UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM
10-Q
 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 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
 
 
ADIENT2019.JPG
 
 
 
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
 
 
(Address of principal executive offices)
 
 
Registrant's telephone number, including area code: 734-254-5000
 
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 x
No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files).
Yes x
No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer x
 
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 x
 
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
 
At March 31, 2019 , 93,610,056 ordinary shares were outstanding.


Adient plc | Form 10-Q | 1


Adient plc
Form 10-Q
For the Three and Six Months Ended March 31, 2019

TABLE OF CONTENTS


Adient plc | Form 10-Q | 2




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

 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
(in millions, except per share data)
 
2019
 
2018
 
2019
 
2018
Net sales
 
$
4,228

 
$
4,596

 
$
8,386

 
$
8,800

Cost of sales
 
4,031

 
4,314

 
8,009

 
8,317

Gross profit
 
197

 
282

 
377

 
483

Selling, general and administrative expenses
 
168

 
193

 
346

 
389

Restructuring and impairment costs
 
113

 
315

 
144

 
315

Equity income (loss)
 
62

 
85

 
145

 
181

Earnings (loss) before interest and income taxes
 
(22
)
 
(141
)
 
32

 
(40
)
Net financing charges
 
40

 
37

 
75

 
70

Other pension expense (income)
 
—

 
(7
)
 
(2
)
 
(8
)
Income (loss) before income taxes
 
(62
)
 
(171
)
 
(41
)
 
(102
)
Income tax provision (benefit)
 
64

 
(28
)
 
74

 
237

Net income (loss)
 
(126
)
 
(143
)
 
(115
)
 
(339
)
Income (loss) attributable to noncontrolling interests
 
23

 
25

 
51

 
45

Net income (loss) attributable to Adient
 
$
(149
)
 
$
(168
)
 
$
(166
)
 
$
(384
)
 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
 
Basic
 
$
(1.59
)
 
$
(1.80
)
 
$
(1.78
)
 
$
(4.12
)
Diluted
 
$
(1.59
)
 
$
(1.80
)
 
$
(1.78
)
 
$
(4.12
)
 
 
 
 
 
 
 
 
 
Shares used in computing earnings per share:
 
 
 
 
 
 
 
 
Basic
 
93.5

 
93.4

 
93.5

 
93.3

Diluted
 
93.5

 
93.4

 
93.5

 
93.3


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
March 31,
 
Six Months Ended
March 31,
(in millions)
 
2019
 
2018
 
2019
 
2018
Net income (loss)
 
$
(126
)
 
$
(143
)
 
$
(115
)
 
$
(339
)
Other comprehensive income (loss), net of tax:
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
 
40

 
142

 
56

 
218

Realized and unrealized gains (losses) on derivatives
 
4

 
10

 
1

 
—

Other comprehensive income (loss)
 
44

 
152

 
57

 
218

Total comprehensive income (loss)
 
(82
)
 
9

 
(58
)
 
(121
)
Comprehensive income (loss) attributable to noncontrolling interests
 
28

 
35

 
56

 
60

Comprehensive income (loss) attributable to Adient
 
$
(110
)
 
$
(26
)
 
$
(114
)
 
$
(181
)

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)
 
March 31,
2019
 
September 30, 2018
Assets
 
 
 
 
Cash and cash equivalents
 
$
491

 
$
687

Accounts receivable - net
 
1,976

 
2,091

Inventories
 
828

 
824

Other current assets
 
631

 
707

Current assets
 
3,926

 
4,309

Property, plant and equipment - net
 
1,641

 
1,683

Goodwill
 
2,165

 
2,182

Other intangible assets - net
 
441

 
460

Investments in partially-owned affiliates
 
1,544

 
1,407

Assets held for sale
 
—

 
37

Other noncurrent assets
 
857

 
864

Total assets
 
$
10,574

 
$
10,942

Liabilities and Shareholders' Equity
 
 
 
 
Short-term debt
 
$
9

 
$
6

Current portion of long-term debt
 
1

 
2

Accounts payable
 
2,880

 
3,101

Accrued compensation and benefits
 
387

 
331

Restructuring reserve
 
140

 
141

Other current liabilities
 
587

 
611

Current liabilities
 
4,004

 
4,192

Long-term debt
 
3,373

 
3,422

Pension and postretirement benefits
 
114

 
124

Other noncurrent liabilities
 
416

 
440

Long-term liabilities
 
3,903

 
3,986

Commitments and Contingencies (Note 16)
 


 


Redeemable noncontrolling interests
 
37

 
47

Preferred shares issued, par value $0.001; 100,000,000 shares authorized
Zero shares issued and outstanding at March 31, 2019
 
—

 
—

Ordinary shares issued, par value $0.001; 500,000,000 shares authorized
93,610,056 shares issued and outstanding at March 31, 2019
 
—

 
—

Additional paid-in capital
 
3,956

 
3,951

Retained earnings (accumulated deficit)
 
(1,220
)
 
(1,028
)
Accumulated other comprehensive income (loss)
 
(479
)
 
(531
)
Shareholders' equity attributable to Adient
 
2,257

 
2,392

Noncontrolling interests
 
373

 
325

Total shareholders' equity
 
2,630

 
2,717

Total liabilities and shareholders' equity
 
$
10,574

 
$
10,942


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)

 
 
Six Months Ended
March 31,
(in millions)
 
2019
 
2018
Operating Activities
 
 
 
 
Net income (loss) attributable to Adient
 
$
(166
)
 
$
(384
)
Income attributable to noncontrolling interests
 
51

 
45

Net income (loss)
 
(115
)
 
(339
)
Adjustments to reconcile net income (loss) to cash provided (used) by operating activities:
 
 
Depreciation
 
137

 
197

Amortization of intangibles
 
20

 
24

Pension and postretirement benefit expense (benefit)
 
2

 
(5
)
Pension and postretirement contributions, net
 
(13
)
 
11

Equity in earnings of partially-owned affiliates, net of dividends received (includes purchase accounting amortization of $0, and $11, respectively)
 
(117
)
 
(103
)
Deferred income taxes
 
40

 
232

Non-cash impairment charges
 
66

 
299

Equity-based compensation
 
8

 
30

Other
 
7

 
6

Changes in assets and liabilities:
 
 
 
 
Receivables
 
90

 
(303
)
Inventories
 
(12
)
 
(26
)
Other assets
 
62

 
(21
)
Restructuring reserves
 
(70
)
 
(82
)
Accounts payable and accrued liabilities
 
(51
)
 
13

Accrued income taxes
 
(14
)
 
(83
)
Cash provided (used) by operating activities
 
40

 
(150
)
Investing Activities
 
 
 
 
Capital expenditures
 
(252
)
 
(266
)
Sale of property, plant and equipment
 
58

 
2

Changes in long-term investments
 
—

 
(5
)
Other
 
4

 
—

Cash provided (used) by investing activities
 
(190
)
 
(269
)
Financing Activities
 
 
 
 
Increase (decrease) in short-term debt
 
3


135

Repayment of long-term debt
 
(1
)
 
—

Debt financing costs
 
(8
)

(1
)
Cash dividends
 
(26
)

(51
)
Dividends paid to noncontrolling interests
 
(43
)

(34
)
Formation of consolidated joint venture
 
28

 
—

Other
 
(2
)

(4
)
Cash provided (used) by financing activities
 
(49
)
 
45

Effect of exchange rate changes on cash and cash equivalents
 
3

 
18

Increase (decrease) in cash and cash equivalents
 
(196
)
 
(356
)
Cash and cash equivalents at beginning of period
 
687

 
709

Cash and cash equivalents at end of period
 
$
491

 
$
353

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.
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. 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 March 31 , 2019 and September 30, 2018, respectively, as Adient absorbs significant economics of the entities and has the power to direct the activities that are considered most significant to the entities.
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:
 
 
March 31,
 
September 30,
(in millions)
 
2019
 
2018
Current assets
 
$
266

 
$
270

Noncurrent assets
 
42

 
43

Total assets
 
$
308

 
$
313

 
 
 
 
 
Current liabilities
 
$
257

 
$
252

Total liabilities
 
$
257

 
$
252




Adient plc | Form 10-Q | 7


Earnings Per Share
The following table shows the computation of basic and diluted earnings per share:
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
(in millions, except per share data)
 
2019
 
2018
 
2019
 
2018
Numerator:
 
 
 
 
 
 
 
 
Net income (loss) attributable to Adient
 
$
(149
)
 
$
(168
)
 
$
(166
)
 
$
(384
)
 
 
 
 
 
 
 
 
 
Denominator:
 
 
 
 
 
 
 
 
Weighted average shares outstanding
 
93.5

 
93.4

 
93.5

 
93.3

Effect of dilutive securities
 
—

 
—

 
—

 
—

Diluted shares
 
93.5

 
93.4

 
93.5

 
93.3

 
 
 
 
 
 
 
 
 
Earnings per share:
 
 
 
 
 
 
 
 
Basic
 
$
(1.59
)
 
$
(1.80
)
 
$
(1.78
)
 
$
(4.12
)
Diluted
 
$
(1.59
)
 
$
(1.80
)
 
$
(1.78
)
 
$
(4.12
)
Potentially dilutive securities whose effect would have been antidilutive are excluded from the computation of diluted earnings per share as a result of being in a loss position for all periods presented.

New Accounting Pronouncements

Standards Adopted During Fiscal 2019

ASU 2014-09, Revenue - Revenue from Contracts with Customers. On October 1, 2018, Adient adopted Accounting Standards Codification Topic 606, Revenue from Contracts with Customers ("ASC 606"), and all the related amendments using the modified retrospective method as applied to all customer contracts that were not completed as of October 1, 2018. As a result, financial information for reporting periods beginning on or after October 1, 2018 are presented in accordance with ASC 606. Comparative financial information for reporting periods beginning prior to October 1, 2018 has not been adjusted and continues to be reported in accordance with Adient's revenue recognition policies prior to the adoption of ASC 606. Adient did not record a cumulative adjustment related to the adoption of ASC 606, and the effects of adoption were not significant. Refer to Note 2 , " Revenue Recognition ," of the notes to the consolidated financial statements for information related to Adient's adoption of ASU 2014-09.

ASU 2017-07, Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Benefit Cost. On October 1, 2018, Adient adopted the amendments to ASU 2017-07 that improve the presentation of net periodic pension and postretirement benefit costs and retrospectively adopted the presentation of service cost separate from the other components of net periodic costs. The interest cost, expected return on assets, amortization of prior service costs, net remeasurement, and other costs have been reclassified from cost of sales and selling, general and administrative expenses to other pension expense (income). Adient elected to apply the practical expedient which allows reclassification of amounts previously disclosed in the retirement benefits note as the basis for applying retrospective presentation for comparative periods as it is impracticable to determine the disaggregation of the cost components for amounts capitalized and amortized in those periods. On a prospective basis, the other components of net periodic benefit costs will not be included in amounts capitalized in inventory or property, plant, and equipment.

The effect of the retrospective presentation change related to the net periodic cost of Adient's defined benefit pension and other postretirement employee benefits ("OPEB") plans on the consolidated statements of income (loss) for the three months and six months ended March 31, 2018 resulted in $2 million and $3 million increases to cost of sales, $2 million and $3 million decreases to gross profit, $7 million and $8 million decreases to earnings (loss) before interest and income taxes and $7 million and $8 million increases to other pension expense (income) line items in the condensed consolidated statements of income, respectively. As a result of presenting certain pension costs as non-operating items, adjusted EBITDA decreased in EMEA by $1 million and $2 million for the three months and six months ended March 31, 2018, respectively.


Adient plc | Form 10-Q | 8


Adient also adopted the following standards during fiscal 2019, none of which had a material impact to the consolidated financial statements or consolidated financial statement disclosures:
Standard Adopted
 
Description
 
Date
Effective and Adopted
ASU 2016-01 and ASU 2018-03, Recognition and Measurement of Financial Assets and Financial Liabilities
 
ASU 2016-01 amends certain aspects of recognition, measurement, presentation and disclosure of financial instruments.
 
October 1, 2018
 
 
 
 
 
ASU 2016-15, Classification of Certain Cash Receipts and Cash Payments
 
ASU 2016-clarifies how certain cash receipts and cash payments are presented and classified in the statement of cash flows.
 
October 1, 2018
 
 
 
 
 
ASU 2016-18, Statement of Cash Flows: Restricted Cash
 
ASU 2016-18 clarifies the classification and presentation of restricted cash on the statement of cash flows.
 
October 1, 2018
 
 
 
 
 
ASU 2017-01, Clarifying the Definition of a Business
 
ASU 2017-01 clarifies the definition of a business as it relates to the acquisition or sale of assets or businesses.
 
October 1, 2018
 
 
 
 
 
ASU 2017-05, Gains and Losses from the Derecognition of Nonfinancial Assets
 
ASU 2017-05 clarifies the scope of asset derecognition guidance and accounting for partial sales of nonfinancial assets and will follow the same implementation guidelines as ASU No. 2014-09, "Revenue from Contracts with Customers (Topic 606).
 
October 1, 2018
 
 
 
 
 
ASU 2017-09, Stock Compensation - Scope of Modification Accounting
 
ASU 2017-09 provides guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718.
 
October 1, 2018
 
 
 
 
 
ASU 2018-08, Not for Profit Entities: Clarifying the Scope and the Accounting Guidance for Contributions Received and Contributions Made
 
ASU 2018-08 is intended to clarify and improve the scope and the accounting guidance for contributions received and contributions made. The amendments in ASU No. 2018-08 should assist entities in (1) evaluating whether transactions should be accounted for as contributions (nonreciprocal transaction) within the scope of Topic 958, Not-for-Profit Entities, or as exchange (reciprocal) transactions subject to other guidance and (2) determining whether a contribution is conditional. This amendment applies to all entities that make or receive grants or contributions.
 
