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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM10-Q
☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 2019
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File Number: 001-37757
adnt-20191231_g1.jpg
Adient plc
(exact name of Registrant as specified in its charter)

Ireland98-1328821
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
25-28 North Wall Quay, IFSC, Dublin 1, Ireland D01 H104
(Address of principal executive offices)
734-254-5000
(Registrant's telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading symbolName of exchange on which registered
Ordinary Shares, par value $0.001ADNTNew York Stock Exchange

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports); and (2) has been subject to such filing requirements for the past 90 days.    Yes  ☑  No  ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ☑  No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer☑Accelerated filer☐
Non-accelerated filer☐Smaller reporting company☐
☐Emerging growth company☐

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 is a shell company (as defined in Rule 12b-2 of the Act).     Yes  ☐  No  ☑

At December 31, 2019, 93,793,433 ordinary shares were outstanding.


Adient plc
Form 10-Q
For the Three Months Ended December 31, 2019

TABLE OF CONTENTS



Adient plc | Form 10-Q | 2

PART I - FINANCIAL INFORMATION


Item 1.Unaudited Financial Statements

Adient plc
Consolidated Statements of Income (Loss)
(unaudited)

Three Months Ended
December 31,
(in millions, except per share data) 20192018
Net sales$3,936  $4,158  
Cost of sales3,673  3,978  
Gross profit263  180  
Selling, general and administrative expenses165  178  
Loss on business divestitures - net25  —  
Restructuring and impairment costs2  31  
Equity income (loss)(113) 83  
Earnings (loss) before interest and income taxes(42) 54  
Net financing charges48  35  
Other pension expense (income)(2) (2) 
Income (loss) before income taxes(88) 21  
Income tax provision (benefit)54  10  
Net income (loss)(142) 11  
Income (loss) attributable to noncontrolling interests25  28  
Net income (loss) attributable to Adient$(167) $(17) 
Earnings per share:
Basic$(1.78) $(0.18) 
Diluted$(1.78) $(0.18) 
Shares used in computing earnings per share:
Basic93.7  93.5  
Diluted93.7  93.5  

The accompanying notes are an integral part of the consolidated financial statements.


Adient plc | Form 10-Q | 3

Adient plc
Consolidated Statements of Comprehensive Income (Loss)
(unaudited)



Three Months Ended
December 31,
(in millions)20192018
Net income (loss)$(142) $11  
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments59  16  
Realized and unrealized gains (losses) on derivatives15  (3) 
Other comprehensive income (loss)74  13  
Total comprehensive income (loss)(68) 24  
Comprehensive income (loss) attributable to noncontrolling interests34  28  
Comprehensive income (loss) attributable to Adient $(102) $(4) 

The accompanying notes are an integral part of the consolidated financial statements.


Adient plc | Form 10-Q | 4

Adient plc
Consolidated Statements of Financial Position
(unaudited)



(in millions, except share and per share data)December 31, 2019September 30, 2019
Assets
Cash and cash equivalents$965  $924  
Accounts receivable - net
1,522  1,905  
Inventories772  793  
Other current assets540  494  
Current assets3,799  4,116  
Property, plant and equipment - net1,690  1,671  
Goodwill2,157  2,150  
Other intangible assets - net395  405  
Investments in partially-owned affiliates1,321  1,399  
Other noncurrent assets1,002  601  
Total assets$10,364  $10,342  
Liabilities and Shareholders' Equity
Short-term debt$6  $22  
Current portion of long-term debt8  8  
Accounts payable2,511  2,709  
Accrued compensation and benefits305  364  
Restructuring reserve109  123  
Other current liabilities744  609  
Current liabilities3,683  3,835  
Long-term debt3,740  3,708  
Pension and postretirement benefits146  151  
Other noncurrent liabilities673  408  
Long-term liabilities4,559  4,267  
Commitments and Contingencies (Note 17)
Redeemable noncontrolling interests38  51  
Preferred shares issued, par value $0.001; 100,000,000 shares authorized,
Zero shares issued and outstanding at December 31, 2019
—  —  
Ordinary shares issued, par value $0.001; 500,000,000 shares authorized,
93,793,433 shares issued and outstanding at December 31, 2019
—  —  
Additional paid-in capital3,963  3,962  
Accumulated deficit(1,716) (1,545) 
Accumulated other comprehensive income (loss)(504) (569) 
Shareholders' equity attributable to Adient1,743  1,848  
Noncontrolling interests341  341  
Total shareholders' equity2,084  2,189  
Total liabilities and shareholders' equity$10,364  $10,342  

The accompanying notes are an integral part of the consolidated financial statements.


