| | 1,714 |
|
| Other noncurrent assets | | 1,318 |
| | 1,064 |
|
| Total assets | | $ | 13,170 |
| | $ | 12,956 |
|
| Liabilities and Shareholders' Equity | | | | |
| Short-term debt | | $ | 36 |
| | $ | 41 |
|
| Current portion of long-term debt | | 2 |
| | 38 |
|
| Accounts payable | | 2,958 |
| | 2,776 |
|
| Accrued compensation and benefits | | 444 |
| | 430 |
|
| Restructuring reserve | | 236 |
| | 351 |
|
| Other current liabilities | | 652 |
| | 624 |
|
| Current liabilities | | 4,328 |
| | 4,260 |
|
| Long-term debt | | 3,440 |
| | 3,442 |
|
| Pension and postretirement benefits | | 129 |
| | 188 |
|
| Other noncurrent liabilities | | 653 |
| | 725 |
|
| Long-term liabilities | | 4,222 |
| | 4,355 |
|
| Commitments and Contingencies (Note 19) | | | | |
| Redeemable noncontrolling interests | | 28 |
| | 34 |
|
Preferred shares issued, par value $0.001; 100,000,000 shares authorized
Zero shares issued and outstanding at September 30, 2017 | | — |
| | — |
|
Ordinary shares issued, par value $0.001; 500,000,000 shares authorized
93,142,283 shares issued and outstanding at September 30, 2017 | | — |
| | — |
|
| Additional paid-in capital | | 3,942 |
| | — |
|
| Retained earnings | | 734 |
| | — |
|
| Parent's net investment | | — |
| | 4,452 |
|
| Accumulated other comprehensive income (loss) | | (397 | ) | | (276 | ) |
| Shareholders' equity attributable to Adient | | 4,279 |
| | 4,176 |
|
| Noncontrolling interests | | 313 |
| | 131 |
|
| Total shareholders' equity | | 4,592 |
| | 4,307 |
|
| Total liabilities and shareholders' equity | | $ | 13,170 |
| | $ | 12,956 |
|
The accompanying notes are an integral part of the consolidated financial statements.
Adient plc | Form 10-K | 57
Adient plc
Consolidated Statements of Cash Flows
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, |
| (in millions) | | 2022 | | 2021 | | 2020 |
| Operating Activities | | | | | | |
| Net income (loss) attributable to Adient | | $ | (120) | | | $ | 1,108 | | | $ | (547) | |
| Income attributable to noncontrolling interests | | 80 | | | 82 | | | 61 | |
| Net income (loss) | | (40) | | | 1,190 | | | (486) | |
| Adjustments to reconcile net income (loss) to cash provided (used) by operating activities: | | | | |
| Depreciation | | 298 | | | 285 | | | 295 | |
| Amortization of intangibles | | 52 | | | 45 | | | 37 | |
| Pension and postretirement benefit expense (benefit) | | (2) | | | (16) | | | 23 | |
| Pension and postretirement contributions, net | | (16) | | | (23) | | | (19) | |
| Equity in earnings of partially-owned affiliates, net of dividends received (includes purchase accounting amortization of $2, $5 and $3, respectively) | | 4 | | | 44 | | | 24 | |
| (Gain) on sale of / impairment of nonconsolidated partially owned affiliates | | 10 | | | (1,214) | | | 231 | |
| Premium paid on repurchase of debt | | 38 | | | 50 | | | — | |
| Retrospective recoveries of Brazil indirect tax credits | | (29) | | | (38) | | | — | |
| Derivative loss on the 2021 Yanfeng Transaction | | 3 | | | 30 | | | — | |
| | | | | | |
| Deferred income taxes | | 5 | | | 40 | | | (33) | |
| Non-cash restructuring and impairment charges | | 14 | | | 11 | | | 53 | |
| Loss (gain) on divestitures - net | | — | | | 26 | | | 13 | |
| Equity-based compensation | | 29 | | | 36 | | | 15 | |
| Other | | 17 | | | 21 | | | 24 | |
| Changes in assets and liabilities: | | | | | | |
| Receivables | | (576) | | | 483 | | | 190 | |
| Inventories | | (62) | | | (263) | | | 78 | |
| Other assets | | 32 | | | 82 | | | 140 | |
| Restructuring reserves | | (57) | | | (136) | | | (80) | |
| Accounts payable and accrued liabilities | | 542 | | | (388) | | | (251) | |
| Accrued income taxes | | 12 | | | (5) | | | (8) | |
| Cash provided (used) by operating activities | | 274 | | | 260 | | | 246 | |
| Investing Activities | | | | | | |
| Capital expenditures | | (227) | | | (260) | | | (326) | |
| Sale of property, plant and equipment | | 20 | | | 30 | | | 15 | |
| Settlement of derivative contracts | | (30) | | | (12) | | | 10 | |
| Acquisition of businesses, net of cash acquired | | (19) | | | (211) | | | — | |
| Business divestitures | | 740 | | | 785 | | | 499 | |
| Changes in long-term investments | | — | | | — | | | (37) | |
| Loans to affiliates | | — | | | 15 | | | — | |
| Other | | — | | | — | | | 5 | |
| Cash provided (used) by investing activities | | 484 | | | 347 | | | 166 | |
| | | | | | |
Adient plc | Form 10-K | 58
|
| | | | | | | | | | | | |
| | | Year Ended September 30, |
| (in millions) | | 2017 | | 2016 | | 2015 |
| Operating Activities | | | | | | |
| Net income (loss) attributable to Adient | | $ | 877 |
| | $ | (1,546 | ) | | $ | 460 |
|
| Income attributable to noncontrolling interests | | 85 |
| | 84 |
| | 66 |
|
| Net income (loss) | | 962 |
| | (1,462 | ) | | 526 |
|
| Adjustments to reconcile net income (loss) to cash provided (used) by operating activities: | | | | |
| Depreciation | | 337 |
| | 327 |
| | 329 |
|
| Amortization of intangibles | | 21 |
| | 17 |
| | 18 |
|
| Pension and postretirement benefit expense | | (41 | ) | | 113 |
| | 15 |
|
| Pension and postretirement contributions | | (38 | ) | | (35 | ) | | (25 | ) |
| Equity in earnings of partially-owned affiliates, net of dividends received (includes purchase accounting amortization of $22, $20 and $5 respectively) | | (91 | ) | | (145 | ) | | (87 | ) |
| Gain on previously-held interest | | (151 | ) |
| — |
| | — |
|
| Deferred income taxes | | (52 | ) | | (572 | ) | | (51 | ) |
| Non-cash restructuring and impairment charges | | — |
| | 87 |
| | 27 |
|
| Loss (gain) on divestitures - net | | — |
| | — |
| | (137 | ) |
| Equity-based compensation | | 45 |
| | 28 |
| | 16 |
|
| Other | | (6 | ) | | (11 | ) | | (2 | ) |
| Changes in assets and liabilities: | | | | | | |
| Receivables | | 30 |
| | 83 |
| | (249 | ) |
| Inventories | | (10 | ) | | 49 |
| | (63 | ) |
| Other assets | | 13 |
| | 22 |
| | (111 | ) |
| Restructuring reserves | | (179 | ) | | 73 |
| | 56 |
|
| Accounts payable and accrued liabilities | | (113 | ) | | 57 |
| | 8 |
|
| Accrued income taxes | | 19 |
| | 335 |
| | 127 |
|
| Cash provided (used) by operating activities | | 746 |
| | (1,034 | ) | | 397 |
|
| Investing Activities | | | | | | |
| Capital expenditures | | (577 | ) | | (437 | ) | | (478 | ) |
| Sale of property, plant and equipment | | 44 |
| | 16 |
| | 24 |
|
| Acquisition of businesses, net of cash acquired | | (247 | ) | | — |
| | (18 | ) |
| Business divestitures | | — |
| | 18 |
| | — |
|
| Changes in long-term investments | | (11 | ) | | (24 | ) | | (44 | ) |
| Other | | (4 | ) | | 2 |
| | 27 |
|
| Cash provided (used) by investing activities | | (795 | ) | | (425 | ) | | (489 | ) |
| Financing Activities | | | | | | |
| Net transfers from (to) Parent prior to separation | | 606 |
| | 117 |
| | 239 |
|
| Cash transferred from former Parent post separation | | 315 |
| | — |
| | — |
|
| Increase (decrease) in short-term debt | | (7 | ) | | 25 |
| | (22 | ) |
| Increase in long-term debt | | 183 |
| | 1,501 |
| | — |
|
| Repayment of long-term debt | | (302 | ) | | (39 | ) | | (10 | ) |
| Share repurchases | | (40 | ) | | — |
| | — |
|
| Cash paid to acquire a noncontrolling interest | | — |
| | — |
| | (38 | ) |
| Cash dividends | | (52 | ) | | — |
| | — |
|
| Dividends paid to noncontrolling interests | | (79 | ) | | (88 | ) | | (76 | ) |
| Other | | 3 |
|
| — |
| | — |
|
| Cash provided (used) by financing activities | | 627 |
| | 1,516 |
| | 93 |
|
| Effect of exchange rate changes on cash and cash equivalents | | 26 |
| | 4 |
| | (2 | ) |
| Increase (decrease) in cash and cash equivalents | | 604 |
| | 61 |
| | (1 | ) |
| Cash and cash equivalents at beginning of period | | 105 |
| | 44 |
| | 45 |
|
| Cash and cash equivalents at end of period | | $ | 709 |
| | $ | 105 |
| | $ | 44 |
|
The accompanying notes are an integral part of the consolidated financial statements.