October 1, 2018
 
 
 
 
 
ASU 2018-15, Intangibles-Goodwill and Other-Internal Use Software: Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract
 
The amendments in ASU 2018-15 require implementation costs incurred by customers in cloud computing arrangements to be deferred and recognized over the term of the arrangement, if those costs would be capitalized by the customer in a software licensing arrangement under the internal-use software guidance. The amendments also require an entity to disclose the nature of its hosting arrangements and adhere to certain presentation requirements in its balance sheet, income statement and statement of cash flows.

 
ASU No. 2018-15 is effective for Adient for the quarter ending December 31, 2019, with early adoption permitted. Adient early adopted ASU No. 2018-15 effective October 1, 2018.
 
 
 
 
 
ASU 2018-16, Derivatives and Hedging: Inclusion of the Secured Overnight Financing Rate (SOFR) Overnight Index Swap (OIS) Rate as a Benchmark Interest Rate for Hedge Accounting Purposes
 
The amendments in this Update permit use of the OIS rate based on SOFR as a U.S. benchmark interest rate for hedge accounting purposes under Topic 815 in addition to the UST, the LIBOR swap rate, the OIS rate based on the Fed Funds Effective Rate, and the SIFMA Municipal Swap Rate.
 
October 1, 2018

Adient plc | Form 10-Q | 9


Standards Effective After Fiscal 2019
Adient believes that the ASU summarized below, which is effective at the beginning of fiscal 2020, could significantly impact the consolidated financial statements:
Standard Pending Adoption
 
Description
 
Anticipated Impact
 
Effective Date
ASU 2016-02, 2018-01, 2018-10, 2018-11 and ASU 2019-01
 
The standard requires that a lessee recognize on its balance sheet right-of-use assets and corresponding liabilities resulting from leasing transactions, as well as additional financial statement disclosures. Currently, U.S. GAAP only requires balance sheet recognition for leases classified as capital leases. The provisions of this update apply to substantially all leased assets.
 
Adient is currently evaluating the impact this standard will have on its consolidated financial position, results of operations and cash flows and expects the impact to the consolidated balance sheet to be significant.

 
October 1, 2019

Adient plc | Form 10-Q | 10


Adient has considered the ASUs summarized below, effective after fiscal 2019, none of which are 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 2018-07, Compensation-Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting
 
ASU 2018-07 expands the scope of Topic 718 to include all share-based payment transactions for acquiring goods and services from nonemployees. ASU 2018-07 specifies that Topic 718 applies to all share-based payment transactions in which the grantor acquires goods and services to be used or consumed in its own operations by issuing share-based payment awards. ASU 2018-07 also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under ASC 606.
 
October 1, 2019
 
 
 
 
 
ASU 2018-13, Fair Value Measurement: Disclosure Framework-Changes to the Disclosure Requirements for Fair Value Measurement
 
The amendments in ASU 2018-13 eliminate, add, and modify certain disclosure requirements for fair value measurements. ASU 2018-13 will be effective for Adient for the quarter ending December 31, 2019, with early adoption permitted for either the entire ASU or only the provisions that eliminate or modify requirements. The amendments with respect to changes in unrealized gains and losses, the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements, and the narrative description of measurement uncertainty are to be applied prospectively. All other amendments are to be applied retrospectively to all periods presented.
 
October 1, 2019
 
 
 
 
 
ASU 2018-14, Compensation-Retirement Benefits-Defined Benefit Plans-General: Disclosure Framework - Changes to the Disclosure Requirements for Defned 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, Consolidated: Targeted Improvements to Related Party Guidance for Variable Interest Entities
 
The amendments in this Update affect reporting entities that are required to determine whether they should consolidate a legal entity under the guidance within the Variable Interest Entities Subsections of Subtopic 810-10, Consolidation-Overall.
 
October 1, 2019
 
 
 
 
 
ASU 2018-18, Collaborative Arrangements: Clarifying the Interaction between Topic 808 and Topic 606
 
The amendments in this Update make targeted improvements to generally accepted accounting principles (GAAP) for collaborative arrangements as follows: 1) Clarify that certain transactions between collaborative arrangement participant is a customer in the context of a unit of account. In those situations, all the guidance in Topic 606 should be applied, including recognition, measurement, presentation, and disclosure requirements. 2) Add unit-of-account guidance in Topic 808 to align with the guidance in Topic 606 (that is, a distinct good or service) when an entity is assessing whether the collaborative arrangement or a part of the arrangement is within the scope of Topic 606. 3) Require that in a transaction with a collaborative arrangement participant that is not directly related to sales to third parties, presenting the transaction together with revenue recognized under Topic 606 is precluded if the collaborative arrangement participant is not a customer.
 
October 1, 2019

Adient plc | Form 10-Q | 11



2. Revenue Recognition

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

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

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

Adient provides production and service parts to its customers under awarded multi-year programs. The duration of a program is generally consistent with the life cycle of a vehicle, however, the program can be canceled at any time without cause by the customer. Programs awarded to Adient to supply parts to its customers do not contain a firm commitment by the customer for volume or price and do not reach the level of a performance obligation until Adient receives either a purchase order and/or a materials release from the customer for a specific number of parts at a specified price, at which point an enforceable contract exists. Sales revenue is generally recognized at the point in time when parts are shipped and control has transferred to the customer, at which point an enforceable right to payment exists. Contracts may provide for annual price reductions over the production life of the awarded program, and prices are adjusted on an ongoing basis to reflect changes in product content/cost and other commercial factors. The amount of revenue recognized reflects the consideration that Adient expects to be entitled to in exchange for such products based on purchase orders, annual price reductions and ongoing price adjustments (some of which are accounted for as variable consideration and subject to being constrained, but which 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 ASC606 or at March 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 .


Adient plc | Form 10-Q | 12


The following table presents disaggregated revenue by geographical market:
(in millions)
 
Three Months Ended
March 31
 
Six Months Ended
March 31
 
 
2019
 
2018
 
2019
 
2018
Americas
 
 
 
 
 
 
 
 
United States
 
$
1,630

 
$
1,634

 
$
3,245

 
$
3,112

Mexico
 
643

 
656

 
1,313

 
1,280

Other Americas
 
100

 
135

 
224

 
280

Regional elimination
 
(458
)
 
(484
)
 
(932
)
 
(945
)
 
 
1,915

 
1,941

 
3,850

 
3,727

EMEA
 


 


 


 


Germany
 
390

 
494

 
731

 
939

Other EMEA
 
1,904

 
2,112

 
3,650

 
3,988

Regional elimination
 
(516
)
 
(550
)
 
(963
)
 
(1,018
)
 
 
1,778

 
2,056

 
3,418

 
3,909

Asia
 
 
 
 
 
 
 
 
China
 
129

 
154

 
284

 
344

Other Asia
 
471

 
536

 
967

 
994

Regional elimination
 
(1
)
 
—

 
(2
)
 
—

 
 
599

 
690

 
1,249

 
1,338

 
 
 
 
 
 
 
 
 
Inter-segment elimination
 
(64
)
 
(91
)
 
(131
)
 
(174
)
 
 
 
 
 
 
 
 
 
Total
 
$
4,228

 
$
4,596

 
$
8,386

 
$
8,800



3. Acquisitions and Divestitures

Acquisitions

Adient's consolidated affiliate, Adient Aerospace, LLC ("Adient Aerospace"), became operational on October 11, 2018 after securing regulatory approvals. Adient's ownership position in Adient Aerospace is 50.01% . Adient Aerospace will develop, manufacture, and sell a portfolio of seating products to airlines and aircraft leasing companies for installation on Boeing and other OEM commercial airplanes, for both production line-fit and retrofit configurations. Adient Aerospace's results are included within the Americas segment. Initial contributions of $28 million were made during the first quarter of fiscal 2019 by each JV partner.

Assets Held for Sale

During fiscal 2018, Adient committed to a plan to sell its Detroit, Michigan properties and its airplanes and actively marketed the sale of these assets. As a result, these assets were classified as assets held for sale and were required to be adjusted to the lower of fair value less cost to sell or carrying value. This resulted in an impairment charge of $49 million which was recorded within restructuring and impairment costs on the consolidated statement of income (loss) during fiscal 2018, of which $39 million related to Americas assets and $10 million related to corporate assets. The impairment was measured using third party sales pricing to determine fair values of the assets. The inputs utilized in the analyses are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair Value Measurement." During the fourth quarter of fiscal 2018, one airplane was sold for $36 million . During the first quarter of fiscal 2019, both the Detroit, Michigan properties and remaining airplane were sold for approximately $35 million .


Adient plc | Form 10-Q | 13


4. Inventories

Inventories consisted of the following:
(in millions)
 
March 31,
2019
 
September 30, 2018
Raw materials and supplies
 
$
631

 
$
626

Work-in-process
 
34

 
38

Finished goods
 
163

 
160

Inventories
 
$
828

 
$
824


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, 2018
 
$
642

 
$
469

 
$
1,071

 
$
2,182

Currency translation and other
 
—

 
(29
)
 
12

 
(17
)
Balance at March 31, 2019
 
$
642

 
$
440

 
$
1,083

 
$
2,165


During the second quarter of fiscal 2019, Adient began reporting three new segments: 1) Americas, which is inclusive of North America and South America; 2) Europe, Middle East, and Africa ("EMEA") and 3) Asia Pacific/China ("Asia"). Accordingly, goodwill previously reported in the former Seating segment has been reallocated to the three new segments on a relative fair value basis. Refer to Note 14 , " Segment Information " for more information on Adient's reportable segments.

Adient evaluates its goodwill for impairment on an annual basis, or as facts and circumstances warrant. As a result of the change in reportable segments during the second quarter of fiscal 2019, Adient conducted goodwill impairment analyses of the newly allocated goodwill balances under the new reportable segment structure. Adient performs impairment reviews for its reporting units, which have been determined to be Adient's reportable segments, using a fair value method based on management's judgments and assumptions or third party valuations. The fair value of a reporting unit refers to the price that would be received to sell the unit as a whole in an orderly transaction between market participants at the measurement date. Adient estimated the fair value of each of its reporting units using a discounted cash flow analysis approach, which utilized Level 3 unobservable inputs. These calculations contain uncertainties as they require management to make assumptions about market comparables, future cash flows, the appropriate discount rates (based on weighted average cost of capital ranging from 14.5% - 17.5% ) and growth rates to reflect the risk inherent in the future cash flows. The estimated future cash flows reflect management's latest assumptions of the financial projections based on current and anticipated competitive landscape and product profitability based on historical trends. A change in any of these estimates and assumptions could produce a different fair value, which could have a material impact on Adient's results of operations. As a result of the analyses, Adient determined that no goodwill was impaired.

Adient's other intangible assets, primarily from business acquisitions valued based on independent appraisals, consisted of:
 
 
March 31, 2019
 
September 30, 2018
(in millions)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Net
Intangible assets
 
 
 
 
 
 
 
 
 
 
 
 
Patented technology
 
$
20

 
$
(14
)
 
$
6

 
$
21

 
$
(14
)
 
$
7

Customer relationships
 
514

 
(117
)
 
397

 
509

 
(101
)
 
408

Trademarks
 
53

 
(31
)
 
22

 
58

 
(30
)
 
28

Miscellaneous
 
28

 
(12
)
 
16

 
29

 
(12
)
 
17

Total intangible assets
 
$
615

 
$
(174
)
 
$
441

 
$
617

 
$
(157
)
 
$
460



Adient plc | Form 10-Q | 14


Amortization of other intangible assets for the six months ended March 31, 2019 and 2018 was $20 million and $24 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:
 
 
Six Months Ended
March 31,
(in millions)
 
2019
 
2018
Balance at beginning of period
 
$
11

 
$
19

Accruals for warranties issued during the period
 
9

 
2

Changes in accruals related to pre-existing warranties (including changes in estimates)
 
10

 
(2
)
Settlements made (in cash or in kind) during the period
 
(6
)
 
(3
)
Balance at end of period
 
$
24

 
$
16


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 nor to current or estimated full year fiscal 2019 results.

7. Debt and Financing Arrangements
Long-term debt consisted of the following:
(in millions)
 
March 31,
2019
 
September 30, 2018
Term Loan A - LIBOR plus 1.75% due in 2021
 
$
1,200

 
$
1,200

4.875% Notes due in 2026
 
900

 
900

3.50% Notes due in 2024
 
1,123

 
1,162

European Investment Bank Loan - EURIBOR plus 0.90% due in 2022
 
185

 
192

Capital lease obligations
 
1

 
2

Less: debt issuance costs
 
(35
)
 
(32
)
Gross long-term debt
 
3,374

 
3,424

Less: current portion
 
1

 
2

Net long-term debt
 
$
3,373

 
$
3,422

On July 27, 2016, Adient Global Holdings Ltd ("AGH"), a wholly owned subsidiary of Adient, entered into a credit agreement providing for commitments with respect to a $1.5 billion revolving credit facility (undrawn at March 31, 2019 and September 30, 2018, respectively) and a $1.5 billion Term Loan A facility (the "Original Credit Facilities"). The Original Credit Facilities mature in July 2021. Until the Term Loan A facility maturity date, amortization of the funded Term Loan A is required in an amount per quarter equal to 1.25% of the original principal amount prior to July 27, 2019 and 2.5% in each quarter thereafter prior to final maturity. The Original Credit Facilities 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. The Term Loan A facility