Adient plc | Form 10-Q | 5
Adient plc
Consolidated Statements of Cash Flows
(unaudited)
Three Months Ended
December 31,
(in millions)20192018
Operating Activities
Net income (loss) attributable to Adient$(167) $(17) 
Income attributable to noncontrolling interests25  28  
Net income (loss)(142) 11  
Adjustments to reconcile net income (loss) to cash provided (used) by operating activities:
Depreciation75  65  
Amortization of intangibles9  10  
Pension and postretirement benefit expense (benefit)—  1  
Pension and postretirement contributions, net(4) (6) 
Equity in earnings of partially-owned affiliates, net of dividends received (includes purchase accounting amortization of $1, and $0, respectively)
(102) (82) 
Impairment of nonconsolidated partially-owned affiliate216  —  
Deferred income taxes(5) (2) 
Loss (gain) on divestitures - net25  —  
Equity-based compensation4  6  
Other3  7  
Changes in assets and liabilities:
Receivables395  320  
Inventories23  (19) 
Other assets(2) 35  
Restructuring reserves(18) (14) 
Accounts payable and accrued liabilities(267) (451) 
Accrued income taxes29  (9) 
Cash provided (used) by operating activities239  (128) 
Investing Activities
Capital expenditures(91) (144) 
Sale of property, plant and equipment—  37  
Changes in long-term investments(37) —  
Loans to affiliates—  (11) 
Cash provided (used) by investing activities(128) (118) 
Financing Activities
Increase (decrease) in short-term debt(17) 2  
Repayment of long-term debt(2) —  
Debt financing costs—  (4) 
Cash dividends—  (26) 
Dividends paid to noncontrolling interests(54) (36) 
Formation of consolidated joint venture—  28  
Other(1) (2) 
Cash provided (used) by financing activities(74) (38) 
Effect of exchange rate changes on cash and cash equivalents4  3  
Increase (decrease) in cash and cash equivalents41  (281) 
Cash and cash equivalents at beginning of period924  687  
Cash and cash equivalents at end of period$965  $406  

The accompanying notes are an integral part of the consolidated financial statements.

Adient plc | Form 10-Q | 6

Adient plc
Notes to Consolidated Financial Statements
(unaudited)




1. Basis of Presentation and Summary of Significant Accounting Policies

Adient is a global leader in the automotive seating supplier industry. Adient has a leading market position in the Americas, Europe and China, and has longstanding relationships with the largest global original equipment manufacturers, or OEMs, in the automotive space. Adient's proprietary technologies extend into virtually every area of automotive seating solutions, including complete seating systems, frames, mechanisms, foam, head restraints, armrests, trim covers and fabrics. Adient is an independent seat supplier with global scale and the capability to design, develop, engineer, manufacture, and deliver complete seat systems and components in every major automotive producing region in the world. Adient also participates in the automotive interiors market primarily through its global automotive interiors joint venture in China, Yanfeng Global Automotive Interior Systems Co., Ltd., or YFAI (refer to Note 3, "Acquisitions and Divestitures," of the notes to consolidated financial statements for recent developments regarding Adient's YFAI investment).

Basis of Presentation
The unaudited consolidated financial statements of Adient have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States ("U.S. GAAP") have been condensed or omitted pursuant to such rules and regulations. The condensed consolidated balance sheet data as of September 30, 2019 was derived from audited financial statements, but does not include all disclosures required by GAAP. These interim consolidated financial statements include all adjustments (consisting of normal recurring adjustments, except as otherwise disclosed) that management believes are necessary for a fair statement of the results of operations, financial position and cash flows of Adient for the interim periods presented. Interim results are not necessarily indicative of full-year results.
Principles of Consolidations
Adient consolidates its wholly-owned subsidiaries and those entities in which it has a controlling interest. Investments in partially-owned affiliates are accounted for by the equity method when Adient's interest exceeds 20% and does not have a controlling interest.
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 December 31, 2019, and September 30, 2019, respectively, as Adient absorbs significant economics of the entities and has the power to direct the activities that are considered most significant to the entities.
The two VIEs manufacture seating products in North America for the automotive industry. Adient funds the entities' short-term liquidity needs through revolving credit facilities and has the power to direct the activities that are considered most significant to the entities through its key customer supply relationships.