Adient plc
Consolidated Statements of Shareholders' EquityCash Flows
(Continued)
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended September 30, |
| (in millions) | | 2022 | | 2021 | | 2020 |
| Financing Activities | | | | | | |
| | | | | | |
| | | | | | |
| | | | | | |
| Increase (decrease) in short-term debt | | (14) | | | (5) | | | (16) | |
| Increase (decrease) in long-term debt | | — | | | 214 | | | 600 | |
| Repayment of long-term debt | | (987) | | | (895) | | | (108) | |
| Debt financing costs | | (1) | | | (8) | | | (10) | |
| | | | | | |
| Cash paid to acquire a noncontrolling interest | | (153) | | | — | | | — | |
| | | | | | |
| Dividends paid to noncontrolling interests | | (106) | | | (69) | | | (71) | |
| | | | | | |
| Other | | (12) | | | (7) | | | (2) | |
| Cash provided (used) by financing activities | | (1,273) | | | (770) | | | 393 | |
| Effect of exchange rate changes on cash and cash equivalents | | (59) | | | 8 | | | (34) | |
| Increase (decrease) in cash and cash equivalents, including cash classified within current assets held for sale | | (574) | | | (155) | | | 771 | |
| Less: cash classified within current assets held for sale | | — | | | (16) | | | (3) | |
| Increase (decrease) in cash and cash equivalents | | (574) | | | (171) | | | 768 | |
| Cash and cash equivalents at beginning of period | | 1,521 | | | 1,692 | | | 924 | |
| Cash and cash equivalents at end of period | | $ | 947 | | | $ | 1,521 | | | $ | 1,692 | |
|
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Ordinary Shares | | Additional Paid-in Capital | | Retained Earnings | | Parent's Net Investment | | Accumulated Other Comprehensive Income (Loss) | | Shareholders' Equity Attributable to Adient | | Shareholders' Equity Attributable to Noncontrolling Interests | | Total Equity |
| Balance at September 30, 2014 | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 5,169 |
| | $ | 276 |
| | $ | 5,445 |
| | $ | 159 |
| | $ | 5,604 |
|
| Net income | | — |
| | — |
| | — |
| | 460 |
| | — |
| | 460 |
| | 50 |
| | 510 |
|
| Foreign currency translation adjustments | | — |
| | — |
| | — |
| | — |
| | (512 | ) | | (512 | ) | | (5 | ) | | (517 | ) |
| Realized and unrealized gains (losses) on derivatives | | — |
| | — |
| | — |
| | — |
| | (11 | ) | | (11 | ) | | — |
| | (11 | ) |
| Change in Parent's net investment | | — |
| | — |
| | — |
| | 221 |
| | — |
| | 221 |
| | — |
| | 221 |
|
| Dividends attributable to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (34 | ) | | (34 | ) |
| Other | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (29 | ) | | (29 | ) |
| Balance at September 30, 2015 | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 5,850 |
| | $ | (247 | ) | | $ | 5,603 |
| | $ | 141 |
| | $ | 5,744 |
|
| Net income | | — |
| | — |
| | — |
| | (1,546 | ) | | — |
| | (1,546 | ) | | 59 |
| | (1,487 | ) |
| Foreign currency translation adjustments | | — |
| | — |
| | — |
| | — |
| | (31 | ) | | (31 | ) | | (6 | ) | | (37 | ) |
| Realized and unrealized gains (losses) on derivatives | | — |
| | — |
| | — |
| | — |
| | 3 |
| | 3 |
| | — |
| | 3 |
|
| Pension and postretirement plans | | — |
| | — |
| | — |
| | — |
| | (1 | ) | | (1 | ) | | — |
| | (1 | ) |
| Change in Parent's net investment | | — |
| | — |
| | — |
| | 148 |
| | — |
| | 148 |
| | — |
| | 148 |
|
| Change in noncontrolling interest share | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 2 |
| | 2 |
|
| Dividends attributable to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (65 | ) | | (65 | ) |
| Balance at September 30, 2016 | | $ | — |
| | $ | — |
| | $ | — |
| | $ | 4,452 |
| | $ | (276 | ) | | $ | 4,176 |
| | $ | 131 |
| | $ | 4,307 |
|
| Net income | | — |
| | — |
| | 812 |
| | 65 |
| | — |
| | 877 |
| | 60 |
| | 937 |
|
| Change in Parent's net investment | | — |
| | — |
| | — |
| | (880 | ) | | — |
| | (880 | ) | | — |
| | (880 | ) |
| Transfers from former Parent | | — |
| | 333 |
| | — |
| | — |
| | — |
| | 333 |
| | — |
| | 333 |
|
| Reclassification of Parent's net investment and issuance of ordinary shares in connection with separation | | — |
| | 3,637 |
| | — |
| | (3,637 | ) | | — |
| | — |
| | — |
| | — |
|
| Foreign currency translation adjustments | | — |
| | — |
| | — |
| | — |
| | (138 | ) | | (138 | ) | | 5 |
| | (133 | ) |
| Realized and unrealized gains (losses) on derivatives | | — |
| | — |
| | — |
| | — |
| | 17 |
| | 17 |
| | — |
| | 17 |
|
| Dividends declared ($0.825 per share) | | — |
| | — |
| | (78 | ) | | — |
| | — |
| | (78 | ) | | — |
| | (78 | ) |
| Repurchase and retirement of ordinary shares | | — |
| | (40 | ) | | — |
| | — |
| | — |
| | (40 | ) | | — |
| | (40 | ) |
| Dividends attributable to noncontrolling interests | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | (58 | ) | | (58 | ) |
| Change in noncontrolling interest share | | — |
| | — |
| | — |
| | — |
| | — |
| | — |
| | 175 |
| | 175 |
|
| Share based compensation | | — |
| | 12 |
| | — |
| | — |
| | — |
| | 12 |
| | — |
| | 12 |
|
| Balance at September 30, 2017 | | $ | — |
| | $ | 3,942 |
| | $ | 734 |
| | $ | — |
| | $ | (397 | ) | | $ | 4,279 |
| | $ | 313 |
| | $ | 4,592 |
|
The accompanying notes are an integral part of the consolidated financial statements.
Adient plc | Form 10-K | 59
Adient plc
Consolidated Statements of Shareholders' Equity
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| (in millions) | | Ordinary Shares, par value | | Additional Paid-in Capital | | Retained Earnings
(Accumulated Deficit) | | | | Accumulated Other Comprehensive Income (Loss) | | Shareholders' Equity Attributable
to Adient | | Shareholders' Equity Attributable to Noncontrolling Interests | | Total Equity |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Balance at September 30, 2019 | | $ | — | | | $ | 3,962 | | | $ | (1,545) | | | | | $ | (569) | | | $ | 1,848 | | | $ | 341 | | | $ | 2,189 | |
| Net income (loss) | | — | | | — | | | (547) | | | | | — | | | (547) | | | 42 | | | (505) | |
| Foreign currency translation adjustments | | — | | | — | | | — | | | | | (76) | | | (76) | | | 11 | | | (65) | |
| Realized and unrealized gains (losses) on derivatives | | — | | | — | | | — | | | | | (20) | | | (20) | | | — | | | (20) | |
| | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | |
| Dividends attributable to noncontrolling interests | | — | | | — | | | — | | | | | — | | | — | | | (54) | | | (54) | |
| Change in noncontrolling interest share | | — | | | — | | | — | | | | | — | | | — | | | (18) | | | (18) | |
| Share based compensation and other | | — | | | 12 | | | — | | | | | — | | | 12 | | | — | | | 12 | |
| Adjustments from adoption of a new standard | | — | | | — | | | (4) | | | | | — | | | (4) | | | — | | | (4) | |
| | | | | | | | | | | | | | | | |
| Balance at September 30, 2020 | | $ | — | | | $ | 3,974 | | | $ | (2,096) | | | | | $ | (665) | | | $ | 1,213 | | | $ | 322 | | | $ | 1,535 | |
| Net income (loss) | | — | | | — | | | 1,108 | | | | | — | | | 1,108 | | | 57 | | | 1,165 | |
| Foreign currency translation adjustments | | — | | | — | | | — | | | | | 17 | | | 17 | | | 7 | | | 24 | |
| Realized and unrealized gains (losses) on derivatives | | — | | | — | | | — | | | | | 20 | | | 20 | | | — | | | 20 | |
| Employee retirement plans | | — | | | — | | | — | | | | | 1 | | | 1 | | | — | | | 1 | |
| Dividends attributable to noncontrolling interests | | — | | | — | | | — | | | | | — | | | — | | | (42) | | | (42) | |
| Change in noncontrolling interest share | | — | | | — | | | — | | | | | — | | | — | | | (3) | | | (3) | |
| Share based compensation and other | | — | | | 17 | | | — | | | | | — | | | 17 | | | 1 | | | 18 | |
| Balance at September 30, 2021 | | $ | — | | | $ | 3,991 | | | $ | (988) | | | | | $ | (627) | | | $ | 2,376 | | | $ | 342 | | | $ | 2,718 | |
| Net income (loss) | | — | | | — | | | (120) | | | | | — | | | (120) | | | 45 | | | (75) | |
| Foreign currency translation adjustments | | — | | | — | | | — | | | | | (219) | | | (219) | | | (20) | | | (239) | |
| Realized and unrealized gains (losses) on derivatives | | — | | | — | | | — | | | | | — | | | — | | | — | | | — | |
| Employee retirement plans | | — | | | — | | | — | | | | | 1 | | | 1 | | | — | | | 1 | |
| Dividends attributable to noncontrolling interests | | — | | | — | | | — | | | | | — | | | — | | | (53) | | | (53) | |
| Purchase of subsidiary shares from noncontrolling interest | | — | | | 12 | | | — | | | | | — | | | 12 | | | (12) | | | — | |
| | | | | | | | | | | | | | | | |
| Share based compensation and other | | — | | | 23 | | | — | | | | | — | | | 23 | | | — | | | 23 | |
| Balance at September 30, 2022 | | $ | — | | | $ | 4,026 | | | $ | (1,108) | | | | | $ | (845) | | | $ | 2,073 | | | $ | 302 | | | $ | 2,375 | |
The accompanying notes are an integral part of the consolidated financial statements.
Adient plc | Form 10-K | 60
Adient plc
Notes to Consolidated Financial Statements
|
| | | | |
1. Basis of Presentation and Summary of Significant Accounting Policies |
1. Basis of Presentation and Summary of Significant Accounting PoliciesOn October 31, 2016, Adient plc ("Adient") became an independent company as a result of the separation of the automotive seating and interiors businessesbusiness (the "separation") offrom Johnson Controls International plc ("the former Parent"). Adient was incorporated under the laws of Ireland on June 24,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 world's largest automotive seating supplier.supplier industry. Adient has a leading market position in the Americas, Europe and China, and has longstanding relationships with the largest global original equipment manufacturers, or OEMs, in the automotive space. Adient's proprietary technologies extend into virtually every area of automotive seating solutions, including complete seating systems, frames, mechanisms, foam, head restraints, armrests and trim covers and fabrics.covers. Adient is an independent seat supplier with global scale and the capability to design, develop, engineer, manufacture, and deliver complete seat systems and components in every major automotive producing region in the world. Adient also participates in the automotive interiors market primarily through its global automotive interiors joint venture in China, Yanfeng Global Automotive Interior Systems Co., Ltd., or YFAI.
The separation was completed pursuant to various agreements with the former Parent related to the separation. These agreements govern the relationship between Adient and the former Parent following the separation and provided for the allocation of various assets, liabilities, rights and obligations. These agreements also include arrangements for transition services to be provided on a temporary basis by both parties.
Basis of Presentation
The financial statements for periods prior to October 31, 2016 were prepared on a stand-alone combined basis derived from the consolidated financial statements and accounting records of the former Parent as if Adient had been operating as a stand-alone company for all periods presented. These financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("U.S. GAAP"). The assetsglobal automotive industry has continued to experience unprecedented supply chain and liabilitiesother disruptions over the past year related to semiconductor chip shortages, hostilities in Ukraine and localized COVID-19 lockdowns in China. These disruptions have led to unplanned downtime at Adient’s production facilities, often with very little warning, which results in operating inefficiencies and limits Adient’s ability to adequately mitigate such inefficiencies. The automotive industry has also experienced a period of rising input costs and potential shortages related to energy (particularly in EMEA as a result of the financial statements have been reflected onconflict in Ukraine), freight and commodities as well as facing an environment of unfavorable foreign currency exchange and rising interest rates. In addition, Adient, along with the automotive industry, has experienced and continues to face wage inflationary pressures as a result of constrained labor availability, particularly in certain jurisdictions in EMEA. COVID-19 and related variants and sub-variants, also continues to be present throughout the world, including in all global and regional markets served by Adient. The elevated COVID-19 rates in China led to lockdowns at various times during fiscal 2022, negatively impacting the automotive production levels in that region, along with creating further supply chain disruptions. As a result of these disruptions, new vehicle sales continue to be significantly lower than historical cost basis, as included inand previously projected pre-pandemic sales levels. Refer to the consolidated statementsresults of financial positionoperations and segment analysis discussion below for additional information on the impacts of these items on Adient's results. Refer to Note 3, "Acquisitions and Divestitures," of the former Parent. The statements of income include allocations for certain support functions that were provided on a centralized basis bynotes to the former Parent and subsequently recorded at the business unit level, such as expenses related to employee benefits, finance, human resources, risk management, information technology, facilities, and legal, among others. These expenses have been allocated to Adient on the basis of direct usage when identifiable, with the remainder allocated on a proportional basis of combined sales, headcount or other measures of Adient or the former Parent. Management believes the assumptions underlying the financial statements, including the assumptions regarding allocating general corporate expenses from the former Parent, are reasonable. Nevertheless, theconsolidated financial statements for periods prior toadditional information on the separation may not include all actual expenses that would have been incurred by Adientimpacts from the Russia/Ukraine conflict including Adient’s withdrawal from and may not reflect the resultssale of operations financial position and cash flows had it been a stand-alone company during the periods presented. Actual costs that would have been incurred if Adient had been a stand-alone company would depend on multiple factors, including organizational structure and strategic decisions made in various areas, including information technology and infrastructure.Russia.
