Leases

3 Months Ended

Dec. 31, 2019

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 cost	5

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 assets	Other noncurrent assets	$	374

Operating lease liabilities - current	Other current liabilities	$	112
Operating lease liabilities - noncurrent	Other noncurrent liabilities	264
		$	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:


Fiscal years (in millions)	December 31, 2019
2020 (excluding the three months ended December 31, 2019)	$	93
2021	94
2022	65
2023	51
2024	40
Thereafter	93
Total lease payments	436
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
2021	91
2022	64
2023	51
2024	40
After 2024	94
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%.