Adient plc | Form 10-Q | 7

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:

December 31,September 30,
(in millions)2019  2019  
Current assets$226  $236  
Noncurrent assets61  40  
Total assets$287  $276  
Current liabilities$215  $235  
Noncurrent liabilities17  —  
Total liabilities$232  $235  

Earnings Per Share
The following table shows the computation of basic and diluted earnings per share:
Three Months Ended
December 31,
(in millions, except per share data) 20192018
Numerator:
Net income (loss) attributable to Adient$(167) $(17) 
Denominator:
Shares outstanding93.7  93.5  
Effect of dilutive securities—  —  
Diluted shares93.7  93.5  
Earnings per share:
Basic$(1.78) $(0.18) 
Diluted$(1.78) $(0.18) 

Potentially dilutive securities whose effect would have been antidilutive are excluded from the computation of diluted earnings per share, which is a result of both periods presented being in a loss position.

New Accounting Pronouncements

Standards Adopted During Fiscal 2020

On October 1, 2019, Adient adopted Accounting Standards Codification Topic 842, "Leases" ("ASC 842"). The guidance requires lessees to recognize a lease liability and a right-of-use (ROU) asset for all leases with the exception of short-term leases whose terms are twelve months or less. By applying the optional modified retrospective method, Adient recorded an adjustment as of the adoption date without any retrospective adjustments to comparative financial information. Additionally, Adient elected the package of practical expedients permitted under ASC 842, and accordingly, did not reassess whether existing contracts contain leases, lease classifications, or the treatment of initial direct costs capitalized under the previous standard ("ASC 840"). Adient did not apply the "hindsight" practical expedient upon adoption. Adient did elect to apply the practical expedient to not separate nonlease components from associated lease components. Refer to Note 7, "Leases," of the notes to consolidated financial statements for additional information.

ASU 2018-07, Compensation-Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting, expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions in which the grantor
Adient plc | Form 10-Q | 8

acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards. ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606. The adoption of this guidance on October 1, 2019 did not impact Adient's consolidated financial statements for the quarter ended December 31, 2019.

Standards Effective After Fiscal 2020

Adient has considered the ASUs summarized below, effective after fiscal 2020, none of which are expected to significantly impact the consolidated financial statements:
Standard AdoptedDescriptionDate Effective
ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial InstrumentsASU 2016-13 changes the impairment model for financial assets measured at amortized cost, requiring presentation at the net amount expected to be collected. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts. Available-for-sale debt securities with unrealized losses will now be recorded through an allowance for credit losses. October 1, 2020
2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value MeasurementASU 2018-13 eliminates, adds, and modifies certain disclosure requirements for fair value measurements. The amendments with respect to changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty are to be applied prospectively. All other amendments are to be applied retrospectively to all periods presented. October 1, 2020
ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General: Disclosure Framework - Changes to the Disclosure Requirements for Defined Benefit PlansThe amendments in ASU 2018-14 eliminate, add, and modify certain disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The guidance is to be applied on a retrospective basis to all periods presented.October 1, 2020
ASU 2018-17, Targeted Improvements to Related Party Guidance for Variable Interest EntitiesASU 2018-17 affects reporting entities that are required to determine whether they should consolidate a legal entity under the guidance within the Variable Interest Entities Subsections of Subtopic 810-10, Consolidation-Overall.October 1, 2020
ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income TaxesASU 2019-12 modifies ASC 740, Income Taxes, by simplifying accounting for income taxes. As part of its overall simplification initiative to reduce costs and complexity of applying accounting standards while maintaining or improving the usefulness of the information provided to users of financial statements, the FASB’s amendments may impact both interim and annual reporting periods. ASU 2019-12 is effective at the beginning of fiscal 2022 for Adient although early adoption is permitted in any interim or annual period, with any adjustments reflected as of the beginning of the fiscal year of adoption. October 1, 2021


2. Revenue Recognition

Adient adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers (ASC 606), and all the related amendments using the modified retrospective method as applied to all customer contracts that were not completed as of October 1, 2018. As a result, financial information for reporting periods beginning on or after October 1, 2018 are presented in accordance with ASC 606. Adient did not record a cumulative adjustment related to the adoption of ASC 606 as the effects of adoption were not significant. The majority of Adient's nonconsolidated partially-owned affiliates adopted ASC 606 on October 1, 2019 which did not result in a significant impact.

Adient generates revenue through the sale of automotive seating solutions, including complete seating systems and the components of complete seating systems.

Adient plc | Form 10-Q | 9

In a typical arrangement with the customer, purchase orders are issued for pre-production activities which consist of engineering, design and development, tooling and prototypes for the manufacture and delivery of component parts. Adient has concluded that these activities are not in the scope of ASC 606 and for that reason, there have been no changes to how Adient accounts for reimbursable pre-production costs.