Principles of ConsolidationConsolidations
Adient consolidates its wholly-owned subsidiaries and those entities in which it has a controlling interest. Investments in partially-owned affiliates are accounted for by the equity method when Adient's interest exceeds 20% and does not have a controlling interest.
The financial statements for periods prior to the separation include certain assets and liabilities that have historically been held at the former Parent but are specifically identifiable or otherwise attributable to Adient. All significant intercompany transactions and accounts within Adient's businesses have been eliminated. All intercompany transactions between Adient and the former Parent prior to the separation have been included in the consolidated financial statements as Parent's net investment. Expenses related to corporate allocations from the former Parent to Adient are considered to be effectively settled for cash in the financial statements at the time the transaction is recorded. In addition, transactions between Adient and the former Parent's other businesses prior to
the separation have been classified as related party, rather than intercompany, in the financial statements. See Note 20, "Related Party Transactions," of the notes to consolidated financial statements for further details.
Prior to the separation, transfers of cash to and from the former Parent's cash management system were reflected as a component of Parent's net investment in the consolidated statements of financial position. For periods prior to the separation, the cash and cash equivalents held by the former Parent were not attributed to Adient, as legal ownership remained with the former Parent. Furthermore, the income tax expense and deferred taxes in the financial statements for periods prior to October 31, 2016 were prepared on a separate return basis derived from the consolidated financial statements and accounting records of the former Parent as if Adient had been operating as a stand-alone company for all periods presented. As a standalone entity, Adient will file tax returns on its own behalf and its effective tax rate and deferred taxes may differ from those in historical periods.
Consolidated VIEs
Based upon the criteria set forth in the Financial Accounting Standards Board (the FASB) Accounting Standards Codification (ASC) 810, "Consolidation," Adient has determined that it was the primary beneficiary in two variable interest entities (VIEs) for the reporting periods ended September 30, 20172022 and 2016,2021, respectively, as Adient absorbs significant economics of the entities and has the power to direct the activities that are considered most significant to the entities.
The two VIEs manufacture seating products in North America for the automotive industry. Adient funds the entities' short-term liquidity needs through revolving credit facilities and has the power to direct the activities that are considered most significant to the entities through its key customer supply relationships.
The carrying amounts and classification of assets (none of which are restricted) and liabilities included in Adient's consolidated statements of financial position for the consolidated VIEs are as follows:
Adient plc | Form 10-K | 61
|
| | | | | | | | |
| | | September 30, |
| (in millions) | | 2017 | | 2016 |
| Current assets | | $ | 232 |
| | $ | 281 |
|
| Noncurrent assets | | 56 |
| | 45 |
|
| Total assets | | $ | 288 |
| | $ | 326 |
|
| | | | | |
| Current liabilities | | $ | 169 |
| | $ | 219 |
|
| Total liabilities | | $ | 169 |
| | $ | 219 |
|
Revisions
Adient has revised previously reported results to correctly report equity income from a non-consolidated affiliate in the Seating segment related to engineering costs that were inappropriately capitalized. Adient has also revised previously reported net sales and cost of sales to correctly report certain sales on a net versus gross basis in the Seating segment. Adient assessed the materiality of these misstatements on prior periods’ financial statements in accordance with SEC Staff Accounting Bulletin ("SAB") No. 99, Materiality, codified in ASC 250, Presentation of Financial Statements, and concluded that these misstatements were not material, individually or in the aggregate, to any previously issued financial statements. In accordance with ASC 250 (SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements), the consolidated financial statements and notes to consolidated financial statements as of September 30, 2016 and 2015, and the years then ended, which are presented herein, have been revised. Adient will revise fiscal 2017 interim periods in future quarterly filings. The following tables show the impact of these revisions on all of the impacted line items from Adient's consolidated financial statements illustrating the effect of these corrections:
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Consolidated Statements of Income (Loss) |
| | | Year Ended September 30, 2016 | | Year Ended September 30, 2015 |
| (in millions, except per share data) | | As Reported | | Adjustment | | As Revised | | As Reported | | Adjustment | | As Revised |
| Net sales | | $ | 16,837 |
| | $ | (47 | ) | | $ | 16,790 |
| | $ | 20,071 |
| | $ | (48 | ) | | $ | 20,023 |
|
| Cost of sales | | 15,228 |
| | (47 | ) | | 15,181 |
| | 18,219 |
| | (48 | ) | | 18,171 |
|
| Gross profit | | 1,609 |
| | — |
| | 1,609 |
| | 1,852 |
| | — |
| | 1,852 |
|
| Equity income | | 357 |
| | (13 | ) | | 344 |
| | 295 |
| | (15 | ) | | 280 |
|
| Earnings before interest and income taxes | | 412 |
| | (13 | ) | | 399 |
| | 971 |
| | (15 | ) | | 956 |
|
| Income before income taxes | | 390 |
| | (13 | ) | | 377 |
| | 959 |
| | (15 | ) | | 944 |
|
| Net income (loss) | | (1,449 | ) | | (13 | ) | | (1,462 | ) | | 541 |
| | (15 | ) | | 526 |
|
| Net income (loss) attributable to Adient | | (1,533 | ) | | (13 | ) | | (1,546 | ) | | 475 |
| | (15 | ) | | 460 |
|
| | | | | | | | | | | | | |
| Earnings per share: | | | | | | | | | | | | |
| Basic | | $ | (16.36 | ) | | $ | (0.14 | ) | | $ | (16.50 | ) | | $ | 5.07 |
| | $ | (0.16 | ) | | $ | 4.91 |
|
| Diluted | | $ | (16.36 | ) | | $ | (0.14 | ) | | $ | (16.50 | ) | | $ | 5.06 |
| | $ | (0.16 | ) | | $ | 4.90 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Consolidated Statements of Comprehensive Income (Loss) |
| | | Year Ended September 30, 2016 | | Year Ended September 30, 2015 |
| (in millions) | | As Reported | | Adjustment | | As Revised | | As Reported | | Adjustment | | As Revised |
| Total comprehensive income (loss) | | $ | (1,483 | ) | | $ | (13 | ) | | $ | (1,496 | ) | | $ | 10 |
| | $ | (15 | ) | | $ | (5 | ) |
| Comprehensive income (loss) attributable to Adient | | (1,562 | ) | | (13 | ) | | (1,575 | ) | | (48 | ) | | (15 | ) | | (63 | ) |
|
| | | | | | | | | | | | |
| | | Consolidated Statement of Financial Position |
| | | At September 30, 2016 |
| (in millions) | | As Reported | | Adjustment | | As Revised |
| Investments in partially-owned affiliates | | $ | 1,748 |
| | $ | (34 | ) | | $ | 1,714 |
|
| Total assets | | 12,990 |
| | (34 | ) | | 12,956 |
|
| Parent's net investment | | 4,486 |
| | (34 | ) | | 4,452 |
|
| Shareholders' equity attributable to Adient | | 4,210 |
| | (34 | ) | | 4,176 |
|
| Total shareholders' equity | | 4,341 |
| | (34 | ) | | 4,307 |
|
| Total liabilities and shareholders' equity | | 12,990 |
| | (34 | ) | | 12,956 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Consolidated Statements of Cash Flows |
| | | Year Ended September 30, 2016 | | Year Ended September 30, 2015 |
| (in millions) | | As Reported | | Adjustment | | As Revised | | As Reported | | Adjustment | | As Revised |
| Operating Activities | | | | | | | | | | | | |
| Net income (loss) | | $ | (1,449 | ) | | $ | (13 | ) | | $ | (1,462 | ) | | $ | 541 |
| | $ | (15 | ) | | $ | 526 |
|
| Equity in earnings of partially-owned affiliates, net of dividends received | | (158 | ) | | 13 |
| | (145 | ) | | (102 | ) | | 15 |
| | (87 | ) |
| Cash provided (used) by operating activities | | (1,034 | ) | | — |
| | (1,034 | ) | | 397 |
| | — |
| | 397 |
|
|
| | | | | | | | | | | | | | | | | | | | | | | | |
| | | Consolidated Statement of Shareholders' Equity |
| | | At September 30, 2015 | | At September 30, 2014 |
| (in millions) | | As Reported | | Adjustment | | As Revised | | As Reported | | Adjustment | | As Revised |
| Parent's Net Investment | | $ | 5,873 |
| | $ | (23 | ) | | $ | 5,850 |
| | $ | 5,177 |
| | $ | (8 | ) | | $ | 5,169 |
|
| Shareholder's Equity Attributable to Adient | | 5,626 |
| | (23 | ) | | 5,603 |
| | 5,453 |
| | (8 | ) | | 5,445 |
|
| Total Equity | | 5,767 |
| | (23 | ) | | 5,744 |
| | 5,612 |
| | (8 | ) | | 5,604 |
|
| | | | | | | | | | | | | | |
| | September 30, |
| (in millions) | | 2022 | | 2021 |
| Current assets | | $ | 262 | | | $ | 158 | |
| Noncurrent assets | | 113 | | | 88 | |
| Total assets | | $ | 375 | | | $ | 246 | |
| | | | |
| Current liabilities | | $ | 233 | | | $ | 143 | |
| Noncurrent liabilities | | 14 | | | 8 | |
| Total liabilities | | $ | 247 | | | $ | 151 | |
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The consolidated financial statements reflect management's estimates as of the reporting date. Actual results could differ from those estimates.
Fair Value of Financial Instruments
The fair values of cash and cash equivalents, accounts receivable, short-term debt and accounts payable approximate their carrying values. See Note 9,10, "Derivative Instruments and Hedging Activities," and Note 10,11, "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 separation, transfers of cash to and from the former Parent's cash management system are reflected as a component of Parent's net investment in the consolidated statements of financial position. Accordingly, the cash and cash equivalents held by the former Parent were not attributed to Adient for any of the years presented, as legal ownership remained with the former Parent.
Restricted Cash
At September 30, 2016, Adient recorded $2 billion of restricted cash within the consolidated statements of financial position. These funds represent the proceeds from a bond issuance that were placed directly into escrow and released to Adient subsequent to September 30, 2016 and therefore represent non-cash activity in fiscal 2016. The cash was used during fiscal 2017 in part, to fund a distribution to the former Parent. The $2 billion receipt of cash from escrow, along with the distribution to and other settlements with the former Parent during fiscal 2017, are reflected in net transfers from (to) parent prior to separation in the consolidated statement of cash flows. Refer to Note 8, "Debt and Financing Arrangements," of the notes to the consolidated financial statements for further information on the bond issuance.
Receivables
Receivables consist of amounts billed and currently due from customers and revenues that have been recognized for accounting purposes but not yet billed to customers. Adient extends credit to customers in the normal course of business and maintains an allowance for doubtful accounts resulting from the inability or unwillingness of customers to make required payments. The allowance for doubtful accounts is based on historical experience, existing economic conditions and any specific customer collection issues Adient has identified. Adient enters into supply chain financing programs in certain domestic and foreign jurisdictions to either sell or discount accounts receivable without recourse to third-party financial institutions. Sales or discounts 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. As of September 30, 2022 and 2021, $269 million and $132 million have been funded under these programs, respectively.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out ("FIFO") method. Finished goods and work-in-process inventories include material, labor and manufacturing overhead costs.