Adient plc | Form 10-Q | 15


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.
On November 6, 2018, Adient entered into an amendment to the Original Credit Facilities (“First Amended Credit Facilities") whereby the financial maintenance covenant was amended to require Adient to maintain a total net leverage ratio equal to or less than 4.5 x adjusted EBITDA (previously 3.5 x adjusted EBITDA), with step down provisions starting in the quarter ending December 31, 2020. The amendment also expanded the upper range of interest rate margins such that the drawn portion of the First Amended Credit Facilities will bear interest based on LIBOR plus a margin between 1.25% - 2.50% (previously 1.25% - 2.25% ), based on Adient’s total net leverage ratio. No other terms were impacted by the first amendment. On February 6, 2019, Adient entered into an amendment to the First Amended Credit Facilities (“Second Amended Credit Facilities") whereby the financial maintenance covenant contained in the First Amended Credit Facilities was amended to require Adient to maintain a first lien secured net leverage ratio equal to or less than 2.5 x adjusted EBITDA as of the last day of each quarter, with step down provisions starting on September 30, 2020. The amendment also added a new tier to the pricing schedule that will be applicable when the total net leverage ratio exceeds 4.0 x adjusted EBITDA and amended certain other definitions, negative covenants and other terms within the credit facility.
The full amount of the Term Loan A facility was drawn in the fourth quarter of fiscal 2016. These funds were transferred to the former Parent at the time of the draw and were reflected within net transfers to the former Parent in the consolidated statement of cash flow during the fourth quarter of fiscal 2016. In February 2017, Adient repaid $100 million of the Term Loan A facility. In May 2017, Adient repaid another $200 million of the Term Loan A facility. The total amount repaid was treated as a prepayment of the quarterly mandatory principle amortization for the period between March 2017 and June 2020 resulting in no required principal payment until June 2020.
AGH will pay a commitment fee on the unused portion of the commitments under the revolving credit facility based on the total net leverage ratio of Adient, ranging from 0.15% to 0.45% .
On August 19, 2016, AGH issued $0.9 billion aggregate principal amount of 4.875% USD-denominated unsecured notes due 2026 and €1.0 billion aggregate principal amount of 3.50% unsecured notes due 2024, in a private offering exempt from the registration requirements of the Securities Act of 1933, as amended. The proceeds of the notes were used, together with the Term Loan A facility, to pay a distribution to the former Parent, with the remaining proceeds used for working capital and general corporate purposes.
On May 29, 2017, Adient Germany Ltd. & Co. KG, a wholly owned subsidiary of Adient, borrowed €165 million in an unsecured term loan from the European Investment Bank due in 2022. The loan bears interest at the 6-month EURIBOR rate plus 90 basis points. Loan proceeds were used to repay $200 million of the Term Loan A facility.
New debt arrangements
On May 6, 2019 (the “Refinancing Date”), Adient US LLC ("Adient US"), a wholly owned subsidiary of Adient, together with certain of Adient's other subsidiaries entered into a new asset-based revolving credit facility (the “ABL Credit Facility”), which provides for a revolving line of credit up to $1,250 million , including a North American subfacility of up to $950 million and a European subfacility of up to $300 million , subject to borrowing base capacity. The ABL Credit Facility will mature on May 6, 2024, subject to a springing maturity date 91 days earlier if certain amounts remain outstanding at that time under the New Term Loan Credit 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.

In addition, Adient US and Adient Global Holdings S.à r.l., a wholly-owned subsidiary of Adient, entered into a new term loan credit agreement (the “New Term Loan Credit Agreement”) on the Refinancing Date providing for a 5 -year $800 million senior secured term loan facility that was fully drawn on closing. The New Term Loan Credit 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 New Term Loan Credit 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

Adient plc | Form 10-Q | 16


ending December 31, 2019). The New Term Loan Credit Agreement also permits Adient to incur incremental term loans in an aggregate amount not to exceed the greater of $750 million and an unlimited amount subject to a pro forma first lien secured net leverage ratio of not greater than 1.75 to 1.00 and certain other conditions.

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

The proceeds from the transactions described above were used to repay the outstanding indebtedness and terminate commitments under Adient’s existing credit agreement, which was scheduled to mature in July 2021. In addition, certain proceeds were used (i) to pay related premiums, fees and expenses in connection with the refinancing and entering into and funding of the new credit facilities and (ii) for working capital and other general corporate purposes.

The ABL Credit Agreement, New Term Loan Credit Agreement and the Indenture contain covenants that are usual and customary for facilities and transactions of this type and that, among other things, restrict the ability of Adient and its restricted subsidiaries to: create certain liens and enter into sale and lease-back transactions; create, assume, incur or guarantee certain indebtedness; pay dividends or make other distributions on, or repurchase or redeem, Adient’s capital stock or certain other debt; make other restricted payments; and consolidate or merge with, or convey, transfer or lease all or substantially all of Adient’s and its restricted subsidiaries’ assets, to another person. These covenants are subject to a number of other limitations and exceptions set forth in the agreements. The agreements also provide for customary events of default, including, but not limited to, failure to pay principal and interest, failure to comply with covenants, agreements or conditions, and certain events of bankruptcy or insolvency involving Adient and its significant subsidiaries.

Net Financing Charges
Adient's net financing charges line item in the consolidated statements of income contained the following components:
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
(in millions)
 
2019
 
2018
 
2019
 
2018
Interest expense, net of capitalized interest costs
 
$
38

 
$
36

 
$
73

 
$
70

Banking fees and debt issuance cost amortization
 
4

 
2

 
7

 
4

Interest income
 
(3
)
 
(1
)
 
(4
)
 
(2
)
Net foreign exchange
 
1

 
—

 
(1
)
 
(2
)
Net financing charges
 
$
40

 
$
37

 
$
75

 
$
70

8. 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 9 , " 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 March 31, 2019 and September 30, 2018, respectively.

Adient plc | Form 10-Q | 17


Adient selectively uses equity swaps to reduce market risk associated with certain of its stock-based compensation plans, such as its deferred compensation plans. The equity swaps are recorded at fair value. Changes in fair value of the equity swaps are reflected in the consolidated statements of income within selling, general and administrative expenses. No equity swaps were outstanding as of March 31, 2019.
As of March 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 March 31, 2019, Adient had two cross-currency interest rate swaps outstanding totaling approximately €160 million designated as net investment hedges in Adient's net investment in Europe. Both cross-currency interest rate swaps are set to mature in March 2020.
Adient entered into a 970 million Chinese yuan foreign exchange forward contract during the second quarter of fiscal 2019 to selectively hedge portions of its net investment in China. The currency effects of the forward contract are reflected in the AOCI account within shareholder’s 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 2019.

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)
 
March 31,
2019
 
September 30, 2018
 
March 31,
2019
 
September 30, 2018
Other current assets
 
 
 
 
 
 
 
 
Foreign currency exchange derivatives
 
$
6

 
$
4

 
$
3

 
$
4

Cross-currency interest rate swaps
 
20

 
—

 
—

 
—

Other noncurrent assets
 
 
 
 
 
 
 
 
Foreign currency exchange derivatives
 
—

 
—

 
—

 
2

Cross-currency interest rate swaps
 
—

 
13

 
—

 
—

Total assets
 
$
26

 
$
17

 
$
3

 
$
6

 
 
 
 
 
 
 
 
 
Other current liabilities
 
 
 
 
 
 
 
 
Foreign currency exchange derivatives
 
$
13

 
$
11

 
$
1

 
$
—

Other noncurrent liabilities
 
 
 
 
 
 
 
 
Foreign currency exchange derivatives
 
1

 
2

 
—

 
—

Equity swaps
 
—

 
—

 
—

 
2

Long-term debt
 
 
 
 
 
 
 
 
Foreign currency denominated debt
 
1,123

 
1,162

 
—

 
—

Total liabilities
 
$
1,137

 
$
1,175

 
$
1

 
$
2


Adient enters into International Swaps and Derivatives Associations (ISDA) master netting agreements with counterparties that permit the net settlement of amounts owed under the derivative contracts. The master netting agreements generally provide for net settlement of all outstanding contracts with a counterparty in the case of an event of default or a termination event. Adient has not elected to offset the fair value positions of the derivative contracts recorded in the consolidated statements of financial position. Collateral is generally not required of Adient or the counterparties under the master netting agreements. As of both March 31, 2019 and September 30, 2018, no cash collateral was received or pledged under the master netting agreements.


Adient plc | Form 10-Q | 18


The gross and net amounts of derivative instruments and other amounts used in hedging activities are as follows:
 
 
Assets
 
Liabilities
(in millions)
 
March 31,
2019
 
September 30, 2018
 
March 31,
2019
 
September 30, 2018
Gross amount recognized
 
$
29

 
$
23

 
$
1,138

 
$
1,177

Gross amount eligible for offsetting
 
(5
)
 
(5
)

(5
)
 
(5
)
Net amount
 
$
24

 
$
18

 
$
1,133

 
$
1,172


The following table presents the effective portion of pretax gains (losses) recorded in other comprehensive income related to cash flow hedges:
(in millions)
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
2019
 
2018
 
2019
 
2018
Foreign currency exchange derivatives
 
$
3

 
$
15

 
$
(1
)
 
$
8


The following table presents the location and amount of the effective portion of pretax gains (losses) on cash flow hedges reclassified from AOCI into Adient's consolidated statements of income:
(in millions)
 
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
 
2019
 
2018
 
2019
 
2018
Foreign currency exchange derivatives
 
Cost of sales
 
$
(2
)
 
$
1

 
$
(2
)
 
$
2


The following table presents the location and amount of pretax gains (losses) on derivatives not designated as hedging instruments recognized in Adient's consolidated statements of income (loss):
(in millions)
 
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
 
 
2019
 
2018
 
2019
 
2018
Foreign currency exchange derivatives
 
Cost of sales
 
$
(1
)
 
$
1

 
$
(1
)
 
$
(1
)
Foreign currency exchange derivatives
 
Net financing charges
 
—

 
(1
)
 
1

 
(2
)
Equity swap
 
Selling, general and administrative
 
4

 
(12
)
 
(13
)
 
(15
)
Total
 
 
 
$
3

 
$
(12
)
 
$
(13
)
 
$
(18
)

The effective portion of pretax gains (losses) recorded in currency translation adjustment (CTA) within other comprehensive income (loss) related to net investment hedges was $22 million and $44 million for the three and six months ended March 31, 2019, respectively, and $(37) million and $(54) million for the three and six months ended March 31, 2018, respectively. For the three and six months ended March 31, 2019 and 2018, respectively, no gains or losses were reclassified from CTA into income for Adient's outstanding net investment hedges, and there was no ineffectiveness on cash flow hedges.


Adient plc | Form 10-Q | 19


9. Fair Value Measurements
ASC 820, "Fair Value Measurement," defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820 also establishes a three-level fair value hierarchy that prioritizes information used in developing assumptions when pricing an asset or liability as follows:
Level 1: Observable inputs such as quoted prices in active markets;
Level 2: Inputs, other than quoted prices in active markets, that are observable either directly or indirectly; and
Level 3: Unobservable inputs where there is little or no market data, which requires the reporting entity to develop its own assumptions.
ASC 820 requires the use of observable market data, when available, in making fair value measurements. When inputs used to measure fair value fall within different levels of the hierarchy, the level within which the fair value measurement is categorized is based on the lowest level input that is significant to the fair value measurement.
Recurring Fair Value Measurements
The following tables present Adient's fair value hierarchy for those assets and liabilities measured at fair value:
 
 
Fair Value Measurements Using:
(in millions)
 
Total as of
March 31,
2019
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Other current assets
 
 
 
 
 
 
 
 
Foreign currency exchange derivatives
 
$
9

 
$
—

 
$
9

 
$
—

Cross-currency interest rate swaps
 
20

 
—

 
20

 
—

Other noncurrent assets
 
 
 
 
 
 
 
 
Foreign currency exchange derivatives
 
—

 
—

 
—

 
—

Total assets
 
$
29

 
$
—

 
$
29

 
$
—

Other current liabilities
 
 
 
 
 
 
 
 
Foreign currency exchange derivatives
 
$
14

 
$
—

 
$
14

 
$
—

Other noncurrent liabilities
 
 
 
 
 
 
 
 
Foreign currency exchange derivatives
 
1

 
—

 
1

 
—

Total liabilities
 
$
15

 
$
—

 
$
15

 
$
—


Adient plc | Form 10-Q | 20


 
 
Fair Value Measurements Using:
(in millions)
 
Total as of
September 30,
2018
 
Quoted Prices
in Active
Markets
(Level 1)
 
Significant
Other
Observable
Inputs
(Level 2)
 
Significant
Unobservable
Inputs
(Level 3)
Other current assets
 
 
 
 
 
 
 
 
Foreign currency exchange derivatives
 
$
8

 
$
—

 
$
8

 
$
—

Other noncurrent assets
 
 
 
 
 
 
 
 
Foreign currency exchange derivatives
 
2

 
—

 
2

 
—

Cross-currency interest rate swaps
 
13

 
—

 
13

 
—

Total assets
 
$
23

 
$
—

 
$
23

 
$
—

Other current liabilities
 
 
 
 
 
 
 
 
Foreign currency exchange derivatives
 
$
11

 
$
—

 
$
11

 
$
—

Other noncurrent liabilities
 
 
 
 
 
 
 
 
Foreign currency exchange derivatives
 
2

 
—

 
2

 
—

Equity swaps
 
2

 
—

 
2

 
—

Total liabilities
 
$
15

 
$
—

 
$
15

 
$
—

Valuation Methods
Foreign currency exchange derivatives Adient selectively hedges anticipated transactions that are subject to foreign exchange rate risk primarily using foreign currency exchange hedge contracts. The foreign currency exchange derivatives are valued under a market approach using publicized spot and forward prices. Changes in fair value on foreign exchange derivatives accounted for as hedging instruments under ASC 815 are initially recorded as a component of AOCI and are subsequently reclassified into earnings when the hedged transactions occur and affect earnings. These contracts were highly effective in hedging the variability in future cash flows attributable to changes in currency exchange rates at March 31, 2019 and September 30, 2018, respectively. The changes in fair value of foreign currency exchange derivatives not designated as hedging instruments under ASC 815 are recorded in the consolidated statements of income.
Equity swaps Adient selectively uses equity swaps to reduce market risk associated with certain of its stock-based compensation plans, such as its deferred compensation plans. The equity swaps are recorded at fair value. Changes in fair value of the equity swaps are reflected in the consolidated statements of income within selling, general and administrative expenses.
Cross-currency interest rate swaps Adient selectively uses cross-currency interest rate swaps to hedge portions of its net investment in Europe.
The fair value of cash and cash equivalents, accounts receivable, short-term debt and accounts payable approximate their carrying values. The fair value of long-term debt, which was $2.8 billion and $3.3 billion at March 31, 2019 and September 30, 2018, respectively, was determined primarily using market quotes classified as Level 1 inputs within the ASC 820 fair value hierarchy.