Adient provides production and service parts to its customers under awarded multi-year programs. The duration of a program is generally consistent with the life cycle of a vehicle, however, the program can be canceled at any time without cause by the customer. Programs awarded to Adient to supply parts to its customers do not contain a firm commitment by the customer for volume or price and do not reach the level of a performance obligation until Adient receives either a purchase order and/or a materials release from the customer for a specific number of parts at a specified price, at which point an enforceable contract exists. Sales revenue is generally recognized at the point in time when parts are shipped and control has transferred to the customer, at which point an enforceable right to payment exists. Contracts may provide for annual price reductions over the production life of the awarded program, and prices are adjusted on an ongoing basis to reflect changes in product content/cost and other commercial factors. The amount of revenue recognized reflects the consideration that Adient expects to be entitled to in exchange for such products based on purchase orders, annual price reductions and ongoing price adjustments (some of which are accounted for as variable consideration and subject to being constrained, but which are not expected to significantly change under ASC 606), net of the impact, if any, of consideration paid to the customer.

Adient has elected to continue to include shipping and handling fees billed to customers in revenue, while including costs of shipping and handling in cost of sales. Taxes collected from customers are excluded from revenue and credited directly to obligations to the appropriate government agencies. Payment terms with customers are established based on customary industry and regional practices. Adient has evaluated the terms of its arrangements and determined that they do not contain significant financing components.

Contract assets primarily relate to the right to consideration for work completed, but not billed at the reporting date on contracts with customers. The contracts assets are transferred to receivables when the rights become unconditional. Contract liabilities primarily relate to contracts where advance payments or deposits have been received, but performance obligations have not yet been satisfied and revenue has not been recognized. No significant contract assets or liabilities were identified upon adoption of ASC 606 or at December 31, 2019. As described above, the issuance of a purchase order and/or a materials release by the customer represents the point at which an enforceable contract with the customer exists. Therefore, Adient has elected to apply the practical expedient in ASC 606, paragraph 606-10-50-14 and does not disclose information about the remaining performance obligations that have an original expected duration of one year or less. Refer to Note 15, "Segment Information," of the notes to consolidated financial statements for disaggregated revenue by geographical market.

3. Acquisitions and Divestitures

Divestitures

Adient Aerospace, LLC ("Adient Aerospace") became operational on October 11, 2018 with Adient's initial ownership position in Adient Aerospace being 50.01%. Initial contributions of $28 million were made during the first quarter of fiscal 2019 by each partner. On October 25, 2019, Adient reached an agreement with Boeing in which Adient's ownership position was reduced to 19.99%, resulting in the deconsolidation of Adient Aerospace on that date, including $37 million of cash. Adient recorded a $4 million loss as a result of the transaction in the Americas segment, including $21 million of allocated goodwill. Adient Aerospace develops, manufactures, and sells a portfolio of seating products to airlines and aircraft leasing companies for installation on Boeing and other OEM commercial airplanes, for both production line-fit and retrofit configurations.

On December 31, 2019, Adient sold the RECARO automotive high performance seating systems business to a group of investors for de minimis proceeds. As a result of the sale, Adient recorded a loss of $21 million during the quarter ending December 31, 2019. For the three months ended December 31, 2019 and 2018, the RECARO business recorded $34 million (Americas: $10 million, EMEA: $11 million, Asia: $13 million) and $32 million (Americas: $11 million, EMEA: $10 million, Asia: $11 million) of net sales and immaterial amounts of net income, respectively.

On January 31, 2020, Adient, Yanfeng Automotive Trim Systems Company Ltd. (“Yanfeng”), Adient Yanfeng Seating Mechanisms Co., Ltd. (“AYM”), a joint venture owned, directly or indirectly, by Yanfeng (50%) and Adient (50%), Yanfeng Adient Seating Co., Ltd. (“YFAS”), a joint venture owned, directly or indirectly, by Yanfeng (50.1%) and Adient (49.9%) and YFAI, a joint venture owned, directly or indirectly, by Yanfeng (70%) and Adient (30%), entered into a Master Agreement (the “Agreement”), pursuant to which the parties have agreed, among other things, that:

Adient plc | Form 10-Q | 10

•Adient will 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 $379 million;

•Adient and Yanfeng will amend the YFAS Joint Venture Contract, dated as of October 22, 1997, as amended, and the Articles of Association of YFAS, dated as of October 22, 1997, as amended, in each case in order to extend the term of the YFAS joint venture until December 31, 2038;

