UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☑ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2020

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

Adient plc
(exact name of Registrant as specified in its charter)

Ireland	98-1328821
(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 class	Trading symbol	Name of exchange on which registered
Ordinary Shares, par value $0.001	ADNT	New 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 June 30, 2020, 93,884,381 ordinary shares were outstanding.

Adient plc

Form 10-Q

For the Three Months Ended June 30, 2020

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION
Item 1.	Unaudited Financial Statements	3
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	33
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	48
Item 4.	Controls and Procedures	48
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	50
Item 1A.	Risk Factors	50
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	53
Item 3.	Defaults Upon Senior Securities	53
Item 4.	Mine Safety Disclosures	53
Item 5.	Other Information	53
Item 6.	Exhibits	54
	Signatures	55

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 June 30,				Nine Months Ended June 30,
(in millions, except per share data)	2020		2019		2020		2019
Net sales	$	1,626	$	4,219	$	9,073	$	12,605
Cost of sales	1,779		4,008		8,726		12,017
Gross profit	(153)		211		347		588
Selling, general and administrative expenses	115		165		407		511
Loss on business divestitures - net	—		—		25		—
Restructuring and impairment costs	49		15		103		159
Equity income (loss)	48		64		(57)		209
Earnings (loss) before interest and income taxes	(269)		95		(245)		127
Net financing charges	58		60		156		135
Other pension expense (income)	(1)		5		(5)		3
Income (loss) before income taxes	(326)		30		(396)		(11)
Income tax provision (benefit)	5		338		75		412
Net income (loss)	(331)		(308)		(471)		(423)
Income (loss) attributable to noncontrolling interests	(6)		13		40		64
Net income (loss) attributable to Adient	$	(325)	$	(321)	$	(511)	$	(487)
Earnings (loss) per share:
Basic	$	(3.46)	$	(3.43)	$	(5.45)	$	(5.21)
Diluted	$	(3.46)	$	(3.43)	$	(5.45)	$	(5.21)
Shares used in computing earnings per share:
Basic	93.9		93.6		93.8		93.5
Diluted	93.9		93.6		93.8		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 June 30,				Nine Months Ended June 30,
(in millions)	2020		2019		2020		2019
Net income (loss)	$	(331)	$	(308)	$	(471)	$	(423)
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments	17		(24)		(65)		32
Realized and unrealized gains (losses) on derivatives	24		5		(23)		6
Other comprehensive income (loss)	41		(19)		(88)		38
Total comprehensive income (loss)	(290)		(327)		(559)		(385)
Comprehensive income (loss) attributable to noncontrolling interests	3		14		41		70
Comprehensive income (loss) attributable to Adient	$	(293)	$	(341)	$	(600)	$	(455)

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)	June 30, 2020		September 30, 2019
Assets
Cash and cash equivalents	$	1,032	$	924
Accounts receivable - net	1,161		1,905
Inventories	737		793
Assets held for sale	31		—
Other current assets	498		494
Current assets	3,459		4,116
Property, plant and equipment - net	1,592		1,671
Goodwill	2,039		2,150
Other intangible assets - net	350		405
Investments in partially-owned affiliates	1,090		1,399
Assets held for sale	165		—
Other noncurrent assets	924		601
Total assets	$	9,619	$	10,342
Liabilities and Shareholders' Equity
Short-term debt	$	372	$	22
Current portion of long-term debt	8		8
Accounts payable	1,465		2,709
Accrued compensation and benefits	333		364
Liabilities held for sale	26		—
Restructuring reserve	141		123
Other current liabilities	738		609
Current liabilities	3,083		3,835
Long-term debt	4,147		3,708
Liabilities held for sale	10		—
Pension and postretirement benefits	130		151
Other noncurrent liabilities	635		408
Long-term liabilities	4,922		4,267
Commitments and Contingencies (Note 17)
Redeemable noncontrolling interests	42		51
Preferred shares issued, par value $0.001; 100,000,000 shares authorized, Zero shares issued and outstanding at June 30, 2020	—		—
Ordinary shares issued, par value $0.001; 500,000,000 shares authorized, 93,884,381 shares issued and outstanding at June 30, 2020	—		—
Additional paid-in capital	3,968		3,962
Accumulated deficit	(2,060)		(1,545)
Accumulated other comprehensive income (loss)	(658)		(569)
Shareholders' equity attributable to Adient	1,250		1,848
Noncontrolling interests	322		341
Total shareholders' equity	1,572		2,189
Total liabilities and shareholders' equity	$	9,619	$	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)