Adient plc | Form 10-Q | 21


10. Equity and Noncontrolling Interests
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
(in millions)
 
2019
 
2018
 
2019
 
2018
Ordinary shares, beginning of the period
 
$
—

 
$
—

 
$
—

 
$
—

Ordinary shares, end of the period
 
—

 
—

 
—

 
—

 
 
 
 
 
 
 
 
 
Additional paid-in capital, beginning of the period
 
3,954

 
3,952

 
3,951

 
3,942

Share-based compensation
 
2

 
4

 
8

 
10

Other
 
—

 
(1
)
 
(3
)
 
3

Additional paid-in capital, end of the period
 
3,956

 
3,955

 
3,956

 
3,955

 
 
 
 
 
 
 
 
 
Retained earnings (Accumulated deficit), beginning of the period
 
(1,070
)
 
492

 
(1,028
)
 
734

Net income (loss) attributable to Adient
 
$
(149
)
 
$
(168
)
 
$
(166
)
 
$
(384
)
Dividends declared ($0.275 per share/quarter)
 
—

 
(25
)
 
(26
)
 
(51
)
Share-based compensation
 
(1
)
 
—

 
—

 
—

Retained earnings (Accumulated deficit), end of the period
 
(1,220
)
 
299

 
(1,220
)
 
299

 
 
 
 
 
 
 
 
 
Accumulated other comprehensive income, beginning of the period
 
(518
)
 
(336
)
 
(531
)
 
(397
)
Foreign currency translation adjustments
 
35

 
132

 
51

 
203

Realized and unrealized gains (losses) on derivatives
 
4

 
10

 
1

 
—

Employee retirement plans
 
—

 
9

 
—

 
9

Accumulated other comprehensive income, end of the period
 
(479
)
 
(185
)
 
(479
)
 
(185
)
 
 
 
 
 
 
 
 
 
Shareholders' equity attributable to Adient
 
2,257

 
4,069

 
2,257

 
4,069

 
 
 
 
 
 
 
 
 
Noncontrolling interest, beginning of the period
 
358

 
321

 
325

 
313

Net income (loss)
 
14

 
16

 
33

 
29

Foreign currency translation adjustments
 
4

 
9

 
5

 
13

Dividends attributable to noncontrolling interests
 
(3
)
 
(21
)
 
(18
)
 
(30
)
Change in noncontrolling interest share
 
—

 
1

 
—

 
1

Formation of consolidated joint venture
 
—

 
—

 
28

 
—

Noncontrolling interest, end of the period
 
373

 
326

 
373

 
326

 
 
 
 
 
 
 
 
 
Total equity
 
$
2,630

 
$
4,395

 
$
2,630

 
$
4,395



Adient plc | Form 10-Q | 22


The following table presents changes in AOCI attributable to Adient:
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
(in millions)
 
2019
 
2018
 
2019
 
2018
Foreign currency translation adjustments
 
 
 
 
 
 
 
 
Balance at beginning of period
 
$
(507
)
 
$
(327
)
 
$
(523
)
 
$
(398
)
Aggregate adjustment for the period, net of tax
 
35

 
132

 
51

 
203

Balance at end of period
 
(472
)
 
(195
)
 
(472
)
 
(195
)
Realized and unrealized gains (losses) on derivatives
 
 
 
 
 
 
 
 
Balance at beginning of period
 
(10
)
 
(7
)
 
(7
)
 
3

Current period changes in fair value, net of tax
 
4

 
11

 
1

 
1

Reclassification to income, net of tax
 
—

 
(1
)
 
—

 
(1
)
Balance at end of period
 
(6
)
 
3

 
(6
)
 
3

Pension and postretirement plans
 
 
 
 
 
 
 
 
Balance at beginning of period
 
(1
)
 
(2
)
 
(1
)
 
(2
)
Net reclassifications to AOCI
 
—

 
9

 
—

 
9

Balance at end of period
 
(1
)
 
7

 
(1
)
 
7

Accumulated other comprehensive income (loss), end of period
 
$
(479
)
 
$
(185
)
 
$
(479
)
 
$
(185
)

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:
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
(in millions)
 
2019
 
2018
 
2019
 
2018
Beginning balance
 
$
27

 
$
29

 
$
47

 
$
28

Net income
 
9

 
9

 
18

 
16

Foreign currency translation adjustments
 
1

 
1

 
—

 
2

Dividends
 
—

 
—

 
(28
)
 
(8
)
Change in noncontrolling interest share
 
—

 
—

 
—

 
1

Ending balance
 
$
37

 
$
39

 
$
37

 
$
39




Adient plc | Form 10-Q | 23


11. Retirement Plans

Adient maintains non-contributory defined benefit pension plans covering primarily non-U.S. employees and a limited number of U.S. employees. The following table contains the components of net periodic benefit cost:
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
(in millions)
 
2019
 
2018
 
2019
 
2018
Service cost
 
$
2

 
$
2

 
$
4

 
$
4

Interest cost
 
3

 
3

 
6

 
7

Expected return on plan assets
 
(3
)
 
(4
)
 
(8
)
 
(9
)
Settlement (gain) loss
 
—

 
(6
)
 
—

 
(6
)
Net periodic benefit cost
 
$
2

 
$
(5
)
 
$
2

 
$
(4
)

The interest cost, expected return on plan assets and settlement (gain) loss components of net periodic benefit cost are included in other pension expense (income) in the consolidated statements of income (loss).

12. Restructuring and Impairment Costs

Restructuring Costs

To better align its resources with its overall strategies and reduce the cost structure of its global operations to address the softness in certain underlying markets, Adient commits to restructuring plans as necessary.

During fiscal 2019, Adient committed to a restructuring plan ("2019 Plan") of $80 million that was offset by $8 million of underspend in prior years. Of the restructuring costs recorded, $61 million relates to the EMEA segment, $13 million relates to the Americas segment and $6 million relates to the Asia segment. The restructuring actions relate to cost reduction initiatives and consist primarily of workforce reductions. The restructuring actions are expected to be substantially completed by fiscal 2019.

The following table summarizes the changes in Adient's 2019 Plan reserve:
(in millions)
 
Employee Severance and Termination Benefits
Original Reserve
 
$
80

Utilized—cash
 
(13
)
Balance at March 31, 2019
 
$
67


In fiscal 2018, Adient committed to a restructuring plan ("2018 Plan") of $71 million that was offset by $20 million of underspend in the 2016 Plan and $7 million of underspend related to other plan years. Of the restructuring costs recorded, $52 million relates to the EMEA segment, $10 million relates to the Asia segment and $9 million relates to the Americas segment. This is the total amount expected to be incurred for this restructuring plan. The restructuring actions relate to cost reduction initiatives and consist primarily of workforce reductions. The restructuring actions are expected to be substantially completed by fiscal 2019.


Adient plc | Form 10-Q | 24


The following table summarizes the changes in Adient's 2018 Plan reserve:
(in millions)
 
Employee Severance and Termination Benefits
 
Other
 
Currency
Translation
 
Total
Balance at September 30, 2018
 
$
49

 
$
1

 
$
(2
)
 
$
48

Utilized—cash
 
(16
)
 
—

 
—

 
(16
)
Utilized—noncash
 
—

 
(1
)
 
1

 
—

Noncash adjustment—underspend
 
(2
)
 
—

 
—

 
(2
)
Balance at March 31, 2019
 
$
31

 
$
—

 
$
(1
)
 
$
30


In fiscal 2017, Adient committed to a restructuring plan ("2017 Plan") and recorded $46 million of restructuring and impairment costs in the consolidated statements of income. Of the restructuring costs recorded, $34 million relates to the EMEA segment, $7 million relates to the Americas segment and $5 million relates to the Asia segment. This is the total amount expected to be incurred for this restructuring plan. The restructuring actions relate to cost reduction initiatives and consist primarily of workforce reductions and plant closures. The restructuring actions are expected to be substantially complete in fiscal 2019.

The following table summarizes the changes in Adient's 2017 Plan reserve:
(in millions)
 
Employee Severance and Termination Benefits
Balance at September 30, 2018
 
$
12

Utilized—cash
 
(2
)
Utilized—noncash
 
(1
)
Noncash adjustment—underspend
 
(6
)
Balance at March 31, 2019
 
$
3


In fiscal 2016, Adient committed to a restructuring plan ("2016 Plan") and recorded $332 million of restructuring and impairment costs in the consolidated statements of income. This is the total amount expected to be incurred for this restructuring plan. The restructuring actions relate to cost reduction initiatives and consist primarily of workforce reductions, plant closures and asset impairments. Of the restructuring and impairment costs recorded, $298 million relates to the EMEA segment, $32 million relates to the Americas segment and $2 million relates to the Asia segment. The asset impairment charge recorded during fiscal 2016 related primarily to information technology assets within the EMEA segment that will not be used going forward by Adient. The restructuring actions are expected to be substantially complete in fiscal 2021.

Since the announcement of the 2016 Plan in fiscal 2016, Adient has experienced lower employee severance and termination benefit cash payouts than previously calculated of approximately $20 million , due to changes in cost reduction actions. The planned workforce reductions disclosed for the 2016 Plan have been updated for Adient's revised actions.

The following table summarizes the changes in Adient's 2016 Plan reserve:
(in millions)
 
Employee Severance and Termination Benefits
 
Currency
Translation
 
Total
Balance at September 30, 2018
 
$
71

 
$
4

 
$
75

Utilized—cash
 
(37
)
 
—

 
(37
)
Utilized—noncash
 
—

 
(2
)
 
(2
)
Balance at March 31, 2109
 
$
34

 
$
2

 
$
36






Adient plc | Form 10-Q | 25


Adient's fiscal 2019, 2018, 2017 and 2016 restructuring plans included workforce reductions of approximately 7,300 . Restructuring charges associated with employee severance and termination benefits are paid over the severance period granted to each employee or on a lump sum basis in accordance with individual severance agreements. As of March 31, 2019, approximately 5,000 of the employees have been separated from Adient pursuant to the restructuring plans. In addition, the restructuring plans included fifteen plant closures. As of March 31, 2019, eleven of the fifteen plants have been closed.

Adient's management closely monitors its overall cost structure and continually analyzes each of its businesses for opportunities to consolidate current operations, improve operating efficiencies and locate facilities in low cost countries in close proximity to customers. This ongoing analysis includes a review of its manufacturing, engineering, purchasing and administrative functions, as well as the overall global footprint for all its businesses. Because of the importance of new vehicle sales by major automotive manufacturers to operations, Adient is affected by the general business conditions in the automotive industry. Future adverse developments in the automotive industry could impact Adient's liquidity position, lead to impairment charges and/or require additional restructuring of its operations.

Impairment

In the second quarter of fiscal 2019, Adient concluded it had a triggering event requiring assessment of impairment for certain of its former SS&M segment long-lived assets within the EMEA ( $55 million ) and Americas ( $11 million ) segments due to declines in actual and forecasted performance that worsened during the second quarter of fiscal 2019 as compared to originally forecasted results. As a result, Adient reviewed the long-lived assets for impairment and recorded a $66 million non-cash pre-tax impairment charge within restructuring and impairment costs on the consolidated statements of income (loss). The impairment charge related to long-lived assets in North America and Europe asset groups in support of current programs. Of the $66 million impairment charge, $62 million relates to fixed assets, and $4 million relates to customer relationships. The impairment was measured under a market approach utilizing appraisal techniques to determine fair values of the impaired assets. This method is consistent with methods Adient employed in prior periods to value other long-lived assets. The inputs utilized in the analysis are classified as Level 3 inputs within the fair value hierarchy as defined in ASC 820, "Fair value measurement" and primarily consist of estimated salable values and third party appraisal techniques such as market comparables. To the extent that the profitability on current or future programs decline as compared to forecasted profitability or if adverse changes occur to key assumptions or other fair value measurement inputs, further impairment of long-lived assets could occur in the future. During the first quarter of fiscal 2019, impairments of $6 million were recorded related to assets held for sale.

During the second quarter of fiscal 2018, in conjunction with a change in segment reporting at that time, a $299 million goodwill impairment charge was recorded related to the former SS&M segment.

13. Income Taxes
In calculating the provision for income taxes, Adient uses an estimate of the annual effective tax rate based upon the facts and circumstances known at each interim period. On a quarterly basis, the actual effective tax rate is adjusted, as appropriate, based on changes in facts and circumstances, if any, as compared to those forecasted at the beginning of the fiscal year and each interim period thereafter. For the three and six months ended March 31, 2019, Adient’s income tax expense (benefit) was $64 million equating to an effective tax rate of ( 103% ) and $74 million equating to an effective tax rate of ( 180% ), respectively. The three and six month income tax expense was higher than the statutory rate impact of 12.5% primarily due to the recognition of a valuation allowance in Poland and the impact of recognizing no tax benefit for losses in jurisdictions with valuation allowances. The six month income tax expense was partially offset by a tax rate change benefit in China. For the three and six months ended March 31, 2018, Adient’s income tax expense (benefit) was $(28) million equating to an effective tax rate of 16% and $237 million equating to an effective tax rate of ( 232% ), respectively. The three month income tax benefit was higher than the statutory rate impact of 12.5% primarily due to the goodwill impairment charge and foreign exchange. The six month income tax expense was higher than the statutory rate impact primarily due to the charge to recognize the impact of the U.S. tax reform legislation.
Valuation Allowances

As a result of Adient's second quarter fiscal 2019 analysis of the realizability of its worldwide deferred tax assets, and after considering tax planning initiatives and other positive and negative evidence (including the long-lived asset impairment recorded in the second quarter of fiscal 2019), Adient determined that it was more likely than not that deferred tax assets within certain Poland entities would not be realized and recorded a net income tax expense of $43 million in the second quarter of fiscal 2019 to establish a valuation allowance.