•Adient will transfer all patents, trademarks and copyrights, know-how, trade secrets and other intellectual property rights owned by Adient (or certain of its subsidiaries) and used exclusively in the conduct of Adient’s mechanism business as of the date of such transfer (the “Transferred IP”) to AYM for $20 million, and in connection with such transfer, (i) AYM will grant back to Adient a sole license with respect to the Transferred IP on a worldwide and royalty-free basis, (ii) Adient will grant AYM a worldwide and royalty-free license with respect to certain intellectual property rights owned by Adient (or certain of its subsidiaries) and used on a non-exclusive basis in the conduct of Adient’s mechanism business, and (iii) Adient and AYM will license to each other certain improvements to the Transferred IP, as well as certain other intellectual property rights developed or acquired by Adient, AYM or certain of their respective subsidiaries and relating to the mechanism business; and

•Adient and Yanfeng will amend the AYM Equity Joint Venture Contract, dated as of September 9, 2013, as amended, and the Articles of Association of AYM, dated as of September 9, 2013, as amended to, among other things, (i) make certain governance changes such that Yanfeng may control and consolidate the results of AYM for financial reporting and accounting purposes, and (ii) expand AYM’s business and customer scope such that it may carry out its seating mechanism business anywhere in and outside of the People’s Republic of China, in each case, on the terms and subject to the conditions set forth in the Agreement and the relevant definitive agreements to be entered into in connection therewith.

The transactions described above are cross-conditioned on each other and closing is subject to regulatory approvals, including the State Administration for Market Regulation in the People’s Republic of China, and other customary closing conditions. The transactions are expected to be completed by the end of fiscal 2020. Proceeds from the transactions are expected to be used by Adient to pay down a portion of the company’s debt and for general corporate purposes. The terms of the Master Agreement as described above are consistent with non-binding terms reached in December 2019.

As a result of the transactions described above, Adient concluded that indicators of other-than-temporary impairment were present related to the investment in YFAI as of December 31, 2019. Upon entering into a formal agreement to sell the YFAI investment, Adient determined that other-than-temporary impairment did exist and recorded a $216 million non-cash impairment of Adient's YFAI investment during the quarter ended December 31, 2019. The impairment was determined based on combining the fair value of consideration received for all transactions contemplated within the Master Agreement, including an estimated fair value of the YFAS joint venture extension, and allocating the total consideration received to the individual transactions based on relative fair values. Adient estimated the fair value of the individual transactions using both an income approach and market approach. The inputs utilized in the fair value analyses of the transactions are classified as level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value Measurement" and primarily consisted of expected future operating margins and cash flows of YFAI, estimated production volumes, estimated dividend payments from YFAS over the extension period, estimated terminal values of YFAS, market comparables, weighted-average costs of capital (YFAI - 15.0%, YFAS - 10.5%), and noncontrolling interest discounts. As a result of the pending divestiture of the YFAI investment and the corresponding impairment, Adient will cease recognizing equity income from YFAI subsequent to December 31, 2019. In addition, upon the closing of the transaction, an intangible asset of $92 million will be recorded associated with the YFAS joint venture extension to be amortized over the 18-year term of the extension.


4. Inventories

Inventories consisted of the following:
(in millions)December 31, 2019September 30, 2019
Raw materials and supplies$586  $609  
Work-in-process29  32  
Finished goods157  152  
Inventories$772  $793  

Adient plc | Form 10-Q | 11


5. Goodwill and Other Intangible Assets

The changes in the carrying amount of goodwill are as follows:

(in millions)AmericasEMEAAsiaTotal
Balance at September 30, 2019$638  $429  $1,083  $2,150  
Business divestitures(21) —  —  (21) 
Currency translation and other1  13  14  28  
Balance at December 31, 2019$618  $442  $1,097  $2,157  

Refer to Note 15, "Segment Information," of the notes to consolidated financial statements for more information on Adient's reportable segments.

Adient's other intangible assets, primarily from business acquisitions valued based on independent appraisals, consisted of:

 December 31, 2019September 30, 2019
(in millions)Gross
Carrying
Amount		Accumulated
Amortization		NetGross
Carrying
Amount		Accumulated
Amortization		Net
Intangible assets
Patented technology$28  $(18) $10  $27  $(17) $10  
Customer relationships495  (133) 362  494  (129) 365  
Trademarks46  (31) 15  51  (32) 19  
Miscellaneous18  (10) 8  21  (10) 11  
Total intangible assets$587  $(192) $395  $593  $(188) $405  

Amortization of other intangible assets for the three months ended December 31, 2019 and 2018 was $9 million and $10 million, respectively.