Pre-Production Costs Related to Long-Term Supply Arrangements
Adient's policy for engineering, research and development, and other design and development costs related to products that will be sold under long-term supply arrangements requires such costs to be expensed as incurred or capitalized if reimbursement from the customer is contractually assured. Income related to recovery of these costs is recorded within selling, general and administrative expense in the consolidated statements of income. At September 30, 20172022 and 2016,2021, Adient recorded within the consolidated statements of financial position $343$239 million and $316$278 million, respectively, of engineering and research and development costs for which customer reimbursement is contractually assured. The reimbursable costs are recorded in other
Adient plc | Form 10-K | 62
current assets if reimbursement will occur in less than one year and in other noncurrent assets if reimbursement will occur beyond one year. At September 30, 2017,2022, Adient had $175$73 million and $168$166 million of reimbursable costs recorded in current and noncurrent assets, respectively. At September 30, 2016,2021, Adient had $138$66 million and $178$212 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, 20172022 and 2016,2021, approximately $82$53 million and $62 million, respectively, of costs for molds, dies and other tools were capitalized within property, plant and equipment which represented assets to which Adient had title. In addition, at September 30, 2017 and 2016,2022, Adient recorded within the consolidated statements of financial position in other current and noncurrent assets $285$74 million and $203$15 million, respectively, of costs for molds, dies and other tools for which customer reimbursement is contractually assured. At September 30, 2021, Adient recorded within the consolidated statements of financial position in other current and noncurrent assets $77 million and $8 million, respectively, of costs for molds, dies and other tools for which customer reimbursement is contractually assured.
Property, Plant and Equipment
Property, plant and equipment are recorded at cost. Depreciation is provided over the estimated useful lives of the respective assets using the straight-line method for financial reporting purposes and accelerated methods for income tax purposes. The estimated useful lives range from 3 to 40 years for buildings and improvements and from 3 to 15 years for machinery and equipment.
Leases
On October 1, 2019, Adient adopted Accounting Standards Codification Topic 842, "Leases" (ASC 842) using the modified retrospective transition approach and electing the package of practical expedients. This resulted in the recognition of right-of-use (ROU) assets of $380 million and corresponding operating lease liabilities of $384 million. The adoption date ROU asset balance was adjusted by $4 million, reflecting impairment of ROU assets for certain real estate leases (within the North America and Europe asset groups) of which the Company determined the carrying value of the initial operating lease ROU asset exceeded its fair value. The adjustment was recorded as an increase to the opening accumulated deficits. The adoption of ASC 842 did not have any significant impact on the consolidated statement of income or cash flows.
Operating lease right-of-use (ROU) assets and liabilities are recognized based on the present value of future minimum lease payments over the lease term at commencement dates. ROU assets also include payments made in advance and exclude lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that such options are to be exercised. Adient uses its incremental borrowing rate, which is the rate of interest it would pay to borrow on a collateralized basis over a similar term to the lease in a similar economic environment, for discounting lease consideration as most lease agreements do not provide an implicit rate. Refer to Note 8, “Leases” of the notes to consolidated financial statements for more information regarding Adient’s leases.
Goodwill and Other Intangible Assets
Goodwill reflects the cost of an acquisition in excess of the fair values assigned to identifiable net assets acquired. Adient reviews goodwill for impairment during the fourth fiscal quarter or more frequently if events or changes in circumstances indicate the asset might be impaired. Adient performs impairment reviews for its reporting units, which have been determined to be Adient's reportable segments using a fair value method based on management's judgments and assumptions or third party valuations. The fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. In estimating the fair value, Adient primarily uses multiples of earnings based on the average of historical,an income approach utilizing discounted cash flow analyses. Adient also uses a market approach utilizing published multiples of earnings of comparable entities with similar operationsoperational and economic characteristics. In certain instances, Adient uses discounted cash flow analyses or estimated sales pricecharacteristics 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 exceedsis below the carrying amount of the reporting unit.
Adient plc | Form 10-K | 63
Intangible assets with definite lives continue to beare amortized over their estimated useful lives and are subject to impairment testing if events or changes in circumstances indicate that the asset might be impaired.
Impairment of Long-Lived Assets
Adient reviews long-lived assets, including property, plant and equipment and other intangible assets with definite lives, for impairment whenever events or changes in circumstances indicate that the asset's carrying amount may not be recoverable. Adient conducts its long-lived asset impairment analyses in accordance with ASC 360-10-15, "Impairment or Disposal of Long-Lived Assets." ASC 360-10-15 requires Adient to group assets and liabilities at the lowest level for which identifiable cash flows are largely independent of the cash flows of other assets and liabilities and evaluate the asset group against the sum of the undiscounted future cash flows. If the undiscounted cash flows do not indicate the carrying amount of the asset is recoverable, an impairment charge is measured as the amount by which the carrying amount of the asset group exceeds its fair value based on discounted cash flow analysis or appraisals. Refer to Note 15, "Impairment of Long-Lived Assets," of the notes to consolidated financial statements for information regarding the impairment testing performed in fiscal years 2016 and 2015.
Impairment of Investments in Partially-Owned Affiliates
Adient monitors its investments in partially-owned affiliates for indicators of other-than-temporary declines in value on an ongoing basis. If Adient determines that an other-than-temporary decline in value has occurred, it recognizes an impairment loss, which is measured as the difference between the recorded book value and the fair value of the investment. Fair value is generally determined using an income approach based on discounted cash flows or negotiated transaction values. Refer to Note 18, "Nonconsolidated Partially-Owned Affiliates," of the notes to consolidated financial statements for more information on Adient’s partially-owned affiliates.
Revenue Recognition
Adient records revenue when persuasive evidence of an arrangement exists, delivery occurs or services are rendered, the sales price or fee is fixed or determinableprovides production and collectability is reasonably assured. Adient delivers products and records revenue pursuantservice parts to commercial agreements with its customers under awarded multi-year programs. The duration of a program is generally inconsistent with the formlife cycle of a vehicle, however, an approvedawarded program does not reach the level of a performance obligation until Adient receives either a purchase order includingand/or a materials release from the effectscustomer for a specific number of contractual productivityparts 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 pricing. Adient negotiates discreteon purchase orders, annual price changes with its customers, which are generallyreductions and ongoing price adjustments. Refer to Note 2, "Revenue Recognition," of the result of unique commercial issues between Adient and its customers. Adient records amounts associated with discrete price changes as a reductionnotes to consolidated financial statements for information on Adient's revenue when specific facts and circumstances indicate that a price reduction is probable and the amounts are reasonably estimable. Adient records amounts associated with discrete price changes as an increase to revenue upon execution of a legally enforceable contractual agreement and when collectability is reasonable assured.recognition.
Customers
Essentially all of Adient's sales are to the automotive industry. Adient's most significant customers include Volkswagen GroupStellantis N.V. which comprised 11%12% of consolidated net sales in fiscal 2017, Fiat Chrysler Automobiles2022, Stellantis N.V. and Ford Motor Company which comprised 12% and 11% of consolidated net sales, respectively, in fiscal 2016 and Fiat Chrysler Automobiles N.V. and Ford Motor CompanyVolkswagen Group which comprised 13% and 11% of consolidated net sales, respectively, in fiscal 2015.2021, and Stellantis N.V. and Volkswagen Group which comprised 10% and 10% of consolidated net sales in fiscal 2020.
Research and Development Costs
Expenditures for research activities relating to product development and improvement (other than those expenditures that are contractually guaranteed for reimbursement from the customer) are charged against income as incurred and included within selling, general and administrative expenses in the consolidated statements of income. Such expenditures for the years ended September 30, 2017, 20162022, 2021 and 20152020 were $488$322 million, $460$316 million and $599$370 million, respectively. A portion of these costs associated with these activities are reimbursed by customers and, for the fiscal years ended September 30, 2017, 20162022, 2021 and 20152020 were $350$194 million, $308$210 million and $364$223 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
Adient plc | Form 10-K | 64
accumulated other comprehensive income.income (AOCI). The aggregate transaction gains (losses) included in net income for the years ended September 30, 2017, 20162022, 2021 and 20152020 were $1$6 million, ($40 million)$(8) million and ($26 million),$(25) million, respectively.
Derivative Financial Instruments
The fair values of all derivatives are recorded in the consolidated statements of financial position. The change in a derivative's fair value is recorded each period in current earnings or accumulated other comprehensive income, (AOCI), depending on whether the derivative is designated as part of a hedge transaction and if so, the type of hedge transaction. Refer to Note 9,10, "Derivative Instruments and Hedging Activities," and Note 10,11, "Fair Value Measurements," of the notes to consolidated financial statements for disclosure of Adient's derivative instruments and hedging activities.
Stock-Based Compensation
Stock-based compensation is initially measured at the fair value of the awards on the grant date and is recognized in the financial statements over the period the employees are required to provide services in exchange for the awards. The fair value of restricted stock awards is based on the number of units granted and the stock price on the grant date. The fair value of performance-based share unit, or PSU, awards is based on the stock price at the grant date and the assessed probability of meeting future performance targets. The fair value of option awards is measured on the grant date using the Black-Scholes option-pricing model. The fair value of each stock appreciation right, or SAR, is estimated using a similar method described for stock options. The fair value of cash settled awards are recalculated at the end of each reporting period and the liability and expense are adjusted based on the new fair value. Refer to Note 11,12, "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 13,14, "Retirement Plans," of the notes to consolidated financial statements for disclosure of Adient's pension and postretirement benefit plans.
Income Taxes
Adient accounts for income taxes in accordance with ASC 740, "Income Taxes."
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and other loss carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Adient records a valuation allowance that primarily represents non-U.S. operating and other loss carryforwards for which realization is uncertain. Management judgment is required in determining Adient's provision for income taxes, deferred tax assets and liabilities, and the valuation allowance recorded against Adient's net deferred tax assets.
Adient reviews the realizability of its deferred tax assets on a quarterly basis, or whenever events or changes in circumstances indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or combined group recording the net deferred tax asset are considered, along with any other positive or negative evidence. Since future financial results may differ from previous estimates, periodic adjustments to Adient's valuation allowances may be necessary.
Adient is subject to income taxes in Ireland, the U.S. and other non-U.S. jurisdictions. Judgment is required in determining its worldwide provision for income taxes and recording the related assets and liabilities. In the ordinary course of Adient's business, there are many transactions and calculations where the ultimate tax determination is uncertain. Adient's income tax returns for various fiscal years remain under audit by the respective tax authorities. Although the outcome of tax audits is always uncertain, management believes that it has appropriate support for the positions taken on its tax returns and that its annual tax provisions included amounts sufficient to pay assessments, if any, which may be proposed by the taxing authorities. Nonetheless, the amounts ultimately paid, if any, upon resolution of the issues raised by the taxing authorities may differ materially from the amounts accrued for each year.
Adient does not generally provide for additional income taxes which would become payable upon repatriation of undistributed earnings of wholly owned foreign subsidiaries. Adient's intent is for such earnings to be reinvested by the subsidiaries or to be repatriated only when it would be tax efficient.
Refer to Note 16, "Income Taxes," of the notes to consolidated audited financial statements for Adient's income tax disclosures.