	Nine Months Ended June 30,
(in millions)	2020		2019
Operating Activities
Net income (loss) attributable to Adient	$	(511)	$	(487)
Income attributable to noncontrolling interests	40		64
Net income (loss)	(471)		(423)
Adjustments to reconcile net income (loss) to cash provided (used) by operating activities:
Depreciation	214		205
Amortization of intangibles	27		31
Pension and postretirement expense (benefit)	2		9
Pension and postretirement contributions, net	(21)		(17)
Equity in earnings of partially-owned affiliates, net of dividends received (includes purchase accounting amortization of $1 and $0, respectively)	85		(11)
Impairment of nonconsolidated partially-owned affiliate	222		—
Deferred income taxes	(13)		304
Non-cash impairment charges	27		66
Loss (gain) on divestitures - net	25		—
Equity-based compensation	8		16
Other	10		18
Changes in assets and liabilities:
Receivables	706		219
Inventories	16		39
Other assets	77		105
Restructuring reserves	(60)		(90)
Accounts payable and accrued liabilities	(1,135)		(185)
Accrued income taxes	9		20
Cash provided (used) by operating activities	(272)		306
Investing Activities
Capital expenditures	(258)		(350)
Sale of property, plant and equipment	5		65
Settlement of cross-currency interest rate swap	10		—
Changes in long-term investments	(37)		3
Other	—		4
Cash provided (used) by investing activities	(280)		(278)
Financing Activities
Increase (decrease) in short-term debt	164		1
Increase (decrease) in long-term debt	600		1,600
Repayment of long-term debt	(6)		(1,202)
Debt financing costs	(10)		(45)
Cash dividends	—		(26)
Dividends paid to noncontrolling interests	(67)		(53)
Formation of consolidated joint venture	—		28
Other	(2)		(3)
Cash provided (used) by financing activities	679		300
Effect of exchange rate changes on cash and cash equivalents	(19)		10
Increase (decrease) in cash and cash equivalents	108		338
Cash and cash equivalents at beginning of period	924		687
Cash and cash equivalents at end of period	$	1,032	$	1,025

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.

For recent developments regarding the planned divestitures of Adient's YFAI investment and the fabrics business, refer to Note 3, "Acquisitions and Divestitures," of the notes to consolidated financial statements.

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, particularly in fiscal 2020 given the unprecedented situation Adient is facing with the COVID-19 pandemic and the related significant interruption it is having on Adient's operations. Adient's China facilities (including both consolidated and non-consolidated joint ventures) were effectively shut down during the lunar New Year festival (at the end of January) and did not return to operations until the end of March 2020. All of Adient's plants in China are currently operating and all of its customer plants in China have re-opened. Beginning in late March 2020, Adient experienced the shutdown of effectively all of its facilities in the Americas and European regions coinciding with the shutdown of its customer facilities in those regions. Adient also experienced the shutdown of approximately 50% of its plants in Asia (outside China) during late March and early April. During May and June, production started to resume in all regions concurrent with Adient's customers resuming operations. As of June 30, 2020, the majority of Adient's plants have resumed production, although production rates are well below pre-pandemic levels.

Principles of Consolidation

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 June 30, 2020, 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.

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-Q | 7

(in millions)	June 30, 2020		September 30, 2019
Current assets	$	201	$	236
Noncurrent assets	80		40
Total assets	$	281	$	276
Current liabilities	$	148	$	235
Noncurrent liabilities	14		—
Total liabilities	$	162	$	235

Earnings Per Share

The following table shows the computation of basic and diluted earnings (loss) per share:

	Three Months Ended June 30,				Nine Months Ended June 30,
(in millions, except per share data)	2020		2019		2020		2019
Numerator:
Net income (loss) attributable to Adient	$	(325)	$	(321)	$	(511)	$	(487)
Denominator:
Shares outstanding	93.9		93.6		93.8		93.5
Effect of dilutive securities	—		—		—		—
Diluted shares	93.9		93.6		93.8		93.5
Earnings (loss) per share:
Basic	$	(3.46)	$	(3.43)	$	(5.45)	$	(5.21)
Diluted	$	(3.46)	$	(3.43)	$	(5.45)	$	(5.21)

Potentially dilutive securities whose effect would have been antidilutive are excluded from the computation of diluted earnings

per share, which is a result of all 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 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

Adient plc | Form 10-Q | 8

ASC 606. The adoption of this guidance on October 1, 2019 did not impact Adient's consolidated financial statements for the nine months ended June 30, 2020.

Standards Effective After Fiscal 2020

Adient has considered the ASUs summarized below, effective after fiscal 2020, none of which is expected to significantly impact the consolidated financial statements:

Standard Adopted	Description	Date Effective
ASU 2016-13, Financial Instruments-Credit Losses: Measurement of Credit Losses on Financial Instruments	ASU 2016-13 changes the impairment model for financial assets measured at amortized cost, requiring presentation at the net amount expected to be collected. The measurement of expected credit losses is based upon historical experience, current conditions, and reasonable and supportable forecasts. Available-for-sale debt securities with unrealized losses will now be recorded through an allowance for credit losses.	October 1, 2020
ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement	ASU 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 Plans	The amendments in ASU 2018-14 eliminate, add, and modify certain disclosure requirements for employers that sponsor defined benefit pension or other postretirement plans. The guidance is to be applied on a retrospective basis to all periods presented.	October 1, 2020
ASU 2018-17, Targeted Improvements to Related Party Guidance for Variable Interest Entities	ASU 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 Taxes	ASU 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.	October 1, 2021

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

Adient plc | Form 10-Q | 9

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 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 at September 30, 2019 or at June 30, 2020. 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 fiscal 2019, the RECARO business recorded $148 million of net sales and insignificant pre-tax income.

On January 31, 2020 (as amended on June 24, 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 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 $369 million, of which US $309 million will be paid at the closing of the agreed transactions and the remaining US $60 million will be paid on a deferred basis post-closing. With respect to each YFAI fiscal year ending after the closing, starting with the year ending December 31, 2020, Adient will be paid an earnout in an amount equal to 30% percent of YFAI’s distributable earnings for such year until such time as the US $60 million deferred purchase price is fully paid.

•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

Adient plc | Form 10-Q | 10

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 agreed on January 31, 2020, as amended on June 24, 2020, 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 Adient's fiscal 2020. Proceeds from the transactions are expected to be used by Adient for general corporate purposes or to potentially pay down a portion of Adient’s debt subject to the ongoing impacts of the COVID-19 pandemic. The terms of the Master Agreement as described above are consistent with non-binding terms reached in December 2019.

As a result of the January 31, 2020 agreement, as amended on June 24, 2020, described above, Adient concluded that indicators of other-than-temporary impairment were present related to the investment in YFAI as of December 31, 2019 and June 30, 2020. 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. As a result of the June 24, 2020 modifications to the agreement described above, Adient recorded $6 million of additional non-cash impairment of Adient's YFAI investment during the quarter ended June 30, 2020. 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 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 ceased recognizing equity income from YFAI subsequent to December 31, 2019 (YFAI equity income was $40 million in fiscal 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.

On March 5, 2020, Adient entered into an agreement to sell its automotive fabrics manufacturing business including the lamination business to Sage Automotive Interiors for $175 million. Proceeds from the transaction are expected to be used by Adient for general corporate purposes or to potentially pay down a portion of Adient's debt subject to the ongoing impacts of the COVID-19 pandemic. The transaction is subject to regulatory approvals and other customary closing conditions and is expected to be completed by the end of Adient's fiscal 2020. The sale transaction includes 11 facilities globally with the majority located in EMEA, with approximately 1,300 employees. The assets and liabilities belonging to the business, including $83 million of allocated goodwill, have been classified as assets and liabilities held for sale, respectively, as of June 30, 2020. For fiscal 2019, the fabrics manufacturing business recorded $227 million of net sales and $8 million of pre-tax income.