6. Product Warranties

Adient offers warranties to its customers depending upon the specific product and terms of the customer purchase agreement. A typical warranty program requires that Adient replace defective products within a specified time period from the date of sale. Adient records an estimate for future warranty-related costs based on actual historical return rates and other known factors. Based on analysis of return rates and other factors, Adient's warranty provisions are adjusted as necessary. Adient monitors its warranty activity and adjusts its reserve estimates when it is probable that future warranty costs will be different than those estimates. Adient's product warranty liability is recorded in the consolidated statements of financial position in other current liabilities.
The changes in Adient's total product warranty liability are as follows:
Three Months Ended
December 31,
(in millions)20192018
Balance at beginning of period$22  $11  
Accruals for warranties issued during the period4  3  
Changes in accruals related to pre-existing warranties (including changes in estimates)(1) 3  
Settlements made (in cash or in kind) during the period(2) (2) 
Balance at end of period$23  $15  

Adient plc | Form 10-Q | 12


7. Leases

Adient adopted Accounting Standards Codification Topic 842, Leases (ASC 842), and all the related amendments using the modified retrospective method, without adjusting the comparative financial information, on October 1, 2019. As a result, financial information for reporting periods beginning on or after October 1, 2019 are presented in accordance with ASC 842. Upon adoption, Adient recognized right-of-use (ROU) assets of $380 million and corresponding lease liabilities of $384 million on October 1, 2019. The adoption date ROU asset balance was adjusted by $4 million, reflecting impairment of ROU assets for certain real estate leases (within the North America and Europe asset groups) of which the Company determined the carrying value of the initial operating lease ROU asset exceeded its fair value. The adjustment was recorded as an increase to the opening accumulated deficits. The adoption of ASC 842 had negligible impact on the consolidated statement of income (loss) for the quarter ended December 31, 2019.

Adient's lease portfolio consists of operating leases for real estate including production facilities, warehouses and administrative offices, equipment such as forklifts and computer servers and laptops, and fleet vehicles. The Company has elected not to record leases with an initial term of 12 months or less on its consolidated statement of financial position.

A lease liability and corresponding right-of-use asset are recognized based on the present value of lease payments. To determine the present value of lease payments, the Company uses its incremental borrowing rate as of lease commencement. The incremental borrowing rate (IBR) is defined as the rate Adient would have to pay to borrow on a collateralized basis over a similar term an amount equal to the lease payments in a similar economic environment. Adient primarily derives its IBR from its debt portfolio, adjusted for collateralization, lease term and jurisdictional factors. Adient's finance leases are not significant and are not included in the following disclosures.

The components of lease costs for the first quarter of fiscal 2020 were as follows:

(in millions)Three Months Ended December 31, 2019
Operating lease cost$33  
Short-term lease cost5  
Total lease cost$38  


Operating lease right-of-use assets and lease liabilities included in the consolidated statement of financial position were as follows:

(in millions)December 31, 2019
Operating lease right-of-use assetsOther noncurrent assets$374  
Operating lease liabilities - currentOther current liabilities$112  
Operating lease liabilities - noncurrentOther noncurrent liabilities264  
$376  

Maturities of operating lease liabilities and minimum payments for operating leases having initial or remaining non-cancelable terms in excess of one year as of December 31, 2019 were as follows:

Adient plc | Form 10-Q | 13

Fiscal years (in millions)December 31, 2019
2020 (excluding the three months ended December 31, 2019)$93  
202194  
202265  
202351  
202440  
Thereafter93  
Total lease payments436  
Less: imputed interest(60) 
Present value of lease liabilities$376  

Future minimum operating lease payments accounted for under ASC 840 at September 30, 2019 were as follows:

Fiscal years (in millions)Operating leases
2020$119  
202191  
202264  
202351  
202440  
After 202494  
Total minimum lease payments$459  

Supplemental cash flow information related to leases was as follows:

(in millions)Three Months Ended December 31, 2019
Right-of-use assets obtained in exchange for lease obligations:
Operating leases (non-cash activity)$12  
Operating cash flows:
Cash paid for amounts included in the measurement of lease liabilities$32  

The weighted average remaining lease term for the Company's operating leases as of December 31, 2019 was 6 years. The weighted average discount rate for the Company's operating leases as of December 31, 2019 was 5.5%.