Adient plc | Form 10-K | 65
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) | | 2022 | | 2021 | | 2020 |
| Numerator: | | | | | | |
| Net income (loss) attributable to Adient | | $ | (120) | | | $ | 1,108 | | | $ | (547) | |
| | | | | | |
| Denominator: | | | | | | |
| Shares outstanding | | 94.8 | | | 94.2 | | | 93.8 | |
| Effect of dilutive securities | | — | | | 1.5 | | | — | |
| Diluted shares | | 94.8 | | | 95.7 | | | 93.8 | |
| | | | | | |
| Earnings per share: | | | | | | |
| Basic | | $ | (1.27) | | | $ | 11.76 | | | $ | (5.83) | |
| Diluted | | $ | (1.27) | | | $ | 11.58 | | | $ | (5.83) | |
|
| | | | | | | | | | | | |
| | | Year Ended September 30, |
| (in millions, except per share data) | | 2017 | | 2016 | | 2015 |
| Numerator: | | | | | | |
| Net income (loss) attributable to Adient | | $ | 877 |
| | $ | (1,546 | ) | | $ | 460 |
|
| | | | | | | |
| Denominator: | | | | | | |
| Shares outstanding | | 93.5 |
| | 93.7 |
| | 93.7 |
|
| Effect of dilutive securities | | 0.4 |
| | — |
| | 0.1 |
|
| Diluted shares | | 93.9 |
| | 93.7 |
| | 93.8 |
|
| | | | | | | |
| Earnings per share: | | | | | | |
| Basic | | $ | 9.38 |
| | $ | (16.50 | ) | | $ | 4.91 |
|
| Diluted | | $ | 9.34 |
| | $ | (16.50 | ) | | $ | 4.90 |
|
The effect of common stock equivalents which would have been anti-dilutive was excluded from the calculation of diluted earnings per share for fiscal 2021 and was immaterial. Potentially dilutive securities whose effect would have been antidilutive are excluded from the computation of diluted earnings per share. For periods prior to the separation, basicshare which for fiscal 2022 and diluted earnings per ordinary share are calculated assuming the number2020 is a result of Adient ordinary shares outstanding on October 31, 2016 had been outstanding at the beginning of each period presented.being in a loss position.
Parent's Net Investment
Parent's net investment includes the former Parent's investment in Adient and the net amounts due to or due from the Parent. The Parent's net investment in Adient is discussed in further detail in Note 20, "Related Party Transactions," of the notes to consolidated financial statements.
New Accounting Pronouncements
Recently
Standards Adopted During Fiscal 2022
On October 1, 2021, Adient adopted Accounting Pronouncements
In August 2014, the FASB issuedStandards Codification (ASU) 2018-14 Compensation - Retirement Benefits - Defined Benefit Plans - General (Subtopic 715-20). ASU 2014-15, "Presentation of Financial Statement - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern", to provide2018-14 eliminates, adds, and modifies certain disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The guidance on management’s responsibility in evaluating whether there is substantial doubt about a company’s ability to continue as a going concern and to provide related footnote disclosures. ASU 2014-15 is effective for financial statements issued for fiscal years ending after December 15, 2016, and interim periods thereafter. ASU 2014-15 was adopted by Adient for the quarter ending December 31, 2016. Adient conducted an evaluation as to whether there were conditions and events, considered in the aggregate, which raised substantial doubt as to the entity's ability to continue as a going concern within one year after the date of the issuance, or the date of availability, of the financial statements to be issued, noting that there did not appear to be evidence of substantial doubt of the entity's ability to continue asapplied on a going concern.
In February 2015, the FASB issued ASU No. 2015-02, "Consolidation (Topic 810): Amendments to the Consolidation Analysis." ASU No. 2015-02 amends the analysis performed to determine whether a reporting entity should consolidate certain types of legal entities. ASU No. 2015-02 was effective retrospectively for Adient for the quarter ending December 31, 2016.retrospective basis. The adoption of this guidance on October 1, 2021 did not have ansignificantly impact on Adient's consolidated financial statements.statements for fiscal 2022.
In April 2015, the FASB issued
On October 1, 2021, Adient adopted ASU No. 2015-03, "Interest-Imputation of Interest (Subtopic 835-30)2019-12, Income Taxes (Topic 740): Simplifying the PresentationAccounting for Income Taxes. ASU 2019-12 modifies ASC 740, Income Taxes, by simplifying accounting for income taxes. As part of Debt Issuance Costs." ASU No. 2015-03 requires that debt issuanceits overall simplification initiative to reduce costs related to a recognized debt liability be presented inand complexity of applying accounting standards while maintaining or improving the balance sheet as a direct deduction from the carrying amountusefulness of the debt liability. ASU No. 2015-03 was applied retrospectively by Adient during the quarter ended December 31, 2016. As a result, other noncurrent assets and long-term debt decreased by $43 million at September 30, 2016 in Adient's consolidated statementsinformation provided to users of financial position.
In May 2015,statements, the FASB issued ASU No. 2015-07, "Disclosures for Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent)." ASU No. 2015-07 removes the requirement to categorize within the fair value hierarchy all investments for which fair value is measured using the net asset value per share practical expedient. Such investments should be disclosed separate from the fair value hierarchy. ASU No. 2015-07 was effective retrospectively for Adient for the quarter ended December 31, 2016.FASB’s amendments may impact both interim and annual reporting periods. The adoption of this guidance on October 1, 2021 did not have ansignificantly impact on Adient's consolidated financial statements but did impact the pension disclosures in the notes to consolidated financial statements for all periods presented. Refer to Note 13, "Retirement Plans," of the notes to consolidated audited financial statements for Adient's pension disclosures.
In March 2016, the FASB issued ASU No. 2016-09, "Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting." ASU No. 2016-09 changes the accounting for certain aspects of share-based payments to employees, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. In addition, the guidance allows for a policy election to account for forfeitures as they occur rather than on an estimated basis. ASU No. 2016-09 was adopted early by Adient for the quarter ended December 31, 2016 and was applied retrospectively to all periods presented. The adoption of this guidance did not have a material impact on Adient's consolidated financial statements for all periods presented.fiscal 2022.
In October 2016,
Standards Effective After Fiscal 2022
Adient has considered the FASB issued ASU No. 2016-16, "Income Taxes (Topic 740): Intra-Entity TransfersASUs summarized below, effective after fiscal 2022, none of Assets Other Than Inventory." ASU No. 2016-16 removeswhich are expected to significantly impact the prohibition in ASC 740 against the immediate recognition of the current and deferred income tax effects of intra-entity transfers of assets other than inventory. ASU No. 2016-16 was adopted early by Adient for the quarter ended December 31, 2016 and was applied on a modified retrospective basis to all periods presented. The adoption of this guidance resulted in a cumulative adjustment to equity of $61 million.
Recently Issued Accounting Pronouncements
In August 2017, the FASB issued ASU No. 2017-12, "Derivatives and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities." ASU No. 2017-12 improves the financial reporting of hedging relationships to better portray the economic results of an entity's risk management activities in its financial statements. ASU No. 2017-12 will be effective for Adient for the quarter ending December 31, 2019, with early adoption permitted. Adient is currently assessing the impact adoption of this guidance will have on its consolidated financial statements.statements:
In May 2017, the FASB issued ASU No. 2017-09, "Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting." ASU No. 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. ASU No. 2017-09 will be effective for Adient for the quarter ending December 31, 2018, with early adoption permitted. The impact of this guidance for Adient is dependent on any future modifications to Adient's share-based payment awards.
In March 2017, the FASB issued ASU No. 2017-07, "Compensation—Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost." ASU No. 2017-07 amends certain aspects of presentation of pension cost and postretirement benefit cost. ASU No. 2017-07 will be effective for Adient for the quarter ending December 31, 2018, with early adoption permitted. Adient is currently assessing the impact adoption of this guidance will have on its consolidated financial statements.
In February 2017, the FASB issued ASU No. 2017-05, "Other Income—Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets." ASU No. 2017-05 will follow the same implementation guidelines as ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)." Adient is currently assessing the impact adoption of this guidance will have on its consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-04, "Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment." ASU No. 2017-04 simplifies how an entity is required to test goodwill for impairment by eliminating Step 2 from the goodwill impairment test. Step 2 measures a goodwill impairment loss by comparing the implied fair value of a reporting unit's goodwill with the carrying amount of that goodwill. ASU No. 2017-04 will be effective for Adient for the quarter ending December 31, 2020, with early adoption permitted. The adoption of this guidance is not anticipated to have a material impact on Adient's consolidated financial statements.
In January 2017, the FASB issued ASU No. 2017-01, "Business Combinations (Topic 805): Clarifying the Definition of a Business." ASU No. 2017-01 clarifies the definition of a business as it relates to the acquisition or sale of assets or businesses. ASU No. 2017-01 will be effective for Adient for the quarter ending December 31, 2018, with early adoption permitted. Adient is currently assessing the impact adoption of this guidance will have on its consolidated financial statements.
In November 2016, the FASB issued ASU No. 2016-18, "Statement of Cash Flows (Topic 230): Restricted Cash." ASU No. 2016-18 clarifies the classification and presentation of restricted cash on the statement of cash flows. ASU No. 2016-18 will be effective for Adient for the quarter ending December 31, 2018, with early adoption permitted. The adoption of this guidance is not anticipated to have a material impact on Adient's consolidated financial statements.
In October 2016, the FASB issued ASU No. 2016-17, "Consolidation (Topic 810): Interests Held through Related Parties That Are under Common Control." ASU No. 2016-17 changes the evaluation of whether a reporting entity is the primary beneficiary of a Variable Interest Entity (VIE) by changing how a reporting entity that is a single decision maker of a VIE treats indirect interests in the entity held through related parties that are under common control with the reporting entity. ASU No. 2016-17 will be effective for Adient for the quarter ended December 31, 2017, with early adoption permitted. The adoption of this guidance is not anticipated to have a material impact on Adient's consolidated financial statements.
In August 2016, the FASB issued ASU No. 2016-15, "Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments." ASU No. 2016-15 clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU No. 2016-15 will be effective for Adient for the quarter ended December 31, 2018, with early adoption permitted. Adient is currently assessing the impact adoption of this guidance will have on its consolidated financial statements.
In June 2016, the FASB issued ASU No. 2016-13, "Financial Instruments-Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments." ASU No. 2016-13 changes the impairment model for financial assets measured at amortized cost, requiring presentation at the net amount expected to be collected. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts. Available-for-sale debt securities with unrealized losses will now be recorded through an allowance for credit losses. ASU No. 2016-13 will be effective for Adient for the quarter ended December 31, 2020, with early adoption permitted. The adoption of this guidance is not expected to have a significant impact on Adient's consolidated financial statements.
In March 2016, the FASB issued ASU No. 2016-07, "Investments-Equity Method and Joint Ventures (Topic 323): Simplifying the Transition to the Equity Method of Accounting." ASU No. 2016-07 eliminates the requirement that when an investment qualifies for use of the equity method as a result of an increase in the level of ownership interest or degree of influence, an investor must adjust the investment, results of operations, and retained earnings retrospectively. ASU No. 2016-07 will be effective prospectively for Adient for increases in the level of ownership interest or degree of influence that result in the adoption of the equity method that occur during or after the quarter ending December 31, 2017, with early adoption permitted. The impact of this guidance for Adient is dependent on any future increases in the level of ownership interest or degree of influence related to equity method investments.
In February 2016, the FASB issued ASU No. 2016-02, "Leases (Topic 842)." ASU No. 2016-02 requires recognition of operating leases as lease assets and lease liabilities on the balance sheet and disclosure of key information about leasing arrangements. ASU No. 2016-02 will be effective retrospectively for Adient for the quarter ending December 31, 2019, with early adoption permitted. Adient is currently assessing the impact adoption of this guidance will have on its consolidated financial statements.
In January 2016, the FASB issued ASU No. 2016-01, "Financial Instruments-Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Liabilities." ASU No. 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments. ASU No. 2016-01 will be effective prospectively for Adient for the quarter ending December 31, 2018, with early adoption permitted. Adient is currently assessing the impact adoption of this guidance will have on its consolidated financial statements.