All of the divestiture transactions described above align with Adient's strategy of focusing on its core, high-volume seating business.

Adient plc | Form 10-Q | 11

4. Inventories

Inventories consisted of the following:

(in millions)	June 30, 2020		September 30, 2019
Raw materials and supplies	$	569	$	609
Work-in-process	24		32
Finished goods	144		152
Inventories	$	737	$	793

5. Goodwill and Other Intangible Assets

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

(in millions)	Americas		EMEA		Asia		Total
Balance at September 30, 2019	$	638	$	429	$	1,083	$	2,150
Business divestitures	(21)		(83)		—		(104)
Currency translation and other	(10)		4		(1)		(7)
Balance at June 30, 2020	$	607	$	350	$	1,082	$	2,039

Due to the COVID-19 pandemic and the significant interruption it has caused to Adient’s operations, Adient tested goodwill and intangible assets for impairment for each of its reporting units for the quarter ended March 31, 2020 using a fair value method based on management's judgments and assumptions regarding future cash flows. The fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. Adient estimated the fair value of each of its reporting units using an income approach, which utilized Level 3 unobservable inputs. These calculations contain uncertainties as they require management to make assumptions about market comparables, future cash flows, and the appropriate discount rates (based on weighted average cost of capital ranging from 15.0% to 17.5% as of March 31, 2020) 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 as of March 31, 2020 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 COVID-19 is having on Adient’s current and future operations as well as the impact to new vehicle sales in future years. As a result of the test, there was no goodwill impairment recorded during the quarter ended March 31, 2020. A change in any of these estimates and assumptions, especially as it relates to the extent of the COVID-19 pandemic’s impacts on vehicle production volumes within the automotive industry as well as the demand for new vehicle sales once the current operational interruptions are over, could produce significantly lower fair values of Adient's reporting units, which could have a material impact on its results of operations. Based on the resumption of production during the third quarter of fiscal 2020 as well as future year forecasts approximating previous expectations, no goodwill impairment triggering events were identified as of June 30, 2020.

Adient plc | Form 10-Q | 12

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

	June 30, 2020						September 30, 2019
(in millions)	Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount		Accumulated Amortization		Net
Intangible assets
Patented technology	$	28	$	(19)	$	9	$	27	$	(17)	$	10
Customer relationships	490		(170)		320		494		(129)		365
Trademarks	43		(29)		14		51		(32)		19
Miscellaneous	18		(11)		7		21		(10)		11
Total intangible assets	$	579	$	(229)	$	350	$	593	$	(188)	$	405

During the three months ended June 30, 2020, a pre-tax non-cash impairment of $27 million was recorded in the Asia segment related to customer relationship intangible assets of $24 million and $3 million of other long-lived assets within the Futuris China business due to an overall decline in forecasted operations within that business. The impairment was calculated based on a fair value method using discounted cash flows that involves the use of management's judgments and estimates related to forecasted revenue, operating costs and discount rates.

Amortization of other intangible assets for the nine months ended June 30, 2020 and 2019 was $27 million and $31 million, respectively.

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

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:

	Nine Months Ended June 30,
(in millions)	2020		2019
Balance at beginning of period	$	22	$	11
Accruals for warranties issued during the period	9		9
Changes in accruals related to pre-existing warranties (including changes in estimates)	(1)		6
Settlements made (in cash or in kind) during the period	(5)		(4)
Balance at end of period	$	25	$	22

In the second quarter of fiscal 2019, Adient recorded $7 million of warranty expense to correct a prior period error related to incurred but not yet reported warranty expense. Adient has concluded that this adjustment was not material to previously reported financial statements.

Adient plc | Form 10-Q | 13

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 did not have any significant impact on the consolidated statement of income or cash flows.

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 three months and nine months ended June 30, 2020 were as follows:

(in millions)	Three Months Ended June 30, 2020		Nine Months Ended June 30, 2020
Operating lease cost	$	30	$	94
Short-term lease cost	6		18
Total lease cost	$	36	$	112

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

(in millions)		June 30, 2020
Operating lease right-of-use assets	Other noncurrent assets	$	324
Operating lease liabilities - current	Other current liabilities	$	88
Operating lease liabilities - noncurrent	Other noncurrent liabilities