Adient plc | Form 10-Q | 26


Adient reviews the realizability of its deferred tax assets on a quarterly basis, or whenever events or changes in circumstances indicate that a review is required. In determining the requirement for a valuation allowance, the historical and projected financial results of the legal entity or combined group recording the net deferred tax asset are considered, along with any other positive or negative evidence. All of the factors that Adient considers in evaluating whether and when to establish or release all or a portion of the deferred tax asset valuation allowance involve significant judgment.

Since future financial results may differ from previous estimates, periodic adjustments to Adient's valuation allowances may be necessary. As a result of the external refinancing that occurred in the third quarter of fiscal 2019, Adient will reevaluate its internal financing structure. Adient may conclude that it is more likely than not that a material portion of our deferred tax assets will not be realized as a result of this evaluation. As such, it is possible that a change to valuation allowances in certain jurisdictions may result in a material increase to income tax expense during the next twelve months. In addition, the effective tax rate in subsequent periods would also increase.

Uncertain Tax Positions

At March 31, 2019, Adient had gross tax effected unrecognized tax benefits of $280 million . If recognized, $131 million of Adient's unrecognized tax benefits would impact the effective tax rate. Total net accrued interest at March 31, 2019 was approximately $8 million (net of tax benefit). The interest and penalties accrued during the three and six months ended March 31, 2019 was not material. Adient recognizes interest and penalties related to unrecognized tax benefits as a component of income tax expense.

Impacts of Tax Legislation and Change in Statutory Tax Rates

During the first quarter of fiscal 2019, Adient completed its accounting for the Tax Cuts and Jobs Act Base Erosion and Anti-avoidance Tax valuation allowance resulting in no change to the $100 million income tax impact estimated in fiscal 2018.

During the first quarter of fiscal 2019, Guangzhou Adient Automotive Seating Co., Ltd. ("GAAS”) was approved for High and New Tech Enterprise status for the three-year period of 2018 to 2020, thereby reducing their tax rate from 25% to 15% . As a result, a $7 million income tax benefit was recorded on the reduction of deferred tax liabilities and a reduction of 2018 calendar year income taxes.

Other tax legislation was adopted during the quarter in various jurisdictions, which did not have a material impact on Adient’s consolidated financial statements.

Other Tax Matters

During the second quarter of fiscal 2019, Adient recognized a pre-tax impairment charge on long-lived assets of  $66 million . Refer to Note 12 "Restructuring and Impairment Costs," of the notes to the consolidated financial statements for additional information. The tax benefit associated with the impairment charge was  $2 million , which was negatively impacted by geographic mix and Adient’s current tax position in these jurisdictions.

During the second quarter of fiscal 2018, Adient recognized a pre-tax goodwill impairment charge of  $299 million  related to the former SS&M segment. Refer to Note 12, "Restructuring and Impairment Costs," of the notes to the consolidated financial statements for additional information. The tax benefit associated with the goodwill impairment charge was  $20 million .


Adient plc | Form 10-Q | 27


14. Segment Information

During the second quarter of fiscal 2019, Adient realigned certain of its organizational structure to manage its business primarily on a geographic basis, resulting in a change to reportable segments. Prior period segment information has been recast to align with this change in organizational structure and the updated definition of corporate-related costs. Pursuant to this change, Adient now operates in the following three reportable segments for financial reporting purposes: 1) Americas, which is inclusive of North America and South America; 2) Europe, Middle East, and Africa ("EMEA") and 3) Asia Pacific/China ("Asia").

Adient evaluates the performance of its reportable segments using an adjusted EBITDA metric defined as income before income taxes and noncontrolling interests, excluding net financing charges, 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 EBITDA"). Also, certain corporate-related costs are not allocated to the segments. The reportable segments are consistent with how management views the markets served by Adient and reflect the financial information that is reviewed by its chief operating decision maker. Adient has three reportable segments for financial reporting purposes:

Financial information relating to Adient's reportable segments is as follows:
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
(in millions)
 
2019
 
2018 (1)
 
2019
 
2018 (1)
Net Sales
 
 
 
 
 
 
 
 
Americas
 
$
1,915

 
$
1,941

 
$
3,850

 
$
3,727

EMEA
 
1,778

 
2,056

 
3,418

 
3,909

Asia
 
599

 
690

 
1,249

 
1,338

Eliminations
 
(64
)
 
(91
)
 
(131
)
 
(174
)
Total net sales
 
$
4,228

 
$
4,596

 
$
8,386

 
$
8,800


 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
(in millions)
 
2019
 
2018 (1)
 
2019
 
2018 (1)
Adjusted EBITDA
 
 
 
 
 
 
 
 
Americas
 
$
34

 
$
98

 
$
77

 
$
133

EMEA
 
59

 
130

 
61

 
212

Asia
 
123

 
157

 
277

 
333

Corporate-related costs (2)
 
(25
)

(23
)
 
(48
)
 
(50
)
Becoming Adient costs (3)
 
—

 
(19
)
 
—

 
(38
)
Restructuring and impairment costs (4)
 
(113
)
 
(315
)
 
(144
)
 
(315
)
Purchase accounting amortization (5)
 
(10
)
 
(18
)
 
(20
)
 
(35
)
Restructuring related charges  (6)
 
(14
)
 
(12
)
 
(23
)
 
(23
)
Stock based compensation (7)
 
(2
)
 
(12
)
 
(8
)
 
(22
)
Depreciation (8)
 
(72
)
 
(99
)
 
(137
)
 
(193
)
Other items (9)
 
(2
)
 
(28
)
 
(3
)
 
(42
)
Earnings (loss) before interest and income taxes
 
(22
)
 
(141
)
 
32

 
(40
)
Net financing charges
 
(40
)
 
(37
)
 
(75
)
 
(70
)
Other pension income
 
—

 
7

 
2

 
8

Income (loss) before income taxes
 
$
(62
)
 
$
(171
)
 
$
(41
)
 
$
(102
)





Adient plc | Form 10-Q | 28




Notes

(1) The presentation of certain amounts has been revised from what was previously reported to retrospectively adopt Accounting Standard Update ("ASU") 2017-07, "Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Cost" as of October 1, 2018. See Note 1, "Basis of Presentation and Summary of Significant Accounting Policies," for more information.

(2) Corporate-related costs not allocated to the segments include executive office, communications, corporate development, legal and finance.

(3) Reflects incremental expenses associated with becoming an independent company. Includes non-cash costs of $5 million and $11 million in the three and six months ended March 31, 2018, respectively.

(4) Reflects qualified 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.

(5) Reflects amortization of intangible assets including those related to partially owned affiliates recorded within equity income. As a result of the fiscal year 2018 YFAI impairment, the intangible assets related to YFAI were deemed to be fully impaired and thus no longer amortized.

(6) Reflects restructuring related charges for costs that are directly attributable to restructuring activities, but do not meet the definition of restructuring under ASC 420.

(7) For the six months ended March 31, 2018, stock based compensation excludes $8 million, which is included in Becoming Adient costs discussed above.

(8) For the six months ended March 31, 2018, depreciation excludes $4 million, which is included in restructuring related charges discussed above.

(9) The three and six months ended March 31, 2019 reflects $2 million and $3 million of Futuris integration costs, respectively. The three months ended March 31, 2018 includes $7 million of Futuris integration costs, $8 million of prior period adjustments, $7 million of non-recurring consulting fees related to the former SS&M segment. The six months ended March 31, 2018 also includes $8 million for the U.S tax reform impact at YFAI and $6 million of integration-related costs associated with Futuris. In addition, for both the three and six months ended March 31, 2018, $6 million of other non-recurring income that was reclassified to other pension income upon adoption of ASU 2017-07.


Additional Segment Information
 
 
Three Months Ended March 31, 2019
 
 
Reportable Segments
 
Reconciling Items (1)
 
Consolidated
(in millions)
 
Americas
 
EMEA
 
Asia
 
 
Equity Income
 
$
—

 
$
3

 
$
59

 
$
—

 
$
62

Depreciation
 
27

 
34

 
11

 
—

 
72

Capital Expenditures
 
52

 
46

 
10

 
—

 
108

Total Assets
 
3,309

 
2,806

 
3,653

 
806

 
10,574



Adient plc | Form 10-Q | 29


 
 
Six Months Ended March 31, 2019
 
 
Reportable Segments
 
Reconciling Items (1)
 
Consolidated
(in millions)
 
Americas
 
EMEA
 
Asia
 
 
Equity Income
 
$
1

 
$
5

 
$
139

 
$
—

 
$
145

Depreciation
 
51

 
63

 
23

 
—

 
137

Capital Expenditures
 
100

 
130

 
22

 
—

 
252

Total Assets
 
3,309

 
2,806

 
3,653

 
806

 
10,574


 
 
Three Months Ended March 31, 2018
 
 
Reportable Segments
 
Reconciling Items (1)
 
Consolidated
(in millions)
 
Americas
 
EMEA
 
Asia
 
 
Equity Income
 
$
2

 
$
3

 
$
80

 
$
—

 
$
85

Depreciation
 
36

 
51

 
11

 
3

 
101

Capital Expenditures
 
42

 
67

 
14

 
—

 
123


 
 
Six Months Ended March 31, 2018
 
 
Reportable Segments
 
Reconciling Items (1)
 
Consolidated
(in millions)
 
Americas
 
EMEA
 
Asia
 
 
Equity Income
 
$
3

 
$
6

 
$
172

 
$
—

 
$
181

Depreciation
 
70

 
99

 
22

 
6

 
197

Capital Expenditures
 
104

 
147

 
15

 
—

 
266


(1) Reconciling items include corporate-related assets and depreciation amounts to reconcile to consolidated totals.

15. Nonconsolidated Partially-Owned Affiliates

Investments in the net assets of nonconsolidated partially-owned affiliates are reported in the "Investments in partially-owned affiliates" line in the consolidated statements of financial position as of March 31, 2019 and September 31, 2018. Equity in the net income of nonconsolidated partially-owned affiliates are reported in the "Equity income" line in the consolidated statements of income (loss) for the six months ended March 31, 2019 and 2018, respectively.

Adient maintains total investments in partially-owned affiliates of $1.5 billion and $1.4 billion at March 31, 2019 and September 30, 2018, respectively. Operating information for nonconsolidated partially-owned affiliates is as follows:
 
 
Six Months Ended
March 31,
(in millions)
 
2019
 
2018
Income statement data:
 
 
 
 
Net sales
 
$
8,127

 
$
9,273

Gross profit
 
$
958

 
$
1,086

Net income
 
$
336

 
$
436

Net income attributable to the entity
 
$
326

 
$
405



Adient plc | Form 10-Q | 30


16. Commitments and Contingencies

Adient accrues for potential environmental liabilities when it is probable a liability has been incurred and the amount of the liability is reasonably estimable. Reserves for environmental liabilities totaled $10 million and $8 million at March 31, 2019 and September 30, 2018, respectively. Adient reviews the status of its environmental sites on a quarterly basis and adjusts its reserves accordingly. Such potential liabilities accrued by Adient do not take into consideration possible recoveries of future insurance proceeds. They do, however, take into account the likely share other parties will bear at remediation sites. It is difficult to estimate Adient's ultimate level of liability at many remediation sites due to the large number of other parties that may be involved, the complexity of determining the relative liability among those parties, the uncertainty as to the nature and scope of the investigations and remediation to be conducted, the uncertainty in the application of law and risk assessment, the various choices and costs associated with diverse technologies that may be used in corrective actions at the sites, and the often quite lengthy periods over which eventual remediation may occur. Nevertheless, Adient does not currently believe that any claims, penalties or costs in connection with known environmental matters will have a material adverse effect on Adient's financial position, results of operations or cash flows.

Adient is involved in various lawsuits, claims and proceedings incident to the operation of its businesses, including those pertaining to product liability, casualty environmental, safety and health, intellectual property, employment, commercial and contractual matters, and various other matters. Although the outcome of any such lawsuit, claim or proceeding cannot be predicted with certainty and some may be disposed of unfavorably to Adient, it is management's opinion that none of these will have a material adverse effect on Adient's financial position, results of operations or cash flows. Costs related to such matters were not material to the periods presented.

17. Related Party Transactions

In the ordinary course of business, Adient enters into transactions with related parties, such as equity affiliates. Such transactions consist of the sale or purchase of goods and other arrangements. Subsequent to the separation, transactions with the former Parent and its businesses represent third-party transactions.

The following table sets forth the net sales to and purchases from related parties included in the consolidated statements of income:
 
 
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
(in millions)
 
 
 
2019
 
2018
 
2019
 
2018
Net sales to related parties
 
Net sales
 
$
88

 
$
110

 
$
180

 
$
209

Purchases from related parties
 
Cost of sales
 
177

 
173

 
350

 
310

The following table sets forth the amount of accounts receivable due from and payable to related parties in the consolidated statements of financial position:
(in millions)
 
 
 
March 31,
2019
 
September 30, 2018
Accounts receivable due from related parties
 
Accounts receivable
 
$
83

 
$
91

Accounts payable due to related parties
 
Accounts payable
 
111

 
102


Average receivable and payable balances with related parties remained consistent with the period end balances shown above.