In July 2015, the FASB issued ASU No. 2015-11, "Simplifying the Measurement of Inventory." ASU No. 2015-11 requires inventory that is recorded using the first-in, first-out method to be measured at the lower of cost or net realizable value. ASU No. 2015-11 will be effective retrospectively for Adient for the quarter ending December 31, 2017, with early adoption permitted. The adoption of this guidance is not expected to have a significant impact on Adient's consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606)." ASU No. 2014-09 clarifies the principles for recognizing revenue when an entity either enters into a contract with customers to transfer goods or services or enters into a contract for the transfer of non-financial assets. In March 2016 the FASB issued ASU No. 2016-08, "Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net)," in April 2016 the FASB issued ASU No. 2016-10, "Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing," and in May 2016 the FASB issued ASU No. 2016-12, ‘‘Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients,’’which provide additional clarification on certain topics addressed in ASU No. 2014-09. ASU No. 2016-08, ASU No. 2016-10 and ASU No. 2016-12 follow the same implementation
guidelines as ASU No. 2014-09 and ASU No. 2015-14. This guidance will be effective October 1, 2018 for Adient. The accounting changes under the new standard will require new processes and procedures to collect the data required for proper reporting and disclosure. Adient is undergoing its review of the impact of adopting this standard and is developing and executing an implementation plan which will include changes to internal processes and controls. Under current guidance Adient generally recognizes revenue when products are shipped and risk of loss has transferred to the customer. Under the new standard, the customized nature of some of Adient's products combined with contractual provisions that provide an enforceable right to payment, will likely require Adient to recognize revenue prior to the product being shipped to the customer. Adient is also assessing pricing provisions contained in certain customer contracts. It is possible that pricing provisions contained in some of Adient's customer contracts may provide the customer with a material right, potentially resulting in a different allocation of the transaction price than under current guidance. Adient expects to expand disclosures in line with the requirements of the new standard. Adient anticipates applying the modified retrospective method which would require Adient to recognize the cumulative effect of initially applying the standard as an adjustment to opening retained earnings at the date of initial application.
Adient plc | Form 10-K | 66
| | | | | | | | | | | | | | |
|
| | | | |
2. AcquisitionsStandard Pending Adoption | | Description | | Date Effective |
| | | | |
ASU 2020-06, Debt with Conversion and DivestituresOther Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) | | ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity by reducing the number of accounting models for convertible debt and convertible preferred stock. | | October 1, 2022 |
| | | | |
| ASU 2021-10, Government Assistance (Topic 832) - Disclosures by Business Entities about Government Assistance | | The ASU requires annual disclosures of: i) information about the nature of government assistance transactions and the related accounting policy used to account for the transactions, ii) the balance sheet and income statement line items affected by the transactions, and the amounts for each financial statement line item, and iii) significant transaction terms and conditions. | | October 1, 2022 |
| | | | |
| ASU 2022-04, Liabilities - Supplier Finance Programs (Subtopic 405-50): Disclosure of Supplier Finance Program Obligations | | The ASU requires buyers of goods and services to disclose information about supplier finance programs if such arrangements are used to manage their payables. The disclosures should include both qualitative and quantitative information including key terms and the amount of outstanding obligations. | | October 1, 2023 |
2. Revenue Recognition
Adient generates revenue through the sale of automotive seating solutions, including complete seating systems and the components of complete seating systems. Adient provides production and service parts to its customers under awarded multi-year programs. The duration of a program is generally consistent with the life cycle of a vehicle, however, the program can be canceled at any time without cause by the customer. Programs awarded to Adient to supply parts to its customers do not contain a firm commitment by the customer for volume or price and do not reach the level of a performance obligation until Adient receives either a purchase order and/or a materials release from the customer for a specific number of parts at a specified price, at which point an enforceable contract exists. Sales revenue is generally recognized at the point in time when parts are shipped and control has transferred to the customer, at which point an enforceable right to payment exists. Contracts may provide for annual price reductions over the production life of the awarded program, and prices are adjusted on an ongoing basis to reflect changes in product content/cost and other commercial factors. The amount of revenue recognized reflects the consideration that Adient expects to be entitled to in exchange for such products based on purchase orders, annual price reductions and ongoing price adjustments (some of which are accounted for as variable consideration and subject to being constrained), net of the impact, if any, of consideration paid to the customer.
In a typical arrangement with the customer, purchase orders are issued for pre-production activities which consist of engineering, design and development, tooling and prototypes for the manufacture and delivery of component parts. Adient has concluded that these activities are not in the scope of ASC 606, “Revenue from Contracts with Customers,” and for that reason, there have been no changes to how Adient accounts for reimbursable pre-production costs.
Adient includes shipping and handling fees billed to customers in revenue, while including costs of shipping and handling in cost of sales. Taxes collected from customers are excluded from revenue and credited directly to obligations to the appropriate government agencies. Payment terms with customers are established based on customary industry and regional practices. Adient has evaluated the terms of its arrangements and determined that they do not contain significant financing components.
Contract assets primarily relate to the right to consideration for work completed, but not billed at the reporting date on contracts with customers. The 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 exist at September 30, 2022. As described above, the issuance of a purchase order and/or a materials release by the customer represents the point at which an enforceable contract with the customer exists. Therefore, Adient has elected to apply the practical expedient in ASC 606, paragraph 606-10-50-14 and does not disclose information about the remaining performance obligations that have an original expected duration of one year or less. Refer to Note 17, "Segment Information," of the notes to consolidated financial statements for disaggregated revenue by geographical market.
Adient plc | Form 10-K | 67
3. Acquisitions and Divestitures
2021 Yanfeng Transaction
On September 22, 2017,March 12, 2021, Adient, completed the acquisition of Futuris Global Holdings LLCYanfeng Automotive Trim Systems Company Ltd. (“Futuris”Yanfeng”), Yanfeng Adient Seating Co., Ltd. (“YFAS”), a manufacturerjoint venture owned, directly or indirectly, by Yanfeng (50.01%) and Adient (49.99%), and KEIPER Seating Mechanisms Co., Ltd. (f/k/a Adient Yanfeng Seating Mechanisms Co., Ltd. (“AYM” or “KEIPER”), a joint venture owned, directly or indirectly, by Yanfeng (50%) and Adient (50%), entered into a Master Agreement (the “2021 Agreement”), pursuant to which the parties agreed to, among other things, transactions that resulted in the sale of full seating systems, seat frames, seat trim, headrests, armrestsAdient’s 49.99% interest in YFAS to Yanfeng, the sale of Adient’s ownership interests in 3 other related joint ventures (ranging from 10% to 25%) to YFAS/KEIPER, and seat bolsters. the purchase of YFAS’s 50% interest in Chongqing Adient Automotive Components Co., Ltd. (“CQADNT”) and YFAS’s 100% interest in Adient (Langfang) Seating Co., Ltd. (“LFADNT”) (collectively, the “2021 Yanfeng Transaction”). The 2021 Yanfeng Transaction closed on September 30, 2021 (“Closing Date”).
As a result of the 2021 Yanfeng Transaction, Adient received net cash proceeds of $1,141 million ($489 million in September 2021 and $652 million in December 2021) for the sale of Adient’s 49.99% interest in YFAS to Yanfeng, $100 million as the final cash dividend from YFAS, $59 million for the sale of Adient’s ownership interests in the 3 other related joint ventures, $54 million for granting a license of intellectual property to Yanfeng for use on a non-exclusive and perpetual basis, and a business consulting fee of $13 million. Adient also made a net payment of $211 million to Yanfeng related to the purchase CQADNT and LFADNT (the purchase price of $271 million, less $60 million cash acquired) on the Closing Date.
In conjunction with the 2021 Yanfeng Transaction, Adient provided Chongqing Boxun Industrial Co., Ltd. (“Boxun”), which owned 25% of CQADNT, an option to sell its interest in CQADNT. This option was reflected as $194 million of redeemable noncontrolling interest on Adient’s statement of financial position as of September 30, 2021. Boxun exercised its option in October 2021, and Adient acquired Boxun’s 25% interest effective January 2022. The total payment to Boxun from Adient was approximately $200 million, of which $15 million of historical dividends were paid in December 2021, and $185 million, including $32 million of historical dividends, was paid later in fiscal 2022. With the acquisitions of Boxun’s 25% and YFAS’s 50% interest of CQADNT, Adient owns 100% of CQADNT effective January 2022.
As a result of the 2021 Agreement, Adient received $41 million during fiscal 2022 representing the remaining balance of proceeds from the sale of its interest in Yanfeng Global Automotive Interior Systems Co. ("YFAI"), a joint venture previously owned, directly or indirectly, by Yanfeng (70%) and Adient (30%), which was part of the 2020 Yanfeng Transaction (as defined and described in Form 10-K for the fiscal year ended September 30, 2021).
The acquisition is expected to provide substantial synergies through vertical integration, purchasingof CQADNT and logistics improvements. The acquisition also provides for an immediate manufacturing presence on the west coast of the U.S. to service customers such as Tesla as well as strategic locations in China and Southeast Asia.
The net purchase consideration of $353 million consisted of net cash consideration of $349 million (net of $34 million acquired) and the assumption of $4 million of debt (consisting of $2 million of short-term debt and $2 million of current portion of long-term debt). The acquisitionLFADNT was accounted for using the acquisition method, and the operating results and cash flows of Futuris areCQADNT and LFADNT have been included in Adient's consolidated financial statements from September 22, 2017.since October 1, 2021. The acquisitions are expected to provide substantial synergies through vertical integration, purchasing and logistics improvements. The acquisitions also provide for an immediate controlled manufacturing presence in strategic locations in China.
Adient has recorded a preliminary allocation of the purchase price allocation for the assets acquired and liabilities assumed based on their estimated fair values as of the September 22, 201730, 2021 acquisition date. The preliminary purchase price adjustments and allocation is as follows:
Adient plc | Form 10-K | 68
| | | | | | Fair value allocation |
| (in millions) | | Preliminary Purchase Price Allocation | (in millions) | | CQADNT | | LFADNT |
| Cash | | $ | 34 |
| Cash | | $ | 55 | | | $ | 5 | |
| Accounts receivable | | 93 |
| Accounts receivable | | 296 | | | 2 | |
| Inventory | | 42 |
| Inventory | | 37 | | | 5 | |
| Property, plant and equipment | | 49 |
| Property, plant and equipment | | 86 | | | 8 | |
| Other assets | | 17 |
| Other assets | | 39 | | | 2 | |
| Goodwill | | 202 |
| Goodwill | | 181 | | | 8 | |
| Intangible assets | | 165 |
| Intangible assets | | 234 | | | 6 | |
| Accounts payable | | (85 | ) | Accounts payable | | (252) | | | (19) | |
| Other liabilities | | (134 | ) | Other liabilities | | (121) | | | (4) | |
| Subtotal | | Subtotal | | 555 | | | 13 | |
| Less: Interest already owned | | Less: Interest already owned | | 103 | | | — | |
| Less: Redeemable noncontrolling interest | | Less: Redeemable noncontrolling interest | | 194 | | | — | |
| Total purchase consideration | | 383 |
| Total purchase consideration | | 258 | | | 13 | |
| Less: cash acquired | | 34 |
| Less: cash acquired | | 55 | | | 5 | |
| Net cash paid | | 349 |
| Net cash paid | | $ | 203 | | | $ | 8 | |
| Plus: acquired debt | | 4 |
| |
| Net purchase consideration | | $ | 353 |
| |
|
The preliminary values allocated to CQADNT and LFADNT’s intangible assets of $165$234 million and $6 million, respectively, primarily consistconsisted of customer relationships and patented technologies which are being amortized on a straight line basis over an estimated useful lifelives of approximately 103 to 12 years. The assets were valued using a combination of an income approach specifically the “multi-period excess earnings” method, which identifies an estimated stream of revenue and expenses for a particular group of assetsrelief 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 isroyalty approach. These values were considered a level 3 measurementmeasurements under the U.S. GAAP fair value hierarchy. Key assumptions used in the valuation of customer relationships include: (1)included a rate of return of 16.5%13.5% and (2) the life of the relationship of approximately 1012 years.