Adient plc | Form 10-Q | 14

8. Debt and Financing Arrangements

Long-term debt consisted of the following:
December 31,September 30,
(in millions)20192019
Term Loan B - LIBOR plus 4.25% due in 2024
$796  $798  
4.875% Notes due in 2026
900  900  
3.50% Notes due in 2024
1,121  1,094  
7.00% Notes due in 2026
800  800  
European Investment Bank Loan - EURIBOR plus 1.58% due in 2022
185  180  
Less: debt issuance costs(54) (56) 
Gross long-term debt3,748  3,716  
Less: current portion8  8  
Net long-term debt$3,740  $3,708  

Adient US LLC ("Adient US"), a wholly owned subsidiary of Adient, together with certain of Adient's other subsidiaries, maintains an asset-based revolving credit facility (the “ABL Credit Facility”), which provides for a revolving line of credit up to $1,250 million, including a North American subfacility of up to $950 million and a European subfacility of up to $300 million, subject to borrowing base capacity. The ABL Credit Facility will mature on May 6, 2024, subject to a springing maturity date 91 days earlier if certain amounts remain outstanding at that time under the Term Loan B Agreement (defined below). Interest is payable on the ABL Credit Facility at a fluctuating rate of interest determined by reference to the Eurodollar rate plus an applicable margin of 1.50% to 2.00%. Adient will pay a commitment fee of 0.25% to 0.375% on the unused portion of the commitments under the asset-based revolving credit facility based on average global availability. Letters of credit are limited to the lesser of (x) $150 million and (y) the aggregate unused amount of commitments under the ABL Credit Facility then in effect. Subject to certain conditions, the ABL Credit Facility may be expanded by up to $250 million in additional commitments. Loans under the ABL Credit Facility may be denominated, at the option of Adient, in U.S. dollars, Euros, Pounds Sterling or Swedish Kroner. The ABL Credit Agreement is secured on a first-priority lien on all accounts receivable, inventory and bank accounts (and funds on deposit therein) and a second-priority lien on all of the tangible and intangible assets of certain Adient subsidiaries. As of December 31, 2019, Adient's availability under this facility was $1,059 million.
In addition, Adient US and Adient Global Holdings S.à r.l., a wholly-owned subsidiary of Adient, maintain a term loan credit agreement (the “Term Loan B Agreement”) providing for a 5-year $800 million senior secured term loan facility that was fully drawn at closing. The Term Loan B Agreement amortizes in equal quarterly installments at a rate of 1.00% per annum of the original principal amount thereof, with the remaining balance due at final maturity on May 6, 2024. Interest on the Term Loan B Agreement accrues at the Eurodollar rate plus an applicable margin equal to 4.25% (with one 0.25% step down based on achievement of a specific secured net leverage level starting with the fiscal quarter ending December 31, 2019). The Term Loan B Agreement also permits Adient to incur incremental term loans in an aggregate amount not to exceed the greater of $750 million and an unlimited amount subject to a pro forma first lien secured net leverage ratio of not greater than 1.75 to 1.00 and certain other conditions.

Adient US also maintains an indenture relating to the issuance of $800 million aggregate principal amount of Senior First Lien Notes (the “Notes”). The Notes mature on May 15, 2026 and bear interest at a rate of 7.00% per annum. Interest on the Notes is payable semi-annually in arrears on November 15 and May 15 of each year, commencing on November 15, 2019.

The ABL Credit Facility, Term Loan B Agreement and the Notes contain covenants that are usual and customary for facilities and transactions of this type and that, among other things, restrict the ability of Adient and its restricted subsidiaries to: create certain liens and enter into sale and lease-back transactions; create, assume, incur or guarantee certain indebtedness; pay dividends or make other distributions on, or repurchase or redeem, Adient’s capital stock or certain other debt; make other restricted payments; and consolidate or merge with, or convey, transfer or lease all or substantially all of Adient’s and its restricted subsidiaries’ assets, to another person. These covenants are subject to a number of other limitations and exceptions set forth in the agreements. The agreements also provide for customary events of default, including, but not limited to, failure to
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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., a wholly-owned subsidiary of Adient, maintains $0.9 billion aggregate principal amount of 4.875% USD-denominated unsecured notes due 2026 and €1.0 billion aggregate principal amount of 3.50% unsecured notes due 2024. Adient Germany Ltd. & Co. KG, a wholly owned subsidiary of Adient, maintains €165 million in an unsecured term loan from the European Investment Bank due in 2022. The loan bears interest at the 6-month EURIBOR rate plus 158 basis points.