Adient plc | Form 10-Q | 31


Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This section and other parts of this Quarterly Report on Form 10-Q contain 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 others, some of which are beyond Adient’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: effectively launch new business at forecasted and profitable levels, the impact of tax reform legislation through the Tax Cuts and Jobs Act, uncertainties in U.S. administrative policy regarding trade agreements, tariffs and other international trade relations, the ability of Adient to execute turnaround actions, the ability of Adient to identify, recruit and retain key leadership, the ability of Adient to meet debt service requirements, the ability and terms of financing, general economic and business conditions, the strength of the U.S. or other economies, automotive vehicle production levels, mix and schedules, energy and commodity prices, the availability of raw materials and component products, currency exchange rates, the ability of Adient to fully integrate the Futuris business, cancellation of or changes to commercial arrangements, and the ability of Adient Aerospace to successfully implement its strategic initiatives or realize the expected benefits of the joint venture. 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 the 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. Adient assumes no obligation to revise or update any forward-looking statements for any reason, except as required by law.
Overview
Adient is a global leader in the automotive seating 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, 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 30% equity interest in its 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 international motorsports industry through its award winning RECARO brand of products. Adient operates in 234 wholly- and majority-owned manufacturing or assembly facilities, with operations in 34 countries. Additionally, Adient has partially-owned affiliates in China, Asia, Europe and North America. Through its global footprint, vertical integration and partnerships in China, Adient leverages its capabilities to drive growth in the automotive seating industry.
During the second quarter of fiscal 2019, Adient realigned certain of its organizational structure to manage its business primarily on a geographic basis, resulting in a change to reportable segments. Prior period segment information has been recast to align with this change in organizational structure and the updated definition of corporate-related costs. Pursuant to this change, Adient now 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 plc | Form 10-Q | 32


Global Automotive Industry

Adient conducts its business globally in the automotive industry, which is highly competitive and sensitive to economic, political and social factors in the various regions. In the second quarter of fiscal 2019, North America, South America and Asia remained flat and production in China and Europe experienced decreases. During the first six months of fiscal 2019, North America and Asia experienced growth while South America, Europe and China experienced decreased production levels.

Light vehicle production levels by geographic region are provided below:
 
 
Light Vehicle Production
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
(units in millions)
 
2019
 
Change
 
2018
 
2019
 
Change
 
2018
Global
 
22.7
 
-4.6%
 
23.8
 
46.2
 
-4.9%
 
48.6
North America
 
4.4
 
—%
 
4.4
 
8.5
 
1.2%
 
8.4
South America
 
0.8
 
—%
 
0.8
 
1.6
 
-5.9%
 
1.7
Europe
 
5.8
 
-4.9%
 
6.1
 
11.5
 
-5.0%
 
12.1
China
 
6.0
 
-11.8%
 
6.8
 
13.1
 
-13.8%
 
15.2
Asia, excluding China, and Other
 
5.7
 
—%
 
5.7
 
11.5
 
2.7%
 
11.2
 
 
 
 
 
 
 
 
 
 
 
 
 
Source: IHS Automotive, March 2019
 
 
 
 
 
 
 
 
 
 

Financial Results Summary
Significant aspects of Adient's financial results for the three and six months ended of fiscal 2019 include the following:
•
Adient recorded net sales of $4,228 million for the second quarter of fiscal 2019 , representing a decrease of $368 million when compared to the second quarter of fiscal 2018 . The decrease in net sales is primarily due to the unfavorable foreign currency impact and lower volumes primarily in EMEA and Asia. Adient recorded net sales of $8,386 million for the first six months of fiscal 2019 , representing a decrease of $414 million when compared to the first six months of fiscal 2018 . The decrease in net sales is primarily due to the unfavorable foreign currency impact and lower volumes in EMEA and Asia, partially offset by higher volumes in the Americas.
•
Gross profit was $197 million , or 4.7% of net sales for the second quarter of fiscal 2019 compared to $282 million , or 6.1% of net sales for the second quarter of fiscal 2018 . Gross profit was $377 million , or 4.5% of net sales for the first six months of fiscal 2019 compared to $483 million , or 5.5% of net sales for the first six months of fiscal 2018 . Profitability, including gross profit as a percentage of net sales, was lower primarily due to ongoing business performance issues in the Americas and EMEA.
•
Equity income was $62 million for the second quarter of fiscal 2019 , which compared to equity income of $85 million for the second quarter of fiscal 2018 . Equity income was $145 million for the first six months of fiscal 2019 , compared to equity income of $181 million for the first six months of fiscal 2018 . These decreases were primarily attributable to overall lower sales within certain China affiliates along with ongoing operating performance issues at YFAI.
•
Net loss attributable to Adient was $149 million for the second quarter of fiscal 2019 , compared to $168 million of net loss attributable to Adient for the second quarter of fiscal 2018 . The net loss in the second quarter of fiscal 2019 is primarily attributable to the $64 million net-of-tax long-lived asset impairment charge, the net $43 million income tax charge to establish a valuation allowance in Poland, overall lower levels of profitability and lower equity income, partially offset by lower levels of administrative costs. Net loss attributable to Adient was $166 million for the first six months of fiscal 2019 , compared to $384 million of net loss attributable to Adient for the first six months of fiscal 2018 . The year over year decrease in net loss attributable to Adient is primarily attributable to higher one-time costs in the prior year related to goodwill impairment ($279 million, net of tax) and the impact of the 2018 U.S. tax reform legislation ($258 million).

Adient plc | Form 10-Q | 33


Consolidated Results of Operations
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
(in millions)
 
2019
 
Change
 
2018
 
2019
 
Change
 
2018
Net sales
 
$
4,228

 
-8%
 
$
4,596

 
$
8,386

 
-5%
 
$
8,800

Cost of sales
 
4,031

 
-7%
 
4,314

 
8,009

 
-4%
 
8,317

Gross profit
 
197

 
-30%
 
282

 
377

 
-22%
 
483

Selling, general and administrative expenses
 
168

 
-13%
 
193

 
346

 
-11%
 
389

Restructuring and impairment costs
 
113

 
-64%
 
315

 
144

 
-54%
 
315

Equity income (loss)
 
62

 
-27%
 
85

 
145

 
-20%
 
181

Earnings (loss) before interest and income taxes
 
(22
)
 
-84%
 
(141
)
 
32

 
*
 
(40
)
Net financing charges
 
40

 
8%
 
37

 
75

 
7%
 
70

Other pension expense (income)
 
—

 
*
 
(7
)
 
(2
)
 
-75%
 
(8
)
Income (loss) before income taxes
 
(62
)
 
-64%
 
(171
)
 
(41
)
 
-60%
 
(102
)
Income tax provision (benefit)
 
64

 
*
 
(28
)
 
74

 
-69%
 
237

Net income (loss)
 
(126
)
 
-12%
 
(143
)
 
(115
)
 
-66%
 
(339
)
Income (loss) attributable to noncontrolling interests
 
23

 
-8%
 
25

 
51

 
13%
 
45

Net income (loss) attributable to Adient
 
$
(149
)
 
-11%
 
$
(168
)
 
$
(166
)
 
-57%
 
$
(384
)
 
 
 
 
 
* Measure not meaningful
Net Sales
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
(in millions)
 
2019
 
Change
 
2018
 
2019
 
Change
 
2018
Net sales
 
$
4,228

 
-8%
 
$
4,596

 
$
8,386

 
-5%
 
$
8,800

Net sales decreased by $368 million , or 8% , in the second quarter of fiscal 2019 as compared to the second quarter of fiscal 2018 primarily due to an unfavorable foreign currency impact of $200 million , and lower volumes in all regions although primarily in EMEA and Asia in line with broader automotive industry trends. Refer to the segment analysis below for a discussion of segment net sales.
Net sales decreased by $414 million , or 5% , in the first six months of fiscal 2019 as compared to the first six months of fiscal 2018 primarily due to the unfavorable foreign currency impact of $294 million and lower volumes in EMEA and Asia, partially offset by higher volumes in the Americas, in line with broader automotive industry trends. Refer to the segment analysis below for a discussion of segment net sales.
Cost of Sales / Gross Profit
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
(in millions)
 
2019
 
Change
 
2018
 
2019
 
Change
 
2018
Cost of sales
 
$
4,031

 
-7%
 
$
4,314

 
$
8,009

 
-4%
 
$
8,317

Gross profit
 
$
197

 
-30%
 
$
282

 
$
377

 
-22%
 
$
483

% of sales
 
4.7
%
 
 
 
6.1
%
 
4.5
%
 
 
 
5.5
%
Cost of sales decreased by $283 million , or 7% , and gross profit decreased by $85 million , or 30% , in the second quarter of fiscal 2019 as compared to the second quarter of fiscal 2018 . Cost of sales was impacted favorably by the impact of foreign currency ( $175 million ), a reduction in depreciation expense ($20 million), prior year Becoming Adient costs ($15 million) and volume decreases, partially offset by continued business performance issues related to launch inefficiencies within the Americas and EMEA, along with higher freight and higher operational waste. These ongoing performance issues also resulted in a year-over-year decline of gross profit as a percentage of net sales. Refer to the segment analysis below for a discussion of segment profitability.

Adient plc | Form 10-Q | 34


Cost of sales decreased by $308 million , or 4% , and gross profit decreased by $106 million , or 22% , in the first six months of fiscal 2019 as compared to the first six months of fiscal 2018 . Cost of sales was impacted favorably by the impact of foreign currency ( $259 million ), a reduction in depreciation expense ($45 million), prior year Becoming Adient costs ($28 million) and volume decreases, partially offset by continued business performance issues related to launch inefficiencies within the Americas and EMEA, along with higher freight and higher operational waste. These ongoing performance issues also resulted in a year-over-year decline of gross profit as a percentage of net sales. Refer to the segment analysis below for a discussion of segment profitability.
Selling, General and Administrative Expenses
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
(in millions)
 
2019
 
Change
 
2018
 
2019
 
Change
 
2018
Selling, general and administrative expenses
 
$
168

 
-13%
 
$
193

 
$
346

 
-11%
 
$
389

% of sales
 
4.0
%
 
 
 
4.2
%
 
4.1
%
 
 
 
4.4
%
Selling, general and administrative expenses (SG&A) decreased by $25 million in the second quarter of fiscal 2019 as compared to the second quarter of fiscal 2018 . SG&A was favorably impacted by lower net engineering costs ($10 million), prior year Becoming Adient costs ($4 million), favorability in equity based compensation ($9 million), lower depreciation expense ($5 million) and a favorable impact of foreign currency ($7 million), partially offset by reestablishing certain discretionary spending, primarily incentive compensation, in the current year. Refer to the segment analysis below for a discussion of segment profitability.
Selling, general and administrative expenses (SG&A) decreased by $43 million in the first six months of fiscal 2019 as compared to the first six months of fiscal 2018 . SG&A was favorably impacted by lower net engineering costs ($31 million), prior year Becoming Adient costs ($10 million), favorability in equity based compensation ($12 million), lower depreciation expense ($11 million) and a favorable impact of foreign currency ($11 million), partially offset by reestablishing certain discretionary spending, primarily incentive compensation, in the current year. Refer to the segment analysis below for a discussion of segment profitability.
Restructuring and Impairment Costs
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
(in millions)
 
2019
 
Change
 
2018
 
2019
 
Change
 
2018
Restructuring and impairment costs
 
$
113

 
-64%
 
$
315

 
$
144

 
-54%
 
$
315

The decrease in restructuring and impairment costs in both the second quarter and first six months of fiscal 2019 as compared to the same periods in the previous year were primarily due to the prior year $299 million goodwill impairment charge associated with the former SS&M segment, partially offset by the three and six month current year net restructuring charges ($47 million and $72 million, respectively) and the net-of-tax long lived asset impairment charge of $64 million. Refer to Note 12 , " Restructuring and Impairment Costs ," of the notes to the consolidated financial statements for information related to Adient's restructuring plans and recent impairment charges.
Equity Income
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
(in millions)
 
2019
 
Change
 
2018
 
2019
 
Change
 
2018
Equity income (loss)
 
$
62

 
-27%
 
$
85

 
$
145

 
-20%
 
$
181

Equity income was $62 million for the second quarter of fiscal 2019 , which is $23 million lower compared to the second quarter of fiscal 2018 . The decrease was primarily attributable to overall lower sales within Adient's China affiliates along with ongoing operating performance issues at YFAI and the unfavorable impact of foreign currency translation of $5 million .
Equity income was $145 million for the first six months of fiscal 2019 , which is $36 million lower compared to the first six months of fiscal 2018 . The decrease was primarily attributable to overall lower sales within Adient's China affiliates along with ongoing operating performance issues at YFAI and the unfavorable impact of foreign currency translation of $10 million .

Adient plc | Form 10-Q | 35


Net Financing Charges
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
(in millions)
 
2019
 
Change
 
2018
 
2019
 
Change
 
2018
Net financing charges
 
$
40

 
8%
 
$
37

 
$
75

 
7%
 
$
70

Net financing charges increased in the second quarter and first six months of fiscal 2019 as compared to the same periods in 2018 due to higher average interest rates in applicable periods on similar levels of outstanding debt. Refer to Note 7 , " 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)
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
(in millions)
 
2019
 
Change
 
2018
 
2019
 
Change
 
2018
Other pension expense (income)
 
$
—

 
*
 
$
(7
)
 
$
(2
)
 
-75%
 
$
(8
)
 
 
 
 
 
* Measure not meaningful
Other pension expense (income) consists of non-service components of Adient's net periodic pension costs. Refer to Note 11 , " Retirement Plans ," of the notes to the consolidated financial statements for information related to the non-service components of Adient's net periodic pension costs.
Income Tax Provision
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
(in millions)
 
2019
 
Change
 
2018
 
2019
 
Change
 
2018
Income tax provision (benefit)
 
$
64

 
*
 
$
(28
)
 
$
74

 
-69%
 
$
237

 
 
 
 
 
* Measure not meaningful
The second quarter of fiscal 2019 income tax expense of $64 million primarily resulted from a net income tax charge of $43 million to establish a valuation allowance in Poland and the impact of recognizing no tax benefits for losses in jurisdictions with valuation allowances.
The first six months of fiscal 2019 income tax expense of $74 million resulted primarily from establishing the Poland valuation allowance and the impact of recognizing no tax benefit for losses in jurisdictions with valuation allowances, partially offset by a tax rate change at a consolidated affiliate in China. The year over year decrease in income tax expense is primarily attributable to the prior year tax charge of $258 million related to the impact of the 2018 U.S. tax reform legislation.
Income Attributable to Noncontrolling Interests
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
(in millions)
 
2019
 
Change
 
2018
 
2019
 
Change
 
2018
Income (loss) attributable to noncontrolling interests
 
$
23

 
-8%
 
$
25

 
$
51

 
13%
 
$
45

The decrease in income attributable to noncontrolling interests for the second quarter of fiscal 2019 when compared to the same period in the prior year was primarily attributable to lower income resulting from lower volumes at certain EMEA affiliates, partially offset by higher income at certain Americas and Asia affiliates.
The increase in income attributable to noncontrolling interests for the first six months of fiscal 2019 when compared to the same period in the prior year was primarily attributable to higher income resulting from higher volumes at certain Americas and Asia affiliates, partially offset by lower income at certain EMEA affiliates.