Key assumptions used in the valuation of patented technologies included a rate of return of 13.5% and the life of the technologies of approximately 3 years. The preliminary allocation of the purchase price isto goodwill and intangible assets was based on the preliminary valuations performed to determine the fair value of the net assets as of the acquisition date. The amounts allocated to goodwill and intangible assets along with fair value adjustments on property, plant and equipment and inventory are based on preliminary valuations and are subject to final adjustments to reflect the final valuations.
Adient expensed $3$14 million of acquisition-relatedacquisition costs inrelated to the 2021 Yanfeng Transaction during the year ended September 30, 2017. Pro2021. If the acquisitions of CQADNT and LFADNT had occurred on October 1, 2019, Adient’s net sales and net income attributable to Adient for fiscal 2021 would have been $14,529 million and $1,142 million, respectively, and Adient’s net sales and net loss attributable to Adient for fiscal 2020 would have been $13,250 million and $(527) million, respectively. This unaudited pro forma historicalinformation includes actual results of operationsthe entities and adjustments to amortization expense that would have been recognized due to acquired intangible assets, and related income tax effects. The unaudited pro forma financial information is not indicative of the operational results that would have been obtained had the transactions actually occurred as of that date, nor is it necessarily indicative of Adient’s future operational results.
In fiscal 2022, Adient entered into an agreement whereby Adient would purchase all of the issued and outstanding equity interest in Nantong Yanfeng Adient Seating Trim Co., Ltd. (“YFAT”) held by KEIPER for ¥150 million ($24 million). Adient made an initial deposit of ¥75 million ($12 million) in fiscal 2022, which represents 50% of the estimated purchase price (reflected within other current assets as of September 30, 2022). The transaction is subject to a public bidding process and other customary regulatory approvals, and is expected to be completed during the first half of fiscal 2023. The remaining 50% of the estimated purchase price will be paid at the time of completion of the transaction.
Also in fiscal 2022, Adient has entered into agreements whereby Adient would transfer all of the issued and outstanding equity interests in two joint ventures in China held directly by Adient, each of which represents 25% of their total issued and outstanding equity interests, to Yanfeng for $3 million. As a result, Adient concluded that indicators of other-than-temporary impairment were present related to the acquisitioninvestments in these joint ventures, and recorded a non-cash impairment charge of Futuris have not been presented as they$3 million during the second quarter of fiscal 2022. The transactions are not materialexpected to Adient’s consolidated statementsbe completed during the first half of operations.fiscal 2023.
During July 2017, Guangzhou
Russia/Ukraine conflict
Adient plc | Form 10-K | 69
Following Russia's invasion of Ukraine in February 2022, Adient determined to withdraw from the Russian market. Adient recorded a charge of $5 million during fiscal 2022 in conjunction with completion of the withdrawal from and sale of its Russian operations for one ruble.
SJA
On March 31, 2021, Adient sold its 50% equity interest in Shenyang Jinbei Adient Automotive SeatingComponents Co., Ltd. ("GAAS"SJA"), one to the joint venture partner for $58 million, which resulted in a $33 million one-time gain recognized during the second quarter of Adient's non-consolidated partially-owned affiliates in China becamefiscal 2021.
Fabrics
On September 30, 2020, Adient closed on the sale of its automotive fabrics manufacturing business including the lamination business to Sage Automotive Interiors for net proceeds of approximately $170 million, net of $4 million of cash divested within the business. Proceeds from the transaction were used by Adient for general corporate purposes and to pay down a consolidated entityportion of Adient’s debt. A minimal gain was recorded as a result of an amendmentthe transaction after allocating $80 million of goodwill to the rights agreement. Thisdisposed business. The sale transaction included 11 facilities globally and approximately 1,300 employees. For fiscal year 2020, the fabrics manufacturing business recorded $99 million of third party sales and a nominal amount of pre-tax income.
2020 Yanfeng Transaction
On January 31, 2020 (as amended on June 24, 2020), Adient, Yanfeng, KEIPER, YFAS and YFAI entered into a Master Agreement (the “2020 Agreement”, collectively referred to as “2020 Yanfeng Transaction”), pursuant to which the parties have agreed, among other things, that Adient would transfer all of the issued and outstanding equity interest in YFAI held, directly or indirectly, by Adient, which represents 30% of YFAI’s total issued and outstanding equity interest, to Yanfeng for $369 million, of which $309 million was accounted forpaid in fiscal 2020, $19 million in fiscal 2021, and $41 million in fiscal 2022. Upon the closing of the transaction, an intangible asset of $92 million was recorded associated with the YFAS joint venture extension to be amortized over the 18-year term of the extension. The intangible asset was subsequently written off in fiscal 2021 as a step acquisitionresult of the 2021 Yanfeng Transaction.
As a result of the January 31, 2020 agreement, Adient concluded that indicators of other-than-temporary impairment were present related to the investment in YFAI and fair value accountingrecorded a non-cash impairment of $231 million in fiscal 2020. The impairment was applied. Adetermined based on combining the fair value of $354 million was determined through a valuation usingconsideration received for all transactions contemplated within the income approach. A gain of $151 million was recorded on Adient's previously held interest and is included in equity income in the consolidated statements of operations. Adient has recorded a preliminary2020 Agreement, including an estimated fair value allocation for the assets and liabilities of the entityYFAS joint venture extension, and allocating the total consideration received to the individual transactions based on theirrelative fair values. Adient estimated fair values, as follows:
|
| | | | |
| (in millions) | | Preliminary Fair Value Allocation |
| Cash and cash equivalents | | $ | 102 |
|
| Accounts receivable | | 46 |
|
| Inventory - net | | 2 |
|
| Other assets | | 3 |
|
| Property, plant and equipment | | 17 |
|
| Goodwill | | 82 |
|
| Identifiable intangibles | | 276 |
|
| Accounts payable | | (83 | ) |
| Other liabilities | | (91 | ) |
| Fair value of the entity | | $ | 354 |
|
| Noncontrolling interest | | (170 | ) |
| Adient's interest | | $ | 184 |
|
The preliminary values allocated to other intangible assets of $276 million primarily consist of customer relationships, which are being amortized on a straight-line basis over the estimated useful life of 20 years. The assets were valued using an income approach, specifically the “multi-period excess earnings” method, which identifies an estimated stream of revenue and expenses for a particular group of assets from which deductions of portions of the projected economic benefits, attributable to assets other than the subject asset (contributory assets), are deducted in order to isolate the prospective earnings of the subject asset. This value is considered a level 3 measurement under the U.S. GAAP fair value hierarchy. Key assumptions used in the valuation of customer relationships include: (1) a rate of return of 14.7% and (2) the life of the relationship of approximately 20 years.
The purchase price is based on the preliminary valuations performed to determine the fair value of the net assets asindividual transactions using both an income approach and market approach. The inputs utilized in the fair value analyses of the acquisition date. The amounts allocated to goodwilltransactions are classified as level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value Measurement" and intangible assets are based on preliminary valuationsprimarily consisted of expected future operating margins and are subject to final adjustments to reflectcash flows of YFAI, estimated production volumes, estimated dividend payments from YFAS over the final valuations. Pro forma historical resultsextension period, estimated terminal values of operations related to this transaction have not been presented as they are not material to Adient’s consolidated statementsYFAS, market comparables, weighted-average costs of operations.capital (YFAI - 15.0%, YFAS - 10.5%), and noncontrolling interest discounts. As a result of the pending divestiture of the YFAI investment and the corresponding impairment, Adient ceased recognizing equity income from YFAI.
RECARO
During fiscal 2015,2020, Adient completed three acquisitions,sold the RECARO automotive high performance seating systems business (“RECARO”) to a group of which $18 millioninvestors for de minimis proceeds. As a result of the purchase price was paid as of September 30, 2015. The acquisitions in the aggregate were not material to Adient's consolidated financial statements. In connection with the acquisitions, Adient recorded goodwill of $9 million in the Interiors segment.
In the fourth quarter of fiscal 2015, Adient completed its global automotive interiors joint venture with Yanfeng Global Automotive Interior Systems Co., Ltd., or YFAI. In connection with the divestiture of the Interiors business,sale, Adient recorded a $127loss of $21 million.
Adient Aerospace
Adient Aerospace, LLC ("Adient Aerospace") became operational on October 11, 2018 with Adient’s initial ownership position in Adient Aerospace being 50.01%. Initial contributions of $28 million gain, $20were made by each partner. During fiscal 2020, Adient reached an agreement with Boeing in which Adient’s ownership position was reduced to 19.99%, resulting in the deconsolidation of Adient Aerospace on that date, including $37 million net of tax,cash. Adient recorded a $4 million loss as a result of the transaction in the Americas segment, including $21 million of allocated goodwill. Adient Aerospace develops, manufactures, and reduced goodwillsells 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.
All of the acquisitions and divestiture transactions described above align with Adient's strategy of focusing on its core, high-volume seating business.
Assets held for sale
Adient plc | Form 10-K | 70
During fiscal 2022, Adient committed to sell certain assets in EMEA. As a result, these assets were classified as assets held for sale by $43and 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 $6 million. 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.
Also duringDuring fiscal 2015,2021, Adient committed to sell certain assets in France and Turkey. As a result, these assets were classified as assets held for sale (including an allocation of $11 million of goodwill) and were required to be adjusted to the lower of fair value less cost to sell or carrying value. This resulted in Adient recording an impairment charge of $9 million within restructuring and impairment costs on the consolidated statement of income (loss) related to the assets in France. 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." The sale of the assets in France was completed in fiscal 2021 for minimal proceeds while the sale of the assets in Turkey was completed in fiscal 2022 for total proceeds of $46 million, of which $36 million was collected at closing, and $10 million was collected later in fiscal 2022.
During fiscal 2020, Adient committed to a divestitureplan to sell certain entities in China and certain properties in the U.S. As a result, these assets were classified as assets held for a sales pricesale and were required to be adjusted to the lower of $18fair value less cost to sell or carrying value. This resulted in an impairment charge of $21 million which was receivedrecorded within restructuring and impairment costs on the consolidated statement of income (loss) during fiscal 2020, of which $12 million related to America’s assets and $9 million related to China’s assets. The impairment was measured using third party sales pricing to determine fair values of the assets. The inputs utilized in the first quarteranalyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value Measurement." These sales transactions were completed during fiscal 2021 for a total of fiscal 2016. The divestiture was not material to Adient's consolidated financial statements. In connection with the divestiture, Adient recorded a gain$5 million of $10 million and reduced goodwill by $4 million in the Seating segment.proceeds.