Net Financing Charges
Adient's net financing charges in the consolidated statements of income (loss) contained the following components:

Three Months Ended
December 31,
(in millions)20192018
Interest expense, net of capitalized interest costs$48  $36  
Banking fees and debt issuance cost amortization4  3  
Interest income(4) (2) 
Net foreign exchange—  (2) 
Net financing charges$48  $35  


9. Derivative Instruments and Hedging Activities
Adient selectively uses derivative instruments to reduce Adient's market risk associated with changes in foreign currency. Under Adient's policy, the use of derivatives is restricted to those intended for hedging purposes; the use of any derivative instrument for speculative purposes is strictly prohibited. A description of each type of derivative utilized to manage Adient's risk is included in the following paragraphs. In addition, refer to Note 10, "Fair Value Measurements," of the notes to consolidated financial statements for information related to the fair value measurements and valuation methods utilized by Adient for each derivative type.
Adient has global operations and participates in the foreign exchange markets to minimize its risk of loss from fluctuations in foreign currency exchange rates. Adient primarily uses foreign currency exchange contracts to hedge certain foreign exchange rate exposures. Adient hedges 70% to 90% of the nominal amount of each of its known foreign exchange transactional exposures. Gains and losses on derivative contracts offset gains and losses on underlying foreign currency exposures. These contracts have been designated as cash flow hedges under ASC 815, "Derivatives and Hedging," and the effective portion of the hedge gains or losses due to changes in fair value are initially recorded as a component of accumulated other comprehensive income (AOCI) and are subsequently reclassified into earnings when the hedged transactions occur and affect earnings. Any ineffective portion of the hedge is reflected in the consolidated statements of income. These contracts were highly effective in hedging the variability in future cash flows attributable to changes in currency exchange rates at December 31, 2019 and September 30, 2019, respectively.
As of December 31, 2019, the €1.0 billion aggregate principal amount of 3.50% euro-denominated unsecured notes due 2024 was designated as a net investment hedge to selectively hedge portions of Adient's net investment in Europe. The currency effects of Adient's euro-denominated bonds are reflected in AOCI account within shareholders' equity attributable to Adient where they offset gains and losses recorded on Adient's net investment in Europe.
Adient entered into cross-currency interest rate swaps during fiscal 2018 to selectively hedge portions of its net investment in Europe. The currency effects of the cross-currency interest rate swaps are reflected in the AOCI account within shareholders' equity attributable to Adient, where they offset gains and losses recorded on Adient's net investment in Europe. As of December 31, 2019, Adient had one cross-currency interest rate swap outstanding totaling approximately €80 million designated as net investment hedges in Adient's net investment in Europe.
Adient entered into a cross-currency interest rate swap during fiscal 2019 to selectively hedge portions of its net investment in Japan. The currency effects of the cross-currency interest rate swap is reflected in the AOCI account within shareholders' equity attributable to Adient, where they offset gains and losses recorded on Adient's net investment in Japan. As of December 31,
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2019, Adient had one cross-currency interest rate swap outstanding totaling approximately ¥11 billion designated as a net investment hedge in Adient's net investment in Japan.

Adient purchased interest rate caps during fiscal 2019 to selectively limit the impact of USD LIBOR increases on its interest payments related to Company's Term Loan B Agreement. The interest rate caps are designated as cash flow hedges under ASC 815. As of December 31, 2019, Adient had two interest rate caps outstanding totaling approximately $200 million.

Adient entered into a ¥950 million foreign exchange forward contract during the first quarter of fiscal 2020 to selectively hedge portions of its net investment in China. The currency effects of the forward contract are reflected in the AOCI account within shareholders' equity attributable to Adient, where they offset gains and losses recorded on Adient’s net investment in China. The forward contract is set to mature in June 2020.

The following table presents the location and fair values of derivative instruments and other amounts used in hedging activities included in Adient's consolidated statements of financial position:

 Derivatives and Hedging
Activities Designated as
Hedging Instruments
under ASC 815		Derivatives and Hedging
Activities Not Designated as
Hedging Instruments
under ASC 815
(in millions)December 31, 2019September 30, 2019December 31, 2019September 30, 2019
Other current assets
Foreign currency exchange derivatives$16  $5  $1  $3  
Cross-currency interest rate swaps10  12  —  —  
Other noncurrent assets
Foreign currency exchange derivatives1  —  —  1  
Interest rate cap—  1  —  —  
Cross-currency interest rate swaps2  1  —  —  
Total assets$29  $19  $1  $4  
Other current liabilities
Foreign currency exchange derivatives$5  $12  $—  $—  
Other noncurrent liabilities
Foreign currency exchange derivatives