Adient plc | Form 10-Q | 36


Net Income (Loss) Attributable to Adient
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
(in millions)
 
2019
 
Change
 
2018
 
2019
 
Change
 
2018
Net income (loss) attributable to Adient
 
$
(149
)
 
-11%
 
$
(168
)
 
$
(166
)
 
-57%
 
$
(384
)
Net loss attributable to Adient was $149 million for the second quarter of fiscal 2019 compared to $168 million of net loss attributable to Adient for the second quarter of fiscal 2018 . The net loss in the second quarter of fiscal 2019 is primarily attributable to the $64 million to the net-of-tax long-lived asset impairment charge, the net $43 million income tax charge to establish a valuation allowance in Poland, overall lower levels of profitability and lower equity income, partially offset by lower levels of administrative costs.
Net loss attributable to Adient was $166 million for the first six months of fiscal 2019 compared to $384 million of net loss attributable to Adient for the first six months of fiscal 2018 . The year over year decrease in net loss attributable to Adient is primarily attributable to higher one-time costs in the prior year related to goodwill impairment ($279 million, net of tax) and the impact of the 2018 U.S. tax reform legislation ($258 million).
Comprehensive Income Attributable to Adient
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
(in millions)
 
2019
 
Change
 
2018
 
2019
 
Change
 
2018
Comprehensive income (loss) attributable to Adient
 
$
(110
)
 
*
 
$
(26
)
 
$
(114
)
 
-37%
 
$
(181
)
 
 
 
 
 
* Measure not meaningful
Comprehensive loss attributable to Adient was $110 million for the second quarter of fiscal 2019 compared to comprehensive loss attributable to Adient for the second quarter of fiscal 2018 of $26 million . The increase in comprehensive loss attributable to Adient for the second quarter of fiscal 2019 was primarily due to reduced comprehensive income resulting from foreign currency translation adjustments ($103 million) which was primarily driven by weaker Chinese yuan against the U.S. dollar. This was partially offset by reduced net loss attributable to Adient ( $19 million ).
Comprehensive loss attributable to Adient was $114 million for the first six months of fiscal 2019 compared to comprehensive loss attributable to Adient for the first six months of fiscal 2018 of $181 million . The decrease in comprehensive loss attributable to Adient for the first six months of fiscal 2019 was primarily due to reduced net losses attributable to Adient of $218 million offset by unfavorable year-over-year impact of foreign currency ($162 million). The year-over-year unfavorable foreign currency impact was primarily driven by the weakening of the Chinese yuan against the U.S. dollar.

Adient plc | Form 10-Q | 37


Segment Analysis
During the second quarter of fiscal 2019, Adient realigned certain of its organizational structure to manage its business primarily on a geographic basis, resulting in a change to reportable segments. Prior period segment information has been recast to align with this change in organizational structure and the updated definition of corporate-related costs. Pursuant to this change, Adient now operates in the following three reportable segments for financial reporting purposes: 1) Americas, which is inclusive of North America and South America; 2) Europe, Middle East, and Africa ("EMEA") and 3) Asia Pacific/China ("Asia").

Adient evaluates the performance of its reportable segments using an adjusted EBITDA metric defined as income before income taxes and noncontrolling interests, excluding net financing charges, 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 EBITDA"). Also, certain corporate-related costs are not allocated to the segments. The reportable segments are consistent with how management views the markets served by Adient and reflect the financial information that is reviewed by its chief operating decision maker. Adient has three reportable segments for financial reporting purposes:

Financial information relating to Adient's reportable segments is as follows:
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
(in millions)
 
2019
 
2018
 
2019
 
2018
Net Sales
 
 
 
 
 
 
 
 
Americas
 
$
1,915

 
$
1,941

 
$
3,850

 
$
3,727

EMEA
 
1,778

 
2,056

 
3,418

 
3,909

Asia
 
599

 
690

 
1,249

 
1,338

Eliminations
 
(64
)
 
(91
)
 
(131
)
 
(174
)
Total net sales
 
$
4,228

 
$
4,596

 
$
8,386

 
$
8,800

 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
(in millions)
 
2019
 
2018 (1)
 
2019
 
2018 (1)
Adjusted EBITDA
 
 
 
 
 
 
 
 
Americas
 
$
34

 
$
98

 
$
77

 
$
133

EMEA
 
59

 
130

 
61

 
212

Asia
 
123

 
157

 
277

 
333

Corporate-related costs (2)
 
(25
)
 
(23
)
 
(48
)
 
(50
)
Becoming Adient costs (3)
 
—

 
(19
)
 
—

 
(38
)
Restructuring and impairment costs (4)
 
(113
)
 
(315
)
 
(144
)
 
(315
)
Purchase accounting amortization (5)
 
(10
)
 
(18
)
 
(20
)
 
(35
)
Restructuring related charges  (6)
 
(14
)
 
(12
)
 
(23
)
 
(23
)
Stock based compensation (7)
 
(2
)
 
(12
)
 
(8
)
 
(22
)
Depreciation (8)
 
(72
)
 
(99
)
 
(137
)
 
(193
)
Other items (9)
 
(2
)
 
(28
)
 
(3
)
 
(42
)
Earnings (loss) before interest and income taxes
 
(22
)
 
(141
)
 
32

 
(40
)
Net financing charges
 
(40
)
 
(37
)
 
(75
)
 
(70
)
Other pension income
 
—

 
7

 
2

 
8

Income (loss) before income taxes
 
$
(62
)
 
$
(171
)
 
$
(41
)
 
$
(102
)







Adient plc | Form 10-Q | 38


Notes

(1) The presentation of certain amounts has been revised from what was previously reported to retrospectively adopt Accounting Standard Update ("ASU") 2017-07, "Compensation-Retirement Benefits (Topic 715): Improving the Presentation of Net Periodic Pension Cost and Net Periodic Postretirement Cost" as of October 1, 2018. See Note 1, "Basis of Presentation and Summary of Significant Accounting Policies," for more information.

(2) Corporate-related costs not allocated to the segments include executive office, communications, corporate development, legal and finance.

(3) Reflects incremental expenses associated with becoming an independent company. Includes non-cash costs of $5 million and $11 million in the three and six months ended March 31, 2018, respectively.

(4) Reflects qualified 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.

(5) Reflects amortization of intangible assets including those related to partially owned affiliates recorded within equity income. As a result of the fiscal year 2018 YFAI impairment, the intangible assets related to YFAI were deemed to be fully impaired and thus no longer amortized.

(6) Reflects restructuring related charges for costs that are directly attributable to restructuring activities, but do not meet the definition of restructuring under ASC 420.

(7) For the six months ended March 31, 2018, stock based compensation excludes $8 million, which is included in Becoming Adient costs discussed above.

(8) For the six months ended March 31, 2018, depreciation excludes $4 million, which is included in restructuring related charges discussed above.

(9) The three and six months ended March 31, 2019 reflects $2 million and $3 million of Futuris integration costs, respectively. The three months ended March 31, 2018 includes $7 million of Futuris integration costs, $8 million of prior period adjustments, $7 million of non-recurring consulting fees related to the former SS&M segment. The six months ended March 31, 2018 also includes $8 million for the U.S tax reform impact at YFAI and $6 million of integration-related costs associated with Futuris. In addition, for both the three and six months ended March 31, 2018, $6 million of other non-recurring income that was reclassified to other pension income upon adoption of ASU 2017-07.

Americas
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
(in millions)
 
2019
 
Change
 
2018
 
2019
 
Change
 
2018
Net sales
 
$
1,915

 
-1%
 
$
1,941

 
$
3,850

 
3%
 
$
3,727

Adjusted EBITDA
 
$
34

 
-65%
 
$
98

 
$
77

 
-42%
 
$
133


Net sales decreased during the second quarter of fiscal 2019 by $26 million due to the unfavorable impact of foreign currency ( $17 million ) and lower volumes ( $14 million ) in North America, partially offset by net pricing, including material economics recoveries ( $5 million ). The volume decrease related to lower sales in all jurisdictions in the Americas.

Adjusted EBITDA decreased during the second quarter of fiscal 2019 by $64 million due to lower volumes and product mix ( $24 million ), increased freight and operational performance issues ( $25 million ), higher administrative and engineering expenses ( $12 million ), material economics, net of recoveries ( $4 million ), the unfavorable impact of foreign currency ( $4 million ) and lower equity income ( $1 million ), partially offset by the favorable impact of net material and pricing adjustments ( $6 million ).
Net sales increased during the first six months of fiscal 2019 by $123 million due to higher volumes ( $145 million ) and net favorable pricing, including material economic recoveries ($ 14 million ), partially offset by the unfavorable impact of foreign currency ( $36 million ). The volume increase related to higher sales in both North and South Americas.


Adient plc | Form 10-Q | 39


Adjusted EBITDA decreased during the first six months of fiscal 2019 by $56 million due to increased freight and operational performance ( $28 million ), higher administrative and engineering expenses ( $14 million ), unfavorable product mix ( $8 million ), the unfavorable impact of foreign currency ( $5 million ), unfavorable material economics, net of recoveries ( $3 million ) and lower equity income ( $2 million ), partially offset by the favorable impact of net material and pricing adjustments ($ 4 million ).

EMEA
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
(in millions)
 
2019
 
Change
 
2018
 
2019
 
Change
 
2018
Net sales
 
$
1,778

 
-14%
 
$
2,056

 
$
3,418

 
-13%
 
$
3,909

Adjusted EBITDA
 
$
59

 
-55%
 
$
130

 
$
61

 
-71%
 
$
212

Net sales decreased during the second quarter of fiscal 2019 by $278 million due to the unfavorable impact of foreign currency ( $168 million ) and lower volumes ( $110 million ). The volume decreases were driven by overall market declines.
Adjusted EBITDA decreased during the second quarter of fiscal 2019 by $71 million due to increased freight and operational performance issues ( $40 million ), the unfavorable impact of foreign currency ( $17 million ), lower volumes ( $17 million ), unfavorable material economics, net of recoveries ( $2 million ) and lower equity income ( $1 million ), partially offset by the favorable impact of net material and pricing adjustments ($ 6 million ).
Net sales decreased during the first six months of fiscal 2019 by $491 million due to lower volumes ( $242 million ), the unfavorable impact of foreign currency ( $233 million ) and unfavorable net pricing, including material economics recoveries ( $16 million ). The volume decrease related to lower sales in all jurisdictions in EMEA.
Adjusted EBITDA decreased during the first six months of fiscal 2019 by $151 million due to increased freight and operational performance issues ( $84 million ), lower volumes ( $36 million ), the unfavorable impact of foreign currency ( $22 million ), the unfavorable impact of net material and pricing adjustments ( $3 million ), higher administrative and engineering expenses ( $3 million ), unfavorable material economics, net of recoveries ($ 2 million ) and lower equity income ( $1 million ).
Asia
 
 
Three Months Ended
March 31,
 
Six Months Ended
March 31,
(in millions)
 
2019
 
Change
 
2018
 
2019
 
Change
 
2018
Net sales
 
$
599

 
-13%
 
$
690

 
$
1,249

 
-7%
 
$
1,338

Adjusted EBITDA
 
$
123

 
-22%
 
$
157

 
$
277

 
-17%
 
$
333

Net sales decreased during the second quarter of fiscal 2019 by $91 million due to lower volumes ( $63 million ) and the unfavorable impact of foreign currency ( $23 million ) and unfavorable net pricing adjustments, including material economic recoveries ( $5 million ). The volume decreases were driven by overall market declines.
Adjusted EBITDA decreased during the second quarter of fiscal 2019 by $34 million due to lower equity income caused primarily by the slowdown in Chinese auto production ( $23 million ), the unfavorable impact of foreign currency ( $5 million ), lower volumes ( $2 million ) and operational performance issues ( $8 million ), partially offset by lower administration and engineering costs ( $2 million ), the favorable impact of net materials and pricing adjustments ( $1 million )and favorable material economics, net of recoveries ( $1 million ).
Net sales decreased during the first six months of fiscal 2019 by $89 million due to lower volumes ( $46 million ), the unfavorable impact of foreign currency ( $37 million ) and unfavorable net pricing adjustments, including material economic recoveries ( $6 million ). The volume decrease related to lower sales in all jurisdictions in Asia.
Adjusted EBITDA decreased during the first six months of fiscal 2019 by $56 million due to lower equity income caused primarily by the slowdown in Chinese auto production ( $43 million ), the unfavorable impact of foreign currency ( $11 million ), operational performance issues ($ 12 million ), unfavorable material economics, net of recoveries ($ 2 million ) and lower volumes ( $1 million ), partially offset by the favorable impact of materials and pricing adjustments ( $10 million ) and lower administrative and engineering costs ($ 3 million ).

Adient plc | Form 10-Q | 40


Liquidity and Capital Resources

Adient's primary liquidity needs are to fund general business requirements, including working capital, capital expenditures, restructuring costs and debt service requirements. Adient's principal sources of liquidity are the revolving credit facility and other debt issuances, and existing cash balances. Funding also previously 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. Working capital is highly influenced by the timing of cash flows associated with sales and purchases, and therefore can be somewhat volatile. Adient had cash and cash equivalents of $491 million and $687 million as of March 31, 2019 and September 30, 2018, respectively. On May 6, 2019 (the “Refinancing Date”), certain of Adient's subsidiaries entered into a new asset-based revolving credit facility (the “ABL Credit Facility”), which provides for $1.25 billion of commitments, subject to borrowing base capacity. See below and refer to Note 7, "Debt and Financing Arrangements," of the notes to consolidated financial statements for discussion of financing arrangements. Following the first quarter of fiscal 2019 dividend payout, Adient has suspended future dividends.