Inventories consisted of the following:
| | | | | | | | | | | | | | |
| | September 30, |
| (in millions) | | 2022 | | 2021 |
| Raw materials and supplies | | $ | 755 | | | $ | 750 | |
| Work-in-process | | 26 | | | 29 | |
| Finished goods | | 172 | | | 197 | |
| Inventories | | $ | 953 | | | $ | 976 | |
5. Property, Plant and Equipment
|
| | | | | | | | |
| | | September 30, |
| (in millions) | | 2017 | | 2016 |
| Raw materials and supplies | | $ | 552 |
| | $ | 502 |
|
| Work-in-process | | 37 |
| | 35 |
|
| Finished goods | | 146 |
| | 123 |
|
| Inventories | | $ | 735 |
| | $ | 660 |
|
|
| | | | |
4. Property, Plant and Equipment |
Property, plant and equipment consisted of the following:
| | | | | September 30, | | | September 30, |
| (in millions) | | 2017 | | 2016 | (in millions) | | 2022 | | 2021 |
| Buildings and improvements | | $ | 1,357 |
| | $ | 1,311 |
| Buildings and improvements | | $ | 1,053 | | | $ | 1,167 | |
| Machinery and equipment | | 4,827 |
| | 4,415 |
| Machinery and equipment | | 2,889 | | | 3,087 | |
| Construction in progress | | 521 |
| | 431 |
| Construction in progress | | 146 | | | 162 | |
| Land | | 149 |
| | 159 |
| Land | | 82 | | | 100 | |
| Total property, plant and equipment | | 6,854 |
| | 6,316 |
| Total property, plant and equipment | | 4,170 | | | 4,516 | |
| Less: accumulated depreciation | | (4,352 | ) | | (4,121 | ) | Less: accumulated depreciation | | (2,793) | | | (2,909) | |
| Property, plant and equipment - net | | $ | 2,502 |
| | $ | 2,195 |
| Property, plant and equipment - net | | $ | 1,377 | | | $ | 1,607 | |
Amortization of other intangible assets for the fiscal years ended September 30, 2017, 20162022, 2021 and 20152020 was $21$52 million, $17$45 million and $18$37 million, respectively. Excluding the impact of any future acquisitions, Adient anticipates amortization for fiscal 2018, 2019, 2020, 20212023, 2024, 2025, 2026 and 20222027 will be approximately $49 million, $49$48 million, $47 million, $46 million, $44 million and $41 million, respectively.
Adient offers warranties to its customers depending upon the specific product and terms of the customer purchase agreement. A typical warranty program requires that Adient replace defective products within a specified time period from the date of sale. Adient records an estimate for future warranty-related costs based on actual historical return rates and other known factors. Based on analysis of return rates and other factors, Adient's warranty provisions are adjusted as necessary. Adient monitors its warranty activity and adjusts its reserve estimates when it is probable that future warranty costs will be different than those estimates. Adient's product warranty liability is recorded in the consolidated statements of financial position in other current liabilities.
Adient Germany Ltd. & Co. KG, a wholly owned subsidiary of Adient, borrowed €165previously maintained €135 million ($156 million) in an unsecured term loan from the European Investment Bank (“EIB”) due in 2022. The loan bearsbore interest at the 6-month EURIBOR rate plus 90158 basis points. Loan proceeds were used to repay $200During fiscal 2021, Adient repaid $36 million of the Term Loan A.EIB loan, triggered in part by the
Adient selectively uses derivative instruments to reduce Adient's market risk associated with changes in foreign currency. Under Adient's policy, the use of derivatives is restricted to those intended for hedging purposes; the use of any derivative instrument for speculative purposes is strictly prohibited. A description of each type of derivative utilized to manage Adient's risk is included in the following paragraphs. In addition, refer to Note 10,11, "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 portionDuring the second quarter of fiscal 2020, as a result of the hedge is reflected inCOVID-19 impacts and the resulting interruptions to Adient's operations, a loss of $2 million related to ineffective hedges was reclassified to the consolidated statementsstatement of income. TheseAll contracts were highly effective in hedging the variability in future cash flows attributable to changes in currency exchange rates at September 30, 20172022 and 2016,2021, respectively.
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, 20172022 and September 30, 2016,2021, no cash collateral was received or pledged under the master netting agreements.
The following table presents the effective portion of pretax gains (losses) recorded in other comprehensive income related to cash flow hedges:
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:
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:income (loss):
The effective portion of pretax gains (losses) recorded in currency translation adjustment (CTA) within other comprehensive income (loss) related to net investment hedges was $(61)$151 million, , $(24)$17 million and $16$(84) million for the fiscal years ended September 30, 2017, 20162022, 2021 and 2015,2020, respectively. For the years ended September 30, 20172022, 2021 and 2016,2020, respectively, no gains or losses were reclassified from CTA into income for Adient's outstanding net investment hedges,hedges. For the year ended September 30, 2020, a loss of $2 million was recognized in the consolidated statement of income (loss) for the ineffective portion of cash flow hedges. For the years ended September 30, 2022 and 2021, no gains or losses were recognized in income for the ineffective portion of cash flow hedges.
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:
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.
Total stock-based compensation cost included in the consolidated statements of income was $45$29 million, $28$36 million and $16$15 million for the fiscal years ended September 30, 2017, 20162022, 2021 and 2015,2020, respectively. The totalNo material income tax benefitbenefits were recognized in the consolidated statements of income for the share-based compensation arrangements was $21 million, $11 million and $6 million for the fiscalin any of these years ended September 30, 2017, 2016 and 2015, respectively. Stock-based compensation expense priordue to the separation was allocated to Adient based on the portion of Adient's equity compensation programstax valuation allowances in which Adient employees participated.those years.
In conjunction with the separation, previously outstanding stock-based compensation awards granted under the former Parent's equity compensation programs prior to the separation and held by certain executives and employees of Adient were adjusted and converted into new Adient equity awards using a formula designated to preserve the intrinsic value of the awards. Upon the separation on October 31, 2016, holders of former Parent stock options, RSUs, and SARs generally received one ordinary share of Adient for every ten ordinary shares of the former parent held at the close of business on October 19, 2016, the record date of the distribution, and cash in lieu of fractional shares (if any) of Adient. Accordingly, certain executives and employees of Adient hold converted awards in both the former Parent and Adient shares subsequent to the separation. Converted awards retained the vesting schedule and expiration date of the original awards. Outstanding stock awards related to the former Parent stock are not included in Adient's dilutive share calculation.
The 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 electelected to defer past awards settlement until retirement at which point the award would be settled in cash. Cash settled awards are recorded in Adient's consolidated statements of financial position as a liability and adjusted each reporting period for changes in share value until the settlement of the award. Restricted stock awards typically vest afterover a three years fromyear period following the grant date. The Plan allows for different vesting terms on specific grants with approval by Adient's Boardboard of Directors.directors.
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 holderexcept for certain non-U.S. employees or those who elected to defer a portion or all of the awardpast awards until retirement, which would then be settled in cash. Cash settled awards are recorded in Adient's consolidated statements of financial position as a liability and adjusted each reporting period for changes in share value until the settlement of the award.
The fair value of each SAR award is estimated using a similar method described for stock options. The fair value of each SAR award is recalculated at the end of each reporting period and the liability and expense are adjusted based on the new fair value.
Adient 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:
For pension plans with accumulated benefit obligations (ABO) that exceed plan assets, the projected benefit obligation (PBO), ABO and fair value of plan assets of those plans were $472$129 million, $450$112 million and $342$37 million, respectively, as of September 30, 20172022, and $519$204 million, $495$182 million and $331$72 million, respectively, as of September 30, 2016.2021.
Adient sponsors various defined contribution savings plans that allow employees to contribute a portion of their pre-tax and/or after-tax income in accordance with plan specified guidelines. Under specified conditions, Adient will contribute to certain savings plans based on the employees' eligible pay and/or will match a percentage of the employee contributions up to certain limits. Matching contributions expense in connection with these plans amounted to $58$23 million and $44 million for fiscal year 2017.years 2022 and 2021, respectively.
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.
The following is a description of the valuation methodologies used for assets measured at fair value.
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.
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.
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):
The table that follows contains the ABO and reconciliations of the changes in the PBO, the changes in plan assets and the funded status:
Consolidated income (loss) before income taxes and noncontrolling interests for the years ended September 30, 2017, 20162022, 2021, and 20152020 is as follows:
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.income (loss).
The reconciliation between the Irish statutory income tax rate, and Adient’s effective tax rate is as follows:
Deferred taxes are classified in the consolidated statements of financial position as follows:
Temporary differences and carryforwards which gave rise to deferred tax assets and liabilities included:
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.
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 whichWith few exceptions, Adient could beis no longer subject to income tax examination by theU.S. federal, state or local tax authorities:authorities or by non-U.S. tax authorities for years before 2014.
Adient regularly assesses the likelihood of an adverse outcome resulting from examinations to determine the adequacy of its tax reserves. For the year ended September 30, 2017,2022, 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.
A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows:
Average receivable and payable balances with related parties remained consistent with the period end balances shown above.
Under the supervision of and with the participation of our management, including the principal executive officer and principal financial officer, Adient conducted an evaluation of the effectiveness of the design and operation of disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of September 30, 2017,2022, the end of the period covered by this report, or the Evaluation Date. Based upon the evaluation, the principal executive officer and principal financial officer concluded that Adient's disclosure controls and procedures were effective at the reasonable assurance level as of the Evaluation Date. Disclosure controls and procedures are controls and procedures designed to provide reasonable assurance that information required to be disclosed in Adient's reports filed or submitted under the Exchange Act, such as this report, is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include controls and procedures designed to provide reasonable assurance that such information is accumulated and communicated to Adient's management, including the principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Definition of and Inherent Limitations over Internal Control over Financial Reporting
Adient's internal control over financial reporting is a process designed by, or under the supervision of, the principal executive officer and principal financial officer, or persons performing similar functions, and effected by Adient's board of directors, management and other personnel designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Adient's internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that the receipts and expenditures are being made only in accordance with authorizations of Adient's management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of Adient's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree or compliance with the policies or procedures may deteriorate.
There were no changes in internal control over financial reporting during the fourth quarter of the fiscal year ended September 30, 20172022 that have materially affected, or are reasonably likely to materially affect, Adient's internal control over financial reporting.
The information required by this Item is set forth under the sections entitled "Q: Where can I find Corporate Governance materials for Adient?," "Proposal One: Election of Directors," "Corporate Governance," "Board and Committee Information," "Audit Committee Report," and "Section"Delinquent Section 16(a) Beneficial Ownership Reporting Compliance"Reports" in Adient's 20182023 Proxy Statement to be filed with the U.S. Securities and Exchange Commission ("SEC") within 120 days after September 30, 20172022 in connection with the solicitation of proxies for Adient's 20182023 annual general meeting of shareholders and is incorporated herein by reference.
Adient has an Ethics Policy that applies to all employees, including Adient's principal executive officer, principal financial officer, and principal accounting officer, as well as to the members of the Boardboard of Directorsdirectors of Adient. The Ethics Policy is available at www.adient.com. Adient intends to disclose any changes in, or waivers from, this Ethics Policy by posting such information on the same website or by filing a Current Report on Form 8-K, in each case to the extent such disclosure is required by rules of the SEC or the NYSE.
The information required by this Item is set forth under the sections entitled "Corporate Governance," "Board and Committee Information," "Compensation Committee Report," "Compensation Discussion and Analysis," "Director Compensation," "Potential Payments and Benefits upon Termination and Change in Control," and "Share Ownership of Executive Officers and Directors" in Adient's 20182023 Proxy Statement to be filed with the SEC within 120 days after September 30, 20172022 and is incorporated herein by reference.
The information required by this Item is set forth under the section entitled "Share Ownership of Executive Officers and Directors" in Adient's 20182023 Proxy Statement to be filed with the SEC within 120 days after September 30, 20172022 and is incorporated herein by reference.
The information required by this Item is set forth under the section entitled "Corporate Governance" in Adient's 20182023 Proxy Statement to be filed with the SEC within 120 days after September 30, 20172022 and is incorporated herein by reference.
The information required by this Item is set forth under the section entitled "Audit Committee Report" in Adient's 20182023 Proxy Statement to be filed with the SEC within 120 days after September 30, 20172022 and is incorporated herein by reference.
All other financial statement schedules have been omitted, since the required information is not applicable or is not present in amounts sufficient to require submission of the schedule, or because the information required is included in the consolidated financial statements and notes thereto included in this Form 10-K.