Indebtedness

The Original Credit Facilities include commitments for a $1.5 billion revolving credit facility (undrawn at March 31, 2019 and September 30, 2018) and a $1.5 billion Term Loan A facility (which was fully drawn during the fourth quarter of fiscal 2016). The Original Credit Facilities mature in July 2021. Until the Term Loan A facility maturity date, amortization of the funded Term Loan A is required in an amount per quarter equal to 1.25% of the original principal amount prior to July 27, 2019 and 2.5% in each quarter thereafter prior to final maturity. The 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.

During the first quarter of fiscal 2019, Adient entered into an amendment to the Original Credit Facilities (“First Amended Credit Facilities") whereby the financial maintenance covenant was amended to require Adient to maintain a total net leverage ratio equal to or less than 4.5x adjusted EBITDA, with step down provisions starting in the quarter ending December 31, 2020. The amendment also expanded the upper range of interest rate margins such that the drawn portion of the First Amended Credit Facilities will bear interest based on LIBOR plus a margin between 1.25% - 2.50% (previously 1.25% - 2.25%), based on Adient’s total net leverage ratio. No other terms were impacted by the amendment. During the second quarter of fiscal 2019, Adient entered into an amendment to the First Amended Credit Facilities (“Second Amended Credit Facilities") whereby the financial maintenance covenant contained in the First Amended Credit Facilities was amended to require Adient to maintain a first lien secured net leverage ratio equal to or less than 2.5x adjusted EBITDA as of the last day of each quarter, with step down provisions starting on September 30, 2020. The amendment also added a new tier to the pricing schedule that will be applicable when the total net leverage ratio exceeds 4.0x adjusted EBITDA and amended certain other definitions, negative covenants and other terms within the credit facility. Adient expects to be in compliance with its financial covenants for the foreseeable future.

On May 6, 2019 (the “Refinancing Date”), Adient US LLC ("Adient US"), a wholly owned subsidiary of Adient, together with certain of Adient's other subsidiaries entered into a new asset-based revolving credit facility (the “ABL Credit Facility”), which provides for a revolving line of credit up to $1,250 million, including a North American subfacility of up to $950 million and a European subfacility of up to $300 million, subject to borrowing base capacity. The ABL Credit Facility will mature on May 6, 2024, subject to a springing maturity date 91 days earlier if certain amounts remain outstanding at that time under the New Term Loan Credit 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.

In addition, Adient US and Adient Global Holdings S.à r.l., a wholly-owned subsidiary of Adient, entered into a new term loan credit agreement (the “New Term Loan Credit Agreement”) on the Refinancing Date providing for a 5 -year $800 million senior secured term loan facility that was fully drawn on closing. The New Term Loan Credit 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 New Term Loan Credit 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 New Term Loan Credit Agreement also permits Adient to incur incremental term loans in an

Adient plc | Form 10-Q | 41


aggregate amount not to exceed the greater of $750 million and an unlimited amount subject to a pro forma first lien secured net leverage ratio of not greater than 1.75 to 1.00 and certain other conditions.

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

The proceeds from the transactions described above were used to repay the outstanding indebtedness and terminate commitments under Adient’s existing credit agreement, which was scheduled to mature in July 2021. In addition, certain proceeds were used (i) to pay related premiums, fees and expenses in connection with the refinancing and entering into and funding of the new credit facilities and (ii) for working capital and other general corporate purposes.

The ABL Credit Agreement, New Term Loan Credit Agreement and the Indenture contain covenants that are usual and customary for facilities and transactions of this type and that, among other things, restrict the ability of Adient and its restricted subsidiaries to: create certain liens and enter into sale and lease-back transactions; create, assume, incur or guarantee certain indebtedness; pay dividends or make other distributions on, or repurchase or redeem, Adient’s capital stock or certain other debt; make other restricted payments; and consolidate or merge with, or convey, transfer or lease all or substantially all of Adient’s and its restricted subsidiaries’ assets, to another person. These covenants are subject to a number of other limitations and exceptions set forth in the agreements. The agreements also provide for customary events of default, including, but not limited to, failure to pay principal and interest, failure to comply with covenants, agreements or conditions, and certain events of bankruptcy or insolvency involving Adient and its significant subsidiaries.

Sources of Cash Flows
 
 
Six Months Ended
March 31,
(in millions)
 
2019
 
2018
Cash provided (used) by operating activities
 
$
40

 
$
(150
)
Cash provided (used) by investing activities
 
(190
)
 
(269
)
Cash provided (used) by financing activities
 
(49
)
 
45

Capital expenditures
 
(252
)
 
(266
)
Operating Cash Flows: Cash flows from operating activities increased year over year due to the reduced net loss attributable to Adient and overall favorable changes to working capital.

Investing Cash Flows: The decrease in cash used by investing activities is primarily attributable to higher proceeds from sales of assets including the Detroit, Michigan properties and remaining airplane for approximately $35 million, and overall lower levels of capital expenditures.

Financing Cash Flows: The increase in cash used by financing activities is primarily attributable prior year increases in short term debt and higher levels of dividends paid to non-controlling interest in the current year, partially offset by lower amounts of cash dividends and the current year contribution of $28 million by Adient's JV partner as part of the formation of a consolidated joint venture.

Capital expenditures: Capital expenditures decreased year over year based on timing of program spend on product launches.

Working capital
(in millions)
 
March 31,
2019
 
September 30, 2018
Current assets
 
$
3,926

 
$
4,309

Current liabilities
 
4,004

 
4,192

Working capital
 
$
(78
)
 
$
117


The decrease in working capital of $195 million is primarily attributable to lower levels of cash, accounts receivable and other current assets along with higher incentive compensation accruals as of March 31, 2019 offset by lower levels of accounts payable.

Adient plc | Form 10-Q | 42


Restructuring and Impairment Costs
Adient committed to a restructuring plan in fiscal 2019 to drive cost efficiencies and to balance our global production against demand and recorded $80 million of restructuring costs in the consolidated statement of income, that was offset by $8 million of underspend in prior years. Of the restructuring costs recorded, $61 million relates to the EMEA segment, $13 million relates to the Americas segment and $6 million relates to the Asia segment. The costs consist primarily of workforce reductions. The restructuring actions are expected to be substantially complete in fiscal 2019. The restructuring plan reserve balance of $67 million at March 31, 2019 is expected to be paid in cash.
Adient committed to a restructuring plan in fiscal 2018 to drive cost efficiencies and to balance our global production against demand and recorded $71 million of restructuring costs in the consolidated statement of income, that was offset by $20 million of underspend in the 2016 Plan and $7 million of underspend related to other plan years. Of the restructuring costs recorded, $52 million relates to the EMEA segment, $10 million relates to the Asia segment and $9 million relates to the Americas segment. The costs consist primarily of workforce reductions and plant closures. Adient currently estimates that upon completion of the restructuring actions, the fiscal 2018 restructuring plan will reduce annual operating costs by approximately $65 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 55% will result in net savings. The restructuring actions are expected to be substantially complete in fiscal 2019. The restructuring plan reserve balance of $30 million at March 31, 2019 is expected to be paid in cash.

Adient committed to a restructuring plan in fiscal 2017 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. Of the restructuring costs recorded, $34 million relates to the EMEA segment, $7 million relates to the Americas segment and $5 million relates to the Asia segment. This is the total amount expected to be incurred for this restructuring plan. The restructuring actions relate to cost reduction initiatives and consist primarily of workforce reductions and plant closures. Adient currently estimates that upon completion of the restructuring actions, the fiscal 2017 restructuring plan will reduce annual operating costs by approximately $40 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 55%-60% will result in net savings. Adient partially achieved these savings in fiscal years 2017 and 2018. The restructuring actions are expected to be substantially complete in fiscal 2019. The restructuring plan reserve balance of $3 million at March 31, 2019 is expected to be paid in cash.

Adient committed to a restructuring plan in fiscal 2016 (the "2016 Plan") 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. Of the restructuring and impairment costs recorded, $298 million relates to the EMEA segment, $32 million relates to the Americas segment and $2 million relates to the Asia segment. The 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. Adient partially achieved these savings in fiscal years 2016 through 2018, with the full benefit expected in fiscal 2019. The restructuring actions are expected to be substantially complete in fiscal 2021. The restructuring plan reserve balance of $36 million at March 31, 2019 is expected to be paid in cash.

Since the announcement of the 2016 Plan in fiscal 2016, Adient has experienced lower employee severance and termination benefit cash payouts than previously calculated of approximately $20 million, due to changes in cost reduction actions. The planned workforce reductions disclosed for the 2016 Plan have been updated for Adient's revised actions.
Off-Balance Sheet Arrangements and Contractual Obligations
There have been no material changes to the off-balance sheet arrangements and contractual obligations disclosed in Adient's Annual Report on Form 10-K for the year ended September 30, 2018.

Effects of Inflation and Changing Prices
The effects of inflation have not been significant to Adient's results of operations in recent years. Generally, Adient has been able to implement operating efficiencies to sufficiently offset cost increases, which have been moderate.


Adient plc | Form 10-Q | 43


Critical Accounting Estimates and Policies
See "Critical Accounting Estimates and Policies" under the heading "Item 7" of Adient's Annual Report on Form 10-K for the year ended September 30, 2018, for a discussion of critical accounting estimates and policies. There have been no material changes to Adient's critical accounting estimates and policies during the three and six months ended March 31, 2019, except as follows.
Impairment of Goodwill, Other Long-lived Assets and Investments in Partially Owned Affiliates
As a result of the goodwill impairment assessment in the second quarter of fiscal 2019, the Americas reporting unit, which was allocated $642 million of goodwill as of March 31, 2019 maintains an excess of fair value over its carrying value of 1%. The fair value of the Americas reporting unit was derived using discounted cash flows and a discount rate of 17.5%. To the extent discount rates increase, long-term growth rates are not achieved and/or actual cash flows in the future are lower than the forecasted cash flows used in the second quarter of fiscal 2019 impairment assessment, the goodwill allocated to Americas could be determined to be impaired which could have a material impact on Adient's results of operations. See Note 5, "Goodwill and Other Intangible Assets," of the notes to the Consolidated Financial Statements for more information on the goodwill impairment assessment performed during the second quarter of fiscal 2019.

New Accounting Pronouncements
See Note 1 , " Basis of Presentation and Summary of Significant Accounting Policies ," of the notes to consolidated financial statements for a discussion of new accounting pronouncements.
Other Information
 
 
Not applicable.
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
As of March 31, 2019, Adient had not experienced any adverse changes in market risk exposures that materially affected the quantitative and qualitative disclosures presented in Adient's Annual Report on Form 10-K for the year ended September 30, 2018.

Adient plc | Form 10-Q | 44


Item 4.
Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this report, Adient's principal executive officer and principal financial officer evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Securities Exchange Act of 1934 (the "Exchange Act")), which are designed to provide reasonable assurance that we are able to record, process, summarize and report the information required to be disclosed in our reports under the Exchange Act within the time periods specified in SEC rules and forms. Based on their evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed in reports that we file or submit under the Exchange Act is accumulated and communicated to management, and made known to our principal executive officer and principal financial officer, on a timely basis to ensure that it is recorded, processed, summarized and reported within the time period specified in the SEC's rules and forms.
Changes in Internal Control over Financial Reporting
There were no changes in internal control over financial reporting during the three and six months ended March 31, 2019 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION
Item 1.
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 and contractual matters and various other matters. Although the outcome of any such lawsuit, claim or proceeding cannot be predicted with certainty and some may be disposed of unfavorably to Adient, it is management's opinion that none of these will have a material adverse effect on Adient's financial position, results of operations or cash flows. 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.

Information with respect to this item may be found in Note 16 "Commitments and Contingencies" to the consolidated financial statements in this Quarterly Report on Form 10-Q, which information is incorporated herein by reference.

Additional information on Adient's commitments and contingencies can be found in Adient's Annual Report on Form 10-K for its fiscal year ended September 30, 2018.

Item 1A.
Risk Factors
 
 
 
There are no material changes from the risk factors as previously disclosed in Adient's Annual Report on Form 10-K for the fiscal year ended September 30, 2018.

Item 2.
Unregistered Sales of Equity Securities and Use of Proceeds
(a) Unregistered Sale of Equity Securities
 
None.
 
(b) Use of Proceeds
 
Not applicable.
 
(c) Repurchase of Equity Securities
 
There was no share repurchase activity during the three months ended March 31, 2019.

Adient plc | Form 10-Q | 45


Item 3.
Defaults Upon Senior Securities
 
 
 
None.
Item 4.
Mine Safety Disclosures
 
 
 
Not applicable.
Item 5.
Other Information
 
 
 
None.



Adient plc | Form 10-Q | 46


Item 6.
Exhibit Index
 
 
 

EXHIBIT INDEX
Exhibit No.
 
Exhibit Title
4.1
 
 
 
 
4.2
 
 
 
 
10.1
 
 
 
 
10.2
 
 
 
 
10.3
 
 
 
 
10.4
 
 
 
 
31.1
 
 
 
 
31.2
 
 
 
 
32.1
 
 
 
 
101.INS
 
XBRL Instance Document
 
 
 
101.SCH
 
XBRL Taxonomy Extension Schema Document
 
 
 
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase Document
 
 
 
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase Document
 
 
 
101.LAB
 
XBRL Taxonomy Extension Label Linkbase Document
 
 
 
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase Document



Adient plc | Form 10-Q | 47


SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
Adient plc
 
By:
/s/ Douglas G. Del Grosso
 
 
Douglas G. Del Grosso
 
 
President and Chief Executive Officer and a Director
 
Date:
May 9, 2019
 
 
 
 
By:
/s/ Jeffrey M. Stafeil
 
 
Jeffrey M. Stafeil
 
 
Executive Vice President and Chief Financial Officer
 
Date:
May 9, 2019


Adient plc | Form 10-Q | 48
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